/
News Article

Inflation Highlights Priorities for Economic Development

By Pedro Alcalá | Wed, 05/11/2022 - 13:11

The pressure put on the Mexican economy by international inflationary conditions must be handled by startups, corporations and regulators through a recentering of Mexico’s most promising variables, such as its available talent, according to some of the country’s top business leaders. 

Inflation will likely continue to be the most important aftershock of the pandemic, as shortages and bottlenecks will still hamper the ability of markets to heal themselves from the damage sustained throughout the last two years, said Brenda Gisela Hernández, President Commissioner, COFECE. The US and the EU disagree on the type and degree of intervention that governments should make on economic competition to bring down prices. The Mexican government is attempting to find a middle road. “The federal government has implemented measures to reduce the impact of inflation. The commission considers it a priority to follow these recommendations, focus on eliminating obstacles and support small business and consumers,” said Hernández. 

Companies are caught in the middle of this process, said Hernández, and must wrestle with a difficult choice between passing on price increases to the consumer and risking losing market share, or absorbing the shock of these price increases and lowering their profit margins. “This is an atypical situation that serves as a kind of test or filter; companies that can successfully do more with less will be able to successfully manage the economic pressure of inflation,” she said.

Mexico’s private sector is being put under great pressure by inflation, said Santiago Cardona, Mexico Country Manager, Intel. Under these circumstances, businesses either have to sell more or become more efficient, if not both. Companies should focus on becoming more efficient since this process is more likely to be under their control, said Cardona. “To adapt in the business world, technology has to be part of the process and our companies have to implement digital tools to transform and adapt to an inflationary environment,” said Cardona. Both the pandemic and the inflationary processes that it triggered are significant as accelerators of Mexico’s digitalization, he added.

Technological adoption, however, cannot be separated from the matter of talent, according to Carlos Funes, Mexico CEO, Softtek. Businesses’ adoption of new technologies will only be as good as the tech skill training protocols that companies had in place to take advantage of those technologies. For companies it is essential to invest in both the acquisition and development of talent, he said. As these investments increase, talent retention and incentives for employees also become increasingly relevant and competitive for business leaders. These investments need to grow until they have macroeconomic impacts on inflation itself, said Funes: “One of the main factors that can impact inflation is investment, which has to be constant in different markets.” Technology and talent are the two pillars that will define the ability of Mexican business leaders to manage this current crisis, said Philipp Haugwitz, Associate Partner, McKinsey & Company.

If talent acquisition is essential, then Mexico’s position as a source of abundant talent makes it an ideal country to overcome the obstacles of inflation, said Kenneth Campbell, Mexico President and CEO, L'Oréal. This, in addition to other elements, made Mexico an investment target that retained its promise and potential: “Mexico has a unique geopolitical position and the door to the biggest consumer market in the world, while also catering to a local market with high potential,” said Campbell. He also cautioned against alarmism, highlighting the fact that Mexico’s macroeconomic variables continue to be stable and favorable when compared with other countries, especially since the pandemic’s nearshoring boom made the US turn to Mexico when it would have previously turned to its partners in Asian economies. Campbell also noted the adaptability of Mexico’s economy by virtue of its past: as Germany and the US inch closer to double digit inflation rates, their inexperience with such high inflation levels becomes obvious when compared to Mexico’s.  

This inflationary environment puts startups in an interesting position. Mexico’s startup ecosystem was still at an early, if promising, stage, especially when compared to the US, where the top five companies in the stock market are now all former startups, said Gerry Giacomán, Co-Founder and CEO, Clara. “As a result of low investment in startups in Mexico and the region, development has been slow, which also does not help to boost an innovative environment.” Through venture capital funding, startups can help other companies do more with less by taking a long-term approach to their business strategy and look beyond quarterly results to predict demand and help the market react to the volatility of an inflationary environment, he added.

Pedro Alcalá Pedro Alcalá Senior Journalist & Industry Analyst