Latin American currencies—the Mexican or Colombian peso—like the currencies of other emerging economies, have fallen sharply against the U.S. dollar in the past few years, losing nearly half of their value. This surge in the exchange rate poses a risk to these economies, as it can be reflected in consumer prices, limiting people’s buying power and having a negative effect on the productive sector.

However, not all central banks have reacted in the same way, or at least not with policies that affect the exchange rate directly. What policies have they followed? Is one of their priorities keeping the exchange rate stable, or does price control have more weight in their decisions?

My recent research with Dr. Francisco G. Carneiro, from the World Bank, and Dr. André Varella, from the University of Texas Río Grande Valley, was published by the World Bank’s Policy Research Working Paper Series and analyzes the relationship between interest rates and exchange rates in emerging economies, based on their inflation-targeting policy. Called “Inflation Targeting and Exchange Rate Volatility in Emerging Markets,” the article compares countries where the central banks react to volatile exchange rates with the use of inflation-targeting mechanisms to countries where they do not.

Since the 1990s, central banks have put most of their effort into guaranteeing long-term price stability by using inflation-targeting policies. This policy was first used by central banks in developed countries such as New Zealand, Canada, England, Sweden, and Australia, but recently, emerging economies such as Brazil, Chile, Israel, Peru, and Mexico have started to use variants of it. So far, the countries that have adopted the inflation-targeting plan have managed to keep inflation rates down. In some cases, GDP growth has improved. But has it been as effective in keeping the exchange rate from being so volatile?

To find out, we analyzed the relevance of the exchange rate on the reaction function of the central banks of 24 emerging market economies; 9 of them have inflation-targeting policies (inflation targeters—IT), and 15 of them do not (non-inflation targeters—non-IT). The sample included Latin American, Asian, African, and Eastern European countries and used data from the first quarter of 2000 through the second quarter of 2015.

Research on the topic suggests that it is important to consider the exchange rate as part of the inflation-targeting policy package, as it interacts with other factors. For our research, we took these implications and other endogenous factors into account. Our first analysis shows that IT economies have lower average inflation levels (3.97%), compared to non-ITs (6.27%), and have less-volatile exchange rates (0.28%) than non ITs (0.73%).

We also noted that while central banks in IT and non-IT economies do not usually react to economic growth, they undoubtedly place different importance on inflation and exchange rates. On the one hand, we noted that central banks in non-IT countries reacted to exchange-rate fluctuations, but only during the period leading up to the Great Recession (2008), suggesting a structural change in actions taken by central banks, with more importance placed on inflation and less on exchange-rate volatility. On the other hand, the results show that central banks in IT countries do react to inflation movements but rarely to other factors such as short-term economic growth.

These results confirm that inflation-targeting policies have helped central banks set price expectations, making their macroeconomic management easier. However, it may not be appropriate to use an IT plan in every country. To be successful with this approach, countries must make sure that their central banks are independent, must define short- and long-term inflation targets, must be transparent with the information they present to the markets, and must report on the targets set.

Latin America and the Caribbean, along with Sub-Saharan Africa, have the highest rates of people involved in creating a new business, according to the Global Entrepreneurship Monitor (GEM) project. In its 2015 report, Mexico has a 21% rate of first-stage entrepreneurial activity, an indicator that measures the ratio of the adult population involved directly in the creation of a new business in the last 3.5 years. In other words, one in every five Mexicans adults is consider an early-satge entrepreneur. This indicator has also grown in recent years, above the regional average.

However, not all of this “entrepreneurship activity” has or has had a direct impact on the country’s development. Even though there is a growing dynamism in the absolute number of new businesses created in Latin America, they have had very little impact on the economic growth of countries, due to their low level of innovation. The primary driver in the regional entrepreneurship activity should move from a self-employment, low value-added pattern to a high-growth transformational one.

Two countries in Latin America stand out for their innovation and entrepreneurship indicators: Chile and Colombia. These countries have developed pro-entrepreneurial programs and policies that navigate the so-called “middle-situation trap,” which means that in an environment with poor institutional quality and less competitiveness, there is a high number of entrepreneurs, but they are not very innovative and create little employment. This could be the case in Mexico.

To free itself from the “middle-situation trap”, Mexico needs better policies and programs that balance the number of businesspeople, their ability to innovate, and their growth ambition. Innovative entrepreneurship, which includes greater technology development and its use, or disruptive business models (or a combination of the two) are more likely to succeed. So, the challenge is to transform this high number of entrepreneurs into more productive, innovative and growth-oriented new firms.

