Mexico IT Capability Background and Economy Political Environment Educational System Culture IT Diffusion Infrastructure Summary

Background & Economy Mexico is about three times size of Texas Mexico gained independence from Spain 1994 – Devaluation of peso caused significant recession 2000 – Vincent Fox elected president Natural resources: petroleum, silver, copper, gold, lead, zinc, natural gas & timber Population: 106,202,903 (2005) – 13 th most populous Ranked 14 th in GDP at $941 billion (1.3% growth) Ranked 84 th in GDP per capita ($9,000) – 40% of the population is below the poverty line

Political Environment United Mexican States – Federal Republic Chief of State & Head of Gov’t - President Vincent Fox Mexico joined the OECD in 1994 (Organization for Economic Co- operation & Development – 30 member nations) Accomplishments in Mexico since 1999 (OECD) Set up a national regulatory authority, COFEMER Made it easier to start new businesses Improved practice in the regulatory process through use of Regulatory Impact Analysis (RIA) Reduced restrictions on trade and put in place a consistent trade policy, along with a clear legal framework for domestic and foreign investors. Better integrated market openness and competition into regulatory reform

Political Environment NAFTA has helped Mexico (est. increased GDP by 5% in 2002), but hasn’t had the intended impact (World Bank report) Key Factors preventing higher levels of development growth Quality of institutions Lack of Innovation Deficiencies in infrastructure Remaining Issues (OECD) Further simplify the legal framework Enhance compliance and enforcement for regulations Simplify the tax system to help small businesses and citizens Strengthen regulatory authorities Increase competition in the electricity sector Clarify the functions and focus of the National Water Commission Consider constitutional and legal changes to reform the appeal process The government considers the lack of clean water and deforestation national security issues

Educational System 92% Literacy rate (94% male, 90% female) Vincent Fox - Literacy is one of the countries biggest issues Inefficient use of scarce R&D The Virtual University Created to offer graduate programs via satellite in mgmt, engineering, IT, etc. to remote campuses where faculty are not accredited in those areas Added a business channel with programming designed to develop the competitiveness of firms in Mexico Currently 1,000 classrooms in operation, particularly in small and medium companies, across the country.

Mexican Culture Hofstede Rankings Moderately Masculine High Uncertainty Avoidance – Very Religious Large Power Distance Low Individualism – More collective culture

Doing Business In Mexico IndicatorMexicoRegional Average OECD Average Difficulty of Hiring Index Rigidity of Hours Index Difficulty of Firing Index Rigidity of Employment Index Firing costs (weeks of wages) Source: The World Bank – “DoingBusiness”

IT Diffusion Low telephone density with about 15.2 lines per 100 persons (Rank - 17 th in the world) – privatized in Computers per 100 persons (2002) 283 TVs per 1,000 persons (2001) 10% of population (10 million) has an internet connection (Rank - 14 th in the world) 28 cell phone users per 100 persons (Rank – 12 th in the world)

Infrastructure Extensive use of Fiber-optic cable Support of EDI, but other technology standards are often not be present Many ISPs, low barriers to entry Cost of services have decreased & quality increased Leader in Latin America for Internet access Number of Internet Users

Infrastructure Dimensions of Internet Diffusion

Infrastructure Four phases of internet development in Mexico Introductory phase –Education initially drove internet diffusion Developmental phase –Gov’t invested in national backbone (1 st live in ’95) Duopoly phase –Telmex & RTN dominated market (legal protection until ’97) –True growth began Competitive phase –In ’99 other competitors joined the market –Number of users tripled in 3 years Source: “The Diffusion of the internet in Mexico”, California State University

Infrastructure First National Backbone

Summary According to a new OECD report: –Mexico has made good progress in reforming its regulatory policies and institutions –Still needs to reform key infrastructure sectors, such as electricity, telecommunications, water and financial services to make its economy more competitive Mexico is very appealing from an investment standpoint, with rising income levels, decreasing birth rate and a government that is pro-free market. This coupled with key trade agreements make Mexico an attractive market. The biggest challenges are: –Wage rate parity (creating a middle class) –Key infrastructure enhancements –Educating the population