The first half of 2017 has presented a complex picture in terms of strategic planning, operating framework and investments to sustain and gain new business opportunities. The low global economic growth, combined with the political uncertainty coming from the United States and Europe, are issues of concern to the board members of Mexican companies. Many businesses have faced the dilemma of stopping everything or continuing with their business development plans in terms of productive investment, innovation and market development programs.

This uncertainty has traditionally been linked to variables such as economic volatility, changes in interest and or or exchange rates, among other factors. However, the equation has now been complicated by the appearance of additional variables such as international geopolitics, the short and medium-term electoral framework, the pressure of the NAFTA negotiations, the aspects of the new governing administration of the USA, the effect of Brexit on the European Union, China and its development framework, and finally the Mexican presidential succession in 2018.

Despite the uncertainty, Mexico continues to be a competitive economic force in comparison to other emerging countries, as shown in recent exchange rates, the MEXIPC and the strength of the Banco de Mexico’s reserves. Furthermore, Mexico has recently replaced Canada to become the second largest exporter to the United States, behind China.

Nevertheless, the concern in the business world is focused on public finances, due to the increase of the historical balance of the public sector financial requirements (SHRFSP), which is the most inclusive method of calculating the public debt. The increase in debt could affect the sovereign credit rating, with a consequent effect on the total cost of the public debt, impacting on the Mexican Government’s various strategic investment programs.

This all suggests that 2017 will be a challenging year. In fact, the majority of large business leaders are expecting this year to be even more challenging than 2016, coupled with a weak sales growth of a single digit.

Customer-centered innovation

Faced with this outlook, boards and CEO’s need to remember what the main objectives of their businesses are: increase profitability, ensure regulatory compliance and keep sustaining results.

To achieve these objectives, it is crucial to adapt or find new business models and focus on new, more diverse opportunities. This implies that the company needs to become an ambidextrous entity. A company, which maintains and maximizes the current business with one hand, and introduces crucial innovative factors with the other by using disruptive technology and business practices to impact on:

• Productivity and efficiency (in operations, finance and human resources)
• The improvement of client interaction (with direct messages and social networks)
• An increase in the products and services on offer

Additionally, companies should encourage the use of Customer Centric methods such as IDEO’s Design Thinking, and promote a general action framework as seen below:

The introduction of new business arenas will allow for newer and more important business opportunities in other areas of the market, which will complement the current ones.

Experience has taught us that this plan of action is more current and suitable when operating conditions are limited in traditional markets, by integrating areas of additional growth into a market where the traditional competitors are already busy managing the crisis conditions that we have previously described.

Now is not the time to try and apply former economic or business models, which are usually limited by the environment’s conditions. It is the time to open up new areas of opportunity, which in normal business conditions would not usually be attractive in the short term.

Now is the time to apply a real disruptive innovation strategy that promotes the search of new business opportunities while also keeping a critical eye out. The time is now… when many of your competitors are sorting out their crises. It is a historic moment, we must trust in our business abilities and always be one step ahead. Go for it and good luck.

Climate change is a global phenomenon but is manifested in heterogeneous ways across regions. Even though least developed countries have a lower contribution to global greenhouse gas emissions, they are more sensitive to climate impacts and have a lower capacity for adaptation and mitigation. According to the UNEP’s Adaptation Gap Report, the costs of adapting to climate change in developing countries could range from US $140 billion to US $300 billion by 2030.

Current cost estimates of adaptation in such countries vary strongly in accordance to the level of global warming, the methods used to estimate them, the ethical choices made, the economic framework applied, and the assumptions made. But at least two things are certain: first, developments in technology, finance and knowledge are key to close the adaptation gaps, and second, the private sector has the largest potential to invest in such developments and benefit from them.

In the specific case of Latin America, countries are in a particularly vulnerable situation given the increasing frequency of extreme climate events and the low adaptive capacity of human systems. According to the UN’s Intergovernmental Panel on Climate Change, the projected mean warming for Latin America to the end of the century could range from 1 to 4°C. Such temperature changes will increasingly cause competition for natural resources and direct and indirect climate risks to the private sector. These risks can already be seen in terms of threats to security of supply of key industrial inputs, price volatility, and other associated disruptions in global operations. In light of this, business activity will need to become seriously redefined and rescaled to fit into a finite planet, governed by limits and scarcity.

