Mexico MSME ecommerce | Alliance for eTrade

How to Accelerate MSME Ecommerce in Mexico?

Kati Suominen, Founder and CEO of Nextrade Group; Technical Director of the Alliance for eTrade Development

Ecommerce – the sale and purchase of goods and services online – is booming in Mexico and its key export markets, opening new opportunities for Mexican micro, small, and medium-sized enterprises (MSMEs) to grow their sales, export, diversify their markets, and create new jobs. The U.S.-Mexico-Canada Agreement (USMCA) further expands opportunities for Mexican firms to use ecommerce and engage in trade. Ecommerce is also boosting growth in Mexican logistics, financial services, and IT sectors, and supporting Mexico’s economic recovery from the Covid-19 crisis.

However, little is to date known about how Mexican MSMEs engage in ecommerce, what barriers they face, and how public and private sector leaders can support MSMEs’ ecommerce, especially for export. The purpose of this new report is to help bridge these knowledge gaps. The study leverages sector-level census data, eTrade Alliance’s survey data on over 2,000 Mexican firms, the Alliance’s policy analytics, and the Alliance’s March 2021 Digital Trade Dialogue with Mexico to explore how Mexican MSMEs in different sectors and states are leveraging ecommerce to export and grow, and how Mexico can build on its ongoing response to Covid, work with MSMEs, and develop a national digital strategy to enable MSME ecommerce.

State of MSME Ecommerce in Mexico

The data yield a number of conclusions about the state, challenges, and opportunities for Mexican firms in ecommerce:

Notable shares of Mexican firms across sectors and B2B and B2C markets already use online channels intensively in their sales and purchases. Some 20-40 percent of Mexican firms in sectors such as electrical equipment manufacturing, freight and air transport, construction, and motion picture and video industries sell online through their websites, marketplaces, social media. A strong share of MSMEs in sectors such as transportation equipment and machinery manufacturing and air transport also use online channels for their purchases.

As in most other countries, there are five archetype MSMEs sellers based on their ecommerce maturity, with social sellers still dominating. Mexican online sellers include global marketplace sellers that sell on marketplaces such as eBay and Amazon; local and regional marketplace sellers that might use such as platforms as Linio and Mercado Libre; sellers with their own online stores; social sellers that use social media platforms to market their goods and services and interact with customers; and undigitized offline sellers. Most Mexican MSMEs, especially micro enterprises in B2C sectors, are social sellers and many still transact in cash, but especially the more urban and larger MSMEs are already using regional and global online marketplaces.

Mexican MSMEs have scored important gains from ecommerce in terms of new clients, higher revenues, greater profitability, and new export opportunities. Marketplace sellers do particularly well and outperform offline sellers and social sellers – they derive a strong share of their revenues from online sales, export, and grow rapidly. Their performance is supported by their use of digital technologies such as cloud computing and ERP systems that enable them to automate their workstreams, and online services for the various steps in their ecommerce sales cycles, from procurement to financing, payments, and fulfillment. These firms also benefit Mexico’s vibrant upstream ecosystems of IT, Fintech, and logistics services.

Mexican MSMEs still face challenges to doing ecommerce and cross-border ecommerce, in particular. For mature online sellers that engage in trade, customs procedures, market access issues, and international delivery costs are especially challenging; these firms also struggle to compete for talent and maintain their online stores. Social sellers report challenges with customs procedures especially in inbound trade, as well as with cybersecurity, cross-border payments, and funding their digital transformation.

There are no meaningful differences between comparable women- and men-led firms in the use of ecommerce, online sales, or export performance – but there are considerable regional disparities, correlated with regional development levels, in Mexican firms’ ecommerce use and gains from ecommerce. MSMEs in urban areas and the more prosperous northern states, especially in Nuevo León, are likelier to sell online than are firms in the poorer Southern states such as Guerrero, Oaxaca and Chiapas or firms in rural areas devoid of technical talent and logistics and IT services available in first-tier cities.

Mexican MSMEs look to invest significantly in ecommerce capabilities in 2021, and call for support with digital marketing and high-quality connections. Covid-19 has only cemented Mexican MSMEs’ resolve to invest in ecommerce capabilities, better internet connections, and digital payments. Marketplace sellers are especially eager to grow their online sales further and to export, especially to the U.S. market. To grow their ecommerce businesses, Mexican MSMEs want above all better digital marketing and ecommerce capabilities, digital identities that cement trust with online buyers, better internet connections, and more knowledge about doing ecommerce.

