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Leapfrogging to High-Growth in Mexico

Jonathan Ortmans, President, Public Forum Institute

Even during this bruising recession, risk-taking entrepreneurs in the developing world seem to be seeing opportunities to leapfrog others and create advantage. And, as the Kauffman Foundation’s Carl Schramm recently argued in an article in Forbes magazine, I am not just talking about mobile technology in Africa.

The Economist will hold its “Change from the Bottom Up” Summit in Mexico City in October. The theme comes from the population’s impatience with true political reform, which has been slow, while many in the country argue that they can build a high-growth economy from the bottom up. This thinking probably comes in great part from observing a new generation of entrepreneurs who are turning enthusiasm into profitability.

Mexican high-impact entrepreneurs have started taking up roles normally left to the state, such as preventive healthcare. Take Endeavour entrepreneurs Morgan & Christian Guerra Gea, for example, who founded Previta to combat some of the deadliest diseases through mobile units and retail clinics. Previta provides affordable and convenient diagnostic tests, vaccinations and health management services. Another company CitiVox uses mobile and crowdsourcing technology to build the relationship between citizens and government, increasing civic engagement and government accountability and transparency. The young Mexican entrepreneurs behind CitiVox have already partnered with international organizations like the World Bank and the IDB, and the company is projected to move into at least 15 countries by 2013, reaching 15 million citizens.

Also take the case of recycling in Mexico, where the recycling mindset and recycling rates lag far behind those in Europe or the United States. Two entrepreneurs recognized a market with this. Their company, YoReciclo, makes its profits by selling the trash from companies and other institutions to material processors, such as plastic manufacturers and glass manufacturers, for reuse. What’s in it for YoReciclo’s client/material suppliers? Reduced waste collection fees. The company’s first customer increased the quantity of recycled materials by 900% over one year. YoReciclo’s founders, Luis Duarte and Hector Elizondo, will now be assisted by New Ventures Mexico, an organization that specializes in mentoring environmental SMEs and taking them to scale. And there are many more examples. For example, entrepreneur Alfredo Suárez Rivero has built a profitable business, AliBio, around Mexico’s agriculture and aquaculture industries which harnesses microbes to treat wastewater and reduce the use of chemicals in these industries.

Many believe that risk-taking and innovation in Mexico is currently fueled by the growing realization that they can no longer just rely on consumers in the US. Competition from Chinese low-cost manufacturers is pushing Mexico to focus more on innovation. Silicon Valley-based serial entrepreneur Cesar Salazar’s current venture, Mexican VC, thus focuses on funding and mentoring internet startups from his home country.

It certainly helps that Mexican pension funds are now allowed to invest in private equity. The number of new seed capital firms is taking off. This is beginning to challenge the traditional reality of Mexico as a country with predominantly low-risk, low value added endeavors that require minimum investments of capital.

Mexican entrepreneurs do face challenges beyond red tape and taxation. Many of them list security among their top expenses—investing in security guards, insurance, surveillance equipment, and alarms. But when asked during a Marketplace interview last March whether the drug cartel violence is hurting investments, Paul Ahlstrom, who runs the VC firm Alta Ventures Mexico, said it might actually be accelerating internal investment. For example, a VC-funded firm has been combating crime in the country by offering affordable private education, which attracts some of the unemployed youth who might otherwise find work with criminal gangs. Endeavor entrepreneurs Jorge Camil, Moís Cherem & Raúl Maldonado also found a way to target populations that have slipped through Mexico’s notoriously deficient public education system, especially in marginalized neighborhoods. They founded Enova, which designs and operates cost-effective educational centers. Since May 2009, with the support of the Secretary of the Treasury, Enova has opened 42 locations and graduated more than 14,000 students from its courses. They have also created an NGO intermediary, which assists in selecting and training teachers and developing course content.

After all, is that not what we love about entrepreneurs? In every problem, they see a gift in their hands. However, Mexico could do even more than counter violence, fight disease and help the environment. As the Marketplace report on Mexican VCs pointed out, Mexico is the second largest consumer of American exports. A boom in Mexican high-growth entrepreneurship could help the economic recovery in the U.S.

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