In this context, governments in the region are already becoming more concerned with issues of adaptation to the shifting conditions and the proper allocation of the existing resources, which will probably be translated into increased regulation, scrutiny, and economic burdens for the private sector. Economic activity in the region is also becoming affected by shifts in the global political and economic centers. As power continues to move from industrialized nations towards emerging economies like China and India, trade structures and the demands placed by the new global buyers will also impose new burdens on local companies that want to participate in international markets.

Although consumer and employee mobilization is a relatively new phenomenon in Latin America, consumers are beginning to understand how they can exercise their power through mass mobilization in social media and purchase choice. In this regard, the contributions of international and national NGOs in getting some groups organized to demand that the private sector reduces its emissions and takes climate-related action has been notable. It is estimated that in the coming years pressure from civil society will continue to grow, demanding that businesses move away from a “doing more with less” approach and towards a reconceptualization of the products and services that they offer.  

In this regard, coordination between national governments and civil society has been key to translate global emission reduction targets into company targets. The challenge that lies ahead consists on securing increased private sector commitment, while helping companies to define voluntary actions that are aligned with the global targets, and that are properly established, measured, reported and verified. Last but not least, such transition towards a low carbon economy will continue to offer opportunities for developing appropriate financing schemes, technology, and capacities both within and outside the private sector.

A specific area of opportunity in this regard concerns the development and transfer of new clean energy technologies across the region, as well as the development of regional markets for renewable energies to help boost the transition to low carbon economy. To this end, frontrunner organizations will need to move ahead of government-led efforts and continue to support initiatives geared towards climate change mitigation and adaptation, particularly in terms of developing and sharing key information in areas such as low-carbon electricity, carbon capture and use, clean energy technologies, energy efficiency, and emissions reduction.

In this sense, collaboration between academic institutions in different countries, as well as coordination with and through international NGOs will be vital to advance the current global agenda. An example in this regard is the Renewable Energy Buyers Alliance (REBA), a collaborative platform created by non-profits World Wildlife Fund (WWF), Rocky Mountain Institute, World Resources Institute, and Business for Social Responsibility (BSR) that is helping grow corporate demand for renewable power and helping utilities and others meet it. Initiatives like REBA exist to make the energy transition easier, connecting corporate demand to renewable energy supply to produce a market that is in line with the greenhouse gas emissions reduction targets set globally.

Today, the financial services offered by banks benefit from the emerging trends of mobile apps. These apps even drive the emergence of new players in the value chain, including mechanisms to simplify online sales payment, crowdfunding, or raising of capital, which imply higher levels of financial-service adaptation, meaning financial inclusion with social or market purposes.

Technological advances allow organizations to increase their flexibility and decide to what extent within the value chain banking services offered may be performed by a third party; in other words, banking institutions can decide to focus on what they consider essential, indispensable, or strategic, and entrust activities such as design, management, and sales to companies that are not part of the Mexican financial system. These changes have become a catalyst to banking and non-banking access levels, promoting value generation and enabling the participation of new technological intermediaries.

This new reality will be fundamental to Mexico’s National Policy of Financial Inclusion, which is looking for a comprehensive financial system based on six key points: development of knowledge for the effective and responsible use of the financial system; use of technological innovations for financial inclusion; development of financial infrastructure in untapped areas; greater access and use of formal financial services among the neglected and excluded population; more confidence in the financial system through consumer protection mechanisms; and data generation and measurements to assess financial inclusion efforts.

Financial inclusion, how big is the challenge?

In 2012, 56% of the population had access to some type of credit, savings, or insurance product; in 2015, this figure increased to 68%. According to the 2015 National Survey on Financial Inclusion, there are 42.6 million adults who do not have an account in the national financial system; 11 million decided to stop being part of the system, and 31.6 million have never used it.