First, an ecosystem must be created that makes growth possible and not just encourages the creation of a large number of companies that have a small impact. This is how countries such as South Korea, Singapore, and Israel have managed, in relatively few years, to boost a very entrepreneurial, innovation-based business sector. Even though Mexico has improved in growth and competition markers, its entrepreneurs are the ones who must take on a more-relevant role and create competitive businesses. Quality should prevail over quantity, so that the country can become a true hotbed of innovative entrepreneurs.

In addition to informal networks, which are very important in Latin America as businesses emerge very close-connected to families, formal networks are needed to build an ecosystem that helps in the process of internationalization, provide additional resources and tools to be more innovative and competitive. In business schools we are working very close with new firm founders to create stronger ecosystems that develop innovation and technology capabilities, that are connected with large firms and also attract more investors, venture capital and seed capital.

Our EGADE Business School Entrepreneurship and Leadership Research Group collaborates with international academic partners from GNAM and other networks to understand how entrepreneurship ecosystems work in Latin America and help both policymakers and entrepreneurs understand what are the elements that interact in order to make more strong, efficient and attractive ecosystems.

Since 2012, the price of housing has increased by an average 5.5 percentage points. While it has been observed that behind this increase is, among other factors, increased price of cement and concrete, these actually contributed only 0.1 percentage points higher to the final price of housing.

A study by researchers from EGADE Business School and the Tecnológico de Monterrey Department of Civil Engineering concluded that the cost of cement affects on average 5.6% of the direct cost of construction and a maximum of 4.2% of the final average price of a home in Mexico. This means that if the price of cement went up 10%, the construction costs and the final price of a home would increase 0.56% and 0.4%, respectively.

According to the study, the impact of the price of cement varies by category of homes, ranging from 1.2% to 9.8%, with categories merged. However, it was concluded that from 2004 to today, cement and concrete have seen the lowest cumulative price inflation of all building materials, so the prices of these materials have not substantially affected the costs of residential construction. 

Machinery and equipment, labor costs, the costs of land, and other outside factors not related to construction, such as profit margins, paperwork, and financial costs, were identified as factors that greatly influenced the price of homes.

Other results showed that cement and concrete have made up 0.4 percentage points of the 3.5 percentage points of the annual average increase of the cost of home construction since the housing crisis began in 2012, according to estimates from a series of published prices.

Similarly, the study calculated the linear correlation in each state, ranking them from highest to lowest home prices over the last eight years and in sub-periods within this same measurement, and found that there is no significant link between them and consumables indicators, such as general construction costs or the costs of materials or machinery and rented equipment, or labor costs. 

These data indicate that the difference in the final price of homes by state in Mexico is more a result of particular aspects of each area, such as the microstructure and profit margins with developers and in the real-estate industry, the costs of land, and the protocols and other transactions required in each area. 

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The independent study, which analyzed data from 2004 to 2016, was carried out by Jorge A. Martínez-González, CFA, the director of the EGADE Business School, Monterrey campus Master in Finance, with help from Salvador García, the director of the Tecnológico de Monterrey Civil Engineering Department, and Miguel Davis, a full-time professor in the same department. The study was commissioned by the National Cement Chamber.

The knowledge derived from employee experience—the combination of best practices that include collaboration among different participants—is increasingly important in business productivity. Managing this knowledge provides organizations with structure and helps them to fulfill their objectives. 

In the article “Knowledge management in Mexican NPOs: A comparative study in organizations with a local and national presence”, published in the Journal of Knowledge Management, we examine the use of knowledge in the organizations and the impact on performance.

The qualitative research with 28 Mexican non-profit organizations included interviews, analysis of documents, and surveys of organizational processes, which we studied to gain information on the practices used in the creation and transfer of knowledge, the aspects assigned to these processes, and the current general context of the organizations.

Non-profit organizations should focus more on efficient management of both human resources and finances in order to perfect their activities and offer quality services. 

Mexican non-profit organizations create knowledge mainly through courses and seminars. They also seek to compensate for their weakness in creating knowledge by forming alliances, working on joint projects with other organizations, and receiving consulting from the government.

The organizations also need to include positive values and attitudes as part of their work philosophy. They function correctly by increasing worker motivation, being committed to social transformation, and building trust-based relationships. These points, along with the adequate management of knowledge, allow them to make their processes transparent and effective, thus increasing their possibilities for financing and creating more performance improvement by adapting to the needs of their surroundings.

