Mexico Entrepreneurship Ecosystem Diagnostic Mexico Entrepreneurship Ecosystem Diagnostic April 2023 © 2023 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data in- cluded in this work and does not assume responsibility for any errors, omissions, or discrepan- cies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Table of Contents Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Spatial and sectoral characterization of impactful entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Entrepreneurship support policies and enablers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii Policy recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xix Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiv 1. Entrepreneurship Ecosystem in Mexico: A Cross-Country Analysis . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2  Weak entrepreneurship outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3  The pillars of the entrepreneurial ecosystem from an international perspective. . . . . . . . . . . . . . . . . . . 6 1.4 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2. Spatial and Sectoral Characterization of Impactful Entrepreneurship. . . . . . . . . . . . . . . . . . . . 15 2.1  Differences in entrepreneurship across sectors and regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.2  The spatial assessment of manufacturing entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.3  The entrepreneurship spatial assessment in agroindustry, pharmaceuticals and medical equipment, and ICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.4  Potential drivers of the spatial allocation of entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.5  Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3. Supporting Entrepreneurship Ecosystems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.2  Agencies involved in supporting entrepreneurship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.3  Programs by entrepreneurship ecosystem outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.4  Program design and implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 3.5 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 4. Policy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 4.1  Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 4.2  Access to finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 4.3  Firm capabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Mexico: Entrepreneurship Ecosystem Diagnostic    v 4.4  Incentivize innovation and startups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 4.5  Business enabling environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 4.6  Internationalization of firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 4.7  Program design, implementation, and evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Appendix 1. Location of ICT, Medical and Pharmaceutical, and Agroindustry Clusters. . . . . . . . 72 Appendix 2. Methodology and Mapped Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Boxes Box 1.1. Different types of entrepreneurship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Box 3.1. Marca Chiapas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Box 3.2. UNE – University Business Linkages (Monterrey, Nuevo León) . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Box 3.3. Guadalajara Connectory, Bosch Mexico (Guadalajara, Jalisco). . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Box 3.4. techBA, FUMEC’s Technology Business Accelerator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Figures Figure ES.1. Entrepreneurial ecosystem framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Figure 1.1. Density of new businesses relative to GDP per capita (2018 or latest available) . . . . . . . . . . . . . 4 Figure 1.2. Self-employment rate (2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 1.3. Mexican manufacturing plants show limited growth compared to US manufacturing plants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 1.4. Percentage of firms exporting directly or indirectly (2019). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 1.5. High-technology exports (% of manufactured exports, 2020). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 1.6. Entrepreneurial ecosystem framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 1.7. Mexico benefits from a large domestic market (2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 1.8. Domestic credit provided to the private sector (as % of GDP, 2019) . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 1.9. Venture capital deals (2020 or the latest year available). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 1.10. Human capital in Mexico. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 1.11. Gross domestic spending on R&D (% of GDP, 2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 1.12. Business registration constraints and costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 2.1. Firms in manufacturing grow much faster than those in services (2019). . . . . . . . . . . . . . . . . 17 Figure 2.2. Top exporting sectors exhibit high dynamism but growth in lower value-added manufacturing has been significant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 2.3. Regions show significant differences in entrepreneurship dynamism, and especially in manufacturing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 2.4. The regional distribution of manufacturing employment has not changed much, but productivity has improved significantly in the north. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 2.5. The largest municipalities, combined, account for larger shares of employment and value added in manufacturing when compared with wholesalers, retailers, and other services (2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 vi    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 2.6. Impactful manufacturing entrepreneurship is clustered in the main Mexican cities and metropolitan areas (2019). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 2.7. Higher value-added economic activities tend to cluster in larger cities (2019) . . . . . . . . . . . . 25 Figure 2.8. Most employment and the most value added is generated in clusters (2019) . . . . . . . . . . . . . . 26 Figure 2.9. Agglomeration leads to large productivity gains (2019). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 2.10. Clusters in low value-added sectors can be as productive as clusters in higher value-added sectors (2019). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 3.1. Instruments used to foster the creation and growth of firms . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Figure 3.2. Number of programs with a sectoral focus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Figure 3.3. Programs by intermediate outcome and region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Tables Table ES.1. Policy recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxii Table 2.1. Data on agroindustry, pharmaceuticals and medical equipment, and ICT compared to other manufacturing sectors (2019). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table 2.2. Entrepreneurship assessment in agroindustry, pharmaceuticals and medical equipment, and ICT (2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Table 2.3. Correlation between entrepreneurship outcomes in manufacturing and potential drivers across municipalities (2019). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Table 3.1. Public sector budget for the Ministry of the Economy and selected items for CONACYT, NAFIN, and Bancomext (millions of current Mex$, 2017–2022) . . . . . . . . . . . . . . . . . 36 Table 3.2. Classification of program support by firm segment and entrepreneurship ecosystem outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Table 3.3. Public seed and venture capital funds in Mexico. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Table A1.1. Main ICT clusters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Table A1.2. Main pharmaceutical and medical equipment clusters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Table A1.3. Main agroindustry clusters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Table A2.1. Summary of the mapped public and non-public programs that foster firms’ creation, growth, innovation, and internationalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Table A2.2. Public programs mapped at the federal level, and in the states of Chiapas, Jalisco, and Nuevo León . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Table A2.3. Non-public programs mapped at the federal level, and in the states of Chiapas, Jalisco, and Nuevo León . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Mexico: Entrepreneurship Ecosystem Diagnostic    vii Acknowledgments Preparation of the Mexico: Entrepreneurship Eco- Rafael Muñoz (Lead Economist, World Bank). system Diagnostic report was led by Esperanza The report was prepared under the guidance of Lasagabaster (Lead Economist, World Bank), Er- Asya Akhlaque (Practice Manager, Investment nesto Lopez-Córdova (Lead Economist, World Climate Unit, Finance Competitiveness and Inno- Bank), Jesica Torres Coronado (Economist, vation), Yira Mascaró, and Denis Medvedev (for- World Bank), Eduardo Piedra Gonzalez (Consul- mer Practice Manager, Firms, Entrepreneurship tant), Horman Millán (Consultant), and Martha and Innovation Unit, Finance Competitiveness Peña Ceniceros (Consultant). The team was sup- and Innovation). ported by Marcio Cruz (Lead Economist, Inter- national Finance Corporation), Luis Alejandro The team is also grateful for comments received Aguilar Luna (Consultant), Felipe Yudi Roviello from multiple stakeholders in Mexico, both in (Consultant), Ann Bishop (Editor), and Miriam the public and private sectors, which enriched Villaroel (Administrative Assistant, World Bank). the analysis of the report. In particular, the team The team is grateful for the comments received acknowledges the comments and feedback from from Mark Roland Thomas (Country Director for staff in Mexico’s Ministry of Finance and Minis- Mexico, Colombia, and Venezuela, World Bank), try of Economy, as well as those from the govern- Yira Mascaró (Practice Manager, Finance Com- ments of the states of Chiapas, Jalisco, and Neuvo petitiveness and Innovation, Latin America and León, and the municipal governments of Gua- Caribbean Region, World Bank), Justin Hill (Sr. dalajara, Monterrey, and Zapopan. A full list of Private Sector Specialist, World Bank), Leonardo stakeholders that were interviewed for this report Iacovone (Lead Economist, World Bank), and is presented in Appendix 2. viii    Mexico: Entrepreneurship Ecosystem Diagnostic Abbreviations and Acronyms BR Brazil LASSO Least Absolute Shrinkage and CHL Chile Selection Operator COL Colombia Mex$ Mexican peso CONACYT National Science and Technology MYS Malaysia Council MSMEs micro, small, and medium CRI Costa Rica enterprises EFIDT Fiscal Incentive for Research and OECD Organisation for Economic Co- Technology Development operation and Development ENAPROCE National Survey on Productivity PECITI Special Program for Science, and Competitiveness for Micro, Technology, and Innovation Small, and Medium Enterprises PEI Research Incentive Program ENCRIGE National Survey on Regulatory PRI public research institutions Quality and Government Impact PROSARE Program for Operation of the on Enterprises Accelerated System for Firms FDI foreign direct investment Start of Operations GDP gross domestic product Q&EHS quality, environmental, health, GVCs global value chains and safety HEI higher education institutions R&D research and development IADB Inter-American Development ROU Romania Bank SARE Accelerated System for Firms ICT information and communication Start of Operations technology SAS Simplified Joint Stock Company IDN Indonesia SHCP Ministry of Finance INEGI National Institute of Statistics SE Ministry of Economy and Geography SINAGER National System for Regulatory IP intellectual property Governance IPO initial public offering SMEs small and medium enterprises IPN National Polytechnic Institute STI science, technology, and LAC Latin America and the Caribbean innovation Mexico: Entrepreneurship Ecosystem Diagnostic    ix TecNM Tecnológico Nacional de México VC venture capital (Mexico’s National Technological VTM Vietnam Institute) WB World Bank UK United Kingdom WBG World Bank Group US United States WIPO World Intellectual Property US$ United States dollar Organization USMCA United States-Mexico-Canada Agreement x    Mexico: Entrepreneurship Ecosystem Diagnostic Executive Summary Over the past three decades, economic growth in firms that have few prospects for upgrading Mexico has been sluggish—the result of meager and growth. For many of Mexico’s small firms, productivity improvements. Between 1991 and entrepreneurship seems to result from necessity 2021, gross domestic product (GDP), per capita, rather than opportunity. Overall, the country’s grew at an average rate of only 2.2 percent, which firms demonstrate limited growth and upgrading. had little impact on the country’s high level of pov- The average 40-year-old manufacturing plant in erty. Also, during this period, total factor produc- Mexico has only doubled in size since it was es- tivity growth fell, on average, by 0.45 percent, while tablished, while comparable plants in the United GDP grew primarily due to factor accumulation, States (US) have grown seven times larger over the and especially from the demographic dividend.1 same period (Hsieh and Klenow 2014). Also, de- Moreover, as noted by Iacovone and his co-authors spite Mexico having free trade agreements with 50 (2022), there are large differences in the productivity countries,2 and sharing a border with the US—one performance of states, industries, and firms in Mex- of the world’s largest markets—Mexican firms’ in- ico. Importantly, the inability to allocate resources ternationalization is limited. Most exporters are to the most dynamic sectors and firms is a major regionally focused, and few have any connection cause of the low level of productivity growth, which with local entrepreneurs and suppliers. However, is demonstrated by the large number of very small notably, the firms that do manage to integrate into informal firms. As many as 42 percent of Mexican global value chains (GVCs), or export directly, tend businesses employ only the owner. to achieve higher growth rates, and have been more resilient during the COVID-19 pandemic. Indeed, Mexico’s entrepreneurship ecosystem is characterized by the limited entry of high-qual- The COVID-19 pandemic made boosting ity firms, and a large share of low productivity entrepreneurship and growth even more Mexico: Entrepreneurship Ecosystem Diagnostic    xi pressing in Mexico; however, at the same capital, as well as social capital also affect firms’ time, the pandemic has opened up new oppor- access to resources. All of these factors influence tunities due to the reconfiguration of global the entrepreneurship ecosystem, as do market value chains (GVCs). The COVID-19 pandemic failures (especially information asymmetries, aggravated circumstances for firms, which suf- coordination failures, and the inability to gain fered from lower revenues, and lower levels of returns from investments). Mexican policymak- employment and remuneration. Also, the cre- ers can influence the ecosystem directly through ation of formal firms stagnated (López Córdova, policies and programs, and indirectly through the Patiño Peña, and Rodrigo 2021). In addition, the ecosystem “enablers” that foster entrepreneurship. pandemic exposed the vulnerabilities of many For Mexico to achieve inclusive and sustainable GVCs, and demonstrated the importance of re- growth, it is crucial for the country to address the ducing exposure to the potential decline or halt obstacles that prevent the establishment, growth, of business activities in Asia. Reshoring is, of upgrading, and expansion of more productive course, one way to reduce such exposure, and firms. Policies also need to be adjusted across re- Mexico is an obvious destination for reshoring in gions to account for the differences in local entre- North America. The greater integration of Mex- preneurship ecosystems. ican firms into GVCs could not only boost their economic activity, but this could have a positive The goals of this report were to understand impact, too, on firms’ productivity. Thus, the the obstacles that affect entrepreneurship eco- conditions necessary to increase the integration systems in Mexico, and with this knowledge, of Mexico’s exporters with the local entrepre- inform the design of priority policies and pro- neurship ecosystem must be developed. Also, grams that can overcome ecosystem obstacles. improving the environment in southern Mexico The analysis discussed in this report drew on a new to develop more vibrant entrepreneurial eco- World Bank framework developed to understand systems is necessary to achieve faster and more entrepreneurship (World Bank 2022a), multiple inclusive growth, and create opportunities for at- global and national data sources, and two surveys tracting new value chains to the region. that were conducted for this study in Mexico. The surveys covered public programs and insti- Entrepreneurship thrives in ecosystems that tutions, as well as non-public “enablers” that sup- bring private stakeholders together in a nur- port entrepreneurship at the national level, and turing public policy environment. Mexico’s in three states with diverse characteristics (Chi- policy makers can influence the quality of the apas, Jalisco, and Nuevo León). Using the entre- entrepreneurship ecosystem that determines the preneurial ecosystem framework depicted below probability of generating impactful entrepreneurs. (Figure ES.1), entrepreneurship performance An impactful entrepreneurship ecosystem not was analyzed in terms of firm dynamics (entry, only facilitates the entry of a high number of for- growth, innovation, and internationalization), as mal firms, it also fosters high growth, innovative, well as the ecosystem that rests on the quality of and globally integrated firms that can create more, three pillars: the supply of resources, factors that and better-quality jobs. Impactful entrepreneurs affect their allocation, and the conditions that de- need resources that include infrastructure, physi- termine demand. The analysis in this report used cal capital (facilities and equipment), human cap- the exact locations of firms to identify clusters ital, and knowledge, as well as talent and access of impactful entrepreneurship, and it provided to markets. Regulations, and access to financial new evidence that resources are not distributed xii    Mexico: Entrepreneurship Ecosystem Diagnostic Figure ES.1. Entrepreneurial ecosystem framework Final outcome: Productivity and jobs Intermediate output New firms (entry) Firm growth (scale up) Innovation (upgrade) Entrepreneurship ecosystem Physical capital and SUPPLY PILAR (RESOURCES) Access to finance Access to markets infrastructure ALLOCATION PILAR DEMAND PILAR Human capital Regulations Firm capabilities Entrepreneurial Knowledge capital Social capital characteristics Public programs and ecosystem enablers to support entrepreneurship Source: World Bank 2022a. equally across geographic space in a developing (the most important of which is the United country such as Mexico. This study also assessed States-Mexico-Canada Agreement [USMCA]), the role and quality of public programs, and of the these advantages have not been fully exploited. non-governmental intermediary organizations While Mexico, itself, comprises a market of con- (“enablers”) that help entrepreneurs to overcome siderable size, distortions create rigidities in do- market failures. mestic markets, and especially for services. With regard to foreign markets, only 4.6 percent of This study’s assessment of the pillars of Mex- Mexico’s small and medium enterprises (SMEs) ico’s entrepreneurial ecosystem found that in were participating in GVCs in 2018, and they only comparison to the country’s global peers, there managed to join GVCs when they were about 10 is substantial need for improvement. Although years old (INEGI 2018). This was the case, de- Mexico benefits from a large domestic market, spite Mexico’s network of free trade agreements, and an ample network of free trade agreements and its proximity to the enormous market in the Mexico: Entrepreneurship Ecosystem Diagnostic    xiii US. Logistics, which are crucial for integrating OECD average of 3.4 percent, the gaps in cov- businesses into GVCs, and exploiting Mexico’s erage and quality are significant (OECD 2021a). large domestic market, demonstrate room for According to the latter study, about 30 percent of improvement. Mexico’s rank in the 2018 Logis- Mexico’s formally registered firms reported that tics Performance Index (LPI) was 51 out of 160 an inadequately educated workforce is a major countries (World Bank 2018), which was sub- constraint, and this percentage is above what stantially below China, and most Organisation would be expected for a country with Mexico’s for Economic Co-Operation and Development level of development. (OECD) countries. This is due, in part, to Mexi- co’s lower-quality trade- and transport-related in- Stronger managerial skills are needed to im- frastructure. The regulation of transport networks prove firms’ innovation, productivity, and and other services needs to be strengthened to GVC integration. Investments in innovation and improve their efficiency. For example, the cost of research and development (R&D) need to rise sig- railway transportation has surged since an anti- nificantly in Mexico. The country spent just 0.28 competitive railway merger occurred in 2011.3 and 0.3 percent of GDP on R&D, respectively, in 2019 and 2020, and very little of this was funded Many firms in Mexico are financially con- by the private sector. Moreover, university-in- strained. The availability of domestic credit for dustry collaboration is limited; in 2021, Mexico the private sector (38.3 percent of GDP) falls ranked 84th out of 127 countries on university-in- below what would be expected, given Mexico’s dustry collaboration, which is behind six other GDP, per capita. According to Mexico’s 2019 countries in Latin America and the Caribbean, Economic Census (INEGI 2019), only 1 in 10 mi- and most OECD countries (WIPO 2021). These croenterprises, 1 in 4 SMEs, and fewer than 1 in weak linkages prevent the country from leverag- 3 large firms have access to finance. The financial ing university knowledge and transforming it into constraints of young firms are worse (Iacovone innovation. et al. 2022). Limited access to finance results from both demand- and supply-side issues: a Weaknesses in the rule of law, concerns about considerable percentage of firms are not willing public safety, and the costs of regulatory com- to take out bank loans, and institutional condi- pliance are important obstacles to firms’ per- tions (inter alia gaps in the credit infrastructure, formance and growth in Mexico. In 2020, only weak law enforcement, and gaps in the insol- 40 percent of firms in Mexico expressed a high vency framework) discourage banks from offer- level of confidence in the fulfillment of contract ing more credit. The venture capital market has obligations, which likely discourages potential in- grown in recent years, but it is largely focused on vestors (ENCRIGE 2020 [INEGI 2020a]). Close to fintech and e-commerce, which provide quicker 35 percent of firms in Mexico also listed public returns, and this leaves many potential sectors safety as a recurrent problem for them, and for unserved. micro, small, and medium enterprises (MSMEs), the prevalence of crime increases with size. De- Mexico’s human capital needs to be strength- spite the progress achieved since Mexico’s land- ened to create a more solid foundation for a mark 2018 legislation—the General Act for Better dynamic entrepreneurial ecosystem. Although Regulation—was put in place, the cost of comply- Mexico’s total expenditure on education is 3.2 ing with regulations appears to be a continuing percent of GDP, which is only slightly below the obstacle to firms’ growth. xiv    Mexico: Entrepreneurship Ecosystem Diagnostic Spatial and sectoral (Grover, Lall, and Maloney 2022). For example, manufacturing firms tend to locate in Mexico’s characterization of larger cities, and these are also the better- per- impactful entrepreneurship forming manufacturing firms. The metropolitan Entrepreneurship in Mexico generally lacks dy- areas of Mexico City, Guadalajara, Monterrey, namism, but important differences exist across Puebla, Queretaro, León, San Luis Potosi, Chihua- sectors and regions.4 Differences in productive hua, and Tijuana, which is on the US border, are capacities between manufacturing and services in the only ones that contain clusters of firms with all Mexico are substantial, with the former generating five types of impactful entrepreneurship (new and almost 60 percent more value added, per worker, existing formal businesses, high-growth firms, than the latter. The top exporting sectors within innovative businesses, and exporters).7 Similar manufacturing have shown substantial growth in complementary factors seem to be driving the dif- both employment and exports,5 and even some ferent dimensions of impactful entrepreneurship, lower value-added activities such as agroindustry and these are likely found in only a few very large show potential for export growth. Across the ser- municipalities. vices sector, dynamism varies substantially. This study’s spatial assessment of manufactur- Geographic differences are significant in ing entrepreneurship examined three indus- Mexico, with the northern, north-Pacific, and tries that have been at the center of discussions central regions showing more dynamism and between the governments of Mexico and the higher industrialization than the southern re- United States. These comprise information and gion.6 While firms in the north employ 9 work- communication technology (ICT), pharmaceu- ers, on average, and firms in the north-Pacific and ticals and medical equipment, and agroindustry. central regions employ approximately 5 workers, The first two are viewed as industries for which firms in the south employ only 3.4 workers, on reshoring to North America has good prospects, average. In manufacturing, the differences are far whereas agroindustry could leverage entrepre- more acute, with approximately 47 employees per neurship in less developed regions of Mexico. plant in the north, and fewer than 3 per plant in While the three industries account for compara- the south. Nearly 6 percent of all manufacturing ble shares of value added, the characteristics of firms in the north export, compared to just 0.1 the average establishment in each industry differ percent in the south. The north also displays the markedly, with ICT, and pharmaceuticals and strongest managerial skills. Regional differences medical equipment contributing 16 and 5 times in manufacturing have widened over time as the more, respectively, than the value added by the av- north has become more competitive. erage manufacturing plant. In contrast, the value added by the average agribusiness firm is only 80 In Mexico, clusters of impactful entrepreneur- percent of the average manufacturing firm. Em- ship in manufacturing are disproportionately ployees are relatively more skilled in pharmaceu- located in the largest cities, which suggests ticals and medical equipment, and especially so strong benefits from agglomeration, and that in ICT. The industries that have larger and more the factors supporting impactful entrepre- productive businesses also exhibit more impact- neurship are likely only found in some cities. ful entrepreneurship with regard to formality, As is the case across the world, economic activ- high growth, innovation, and exports. While the ity tends to concentrate in Mexico’s largest cities share of high-growth firms in agribusiness is only Mexico: Entrepreneurship Ecosystem Diagnostic    xv 6.3 percent, this jumps to 11.2 percent in ICT. Al- within regions (the north, north-Pacific, center, though only 0.3 percent of agribusinesses register and south). Local conditions strongly influence patents, this share rises to 1.9 percent for pharma- the life cycle of a business from entry and formal- ceuticals and medical equipment, and 2.3 percent ization, to scale up, and eventually innovating and for ICT. exporting. The analysis in this study suggests that the availability of skilled labor, access to quality Across the three industries, the most dynamic infrastructure, and the quality of local institu- and higher value-added establishments are tions are the main correlates for the localization clustered in Mexico’s largest cities, but their of impactful manufacturing firms at every stage geographical patterns of agglomeration vary of their life cycle. In addition, access to knowledge somewhat. Regarding the average value added positively correlates with innovation, and access per worker in clusters in large cities, this is com- to finance positively correlates with the entry of parable across the three industries, which indi- formal firms. Distance from the US border cor- cates that given the right environment, clusters relates negatively with formal, high-growth, and in agroindustry are as productive as those in export-oriented clusters. more technologically complex industries. Even though the most dynamic clusters are in the The north ranks first for many of the drivers largest municipalities, geographical patterns of that are most closely linked to dynamic entre- agglomeration differ across the three industries. preneurial locations, whereas the south has In agroindustry, clusters of enterprises are found the largest gaps. The north has stronger univer- in all states, but the largest cluster is in metro- sity-industry linkages and patenting, and fewer politan Guadalajara. Clusters of agribusinesses problems with access to finance and skills. As a are important in the south, but they tend to be result, the north has higher entry rates for formal smaller if compared to other states.8 Clusters of firms that scale up, and eventually upgrade and pharmaceutical firms are concentrated in fewer export, directly, or through integrating into GVCs. states, and many are found in the south (in Me- The central region also has clusters of impactful rida, Yucatan, Tuxtla Gutierrez, and Chiapas). entrepreneurship, but generally ranks behind the Mexico City, however, hosts the largest cluster. north. The north-Pacific region (where Guadala- With regard to ICT, clusters are found primar- jara is located) tends to be closer to the national ily in the largest cities and metropolitan areas average for several entrepreneurial drivers. How- (Mexico City, Guadalajara, Monterrey, Quere- ever, the central and north-Pacific regions sur- taro, Puebla, and Chihuahua), and along the bor- pass the national average on university-industry der with the US. The largest ICT cluster is in the collaboration. The south has more gaps for all of Tijuana-Mexicali corridor. these drivers, which explains its weaker entrepre- neurship ecosystem. Hence, to foster impactful Local drivers of entrepreneurship are shaping entrepreneurship, policy interventions need to regional agglomerations, with access to skilled address the barriers that are specific to a location, labor and the quality of infrastructure and in- and consider both the gains from agglomeration, stitutions appearing to be the more important as well as the complementary policies that are drivers. The localization patterns of manufactur- needed to extract those benefits, and avoid the ing activity, which are documented, above, sug- negative externalities of congested locations (for gest spatial differences in the quality of the drivers example, lack of: housing, local infrastructure, of entrepreneurship. This applies both across and schooling, and waste management). xvi    Mexico: Entrepreneurship Ecosystem Diagnostic Entrepreneurship support At the federal level, the budgetary resources to spur firms’ entry, scaling up, and innovating policies and enablers have diminished, significantly, in recent years. A host of public and non-public initiatives that The budget allocated to the Ministry of Economy, seek to nurture entrepreneurship and firms’ which is the main ministry in charge of entrepre- development coexist in Mexico, but multiple neurial development, declined by 62 percent be- shortcomings hamper their effectiveness. Pre- tween 2017 to 2022. In 2022, the ministry’s budget vailing weaknesses limit the entry of new and covered staff costs and current expenditures, but more productive firms; impede the scaling up of no resources were allocated to programs that sup- existing firms; reduce firms’ innovative capacity; port entrepreneurship and innovation. Budget cuts and dilute the ability of Mexican firms’ to take have been compounded by redirecting resources advantage of opportunities in global markets. to programs that target low-income groups, such Notably, public interventions to support entre- as microcredit provision. These programs, which preneurship and firms’ growth need to focus on have merit from a social development perspective, addressing specific institutional or market fail- were used during the COVID-19 pandemic to ures, such as excessive regulation that impedes mitigate the latter’s impact on low-income house- the creation of new firms, or lack of information holds. However, programs that target micro and and information asymmetries. Internationally, small enterprises merely because of their size may there is ample evidence that well-intentioned in- not allocate scarce resources to the most produc- terventions to support firms and entrepreneurs tive activities, and to the enterprises that are capa- often actually discourage firms’ growth, or they ble of generating and sustaining more and better simply provide transfers to recipients, without jobs (Grover, Medvedev, and Olafsen 2019).10 Be- stimulating any entrepreneurial activity. Con- yond the Ministry of Economy, the programs to versely, some programs have proven to be effec- foster innovation and R&D, which the National tive in promoting entrepreneurship and firms’ Science and Technology Council (CONACYT) growth—for example, ones that improve man- administered, have also been scaled down or ter- agerial capabilities or that dispel information minated. Public development banks (in particular, asymmetries in export or financial markets (such Nacional Financiera [NAFIN] and Banco Nacio- as credit bureaus).9 Based on such evidence, re- nal de Comercio Exterior [BANCOMEXT]) have vising public programs and taking advantage of helped to connect firms to financial markets, but the role that non-governmental actors can play recent indicators suggest a decline in the credit in promoting entrepreneurship, could help to portfolio of some financial institutions. Also, the spur job creation, as well as economic growth. To provision of credit guarantees could be improved that end, this study took a close look at 128 pub- by focusing on the younger and more innovative lic programs, both at the federal and subnational companies that lack access to finance. levels, as well as 51 initiatives run by non-public entities. As previously noted, at the subnational Budget cuts at the federal level have, in turn, level, to compare entrepreneurial ecosystems affected the efforts of local governments and with different degrees of maturity, this review non-public enablers to support entrepreneur- focused on the states of Chiapas, Jalisco, and ship. For example, Jalisco benefited from CONA- Nuevo León; and at the sectoral level, this review CYT and Ministry of Economy programs that analyzed initiatives that target ICT, pharmaceu- supported innovation and software development, ticals and medical equipment, and agroindustry. but these were eliminated in recent years, or they Mexico: Entrepreneurship Ecosystem Diagnostic    xvii suffer from an inadequate budget. To fill this initiatives to support the development of tech- void, the State of Jalisco has launched new initia- based firms and startups are taking place in col- tives, but these have much less funding. Similarly, laboration with large companies and international non-public enablers in Jalisco and Nuevo León, organizations, including universities. Some mul- many of which relied on federal government fund- tinational companies and other organizations are ing, are trying to compensate for cuts by develop- already implementing open innovation challenges ing partnerships with international organizations. and initiatives to match their needs with local companies and entrepreneurs, and these rely on In addition to the impact of budgetary cuts, the existing entrepreneurship ecosystem. Further- lack of continuity is a problem as programs are more, the venture capital sector in some regions often affected by both federal and subnational of the country is growing and maturing, with an electoral cycles. Most of the public programs increasing number of funds investing in startups that were assessed in this study are relatively new; and “unicorns” (a startup with a value over US$1 more than half (58 percent) began operating in billion). 