Of the 11 million former users, 50% canceled their accounts because they stopped working and didn’t need them to receive their salary; 10% had a bad experience with financial institutions; 10% didn’t use their accounts, and 5% was unable to reach the minimum balance required. The data is unequivocal; 24.1 million adults don’t have a financial product, although in 2012, there were 30.9 million non-users.

According to the Treasury Department, financial education and inclusion sustain the social development of the country and help include people with fewer resources in the benefits of the market economy; therefore, it is necessary to consolidate the objectives of the financial reform to achieve an inclusive system with more penetration capacity, to offer better products and services to the entire population.

Technology, a disruptive factor

The path to banking-services simplification involves several unresolved challenges based on the existing relationship between finance and technology, which has generated a new industry known as Fintech. This industry draws on the digital offer of client services while financial institutions manufacture banking services, which represents an unprecedented innovation. A third party deals with the client through a debit or credit card, without necessarily obtaining, lending, or protecting the values; the third party provides only the technological application between clients and the bank. Clients cannot necessarily identify the company, they would recognize only the brand that answers requests through their mobile devices.

As a benefit, bank users receive the convenience of multiple consolidated financial products through a single player, who will try to be more transparent and less expensive, offering a combination of products that can come from different financial institutions, banking or non-banking.

From a regulatory point of view, for new players it is easier to operate because the implementation costs of a banking structure are absorbed by banking financial institutions. It is simpler to create these new companies, because they do not have to comply with legal and leadership-experience requirements, or even the legal mandatory capitalization levels to address the liquidity of the institutions. It is how new providers enter the banking-services value chain without constituting themselves as a bank, and the combination of cooperation between both institutions is beneficial for the client experience.

Besides technology and bank penetration, another change factor is the increasing interconnectivity between industries, which allows communication to be enhanced between banking-service providers and clients, who do not have to visit a bank branch. Also, huge amounts of data can be generated that contribute to the understanding of consumer activities, reducing obstacles to credit access. 

For example, the alliance between airlines and financial groups makes it possible for clients of both companies to request during a flight a credit card or a financial product designed exclusively for them. Through these products, companies promote customized packages, combining benefits and gratuities through purchases and travels with the purpose of granting membership;  flight attendants deliver the credit application to clients, and the banks receive the information without an additional acquisition cost, since the airline provides direct access to its consumers while they are traveling. Consumers do not commit to two or five different institutions so they can have access to their services; they have contact with only one of them.

It is important to highlight that services are still slow and present certain inconveniences to users; also, the lack of client visits to bank branches has forced institutions to look for new ways of generating a commitment. It reflects a regulations gap for very specific activities, such as telephone calls to users to get them to authorize banking products without a specific verbal agreement, which upsets users and leads to confusion that may result in additional unknown charges.

Lower operational costs due to increased technology use

Along with the heightened development of mobile apps, the economic pressure of the competition is also rising, forcing banks to innovate and continue offering attractive services for clients, maintaining their profitability levels by providing the same value differentiators as the institution.

It is possible due to the increased capabilities of institutions, which, through technological tools, have designed new changes in the value chain to respond to the innovation needs of banking services, because it is necessary to maintain the attention of clients by adapting to their lifestyle, which is trending toward digital technology.

Workflows and processes formerly performed physically by employees at a bank branch are being replaced by digital interfaces that simplify the positioning of a banking product, since digital operation provides business intelligence by capturing all the data generated by the same transactions, so there is an increased knowledge of client behaviors and needs to develop products better and to innovate to create better client experiences.

Results trend toward reducing physical visits to bank branches by providing users with better tools that offer them self-sufficiency in their personal operations from their mobile devices, with automated transactions of programmed payments based on client criteria, such as direct billing, which does not require a frequent action from users because the system makes financial operations automatically through a technological platform.

Beyond the administrative process, the awareness generated in consumers allows them to manage their personal assets better, because they understand their consumption trends, categories, and ratios, according to their priorities, which provides them knowledge about their own financial limits through applications that store their spending and consumption behaviors.

Most innovations are proposed by new players, which allows banks to focus on their strategic activities and transfer the responsibility of the new technological proposals to Fintechs. Considering them part of the value chain, banks have started to invest more human and economic resources in opening and adjusting processes to improve their value offer; one example is that some financial groups have chosen to have database-code-testing environments for independent programmers to propose changes to digital platforms without being hired, generating an unlimited international cooperation environment.

