Confronting Business Challenges and Opportunities in Mexico

Last month, Frontier Strategy group convened a gathering of over twenty-five senior executives from leading US- and European-based multinationals to discuss the outlook for Mexico over the next year. The session was lively, and focused on the impact that falling oil prices and a weakening Mexican peso will have on government spending, private investment, and consumer expenditure. Additionally, the group discussed how multinationals are confronting the challenges and opportunities that the Mexican market is currently presenting.  Below are several key takeaways from the event:

There is increasing realism around the upside potential of Mexico

  • While most executives remain optimistic that they will achieve their top-line and bottom-line growth targets for this year, many cited that this is a consequence of much lower expectations for growth, after the last two years have been disappointments
  • Corporate centers have become more aligned with the underlying reality in Mexico, though 29% of Mexico executives believe that their corporate center continues to overestimate Mexico’s near-term potential

Lower oil prices are leading companies to prioritize private spending as the best opportunity for growth

  • 81% of executives consider that government policies over the last two years have had a highly or somewhat negative impact on their performance, and given that government spending cuts will be significant, particularly after the June elections and in 2016, only 35% of executives believe that government policies will have even a somewhat beneficial impact on their performance
  • With lower energy prices likely to negatively impact government revenues and private sector investment in a newly liberalized oil and gas sector, companies are shifting their attention to the private sector over B2G opportunities. Multinationals that are dependent on government sales are preparing to implement significant lobbying efforts in the second half of 2015, as industries as diverse as the energy, telecom, and healthcare sectors attempt to preserve important projects and spending in next year’s budget

Finding new opportunities and setting the right commercial strategy will be key to success over the medium term

  • 36% of executives believe their most important internal challenge will be finding new opportunities, while 24% believe the most important challenge will be setting the right channel/go-to-market strategy
  • 62% of executives believe that investing in new opportunities or customer segments will be the key to success over the next few years. Given the mediocre growth expectations for Mexico in 2015, companies have come to the conclusion that simply pursuing the same strategies as in previous years will do little to help them achieve their sales and profit targets in 2015 and beyond

Mexico’s economic recovery continues to underwhelm, and is now battered by a sustained drop in oil prices and public sector spending cuts that will affect long-awaited infrastructure projects. However, given the aforementioned key takeaways, there are opportunities to capture.

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