Mexican executives fear growing pressures on profitability

Peso

FSG hosted an event with regional executives and Mexico country managers in Mexico City that focused on the outlook for Mexico’s economy through the next 18 months, and how multinationals need to respond to growing external headwinds and changing local customer and channel dynamics. Below are the key takeaways from this discussion.

Recent macroeconomic headwinds are threatening profitability

Mexico country managers and regional executives believe that while sales growth remains solid in the market, the weakening peso has become a major threat to profitability. With prolonged economic adversity in other major LATAM markets such as Argentina, Brazil, and Venezuela increasing the relative importance of Mexico in regional portfolios, executives see the pressure to maintain profitability while confronting increasingly price-conscious customers in Mexico as a major strategic challenge.

The recent volatility surrounding the value of the Mexican peso is another growing concern for multinationals. While the peso has strengthened over the last month, most executives remain uncertain of the end-of-year valuation, given both the forthcoming U.S. elections and a likely December rate hike by the Federal Reserve, which will create increasing pressure on the peso as the U.S. dollar strengthens.

Growing protectionist sentiment is a challenge for multinationals

While most executives demonstrated confidence that Donald Trump would not become the next president of the United States, the growing protectionist pressures on U.S. policymakers is a source of growing concern. The potential for future increases of tariff and non-tariff barriers for doing business cross-borders with the United States opens up the need to pressure-test current localization and supply chain integration plans. And the potential impact of a Donald Trump presidency is increasing the need for creating appropriate contingency plans for their Mexico business, both in the short term and through the next two years (though current polling shows Hillary Clinton with a clear lead).

Executives are focused on driving greater efficiency from current channels and exploring new customer segments and opportunities

Mexico executives are increasingly determining that current go-to-market approaches are unlikely to bear fruit, and that companies need to pressure-test the capabilities of key channel partners and branch out into new customer segments that will bolster both top-line growth and shore up margins. Increasingly B2B companies are eyeing increasing the importance of value-added services into the value proposition they offer against low-price competitors while ensuring that they are able to target these services to customers that actually assign value to them. This is likely to require adjustments to their current customer segmentation.

FSG clients can contact their Client Relationship Director to learn more about these strategies and obtain a full copy of the presentation.


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