MEXICO, DOING BUSINESS IN

Mexico is, after Brazil, the second-largest economy in Latin America. At its high point, at the time the Canadian prime minister and the U.S. president signed the North American Free Trade Agreement (NAFTA) with Mexico in 1992, Mexico had a gross national product of well over $250 billion, with pre-NAFTA exports (75 percent of which went to the United States) of just less than $40 billion.

Mexico is also, again after Brazil, the second-biggest country in Latin America both geographically and in terms of population. Mexico covers approximately 760,000 square miles divided into 31 states and the federal district of Mexico City, its capital. Mexico City is the world's largest city, with a population of more than 20 million people and an estimated greater metropolitan area population of 32 million people. Mexico's two other great industrial cities, Guadalajara and Monterrey, both have exploded from being relatively small cities to having populations of approximately 5 million and well over 3 million, respectively. The nation as a whole has a population of approximately 97.5 million, making it the most populous Spanish-speaking nation in the world.

Mexico has been the focus of considerable attention in the business world with the signing of NAFTA in 1992 and its legislative approval in Canada and the United States in 1994. NAFTA represents an arrangement by which the three nations of North America agreed to reduce tariffs and coordinate limited facets of their trade policy.

NAFTA was of particular importance for Mexico as it represented the first instance in which any developing nation entered into an economic arrangement with two major developed nations. In essence, NAFTA thrust Mexico from a developing-nation status to the status of the 67 developed nations. For Mexico too, NAFTA cemented for the long term its economic relationship with the United States and Canada while paving the way for increased trade and investment.

CURRENT ECONOMIC EVENTS IN
MEXICO

The last decade and a half of the 20th century saw Mexico enter its most significant period of economic prosperity, then collapse in the worst economic crisis in its history. While Mexico has always experienced a certain degree of economic fluctuation, this particular period was not a typical boom and bust cycle. The degree of fluctuation was unprecedented and arguably set into motion the world economic crisis that followed, first in South America and later in East Asia and Russia.

THE ECONOMIC BOOM.

Well before the flurry of attention surrounding NAFTA, Mexico had much to commend itself in the economic sphere. Reaching a postwar low point tied to the collapse of oil prices in the early 1980s, Mexico officially indicated that it had to default on its debt payments and foreign investment fled Mexico while the Mexican peso was devalued by almost 50 percent. By 1987, Mexico was experiencing an annualized inflation rate of over 130 percent.

Following the election of President Carlos Salinas de Gortari in 1988, Mexico transformed itself. President Salinas negotiated debt relief from the United States, including a $3.5 billion "debt bridge" loan. Under the Salinas presidency, Mexico privatized more than 100 of its 1,100 state-owned firms in dozens of areas ranging from telecommunications to banking . Mexico's debt reduction and privatization coupled with an anticorruption campaign and tax restructuring transformed Mexico dramatically, cutting its inflation rate, attracting foreign investment from around the globe, spurring a rebirth of private enterprise, and supporting a thriving stock exchange. All of this culminated with the full legislative approval of the three NAFTA nations in 1994.

THE MEXICAN ECONOMIC CRISIS.

The roots of the crisis may have begun with two unrelated events in 1994: an uprising in Chiapis and two political assassinations.

In January 1994, an uprising took place in the southernmost Mexican state, Chiapas, under the banner of the Zapatista Army of National Liberation (EZLN). Chiapas, historically once independent from Mexico as part of the United Provinces of Central America, has long been among Mexico's economically poorest states, and the insurgents protested lack of Mexican concern about poverty. The insurgents also raised issues such as the rights of indigenous ethnic groups. The EZLN and the Mexican government clashed militarily, but soon reached a ceasefire. While no further armed insurrections have taken place in Chiapas, the state still remains politically unstable.

The second event that led to political turmoil surrounded the assassinations of presidential candidate Luís Donaldo Colosio and PRI Secretary General José Francisco Ruíz Massieu. Not only did this lead to political instability in itself, but the murder investigations resulted in charges filed against the brother of President Salinas. The most immediate result of the assassinations, however, was the replacement as PRI presidential candidate of the highly charismatic Colosio by the relatively unknown Ernesto Zedillo Ponce de Leon. Zedillo was then duly elected president, but carried little enthusiasm among the electorate or confidence from foreign investors.

The combination of the Chiapas uprising and a newly elected president with little public experience caused experienced investors in Mexico to grow a bit cautious.

