Mexico Business Review 2018 by Mexico Business Publishing

2018

“Our country is transforming its economic structures, taking advantage of all its capacities and fulfilling its true potential” Enrique Peña Nieto, President of the United States of Mexico

2018 Despite bumps along the way, Mexico took further steps in 2017 on its path toward greater prosperity. The countryâ&#x20AC;&#x2122;s central bank lifted its growth forecast for the year to between 2.0 percent and 2.5 percent. It had previously expected a 1.5-2.5 percent expansion. The optimism flies in the face of the uncertainty that plagued the country at the start of the year. At that point, rising US protectionism, a weakening peso and higher fuel prices had put a cloud firmly over the countryâ&#x20AC;&#x2122;s economy. But you know what they say about clouds. The silver lining is the awakening effect these early difficulties have had on both the public and private sectors. When the US threatened to derail NAFTA, the first reaction south of the border was a ringing of hands accompanied by a rise in nationalism. But calmer minds determined that this could be just what the country needs. It is high time, many believe, for Mexico to reconsider its alliances and broaden its reach. With numerous commercial agreements already in hand, the conclusion of many industry insiders, both in the public and private sectors, is that now is the time to diversify and modernize. In the opinion of diverse political leaders and businesspeople, the dependence on a single commercial partner is simply no longer sustainable. The goal to diversify goes hand in hand with the need to modernize. Industries such as automotive and aerospace are racing to implement advancements that are reducing costs and improving performance, but other sectors are lagging due to lack of investment and competition. Still, the implementation of new technologies in sectors such as agribusiness, health, energy and oil and gas, could be game changers. While opportunities abound, the country also has its fair share of challenges to sort out. In particular, investors are wary of what the 2018 presidential elections will bring.

It is against this backdrop that the inaugural edition of Mexico Business Review 2018 is presented, offering a broad vision of the economy, with success stories, new projects and areas of opportunity. Through 14 chapters, the economy and its major players are brought to light, showcasing Mexicoâ&#x20AC;&#x2122;s offer amid a murky global environment.

ALL RIGHTS RESERVED ÂŠ Mexico Business Publications S.A. de C.V., 2017. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Mexico Business Publication S.A. de C.V. Mexico Business Review is a registered trademark.

The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.

ISBN: 978-0-9993108-5-4

TABLE OF CONTENTS

ENTREPRENEURS & SMEs

FINANCE & BANKING

TECHNOLOGY & TELECOMS

FOOD & AGRIBUSINESS

TOURISM

OIL & GAS

MEXICO, THE ROAD TO STABILITY

MEXICOâ&#x20AC;&#x2122;S LEADERS

Supplement

ENERGY

MINING

INFRASTRUCTURE & SUSTAINABILITY

AUTOMOTIVE & MOBILITY

AVIATION & AEROSPACE

HEALTH

DOING BUSINESS IN MEXICO

BMV, Mexico City

MEXICO’S LEADERS

Mexico’s participation in and importance on the world’s economy has steadily gained steam over the past decade. While there are several factors to consider when analyzing the country’s climb in world economic rankings, its entrepreneurial tradition cannot be factored out. The many advantages Mexico offers combined with a vibrant and dynamic environment have helped to attract some of the world’s most influential companies and businessmen. Global companies, such as Google, Facebook and Citibanamex, have made Mexico a cornerstone of their global operations, dedicating important resources to develop internal markets and further operations. Mexico not only hosts international companies, but has also witnessed the development of domestic businesses from a local to a global scale.

The past few years have also witnessed a radical transformation of the Mexican entrepreneurial and economic ecosystem. Reforms have permitted the country to breed a new environment wherein innovation is favored. Going forward, the challenge remains to attract more investment and foster the growth of Mexican companies to a global level. More importantly, the priorities for Mexico’s leaders from the private and public sectors include transferring and permeating the success of the business elite to a growing middle class.

CHAPTER 1: MEXICO’S LEADERS 8

ANALYSIS: Plateful of Uncertainty, Optimism

GUEST ARTICLE: Enrique Peña Nieto, President of Mexico

VIEW FROM THE TOP: Ildefonso Guajardo, Minister of Economy

EXPERT OPINION: José Antonio González Anaya, PEMEX

VIEW FROM THE TOP: Ernesto Torres, Citibanamex

VIEW FROM THE TOP: María Teresa Arnal, Google Mexico

VIEW FROM THE TOP: Jorge Ruiz, Facebook Mexico and Central America

VIEW FROM THE TOP: Pablo Azcárraga, Grupo Posadas

VIEW FROM THE TOP: Oscar González, Americas Mining Corporation

VIEW FROM THE TOP: Octavio Alvídrez, Fresnillo

VIEW FROM THE TOP: Antonio Suárez, Grupomar

VIEW FROM THE TOP: Gerardo Gutiérrez, ZEE

ANALYSIS

PLATEFUL OF UNCERTAINTY, OPTIMISM Mexico’s business leaders have had a plateful of uncertainty to digest in 2017, with more of the same expected in 2018 when the country holds presidential elections. Yet, despite the dissonance, opportunities abound and optimism reigns within the business community implemented by the US Federal Reserve had led to a gradual

administration of President Enrique Peña Nieto opened the

increase in dollar strength against its Mexican counterpart

door to new investment possibilities, allowing the revamping

but the pre-election protectionist rhetoric and subsequent

of strategic sectors that had been neglected, such as energy

election of real-estate billionaire Donald Trump to the White

and oil and gas. This continued in 2017 but external politicking,

House threw a wrench in the system. Starting in 2016, the

including the renegotiation of NAFTA, ensured an unsteady

peso slid from MX$17.35 to MX$20.71, peaking in Jan. 2017

ride throughout the year.

after Trump’s inauguration at MX$21.9.

According to the World Bank, Mexico ranks 15th among the

But whereas in the past crisis would follow the peso’s slide,

world’s economies, with a US$1.04 trillion GDP at end of 2016.

this time around has been much different. Despite some

The International Monetary Fund (IMF) estimates Mexico's

nervousness about the direction of US policy and its impact

2017 GDP will rise 2.1 percent, pumping up its April forecast

on Mexico and the peso, Carlos Rojo, CEO of Grupo Financiero

by 0.4 percent. Mexico’s expected growth is well above the

Interacciones, says the latest exchange rate ride has become

average for Latin America, which is forecast to advance at a 1.2

an opportunity. “All the movements we have seen in the

percent clip. Among the reasons for upward expectations, the

exchange rate have translated into competitiveness,” he says.

IMF notes that despite the uncertainty generated by NAFTA’s renegotiation and a downward revision for US economic

DOUBLE-EDGED SWORD

activity, Mexico’s economic performance for 1Q17 was better

While a weaker peso has favored exports, Banxico has warned

than expected.

that it has also impacted inflation. 2015 ended with recordlow inflation of 2.13 percent but in 2017 alone it has shot up

In the 1990s, exchange rates between the peso and the

to 6.66 percent. Higher fuel prices have had a significant

US dollar were the main thermometer of the economy.

impact, but the increase in prices associated with an expensive

Sudden devaluations meant that an economic crisis was

dollar have taken its toll in inflation. Still, the fact that 2017

down the road. Such was the case in 1982 and 1994, when

has been a complicated year does not mean that 2018 is

accumulated devaluation of the peso hit 470 percent and 44

bound to repeat the same story. Banxico’s September 2017

percent respectively. These devaluations were followed by

Expectations of Specialists in the Private Sector Economy

an economic crisis in both instances. While it cannot be said

Survey says that 2017 is expected to end with inflation values

that the 21st century has been without upheaval, the US-peso

close to 6.30 percent. When asked about 2018, most experts

exchange rate prior to the 2008-09 financial crisis averaged

believe inflation will fall by 3.79 percent, with an exchange

MX$10.41. Global economic dynamics and the policies

rate of MX$18.15 by the end of 2018. Despite inflation and

AVERAGE MEXICAN PESO/USDOLLAR DOLLAREXCHANGE EXCHANGE RATE YEARS AVERAGE MEXICAN PESO/US RATEIN INTHE THEPAST PASTTWO TWO YEARS 22 21 20

19.2*

19.5 18.5

18.5

18.1

16.5 16

15.4

*Estimated forecast Source: Banxico

*Nov 2017

Sep 2017

Jul 2017

May 2017

Mar 2017

Jan 2017

Nov 2016

Sep 2016

Jul 2016

May 2016

Mar 2016

Jan 2016

Nov 2015

Sep 2015

Jul 2015

May 2015

Mar 2015

14.7

Jan 2015

The implementation of structural reforms early in the

a fluctuating exchange rate, most business leaders believe

Managing Director, says the Telecommunication Reform has

that the country’s macroeconomic foundations are among its

allowed a more dynamic market. “It allowed competition and

best assets. “When it comes to managing the macroeconomic

lower prices in the market,” he suggests.

foundations of the country, authorities are doing a good job. Banxico is taking appropriate measures and public finances

For all the good the reforms are doing in terms of investment,

are under control,” says Reynaldo Vizcarra-Méndez, National

an improved regulatory framework is needed to ensure

Managing Partner of Baker McKenzie.

competitiveness and judicial certainty. “The Ministry of Economy has implemented several measures to ease

The country’s top business leaders believe that Mexico offers

doing business in Mexico,” says Guajardo. “For example, it

other advantages such as its demographic bonus. Nuno Matos,

has worked to reduce regulations and facilitate investment

CEO of HSBC Mexico, says that having a large population

in sectors where FDI was previously restricted, such as

allows Mexico to reduce its dependence on exports. “With

telecommunications and energy; it has increased accessibility

a population of 125 million and a relevant demographic

and transparency at the Public Registry of Commerce and

advantage, Mexico has the opportunity to develop its internal

Property and has promoted the use of electronic platforms

market.” Ernesto Torres, CEO of Citibanamex, says that in

to ease processes related to FDI registry.”

addition to its demographic bonus, it is important to consider the population’s purchasing power. “There are many elements

DIVERSIFY, DIVERSIFY, DIVERSIFY

that make Mexico one of the countries with the best growth

After NAFTA came into effect in 1994, Mexico became host

prospectives among emerging markets, for example, a large

to several companies eager to export production to the US,

and dynamic internal market. According to the World Bank,

taking advantage of the one-of-a-kind agreement. Almost

the average income of Mexico’s population is medium high,

24 years later, the country’s commercial relationship with the

which creates great opportunities.”

US is no longer the sole reason for attracting companies from across the world, which is why some suggests the potential

A COUNTRY OF REFORMS

changes in NAFTA, or even its demise, can be weathered. “The

After President Peña Nieto took office in 2012, he quickly

investments made in Mexico by the likes of Audi or BMW are

moved to introduce a package of reforms that would reshape

not only aimed at the US market but worldwide. This shows

much of the country’s industry. Under the Pacto por México

that even though NAFTA is important, it is not everything,”

(Pact for Mexico) moto, congressmen approved the series of

says Edmund Duckwitz, President of the German-Mexican

reforms aimed at modernizing some of the country’s most

Chamber of Commerce and Industry (CAMEXA).

strategic industries. The reforms were applauded by the private sector for their potential to modernize the country

Mexico has a network of 12 free-trade agreements with 46

and change the prospects for sectors that had been neglected

countries, 32 agreements for the Promotion and Reciprocal

in terms of investment due to the lack of participation from

Protection of Investments with 33 countries and nine

the private sector. Vizcarra-Méndez says that the reforms

agreements of limited scope. The prospect of losing the

might be “one of the greatest achievements of the present

treaty with Mexico's largest trade partner is a headache

administration,” and believes they are among the reasons for

but the business community agrees that changes will force

the country’s economic prospects. “Without them we would

the country to broaden its horizons. “The biggest issue in

not have such a positive growth outlook.” IMF expects that full

the market is uncertainty. Even though the scenery is very

implementation of structural reforms will lead to an increase

challenging, it will bring us a historic opportunity to move out

in real GDP of 2.7 percent in the medium-term.

of the comfort zone in which we settled years ago with the US,” says Roberto Cabrera, Managing Partner of Industries

In addition to providing a positive image of the country,

and Markets of KPMG. Among the factors that led to such

Ildefonso Guajardo, Minister of Economy, says that the

comfort, Cabrera lists not only NAFTA but the large Mexican

reforms are acting as a catalyst for new investments. “The

community that lives in the US. “That comfort zone has also

set of structural reforms carried out by President Peña Nieto’s

made us tolerate situations like bad administrations and

administration have paved the way to attract domestic and

corruption, so the current scenario is full of opportunities.”

foreign investments in strategic sectors,” he says. Gerardo Familiar, President of the Chemours Company, believes the

Breaking bad habits is not easy, and in the case of Mexico,

reforms offer particularly interesting opportunities in the oil

weakening its relationship with the US might be easier said

and gas sector. “Thanks to the Energy Reform, the oil and

than done. Still, there are a number of markets where Mexico

gas industry will generate an economic boom in the country

could turn its attention. “The first approach and simplest

in the coming years.” Energy was not the only industry to

should be Latin America. A second target should be Europe

benefit from the reforms. Legislative changes also touched

because of its economic potential and size. Finally, a third

the telecommunications segment. Pablo Coballasi, PC Capital

target could be Asia. Countries like China are complicated

to do business with but the current situation is making China

and announced his intention to renegotiate or even drop out

look at us,” says Cabrera.

NAFTA. The declarations raised a red flag among the business community, but after a storm, calm usually settles in. “For

The government also believes that the need exists to look

Mexico, the US market is important but Mexico is also very

elsewhere for partners. “President Peña Nieto’s administration

important for the US. It is completely inaccurate to say that

expects to diversify Mexico’s trade agenda with potential

NAFTA only benefits Mexico,” says Duckwitz.

markets,” explains Guajardo. To do this, a number of actions

have been put in place, such as strengthening commercial

Few believe that an outright termination of NAFTA will occur.

ties with the European continent and Latin America. “We are

“Our view is clear: there will be a NAFTA 2.0. We believe there

modernizing our 15-year-old trade agreements with both the

will be some changes in rules of origin and labor standards

EU and the European Free Trade Association countries. In

and we will see the incorporation of sectors such as energy

Latin America, we are deepening existing agreements with

and e-commerce,” says Matos. Still, the important thing is to

Brazil and Argentina and the Pacific Alliance,” says Guajardo.

remain calm. “We sometimes forget that we are dealing with a giant and that we need to be really smart about how we

While the NAFTA renegotiation has been marked by

handle the renegotiation,” says Vizcarra-Méndez. Negotiations

belligerent speech from President Trump, Duckwitz says that

were expected to conclude before the end of 2017 but over

renegotiation with the European Union obeys simply to a

the months it has become clear that they will carry into

matter of updating the conditions to present needs. “There will

2018. “The renegotiation will have to unfold at its own pace.

not be any major changes related to the economies of both

It would be unfortunate if the timetable were affixed to the

regions. This treaty already encompasses several important

2018 Mexican presidential elections but US and Mexican

sectors; however, there were many others that were left out of

presidential elections are merely junctures and they should

the original agreement, such as the agricultural sector, which

not distract from the agenda,” adds Vizcarra-Méndez.

will be included with this modernization.” It is important to note that NAFTA’s third particpant, Canada, Although Europe and Latin America offer significant

also plays a significant role in Mexico’s economy. “Mexico

opportunities for the country, Guajardo says that the Asian-

has achieved a lot thanks to NAFTA but also thanks to the

Pacific region stands out. “The Asia-Pacific region is a priority

bilateral and trilateral relationships of the North American

for Mexico. However, since TPP’s entry into force is uncertain,

bloc. NAFTA has been a keystone of the trilateral relationship

Mexico is exploring alternate paths.” To this end, the category

but the economies are so close and complementary that the

of Associate State of the Pacific Alliance was added in March

relationship will continue regardless of what happens with

2017 in an attempt to negotiate more trade agreements with

NAFTA,” says Raul Martínez-Ostos, Chairman of the Board

countries in the Asia-Pacific region. “Australia, Canada, New

and Director General of Grupo Financiero Barclays México.

Zealand and Singapore are the first four candidates to become

Regardless of the outcome, most business leaders agree that

Associate States of the Pacific Alliance,” says Guajardo.

investments are here to stay. Grupo Financiero Interacciones’ Rojo says: “People investing know they are here for the long

A WORLD WITHOUT NAFTA

run and they understand that what the country is experiencing

Should NAFTA be terminated, what would happen to Mexico?

now is a volatile process, but structurally speaking, the country

The question has been going around ever since Trump said

is in good shape and the reforms, will completely change the

that “Mexico has taken advantage of the US for long enough”

face of the country.”

MEXICO’S WORLD OUTPUT AND PROJECTIONS MEXICO’S ANNUAL GDP GROWTH (percentage) 5.5

5.1

4.5 3.5 2.5

2.6

2.3

1.5

2.6

2.7

2.3

2.1

1.9

2016

2017

2018

1.4

0.5 -0.5 -1.5 -2.5 -3.5 -4.5 -5.5

-4.7 19982008

Source: IMF

2009

2010

2011

2012

2013

2014

2015

2022

GUEST ARTICLE

BUILDING A PROSPEROUS MEXICO ENRIQUE PEÑA NIETO President of Mexico

When my administration first started, we noticed that the

from the center and northern regions. Their objective is to

Mexican economy was growing at levels below its potential,

trigger new development hubs in regions that are lagging

with existing limits for productivity, investment and

behind economically. We are also promoting productivity,

innovation.

competitiveness and balanced regional development with the expansion and improvement of highways, railroads, ports

To overcome these challenges and guarantee improved living

and airport infrastructure.

conditions for the Mexican people, we identified the actions that we needed to take on four different fronts: implement

Due to the ensuing results from these efforts, we are sure

structural changes to eliminate legal and institutional barriers;

that we are going in the right direction. Our country is

consolidate the country’s macroeconomic stability; generate

transforming its economic structures, taking advantage of all

a new economic promotion policy; and promote a more

its capacities and fulfilling its true potential. Today, Mexico is

balanced regional development.

recognized as a strong, competitive and open nation. Mexican families are beginning to reap the benefits generated by

From the first moment, we bolstered measures to transform

the structural changes that have taken place and we see a

the quality of education that kids receive, to increase

prosperous future for them.

competition and to generate new investment opportunities. My administration also promoted changes that introduced

For all the positive changes that have taken place, further

a new legal framework that will provide prompt, timely,

positive results will follow in the coming months and years.

expedited and standardized justice across the country.

That is why it is utterly necessary to continue working to maintain the country’s macroeconomic stability, fully

Despite a complex international environment, the Mexican

implement structural changes and consolidate the country’s

economy is growing at rates above 2.1 percent, surpassing the

infrastructure projects. This will allow us to improve the

growth registered in the previous two administrations. Our

economy of Mexican families and generate an environment

country is attracting investments and generating employment

in which no one is left behind.

as never before. During the present administration, the country has received over US$156 billion in Foreign Direct Investment and for the first time in history, we are about to reach 3 million new formal jobs generated in a presidential administration. Mexico continues to break records in manufacturing and agricultural exports, while improving its position as a global tourist destination. According to the World Tourism Organization, in only three years Mexico went from 15th to eighth place in terms of international tourist arrivals. This improvement is the result of an integral strategy of diversifying destinations and increasing competitiveness, which has consolidated the sector as an engine for economic growth, employment and well-being for Mexican families.

TIMELINE OF REFORMS July 1, 2012 December 1, 2012

Peña Nieto is sworn in as Mexico’s 57th President

December 2, 2012

Pacto por México is signed by the President and the leaders of the country’s main political parties

February 25, 2013

The Education Reform is enacted

June 10, 2013 June 11, 2013 October 31, 2013 December 20, 2013 January 9, 2014

The Telecommunications and Broadcasting Reforms is proclaimed by the President The Economic Competition Reform is enacted The Tax Reform is approved The Energy Reform is proclaimed by the President The Financial Reform is enacted by the President

January 31, 2014

The Political Reform is proclaimed by the President

February 7, 2014

The Transparency Reform is enacted by the President

The Special Economic Zones were created to help reduce the inequality gaps that divide the southern part of the country

Enrique Peña Nieto wins Mexico’s Presidential Elections

VIEW FROM THE TOP

ENSURING MEXICO’S INTERNATIONAL COMPETITIVENESS ILDEFONSO GUAJARDO Minister of Economy

Q: How is the Ministry of Economy ensuring Mexico remains

A: In the last two decades, Mexico’s global integration

a competitive destination for FDI?

has been a keystone for economic growth. We certainly

A: Mexico is among the most open economies to

want more Mexican products to be exported but at the

international trade and investment. The set of structural

same time we want to consolidate our domestic market.

reforms carried out by President Peña Nieto’s administration

Hecho en México aims to foster national production and

have paved the way to attract domestic and foreign

competitiveness, as well as being a symbol of confidence

investments in strategic sectors. The Ministry of Economy

and high quality for consumers. The Ministry of Economy,

has implemented several measures to ease doing

through ProMéxico, is promoting the program beyond

business in Mexico. For example, it has worked to reduce

Mexico’s borders. At the end of April 2017, I visited Hannover,

regulations and facilitate investment in sectors where FDI

Germany, to attend a ceremony where Mexico was formally

was previously restricted, such as telecommunications and

announced as the partner country for the Hannover Messe

energy; it has increased accessibility and transparency at

2018. Being the most important manufacturing event

the Public Registry of Commerce and Property and we have

worldwide, the fair will be a major window to promote the

promoted the use of electronic platforms to ease processes

Hecho en México program and portray Mexico’s innovative

related to FDI registry.

products, processes and industries.

Q: What are the government’s priorities for establishing

Q: What initiatives is the Ministry of Economy favoring to

trade agreements with Asian and Latin American countries?

support the entrepreneurial ecosystem?

A: The Asia-Pacific region is a priority for Mexico. However,

A: An example of the Ministry of Economy’s efforts to support

since TPP’s entry into force is uncertain, Mexico is exploring

Micro Small and Medium Enterprises (MSMEs) is the role of the

alternate paths. For instance, in March 2017 in Viña del Mar,

Federal Commission for Regulatory Improvement (COFEMER)

Chile, the Pacific Alliance established the “Associate State”

in reducing the regulatory burden and unnecessary

category, with the objective of negotiating trade agreements

bureaucratic procedures. One of the most meaningful

with countries in the Asia Pacific region. Australia, Canada,

measures undertaken is the 2x1 regulation scheme. Through

New Zealand and Singapore are the first 4 candidates to

this scheme, all public agencies wanting to implement a new

become Associate States of the Pacific Alliance. Within

regulation that implies costs for the population are obliged

the framework of APEC, leaders of the Pacific Alliance

to eliminate two existing regulations. Another example is

engaged in two discussions with Asian economies in which

ProMéxico’s involvement in promoting exports from Mexican

they explored common cooperation areas, namely SMEs

MSMEs. These companies are offered consultancy from trade

and trade facilitation.

experts who facilitate the completion of export requirements to foreign markets. Additionally, ProMéxico undertakes

Q: What strategies does the government plan to implement

promotional activities to increase the visibility of products

to help companies diversify their operations outside the US?

and services from MSMEs abroad. In terms of international

A: President Peña Nieto’s administration expects to diversify

trade, we have strived to include specific chapters on MSMEs

Mexico’s trade agenda with potential markets. We are

into our most recent FTAs, such as the Pacific Alliance and the

modernizing our 15-year-old trade agreements with both

TPP. We will do the same while updating NAFTA.

the EU and the European Free Trade Association countries. In Latin America, we are deepening existing agreements with Brazil, Argentina and the Pacific Alliance.

Ildefonso Guajardo is the Mexican Minister of Economy, member of the PRI party. He has worked in the Ministry of

Q: What strategies is the Ministry of Economy following

Tourism, Foreign Affairs and Trade, as well as congressman. He

to relaunch and position the Hecho en México program?

is the top negotiator for NAFTA’s renegotiation

EXPERT OPINION

A STEADY HAND ON THE TILLER JOSÉ ANTONIO GONZÁLEZ ANAYA CEO of Petróleos Mexicanos (PEMEX)

The key to PEMEX’s transformation is in the implementation

PEMEX’S BUSINESS PLAN

of the 2017-2021 Business Plan, which clearly outlines

The Business Plan, presented at the end of 2016, is a

profitability as the guiding principle of the company across

realistic plan focused on profitability. This plan establishes

all its business lines. This plan meets the dual mandate that

the actions required to enable the company to achieve

President Enrique Peña Nieto gave me by appointing me

financial strength, as well as to stabilize production and

CEO: accelerate the implementation of the Energy Reform

subsequently increase it. It is a plan that includes, as

and improve the finances of the company.

a priority, the establishment of alliances and strategic partnerships across the value chain as a mechanism to

In 2016, a great effort was made to implement austerity

increase investments, increase operational efficiency and

and discipline and operational adjustments were made to

share financial and technological risks.

take advantage of the alliances that, thanks to the Energy Reform, we can now participate in. The results are beginning

This plan is already underway and its first results have

to be seen and today PEMEX has stable — unlikely but

already been very successful. Last March PEMEX formalized

stable — finances.

its partnership agreements with the US company Chevron and the Japanese company INPEX, with which we jointly

Recently, rating agency Moody’s acknowledged the

won the CNH tender for the exploration of deepwater Block

company's financial efforts and its track record in the

3 North. We also signed the contract with Australia’s BHP

past year and awarded PEMEX an overall PAA3 foreign

Billiton, winner of the first farm-out in PEMEX history.

currency credit rating. In addition, PEMEX recorded a

Through this partnership, the Trion block will be explored

positive net financial result for two consecutive quarters,

and developed in the Cinturón Plegado Perdido in the ultra-

something that had not been achieved in six years. This

deepwaters of the Gulf of Mexico. These are the first of

is mainly due to the recovery of crude oil prices, the

many partnerships with which PEMEX will consolidate itself

recognition of logistics costs in the price formula for

as a major oil company.

gasoline and diesel and the decrease in the company’s operating costs.

Three other farm-outs are scheduled for the coming months: in shallow waters, the Ayín and Batsil fields; the Ogarrio

With respect to crude oil production, PEMEX will reach

and Cárdenas-Mora onshore fields; and in deepwater,

its annual target. During the first few months of the year,

Maximino and Nobilis, also located in the Perdido area.

a considerable recovery was achieved in the crude oil

Recently, PEMEX also completed the first migration to

process compared to the end of 2016. Thanks to the

the new production contracts for the Ek Balam field in

strengthening of exploration and extraction processes,

the Campeche Sound. This new scheme will allow us to

it has been possible to maintain an average of around 2

generate greater economic value for the project.

million b/d. Ku-Maloob-Zaap has maintained its production volume of above 860,000b/d, helping to counteract the

MIDSTREAM, DOWNSTREAM AND DISTRIBUTION

natural decline of other fields. Together with the evolution

In terms of refining, PEMEX has begun to form alliances

of assets such as the Litoral de Tabasco, Tsimin-Xux and

in order to increase the profitability of operations. At the

the Xanab fields, this has led to a combined increase

beginning of this year the first partnership for the supply

in production of more than 156,000 barrels, excluding

of hydrogen to the Tula refinery with the French company

Cantarell.

Air Liquide was finalized. This will reduce the number of unscheduled shutdowns, as well as increase the production

The Energy Reform is advancing and PEMEX is getting

of gasoline and generate savings of more than 30 percent

stronger.

in this service. Air Liquide also plans to invest in the

Centenario GR, Gulf of Mexico, deepwater platform

construction of a second hydrogen plant at the refinery in

FUTURE OUTLOOK

order to meet the total demand from the expansion at the

In almost 80 years of activity, PEMEX has accumulated

Tula refinery. The plant’s construction is expected to be

knowledge and experience. It is the eighth-largest oil

completed by the end of 2019.

producer in the world and a leader in shallow waters. The reform passed by President Enrique Peña Nieto in 2013

As part of the efforts to allocate more resources to the central

imposed on PEMEX the challenge of transforming itself

refining processes, we are also forming alliances for the supply

into a productive state enterprise. In the period that I

of auxiliary services and the reconfiguration of the Salina

have been leading the company, since February 2016, I

Cruz and Salamanca refineries in Oaxaca and Guanajuato,

have verified the capabilities of our workers to drive the

respectively. The objective is that PEMEX focuses on the

required changes to face the complex challenges of the

primary activities that allow it to generate more resources.

new international environment.

In terms of logistics and complying with the norm

The international industry is aware of PEMEX’s new

established by CRE, PEMEX is carving out its position as

way of operating and there is a considerable interest in

a pillar of the new energy environment. In May, the first

establishing alliances with us. Mexico and, specifically,

phase of the Open Season was carried out, whereby PEMEX

PEMEX, represent important investment opportunities

allocated storage and pipeline capacity for the states of Baja

across various business lines in the hydrocarbons sector.

California and Sonora. One hundred percent of the capacity

PEMEX is the strategic partner with which to invest in

offered was assigned and the winner was the US company

Mexico. I am sure that it will continue to be a pillar of

Tesoro. The interest shown by 22 companies registered in

the national industry and the flagship company of the

the auction confirms the confidence of the private sector

country.

in both these processes and in PEMEX and its operational capacity. It certainly constituted an important step in the creation of an efficient and competitive market to efficiently

José Antonio González Anaya is a Harvard graduate who has

satisfy national demand to the benefit of consumers. Over

worked in a number of high-profile public and private sector

the next few months, next steps will be taken to cover the

positions. Before becoming Director General of PEMEX, he

rest of the country. In addition to promoting the investment

was Deputy Minister of Income at the Ministry of Finance and

of new participants in the sector, this scheme will enable

Public Credit and Director General of the Mexican Institute of

PEMEX to generate resources for its growth.

Social Security (IMSS) from 2005 to 2016

VIEW FROM THE TOP

FURTHERING FINANCIAL INCLUSION AND CREDIT EXPANSION ERNESTO TORRES CEO of Citibanamex

Q: What is Citibanamex’s proposal for the Mexican banking

of the necessary infrastructure in shops and businesses that

system?

allows them to receive payments, not only with cards, but

A: The main challenges for the Mexican financial system

from mobile devices, and to promote a wider use of online

are financial inclusion and credit expansion. The objective

and mobile banking. All these actions must be complemented

should be to consolidate a system that amplifies and

with different programs to foster financial education.

facilitates access to financial services and provides more loans under better conditions. To increase access, we must

Q: What opportunities does Citibanamex see for the finance

move forward simultaneously in different directions: using

sector as a result of the NAFTA renegotiations?

the most advanced technology and new digital channels and

A: Citibanamex is the best example within the financial sector

taking advantage of social media and Big Data; expanding

of the mutual benefits that can be obtained through the

and modernizing our infrastructure; establishing a network

cooperation between Mexico and the US. The finance industry

of correspondents to reach more clients; providing products

plays an important role in achieving the economic integration

and services that best fit the needs of each client; offering

of the three countries and driving the competitiveness of the

new channels, especially through the use of technology and

region. The high degree of economic integration between

digital devices; and promoting the use of electronic and

Mexico and the US has increased the already big number

digital payments. To increase credit, we must maintain the

of clients that interact, trade and execute cross-border

country’s macroeconomic stability, provide customers with

operations. Enhanced integration of the finance sector will

products that meet the needs of each segment, disseminate

allow us to better serve millions of clients in the NAFTA

existing options and advantages of credit and create a closer

countries bringing benefits to communities across the region.

relationship with the public. Q: Beyond NAFTA, what is Mexico’s value proposition to the Q: How will the digital transformation of the traditional

world?

banking system impact financial inclusion?

A: NAFTA is an important factor in the country’s evolution

A: The transition to a digital banking system has pushed

but it is not the only one. There are many other elements

forward financial inclusion in Mexico but there is still a lot of

that make of Mexico one the countries with the best growth

untapped potential. The best example is mobile banking. Five

perspectives among emerging markets; for example, a large

years ago, we launched Transfer in alliance with América Móvil

and dynamic internal market. According to the WB the

and Inbursa, the first payment platform for cellphone services.

average income of Mexico’s population is medium high, which

In 2013, Transfer had 1 million active clients and by the end of

creates great opportunities. The economy is also becoming

2017 we expect to have 6 million. It has been growing at an

more productive and competitive thanks to the approval and

annual rate of 57 percent. The number of transactions made

implementation of structural reforms in key sectors such as

in Transfer in 2013 was 9 million and this year we expect to

education, telecommunications and energy. In addition, Mexico

reach 310 million.

has an outstanding export platform and different commercial agreements across the world. Finally, the country maintains

Q: What strategies should be put in place to encourage the

great macroeconomic stability, responsible management of

use of digital payment methods and reduce the use of cash?

public finances and a solid and growing financial sector.

A: The strategy to promote payments through electronic platforms includes different actions. First, supporting the inclusion of millions of workers in the formal economy; second,

Citibanamex is a multibanking institution and a member of

continuing to facilitate access to banking services, especially

Grupo Financiero Banamex, a subsidiary of Citigroup Inc.,

through new channels; and third, to facilitate internet access. In

an American multinational investment banking and financial

addition, it is necessary to facilitate and expand the installation

services corporation

VIEW FROM THE TOP

DEVELOPING DIGITAL OPPORTUNITIES IN MEXICO MARÍA TERESA ARNAL 18

CEO of Google Mexico

Q: What opportunities does the Mexican market offer to

productive. We see opportunities in helping companies

the development of Google’s business?

improve its internal business processes and in the generation

A: The word that defines my administration in Google is

of intelligence from all their data.

“opportunity.” Mexico is the 15 -largest economy in the world, th

meaning that there are great opportunities in many different

Q: How does Google contribute to the expansion of digital

sectors, including digital transformation, an area into which

skills in Mexico?

many companies are now venturing. Digital transformation

A: It is an interesting challenge. We work alongside different

does not only entail reaching consumers through the internet

players in Mexico to push and see through the country’s

but also through every process within the company. The way

connectivity and digital skills education agenda. We engage

companies think, understand and approach consumers is

on projects that seek to reduce the country’s digital gap

changing and Google can play a central role in this process.

and empower those who seek to use technology to find

We can help companies change the way in which they develop

solutions to everyday problems. We must play a significant

products to allow them to reach more consumers. This is

role and help ensure that as many people as possible have

the opportunity we see with big companies. An interesting

internet access and the possibility to make the most out

example is Nestlé México. Together, we developed a project to

of these tools.

analyze the searches related to baby food and what parents search for. With this data, they were able to revamp and

Google products are developed with billions of people in

launch a new product in just nine months, shortening the

mind. We want our products to be as universal and inclusive

process by over half the time.

as possible; however, this does not mean that we neglect characteristics inherent to particular groups. We take in

We also see many opportunities with SMEs. The internet

consideration the most important particularities of each

has no borders and Google allows SMEs to do business

group and then try to compile those up in a single product.

all around the world. There are many stories of Mexican

Mexico is part of an initiative called Next Billion Users (NBU).

SMEs working alongside Google that have managed to do

Technology empowers people to solve problems, but

business abroad. We estimate that Google has contributed

problems are completely different in developing countries

MX$24 billion to the Mexican economy.

like Mexico, India, Brazil and some others that are part of NBU. This initiative analyzes the problems we share and are inherent

The education ecosystem has a big opportunity for renewal

to our developing nature.

in Mexico. In general, education is an area in which we will see great technological disruption. We want to bring

Q: What does the country need to do to develop more

technology closer to the people and for technology to

gender parity in the technology sector?

become an enabler for new learning and collaboration tools.

A: The problem in the technology world is the pipeline,

Knowledge per se will not be the main driver, since the

something that does not happen in other fields. Part of it is

data is available in Google; being able to learn and work

that when girls reach a certain age they start losing interest

collaboratively will be the main drivers. Another important

in science-related subjects. This is the first hurdle we must

segment is related to empowering companies to be more

overcome: we must find a way to show girls that science, technology, engineering, and math are fun. At Google, we partner with organizations such as Epic Queen and offer

Google is a global technology leader, which focuses on

camps where girls can encounter fun ways to approach math

improving the way people connect with information. Its

and coding. This way you start generating an interest that

innovations on internet search and online advertising have

leads to less desertion rates. We also need role models, and

made its website a top internet product

show them that the technology world includes us all.

VIEW FROM THE TOP

CONNECTING MEXICO JORGE RUIZ Director of Facebook Mexico and Central America

Q:What have been Facebook’s most remarkable

vehicle for entrepreneurs and SMEs to grow and further

achievements in the country?

e-commerce. We believe that if people get to Facebook, they

A: The first day that I arrived here I saw a huge opportunity to

can become a multinational company right away.

connect Mexico. At that moment, worldwide Facebook had almost 1 billion users. Five years later, we have connected 2

Q: What should be the role of companies such as Facebook,

billion people worldwide and 76 million people in Mexico. At

the telecom industry and the government in providing

that time, there were a lot of questions about the importance

countrywide internet access?

and role of Facebook in the markets and we saw a huge

A: For the country’s development, we need people to be

growth opportunity in terms of mobile technology. However,

connected. There are 89 million mobile phones in Mexico but

the most important transformation has been from a social

not everyone has internet access. We do not want that lack

platform into a people’s platform.

of access to become a hurdle for people to connect. That is why we have developed platforms such as Facebook Lite,

Our concerns as a platform have also changed. Five years ago,

where several features that are valuable to people also work

our most important concern was generating engagement on

offline. With Facebook Lite users can access content that can

the platform. Now, it is how we solve business, communications

influence their daily life. We have people in the agricultural

and marketing issues through the platform. Facebook has

sector that use Facebook to check the weather forecast

become the go-to place for companies to connect on a daily

before deciding whether to work or not.

basis with the people they really care about. We also want to connect the other half of the country that still When we started in Mexico, our main challenge was to grow

does not have access. We already have some projects aimed

and convince businesses that were used to consuming

at providing Wi-Fi to places where access is difficult. Internet

traditional media, such as television or radio, to switch

access allows people to be more informed and companies

to Facebook. Our first strategy was to target Consumer

that produce content can publish it through Facebook and

Packaged Goods (CPG). Then, we came up with other

reach more people.

verticals, including retail, auto and finance. E-commerce was not as big as it is now and Amazon, eBay or MercadoLibre

Q: What are the right metrics for companies to pursue?

were not as popular. That is why we decided to focus all our

A: More sales and more market share, those are the two

efforts on branding.

metrics that matter. We have learned from traditional markets that we need to address businesses’ needs. At first, digital

Q: How can Facebook collaborate to further the entrepreneur

metrics were important but for businesses the metrics that

ecosystem in Mexico?

matter are sales and market share. To address this, we have

A: Entrepreneurship in Mexico needs to get closer to the

launched Brands Beyond the Line, which aims to eliminate the

digital world. They also need to do a better job measuring

lines between digital and business strategies. The intention

their success, aligning their Key Performance Indicators

is to help companies attract more people to their business,

(KPIs), talking the language of investors and aligning their

to have more people aware of their products, more people

brand positioning and sales’ strategies. An advantage we

loving their brand and buying and consuming their product.

provide to entrepreneurs is that we can offer them massive segmentation, which is the dream of all marketers. With this segmentation, you provide the right services and products

Facebook is a digital social network founded in 2004 with 2

to the right people at the right time. Is something no other

billion users worldwide. Its goal is to generate a more open

platform can offer. More than 90 percent of internet users in

and connected world. It is headquartered at Menlo Park,

Mexico are also on Facebook, which makes us the perfect

California

VIEW FROM THE TOP

50-50 BET PROVIDES COMPETITIVE ADVANTAGE PABLO AZCÁRRAGA Chairman of the Board of Grupo Posadas

Q: What are Mexico’s greatest areas of opportunity for

doing so well, the other complements it. That is why building

growth within the tourism sector?

50 percent of our developments in cities and 50 percent in

A: There are various indicators that demonstrate Mexico’s

beaches is a good competitive advantage to have.

strong potential for growth if we tweak certain things. Ninety percent of leisure tourism is focused on beach destinations.

We have a business model similar to that of the most

The majority of Mexico’s tourism revenue is based on sun and

important companies in the world. Our large number of

beach destinations and not so much on cultural, ecological

clients and investors allows us to avoid allocating a large

or religious tourism. In Europe for instance, the main reason

amount of our resources to materials and allows us, instead,

for travel is culture. Mexico has such a rich culture but it is not

to develop our people, innovation and technology. Of the 40

being taken advantage of.

hotels we have in construction, 90 percent are third-party properties. Our client network is satisfied and has enough

Approximately 80 percent of leisure tourists arrive by plane.

confidence in us to sign 20-year O&M contracts. Because

We are neighbors of the largest consumer market and when

we deliver results, almost all the contracts are renewed. In

Americans travel in the US, 90 percent do so by car. We are

2016, we opened 13 hotels, which is considerably more than

limiting tourism and we must continue to change the culture

our competitors that tend to open one or two a year. As

so that it not only depends on sun and beaches.

of today, we have more than 26,000 hotel rooms and 156 hotels. City Express has 11,000 and others fewer. The fact

Ninety percent of tourists that visit Mexico also visit the

that we are listed on the BMV allows us to keep our liabilities

same four destinations: Riviera Maya, Mexico City, Los

in bonds and to raise more money for new projects.

Cabos and Vallarta. Mexico definitely has potential and we have grown exponentially with more than 35 million international tourists. These are good numbers but the World Tourism Organization predicted that Mexico should have more than 50 million by now. Q: How has Grupo Posadas positioned itself in the Mexican market? A: Grupo Posadas is the leading hotel developer in Mexico

Riviera Maya, Mexico City, Los Cabos and Puerto Vallarta receive 90% of Mexico's visitors

and the only one with a presence in Mexico as an operator. We are four times bigger than our closest competitor and as

Q: What impact has the company had on tourism education

of 1Q17, we have more than 26,000 hotel rooms in operation.

and jobs creation in Mexico?

We have 40 new hotels in construction today, which means

A: It is important that we continue to focus on the

almost 7,000 more rooms. There are more than 80 million

professional growth of our human capital. Many of the

Mexicans traveling inside the country compared to the 35

most important players and directors within the industry

million who come from abroad.

started their careers in Posadas. We need to continue to train people to provide a higher quality service.

Q: Why has Grupo Posadas decided not to franchise its brands? A: We do not franchise because there is no real need to do so.

Grupo Posadas is the leading hotel developer in Mexico and the

In part, our success comes from the balance of our portfolio

only one with a presence in Mexico as an operator. It has more

between both leisure and business. Tourism depends greatly

than 26,000 hotel rooms in operation and expects to add almost

on the economic state of a country but when one area is not

7,000 more rooms with the construction of 40 new hotels

VIEW FROM THE TOP

MEXICAN INSTITUTION SETS SIGHTS ON ZINC OSCAR GONZÁLEZ Executive President of Americas Mining Corporation

Q: How do you assess the impact of regulatory reforms

assets. For example, in 4Q16, copper production rose

for the mining industry in Mexico and what changes have

by 16 percent compared with the same period in 2015,

ensued?

helped by a rise of 57 percent in production at Buenavista

A: We have been paying a significant amount of tax since

del Cobre.

the mining royalties were introduced in Mexico in 2014, including MX$1.8 billion toward miners’ rights. From our

We have also begun to focus more on the base-metal

experience, the local governments in Cananea and Nacozari

sphere, particularly zinc. We acquired and reopened the

– the municipalities where our Buenavista del Cobre and

Aznalcollar zinc mine in southern Spain in 2015, and we

La Caridad mines are located respectively – are investing

have great hopes for this project because we are confident

the resources generated from the Mining Trust Fund into

that zinc is heading for a sustained period of strong price

projects that will have a lasting beneficial impact on local

performance. Zinc production rose by 20 percent in 4Q16,

populations. We are fully supportive of the fund and we

while we also reduced AISC across the board. Despite the

plan to continue allocating more resources for many years

lower price environment for copper, our high production

to come. An important part of our investment strategy is to

levels and low costs enabled the company to perform very

spend US$25 million on exploration, so we were delighted

well in 2016.

to see Sonora’s governor recommend to Congress a reduction in exploration costs in the state. This would be a

Q: Considering your extensive list of projects in the

positive development that would boost the mining sector

development and exploration phase across Latin America,

not only in Sonora but throughout the country.

where will you be focusing your efforts in 2018? A: We are planning to move forward with a number of

We are also optimistic about the long-term effect that the

projects in the next few years, and Mexico is a priority for

Energy Reform will have on Mexico’s mining sector. We are

our investment plan, holding a vital place in our portfolio. In

already using our gas and wind-based energy generators

2016, a total of 65 percent of metal and mineral production

to cover our in-house needs, as well as making a profit on

came from Mexico.

the surplus. This is a strategy that is bringing great rewards for the company and we are committed to continuing our

The primary focus is the San Martin deposit in Zacatecas,

work in the local energy sector.

which has enormous potential but has been in limbo for the past 10 years due to a senseless strike that has been

Q: How is your investment strategy evolving in light of

detrimental to workers, the state and the company alike. We

volatile international commodity markets?

are also preparing to move forward with the El Pilar, Pilares

A: Copper remains the most important commodity in

and Buenavista Zinc projects in Sonora, before turning our

our portfolio, representing 80 percent of sales in 2016.

focus onto the Angangueo and El Arco assets.

Naturally, the fall in price of the brown metal has had a damaging effect on business. This effect has been

On the financial side, we are waiting for the macroeconomic

mitigated to an extent by our investment plan, which

climate to improve in order to proceed with our plans to

is designed to raise overall production levels across our

apply for an IPO for Americas Mining Corporation. Southern Copper has a dual-listing in Lima, Peru and New York, while Grupo México is listed on the BMV in Mexico City. We are

Americas Mining Corporation is Grupo México’s mining

convinced that an IPO will have a positive effect on the

subsidiary, overseeing Mexican operations, as well as those

Americas Mining Corporation investment profile, although

belonging to ASARCO and Southern Copper in the US, Peru

we are still evaluating where would be the best location

and Chile

for the company.

VIEW FROM THE TOP

PRODUCTION GROWS, ACCIDENTS DOWN OCTAVIO ALVÍDREZ CEO of Fresnillo

Q: What were the main contributors to Fresnillo's strong

at San Julian online. All told, 2016 was the second-best

performance in 2016?

year for Fresnillo since the company made its listing on the

A: Like all miners, we were helped by external factors such

London Stock Exchange nine years ago.

as the devaluation of the peso that enabled us to improve the internal cost structure. But we also managed to lower

Q: What actions are you taking to reduce fatality rates at

operational costs at several of our mines, which generated

your mines?

savings of US$25 million across our portfolio. Moreover, we

A: This is the most important challenge Fresnillo is facing and

were boosted by the increase in production at our mines,

we are disappointed that we have not reached our objective

particularly at La Herradura, Nochebuena and Saucito, while

of zero fatalities, which is the company’s primary goal. We

we also brought the first phase of commercial production

are trialing a new, in-depth safety system in the Saucito mine that we hope will help us achieve our zero-fatality goal. We already have safety protocols and equipment of the highest

Fresnillo is the world’s leading silver producer and Mexico’s

standard but we need to focus on educating our staff and

largest gold producer. It is a subsidiary of Grupo BAL and

contractors. We are determined to increase awareness and

operator Industrias Peñoles. The company is listed on the

risk identification throughout the company. If we succeed, this

London Stock Exchange’s FTSE 100

system will be implemented across all of our mines.

Fresnillo mine, Fresnillo, Zacatecas

VIEW FROM THE TOP

INNOVATION AND SUSTAINABILITY FOR MEXICO’S FISHING FUTURE ANTONIO SUÁREZ President of Grupomar

Q: What are Grupomar’s key differentiators?

Q: What is Grupomar’s participation in international

A: Since the company was founded, Grupomar has been

markets?

known for being the most innovative company in the

A: We export to the US, but due to the restrictions created

Mexican fishing segment. We were the first company to

by lobbyists, we only sell our products in small chains that

introduce easy-open tins, the first to commercialize tuna

sell Mexican products. Nevertheless, we have managed

salad and the first to offer canned octopus, squid and

to position ourselves in other markets, such as Central

salmon. We also offer tinned sardines. Grupomar manages

America and Spain, and we are opening new markets in the

approximately 60,000 tons of tuna per year and we can

Middle East and Turkey. We were the first fishing company

pack around 2 million cans of tuna on a daily basis.

to obtain the Halal certification. In addition, we also import tuna from Asian countries, such as China and Thailand. We

Q: Grupomar has a wide range of businesses. How do its

prepare frozen tuna slices that we later sell to restaurants,

business units complement each other?

both in Mexico and Spain.

A: We are a very integrated company, from port agencies, ship repair workshops to helicopter repair workshops. All

Q: How does Grupomar contribute to preservation of

unloading activities are performed by another Grupomar

natural resources in the fishing sector?

unit. We also have a plant where we manufacture our cans

A: The fact that the most sustainable tuna fishing happens

and an additional plant for processing and canning all our

where there are dolphins is not an excuse to also capture

products. The group also engages in direct distribution

them. To avoid this, we have a number of devices, including

to big retailers and small shops. We make and sell fish

the Medina Panel, which allow dolphins to jump over the net.

flour from the pieces of fish that are not used elsewhere.

In the case of Grupomar, we have a statistical zero when it

Grupomar is a completely integrated business.

comes to the number of dolphins killed due to our fishing activities. We even have divers who help the dolphins escape

This integration ensures the company’s viability. In the

each time they get caught in one of our nets.

primary sector, there are so many variables that could impact the performance of a company. You have good and

When it comes to the sustainability of tuna, we make sure to

bad years. However, with an integrated business model,

fish only adult tunas. In this way, we guarantee the continuity

you are less vulnerable to nature’s vicissitudes. Our plan

and reproduction of the species.

is to go the same way with sardines. We already have the ships and the plants. We now have to innovate in the

The Mexican fleet follows governmental and the Inter-

sardine segment.

American Tropical Tuna Commission (CIAT) guidelines. We have been part of the Pacific Alliance for Sustainable

Q: How has the Mexican diet adapted to include

Tuna for the past three years; this alliance obtained

Grupomar’s products?

the MSC Certification, which is the most prestigious

A: When we started operating, Mexico did not consume

certification for sustainable fishing. In addition, the

much tuna, so all our efforts were focused on the US

Mexican tuna fleet has been granted the FAO’s Margarita

market. At that time, Mexico consumed about 10,000

Lizárraga Medal Award.

tons of tuna per year, while today the country consumes between 160,000 and 170,000 tons. To foster the sector’s growth, the government launched an advertising campaign

Grupomar is a leader in Mexican fishing activities, port services,

to further promote the consumption of canned tuna. These

industrialization and commercialization of mass consumption

efforts, combined with our product innovation, changed

food. Grupomar is known for innovating in the canned food

Mexican consumption patterns.

sector, with different presentations of canned fish products

VIEW FROM THE TOP

BRIDGING THE GAP BETWEEN NORTH AND SOUTH GERARDO GUTIĂ&#x2030;RREZ 26

Head of the Federal Authority for the Development of Special Economic Zones (ZEE)

Q: What advancements have been made on the

Q: What are the steps that companies must follow to

implementation of the ZEE?

participate in the Mexican ZEEs?

A: Since the approval of the ZEE Law in May 2016, technical

A: Companies can participate through different investment

studies have been made by the ZEE Authority and approved

opportunities. Before the ZEEs start operating, companies

by an Inter-Ministerial Commission for the first five ZEEs:

can participate as ZEE developers or operators, or as

Puerto Chiapas in Chiapas; Coatzacoalcos in Veracruz;

partners of a ZEE developer or operator. Once the ZEE

Lazaro Cardenas - La Union in Michoacan and Guerrero;

starts operating, companies can invest inside the ZEE, as

Salina Cruz in Oaxaca; and Progreso in Yucatan.

anchor companies or suppliers, developing new business lines across the value chain. There will also be investment

The project has three different stages that were also

opportunities outside the ZEE, in the Areas of Influence,

approved by the Inter-Ministerial Commission. The first

which are nearby localities that will benefit from the

stage, which includes the declaration of the first three

ZEE economic spillovers, where companies can develop

ZEE: Lazaro Cardenas-La Union, Puerto Chiapas and

infrastructure and provide support services such as housing

Coatzacoalcos, was announced at the end of September

and education.

2017. Zones in this first stage have different objectives. For instance, Lazaro Cardenas is the entry point for the

ZEEs will be established in polygons that will permit

Asia-Pacific region and serves as an entry point for the

two types of sections, depending on land ownership. On

automotive and aerospace clusters in the center of the

one hand, federal land owned by the government will be

country; it is one of the most important ports in Mexico

licensed to a ZEE developer or operator, which will be

and it has impressive potential. In Coatzacoalcos, the

granted a permit through a public tender. We are looking

chemical and petrochemical sectors will help the city

for ZEE developers or operators with world experience that

become one of the most successful clusters in the

can associate with local companies and develop supply

country. It has the advantage of being a few hours away

chains. However, we also want these developers/operators

from the center of Mexico and is also part of the southern

to have a comprehensive regional vision to develop friendly

corridor of the country that connects with Salina Cruz.

environments suitable for both working and living, and not

Last, we envision Puerto Chiapas as a strategic entry

only for the development of industrial parks. On the other

point for Central America where a world class commercial

hand, ZEE sections will be developed on private land, where

cluster can be developed.

licensing will be granted to develop sector-specific clusters.

For the second stage of the project, we will include Salina

For the moment, we are working with the Ministry of

Cruz, in Oaxaca, and Progreso, in Yucatan. Salina Cruz is a

Finance and Public to craft the guidelines for granting

commercial and oil-related port that operates as a regional

permits for ZEE developers and authorizations for investors

logistics center and, alongside Coatzacoalcos, it is the most

inside the ZEE, which will be published before 2017 ends.

competitive intermodal economic node in the southeast of the country. Progreso will host a ZEE specialized in IT

Q: Is there any plan in place to ensure that new businesses

and R&D sectors, taking advantage of the stock of high-

generate added value and go beyond mere manufacturing

skilled human capital and a business environment focused

schemes?

on innovation and technology development.

A: Mexican ZEE will be developed in the poorest regions of the country where a series of structural barriers hinder

Later, Tabasco and Campeche will host ZEE that will benefit

growth and economic development. For instance, deficient

from the installed capacity and knowledge of the energy

infrastructure, low-skilled human capital and high levels of

sector to establish world-class clusters.

informality in the labor market are barriers that limit the

regionâ&#x20AC;&#x2122;s potential. As a result, manufacturing represents one out of 10 workers in the south, whereas the north more than doubles this proportion. What ZEEs look for is to change this disparity while benefiting from the competitive advantages of each region. There are zones that will attract investment

Approximately US$5.3 billion in investment and over 12,000 new jobs are expected from the first stage of the ZEEs

in the automotive and aerospace industries, others in petrochemical, others in agroindustry and others in IT and

not only the legal framework and governance model of the

R&D activities. This will create, in the medium to long term,

ZEE project, but also the main factors that maximize the

a more diversified economic structure in the southeast of

probability of success for a ZEE. Additionally, they helped

Mexico that will increase the industrial base and contribute

the Mexican government choose the best locations for the first

to closing development gaps that currently exist.

round of ZEEs, based on technical criteria such as access to infrastructure, land ownership and use, among others.

Q: How can continuity of the ZEE project be ensured once the current presidential administration ends?

They will continue to provide their experience in the next

A: Since the design of the project, the Mexican government

steps of implementation: the development program of

has seen the ZEE as a project that transcends political time

each ZEE, the tender process to grant a ZEE developer or

frames and ideologies.

operator the permit to develop and operate the first section on federal land, and the technical advice to the ZEE authority

For instance, we have a Federal Law for Special Economic

for guidance on granting permits and authorizations to

Zones that was approved by all political parties and we

developers, operators and investors.

have coordination laws for ZEE in the states that will host them, which are tied to the federal vision. We also have

Q: For the first three ZEEs, a total investment of US$5.3

letters of intent from municipalities, endorsed by local

billion and the creation of 12,000 jobs is expected. What

congresses, in which they ask to host a ZEE and we will

is the total expected investment for the entire region

also have coordination agreements endorsed by statesâ&#x20AC;&#x2122;

encompassing the ZEEs?

congresses, in which we will work with transparency on

A: A crucial aspect of the implementation of ZEE is the

security, incentives, regulation, simplification, support and

attraction of investments that will help develop each zone

financing of projects in the ZEE.

and its area of influence, or the adjacent municipalities. The Feasibility Technical Reports executed for each of the

In the Declaratory Decree the President signed for the

first three zones declared present estimates based on the

first three ZEEs, it established fiscal incentives for 15 years

identified potential of each zone and their competitive

as acquired rights for investors, nearly double the eight

advantages, estimating investments of US$31.4 billion over 20-

granted by law. Other incentives, such as VAT exemptions

30 years, creating over 211,073 jobs during the same period.

and a special customs regime will last for the duration of the permit and authorization, which can be granted for 40

Based on prospective promotional activities, there has been

years and is renewable for a similar period. In sum, there

contact with over 150 enterprises that have shown interest in

is a solid legal framework in the country to establish ZEEs

the zones. Specifically, there are over 50 companies that have

as long-term projects and to provide legal certainty to the

presented this interest in a letter of intent to the ZEE authority,

companies that invest in them.

32 of which correspond to the first three zones declared by the president. Such letters represent an estimate of US$5.3

Q: What was the key focus when adapting this model from

billion, creating over 12,000 jobs. It is also possible that in the

other international experiences?

first two years after the declaration of the zones, investments

A: Since the design and planning stages, the federal

close to US$2.6 billion will be announced, with a creation of

government knew it had to learn from the success and

2,537 jobs. Through the conduction of these investments, the

failure of similar cases elsewhere. We asked the World Bank,

special economic zones will undoubtedly benefit the millions

the leading institution regarding ZEEs, to guide and enrich

of inhabitants in their areas of influence.

the process, and the Interamerican Development Bank to provide its experience with human capital and urban development across Latin America.

The Federal Authority for the Development of the Special Economic Zones is a federal government department created

These institutions have helped us design the Mexican ZEE

in 2016. Its main task is to plan, promote, regulate and supervise

Law according to best international practices. This included

the development of ZEEs

ENTREPRENEURS & SMEs

The number of entrepreneurs in Mexico is on the rise, especially among the age group between 25 and 34 years old; a scenario that opens up great growth space for a segment marked by opportunity instead of necessity. SMEs have become the backbone of the Mexican economy: 52 percent of the national GDP comes from these companies, responsible for 72 percent of the countryâ&#x20AC;&#x2122;s employment. The proliferation of independent business initiatives has originated a support system made up by networks of entrepreneurs, joint-ventures between large companies and SMEs and a young investment ecosystem. The creation of the National Entrepreneur Institute (INADEM), the arrival of international accelerators and funds and the creation of programs in educational institutions focused on business development, depict the contribution of startups and SMEs and their importance to the economy. Both sectors are providing innovation through technology and disruptive business models. The major industries in which these new companies are innovating include finance, mobility, retail, healthcare and services.

This chapter will show how entrepreneurs and SMEs are becoming the engine that is pushing Mexico to compete in the global economy while facing multiple challenges, such as funding, consolidation and subsequent growth.

CHAPTER 2: ENTREPRENEURS & SMEs 32

ANALYSIS: Entrepreneurs, Innovation Push Mexico Into Industry 4.0

VIEW FROM THE TOP: Vincent Speranza, Endeavor Mexico

INSIGHT: Rogelio Cuevas, Centraal

VIEW FROM THE TOP: Hernán Fernández, Angel Ventures

VIEW FROM THE TOP: Francisco Meré, Bankaool

VIEW FROM THE TOP: Celia Bujaidar, Premo

INSIGHT: Vicente Fenoll, kubo.financiero

INSIGHT: Daniel Vogel, Bitso

VIEW FROM THE TOP: Zhaira Franco, Facebook

INSIGHT: Claudio del Conde, CEO and Co-Founder of Kichink

INSIGHT: Héctor Cárdenas, Founder and CEO of Conekta

VIEW FROM THE TOP: Javier De Antuñano, M4Tel

VIEW FROM THE TOP: Adolfo Babatz, Clip

VIEW FROM THE TOP: Jonah Greenberger, Bright

VIEW FROM THE TOP: Antoine Perouze, Dada Room

INSIGHT: Julián Ríos, Higia Technologies

INSIGHT: Rodolfo Corcuera, Aliada

Ana Isabel Orvañanos, Aliada 51

INSIGHT: Ferenz Feher, Feher & Feher

VIEW FROM THE TOP: Oswaldo Trava, InstaFit,

INSIGHT: María Portilla, Mi Valedor

Regina Rivero, Mi Valedor 52

VIEW FROM THE TOP: Paola Carranco, TalentLab

VIEW FROM THE TOP: Manolo Díaz, Yogome

Alberto Colín, Yogome

ANALYSIS

ENTREPRENEURS, INNOVATION PUSH MEXICO INTO INDUSTRY 4.0 Technology is the tool Mexican entrepreneurs and SMEs are using to lead the country toward a fourth industrial revolution (I4.0) that is radically changing the economy with alternative ways to access products and services, connecting different social players and including more people in the formal economy

Through disruptive technological developments, emerging

of the Mexican adult population has a bank account

Mexican startups have found opportunities in the market

and less than 20 percent has credit cards. Conekta, a

by introducing products and services that adapt to

technology and security company that offers banking

new consumer trends. The result is a burgeoning digital

services, developed OXXO Pay, a solution that allows

revolution, the so-called I4.0, that is reshaping the

online purchases without a credit card. Instead of using

landscape across sectors, with SMEs among those finding

a card, OXXO Pay provides a 14-digit reference that

a new foothold.

customers can use at any OXXO store.

According to the PwC report, Industry 4.0 Opportunities

The lack of financial inclusion is linked to the breadth of

and Challenges of the Industrial Internet, “Industry 4.0 is

informality in the Mexican economy. According to INEGI,

driven by digitalization of vertical and horizontal value,

in 2015, informal businesses accounted for approximately

digitalization of product and service offering and digital

24 percent of GDP. Paid domestic work is one of the most

business model and customer access.”

affected by informality, which led Ana Orvañanos and Rodolfo Corcuera to found Aliada, a market that connects

The ability of entrepreneurs to find solutions that facilitate

users with domestic workers. Orvañanos explains that for

existing processes is attractive to large companies and

workers to register on the platform they must go through

organizations. Many are already creating synergies with

a verification process that includes several trusted filters,

SMEs to build a system in which large companies take

including registering with SAT.

advantage of the talent of small companies. Visa is a good example. Visa Development Platform and the Application

SUPPORT NETWORKS

Programing Interfaces (APIs) invite fintech startups to

The economic impact of the technological initiatives from

co-create customized solutions with the technology

entrepreneurs and SMEs is in part a consequence of the

company. Recently, Visa also launched in Mexico the Visa

creation of support networks. Endeavor, for example,

Everywhere Initiative in alliance with Finnovista to find the

selects and accelerates high-impact entrepreneurs around

most innovative fintech startup in Latin America. The winner

the world to access a mentorship system made up of

will receive a US$50,000 grant and will collaborate with

senior managers from large consulting firms, CEOs of

Visa in the future.

the best technological companies and former Endeavor entrepreneurs who have deep expertise in specific

“As entrepreneurs, we need to think in business models

industries, and who donate between three and four hours

that are entirely different to that which we know,” says

of their time per month to coach the entrepreneurs.

Vicente Fenoll, CEO and Founder of kubo.financero.

Endeavor’s purpose is to permanently grow this network

“Our technology proposal is managed to generate price

with people willing to share their story.

differentials that favor both investors, with higher rates of return, and borrowers, with lower interest rates,” he adds.

The government is also playing an important role

Online platform kubo.financiero specializes in crowdfunding

to promote the creation of SMEs with the National

and peer-to-peer (P2P) loans regulated by the CNBV.

Entrepreneur Institute (INADEM), a public organism

The platform is based on algorithms that analyze the

created to support and promote small, medium and micro

information of borrowers, determines if they qualify to be

companies. The INADEM provides a support network for

on the platform and establishes payment plans, as well as

Mexican entrepreneurs, access to workshops and online

interest rates.

tutorials in topics related to the creation of a company. In addition, former entrepreneurs with outstanding success

Technology has also become a vehicle for improving

stories are giving SMEs space to write their own story. This

access to financial services and promoting integration

is the case of Facebook Entrepreneurship and Economic

into the formal economy in Mexico. According to the

Growth, a division of Mark Zuckerberg’s social network that

National Survey on Financial Inclusion, only 40 percent

helps small businesses make the most of the business tools

Facebook offices, Mexico City

available on the platform. “There are 78 million people in

like Google and Centraal are helping to connect Mexican

Mexico with an active Facebook account. Ninety percent

startups with companies in the US.

of the population that has internet access has a Facebook account. Today, there are at least 1.5 million SMEs with

STAYING ALIVE

a business profile on Facebook Mexico and 77 percent

That is another indication that what begins in Mexico could

of Mexicans who have an account follow a local SME,”

have an impact elsewhere, says Manolo Díaz, CEO and

explains Zhaira Franco, Engagement Manager at Facebook

Co-Founder of Yogome, a Mexican startup that develops

Entrepreneurship and Economic Growth.

educational minigames for children. He recalls that the first mentors he and his team met in Silicon Valley asked them:

THE INDUSTRY 4.0 CHALLENGE

how are you going to compete with Disney? “Of course, we

While a positive step, the existing support system is not

did not know the answer and they told us that if we were

enough for the Mexican economy in which, according to

raising capital and wanted investors to trust us, we should

Peter Kroll, CEO of everis Mexico, 2,000 companies are born

know how we plan to beat Disney from the beginning. We

every year. A survey conducted by the IE Business School

needed quality, a good concept and a great story. And we

concluded the main obstacles to start a business in Mexico

had to think beyond Mexico because technology allows us

are: bureaucracy, compliance with the required paper work,

to cross borders and to look for opportunities everywhere,”

lack of credit and lack of investors. According to PwC, one

says Díaz. Today, Yogome has more than 4 million active

of the difficulties to enter I4.0 is to reach high investment

users per month in more than 50 countries.

levels. “Private equity in Mexico is lower in terms of GDP than in Chile and Colombia. We need more angel investors,

Alongside the success stories are those who fail to make

which will only be possible through tax incentives,” says

it out of the gate. The Failure Institute, an organization

Hernán Fernández, Managing Partner at Angel Ventures, a

that gathers information from 50 researchers and 1,000

venture capital firm. In addition, without the participation

entrepreneurs on five continents, says that 75 percent of

of pension funds, there is no possibility of creating a

businesses in Mexico close after two years. The institute

private equity or venture capital industry, says Fernández.

also says the top 5 reasons why businesses fail in Mexico

Lack of support has led startups to find opportunities in

are insufficient income to survive, lack of metrics, lack of

stronger ecosystems, like Silicon Valley. In fact, companies

process analysis, poor planning and operational challenges.

VIEW FROM THE TOP

DRIVING THE ENTREPRENEURIAL ECOSYSTEM VINCENT SPERANZA Managing Director of Endeavor Mexico 34

Q: What is the dynamic through which Endeavor integrates

and the project’s inflexion point. In this stage, we eliminate

entrepreneurs, mentors and investors?

around 50 percent of the applicants. The second phase is

A: We have three different audiences. First, the advisers

a national panel in which we gather between nine and 12

and the founders´ board which consists of 13 businessmen

companies. The mentors then decide which ones will go to

who believed in Endeavor’s response to the national poverty

the international panel to compete with the finalists of the

problem. Some of the founders are Pedro Aspe, Emilio

30 countries where Endeavor works. Every year, between six

Azcárraga Jean and Lorenzo Zambrano. Our Chairman is

and nine Mexican companies are chosen.

Sergio Rosengaus, who built the only Mexican unicorn, Kio Networks. We then have our local network of mentors, made

Q: What entrepreneurial profile does Mexico need and what

up of senior managers from large consulting firms, CEOs

type of ideas are you looking for?

of the best technological companies and former Endeavor

A: It is about what we need in terms of history. Mexico has a

entrepreneurs who have deep expertise in specific industries.

lack of recent success stories regarding entrepreneurs. That

They donate between three and four hours of their time

is why our methodology is based on the multiplying effect

per month to help us select and coach entrepreneurs. The

of high-impact entrepreneurs, an effect that has two stages.

third group is the entrepreneurs themselves. We search the

First, entrepreneurs become very successful by transforming

country to find people we believe are capable of transforming

their sector. In the second stage, the entrepreneur repays

an industry.

his success by inspiring, mentoring or investing in new entrepreneurs within the local ecosystem.

Q: What is Endeavor’s criteria for selecting entrepreneurs? A: Endeavor focuses only on high-impact entrepreneurs or

Q: How do you finance your operations?

those who become successful and repay their success by

A: We have three financing sources. First, our events

mentoring, inspiring or investing in the next generation. We

represent 30 percent of the income. Next is our relationship

have three main selection standards. First, we take a close

with brands through cooperative sponsorships. Finally, we

look at the founding team. We consider their trajectory,

have the entrepreneurs monthly give back. The smallest

passions, leadership abilities and their capacity to inspire

companies pay MX$5,000 per month and the big ones

through their stories. Then we evaluate their business model;

MX$30,000. However, smaller companies get all the

we look for innovation and a very clear value proposition.

attention and the big companies act as mentors. Also, there

Finally, we look for a turning point that justifies why Endeavor

is an Endeavor catalyst fund in San Francisco, which is a co-

should accompany that entrepreneur to the next stage. In

investment vehicle that invests in Endeavor’s entrepreneur

the end, we choose the entrepreneur that the country needs.

rounds alongside professional investors.

Q: What filters do you apply to find such a specific profile?

Q: What are the main obstacles to entrepreneurial success?

A: We evaluate between 600 and 800 companies and by

A: Endeavor looks for entrepreneurs who have scratches,

the final stage we choose from six to 10. The process has

those who have already failed and recovered. For us, failure

three stages. First, each entrepreneur is interviewed by 10

is a very important part of the process and we want to work

mentors who asses the leader’s potential, the business model

with people who can overcome that. I have never seen a system that punishes failure as hard as that in Mexico. The probabilities for an entrepreneur to trip on their first try are

Endeavor is a nonprofit organization with the mission to select,

very high and in Mexico we punish them so hard that there is

mentor and accelerate high-impact entrepreneurs around the

never a second try. In Mexico we do not recognize success. We

world. It has 28 affiliated offices in Latin America, Europe,

think those who succeed did it because they cheated, stole or

Southeast Asia, Africa and the Middle East

because they had contacts, instead of recognizing their story.

INSIGHT

PROVIDING SPACE FOR OPPORTUNITIES ROGELIO CUEVAS CEO of Centraal 35

As more people decide to leave the corporate world and join

there are outstanding developers who can create fantastic

the growing entrepreneurial ecosystem in Mexico, there is a

projects.” However, he recognizes that there are some gaps in

bigger demand from independent business for spaces to work,

the ecosystem: “Mexican entrepreneurs need to believe they

grow and develop. Centraal, a coworking space for Mexican

can create a global company and they need to think big. We

startups located in Mexico City’s Condesa neighborhood, was

also need success stories from investors and entrepreneurs

created in this context. Centraal was founded in 2013 and

who have had good exits.” In his opinion, the main sectors for

it has become an important shelter for the Mexican startup

development in Mexico are fintech, Internet of Things (IoT)

ecosystem. “The first time we thought about Centraal, we

and intermediate technology.

wanted to create a common place for entrepreneurs where people from different disciplines could interact and create

Despite the existing landscape, the number of startups that

networks of value,” says Rogelio Cuevas, CEO of Centraal.

succeed in the country is low. According to the Failure Institute, 75 percent of startups in Mexico fail and close operations after

According to Cuevas, the Mexican startup community is

their second year. “Many people still believe that a business

growing as Mexicans choose careers that allow them to work

idea is worth gold. Everyone can have ideas but the capacity

independently. “In Mexico 80 percent of business is created by

of a team to execute them in alternative ways is what leads

SMEs.” Plus, according to the most recent economic census

to success,” Cuevas adds.

done by INEGI, 95 percent of Mexican businesses are SMEs. Considering this environment, Centraal started creating

In Mexico, the Government is creating new opportunities

value partnerships for its clients. In 2016, when Google for

through the National Entrepreneur Institute, which opens

Entrepreneurs chose Mexico as the first Latin American

public tenders for funding. “The entrepreneurship career is

Country to expand its GFE Partner Network, Centraal

very lonely and everything we build through public policies

became the first and sole Latin American partner. Through

should be permanent,” says Cuevas. In addition, private

this alliance, Google and Centraal will take Mexican startups

companies are playing a main role in the sector. According

to Silicon Valley. “Through Google we can provide Mexican

to Centraal’s CEO, some of the most committed companies

startups access to programs developed by other partners in

include Bosch, Gentera (Finlab), BBVA, Citibanamex, Grupo

the network. For example, if Campus Seoul, another Google

Bimbo, Coca-Cola and CEMEX among others. “The problem is

space, organizes an event for startups in entertainment, we

the division between people with resources and people with

can select and invite Mexican entertainment startups to

ideas, so we try to find all the ways that they can collaborate,”

participate with all their expenses paid,” says Cuevas.

he explains. Centraal already hosted startups for ‘The Bridge’ program created by The Coca-Cola Company, which recently

Through these opportunities, Centraal is joining efforts with

entered Mexico after being developed in Israel.

Google to empower the Mexican entrepreneur community. In fact, Centraal organized Mexico Startup Day 2016 in November

Centraal will focus on opportunities to expand internationally.

2016, where 10 top Mexican start-ups pitched their companies

They are also interested in providing more training for

to investors from Silicon Valley. Centraal is also supporting

entrepreneurs, creating more technology and working

newborn startups through events called Launchpads, where

closely with corporations, such as Bosch, to develop

they gather entrepreneurs with projects in similar sectors and

ambitious innovation programs that bridge startup talent and

bring Google mentors and experts from across the world to

entrepreneurs with world-class companies. Indeed, Centraal

support these young ventures.

would like to see more success stories pass through their space. “When Uber first arrived to Mexico, they were a team

Cuevas believes Mexico is a hub for technology entrepreneurs.

of two working out of Centraal. We believe our impact has

“There is a lot of engineering talent in the country. In Mexico,

been very high and there is a lot to be done,” he adds.

VIEW FROM THE TOP

HUNTING FOR ‘PONIES’ IN MEXICO’S ENTREPRENEUR ECOSYSTEM HERNÁN FERNÁNDEZ Managing Partner at Angel Ventures 36

Q: What inspired the founding of Angel Ventures?

US$2 million for each project, so we were not able to finance,

A: There is both talent and opportunity in Mexico and we saw

for example, renewable-energy initiatives, which usually

a need to bring those pieces together to make a more virtuous

require investments of hundreds of millions of dollars.

ecosystem. Based on this vision, in 2008 we launched Club de Ángeles Inversionistas. Between 2008 and 2012, access

The first fund benefited entrepreneurs with a business in

to capital was limited and we attracted many entrepreneurs.

Mexico. We have entrepreneurs from Argentina, Uruguay,

At the same time, private investors were interested in

Colombia, Canada and the US but all are operating in Mexico.

participating in startups. In 2008, we had 13 projects funded

With the second fund, we will continue with the same style

with US$10 million and from there we started to build a

but we are open to receiving companies with businesses in

significant portfolio. In 2012, we had a growing network of

Mexico, Chile, Peru and Colombia.

investors and we decided to launch our first investment fund: Angel Ventures. The fund invested in projects in Mexico or

Q: What is the main difference between Latin American

with a predominantly Mexico-focused business case, and

venture capital compared with the rest of the world?

resulted in many successful stories, such as Clip and Kueski,

A: In Latin America, venture capital investments are very

in fintech; Iguanafix, in media; Ösom, in e-commerce; Onko,

different to what you would expect in other markets, as

in health and Gurucargo in logistics.

innovation is limited and it relies more on execution and adapting successful business models from the world to the

Q: The IDB and the Pacific Alliance are participating in

region. US funds want access to a unicorn; that is, a company

your next round of capital raising. What benefits does this

valued at more than US$1 billion. However, in the countries

participation provide?

where we operate the projects have a longer reach time frame.

A: Last year, the governments of Mexico, Chile, Colombia and

We often say that we are looking for several ponies in our

Peru decided to fund an entrepreneurs’ fund worth US$100

portfolio that make up for the lack of unicorns. This means that

million. It was coordinated by the IDB. We were selected to

we need between three and four projects to have a unicorn.

run the fund because of the presence we have in different

This is how we understand venture capital in Latin America.

countries and our multispectral pipeline. The Pacific Alliance is a very interesting platform. Our goal is to invest in 15 or 20

Q: Angel Ventures is the largest network of investors in Latin

projects in different phases but focusing on early growth and

America, with more than 400 participants. How interested

disruptive innovations.

are Mexican investors in these funds? A: Private equity in Mexico is lower in terms of GDP than in

Q: What kinds of companies do you look for when stocking

Chile and Colombia. We need more angel investors, which will

your pipeline?

only be possible through tax incentives. In addition, without

A: We are interested in following global trends in which Mexico

the participation of pension funds there is no possibility of

can be competitive. We are exploring pipeline opportunities

creating a private equity or venture capital industry.

in fintech and health-related services, as well as platforms to leverage the sharing economy, also known as the “uberization”

However, there are more investors. The venture capital

of things. In the first fund, we had between US$500,000 and

industry has a cultural and generational factor. Today, investors are between 40 and 50 years old and grew up with success stories like Microsoft or Google. For those who are now around

Angel Ventures, first founded in Mexico in 2008, is a venture

60 years old, their example of a success story is Walmart or

capital firm that helps strengthen the development of startups

Exxon. In Mexico, we have proven that good business models

in Mexico, US, Colombia, Peru and Chile. With around US$14

can attract capital. If pension funds and institutional capital

million invested, it is one of the main players in the industry

flowed more quickly, that would lead to more projects.

VIEW FROM THE TOP

DIGITAL FIRST AT ONLINE BANK FRANCISCO MERÉ Co-Founder and CEO of Bankaool

Q: What is Bankaool’s added value given that almost all

Q: What are the challenges related to offering this type of

banks are investing in fintech?

service in Mexico?

A: We have several unique characteristics. We have a

A: We are convinced that the customer experience should be

considerable technology component based on our vision to

based on trust. Bankaool is for everyone but not everyone is

incorporate modern technology, which makes us robust and

for Bankaool. Our clients must have a high level of trust in

flexible enough to design products and change processes

technology and should be users of other online products, such

when our clients ask. The platform operates similarly to an

as Uber, Netflix and Spotify. There are people who prefer to

e-commerce site. It incorporates a simple and very intuitive

go to a branch but there are many other people who prefer

process that provides the client the instant gratification of

banking on demand.

receiving a financial product, our main differentiator. At a regular bank, the customer goes to an office and then receives the offer of a digital experience. Here the digital experience

Bankaool was the first online Mexican bank. It offered online

comes first. We have a filter that prevents generic attacks and

loans and allowed clients to conduct any bank transaction

a token for transactions, in addition to the regular password,

online. In July 2017, Grupo Financiero Ve por Más announced

and a fraud prevention system.

its intention to merge Bankaool with Banco Ve por Más

VIEW FROM THE TOP

OPENING OPPORTUNITIES THROUGH CREDIT CELIA BUJAIDAR Founder and Director of Premo

Q: How does Premo contribute to the development of

create a credit history, which will later help them access

SMEs in Mexico?

commercial banking loans.

A: Most SMEs do not receive credit from the banking system. SMEs receive funding mainly from their suppliers

Q: What are the myths surrounding credit lines that

without knowing the real cost of that credit. By going

prevent SMEs from accessing them?

through a financial institution, companies can pay rates

A: With small SMEs, sometimes a lack of knowledge leads

that end up being much more economical than those

them to believe that accessing credit lines through a formal

applied to loans from suppliers. Premo provides loans

institution entails a heavily procedure. Many are not aware

for working capital to SMEs, which allows them to access

of the benefits of receiving credit from a formal institution.

better prices for their inputs or to increase their operations. Many SMEs have access to commercial banking but the processes are too slow. We are a fast source of support

Premo is a nonregulated SOFOM that specializes in providing

in approving and delivering money. The company also

credit lines to SMEs. The company was founded in 2008 and

works as a bridge for those SMEs that do not have access

offers loans starting at MX$100,000 up to MX$5 million. It offers

to commercial banking credit. This way, companies can

an online tool to prequalify credit lines for potential clients

INSIGHT

REGULATION AND TRUST, THE NEW REVOLUTION VICENTE FENOLL CEO and Founder of kubo.financiero 38

Entrepreneurs are disruptive in the most unimaginable ways.

While mathematics and algorithms are kubo.financiero’s first

It is no surprise that the business model of kubo.financiero,

security filter for its investors, to provide an extra degree of

a fintech startup, is based on three unusual aspects:

safety they suggest what any other good investors does:

technology, regulation and trust. Vicente Fenoll, CEO and

diversify their portfolio. “We do not tell investors where to

Founder of kubo.financiero, says the disruption caused by

put their money, but we do urge them to invest in at least

companies such as his is a result of an entrepreneur’s DNA.

200 different projects (on average more than 400). This

“As entrepreneurs, we need to think in business models

way, if a lender fails to pay, then investors do not lose all

entirely different to that which we know.”

their money,” says Fenoll. “A typical investor account at kubo.financiero totals MX$80,000 allocated to 400 or 500

Through a digital marketplace, the company puts investors

projects, but we have people participating with MX$5,000

or lenders in direct contact with borrowers, which Fenoll

in 100 projects.”

says is a kubo.financiero innovation. “As an investor, you can choose in what project to invest. You have access

However, kubo.financiero would not be the successful model

to the person’s history and project and decide whether

it is without the technology component. “Our technologic

to invest with them or not,” he says. However, there is a

proposal is managed to generate price differentials that

catch. All loans are made without a guarantee of payment,

favor both investors, with higher rates of return, and

making trust and very complex mathematic algorithms

borrowers, with lower interest rates.” This means that while

the investors’ best bet to get paid. “The only guarantee

a traditional investment in a bank yields an average rate of

our investors have of being paid back is that the person

around 2-4 percent, kubo.financiero offers an average 13.8

that they are investing in has a history of complying with

percent. Interest rates for borrowers are also decreasing.

payments,” says Fenoll. That is why kubo.financiero rejects

Fenoll says that on average, clients pay 39 percent. In 2012,

almost 92 percent of the loan applications it receives.

when the company launched, borrowers were paying a 47

“

Regulations generate extra costs and procedures that are not always entirely efficient, but a regulated entity generates more trust”

percent interest rate. Bolstered by its technological component, kubo.financiero’s value proposition helped attract US$7.5 million in an investment round in August 2016, which Fenoll says represents trust in the company, the fintech business model and the management team. He is confident that kubo. financiero is poised to continue growing to reach 10,000 users and 1,500 investors in 2017. The third element of kubo.financiero’s business equation relates to regulation. Fenoll says many entrepreneurs believe

The rejection rate is based on risk, as calculated by the

that being disruptive means fighting against regulations.

company’s algorithms. “We use very complex mathematical

On the contrary, he says regulation has been a competitive

models to assess risk. Our algorithms analyze information

advantage that has allowed the company to generate trust.

from the credit bureau, third parties, behavior on the

It became the first company of its kind to be regulated by

platform and information people provide us. They then

the CNBV in 2015. “It is true that regulations generate extra

determine if companies qualify to be in our platform. Our

costs and procedures that are not always entirely efficient,

algorithms even establish payment plans as well as interest

but a regulated entity generates more trust, especially when

rates,” Fenoll says.

you are handling money from third parties.”

INSIGHT

DIGITAL CURRENCIES TO PROVIDE TRANSPARENCY DANIEL VOGEL Co-Founder and President of Bitso 39

In 2014, in a good month, the number of bitcoin transactions

Vogel is convinced the most important innovation

on exchange platform Bitso amounted to MX$4 million. In

opportunity for bitcoin and other digital currencies lies with

2017, MX$4 million represents a slow day. Bitso, which aims

microtransactions. “In the future, you might use bitcoins

to connect Mexico with the world of digital currencies such as

to skip adds on YouTube or instead of subscribing to a

bitcoin and ethereum, now oversees daily bitcoin transactions

newspaper you will pay fractions of bitcoins to read only the

that usually range between MX$4 million and MX$15 million.

articles you want to read.”

Daniel Vogel, President of Bitso, is convinced it has not even

Traditional retail would be the go-to option for normalizing

scratched the surface of the digital currencies’ potential

the use of digital currencies but Vogel believes the currency

in Mexico. “The use of digital currencies will increase

offers more interesting opportunities. “Peer-to-peer lending

competition, lower transaction costs and completely

platforms have existed for a long time but they tend to be

change our paradigm regarding the way we interact with

local. Now, we are seeing people experiment with bitcoin

the suppliers of financial services.”

peer-to-peer lending globally,” continues Vogel.

One of bitcoin’s most unsettling elements for many is

But not everything everything about bitcoin is sorted out. Two

that it is not backed by any central authority, bank or

issues are front and center: the lack of regulation and the use

institution,“the issuance of new bitcoins is controlled in

of the currency for illegal activities. Since it is not backed by

code. It is not arbitrary and cannot be changed by any

any institution, it has no regulatory oversight. However, that

individual. We know exactly how many bitcoins are in

does not mean that governments have not made an effort to

circulation and how many will be circulating in a particular

give it an operational framework. In April 2017, the government

moment,” says Vogel.

of Japan recognized bitcoin as a legal payment method, which has sent the value of the digital currency soaring, experts say.

Unlike common currency, which is printed or coined by

The EU and the US treat it as a currency but have imposed a

federal governments, bitcoins are created through a

series of regulations that tax any income that people might

process called mining, which is solving math problems.

get from it.

“All the computers connected to the bitcoin network solve equations. Whenever an equation is solved, a

Other common concern is bitcoin’s anonymity and thus its

block referencing the previous one is created,” says

use for illegal activities. Though every bitcoin transaction is

Vogel. “Whenever I make a transaction with bitcoins, it is

registered in the blockchain and thus is traceable, users can

registered in the blockchain and every computer running

choose whether their name is revealed or not. That sort of

the software registers the transaction. Every 10 minutes the

anonymity was taken advantage of in the global cyberattack

bitcoin network is updated and transfers this information

that took place in May 2017, when payments were demanded

to the computers running the software.”

in bitcoins. But Vogel says that those who use bitcoins for illegal activities have no understanding of the technology

The intricate system connecting computers and updating the

and that never in history has there been such traceability and

blockchain makes it almost impossible to alter bitcoin. “If you

visibility in the monetary system.

want to alter any bitcoin transaction, it would be necessary to convince all the anonymous computers running the software

Despite the hurdles, Vogel is confident that the benefits the

to change the blockchain,” explains Vogel. He says bitcoin

currency could offer surpass its perils. “In the same way that

must be understood as a protocol. “Just like the internet is

in the 1990s people could not understand the role the internet

a protocol, so is the bitcoin network. Being an open system

would have in the monetary system, people do not entirely get

allows for important innovation opportunities.”

what bitcoin will do for them in the coming years,” Vogel says.

VIEW FROM THE TOP

A SOCIAL APPROACH TO BUSINESS ZHAIRA FRANCO Entrepreneurship Manager at Facebook 42

Q: What motivated Facebook to establish the

ready to advertise, they have control of their campaign and

Entrepreneurship and Economic Growth initiative in Mexico?

can start and end whenever they want.

A: The initiative was launched in Brazil about three or four years ago, after Facebook identified a need among SMEs

Q: What are Facebook’s main programs in Mexico?

and entrepreneurs. The idea is to offer educational programs

A: Boost your Business with Facebook is a public workshop

that teach them how to boost their business using the tools

where we train entrepreneurs on how to use Facebook and

available on Facebook and Instagram. The initiative was

Instagram to grow their business; it is a space where they can

launched in Mexico, Central America and the Caribbean two

learn about success stories. In each workshop, we cover topics

years ago. In Mexico, in particular, we decided to implement

such as creating a profile, creative content, how to make basic

the program due to the country’s size and the importance of

and advanced advertisements and how to use messenger

SMEs to Mexico’s economic growth. Ninety-nine percent of

for business. We also teach internationalization strategies to

companies in Mexico are SMEs, accounting for almost half of

those who are ready to export and we talk about Instagram

the country’s GDP.

for business. There are 750 million Instagram accounts in the world and in early 2017, we launched business profiles. It is

Q: How can Facebook contribute to the development of local

important that entrepreneurs know this tool is available. We

entrepreneurs?

also have a program called Facebook for Business, through

A: The Facebook platform can help SMEs reach their clients.

which we offer our workshop at other events.

There are 78 million people in Mexico with an active Facebook account. Ninety percent of the population that has internet

Q: What success stories do you believe stand out?

access has a Facebook account. Today, there are at least 1.5

A: We are especially proud of the case of Moños Charros El

million SMEs with a business profile on Facebook Mexico and

Appaloosa, a business created by a 27-year-old man from a

77 percent of Mexicans who have an account follow a local

town near Zacatecas. He is a veterinarian and his family history

SME. People are not only on Facebook to connect with family

is related to the business of charrería, a sport similar to rodeo.

and friends, but also to get to know local businesses.

He commercializes charros bows and produces and shares very good content on Facebook. He exports his bows and

Q: What benefits does Facebook offer as a marketing

has quadrupled his sales using Facebook.

platform? A: In addition to the different tools available to promote a

Entrepreneurs should always keep in mind that on Facebook

business, Facebook offers more opportunities than mass

they compete against other companies, so the most attractive

media. When we conduct our training programs, we always

content is what will be visible.

suggest that the customer answer these three questions: What goal do you hope to achieve with this website? Who

Q: What strategies are you implementing to raise awareness

is your audience? What is the relevant message you want

about the benefits of these programs?

to convey? Entrepreneurs do not have too much time and

A: We publish all the information about our events and

want to be precise with their actions. Facebook can take them

workshops at Facebook.com/business and we also have a

directly to their goal. When entrepreneurs decide they are

blog in which we talk about the training sessions and success stories. The Facebook for Business program, which is about the tools available for entrepreneurs, is also in Spanish. To

Facebook Entrepreneurship and Economic Growth is a division

reach those communities that are not yet digitally active,

of Facebook focused on providing SMEs and entrepreneurs

we joined CREA, an NGO that provides courses to women

digital tools on the Facebook platform to boost their business.

in vulnerable situations, to offer our workshop Ella Aprende,

It also hosts public workshops throughout the country

Ella Emprende (She Learns, She Does).

INSIGHT

USING E-COMMERCE TO EMPOWER SMEs CLAUDIO DEL CONDE CEO and Co-Founder of Kichink 43

Bricks, mortar… setting up a business in an offline economy

Product delivery is equally important. Kichink has developed

entails significant investment costs. For SMEs, going online

a relationship with almost every logistics company to ensure

means traditional fixed costs disappear and operations can

that stores on the site have access to the lowest possible

begin with a minimum investment, says Claudio del Conde,

shipping costs. “We manage the order and we track it every

CEO and Co-Founder of Kichink, an online marketplace

step of the way. Of our orders, 98.5 percent are delivered on

whose goal is to provide commercial opportunities in the

time,” he says. Kichink also provides picking, packing and

online economy.

delivery services for stores with larger transactions.

“Our purpose is to empower SMEs by helping them

The platform also offers a marketing consultancy

set up and scale up direct sales channels to reach final

component. “We help SMEs generate marketing concepts,

consumers,” says Del Conde. Kichink’s platform allows

best practices on how to use social media and we offer

users to set up an online store in only two and a half hours

to handle the purchase of digital media,” says Del Conde,

and to scale it up using a model specially designed for

for whom Kichink’s success is rooted in the added value

SMEs. “We manage the technology surrounding the online

the platform provides for SMEs. “The easy formula for a

store. Clients can set it up on Kichink’s platform, Facebook

technology startup is to focus on the software development,

and their websites and it can be customized to their exact

lease it and collect the money, regardless of whether the

specifications,” says Del Conde.

SMEs sell or deliver on time. These kinds of solutions address a market that has enough sophistication. We wanted to

While it is true the internet has permitted the appearance

provide SMEs with a tool that would allow them to grow.”

of several marketplaces, Del Conde says Kichink’s model differs from its competitors in two main ways: its mission

Among the several challenges particular to Mexico, access

to empower SMEs and its focus on ensuring an impeccable

to banking and internet services ranks high. “Banking

user experience. “We do not compete with marketplaces

institutions have no tools to verify certain data. This makes

such as Lineo or Amazon. In its model, brand and product

them less willing to take on some risks.” internet access

positioning depends entirely on them,” he says. “Kichink

is a different hurdle. “Though the number of smartphones

is an enabler that allows SMEs to have a direct channel

grows every year, payment for data does not. This means

to consumers.”

that Mexicans access only free internet content, basically Facebook and Twitter,” Del Conde says.

According to Del Conde, less than 10 percent of SMEs participate in the online economy. “It is an economy

Another stumbling block resides in the offline world: postal

dominated by large corporations,” he says, adding that

delivery. “People in the US are used to getting things in the

Kichink’s model would not work if it did not provide an

mail every day. In Mexico, we have never had this culture.

adequate user experience. “Kichink accepts payment

In the US, around 70 percent of e-commerce sales are of a

through credit and debit cards as well as in cash. We also

physical product. In Mexico, services make up the bulk of

set up the entire system to avoid fraud and perform our

sales – less than 30 percent are of physical products.” One

own payment analysis.”

of Kichink’s goal is to reverse this trend. “We offer services such as classes, seminars and tickets for events but physical

Even though the company is an online platform that

products make up 90 percent of what the platform offers.”

enables e-commerce, Del Conde explains that around 50 percent of payments are made in cash, which is a symptom

Del Conde is confident that it is only a matter of time before

of a bigger problem: the lack of banking access in the

e-commerce completely takes off. “E-commerce can reach

country.

market niches that retail cannot.”

INSIGHT

CLOSE THE CIRCLE TO BOOST E-COMMERCE HÉCTOR CÁRDENAS Founder and CEO of Conekta 44

According to the National Report on Financial Inclusion,

The product extends beyond the payment infrastructure.

82 percent of Mexican adults do not have a credit card,

“We started with a solution that enabled companies to

let alone engage in e-commerce activities. Financial

receive online payments but we realized that it was not

technology aggregator Conekta says this represents a

the only problem the Mexican market was facing. Fraud

wide-open opportunity for like-minded businesses. “We

and chargebacks, or friendly fraud, are also very usual

are a technology and security company that is solving an

problems,” says Cárdenas. OXXO Pay averts both: “Since the

existing problem with our offering of banking products,”

client goes physically to OXXO to pay, there is no possibility

says Héctor Cárdenas, the company’s Founder and CEO.

of chargeback.” Chargeback, also known as friendly fraud, occurs when someone makes a purchase on their credit

Cárdenas says the only way to grow e-commerce activities

card then requests a chargeback or refund from the bank

in Mexico is to close the circle and address all the loose

instead of the merchant, even though they have received

ends that still exist, providing incentives for people to

the merchandise.

buy products online. “You need to work with both sides of the equation: users and businesses. It is important to

For e-commerce to take hold in Mexico, it needs to

provide users with the confidence that their product will be

overcome not only infrastructure but cultural constraints

delivered and to provide businesses with a secure payment

as well, which include a lack of trust in payment systems.

system,” he says.

Conekta, ensures that all the data is managed following the strictest security standards. “We have certifications that

Offering safety has been Conekta’s mission. Its solution

allow us to store all our clients’ sensitive information with

allows companies to accept and process online payments

the highest security standards in terms of encryption,” says

using two options: an API version that allows companies to

Cárdenas.

integrate Conekta’s solution in a personalized manner and through several plugins that SMEs tend to favor.

Though much has been done in terms of developing the e-commerce market in Mexico, there is still a long

Individuals are another matter altogether. A large number

way to go. Cárdenas says that in 2016 in Latin America,

of Mexicans do not have access to banking services and

a total of US$66 billion of products and services were

credit cards. According to Cárdenas, 61 percent of Mexicans

commercialized via e-commerce. Mexico accounted

do not have access to any sort of banking service. With

for US$11 billion. Also in 2016, online retailer Amazon

82 percent of adults not having credit cards, this means

registered net global sales of almost US$136 billion.

that regardless of the advancements made in payment

Cárdenas says that the fact that one company alone

services, only around 20 percent of the country’s adults

processed in payments double that of Latin America and

would benefit from e-commerce.

10 times more than Mexico is a sign that there is still great room for growth.

Conekta’s answer is OXXO Pay. In September 2016, the startup, founded in 2011, raised US$6.6 million from FEMSA

But furthering e-commerce in the country requires

and venture capital funds to develop the solution that

businesses to understand that it is not a panacea. “We need

allows people with no credit card to buy online. Instead of

to stop creating online stores just for the sake of doing

using a credit card, OXXO Pay provides a 14-digit reference

e-commerce. It needs to make sense and offer a better

that customers can use at any of convenience store chain

added value,” says Cárdenas. “That is part of what happens

OXXO’s 14,695 locations. Conekta notifies the business of

with SMEs. They get excited and launch their online store

the payment in real time. “It is an alternative product that

and then nothing happens. We have to help them to be

allows you to emulate credit card payments,” says Cárdenas.

more efficient.”

VIEW FROM THE TOP

MIDRANGE CELLPHONE MAKER A HOME-GROWN HIT JAVIER DE ANTUÑANO CEO Latin America of M4Tel

Q: What is the main added value that M4Tel offers its users ?

Salvador, Honduras and Nicaragua. We will likely reach 5

A: The philosophy of our business was to offer a better cost

million sold in the next two or three years.

benefit to position our products as the best option at the point of sales. We are the only brand offering an interactive smart

Q: Can you describe your production process?

cover as a phone accessory. These aggregated values have a

A: Everything is conceptualized in Mexico. We were the first

big impact for postpaid clients, who sign contracts for 18 to

in Latin America to integrate Qualcomm’s applications. We

24 months and rent the phone. We lead the medium segment,

take care of what goes inside the phone, the features and the

which refers to smartphones from MX$2,259 to MX$3,999.

technical solutions that could make it competitive. R&D stage

Last year, we place more than 1.2 million phones on stores. We

is developed in China. We have launched 17 models.

also explored the corporate market and developed a portable Wi-Fi hotspot that many security and banking companies have acquired.

M4 Tel is a Mexican company that manufactures cellphones for the medium-range market distributed by Telcel. It was

Mexico accounts for between 75 and 80 percent of all devices

founded in 2012 and is present in Mexico and Central America.

sold. After Mexico, the main purchasers are Guatemala, El

Its technology partners are MediaTek and Qualcomm

VIEW FROM THE TOP

BOOSTING MEXICO’S FINANCIAL INCLUSION ADOLFO BABATZ CEO and Founder of Clip

Q: How did you come up with the idea to create the Clip

from ATMs. For this reason, it can be said that Clip is the

card reader?

missing piece in financial inclusion. Clip is “terminalizing”

A: The idea of Clip comes from a very simple principle:

the country. Today, Clip is the fourth-largest acquirer in

providing access to companies that want to accept on-site

terms of number of merchants in Mexico.

debit or credit-card payments. Clip was created for any SME and any business that does not receive payments with

Q: What are your expectations for Clip?

debit or credit cards. We have retailers, restaurants, services

A: We hope Clip becomes a successful story of technology

providers, wholesalers and individuals. Clip is a microcosm

in Mexico. Our vision for the company is to become the

of the Mexican economy.

operating system of Mexican commerce.

Q: How is Clip contributing to normalizing the large number of informal businesses that exist in Mexico?

Clip is a startup company that provides access to financial

A: In Mexico, there are 140 million debit cards and 30 million

services to SMEs and independent businesses. When connected

credit cards. However, there are not enough places to use

to a mobile phone the Clip card reader accepts card payments

them and that is why people need to withdraw money

through an application that manages the user´s transactions

VIEW FROM THE TOP

UNIVERSAL ACCESS TO SOLAR POWER, ONE STEP AT A TIME JONAH GREENBERGER Co-Founder of Bright 47

Q: What differentiates Bright from other distributed-

low-income communities. With this huge mission on our

generation solar companies?

shoulders, we have to make sure to take it step by step.

A: Bright is usually thought of as a solar installation

Our job, therefore, is to offset the tariffs in countries with

company, but in reality it is a software company. We are

high rates and good solar radiation. Having a strong base

building a software platform to allow everyone in the solar

of customers in the high and middle-income segment will

ecosystem to be efficient, cost-effective and to scale up

allow us to bring technology costs down. It may sound

operations as fast as possible. To accomplish this, we partner

counterintuitive to start with the elite to provide universal

with local installers, suppliers and entrepreneurs as well as

access, but we believe this is the most effective path. Many

with international manufacturers so they can act together

startups that want to provide clean, affordable and universal

with local players to install the solar systems. Our sales

access to electricity from day one fail to apply economies

partners are comprised mainly of student ambassadors who

of scale to technologies that are still expensive. Bright is

promote and sell the technology, while the entrepreneurs

working with the DAC and T2 segments in Mexico. We are

and installation partners provide the solution. Brightâ&#x20AC;&#x2122;s

in the process of opening five offices across the country and

software connects all these pieces together. Instead of just

creating local teams. We expect to have them ready by the

being a one-service provider, Bright is a full-service provider

middle of 2018. After that, we will reach the South American

that integrates all these services to make an efficient and

market in countries such as Chile, Colombia and Brazil.

customer-oriented solar system. Although Bright is a small company, it has a huge footprint that includes thousands of

Q: What are the chances Bright will bring its software

people working across Mexico. It is not easy to coordinate

design operations to Mexico?

and manage all these pieces in a frictionless way that is

A: We are trying hard to bring our core software operations

hassle-free for the final customer, which is why we face

here but the lack of human capital is holding us back. The

an underdevelopment of distributed generation in Mexico.

reason is not that there is a lack of talent, which definitely exists in the country, but the lack of opportunities for

Q: How will Bright provide universal solar access when

that talent to work in companies before graduating and

working with DAC consumers?

to develop significant real-world experience. Students in

A: Tesla is an interesting analogy. The first Tesla car cost

Mexico do not have the opportunity to walk down the street

over US$100,000. It was not universally accessible but it

and seek part-time jobs at global companies like Facebook,

was fast and appealed to people who liked and could afford

Google and Twitter like students in Silicon Valley do. Since

sports cars. Because Tesla could sell enough cars at that

Bright is interested in developing the industrial ecosystem

price range it could lower the cost of batteries, which is the

from its very own roots, we are working on providing the

most expensive component of the car, to the point where

opportunities for students to develop finance and sales

it could create the S model. This model is still expensive

together with programing skills. Furthermore, we expect

but affordable to a much larger segment of the market,

that the skills and abilities they learn will be used in

enabling the company to produce more and bring costs

international environments. In a globalized world, this is a

even lower. Tesla now has the model 3, which costs around

strong asset for them, and for the country, and high schools

US$30,000.

and universities should join in this effort.

