World View: Mexico - The land of close horizons

Thursday, June 04, 2009 | Posted by: Grant Thornton
Categories: Financing , Environment | Tags: economy, international, financial crisis, employment, mexico, political instability

Entrepreneurs in Mexico face political instability as well as economic problems. Hardly surprising, then, that they take care of today and let tomorrow look after itself. How to manage the crisis? Hector Perez provides some insights.

THE SITUATION ‘Although the economy of the Latin American region has grown over the past six years, we have a history of economic failures and changes in the political systems that have resulted in a culture of short-term thinking. Despite current political stability, general elections this year mean that there is a chance that the majority of the congress is going to be with the opposition and not the president of Mexico.

‘Another problem is that the Mexican economy has strong ties with the US; 85% of our total exports go there, so when the economy is down there, it causes problems here. With the current devaluation of the Mexican peso against the US dollar – the dollar increased 30% in the last few months – there are real problems for Mexican businesses.’
THE RECOMMENDATION ‘We are encouraging clients to reduce costs that do not give them added value to their business. However, it’s important that businesses avoid cutting employment. Customers are needed to survive and, if businesses cut employment, they are not going to have any consumers.

‘We’re also getting clients to focus all their efforts in liquidity. With more cash, a business can compensate for the lack of demand and today’s shortage of credit. Businesses should also claim as much in tax reductions and tax savings as possible. We’re suggesting that companies should be very, very aggressive about offering credit time to clients, as well as trying to get discounts from suppliers on a temporary basis. Everybody needs to help each other to solve these problems.

‘This is not the first crisis we have faced, so our advice is not to panic. However, this is the first financial crisis that we have not produced ourselves; it’s an imported issue that is affecting everybody, which is different. Businesses need to focus all their efforts at the problems they are facing today, and then they will be stronger when the crisis begins to decline.’

Hector Perez is the managing partner of the Grant Thornton international member firm in Mexico.