lunes, 25 de octubre de 2010

If you are selling to businesses, do you know the potential size of your market?

In September, INEGI published the final results for 2009 Economic Census. This shows us the total number and characteristics of the economic units in the country (organizations, businesses or entities with one kind of permanent activity, with profit or non-profit purposes).
The following analysis considers the economic units (EU) that:
·         Had activity the whole 2008.
·         Were considered for the census by direct counting (in rural zones, EU were considered by sampling).
·         Belong to private sector and “paraestatales” (those that offer public services but are not part of public administration).
The total of EU of with this profile is 3,724,019. These EU bought almost $6 trillion pesos in services and products for the development of their activities.
Now that we know the size of the market, let’s understand how it is distributed. We will analyze it by three perspectives: location, economic activity, and size.
Considering location, the six first places are:
·         Distrito Federal (Mexico City), which concentrates the 17% of the total consumption of goods and services for EU.
·         Nuevo León, with 9.4%
·         Estado de México, with 9%
·         Veracruz, with 5.7%
·         Jalisco, 5.4%
·         Coahuila, 5.1%
These 6 states concentrate half of the total purchases made by EU for their activities.

Now, if we analyze from the economic activity perspective, the most dominant sector is manufacturing, with 57% of the total consumption of goods and services. Within this sector, the main economic branches are transportation equipment, chemical industry, and production of oil and carbon products, representing almost the half of the sector.

Now, considering the last perspective, the size of the EU, 95% of them have less than 10 people! On the other hand, only 0.2% has more than 250 people, but they represent 66% of the total consumption of goods and services.
Undoubtedly, if you can assess the size of the total “business cake” that you have for an activity or a region, as well as understand the characteristics of the businesses or organizations and their level of concentration, you will be able to make more efficient decisions to exploit your current competitive position and to discover new horizons and opportunities. So… of this “cake” of $6 trillion pesos, ¿how big can your chunk be?

lunes, 18 de octubre de 2010

North and South: two competitiveness realities for Mexico

As I mentioned on my previous analysis, Mexico has big contrasts on its global competitiveness, with some areas on the first places and other on the last ones.
This contrast is also present within Mexico, where there are states a lot more competitive than others.
The Mexican Institute for Competitiveness (IMCO) published on September the State Competitiveness Index 2010, where the 32 federal entities are evaluated on 10 subindexes, measured by 120 variables. The results published reflect data of 2008.
These are some of the most important results of the report:
·         The three most competitive states, and therefore the ones with more capacity to attract and retain investments and talent, are Distrito Federal (Mexico City), Nuevo León and Querétaro. This states also occupied these positions in 2006. Surely, due to the recent security issues in Nuevo León, it would be affected on the ranking, but not as much as to leave the first places due to the big difference between these ones and the last ones.
·         The three worst states are Chiapas, Guerrero and Oaxaca. Chiapas went down 3 places since 2006; the other two were already on the last 2 places.
·         The most competitive states have these strengths:
o   World-class enterprises
o   More patents per population
o   Less rates of illiteracy, better education quality, and a population with more years of education
o   Governments with more fiscal autonomy
·         The main weaknesses of the less competitive states are:
o   Low level of environment sustainability
o   Not enough distribution of drinkable water
o   High illiteracy, low education quality, population with few years of education, low computer access, etc.
o   Low labor productivity, low negotiation capacity between unions and enterprises, low automation in agriculture, modest investment for housing
·         The states that improved more in this two years are Sinaloa (from 18th to 10th) and Tamaulipas (from 12th to 8th)
·         The states that lost more positions in the rank are Nayarit (16th to 23rd) and Quintana Roo (from 9th to 13th)
These results show clearly the existence of two Mexicos: a more competitive north (almost all the border states are on the first 10 places), a south with weaknesses, and the center with high contrasts (you can see the map at the end of this blog). This has produced a GDP per capita that is the double on the 5 more competitive states compared with the 5 less competitive, according to IMCO. There are no signs that show a closing of these gaps, so the businesses will have to deal with this double reality in the country.

Labor market: the worst weakness for Mexico in terms of productivity

I talked last week about Mexico’s strengths according to the World Economic Forum’s Global Competitiveness Report. Now I will focus on Mexico’s weaknesses, based on two criteria: the areas where Mexico has the worst rankings, and the areas where it lost more positions in the ranking.
Mexico’s worst areas are:
·         “Labor market efficiency”, where Mexico is the number 120 out of 139 countries. The worst rankings in this area are for hiring and firing practices highly impeded by regulations, a low reliance on professional management (senior management positions usually hold by relatives or friends without merits, more than professional managers), and a low female participation in labor force.
·         “Institutions”, occupying the 106th place. This area refers to the legal, ethical and administrative environment where the organizations’ economic activity and their relationships with the government are developed. The result is due to really bad positions (on the last 10 places) for matters related with security (significance costs on businesses imposed by crime and violence, cost impact of organized crime, and a low reliability of police services), a high burden of government regulation and a low efficacy of corporate boards.
The area where Mexico had the biggest fall is “Financial market development”, going from place 73 to 96. This fall was due to a worsening for the regulation and supervision of securities exchanges, and a bad grade on the provision of financial services at affordable prices (this was scored for first time on this year).
These are also the weak areas when compared with the other 22 Latin America and Caribbean countries evaluated, having the places 17, 15 and 14 respectively.
As a summary, the negative results are consequence of three aspects: the increase on insecurity, the lack of structural reforms (labor, fiscal and political regulation), and the need of a more professional management on businesses. The legislative agenda shows no signs of major changes on the short term for these structural areas, so improvements will have to rely on a more professional way to manage businesses on the country.

lunes, 11 de octubre de 2010

Macroeconomic environment and market size are Mexico’s main strengths for competitiveness

Mexico lost 6 positions on the Global Competitiveness Report, moving down from place 60 to 66 (out of 139 countries evaluated). This result was produced by a fall on the ranking on 10 of the 12 areas evaluated by the World Economic Forum for this report.

Although the general results have a negative trend, there are two areas where Mexico remains on good positions:
• “Market size”, which considers domestic and exports markets. The rationale for the evaluation of this area according to the Report is that “…the size of the market affects productivity since large markets allow firms to exploit economies of scale…”. Mexico is on number 12 according to the size of its domestic market since Mexico is the 11th most populated country within the 139 evaluated, and is the number 15 based on the value of exports of goods and services (supported mainly by the volume of exports to USA).

• "Macroeconomic environment”, Mexico has had an improvement of 21 places on the last 2 years, mainly driven by positive results on the government budget balance, although it had a setback on inflation. Mexico ranks now on number 27.

The first area is attractive in terms of the potential business volume in the region, since Mexico is the 2nd biggest market in Latin America, and USA’s 2nd commercial partner.

The second area is particularly attractive considering all the recent economic turmoil, especially the one related to public debt, where Portugal, Ireland, Greece and Spain have been creating unsettlement for the last four months. Mexico has the 2nd best macroeconomic environment in Latin America.

On a next article, I will talk about the weak areas to have a balanced picture of structural conditions for productivity in Mexico.