Our mission is to reach every corner of the world where people do not have any power source besides fuels like

Bright is a Mexican startup that is building a software platform

kerosene and to bring them electricity as a fundamental

to spread residential solar globally. Its goal of promoting

enabler of Â communication, entertainment and education.

universal and fair access to solar energy for Mexican families

Solar at the moment is too expensive to introduce to

has been supported by investors in both Mexico and the US

VIEW FROM THE TOP

THE NEW GENERATION OF REAL ESTATE ANTOINE PEROUZE Co-founder and CEO of Dada Room 48

Q: What opportunities inspired the creation of Dada Room

A: When we started pitching the idea, the biggest challenge

and what are the company’s revenue sources?

was to convince investors that we could compel people to

A: Dada Room is a tool that helps people find shared housing.

search for a roommate through the internet. In looking for the

Users can access most of the platform’s services for free but

right security system we landed on Facebook. Mexicans might

they can also subscribe to premium offers for MX$200 to

not trust the internet but they are among the world’s most

MX$300 per month. This extra service provides access to

active on Facebook. We took advantage of the security efforts

phone numbers and new ads, meaning users can find a room

made by this great player and now the only way someone can

more quickly. Other income channels include advertising. We

have an account with Dadaroom.com is through a Facebook

also work with insurance companies on additional services

account. We also created an additional filter so that any user

and eventually we want to offer users the option to pay their

that registers in the platform and who has fewer than 100

rent through the platform.

friends on Facebook undergoes a manual check.

When we launched the company four years ago, we realized

Q: What are the similarities and differences between Dada

there were two main reasons why people search for shared

Room users in Mexico and those from Latin America?

apartments. The price for buying or renting in big cities was

A: We designed the product for the millennial generation but

growing quickly in comparison with young people’s salaries.

the age at which people begin searching for housing changes

The average salary for a recent graduate is MX$11,000 but

from country to country. Dada Room users are younger in

10 years ago it was MX$9,000. Back then it was possible to

Mexico than in Brazil or Chile. For instance, in Peru, 40 percent

rent an apartment in the now trendy Condesa area of Mexico

of our users are older than 30, while in Mexico only 25 percent

City for MX$2,000. Today this same apartment could cost

are that age. We are in Mexico, Chile, Colombia, Argentina

MX$12,000. We also recognized this new generation entering

and Peru. The highest growth has been between 20 and

the Mexican and Latin American labor force is different from

30 percent per month in Colombia and Peru, while in Brazil

its predecessor. Today’s young people prefer quality of life

and Argentina we are still in a period of adjustment with the

to property, want to live close to work and do not plan to

platform. Today, we have more than a half-million users in

marry at 23.

Latin America and 90,000 active users per month.

To arrive at our platform, we studied the most innovative

Q: What trends have you recognized in Mexico using the data

real estate sites, like Airbnb, and online dating platforms, like

collected through the site?

Tinder. Our product is a combined housing search site and

A: With the data we compile we can generate studies and

match-making service. This combination provides what our

press releases that will help us reach the public that we

ideal users are looking for: the right space to live in and the

cannot find through the internet. To develop these studies,

right people to share it with. We bring the human element to

we first worked with another startup, Atlantia Search, that

the real estate market.

does online market research and which belongs to the same incubator as us. Then, we hired an in-house researcher, an

Q: What filters do you apply to control what is posted on the

economist and a sociologist. Now we are developing our own

website to ensure security and avoid fraud?

studies that are also helping us identify where our market opportunities are. We have seen demand grow. On average, there is one room available for every four people who are

Dada Room is a startup with almost 100,000 active users. It

looking in Mexico City. In delegations like Cuauhtemoc the

allows users to offer a room or search for one by applying

ratio is one room available per nine people looking. We

different filters. Dada Room operates in Mexico, Colombia,

want to reach those who might have a free room but are

Chile, Peru, Argentina and Brazil

not renting it yet.

INSIGHT

APPROACHING EARLY CANCER DIAGNOSIS WITH AI JULIÁN RÍOS Co-Founder and CEO of Higia Technologies 49

Breast cancer mortality is on the rise in Mexico and early

high expenditure for the government and a main concern

detection can be a strong tool to combat the disease. Self-

given the lack of an effective early diagnosis test. “The

examination has traditionally been the first line of defense

government will be one of our main buyers because this

but it is far from ideal. After watching his mother survive

product will help rural clinics, associations, universities,

two battles with the cancer, 17-year old entrepreneur Julián

insurance companies and hospitals reduce costs.” Eva will

Ríos thought Artificial Intelligence (AI) could provide a

initially sell for MX$2,000 (US$111) without government

better approach and the result of his work is attracting

support, but Ríos says its business model will enable the

serious attention both in the public and private spheres.

company to reduce the price.

Ríos’ company, Higia Technologies, produces Eva, a bra

Higia Technologies works with a team of 10 people made up

Ríos says can detect breast cancer through the use of

of engineers and oncologists and the company has received

bio-sensory patches. He believes the detection methods

an invitation to work at investor Y Combinator in Silicon

currently available are more for diagnosis, mammography

Valley. “It will help us formalize the business part. It receives

and biopsy, while there are few effective early detection

7 percent of the company for a very small investment.

processes. Ríos hopes to meet this need with Eva.

However, the real value of this opportunity is to be part of an ecosystem in which we can gather important contacts

The high-tech bra’s bio-patches capture temperature data

that could lead us to higher investment,” says Ríos.

that is sent to a mobile app, which keeps a record of the information received. “Cancer increases blood flow due

Ríos began researching breast cancer when he was 13

to the abnormal production of cells that could produce

and locked onto the idea that changes in temperature

a tumor. This leads to an uncommon temperature in the

could lead to a correct diagnosis. He then gathered his

affected area.” The app’s algorithms analyze the collected

high-school friends to create Higia Technologies with an

temperature data to produce a thermal conductivity curve

investment of less than US$250. By 2017, the company

that is compared with a database of 2,000-3,000 curves

had raised US$75,000 from awards and donations,

of data from women from different parts of the world who

US$33,000 from investors and it is about to close a round

have been diagnosed with cancer. “Different tumors have

for US$300,000 from an investment fund. Ríos believes

different thermic fluids. If there is a curve similar to a case

the Mexican entrepreneurial ecosystem is talented but

from the file, the probabilities of having breast cancer are

lacks support. “Many projects are changing the world

between 93 and 94 percent,” says Ríos.

but not in Mexico. The industry of risk analysis is very small, which restricts investment.” He also thinks many

Eva will be available early in 2018 in Mexico and Latin

entrepreneurs in the country have good ideas but poor

America through online platforms and convenience

execution. “We have often seen how in Mexico ideas are

stores. The project is awaiting approval from COFEPRIS

adjudicated without evaluating whether they can be

and the team recently signed an agreement with IMSS

executed,” he says.

to carry out trials. Higia Technologies is in the process of developing new According to the Ministry of Health, in 2015, 6,252 women

products, including a device to detect testicular cancer

died in Mexico due to breast cancer, almost 5 percent

through men’s underwear. Ríos says information is the

more than the previous year, figures that Ríos wants to

key component of his company. “Higia Techonologies is

reduce. According to Ríos, a woman with cancer in phase

moving from a company that develops medical devices

III costs IMSS MX$5 million (US$277,000) every year and

to an information company. Our value is in the amount of

MX$250,000 (US$13,888) if she is in phase I. That is a

information we have.”

INSIGHT

AN ALLY FOR DOMESTIC WORKERS Rodolfo Corcuera Co-Founder and CEO of Aliada

Ana Isabel Orvañanos Co-Founder and COO of Aliada

Almost 2.4 million people in Mexico work as domestic

“By becoming part of Aliada, women can increase their

paid labor but only 2.3 percent have access to Social

income up to three times,” Orvañanos says. Nevertheless,

Security services, according to the 2016 National Survey

more money and benefits imply more responsibilities. “Most

on Education and Employment. A new market platform is

of these women view the bank and SAT as the enemy,” adds

hoping to make a positive dent in those numbers.

Orvañanos. In a country where fewer than three in every 100 domestic workers pay taxes and have access to social

Aliada, founded by Ana Orvañanos and Rodolfo Corcuera, is

security services, Aliada offers formality and protection in

a marketplace that connects users with aliadas, the Spanish

a sector that is usually neglected by public policies.

term for the women and men who provide house-cleaning services. The platform provides them with social security benefits. “Aliada generates an impact on the people who

INFORMAL SECTOR IN MEXICO EMPLOYMENT IN MEXICO

use the platform, whether it is someone looking for cleaning

47.7%

services or someone offering them, which is the reason the

company was created,” says Orvañanos. The platform follows a simple principle: if you need cleaning services, you use the platform to request an aliada. Each has a profile accompanied by comments

Informal sector

24.4% Companies,

54,068,791 Economically active population

and reviews from other users while aliadas can also

government and institutions

20.1%

Agricultural sector

7.7%

Paid domestic work

provide reviews of users. A basic price is set for services

but Orvañanos says that aliadas with good profiles can charge more for their services. Aliadas can also reject offers that are far from their delimited work area or from users having bad reviews from other aliadas. Two years after it was founded, Aliada has 1,200 affiliated women and men. Orvañanos is confident the platform will reach more people. “The important thing is being able to generate value for these men and women.”

Source: National Survey on Education Employment, Second 11% Mazapil 2% and Sahuaripa Trimester 2017

9% Cananea

2% Morelos

7% Nacozari de Garcia 2% Eduardo Neri Still, like any company, it must also yield a benefit for its 5% Fresnillo 2% Aquila investors. “We generate a positive impact on our users’ lives 4% Ocampo 2% Alamos but if we do not provide a good service with good results no 4% Caborca 1% Chinipas one is going to invest in the platform, regardless of how social 2% Sierra Mojada 47% other we are or how many problems1 we are solving.” For Orvañanos,

Source: CGM, Ministry of Economy With figures to March of 2015

As any other marketplace, the platform connects supply with

the best strategy a company can implement is to concentrate

demand. “Our platform generates no added value for users if

on growing the business and generating value for investors.

there are not enough aliadas in the most needed zones. It also

Such is the value investors see that the online platform just

generates no added value for aliadas if people do not require

closed its second investment round. Led by Promotora Social

their services,” says Orvañanos. For Aliada’s founders, the

México and its initial investors VARIV Capital, Capital Invent

most pressing challenge has been finding the right balance

and Dila Capital, as well as new investors, such as Grupo

between demand and supply. But Orvañanos explains that

Gentera, Aliada is entering a new phase that will allow it to

being a technology company gives them an advantage. “We

continue experiencing exponential growth.

have the KPIs needed to determine how we should balance the components of the platform to attain a good balance.”

First, however, the company must improve the platform. “The platform is our main product,” says Orvañanos. “The better

An important differentiator for aliadas is related to the

we can solve the needs of the marketplace the more growth

additional income they receive and social security services.

we will experience."

INSIGHT

TRANSFORMING DREAMS INTO SUCCESS FERENZ FEHER Founder and CEO of Feher & Feher

Launching a business is not an easy task. While there are

started, we focused on franchising but as we went along, we

several factors that can deter people from becoming

realized there was a pool of business-consulting opportunities

entrepreneurs, fear of failure and lack of knowledge regarding

we could tap into. Today, we can equally help micro and small

resources are at the top of the board, says Ferenz Feher,

businesses or big corporations,” says Feher. While business

Founder and CEO of Feher & Feher. “What they need to do

consulting is now common in the country, Feher says the main

is to reach out to the correct instances to help them obtain

differentiators of his firm are embedded in its philosophy:

resources,” he says.

“We transform our clients’ dreams into growth opportunities.”

Feher & Feher has developed a methodology aimed at

Initially, Feher did not think that entrepreneurs could be an

helping not only entrepreneurs, but also any kind of business

important business. After analyzing the number of applications

that might need its help. Although it started as a business

he came to the conclusion that they could be a source of

specialized in franchising, throughout the years the company

business. Today, Feher & Feher’s franchising operations

has successfully diversified into several lines that include

only represent 50 percent of the business’ activities, while

business acceleration and incubation, management consulting

the remaining 50 percent is divided between its business

and development of international business models. “When we

acceleration, incubation and consulting services.

VIEW FROM THE TOP

WELLNESS AT OUR FINGERTIPS OSWALDO TRAVA Founder of InstaFit

Q: What are the main services offered by InstaFit?

process. As a technology company, we are also concerned

A: InstaFit is a Spanish-language media platform focused on

about creating a tool that is scalable and affordable.

fitness and it is the leader in fitness apps in Latin America. We produce audio and video content guided by internationally

Q: What are your long-term plans for the company?

certified trainers and distribute that content across many

A: InstaFit has the potential to become a very large

channels. InstaFit Workouts, our mobile app, provides access

international company. We are trying to access new

to all of our workout and meditation sessions through a

distribution channels like insurance companies or airlines

subscription. We have over half a million followers on social

that want to include content in their onboard entertainment

networks and our app has been downloaded 750,000 times.

system for meditation or stretching.

Q: What distinguishes InstaFit from other fitness apps? A: We offer guided content between four and 35-minutes

InstaFit is a digital services company focused on wellness. It

long in which participants watch and listen as our coaches

developed InstaFit Workouts, an application for iPhone and

instruct and motivate them. Having content that is culturally

Android operating systems that offers personalized exercise

appropriate helps users more easily adhere to a habit-forming

routines, nutritional plans and healthy lifestyle advise

INSIGHT

WRITING A FUTURE FOR MEXICO’S HOMELESS POPULATION María Portilla Director General of Mi Valedor 52

Regina Rivero Administrative Director of Mi Valedor

Despite public policies, Mexico City’s efforts to provide a

client base and in some way become a valedor, or friend in

sustainable economic status for all its citizens is falling short

the Mexican slang. The magazine follows the model of The

for those who live in the streets. Mi Valedor, a bimonthly street

Big Issue, a publication founded 25 years ago in England. Mi

magazine that provides the homeless with an income, is trying

Valedor belongs to the International Network of Street Papers

to write a new story for the unattended population of Mexico

(INSP), a network of 110 papers from 35 countries written in

City. María Portilla and Regina Rivero, Director General and

24 languages that provides an income for 10,000 vendors.

Administrative Director respectively of Mi Valedor, say the publication is a vehicle for social reinsertion and a bridge to

“In some way, this project is helping us mitigate problems

formalizing the informal economy.

that should be part of the government agenda,” says Rivero. Vendors purchase each copy of the magazine for MX$5 and

Mi Valedor includes graphic and literary depictions of everyday

sell it for MX$20. The company also organizes workshops for

life in Mexico City. Vendors establish themselves in an area

vendors and other homeless people with to cultivate abilities

or move within the same zones. They sell the magazine to

and values. Around 200 vendors have come across Mi Valedor

make an income, interacting with their neighbors, building a

and 2,000 people have benefited from the workshops.

VIEW FROM THE TOP

UNLEASHING TALENT THROUGH UPGRADED HR PRACTICES PAOLA CARRANCO Founder Director of TalentLab

Q: What are the main solutions TalentLab offers that

and environment. We also offer high-technology platforms

differentiate it from its competitors?

that help companies evaluate their people.

A: Our purpose is to liberate a company’s potential through its people and to improve the working culture in Mexico. We

Q: What is the profile of your most frequent clients?

believe in creating a better work life and we are convinced

A: We have solutions for every type of company. For example,

that if we unleash the potential of people, we can offer

our change management strategies will probably be more

added value for any company. Our offer is oriented toward

useful for a transnational company than for an SME and our

corporate transformation in areas such as talent, culture,

evaluations are useful for everyone. We work in sectors such

change management, diversity and inclusion, work flexibility

as mining, oil and gas, aerospace, finance services, retail and consumption. Regardless of the sector, most of our clients are large or very large companies because the solutions we

TalentLab is a Mexican consultancy firm founded in 2013 and

offer are advanced and not all companies have the time and

specialized in organizational and talent development, as well

money to invest in them. The problems related to human

as organizational evolution and talent-assessment solutions

resources usually appear during corporate evolutions or when

for companies

companies are increasing in size.

VIEW FROM THE TOP

PIONEERING E-EDUCATION Manolo Díaz CEO and Co-Founder of Yogome

Alberto Colín CCO and Co-Founder of Yogome 53

Q: What has been the key to building a scalable project?

AC: We develop content for children between 4 and 11 years

MD: We needed quality, a good concept and a great story.

old. At first, we focused on mathematics but in San Francisco,

And we had to think beyond Mexico because technology

where we have our headquarters, ecology is very important,

allows us to cross borders and to look for opportunities

so we developed other products on recycling. Afterward, the

everywhere. Yogome has users in more than 50 countries.

public began to demand games about science and geography.

Even though there are cultural differences, children all over the world are growing up with a tablet, so we saw an

For mathematics and science, we use a standardized

opportunity on educational games.

curriculum used in US elementary schools that we then adapt to Mexico and other countries. We are interested in

AC: In 2009, we decided to build a web-development

health, creativity and sustainability and we want to introduce

agency and then dedicated ourselves to the creation of

programming fundamentals. Soon, we will also have apps

educational games. In 2011, we received investment from

related to social and emotional learning. Our most popular

the US. In 2013, we became part of Endeavor, which gave

product is Epic Heroes of Knowledge, in which we offer

us access to more investors. Our latest investor is Seaya

educational and entertaining content.

Ventures, a Spanish fund that provided US$6.6 million. This last investment will go toward marketing, team growth in Mexico City and San Luis Potosi and expansion to the Asian market, especially to China, South Korea and Japan. Today, we have more than 400 minigames and around 20 apps. Q: What is your approach to sales and how can you

Yogome’s Epic Heroes of Knowledge app has 4 million active users per month

determine the educational impact of the games? AC: We have two types of clients: our final user, the children,

Q: What kind of talent are you looking for to build a

whom we have to convince to use the product, and the

team that will help you achieve this mix of education and

user who is going to pay, the parents. We have to convince

entertainment?

parents that the product has educational value.

AC: We have many developers, designers, illustrators and animators, but above all there is our educational team. All

In Latin America, we have penetrated Mexico, Chile,

our employees are between 22 and 40 years old with a

Colombia and Brazil, while in Asia we are in Thailand and the

background in comics, social networks and video games.

Philippines. However, our largest audience is in the US and the favorite subject there is mathematics. We worked with

MD: In Mexico, there is a lot of talent. We value our people

Play2PREVENT, a video and mobile game research initiative

and we believe they are happy with us. Investors now say

at Yale University, to measure the impact of our math games.

we do not need Silicon Valley but we find valuable talent

We are in the final stage and are awaiting their approval to

there that is hard to find in Mexico. Our educational director

publish the results. They did different tests over one year

studied at both Berkeley and Harvard, so we can reach this

with children aged between 6 and 9 years old and found

kind of talent in the US.

that those who used our games were better able to solve tests from their grade level than children who had not tried our application.

Yogome is a startup founded by Mexican entrepreneurs that develops educational minigames for children that are available

Q: How do you decide what topics should be covered in

on IOS and Android across the world. They have offices in San

the games Yogome produces and what curriculum is used?

Francisco, Mexico City and San Luis Potosi

BMV, Mexico City

FINANCE & BANKING

After the nationalization and privatization trends of the 1980s and 1990s, the banking and finance sector in Mexico now represents 17.6 percent of the countryâ&#x20AC;&#x2122;s GDP, with continued growth in recent years, especially after the emergence of international banks. Between 1999 and March 2017, financial and insurance services have received a total of US$71.2 billion in FDI, accounting for 15 percent of the total FDI the country received in that period. However, the market faces a number of challenges, mostly related to the general populationâ&#x20AC;&#x2122;s lack of access to the banking system. Sixty-one percent of the Mexican economy develops informally, which prevents banks from reaching a high percentage of the population. This requires more effort in the development of the sectorâ&#x20AC;&#x2122;s infrastructure, not only in branches and ATMs, but especially in technology. A transformation that begins to be intuited thanks to the appearance of the fintech ecosystem, which offers banking access through new schemes of loans, payments and credits.

Overall, Mexico has been able to establish macroeconomic fundamentals to protect itself against international political and economic instability. This chapter offers an overview of the Mexican finance and banking sector where experts will discuss the current and upcoming challenges in the segment.

CHAPTER 3: FINANCE & BANKING 58

ANALYSIS: Digitalization, Fintechs Disrupt Traditional Sector

VIEW FROM THE TOP: Francisco N. González, Bancomext

VIEW FROM THE TOP: Felipe Vilá, Fondo de Fondos

VIEW FROM THE TOP: Nuno Matos, HSBC

VIEW FROM THE TOP: Carlos Rojo, Grupo Financiero Interacciones

VIEW FROM THE TOP: Mario Maciel, CIBanco

VIEW FROM THE TOP: Octavio Liévano, Crédit Agricole

VIEW FROM THE TOP: Raul Martínez-Ostos, Grupo Financiero Barclays México

TECHNOLOGY SPOTLIGHT: SPEI – The 24/7 Money Transfer Solution

INSIGHT: Santiago Juárez, Banco Sabadell

INSIGHT: Antonio Junco, Mastercard México and Central America

VIEW FROM THE TOP: Luz Adriana Ramírez, Visa México

VIEW FROM THE TOP: Pablo Coballasi, PC Capital

VIEW FROM THE TOP: José Oriol Bosch, BMV Group

VIEW FROM THE TOP: Arturo J. Saval, Nexxus Capital

VIEW FROM THE TOP: Luis Cervantes, Finaccess México

INSIGHT: José María Zas, American Express

ANALYSIS

DIGITALIZATION, FINTECHS DISRUPT TRADITIONAL SECTOR Financial services in Mexico contribute to over 4 percent of the national GDP. While investments in the sector and the arrival of new players have expanded the industry, there are still opportunities for greater growth, from broader inclusion to the advance of fintech

The disincorporation process the financial system underwent

Adriana Ramírez, Director General of Visa México, says that

in the 1990s as well as Mexico’s signing of several free trade

only 40 percent of the adult population has access to a bank

agreements that permitted the participation of foreign

account or a formal financial service. The reasons vary, but the

financial entities in the domestic sector helped create the

lack of banking infrastructure such as ATMs or bank branches

diverse financial system Mexico enjoys today. Technology is

as well as labor informality contribute to weak numbers.

proving to be the spur for even greater change that will also address a key issue for the industry: inclusion.

Torres says the solution for furthering financial inclusion includes a mix of technology and infrastructure. “To increase

According to data from INEGI, from 2010 onward, financial

access, we must move forward simultaneously in different

and insurance services have contributed over 4 percent of

directions: using the most advanced technology and new

the country’s annual GDP. In 2016, financial and insurance

digital channels and taking advantage of social media and

services experienced 7.7 percent growth, a mark that

Big Data, expanding and modernizing our infrastructure,

is expected to be surpassed in 2017. Just in the first six

establishing a network of correspondents to reach more

months of the year, the industry posted an average 9.7

clients and providing products and services that best fit the

percent growth rate. But there is capacity for more, as well

needs of each client.”

as hurdles ahead. The appearance of fintech companies has also sparked Much of the recent investment in the industry has gone

strategical changes. “Their appearance has made traditional

toward digitalization and automation of services. Nuno Matos,

financial institutions amplify, adjust and modernize their

CEO of HSBC Mexico, says his bank launched this strategy

products and services,” says Torres. Though much has been

about four years ago. “HSBC recognized that it needed to

said regarding the relationship that will prevail between the

embrace the digital challenge and take it to the next level.

banking sector and fintech companies, Torres says there

Globally, HSBC initiated its Retail Transformation Program,

is no animosity. “Contrary to what is commonly thought,

in which the bank has invested almost US$1.7 billion in its

the relationship between fintech companies and traditional

top 6 countries, which includes Mexico.” Investing in a digital

banks will be more collaborative than competitive; we can

strategy goes well beyond offering online banking services.

coexist in the Mexican market.”

Matos says that HSBC’s digital investment encompasses the bank’s digital platforms, online and mobile banking, as well

Fostering a digital ecosystem also follows price logic. José

as voice recognition at the bank’s call centers.

Junco, Director General of Mastercard Mexico and Central America, says that the use of cash can cost between 0.5

For Citibanamex, the strategy has been focused on furthering

and 1 percent of the country’s GDP. “Using cash is extremely

mobile banking. “Five years ago, we launched Transfer, the

expensive.” In addition to the direct costs that usually

first payment platform for cellphone services, in alliance

encompass issuing expenses, transportation and security

with América Móvil and Inbursa,” says ErnestoTorres, CEO

elements, Junco says that it is necessary to add indirect costs

of Citibanamex. The strategy has paid off. In only four years,

such as corruption, money laundering and fiscal evasion.

transactions through Transfer have gone from 9 million to an expected 310 million by the end of 2017, with the number of

INVESTOR CULTURE

active clients growing at an annual rate of 57 percent.

Misconceptions regarding the functioning and benefits of the financial system are not exclusive to commercial bank

FINANCIAL INCLUSION

customers. José-Oriol Bosch, CEO of BMV Group, says

While the digital revolution has impacted every productive

that companies and businesses also need to strengthen

sector in the world, in Mexico, digitalization services are part

their financial culture. “The biggest challenge is creating a

of bank efforts to further financial inclusion and adequately

financial culture in Mexico that is open to investing in the

interact with the fintech ecosystem. Among OECD countries,

stock exchange.” According to Bosch, Mexican companies

Mexico is ranked last in terms of financial inclusion. Luz

tend to believe the BMV is only accessible to billion-dollar

companies, but the reality is quite different. “We are trying

DIGITAL MONEY INDEX

to encourage smaller companies to participate but the lack

Mexico ranks 40th of 90 countries in the Digital Money Index

of financial culture is a challenge. Many of these companies think they are too small for the stock exchange while regulation allows them to participate with 20 million units of direct investment (UDI) paid in capital, which is as little as MX$120 million (US$6.2 million).” For some companies, the challenge lies in accessing capital; however, Mexico has developed an ecosystem of

40/ 90

• Government and Market Support: 47/90

private equity that can help boost the number of public

• Financial and Technology

companies. Still, Mexican companies are reluctant to use

Infrastructure: 29/90

these financing tools. “Private equity funds arrived before

• Presence of Digital Money Solutions: 48/90

Mexican companies understood what private equity could

• Propensity to Adopt: 52/90

do for them. This has led to a slower adoption rate of private equity among medium-sized companies,” says Arturo Saval,

FOR EVERY 10,000 ADULTS THERE ARE:

Senior Managing Partner of Nexxus Capital. Similarly, fiscal policy plays an important role for adoption of financial

12,493

products. Saval says that it could also be a tool to foster participation in the BMV. “In most countries, a company

deposit accounts

eyeing an IPO understands that its fiscal burden will likely be reduced because the host country recognizes that the company will be in the country for a long time. In Mexico, this special tax regime is not applied.”

1.9 bank branches

UNPREDICTABILITY, UNCERTAINTY During 2017, the tides of uncertainty flowed into the country from the US, a result of protectionist policies espoused by President Trump targeting Mexico and NAFTA, which sparked the ongoing renegotiation of the treaty. The

1,000 accounts tied to a cellphone

5.4 ATMs

financial sector tends to be one of the most susceptible to international turbulence and unpredictability but Raúl Martínez-Ostos, Chairman of the Board and Director General

6,106

of Grupo Financiero Barclays México, says a new NAFTA deal has the potential to further strengthen financial ties in the region. “For the financial sector, having clarity is important to generate more investment between the financial entities of the three countries. We can work together to ensure the

5,936 credit contracts

retirement savings accounts

safety of our co-nationals and the integrity and stability of the financial sector.” Despite overall optimism, some pundits say that uncertainty should not be taken lightly. “In general, the discourse has become more optimistic compared to the initial shock the markets displayed when President Trump was elected. This optimism might be a little exaggerated. I think we are embracing an assumption of a new normality that may not be that easy to sustain,” says Octavio Lievano, Country Head of Crédit Agricole. Domestic uncertainty also abounds with federal elections set for 2018. Martínez-Ostos believes investor confidence should not be confused with lack of tasks to be completed. “It is essential to maintain the basic principles of responsible macroeconomic management and to foster an environment of clarity, certainty and transparency."

TOTAL ASSETS OF MEXICO’S TOP 10 FINANCIAL INSTITUTIONS (AUGUST 2017) Institution

MX Million

Percentage

BBVA Bancomer

1,879,348

22.13

Santander

1,173,864

13.82

Citibanamex

1,133,017

13.34

Banorte

1,053,916

12.41

HSBC

646,269

7.61

Scotiabank

421,115

4.96

Inbursa

341,735

4.02

Interacciones

195,901

2.31

Banco del Bajío

182,840

2.15

Afirme

151,359

1.78

Source: Citibank, Imperial College London, CNBV

VIEW FROM THE TOP

PROVIDING FINANCIAL ACCESS WITH GOOD RATES, ACCESSIBLE PAYMENTS FRANCISCO N. GONZÁLEZ CEO of Bancomext

Q: Bancomext is present in a number of sectors.

Interest rates have risen but margins have narrowed. We

What determines the bank’s involvement and what

operate efficiently and translate this efficiency to the client.

opportunities does it look for?

We are enjoying better international rates and opportunities

A: The bank is an important player in sectors where

and because of this, a significant number of the rates we

currencies play a central role and in those that involve

offer have not been affected.

foreign trade and the global chaining of production processes. In this sense, Bancomext’s main areas of

Q: What opportunities does the creation of ZEEs offer

opportunity are tourism, industrial warehousing and

Bancomext?

the energy sector. However, this does not mean that we

A: We see a significant degree of interest in these projects

neglect the transportation sector, which includes the

and we are leaders when it comes to the financing of

automotive and aerospace industries and other segments

industrial warehouses. We also see opportunities to support

such as metal-mechanics, electronics and telecoms.

the importation of needed machinery. Since we work with export trading agencies we can provide structured support

Occupancy rates are up to 70% in small hotels with Mejora tu Hotel help

in this regard all around the world. Q: What efforts are being made to boost agribusiness in Mexico? A: We have a substantial relationship with several companies in the export and international trade of agricultural products as well as in the internationalization of the operations of Mexican companies. The idea is to have Mexican technology and know-

Q: Part of the bank’s mandate is to help SMEs integrate

how with production abroad. A significant number of Mexican

into global production chains. How do you help them

companies in the agribusiness industry are expanding their

improve processes and comply with international

operations to Central America and the US, although we do not

standards?

work with operations that entail the growing of root crops and

A: Around 88 percent of the companies that we work with

fruits, which falls under the jurisdiction of Agricultural Trust

are SMEs and the only way to integrate them into the

Funds (FIRA) and the National Agricultural, Rural, Forestry

global production chain is through financial intermediaries,

and Fisheries Development Fund (FND).

either leasing companies or banks. In this regard, we are boosting the financial sector as well as SMEs, providing

Q: Bancomext also targets the tourism sector. What has

them the ability to access financial products at good

been the reception and impact of the Mejora tu Hotel

interest rates and accessible payment schedules.

program? A: Mejora tu Hotel encompasses the entire spectrum of the

Q: How does the bank view the frequent increases in

tourism industry. This means that we can provide loans to

Mexican interest rates?

small hotels that have two or three stars. As a result, some

A: The interesting part of Bancomext’s portfolio is that

hotels have transformed from traditional small brands to

we can access external financing. In 2015, we placed

establishments that comply with international standards,

debt certificates totaling US$1 billion. In 2016, we placed

which helps them increase their occupancy rates from 30-40

certificates worth US$700 million, which earned the

percent to 70 percent. However, our offering is not restricted

recognition of “Deal of the Year” by the World Finance

to small hotels. We support large hotels that want to expand

magazine. We just placed certificates in Mexico totaling

their operations and we also participate in large complexes

MX$7 billion in three and seven-year periods.

with as many as 6,000 rooms.

and infrastructure that support the growth of this sector,

CREDIT OFOF MEXICAN DEVELOPMENT CREDITPORTFOLIO PORTFOLIO MEXICAN DEVELOPMENT BANKS BANKS (MX$ billion)

such as the Cross Border Xpress in Tijuana (CBX).

400

population with access to the 4G network and with enough spectrum to allow communication in a more efficient and economical manner.

100 50 0

IoT will allow for a more dynamic communication than what we are used to. In industries, either through Radio Frequency Identification (RFID) or through the use of

Source: Condusef

Federal Mortgage Society

network that will provide a substantial percentage of the

Bancomext

I4.0 trend. We will be the first country to have a shared

Bansefi 2.1 2.01

150

33.8 41.7

country with the capacity to fully insert itself into the

Banjército

200

72.7 89.2

A: It is important to note that Mexico will be the first

171.3 176.5

250 176 198

to I4.0?

300

Nafin

companies to reap the benefits and opportunities related

June 2016 June 2017

351.6 362.69

350 Q: How is Bancomext collaborating with Mexican

Banobras

Tourism is not only about hotels. It also includes the airlines

specific communication tools, we will see containers located at different ports communicating, arranging to be

A: Congress is set to approve a fintech law and Bancomext

delivered at the same time, and the buyer will be able to

expects to participate in three aspects of the regulation.

access all this information with just one click.

The first is the use of information technologies in the financial market. Another area of importance is related

We already have the hardware and the software

to crowdfunding; in this sense, we are going to play an

components but this is all useless if we do not have the

important role particularly for creative industries. The third

know-how to produce. In this regard, we already have

element is the use of bitcoins. We believe bitcoins will

clusters with the necessary manufacturing knowledge.

play an interesting role in the future, perhaps in obtaining

Ricardo Hausmann, Director of the Harvard Center for

savings in letters of credit or other requirements for export

International Development, says that Mexico has the

and import operations.

possibilities and processes to assemble cars, planes and medical devices. We only need to connect the talent.

Q: 2017 is a year of consolidation for Bancomext. In what

We are seeing that education and the training of human

other sectors do you expect the bank to participate?

resources are constantly improving in quality.

A: Diversification is one of the bank’s pillars, especially toward Latin America. We are also trying to expand and

Q: How can Mexico become a global export hub?

develop our portfolio of financial products and we want to

A: The first step is to develop a solid foundation. A solid

support the development of creative industries and services,

value chain, which is a Bancomext goal, implies that the

while also exploring opportunities offered by e-commerce.

country has solid companies exporting at a global level.

Through export credit agencies, we are looking for ways

If we are already managing all the metal-mechanics and

to not only import machinery to Mexico but also to export

electronics components, then we need to take that extra

Mexican machinery. We want to maintain the highest

step and improve our management of materials.

possible level of competitiveness and be a benchmark.

We also need to internationalize Mexican companies,

When talking about where we are going we must not only

which is something we are also working toward. When

consider the where, but the how. The bank places a great

a company expands its production to other countries it

deal of importance on the management of social and

needs a supplier network, so it invites its known suppliers

environmental dangers. Both the bank’s employees and

to expand with it. It becomes a virtuous cycle of having

our borrowers must be ecologically and socially conscious

more international trade and a greater number of Mexican

every step of the way.

companies abroad. Anchor companies such as Bimbo, Gruma, Cinépolis and KidZania generate a global chaining of other Mexican companies.

Bancomext is Mexico’s largest development bank. Over its 80 years, the bank has played an important role in furthering

Q: Following the digitalization trend, what opportunities

Mexico’s export activities as well as financing the development

does Bancomext see to participate in the fintech sector?

of the tourism and industrial sectors

VIEW FROM THE TOP

PIONEERS HAVE FUNDING IMPACT FELIPE VILÁ Director General of Fondo de Fondos

Q: What impact does Fondo de Fondos have on the

Funds also work to incorporate good administrative and

companies that receive its support?

financial practices, as well as the creation of corporate

A: We participate in 74 private equity and venture capital

governance. Fund managers can also take part in the

funds, some specialized in the energy sector and others in

company’s Board of Directors and in decisions, something

real estate and infrastructure. We have committed a total

that cannot be easily managed in a public company. Private

investment of US$900 million, of which we have already

capital participation also has a positive impact on the

invested US$700 million. Our impact can be measured

company’s transparency and accountability.

through something called multiplier effect: how much money companies receive and how many times this

Q: In over 10 years operating in Mexico, what has been

amount grows through the intervention of other investors.

Fondo de Fondos biggest challenge?

The 74 funds in which we invest have already raised more

A: During the first five years of our existence, we were the

than US$14 billion, which means that our US$900 million

only institution of our kind. Fondo de Fondos was created

generated a multiplier effect of 15 times.

from four different federal development banks: Nacional Financiera, Bancomext, Banobras and FOCIR. These banks

About 72 percent of the capital raised by the funds in which

began to invest in companies and realized the impact they

we have invested comes from abroad, 7 percent comes from

could have. For this reason, it was decided to create Fondo

us, Afores contribute between 15 and 16 percent and the

de Fondos, which was intended to provide continuity on

remaining 4 percent comes from Mexican investors.

long-term investments. Today, we are active investors and are always looking for mechanisms to improve the

The multiplier effect is calculated by dividing the total

ecosystem while designing processes and legal structures

investment made in a company by the amount invested

to promote the private equity industry.

directly by Fondo de Fondos. We have invested in more than 580 companies, we have active investments in 412

We have dedicated the last five years to consolidating

companies and we have accompanied 10 companies

our business and strengthening ourselves through the

on their public offers. According to AMEXCAP, when

establishment of a modern corporate governance, good

comparing companies that have received private capital

practices, a code of ethics and process manuals. In the

versus public companies, the first grows more. We have

past five years, we have managed to raise US$110 million

supported the creation of 112,000 direct jobs and almost

from different investors, as well as MX$15 million from

200,000 indirect jobs.

pension funds and insurance companies through the issuance of four different Structured Equity Securities

Q: Why do companies with private capital tend to grow

(CKDs). Such is Fondo de Fondos’ recognition that

more than public companies?

international investors ask us for recommendations

A: When private capital finances a company, it assumes

regarding funds in which to invest their assets. We have

greater risks than banks. This is because the funds tend to

become a one-stop shop for those wanting to enter the

invest the social capital directly into companies, which has a

Mexican private equity segment. We are an independent

positive impact on financial statements and does not boost

fund with no particular agenda.

the liabilities of those companies. Private equity funds tend to be committed to their own

Fondo de Fondos is an investment institution founded in 2006

investors to ensure high return margins, meaning that when

that focuses on the development of the private equity and

there is an investment in a company, the fund must work

venture capital markets in Mexico. It manages commitments of

intensively with that company to achieve higher sales.

more than US$700 million

VIEW FROM THE TOP

EMBRACING THE DIGITAL CHALLENGE NUNO MATOS CEO of HSBC

Q: How does Mexico fit into HSBC’s global strategy?

an acceptable level. When it comes to law enforcement,

A: HSBC is a world-leading bank, with a presence in roughly

the country needs to make sure that laws are applied. The

70 countries. It is a leader in global banking activities

problem is not the legal framework; in fact, Mexican law

including trade finance, worldwide cash management

is quite good. The problem is that enforcement does not

and funding of capital flows. HSBC has the largest finance

work as it should. However, I believe there is a consensus

network in the world, connecting all the globe’s relevant

between the government, political parties, civil society and

economies. In this context, Mexico is one of the most open

the business sector to ensure that this pillar is managed in

economies in the world, with a GDP of roughly US$1 trillion

a different way.

and trade flows of around US$800 billion. The bank and the country are a perfect fit; we connect Mexico’s economy to

Q: What strategies should be put in place to further the use

the rest of the world.

of digital payment methods and reduce the use of cash? A: About three or four years ago, HSBC recognized that it

Additionally, we have a strong relationship with Mexico’s

needed to embrace the digital challenge and take it to the

most important commercial partners. For instance, HSBC is

next level. Globally, HSBC initiated its Retail Transformation

the only bank with a relevant presence in the three NAFTA

Program, in which the bank has invested almost US$1.7

countries. We are the biggest foreign bank in Canada, we

billion in its Top 6 countries, which includes Mexico. Our

have a strong presence in the US and we are among the Top

digital platforms, including online and mobile banking, have

5 banks in Mexico. The second-most important economic

been updated, we have implemented voice recognition at

corridor for Mexico is Asia and HSBC is the most powerful

our call centers and we have significantly improved our

bank in that region. This makes us the main bank for NAFTA

ATMs. The bank will continue implementing more changes

and the main bank for the Asian corridor.

in the coming months.

Q: Taking into consideration Mexico’s particularities, how

The organization is entering a phase in which new

has HSBC adapted its banking proposition to the Mexican

digital technologies and innovations are the focus

market?

of our strategy. In the specific case of Mexico, we are

A: In Mexico, HSBC has two pillars: our global business,

launching new Customer Relationship Management

which connects Mexico to the world, and the local business,

(CRM) infrastructure and we are also partnering with

which is retail banking. International business segments,

many fintechs. An example of this is Control Total, an

such as cash management and trade finance, are fairly

app we have just launched that basically allows users to

similar across the globe; what we provide the Mexican

control their credit card from their mobile phone. This

economy is worldwide integration. In the retail segment, we

development is the result of our partnership with fintech

have 1,000 branches across the country, our largest number

companies.

anywhere. We have more branches in Mexico than in the UK. Five years ago, the relationship between banks and Q: How much of a challenge to operations is Mexican

fintechs was of a confrontational nature. On hand, banks

bureaucracy?

were suspicious of fintechs because they seemed to have

A: I find that the two main areas that need to be addressed

the tools to take our market and on the other, fintechs

are the quality of education and law enforcement.

believed they could take over the market and that they

Education is a pillar for any economy that wants to be

did not need banks. Today, fintechs understand that

competitive in the long term. In the last five years, Mexico

without the banks’ customer base they cannot provide

has started to significantly change its education model, but

their services and if they want to become banks, they

we must recognize that there is still much to do to reach

need to be regulated.

HSBC tower offices, Mexico City

Q: What has allowed the fintech sector to prosper?

With or without NAFTA, Mexico continues to be competitive

A: I think it has to do with the fact that it comes from

and our view is clear: there will be a NAFTA 2.0. We believe

outside the banking industry, meaning that it is much more

there will be some changes in rules of origin and labor

agile and not regulated. The fact that it has less limitations

standards and we will see the incorporation of sectors such

has allowed for new ideas to come to the table in a freer

as energy and e-commerce. There is a risk that NAFTA will

environment that still keeps the customer in mind.

not be renegotiated that cannot be ignored. But I think that it is a small risk. Nevertheless, with a population of 125

Q: Beyond NAFTA, what is Mexico’s value proposition to

million and a relevant demographic advantage, Mexico has

the world?

the opportunity to develop its internal market.

A: Mexico plays an important role in the region’s competitiveness and that is something that we cannot

Q: What are HSBC’s expectations for year 2017 and the

ignore. This region has a population of more than half a

near term?

billion people and it is also one of the wealthiest parts of

A: In 2015, HSBC initiated a turnaround. That year, we

the world. Many products manufactured in the US can only

generated roughly US$50 million in profit before taxes (PBT).

continue being manufactured in the US if Mexico produces

For 2017, our forecast is US$450 million PBT and by 2020

most of the components and sends them to the US.

we expect to reach US$1 billion PBT. This is our next step.

In terms of imports, Mexico has also become important for Asia, while its interaction with Europe is growing

HSBC is among the world’s largest banking and financial

tremendously every year. The three most important

services companies. With four business units – Retail Banking

economic engines of the world have an important

and Wealth Management, Commercial Banking, Global Banking

commercial relationship with Mexico.

and Markets and Global Private Banking

VIEW FROM THE TOP

FUNDING MEXICO’S INFRASTRUCTURE CARLOS ROJO Director General of Grupo Financiero Interacciones

Q: What kind of portfolio diversification is the bank

States in the northern border have been investing in their

considering to correctly manage risk?

infrastructure considering their usual population requirements.

A: A bank must sell different products in different sectors to

However, they had not considered the possibility of so many

avoid systemic risk. In the case of Interacciones, we are very

immigrants returning from the US. This means they now

focused on providing loans to the government. The fact that

have to invest in basic infrastructure to accommodate the

our borrowers pay us with funds that come from the federal

needs of a growing population and generate employment

government makes our risk dependent on the country’s

opportunities. This represents an important opportunity for

finances. The entire country would have to go bankrupt

Interacciones to participate, contributing to the bank’s growth.

for one of our clients to go bankrupt, which is why we do not have to diversify our operations according to industry.

The center states have not been that affected. Many have

Nevertheless, we are doing several things to diversify our

growth percentages above the national average and their

portfolio within our traditional operations. We have managed

investment agenda has not been impacted. In the south,

to construct a five-lane highway between Interacciones and

we believe the ZEEs will be an important investment engine

the country’s states and through this highway there are

that will provide the necessary tools to give these states an

several products passing by. We have credit products aimed

industrial calling.

directly at local governments and our infrastructure loans help the development of local economies. There are several

Q: What factors do you take into consideration when

products that cater to the liquidity needs of government

analyzing a project’s feasibility?

suppliers., that includes an SME banking initiative that are

A: We take into consideration several factors. We have such a

also suppliers. We have other products that go beyond credit

level of specialization that we have a team of civil engineers

such as consultancy services for states. We see ourselves as

to analyze the project’s technical viability with our clients,

an adviser for our clients that also has a bank that can finance

looking at the logic and if the cost estimated by the client

their needs.

has certain symmetry with what we estimate it to cost. If the cost the client is proposing is way above our estimations, we

Q: How do you expect FDI to behave during 2017?

will not participate.

A: At the end of 2016 and early 2017, movements in the exchange rate translated into competitiveness. We believe

Part of the consultancy we offer is related to the correct use

that we will continue to see relevant investment in the country,

of federal funding to finance these projects. In this country,

which means further growth for Banco Interacciones. The

tax collection is made in a centralized manner. States usually

northern states of the country have a significant dependence

receive funds from this collection. However, our clients often

on maquila manufacturing and on the US. Even though many

do not have clarity on how to access these funds. So, this

people believe that due to the US political administration

is what we do: we connect the dots between the financial

investment is going to stop flowing into this area, that is not

and technical viability and how to access federal funds for

necessarily the case. A significant number of Mexicans living in

infrastructure projects.

the US are expected to return to Mexico. Several will not return to their states of origin and instead will stay in the border zone.

When we are structuring a loan, we isolate the capacity that our client has to pay us. Typically, our clients pay us through a federal trust, where the federal government deposits these

Grupo Financiero Interacciones is a Mexican group specialized

resources and then the credit is paid. Once the payment has

in financing infrastructure for the federal, state and local

been covered, the remaining credits are delivered to the state

governments, as well as consulting services for the public and

authorities. This process is one of the reasons why we have a

private sector

very low past-due loan portfolio percentage.

VIEW FROM THE TOP

ADDING SUSTAINABILITY TO MEXICO’S BANKING SYSTEM MARIO MACIEL CEO of CIBanco

Q: CIBanco started as a corporate exchange institution

credential for compliance officers. I do not think there is

and now offers a wide variety of services. How are your

another CEO in Mexico that has this certification, which

operations developing?

proves our desire to be state-of-the-art when it comes

A: In 2018, the company will celebrate its 10 anniversary th

to money laundering-prevention technology.

as a fully licensed banking institution. We have launched almost all the products we wanted to because we are

Q: The Mexican economy has been growing at rates of

building the bank step by step. We have reinforced

less than 3 percent. What will it take for the economy to

different products; for example, the foreign exchange

finally take off?

market is part of our DNA and we are one of the leading

A: We have had sustained growth and I think this country

banks in this area.

has everything to become a world leader: culture, sceneries and resources but, unfortunately, we have to

We are also developing our fiduciary trust division after

deal with certain issues: drug trafficking, corruption and

the purchase of Bank New York Mellon, in 2014, and

concentration of wealth. When Mexico becomes a country

we have developed automobile financing to the point

without corruption and with legal protections, we will

where we are now among the top six players in this field.

become a different country.

Our network now totals around 200 branches. On the corporate side, we are focused on medium and large-sized

We must develop and open new international markets.

companies because our fiduciary and exchange division is

We need to be able to renegotiate trade agreements to

strong enough to serve Mexico’s big corporations.

make them more integral. Topics such as migration, antiterrorism and drug dealing should also be considered.

Q: CIBanco is the first green bank in Mexico. What does this mean and what are your responsibilities?

Q: What is CIBanco’s strategy for the short-term?

A: Being a green bank is part of our philosophy, but our

A: CIBanco will continue to grow and to increase its

main principle is profitability because without profitability

product profile and loan portfolio. We do not want to

there is no sustainability. We have designed eco-friendly

over-reach our structural growth so we are moving

products to promote the creation of green initiatives,

slowly but confidently to consolidate our branches. We

which help build a more sustainable Mexico. For example,

are opening new branches but also maturing those we

Crédito CIauto verde is a product that offers a lower

already have.

interest rate to those who buy a green car. Q: What are CIBanco’s strategies to facilitate access to Also, customers who hold sustainable accounts, which

financial services for the Mexican population?

means they are paperless, receive better interest rates.

A: Financial inclusion projects should be elaborated according to the strategy of each bank. We have been working on

Q: CIBanco has one of the most-used technologies in the

creating more access channels and we need to adapt to

financial world to control money transfers. What is the

digital technologies. We must also work harder on security

bank doing to prevent money-laundering?

issues related to digital banking, such as identity theft.

A: The prevention of money laundering is a priority for us and I think it is also a priority for the country and for the Mexican banking sector. We were the first Latin American

CIBanco is a multibanking financial institution with more

bank to implement a tool called Swift Compliance, which

than 30 years of experience in the Mexican market. It started

demonstrates our commitment in this matter. I earned

as an exchange institution and today is known as the first

the Certified Anti-Money Laundering Specialist (CAMS)

green bank in Mexico

VIEW FROM THE TOP

INTERNATIONAL INVESTMENT EXPERTISE TO BOOST LOCAL INDUSTRIES OCTAVIO LIÉVANO Country Head of Crédit Agricole

Q: What is role Mexico's role in Crédit Agricole’s general

also important to note that, due to the challenges the new

strategy?

US administration is experiencing on a number of legislative

A: The bank has been in Mexico since the 1970s but we

fronts, the president might feel compelled to exert greater

began investing heavily in different sectors 10 years ago. We

pressure on topics such as foreign trade.

feel comfortable in Mexico; it is a market where, regardless of the challenges the country faces, we see growth

Q: What are Crédit Agricole’s expectations for the

potential, stability and legal security for our operations. Our

renegotiation of NAFTA?

local team acts as a coordinator, facilitating transactions

A: When it comes to trade, there have been some positive

that originate with the bank’s execution hubs in New York,

signals from the US administration. The central scenario

Paris, London and Tokyo.

that must be considered is the significant degree of integration between the two economies, so breaking off

We focus on the top companies in the country and also

the commercial relationship would be a bad outcome for

work with the public sector, although our participation in

both countries. There are many other things to consider.

this area is limited to the federal government and state-

For example, the energy and telecoms sectors are likely to

owned enterprises such as PEMEX, CFE and CENAGAS.

be included in the renegotiation and the issue of rules of origin will be an important topic in the discussion. Agreeing

Q: How has geopolitical and economic uncertainty

to strict rules of origin could generate more investment and

impacted investment in Mexico?

jobs on both sides of the border.

A: That is something we have closely monitored. Regarding the US situation, in general, the discourse has become

Q: What challenges could be problematic for investors in

more optimistic compared to the initial shock the markets

Mexico?

displayed when President Trump was elected. This optimism

A: Public debt worries us but the government has been

might be a little exaggerated. I think we are embracing an

making inroads in the last year. It is something that we have

assumption of a new normality that may not be that easy to

to monitor closely. When it comes to inflation generated

sustain. The US administration remains unpredictable. In a

by the exchange rate, I think that Banxico has done a fairly

worst-case scenario, the US could impose tariffs on Mexican

good job.

products. Mexico would then turn to the WTO, which on average implies the imposition of relatively small tariffs to

I think there are other topics that could have a far greater

Mexican exports. The US could, however, still unilaterally

impact on investments, such as rule of law. There are

impose larger tariffs, which Mexico could dispute under

projects that are paralyzed due to social issues where local

WTO rules but such a dispute could take up to four years.

communities have blocked the establishment of projects.

In the meantime, the impact to local industry could be

However, that is not something inherent to Mexico – we

significant.

have seen a number of similar cases in the US. Violence or corruption are also important elements that need to be

It is important to consider all possible outcomes before

monitored.

falling into a wave of wishful thinking and optimism. It is Q: What strategies is Crédit Agricole implementing to further participate in the country’s energy industry? Crédit Agricole is a French financial instituion and one of the

A: One competitive advantage we have when participating

10 largest worldwide. It has been in Mexico since the 1970s and

in this sector is related to the bank’s global experience in

is focused on providing services for corporations and state-

energy and structured finance. We prefer to concentrate

owned companies such as PEMEX and CFE

in segments where we can provide our global expertise.

VIEW FROM THE TOP

COMMITTING INTERNATIONAL INVESTMENT TO MEXICO RAUL MARTÍNEZ-OSTOS Chairman of the Board and Director General of Grupo Financiero Barclays México

Q: How is Mexico positioned in Barclays’ global operations?

the relationship will continue regardless of what happens

A: Historically, investment banks tend to place Mexico within

with NAFTA.

their Latin America strategy; however, for Barclays it made more sense to include Mexico on the North American map

One positive achievement for Mexico is that it has signed

due to the complementarity of the economies. We believe

bilateral agreements with different countries beyond NAFTA,

that, with or without NAFTA, Mexico’s business world

which solidifies the Mexico’s position. We will continue to

is intertwined with North America, given the synergies

be one of the US and Canada’s most important economic

between the three economies.

partners, but at the same time we will continue to be very important trading partners for other countries.

We are the most active bank in the issuance of Structured Equity Securities (CKDs) and we issued the first Investment

Q: What opportunities and challenges might arise for

Project Certificate (CerPI). We are also strong participants

financial institutions following the NAFTA renegotiation?

in government and private debt issuance. It is important

A: NAFTA brings stability to the region and if the

that we send the message that Barclays is a strong bank,

renegotiation's result is positive the economic ties in the

committed to Mexico.

region will be reinforced. For the financial sector, having clarity is important in order to generate more investment. There are

Q: What do you see in the country that reinforces Barclays’

many aspects that go beyond a mere business perspective

commitment to Mexico?

but which will play a central role in the renegotiation. Factors

A: Bank strategies tend to be defined for the short-term;

such as financial security, money laundering or areas where

however, Barclays’ strategy is based on understanding a

cooperation is needed will end up benefiting both countries.

country in the long-term. We understand that Mexico will

Between the financial entities of the three countries, we can

experience episodes of volatility and that there will be bumps

work together to ensure the safety of our co-nationals and

along the way, but in terms of reforms and new initiatives the

the integrity and stability of the financial sector.

country is doing what needs to be done, and there is a solid platform to build and strengthen our markets and investment

Q: What challenges could hinder investment in the country?

strategy. Barclays is one of the leading international

A: Instability could play an important role. Regardless of

investment banks with capital committed to our Mexican

the results of the Mexican elections of 2018, it is essential to

subsidiary, with a growing trend expected to continue.

maintain the basic principles of responsible macroeconomic management and to foster an environment of clarity,

Q: Beyond NAFTA, what is Mexico’s value proposition to

certainty and transparency. Investment toward Mexico has

the world?

not only increased but also strengthened. In moments of

A: Mexico has achieved a lot thanks to NAFTA, but also

strong volatility, foreign ownership of government bonds

thanks to the bilateral and trilateral relationships of the North

did not fall. These examples reflect the medium-term focus

American bloc. For example, Canadian pension funds are

of investment, which has grown despite the many tasks

investing in infrastructure and energy in Mexico, although

that need to be tackled in terms of security, corruption

it is not circumscribed in NAFTA. The most important

and the rule of law.

CKD, which is estimated to total between US$2.5 and US$3 billion, is made up of Afores and a Canadian pension fund, which has nothing to do with NAFTA; it is related

Grupo Financiero Barclays México is a subsidiary of Barclays

to the bilateral relationship between Mexico and Canada.

PLC. Its investment banking arm provides financial advisory,

NAFTA has been a keystone of the trilateral relationship,

capital raising, financing and risk management to corporations,

but the economies are so close and complementary that

government and financial institutions

TECHNOLOGY SPOTLIGHT

SPEI – THE 24/7 MONEY TRANSFER SOLUTION

Technology now has an impact on almost every facet

digital payments across the country. For example, STP, a

of daily life. Information is at the user’s fingertips and

100 percent nonbank Mexican company participating in

processes that once required face-to-face interaction can

the SPEI system, offers SPEI electronic payments software

now be completed digitally. Today, consumers want to

as a service platform to third-party client to foster fintech

do more online, including daily payments and collection

and disruptive financial companies regarding electronic

transactions. Mexico’s Interbank Electronic Payments

real-time 24/7 payments. Possible transactions include

System (SPEI) began operating on Aug. 13, 2004, and

the payment of school fees, recreational fees, wages or

allows payments to be made digitally.

even car loans and mortgage remittances and virtual assets settlement.

SPEI is a large-value funds transfer system in which participants (Banxico and the entities that have signed a

Banxico, which oversees the SPEI system, has also

contract with the central bank to participate in the SPEI

authorized the launching in 2018 of automated charges

and can send and receive transfer orders) can do straight-

through the system’s “SPEI Pull” feature. Digital payment

processing among themselves, on their own behalf or for

systems allow users to perform electronic transactions

their customers. By the end of the year, a number of key

from almost anywhere, but the system’s working hours

changes to the SPEI framework will make it even easier to

had been restricted to banking hours for those participants

process retail payments to purchase goods or services, or

that could not comply efficiently with this new operating

to pay out rent and perform other monetary transactions

window. A mandatory change will start Dec. 29, 2017, when

over the internet or from or to a cellphone.

mobile banking will function 24/7 for transactions below MX$8,000.

One key element of the SPEI system is that transactions are possible between any financial entity regulated by any of

Security features include the mandatory issuance of

the Mexican financial authorities and those belonging to the

receipts for SPEI transactions and an Electronic Payment

Federal Public Administration. The new provisions widen the

Receipt (CEP) that is issued by Banxico and acts as a proof

scope of participating institutions beyond banks, brokerage

of payment. All transactions are made through a protected

houses and insurers, in a major step to further the use of

network for added safety.

INSIGHT

FINANCING DEVELOPMENT TO ENABLE TOURISM SANTIAGO JUÁREZ Former Director of Corporate Banking for Real Estate and Hotels of Banco Sabadell

Cancun, the state of Quintana Roo’s most populous city, is

the confidence to expand our operations to Los Cabos, Baja

home to 31,662 hotel rooms, according to Ministry of Tourism.

California Sur and Huatulco in Oaxaca, and we are working

By 2020, that number will increase by at least 50 percent.

to gain a foothold in Riviera Nayarit and Nuevo Vallarta,” he

To turn those expectations into reality, the industry will need

says. Los Cabos, in particular, is experiencing an investment

help from both the government and the private sector, says

boom in the wake of Hurricane Odile, which hammered the

Santiago Juárez, Former Director of Corporate Banking for

Baja California peninsula in 2014. “The investment wave

Real Estate and Hotels of Banco Sabadell.

fostered by the government after the hurricane and the private reinvestment required to renovate hotels detonated

“In 2015 and 2016, the Riviera Maya and Cancun experienced

the growth of Los Cabos.”

historic occupancy records and we expect this trend to continue in the coming years,” Juárez says. According to data

While the industry has grown by leaps and bounds in the

from the Ministry of Tourism, in 2015 and 2016, Cancun and

last couple of years, Juárez is certain that there remains

the Riviera Maya enjoyed occupancy rates of 70 percent on

a great deal of room for growth, particularly in the hotel

average, a percentage that Juárez says is rarely seen in other

development niche. “In the US, almost 70 percent of hotel

parts of the world.

keys belong to major hotel chains but in Mexico, not even

“

In the US, almost 70 percent of hotel keys belong to top hotel chains, but in Mexico not even 30 percent of hotel keys belong to these large chains”

30 percent of hotel keys belong to these large chains.” Even though independently owned hotels can offer an interesting value proposition of originality and diversity, “hotel chains offer a higher degree of sophistication and institutionalism that can attract tourism on a larger scale.” There are several improvements that could be implemented to foster the development of tourism infrastructure, which is where the government should play a stronger role. These include providing legal certainty regarding land ownership and cleaning up the permitting process to avoid corruption. But Juárez says the one area developers do not have to

Banco Sabadell, through its two financing vehicles, bank and

worry about anymore is access to financing. “The offering

Sofom, is well-placed in the tourism infrastructure vertical to

from banks has grown in the last couple of years, so much

do its part to ensure the industry’s continued success. Hotel

that players that previously had never shown interest in the

development, particularly in the Riviera Maya, has become

sector are starting to participate. The existence of different

a specialty of the Spanish bank, accounting for a significant

financial entities, including Banco Sabadell, has reduced costs

portion of its portfolio. Juarez says that Banco Sabadell’s

for developers,” he says.

specialized knowledge of the sector, particularly in the Caribbean, and its understanding of how hotels manage their

Mexico has also developed an interesting financing ecosystem

transactions, are among its competitive advantages.

wherein Bancomext and private banks collaborate to foster the development of tourism infrastructure. “An average hotel

Although Mexico, Cancun and the Riviera Maya have been

financing will total more than US$50 million, so it is really hard

Banco Sabadell’s natural niches, Juárez is confident that the

to see one bank taking on the entire risk,” Juárez explains.

bank’s expertise has given it enough momentum to venture

“More than competition, we feel that there is a market for all

into other cities that are also experiencing significant growth

the banks to participate and if we go hand in hand we can

in tourism. “Our experience in the Caribbean has given us

find the best deals for our clients.”

INSIGHT

FURTHERING A WORLD WITHOUT CASH ANTONIO JUNCO President and Director General of Mastercard México and Central America

Expanding the acceptance of electronic payments in Mexico

a bank account. With proof like this, reaching 30 percent in

depends heavily on the creation of synergies between the

electronic payments becomes more feasible.”

key players to change the Mexican mindset regarding the use of cash, says Antonio Junco, President and General

Although credit card companies such as Mastercard are doing

Director for Mastercard Mexico and Central America. “In

their part to promote the use of electronic payments, Junco

Mexico, only 14 percent of total commercial transactions

says that greater partnerships across different industries is

are made using electronic payments. However, Mexico could

required. “We need to generate synergies between all the

reach 30 or 40 percent with the existing infrastructure. The

players in the ecosystem and we must all do our part,” he says.

challenge is to change the culture surrounding the use of electronic payments,” says Junco.

The implementation of a solid regulatory framework is another key element in the equation, but a cultural change is

In the last five years, the number of electronic payments

also required. “In Mexico, there is a significant fear of being

has increased, in part because the number of merchants

taxed and fiscally supervised. We need to find a way to

accepting these payments has doubled, from almost half

convince the newspaper kiosk or the mom-and-pop shops

a million to a million. Junco says that this increase is the

operator to become digital and to start accepting electronic

result of a first transformational wave that was bolstered

payments; it is a cultural change that has to happen for both

by advancements in point of sale (POS) readers. “This

users and merchants.” In India for example, authorities have

first wave helped to double the number of merchants

chosen to implement tax incentives in an attempt to boost

that accepted electronic payments but for this number to

digital payments and Junco believes Mexican authorities

continue growing we need a second wave that includes

could follow a similar path. “The tax issue is a window of

new payment models, participants and new technology.”

opportunity to increase the costs of using cash and further the use of digital payments.”

Junco is convinced that Mastercard will contribute to this next wave by developing new technological solutions.

The cost of cash also needs to be revealed. “Using cash is

“In Pakistan, Nigeria and India we launched a model for

extremely expensive. It usually has a direct cost between

electronic payments acceptance that does not require

0.5 and 1 percent of a country’s GDP.” Direct costs include

a traditional or a mobile credit-card reader. Buyers and

issuing expenses, transportation, and inclusion of security

merchants can make a payment and complete a financial

elements. “The indirect costs related to cash include

transaction with their mobile phones by using QR or

corruption, money laundering and fiscal evasion. If we can

alphanumeric codes. With this solution, merchants avoid

manage to reduce these costs, the social benefit increases.”

any extra costs of purchasing a card reader.” According to INEGI, in Mexico 81 million people have a mobile phone,

According to a study conducted by The Better Than Cash

which could help to increase the number of electronic

Alliance, the federal government saves an estimated US$1.3

payments transactions. “There is a common misconception

billion per year when transitioning to a digital payroll

when you talk about technology. People tend to think that

payments system. The same study estimates that if pension

you need to invest millions in sophisticated solutions when

payments shifted to digital, savings could annually exceed

in reality technology can be used to save money and lower

the US$7 billion mark.

initial investment costs,” says Junco. Although there is still much to be done, Junco believes that He adds that the arrival of new businesses flows will also

current efforts are heading in the right direction and that

lead to greater financial inclusion. “The newspaper stand

Mastercard will continue playing a vital role in the creation

or the small convenience store owner is now able to have

of a digital future in Mexico.

VIEW FROM THE TOP

RAPID INNOVATION, TECHNOLOGIES HELP EXPAND REACH LUZ ADRIANA RAMÍREZ Director General of Visa México

Q: What role does Mexico play in Visa’s global operations?

established an alliance with IBM Watson to provide more

A: Visa México works with a strong vision: be the best way

secure payments. A combination of Visa’s global payment

to pay and be paid for everyone, everywhere. Our mission is

capacities and Visa Token Services with IBM cognitive

to connect the world through the most innovative, reliable

computing and data analysis capabilities of Watson’s IoT,

and secure digital payment network that enables individuals,

will make possible contactless payments with devices like

businesses and economies to thrive. We connect businesses,

home electronics, automobiles and daily wearables.

financial institutions and customers and allow them to make payments safely and efficiently. Mexico is the second-largest

Q: How is Visa helping to increase Mexico’s low rate of

economy in Latin America, making it the second-most

financial inclusion?

important country for Visa in the region.

A: In developing economies, mobile money systems are bringing secure digital payments to millions of people

Q: 3Q17 results showed that its volume of payments grew

previously excluded from the financial mainstream. Financial

38 percent over the previous year. What contributed to this

inclusion is one of Visa México’s main priorities because our

growth?

biggest challenge and competitor is cash. Only 15 percent

A: Rapid innovation is encouraging the proliferation of

of the country’s Personal Consumption Expenditure (PCE)

technologies that improve and expand our reach. Visa was

is made through digital payments and in Mexico only

built on the notion of universal access and we are making it

40 percent of the adult population has access to a bank

even more open. Visa has been working to become the leader

account or a formal financial service. For this reason, we

in electronic payments through a radical transformation of

are approaching this area of opportunity through two lines:

its business model. Clients, fintech companies, equipment

special products aimed at the unbanked population and

manufacturers and other players now have access to the

infrastructure for businesses that accept only cash. Together

Visa Development Platform and the Application Programing

with OXXO and Citibanamex, we have developed products

Interfaces (APIs) to co-create customized solutions. We have

such as the Saldazo debit card, a card that can be used for

also developed seven innovation centers around the world

savings and deposits. So far there are approximately 7 million

in which we apply a human-centered design methodology.

Saldazo cards circulating in the country and for almost 42 percent of the users of this service it is their first experience

Q: How does consumer behavior influence Visa’s innovation?

with a financial product. Regarding infrastructure, we are

A: We are living through a commercial revolution driven by

trying to increase the acceptance of cards at businesses that

the IoT. In Mexico, as in the rest of the world, consumers

only take cash. With Grupo Bimbo we have included POS

want to make transactions anytime, anywhere and

terminals in more than 70,000 small supermarkets.

through any device. For this reason, we are developing an infrastructure for mobile payments. Supporting these

In Mexico, financial exclusion has the same geographical

advancements are Visa Digital Solutions and Visa Innovation

distribution as economic development and our inclusion

Centers that provide the tools and environments for rapid

efforts include working with the government. Finally, we

innovation. Visa Digital Solutions is a growing portfolio of

have been working with Grupo Gentera, which traditionally

Visa payment services and authentication technologies that

has offered credit to SMEs led by women.

enable tokenization, online commerce and person-to-person payment services to be securely embedded in new products in a plug-and-play mode. In Mexico, we are building POS

Visa is a technology payments company present in 200

terminals for Near Field Communication (NFC) payments

countries. It is one of the world’s leading commercial networks

and by the end of 2017 we expect that 30 percent of the

and financial services providers. Visa offers different payment

POS terminals in Mexico will have NFC capability. Visa also

products to connect consumers, businesses and governments

VIEW FROM THE TOP

FUNDING NEW OPPORTUNITIES IN MEXICO PABLO COBALLASI Managing Director of PC Capital

Q: Which economic sectors have the greatest potential

A: Oil demand is huge worldwide and renewable energy

for development in Mexico?

has one drawback: its high costs. The world is not going

A: Thanks to the Energy Reform and to the investments

to stop working without oil overnight, so there is a great

secured through the governmental tenders, energy is

opportunity in both sectors. Renewables will grow stronger

among the best positioned. We expect billions of dollars

as technology advances and generation costs fall. In the short

of investment to flow into the sector over the next five to

and medium term, both will be complementary; that is, they

10 years. Another interesting sector is business services,

will not compete with each other but will coexist. Still, the

given the impressive growth of the domestic market

worldâ&#x20AC;&#x2122;s mentality is shifting toward greater protection of the

and the demand that has generated, especially when

environment. A perfect example is the automotive industry.

compared to some European or emerging economies. At

Not everyone can buy a 100 percent electric car, although they

the macroeconomic level, Mexico is growing at around 2

exist, but more and more people can buy a hybrid.

percent, which for us is not high but at the global level is a healthy and respectable rate. This has fueled growth

Q: What protocol does PC Capital follow when choosing

in domestic consumption of between 8 and 10 percent.

its investments? A: Mexico is a country where small and medium businesses

PC Capital specializes by sector and we have done

prevail. We select those that have a robust management team,

business in the most interesting segments of the Mexican

with a proven business model and that need additional capital

economy. In energy, for example, we have created a

to continue growing. The goal is to make the leap from small

strategy for both our investment banking division and

and medium enterprises to large companies that have access

in private equity.

to other markets. Another important characteristic of our investments is that the quality of our partners is high, not only

We also run a private equity fund that focuses on what we

in business terms but also in ethical and moral terms, which

see as the three pillars for Mexicoâ&#x20AC;&#x2122;s development. The first

allows us to create deeper relationships and partnerships that

is financial services, which in Mexico has great potential

are also based on trust.

as shown by the performance of large international banks in the country and the lack of penetration of financial

Q: How would you describe entrepreneurship in Mexico

services at the base of the pyramid. The second is

and how does PC Capital participate in this area?

education. Because the government does not have the

A: Entrepreneurship in Mexico is experiencing great growth.

budget to guarantee a quality education for the entire

The country has never had so much support from the

population, it has opened a great window of opportunity

public and private sectors to generate so many businesses.

for the private sector. The third pillar is sustainability.

INADEM was born with several purposes: to help small

The country is becoming more aware of environmental

businesses grow, to create an economic ecosystem in the

preservation, which is reflected in consumption trends.

sector and to fund projects.

Q: How do sustainability and the exploitation of

PC Capital participates in this segment through several

hydrocarbons coexist in your portfolio?

channels, including participation in business accelerators such as Endeavor. For entrepreneurs, we act as mentors but we also participate as investors helping businesses

PC Capital is the leading midmarket financial advisory firm

that are beyond the start-up stage, that are profitable,

in Mexico. As exclusive partner to Clairfield International, it

that are growing and that need another investor to keep

has access to the groupâ&#x20AC;&#x2122;s offices in more than 20 countries

injecting capital into their business to continue growing at

worldwide, which helps PC Capital do cross-border transactions

accelerated rates.

VIEW FROM THE TOP

CAPITALIZING ON THE MEXICAN STOCK MARKET JOSÉ ORIOL BOSCH CEO of BMV Group

Q: What is the BMV doing to strengthen Mexico’s financial

tomorrow, there would not be a market big enough to

culture?

buy these shares. To create a healthy trading market, a

A: Our main priority in this matter is to continue developing

balance of both companies and investors is needed. If

a stronger financial and trading culture when it comes

we had a larger retail base such as the one that Canada

to businesses, investors and brokerage firms. The stock

has, we would be able to increase participation in the

exchange and brokerage firms are collaborating to develop

Mexican stock exchange. Banks and brokerage firms can

products and services that can better serve different types

change this context by offering more financial education

of companies and projects. Traditionally, the stock exchange

as trading activity has little penetration in the country.

serves the debt and equity market as other exchanges, but in the last few years it developed nontraditional equity-

Q: The average value of a company in the BMV is US$2.5

financing instruments, such as CKDs. The tool developed

billion dollars while other countries average US$600

out of the country’s need for investment to generate

million. How can the stock exchange be more accessible

resources, employment and new companies.

to smaller companies? A: We are trying to encourage smaller companies to

CKDs have financed over MX$100 billion since their creation

participate but as mentioned, the lack of financial culture

with close to eighty emissions. The main industries that

is a challenge. Our team is traveling to different states to

participate in CKDs are infrastructure, real estate and

teach companies about the benefits the BMV can offer.

private equity but the mining industry could take advantage

We found that in many of these states businessmen have

of it as well. CKDs could be an area of opportunity for

no idea how the stock exchange works. First of all, many

miners to finance their projects. It would be useful for small

of these companies think they are too small for the stock

exploration companies.

exchange while regulation allows them to participate with 20 million units of direct investment (UDI) in paid

Q: What are the main challenges you face when it comes

in capital, which is as little as MX$120 million pesos.

to promoting the participation of companies in the BMV? A: The biggest challenge is creating a financial culture in

Of the 5 million companies that are registered in the

Mexico that is open to investing in the stock exchange. The

country, thousands would qualify for listing on the BMV

country has 5 million registered companies and only 350 are

when it comes to capital. Sushiito is an excellent example

using the BMV as a form of finance, of which 150 participate

of a family company that just recently listed debt for only

in the capital market. Only 400,000 companies use other

MX$150 million.

methods such as credit. Investors also believe they need to invest large quantities Another issue is that over 90 percent of the 350 companies

of money and do not realize that there are over 30

on the BMV are divided among only four states in Mexico:

brokerage firms in the country that can offer them a

Mexico City, Nuevo Leon, Jalisco and the State of Mexico.

wide variety of options. Society needs access to this

There are 32 states in the country and 12 of these, such

information to be aware of the tools and services we

as Zacatecas, Durango and Guerrero, do not have any

can offer to finance their projects.

companies listed on the Mexican Stock Exchange in either capital or debt markets, regardless of the industry. It is inhibiting growth and expansion in the country’s economy.

BMV Group is the second-largest stock exchange in Latin America, with a total market capitalization of over US$530

But the root of the problem goes beyond the number of

billion. It operates cash, listed derivatives and OTC markets for

companies listed. If 200 companies were to list on the BMV

multiple asset classes

VIEW FROM THE TOP

SPURRING GROWTH AT MEXICAN COMPANIES ARTURO J. SAVAL Senior Managing Partner of Nexxus Capital

Q: Nexxus Capital is run and managed by Mexicans. What

A: It is important to recognize that private equity in Mexico

advantages does this give you over other investment funds?

is a relatively young industry. It is a country in which private

A: Nexxus Capital has been in the market for over 19 years.

equity funds arrived before Mexican companies understood

An important advantage is that we know the country, we

what private equity could do for them. This has led to a

know a lot of people and we can add more value more

slower adoption rate of private equity among medium-sized

quickly to our investments than a fund manager established

companies. Still, adoption depends on the industry. In the

in another country. We are a generalist fund, meaning

infrastructure sector, the situation is somewhat different,

that we invest in any kind of company that needs growth

since you are talking with more sophisticated people who

capital. Nexxus Capital is among the most important firms

have experience using private equity. It is similar in real

in terms of managed assets. Of the US$51 billion managed

estate. The learning curve in sectors like infrastructure or

by funds registered in AMEXCAP, Nexxus is responsible for

energy has been faster than in other sectors.

almost US$1 billion. We are in the process of investing our sixth fund and we soon expect to raise our seventh fund

Q: What needs to be done to boost the participation of

as well as an additional fund specialized in debt. We are

more companies in the Mexican Stock Exchange?

also working to set up a fund in Spain for medium-sized

A: Of all the companies listed in the BMV, Nexxus Capital

companies.

has helped five of these launch their public offering and soon we will be responsible for a sixth company listed.

Q: What is Nexxus Capitalâ&#x20AC;&#x2122;s view of the belief that instead

There are a number of reasons why companies are reluctant

of a shortage of investment funds there is a shortage of

to go public. The first is fiscal policy. In most countries, a

projects in which to invest?

company eyeing an IPO understands that its fiscal burden

A: The need for capital is infinite; however, out of this infinite

will likely be reduced because the host country recognizes

number of companies that we could target, we must analyze

that the company will be in the country for a long time.

which companies can grow and then which companies also

In Mexico, this special tax regime is not applied, meaning

want to grow and are looking for capital. The next step

that the tax that is being paid by public companies is 30

is to analyze which of these projects provide results that

percent, while in Brazil it is 15 percent, in Spain, 18 percent,

are attractive for the fund. Finally, we must consider two

and in the US, 19 percent.

things: conditions and prices. That is why it is sometimes said that there is more money than projects or companies

Entering to the stock exchange can also be traumatic

appropriate for investment. The fintech sector provides a

for some companies. When a company is family-owned,

good example. An appraisal of fintech companies shows

decisions are made in the dining room. When the company

that most are losing money. In a business like ours, we need

becomes associated with private equity, they lose control

to recognize how much a business can grow, not how much

and decisions must be subject to a vote. When you are a

it is losing.

public company, you have to take into consideration not only a partner who sits with you to make some decisions,

Q: Why has the private sector not taken advantage of

but also all your investors, to which you must report

private equity in Mexico?

everything related to the company within a 24-hour period. There are several companies and families that are not willing to undergo this ordeal. One out of every five companies

Nexxus Capital is a private equity fund that specializes

listed on the New York Stock Exchange has or had the help

in providing growth capital for medium-sized Mexican

of a private equity fund. In Mexico, in the past 15 years,

companies. It has helped to list companies like Grupo Sports

one out three companies listed on the BMV has had the

World, Genomma Lab and CrĂŠdito Real on the BMV

sponsorship of private equity funds.

VIEW FROM THE TOP

BOUTIQUE MANAGER OFFERS REDUCED-COST MODEL LUIS CERVANTES Executive President of Finaccess México

Q: What does Finaccess offer the Mexican financial sector

moderate, conservative and aggressive. The average account

that its competitors cannot?

of our clients is MX$6 million and the most popular portfolio

A: Finaccess is a fund management company founded in

is moderate. However, clients can always adapt their portfolio

2000. We manage more than MX$21 billion in assets from

to their liquidity needs.

2,500 clients and we have 12 investment funds. Our clients include individuals and institutions that manage their treasury

Q: What added value does Finaccess offer its clients?

and pension funds with us. We have a commercial alliance

A: We have a competitive management fee. While the market

with Credit Suisse in Mexico, an institution with international

average cost is 1.80 percent, our fee has been reduced to

prestige. We jointly manage with them five mutual funds

0.50 percent. We can offer these conditions because we are

investing in international equity strategies and international

a boutique fund manager with a reduced-cost model. We are

and local fixed income.

not an ocean liner; we are a sailboat with a robust engine and we are committed to our customers. We rank 11th among the

Q: What is the average profile of Finaccess’ clients?

top 30 fund managers in Mexico. We work with a Spanish

A: Our customer profile varies according to their risk appetite.

fund manager, EDM.

Customers must understand that if they want a higher return, they should be willing to take greater risks. However, as a fund manager, our responsibility is to reduce risk and avoid

Finaccess México is a Mexican fund management company,

surprises for our customers. We have accomplished this

and a subsidiary of Grupo Finaccess SAPI. It has 12 funds in

in our 17 years of operation in the market. We have three

Mexico, local and international fixed income, and local and

customized portfolios that fit the profile of our clients:

global equities

INSIGHT

FURTHERING THE MEXICAN BANKING SYSTEM JOSÉ MARÍA ZAS President Global Card Services Brazil, Argentina and Latin America of American Express

The appearance of new players and fintech companies in

This strategy is not only a way for American Express to

the banking segment has prompted traditional banking

increase its client base but also to further the banking

institutions to look for ways to keep pace. American

system in Mexico. “Almost 90 percent of Mexican consumers’

Express is leader in the Premium segment, but the changing

transactions are in cash. Mexico has an opportunity to deepen

landscape of the country’s social pyramid is prodding it

its penetration of the electronic payments markets,” says Zas.

to increase its product offering. “With the growth of the

“Mexico’s banking system estimates 20 million credit cards in

middle class, we have recognized that we should target that

circulation although single customers total 10 million, since

sector with credit products,” says José María Zas, President

many have several cards. Brazil has 200 million cards and

of Global Card Services Brazil, Argentina and Latin America

Argentina has 40 million. Mexico’s aspiration should be to

of American Express.

reach 60 million cards.”

Network rack, DÃ¤twyler Cabling Solutions

TECHNOLOGY & TELECOMS

Technological advancements and the worldâ&#x20AC;&#x2122;s transformation to a digital economy have forced Mexico to change its productive sectors. Machine learning, automation and AI are leading the evolution of technology-based companies and impacting on almost all industries. In recent years, companies such as Microsoft and Dell have established operations in Guadalajara and Mexico City. These cities have also become hubs for numerous technology startups.

In addition, the structural changes carried out through the Telecommunications Reform implemented by the Enrique PeĂąa Nieto administration have shaped the sector by improving competition through the integration of new players. These novelties have brought a number of positive changes for final users, including price reductions, a bigger offer and better services.

However, technological advancements arise faster than the construction of economic and regulatory platforms to sustain the changes. This chapter will focus on the challenges companies and technological developers are facing while embracing a new digital era in Mexico. In it, the leaders of some of the main technology companies will discuss their best practices to smooth Mexicoâ&#x20AC;&#x2122;s entrance to the digital world.

CHAPTER 4: TECHNOLOGY & TELECOMS 82

ANALYSIS: Data, Analytics Fire The Digital Revolution

INSIGHT: Carlos Morales, Telefónica Movistar México

VIEW FROM THE TOP: Fernando Turner, Ministry of Economy and Labor, State of Nuevo Leon

PROJECT SPOTLIGHT: Nuevo Leon 4.0 – A Smart State

VIEW FROM THE TOP: Javier Cordero, Oracle Mexico

VIEW FROM THE TOP: Federico Casas-Alatriste, T-Systems Mexico

VIEW FROM THE TOP: Elie Haibi, Hermes Systems

INSIGHT: Salvador Blasco, Qualcomm Mexico

VIEW FROM THE TOP: Bismarck Lepe, Wizeline

INSIGHT: Héctor Cobo, SAS

VIEW FROM THE TOP: Ricardo Suárez, weex

VIEW FROM THE TOP: Aarón Porraz, Grupo Tecno

Juan Carlos Lovo, Grupo Tecno

VIEW FROM THE TOP: Juan F. Aguilar, Dell México

INSIGHT: Danilo Ochoa, Gemalto

VIEW FROM THE TOP: Alejandro Raposo, Symantec Latin America and Caribbean

100

INSIGHT: Alejandro Athié, StarGo

101

VIEW FROM THE TOP: Karsten Florin, Dätwyler Cabling Solutions

Janitzio Badillo, Marathon Group

102

VIEW FROM THE TOP: Mario Maldonado, Juniper Networks

102

VIEW FROM THE TOP: Gerardo Flores Zurita, CA Technologies

103

VIEW FROM THE TOP: Peter Kroll, everis México

104

VIEW FROM THE TOP: Gustavo Gutiérrez, Broxel Fintech

105

VIEW FROM THE TOP: Fernando Gutiérrez, STP

ANALYSIS

DATA, ANALYTICS FIRE THE DIGITAL REVOLUTION As a digital revolution sweeps across industries, technology development and a competitive communications system are keys to attracting investment. But as the revolution widens, the challenge of the 21st century for many companies is easier said than done: adapt to the needs of the people consumers. Bismarck Lepe, Founder of Wizeline, says that

analytics has become the top weapon as companies vie for

AI will allow intelligent automation. “Google leveraged its

a competitive advantage. According to the McKinsey Global

DeepMind project to manage its overall infrastructure and its

Institute, in 1986 only three exabytes (EB) of data existed;

data servers. The company was able to reduce its electricity

by 2011, the figure had gone up by more than 300 EB. Cisco

costs by simply deploying DeepMind.” Lepe believes that

Systems estimates that by 2021, annual global IP traffic will

the use of AI tools such as chatbots can contribute to

reach 1,000 EB, with global IP traffic increasing 127 times

higher productivity by automating activities such as human

between 2005 and 2021.

resources consultations. “One of the interesting things about AI is that it is creating a very human-like interface between

Machine learning, automation and AI are leading the digital

data and customers.”

change and product and service personalization will become the rule, as more businesses adopt new technologies. Javier

TRADITION VERSUS INNOVATION

Cordero, President and Director General of Oracle Mexico,

Although the tools are available, change itself does not come

says the change has to do with a shift in paradigms. “The

easy. Embracing a new digital strategy appears to be more of

world is undergoing a digital transformation that has nothing

a challenge for those companies that were not born with the

to do with adopting technology but with empowering

digital component embedded in its DNA. Oracle’s Cordero

people,” he says.

says the Mexican mindset plays an important role in the transformation. “If we do not start changing this mindset,

Many “new” technologies have been around for a fairly long

the country will continue facing a lag on its productivity

time but adoption in Latin American countries has been

index. We need to make Mexican businesspeople incorporate

slow. In 2013, almost 60 percent of the digital universe was

the innovation chip into their DNA.”

generated in established areas such as the US, Canada, Europe, Australia and Japan. However, data consulting

Reluctance to change is something companies sometimes

firm IDC estimates that by 2020 this trend will shift and 60

face without being aware of it, adds Elie Haibi, Director

percent of the digital universe will be generated by emerging

General of Hermes Systems. “There are good initiatives

markets, which puts Mexico on the path to opportunity.

in Mexico, but we lack speed and awareness when designing and executing digital projects. Awareness means

Information, machine learning and AI are used for more

understanding why the company is carrying out this change

than just personalizing products to the particular tastes of

and how much this change will impact its mission.”

TELECOM INVESTMENT (MX$ BILLION) TELECOM INVESTMENT (MX$ billions)

85.1

100

2013

Fixed Telecom Investment

2014

Mobile Telecom Investment

2015

Total Telecom Investment

Source: IFT

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

46.9 26.1

16.7

31.6

33.6

48.4

51.1

60.8

27.2

Data is the main munition of the digital revolution and

2016

Cordero believes that for this change to happen, all that is

SHARED NETWORK MILESTONES (timeline)

needed is a paradigm shift. “A few years ago, incorporating a digital strategy answered to the need to become more

2016

Awarding of public-private partnership contract

efficient, save money or just follow the trend. Companies

2017

Beginning of the network's deployment

now are venturing to the new digital world to find new

2018

At least 30% of the population covered by March

2020

At least 50% of the population covered by January

2021

At least 75% of the population covered by January

Mexico does not yet have the appropriate infrastructure

2022

At least 85% of the population covered by January

that permits the transformation of businesses, according

2023

At least 88.6% of the population covered by January

2024

At least 92.2% of the population covered by January

business models and to offer new products and services.” However, cultural barriers are only part of the challenge.

to Cordero. “Telecom companies are now working toward a new generation of 4G where users will be able to have cable-speed connections without being connected to a

Source: OECD

cable. This will lead to new business models that we cannot competitive prices and elevating service quality. Francisco

even imagine now.”

González, Director General of Bancomext, believes the

TELECOM REFORM

implementation of the Shared Network will allow Mexico to

Although it is driven by companies, digital transformation

fully enter the Industry 4.0 trend. “We will be the first country

also must be fomented by the government through public

to have a shared network that will provide a substantial

policy. The Telecommunications Reform implemented

percentage of the population with access to the 4G network

by Peña Nieto's government is meant to push this

and with enough spectrum to allow communication in a more

transformation. The reform focused on key issues to

efficient and economical manner,” he says.

improve Mexico’s telecommunications reach, recognizing users’ rights to access services such as the internet and

Opportunities offered in the technology sector have attracted

broadband, strengthening the regulatory framework to foster

international companies to the country, generating hubs

competition and take down monopolies and establishing the

in cities like Mexico City and Guadalajara. Juan F. Aguilar,

needed infrastructure to carry out a National Digital Strategy.

Director General of Dell Mexico, is confident that Mexico will play a key role in the digital transformation of businesses.

According to the OECD, the implementation of the reform

“Mexico is in a strategic position due to its proximity to

has resulted in a number of positive changes, including the

one of the largest global markets and the huge support

entrance of new players in the market, the reduction of

universities are offering in the digital transformation age.”

telecommunication services prices, increased access to mobile broadband subscriptions and an increase in FDI in the sector. CONTRIBUTION TO NATIONAL GDP (4Q16) Opening the door for communication operators such as AT&T and Mobile Virtual Operators (MVOs) has sparked competition in what used to be an immovable market. Ricardo Suárez, Co-founder and CEO of weex, says the appearance of MVOs has been key for fostering competition, regardless of size or financial strength. “Even though we cannot compete directly with big carriers, the fact that the final user can have six or seven options that provide an added value or differentiated services enriches the market.” Universal access to internet became a pivotal point for the

Ranking

as of July 2017, Mexico had a total of 74.5 million mobile broadband subscriptions and 16.2 million fixed broadband subscriptions. Although the country has experienced

Manufacturing industries

16.8

Wholesale and retail trade

15.7

Real estate services and rentals

11.8

Construction

7.3

Mining

6.2

Transport, couriers and storage

Financial and insurance services

4.8

Telecom and broadcasting

3.6

Education services

3.5

Legislative, governmental, administration of justice and international and extraterritorial organizations

3.4

significant growth, it still ranks 33 in OECD’s ranking of rd

mobile broadband. To address the situation, the government has undertaken the Shared Network project, which aims to broaden the range of telecom services, while offering

GDP Participation (%)

present governmental administration and the country’s digitalization agenda. According to data from the OECD,

Sector

Source: IFT

INSIGHT

15 YEARS GROWING IN MEXICO’S RISING TELECOM INDUSTRY CARLOS MORALES CEO of Telefónica Movistar México

It has been 15 years since the Spanish firm Telefónica Movistar

specific industries. The IoT program will be delivered to

arrived to the Mexican telecommunications market. Back then,

industries such as energy, healthcare and banking. “Telefónica

Mexico was waking up to its potential and trying to figure

is helping its partners increase their productivity and efficiency

out how to provide connectivity for its massive population.

by offering integrated digital solutions that optimize their

Throughout this time, the firm has positioned itself as one of

processes and reduce their investment budgets.”

the top telecommunications companies in Mexico, while the telecoms market has been growing along with a population

According to GMSA, Mexico is the second-largest mobile

that demands connectivity as a priority.

communication market in Latin America and one of the Top 15 in the world. Telefónica Movistar sees great potential in the

The request for internet and communication access is not just

Mexican market due to the size of the young population and

a priority for the Mexican market. “There is exponential global

the creation and arrival of new businesses. According to INEGI,

growth in connectivity, with 7.4 billion subscribers to personal

70 percent of internet users are 35 years old or younger, and

internet for mobile devices and 3.2 billion daily internet users,”

almost 40 percent of homes have an internet connection.

says Carlos Morales, CEO of Telefónica Movistar Mexico.

“Our present world demands permanent connectivity and this

“Today, we are experiencing the digitalization of society

digital revolution pushes us to work harder on providing better

through changes in products, consumer habits and different channels of communication. Everything is focused on data consumption.” The growth of digital society is demanding the creation of new business models. Movistar’s model, Elegimos todo, integrates three value propositions: “Unique and simple products, excellent connectivity through LTE services and the company’s core values that provide the best experience and client satisfaction.” Morales says Telefónica trusts Mexico’s potential. The company will continue working on its growth plans with investments above 13 percent of its annual income;

“

standards and services every day,” says Morales.

One of the challenges includes creating a more cost-effective spectrum to meet the growing demand for digital services in Mexico” Telefónica is also focused on growing its customer service. In

so far, the company has an accumulated investment of US$13

2017, it will be opening more than 100 stores in cities such as

billion. Its growth plan is focused on the expansion of its

Cuernavaca, Guadalajara, Monterrey, Tijuana, Leon, Puebla,

network, which has more than 10,500 radio bases. Telefónica

Baja California and Merida. “At Telefónica Movistar, we offer

has also invested US$50 million in its Data Center in Parque

our clients a different experience. We are proud to be the

Tecnológico de Ixtlahuaca. “We are a key player in the market,

mobile telecommunication company with the fewest claims

with 26.6 million clients and coverage in 90 percent of the

from our customers,” says Morales.

urban population,” says Morales. Despite the company’s success, market obstacles have Telefónica is also promoting its B2B portfolio of integrated

restrained the company’s development. “From the beginning,

digital solutions to help Mexican companies increase

one of our priorities was the definition of a competitive

their productivity. Morales says its ideal portfolio includes

environment for all players in the telecommunications sector.

cloud solutions for storage, hosting and unification of

Around 15 years later, we still face significant challenges from a

communications, security solutions for management of

regulatory point of view,” says Morales. “One of the challenges

devices, cybersecurity and threat detection, connectivity

includes creating a more cost-effective spectrum to meet the

solutions like IoT and the development of applications for

growing demand for digital services in Mexico.

VIEW FROM THE TOP

TRANSITIONING TO A DIGITAL ECONOMY FERNANDO TURNER Ministry of Economy and Labor for the State of Nuevo Leon

Q: What strategies is the government of Nuevo Leon

Q: How can I4.0 be implemented in sectors such as

implementing to boost the digital revolution and Industry

agribusiness?

4.0 (I4.0) practices?

A: There are already around 100 to 150 companies in

A: The digital revolution is already underway and will

the world that are incorporating I4.0 practices into the

generate profound and drastic changes that will affect all

agricultural sector. The concept of agriculture is bound to

aspects of our lives. For this reason, we have decided that

change and everything will now be monitored electronically.

as a government we must encourage the incorporation of

Land, climate, water, nutrients and so on, will be analyzed,

this trend into our economy and our production processes.

monitored and controlled from afar. We foresee that each

About a year ago, we began to analyze this change to

plant will have sensors that will analyze how much water

decide how to approach it. Our action plan includes the

and nutrients it is receiving. These sensors will also detect

creation of a council that has as members university deans,

which plants are receiving the needed water and nutrients

the business community, members of the state government

yet are still not growing. Chemistry and ratios of water

and a representative of the federal government. It is

and nutrients can then be immediately adjusted to ensure

interesting that even though the initiative came from the

the crop continues growing. Transportation and product

government, it was quickly embraced by society. We see

behavior will also be factored into the equation.

enthusiasm from all those involved and I believe that the initiative will allow Nuevo Leon to advance and solidify its

Q: What challenges could hinder the state’s economic

position among the world’s production platforms.

growth? A: Everything can be a challenge and at the same time an

Q: What concrete actions is the council taking to support

opportunity. This changing environment offers significant

the digital revolution within the state?

opportunities for young people with fresh ideas and for

A: We are working on a strategy called Nuevo Leon 4.0,

businesses to boom without the need for capital, such as

which includes not only manufacturing but also services,

Uber or Airbnb. Still, I believe the main challenge is to adapt

government, agribusiness, health and information

to a new economy and new ways of doing business. The

technologies. The strategy includes three lines of action:

main challenge for the country is our refusal to change.

the first is the coordination and mobilization of social players toward the digital revolution; the second is to

Q: A significant portion of the state’s economy is

provide the general public with information through the

intertwined with the US economy. How does the US

media, unions and so on; the third line of action is ensuring

administration affect Nuevo Leon’s economy?

that universities and schools adjust their study programs

A: We are interdependent, we have a relationship in which

to generate the knowledge and skills that will be required

both countries and economies matter, but it would be

in the coming years. To accomplish this, we have outlined

plain wrong to assume that the entire Mexican economy is

a series of skills that our students must develop and we

dependent on the US. Globalization has led to an increase in

have asked companies to develop productive projects that

foreign trade across the entire world and the US remains the

include I4.0 practices. So far, we have around 67 projects

largest consumer on the planet. The trade relationship we

that companies have submitted. The idea is to select

enjoy is not a byproduct of NAFTA; it is part of a global trend.

between 10 and 12 and support them. The projects must be feasible, have the backing of companies that possess the needed capital to see them through and can be completed

The Ministry of Economy and Labor of the state of Nuevo

in a relatively short time. Our goal is to have around 10

Leon is in charge of facilitating, promoting and supporting

productive units that incorporate I4.0 practices within a

the state’s economic development. It coordinates different

maximum period of 24 months.

economic, academic and governmental players

PROJECT SPOTLIGHT

pilot projects in Nuevo Leon 4.0 strategy portfolio

NUEVO LEON 4.0 – A SMART STATE The fourth Industrial Revolution is here. Understanding the potential opportunities that will emerge from this revolution, the state of Nuevo Leon is implementing the Nuevo Leon 4.0 initiative, which aims to position the region as a smart economic development hub for the entire continent. Industry is leading Nuevo Leon 4.0, backed by the state’s government and academia. These three players are working side by side to develop and transform the future of the state. The objective is to create a smart state that selectively applies the latest advanced technologies, such as Cyber Physical Systems (CPS) enabled by the use of IoT, Big Data in the cloud, virtual and augmented reality, digital manufacturing and 3D printing, among others. Nuevo Leon 4.0 is founded on six strategic pillars. The first is to promote the initiative and invite all sectors in the state to join this digital transformation. The second pillar involves the development of talent, meaning the creation of new academic programs in universities as well as the transformation of the existing talent in companies. Next is the state’s technological infrastructure. This involves assessing current capabilities and complementing them so companies can meet the development needs the fourth industrial revolution will entail. The fourth pillar impacts directly on business models. In this fourth industrial revolution, business models that will prevail will be those that address the digital transformation of products, processes and services. Nuevo Leon 4.0 will register and share these collaborative models that will generate new ways of doing business. The fifth pillar revolves around public policy. In this new strategy, public policy must focus on identification of low value-added procedures that hinder the advance of the Nuevo Leon 4.0 initiative and at the same time propose new norms that encourage the creation of an economy driven by technology. The final pillar is proactive linking between companies and organizations. Today, Nuevo Leon 4.0 has a portfolio of 10 pilot projects: six of which are of an industrial nature, one in the services sector, one in agribusiness, one in health and one related to government. In addition, there are five projects intended to transform the academic programs of the state’s universities to address the talent needs resulting from this revolution.

VIEW FROM THE TOP

ENABLING BUSINESSES THROUGH DIGITAL TRANSFORMATION JAVIER CORDERO President and Director General of Oracle Mexico

Q: What is Oracle’s role in the development of the digital

Q: What are the challenges of implementing this digital

revolution in Mexico?

revolution in a country like Mexico?

A: The world is undergoing a digital transformation that

A: More than anything, it is a cultural and educational

aims to empower people to create new business models

challenge. Oracle works alongside hundreds of educational

that generate real progress. For instance, Netflix changed

institutions to contribute study programs and workshops in an

the entire industry paradigm and business model. While it is

effort to gradually change people’s mindset toward this new

true that a lot of technology is required for a business such

economy. If we do not start changing this mindset, the country

as Netflix to function, the big turnaround is the paradigm

will continue facing a lag in its productivity index. We need to

change that was made possible through the existence of an

make Mexican businessmen incorporate the innovation chip

enabler. In Mexico, Oracle focuses on supporting the country’s

into their DNA.

digital transformation through our technology management. We are enablers for companies and we are looking for new

Q: How ready is Mexico to undertake the digital revolution?

business models in this digital transformation.

A: When it comes to digital transformation, neural networks are fundamental. I would say that it is not only telecom companies

The growth of e-commerce represents a paradigm change

that are in charge of this part, but networks in general must

and has made competition global instead of local. When

be strengthened to support the existing connectivity demand.

it comes to digital transformation, Mexican companies

We are focusing on traditional businesses but new areas, such

are understanding the strategic value of business models

as IoT, are connecting everything to the internet.

