By Xavier Hurtado
Since Enrique Peña Nieto assumed the presidency of Mexico in December 2012, there were different articles and reports talking about the Mexico’s moment showing trends and indicators at a very high level based on macroeconomics. Obviously, the information provided by different information sources is great. However, as business decision makers, one might wonder how to turn all of those macroeconomic publications and indicators into a window of opportunity for your business. Right?
To try to approach that challenge, let’s break the Mexico’s moment into three blocks and see businesses can benefit and possible pathways to capitalize this growth opportunity.
1. Mexico has implemented 17 structural reforms including labor, fiscal, education and energy amongst the most important ones.
Where is the opportunity for your business?
Just to mention an example, with the energetic reform is opening the doors for private investors to provide for different services, supplies or even to license oil & gas parts of the transformation process. Key dates to pay attention to: on September 17th 2014, round zero resolutions by the ministry of Energy will happen, opening the possibility for international companies to bid for different projects.
Then, between the first date and December 21st 2015, the state owned Oil Company PEMEX has to become a productive company for the state.
So, if you are in the energy business, these dates and challenges open a great window of opportunity for your company.
2. Mexico has 12 free trade agreements with access to 45 countries.
Where is the opportunity for your business?
Let’s review the case of a U.S. based medical device manufacturer that had clients in Europe and who lost their edge because of a 10 percent duty imposed as an entry barrier. They sent their production to Mexico. Not only did they save about 70 percent in labor costs, but also gained their competitive edge of getting rid of the duty thanks to the Free Trade Agreement between Mexico and the European Union.
So, if you are a manufacturer exporting to different countries, it would be good for your company to understand how those Free Trade Agreements and a very-competitive skilled labor cost can offer that edge one needs in front of your international clients and competitors.
3. Mexico’s foreign direct investment has grown in the last years in eight strategic industries. Let’s review some of the indicators that the Mexican Government Agency, PROMEXICO shows:
- In the Automotive industry, Mexico shifted from the 8th to the 5th place in the top-light vehicles exporter in the world. Additionally, Mexico is the 1st autoparts exporter for the U.S. market.
- Mexico is the 4th IT service provider worldwide and became the 2nd most preferred destination by software investors in Latin America.
- Mexico is the most competitive destination for software, video games, web and multimedia development in Latin America.
- Eight out of the top 10 multinational electronics manufacturers operate in Mexico.
- Mexico is the leading flat TV screen exporter in the world.
- Mexico is the 1st exporter of refrigerators with freezers internationally.
- Mexico is the cradle of chocolate and the largest exporter of organic coffee and beer.
- Mexico is the number one destination of aerospace foreign direct investment and it is in the top 10 aerospace countries.
- Mexico is the leading silver producer and exporter in the world.
- Mexico is the main receiver of investment for mining exploration in Latin America and the 4th at world level.
Most of the reports talking about these different indicators showing why companies have chose to invest in Mexico, like the number of engineers and technicians graduating each year, the number of days it takes to open a business, taxation programs, Free Trade Agreements, the total cost of doing business and so on. What those reports usually do not show, are the gaps in the industry that could become your new edge and window of business opportunity for growth.
So, where is the opportunity for your business?
As of today, the industries we mentioned have to import their direct supplies from other countries. Sometimes manufacturers in Mexico don’t have enough purchasing volume to attract one of those foreign suppliers to the region.
To approach this challenge, there have been some manufacturing associations and regional automotive, aerospace and electronics clusters that have brought together different manufacturers integrating a purchasing pool of common commodities and then, they have organized B2B events to attract international suppliers.
These were some of the findings out of that supply chain integration approach:
- As far as tooling, the manufacturing industry in Mexico imports more than $4 U.S. billion per year.
- If we combine machining and plastic injection molding, that yields a $1.5 US billions in annual purchasing.
- With a few large companies, we accounted for more than $500 U.S. million in forging purchasing per year.
The list of commodities and amounts in millions of dollars in annual purchasing goes on and on.
What can you do to determine if there is a business opportunity for you? The national manufacturing association INDEX will be organizing an event in November 2014 in Mexico City, bringing a purchasing pool of the top 22 most industrialized cities where you will be able to sit down with purchasing decision makers to offer your products and services. To learn more about the business opportunities organized in Mexico you can go to www.ManufacturingInMexico.com There are more components of the Mexico’s moment that we can try to dissect and find where there is an opportunity for your business.
One thing to keep in mind is that the growth in Mexico is not only triggered by domestic factors, but also two more components:
Age and size of the consumer market. There is a young population growing, which will have market growing needs, which is quite the opposite for the population of countries like Japan, Korea, Germany and other members of the European Union. Additionally, from Mexico you can serve the domestic market, the Latin America market and most importantly, the US consumer market that is still, the largest economy in the world.
Cost of doing business. If you want to serve the market in the American continent, you need a central location that helps you have competitive total cost equation. According to different agencies such as the Boston Consulting Group, AT Kearney, Alix Partners and KPMG, Mexico is the most competitive destination for manufacturing investment. Experience has shown us that manufacturing in Mexico is more than the sum of low-cost labor and logistics. More factors have to be added to the equation such as currency exchange rate, risk of intellectual property, world-class quality culture to have fully-efficient operations, inventory lead times and so on. This is where Mexico has turned out to be the most competitive choice for global companies. If you want to run a cost model simulator for your project in Mexico you can visit www.ManufacturingInMexico.com.
The Mexico moment can be your company’s moment if you dissect the news into business opportunities. If you want to get a closer look to real business opportunities, we recommend that you contact the industrial or business associations in Mexico like INDEX, INA, AMIA, AMPIP, FEMIA, CADELEC or regional cluster associations in key industries like automotive, aerospace, electronics or the one that best fits your type of company. We foresee sustained growth for the next years to come and the different supply chains will get integrated, whether it is by your company or your competitors. So, join the Mexico moment and capitalize the trend. To learn more go to www.ManufacturingInMexico.com. C
About Xavier Hurtado
Founder and Chief Marketing Officer of The Offshore Academy and Marketing Director of Aerospace, Automotive, Metal Mechanic and Manufacturing Clusters in Mexico. Soft landing and start up facilitator in Mexico with the American Industries Group. Author of the guides: How to do site selection in Mexico, Become more competitive by manufacturing in Mexico, How to find industrial real estate in Mexico and 10 things you should know before starting operations in Mexico. Go to www.XavierHurtado.com.