Even this, in itself, would not have caused an economic disaster of the magnitude of the crisis that followed. It was the panic of inexperienced investors that caused the crisis. For the first time, small-scale individual investors had begun to play a marked role in the Mexican stock market. For many of these investors, mostly from the United States, their Mexican stocks represented their first time investing not just in Mexico, but in any foreign market. Unaccustomed to the volatility of international investment and buoyed up in their expectations from over six years of unimpeded growth, these investors grew alarmed when the Mexican market initially stumbled.

Confusing the essentially stable Mexican political landscape with more significant historical political uprisings elsewhere in Latin America, many of these novice investors misinterpreted what was an essentially short-lived and localized uprising as a full-scale revolution. Even this panic might have been stemmed had President Salinas not been so immediately involved in the assassination investigations involving his brother, or had a more politically experienced successor been elected the next president. President Zedillo, however, did not have President Salinas's flair for public relations and handling the press. Indeed, Zedillo's initial days in office seemed only to add to the panic when, after first promising not to devalue the peso, he did just that.

The widescale panic that exploded in the Mexican stock market following the peso devaluation was the worst in Mexico's history. Inexperienced investors felt deceived, and fled not only the Mexican market, but many other Latin American markets. This rash flight of investment served to destabilize such essentially stable markets as Argentina and Chile, even though their economies were unrelated in any significant way to the events occurring in Mexico. The panic itself fueled further destabilization and fears of a default. The peso went into a rapid decline. In December 1994 alone, the peso fell from 3.5 to 6.5 to the U.S. dollar. For most of 1995, the peso continued to decline, averaging over 7 pesos to the dollar, sinking to 8 pesos to the dollar by March 1996.

POLITICAL AND ECONOMIC RECOVERY.

Mexico faced the crisis in several ways. To battle charges of corruption, President Zedillo entirely replaced the Mexican Supreme Court.

Moreover, Mexico clearly demonstrated that it was politically more open than ever before. Zedillo's own party, the PRI, faced enormous opposition, losing several state governorships and for the first time in history, it lost its majority in Mexico's Chamber of Deputies. Moreover, the first election for mayor of Mexico City since 1928 was held. For the previous 70 years, the Mexican president appointed the mayor to what is arguably the second-most powerful political position in the nation after the presidency itself. Elections were indisputably freely run as the strongest opponent of the PRI won: the leftist PRD party's leader Cuauhtèmoc Cardenas. These victories, though bad for the ruling PRI party, nonetheless gave foreign investors confidence in the free electoral process of Mexico.

An uprising of terrorists, separate from the Chiapas uprising, took place in the summer of 1996 in the states of Guerrero, Puebla, and Oaxaca. The leaders of the Zapatistas, as well as political opposition leaders such as Cardenas, denounced the uprising as the work of terrorists rather than as a political movement. With support across the political spectrum, the Mexican government quickly put down the uprising. Because of the unity of political opinion toward the uprising as terrorist-led, the incidents led to none of the political instability associated with the Chiapas Zapatista movement.

More significantly, from an economic perspective, the United States, finding its economy heavily integrated through NAFTA and other increased trade ties to Mexico, faced a crisis of its own. The Clinton administration, over heavy opposition from NAFTA critics, opened a $20 billion line of credit to Mexico in 1995. The U.S. loan package was coordinated with a $1.5 billion loan from the International Monetary Fund (IMF). Using the line of credit to stabilize the economy, Mexico almost immediately began repaying the U.S. loan, paying $700 million back as early as October of the same year. Well ahead of schedule, by January 1997, Mexico had fully paid back both the U.S. and the IMF loans. Not only did the repayment silence critics of the loan (the United States earned $560 million in interest on the loan) but renewed confidence in the stability of Mexico. Since 1997, the peso had begun to gradually strengthen and the Mexican economy showed a growth rate of over 4 percent.

BUSINESS PRACTICES

With the close integration of the U.S. and Canadian economies to Mexico under NAFTA, coupled with the clear need to understand Mexico in more depth in the aftermath of the Mexican peso crisis, considerable interest in Mexican business practices has developed.

Mexican business culture differs from any other in the Americas due to its unique history. Moreover, it is profoundly different from the United States with whom Mexico shares its long northern border.

LANGUAGE.

Mexico is the largest Spanish-speaking country in the world. Its form of Spanish is distinctive, drawing heavily on speakers of pre-Columbian native languages, and filled with many idioms unique to Mexican Spanish.

Spanish as a language is a useful tool when doing business in Mexico both because it gives access to the large number of Mexicans who speak only Spanish or who speak other languages poorly.