Mexico does not have the infrastructure to support this

to save money or to just keep pace with the trend. Companies

transformation. However, we are on the right path. There

now are venturing into a new digital world to find new

are several companies heavily investing to reinforce the 4G

business models and to offer new products and services.

network. Telecom companies are now working toward a

For instance, when talking about retail, only 10 percent of

new generation of 4G where users can reach cable-speed

what is sold in the world is through an e-commerce platform

connections without being connected to a cable. This will lead

while 90 percent is sold through traditional channels. The

to new business models that we cannot even imagine now.

percentage of sales through e-commerce is very low but almost 90 percent of what is sold through traditional retail

Q: What areas of opportunity has the company recognized

is influenced by the internet.

within Mexico’s digital development? A: Every human discipline and science is walking down the

The use of technology is no longer exclusive to big

path of digitalization. For instance, with the telecoms reform,

corporations. It is not a matter of size and scale, it is a

public television is now digital. The taxation system or

matter of how the world operates. The world has changed

administrative procedures are also digital. Everything is digital.

and Mexican entrepreneurs are beginning to understand this,

This means that data has to be managed, stored, transported

which means that we are seeing an important transformation

and analyzed by something, regardless of the discipline. Oracle

toward the digital world regardless of a company’s size.

is focusing on all these tasks. Digital databases, models to store and to transport digital information are all from Oracle. We see limitless possibilities of digitalization. Worldwide, we

Oracle is a multinational computer technology corporation

are experiencing double-digit growth and in Mexico we are

headquartered in California. It specializes in developing and

growing at a three-digit pace. This growth is neither a fluke

marketing database software and technology and cloud

nor the consequence of skilled salespeople, it is inertia from a

services. It is present in 195 countries

technology that is working. It is a historic moment.

VIEW FROM THE TOP

IT SERVICES HELP USHER IN THE DIGITAL REVOLUTION FEDERICO CASAS-ALATRISTE Managing Director of T-Systems Mexico

Q: What role does Mexico play in your global strategy?

Q: What is your view of the pace at which Mexico is adopting

A: T-Systems complements the offering of IT outsourcing

digitalization?

services that was dominated by US companies for several

A: Mexico needs to speed up its transformation. At first, it was

years. We provide an alternative, with a different DNA

hard for the business community in Mexico to understand

and with an important focus on high-quality technology,

certain concepts such as the cloud. However, the cloud is

procedures and predictability. We are an alternative

the entry ticket to digital transformation. It is impossible to

to help companies begin their process of digital

conceive this transformation without it.

transformation. Until a few years ago, companies in Mexico thought that T-Systems provides assistance to companies in these

having control or exclusivity of their technological resources

two areas, ensuring the maintenance of their traditional

was of extreme importance since it belonged to their core

operations while accompanying them in their business

business. Today, few companies have their own data center,

transformation process toward new technologies that

since it makes no sense for them to have one. From a cost

include the cloud, mobility and IoT. When it comes to IT

perspective, IT has become a variable, rather than a fixed, cost,

services, if you provide good services, no one notices and

which has viability repercussions, particularly for investment

that is what is all about.

projects.

Q: Why has the country become a hub for T-Systemsâ&#x20AC;&#x2122;

One of the most common concerns for the business

operations?

community regarding the use of the cloud was related to

A: Mexico is the 12 -largest economy in the world. But

security. The truth is that the level of information security

more importantly, its prospects are even better. According

companies can have when using our services versus the

to several sources, the Mexican market and economy will

security level they can have in an in-house data center with

scale the worldâ&#x20AC;&#x2122;s rankings by 2025, when the country is

more limited conditions cannot be compared.

expected to be among the Top 10 economies in the world. Q: Is the countryâ&#x20AC;&#x2122;s workforce prepared to face the challenges Among our clients in Mexico are companies that are

of the digital era?

also clients of Deutsche Telekom in other parts of the

A: Human capital is a critical issue. Mexican technicians

world, such as Volkswagen, Daimler, Shell and Heineken.

are extraordinarily good and competitive worldwide. The

The original reason for being in a market is that there

fact that we provide services from Mexico to more than 30

are several clients that require services in that specific

different countries means that our human capital can perform

location, which is why we came to Mexico in the first place.

world-class services. Universities are producing competitive professionals and technicians. While the technical skills of

Mexico has contributed heavily to our growth. In 2015

graduates are at a good level, the English level students have

and 2016, revenue here expanded an average 30 percent

needs improvemen. In the telecoms industry, people must

annually. Repeating this pace in the coming years will

be able to at least read in English and interact with clients

be complicated but we expect to continue growing at

in English.

an accelerated rate. We have a strong presence in the industrial sector and we have a significant but selective presence in the public sector. In the health and financial

T-Systems is a global IT services and consulting company. It

industries we have a very small presence. However, we

specializes in providing cloud services, M2M solutions and

expect to increase our share in both sectors and thus

communication services, among others, helping companies

continue growing.

construct a digital platform

VIEW FROM THE TOP

ENGAGING COMPANIES IN THE DIGITAL REVOLUTION ELIE HAIBI Co-founder and CEO of Hermes Systems

Q: What is the extent of Hermes Systems’ offering to

is carried out in a timely and cost-effective manner. In

its clients?

pharma, we help automate the salesforce’s sales schedule

A: Our main objective is to help our clients thrive in the

while controlling each representative’s inventory of drug

fourth industrial revolution. Unlike our competitors, we

samples considering their expiration dates. In banking, we

are involved in both the design and implementation of

help accelerate and reduce the cost of credit origination.

transformation programs. To design the digital strategy, we start from the client’s vision – where they want to be,

These are ready-to-implement solutions that can be

in what way they want to be special – which becomes

executed as a first step but are hardly disruptive. Now, if

their value proposition. We then design a new operating

we consider a specific company, examine its processes,

model to support the value proposition. This design

its value proposition and its current capabilities, we can

considers the execution challenges and ensures that we

try to turn around its operating model and provide it with

plan for a viable transformation.

advanced capabilities that may make its value proposition unique and disruptive within the context of its industry.

We also help our clients implement or govern the implementation and make sure the project portfolio takes

Q: What challenges do most companies face when trying

them where they want to be. It is an ongoing journey

to implement a digital strategy?

with a dynamic model that responds to changing market

A: A key success factor of any digital strategy is having

conditions and the constant evolution of technologies

clearly defined where the company is, where it is going

and emerging disruptions. What we add is an innovation

and what kind of leadership the company wants to have

process at the core of the design phase, involving a mixed

in its market. It is important to note that leadership can be

team of business consultants and IT specialists resulting

attained by following two different strategies: leadership

in a truly disruptive transformation plan. Some call this

through product and its digital value proposition and

design thinking.

leadership through customer engagement.

To increase the speed of execution we have built

For example, when it comes to digitalizing the

technological capabilities that solve typical problems

engagement strategy, the banking and retail sectors have

that occur in many industries. Moreover, the solutions

been fairly active, while the insurance and healthcare

we build reuse industry specific frameworks developed

industries have fallen behind due to the inherent

over the years in banking, insurance, retail, distribution,

challenges in those sectors. For any company that

telecoms and healthcare. In retail and e-commerce, we

wishes to implement a digital strategy, it is important

are working with customers to achieve next-day delivery

to consider a few pre-requisites. One basic element is

or same-day delivery of goods to the consumer through

to achieve operational excellence; this requires having

the digitalization of their distribution force. In telecoms

standardized, automated and optimized processes. It also

and utilities, our solutions help speed up the execution

encompasses optimizing the organization, which means

of work orders with increased quality of service. In

having the necessary staff with the right skillsets assigned

distribution, we help make sure the delivery of goods

to every activity and using the right tools and with access to the right information at the right moment. Another important element is building a solid digital backbone

Hermes Systems is a Mexican company specialized in the

that is robust and at the same time flexible enough to

digital transformation of businesses. Its focus is providing

allow for change. That is integrating the information flow

clients

across processes, departments and services. Companies

with

agile

technological tools

transformation

models

enabled

must have the ability to respond automatically to complex

events through the smart planning of automation, which

must be accompanied by fearlessness of failure and the

means dedicating human workers only to important and

acceptance to try things over and over again. However

complicated decisions while letting a computer program

successful, big and mature the organization is, it must be

solve the rest.

prepared to act like a startup when it comes to innovation.

Q: How do you reconcile the Mexican conservative

Q: In an era of digitalization and ephemeral information,

mindset with the disruptive transformation digital

what strategies can companies implement to adequately

strategies entail?

engage with consumers?

A: We have found companies reluctant to embrace digital

A: Successful customer engagement requires knowing

change without them being aware of it. This reticence

your customers beyond their names, emails and

manifests often in not taking the necessary time to

addresses. You have to know and understand their needs,

analyze what this change actually means. There are good

expectations and motivations. It also requires being able

initiatives in Mexico but we lack speed and awareness

to act accordingly.

when designing and executing digital projects. Awareness means understanding why the company is carrying out

For this to happen, companies need to build what usually

this change and how much this change will impact its

is called the single-customer view or 360º view of the

mission.

customer, which contains everything the organization knows about the customer, transactions, products,

We witness significant investments in technological

surveys, complaints and also some customer analytics,

areas but sometimes these investments do not match

such as satisfaction score, churn, next-likely purchase

the business strategy. The problem with misguided

and ideally, next-best action in terms of engagement.

investments is that they rarely offer competitive

That is, the engagement action that will have the best

advantages. It is necessary to consider at every moment

impact on the customer. Then you have to make this

how to be unique and what is the company’s differentiator

360º view available to every representative at each

and the company’s unique value proposition and how to

customer touchpoint. With proper training and relevant

uphold it, using internal processes, operational excellence

knowledge about the customer, the representative can

and additional business, organizational and technological

fully deliver on the brand promise. You also need the

capabilities.

processes to support the representative’s work and make the experience consistently good. Then again, culture

When it comes to digital initiatives, innovation and

is very important. It is what makes the representative

creativity are decisive. Organizations are configured

empowered and compelled to really get out of its way

to avoid risks and directors and managers are risk

to create an outstanding experience for the customer.

administrators. Naturally, if they see an initiative that entails a certain degree of risk their job is to deactivate

This is the keystone capability you need to properly

it. With every disruptive digital strategy there is

engage with customers, otherwise any customer-related

certainly inherent risk, which must always be properly

strategy would be executed without tactical visibility and

managed; however, a serious willingness to innovate

would be doomed to fail.

INSIGHT

NEW APPROACHES DRIVE CHANGE SALVADOR BLASCO Vice President of Business Development and Director General for Qualcomm Mexico

Whether innovating a process or a product, the

Mexican telecoms businesses know they must diversify into

implementation of new ideas and approaches is a consistent

fresh areas or risk becoming obsolete. IoT offers them an

driver of significant change. Until now, Mexico has lagged

opportunity if they can change the lenses through which

in the race to innovate but technology accessibility and

they are experiencing the world, Blasco says. “Mexican

affordability are helping the country to catch up and

carriers have already realized that if they continue offering

could move it closer to its goal of becoming a hub for

just voice and data services, they will face a future similar to

innovation, says Salvador Blasco, Vice President of Business

that experienced by fixed-line telephone companies.” For

Development and Director General for Qualcomm Mexico.

Blasco, Mexican carriers have an invaluable opportunity to become the fabric that provides the connectivity required

“Innovation is not only the invention of new products. You

for the digitalization of a number of industries.

can improve an object or a process and that is innovation as well. Not having access to technology is no longer a valid

Government also has a role to play by crafting and

argument for lack of innovation,” Blasco says.

implementing appropriate public policies, for innovation and for the adaptation of new technologies. “The technology has

Blasco is convinced that Mexico is breaking through the

already been developed and it is both accessible and cost-

cultural barrier of inaction that has stunted creativity. It just

effective. It is a matter of political will rather than an economic

needs to take the next step. “We need to create momentum

issue.” Blasco cites two requirements. “For carriers to invest

to allow the emergence of people who are not afraid of

in technology such as 4G, the government must work on two

creating new products to solve existing problems,” he says.

things: free up radio spectrum for the signal to travel and implement a tax scheme that excludes connectivity.”

Knowledge transfer will play a key role in moving the country to this next level, Blasco says. Today’s innovators do not

Qualcomm itself thrives on innovation. The company is

have to start from scratch; there is a wealth of experience in

investing in designing of the future through the 5G network.

Mexico that the younger generation can tap, no matter their

Before this happens, Blasco says that 4G still has a long way

background. “Young people can stand on the shoulders of

to go but its full development requires the participation

those who came before them and create something.” Blasco

of both carriers and public policymakers. “Knowledge and

believes that opening the technology door to people with

intellectual property are what generate value in the fourth

different profiles will have a lasting and transformational

industrial revolution,” says Blasco. “We need to incentivize

impact because “diversity provides you with different

this and not hold it back.”

perspectives and approaches to solve a problem.” A new generation of thinkers will ultimately underpin any In the telecoms sector, Mexican carriers can look to foreign

efforts in innovation and online learning will help develop

companies to garner insights on best practices that can

these new innovators. Qualcomm is helping to ensure they

be implemented at home. IoT is one area where Mexican

have access to materials in their language, overcoming

companies can get ahead of a nascent technology by

one key online hurdle for Spanish speakers: much of

emulating their international counterparts. “Carriers in

the content is in English. “There are not enough online

other parts of the world are doing their part to develop IoT

courses in Spanish for people to self-motivate and begin

products. These companies are investing in their own R&D

building something.” Qualcomm is making the content of

departments or are working alongside entrepreneurs to

its Qualcomm Developer Network available in Spanish and

develop new products. They might not have the know-how

Portuguese, allowing potential innovators to find tools and

but they are working on developing it or helping someone

resources to integrate their technologies into apps and

else to do it.”

devices related to IoT, among others.

VIEW FROM THE TOP

ARTIFICIAL INTELLIGENCE TO CHANGE BUSINESSES BISMARCK LEPE Founder of Wizeline

Q: What opportunities does Artificial Intelligence (AI) offer

from companies that can create an environment where it is

to change the way businesses are conducted?

ok to fail or to experiment and fail. That is one of the things

A: AI is going to allow for intelligent automation. If you look

that Silicon Valley does so well and it is one of the things that

at Google’s DeepMind project and how they have leveraged

Mexico needs to learn. Mexico needs to bring more of that

it to manage their overall infrastructure and data servers, they

culture by bringing more Silicon Valley companies.

were able to bring down around 20 percent of their electricity costs just by deploying DeepMind against those problems.

To be competitive in a tech-enabled world, mathematics, even more than programing, is incredibly important. As

Wizeline helps companies to leverage data, often their own.

a company, we focus heavily on making sure that other

Our platform is integrated into our customer’s success

technology companies understand that Mexico is a

management system and other data sources like surveys.

great place to set up development centers. We believe

Our algorithms then help us identify the features and

that by having more companies in Mexico we can have

products that are most likely to be successful. We have

a tighter integration between academic instruction and

a manufacturing customer who today may have several

tech innovation. The big schools that produce a good

dozen company employees sitting outside its HR office.

percentage of the employees in Silicon Valley have not

Those employees are asking very basic questions: how

only their students working in tech companies but also the

much vacation time they have left, how much money do

professors. It is difficult to see where academia ends and

they have in their retirement account. All that information

where the private sector begins.

is readily accessible and would be easily accessible via a chatbot. A chatbot can also access an employee’s file. You

Mexico has some of the greatest potential in the world in terms

can imagine if a company placed tablets all around their

of people and we need to create an environment that allows

manufacturing plant, employees could just tap one and ask

them to really achieve that potential. Part of that is going to

those questions. That is one of the interesting things about

be not just the educational system but companies investing in

AI, it is creating a very human-like interface between data

that talent to make sure they achieve their potential.

and customers. Q: Mexico’s image is that of a maquila country. How does Q: How can companies achieve brand continuity through

it transform itself from a manufacturing economy to an

the use of chatbots?

intelligence-driven economy?

A: Bots need to be trained. A bot by itself it is just an

A: Every country needs to go through that phase. We

application within a decision tree. In order for it to have a

have seen this with many of the innovation centers around

personality and to learn about the customer, you need to train

the world that started off as maquilas and then built up

it. The longer the bot is available and has access to customers

talent. The key is that you need to invest in companies

and data, the more personalized it is going to become. One of

that are going to be building real products. The fact that

the things Wizeline focuses on when working with customers

Wizeline builds products for global audiences gives our

is the look and feel of the brand; what brand personality do

employees visibility into global problems and how to

they want the end customer to experience.

solve those issues.

Q: Human capital is a main component of the digital revolution. Are universities generating the needed talent

Wizeline is a technology company that specializes in the creation

to further this change in Mexico?

of technology products that help companies leverage data and

A: The types of opportunities that will maximize the output

get better products to market faster using a Software as a Service

and innovation from the talent that we have in Mexico are

platform and a Global Services’ organization

INSIGHT

THE FUTURE NOW: ANALYTICS AND BUSINESS VALUE HÉCTOR COBO Regional Vice President Mexico, Central America and Caribbean of SAS

Will a client cancel its telephone line? When will a home

Regardless of the economic situation — crisis or bonanza —

furnishings customer need a new bedroom set? Is a

Cobo says the company has continued to grow. “What has

banking client likely to default? No one can predict the

boosted SAS’ growth is the value its services bring to the

future but software firm SAS believes data analytics can

table. When a company is growing, the natural question is,

help businesses arrive at a reliable forecast.

how do you continue growing? When a company is in crisis, the question is, what situation led to the crisis and what can

“Companies have seen the value of analytics. It is a tool

be done to keep competing? In both situations, companies

that helps you to prevent what is going to happen and

need to use their information better.”

consequently enforce actions to optimize and thus modify client behavior,” says Héctor Cobo, Regional Vice President

The use of information and SAS software is not restricted

Mexico, Central America and Caribbean for SAS.

to the financial sector. Insurance companies, retailers, telecom companies, hotels, manufacturing companies

Armed with the power of Big Data, SAS has been helping

and governments are among the players using analytics.

companies and business leaders make decisions for 41 years.

Though it is true that nowadays almost every industry

Although SAS' products and services can be used in every

generates a great quantity of data that is appropriate for

industry that generates data, the financial sector has become

analysis, Cobo says that manufacturing is one area in which

one of its main niches. “Almost every bank in the country uses

Mexico SAS is not as present as it should be, although that

SAS. We help them determine the amount of credit they can

should start changing. He cites a theory from psychology

give to a customer, the possibility that this customer will pay

called Maslow’s Hierarchy of Needs wherein people strive

or default and which financial product may be most attractive

to achieve increasingly higher needs, often portrayed as

for each person depending on their life cycle,” Cobo says.

a pyramid: “Just now, the manufacturing sector in Mexico is arriving at Maslow’s digital pyramid. They now have the

Analytics is the powerful engine that permits SAS to map

time to sit down and analyze what needs to be done with

out preferences. Using math, statistics, predictive models and

all the information they usually gather.”

machine-learning techniques, SAS’ tool allows companies to find patterns and extract knowledge from recorded data.

The entrance of new companies to the digital world

According to Marketing Intelligence Firm IDC, in 2013, 22

and the use of big data represents a significant growth

percent of generated data could be analyzed but less than

opportunity. IDC says that in 2013, almost 60 percent

5 percent was actually analyzed. By 2020, data available

of the digital universe was generated in established

for analysis could grow to more than 35 percent thanks to

countries such as the US, Canada, Europe, Australia and

the increase in data coming from embedded systems. IDC

Japan. However, it estimates that by 2020 this trend

also estimates that by 2020 the percentage of information

will shift and 60 percent of the digital universe will be

that is valuable and susceptible to analysis could double,

generated by emerging markets. This forecast is in line

reaching almost 10 percent thanks to analytics technologies.

with SAS’ growth expectations. “Latin America is the

Although the number of companies that offer analytical tools

region that experienced the most growth in the past

has increased in the last few years, Cobo says that most only

year. The US and Europe have more mature markets but

use data subsegments instead of using the entire bulk of

Mexico still offers a lot room for growth,” says Cobo.

information. “The problem of generating models working

He adds that the true challenge is not finding new

only with information subsegments is that you miss the big

industries or adapting products but getting companies

picture and thus all the possibilities. That is why we always

to see the true value of SAS’ services. “We are helping

work with the entire set of data. This way, we make sure that

businesses become more efficient with creative growth

we generate the best possible model for them.”

and competitive strategies.”

VIEW FROM THE TOP

INFORMATION TO EMPOWER RICARDO SUÁREZ Co-founder & CEO of weex

Q: What is weex’s vision and how is the company helping

number of days or depending on how much money they

to transform the telecommunications landscape in Mexico?

have available. The basic concept is that we adapt to the

A: weex was created to empower young people. We

users’ needs instead of having the users adapting to us.

noticed that one of the most common problems young

We try to adapt our offering to the budget and to the

people face was their severely limited access to mobile

requirements of our users, something a carrier has a lot of

data. This limitation led us to the conclusion that it was a

problems doing because they attend a universe of millions.

good moment to break into the industry. We decided to

In the end, this is what virtual operators do: try to attend a

pursue the opportunity to go after a neglected segment,

segment in a way that operators cannot.

using a differentiated value proposition driven by our desire to empower young people with access to information, to

Q: How will virtual operators change the telecoms

help ensure their economic, personal and professional

ecosystem in Mexico?

development. It became truly important to offer a

A: We are at the initial stage of an industry development

differentiated product for this segment. From day one, we

that will change the current ecosystem. Virtual operators

have worked alongside young people in the design of the

are here to offer more options to users, which indirectly

company. While we were negotiating the contract with the

generates competition. Even though we cannot compete

carrier and obtaining all the needed permits, we designed

directly with big carriers, the fact that the final user can

some applications that allowed us to simulate our offering

have six or seven options that provide an added value or

for about eight or nine months, iterating what was working

differentiated services enriches the market.

and what was not. Q: Three years after virtual operators entered in the Q: What added value does weex offer compared to both

country, how does the segment’s development compare

traditional and virtual network operators?

to other parts of the world?

A: Our main differentiator is that our users only pay for

A: Comparisons are complicated because each country

what they really use, rather than paying a monthly plan full

has its own dynamic, nature and regulations. A mostly

of services that they do not need. Our goal is to provide

pre-paid market acts differently to a mostly post-

users with certainty regarding how their data is being used.

paid market. Many successful cases of virtual operator

A common frustration for users is that they deposit MX$20

assimilation happen in post-paid markets. A lot of

or MX$50 and two days later they find that they no longer

European countries enter this segment; for instance,

have any balance in their account and they do not know

Germany or the Netherlands, where virtual operators

how that money was spent since they have not used the

have almost a 40 percent market share. For us, it has

data or made any phone calls.

not been a surprise that the development of the sector is going so slowly. We are aware that it will take longer

We operate following three pillars: control, transparency

to reach a 10 or 15 percent market share. We need to

and flexibility. We provide clients with control through a

educate users and the market regarding what virtual

concept we call packs, where users can buy time for their

operators can offer. It is a matter of developing trust

favorite apps regardless of megabytes. For instance, a

and credibility but it will take time.

user can buy two unlimited hours of Waze for only MX$2, providing certainty regarding how the overall balance is going to be affected. The concept has been well-received

weex i s a Mexican startup that works under the Mobile Virtual

among our niche. One element that is attractive for our

Network Operator scheme. It provides mobile phones and

users is the fact that they can create their own package

internet services with an offering based on micro packages or

according to the number of megabytes they require for a

customized packages for a younger demographic

VIEW FROM THE TOP

INTEGRATING TECHNOLOGY IN NEW DIGITAL WORLD AarĂłn Porraz President of Grupo Tecno

Juan Carlos Lovo CFO of Grupo Tecno

Q: What role do companies like Grupo Tecno play as

requires consultancy services, a definition of what is going

technology integrators?

to be moved, how to control all the information in the

JL: Technology integrators play an important role in the

cloud and what kind of controls will be set.

implementation of this new digital world. Integrators need to understand technology itself, technology providers,

Q: What are the challenges associated with changing the

technology trends and other relevant players such as

companyâ&#x20AC;&#x2122;s business model?

carriers. Today, when you think about technology, you have

JL: It is an important challenge since it entails changing

to consider how this is going to fit into the technology

the DNA of the company. When you have a business based

architecture, which includes cloud solutions, information

on selling physical products for so many years, the need

storage, servers, hybrid solutions and so on. We provide

for change is sometimes hard to understand. Also, when

high-availability solutions.

considering how to scale up financially, you need to take a different approach. We will work toward having a hybrid

Q: When it comes to digitalization, how do entrepreneurial

business model.

entities view your services? AP: In general, it is not yet clear how companies will

Q: What business opportunities does Grupo Tecno detect

embrace the transformation that the digital revolution

in the implementation of Smart Cities in the country?

will bring. There is not a single cloud solution that solves

JL: When you talk about Smart Cities, you talk about a

every need a company may have. At first, the cloud

significant number of devices that act as sensors. We

service was not that popular because people could not

have already worked on similar projects. In 2012, we

fully understand the concept. Although its acceptance has

participated in the design of two prisons in the country

increased, I do not believe it will become the only solution

where we implemented a large number of devices

for companies. Big corporations will not move all their data

and sensors that act similarly to a how Smart City

to the cloud. They will favor a hybrid model. The cloud

would function. In the end, it is a matter of technology

offers high yields for suppliers. It is beneficial for service

architecture.

suppliers and for clients. AP: Unfortunately, in Mexico, Smart Cities have a strong When it comes to asking what is the real value we can

opponent called corruption. Today, generating a safe and

provide in the cloud, as a company we can identify three

smart city is technologically possible. For instance, Mexico

services: Infrastructure as a Service (IaaS), Software as a

City boasts about having 13,000 security cameras. These

Service (SaaS) and Platform as a Service (PaaS). With these

cameras are monitored through the Control, Computing

three options, clients can have the total of their operations

and Communication Centers (C4). However, the security

anywhere in the world but they must be able to obtain

system works only when a crime has been committed. In a

reports and gather information according to their own

safe and smart city, these cameras would help you prevent

standards. Customers also need to be certain that their

crimes. We believe that the concept of a smart and safe

information is safe from external attacks. To provide all these

city will take shape in the future. However, for it to happen

guarantees, we have a Network Operation Center (NOC) to

we need the authorities to provide juridical certainty.

monitor our clients and we are on our way to implementing our own Security Operations Center (SOC). Grupo Tecno is a Mexican technology company with more than

JL: Although our offering has been well-received by the

33 years of experience. It is the biggest hardware distributor

Mexican business community, SMEs will favor the cloud

for Oracle Mexico as well as other leading international IT

due to costs. Still, moving to the cloud is a process that

products manufacturers

VIEW FROM THE TOP

FROM DEVICE SUPPLIERS TO END-TO-END SOLUTIONS JUAN F. AGUILAR Director General of Dell México

Q: Dell was founded 32 years ago in the US. How has it

universities are offering in the digital transformation age.

evolved since it came to Mexico?

This must have two essential components: technology and

A: We began in Mexico in 1992 and saw a great client

quality labor. Mexico has both.

response, especially from multinationals. The company initially sold PCs and laptops but in 1996 we began selling

Q: How is Dell México facing the huge increase in sales of

servers. From 2000, the technology boom benefited Dell’s

mobile devices like smartphones and tablets? Where is

strategy. Sales started to double, the customer base grew and

the industry headed?

our team increased. Over the years, we acquired software

A: We are active participants. These types of devices are

and services companies and expanded our portfolio. In

proliferating and it is expected there will be 50 billion

the first decade of the millennium, Dell shifted from being

phones, tablets and laptops connected to the internet in

a supplier of PCs, laptops and servers and began offering

2020. This is going to require an increase in processing

end-to-end solutions for various industries: government, big

systems and Dell is going to manage this enormous amount

corporations and medium-sized companies. In this second

of data. We are also working on security gaps, as there

decade we consolidated our strategy and began growing

are a million cybercrimes committed daily on a variety of

through networks of distributors and wholesalers that

devices. In addition, half of the companies on the Fortune

allowed us to increase our levels of coverage.

500 list from 2000 have disappeared, which gives an idea of the huge revolution we are experiencing.

The last part of our story is our recent merger with EMC, which has bolstered our portfolio and allowed us to help

Q: To what extent do you think there is a technological

companies manage the so-called digital transformation.

ceiling?

We are observing new business models like Netflix, Uber

A: Experts like Steve Wozniack are talking about the fifth

and Airbnb. There is an effect called 10x wherein every five

industrial revolution, which is linked to so-called artificial

years technology multiplies its performance by 10, which

intelligence. The clearest examples are self-driving

can be applied to bandwidth for example. At Dell, we help

cars, but this is only the beginning. The cloud also has

companies in two ways: to modernize infrastructure for

characteristics of artificial intelligence, such as storage that

those already established and to prepare for the cloud for

can automatically expand without any human intervention.

newly founded ones.

Dell is very involved in the five tendencies that are the cloud, big data, security, artificial intelligence and device

Q: Where is Mexico in the digital transformation of its

management.

companies? A: I am convinced that Mexico will be a key player in digital

Q: What are Dell’s plans for Mexico?

transformation. An example is the iLab development

A: We are excited about our merger with EMC and about

laboratory based in Veracruz that aims to develop and

our participation in the technological renovation and

incubate innovative projects led by young entrepreneurs.

modernization of our client’s infrastructure. We are also

Mexico is in a strategic position due to its proximity to

looking at big corporations and medium-sized companies,

one of the largest global markets and the huge support

and continuing to support the government and consumers. Our aspiration is to continue growing at double digits and to remain market leaders thanks to our portfolio of end-to-

Dell is a computer technology company based in Texas. It

end solutions. In addition, we recently opened our bank, Dell

manufactures and sells personal computers, data storage

Financial Services, and we are increasingly incorporating new

devices, cameras, printers and network switches, among other

processes so that technology is more accessible to people.

devices. It was established in Mexico in 1992

This is the Dell we see for Mexico.

INSIGHT

DIGITALIZING THE MEXICAN BANKING SYSTEM DANILO OCHOA Regional Head of Digital Sales Banking and Payment of Gemalto

Transitioning from physical banking to a digital-led system

represents a challenge on its own: “You have a very young

encompassed a series of challenges that few banks in Mexico

sector that is not interested in going to a bank and waiting

were willing to take on. New demands regarding users’

in line,” says Ochoa.

experience and the banks’ growth requirements, among others, have paved the way for the expansion of e-commerce

Catering e-banking services to the millennial generation

and e-banking services, says Danilo Ochoa, Regional Head of

is a major challenge but Ochoa believes there are other

Digital Sales Banking and Payment of Gemalto. “2016 was a

factors that need to be considered. “The difficulty we are

year of radical changes. We saw several banks migrating to

encountering is more related to internet access.” The process

digital platforms, focusing on user experience and venturing

of becoming part of a digital world is not exempt of risks. Even

into mobile payment transactions,” he says.

though several companies, such as Gemalto, work in providing security solutions for e-banking and e-commerce services,

Another growth opportunity comes from the inclusion in

Ochoa says that in Mexico, internet users are reluctant to

the banking system of new clients, for which the millennial

dabble in these services due to security concerns. This is

generation offers an attractive pool of potential clients.

a matter of prevention instead of reaction. “The industry is

Nevertheless, wooing this generation to the banking system

working alongside security companies to improve this.”

VIEW FROM THE TOP

SAFEGUARDING THE INTERNET EXPERIENCE ALEJANDRO RAPOSO Vice President of Symantec Latin America and Caribbean

Q: Hackers are becoming more sophisticated. How does

The cloud is here to stay but we need to apply the same

Symantec approach this landscape?

security we have inside.

A: The top client expectation is to have the best product. However, there is no protection for everything. Around 1.5

Q: What are Symantec’s expectations in this growing and

million new malware are created every day, the best product

constantly changing market?

is that which offers a rapid response. We use the intelligence

A: The expectation is to protect with intelligence, since the

of millions of logs around the world to create algorithms and

daily number of malware will probably grow to 2-2.5 million.

identify threats. If someone is attacked by a malware today,

Regardless of the industry, every company has a responsibility

someone in Mexico or Brazil will be aware of this new virus.

to protect the information of its customers and employees.

Q: What security challenges do platforms like the cloud present?

Symantec is a US company and the global leader in

A: Not so long ago, this was frowned upon because there

cybersecurity. With over 11,000 employees in more than

is a common belief that we can protect everything we

35 countries, it provides security solutions for individuals,

have inside but not what is outside. This view is shifting.

companies and governments

INSIGHT

SATELLITES FOSTER GROUND CONNECTIVITY ALEJANDRO ATHIÉ Business Development Director of StarGo

100

Technology has the power to disrupt in the most unexpected

too expensive and relatively inefficient. We believe that the

ways. Two decades after the world was transformed by the

bounties of the Ka spectrum will permit us to compete in this

emergence of the internet, Mexico is getting ready to enjoy

particular segment.”

the changes that national, widespread access will create. What once seemed far-fetched – connecting to the internet from

While the company has high expectations for the Ka

the innermost locations of the country – is now a realistic goal,

band and its impact on market share, its successful

thanks to the magic of satellites and technology.

market penetration until now is in part thanks to the

“

The satellite market will offer the country new opportunities. Satellites know no barriers and can break any frontier”

telecommunications projects fostered by the current federal administration. “Five years ago, we started focusing on providing services to corporate and governmental institutions,” says Athié. “Our participation in the Bicentennial Project allowed us to provide internet connection to 5,062 remote locations in the country.” A key advantage is also network security. “When it comes to telecom services, clients must invest heavily on security equipment and to encrypt their information to protect

Alejandro Athié, Business Development Director of

themselves from hackers. However, when it comes to satellite

StarGo, believes the key to growth lies in the heavens.

services, clients do not have to make any other investment

His company is among those going forward with the

on security equipment,” says Athié. “The data combination

implementation of telecommunications via satellite.

needed to access the satellite is of great magnitude and

“Five years ago, we had between 1,200 and 1,500

provides every customer with an encryption process that

clients connected. Today, we have around 9,000 clients

makes additional security measures unnecessary.”

connected via satellite,” he says. Mexico’s telecoms industry has grown by leaps and bounds The hunt for experience and market share to complement

and the country is overcoming its past constraints in terms

its technology led StarGo to Pegaso Banda Ancha, a former

of technology. “The real challenges are convincing clients

division of Grupo Pegaso, in 2016. “We had the experience

to try our services, convincing them that we offer solid

and the commercial reach and StarGo had the technology,

technology and reaching their target price,” says Athié.

so they bought us and now we are part of the StarGroup,”

StarGo is confident that its new satellite technology will

says Athié. “I think it is an interesting combination. StarGo

allow the company to increase its market share in the next

has also acquired Ka band frequency, which will allow us

two years. “We believe our market share in the satellite

to provide satellite internet with wider broadband and in a

internet market ranges between 25 and 28 percent. But

more economical manner.”

the merger of StarGo and Pegaso Banda Ancha gives us the possibility to more than double our number of users,”

Satellite services are by far more expensive than those provided

says Athié.

by traditional carriers but Athié says the implementation of the Ka spectrum prices (a frequency that allows for higher

Although much has been accomplished already, there is still

bandwidth communication at reduced costs) will allow StarGo

room for more. “We need to start setting the rules instead

to compete to an extent with land carriers. “Our service is still

of just following them,” says Athié. “The satellite market

more expensive than land services. However, there are higher-

will offer the country new opportunities. Satellites know

end packages wherein traditional carriers have become way

no barriers and can break any frontier.”

VIEW FROM THE TOP

ENABLING HIGH-SPEED SOLUTIONS Karsten Florin Head of International Sales of Dätwyler Cabling Solutions

Janitzio Badillo Director General of Marathon Group

Q: What role does Mexico play in Dätwyler Cabling

you cannot work with such a slow internet connection. Data

Solutions’ global operations?

volume is constantly increasing and demands Structure

KF: In the cable manufacturing industry, we have focused

Cabling Systems (SCS) that are sufficient and reliable. In

on becoming a niche player. Our main markets are

SCS, we have seen the development from 1 Gigabit Ethernet

Germany, Austria and Switzerland but our solutions can

to 10 Gigabit Ethernet.

be used worldwide. A very small portion of our production is exported to Mexico and Latin America. Mexico’s stable

Q: How do you ensure that your product offering addresses

economy, infrastructure development and payment

the needs of Mexican industries?

performance makes it an attractive market in which to

JB: Nationalism sometimes plays a role when determining

strengthen our presence. Every segment requires our

what kind of cabling needs to be used or what specifications

products: office buildings, shopping malls, hospitals and

must be followed. European companies use European

airports. Any infrastructure needs structured cabling.

products and follow European standards. However, most companies in Mexico follow American standards. This

Q: What is Marathon Group’s distribution strategy for

difference allows Dätwyler to attract business opportunities

products such as Dätwyler’s offering for the Mexican

in both markets.

market? JB: Dätwyler’s products are imported and commercialized

Q: What advantages can Dätwyler Cabling Solutions offer

through Marathon Group, a specialized company that has

its clients over its competitors?

been in the Mexican market for 27 years. When we acquire

KF: We are a quality brand that constantly strives to be best

a new brand, we try to specialize in the niche that brand

in class, which is vitally important for big customers like

is targeting. For instance, Dätwyler is specialized in ICT

car manufacturers. On big projects with car manufacturers,

networks, so when we started working with the company

one advantage is the good contact we have with customer

five years ago we had to broaden our scope to include that

headquarters in Germany and Europe. Another advantage

niche. Some German companies in Mexico already have

of big projects is that they usually ask for the same quality

agreements with Dätwyler through its headquarters, so we

as international sites, which is where we excel.

use this relationship and provide them with the material needed for their operations.

JB: Logistics plays a crucial role in our operations. We have a logistics and a foreign-trade team. It is their responsibility

Q: How does Dätwyler Cabling Solutions approach product

to obtain the best costs and the best shipping options to

development?

ensure that our products get to their destination on time.

KF: We have a long history of manufacturing high-quality

Since Dätwyler’s products are manufactured in Europe,

cabling solutions. Our priority is structured cabling in

shipping and delivery times are a constant consideration. To

general. This consists of the cable, the connector, the patch

ensure delivery within the country, we maintain significant

cord, the patch panel and every item you need for structure

amounts of product in stock and we have a transportation

cabling. For product development, we have to consider

fleet. We also work with other companies in cases where

market needs and what our competitors are doing.

additional transportation services are required.

Q: How have the market’s needs evolved in the cabling industry throughout the years?

Dätwyler Cabling Solutions is an international supplier of

KF: The current market requires increasingly faster data-

products, for electrical and ITC for buildings. Marathon Group

transmission speeds. If you look back five or 10 years, 1 Mbit

is a Mexican company and a leader in the distribution of cabling

per second or 6 Mbit per second was adequate but today

solutions and electrical components

101

VIEW FROM THE TOP

ONE OPERATING SYSTEM, THREE DISTINCT ADVANTAGES MARIO MALDONADO Country Manager of Juniper Networks

102

Q: Who are your main clients and industries?

A: Juniper is unique in the industry: it has only one operating

A: Our main customer base is in the service operators

system, Junos OS, for its entire equipment portfolio. Junos

market, which accounts for almost 70 percent of our total

has three main advantages. First, users only need to learn

revenue; the remaining 30 percent is in the enterprise and

and train in one single language to manage and configure

government segments. Other key clients are Internet 2.0

all the elements in their network. Second, we release our

companies.

OS upgrades every quarter. Finally, over these platforms we can develop apps from third parties, meaning that if a user

Q: What benefits do customers derive from Juniperâ&#x20AC;&#x2122;s

requires additional functionalities that Juniper has not yet

products like Junos OS and Junosphere Cloud?

developed, we provide Software Development Kits. This provides the end user with a great deal of flexibility. For a data center, instead of having multiple people managing

Juniper Networks is a multinational technology company

the network, a reduced team can develop its own tools

based in California. It focuses on the development of platforms

and do not need to perform processes that are not useful.

for IT networks and security systems for service operations,

Junosphere Cloud is a virtual enrviorment where users can

companies and governments

run networks that use the Junos OS.

VIEW FROM THE TOP

THE RISE OF MEXICOÂ´S ECONOMY OF APPLICATIONS GERARDO FLORES ZURITA Vice President and Country Manager of CA Technologies

Q: How is Mexico positioned in technology compared to

means that all components and data to be analyzed are

other Latin American countries?

managed by software. In fact, there are companies that

A: Today, the industry has the challenge of competing

used to be in charge of banking services and today they

with companies founded on the basis of a disruptive

have become more technical in their software division.

business model, which is causing a transformation in the Mexican industry. Most of the automobile industry has more

Q: What will help the company strengthen its growth here?

investment in software development than in the mechanical

A: We have four pillars that we apply to digital transformation.

part. Tesla is working on a self-driving car, something that

Companies have realized that if they do not integrate this

has more to do with software than with hardware. This

operations model to the business development plan, they will lose users. Second, operative efficiency has to do with creativity regarding how to integrate the development and

CA Technologies creates independent system software for

operations areas of a new business. The third pillar is the

companies worldwide. It focuses on helping clients deliver high-

generation of new business models and the fourth pillar is

quality applications and services to their customers. It provides

related to the user experience. We can help our customers

support in planning, development, management and security

create brand loyalty among their users.

VIEW FROM THE TOP

DIGITAL TRANSFORMATION TAKES A FRONT SEAT PETER KROLL CEO of everis MĂŠxico

Q: What are your main goals for your first year as CEO

A: Most of the services today are based around

of everis?

te c h n o l o g i c a l n e e d s : d eve l o p i n g I T s o l u t i o n s ,

A: We have 14 accounts in Mexico, most of which belong to

implementing enterprise solutions and the maintenance

the banking and telecommunications sectors, representing

of those solutions for our clients. That represents about 65

about 50 percent of our operations. We want to open new

percent of our activities. But our fastest-growing services

accounts in three target segments: the finance services

are around business consulting and digital transformation.

industry, consumer products and manufacturing. The Mexican finance industry is at the forefront of innovation,

Q: How responsive are Mexican companies to digital

investing heavily in technology. In the manufacturing

transformation?

industry, our presence is too small and Mexico has high

A: Mexico is moving forward with digitalization but there

potential in this sector. Around 40 percent of IT investment

are countries in Latin America that are more advanced,

in Mexico goes into this industry. Only a small percentage

like Chile and Colombia. In Mexico, the reaction to digital

of our revenue is in this sector but we have a big presence

transformation is that everybody wants to do it but

in other countries.

sometimes they get lost in understanding what it really means. The world is changing and millennials are all the

Q: How important is Mexico for everisâ&#x20AC;&#x2122; global business?

same across the world, so they have certain expectations

A: It is important for our Latin American operations. everis

of products and services to which companies need to

is a company that will probably close the year with US$1

adapt. Banks in Mexico have already embraced digital

billion in revenues, 30 percent of which comes from Latin

transformation, specifically when it comes to customer

America and the other 70 percent from Europe. We have

experience.

presence in Colombia, Argentina, Peru and Chile and we see Mexico as the key Hispanic hub in Latin America. We

Q: How do you promote Mexican innovation through

also have a local digital lab in which we are working on

programs like Premio Everis?

innovations such as artificial intelligence and chat bots. We

A: In 2016, we launched the first Premio Everis competition

will build other competence centers focused on customer

organized by the everis Foundation in Mexico. It is a prize of

experience with state-of-the-art technology through which

MX$1 million for projects that integrate innovation and social

Mexico will become a knowledge hub for Latin America.

impact. We had three different categories through which

Lastly, Mexico is the most profitable operation in Latin

participants could apply: new business models in digital

America and one of our objectives is to maintain that.

economy, biotechnology and health and new technologies in the energy and industrial space. There were 447 project

Q: What is your strategy to maintain that profitability?

submissions in Mexico. There are 2,000 startups created

A: We have an organization built around three dimensions.

every year in the country and only 25 percent survive the

First are sectors, where we have deep industry knowledge

first two years. The purpose of this prize, besides providing

about every industry or client. The second dimension is

economic support, is to guide entrepreneurs on how to

focused on the services we offer to our clients. The third

go to market and on how to create a business through

dimension is the country: each CEO of everis Mexico

professional advisory delivered by everis.

is focused on bringing the knowledge of everis to the clients we work with in Mexico and to maintaining the companyâ&#x20AC;&#x2122;s profitability.

everis is a multinational consulting firm present in 16 countries. It offers solutions in business operations, strategy and digital

Q: What are the main services you provide to your clients

transformation for infrastructure, banking, telecom, retail,

in Mexico?

health, technology, logistics and transportation companies

103

VIEW FROM THE TOP

INNOVATION ADDS VALUE TO PAYMENT SYSTEMS GUSTAVO GUTIĂ&#x2030;RREZ CEO of Broxel Fintech

104

Q: What opportunities did you observe in the Mexican

For this reason, we dared to innovate; we wanted to take

market that led you to create Broxel?

advantage of this revolution. Moreover, we wanted to address

A: The transactional revolution we are experiencing goes

the needs that users and the market would develop by

well beyond payment systems, as it involves a revolution

providing them with solutions to make any type of payment.

in connectivity that exists between humans. We have gone

Our goal has always been to innovate and to put into the

from having a barely connected world to a hyperconnected

hands of the final user all the necessary platforms. Our core

one, which is perfectly informed. This change represents

is transactional innovation.

an opportunity because it removes barriers and allows new companies to enter the market. The foundation of this change

During the last six years, Broxel has developed a series of

is technology.

platforms that allow us to add value to different segments: our B2B offer and our nascent offer to the B2C market. For our B2B clientele, we have developed internal platforms that

Broxel Fintech is a Mexican payments solutions company

allow us to offer tailored solutions to institutional users, which

founded in 2011. Its offering includes providing payment

translates into a value offer for their final users. Now that we

solutions such as digital infrastructure or credit cards for

have covered the B2B market, we are now venturing into the

institutional players

B2C market with an app that integrates payments.

VIEW FROM THE TOP

CONNECTING CLIENTS TO BANKS IN REAL TIME FERNANDO GUTIÉRREZ CEO of STP

Q: What is the extent of STP’s financial and technological

single piece of their SPEI, which is the heart of the bank, is

offering?

complicated. However, they have reached out to us because

A: STP is a fintech company related to electronic payments.

they need our speed and technology.

The company was founded in 2008 and is connected to Banxico’s System of Interbank Electronic Payments (SPEI).

Q: Which governmental agency oversees companies

This means that our software connects our clients in real time

such as STP?

with all banks. We link the bank system with our software

A: There is a regulation issued by Banxico that covers all

so we can update accounts payable or receivable without

SPEI participants. This was initially only for banks, although

human intervention. The proposal is advantageous because

later it was expanded to include other authorized entities.

it eliminates manual processes and the accompanying risks. It

What Banxico wants is to end cash operations. That is why

also saves time and labor, which translates to efficiency. The

Banxico sees us with good eyes because we contribute to

objective is to eliminate banks as payment intermediaries. If

strengthening the country’s banking system. This also means

customers want to make a payment, they only need to send

that we need to follow Banxico’s security protocol.

the instructions to STP and, always in real time, they will know if the payment was processed or not.

To prevent network failures, we have placed two servers in the US. A bank can go without transactions for a couple of hours

Q: Mexico has among the highest smartphone rates in Latin

but if STP goes two hours without SPEI, the business ends for

America but internet penetration is low. What is STP’s

us. That is why we want more security. As for customer privacy,

position in this environment?

this involves internal policies that do not include Banxico.

A: Startups and apps are an important part of our client

CNBV regulates everything related to money laundering and

portfolio. After developing a business idea, they are faced with

STP is obliged to maintain control of all transfers as well as

the dilemma of how to charge and transfer funds between

to review all our customers’ data. We comply with the Know

their clients and end users. We are not a final product. We

Your Customer (KYC) practice.

are a commodity for Mexican fintech companies because we solve interbank transfers 24/7. In our portfolio, we have

Q: In 2016, Mexico received over US$26 billion in remittances

fintech companies, card issuers and online credit companies,

from the US. What is STP’s role in that scenario?

crowdfunding, P2P lending and traditional companies.

A: We have a very interesting challenge ahead, since according to our data 95 percent of remittances are made cash-to-

Q: What is the relationship between traditional banking and

cash. Our business is based on the cash-to-account model:

a fintech company such as STP?

we deliver the remittances to a bank account, debit card or

A: STP offers solutions to different problems from those of

cell account. The cost of sending money remittances from

traditional banking. The business of a bank is to raise and lend

the US to Mexico is around US$4, while we charge US$0.25

capital, while ours is automation of payments and collection.

cents and we are open seven days a week, 24 hours a day.

However, some banks do not care about transactions because

What happens in this type of industry is that we push people

the money always ends up reaching their accounts. This is

to open bank accounts, thereby contributing to the country’s

why our growth potential is huge. It is true that we compete

banking system.

with banks but we offer personalized services for each of our clients’ needs. STP is the only company that offers this service in Mexico.

STP is a Mexican fintech company specialized in real time electronic payment that permits companies and users to pay

It is not in our plans to become a manager of a big bank’s

from mobile devices. Its services are widely used, including in

transfers. Banks are so large and complex that moving a

real estate and by startups

105

FOOD & AGRIBUSINESS

Mexico plays an important role in the global food supply; it is the leader in the export of avocados, chilies, berries and one of the main tomato producers in the world. Primary sector GDP has grown by 4.1 percent since 2015 and the food, beverages and tobacco industry contributed 4.3 percent to the countryâ&#x20AC;&#x2122;s GDP. Mexico ranks as the most competitive place for food processing, has a large network of free trade agreements and a strategic location for distribution.

In addition, land use, the modernization of production systems and the improvement of infrastructure should be a priority for entrepreneurs and politicians. This would allow a better distribution of the products in a country located next to the US, the largest consumer in the world, and along with Latin America, one of the largest agricultural areas.

Throughout this chapter, local and international agriculture, livestock processing and food and beverage processing companies share the challenges and opportunities they have identified in Mexico. The leaders of one Mexicoâ&#x20AC;&#x2122;s most productive sectors will also evaluate the main hurdles the industry currently faces.

107

CHAPTER 5: FOOD & AGRIBUSINESS 110

ANALYSIS: Untapped Potential In Mexico’s Food Industry

112

INFOGRAPHIC: Opportune Time to Exploit Primary Sector

114

INSIGHT: Jesús Vizcarra, SuKarne

115

VIEW FROM THE TOP: Juan Carlos Anaya, GCMA

116

VIEW FROM THE TOP: Alejandro Monteagudo, AgroBIO MÉXICO

117

INSIGHT: Javier Valdés, Syngenta Mexico

119

VIEW FROM THE TOP: Sergio Acosta, Agroenzymas

120

INSIGHT: Íñigo Pérez-Rasilla, SOFAGRO

121

VIEW FROM THE TOP: Mark McCoy, Banco Finterra

122

VIEW FROM THE TOP: Erik Seiersen, Diageo Mexico

123

VIEW FROM THE TOP: Antonio Matienzo, Cuauhtémoc Moctezuma, Heineken

124

INSIGHT: Francisco Soltero, Patrón Spirits Mexico

125

VIEW FROM THE TOP: Gilberto Maldonado, Grupo Peñafiel

126

INSIGHT: Janus Skøt, Arla Foods

127

INSIGHT: Tatiana Liceti, Tetra Pak Mexico

128

INSIGHT: Rodrigo Domenzain, Amar Hidroponia

129

INSIGHT: Enrique Portilla, Grupo Agros

130

VIEW FROM THE TOP: Liz Quintero, México Calidad Suprema

130

VIEW FROM THE TOP: Armando López, APEAM

131

INSIGHT: Ulises Vergara, Conagra Brands Mexico

131

INSIGHT: Gerardo Díaz, Fábrica de Chocolates y Dulces Costanzo

132

VIEW FROM THE TOP: José Cuaik, Grupo Hunan

133

INSIGHT: Farique Cetina, National Soft

109

ANALYSIS

UNTAPPED POTENTIAL IN MEXICO’S FOOD INDUSTRY Mexico has become a key player in ensuring food availability for the 7.4 billion people inhabiting the planet. Globalization and free trade agreements have been key in bolstering the country’s food industry. Yet, despite its success, modernization and diversification are the two biggest hurdles the industry faces

110

Anyone who believes the primary sector is not business

in line with the global trend. World Bank data represent

material should visit Mexico. According to SAGARPA,

a decline in the contribution of agriculture to the global

in 2016, Mexico’s agricultural production increased 11

GDP from 5.2 percent in 2000 to 3.7 percent in 2015.

percent in 52 key crops compared to 2012, driven by

Reasons for the decline vary, but BBVA Research credits

growth of crucial export crops, such as apples, asparagus,

the lack of dynamism in the sector when compared to

blackberries, broccoli, avocados and green chilis. Between

manufacturing or services.

January and June 2017, Mexico registered total agricultural production of 113.7 million tons, a 1.8 percent variation

When distilling the sector down by food segment, it is a

from the same period during 2016. Rodrigo Domenzain,

somewhat different tale that suggests that opportunities that

President of Amar Hidroponia, says success in the industry

exist. According to INEGI, during 2017’s first six months, the

depends on the how a company goes about its business.

GDP for the food, beverages and tobacco industry totaled

“The primary sector is the base of the economy and offers

MX$1.28 billion, a 2.08 percent increase over the same period

significant business opportunities. It is about addressing

in 2016. In 2016 alone, the food, beverages and tobacco

the sector with the appropriate model.”

industry contributed 4.3 percent to the country’s GDP.

In addition to agriculture, the livestock segment is also

Mexico’s competitiveness in the food manufacturing

thriving, reaching 6.5 million tons in 2016, 202,000 tons

sector is a factor in attracting investment to the country.

above 2015’s figures. 2017 appears poised to surpass

The Ministry of Economy says that between 1999 and

the previous year’s milestone. During 2017’s first six

the first quarter of 2017, US$59.7 billion was directed

months, carcass meat production increased 2.8 percent

to the agri-food sector, meaning food production,

over the same period in 2016. National fish production

beverages and tobacco, with investments coming from

has also enjoyed positive results, with 1.5 million tons

the Netherlands, the US, Switzerland, Japan, Luxemburg

caught in 2016. Between January and June 2017, national

and Spain. According to KPMG’s 2016 Competitive

production registered growth totaling 23.2 percent, up

Alternatives, Mexico ranks as the most competitive

from 853.5 thousand tons in 2016 to 1.05 million tons in

country for food processing.

2017. The end result is that Mexico is now the 12th-largest food producer in the world.

As of 2014, ProMéxico estimates that a total of 185,013 agri-food economic units – companies, plants, sales and

Primary sector GDP has displayed a healthy rise, from MX$405.3 billion to MX$448.9 billion between 2012 and 2016, according to SAGARPA

commercial offices – were operating in the country, which has become an important base for international companies such as Dr. Pepper Snapple Group. “Grupo Peñafiel has four plants in Mexico. We are Dr. Pepper Snapple Group’s second-largest affiliate after the US,” says Gilberto Maldonado, Director General of Grupo Peñafiel.

US INFLUENCE The country’s attractiveness in the food industry is

While the GDP of the primary sector has displayed a

boosted not only by its proximity to the US, but also

healthy rise, from MX$405.3 billion to MX$448.9 billion

because of its broad network of free trade agreements,

between 2012 and 2016, according to SAGARPA data,

commodities that are available all year-round, a qualified

and registered a 4.1 percent increase just in 2016 from

labor force and technology. Ulises Vergara, Vice President

the year before, the sector has suffered a reduced role

and General Manager of Conagra Brands in Mexico,

in overall national GDP. INEGI figures show the primary

says that the company’s Mexico production site ranks

sector’s contribution to the country’s GDP fell from 3.6

among the top of its 27 facilities around the world. “Due

percent in 1993 to 3.1 percent in 2016. Still, the decline is

to the sustainability and efficiency programs we have

implemented, our Mexican production facility ranks among the company’s best plants,” he says. Competitiveness reflects on exports numbers. In 2016 alone, agricultural and agri-industrial exports reached US$28.9 billion. Between January and August 2017, exports registered

ProMéxico estimates that 185,013 agri-food economic units were operating in the country in 2014

US$2.6 billion more than in the same period in 2016. consumption trends could contribute heavily to the Mexico’s closeness with the US, as well as logistics, make

industry. However, tradition and entrenchment, have

its northern neighbor the main recipient of exports.

made agriculture one of the sectors most resistant to

Data from the Foreign Agricultural Service of the US

change and modernization.

Department of Agriculture (USDA) show that in 2016, Mexican exports to the US totaled US$22.9 billion.

MODERNIZATION HURDLE

SAGARPA says that the EU buys Mexican agri-food

Yet, it is not an impossible task. Íñigo Pérez-Rasilla, Director

products totaling US$831 million.

General of Sofagro, believes it is a matter of providing the right incentives for change. “Farmers need to have incentives

While NAFTA renegotiations have flustered the markets,

to change, otherwise they will continue doing things in the

the Mexican agribusiness industry remains confident

same way their grandparents did.” It is precisely within the

regarding the future of the agri-food relationship between

modernization conundrum where export opportunities can

Mexico and the US. Amar Hidroponia’s Domenzain says

be found. “It is more plausible for farmers to transform their

severing the existent interdependence through taxes

production methods if their buyers and large exporters

makes no sense. “Almost 75 percent of the vegetables

demand they modernize production to comply with

consumed in the US come from Mexico. If the US wanted

international standards,” says Pérez-Rasilla.

to substitute all Mexican imports it would have to spend billions of dollars on high-tech greenhouses.”

Technology has also paved the way for new production methods that go beyond automation of agricultural

NEW HORIZONS

processes. The use of technology to ensure sustainability

One positive outcome of the NAFTA squabble is that it

and crop protection is increasingly becoming more

has spurred Mexico to broaden its own horizons in an

common due to the economic benefits it entails.

attempt to reduce dependence with its northern neighbor

According to Javier Valdez, Director General of Syngenta

and at the same time, gain leverage in the renegotiations.

Mexico, the use of technology can help farmers increase

“If NAFTA disappears, I can export cars paying 2.5

their productivity. “An unprotected crop can lose up to

percent tariffs. If they want to export yellow corn to me,

40 percent of its productivity.” Nevertheless, the use of

I can raise tariffs to inaccessible levels. But to make that

technology also generates a series of dilemmas, such as

strategy credible, I have to broaden our agreements with

the use of genetically modified organisms (GMOs), an

Brazil and Argentina,” said Ildefonso Guajardo, Minister

industry that according to the International Service for

of Economy at Mexico Business Forum 2017.

the Acquisition of Agri-Biotech Applications (ISAAA) in 2016 reached a US$15.8 billion value. In Mexico, the use of

Widening the breadth of its markets involves more

GMOs is the subject of discussion and weariness. However,

than just signing commercial agreements, as Mexican

Valdez sees it as a means to boost agricultural potential.

production must comply with a series of certifications

“Biotechnology is just one more tool that producers can

that allow access to other countries. According to the

take advantage of. It is intended to simplify their life and

Presidential Office, Mexico is one of the five countries in

help them produce more per hectare.”

the world to have all sanitary approvals, granting Mexican products access to 160 countries. This is no doubt an

Other new production trends such as the growing of organic

advantage for diversification. “With the implementation

crops could represent a source of untapped potential for

of the new sanitary protocols, we are now exporting

the Mexican industry. According to SAGARPA, between

berries and avocados to China and we are close to

2012 and 2016 the area destined for the growth of organic

concluding the sanitary protocol for bananas,” says Liz

crops doubled, reaching 1 million hectares and generating

Quintero, Director General of México Calidad Suprema.

exports accounting for US$1.8 billion. SAGARPA’s next challenges are to position Mexico as the seventh-largest

Finding new markets, is only part of the equation in

producer of organic food in the world and to make these

Mexico’s quest to strengthen its agri-business industry.

products accessible, not only for international consumption

Production modernization and participation in new

but for domestic population as well.

111

INFOGRAPHIC

OPPORTUNE TIME TO EXPLOIT PRIMARY SECTOR Geography, climate and terrain diversity have given Mexico

become the 10th by 2020. In recent years, the sector has

unparalleled opportunities to exploit its primary sector.

enjoyed increased competitiveness and 2015 marked the

Leaving the mining sector aside, the agriculture, fishing

first time in 20 years that the industrty registered a surplus

and livestock segments have become a source of revenue

in the country’s trade balance. New markets, modernization

for the country and have helped to position Mexico as the

and wider access to credit promise that Mexico will continue

12 -largest food producer in the world. It is expected to

with this positive trend.

MEXICO & US 112 Mexico is the 3rd largest buyer of food from the US

• 82% of avocados in the US comes from Mexico • 80% of dairy, eggs and honey from Texas goes to Mexico • 99% of corn exported from Kansas goes to Mexico • 20% of food the US imports comes from Mexico

MAIN AGRICULTURAL PRODUCTS World ranking

State

% Value of production

Total production in tons

Potential markets

1,720,000

Argentina, Norway, Lithuania, Poland, Colombia

Avocado

Blueberry

5th

Jalisco

35.5

Baja California

26.6

Colima

17.8

10,160

Norway, Austria, France, Switzerland, Poland

Broccoli

4th

Guanajuato

66.3

Michoacan

8.9

Sonora

5.1

415,812

Hong Kong, UK, Germany, Russia, Malaysia

Cacao

Tabasco

68.8

Chiapas

31.1

Guerrero

0.2

27,844

Malaysia, Turkey, Singapore, UK and Russia

Green Coffee

10th

Chiapas

32.8

Veracruz

25.9

Puebla

231,596

Argelia, Poland, India, Portugal, Morocco

Zucchini

Sonora

26.5

Puebla

11.8

Michoacan

9.2

398,660

France, Germany

3,093

dams for agricultural irrigation

fishing ports

agricultural warehouses

FISHING WORLD PRODUCTION RANKING (in tons) 600 500 400 300 200 100 0

6th

9th

3rd

Sardine

4.5

Octopus

State of Mexico

Bream

Lobster

Jalisco

Shrimp

Tuna

1st

Michoacan

7th

LIVESTOCK WORLD PRODUCTION LIVESTOCK WORLD RANKING (in tons)

World ranking

PRODUCTION RANKING

State

% Value of production

Total production in tons

Potential markets

61,182,076

Croatia, Netherlands

1,270,060

Malaysia, Brazil, Sri Lanka, Pakistan, Senegal

2,294,400

Malaysia, Poland, Lithuania

Sugarcane

3000

2500

Veracruz

35.1

Jalisco

14.4

San Luis Potosi

9.2 Onion

Poultry Meat in Carcass

Beef in Carcass

Pork in Carcass

Table egg

Honey

2000

5th

6th

15th

5th

8th

1500 1000 500 0

14th

Baja California

17.4

Chihuahua

17.2

Tamaulipas

12.8 Green Chili

Chihuahua

21.4

Sinaloa

16.9

San Luis Potosi

14.5 Copra

8th

Guerrero

Colima

5.5

Tabasco

AGAVE, A SOURCE OF RICHNESS

113 202,684

South Korea

126,421

US and Germany

30,411

Netherlands and Belgium

379,464

Portugal, Poland, Switzerland, Czech Republic, Norway

1,294,634

United Kingdom, Indonesia, Pakistan

3,140

Germany, France, UK, Belgium, Netherlands

2,120,613

Poland, Saudi Arabia, Ukraine, Austria, Rumania

40, 824

Netherlands, United Kingdom

2,127,772

China, Argentina, Ukraine

128,976

Canada, United Kingdom, Netherlands

4.5 Asparagus

• 17,000 agave farmers • 70,000 jobs generated by the tequila Industry • 358.7 million agave plants in Mexico

3rd

• Total value of tequila exports: US$1.2 billion

Sonora

72.4

Baja California Sur

12.6

Baja California

11.7 Raspberry

1977: Tequila was granted its designation of origin

1995: Mezcal was granted its designation of origin

Baja California

32.9

Michoacan

22.9 Strawberry

Michoacan

3rd

Main producers Tequila and Mezcal Tequila Mezcal

Jalisco

Baja California Guanajuato

59.4 32 3.4 Bean

Zacatecas Sinaloa Durango

24.8 13 10.8 Tomato

Sinaloa

17.1

Baja California

Jalisco

8.6 Lemon

2nd 89

133k

wholesale food outlets

animal slaughterhouses

Veracruz

30.8

Michoacan

27.6

Oaxaca

11.8 Pecan Nuts

Chihuahua Sonora Coahuila

70.5 11 9.4 Banana

MEXICO: CENTER OF DENOMINATION FOR CORN (million tons)

5 0

Production Exports

12.8

Imports

Human Consumption

Yellow Corn Cattle Food

Tabasco

33.4

Chiapas

26.6

Veracruz

11.7 Blackberry

White Corn

1.07

White corn production ranking in the world

1.64

1st 3.6

23.3

Michoacan

96.2

Colima

1.4

Jalisco

1.1

Sources: 2016 Food and Agricultural Atlas, SAGARPA, National Chamber of the Tequila Industry, GCMA

INSIGHT

FROM MEXICO, WITH BEEF JESÚS VIZCARRA President and Director General of SuKarne

114

Mexico’s top beef producer is ready for any outcome from

death and consumption of livestock. In Mexico, the National

the renegotiation of NAFTA that could impinge efforts to

Health Service, Food Safety and Food Quality (SENASICA)

export to the country’s largest single market, the US. Top beef

plays an important role in the supervision of compliance.

producer SuKarne says companies need to sail into uncharted

That implies having strict control of the livestock, including

waters. It has been doing just that for a long time now. “We

knowing where it was born or from where it was obtained. This

understand the importance of the US market but we also

is not a problem for SuKarne. “We have a traceability system

know that it is important to be prepared for everything,” says

that allows us to know our livestock, where it came from and

Jesús Vizcarra, President and Director General of SuKarne.

its previous owners,” Vizcarra says.

“

Our first and most important market is Mexico. Nevertheless, we are always on the hunt for new opportunities”

Market diversification has been a central theme across

Such is the interest of the Mexican beef industry to enter the Middle East that a series of commercial missions led by SAGARPA have already taken place, as well as visits from representatives of the United Arab Emirates and Saudi Arabia to Mexican feedlots. According to a Forbes interview with Rogelio Pérez, CEO of Mexican Beef, only six Mexican companies have the halal certification. Pérez is certain that once a deal with Middle Eastern countries is reached, Mexican beef producers will be exporting 20,000 tons of beef yearly, which would account for US$100 million in sales.

Mexico’s industries since Donald Trump, who has vowed to change the NAFTA agreement, was elected US president

Russia, a front that remained closed for four years on Russian

in November 2016, specifically targeting trade with Mexico.

allegations that Mexican beef producers were using growth

SuKarne, however, has been ahead of the curve with its

enhancers, has also re-entered the picture. In February 2017,

strategy to look for other markets. Only 10 years after NAFTA

José Calzada, Minister of SAGARPA, announced that Russia

came into effect in 1994, allowing companies like SuKarne to

would buy 300,000 tons of Mexican beef per year. Then there

begin exporting and commercializing its production in the

is the Chinese market. “A number of significant dealings with

US, the Mexican beef producer decided to venture into the

China are already underway and I believe that agreements can

Asian market, exporting beef to Japan. Its Units for Integrated

be made,” Vizcarra says. Europe is another likely destination

Beef Production (UGIs) in Sinaloa, Baja California, Michoacan,

for the country’s beef products. “We are working on obtaining

the Comarca Lagunera region, Durango and Nicaragua, has

all the needed certifications. It is a process that has taken two

allowed SuKarne to develop a strong presence in Angola,

years but we are confident that we will be ready to begin

Vietnam, Japan, South Korea, Hong Kong and in a number of

exporting to Europe in one more year,” he adds.

Central American countries. Regardless of the political environment in the US, Vizcarra Ranked among the top-five beef-packing companies in North

believes that SuKarne’s future is solid and that the company

America and the third-largest feedlot company in the world,

will continue seeing the double-digit growth rates it has

SuKarne has hopes for further expansion. “We are trying to

enjoyed in the last 20 years. Its business strategy ensures high

enter the Middle East market with halal meat,” Vizcarra says.

margins. “We are in an industry with small margins on returns

According to a SuKarne press release, the halal certification the

but our integrated model allows us to ensure a higher return.”

company already has allows it to access a market with 2 billion

Diversification will only add to the company’s advantages.

consumers. To obtain a halal certification a company must

“Our first and most important market is Mexico. Nevertheless,

comply with specifications outlined in the Quran regarding the

we are always in the hunt for new opportunities.”

VIEW FROM THE TOP

ADVISING THE AGRICULTURAL SECTOR JUAN CARLOS ANAYA Director General of Grupo Consultor de Mercados Agrícolas (GCMA)

Q: What is the main differentiating value of GCMA

We make future projections based on historical issues such

compared to other companies dedicated to the same

as the seasonality of prices. A very important part of our

line of business?

work is to be the first to inform about what happens in the

A: GCMA was created in 1996 with the objective of

sector. Our clients include producers and organizations of

offering information services to the agricultural market

producers, grain consumers, marketers, transport agencies,

in light of the commercial opening that took place in

banks, state governments and the federal government. This

Mexico after NAFTA’s implementation. Our first service

means we analyze the whole production chain, from the seed

was to offer bulletins with information on prices – mainly

to the final price in store.

of maize, wheat and sorghum – to companies that were grain consumers, as well as to help the government

Q: Given this new political scenario, how can the national

with studies of the agricultural sector. GCMA supports

agricultural sector take advantage of all the free-trade

and advises companies, producers of all sizes and the

treaties opened by Mexico?

government.

A: The arrival of Donald Trump to the US presidency has been an incentive for Mexico to look for other markets, although

We began our activities in the grain sector, but then we

Mexico already imports from countries like Brazil, Argentina,

jumped to the livestock segment and to the fruit and

South Africa, Russia, Ukraine and France. It is a matter of

vegetable segment. In this sector, GCMA is the only

market freedom, but the sector is so strong that it should not

company, with the government, that handles information

be afraid. The largest market for the US agricultural sector is

on production, demand and prices. This means that GCMA

Mexico, to which must be added the existence of the logistics

serves the entire range of the country’s agri-food sector

efficiencies between both countries.

with national and international information. GCMA has 92 customers and 40 employees who are responsible for

Q: What role has GCMA played in the growth of the

the following areas: analysis and information, consultancy

agricultural sector in Mexico since the founding of the

and studies and projects.

company? A: GCMA has played a leading role in the grain market’s

Q: What is GCMA’s protocol when obtaining and analyzing

order. Agricultura por contrato (Agriculture by contract),

the large volume of information that its clients need?

the model that is followed when marketing crops, was

A: We receive a lot of public information in real time.

developed by GCMA for the federal government and today

In addition, our analysis department is constantly

we remain its advisers. Producers always want to know

interpreting what is happening in other markets such as

who will buy their crops and at what price, so the objective

Chicago. We also collect information from companies,

of this model is to ensure the sale and price of the crop

which we interpret and send to our customers, and

from the sowing and Agricultura por Contrato guarantees

we have our own information that we get from people

these two variables. In addition, thanks to technology,

scattered throughout the country who send us data on

producers have a greater knowledge of what is happening

crops, climate, planting, demand and offer.

in markets like Chicago or Kansas City and GCMA has also played an important role to make this happen.

With that information, we generate our own bulletins classified by commodities, products or currencies, in which we also offer global perspectives, because this is a

GCMA is a consultancy with over 18 years’ experience and

global market. The government also publishes its figures

specialized in the agricultural sector. It contributes to the

and with that information we outline our perspectives on

development of commercialization strategies for producers,

each business area in which our clients are interested.

marketers, service providers and the government

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VIEW FROM THE TOP

SCIENCE AND FACTS TO ENSURE MEXICO’S FOOD SECURITY ALEJANDRO MONTEAGUDO CEO and Director General of AgroBIO MÉXICO

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Q: What are AgroBIO’s most important achievements in

is a successful case. After 20 years of having genetically

Mexico?

modified cotton crops in the country, a total US$384

A: When AgroBIO was founded, the country’s legislative

million has been generated in economic benefits. Back in

scenario was very different from what we are seeing now. Over

the 1990s, cotton was not a profitable business and was

the years, we have worked intensively with the government

almost abandoned. Thanks to modern biotechnology, the

to create a solid legal framework for the use of agricultural

crop gained a new dimension and today the adoption rate

biotechnology or genetically modified (GM) crops where

of genetically modified cotton is 95 percent.

scientific evidence is privileged. It has been a difficult task that has taken a lot of time, with several sectors involved in

While there is hesitation about growing GM crops, it is

the discussions, including civil associations and academia.

important to differentiate between crops. For instance,

Agricultural biotechnology is a sector that is highly regulated.

modified soybean is grown on between 15,000 and 20,000

In fact, Mexico’s regulatory framework involves seven different

hectares. Considering that the country imports about 93

governmental agencies, including the Ministry of Agriculture,

percent of the soybean that is consumed per year, I would

Ministry of Health, COFEPRIS, Ministry of Environment,

say that expectations for adoption are very high, yet

Ministry of Economy, Ministry of Finance and Public Credit,

some continue to resist the adoption of this crop. When

Ministry of Education and CONACYT. The involvement of so

it comes to GM corn, the discussion on whether it should

many regulators is proof of the sector’s complexity and the

be permitted or not is based on the fact that Mexico is a

several areas that are affected.

center of origin and genetic diversity and that corn itself is a genetically diverse crop. Health-related issues have nothing

Q: What is the state of the negotiations for normalizing

to do with it.

transgenic crops? A: In Mexico, genetically modified crops haven been

We understand the importance of Mexico being a

imported, commercialized and consumed for 20 years under

genetic reservoir for 59 different corn varieties, including

COFEPRIS’ authorization for food, feed and processing.

teocintle, a corn ancestor. Nevertheless, there is still a lot of

These products are not only used for human consumption

misinformation surrounding genetically modified corn that

but have a wide range of applications, including animal

generates resistance to its normalization.

consumption, cosmetics, textiles and petrochemical. For instance, transgenic corn has over 1,000 different

Q: Where is the balance between using this technology

uses in various sectors. Today in Mexico, there are 146

and more traditional methods?

genetically modified crops approved for human and animal

A: The key lies in coexistence. There is a wrong belief that

consumption, including maize, soybean, canola, tomato,

allowing genetically modified crops in certain regions of the

rice, alfalfa, cotton and potato.

country will end other traditional methods such as the native maize or organic crops. The Biosafety Law establishes the

When it comes to growing transgenic crops in the country

economic, technical and legal coexistence between both

the discussion changes. In this sense, it is important to

types of agriculture. Most of the planting of genetically

differentiate cotton, soybean and corn. The cotton crop

modified crops has taken place in the northern part of the country, in regions that are not considered centers of origin and genetic diversity for maize, such as Chihuahua,

AgroBIO MÉXICO is a civil association founded in 1999 that

Durango, Coahuila, Tamaulipas, Sonora and Sinaloa. It is

groups the five largest agricultural biotechnology companies.

important to note that according to the Biosafety Law,

The main objective is to broadcast the benefits and potential

GM crops are not allowed in centers of origin and genetic

of agricultural biotechnology

diversity and protected natural areas.

INSIGHT

RECOGNIZE CROP POTENTIAL OUTSIDE THE TRADITIONAL JAVIER VALDÉS Director General of Syngenta Mexico

Productivity, competitiveness and profitability rank high on

achieve. We provide technical assistance through the

the list of concerns that Mexico’s food producers grapple with.

entire process,” says Valdés.

Leading agricultural company Syngenta says technology and innovation can help but that the country itself needs to move

This technology transfer is supported through one of

beyond traditional crops. “This is what Mexico should be doing

Syngenta’s most important projects: The Good Growth Plan,

in a more accelerated manner: produce not for the sake of

an initiative that rests on six main pillars: making crops

producing but to effectively commercialize,” says company

more efficient, rescuing farmland, enhancing biodiversity,

Director General Javier Valdés.

empowering small farmers, keeping people safe and caring for every worker. According to Valdés, thanks to The Good

Syngenta has developed a long-term business plan that

Growth Plan tomato production per hectare has almost

incorporates the use of technology and innovation to tackle

doubled in the country’s center states. “Having farmers

the issues producers are facing. “We are completely focused

see firsthand the benefits of Syngenta’s products and

on research and development of new technologies and our

developments helps us strengthen our brand. The best

commitment is to prove to farmers that using our technologies

recommendation we can get is the one we get from small

and products generates an economic benefit for them, while

producers and farmers,” Valdés says.

also being green and sustainable,” says Valdés. Among the variety of products and technologies Syngenta The company’s product portfolio includes seed treatment

offers is the use of genetically modified (GM) crops. Though

and crop protection, among several solutions. The goal of

the commercialization and consumption of some GM crops,

these is to help producers obtain the most out of every crop

such as cotton or soybeans, is not forbidden in the country,

despite the threats that traditional agriculture often face,

the planting of GM corn has sparked an ongoing dispute

such as climate change and plagues. “Crop protection is a

because Mexico is considered a center of origin for maize.

priority for producers because an unprotected crop can lose

Despite the legal debate, Valdés says Syngenta’s technologies

up to 40 percent of its productivity. Our technologies help

are aimed at helping maize seed express its entire genetic

farmers protect their work from the moment they plant a seed

potential. “Biotechnology is just one more tool that producers

until they harvest healthy, high-yield crops,” says Valdés. The

can take advantage of. It is intended to simplify their life and

increase in severe climate conditions, such as drought or frost,

help them produce more per hectare.”R&D plays such an

also spurred Syngenta to develop technology that helps crops

important role in the work Syngenta does in Mexico that its

become more resistant to new climate scenarios.

center in Culiacan, Sinaloa, develops conventional vegetable seeds that are exported to Central America and the US. “We

Part of helping farmers become more productive includes

work in developing the characteristics the market demands,

helping them discern which crop has the most productive

such as color and shape. Every piece of technology and

and commercial potential. For Valdés, it is not a matter

innovation we develop is not only for Mexico but for worldwide

of producing a national crop such as corn across the

consumption,” says Valdés.

entire country but finding the crop that generates the most production and economic benefit, considering

Technology and knowledge-sharing works both ways,

the country’s climate and terrain. Such is the case of

particularly when the company detects a possible threat

sunflower seeds, which Valdés says have become more

to Mexican crops in other parts of the world. “According to

profitable than many other crops. Syngenta has been

the last National Agricultural Sector Census, a main concern

working with local producers to enhance their potential

of producers is related to technology transfer. We need to

by shifting to sunflower production. “This is the type of

support that. We want producers to know that Syngenta is

technological transformation that Syngenta expects to

an ally and partner.”

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Habanero peppers plantation, Yucatan

VIEW FROM THE TOP

GETTING CROPS READY FOR INTERNATIONAL MARKETS SERGIO ACOSTA CEO of Agroenzymas

For the last 27 years, Agroenzymas has been helping crop

One of its most popular products contributes to the root

producers by ensuring their products comply with international

formation of an established crop. This product came to

commercialization standards. The company specializes in

life in 2000 as a result of a root problem with grape vines

the production of bioregulators and bio stimulants that help

in Sonora. Agroenzymas’ product was able to solve the

plants flourish even when hindered by adverse climates or

issue. “This problem is very common when crops have

terrain. “Our bioregulators and bio stimulants help exportable

been established for several years. When this happens,

agricultural products in Mexico and other Latin American

producers tend to substitute the crop. With our product,

countries comply with international market requirements,”

we are recovering the crop’s productivity at a 10th of the total

says Sergio Acosta, CEO for Agroenzymas.

price it would cost to implement a new crop.”

Agroenzymas defines itself as a company focused on

Although agricultural innovations have had an important

research and product development, meaning that there

impact in the last century, Acosta says that the only

is constant communication between producers and the

agriculture-related advancements right now are those

company’s research team. “We have crop specialists

made by biotechnology. “Unfortunately, the development of

deployed throughout the main production areas for our

agricultural biotechnology is not as advanced in the country

focused crops, all throughout Latin America,” says Acosta.

as it should be. At Agroenzymas, we have been developing

“They address producers’ problems and determine if they

a biotechnological line and we are venturing into a market

can be solved with our existing products.”

that is progressing very slowly.”

But it is not an easy process. “It takes an average 10 years

The countryside and its crops are not only susceptible

from the moment we begin the research process until we

to innovation, but also fads. Such is the case of organic

are able to commercialize any product.” Acosta says a slow

agriculture. “When a country’s citizens have good purchasing

part of the process is getting the approval of COFEPRIS or its

power, they easily buy organic apples for one dollar per

similar dependency in other countries, where producers have

pound. However, when purchasing power decreases, people

to prove that the product does exactly what they say it does.

buy normal apples.” This situation prevents countries from

Once all the prior is done, then the regulatory department

specializing only in organic crops. Nevertheless, participating

for a specific country gives the green light for the product’s

in this trend can yield enormous economic benefits to

commercialization.

countries, Acosta says, pointing to Chile, where organic cherry plantations are finding a very receptive market in

“In the case of Mexico, approval processes for our industry

Asian countries.

can take up to two years,” Acosta says. Other factors that generate more delays are the commission’s excessive

Whether in the biotechnology or organic markets,

regulations, particularly those that place Agroenzymas at

Agroenzymas is ready to participate and despite the US-

the same regulatory level as pesticides. “Pesticides kill things.

generated economic and commercial uncertainty that has

We sell bioregulators, which are green products that are

marked 2017, Acosta is confident that reason will prevail.

completely innocuous to the environment and to human

“Unfortunately, any negative resolution regarding NAFTA

beings. We also sell vitamins that help plants and crops grow

will have a direct impact on our operations, which is why

and flourish when their development is hindered by harsh

we already have a plan B in place. Almost 60 percent of

soil, weather, water and sun conditions.”

our income comes from our operations within the country. Should the worst happen, we would need to double our

Regardless, the Mexican company does not shy away from

efforts in our international operations to shift the bulk of

the problems that impact the countryside’s productivity.

our income.”

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INSIGHT

INCENTIVIZING AGRICULTURAL MODERNIZATION ÍÑIGO PÉREZ-RASILLA Director General of Sociedad Financiera Agropecuaria (SOFAGRO)

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Mexico must focus on two areas if it is to maximize its

exporters demand they modernize production to comply with

agricultural potential: technology and the modernization of

international standards,” says Pérez-Rasilla. “These players

its production, says Íñigo Pérez-Rasilla, Director General of

must move hand in hand to help farmers modernize their

SOFAGRO, a nonbank financial institution. “We are on the

production. You have to make it easy for them or they will

verge of a great explosion of untapped potential that will

never do it,” adds Pérez-Rasilla. “It is important to provide real

position Mexico as one of the largest food producers in the

and tailored solutions for their problems, even if the solution

world but we need to modernize our production methods to

is not traditional within the financial world.”

strengthen our position.” The lack of specialized funding for agriculture is not inherent Pushing producers to modernize and use newer technologies

to Mexico. Pérez-Rasilla says that every country’s agricultural

is easier said than done, particularly when the agricultural

sector faces the same basic challenges: climatologic

tradition is intertwined with the country’s history and identity.

conditions, plagues, dependence on international market

However, Pérez-Rasilla is confident that synergies between the

prices and changes in consumer trends and preferences.

government, large export companies and financing entities

“Financiers must understand the problems and adapt to

can accelerate the process.

these.” Adapting to changing conditions means that financing entities must always be aware of the number of factors that

Large producers have no problem modernizing and

can affect crop performance. “The countryside is subject to

investing in new production methods that would allow

a number of variables that farmers cannot control, such as

them to become more competitive and to export larger

international prices. We cannot take the easy way out and

quantities. Small farmers with less arable land and limited

simply foreclose.”

income tend to be more resistant to change. PérezRasilla says that farmers need to see a tangible benefit

The call for modernization comes as Mexico seems to

when transforming their production. “They need to have

be adapting to the new normal marked by uncertainty

incentives to change. Otherwise they will continue doing

regarding ties with the US but Pérez-Rasilla says the

things in the same way their grandparents did.”

agricultural sector has so far been immune. “Distributors and exporters are not as concerned about US politics. Their

Pérez-Rasilla says that in most situations subsidies do not

US clients continue to ask for the same product volumes. If

make sense but this case represents an exception because the

the US imposes a tax on Mexican agricultural products, our

final result would be to transform production. A coordinated

exports there might fall a bit but other markets will pick up

strategy between SAGARPA and financiers that includes

the slack.” In a worst-case scenario, Pérez-Rasilla says that

accessible interest rates and payment plans could give farmers

Mexico’s geographic location allows the country to export

the needed capital to modernize their production techniques

to Europe in a competitive way. “We export everything to

and become more competitive. “The Agricultural Trust Funds

the US because it is close and convenient.”

(FIRA) must also provide incentives for financiers by imposing lower interest rates on the loans these financiers receive when

Pérez-Rasilla believes that regardless of international

they finance a technology-related project,” says Pérez-Rasilla.

developments, Mexican agroindustry is positioned to become one of the most relevant players on a global level

Lack of access to capital is one of the most significant

and the arrival of new investors and global companies to

constraints that farmers often face but pressure from buyers

the Mexican scene is a reflection of that. “The thing about

and large exporters could prove pivotal. “Large exporters also

the countryside is that it is an inexhaustible source of

need to play an important role. It is more plausible for farmers

wealth; the more you invest on it, the better for everyone,”

to transform their production methods if their buyers and large

Pérez-Rasilla says.

VIEW FROM THE TOP

SERVICE MODEL BASED ON QUALITY, SPEED MARK MCCOY CEO of Banco Finterra

Q: What factors led Banco Finterra to transform from a

to continue moving forward and become a world-class

SOFOL to a bank?

food and agriculture producer, farmers need to invest in

A: Banco Finterra began operations as a nonbank financial

land, equipment and infrastructure. We want to help our

institution focused on the food and agriculture sectors in

clients modernize their activities and invest in technology

Mexico. Our funding sources were primarily Mexican and

so they can become more efficient and competitive.

international developments banks such as, FIRA (Trust

The country also needs to continue to transforming

Funds for Food, Agriculture and Rural Development)

low-yielding grain farmlands to higher value-added

and DEG, a subsidiary of Germany’s KfW Development

production of vegetables and fruits, among others.

Bank. To maximize our potential as a financial institution in Mexico’s food and agriculture sector, we needed to

Q: How is Banco Finterra helping to boost access and

diversify our funding sources to include deposits and

inclusion in the banking sector?

have a highly competitive value proposition of financial

A: There is a great opportunity to grow bank financing in

services for our clients. Therefore, in 2014 we decided

the Mexican food and agriculture sector, which represents

to move forward on transforming Banco Finterra to a

approximately 10 percent of food and agriculture GDP.

bank and underwent the relevant tasks to do so, including

This is significantly lower than other countries such as

strategic planning, IT implementation and regulatory

Brazil, Chile and obviously leading economies in North

compliance.

America, Europe and Asia. Many of Banco Finterra’s clients are in rural areas and, therefore, our financial

Q: The bank launched formal operations in January 2016.

services are helping to generate positive economic and

How does Banco Finterra service its target market?

social impact in many of these areas.

A: Banco Finterra has built a solid base of customers through a service model founded on quality, amiability and speed. Banco Finterra has 18 business offices strategically located in regions where food and agriculture activities are most relevant in Mexico. We recently introduced our internet banking platform and have begun providing clients with deposits and savings products. Q: What changes must Mexico make to boost its global position for food and agriculture production? A: Mexico is the third-largest agriculture producer in Latin America and the 13th in the World. In 2016, Mexico exported approximately US$28 billion in food and agricultural products, more than oil exports. Mexico is the world’s top avocado exporter, number two in tomatoes, third in chilies and peppers and fourth in berries. However,

Banco Finterra i s a financial institution focused on becoming the leading financial services provider for Farmers, Food and Beverage SMEs and Agri-Corporates in Mexico. It was created in 2004

Avocado plantation, Michoacan

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VIEW FROM THE TOP

SPIRITS MARKET AN ATTRACTIVE OPPORTUNITY ERIK SEIERSEN Managing Director of Diageo Mexico

122

Q: Diageo has been in Mexico for more than two decades.

acquired Tequila Don Julio and committed to increasing

How is the company positioned for growth?

advertising and promotional spending on the brand to

A: Mexico is among the 10 most important markets for the

further build its global presence and also to expand bottling

company. We have seven of our top 20 brands here and we

and water treatment facilities in Mexico, among other

have achieved the leading position in the industry thanks

activities. This plan, together with the acquisition costs of

to our whiskey brands and variants and the acquisition of

Tequila Don Julio, will bring Diageo’s expected investment

Don Julio in 2015. Our best-selling products are Johnnie

in Mexico to around US$400 million over five years. We

Walker Red Label, Johnnie Walker Black Label, Buchanan’s

also recently announced the acquisition of Casamigos, an

12 and Tequila Don Julio 70, but we have other popular

ultra-premium tequila that has been very successful in the

brands such as Zacapa, Captain Morgan, Tanqueray, Black

US. We are always looking for opportunities that strengthen

& White, Smirnoff, Ciroc, Ketel One and Baileys. We hold

our portfolio, either through acquisitions or by innovating

a leading market share in value of 30.7 percent in the on

with our brands to make sure we surprise consumers and

trade and 28.5 percent in the off trade. The spirits category

remain ahead of trends.

in Mexico represents an attractive opportunity and Diageo is well-positioned to capture this potential.

Q: What is Diageo’s role to address the market for illicit alcohol in the country?

Q: How has Diageo’s strategy to position the brand in the

A: According to studies, illicit trade in spirits in Mexico is

country evolved?

36 percent. As president of the Spirits and Wine Industry

A: Diageo is building a reputation as one of the best

Commission (CIVyL) in Mexico, we have led initiatives to

performing, most trusted and respected consumer products

address illicit trade and reduce it to OECD levels. Within

companies in the world. Regarding our brand portfolio, we are

this context, recently the federal tax revenue and consumer

prepared to be ahead of market trends. For example, whiskey

protection agencies and CIVyL, along with trade associations

has become an attractive product for Mexican consumers due

representing modern trade, wholesalers, restaurants and

to its good quality and internationality. The tequila market has

small businesses, signed a “Pact for Formality,” which is

also evolved and the consumer is now turning to premium

meant to address illegality and tax evasion in our industry.

products. In general, Mexico is becoming more formal, people have more purchasing power and seek quality; our brands

Q: How does Diageo contribute to the promotion of

offer this quality in different categories and products. We

responsible drinking?

are building a portfolio that has breadth and depth across

A: Diageo also has a leading role regarding responsible

categories and price points, and the correct distribution to

drinking in the country. Its program Actuando Mejor (Model

allow us to meet consumer demand for a range of products,

Cities) aims to improve the ways in which alcohol is sold

from standard scotch to super-premium tequila.

and consumed in Mexico. The program has reached more than 118 million people through campaigns, training and law

Q: What role do acquisitions play in Diageo’s strategy?

enforcement to reduce underage drinking, binge drinking

A: At the global level, we are always looking for fast-

and drinking and driving. Recently, Actuando Mejor has

integration acquisitions with growing brands. In 2015, Diageo

focused on reducing underage drinking by training people who sell alcohol and partnering with the Education Ministry of Queretaro to provide information to students about the

Diageo is a British alcoholic beverages company. Diageo’s

dangers of underage drinking and how to make healthy

brands include Johnnie Walker, Buchanan’s, Baileys, Tanqueray,

lifestyle choices. Police officers in 113 cities have received

Smirnoff and Guinness. In 2015, the company bought tequila

training through the program to help prevent alcohol-

maker Don Julio and established a bottling plant for exports

related car accidents.

VIEW FROM THE TOP

VOICE, POSITIONING GENERATE BRAND LOYALTY ANTONIO MATIENZO Head of Amstel Light, Sol, Carta Blanca and Superior at Cuauhtémoc Moctezuma, Heineken

Q: How does Cuauhtémoc Moctezuma, Heineken position

which has permitted more people to be open to new

its brands in the market?

experiences and beverages like beer.

A: All brands must have their own voice and positioning, which is what makes Cuauhtémoc Moctezuma’s brands

Beer in Mexico has great potential and with every passing

unique, in particular Tecate. Cuauhtémoc Moctezuma

day we are building a brewing tradition. Beer is a product

would not have lasted 127 years in the market otherwise.

that generates moments for sharing between people and

Tecate, for example, is a brand that appeals to men, so

we have seen this reflected in the rising interest people have

what better than to define not only man to man how to

in beer and its particularities.

treat women, but also how to treat other men. That is how this marketing project was born, to fight violence against

Q: Most production of Cuauhtémoc Moctezuma, Heineken

women. Even though other brands do not openly contest

is local. How do you manage distribution?

gender violence, we have run a series of trainings for our

A: We have six plants but soon there will be seven with the

brewery employees, looking to educate them, as we know

opening of Meoqui, Chihuahua. This new plant will be unique:

that sometimes there are problems at home.

a completely green brewery. We produce and export to the US, Central and South America and a little to Europe. Sol is our

Each brand defines which social battle it wants to fight. For

most global brand, as it goes to countries such as the Czech

example, Heineken targets intelligent consumption and is

Republic and Germany. In terms of sales, the US is our biggest

promoting not drinking and driving with Formula 1, while

client after Mexico. Additionally, we have a very important

Indio promotes free speech and no censorship. We want

distribution network that helps us to be present in all the

each brand to find its purpose and make that a reality.

country. We have been in the market for 127 years, which has helped us to develop an important experience in logistics.

Q: How has beer consumption evolved in Mexico? A: The beer market has really taken off in the past four

Q: Which new markets would you like to open?

years. We thought 2017 would be a difficult year, but

A: We are very focused on the Mexican market. However,

surprisingly the country’s economy continues to grow

we already have two Mexican brands in Heineken’s global

and so does our industry. Mexico is a diverse country,

portfolio, Sol and Tecate, which allows us to enter markets outside of Mexico. Tecate, was recently named global brand and we have started selling in Chile and Colombia, where it

TOP BREWING COUNTRIES IN THE WORLD TOP BREWING COUNTRIES IN THE WORLD (million hectoliters)

have shown great interest and the brand has worked well 448

500

has been well-received. Countries such as the Philippines

* 1 Hectoliter = 100 liters

bringing to our portfolio to complement the premium-light

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segment. It is sold in 123 countries in as many formats as you could imagine. Carta Blanca is one of our more regional

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brands. We do not have plans to internationalize these

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100

105

brands but to keep them as local brands. 136

200

in Europe and Brazil. Amstel is a Dutch brand that we are

Cuauhtémoc Moctezuma, Heineken is a brewing group with a long tradition in Mexico. It comprises 13 brands and more than

China

Brazil

Mexico Germany Russia

Source: Cerveceros de México. Cámara de la Cerveza.

20 products. The company has six plants and 16,000 employees. Cuauhtémoc Moctezuma became part of Heineken in 2010

123

INSIGHT

TEQUILA MAKER SEES ULTRA-PREMIUM OPPORTUNITY FRANCISCO SOLTERO Strategy and Institutional Affairs Director at Patrón Spirits Mexico

124

Tequila is Mexico’s national beverage, as well as one of

premium segment represents fewer than 500,000 boxes

the great symbols of the country. Historically, its sales

but it is the segment that is seeing the most growth,”

were focused on the local market; however, globalization,

says Soltero.

the explosion of Mexican gastronomic culture and the evolution of production processes have made tequila one

Patron’s success is best measured in an international

of the fastest-growing alcoholic beverages in the world.

context where the ultra-premium products sell around 3.5 million boxes per year, of which 2.4 million belong

According to Francisco Soltero, Strategy and Institutional

to Patrón, according to Soltero. “Consumers now

Affairs Director of Patrón Spirits Mexico, consumers are

recognize tequila as a spirit that offers the most sensitive

changing their habits and directing their purchases to

experiences,” he continues. In the US, the world’s leading

better-quality products. This has opened the door to new

importer of tequila, Patrón sells more than in Mexico.

opportunities in the ultra-premium segment of tequila

According to September 2017 data from the Tequila

brands. “The trend among Mexican consumers today is

Regulatory Council, Mexico produces 106.3 million liters

to drink better, not more. They know the regions, the

of 100-percent agave tequila, of which 67 million liters

categories and the impact that the production processes

are for export. Of these, 52.7 million are exported to the

have on the products they consume. When people drink

US although the UK, Western Europe, Russia, Australia

tequila Patrón, they experience different textures and

and Japan are also important markets for the company.

flavors, such as the crispy and fresh sensation that comes

Although not all the 100 percent agave tequilas are

up in the mouth,” Soltero says.

considered ultra-premium, the growth of this category is

“

The trend among Mexican consumers today is to drink better, not to drink more”

driven mostly for the more valuable products belonging to the ultra-premium segment. In the case of ultra-premium tequila, value comes from the production process. All Patrón bottles are produced in Atotonilco, Jalisco, where 1,600 employees participate in the process. Patrón started with one unit where the agave is cooked, the agave sugars are extracted, the liquid fermented and finally distillated twice. When the company

The premium and ultra-premium categories are

started growing, instead of changing the process or

composed of tequilas made with 100-percent blue

including technology, it built another equal infrastructure

agave. Consumption growth in these segments has

and duplicated their capacity. Today, Patrón has around

helped tequila to become the main alcoholic beverage in

12 distilleries at which more than 40 million bottles are

Mexico with 25 percent of sales in value and 15 percent in

produced by hand each year.

volume, according to market analysis firm Systematized Information on Channels and Markets (ISCAM).

Patrón's goal is to continue changing tequila consumption culture with new products and experiences. “In our

Patrón Spirits was founded in 1989 in California and the

products we have elements that need to be enjoyed with

tequilas produced by Patrón arrived to the Mexican market

calm and attention and this is how we started to create

nine years ago. Shortly thereafter, the brand identified the

this new culture,” says Soltero. He adds that influencers,

rapid growth of the ultra-premium segment in Mexico and

bartenders and hotel and restaurant owners want ultra-

the US. “In Mexico, between 8 and 9 million 9L boxes of

premium tequila because they understand the concept

tequila are commercialized every year. Of these, the ultra-

and experience that lie behind the product.

VIEW FROM THE TOP

FROM GOD'S HAND DIRECTLY TO THE BOTTLE GILBERTO MALDONADO Director General of Grupo Peñafiel

Q: How does the Mexico unit adhere to Dr Pepper Snapple

some programs to battle these diseases. As an industry, we

Group’s global strategy?

believe we are not the main cause of this health problem.

A: Dr Pepper Snapple is a global group with different

This tax has been imposed on us but I believe society now

affiliates across the world. Each is in charge with

understands that it neither addresses the main cause nor

distributing the group’s products and representing the

provides a solution for obesity and diabetes. It is not a

group’s ethical, business and professional principles. We

constructive tax and merely results in the consumer paying

are Dr Pepper Snapple Group’s second-largest affiliate

more for something they will not stop consuming because it

after the US. Grupo Peñafiel has four plants in Mexico and

is a part of the culture. We must work with professionalism

almost everything we sell domestically is produced here,

and integrity to try to find solutions.

with the exception of some products imported from the US, such as our large-sized Clamato juice or specific flavors of

Q: What specifically is the industry doing to influence healthy

Snapple teas. Peñafiel products are available in Mexico and

habits?

Central America and the company is the third-largest in the

A: The industry’s goal is to produce products suited to

Mexican beverage market. Peñafiel has a long tradition in

current circumstances and which address the consumer’s

the domestic market, which has helped position us in the

desire for health, welfare, entertainment and indulgence.

consumer’s mind as a local brand.

Our products are based on what consumers want, so we have to consider taste, enjoyability and producing

Q: What differentiates Peñafiel products from those of its

products with fewer calories. We are also focused on

competition?

motivating the consumer to partake in physical activity

A: The fundamental ingredient in Peñafiel products is

and to change habits.

mineral spring water, which has different physiochemical characteristics that allow us to provide a high-quality

Q: Sustainability has become one of the industry’s most

product. Our founder, José María Garci Crespo, use to

pressing issues. How do you ensure sustainability in your

say that the only hand that touches the mineral water we

production?

use is God’s hand, because we take it directly from the

A: Peñafiel takes social responsibility very seriously. We

spring to the bottle. We also combine mineral water with

make it a point to consider our environment and the

other ingredients to elaborate our lemonades and flavored

communities in which we work and execute programs that

waters, such as Twist. Peñafiel’s mineral water is our main

benefit these communities. For 12 years, we have been

differentiator. We also have a diverse product portfolio,

certified by the Mexican Center for Philanthropy (Cemefi)

including Squirt, Crush, Schweppes, Clamato, Aguafiel and

as a socially responsible company. We participate in

Venom. Peñafiel strives to provide consumers with a variety

reforestation programs and volunteer activities in schools.

of attractive products.

Additionally, Peñafiel works to have a bigger impact by sponsoring the construction of children’s playgrounds,

Q: The government has imposed a tax on sugary drinks

and engaging with the community to preserve it. So far,

to help fight obesity and diabetes. How is this legislation

we have built four playgrounds across the country and

impacting Peñafiel and the wider industry?

we are looking to construct more.

A: Obesity and diabetes are long-term issues developed from a multitude of factors. The Mexican population’s eating habits and food culture are key among those. The global

Grupo Peñafiel is the Mexico subsidiary of Dr. Pepper Snapple

beverage industry is quite large and Mexico is the second-

Group. It produces and distributes the group’s brands in

biggest worldwide producer and consumer of these drinks.

Mexico as well as Peñafiel products. The company has four

The tax provides the government a way to help finance

plants in Mexico and more than 3,000 employees

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INSIGHT

PROVIDING MORE AND BETTER MILK JANUS SKØT General Manager of Arla Foods

126

Got milk? In Mexico, apparently there is not enough. “There

brands sold in more than 100 countries and it is also the

is a 30 percent deficit of milk production in the country,

largest distributor of organic milk in the world. The company

while the European dairy market is producing more than

is the result of a fusion of two Scandinavian companies:

what the continent needs,” says Janus Skøt, General

MD Foods, from Denmark, and Arla, from Sweden. The

Manager of Arla Foods. He says Mexico’s dependence on

group has 60 manufacturing plants, each focusing on

milk imports represents a significant opportunity for the

the production of one category. In 2016, the grouo had

European company. “The consumption here is higher than

revenue of approximately EU$10 billion. Arla Foods’ value

the national production and Arla Foods is focused on filling

proposition to lead Mexico’s imports is to offer healthier

the dairy gaps in Mexico with innovative products to offer

and more natural products. “There are not many organic

healthy and nutritious options.”

products in Latin America. We want to offer products for a healthier community, without artificial additives, with less

At present, Europe accounts for 70 percent of Arla Foods’

sugar, fat and sodium,” Skøt says. Such is the case of its

current billing. However, according to Skøt, “there is not much

most innovative products: Kids milk, or the fortified milk

growth or demand in Europe.” Much of the global demand is

of its brand ABC Kids. “Our Kids milk has 26 vitamins and

located outside the EU and the company is able to distribute

19 percent fewer carbohydrates than other similar products

its products in these markets thanks to a cooperative of

in the market.” Also, the formulas for its Gold Lines include

14,000 farmers from the UK, Denmark, Sweden, Germany,

probiotics that help children’s digestion.