2018, or later. At the federal level, 51 percent of the public programs active in 2022 were created Due to the ongoing restructuring of global value between 2018 and 2022. In Monterrey, in Nuevo chains, strengthening internationalization León, 63 percent of the programs have been cre- programs has becomes even more important. ated since October 2021, when an election was Successful participation in the global economy held, and public administration changed. requires vibrant entrepreneurial ecosystems that enable a greater number of productive firms to Public programs tend to support existing com- be created and thrive. But these ecosystems also panies, and pay comparatively little attention benefit from interventions that are specifically in- to technology-based firms and startups. At the tended to attract foreign direct investment (FDI), subnational level, some regions, such as Chiapas, promote exports, and increase local firms’ domes- have ecosystems that are at an incipient stage, with tic value added. However, linkages between inter- little participation of, and linkages with stake- national investors and local firms remain modest holders, which often greatly reduces the creation because the public resources to build such link- of startups and innovation. Conversely, the states ages, and increase domestic value added have de- of Jalisco and Nuevo León have several initiatives clined, which has undermined government efforts that target these types of companies, and these to deepen Mexico’s participation in global value states’ entrepreneurship ecosystems have been chains. boosted through collaboration with public and non-public actors, such as universities, multina- Lastly, the process of formulating programs, tional companies, and business associations. With from design and implementation to moni- support from the federal government, such expe- toring and evaluation, exhibits several weak- riences could be documented and then adapted to nesses, and this applies to both public and the specific needs of other regions in Mexico. non-public initiatives. Few programs carry out a diagnostic that provides the information needed Non-public enablers’ initiatives focus on sup- for effective design. Also, the type of monitoring porting startups and the internationaliza- indicators that programs use focus primarily on tion of technology (tech)-based firms, and, activities or outputs, with few programs evaluat- thus, they complement public programs. Such ing impact. To improve policy formulation and xviii    Mexico: Entrepreneurship Ecosystem Diagnostic interventions, the authorities should consider market opportunities. International experience carrying out evidence-based program design, suggests that there is no clear line of separation monitoring implementation and results with ro- between national and subnational competencies bust evaluations, and then looping back to im- in entrepreneurship and innovation support pro- prove future interventions. Such a system could grams, and that policy can benefit when different help to make better use of scarce public resources, levels of government cooperate with each other. and shield successful interventions from changes Although approaches vary across the world, with in public administrations. regard to innovation, many countries target their larger-scale projects at the national level, and es- Policy recommendations pecially projects that involve the production of knowledge. Conversely, subnational governments To improve the quality, scale-up, and interna- tend to target innovation with smaller programs tionalization of firms, a holistic and coherent that are more focused on technology diffusion, strategy to foster the entrepreneurship eco- technology parks, networking and brokerages ser- system is needed. This strategy could address vices, incubation, and cluster development. There regulatory and institutional gaps, as well as im- are also examples of joint national and subnational prove the quality, funding, and mix of public en- programs that target cluster development. trepreneurship programs. Mexico could enhance entrepreneurship quality by rebalancing the mix The recommendations, below, on fostering greater of entrepreneurship programs to target existing access to finance, building firms’ capabilities, pro- firms and startups that have ambitions to scale moting innovation, improving the business regu- up. Mexico could also foster greater internation- latory environment, facilitating access to external alization in order to better leverage Mexico’s free markets, and strengthening the policy-making trade agreements and its unique geographic posi- process, seek to inform the development of na- tion, with both Atlantic and Pacific coasts, and a tional and subnational strategies that will foster border with the US. the establishment, growth, upgrading, and expan- sion of more productive and innovative firms. While public interventions could help to ad- dress market failures related to entrepre- neurship, high-quality program design and implementation are critical for impact, as is a Expand access to finance To mitigate the financial constraints that hinder strong monitoring and evaluation framework the entry and growth of quality firms: that guides program design and adjustments. Funding needs to be aligned with targets, and pro- 1. Revise credit guarantee funds to focus on grams need to be consistent and last long enough younger, innovative, and new firms with risk- to allow interventions to yield results, and for ier projects, and firms that lack an established ecosystems to mature. Subnational governments reputation and adequate collateral (young, also need to embrace a more active role in the innovative, or tech-based firms with no tangi- development of local entrepreneurship ecosys- ble assets). tems; collaborate with the private sector; and as part of the state’s development strategy, comple- 2. Encourage the use of movable assets and ment federal initiatives. At the subnational level, other innovative mechanisms as collateral (for strategies will need to be adjusted to match local example, future cash flows, inventories, or ecosystems’ level of maturity, endowments, and sales). Mexico: Entrepreneurship Ecosystem Diagnostic    xix 3. Improve the quality of information available Incentivize private innovation for credit evaluations by enhancing credit and tech-based startups bureaus’ standards for firms, and promoting To stimulate innovation in the private sector and the use of alternative data. generate greater linkages with public research 4. Evaluate the outcomes of seed and venture institutions: capital funds (fund of funds, or co-investment 1. Promote greater investments in R&D and stron- funds) that are aimed at high potential and ger university-industry collaboration by evaluat- tech-based startups, and assess how these ing the constraints in the current R&D tax credit instruments can be reinvigorated. program, as well as the benefits of alternative 5. Strengthen the insolvency regime, inter alia, instruments (for example, matching grants). by streamlining procedures, further strength- 2. Stimulate SMEs’ adoption of technology ening protection for secured creditors, invest- and their incremental innovation by provid- ing in the capacity of institutions, and setting ing matching grants and reviewing relevant guidelines for out-of-court procedures. national as well as international experience on technology adoption and innovation. Strengthen firms’ capabilities 3. Enhance the capabilities of technology transfer and skilled labor offices (TTOs) and networks, and promote To address gaps in firms’ capabilities and skilled the development of platforms that encourage labor: university-industry knowledge transfer and cooperation. 1. Enhance management capabilities by provid- ing incentives (for example, through vouchers) 4. Leverage public procurement to stimulate for insourcing professional managers and/or a innovation and technology transfer, while at the consulting firm’s services. same time addressing crucial challenges related to the delivery of public services, healthcare, 2. Boost the digitalization of MSMEs through and energy, as well as solving environmental self-diagnostic tools that are complemented problems. Also, in designing programs, apply with vouchers or matching grants to imple- lessons learned through previous experience in ment a digital upgrade. Mexico and other OECD countries. 3. Strengthen the quality and relevance of the 5. Complement seed and venture capital initia- skills acquired in tertiary and secondary tives with support for incubators and business education by ensuring a greater market focus; accelerators that provide mentoring, and facil- upgrading curricula to include digital technol- itate networks and financing for innovative ogy, languages, and soft skills; and expanding and tech-based startups. entrepreneurship education programs. 6. At the subnational level, leverage federal inno- 4. Assess the skills gaps in priority industries; vation programs more effectively, and com- set up programs to close these gaps; and do so plement these with local resources to create in collaboration with training and vocational a mix of programs that are suitable for the education institutions, universities, and the specific local context, and the development of private sector. local clusters. xx    Mexico: Entrepreneurship Ecosystem Diagnostic Improve the regulatory inputs, business services, and technology solu- environment tions. A second phase or an extension of the To enhance contract enforcement and regulatory program could help firms with direct exports. quality, while reducing compliance costs: 2. Enhance market intelligence and information on the regulatory and procedural aspects of 1. Strengthen the capabilities of the judicial exporting, directly, and on integrating into system, inter alia, through training, the GVCs. establishment of standards, and the creation of specialized courts such as those that are 3. Improve competition in the logistics market; already operating in some states (for example, reduce friction in multimodal transportation; the State of Mexico); and promote alternative and in particular, consider regulating intercon- dispute resolution mechanisms. nection services between railway networks, and establishing transparent booking systems 2. Further strengthen the three pillars (poli- for port services. Addressing bottlenecks that cies, institutions, and tools) of the National affect the southern states should be a priority. Indicator of Regulatory Improvement, and especially the pillars at the subnational level. 3. Continue piloting the deployment of Design, implement, and SINAGER (National System for Regulatory evaluate programs that foster Governance) in the short term, and scale up entrepreneurship its development in the medium term. To enhance the effectiveness of federal and sub- national public programs, utilize program design, 4. In a much larger number of municipali- implementation, and evaluation practices that are ties, facilitate the registration of firms and based on good national and international examples: regulatory compliance by implementing SARE (Accelerated System for Firms Start 1. Provide programs with a long-term vision as it of Operations), PROSARE (Program for takes time to build capacities and develop the Operation of the Accelerated System for entrepreneurship ecosystem. Firms Start of Operations), and the Simplified Construction License. 2. Align budgets with program objectives and targets. Facilitate the internationalization 3. Identify potential complementarities, dupli- of firms cations, and gaps between different policy To increase the number of direct exporters and instruments. the integration of more SMEs into GVCs: 4. Enhance collaboration between government agencies at the federal and subnational levels, 1. Implement more comprehensive supplier and with non-governmental enabling organi- development programs in close collaboration zations (for example, between the Ministry of with the private sector, including conducting Economy and CONACYT, and between these diagnostics, and providing support to enhance two, and subnational entities). firms’ capabilities, and matchmaking with exporters. Potential suppliers could include, 5. Design programs with robust monitoring and inter alia, firms that provide intermediate evaluation mechanisms. Mexico: Entrepreneurship Ecosystem Diagnostic    xxi 6. Link the provision of funding for intermediary ecosystems, endowments, and market oppor- organizations that support entrepreneurship tunities; and identify how best to leverage (for example, incubators and business acceler- federal initiatives, and complement these with ators) to their use of a strong monitoring and local resources. evaluation framework; and foster the dissemi- 2. Strengthen cluster development by improving nation of their good practices. the links between government, academia, and industry, as well as linkages among firms, and Adapt subnational build managerial and technological capacities entrepreneurship strategies to that are relevant for the cluster. the local context 1. Design subnational entrepreneurship strategies that match the maturity of local Table ES.1. Policy recommendations Short term (< 2 years) Medium to long term (> 2 years) Area Action Impact Action Impact Develop a comprehensive and Implement the strategy for growth- High Holistic coherent strategy at the federal oriented entrepreneurship. entrepreneur- level that fosters growth-oriented High Support subnational governments in ship strategies entrepreneurship. integrating entrepreneurship into the High state’s development strategies. Enhance credit guarantee Develop new types of collateral programs to encourage financing (for example, receivables, or future High for younger, innovative, and new purchase contracts). firms that have limited collateral High Foster the development of seed and/or a limited credit history. Access to and venture capital funds to support High finance startups and tech-based firms. Enhance the quality of information Enhance the insolvency regime to available for a credit evaluation encourage lending, and improve High Medium (for example, alternative sources resource allocation across firms. of data). Strengthen management capabilities by providing incentives High for insourcing professional managers and/or a consulting firm. Boost digitalization of MSMEs through self-diagnostic tools, High Firm complemented with vouchers or capabilities matching grants. Assess the skills gaps in priority Strengthen the quality and relevance industries, and in collaboration of the skills acquired in tertiary and with vocational education secondary education by ensuring a High High institutions, universities, and the greater market focus, and upgrading private sector, set up programs to curricula to include digital, language, close these gaps. soft, and entrepreneurship skills. xxii    Mexico: Entrepreneurship Ecosystem Diagnostic Short term (< 2 years) Medium to long term (> 2 years) Area Action Impact Action Impact Evaluate the constraints in the Foster public procurement innovation current R&D tax credit program, initiatives, starting with pilots in a as well as alternatives for inducing few ministries (for example, health or High Medium higher investments in R&D, environment). and stronger public-private collaboration. Review and strengthen programs Strengthen institutions (such as that foster technology adoption technology transfer offices) and Medium and more incremental innovation. platforms that facilitate technology transfer. High Promote incubators and accelerators, Innovation and require them to have a strong Medium and startups monitoring and evaluation framework if they want support. Federal/subnational level: „ Complement federal programs with local resources, and pursue a mix of policies that suit the local context and priorities. „ Strengthen cluster development High by nourishing linkages between government, academia, and industry, as well as between firms, and build clusters’ managerial and technological capacity. Improve contract enforcement by strengthening the capabilities of the judicial system (inter alia through training and the establishment of Medium specialized courts), and promoting alternative dispute resolution mechanisms. Business enabling Further strengthen the National environment Indicator of Regulatory Improvement, High and especially at the subnational level. Facilitate firms’ registration Continue the expansion of the SARE and regulatory compliance by and PROSARE initiatives. Medium Medium implementing SARE and PROSARE in more municipalities. Mexico: Entrepreneurship Ecosystem Diagnostic    xxiii Short term (< 2 years) Medium to long term (> 2 years) Area Action Impact Action Impact Beginning with priority industries, Scale up supplier development improve efforts to increase programs to other industries, and to domestic value added in activities with greater value addition. High exports by piloting a supplier High development program that is Pilot new initiatives that foster based on a solid diagnostic, and exporting capabilities. International- international best practices. High ization of firms Enhance market intelligence and export promotion efforts. Improve competition in the logistics market, and reduce friction in High multimodal transportation, and especially in the south. Federal level: Federal level: „ Reinforce the design, „ Build on CONEVAL’s experience implementation, and with social development to evaluation of federal instill the practice of evaluating High Program programs, starting with a entrepreneurship development. design, review of priority objectives implement- and instruments. ation, and Subnational level: Subnational level: evaluation „ Strengthen collaboration „ Align program instruments with between local governments new subnational strategies, and the private sector to High and incorporate strong design, address bottlenecks in implementation, and evaluation fostering entrepreneurship. tools. Notes 5. These sectors, which comprise aerospace, motor ve- hicles and auto parts, household appliances, and com- 1. INEGI. 2022. Tables on Total Factor Productivity. Web- puter equipment and semiconductors, account for only site accessed October 22, 2022. https://www.inegi.org. 3 percent of firms, but 33 percent of value added in mx/temas/ptf/#Tabulados manufacturing. 2. Ministry of Economy. 2015. “Foreign Trade, Coun- 6. In this report, the northern region comprises the tries with Treaties and Agreements Signed with states of Baja California, Baja California Sur, Chihuahua, Mexico [Comercio Exterior, Países con Tratados y Ac- Coahuila, Nuevo Leon, Sonora, and Tamaulipas; the uerdos Firmados con México].” Website accessed north-Pacific region comprises the states of Aguascali- October 22, 2022. https://www.gob.mx/se/acciones entes, Colima, Durango, Jalisco, Nayarit, Sinaloa, and -y-programas/comercio-exterior-paises-con-tratados-y Zacatecas; the central region comprises Mexico City and -acuerdos-firmados-con-mexico. the states of Mexico, Guanajuato, Hidalgo, Michoacan, 3. World Bank Group. 2019a.“Mexico – Policy Notes.” Morelos, Puebla, Queretaro, San Luis Potosi, and Tlax- cala; and the southern region comprises the states of 4. While establishment was the unit of observation in this Campeche, Chiapas, Guerrero, Oaxaca, Quintana Roo, study’s micro-data, the terms business, firm, plant, and Tabasco, Veracruz, and Yucatan. establishment are used interchangeably in this report, unless noted otherwise. 7. In this report, a cluster is defined as a spatial agglom- eration of plants within a radius of 30 kilometers (km), xxiv    Mexico: Entrepreneurship Ecosystem Diagnostic and with a minimum size above the 90th percentile in 9. For a discussion of the evidence, see World Bank the distribution of the number of plants across munic- (2021). ipalities (with this minimum varying across categories). 10. Grover, Medvedev, and Olafsen. 2019. High-Growth 8. The forthcoming IFC study, “Mexico’s Southern Firms: Facts, Fiction, and Policy Options for Emerging States”, also noted that the southern states have poten- Economies. tial in the agribusiness sector. Mexico: Entrepreneurship Ecosystem Diagnostic    xxv 1. Entrepreneurship Ecosystem in Mexico: A Cross-Country Analysis Key Questions Chapter 1 examines the entrepreneurship ecosystem in Mexico through a cross-country com- parison that is based on a conceptual framework, which covers entrepreneurship outcomes and its three structural pillars: supply factors, demand factors, and the allocation of resources. This analysis used both firm-level data and cross-country indicators. According to the find- ings, Mexico’s entrepreneurship ecosystem is characterized by a small share of high-qual- ity firms, and a large share of low-productivity firms, which face important challenges that impede them from scaling up, upgrading, and internationalizing. These challenges include financial constraints, difficulties in finding adequately qualified human capital, limited mana- gerial skills, weaknesses in the rule of law, and the high cost of regulatory compliance. This chapter addresses the following questions: „ How is Mexico performing with regard to its entrepreneurship outcomes, both in terms of quantity (the number of firms entering), and quality (the number of firms scaling up, internationalizing, and innovating)? „ What are the most relevant challenges that Mexico’s entrepreneurship ecosystem faces with regard to: f Supply factors—especially human capital and knowledge capital? f Demand factors—access to markets, and the capabilities of existing firms? f Allocation of resources—access to finance, the regulatory environment, and social capital? Mexico: Entrepreneurship Ecosystem Diagnostic    1 1.1 Introduction Although the COVID-19 pandemic has made boosting growth and entrepreneurship even Over the past three decades, economic growth more pressing in Mexico, the pandemic has in Mexico has been sluggish. Between 1991 and also opened up new opportunities due to the 2021, Mexico’s gross domestic product (GDP), reconfiguring of global value chains (GVCs). per capita, grew at an average rate of only 2.2 In 2020, primarily due to the pandemic, Mexico’s percent, which had little impact on the country’s GDP declined by 8.1 percent, however, in 2021, it high poverty level. Within Mexico, the central and bounced back by 4.8 percent, and it was expected northern regions have benefited much more from to grow by 1.8 percent in 2022.2 As a result of the investment and trade flows, while the southern pandemic, firms suffered from lower revenues, states have lagged behind. Generally speaking, and many exhibited lower levels of employment few enterprises in the southern states have links and remuneration, and the creation of formal with international markets. firms stagnated (López Córdova, Patiño Peña, and Rodrigo 2021). The most important factors miti- Slow productivity growth is the main cause gating the pandemic’s impact on firms were: hav- of Mexico’s poor economic performance. Be- ing higher productivity prior to the crisis, having tween 1991 and 2021, total factor productivity access to finance and export markets, and using growth fell, on average, by 0.45 percent, while digital technology. The pandemic exposed the GDP grew primarily due to factor accumulation, vulnerabilities of many GVCs, and made clear, the and especially due to Mexico’s demographic div- importance of reducing exposure to the challenge idend.1 Moreover, as noted by Iacovone and his of production in Asia decreasing or coming to a co-authors (2022), there are large differences in halt. Reshoring is, of course, an important way to the productivity performance of states, industries, reduce such exposure, and Mexico is an obvious and firms, and the differences in firms’ productiv- destination for reshoring in North America. The ity have increased in recent decades (1993–2018). Inter-American Development Bank has estimated Importantly, the inability to allocate resources to that reshoring opportunities could, potentially, in- the most dynamic sectors and firms is a major crease the annual exports of Latin America and cause of Mexico’s low level of productivity the Caribbean by around US$35.3 billion.3 growth. This is demonstrated by the large number of very small, informal firms. In 2019, microenter- Mexico needs to take action to foster entre- prises and small establishments (ones with five or preneurship by better leveraging its free trade fewer workers), which are primarily informal, and agreements (which involve 50 countries) and have low growth potential, accounted for a very the new opportunities offered by reshor- large share of establishments (89.3 percent), and ing, and broadening economic opportunities a relatively large share of employment (30.9 per- across the country. Greater integration of firms cent). However, these enterprises accounted for into GVCs could not only have a positive impact only a small share of value added (11.5 percent). on their productivity, it could boost Mexico’s Conversely, large firms (ones with more than 250 economic activity. However, most exporters are workers) accounted for a disproportionally small regionally focused, and few have any connection share of all the firms (0.2 percent), but they had with local entrepreneurs and suppliers. The con- a large share of employment (31.6 percent), and ditions to facilitate the greater integration of ex- accounted for a large share of value added (49.9 porters into local entrepreneurship ecosystems percent). need to be developed. Also, in southern Mexico, 2    Mexico: Entrepreneurship Ecosystem Diagnostic to attract new value chains to the region, an en- improve the environment for building firms’ ca- vironment that nurtures more vibrant entrepre- pabilities, facilitate the more efficient allocation of neurial ecosystems needs to be created. resources, and decrease productivity gaps across regions, sectors, and firms. Also, government pol- Entrepreneurship thrives in supportive ecosys- icies will need to be adjusted across regions so tems, and the quality of the ecosystem deter- that they take into consideration the differences mines the probability of generating impactful in local entrepreneurship ecosystems. entrepreneurs. The term, impactful entrepre- neurship, applies not only to the high entry of for- This report provides a comprehensive assess- mal firms, but also to high growth, innovative, and ment of Mexico’s entrepreneurial ecosystem globally integrated firms (see Box 1.1 for the defi- to inform and prioritize policies that develop nitions of different types of entrepreneurship). To and support impactful entrepreneurship. The become impactful, entrepreneurs need resources report draws on the World Bank Entrepreneur- (such as finance, infrastructure, physical capital ship Diagnostic Framework (World Bank 2022a), (facilities and equipment), human capital, and multiple global and national data sources, and knowledge); access to markets; and a supportive two surveys that were conducted for this re- regulatory environment. For Mexico to achieve port. The surveys covered public and non-pub- inclusive growth, it is crucial for the country to lic institutions that support entrepreneurship at address the obstacles that prevent the establish- the federal level in Mexico, and in three states ment, growth, upgrading, and international- with varied characteristics (Chiapas, Jalisco, and ization of more productive firms. Doing so will Nuevo León). This chapter provides an overall Box 1.1. Different types of entrepreneurship „ Necessity or push entrepreneurship: These enterprises are created because they are “the best option available” to an entrepreneur due to her/his particular conditions, such as recently losing a job, needing to supplement household income, and/or need- ing to gain flexibility to attend to personal or household demands. „ Opportunity or pull entrepreneurship: These enterprises are created to take advan- tage of a unique market opportunity. „ Impactful entrepreneurship: These enterprises have a positive impact due to produc- tivity increases and/or job creation. Typically, these are high-growth firms* that tend to be more innovative, more connected to global value chains, and more likely to benefit from agglomeration. Sources: Trish Cotter. 2001. “Necessity vs Innovation-based entrepreneurs.” Global Entrepreneurship Monitor; and World Bank. 2022a. “Entrepreneurship Ecosystems and Digital Businesses: Diagnostic Toolkit.” Note: * According to Grover, Medvedev, and Olafsen (2019), there are at least three ways of defining high growth firms: i) absolute definitions, such as OECD’s, which defines a firm as high growth if it has 10 or more workers, annual revenue that is four times the national per capita income, and growth of more than 20 percent, per year, for three or more years; ii) relative definitions, such as a defined top percentile of firms—for example, the top 10th percentile or the top quar- tile of firms; and, iii) a distributional definition that is based on the specific properties of the distribution of firms, which usually combines elements from the absolute and relative definitions, and is computationally intensive. For the purposes of this report, although no clear criteria have been set, the term “high-growth firms” generally applies to firms with outstanding performance (the absolute definition). In some cases, this report refers to high-growth firms as those that are within a specific percentile of firms’ distribution. Mexico: Entrepreneurship Ecosystem Diagnostic    3 assessment of entrepreneurship performance in Figure 1.1. Density of new businesses Mexico, the structural challenges that confront relative to GDP per capita (2018 or latest entrepreneurs, and how these challenges com- available) pare with Mexico’s peers. Chapter 2 analyzes the 30 20 differences in impactful entrepreneurship across 10 CHL ROU sectors and local ecosystems, with a special focus (new registrations per 1,000 people on manufacturing, and it discusses the potential ages 15−64) − log scale CRI MYS New business density MAR COL POL drivers of the spatial allocation of manufacturing VNM BRA MEX entrepreneurship. Marked differences in local en- IDN trepreneurship ecosystems imply that there are IND regional differences in policy priorities. In Chap- ter 3, this report assesses the overall mix and quality of policy instruments that foster entre- 1000 10000 50000 preneurship at the federal level, and in the three GDP per capita (constant 2015 US$) − log scale aforementioned states, as well as the functioning Source: World Bank. Entrepreneurship Database. https:// of non-government intermediary institutions that www.worldbank.org/en/programs/entrepreneurship. support entrepreneurship or are ecosystem “en- Note: The countries used in the analysis as global peers for comparison comprise: BR–Brazil; CHL–Chile; COL–Colom- ablers”. Chapter 4 presents the policy recommen- bia; CRI–Costa Rica; IDN–Indonesia; MYS–Malaysia; ROU– dations emerging from this analysis. Romania; and VNM–Vietnam. 1.2  Weak entrepreneurship establishments in Mexico exhibit lower exit rates, outcomes too, as well as lower job creation and destruction Mexico’s entrepreneurship ecosystem is char- rates. Furthermore, Mexico’s rate of formal firm acterized by the limited entry of high-quality registration is below par, given the country’s stage firms, and a large share of low value-added of development (Figure 1.1). This pattern could be firms, with low growth prospects. Mexican explained, in part, because small firms are estab- firms’ internationalization is limited, but those lished, primarily, due to necessity. As many as 42 firms that manage to integrate into GVCs, or ex- percent of Mexican firms employ only the owner port directly, tend to achieve high growth rates. (INEGI 2019), and the rate of self-employment is Mexican firms’ level of innovation is low, and, thus, higher than what would be expected given Mexi- the upgrading of Mexican firms is uncommon. co’s GDP, per capita (Figure 1.2). Also, as shown in ENAPROCE 2018 (INEGI 2018), 53 percent of mi- The entry of productive firms is limited, and for croenterprises either have no accounting records, many small firms, entrepreneurship seems to or they keep them informally in a notebook. This result from necessity rather than opportunity. suggests that many of these newly created firms are Although, on aggregate, the entry and exit of es- operating informally, which means that they face tablishments in Mexico is not significantly differ- significant challenges with regard to growth. ent from the US, small establishments in Mexico, which are typically informal, display lower entry Informality creates a series of distortions that and exit rates than in the US (Busso, Levy, and go beyond hindering the growth of informal Torres 2019). Moreover, the entry and exit rates of firms. First, informality enables low-productiv- smaller firms in Mexico have been declining over ity firms to stay in the market, while higher-pro- time, which widens the gap with the US. Young ductivity firms are driven out, and this reduces 4    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 1.2. Self-employment rate (2019) Figure 1.3. Mexican manufacturing plants COL show limited growth compared to US manufacturing plants BRA MEX 30 Unit d St t s M xico Indi CRICHL 8 Self-employment rate − log scale mplo m nt s proportion of v r rs old 20 POL 4 mplo m nt of firms < 5 10 2 1 Av r 5 <5 5–9 10–14 15–19 20–24 25–29 30–34 25–39 ≥ 40 10000 25000 50000 Age GDP per capita (constant 2015 US$) − log scale Source: Hsieh and Klenow (2014). Source: World Bank. World Development Indicators Databank. https://databank.worldbank.org/source/world-development -indicators found that 22.5 percent of microentrepreneurs have no aspirations to grow. The next section pro- aggregate productivity (Levy 2018). Second, vides more detail on the growth constraints that high-productivity formal firms are more likely to exit than is the case with high-productivity infor- firms face in Mexico. mal firms, while low-productivity formal firms are less likely to exit than is the case with low-pro- Mexico’s broad network of free trade agree- ductivity informal firms. Both trends, combined, ments has not resulted in broad GVC partici- point to an “aggregate productivity reducing” exit pation or high domestic value addition. A very of firms in Mexico, instead of the expected “aggre- limited number of Mexico’s enterprises export, or gate productivity enhancing” exit. With regard to are integrated into GVCs. Mexico has signed free entry, Levy (2018) found that low-productivity in- trade agreements that include 50 countries, but formal firms capture a large amount of resources, its exports lag behind its relevant peers (Figure and thus firms’ entry is not necessarily productiv- 1.4). Only 8.3 percent of firms in Mexico export at ity enhancing. To sum up, this means that infor- least 1 percent of their sales, either directly or in- mality hinders aggregate productivity through the directly. However, for the 3,385 firms with exports exit of firms, and potentially through their entry.4 higher than 1 percent of their sales in 2013 and 2018, exports grew at an average annual rate of 9.6 Mexico’s firms have limited growth prospects. percent over this period. The percentage of firms Using data from the 1999 and the 2004 Mexican exporting high-technology products surpassed Economic Census, Hsieh and Klenow (2014) found their expected shares, given Mexico’s GDP (Figure that the average 40-year-old manufacturing plant 1.5). However, these high-quality firms can also in the US employs more than seven times as many workers as the average US plant that is 5 years old improve, substantially, since the domestic value or younger. However, 40-year-old manufacturing added of Mexican exports (measured as forward plants in Mexico are only about twice the size that GVC participation) is the second lowest, among they were when they were established, and they 64 countries (including the 38 OECD members), largely stopped growing after 20 to 25 years. Sim- which puts Mexico behind only Malta (Iacovone ilarly, the 2018 ENAPROCE survey (INEGI 2018) et al. 2022). Mexico: Entrepreneurship Ecosystem Diagnostic    5 Figure 1.4. Percentage of firms exporting Figure 1.5. High-technology exports directly or indirectly (2019) (% of manufactured exports, 2020) 60 80 MYS 40 VNM 40 MAR Percent of firms exporting directly or indirectly 20 MEX (% of manufacturing in exports) − Log Scal CHL CRI IND BRA ROU 20 MYS 10 COL POL IDN COL ROU (at least 1% of sales) − log scale CHL High technology exports CRI MAR POL IDN IND MEX 1000 10000 50000 1000 10000 50000 GDP per capita (constant 2015 US$) − log scale GDP per capita (constant 2015 US$) − log scale Source: World Bank Enterprise Surveys (2019 or latest year Source: World Development Indicators Databank. (2020 or available). https://www.enterprisesurveys.org latest year available). https://databank.worldbank.org/source /world-development-indicators. Innovation in Mexico is low and does not pro- mote firms’ upgrading. According to the 2018 the environment in which firms operate. En- trepreneurs flourish in ecosystems where com- ENAPROCE (INEGI 2018), in 2016 and 2017, only plementary factors and institutions allow the 12 percent of microenterprises and 10 percent of transformation of ideas into the production and SMEs introduced some kind of innovation (prod- sale of goods and services. Understanding the uct, process, method of organization, or market- quality of Mexico’s entrepreneurial ecosystems, ing). The low level of microenterprises’ innovation and the inefficiencies and obstacles faced by en- is not surprising given that 60 percent of them do trepreneurs while trying to start a business, and not even use the internet. In 2017, only 6.2 percent convert (new) ideas into (new) goods and ser- of SMEs registered or initiated the registry of a vices, and market (sell) these, requires an analysis trademark, patent, model, or industrial design, and of: (i) factor markets that provide access to basic 97 percent of SMEs have never acquired, adapted, production resources such as labor and human generated, patented, developed, or sold technology. capital, as well as entrepreneurial characteristics Furthermore, according to ESIDET 2017 (INEGI and firm capabilities; (ii) access to knowledge, fi- 2017),5 only 4.4 percent of SMEs implemented a nance at affordable rates, and markets; and (iii) research and development (R&D) project. institutions that facilitate the process of creation, production, marketing, and enable the flow of 1.3  The pillars of the ideas, technology, talent, and resources (World Bank 2022a). The conceptual framework for this entrepreneurial ecosystem is summarized in Figure 1.6, and the analysis of from an international Mexico’s entrepreneurial ecosystem follows this figure. perspective Mexico’s weak entrepreneurial outcomes This assessment of the pillars of Mexico’s en- presented, above, result from the interac- trepreneurial ecosystem, compared to its tion of supply factors, demand factors, and peers, points to underutilized opportunities 6    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 1.6. Entrepreneurial ecosystem framework Final outcome: Productivity and jobs Intermediate output New firms (entry) Firm growth (scale up) Innovation (upgrade) Entrepreneurship ecosystem Physical capital and SUPPLY PILAR (RESOURCES) Access to finance Access to markets infrastructure ALLOCATION PILAR DEMAND PILAR Human capital Regulations Firm capabilities Entrepreneurial Knowledge capital Social capital characteristics Public programs and ecosystem enablers to support entrepreneurship Source: World Bank 2022a. and substantial scope for improvement. Al- the rule of law, and public safety issues impose ad- though Mexican firms have access to large do- ditional costs on firms, which further hinder their mestic and foreign markets, these opportunities potential growth. are not being exploited to their full potential, and the supporting logistics needed to penetrate mar- Mexico benefits from having a large domestic kets are inadequate. Lack of access to finance and market, and an ample network of free trade to human capital constrains firms’ ability to scale agreements—the most important of which is up and upgrade. Efforts to innovate also remain the United States-Mexico-Canada Agreement low, and could occur in a more efficient manner, (USMCA)—but these advantages are not ad- which would help firms to upgrade. Most inno- equately exploited. Mexico, itself, comprises vation is funded by the public sector in Mexico, a market of considerable size, which is greater while in most Organisation for Economic Co-op- than its relevant peers (Figure 1.7). With regard eration and Development (OECD) countries, the to local competition, however, the OECD’s Indi- state finances only a small share. Finally, gaps in cators of Product Market Regulation database,6 Mexico: Entrepreneurship Ecosystem Diagnostic    7 Figure 1.7. Mexico benefits from a large its score of 3.05 is slightly above the average for domestic market (2020) upper-middle-income countries (2.76), but sub- 100 stantially below China’s score of 3.61, and that of IND 80 IDNBRA most OECD countries. For the LPI’s sub-scores, MEX VNM POL MYS Mexico received the highest score for timeliness, COL ROU Domestic market scale − log scale 60 MAR CHL and the lowest scores for customs efficiency, and the quality of trade- and transport-related CRI 40 infrastructure. The regulation of transport networks and other services needs to be strengthened to 20 reduce market power abuses and incentivize efficiency. For example, since an anticompeti- 1000 10000 50000 GDP per capita (constant 2015 US$) − log scale tive railway merger occurred in 2011, the cost of Source: Global Innovation Index 2020 (Cornell University, INSEAD, and WIPO 2020). railway transportation has increased, rapidly. This has outpaced increases in other transport sectors, and raised costs in the economy as a whole. This lists Mexico as below the OECD average for two could have a pervasive negative impact on other high-level indicators: distortions induced by state transportation and logistics subsectors, and, of involvement, and barriers to domestic and foreign course, on the cost of transporting raw materials, entry.7 With regard to foreign markets, ENAP- intermediate inputs, and final goods. Further- ROCE 2018 (INEGI 2018) revealed that only 4.9 more, this could negatively impact the integration percent of SMEs were participating in GVCs, and of Mexican firms into GVCs.9 they were not able to join until they were about 10 years old. Also, the Mexican Economic Census Lack of access to finance is an obstacle to firms’ 2019 (INEGI 2019) indicated that only 0.23 per- growth in Mexico. The availability of domestic cent of firms operating in 2019 were exporters, credit for the private sector (38.3 percent of GDP) and their exports comprised, on average, only 13.6 falls below what would be expected, given Mex- percent of their sales. This was the case, despite ico’s GDP per capita (Figure 1.8).10 Only 1 in 10 Mexico’s ample network of free trade agreements; microenterprises, 1 in 4 SMEs, and fewer than 1 its proximity to the US, which is one of the largest in 3 large firms have access to finance in Mexico global markets; and its strategic geographic posi- (Economic Census 2019 [INEGI 2019]). Further- tion, with both Atlantic and Pacific coasts. This more, 26.2 percent of SMEs that need to invest in implies that to leverage its growth, Mexico is not equipment, vehicles, facilities, or training are unable fully exploiting all of the export market opportu- to do so because they lack the necessary finance nities generated by its strategic geographic loca- (ENAPROCE 2018 [INEGI 2018]). According to tion, and its numerous free trade agreements. the World Bank Enterprise Surveys (various years), a higher number of Mexican firms (29.6 percent in Efficient logistics are crucial for reducing the 2010) identified credit as a major constraint in 2010, costs of integrating businesses into GVCs, and compared to regional peers such as Chile (17.6 per- exploiting Mexico’s large domestic market. Ac- cent) in 2010 or Colombia (22.7 percent) in 2017. cording to the 2018 Logistics Performance Index Using data from the 2018 ENAPROCE, Iacovone (LPI),8 of 160 countries, Mexico’s rank is 51, and and his co-authors (2022) found signs of financial 8    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 1.8. Domestic credit provided to Figure 1.9. Venture capital deals (2020 or the private sector (as % of GDP, 2019) the latest year available) 150 100 70 VNM MYS CHL GCI 4.0: Domestic credit to private sector − log scale 100 40 MAR BRA CRI IND POL 20 50 COL Venture capital deals − log scale IDN IND MEX ROU BRA MYS CHL POL IDN VNM CRI ROU MAR MEX COL 1000 10000 50000 1000 10000 50000 GDP per capita (constant 2015 US$) − log scale GDP per capita (constant 2015 US$) − log scale Source: Global Competitiveness Index 2019, Source: Global Innovation Index 2020 (Cornell, INSEAD, and WEF (World Economic Forum). 