“Doing Business in Mexico: Business Opportunities and Cultural Challenges ”

1. “Doing Business in Mexico:Business Opportunities and Cultural Challenges ” Michael J. Pisani, Ph.D. Associate Professor of International Business, Central Michigan University February 2, 2005 Co-Director, “Increasing International Business and Personnel Capacity in the Mid-Michigan Region through Private Sector Outreach and Curriculum Development” Title VI Grant funded by the U.S. Department of Education: Business and International Education Program and Central Michigan University.

2. Proposition #1: Rock-Bottom Price + Bell-Ringer Product = Sale Wrong: This is a flawed approach to doing business in Mexico. It presumes that buyers are vendor neutral and will instantly issue a purchase order whenever that supplier offers a lower price or better product. *Adapted from Becker (2004), Doing Business in the New Latin America, pp. 112-113. Proposition #2: Reasonable Price + Satisfactory Product + Customer’s Trust = Sale Correct: This mirrors the reality found in Mexico (and Latin America). It is essential to reassure customers that they can rely on the assurances you make because they are backed by your own personal integrity. When you motivate customers to buy only from you because you are trustworthy, you expand the envelope of what qualifies as an acceptable price and product. This is why trust is such a precious currency in Mexico (and Latin America) to be earned, conserved, and invested in. “Doing Business in Mexico: The Bottom Line”*

3. Map of Mexico

4. Brief Overview of Mexican History • Pre-Columbian Mexico • Pre-Classic 1500 B.C.-200 B.C. • Olmecs (Tabasco and southern Veracruz) • Teotihuacan (Central Mexico) • Monte Albán (Oaxaca) • Classic Period 200 B.C. – 900 A.D. • El Tajín (Veracruz) • Maya (Yucatán) • Post-Classic 900 A.D.-1521 A.D. • Toltecs (Central Mexico) • Zapotecs and Mixtecs (Oaxaca) • Post-Classic Maya (Yucatán) • Aztecs (Central Mexico and beyond)

5. Brief Overview of Mexican History (Cont.) • Colonial New Spain • Encounter & Conquest (1519-1521) • Colony (1521-1821) • The Mexican Empire, 1821-1824 • The Mexican Republic, 1824+ • Loss of Texas (1836) and War with the United States (1846-1848) • The French Intervention (1863-1867) • The Porfiriato (1876-1910) • The Mexican Revolution (1910-1920?) • The Revolution Institutionalized (1928?-2000) • The PRI Loses and Multi-party Rule (2000-

6. Current Socio- Demographics of Mexico • Population 97.5 million (2000) • Greater Mexico City 21.7 million • Mexican States Along U.S. Border 16.6 million • Population: 1950 = 25.8 million 1970 = 48.2 million 1990 = 81.2 million • 7.2% Speak an Indigenous Language (6 million) • GDP: $626.1 billion in 2003 (Canada = $891.7 billion; US = $11 trillion) • GDP Growth Rate: 4.4% (2003/2004) • Per Capita Income: $5,910 (2002) (Canada = $22,300, US = $35,060)

7. Current Socio- Demographics of Mexico (Cont.) Income Distribution

8. Other Mexico Facts of Interest • Mexico receives about 20 million tourists a year • Mexico has about 20 billion barrels of oil reserves • 684,000 new cars were registered in 1999 • Current Account Deficit 2003 $1 million (US $ 530 billion) • 2004 Inflation Rate: 5.1%

9. Michigan Exports • 1 in 9.5 private sector jobs in Michigan are supported by exports (2001) • 1 in 4 manufacturing jobs in Michigan depend on exports for their jobs (2001) • 1 in 8 manufacturing jobs in Michigan are provided by foreign controlled companies (2002) • 12,127 companies in Michigan exported in 2002 • 10,573 (87%) were small- and medium-sized firms (SME) employing fewer than 500 workers (2002) • SMEs generated 18.6% of Michigan’s total exports of merchandise (2001) • In 2002, foreign controlled companies in Michigan employed 204,100 Michiganians 47% in the manufacturing arena • Michigan companies export to 185 countries (2003) • Michigan exports to Mexico increased 68% from 1999-2003.