Belgium, Luxembourg and The Netherlands. Together, they produce 14 billion kilograms of milk per year, while the entire

The company’s growth strategy is based on producing more

national production in Mexico is 11 billion kilograms.

specialized dairy products that result in higher returns for the farmers. “We have enough milk. We are fine with the

In Mexico, according to the 2012 Ministry of Economy Analysis of the Dairy Sector, milk consumption is insufficient: 110 kilograms per capita

amount we produce, but now we are trying to maximize the value of this milk through the development of innovative products.” Skøt explains the price is very low and the return is not so big when commercializing a bag of 25kg of powdered milk, but when the same amount of milk is transformed into more sophisticated products like certain types of cheese, butter or milk, the price of milk per kilo increases in value. He believes, in the long term, this is a better commercial strategy.

The Food and Agriculture Organization (FAO) recommends per capita consumption of dairy products equaling 150kg

Arla Foods is also competing with high standards that

per year. In Mexico, according to the 2012 Ministry of

guarantee the security of its production and distribution.

Economy Analysis of the Dairy Sector, milk consumption

“If the consumer is looking for a product that guarantees

is insufficient: 110kg per capita. According to FAO,

transparency along the value chain, we are the choice.”

many developed countries have established regulations

According to Skøt, this transparency is a result of the

to guarantee milk supply. As a result, their individual

cooperative model of leadership. “We are a cooperative.

consumption is more than 150kg and they are able to supply

The owners are the farmers who supply the milk to all the

for developing countries.

companies that belong to the group.” If something happens to one product, they can return to the farm where the milk

Owned by its farmers and considered the fourth-largest

was produced and report problems there. “We are not blind

dairy company in the world, Arla Foods has four global

to the most important part: the milk.”

INSIGHT

ENSURING THE SAFETY OF EVERY DRINK TATIANA LICETI Managing Director of Tetra Pak Mexico

Tetra Pak has positioned itself in Mexico’s fluid milk products

main goals. “Sustainability is not only recycling, it involves

segment but Tatiana Liceti, Managing Director of Tetra Pak

so much more. We work on a number of indicators to

Mexico, believes the country offers a number of untapped

reduce our environmental footprint.” She says that Tetra

possibilities. “In Mexico, we are focused on the dairy category.

Pak’s recycled packages have several uses that range from

Our product portfolio includes offers for solid food such as

pens and mousepads to the poles delimiting the ECOBICI

cheese but we need to focus on growing our presence in

stations area. Tetra Pak also holds the Forest Stewardship

new segments and expanding our footprint in those areas

Council (FSC) certification, which ensures that the paper

where we already are participants.”

used by the company comes from forests that comply with responsible and sustainable logging.

Expansion opportunities include juices, nectars and dairy products, particularly milk which is below internationally

While expanding to new opportunity areas to consolidate

recommended consumption levels. “When it comes to milk

Tetra Pak’s offer, Liceti adds that it has not neglected its

consumption, Mexico’s per capita intake is below what is

core business and is continually looking for new ways

recommended by the FAO” says Liceti.

to innovate. “The company manages a global strategy but we still need to work on customizing our product

While it is known for its processing, Tetra Pak provides

offering.” The analysis and development of products that

an array of services to its customers that incorporate

meet consumer trends positions Tetra Pak as a partner

technology and Big Data to improve their productivity. “We

for businesses from the planning stage, providing a wide

have a Conditioning Monitoring service that is constantly

array of alternatives for food producers from a product

measuring the efficiency of our clients’ machines. Data is gathered remotely and can be accessed at any moment by the customer, anywhere in the world. All this with just one click on a computer,” says Liceti. Technology is also implemented to provide remote maintenance services. “We are working with Holo Lenses, which technicians wear to remotely provide repair maintenance services. This makes processes faster.” By providing services to the entire production chain, Tetra Pak is positioned as a market leader and partner for food producers, a role that helps them comply with one of its

“

portfolio of over 8,000 combinations.

In Mexico, we help producers improve their efficiencies, which goes hand in hand with long-term sustainability” In Mexico, regarding consumer trends, Liceti says it is

core values: the quest for sustainability. “In Mexico, we help

impossible to establish a business strategy that does not

producers improve their efficiencies, which goes hand in

consider the busy lifestyle of the millennial generation. “The

hand with long-term sustainability,” she says. “Companies

on-the-go trend in Mexico is the direct result of how life has

and producers seek expert support to help with things that

changed in the country. Mexico is Tetra Pak’s second-largest

directly impact their cost-efficiency and the environment.

country for consumption of on-the-go products.”

For instance, some people are interested in getting support in water management. More than a consulting service we

After more than 65 years in the food industry, Tetra Pak sees

share knowledge.”

itself as a complete partner to its customers and clients. “We are a supplier that is integrated 100 percent into the food

Liceti says the company is on the path to complying with

production chain, from the early to final stages including

its environmental responsibilities, one of the company’s

distribution,” says Liceti.

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INSIGHT

INNOVATION THROUGH FRANCHISING

“

The primary sector is the foundation of the economy and offers significant business opportunities. It is a matter of approaching the sector with the appropriate business model”

128

Rodrigo Domenzain, President and Founder of Amar Hidroponia

reach 1,000ha in the next five years. “We have developed two industrial parks to support our growth: 500ha in Leona Vicario in Quintana Roo and 800ha in Oxkuxcab in Yucatan.” Those locations adhere to a number of factors that range from human capital and expertise to favorable geographic and climatic conditions. “In Yucatan and Quintana Roo, we have developed the expertise for this crop and a model that incorporates economies of scale. Both states offer easy access to water and land is more economical than in other locations,” says Domenzain. Amar Hidroponia grows every crop in greenhouses

Two years ago, Amar Hidroponia determined it could

to manage peppers' growth and to ensure that

spice up the country’s agricultural industry with a

quality complies with international standards. “It is an

simple solution: franchising. Incorporating economies

environmentally friendly project that also aims to generate

of scale, the company developed a model for growing

a social impact,” says Domenzain. “We are providing jobs

and commercializing habanero peppers centered on

and generating social roots in local communities that are

franchising cultivable land. It now has 150ha and an

usually besieged by poverty.”

annual production of 60 tons of peppers, which company President Rodrigo Domenzain says is just the beginning.

Growing the crop, however, is only half the work. The other half is implementing a successful commercialization

“The primary sector – agriculture, fishing, mining, farming

scheme. “We realized that if we wanted to be successful

– is the foundation of the economy and offers significant

we needed to close the circle and ensure the successful

business opportunities. It is a matter of approaching

commercialization of our products,” says Domenzain.

the sector with the appropriate business model,” says

Almost 90 percent of Amar Hidroponia’s production is

Domenzain.

sent abroad for commercialization and only 10 percent stays in Mexico. “Our largest market is in the US but we

Franchising is unique in the agriculture sector. “We started

are ready to make a foray into Europe, where we are

as a foundation and later evolved to a company. However,

targeting Germany and Italy, and into Asia, particularly

the true innovation came when we elaborated the first

the Chinese market.”

agricultural franchise,” says Domenzain. As with any franchise, Amar Hidroponia attracts investors who become

The efficiency of Amar Hidroponia’s production extends to

franchisees. “We ask for a MX$3 million investment, which

its export operations. Peppers are collected and delivered

in return includes 1ha of cultivable land, the planting of

to a distribution center, which arranges the products’

habanero peppers and the labor force,” says Domenzain.

export using both air and ground transportation. “We even have a warehouse in McAllen, Texas, that acts as a

For investors, the model is highly profitable because the

distribution hub for the US,” says Domenzain.

economies of scale generated by Amar Hidroponia mean low operating costs. “We are offering all our investors a

Although a significant portion of Amar Hidroponia’s

ROI in 18 months and the sale of 100 percent of their total

production is sent to the US, Domenzain is confident

production,” says Domenzain. Franchisees also have the

that the renegotiation of NAFTA will not affect its

option to be either fully involved in the production of their

operations. Regardless of the international political

hectares or vigilant from afar. “They can go online and

climate, Domenzain believes Amar Hidroponia’s business

review the crop’s performance, the use of fertilizers and

model has a lot to offer. “At the moment our only crop is

other statistics, all in real time,” says Domenzain.

habanero, but using greenhouses allows us to diversify our product portfolio. We are thinking about growing

The franchise model has allowed Amar Hidroponia to

other products, such as bell peppers or green tomatoes.

grow 150ha of habanero peppers with a total investment

We believe our model has the capability to disrupt the

of MX$450 million and Domenzain says the plan is to

market.”

INSIGHT

“

SOWING THE FUTURE

Back in 1991, there was little interest in the Mexican countryside. Land ownership was a sensitive issue and no one could imagine the commercialization opportunities NAFTA would bring”

so they constantly audit their suppliers, making sure that

Enrique Portilla, Director General of Grupo Agros

handling of products, while C-TPAT regulations address

we do not employ children, that all workers have social benefits and that the work environment complies with safety measures,” he explains. Commercialization is not the only challenge for companies; exporting agricultural products also represents a hurdle. “In addition to constantly attending fairs to find new clients, you have to learn about logistics, obtain all the needed certifications and comply with FDA and C-TPAT requirements,” says Portilla. FDA regulations touch upon production, packaging, storage and the security concerns regarding the import of products. As strict as FDA regulations might appear, Portilla says

Good fortune and nature gave Mexico two of the most

that SENASICA’s requirements are similar in that both

competitive advantages any country could ask for: a

demand high-quality standards.

diverse climate that favors a wide variety of crops and a border with the world’s largest consumer market, the

An important key to success for companies looking for

US. Add in the start of NAFTA negotiations and Enrique

export opportunities is to produce all year round. To avoid

Portilla had the recipe for a new company. “Back in 1991,

the vagaries of climate, Grupo Agros has led the way

when we founded Grupo Agros, there was little interest in

in the production of greenhouse tomatoes and lettuce.

the Mexican countryside. Land ownership was a sensitive

“We were pioneers in greenhouse crop production. We

issue and no one could imagine the commercialization

have around 21ha of greenhouses. Although we might

opportunities NAFTA would bring,” says Portilla, Director

not be the largest company, we certainly led the way,”

General of Grupo Agros.

says Portilla.

Armed with the competitive advantages the country

Growing tomatoes in greenhouses permits Grupo Agros

offers, Grupo Agros began operating with two crops:

to have a constant supply of crops, which has facilitated

greenhouse cultivated tomatos in Queretaro and rubber

the task of exporting to the US. “We export 90 percent

trees in Chiapas. However, it was not long before Portilla

of our tomato production, of which almost 40 percent is

realized that the country’s natural advantages themselves

bought by Walmart,” says Portilla.

were not enough to succeed. “When it comes to growth, we have been very cautious. We have faced a steep

Grupo Agros’ business plan focuses on market niches,

learning curve and in the process we favored a long-

with lettuce being a good example. “We started growing

term equilibrium. We have sought high productivity that

hydroponic lettuce almost 17 years ago. Lettuce is

enables us to be competitive at an international level.”

a competitive market, so we have specialized in the production of products such as arugula, watercress,

Portilla says that most people believe that agribusiness

spinach, kale and basil.”

is just growing a crop but there is more than meets the eye. “It goes well beyond just planting and pruning.

To determine which products to specialize in, the

There are diseases that affect trees and crops, there are

company analyzed not only what products were fit for

several fungi and you have to know how to commercialize

export, but also which could meet with domestic demand.

adequately.”

Portilla says rubber trees are a case in point. “In the case of latex, there is no local production; it is all imported

An inability to sufficiently conquer these areas is one

from Malaysia. Grupo Agros has almost 3,000ha of rubber

reason many agricultural companies do not succeed,

trees and we have already acquired processors and

particularly when trying to export their products. “You

centrifuges. We add value to the rubber we obtain from

have to know your buyer and what are their main concerns.

the trees and generate latex. It is a niche where there is

For instance, Walmart is concerned about human rights,

no local competition,” says Portilla.

129

VIEW FROM THE TOP

INTERNATIONALIZING MEXICAN PRODUCERS LIZ QUINTERO Director General of México Calidad Suprema

130

Q: What specific support does México Calidad Suprema

We provide training, technical guidance and certification

provide to Mexican producers of agricultural products?

audits, as well as support for very specific conditions, such

A: Our purpose is to facilitate market diversification and

as microbiology and pesticide analysis and compliance with

the commercialization of Mexican agricultural products.

religious certifications, such as those required for halal meat.

We provide farmers the needed tools to comply with the requirements of international markets in terms of certifications.

Q: How do you support small producers and farmers that

For instance, if they want to export to the US, Canada, the

want to compete in the international market?

European Union, the United Arab Emirates or any country

A: The main export crops we have in Mexico are represented

that requires certifications, we act as the channel to do that.

by small producers; such is the case with avocados, a giant industry that is mostly comprised of small producers with less than 5ha. All these small producers sell their products

México Calidad Suprema is a federal government initiative

to packaging companies, which then export them. Almost

administered by the private sector. The initiative represents

all our export crops are represented by small producers

farmers and producers of agricultural products in the design and

who have become indirect exporters and this has helped

implementation of public policies

them obtain better income.

VIEW FROM THE TOP

QUALITY DISTINGUISHES AVOCADO PENETRATION ARMANDO LÓPEZ Director General of the Association of Avocado Producers and Exporters from Michoacan (APEAM)

Q: What are the most common challenges faced when

We are working on other markets to have a significant

exporting avocados?

presence. Such is the case of China, where we still need to do

A: The most important thing when exporting avocados is to

some heavy lifting. In May 2017, we held workshops in Beijing

maintain the quality that has always distinguished the Mexican

and Shanghai with local import companies. We also need to

product abroad. Our main export destination is the US but

help them understand how avocados can be incorporated into

that does not mean that our presence is conditioned only to

traditional Chinese dishes, which is something we have done

one country. We have a market penetration of 95 percent in

before in other markets such as Japan.

Japan and 90 percent in Canada and our exports to Europe To have the fruit assimilated into foreign cultures, we have

are also bouncing back to previous levels.

established a number of alliances with restaurant chains. In the past few years, we have enjoyed significant accomplishments The Association of Avocado Producers and Exporters from

in terms of international product recognition. The alliance with

Michoacan (APEAM) is the largest representation for avocado

the Mexican Hass Avocado Importer Association (MHAIA),

exports

to create Avocados from Mexico agency was a great help in

abroad.

encompasses

producers,

companies and all other industry players

packaging

this regard.

INSIGHT

FOOD COMPANY MAKES ITS PRESENCE KNOWN IN BAJIO ULISES VERGARA Vice President and General Manager of Conagra Brands Mexico

The Bajio region has shown the versatility of its talent by

While production is important, Vergara says the company’s

hosting not only automotive and aerospace OEMs but

R&D center has put the plant in a position to generate new

also global food companies. Conagra Brands, one of North

products that cater to the needs and tastes of consumers all

America’s largest branded-food companies, has set its

around the world.

131

production plant and R&D center in the el Bajio region. “The best example of R&D in our product is our ACTII line. We Ulises Vergara, Vice President and General Manager of

have the classic flavors such as butter but we also incorporate

Conagra Brands in Mexico, says the company’s production

flavors that are unique to each region,” Vergara says.

facility in Guanajuato is among Conagra’s top sites. “Due to the sustainability and efficiency programs we have implemented,

This approach has helped make Conagra the leading company

our Mexican production facility ranks among the company’s

in each of the categories in which it competes. With an array

best plants.” Located in Irapuato, the plant produces almost

of products that range from microwave popcorn, barbeque

90 percent of Conagra’s total sales in the country and it also

and pasta sauces, cooking spray oil, ketchup and refrigerated

has the capability to manufacture products for other markets,

and frozen foods, the company’s goal is to cater to people’s

which for Vergara is one of the site’s most important features.

changing food preferences.

INSIGHT

MANTAINING CHOCOLATE TRADITIONS

“

Cocoa was a Mexican gift to the world but today we only contribute less than 2 percent of the world’s cocoa production” Gerardo Díaz, Director General of Fábrica de Chocolates y Dulces Costanzo

main challenge is to give continuity to these memories by providing the same product quality, while also remaining cost competitive.” Maintaining cost competitiveness has proven to be a major challenge, particularly considering the fluctuations of the Mexican currency in the last two years. “Due to the exchange rate, walnut producers opted to export all their production rather than sell it locally, which considerably increased prices,” says Díaz. Cocoa supply has also led to higher costs. “Cocoa was a Mexican gift to the world but

After 87 years in the market, Chocolates Costanzo is a

today we only contribute less than 2 percent of the entire

tradition in San Luis Potosi, its home base. “When people

world’s cocoa production. Imports of cocoa are required to

talk about the traditions of San Luis Potosi, they think

supply the needs of the Mexican market.”

about two things, the famous enchiladas and Chocolates Costanzo,” says Gerardo Díaz, Director General of Fábrica

To avoid disappointing loyal customers, Díaz says the

de Chocolates y Dulces Costanzo.

company is now focusing on a business plan that combines production automation and diversification. Automation will

Gerardo Díaz recognizes that being a well-known brand

allow it to remain cost-competitive while using the same

poses a number of advantages, also some challenges.

inputs that have helped to conquer its loyal clientele while

“People in San Luis know the brand. They associate

diversification will help the company reach other parts of

Chocolates Costanzo with childhood memories, so our

the country.

VIEW FROM THE TOP

USING FOOD TO CREATE EXPERIENCES JOSÉ CUAIK CEO of Grupo Hunan

132

Q: Grupo Hunan has increased its gastronomic offer to

of liquidating it. The fast-food business is an interesting

19 restaurants in less than 25 years. What strategies have

model but it is a volume business and it takes the same

contribted to this growth?

amount of time as a larger restaurant. If an opportunity of

A: We opened Hunan, our first fine-dining restaurant,

a great brand came to us we would definitely consider it.

in 1993 and it continues to register better numbers every month. Though we started in 1993, the bulk of

Q: What advantages does Grupo Hunan offer to brands

our growth began in 2009. An impressive number of

such as Mr. Chow and Nobu?

developers have contacted us to give preference to

A: If I had to describe our relationship in three words, they

Grupo Hunan restaurants. In this industry, location is

would be: trust, credibility and reputation. Grupo Hunan’s

extremely important. Our commitment is to have the best

credibility is the result of hard work and that has been

locations, providing our customers with easy accessibility.

rewarded by our customers. Reputation is also extremely

Though we are proud of our growth, we do not rule out

important, since it is basically all we have; if we fail one

inorganic growth from an acquisition; it is something we

of our partners, the next will not trust us. We are good

are considering.

partners, good businesspeople and we continuously invest in Mexico.

Q: What is Grupo Hunan’s value proposition for the Mexican gastronomy scene?

Q: Glisco Partners has invested an undisclosed sum in

A: In the last 10 years, Mexico City has radically

Grupo Hunan. What investments are you expecting to take

transformed its gastronomy industry and competition in

on with Glisco Partners?

the fine-dining and casual-dining segment has increased

A: The investment from Glisco was the result of almost

substantially. We are an industry in full swing but with

a year and half of negotiations and took almost eight

a level of maturity that allows Mexico City to easily

months to close the deal. Glisco Partners entered the

compete with New York, Berlin, Paris or London. We

company with a capital injection and helped us establish

believe that the gastronomy niche has significant growth

a number of good practices to boost our operations and

potential. As of today, in Mexico City we have 19 business

institutionalize a family-owned structure. The participation

units and we have a pipeline of six new openings in the

of Glisco Partners allows greater credibility, especially

next 24 months: five in Mexico City and one in Cabo San

with financial institutions. Its participation in Grupo Hunan

Lucas, which is a very attractive market. We believe that

permits business diversification.

it is worth exploiting a second level of Grupo Hunan in Cabo San Lucas.

Q: How does Grupo Hunan find the balance between the sector’s need for innovation and the quality that

Q: Grupo Hunan is characterized by its high-end offer.

characterizes your offer?

What are your plans to expand your offer and attract a

A: What we want is to pamper our customers. We believe

larger consumer base?

that personal service is essential and we have realized

A: What we do best is attend the fine-dining segment. We

that all the training we have done in customer service

used to have a fast-food segment but we are in the process

has yielded benefits. Our staff plays a crucial role when it comes to the development of customer loyalty. We are always looking to provide a cozy, relaxed atmosphere

Grupo Hunan is a Mexican restaurant operator that specializes

with friendly architecture and excellent food and service.

in fine dining. Founded in 1993, the company has 19 restaurants

We try to sell an all-around experience: food, service,

in Mexico City, including international recognized brands such

price and quality. We do not make restaurants, we create

as Mr. Chow and Nobu

experiences.

INSIGHT

TECHNOLOGY TO THE RESCUE FOR RESTAURANTS, HOTELS FARIQUE CETINA Founder and Director General of National Soft

One misstep in business can be tolerated but several can be

The strategy of attending the unattended first was also

catastrophic. In the restaurant industry where owners are

implemented when choosing regions to commercialize

often not industry insiders, a lack of professionalism and

the software. “We started in cities that were not that

modernization can cause a domino effect of bad decisions

attractive for the big technology companies, like Campeche,

that bring the company down, says Farique Cetina, Founder

Morelia, Durango and Chihuahua,” says Cetina. National

and Director General of software development firm National

Soft’s approach paid off and 15 years after it launched

Soft, adding that technology can help.

Soft Restaurant, 26,000 establishments in Mexico and countries such as Colombia, Chile, Uruguay, Paraguay and

“Many restauranteurs are not industry professionals and

Costa Rica use the software. Its clients in Mexico include

make several mistakes that affect the survival of the

smaller operations like Hot Dogs Ramírez, chains such as

business. Technology can help them reduce the learning

Applebee’s and Wing’s Army and high-end restaurants

curve and increase their chances of success,” says Cetina.

like Winston Churchill and Bellini. For Cetina, this is an

National Soft has developed software that can contribute

important differentiator. “Big software companies only

to the modernization and better management of small and

attend the needs of the top of the pyramid. Our offering

medium-sized restaurants in Mexico and elsewhere.

covers the entire range of the pyramid.”

The company’s Soft Restaurant software aims to help SMEs in

National Soft’s growth is the result of a good product that

the restaurant sector improve their performance and survival

solves a need and which has adequate distribution channels.

rate. Soft Restaurant cannot solve every problem faced by

“We realized that SMEs still acquire products through

SME restauranteurs; it is designed to help avoid the factors

computer distributors, so we partnered with them to also

that play a crucial role in the demise of new businesses.

distribute our software,” says Cetina. This strategy allowed the company to improve the operations not only of SMEs

Today, the use of software for restaurants is very common

but also the distributors. “In the technology distribution

but Cetina says that 15 years ago it was a much different

market the only differentiator tends to be price, which

landscape. “There used to be this misconception that only

leaves distributors with extremely low utility margins. Our

big companies could afford the prices of a specialized

product gives them the possibility of reconversion. They

software. SMEs had to use general selling points or Excel

go from selling products with no added value, to offering a

sheets.” National Soft developed a product that was both

specialized product and services for the restaurant sector.”

affordable and groundbreaking for SMEs. “If we wanted the product to be successful, we had to develop something

Although the sector has enjoyed substantial growth in

within a price range that SMEs could afford. It became a

recent years, it remains susceptible to poor practices and

matter of breaking the myth of modernization,” says Cetina.

the winds of change. “The sector still uses management practices that are not professional, which leaves restaurants

The focus on SMEs was crucial for National Soft because

vulnerable to any sort of crisis. A market contraction or

they represent the bulk of the restaurants in Mexico.

personnel rotation can take a toll on them,” Cetina says.

According to data from INEGI’s National Statistic Directory

While the democratization of technology helps, not much

for Economic Units, a total 549,632 businesses are

can be done if restaurants are reluctant to make the

registered in Mexico in the food preparation segment. Of

investment in the first place. “Restaurants in big cities

those, 532,511 businesses employ 10 people or less. “Our

are more willing to invest in technology but there is still a

philosophy has always been to attend the unattended

significant part of the country that is not convinced of the

market first. If we did a good job with SMEs, we assumed

importance of investing in the professionalization of their

that larger restaurant chains would follow,” says Cetina.

services. We still need to convince them of the advantages.”

133

San Francisco de Asis church, Cuetzalan, Puebla

TOURISM

In recent decades, Mexico and tourism have formed an indivisible alliance. The sector, a leader in terms of influence on the national economy, has enjoyed continuous growth thanks to the country’s natural beauty, state intervention, free trade agreements and private investment, both locally and internationally. Today, tourism accounts for 8.7 percent of national GDP and generates 9 million direct jobs. According to the World Tourism Organization, Mexico ranks 8th in the number of international tourists received and 17th for attracting foreign currency.

However, the challenges are many, including diversification of destinations, modernization of facilities and construction of new infrastructure. The goal for the future will be to expand Mexico’s tourism narrative beyond the sun and beach locations and start talking about Mexico as a historic, cultural, adventurous, gastronomic and entertainment destination, ready to comply with the expectations of a new generation of tourists. Moving toward this, the New Mexico City International Airport will double the capital’s capacity to receive travelers. In this chapter, experts from the tourism sector will talk about their initiatives to increase investment in infrastructure and improve the promotion of Mexico in the world.

135

CHAPTER 6: TOURISM 138

ANALYSIS: Diversity of Destinations, Better Infrastructure Needed

139

INFOGRAPHIC: Mexico Climbing Global Rankings

140

VIEW FROM THE TOP: Enrique de la Madrid, Minister of Tourism

142

VIEW FROM THE TOP: Aristóteles Sandoval, Governor, State of Jalisco

143

VIEW FROM THE TOP: Miguel Márquez, Governor, State of Guanajuato

145

VIEW FROM THE TOP: Pablo Azcárraga, CNET

146

VIEW FROM THE TOP: Miguel Cantú, CODETUR NL

147

VIEW FROM THE TOP: José Adames, Four Seasons Hotel Mexico City

148

VIEW FROM THE TOP: Gerardo Murray, IHG

149

INSIGHT: Javier Arce, Hoteles City Express

150

VIEW FROM THE TOP: Ernesto Coppel, Grupo Pueblo Bonito Hotels and Resorts

151

INSIGHT: Carlos Couturier, Grupo Habita

152

INSIGHT: Agustín Sarasola, OHL Desarrollos México

153

VIEW FROM THE TOP: Rolf Meyer, United Airlines

154

VIEW FROM THE TOP: Rafael Díaz, Resorts Advantage

155

INSIGHT: Ricardo Montaudon, RCI

137

ANALYSIS

DIVERSITY OF DESTINATIONS, BETTER INFRASTRUCTURE NEEDED Mexico is one of the top 10 tourist destinations in the world and rising, but to maintain this momentum it needs to strengthen and diversify its tourism offer to build a sustainable industry. This means better infrastructure, skilled talent and a diversity of destinations

138

Building a sustainable tourism industry in Mexico requires

Highlighting cultural areas of interest can also boost areas

infrastructure, talent and the development of new

that lack beach attractions. Guanajuato, which is attracting

destinations. The investment provides dividends in the form

tourists to its cultural offer, has become the sixth-most

of employment creation and the betterment of communities

visited state in Mexico and the first among those that do

and quality of life. In 2017, the UN’s International Year of

not have sun and beach destinations. “We do not have

Sustainable Tourism Development, the country solidified its

beach landscapes or forests, but we can offer culture. The

ranking on the global tourism charts (see infographic next

state has two cities on the list of World Heritage Sites,

page), but to continue its upward swing, areas away from

Guanajuato and San Miguel de Allende, and five Pueblos

traditional beach hotspots should also feature in Mexico’s

Magicos,” says Miguel Márquez, Governor of Guanajuato.

tourism offer.

DEVELOPING COMMUNITIES “The country has done an impressive job promoting its beach

Maintaining Mexico’s attractiveness means acknowledging

destinations, but we have to do a better job in promoting

the quality of tourism services, which calls for an investment

urban destinations and the Pueblos Mágicos,” says José

in talent and infrastructure that impacts destinations and

Adames, Director General of Four Seasons Hotel Mexico City.

their communities. According to the Ministry of Tourism, the STC’s investment in infrastructure is mostly geared toward

Tourism is having a palpable impact on the economy,

increasing connectivity and reducing travel times and cost,

notching nine consecutive quarters of gains above the

which is where the New Mexico City International Airport

national GDP as of October 2017. The industry represents

(NAICM) will have a major role to play when it comes online,

8.7 percent of GDP and in 2016 about 35 million people

and even before.

visited the country. The biggest infrastructure project in Mexico, NAICM requires Diversifying Mexico’s tourism offer, which is highly

an investment of MX$186 billion and will have capacity to

dominated by sun and beach locations, is a priority

receive 70 million travelers by 2020, twice the current

for creating a sustainable industry. Seventy percent of

number. It will also generate 450,000 jobs.

international tourists arriving to Mexico visit the Riviera Maya and Los Cabos. According to the Tourism Sectorial

The private sector also is investing in infrastructure through

Plan 2013-2018 this has led to a centralization of the tourism

projects such as marinas, cruise liner piers, convention

industry and high-impact urban development projects.

centers, sports venues and malls. However, it is not all about the money, says De la Madrid. “To drive investment, it is

The reality is that Mexico has historic and cultural

necessary to establish an attractive institutional framework

destinations in states such as Guerrero, San Luis Potosi,

on issues such as regulation, security, environment and

Queretaro, Chihuahua, Veracruz and Yucatan, which are

fiscal policy.”

not well-known and, therefore, do not attract the attention of private and public investors. But the federal and state

In terms of talent, the sector must train better professionals

governments are moving to tap into the potential of these

to remain competitive in the face of a changing tourist

areas. There are new tourism offers in the Baja California

profile as the country seeks to attract travelers from

wine region, in the tequila area of Jalisco and around the

beyond longtime mainstays the US and Canada. “Due to

Yucatan haciendas henequeneras. But success may depend

Mexico´s strategic location, the US market is one of the

on how well these regions adapt to the needs of a new

most important, but there are many other markets that

generation of tourists. “Today, travelers are more interested

could contribute demand. However, to make the offer

in having in-depth knowledge about their destinations and

more attractive we need better-trained professionals to

not just spending time inside a hotel,” says Enrique de la

deliver great service,” says Gerardo Murray, Vice President

Madrid, Minister of Tourism, adding that the country has

of Brands and Marketing for Mexico, Latin America and

everything necessary to take advantage of this trend.

the Caribbean of The InterContinental Hotels Group (IHG).

INFOGRAPHIC

MEXICO CLIMBING GLOBAL RANKINGS During the first four months of 2017, destinations

Mexico occupied 8th place in 2016, up one position from

worldwide received 319 million tourists. That figure

2015. According to SECTUR, the industry represented 8.7

represented a 6 percent increase from the same period

percent of GDP in 2016, while the occupancy rate was

the previous year, according to the UN World Tourism

60 percent, seven points better than the year before,

Organization (UNWTO) Barometer. With 35 million visitors,

according to DataTur.

MEXICO MORE ATTRACTIVE FOR TRAVELERS

Chinese Travelers Globally in 2016

The Asian Challenge

Ranked Eighth Globally

• Expenditure grew by

In 2016, Mexico received 35 million tourists, jumping one place in the WTO global ranking, to become the eighth most-visited country. France

12% y/y to US$261 billion.

tourists abroad rose

US 2

-2.4%

6% (to 135 million).

Spain

• Among the top 25

10.3%

China

nations visiting Mexico,

4.2%

China ranks 21st

Italy UK

3.2%

4.0%

Germany 6 Mexico Thailand Turkey

139

• Number of Chinese

-2.2%

1.7%

8.9%

AIR TRAFFIC BETWEEN MEXICO AND THE WORLD 2016

US$19.6 billion

2015

2016

40 million

US Europe CA/Caribbean South America Canada Asia

in receipts from tourists in Mexico, the 14thhighest globally.

8.9%

Asia

100

Change

Canada South America

passengers used AICM, topping LATAM in 2016

CA/Caribbean Europe US

GDP CONTRIBUTION

2009

2010

2011

1,146,309

1,106,241

2008

1,087,937

2007

1,081,057

2006

1,028,907

800

996,120

900

970,637

1000

1,033,969

of GDP By Oct 2017, tourism had recorded nine straight quarters of growth above national GDP

1,004,935

1100

8.7%

982,398

1200

2012

2013

2014

2015

2016*

300

582,732

517,855

496,375

550,715

Charters

International

469,631

488,283

504,132

400

National 595,570

500

546,902

600

630,928

650

626,110

FLIGHTS ARRIVING BY AIR OR SEA

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

408,131

484,179

452,910

379,306

361,360

338,596

360,684

375,499

400,610

417,018

450,769

123,640

131,752

129,434

115,080

118,659

122,750

128,896

136,083

145,058

160,067

169,714

15,131

14,997

13,226

9,746

8,264

8,285

6,795

6,273

5,047

5,647

5,627

Sources: World Tourism Organization. Canaero, Sectur

2016*

VIEW FROM THE TOP

BOOSTING MEXICO’S TOURISM POTENTIAL ENRIQUE DE LA MADRID Minister of Tourism

140

Q: What can be done to boost tourism investment in

the SCT generate benefits for the industry by increasing

Mexico?

connectivity, reducing transfer times and lowering mobility

A: To drive investment, it is necessary to establish an

costs. The New Mexico City International Airport (NAICM)

attractive institutional framework on issues such as

has no budget from SECTUR but there is no doubt this

regulation, security, environment and fiscal policy. We

project will boost the sector. This is also the case for urban

need investment in basic infrastructure from the public and

equipment projects of local and municipal governments.

private sectors, as well as policies to promote destinations

The private sector also invests in infrastructure through

and ensure a permanent flow of investment from lodging,

projects such as marinas, cruise liner piers, convention

transportation and entertainment companies. Investments

centers, sports venues and malls, among other projects.

can be increased by creating added value in the tourist experience, such as an attractive gastronomic offer, guided

Q: What strategies can be applied to attract visitors from

tours, cultural and sports activities or theme parks. Value

regions such as Asia or emerging countries such as Russia?

can be added to any type of tourism: business, health

A: New technologies allow us to develop direct and

or meetings and conventions. Today, travelers are more

targeted campaigns for a specific country or region.

interested in having in-depth knowledge about their

Improving the country’s connectivity is a priority since

destinations and not just spending time inside a hotel, and

advertising campaigns do not work if tourists cannot

we must be prepared to take advantage of this trend.

reach their destination. We believe the key elements to diversify tourism are investment in infrastructure, an

Q: What are the main challenges facing the development

air transportation market with efficient and competitive

of the tourism industry in Mexico?

operators and a modern regulation. Ease of travel is a fourth

A: The tourism industry in Mexico is so large and diverse

element, by making migration and customs formalities

that the challenges are different depending on the location.

more efficient and less restrictive. This can be achieved by

However, the main challenge is to remain attractive in a

increasing bilateral agreements on visa waiver programs

changing world with an increasing number of competitors.

and by automating customs procedures.

To achieve this, some elements are necessary: an innovative attitude to introduce the products tourists

Q: How can the tourism industry improve the social

seek, infrastructure that allows us to receive tourists with

development of communities in Mexico?

demanding and diverse objectives and more destinations

A: Through the development of the tourism industry we

to provide more options and generate benefits for more

can bring growth and wealth to more communities in

Mexicans. All these elements will help build a robust and

Mexico, as tourism impacts a community with employment,

successful tourism sector.

infrastructure development, provision of basic services and environmental protection.

Q: What efforts have been made in infrastructure to boost the sector’s growth?

President Peña Nieto’s vision is to strengthen tourism to

A: The Ministry of Tourism (SECTUR) has a budget

create economic growth and to generate development

allocated to meet specific needs in tourist destinations

opportunities for the Mexican population. He believes

that runs under a program in which local authorities

tourism contributes to the creation and growth of the

contribute a proportionate amount. These budgets are

middle class in regions with tourism potential. However,

determined by the Congress through the Federal Budget

to experience this impact it is necessary to involve the

but the investment in infrastructure that the tourist sector

members of the community. This is the objective of the

requires is bigger, so the sector benefits from investment

program Conéctate al Turismo, which helps SMEs connect

from other entities. For example, investments made by

with players in the industry to become service providers.

Todos Santos, Baja California Sur

141

Q: What strategies are being implemented to develop the

keeping an open sector with healthy competition between

potential of future tourist sites?

service providers stimulates creativity and innovation. We

A: It is important for each destination to identify its

have innovative proposals on adventure and sports tourism,

vocation, its main attractions and how to create a product

theme parks and health and wellness, but staying on top

that is commercially attractive to the tourist. That is how

of the tourist mind goes beyond a renewed narrative, it

Baja California’s wine region, the tequila area in Jalisco

needs substance.

and the route of haciendas henequeneras in Yucatán have developed so well.

By highlighting our cultural and gastronomic wealth we can attract more visitors; the Día de Muertos parade in Mexico

The creation of thematic routes was the growth path for

City is an example of what can be achieved. At the same

those destinations which by themselves would hardly have

time, it is important for communities to identify with the

an impact. This is the idea behind the Mayan route in the

sector and recognize how it opens opportunities for them

southeast, the circuit of colonial cities in the center of the

to improve their lives. This is how we can permanently

country and the independence route in The Bajio region.

guarantee a quality service, despite trends and changes.

Branding also helps increase tourism in locations that have

In the end, the possibility of creating added value is directly

a particular kind of attraction, such as Pueblos Mágicos.

related to the service.

Q: How can the tourism industry offer products with greater added value?

Enrique de la Madrid is a UNAM graduate, with a Master’s in

A: As with any other sector, the tourism industry is subject

Public Administration from Harvard University. He has been a

to changes. We have seen that the offer has evolved from

Federal Deputy and Director General of Financiera Rural. In

beach holidays to more sophisticated options. In addition,

2015 he was named Minister of Tourism

VIEW FROM THE TOP

MAGICAL, INCLUSIVE TOURISM DESTINATIONS ARISTÓTELES SANDOVAL Governor of the State of Jalisco

142

Q: How is the government of Jalisco working with the private

A: It is a complex challenge. There is a large community of

sector to ensure the tourism industry's development?

Japanese in the El Bajio region and for them the nearest

A: In 2013, we reached an agreement called Agenda Única

beach destination is Puerto Vallarta. We are working on

de Competitividad (Sole Agenda for Competitiveness)

attracting this community by encouraging people in Puerto

between the government, the private sector, universities

Vallarta and Costalegre to learn Japanese, understand their

and innovation and research centers. In the case of

culture and so on. We believe this will help entice more

tourism, we came to the conclusion that the industry has

tourists from Japan. With other Asian countries, it has been

been successful because we employ a trust-deed model,

somewhat complex but we are exploring alternatives.

in which taxes from tourism are managed through trusts, such as the Puerto Vallarta trust and the trust for the

Q: The federal government has created several promotional

Metropolitan Area of Guadalajara. Thanks to this model, we

campaigns such as Visit Mexico and Mexico, a World in its

are experiencing successful growth rates. In Puerto Vallarta,

Own. How does Jalisco participate in this narrative?

the hotel occupancy rate is 98 percent during the high

A: These campaigns have helped us a lot, attracting

season and on average, occupancy rates are 71.6 percent

investment and support for all our programs. Jalisco

during the low season. We have two international airports

has participated in everything the federal government

that are growing above average, behind only Mexico City

has done for tourism. One success case is the beach at

and Cancun. Very soon, we will have a new port terminal

Cuastecomates, a town that promotes inclusiveness for

to receive ships and cruises that will further boost Puerto

people with disabilities. The town has equipped the beach

Vallarta’s growth.

with specially adapted furniture, accessible bathrooms and signs in braille, among other facilities.

Q: How attractive is Jalisco to investors in the tourism industry?

Another program that has worked is a campaign we created

A: In addition to its natural, historic and cultural richness,

alongside the state of Nayarit in 2013, which was called

Jalisco offers the idea of the Mexican personality, tequila

Vallarta-Nayarit. By boosting the region, we have increased

and mariachi. We have appealing destinations that do

our visitor numbers. We are now trying to replicate these

not only sell beach and sun but also mountains. Business

efforts with Colima through a regional campaign for

tourism also plays an important role; six out of 10 world

Manzanillo-Costalegre. As part of this project, we are

expos in our country take place in Jalisco. Investment in

planning to change the name of the Manzanillo Airport to

hotel services has increased almost 30 percent in the last

Manzanillo-Costalegre Airport. The Mexico Tourism Board

five years and our tourism offering includes boutique hotels

and SECTUR have extended their support for all these

and estates and cultural and sports tourism. We also have

projects.

Lake Chapala, the country’s largest lake, beaches and a varied climate across the state.

Q: How has Jalisco incorporated its Pueblos Mágicos into its tourism offering?

Q: Tourism to Jalisco is dominated by US and Canadian

A: We have five Pueblos Mágicos and expect to have more

visitors. What is the state doing to attract other tourists?

in the coming years. Tequila is one of the most important. It has boutique hotels and world-class spas. Mascota is another Pueblo Mágico. Located in the mountains, it offers

Aristóteles Sandoval , the Governor of the State of Jalisco, is

unique, magical vistas with a maple forest nearby. Tapalpa

a Mexican politician affiliated with the PRI party. He has also

is another Pueblo Mágico in the mountains. We have great

been councilor, local congressman and mayor of the city of

riches in the state and we want to expand the number of

Guadalajara, the state's capital

municipalities that qualify as Pueblo Mágico.

VIEW FROM THE TOP

OFFERING CULTURAL TOURISM TO THE WORLD MIGUEL MÁRQUEZ Governor of the State of Guanajuato

Q: How does Guanajuato compete against other tourism

A: We have invested around twice of what was invested in

destinations in the country?

the last few years: between MX$500 million and MX$600

A: It is important for us to position Guanajuato as the

million per year. So far, more than 160,000 families depend

country’s main tourist destination. We do not have beach

on tourism in our state and the sector is growing at a 12

landscapes or forests, but we can offer culture. The

percent rate every year. When this administration started,

state has two cities on the list of World Heritage Sites:

Guanajuato was the eighth-most visited place, today it is

Guanajuato and San Miguel de Allende. We also have five

the sixth. The federal government supports us with only

Pueblos Màgicos: Mineral de Pozos, an abandoned mining

MX$15 million per year, a low figure if we compare it with

town that has been rescued through tourism; Salvatierra,

the MX$30 million that it provided before.

the first colonial city in Guanajuato with many Spanish influences; Yuriria, a beautiful city with a lake that was

Q: How is the state promoted to attract investment and

the first hydraulic construction in the Americas; Jalpa de

to build stronger relationships with countries besides

Canovas, home of the Braniff, the pioneers of aviation in

the US?

Mexico; and Dolores Hidalgo, where the independence

A: The Foreign Trade Promotion Coordinator (COFOCE)

movements were born. In addition, we have archeological

has been working in Guanajuato for 25 years. This

sites with pyramids: Coporo, Cañada de la Virgen,

coordination is older than ProMéxico and has helped us

Plazuelas and Labor de Peralta, and tourist routes like the

broaden our scope of trade. COFOCE is a permanent

convent route and the tequila route. Besides its tourist

effort that works on all continents because diversification

sites, Guanajuato offers a great variety of cultural events.

is key to our growth. Twenty-eight countries are investing

We have the Guanajuato Gastronomic Festival, where we

in Guanajuato, including Japan, the US, Germany and

have received international and national chefs; we host

France. The US is our main market and it will continue as

the Vendimia Festival in August, where 80 percent of

such. The market is constantly moving and the reality of

visitors are tourists; and the state celebrates an automobile

trade and industry overshadows intimidating speeches,

rally, the international Cervantino Festival and Expo

such that 50 percent of what we export goes to the US.

TOURIST ARRIVAL BY AIR IN GUANAJUATO

AgroAlimentaria, the most important agricultural fair in Latin America and one of the best in the world. All this has made Guanajuato the most important brand in cultural tourism in Mexico. We are the sixth-most visited place

TOURIST ARRIVALS BY AIR IN GUANAJUATO (Jan-July 2017)

in Mexico and the first after sun and beach destinations.

3.1 million Q: What challenges do you face in meeting the state’s

total tourist arrival

tourism promotion goals?

1.09 million

A: We need more hotel capacity to receive guests. The

tourist arrival by air

33.5% International

66.4% National

airport is not large enough and besides cultural tourists, we receive a lot of business tourism from the automotive sector. The airport has increased its capacity from 800,000

Source: Ministry of Tourism State of Guanajuato

passengers to 1.6 million in the last three years. However, we must accelerate and increase investment to enlarge the airport and we need to increase our number of hotels.

% OF PARTICIPATION ON AUTOMOTIVE INDUSTRY IN 2015

Miguel Márquez is a Mexican politician affiliated with the PAN. He has served as Governor Auto of the parts state of Guanajuato since

Q: How much is invested in tourism and what opportunities

2012. He has also served as local congressman and Ministrer

will help the industry grow in Guanajuato?

of Social and Human Development for the state of Guanajuato

terminal production

143

144

Loreto, Baja California Sur

VIEW FROM THE TOP

POTENTIALIZING THE GROWTH OF THE SECTOR PABLO AZCÁRRAGA President of the National Tourism Business Council (CNET)

Q: What role does the tourism sector play in Mexico’s

A: There must be a change in the Fiscal Reform. We live in

economic development?

a vicious cycle where if a tourism destination is successful,

A: Mexican tourism is cyclical. The 2008 financial crisis

the municipality and state are allocated fewer resources to

greatly impacted the sector but since then it has enjoyed

support the sector. The state and municipal governments

five consecutive years of double-digit growth. Tourism

suffer because the money collected in taxes is absorbed by

revenue totaled much more than that of oil and gas exports.

the federal government and it leaves only a small proportion

Tourism was the only sector to register a surplus in 2016,

for the development of the area.

which amounted to US$9.3 billion. This will only lead to problems since four to five days of the Q: Why has investment in tourism increased so drastically

week destinations are at full capacity. We need to develop

in the last five years?

a new fiscal incentive for tourist investment deduction. The

A: In 2016, Mexico received more than 35 million international

Dominican Republic has grown dramatically in the last few

visitors but it also hosted more than 80 million domestic

years thanks to a governmental program that encouraged

tourists. Tourism will continue to grow in the years to come,

and supported investment in tourism. It developed a program

generating more than US$19.5 billion in foreign revenues. The

where the companies that invested received tax deductibility

industry has invested over US$86 billon in the last five years.

for 10-20 years. Much of the investment that was coming into

It is the industry that invests the most in Mexico.

Mexico moved to the Dominican Republic for these reasons.

We are constantly opening new hotels. Each of the hotels we

Q: What is the main factor that is holding back the

construct requires an investment of at least US$50 million.

Mexican tourism sector?

There is a curious disconnect between tourism and other

A: Mexico is a difficult country to develop because it

industries in that a US$20 million investment in a project in any

continues to be extremely bureaucratic and has too many

other industry is newsworthy, whereas in tourism that amount

formalities. Often, the requisites of the federal government

does not represent even one development. Mexico has great

are not aligned with those at state and municipal levels,

tourism potential for both leisure and business and we are

which results in a delay in investment due to a lack of

beginning to think twice about how we are approaching it.

continuity. But the future looks bright. Our steady growth will continue to motivate players to change the sector’s

Q: What does Mexico need to do to reach its tourism

business model and incorporate more efficient schemes

potential?

that will allow us to boost growth. The potential market

A: The sector needs to diversify, opening new markets

is huge, with more than 200 million Americans traveling

other than the US and Canada and moving away from its

within the US while only around 20 million come to Mexico.

dependency on its beaches. North American countries

The country can only grow from here but right now it is in

will continue to be the most important contributors to

a transition period where tourism has been improving yet

Mexico’s tourism development in the future but we should

it is not given the recognition it deserves. We are moving

complement this with higher market penetration from other

to maturity and will continue to professionalize processes

countries. If we do not invest, our numbers will remain

with the goal of taking full advantage of the market.

stagnant at 35 million tourists for years to come. The lack of a large airport in Mexico has been an enormous bottleneck for the industry.

CNET is made up of 13 national chambers and associations of of private institutitons that represent the entire tourism

Q: How could the regulatory framework and fiscal incentives

sector. One of CNET’s main objectives is to improve Mexico’s

be improved to attract more investment?

tourism image

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VIEW FROM THE TOP

CREATING EXTRAORDINARY EXPERIENCES MIGUEL CANTÚ Director General of the Corporation for Touristic Development of Nuevo Leon (CODETUR NL)

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Q: Nuevo Leon has traditionally been seen as an investment

A: One project in particular will help to formalize tourism

destination. What strategies is CODETUR following to also

in Nuevo Leon: the De la Boca dam, which is an asset that

position the state as a tourism destination?

we have yet to capitalize on. It is a really nice place but

A: We are working on a campaign called Nuevo Leon

lacks the regulations and development required to make

Extraordinario, which offers visitors extraordinary

it a tourist destination. It is a long-term development, led

experiences in a number of areas, including sports, nature,

by the Ministry of Economy and Labor of Nuevo Leon with

culture, health, adventure, urban and well-being, which

support from the federal Ministry of Tourism. It is expected

is basically medical tourism. It also targets meetings and

to cost over MX$2 billion.

reunions. The purpose is to showcase the state’s best tourism assets.

Q: How can Nuevo Leon capitalize on the business tourism that the state usually receives?

Adventure tourism also aims to highlight the state’s natural

A: We have three particular objectives regarding these

resources and eco-tourism activities that can be found in

visitors. The first is for them to return with their families.

the southern part of the state. Our urban experience is

The second is to convince them to stay an additional night

particularly important because it highlights our metropolitan

when they come on business trips. Our third objective is

areas and caters to our business tourism, which makes up

more related to the local population. People from Nuevo

around 70 percent of the state’s visitors. We are using social

Leon travel a lot, so we want them to travel around the state

media to promote the campaign. However, our efforts to

and get to know all we have to offer. We are also developing

promote tourism in the state do not stop there. The private

our Pueblos Mágicos offering through several projects that

sector is also an important participant in this effort since

will boost the visibility of these towns.

it is the main generator of investment and employment in the industry.

Q: Is there a particular area that has potential but which the state has yet to capitalize on?

Q: What impact have these efforts had on tourism rates?

A: In Mina, there is an archeologic area that we want to

A: The number of tourists to Nuevo Leon increased 16

position as a tourism destination. The zone has been

percent in the first six months of 2017 when compared

protected by the National Institute of Anthropology and

to the same period in 2016 and the arrival of passengers

History (INAH) and we want this area to be designated as

to Monterrey airport increased 9 percent during the

a protected area by UNESCO. The existence of petroglyphs

same period. This growth has been accompanied by

in the state represents a breakthrough in the sense that

the opening of new flights and destinations. One of the

the northern region of the country usually does not have

most representative examples is the direct flight that

archeological features.

Aeroméxico has just launched between Monterrey and Seoul, South Korea.

Q: What challenges do you see for the consolidation of the state’s tourism sector?

Q: What infrastructure developments will help boost the

A: The main challenge is to increase investment. We know the

tourism industry?

industry is expanding and that one of the best ways for the industry to continue growing is to continue investing in it, but the investment has to come from both the public and private

CODETUR NL is a decentralized public organism working under

sectors. Unfortunately, federal budget funding has been fairly

Nuevo Leon's Ministry of Economy. It is in charge of designing

limited in the last few years. Nevertheless, we believe that in

and coordinating public policy strategies for the promotion

four years we will have positioned Nuevo Leon as a tourism

and development of the state's tourism sector

center with a well-known and appreciated brand.

VIEW FROM THE TOP

UNIQUE EXPERIENCES, EXCEPTIONAL TREATMENT JOSÉ ADAMES Director General of Four Seasons Hotel Mexico City

Q: What are the main challenges and opportunities Four

Q: What strategies has Four Seasons implemented to remain

Seasons encounters in Mexico?

the top choice for travelers?

A: The most important challenge, and probably the reason

A: In 2016, we completed the renovation of our Mexico City

why there are not that many Four Seasons in Mexico, is that

hotel, which included the modernization of its appearance

destinations must support luxury hospitality. This challenge

and design. We have opened a new restaurant, Il Becco,

differs from other Latin American countries where the most

which is recognized as one of the best Italian restaurants

significant hurdle is sometimes public policy, which makes it

in the city and we also added a new bar, Fifty Mils, which

more difficult for us to develop projects. Mexico is friendly

was recently recognized as one of the best bars in the world.

with Four Seasons; we have been in the country for 23 years,

Our Zanaya restaurant was also named among the Top 100

so having public policies that promote the development of

best restaurants in Mexico. This new gastronomic offer has

these projects is a great advantage.

positioned us not as the old Four Seasons but as a new hotel that maintains its reputation.

Q: How does Four Seasons innovate while at the same time continue to offer its traditional high-quality service?

We continue focusing on providing exceptional treatment for

A: Luxury travelers look for something that is fairly

our guests; that is our added value, regardless of who we are

consistent: the treatment they receive and the feeling

competing with. The most important thing is to anticipate the

they get whenever they arrive at a luxury hotel. This is

needs of each guest, since the small details are what make

the DNA of what we do and it will never change. However,

the difference between a luxury hotel and its competitors.

millennials and newer generations have a different mindset in terms of brand loyalty. Social networks have

Q: How can the industry foster the growth of the sector?

changed the way we communicate with our clients so

A: The country has done an impressive job promoting its beach

we have been forced to evolve. Technology has been an

destinations but we need to do a better job in promoting city

important focus for the brand, which is why we developed

destinations and the entire Pueblos Mágicos offering. Of all

an app with a chat where people can ask anything and

the Pueblos Mágicos in the country, San Miguel de Allende

we immediately answer. Another change is that you

has done the most to become well-known. These efforts need

cannot promote the hotel just by showing pictures of

to be replicated in the rest of the town and in Mexico City.

the rooms, the restaurants or the spa. Today, it is not about promoting the hotel; it is more about promoting

Q: What are Four Seasons’ plans in the short term and

the destination, what makes that place different and

what role do you want to play in showcasing a new face

what culinary experiences are available. People want to

of Mexico?

experience the culture.

A: In a medium term, Mexico will be the country with the greatest number of Four Seasons in the world after the US

In addition, Airbnb has changed everything. The

and China. The idea is to take advantage of the country’s

question we are facing is how to compete against these

momentum. Four Seasons will continue betting on Mexico’s

new players. They are not Ritz Carlton or St. Regis, our

tourism potential by developing its hotels and positioning

traditional competition. These changes have forced us to

Mexico City as the new place to visit.

adapt so we can continue being relevant. Still, I can say that our competitive advantage will always be how we treat people when they arrive at the hotel. Regardless

Four Seasons Hotels and Resorts is a global hotel chain

of technology or hotel facilities, guests pay for the way

focused on luxury hospitality, Four Seasons is present in 43

hotels make them feel and that is something that will

countries with 105 properties. The company excels in the

never change.

management of hotels, resorts and residential clubs

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VIEW FROM THE TOP

FORTY-FIVE YEARS UPGRADING GUEST SERVICE GERARDO MURRAY Vice President of Brands and Marketing for Mexico, Latin America and the Caribbean of InterContinental Hotels Group (IHG)

148

Q: What role does Mexico play in IHG’s global strategy?

detecting destinations that could benefit from having hotel

A: We manage 12 hotel brands and seven are present in

services from international and well-recognized brands,

Mexico, including luxury brand InterContinental, business

providing confidence to travelers. In Mexico, we have hotels

hotel Crowne Plaza and our most popular brands: Holiday

in the most important cities but we also are present in the

Inn and Holiday Inn Express. Mexico is also the only Latin

most popular resort destinations.

American country hosting Hotel Indigo, our boutique hotel brand. We also have our two extended-stay brands,

Q: Corporate responsibility is a core IHG value. How do you

Staybridge and Candlewood. Mexico is one of the most

apply this to the communities in which you are located?

important markets for IHG in Latin America because the

A: IHG focuses on promoting sustainable development

country has advantageous conditions for our business model.

in the communities in which we work. Among our social

We brought the first Holiday Inn to Mexico over 45 years ago

responsibility programs is the IHG Academy, through which

and today we have over 135 hotels in the country.

we make strategic alliances with educational institutions. We develop a combined training and professional development

Q: What business strategy has IHG followed in Mexico?

program with the institution.

A: Franchising has been the most common model in our global operations. We have very few assets around the world

Q: In what ways can the public and private sectors promote

but in Mexico we have found many talented operators and

the development of the tourism sector in Mexico?

we are comfortable working with them. These operators,

A: By promoting infrastructure. We must ensure that

such as Grupo Presidente, Fibra Inn and Grupo Milenium,

we have adequate connectivity through roads, airports

among others, have realized the value of the franchise.

and airlines. We are committed to bringing new hotels to new destinations; however, there is need for the right

Q: What are your most important requirements for companies

infrastructure capacity. Due to Mexico’s strategic location,

interested in opening an IHG hotel in Mexico?

the US market is one of the most important but there

A: We have a development department that directly

are many others that could contribute demand. As an

works with those interested in licensing with us. Once

example of how seriously we at IHG take this, we have

they approach us, this department develops a study and

developed a program called China Ready, in which we

suggests the best product or brand for the project. If the

teach our people simple but valuable concepts for the

building is not yet built, we will guide them with the design

Chinese market. In the Bajio area, you will find some of

and provide them access to the most recent construction

our billboard ads containing phrases in Mandarin. It is

and design guidelines.

important to be ready for a market that is very interested in Mexico.

Q: What cities have become attractive for hotel development and what demographic trends have you

Q: What megatrends has IHG discerned and what actions

detected?

are you taking to capitalize on them?

A: We keep in mind the different travel needs our guests

A: Today, technology is an important factor, so it is

have. Our development teams are focused on searching and

necessary for hotels to provide guests with the right connectivity. This has empowered us to upgrade the service provided at our hotels with a fast and secure

IHG is a British company that operates several hotel brands

connectivity, while using our loyalty program IHG Rewards

internationally. It is one of the world’s leading hotel companies

Club, with over 100 million members worldwide, to deliver

in terms of number of hotels. Seven out of its 12 brands are

personalized experiences to our guests while they check

present in Mexico

in and stay in one of our hotels.

INSIGHT

BUILDING HOTELS IS ONLY HALF THE WORK JAVIER ARCE Chief Development Officer of Hoteles City Express

For any hotel developer, constructing the hotel is just half the

automotive route in the Bajio region and an oil and gas route

work. The other half is ensuring the building’s profitability

in the Mexican Gulf. The NAFTA route was later revamped

and in turn, the company’s growth, says Javier Arce, Chief

with the opening of new hotels alongside the Pacific Coast

Development Officer of hotel chain Hoteles City Express.

that targeted the transportation of perishable goods between the US and Mexico.

Arce believes there are two main factors that hinder growth. The first is land ownership and location, which plays an

“We want our clients to think that if they need to travel to any

important role in a hotel’s profitability. The second and more

business city in Mexico they will surely find a City Express.

difficult challenge is related to permits and regulations. “There

Except to Guerrero and Morelos, we are in every state of

are locations that encourage investment through the agile

the country. We operate 125 hotels and we are opening one

expedition of all needed permits but there are others where it

almost every 6.4 weeks. This makes us the hotel chain with

has become more difficult. For instance, in Mexico City getting

the strongest growth in Mexico and Latin America,” he says.

all the necessary permits can take up to six years.” One particular aspect of the company’s business model Profitability, he adds, starts with the building’s design. “Adding

stands out: sustainability. The company’s commitment

details increases costs, something that directly impacts the

extends beyond the environment to touch upon

hotel’s rates and profitability. Every component of the building

preservation of culture and traditions as well as active

needs to be efficient, keeping maintenance expenses low.”

involvement with local communities. Its Biosphere Responsible Tourism Certification for the entire hotel chain

In only 15 years, the brand has evolved enough to cater to the

is the proof, Arce says. “We have several LEED certifications

needs and likes of business and pleasure tourists in 63 cities

as well as Excellence in Design for Greater Efficiencies

in Mexico and three Latin American countries, Costa Rica,

(EDGE) certification, but Biosphere Responsible Tourism

Colombia and Chile, while also displaying a deep commitment

is the only certification that is aimed exclusively at the

to local communities and the environment.

tourism sector. City Express is the only hotel chain that is in the process of certifying all its sites.”

Arce says proper growth planning and the hotel chain’s service offering have been factors for the brand’s quick development.

Armed with rapid expansion and its inclusion in the BMV

“As a company focused on the business traveler, we wanted to

Sustainability Index, Arce is confident of City Express’ future,

grow along the most important business routes in the country.

even with political uncertainty pouring in from north of the

But there are certain business routes that coincide with

border. “With or without NAFTA, the US market will not

pleasure tourism. In these cases, affordable rates, combined

disappear. Our business community needs to diversify and

with our holistic service approach in terms of quality, have also

the creation of the new Special Economic Zones (ZEE) will

made us a good option for these tourists,” says Arce.

boost the development of places such as Lazaro Cardenas, Manzanillo, Salina Cruz, Coatzacoalcos and Tuxpan.”

Tourism companies often refer to the regions in which they establish operations as “routes,” which reflect the main

For the time being, City Express continues betting on Mexico,

industries that have impacted those areas.

and on its automotive route in particularly, thanks to the establishment of Japanese and German companies in the

The company’s bet on the growth of Mexican business

zone. “We are a 100 percent Mexican company, founded and

routes started with the NAFTA route, which stretches along

operated by Mexicans. We believe in the country and we

the country’s key highways leading to the US and used to

will continue moving forward with Mexico. We are deeply

transport imports and exports. This route paved the way for an

committed,” Arce says.

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VIEW FROM THE TOP

SELLING TOP-QUALITY OCCUPATIONS, DESTINATIONS ERNESTO COPPEL CEO of Grupo Pueblo Bonito Hotels and Resorts

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Q: What strategy is behind Grupo Pueblo Bonito’s growth?

tool, particularly for those who have a house they do not

A: We have always favored the same strategy: offering a top-

use that much. However, I do not think that it is impacting

quality product and honesty in our sales. These two priorities

the time-share industry that much.

have earned us the prestige we enjoy around the world. The attitude of our people has also been key and is a direct

Q: How can best practices implemented in destinations

reflection of management’s attitude.

like Los Cabos be transmitted to others like Mazatlan, which is a lagging destination?

A company’s leadership must set the tone for the entire

A: The development of a destination such as Los Cabos

business and that is something I have worked tirelessly on;

adheres to the fact that it is one of a kind. From its

having a positive attitude and being committed to the client

inception in the 1950s, it was branded as expensive. It

and to the job.

was a destination that received former US and Mexican presidents, which gave Los Cabos a certain exclusivity

Q: Pueblo Bonito hotels are well-known for their luxury all-

that other destinations in Mexico lack.

inclusive concept. How has this concept and other trends changed the luxury hotel experience?

This combined with the boom of other destinations such

A: For several years, we were wrongly opposed to the all-

as Cancun or Ixtapa made Mazatlan a trailing destination.

inclusive concept because it had a negative image and was

By the time Pueblo Bonito opened operations in Mazatlan,

associated with a low-value proposition. However, the concept

it had already been branded as a cheap destination.

has evolved. For Pueblo Bonito, adherence to the all-inclusive concept in its operations has permitted us to diversify the

Another factor that adds to Los Cabos’ success is the

total income of our companies. Before the implementation of

nationality of its visitors, since tourism is 99 percent

the all-inclusive strategy, 90 percent of our guests dined at

from the US while in Mazatlan tourism is divided between

restaurants outside the hotel. Now, they all dine in the hotel.

national and US tourists.

Real estate in Los Cabos generates around US$1 billion in operations

Q: Mexico is among the top 10 countries visited in the world but income from tourists is comparatively low. How can the industry boost that? A: It depends heavily on the destination. For instance, in Los Cabos, the real-estate sector is extremely expensive and generates US$1 billion per year, without considering the time-share business, which must be around US$800

The time-share concept revolutionized the touristic

million. On a weekend, Los Cabos easily receives 50

industry in Mexico and as a result the country has enjoyed

private jets coming from the US. In Los Cabos, the main

occupancy rates and incomes that are higher than in

source of income is not hotels but real estate.

other places. It is true that we cannot stop trends such as Airbnb but we are not that affected. It is a very useful

Q: What should be the touristic priorities for Mexico in the coming years? A: We need to keep offering quality across the entire

Grupo Pueblo Bonito is a Mexican chain of luury hotels that

sector: hotels, restaurants, real estate and so on. We

in 2017 celebrated its 30th anniversary. The Group has eight

need quality but we also need to work on controlling the

hotels, five in Los Cabos and three in Mazatlan. All properties

international perception of Mexico. With these two things,

offer hotel and timeshare services

we can position the country as a top destination globally.

INSIGHT

A UNIQUE EXPERIENCE IN A TRENDING DESTINATION CARLOS COUTURIER Managing Partner of Grupo Habita

Tourism is on the rise in Mexico and if hotels want to be

operations are 100 percent self-sufficient. We only invest in

successful, they will stand a better chance if they are unique,

hotels created and developed by us,” says Couturier.

suggests Carlos Couturier, managing partner of Grupo

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Habita, pointing to his group’s hotels as an example. “Every

Its approach to hospitality is easily transferred to the

hotel is different and designed according to its location,

group’s international setting. Says Couturier: “Foreigners

environment and community,” he says.

are attracted by the philosophy of uniqueness, kindness, Latin style and especially by our anti-franchise ideal.” This

Grupo Habita has been the leader in the Mexican boutique

has motivated the group to expand operations and make

hotel market for 17 years, with 12 hotels in the country: five

plans to develop five projects in 2017: Los Angeles, Austin,

in Mexico City, two in Veracruz and one in Acapulco, Puebla,

Mexico City, Puebla and La Paz. The group is also interested

Monterrey, Guadalajara and Puerto Escondido. The group is

in exploring the possibilities of entering Cuba and Canada.

also expanding internationally, including destinations such as New York and Chicago.

Grupo Habita will continue collaborating in the growth of the industry by attracting tourists who value quality and

For the Mexican hotel group, promoting the growth of the

appreciate good customer service and authenticity. “For

country’s tourism industry is a priority, especially given the

2017, we want to continue consolidating, improving what

implications for future generations. In 2016, the country

can be improved, earn trust and contribute to making a

received 35 million international tourists, according to

better Mexico for future generations,” says Couturier.

SECTUR, a nine percent increase from what was registered in 2015. The industry understands that tourism can help consolidate Mexico’s economic and social growth. Last year, Mexico received more than US$19.5 billion in tourism activities. The occupation percentage of the 70 touristic centers in the country was 60 percent, seven points better than in 2015. Of the tourists, 76 percent were local and 24 percent international, while both beach and city locations improved their bookings and tariffs over the previous year. In 2016, 70 percent of the beaches were occupied and 64 percent of big cities, according to DataTur records. To grab its share of the growing industry, Grupo Habita’s investment strategy has focused on creating hotels that have different personalities. Each of its hotels is unique, Couturier says, with its own name, architecture, decoration and chef. However, they share the aggregated values of a focus on details, strategic location, authentic mood and the absence of monotony often present at chain hotels. To achieve this goal, Grupo Habita chooses its locations by instinct and usually looks for places with flavor and potential in less developed areas. The company partly attributes its growth to the valuable support of local partners who are responsible for providing area know-how. “Our hotel

Hotel Escondido, Puerto Escondido, Oaxaca

INSIGHT

INFRASTRUCTURE TO SUPPORT TOURISM GROWTH AGUSTÍN SARASOLA Director General of OHL Desarrollos México

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Cancun has instant name recognition but another area is

The Mayakoba brand has relied heavily on three pillars: long-

nipping at its heals, not just in tourism but also in economic

term planning, integration and environmental protection, and

growth. Playa del Carmen is only 30km away from Cancun

Ciudad Mayakoba is relying on these elements for success.

International Airport but the development potential,

“When planning a city, having a long-term master plan becomes

particularly in infrastructure, is outshining its famous

essential,” says Sarasola. “The goal of Ciudad Mayakoba is to

neighbor, says Agustín Sarasola, Director General of OHL

create a community regardless of purchasing power through

Desarrollos México. “Playa del Carmen is bound to become

the existence of quality public services and spaces.” Sarasola

a big city. In addition to being the capital of the Riviera

also points to the development’s environmental focus, which

Maya, its expanding population is leading the city to larger

has become a Mayakoba trademark. “Ciudad Mayakoba

than expected growth.”

is based on a series of biological corridors that allow the

“

Playa del Carmen is bound to become a big city. In addition to being the capital of the Riviera Maya, its expanding population is leading the city to larger than expected growth”

preservation of nature, flora and fauna.” However, it is the relationship established with local authorities and the municipality of Solidaridad, the district where Playa del Carmen is located, that will ensure the project develops as expected. “Our relationship with the municipality is key. It has to approve the master plan and develop the needed infrastructure for basic services, education and roads,” he continues. Sarasola says the hardest challenge has been finding a group of partners to work alongside OHL Desarrollos México. “We have a business model that is associative, meaning that we do not develop 100 percent of the projects. We share the

OHL’s interest in Playa del Carmen is based on the two

development with partners that have to comply with our

sectors that are experiencing the largest growth: tourism

quality standards.”

and infrastructure. Its tourism project has already made a name for itself: Mayakoba Resorts. Located just 6km

While Ciudad Mayakoba is fairly advanced, Sarasola says

north of Playa del Carmen, Mayakoba Resort’s business

that the plan envisages a 10-year period before it is 100

model includes luxury hotel brands such as Banyan Tree,

percent complete. “Our expectation is to have people living

Fairmont, Rosewood and Andaz. But another project has

in Ciudad Mayakoba by 2018 and in approximately four

the potential to reshape the area. “We have detected an

years to have developed 75 percent of the project.”

increasingly younger population in Playa del Carmen in need of infrastructure and services and that is what we

While Sarasola believes that Ciudad del Carmen still

want to deliver with Ciudad Mayakoba,” says Sarasola.

offers significant opportunities to continue developing the Mayakoba brand, he says that the country's touristic

Ciudad Mayakoba encompasses the construction of 17,000

potential makes other destinations also interesting. “We

new houses, along with hospitals, schools, sports facilities

have analyzed the possibility of investing in Riviera

as well as cultural and commercial spaces and a university

Nayarit or Los Cabos, as we believe that these two places

over a 400ha area. Sarasola says that in just one year, they

offer interesting opportunities to repeat a project like

have sold 1,200 houses, accounting for 25 percent of the

Mayakoba. We do not rule out finding partners to develop

housing sales in Playa del Carmen.

in these locations.”

VIEW FROM THE TOP

MORE FLIGHTS, BIGGER PLANES OPTIONS FOR SATISFYING DEMAND ROLF MEYER Managing Director, Mexico and Latin America Sales of United Airlines

Q: How big a player is Mexico in United Airlines’ long-term

these kinds of connections. The aviation industry in Latin

sales strategy?

America will grow more than in the rest of the world. The

A: Mexico is United Airlines’ second-biggest market in

average growth of this industry in Latin America is 4.6

terms of operations outside the US. We operate flights to

percent, while growth in the Mexican market is expected

64 destinations in Latin America and the Caribbean with an

to be 4.7 percent. The agreement between the American

average of 1,000 flights a week. Of these, 550 are to Mexico.

and Mexican governments provides more options for flight

Mexico City is the only destination connected with all seven

destinations. Before this agreement existed, only two

hubs in the US: Houston, Denver, San Francisco, Los Angeles,

foreign airlines were allowed to fly to the same destination.

Chicago, Newark and New York.

Lifting this limitation will boost competition and provide customers with a greater number of offers to choose from.

United Airlines continuously analyzes its routes to determine when to increase capacity. When we notice growth in

Q: What are passengers looking for when choosing

demand in a market, we either schedule more flights for this

United Airlines?

destination or use a larger aircraft. For instance, five years

A: First of all, our network. Most United Airlines’ passengers

ago we started flying seven times a day from Monterrey

are business travelers as 80 percent of our routes are to

to Houston. As demand grew, we added five more flights

the main worldwide business centers. With the onboard

for a total of 12 daily flights on this route and one in the

Satellite Wi-Fi, business passengers appreciate being

Monterrey-Chicago route. Shortly after, we started to

able to connect anywhere they are so that they can solve

operate 14 weekly flights. United flew 70-seat airplanes in

problems before arriving to their destination. In other

this market but as demand grew, we replaced these with

segments, demand for certain services depvends largely on

76-seat aircraft. This measure meant an increase of almost

the kind of passenger at hand. But all passengers regardless

10 percent in the number of available seats per flight.

of the type want to reach their destination safely and to wait the minimal time possible.

Q: What are the most important routes for United Airlines in Mexico?

Q: How is United Airlines facing the saturation of the

A: Cancun is our busiest airport outside the US. During peak

Mwxico City International Airport (AICM) and what does

season, we operate up to 40 daily flights. In Mexico City, we

it expect from NAICM?

have up to 16 flights a day and all our operations are mainline

A: The number of slots at AICM are limited, but United Airlines

flights. In Queretaro, we fly three daily flights using 76-seat

is fine with the number of slots it holds. Replacing smaller

aircraft and in Leon we grew from one to two daily flights

aircraft with bigger planes has enabled the airline to increase

to Los Angeles. Last year, United added a new flight to the

and even double capacity. For instance, changing from 75-

Aguascalientes-Houston and San Luis Potosi-Houston routes.

seat aircraft to 146-seat planes almost doubles the number

This was done largely to further connect the automotive

of available seats per flight. Also, increasing the number of

industry as air traffic between Europe, Asia and the US

operations and destinations from cities close to Mexico City,

related to this sector has grown.

such as Puebla and Queretaro, reduces the need for customers who live there having to fly from Mexico City.

Q: What are your growth expectations for flights between the US and Mexico in the long term? A: In fact, the entire Latin American market continues to

United Airlines is a major US airline and the third-largest in

grow, not just Mexico. Of the 20 most important cities in

the world when measured by revenue. It flies out of nine airline

Latin America, only 43 percent have direct flight services,

hubs in the US and Japan and is a founding member of Star

while 100 percent of the important European cities have

Alliance

153

VIEW FROM THE TOP

ENABLING PERSONALIZED CONTACT RAFAEL DÍAZ President of Resorts Advantage

154

Q: Resorts Advantage provides back office services for the

several platforms with different offerings and even though we

tourism industry. What particularities have to be considered

can offer suggestions regarding each product, in the end we

when providing these services?

have to comply with our clients’ specifications. In most cases

A: The most important element is to always provide quality

the structure remains the same but there are always changes

services. As the intermediary between the hotel and the

that need to be made to comply with the expectations of our

guest, we have a tremendous amount of responsibility since

clients, the hotel and the guests.

we represent the most prestigious hotel chains in the world. Hotel guests need to feel from their first call that they are

Q: How has the incorporation of newer technologies changed

receiving the service they expect. Meeting this expectation

Resorts Advantage’s business model?

entails a number of factors: simplicity in the reservation and

A: Technology has introduced the dynamic of rapid

payment processes and the provision of recommendations

changes. That is why we work constantly to stay up to date

for different destinations. We have to provide them with this

and to stay ahead of those changes. For instance, younger

variety of information. These are the sorts of services that

generations do not like to use the phone, so we have to

determine whether a client decides to stay with the same

offer them digital contact options. This generational change

brand for their next vacation.

in preferences led us to migrate the bulk of the services we offer. This is where the challenge lies: being able to provide

Q: How does Resorts Advantage contribute to improving the

the client with the options and technology that they require

business performance of its clients?

to use our services.

A: We provide an integral service, with a specialization in vacation properties, although this is not our only focus. Our services include the development of call-centers, teams

2016 TOURIST ARRIVALS TO HOTELS JAN-JULY (million people)

dedicated to customer service and teams focused on supporting sales made by our clients, whether time shares or hotel chains. Hotel guests indirectly end up being our clients

43.5 million

because we represent hotels and we end up managing the

tourists in 2016

individuality and personality of the hotel, which means that we have to tailor our services to fit each brand that we manage.

26.2% Foreign

73.8%

61.5% of Hotel Occupancy in

Domestic

Mexico 2016 Q: What challenges does a company like Resorts Advantage

2017

usually face? A: As a company, we must adapt our services to the specifics of every experience we offer, meaning that every hotel chain designs packages with different benefits and services. We have to adapt to every product and comply with its personality and requirements and at the same time, we must always provide an integral service. A single client can have

% OF PARTICIPATION ON AUTOMOTIVE INDUSTRY IN 2015

47 million tourists in 2017

27.4%

Auto parts Foreign terminal production

72.6%

63.2% of Hotel Occupancy in

Domestic

Mexico 2017 Resorts Advantage is a tourism company specialized in providing back office services for hotels and time-share companies. They handle reservations, payments and collections as well as post-sale services

Source: Results of Tourism Activity, July 2017, SECTUR % OF PARTICIPATION ON AUTOMOTIVE INDUSTRY IN 2015

Auto parts

INSIGHT

TIMESHARES AS VACATION INSURANCE

“

A few years ago, hotel owners were not keen on the idea of implementing timeshares at their properties. However, they now see timeshares as future hotel occupancy paid upfront” Ricardo Montaudon, President and Executive Director for Latin America of RCI

Montaudon says it is important to select a destination that has a significant inflow of visitors, so it can generate new enrollments and exchanges. The other important factor to consider is related to the legal details surrounding properties. “You can only affiliate developers and not marketers, since the latter do not have any real rights over the development and it is the developer who has the real ownership and right to sell; however, marketers are a key part of the developer for the business to be successful,” continues Montaudon. Regardless of RCI’s strong market foundation and brand recognition, Montaudon acknowledges that technology has enabled the entrance of disruptor companies that cater

One key to creating a successful product is differentiation.

to the millennial market. “Instead of being developers,

However, when dealing with an intangible product, the key

they are becoming a distribution chain offering a different

is to create a differentiated experience around it. RCI has

experience from ours,” he explains. However, Montaudon

made its core business the creation of a loyalty program

is confident RCI will remain a leader despite these new

that focuses on providing unique and different vacation

companies. “Disruptors will keep coming, but I believe that

experiences for each of its affiliates. “When you buy a

the market will continue growing and changing.”

timeshare, you are not buying real estate; you are buying vacation insurance, which is paying for vacation experiences

When it comes to offering one of a kind experiences,

upfront,” says Ricardo Montaudon, President and Executive

Grupo Vidanta, RCI’s largest developer in Latin America, is

Director for Latin America of RCI.

taking the lead with a new project in Nuevo Vallarta. The project is expected to open in 2018 and will feature the

The initial experience of timeshares was concentrated on

first-ever Cirque du Soleil theme park. The idea is for people

the idea of having a vacation “house” while sharing the cost

to immerse in a different world, combining entertainment

of the product, its maintenance and use, says Montaudon.

and experience.

This meant that regardless of where you lived, you had a house in the paradisiacal location you had chosen. The

Choosing Nuevo Vallarta as a destination is no coincidence.

model was successful at first but like any other business, to

In 2015, the city received over 2.5 million tourists and

keep afloat it needed to innovate and offer new experiences

this inflow is estimated to double in the next five to 10

to its affiliates. “Flexibility of use and the way we can

years. Montaudon notes that these types of projects

structure the business have evolved hand in hand, from the

are key to ensure a flow of tourists. “We are seeing a

initial exchange feature created by RCI to points programs.

transformation. The beach is no longer the destination,

Even the all-inclusive model has given timeshares a new

but a complement.”

dimension.” Part of the change can be credited to economic revenue Part of what has helped RCI stay ahead in the industry has

generated by timeshare visitors. “It is a business with an

been its ability to capitalize on the experiences it offers

assured regular customer. Whenever there is a natural

to its affiliates. “Our business model consists of several

disaster, such as hurricanes, timeshare owners are the first

parts. One is enrolling hotel developments. Whenever we

visitors to come back to the destination. They have an

enroll a new hotel it has to pay an affiliation fee that covers

economic impact on everyone: taxi drivers, hotel bell boys

inspections and additions to the marketing materials. The

and restaurant owners.”

other part of the strategy depends on the sales made by the hotel to members. If the member is happy, he or she will

RCI has kept up in a fast-moving world, overcoming the

upgrade their membership and use the exchange program,

challenge of placing timeshares as an innovative product

paying a fee for every exchange,” explains Montaudon.

for vacationing. As Montaudon says, “nobody wakes up and decides to go out and buy a timeshare. It is our job to

While it is easy to select destinations such as Cancun or

make sure people see the value of the product and of the

Los Cabos, other destinations might not be as obvious.

experiences we can provide.”

155

PEMEX platform, Bay of Campeche

OIL & GAS

With vast untapped hydrocarbon reserves, increasing demand from a growing population and economy and a new regulatory framework, Mexico is quickly becoming one of the most exciting markets for oil and gas companies along the entire supply chain. Despite production declines of more than a decade, PEMEX remains Mexico’s oil and gas heavyweight. But its decades-long monopoly is over and new private and international companies are entering Mexico’s upstream market through CNH’s licensing rounds, while others have started to capitalize on midstream infrastructure and downstream gasoline distribution opportunities. PEMEX itself has set a clear path forward with a five-year business plan to stabilize and boost reserves and production.

Concrete results defined 2016 and 2017. The completion of the country’s first deepwater licensing round was the highlight of Round One, and the industry now awaits for the second deepwater round with optimism. Australia’s BHP Billiton became PEMEX’s first-ever partner through a farmout. In 2017, Cheiron Holdings Ltd and DEA Deutsche Erdoel AG became PEMEX's partners for two onshore farmouts, and 2018 will see PEMEX's second deepwater farmout for the NobilisMaximino field.

157

CHAPTER 7: OIL & GAS 160

ANALYSIS: Historic Firsts As Landscape Shifts

162

VIEW FROM THE TOP: Pedro Joaquín Coldwell, Minister of Energy

163

THE FIVE YEAR HYDROCARBONS PLAN 2017-2021

166

MAP: Awarded Blocks

165

VIEW FROM THE TOP: Juan Carlos Zepeda, CNH

170

VIEW FROM THE TOP: Héctor Moreira, CNH

173

VIEW FROM THE TOP: Carlos de Regules, ASEA

174

VIEW FROM THE TOP: Juan Javier Hinojosa, PEMEX E&P

175

VIEW FROM THE TOP: José Antonio Escalera, PEMEX E&P

176

VIEW FROM THE TOP: Timothy Duncan, Talos Energy

177

VIEW FROM THE TOP: Iván Sandrea, Sierra Oil & Gas

178

INSIGHT: Javier Zambrano, Jaguar E&P

179

VIEW FROM THE TOP: Juan Hernández, Industrias Energéticas

180

MAP: Licensing Rounds 2018

182

VIEW FROM THE TOP: Jesús Lamas, Schlumberger Mexico

183

VIEW FROM THE TOP: Bruno Lima, Halliburton

184

VIEW FROM THE TOP: Carlos Murrieta, PEMEX Transformación Industrial (PEMEX TRI)

185

VIEW FROM THE TOP: Stefan Lepecki, Braskem IDESA

186

VIEW FROM THE TOP: Guillermo García Alcocer, CRE

187

VIEW FROM THE TOP: Rolando Vázquez, OXXO GAS

159

ANALYSIS

HISTORIC FIRSTS AS LANDSCAPE SHIFTS Mexico’s oil and gas revolution continued unabated in 2016 and through the first half of 2017. The country’s unfolding Energy Reform bore fruit across segments and resulted in historic firsts: the first deepwater round, the first farm-out and the first foreign IOC to strike oil in the country’s shallow waters There is no doubt that since 2014’s Energy Reform, the

allocation of eight out of 10 available blocks to an impressive

industry has undergone a profound transformation.

range of IOCs, NOCs and independents.

The end of PEMEX’s near 80-year monopoly over the

160

country’s hydrocarbon reserves and its transition into a

Along with the eight blocks awarded in the round, the same

productive state enterprise has resulted in far-reaching

day marked PEMEX’s first-ever farm-out, which involved

consequences for every part of the oil and gas value

the deepwater Trion block, won by Australian operator BHP

chain; from upstream exploration and production,

Billiton. Taking on 60 percent of the share, BHP will enter into

to midstream logistics and downstream refining and

a production-sharing agreement with Mexico’s NOC to exploit

gasoline commercialization, and all associated business

the block, which has 3P reserves totaling 485 million barrels of

services.

crude oil equivalent. To win, the Australian heavyweight bid an additional royalty rate of 4 percent, on top of the 7.5 percent

As well as each segment’s specific highlights, the Ministry

base rate, and offered a US$625 million after tying with BP.

of Energy updated its oil and gas energy policy in February 2017 to reflect changes in the industry since the document

CRUDE PRODUCTION IN DECLINE

was first published two years ago. The overarching document,

One area of concern is Mexico’s crude oil production, which

titled “Five-Year Plan for Exploration and Production of Oil

has been in decline for over a decade. In 2016 total production

and Gas Bids 2015-2019,” announced a standardization of the

averaged 2.155 million b/d; a drop of 5 percent on year. As

process that dictates how Mexico’s oilfields are auctioned to

of Sept 2017, total production averaged 1.92 million b/d.

private companies.

Production of crude oil has seen a steady decrease since peaking at 3.383 million b/d in 2004.

LICENSING ROUNDS With the completion of Round 2,3, a total of 72 E&P contracts

“The only solution for PEMEX to reverse its 12-year production

had been signed, including three farmouts between PEMEX

decline is to seize all the opportunities the Energy Reform

and a third-party operators. After getting off to a sobering

offers. This involves seeking out private investment and

start with shallow-water Round 1.1 in 2015, which saw only

productive partnerships,” says Ernesto Marcos, Founding

two out of 14 contractual areas awarded, things started to

Partner of Marcos y Asociados.

look up with Round 1.2, when three out of the five shallowwater blocks up for grabs were awarded to three bidders: one

PRODUCTION GOALS

independent and two consortiums. One notable difference

Increasing oil exploration and production is the main objective

between the two rounds was the fact that Round 1.1’s blocks

of Five-Year Plan, with a target of stabilizing PEMEX’s

offered only exploratory potential, while Round 1.2 was an

production at 2 million b/d. Aldo Flores, Deputy Minister of

extraction round, increasing certainty and reducing risks for

Hydrocarbons believes this is already achievable. “The target

vying companies.

for 2017 is around 1.94 million b/d, so with the private sector’s contribution to production we should reach close to 2 million

One more farm out with PEMEX is scheduled for January 2018: NobilisMaximino

b/d,” he says. He is backed up by the results of the deepwater round, which attracted an estimated investment of US$34.4 billion over the next 35 years from the private sector. The private sector’s participation is accelerating at an impressive rate. By March 2017, a total 4,329 miilion boe of the country’s prospective resources and 273 million boe of its 2P reserves had been auctioned off through Round One, representing 4.9 percent and 9.5 percent, respectively, of all available resources under state control. Should the process

If Round 1.3 was a goldmine for national companies, Round

continue at the same rate, Flores says, it would take between

1.4 was the equivalent for international businesses. Mexico’s

20 and 40 years to get through all of Mexico’s identified

first-ever deepwater licensing round lead to the successful

resources.

NATURAL GAS PRODUCTION The year 2016 saw Mexico’s average daily natural gas production drop to 5,825mmcf/d, the first time in a decade that production was below 6,000mmcf/d. In the

THE JOURNEY TOWARD AN OPEN ENERGY MARKET Year

Event

2013 20 December

last quarter of 2016 it dropped even further, reaching

The Energy Reform is approved by the Senate

4,580mmcf/d. By the end of 2016, natural gas production originated almost evenly between onshore and offshore fields, with 49 percent and 51 percent produced from each

2014 21 July

PEMEX becomes a Productive State

type of field, respectively.

RESERVE REPLACEMENT

The Senate approves the rules by which Enterprise

11 August

The Secondary Legislation is issued ASEA is created

As well as falling production, Mexico’s reserve replacement

PEMEX law is issued

ratio had been in decline year on year since 2012, before

Mexican Petroleum Fund (FMP) is

rising in 2016 to 62 percent, up 7 percent on the previous

created

year. Still, the figure remains low compared to previous years, especially compared with its 10-year peak of 129

13 August

PEMEX is assigned 83% of 2P reserves

percent in 2009. For every 10 barrels of oil Mexico produced in 2016, just

and 21% of prospective reserves 28 August

its crude oil output. To remain sustainable, the rate must be 100 percent or over. In Mexico’s case, it will have to be above to address the debt it has racked up in the past year,

2015 15 July

Results of Round 1.1 are published

4 September

Round 1.1 contracts are signed by

given that an average of 32.75 percent of its hydrocarbon reserves have not been replaced since 2013.

SUPPLY CHAIN DEVELOPMENT

CENACE is created CENAGAS is created

over six were discovered. The deficit between the two does not bode well for a country desperately trying to increase

Round Zero results are published

winners 30 September

Results of Round 1.2 are published

17 December

Results of Round 1.3 are published

Operators entering through CNH’s licensing rounds will be looking to Mexico’s already well-established oil and gas

2016

supply chain to not only provide essential products and

7 January

winners

services but also to meet local content quotas and, in the case of IOCs, gain regional knowledge and experience.

Round 1.2 contracts are signed by

10 May

Despite the projection that more work will be coming its

First set of Round 1.3 contracts are signed by winners

way in the future, Mexico’s oil and gas supply chain has various challenges to confront, including compliance with

25 August

signed by winners

international standards, recovery from PEMEX’s payment and activity slowdown and from the wider oil price crisis.

Second set of Round 1.3 contracts are

5 December

Results of Round 1.4 are published

13 December

Results of TRION farm-out bidding

All this while learning the ropes of a newly opened market and PEMEX’s updated process for awarding service

round is published

contracts. 2017

REFINING

28 February

While a new supply chain is beginning to develop, PEMEX’s

First Round 1.4 contract is signed by winner

refineries are still presenting old challenges. Mexico’s crude processing capacity at its PEMEX-owned refineries at Cadereyta, Madero, Tula, Salina Cruz, Minatitlan and

3 March

Contract for TRION farm-out is signed

8 March

CENAGAS publishes Round Zero results

Salamanca has decreased dramatically since the start of

for Open Season

the 21st century as the state-owned oil giant has faced problems related to maintenance of its aging infrastructure

10 March

signed by winners

and has also struggled to maintain its oil production steady from maximums reached in 2004. Another challenge is in

8 May

CENAGAS publishes Round One results for Open Season

the form of unplanned shutdowns at PEMEX’s refineries, 65 percent of which were due to unreliable hydrogen sources.

Remainder of Round 1.4 contracts are

Sources: PEMEX, CNH

161

VIEW FROM THE TOP

MEXICO ATTRACTS US$49 BILLION IN ROUND ONE PEDRO JOAQUÍN COLDWELL Minister of Energy

162

Q: What is the Ministry of Energy’s perspective on the

marketing of oil, private participation will allow us to

results of Round One and which parameters are used to

expand the existing infrastructure and strengthen the

measure its success?

country’s energy security.

A: In spite of the volatility of international crude oil markets, the results obtained in Round One were

Q: What is the expected result from the decision to allow

successful, transparent and highly competitive. With

companies to nominate areas in Round Three?

the four bidding rounds and the first PEMEX farm-out

A: We expect to receive feedback from those that have

concluded with Trion, we have achieved a result of 70

shown interest in tenders and to ultimately increase the

percent of the available areas awarded, well above

number of blocks to be auctioned, based on technical

the registered rate in the region. In addition, the best

justifications regarding potential production. The industry

conditions have been guaranteed by the state, which

selects areas in which it is interested in carrying out

will be receiving a 60 percent average profit during

exploration and production activities and proposes the

the commercial life of the contracts. The US$49 billion

configuration of areas with a greater surface area to

investment commitment by the 48 companies from 14

reduce geological risk. With the information received

countries reflects the confidence of new operators in the

and the technical support of CNH, the Ministry of Energy

Mexican bidding system, which has also been recognized

analyzes the nominations to include them in the tenders,

by international experts.

considering the investment strategy of the industry and the viability of the projects.

With the seven licensing rounds and three PEMEX farmouts concluded, we have achieved a result of 75 percent of the available areas awarded

Q: What are the objectives of the licensing rounds planned for each year? A: One of the objectives we have in hydrocarbons is to create a diversified industrial system, in which companies of different sizes, origins and specialties coexist. Under this premise, we have carefully designed the rounds so that every tender targets specific goals, either to boost the domestic industry, such as Round 1.3, or to attract

The Energy Reform opened the hydrocarbons industry to

the world’s largest oil companies that have the proven

private participation and achieved certainty in the rules,

ability to venture into deep and ultra-deepwaters, as in

transparency in the allocation of contracts and in tenders

Round 1.4.

and free competition for both PEMEX and private operators. Private investments are expected to complement those

For the remainder of this administration, we will design

that PEMEX has been making over the past seven decades

two new tenders for Round Two: one in deepwater and

to access deep, ultradeep, unconventional and mature

one in unconventional onshore. We will then start Round

fields, in which Mexico has resources that it was previously

Three, which will include a tender for shallow waters and

unable to take advantage of. In transport, storage and

conventional onshore areas and another for deepwater and unconventional onshore areas.

Pedro Joaquín Coldwell has been Mexico’s Minister of Energy

Q: Why prioritize exploration areas with reserves over

since the start of President Enrique Peña Nieto’s government in

pure exploration areas for future licensing rounds?

2012 and has overseen deep changes in the country as a result

A: In Mexico, the production of crude oil from mature

of the Energy Reform

fields represents between 40 percent and 60 percent

The Five-Year Hydrocarbons Plan 2017-2021 incorporates the following improvements over the Five-Year Plan 2015-2019, which will facilitate the selection of blocks:

THE FIVE YEAR HYDROCARBONS PLAN 2017-2021

1. Area to be tendered: grows by 2 percent, compared to the previous round. It goes from 235,000km2 to more than 239,000km2. 2. Prospective resources: increased by 10 percent, from 38.884 billion to 42.681 billion boe, distributed across all the oil basins of our country. 3. Block size: is now standardized by project type. For deepwater, the area is 1,000km2, 400km2 for shallow water, 300km2 for conventional onshore areas and 200km2 for unconventional onshore areas. 4. Nominations: All oil areas will be open to industry nominations. To facilitate the nomination of areas, the Hydrocarbons Undersecretary developed an interactive map, which will allow companies to identify and propose the areas that are of interest to them. The map will be available to interested parties during the predefined deadlines for each tender.

163

of total production. Due to our urgency in reversing the

that the current regulatory framework allows to enhance

decline in production, tenders have focused on areas

the development of the assignments it was granted in

where we know there is better potential for success. This

Round Zero. It can now compete, in equal conditions and

is why we follow the logical path to tackling this problem

on an equal footing, with other private companies and oil

through seeking to increase reserves with exploration

Majors entering Mexico for the oil areas that the state is

activities.

putting up for auction.

There may now be exploration in areas with more data

Q: What will be done to accelerate the migration of

available just as there may be exploration that involves

COPFs and CIEPs and what role should this play in

greater risks due to lack of information that would reduce

reversing Mexicoâ&#x20AC;&#x2122;s declining oil production?

those risks. However, it is important to note that this does

A: The migration of the existing exploration and production

not mean that there is no value in other areas but until

service contracts: Financed Public Work Contracts

now we just could not carry out the proper evaluations

(COPFs) and Integral Exploration and Production

with the data we had at hand.

Contracts (CIEPs) to the new modalities of Hydrocarbons Exploration and Production Contracts definitely allows

However, the operations of the new companies in Mexico,

PEMEX to establish more profitable alliances. Moreover,

the new information obtained by exploration companies

they allow PEMEX to establish alliances with those players

and all the new eyes looking at Mexico allow us to glimpse

who normally only act as contractors, allowing it to share

new horizons. This new environment will compel us to turn

risks, technology, skills and knowledge.

to those areas in which new potential is detected based on new information and naturally to take another step: to

The migration of these contracts has entered a stage of

expand exploration into frontier areas.

greater mutual understanding between PEMEX and its contractors. In addition, a number of operational issues

Q: What is the Ministry of Energyâ&#x20AC;&#x2122;s perspective on the

have been addressed that were not originally considered

progress made by PEMEX in its transformation into a

because PEMEX controlled all processes from exploration

productive enterprise of the state?

to commercialization, a situation that is very different

A: The new legal nature that the Energy Reform granted

under the new contractual scheme with a new partner.

to PEMEX laid the foundations of a more modern, competitive and a stronger company. Now, the NOC is

These alliances are focused on allowing PEMEX to

free to choose the business priorities that its directors

counteract the natural decline in field production

feel would have the potential to generate the greatest

and at the same time accelerate the pace of reserves

economic value and to partner with other companies to

replacement. All these contracts are in known, developed

share geological risks, attract capital, human resources

and in some cases even mature areas, where raising the

and state-of-the-art technology to consolidate itself

levels of production and reserves replacement can take

in the international market. PEMEX is efficiently taking

place over a period of months, which is why it is crucial

advantage of all the investment tools and opportunities

to complete these migrations.

VIEW FROM THE TOP

BUILDING ON ROUND ONE TO SPEED UP, SCALE UP JUAN CARLOS ZEPEDA President Commissioner of the National Hydrocarbons Commission (CNH)

Q: How is CNH building on the results from the bidding

Q: What is the industry’s main suggestion for increasing the

rounds and preparing to move forward?

competitiveness of the bidding rounds?

A: At the moment CNH is right in the middle of the transition

A: Through different conferences, seminars and panels, we

from innovation to standardization of its bidding rounds. We

have received industry feedback centered on one suggestion:

finished Round One, which was successful, and now we want

that CNH could and should scale-up the bidding process. This

to build upon that experience. From what we have learned

means that we should offer more rounds and especially include

through this round and from industry feedback, we believe

more blocks in each round. Our goal now is to implement

we can speed up and scale up the investment process and

that advice, mainly through two elements. Firstly, we want to

make it more efficient. So far, CNH has put 55 contracts up

increase the acreage we offer through the licensing rounds.

for bidding and we have awarded 39. We have 49 companies

Through Round One, CNH offered an acreage amounting

involved, including PEMEX, from 14 countries. CNH is now

to 30,000km2. Brazil offered more than four times this in its

working on 2017’s shallow-water Round 2.1, to be held on June

last bidding round, although it is a much larger country than

19, 2017. The blocks involved are not all in very shallow waters,

Mexico. Colombia, on the other hand, is much smaller and

with some reaching more than 300m in depth, which requires

has less hydrocarbon potential than Mexico but it offered six

submersible rigs rather than jackups. There is a lot of interest,

times what Mexico did in its last round. Looking at the US,

with 27 companies already signed up. On Jul. 12, 2017, we held

comparing the Gulf of Mexico on both sides, it is offering more

two onshore bidding rounds and we ran three farm-outs for

than nine times the amount we are.

PEMEX, one in shallow water and two onshore. PEMEX has already announced another deepwater farm-out, which we

Q: How will the standardization for prequalification impact

will also begin working on.

companies interested in bidding on the licensing rounds? A: Compared to other countries, our prequalification process

Q: What has been learned through Round One regarding the

is very thorough. We check financial strength, net worth,

royalty rate and investment plan balance in bids?

balance sheets, technical capabilities, contracts held in other

A: It is the Ministry of Finance’s responsibility to define the

countries, safety and environment standards and even ask

weighting given to royalty rates and proposed workplan.

for a special file to assess the lawful origin of the resources

Through the four stages of Round One, the Ministry of

they intend to invest in Mexico. Up to now, companies have

Finance has tipped the weight towards weight commitment

gone through this prequalification process every time they

and away from royalties. That was a very smart move because

wanted to bid. We are going to untangle the prequalification

the biddings are not for a fixed object but for different future

from the bidding process itself. At any point in the year,

projects. A company may bid a low royalty rate so it can

companies will be able to approach CNH and request

develop a huge project, while another could bid a high

prequalification for one of the four categories: onshore

royalty rate and just take advantage of the most profitable

conventional, onshore unconventional, shallow water and

part of the field. As the government arm responsible for

deepwater. After prequalifying, the companies will receive a

the state’s fields, we want them to be developed fully and

certification confirming they have certain capabilities, valid

to maximize the recovery factor. We do not only want the

for five years. They will only need to update CNH with their

maximum royalty possible but also the biggest projects.

financial statements and any other relevant updates.

Finding the correct weighting between these two variables is an ongoing process but we are heading in the right direction. In Round 1.4 more emphasis was on the number

The National Hydrocarbons Commission (CNH) was set up as

of proposed exploration wells. The result was successful,

a result of the Energy Reform. Its duties include the handling,

ending with four promised deepwater exploration wells in

regulation and oversight of the oil and gas bidding rounds in

addition to the Trion farm-out.