Since banks and new companies relate to each other by navigating the financial ecosystem, both most assume the challenges of increasing bank penetration and financial inclusion within a proper regulatory framework, acknowledged and accepted by central banks.

Limitations in Mexico

Mexico is a developing country, which implies a limited context for banks from a cultural and societal point of view. The Mexican lifestyle limits the implementation of a series of banking activities due to external obstacles, such as a lack of Internet access to make transactions, limited mobile-device capabilities, and economic informality, among others.

According to the WEF study “Global Information Technology Report 2015: ICTs for Inclusive Growth,” in factors such as connectivity levels and access to devices, an increase in mobile broadband Internet subscriptions, and the importance of ICTs in the government vision, Mexico is in 82nd place, out of 143 countries. Regionally, Chile is the leader in Latin America, in 38th place, Colombia is 64th, and Brazil is 69th.

Due to its close relationship with technology, the scope of banking services depends on social progress; therefore, Mexican citizens will be able to leverage the tools offered by banking institutions and attain financial inclusion as they obtain better mobile devices with access to the Internet.

A new scenario: Connected factors

Technology has undoubtedly become the greatest disruptive factor in the financial sector in general, and of the banking sector in particular. The new disruptive players cannot be ignored and must be dealt with soon; 20 of the largest banks in the world have lost a fourth of their combined market value which, according to FactSet data, totals approximately U.S.$465bn.

How does this scenario affect Mexico? Five of the seven largest banks in Mexico are foreign and are part of some of the main global franchises, contributing significantly to their profits.

Everything is related to the analysis of the banks’ market value loss, since the devaluation of bank shares makes employees increasingly concerned, and compensation packages including shares options or restricted values are suddenly less attractive, impacting their structure and performance. In the specific case of Mexico, the National Policy of Financial Inclusion must be led to a safe harbor, since its purpose is to achieve an inclusive financial system capable of offering people opportunities and of fighting informality and illegality (in 2014, INEGI’s preliminary figures showed that the share of the informal economy accounted for 23.7% of GDP).

It implies a considerable effort, since the group of factors that are currently determining bank value loss—such as the Chinese economy, U.S. interest rates, oil prices, and the Brexit—will continue building market pressure, as well as other issues, and given the share of foreign banks in Mexico, it could affect the long-term goals of the country.

In the 1st of June, 2017 President Trump made good on his campaign promise to pull out from the Paris accord on climate change. This withdrawal followed an executive order signed in March that rolled back key Obama-era climate policies.  More specifically, emissions rules for power plants (known as the Clean Power Plan), limits on methane leaks, a moratorium on federal coal leasing, and the use of the social cost of carbon to guide government actions have all been rescinded.  As the second biggest polluter behind China, the U.S. played a key role in meeting the Paris goal of keeping the planet’s warming under 2 degrees Celsius.

World leaders condemned President Trump’s decision to quit Paris climate accord in a chorus of global disapproval1. So why should we be worried? First, the withdrawal increases uncertainty. Current U.S. investment in clean energy may be impacted. As Europe and China continue to invest in clean energy technologies in response to the climate change threat, the withdrawal will undoubtedly reduce the U.S.’s ability to foster clean-tech, and alternative energy innovations and industry thereby reducing its competitiveness and ability to transition to a low-carbon economy. Given the U.S. leadership in innovation, this will be a tremendous loss to not only the United States but society as a whole.  

Second, the U.S. withdrawal may also incite calls in Mexico and Canada to abandon their environmental/climate change efforts so as to remain “competitive”. In Canada, for example, the opposition party is calling on Prime Minister Trudeau to abandon its proposed price on carbon in light of the U.S. executive order.  Yes, the international context matters, but do we want to go down the same path as the U.S.?  The scientific and academic communities have spent two decades studying climate change. This research has shown that climate change is real and worsening and will have both a human toll and cost cities billions of dollars in damage every year if efforts are not undertaken.  In fact according to The New York Times, American representatives of over 30 cities, three states, more than 80 universities and over 100 businesses are preparing to submit a plan to the United Nations pledging to meet the US greenhouse gas emissions targets under the Paris climate accord despite the US withdrawal2.  

