Integrity Under Pressure: What Mexican SMEs Tell Us About Compliance in Emerging Markets

The Role of Informality

Small and medium enterprises (SMEs) are part of Mexico’s economy. They operate in an environment where formal control systems exist alongside informal cash transactions, verbal agreements, and personal networks. Like many SMEs in emerging markets, Mexican SMEs must strive to maintain integrity while under pressure. For some, informality is a shortcut, but for SMEs, it’s a path to stay in business.

Operating as a formal business can be challenging. Mexican SMEs lack the resources and access to credit needed for growth. Bureaucratic red tape adds to this complexity, as it creates delays, establishes a role for fixers, and makes shortcuts that violate anti-corruption norms attractive. In this context, compliance is not only expensive; it is also optional.

Caught Between Corruption and Survival

Many Mexican SMEs navigate small ethical challenges daily - a delayed permit, suppliers seeking out flexible suppliers, or demanding an informal payment. These are not extreme cases but everyday challenges. Without formal compliance systems, many SMEs navigate these challenges on instinct. Refusing to agree to these informal methods of operation can result in losing access to the income a small business provides.

I recently connected with SMEs in Mexico and had the opportunity to discuss their challenges. I discovered that across Mexico, SMEs are choosing a different path, which serves as an example to SMEs within the region. Let’s look at what’s working in Mexico and imagine how Mexican SMEs can serve as an example to SMEs in Latin America.

1. Collective Action

   
   

   Mexican SMEs are learning the power of numbers and collaborating through trade organizations or business associations. Collective action allows SMEs to speak up as a group and decrease individual risk.

   
   

2. Lean Integrity Tools

   
   

   SMEs have developed tools with short, easy-to-follow codes of conduct and simplified know-your-customer checklists for suppliers, which rely on technology (e.g. WhatsApp channels) for communicating ethical concerns, and which do not require a full-blown compliance team.

   
   

3. Integrity Initiatives for SMEs

   
   

   Local chambers of commerce and nonprofit coalitions understand that SMEs are part of the economy and have begun collaborating to provide training designed specifically for SMEs.

   
   

Mexico as a Regional Mirror

Mexico has a unique context. However, the prevalence of informal systems, weak enforcement, and unclear boundaries between public/private interests are common challenges throughout Latin America. The decision on whether to pay a bribe or lose a deal is not exclusive to Mexico - it is a shared challenge.

Supporting SMEs in Mexico and the region involves creating an approach tailored for SMEs. Support means listening to their unique challenges, amplifying their efforts, and enabling SMEs to understand the long-term benefits of ethics for growth. In Mexico and the region, SMEs carry the greatest burden. Fortunately, they also hold the potential to drive change in Latin America.

Michele Crymes

Anti-Corruption and Governance Expert