Maria Fernanda Garza tells us what it’s like to operate a small business in Mexico
Maria Fernanda Garza is CEO of Orestia, a small business in Mexico that manufactures plumbing products, but she’s much more than a business woman一she’s a lifelong advocate for small and medium businesses in Mexico and elsewhere. Garza is the former Vice President of the Confederación Patronal de la República Mexicana (COPARMEX), the employers’ organization of Mexico, and the current First Vice-Chair of the International Chamber of Commerce (ICC), the institutional representative of millions of companies around the world. She has devoted her life to bettering the business ecosystem in Mexico and around the world, to advocating for ethics and integrity in business and for corporate governance standards. In the first of three interviews with Garza, she shares with B2BeeMatch what it’s like to operate a small business in Mexico right now and what it could be like in the future. She explains the traditional and modern ways of doing business in Mexico, her vision for a prosperous Mexico free of corruption, and the many benefits her country has to offer the business world.
What are the opportunities and challenges for small businesses in Mexico?
The challenges and opportunities for small and medium enterprises (SMEs) in Mexico are not much different from those of SMEs around the world. But let me focus on two of the main challenges that small and medium businesses face in Mexico today: digitalization and appropriate accounting.
By digitalization, I am not just referring to e-commerce, but also to incorporating the internet and ICT into organizational processes. For example, a survey by WhereNet shows that 84% of SMEs still control inventories manually. 100% accept that their captured data is inaccurate due to human intervention (wrong capture, wrong scanning, no scanning). And 64% of respondents say that the average search time to locate an item in a warehouse is 30 minutes or more.
Bookkeeping is important in any business, whether it is small or large. Unfortunately, most SME owners often neglect this process, which has an adverse effect on their business.
SMEs fail in financial management due to weak or no accounting records. Some don’t maintain their books due to the belief that accounting exists only for the purpose of taxation. The owner or manager isn’t aware or convinced that maintaining proper accounts and generating meaningful financial statements increases the chance of obtaining financial resources. Nor are they aware or convinced of the usefulness of accounting and financial reporting for control and decision-making purposes.
In addition, in 2019, the informal economy in Mexico accounted for more than 30% of the GDP and 60% of the labor force. Informality is linked to private sector SMEs, both because SMEs make up the bulk of informal businesses but also because a weak SME sector environment actually enables informality by making the path to formalization difficult.
Mexican SMEs need to move beyond paternalistic management practices towards professional, modernized approaches. Many of the deficits that afflict Mexican companies revolve around technological, managerial, and human resources deficits that are resolvable.
Your Twitter bio says “inconforme con el México que tenemos, y dispuesta a trabajar por cambiarlo.” What would you like to change about the business ecosystem in your country, and how are you working to facilitate that change?
My greatest discontent has always been the lax rule of law.
I would like Mexico to be a country with a durable and efficient system of laws, institutions, norms, and community commitment that delivers justice, opportunity, and peace—underpinning development, accountable government, and respect for fundamental rights. I would like Mexico to be a country with a strong rule of law because it correlates to higher economic growth, greater peace, less inequality, improved health outcomes, and more education.
Since I started my company in 1986, right out of college, I became involved in business organizations which, throughout the years, allowed me to participate in the creation of Mexico’s National Anti-Corruption System, promote integrity in business, and environment conservation, among many other things. Being part of organizations that help me pursue my beliefs has always been important to me.
Why does your small business manufacture its products in Mexico?
During the late 1990s and early 2000s, like many other Mexican businesses, we started production in China. Over the years, we evaluated the capital investment we were making to produce abroad, and we realized that the company was in a better position to manufacture high volume items in Mexico and produce slow moving items, supplements to the line, and special orders abroad. Today, we have a mix of local manufacturing and international production that allows us improved flexibility and better control of our supply chain. Since our main goal is to offer consumers innovative, functional and high-quality products that help improve their daily lives, we are always looking to incorporate new products to our line regardless of their country of origin, as long as they comply with our standards on quality, human rights and the environment.
What is the import/export landscape like for a small business in Mexico?
Mexico is a dualistic country, and its economy reflects that. There is a modern Mexico, with a high-speed, sophisticated economy, with cutting-edge auto and aerospace factories, multinationals that compete in global markets, and universities that graduate more engineers than Germany. And there is a traditional Mexico, a land of sub-scale, low-speed, technologically backward, unproductive enterprises, many of which operate outside the formal economy.
There are 4.2 million SMEs in Mexico that generate 52% of GDP and 78% of employment, but most of these SMEs are part of the traditional business scenario. So, in 2018, only 8% of SMEs in Mexico engaged in exporting activities. Chapter 25 of the United States-Mexico-Canada Agreement (USMCA) might represent an opportunity for these SMEs once the US economy recovers, since it strives to improve practices, advise, and encourage cooperation to increase trade and investment in these enterprises.
Why should small businesses elsewhere in the world connect with Mexican companies? And vice versa?
It is important for SMEs around the world to diversify their markets, and Mexico is fertile ground for the development of enterprises and free trade. Thanks to our constant concern for actively maintaining an agenda of openness over the past 20 years, we have been able to gain access to the primary world markets in all four points of the compass:
To the north, we are part of USMCA, which has allowed Mexico to position itself as the primary strategic supplier to the United States and Canada.
To the east, we have the Free Trade Agreement with the European Union, which provides us with preferential access to 28 markets.
To the south, the Pacific Alliance will help us go about an extensive integration process with Chile, Colombia, and Peru.
And to the west, Mexico is part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which will strengthen commercial ties with the most dynamic markets in Asia, as well as complement and reinforce regional integration within the USMCA framework.
In the next three decades, according to analysts and projections, the United States, China, and possibly India, will be the economic giants. Mexico is included in a group of countries along with Japan and Indonesia that are expected to have relatively large economies. In addition, it is expected that there will be medium-sized economies such as Germany, Italy, and Spain. Mexico's challenge is to establish valuable commercial alliances, so it doesn’t have to depend on the giants, and so it can even partner with them.
In addition, SMEs in Mexico can benefit from connecting with SMEs around the world by learning from their experiences, and vice versa. For example, SMEs around the world can learn from the experience that Mexican SMEs have as part of one of the most successful regional supply chains—the North American automotive supply chain. And Mexican SMEs can learn how SMEs around the world are overcoming the same challenges faced by traditional SMEs in Mexico.
Is there anything else about doing business in Mexico that you'd like to share with our readers?
I believe that what we need to prosper in Mexico is not very different from what small business owners need around the world. We require rule of law, good governance, a corruption free environment, property rights, an equitable tax system, and a productive use of public funds. Of course, there are several specific items we need to prosper:
We need to promote innovation and competition because excessive regulation drives informality and excessive bureaucracy leads to corruption.
We need the cost of starting a business and its financing to be equal, utility rates to be competitive, and tax laws to be simple and suitable to keep businesses away from informality.
We need educational policies to include employability and the promotion of entrepreneurial culture.
We need to have correct macroeconomic policies because good macroeconomic management contributes to an environment conducive to business growth and increased employment.
We need to formalize and revitalize the traditional sector and enable the growth of mid-sized companies. To do this, we must reverse the productivity decline in our smallest enterprises and start moving workers from low-productivity work to higher-productivity jobs in modern sectors.
The government, the private sector, and Mexican citizens all need to pull in the same direction for the two Mexicos to move ahead.
We hope you enjoyed learning what it’s like to operate a small business in Mexico from Maria Fernanda Garza. Please check the B2BeeMatch blog soon for the second installment in this three part interview series or follow us on Twitter, LinkedIn, or Facebook to find out when it’s published.