Mexico
Mexico's small businesses do not want to grow up
Nearly every town in Mexico has at least one La Michoacana ice-cream parlour; flavours range from rice pudding to avocado. It is known a Mexican business success story and is as well known as well as Dunkin Donuts in the United States. The odd thing about La Michocana is that is it not a corporation, brand, or franchise, but a series of independent family owned parlours. They are the epitome of Mexican small businesses, family-owned and independent, tatty, and with few people working behind the counter, both on and off the books.
La Michocana is not the only business in Mexico doing this. Rather, they are one of many demonstrating Mexico’s stubbornness to stay with smallness in business, often waving off attempts to organize businesses into something more profitable and structured. Mexico now has the largest share of businesses with ten workers or fewer in Latin America, 95.5% of all businesses. Manuel Molano of the Mexican Competitiveness Institute, a think-tank, calls this a “Peter Pan system” in which firms prefer to stay small than to grow, mostly because of tax and regulation. “It’s easier to fly under the radar when you are microscopic,” he says. This makes enforcing good business practices near impossible, further limiting potential economic growth and discouraging foreign investment.
This has hurt growth. Small firms are far less productive than their large ones and only a few are exporters or integrated into modern supply chains. With almost three-quarters of the workforce are employed by such businesses, inequality remains entrenched given they cannot pay wages similar to larger firms.
McKinsey, a consulting firm, calls this “two Mexicos” moving in opposite directions, one modern and export oriented and the other a traditional small business where productivity plunges 6.5% a year. While the government is aware of the problem, changes are not coming fast enough to increase economic productivity.