Another important point that to emphasize is the use of informal communication tools, such as conversations and meetings, to transfer knowledge among collaborators. It is important for businesses to design programs and activities that foster a sense of community among the collaborators and not to exclude any members.

The challenge of today is getting organizations to design and formulate new mechanisms for preserving knowledge acquired over time. Thus, even if the organization is restructured, it will continue to be efficient and competitive.

The article offers a guide for businesses of all types, helping them to understand their surroundings better so as to adapt their processes to the implementation of avant-garde strategies that make them stand out from the competition and help them to survive in the market. It can also serve as a source of inspiration for businesses that are making transformations to and reinventing their products and services.

Explaining consumer behavior today is more complex than interpreting the paradigm of perceptions, attitudes, and behavior led by the classical cognitive theories. With the rapidly changing marketplace environment, consumer behavior is largely driven by emotions, peer influence, and perceived values. When a company connects to the clients’ emotions, returns can be huge.

In the book Consumers and Markets: Analyzing Behavioral Shifts and Emerging Challenges we document the current consumer behavior development in changing business paradigms and suggests managerial implications for the companies to follow for gaining competitive advantage.

Consumers and Markets are like wind which never flows in the same direction and with the same intensity. Both lead the changes and set new experiences amidst the chaos. This book analyzes the patterns and practices associated with the consumers and markets.

Consumers, their culture, and their context are key aspects for businesses in taking advantage of market opportunities. Understanding consumers, their culture, and their context is important for seizing market opportunities. This does not refer to just understanding consumers as individuals, but also really getting down to understanding what social and cultural factors are shaping their lives. This book goes beyond to understand consumption decisions that impact consumer welfare and their quality of life.

The topics are analyzed in ten chapters: Evolving Global Consumer Markets; Understanding Consumers through Marketing Research; Consumer-Market Symbiosis; Consumer Health Information and Decision-making; Catalyzing Buying Propensity; Innovation, Technology and Consumption; Dysfunctional Consumption Patterns; Serving consumers in emerging markets; Managing Consumer Experience; and Future of Consumers

“This book helps us understand the dyad consumer–market and how a customer-centric offer locates the users at the heart of this active definition of what they want to be or possess. Nowadays the notion that identity is an issue forever unfinished is stronger than ever,” says Dr. Teresa Almaguer, the academic director of EGADE Business School, in the prologue.

Identifying changes in consumer behavior is crucial for business growth and the implementation of marketing strategies. Consumers and Markets contributes to the current titles on marketing and consumer behavior and is a reference book for directors and managers as well as for students of marketing and business administration.

Since 1940, the Union of Indigenous Communities of the Isthmus Region (UCIRI, in Spanish), made up of small, isolated farmers from the Tehuantepec Isthmus region (state of Oaxaca), had worked in government programs that promoted the coffee industry. However, it was not until they created a formal cooperative association in 1983 that UCIRI started to gain salience as a stakeholder of government agencies and fair-trade organizations.

The stakeholders’ evolution from “silence” to salience is the object of study in the paper “From Silent to Salient Stakeholders: A Study of Coffee Cooperative and the Dynamic of Social Relationships,” coauthored with Dr. Christiane Molina, a research professor at the Tecnológico de Monterrey, State of Mexico Campus. The article delves into how interactions and relationships are developed between organizations and stakeholders, especially when the stakeholders come from communities on the periphery of society and economic activity.

By analyzing data on the UCIRI’s past evolution, we found that the unequal, hierarchal, bureaucratic relationship between government agencies and coffee farmers was less effective for understanding and tending to their demands, including better living conditions. As “silent” individuals, small farmers were invisible in the stakeholder network, but when part of a formal group, they took their first steps toward “salience.”

However, it was thanks to mediation by the Dutchman Francisco VanderHoff Boersma, who had a strong moral commitment to the development of the communities in the region, that UCIRI began to develop links with fair-trade organizations and to move toward this market niche in the 1980s. This collaboration allowed the cooperative to export to Europe and the United States and to work with large distributors.

Thus the importance of individual mediators and a moral commitment when building a strong, lasting relationship that allows the demands of marginalized stakeholders to be satisfied. A less bureaucratic, hierarchal relationship—based on a moral commitment to stakeholders—benefits long-term understanding and stability of the relations between stakeholders and the organization.