2019. The Global Competitive- WIPO 2020). ness Report 2019. they would not (ENAPROCE 2018); 58 percent of constraints, which were worse for young firms; and respondents from microenterprises, and 50 per- that having access to finance resulted in increases in cent from SMEs stated that they consider credit firms’ capital, labor force, and total factor produc- expensive; 34 percent of respondents from SMEs, tivity. Data from the 2018 Economic Census (INEGI and 20.1 percent from microenterprises stated 2018), also show that better access to finance at the that they do not need credit; and 15 percent of municipal level leads to higher turnover (entry plus respondents from microenterprises, and 6 per- exit rate), and increases in the intensity of churn- cent from SMEs stated that their reason for not ing that are typically related to reductions in factor accepting credit is their distrust of banks. On the misallocation. Additionally, the analysis found that supply side, the problems hindering credit growth the availability of local sources of finance results in are: information asymmetries (credit information larger firms, with higher productivity levels. All of these data indicate that access to finance is a crucial bureaus in Mexico have focused more on individ- driver of firms’ growth in Mexico, and that when uals than on firms); weak law enforcement (and firms face financial constraints, their growth and consequently less chance of repayment); lack of productivity is constrained. collateral; and gaps in the insolvency framework. Limited access to finance reflects the conver- The venture capital market, which could be an gence of demand and supply side issues: a con- alternative source of finance, is underdevel- siderable percentage of firms are not willing oped in Mexico. Although venture capital could to take out bank loans, and at the same time, be an alternative to institutional finance, and es- institutional conditions discourage banks from pecially for innovative projects, startups, and offering more credit. On the demand side, when projects with a higher level of risk, the number asked if they would accept bank credit under of venture capital deals in Mexico is considerably current market conditions (mainly the interest below what would be expected, given the coun- rate), 74 percent of respondents from microen- try’s GDP per capita, and the venture capital deals terprises, and 60.2 percent from SMEs stated that in regional and global peers such as Brazil, Chile, Mexico: Entrepreneurship Ecosystem Diagnostic    9 Figure 1.10. Human capital in Mexico a. Percentage of firms identifying an b. Science and engineering graduates inadequately educated workforce as a (2020 or the latest year available) major constraint (2019) 50 100 Percentage of firms identifying an inadequately educated MYS 40 CHLROU 70 COL CRI IND ROU MAR MEX COLMEX workforce as a major constraint − log scale 30 Graduates in science and engineering − log scale 40 VNM POL CHL POL MAR IDNBRA 20 20 CRI MYS IDN 10 IND 1000 10000 50000 1000 10000 50000 GDP per capita (constant 2015 US$) − log scale GDP per capita (constant 2015 US$) − log scale Source: World Bank Enterprise Surveys (2019 or latest Source: Global Innovation Index 2022 (WIPO 2022). https:// year available). https://www.enterprisesurveys.org/en/ doi.org/10.34667/tind.46596 enterprisesurveys Costa Rica, India, Indonesia, and Poland (Figure However, the percentage of science and engineer- 1.9). ing graduates as a percentage of all tertiary edu- cation graduates in 2022 was slightly above the Mexico’s human capital needs to be strength- average for Mexico’s GDP, per capita (Figure 1.10, ened to create a more solid foundation for a panel b). Furthermore, on the 2018 ENAPROCE dynamic entrepreneurial ecosystem. Although (INEGI 2018), SMEs listed important weaknesses Mexico’s total expenditure on primary, second- in new hires’ soft skills (28 percent reported lack ary, and post-secondary education is 3.2 percent of discipline, 22 percent reported lack of a proac- of GDP, which is only slightly below the OECD tive approach with their job, and 13 percent re- average of 3.4 percent, the gaps in coverage and ported lack of capacity to solve problems). Two quality are significant.11 In 2016, secondary educa- other weaknesses that SMEs listed for graduates tion in Mexico was available for just 84.3 percent seeking jobs were their lack of knowledge of other of those age 12 to 14, which was 8.2 percentage languages (primarily English), and lack of specific points below the average for OECD members.12 technical-practical skills.13 Weaknesses for these The results of the OECD Program for Interna- indicators explain why about 30 percent of Mex- tional Students Assessment (PISA) in 2018 indi- ico’s formally registered firms reported that an cated that the average reading, mathematics, and inadequately educated workforce is a major con- science scores of Mexican secondary students straint, and this is above what would be expected were 14 percent below the OECD average, and for a country with Mexico’s level of development the second lowest result for these three subjects. (Figure 1.10, panel a). The rate for tertiary graduates as a percentage of those age 25 to 34 was 27 percent, compared to Despite efforts to increase R&D expenditure the average of 47 percent for OECD countries. over the past decade, in 2019 and 2020, Mexico 10    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 1.11. Gross domestic spending on trade, and innovation (Bloom et al. 2022). Based R&D (% of GDP, 2019) on data in the 2018 ENAPROCE survey, Bloom 150 and his co-authors (2022) found that the quality 120 of enterprise management in Mexico differs sub- stantially from that in the US. The best managed P rc nt of GDP 90 firms in Mexico (ones in the 90th percentile) are 60 similar to the US median. Firms in the US apply 30 about 60 percent of the most structured mana- 0 M xico Colombi Chil Rom ni Pol nd gerial practices, while Mexican firms apply only about 40 percent of these. Moreover, when com- Source: OECD Data website: https://data.oecd.org/rd/gross -domestic-spending-on-r-d.htm parisons between the US and Mexico are limited to manufacturing enterprises, Mexican firms’ dis- tribution of managerial practices not only shifts to spent just 0.28 and 0.3 percent of GDP,14 re- the left of US firms’ distribution, but Mexico also spectively, on R&D, which is substantially displays greater dispersion, which implies that a below what would be expected, given Mexico’s large number of poorly managed manufacturing GDP, per capita, and the R&D spending of rel- firms coexist with a small number of well-man- evant peers (Figure 1.11). Moreover, only a fifth aged ones. The best managerial practices for man- of the resources invested in R&D came from the ufacturing appear to be concentrated in Mexico’s private sector, which is substantially less than northern region, where exporting activity and in- the approximately two thirds of private R&D fi- tegration into GVCs is greater, and this has likely nance in Mexico’s OECD peers.15 Although Mex- forced these firms to adopt managerial practices ico outperforms its global peers with regard to that are consistent with their international coun- the QS World University Ranking average score terparts. In contrast, the score for management for its top three universities, university-industry practices in the services sector is lower than in collaboration is limited; Mexico ranks 84th out of manufacturing, and the best practices appear to 127 countries, which is behind six other coun- be concentrated in the central region, which has tries in Latin America and the Caribbean (LAC), the largest domestic market. Importantly, the and most OECD countries (WIPO 2021).16 These firms with the worst management practices are weak linkages prevent the country from lever- those that are family owned and managed. aging its universities and transforming their re- search into innovation. The cost of complying with regulations also ap- pears to an obstacle to firms’ growth. In the 2018 Firm capabilities, and particularly those for ENAPROCE survey (INEGI 2018), when asked innovation, could be enhanced in Mexico by whether or not they were interested in growing, improving managerial skills. As Cirera and Ma- about 22.5 percent of microenterprises stated loney (2017) argue, management is a key driver that they were not interested in growing, and of innovation and firm-level productivity, so the 47.4 percent stated that they were satisfied with low returns from innovation (and thus, the low in- their current situation. Of the remaining micro- centive to invest in innovation) could be explained enterprises, 24.5 percent17 stated that they did not by the lack of good managerial and organizational want to grow due to administrative costs, and 5.8 capabilities. Good managerial practices in Mexico percent were concerned about the costly formal- are associated with higher productivity, growth, ities18 that would arise if they grew. This suggests Mexico: Entrepreneurship Ecosystem Diagnostic    11 Figure 1.12. Business registration constraints and costs a. Firms identifying licensing and permits b. Cost of registering businesses (% of as a major constraint (2019) gross national income, per capita, 2019) 35 300 150 30 (percentage of GNI per capita) − log scale Cost of business start−up procedures 50 25 COLMEX POL 20 10 CRI MYS IND P rc nt VNM IDN MAR BRA 15 CHL 10 5 ROU 0 Indon si Chil M l si M xico Cost Ric Colombi Rom ni 1000 10000 50000 GDP per capita (constant 2015 US$) − log scale Source: World Bank Enterprise Surveys (2019 or latest year Source: World Bank Enterprise Survey (2019 or latest year available). available). that regulations might be hindering firms’ growth. Regulation, by 2019, progress in improving reg- In their responses in the ENCRIGE 2020 survey ulations at the three levels was 86 percent, 51 (INEGI 2020a),19 28.2 percent of firms stated that percent, and 29 percent, respectively.21 Although complying with regulations, getting licenses and some progress has been made through systems permits, and undergoing government inspections such as SARE and PROSARE that have enabled all comprise obstacles to fulfilling their business firms to register more easily, the number of mu- objectives. The percentage of firms identifying li- nicipalities with these programs needs to increase, censing and permits as a major constraint in Mex- substantially.22 ico is four times the percentage in Chile, and twice the percentage in Malaysia (Figure 1.12, panel a). Weaknesses in the rule of law and concerns The cost of registering businesses is also higher about public safety are important obstacles than what would be expected for Mexico’s GDP, to firms’ performance and growth in Mexico. per capita (Figure 1.12, panel b). According to the Only 40 percent of firms in Mexico expressed a National Commission for Regulatory Improve- high level of confidence in the fulfillment of con- ment (CONAMER), between 2019 and 2020, the tract obligations.23 This lack of confidence likely cost of fulfilling federal regulations was the equiv- hinders potential investments, as well as agree- alent of 3.4 percent of GDP.20 Although important ments between firms that could contribute to progress has been made, the need to further re- their growth, upgrading, and innovation. Close duce regulatory costs, and especially those at the to 35 percent of firms in Mexico also listed pub- subnational level, is significant. The General Act lic safety as a recurrent problem for them. This for Better Regulation (2018) requires government constitutes a serious problem since of the 18 per- at the national, state, and municipal levels to im- cent of surveyed microenterprises that indicated plement policies that improve regulations across that they were not interested in growing, about three pillars: institutions, policies, and processes. 22.5 percent reported that this was due to their According to the National Observatory for Better concerns about public safety. For MSMEs, crime 12    Mexico: Entrepreneurship Ecosystem Diagnostic prevalence increases with size. In 2019, 29.6 per- Notes cent, 48.3 percent, and 56.4 percent of micro, 1. INEGI. n.d. Tables on Total Factor Productivity: https:// small and medium-sized firms, respectively, were www.inegi.org.mx/temas/ptf/#Tabulados, accessed Oc- victims of crime (INEGI 2019). The rate of vic- tober 26, 2022. timization appears to stop increasing with large 2. World Bank. 2022b. “Country-by-country analysis firms (51.5 percent), which is likely because they and projections for the developing world: Latin Amer- have more resources to invest in security. In addi- ica and the Caribbean.” Macro Poverty Outlook – Oc- tion, retail firms were more likely to report being tober 2022. https://www.worldbank.org/en/publication victims of crime (34.2 percent) than was the case /macro-poverty-outlook/mpo_lac with firms providing services (27.8 percent), and 3. IADB (Inter-American Development Bank). 2022. those engaged in manufacturing (25.4 percent). “Nearshoring can add annual $78 bln in exports from Latin Lack of public safety (or the perception of it) can America and Caribbean.” News Release. June 7, 2022. seriously impact the capacity of regions to attract https://www.iadb.org/en/news/nearshoring-can-add -annual-78-bln-exports-latin-america-and-caribbean. investment and human capital. 4. See Santiago Levy. 2018. “Chapter 5: Misallocation 1.4 Conclusions and Firms Dynamics” in Under-Rewarded Efforts. The Elusive Quest for Prosperity in Mexico. Mexico’s entrepreneurship ecosystem has gaps that result in weak entrepreneurial outcomes, 5. INEGI. 2017. Encuesta sobre Investigación y Desar- rollo Tecnológico – ESIDET 2017 (Survey on Research which are demonstrated by the large number and Development and Technological Development). of low value-added firms, and the limited num- ber of firms that scale up, innovate, and export. 6. See OECD. Indicators of Product Market Reg- Despite Mexico’s strategic position, and its wide ulation Database. Accessed March 13, 2023. https://www.oecd.org/economy/reform/indicators array of free trade agreements, the internation- -of-product-market-regulation/ alization of firms is inadequate when compared to the country’s peers. Mexico’s entrepreneurial 7. Ibid. ecosystem demonstrates considerable scope for 8. World Bank. 2018. “Country Scorecard: Mexico 2018.” improvement across the three key pillars (supply, Logistics Performance Index. https://lpi.worldbank.org allocation, and demand). Among others, ineffi- /international/scorecard/column/254/C/MEX/2018/R ciencies in logistics increase the cost of access- /LAC/2018/I/UMC/2018 ing external markets, whereas lack of access to 9. World Bank Group. 2019a. “Mexico – Policy Notes.” finance is a barrier to scaling up and innovation. Improvements in human capital would also con- 10. World Bank. 2020. “Crédito interno al sector privado (% del PIB) – Mexico, 1997–2020 (Domestic Credit to the tribute to higher productivity and innovation. Ef- private sector [% of GDP] – Mexico, 1997–2020).” https:// forts to innovate are not only low, but inadequate datos.bancomundial.org/indicador/FS.AST.PRVT.GD.ZS university-firm links hinder the transformation ?locations=MX of knowledge into innovation. Despite advance- 11. OECD (Organisation for Economic Co-operation ments since the General Act for Better Regulation and Development). 2021. “Education at a Glance 2021: came into force in 2018, further regulatory sim- OECD Indicators. Mexico.” https://www.oecd-ilibrary. plification could decrease firms’ costs even more. org/sites/2a39f90d-en/index.html?itemId=/content/ component/2a39f90d-en However, national trends mask the wide variation 12. School enrollment, secondary (% net) – OECD mem- across local entrepreneurship systems, which are bers. World Bank Data. https://data.worldbank.org discussed in detail in Chapter 2. /indicator/SE.SEC.NENR?locations=OE-MX. Mexico: Entrepreneurship Ecosystem Diagnostic    13 13. According to the OECD (2017b) about 26 percent statistics on the experiences and perceptions of firms Mexican workers are over-educated for their job, and 31 when they request public services and carry out proce- percent are under-educated; also, about 40 percent of dures that involve the government, as well as the per- the workers who are tertiary education graduates work ceptions of firms about the regulatory framework that in an occupation that is unrelated to their field of study. governs existing firms, and those that intend to establish Firms reported, too, that they have problems finding themselves in Mexico. enough skilled labor for their needs. 20. Between 2019 and 2020, the cost of fulfilling state- 14. World Bank Open Data database. CONACYT’s Pro- level regulations was 1.3 percent of state GDP, while grama Especial de Ciencia, Tecnología e Innovación the cost of fulfilling regulations at the municipality (PECITI) 2021–2024 [Special Program for Science, Tech- level was the equivalent of 3.4 percent of local GDP. nology, and Innovation 2021–2024] has set 0.33 percent https://www.gob.mx/conamer/documentos/grafica of GDP as the objective for R&D expenditure by 2024. -1-carga-regulatoria-como-del-pib https://conacyt.mx/conacyt/peciti/ 21. See Observatorio Nacional de Mejora Regulatoria 15. CONACYT. Programa Especial de Ciencia, Tec- [National Observatory for Better Regulation]. 2019. “Re- nología e Innovación (PECITI) 2021–2024. [Special porte de Resultados Estatales. Indicador Subnacional de Program for Science, Technology, and Innovation 2021– Mejora Regulatoria, 2019.” [Subnational Regulatory Im- 2024]. https://conacyt.mx/conacyt/peciti/ provement Indicator: State Results Report 2019]. 16. The six LAC countries are Brazil, Chile, Colombia, 22. As of September 2022, only 87 municipalities had a Costa Rica, Jamaica, and Uruguay. SARE or PROSARE license, while 95 municipalities had an expired license. This means that out of around 2,500 17. Responses on the ENCRIGE 2020 survey (INEGI municipalities in Mexico, only 182 (7.3 percent) have, or 2020a) indicated that the cost of fulfilling regulations had, a functioning SARE or PROSARE license. The SARE in 2020 was about Mex$34,000 for microenterprises, license allows municipalities to open a one-stop-shop Mex$287,000 for small firms, Mex$1 million for medi- (SARE office) for registering low-risk firms at the mu- um-sized firms, and Mex$2.3 million for large firms. nicipality level, and enabling them to begin operating 18. The number of regulations and processes with which within three days. A municipality’s PROSARE license firms must comply increases with size. Based on re- (i) re-certifies functioning SARE offices for three more sponses in the ENCRIGE 2020 survey (INEGI 2020a), mi- years, when they have a license that is about to expire; croenterprises had to fulfill an average of 16.3 processes and (ii) allows non-operational SARE offices to re-open, in 2020, which increased, respectively, to an average of and operate for three more years. 38, 65.4, and 98.4 processes for small, medium-sized, 23. INEGI. 2020a. Encuesta Nacional de Calidad Reg- and large firms. ulatoria e Impacto Gubernamental en Empresas (EN- 19. ENCRIGE 2020, which INEGI conducted in 2020, CRIGE) 2020 (INEGI 2020). surveyed more than 34,000 firms. This survey generated 14    Mexico: Entrepreneurship Ecosystem Diagnostic 2. Spatial and Sectoral Characterization of Impactful Entrepreneurship Key Questions Chapter 2 examines the subnational landscape of businesses in Mexico, with a focus on clus- ters of impactful entrepreneurship in manufacturing. The chapter first documents differences in entrepreneurship across sectors and regions. It then uses the exact location of each plant, as recorded in the 2019 Mexican Economic Census (INEGI 2019), to identify spatial agglom- erations of impactful manufacturing such as high-growth firms, innovative businesses, and ex- porters. This spatial analysis includes a deep dive into three industries with varying degrees of technological complexity: information and communication technology, pharmaceuticals and medical equipment, and agroindustry. The chapter ends with an assessment of the potential drivers of the spatial allocation of impactful manufacturing in Mexico. The main findings in this chapter are as follows: firms in manufacturing grow much faster during their life cycle than those in services; the dynamism of manufacturing firms differs across regions, and the regional differences seem to have widened over time as the north has become more competitive; the largest cities in Mexico are the ones clustering high-growth and innovative firms, and firms engaged in global markets, and in high-value added economic activities; clusters in low valued-added activities can be as productive as clusters in higher val- ue-added activities; and the availability of skilled labor, access to quality infrastructure, and the quality of local institutions seem to be the main correlates for the localization of impactful entrepreneurship at every stage of a firm’s life cycle. However, studies also indicate that for agglomeration to generate the expected benefits, complementary policy interventions are Mexico: Entrepreneurship Ecosystem Diagnostic    15 needed (for example, ones that support housing, schooling, local infrastructure, and waste management). In summary, Chapter 2 aims to answer the following questions: „ What are the most dynamic manufacturing sectors in Mexico? „ How do manufacturing businesses differ across regions in Mexico? „ Where do the most dynamic manufacturing firms agglomerate in Mexico? „ Across industries in Mexico, are there differences in their agglomeration patterns? „ Do the agglomeration patterns of manufacturing in Mexico correlate with differences in the quality of entrepreneurial drivers across geographic space? Entrepreneurship in Mexico generally lacks dy- geographic areas. This, in turn, can inform the de- namism, but important differences can be found sign of more effective policy interventions. Section across sectors and geographic regions.1 Young 2.1 of this chapter provides an analysis of differ- businesses in Mexico create jobs at a relatively low ences in impactful entrepreneurship across geo- rate; a high percentage of businesses employ only graphic regions and sectors, and this is followed by the owner; and, on average, over their life cycle, en- a spatial assessment of entrepreneurship in manu- terprises only double their number of employees. facturing (section 2.2). Section 2.3 is a “deep dive”, Only a small number of Mexican businesses partic- which examines three industries with varying de- ipate in the global market, and few introduce a new grees of technological complexity that could play a process, product, or organizational innovation. critical role under the United States-Mexico-Can- However, there are significant differences across ada Agreement (USMCA). These industries are in- Mexico’s sectors and geography. For example, formation and communication technology (ICT), manufacturing establishments in the northern re- pharmaceuticals and medical equipment, and gion grow at a pace comparable to those in the US. agroindustry—an industry that could become a Also, businesses engaged in manufacturing grow at lever for impactful entrepreneurship in Mexico’s a faster pace than those in services, and export-ori- less developed regions. Section 2.4 examines the ented manufacturers and, in particular, those in potential drivers of manufacturing agglomeration aerospace and motor vehicle production (including across different regions in Mexico, and section 2.5 auto parts), tend to have even higher growth rates. summarizes the main findings in this chapter. To help inform policy interventions that support 2.1  Differences in enterprise development, this chapter analyzes the differences in impactful entrepreneurship entrepreneurship across across both sectors and geographic regions in sectors and regions Mexico. The term impactful entrepreneurship ap- Differences in the productive capacities of man- plies not only to the establishment of a large num- ufacturing and services in Mexico are substan- ber of formally registered firms, but also to a large tial.2 Manufacturers employ, on average, twice number of firms that are growing, innovative, and as many workers as service businesses (includ- globally integrated. Identifying geographic regions ing wholesalers and retailers), and manufacturers with impactful entrepreneurship, and more gen- generate almost 60 percent more value added per erally, assessing local patterns of impactful entre- worker. Over their life cycle, manufacturers ex- preneurship, can shed light on the quality of the pand, on average, by a factor of around three, while underlying conditions for entrepreneurship across firms in services grow at a significantly slower pace 16    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 2.1. Firms in manufacturing grow share of new exporters (Figure 2.2, panel d). In much faster than those in services (2019) contrast, lower value-added activities, such as M nuf cturin S rvic s Whol s l /r t il Tot l food processing and apparel production tended 20 to have higher rates of entry (Figure 2.2, panel c), Average size (number of employees) but fewer high-growth firms. However, despite 15 the lack of new exporters, agroindustry’s share of exports more than tripled between 2013 and 2018 10 (Figure 2.2, panels b and d), which suggests the 5 potential for even greater impactful entrepreneur- ship in agroindustry. 0 0–3 4–9 10–14 15+ Heterogeneity in services is substantial. Service Age of the firm activities, which are in the bottom 10 percent of Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). the distribution of value added per worker (mainly Note: This figure shows the average number of workers (salaried businesses in food preparation services and some and non-salaried) throughout the lifecycle of firms for different sectors, as reported in the 2019 Mexican Economic Census. The categories of the entertainment industry) account life cycle of firms was smoothed out using least squares. for 12.5 percent of the total value added in services, and their value added per worker averages just 38 percent of the average value added per worker in (Figure 2.1). However, only 1.4 percent of busi- services. In contrast, the value added per worker in nesses in manufacturing export directly to other transportation is more than six times the average countries (with exports averaging 24 percent of for services, but, respectively, air and rail transpor- sales, and 52 percent of total exports). For services, tation account for just 4.6 and 2.1 percent of value the number of direct exporters is even lower at .09 added in services. The top exporting services3— percent. These figures indicate significant potential computer system design, management consulting to connect more businesses to the global economy. services, and engineering (with 5.7 percent, 2.2 percent, and 1.4 percent of total exports within Export-oriented manufacturers tend to exhibit services, respectively, and value added per worker significant dynamism, and even some lower of 44 percent above the average)—only account for value-added manufacturers show potential for 9.5 percent of value added in services. more growth. The top exporting sectors in man- ufacturing such as aerospace, motor vehicles and Geographic differences are significant, with auto parts, household appliances, and computer Mexico’s northern, north-Pacific, and central equipment and semiconductors, account for only regions showing more dynamism and higher in- 3 percent of Mexico’s manufacturing businesses, dustrialization than the southern region.4 Over- but generate 37 percent of employment, and 33 all firm entry and exit rates do not differ markedly percent of value added. These sectors also exhibit across regions, but the quality of firms does. In the significant growth in both employment and ex- south, firms in services enter at higher rates, while ports. In aerospace, approximately 18 percent of firms in manufacturing enter at significantly lower businesses were in the top decile of the Mexican rates in comparison to the rest of the country (Fig- firms that achieved high employment growth be- ure 2.3, panel a). Based on the average size of estab- tween 2013 and 2018 (Figure 2.2, panel a). ICT’s lishments, differences in the potential for scale-up share of high-growth firms was lower, at 11 per- are even more significant. While, on average, firms cent, but the sector exhibited a relatively high in the north employ 9 workers, and firms in the Mexico: Entrepreneurship Ecosystem Diagnostic    17 Figure 2.2. Top exporting sectors exhibit high dynamism but growth in lower value- added manufacturing has been significant a. Share of high growth firms between b. Growth in exports (among exporters) 2014 and 2019 between 2014 and 2019 A rosp c A roindustr ICT B v r s Li htin quipm nt H rdw r m nuf cturin El ctric l quipm nt A rosp c Motor v hicl s Motor v hicl s H rdw r Ph rm c utic ls nd m nuf cturin m dic l quipm nt Pl stics El ctric l quipm nt Ph rm c utic ls nd ICT m dic l quipm nt A roindustr Pl stics B v r s Li htin quipm nt Su r/pr s rv s T xtil s App r l Su r/pr s rv s T xtil s App r l M n tic nd M n tic nd optic l m di optic l m di 0 5 10 15 20 –50 0 50 100 150 200 250 P rc nt P rc nt c. Share of new establishments between d. Share of new exporters between 2014 2014 and 2019 and 2019 B v r s A rosp c App r l ICT A roindustr Motor v hicl s M n tic nd El ctric l quipm nt optic l m di Su r/pr s rv s Pl stics H rdw r Pl stics m nuf cturin Ph rm c utic ls nd Li htin quipm nt m dic l quipm nt Ph rm c utic ls nd Motor v hicl s m dic l quipm nt ICT Su r/pr s rv s A rosp c App r l H rdw r A roindustr m nuf cturin El ctric l quipm nt B v r s Li htin quipm nt T xtil s T xtil s M n tic nd optic l m di 0 5 10 15 20 25 30 35 40 0 5 10 15 20 P rc nt P rc nt Source: WBG staff computations, using data from the 2014 and 2019 Mexican Economic Census (INEGI 2014 and 2019). Note: High-growth firms were those in the top decile of employment growth between 2014 and 2019. In each sector, growth in exports comprised firms exporting in both years. New exporters were those that were not exporting in 2014, but were exporting in 2019. north-Pacific and central regions employ approx- substantially across regions. In the north, manufac- imately 5 workers, firms in the south employ only turing accounts for close to 33 percent of employ- 3.4 workers (Figure 2.3, panel b). In manufactur- ment, and 45 percent of value added, while in the ing, the differences are even greater, with approx- south, manufacturing accounts for less than 10 per- imately 47 employees per plant in the north, and cent of employment, and 10 percent of value added fewer than 3 in the south. Similarly, the contribu- (Figure 2.3, panel c). Manufacturers’ exporting po- tion of manufacturing to economic activity differs tential also varies significantly across regions. In 18    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 2.3. Regions show significant differences in entrepreneurship dynamism, and especially in manufacturing a. Five-year entry rates (2014–2019) b. Average establishment size (2019) Manufacturing Wholesale and retail Manufacturing Wholesale and retail 40 50 30 40 30 20 20 10 10 0 North North− Center South North North− Center South 0 North North− Center South North North− Center South Pacific Pacific Pacific Pacific Services Total Services Total 40 50 30 40 20 30 20 10 10 0 North North− Center South North North− Center South 0 Pacific Pacific North North− Center South North North− Center South Pacific Pacific c. Contribution of manufacturing in each d. Exports in manufacturing (2019) region (2019) Fr ction of xport rs Exports s fr ction of s l s Sh r of pl nts Sh r of mplo m nt Sh r of v lu dd d 40 50 40 30 30 20 20 10 10 0 0 North North−Pacific Center South North North−Pacific Center South Source: WBG staff computations, using data from the 2014 and 2019 Mexican Economic Census (INEGI 2014 and 2019). Note: Panel a shows the fraction of establishments that did not exist in the 2014 Economic Census, but were operating in the 2019 cen- sus. Panel b shows the average number of workers (salaried and non-salaried) by region and sector in the 2019 Economic Census. Panel c shows the share of manufacturing plants, the share of employment in manufacturing, and the share of manufacturing value added in each region. Panel d shows the fraction of exporters in manufacturing and exports as a fraction of sales in manufacturing in each region. the north, barely 6 percent of manufacturing firms become more competitive. Over the past 20 export, and exports comprise almost 40 percent of years, the allocation of manufacturing businesses total sales, whereas in the south, exporting manu- and employment across Mexico has remained rel- facturers comprise only 0.1 percent of all firms, and atively constant. States in the south have slightly their exports average only 11 percent of total sales increased their share of manufacturing firms (Figure 2.3, panel d). (Figure 2.4, panel a), but the distribution of em- ployment across regions has remained relatively Regional differences in manufacturing poten- constant as the average size of manufacturing tial have widened over time as the north has plants in the south has fallen slightly (Figure 2.4, Mexico: Entrepreneurship Ecosystem Diagnostic    19 Figure 2.4. The regional distribution of manufacturing employment has not changed much, but productivity has improved significantly in the north a. Distribution of manufacturing plants b. Distribution of manufacturing across regions (1999–2019) employment across regions (1999–2019) North North–P cific C nt r South North North–P cific C nt r South 100 100 Share of manufacturing employment 80 80 Share of manufacturing plants 60 60 40 40 20 20 0 0 1999 2004 2009 2014 2019 1999 2004 2009 2014 2019 c. Average employment in manufacturing d. Value added per establishment in plants (1999–2019) manufacturing (1999–2019) North North–P cific C nt r South North North–P cific C nt r South 4 50 Value added per plant (relative to average) 40 3 Average number of employees 30 2 20 1 10 0 0 1999 2004 2009 2014 2019 1999 2004 2009 2014 2019 Source: WBG staff computations, using data from INEGI’s Mexican Economic Censuses of 1999, 2004, 2009, 2014 and 2019. Note: Panels a and b show the distribution of manufacturing establishments and manufacturing employment across regions in each wave of the Establishment Census. Panel c shows the evolution in the average number of workers (salaried and non-salaried) in manufacturing establishments in each region across waves of the Establishment Census. Panel d shows the evolution in the aver- age value added per manufacturing plant in each region (as a fraction of the average value added per manufacturing plant) across waves of the Mexican Establishment Census. panels b and c). In contrast, the productivity and 2.2  The spatial assessment size of manufacturing plants in the north grew substantially between 1998 and 2018, although of manufacturing with some volatility (Figure 2.4, panels c and d). In entrepreneurship particular, the average value added per plant in the In Mexico, economic activity has increased north grew from 2 to 3.5 times the national aver- with the growth in population density, but age over this period, while value added remained manufacturing is more concentrated in large relatively constant in the rest of the country. cities. Across the world, economic activity tends 20    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 2.5. The largest municipalities, combined, account for larger shares of employment and value added in manufacturing when compared with wholesalers, retailers, and other services (2019) M nuf cturin Whol s l /r t il S rvic s Establishments Employment Value added 60 60 60 Cumulative share of workers Cumulative share of value added Cumulative share of plants 40 40 40 20 20 20 0 0 0 1 11 21 31 41 51 1 11 21 31 41 51 1 11 21 31 41 51 Municipal ranking in population size from largest to smallest Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: This figure shows the total share of plants, employment, and value added in the top 50 municipalities by population size. In each panel, municipalities are first sorted from the largest to the smallest in population size, and then their cumulative share of businesses, employment, or value added is computed. For each value on the x-axis, the y-axis shows the total share accumulated in the municipalities up to that population size. to concentrate in the largest cities (Grover, Lall, only 4 percent of establishments, in manufactur- and Maloney 2022). Similarly, in Mexico, the share ing, they account for 53 percent of employment, of businesses, employment, and value added has and 56 percent of value added.5 The identification increased, along with population density. In man- of spatial clusters in this report did not rely on the ufacturing, however, the largest cities account for distribution of businesses across administrative di- disproportionately high shares of employment visions, but instead identified the exact location of and value added (Figure 2.5). For example, Mexi- each plant, which was recorded in the 2019 Mex- co’s 10 most populated municipalities account for ican Economic Census (one of the few datasets 23 percent of employment in manufacturing, but in an emerging market country to offer this