Successful business and government leaders look at the facts and project into the future. Their strategic and policy decisions are based on what they believe the world will look like tomorrow. The threat of stranded or unrecoverable coal, oil and gas reserves is real and a financial risk that many investors are seriously considering when deciding where to place their money3. Countries dependent on the fossil fuel sector need to take this risk seriously. The long-term competitiveness of these countries will depend on how they transition to a low-carbon economy.

Both Canada and Mexico have enormous clean energy resources.  Canada has a massive natural potential for the development of renewable including wind and solar resources, tidal and geothermal energy, and hydro4 while Mexico has huge wind5 and solar6potential.  With the U.S. reneging on its climate leadership, Canada and Mexico should take the baton and become the North American leaders. A new industry is being built around renewables (e.g., the electric car) and it is imperative that we participate in its development. In doing so, Mexico and Canada, their citizens, and their businesses will be better prepared for the transition to the low-carbon economy7.

Climate change is a global issue that must be addressed as a team, when one player/country falters; the others must step up for everyone to prosper.  Climate change is a long term economic reality that governments and businesses must address – we all share one planet and the planet must be protected – climate change is not only an energy security issue it is also a national and food security issue. Cooperation at all levels, from governments (federal, provincial, state, territorial, municipal), industry, non-governmental organizations, indigenous peoples and civil society is needed to move us from a state of reaction and defensiveness to a state of pro-activity and adaptability.  I end this article with a quote published in 1903 whose message is as relevant today as it was then.  Let’s not let this withdrawal stop our progress.

It is among those nations that claim to be the most civilized, those that profess to be guided by a knowledge of laws of nature, those that most glory in the advance of science, 
that we find the greatest apathy, the greatest recklessness, in continually rendering impure this all-important necessity of life…

                                                                                  Alfred Russel Wallace,
Man’s Place in the Universe, 1903

In the year 2000, 95% of the world’s largest organizations were located in developed economies.  By 2025, almost half will be located in emerging economies.  Furthermore, between 2010 and 2025, four hundred and forty cities located in emerging markets will account for almost half of world GDP growth. If executives and organizations are to achieve success in this new global environment, then the characteristics of the new global normalcy in these types of economies should not only be taken into consideration, they should be a focal point.  Success in emerging markets will be strategic for any organization and multinational in the near future.

Known as the largest democracy in the world, India is an economic giant that is experiencing rapid growth.  It is a nation moving towards the third millennium at great speed, without losing touch with its past and its age-old culture.  In a couple of decades, it will be the world's most populous country, as well as one of its largest economies, with new poles of development such as Ahmedabad, Bhopal, Vadodara, Jaipur, Aurangabad and Nagpur, in addition to those we are already familiar with such as Mumbai or New Delhi.  By the year 2030, it will be the country with the largest middle class population, and will account for the highest percentage of global middle class consumption.  However, it is also a complex market posing great challenges relating to corruption, employability, uncertainty and extreme bureaucracy, as unfortunately occurs in other emerging economies such as Latin America and Africa.  Those very characteristics, along with its scale and dynamism, position India as a benchmark for understanding the new models of management and leadership required of executives and organizations.

Recently, new enterprises have emerged from India such as the telecommunications company “Jio”.  While it took Facebook almost a year to reach fifty million users, this organization did it in just three months, despite only having begun operations in September of last year.  Today, barely half a year since starting up, more than one hundred million people are using its services.  Other similar developments and endeavors have also emerged in the country recently.

The accelerated pace of technology adoption drives rapid innovation in our organizations.  And this will be a key feature of emerging markets in the immediate future.  These innovations will grow exponentially, beyond our ability to anticipate them.  Furthermore, they will grow in spite of uncertainty, nationalism, and changes such as those observed recently all over the world.  This presents an enormous challenge as long as we intend to extrapolate our old styles of leadership and our traditional forms and styles of analysis and decision-making.  Many assumptions, tendencies and habits, proven to be stable during decades of executive management, are now changing in a rapid and radical way.

