| 0 Comments

Main Challenges Faced by SMEs in Mexico 2024

Mexican SMEs represent the country’s main economic engine, with around 4.1 million SMEs, according to data registered by the National Institute of Statistics, Geography, and Informatics (INEGI). They contribute 42% of the GDP (Gross Domestic Product) and generate 78% of national employment. However, on the other hand, they are the most vulnerable sector of the economy due to resource limitations compared to large international companies.

Within the percentage of MSMEs in Mexico, 95.4% are made up of micro-enterprises, while 3.6% are linked to small businesses and another 0.8% to medium-sized enterprises. Both small and medium-sized enterprises within Mexican SMEs belong to different sectors of the industry and serve various needs of the population, including those in the commercial sector, industries, and services.

On one hand, proximity to the United States as one of the main world powers makes Mexico an attractive country for other Latin American companies to try their luck, due to the economic impact at the local level and the possibility of exchange through international trade. But on the other hand, many Mexican SMEs suffer from certain economic and social instability and cannot sustain themselves over time. In this article, we delve into the main challenges facing SMEs in Mexico today.

Key Challenges Facing SMEs in Mexico

While there is a general growth in Mexico’s productive sector due to the long-term development of SMEs, the fact is that they are not exempt from challenges, given the volatility and competitiveness of the market. Thus, 2024 presents itself as a year filled with new opportunities as well as challenges to overcome in order to continue advancing in their evolutionary cycle. Let’s now look at what those challenges are.

  1. Lack of access to credit.

One of the main limitations for the growth of Mexican and Latin American SMEs in general is the lack of access to credit, whether to invest in raw materials, technology, production machinery, human capital, open new business units, pay debts, or invest in advertising and marketing. The main obstacle to obtaining financing is the high interest rates imposed by banks.

According to a report by the Bank of Mexico, 47% of Mexican companies avoid applying for bank loans due to high interest rates. To remedy this, an alternative may be to seek support from the Ministry of Economy to promote economic development. But when access to credit is definitely unfeasible, vulnerable SMEs can begin to plan a long-term strategy that allows them to obtain stable and sufficient financing to achieve growth and liquidity during times of crisis.

  1. Unequal competition with large companies.

The Latin American market is volatile, and companies of all sizes must face constant competition. In this jungle, where SMEs have almost no chance against large corporations with greater financial stability and superior technological infrastructure, SMEs are at a disadvantage. Additionally, they generally must also meet all kinds of requirements and certifications to be suppliers to transnational companies and the government, which prevents them from leaving the local market.

  1. Vulnerability to economies in crisis.

One of the main weaknesses of SMEs is their limited ability to act in times of economic crisis. For example, recession, devaluation, and inflation are economic crises that financially harm smaller and less stable companies. In many countries experiencing a recession after a season of economic prosperity, SMEs end up slowing down their production, resulting in significantly lower profits.

With inflation, it is different because its main consequence is the increase in prices, and therefore, the increase in inputs represents a direct impact on production costs, reducing profit margins and the ability to compete in the market. And let’s not forget that inflation affects the demand for products and services in SMEs because consumers tend to spend less. So, these companies stop selling and getting return on investment, which represents one of the biggest crises a company can suffer.

  1. Investment in digital transformation.

82% of SMEs do not have internet access, so digital transformation is still a utopia for many SMEs that are just starting out in commercial activities. Technologies such as artificial intelligence, the Internet of Things, augmented reality, and process automation are fundamental tools nowadays in companies, and doing without them is equivalent to falling behind the competition.

Due to the need to save investment costs, many SMEs assume that they are not in a position to implement a technological solution, but the fact is that these companies have a lighter infrastructure than large companies, which reduces the risk of the digital transformation process. However, the investment gap between SMEs and large companies remains very wide, and this can hinder the adoption of new technologies.

  1. Training issues.

Finally, another challenge facing SMEs in Mexico is the lack of training for employees. While large companies focus on hiring the best talent, and once within their ranks, they retain them by offering quality training. The main reason for this lack of training for personnel in SMEs is the high cost of investing in professional development.

The rise of remote work after the pandemic also poses a major challenge for SMEs, as while it entails significant cost reductions, good leadership is necessary for remote teams to be productive and efficient, in addition to having digital communication tools and workflow processes. SMEs that cannot acquire such technologies logically cannot work remotely and cannot incorporate talents outside their geographic domains.

In general, we have analyzed the main challenges facing SMEs in Mexico, but which certainly end up being the challenges of most Latin American SMEs: lack of access to credit, difficulty in acquiring state-of-the-art technologies, lack of employee training, unequal competition with large companies, and vulnerability to crises. To a large extent, whether SMEs gain a competitive advantage will depend on the state of the country’s economy, but also on resilience, long-term planning, and risk management capabilities.

Comparte:

0 Comentarios para "Main Challenges Faced by SMEs in Mexico 2024"

Do you need your clients to pay you faster?

Start now and release your supply chain