A “SCORECARD” REPORT BY STATES Factors that Attract Venture Capital in Mexico

Antecedents  Attractiveness : The ability to create a domestic environment to attract a productive investment in the region (WEF, 1996).  The attractiveness of a region is the basic step to build its competitiveness (Treece, 1987).

Review of Previous Research  Research of “Bureaus of Business Research”  Adam Klein (1989): for emerging countries, factors such as technological development and variables related to the lifestyle of key executives are important when locating a new business or making a business investment.  Shumpeter (1987): Qualified Human Resources and business support  Porter (1982, 1990)  Kottler, Hauder y Rein (1993)

Review of Previous Research  Economic growth is accomplished through innovation, but if entrepreneurship is not fomented, innovation businesses will not be successful (Camp, M., 2005).  Entrepreneurship creates a friendly environment, which is important not only to launch the new companies but also to maintain the growth of other businesses.

Why is a Scorecard Important?  To provide information  To generate transparency  To achieve measurability

To Whom?  Private investors  Policy makers  State governments  Academic researchers

How is the Score-Card Built?  Based on an extensive literature review and a collaborative work with other institutional players, we present a theoretical model for the measurement of a federal state attractiveness for VC and PE investors.

Steps to be Constructed 1. Established the theoretical factors that attract VC and PE in Mexico 2. Defined the empirical variables that may be used to measure the underlying dimensions 3. Collected and analyze the statistical data needed to validate the importance of each factor 4. Designed a “ranking” matrix (i.e., flexible decision- making tool) 5. Produced a scorecard that ranks states in terms of each factor and in terms of a comprehensive total

Factors Economic Performance Government Entrepreneurship Activity Infrastructure Innovation Capacity Quality of Life Anchor Companies

Assigned Weights FactorWeight in TotalSubfactor Weight in Factor Economic Performance5.0% State Economy15% Productivity40% Investment15% International Trade30% Government10.0% New Businesses50% Institutional Environment50% Entrepreneurship Activity15.0% Entrepreneurship40% Financing60% Infrastructure20.0% Technological Infrastructure 33% Basic Infrastructure33% Scientific Infrastructure33% Innovation Capacity30.0% Innovation40% Scientific Scholarships 20% Technical Education20% Higher Education20% Quality of Life10.0%Quality of Life100% Anchor Companies10.0% Anchor Companies60% Service Providers40%

Preliminary Results Nuevo León, Guanajuato, Jalisco, Estado de México, Veracruz, Puebla Chihuahua, Distrito Federal, Sonora, Coahuila, Querétaro, San Luis Potosí Tamaulipas, Yucatán, Baja California, Aguascalientes, Chiapas Tabasco, Michoacán, Sinaloa, Zacatecas, Morelos, Campeche, Durango Colima, Hidalgo, Quintana Roo, Baja California Sur, Nayarit, Oaxaca, Tlaxcala, Guerrero Score Mean = 9.55

Scorecard Challenges  In some cases there is data available only at Nationwide level but not at the State level.  It is necessary to develop reliable public data about the key variables that drive the VC and PE investment.  Encourage the culture of “measurement” to enhance the competitiveness among Mexican States to attract the VC and PE investment.

Egade Team Students: Valerie Wong Paulina Podmokly Christian Aguirre Luis Joaquín Muñoz Carlos Mario Aldana Luis Horario Valencia Seminar of Research in Finance Professors: Norma A. Hernández, Ph.D Roberto Santillán, Ph.D. M.C. Marcia Campos

Annex

Importance of each Factor… Economic Development Framework for business, industry, and human resources’ development (Serrano & Sandoval, 1997) Productivity has been showed as proxy for measurement for local economic development (Camp, M., 2005)

…Importance of each Factor… Government Government support and commitment are necessary complements to have favorable economic conditions and to attract investors (Dhanabalan, 1993; Eisenger 1993) According with Wheaton (1984) and Hines (1996), tax incentives to promote productive activity are important for the economic environment Its “efficiency and transparency bear strongly on productivity and growth” (WEF, 2009)

…Importance of each Factor… Entrepreneurship Activity A high degree of capitalism facilitate entrepreneurs to be successful, and that successful entrepreneurial firms are mainly those that innovate (Loasby, 1982) Access to finance is critical to the creation of new firms and the business environment (Audretsche& Lehman, 2004)

…Importance of each Factor… Infrastructure The “amount and quality of infrastructure make important contributions to the private sector’s rates of productivity and investment” (WEF, 2009), Calzonetti and Walker (1991), Eisenger (1993)

…Importance of each Factor… Innovation Capacity To maintain its competitive advantage, a state needs innovation and the right environment for it: R&D Scientific research centers Universities and businesses Protection of intellectual property (WEF, 2007) Skilled workers are necessary for a company to achieve technological development and to be productive (Serrano & Sandoval, 1997)

…Importance of each Factor… Quality of Life According to Eisenger (1993), executives seek states in which they can live comfortably, i.e., where they can find: hospitals, schools, housing, leisure, and safety (as cited in Serrano & Sandoval, 1997)

…Importance of each Factor Anchor Companies Attract researches and PhDs, improve infrastructure, train employees, and attract other companies. Service providers are important because they contribute to the efficiency of operations (Calzonetti & Walker, 1991); Klein (1989)

Methodology… Data was gathered for each variable and for each State A ranking was assigned by State (1 for the best, 32 for the worst in each variable) All rankings were captured in a Matrix

…Methodology The user can assign weights to each factor, according to its perceived importance A weighted sum of rankings is calculated for every State The States are ranked according to their total score

Questions and Answers Thank you