In the same way that India as a civilization has adapted and survived various invasions and conquests since its prehistoric origins, the ability to change, rapidly innovate and adapt, without losing our essence, will be key to the success of individuals and organizations.  One of the greatest challenges we face, is how to move quickly towards the future, taking with us only those parts of our essence and our past that serve us best.

These changes will take place in new environments, where in order to compete and stand out, the use of technology, data and information will be fundamental.  The government of India, for example, has decided to integrate the information held on its population, into a single central system (Aadhaar) that assigns each citizen a unique identifier based on their biometric and demographic data.  Through incentives, they have encouraged citizens to open bank accounts and become part of the formal economy.  They have also developed innovative platforms such as Paytm (‘Pay through mobile’) to contribute to this objective.  This will allow the government to identify, measure and understand the activities of its citizens in order to better serve them.  Just as organizations do with their customers and markets, integrating data and information is the first step to developing public policies that truly support and develop individuals and organizations in the new global dynamics.

In spite of its enormous size and complexity, India is changing, and it is doing so rapidly.  This shows us that the greatest challenge to triumphing in emerging markets and in the new global dynamics, will be associated with opportune and adequate changes to the leadership, culture and management models in our organizations.  We must question our principles and “reinvent ourselves;” especially in those companies that have enjoyed great success to date.  Leaders and organizations must watch and learn in order to adjust to this new reality, although we don’t yet fully understand its magnitude and second and third order effects.  And this is of fundamental importance in emerging economies such as Mexico and Latin America.  Either we do it quickly and effectively, or someone else will beat us to it. 

Global business is undergoing a deep and accelerated process of change that is disrupting the status quo and the certainties that until recently defined it.

In a short time, technological and scientific advances, such as artificial intelligence, nanotechnology, the internet of things, robotics, autonomous vehicles or quantum computing, are transforming the economic and competitive landscape, disrupting whole industries and creating new ones. Concurrently, there are growing concerns about the rise of economic nationalism, anti-globalization and populism in different parts of the world and their impact on business and society.There is evidence of a growing mistrust in the globalized economic model and in the capacity of leaders and institutions to solve global challenges, including inequality, poverty, corruption, unemployment, climate change and migration.

Whilst the exponential change from technological capability provides the opportunities to advance significantly in solving major current problems, there is  a concurrent challenge for societies that that do not adapt or solve important educational challenges. In spite of the context, a highly connected global economy becomes even more interconnected and technology will continue to drive and impact market and societial development beyond conventional geopolitical boundaries.  In this context, the most important challenge is leadership.
 

EGADE Business School recently celebrated the fifth anniversary of the Global Network for Advanced Management (GNAM), a network of 29 global business schools on five continents of which EGADE Business School is a founding member, and through which communities, stakeholders and resources connect to drive innovation and value creation. In this context, we reiterate an important founding principle: to develop leaders who can  thrive in diverse and complex contexts, with a global vision and experience.

At Tecnológico de Monterrey and EGADE Business School we prepare the leader for this new era. An inclusive, responsible and adaptive leader, able to integrate complexity and respond to a changing environment: a transformational leader with a positive vision of the future and with the character and skills to transform our organizations, as well as to create businesses and solutions that promote a shared prosperity.

Thus, we move forward in our commitment to move towards a society with more opportunities, based on trust, that leads to a competitive economy, with the potential for innovation that only the new transformational leaders will be able to inspire and achieve.

*Originally published in Tec Review.

Globalization encouraged companies to design and implement their business strategies to take advantage of the competitiveness of each region, configuring and adapting the value of their supply chains in manufacturing, investment, and trade. It’s clear that the global value chains took years to configure, with the flexibility to respond quickly to changes in technology and consumer trends, and regulations and financial cycles, among many other global economic factors. However, this status seems to be facing challenges, mostly from political events and apparent anti-globalization postures in several countries, including the USA, the UK, and many others around the world. The question that arises is how these politically led movements and governments will impact the competitiveness of the current global value configuration? In practice, what does it mean in terms of changes to regulations and benefits of trade and direct-investment agreements, double-taxation treaties, property-rights protection, environmental regulations, and quality standards, among many other economic factors that define the feasibility of both production and consumption? 