level only 16 percent of employment in wholesale and of detail). The metropolitan areas of Mexico City, retail, and 17 percent of employment in services. Guadalajara, Monterrey, Puebla, Queretaro, León, San Luis Potosi, Chihuahua, and Tijuana, which The largest cities in Mexico have the most dy- is on the US border, have clusters of new formal namic manufacturing firms, and together they businesses (Figure 2.6, panel a), existing formal account for a significant share of manufacturing businesses (Figure 2.6, panel b), high-growth firms value added. In Mexico, impactful entrepreneur- (Figure 2.6, panel c), innovative businesses (Figure ship in manufacturing tends to agglomerate in the 2.6, panel d), and exporters (Figure 2.6, panel e). main cities, with different dimensions of potential This suggests that similar complementary factors clustered in the same location (Figure 2.6). While are driving the differing dimensions of impactful clusters of impactful entrepreneurship account for entrepreneurship and that these complementary Mexico: Entrepreneurship Ecosystem Diagnostic    21 Figure 2.6. Impactful manufacturing entrepreneurship is clustered in the main Mexican cities and metropolitan areas (2019) a. Entry of formal firms b. Formal businesses c. High-growth firms d. Innovative businesses e. Exporters Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: Clusters were identified using a machine learning algorithm for two main parameters—the radius and the minimum number of points (plants in a cluster). The radius determined the size of the neighborhood to examine in order to find firms with the same char- acteristics, and the minimum points’ parameter determined the minimum number of firms required in the neighborhood for this to be considered a cluster. The radius was set at 30 kilometers (km). The minimum points were defined separately for each characteristic, and they were set at the 90th percentile of the distribution of the number of establishments with the specific characteristic across the municipalities. Firms located on the border of the radius were not considered to belong to the cluster. Panel a presents data on firms that are younger than 3 years of age, and registered with the social security administration. Panel b presents data on firms registered with the social security administration. Panel c presents data on firms in the top decile of employment growth between 2014 and 2019. Panel d, on innovative firms, presents data on firms with patents registered in any year between 2016 and 2018 (as reported by the respondent). Panel e presents data on exporting firms. Table 2.1. Data on agroindustry, pharmaceuticals and medical equipment, and ICT com- pared to other manufacturing sectors (2019) Share Share of Average Share Share of Average Value workers in Share of wage of a of of value number of added managerial salaried production Sector plants labor added employees per plant positions employees worker Agroindustry 4.9 4.0 3.9 12.0 0.8 22 58.0 0.93 Pharmaceuticals and medical 0.8 4.7 4.0 86.7 5.0 18 85.6 1.04 equipment ICT 0.2 6.4 3.5 426.2 15.9 16 82.7 1.05 Others 94.1 84.8 88.6 13.2 0.9 15 71.0 1.00 All manufacturing 100 100 100 14.6 1.0 16 71.9 1.00 sectors Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: Salaried employees are those that have a directly dependent relationship with establishments. The share of labor corre- sponds to the share of workers (both salaried and non-salaried). The average number of employees also includes non-salaried workers. Value added per plant, and the average wage of a production worker at the sectoral level, are presented relative to the average value for the manufacturing sector. factors are likely found in only a limited number varying degrees of sophistication that could of municipalities. Nearly every state in the country play a critical role under the United States-Mex- has clusters of new and existing formal firms, in- ico-Canada Agreement, or that are potential cluding states in the south, which is consistent with levers of entrepreneurship in less developed the findings of Iacovone and his co-authors (2022), regions. These comprise information and com- who have documented the fast-growing municipal- munication technology (ICT), pharmaceuticals ities in the south that have caught up with Mexico’s and medical equipment, and agroindustry. productivity frontier. However, high-growth firms, innovative firms, and exporters tend to cluster in Agribusinesses, businesses manufacturing a few large cities, which are mainly in the north, pharmaceuticals and medical equipment, and north-Pacific, and central regions; only Yucatán in businesses in ICT account for comparable the south exhibits a cluster of exporters. shares of value added, but the characteristics of the average plant differ markedly. Firms in 2.3  The entrepreneurship agroindustry contribute, on average, 80 percent of the value added of the average firm in Mex- spatial assessment ico (Table 2.1). They tend to be small (around 12 in agroindustry, employees, on average) and employ a significant percentage of informal (non-salaried) employees. pharmaceuticals and Firms in pharmaceuticals tend to employ more medical equipment, and ICT workers and have relatively more skilled work- The spatial assessment of entrepreneurship in ers (proxied by the average wage of a production manufacturing examined three industries with worker), and they contribute five times the value Mexico: Entrepreneurship Ecosystem Diagnostic    23 Table 2.2. Entrepreneurship assessment in agroindustry, pharmaceuticals and medical equipment, and ICT (2019) Share of new Share of formal Share of high- Share of Share of plants Sector formal plants plants growth plants exporters with patents Agroindustry 0.7 6.8 6.3 0.4 0.3 Pharmaceuticals and medical 4.3 30.5 7.2 7.4 1.9 equipment ICT 8.5 65.1 11.2 36.1 2.3 All manufacturing 1.4 9.0 5.2 1.4 0.2 sectors Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: “New plants” were those three years old or less in 2019. “Formal” refers to compliance with the social security adminis- tration. “High-growth plants” were those in the top decile of employment growth between 2014 and 2019. “Patents” refers to patents registered between 2016 and 2018 (as reported by the respondent). added of the average manufacturing firm. Firms Across the three industries—agribusiness, in ICT account for only 0.2 percent of the estab- pharmaceuticals and medical equipment, lishments in manufacturing, but they contribute, and ICT—the most dynamic and higher val- on average, 16 times the value added of the av- ue-added establishments are clustered in the erage manufacturing firm. Production workers in most dynamic locations in Mexico. The spatial the ICT industry (those who are not in managerial allocation of these businesses shows that higher positions) are relatively more skilled, with earn- value-added activities are clustered in fewer and ings 5 percent higher than the earnings of the av- larger locations, including some in the south. This erage Mexican worker in manufacturing. suggests that the factors supporting more complex economic activities are likely found only in the Industries characterized by larger and more pro- more dynamic cities. In agroindustry, clusters of ductive businesses also exhibit more impactful enterprises are found in all states; many states have entrepreneurship with regard to formality, high multiple clusters; and this is especially the case in growth, innovation, and exports. The rate of for- Mexico’s central and southern regions (Figure 2.7, mal business creation in agribusiness is less than panel c). However, the largest agribusiness cluster 1 percent, while in pharmaceuticals and medical is located in metropolitan Guadalajara. This clus- equipment, the rate is three times the average, and in ter accounts for 4.6 percent of firms, and 8.4 per- ICT, it is six times the average (Table 2.2). Although cent of employment in the industry. In contrast, in agribusiness only 0.3 percent of firms report reg- agribusiness clusters in the south are substantially istering patents, in pharmaceuticals and medical smaller—accounting for only 1.1 percent of em- equipment, the share of firms seeking patents is close ployment in the industry in Chiapas, 0.8 percent to 1.9 percent, and it is 2.3 percent for ICT firms. in Yucatan, 0.5 percent in Veracruz, 0.4 percent Similarly, while the share of high-growth firms is in Tabasco, and only 0.1 percent in Campeche.6 only 6.3 percent for agribusiness, and 7.2 percent for Clusters of pharmaceutical firms are located in pharmaceuticals and medical equipment, the share fewer states, but many are found in the south (in almost doubles to 11.2 percent for ICT. Merida, Yucatan, Tuxtla Gutierrez, and Chiapas), 24    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 2.7. Higher value-added economic activities tend to cluster in larger cities (2019) a. ICT b. Pharmaceuticals and medical equipment c. Agroindustry Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: Clusters for each industry were identified using a machine learning algorithm for two main parameters—the radius and the minimum number of points (plants in a cluster). The radius determined the size of the neighborhood to examine in order to find firms in the same industry, and the minimum points’ parameter determined the minimum number of firms required in the neighborhood for this to be considered a cluster. The radius was set at 30 km. The minimum points were defined separately for each industry, and set at the 90th percentile for the distribution of the number of establishments in the industry across municipalities. Firms located on the border of the radius were not considered to belong to the cluster. Panel a presents data on the ICT industry, which includes the NAICS codes: 3341 (computer and peripheral equipment manufacturing), 3344 (semiconductor and other electronic component manufacturing), 3352 (household appliance manufacturing), 334220 (radio and television broadcasting and wireless communications equipment manufactur- ing), and 334310 (audio and video equipment manufacturing). Panel b presents data on the pharmaceutical and medical equipment industry, which includes the NAICS codes: 3254 (pharmaceutical and medicine manufacturing), 3391 (medical equipment and supplies manufacturing), and 334519 (other measuring and controlling device manufacturing). Panel c presents data on agroindustry, which includes the NAICS codes: 3115 (dairy product manufacturing), 3116 (animal slaughtering and processing), and 3117 (seafood product preparation and packaging). Mexico: Entrepreneurship Ecosystem Diagnostic    25 and in small- and medium-sized cities such as Figure 2.8. Most employment and the Puebla, Queretaro, Leon, and Irapuato (Figure most value added is generated in clusters 2.7, panel b). Mexico City has the largest cluster of (2019) pharmaceutical firms: 21.6 percent of firms, and 80 Sh r of pl nts in clust r Sh r of mplo m nt in clust r Sh r of v lu dd d in clust r 12 percent of the industry’s employment. With 70 regard to ICT, clusters are found primarily in the 60 largest cities and metropolitan areas (Mexico City, Guadalajara, Monterrey, Queretaro, Puebla, and 50 P rc nt Chihuahua), as well as along the border with the 40 US (Figure 2.7, panel c). The largest ICT cluster 30 is in the Tijuana-Mexicali corridor, and accounts 20 for 18.7 percent of firms, and 19.7 percent of the 10 industry’s employment. 0 A roindustr Ph rm c utic ls ICT Businesses in agroindustry, pharmaceuticals Source: WBG staff computations, using data from the 2019 and medical equipment, and ICT appear to be Mexican Economic Census (INEGI 2019). more productive when they are clustered to- Note: Employment includes both salaried and non-salaried workers. gether, which suggests important gains from close proximity. In Mexico, businesses found in clusters tend to have a large share of employment, value added per worker in clusters in large cities and of value added (Figure 2.8). In agribusiness, is comparable across agroindustry, pharmaceuti- clustered enterprises account for 66 percent of cals, and ICT (Figure 2.10), which suggests that employment, and 73 percent of value added. With some clusters in agroindustry are as productive as regard to pharmaceuticals and medical equip- clusters in more technologically complex activi- ment, and ICT, clustered businesses account for ties such as pharmaceuticals and ICT. nearly 70 percent of employment, and of value added. In addition, establishments clustered in a densely populated municipality are more produc- 2.4  Potential drivers of tive when compared to establishments in the same the spatial allocation of industry and in locations of the same size (and potentially in the same city), but which are not entrepreneurship part of a cluster. This indicates significant benefits The agglomeration patterns of manufacturing from the agglomeration of economic activity. For activity documented above suggest that the fac- example, for manufacturing establishments in the tors that are conducive to impactful entrepre- top 10 percent of labor productivity, those located neurship differ across regions in Mexico. The in larger cities are, on average, more productive; life cycle of a business from entry and formaliza- however, productivity is significantly higher if tion to scaling up, and eventually innovating and establishments are spatially close to other high exporting, is highly influenced by local conditions. productivity manufacturers (regardless of their Firms need resources: physical infrastructure economic activity), and this is the case even when (for example, energy, water, and transportation), controlling for city size (Figure 2.9, panel b). The physical capital (facilities and equipment), human gains from business agglomeration are significant capital, and knowledge. Some of these resources even in lower value-added activities. The average might be acquired in distant markets, but local 26    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 2.9. Agglomeration leads to large productivity gains (2019) a. Formal firms b. High productivity businesses No cluster With a cluster of formal firms No cluster With a cluster of high productivity firms 7.0 6.5 6.5 6.0 Labor productivity (in logs) Labor productivity (in logs) 6.0 5.5 5.5 5.0 5.0 4.5 4.5 0.5 1 0.5 1 Population density (share in total population; log scale) Population density (share in total population; log scale) Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: Binned scatter plots using municipalities with a population above 25,000. In panel a, the x-axis shows the population density (measured as the share of the total population) across municipalities, and the y-axis shows the average value added per worker (in logs) across establishments in a cluster of formal firms, and outside the cluster (but possibly in the same municipality). Similarly, on the y-axis, panel b shows the average value added per worker (in logs) across plants in a cluster of high productivity plants (in value added per worker), as well as outside the cluster (but possibly in the same municipality). Figure 2.10. Clusters in low value-added sectors can be as productive as clusters in higher value-added sectors (2019) Without clusters With clusters Agroindustry Pharmaceutical and medical equipment ICT Average value added per worker in municipality (in logs) Average value added per worker in municipality (in logs) Average value added per worker in municipality (in logs) 6.0 6.0 6.0 5.5 5.5 5.5 5.0 5.0 5.0 4.5 4.5 4.5 4.0 4.0 4.0 .2 .4 .6 .8 1 .5 1 1.5 .2 .4 .6 .8 1 Population density (in log scale) Population density (in log scale) Population density (in log scale) Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: Binned scatter plots. In each panel, the x-axis shows the population density (measured as the share of the total population) across municipalities, and the y-axis shows the average value added per worker (in logs) across establishments in the munici- pality that belong to a cluster in each industry, and those in the industry that are outside the cluster (but possibly in the same municipality). Mexico: Entrepreneurship Ecosystem Diagnostic    27 conditions will still influence the cost and ease cycle from entry, to formality, to scale-up, to in- of producing goods or providing services. Talent novation, and to exporting (Table 2.3). These data and knowledge, for example, are challenged by could indicate that lack of talent is constraining the cost of mobility. Similarly, the ease of access- manufacturing clusters’ growth in Mexico. Mea- ing material inputs and transporting final prod- sures of the quality of local physical infrastructure ucts to other markets, and physical infrastructure positively correlate with whether a municipality such as electricity are, to a large extent, highly in- has a cluster of new formal firms, existing formal fluenced by local surroundings. Multiple aspects firms, high-growth firms, and/or innovative firms. of the business environment such as regulations, Proxies for the quality of local institutions statisti- institutions, and public safety also have import- cally correlate with the agglomeration of high-po- ant local dimensions. The localization patterns of tential manufacturing businesses at critical stages manufacturing activity in Mexico, which are doc- of their life cycle (entry, scale-up, and exporting). umented above, point to spatial differences in the Proxies for access to finance statistically predict quality of entrepreneurial drivers, both across and only the potential for formal firms’ entry, while within geographic regions (the north, north-Pa- distance to the border with the US negatively cor- cific, center, and south). Many of the factors that relates with formal, high-growth, and export-ori- are critical to help strengthen manufacturing eco- ented clusters. Access to knowledge (proxied by systems require investment, human resources, the share of researchers per capita) is positively and time to mature. Understanding the main driv- associated with innovation (negative correlation ers of impactful manufacturing across geographic with entry could indicate that resources were re- space can help to better design interventions, and allocated from young businesses to more mature target support by focusing policies on the needs ones). Other factors such as access to material in- and potential of different locations. puts or technology, demand for the final product, and taxes and regulations do not statistically cor- In Mexico, the availability of skilled labor, ac- relate with the spatial patterns of manufacturing cess to quality infrastructure, and the quality activity. of local institutions seem to be the main cor- relates for the localization of impactful man- Regional entrepreneurship agglomerations ufacturing firms at every stage of their life are shaped by local conditions. The north is the cycle. A least squares analysis was combined with top-ranking region for many of the drivers that results from a LASSO (a machine learning tech- are more closely linked with dynamic entrepre- nique that is helpful for identifying the predictors neurial locations. According to the Mexican Eco- of a variable) to identify factors that are associ- nomic Census 2019 (INEGI 2019), the northern ated with entrepreneurship outcomes across geo- region had the highest percentage of manufactur- graphic space.7 The selection of potential factors ing establishments that collaborate with universi- was informed by the literature, including recent ties (1.22 percent between 2016 and 2018, which in-depth studies on the determinants of produc- was more than twice the national average); patent tivity growth in Mexico (Levy 2018; Iacovone et registration was about twice the national average; al. 2022; and Bloom et al. 2022). The fraction of and lack of access to finance that kept 20.5 percent skilled workers (those with a college degree or of firms from undertaking projects, was the low- more) positively correlates with the likelihood est percentage across Mexico’s four regions.8 The that a municipality has clusters of impactful man- north also had the lowest percentage of firms that ufacturing businesses at every stage of their life found the cost of material inputs to be an issue 28    Mexico: Entrepreneurship Ecosystem Diagnostic Table 2.3. Correlation between entrepreneurship outcomes in manufacturing and poten- tial drivers across municipalities (2019) Likelihood of the municipality exhibiting a cluster for each entrepreneurship outcome Formal Factors entry Formality Scale-up Innovation Exports Human capital: Share of employees in manufacturing + + + + + with a college degree or more Access to material inputs: Fraction of businesses that report costs of material inputs as a barrier Access to technology: Fraction of businesses that report lack of access to technology as a barrier Knowledge: Share of - + researchers per capita Infrastructure: Fraction of households with fiber-optic + + + internet Demand: Fraction of businesses that report low demand as a barrier Competition: Fraction of businesses that report unfair competition as a barrier Access to finance: Fraction of + businesses with a loan Taxes and regulations: Ease of starting a formal firm Institutions: Fraction of businesses that report - - - corruption as a barrier Distance to the US border - - - Population density + + + + + Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: The table shows the intersection of results from a least squares and a LASSO analysis. The table shows the correlation be- tween the likelihood of the municipality exhibiting a cluster of manufacturing entrepreneurship in each dimension (entry, formality, scale-up, innovation, and exports), and the potential drivers shown in a multivariate least squares analysis that also controlled for population density. The table shows only those drivers, which according to the LASSO analysis, have predictive power. Formal en- try and formality correspond to firms complying with social security regulations; scale-up corresponds to high employment growth (in the top decile of employment growth); and innovation corresponds to firms with patents. Mexico: Entrepreneurship Ecosystem Diagnostic    29 (13.7 percent versus 17.1 percent at the national other regions on impactful entrepreneurship. level),9 and this region is the closest to the US The south had the lowest percentage of MSMEs border. As a result of all of these drivers of firms’ reporting that the availability and qualifications of performance, the north had higher entry rates of labor were an important factor in choosing their formal firms that scale up (Figure 2.3, panels a and location, which suggests that fewer projects were b), and eventually upgrade and export, directly leveraging skilled labor than in the other regions.15 (Figure 2.3, panel d), or export, indirectly, through With regard to knowledge, the region had the their integration into GVCs. lowest level of university-industry collaboration (equivalent to 30 percent of the national average), The central region of Mexico also displays and the lowest level of patent registration (equiv- clusters of impactful entrepreneurship, al- alent to 27 percent of the national average).16 At though it lacks some of the natural advantages the same time, the south had the highest percent- of the north, while the north-Pacific region age of firms reporting that the cost of material in- is closer to the national average on several puts was a barrier,17 which could reflect the longer drivers. The central region, which has a high distance to the US border, as well as the lack of percentage of economic units and workers, also gas pipelines, both of which are critical for the has a dynamic entrepreneurial ecosystem, but it entry and scaling up of manufacturing firms. In generally lags behind the north. The north has addition, the southern region has the highest per- the highest percentage of firms, which indicates centage of MSMEs reporting that they could not that finding available labor (42.7 percent versus undertake a project due to lack of financing (28 39.6 percent, nationally) and qualified labor (14.9 percent versus 22.9 percent for the national aver- percent versus 12.6 percent, nationally) was a rel- age).18 Greater gaps in the entrepreneurial drivers evant factor in determining location.10 Collabo- explain the weaker entrepreneurial ecosystems of ration with universities,11 and registering patents the south, in comparison to the rest of the coun- or trademarks for products and processes,12 were try, and this results in lower entry of productive both slightly above the national average. Lastly, and formal firms, and lower shares of high-growth the north-Pacific region (where the city of Gua- and exporting firms (Figures 2.4 to 2.6). dalajara is located) ranks below the national av- erage with regard to the percentage of firms for 2.5  Conclusions which an adequate supply of qualified labor was In Mexico, manufacturing firms are positively relevant in determining their location.13 The high sorted into clusters—in both quantity and cost of material inputs is an issue for firms in the quality—and these clusters potentially mat- north-Pacific region,14 but this is less frequently ter for productivity. Evidence on the sorting of a problem than in the central region, and more firms across geographic space is relatively limited, frequently a problem than in the north. Univer- and available mainly for high-income economies sity-industry collaboration and patenting activity (Combes et al. 2012, for France; De la Roca and are both above the national level in the north-Pa- Puga 2017, for Spain; and Oberfield et al. 2020, cific region, although R&D spending is lower than for the US). The analysis in this chapter used the in the northern and central regions. exact locations of firms to identify clusters. The results show that manufacturing firms also tend These drivers also explain why the south ex- to gravitate in both numbers and quality to Mex- hibits fewer and smaller agglomerations, rela- ico’s larger cities. Larger cities in Mexico not only tive to the rest of the country, and lags behind exhibit larger shares of employment and value 30    Mexico: Entrepreneurship Ecosystem Diagnostic added (sorted by quantity), but also cluster high- business agglomerations, and generally lower val- growth and innovative firms, firms engaged in ue-added activities (such as agribusiness). Some global markets, and firms in higher-value added clusters of formal businesses, exporters, and phar- economic activities (sorted by quality). More- maceutical firms, however, are found in the South, over, the analysis of firms in agribusiness, medical which is consistent with what Iacovone and his equipment and pharmaceuticals, and ICT sug- co-authors (2022) found across municipalities re- gests that, potentially, there are important gains garding convergence. from agglomeration. When businesses in an in- dustry are located in larger cities, their produc- To foster impactful entrepreneurship, policy tivity increases. Also, relative to plants outside the interventions need to address barriers that cluster (in the same city or in cities of comparable are specific to a location, and to the lifecycle size), their productivity is even higher when they of firms, and consider both the gains from are clustered together with other establishments agglomeration but also the complementary in the same industry. However, more analysis is policies that are needed to avoid potential needed to validate these results with other man- congestion effects. History and geography are ufacturing activities, and to disentangle the role important determinants for the spatial alloca- of factor endowments, relative to sorting and ag- tion of economic activity (Grover, Lall, and Ma- glomeration effects. loney 2022). At the same time, when a location manages to develop the required capabilities to Differences in agglomeration patterns across produce a relatively complex product, businesses regions in Mexico suggest that factors con- and resources can more easily move into other ducive to impactful entrepreneurship are complex or more technologically advanced prod- not uniformly distributed across the coun- ucts (Hausmann et al. 2013). As the location de- try. Agglomeration of the different dimensions velops, the demand for knowledge, technology, of impactful entrepreneurship in a very limited and human capital increases, with the potential to number of cities (Mexico City, Guadalajara, Mon- generate more ideas, and in turn, more impactful terrey, Puebla, Queretaro, León, San Luis Potosi, entrepreneurship in an endogenous growth cycle. Chihuahua, and Tijuana) suggests that growth, Policy interventions intended to promote impact- innovation, exports, and technologically complex ful entrepreneurship need to be developed with activities such as ICT require similar complemen- consideration of the barriers that are specific to tary factors, which are not uniformly distributed the lifecycle of firms (from entry to growth, inno- across geographic space and, instead, are likely vation, and global integration), as well as to each clustered in specific locations. The correlates pre- location. Also interventions need to ensure that sented in this chapter suggest that the quality of the necessary complementary policies are in place local physical infrastructure, the quality of local to mitigate potential congestion effects (Iacovone institutions, access to material inputs, access to et al. 2022; Grover, Lall, and Maloney 2022), while finance, and the availability of skilled labor are also leveraging the more developed clusters to potential drivers for the location of manufac- potentially capture wider spillover effects. Re- turing. Actual estimates of the causal impact of cent analytical frameworks such as the one devel- each of these drivers could be further explored oped by Grover and her co-authors (Grover et al. in a future analysis. However, differences in these 2022) could be complemented with the results in factors across regions are substantial, and these this chapter to comprehensively estimate the im- differences help explain why the south has fewer pact of any spatially targeted intervention and to Mexico: Entrepreneurship Ecosystem Diagnostic    31 identify complementary policies that would also 7. A binary indicator on whether the municipality exhibits need to be in place to address potential negative a cluster of entrepreneurs was regressed, based on the externalities from agglomerations (such as lack list of drivers. A similar specification was estimated in the LASSO to identify the predictors of the dependent vari- of housing, local infrastructure, schooling, waste able. Table 2.3 presents the intersection of the two sets management, and so on). of results. Each entrepreneurship outcome was analyzed separately. Notes 8. INEGI. 2018. ENAPROCE 2018. 1. While the establishment is the unit of observation in the data, the terms business, firm, plant, and estab- 9. INEGI. 2019. Economic Census 2019. lishment are used interchangeably in this report, unless 10. INEGI. 2018. ENAPROCE 2018. noted otherwise. 11. According to INEGI’s Economic Census 2019, 0.52 2. The analysis in this section uses establishment-level percent of manufacturing establishments in the central data from the 2019 Mexican Economic Census (INEGI region collaborate with universities versus an average 2019). The census was implemented in 2019 (between 0.5 percent at the national level. February and July), but the data on sales, employment, and value added correspond to annual figures for the 12. According to INEGI’s Economic Census 2019, 0.38 2018 calendar year. percent of manufacturing establishments in the central region have filed a patent or trademark for a product or 3. Transportation accounts for 67 percent of total exports process, versus an average 0.35 percent at the national within services, while other sectors such as insurance and level. financial services only account for 6 percent. 13. According to INEGI’s Economic Census 2019, 36.8 4. For the purposes of this report, the northern region percent and 10.5 percent of firms, respectively, mention comprises the states of Baja California, Baja California the availability and qualifications of labor as a determin- Sur, Chihuahua, Coahuila, Nuevo Leon, Sonora, and ing factor for location, versus 39.6 percent and 12.6 per- Tamaulipas; the north-Pacific region comprises the cent, respectively, at the national average. states of Aguascalientes, Colima, Durango, Jalisco, Nayarit, Sinaloa, and Zacatecas; the central region com- 14. According to INEGI’s Economic Census 2019, 16.2 prises Mexico City, and the states of Mexico, Guana- percent of firms in this region listed the high costs of juato, Hidalgo, Michoacan, Morelos, Puebla, Queretaro, material inputs as an issue, versus 17.1 percent at the San Luis Potosi, and Tlaxcala; and the southern region national level. comprises the states of Campeche, Chiapas, Guerrero, Oaxaca, Quintana Roo, Tabasco, Veracruz, and Yucatán. 15. INEGI. 2018. ENAPROCE 2018. 5. A cluster is a spatial agglomeration of plants within 16. INEGI. 2019. Economic Census 2019. a radius of 30 km (with GPS coordinates translated into 17. INEGI. 2019. Economic Census 2019. a Cartesian plane), and a minimum size above the 90th percentile in the distribution of the number of plants 18. INEGI. 2018. ENAPROCE 2018. across municipalities (with this minimum varying across categories). 6. The forthcoming IFC study, “Mexico Southern States Deep Dive”, also identified a strong potential for agri- business in the southern states. 32    Mexico: Entrepreneurship Ecosystem Diagnostic 3. Supporting Entrepreneurship Ecosystems Key Questions This chapter analyzes the instruments available to support entrepreneurship in Mexico by mapping the relevant public programs and initiatives implemented by non-public institutions (ecosystem enablers). The analysis considered both the entrepreneurial outcome sought (en- try, scale-up, innovation, or internationalization), and the beneficiary segment (MSMEs, tech- nology-based companies, or startups). This analysis found that the public resources available to spur entrepreneurship have diminished in recent years, and that initiatives tend to target existing companies. Also, public initiatives tend to provide comparatively little support to technology-based firms and startups, although these are the types of firms with the potential to create more and better employment opportunities through higher value-added activities. Non-public enablers are also contributing to the entrepreneurship ecosystem, primarily by supporting startups and the internationalization of firms, but their support tends to focus more on developed ecosystems. This chapter addresses the following questions: „ What is the current policy mix of public and non-public programs that support the cre- ation, growth, innovation, and internationalization of firms in Mexico? „ How do federal and state programs complement each other? How do state programs adapt to the different maturity levels of entrepreneurship ecosystems across states? „ Are the public programs targeting all types of beneficiaries, such as MSMEs, technology-based companies, and startups? „ Are entrepreneurship support programs following best practices in design, implementa- tion, and governance? „ What are the characteristics of entrepreneurship ecosystem enablers in Mexico, and how are they allocating resources to support entrepreneurship? 3.1 Introduction asymmetries in export or financial markets (for As discussed in previous chapters, some pillars example, credit bureaus).1 of entrepreneurship ecosystems in Mexico re- main weak, and there are substantial regional This chapter presents the analysis carried disparities. Although in some regions, efforts to out for this study with a sample of public and improve key conditions are occurring due to the non-public initiatives that are supporting en- participation of multiple public and non-public trepreneurship ecosystems and firms’ growth enablers, in most regions of Mexico, entrepre- in Mexico. This mapping was carried out with two neurship ecosystems are still at an early stage, and complementary questionnaires—one that targeted they lack the necessary conditions for “take-off ”. public initiatives, and one that targeted non-public initiatives such as incubators, venture capital funds, An adequate policy mix, which is comple- and industry associations, which, collectively, this mented by non-public enablers, could contrib- report calls “non-public enablers”. The analysis cov- ute to addressing the barriers that hinder the ered programs operating at the federal level, as well development of entrepreneurship ecosystems. as ones in the main cities of three Mexican states: To promote firms’ creation, growth, and inno- Guadalajara and Zapopan2 in Jalisco; Monterrey in vation, entrepreneurship ecosystems should be Nuevo León; and Tuxtla Gutiérrez in Chiapas. In fostered by public and non-public actors through selecting these localities, this study sought to cap- their interaction, collaboration, complementarity, ture differences between regions, as well as between and joint allocation of resources. Nevertheless, entrepreneurial ecosystems with different degrees public interventions to support entrepreneur- of maturity. In addition, this study analyzed initia- ship and firm growth must focus on addressing tives that target three sectors—information and specific institutional or market failures. Such communication technology (ICT), pharmaceuti- failures include, among others: excessive regula- cals and medical equipment, and agroindustry. For tion that impedes the operation of existing firms a description of the methodology, and a list of the or the creation of new ones; lack of information initiatives mapped, see Appendix 2. In total, infor- and information asymmetries; missing markets mation was collected for 128 public programs and in the supply of services and inputs; high costs 51 non-public programs. in searching for new markets; and uncertain re- turns on investment in new technologies or in 3.2  Agencies involved quality certification and compliance. Internation- ally, there is ample evidence that well-intentioned in supporting interventions to support firms and entrepreneurs entrepreneurship often actually discourage firms’ growth, or they The Ministry of Economy, the National Coun- simply provide transfers to recipients, without cil for Science and Technology (CONACYT), as stimulating any entrepreneurial activity. The lat- well as two public development banks, NAFIN ter often occurs when benefits (for example, tax and Bancomext, are the main federal agencies breaks) apply only to firms under a certain size. supporting firms’ creation and growth. These Conversely, some programs have proven to be agencies have their own objectives, but they collab- effective in promoting entrepreneurship and orate in implementing some initiatives. The Minis- firms’ growth—for example, ones that improve try of the Economy provides the primary support managerial capabilities or that dispel information for firms at all stages of their life cycle; Nacional Financiera (NAFIN) provides a range of financial 34    Mexico: Entrepreneurship Ecosystem Diagnostic and technical services for SMEs, including loans used during the current fiscal year, and cannot be and credit guarantees; and Banco Nacional de carried over to subsequent fiscal years.6 Comercio Exterior (Bancomext) finances compa- nies’ integration into GVCs, and their participation Between 2019 and 2022, a significant amount in foreign trade. CONACYT, which oversees fed- of federal resources were allocated to liveli- eral government scientific and technological pol- hood programs through the provision of mi- icies, grants scholarships for postgraduate study, crocredit, and subsidies for microenterprises supervises 26 research centers and the National and self-employed workers. In 2020 and 2021, System of Researchers, and implements programs the Ministry of Economy’s budget was largely that foster firms’ innovation. At the subnational allocated to the Créditos a la Palabra program level, the secretariates of economic development for microenterprises and self-employed work- and state councils or the secretariates of science, ers (US$280 million in 2020 and 2021). In 2022, technology, and innovation are the main public the program was transferred to the Ministry of agencies involved in supporting firms’ creation and Welfare. Also in 2022, according to informa- growth. tion presented in the federal government budget (Presupuesto de Egresos de la Federación), the In recent years, entrepreneurship support agen- Ministry of Economy’s budget for promoting in- cies have been affected by budget cuts. In Mex- novation, entrepreneurship, and SMEs’ growth ico, as in other countries, political and economic was reduced to zero. In 2022, the initiatives imple- cycles have a major impact on the continuity and mented by the Ministry of Economy were either budgets of entrepreneurship programs. Both at the financed through its operating budget or with re- federal level, as well as local levels, changes in gov- sources that had already been invested in the trust ernment administrations result in changes in plans funds implemented by the development banks and programs, whereas changes in economic con- (and that were primarily intended to offer credit ditions have an impact on the budgets allocated for and guarantees). programs. The three levels of government—fed- eral, state, and municipal—have implemented new There has also been a reduction in CONA- initiatives to address firms’ barriers to entry, scaling CYT’s programs that target firms’ R&D, and up, innovation, and internationalization.3 However, innovation. Between 2018 and 2019, the Inno- in recent years, budget constraints have limited vation Stimulus Program (Programa de Estímu- initiatives designed to foster business creation, im- los a la Innovación [PEI]) came to an end (Table prove access to finance, and encourage innovation. 