Education as a competitiveness factor for Mexico

Education is definitely a strategic matter for every nation. One of its multiple impacts is on labor competitiveness, since a good educational system gives the skills, flexibility and adaptation capabilities to the working force for more complex or sophisticated processes. This analysis will be about 3 relevant aspects of education in Mexico:

Aspect 1: There are progresses, but slower than other countries

According to the Global Competitiveness Report 2010-2011, World Economic Forum, Mexico kept or improved its grade on all the education related elements, but lost positions on the ranking.

On primary education, the Report evaluates quality and enrollment rate. Mexico kept its score on the first one, and improved it on the second one; however lost 5 and 2 places respectively.

	2009-2010		2010-2011
	Score	Place	Score	Place
Quality of primary education (1=poor, 7=excellent)	2.6	115	2.6	120
Primary education enrollment rate	97.6%	27	98.1%	29

Referring to higher education, the Report evaluates enrollment rate, quality, access to internet and staff training infrastructure. Mexico again improved its grade, but lost 5 places, moving from 74 to 79.

	2009-2010		2010-2011
	Score	Place	Score	Place
Higher education and training	3.86	74	3.94	79

The detail of this category is the following:

	2009-2010		2010-2011
	Score	Place	Score	Place
Secondary education enrollment rate	88.7%	64	89.9%	61
Tertiary education enrollment rate	26.9%	75	27.2%	80
Quality of the educational system (score from 1=poor to 7=excellent)	2.8	115	2.9	120
Quality of math and science education (score from 1=poor to 7=excellent)	2.6	127	2.6	128
Quality of management schools (score from 1=poor to 7=excellent)	4.4	49	4.5	52
Internet access in schools (score from 1=poor to 7=excellent)	3.4	77	3.5	89
Local availability of specialized research and training services (score from 1=poor to 7=excellent)	4.2	53	4.3	55
Extent of staff training (score from 1=poor to 7=excellent)	3.8	78	3.8	84

As another reference, OECD applies every 3 years an evaluation to 15 year-old students on OECD’s 34 countries and 31 partner countries, called the PISA Program, to evaluate skills on reading, math and science, as elements that help to understand the performance skills required for the working life. Although Mexico has had improvements in the last 6 years, it is still the last place between OECD countries and ranks between places 48 to 51 on the total ranking.

Scores	Reading	Math	Science
2003	400	386	405
2006	410	406	410
2009	425	419	416

Aspect 2: there are mix results within Latinamerica

The World Economic Forum Report includes 23 Latinamerican countries. Among them, Mexico is on the half of the ranking.

	Place
Quality of primary education	14
Primary education enrollment rate	5
Higher education and training	12

However, according to PISA, out of 9 Latinamerican countries Mexico is on 3^rd place (behind Chile and Uruguay).

Aspect 3: there are important polarizations in the country.

There is in Mexico a national evaluation made by the Ministry of Education, applied to almost 85,000 elementary schools, about 30,000 junior high-schools, and a little more than 10,000 high-schools. On its most recent evaluation, there are big differences under 2 variables:

1.       Marginalization level of the community where the school is. The evaluation distinguishes between low or extremely low marginalization, and high or extremely high. The results are better for schools located on low or extremely low marginalization. About 74% of the enrollment lives on this kind of communities.

2.       Type of school: the difference between private and public schools is a lot more important than the influence of marginalization level. Certainly there is a correlation between these two variables (there are no private schools in high or extremely high marginalization areas); however, there are important differences between private and public schools in the same kind of area. Approximately the 8% of the total enrollment goes to private schools.

	Percentage of students with “Excellent” level, last year of elementary school.
	Spanish	Math	History
Total	2.4%	3.8%	1.8%
Low/Extremely low marginality	4.4%	5.9%	2.8%
High/Extremely high marginality	0.6%	1.8%	0.8%
Private schools	12.2%	10.5%	6.1%
Public schools	1.5%	3.2%	1.4%

	Percentage of students with “Excellent” level, last year of junio high-school.
	Spanish	Math	History
Total	0.5%	2.3%	5.5%
Low/Extremely low marginality	0.9%	2.4%	6.5%
High/Extremely high marginality	0.1%	2.1%	4.4%
Private schools	2.8%	5.1%	14.3%
Public schools	0.2%	1.9%	4.3%

It is important to have national and international evaluations that allow the identification of improvements and opportunities. Undoubtedly, Mexico requires of bigger and faster improvements to be more competitive in the world scenario.

