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. “Doing Business in Mexico: The Bottom Line”* 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.

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 Country Poorest 20% 2 nd Lowest 20%Middle 20%2 nd Highest 20% Richest 20% Richest 10% GINI Coefficient Mexico3.67.211.819.258.242.8.4080 USA5.210.515.622.446.430.5.48541

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) YearExchange Rate 19957.6425 19967.8509 19978.0833 19989.8650 19999.5143 20009.5722 20019.1423 200210.3125 200311.2360 200411.1660

11. U.S. Trade & Michigan Exports (Top Five) U.S. Imports*U.S. Exports*U.S. Total Trade*Michigan Exports^ | $ Value 1) Canada (17.5%)Canada (23.2%)Canada (19.5%)Canada (60.1%) | $19.7 billion 2) China (13.3%)Mexico (13.6%)Mexico (11.7%)Mexico (12.2%) | $4.0 billion 3) Mexico (10.7%)Japan (6.7%)China (10.1%)Japan (3.3%) | $1.1 billion 4) Japan (8.8%)UK (4.4%)Japan (8.1%)Germany (3.0%) | $973 million 5) Germany (5.3%)China (4.2%)Germany (4.7%)UK (2.1%) | $706 million Total Imports: $1,342 billion Total Exports: $746 billion Total Trade: $2,088 billion Total Exports: $32.9 billion * 2004 (January-November). ^2003

12. Top 25 Commodities Exported from Michigan 2003, in Ranked Order CommodityValue ($millions)Percentage Share Parts and Accessories of Motor Vehicles3,014.89.15 Parts & Accessories of Bodies of Motor Vehicles2,589.47.86 Passenger Vehicles With An Engine Exceeding 3000 c2,502.27.60 Spark-Ignition Reciprocating Piston Engines1,660.65.04 Passenger Vehicle With An Engine Between 1500 &3000 cc1,536.24.66 Gear Boxes for Motor Vehicles1,296.33.94 Motor Vehicles for the Transportation of Goods1,105.73.36 Parts of Spark-Ignition Internal Combustion Piston507.51.54 Parts of Seats494.01.54 Drive Axles With Differential for Motor Vehicles487.41.48 Natural Gas481.11.46 Brakes, Servo-Brakes & Parts for Motor Vehicles448.11.36 Trucks With A Diesel Engine443.91.35

13. Top 25 Commodities Exported from Michigan 2003, in Ranked Order (Cont.) CommodityValue ($millions) Percentage Share Insulated Wiring Sets for Vehicles287.40.87 Purifying Machine & Apparatus for Gases281.70.86 Rear-View Mirrors for Vehicles266.20.81 Steering Wheels, Columns & Boxes for Motor Vehicle261.10.79 Automatic Regulating Instruments & Apparatus230.00.70 Other Machinery & Mechanical Appliances192.10.58 Metal Mountings & Fittings for Motor Vehicles191.30.58 Motor Vehicles, Trans Goods, GVW between 5 & 20 Ton184.00.56 Retail Medicaments in Measured Doses173.70.53 Parts of Air Conditioning Machines169.80.52 Compression-Ignition Combustion Piston Engines160.20.49 Iron or Steel Threaded Screws and Bolts160.20.49 Top 2519,124.958.06 All Exports32,941.1100.0 Source: U.S. Census Bureau, Foreign Trade Division

14. Michigan’s Top 5 Agricultural Exports – 2002 ($ millions) 1. Soybeans and products – 162 2. Feed grains and products – 127 3. Vegetables – 106 4. Fruits – 79 5. 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) YearExport TotalExports to US (%) Import TotalImports from US (%) Maquiladora Imports (%) 1997110,431.485.6109,807.874.833.1 1998117,459.687.9125,373.174.533.9 1999136,391.188.4141,974.874.335.5 2000166,454.888.9174,457.873.335.4 2001158,442.988.7168,396.567.734.2 2002160,762.789.1168,678.963.435.1 2003164,922.288.9170,545.862.034.6

16. Top 15 U.S. Exports to Mexico – 2003 ($ billions) RankProductAmount 1Computer and electronic products21.533 2Transportation equipment12.356 3Chemicals9.175 4Machinery, except electrical8.511 5Electrical equipment, appliances, and component6.184 6Plastics and rubber products4.826 7Food manufacturing4.165 8Fabricated metal products4.041 9Agricultural products3.586 10Primary metal manufacturing2.854 11Textiles and fabrics2.718 12Paper2.701 13Petroleum and coal products2.323 14Misc. manufactured commodities2.269 15Apparel and accessories1.656 Other8.559 Total97.457