3.1). This grant program was intended to foster enterprises’ innovation activities (primarily their The budget of the Ministry of Economy, which collaboration with universities and research cen- is the most important public agency concerned ters), and to finance 23 sectoral innovation funds, with entrepreneurship policies, decreased and CONACYT’s joint trust funds with other by 62.3 percent over five years from 2017 to public agencies.7 The PEI’s annual average bud- 2022.4 In 2022, no budgetary resources were allo- get between 2015 and 2018 was around US$140 cated for the matching grants programs and trust million, and over this period, an average of 600 funds,5 which were intended to address the mar- companies were supported each year. Although ket failures that hinder firms’ creation and growth the Fiscal Incentive for Research and Technology (Table 3.1). Also, budgetary resources must be Development (EFIDT) was created in 2017, few companies have benefited from this (an average Mexico: Entrepreneurship Ecosystem Diagnostic    35 Table 3.1. Public sector budget for the Ministry of the Economy and selected items for CONACYT, NAFIN, and Bancomext (millions of current Mex$, 2017–2022) % 2022/ 2017 2018 2019 2020 2021 2022 2017 Ministry of the Economy Total 9,525 9,578 9,056 6,256 6,538 3,587 -62% Staff salaries and benefits 3,328 3,350 2,860 2,539 2,573 2,663 -20% Other current expenditure 1,632 1,622 1,551 857 823 877 -46% Of which current expenditures on program administration were: Unidad de Inteligencia – 0 0 0 0 9 6 Global initiatives to promote exports Export promotion – IMMEX, PROSEC, 48 51 44 38 42 48 0% and DRAWBACK Unidad de Desarrollo Productivo 190 192 161 100 102 87 -54% (including MiPYMES MX)a Grants and trust funds 4,477 4,564 4,579 2,825 3,100 0 -100% Programa Nacional de Financiamiento 0 0 3,183 0 0 0 al Microempresario Prosoft-Innovación 204 215 341 175 0 0 -100% Grants for entrepreneurship 3,715 3,895 621 0 0 0 -100% Trust funds for credit, guarantees, and 112 50 25 25 0 0 -100% capital Proméxico 241 241 164 0 0 0 -100% Créditos a la Palabra and Tandas para el - - - 2,500 3,100 0 Bienestar Programa para la Productividad y 155 163 245 125 0 0 -100% Competitividad (PPCI) CONACYT Programa de Estímulos a la Innovación 1,741 1,594 0 0 0 0 -100% (PEI), disbursed (approved projects) (421) (503) (0) (0) (0) (0) EFIDET, disbursed (approved projects) 658 331 406 105 144 380 -42% (45) (17) (31) (2) (11) (12) (-73%) Fondos Mixtos 1,385 2,054 1,565 1,139 166 n.a. -88%b Fondos Sectoriales 11,915 11,361 9,227 9,631 8,873 n.a. -26%b NAFIN (credits and credit guarantees) 546,534 553,742 485,973 435,083 403,465 n.a. -26%b BANCOMEXT (financing to private 248,552 270,689 263,267 217,202 257,659 n.a. 4%b sector) Source: Presupuesto de Egresos de la Federación, Secretaría de Hacienda y Crédito Público (2017–2022); CONACYT funds re- ports, and NAFIN and Bancomext annual reports. Notes: n.a. = not available. The rate was calculated using 2021 data when 2022 data were not available. a. It was the National Institute for Entrepreneurship until 2020. b. The rate was calculated using 2021 data when 2022 data were not available. 36    Mexico: Entrepreneurship Ecosystem Diagnostic of only 21, per year, between 2019 to 2021), versus and Chiapas are collaborating with multinational the number of projects supported by PEI with its companies, as well as with local universities, and budget.8 universities in California, Massachusetts, Col- orado, and Texas. In addition to increasing and The credits and guarantees provided by diversifying their sources of revenue, non-public NAFIN also declined from 2019 to 2021, while organizations have had to expand their offerings Bancomext increased its allocation of credit to to other Latin American countries. the private sector. According to NAFIN´s An- nual Report, in 2021, the total for all credit and Political cycles have also had an impact on the guarantees was Mex$406 billion, which was 6.9 continuity of programs to support entrepre- percent less than in the previous year (Table 3.1). neurship. Most of the public programs that this Similarly, in 2019 and 2020, the credit and credit study mapped at the federal and subnational levels guarantees allocated by NAFIN declined. Website in Mexico are relatively new. Fifty-eight percent of information for Bancomext indicates that a large active public programs began in 2018 or later, al- amount of its funds went to the private sector, though a few started in the 1990s. At the federal with US$1.5 billion allocated in the first semes- level, 51 percent of public programs active in 2022 ter of 2022. In 2021, as economic activity recov- were created between 2018 and 2022. In Monter- ered following the COVID-19 pandemic slow rey and Nuevo León, where the public adminis- down, the portfolio of the Cadenas Productivas trations changed in October 2021, 63 percent of (Productive Chains) program saw a 29 percent in- the programs were created after that. Conversely, crease in its balance, and a 28 percent increase in 20 percent of the non-public initiatives this study its operations in comparison with the same period mapped were started between 2001 and 2010, 29 in the previous year. percent were started between 2011 and 2017, and 51 percent were started between 2018 and 2022. Mexico’s states have also been negatively af- Regarding the non-public initiatives mapped in fected by the decrease in federal programs for Nuevo León, a large percentage (82 percent) were entrepreneurship and innovation. For example, created between 2018 and 2022. Jalisco was an important beneficiary of some of the programs that were discontinued: the Inno- vation Stimulus Program (PEI) and Fondos Mix- Instruments tos9 (which were both CONACYT’s programs), A range of financial and non-financial instru- and PROSOFT-Innovación10 of the Ministry of ments, or combinations of the two, are used by Economy. To fill this void, the State of Jalisco has the public sector, although non-financial in- launched new initiatives that largely focus on re- struments are used more frequently. Regarding inforcing linkages within the entrepreneurial eco- financial support, the most common instruments system, but the budget for these is quite limited. are credit and grants, whereas the most common types of non-financial support are technical assis- Non-public enablers, many of which have re- tance and information. See Figure 3.1. lied on federal government support programs, are now competing for resources and trying The most common instruments at the federal to compensate through partnerships with in- level are credit and credit guarantees, infor- ternational organizations. Some subnational mation, and technical assistance.11 Of 65 fed- non-public organizations in Nuevo León, Jalisco, eral programs, 20 (31 percent) provide credit Mexico: Entrepreneurship Ecosystem Diagnostic    37 Figure 3.1. Instruments used to foster the creation and growth of firms a. Public programs instruments b. Non-public instruments F d r l/N tion l J lisco Nu vo L ón Chi p s 34% T chnic l support 49% 31% Cr dit nd cr dit u r nt s 8% 27% Inform tion 45% 22% M rk t link s 57% 3% Aw rds 20% 16% Gr nts nd m tchin r nts 18% 7% Infr structur 10% 5% R ul tion 2% C pit l 24% 50 40 30 20 10 0 0 10 20 30 40 50 Numb r of pro r ms/P rc nt of occurr nc Numb r of pro r ms/P rc nt of occurr nc Source: Interviews conducted by the World Bank in 2022 with administrators of public and non-public programs, and the collection of on-line information. Sample size: 128 public programs and 51 non-public programs. Note: The total does not add up to 100 percent because some programs reported having more than one instrument. and credit guarantees, which are implemented national level, and in the three states covered in through development banks; 26 percent provide this study, listed their provision of the following technical assistance; a similar percentage offer in- types of initiatives: management and business formation; and 14 percent foster linkages within training programs; incubation and acceleration the ecosystem. Most of the programs with the services; venture capital focused on different last three intervention mechanisms use digital stages of firms’ development (seed, and series A, platforms to offer training and information (see B, and C financing);12 open innovation competi- Figure 3.1, panel a). In the three states, and the tions; intellectual property protection; innovation selection of municipalities surveyed for this study, awards; networking; and demand-supply initia- the provision of information, technical assistance, tives. These initiatives seek to fill gaps or comple- and linkages are the most frequently used instru- ment those offered by public programs, and are ments. The use of these instruments partly reflects better positioned to provide mentoring support to adjustments due to budget cuts since they can be firms and startups. They can also adapt more rap- implemented directly by public servants using idly to global technological trends because of their limited resources from operational expenditures. international networks and market knowledge. However, for programs that use digital platforms, it has been more difficult to identify users/benefi- ciaries, and measure program impact. Sectoral focus Two thirds of all of the programs mapped in Non-public enablers aim to help companies at this study tend to be sector neutral. At the fed- the key stages of the entrepreneurship process. eral level, only one of the mapped programs had a The non-public organizations operating at the unique sectoral focus, which was providing credit 38    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 3.2. Number of programs with a sectoral focus a. Public programs b. Non-public programs Inform tion nd communic tion t chnolo A roindustr Ph rm c utic l nd m dic l quipm nt S ctor n utr l Oth r s ctors F d r l/n tion l J lisco Nu vo L ón Chi p s 80 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 Numb r of m ntions Numb r of m ntions Source: Interviews with administrators of public and non-public programs conducted by the World Bank in 2022, and the collection of on-line information. Note: The sample covered 128 public programs and 51 non-public programs. for medical equipment through NAFIN. A third electronics, and automotive sectors, as well as tech- of all of the programs mapped focus on more than based firms in industry, fintech, and e-commerce. one sector, of which nine target agroindustry, and 12 target ICT (Figure 3.2). Those programs target all phases of a firm’s life cycle, and the most fre- 3.3  Programs by quently used instrument is credit. Among the other entrepreneurship sectors targeted were the automotive, aerospace, ecosystem outcome electric-electronic, energy, and transport sectors. This section analyzes programs according to the At the subnational level, most programs had a sec- entrepreneurial outcome sought, and the target toral focus that matched the state’s comparative beneficiaries. Entrepreneurial ecosystem outcomes advantage. In Nuevo León, two out of 16 programs are categorized as entry, scale-up, innovation, and in- targeted ICT; in Jalisco eight of the 33 programs ternationalization. Startups differ significantly from targeted ICT or agroindustry. None of the pub- firms in the scale-up phase and, in turn, the former lic programs mapped in Chiapas had a sectoral differ from firms in the innovation or international- focus. Most of the mapped non-public programs ization phases. Conversely, technology-based com- were agnostic, or targeted sectors other than ICT panies and startups differ from traditional SMEs, or agroindustry (59 percent), while 22 percent tar- and face a different set of market challenges. Hence, geted ICT, 12 percent targeted agroindustry, and they require a different set of support programs and 8 percent targeted pharmaceuticals and medical initiatives from government and non-public ecosys- equipment. The other important sectors that were tem actors. For example, non-public initiatives that targeted by non-public programs were the energy, support technology-based firms, focus on trans- forming their research and/or technology into high Mexico: Entrepreneurship Ecosystem Diagnostic    39 Table 3.2. Classification of program support by firm segment and entrepreneurship eco- system outcome FIRM SEGMENT OUTCOME MSMEs Tech-based firms* Startups Technology Transfer Office Formalization Services Bootcamps (HEI and PRI Spinoffs) Mentoring and specialized Information and entrepreneurship training business services Entry Incubators for traditional High-impact business incubators businesses Subsides and microcredit Seed grants and angel investors Trademark registration Managerial skills training Executive and specialized Acceleration services programs training Credit, credit guarantees, and Venture capital (seed, angel, Subsides and credit other financial instruments and Series A, B, and C) Crowdfunding and crowdsourcing Scale-up ISO Certifications and Compliance (Q&EHS) Industry Standards and Special Certifications Support for integration into domestic value chains Innovation methodology training Digital transition Digital transformation VCs (seed, angel, and Series A, Credit Innovation B, and C financing) Intellectual property strategy (patent) Multinational companies’ Open Innovation Challenges Innovation awards Fairs and promotional events International networking events Local and international VCs International- Credit guarantees and other financial instruments such as (seed, angel, and ization factoring Series A, B, and C financing) Support for integration into GVCs Source: Authors’ elaboration based on World Bank (2019b and 2021). Note: Color classification: light yellow = public programs; medium yellow = public and non-public programs; dark yellow = non-public programs. HEI = higher education institutions; PRI = public research institutions; Q&EHS—quality, environmental, health, and safety. * Firms that offer high technology products or services such as product design, simulation, and automation; engage in biotechnol- ogy research, lab testing, and advanced materials development; and/or provide advanced information technology and consulting. These can either be spin offs from university researchers, or firms that develop or offer technology-based products and/or services. 40    Mexico: Entrepreneurship Ecosystem Diagnostic Figure 3.3. Programs by intermediate outcome and region a. Public programs b. Non-public programs F d r l/n tion l J lisco Nu vo L ón Chi p s Entr Sc l -up Innov tion Int rn tion li tion 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 Numb r of pro r ms Numb r of pro r ms Source: Interviews with administrators of public and non-public programs conducted by the World Bank, and the collection of on- line information. Sample size: 128 public programs and 51 non-public programs. impact products and services with a strong market. but initiatives aimed at startups’ and tech- Table 3.2 presents the description of each group based firms’ entry are less common. Public re- and the main purpose of the supporting initiatives. sources available to foster firms’ entry and growth Although there is a broad offering, as noted in the primarily offer training and information through previous section, many of the federal programs have digital platforms. However, a few initiatives offer undergone significant budget cuts. finance and support in the early stages (incuba- tion) of the tech-based companies and innovative Scale-up was the most common intermediate startups that are capable of generating and sus- outcome that this study identified for public taining more, and better jobs. and non-public initiatives. Firm growth was mentioned for half of all of the public programs Both at the national and subnational levels, reviewed by this study, but there were some dif- the public sector is supporting the creation ferences across the three selected states. In Jalisco, of companies in traditional sectors. Some ini- the most expected outcome was innovation; in tiatives such as MiPYMES MX, which facilitate Nuevo León entry and scale-up were the most ex- firms’ entry into traditional sectors, are imple- pected outcomes; while in Chiapas, scale-up was mented by the Ministry of Economy, while subna- the most important outcome. At the federal level, tional governments offer information, webinars, almost 30 per cent of the initiatives had increasing and support for trademark registration. The states firms’ direct or indirect exports (internationaliza- of Nuevo León and Chiapas have the largest num- tion), as their intermediate outcome. ber of these programs, and some promote youth entrepreneurship. 3.3.1 Entry The federal government has also implemented The public sector in Mexico is supporting the regulatory reforms to facilitate firms’ entry creation of companies in traditional sectors, and registration. The Rapid Business Opening Mexico: Entrepreneurship Ecosystem Diagnostic    41 System (Sistema de Apertura Rápida de Empre- incubation, and advisory, mentoring, and intellec- sas [SARE]) provides a one-stop service for en- tual property (IP) protection services. Addition- terprise registration at the municipal level; and ally, in 2021, TecNM began creating innovation a law, which was approved in 2016, allows for a centers for the automotive and aerospace industry new type of company or simplified joint-stock (CIIA). By 2022, five centers had been created in company (Sociedad por Acciones Simplificadas collaboration with the Mexican Federation of the [SAS]), and has introduced some interesting fea- Aerospace Industry (FEMIA). This demonstrates tures: a single owner may incorporate a business; an important effort by the federal government to no minimum capital is required; the company can promote entrepreneurial culture, and to spur in- be set up and incorporated in one day, at no cost; novation at a regional level. and the streamlined process is undertaken, digi- tally, through the Public Registry of Commerce, At the subnational level, of the three locations rather than in front of a notary or attorney. analyzed in this study, startups were being launched primarily in Jalisco and Nuevo Léon, However, public sector support for the entry of and these were following global trends in cre- innovative startups is limited, and appears to be ating enterprises with significant impact. These poorly targeted with regard to catering for com- states are building dynamic entrepreneurship eco- panies’ size, their technology-readiness level, systems to foster startups, and non-public actors and other features. At the federal level, a few initia- are participating in the creation of impactful en- tives’ primary objective is the creation of impactful terprises. Jalisco and Nuevo León have identified entrepreneurs. One of these is a joint program with the main actors participating in their innovation the government of the United Kingdom, which was ecosystem. These are high-quality universities; implemented in 2016, with support from the New- public research centers that are connected, na- ton Fund. The Leaders in Innovation Fellowships tionally, and internationally; national and mul- Programme targets spinoffs and startups (science tinational corporations; clusters;14 business or technology-based companies with high growth incubators; venture capital funds; entrepreneurs; potential). It also targets researchers, engineers, and local governments. and/or technologists who are developing projects with technological and innovative content, and At the municipality level, of the cities mapped who are seeking private capital financing. in this study, Zapopan, in Jalisco, stands out for its initiatives that foster technology-based The Ministry of Education is making some entrepreneurship. Three programs in Zapopan efforts to support the creation of tech-based (Reto Zapopan, Sinapsis, and Laboratorio de Inno- firms. The National Polytechnic Institute (IPN) vación de Zapopan) focus especially on develop- and Tecnológicos Nacionales (TecNM) have rel- ing the entrepreneurial and innovative capacities evant entrepreneurship and technology develop- of young people. These programs offer training, ment initiatives. The first, at the national level, mentoring, and access to facilities for developing has a strong technological component through prototypes. Reto Zapopan has provided business its Technology Incubator, and the second, which incubation and acceleration opportunities for functions at the regional level, operates not only about 60 entrepreneurs, which were selected from in large cities, but also in small cities, in less-de- some 2,000 proposals that were received not only veloped regions of the country.13 Besides provid- at the municipality and state levels, but also from ing graduate programs, TecNM offers business other countries. 42    Mexico: Entrepreneurship Ecosystem Diagnostic Of the non-public initiatives at the subnational such as Mercado Libre, Google, and Microsoft. level, several networks of incubators foster The platform also has two business directories: regional entrepreneurship ecosystems. Incu- Directorio de Empresas Artesanales, which is bators, which are a key method for developing focused on the handcraft sector; and Directorio successful new firms, are operated by RedIncuba MiPYMES MX, a comprehensive directory of in the State of Jalisco, and by the State Incubators business sectors. Network Association (Red de Incubadoras del Estado [REI]) in the State of Nuevo León. Most NAFIN, which improves access to finance, uses of these incubators are located in clusters, and in its own resources as well as trust fund resources public and private universities, and they help en- from the Ministry of Economy to extend credit trepreneurs to identify their potential customers, guarantees. However, the targeting and design of and construct a team that supports the operation the credit guarantee program could be enhanced so and development of the company. Incubators that it reaches companies that are more financially also help to identify possible sources of funding constrained such as younger and innovative ones from public and private sources, and they provide with limited collateral and a limited credit history. linkages with other entrepreneurs and service Some of the products are offered in collaboration providers. with state governments. NAFIN has also imple- mented additional financial products for SMEs. The most noteworthy is the factoring services plat- 3.3.2 Scale-up form or Cadenas Productivas (Productive Chains) Efforts to help firms to scale up comprise the program, which is an accounts receivable program largest number of programs, and these focus for the SME suppliers of large firms. These instru- primarily on building SMEs’ capacity. Most of ments are based on the liquidation value of the these initiatives aim to reach a large number of underlying receivables, rather than on the credit- firms and help them to comply with market and worthiness of the SME, and they provide an alter- industry requirements, and reach a stable, sus- native for firms with limited access to credit. tainable activity level. These programs provide training for implementing new administrative At the subnational level, SMEs are the target practices and management methodologies, or for the largest number of public initiatives, offer support in adopting digital technologies that and the State of Jalisco has the largest bud- improve business efficiency and competitiveness. get. The Jalisco Fund for Business Development These programs are often jointly sponsored by (FOJAL), which had a budget of US$11 million in local governments and private corporations, and 2022, offers a wide range of programs that cover they usually charge participants a fee. the different stages of companies’ development, including providing them with direct credit and At the federal level, the Ministry of Econ- credit guarantees, as well as training and advisory omy offers information and training through services. FOJAL also has a program that targets MiPYMES MX. This is a digital platform that pro- women-owned SMEs. In Nuevo León, Impulso vides business tools and content to develop and Nuevo León (FOCRECE), offers a credit guar- strengthen MSMEs’ business and digital capabil- antee scheme for SMEs that provides them with ities. Part of the training is conducted through up to US$250,000. One of the new initiatives im- webinars, with content that was created collabo- plemented by the state government that demon- ratively with local and international organizations strates the strong linkages of the ecosystem, is Mexico: Entrepreneurship Ecosystem Diagnostic    43 the Consulting and Training Program for SMEs, tools and e-commerce platforms. Most of these which in 2022 planned to reach 1,150 SMEs. In tools have been launched since the beginning of operating this program, which is based on the COVID-19 pandemic. One important character- Small Business Development Center model, the istic of these initiatives, which improves firms’ government works closely with the state’s four access to local markets and their capabilities, is main universities (Universidad Autónoma de that they are implemented in collaboration with Nuevo León, Tec de Monterrey, Universidad de large private companies such as Amazon, Google, Monterrey, and Universidad Regiomontana). Visa, and Mercado Libre. Also, in Nuevo León, a suppliers’ directory was created by an industry At 49 percent, management and business train- association to offer information to multinational ing is the most common service that non-pub- companies about the products and services that lic enablers provide to help MSMEs to scale are available locally. At both the national and sub- up. Training programs that target MSMEs are national level, non-public enablers are offering ac- managed by local chambers of commerce and celeration services to SMEs. This study’s mapping industry associations, and these are provided in exercise found two accelerators targeting SMEs collaboration with local universities and govern- that offer networking, training, and mentoring. ment institutions. Six out of all of the initiatives (23 percent) target MSMEs in traditional sectors, In Chiapas, public and non-public actors are as well as self-employed workers. These include jointly implementing initiatives. Most of these three initiatives for women entrepreneurs, and programs are the result of partnerships that bring two for tech-based firms. These programs pri- together the state government, federal govern- marily provide basic training for enhancing oper- ment, and international organizations. These ational efficiency and business management, but primarily focus on training to strengthen firms’ some of them focus on using digital and business capabilities and facilitate the use of digital tools management tools, quality compliance, finance, such as Google for Mexico, the VISA-ENKO marketing, and sales. In some cases, such as those platform, and the use of Amazon’s and Mercado in Nuevo León and Jalisco, the government offers Libre’s e-commerce platforms. One of the initia- credit to the companies that achieve the highest tives that is promoted by the Instituto Mexicano training program scores. In Nuevo León, an in- de la Propiedad Industrial (IMPI), which is the dustry association runs one of the SME devel- agency in charge of intellectual property in Mex- opment programs in which, along with training, ico, is conducted in collaboration with the states some companies receive financing from a state to support firms in registering their trademarks. government credit program that is based on their The Marca Chiapas (Chiapas Brand) is a civil so- training program scores. ciety and state initiative that promotes the distinc- tive label—”Mexico Chiapas Original”—as a state Expanding access to markets, and most often brand that is synonymous with high quality. The domestic markets, is another primary outcome initiative focuses its efforts on granting the Chi- of the non-public initiatives that target SMEs’ apas Brand and regulating its use to improve the scale-up, and these are primarily implemented quality and competitiveness of Chiapas’ products in collaboration with multinational companies. and services, as well as promote them in national Programs that aim to increase access to domestic and international markets (See Box 3.1). markets comprise more than half of the initiatives aimed at SMEs (57 percent), and most use digital 44    Mexico: Entrepreneurship Ecosystem Diagnostic Box 3.1. Marca Chiapas By 2022, Marca Chiapas, which was started in 2009, had certified 1,909 products and services for 367 Chiapas companies, of which 56 percent were led by women entrepre- neurs. The brand also has a “green” label for products and services that have an organic or sustainability certification. The brand’s regulatory council, which is comprised of 23 entrepreneurs, representatives from eight business organizations, and two public univer- sities, has six committees that focus on coffee, food, amber, crafts, tourism, and culture. Marca Chiapas, which is granted for free, supports its companies with training to improve the quality and commercial success of their products and services; promotes these in regional and national exhibitions; provides support for marketing and accessing finance; and mentors businesses to help them obtain the brand’s certification. Source: https://marcachiapas.com/ Non-public programs that target tech-based in Nuevo León, and five were in Jalisco. Of these, firms are being implemented by clusters, in seven venture capital funds focus on early stage collaboration with foreign universities and investment (seed and angel investment); four Mexico-US organizations such as the US-Mex- focus on series A, B, and C investment; and four ico Science Foundation (FUMEC). One example are corporate venture funds. The Mexican Asso- is the program in the State of Nuevo León that ciation of Private Venture Capital (AMEXCAP), is provided by the local IT cluster. This program which has more than 70 venture capital firm extends free online support for cluster mem- members, has invested US$275 million in more bers, mentors top management, and provides in- than 1,000 companies. According to the last En- novative business tools. Another example is the deavour Intelligence Report,15 in 2022, venture country-wide program offered by a network of in- capital investment in Mexico totaled US$3,685 ternational technology mentors that, among oth- million (89 percent of which was allocated to the ers, supports companies through: facilitating their e-commerce and fintech industries). In 2018, ven- access to international markets, advising them ture capital investment was US$170 million; in on business strategy development, and providing 2019, it was US$631; and in 2021, it was US$1,162 linkages with universities and research centers. (Endeavour and Glisco Partners 2022). In com- parison, in 2021, agro-tech and health-tech busi- Among the non-public initiatives, several ven- nesses, respectively, received a mere 0.3 percent, ture capital funds were identified at both the and 1.7 percent of venture capital investment. national and regional levels. The presence of organizations that help entrepreneurs to access In the last decade, the federal government in financing to start, develop, and scale up their Mexico has sponsored several public venture companies is critical for achieving dynamic en- capital and seed funds to create a more vi- trepreneurship ecosystems. One third of the brant venture capital industry (Table 3.3). Sev- non-public institutions mapped in this study re- eral national agencies (the Ministry of Economy, ported that they provide venture capital funds. NAFIN, and CONACYT) are involved in this ini- Six of these were at the national level, four were tiative (Fondo de Capital Emprendedor), as well Mexico: Entrepreneurship Ecosystem Diagnostic    45 Table 3.3. Public seed and venture capital funds in Mexico Year of Agencies creation Name involved Type Resources from Seed Early Growth 2004 Entrepreneurs CONACYT– Direct investments CONACYT X X Funda NAFIN 2010 Mexico Venturesb Ministry of Direct investments Ministry of X X Economy + Fund of Funds Economy – – CMIC- NAFIN-CAF NAFIN 2012 Seed Capital Co- Ministry of Direct investments SE-NAFIN X Investment Fundc Economy – + Fund of Funds –FOJAL – NAFIN FONDESO 2013 Entrepreneur-ial Ministry of Fund of funds Ministry of X X Capital Ecosystem Economy Economy Development Programd 2018 Pacific Alliance Ministry of Direct investments FOMIN, IFC, X X Venture Capital Economy Ministry of Funde Economy, and BANCOLDEX Sources a. CONACYT, Fondo Emprendedores (http://2006-2012.conacyt.gob.mx/fondos/institucionales/Tecnologia/Avance/Paginas/ AVANCE_Fondo-Emprendedores-CONACYT-NAFIN.aspx), and NAFIN’s Annual Reports for various years. b. CMIC or Fondo de Fondos’s Investment Vehicles (https://www.nafin.com/portalnf/content/banca-de-empresas/capital/fondo_ fondos.html) and NAFIN’s Annual Reports. c. Guidelines for NAFIN’s Seed Capital Co-Investment Fund (https://www.nafin.com/portalnf/files/secciones/banca_empresas/pdf/ capital_emprendedor/Lineamientos_Semilla_Ultima_Version.PDF) and NAFIN’s Annual Reports. d. Guidelines for NAFIN’s Entrepreneurial Capital Ecosystem Development Program (https://www.nafin.com/portalnf/files/sec- ciones/banca_empresas/pdf/capital_emprendedor/Lineamientos_Unicos__Ultima_Version.pdf) and NAFIN’s Annual Reports. e. Pacific Alliance Venture Capital Fund (https://alianzapacifico.net/financiacion-en-la-alianza-del-pacifico-fondo-de-capital-em- prendedor-y-red-de-inversionistas-angeles-ap/, https://alianzapacifico.net/wp-content/uploads/OnePager_FCE.pdf) Note: CMIC is Corporación Mexicana de Inversiones de Capital o Fondo de Fondos [Mexican Capital Investment Corporation or Fund of Funds]. This is a vehicle of the federal government that was created in 2006 to foster the venture capital industry in Mex- ico. CAF is formally called the Development Bank of Latin America. as several international organizations.16 These return). One of the key rules is that this fund must funds, which are managed by NAFIN, make di- be invested in high impact companies with signif- rect investments in startups, and co-investments icant operations in Mexico. By 2020, the fund had in private venture capital funds. In 2013, the Min- invested in 38 funds, which, in turn, had invested istry of Economy launched the program, Devel- in 265 companies. However, as of June 2022, of opment of the Entrepreneurial Capital Ecosystem. the fund’s total assets of US$193.4 million, a sig- This supports the creation of new fund managers nificant percentage had not been invested.17 for seed and early-stage financing by providing co-investment capital with a capped return (if the The 2018 FinTech Act has opened alterna- fund generates returns over a certain threshold, tive funding sources, and especially those the fund of funds only gets up to 8 percent, and for young, innovative firms. The FinTech Act the other investors in the fund share the excess (2018) introduced a relatively robust regulatory 46    Mexico: Entrepreneurship Ecosystem Diagnostic framework for innovative crowdsourcing plat- annually, totaled an average of only US$10.8 mil- forms (Institución de Financiamiento Colectivo), lion (on average, 14 percent of the annual bud- including ones for debt, equity, joint ownership, or get).21 Thus, interventions by EFIDT do not appear royalties.18 Although the initial licensing process to have been successful in stimulating R&D. was slow, by late 2021, 14 of these had been au- thorized, and one had received conditional autho- With the aim of creating technology-based rization from the National Banking and Securities firms, some non-public initiatives are offer- Commission (NBSC). Another 11 platforms were ing technology transfer services. This mapping operating under the transitory provisions of the study reviewed two programs related to technol- Fintech Act.19 At the subnational level, the gov- ogy transfer (one from Jalisco and one at the na- ernment of Nuevo León is working with local pri- tional level). The aim of these programs is to align vate agents to develop a crowdfunding platform. the expectations and interests of researchers with social and industry needs, protect researchers’ intellectual property, and identify market oppor- 3.3.3 Innovation tunities. These initiatives also support research- Most public sector investment is concentrated ers in: creating spinoffs (technology-based firms); in the initial phases of the innovation process, integrating their technology package; designing including building knowledge, human capital, their business model; identifying the resources re- and the infrastructure for research; however, quired to develop their technology; and helping links with industry are marginal. The initial them with licensing agreements or alliances. phases of the innovation process have received a greater percentage of the total budget, which has Although the IP protection system in Mexico created an imbalance in the innovation function. has been strengthened with changes in the law, In 2022, the 26 Public Research Centers had an and new digital tools to facilitate IP protection, annual budget of US$286 million, and this had technology transfer remains a weak point at increased very little over the previous 10 years. the federal level. The Mexican Institute of Indus- However, in 2022, the National System of Re- trial Property (IMPI), which is responsible for the searchers (SNI)20 had a budget of US$363 million, registration of trademarks, designs, and patents, and a budget of US$622 million for its postgradu- as well as IP enforcement, has recently digitalized ate scholarship program. its procedures, created a digital tool for trademark searches (called MARCia), and launched multi- The initiative, Fiscal Incentive for Research ple webinars with information on