Strategy Exclusives » Mexico: Innovation and Investment South of the Border

Mexico: Innovation and Investment South of the Border

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After decades of reliance on oil exports, it is time for Mexico to develop a domestic innovation sector. Education, infrastructure, and technology are improving, thanks to reforms—investment is the final piece of the puzzle.

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Is there any funding to be found in today’s Mexico? According to a study conducted by EY and the G20, 72 percent of Mexican entrepreneurs need cash—particularly venture capital—to grow their businesses. For such an active member of both the OECD and the G20, this number is unusually low. While Mexico regularly takes the lead on global issues such as free trade and climate change, the nation still has room for progress before it operates fully like a modern economy. 

Businesses contribute just 20 percent of Mexico’s total R&D funds. By comparison, Brazil’s companies contribute 40 percent, and South Korea, 70. If Mexico is to hit its target of directing 1 percent of GDP toward R&D, businesses will need to step up.

COMING FROM BEHIND
Some of the best universities in Latin America are in Mexico, and the nation is known for its increasing technical sophistication. Nonetheless, Mexico falls far behind OECD averages in R&D investment. While the typical OECD country spends 2.38 percent of GDP on research and development, Mexico sits at just 0.54 percent. Other international rankings are similarly low. 

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Mexican business leaders know that significant opportunities in R&D await investors. The nation has many of the right ingredients—scientific universities such as the National Autonomous University of Mexico (UNAM), government support for innovation in the National Council for Science and Technology (CONACYT), and a rank of 17 in the Global Innovation Index for Graduates in Science and Engineering. Restrictions on market activity hampered private R&D investment for decades, but this is a new Mexico, one in which business leaders like José Menchaca, CFO of AT&T México, can point to increased competition as a driver of innovation.

STRATEGIES FOR STRENGTH
Politicians are not simply sitting around waiting for change to come. According to Dr. Enrique Cabrero Mendoza, Director General of CONACYT, the Science and Technology Law proactively directs government strategy “to mobilize investment in scientific research and experimental development.” One approach is to use public-private partnerships to boost private–sector activity. Another is to establish business incubators that promote entrepreneurship; Mexico’s recently established National Institute of the Entrepreneur (INADEM) has created more than 500 such incubators around the country, although they exist primarily in highly developed areas like México City and the states of Jalisco and Nuevo León.

Innovation clusters—groupings of businesses, research institutions, universities, suppliers, and customers—also encourage entrepreneurialism and investment. According to Enrique Jacob, President of INADEM, the government does not have an official cluster policy. That is why his organization partnered with others to issue a national cluster map that “helps to identify smart specializations, promote private industry investment, support new public policies in innovation, and foster global value chains” in 2016. 

CONNECTIVITY IS KEY
As companies look to fund R&D, executives will keep the focus on real-life applications. President of Samsung Electronics México HS Jo looks to highlight these applications in public–private research partnerships—for instance, a virtual reality project that could share the beautiful environments of Mexico with people from all over the world. A similar theme of connectivity drives innovation at United Airlines, where Country Manager Rolf Meyer strives to empower passengers at each step of the flight experience in order to improve efficiency and satisfaction. 

If the first decades of the 21st century are any indication, Mexico will look much different in 50 years. AT&T’s Menchaca sees vast innovative potential in the Internet of Things, smart cities, and self-driving vehicles. As Claude Gobenceaux, the Vice President of the Central and South Region of the Mexican Federation of Aerospace Industries put it, the job of political leaders is primarily “to get things done together with others.” It will be collaboration—between domestic and multinational businesses, between universities and companies, and between the public and private sector—that shapes the results of R&D investment for the coming decades. 

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