Mexico

165

AWARDED BLOCKS

1 3

166

19 10

2 5

17 b

Bid R1-L1 R1-L2 R1-L3 R1-L4 Salina R1-L4 Perdio R2-L1 R2-L2 R2-L3

Source : CNH

1 2 20 18

5 12

8 2

4 4 167

3 4

4 11 10 7

7 2

14 7

4 15

11 10

9 25

11 13

6 10

AWARDED BLOCKS

168

Round

Block

1.1

Area (km2)

Winning Bidder

Basin

Location

Talos Energy(o), Sierra Oil and Gas and Premier Oil

Southeast

Shallow water

195

1.1

Talos Energy(o), Sierra Oil and Gas and Premier Oil

Southeast

Shallow water

465

1.2

ENI International

Southeast

Shallow water

1.2

Pan American Energy(o) and E&P Hidrocarburos

Southeast

Shallow water

1.2

Fieldwood Energy(o) and PetroBAL

Southeast

Shallow water

1.3

Diavaz Offshore

Poza Rica-Altamira

Onshore

1.3

Sistemas Integrales de Compresión(o) in consortium with Nuvoil and Constructora Marusa

Burgos

Onshore

172

1.3

Consorcio Manufacturero Mexicano

Burgos

Onshore

1.3

Grupo Diarqco

Cinco Presidentes

Onshore

1.3

Strata Campos Maduros

Burgos

Onshore

1.3

Diavaz Offshore

Macuspana-Muspac

Onshore

1.3

Servicios de Extracción Petrolera Lifting de México

Cinco Presidentes

Onshore

1.3

Construcciones y Servicios Industriales Globales

Burgos

Onshore

1.3

Compañía Petrolera Perseus

Macuspana-Muspac

Onshore

Ingeniería, Construcciones y Equipos Conequipos Ing(o) in consortium with Industrial Consulting, Desarrolladora Oleum, Marat International and Constructora Tzaulan

Poza Rica-Altamira

Onshore

1.3

Renaissance Oil Corporation

Macuspana-Muspac

Onshore

1.3

Consorcio Manufacturero Mexicano

Burgos

Onshore

1.3

Grupo Diarqco

Bellota-Jujo

Onshore

1.3

Canamex Dutch(o) in consortium with Perfolat de México and American Oil Tools

Cinco Presidentes

Onshore

1.3

Renaissance Oil Corporation

Macuspana-Muspac

Onshore

1.3

Roma Energy Holdings(o) in consortium with Tubular Technology and Gx Geoscience Corporation

Bellota-Jujo

Onshore

1.3

Servicios de Extracción Petrolera Lifting de México

Poza Rica-Altamira

Onshore

1.3

Strata BPS

Burgos

Onshore

1.3

Renaissance Oil Corporation

Poza Rica-Altamira

Onshore

1.3

GS Oil & Gas

Burgos

Onshore

1.3

Strata Campos Maduros

Burgos

Onshore

1.3

Grupo R Exploración y Producción(o) in consortium with Constructora y Arrendadora México

Macuspana-Muspac

Onshore

1.3

Compañía Petrolera Perseus

Bellota-Jujo

Onshore

1.3

Tonalli Energía

Poza Rica-Altamira

Onshore

1.3

Renaissance Oil Corporation

Macuspana-Muspac

Onshore

1.4

China Offshore Oil Corporation

Perdido

Deepwater

1,678

1.4

Total(o) and ExxonMobil

Perdido

Deepwater

2,977

1.4

Chevron(o), PEMEX and INPEX

Perdido

Deepwater

1,687

1.4

China Offshore Oil Corporation

Perdido

Deepwater

1,877

1.4

Statoil(o), BP and Total

Salina

Deepwater

2,381

1.4

Statoil(o), BP and Total

Salina

Deepwater

3,287

1.4

PC Carigali(o) and Sierra Oil and Gas

Salina

Deepwater

2,359

1.4

Murphy Oil(o), Ophir, PC Carigali and Sieera Oil and Gas

Salina

Deepwater

2,573

2.1

PEMEX(o) and DEA Deutsche

Tampico-Misantla

Shallow water

549

2.1

PC Carigali(o) and Ecopetrol

Salina del Istmo

Shallow water

559

2.1

ENI México(o), Capricorn Energy and Citla Energy

Salina del Istmo

Shallow water

591

2.1

PEMEX(o) and Ecopetrol

Salina del Istmo

Shallow water

586

2.1

Capricorn Energy(o) and Citla Energy

Salina del Istmo

Shallow water

562

2.1

ENI México

Salina del Istmo

Shallow water

533

2.1

Repsol Exploración(o) and Sierra Perote

Salina del Istmo

Shallow water

533

2.1

Lukoil International

Salina del Istmo

Shallow water

521

Validity (Years)

Bid Date

Signing Date

Additional Royalty (%)

Increase in Minimum Work Program (%)

Tiebreaker Payment (US$ million)

Production Sharing

15/07/15

04/09/15

55.99%

10%

Production Sharing

15/07/15

04/09/15

68.99%

10%

Production Sharing

30/09/15

30/11/15

83.75%

33%

Production Sharing

30/09/15

07/01/16

70%

100%

Production Sharing

30/09/15

07/01/16

74%

License

15/12/15

10/05/16

64.50%

100%

License

15/12/15

10/05/16

40.07%

75%

License

15/12/15

10/05/16

41.77%

100%

License

15/12/15

10/05/16

81.36%

18%

License

15/12/15

10/05/16

50.86%

100%

License

15/12/15

10/05/16

63.90%

License

15/12/15

10/05/16

60.82%

99%

License

15/12/15

10/05/16

20.08%

88%

License

15/12/15

10/05/16

36.88%

100%

License

15/12/15

25/08/16

29.69%

License

15/12/15

10/05/16

57.39%

100%

License

15/12/15

10/05/16

34.25%

100%

License

15/12/15

10/05/16

60.36%

License

15/12/15

10/05/16

85.69%

License

15/12/15

10/05/16

80.69%

25%

License

15/12/15

10/05/16

35.99%

100%

License

15/12/15

25/08/16

10.20%

License

15/12/15

10/05/16

50.86%

100%

License

15/12/15

25/08/16

21.39%

50%

License

15/12/15

25/08/16

12.36%

15%

License

15/12/15

25/08/16

11%

10%

License

15/12/15

10/05/16

60.74%

100%

License

15/12/15

10/05/16

60.88%

100%

License

15/12/15

25/08/16

31.22%

License

15/12/15

10/05/16

78.79%

License

05/12/17

10/03/17

17.01%

1.50%

License

05/12/17

10/03/17

1.50%

License

05/12/17

28/02/17

7.44%

License

05/12/17

10/03/17

15.01%

License

05/12/17

10/03/17

10%

License

05/12/17

10/03/17

10%

License

05/12/17

10/03/17

22.99%

License

05/12/17

10/03/17

26.91%

Production Sharing

19/06/17

25/09/17

57.92%

Production Sharing

19/06/17

25/09/17

65.19%

Production Sharing

19/06/17

25/09/17

75%

Production Sharing

19/06/17

25/09/17

20.10%

Production Sharing

19/06/17

25/09/17

75%

$30,003,333.33

Production Sharing

19/06/17

25/09/17

75%

Production Sharing

19/06/17

25/09/17

62.28%

Production Sharing

19/06/17

25/09/17

75%

Contract Type

169

AWARDED BLOCKS

170

Round

Block

2.1 2.1

Area (km2)

Winning Bidder

Basin

Location

ENI México(o) and Citla Energy

Salina del Istmo

Shallow water

Total E&P(o) and Shell

Macuspana

Shallow water

972

2.2

Iberoamericana de Hidrocarburos (o) and PJP4

Burgos

Onshore

360

2.2

Sun God(o) and Jaguar E&P

Burgos

Onshore

440

2.2

Sun God(o) and Jaguar E&P

Burgos

Onshore

445

2.2

Sun God(o) and Jaguar E&P

Burgos

Onshore

446

2.2

Sun God(o) and Jaguar E&P

Burgos

Onshore

416

2.2

Sun God(o) and Jaguar E&P

Burgos

Onshore

467

2.2

Sun God(o) and Jaguar E&P

Southeast

Onshore

349

2.3

Iberoamericana de Hidrocarburos(o) and PJP4

Burgos

Onshore

2.3

Newpek Exploración y Extracción(o) and Verdad Exploration

Burgos

Onshore

163

2.3

Newpek Exploración y Extracción(o) and Verdad Exploration

Burgos

Onshore

200

2.3

Iberoamericana de Hidrocarburos(o) and PJP4

Burgos

Onshore

199

2.3

Jaguar E&P

Tampico-Misantla

Onshore

Shandong Kerui(o), Sicoval MX and Nuevas Soluciones Energéticas

Veracruz

Onshore

193

2.3

Jaguar E&P

Veracruz

Onshore

251

2.3

Jaguar E&P

Veracruz

Onshore

232

2.3

Jaguar E&P

Macuspana

Onshore

2.3

Shandong Kerui(o), Sicoval MX and Nuevas Soluciones Energéticas

Salina del Istmo

Onshore

248

2.3

Shandong Kerui(o), Sicoval MX and Nuevas Soluciones Energéticas

Salina del Istmo

Onshore

215

2.3

Carso Oil and Gas

Salina del Istmo

Onshore

245

2.3

Carso Oil and Gas

Salina del Istmo

Onshore

234

2.3

Jaguar E&P

Macuspana

Onshore

148

2.3

466

(o) Operator, ( c ) Consortium - see appendix for the full Company name of the members Source: CNH

VIEW FROM THE TOP

FOR REFORM TO WORK, EVERYONE MUST PLAY A ROLE HÉCTOR MOREIRA Commissioner at CNH

Q: What is the biggest challenge for the continued

the owner can negotiate directly with the companies that

implementation of the Energy Reform?

want to extract the oil. People are not aware of this change

A: The status quo has lasted for so long it is engraved

and neither are the judges who may be asked to adjudicate

in people’s minds, making it extremely hard for them to

cases in which a conflict arises because negotiations fail.

change. We need to make them understand that everyone

Even when talking to private companies they sometimes

has a role to play in the new environment, otherwise it will

still think the production will be sold directly to PEMEX

not work. But some people are not prepared to take on

but that is not the case. The opportunities are far greater.

those roles. One example is the discovery of oil. Before,

To address this issue, CNH is taking advantage of every

when an owner discovered oil on his or her land it meant

opportunity it finds to talk about the Energy Reform and

the state would use the land at a fixed price. Now it means

the new rules, conditions and opportunities it brings.

Increase in Minimum Work Program (%)

Tiebreaker Payment (US$ million)

Validity (Years)

Bid Date

Signing Date

Additional Royalty (%)

Production Sharing

19/06/17

25/09/17

37.27%

Production Sharing

19/06/17

25/09/17

30.11%

License

12/07/17

1/12/17

3.91%

License

12/07/17

1/12/17

25%

1.5

License

12/07/17

1/12/17

16.96%

License

12/07/17

25%

1.5

$4,130,000

License

12/07/17

25%

1.5

License

12/07/17

25%

1.5

License

12/07/17

45%

1.5

License

12/07/17

1/10/17

25%

1.5

$4,237,264

License

12/07/17

1/10/17

25%

1.5

$2,980,002.02

License

12/07/17

1/10/17

23.56%

License

12/07/17

1/10/17

3.91%

License

12/07/17

1/10/17

40%

1.5

$26,100,000

License

12/07/17

1/10/17

40%

1.5

$2,179,000

License

12/07/17

1/10/17

40%

1.5

License

12/07/17

1/10/17

40%

1.5

License

12/07/17

1/10/17

45%

1.5

$28,890,000

License

12/07/17

1/10/17

40%

1.5

License

12/07/17

1/10/17

45%

1.5

License

12/07/17

1/10/17

45%

1.5

$6,182,000

License

12/07/17

1/10/17

40%

1.5

$13,170,000

License

12/07/17

1/10/17

40%

1.5

Contract Type

Q: Do you think a new administration taking office after

a national industry. With Round One we have attracted

next year's elections could stall or even reverse the reform?

much more investment than PEMEX could ever secure

A: Mexico is a nation with very strong institutions. That said,

on its own and allowed for the use of state-of-the-

the Energy Reform is now entrenched in the constitution

art technology on Mexican soil. In this regard, we can

and the only possible way to reverse it is if two-thirds

consider Round One a success. As for the creation of

of both chambers of Congress and a majority of state

a national industry, we have seen the emergence of 28

legislatures vote in favor of doing so. The biggest harm a

different Mexican companies, which is already a small

new administration could inflict would be to make it harder

success. Major success will be accomplished by some of

for industry players to follow the regulations. Even in such

those companies when they move to the big leagues and

a case, the reform could not be withdrawn. Because of the

compete against major international companies. For that

huge destabilizing impact such a move would have on the

to happen we need time, and a number of companies

country, I do not see a possible scenario in which a new

will undoubtedly fail along the way. Success must be

administration could even get close to reversing the Energy

measured in proper and objective ways, with short-term

Reform by using regulatory frameworks against it. In general,

actions that have long-term implications. When viewed

all the different parties have different priorities for the Energy

this way, the Energy Reform can be considered a success.

Reform, be it in local content or investment requirements to name some examples, but they all support it. The National Hydrocarbons Commission (CNH) was set up as

Q: How would you measure the Energy Reformâ&#x20AC;&#x2122;s success?

a result of the Energy Reform. Its duties include the handling,

A: The Energy Reform had three main objectives: to

regulation and oversight of the oil and gas bidding rounds in

attract investment, to attract technology and to create

Mexico

171

VIEW FROM THE TOP

CONSOLIDATING MEXICOâ&#x20AC;&#x2122;S SAFETY REGULATOR CARLOS DE REGULES Executive Director of ASEA

Q: ASEA is 2 years old and fully up and running. What have

In the past two years we have published close to 30 different

been the milestones of the regulatorâ&#x20AC;&#x2122;s development?

technical regulations that are risk-based and nonprescriptive.

A: Two years ago we were given the challenge of building

At the end of 2016 we published all the regulations for

and designing a new regulator from scratch. We started

upstream operations, including deepwater in the Gulf of

out by defining how to cope with the massive mandate

Mexico, which allowed for an active participation in Round

of regulating, authorizing and supervising all matters

1.4. The rules, mainly inspired by international best practices,

concerning safety and environmental protection for the

were understood and accepted by the market. We have also

whole hydrocarbon value chain. We formed a strong

made good progress concerning risk-based inspections.

philosophy and well-defined mission to guide our decisions, which involved guaranteeing individual safety and

Q: What are the priority areas in for the oil and gas industry

environmental integrity while at the same time providing the

in terms of safety?

industry with long-term certainty about the rules and their

A: Offshore and refineries are the priority areas. We have

enforcement. Around that mission, we designed a model to

deployed aggressive mitigation programs to address the

manage risk. In this industry, risk must be managed to avoid

main risks associated with those operations. After analyzing

accidents and control pollution.

those risks, we came to the conclusion that our current model is working well and effectively. Close to 15,000

We designed this model around five different risk-

projects have crossed our desks and I am glad to share

management pillars. The first was preemptive: the obligation

that none are currently delayed. We successfully avoided

of every operator to work under safety and environmental

this by adopting our initial mission to guarantee safety and

management systems. The second was the obligation

environmental integrity but at the same time being aware

for everybody to have sufficient financial guarantees to

that our role is to provide certainty about the rules. The proof

cope with the consequences of potential accidents. Third,

of our success lies in the almost US$70 billion the industry

we addressed the issuing of nonprescriptive technical

has already committed to Mexico.

regulations that would target goals and performance. The fourth pillar of our model was risk-based inspection. This has

Q: How did ASEA manage the processing of so many

to do with recognizing that although it would be possible

permits?

to verify every piece of the country's 60,000km of pipeline

A: By mid-2016 the Ministry of Finance authorized an increase

we needed to be strategic and actually go where the risks

of 150 people to expand our execution capacity. That was a

are. The final element was a philosophy around enforcement

relief but still not enough. Manpower is only part of the story

aimed at incentivizing better performance as opposed to

as new systems, databases and regulations are also important.

putting people in jail.

A relevant example is how we improved turnaround times for approving gas stations. In April 2016, 40 percent of gas station

Q: What is your proudest achievement of the past two years?

permits were delayed in our system and the environmental

A: One thing I am particularly proud of is the fact that

assessment took 120 days to complete. Now, after we put

we have managed to stay focused on our original risk-

together a brief report regarding the environmental impact

management mission. One of the main milestones was

of a gas station, it takes only 10-20 days to process.

the issuing of our environmental and safety management system regulations and the issuing of regulations concerning financial guarantees. Everyone is starting to

ASEA , Mexicoâ&#x20AC;&#x2122;s National Industrial Safety and Environmental

comply with these rules, which are two cornerstones of our

Protection Agency for the hydrocarbons industry, is in charge

risk-management model. The third is technical regulation

of disseminating regulations and enforcing compliance of

oriented to performance.

public and private-sector companies involved in the industry

173

VIEW FROM THE TOP

FIRST STABILIZE PRODUCTION, THEN INCREASE IT JUAN JAVIER HINOJOSA Director General of PEMEX E&P

174

Q: In what specific ways is PEMEX E&P (PEP) working to

Q: How will the delay with CIEPs and COPFs migration

reverse its 12-year production declines?

impact PEMEX’s production?

A: We are now trying to focus all our technical and financial

A: The CIEPs and COPFs contracts we hold with private

efforts on increasing the profitability of the fields we were

companies on various fields represent no more than two

assigned through Round Zero. Regarding the production

percent of the national production of oil and they are not

decline, first we are trying to stabilize production and then

representative of much of the reserves either. There is a delay

increase it, for both oil and gas. The way to do this is by

in the process itself but the process is a learning curve and

increasing our efficiencies and focusing on more strategic

we are adjusting to the new obligations CNH and the Ministry

projects. The international oil price affects PEMEX a lot,

of Energy are demanding of us. We have never done this

putting into limbo our decision-making process at times. If

before so the regulatory and execution details are a work

our goal is to be profitable, low oil prices can cost projects

in progress. We are about to migrate the first contract:

and work. This is beyond the company’s control.

Santuario, which we share with Petrofac.

Q: What is PEMEX looking for in a partner for the Ogarrio

Q: What role will farm-outs and alliances play in PEMEX’s

and Cárdenas-Mora farm-outs?

future production?

A: We are looking for technology. Ogarrio and Cárdenas-

A: We are aligning with the business plan, which is all about

Mora have reached the point where they need secondary

reversing the production decline by taking advantage of

and enhanced oil recovery mechanisms. They also

the opportunities brought about by the reform. Our goal

demand investments. We want a partner that has already

is to arm ourselves with technology, capital and execution

successfully developed IOR/EOR projects in similar fields

capabilities and we can do this through the various farm-

and that has the financial strength to provide capital. Ayín-

outs. Those involve exploration and extraction contracts.

Batsil is the field involved in our upcoming shallow-water

For some of the fields we were assigned in Round Zero we

farm-out. We discovered Ayín in the 1980s, but have not

require the support of a partner to help cover the financial

done anything to develop it. This is because it is at a water

or technological elements.

depth of more than 180m. Q: What is PEP’s plan to take advantage of Mexico’s PEMEX has developed such shallow-water capacity

untapped unconventional resources?

leaving no question about its capabilities in execution and

A: We are waiting for the regulations to be released

development. But we have only gone 140m deep. We are

regarding unconventional operations. It is a huge opportunity

looking for a partner that has worked in depths of more

for PEP with respect to development of unconventionals.

than 150m to learn from its experience and keep developing

ASEA, CNH and the Ministry of Energy are taking into

efficiently this type of field. PEMEX discovered Batsil in

account different industry voices in the regulations that

2015 at a water depth of 80m, so we have added this to

will drive unconventional development. This is not only a

the farm-out to increase its attractiveness. We want to

huge opportunity for PEMEX but also for the Mexican state.

become stronger and continue as leaders in shallow-water

We will enter unconventional bidding rounds and look for

development.

alliances to accompany us on this venture, like in deepwater. The big discoveries are going to be in these two areas.

Petróleos Mexicanos (PEMEX) is the most important company

Q: Does PEMEX see itself becoming an IOC?

in Mexico, an international reference in the field of hydrocarbons.

A: First, we are changing from being a monopoly to being

Its activities involve the entire production chain, from exploration,

just another industry player. We definitely have the capacity,

production, industrial transformation, logistics and marketing

the manpower and the resources to manage it.

VIEW FROM THE TOP

LOOKING TO THE LONG TERM FOR MEXICO’S OIL INDUSTRY JOSÉ ANTONIO ESCALERA Director of Exploration at PEMEX E&P

Q: How has the boom in available multiclient seismic data

A: Last year PEMEX discovered more than 1 billion boe

impacted PEMEX’s exploration strategy?

in resources but of that only around 680 million boe

A: PEMEX made important investments acquiring 2D and

could be considered possible reserves, leaving the rest as

3D seismic data, which was of course bound to the capital

contingent resources because they contain a lot of gas and

approved by the government. One of the most important

are currently uneconomic. Even though they cannot be

activities was represented by the seismic campaign from

considered reserves, we know the resources are there and,

2010 to 2015 in which PEMEX got around 100,000km2

by applying proper technology, processes and increasing

of 3D seismic, out of which 30 percent is wide azimuth,

efficiency, those resources may in the future turn into

allowing PEMEX to understand the zones with high-salt

reserves. It is a slow process but we see those possible

complexity in the Perdido area. Those 30,000km led

reserves discovered turning into probable and eventually

to the Trion discovery in 2012, turning it into the first oil

into proven reserves in the future.

reservoir in ultradeep Mexican waters ever discovered. But that was not the only discovery brought by that 3D seismic

Trion and Nobilis-Maximino are both exploration and

survey because the gathered information was also used for

appraisal projects that could turn relatively fast into

the bidding of Blocks 1, 3 and 4 in Round 1.4. A more in-

development projects. Doing a farm-out of an exploration

depth study of the data also led us to discover the Doctus

area or a discovery has the advantage of sharing the risk

reservoir in 2016.

with another company, as well as accelerating activities by joining forces to move the project to appraisal and/or

In the north, we are acquiring a new 3D survey to turn the

development. In deepwaters, we only have possible reserves

wide azimuth seismic we already have into a multi azimuth,

and it may take several years to appraise the discovery and

therefore improving the images under the salt. So far all of

then sanction a development project in order to get probable

these studies have been acquired by PEMEX, but we are

and proven reserves. To ensure the integration of more

also entering the multiclient scheme with an eye on evolving

probable and proven reserves in the short-term, PEMEX is

together. Through these actions, PEMEX expects to offer a

focusing onshore and in shallow water, where the process

higher value in those areas.

usually faster and takes between two and four years.

The 3D wide azimuth allowed us to see the Doctus

Q: What ambitions does PEMEX E&P have for next year?

opportunity last year, which has around 150 million boe.

A: If we drill the 30 wells we have in mind for 2017 we can

Nobilis is another extremely attractive discovery as it has

reach 1 billion boe, meaning that PEMEX will be aligned to

the thickest pay we have ever found in deepwater and

its Business Plan in which the base scenario is around 1.1

contains 43° API oil. We are also drilling the Nobilis-101 to

billion boe with an investment of MX$33 billion. Our work is

test an adjacent structure to the north. It is a challenging

focused on capturing the value of the Round Zero acreage

project because these discoveries are located in a water

to meet this goal in the short term and accessing new areas

depth of around 3,000m, but following the results we had

in bidding rounds to replace reserves in the medium and

with Trion and considering that Nobilis contains super light

long terms. PEMEX is looking to take full advantage of all

oil, we are confident the Nobilis-Maximino farm-out will be

the opportunities resulting from the Energy Reform.

a success. Both projects, Trion and Nobilis-Maximino, may create synergies to make prospects and the region more attractive for international companies.

Petróleos Mexicanos (PEMEX) is the most important company in Mexico, an international reference in the field of hydrocarbons.

Q: How is PEMEX working to increase the amount of

Its activities involve the entire production chain, from exploration,

reserves in Mexican territory?

production, industrial transformation, logistics and marketing

175

VIEW FROM THE TOP

WILDCAT SHOWS POTENTIAL OF MEXICAN FIELDS TIMOTHY DUNCAN President and CEO of Talos Energy

176

Q: How have Talos’ expectations for the two blocks it won

because of what it will tell us regarding future inventory.

in Round 1.1 with Sierra Oil & Gas changed?

We are using the exact same team to do the data imaging

A: Our expectations have actually increased over the

in the US and in Mexico. This is the kind of technology

last year. When we signed our Professional Services

transfer the Energy Reform is allowing by opening the

Contract with CNH for blocks two and seven in Round

market. There is a reason Wood Mackenzie named Zama

1.1 in the Southeast Basin, the regulators provided

one of the “15 wildcats to watch in 2015.” The well is not

previously shot seismic data, which lets us reprocess and

just important for us but also for the Energy Reform and

re-image it instead of having to conform to the current

Mexico because it shows that there is plenty of potential

product output. With this information, we are going to

in the Mexican fields.

drill the Zama-1 prospect, which is globally recognized by companies such as Statoil, Eni, Hunt and Murphy,

Q: What types of geology is Talos Energy focusing on

companies that also bid on the block.

for its blocks? A: We are aware of the potential of other areas, such as the

Talos' seismic imaging led to a discovery at around 21,500 feet subsea. The first well is flowing over 15,000b/d

cretaceous opportunities, but we are focused more on the upper, middle and lower Miocene, looking to understand where the salt edges are and where they intercept to find potential reservoirs and their boundaries. We want to ensure we can image and tighten up previous images to recognize subsalt and salt-flank potential and other structures. The work we have done so far shows the presence of quality

Before commencing drilling, we are improving the imaging

formations. One successful discovery was part of our

of salt bodies in the area because we recognized there is

Tornado project in the US Gulf of Mexico in 2016, carried

potential sub-salt. Remapping the contracted land position

out at a water depth of about 900m. To achieve this, we

after our reprocessing efforts has grown our inventory

used the same geophysical firm we are using in Mexico for

from two to more than 10 ideas, dramatically increasing its

seismic imaging that led to a discovery at around 21,500

resource potential. The first well is important because it will

feet subsea. The first well is flowing over 15,000b/d.

reveal the petro-physical and geophysical significance of these salt basins. One challenge we face is the geological

Q: What plans do you have for 2018 in Mexico?

age of the area. The upper, middle and lower Miocene is

A: Originally, we planned to drill Block 7 before Block 2

dominated by local salt, which lacks well control in Mexico

in 2018. We might drill another, separate prospect other

-- understandable given that the Mexican Southeast Basin

than Zama on Block 7 before turning to Block 2 but this

wells were built on a carbonate platform while those in the

could change as we continue to work on the reprocessed

US were built on salt-dominated systems.

data. Our lease lasts until the middle of 2019 and we want to test several independent prospects on each

For this reason, our Zama well is important on several

block before the end of the primary term. Depending

levels. Not just because of its prospective size but also

on the drilling results, we will see a significant level of activity between the middle of 2018 and middle of 2019, which will go well beyond the minimum work program.

Talos Energy is an oil and gas company based in Houston and

We want to be in the position of making sure we get the

focused on offshore exploration and production. Its expertise

right amount of data to back the government and file

includes a strong emphasis on asset optimization, exploitation

any appropriate extensions that show our commitment

and exploration in the Gulf of Mexico

for future work.

VIEW FROM THE TOP

HORIZONS EXPANDING IN OFFSHORE LICENSING ROUNDS IVÁN SANDREA CEO of Sierra Oil & Gas

Q: What are the highlights of Sierra Oil & Gas' upstream

Block Five. Sierra also had the advantage of knowing

activities in the past year?

how the regulatory processes and economics work in

A: Sierra has become an important player in the offshore

Mexico, therefore having the ability to offer our partners

area. We consider it to be a major achievement because we

insight into how to work on their own processes. We

have managed to become number one in terms of blocks

see ourselves as an early stage developer, screener

assigned and net acreage. This has given us a level of

and technical partner and now that operations are

maturity and recognition in Mexico and across the industry.

about to start, Sierra can have a more supportive role, helping partners get established in Mexico by providing

Q: What were your initial concerns after winning two

experience and assistance.

blocks in the shallow-water Round 1.1? A: After winning blocks two and seven in Round 1.1 Sierra

Q: What are your thoughts about local content in the oil

immediately started performing environmental baseline

and gas industry?

work, seismic reprocessing and overall preparations to

A: It is hard to talk about local content in the exploration

drill. Now we expect to start drilling the first exploration

sector. Having only one shot to drill a well, investors want

well in the country, which is an important step for Sierra,

to make sure they have the security of working with the

its partners and Mexico.

very best international and local companies using the latest technology and equipment.

Sierra bid on Block 7 because it saw several strong prospects with the right quality. These prospects have

Local content is easier to implement in the production

even been categorized by consulting companies such

phase than the exploration phase, where activities are

as Wood Mackenzie as being among the top 10 global

more repetitive. Having said this, we will exceed the local

prospects in the oil and gas industry and I believe among

content required by the contracts by 15 percent.

the top five for oil alone. We started drilling Block Seven in May 2017 with a semi-submergible rig that worked the

Sierra is aware of the harsh conditions local companies

US side of the Gulf of Mexico. We started drilling a vertical

have been exposed to because of PEMEX’s budget. At

well to hit two targets. First results were available in the

the same time Mexico has become a very competitive

second half of 2017.

environment. Sierra Oil & Gas and its partners ran a tender for environmental studies for Block 7 and 2, inviting local

Block 2 is also pretty exciting. Although all our efforts and

and international players but sadly, prices from local

energy are focused momentarily on Block 7, we finished

companies were three times higher than those from

the Authority for Expenditure (AFE) for Block 2 by the

international companies. To solve this issue local content

third quarter of 2017, with the hope of being ready to

needs to be more proactive, ensuring it can compete both

start operations six months later.

in quality and price against international companies and most importantly, make sure to promote itself because

Q: What is Sierra’s role in the consortium with Murphy

most companies are not aware of the multitude of service

and Petronas that won a deepwater block in Round 1.4?

companies that are present in Mexico.

A: Everybody in the partnership contributed but Sierra’s strengths focused on commercial, technical and legal expertise. Specifically, Sierra offered an important source

Sierra Oil & Gas is focused on opportunities arising from

of regional knowledge to the group thanks to our dataset

Mexico’s Energy Reform. Its activities cover upstream and

covering over 60,000km of 3D seismic, which we believe

midstream with a team averaging 25 years of experience in the

was one of the decisive factors that allowed us to win

Mexican oil industry

177

INSIGHT

‘QUANTUM LEAP’ IN COLLABORATION NEEDED JAVIER ZAMBRANO Executive Director of Jaguar E&P

As Mexico’s new oil and gas regulator CNH moves forward

next tenders, which he hopes will result in fewer “irrational”

to optimize the terms of each bidding round and learning

bids hindering the process.

from past successes and experiences, Javier Zambrano, 178

Executive Director of Jaguar E&P, believes collaboration

Zambrano does give credit to CNH for the transparency of

with participating E&P companies is vital to ensure its

Round 1.3. “If I had to rate the process on transparency, I

efforts are successful.

would give them a 10/10,” he says. His protests do not center on the way the process was conducted but on specific

His company, an independent Mexican exploration and

regulations set out in the bidding contracts, where he calls

production firm, was one of 40 that submitted bids for the

for more cooperation. “We all have to be more collaborative

onshore blocks up for grabs in Round 1.3 in December 2015. Despite failing to secure a block, many lessons were learned in what Zambrano describes as “an insightful process.” Although he is keen to highlight areas of improvement to maximize the rounds’ success, he emphasizes that Jaguar E&P remains dedicated to growth in the Mexican oil and gas market, predicting 2017 will be “the tipping point for the industry’s development.” The first issue Zambrano points out is the high royalty rates offered for the blocks in Round 1.3. “Jaguar’s target is to be a long-term player in the Mexican market but

“

and more proactive with feedback to CNH,” he says.

We all have to be more collaborative and more proactive with feedback to CNH”

Zambrano remains positive that the authorities are moving in the right direction by listening to players and modifying

that is not possible if you are paying 80 percent royalty

the terms based on their comments, albeit slowly. “Instead

rates to the government because it leaves no room for

of the baby steps we are observing, we need a quantum

future investment,” he says. Jaguar E&P’s obligations to

leap,” he says.

its stakeholders mean it must take the profitability and sustainability of any venture very seriously, he adds. For

Despite the problems, the company remains focused on

this very reason the company has been forced to explore

succeeding in the Mexican oil and gas industry. Jaguar E&P,

and deploy capital in Latin America and the Caribbean

he says, is working with the government and universities

despite being created specifically to capitalize on the

in Nuevo Leon to provide training and certifications for

promising potential of Mexico’s Energy Reform, a reminder

students wishing to enter the oil and gas industry. The

of the central role that bidding terms play in attracting

majority of its staff actively offer undergraduate and

investment into the country’s oil and gas market.

graduate level courses in institutions such as UNAM, which makes him worry less about a talent gap in the country.

“Round 1.3 saw ultra-high bids from different players who were likely taking advantage of the low walk-away costs and

“We built Jaguar from the ground up, and we are here for the

investment commitments just to learn more about bidding

long run,” Zambrano assures. Jaguar E&P is a relatively new

processes,” Zambrano says. He worries that, in terms of the

company, founded in 2013. It belongs to private equity fund

awarding variables, the limited weight given to the work

Grupo Topaz and is therefore financially secure. The promise

programs of awarded blocks threatens to derail the Energy

of Mexico’s oil and gas industry in 2017 makes Zambrano

Reform’s goal, which is ultimately to maximize the potential

optimistic about the year ahead. As Jaguar E&P looks for

of Mexico’s hydrocarbon resources. The company is pleased

partners who reflect its values of technology, talent and new

to see higher pre-qualification standards CNH set for the

ideas, he is convinced that the best is yet to come.

VIEW FROM THE TOP

PERFECT MIX FOR ENVIRONMENT OF OPPORTUNITY JUAN HERNÁNDEZ Director General of Industrias Energéticas

Q: How is Industrias Energéticas managing PEMEX’s

ensuring companies can bring their operations into our

restructuring?

territory. This will also create more jobs and infrastructure.

A: Industrias Energéticas is undergoing a profound organizational transformation. As a business, Industrias

The Energy Reform allows state-owned companies such

Energéticas went from being categorized as a micro company

as PEMEX and CFE to open their spaces and allow direct

to being a small company. We now have a building fully

negotiations with private clients. Industrias Energéticas

dedicated to business development, led by a highly trained

is taking advantage of this by offering two main working

and motivated team that is creating a company prepared for

schemes. The first is managing electric requirements directly

the challenges brought by Mexico’s Energy Reform. Since our

with final clients and recommending the use of specific types

business focuses on integral energy solutions, we consider

of turbines according to their requirements. The second

our human capital as our main asset. We offer constant

scheme is associating with CFE to propose an electric farm

training and social security to boost our human talent.

that distributes energy by using CFE's installations, also known as a porteo scheme.

Our main market used to be commercializing Capstone Turbine Corporation’s microturbines for safety and control

Q: How is Industrias Energéticas preparing for the future?

systems at PEMEX’s offshore platforms. When activity at

A: We believe that the current panorama involving a new

PEMEX started to decline a few years ago we had to expand

administration in the US, a decrease in the price of oil and

our client portfolio. The Energy Reform is completely

gas resources, the Energy Reform and a restructuring of

transforming the oil and gas industry and we decided to take

the main energy companies in Mexico create a perfect

advantage and expand our service offering and client reach.

mixture for an environment filled with opportunities. There

Thanks to private capital investment we are now working with

are also cultural challenges because people are not used to

18 potential clients in natural gas for compressors, chillers,

change and a new company selling electricity without CFE’s

regulating systems, instrumentation and engineering.

logo can create doubts and uncertainty among potential clients. To confront these challenges Industrias Energéticas

Q: What specific changes has Industrias Energéticas made

is incorporating the best human talent, technology and

to expand its service offering?

strategic alliances.

A: To expand our market we have gone from commercializing exclusively 1MW microturbines from Capstone Turbine

Regarding financing, we are working on implementing

to using turbines that range from 2 to 30MW through a

schemes that do not involve the company diluting its

partnership being negotiated with Kawasaki. The turbines we

ownership. Fortunately, we have received offers from plenty

previously worked with ran on fuel oil only but the new ones

of investors interested in our projects because they consider

can run on natural gas, which shows our commitment to the

our business model interesting and with a bright future.

use of cleaner technologies and the great potential we see in

We are participating in activities that ensure widespread

that respect. We have plans to equip our turbines with cleaner

knowledge regarding sustainability and energy security,

technologies, such as solar, wind and even maritime, as well as

which in the long run will be positive as clients develop a

combining them with the implementation of smart grids. We

more global and sustainable vision.

are located in the south of Mexico, in Merida, Yucatan, so we want to focus our attention on the southeastern region where there are fewer competitors and a more specialized market.

Industrias Energéticas started as a marketer of turbines for electricity production and is now offering fully integrated

In the long-term we want to expand and help offer the

energy services for both the private and public sector. Based in

country energy security that will facilitate its growth by

Campeche, it has 12 years of experience in the Mexican market

179

LICENSING ROUNDS 2018

2 1

2 3

180 7

9 10

10 11 12 15

13 20

16 17 18

19 21

20 27

26 22

17 28

29 26

33 28 29

LICENSING ROUNDS 2018

LICENSING ROUNDS 2018: THE FUTURE OF OFFSHORE EXPLORATION During the 2H17, CNH published the basis for Rounds 2.4 and

with 4,228 mmbcoe in prospective resources. Round 3.1 will

3.1, setting the table for operators to chase a piece of the still

be held on March 27, 2018 with 35 shallow-water exploration

unexplored shallow and deepwaters in the Gulf of Mexico.

and production blocks and 1,988 mmbcoe in prospective

Round 2.4 will take place on Jan. 31, 2018 and comprises a

resources. Both Rounds are design to revamp Mexico's

total of 29 deepwater exploration and production blocks

offshore exploration for the coming years.

ROUND 2.4

ROUND 3.1

Deepwater

Shallow water

Contract type: License

Contract type: Production Sharing

Validity of 35 years

Validity of 30 years

Bid Date: 01/31/2018

Bid Date: 27/03/18

Signing Date: Pending Block

Basin

181

Signing Date: Pending Area (km2)

Block 1

Burgos

Perdido

1,988

Perdido

2,146

Perdido

2,062

Perdido

1,900

Perdido

2,733

Perdido

1,891

Perdido

1,968

Perdido

2,062

Perdido

10 11

Basin

Area (km2) 802

Burgos

816

Burgos

809

Burgos

778

Burgos

814

Burgos

820

Burgos

391

Burgos

390

Burgos

397

Burgos

419

2,009

Burgos

391

Cordilleras Mexicanas

1,999

Burgos

811

Cordilleras Mexicanas

2,002

Cordilleras Mexicanas

3,099

Cordilleras Mexicanas

1,967

Cordilleras Mexicanas

15 16

Burgos

392

Burgos

392

Tampico-Misantla

962

Tampico-Misantla

785

2,242

Tampico-Misantla

842

Cordilleras Mexicanas

2,042

Tampico-Misantla

813

Cordilleras Mexicanas

2,047

Cordilleras Mexicanas

3,010

Cordilleras Mexicanas

2,917

Cordilleras Mexicanas

3,003

Tampico-Misantla

808

Tampico-Misantla

817

Tampico-Misantla

1,103

Tampico-Misantla

1,138

Tampico-Misantla

820 791

Salina

2,080

Tampico-Misantla

Salina

2,030

Tampico-Misantla

1,170

Salina

2,879

Tampico-Misantla

1,225

Tampico-Misantla

1,218

Salina

1,853

Cuencas del Southeast

808

Salina

1,922

Cuencas del Southeast

471

Salina

2,107

Cuencas del Southeast

528

Cuencas del Southeast

401

Salina

2,030

Salina

2,118

Salina

3,067

Salina

3,254

Cuencas del Southeast

1,027

Cuencas del Southeast

581

Cuencas del Southeast

734

Cuencas del Southeast

798

VIEW FROM THE TOP

BROAD MARKET KNOWLEDGE, BOTH ABOVE AND BELOW SURFACE JESÚS LAMAS General Manager of Schlumberger Mexico

Q: What technical and managerial capabilities has

country that drove our selection of the areas and the specific

Schlumberger developed during its 80 years in Mexico?

technologies to be used.

A: Schlumberger has acquired a broad knowledge of the 182

market, both below and above surface. We have developed

Our WAZ project has had a major impact in the market,

Mexican technical and managerial talent to assure that all the

helping support the promotion of the license rounds and

services offered by Schlumberger Mexico are aligned with our

helping our customers to make better-informed decisions

global standards. The combination of our global expertise

at the time of selecting the best area to bid in comparison

and R&D investment with our local experience is our most

with companies using the vintage data. We are planning to

valuable strength. We have partnered with PEMEX in many

reprocess nearly the totality of the offshore 3D data acquired

important projects and we are sure that we can help the new

historically in Mexico. In total, combined with our existing

customers coming to Mexico to reduce the learning curve and

WAZ, somewhere in the neighborhood of 200,000km2

accelerate their results.

of seismic will be processed and reprocessed. We have acquired and processed 70,000km2 of new WAZ seismic and

I would also like to shine a light on our high-pressure and

reprocessed over 100,000km2 of vintage data. Undoubtedly,

high-temperature technologies for well testing. CERTIS is a

it is the largest-ever imaging and re-imaging campaign

high-integrity reservoir test isolation system that combines

embraced by a company in a single go.

many features of a conventional retrievable packer, including a built-in floating seal assembly that eliminates the need for

Schlumberger announced recently that PEMEX had signed

slip joints and drill collars to set the packer. On the other hand,

an agreement to license data from the WesternGeco

IRDV, is an intelligent remote dual-valve that combines two

Campeche wide-azimuth (WAZ) multiclient seismic survey

fullbore multicycle valves — a tester valve and a circulating

in the Salina del Istmo province in the southern Gulf of

valve — that can be cycled independently or sequentially

Mexico. The agreement also includes collaboration with

for increased flexibility. Within Production Group, the VDA

WesternGeco in the seismic processing phase of the project

(viscoelastic diverting acid) enables the stimulation of the

as well as for future technology collaborations.

oil and gas carbonate reservoirs, of reservoirs with multiple layers, long production intervals or permeability variation and

This multiclient contract is the first of its kind for PEMEX

horizon and vertical wells.

in Mexico and provides access to 3D WAZ seismic data in the province. The data license covers deep and shallow-

Q: How has the Energy Reform impacted multiclient

water areas in the basin close to prolific geological trends

opportunities in Mexico?

with well-established hydrocarbon systems, including the

A: All the multiclient investment originated from the

Cantarell and Ku-Maloob-Zaap reservoirs.

regulatory changes in Mexico and the Energy Reform that opened opportunities to new operators to participate in the

Q: How does Schumberger provide added value through

oil and gas business in Mexico. This market opening came as

corporate social responsibility?

a unique opportunity for multiclient investment, where we

A: Schlumberger’s core value of giving back to the local

could capitalize from our knowledge of the challenges in the

communities through a variety of different programs allows the company to aid those communities in which we are present. Through these programs we can bring progress

Schlumberger is the world’s leading provider of technology for

and development to these communities and contribute to

reservoir characterization, drilling, production and processing

the education of young students. It is also an opportunity to

to the oil and gas industry. Schlumberger works in more than

give back in some way to society and very specifically to the

85 countries and employs about 100,000 people

communities in which we work and live every day.

VIEW FROM THE TOP

COLLABORATIVE CULTURE PRODUCES RESULTS BRUNO LIMA Country Manager Mexico and Central America of Halliburton

Q: How is Halliburton set up in Mexico and what is your

detailed mitigation strategy. It has been an environment of

outlook after the first results of the Energy Reform?

open discussions and brainstorming, which demonstrates

A: The Energy Reform in Mexico has been a great opportunity

our commitment to collaboration as the key to reducing

for the oil and gas industry and Halliburton is structured to

costs and generating value.

systematically and actively collaborate with our customers in Mexico on their field acquisition plans, project definition

Another important set of discussions we are having with

and future execution. We have a deep understanding of

our customers is related to innovative commercial models

the Mexican market, which allows for early engagement

for integrated projects. We are looking toward leveraging

and collaboration with our stakeholders, encompassing a

existing Halliburton infrastructure to decrease our customersâ&#x20AC;&#x2122;

wide range of disciplines and job functions, from geology,

footprints and operational costs. We have seen results and

geophysics and engineering to operations, supply chain,

opportunities in a wide range of areas, which can be grouped

safety, regulatory compliance and management.

in various categories. The first is the de-risk of subsurface targets, the second is the proper project engineering and

Our collaborative culture has enabled Halliburton to capture

maximization of well construction rates and the third is

a significant share of the activity arising from the reform and

rigorous risk assessment processes and mitigation.

already being executed, while also increasing our footprint in the existing market. The differentiator for Halliburton has

One of the most useful outcomes of the collaborative

been our unbeatable performance â&#x20AC;&#x201C; we are the execution

workshops has been the generation of a hierarchical

company â&#x20AC;&#x201C; aligned with the proper deployment of resources.

and weighted analysis of risk, allowing the stakeholders

We have the best employees, proven application of

to prioritize the overall impact of any variable on the

technology and integrated service offerings.

project cost, schedule and quality. Once the optimum decision is defined, the project team works closely with

In Mexico, we are undertaking high-value, high-performance

every stakeholder to execute the plan and to implement

integrated projects in deepwater, shallow waters,

contingencies as necessary.

unconventional exploration resources and deep high pressure, high temperature (HPHT) land wells. The awarding

Q: What has been the indication from customers on how

of new blocks and the published results of exploration and

they will procure their projects?

appraisal activity are a substantial and positive sign for the

A: We have perceived a far more collaborative environment

Mexican energy sector as a whole and the diversity of players

from all customers, regardless of their size or nature, or

working on different types of prospects generates a new

whether they are NOCs, Majors, integrated or independent

avenue of opportunities for the Mexican energy industry.

companies. All customers are seeking some type of cost optimization to ensure the profitability of their projects. The

Q: How is Halliburton working to ensure the attractiveness

discussions on costs have resulted in great opportunities to

of Mexican assets at this point in the oil-price cycle?

reduce our footprint onsite and apply established learnings

A: We are supporting our customers by ensuring they

on best practices to fast-track the learning curve and ensure

receive the maximum value across their investments

higher performance improvements.

and also that all elements of the value chain are handled correctly. We are working with our customers, analyzing every single aspect of their projects, seeking optimal re-

Halliburton , founded and headquartered in the US, is a

engineering to lower upfront CAPEX and maintenance

renowned world leader in oilfield services and products,

costs. We carry out an aggressive review of all supply-chain

offering a wide array of solutions to upstream oil and gas

costs and latent operational risks, along with providing a

customers worldwide

183

VIEW FROM THE TOP

BEST PRACTICES, ACCELERATED EXECUTION MARK NEW STRATEGY CARLOS MURRIETA Director General of PEMEX Transformación Industrial (PEMEX TRI)

184

Q: What are the main differences between the priorities

We have been reinforcing the timely fulfillment of our

for PEMEX’s refining activities before and after the reform?

operational programs and also of our maintenance and

A: Before the Energy Reform was enacted, regulation was

reliability programs. The safety of our personnel and of

restrictive for PEMEX. In contrast, now it will be easier

our process plants is our main concern. Priority is given to

to implement best practices and to execute investment

follow-up on every day agreements among different areas

projects in an accelerated way through joint ventures and

involved with production.

with business operating partners. PEMEX TRI’s strategy is based on these opportunities and it will be implemented

Q: What plans are in place to reduce nonscheduled

through safe operation of its assets, with an emphasis

shutdowns at PEMEX’s refineries in 2017?

on its economic performance. PEMEX TRI will assess

A: PEMEX’s first priority is to maintain safety indexes.

on a permanent basis the marginal contributions of its

PEMEX TRI has been facing operational difficulties for

operations, safety and preventive maintenance. We will

some years now and several efforts have been in place

increase operational discipline and processes reliability and

to curb nonscheduled shutdowns. However, these efforts

also implement highly profitable operational improvements.

have not attained sustained positive results because PEMEX TRI has not been able to consolidate its processes,

Q: What role will partnerships play in the revamping of

procedures and operational practices. Maintenance

refineries?

and safety programs are geared toward reducing the

A: Partnerships and risk-sharing with third parties are

nonscheduled shutdowns index and to improve reliability.

strategic for PEMEX. All around the world we find this

We are implementing international standards to build

successful business model and PEMEX is looking to

predictive and preventive KPIs for timely decision-making

take advantage of it. We are looking for strong partners

that reinforces our plants reliability. During 2017 PEMEX has

willing to share operational and market risks, as happens

planned to invest US$265 million dollars (MX$5.03 billion)

everywhere in this industry. Risk management is well-

on its maintenance program.

known among companies in general and the energy sector is no exception.

Q: How has PEMEX’s downstream and midstream strategy been impacted by Open Seasons?

Q: What parameters are used to define the optimal

A: A basic assumption for the success of the Energy Reform

processing level, estimated at about 1.2-1.25 million b/d?

is the price liberalization to really have an open market. The

A: The fundamental decision is to process crude until

recognition of opportunity costs is a basic requirement in

the incremental margin is equal to the marginal cost of

the transition phase since open market prices will reflect

supplying the demand with imports. Among the measures

this in the future. This includes not only the price of the

being taken to reach this optimal level are operations

commodity but also the cost to serve or supply the different

profitability, crude oil prices, fuel prices, maintenance

markets of petroleum products. This is the way it works in

programs and available infrastructure to maximize profit or

an open competitive market.

profit for refineries, as measured by the variable operating margin calculation.

The other factor critical for the success of the process of liberalization of the Mexican petroleum markets is the open access to PEMEX’s existing infrastructure. As mandated in

Petróleos Mexicanos (PEMEX) is the most important company

the regulation, PEMEX is offering through the open seasons

in Mexico, an international reference in the field of hydrocarbons.

the available capacity in the different systems. Working

Its activities involve the entire production chain, from exploration,

together with other operators on existing infrastructure is

production, industrial transformation, logistics and marketing

the new model that PEMEX is beginning to implement.

VIEW FROM THE TOP

ETILENO XXI: CONSOLIDATING EARLY SUCCESS STEFAN LEPECKI CEO of Braskem IDESA

Q: What has Braskem IDESA achieved in the Mexican market?

millions of tons of polyethylene, we have to develop a

A: Braskem IDESA is an association founded at the beginning

flexible and adaptable delivery process, including a variety

of 2010 to lead the Etileno XXI project. We started operations

of transportation methods, such as railroads, trucks or boats.

in April 2016, with our first plant transforming ethane into

Developing this network, for both imports and exports, has

ethylene using the cracking process. In mid-2016 we started

been a major challenge.

production at three other polyethylene plants, two of which focus on high-density polyethylene and the other on low-

Q: How does Braskem IDESA illustrate its commitment to

density polyethylene. As of April 2017, we have achieved 95

Mexico?

percent operability, when comparing average production to

A: We like to work with local content. During the

the nominal designed production, and have also introduced

construction phase of our petrochemical complex, we

our product to the local market, which is an important

focused on hiring and training people from the region. At

achievement.

a certain point, we had more than 26,000 people working onsite. Armed with a premarket study, we started hiring

Prior to production we were importing products from

personnel for our future operations and bringing specialists

Braskem and other companies and selling them in the

from Braskem Brazil to train them. We started with a group

Mexican market. Now we are selling our own product. We

of 60 people from Brazil doing this task and now have fewer

faced some difficulties in achieving stability, mainly because

than 20 still in the country, which shows the skill of the

of bottlenecks at PEMEX plants, which made the pipeline

local talent pool and the positive way in which they have

unstable. To address the issue, our technical and managerial

accepted the challenge.

teams worked with their counterparts at PEMEX to ensure a constant supply.

Q: What are your plans for the long term? A: Thanks to our combined efforts we have achieved a

Q: What are the main challenges Braskem IDESA faces as

constant supply of ethane from PEMEX. Nevertheless, we

a producer?

are aware that PEMEX suffers from a lack of investment and

A: We face the challenge of convincing customers to replace

we understand how that could affect us. Having a long-term

the products they are accustomed to using with ours. Instilling

commitment to Mexico we are looking for ways to positively

in them the confidence to change requires that we exhibit

work together with PEMEX and other companies to ensure a

production stability and quality but that takes time. To speed

proper supply of ethane. To that end, we need an appropriate

up adoption, we incorporated potential customers and their

level of investment, mainly because of the lower oil prices

customers into our pre-marketing stage to understand their

and financial difficulties faced by the country. The Energy

needs, worries and expectations. This strategy has delivered

Reform is not tackling the problems the petrochemical

strong results and a high-quality product that is becoming

industry faces because the reform is mainly focused on

widely known in the market. Not many companies follow this

upstream. But we are confident that once the Energy Reform

approach because most petrochemical companies treat their

starts showing results the country will work to improve the

products as commodities, especially US companies that are

situation and we will be working together to create a positive

geographically far away from their clients. We try to work

result for the country.

with our clients as closely as possible, which has proven extremely important in the qualification and certification processes.

Braskem IDESA is an association of Brazilâ&#x20AC;&#x2122;s Braskem and Mexicoâ&#x20AC;&#x2122;s IDESA, which was created in 2010. The association leads the Etileno

Another important challenge is the logistics of distribution.

XXI petrochemical project for the production of polyethylene and

With exports to over 40 countries and a production of

other chemical derivatives in the state of Veracruz

185

VIEW FROM THE TOP

PUTTING THE POWER INTO THE HANDS OF THE CUSTOMER GUILLERMO GARCÍA ALCOCER President Commissioner of the Energy Regulatory Commission (CRE)

Q: What have been the highlights of CRE’s activities

good operating conditions. For now, the most reasonable

during 2017?

step would be for PEMEX to work in joint ventures.

A: A key achievement has been the gas price liberalization. 186

The original plan was to implement the change in 2018

Q: How will storage facilities be interconnected with gas

but the executive branch decided to accelerate the

station owners?

process and move it up to 2017. This decision proved

A: The US is a liquid market in terms of oil products. There,

to be positive because the market cannot be opened if

the owners of gas stations are different from those who

prices remain fixed.

own the storage facilities, a situation dictated mainly by market conditions and not by regulations. In Mexico, the

Although there were some problems, the Open Season

law stipulates the separation of these activities according

has been another highlight. The process took into account

to regulations from both CRE and COFECE. There can

best practices and market conditions but the complexity of

be some integration in terms of companies bringing and

the system posed an issue. We decided that it was best to

storing their final products via a certain system provider

temporarily halt the process to implement a simpler system

but we expect that in the majority of cases storage will be

proposed by PEMEX. It was relaunched in the middle of

allocated to multiple users. Those two models are possible

April 2017. Future Open Seasons will be more complex but

in Mexico.

we will use what we learned from this first Open Season. Companies have also been positive in their feedback.

Q: How do you expect the branding phenomenon to develop in Mexico?

Q: Which of CRE’s current projects will have the most

A: Branding is an interesting phenomenon in Mexico. BP

influence on Mexico?

has opened a service station that is the first of its kind

A: Storage capacity here is scarce. This is a big issue for

in the country. Consumers are interested in buying new

a sector that has to work with strategic reserves of 10 to

products and services and gas stations are adequate places

15 days. More storage infrastructure must be built. CFE is

to include convenience stores, dry cleaners or even banks,

working to switch from oil to natural gas as a prime fuel

from which companies can receive bigger revenues. It will

for its plants. We are working toward a way to use its fuel

be interesting to see how companies follow BP’s lead to

oil facilities. By doing so, PEMEX could double its storage

create a different product as well as offering extra services

capacity to six days from three in the coming years.

at gas stations. The gasoline business has small margins and companies must adapt to increase profits.

Private companies are also asking for permits to create privately owned storage facilities and we have awarded

Gas stations will not be selling only one brand. They will

some such permits on a first-come first-served basis, mainly

offer a broader range of products and we believe PEMEX

in the central region of the country but also in states such

has an opportunity to compete against other brands. Most

as Nuevo Leon, Chiapas and Yucatan. PEMEX will have to

probably PEMEX will become a white flag product provider

compete against and learn from other storage providers to

for gas stations by selling the two types of gasolines we

become competitive. It will have to offer attractive prices and

are accustomed to, without additives, in a more economic market. To allow for fair market competition, CRE has launched the Gasoapp, a smartphone application that

The Energy Regulatory Commission (CRE) is a government

allows customers to identify nearby gas stations together

agency in charge of oversight and ensuring regulatory

with the price of gas at that location. The app also allows

compliance in the energy and natural gas sectors in order to

users to report problems such as price discrepancies and

promote their efficient development

lack of fuel at a station.

VIEW FROM THE TOP

REBRANDING FOR THE NEW-LOOK MARKET ROLANDO VÁZQUEZ President of OXXO GAS

Q: What does OXXO GAS hope to achieve with its new

to find a company that has both national coverage and

branding?

competitive prices.

A: This development is a big step for us. Our company has provided services and assets to sell fuel in Mexico

With the liberalization of the market, we make sure we have

for more than 20 years but having the first station with

frequent discussions with different associations and even

its own brand has been a historic moment. We have had

other businesses in the industry so we can understand any

the opportunity to evolve the brand to a more modern

new laws that emerge as the industry changes. It is important

identity, representing quality, dynamism, energy and

not only for OXXO GAS but also for other companies to

confidence.

interact and exchange different points of view.

Q: How will OXXO GAS differentiate itself from other gas

Q: What is impeding Mexico from developing a gasoline

stations, especially with the arrival of Major companies?

market balanced between nationally produced and

A: OXXO GAS has been focusing on building trust with

imported gasoline?

consumers and increasing brand recognition. This is

A: PEMEX is still an important and strong player in many

important for us especially now that we have many more

regions. It is our supplier and owns all the infrastructure

opportunities to advertise our brand. When we open a

in Mexico but we also have to look to other providers to

new station, we want consumers to trust in our brand and

make sure we can offer the most competitive supply to our

know that they will receive quality products when they buy

clients. We are evaluating how best to import gasoline to

from us. Another point is our level of service. OXXO GAS

make the business more profitable and provide added value

is always looking to provide new services to our clients so

and quality to our customers.

they can get the most from visiting one of our stations. We are exploring and analyzing the cost effectiveness of new

Q: What are OXXO GAS’ targets for the coming five years?

businesses such as having a repair shop, car wash, auto care

A: We are planning to have about 1,000 gas stations around

products and other services.

Mexico, expanding our reach into states where we have little or no presence. Venturing into other fuels or industry-

Q: How does OXXO GAS face the challenge of Mexico’s lack

related segments such as commercialization, fuel storage

of infrastructure for the distribution of gasoline?

and distribution is a possibility. Our goal is to increase our

A: We are learning from other countries, talking to

sales around 30-40 percent per year.

companies in other countries and looking to apply those lessons as we search for ways to build new infrastructure

Today the operation of gas stations in Mexico depends

here. All current infrastructure is owned by PEMEX but over

to a large extent on equipment imported from the US,

the years we are going to see that change, creating new

which is subject to minimum tariffs. Changes to that could

opportunities for other private companies.

increase the cost of operations and maintenance of service stations. An uncertain economic scenario would challenge

Q: What types of alliances does OXXO GAS see on the

our industry to be more cautious about investments and

horizon?

could even affect expansion plans.

A: We are looking into different options. There are many international companies assessing the possibility of entering the market and competing with PEMEX at

OXXO GAS is the fuel division of Femsa. It has a network of 307

some point. We are having conversations with several

gas stations in the states of Nuevo Leon, Coahuila, Guanajuato,

companies to evaluate what would be the best alternative

Chihuahua, Aguascalientes, Queretaro, Jalisco, Quintana Roo

for us in each city under our scope because it is difficult

and San Luis Potosi

187

THE ROAD TO STABILITY

In November 1985, Mexico announced its intention to join the GATT, a move that was formalized in 1986. With this decision, the country fully entered a world that was starting down the path to globalization despite the Cold War that would separate the world’s superpowers until the fall of the Berlin Wall in 1989.

The GATT deal was a giant step toward opening Mexico’s economy that would culminate in 1994 with the entry into force of NAFTA, whose renegotiation began in August 2017. At the same time, the country showed its resilience in 1985 after suffering the largest earthquake in its history in Mexico City. Rebounding from the devastating temblor, just one year later the country organized one of the best soccer World Cups in history.

In the intervening 32 years, Mexico has faced complicated economic crises, nationalizations and privatizations of some of the country’s most important economic sectors, political intrigue in Los Pinos, assassinations and even guerrilla revolts. However, the country weathered each storm as it grew and matured as an economy. Mexico: The Road to Stability is an overview of the major social, economic, political and sports events that have shaped the future of a country hoping to become one of the world’s Top 10 major economies by 2050.

THE ROAD TO STABILITY

190

THE ROAD TO STABILITY

The Sept. 19, 1985 earthquake that shattered Mexico City left an impact

September 19, 1985

EARTHQUAKE 1985

that has lasted to this day. It resulted in the city's economic collapse but also showed the resilience of the Mexican people in the face of adversity

n Sept. 19, 1985, at 7:17 a.m., the earth groaned in

The earthquake brought not only physical

the Mexican state of Michoacan, on the country’s

but also economic collapse to the city. An

Pacific coast. Just two minutes later, Mexico City

estimated 150,000 to 200,000 jobs were

experienced one of the greatest tragedies in its

lost. Housing was in great demand, owing

history: an earthquake measuring 8.1 on the Richter scale. It

to the large number of buildings destroyed.

seemed to go on forever and caused panic among the populace.

The following year, Mexico was to be the host

Homes, hospitals, hotels, schools, roads, government offices —

country for the 1986 World Cup of Soccer,

few buildings survived the great release of energy that came

with Mexico City’s Estadio Azteca as one of

from the coast and struck hardest in some of the city’s most

the major venues. For several weeks officials

traditional neighborhoods, reducing them to rubble. Even many

contemplated moving the event to Germany,

areas that survived that day met a similar fate on the next, in

but in the end Mexico presented a lesson in

an aftershock measuring 7.3 on the Richter scale. Scenes of the

optimism, organizing one of the best World

disaster in the Roma, Obrera, Centro, Tlatelolco and Doctores

Cup events ever — although President De la

neighborhoods are the most Dantesque among the images

Madrid was booed during his speech at the

etched in the memories of the survivors.

opening ceremony.

In a matter of minutes, the city fell into chaos. Communication was

In 1982, Mexico began to emerge from the

cut off and 32 Metro stations were closed. There were growing

crisis. It had begun the difficult task of paying

problems with drinking water and electricity, and dozens of

an enormous external debt, and inflation had

fires broke out. More than 30,000 buildings were destroyed and

reached 117 percent. The material losses from

another 68,000 partially damaged. Television broadcasting was

the earthquake amounted to 2.39 percent of

cut off; information came over the radio, especially in the voice of

the national GDP and 10 percent of the GDP of

journalist Jacobo Zabludovsky, who became the eyes and ears of

the city. The earthquake was by far the most

the nation with his epic reporting, even while some international

expensive disaster ever faced by the Mexican

media were announcing the complete destruction of the city.

insurance industry, even more costly than the damage from Hurricane Wilma in 2005.

The historic Hotel Regis, the Televicentro and the Nuevo León Building in the Nonoalco Tlatelolco housing project were destroyed as were the Hospital Juárez, the Hospital General and the Centro Médico Nacional. As President Miguel de la Madrid later noted, 30 percent of the city’s hospital capacity was lost. Field hospitals were set up and there was an outpouring of citizen cooperation, yet the dead multiplied throughout the city.

3,192

people died, according to the official death toll

Mexico needed international humanitarian aid to confront what looked like a war zone. After some initial hesitation, political leaders finally accepted offers from other countries and another 4,000 people were rescued from the rubble, some of them after

The date of Sept. 19, 1985 lives in the hearts

as many as 10 days.

of the Mexican people. Yet, despite the tragedy, the loss of life and the enormous

The government reported an official death toll of 3,192, but the

material damage, Mexico did not take long in

true number remains unknown. Two days after the earthquake,

overcoming the shock. Only a few years later

the international news agency Agence France-Presse reported

it became the economic, social and cultural

an estimated 10,000 to 30,000 deaths. The city’s crematoriums

reference point for Latin America, a place it

operated 24 hours a day for four days.

continues to hold today.

191

THE ROAD TO STABILITY 1986

FOOTBALL WORLD CUP

The 1986 FIFA World Cup started for Mexico four years earlier. In 1982, Colombia, the host designated since 1974, resigned because of its inability to comply with FIFA specifications. From that point on, a new batch of candidate countries was proposed: Brazil, the US, Canada and Mexico. In a unanimous 1983 decision, FIFA chose Mexico. The earthquake that shook Mexico City and numerous states in 1985 had jeopardized the event. FIFA even considered canceling it for the first time since World War II, but the World Championship went down in history as the best event to date. Ten cities (Mexico City, Nezahualcoyotl City, Monterrey, Puebla, Toluca, Leon, Irapuato, Guadalajara, Queretaro and Zapopan) and 12 stadiums, anchored by the Azteca Stadium, hosted the matches. Mexico City saw Argentina lift the tournament’s trophy after beating Germany in the final. Argentina had eliminated England in the semifinals — the match in which superstar Diego Maradona played the hero with his infamous

192

“Hand of God” goal before scoring what many pundits consider the most beautiful tally in the competition's history and the game winner. For Mexico, the World Cup brought unprecedented international exposure and the country showed that it had overcome a catastrophe of incalculable magnitude. However, the national economy produced its own dramatic moments. The year closed with inflation at 105.7 percent, reaching 159.2 percent the following year, even though the first steps of commercial and economic aperture had been taken. The incorporation of the General Agreement on Tariffs and Trade (GATT) was signed with two objectives: the market entrance of more foreign products to limit inflation and the importation of more foreign inputs to lower production prices.

1987

interest rates seemed to present. On Oct. 5, the BMV saw

STOCK MARKET COLLAPSE

a day of euphoria as it reached a record high of 387,000 points. But in only a few hours, the reality of speculation came crashing down. From that day until Oct. 28, the stock market lost 50

fter the BMV collapsed in October of the

percent of its market capitalization due to uncontrolled

penultimate year of Miguel de la Madrid’s

sales. This coincided with the crash on the New York Stock

presidential term (1982-1988), the Mexican

Exchange on Oct. 19 — the infamous Black Monday. The

leader was responsible for initiating the

free fall was only stopped thanks to the intervention of

transformation of the country’s economic model, previously

the National Financial Authority (NAFINSA). However, the

based on the so-called “stabilizing development.” Following

damage was done and many amateur investors, hopeful

the domino collapse of world stock markets that began on

of rapid gains, lost everything. The slump happened two

Wall Street on Oct. 19, 1987, the BMV saw a drop of 16.5 percent

weeks before De la Madrid designated the PRI candidate

over the course of the month. The Mexican peso devaluated

for the 1988 elections: Carlos Salinas de Gortari, who

192 percent against the dollar between January and December

was one of the main figures of the so-called Mexican

1987, while the country witnessed 160 percent inflation.

technocracy.

Before October, Mexican authorities had been optimistic.

Forced by the circumstances, on Dec. 15, 1987, De

However, a group of enthusiastic people, without having

la Madrid and other social players signed the Pact

sufficient knowledge of financial markets, invested in the

of Economic Solidarity to establish anti-inflation

stock market to make the most of the good opportunity high

contingency measures and divide responsibilities.

THE ROAD TO STABILITY

September, 1988

n Mexico, the disappearance of a single

THE 1988 ELECTIONS

dominant party saw its official beginning in the federal elections that took place on July 6, 1988, although it started two years before

when an unprecedented split within the PRI

The "fall of the system" in the 1988 presidential

occurred, headed by figures such as Cuauhtémoc

election that brought President Salinas to power

Cárdenas, the Governor of Michoacan. Along

was marred by controversy before, during and

with Porfirio Muñoz Ledo, Ifigenia Martínez

after the ballot. No candidates recognized the

and Rodolfo González Guevara, Cárdenas

final result, and protesters poured into the streets

founded the PRD, the democratic branch of the PRI, with the aim of generating internal change to “rebuild democracy, recuperate

Federal Electoral Commission. Bartlett, now affiliated with the PT,

economic sovereignty and establish a culture

has always maintained that he lacked the capacity to intervene in

of solidarity.” The goal proved out of reach and

the count. He says that distrust was rampant in the corridors of the

led Cárdenas to abandon the party once it was

Federal Electoral Commission and that immediately extended outward

announced that Carlos Salinas de Gortari would

to political parties, the citizenship and the international community.

be the candidate. Outside the PRI, Cárdenas registered as a candidate for the Authentic Party

The election numbers were processed in the computation center of

of the Mexican Revolution (PARM) but ended up

the National Council of Population (CONAPO), but were not released

contesting the election as a candidate for the

until July 13, when the official results announced the triumph of Salinas

National Democratic Front (FDN).

de Gortari with 50.36 percent of the votes from across 300 electoral districts. Cárdenas took 31.12 percent and Clouthier 17.07 percent, while

The electoral process was questioned from

absenteeism reached 48 percent. None of the candidates recognized

the beginning by candidates such as Manuel

the final result, a decision that caused a series of demonstrations that

Clouthier of the PAN; Rosario Ibarra de Piedra, of

saw thousands of Mexicans take to the streets.

the Labor Party (PT), and Gumersindo Magaña of the Mexican Democratic Party (PDM). The

In his polemic autobiography published in 2004, former President

tension reached its most critical point when

Miguel de la Madrid admitted that the presidential elections of 1988

on polling night Manuel Bartlett, Minister of the

were rigged “for the good of the nation” and that three years later,

Interior, announced that the results would not

all ballot papers were burned to eliminate the evidence of fraud, a

be revealed straight away, requesting a recess

decision backed by the PAN. In terms of legislative power, the 1988

until 2 a.m. the following day. This was a political

elections meant the qualified majority in the Chamber of Deputies

moment that went down in history as “the fall

disappeared and that for the first time, the Senate had representation

of the system,” a phrase erroneously attributed

from opposing parties. The PRI lost 108 of the 300 electoral districts

to Bartlett, who was also the president of the

that were split between the PDN (86) and the PAN (22).

1989

PRIVATIZATION OF MEXICANA AND AEROMÉXICO

Miguel de la Madrid, announced the insolvency and liquidation of Aeronaves de México, citing alarming losses that were blamed on a recent strike of the ground crew and inefficient services. The solution was to immediately privatize the company. The operation took place in November 1988 amid presidential elections. Seven private investors and seven insurance

During the last year of the 1980s, Mexico’s two main airlines,

companies took part paying MX$250 million

Mexicana de Aviación and Aeronaves de México, registered

and renaming the company Aerovías de México

losses of around US$100 million. Although both were originally

(Aeroméxico). Mexicana was privatized shortly

private companies, the government had to intervene to rescue

after, at the dawn of Carlos Salinas de Gortari’s

them financially, taking operational control.

administration, when Grupo Falcón took control of the airline for US$140 million. The Mexican

The year 1988 was a complicated one for the Mexican

government kept 30 percent of the company,

aviation industry. In April, the government, presided by

having owned 54 percent since 1959.

193

THE ROAD TO STABILITY 1990

The trend changed radically during the government of Carlos

DENATIONALIZING TELMEX

Salinas de Gortari, who undertook an ambitious set of reforms to set Mexico as the head of the free market in Latin America. One of the main examples of denationalization during this process was the sale of Telmex, bought by Carlos Slim's Grupo Carso. In only a few years, the transaction made Slim

During the 1970s and 1980s, the Mexican government's

one of the richest and most powerful businessmen in Mexico

economic policy was aimed at turning the state into an

and globally. However, the Telmex deal was followed by a

instrument of wealth generation. The strategy involved

wave of criticism based on sparse regulation put in place by

a progressive increase in state property, resulting in

the government to avoid monopolistic practices once the

high levels of debt in later years. Eventually, this caused

company passed into private hands. Several media cast doubt

a drop in social spending and later the suspension of

on the sale after publishing that Telmex had been a profitable

external debt repayments and the nationalization

company in public hands, a statement that Salinas de Gortari

of the bank system, which caused a systemic and

denied. With Telmex in the hands of Grupo Carso, Mexico fully

unprecedented crisis in Mexico.

entered the mobile phone and broadband internet market.

194

1991

BANK PRIVATIZATION

he decade of the 1990s was one of great change

1992

LAUNCH OF THE NEW PESO

for the Mexican economy, starting in 1991 with the privatization of the country’s banks after

The inflation Mexico saw during the 1980s

their nationalization during López Portillo’s

caused such economic instability that in 1992,

government. Even though Carlos Salinas de Gortari was

President Salinas de Gortari recommended to

the force behind privatization measures, the process began

Congress the creation of a new monetary unit.

during the administration of Miguel de la Madrid, who had

This was accepted on June 22, 1992, and was

publically shown his disagreement with the decision. Rather

enforced on Jan. 1, 1993. From that day on, each

than reverse the expropriation, De la Madrid decided to create

new peso would be worth 1,000 of the previous

a mixed bank in which 30 percent of stock would remain in

currency. The aim, according to Banxico, was

private hands, while the government put liberal professionals

to “reduce the order of numerals in national

in management positions of these financial institutions.

currency to facilitate its comprehension and handling, to simplify cash transactions and to

The process led by De la Madrid also included the creation of

achieve a more efficient use of computational

the country’s brokerage houses that would be responsible for

systems and accounting records.” Banxico pegs

the management of public debt issuance. The restructuring

savings of printing new pesos at MX$195 million

of the traditional bank continued through a series of mergers

in the first three years, while from 1996 onward,

that brought the 60 banks that were present in Mexico in

annual savings were MX$85 million.

1982 down to 19: six offering national coverage, seven multiregionals and six regionals. In this context, Salinas de

The implementation of the new currency

Gortari began to privatize the commercial banks in 1989.

was carried out in three stages. The first

However, it was necessary to first carry out a constitutional

happened between June and December 1992,

reform that modified articles 28 and 123 to adapt working

focused on marketing the new pesos through

conditions at a bank to those of a private company.

advertisements and a diffusion campaign through mass media while the coins and bills were physically made. A second phase that started on Jan. 1, 1993, had the goal of

19 banks remained after series of mergers

progressively substituting the previous currency with new coins and bills branded with the serial number “N$.” In the third and final phase, the letter N in the serial number was eliminated, making the new pesos the only official currency.

THE ROAD TO STABILITY 1993

possibility of integrating Mexico into the commercial block

RATIFICATION OF NAFTA

formed by its northern neighbors. However, the first real

The implementation of the unique

The treaty had several objectives specified in article 102: to

treaty created a common market

eliminate commerce barriers and ease cross-border flow of

among the three signatories: Mexico,

goods and services between all three countries; to promote

Canada and the US

conditions of loyal competition within the free-trade zone;

step in the creation of NAFTA was taken on June 10, 1990, when the three countries agreed to establish a free-trade agreement that was formalized on Feb. 5, 1991.

to substantially increase investment opportunities in the

territories of the party states; to protect and value in an

lthough NAFTA was signed on Dec. 17,

effective and adequate manner intellectual property rights;

1992, with unlimited validity starting on

to create efficient procedures for the application and

Jan. 1, 1994, the Mexican Senate ratified

fulfilment of the treaty, for its joint administration and for the

the instrument on Dec. 8, 1993, after it was

solution of controversies and to establish guidelines for later

passed by the Canadian Parliament in June 1993 and the

trilateral, regional and multilateral cooperation to amplify and

US Congress in November 1993. It was an important year

improve the agreement’s benefits.

for a historic agreement that meant the total elimination of customs barriers between the three countries over the

With the ratification of NAFTA, Mexico sought to promote

course of 15 years, as a way to face growing competition

increased access of Mexican exports to the US, its main

from Japan and the EU. China was still far from being the

trade partner. At the same time, the country looked to

agent that would later revolutionize global commerce. In

define an attractive mechanism for foreign investment

1993, two complementary agreements were signed on

that would enable the generation of increased and better

the protection of workers and the environment.

employment that supported macroeconomic stability, a goal largely cherished by the most recent PRI governments. For

NAFTA signified the end of a series of commercial

Salinas, NAFTA represented the peak of his government

negotiations that Mexico and the US had began in

and an achievement that would place him among the most

1822 and that started to bear fruit in 1831 and 1832.

prestigious international mandataries in history. Along with

During the final years of the 19 century and the first

George Bush (then President of the US and followed by Bill

decades of the 20th century, bilateral commerce was

Clinton in 1993) and Brian Mulroney (Canada’s Prime Minister

maintained in spite of the obvious asymmetry that

between 1984 and 1993 and succeeded by Kim Campbell),

existed between both economies and the absence of

Salinas showed the world the path Mexico was taking toward

a regulating treaty. The situation changed radically in

definitive modernization.

1942 in the middle of World War II, when both nations signed a new general commercial agreement that remained valid until 1950 and that was not renewed. From that moment on, Mexico based its development on strong state intervention in its economy to boost the country’s industrialization through the substitution of imports. But reality struck in the 1980s, sending the country into an economic crisis caused by collapsing oil prices, uncontrolled inflation and public debt, the drop in GDP and an industrial slowdown. This complicated situation led the government to an abrupt turnaround that calmed the markets in 1986. With Miguel de la Madrid in power, Mexico’s incorporation into the GATT was achieved. The story of NAFTA goes back to 1988, when the governments of the US and Canada signed a bilateral agreement that aimed to favor the commercial liberalization of both economies. The recently elected President Carlos Salinas de Gortari saw then the

195

THE ROAD TO STABILITY 1994

ZAPATISTAS; COLOSIO, RUIZ MASSIEU ASSASSINATED

However, negotiations with the EZLN would be the job of Salinas’ successor. The candidate designated by the PRI to succeed him as president was Luis Donaldo Colosio who, in a meeting for the 65th anniversary of the party’s foundation on Mar. 6, 1994, made clear his intention to fight political vices. On Mar. 23, 1994, in the middle of the presidential campaign,

As 1993 drew to a close, Carlos Salinas de Gortari’s administration

Colosio was assassinated at Lomas Taurinas in

could presume to have made notable economic successes, such as

Tijuana, Baja California. Another crime shook

the reduction of inflation, the growth of exports and the imminent

the country six months later. On Sept 28, José

incorporation of Mexico into NAFTA. However, 1994 went down

Francisco Ruiz Massieu, Salinas’ brother-in-law

in history as a transcendental year for Mexico because of the war

and PRI’s General Secretary, was murdered.

declaration from the Zapatista National Liberation Army (EZLN) and

196

the assassination of two men close to the president: Luis Donaldo

By March, the conflict in Chiapas and the two

Colosio and José Francisco Ruiz Massieu.

murders had shaken the markets and led to a significant drop in Banxico’s international

While Mexico, the US and Canada inaugurated NAFTA on Jan. 1, 1994,

reserves. Capital fled the country, the exchange

the EZLN, a mainly indigenous guerrilla group, took up arms in Chiapas’

rate was artificially maintained around MX$3.37

Lacandon Jungle against the federal government. Insurgents took

per US dollar and Tesobono debt — a government

the municipal houses of San Cristobal de la Casas, Altamirano, Las

bond that guaranteed payment in US dollars

Margaritas, Ocosingo, Oxchuc, Huixtan and Chanal in a demonstration

— rose uncontrollably. Most of the federal

of guerilla power that irritated Salinas de Gortari. Clashes between

reserves were lost from March to November.

guerrillas and the military went on for two years until the signing of

By December, further peso devaluation was

Indigenous Culture and Rights Agreements in 1996. Normalization

imminent. The country was gearing up to what

came in 2005 with the sixth Declaration of the Lacandon Jungle.

is now known as the “December Mistake.”

1995

EFECTO TEQUILA: MEXICO’S WORST CRISIS

“

But a series of factors were snowballing, including a deep deficit in the country’s current account, an enormous dependency on capital flows stuck in financial assets, the overvalued peso, speculative attraction of foreign capital and a drastic fall in international reserves and capital, not to mention the impact that the US recession from the beginning of the 1990s had on Mexico. The crisis materialized in 1995, with Ernesto Zedillo now at the

The worst crisis since the 1930s.”

presidential helm. Salinas called it the “December Mistake.” Zedillo was

That is how Banxico referred to the

obliged to devalue the peso during his first days in office to stop the

recession that scourged the Mexican

hemorrhage of dollars that took the exchange rate from MX$3.4 per

economy from December 1994 to well into

dollar to MX$7.2 per dollar. During January 1995, a series of measures

the following year and that for many analysts,

were implemented, including an increase in VAT from 10 to 15 percent

signaled the definitive end of a middle class

and a 12 percent increase in the minimum wage, in addition to a

that was also digesting the political and social

reduction in government spending of 10 percent. This was followed

events of 1994. Originated in Mexico, the crisis

by further measures in October 1995. Efecto Tequila also impacted

was baptized Efecto Tequila (Tequila Effect).

the financial sector, which at that point was facing a brutal increase in the amount of nonperforming loans due to an unprecedented spike

Red flags were raised months before the crisis

in interest rates. Worried about the magnitude of the Mexican crisis,

broke out, as data indicated the country was on

the US government and several international organisms sent rescue

the verge of yet another economic recession.

packages. This did not avoid the economic consequences on other

President Carlos Salinas de Gortari was in the last

countries, such as Argentina and Brazil, which faced a cut in the flow of

year of his term but in spite of grave indicators

new loans due to international fear that what was happening in Mexico

decided to not devaluate the peso, thus avoiding

would extend to the rest of Latin America. The situation did not last

an unpopular measure right before leaving office.

long, and in 1996 the region got back on a growth track.

THE ROAD TO STABILITY 1996

the presidency of IFE’s General Council fell on the shoulders of the

AUTONOMY OF THE IFE

Minister of the Interior, which meant it lacked autonomy. In July 1996, President Ernesto Zedillo announced a “definitive” electoral reform that was born 18 months before when the president and the four parties with parliamentary representation — PRI, PAN, PRD and PT — signed the National Political Agreement. In it, all parties assumed the burden

With a single hegemonic party since 1929, Mexico

of establishing the necessary conditions of trust to resolve electoral

took too long to build the necessary structure

matters in a democratic manner, as well as ensuring the legality, equity

to modernize a stagnant electoral system. The

and transparency of the electoral processes. The 1996 reform created

first try took place shortly after the historical

a new Federal Code of Institutions and Electoral Procedures that

“system failure” of the 1988 elections that led to

would strengthen IFE’s autonomy by completely unlinking it from the

Carlos Salinas de Gortari’s presidency and forced

Executive Power. In addition, it turned the Federal Electoral Tribunal

authorities to carry out several constitutional

into a specialized organ of the Federation’s Judicial Power, gave

reforms. Two years later in 1990, the Federal

maximum electoral authority to IFE and established open elections

Electoral Institute (IFE) was created. However,

for the appointment of the Governor of the Federal District. 197

1998 1997

MEXICO CITY’S FIRST ELECTED HEAD OF STATE

BANK BAILOUT

uring and

the the

Mexico

1980s 1990s,

rode

continually rising

economic wave that culminated in 1995. The recently privatized national banking sector became insolvent, unable to handle an unprecedented increase in nonperforming loans. Coupled with the lack of experience of the banks’ new owners, the generation of car loans, speculation and the lack of supervision from the National Banking and Securities Commission (CNBV) led to an unsustainable situation. A sloppy bailout was arranged through the Banking Fund for the Protection of Savings (FOBAPROA). The bailout managed to stop a foreseen collapse of the Mexican financial

Mexico made a great advance for democracy in the country’s

system but it cost the country

capital in 1997 by instating the right to choose the city’s head

14.5 percent of the national GDP.

of state with the modification of article 41 of the Constitution.

In December 1998, the Congress

This person would be in charge of public administration but

created the Institute for Bank

with restricted powers. The PRD's Cuauhtémoc Cárdenas was

Savings Protection (IPAB) that

sworn in on Dec. 5 by President Ernesto Zedillo. In 1997, a series

absorbed the obligations of the

of changes took place that in 2013 culminated in the decision

controversial FOBAPROA. When

to give autonomy to the capital.

IPAB took charge, FOBAPROA’s banking liabilities amounted to MX$552 billion.

THE ROAD TO STABILITY 1999

FTA WITH THE EU

Mexico, both in matters of commerce and investment, as well as in political dialogue.” Thus, the region became one of the most important commercial partners for the country’s growth and one of the two protagonists of the first free-trade agreement between

As the 20th century came to a close, Mexico

the two continents.

took a step further in liberalizing its economy by signing a free-trade agreement with the EU

The objective was to liberalize all industrial goods, mainly crops

and complementing the treaty established in

and services (telecommunications, financing, energy, tourism and

1994 with the US and Canada. The agreement

environmental services), in addition to improving market access for

was signed in Lisbon by President Ernesto

exporters on both sides of the Atlantic. Free trade of certain goods

Zedillo, Prime Minister of Portugal Antonio

was banned, such as used vehicles or products derived from oil.

Guterres, and President of the Council of

Regardless, the main aim was exceeded and according to 2015 data

Ministers of the EU Romano Prodi, President

from the presidential office, bilateral commerce between Mexico

of the European Commission. According to

and the EU has grown 243 percent since 1999, while Mexican

Zedillo, the EU could be “a strategic ally for

exports have increased by 286 percent.

198

2000

THE END OF PRI DOMINATION

t took some time for the world to understand the transcendent nature of what happened on July 2, 2000 in Mexico. On the other hand, Mexicans, went to bed that night knowing

that the following morning they would live in a more democratic and diverse country. Vicente Fox, presidential candidate for PAN, ended 71 years of PRI domination by taking the elections that the Carter Foundation defined as “almost perfect” and with the highest popularity rating in the history of all Mexican presidents. Through an impeccable political transition, Mexico was once again undertaking a new path to modernity in which the PRI, losing for the first time since 1929, admitted defeat with democratic maturity. Long forgotten were the marred elections of 1988.

despite PAN’s crushing victory, the party did not gain control of the Congress, where both PRI and PRD gained more seats. This

Fox, former Governor of the state of

situation filled Fox’s term with uncertainty as he was forced to

Guanajuato and former President of Coca-

seek pacts to make his proposals a reality. The new president had

Cola in Mexico, took over from his predecessor

widely promised to center his foreign policy efforts on reaching

Zedillo, who had been the first PRI member to

a migration agreement with George W. Bush, currently in the

open the door to internal democracy. Zedillo

White House. But his efforts were cut short by the Sept. 11, 2001

created primary elections in a party that until

attacks and by his administration’s outright objection to the

then had chosen candidates from the top

Iraq War, which he made obvious during a session of the UN

of the pyramid. He established an electoral

Security Council. Despite the failure in negotiations, Fox was

reform that took its first steps with legislative

the first president to vigorously look for new migratory norms

elections in 1997 and that culminated with

with Mexico’s northern neighbor, with which he often deliberated

the historic election of July 2, 2000. However,

during his term in office.

THE ROAD TO STABILITY 2001

White House. It occurred on Sept. 5 of the same

9/11 IN MEXICO

year, just six days before Al-Qaeda’s attacks on New York and Washington, DC. The invitation was aimed at regularizing the legal status of at

least 4 million Mexicans living in the US through

ince Bill Clinton, the president who signed NAFTA, no US

an integral migration reform that Bush, who did

president had such close relations with Mexico as George

not have the support of the Republican Party, was

W. Bush, who in his first electoral campaign declared the

willing to second. The “full enchilada,” as defined

necessity of maintaining a friendly relationship with the

by Chancellor Carlos Castañeda, included

country’s southern neighbor. Extroverted and of conservative ideology,

regularization of Mexicans with more than five

his personality fit with that of his Mexican counterpart, Vicente Fox,

years of residency, tripling temporary work visas,

as well as having walked a similar path through the private sector

border security agreements and measures to

before becoming governor of their states (Texas and Guanajuato,

prevent the smuggling of undocumented people.

respectively) and later reaching the presidency of their countries. Bush and Fox were scheduled to meet again a President of the US, Bush

month later, but Sept. 11 turned the world into a

was invited by Fox to a summit held on June 16, 2001 at his ranch

different place and the friendship between them

in Guanajuato, the date of the US first attack against Iraq in the 21st

was not enough to push the Mexican’s agenda

century. Fox also became the first world leader to visit Bush in the

onto the American’s list of priorities.

Just a month after becoming the 43

2002

2003

FEDERAL LAW FOR TRANSPARENCY

THE HOUSING BOOM At the beginning of his term in office, Vicente Fox presented his National Housing Program 2001-2006, through which he promised to build 750,000 houses per year. He reorganized the National Housing Fund for Workers (INFONAVIT), the

Barely a year and a half after rising to power

Housing Fund of the Institute of Social Security and Social

in historical elections, Vicente Fox, the first

Services for State Employees (FOVISSSTE) and the National

president from the opposition party in over 70

Fund for Popular Housing (FONHAPO) and created the

years, enacted the Federal Law on Transparency

Federal Mortgage Society (SHF) as a bank for real estate

and Access to Public Government Information,

development and the National Housing Council (CONAVI)

which became active on June 12, 2002. The

that connected the government and society for all housing

seasoned mandate-holder needed to strengthen

affairs. By the time the PRI returned to power in 2012, the

his position as a democrat, looking to re-

amount of housing loans and subsidies was 114 percent higher

establish the relationship between society and

than during the presidency of Ernesto Zedillo and a total of

government. The new law became the first piece

7 million new homes had been built. However, many of them

of federal legislation to regulate transparency

were shoddy, overdue and often abandoned by their owners.

and made clear reference to what was set out

Shortly after the PRI returned to power, President Enrique

in article 6 of the Constitution, which enshrined

Peña Nieto published his National Housing Plan to reorganize

the right to information for all Mexicans. This

loans and subsidies and prioritizing vertical housing. The

unparalleled mandate enabled any person,

announcement led the Habita Index on the Mexican Stock

independent of his nationality, to request any

Exchange to drop by almost 4 percent.

document with public information from the federal authorities, including the presidency, the Attorney General’s Office, the legislative and judicial powers and autonomous organizations such as Banxico, the Federal Electoral Institute and the National Commission for Human Rights. The 2002 law was repealed on May 9, 2016, when new legislation was enacted.

750,000

houses to be built per year

199

THE ROAD TO STABILITY 2004

LARGEST PRODUCTION IN PEMEX’S HISTORY

2005

POLITICAL IMMUNITY FOR AMLO In one of the most memorable political-juridical battles in

recent years, President Vicente Fox and Andrés Manuel López

he year 2004 saw a great deal of

Obrador, at the time Head of State of the Federal District,

ups and downs in the Mexican oil

squared off in 2005 over a seemingly innocuous point: a

industry. During the first quarter, it

venue located in Santa Fe, a flourishing area southwest of

was announced that oil production

the capital city’s center that many reputable corporations

had reached a record 3.38 million barrels per

had made home, in addition to malls, private hospitals and

day. The increase in production was mostly due

luxurious residential buildings.

to the Cantarell field, a deepwater reserve off 200

Sonda de Campeche and one of the most active

The story began in November 2000 when the then Head

in the parastatal’s history. Exploitation started

of State of the Federal District and PRD member Rosario

in 1979 and in 2004, with a production of 2.13

Robles, only a few days away from handing over the torch

million barrels per day, it was contributing 63

to fellow PRD-affiliate López Obrador, expropriated a 15ha

percent of the country’s total extraction and was

section of land called El Encino in Cuajimalpa. The goal was

considered one of the most important oil fields

to build roads that would benefit the Santa Fe community, in

in the world. Another significant contributor

particular the ABC Medical Center that would benefit from a

was Ku-Maalob-Zaap, an oil-producing complex

direct access route. Only a few months later, the owner from

discovered in the same region in 2002.

whom the piece of land had been taken sued the capital’s government and called for an amparo to halt construction.

From the second quarter of 2004, Cantarell

The amparo was granted but not respected. On May 17, 2004,

entered a free fall that continues to this day.

the Attorney General’s Office directly accused the new Head

Lack of investment and intensive exploitation

of State, López Obrador, of disregarding a legal order for

of the well were the two main reasons for

not respecting the amparo and requested the Chamber of

this downturn, coupled with the parastatal’s

Representatives to remove his political immunity to put him on

disinterest in new reserve discoveries. PEMEX

trial. Almost a year later, on April 7, 2005, the lower chamber

did not care about the well’s return either,

unanimously voted in favor of the removal of immunity.

meaning that the speed with which oil reserves were replaced did not match sold units. In 2004,

This process was perceived as a showdown between the

the crisis reached a point where for every four

federal and local governments, causing a split in Mexican

barrels of oil sent to market, less than one was

society, especially among the capital’s inhabitants. On the

added to national reserves.

one hand were those that saw the process to remove López Obrador’s immunity as an excuse to reduce his chances of

Currently, all hopes for the Mexican oil industry

winning the 2006 presidential elections, in which he was one

are pinned on the Energy Reform carried out

of the two main contenders. On the other were those from

by President Enrique Peña Nieto. Tenders for oil

PRI, PAN and all sectors that saw his ascension to power as

fields as part of the liberalization of the sector

a danger for Mexico. The head of state’s sympathizers took

promise renewed activity that will enable the

part in a large demonstration on April 24, 2005, known as the

country to produce 3 million crude barrels per

“March of Silence.” It is estimated that over 1 million people

day in 2018 and 3.5 million in 2025.

set off from the Anthropology Museum in Mexico City and headed to the Zócalo, the city’s main square.

3.38 million barrels per day

Surprisingly for many, the Attorney General’s Office announced that it would not go through with the legal proceedings against the PRD presidential candidate. “In spite of the corpus delicti and the probable responsibility of Andrés Manuel López Obrador in the crime attributed to him, currently there is no penalty that exactly fits the case.” Thus, the file was closed.

THE ROAD TO STABILITY 2006

CALDERÓN WINS THE ELECTIONS

elipe Calderón Hinojosa became President of Mexico on Dec. 1, 2006, after winning one of the narrowest elections in the country’s history. In

the elections, held on July 2, 2006, the PAN candidate obtained a minuscule difference over his rival Andrés Manuel López Obrador, the PRD candidate. Equality in results was so tight that the candidates had to wait for the verdict to be published on July 6 by the IFE. Calderón, Minister of Energy during the presidency of Vicente Fox, became the second PAN president since the party broke the 71-year PRI leadership in 2000. The controversy was the center of the election night and the following days, when the recount took place. Calderón’s term in office began with the establishment of a head-on attack on organized crime on Dec. 11, 2006, when in Michoacan, the president's birth state, he announced what would later be known as the War on Drugs. In economic matters, Calderón’s presidency saw the lowest level of inflation ever, stable public debt and significant investment in infrastructure, especially in highways. Another achievement of his term was to entrench human rights in the constitution.

2007

ATTACK ON MEXICO’S OIL INFRASTRUCTURE

group’s target. The group also caused a fire that reached a height of 300m in a pipeline close to the QueretaroCoroneo highway, forcing the evacuation of 5,000 people from 20 communities. According to an ERP press release, the attacks were part of a harassment campaign against Calderón’s government. This series of attacks came just after Mexico had become

Between July and September 2007, at the beginning

a target of Al-Qaeda, which in its newsletter Saut al Yihad

of Felipe Calderón’s presidency, several ducts and

in February 2007, called on its mujahedeen to attack the oil

sectioning valves belonging to PEMEX exploded

facilities of all countries that supplied to the US, among which

after being attacked by the Revolutionary Army of

it mentioned Venezuela, Canada and Mexico. Companies

the People (ERP), a group formed in 1996. In Celaya,

impacted by the attacks included Vitro, IBM, Honda and

Salamanca and the Valley of Santiago, Guanajuato, and

Volkswagen. Red alert protocols were activated in the

in Presa de Bravo, Queretaro and in Tlaxcala, Veracruz

impacted areas, while the army and the navy took charge of

and the Gulf of Mexico, oil facilities became the armed

security at PEMEX and CFE facilities in strategic locations.

201

THE ROAD TO STABILITY 2008

THE MORTGAGE CRISIS The resounding crash of the US bank Lehman Brothers on Sept. 15, 2008, was not the only piece of financial news that shook the Mexican market that year. The Mexican peso was depreciating and Banxico’s reserves

202

2009

GLOBAL FALLOUT AS BANKS COLLAPSE

he origin of the economic crisis that shook the world between 2008 and 2009 first emerged in the final months of 2007. By 2008, banks in the US, the UK and Germany had already gone

bankrupt or had to be rescued. The repercussions in 2009

were also falling. This was bad news for

were global and Mexico was no exception. Agustín Carstens,

the national economy but even worse for

then Minister of Finance and Public Credit, gave an interview

Mexican corporations that had invested in

in February 2008 in which he assured that the US crisis

derivative instruments and that in only three

would only spread to Mexico as a “light cold” rather than

weeks reported joint losses of US$2.5 billion.

“pneumonia,” although he admitted that “it would hit us,

Comercial Mexicana (COMERCI), Cemex, Vitro,

without a doubt.” As the year progressed, however, he had

Gruma, ALFA, Bachoco and Grupo Posadas

no option but to lower the country’s growth expectations.

trembled when faced with the reality of having overexposed themselves to such an apparent

It was not until May 2009 that the Ministry of Finance and

risk. The parent company of Comercial

Public Credit recognized that Mexico was in an economic

Mexicana, which had only recently announced

recession. The private sector faced an unfavorable

it was ready to take on the retail giant Walmart,

environment for investment, productivity and the generation

lost US$1.08 billion and was obliged to declare

of new employment. The US recession primarily hit two

insolvency. The fallout of the crisis included

of Mexico’s export sectors: automotive and electricity. In

a call for authorities to increase supervision

addition, only a few months before, the mortgage crisis

and improve the regulatory framework. At the

had placed six of the main private corporations in difficulty.

same time, corporations implemented more

The last straw was the H1N1 outbreak that hastened the

efficient measurements of risks, norms on

economic slowdown in the second quarter of 2009 and

the minimum revelation of incurred risks (to

had a strong impact on sectors such as commerce and

shareholders, for example) and responsible

tourism. Experts confirmed that Mexico was facing the

use of derivatives.

worst recession in 70 years.

2010

THE MEXICANA DE AVIACIÓN CONFLICT

On Aug. 28, 2010, Mexicana de Aviación grounded its last plane. One of the oldest aviation companies in the world, it had accumulated debt of over MX$15 billion, making it insolvent and forcing it to look for new investors to revive its operations. Grupo Posadas, which had been the company’s owner since President Vicente Fox denationalized the company in 2005, made the decision after several attempts at internal restructuring that aimed to take the company back to its former glory.

THE ROAD TO STABILITY 2011

On Dec. 31, 2011, the debt of federal entities and municipalities reached a

STATE DEBT REACHES MX$391 BILLION

chilling MX$391 billion, 67.9 percent more than in 2008. As described by the Superior Audit Office in August 2012, debt was directly connected to the vulnerability of income linked to fiscal participation, an increment in most components of spending, the presence of contingent factors such as natural disasters and money distributed with no transparency. In an analysis, the Financial Studies Foundation (Fundef) of ITAM warned: “There are reasons that explain, at least partially, the strong indebtedness of states in this period. But the worry is related to the experiences of some states that incurred deep indebtedness in a short time and on occasions, in circumstances that were not transparent.”

2012

THE RETURN OF THE PRI After 12 years in the political wilderness, the PRI regained the reins of power, vaulting Enrique Peña Nieto to the presidency

hen Enrique Peña Nieto ascended to the presidency he spoke of the past to guide the future. “The past is our identity and a source of inspiration for us and it will continue to be so

in my government,” he said on Dec. 1, 2012 during his swearing-in ceremony following elections held in July. The PRI was returning to power after 12 years that had seen the PAN retain the presidency, first with Vicente Fox and then with Felipe Calderón. The electoral victory of Peña Nieto, the former governor of the State of Mexico, was marked by the comfortable advantage he maintained during the electoral campaign over his rivals Andrés Manuel López Obrador, of the PRD and trying for the presidency for a second time, and Josefina Vázquez Mota, from the PAN, who was participating

The PRI had returned with renewed ideas,

with the backing of the party in power. However, the campaign was

although with the same capacity for ideological

not easy. The then-candidate had to face citizen movements like

adaptation mentioned years before by former

the #Yosoy132 that began on May 11, 2012 after the PRI candidate

President Luis Echeverría: “The PRI is not from

visited the Iberoamerican University. There, he was chased out by

the right nor the left, but the exact opposite,”

132 students who he said were paid by his opponents. This was the

he declared. In its return to the presidency,

first student movement to begin in a private university in Mexico and

the PRI managed ups and downs in only three

came in the context of other social movements around the world,

years. The new government started with large

such as those seen in New York, Madrid, Cairo, Hong Kong and Taipei.

doses of optimism, caused by the announced structural reforms. However, positive publicity

Less than 24 hours after his speech in December 2012, in which Peña

turned negative after the publication of

Nieto emphasized the institutional vocation of the country, came the

the “White House scandal,” a building that

first great agreement of his government: the Pact for Mexico. Signed

belonged to the president but which was

by the representatives of the main political parties, it included a

was paid for by Grupo Higa, one of the main

more radical participation of private capital in oil exploitation, which

contractors of the State of Mexico during

the PRI itself had nationalized in 1938. This agreement of national

the time Peña Nieto was governor. Another

consensus opened the door to other structural reforms in areas

stain was the disappearance of 43 teachers-

such as education, electoral policy, economic competition and

in-training from the state of Guerrero, the

telecommunications.

investigation into which is ongoing today.