Path forward: policy and technology solutions to promote Mexican MSMEs’ ecommerce

Mexico has made important progress in the past few years in adopting policies conducive to MSMEs’ ecommerce. The eTrade Alliance’s comparative policy mapping of the adoption of 130 policies in 10 major policy domains across 52 emerging markets and developing countries places Mexico in the top quartile of countries with policies conducive to MSME ecommerce, along with such Latin American economies as Chile, Brazil, and Costa Rica.[i] Thanks to Mexico’s work on forming trade agreements over the past 30 years, Mexican firms are in an enviable position to export and import duty-free with the leading world markets. By way of some of its flagship trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) of 2018 and USMCA ratified in 2020, Mexico has also made important commitments to accelerate digital integration with major world markets and enable data privacy, cross-border data transfer, and duty-free treatment for digital goods. The government is also working to bring digital services such as Fintechs, telemedicine, and remote schooling to bridge stubborn regional and gender disparities.

As Mexico continues working to promote MSME ecommerce, it can grow both its extensive and intensive margins – increase the number of MSMEs engaged in ecommerce, especially via regional and global marketplaces that connect MSMEs to hundreds of millions of buyers around the world; and grow existing online seller MSMEs’ ecommerce sales and exports. To attain these objectives, Mexico can consider next generation policies and good practices adopted by its OECD peers. For example:

Provide scalable online capacity-building and financing for social sellers to build online stores and onboard marketplaces. Social sellers can be offered scalable online courses customized with AI-driven approaches, to learn step-by-step to build their own online stores and to start selling online, and to select appropriate marketplaces for their offerings and price points. Regtech solutions can helps scale support for MSMEs’ to understand and comply with market access rules in foreign markets, removing one of the biggest challenges for Mexican marketplace seller MSMEs to export, the lack of customized information market access requirements in their export markets.

Support MSMEs’ digital transformation and use of new technologies. Mexican government agencies can usefully partner with local and global technology companies that can help MSMEs learn about, test, and acquire technologies and solutions. The public sector could also step in and co-finance firms’ digital transformation initiatives, through public-private digital transformation funds.

Use technology to accelerate customs clearance and ecommerce logistics. Mexico has made significant strides in trade facilitation and adopting technologies such as AI and blockchain to accelerate import and export processes. An exciting next step could be to learn from Singapore, Japan, and Thailand in creating national trade platforms – essentially “turbocharged” single windows that enable MSME traders to comply with market access requirements and secure G2B and B2B trade services for their trade operations. The growth of ecommerce is also highlighting the need for digitized, smart airports and logistics networks, and for further automation of the many “handshakes”, document exchanges, and payment transactions among players in logistics supply chains.

Use digitization and ecommerce to create new flexibilities in traditional supply chains. COVID-19 was a major shock on Mexican supply chains, prompting manufactures and producers to seek new flexibilities and reconfigurable supply chains. Ecommerce and digitization of supply chains opens entirely new flexibilities for Mexican firms to identify and vet new suppliers; additive manufacturing, telefacturing, and virtual inventories can further cushion against supply shocks, reduce inventory management costs, and lower lead times.

Leverage Fintechs and guarantees to broaden online MSME access to working capital. An important concern for Mexican firms that seek to engage in ecommerce is access to fast-disbursing working capital loans they need to fulfill orders received online. As the next step, Mexico can further enable lending by Fintechs to a broader set of online seller MSMEs through scaling awareness-building about Fintechs especially with MSMEs in smaller cities, and offering loan guarantees that could enable Fintechs to lend to a broader set of firms.

Promote digital payments. There are important opportunities to expand MSMEs’ access to electronic payment solutions. Mexico could further build on the Cobro Digital (CoDi) payment platform by following the example of Brazilian Central Bank’s Pix, an instant payment solution that works well among banks, banks and Fintechs, and Fintechs and payment service providers.

To build trust in the online economy, Mexico can also foster cybersecurity, adopt a corporate digital identity, and promote orderly data transfer under the APEC Cross-Border Privacy Rules (CBPR) System.

An equally critical question as to “what” to do to enable MSMEs in ecommerce is “how” to do it. Mexico can support its enabling environment for ecommerce through public-private partnerships that support MSMEs’ digital transformation; engagement with state and local governments in ecommerce development; and using USMCA proactively to enable Mexican MSMEs’ transact especially with U.S. customers and vendors. The SME Committee established in the USMCA could helpfully be used to promote North American digital integration and activities that enable MSMEs to engage in ecommerce across the North American region.

The author’s views do not necessarily reflect the views of the United States Agency for International Development or the United States Government or any of the eTrade Alliance members. The author would like to thank Erica Vambell for research assistance and Victoria Albanesi for constructive comments.