Nevertheless, English is extremely widespread, especially among the educated and the middle class who constitute the majority of the business class in Mexico. Many government officials and business leaders have earned degrees from U.S. or Canadian universities, increasing the number of people in leading positions who speak English with great fluency. Indeed, many Mexicans may view the ability to conduct business in English as a sign of their education—suggestions that their use of English is less than fluent or even absent may be a source of loss of face.

While speaking the language of the country in which one conducts business is always advisable for gaining market insight and building relationships, the use of Spanish in Mexico by U.S. businesspeople is of particular value since Mexicans have come to expect that the majority of U.S. businesspeople with whom they come in contact will speak little or no Spanish. For this reason alone, it is an advantage for the U.S. businessperson to learn to speak Spanish as it will likely reflect a presumed interest in and commitment to Mexico that the non-Spanish speaker would have to demonstrate in other ways.

ENVIRONMENT AND TECHNOLOGY.

Mexico traditionally has been more ambivalent toward the use of technology than the United States and other control cultures. Mexicans, particularly in nonurban areas, are more likely to see themselves as subject to the forces of nature around them than as controllers of that environment.

Current severe difficulties with pollution and other environmental problems have brought the cost of rapid industrialization further into question in urban areas as well, reviving some traditional skepticism toward the use of technology for its own end. Still, Mexico is rapidly increasing its technological standards. Its infrastructure — telecommunications , transportation, and electronics—have all seen dramatic improvement in the last two decades.

SOCIAL ORGANIZATION

FAMILY TIES.

Family ties are considerably stronger in Mexico than they are in the United States. "Family," as Eva S. Kras explained, "takes precedence over work and all other aspects of life." Moreover, family ties are not only stronger but broader in Mexico than in the United States. The family in the United States consists of a spouse and children (and occasionally one's parents). In Mexico, family ties are equally strong for kinship relationships such as cousins, in-laws, uncles and aunts, nephews and nieces, as well as compadrazo, or godparent relationships.

This has far-reaching effects on Mexican-U.S. interactions. The majority of Mexicans define themselves as belonging to a particular family; the majority of people in the United States define themselves by what they do for a living. Thus a Mexican manager is likely to respond first to a query for a self-description with the fact that he or she is a member of the families of his or her father, mother, and spouse. By contrast the average U.S. manager would respond to the same query with the fact that he or she is a manager of some area of specialty. This has direct business application in the way these familial connections are used in the workplace. As John C. Condon explained, "In Mexico credibility is demonstrated more through position and connections than in the U.S., where one's track record of personal achievements tends to command attention."

The effect of family on business, however, goes much further than self-definition. Family ties provide access to business joint ventures, to favorable terms on negotiations, and to reaching people in power in Mexico. Family ties provide little of this in the United States. The result is that many U.S. businesspeople in Mexico may not be able to reach people in power in Mexico because they do not know how to employ such connections, while many Mexicans in the United States may place greater faith on such connections than their situation merits.

Finally, nepotism—the hiring of relatives—is considered desirable in Mexico and undesirable in the United States. In Mexico, relatives one employs are likely to work harder and be more dedicated than strangers. In the United States, relatives are likely to work less hard and be less dedicated than strangers. In Mexico, nepotism ensures access and loyalty through family ties while fulfilling familial obligations to other family members related to the individual hired (even further strengthening and extending the reach of connections with relatives who are not employees). Nepotism, by contrast, is disdained in the United States where family ties are assumed to cover up the relative's incompetence; indeed, many organizations in the United States have explicit antinepotism policies.

GENDER ROLES.

The genders are more clearly differentiated in Mexico than in the United States. This especially holds true in Mexican social settings where men are more likely than in the United States to rule their households with little open disagreement from wives and where any unchaperoned male female meetings may be called into question in a way that they would not north of the border.

Machismo does exist in Mexico. Nevertheless, the concept of "machismo" is largely misunderstood and exaggerated in the United States. Machismo—essentially the state of acting in a manly manner—is usually misinterpreted in the United States as male boasting of a sexual nature (which is extremely uncommon in the Mexican corporate setting) and a more blatant use of sexually charged stares and innuendos (which do occur at an arguably greater rate but no more so than in, for example, French or Italian culture for which the same concerns are not widely held in the United States). Machismo, however, also includes a man's sense of earned respect through education (including knowledge of the liberal arts—a distinctly unmacho assumption in the United States), titles, and other distinctions. Finally, machismo includes a sense that men must be decisive and unwilling to show fear—a gender distinction still widely practiced in the United States.