THE ROAD TO STABILITY 2013

THE ARREST OF ELBA ESTHER GORDILLO

2014

THE 43 OF AYOTZINAPA The last days of September 2014 forever marked President Enrique Peña Nieto’s term. On Sept. 26, a group of students

204

On Feb. 26, 2013, Elba Esther Gordillo landed

from the Normal School for Teachers of Ayotzinapa in

aboard her private jet at the Toluca International

Guerrero was attacked by local police under orders of Iguala's

Airport, unaware she would be arrested by

Mayor, José Luis Abarca. Six people died, 25 were hurt and 43

agents of the Attorney General’s Office in

disappeared without a trace. Abarca was arrested with his wife

collaboration with the Navy. La Maestra, as

in Mexico City a few days later on Nov. 4, Ángel Aguirre, then

she is commonly known, was one of the most

governor of the state of Guerrero, would also leave his position

powerful women in Mexico and the absolute

to create a “political climate” that enabled the resolution of the

leader of the National Union of Education

unknowns of the case. Urged by parents and family members,

Workers (SNTE), the largest in Latin America.

the search for the missing fell onto the Attorney General’s

Gordillo was accused of money laundering

Office, which sent a group of investigators to the area to find

and organized crime after prosecutors found

the “43 of Ayotzinapa,” which is how they would be known

evidence that between 2009 and 2012 she led

from that moment on. Several communal graves were found

a network that took MX$2.6 billion from union

in the surrounding area but the DNA did not match that of

coffers. With her arrest, a new dynamic between

the students. During that time, condemnation flowed in from

the teaching body and the government began.

around the globe. The 43 remain missing.

countries in the world. Each would make necessary changes in sectors such as energy, telecommunications, economic competition, taxes, labor conditions, education, the penal system, transparency, politics and justice. Only a day after taking control and to guarantee the success of his reforms, President Peña Nieto brought the main leaders of each political party together to the Castle of Chapultepec, in Mexico City, to sign the Pact for Mexico. The goal, according to the government: “Elevate productivity, strengthen and amplify rights and to secure the democratic regime and freedoms.” It was the first time in the country’s history that a political consensus of such magnitude

2015

STRUCTURAL REFORMS

was reached, which showed the world and top foreign investors a democratic maturity rarely seen in the region. In addition, a high rate of economic growth was projected. This would be reflected in Mexico’s positioning as one of

nrique Peña Nieto was sworn in as Mexico’s president on

the great Latin American players. One of Peña

Dec. 1, 2012, after winning elections that returned the PRI to

Nieto’s ambitions was to reach each agreement

the presidency. During his electoral campaigns, the former

through consensus with each political force, a

governor of the State of Mexico had promised a series of

plan that the president achieved through his

structural reforms that would place Mexico among the most developed

transformation proposals.

THE ROAD TO STABILITY 2016

US PRESIDENT DONALD TRUMP After a highly controversial race, the real estate tycon and billionaire landed in the White House. It was a stunning victory that would have repercussions for Mexico

he US presidential elections held on Nov. 8, 2016, concluded with a tight victory by Donald Trump over his rival, Democrat Hillary Clinton. The businessman, born in New York in 1946,

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became the 45 th US president after one of the most controversial election campaigns in the country’s history. The presidential campaign officially began for him on June 15 of the previous year, when the former television celebrity gave his first speech at the Trump Tower in his home town under the motto Make America Great Again. From that moment on, he started a race against the clock that would end on Jan. 20, 2017, when he was officially invested in Washington, DC, as the new president. The campaign, defined by many analysts as populist, revolved around the axis of economic protectionism that would later mix with messages interpreted as racist and xenophobic by some of the world’s most influential journalistic conglomerates. Mexico and Latin immigration

2017

NAFTA NEGOTIATIONS

were at the center of his targets, so much so that one of his earliest electoral promises was the construction of a wall on the US-Mexico border and the unilateral

The unilateral disruption of NAFTA, a free

breakdown of NAFTA.

trade agreement signed by Mexico, the US and Canada that came into force on Jan. 1, 1994, was

This tense situation did not stop the Republican candidate

one of Donald Trump’s electoral promises and

from winning victory in traditionally Democratic states

one of his top goals after becoming the new

such as Pennsylvania and Ohio, where he was able to

tenant of the White House. In Trump’s view, this

rescue the discontent of an impoverished white class that

treaty was the catalyst that impoverished the

was not represented in the thesis proposed by Clinton.

American middle class. Against this backdrop,

The Democratic candidate, however, began election day

the first round of renegotiations began among

leading most of the polls, but eventually succumbed to

the three countries on Aug. 16. On the table

what only two years earlier seemed an impossibility.

were some of the most relevant issues for each party, including rules of origin, trade remedies

With Trump as the new tenant in the Oval Office, a new

for antidumping and subsidies, transparency

era dawned in US foreign policy, including a move toward

and anti-corruption, intellectual property

Russia and away from traditional allies such as the EU

protection, financial services and investment.

and the launching of an escalating war of words with

Throughout 2017, there were up to three more

North Korea. Since taking office, Trump’s main objective

rounds, with relative success for Mexican

has been to overturn some of the projects proposed by

interests. The renegotiation will continue

his predecessor, Barack Obama, mainly those related to

into 2018, a year marked by the presidential

public health, immigration and climate change.

elections in Mexico.

La Venta wind farm, Oaxaca, Gamesa

ENERGY

As the Mexican energy market opens for the participation of national and international companies, CENACE already took control of electricty transmission and distribution operations, CENAGAS of natural gas transportation and CRE of the regulatory framework, real market prices will offer a liberalized playing field for the interested parties, a greater number of players are looking for opportunities to capitalize on the new businesss scheme that the Mexican energy market offers. Two long-term electricity auctions already took place, and the basis for a third longterm and one mid-term electric auctions were established by SENER during 1Q17.

CFE remains as the main player in the country with business units for generation, transmission, distribution and commercialization. Nevertheless, its efforts to become a full-fledged and profitable public enterprises are starting.

This chapter provides a glance at the major milestones achieved in Mexico's electricity sector, both from the regulator's perspectie and the valuable insights of key players across the value chain on the industry's opportunities, challenges and major trends.

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CHAPTER 8: ENERGY 210

ANALYSIS: Maintaining Momentum

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VIEW FROM THE TOP: Pedro Joaquín Coldwell, Minister of Energy

213

VIEW FROM THE TOP: Guillermo García Alcocer, CRE

215

INSIGHT: Jaime de La Rosa, AME

216

VIEW FROM THE TOP: Jaime Hernández, CFE

218

VIEW FROM THE TOP: Philippe Delmotte, ENGIE México

219

EXPERT OPINION: Paolo Romanacci, Enel Green Power Mexico

220

VIEW FROM THE TOP: Juan Saltre, Ventus

221

VIEW FROM THE TOP: Hongbin Fang, LONGi Green Energy Technology

222

VIEW FROM THE TOP: Enrique Giménez, Fisterra Energy

223

VIEW FROM THE TOP: José Pablo Fernández, Grupo Dragón

224

VIEW FROM THE TOP: Alberto Haito, Clifford Chance

225

Martin Menski, Clifford Chance

VIEW FROM THE TOP: Francis Pérez, Nestlé México

209

ANALYSIS

MAINTAINING MOMENTUM Mexican regulators have pulled all the stops to provide a regulatory framework that will strengthen every link of the industry’s value chain and guarantee competitive schemes on a level playing field. For the energy industry, 2017 was about maintaining, and even ramping up, the momentum from the year before While staying true to its objective of increasing electricity

anticipate that the energy percentage that other suppliers,

generation through clean energy sources up to 35 percent

outside of basic supply, will purchase through the chamber

of the country’s total energy mix by 2024, Mexico has also

will be relatively low, although it will keep growing over

set an ambitious 100 percent coverage goal through the

time. In the long-term, as the energy volume increases, the

Universal Electric Service Fund, launched in May 2017. The

impact will be consequential and will be reflected in the

fund is intended to extend CFE’s electricity distribution

final consumer price through increased volume and number

capacity to the doorstep of remote communities and also

of private suppliers offering energy.”

to install off-grid systems where extending the grid is not 210

viable. The Ministry of Energy published the first tender

The year also saw the country release terms for its first

for off-grid contracts that will impact 898 municipalities

midterm electricity auction, the goal of which is to provide

across 11 Mexican states, to install more than 10,000 off-grid

certainty and reduce exposure to price volatility for

systems that will benefit approximately 45,000 habitants,

electricity spot-market players. In August 2017, the Ministry

amounting to an investment of US$23 million.

of Energy launched the basis for the third long-term auction, with the results set to be announced in February

Capitalizing on the success and learning from the results of the

2018. The primary objective of this new instrument is to

first two long-term electricity auctions, the terms for the third

allow energy suppliers and energy purchasers to participate

long-term auction, published in May, took Mexico’s energy

in contracts with terms no longer than three years. “Private

transition one step further, and expectations are high. Minister

players are hesitant to sign long-term bilateral contracts

of Energy, Pedro Joaquín Coldwell, declared this third edition

given that predicting market behavior is complex, while

could triple Mexico’s electricity production from clean energy

renewable technologies are experiencing a downward slope

sources, continue the low tariff tendency of the previous two

in costs. Three-year terms provide acceptable risk levels

editions and attract an estimated additional US$3 billion in

as well as equating tariffs with market tendencies” says

investments. The auction was to take place in November 2017

Cruz. In comparison to the long-term electricity auctions,

with the results announced sometime later. One key feature

“shorter terms mean different financial schemes. This is

sets apart this third edition: the Clearing Chamber.

where commercial banking feels more comfortable and more likely to participate through mini-perms,” says Marian

Through this innovative instrument, CFE will no longer be

Aguirre, Energy Finance Deputy Director of Bancomext.

the sole purchaser of power, energy and CELs, opening the door to private players, provided they prove their

As a testament to Mexico’s commitment to empowering

credit worthiness. KPMG’s Energy and Natural Resources

consumers through a liberalized energy market and

Lead Partner, Rubén Cruz, says the Clearing Chamber is

transitioning to a cleaner energy mix – enshrined in the

a “positive step forward toward building up an energy

Energy Reform – the country was admitted as a new

market. The reform’s mandate clearly stipulates reaching a

member of the OECD’s International Energy Agency

wholesale market with diversified purchasers and suppliers.

(IEA) by a unanimous vote on June 21, 2017. The agency

A single off-taker, instead of creating market conditions,

determined Mexico’s energy policy is aligned with the IEA’s

impacts power producer’s margins and value through the

shared objectives of following international best practices

former’s purchasing power.”

and designing policies oriented toward sustainability and market competitiveness.

While the industry welcomes the Clearing Chamber, some note that these are still early days; it will take time

BANKABLE PROJECTS

before the true effect of the chamber is realized. “Mexico’s

Making long-term electricity auction projects bankable is

renewable energy scene is seeing an increased number of

one of the biggest challenges posed by the new market.

private energy traders and suppliers, but the aggregate

Compartmentalizing risk within the different stages of the

volume they can purchase in the market at the moment is

project, relying on best practices, integrating innovative

not significant enough for the Clearing Chamber to have a

financing schemes and reaching financial closure are but a

decisive and notable impact,” says Eduardo Reyes, Partner

few of the elements that turn project development into a

Power & Utilities of Strategy, a PwC consulting group. “We

success story. “So far, two strategies have dominated the

auction process: either you equate your offer price to your

financing model for electric transmission lines where private

cost structure and see if it sticks, or you take a deeper

third parties can participate. The announcement of the

look at the market, the competitive context and converge

first bid for a major transmission line project, parallel to

accordingly with the value chain to identify the prices that

transmission line development on behalf of CFE with private

need to be reached,” says Adrián Katzew, Director General

players, was expected to be announced in November 2017.

of Zuma Energía. “The execution phase is highly specialized,

In its latest 2017-2031 version, PRODESEN is scheduling the

working with banks and contractors to close pending

construction of 23,772km2 of transmission lines, meaning

contracts and begin project construction. This stage

an investment of US$11.5 billion.

is particularly fulfilling in the sense that we are defining unprecedented financial structures – meeting the require

Mexico’s energy authorities are not alone in this effort:

ments of annual energy volume, CELs, alternate markets

“We are backing PRODESEN’s process of developing

that used to honor those obligations – and studying their

the country’s electricity network. There is a significant

intrinsic risks in relation to our business.”

investment forecast in the expansion and digitalization of the network and we are pushing for an automated

Development banking institutions will have a key role to play

and smarter network with balanced power loads, as

in ensuring the success of the auction projects, which in turn

well as providing the equipment for a sturdier grid,”

will send positive signals to the market. “Banobras finances

says Alejandro Preinfalk, Vice President of Energy

infrastructure projects, Nafin focuses on production chains

Management for Siemens Mexico.

and Bancomext fosters foreign trade. Despite specializing in different segments and having different mandates, all three development banking institutions are placing capital in energy

MEXICO'S POWER GENERATION MIX JAN-SEP 2017

projects to respond to the sector’s high financing needs. Put

Wind

together, we represent a joint portfolio of more than US$2.5 billion dedicated to these projects,” says Bancomext’s Aguirre. Social impact is the other element that project developers need to tackle head on. “Energy projects need to be directly related to social development. Energy projects are by

TOTAL POWER GENERATED: 197.91TWh

nature long-term investments and are sprouting in different

Thermoelectrics 69% Geothermal 12% Coal Nuclear 12% Hydropower Nuclear 4% Hydropower 2% Geothermal Coal 1% Wind Thermoelectric

locations, surrounded by different communities. Coherent corporate social responsibility policies are at the core of this necessity. Companies that show resolve in finding ways in

Source: Ministry of Energy

which a project can give back and have a positive impact on a communities’ quality of life are those that will see

DISTRIBUTED GENERATION 2.0

their project prosper in the long-term,” says Ángel Lárraga,

While on-site power generation is an important element

President of AME and Gas Natural Fenosa.

of the country’s Energy Reform, Mexico had already experimented in that area prior to 2013, with bidirectional

STRONGER, SMARTER INFRASTRUCTURE

contracts with CFE and regulated by CRE. The scheme

Boosting Mexico’s installed capacity to address the expected

stipulated that whenever energy surpluses were produced,

increase in demand for electricity also requires sturdy and

CFE stored them in a virtual energy bank for one year to

lengthy infrastructure to transmit and distribute it to key

be used at a later date. This initiative was the precursor to

consumption points. Controllable demand and automated

creating an appetite for residential and commercial solar

processes will be at the core of strengthening the grid by

systems in Mexico.

avoiding saturation and guaranteeing a seamless supply of electricity. “In 2017, we published the Program for Smart

“Distributed Generation 2.0 regulations allow the closing

Electricity Grids. We designed a systemic vision to integrate

of an interconnection contract with CFE through which

new technologies under specific time frames, mirroring

you can not only store energy surpluses but also sell

international tendencies. Progressive incorporation of energy

them under net billing and net metering schemes,” says

storage, controllable electricity demand, electric cars and IoT

Guillermo Zúñiga, Commissioner of CRE. Between 2013

are contemplated in this program,” says César Hernández,

and 2017, according to CRE’s statistics small and medium-

Deputy Minister of Electricity at the Ministry of Energy.

scale interconnection contracts increased from 4,613 to 40,109, respectively. Installed capacity in that period

In line with Mexico’s Electric System Development Program

went from 29,131kW to 304,167kW, an impressive tenfold

(PRODESEN), the Ministry of Energy developed a new

increase for an incipient subsector.

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VIEW FROM THE TOP

SOUND POLICIES AT LOCAL AND GLOBAL LEVELS PEDRO JOAQUÍN COLDWELL Minister of Energy

212

Q: What strategies has Mexico incorporated into its energy

We have 15 connection points on the US-Mexico border

policy to better face the global market?

through which natural gas is imported and distributed to

A: Despite the complex global landscape and price volatility

the country’s manufacturing centers. When it comes to

in the international market, the Reform is maintaining a

pipelines, there are four US companies building them, either

favorable position and legal certainty, which in turn creates a

on national territory or the border. The opening of diesel and

trustworthy environment for investors. When it comes to the

gas imports to Mexico has driven some US companies to

electricity sector, the Reform created innovative mechanisms

create projects for importing oil through the development of

to further open the market and incentivize the entrance of

transportation infrastructure. In electricity we are expanding

new participants. The objective is to generate a higher supply

and modernizing the points of interconnection to increase

of electricity, giving priority to clean energies. In less than a

our electricity commerce and support infrastructure in the

year, we successfully executed two long-term power auctions

event of contingencies. There are 11 points of electricity

that are promoting the construction of higher capacity and

interconnection with the US and we are working on creating

sustainable infrastructure. In November we will launch a

three more.

third one. We have also introduced the CELs mechanism that establishes minimum percentages for renewable

Q: What are the ministry’s main goals for the next two years

electricity consumption for large electricity consumers. In

regarding the energy sector's development?

2018, the requirement will be at least 5 percent and by 2019

A: The Ministry of Energy has defined four goals for the

it will increase to 5.8 percent. We are also expanding the

initial phase of the Energy Reform. The first involves igniting

transmission grid to better deliver the energy produced in

major public and private investment through the oil rounds.

areas of the country with high potential for clean generation.

Our second goal is consolidating the energy market and

We are working on making the Mexican energy sector more

promoting new supply options to end users. The Ministry

competitive, strengthening the national industry and making

will continue liberating the natural gas market to make sure

sure it stays at the forefront of policies oriented toward the

the pipelines administered by CENAGAS operate under a

energies of the future.

capacity reserve scheme, along with further liberation of prices in most parts of the country. The third objective

Q: How are energy policies in Mexico affected by the

is to continue expanding the National Pipeline Network

agreements at the North American Leader’s Summit?

as part of our Comprehensive Strategy for Natural Gas

A: Mexico and the US have built a robust agenda of cooperation

Supply. The government is committed to a considerable

on topics such as energy exchange and strategic integration.

expansion of the national network of pipelines. In the last

With the Energy Reform, Mexico took an important step

four years we have obtained firm commitments for 7,762km

toward the integration of the North American markets which

of pipelines up to 2019. The electricity sector agenda is

will help transform the region into one of the most competitive

equally ambitious. The ministry plans to advance clean

in the world. Of the 48 new companies that are participating in

energy generation, our fourth objective. We have already

the national energy sector, eight are from the US. The numbers

launched the basis for the third long-term electric auction.

show the interest and mutual benefits that can be achieved

This auction will differ from the previous ones because the

through an interconnected economy.

private sector will be allowed to acquire energy, capacity and CELs. We are also working on the tender for the first HVDC line in Mexico that will connect the Tehuantepec

Pedro Joaquín Coldwell has been Mexico’s Minister of Energy

Isthmus with the central region, the first ever opened to

since the start of President Enrique Peña Nieto’s government in

private players in this segment. We will also announce the

2012 and has overseen deep changes in the country as a result

tender guidelines for a transmission line to connect Baja

of the Energy Reform

California with the national grid.

VIEW FROM THE TOP

CLEARING THE PATH FOR CLEANER TECHNOLOGIES GUILLERMO GARCÍA ALCOCER Chairman of the Energy Regulatory Commission (CRE)

Q: What does the universe of power-generation permits

industry. CFE was playing it safe to see how the market

handled by CRE look like at the moment?

reacted before making any major bids. It was the first time

A: As of Feb 2017, we are managing 1,072 permits under

the Ministry of Energy, CENACE and CFE conducted such

the legacy scheme against 284 permits issued under the

a process, so they wanted to learn from it. The outcome

new regulations. Not all of these belong to plants already

of that first auction was qualified as a success by several

in operation. Some are from companies looking to establish

international media, including The Economist, Forbes

bilateral contracts or to participate in power auctions. Also

and Bloomberg, and this successful experience has

interesting is the fact that half the permits we manage belong

given Mexican authorities the confidence to strengthen

to clean-energy projects. Regarding authorized capacity,

and enhance upcoming editions. Even though renewable

however, traditional technologies continue to have the

energies are not as sensitive to resource limitations as

largest share as clean-energy technologies only account, as

traditional technologies, they are still based on natural

of Feb 2017, for 33 percent of the total megawatts awarded

resources that are a constraint to a certain extent. We

in permits. The number is even lower when considering the

want to avoid having critical situations, as happened in

capacity already installed in the country, in which only 25

Spain where more solar-energy capacity was installed

percent corresponds to clean energies. But we see a rising

than the country could handle, unbalancing the system

trend in the share of clean-energy capacity installed in the

and leading to a crisis in their solar-energy industry.

country and expect at least a 10 percent increase in the short

Mexico wants to be cautious but is moving at a rapid

to medium term given the number of new permits awarded

pace in developing a clean-energy industry, especially

as well as Mexico’s clean-energy goals.

compared with other Latin American countries.

Q: How is CRE improving the power auction processes to

Q: How is CRE preparing for the CELs market that will start

resolve private sector concerns?

operating in 2018?

A: Power auctions will be run by the Ministry of Energy

A: We have less than two years to develop a robust system

in collaboration with CENACE up to the third edition.

to keep track of all the CELs awarded to energy projects and

Afterward, CRE will take control of them. We have identified

traded in the market. We want to avoid double accounting

concerns from the private sector regarding compensation,

and balance sheet inaccuracies, so our main focus is to

guarantees and timelines, but the Ministry is already

develop a comprehensive and reliable tracking system. Our

working toward improving these. For instance, the first

goal is to have a CELs platform that works similarly to a stock

power auction did not allocate any of the capacity required

exchange market, having a value administrator to keep track

as the maximum price was set at MX$10,000 per MW/year,

of the certificates’ ownership. The same administrator will

too low to attract serious investment. The second power

be in charge of following all the purchase-sales transactions

auction corrected that, offering a price of MX$1,688,706

performed in the CELs platform. We are working with different

per MW/year. The same happened with the volume offered,

financial entities to develop a stock-based instrument, which

which almost tripled from 500MW/year to 1,483MW/year.

is expected to be ready by 2018. In the meantime, we are

In this way, companies can build more complex proposals,

working on the complementary regulations needed to

including technologies that are more suitable for baseload

encourage participants to join the market by 2018.

power such as combined cycles and hydropower plants. Q: Why did CFE decide to bid a conservative amount of

The Energy Regulatory Commission (CRE) is the entity in

capacity in the first power auction?

charge of regulating the industries of gas, refined oil products,

A: The first power auction acted as a pilot, in a similar

hydrocarbons and electricity in a transparent, impartial and

manner as phase one of Round One in the hydrocarbons

efficient way

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214

INSIGHT

ONUS ON KEY PLAYERS TO SEE PROJECTS THROUGH JAIME DE LA ROSA President of the Mexican Energy Association (AME)

After a successful first year for Mexico’s newly minted

the most interesting areas of the new energy paradigm,

electricity market, the challenge now is to get all the

such as the spot market, will take a little more time to

projects in the pipeline moving forward to benefit the

develop as new players come to understand the rules

country’s economy, lower energy prices and improve the

and slowly start to dip their toes into the waters. The

industry’s overall competitiveness.

spot market, where companies will go to meet short-term energy requirements not covered by PPAs or basic supply,

The heavy infrastructure investments associated with the

will gradually see more participants such as qualified

projects tendered during 2016’s two long-term power

suppliers, the energy middlemen who are starting to pop

auctions will add value in the form of jobs and technology

up in the country. “The new mechanisms will contribute to

development but it is up to developers, communities,

increasing Mexico’s competitiveness on the global scene

investors and authorities to see them through to completion,

and enhance the internal energy security of the country

says Jaime de la Rosa, President of the Mexican Energy

while bringing new players to the market. There is still a

Association (AME), which groups dozens of national and

long road ahead to arrive at this ideal scenario but the

international players in the power sector.

regulations are clearly marking the route we need to follow to reach this target.”

Looking back at 2016, the MEM’s first year of operation, de la Rosa says the two power auctions were successes

Among the elements that need to be clarified are the

that put Mexico firmly on the global energy map. “The

relationship between participants in the spot market,

response to the first long-term electricity tender in March

subject for example to variable prices, and those taking

was quite successful, with over 103 private companies

part in the long-term fixed-price electricity tenders, de la

accessing the tender’s guidelines, of which 69 presented

Rosa says. Fortunately, the authorities, from the Ministry

economic proposals. This level of participation was a

of Energy to Congress, have been willing to listen to the

historical milestone, not only for Mexico but for the global

needs of private players. AME “continues to collaborate

energy industry,” he says. “The process’ transparency and

with CENACE, CRE and the Ministry of Energy to shape

the record renewable energy prices received by CFE were

the future of the energy market, sharing our members’

also great achievements. Achieving an average of US$49

experiences in international markets and acting as the

per megawatt-hour of wind and solar energy has been a

voice of private energy companies in Mexico.” AME is

major breakthrough for the country and the renewable

looking forward to future electricity tenders despite the

energy industry, especially as there were no subsidies

uncertainty that continues to swirl around the sector. “Our

involved.”

main expectation is to see a series of successful electricity tenders over the next years,” de la Rosa says.

CENACE followed in September with another successful auction performance that “managed to surpass the high

“The challenge will be to eliminate the uncertainty

bar set during the first round, allocating a large share

regarding the functioning and potential scope of the

of the capacity required by CFE and achieving lower

other market components, such as bilateral contracts,

prices per megawatt-hour and CELs,” says de la Rosa.

which share strong similarities with the self-supply

“We were especially satisfied to see that the portfolio

scheme, a legacy from the old regulatory framework.

of technologies earning contracts was much more

So far, private companies are analyzing the possibility

diversified than in the first auction in which solar and

of partaking as qualified suppliers or marketers as a

wind technologies got all the CELs and energy auctioned.

strategy to diversify their participation in the new market.

Now, we also have combined cycles, geothermal and

However, we will have to wait to see how successful these

hydropower technologies.” De la Rosa says that some of

new elements become.”

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VIEW FROM THE TOP

NEW ROBUST SYSTEM TO BOOST COMPETITIVENESS JAIME HERNÁNDEZ Director General of Federal Energy Comission (CFE)

216

Q: Which of the major events of 2016 will shape the future

well as natural gas pipelines. We have 26 projects related

of CFE?

to natural gas transportation that will contribute to the

A: The Energy Reform’s approval in 2013 ignited one of the

government’s goal of expanding the National Pipeline

biggest transformations the Mexican energy industry has

System by 75 percent in 2018. Having a more robust system

experienced in decades, particularly in the electricity sector

will not only benefit CFE as a large natural gas consumer

because it created open markets for electricity generation

but also other Mexican industries.

and commercialization. The Wholesale Electricity Market (MEM) was created with the fundamental principle of

Q: What are the main challenges faced by CFE’s new

dispatching the cheapest energy first, which will benefit

companies?

the pockets of Mexican families. This market mechanism

A: Transmission and distribution will become core

also works as an incentive for power producers to optimize

businesses for CFE in the short term and both will remain

their production costs, an area CFE has been focusing on.

under regulated tariffs. Among the major challenges in these areas is to continue pushing the modernization and

CFE’s restructuring process was another highlight of

expansion of the grid, using the tools introduced by the

the year. In January 2017 our subsidiaries and affiliates

Reform to boost revenue. Another challenge we are facing

started working independently, adding another milestone

in the transmission and distribution sectors is the need to

to the company’s new phase. We now have 13 companies

reduce our technical and non-technical losses. CFE lost 16

under one roof, which we need to continue consolidating

percent of the energy it produced due to these causes in

financially in the coming months while respecting the strict

2012 but we managed to reduce that to 12 percent in the last

legal separation principles. CFE’s new organization includes

period measured. Our goal is to further lower our losses to

six generation companies competing against each other as

10-11 percent by 2018, a reachable objective given our past

well as other private producers, one transmission subsidiary

achievements. In the case of CFE Calificados, which mainly

working at the national level to ensure the system’s security

serves industrial users, we face the challenge of upcoming

and one distribution subsidiary with 16 independent

competition, which is driving us to reshape our approach

business units. We also have a subsidiary to serve the

to the sector. Regarding our generation subsidiaries, the

basic segment, CFE Básico, and an affiliated company for

main challenge is to attract private capital to push for the

qualified users, CFE Calificados. The company has two new

development of new power plants.

units to commercialize hydrocarbon fuels in Mexico and the US, an interesting opportunity also made possible by

Q: What actions is CFE taking to change its employees’

the Reform. By entering the natural gas commercialization

mindset to meet the needs of a productive enterprise?

business, we expect to reduce our generation costs

A: Creating this new operational structure has been a long

considerably as 80 percent of these are fuel-related. To

and complex process but CFE’s employees and their union

increase our competitiveness, we have committed to the

(SUTERM) have risen to the challenge. We could not have

development of 85 strategic projects, totaling over US$25

accomplished the successful separation of CFE without

billion in investments. These projects include new power

the active participation of our employees. I paid over 20

generation facilities, transmission and distribution assets as

visits to our facilities where I have witnessed firsthand the enthusiasm and commitment of our team members. CFE’s employees are its main asset. We serve a portfolio of over

Jaime Hernández is an economist and holds a PhD in Political

40 million clients, generating annual sales of MX$300 billion

Economy from Essex University. Before being appointed to the

(US$14.5 billion). This is only possible thanks to our 100,000

helm of the CFE in August 2016, he served as the state-owned

employees, who are highly experienced professionals

company’s CFO

committed to the development of the Mexican energy

industry. Different generations of CFE’s employees made

CFE CORPORATE ORGANIZATION STRUCTURE

it possible for 98.5 percent of the Mexican population to have access to electricity. I have no doubts about my team’s

Subsidiaries

capabilities and commitment to implement the changes

CFE Generación I: Production and commercialization of electricity through different technologies, excepting supplying activities.

brought by the Reform and to safely bring CFE to the next stage of its existence. But it is true that we need to change

CFE Generación II: Production and commercialization of electricity through different technologies, excepting supplying activities.

the company’s culture. CFE used to act as an authority to a certain degree and we need to understand that now, in some segments, we are just another competitor. We need

CFE Generación III: Production and commercialization of electricity through different technologies excepting supplying activities.

to reshape our strategy to better serve the needs of our clients, understanding their concerns and offering more attractive services and tariffs.

CFE Generación IV: Production and commercialization of electricity through different technologies, excepting supplying activities.

Q: How has CFE’s relationship with the private sector changed since the Energy Reform?

CFE Generación V: Represents existent and upcoming power plants with legacy IPP contracts.

A: CFE was the main promoter of large energy infrastructure projects in the past, many of which were developed in collaboration with private companies. The Energy Reform

CFE Generación VI: Production and commercialization of electricity through different technologies, excepting supplying activities.

has changed the context for CFE’s collaboration with the private sector, allowing us to establish alliances and share each of the projects’ risks and benefits. The guidelines for

CFE Transmisión: Performs all the activities needed to provide electricity transmission services, included financing, O&M and infrastructure operation.

CFE’s legal restructuring were among the fundamental elements of the Reform. We expect the industry to remain vigilant about compliance with these, ensuring CFE passes through this transformation without losing

CFE Distribución: Performs all the activities needed to provide electricity distribution services, included financing, O&M and infrastructure operation (Divided in 16 business units).

its competitiveness but allowing the establishment of a level playing field for other participants. In this context CFE is fully prepared and willing to continue collaborating

CFE Suministrador de Servicios Básicos: Supplies electricity services to basic users according to the terms of the Electricity Industry Law.

with the private sector in the development of a robust and competitive electricity market. It is important to highlight that Mexico’s Energy Reform is taking place amid a rising demand scenario as the country’s electricity demand is

Business Unit

growing at around 3 percent annually. This feature makes

Nuclear Generation Manages Laguna Verde, Mexico's only nuclear power plant, located in Veracruz.

Mexico a distinctive case and ensures there is enough room for CFE but also for new participants to capitalize on this market. Affiliates

Q: What is the future of CFE’s energy mix? A: Mexico has established the goal of producing 35 percent of its electricity from clean energy sources by 2024 and CFE is moving at the right pace to reach this target on time. The system’s stability is another key factor for us so we are also investing heavily in baseload technologies. In this area, CFE is pursuing an ambitious strategy to substitute expensive and polluting fuels for more sustainable alternatives. Between 2012 and 2015 we reduced our fuel oil and coal usage significantly, decreasing our GHG emissions by 50 percent. Using natural gas for power generation represents around 25 percent of the cost of using fuel oil, so we have also reduced our generation costs considerably. Our end goal is to have a diversified portfolio of technologies and fuels so we can react quickly to sudden changes in the international market or technological changes with the potential of disrupting the industry.

CFE Calificados: Supplies electricity services to qualified users according to the terms of the Electricity Industry Law. It also represents Exempted Generators in the MEM and commercializes electricity and ancillary services in Mexico and abroad. CFE Intermediación de Contratos Legados: Administrates legacy interconnection contracts and represents legacy power plants and load centers in the MEM under the Intermediary Generator figure. CFEnergía (under Mexican law): Imports, exports, contracts transport and storage, and buys and sells fuels in Mexico and abroad. It also administrates assets and fuels and participates in the electricity market of Mexico and other countries. CFE International (under US law): Imports, exports, contracts transport and storage, and buys and sells fuels and electricity. Source: MBP with information from CFE

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VIEW FROM THE TOP

POTENTIAL OPEN SEASON IN CANCUN PHILIPPE DELMOTTE CEO of ENGIE México

218

Q: How does ENGIE match its natural gas business in

pillar of our Mexican business. We are already the second

Mexico with its production ambitions for clean energy?

largest natural gas distributor but we want to double our

A: We have three business lines in Mexico, one of which

local client base by 2020. We now have six natural gas

is power production. Cogeneration plants have been the

distribution companies in different states, including the

core of our power-generation business up to now. ENGIE

State of Mexico, Puebla, Tlaxcala, Queretaro, Jalisco and

has around 311MW of cogeneration capacity installed. In

two in Tamaulipas. The availability of cheap natural gas

addition to electricity we offer steam to our clients and

from the US and Mexico’s goal to expand the national

inject the surplus power to the grid. Now we are looking

natural gas network are the main drivers behind our plan.

to expand our power-production capacity with more

Besides expanding our reach, we want to offer our clients’

cogeneration projects, particularly for clients with high

integral services beyond natural gas supply like mini-

thermal demand, including mini-scale and large-scale

cogeneration for industrial applications. We are looking

facilities and new solar and wind-energy projects. Our

to integrate energy-efficiency strategies to help our clients

goal is to produce at least 25 percent of our energy from

optimize consumption. We are also looking at alternative

renewable sources by 2020, which is in line with ENGIE’s

uses of natural gas to complement our distribution and

vision and the goals set by the Mexican government

transportation activities in Mexico. Compressed Natural

regarding clean-energy generation.

Gas (CNG) is one of the means to reach areas located 200-300km from a natural gas pipeline. We manage this

ENGIE’s City of Tomorrow concept encompasses solutions to digitize energy and land-use decisions in cities

business in a joint venture with Virtual Pipelines Mexico, which has great expertise in the natural gas compression segment. Another business we are analyzing is Vehicular Natural Gas (NGV). Q: Where do you expect demand for natural gas services to flourish?

Q: How does the company plan to expand its natural gas

A: We expect to see demand increase for our natural gas

transportation and distribution capabilities?

distribution services in the regions where we are already

A: Natural gas transportation is the second axis of our

operating because natural gas demand usually grows

operations in Mexico with 1,300km of pipelines already

around existing pipelines. We already operate 10,500km

under operation, including the Mayakan pipeline in

of pipelines in our distribution business but we need to

Yucatan, the Bajio pipeline in Mexico’s central region and

add 5,250km to double our clients, which is among our

a new pipeline located south of the second phase of Los

ambitions for 2020. We also see great potential in the

Ramones, near Guanajuato. ENGIE is the second-largest

Cancun area, which lacks a steady natural gas supply.

natural gas pipeline operator and the first distributor in

There is one pipeline already in the region but it only gets

Europe and we have used that experience to expand

to Valladolid in Yucatan, leaving customers in Cancun

our business in Mexico and provide the services our

without direct access. We are planning to deliver CNG

customers require. Natural gas distribution is the third

at first but we see expanding our natural gas network as a potential solution for the future. We are analyzing the possibility of organizing an open season in Cancun aligned

ENGIE is one of the largest private gas pipeline operators and the

with the new regulatory framework, which allows us to ask

number two natural gas distributor in Mexico. The company also

about client interest in reserving capacity in the system.

has three steam-electricity plants and is building 149MW of PV

If enough interest is perceived at the open season, we

solar capacity as a result of CENACE’s long-term power auctions

can expand our Mayakan pipeline all the way to Cancun.

EXPERT OPINION

SOWING SEEDS AND REAPING SUCCESS PAOLO ROMANACCI Director General of Enel Green Power Mexico

We have bet on Mexico for many years now. Currently,

diversified energy mix and ensure competitive prices. In

we operate 729MW of installed capacity through wind,

Mexico, the implementation of the Energy Reform and

hydro and solar power plants. The Energy Reform has

the success of the latest long-term power auctions are

been a complete success because it has brought stability

boosting the development of the country’s energy sector

and many benefits to the country’s renewables market.

and have quickly established Mexico’s energy regulatory

We are now the largest player in the sector by installed

system as a best practice worldwide. For auctions to

capacity and project portfolio and our business will

work and contribute to the creation of a healthy and

continue to grow at the same speed as the Mexican

competitive energy industry, they have to be backed by

energy market, as long as the rules continue to be clear

robust and strong planning to avoid price distortions

and transparent as they have been and as long as the

that could occur due to limitations on the grid, reserve

level of competitiveness remains.

conditions and energy congestion. Regulatory authorities have to take into account that renewables are capital

Given the price levels in the last two long-term power

intensive and require long-term policy and price stability.

auctions and an upward trend in the cost of gas, our expectation is that the government will create a higher

One of the major improvements that took place between

penetration of renewables, which makes Mexico an even

Mexico’s first and second long-term auctions was the

more important market for our global business strategy.

decrease in tariffs produced by the adjustment factors

The Enel Group entered the Mexican renewables market

of generation zones. The prequalification and bid process

in 2007, when it acquired three hydropower plants with a

evaluation was faster and linear, which clearly showed

total installed capacity of 53MW in the country’s western

the experience acquired between the tenders. Another

states of Guerrero, Michoacan and Jalisco. In addition to

positive aspect is that the general rules of participation

these plants, today we operate 675MW of wind power.

remained, proving the overall scheme is extremely

Overall, we have invested around US$1.5 billion since our

successful. Some improvements can still be made with

arrival in the country.

regards to participation criteria, such as assessment of the development status of projects prior to their

Private off-takers are key to our local business strategy,

participation in the auction.

as we are leaders in energy self-supply. We had great success in Mexico’s long-term power auctions in 2016 and

We will continue to work to keep growing in the

we are working to enter the short-term energy market in

renewables generation sector. As a consequence of the

the near future. All three business models are extremely

Energy Reform, we expect the market to open up even

exciting for us and we are already planning the feasibility

more and present new opportunities which we will be

of other projects for the coming years. The latest auctions

ready to take advantage of. As more participants appear

showed that the system works and we expect the other

in the energy sector with an increase in competition,

two models (self-supply and short-term market) will share

we can expect a decrease in costs related to energy

the same success to have an adequately liquid market.

management and growing liquidity in the market in terms

This is only going to be achievable as long as the country

of suppliers and users, not just generators.

pushes for more renewables, clear rules and the lowest prices possible.

We are a global operator with a well-balanced and diversified portfolio. As far as Mexico is concerned, the

During the last 10 years, energy auctions with clear and

latest auctions demonstrated that the most promising

transparent rules have been globally demonstrated to

renewable technologies are mainly solar and wind. Our

be the most efficient system with which to achieve a

goal is to continue developing our business in those areas.

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VIEW FROM THE TOP

SAILING AHEAD IN MEXICO’S WIND POWER INDUSTRY JUAN SALTRE CEO of Ventus

220

Q: What is Ventus’ forte in green energy projects and

from US$20,000 to US$4 million. This strategy has no

where can customers see the biggest added value?

equal in Uruguay or in Latin America. We are looking to

A: Ventus offers services along the whole spectrum of a

replicate this scheme, taking into account each country’s

project. Ventus started seven years ago as a small company

legal specificities. In Argentina we recently managed to

in Uruguay, providing services in the wind-energy project-

attain a position of strength in a short amount of time.

development phase. Over time, our clients expressed a

Ventus started operating there in January 2016. Today, we

need for help in other stages, which is quite unusual for

are working on 80 percent of the projects granted in the

the industry. We are structured to work with separate and

latest power auctions.

specialized departments in engineering, construction and O&M that enable considerable risk mitigation in all the

Q: How have the electricity auctions and the creation of the

projects that we undertake.

MEM increased interest in Mexico’s green energy market? A: We were definitely influenced by the auctions. When we

Q: What are the company’s most successful projects?

decided to expand from Uruguay, pushed by a saturation

A: One that was fairly important for our growth was quite

of the market due to overinvestment, we started analyzing

atypical. A few years ago, we developed a project in

Latin America’s biggest markets. We first looked at

Uruguay for which we structured a financial trust issuing

neighboring countries and found Brazil too complicated to

a private offer of US$20 million. Investors of all sizes

work in. Argentina made more sense for our business plan.

participated in the trust, including companies and private

Mexico today is a market made up of more than 3,000MW

individuals totaling 76 investors, with amounts ranging

of wind power installed capacity currently in operation, with the potential of tripling, which will generate more opportunities for companies like Ventus. We know there

Ventus is an engineering company based in Uruguay with

is fierce competition because it is a market that has been

operations across Latin America. It has expertise along the

developing for many years with very competitive prices.

whole life cycle of wind energy projects, from EPC to O&M.

We are not interested in engaging in a price war but in

Ventus is also venturing into solar-energy projects

providing a competitive proposal as a whole.

VIEW FROM THE TOP

KNOCKING ON MEXICO’S SOLAR DOOR HONGBIN FANG Director of Product Marketing for LONGi Green Energy Technology

Q: What elements of Mexico’s energy market and the

company. Technology has always been a primary aspect

reform spiked LONGi Green Energy Technology’s interest?

of our company, compared to other PV manufacturers.

A: The first element that interested us was the demand

We consistently invest 5-7 percent of our total revenue

factor. Mexico has exhibited strong economic growth, which

into technology research and development. Our company

will foster energy demand in the coming years. The Mexican

always strives to develop better equipment to improve

government is determined to keep the Energy Reform on

productivity and better technology to improve our client's

the road to success and this will help boost the percentage

performance. This also translates into a consistent trend of

of renewables in the energy mix. We are convinced that

increasingly competitive products at lower cost.

Mexico’s PV market has bright days ahead of it. Q: What client portfolio are you targeting in Mexico? Q: How did LONGi Green Energy Technology achieve its

A: We believe all segments of the market are important,

LCOE solutions?

with particular interest in DG applications. In Mexico, the

A: From the beginning, we focused on monocrystalline

majority of the volume in renewable energy is still owned

technology because intrinsically it constitutes a better

by utility-scale projects. With the distributed generation

material for efficient energy conversion, demonstrates

sector (industrial, commercial and residential) expanding

better energy yield and delivers better value (lower LCOE)

at a much faster rate, representing a much higher

for end users. The main obstacle for widespread mono

value for our high efficiency mono modules, we think

module adoption was the higher cost in manufacturing a

we will have a larger impact in distributed generation

mono wafer in the past.

applications to help the industry in bringing down total PV system cost, as well as lowering LCOE, generating a

For the last 17 years, we have focused our efforts on

better energy yield.

technology development in mono wafer manufacturing to improve productivity and performance, thus driving down

Q: What are LONGi’s longer-term plans for Mexico?

cost. Our company was founded in 2000, yet by 2013 we

A: Our company goes hand-in-hand with high

were the largest mono wafer manufacturer in the world.

performance, high quality and competitive prices. We are

At the end of 2014, we acquired Lerri Solar, a small module

trying to understand the market, going through a learning

manufacturer in China, to strategically move downstream

phase, developing strategies to learning how to work with

to solar cell and module manufacturing and deliver value

local players, letting our customers understand the value

of mono technology closer to our end users. Because we

of high-efficiency mono modules so we can make an

could produce less costly and highly efficiencyt mono

even better contribution. Mexico and Latin America are

modules, ensuring better value for our customers and

important markets for LONGi Green Energy Technology

the end user, we have delivered more than 3GW of mono

and we are committed to bringing in high quality, better

modules to the market within 2 years, increasing the

performance mono modules at competitive price to those

market share of mono modules in China from 5 percent in

markets. We hope to become a significant part of the

2014 to 27 percent in 2016. We expect this share to reach

market so more and more customers can realize value

35 percent by the end of 2017.

of high efficiency mono modules.

Q: How does the company’s focus on research and development set it apart from other PV manufacturers?

LONGi Green Energy Technology Co. Ltd. , founded in 2000,

A: In 2014, we expanded from our initial business in mono

is among the largest single crystal manufacturer in the world.

wafers and ingots to mono cells and modules, as well as

It provides high-quality products and services for photovoltaic

project development to become a truly vertically integrated

and semiconductor products

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VIEW FROM THE TOP

ANTICIPATING THE EVOLUTION OF THE MEXICAN ENERGY MARKET ENRIQUE GIMÉNEZ Director General of Fisterra Energy

Q: How would you rate Mexico’s energy infrastructure?

Clear examples are found in PRODESEN’s provisions but

A: Infrastructure is the backbone of the electricity sector. The

private initiatives are needed to meet the program’s goals.

reform is a positive step forward for Mexico; considerable 222

effort was invested in it and there is an undeniable sense

Q: What is the comparative advantage of Fisterra’s energy

of quality in its provisions. There are two basic areas for

supplier branch?

improvement. Firstly, the reform is being implemented

A: Blackstone, our financial arm, provides the financial

and regulated simultaneously, causing some inefficiencies

solidity our clients look for. Fisterra’s experience in the

in market operations, generating unease with potential

energy sector is proven, with highly qualified personnel

operators and delays. Secondly, markets can be classified

from Spain and Mexican professionals with long careers in

under a number of categories. In Mexico, the long-term and

CFE that we added to our team. Blackstone also provides

short-term energy markets were launched concurrently. In

an important input from the American electricity market

our view, the long-term market has been predominantly

that Mexico also uses. As a result, we can anticipate the

prioritized because of the long-term auctions. The picture

evolution of the Mexican energy market because we have

of undeniable economic success and achieving competitive

seen other markets mature.

prices does not reflect the day-to-day reality of the market. This short-term market lacks liquidity due to the scarcity of

We have pioneered the energy financial trading market in

players operating in it: CFE, Fisterra Energy and a few others.

Mexico in accordance with the tendencies we have observed elsewhere. We regularly release our forward price curve

The first auction targeted the need to foster renewable-

from one week to five years. Fisterra also helps represent

energy generation. The effectiveness of resource allocation

small power producers, from one to 15MW power capacity,

is questionable because wind and solar-power projects

that are unable to take advantage of the opportunities

were not launched in areas where the respective resource

presented by the developing regulations. Our company

was not as abundant as in other regions but instead catered

takes the power they generate to the market.

to zones where transmission capacity was acceptable or that had power-generation requirements. In this sense,

Q: What is Fisterra Energy’s long-term vision for Mexico?

Mexico has the same issue as other parts of the world in

A: Mexico is a developing country with tremendous

terms of network planning. CRE, CENACE and the Ministry

opportunities in the energy sector. Energy consumption

of Energy all realize that grid infrastructure is vital in this

is expected to grow exponentially. Mexico is ranked 15th

regard. You also cannot analyze renewable energy without

globally in terms of energy consumption volume. Despite

looking at natural gas. A rationalized liberalization requires

its few mishaps, the Energy Reform is sound. Our new-

liberalizing inputs first and consumption second. The reform

arrival status in Mexico gives us an important comparative

took the opposite approach by liberalizing electricity first

advantage. The infrastructure issues we talked about

and natural gas second.

are already being addressed by capable professionals in CENACE and CRE. We want to help them get there.

The country is making valuable and considerable efforts to

Fisterra already provided the stepping stones toward

strengthen natural gas infrastructure and pipelines, however.

invigorating the market through financial trading and we have high hopes in the development of this segment. The Mexican Stock Exchange is already taking steps in

infrastructure

this direction. Our company is also motivated by the

investments worldwide. Fisterra enjoys technical expertise and

announced midterm auctions. We will continue devising

extensive experience in M&A, project financing, development,

strategies in client attraction, power generation and

construction and operation

diversifying our product portfolios.

Fisterra

Energy is

specialized

energy

VIEW FROM THE TOP

REGULATORY HOLD-UP SLOWS PROCESSES JOSÉ PABLO FERNÁNDEZ CEO of Grupo Dragón

Q: To what extent have you advanced in your plans to

private players must establish joint ventures with the state-

become a qualified supplier?

owned company for transmission and distribution initiatives.

A: We have made great advancements in our energy trading

We have identified a number of business opportunities in

plans, but it has been challenging to launch a definitive

improving the Mexican electricity network, and we consider

project, as there are still regulations pending. We have already

advanced energy metering as a suitable starting point.

acquired the necessary permits from CRE to be a qualified

Efficient and accurate interpretation of energy data is one

supplier, but we are still waiting for CENACE to define the final

of Grupo Dragón’s strengths, as we have over six years’

market rules. Most private companies are in a similar situation,

experience over our competitors in this area.

but we expect the market to take off eventually. As a strategy to reach off-takers, we are offering self-supply plans with

Q: What allowed Grupo Dragón to win the first private

permits acquired under the previous regulatory framework.

concession for a geothermal project in Mexico?

We have two self-supply projects under construction and they

A: It is impossible to complete a geothermal project in less

can migrate to the new regulations at any time.

than five years as it requires large investments and long exploratory and drilling periods. It is not a challenge exclusive

Q: What other areas of opportunity have you have identified

to Mexico. Our project has been operating for one year,

in the Mexican power sector?

meaning it was planned at least six years ago. Because of

A: We see a great potential in energy forecasting and the

this, when we acquired our permits, the project was under the

use of thermography for energy applications. The evaluation

self-supply scheme from the previous regulatory framework.

of market dynamics and the identification of energy usage

This transition period brought uncertainty to our project as

in different industries will differentiate successful companies

we were not sure that our previously acquired permit would

from the rest. All electric utilities sell the same product, a

migrate to the new law but we managed to change our

flow of moving electrons, so differentiating factors will be

concession. We bet strongly on geothermal as we considered

related to aspects such as quality customer service. In this

it a promising and clean energy technology in spite of the

new landscape, customer data regarding electricity usage

risks involved. This all happened before the Energy Reform.

will be crucial for companies wanting to have a competitive advantage. We have the software and hardware needed to

We do not consider the new regulations to be particularly

perform these tasks. Our group is one of the companies in

advantageous for geothermal development. They complicated

Mexico investing the most in data storage devices. We see a

the bureaucratic processes for us. We had the advantage of

barrier in this sector as most Mexican companies do not have

being the only private company participating in the sector at

real-time metering devices. The Law of the Electricity Industry

that time, which allowed us to establish a direct dialogue with

says that private investment in electricity transmission and

the government and ease the transition process. The outcome

distribution infrastructure is only allowed under certain

would have been completely different in the wind energy

conditions with CFE or their subsidiaries. We would be

industry, where several private companies were already

highly interested in investing more in this sector, but we are

operating. In the long term, however, we do not exclude the

discouraged by the existing constraints.

possibility of new geothermal developments benefiting from the new regulations.

Q: What investments has Grupo Dragón already made in electricity transmission and distribution? A: We have allocated US$215.5 million in a smart grid project.

Grupo Dragón is a Mexico City-based electricity solutions

It focuses on advanced metering devices and is one of the

company with proven expertise in the generation, operation

largest initiatives in Mexico in this regard. We are working with

and maintenance of large-scale renewable energy projects, as

CFE in this project as stated by Mexican law, which says that

well as efficiency consulting services, among others

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BENCHMARKING THE NEW PPA Alberto Haito Senior Associate at Clifford Chance

Martin Menski Senior Associate at Clifford Chance

Q: How do Clifford Chance clients view the new contracting

number of projects with different off-takers eases project

system?

financing because it makes lenders more comfortable with

MM: Our clients inevitably compare the new PPA with

the company’s revenue streams.

the old one, which is still in operation. The new PPA 224

is bankable, broadly speaking, but there are several

Another factor to consider is that most companies winning

aspects that concern our clients, such as the risks private

the first power auction are probably capable of financing

companies must now take on, some of which were

their projects on a balance-sheet basis. They are big

previously managed by CFE. One of the most concerning

international market players. We are not aware of any

issues is the uncertainty around the credit risk of off-

winning company requiring external nonrecourse project

takers. CFE is expected to be involved in most of the PPA

financing to develop its project.

transactions in the short-term, acting either as off-taker or as jointly liable with the off-taker. Doubts remain about

Q: What will be the key challenges to financing energy

how to manage the credit risk of other companies seeking

projects in Mexico besides off-taker credit risk?

to participate in the market as buyers and to what extent

MM: Merchant risk will be one of the major issues for

banks will consider the off-taker’s credit-worthiness,

financing energy projects in Mexico because the uncertainty

since the PPA does not directly tackle this issue.

in this aspect hinders the development of a simple legal or commercial solution. Energy assets last up to 25 years but

AH: As long as CFE acts as off-taker or assumes any

the PPA establishes only 15 years of contracted revenues,

payment obligations under the PPA, financiers will place

so banks have no certainty about the rest of the period.

special consideration on their overall credit risk. Let us

This situation will make it harder for energy companies to

not forget that most of these banks are probably already

obtain long-term financing, especially as the current global

lending to CFE in some capacity, which increases their

macroeconomic conditions also add to bank reluctance.

overall exposure vis-a-vis CFE and consequently, the overall

We are nonetheless observing a proactive approach from

risk involved in the transaction.

multilateral lenders that are betting strongly on Mexico. We see a special commitment from those multilateral

Q: How did companies participating in CFE’s first power

banks in which Mexico is a stakeholder. US export credit

auction overcome these risks?

agencies also are looking south of the border and already

MM: That CFE is still in the picture gives confidence to the

have mentioned their interest in ramping up their ability to

market because it presents a similar structure to what was

finance deals in Mexico.

done previously. Once private companies start participating in the auctions as purchasers, we expect to see a shift to

AH: We also see a number of European credit agencies

portfolio financing structures similar to what happened in

willing to invest in the country’s nascent energy industry.

Chile, which has one of Latin America’s most developed

The old self-supply PPA worked as a platform to attract

spot markets. This approach mitigates the “single off-taker

foreign investment to Mexico’s power sector and to build

credit risk” because companies have diversified portfolios

large financing deals. Because of that, non-American

with several off-takers instead of just one. Grouping a

institutions now have the confidence to invest in new energy projects in Mexico. The interest of multilateral banks and export credit agencies in financing these types of

Clifford Chance is an international law firm with expertise in

projects will probably help to close the gap that merchant

capital markets, corporate, finance, risk management, real

risk creates for other institutions. Commercial banks are

estate and labor issues, with a particular expertise in the

working to structure solutions to deal with merchant risk

energy sector

but there is no consensus on the best approach to take.

VIEW FROM THE TOP

INTEGRATE CLIMATE CHANGE INTO RISK MANAGEMENT FRANCIS PÉREZ Shared Value Creation & Sustainability Director of Nestlé México

Q: What is behind Nestlé’s strong climate change

Q: To what extent has the Energy Reform contributed to

position and what is its strategy to reduce its emissions

making Nestlé’s clean energy goals easier to achieve?

globally?

A: With the Energy Reform, we have new and better

A: With the highest carbon dioxide levels since the

options for competition, establishing contracts with

Industrial Revolution, the resulting changes in climate may

different companies. We are analyzing all our options

threaten global food security in general and our business

to achieve 100 percent supply from renewable sources.

in particular. The long-term supply of safe, high-quality

In the past we decided to go for wind energy because a

ingredients may be affected as yields fall and production

study showed it was the best solution at the time in terms

areas shift. Manufacturing or distribution of food products

of the cost/benefit ratio.

may be hampered because of extreme weather events. That is why reducing air emissions and adapting to climate change are integrated into our risk management processes and why our response is a holistic one. Given our global footprint, we use many different mixes of fuels and energies throughout the world, which depend on local supply and market conditions. Our overall strategy focuses on improving energy efficiency

Nestlé reduced its energy usage by 37 percent and CO2 emissions by 61 percent compared to 2005 levels

and switching to cleaner fuels and energies. Procuring renewable electricity is a key element of that strategy.

Q: What advice do you have for companies that would like to incorporate renewables but are wary of a negative

Q: What route is Nestlé taking to become 100 percent

impact on competitiveness?

renewable and how is Nestlé México contributing?

A: Climate change requires everyone’s attention, including

A: In August 2014, Nestlé endorsed the Carbon Disclosure

society, governments, the private sector, NGOs and

Project (CDP) initiative to procure 100 percent of

academia. It is necessary for all companies to understand

electricity supply from renewable sources within the

that we, as humanity and as a business, are vulnerable

shortest practical timescale, which is fully aligned with our

to climate change effects. Food production depends on

own explicit commitments. Importantly, the endorsement

the health of the environment. If we do not start doing

of this initiative by Nestlé and other large companies

different things, we cannot have different outcomes.

sends a strong signal to the market and contributes to accelerating the growth of renewable electricity markets

Re n ewa b l e e n e rg y te c h n o l o g i e s a re b e co m i n g

well beyond our own needs. This ultimately helps lead

more attractive every year and competitiveness is

the global transition to a low-carbon, climate-resilient

not compromised. We can take advantage of those

economy in line with COP21’s Paris Agreement.

technologies and realize savings in energy costs while supporting climate change mitigation. Certainly, this is a

Since 2013, Nestlé México has sourced 80 percent of its

business continuity decision for long-term success.

electricity from wind power and expects that in 2017 we will supply all electricity from renewable energy sources. We agreed this under the previous law that considered

Nestlé México , part of the global nutrition and wellness group

the existence of self-supply societies. We established a

Nestlé, represents the 6th largest operation for the group

contract with Enel Green Power; it has become our supply

worldwide. It also sources 80 percent of its electricity from

partner.

wind energy and expects that to rise to 100 percent in 2017

225

Metal smelting

MINING

If 2016 provided the fireworks of recovery for the mining sector, then 2017 has been something of a damp squib. The sky is still lit up – the prices of metals including gold, silver and copper all rose during the first half of the year – but not as brightly as many hoped. Many mining companies are relieved simply to be making a profit again but this is thanks more to the cost-cutting that was implemented during the downturn than to the value of their wares. The road back to the sunny days of 2011, when gold was trading above US$1,800/oz, seems like a long one. But the sector is well-placed for strong long-term performance. Silver production is falling while demand is underpinned by the solar energy industry, EVs and other electronic applications. Gold is still seen as an attractive safe haven from stock market volatility and base metals are essential components in battery manufacturing.

As a leading player in the global mining industry, this is good news for Mexico. An Undersecretariat for Mining has been re-established and must drive investment, propel the sector into the modern age by welcoming and encouraging new technology and act as a mediator in the squabbling over tax policy. With presidential elections looming in 2018, the new administration must also remember that mining companies – and investors – value regulatory clarity and consistency above all else.

227

CHAPTER 9: MINING 230

ANALYSIS: More Than One Reason to Celebrate

232

VIEW FROM THE TOP: Mario Alfonso Cantú, Undersecretary of Mining at the Ministry of Economy

233

EXPERT OPINION: Raúl Cruz, SGM

234

VIEW FROM THE TOP: Jaime Lomelín, CLUSMIN

235

VIEW FROM THE TOP: Fernando Alanís, Industrias Peñoles

236

INFOGRAPHIC: Silver: Mexico's Favorite Metal

238

VIEW FROM THE TOP: Mitchell Krebs, Coeur Mining

239

VIEW FROM THE TOP: Bradford Cooke, Endeavour Silver

229

Godfrey Walton, President and COO of Endeavour Silver

241

VIEW FROM THE TOP: James McDonald, Kootenay Silver

242

VIEW FROM THE TOP: Fred Stanford, Torex Gold

243

VIEW FROM THE TOP: Joseph Conway, Primero Mining

245

VIEW FROM THE TOP: Jesús Herrera, Detector Exploraciones

246

VIEW FROM THE TOP: Gerardo Familiar, The Chemours Company

247

VIEW FROM THE TOP: Armando Ortega, New Gold

ANALYSIS

MORE THAN ONE REASON TO CELEBRATE Stronger metals prices versus geopolitical concerns that included Brexit and the shock US presidential election result dominated the mining sector in 2016 and the first half of 2017. The events had many asking, 'What's next?' but overall the key sentiment is optimism For the global mining industry, 2016 was a year of two halves.

previous year. Once again, gold made the largest contribution

A recovery in metals prices motivated the industry to believe

to the total value with 37.4 percent, followed by copper (19

an upswing was finally on the way. But even with global

percent) and silver (18 percent). According to IMSS, the

geopolitical events causing a strain, many miners believe they

sector generated 9,790 new jobs in 2016, more than twice

have reason to celebrate.

the number of new jobs in 2015. The industry now employs over 354,000 people in Mexico.

Metal prices recovered strongly during the first six months

230

after a painful, four-year downturn. In June, gold rose to

GOLD – BOUNCING BACK

US$1,361/oz, its highest price since 2013. But the latter part of

Like many commodities, gold suffered a volatile 2016 as

the year was dominated by the political shockwaves of Brexit

unprecedented political shifts took their toll. After a strong

and the US presidential election result; gold fell by 15 percent

start to the year, rising 25 percent to US$1,361/oz by June

and silver by 19 percent during 2H16 as investors sat back,

27, bullion prices began to fall off in July and continued to

scratched their heads, and wondered “What next?” But prices

falter in the build up to, and aftermath of, the US presidential

rebounded during the first half of 2017, a result of improved

election. Between Oct. 24 and Dec. 25, the price of an ounce

economic performance in China and a depreciation of the US

of gold fell 13 percent to US$1,133/oz from US$1,304/oz. The

dollar. The industry may have finally turned the corner.

“Trump Bump” was more of a “Trump Slump” for precious metal investors. But the commodity rebounded over 2017,

In Mexico, the creation of the Undersecretariat of Mining at

rising steadily to reach a high of US$1,346/oz in September

the Ministry of Economy was announced in December 2016

as uncertainty continued to roil international marketplaces.

in what felt like a seminal moment for the industry. Despite

But gold could not maintain its momentum and once again

its geological potential, total investment in the Mexican

dropped below US$1,300 in October.

mining sector fell 20.9 percent in 2016. The challenge facing the new Undersecretary for Mining, Mario Alfonso Cantú, is

Annual gold production for the year fell by 0.2 percent to

to rejuvenate a traditional sector still struggling to fulfill its

99.7 million ounces worldwide. For the second year running,

potential in the modern age.

Mexico placed eighth on the global list of gold output, second in Latin America behind Peru, with a total of 4.26

“The Undersecretariat was created as an acknowledgement of

million ounces. On the corporate side, Fresnillo overtook

the importance of mining as a strategic activity,” says Cantú.

Goldcorp as the country’s top gold producer after churning

“It was a response to the industry’s expansion and the need

out over 935,000 ounces of bullion, a 22 percent YOY

for regulation, promotion and development.”

improvement. Goldcorp’s fall into second place was a result of its commitment to stripping its portfolio of noncore assets,

MINING IN MEXICO

a strategy that resulted in the sales of the Los Filos, Camino

In the context of Mexico’s sluggish growth in 2016 – an

Rojo and San Nicolas projects during 1H17.

expansion of just 2.3 percent compared to the global average of 3.1 percent – there were encouraging signs of recovery

SILVER – MEXICO THE TOP DOG

for the local mining sector. After FDI crashed in 2015 to just

After falling for five consecutive years from 2011, the silver

US$370 million – a byproduct of controversial fiscal reforms

price finally turned a corner in 2016 and continued the upward

implemented the previous year – foreign investment bounced

curve in 2017, never dropping below the US$15/oz mark during

back in 2016 to US$718 million, a jump of 94 percent. This

the first three quarters of 2017. With strong demand from

is still some way off the US$2.1 billion that foreign investors

solar energy and electronics, the price was underpinned by

poured into the sector in 2014 but a positive sign of returning

falling supply. According to figures compiled by The Silver

confidence nonetheless.

Institute, global mine production of silver fell by 0.6 percent to 885.8 million ounces in 2016, the first yearly drop since

The green shoots of recovery were also present on the

2002, while scrap supply also fell for the fourth consecutive

production side. Mexico’s total value of metal and mineral

year. Mexico comfortably retained its place at the top of the

production in 2016 surged to a record high of MX$234.3

silver production tree, producing 173.9 million ounces and

billion, 9 percent more than the MX$213.3 billion output the

contributing 21 percent to global output, according to INEGI.

Peru was second with 16.7 percent, followed by China (12.7

the total copper output, which amounted to 19.4 million

percent) and Chile (5.4 percent). Fresnillo was once again

tons. But this hides a spectacular YOY rise of 28.9 percent in

the top producer in Mexico (and the world), with 45.7 million

national production by year-end 2016, buoyed mainly by the

ounces, followed by Goldcorp and Industrias Peñoles. With 21

significant expansion at Grupo México’s Buenavista del Cobre

million ounces of silver produced, Fresnillo’s Saucito was the

mine, which produced 316,000 tons.

most productive silver mine in Mexico, followed by Peñasquito

EXPLORATION COMES BACK TO LIFE

and the Fresnillo mine.

As the lifeblood of mining, spending on exploration is always

COPPER – LONG-AWAITED GROWTH

an important indicator of the current state of the industry.

After reaching a low of US$4,310/t in January 2016, many

According to S&P Global Market Intelligence, world investment

believed the outlook was bleak for copper. But prices shot

in exploration fell YOY by 28 percent to US$6.9 billion, the

up in October and finished the year on the London Metals

fourth consecutive yearly fall. But after falling to seventh place

Exchange (LME) trading at US$5,500/t. Then, thanks to a

on the list of recipients for global exploration expenditures

more solid forecast in Chinese economic growth, a possible

in 2015, Mexico climbed up one place to sixth in 2016 after

scrap metal ban in the country and industrial demand, in

attracting US$400.9 million in total. Canada is still first on the

October 2017 copper reached US$7,073/t, its highest level in

list, ahead of Australia, the US, Chile and Peru.

over three years. According to Reuters, China accounts for 45 The positive trend is also reflected in the number of new

percent of global demand for the brown metal.

exploration projects in Mexico. In 2016, mining companies Mexico remained in 10th position on the list of global copper

started work on a total of 55 new projects, with a total value

producers, contributing 766,000 tons – or 3.2 percent – to

of US$130 million. This is compared to 44 projects with a total value of US$103 million in 2015. Driven by the improved price

INVERSIÓN MUNDIAL EN EXPLORACIÓN MINERA

GLOBAL INVESTMENT IN EXPLORATION (US$ billion)

including Timmins Gold’s Ana Paula, Fresnillo’s Juanicipio, and Industrias Peñoles’ Rey de Plata, have advanced well and

20.5

should be coming online during 2018, underpinning Mexico’s future production profile.

18.2

inconsistency affecting global financial markets but metal 6.9

7.1

Mining companies are not immune to the insecurity and 9.2

11.4

11.5

INDUSTRY OUTLOOK

7.3

9.9

12.6

15.2

environment, a number of exciting development projects,

prices nevertheless rose steadily during 2016 and 1H17. With many of the world’s largest mines running out of steam

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

and resources, mining companies must now renew the 0

PARTCIICPACIÓN EN LA INVERSIÓN GLOBALINVESTMENT MINERA GLOBAL IN EXPLORATION 2016

industry’s faith by investing more in exploration to prepare the global production pipeline for the demands of a digital, environmentally responsible world. Mexico has enormous mineral potential, reflected by increased exploration activity in 2016, but it is not the only country in Latin America to be blessed with abundant natural resources. To woo international investors, the government – and particularly the Undersecretariat of Mining – must provide the

US$6.89

basic regulatory and financial framework to make the mining sector attractive. With presidential elections on the agenda in

billion

2018, the incoming administration must also remember that miners appreciate operational stability and consistency. But cooperation is a two-way street; mining companies Otros 29.2% 14.1% Canada

Australia 14.1% 13.0%Canada Australia 13.0% 7.3% US Chile 7.3% 6.4%Eua

6.4%CAMIMEX Chile Source:

5.7% China 6.2% Peru

3.5% Brazil

4.7% Rusia 2.1% DRC 5.8% Mexico 3.5% Brasil 2% Argentina 5.7% China 4.7% Russia 29.2% Other 2.1% Rep del Congo 2% Argentina

6.2% Perú 5.8% Mexico Source: SP & Global market intelligence

working in Mexico have to show willingness to work alongside the public sector and, if necessary, challenge new legislation according to legal protocol. If the entire mining community can use its respective strengths as a collective, the sector can expect to thrive.

231

VIEW FROM THE TOP

UNDERSECRETARY SETTLES INTO NEW ROLE MARIO ALFONSO CANTĂ&#x161; Undersecretary of Mining at the Ministry of Economy

232

Q: To what extent does the creation of the Undersecretariat

their projects. The Undersecretariat is carrying out five key

of Mining reflect the growing importance of mining?

priorities. Firstly, we are strengthening human resources to

A: The Undersecretariat was created by the Ministry

fulfill institutional functions and objectives. Secondly, we

of Economy as an acknowledgment of the importance

are modernizing our technological platform and digitalizing

of mining as a strategic activity and a response to the

the concession process and cartography to accelerate the

industryâ&#x20AC;&#x2122;s expansion and the need for regulation, promotion

process for allocating a concession title. Thirdly, we have

and development. Investment in Mexican mining was

prioritized re-engagement of Mexican Geological Survey

US$19.8 billion in 2011 and 2012, and in the next four years,

(SGM) resources in exploration activities to provide more

from 2013 to 2016, amid falling metal prices, it reached

projects with more information focused on rare earths

US$19.9 billion. Employment in the mining-metallurgical

and base industrial metals. Finally, we are strengthening

sector as of December 2012 was 328,555 workers, while

the Inter-Institutional Mining Group, made up of federal

in December 2016 it registered a total of 354,702 workers.

government agencies involved in regulating the sector.

Finally, exports reached a similar level, with a US$17.8 billion annual average in 2009-2012 and US$16.4 billion in 2013-

Q: What does Mexico need to do to compete with other

2016. This demonstrates that, despite falling metal prices

jurisdictions to attract more greenfield investment?

from 2013 to 2016, investment levels, GDP and employment

A: Public policy of the Mexican government regarding

in the mining industry registered better performance than

the mining sector is included in the Mining Development

in previous years.

Program 2013-2018, which defines the objectives, strategies and lines of action to boost mining activity

Another reason for the creation of the Undersecretariat

within a framework of sustainable development. One of

was the need to reach a better level of communication

the purposes of the Mining Development Program is to

and conversation both at a national and international

promote higher levels of investment and competitiveness

level. Internally, the General Coordination of Mining lacked

in the mining sector. The Undersecretariat of Mining carries

communication with areas of the federal government

out investment promotion policies through participation in

that are directly related to mining, such as the Ministries

the main national and international mining events.

of Environment, Labor, Energy and Finance. It was therefore proposed that the General Coordination should

Another one of the policies implemented by the current

be elevated to a higher level to boost this relationship,

federal administration is to increase the quality of

since its counterparts have always worked at the level of

information for mining projects, thereby developing

Undersecretaries.

detailed geology, geophysics and geochemistry activities plus direct exploration through diamond drilling. This

Q: How will the Undersecretariat operate differently from

provides the means to continue exploration, according to

the General Coordination of Mining?

the results derived from mining operations.

A: The growing investment in the mining sector is demanding that we increase our institutional capacity to provide

To attract more greenfield investment, SGM allocates

better and easier ways for local and foreign investors in

most of its human resources and budget to developing Mexican mining potential through continuous mapping of the country on a 1:50,000 scale. This is an essential

The Undersecretariat of Mining was created as a specialized

requirement to identify mining exploration targets.

division of the federal Ministry of Economy in 2016 in response

The accumulated goal set for 2017 is 837,717km2 with a

to the growing importance of the mining sector. Mario Alfonso

coverage of around 60 percent of the national territory

CantĂş was appointed to serve as Undersecretary

with mining potential.

EXPERT OPINION

RICH GEOLOGICAL HISTORY CREATES BRIGHT MINING FUTURE RAÚL CRUZ Director General of the Mexican Geological Survey (SGM)

Mexico is located in the central-northern part of the

epoch, up until industrial modernization and the evolution

American continent, a block that evolved 250 million years

of technology, which occurred well into the 20th century.

ago, detached from the super continent called Pangea. The geological history of this emerging part of the planet has been

Minerals do not exist as a by-product. There is always

changing, although always following a line of evolution that

a reason, a process or a circumstance that allows us

gave rise to multiple landscapes and geo-forms. The associated

to associate them with a geological event. Geological

resources are derived from the earliest phases of continental

sciences have developed since the 16th century - when

drift. Most of these resources are related to magmatic

the De Re Metallica treatise was written by the German

processes - that is, those produced by the interaction between

Georgius Agricola. This was drafted in such a way that not

the oceanic and continental tectonic plates.

only allows us to know more about the structure of the thin solid crust upon which mankind lives but also about non-

From the Mexican Republic to Patagonia at the southmost

renewable resources such as minerals, petroleum, uranium,

point of the continent, along the west coast of South

coal and geothermal deposits.

America, over the last 180 million years, the phenomenon called subduction prevails. The oceanic tectonic plates of

The knowledge of geological evolution is exciting and

the Pacific collide and slide below those of North America,

important because within this environment it is possible

Central America and South America, which gives the

to coexist and marvel at the perfection of nature which,

region surprising but dangerous mobility, characterized by

through an almost miraculous balance, has provided all

seismic zones, which is why millions of people living on the

the raw materials that the human race has used since it

coastline and within the continent are permanently at risk.

appeared on the face of the earth.

The settlement and historical evolution gave Mexico and

The concept of exploration has also appeared since

the countries of Central America and South America a

time immemorial, and of course the practice has been

privileged position in terms of precious, basic and non-

perfected over time. All countries, governments and

metallic mineral deposits. The three countries have an

societies are concerned with continuing to provide the

important historical, economic and social component

materials required to maintain the standard of living of

associated with mining activities, even predating the

today’s society. None of the habits or activities of man and

sixteenth century Spanish invasion.

woman would be possible if not for raw materials to build the everyday tools of modernity. There is high demand

As a result, each country is responsible for promoting

and that is why it is essential to continue supplying those

mining activities. Mexico covers almost 2 million km2; Peru

materials.

1.2 billion km and Chile 756,000km . Among the three 2

countries, 41.2 percent of the world’s silver, 43.6 percent of

Mexico’s landscape is varied, resulting from the geological

copper and 9 percent of gold is produced, so it can be said

evolution that gave rise to the formation of extensive

that mining is one of the main catalysts for the country’s

mountain ranges of volcanic or sedimentary origin, desert

economic development. The activity is carried out with care

and semi-desert plains, mountain ranges with active

for the environment and respect for the preservation and

volcanoes, rock complexes and reliefs in the south and

restoration of nature in those communities and regions in

calcareous platforms in the southeast of the country. The

which mineral deposits are explored and exploited.

Gulf of Mexico’s coastal zones are wide and their Pacific counterparts relatively narrow, which can be seen in the

The history of mining in Mexico and Latin America has

case of the Sierra Madre Occidental, the province of the

been more legendary than lucrative, at least in the early

world’s largest gold and silver epithermal deposits.

233

VIEW FROM THE TOP

BRINGING INDUSTRY, ACADEMIA AND GOVERNMENT CLOSER JAIME LOMELÍN President of CLUSMIN

234

Q: What are CLUSMIN's primary objectives?

A: We are acutely aware of the need to educate the next

A: The goal of the mining cluster is not to promote the

generation. To this end, the National Science and Technology

sector – the government, the long history of mineral

Council (CONACYT) funded a study to determine the precise

extraction in Mexico and the country’s extensive resources

number of workers required to support the industrialization

act as a natural basis for investment promotion. We are

of the state until 2025. The study will be completed during

aiming to support the economic development of Zacatecas

2H17 and will provide data on the number of metallurgists,

state through the mining sector. We quickly realized that the

geologists, maintenance engineers and technicians needed

main goal should be to play to our strengths and maximize

by the sector for the next 18 years. The state polytechnic

the productivity of the industry in Zacatecas. To achieve this

university has recently created a course on metallurgical

objective, the entire value chain that participates in mining

engineering. The course will focus initially on mathematical

activities in the state needs to take part in and support

and scientific theory but second and third-year students will

the cluster.

spend at least one week out of every four in the field, at a metallurgical processing plant.

The cluster is split into four committees. The supplier committee, which is charged with attracting new businesses

The cluster is focused on the future. The state government

to Zacatecas; the human capital committee, which focuses

has built a science and technology park, which is helping

on attracting and developing human capital; the science

to finance new projects and innovative start-up companies.

and technology committee that ensures the continued

Minera Frisco set up the Laboratory for Mining Investigation,

technological development of the industry and finally,

Development and Training in this park, with an investment

the well-being committee, which works to protect the

of over MX$50 million. The University of Arizona is also

environment and to improve worker safety and health.

working on an international research center for compatible mining that will focus on sustainable tailings facilities,

Q: What role does the government play in the cluster?

remediation, forestation and biodiversity.

A: Although the cluster operates entirely separately from the state government, the public sector has an extremely

Q: How does the cluster contribute to the creation of new

important role. Firstly, the government must facilitate the

jobs in Zacatecas?

creation of new businesses, which includes reducing waiting

A: The mining cluster began by creating a supplier

times for permits and other qualifications. Secondly, it must

committee, whose role is to attract new businesses to the

create industrial parks where businesses can work together

state and create jobs for local workers. We are also working

and share knowledge and experience. Thirdly, it has a vital

toward bridging the gap between the suppliers and the

duty to attract new financial institutions to the state that

client, which can reduce costs, improve the level of service

can help SMEs access the capital required to grow and

and therefore boost productivity.

contribute to the local economy. We are under pressure from the trade unions to create Q: What training does the cluster provide to the new

more sources of employment because mining is becoming

generation of workers in the mining industry?

increasingly digital and mechanized. This is changing the nature of the mining job market, which now requires highly trained but fewer workers, and the industry as a whole has

The Zacatecas Mining Cluster (CLUSMIN) is a nonprofit civil

a responsibility to react and continue providing jobs. One

association formed by industry representatives and academia to

of the cluster’s main objectives is to attract new companies

strengthen the mining industry through the development of its

to Zacatecas that can train the large number of manual

human capital, as well as the attraction of suppliers to the state

workers in the state to use modern industrial equipment.

VIEW FROM THE TOP

MINING CAN FOLLOW AUTOMOTIVE EXAMPLE FERNANDO ALANÍS Director General of Industrias Peñoles

Q: What must Mexico do to become a more attractive

Q: How much of a boost was the Energy Reform for Peñoles

jurisdiction to the global investment community?

and how are you taking advantage of this opportunity?

A: Mexico has enormous potential. It is estimated that at

A: In 1999, we became concerned about the availability and

least 70 percent of the territory has not yet been explored.

cost of energy in Mexico and given that energy represented

States including Guerrero and Oaxaca have strong geology

around 40 percent of our expenses, we started to look for

but very little mining activity because there is no efficient

ways to lower costs. Industrias Peñoles made a strategic

policy in place to promote and support the sector. A few

decision to integrate our energy supply and start generating

years ago the country had a dream of becoming a global

our own electricity. In 2016, a total of 81 percent of the energy

automotive hub. The administration worked toward that

we consumed was generated in-house. Most of this comes

goal and now Mexico is the seventh most prolific car

from the petcoke thermal plant in San Luis Potosi, which

manufacturer in the world. We have to acknowledge the

generates 230MW, and the two wind plants in Oaxaca that

geological potential, the skilled workforce, the access to

generate over 40MW. We also have natural gas turbines in

industry-leading technologies present in the country to

Laguna del Rey, Coahuila and a steam generator in Torreon.

create the framework to capitalize on this opportunity. In April 2017, we also initiated a new wind project with Q: Peñoles recently announced an investment plan of

the Portuguese energy company Energias de Portugal

US$1.1 billion for the coming years. How will these funds

Renovables in Coahuila. The facility has an installed capacity

be allocated?

of 200MW, which will cover our energy needs for the zinc

A: The Rey de Plata polymetallic mine in Guerrero is

refinery expansion in Torreon. There is a new energy law in

currently under construction and should achieve commercial

Mexico that will require companies to procure at least 30

production by the end of 2018. The investment will total

percent of their energy from sustainable sources by 2025.

US$387 million and it should be a very profitable asset that

Peñoles has already reached that landmark because we are

produces gold, silver, zinc, lead and copper.

convinced of the need for sustainable development.

We will also be investing a total of US$330 million to expand

Q: What strategies does Peñoles have in place to cement

the capacity of our zinc refinery in Torreon by 50 percent

its leadership role within the Mexican mining sector?

to 360,000t/y from 240,000t/y. When completed, this will

A: The future of our company is based on three key

make Peñoles the sixth-largest zinc producer in the world.

strategic areas. The first is sustainable development, which

Zinc is tremendously important for steel and therefore the

incorporates the economic, social and environmental

construction and automotive sectors but global inventories

spheres. The second is human capital; we will continue to

are going down both in terms of concentrate and finished

invest substantially to recruit, develop and retain the most

products. Unlike precious metals, the zinc price is essentially

talented people in Mexico. The third is technology. We have

determined by fundamental economics so given the

an internal R&D group made up of 35 full-time researchers

strong demand and supply shortage, I am very bullish

working at a specialized center in Torreon and we are

on this commodity’s performance in the next few years.

always looking for innovative methods that can improve

Once Rey de Plata is operational, we will have a surplus

our practices.

of zinc concentrate and we will then become one of the few companies in the world to own both a zinc mine and a zinc refinery. Coupled with the fact that we are next to the

Industrias Peñoles is a 100 percent owned subsidiary of Grupo

US, which is a huge market with a substantial zinc deficit,

BAL. The group is the largest gold and lead producer in Latin

this will be an important asset for the company’s portfolio

America and through its subsidiary Fresnillo, the largest silver

going forward.

producer in the world

235

INFOGRAPHIC

SILVER: MEXICO'S FAVORITE METAL Silver and Mexico have always gone hand in hand. Less

the US border. Over the years, it is Zacatecas that has

than one year after the arrival of Hernán Cortes in 1521,

become the jewel in Mexico’s silver crown, thanks to the

the rich silver deposits of colonial city Taxco were

discovery of world class deposits like Peñasquito, Saucito,

plundered and the city became renowned for its high-

Fresnillo and Juanicipio. These last three deposits have

grade silver. But in a straight line due northwest from

contributed to transforming Mexican operator Fresnillo

Taxco runs the country’s silver belt, crossing through

into a household name and the world’s premier silver

Zacatecas, Durango and Chihuahua all the way up to

producer.

GLOBAL PRODUCTION 2016

886

Production share Reserves

million ounces is the production share of the world

20 236

15 • Latin America is the main producer (53%), Asia is second place (22%).

10 5 0

Mexico

Peru

Bolivia

Chile

Poland Russia

• Biggest increases in: Mongolia, Papua New Guinea, Indonesia and Kazakhstan

China Australia Others 20

• Biggest drops in: Australia, Argentina, Bolivia, Chile, Mexico and India.

85 25

37 56

120 22

570

thousand tons of total global silver reserves

Silver reserves by country (thousands of Tons*)

DESPITE GROWTH SINCE 2015, PRICES HAVE BEEN ON A ROLLERCOASTER 10%

58%

16%

12%

-2%

38%

74%

-11%

-24%

-20%

-18%

10%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

50 40 30 20 10 0

——High

——Low

——Average

Variation

Sources: CAMIMEX, company websites, INEGI, Mineral Commodity Summaries, USGS, Silver Institute

TOP 5 MINES BY PRODUCTION 2016

ZACATECAS: A SILVER STATE

Mine

Company

State

Production (million ounces)

Saucito

Fresnillo

Zacatecas

21.95

Peñasquito

Goldcorp

Zacatecas

17.90

Fresnillo

Zacatecas

15.87

San José

Fortuna Silver

Oaxaca

6.12

Tizapa

Industrias Peñoles

State of Mexico

5.80

Zacatecas remained Mexico's leading producer in 2016 with the country's top 3 silver mines

Peñasquito

With 13% of national

PRODUCTION BY STATE 2016

91.92

SAUCITO: THE SILVER JEWEL

Fresnillo

biggest silver mine in Mexico.

18.8%

million ounces produced by top 10 mines

production, Saucito is the

Ownership: 100%

Saucito

rest of the country

Fresnillo Location: Zacatecas, 8km SW of the Fresnillo mine Commodity: Silver, Gold

4.6%

Operational since:

40.8%

Oaxaca

2011

Zacatecas

Facilities: Underground mine with

7.9%

flotation plants

173.9

Sonora

Workforce: 773 employees, 1,337

million ounces total 2016 production

contractors Milling Capacity: 7,800t/d 2,600,000t/y

13.9% Chihuahua

Average ore grade in reserves: 245g/t Silver,

14.0%

1.72g/t Gold Mine Life: 5.9 years

Durango

at 7,800t/d capacity 2015: 5.2 years at 7,500t/d capacity

other chemical solutions

these challenges.

VIEW FROM THE TOP

PREPARING COMMUNITIES FOR MINE CLOSURE ARMANDO ORTEGA Vice President Latin America of New Gold

Q: What are the targets for Cerro San Pedro in 2017?

planted trees. This is a long-term commitment that will last

A: We closed the pit entirely in mid-2016 and since then

for several years.

we have been in a phase of residual leaching. It is hard to predict how long this process will last because it is heavily

Q: What strategies do you have in place to ensure that

dependent both on the minerals recoveries and the gold

the Cerro San Pedro community can continue to thrive?

price. We will continue for as long as it is economically

A: During the operationâ&#x20AC;&#x2122;s golden age, from 2010-2013,

feasible and we have set guidance at 35,000-43,000 gold

Minera San Xavier had an average of 900 workers,

ounces at Cerro San Pedro for 2017. Cerro San Pedro is an

employees and contractors. With the closure of the pit,

historical asset that was discovered in the year 1590 so quite

the team has been stripped down to around 140, so close

simply the reserves have been exhausted. We have made

to 70 percent of the workforce has already moved on. To

significant efforts to continue exploiting the deposit as long

approach this challenge in the right way and ensure that

as possible and in a sustainable manner but the asset is

our workers are best equipped to move on from Minera

depleted. Across our producing assets around the world,

San Xavier, we have set up a number of initiatives. Instead

our goal is 380,000-430,000 ounces throughout the year.

of deciding for ourselves what our staff would foresee as a feasible future. We conducted a comprehensive

Q: What have been the main challenges in designing the

consultation with our employees enquiring in which areas

mine closure plan?

they would most like to receive training. Where possible,

A: It is paramount to execute a successful mine closure,

we then provided the corresponding training courses. This

one that leaves a positive and long-lasting legacy at our

included electricity and plumbing courses, training for the

hosting community. The main obstacle is to ensure that in

automotive sector that is strong in San Luis Potosi, hair

the long-run, our sound mining operation and community

stylist courses, mechanics and even training on handling

work prevails over a negative and ill-founded narrative

television cameras with TV Azteca. We also helped dozens

originally crafted by the opponents of our project when

of our truck operators to get an official certification for

it was approved for commercial operation in 2007. We

their mining skills, to enable them to look for jobs on

must have a mine closure plan that not only meets best

mining projects elsewhere. We have contacted peer mining

international practices but also caters to the future core

companies to recommend our former workers.

needs of the local communities in San Luis Potosi. The real issue behind the original opposition to the project was that

Finally, we have also created and funded a formal foundation

the site is extremely close to a colonial town and to the city

called Todos Por Cerro San Pedro, which is designed to

of San Luis Potosi so there was strong resistance to building

operate on a standalone basis once Minera San Xavier has

a new open-pit mine so close to urban areas.

totally shut down. The idea is to prepare the locals to run the foundation themselves, both from an administrative and

The closure plan is vital for us to maintain the hard-earned

financial standpoint so that they can continue to develop

good reputation that we have achieved through many

the local economy and ongoing projects independently. We

years of a sustainable operation. The biophysical side is

want to ensure that we leave a positive corporate footprint

heavily regulated in Mexico, and supervised and audited

behind us.

by external qualified persons. We have completed the first stage, which is reforestation. Despite some unforeseen and unpreventable setbacks, we have successfully reforested

New Gold is an intermediate gold miner with three producing

a total of 393.3ha, which represents 100 percent of our

assets in Australia, Canada and the US. Its Cerro San Pedro

commitment. We are now moving onto the second stage,

project in Mexico transitioned to redisual leaching in 2016 after

which is to maintain the healthy survival of the newly-

a decade of production

247

Distrito Armida, San Pedro Garza GarcĂa, Nuevo Leon

INFRASTRUCTURE & SUSTAINABILITY

A country’s prosperity is intricately linked to the quality of its infrastructure. Concrete and steel are the building blocks of a nation’s economy, boosting the competitiveness of its industries. For Mexico to join the world’s leading economies, it must invest more time and money in constructing and maintaining its infrastructure. 2018 will mark the end of Enrique Peña Nieto’s presidential term, placing the advancements of the National Infrastructure Plan (NIP) under a magnifying glass. With the country’s hefty US$544 billion infrastructure gap, Mexico would need to spend more on developing its road, rail, port and airport infrastructure fast, or else economic growth could be jeopardized. Against this horizon, 2017 was a year of uncertainty and caution but Mexico was able to rise up and demonstrate its attractiveness to world investors.

The private sector continues to boost the performance of the construction industry and a financial gap has created new opportunities for institutional investors to become involved in infrastructure through the Mexican Stock Exchange (BMV). Ahead of the 2018 elections, SCT is eager to check off as many commitments a possible from its list and will place its efforts not only on the remaining projects, but also in rebuilding three states damaged by the September 2017 earthquakes.

249

CHAPTER 1O: INFRASTRUCTURE & SUSTAINABILITY 252

ANALYSIS: The Building Blocks for a New Infrastructure Era

255

VIEW FROM THE TOP: Gustavo Arballo, CMIC

256

VIEW FROM THE TOP: Federico Patiño, GACM

257

VIEW FROM THE TOP: Fernando Romero, FR-EE

258

PROJECT SPOTLIGHT: The Road Now Taken

259

VIEW FROM THE TOP: Héctor Ovalle, COCONAL

261

VIEW FROM THE TOP: Jorge Torruco, Grupo Omega

262

INFOGRAPHIC: The Legacy of Mexico's Construction Giants

264

VIEW FROM THE TOP: Eduardo Andrade, Sacyr México

265

VIEW FROM THE TOP: Julio Amodio, CAABSA Infraestructura

266

VIEW FROM THE TOP: Victor Legorreta, LEGORRETA®

267

VIEW FROM THE TOP: Javier Sordo Madaleno de Haro, GSM

269

VIEW FROM THE TOP: Gonzalo Robina, FUNO and AMEFIBRA

270

VIEW FROM THE TOP: Diana Muñozcano, Grupo Indi

271

INSIGHT: Sergio Forte, Banobras

272

VIEW FROM THE TOP: Juan Leautaud, BlackRock

273

VIEW FROM THE TOP: Juan Manuel Valle, Afore XXI Banorte

251

ANALYSIS

THE BUILDING BLOCKS FOR A NEW INFRASTRUCTURE ERA In 2013, President Enrique Peña Nieto announced his ambitious, but muchneeded National Infrastructure Plan 2013-2018. The clock is ticking to finish 266 commitments, of which 210 are for road, transport, health and education infrastructure With the election of US President Donald Trump, investors

does not publish procurement guidelines, it registers

and the private sector rang in 2017 with uncertainty and

low scores in terms of bid evaluations, transparency and

conservative investments across all sectors. S&P predicts that

post-award management of contracts. GI Hub estimates

the NAFTA renegotiation could hurt Mexico’s transportation

that Mexico requires a US$1.1 trillion investment to meet

industry over the years due to a potential weakening of the

its infrastructure needs. It currently has a US$544 billion

country’s expected GDP growth. But after rating various

shortfall in that investment.

infrastructure players, the agency believes the sector has

252

strong credit quality that will allow it to weather the storm.

THE ROAD TO ELECTIONS

Investors were cautious, but nobody backed away from the

Election years tend to make not only investors weary but

opportunities. After a couple of months, the sector began

both the private and public sectors. With elections around

to see movement, especially within the real estate segment.

the corner, as of October 2017 there was little knowledge of candidate plans for infrastructure development. The

MEXICO’S POSITION

pre-candidate for Morena, Andrés Manuel López Obrador,

Latin American countries on average invest 3.3 percent

is expected to impact infrastructure development if elected.

of their GDP in infrastructure development, while Asian

In his book, 2018 La Salida, he discusses his vision for

and Pacific countries invest on average 7.7 percent of their

Mexico’s future infrastructure development. Apart from

GDP, according to the World Bank. CEPAL states that for

reverting the education, energy and fiscal structural reforms

Latin American countries to bridge their infrastructure

passed by Peña Nieto’s administration, his plan includes the

gap, they would have to invest 6.2 percent of their GDP

construction of new highways, two new airstrips in the Santa

annually for eight years.

Lucia Air Base and the cancelation of NAICM. He wants to develop new refineries in Tabasco and Campeche.

In the first five years of Peña Nieto’s term in office, MX$521.8 billion (US$27.3 billion) was allocated to SCT, an average

Project continuity is one of the most pressing issues

of MX$104.36 billion (US$5.46 billion) each year and

concerning industry players when it comes to changes in

2.4 percent of the total budget. According to the Global

political terms. “A new administration is a risk to developers

Infrastructure Hub, the public sector invested more than

because authorities with a different vision may prevent the

US$70.6 billion and the private sector invested US$12.2

continuation of important public projects. This creates a

billion in infrastructure in the last five years in Mexico,

cycle of projects with a short-term vision as it is difficult

equating to a total of US$16.56 billion per year. With Mexico’s

to ensure the long-term continuity among rotating

GDP standing at US$1.046 trillion, this adds up to just 1.58

administrations,” says Francisco Ibáñez, Lead Partner,

percent of GDP, falling significantly short of the investment

Capital Projects and Infrastructure at PwC.

required to meet infrastructure demand. Mexico’s short-term vision has stunted its economic growth In WEF’s 2017 Global Competitiveness Report, Mexico

due to a shortage of transport infrastructure. Various road

dropped two spots from 57 to 62 in comparison to last

projects have been stopped for over six years and the

year. Through this presidential term, Mexico failed to rise

expansions of the country’s ports still have a long way to

above the 57 ranking. This year, transport infrastructure

go. “In my opinion, the current political leaders should ask

was impacted the most, falling in the charts and impacting

themselves how they would like to see that state or area in

the total infrastructure ranking.

five years,” says Julio Amodio, Director General of CAABSA.

“If we continue to base our projects and decisions for the The country’s quality of infrastructure score is 4.3 of 7 and

short-term, we will not move forward.”

of the six axes, it performed the best under the Planning and Selection section by having a public project pipeline,

CONSTRUCTION PERFORMANCE

a national infrastructure plan and guides for appraisal of

The construction sector plays a major role in the economic

projects. Nevertheless, in procurement, where the country

development of the country and has the potential to

represent between 4-5 percent of GDP. Budget cuts have

had been on the rise for the last few months and with the

deeply impacted the industry in the last five years. From

earthquakes, it was predicted that prices would skyrocket

2013 to 2016 it grew an average of 0.4 percent, mainly

as demand increases. In 1Q17, construction prices rose 12.5

thanks to an increase in private sector investment and in

percent compared to the same time last year, a rate not

specialized works, which rose 4.2 percent and 10 percent

seen since 2008.

in 2016, respectively.

THE PROPOSED BUDGET 2018 In 1H17, the sector grew 1 percent in comparison to the same

Throughout the Peña Nieto presidential term, infrastructure

period in 2016, a low percentage resulting from the cuts

spending has fluctuated between 1.5 and 3 percent of the

in public spending and rising interest rates. Even though

federal budget. SCT’s budget has varied through the years

the sector is experiencing slower growth, it is still the

with the highest percentage allocated in 2013, 2014 and

fourth most important economic activity in Mexico and the

2015, following an investment pattern of lower spending at

third most important sector in terms of jobs generation,

the end of a presidential term. With the proposed budget

representing more than 6 million direct jobs and 3 million

for 2017, a total of MX$522 billion (US$27.4 billion) will have

indirect jobs.

been allocated to SCT from 2012-2017.

According to CMIC, the market is worth approximately

In September, the Ministry of Finance proposed the budget

MX$2.4 trillion and is divided into 23 percent public sector

for 2018 but the two earthquakes that struck Oaxaca-

and 77 percent private sector. Of the private sector’s

Chiapas and Morelos-Puebla have yet to be contemplated.

participation, industrial construction represents 15.6

The budgets for 2016 and 2017 were drastically impacted

percent; nonresidential construction, 8.7 percent; housing,

by dropping oil prices, but the preliminary budget for 2018

39.2 percent; construction of hospitals and schools, 9

will not be as harsh, with a cut of MX$43.8 billion (US$2.3

percent; commercial, 18.3 percent; tourism, 4.4 percent; and

billion, or 0.2 percent of the GDP).

maintenance and repair, 4.8 percent. In 2017, the two main investment packages will be in the

MOTHER NATURE TAKES A TOLL

hydraulic sector and for communication and transportation

Mexico’s cities are growing, and they are growing fast. By

projects under SCT. MX$11.5 billion (US$604 million) will be

2040, more than 88 percent of the country’s population

allocated to repairing and constructing water infrastructure

will be living in urban areas and by 2050 that figure will

throughout the country. SCT will have a budget of MX$7.2

be more than 90 percent. As part of the 2030 Agenda,

billion (US$378 million) to finish all the projects on its list,

Mexico agreed to reach 17 Sustainable Development

with more than 25 percent of the budget allocated to railway

Goals (SDG) that will help end poverty, fight inequality

and multimodal development. GACM will be allocated

and ensure a prosperous future for all. Mexico must

MX$5.8 billion (US$304 million) to advance the construction

invest US$544 billion in infrastructure to 2040 to reach

of NAICM and MX$3.2 billion (US$168 million) will be for the

the SDGs.

conservation of roads and highways. The states that will receive the most money in 2018 are Oaxaca, Guanajuato,

The SDGs that are impacted by or impact the Mexican

Campeche, Chiapas and Puebla.

infrastructure industry are: Clean Water and Treatment, Decent Work and Economic Growth, Climate Action,

The 2018 budget cuts will place construction companies

Sustainable Cities and Communities, Industry, Innovation and

and SCT on the tightrope as they race against the clock

Infrastructure, and Clean Water and Sanitation. Companies

to complete the country’s most important infrastructure

within the infrastructure industry, such as Rotoplas, are

projects. The Mexico-Toluca Interurban Train, Guadalajara

taking matters into their own hands and establishing the

Electric Urban Train, NAICM and the government’s

same goals for their companies.

commitment to boost the country’s road network and water infrastructure are the most important projects for the year

In September 2017, Mexico’s foundations were shaken by

to come.

two earthquakes. The first on Sept. 7 with a magnitude of 8.2 and an epicenter in Chiapas and the second on Sept.

The NIP details three mass transportation projects: Mexico-

19 with a 7.1 magnitude along the border of Puebla and

Toluca Interurban Train, Line 3 of the Guadalajara Electric

Morelos. These two earthquakes destroyed more than

Urban Train and Line 3 of the Monterrey Metro, which have

150,000 houses, leaving more than 250,000 people without

a 57.4 percent, 67.7 percent and 85 percent completion rate

a home, according to SEDATU. The country’s housing deficit

respectively as of July 2017. The Mexico-Toluca Interurban

in 2017 was 12.2 million homes and will only increase with

Train, which was divided in three sections, has been

the damage wrought by the earthquakes. Material prices

advancing slowly.

253

VIEW FROM THE TOP

STEPS TO A SUSTAINABLE AND INCLUSIVE CONSTRUCTION SECTOR GUSTAVO ARBALLO President of the Mexican Chamber of the Construction Industry (CMIC)

Q: What is CMICâ&#x20AC;&#x2122;s 2017-2018 forecast for the construction

less than in May 2016. This result is due to two factors that

industry, especially with the elections around the corner?

have reduced credit availability to construction companies.

A: CMIC expects 2018 to be as difficult as 2017. The real

The first is the reduction in public works that has narrowed

estate industry, especially the construction of medium and

the opportunities to obtain a contract. Without a contract,

high-end residential buildings, mixed-use developments,

there is no guarantee with which credit can be obtained. The

shopping centers and tourism infrastructure, will likely play a

second is the gradual increase in interest rates, which lifts the

leading role for the remainder of 2017 and in 2018. The Center

cost of credit and reduces available financing. On Jun. 22, 2017,

for Economic Studies of the Construction Sector (CEESCO)

Banxico decided to increase the overnight interbank interest

estimates growth for 2017 from a contraction of -1 percent to

rate by 25 basis points for a third time to 7 percent. With this

a 0.5 percent expansion due to fundamental factors such as

increase, the benchmark interest rate doubled compared to

the 23 percent cut in the public investment budget compared

2015 levels. Rising interest rates increase the cost of financing,

with 2016, as well as increases in interest rates. A reduction of

inhibit investment and increase the cost of debt.

40,000 jobs is expected in the event of a contraction or the creation of up to 20,000 jobs if there is growth.