17. Top 10 U.S. Exports to Mexico by State – 2003 ($ billions) RankStateExport Amount 1Texas41.561 (computer and electronic products, transportation equipment and chemicals) 2California14.872 (computer and electronic products, machinery, and plastics and rubber products) 3Michigan4.006 (transportation equipment, computer and electronic products, and chemicals) 4Arizona3.229 5Illinois2.153 6Indiana2.105 7Ohio2.102 8Florida1.814 9Louisiana1.776 10New York1.705 All US97.457

18. Foreign Direct Investment (FDI) in Mexico (in $ millions) YearTotal FDI ($)Manufacturing: $ (%)Financial Services: $ (%)U.S.: $ (%) 199913,165.68,984.6 (68.2)759.7 (5.8)7,066.7 (53.7) 200016,448.79,308.7 (56.6)4,763.5 (29.0)11,841.1 (72.0) 200126,569.25,854.4 (22.0)14,409.4 (54.2)20,361.8 (76.6) 200213,258.95,434.9 (41.0)4,288.7 (32.4)8,226.7 (62.1) 20039,431.44,531.7 (48.1)1,832.9 (19.4)5,100.6 (54.1)

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 Cultural DimensionMexicoUSA Power DistanceHighLow Individualism vs. CollectivismCollectivist (in-group vs. out-group)Individualist Femininity vs. MasculinityMasculine Uncertainty AvoidanceHighLow Long Run vs. Short Run OrientationShort Run

23. Mexican Culture Hall’s Cultural Dimensions DimensionMexicoUSA TimeVariable, polychromicPlanned/Scheduled, monochromic SpacePublic, high-densityPrivate, low-density ThingsPersonal status FriendshipsA few long lasting friendships with many obligations Temporal, casual, few obligations AgreementsRelationships more important than contracts (high context culture) Contracts more important than relationships (low context culture) SilenceDenotes pain, disappointment, controlUneasiness in conversation, anger, grief

24. Historical Stereotypes: Mexico and the United States of America ValueMexican View of SelfNorth American View of Self Mexican View of North American North American View of Mexican Self-ControlDeal passively with stress, saying “ni modo” when something doesn’t go to plan Rational, calm, masculine, deals actively with stress through discipline in life Cold, insensitive, emotionless Emotional, volatile, undisciplined CivilizationTraditionalAdvancedCondescendingPrimitive Honesty & Trustworthiness More important to be nice than objective, save face, maintain respect, ok to bend the truth or retain information if people’s feelings are preserved Honest, direct, principled, literal Manipulative, tactless, can’t be trusted Dishonest, indirect, sneaky, not trustworthy CharacterBrave, but overpoweredDominant, strongAggressive, at times brutal and abusive Submissive, weak

25. Historical Stereotypes: Mexico and the United States of America (Cont.) ValueMexican View of SelfNorth American View of Self Mexican View of North American North American View of Mexican Time OrientationLives in and enjoys the present, respects past, awaits a future to be determined by God’s will: “si Dios quiere” The present is the birthplace of the future; planning, action-oriented Obsessively future oriented. Doesn’t know how to relax. Unrealistically believes time can be mastered Lives too much in the present while dwelling on the past; surrenders own will and ambition to chance. Procrastination. Social ClassesExclusive, but more cultured and civilized at top levels Orderly, efficient, upwardly mobile Economically superiorChaotic, inefficient, unjust ReligionRepository of higher moral values (long Roman Catholic tradition) Active Christianity, God’s appointed steward (mixed religions) Profess a false religionPassive Christianity, God’s faithful servant

26. Historical Stereotypes: Mexico and the United States of America ValueMexican View of Self North American View of Self Mexican View of North American North American View of Mexican Orientation to Nature Nature merely “is”, can’t influence or control Man can and should manage nature Destructive, futilely trying to control only what God can master Fatalism National IntentSovereignty, respect, recognition Good natured, missionary, helpful, showing others “the way” Interventionist, imperialist, subversive Lacking vision Work EthicWork not inherently redeeming; something that must be done Work is the measure of a man Obsessive, materialistic Lazy, work is bad Source: Adapted from Harris, Moran and Moran (2004), Managing Cultural Differences, pp. 320-321.

27. Basic Mexican - US Customs CustomMexicoUnited States Greetings/Handshake“Good morning” “Good afternoon” “Good evening” “Hi” “How are you?” “Nice to meet you” Handshake Common (go to everyone in the room and shake hands at entry and exit). Abrazo (hug) or kiss for close friends the norm “Good morning” “Good afternoon” “Good evening” “Hi” “How are you?” “Nice to meet you” Firm Handshake at beginning and end of a formal encounter; informally, a wave of the hand is acceptable Pleasantriesimportant first step in conversationsNecessary, but awkward Eye Contactimportant Business Dininglong, deals made at the end of the meal short, business not mixed with pleasure Social Diningbegins late, no business discussedbegins on time, business may be discussed