The impact of the future of globalization or anti-globalization depends on several factors. Some of these factors are the political and economic views of the new generation of leaders and governments on how profound and deep the changes in trade and foreign-direct investment regulations will be, new tax configurations, changes in rules of origin within trade agreements, environmental and logistics regulations, and the non-trade-related issues that governments would probably like to tie to trade, such as immigration, security, border crossings, and democratic processes, among other issues.

How will this new status quo impact a trade-dependent country like Mexico? It depends on how fast governments and companies come to understand their current situation and potential changes, the effectiveness of their capacity to change their global value chains to maintain their competitiveness, and their capacity to negotiate or renegotiate trade regulations with potential partners. We need to remember that changes in a global supply do not come about from one day to the next; it might take years before a company can reconfigure its sourcing, manufacturing process, logistics planning, and so on.

There is no time to waste. The business leaders of multinational and domestic companies must be prepared to understand and evaluate the business environment, to foresee the possible changes, to evaluate challenges and economic impact; they must be able to reconfigure management and organizations, be assertive negotiators with governments as well as with suppliers and customers, and to evaluate and design new processes, products, and customer-service management.

As a proud Global Network for Advanced Management partner, EGADE Business School is preparing the transformational leaders that this new paradigm demands: innovative leaders with global vision and experience and the character and competence to create and instrument sustainable change for business and society.

The main idea of TPP was to augment multinational agreements to compete with superpowers such as China, which was not part of the agreement. However, paradoxically it is now China who could benefit by replacing the USA in TPP. This subsequent reconfiguration has the added potential of polarizing geopolitics in some regions. 

This could cause mixed feelings for Mexico. On the one hand, it would allow Mexican imports to enter into new markets, but on the other, it would have to define a clear and objective strategy that differentiates and adds real value to its existing markets, as well as the new ones. This strategy would have to avoid being seen as trying to compete with landmark countries such as China (especially after they join the WTO), in terms of the main competitive advantages on offer, including low currency values and cheap labour, and show that the merits and potential of each of the economies can elevate them both further. They must seek to diversify a market which cooperates and accommodates as much as possible. We must also not forget the trade deficit speeches that played an important part in the US presidential campaign, with the USA having a deficit of 28 Million Dollars with Mexico as of December 2016 (This figure includes intermediate goods, due to the nature of trade relations between the two countries).        

Is this the end of our commercial alliance with the US?

The NAFTA region is also being challenged by the renegotiation of its agreement. It is an important moment for Canada, the United States and Mexico, as the first two have stated their intention to continue with their trade agreements, but the latter two have differing views on the benefits of the agreement. This is despite Mexico being the USA’s second largest export market with 211.8 Million Dollars in 2016, and the USA being Mexico’s largest export market with 270.6 Million Dollars in the same year. This is down to the huge integration of production lines in several sectors, such as manufacturing, specifically in the mass consumer goods industry for example.    

A possible duty increase of between 20-35% for products passing from Mexico over the northern border may affect different sections of both markets in terms of cost, investment, inflation and employment, hurting both producers and consumers. So, instead of getting involved in a trade war or declaring who the winners or losers are with an emperor-style thumb, should both economies not just see each other as integrated regional production lines that reap each other’s benefits, and consequently become even stronger in the face of other trade blocks? An astute model, which takes into consideration the size and distance of markets to explain bilateral trade patterns was a much better economic explanation for trade agreements, such as NAFTA, than the political model which is being demonstrated at the moment. 

One thing for certain is that an interruption in the highly integrated global supply chains such as those in the US and Mexico will affect the interdependence that both countries have. The tariffs on Mexican products are not the answer and will not benefit either country. The past has shown us that these types of protective measures are detrimental for both producers and consumers. 

The IMF growth forecast for Mexico has been falling in the last months from 2.4% to 2.1% and most recently to 1.7%. Now is the time to strategically rethink an economic plan that includes trading in both old and new markets, as well as considering the technological, social and political variables in today’s dynamic but uncertain environment.