In recent years, private investment has been the driving force behind the growth of the construction industry since

From January to July 2017, the construction industry

it represents 75 percent of the total investment in the sector.

contracted 0.6 percent compared with the same period in

The reduction of public resources for the development

2016. It is likely that, for the remainder of the year, factors that

of infrastructure opens up a range of opportunities for

inhibit investment and growth will include reduced public and

the private investor to participate in complementary

private investment and the rise in the official interest rate to

infrastructure projects like roads, ports, airports, railways,

twice its 2015 level, which will make infrastructure projects

telecommunications and water projects to maximize

more expensive. The result of the NAFTA renegotiation

economic and social benefit.

could also have an impact by restraining vital exports, in turn negatively impacting investment in industrial and commercial

But in Mexico, we now have the PPP law, which establishes a

construction and services.

stronger legal framework for mixed participation, and allows for greater investment in infrastructure. In this way, the law

In 2018, the construction industry is expected to grow

has bolstered investor interest in the sector. It also provides

between 0.3 percent and 1 percent. Residential construction

greater legal certainty to the creation of projects that involve

geared toward the middle and upper classes, as well as a

the joint participation of the public and private sectors.

robust tourism sector, commercial and service infrastructure

Within the law, there is the novel USP scheme that allows

will be the industry drivers in 2018. Risk factors include

an investor the possibility of proposing a PPP project to the

an even greater reduction in oil prices or oil production,

government. The main areas of opportunity in Mexico for PPPs

continued inflationary pressures and an additional cut in 2018

seem to be hospitals, petrochemical and natural gas, water

expenditures for public investment in infrastructure.

supply, sanitation, power generation, telecommunications, penitentiaries, schools, roads, railways, ports, transportation

Q: What would make the construction sector more attractive

and housing.

to both investors and contractors? A: In the January-May 2017 period, credit granted by commercial and development banks to the construction

CMIC represents the interests of construction companies,

industry fell 6.5 percent in real terms compared to the same

offering services to promote a highly competitive industry

period a year before. The total amount of credit provided to

at the forefront of innovation that incorporates social

the industry in May 2017 was MX$489.8 billion, MX$3.9 billion

responsibility and technological innovation

255

VIEW FROM THE TOP

NEW AIRPORT PROGRESSING ACCORDING TO PLAN FEDERICO PATIÑO Director General of the Mexico City Airport Group (GACM)

256

Q: What progress has been made on NAICM’s development?

way. GACM endeavors to become a reference for projects of

A: The project was announced in September 2014 by

this scale. Also, we want to complete the project on time and

President Peña Nieto. Since then, GACM has hired the

within budget, especially given its level of complexity. This

best team worldwide. 2014 and 2015 were years dedicated

project involves a series of contingencies and uncertainties,

to planning and carrying out the required tests. Several

and we constantly encounter surprises that we must solve.

studies were carried out even before this point. An airport is

The possibility of making a mistake with decisions is always

a project that involves complex logistical development and

present, so we try to have the best counseling possible. It is

demands a high level of sophistication. We then focused on

also paramount to have a sense of urgency because often

the design. The project was designed to meet the country’s

we do not have much time to react to certain situations.

needs, so that it could serve as the gateway from Mexico to the world. Starting in 2016, the construction began with

Q: What strategies are being implemented by the different

preliminary projects for site preparation, such as the 33km

companies involved to optimize processes?

perimeter fence, access roads, construction of the on-site

A: Only 6 percent of the megaprojects constructed

offices, the removal of debris, the temporary sewage and

around the world are finished on time and within budget.

ground leveling. All those projects are now completed.

We are one of the first projects in Mexico and the first of

In the same year, we tendered around 65 percent of the

its kind to use BIM (Building Information Modeling). This

project’s value, awarding runways 2 and 3, the foundation

methodology helps us use intelligent, connected workflows

piles and the electrical substation, among others. In 2017,

to help improve predictability and productivity. We also

we started the construction of the terminal foundations,

work closely with the project manager, contractors and

the control tower and runways 2, 3 and 6. The runways

supervision entities to develop management strategies.

are being built simultaneously, starting with 2, 3 and 6 in

NAICM is also a self-financing project. Recently, we issued

the first phase and 1, 4 and 5 in the second. This year we

green bonds for up to US$4 billion, which gives us a total

started to see the project take shape in a tangible way. We

financing of US$6 billion. The financing scheme is backed

have 7,000 trucks moving material every day and 40,000

by the current airport’s excess cash flows and eventually

people working on the project. By next year, we expect to

by the new airport. Fortunately, the financing scheme is

have generated 160,000 direct and indirect jobs.

based on the TUA that is charged to most passengers, and is charged in dollars. This protects the private financing

Q: What challenges has GACM faced in the initial

from the peso’s devaluation and volatility in the markets.

construction phase and in the creation of the masterplan? A: For the design and planning of the project, we held over

Q: What are the expectations for NAICM for the end of

230 meetings with regulatory and international agencies,

2017 and into 2018?

national and international airlines, government agencies and

A: By the end of 2017, we will have already tendered

service providers, to hear their needs and concerns and take

around 85 percent of the project’s value with our most

them into account in the design of the master plan. The

important projects awarded. These include the passenger

biggest challenge for me is to prove that Mexico can carry

terminal building, the air traffic control tower, runways

out projects of this magnitude in a transparent and honest

2, 3 and 6, the electrical substation and the ground transportation center, among others. The next two years will see the development’s consolidation as we will really

GACM is the group that oversees the operation of AICM and the

be constructing these projects simultaneously. We will see

construction of NAICM. It is a government dependency and is

harmony among the people, ground and machinery. These

charged with ensuring tenders for the new airport are carried out

years will be the most construction-intensive so NAICM can

with speed and transparency

finish the project by 2020.

VIEW FROM THE TOP

DESIGNING MEXICO’S GATEWAY TO THE WORLD FERNANDO ROMERO Founder of FR-EE

Q: How do you think architecture has changed in Mexico

Q: What strategies have been implemented to guarantee

during the last couple of years?

the safety of the airport in case of an earthquake or

A: We come from a very strong modern movement.

another natural phenomenon?

Modernity carries the post-war conscience of constructing

A: The structure is designed to last 1,400 years and to resist

buildings with the capacity to be easily reproduced.

earthquakes. Given that it is horizontally designed, I believe

Post-modern architects have been educated through

it is seismic immune. The challenge is more geared toward

the suffering of several economic crises, and I think the

other issues, like the dimension of the structure versus how

experiences of the 1940s and 1950s have given us a strong

comfortable it is for a passenger to walk its distance; the

heritage in Mexico. Through this, we were able to connect

international standards for other risk situations, like fires

with a context that combined the global with the local.

and other incidents. NAICM is the biggest airport in the

Mexico is one of the richest countries in terms of natural

Americas, and after Istanbul’s, the biggest one in the world

resources, and one of the most visited countries in the

in terms of square meters. Given its location in a highly

world. I firmly believe it has all the elements, including the

seismic area, it is important to incorporate earthquake-

cultural heritage, to create amazing architecture. But we

resistant technologies into the structure.

have not placed a higher value on the context and that must be our main goal, especially in this interconnected

Q: What are the most important aspects of creating a truly

globalized world with a melting pot of cultural identity.

sustainable masterplan for cities in Mexico? A: I think the world is changing very quickly. In the next

Q: What are the main challenges you encountered while

few decades, we will be confronted with realities that

designing NAICM?

today appear as science fiction. Our cities come from

A: NAICM is a complex project given the number of

medieval schemes that have evolved through migration

flows that will happen within its structure: of people,

and yet remain somehow disconnected from the current

goods, luggage, systems, employees, agencies and so

reality. If we are at a time when civilization is exploring

on. Its scale is extraordinary, as it comprises more than

how to live on Mars, the question is how can we try to

1 million m 2 of total construction, including a ground

use the same intelligence and resources to think about

transportation center and the control tower. In terms of

the cities of the future. An important segment of the

technical aspects, to build it on soil that was once a lake

population will reside in urban areas in the near future,

and thus has a huge compression capacity makes the

so I am particularly fascinated by how these metropolises

project as complicated as building on the ocean. The

can be planned with new notions that incorporate the

technical aspects can be solved with technology. We

fast-changing features of the world, new technologies

scanned the area and realized that the underground soil

and new communication systems. Cities of the future will

is changing in depth, so we needed to come up with

have to question how we live today. We need to start

a structure that could float. We followed the principle

inventing notions of new urbanism, to develop a post-

of compensation, which enabled us to plan floating

modern utopian model and innovate to create sustainable

foundations for the airport. This is important because the

growth for our planet, through cities that have a coherent

terminal has to work harmoniously within the masterplan

relationship with the environment.

and the runways need to move with the compression capacity of the soil. I believe the NAICM project is the best investment for the future development of the economy

FR-EE is an international architecture and infrastructure

and tourism of the country. FR-EE saw the competition as

design firm with offices in New York and Mexico City. The

an opportunity to design a building that solved numeric

firm's most famous projects include NAICM and Museo

problems but to also design the gate of Mexico.

Soumaya

257

PROJECT SPOTLIGHT

THE ROAD NOW TAKEN Every journey has a beginning, a middle and an end. The

to this tourist region were sinuous, narrow, dangerous

best journeys are those that start smoothly, continue in

and long. The average speed reached only 60km/h, the

comfort and ease, and end as expected at the destination

majority of the route consisted of narrow curves and the

without complications. The roads that carry you between

roads were dangerous and prone to accidents. COCONAL

points play a vital role in determining the quality of each

consequently built the Valle de Bravo access road and the

of these elements. Building a connection between three

Valle de Bravo-Avándaro walkway.

key Mexican cities, infrastructure company COCONAL is constructing more than just a highway; it is creating a better

The access road to Valle de Bravo starts from the Toluca-

journey for travelers.

Zitácuaro highway at Laguna Seca and provides an entry point into the valley and lake. Its 29km have been in

The first step in this particular journey begins in Toluca,

operation since August 2011 and the road has become a

State of Mexico, almost 10 years ago. COCONAL saw

quick and popular route to the town, not only for Toluca

an opportunity to ease the congestion that plagued the

but also for residents of Mexico City.

routes to the city of Zitácuaro in the neighboring state of 258

Michoacan and to vacation destination Valle de Bravo. The

The final phase of the project was the Valle de Bravo-

Toluca-Zitácuaro highway begins at the entry junction to

Avándaro walkway, a vital connection between these two

the Toluca-Atlacomulco highway from Toluca’s northeastern

towns, since it prevents unnecessary crossings through the

beltway and ends in El Puerto on the border of both

narrow and already saturated streets.

states. The first 40km were opened on April 23th 2008, and the last 15km will be finalized and inaugurated by mid-

Overall, the project has allowed a better traffic distribution

November 2017.

between the three locations, and has helped revive Zitácuaro as an economic hub, facilitating the commercialization of

Completion of the connection to Valle de Bravo was the

products and services. An added bonus is the shortened

second stage. In the early 2000s, the existing access roads

and more comfortable journey to Mexico City.

VIEW FROM THE TOP

NAICM WINNER TARGETING OTHER EMBLEMATIC PROJECTS HÉCTOR OVALLE President of COCONAL

Q: How does COCONAL differentiate itself among

safety and ensure we provide the optimum equipment for

construction firms in Mexico?

personal protection and the safety of our staff.

A: Hard work, quality and commitment. I believe this industry requires companies to provide a remarkable added value,

Q: What is the importance of the material banks and how

not only by doing things well but by delivering a useful

did you secure them?

product that adds value. Our goal is to execute our projects

A: First, it is necessary to carry out a general inspection

with the best quality and with a strong social component

with geologists in the field. Once we have located the

that will benefit the market. Our levels of competition at

quarries, we negotiate with their owners. We are managing

an internal and external level are high but I believe that

30 tezontle quarries with volcanic foam and 25 rock

many of our competitors have neglected efficiency and

quarries. Each one has a specific process for exploitation.

struggle with corrupt, wasteful practices and poor quality.

For example, for the rock, we use explosives, while tezontle

Conversely, we stand out by always remaining transparent

is extracted with tractors.

and providing a quality service, as our main focus is in creating suitable infrastructure, not only in making money. The construction industry in Mexico is experiencing a crisis rooted in the disappearance of big Mexican companies and enhanced by the generalized belief that construction is an endeavor that can be managed by any professional, even those who are not qualified as civil engineers. Mexico lacks compliance with the professional law, both in the private and public sectors. To build infrastructure, experts with the

The Toluca-Valle de Bravo highway concession was designed, completely developed and funded by COCONAL, representing a MX$1.3 billion investment

required technical skills are required to solve the problems that may arise. Our company stands out due to its adequate

Q: Apart from NAICM, what other emblematic projects

channeling of human resources, as all our employees are

is COCONAL targeting at the moment?

qualified and specialized in the discipline in which they work.

A: At an international level, we are bidding for a highway

For example, we hire our engineers right after they finish

in Guatemala and another in Costa Rica. Our market is in

their undergraduate degrees and provide incentives for

Central and South America, as we have found that the

them to obtain their diplomas. Likewise, we invest in their

US has very different market conditions that are rarely

education and training by sending them to local or foreign

friendly to Mexican firms. At a national level, we are

courses so we also foster a great loyalty within them.

concluding the last 15km stage of the Toluca-Valle De Bravo highway concession. This project is very important,

Additionally, we stand out for having a comprehensive

as it was designed and completely developed by our

plan in key areas. First is our strategy for the adequate

company, representing a MX$1.3 billion investment, which

management of human resources. Secondly, our

was provided 100 percent by COCONAL. We expect to

environmental strategy includes about 15 environmental

inaugurate it by Oct. 17, 2017.

engineers and biologists who focus on waste management, recycling, environmental best practices, permit follow up and legal adherence. Likewise, we encourage our

COCONAL d evelops infrastructure projects with a focus

employees to celebrate World Environment Day and we

on timeliness and cost-effectiveness. Its services include

participate in reforestation by planting 40,000 trees per

constructing,

year, among other actions. We also have a high regard for

rehabilitation and transport of related machinery

concessions,

infrastructure

operation

and

259

VIEW FROM THE TOP

MTS PROJECTS FACE SOCIAL CHALLENGES JORGE TORRUCO Construction Director of Grupo Omega

Q: What are the main problems construction companies

Q: What measures does Omega implement before

encounter with public infrastructure projects?

becoming involved in an infrastructure project, such as

A: The fundamental problem is that infrastructure projects

the Mexico-Toluca Interurban Train?

are always subject to the terms of political administrations,

A: Before starting a project, we do our own investigation

not to a strategic and integral plan. This leads these projects

but we cannot be as thorough as we would like because

to be tendered without the necessary planning or studies.

it is an expensive task. We cannot invest such large sums

On a local level, as a construction company we are always on

without some guarantee we will win the project. For the

the lookout for new and interesting projects to participate in

third section of the Mexico-Toluca Interurban Train, in which

and rights of way is one of the elements that we worry about

we are participating, the changing of the original path

the most. The preconstruction stage is extremely important

heavily impacted the estimated costs and budget that was

because it will provide information regarding the types of

established at the outset. We are currently discussing the

permits and land that must be acquired for the project.

extraordinary costs with the government and the real impact is being analyzed. From my point of view, these setbacks will

I believe that we have the necessary legal framework

impact the viability of the project drastically. As a strategic

but it is not applied appropriately. There are many laws

project, it is supposed to be finished by the end of President

that favor quick land acquisition but these are almost

PeĂąa Nietoâ&#x20AC;&#x2122;s term.

impossible to apply because there are always social pressures that do not allow the state to take possession of the land without having the rights of way completely liberated. No tendering process should begin unless the rights of way are guaranteed. In Mexico, it is not a problem of technical complexity because we have the skilled human capital to carry out the project. Instead

Legislation, legal framework, rights of way and social-impact issues keep the country from bridging its infrastructure gap

it is a question of legislation, legal framework, rights of way and social-impact issues that keep the country from bridging its infrastructure gap.

Q: Why has the third section of the interurban train been more complicated than the rest of the project?

Q: How do MTS differ from other transport infrastructure

A: When this project was tendered, having it operate in

projects in Mexico?

phases was not considered because it did not seem like

A: Projects that are located inside the Mexico City metropolitan

there would be a problem adhering to the established

area are far more complicated due to the high level of

budget and time. Although it seems more logical to have

interaction a project will have with existing infrastructure in

the urban section operating initially as a way to generate

the area. This is complicated by the fact there is continuous

income to fund the rest of the project, that section is the

congestion in terms of vehicles and people, which also

most complicated due to social and environmental issues,

generates social problems that can impact the performance

particularly in the Observatorio area. Toluca-Marquesa has

of the project. For these projects, it is important to efficiently

advanced quickly.

coordinate the construction and management teams along with the local authorities to prevent or mitigate any problems that could arise. MTS can also bolster the transportation link

Grupo Omega is a Mexican construction company responsible

between cities. Although the national road and highway

for construction of various highways such as Durango-Mazatlan

systems have been improved, they are not ideal for the

and Veracruz-Coatzacoalcos, as well as Line 6 of the Mexico

transportation of large quantities of products and goods.

City Metrobus and the Chicoasen II hydroelectric plant

261

INFOGRAPHIC

THE LEGACY OF MEXICO'S CONSTRUCTION GIANTS The construction industry faced a challenging first half of

Periferico to the Tlalpan Tollbooth, the Elevated Viaduct

2017, according to CMIC. Public and private investment

over the Mexico-Veracruz Highway, the Tepic-San Blas

in the sector are low, interest rates are on the rise and

Highway, the Palmillas-Apaseo el Grande Macrobeltway

possible negative results of the NAFTA’s negotiations

and some sections of the Guadalajara Macrobeltway. CMIC

could harm investment attractiveness in industrial and

expects the construction industry to grow by between 0.3

commercial construction. The industry registered a

percent and 1 percent during 2018 thanks to the momentum

contraction of 0.6 percent between January and July 2017

of residential and commercial real estate and tourism

but this does not mean that construction has stopped.

infrastructure.

In his fifth governmental report, President Enrique Peña Nieto announced the completion of eight road projects

CMIC lists the following construction firms as the largest

between September 2016 and June 2017. Investment in

Mexican companies in terms of their sales volumes. These

these projects amounted to MX$27.6 billion. The report

companies participated in the largest ongoing infrastructure

referenced the Interconnection of the Second Story of

and real estate projects.

262

TOP 5 LARGEST MEXICAN CONSTRUCTION COMPANIES IN TERMS OF SALES VOLUME AND THEIR MOST IMPORTANT ONGOING CONSTRUCTION PROJECTS (MX$ billion)

1. Empresas ICA MX$20.4 billion

Location

Most important ongoing construction projects

Completion

Project value

Nayarit

Tepic-San Blas Highway

4Q16

1.4 – 2.2

Queretaro, Guanajuato

Palmillas-Apaseo el Grande Macrobeltway

2Q17

5.2 – 5.8

Oaxaca

Mitla-Tehuantepec Highway

3Q17

2.6

State of Mexico

NAICM Terminal Building

4Q20

8.5

But it is still involved in

State of Mexico

NAICM Foundation Slab

3Q18

7.6

important ongoing projects

Sonora

Santa Maria Dam

4Q18

3.7

Nuevo Leon

Monterrey VI Aqueduct

1Q18

2.7

Mexico City

Túnel Emisor Oriente (TEO)

3Q18

2.4

Mexico City, State of Mexico

Churubusco - Xochiaca Water Tunnel

4Q18

1.9

Mexico City, State of Mexico

Mexico - Toluca Interurban Train

4Q18

2.2

Most important ongoing construction projects

Completion

Project value

Mexiquense Exterior Beltway

N/A (First phases finished, but OHL will build the rest when it sees demand)

24.8

Bicentenario Viaduct

N/A (First phases finished, but OHL will build the rest when demand grows)

11.8

Elevated Viaduct on Mexico - Veracruz Highway (VW Plant Cuahutemoc Stadium Section)

3Q16

10.5

Atizapan – Atlacomulco Highway

2Q17

2 - 8.5

As of Sep. 2017, Empresas ICA undergoes a restructuring and insolvency process.

including NAICM’s terminal building and foundations. ICA specializes in road and railway infrastructure, hydraulic works, airport infrastructure and tunnels.

2. OHL México MX$18.9 billion

Location

State of Mexico

OHL México is a subsidiary of Spanish Grupo OHL. It integrated Mexican investors in 2010 and is listed in the

Mexico City, State of Mexico

Mexican Stock Exchange. Its specialty is building and operating road infrastructure but it also works in the Toluca Airport project.

Puebla State of Mexico

SUBSECTOR

3. Carso Infraestructura y Construcción MX$18.5 billion CICSA is part of business group Grupo Carso. It works in the hydraulic, social and road infrastructure sectors but also develops real estate. It partakes in the construction of NAICM’s terminal building and Runway 3.

Airport Infrastructure

Location

Completion

Project value

State of Mexico

NAICM Landstrip 3

3Q18

7.4

State of Mexico

NAICM Terminal Building

4Q20

Nayarit

Tepic Beltway

1Q16

1.6

Interconnection of the Second Story of Periferico to the Tlalpan Tollbooth

3Q17

0.7 - 2.5

Jalisco

South Guadalajara Beltway

3Q17

Oaxaca

Conclusion of Oaxaca-Istmo Superhighway

2Q17

9.3 - 11.9

Mexico City

Túnel Emisor Oriente (TEO)

3Q17

9.6

Commercial Center in Tlalnepantla

1Q19

0.9

Mexico City

Commercial and Office Real Estate

Most important ongoing construction projects

State of Mexico

4. IDEAL MX$15.7 billion IDEAL finances, implements and operates infrastructure projects. It often hires CICSA in the construction process as Grupo Carso and GFInbursa are Road infrastructure

related parties founded by Carlos Slim. It also builds projects independently. Most important ongoing construction projects

Completion

Project value

Jalisco

Las Varas – Puerto Vallarta Highway

3Q19

7.2

Oaxaca

Mitla – Tehuantepec Highway

2Q17

9.6

Toluca – Atlacomulco Highway Expansion

N/A

5.5

Atotonilco WWTP

2Q17

Location

State of Mexico Hidalgo Hydraulic Works

5. Fibra Uno MX$13.3 billion FUNO is the first and largest Fibra; the Mexican version of a REIT. It operates, acquires, develops and manages industrial, commercial and office real estate assets. It is building one of the tallest buildings in Mexico City; Torre Mitikah. Most important ongoing construction projects

Completion

Project value

Mexico City

Mitikah Tower

2Q24

Mexico City

Cuarzo Tower

3Q17

3.4

Midtown Jalisco

2Q18

4.4

Mexico City

La Viga

4Q17

1.6

Mexico City

Berol

4Q17

1.3

Mexico City

Mariano Escobedo

3Q18

0.4

Mexico City

Tlalpan

4Q17

1.3

Mexico City

Espacio Tollocan

4Q17

0.5

Location Railway Infrastructure

Jalisco

Mixed-use Real Estate

Source: Grupo ICA, Grupo Carso, IDEAL, Fibra UNO, OHL México, CMIC, Obras Magazine

263

VIEW FROM THE TOP

STRATEGIC ALLIANCES AT THE FOREFRONT OF INFRASTRUCTURE EDUARDO ANDRADE Director of Sacyr México

264

Q: How is Sacyr supporting Mexico’s infrastructure

that are bidding. For the airport tenders, the system

development?

works through prices and points awarded for the

A: Sacyr’s operations in Mexico are still incipient but we are

qualitative part of the proposal to ensure the winning

starting to grow and profit from the country’s significant

company represents the highest value. The winning bid

market. Mexico requires first-world infrastructure, which

must include a competitive price, the guarantee that

is something I believe all the administrations of the past

the cost is worth the excellent quality delivered and

20 years understood. That is why the plans are very

compliance with a deadline. I believe this scheme is very

ambitious. Sacyr is committed to helping Mexico achieve

useful, as it promises Mexicans will have an airport built

its goals. To be more precise, we have several projects

by knowledgeable firms that were fully prepared to face

under construction. These include four hospitals, involving

such a challenging project.

an investment of MX$3.5 billion, a freeway that will cost about MX$1.3 billion and the elevated and underground

Regarding how we obtained the concessions, we had to

trains in Guadalajara, worth about MX$8 billion. We have

be more creative than our competitors. We provided a

also completed several transmission lines with a value of

more efficient use of time and presented modern designs

MX$500 million.

that incorporated the use of the newest materials and technologies. In my opinion, the challenge is to dream big

Q: How will your decision to participate in PPPs impact

while comparing our infrastructure with other countries in the

Sacyr’s strategy in Mexico?

region, such as Chile, that have accelerated their development

A: The legal framework for PPPs in Mexico is well-

processes. We understand that Mexico requires infrastructure

defined but still new, so many realizations are being

development to be efficiently intercommunicated. Sacyr is

made in the process regarding infrastructure financing,

committed to advancing this goal.

design and expectations. Also, many of the proposals lack a cohesive thread. Nevertheless, we believe this scheme is

Q: When do you expect to finish Guadalajara’s light train?

the future of infrastructure development in the country. We

A: We will finish on time and according to plan, as we use a

have won tenders for a freeway and a hospital, and our goal

raise bore drill that helps us to make fast progress. President

is to continue growing. PPPs require previous experience of

Peña Nieto visited the construction site and asked us

two to three years. We presented un unsolicited business

whether we would meet the deadline and we were able to

proposal for a project in Bahia de Banderas more than a year

respond with confidence. The project is on track as we have

ago. We did not win the tender but this case exemplifies

regained the time lost at the beginning of the construction

our vision for the Mexican market and how we have been

stage. It is a very interesting development and it is an honor

working on this idea for several years.

to be able to participate in a project of such a magnitude in a country like Mexico.

Q: What were the main challenges when competing for NAICM’s tenders?

Q: What role does Sacyr want to play in Mexico in the

A: There is a high level of competition for the tenders,

long-term?

but what I find remarkable is the quality of the companies

A: We want to be market leaders in the development of infrastructure for basic and energy services. We are a company that possesses strong leadership in several

Sacyr is a multinational infrastructure and services company.

countries and we intend to translate this to the Mexican

Its emphasis on innovation and international expansion has

context. I believe the market, given its growing needs and

made it a world leader in the building and management of

its high-quality competition, is perfect for the application

infrastructure, industrial projects and services in 29 countries

of this strategy.

VIEW FROM THE TOP

OVERCOMING CHALLENGES WITH THE INTERURBAN TRAIN JULIO AMODIO Director General of CAABSA Infraestructura

Q: What strategy has led to the success of CAABSA

aspect to consider when forming a consortium is that the

Infraestructura in the Mexican market?

companies involved create synergies and complement each

A: CAABSA has been building Mexicoâ&#x20AC;&#x2122;s infrastructure for

other with their unique specialties. For instance, Cargo has

more than 38 years. Today, we are constructing Mexicoâ&#x20AC;&#x2122;s

the equipment and experience to mount the large pieces

largest and most important projects thanks to the

of the structures. Pret and Gonzalez Soto specialize in

experience we have gathered over the years. To grow and

prefabricates and has the experience creating the special

participate in many projects, we first had to secure financial

columns and locks and concrete structures. As for Omega

support for the company. CAABSA created the real estate

and CAABSA, both are experienced in constructing

arm Desarrollos Grupo CAABSA to support the company

complex projects such as this one. We are the company in

financially, in the event that there are few public works in

charge of coordinating the entire consortium.

the market or an infrastructure project is delayed. Q: In your opinion, what are the main challenges construction Q: What have been the main challenges during the

companies face while participating in public works projects?

construction of the Mexico-Toluca Interurban Train?

A: The root of all infrastructure projects stem from the

A: The main challenges we have encountered in the

urgency at which the public sector wants to construct

development of this project are the change of route for the

them. Because the public sector is sometimes in a hurry to

train and the lack of liberation of the rights of way (ROW)

start building a project, the proper studies, preconstruction

for the project. Not having the ROW before the project

analysis and planning stages are not properly carried

begins, delays the entire construction and can drastically

out. There are many differences between participating

increase prices. The ROW for the interurban train had not

in a private-sector project and a public-sector project.

been liberated before the project began and that is why

Public works are based on unit prices that allow more

even though construction was supposed to begin in January

flexibility when managing the budget. This often extends

2015, it began in December 2015. There were many social

construction times and creates cost volatility. In the private

problems, especially near Vasco de Quiroga and the town

sector, projects are more likely to be completed on time

of Santa Fe, forcing the path to be changed.

and budget, although they have their own complications. Typically, private works have a defined budget and they

Q: Why is ROW one of the main problems for the successful

have to stay within that budget, leaving little room for

construction of Mexican infrastructure projects?

contingencies. Planning is a skill the Mexican market has

A: The Public Works Law establishes that the dependency

yet to master even though it is the foundation for any

has the obligation of liberating the ROW for all infrastructure

public or private project. For 2017-2018, we expect to be

projects. The number one rule for construction is that the

more active constructing projects for the private sector

developer must be the owner of the land. The interurban

than the public sector, given the proximity to presidential

train project will cover more than 50km, passing through

elections and budget cuts. At the moment, we are still

hundreds of land owners and ejidos, which makes

completing various public projects, such as the Mexico-

negotiations for ROW even more difficult. The government

Toluca Interurban Train, CETRAM Iztapalapa and the new

does not expropriate the land because that would lead to a

Papalote Museum.

legal trial that could take even longer. Q: What are the main characteristics a consortium should

CAABSA Infraestructura is a Mexican civil engineering firm

have when bidding for a construction project?

that belongs to the CAABSA Group. It is dedicated to the

A: For the interurban train, we formed a consortium with

construction, consulting, supervision and administration of all

Cargo, Gonzalez Soto, Pret and Omega. The most important

types of construction projects

265

VIEW FROM THE TOP

GENTRIFICATION A CATALYST FOR NEW HOUSING TRENDS VICTOR LEGORRETA Managing and Design Director and Partner at LEGORRETA®

266

Q: What are the main architectural trends to incorporate

It must be said that sometimes it can take years to fully

sustainability into buildings?

recover the investment when incorporating these methods

A: Fifty percent of global energy is consumed by buildings and

and materials but this does not negate their importance. I am

25 percent by transportation so the way we plan cities and

very happy that younger generations especially are placing

construct buildings has an effect on 75 percent of total energy

more emphasis on sustainability and are willing to choose one

consumption. As architects and urban planners, we have a

property over another due to this factor. For designers and

great deal of responsibility in designing for the future and I see

for the developers that pay attention, this is a considerable

this as a big opportunity. The most in-demand designs will be

opportunity, not only for apartments but also for workplaces.

more eco-friendly and sustainable and now new materials and

People are really placing extra value on this.

elements will begin to be used in a much more creative way. In some ways, we will also go back to traditional architecture,

Immediately when incorporating these features, the

incorporating more natural light and cross-ventilation and

architecture begins merging with the culture and location of

using more locally sourced materials.

Mexico. The company is working on a Four Seasons hotel on the Pacific coast with Taller de Arquitectura Mauricio Rocha

Q: Why are you trying to achieve the Living Building standard

+ Gabriela Carrillo, and at the beginning the hotel wanted

with your Casa Encino project?

to adhere to a certain standard it incorporates globally.

A: The client was particularly interested in the standard and

Subsequently, the hotel carried out a study to determine what

wanted the building to blend in with the landscape since it is

holidaymakers valued and ultimately the results showed a

located in the middle of the woods. We explored a variety of

greater value placed on a reflection of the local culture within

options, including recovery of rainwater, installation of solar

the hotel’s architecture. Their customers want the Mexican

panels and use of natural materials and cross ventilation. The

experience when staying in a Mexican hotel. We are now

landscape is based on local vegetation so no additional water

working with two clients from the US and one from the UK

is required for the plants and an orchard is part of the property.

on building houses in Los Cabos, Baja California and all three

It made us think of solutions we had never considered before.

requested that Mexican culture be incorporated into their

This project also taught us that it is important to be flexible

dwellings from the outset, while remaining contemporary.

and not remain attached to a preconceived idea or way of working. With Encino, we examined the overhangs to evaluate

Q: This year, where are the key areas for real estate

how much they would have to be extended to offer protection

development in Mexico City?

and also considered how the architecture would look. These

A: We are beginning a project in Lindavista starting a large

decisions should not be looked at as a constraint but more

development in Satelite that will involve converting industrial

as an opportunity.

areas to residential. I think these are the areas that have a lot of opportunity as well as others in the north of the city around

Q: What is the main added value you can offer developers

the same area. The rapid gentrification of the Roma and

looking to work in residential real estate?

Condesa neighborhoods is now beginning to spread to Juarez

A: One benefit is lower maintenance due to our focus on

and Reforma in the north and Del Valle and Narvarte in the

eliminating waste and increasing sustainability in our buildings.

south. Development will largely be concentrated in the center of the city in these key areas. Previous government policy was horizontal development on the outskirts of the city, which was

LEGORRETA® is a Mexican architecture firm founded in 1965.

completely unsustainable, especially when considering today’s

During the 1960s and 1970s, LEGORRETA® was recognized for

changing demographic. Young people now want to live in the

iconic Mexican works, such as the Camino Real hotels in Mexico

same area where they work so neighborhoods can develop

City, Cancun and Ixtapa

organically, which is much more sustainable.

VIEW FROM THE TOP

PUSHING THE BOUNDARIES OF MEXICO CITY’S MIXED-USE DEVELOPMENTS JAVIER SORDO MADALENO DE HARO Architecture Director of Grupo Sordo Madaleno (GSM)

Q: What types of projects does GSM want to develop in the

more than 20,000m2, to green areas for the community.

Mexican real-estate market and what challenges does it face?

We have invested a great amount of money to develop

A: As time passes, GSM is concentrating its efforts more and

supporting and public infrastructure around our projects

more on mixed use developments. It is clear that standalone

to increase quality of life.

projects, whether commercial or office developments, are not working well in the market anymore. Consumers are looking

Q: How will Reforma Colón transform Mexico City’s

for the experience created when all these components are

downtown area?

brought together, which are what makes a project successful

A: Reforma Colón is our largest and most complex project

today. GSM combines housing, tourism, commercial, corporate

at the moment but it will have a tremendous impact on the

and cultural developments into one and that is where we see

urban development of the city. This project will regenerate

the biggest opportunity in the market. Finding the perfect

downtown Mexico City, paving the way for similar projects

location is definitely one of the most difficult elements

not only in Mexico but in all of Latin America. For the past

when constructing in urban settings. There are few AAA lots

three years, we have been working hard to fuse together 27

available but once the land is acquired the next step is getting

properties totaling more than 45,000m2, which is a close-to-

all the permits, land use and licenses in order. This is a tedious

impossible task in Mexico’s saturated city center. We have

and intricate process that involves many government agencies

the opportunity to truly transform this part of Mexico City

and can take up to two years but you must do it right.

and bring it back to life. Concentrating cities in their center is more efficient in terms of investment and infrastructure,

Q: How is GSM integrating the Artz mall development into a

while creating microcities within the city makes for much more

residential area as complex as Pedregal?

efficient use of space.

A: Artz is a project that because of its nature became a controversial topic, not for what it represents but because

Q: How is GSM able to fund multiple large projects that

of where it is located and because sometimes people are not

demand heavy investment?

well-informed about a project. One of the biggest challenges

A: At GSM we are independent developers but at Sordo

we faced was integrating it into the mobility system of the

Madaleno Arquitectos (SMA) we also work as third-party

Periferico highway. We are investing more than MX$200

architects with other developers, such as Fibra Danhos and

million (US$11 million) in public infrastructure around the

Fibra Uno, on projects such as Parque Toreo and Midtown

commercial development, including installing U-turns,

Jalisco. Most of the projects that form part of GSM’s portfolio

bypasses and tunnels.

are privately funded. We have our own private fund with some participation from international funds, but we prefer

We want to create projects that truly boost the quality

to have control of most of the properties. We have had

of life of their surrounding areas. We always invest large

the opportunity to create a Fibra but our business model

amounts of money in additional infrastructure that improves

is based on private equity. In 2016, GSM developed nine

mobility and flow of traffic in the area. Apart from road

different projects, requiring larger amounts of capital. We

infrastructure, we also invest in the improvement and

are looking into the possibility of perhaps issuing a different

construction of the area’s entire water infrastructure system.

financial instrument.

Artz Pedregal will bring to life the southern area of Mexico City that had been forgotten for many years in terms of new commercial and mixed-use real-estate developments. I think

GSM is a leading real estate development company and

it is important that both the developers and communities

architectural firm that specializes in luxury commercial centers

ensure communication is transparent. For Artz, we decided

and mixed use projects. Its newest projects include Reforma

to allocate 50 percent of the profitable space, which totaled

Colón and Artz Pedregal

267

268

VIEW FROM THE TOP

EXPANDING SOUTH TO MEET UNDERSERVED DEMAND GONZALO ROBINA Co-CEO of Fibra Uno (FUNO) and President of the Mexican Fibras Association (AMEFIBRA)

Q: How are Fibras changing in Mexico, compared to similar

The first few years were devoted to permits, licenses and

financial mechanisms abroad?

infrastructure matters, among other factors. Today, we are

A: US instruments date from the early 1970s, and like in

building about 4,000m2 to 5,000m2 of structure weekly,

Mexico, were originally diversified in several sectors. The US

and we also have made great progress in the foundations.

instruments are specialized at the moment, which I believe

The first office building is already constructed up to the

sets the trend for Mexico, as we have Fibras, such as Terrafina

10th level. Regarding the retail component, we have pre-

and Prologis, which are specifically designed for one industry.

leased 50 percent of the area. For the residential tower,

In the long term, instead of one large, diversified Fibra, I think

even though it is expected to be delivered in full by 2020,

we will have different small ones for specific sectors. FUNO

the sales have shown that it is already a huge success, which

has not done this so far because we believe that our business

I believe is due to Mitikah being a unique and high-quality

is more profitable using the current strategy but as soon

project. We are entering an excellent market in a mature

as we find specialization more advantageous, we will move

area with a good socioeconomic balance.

toward it. The size of our company allows us to divide into smaller Fibras that can thrive independently. Most Fibras

Q: What are your expectations for Fibras in 2018?

have been anchored to an Afore, which for us represents the

A: Regarding other opportunities across different sectors,

patrimonial investment of Mexican citizens. Afores, in return,

FUNO has a strong foothold in university projects. We

find Fibras as a very useful vehicle to ensure their assets

lease to the university operator, with the ultimate goal

are invested in a very solid sector, with high capital returns.

of fostering educational development. We also have the Puerta de Hierro Hospital in Guadalajara, which is externally

Q: What do Fibras need to do to remain a competitive

operated by the renter. To my knowledge, there are no

investment option for Afores given an open international

plans yet to create a Fibra specifically for hospitals, but it is

market?

unquestionably a sector in which Fibras are growing rapidly.

A: Since their creation, Fibras have been regulated by two articles of the ISR Law. One says that their main goal is

I think 2018 will be a complicated year. There is a lot of

to promote real estate investment in Mexico. It does not

global tension rooted in international conflicts. Also, the

forbid investment abroad, but the incentive is to develop

elections in Mexico will increase speculation. But Fibra

the national industry. Afores can buy shares of any company

investments are planned for the long term, about 20 to 50

but Fibras are mostly committed to Mexico, regardless of

years, so the possible volatility of the next year is something

whether or not it is possible to invest internationally. FUNO

we are prepared for. Often, in these uncertain scenarios, the

is committed to promoting the development of the industry

best opportunities arise. We must be prepared and maintain

in Mexico, and our capital will stay in the country.

a certain liquidity to take advantage of them. In Fibra Uno we are convinced that Mexico is a very attractive place to

Q: What are your expectations for the Mitikah project?

continue investing. We will continue focused on generating

A: Real estate projects have been focused mainly in Polanco

the maximum amount of value over time and building a

and Santa Fe, and the southern part of the city has been

world class real estate company with the best property

largely neglected. To address a real need, we are practically

portfolio in Mexico.

building a city, which will be FUNO’s and the Helios CKD’s legacy. Mitikah has developed and applied an integrated process involving the community, the authorities and the

Fibra Uno (FUNO) is the first and largest Fibra in Mexico.

neighbors. We take care to add value to the community,

FUNO focuses on generating sustainable value for investors

which is an approach that has taken a lot time and

through the operation, acquisition, sale and development of

resources, but that we are glad to have implemented.

real estate for commercial use

269

VIEW FROM THE TOP

INFRASTRUCTURE CANNOT REST SOLELY ON PPP SCHEME DIANA MUÑOZCANO Chief Investment Officer of Grupo Indi

Q: What impact have public tenders and schemes like PPPs

decelerates. It is a sector that we know well, being the first

had on infrastructure development?

we entered as investors, and we will continue to foster

A: Infrastructure is a sector with slow mobility that requires

the industry given its constant growth. Also, the maritime

patience and preparation. I believe that its processes

industry promises to gain strength.

have consistently improved, as PPPs have allowed a 270

professionalization that goes beyond engineering, to a more

Q: What have been Grupo Indi’s most challenging projects

stable financial flow that facilitates comprehensive strategic

in 2017?

planning for the long term. Regarding the tenders, we are

A: Our most challenging project is NAICM. Also, Circuito

still trying different models to adapt to different times and

Interior is an interesting and complex project as it is a PPP

contexts. There is no ideal scheme.

for the first underground road in the country, built under Mexico City. It was essential that we planned the logistics

We need more infrastructure but not all of it can be built

well for the construction stage to ensure the least possible

through PPPs, as the private sector assumes most of the

disruption of the daily dynamics of the area. For this project,

risk. We try to work through unsolicited proposals (USP),

we collaborated with La Peninsular and IDINSA. We believe

which we think is an interesting way of collaborating with

that partners multiply the value that we can add to our

the public sector, even though this tool requires a high level

projects, so we are willing to associate with firms that can

of investment that may hinder its application. It would be

complement our knowledge, expertise and with which we

very interesting to see more USPs at the state level, as local

can build a relationship based on trust.

construction firms often have a more in-depth knowledge of their market needs.

Q: How do you view your experience working at NAICM? A: In this project we have found three main challenges given

Grupo Indi’s main projects in Mexico include a mega container terminal in Michoacan and the second floor of Periferico in Mexico City

the number of players involved. First, the interoperability of all the tenders must be harmonized, as there are many local and international players involved. Second, the technical challenges are vast, given the unique and complicated soil conditions that required specific materials and engineering. Texcoco’s ground has been challenging. Third, we were responsible for taking the project to trial phase, which took us longer than expected but allowed

Q: What strategies does Grupo Indi implement to minimize

us to test the viability of the project. We have managed to

project risk?

optimize our time-efficiency and make up for the delays.

A: I believe that a key component of our success is that we

Our goal is to continue our participation in NAICM and I

have ventured into projects as investors and not only limited

believe we can contribute most to the foundations.

our participation to construction. We are also exploring diversification by venturing into real estate. We also have

Q: What imprint do you want to leave on the Mexican

tourism as a second option when the infrastructure industry

infrastructure industry? A: We want to be among the top construction firms in the country and to remain present and relevant for a long time.

Grupo Indi has 40 years’ experience in the market,

Also, we aim to foster development through quality projects,

developing projects for the public and private sectors. It

both as investors and constructors. We have been dabbling in

is divided into four business units: building, infrastructure,

energy-waste management for a year. It is a slow process but

services and WeIndi

we are excited to participate more in clean-energy initiatives.

INSIGHT

PROJECTS HUB TO INCREASE PPP TRANSPARENCY SERGIO FORTE Deputy Director General of Investor Relations at Banobras

The environment surrounding infrastructure development

the governmental websites and CompraNet where users can

includes an uncertain political environment, rising interest

find more information and contacts. Each project has a unique

rates and a shortage of public budget for projects. But

File Number and QR code to facilitate information sharing and

investors’ appetite to invest in Mexico continues to grow.

tracking of changes to the project. Forte believes that this

One of the top demands industry players have is to ensure

platform will help reduce international and national investors’

transparency and access to information for infrastructure

costs and time by allowing them to gain better visibility of

projects, especially since entering the Mexican market with

Mexico’s infrastructure pipeline.

just one project is extremely expensive. And the platform could not have come at a more opportune As a way to link investment projects with domestic and foreign

time for the industry. Given the shortage of public funds,

potential investors, as well as encourage new companies to

SHCP announced in March that it wants to encourage the

participate in bids, SHCP, through the Mexican system of

development of PPPs for infrastructure and released 30

development banks, developed Mexico Projects Hub which

projects involving an investment of over MX$60 billion. The

is an online database of Mexico’s current infrastructure

benefits of PPP projects are multiple, given they have a mature

projects. “As a development bank, we have also been on the

regulatory framework and offer more attractive conditions for

other side of the table and we understand the importance

both investors and participating companies. Although some

of having clear information about upcoming projects,” says

companies are cautious about the recent changes made to the

Sergio Forte, Deputy Director General of Investor Relations

PPP Law, PPPs and public works have become more efficient

at Banobras. “Mexico Projects Hub will increase transparency

in the last few years due to the adoption of best practices

and investment in Mexican infrastructure.” This free bilingual

across all sectors.

platform divides projects into four different stages: preinvestment, bidding, execution and operation to give investors

SHCP took on the challenge of creating the Projects Hub —

insight throughout all phases of project development. “The

the first of its kind in Mexico — to increase transparency and

main objective of Mexico Projects Hub is to display project

access to these PPP projects, but it has faced various hurdles

information alongside legal and financial data for the entire

along the way. Despite the hopeful announcements of more

industry to see,” he says. “It is a tool to provide players with

PPP projects, many players in the industry feel there is a lack of

information about similar projects that will increase their

innovative projects. “There is always the critique that projects

appetite to invest even more.”

are the same and that there are no new project opportunities. But, what matters is that there is a steady stream of projects

The hub contains information about greenfield and brownfield

being carried out,” says Forte. “Developers can find ways to

projects across all sectors within the industry including

incorporate innovation in the structure of the project or it can

electricity, transport, telecommunications, water and

be constructed by a group of companies.”

environment, real estate and tourism, mining, hydrocarbons and social infrastructure. The hub lists 75 different types

This platform is expected to level out the playing field when

of financial instruments such as Fibras and CKDs that can

it comes to bids and ensure that there are new companies

be used to invest in the maintenance and improvement of

stepping up to each challenge. One of the main objectives of

existing infrastructure. “There is a great deal of opportunity

the hub is to allow investors and participants to give feedback

in this sector,” says Forte. “The amount of money in CKDs that

on each of the different projects, especially when bids are

can be allocated to projects equates to approximately MX$50

about to start. “It is becoming more common for the same

billion of capital, ready to be invested into the industry.” Apart

two to three companies to bid in all of the projects in certain

from listing the basic information such as participants, amount

sectors in Mexico,” Forte says. “The platform will encourage

invested and entities involved, Banobras included links to all of

more companies to seek involvement in the industry.”

271

VIEW FROM THE TOP

CONDITIONS BODE WELL FOR INFRASTRUCTURE DEVELOPMENT JUAN LEAUTAUD Managing Director of BlackRock

Q: What progress has been made to bridge the

areas. Both these projects have been carried out with

infrastructure gap and what projects are the most critical

complete transparency and are a reflection of the fact

for the country?

that state-level participation is increasingly significant. I

A: I am optimistic about the future of infrastructure in

am optimistic that other states will follow suit in building

Mexico for a number of reasons. Although we continue

up an infrastructure pipeline.

to have this gap between our current economic output 272

and our existing infrastructure, there are a number of

Q: What are investors most worried about when investing

elements that bode well for infrastructure development.

in new projects?

Public finances are pressured because of the international

A: All investors like to see predictability and that

context, the drop in oil prices and the current state of

translates to contract structures that offer certainty in

Mexican finances. That scenario creates an environment

terms of the scope of activities to be performed and

in which private capital is welcome in infrastructure

the risk allocation between the parties involved. The

development. There is a need for private capital to play

health sector and contracts with IMSS and ISSSTE are

a role and a wide range of opportunities to address that

no exception to this. A clear division of responsibilities

necessity.

regarding the acquisition of land, permitting of that land all the way through to the operation of a hospital, for

Another reason for optimism is that infrastructure

example, need to be defined from the outset.

projects are always slow to come to fruition. Assembling a bankable project takes time. In my view, the government

Q: What is holding back USPs and how can BlackRock

has made tremendous strides in identifying and pushing

help the players looking to make it happen?

forward a number of projects, whether those are PPPs

A: The Tijuana bypass undertaken by BlackRock was

in the health sector, highway projects released by SCT

carried out through the USP framework. We presented

or state-level projects focused on water and social

different options to the state government and began

infrastructure. Although there is a significant gap, there

working in partnership with it to find the necessary

is now a growing number of identifiable projects.

structure to make it happen. The government understood the need for this road, launched the bid in accordance

The third reason is the progress on the part of state

with the regulatory framework and BlackRock presented

governments in terms of bringing in private capital to

the winning proposal. This is a good example of a system

address infrastructure needs. Baja California has released

that is working and we are now working on a second USP,

a PPP project for a desalination plant in Rosarito that

which is a federal project.

will provide water for the city of Tijuana at 4.4m 3/s. This is a US$700 million project that is already in the

Q: In which sector do you see the greatest potential for

contracting stages and tremendously significant to the

Mexican infrastructure?

state. The state is also tendering a 4.5km bypass for the

A: We have a robust pipeline of investment opportunities

city of Tijuana valued at MX$1.5 billion that will improve

spanning energy, midstream oil and gas, transportation,

the connectivity within the city and the surrounding

water and power so it is difficult to choose a sector I believe will be the most profitable. We are confident that we can continue to diversify and invest our clientsâ&#x20AC;&#x2122; funds

risk

effectively. In 2017 and 2018, BlackRock will come to the

management as well as advisory services in more than 30

end of its investment funds and we will consider raising

countries. It has participated in various road, health and

Fund Three in the near to mid term. Through this, we will

penitentiary infrastructure projects in Mexico

continue our trajectory in developing our pipeline.

BlackRock

global

leader

investment

and

VIEW FROM THE TOP

CHANGE IN AFORE RULES TO BOOST INFRASTRUCTURE INVESTMENT JUAN MANUEL VALLE Director General of Afore XXI Banorte

Q: How attractive are infrastructure and real estate for

fields auctioned in the bidding rounds. Afore XXI Banorte

Afores?

owns almost 5 percent of that project through two different

A: Infrastructure projects are the perfect match for pension

vehicles issued by Riverstone and BlackRock. We are

funds. It is natural that Afores want to participate more

indirectly investing in this project because both companies

in these types of projects. As of August 2017, we have

approached us to invest in their CKDs. In the largest CKD

committed more than MX$60 billion for investment in

that we have, Infraestructura Mexico, we had originally

CKDs, of which approximately MX$17 billion are invested in

planned to invest independently. But we partnered

infrastructure (28 percent) and MX$16.3 in real estate (27

with CDPQ and the idea of this CKD was that for any

percent). Afore XXI Banorte has been involved in various

investment that CDPQ found interesting, we would invest

successful real estate projects and is investing in new projects

at the same level, ensuring that neither would have the

in Mexico. Among these is a major project that could change

majority share. The company that would be operating

the footprint of downtown Mexico City and this could be

the project would have to have 51 percent of the entire

announced soon and could modify our investment figures.

investment. This provides the incentive to have good

Managers have been more prompt to invest in real estate

administrators and operators for the project, as well as

than infrastructure in general, possibly because real estate

institutional investors that are there for the long term.

projects are completed much more quickly. In infrastructure,

We have been working with funds that have been in the

there are projects with a longer “J” curve, where we have yet

market longer than we have and we receive feedback

to see results, whereas in real estate, we are already receiving

from them to adopt best practices.

flows. As an example, we are a significant investor in the Red Compartida project, which will provide Mexico with over 90

Q: How could Afores help bridge the financial gap in the

percent of coverage in mobile and data service at speeds of

infrastructure industry?

700MHz throughout Mexico.

A: There are many funds interested in investing in sectors such as toll roads, ports, housing, commercial, energy or

Q: How does Afore XXI Banorte approve an investment in

renewables, but they do not feel comfortable doing it on

an infrastructure project?

their own. When they see that Mexico’s largest pension fund

A: It usually takes six months from the first proposal to the

is involved they tend to feel better about investing. Now

time we authorize the investment. Our investment team

that the regulation will change and Afores will be allowed to

analyzes each project and once it has a strong case, it is

invest 100 percent of a CKD and no longer be limited to 35

then presented to an internal committee. Several lawyers

percent, our experience tells us that it is better to co-invest

and I participate in this internal committee, which is where

with international funds. The previous regulatory framework

we submit the project as an internal discussion to prepare

limited the ownership of a vehicle by an Afore to a maximum

for presentation to the Investment Committee. In 2016, we

percentage, so the general partners had to collaborate with

approved one of every three projects that we received.

at least three Afores to raise a successful CKD. Although we will now be able to invest 100 percent, we will not do so and

Q: How does the Afore prefer to participate when it comes

instead invest with dedicated international funds such as

to large infrastructure projects?

Temasek, CDPQ and PSP, among others.

A: For large projects, we work with the strongest players in the international markets such as Caisse de dépôt et placement du Québec (CDPQ), BlackRock and Riverstone.

Afore XXI Banorte is one of the largest pension funds in

A good example is the Zama well that recently struck

Mexico .It participates actively in the infrastructure industry as

significant oil in shallow waters off the coast of Tabasco

an investor through CKDs and Fibras for the development of

and is the first successful exploratory well found in the

real estate, energy and transport infrastructure

273

Lamborghini Huracan Spider

AUTOMOTIVE & MOBILITY

Despite grim projections for the Mexican automotive industry at the end of 2016, the sector remains in good shape, slower perhaps but on track for greater growth. Even after a couple of months of uncertainty, the sector has maintained its position as one of the top drivers of the national economy. The world’s seventhlargest light-vehicle manufacturer and third-largest exporter, Mexico has a strong opportunity to keep climbing the ranks and to overtake India as the sixth-largest manufacturer by 2018. Companies remain confident in the country’s development and investment continues to pour in from traditional foreign sources such as Germany and Japan, as well as from newcomers such as South Korea and China.

The industry’s challenge is to address its main areas of opportunity to maintain its competitiveness. Talent remains a concern, especially considering the increasingly technological nature of the automotive sector. Local supplier development also worries investors and industry leaders who expect the industry to grow its added value and boost Mexico’s position beyond a low-cost manufacturing hub. Experts see collaboration between the industry and the government as a key point to ensure success both in talent and supplier development.

275

CHAPTER 11: AUTOMOTIVE & MOBILITY 278

ANALYSIS: Uncertainty As Slowdown Sets In

280

VIEW FROM THE TOP: Mayra González, Nissan Mexicana

281

THE NEW MEMBER OF THE ALLIANCE

283

VIEW FROM THE TOP: Miguel Márquez, Governor of Guanajuato

284

VIEW FROM THE TOP: Horacio Chávez, Kia Motors México

285

VIEW FROM THE TOP: Leonardo Soloaga, MAN Truck & Bus México

286

VIEW FROM THE TOP: René Schlegel, Robert Bosch México

287

VIEW FROM THE TOP: Gerardo Varela, ZF Services

288

VIEW FROM THE TOP: Mario Rodríguez, Arbomex

289

VIEW FROM THE TOP: Manuel Nieblas, Deloitte Mexico

Alberto Torrijos, Deloitte Consulting Group

291

INSIGHT: Juan José Zaragoza, DuPont Performance Materials - NEP/HPS

292

VIEW FROM THE TOP: Cédric Desplats-Reider, BNP Paribas Personal Finance México

293

VIEW FROM THE TOP: Laura Ballesteros, SEMOVI

277

ANALYSIS

UNCERTAINTY AS SLOWDOWN SETS IN Record sales and production marked the latter half of 2016 but a slowdown set in during the first half of 2017, marked by shrinking sales of light vehicles in the key US market. Uncertainty marked the previous 12 months, with the renegotiation of NAFTA spurring the country to cast an eye at alternative markets for growth

278

As 2017 heads into the final stretch, Mexico retains its position

impression in the domestic market after Mastretta's failure.

as the 7th main light-vehicle manufacturer in the world but

The new OEM owned by parking lot manager COPEMSA

it has climbed up the ranks in terms of exports. In 2016, the

has already released two full-electric models called M2 and

country moved up one position to become the third-ranked

M3. In terms of foreign investment, along with the entrance

light-vehicle exporter globally, behind Germany and Japan.

of Kia and Audi, Mexico attracted Chinese OEMs looking

The automotive industry represents approximately 3 percent

to target the Latin American market and eventually the

of Mexico’s GDP and 18 percent of its manufacturing GDP.

NAFTA region.

Data for 2016 show Mexico achieved record numbers in terms

In collaboration with Giant Motors, in which Slim’s Grupo

of production, exports and sales of light vehicles. By the end

Inbursa is a 50 percent owner, the Chinese brand JAC will

of the year, production accounted for 3.47 million vehicles,

begin manufacturing two SUVs at Giant Motors’ plant in

representing a 2 percent increase compared to 2015. Of

Hidalgo. JAC has invested MX$4.4 billion (US$249 million)

these, 2.77 million were exported, a rise of 0.3 percent year

and production is expected to begin in 2018. A collaboration

on year. With the arrival of Kia and Audi, not only did the

between Grupo Picacho and the Chinese maker BAIC

country move up the international rankings, it also became

also resulted in a new manufacturing project. Originally

the main vehicle exporter to the US.

a distribution deal, Picacho and BAIC’s relationship transformed into a production venture. BAIC started

In the domestic market, sales jumped 18.6 percent to more

manufacturing its vehicles at truck manufacturer Foton’s

than 1.6 million units. Numbers from January to September

plant in Veracruz in April 2017.

2017, however, suggest a slowdown in progress. Production and exports are exhibiting the strongest growth at 9.8

Three more light-vehicle plants are expected to start

percent and 11.5 percent, respectively. Kia continues to ramp

operations no later than 2019. The Renault-Nissan Alliance

up its production and according to Eduardo Solís, Executive

in collaboration with Daimler is now building the COMPAS

President of AMIA, other automakers have finalized platform

project in Aguascalientes, which is scheduled to begin

updates that were the main cause of moderate production

operations by the end of 2017. The project will start with

growth in 2016. Sales have decreased 1.1 percent between

production of INFINITI models and will integrate Mercedes-

January and September 2017 compared to the previous

Benz vehicles into the production line in 2018. BMW’s

year when they reached a total 1.106 million units. Solís and

venture in San Luis Potosi is projected to start in 2019. The

Guillermo Prieto, Executive President of AMDA, agree that the

project is under construction but the company expects to

most likely outcome for the domestic market will be moderate

have an annual production of 150,000 units of its Series 3

single-digit growth for 2017 of no more than 5 percent.

model when the plant comes online. Toyota also has a new plant in the works, scheduled to begin producing in 2020.

PRODUCTION

The company’s facility will be located in Guanajuato and

The Mexican automotive industry comprises 23 light-

will focus on production of pickup models.

vehicle and 15 heavy-vehicle production plants in operation, distributed across North Baja California, Sonora,

AMBITIOUS GOALS

Chihuahua, Coahuila, Nuevo Leon, Aguascalientes, San

Despite an expected slower growth pace in 2017, Mexico has

Luis Potosi, Guanajuato, Jalisco, Queretaro, Morelos, the

ambitious goals regarding production and development of the

State of Mexico, Puebla, Hidalgo and Veracruz. After two

domestic market. According to Solís and Prieto, the country’s

years of planning, Mexican innovator VUHL opened its

target for 2020 is to achieve production of over 5 million

MX$65 million (US$3.7 million) plant in Queretaro, where

vehicles and domestic sales of 2 million units. Mexico seems

it plans to manufacture 25 cars per year. Grupo Bimbo’s

to be on track for both targets although there are factors that

subsidiary Moldex is also expanding its vehicle production

could potentially present a risk to meeting these goals. The

outside Bimbo’s borders and will now produce electric

first consideration is the evolution of the international vehicle

vehicles for the national market in collaboration with

market. Due to the plunge in oil prices starting in July 2014, the

billionaire Carlos Slim’s Giant Motors at its plant in Hidalgo.

market began favoring larger vehicles thanks to lower gasoline

Zacua, a new Mexican hopeful, is also looking to make an

prices. In July 2014, the prices of a barrel of WTI mix peaked at

269.9 278.2

200

266.9

demand is intricately linked with oil prices.

250

271.3 301.5

on the behavior of the US and Canadian markets and in both,

300 267.5 278.5

According to Solís, Mexico’s production is highly dependent

284.4 286.4

350

2014, sitting at around US$54 at the end of October 2017.

319.1 334.6

400

regained strength but it is still below half of what it cost in

279.5 327.8

point in February 2016 at US$30.6. Since then, the mix has

363.7

US$102.4 but then reversed fortunes until reaching its lowest

LIGHT VEHICLE PRODUCTION (THOUSANDS OF UNITS) LIGHT-VEHICLE PRODUCTION (thousands of units)

150

demand for compact vehicles in the US. After canceling its investment in San Luis Potosi, Ford announced that its

July

June

has already tasted its first disappointment due to receding

May

April

toward these models,” he says. Nevertheless, the country

50 March

US, I would not expect Mexican plants to shift their production

100

February

currently a preference toward larger vehicles and SUVs in the

January

Solís does not seem concerned, however. “Although there is

projected production of the new Focus would be relocated to

LIGHT VEHICLEEXPORTS EXPORTS (THOUSANDS OF UNITS) LIGHT-VEHICLE (thousands of units)

its existing plant in Hermosillo. However, the company issued

300

save US$1 billion by moving its operations to China, liberating budget to invest in its light-truck plant in Kentucky and new projects related to autonomy and electrification.

247 276.6

225.5 243.1

Global Operations at Ford Motor Company, the company will

226.2 257.7

200

219.7 240.9

According to a statement from Joe Hinrichs, President of

250 213.2 211.7

its production to China in an effort to further reduce costs.

197 228.8

a statement in June saying that the company would transfer

224.2

297.6

Source: INA

150 100 50

time low of 2.72 percent in 2015. According to estimates from the International Monetary Fund and the World Bank, Mexico’s

2016

GDP grew 2.2 percent in 2016 to US$1.17 trillion. In its report

Source: AMIA

The World in 2050, PwC forecasts that Mexico could grow

Source: INA

at an inter-annual rate of 3.8 percent up to 2050. While the long-term outlook remains relatively unchanged, the economy

July

June

THREE SCENARIOS FOR LIGHT-VEHICLE SALES IN 2017 (millions of units) Sales

Growth

Most plausible

1.68

Most optimistic

1.77

11%

Most pessimistic

1.33

-17%

Donald Trump’s rise to the US presidency. Trump started targeting the Mexican manufacturing industry in the second half of 2015, declaring that Mexicans were stealing jobs from the US. The rhetoric intensified in the last quarter of 2016 when prior to the US elections, Trump His premise was that given Mexico’s unfair trade balance

May

2017

in the short term has been hit by uncertainty in the wake of

began to attack automotive companies directly via Twitter.

April

maintaining below 5 percent since 2010 and hitting an all-

March

January

Since 1997, Mexico’s inflation rate has dropped steadily,

February

THE TRUMP CARD

with the US, the ideal measure would be to slap a 35 percent tariff on vehicle exports coming from Mexico. The result was

Source: AMDA

a wave of uncertainty among companies with manufacturing operations in the country. However, as a renegotiation of

are positive. According to Fitch Ratings’ latest review

NAFTA moves forward, the Mexican government has stood

on Mexico’s perspective, the ratings firm has awarded

its ground against Trump.

the country a BBB+ mark, with an upgrade to “stable” from “negative.” According to a statement from the firm,

According to a survey conducted by Mexico Automotive

“the risk of a negative scenario that could affect the

Review 2017 with 184 executives of the national industry,

competitiveness of Mexico’s exports is reduced now that

uncertainty remains the main factor hindering companies’

the US seems to be taking a moderate position regarding

competitiveness. Still, growth projections for Mexico

the renegotiation of NAFTA.”

279

VIEW FROM THE TOP

THE VISION OF INTELLIGENT MOBILITY MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana

280

Q: Mexico is Nissan’s fourth most important market

A: Mexico has not yet defined a new model for how

globally. How will the company maintain its growth here?

Nissan's, or even Mitsubishi’s, operations will change but

A: After eight consecutive years of being the leading brand

globally this acquisition will only strengthen the alliance

in Mexico and with a market share of 25 percent during our

between Renault-Nissan and now Mitsubishi. After we

2016 fiscal year, our goal is to continue with our winning

acquired 34 percent of Mitsubishi’s stock, the alliance

formula. Our latest target is to surpass the 406,995 units

became the third most-important automotive group

sold in FY16, which is a record in itself because no other

in the world. The alliance sold over 10 million vehicles

brand has managed to sell that many vehicles in Mexico in

around the world during the first half of 2017. The three

a single fiscal year. Nissan’s innovative approach has been

companies complement each other and I think the best

one of the pillars of the company’s success, with a strong

of this venture is yet to come. We still need to define

vehicle portfolio that allows it to participate in almost

how each company will take advantage of the others’

all market segments. Our manufacturing operations have

manufacturing infrastructure, supply chain, distribution

also helped to strengthen our presence in the country and

network and technology. Negotiations on how the new

to offer competitive prices to our clients. We now have

alliance will impact each country are ongoing but Carlos

two plants in Aguascalientes, another in Morelos and we

Ghosn, Chairman and CEO of the Renault-Nissan Alliance,

will open our fourth plant, also in Aguascalientes, by the

says the addition of Mitsubishi could transform the alliance

end of 2017.

into the most important automotive group in the world.

Our financing arm, NR Finance, has been key to growing

Q: What role does Mexico play in Nissan’s global

our market share in Mexico, reaching demographics that

manufacturing footprint?

we could not service otherwise. Our distribution network

A: We manufacture a new vehicle in Mexico every 34

has also grown to more than 230 points of sale and we are

seconds and our production line in the Aguascalientes’

now transforming the image of our dealerships with the

A1 plant is flexible enough to incorporate five different

implementation of the Nissan NREDI 2.1 global standard

models in the future. Mexican manufacturing has become

across our Mexican network. The goal of NREDI 2.1 is to

a corporate standard for our global operations, having

create attractive dealerships with more open spaces that

attracted US$5 billion in investment from Nissan since 2007.

foster enjoyable interaction between our customers and our vehicles. All the information they need will be at hand.

Aguascalientes was the first location to manufacture the

Dealerships will be much more modern and technology will

Nissan Kicks crossover with an investment of US$150 million.

be the basis for all our operations. This is an international

Since this model was the official vehicle of the Rio Olympic

effort and the first NREDI 2.1 dealership in the world was

Games of 2016, the first batch produced was sent to Brazil.

inaugurated in May 2017 in Playa del Carmen.

Subsequently, production went to our local distributors. The Nissan Kicks allowed us to compete in a market segment

Q: How will Nissan’s recent acquisition of 34 percent of

that we had not explored in our 53 years in Mexico. Now we

Mitsubishi's stock boost the company’s position in the

can proudly say that so far, in the current 2017 calendar year

global market?

2017, we are leaders in the small crossover segment as well. Q: To what extent are Mexicans participating in Nissan’s

Nissan Motor Corporation is a unit of the Renault-Nissan Alliance.

R&D efforts?

The company is the largest OEM in Mexico with sales of over

A: Mexico led the Kicks' production and the vehicle’s design

400,000 units in 2016 and four manufacturing plants, three of

was a collaboration between Nissan’s R&D centers in Rio de

which are focused on Nissan models and one on Infiniti vehicles

Janeiro in Brazil, San Diego in the US and Atsugi in Japan.

These three centers brought their vision to Mexico and our

there was no charging infrastructure available. We could

local engineers were responsible for ensuring the vehicle’s

not wait for the government to start developing this

quality and implementing all the necessary modifications

market so we invested our own resources in the country’s

and improvements to the original design.

charging infrastructure and launched the first electric vehicle. Nissan LEAF became the first EV to be launched

Mexican talent has been a decisive factor in elevating the

in Mexico and the country’s best seller, with more than

quality of our manufacturing operations. The country’s

270 units sold to date.

challenge will be to generate enough talent to support the production of 4.9 million vehicles by 2020, 1 million of

To this day, Nissan has the largest charging network with

which will be produced by Nissan. With the Nissan University

over 230 charging points across the country. If we include

program in Aguascalientes, the company can also help

the public infrastructure we developed alongside the

develop this talent and generate new opportunities, both

government, universities and parking spaces, more than

for the company and the country. Our university has become

170 charging points add to those 230 chargers throughout

an aspirational institution because it helps students develop

our dealership network.

the necessary practical knowledge to fill jobs at Nissan and Although the electric and hybrid vehicle market is growing

its partners.

of its own accord, most efforts have come from OEMs and Q: How is Nissan transforming its value proposition to

the private sector. The government needs to develop state

incorporate global automotive trends?

incentives to boost sales. 281

A: The Nissan Tsuru was a flagship model for Nissan in Mexico. We manufactured a total of 2.4 million Tsuru

Q: What opportunity does Nissan see to participate in the

vehicles until production stopped in May 2017. Its sustained

growth of on-demand driver services such as Uber and

success was thanks to it representing a reliable and

Cabify?

affordable mobility solution for the Mexican population.

A: These services are already important to the brand. We

But after three decades, we decided it had accomplished its

foresaw an opportunity to create a specialized product

mission. We hope to satisfy consumers

with our financing arm that targeted these

with the entry versions of the Versa,

clients. This led to the Versa becoming the

March and Tiida models. Nissan is now moving on to a new era driven by Intelligent Mobility. Terminating the production of Tsuru

25%

Nissan’s market share in Mexico in FY16

was the first step we took into this

preferred vehicle for services like Uber and Cabify. Nissan has built strategic alliances with these companies and we signed more than 25,000 contracts through NR Finance’s Private Driver Program in the fiscal year 2016. Approximately 95 percent

new era. We sold 1,000 units of a commemorative edition

of all financed vehicles for on-demand driver services were

and followed with the launch of the new Nissan GT-R in

Versa models. We are optimistic about growth in the on-

May 2017, when we formalized our promise to the public to

demand driver market, especially considering the room

provide innovation and exciting driving experiences.

these platforms have for development in Mexico.

Our new mission is to revolutionize mobility globally through three principles. The first, Intelligent Driving, will focus on how to incorporate new technologies to make driving much more efficient and eventually autonomous.

THE NEW MEMBER OF THE ALLIANCE

Intelligent Power, the second cornerstone of our new initiative, will guide Nissan on the use of alternative-

The Renault-Nissan Alliance acquired 34 percent

energy sources. Finally, Intelligent Integration will create

of Mitsubishi in 2016 for US$2.3 billion. With this

connectivity between vehicles, the Cloud and road

acquisition, the Alliance became the third most

infrastructure. These three branches of Intelligent Mobility

important automotive group in the world. Carlos

are the key to reaching our Double Zero target of zero

Ghosn, Chairman and CEO of the Renault-Nissan

emissions and zero road fatalities.

Alliance and CEO of Renault and Nissan has now left the latter's leadership to Hiroto Saikawa to become

Q: How important is the electric and hybrid vehicle market

Chairman and CEO of Mitsubishi and help the company

for the brand’s operations in Mexico?

get back on a growing track. The plan is for Mitsubishi

A: Nissan was one of the pioneers in the electric vehicle

to lean on the technological and financial backbone of

market. When we decided to launch the LEAF in Mexico,

Renault-Nissan to boost its operations.

VIEW FROM THE TOP

ATTRACTING INVESTMENT TO SUPPORT GROWTH MIGUEL MÁRQUEZ Governor of the State Guanajuato

Q: How have new investments in Guanajuato impacted its

We have strengthened our relationship with Canada and

automotive industry?

many companies are already purchasing directly from us.

A: For 15 years, we were traditionally an agricultural,

Africa is beginning to buy the first exports headed that

livestock and textile trade region. The first manufacturing

way and Asia is a great opportunity for the agricultural and

company that came to the state was GM, 20 years ago,

livestock sector. We are interested in continuing to negotiate

which was responsible for boosting our growth. Before

with countries such as Japan, Korea and China. We have also

GM, we were exporting US$200 million per year but

exported to Guatemala and the rest of Latin America, as the

now we export more than US$20 billion per year from

south of the continent has turned into an area of opportunity

our automotive and other manufacturing activities. The

for Mexico.

industrial sector remains the driver for these exports and the automotive industry’s results put it in first place among

Our goal for direct investment from foreign industries was

all industries. In second place is the agricultural industry

US$5 billion but we received foreign investment of over

followed by metal mechanic. Automotive manufacturing is

US$10 billion. By the end of our administration in September

a big part of Guanajuato’s development and in five years it

2018 we expect between US$11 billion and US$12 billion,

has grown to represent 17 percent of the state’s GDP.

because we are diversifying in the aerospace, energy and automotive sectors.

One of every five vehicles that is produced in Mexico is made in Guanajuato, putting us among the top five manufacturers

Q: What is the development goal of the production chain

in the country. By the year 2020, most OEMs established

in the automotive sector?

in Mexico will have operations here. Toyota will lead us to

A: Our development strategy is based on a plan for the year

consolidate as the most important cluster in Latin America

2035 and its targets need to be updated to work toward a new

for vehicle production. The top brands that are working here

deadline in 2040. We need more adjustments, so Guanajuato’s

are Honda, Mazda, GM, Hino Motors and Volkswagen, as well

policies reflect its short and medium-term goals, and do not

as top suppliers including American Axle and GKN, among

simply become the duty of the governor in office. These

many others. Ford’s transmission plant will start operations

policies should focus on diversification.

in 2017. Together these companies have generated 90,000 jobs. Guanajuato's unemployment rate, at under 4 percent,

Newly arriving companies make the development of local

is lower than the average in Mexico.

suppliers more attractive because importing services tends to be more expensive. Companies prefer to have

Q: How is the state promoted to attract investment and to

the product close by since imports represent a setback

build stronger relationships with countries besides the US?

due to delayed transfers and tariffs. We are pleased that

A: The Foreign Trade Promotion Coordinator (COFOCE) has

local companies are integrated into the supply chain and

been working in Guanajuato for 25 years. This coordination

we are working on improving any area of opportunity for

is older than ProMéxico and has helped us broaden our

Mexican companies. This is one of the priority mandates

scope of trade. COFOCE is a permanent effort that works

that the President of the Automotive Cluster of Guanajuato

on all continents because diversification is key to our

(CLAUGTO), Fidel Otake, proposed.

growth. Twenty-eight countries are investing in Guanajuato, including Japan, the US, Germany and France. The US is our main market and it will continue as such. The market

Miguel Márquez Márquez is a Mexican politician affiliated with

is constantly moving and the reality of trade and industry

the PAN party. He currently serves as Governor of Guanajuato, a

overshadows intimidating speeches, such that 50 percent

position he has held since 2012. Before, Márquez was mayor of

of what we export goes to the US.

the Purisima del Rincon municipalit in Guanajuatoy

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VIEW FROM THE TOP

IMPROVING SALES, CUSTOMER SERVICE HORACIO CHÁVEZ Managing Director of Kia Motors México

Q: After growing over 400 percent in 2016, how confident

financing, the most attractive factor that helps garner trust

is Kia about reaching its 80,000-unit sales target for 2017?

from our customers is having the most extensive warranty in

A: Between January and September 2017, we achieved

the Mexican market of seven years or 150,000km.

55.7 percent growth in sales. Local operations have also

284

strengthened since we started producing the Forte locally in

Q: How is Kia positioned among its competitors in terms of

May 2016. This model was previously imported from Korea and

sales and aftersales services?

so was subject to import tariffs. In 2017, the most important

A: We use studies by J.D. Power as a reference. In 2017, Kia

factor to increase our sales volume will be national production

occupied the sixth position among non-premium brands.

of the Rio. We started production in January with the Rio

We are not yet participating in J.D. Power’s aftersales studies

Hatchback and we have also launched the Rio Sedan. Locally

because the volume of repairs and maintenance we manage

producing 100 percent of the units that we sell in Mexico will

is still too low. Our cars are still relatively new compared to

help us reach our target of 80,000 units sold.

other brands and need few services but we will participate in 2018. By 2019, we hope to be rated among the top three

Q: How did the company successfully penetrate the market

companies with the best levels of satisfaction in the country.

and grow sustainably? A: We implemented an aggressive growth strategy following

Aftersales services offer the greatest opportunity in

four pillars. The first was launching the brand with attractive

Mexico. People always doubt whether repairs made to their

products to position ourselves well from the outset. Sportage,

vehicle were necessary or not, so Kia developed a global

Sorento and Forte are our high-end models, which we

tool called Customer Value Innovation System (CVIS) that

launched initially. Then we brought the more economical Rio

personalizes the service. When a new vehicle is sold, the sales

and Soul. The second pillar of our strategy was boosting brand

representative must download an application to the client’s

awareness through marketing. We broke many rules about

smartphone, which generates dates for maintenance and

how brands should start in a new country. We had a strong

reminders for services. Drivers can schedule appointments

presales campaign with the “Kia on Tour” events, visiting all

or reschedule, and the application shows the car’s status and

cities where we planned to work and scheduling test drives.

when it will be ready after servicing. Even the payment can be handled through the application. We started implementing

Our third pillar of growth is based on developing our

this innovation in 2016 with 30 dealerships and Mexico will

distribution network. We selected the best in terms of

be the first country where 100 percent of the dealerships will

customer service, managerial and financial capabilities to

integrate the application.

create a network of 73 dealerships that opened in just 12 months. We added 12 more sales points in July 2017, which

Q: How do you expect your participation in the hybrid vehicle

will take us to 97 percent national coverage. Each dealership

market to grow, especially in Mexico?

on average costs US$3.5 million to build. The final pillar in

A: During 2016, we were less confident about introducing

our strategy refers to our differentiating policies. We created

a hybrid vehicle to Mexico but after the environmental

Kia Finance, our financing arm that works in collaboration

contingencies in Mexico City, we saw sales of hybrid vehicles

with BNP Paribas, the largest bank in Europe. Along with

from competitors dramatically increased. We have seen there are great opportunities to launch greener vehicles here. Kia had considered launching a global product in Mexico, which

Kia Motors was founded in December 1944 as Kyungsung

could have important differentiators from a traditional car.

Precision Industry, initially manufacturing bicycles. The company

The Niro is a special vehicle designed from the beginning as

began producing cars in the 1970s. It has since joined forces

a hybrid. It is the first light SUV born as a hybrid, designed to

with Hyundai to create the Hyundai-Kia automotive group

be aerodynamic and avant-garde.

VIEW FROM THE TOP

WORKING TOWARD A STRONGER MARKET PRESENCE LEONARDO SOLOAGA Managing Director of MAN Truck & Bus México

Q: MAN has set goals for 5 percent market share in the truck

Thanks to the arrival of BMB Mode Center to Mexico, we

segment and 18 percent in the bus segment. How successful

will now be able to transform vehicles to suit the needs

have you been?

of our local customers. We will perform these changes

A: Between January and April 2017, we reached a 2.7 percent

with local supplies, guaranteeing the same quality as if

market share in trucks and a 16.4 percent share in the bus

these vehicles were originally manufactured with these

segment. There are still areas of opportunity for the company

specifications.

but we are well on track to reach our proposed goals by the end of 2018.

Q: How have the traditional VW and MAN families evolved and how are you integrating the latest additions to the

In past years, we have grown at a rate of 15-20 percent

company’s product portfolio?

year-on-year both in sales and production in our plant in

A: We are developing new vehicles with our body

Queretaro. We expect to continue delivering the same results

manufacturing partners, always integrating the latest

in 2017 and in the near future. Although we currently do

advances in technology, innovation and alternative fuel

not plan to export to the US, our operations in MAN Latin

applications, such as natural gas. The goal is to complement

America are promoting our exports. Twenty Latin American

our existing product line by identifying the best opportunities

countries have increased their exports by 40 percent so far,

in the market. In 2016, we released six new models to the

including Mexico.

market and by the end of 2017 we expect to deliver two or three more. As a result, MAN Truck & Bus México will have

Q: How has the company evolved in terms of client

one of the most complete portfolios in the market.

relationships and what new contracts have you closed? A: Grupo IAMSA is one of our main clients at the moment

BRT models will be one of our new alternatives and we

and we are working to strengthen our relationship by

expect our vehicles to be available by the end of 2017. That

offering new products and services. We are in the final

being said, midibus models are still a crucial part of our

stages of delivery for the last contract we signed with the

portfolio. Our 15.190 model, for example, doubled its sales

company. We have also closed other major negotiations in

in the first months of the year.

2017. Two of the most important contracts were with ADO and Heineken.

Q: How successful have cab-over models been in Mexico and how are regulations promoting the adoption of these units?

Q: What development plans does the company have to

A: Mexican operators are gradually accepting cab-over

achieve 30-40 percent national content in its production?

models because they understand the benefits the vehicle

A: We are restructuring our engineering and purchasing

can offer in terms of cargo volume, maneuverability

divisions in an effort to make them more oriented toward the

and visibility. Cab-over trucks are also more versatile

development of Mexican suppliers. We are already in contact

when it comes to inner-city deliveries and are safer than

with several local companies who are now participating in

conventional models. In the light-truck segment, acceptance

the development of some of our components. Mexico is one

for these vehicles is growing considerably and we expect

of the most important heavy-vehicle manufacturers in the

that trend to translate to the heavy-vehicle market.

world. In 2015, the country was the largest truck exporter globally. The supplier network is strong and extensive and we are confident that local players are capable enough to

MAN Truck & Bus is a subsidiary of the Volkswagen Group.

address all our requirements regarding quality. Our strategy

The company is headquartered in Germany and focuses on

is to keep growing our local content, understanding the

the production of buses, light and heavy trucks. In Mexico, the

needs of our customers.

company manages the VW and MAN brands

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VIEW FROM THE TOP

A CLEAN FUTURE FOR THE INDUSTRY RENÉ SCHLEGEL President of Robert Bosch México

286

Q: How are you reacting to changes in the automotive

plenty of energy alternatives the industry could embrace,

industry and new trends favoring mobility alternatives?

used individually or in combination. Some players are still

A: The idea that the car industry is changing is wrong.

interested in hydrogen. Chemically, this substance is one

What is evolving is the transport and mobility industry; the

of the simplest molecules available in abundance, which is

automotive industry is an important part of that. Companies

precisely what makes it interesting. But we don’t think there

that cannot identify this wider framework are doomed to

is just one solution. Gasoline, natural gas and electric engines

stagnate or even disappear. The car is just a means to an end,

all have their merits. We must only consider issues such as

to transport people and goods from one place to another.

effectivity, efficiency, availability and ease of distribution to

The real concern facing the industry is how to improve

determine how best we can apply each of these alternatives

mobility by transforming existing solutions or by developing

to transport people or cargo. We still see great potential for

new ones. Companies must identify client needs and react to

the internal combustion engine too, mainly because of the

them, offering the fastest, most convenient and cost-efficient

energy density in carbon-based fuels. Further improvements

solution that damages the environment the least. We want

in terms of efficiency and cleanliness for this type of

to provide important input to drive such solutions.

powertrain remain promising options for many applications.

Q: How is Bosch working to develop cleaner and

Q: How has Bosch’s R&D initiative in Guadalajara evolved and

environmentally friendly solutions for its clients?

what has been your experience concerning Mexican talent?

A: Developing cleaner products has been one of our core

A: The project has been a success although it was not

values since the company was created. Bosch strives for

easy at the beginning. The center in Guadalajara is heavily

safer, cleaner and more comfortable solutions across all

oriented toward development, which is still not common in

the industries we serve. These three factors are driving

Mexico, and we had a hard time selling the idea internally in

innovation in the mobility sector too and we assign

the beginning. We developed the project in collaboration

considerable resources to develop technology around them.

with Bosch India starting with 11 people in 2014. Today,

We spend approximately 10 percent of our turnover on R&D

we have 280 engineers working at the site and we have

activities, which amounts to nearly US$10 billion per year.

proven that there are very skilled and talented people in the country, capable of delivering projects on time, on cost and

Q: What opportunities do you see for Bosch in alternative

on spec. Our employees in Guadalajara come from different

powertrain applications?

STEM backgrounds (science, technology, engineering and

A: There has been tremendous progress in electrification

mathematics), creating an interdisciplinary environment

and how energy is being produced. But getting your energy

that fosters innovation. Our demand for R&D projects in

from a plug does not mean using clean power. There are

Mexico is now booming, both from internal and external

still challenges the industry must address including making

customers domestically and internationally.

electrical energy storage and charging more efficient, lighter, faster and cheaper. But the fact that these challenges

Q: In what ways do you see the automotive industry being

exist represents a great opportunity for the industry to

affected by external influences?

meet considerably more challenging standards. There are

A: During uncertain times, companies and investors need to separate the wheat from the chaff, reinforcing calm among investors, associates, academia and politicians where

Robert Bosch is a leading supplier of automotive components,

possible. Companies must keep advancing, cautiously maybe,

including gasoline and diesel systems, electrical drives, starter

but never stop innovating or offering the best possible value

motors and generators. The company generated US$82.4

to their customers and stakeholders. Standing still because

billion in sales in 2016 and US$3.7 billion in EBIT

of uncertainties is not an option, prudence is.

VIEW FROM THE TOP

REINVENT AFTERMARKET TO REACTIVATE MEXICAN MARKET GERARDO VARELA General Manager of ZF Services

Q: What challenges has the company faced in consolidating

All these elements experience constant wear so though

and integrating ZF Services after TRW’s acquisition?

it might seem an additional expense to change an entire

A: We integrated two large groups with different business

module when one thing wears down, in the long run doing

strategies and organizational cultures. TRW was a public

so is safer for end-users. ZF now sells concepts that make

company in the US while ZF was a private German company.

sense to distributors, installers and consumers. Distributors

The way both planned and managed operations was

only have one supplier to negotiate with for complementary

dissimilar. This situation created foreseeable consolidation

components. We believe that this new concept responds to

difficulties, as well as opportunities to look for internal

current market trends. Selling components or spare parts

benchmarks and implement the best of both. Initially,

is not enough to compete in the market, sales must be

TRW was considered a new division within ZF’s business

accompanied by added support and aftersales services.

structure, retaining its complete structure and operations. After evaluating the merger, a special group was created

Q: What other products are you developing with TRW?

to conduct the process integration, focusing on fixed

A: We are mostly developing electronic components and

objectives and strategies while learning from each part.

devices for mobility, connectivity and safe driving. These apply to passenger cars and both light and heavy commercial

The group identified synergies and gaps between the

vehicles. In the auto parts segment, our team is working to

companies. Finally, with a better and broader idea of how

develop product lines missing from each market, combined

to best proceed, the company started an integration-

with the creation of service readiness to provide added-

consolidation process, applying the best of both companies’

value solutions and greater business for our distributors.

techniques. The group tried to balance the use of each

This encompasses a trained technical support team, high spare

company’s resources. The divisions focused on OEM

part availability and documentation in several languages.

customers were consolidated more quickly, while those serving the aftermarket were the last to integrate. This

Q: What best practices could Mexico import from

was mainly due to the complexity of integrating our One

aftermarket-oriented regions to reactivate the local market?

Aftermarket division and ensuring it had a global scope for

A: Mexico has to reinvent itself. The biggest change we will

all the product lines.

face in Mexico is going to be e-commerce. In our strategic plan, we will skip retailers and start participating directly

Q: How did the newly founded merger ensure each

on an e-commerce platform, including our distribution

company’s strengths remained present?

network. We started in July 2016 and we are already seeing

A: The head of One Aftermarket is a ZF representative

sales increase through this channel. Helping end-users to

but the remaining important positions within the structure

correctly identify the part they need to buy will lead to

were designated among ZF and TRW executives. We based

higher online sales. There will always be users who want to

our merging strategy on the ideas of integration and the

go to a workshop and see the pieces before they buy them.

creation of new sales concepts. The different structures we

But we are pleased to see how our distributors respond to

use to attend to the aftersales market dictated the need to

this change and are adapting to find innovative ways to

eliminate duplicities and use synergies as much as possible.

remain competitive.

We identified each company’s strengths and merged them to create a single fortified strategy. We needed to recognize that selling components alone was no longer a strategic

ZF is a global leader in driveline and chassis technology. The

approach, so we began selling integrated solutions. TRW

company's portfolio includes powertrain and chassis technology,

used to sell “corner modules,” a concept that integrates

commercial vehicle and industrial technology, e-mobility, the

brake pads, shock absorbers and other suspension parts.

aftermarket and active and passive safety technology

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VIEW FROM THE TOP

NEAR-NET GEOMETRIES, HEAT TREATMENTS, ALUMINUM TO STAY CURRENT MARIO RODRÍGUEZ CEO of Arbomex

Q: What are Arbomex’s goals in terms of material and

previously had only one cam and we added another

process innovation?

two. That way, according to the fuel demand and speed

A: Our main strength is our vertical integration between

stability, one or maybe two cam actions could reduce fuel

iron foundry and precision machining. This integration

consumption. Our improvements may be advantageous in

gives us enough competitiveness to stand up against our

terms of manufacturing or logistic costs and the client must

international counterparts. In terms of innovation, we have

decide how best to alter its operations.

substituted steel products with heat-treated iron. Our next 288

step is to develop a foundry process for iron that can replace

Q: How will Arbomex address the growth of electric and

steel without the need for an additional heat treatment.

hybrid cars in the industry? A: The three main drivers for the automotive industry are

We are waiting to obtain the first patent for a camshaft

mobility, connectivity and alternative energy sources.

manufactured through a foundry process of iron and

By 2035, we expect electric vehicles to take over the

steel. This will be a disruptive improvement for the engine.

market and we are preparing to face this development

Combining both materials will result in less weight, lower

accordingly. We must take the elimination of camshafts

costs and better injection-system performance. We need

as a likely scenario and that will lead the company in two

to work on our testing processes, to assure our clients that

directions. The internal combustion engine, although it may

this component will provide better quality at a lower cost.

be limited, is unlikely to disappear and we want to be the best camshaft company in the world. At the same time,

Q: How can Arbomex solve engine and injection-system

we are targeting the heavy vehicle industry, particularly in

problems to improve vehicle efficiency?

parts that are expensive to manufacture. We plan to move

A: There is a trend to change the traditional Otto cycle

toward other types of components, delving into near-net

in an engine to the Atkinson model and that puts a lot of

geometries and new materials like aluminum.

pressure on the camshaft. This component operates the valves that will allow air to enter and exit the cylinders thus

Q: How has Arbomex’s possible joint venture with a

controlling the moment fuel is injected to the engine. We

Japanese company evolved?

have a specialist dedicated to analyzing several types of

A: The company wants to take advantage of the experience

engines and establishing a benchmark of the advantages

Arbomex has in the Mexican market but recent exchange

each presents. That way we can offer several solutions

rate volatility and the situation between Mexico and the US

for our clients to choose whatever works best for their

has slowed the process. But negotiations have not halted

performance, cost and efficiency objectives.

and we hope to finalize the deal before the end of 2017.

Suppliers are increasingly involved in the design process

Q: How can Mexico attract further investment in advanced

for new components. This allows us to analyze and test all

manufacturing and design processes?

aspects related to a new part, along with its manufacturing

A: Software and basic engineering processes are still carried

conditions and related costs. That is how we designed

out abroad. Most design centers in Mexico focus on small

a solution for one of our main customers. The system

changes and product adaptations according to the region but the base design is done in Germany, Japan or the US. Each day more and more universities are collaborating with

Arbomex is a Mexican company that specializes in engine

companies to encourage innovation and entrepreneurship

component manufacturing. This includes camshafts, foundry

among students. Some institutions already have excellent

and machined precision parts. Its main export destinations are

manufacturing and material research centers but the

the US, the Czech Republic, Germany and China

industry would benefit from more integration with them.

VIEW FROM THE TOP

A TECHNOLOGICAL FUTURE AWAITS Manuel Nieblas Partner and Manufacturing Industry Leader at Deloitte Mexico

Alberto Torrijos Partner and Consultant at Deloitte Consulting Group

Q: How aligned is Mexico with the technological trends

AT: Technology integration is propelling the industry toward

adopted by other industrialized hubs?

a global strategy of connectivity between processes in

MN: Mexico has always been regarded as a low-cost

manufacturing and between vehicles and infrastructure

manufacturing destination. In contrast, Industry 4.0

regarding the end product. Cars operate with over 1 million

implementations require large investments. The moment

lines of code and the industry’s goal is to capitalize on the

technology becomes more affordable than human labor,

information gathered from both products and processes.

the industry will transform. According to the OECD, Mexico is the least prepared country in sensorization

Connectivity and advanced technology will play a defining

and digitalization. We can already see some robotic and

role in the industry’s future, not only in manufacturing but

automation strategies but human labor remains the most

also for the end user. The world is changing its focus toward

cost-effective alternative in the country. The problem

mobility and we expect the industry to transform in four

Mexico faces is that technology prices keep falling and

stages. We are already looking at a first shift in mindset related

it will not be long before they match the country’s labor

to ownership and assisted driving. Once users ditch the idea

advantages. The automotive industry’s innovation-oriented

of ownership, the market will move into a new phase of shared

vision will only accelerate this transformation.

economy. The third stage in the industry’s transformation will be full autonomy, which will eventually lead to a sharing

Q: How ready are Mexican companies to face technological

autonomy future where data collection and analysis will be

challenges posed by leading international players?

crucial to ensure safety and overall functionality.

MN: There are massive technology gaps in the automotive supply chain. SMEs are practically unaware of the

Q: How attracted is the Mexican consumer to autonomous

advantages these advances can offer and they do not

and connected features in their cars?

have the necessary resources to invest in advanced

MN: According to our Global Research on automotive

manufacturing equipment. The situation worsens when we

consumers, Mexican clients are more focused on safety-

consider there are no real incentives from the government

oriented technology and security features, such as how to

to incorporate advanced technology in national suppliers,

track vehicles remotely. Although this is not new to the

while the industry is not that committed to developing

industry, it is the basis for connected innovations and an

the local supply chain. For years, the driving force in the

autonomous future.

Mexican industry was to produce more with less. This is no longer enough according to international standards.

AT: Although the first priority for the user is safety, we found that clients are willing to pay more for advanced

AT: Mexican companies are not ready to face the technological

technology features in their vehicle. Mexican consumers

challenges presented by the industry; they are more focused

are among those willing to invest more in new technology

on surviving. If these companies do not offer an added value,

compared to other users in the international market. Our

their products will be commoditized, which will be a huge

research shows that members of the Y and Z generations

problem in the next five years due to the extreme competition

are open to spending MX$35,000 (US$1,900) for advanced

in the market. The country will keep manufacturing internal

technology, particularly in greener powertrain alternatives.

combustion vehicles but we will gradually see how companies make way for electrification. Small suppliers must find a way to enter the production chain or they will meet their end.

Deloitte Touche Tohmatsu Limited , more commonly known as Deloitte, is a conglomerate of independent firms that offer

Q: How will connectivity and advanced technology

audit, tax, consulting, risk and financial advisory services. In

permeate the development of automotive technology?

2016, the company generated US$36.8 billion in revenue

289

INSIGHT

AN UNWAVERING SUSTAINABLE VISION JUAN JOSÉ ZARAGOZA Marketing and Sales Manager and Mexico Country Leader of DuPont Performance Materials - NEP/HPS

The trend toward lighter materials in the automotive industry

like nylon that are now commonly used in a variety of

is more than just a cost-saving tactic; it provides tangible

applications, including automotive. Zaragoza says nylon

benefits for end users and contributes to environmental

is a crucial component in under-the-hood components

sustainability efforts, says Juan José Zaragoza, Marketing

including intake manifolds, fans and water-recovery pans.

and Sales Manager and Mexico Country Leader of DuPont

“Polymer components have made vehicles not only lighter

Performance Materials - NEP/HPS.

but safer,” he says. “Auto parts now have a higher impact resistance, have a longer lifespan and are better adapted

“People tend to think that lightweight trends only address

to manage harsh environmental conditions.”

cost-efficiency needs but that is not the case,” says Zaragoza. “Lighter materials result in a more efficient

The automotive industry is constantly innovating and plastic

vehicle that demands less power from the engine.”

is becoming more relevant in automotive manufacturing with each new design cycle. “Components are now made

DuPont Performance Materials has now made its core

of plastic even when they have a structural or mechanical

business to deliver lighter components that meet the cost

role,” says Zaragoza. The implementation of fuel-efficient

requirements of both automakers and suppliers, while

technologies has also presented an opportunity to create

maintaining the same structural soundness companies

materials with higher heat resistance and heat dissipation

can gain from metal applications. “DuPont Performance

rates. “Turbochargers have helped downsize engines

Materials has even innovated to integrate recycled material

from eight to four cylinders while maintaining the same

into its polymer resins for further environmental gain,” he

performance. Nevertheless, they have also incremented the

says. As a raw material supplier, DuPont is in a crucial

temperature in the exhaust by more than 50 percent,” says

position to support companies as they innovate to create

Zaragoza. “Automakers need materials that can dissipate

greener solutions. “Our engineering polymers are the

that heat and prevent it from reaching the cabin.”

primary material to produce an auto part that will go into a system and that will finally end up in a vehicle.” DuPont also

Even electrification trends are impacting plastic applications.

participates in the design of new components and ensures

Connectivity and automation require the use of sensors and

the final proposal meets quality and functionality standards.

connectors and these parts need a plastic cover that can withstand heat and wear. “Clients now look for increased

The company also works in process optimization to help

connectivity and advanced electronics technology in their

reduce costs. “All manufacturing processes need energy

vehicles and that is where DuPont can participate,” Zaragoza

and work, which means consumption. If raw materials are

says. Like many companies that do business globally, DuPont

processed in the most efficient way, energy costs are lower

is also keeping an eye on the political environment in the US,

and production cycles are optimized,” he says. DuPont’s

which has placed a focus on the automotive industry, among

operations in Mexico have expanded to now represent 70

others. One area of concern is US support for sustainable

percent of the annual revenue in the Performance Materials

practices but Zaragoza says the industry will continue

division. Zaragoza says recent investments in the country are

its quest toward efficiency and improved performance.

paying off. “We reached double-digit growth in 2016,” he says.

DuPont continues to believe that US participation in the

“Our expectations for 2017 are to maintain growth thanks to

Paris Agreement would benefit both the US economy and

our business with Japanese and European suppliers.”

the global environmental future. “We remain committed to working with governments, companies, NGOs and other

Technology will play a key role in sustaining DuPont’s growth

international players to bring solutions to the market that

and as it supports its clients’ sustainable development.

reduce greenhouse gas emissions, create jobs and enhance

DuPont has been responsible for the invention of fibers

competitiveness,” says Zaragoza.

291

VIEW FROM THE TOP

FINANCING MEXICO’S AUTOMOTIVE SECTOR CÉDRIC DESPLATS-REIDER CEO of BNP Paribas Personal Finance México

Q: BNP Paribas Personal Finance arrived to the Mexican

BNP Paribas Personal Finance spurs it to offer credit at

market with traditional products. How has the bank’s

reasonable prices. Nevertheless, we are analyzing how

offering changed since then?

far can we go, while also asking clients to confirm their

A: We started operations in Mexico in 2004 with our

financial capabilities. It is not only a matter of payroll

consumer finance products. Back then, we offered credit

receipts; there are several ways clients can confirm their

cards, payroll loans and loans for cars and motorcycles.

income.

In 2012, after a strategic reorganization, we decided to 292

focus our business on the automotive sector and we

Q: When it comes to financing, what are the main

added financing products for distributors with our Plan

differences between Mexico and other Latin American

Piso. Three years ago, our portfolio of loans to distributors

countries?

totaled MX$200 million; today, that has grown to almost

A: There are not that many differences. For instance, in

MX$5 billion.

Brazil, the main banking institutions play an important role, whereas in Mexico brand financers have the largest

We decided to focus our operations on the automotive

market share. In Colombia and Chile, the only difference

industry because it is the market in which we felt most

is that leasing is more incipient than in Mexico, where it

comfortable and where we saw the largest growth

exists as a product with a final consumer credit that is

potential. We knew that even though the market would be

not as common. In some other Latin American countries,

competitive, we were going to continue growing. We saw

leasing is more advanced, but it has not reached the levels

growth opportunities and, thanks to our team, commercial

that we see in the US or some European countries.

partners, financial products and added value, we have succeeded. We focus on individual loans for people. Even

Q: What is BNP’s relationship with OEMs such as KIA,

though the automotive business also includes the fleet

Volvo and Peugeot?

segment, we have not fully explored that business line.

A: Our brand target is very limited, since many OEMs already have a brand financer and a few others have

Q: What trends are you seeing regarding financing in

agreements with banks. It is a limited market into which

Mexico?

we would like to expand. We have a strong working

A: In the automotive sector, the percentage of financed

relationship with KIA, Volvo and Peugeot. Although we are

sales is growing on a yearly basis, which also generates

working with a few other brands, those relationships are

growth in the automotive sector. Over 60 percent of car

not a strong yet. Alliances arrive through many channels

sales are funded, but the potential is even greater.

and due to several reasons. One of BNP’s strengths is that we have relationships with OEMs everywhere in the

Q: A pressing problem in Mexico is the number of

world, which means that we hold a relevant position at

people working in the informal sector, limiting access to

a global level.

financing. How can institutions foster inclusion? A: Our idea is to continue broadening the credit base

Q: What is BNP Paribas Personal Finance’s short and

and we are looking at options to do that. The DNA of

midterm view? A: BNP Paribas Personal Finance will continue investing heavily in Mexico and we expect our Consumer Finance

BNP Paribas is a French bank with presence in 84 countries

segment to keep growing. We are in the process of

and managed by 200,000 employees around the world. The

defining our objectives for 2020, but those will follow the

bank started operations in Mexico in 2004 under the Cetelem

same line of growth and present new financial products

brand and changed to BNP Paribas Personal Finance in 2008

to the market.