procedures for and Technology Development (EFIDT), has IP registration in Mexico and abroad. However, not been successful in reaching a large group generally, government incentives are lacking for of firms. Between 2019 and 2022, EFIDT, which universities and research centers to engage in is an incremental R&D tax credit, had a large bud- technology transfer, and for companies to access get capped at US$75 million, annually. However, the services and technologies offered by these this scheme primarily benefits large companies institutions. that have experience conducting research activi- ties, and it is mainly used as an incentive to com- The government of the State of Jalisco is deeply plement a firm’s own resources when it conducts engaged in innovation programs, and has a incremental innovation projects. Also, between solid institutional framework. Jalisco has cre- 2019 and 2021, the number of projects approved, ated a Secretariat for Science, Technology, and Mexico: Entrepreneurship Ecosystem Diagnostic    47 Box 3.2. UNE – University Business Linkages (Monterrey, Nuevo León) The UNE program in Nuevo León is an initiative of MTY Universities for Founders. It was set up by the MIT REAP Monterrey program to help firms find solutions to their techno- logical problems from the most important universities in the state on Nuevo León. UNE is led by The Extended Group of Universities, a committee of executives chosen by six academic institutions (Universidad de Monterrey (UDEM), Tecnológico de Monterrey, Universidad Regiomontana (U-ERRE), Universidad Autónoma de Nuevo León (UANL), CECyTE, and Universidad del Norte). UNE, which is free, began operating in 2022 with resources provided by each univer- sity. In mid-2022, UNE had 55 projects, which included 21 requests from three companies and two clusters, and 19 linkage projects. The demands primarily relate to Industry 4.0, logistics, health-tech, agroindustry, and food-tech. Source: MTY Universities for Founders. https://mtyufounders.com/une/ Innovation (SICYT), on which the State Coun- At the subnational level, there are non-public cil of Science and Technology (COECYTJAL)22 innovation initiatives, too, that aim to link in- depends. Programs such as From Science to the dustries that have specific technological needs Market, the Network of Innovation Centers, the with universities that have the required capa- Open Platform for Innovation, and Development bilities. The UNE program, a collaborative initia- of Jalisco, as well as an initiative to support intel- tive of six universities, was established in the State lectual property protection, are among the many of Nuevo León to facilitate university-industry initiatives implemented by the State of Jalisco. The collaboration. Companies specify their techno- nature of these programs and their distribution logical needs (problems) and the UNE program of resources reflect the importance which Jalisco connects them with suitable university research gives to attracting and developing high-tech or experts. Two types of linkages are supported by innovative firms and entrepreneurs, as well as the UNE program: research projects that are at maintaining Jalisco as a state with one of the most the ideation stage, and technology projects with active and integrated innovation ecosystems. a functional prototype. Once the match is made, the project team is connected to an incubator, ac- Jalisco also has some initiatives to foster IP celerator, or technology transfer office that will protection. Through the Fondo Jalisciense a la support the team in developing the business, and Propiedad Intelectual, the state government of- commercializing the project (see Box 3.2). fers technical and economic support for IP pro- tection. In addition, COETCYJAL has an initiative On the demand side, this study identified some that links companies and researchers with law open innovation challenges launched by mul- firms and service providers with IP experience, tinational companies. These initiatives focus on and particularly with experience protecting in- technology-based companies to help them solve ventions and copyrights for computer programs. specific problems, expand their development ca- The state government is also fostering the devel- pacity, and rapidly assimilate new technologies opment of IP protection skills in law firms and IP into their line of products or services. Once the service providers. technology-based company has been selected, 48    Mexico: Entrepreneurship Ecosystem Diagnostic Box 3.3. Guadalajara Connectory, Bosch Mexico (Guadalajara, Jalisco) Guadalajara Connectory is a Bosch Mexico corporate initiative that offers a co-creation space and an Internet-of-Things (IoT) incubator to develop cutting-edge technology, and offer opportunities to network with IoT experts. Connectory (which combines the words “connection” and “factory”) fosters collaboration, networking, problem solving, and a new way of working in the age of connectivity. Guadalajara Connectory, which has a space of about 2,000 square meters, provides the resources necessary (UX Lab, IoTLab, monthly Connectory talks, #juevesdecomuni- dad, fitfest, hackathons, and other instruments) to educate and enable diverse groups of startups, students, entrepreneurs, universities, and corporations to collaborate in building IoT solutions for mobility, “smart cities”, mining, agriculture, and Industry 4.0. Since 2017, Guadalajara Connectory has trained 3,000 entrepreneurs and more than 60 companies. Currently there are five Connectory spaces across the world: Stuttgart, Guadalajara, Chicago, Curitiba, and Shanghai. Source: Guadalajara Connectory: Co-creation and Community Space. https://guadalajaraconnectory.com/ some of the initiatives offer a coaching program. have their own co-working spaces (one in Nuevo Guadalajara Connectory, which was created by León and one in Jalisco). There are two similar the company, Bosch Mexico, is a good example of programs in Nuevo León, where an IT cluster and this kind of initiative (See Box 3.3). an association of private and public universities, match the specific demands from local industry An increasing number of large Mexican and with their technologies’ portfolio, and connect the multinational companies have launched inno- company team with their own incubators, accel- vation competitions for specific industries or erators, or technology transfer offices. technological needs (three national programs, five in Nuevo León, and two in Jalisco). Some of the topics covered in these competitions are 3.3.4 Internationalization agroindustry, IoT, artificial intelligence, digital The number of initiatives helping companies transformation, and the United Nations’ Sus- in Mexico to internationalize has increased, tainable Development Goals. These competitions but some important federal initiatives have have been widely advertised to attract project pro- been cut back. A large number of initiatives posals from startups, technology-based firms, en- seek to foster exports and the internationaliza- trepreneurs, and universities. Most competitions tion of Mexican firms so that they can take full offer “bootcamps” to the selected companies, as advantage of Mexico’s participation in several free well as provide support throughout the acceler- trade agreements (primarily the Mexico-United ation process from a specialized mentoring team States-Canada Agreement). At the federal level, that will help to mature a proposal, design a busi- the Ministry of Economy offers training and in- ness model for scaling up, and/or link a company formation on the export process through initia- with a venture fund. Also, two of the initiatives tives such as Ruta para exportar, Comercia MX, Mexico: Entrepreneurship Ecosystem Diagnostic    49 Exporta MX, Aprendiendo a exportar, and the equipment that will increase companies’ pro- National Information Service on Foreign Trade ductive capacity. Bancomext targets 15 strategic (SNICE). However, these initiatives are not re- sectors: electronics, agroindustry, automotive, flected in the federal budget—primarily because aerospace, plastics, pharmaceuticals, commu- the main instruments used by the Ministry of nications, medical equipment, medical devices, Economy are information sharing, training, tech- capital goods, audio and video, and metal fabri- nical assistance, and the organization of busi- cating. The bank also offers international factor- ness-to-business events, and these do not require ing to exporters—an instrument that provides an much funding to reach a significant number of alternative for firms that have limited access to beneficiaries. This is especially the case with pro- credit. grams implemented through digital platforms. Other important initiatives to support supplier Some non-public initiatives are supporting development and exports (such as Programa para technology-based companies in creating busi- la Productividad y Competitividad [PPCI]) have ness alliances, and mentoring them to gain ac- suffered cutbacks, which is not consistent with cess to international markets and GVCs. These the goal of improving Mexico’s position in global programs are organized by foundations, clusters, markets. technology transfer offices, and corporations. They also have partnerships with local or interna- At the federal level, to foster Mexican exports, tional universities that focus primarily on mento- three programs to support trade facilitation ring technology entrepreneurs in developing soft have been operating for a decade or more. skills; managing talent, operations, and finance; These are the Manufacturing, Maquiladora,23 and defining the company’s business model; market- Export Service Industry (IMMEX) program, the ing and identifying potential customers; agile Sectorial Promotion Program (PROSEC), and project management; and developing intellectual the Duty Drawback program. While, collectively, property strategies. techBA, which was created, these do not have a large budget (US$2.4 million and is operated by FUMEC, is a good example in 2022, which was used primarily for program of an internationalization initiative for technolo- supervision and management), such programs gy-based companies (See Box 3.4). provide important support for beneficiary com- panies. In May 2022, IMMEX had 5,203 active International networking events that target participants, which directly employed 2.8 million entrepreneurs and startups are gaining impor- workers in more than 18 states, and they earned tance and attracting a large number of national US$17.7 billion in income from foreign markets and international participants. This study found (INEGI 2022). that 29 percent of the non-public initiatives it assessed conduct events and awards ceremonies Bancomext24 offers credit and a range of fi- (two operate nationally, seven in Nuevo León, nancial products for export firms and their four in Jalisco, and two in Chiapas). Two major suppliers. This development bank is in charge networking events, Talent Land in Jalisco and IN- of a financing program that provides support CMty in Nuevo León, target entrepreneurs and for MSMEs that are linked to the value chains startups, and have a number of sponsors and a of exporting firms, and firms that are interested large number of participants. The other non-pub- in exporting. Impulso T-MEC, for example, of- lic initiatives are boot camps. fers finance for working capital, machinery, and 50    Mexico: Entrepreneurship Ecosystem Diagnostic Box 3.4. techBA, FUMEC’s Technology Business Accelerator techBA was set up in 2004 by the US-Mexico Foundation for Science (FUMEC), which works primarily with businesses that are successfully serving the local market, and it encourages them to develop a global vision, and succeed in highly competitive inter- national markets. With support from Mexico’s Ministry of Economy, techBA provides customized consulting services that strengthen the entrepreneurial, technological, and innovative capacity of technology-based SMEs, and it facilitates their internationalization and establishing links with GVCs. techBA, which has eight locations in Mexico in areas with high-technology busi- nesses, has supported more than 5,000 US and Mexican companies since 2004; and of these companies, 800 have connected with international markets, and 400 have received capital investment. The sectors of interest are: software & AI, advanced manufacturing, aerospace, automotive, Industry 4.0, health-tech, the “Circular Economy,” and sustain- able technologies. Prior to 2020, techBA had a total of US$1.1 million in federal government grants for its annual operating budget, however, due to budget constraints that began in 2020, the program has restructured and now focuses its internationalization services on the US-Mexican border region and Latin America Source: techBA. https://techba.org/ Note: FUMEC is a bi-national non-profit organization that was created in 1992 during the North American Free Trade Agreement (NAFTA) negotiations. Its mission is to foster binational competitiveness by using science and technology to solve problems and seize opportunities, and its vision is to turn the US and Mexico into the most inclusive, competitive, and sustainable region. Half of the enablers that responded to this and international universities that strengthen col- study’s questionnaire mentioned that they laborative activities. have extended their initiatives to other Latin American countries. This approach has cre- ated a new source of income, and had a positive 3.4  Program design and effect in Mexico by attracting foreign entrepre- implementation neurs that set up exporting businesses. Mexico In Mexico, the institutional capabilities has become the first international destination for needed to design and implement effective Latin American entrepreneurs due to the coun- programs to build the entrepreneurial ecosys- try’s common language, similar culture, and geo- tem are weak. Several of the public programs graphic location that makes it a gateway to the analyzed in this study exhibited gaps in their US (Endeavor 2022). According to the Endeavor design or implementation, and/or they lacked Intelligence Unit (Endeavor 2022), “31 percent of an adequate monitoring and evaluation frame- all tech companies are owned by foreign entre- work. Fewer than half of the programs mapped preneurs who have raised venture capital.” Also, by this study 25 conducted a diagnostic before program managers of these companies identify they were designed, and in some cases, such as corporate sponsors to co-finance their initiatives, that of EFIDT, the low rate of firms’ participation Mexico: Entrepreneurship Ecosystem Diagnostic    51 calls for revising programs’ design and selection information are updated frequently. The website is criteria, and identifying alternative mechanisms easy to access, and its content is easy to download. for stimulating private R&D. Also, frequently, the potential for duplicating or developing synergies Four out of five non-public programs report with other programs was not considered during that they periodically measure their key per- program design. formance indicators, but few conduct rigorous impact evaluations. At the federal level, 100 per- Only 38 percent of programs have published cent of government programs report monitoring their program’s criteria. Although not all pro- performance indicators. In Nuevo León, this fig- grams are required by law to publish their oper- ure was 80 percent, and for both Jalisco and Chi- ating rules, all of them should consider publishing apas, the figure was 67 percent. However, very few at least some operational criteria or guidelines. non-public enablers (only 23 percent) perform rig- Along with other information, they need to pub- orous impact evaluations to assess their success. lish their program’s objectives, requirements, se- Even though randomized control trials, which lection criteria, the type and amounts of support compare a control group with a treatment group, provided, and their application deadlines. Most are considered best practice for generating high of the programs that lack published operational quality evidence, such rigorous impact evalua- guidelines are the ones that provide information tions are rare, and are more commonly conducted or training through open digital platforms. Al- by public programs or non-profit organizations though some of these ask users to register, this is that need to demonstrate their impact to do- not mandatory. As a result, information about the nors and taxpayers. Private sector organizations number of beneficiaries is not accurate, and eval- would benefit from being able to identify which uating the platform’s impact is difficult. initiatives are likely to have the greatest impact. Conducting an impact evaluation enables an or- Only 31 per cent of the programs created before ganization to improve and remain relevant, build 2021 have conducted an impact evaluation. For its case for sponsorship, and attract high-quality instance, Fondo de Capital Emprendedor, which entrepreneurs. has been operating for almost two decades, has not conducted an impact evaluation. Although most programs reported that they have perfor- 3.5 Conclusions Despite the efforts of federal and local govern- mance indicators, only 20 percent of programs ments, as well as non-governmental enablers have impact indicators, and most of these are only to build robust entrepreneurial ecosystems output and/or outcome indicators. around the country, their current programs exhibit several weaknesses. Some shortcomings At the subnational level, the government of clearly limit the entry of new and more productive the State of Jalisco has established good ac- enterprises; they hamper the scaling up of exist- countability practices and transparency. Mis ing firms; they reduce firms’ innovative capacity; programas26 is a website that offers information and they dilute the ability of Mexican businesses on every program implemented by the state gov- to take advantage of opportunities to participate ernment, and these are classified according to in global markets. Reforming public programs to their implementing agency and type of program. take advantage of the role played by non-govern- Information on the budget, type of support, mental stakeholders in promoting entrepreneurial rules of operation, indicators, and other program 52    Mexico: Entrepreneurship Ecosystem Diagnostic activities could help to spur job creation and eco- However, through their higher value-added activ- nomic growth. ities, the latter types of firms have the potential to create more and better employment opportuni- The public resources available to spur firms’ ties. At the subnational level, some regions, such entry and growth have diminished in recent as the State of Chiapas, have ecosystems that are years. This is exemplified by the decline in the at an embryonic stage, with little participation Ministry of Economy’s budget for promoting of, and linkages with stakeholders, which limits entrepreneurship when compared with the the entry of firms, and the creation of innova- budget increase for microcredit programs. The tive startups. Conversely, the states of Jalisco and latter, which have merit from a social development Nuevo León have implemented good practices and inclusion perspective, were increased during that target innovative firms and startups, and the the height of COVID-19 pandemic to mitigate the two states have improved entrepreneurship eco- impact of the illness on low-income households. systems through collaborating with public and Nevertheless, programs of a similar nature, or that non-public actors and subnational governments. target micro and small enterprises merely because These examples should be documented so that of their size may not be capable of generating and with federal government support, they can be sustaining more and better jobs.27 In addition to replicated in other regions of Mexico, and help to budget cuts, this study found that programs at reduce income disparities. both the federal and subnational levels clearly lacked continuity, which affects their impact. Non-public enablers are also contributing to entrepreneurship ecosystem development, pri- From their design and implementation, to marily by supporting startups and the interna- monitoring and evaluation, both public and tionalization of firms; however, their support non-public initiatives demonstrate several tends to be focused on the more developed weaknesses. Prior to designing their programs, ecosystems. Non-public initiatives are most often few initiatives carried out a diagnostic to gain the linked with large companies, national and interna- information they needed to design a successful tional universities, and international or US-Mex- program. Although programs had the types of ico organizations such as the US-Mexico Science indicators used for monitoring activities or out- Foundation (FUMEC). These initiatives include puts, very few conducted impact evaluations. business incubators and accelerators, and tech- Requiring a system that includes evidence-based nology transfer programs. Multinational compa- program design, with monitoring of programs’ nies and various organizations are also holding implementation and results, and conducting ro- innovation competitions to support startups and bust evaluations that loop back to improve fu- SMEs. In addition, the venture capital sector in ture interventions, would achieve better use of Mexico is growing, and an increasing number of scarce public resources, and mobilize funding for funds are investing in startups and unicorns in the non-public initiatives. In addition, the comple- more developed ecosystems. For example, this mentarities across multiple instruments need to study observed this in Jalisco and Nuevo León. be assessed. However, growth has been highly concentrated in a couple of sectors (e-commerce and fintech), In general, public programs support existing with very limited investment in other important companies, and pay comparatively little atten- and strategic technology areas. tion to technology-based firms and startups. Mexico: Entrepreneurship Ecosystem Diagnostic    53 Finally, strengthening the internationalization 8. In 2018, the last year that the PEI was implemented, of programs has become increasingly import- 503 projects received support for a total of US$80 mil- ant, given the ongoing restructuring of GVCs. lion. Conversely, in 2021, only 14 projects were sup- ported by EFIDET, for a total of US$7.2 million. Successful participation in the global economy re- quires vibrant entrepreneurial ecosystems that fa- 9. Fondos Mixtos was designed to facilitate the co-in- cilitate the creation of more productive firms that vestments of the federal government (CONACYT) and have export capabilities. However, the number of subnational governments to promote science, technol- ogy, and innovation at the state and municipal levels. In direct exporters in Mexico remains low, and the October 2020, Congress discontinued Fondos Mixtos. linkages between foreign direct investment and local firms is modest. Despite governments’ inten- 10. The PROSOFT-Innovación program used two initia- tion to boost exports, the public resources avail- tives: a program for the development of the software industry (which was mainly focused on the adoption and able to develop exporters’ capabilities, and expand development of ICT), and a program to foster innovation domestic value added in exports have declined. in firms. 11. Thirteen types of instruments were considered: fac- Notes toring, tax incentives, public procurement, infrastruc- 1. For a discussion of the evidence, see World Bank ture, grants and matching grants, credit, capital, prizes, Group (2021). loan guarantees, regulation, linkages or matchmaking, technical assistance, and information. 2. The Zapopan municipality is part of the Guadalajara metropolitan region in the State of Jalisco. 12. Seed capital is money raised in the early stage of a startup, and some may come from “angel investors”— 3. This refers to the integration of firms into GVCs or in- professional investors with a high net worth, who invest creasing direct exports. in return for shares in the business. Seed capital gener- 4. Based on information from the Ministry of Finance ally covers the essentials of a startup such as a business (SHCP) for various years of the Presupuesto de Egresos plan, initial operating expenses, and R&D costs. Series de la Federación [Federal Expenditure Budget]. A financing refers to an investment in a privately-held startup that has shown progress in building its busi- 5. The Ministry of Economy has some joint initiatives ness. It often follows seed capital. Series B financing is with Nacional Financiera (NAFIN) or other development the second round of investment, including from private banks, and CONACYT to allocate some resources to equity investors and venture capitalists, when the com- provide credit, guarantees, venture capital, and match- pany has accomplished certain milestones. Series C fi- ing grants. While the innovation trust funds with CONA- nancing is for successful companies looking to develop CYT were discontinued, some trust funds with NAFIN new products and expand into new markets. It is focused are still active. on scaling the company quickly. After a Series C round, 6. Financing through trust funds has some advantages, many companies will pursue an initial public offering as the schedule for transferring resources to beneficia- (IPO), while others may need to raise Series D, E, or F ries is not constrained by the fiscal year, which is es- rounds of financing in order to expand. pecially important for innovation projects that usually 13. TecNM is a technological higher education system require “patient” investment. comprised of 126 federal technological institutes and 7. In collaboration with other public agencies, sectoral 122 decentralized technological institutes. funds allocate resources for research and development 14. A cluster is a dense network of companies and insti- with a sectoral focus. For example, the Ministry of En- tutions in a specific geographic area. It comprises pro- ergy has a sectoral fund to promote research, technol- duction companies, suppliers of raw materials, service ogy adoption, and innovation with regard to renewable providers, companies in related fields, and public institu- sources of energy, energy efficiency, the use of clean tions (for example research, training, and standard-set- technologies, and the diversification of primary energy ting institutions). A cluster has three types of connection: sources. (i) vertical along the supply chain; (ii) horizontal between 54    Mexico: Entrepreneurship Ecosystem Diagnostic manufacturers of complementary products; and (ii) insti- science. The members admitted are ranked in one of five tutional between companies and public institutions. categories: Emeritus researcher, SNI III (seniors), SNI II (established), SNI I (early-stage), and candidates (young 15. Endeavour and Glisco Partners. 2022. “Insights: Ven- researchers). ture Capital and Growth Equity Ecosystem in Latin Amer- ica 2022.” Website accessed March 16, 2023. https:// 21. Source: CONACYT, Estímulo Fiscal a la Investi- endeavor-eiumx.super.site/productos/entrepreneurial gación y Desarrollo de Tecnología (EFIDT). (https://www -phenomenon/ecosistema-de-venture-capital-y-growth .estimulosfiscales.hacienda.gob.mx/es/efiscales/efidt). -equity/ecosistema-de-venture-capital-y-growth The reduction in number of approved projects may be -equity-en-latin-america-actualizacin/venture-capital due to the design of the selection process, which is -growth-equity-ecosystem-in-latin-america-2022-update something that the agencies involved in implementa- tion need to revise. 16. Fondo de Capital Emprendedor trust is operated jointly by the Entrepreneurs Fund, Mexico Ventures, the 22. COECYTJAL (Consejo Estatal de Ciencia y Tec- Seed Capital Co-Investment Fund, the Entrepreneurial nología del Estado de Jalisco) is a decentralized organi- Capital Ecosystem Development Program, and the Pa- zation of the State of Jalisco, and its objective is to assist cific Alliance VC Program. the Secretary of Science, Technology, and Innovation in developing initiatives for application in the state that are 17. NAFIN´s Trust Funds Reports. Second Quarter related to research; scientific, technological, and educa- 2022 report (Excel table: Fideicomiso de Capital Em- tional innovation; entrepreneurship; social development; prendedor’s net worth) (https://www.nafin.com/portalnf the protection of intellectual property, and the develop- /content/nafin-en-cifras/fideicomisos.html) ment and transfer of knowledge and technology. 18. In joint ownership or royalty crowdfunding platforms, 23. A maquiladora is a foreign-owned exporting factory investors acquire a percentage of an asset, share, royalty, operating in Mexico. earning, and/or loss, depending on the outcome of one 24. Banco Nacional de Comercio Exterior (BANCO- or more of the crowdfunding applicant’s ventures. MEXT), a development banking institution, is an entity 19. The transitory provisions have been extended sev- of the Federal Public Administration in Mexico. eral times for different reasons. 25. Only the programs that returned their questionnaire 20. According to its 2022 operational rules, the SNI of- were considered in this study, since only for these was fers pecuniary bonuses for scientific activity. These bo- there any certainty about the information on their moni- nuses are granted monthly, and calculated according to toring and evaluation activities and mechanisms. a combination of an ex-post peer review, and a biblio- 26. Mis Programas. 2022. Mis Programas (Spanish). metric assessment of the researchers, which is based on Jalisco State. Website accessed December 12, 2022. certain criteria: scientific output (evidence of the creation https://programas.app.jalisco.gob.mx/programas of knowledge in the researcher’s field), participation in /sistemaDeProgramasPublicos. academic activities (teaching and thesis direction), ac- ademic initiatives, collaboration with research centers 27. See Grover, Medvedev, and Olafsen (2019). and higher education institutions, and popularization of Mexico: Entrepreneurship Ecosystem Diagnostic    55 4. Policy Recommendations Key Questions Chapter 4 presents evidence-driven policy recommendations, which are based on the anal- ysis undertaken for this report, as well as on consultations held with the national and sub- national public agencies, and the non-public actors that are responsible for the programs that support entrepreneurship in Mexico. To summarize, improving the quality, scale-up, and internationalization of firms, requires a comprehensive and coherent strategy to strengthen the entrepreneurship ecosystem. Important elements to consider in this strategy are: im- proving access to finance, enhancing firms’ capabilities, incentivizing innovation and im- pactful entrepreneurship, and strengthening the business enabling environment. Also, it is important to enhance the quality of program design and implementation, as well as make effective monitoring and evaluation frameworks an integral part of the initiatives that sup- port MSMEs. This chapter aims to answer the following questions: „ How can the current policy mix be strengthened to better address the gaps in impactful entrepreneurship? „ How can the design, implementation, and evaluation of entrepreneurship programs be enhanced to achieve greater impact? „ How can subnational governments and ecosystem enablers complement federal actions to improve the entrepreneurial ecosystem in Mexico? 56    Mexico: Entrepreneurship Ecosystem Diagnostic 4.1  Introduction To improve the quality, scale-up, and interna- tionalization of firms, a comprehensive and Mexico’s entrepreneurship ecosystem is char- coherent strategy to foster the development acterized by a few high-growth and innovative of the entrepreneurship ecosystem is needed. firms, while the majority of firms have few or This strategy will need to address regulatory and no employees, other than the owner, and they institutional gaps, and improve the quality, fund- appear to have been set up out of necessity. ing, and mix of public entrepreneurship programs The analysis presented in this report shows that to target firms and startups with ambitions to a number of structural obstacles explain why scale up, innovate, and internationalize. Mexico’s entrepreneurial ecosystem lacks the ca- pacity to support firms in scaling up, upgrading While public interventions can help address technologically, and internationalizing. Some of market failures related to entrepreneurship, these structural obstacles result from, or are ag- for programs to have an impact, they must be gravated by, market failures such as information well designed and implemented, and have a asymmetries, inability to take advantage of all of strong monitoring and evaluation framework the returns from innovation, and coordination that guides effective program design and ad- failures (such as the inability of stakeholders to justments. Funding needs to be aligned with tar- take concerted actions that would benefit all of gets, and greater program consistency over time them). Also, considerable regional and sectoral is necessary to allow interventions to yield results, differences in firms’ capabilities and performance and for ecosystems to mature. Also, as part of a make conditions worse. Government initiatives state’s development strategy to complement fed- can foster improvements in the entrepreneurship eral initiatives, in collaboration with the private ecosystem through regulatory, institutional, and sector, subnational governments need to embrace infrastructure changes, as well as implementing a more active role in the development of local programs that stimulate agents in the ecosystem entrepreneurship ecosystems. In addition, sub- to change their behavior and improve their capac- national strategies need to be adjusted to suit the ity. However, it will take some time for such gov- maturity of local ecosystems, endowments, and ernment programs to achieve impact and develop market opportunities.1 the ecosystem capabilities needed for impactful entrepreneurship. Moreover, as Chapter 3 sug- International experience suggests that there gests, government programs need a holistic strat- is no clear line of separation between national egy for entrepreneurship development, as well as and subnational competencies in providing continuity, and improvements in program design, entrepreneurship and innovation support pro- implementation, and evaluation. Additionally, the grams, and that sometimes programs are bet- policy and funding mix needs to be adjusted to ter implemented when they are shared across pay greater attention to, and provide more fund- different levels of government. Policy can ben- ing for programs that focus on growth-oriented efit, too, when national and subnational govern- firms versus ones set up only out of necessity. In ments cooperate. Although country approaches the medium to long term, the former will cre- vary considerably, with regard to innovation, ate more and better-quality jobs. Government many countries support larger-scale projects at interventions also need to take into account the the national level, and especially those projects differences in entrepreneurial ecosystems’ devel- that involve the production of new knowledge. opment at the local level. Conversely, subnational governments support Mexico: Entrepreneurship Ecosystem Diagnostic    57 smaller programs that are more focused on tech- funds, this is concentrated in just two areas (fin- nology diffusion, technology parks, networking tech and e-commerce), and only a small number and brokerage services, incubation, and cluster of startups (89). Public initiatives to foster startup development. There are examples, too, of cluster financing and the VC industry (such as the Co-in- development programs that are shared by na- vestment in Seed Capital Fund, Development of tional and subnational governments. the Entrepreneur Ecosystem Fund, and Mexico Ventures Fund) have lost momentum in recent The recommendations below on fostering greater years. The public sector could play a more active access to finance, building firm capabilities, pro- role in advancing the VC market frontier in other moting innovation, improving the business regu- sectors that might be riskier, and might take more latory environment, facilitating access to external time to get products to market (for example, other markets, and strengthening the policy-making areas of the ICT industry, health technologies, process are intended to guide the development of and agricultural technologies for adapting to cli- national and subnational strategies that foster the mate change). creation, growth, upgrading, expansion, and in- ternationalization of more productive firms, and, Addressing financing constraints entails a in turn, more and better quality jobs. multi-pronged approach. The strategy for en- trepreneurship development will need to make 4.2  Access to finance regulatory and institutional changes to enhance, among others, insolvency and credit infrastruc- There are signs that financial constraints are ture frameworks, and improve the performance of hindering the entry and growth of quality firms the credit guarantee products and initiatives that in Mexico. For about a third of firms in Mexico, promote alternative financing instruments. The credit is a major constraint. In addition to Mexi- shorter-term credit support for microenterprises, co’s low level of domestic credit as a percentage which has rapidly expanded in recent years, needs of GDP when compared with the country’s peers, to be balanced with the development of financial markets for alternative financing sources are un- products that support the growth and upscaling derdeveloped. Chapter 2 discussed how access to of higher productivity firms. In the medium term, finance is an important driver for formal firms’ this approach will create better-quality jobs. These entry, and that the gap in access to finance is most programs would also benefit from evaluations to acute in the south, where the entry of high-quality assess their impact, and over time, these would firms is the least. Credit constraints are the out- improve program designs and results. come of both demand-side and supply-side chal- lenges. For example, on the demand side, firms consider that the interest rates are too high, and also they lack collateral. Conversely, on the sup- Recommendations „ Enhance the design of credit guarantee ply side, information about firms is inadequate, funds to encourage the financing of new, and contract enforcement is weak. Various pub- younger, innovative, and/or technolo- lic programs offer credit and guarantees (mainly gy-based firms that lack tangible assets to through development banks), as well as fostering use as collateral. Based on the eligibility re- seed and venture capital funds, but the results quirements of government-supported credit suggest that some programs need improvement. programs, banks usually provide credit to a Although there has been a considerable increase small set of firms, which are often the least in private investment in venture capital (VC) 58    Mexico: Entrepreneurship Ecosystem Diagnostic credit constrained. Through guarantee funds, under development, access to alternative data the government could provide financial in- on MSMEs could complement the informa- stitutions with incentives by sharing the risk tion that financial institutions use in making of financing young, innovative, and/or tech- decisions to provide credit. Financial author- based firms, with no credit history. NAFIN, ities and credit bureaus need to collaborate BANCOMEXT, and the Ministry of Economy to explore both the legal and operational re- have guarantee funds that are often comple- quirements for gaining more information on mented with