|Latin America IV 2000
|Mexico: The 21st Century IT Marketplace
|Secretary of Economy
Information technology (IT) has changed the way the world works. The storage, processing, retrieval, transmission and diffusion of information has not only changed the way people communicate, but also the way that businesses relate to their customers and to each other.
As IT expands beyond the US, Europe and Japan, unprecedented business opportunities will emerge in Latin America in general and Mexico in particular. Although Internet penetration in Mexico is still low compared to other parts of the world, the rate of growth is impressive. By the end of 1998 there were one million Internet users in Mexico. Today, this number has more than doubled, and is expected to reach six million by 2003. Institutional Reform Mexico’s progress in creating oppor-tunities for IT is built on a foundation of broad institutional reforms. Since 1996 its economy has grown on average 5.2 per cent every year. Among emerging markets Mexico is now the third largest foreign direct investment recipient. This remarkable performance can be attributed in large part to a set of policy reforms that transformed Mexican economic institutions. Structural reforms have enabled Mexico to emerge as a modern market-driven economy in which the private sector has become the main engine of economic activity. The institutions that implemented and sustained this regulatory reform have played a key role in the modernisation of the Mexican economy. Among the most important of these institutions are the Federal Commission on Regulatory Improvement (2000), the Mexican Institute for Intellectual Property (1994) and the Federal Competition Commission (1993). In addition to regulatory reform, Mexico has undertaken major legislative changes that have liberalised network industries and opened economic sectors, previously reserved for the state or Mexican nationals, to foreign investment. Of particular note is the enactment of laws governing trucking and bus transportation (1989-1990), maritime transportation (1991-1993), co-generation and self-supply of electricity (1992-1993), ports (1994), telecommunications (1995), railroads (1995), natural gas (1995), satellites (1995-1996), civil aviation (1995, 1998), and airports (1997-1998). These and other reforms have spurred investment (both foreign and domestic) and increased the competitiveness of firms operating in these sectors by reducing the cost of complying with regulations and by providing better quality infrastructure services. Transforming the IT Sector The most important changes that have promoted growth and innovation in Mexico’s IT sector are those that increase competition. The deregulation frame-work for introducing competition in network industries, especially in telecommunications, was established through the 1995 Federal Telecommunications Law. This law mandated the creation of the Federal Telecommunications Commission (COFETEL) by 1996. The Commission has overseen the trans-formation of the telecommunications market, which was formerly a legally sanctioned monopoly, into a multi-carrier environment in which firms provide basic and enhanced telecommunication services. Deregulation has also promoted growth in new areas in which investors have identified a huge potential in the Mexican market, including Internet service providers (ISPs), paging, business-to-business marketplaces, electronic commerce consultants and application service providers. To compete effectively in the new global economy, Mexico’s Ministry of Commerce has modified the legal framework to encourage greater use of new technologies. Specifically, it has modified four existing laws which will facilitate electronic commerce by recognising and accepting the use of electronic signatures as a valid medium to carry out electronic transactions. Today, Mexican authorities are working with the private sector to determine the best mechanisms to ensure security and privacy in Internet transactions. Taking Advantage of Mexico’s Network of Free Trade Agreements While Mexico has paid special attention to improving domestic network industries and strengthening institutions, we have also established an extensive network of free trade agreements which has granted Mexican companies preferential access to 28 countries with a potential market of 850 million consumers. They are permanent institutions that provide certainty and continuity for investment decisions. These include the two largest and most dynamic markets in the world – North America and the European Union. These agreements have helped make Mexico the eighth largest exporter in the world and a major player in international trade. “Mexico offers business… an environment that provides legal certainty and market access to the most dynamic economies.” Mexico is now a strategic global manufacturing centre where firms can produce for a market of almost 100 million Mexicans and can export on a preferential basis to a wide and diversified set of international markets. As Mexican and foreign firms partake of this network, their need for state-of-the-art IT support will grow. Mexico offers business – from basic manufacturing to cutting edge IT – an environment that provides legal certainty and market access to the most dynamic economies. Legal certainty Mexico’s network of free trade agreements guarantee certainty to trade and investment activities because it establishes a permanent, transparent and clear set of rules. These rules provide a predictable business environment that facilitates strategic decisions that will raise long-term investment returns. Furthermore, Mexico is a signatory to the Basic elecommunications Agreement under the General Agreement of Trade in Services (GATS) framework. Secure market access Our network of free trade agreements has enabled us to export products with preferential tariff treatment and has given Mexico a high degree of privileged market access. For example, when a European company can import raw materials from the United States, or any other country that has a free trade agreement with Mexico, paying either a preferential tariff or none at all. The same company could export the final product and receive preferential access in any one of our trading partners markets if the product complies with the rule of origin established in that specific free trade agreement. Building International Co-operation in IT As it is increasingly adopted by Mexican business, e-commerce has the potential to enhance the already great advantages that NAFTA offer. Mexico knows that keeping up with IT innovations will translate into guaranteeing that NAFTA’s incentives to trade remain over time as Mexico will be able to take advantage of the ease and speed of electronic transactions with other markets. A Look Into the Future The companies that today locate in Mexico include not only the traditional large corporations, but also new entrants with different sizes, products and international strategies. Largely as a result of institutional reform, Mexico has seen an increase in the number of small and medium sized firms. In 1993 about 21,000 firms exported from Mexico. By the end of 1999 this number had increased to more than 37,000. Conclusion In spite of this impressive transformation of the Mexican economy, Mexican firms are still in the process of implementing new technologies required to compete effectively in the global marketplace. Companies are increasingly using the Internet as a new channel to market and sell their products and services. While Mexico represents a huge potential market for electronic commerce, it currently has a relatively low penetration of Internet users. Given that Mexico’s population is almost 100 million, and more than 50 per cent of it people are younger than 22 years old, there is plenty of room for growth in the IT sector. Moreover, Mexico can provide IT companies with a highly skilled labour pool to satisfy the growing demand for these services at home and abroad. In this respect, Mexico offers an ideal location for IT investors to produce locally and compete globally.