Mexico

Similar to Brazil, Russia, and China, Mexico posts a mixed performance on the innovation indicators. While its overall results do not stack up well relative to its OECD peers, growth in several key sectors proves promising. From 1998 to 2008, high-tech manufacturing increased by 10 percent annually, which was higher than the increase in total manufacturing exports. Between 2000 and 2010, GDP per capita increased from $5,817 to $9,166, representing a compound annual growth rate of 4.7 percent. While the country was hard hit by the effects of the U.S. recession (GDP per capita was actually higher in 2008, at $9,909), GDP rebounded strongly in 2010 with a 5.5 percent growth rate, nearly double that of the United States. Unfortunately, Mexico's economy remains dominated by monopolies, a structural issue that discourages competition and innovation. The education, regulatory and financial systems also remain comparatively poor, providing a disincentive for foreign direct investment, venture capital, and research and development.

Above Average

Mexico is slightly above average in university-industry collaboration, falling near the bottom of the second quartile in our global rankings. The country has several public research institutions, such as the research centers of the National Council on Science and Technology (CONACyT), that help facilitate technology transfer, but it lacks intermediate institutions or “technology brokers” to help disseminate advanced technical knowledge and encourage upgrades to newer technologies. In the GE Innovation Survey, respondents were slightly negative with 36 percent saying it is not easy for companies to partner with universities.

Lagging

Information on venture capital activity in Mexico is sparse. Barriers to foreign direct investment in Mexico remain higher than the OECD average. Moreover, there is still relatively little competition in key sectors like financial services, telecommunications, energy and transportation infrastructure. Due to a historically conservative banking system, access to capital for high-tech firms is low. All of this contributes to very low venture capital activity in Mexico. Respondents in the GE Innovation Survey reflected this, with 49 percent of respondents saying that private investors are not supportive of companies that need funding.

Below Average

At 0.4 percent of GDP in 2007, gross expenditures on research and development are the lowest among the OECD countries. R&D spending has fluctuated near that level since 2000. The government accounts for 50 percent of expenditures on R&D, while industry drives 45 percent. In the GE Innovation Survey, 51 percent of respondents said the government has not been successful in supporting research and innovation.

Leading

Between 1998 and 2008, high-tech manufacturing increased by 10 percent annually. To give just one example, Bombardier in 2008 decided to build its Learjet 85 in Querétaro in cooperation with the Mexican government, which agreed to train 120 technicians for the purpose. However, high-tech exports as a percentage of total exports remained fairly constant between 2000 and 2010, fluctuating around 22 percent.

Below Average

In 2008, Mexico was the least prolific among OECD nations with 0.14 triadic patents and 73 scientific articles per 1 million residents. The country also had the lowest density of researchers among OECD countries, with fewer than one researcher per 1,000 workers. Forty-one percent of respondents in the GE Innovation Survey felt that the current intellectual property system in Mexico does not encourage innovation, and 49 percent found the protection of copyrights and patents ineffective.

Lagging

STEM education remains poor in Mexico. Tertiary-level graduates represent only 18 percent of the workforce, which is below the OECD average. However, 24.7 percent of all new degrees issued were in science and engineering, above the OECD average. Regardless, 50 percent of respondents in the GE Innovation Survey felt the government had not been successful in improving education and 44 percent did not feel that local universities and schools provide a strong education.

Below Average

Restrictive trade policies and barriers to foreign direct investment have inhibited innovation and productivity growth in Mexico. Competition has also been slowed by de jure or de facto private monopolies in certain industries, as well as by the abuse of amparo procedures. This has contributed to higher input costs and corresponding barriers to entry. Furthermore, Mexico’s bank overhead costs and net interest margins are among the highest among OECD countries, indicating inefficiency in the banking system. In response, many firms rely on supplier credit in lieu of bank credit. This lack of access to cheap capital dampens entrepreneurial activity.

Mexico’s performance is mixed relative to its peers. Though it has a strong manufacturing capacity and benefits enormously from trade with the United States, its entrenched government and private interests as well as restrictive trade practices remain prohibitive for businesses, especially early-stage innovators. The country performs poorly in STEM education and venture capital deals and below average in GERD, utility patents and business environment. Respondents in the GE Innovation Survey reflect this sense of unfulfilled potential, with 51 percent disagreeing that government has been successful in supporting innovation and 50 percent stating that the government has not improved education.