subnational funds (for example, potential borrowers. FOJAL in Jalisco and FOCRECE in Nuevo „ Foster the development of seed and ven- León). However, the eligibility criteria for ture capital funds (fund of funds, or co-in- these funds frequently favor firms with a lon- vestment funds) to support high potential ger credit history. Also, more recently, some startups and tech-based firms. International programs have favored microenterprises, experience shows that government-funded and missed the opportunity to finance new mechanisms have helped to catalyze the firms, and especially the innovative firms and venture capital market and attract private startups with high potential to grow and cre- investors.3 ate better quality jobs. Guarantee programs „ Enhance the insolvency regime to promote also need guidelines on program graduation, the better allocation of resources across which would encourage financial institutions firms, and also encourage lending. Although to strengthen their risk management tools, the insolvency framework has improved since and provide financing for new firms, as well as the passage of the Ley de Concursos Mercan- foster innovative, and younger firms that have tiles,4 in 2000, and its subsequent amend- not developed a credit history, as yet. ments, the act still has a number of elements „ Develop new types of collateral. Encourag- that discourage borrowers from going through ing the use of movable assets as well as other the procedures to obtain credit, and that leave innovative forms of collateral such as future creditors inadequately protected, and both cash flows, inventories, or sales, would im- problems reduce access to finance. First, the prove firms’ access to finance, and, thus, the amendment of 2007 introduced the possibility scaling up, upgrading, and internationaliza- of expediting the procedures for cases where tion of the smaller, younger, and technolo- a previously approved plan to reorganize a gy-based firms that have growth potential, company was developed before the initial fil- but few or no immovable assets. ing; however, to encourage much more use „ Enhance the quality of the information of this scheme, more clarity is needed on the available for firms’ credit evaluation. Credit voting regime. Other changes are also needed bureaus in Mexico have focused on consum- to strengthen the protection for secured cred- ers rather than on firms, which means that itors and increase their participation during the latter often have inadequate credit his- the insolvency and reorganization proceed- tories.2 Credit bureaus need better informa- ings.5 Procedures could be streamlined, too. In tion standards for firms, and particularly for particular, alternatives need to be explored for MSMEs, so that financial institutions have expediting the examination process, and reduc- better information when deciding whether ing the procedural burden, and especially the or not to provide credit. Also, through open burden on MSMEs. In addition, the insolvency finance and open banking, which are still system needs to be enhanced by: investing in Mexico: Entrepreneurship Ecosystem Diagnostic    59 improving the capacity of the institutions and Recommendations agents responsible for handling cases; allowing „ Enhance management capabilities by pro- some courts to specialize in insolvency; pro- viding incentives for insourcing profes- viding relevant training for judges, conciliators, sional managers and/or consulting firms. and liquidators; and regulating and supervising As noted above, family firms tend to have the insolvency practitioners to ensure that they particularly weak managerial practices, and are adequately qualified. Finally, guidelines for these could be improved with support from out-of-court procedures could be adopted as external management professionals (Bloom, many OECD countries have done (for example, Sadun, and Van Reenen 2015). A “voucher” the United Kingdom and Spain). This would (or “matching grant”) program could offer the enable debtors and creditors to undertake the right incentives for SMEs to hire professional restructuring process, informally, which could managers.7 Business consulting programs for then be approved, later, in court. SMEs could also be developed that would help firms, first, by conducting a diagnostic, and then by providing support to implement the 4.3  Firm capabilities  diagnostic’s recommendations. Offering the Addressing gaps in managerial capabilities and services of a management consulting firm to skilled labor are crucial to foster firms’ growth a group of firms needs to be considered as it and innovation. As noted in Chapter 1, limited would be a more cost-effective way to achieve managerial capacity in Mexico means that the the desired impact (Iacovone, Maloney, and country’s best managed firms are only at an average McKenzie 2022). A government program level when compared with the managerial capacity that covers part of the cost for management of firms in the United States. In addition, variation consulting services could encourage firms to in management capacity is much greater across participate, and to commit to implementing firms in Mexico. Family firms, in particular, tend to the recommendations. Such programs could have the weakest management practices. Manage- use individual private consultants, consulting ment quality affects both firms’ productivity and firms, or incubation centers, and the govern- the capacity of firms to innovate. At the same time, ment could provide firms with lists of certi- important skill gaps impact firms’ performance. fied consultants. The program could also offer Geographically, gaps in access to skilled labor and more than one approach to accommodate management are more acute in the south, whereas differing management capabilities, including manufacturers in the northern region have the best support for transitioning toward Industry 4.0 management—possibly because they have ben- technologies.8 efited from integration into global value chains. „ Boost the digitalization of MSMEs with Improving the education system will require a self-diagnostic tools that are complemented long-term effort, although important steps could with vouchers or matching grants. A study be undertaken in the short to medium term. The by Iacovone and his co-authors (2022) found government needs to also develop initiatives to that the adoption of ICT improved firms’ per- enhance managerial skills, and induce changes in formance when this was complemented with behavior through providing more information, as other organizational changes.9 Digitalization well as vouchers and matching grants that would also increased the resilience and expansion help to overcome market failures.6 of firms during the COVID-19 pandemic. 60    Mexico: Entrepreneurship Ecosystem Diagnostic However, only three out of every 10 firms offer „ Assess the skills gaps in priority industries, digital sales, and microenterprises are the least set up programs to close these gaps, and do likely to do so (López Córdova, Patiño Peña, so in collaboration with training and voca- and Rodrigo 2021).10, 11 Self-diagnostic tools, tional education institutions, universities, and especially those for general business func- and the private sector. The ongoing High tions, could potentially attract a wide range Level Economic Dialogue between Mexico of MSMEs by helping them to identify areas and the United States has identified indus- of their business where digital transforma- tries with potential for reshoring to North tion could help them to make improvements, America. These include semiconductors, in- including improvements in basic managerial formation and communication technology, capabilities. Jalisco, for example, offers a tool and medical equipment and pharmaceuticals. called Chequeo Digital, which allows firms The priority assigned to these industries could to self-diagnose their level of digital maturity. galvanize cooperation between the public and The diagnostic tool could be complemented by private sectors in Mexico to close the skills providing a “voucher” or matching grant pro- gaps that hamper the development of these gram that would support the implementation industries. of a digital transformation action plan. „ Strengthen the quality and relevance of the skills acquired in tertiary and secondary education. A large percentage of the firms 4.4  Incentivize innovation surveyed during the 2010 World Bank Enter- and startups prise Survey in Mexico (World Bank 2010) Expenditures on innovation are low, in general, identified an inadequately skilled workforce and on research and development (R&D) in par- as a major constraint, and they reported that ticular, and these expenditures could be better they often have to retrain recent graduates so allocated. As discussed in Chapter 1, R&D ex- that they have the skills and competencies re- penditure is below what would be expected, given quired by the firm. Reducing the skills gap is Mexico’s GDP per capita. Furthermore, the public a long-term endeavor; however, in the short sector accounts for the bulk of R&D expenditure, to medium term, important gains could be while in most OECD countries, the private sector achieved by aligning upper secondary and primarily funds R&D. Also, SMEs’ expenditure on tertiary education more closely with firms’ R&D needs to be encouraged. Despite Mexico hav- requirements. In addition, the focus on dig- ing 26 research centers and national laboratories, ital, language (particularly English), and soft university-industry collaboration is low by inter- skills (problem-solving, self-discipline, and a national standards, which means that the country proactive attitude) should increase, and entre- is missing an opportunity to convert public re- preneurship education programs need to be search investments into commercial innovation. expanded, and included more systematically The public sector could help stimulate firms’ in- in educational institutions’ curricula. CON- terest in innovation and foster greater linkages be- ALEP (the National College of Professional tween public research institutions and the private Technical Education) and Tecnológico Na- sector. If adequately designed and implemented, cional de México (tertiary education) are ex- such initiatives could help to overcome numerous amples of educational institutions that work market failures (such as positive spillovers, coor- closely with the private sector. dination failures, and information asymmetries in Mexico: Entrepreneurship Ecosystem Diagnostic    61 export and financial markets), which result in un- prospects for incentivizing further private derinvestment in innovation, and the lack of more sector investments in R&D—including by innovative and technology-based firms. The pri- innovative SMEs—and promoting stronger vate sector—and particularly large and innovative university-industry collaboration. Alterna- firms—could also involve more SMEs in innova- tive mechanisms for fostering R&D such as tion through promoting open innovation initiatives providing matching grants should also be ex- such as competitions. As local innovation ecosys- plored. The provision of matching grants for tems differ markedly across Mexico, state govern- R&D is generally more useful for smaller and ments need to adapt their innovation strategies to younger firms as it may take years for them local conditions and opportunities so that these are to generate enough taxable income to be in- as effective as possible. centivized by an R&D tax credit. SMEs and younger firms also tend to have more prob- lems accessing finance. Instruments to foster Recommendations R&D (whether tax incentives or direct support „ Evaluate the constraints in the current through matching grants) need to incorporate R&D tax credit program, as well as alter- incentives for greater industry-academia col- natives for increasing investments in R&D, laboration in their eligibility criteria, so that and stronger public-private collabora- they remedy critical coordination failures in tion. Incomplete appropriation of returns to the innovation system. R&D investment by firms can lead to their „ Foster technology adoption and more in- underinvestment in R&D. The literature on cremental innovation through matching OECD countries supports providing R&D grant support. Matching grants could in- tax incentives (Cirera et al. 2020), and this crease the willingness of firms to invest in is especially the case with firms that already non-R&D innovation in the presence of ex- conduct R&D activity.12 Evidence from four ternalities. However, the evidence about developing countries suggests positive, but impact is mixed, and it appears to be highly smaller additionality, although in the case of influenced by the design of the instrument, Mexico, every dollar of firms’ tax savings in- and how it is implemented (Cirera et al. 2020). creased their spending on R&D by US$0.48 „ Support private open innovation initiatives above the amount that they would have spent by complementing them with government (Calderón-Madrid 2010). More recent infor- resources or programs. Large firms, includ- mation, however, suggests that Mexico’s cur- ing multinationals, have launched competi- rent tax incentive program (EFIDT) should be tions to identify technology-based SMEs that assessed to understand its constraints, and its could meet their specific needs or solve their limited reach and impact.13 Over the period, problems. Such initiatives increase SMEs’ in- 2019 to 2021, the average yearly amount for novation, and accelerate their integration into approved tax credits was about US$10.8 mil- GVCs. The government could engage new lion, which is too small an amount to achieve large, and multinational firms in such initia- meaningful impact. Preliminary informa- tives by creating awareness, and providing tion also suggests that the EFIDT program is some matching funds for open competitions. mainly reaching large firms that have existing „ Leverage public procurement to foster in- R&D projects. An assessment of the program novation. The three levels of government would shed light on its additionality, and the could use public procurement, strategically, 62    Mexico: Entrepreneurship Ecosystem Diagnostic to foster R&D and innovation, while at the research contracted by the private sector, the same time, addressing crucial challenges re- dissemination and commercialization of tech- lated to the delivery of public services that are nologies, and the generation of new spin offs. concerned with health, energy, the environ- In order to pool services, and increase the ment, and other public needs. To stimulate quality and impact of TTOs, countries are incremental, to more complex innovations, a increasingly supporting the improvement of wide range of instruments could be used from TTOs’ capabilities through networks and al- commercial to pre-commercial procurement.14 liances with universities and research centers, An OECD study (2017a) provides evidence rather than through more traditional models that governments across the OECD, as well as that are based on individual TTOs at each some in developing countries, are increasingly university, which can be costly to maintain. using public procurement as an instrument to Examples such as the Technology Transfer promote innovation.15 These initiatives could Hubs in Chile, and the Regional OTRIs (Ofi- also be designed to promote university-in- cinas de transferencia de resultados de inves- dustry collaboration. Mexico piloted some tigación) in Colombia, are good practices that public procurement innovation programs in can be considered.16 Complementing the role the mid-2010s, but these have not been scaled of TTOs, new digital platforms are emerging up or continued. Successfully implementing that help with the matchmaking between uni- such initiatives requires the relevant govern- versities and industry. These platforms enable ment agencies to collaborate well, build the the former to advertise their knowledge and capacity of public officials, and—very impor- inventions, and the latter to advertise their tantly—reduce public procurers’ risk aversion. needs. Such platforms are also valuable for In addition, attracting SMEs might require in- small-scale entrepreneurs. Expert Connect, troducing special provisions such as reducing for example, is a digital platform that pres- the administrative burden in the procurement ents the profiles of more than 45,000 research process, adjusting selection criteria (without and engineering experts working in research reducing technical standards), and designing organizations in Australia. Through an open SME-friendly payment schemes. competition, the Mexican government could „ Strengthen the institutions and platforms provide some seed funding that could incen- that facilitate technology transfer. Technol- tivize the formation of TTO alliances and/or ogy transfer is a weak link in the innovation platforms, and facilitate university-industry system. Greater university-industry collabo- collaboration and technology transfer. ration could be promoted through multiple „ Promote incubators and accelerators. As instruments that foster innovation (including well as efforts to promote the venture capital in the design of R&D tax credits, innovation industry, the Mexican government could pro- grants, as well as other measures that stimu- vide capacity development grants for ecosys- late firms’ demand for technologies developed tem enablers in states with few of these. This in universities and research centers, including initiative could solicit matching funds from public procurement innovation programs). In local or state governments, corporations, addition, effective technology transfer offices and/or venture capital funds. Matching funds, (TTOs) in universities and research centers and especially those from non-public actors, could become valuable brokers in linking the would signal commitment and potential. demand and supply sides of knowledge and „ States could better leverage federal pro- technology services; and contributing to new grams by complementing them with local Mexico: Entrepreneurship Ecosystem Diagnostic    63 resources that are allocated according to sector resources through collaboration; and policies that suit the state’s specific con- attracting new institutions (for example, tech- text. States with less developed entrepreneur- nology centers and business incubators) that ial ecosystems could adopt policies that focus could bring in new knowledge and practices. more on programs that provide managerial and digital technology training. States with more mature ecosystems could promote more complex forms of innovation and technology 4.5  Business enabling transfer that foster the creation of technolo- environment gy-based firms. The former Fondos Mixtos Gaps in the rule of law and regulatory compli- program, which facilitated co-investments ance affect the performance of local entrepre- from the National Science and Technology neurship ecosystems in Mexico. As discussed in Council (CONACYT), and subnational gov- Chapter 1, public safety and crime are major con- ernments to promote science, technology, and cerns for firms, and especially for MSMEs, as the innovation (STI), needs to be reconsidered, as likelihood of being a victim of crime increases with a this could enable states to leverage federal re- firm’s size, and this reduces firms’ incentive to scale sources for meeting needs that are specific to up and upgrade. While addressing this challenge is their own entrepreneurship ecosystem. While beyond the scope of this study, progress on this front some states actively used this instrument in is crucial to create a more robust entrepreneurship the past (for example, Jalisco), states with less ecosystem. In addition, when entering contracts, capacity were not able to utilize it very much. about 60 percent of firms do not have a high level of A program like Fondos Mixtos could achieve confidence that their contracts will be honored. As more impact if it were accompanied by tech- a result, to avoid disputes, some commercial trans- nical assistance, and the sharing of relevant actions and investments do not materialize. Also, experience among the participating states. as noted Chapter 1, there is substantial need to im- Of the three states reviewed in Chapter prove the quality of regulations and reduce the costs 3, Jalisco has a well-defined innovation policy, of regulatory compliance. As discussed in Chapter but it needs to evaluate the adequacy of financ- 2, the quality of local institutions correlates with the ing in relation to the policy’s goals, and this is development of impactful manufacturing firms at especially important, given that less funding is every stage of their life cycle. While the General Act available at the federal level. The State of Nuevo for Better Regulation (2018) is considered a hallmark León, which has a large endowment of human piece of legislation, internationally, as noted by the capital, and a strong academic and entrepre- National Observatory for Better Regulation, its im- neurial sector, is still in the process of defining plementation has been limited, and especially at the its STI policy and the role of its STI council. subnational level.17 In defining its STI policy, complementarities with programs at the federal level need to be explored. Chiapas could focus on building the Recommendations foundations of its innovation and entrepre- „ Improve the enforcement of contracts. To neurship ecosystem by: building firms’ capa- enhance contract enforceability, the capabilities bilities through promoting their adoption of of the judicial system need to be strengthened, technology; encouraging greater links among inter alia, through training and the establish- actors in the ecosystem; leveraging private ment of standards, as well as the creation of 64    Mexico: Entrepreneurship Ecosystem Diagnostic specialized courts—something that has already regulatory policies, institutions, and tools at the occurred in some states (for example, in the state level, and this needs to become a useful State of Mexico). In addition, the federal gov- guide for local authorities, as well as a catalyst ernment needs to promote alternative dispute for change.20 Close collaboration with CONA- resolution mechanisms, which have been suc- MER (the National Commission for Better cessfully implemented in the OECD, as well as Regulation) will help subnational governments in some developing countries. Setting up these to advance faster. Among others, CONAMER mechanisms requires defining the necessary can facilitate states and municipalities learning technical standards, and training professional from best practices. mediators who can facilitate commercial dis- „ Continue the deployment of SINAGER pute resolution. (the National System for Regulatory Gov- „ Further strengthen the three pillars (poli- ernance). SINAGER is an effective tool for cies, institutions, and tools) of the National improving regulations at each level of gov- Indicator of Regulatory Improvement at the ernment, as well as their coordination. The federal level, but especially, at the subna- progress achieved through putting the first tional level. At the policy level, in the short to phases of the system in place in two states medium term, the 32 state-level local Systems could provide valuable lessons for expanding for Better Regulation need to become fully the system to other states. SINAGER could be operative. Inter alia, in the short term, this instrumental, too, in helping to build subna- requires embedding the principles for Better tional regulatory agencies’ capacity to imple- Regulation in law in all 32 of Mexico’s states, ment better regulatory tools. and providing, at the state level, a clear de- „ Facilitate the registration of firms and reg- scription of the local requirements needed to ulatory compliance at the municipal level abide by the Better Regulation Act.18 Regard- by streamlining regulatory processes. The ing the institutional pillar, an authority to fos- number of municipalities with an updated li- ter better regulation at the local level will need cense to operate SARE (Sistema de Apertura to be identified, and have the mandate and Rápida de Empresas [Accelerated System for capacity to foster local public agencies’ regu- Firms’ Start of Operations]); PROSARE (Pro- latory improvements. Regarding the tools pil- grama de Reconocimiento y Operación del lar, in the medium to long term, the State-level SARE [Program for Operation of the Acceler- Registries of Procedures will need to become ated System for Firms’ Start of Operations]); public, functional, and linked to the National and the Simplified Construction License Catalogue of Processes, Regulations, and Ser- needs to be expanded to reduce the cost and vices. Very importantly, as required by the time involved in registering firms. The use of General Act for Better Regulation, regulatory SAS (Sociedad por Acciones Simplificadas) to impact assessments need to be undertaken be- incorporate firms needs to be encouraged. fore approving any regulations. Improvements in the tools pillar will be the most visible to citizens and businesses.19 This will require a special effort to ensure that more progress is 4.6  Internationalization of achieved with this pillar. The yearly report by firms the National Observatory for Better Regula- Despite Mexico’s participation in broad net- tion provides a comprehensive assessment of works of free trade agreements, few firms Mexico: Entrepreneurship Ecosystem Diagnostic    65 export directly or are integrated into GVCs. in emerging regional ecosystems could learn However, the percentage of firms exporting ad- from the progress achieved in more mature vanced technology is above what would be ex- regional ecosystems. A second phase or an pected for a country with Mexico´s GDP per extension of the program could help firms to capita. On average, exporting firms are growing export directly through adopting an “export at a rate of 9.6 percent, annually, but SMEs’ in- business model”.22 This program could bene- tegration into GVCs is a slow process that takes fit from lessons learned in a recent pilot con- an average of 10 years. Some sectors have higher ducted in Argentina (Iacovone 2020).23 potential for North American integration, but this „ Enhance market intelligence and export varies markedly across regions; in the north, 5.7 promotion efforts to deepen firms’ GVC percent of manufacturing establishments export participation. The supplier and export devel- versus only 0.1 percent in the south. Close prox- opment programs discussed above need to be imity to the border with the US is one of the main complemented with: i) stronger provision of drivers for exports. Some sectors appear to have market intelligence; ii) guidance and informa- greater potential for integration within North tion on the regulatory and procedural aspects America (for example, ICT, pharmaceuticals, and that are relevant for integrating into GVCs agroindustry). As Chapter 3 indicated, exporting (which is the focus of the programs that are or integrating into GVCs is the main objective of currently in place); and, iii) export promotion. about 46 percent of the public programs reviewed These actions would allow Mexican firms to in this study. However, these programs mainly take advantage of the current market trends provide information and technical support rather in nearshoring and reshoring, and facilitate than strengthening firms’ capacity to export. their integration into GVCs. „ Improve competition in the logistics market and reduce friction in multimodal transpor- Recommendations tation. More efficient logistics and less friction „ Implement comprehensive supplier devel- in multimodal transportation would contrib- opment programs that include diagnostics, ute to reducing the development gaps between support for enhancing firms’ capabilities, regions that are accentuated by their distance and matchmaking of firms with exporters. from the US border, and this would improve Current initiatives could be enhanced by pro- the availability of inputs and the ability to ship viding more holistic support that includes: i) products to their relevant markets. conducting diagnostics of firms’ capabilities (managerial, technical, training, certification, and so) relative to export market needs; ii) 4.7  Program design, providing support for upgrading firms’ capa- bilities; and iii) matchmaking suppliers with implementation, and large companies.21 The diagnostic phase could evaluation also help to identify firms that meet minimum Despite good intentions, policies and pro- qualifications, and are more likely to integrate grams have not been guided by a higher-level successfully into GVCs. This program would entrepreneurship strategy. Under the current require a close partnership with the private policy mix, fostering improvements in entrepre- sector during its design and implementation. neurship quality and growth has not received Through mentoring schemes, entrepreneurs sufficient attention. In addition to the needed 66    Mexico: Entrepreneurship Ecosystem Diagnostic regulatory and institutional improvements, which When designing programs to promote entrepre- were noted above, rebalancing program support, neurship, these sectoral and regional differences and increasing the funding available for quality need to be considered. Moreover, regional dif- and growth-oriented firms appears to be nec- ferences call for subnational entrepreneurship essary, too. However, increasing funding might strategies that suit local endowments and mar- not have the desired impact, unless the funding ket opportunities, and these should enable states is coupled with stronger mechanisms that sup- to leverage federal support more effectively, and port programs during their design, implementa- complement this with local resources. tion, and evaluation stages. As noted in Chapter 3, only 20 percent of the public programs that support MSMEs are based on a diagnostic, only Recommendations 54 percent collect some feedback from benefi- „ Develop a federal strategy to foster the ciaries, and only 20 percent conduct an impact entrepreneurship ecosystem that has pri- evaluation. These conditions make it challenging orities and targets for the short, medium, to understand whether programs are tackling the and long term. The strategy needs to have right problems, whether they need adjustment, coherent objectives, target indicators, and whether their level of funding is appropriate, and, policy instruments, and be developed in ultimately, whether they should continue. consultation with the states and the private sector. The analysis and recommendations Regional and sectoral differences need to be provided in this report can help to inform considered when designing and implementing this strategy, and in developing the strategy, programs. As Chapter 2 stressed, across Mexico’s consider whether certain sectors (for exam- regions there are important variations in entre- ple, ICT, pharmaceuticals, and agroindustry) preneurship outcomes, and in the quality of the merit special attention due to new opportuni- drivers of entrepreneurship. While the north- ties under the United States-Mexico-Canada ern region has a rather dynamic ecosystem, with Agreement, and reshoring initiatives. more high-quality entrants that scale up faster, „ Reinforce the process of program design, and eventually upgrade, this is not the case with implementation, and evaluation to in- firms in the rest of the country; performance in crease the effectiveness of entrepreneur- the north-Pacific and central regions is closer to ship support. Public agency interventions that of the national average. The south trails other can help to address the market failures related regions on almost all entrepreneurship outcomes: to entrepreneurship, but their effectiveness is firms tend to be smaller when they launch, they determined by the quality of the design and generate less value added per worker, they grow at implementation process. Moreover, adequate a slower pace, and they rarely upgrade. The analy- monitoring and evaluation are essential for as- sis in Chapter 2 of the drivers of firms’ entry, scal- sessing impact. Based on the gaps highlighted ing up, upgrading, and internationalization at the in Chapter 3, the following are recommended, regional level helps to explain the regional differ- and also apply to public interventions at the ences in firms’ outcomes. Variations at the sectoral subnational level: level are also important: manufacturing firms are f As a starting point, review existing diag- larger on entry, they grow faster than firms in re- nostics to identify the nature of the prob- tail and services, and they produce about 60 per- lems and market failures that must be cent more value added than businesses in services. considered when designing the program. Mexico: Entrepreneurship Ecosystem Diagnostic    67 f While developing the program’s design, f Leverage the private sector—clusters, align the program’s objectives with the industry associations, and platforms— findings of the diagnostic/s, and the to disseminate knowledge and technol- higher-level objectives of the entre- ogies, and, where relevant, engage the preneurship strategy. Explore which in- private sector in program implementa- struments are better suited to address the tion. Technology extension services, for problems, and review previous programs’ example, need quasi-industrial structures experiences to understand what has, and and specialized consultants to be effec- has not worked, and why. Identify the tive. Joint implementation with non-pub- program’s complementarities with other lic entities can also help to address policy instruments. coordination failures.25 Transparency and f Endow the program with a long-term accountability mechanisms are needed as vision. The development of effective en- well to avoid public and non-public sector trepreneurship ecosystems is a long-term conflicts of interest. process. Hence, the program’s design f Embed a robust monitoring and evalu- must consider this, and allow for greater ation framework (preferably an impact program continuity (but with program evaluation) in the design of programs. adjustments that are based on the results Clear indicators and measurement tools of monitoring and evaluation tools). are needed to assess impact and the need f Align budgets to achieve the desired for program adjustment, continuity, or program impact. In recent years, the closure.26 However, as discussed in Chap- funding allocated for most entrepreneur- ter 3, only 20 percent of the programs re- ship programs has drastically declined, viewed in this study conducted an impact which has spread resources very thinly, evaluation. and raised questions about whether pro- f Improve coordination with the grams can achieve meaningful change. non-public ecosystem enablers that Revising the overall policy mix, ensuring manage entrepreneurship programs, the complementarity of policy instru- and help to strengthen their monitor- ments, and providing adequate funding ing and evaluation capacities. As noted for individual instruments is very much earlier, ecosystem enablers can be better needed. leveraged to foster the development of the f As part of program design, define clear, entrepreneurship ecosystem, in general, transparent, and rigorous entrepreneur and help implement certain public pro- selection criteria. Where possible, pro- gram initiatives. However, strengthening grams need to adopt selection approaches enablers’ monitoring and evaluation sys- that signal the quality of candidates tems is necessary to provide more infor- wanted24 (for example, business plan mation on the ecosystem, as well as on the competitions or a funneling approach effectiveness of enablers’ programs, and that requires candidates to undergo dif- the public sector could facilitate this. ferent phases of selection in order to re- „ Subnational governments need to embrace ceive support). These will help to drive a more active role in the development resources to those candidates that are of local entrepreneurship ecosystems as likely to achieve the greatest impact. part of their state’s development strategy. 68    Mexico: Entrepreneurship Ecosystem Diagnostic While some states have been proactive Notes in developing their innovation and entre- 1. Recommendations for the subnational level in this re- preneurship plans/priorities (for example, port were informed by the analysis in Chapter 2, which Jalisco), other states (for example, Chiapas) comprised a review of the public and non-public pro- have not explicitly considered them in their grams that support entrepreneurship in the states of Chi- apas, Jalisco, and Nuevo León, as well as other sources. development strategies. As a result, these This review illustrates the diversity of local entrepre- states did not leverage federal programs as neurship ecosystems within Mexico. Jalisco, which is a much, or complement these with their own state with a sophisticated and dynamic entrepreneurial resources. Strategies at the state level need ecosystem, has well-defined polices and a very active to vary according to the maturity of the local network of intermediary organizations that support the ecosystem, endowments, and market oppor- ecosystem. Nuevo León also has a sophisticated and tunities, as well as consultation with the local dynamic ecosystem, although since new state authori- ties took office in October 2021, they have yet to define private sector. More developed ecosystems a set of entrepreneurship policies. Finally, Chiapas has could advance further with regard to innova- a more basic entrepreneurial ecosystem, with multiple tion and technology transfer, and the forma- challenges as well as areas of opportunity. tion of technology-based firms. Conversely, 2. Circulo de Crédito and Buró de Crédito assist the con- more nascent ecosystems need to develop a sumer credit market with comprehensive credit informa- policy mix that is more focused on manage- tion and other value-added services. ment and technology extension programs, as well as invest in basic technological in- 3. The Yozma Fund in Israel is emblematic of this kind of instrument. This fund is one of the few that sought to frastructure that supports their priority sec- attract foreign investors due to the expertise that they tors (for example, agroindustry in Chiapas). could bring to the domestic venture capital market. Clusters, industry associations, and digital platforms are tools that subnational govern- 4. Business Reorganization Act. ments could leverage to disseminate knowl- 5. Among others, creditors’ approval of the selection edge and technology. In parallel, the federal of the insolvency representative, and of the sale of a government could facilitate learning across substantial portion of the debtor’s assets should be re- states, and support states that need help in quired. In the case of reorganization, the law should en- sure that dissenting creditors obtain at least as much as developing their entrepreneurship strategy. what they would receive in a liquidation. Instruments such as Fondos Mixtos were valuable in adapting federal support to state 6. Various market failures justify such interventions, in- priorities. However, to be more effective, cluding information asymmetries and positive external- ities. Inducing more firms to upgrade their managerial inter alia, the less developed states require capacity could have wider impact because the knowl- adequate resources and assistance to help edge instilled in firms that use better management prac- them to better articulate their needs, and tices could spill over to other firms. utilize federal instruments. 