Why SMEs in Mexico Fail: The Reasons Nobody Talks About

13, 2021

5 min read

This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.

Opinions expressed by Entrepreneur contributors are their own.

Only 25% of Small and Medium Enterprises ( SMEs ) in Mexico survive the first two years of creation, according to data from the Development Center for Business Competitiveness. However, by 2017, 52% of Mexico’s Gross Domestic Product is generated by that 25% of SMEs that manage to survive the first two years. In addition, of the total number of companies, the majority are SMEs: they represent 94.9% of the total establishments in the country (Economic Censuses 2019).

In 2019, two out of ten companies exceeded five years of life. In fact, 80% fail before the age of five and 90% do not reach a decade, mainly due to financial, administrative and commercial issues. To this, we must add the impact of the economic crisis generated by COVID-19 .

For its part, Inegi explains that one of the causes of this short life cycle is due to administrative failures; for example, 18% of companies must initiate legal proceedings against debtors. In this sense, technological resources for managing clients in a simple and orderly way are essential.

For example, Mureni , which operates in Brazil and Mexico, manufactures dental aligners on 3D printers. The treatments seek to avoid or replace the use of braces or similar elements and offer a more economical and aesthetic solution. This company had a problem: the billing system. Its growth demanded a payment platform that solved the charges in a simple way; that patients pay online from anywhere in Mexico or Brazil.

To mismanagement, we must add technological backwardness. In this sense, it should be noted that, in Mexico, 38% of SMEs with a web presence said that, as of July last year, at least 50% of their sales came from digital contact with their customers, according to data from the social network Facebook.

In Mexico, 38% of SMEs with a web presence said that at least 50% of their sales came from digital contact with their customers / Image: Depositphotos.com

Until before the outbreak of the pandemic, only 36% of Mexicans had access to a bank account, and 63% of the population depended on cash. However, once the pandemic started, according to data from the BMV, the fintech sector had an increase in the use of people of 250%, according to the IDC consultancy.

In addition, Mexico ranks first in adoption of fintech for electronic payments in Latin America and is third in the world, only surpassed by China and the United States, this according to the EY Global Fintech Adoption Index 2019. By 2023, it is expected that there will be 12.3% more users surpassing the 96 million Mexicans who use some fintech .

For its part, Visa Mexico points out that 66% of consumers indicated that they use less cash since the coronavirus arrived. Electronic commerce in Mexico, for example, has closed 2020 with its highest and historic market value of 316,000 million pesos, a growth of 81% compared to 2019, driven entirely by the health crisis and the effects on consumption habits, according to the Mexican Association of Online Sales (AMVO) .

These data show the changes in the consumption habits of Mexicans. For this reason, SMEs today have the challenge of adapting to the new demands of potential customers .

In one way or another, large corporations were already prepared for the challenges posed by the pandemic: they had access to financing, experience, and smooth administrative processes.

Now there is no option: SMEs must apply digital capabilities to processes, products and assets to improve efficiency, manage risk, discover new revenue generation opportunities, optimize times and, above all, provide the customer with superior experiences. In a world where digitization advances every day without a defined horizon, simplicity, speed and speed are key factors to retain customers and take advantage of the competition.

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