While gender distinctions are more strongly delineated in Mexico than in the United States, Mexico is undergoing a transition as well. Many Mexican women, particularly in the large urban centers, are increasingly active in professional settings ranging from university professors to government leaders and entrepreneurs. Finally, many Mexicans are growing accustomed to the large number of women in the United States and Canada in leading business positions and have become increasingly familiar with working with these foreign businesswomen in positions of authority.

CLASS STRATIFICATION.

In general, most people in the United States are highly uncomfortable with class distinctions. While it is not uncommon in the United States to talk about good and bad parts of town, someone coming from a good family, or someone's position demanding more respect than another (high-level executives, judges, physicians, etc.), the average person in the United States holds an egalitarian ideal and is uncomfortable in the face of social or even workplace distinctions. Mexicans, by contrast, are much more comfortable with these social realities. Most Mexicans view the world as a whole and the workplace in particular as innately unequal. Mexicans, therefore, are more comfortable than their counterparts north of the border with existing class stratification into good families, powerful positions, and other social and workplace distinctions.

EDUCATION.

Advanced education is very widespread in the corporate United States. Indeed, graduate and doctoral degrees are very common in the workplace. Higher education in Mexico is common among business leaders but is nowhere as widespread among the general population as it is in the United States. Among the educated elite, however, the quality and breadth of education is likely to be very high, often including study abroad in the United States, Canada, or Europe, as well as domestically in Mexico.

Educational ties may play a greater role in Mexico than in the United States. Alumni ties as common bonds are strong as they represent a shared experience—a factor that is important in the more personalized nature of business in Mexico described below. The nature of the university is important as well. Foreign education is much more common among upper level Mexican executives than among their counterparts in the United States, and those educated abroad, of course, are likely to reflect the emphases of the educational institutions of the countries in which they studied. Domestically in Mexico, private universities differ markedly from public universities in their educational emphasis; a distinction almost wholly absent in U.S. public and private colleges. Such private institutions of higher education as the prestigious Instituto Tecnologico y Estudios Superiores de Monterrey (ITESM) and La Salle University in Mexico City emphasize analytical approaches applied to business, legal, and technical education. Public universities, by contrast, reflect a more European-based generalist education with a highly theoretical emphasis by U.S. business or technological education standards.

REGIONALISM.

Mexico is divided into numerous regions, each with distinctive histories, accents, and loyalties. Most Mexicans are very proud of their region, and many Mexicans claim ties to the region of their parents even if they themselves were born in a distant urban center such as Mexico City. Mexicans themselves carry many stereotypes and beliefs regarding characteristics of these regions. For example, people from Nuevo Leon are perceived as being very business-oriented and thrifty; people from Oaxaca may be proud of the influence of native Indian cultures, and so forth. Whether true or not, these generalizations are more strongly held than comparable divisions of northerners and southerners in the United States and represent very real points of connection for the businessperson aware of their significance.

In recent decades, many Mexicans have been attracted to Mexico's urban centers in the search for jobs and opportunities. While all of Mexico's major cities have seen influxes from the countryside, Mexico City—now the world's largest city—has grown at a pace unmatched anywhere in the industrialized world. Less dramatic but still major migrations of people to Monterrey and Guadalajara have also occurred. These magnet cities represent a major demographic shift for Mexico and break with traditional ties to region and family.

THE CHURCH.

Mexico is among the most uniformly Roman Catholic nations. While several hundred-thousand Protestants and several thousand Jews represent significant minorities, Mexico has nowhere near the mix of religion as the United States. Also, while technically Mexico has a separation of church and state (including a period of heavy anticlerical activity early in the 20th century), the role of religion may seem pervasive by U.S. standards. Conflict of religion in the workplace is negligible since Catholicism is so widely shared; consequently such practices as having a priest bless a new office building or corporate sponsorship of a religious procession are well accepted. Display of religious imagery in the workplace is likewise common and well accepted; by contrast, religion is usually intensely personal in the United States, a fact that makes many Mexicans view their U.S. counterparts as irreligious or at least highly secularized. Widespread belief in God's influence in the workplace (as in all aspects of life) may also provide some Mexicans with more of a sense of acceptance of events that might be fought against in the United States.

CONTEXTING.

Mexico is what is called a high context culture As a result, Mexicans place a strong emphasis on how a message is said rather than on the words used alone. The eloquence of the words used are themselves part of the message. Something may be exaggerated in a way known to be an exaggeration but spoken because it is rhetorically satisfying; this is often understood to be lying in the literal understanding of low context cultures such as the United States.

