Discussion Brief for the Export Strategy-Maker

Last year, Gross Domestic Product (GDP) reached 6.9%, population was approximately one hundred million (33% under fifteen years old) and the fiscal deficit was 1.1% as a proportion of GDP.

The economic growth rate averaged 5.5% during the period from 1996-2000; the inflation rate dropped to one digit (8.9%); the unemployment rate was 2.3%; and one of the most important facts is that exporting performance was sustained (17% yearly average growth from 1995-2000).

At the beginning of 2001, Mexico stands out as the eighth exporter worldwide and first in Latin America. Total value of international trade surpassed USD 340.9 billion by the end of 2000.

The World Competitiveness Scoreboard 2000 (IMD) considers 49 economies, and places Mexico in 36^th position, below Brazil, Portugal and China, but above India, Argentina and Russia.

Background

Globalization has been a powerful engine for worldwide economic growth. Particularly, policies that promote trade and investment liberalization and non-discrimination have been important.

Clearly, a set of governmental polices from major countries influenced the advance of globalization and the ways in which domestic economies reacted to a more competitive international environment. Mexico was not the exception.

During the 1980´s, Mexico began an ambitious plan of modernization and transformation at all levels in order to participate more fully in the global marketplace. This included developing a commercial policy based on liberalization, deregulation, privatization and integration, and a flexible exchange rate policy.

In response to international trade dynamics and through government policy, the country has looked for ways to provide the best conditions for exporters' performance and to attract more foreign direct investment (FDI).

Mexico had to react rapidly and modify its legal framework. At the same time, new promotion strategies were initiated and new opportunities were available according to the country's competitive advantages ("We had to change the direction while going 100 mph").

Export promotion

Since 1986, the export promotion strategy together with the attraction of foreign direct investment (FDI) was entrusted to Bancomext, a bank founded in 1937 to finance Mexican foreign trade.

Regarding trade promotion activities, Bancomext follows the rules established by the Economy Ministry, and carries out the Ministry’s programs.

Both financing and exports promotion allow the Bank to offer integral support to take advantage of economics of scale, to improve the knowledge regarding the performance of small and medium-sized enterprises (SME), and to facilitate the credit process.

The financing and promotion binomial contributes to reduce risk, from banking point of view, and makes it possible to understand the bottlenecks in production chains.

And, according to Porter’s competitive concepts, it is possible to divide the value chain into specific productive branches and identify areas for opportunities.

Therefore, economic and human resources can be provided in efficiently way, and follow-up and evaluation become easier.

• Increase Mexican exports of non-oil goods and services
• Add value to exports and increase the national content of Mexican exports
• Link production chains
• Develop Mexican suppliers and exporters
• Diversify target foreign markets
• Attract foreign direct investment and fostering strategic alliances
• Achieve total client satisfaction
• Improve operative ratios and efficiency of operation

Bancomext does not receive any transfer of fiscal resources from the federal government. However, the Bank is perceived by the main international financial markets as one of the most prestigious and trustworthy entities in Latin America, whose credit standing is solid and well accepted.

Last year, USD 4.4 billion of loans, guarantees, and solidary obligations were disbursed to foreign trade operations (Figure 1).

Of the total credit and guarantees portfolio, USD 3.8 billion were granted to direct exporters to cover working capital necessities, as well as to expand and modernize their production facilities.

USD 394 million were given to support the incorporation of suppliers into the export chain, to acquire technology and to expand facilities.

In 2000, the number of firms that received financing from Bancomext´s credit programs reached 1,945. All of them were assisted on-site by branch offices throughout the country.

Financial resources given during the year 2000 encompassed a wide variety of high export potential activities, such as: Food (fresh, processed and fishing), 18%, Textile and apparel 17.5%, Chemical and pharmaceutical 8%, Metal-mechanic industries 8%, Tourism 6%, Furniture 4%, Household building materials 3.2%, Automobiles and spare parts 3%, Energy 13% and others 20%.

Bancomext has 36 branches throughout the country (Bancomext Centers) and close to the main production sites, and 43 offices abroad (Trade Commissions), located in the most dynamic cities for international trade, in Canada, USA, the European Union, Latin America and Asia. In 2000, Bancomext provided the following trade promotion services:
 

Good credit practices, efficient risk management, and charging for promotional services are keys to Bancomext's operations, in addition to the continuous improvement in the quality of financial and promotional services in order to achieve clients' total satisfaction. Figure 4 shows Bancomext's Promotion Assistance Model.

At present, Mexico is recognized as one of the most open economies. Mexican products have preferential access to almost one billion consumers as a result of free trade agreements signed with more than 30 countries all over the world.

This unique circumstance constitutes the basis of the Mexican Trade Promotion Model, which is managed by Bancomext under its Exporter Development Approach. 

Globalization has emphasized competition in the business environment. The paradigm of our time is competitiveness, and countries, companies, and people are aware of competitive advantages.

Thus, promotion programs and support schemes in Bancomext are directed at encouraging the competitiveness of the small and medium-sized Mexican exporters.

The problem with Mexico’s export supply is not related to market share, but to have enough production in terms of volume, quality, and price, in order to fulfil the consumers' requirements anywhere.

Some forms of trade have become especially important in the context of globalization. For instance, international sourcing (understood as the purchase of semi-processed or intermediate goods from foreign sources) has grown faster than domestic sourcing and now accounts for at least one half of all imports by major countries. As a result, intra-industry trade has risen significantly.

Imported intermediate goods are particularly important and have grown rapidly in technology intensive assembly industries, such as computers, electronics, aerospace, motor vehicle, as well as textiles and clothing.

The industrial situation described above contributed to define the second part of Bancomext's Promotion Model: Development of Suppliers, accompanied by schemes to integrate productive chains. Bancomext has encouraged strategic alliances between Mexican and foreign industries. Figure 6 shows the process.

Research and intensive development (R&D), high wage products and industries have taken an increasing share of international trade. In these industries, import penetration and export coverage tend to be higher and intensify the international trade flow against low tech and low wage industries. We are referring to knowledge economy industries.

Mexico recognizes that knowledge is critical for development. "For countries in the vanguard of the world economy, the balance between knowledge and resources has shifted so far toward the former that knowledge has become perhaps the most important factor determining the standard of living -more than land, than tools, than labor" specifies the World Bank Knowledge for Development Report.

Mexico lacks monetary resources to support all fields of its industries based on scientific knowledge simultaneously, but encouraging foreign direct investment fosters technology transfer. This is the third part of Bancomext's strategy.