7. Either a voucher or a matching grant could be offered, but the former is simpler to administer, given that the amounts would be small (typically, no more than a few thousand dollars). Vouchers are automatically provided if an applicant meets the criteria, and they typically fo- cus on making incremental improvements in managerial practices. Although vouchers are simpler to administer, they should still be subject to random audits to ensure Mexico: Entrepreneurship Ecosystem Diagnostic    69 that the resources are being used as policymakers 14. Pre-commercial procurement is the procurement of intended. R&D with risk-benefit sharing between the government and the bidder in order to develop solutions that are not 8. Among others, NAFIN and BANCOMEXT offer open yet available in the market. online courses to strengthen managerial capabilities. Measuring the demand for specific modules could reveal 15. These policies led to ground-breaking solutions such what are the most common weaknesses that firms, them- as liquid light-emitting diodes (LEDs), electric cars, and selves, identify. At the local level, there are also relevant robotic bed-washing facilities in hospitals, as well as efforts to draw lessons from: the ICT Cluster in Monter- more incremental innovations such as hybrid lighting rey (CSOFTMty), Universidad Autónoma de Nuevo León on communal roads in Jarosaw Commune in Poland (UANL), Tec de Monterrey, Universidad de Monterrey that lacked a conventional electricity supply. See OECD (UDEM), and Universidad Regiomontana (UERRE); as (2017 a) for more examples. well as the CSOFTMty MOBI program conducted with 16. Mexico has also had some experience with the im- Santa Clara University (California). Besides helping to plementation of initiatives to foster technology transfer. identify the most important gaps in managerial skills, In 2012, the FINNOVA program (CONACYT and the these initiatives could also be a first point of contact with Ministry of Economy) implemented an initiative to foster firms, as well as a tool to characterize the types of firms the creation and development of Knowledge Transfer that want to improve their managerial capabilities. Offices and other types of support for academia-indus- 9. Iacovone et al. (2022) showed that in China, the adop- try collaboration. The program was suspended, but the tion of ICT increased workers’ productivity in firms that federal government could consider creating an initiative were operating in sectors with strong competition, as now with the same objectives, but suited to the current the firms were encouraged to make complementary context. changes in their practices. 17. See Observatorio Nacional de Mejora Regulatoria 10. Only one in three enterprises increased their use of [National Observatory for Better Regulation]. 2019. In- digital technology during the COVID-19 pandemic. Of dicador Subnacional de Mejora Regulatoria: Reporte the firms that experienced a decline in revenue, em- de Resultados Estatales 2019 [Subnational Regulatory ployment, and wages due to the pandemic, those that Improvement Indicator: Report on State Results 2019]. implemented digital sales experienced lower reductions 18. The public administrations of states and municipal- than the firms that did not implement digital sales. ities and their agencies, and attorneys general at the 11. For example, the probability of adopting online sales state level are all responsible for implementing the Sys- was nearly 23 percent for microenterprises versus nearly tems for Better Regulation. 30 percent for large firms (López Córdova, Patiño Peña, 19. According to the Observatorio Nacional de Mejora and Rodrigo 2021). Regulatoria [National Observatory for Better Regulation] 12. The findings of Veugelers (2016) and Dechezleprêtre in 2019, of the three pillars, the tools pillar had shown the et al. (2016) suggest that tax incentives increased R&D least progress. spending by firms that were already investing in R&D, 20. According to the Observatorio Nacional de Mejora but tax incentives were less effective in fostering R&D Regulatoria [National Observatory for Better Regula- in firms that were not conducting R&D. Fraizo, Guzman, tion]. 2019. Indicador Subnacional de Mejora Regulato- and Stern (2019) found that state-level R&D tax credits ria: Reporte de Resultados Estatales 2019 [Subnational in the US were associated with a significant long-term Regulatory Improvement Indicator: Report on State impact on both the overall quantity, and quality-adjusted Results 2019], there are considerable differences in the quantity of entrepreneurship, with most of the effect progress states have achieved in implementing better materializing more than five years after the policy was regulatory policies. In 2019, Colima, Nuevo León, Yu- enacted. catán, Querétaro, and Sonora (the top 5 performers) 13. CONACYT. 2023. Estímulo Fiscal a la Investigación y achieved an average of 78.2 percent with regard to Desarrollo de Tecnología (EFIDT). meeting the targets set for improvements in the three pillars, while Zacatecas, Guerrero, Tlaxcala, Oaxaca, and 70    Mexico: Entrepreneurship Ecosystem Diagnostic Baja California (the states with the lowest performance) showed a high correlation between the index on export achieved an average of only 28.7 percent. Also, across managerial practices and export performance, which the 32 states, the tools pillar showed the least progress suggests that through strengthening export managerial (36 percent), while the policies and institutions pillars av- practices, the probability of starting to export could rise eraged 79 and 68 percent, respectively. by 7 percent, and the value of existing exporters could rise by 25 percent (Iacovone 2020). 21. Some lessons could be derived from a review of pro- grams such as the Program for Industrial Productivity 24. For example, Microcreditos para el Bienestar (Wel- and Competitiveness (Programa para la Productividad y fare Microloans) requires beneficiaries: (i) to be age 30 la Competitividad Industrial – PPCI), the Program for the or older; and (ii) own a microbusiness that has been Development of the Software Industry and Innovation operating for more than six months, and is not agricul- (ProSOFT), as well as the supplier development program tural. However, it is not clear whether formal registration of the former National Institute for the Entrepreneur (In- of the business is verified, or its capacity to repay the stituto Nacional del Emprendedor – INADEM). microloan. 22. Various studies in OECD and developing countries 25. Cirera, Comin, and Cruz. 2022. “Bridging the Tech- show evidence of firms learning to export, as well as nological Divide: Technology Adoption by Firms in De- firms’ conscious decision to upgrade prior to exporting veloping Countries.” (see, for example, Iacovone and Smarzynska Javorcik 26. Chapter V of the “Act to Promote the Sustained 2012; and Areti, Love, and Roper 2021). In addition, Ar- Increase of Productivity and Competitiveness of the topoulos, Friel, and Hallek (2010) noted that firms that National Economy” (Ley para Impulsar el Incremento implement changes in their production and marketing Sostenido de la Productividad y la Competitividad de (adopt an “export business model”) are more successful la Economía Nacional – 2015), requires evaluating and in entering and surviving in global markets. promoting programs that increase productivity and 23. A pilot conducted in Argentina was successful in competitiveness (especially in lagging regions). Fulfill- strengthening export managerial practices (Iacovone ing this requirement needs evidence such as an impact 2020). Although, its full impact on exports could not evaluation. be assessed due to the COVID-19 pandemic, the pilot Mexico: Entrepreneurship Ecosystem Diagnostic    71 Appendix 1. Location of ICT, Medical and Pharmaceutical, and Agroindustry Clusters Table A1.1. Main ICT clusters Share of Share of value State Municipality plants Share of labor added Baja California Mexicali 4.16 4.73 5.15 Baja California Tecate 2.34 1.08 0.86 Baja California Tijuana 12.21 13.92 9.98 Chihuahua Chihuahua 1.95 3.67 2.57 Chihuahua Juárez 8.31 14.55 11.68 Ciudad de México Iztapalapa 1.95 0.27 0.11 Ciudad de México Cuauhtémoc 1.95 0.09 0.10 Jalisco Guadalajara 2.73 0.61 0.99 Jalisco Tlajomulco de Zúñiga 1.82 3.34 3.00 Jalisco Tlaquepaque 1.95 0.24 0.20 Jalisco Zapopan 4.16 6.19 8.26 Nuevo León Apodaca 3.51 5.04 9.77 Nuevo León Monterrey 2.21 0.05 0.04 Puebla Puebla 1.69 0.04 0.05 Querétaro Querétaro 2.47 2.65 3.12 Sonora Nogales 3.25 3.26 2.62 Tamaulipas Matamoros 2.08 2.74 2.02 Tamaulipas Reynosa 3.64 8.00 6.56 Outside clusters 37.66 29.53 32.92 Total 100 100 100 Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: Clusters for each industry were found using a machine learning algorithm. The algorithm requires two main parame- ters—the radius and the minimum points. The radius determines the size of the neighborhood in which to look for firms in the same industry, and the minimum points parameter determines the minimum number of firms required in the neighborhood in order to be considered a cluster. The radius was set to 30 km. The minimum points were de- fined, separately, for each industry, and were set at the 90th percentile of the distribution of firms across municipali- ties that have firms in the respective industry. Firms on the border of the radius were not considered to belong to the cluster. The ICT industry comprises the NAICS codes: 3341 (Computer and Peripheral Equipment Manufacturing), 3344 (Semiconductor and Other Electronic Component Manufacturing), 3352 (Household Appliance Manufacturing), 334220 (Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing), and 334310 (Audio and Video Equipment Manufacturing). 72    Mexico: Entrepreneurship Ecosystem Diagnostic Table A1.2. Main pharmaceutical and medical equipment clusters Share of Share of value State name Municipality name plants Share of labor added Aguascalientes Aguascalientes 1.02 0.05 0.02 Baja California Mexicali 1.90 3.67 1.54 Baja California Tijuana 4.39 20.51 10.90 Coahuila de Zaragoza Torreón 0.75 0.06 0.03 Chiapas Tuxtla Gutiérrez 0.82 0.04 0.01 Chihuahua Chihuahua 1.16 2.20 0.78 Chihuahua Juárez 1.60 13.73 7.24 Ciudad de México Azcapotzalco 1.05 0.57 1.65 Ciudad de México Coyoacán 1.67 3.80 6.35 Ciudad de México Gustavo A. Madero 1.33 0.12 0.04 Ciudad de México Iztacalco 0.65 0.93 1.04 Ciudad de México Iztapalapa 2.72 1.28 1.38 Ciudad de México Álvaro Obregón 1.02 0.43 1.07 Ciudad de México Tláhuac 0.58 0.05 0.03 Ciudad de México Tlalpan 0.99 1.09 1.80 Ciudad de México Benito Juárez 2.65 1.70 2.34 Ciudad de México Cuauhtémoc 6.94 0.67 0.50 Ciudad de México Miguel Hidalgo 1.39 1.26 0.92 Ciudad de México Venustiano Carranza 0.65 0.10 0.31 Guanajuato Irapuato 0.82 0.06 0.02 Guanajuato León 2.04 0.31 0.21 Jalisco Guadalajara 4.45 3.14 4.09 Jalisco Tlaquepaque 0.85 1.03 0.43 Jalisco Zapopan 2.89 3.42 4.22 México Ecatepec de Morelos 1.33 0.08 0.04 México Naucalpan de Juárez 0.92 2.05 3.40 México Nezahualcóyotl 0.75 0.02 0.00 México Tlalnepantla de Baz 0.65 0.57 0.44 México Toluca 3.26 0.80 2.94 Michoacán de Ocampo Morelia 1.36 0.12 0.14 Morelos Cuernavaca 0.58 0.09 0.05 Morelos Jiutepec 1.02 2.15 4.68 Nayarit Tepic 0.88 0.04 0.00 Nuevo León Monterrey 2.24 0.42 0.18 Puebla Puebla 2.55 0.33 0.31 Mexico: Entrepreneurship Ecosystem Diagnostic    73 Share of Share of value State name Municipality name plants Share of labor added Querétaro Querétaro 1.46 0.71 6.76 San Luis Potosí San Luis Potosí 1.56 0.75 0.41 Sinaloa Culiacán 0.92 0.12 0.02 Sinaloa Mazatlán 0.65 0.01 0.00 Sonora Cajeme 0.58 0.05 0.04 Sonora Hermosillo 0.78 0.41 0.15 Tabasco Centro 1.19 0.03 0.00 Tamaulipas Río Bravo 0.71 0.02 0.01 Veracruz Xalapa 1.09 0.04 0.01 Yucatán Mérida 1.36 0.20 0.10 Outside clusters 29.85 30.74 33.35 Total 100 100 100 Source: WBG staff computations using data from the 2019 Mexican Economic Census (INEGI 2019). Note: Clusters for each industry were found using a machine learning algorithm. The algorithm requires two main parameters—the radius and the minimum points. The radius determines the size of the neighborhood to look for firms in the same industry, and the minimum points parameter determines the minimum number of firms required in the neighborhood to be considered a cluster. The radius was set to 30 km. The minimum points were defined separately for each industry, setting them at the 90th percentile of the distribution of firms across the municipalities that have firms in that industry. Firms on the border of the radius were not considered to belong to the cluster. The Pharmaceuticals and Medical Equipment industry comprises the NAICS codes: 3254 (Pharmaceutical and Medicine Manufacturing), 3391(Medical Equipment and Supplies Manufacturing), and 334519 (Other Measuring and Con- trolling Device Manufacturing). Table A1.3. Main agroindustry clusters Share of Share of value State Municipality plants Share of labor added Jalisco Guadalajara 2.01 4.54 2.70 México Cuautitlán Izcalli 0.29 3.14 8.45 México Ecatepec de Morelos 0.88 3.06 3.32 Chihuahua Chihuahua 0.67 3.05 1.58 Nuevo León Monterrey 0.54 2.88 1.92 Sinaloa Mazatlán 0.34 2.47 1.48 Sonora Hermosillo 0.61 2.30 5.53 Jalisco Tlaquepaque 0.60 1.78 0.24 Guanajuato Celaya 0.53 1.72 2.52 Guanajuato Irapuato 0.44 1.72 10.60 Aguascalientes Aguascalientes 1.07 1.69 1.85 Nuevo León Apodaca 0.19 1.67 1.70 Sinaloa Culiacán 0.77 1.52 1.52 74    Mexico: Entrepreneurship Ecosystem Diagnostic Share of Share of value State Municipality plants Share of labor added Durango Gómez Palacio 0.17 1.47 1.56 Sonora Navojoa 0.18 1.31 0.94 Jalisco Zapopan 0.96 1.26 0.94 Guanajuato León 1.12 0.85 1.10 México Tlalnepantla de Baz 0.40 0.84 0.29 Yucatán Mérida 0.50 0.79 0.53 Colima Manzanillo 0.14 0.78 0.23 México Nezahualcóyotl 0.81 0.78 0.27 Jalisco Lagos de Moreno 0.31 0.78 1.38 Chihuahua Juárez 0.36 0.73 0.88 Sonora Cajeme 0.39 0.70 0.38 Nuevo León Gral. Escobedo 0.14 0.67 0.38 Querétaro Querétaro 0.76 0.66 0.94 San Luis Potosí San Luis Potosí 0.47 0.66 0.55 Chiapas Tapachula 0.16 0.53 0.20 Tabasco Centro 0.43 0.18 0.07 Veracruz de Ignacio de la Xalapa 0.19 0.14 0.01 Llave Tabasco Comalcalco 0.17 0.14 0.18 Oaxaca Heroica Ciudad de Juchitán 0.81 0.13 0.03 de Zaragoza Chiapas Villaflores 0.51 0.12 0.02 Veracruz de Ignacio de la Tamalín 0.42 0.12 0.03 Llave Chiapas Tonalá 0.04 0.11 0.02 Guerrero Acapulco de Juárez 0.45 0.11 0.02 Chiapas Tuxtla Gutiérrez 0.31 0.10 0.01 Chiapas Mapastepec 0.16 0.09 0.04 Quintana Roo Benito Juárez 0.17 0.08 0.01 Chiapas Villa Corzo 0.22 0.07 0.07 Campeche Campeche 0.15 0.07 0.02 Oaxaca Oaxaca de Juárez 0.30 0.07 0.01 Veracruz de Ignacio de la Chinampa de Gorostiza 0.22 0.06 0.01 Llave Veracruz de Ignacio de la Tempoal 0.14 0.06 0.02 Llave Oaxaca San Juan Bautista Tuxtepec 0.20 0.05 0.01 Mexico: Entrepreneurship Ecosystem Diagnostic    75 Share of Share of value State Municipality plants Share of labor added Guerrero Chilapa de Álvarez 0.24 0.05 0.01 Veracruz de Ignacio de la Perote 0.23 0.05 0.02 Llave Oaxaca San Pedro Mixtepec -Dto. 0.28 0.05 0.01 22 - Guerrero Chilpancingo de los Bravo 0.16 0.04 0.01 Guerrero Técpan de Galeana 0.20 0.04 0.02 Oaxaca Villa de Tututepec de 0.29 0.04 0.01 Melchor Ocampo Tabasco Jalpa de Méndez 0.21 0.04 0.01 Oaxaca Santiago Pinotepa Nacional 0.27 0.04 0.01 Guerrero Benito Juárez 0.15 0.04 0.01 Oaxaca San Pablo Huixtepec 0.22 0.04 0.01 Chiapas Comitán de Domínguez 0.16 0.04 0.00 Guerrero Cuajinicuilapa 0.17 0.04 0.02 Veracruz de Ignacio de la Tierra Blanca 0.14 0.04 0.01 Llave Oaxaca Loma Bonita 0.15 0.03 0.01 Guerrero Eduardo Neri 0.18 0.03 0.01 Oaxaca Villa de Zaachila 0.15 0.03 0.00 Guerrero Ometepec 0.16 0.03 0.00 Chiapas Cintalapa 0.16 0.02 0.00 Chiapas La Concordia 0.15 0.02 0.00 Guerrero San Marcos 0.18 0.02 0.01 Chiapas Frontera Comalapa 0.15 0.02 0.00 In other clusters 29.41 19.16 17.92 Outside clusters 45.93 34.03 27.40 Total 100 100 100 Source: WBG staff computations, using data from the 2019 Mexican Economic Census (INEGI 2019). Note: Clusters for each industry were found using a machine learning algorithm. The algorithm requires two main parameters, the radius and the minimum points. The radius determines the size of the neighborhood in which to look for firms in the same industry, and the minimum points parameter determines the minimum number of firms required in the neighborhood to be considered a cluster. The radius was set to 30km. The minimum points were defined separately for each industry, setting them at the 90th percentile of the distribution of firms across the municipalities that have firms in that industry. Firms on the border of the radius were not considered to belong to the cluster. Agroindustry comprises the NAICS codes: 3115 (Dairy Product Manufacturing), 3116 (Animal Slaughtering and Processing), and 3117 (Seafood Product Preparation and Packaging). 76    Mexico: Entrepreneurship Ecosystem Diagnostic Appendix 2. Methodology and Mapped Initiatives The mapping of the entrepreneurship ecosystem services provided by the public program or the of public and non-public programs and initiatives non-public enabler, the mechanism of interven- that support the creation, growth, innovation, tion, the expected outcomes, the target beneficia- and internationalization of firms in Mexico, was ries, the budget allocation, and other key program assessed through two complementary question- features. When an interview was not possible, the naires with similar questions, but which differed information was gathered through on-line infor- in their scope. The first targeted public programs, mation. The tables below present (i) the summary while the second questionnaire targeted insti- of the public and non-public programs that were tutions and organizations such as universities, mapped, (ii) the list of the public programs that incubators, accelerators, venture capital funds, were mapped; and (iii) the list of the non-public industry associations, and other non-public programs that were mapped. enablers. These surveys collected data on the Table A2.1. Summary of the mapped public and non-public programs that foster firms’ creation, growth, innovation, and internationalization Public programs Non-public programs Nuevo Nuevo Federal Jalisco* León** Chiapas National Jalisco León Chiapas Responses to 33 15 15 13 7 6 10 3 questionnaire Based on online 32 18 1 1 7 8 5 5 information Total programs 65 33 16 14 14 14 15 8 mapped 128 51 Note: *Includes programs from the municipalities of Guadalajara and Zapopan, and from the government of the State of Jalisco. **Includes programs from the municipality of Monterrey, and from the government of the State of Nuevo León. Mexico: Entrepreneurship Ecosystem Diagnostic    77 Table A2.2. Public programs mapped at the federal level, and in the states of Chiapas, Jalisco, and Nuevo León Level of government Name of the program Institution in charge Source of information Federal Programa Emergente de Reactivación Secretaría de Economía Questionnaire Económica UDP-FOCIR Federal Metodología MESURA Secretaría de Economía Questionnaire Federal Portal de Acceso a Servicios Secretaría de Economía Questionnaire Electrónicos (PASE), MARCia y MARCia chatbot Federal Premio IMPI a la Innovación Mexicana Secretaría de Economía Questionnaire Federal Red de Mujeres Innovadoras y Secretaría de Economía Questionnaire Propiedad Industrial Federal Campaña precio diferencial de tarifas Secretaría de Economía Questionnaire como contribución del IMPI al Plan de Reactivación Económica 2022 Federal Proyecto intergubernamental de Secretaría de Economía Questionnaire asesorías a personas emprendedoras para el registro de marcas en el IMPI Federal Ruta para exportar Secretaría de Economía Questionnaire Federal Comercia MX Secretaría de Economía Questionnaire Federal Ruedas de negocio Secretaría de Economía Questionnaire Federal Exporta MX Secretaría de Economía Questionnaire Federal Constitución de Sociedades por Secretaría de Economía Questionnaire Acciones Simplificadas Federal Autorización de Uso de Denominación Secretaría de Economía Questionnaire o Razón Social Federal Programa de la Industria Secretaría de Economía Questionnaire Manufacturera, Maquiladora y de Servicios de Exportación (IMMEX) Federal Programa de Promoción Sectorial Secretaría de Economía Questionnaire (PROSEC) Federal Devolución de Impuestos a los Secretaría de Economía Questionnaire Exportadores (Drawback) Federal Servicio Nacional de Información de Secretaría de Economía Questionnaire Comercio Exterior Federal MIPYMES MX Secretaría de Economía Questionnaire Federal Padrón de Desarrolladoras de Secretaría de Economía Questionnaire Capacidades Empresariales Federal Impulso T-MEC Secretaría de Economía Questionnaire Federal Programa de Financiamiento a la Secretaría de Economía Questionnaire Mediana Empresa Agroalimentaria y Rural 78    Mexico: Entrepreneurship Ecosystem Diagnostic Level of government Name of the program Institution in charge Source of information Federal Programa de Financiamiento a la Secretaría de Economía Questionnaire Modernización de Empresas de los Sectores Agroalimentario y Rural Federal Telecomunicación PYME Secretaría de Economía Questionnaire Federal Programa Fit for Partnership con Secretaría de Economía Questionnaire Alemania Federal SheTrades Secretaría de Economía Questionnaire Federal Artesanal MX Secretaría de Economía Questionnaire Federal Programa de desarrollo del Ecosistema Secretaría de Economía Questionnaire de Capital Emprendedor Federal DNA en LogistiK Secretaría de Economía Questionnaire Federal Estándares de Competencia Secretaría de Economía Questionnaire Federal Premio Nacional de Logística Secretaría de Economía Questionnaire Federal Leaders in Innovation Fellowships Secretaría de Economía Questionnaire Federal Fondo de Coinversión de Capital Secretaría de Economía Questionnaire Semilla Federal Estímulo Fiscal a la Investigación y CONACYT Questionnaire Desarrollo de Tecnología Municipal Fideicomiso Fondo Guadalajara Gobierno de Guadalajara Questionnaire de Fomento Empresarial /Crédito Programa Emprende Municipal Centro Emprendemos Monterrey Gobierno de Monterrey Questionnaire Municipal Empleo Temporal Ahora Trabajamos Gobierno de Monterrey Questionnaire Juntos y Juntas Municipal Programa Integra PYMES Monterrey Gobierno de Monterrey Questionnaire Municipal Emprende ahora Monterrey Gobierno de Monterrey Questionnaire Municipal Proyectos Productivos Ahora Gobierno de Monterrey Questionnaire Emprendemos Juntos Municipal MTY Business Nights Gobierno de Monterrey Questionnaire Municipal Programa Feria Ahora Emprendemos Gobierno de Monterrey Questionnaire Juntas y Juntos Municipal Capacitación empresarial Gobierno de Monterrey Questionnaire Municipal Reto Zapopan Gobierno de Zapopan Questionnaire State Asesoría y vinculación en temas de Gobierno del Estado de Questionnaire emprendimiento Chiapas State Capacítate con ENKO (VISA) Gobierno del Estado de Questionnaire Chiapas State Crédito a Locatarios y Pequeños Gobierno del Estado de Questionnaire Comerciantes Chiapas Mexico: Entrepreneurship Ecosystem Diagnostic    79 Level of government Name of the program Institution in charge Source of information State Apoyo a empresas para el registro de Gobierno del Estado de Questionnaire marca ante el IMPI Chiapas State Creación de Tiendas en Líneas en Gobierno del Estado de Questionnaire Redes Sociales Chiapas State Marketplace Amazon 15 empresas Gobierno del Estado de Questionnaire Marca Chiapas Chiapas State Subsidio a la distribución Gobierno del Estado de Questionnaire Chiapas State Workshop en el marco del Foro de Gobierno del Estado de Questionnaire Economía Digital Chiapas State Programa de Formación Empresarial Gobierno del Estado de Questionnaire Chiapas State Programa de apoyo a empresas para Gobierno del Estado de Questionnaire obtener el código de barras Chiapas State Plan de Digitalización MIPyME Gobierno del Estado de Questionnaire (KOLAU) Chiapas State Tienda Oficial “Consume Chiapas” Gobierno del Estado de Questionnaire dentro de Mercado Libre Chiapas State Diseño de logo para empresas y Gobierno del Estado de Questionnaire etiquetas para productos Chiapas State Fomento Jalisciense a la Propiedad Gobierno del Estado de Questionnaire Intelectual Jalisco State Fortalecimiento de capital intelectual Gobierno del Estado de Questionnaire de empresas jaliscienses Jalisco State Fortalecimiento de invenciones y Gobierno del Estado de Questionnaire transferencia de tecnología para IES-CI Jalisco State De la ciencia al mercado Gobierno del Estado de Questionnaire Jalisco State Plataforma Abierta de Innovación y Gobierno del Estado de Questionnaire Desarrollo de Jalisco Jalisco State FOJAL Emprende Gobierno del Estado de Questionnaire Jalisco State FOJAL Avanza Gobierno del Estado de Questionnaire Jalisco State FOJAL Consolida Gobierno del Estado de Questionnaire Jalisco State FOJAL PyME Crédito Gobierno del Estado de Questionnaire Jalisco State FOJAL PyME Plus Gobierno del Estado de Questionnaire Jalisco State Financiamiento Verde Gobierno del Estado de Questionnaire Jalisco 80    Mexico: Entrepreneurship Ecosystem Diagnostic Level of government Name of the program Institution in charge Source of information State FOJAL PyME Garantías Gobierno del Estado de Questionnaire Jalisco State Yo, Mujer FOJAL Gobierno del Estado de Questionnaire Jalisco State Centro de Atención a PyMES Gobierno del Estado de Questionnaire Nuevo León State Impulso Nuevo León /FOCRECE Gobierno del Estado de Questionnaire Nuevo León State Programa de Asesoría y Capacitación Gobierno del Estado de Questionnaire a Pymes Nuevo León State Hecho en Nuevo León Gobierno del Estado de Questionnaire Nuevo León State Tecnolochicas Gobierno del Estado de Questionnaire Nuevo León State Ferias internacionales Gobierno del Estado de Questionnaire Nuevo León State Cadenas productivas Gobierno del Estado de Questionnaire Nuevo León Municipal Cuenta con Zapopan Gobierno de Zapopan https://www.zapopan.gob. mx/v3/node/3179 Municipal Laboratorio de Innovación de Zapopan Gobierno de Zapopan https://www.zapopan.gob. mx/linzapopan/ Federal Aprendiendo a exportar Secretaría de Economía https://www.snice.gob.mx/ cs/avi/snice/yaexporta.html Municipal Sinapsis Gobierno de Zapopan https://www.retozapopan. com.mx/sinapsis.php Federal- Textil, Vestido y Moda NAFIN https://www.nafin. development com/portalnf/content/ bank financiamiento/sector-textil- vestido-moda.html Federal- Contratos de Proveedores del NAFIN https://www.nafin. development Gobierno Federal com/portalnf/content/ bank financiamiento/proveedores- gob-federal.html Federal- Impulso Nafin + Estados NAFIN https://www.nafin. development com/portalnf/content/ bank financiamiento/impulso- nafin-estados.html Federal- Micro y Pequeña Empresa NAFIN https://www.nafin. development Transportista com/portalnf/content/ bank financiamiento/empresa- transportista.html Mexico: Entrepreneurship Ecosystem Diagnostic    81 Level of government Name of the program Institution in charge Source of information Federal- Empresas Constructoras NAFIN https://www.nafin. development com/portalnf/content/ bank financiamiento/empresas- constructoras.html Federal- Dispositivos médicos NAFIN https://www.nafin. development com/portalnf/content/ bank financiamiento/dispositivos- medicos.html Federal- Cuero y calzado NAFIN https://www.nafin. development com/portalnf/content/ bank financiamiento/cuero- calzado.html Federal- Financiamiento CSOLAR NAFIN https://www.nafin. development com/portalnf/content/ bank financiamiento/csolar.html Federal- Comercio electrónico NAFIN https://www.nafin. development com/portalnf/content/ bank financiamiento/comercio- electronico.html Federal- Desarrollo Empresarial y Asistencia NAFIN https://www.nafin.com/ development Técnica portalnf/content/desarrollo- bank empresarial-y-asistencia- tecnica/ ; https://www. nafintecapacita.com/ Federal- Fondo de Fondos NAFIN https://www.nafin.com/ development portalnf/content/banca-de- bank empresas/capital/fondo_ fondos.html Federal- Garantía Selectiva NAFIN https://www.nafin.com/ development portalnf/content/acciones- bank para-apoyar-la-economia/ garantia_selectiva.html State Fondo de Apoyo a Proyectos de Alto Gobierno del Estado de https://www.jalisco. Impacto a la Industria Creativa Digital Jalisco gob.mx/es/gobierno/ organismos/87313 https://ciudadcreativadigital. mx/wp-content/ uploads/2022/05/ Lineamientos- FAPAICD-230322.pdf Federal Incubación de Empresas Tecnológicas Secretaría de Educación https://www.ipn.mx/diet/ Pública /Instituto incubacion.html Politecnico Nacional Municipal Ser Mujer Zapopan Gobierno de Zapopan https://www. hechoenzapopan .mx/sermujer/?fbclid=IwAR2 UaJpnxZ2VfFhrTslgp9Rn WIHWxSatk 82    Mexico: Entrepreneurship Ecosystem Diagnostic Level of government Name of the program Institution in charge Source of information Municipal Hecho en Zapopan Gobierno de Zapopan https://www. hechoenzapopan.mx/ Federal Promoción y fomento del desarrollo y Secretaría de Economía https://www.gob.mx/se/ la innovación de los sectores industrial, acciones-y-programas/ comercial y de servicios programa-para-el-desarrollo- de-la-industria-de-software- prosoft-y-la-innovacion- 2016?state=published Federal Marca Hecho en México Secretaría de Economía https://www.gob.mx/ hechoenmexico#: ~:text=La%20Marca%20 Hecho%20en%20 M%C3%A9xico,ofrecer%20 bienes%20y%20 servicios%20competitivos. State PROINNJAL - Talento Altamente Gobierno del Estado de https://www.coecytjal. Especializado: Tecnologías y Artes Jalisco org.mx/Plataforma/ Audiovisuales CCD ArchivosApoyo/ROP%20 FOCYTJAL%2003-24-22-iii. pdf State FODECIJAL. Retos Sociales Gobierno del Estado de https://www.coecytjal. Jalisco org.mx/Plataforma/app/ views/2022/FODECIJAL- RS2022/CONVOCATORIA_ FODECIJAL_2022%20VF.pdf State Difusión y Divulgación de la Ciencia, Gobierno del Estado de https://www.coecytjal.org. la Tecnología y la Innovación (D&D). Jalisco mx/Plataforma/app/index. Fomento de vocaciones científicas y html#/DYD2022 la participación en foros de trasfondo científico-tecnológico Federal- Turismo PyMEX BANCOMEXT https://www.bancomext. development com/pymex/productos/ bank turismo-pymex/ Federal- Factoraje Internacional BANCOMEXT https://www.bancomext. development com/pymex/productos/ bank factoraje-internacional/ Federal- PyMEX Proveedoras del Sector BANCOMEXT https://www.bancomext. development Eléctrico-Electrónico com/pymex/productos/ bank electrico-electronico/ Federal- Impulso TMEC BANCOMEXT https://www.bancomext. development com/pymex/productos/ bank comercio-exterior-tmec/ Federal- PyMEX Proveedoras del Sector BANCOMEXT https://www.bancomext. development Automotriz com/pymex/productos/ bank automotriz/ Mexico: Entrepreneurship Ecosystem Diagnostic    83 Level of government Name of the program Institution in charge Source of information Federal- Cursos en línea. Instituto de Formación BANCOMEXT https://www.bancomext. development Financiera para el Comercio Exterior com/pymex/educacion- bank financiera/cursos/ Federal- IMPULSO MIPYME 30 – 50 BANCOMEXT https://www.bancomext. development com/productos-y- bank servicios/credito/impulso- mipyme-30-50 Federal- Exportadores, Sectores Estratégicos BANCOMEXT https://www.bancomext. development com/empresas-que- bank apoyamos/sectores- estrategicos Federal- Inversión extranjera BANCOMEXT https://www.bancomext. development com/empresas-que- bank apoyamos/inversion- extranjera Federal- Empresas que sustituyen BANCOMEXT https://www.bancomext. development importaciones com/empresas-que- bank apoyamos/importadores State JALISCO CRECE Gobierno del Estado de https://sedeco.jalisco.gob. Jalisco mx/temas-economicos/ programas-de-apoyo/jalisco- crece State Empresarias de Alto Impacto Gobierno del Estado de https://rumboalaigualdad. Jalisco jalisco.gob.mx/empresarias- de-alto-impacto-2022 State Red de Centros de Innovación Gobierno del Estado de https://redi.jalisco.gob.mx/ Jalisco State PROINNJAL – Reconveersión Digital Gobierno del Estado de https://misprogramas.jalisco. Jalisco gob.mx/programas/panel/ programa/779 State Programa Impulso a la Ciencia y el Gobierno del Estado de https://misprogramas.jalisco Desarrollo Tecnológico Jalisco .gob.mx/programas/panel /programa/777#:~:text=Se %20busca%20impulsar% 20la%20investigaci%C3% B3n,el%20bienestar%20 social%20y%20fortaleciendo State Programa de Fortalecimiento de Gobierno del Estado de https://misprogramas.jalisco. Cultura de Innovación. Jalisco gob.mx/programas/panel/ programa/720 State Premio Estatal de Innovación, Ciencia Gobierno del Estado de https://info.jalisco.gob.mx/ y Tecnología Jalisco gobierno/programas-apoyo/ modalidad/19060 State Aprende y Emprende Gobierno del Estado de https://ijech.chiapas. Chiapas gob.mx/convocatorias/ aprendeyemprende 84    Mexico: Entrepreneurship Ecosystem Diagnostic Level of government Name of the program Institution in charge Source of information Municipal Creativa GDL Gobierno de Guadalajara https://creativagdl.com/ https://www.instagram.com/ creativaguadalajara/?hl=es- la Federal Sistema de Apertura Rápida de Secretaría de Economía https://conamer.gob.mx Empresas (SARE) /certificaciones/ Certificaciones /?filter=SARE&valIsFilter=1 Federal Programas Nacionales Estratégicos CONACYT https://conacyt.mx/ (PRONACES) pronaces/ Federal Sistema de Centros Públicos de CONACYT https://conacyt.mx/conacyt Investigación /areas-del-conacyt/uasr /sistema-de-centros-de -investigacion/ Federal Autodiagnóstico Exportador Secretaría de Economía https://appsdesi.economia. gob.mx/autodiagnostico- exportador/ State PROINNJAL - Desarrollo Tecnológico Gobierno del Estado de http://www.coecytjal.org.mx/ Jalisco Plataforma/app/views/2021/ PROINNJAL2021/ CONVOCATORIA%20 PROINNJAL%202021%20 VF.pdf State Premio TECNOS Nuevo León 4.0 Gobierno del Estado de http://tecnos.nl.gob.mx/ Nuevo León http://retys.nl.gob.mx/ servicios/premio-tecnos- nuevo-leon-40 Federal- Cadenas Productivas NAFIN https://www.nafin.com/ development portalnf/content/acciones- bank para-apoyar-la-economia/ reactivacion_cadenas.html Federal- Financiamiento a Proveedores del NAFIN https://www.nafin.com/ development Gobierno Federal portalnf/content/acciones- bank para-apoyar-la-economia/ apoyo_proveedores.html Mexico: Entrepreneurship Ecosystem Diagnostic    85 Table A2.3. Non-public programs mapped at the federal level, and in the states of Chi- apas, Jalisco, and Nuevo León Source of Region Name of the Initiative or Program Institution/organization information National Academy for Women Entrepreneurs (AWE), Fundación México-Estados Questionnaire México Unidos para la Ciencia A.C. National Technology Business Accelerator (techBA) Fundación México-Estados Questionnaire Unidos para la Ciencia A.C. National ProPATENTA Fundación México-Estados Questionnaire Unidos para la Ciencia A.C. National Desarrollo Regional Fundación México-Estados Questionnaire Unidos para la Ciencia A.C. National Sistema de Asistencia Tecnológico Empresarial Fundación México-Estados Questionnaire Unidos para la Ciencia A.C. National Latam Impact Fund Fondo de Fondos Questionnaire National Fondos de Capital Privado socios de AMEXCAP AMEXCAP Questionnaire Nuevo León Plataforma INCmty Tec de Monterrey - INCMTY Questionnaire Nuevo León Skye Ventures Skye Group Questionnaire Nuevo León Premio Nacional de Ciencia de Datos CSOFT MTY Questionnaire Nuevo León Enlace de Oportunidades Comerciales CSOFT MTY Questionnaire Nuevo León My Own Business CSOFT MTY Questionnaire Nuevo León Venture Café Monterrey Venture Café Monterrey Questionnaire Nuevo León UNE, Vinculación Universidad-Empresa Universidad de Monterrrey, Questionnaire UDEM Nuevo León Programa Integral de Capacitación para JOVENES CAINTRA N.L: Questionnaire Emprendedores Nuevo León INIXAR Crowdfunding Platform INIXAR - Alianza Monetaria Questionnaire SA de CV Nuevo León Heineken Green Challenge HEINEKEN México Questionnaire Jalisco Oficina de Transferencia de Tecnología del CIATEJ Questionnaire CIATEJ Jalisco Foro para el desarrollo tecnológico y Pragmatec Questionnaire emprendimiento de dispositivos médicos en América Latina Jalisco Programa de Innovación en Jalisco PROINNJAL MATERIALES ILÍMITA S.A.P.I. Questionnaire Desarrollo de Proveedores 2021 DE C.V. Jalisco Programa virtual de Impulso a Emprendedores y MIND México Innovación y Questionnaire MiPyME´s Diseño A.C. Jalisco Célula, Talento Eugenio Galindo Villa Otero y Questionnaire asociados Jalisco Jalisco Talent Land Talent Network Mx SA de CV Questionnaire 86    Mexico: Entrepreneurship Ecosystem Diagnostic Source of Region Name of the Initiative or Program Institution/organization information Chiapas Modelo de Incubación: Emprender para Incubadora de EEVOC Questionnaire Desprender EFFORT, A.C. Chiapas Basecamp Chiapas 2022 Watson Institute, Building Questionnaire Health Project Chiapas Marca Chiapas Consejo Regulador Marca Questionnaire Chiapas National 500 Startups Latam Aceleradora Somos Lucha Online Fondo de Inversión information National Aceleradoras MassChallenge México MassChallenge México Online information National Fondos de VC de Etapa Avanzada Angel Ventures México Online information National Fondos Venture Capital de Etapa Semilla Trebol Capital Online information National Asociación de Emprendedores de México ASEM ASEM Online information National Fondos de VC de Etapa Avanzada IGNIA Online information National Corporate Venture Capital Wayra México Online information Nuevo León Fondos de VC de Etapa Avanzada Dalus Capital Online information Nuevo León FEMSA Ventures Corporate Venture Capital FEMSA Ventures Online information Nuevo León Corporate Venture Capital CEMEX Ventures Online information Nuevo León NEORIS NEORIS CEMEX Online information Nuevo León Monterrey Digital HUB Monterrey Digital HUB Online information Jalisco Fondos Venture Capital de Etapa Semilla Balero Online information Jalisco Fondos Venture Capital de Etapa Semilla Redwood Ventures Online information Jalisco Inversionistas Ángel Guadalajara Angel Investor Online Network information Jalisco Guadalajara Connectory por Bosch Bosch Online information Jalisco Premio Emprendedor COPARMEX Jalisco COPARMEX Jalisco Online information Jalisco Programa de Aceleración de Startups de fAIr LAC Jalisco, Tecnológico Online Inteligencia Artificial (PASIA) de Monterrey en Guadalajara information Mexico: Entrepreneurship Ecosystem Diagnostic    87 Source of Region Name of the Initiative or Program Institution/organization information Jalisco Carabela Angel Ventures Guadalajara Online information Jalisco Poligono Capital Polígono Capital Online information Chiapas Fondo por el Sureste de México #GoogleporMexico Online information Chiapas Foro Emprendedor Cacahoatán 2022 Foro emprendimiento Online Foro Emprendedor Tapachula 2021 information Chiapas Concurso de Emprendimiento Wortev: CHIAPAS Wortev Capital Online information Chiapas Incubadora de la Universidad de Ciencias y Artes UNICACH Online de Chiapas information Chiapas Incubadora de Negocios y Proyectos INCUSUR Universidad del Sur Online de la Universidad del Sur (UNISUR) information 88    Mexico: Entrepreneurship Ecosystem Diagnostic References Areti, Gkypali, James Love, and Stephen Roper. 2021. 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The goals of this report are to understand the obstacles that affect Mexico’s entrepreneur- ship ecosystems, and with that knowledge, inform the design of priority policies and programs that can overcome ecosystem obstacles. Mexican policymakers, both at the national and local levels, can influence the entrepreneurship ecosystem directly through policies and programs, and indirectly through the non-public ecosystem “enablers”, including business incubators, industry associations, venture capital funds, universities, and multinational companies. To understand entrepreneurship, this analysis drew on a new World Bank Group framework, multiple global and national data sources, and two surveys that were conducted in Mexico. These surveys covered public programs and institutions, as well as non-public enablers that support entrepreneurship at the national level, and in three states with diverse characteris- tics (Chiapas, Jalisco, and Nuevo León). This analysis also used the exact locations of firms to identify clusters of impactful entrepreneurship, and it assessed the roles and qualities of public programs, and of the enablers that are helping entrepreneurs to overcome market failures.