Besides gaining “salience” within the coffee industry, the UCIRI members were empowered and earned recognition from authorities, becoming an important actor in the promotion of fair trade in Mexico. 

Inequality between the rich and the poor in most OECD countries is at its highest level in 30 years, with the wealthiest 10% of the people earning 9.5 times more than the poorest 10%. This level of inequality is cause for concern not only for ethical, social, and political reasons, but also, as several experts note, it puts at risk the political and cultural stability needed for economic growth of countries, as well as societal goals that are essential to social mobility, such as health and education.

Even though over the last few years business schools have added courses such as Business Ethics and Corporate Social Responsibility, the topic of economic inequality and its causes has largely been neglected in business education, and there has been little criticism of the dominant ideology of neoliberal capitalism. In our article ‘Questioning Neoliberal Capitalism and Economic Inequality in Business Schools’, in the journal, Academy of Management Learning and Education´, coauthored with Professor Marianna Fotaki from Warwick Business School, we analyze how neoliberal capitalism has created the conditions for burgeoning economic inequality in the world, something the cannot be neglected in business schools.

We note an absence of sustained critique of the business models from a societal perspective, as well as insufficient examination of how organizational practices might have contributed to aggrandizing inequality. Some examples of these types of practices are public bailouts of the banking industry with taxpayer money, the worldwide tax evasion problem, and the excessive influence of economic elites on political systems.

We also argue that the main focus of business courses is on taking advantage of market competition as a way to bring about growth and prosperity, obviating criticisms of neoliberal capitalism and its effects on structural economic inequality.

Classic teaching by management pioneers such as Peter Drucker and Chester Barnard gave business education a greater purpose for the common good and for society. However, this idea has been replaced by technical knowhow and theoretical frameworks that favor an instrumental orientation of business education—based on maximizing benefits and self-interest.

To deal with the issue, we propose concepts taken from the sociology of relationality and answerability.

There is a lack of “responsibility” regarding who benefits from a business education, and groups negatively affected by business practices are not taken into account. If this “responsibility” were introduced into courses, people would think about how business actions affect other people. Meanwhile, “relationality” has to do with recognizing the vulnerability and precariousness that make us responsible, as human beings, for an inequality that we may not experience.

With the goal of adding thoughtful reflection to management studies, we propose widening the topics and integrating several transnational, historical viewpoints—which are often covered on the side—into the list of classes, and using hands-on, participative methods to make students aware of the inequalities caused by neoliberal capitalism.

Latin American governments have launched different initiatives to promote the formalization of over 130 million estimated jobs in the informal sector, hoping in that way to improve both working conditions and tax collection. However, much of this well-meaning effort could be in vain if the social motivations behind the informal sector are not taken into account.

This is one of the findings of our research, in which we used unstructured interviews, questionnaires, and multivariate analysis to study the motivations of street vendors in Mexico City, regarding whether they remain in the informal sector or move into the formal sector.

In the article “Mexico City Street Vendors and the Stickiness of Institutional Contexts:  Implications for Strategy in Emerging Markets” we apply the concept of “stickiness” to different institutional contexts to explain the reluctance or slowness to move from the informal to the formal sector; we found greater than anticipated “stickiness” in the informal sector, which challenges common suppositions about growth and development in emerging markets.

Strategy in emerging markets is often based on assuming that the middle class is going to grow, following a logic and trajectory witnessed in more developed markets, but this paper on street vendors finds that not everyone buys into the middle-class dream, and social reasons can trump strictly economic motivations.

The study offers three main conclusions:

• A large number of street vendors prefer the grind of illegal street vending for micro-level social reasons—working with family members and having greater autonomy, among others—to the relative comfort of a job in the formal sector and the associated economic benefits.
• A significant number of street vendors assign a material positive monetary value to the non-economic net advantages of street vending over a formal wage job. In other words, they would not move into the formal sector for a similar wage but would require a higher wage to make up for these non-economic advantages lost by moving out of street vending.
• Street vendors who could move more easily to the formal sector, younger, better-educated people, are more likely to remain in the informal sector because they value their autonomy more and demand higher compensation to offset the loss of non-economic advantages.

International business research makes rational, linear assumptions about a customary narrative that underpins strategy in emerging markets: continued middle-class growth. But as uncovered in this paper, macro-level assumptions about institutional context, based mostly on economic rather than social motivations, may result in an incomplete view of institutional context.

Ultimately, organizations should take these findings into account and adapt their strategy in emerging markets to local variations.