Messages are also understood in terms of the full context of the communicators' relationship with one another. This particularly affects the importance for social etiquette and formality in official situations (including business meetings) and creates an emphasis on face-saving.

As a direct consequence of the high context nature of Mexican communication, it is necessary to build a personal relationship in conducting business with Mexicans. Without the context of that personal relationship, little if any substantive communication can take place, and necessary levels of trust are inadequate to undertake most business arrangements.

As in most high context cultures, Mexican behavior is more likely to be governed by individual interpretation and the need to save face rather than on external rules and regulations. As a result, in Mexico, personal understandings are more binding than contracts. Indeed, contracts in Mexico are often seen as the beginning of a relationship that can be subject to change as the business progresses. This contrasts to the view of low context cultures (such as the United States) in which the contract is viewed as not subject to change.

Finally, in high context societies, understood or unofficial rules are often as important (or even more important) than written rules. This holds true even in relations with government officials. These unwritten rules deal often with issues of respect and family loyalty in Mexico, and remain subject to the context of the situation to which they are applied. As a result, these unwritten rules may be employed in some instances and overlooked in others, depending on the context of the individuals involved and of the situation particular to the incident at hand.

NONVERBAL COMMUNICATION

As with all nations, Mexico has distinctive nonverbal communication unique to itself. It contrasts markedly with the United States in the four areas described below.

PERSONAL SPACE.

Mexican concepts of personal distance are considerably closer than in the United States. The average workplace distance while standing face to-face between two people in the United States is roughly arm's length. While regional differences are notable in Mexico (with interpersonal distance greater as one moves north), the average distance is approximately three to four inches closer than in the United States.

TOUCHING BEHAVIOR.

The United States is an ahaptic (or non-touching) culture. Mexico, by contrast, is a much more haptic culture. Most workplace touching in the United States is limited to the handshake. Even the handshake is minimal, limited to one hand and a relatively short duration. Mexican touching behavior is considerably more extensive. Common workplace interactions would likely include back-patting, greeting hugs between men as well as women, and handshakes using both hands often reaching to the upper arm.

MOVEMENT.

Movement (kinesics) differs somewhat in Mexico and the United States. Lacking the large waves of immigration that have influenced U.S. body language, Mexicans are more uniform in the sorts of body movement they use when speaking. Generally speaking, Mexicans are more expressive with the hands than many of their U.S. counterparts. Also, most U.S. movement is limited to the arms and head; movement from the torso is not uncommon in Mexican conversation. Finally, most people in the United States, even in formal situations, tend to slouch while sitting; slouching in Mexico is usually a sign of boreedom and is thus subject to misinterpretation.

DRESS.

Mexicans tend to dress more conservatively in Mexico City than elsewhere in the country. Still, as a whole, business as well as social dress is somewhat more conservative throughout Mexico than it is in the United States. Details—such as shined shoes or well-groomed hair—are often more important in business dress in Mexico than they are in the United States.

TIME CONCEPTION

Mexico and the United States are extremely different in the way each conceives of time. Mexico is what Edward T. Hall termed a polychronic culture; the United States, a monochronic one. Mexico, like all polychronic cultures, ranks personal involvement and completion of existing transactions above the demands of preset schedules. The United States, like other monochronic cultures, adheres to preset schedules that take precedence over personal interaction or the completion of the business at hand.

Because Mexican businesspeople generally complete tasks at the expense of scheduling, people in high authority may become easily overwhelmed with multiple tasks. To prevent overloading, people in positions of high authority rely heavily on subordinates to screen for them. Once a person gets past the screeners, the person in authority will generally see the task to completion regardless of its relative importance. By contrast, in the United States, the scheduling of appointments acts as the screen; not the person's subordinates. If a task is not completed within a scheduled time, a new meeting is scheduled.

Because people rather than appointment books act as the screens in Mexico, personal relationships flourish within close circles. In the United States, personal relationships are discouraged or at least are not allowed to interfere with maintaining the schedule. As a result, in the United States, personal relationships are determined by the terms of the job in a manner that is nearly incomprehensible in Mexico. Conversely, personal relationships are emphasized in the Mexican workplace in a manner that is difficult for most U.S. businesspeople to comprehend. Mexicans make distinctions between insiders and those outside their existing personal relationships. Appointments are secondary. In the United States, one needs only to schedule a meeting with the appropriate people; little or no preference is given to those one knows over complete strangers. In the United States (in direct contrast to Mexico), the outsider is treated in exactly the same fashion as the close associate.