Tourism in Mexico in an uptrend

Tourism private organizations estimate that Mexico received 22.5 million foreign tourists in 2010. This represents a 4.6% improvement against 2009, and places the country near its peak in 2008 (22.6 million tourists).

These figures appear to be against the common assumption that insecurity is affecting this important economic activity for the country (according to the Ministry of Tourism, it holds for 7.5 million employments). What statistics show is that the effect of insecurity reflects on the destinations chosen by foreign visits. The 12 main destinations for foreign tourists according to hotel occupancy concentrate more of the national share this year (from 48% in 2009 to 50% in 2010).

More good news are that foreign tourists increased their per capita spending, being $450.80 USD, 2.5% more than last year.

Regarding local tourism, there are no precise figures of its volume. Some estimates are that it is around 5 to 7 times bigger than foreign tourists. Except for Mexico City, their main destinations are clearly different (Acapulco and Guadalajara for local tourism, and Cancun and Mayan Riviera for foreign tourists). Insecurity may appear to have the same effect, not to diminish local tourism, but to change its destinations. For example, Monterrey’s hotel occupancy dropped down 12% on 2010, and some estimates are that North and Northeast had a 30% decrease on its occupancy.

For 2011 there are positive perspectives, with big differences between private and public estimates.

	Millions of foreign tourists	Millions of USD
Touristic national confederation	22.6	$12,600
Ministry of Tourism	26	$15,500

It will be important to keep an eye on how the mix of destinations may change due to insecurity, and consider how the Panamerican Games in Guadalajara may influence this activity; however, it seems that tourism will finally recover the levels of 2008.

2011 Mexico's economic outlook

As natural on this period of the year, it is important to take a peek to the economic forecasts for the next year. I will analyze it considering three macroeconomic variables: GDP, inflation and exchange rate.

1.       GDP: as I mentioned on my note “Mexico’s GDP forecasts: threats and opportunities, wishes and realities” (http://beammx.blogspot.com/2010/11/mexicos-gdp-forecasts-threats-and.html), perspectives for the next year were between 3.5% and 3.9% in November. This forecast, lower than the results for 2010, is very influenced by the forecasts of USA’s economy. Since I published that note, the result for America’s economy on the third quarter of the year has exceeded expectations, and that may bring an increase on Mexico’s projections (private analysts consulted by Mexico’s Central Bank, BANXICO, increased on December their estimate to 3.59%), although there have been other voices, more conservative (a researcher from Tecnológico de Monterrey estimates an increase of 2.5%, and Moody’s estimates it will be between 3% and 3.5%).

2.       Inflation: on November, this is 4.32% according to BANXICO (compared with November 2009). Although it has increased on the second semester due to changes on agricultural produces and on electricity, BANXICO and analysts’ perspectives are a decrease for inflation (BANXICO estimates it will be 3% +/-1% for 2011 3^rd quarter, and International Monetary Fund estimated it will be 3%). Although the private analysts consulted by BANXICO made a recent adjustment to increase it (from 3.77% to 3.82%), it generally seems that the weak domestic market (“Employment in Mexico: improvements, but still a long way to go”, http://beammx.blogspot.com/2010/11/employment-in-mexico-improvements-but.html) won’t put inflationary pressures to the national economy.

3.       Exchange rate: since February 2010, it has been practically all the time on the range of 12.30 to 13.00 pesos per dollar, and the perspectives are it will keep that way. This outlook represents stability, but may compromise exports competitiveness.

So far, the projections sounds encouraging: PIB projections have been slightly increased (with some warning voices), inflation appears to be less than this year (with some recent increases), and the exchange rate seems to be relatively stable. It looks like a positive scenario, but not extremely optimistic. There are several world issues that must be closely followed since they may have a significant impact on these indicators:

·         The magnitude of America and some European countries governments’ debt.

·         The risk of “overheating” of some emerging economies, as China and Brazil.

·         Different governments decisions regarding their currencies in order to stimulate their international trade.

Plan over positive scenarios (if you are too conservative, other will take the opportunities that will arise), but let’s have clear that the country won’t recover 100% in all its sectors during 2011, and there are different economic issues showing a fragile world, so it will be convenient to be prudent and continuously monitor the variables mentioned above to timely identify possible changes in trends.

Labor productivity in Mexico

A lot has been said about the need for a labor reform in Mexico to eliminate structural aspects that has a negative impact on the country’s competitiveness.

Undoubtedly, the legal frame has its effect on competitiveness, as the World Economic Forum’s Global Competitiveness Report 2010-2011 states (“Labor market: the worst weakness for Mexico in terms of productivity”, http://beammx.blogspot.com/2010/10/labor-market-worst-weakness-for-mexico.html).