10. U.S. – Mexico Exchange Rates ($1 U.S. = in Mexican pesos)

11. U.S. Trade & Michigan Exports (Top Five) * 2004 (January-November). ^2003

12. Top 25 Commodities Exported from Michigan 2003, in Ranked Order

13. Top 25 Commodities Exported from Michigan 2003, in Ranked Order (Cont.) Source: U.S. Census Bureau, Foreign Trade Division

14. Michigan’s Top 5 Agricultural Exports – 2002 ($ millions) • Soybeans and products – 162 • Feed grains and products – 127 • Vegetables – 106 • Fruits – 79 • Live animals and meat – 53 Total Agricultural Exports from Michigan = $735 million (2002) (Note: Michigan began exporting apples to Mexico for the first time in February 2004)

15. Mexican Trade (in $ millions)

16. Top 15 U.S. Exports to Mexico – 2003 ($ billions)

17. Top 10 U.S. Exports to Mexico by State – 2003 ($ billions)

18. Foreign Direct Investment (FDI) in Mexico (in $ millions)

19. Culture - Defined • Culture is “the collective programming of the mind which distinguishes the members of one group or category of people from another” (Hofstede, 1997, p. 5). • Furthermore, “culture could be defined as the integrative aggregate of common characteristics that influence a human group’s response to its environment. Culture determines the identity of human a group in the same way as personality determines the identity of an individual” (Hofstede, 1980, pp. 25-26) • Culture “is a learned, shared, and interrelated set of specialized behavioral patterns, understandings and adaptations of a like group of people” (Pisani, 2000, p. 25).

20. Cultural Dimensions • Geert Hofstede • Power Distance • Individualism vs. Collectivism • Femininity vs. Masculinity • Uncertainty Avoidance • Long Run vs. Short Run Orientation

21. Cultural Dimensions • Edward T. Hall & The Language of: • Time: refers to how one spends time • Space: physical distance; size and orderliness of surroundings • Things: material possessions • Friendship: the nature and make-up of friends • Agreements: commitments agreed upon • Silence:* the meaning of silence *Developed in conjunction with Sang-Jin Kim, CMU MBA student

22. Mexican Culture Hofstede’s Cultural Dimensions

23. Mexican Culture Hall’s Cultural Dimensions

24. Historical Stereotypes: Mexico and the United States of America

25. Historical Stereotypes: Mexico and the United States of America (Cont.)

26. Historical Stereotypes: Mexico and the United States of America Source: Adapted from Harris, Moran and Moran (2004), Managing Cultural Differences, pp. 320-321.

27. Basic Mexican - US Customs

28. Basic Mexican - US Customs* *Source: Adapted Robert T. Moran and Jeffrey Abbott (1994), NAFTA: Managing the Cultural Differences, pp.47-49

29. Additional Cultural Factors* *Source: Adapted from Eva Kras, (1995), Management in Two Cultures.

30. Traditional Mexican Management Style • Leading: paternalistic; autocratic; honest; demands respect and dignity • Staffing: nepotism encouraged; loyalty of staff of paramount concern • Planning: short-term focused; centralized and often capricious decision-making • Organizing: organizing activities are ritualized, codified and formalized; power tied to position • Controlling: business practices typically go unchecked to preserve organizational harmony

31. Additional Management Contrasts: Mexico and the U.S.

32. Additional Management Contrasts: Mexico and the U.S.* *Sources: Adapted from Becker (2004), Moran and Abbot (1994), and Condon (1985).

33. Mexican and U.S. Negotiation Styles

34. Mexican and U.S. Negotiation Styles (Cont.)* *Source: adapted from Becker (2004), Doing Business in the New Latin America, pp. 165-166.

35. References • Becker, Thomas H. (2004), Doing Business in the New Latin America: A Guide to Cultures, Practices, and Opportunities, Westport, CT: Praeger. • Condon, John C. (1985), Good Neighbors; Communicating with the Mexicans, Yarmouth, ME: Intercultural Press, Inc. • Hall, Edward T. (1960), “The Silent Language of Overseas Business,” Harvard Business Review, 38(2), 87-96. • Harris, Philip R., Robert T. Moran and Sarah V. Moran (2004), Managing Cultural Differences: Global Leadership Strategies for the Twenty-First Century, 6th Edition, Burlington, MA: Elsevier Butterworth-Heinemann. • Hofstede, Geert (1997), Cultures and Organizations: Software of the Mind, New York, NY: McGraw Hill. • Hofstede, Geert (1980), Culture’s Consequences: International Differences in Work-related Values, Beverly Hills, CA: Sage. • Kras, Eva S. (1995), Management in Two Cultures: Bridging the Gap Between U.S. and Mexican Managers, revised edition, Yarmouth, ME: Intercultural Press, Inc. • Moran, Robert T. and Jeffrey Abbott (1994), NAFTA: Managing the Cultural Differences, Houston, TX: Gulf Publishing Co. • Pisani, Michael J. (2000), “An American Management Training Model in a Latin American Context: Some Implications for International Business Consultants,” Journal of Teaching in International Business, 12(1), 23-39.