28. Basic Mexican - US Customs* CustomMexicoUnited States Punctualityflexiblerigid Questions in Social Gatheringskeep conversation on a general level, do not pry into personal lives Don’t discuss politics or religion, personal questions ok Level of Formalitymoderately formalinformal Hospitalitywarm, friendly and hospitableFriendly, somewhat hospitable Thank you Notesseen as a courtesyDesirable, not mandatory Class and Statusvery important and operationalizedDown-played Language CompetencyBusinessmen will speak EnglishAssumes everyone speaks English Nonverbal Gesturesclose personal distance, frequent touching and hand gestures large personal distance and few hand gestures *Source: Adapted Robert T. Moran and Jeffrey Abbott (1994), NAFTA: Managing the Cultural Differences, pp.47-49

29. Additional Cultural Factors* FactorMexicoU.S. FamilyFamily is the first priority and the base of society, children sheltered, executive mobility limited Family usually second to work, children independent, executive mobility unrestricted PedagogyMemorization, theoretical emphasis, rigid and broad curriculum Analytical approach, practical emphasis, narrow and in-depth specialization NationalismVery nationalistic, proud of long history and traditions, reluctant to settle outside of Mexico Very patriotic, proud of the “American Way of Lilfe” Etiquette“Old World” formality, etiquette considered a measure of breeding and is an expression of courtesy and consideration Formality often sacrificed for efficiency, “let’s get to the point” Personal appearanceDress and grooming are status symbolsAs long as appearance is reasonable, performance first StatusTitle and position more important than money in the eyes of society Money is the main status indicator and is a reward for achievement AestheticsAesthetic side of life is important, even at work No time for “useless frills” EthicsTruth tempered by need for diplomacy, truth is a relative concept Direct “yes” or “no” answers given and expected, truth is seen as an absolute value *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. Management PracticesMexicoU.S. Work/LeisureWorks to liveLives to work Direction/supervisionTraditional managers autocratic; modern managers delegate responsibility, not authority Managers delegate responsibility and authority; executive seeks responsibility and accepts accountability Theory vs. PracticeMore theoreticalMore practice oriented FeedbackOnly positive feedback providedTell the bad news as well as the good PromotionsBased on loyalty to the supervisorBased on merit Individual vs. TaskPerson-oriented, social conventions come first, work second Task-oriented, work comes first, social conventions come second if at all LoyaltyTo supervisorTo self Decision-makingTop-downMixed BriberyPart of doing businessForbidden

32. Additional Management Contrasts: Mexico and the U.S.* Management PracticesMexicoU.S. MotivationMoney, friendly atmosphere (in-group), loyalty to supervisor and firm Money, opportunity for advancement Teachers/trainersAre gurus who transfer personal wisdomAre experts who transfer impersonal truths PromisesOver promise, under performUnder promise, over perform ResponsibilityEmployees expect close supervision, paternalistic supervisors Employees are self-starters Model BossBenevolent dictatorExpedient communicator Activity modalityPersonal relationships and “being”Accomplishments and “doing” RecordsDeductive, analytical, conjecturalInductive, action oriented, factual RespectDetermined by unequal relationships and power. Respect given as a function of position Values tied up in equality, fair play and democratic spirit. Respect earned. *Sources: Adapted from Becker (2004), Moran and Abbot (1994), and Condon (1985).

33. Mexican and U.S. Negotiation Styles Negotiation VariableMexicanU.S. Basis of trustFriendship, then legal contractLegal contract, then experience Role of personal involvementPrimaryTo be avoided Negotiator selection criteriaTitle, family or social tiesTechnical expertise, function Role of face-saving in making decisionsGreat. Preserving personal dignity is paramount Slight. Decisions are based on cost-benefit analysis Decision-making processSpontaneous, impulsiveSystematic Negotiation agendaSlow pacedFast paced Interpretation of mañanaNot todayTomorrow Extent, type of pre-negotiation preparationSlight, limited to awareness of company or brand name Medium-high. Financial and technical analysis Focus of negotiating goalBest bargainCost-benefit ratio Negotiation perspectiveWin-loseWin-win Time perspective for deal under negotiationShort-termMedium-term Time perspective for business relationshipLong-termMedium-term

34. Mexican and U.S. Negotiation Styles (Cont.)* Negotiation VariableMexicanU.S. Adherence to agenda and deadlinesCasualStrict View of opposite partyFriend, social equalNeutral Emotional sensitivityHighly valuedNot highly valued Emotional displayPassionateImpersonal ProtocolFormalInformal Risk toleranceLowMedium-high if justified Opening bidExtremeReasonable Type of arguments to defend positionVague, emotionalConcrete, rational Power tacticsThreat of withdrawal of stronger consequences Real power, legal enforcement Taking a settlement positionReopening previously closed issuesMaking a final offer Form of final agreementWord of honor supplemented by brief written agreement Formal legal contract *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, 6 th 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.