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Mexico: Challenges and Opportunities in a Time of Turmoil

October 1, 2015

Gautam MukundaAssistant Professor

Organizational Behavior UnitHarvard Business School

Presentation for:CITEK Forum

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OUTLINE

Global Challenges – Volatility and Risk in a time of radical uncertainty

The USA-Mexico Relationship – Sleeping with an elephant

Key Opportunities – Betting on the Future

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GLOBAL HEADWINDS CREATE CHALLENGES FOR MEXICO…

Slowdown in global growth (except for the United States) presents challenges to exporters

Potential slowdown in increases in Chinese labor costs

Growth in manufacturing in developing countries with lower costs (e.g., India)

Increased political risk (Russia, Middle East, China, etc.)

Rapid decline in commodity prices

Little Prospect of an Oil Rebound

New sources of supply (e.g., Iran)Continued growth of frackingImprovements in technologyPush for efficiency in Chinese marketGlobal economic slowdown

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…BUT ALSO OPPORTUNITIES

Political turmoil positions Mexico as an island of relative stability for investors

The U.S., Mexico’s largest export market, is currently little affected by global turmoil

Mexico’s fiscal situation makes it well-positioned to handle capital market disruptions

Drop in dependency ratio and corresponding demographic dividend (if taken advantage of) positions Mexico as a key source of workers and consumers in a rapidly aging world

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THE US-MEXICO RELATIONSHIP IS CURRENTLY UNDER STRESS…

Internal US Political Dynamics

U.S. political polarization

Lame duck POTUS

Republican Party dominated by hostility to many Mexican interests

Likely to Produce Stasis on Key Issues

Republican primary dominated by anti-establishment candidates

Partisan deadlock on all major issues

Split control of U.S. government likely to continue

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…BUT LONG TERM SECULAR TRENDS ARE HIGHLY PROMISING

U.S. Demographic

Shifts

The U.S. is shifting to a majority-minority nationFunctionally boosts Democratic vote share by 2% every 4 years

Decrease in Immigration

Flow of immigrants from Mexico to the U.S. has halted, possibly even reversedWeakening or eliminating principal irritant in US-Mexico relationship

Potential US Political

Realignment

Redistricting in 2020

Presidential election in 2024

Potential for major changes in U.S. policy after that date

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TAKE ADVANTAGE OF US STASIS TO INVEST IN LONG-TERM OPPORTUNITIES

Mexico has great potential to launch

disruptive innovations

Entrepreneurial developing country with access to US market

Low cost baseRapid responses to market shiftsAccess to market niches

Additive manufacturing (combine lower costs than US with faster response than China)

By Focusing on Potentially Disruptive Technologies

Synthetic biology promises to revolutionize industries stretching from chemicals to mining

Mexico could potentially offer skilled labor + more favorable regulatory environment than the U.S.

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SYNTHETIC BIOLOGY’S MEXICAN TOEHOLD

iGEM Team BIOSINT Mexico 2015One of several Mexican teams competing in iGEM

10 undergraduates + 2 advisors from the Monterrey Institute of Technology and Higher Education

10th year a team from Mexico competes in iGEM

But More Investment is RequiredSynthetic biology requires less investment than conventional biotech, but still substantial

Half of Mexican teenagers meet math requirements

22% of 25-34 year olds have a tertiary qualification

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CONCLUSION: A WINDOW OF OPPORTUNITY

The confluence of technological, global, US, and domestic factors create a window of opportunity for Mexico in the next 10 years

Mexico is already beginning to make progress on this opportunity

But significant further investments – particularly in human capital – are required