However, labor market reality is a lot wider and more complex than that. For instance, a great driving force for the recent economic growth has been the manufacturing exports to the United States (automotive sector, fridges, telephone sets), that shows world class skills and expertise. Besides, an unfavorable reality as the low cost of labor, turns into a competitive advantage for attracting investments. According to ProMexico (government office dedicated to the commercial promotion and investment attraction), labor costs in Mexico and China are very similar since 2008 (due to a recent increase of salaries in China, and unfortunately a decrease in Mexico).

These are the advantages, but, which are the factors that reduce competitiveness?:

·         Low quality on education: Mexico is the worst OECD country according to the Program for International Student Assessment (PISA,2006), that evaluates 15-year-olds on 3 areas: science, reading and mathematics. Besides, on World Economic Forum’s Global Competitiveness Report 2010-2011, Mexico is ranked on number 120 out of 139 on quality of the educational system and 128 in the quality of math and science education.

·         Labor regulation: as I mentioned, it do is a factor that has a negative impact on the flexibility for hiring and firing practices, and flexibility for wage determination. There are no perspectives of a short-term reform.

·         Motivation: according to IMSS, at least 4.5 million workers between 20 and 40 years have some kind of depression, created by professional problems, and that reduces their productivity index in 40% (Published by CNN Expansión, September 17^th 2010).

We need to build and keep developing business around these constraints. Decide which actions are the best to improve productivity based on your organization’s particular circumstances and industry. One hint: just don’t manage based on best-sellers.

Virtual Mexico: profile and characteristics

According to different analyses, there are between 27 and 30 million Mexicans, 6 years and older, that use internet for personal and work reasons. This number has been growing at an 18% annual rate, although it had a little deceleration the last year due to the economic crisis.

Source	Internet users
SCT, Yearbook 2008	23.26 millions
Study about availability and use of information technologies at homes 2009, INEGI	27.21 millions older than 6 years
Global Information Technology Report 2009-2010 (with data of 2008), World Economic Forum	21.71 millions
Habits and perceptions of Mexicans about internet 2010, ITESM-World Internet Project	30.24 millions from 12 to 70 years
Statement of Microsoft’s Public Sector Manager, October 2010	Between 28 and 30 Millions
AMPICI, 2009	30.6 millions older than 6 years

There are different estimates about how much time does people surf on the internet (it goes from 11 to 23 hours); but one of the studies shows that Mexican surfers dedicate more time to this activity than to watch TV or listen to radio.

Now that we know the size of the universe and the level of activity, let’s understand the characteristics based on two dimensions: age and socioeconomic level.

Approximately, 75% of Mexican internet users are under 35 years; within this group, those between 12 and 18 are the biggest subgroup. If Mexico has still a young population, the internet population is even younger.

Source	Data
Habits and perceptions of Mexicans about internet 2010, ITESM-World Internet Project	12 a 18 years: 35% 19 a 25 years: 26% 26 a 32 years: 15%
Study about availability and use of information technologies at homes 2009, INEGI	6 a 11 years: 13% 12 a 17 years: 28.3% 18 a 24 years: 20.7% 25 a 34 years: 16%

Now, analyzing the socioeconomic perspective, 37% of internet users belong to the highest levels (A/B/C+), meanwhile between the 15% and 16% are D-, the lowest level. Definitely, a very different reality compared with the country’s general economic distribution.

Source	Data
Habits and perceptions of Mexicans about internet 2010, ITESM-World Internet Project	A-B-C+:37% (59% penetration) C: 22% (40% penetration) D+: 25% (23% penetration) D-: 16% (21% penetration)
AMIPCI, 2009	A-B-C+: 37% C: 19% D+: 29% D-: 15%

These variables let us understand the kind of audience your product or service will be exposed to if you offer it on the internet and are focused on the Mexican market. However, the Mexican internet user still makes very few electronic transactions. There is an estimate that between 7% and 12% of internet users make purchases or payments. These operations are mainly focused on airplane tickets, computers and its accessories.

This number is growing, as well as the confidence regarding the use of electronic transactions; but still, these are a very low number compared with the rest of the commercial activity.

In businesses, there is also a low use of internet for their operations. According to the World Economic Forum’s Global Information Technology Report 2009-2010, Mexico is on number 78 out of 133 countries regarding the extent of internet use for business activities.

This is the virtual Mexico that you need to know in order to align your business and commercial actions for serving in the most effective way this parallel country.