VIEW FROM THE TOP

MOBILITY BASED ON SAFETY AND STRONG REGULATION LAURA BALLESTEROS Deputy Minister of Planning at SEMOVI

Q: Considering Mexico City’s environmental issues, what

has implemented stricter speed reduction regulations.

are the government’s plans to implement permanent

According to the World Health Organization, this strategy

driving restrictions?

helped us reduce road fatalities by 20 percent from 2015 to

A: In 2014, Mexico City underwent many changes regarding

2017. This perfectly matches Mexico City’s plan to reduce

mobility after the implementation of the new Mobility

road fatalities by 35 percent by 2018. SEMOVI is also

Law and the many programs related to road safety. The

working to implement driving tests, the construction of

government’s goal was to make private vehicles only one of

safe pedestrian routes and training for transport operators

many options for transportation, fostering the implementation

so they can help when an accident occurs.

of carpooling when possible. To do that, we needed to invest in sustainable mobility with safe, connected and quality

Q: How has the federal budget transformed in favor of

public transportation. This included more space for mobility

projects that target pedestrians and cyclists?

options like Metrobús and Ecobici, enough space to promote

A: It is changing and evolving. This 73 percent represents

the use of private bicycles and sustainable buses to replace

a decade of pro-vehicle initiatives that are slowly

the current microbus fleet. To date, almost 45 percent of

disappearing. We currently have 5.5 million vehicles in

the transit in Mexico City is generated downtown, making

Mexico City alone and 80 percent of its roads are dedicated

driving almost impossible, particularly at rush hour. We tried to

to vehicle use. The problem we need to solve is how to

balance the use of private and public transportation in Mexico

successfully partition all the available mobility systems. The

City by publishing new parking standards in July 2017.

city’s government has worked on a strategy for two years and our goal is to designate 70 percent of our budget to

Q: How important are electric and hybrid vehicles in the

public transportation projects but to be successful we need

city’s mobility plan and what are the government’s growth

the support of the federal government.

strategies for charging infrastructure? A: Hybrid and electric cars are necessary to improve air quality.

Q: Now that OEMs are transforming their business models

The city is preparing an electromobility plan to promote the

from car sellers to mobility providers, what do you see as

use of these vehicles in the short and long term and taxis are

the main opportunity to transform Mexico City’s mobility?

the first focus. Old taxis are gradually being renovated and

A: The global trend is to offer mobility as a service. This is

regulations are making it easier for drivers to choose hybrid

an offshoot of the fourth industrial revolution. The industry

models. We are also lobbying to offer benefits to hybrid and

is in constant change and now alliances are being formed

electric-vehicle owners, which should go hand in hand with

between technology companies and OEMs. Mobility has two

the development of car sales and charging infrastructure. The

elements, one related to hyper-specialized services and the

government of Mexico City has an agreement with toll-road

other to interconnected services, both of which are controlled

operators to offer discounts to green vehicles and one of its

through a digital platform that allows companies to manage

commitments is the construction of infrastructure for electric

data. Following that concept, companies can participate in

buses. The 22km Green Corridor on Eje 8 Sur will be the first

innovation of mobility services in five different ways: road

of its kind in Latin America.

management, parking space management, data management, mobility platforms and management of public spaces.

Q: How close is the government to achieving its goal of reducing road fatalities by 35 percent in 2018? A: We have adopted Vision Zero as our road safety policy.

The Ministry of Mobility of Mexico City (SEMOVI) is in charge of

Implemented in 2015, this is part of a global strategy that

all regulations related to public and private transportation within

works to eliminate road fatalities in urban areas. Most road

Mexico City. Its goal is to consolidate the city’s regulations with

accidents can be avoided and because of that, the city

the safety of all users and the preservation of the environment

293

Airbus 380 landing

AVIATION & AEROSPACE

The aerospace industry is thriving in Mexico. While still small, the industry is capitalizing on a young workforce, an ideal location and a competitive labor force to penetrate the sector. Today, Mexico is ranked 14th for aerospace manufacturing in the world while it is the sixth-biggest exporter of aerospace parts to the US, the world’s largest aerospace market. With exports reaching US$7.18 billion, the country has climbed from the No. 10 supplier to the US’ aerospace sector to sixth. OEMs are finding in the country an excellent base for growth. Some that started with small manufacturing operations have widened their activities to include design and engineering.

While expectations are positive, Mexico’s aerospace industry is facing a few challenges. First, the international panorama is uncertain with many fixated on how Brexit will play out and the impact of protectionist US policies on the sector. Currency volatility is also affecting Mexican manufacturing across the board due to a strong dollar against the Mexican peso. Among the main internal challenges is the consolidation of the industry’s supply chain as the lack of ready availability of raw materials and special processes reduces the country’s competitiveness. Local authorities are taking strides to fill this gap.

295

CHAPTER 12: AVIATION & AEROSPACE 298

ANALYSIS: Sunny With A Few Clouds in Aviation and Aerospace

300

VIEW FROM THE TOP: Donna Hrinak, Boeing Latin America

302

VIEW FROM THE TOP: Rafael Alonso, Airbus Latin America and the Caribbean

304

VIEW FROM THE TOP: Carlos Robles, Bombardier Aerospace Mexico and FEMIA

305

VIEW FROM THE TOP: Luis Lizcano, FEMIA

307

VIEW FROM THE TOP: Daniel Parfait, Safran Mexico

308

VIEW FROM THE TOP: Luis Azúa, Bell Helicopter

309

VIEW FROM THE TOP: Francisco Navarro, Airbus Helicopters in Mexico

310

VIEW FROM THE TOP: Patrick Bernard, Latécoère

311

VIEW FROM THE TOP: Felipe Sandoval, Zodiac Aerospace

312

VIEW FROM THE TOP: Jess Losada, TechOps Mexico

313

VIEW FROM THE TOP: Marcos Rosales, Mexicana MRO Services

314

VIEW FROM THE TOP: Melvin Cintron, ICAO

315

VIEW FROM THE TOP: Miguel Peláez, DGAC

317

VIEW FROM THE TOP: Rodrigo Vásquez, TAR Aerolíneas

297

ANALYSIS

SUNNY WITH A FEW CLOUDS IN AVIATION AND AEROSPACE Slowing but stable revenues, a backlog of existing orders, rising passenger numbers and a favorable manufacturing climate are expected to overcome protectionist hurdles to keep the aviation and aerospace sectors flying for a long time to come The aviation and aerospace industries are flying high in

On the demand side, airlines want greater fuel-efficiency,

Mexico and globally. A need to update fleets and a record

leading to a preference for single-aisle, twin-engine aircraft.

backlog of orders is keeping OEMs busy, while the advance

Boeing’s most popular plane during the first nine months

of low-cost carriers is helping to boost passenger numbers

of 2017 was the twin-engine 737, with 360 orders. “We

and underpin commercial airline revenues.

expect single-aisle aircraft will be most in demand in Latin America, such as the 737 MAX, the fastest-selling aircraft

The aerospace sector alone has reported years of record-

in Boeing’s aviation history,” says Donna Hrinak, Vice

breaking growth in terms of revenue since 2012, with global

President of Boeing and President of Boeing Latin America.

revenue reaching US$709 billion in 2016. But the pace of

COST CONTROL

percent, down from 3.0 percent in 2016 and 3.8 percent the

As players jockey for position in the industry, consolidation

year before that.

is becoming key. During the first half of 2017, there were 26 mergers and acquisitions totaling US$18 billion. This represents a 9 percent increase in comparison to the same

AEROSPACE REVENUE GROWTH PERFORMANCE AUTO PARTS PRODUCTION PER YEAR IN MEXICO (US$ billions) 5.8% 723

689

650

637

700 600 500 3.2%

major acquisition of 2017 has been without a doubt Safran’s purchase of Zodiac Aerospace valued at US$7.8 billion.

down in every industry and throughout the entire supply chain. With a plethora of advantages, Mexico remains

200

2.0%

1.9%

100 0

representing 47 percent of the value of all mergers. The

Despite growth, there is never-ending pursuit to keep costs 3.0%

300

half of the deals were in the aircraft and parts category,

3.8%

400

period in 2016 and 14 percent higher than in 2015. About 6

709

800

618

298

growth has slowed, with 2017 expected to come in at 2.0

among the leading manufacturing centers worldwide. The country has cost-efficient labor, qualified human capital,

2012

Revenue

2013

2014

2015

2016

2017*

——Percentage growth

Source: Deloitte and PwC. *Forecasted by Deloitte.

numerous free trade agreements, a growing middle class and a key location as an entry point to both the US and Latin America. “Since 2004, Mexico’s aerospace sector has grown 15 percent annually,” says Carlos Robles, President of FEMIA and General Manager of Bombardier Queretaro. “In 2016,

A Source: number INAof factors suggest the sector is heading in the

exports reached US$7.18 billion, which helped us climb from

right direction. Deloitte highlights stable GDP growth globally,

10th place to become the sixth-biggest exporter of aerospace

lower commodity prices and strong passenger travel demand

parts to the US, the largest aerospace market in the world.”

as key drivers. PwC points out that revenue passenger miles grew 6 percent in 2016 for a second year in a row.

In the first quarter of 2017, the number of aerospace

Furthermore, the existing backlog for major OEMs is at an all-

companies in Mexico totaled 312, according to the

time high with Boeing and Airbus reporting 5,659 and 6,691

Ministry of Economy, of which 80 percent perform

units, respectively. In its 2016 annual report, Boeing stated the

manufacturing, 11 percent MRO activities and the

world will need a total of 41,030 new aircraft by 2036, worth

remaining 9 percent do design and engineering. “Our

US$6.1 trillion. However, orders have been sluggish in 2017.

expectation for 2017 is to reach 60,000 jobs, to have

For the first nine months of the year, Airbus received only 319

330 industrial facilities, to surpass US$8 billion in exports

new orders in comparison to the 556 during the same period

and to reach a 23 percent trade surplus with the US for

in 2016. On the other hand, Boeing is increasing its orders,

aerospace products. Globally, Mexico is ranked 14th for

with 565 booked in first nine months of 2017 and only 409

competitive manufacturing platforms and our goal is be

during that same period in 2016.

in the Top 10 by 2020,” says Robles.

CLOUDY SKIES AHEAD?

Nonetheless, growth remains on track. FEMIA expects

While the skies seem mostly clear for the aerospace sector, it

aerospace exports will rise 12 percent during 2017 to a total

is undeniable that there are some clouds on the horizon, both

of US$8 billion. Investment also continues to pour in. FDI is

locally and internationally. An overall climate of uncertainty

up to US$33 billion to October 2017.

is settling over the sector at a global level, brought about by US President Donald Trump’s protectionist policies, which

AVIATION’S LOW-COST ATTRACTION

could be trouble for Mexico.

Just in 2016, almost 3.7 billion passengers flew all over the world, a 6.7 percent increase over the previous year. One

The US administration has indicated it wants to hike the

of the main drivers behind this growth are low-cost carriers

defense budget, which would have a positive influence on

(LLC) explains ICAO, which expects for this trend to continue.

the aerospace sector, according to Deloitte. At the same time,

According to Deloitte, travel demand, measured in revenue

the professional services company warns of the impact of

passenger kilometers (RPK) has grown at an annual rate

rising populist sentiment in the US, which might take shape

of 4.7 percent for the past 10 years, to almost double the

in protectionism and anti-globalization policies. While the

number of passengers a decade ago.

impact of these policies is expected to be felt worldwide, Mexico, the US’ second-largest trading partner, might find

Deloitte expects this trend to continue for the foreseeable

itself in a precarious position. “Tax reductions and changes

future, with passenger traffic growing at an average annual

suggested by President Trump could be problematic for

growth rate (AAGR) of 4.8 percent for the next 20 years,

Mexican manufacturers. A significant reduction of taxes

while air cargo is seen growing at a 4.2 percent rate during

on products manufactured in the US could counteract any

that same period. Mexico is in a good position in terms of

benefit that Mexican companies can offer foreign investors,”

aviation. In 2016, Mexican domestic aviation grew 15.6 percent

says Francisco Bautista, Leading Partner of Aerospace

in terms of operations and 10.7 percent in terms of passengers

Industry at EY.

in comparison to the previous year for a total of 82.7 million passengers, according to DGAC, and just in the first eight

Mexico’s challenges do not come only from foreign influences.

months of 2017 this number had already reached 61 million.

The country is still pushing to consolidate its supply chain.

Growth has also been heavily influenced by Mexican LLCs,

While Mexico can boast of hosting plants for some of

which are quickly overtaking the market. “Low-cost flights

the largest aerospace companies in the world, including

have grown exponentially, making it possible for many people

Airbus, Honeywell, Safran, Fokker, Zodiac Aerospace and

to travel by plane and leading airlines to make important

GKN Aerospace, the country still lacks a base of suppliers.

changes,” says Miguel Peláez, Director General of DGAC.

This generates a series of gaps in the supply chain, from

Aviation represents 3 percent of Mexican GDP and generates

raw materials to final processes, that reduce the country’s

almost 1 million jobs, according to the organization.

competitiveness. The local aerospace sector is fully aware of this problem and is making a great effort to find a solution. “In

Led by tourism and a stable economy, the aviation sector

December 2016, we created a commission for supply-chain

in Mexico is expected to keep growing. “The sector has an

development. This commission will identify the country’s

enormous opportunity for growth and consolidation,” says

capabilities and determine, alongside all industry players,

Cuitláhuac Gutiérrez, Country Manager of IATA Mexico. Airport

what the country needs to start developing,” says Robles.

infrastructure is a chief challenge. The Global Competitiveness Index 2016-2017 ranks Mexico 61st out of 138 countries in

BEST-SELLING BRANDS IN MEXICO (JANUARY-JULY) GRÁFICA DE(US$ BARRAS MEXICAN AEROSPACE EXPORTS millions)

3,266

2,000

2,522

3,000

3,082

6,600

5,463

4,000

4,337

5,000

5,040

6,000

6,366

in the heart of the country. Namely, the oversaturation at 8,000

7,000

7,180

8,000

quality airport infrastructure. An unavoidable hurdle is located

than 32 million passengers per year. In 2016, it transported 41.7 million passengers, 8.5 percent more than the previous year, and this figure is expected to keep growing. The situation at AICM has many believing the construction of its replacement, NAICM, cannot be finished soon enough. “NAICM’s capacity will be valuable for the country as AICM is saturated and there are companies that want to fly to Mexico

1,000

Source: Ministry of Economy and FEMIA. *Forecasted by FEMIA

2017*

2016

2015

2014

2013

2012

2011

2010

2009

City but are unable to. NAICM will bring in more companies 2008

AICM. This airport was designed to have capacity for no more

and more people, generating a trickle-down economic effect that will result in investment that benefits both Mexico City and the country,” says Meyer.

299

VIEW FROM THE TOP

MEXICO A MAJOR CONTRIBUTOR TO ‘QUETZALCÓATL’ DEVELOPMENT DONNA HRINAK Vice President of Boeing and President of Boeing Latin America

Q: How do you see the aerospace sector developing in

influences all airlines. We can collaborate with Mexico on

Mexico and Latin America?

the development of alternative fuels and biofuels, which is

A: The country has tremendous potential for Boeing’s

one of the reasons Aeroméxico is working with us.

three sectors: commercial aviation, supply chain, and lastly,

300

defense, space and security. Our participation in the supply

Q: How do you expect Boeing’s US$1 billion yearly investment

chain is of great importance to us. It represents about US$1

in the supply chain to grow in the next few years?

billion annually both in terms of direct purchases and those

A: This depends mostly on our suppliers’ ability to expand

of our direct suppliers. Mexico is our largest supply base

in the country and to develop the workforce to continue

in Latin America. The 787-9 “Quetzalcoatl” for example

meriting support from federal and state governments. Our

is visibly a Mexican plane due to its patterned paintwork,

suppliers mostly manufacture components but we expect

but its interior is also Mexican. Its wire harnesses, landing

to move Mexico up the value chain by requesting more

gear and doors are made in Mexico. The 787-9 is our most

design and engineering-based jobs here.

modern and high-tech aircraft and Mexico is contributing in major ways to its development.

Q: What are the main reasons behind the increased demand in single-aisle aircraft in Mexico?

We anticipate that Latin America will need 2,960 new

A: The country has 46 free trade agreements reflecting

aircraft by 2035. Mexico is the second-largest market in

Mexicans’ interest in traveling. This offers the possibility

the region, so we expect many of these aircraft to come

of opening new routes from Mexico. A similar trend is

to the country. Of those, 70 percent will be part of fleet

emerging throughout Latin America. Aeroméxico opened

expansions, not replacing existing airplanes. Airlines will

a route from Tijuana to Shanghai that is encouraging

continue expanding their fleets to potentially double in

many US citizens to cross the border into Mexico to

size by 2035.

fly from Tijuana. This direct flight is possible thanks to Aeroméxico’s 787. This Mexican airline is one of a handful

We expect single-aisle aircraft will be most in demand in

of all-Boeing fleets in the region, including Copa Airlines

Latin America, such as the 737 MAX, the fastest-selling

and Gol Airlines.

aircraft in Boeing’s aviation history. Aeroméxico has already ordered 60 and will begin receiving them in the

Q: How will the 787-10 change the aviation market?

first quarter of 2018. This type of aircraft will continue

A: The 787 has opened 160 new routes to date. It has the

to grow in Latin America and we expect a total of 2,530

size and range to be suitable to open many new routes

will be needed by 2035. Small wide bodies will also be

and the 787-10 extends that range to allow the generation

acquired for certain flight routes, such as the 787, also

of more direct routes. While there are larger aircraft in the

flown by Aeroméxico. It is true that orders for wide bodies

market, there may not be enough travelers to fill them.

have dropped but the market for the single aisle has

Instead of having one aircraft with 500 passengers making

remained strong.

a single flight, it might be more convenient for passengers and airlines to fly two 250-seat aircraft twice a day. This

We have to listen closely to know what airlines want

aircraft has the capacity and the same range as larger

and what their passengers will pay for. There are many

aircraft, offering significant flexibility to open new routes.

innovative technologies that could be used today, such as supersonic flight, but not at a price that everyone can

Another characteristic of the 787 might be best understood

afford. For the market to remain strong as the middle-

by quoting one of our executives: “Airplanes are cool but

class grows and more people fly, we have to make sure

flying sucks.” This refers to the fact that passengers can

innovations match market demand. The price of fuel also

find the experience uncomfortable. As an OEM, one way

we can improve the passenger experience is varying the

demands of the market, something graduates can learn

temperature ranges in an aircraft. The 787 incorporates our

through relationship management before rising in the

Sky Interior, which creates a more welcoming environment.

ranks to manage supplier companies. The companies that

The lighting can be changed depending on the time zone

successfully incorporate this ability stand out in the sector.

while larger windows let in more natural light. The aircraft is also much quieter and its humidity level is higher. This

To better understand how to work with suppliers in

is because it is made of composites instead of aluminum

Mexico, I reached out to an executive in France. We

and is pressurized at lower altitudes.

consider that country to be the model on how to interact with suppliers. He said, “here in France our suppliers are

Q: What other initiatives is Boeing developing to improve

French companies. In Mexico, our suppliers are French

passenger experience?

companies,” meaning that Mexican companies are not yet

A: The best way to improve this area is by talking to

big players and they will not be able to start at the level

passengers. We have two locations with an aircraft cabin

of Safran and Latécoère. But they can start as Tier 2 or

that can simulate the conditions of a real flight, one is

3 companies and supply to Tier 1s. That is what Mexican

in Germany and the other at Brazil’s

companies should focus on. Mexican

University of Sao Paulo. In Brazil, we

companies are very resourceful and are

recently asked for volunteers to test the conditions of a “flight” to measure preferences. For passengers with physical limitations, we have developed ways to make their experience smoother and easier, such as luggage storage that can be pulled down to an accessible height.

US$1 billion

Amount Boeing’s supply chain division buys annually from Mexico

quick to bring new ideas to the table so the country is in a good position to enter the Top 10 in the aircraft industry, building on its competitive supply chain with innovation. Q: What initiatives is Boeing developing to make aircraft environmentally

It is amazing how passengers around

friendly in the long term?

the world state the same needs. The main differences

A: Boeing has a project called ecoDemonstrator, in which

between passengers can be classified by age. Millennials,

we take one of our aircraft and fill it with environmental

for instance, want internet access so they can message

experiments. We have run this experiment three times

fellow passengers. They are willing to pay for that but

in the US using Boeing’s aircraft and in 2016 we ran

are unwilling to pay for what they do not use, including

it for the first time in Brazil, using an Embraer E-170.

food or drinks. This is one of the reasons low-cost carriers

This was a joint project aimed at addressing the

are growing so much in Mexico and other countries in

industry’s ambitious goals to reduce gas emissions.

Latin America. While these carriers charge for everything,

Some experiments included changing the paint of the

passengers who do not use most of these services and are

aircraft to one that prevents ice accumulating on the

willing to pay when they do need something.

surface and insects from sticking to the airplane. This reduces drag and fuel consumption. Other tested areas

Q: What are Boeing’s recommendations to keep the

included controlled noise pollution, air safety and flying

Mexican industry growing?

and landing techniques to reduce fuel consumption. The

A: So far, we have seen an excellent partnership

industry’s goal to reduce fuel consumption can be met

between the Mexican government and the industry via

partly by improving pilot training and partly by improving

organizations such as ProMéxico and FEMIA. The third

engines. The next ecoDemonstrator, to fly in 2018, is still

vertex of that triangle, academia, is just starting to come

under development and might happen through another

on board. We need to ensure the labor force is adequate,

partnership with Embraer.

in quantity of people and skillset, to be able to build the aircraft and satellites of the future. Mexico produces a

On the commercial side, our top priority is getting the 737

vast number of engineers but what the sector needs now

MAX to our local customers, including Aeroméxico, Copa

is technicians.

Airlines and Gol Airlines. The second will be to continue improving the added value of the supply chain.

Technical schools have to train their students not just on how the factory works but on relationship management because an instrumental part of the supply chain relies

Boeing is a multinational company and one of the largest

on good working relationships between Tier 1s and OEMs.

aircraft manufacturers worldwide. The OEM manufactures the

We want partners that are willing to develop long-term

fastest-selling commercial aircraft in the world, the 737 MAX,

partnerships and understand the changing needs and

and reported revenue of US$94.57 billion in 2016

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VIEW FROM THE TOP

OEM DOMINATES MEXICAN MARKET, TARGETS THE WORLD RAFAEL ALONSO President of Airbus Latin America and the Caribbean

Q: How is Airbus shaping aviation in Latin America?

140 to 240 seats), it allows the airline to choose the most

A: Airbus has been present in Latin America for 30 years

suitable option to complement its business model.

and has played a vital role in building the region’s dynamic

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aviation market. Airbus is proud to promote and support

Also, Interjet, Viva Aerobus and Volaris have all opted for the

local aviation professionals at its training and manufacturing

A320neo, the newest member of the A320 family, allowing

centers throughout Latin America. Airbus has made a long-

them to operate efficient, latest-generation aircraft while

term commitment to Mexico by employing highly trained

improving their environmental footprint. New-generation

local professionals via its Mexico Training Center and its

engines, Sharklet wing-tip devices and the numerous cabin

suppliers’ manufacturing facilities, leveraging the high-

innovations of the A320neo result in a 15 percent fuel-cost

quality local talent and ample selections of manufacturers

savings per seat compared to previous-generation aircraft.

that Mexico has to offer. Q: How is the demand for Airbus aircraft evolving in Latin Since 1990, Airbus has achieved more than 60 percent of

America and Mexico and how is Airbus adapting to these

net orders in the region and just in the last 10 years, we

market changes?

have tripled the size of our in-service fleet in Latin America

A: Latin America is one of the most exciting regions for

and the Caribbean. To date, we have sold more than 1,000

aviation. According to Airbus’ latest Global Market Forecast

aircraft in the region and have a backlog of more than 450

(GMF), over the next 20 years, Latin America will need over

orders. In Latin America and the Caribbean today, there are

2,500 new passenger and cargo aircraft to fulfill increasing

over 20 operators who fly our aircraft.

passenger demand. We estimate passenger traffic will grow at an annual rate of 4.5 percent (a rate on par with the

Q: Over 60 percent of all commercial aircraft flying in

global average) and the region’s middle class to reach 500

Mexico are Airbus. What made your aircraft so attractive

million people by 2035, more than twice as many as there

to the country?

were in 2006.

A: Mexico, Airbus’ top market in the region after Brazil, is a flourishing market with significant potential, a stable

In Mexico, aviation traffic has grown nearly 60 percent

government, long-term investment plans and a booming

since 2000, and in the next 20 years more than 600 aircraft

market for commercial air travel. The growth of Low-

will be needed to serve the Mexican market. One of the

Cost Carriers (LCC) in Mexico has been remarkable

main drivers of this growth is tourism, which is forecast

in the past 10 years, and has catalyzed the growth of

to contribute 5 percent of the country’s annual GDP

commercial aviation in the country. Interjet, Viva Aerobus

growth and account for 2.6 percent of added employment

and Volaris have revolutionized regional air transport and

between now and 2024. This economic growth presents a

has made air travel more accessible than ever. As these

key opportunity for Mexico’s carriers to expand their fleets

airlines grew, we have been able to adapt to their growth

and routes, especially in the international air traffic market.

models and fleet planning strategies at a critical time as

There is also a growing demand for training services for

they were absorbing much of the demand covered by

over 85,000 technicians and pilots in Latin America in the

Mexicana when it left the market.

next 20 years. In response, Airbus has opened training and maintenance centers in Mexico City, Campinas, Brazil, and

Globally, the demand for single-aisle aircraft is growing and

Buenos Aires, Argentina. This also allows us to directly

the A320 family has prevailed as Latin America’s aircraft

support our customers’ growth and productivity.

of choice. The A320 family has been successful for our customers in Mexico particularly because of its versatility.

Q: Which regions in Latin America do you expect to grow

Because it is available in three different sizes (ranging from

the most in aviation and in aircraft demand?

A: Airbus has almost 650 aircraft in operation and nearly

the region’s top 20 cities are connected by one daily flight,

500 aircraft yet to deliver, most of which will go to airlines

leaving the rest of the region’s cities with less-than-weekly

based in Brazil, Chile, Colombia and Mexico, home to

connections or none at all.

some of the largest Airbus customers in the world such as Avianca and LATAM. Mexico’s economic and traffic growth

Q: What are your expectations for the growth of the Mexican

has led airlines to acquire larger, newer and more efficient

aviation industry?

aircraft, and the average fleet age has been reduced by

A: The future of the aviation industry in Mexico is promising.

five years in the last decade. Many of these fleets belong

Mexico is a very important market for Airbus at both a regional

to LCCs launched in the last 10 years, accounting for almost

and global level, which can be seen in the number of milestones

60 percent of domestic traffic in Mexico in 2014. In 2016,

we have achieved in the country in recent years. We recently

94 percent of LCC traffic came from Mexican or Brazilian

opened the Airbus Mexico Training Center in Mexico City (the

LCCs, but the LCC model is emerging in other key markets

first such training center in the region), which offers A320

such as Colombia, Chile, and Peru and we are seeing rapid

simulator training and courses to support growing customer

growth coming out of these airlines.

needs for training and services regionwide. In 2016, Interjet, Viva Aerobus and Volaris (the first North American-based

Q: Which aircraft are increasingly in demand in the region

airline to receive it) all began operating their first A320neos,

and how does Mexico differentiate from the rest of Latin

the newest and most efficient aircraft in the A320 family, the

America in this sense?

most widely sold aircraft family in aviation history.

A: Our 20-year outlook for Latin America predicts a demand for over 1,900 single-aisle aircraft and 550 widebody aircraft

And we cannot forget about the largest aircraft in the world,

like the A330, A350 XWB and A380, worth an estimated

the A380, which first began operating in the region in 2016.

US$330 billion. Single aisle aircraft are leading demand,

Transporting more people on fewer flights via very large

and the A320 and A320neo families have become the

aircraft like the A380 is the solution to rising aerial congestion

preferred aircraft families for the region’s carriers. We are

as, not surprisingly, by the end of 2036, Mexico City and

seeing the region’s top airlines modernizing their fleets with

Cancun airports will each be receiving more than 10,000

the A320neo family, allowing them to achieve efficiency

long-haul passengers on a daily basis, making them two of

gains even in a less-than-favorable economic environment.

nine aviation megacities in Latin America.

The A320neo is the market leader in the region with nearly 400 orders and almost 70 commitments from lessors

Q: What are your expectations for the growth of Airbus in

for leading airlines such as Avianca, Avianca Brasil, Azul,

Mexico in the short to middle term?

Interjet, JetSMART, LATAM, Sky Airline, Synergy Group, Viva

A: Today, about 140 aircraft are in operation in Mexico through

Air (presiding over Viva Air Peru and Viva Colombia), Viva

four customers: AeroUnión, Interjet, Viva Aerobus and Volaris,

Aerobus and Volaris. In Mexico, Viva Aerobus, Volaris and

which represents 63 percent of the country’s commercial

Interjet are all relying on A320 and A320neo family aircraft

aircraft market in service. The growing demand for single-

for the expansion and modernization of their fleets.

aisle aircraft in the country will help airlines, especially lowcost airlines, continue to grow. Travel per capita in Mexico

However, Latin America’s long-haul route expansion is

is expected to double over the next 20 years and Mexico’s

imminent, and we are already seeing airlines respond by

economic growth is 3.7 percent, higher than the regional and

opting for larger, longer-range and more efficient aircraft

global averages. This presents a good opportunity for Mexican

such as the A350 XWB and the A380, which both began

companies to expand their fleets and routes, especially

operating in the region in 2016 with LATAM and Air France,

internationally.

respectively. The long-haul market space presents a solid opportunity for Latin American carriers to claim back

Mexico is a strategic business market for Airbus and an

market share as today, European and North American

important component of our global manufacturing footprint.

airlines carry the majority of long-haul traffic into and out

We expect this partnership to only become more fortuitous

of the region.

as the years go by. Across Airbus, we work with more than 95 Mexican companies and there are over 5,000 direct and

Similarly, the intra-regional and domestic market within

indirect Airbus employees in Mexico via its supply chain.

Latin America holds tremendous potential given that traffic is expected to nearly triple in the next 20 years, growing at a favorable rate of 5.3 percent. Passengers in North America

Airbus is the second-largest original equipment manufacturer

and Europe can count on at least one flight per day to

in the world. It designs, manufactures and sells commercial and

connect them to the 20 largest cities in their regions, but

military aircraft worldwide. The OEM manufactures the largest

in Latin America this figure is smaller. Only 43 percent of

aircraft in the world, the A380

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VIEW FROM THE TOP

BUSINESS JETS LEADER SEES BIG POTENTIAL IN QUERETARO CARLOS ROBLES Vice President of Bombardier Aerospace Mexico and President of FEMIA

304

Q: What is Bombardier’s outlook for Latin America and

Q: What potential does the C Series have in Latin America

Mexico?

and how could the C Series change this market?

A: Bombardier is divided into two large aerospace segments:

A: For airliners, the C Series will be a convenient aircraft

commercial and business aircraft. In the business division,

as Latin America gradually increases the number of flights

we have a strong growth forecast for Bombardier globally

in the region. We have seen significant regional passenger

as we estimate that the global market will need 8,300 new

movement within Latin America, so the C Series can easily

business jets within the next 10 years. The outlook is also

become a tool that connects the region.

positive for our commercial division as we expect a need for 12,700 new aircraft by 2034. In Latin America, we forecast

Mexico in particular is one of the world’s largest regions

a need for 790 business jets and 1,150 commercial aircraft

for aviation, together with the US and Canada. The need to

during the next 10 years.

be connected opens many opportunities for Bombardier’s aircraft. Mexico has been evolving as airlines renew their

Q: How does Bombardier’s C Series benefit the global

fleets. A few years ago, the country had 297 registered

aviation market?

aircraft with an average age of 16 years. This number now

A: The C Series provides significant benefits to airlines as it

has grown to 356 with an average of 9 years of age.

represents a 20 percent reduction in emissions and has the lowest fuel consumption in the 150-seat segment. It is the

Q: What is behind Bombardier’s significant growth in

only aircraft originally designed for this segment, which is

Queretaro state?

extremely important for Bombardier. Other manufacturers

A: Our employees are the main drivers behind Bombardier’s

have adapted existing aircraft to address this segment, but

growth in Queretaro and have been among the key reasons

the C Series was uniquely designed for it.

our corporate offices are increasingly

The aircraft is extremely efficient and was

trusting in this division. Another

designed with passenger’s comfort in mind. It was designed from the inside out to ensure that travelers have sufficient space. The cabin is also the quietest in its class.

8,300

new business jets will be necessary within the next 10 years globally

reason for success is the blending of Bombardier’s culture with Queretaro’s, as the state prioritizes innovation. Our corporate offices are often amazed at the innovations that originate in this plant. We have strong capabilities for

In mid-2017, the CS100 landed in London

harnesses and a business jet unit that

City Airport, becoming the only aircraft of this size to do

has been declared a center of excellence by our corporate

so. The plane’s aerodynamics reduce drag and the aircraft

offices. These facilities are an integral part of the Bombardier

generates minimal noise, both important factors when flying

Aerostructures Division’s internal strategy. Our main target

into an airport that is located in the middle of a city. This

now is to focus on the programs we have on site, which

provides the CS100 a competitive advantage for airlines

include aerostructures, composite manufacturing, electric

that want to fly to and from airports located in the middle

harnesses, sheet metal and machining. Our goal is to increase

of large cities, such as London and Toronto.

the efficiency of these units and to become increasingly independent so that we can tackle all opportunities that come our way. Our facilities in Queretaro manufacture

Bombardier is a Canadian OEM that manufactures aircraft,

components for every single model of Bombardier’s aircraft,

high-speed trains and public transit. The company is a world

be they electrical components, composites, aerostructures

leader in regional and business aircraft. It has 73 production and

or sheet metal. Every single one of Bombardier’s aircraft has

engineering sites in 29 countries and employs 66,000 people

a component from Queretaro.

VIEW FROM THE TOP

INTERNAL POLITICS ABROAD COULD OPEN DOOR TO COMPETITORS LUIS LIZCANO Director General of FEMIA

Q: What are the most influential trends affecting the

of uncertainty may cause an economic slowdown as

aerospace sector?

companies become increasingly cautious to expand or

A: Commercial aviation is being led by Boeing and Airbus,

invest. Many are waiting to see what happens before they

for commercial aircraft, and Bombardier and Embraer,

commit to any changes in strategy.

for regional jets. These companies and their suppliers constantly work to optimize their manufacturing practices

Q: How is FEMIA supporting the development of the

to reduce costs as the market demands, which often leads

aerospace supply chain?

them to outsource processes and services from their

A: Our supply chain development program is collecting a

home countries. There are concerns that this trend will

significant amount of technical data and information about

reverse due to internal policies in certain countries but any

core competencies of every company in the industry. This

policy that prevents companies complying with market

data will facilitate the identification of sector needs and

demands will impact manufacturersâ&#x20AC;&#x2122; competitiveness,

what can be done to promote and support individual

creating an opportunity for OEM competitors from other

companies. We are studying the market to determine

countries, including China and Russia, to enter the North

how many companies have the AS 9100 certification and

American market. Regardless of the policies, in the long-

estimate those to hold it at 60 to 70 percent of Mexican

term the market will always correct itself.

aerospace companies. There are also many other companies that have sufficient personnel and core competencies but

There are two situations to consider. The first is the global

have not entered the aerospace sector as they lack the

market, which is growing especially for the commercial

certifications or equipment to do so. This study is a long-

aviation segment. Globally, passengers prefer flying over

term process to create awareness, of which the first phase

other methods of transportation. This trend will continue

will be finished by September 2017.

unimpeded unless there is another global crisis. To address the needs for this large number of passengers,

Q: How can Mexican aerospace reach new markets and

airlines must grow and update their fleets. Aircraft

which areas should the industry turn to?

are part of a complex supply chain that incorporates

A: The Mexican aerospace industry is still young. While

companies all over the world and the market is pressuring

a few companies have existed for over 40 years, the

manufacturers to reduce costs. This may lead them to

sector only started to take shape about 13 years ago. To

best-cost countries where they can outsource quality

convince foreign companies to invest in Mexico we are

processes and services. The second aspect of the

reaching out through events and investment seminars

economy which could impact the aerospace industry

all over the world. We have to look toward the European

is seen in specific trade scenarios, but uncertainty at

Union and Asia. Europe is a great ally. We estimate that

this point means it is not possible to determine how the

approximately 25 percent of FDI for the aerospace sector

wind will blow. We are assessing different scenarios and

comes from this region and the rest comes mainly from

constant analysis should help us to react and prepare for

the US and Canada. Working with Asian companies is a

evaluated events.

possibility but it is necessary to take into account the fact that business practices vary widely between countries.

Q: How could Mexico benefit if it successfully adapts to changing policies abroad? A: The global market for aerospace products is strong,

FEMIA represents the Mexican aerospace industry with the goals

thus many international companies have a positive outlook.

of promoting it internationally and attracting FDI. It represents

Mexico has one of the most open economies in the world,

the industry's interests and helped to create the Pro-AĂŠreo plan

counting trade agreements with 46 countries. A climate

to position Mexico as the 10th aerospace supplier globally

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VIEW FROM THE TOP

A LEAP FROM FRANCE TO QUERETARO DANIEL PARFAIT President of Safran Mexico

Q: How are low airplane orders affecting the aerospace

requires appropriate alliances with other companies, research

supply chain?

centers and academia. To achieve this in Mexico, we are

A: The backlog at major OEMs is extensive and it will take many

working closely with CONACYT and CINVESTAV.

years to fill so we are not worried about a smaller number of orders. We see the opposite happening as high demand for

Safran is committed to innovation, as it is fundamental to our

our engines is pressuring us to increase our engine production.

long-term strategy. Even mature companies are not immune

For that reason, by 2020 we plan to increase our global

to market changes and may be heavily hit by them, no matter

production of the LEAP engine to 2,000 per year. Increasing

the sector. Such was the case of Kodak. If a company takes

manufacturing by this amount is a significant challenge, as

a wrong turn in its long-term business strategy, it could even

engines are sensitive products, so we must implement the

disappear.

highest quality and safety standards to ensure their integrity. Q: What are Safran Mexico’s main priorities for local The true challenge is speeding up LEAP engine production to

growth during 2017?

meet demand from Boeing, Airbus and Chinese companies.

A: In 2016, we announced the construction of a new plant

Even though the LEAP engine just entered service in 2016,

in Queretaro that was the result of the rise in demand for

we have over 13,000 orders. As a point of comparison, over

LEAP engines. We expect it to begin production in 2017.

the 40 years we produced its predecessor, the CFM56 engine,

We have a strong presence in Queretaro and Chihuahua,

we delivered around 30,000. To speed up manufacturing we

and see potential for growth in both states. In Queretaro,

decided to continue investing in Queretaro, mainly by building

we are implementing innovative textile techniques to make

a new plant that will begin manufacturing before the end of

composite parts by “knitting” them together. This permits the

2017. By 2021, it may be possible to produce an annual rate

generation of much stronger and lighter pieces.

of over 20,000 engines blades. Q: What recommendations would you give Mexican companies interested in developing innovative technologies? A: Many believe that innovation starts from zero, but it requires building on decades of experience and a long time to mature. This is the reason there is so little competition in engines. The

Over 13,000 orders for the new LEAP engine

patience required is exemplified in Safran’s recent innovation award to a project that began 35 years ago. An investment in

Protectionist policies in the US will impact all economic sectors

innovation is an investment in the future and the long-term

so it is necessary for the authorities to prevent these kinds of

plans for the company.

policies as much as possible. Production in our new plant will be of the utmost importance as strategic components will be

Some may feel that innovation in aerospace is slowing

manufactured there. Our goal for 2017 is to continue ramping

down, as the airplanes do not appear to change decade

up production to achieve our 2020 goals and Mexico is an

after decade. This is false. The rhythm of innovation is simply

essential part of that.

different from sector to sector. For instance, innovation in mobile devices usually takes 18 months, while for aircraft it takes 40 years. A motor lasts for 40 years. Such long periods

Safran is a French engine and component manufacturer and

are practically unheard of in other manufacturing sectors.

one of the top 100 aerospace companies in the world. Safran

While we developed the LEAP engine, we manufactured many

started operating in Mexico 20 years ago with a plant in

CFM56s, which have a lifespan of 30 to 40 years. Innovation

Chihuahua and now has 13 plants in Queretaro and Chihuahua

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VIEW FROM THE TOP

EFFICIENCY HELPS RIDE OUT DOWNTURN LUIS AZÚA General Manager of Bell Helicopter

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Q: How has the commercial helicopter market evolved

this long period, the market changed considerably and new

over the past year?

technologies have entered the picture. It is time to adapt

A: We have seen a downturn in the market for commercial

the treaty to the current state of the industry and world

helicopters in the past two years, triggered by hits to

commerce. I expect the renegotiation to lead to a stronger

the oil and gas sector. We continue to feel this impact

and more beneficial agreement for the three countries and

but challenges create a window of opportunity. This is a

to continue promoting the opportunities the free trade

time to look to different markets, and explore new ideas,

agreement provides. What we can expect is an efficient

marketing strategies and partnerships.

negotiation between the three countries.

Q: How is Bell Helicopter’s Chihuahua plant adapting to

This plant manufactures exclusively for the commercial

the market’s downturn?

division and exports only to Canada. As an advanced

A: From an operations viewpoint, we are increasing

technology center, our Chihuahua plant is essential to

efficiency to reduce costs by investing in our people

every project that involves the assembly of structural parts

and improving our inventory management and delivery

and electrical harnesses, placing us at the center of Bell

times. As a manufacturing company, the leaner the better.

Helicopter’s supply chain. While we do not ship a complete

The downturn in production means there is inventory left

helicopter, we play a significant role in the assembly of cabins,

over, so we must manage it effectively. More importantly,

which are then shipped to Mirabel, Canada. When headlines

manufacturing is driven by people. We

talk about NAFTA, which is seen as a main

are investing in our employees so that we

influence on Mexico-based manufacturing,

will be ready when the market recovers. Th e co m p a ny i s a l s o d eve l o p i n g m a n u fa c t u r i n g l i n e s fo r e l e c t r i c a l harnesses for the new Bell 505 Jet Ranger

400

letters of intent for the Bell 505 Jet Ranger X

X, which was certified in December 2016. This is a light, high-volume helicopter

the third participating country, Canada, is often overlooked. Mexican industry must also look to other destinations such as Europe, which is already investing heavily in Mexico. We can target the Asian market and generate

for which we counted over 400 letters of intent at the

partnerships with them. There is significant knowledge of

beginning of 2017. Also, we are detailing a business case

processes and technology in Asia that we could learn from.

that aims to establish on-site assembly of the electrical harnesses for the Bell 525 Relentless, the new Bell super-

Q: How does Bell plan to evolve in line with market trends

medium fly-by-wire helicopter.

in 2017 and beyond? A: We are setting the bar higher and higher. We have to

Q: What are your expectations following a potential

better last year’s results by incorporating more projects,

renegotiation of NAFTA?

new technologies and processes and responding to new

A: While the agreement needs to be reviewed as it is

challenges. Our goal is to be flexible enough to support Bell

over 20 years old, in my opinion it is here to stay. During

Helicopter’s global operations in any way required. We must continue to improve efficiency to be the strategic choice for structural assembly and electrical harnesses. This plan will

Bell Helicopter i s a division of Textron. It manufactures military

adapt to market demands but as a strategic partner and an

rotorcraft and provides training and support services worldwide.

integral part of the supply chain, our idea is to stay in Mexico

The Bell 47 was the first helicopter in the world rated by a civil

for the long term. We are seeing some signs of recovery

aviation authority, becoming a civilian and military success

already and once the market bounces back we will be ready.

VIEW FROM THE TOP

HELICOPTERS SAVE LIVES, IMPROVE MOBILITY FRANCISCO NAVARRO Director General of Airbus Helicopters in Mexico

Q: How did Airbus Helicopters fare in Mexico and Latin

alternatives for the sector. The H160 will also require less

America through 2016?

maintenance and have lower maintenance costs. It will have

A: 2015 and 2016 were difficult years for all participants in the

a capacity of 12 passengers and will be the most competitive

helicopter industry. In Latin America, the oil and gas crisis hit

product in the 120-nautical-mile range. Its comfortable and

Mexico, Brazil and other nearby economies. Exchange rates

luxurious interior and extremely low levels of noise and

between the Latin American currencies and the dollar also

vibration in the cabin also mean it is well-positioned for the

hindered market recovery during those years. This situation

civil and para-public sector. This helicopter shares avionics

affects the commercial, governmental and military segments.

with the H135 and H145 and will be well-positioned for military missions, including exploration and search and rescue.

Airbus Helicopters worldwide has maintained a safe position during these shifts and we even increased our market share in

Q: Which helicopters are in highest demand in Mexico?

civil and para-public operations. We also gained market share

A: We have over 410 helicopters operating in the region with

in the governmental and military segments. All in all, Airbus

all models of the Airbus Helicopters family. The best-selling

Helicopters has become stronger and more successful than

helicopters in terms of units are the single-engine models, the

other entities despite the economic climate. In 2016, Airbus

H125 and the H130, which represent over half of those units.

Helicopters booked 388 units and delivered 418, which are

More than 240 Ecureuils represent 60 percent of the fleet

slightly better figures than the previous year. In the para-

in Mexico, with 25 Dauphin Panthers, over 30 Super Pumas

public area, we grew 47 percent and in the military market

and 30 EC135s. We have high expectations for the H125, H135

we increased our share by 15 percent.

and H145 families for the development of emergency medical services (EMS). Mexico has great hospitals and excellent

Q: What was Airbus Helicopterâ&#x20AC;&#x2122;s secret to remaining

medical service but being such a large country, it can lack

competitive despite economic hurdles?

the necessary infrastructure to reach remote areas.

A: There were many reasons we retained competitiveness, including our diverse product portfolio. We have the widest

Q: What main factors will drive the growth of the helicopter

helicopter range in the market, from the smaller H125 and

services sector in Mexico?

H130 to the medium and heavy twins. We have been working

A: The Energy Reform is attracting more companies to the

on the renewal of all these helicopter models, including the

country and raising competitiveness in the oil and gas industry.

H145 and the H135. We have also developed the H175, which

The reform will increase the number of helicopter trips from

was operated first in the Americas by Transportes AĂŠreos

Ciudad del Carmen to platforms. The H160 will be ideal for

Pegaso and is now a reference in the sector. We expect the

these movements but we already have a series of products for

next H175 to come to Mexico at the beginning of 2018.

this market, including the H175, H145, H155 and H130. The H175 is conducting some missions that were previously impossible,

Q: To which market will the new H160 be addressed?

such as moving 18 passengers over 241km. This helicopter

A: The new H160 will create an entirely new concept for

has also been conducting search and rescue operators across

helicopter operators. Our two prototypes accumulated over

519km. These helicopters are versatile and thus can be used

360 flight hours by March 2017. The helicopter will be certified

for a wide range of applications in any terrain.

by 2019 and deliveries will begin in 2020. Potential clients have tested the helicopter and we received positive feedback. This helicopter can enter every sector as it is well-adapted for

Airbus Helicopters is the largest helicopter OEM in the world

demanding requirements. It is ideal for oil and gas operations

and has a wide range of helicopters for different market

thanks to its high performance and will be up to 20 percent

segments. It has been in Mexico for 35 years and has a

more competitive in terms of fuel consumption than other

manufacturing plant in Queretaro

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VIEW FROM THE TOP

BUCKING THE LOCATION TREND PROVIDES ADVANTAGES PATRICK BERNARD General Manager of Latécoère

Q: What attracted Latécoère to Hermosillo when most

The Interconnection Systems division in Hermosillo plant

aerospace companies are in other parts of Sonora?

produces a variety of complex harnesses such as the 20VU

A: First, we are located close to the US border, which

section harnesses, complete wings, wingtips, flaps, power

allows us to transport our product by land to our clients

feeders and vertical tail plane harnesses for different Airbus

in Charleston and Wichita. Second, Hermosillo is a city

aircraft such as the A320, A330 and A350. These products

with many talented candidates. Latécoère was one of the

are shipped to France and Germany.

first aerospace companies to land here and being the first 310

was a great advantage to recruit people without major

Q: How is Latécoère improving the landscape of the

problems. Third, the company was in close relationship

aerospace industry in Sonora?

with the government from the very beginning. Sonora’s

A: The aerospace industry is not as automated as the

government accompanied us from the moment we started

automotive industry, so we introduced three Alema-type

building our facility. Thanks to the government’s help, we

robots from KUKA Roboter in the production of the Boeing

could start producing only three months after the building

doors and are introducing a SPIE automated riveting

was finished.

machine. This is a robot equipped with a riveting machine to fasten the door’s skin to the structure.

Q: What advantages does Latécoère’s plant in Hermosillo provide the company in terms of its global strategy?

Q: What are the key challenges when assembling new

A: Our assembly plant in Hermosillo enables Latécoère to

products in Hermosillo?

be close to its clients based in the US. This plant assembles

A: The first is focused on behavior when building your crew;

Boeing 787 doors and Airbus harnesses. In November 2017,

behavior is the mandatory foundation to develop great

we will ship the 2,000th door produced in Sonora. Aircraft

employees. We prefer people with great potential to people

doors also need harnesses, so Latécoère not only wants to

with existing industrial skills. People are eager to learn, to

build these harnesses but also aims to integrate them into

do the right thing and to take challenges with pride.

the structure of the doors produced here before shipping them to the final client.

The second is to train the personnel we require. Training is instrumental to get a reliable workforce that follows

The plant has two main divisions: Aerostructures and

instructions. That definitely leads to quality work.

Interconnection Systems. Our Aerostructures division manufactures all passengers’ doors for the Boeing 787.

We have implemented several programs to prepare

The next step will be to transfer from France the baggage

people to work with our products. For instance, Latécoère

doors for Bombardier CRJ700 and CRJ900 aircraft.

developed a training center alongside Sonora’s government

Although it is a small door, it will allow Latécoère to

called the Sonora Institute for Aerospace and Advanced

demonstrate to Bombardier that the Hermosillo plant is

Manufacturing (SIAAM). Also, once employees start

efficient. Latécoère will transfer the production line of

at Latécoère, they receive one of two distinct kinds of

the Bombardier’s CRJ700 and CRJ900 baggage door to

training depending on the division in which they will be

Mexico by the end of 2017.

working. Training in the Aerostructures division lasts up to five months. Interconnection Systems, on the other hand, has an internal training program with special qualifications

Latécoère is a 100-year-old, France-based, aircraft parts

that requires one month. The employees of the Latécoère

company. Its assembly plant in Sonora manufactures doors

plant in Hermosillo are well qualified. To reduce turnover, we

for the Boeing 787 and interconnection system harnesses for

provide attractive benefits and a pleasant work environment

the Airbus A320, A330 and A350

so employees are pleased to work with us.

VIEW FROM THE TOP

INTERIORS SUPPLIER FOCUSED ON TRANSFORMATION FELIPE SANDOVAL General Manager of Zodiac Aerospace

Q: How is Zodiac Aerospace adapting to remain a competitive

means that lightweight components and new materials are

and innovative player in the sector?

among the priorities for new component development. One

A: Zodiac has been a worldwide aerospace leader in Mexico

of our leading innovations was the Optima seat, which is a

for more than 120 years and we are now in the midst of a

new seating design focused on comfort, space efficiency and

transition. We are implementing a world-class operating

lightweight application.

system called Zodiac Aerospace Operating System, which is part of a larger strategy called Focus that will lead Zodiac

Q: How is Zodiac addressing issues related to human capital

through its transformation. The final goal is to become a more

and high labor turnover?

robust company with reliable products and processes.

A: All border cities are facing issues regarding human capital attraction and retention. Just like we want to make our

Our human capital will be part of our transformation initiative.

products stand out in the market, we also want our company

We are implementing a new leadership model that will help

to be recognized by the way we treat our people and the

our employees understand what we want as a company and

development opportunities they might have by working

to create a shared mindset among Zodiac’s collaborators.

with Zodiac. People are looking for a pleasant working

Focus will take us to a zero-defect operation with a 100

environment in which they can grow professionally and

percent on-time delivery promise.

all companies should make these factors a priority in their development strategy. We do not see a problem related to

Q: How is Safran’s recent acquisition of Zodiac impacting the

lack of talented labor since Mexico is among the leading

transformation process?

countries in the production of engineering talent. The problem

A: Our transition began before we were acquired by Safran

is how companies are training these people to participate in

but the company is fully behind our commitment to change.

the industry and how they retain their talent.

Safran has high expectations for our new joint operations but even leaving the acquisition aside, all companies must work

Q: What is required for the aerospace sector to consolidate

toward a more efficient operation. Our new joint operations

as a key participant in the country’s economy?

with Safran will bring new opportunities for both companies.

A: The sector has grown continuously for the past 10 years and

We really did not act as competitors before because we are

that growth will be sustained. The country has the potential

more focused on interior components, aerosystems and seats,

to grow tenfold but we have several challenges that need to

while Safran is oriented to landing gears, engines and other

be addressed. The first is the state of the local supply chain.

electrical systems. Now, we will complement each other’s

We need better integration among suppliers and OEMs, but

capabilities.

we also need to collaborate between countries to have a more efficient North American region. Our work with suppliers has

Q: In terms of products, what do you see as the main

been effective. We helped Soisa Aerospace develop as the

opportunity for Zodiac to grow its business with OEMs?

first Mexican cushion supplier and our goal is to keep helping

A: Zodiac is a leader in technological transformation and

other companies grow their business within the aerospace

we are developing new concepts within our existing core

industry. Academic programs and governmental policies must

business to satisfy the demands from OEMs. We are working

be as dynamic as the industry in its transformation.

on more advanced and comfortable seating components, as well as innovative interior components. Our design team in Chihuahua won an innovation and design award in 2017 and

Zodiac Aerospace is a leading supplier of interior components

we also won the Red Dot Award for a new cabin concept we

for helicopters and space applications, as well as commercial,

created. Furthermore, we must always help our clients reduce

regional and business aircraft. The company has 100 locations

operational costs. Fuel is the largest expense in aviation, which

with over 35,000 employees globally

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VIEW FROM THE TOP

BACKBONE OF QUERETARO MRO BUILT ON EDUCATION, SAFETY JESS LOSADA CEO and COO of TechOps Mexico

Q: How has TechOps Mexico improved its capabilities?

was developed to sustain this growth and we added

A: We doubled our capacity thanks to changes to our

200 people to our team. Today, we are focusing on our

organizational structure in 2016. We completely renovated

partnership with the cluster to share best practices and

the way we operate to increase our efficiency. TOMX in

incorporate the Six Sigma culture into our operations. We

Queretaro inhabits three hangars, which can accommodate

are also investing in Dale Carnegie training to continue

12 aircraft simultaneously and 12 operation lines. We are

generating front-line leaders.

the biggest player in Central America after Aeroman in El 312

Salvador and one of the largest in Latin America. 2016 was

In line with our customer focus, we are introducing the

our best year in terms of financial results. Our teams are

principles of KBKC for the first time in Latin America.

operating at full capacity but this facility was designed to

KBKC dictates you know your customer, be proactive, keep

host an additional hangar. Once the fourth hangar is built,

your promises and create value. To optimize operations,

between 400 and 600 jobs will be created as part of our

we created a central “brain” to coordinate all MRO lines,

commitment to Queretaro. In return, the state will continue

which saved thousands of man-hours per month. This

to allocate funds to education and other incentives to

team is responsible for setting the strategies for every

support human capital growth.

other team. We have an interior workshop and are bringing many other capabilities such as paintwork. Eventually we

As we are owned by Delta Airlines and Aeroméxico we had

might even develop capabilities for low-volume, high-value

a fixed number of projects in 2016. Having incorporated

manufacturing.

additional lines to support our existing operations, in the future we could incorporate third-party airlines. As an

Q: What changes were necessary to prepare the facility

incubator for new ideas for Delta Airlines, we became a

to incorporate projects from other airlines?

center of excellence for safety, which is our main priority.

A: We have received many enquiries from airlines from

Our security risk decreased from 1.7 percent to 0.7 percent

the US and Canada, which have been impressed by our

last year. Safety and training our people are the backbone

capabilities. There is no other MRO like ours in Mexico, the

of our operations. We have doctors and an ambulance on

US or in Europe. Being only three years old, the facility’s

site 24 hours a day. Since 2015, incidents have been reduced

design is modern and environmentally conscious. Solar

by 60 percent and injuries by 33 percent. This has led to a

panels over the parking lot supply 30 percent of our

reduction of our insurance premium of several million pesos,

electricity costs. We have water-retention systems and

which we are reinvesting in safety certifications.

a reverse osmosis water-filtration system. This system recycled 264,700 liters of water in 2016, which was used

Q: What strategies did TechOps Mexico implement to mitigate

to irrigate green areas.

problems and take advantage of operational growth? A: We began building our facility in 2016 under the Six

Q: What are TechOps Mexico’s long-term goals and plans

Sigma three-year framework. We analyzed the areas

to achieve them?

that needed improvement, doubling our workload to 12

A: Our Queretaro facilities can receive and maintain the Boeing

lines. This was a challenge but allowed us to determine

717, Boeing 737, Embraer ERJ-145, Embraer E170, Embraer

further areas for improvement. A comprehensive plan

E190, McDonnell Douglas 88 and McDonnell Douglas 89. We are certified by the FAA and DGAC. Our center registered 1.8

TechOps Mexico is an MRO service center jointly financed by

million man-hours in 2016 and in 2018, our goal is to be known

Delta Airlines and Aeroméxico. TechOps is the third-largest

as a world-class organization under Six Sigma, also increasing

MRO provider in the world and this facility is the largest MRO

our services for the Boeing 737. We will also generate skills to

center in Latin America

receive the 757 and begin manufacturing parts.

VIEW FROM THE TOP

MRO EYES HANGAR EXPANSION, WIDE BODIES FOR GROWTH MARCOS ROSALES Director General and CEO of Mexicana MRO Services

Q: What are Mexicana MROâ&#x20AC;&#x2122;s growth projections and

two years of seniority to work on an aircraft. In 2016,

expansion plans for 2017?

we reinforced our classroom training capacities and

A: Our main hangar will be expanded in the second half

increased our staff numbers, reiterating that on-the-job

of 2017 to add more production lines, with the capability

training for Mexicana MRO technicians should be at least

to serve narrow and wide-body planes. We feel secure

18 months.

in our growth, to the point where we have expanded our three traditional service lines of major maintenance,

UNAQ has also been working to improve its course

line maintenance and components. The company plans

content through an agreement with Mexicana MRO.

to begin managing structural conversions as part of our

Often, the university sends technicians to gain experience

2017-18 business plan.

at our hangar and to certify them. Our focus for 2017 is to train 250-300 new technicians to service the business

Mexicana MRO will likely close 2017 with 9.5 production

that we foresee for 2018.

lines, up from an average of 6.7 in 2016. Our growth is partly a reflection of three new clients that joined our

Q: Being an MRO located in North America, how alluring

portfolio. We also began to target the European market,

is the US market?

for which we hold the EASA certification.

A: We have two lessors in the US market but with competition so high, we will hold back from entering

Becoming the first MRO to join ALTA also helped raise

that market further. Despite increased traffic from the

our profile among new clients. The association invited us

US, most growth is happening in Latin America. Entering

to be speakers at its event in May 2017 in Cancun. These

the Latin American market is easier because it is covered

networking opportunities increase our visibility, which

by the same certifications. Leading global consultancy

supports our ongoing growth.

ICF has reported a trend of impressive growth in this market in the last two years and we are targeting it more

Q: What is Mexicana MRO doing to sustain the growth

directly. The company is also looking to Europe because

it is enjoying?

many wide-body planes arrive to Mexico from there. For

A: Growth implies more production and more training

the moment, we see more potential in the wide-body

because of the additional technicians required to handle

market, and European carriers could represent between

the increase in clients. We secured new certifications

10 and 15 percent of our business portfolio.

in 2017, for a total of 19, which should be enough for the time-being, unless we sign a new client that

Latin America represents 90-95 percent of our operations,

merits additional certifications. Some of our previous

of which 25 percent is in Mexico. Diversification could

certifications that were limited to painting have been

help us achieve sustainable growth. We work with several

expanded to incorporate maintenance and now cover

Mexican carriers and have eight operators throughout

Costa Rica, El Salvador and Panama.

Latin America that are regular clients. Mexicana MRO is becoming a reference point for Latin America and we are

In terms of training, we have relationships with several

close to becoming the top company in our sector.

schools but continue to train technicians onsite because we feel that graduates are arriving at our workshops without all the requisite qualifications. Many lack

Mexicana MRO Services provides maintenance for several

technique and practical experience because only a few

Airbus and Boeing aircraft. It offers clients an integrated

schools have access to several aircraft models. Our

maintenance service, within a total area of 1â&#x20AC;&#x2122;730,139ft2.

standards stipulate that technicians should ideally have

Mexicana MRO was the first MRO to join ALTA

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VIEW FROM THE TOP

POLITICAL, ECONOMIC DIVERSITY ARE BOTH DRIVERS, HURDLES MELVIN CINTRON Regional Director of International Civil Aviation Organization (ICAO)

Q: What is spurring aviation growth in Mexico and Latin

Caribbean, air transport supported 5.2 million jobs and

America and what hurdles stand in the way?

created US$167 billion in GDP. In 2015, 17 narrow body and

A: ICAO’s North American, Central American and

80 wide body aircraft were delivered to airlines in Central

Caribbean (NACC) regional office forecast in 2016 that

and South America, while in North America, 46 narrow

political and economic diversity is likely to both drive

body and 296 wide body aircraft were delivered.

and challenge the industry’s growth. Different countries

314

and autonomous territories mean that the NACC office

Freight is mainly transported globally by ships and over

has to unite the 40 countries it represents, from small

land, but for products with a short shelf-life, air cargo is

developing islands to the world’s most advanced and

the only option and these tend to be high-value shipments.

developed states. The continent works in four main

We expect air freight from Mexico to grow as well as

languages, as well as several local dialects. To overcome

passenger demand.

the region’s differences, ICAO oversees quality in air navigation arrangements, terminal areas, area control

Q: To what extent is unifying regulation, services and

centers and air navigation services.

processes across such a diverse region feasible and how can ICAO achieve this?

Every day, 9.8 million passengers take 104,000 flights

A: An important concern for ICAO is whether countries’

around the world, while goods worth US$18.6 billion

standards implementation can keep pace with aviation’s

are carried globally in air cargo. This volume of activity

growth. ICAO’s Aviation System block upgrades, defined in

is projected to double over the next 20 years, and the

tandem with the global community, help in this regard, but

increasing demand for flights has pushed countries to their

it’s also important to note that we aim for harmonization

limits with many now struggling to supply seats and cargo

rather than homogenization to take account of the specific

space. We expect globalization and worldwide purchasing

circumstances in each country.

power to lead to higher demand for skilled aviation personnel and to exacerbate infrastructure deficiencies.

The harmonization of services, airspace and procedures is

Travelers echo these concerns, but a lack of resources

one of our main goals and a key component of seamless

within ICAO’s member states and the regional office may

air traffic management. In the simplest of terms, it lets

complicate advances.

our network be truly global in scope. We are continuously harmonizing aviation rules and regulations in the region,

Q: What is the aviation sector’s greatest contribution to

concentrating on enhancing collaboration between

economic development in the region?

countries and creating regional mechanisms that are

A: Aviation and air transport in general supported 62.7

effective in smaller areas. We would like to see an exchange

million jobs worldwide in 2015, of which 36.6 million were

of inspectors between countries, as needed, and timely

catalyzed by tourism, 9.9 million were direct jobs and

regulation updates to be compliant with ICAO Standards

11.2 million were indirect. Aviation was responsible for

and Recommended Practices (SARP).

3.5 percent of 2015’s global GDP, an economic impact amounting to US$2.7 trillion. In Latin America and the

We launched an initiative targeting Boeing and Airbus. We hope to secure both so that European and American manufacturers are represented and able to contribute

ICAO manages the administration and governance of the

to a harmonized regional system. If we can recognize

Convention on International Civil Aviation. It works with 191 States

equivalency of the FAR-145 for example, across several

to reach consensus on policies that support a safe, sustainable

regions, an aircraft originating in one country could undergo

and environmentally responsible civil aviation sector

maintenance in several destinations.

VIEW FROM THE TOP

IMPROVING AIRPORTS, INCREASING FLIGHT SAFETY MIGUEL PELÁEZ Director General for the General Direction of Civil Aviation (DGAC)

Q: How is the aviation sector growing in Mexico and what

process to anticipate and address security issues before an

global passenger and cargo transport trends are shaping it?

accident happens. We tailor the operational parameters of

A: The sector is growing at an accelerated pace. In 2016, 82.7

airports and air transport companies so they can qualify for

million passengers flew with commercial airlines, which is 46

foreign certifications, such as the State Safety Program (SSP),

percent more than in 2012 and reflects an average annual

Runway Safety Team (RST), the International Standard for

growth rate of 9.8 percent. From January to March 2017,

Business Aircraft Operations (IS-BAO), IATA Safety Audit for

commercial flights grew almost 3 percent in comparison to

Ground Operations (ISAGO) and IATA’s Operational Safety

2016. During this first quarter of 2017, AICM alone transported

Audit (IOSA) for global safety management.

10,364,775 passengers, which represents an increase of almost 10 percent in comparison to the previous year. Demand for

Q: What is the aviation industry’s contribution to Mexicans’

air freight is also increasing. In that same quarter, a total of

quality of life?

184,022 tons of cargo were transported by air, representing

A: The industry’s growth has led to the modernization of

a 6.7 percent increase over the same period in 2016. National

several airlines’ fleets. Aeroméxico’s introduction of the new

freight transport rose 9.5 percent in 2017 while international

generation 787-900 and 737-800, Viva Aerobus, Interjet

cargo expanded 6 percent. Safety has also improved, by

and Volaris’ acquisitions of the A320-271neo and Aeromar’s

strengthening the effective verification of compliance with

integration of the ATR 72-212A y ATR42-500(600) into its

the standards established by DGAC.

fleet all represent modernizations that improve passenger comfort and safety. Flying is the most effective and safest

Global and Mexican flight demand is expected to rise and, if

form of travel so the industry can anticipate the need for

trends continue as expected, by the end of 2017 more than

more routes to meet rising demand, whether for tourism or

89 million passengers will travel by airplane.

business. Growing connectivity is reflected in the increase in passengers. Passenger numbers on domestic flights increased

Q: How has the sector changed and how does DGAC support

nearly 8 percent in 2016 and the number of international

its development?

passengers grew over 10 percent.

A: Low-cost flights have grown exponentially, making it possible for many people to travel by plane and leading

Aerospace industry growth has boosted connectivity. The

airlines to make important changes. Airlines are looking for

A380 that began operations in January 2016, for example,

ways to lower their operating costs as they move to increase

created direct flights between Mexico City and Paris. New

efficiency. DGAC verifies that airlines take the necessary

international flight routes include Aeroméxico’s connections

measures to ensure that optimal conditions of aircraft and

with Toronto and Vancouver and Interjet is now traveling to

operations safety are met as operational savings are made.

Dallas, Las Vegas, Lima, Chicago, Santa Clara, Orlando and

Despite cutting operating costs, airlines must guarantee

Chicago. Aeromar also has a new direct flight to Tucson from

certain services and safety to protect passengers, their

Mexico and new airlines like Alitalia and All Nippon Airlines

belongings and third parties. We have implemented several

(ANA) are linking Mexico with direct flights to Rome, Italy and

programs to monitor the activities of concessionaires and

Narita in Japan, respectively. These air links broaden Mexico’s

air permit-holders with the goal of detecting and preventing

options for business and pleasure travel.

unsafe actions in advance. To permanently improve overall air safety in Mexico and prevent

DGAC is a division of SCT that regulates all airlines, airports,

accidents, we have requested aviation service providers to

private aircraft and drones. Its goal is to make aviation an

install safety management systems (SMS). Our goal is to

efficient mobility solution that will allow better passenger and

organize every air service provider’s checks and systems

cargo transportation on a national and international level

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VIEW FROM THE TOP

CONNECTIVITY FOR THE BUSINESS TRAVELER RODRIGO VÁSQUEZ Director General of TAR Aerolíneas

Q: What are the main challenges for TAR Aerolíneas’ growth

We are also looking for new market opportunities. We work

and how is the company addressing them?

alongside the Government of Queretaro to promote the state

A: In 2017, TAR Aerolíneas entered its fourth year of

and became an official sponsor of Queretaro’s Congress

operations. We are at the stage where we need to plan all

Center. This is an initiative from the state’s government to

movements well in advance. Our goal is to double our fleet,

attract business events and we are aiding that effort.

which now comprises 10 aircraft, within the next five years. One of the challenges is finding pilots to fly these new aircraft.

Q: How has regional connectivity grown in Mexico and how

Our pace of growth is limited by a lack of pilots. Pilots from

will TAR Aerolíneas stand out amid increasing competition?

many existing schools in the country receive a rudimentary

A: There is significant interest in Mexico for greater regional

education and lack practice in the type of cabins we use,

connectivity — from us, other airlines and governments —

called glass cockpits. Before flying in one, a pilot must have

that will lead to the development of even more routes. We

at least 1,500 practice flight hours but graduates from pilot

do not compete with national or international airlines, we

schools often have much less.

complement their services. For instance, Queretaro allocates slots to Aeroméxico, Volaris, Viva Aerobus, United Airlines

To solve this, we are developing a training center for pilots

and American Airlines, from many national and international

and flight attendants in conjunction with UNAQ, called TAR

destinations.

Aerolíneas Training Center (CATA). In the first half of 2017 we acquired DGAC’s certification to become a training center

We complement these airlines by transporting their

and we are now looking for more partners to train staff who

passengers to locations within the Bajio region not covered

could be integrated into TAR’s crew or other airlines. The

by any other airline, which improves national connectivity.

common denominator for all partners will be the use of the

Eighty percent of the passengers on these routes are business

Embraer ERJ 145. This training center will be ready by 2018. In

travelers.

partnership with UNAQ and the state government, we are also planning to bring flight simulators to Queretaro for training

What differentiates TAR Aerolíneas is our aircraft. Our

purposes.

business model is different to airlines based in a specific location — Mexico City in most cases. The 50-seater ERJ 145

Q: How has TAR Aerolíneas’ strategy changed to reflect

Embraer jets are best for hour-long trips so we use them to

market needs and ensure continued growth?

create circuits across the country. These circuits visit several

A: In 2016, a comprehensive analysis of our flight structure

cities before returning to the final airport, instead of the

showed we could improve by aligning our routes to market

standard return flight airlines tend to offer. They are developed

needs. We now know with certainty the number of flights

in close collaboration with Mexican airport groups and state

required for specific routes, allowing us to increase scheduling

governments that convey the region’s specific connectivity

efficiency. For instance, we are now flying four times a day

requirements. For instance, we have a base in Merida to

from Queretaro to Monterrey, three times to Guadalajara and

address the needs of the Yucatan Peninsula. Even though our

three to Toluca, among many other routes. This facilitates

main offices are in Queretaro, only 25 percent of our airplane

same-day return trips.

seats come to the state.

In 2017, we acquired international permits and specifically received FAA approval to fly to the US in April, creating an

TAR Aerolíneas is a Mexican airline created four years ago

opening for us to adapt to demand in Mexico. Just a month

in Queretaro. The company focuses on regional connectivity

later, we flew our first international charter between San Diego

through its fleet of 10 Embraer ERJ 145 jets and offers circuit

and Queretaro.

flight routes around the country

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Anesthetic machine Perseus A500 with IACS monitoring, mounted on a Movita arm with infusion pumps

HEALTH

As 2016 turned the corner into a new year, macroeconomic uncertainty kept the world â&#x20AC;&#x201C; and the global business community â&#x20AC;&#x201C; on tenterhooks. The Mexican health industry cast a wary eye on events north of the border that were impacting the local exchange rate while also focusing treatment efforts on obesity and diabetes, which continued to top the countryâ&#x20AC;&#x2122;s major health concerns. Universal access to health, a key to promoting prevention in an increasingly aging population that is not accustomed to continuous medical checkups, remains an illusive ideal in the face of a fractured Mexican health system marked by budget cuts. In this context, collaboration between the public and private sectors is vital for improving quality of life.

In the private sector, global economic uncertainty, and the election of US President Donald Trump, led large pharmaceutical companies to begin 2017 with some misgivings about peso volatility versus the two major currencies: the dollar and the euro, although initial fears faded as stability returned to the domestic currency. In fact, most continue to report growth and show a commitment to the development of health in Mexico through investments in areas such as clinical research, an area in which the country aspires to become a referent.

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CHAPTER 13: HEALTH 322

ANALYSIS: Despite Headwinds, Optimism Reigns

324

VIEW FROM THE TOP: José Narro, Minister of Health

325

VIEW FROM THE TOP: Julio Sánchez y Tépoz, COFEPRIS

326

VIEW FROM THE TOP: José Reyes, ISSSTE

327

VIEW FROM THE TOP: Marco Navarrete-Prida, PEMEX

329

VIEW FROM THE TOP: Armando Ahued, Minister of Health of Mexico City

330

VIEW FROM THE TOP: Rafael Gual, CANIFARMA

331

VIEW FROM THE TOP: Félix Scott, Sanofi

332

VIEW FROM THE TOP: Rodrigo Puga, Pfizer Mexico

333

VIEW FROM THE TOP: Pedro Galvis, Merck Mexico

335

VIEW FROM THE TOP: Guillermo Ibarra, Teva Mexico

336

VIEW FROM THE TOP: Juan Pablo Solís, Becton Dickinson Mexico, Central America

321

and the Caribbean

337

VIEW FROM THE TOP: Alejandro Paolini, Siemens Healthineers Mesoamerica

339

VIEW FROM THE TOP: Alejandro Alfonso, ABC Medical Center

340

VIEW FROM THE TOP: Javier Luna, Nestlé México

341

VIEW FROM THE TOP: Fabián Bifaretti, Sports World

ANALYSIS

DESPITE HEADWINDS, OPTIMISM REIGNS Despite geopolitical and economic pressures both at home and abroad, Mexico’s health industry is pulling together to improve access, raise awareness of the need for prevention and taking steps to position itself as global hub for clinical research Global economic and geopolitical uncertainty marked the

Faced with shrinking budgets, public institutions are

second half of 2016 and the first half of 2017 and sparked

struggling to cover a larger number of patients who are

concern for many companies worried that currency fluctuations

increasingly suffering from preventable illnesses such as

would negatively impact their bottom line. However, as 2017

type 2 diabetes (T2D), obesity and the ensuing conditions

rolled out, the Mexican peso stabilized and saw its best quarter

from these diseases such as cardiac insufficiency. These

in decades. The health sector plans for the long-term and most

are worsened by poor lifestyle habits such as a lack of

companies reported growth and plans to continue investing in

exercise, smoking and alcohol consumption. Dealing with

Mexico, despite their initial fears. “Teva has drawn up a list of

the complications is keeping the hospital sector busy.

countries with growth markets and Mexico is among those,”

While public institutions are bursting, private hospitals

says Guillermo Ibarra, Director General of Teva Mexico, a unit

have capacity to spare. The two are working on a more

of the world’s largest generics company, which produces 120

efficient way of collaborating to alleviate the public sector

billion tablets and capsules per year.

burden and improve access. Several PPPs were announced during the year for the construction of hospitals, most of

322

Aside from the economic headwinds that buffeted the

which will be operated by ISSSTE. However, many argue

sector before tailing off, two diseases loomed over the health

that increasing the number of hospitals is not the key to

industry: obesity and diabetes, both of which were declared

improving the health of Mexicans. Prevention and early

epidemics, the firsts noncontagious diseases to be considered

diagnostics are is vital with any disease but are especially

as such. Although many private and public-sector initiatives

important for diabetes and cancer given their impact, related

are afoot to combat the diseases and related complications,

ailments and high number of sufferers, which big and small

to make true progress personal habits need change, says José

companies have recognized. Janssen, part of giant Johnson

Narro, the Minister of Health of Mexico. “The population is not

& Johnson, for example, is working on early diagnosis

fully conscious about the dimension of the problem. Secondly,

methods for prostate cancer while young Mexican startup

although there has been a deceleration of the death rate, there

Higia Technologies is developing early detection methods

is no decline. The number of deaths due to diabetes multiplied

for breast cancer. However, the theme of access remains. To

by about seven times between 1980 and 2015, from around

carry out checkups and catch conditions and diseases early,

14,600 in 1980 to 98,500 in 2015,” Narro says.

the population must have access to healthcare services.

REACHING ACCESS

Amid belt-tightening, public-sector institutions are stretching

The government’s measures include raising awareness

budgets to cover more people. The Seguro Popular, for

through various publicity campaigns but it remains hampered

instance, has started eliminating duplicate registrations with

by access issues with the public health system and a shrinking

other institutions. “We have cleaned up our database and no

government budget. With less money to spend, government

longer have 9 million duplicate registrations. We continued

institutions have placed a priority on generics, pressuring Big

working on this in 2017 and we expect to reflect this in a

Pharma companies. On the other side of the ledger, both the

higher quality service for patients because there will be

public and private spheres have penciled in clinical research

more resources per policyholder. Seguro Popular has been

as a strategic segment that could provide a windfall to

sharing information with other health systems since 2016, a

companies, government institutions and ultimately, patients.

year in which we lowered the number of policyholders by 3 million,” says Gabriel O’Shea, National Commissioner for

The theme of access to health remained a significant topic in

Social Protection in Health of Seguro Popular.

2016/2017. The many Mexicans working in the informal sector are denied access to the main public healthcare institutions

Companies are also feeling the pressure to make their

and are obliged to pay out-of-pocket for treatment or use

products available to a larger proportion of the population.

Seguro Popular. This encourages the population to delay

Big Pharma companies are often the only producers of a

seeking diagnosis and treatment, as many prefer to live in

certain treatment and therefore have a responsibility to

blissful ignorance of a condition than to have it formally

ensure it is as widespread as possible. In recent years,

diagnosed. Not beginning treatment causes diseases to

as the government tender process has consolidated and

worsen and the effects cost dearly.

amplified, budget requirements often mean generics are

favored over patented brands and some brands have even been liberated in Mexico so that generics companies can create less expensive versions of the products. This has pushed some Big Pharma companies out, and some have created their own generics lines to remain competitive. “In 2016, the Mexican health industry saw one of its toughest

Between 20122016 the price of generics in Mexico dropped 61%

37 active substances have been liberated in 14 packets Resulting in 491 new medicines That address 71% of total disease-related deaths

years, achieving single-digit growth in terms of value due to the introduction of new products and price increases,” says

Lower prices have enabled the treatment of an additional 1,998,202 patients

Raúl Camarena, General Manager of Aspen Labs Mexico. Despite a difficult year, the Mexican pharmaceutical market remains the second largest in Latin America and among the top 15 worldwide, according to KPMG. BMI Research

And represent savings of MX$24.6 billion (US$1.4 billion)

reports that the Mexican pharmaceutical market as a whole was worth US$11.2 billion in 2015, of which Seale & Associates estimate US$3.3 billion was attributable to generics. Producers of generics are keen to make sure

DIGITAL HEALTH

their more affordable alternatives are available in as many

One method that can be used to find ways to improve

points of sale as possible. Releasing packets of innovative

healthcare is Big Data. Although the collection of Big Data

medicines so that generics companies can create options

in healthcare has been slow in the past due to the lack of

and increase access has been one of the greatest weapons

digitalization, with the penetration of smartphones and the

in the government’s plan to offer increased access. However,

increased number of startups it began taking off in 2017.

price pressures have begun impacting companies that are unwilling or unable to go as low as requested. As a result,

The flip side of improving access is maintaining security, a

many companies have begun turning to the private sector

challenge logistics companies are up to. The distribution of

for growth, looking for other streams of revenue such as

essential medicines in Mexico is complicated by the tough

manufacturing for private labels, the branded generic

geographical terrain and the uncertain security environment.

products available from large pharmacy chains and retailers.

Many employ distinct methods to prevent vehicle theft, such as using dual GPS to circumvent jammers, employing

Medical device manufacturers face some of the same issues

electromagnetic locks and distinct route planning.

as Big Pharma companies, as some devices have high price remain in the Mexican healthcare T2D ProstateAlthough Cancer challenges Breast Cancer system, there are also opportunities for companies to bridge equipment. In addition, specialized tough 82devices are facing5508 5062 gaps, the most notable competition from more generic,80788 cheaper and older models. 5666 5222 of which is set to open access and increase treatment “The prices are also low, so they are not sustainable5911 in the 85055 5613options for a growing number of people, at the best price. Companies will need to balance this with long term. We can offer those prices for one year, but not 89469 6023 5548 providing innovative solutions, as well as ensuring they several years running, especially with the depreciation of the 94029 6296 5997 to suit the needs of Mexico’s 121 million Mexican peso against other currencies,” said Martín Ferrari, 98521 6447 can be amplified 6273 points and suffer if budgets remain too low to invest in new

inhabitants.

Director General of Dräger Mexico.

DEATH IN MEXICO T2D, BREAST AND PROSTATE CANCER DEATHS IN MEXICO (thousands)

98,521

94,029

89,469

85,055

80,788

82,964

100

2010

T2DT2D Prostate Cancer Source: INEGI

Prostate Cancer Breast Cancer

2011

Breast Cancer

2012

2015

6,273

6,447

6,296 2014

5,997

6,023 2013

5,548

5,613

5,911

5,666

5,222

5,508

5,062

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VIEW FROM THE TOP

A 121 MILLION PEOPLE CHALLENGE JOSÉ NARRO Minister of Health

Q: In 2016, you declared diabetes and obesity a crisis.

put in place. We want to promote education so that more

However, FUNSALUD’s José Campillo has said that rates

people can take control of their health. We must begin to

are leveling off. Is this a success?

build processes for healthy aging.

A: I cannot yet say that we have had success because the

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population is not fully conscious about the dimension of the

Q: What challenges arise in ensuring the continuity of

problem. Secondly, although there has been a deceleration

projects after the 2018 presidential elections?

of the death rate, there is no decline. The number of deaths

A: There has been much done in terms of health over the

due to diabetes multiplied by about seven times between

past few years. Under the current government, maternal

1980 and 2015, from around 14,600 in 1980 to 98,500 in

mortality has fallen by over 18 percent, infant mortality has

2015. In the 21 century so far, there have been 1.1 million

decreased by 6 percent, mortality due to accidents has

Mexican deaths directly due to diabetes. This is a grave

also dropped and the frequency of dengue fever has been

problem. We must ensure that the measures that appear

reduced by two-thirds. In addition, there have been many

to be effective are maintained. We also must act to protect

new medicines incorporated into the healthcare system.

young children and teenagers. For this reason, in May 2017

Since 1948, the change has been phenomenal. Infant

we began the Salud en tu Escuela (Health in your School)

mortality has decreased by over 90 percent. Back then, 132

program, which will send doctors to over 1,700 primary and

of every 1,000 children died before their first birthday. Now,

middle schools to talk about key health topics.

the rate is 12 of every 1,000. This country has been lucky with

public policy in several programs, otherwise we would not Q: Life expectancy is increasing. What challenges are

have been able to achieve what we have. A clear example is

arising for healthcare as a result?

vaccination. For over 40 years we have been dedicated to

A: Mexico’s population, like many around the world, is going

vaccinating the population. There is no rubella or congenital

through a demographic transition. Population pyramids

rubella in Mexico, we have controlled diphtheria and tetanus

have changed from 20 years ago when there was a strong

and neonatal tetanus has been eliminated.

base of young people. Now, the number of old people is increasing. Forty-five years ago, the median age was 17.8.

Since 1974, there has been a program for family planning

Now, it is 27, so we can say that the population is maturing.

and now for reproductive health. Thanks to these

Children and the elderly are dependents and there are

programs, Mexico has 121 million inhabitants instead of

just over five million people aged over 70 but that figure

over 150 million. There has been an extremely successful

will increase to over 17 million in 2050. Today, a regular

campaign running since the 1980s to protect children

infection can be cured while chronic, nontransmissible,

against diseases caused by dehydration. I trust that

nonparasitic infections can be controlled. Health is a

even with political changes, current health policies will

process, not a state. Health ranges from the complete

be maintained.

state of physical and mental wellbeing as defined by the WHO, to a second before death, when health is basically

Q: What are your priorities in a short term?

lost. In between there are many states, some better than

A: Diabetes is one of our highest priorities, but it is difficult

others. If people see health this way, prevention can be

to tell which is the most important because there are many, such as cancer and heart disease. When speaking of priorities, I often speak of diabetes because it generates

Dr. José Narro is a surgeon from the Faculty of Medicine at

the most deaths as a single cause. Cardiovascular disease

UNAM, with a master's in communitarian medicine from the

may cause more deaths when grouped together, but the

University of Birmingham, England. Narro was head of UNAM

causes are many and can be split into three main groups:

from 2007 to 2015 and in 2016 was named Minister of Health

heart attacks, hypertension and others.

VIEW FROM THE TOP

DYNAMIC CHANGES PROPEL MEXICO TO WORLD STAGE JULIO SÁNCHEZ Y TÉPOZ Commissioner of the Federal Commission for the Protection against Sanitary Risks (COFEPRIS)

Q: What are the most important advances COFEPRIS has

between the amount of R&D that goes on in developed

made in the past year?

countries compared to less developed economies. A first

A: We have made great strides on ethics and transparency,

gap is created here. A second gap occurs because of the

we have become an institution that is much closer to

difference in technical knowledge. They want to protect

citizens and we have put 10 catalogues of open data at

knowledge and for this reason it is not transmitted. Secondly,

their disposal. These are registers of licenses, permissions

knowledge only reaches those countries that collaborate and

and other types of information that was previously

that offer assurances.

requested of us. We have also installed a telephone service that receives 16,000 calls per month.

As an example, it is doubtful that Brazilian research centers share their knowledge quickly, efficiently and

COFEPRIS regularly removes patents from groups of

transparently with Nigeria because standards are

medicines to allow for the production of generics. In 2016,

asymmetrical. We need to improve the flow so that

we released Group #14 because in February 2016 there was

every country can benefit quickly and efficiently from

an issue with influenza and the active substance to treat

knowledge. We aim to contribute to reducing these gaps

it, oseltamivir, was only produced by one laboratory and

as much as possible through a center of excellence. This

manufactured in Switzerland. In May 2016, we liberated

was an idea of the WHO and APEC and they should

Group #14 and there are now three generics available for

compile information and generate joint public and private

oseltamivir. In total, 37 active substances have been liberated

actions so that knowledge can be shared. Our center has

through our generics strategy, producing 491 generics, which

several research and training projects underway in areas

represent MX$25 billion (US$1.4 billion) in savings while an

in which it is difficult to find an expert. There are few other

extra two million people can be treated thanks to these

centers but those that exist are linked. Japan, the US and

savings. In 2017, we continued this strategy and more than

Brazil each have one.

40 new molecule authorizations were announced. Q: According to ProMéxico, Mexico carries out only 1 In 2016, Mexico was named Vice President of the

percent of global clinical trials. How will you boost this

International Coalition of Medicines Regulatory Authorities

number?

(ICMRA), an international association that unites the 14

A: In January 2017, we signed an agreement to promote

most important regulatory agencies, for two years. We are

clinical research that simplifies processes and integrates

a leader due to our generics strategy, innovation, reduced

them. To meet all requirements and obtain all permits

processing times for protocols and special pathways for

used to take 365 days but we are reducing this to 45 days.

administrative forms, which can now be obtained in 15 days

Our goal is to triple the investment in clinical research in

instead of two years as it was five years ago.

Mexico and we hope to see US$600 million over the next two years, up from under US$200 million. An agreement

Q: How is COFEPRIS working on bringing more knowledge

has been reached with IMSS and ISSSTE will soon join the

to Mexico?

program. We are working on another agreement with the

A: One of the most important themes internationally is the

national health institutions and with UNAM.

creation of the COFEPRIS Center of Excellence. We began working on this idea around two years ago with the aim of closing the knowledge gap because knowledge is not

COFEPRIS is a regulating authority responsible for 44 cents

shared in the pharmaceutical sector. Those that have money,

of every peso spent by Mexican household. It is incharge of

like large companies with the capacities to invest in R&D,

regulating everything that could have a risk for consumers. 9.8

do so in specific areas. But there is a gigantic difference

percent of GDP and 10.9 percent of foreign trade

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VIEW FROM THE TOP

CAMPAIGNING FOR BETTER HEALTH JOSÉ REYES Director General of the Institute of Safety and Social Services for State Workers (ISSSTE)

326

Q: In addition to health services, ISSSTE works on

is to triple the number of mammographies from between

prevention through public awareness campaigns. Which

110,000 and 115,000 to 350,000. ISSSTE is raising awareness

areas are key targets?

among women between 25 and 69 years old. Although we

A: We have a number of ongoing campaigns. One such

have reduced the prevalence of cervicouterine cancer and

campaign relates to addiction prevention, particularly

the related mortality rate, the same cannot be said for breast

smoking, and targets young people through courses,

cancer. We named February Men’s Health Month because

conferences, personnel training, graphic information and

men are less likely to visit a physician than women: 63

social media. We are also drafting several campaigns against

percent of first-time doctor’s appointments are women.

overweight and obesity and their related conditions, which have a profound effect on quality of life and on the federal

Q: On the business side, what are the advantages of

budget. Twenty percent of ISSSTE’s health-allocated funds

building hospitals through PPP schemes?

were used to raise awareness of diabetes, overweight and

A: ISSSTE has an infrastructure program and fiscal resources

obesity, hypertension and cervicouterine, breast, prostate

but, due to budget adjustments, we have had to vary our

and colon cancer. ISSSTE’s annual budget amounts to MX$45

financing to continue building and expanding hospitals and

billion (US$2.5 billion) and we are spending MX$10 billion

clinics. We needed to migrate to a new scheme involving the

(US$555 million) or more just on these diseases.

private sector. ISSSTE invested over MX$4 billion (US$222 million) last year in building and expanding a number of clinics

Among specific programs, the Salud en tu Escuela (Health in

and hospitals. We have analyzed several new hospital projects

your School) campaign is focused on young people and on

in Tampico, Acapulco, Oaxaca and Mexico City and there are

the children of beneficiaries who suffer from overweight and

also some requests for new hospitals in San Luis Potosi and

obesity. This is a joint effort between players in the public

Sonora. There is a PPP hospital being built in Merida and three

health and educational spheres, such as the Ministry of

others to be tendered: Mexico City-Tlahuac, Villahermosa

Public Education (SEP) and the National Education Workers’

and Tepic. We estimate that in this federal government

Union (SNTE). Integrating teachers as health promoters and

administration’s remaining time, investments from PPP

developing permanent awareness and physical exercise

schemes could total about MX$14 billion (US$777 million).

campaigns are key objectives that will enable ISSSTE to evaluate the results at each school in the program. The

Q: What criteria helps ISSSTE to decide where a new

effort will include physicians, nurses and some students

hospital or clinic will be built?

from ISSSTE’s School of Nutrition and Dietetics. The ISSSTE

A: The location of beneficiaries and public health

en tu Dependencia (ISSSTE in your District) program is

infrastructure are the key criteria. The Ministry of Health,

focused on monitoring the health of employees. ISSSTE has

ISSSTE and IMSS have developed a strategy that prevents

identified about 570,000 diabetics among its beneficiaries.

duplication, so if there is an IMSS hospital in a community

Another campaign targets breast cancer across public health

with an ISSSTE clinic and someone at the latter needs

institutions. We integrated 25 new mammography machines

surgery, hemodynamics or cardiovascular services, these

into our facilities and we are finishing a new diagnosis center

will be subrogated to the IMSS hospital. Services will also

in one of our hospitals. Between 2016 and 2018, ISSSTE’s goal

be subrogated from IMSS to ISSSTE, which does not mean implementing a universalization program but exchanging services and prioritizing cities and states according to

ISSSTE is the second largest public health institution in

the demand for health services and the existing public

Mexico. It provides health and social services to almost 13

infrastructure. All public-sector agencies need to maintain

million federal government workers, retired workers and

a close relationship. We also have collaboration and service-

their families

exchange schemes between both public and private entities.

VIEW FROM THE TOP

SIMULTANEOUS TARGETS, POSITIVE RESULTS MARCO NAVARRETE-PRIDA Deputy Director of Health Services for Petróleos Mexicanos (PEMEX)

Q: What are PEMEX’s health priorities?

are also negotiating our collective bargaining agreement.

A: As a healthcare provider, we have to focus on

We work closely with the union and it is committed to

simultaneous targets. However, we began as a medical

our focus on prevention and health promotion. We want

services company, so labor health is our main concern. We

both employer and employee to take responsibility for

have doctors at every work site to deliver preventive care

employee health. The paternalistic scheme in which

and promote health, hygiene, risk detection and to evaluate

the state or PEMEX provides everything to a passive

the compatibility of employees with the jobs they do. For

beneficiary does not work. There should be a commitment

example, some employees work 35-60 meters above a

from the employees, too. To this end, we have integrated

platform or land. They cannot suffer from vertigo, have

a health bonus, which is given to workers with a BMI of

the flu or a high BMI because that would be risking their

less than 25 or for those who lose 10 kilos in a year. Their

life. At PEMEX Health Services we are further ahead in

cholesterol and lipoproteins also must be in normal ranges

health services than other industries such as automotive,

and if they are already diabetic their glycohemoglobin

pharmaceutical and aerospace. Our priority is to have our

must be under seven. If they comply they get the bonus.

workers operating under the best conditions possible. Instead of building more hospitals, we want to focus our

Q: What relationship do you have with other public

efforts on promoting preventive care. In fact, PEMEX has

healthcare institutions?

41 health centers, including 10 first-class clinics, 24 hospitals

A: President Peña Nieto and Minister Narro are working

and 168 preventive centers of labor health. Our hospitals are

on the universalization of health services, which means

operating on average at 70 percent capacity.

that each institution has to be open to providing and receiving support from other institutions. We have an

Q: What are the main health concerns of PEMEX’s

agreement with all the National Institutes of Health and

beneficiaries?

we hire subrogated services in some other locations.

A: They are similar to Mexico’s main health issues: diabetes,

We have partnerships with health institutions in Sonora,

cardiovascular diseases, obesity and systemic arterial

Aguascalientes, Tamaulipas and Veracruz. In cases of

disease. Our rates of diseases are low and the most

industrial emergencies, we receive a lot of support from

common are usually hearing problems. We are a high-risk

IMSS. In 2016, when there was an emergency at our plant

company, but we experience less than 0.2 accidents per

at Pajaritos, Veracruz, we received patients from IMSS

million hours worked. There are many myths about PEMEX

because we had the largest coverage in the area.

but we have one of the lowest sick leave rates among companies. Our workers take less than four sick days per

We also share successful experiences among institutions.

year thanks to our preventive initiatives, our efficiency in

In fact, every year we do a course on treating burn patients

setting appointments and the workers own commitment.

and we invite professionals from IMSS, SEDENA and

The life expectancy of petroleum workers is 80 years,

SEMAR to take part because we are all part of the same

higher than Mexico’s average, which is 78. This is because

ecosystem. We also have an agreement with the Ministry

they have increased access to health services. Therefore,

of Health to fumigate work areas to prevent vector-borne

we have many elderly patients; 56 percent of PEMEX’s

diseases and we provide them with fuel for their trucks.

beneficiaries are over 65 years old. Q: What challenges does PEMEX face in retaining workers

PEMEX is a state-created oil and gas company and is the

when faced with many new market entrants?

largest company in Mexico. It runs its own healthcare system

A: We need to offer the best benefits to our workers so

for PEMEX workers, retired workers and their families. It is also

they do not need to look for other employers. This year, we

one of the largest in the country

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VIEW FROM THE TOP

HEALTH CHALLENGES IN ONE OF THE WORLD’S BIGGEST CITIES ARMANDO AHUED Minister of Health of Mexico City

Q: What steps is the Ministry of Health taking to quash

another state had commented that it caused Guillain-Barré

disinformation and spread knowledge on health issues?

Syndrome. We refuted this, but the fear was terrible. Even

A: Mexico City has spearheaded the promotion of health

health personnel did not want to get vaccinated. To set an

information. We have launched campaigns on every topic

example and prove the vaccine was safe, I was the first to be

imaginable and we have also printed 1.4 million copies of

vaccinated. Thankfully, former Minister of Health José Ángel

a book on health for distribution to children in elementary

Córdova negotiated with Sanofi and distributed stocks of

schools. It covers such topics as dental health, nutrition and

the vaccine to all the states of the country. One day, he

general hygiene. We have a second book on sexual health

called me and told me that, despite the Ministry of Health’s

with over a million copies in print. It touches on all related

investment, people refused to be vaccinated. He asked me

topics. A third book covers addictions: alcohol, tobacco,

to find a way to get it done. I had the idea to place the

drugs, myths and truths.

vaccination stands in the city’s metro, which sees foot traffic of around five and a half million people per day. We put

We must incorporate health as a subject in schools. I am

stands in the biggest stations and offered free vaccinations.

convinced that the only way to make people co-responsible

As a result, people were lining up. I took Minister Córdova to

for looking after their health is to empower them through

visit the stands along with the press and word got out that

knowledge and understanding. If the information is

the people of Mexico City were getting the vaccination. This

provided to children, they will have it when they in turn

created a domino effect. Vaccination stands were placed in

become parents. For example, children do not brush their

public areas throughout the country. This was the start of

teeth properly because their parents cannot show them

a culture of care and prevention.

how. This is why nine out of 10 children in primary school have cavities and in secondary school they all have cavities.

From 2009 to the present, we have been vaccinating without

On average, adults loose seven to nine teeth after the

a problem. In winter of 2016-2017, Mexico City saw 23.6

age of 60; they cannot chew or bite, they begin to have

percent fewer cases of pneumonia and bronchopneumonia

gastrointestinal problems and become malnourished, so

than in 2015/2016, the number of acute respiratory

they get osteoporosis and they fall and break a bone.

infections remained stable while there were 56.6 percent fewer cases of influenza. There were only 10 deaths this

The healthcare system cannot handle the number of sick

winter, compared with eight last winter in a city of millions

people who did not look after themselves and did not go

of people. The virus we expected to be most prevalent was

for regular checkups. In addition, care becomes extremely

H3N2 but it was actually H1N1. In addition, it is pointless

expensive. Stents cost MX$25,000 (US$1,389) and some

getting vaccinated in February or March, as the influenza

people may require three or four. Dialysis costs MX$2,000

season ends in March and the vaccine takes 45 days to

(US$111) per session and sufferers may need three sessions

reach the maximum level of protection. The best time to

per week for the rest of their life. There is no wallet or public

get vaccinated is in September or October. The aim of

budget that can withstand this.

the Ministry of Health was to vaccinate 2,447,344 people in Mexico City, 1,003,426 of which belong to my ministry.

Q: How has the Ministry of Health promoted a preventive

Mexico City met 98.8 percent of that goal.

health culture and what is its view on vaccinations? A: In the swine flu pandemic that took place in Mexico City in 2009 I had to make a historic decision: to close the city

The Ministry of Health of Mexico City guarantees access to

to protect residents. This taught us that we were vulnerable.

medical attention of Mexico City’s residents. It has 29,000

When the vaccine arrived, there was much confusion and

workers, infrastructure, material and specialized equipment

fear of the vaccine because the Minister of Health of

to provide top quality services to the city’s inhabitants

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SIMPLIFIED REGISTRATION BOOSTS MEXICO PHARMA MARKET RAFAEL GUAL Director General of the National Chamber of the Pharmaceutical Industry (CANIFARMA)

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Q: How has the pharmaceutical industry evolved in the

Q: What advantages does Mexico present for clinical

past two years?

research, other than its large population?

A: I think it has evolved well and regulation has continued to

A: In Mexico, most R&D is carried out in private centers. The

advance. The structure of registration has been simplified so

main issue is researchers being paid to carry out the studies.

that time targets set out in the law are met for any process

There is a promising environment in IMSS to incentivize

involving the sanitary authorities. This is an important advance

clinical research in Mexico, sponsored by the industry as

that has allowed the pharmaceutical industry to be more

there were issues with IP. This has been changed. Previously,

competitive in Mexico and in international markets. Being

if IMSS found a second use then the IP belonged to the

recognized as a regulatory agency has allowed COFEPRIS

agency. But an agreement has been reached so that the

to be much more agile in registering products in Central and

IP does indeed belong to the industry sponsoring the

South America. In terms of R&D, we have authorized a series

research. The advantage is that there are 50 million patients

of third parties to be much faster in clinical authorizations,

in IMSS with varying stages of disease because in Mexico

which will allow Mexico to become a center of clinical research.

there is no culture of prevention, which means diseases are

In economic terms, the market has maintained 3-4 percent

available for study at advanced stages that may be hard to

yearly growth over the past decade, a rate that will probably

find in other countries.

not increase as the market is mature and grows in line with the population. The export market has grown in double digits

Q: What other steps are being taken to boost clinical

and will continue to do so thanks to COFEPRIS, which has

research in Mexico?

been recognized as a national regulatory reference agency in

A: IMSS, COFEPRIS and CANIFARMA are on the verge

Central and South America. Companies have this advantage

of signing a contract to facilitate the path to clinical

in addition to GMPs.

research. During our CANIFARMA Awards 2016 we announced that a research fair would be held during

Q: How is CANIFARMA helping the industry homogenize

which companies will be able to have direct contact

its regulation with the FDA and EMA?

with the companies that won the awards in 2016 and

A: They are already homogenized. There is not much

2015, to allow the research to be taken to market. Julio

difference between the regulation that exists in Mexico and

Sánchez, Commissioner of COFEPRIS, has announced

those countries. Existing regulations and laws in Mexico are

he will support this with a certificate and the research

not insufficient; all that is lacking is evidence that they are

will be followed by COFEPRIS from the beginning. This

being followed. Having them written is one thing, ensuring

will contribute to further improving the relationship with

compliance is another. The recognition from the WHO and

the industry. Brazil and Argentina are Mexico’s biggest

PAHO of Mexico in terms of vaccines provides certainty that

competitors in clinical research in the region. The fact

the role is being fulfilled. COFEPRIS has to report evidence

that we have a large number of patients to register in a

of verifications and certainty of reports. Tracking may be

clinical trial aids our competitiveness worldwide.

different in the US and Europe, but we are still missing an agreement with the FDA and the EMA on a bi-dimensional

Q: What are the biggest challenges in the pharma

code that can be applied worldwide.

industry? A: We need to become an important center for clinical research because its potential is underused and we have

CANIFARMA works toward developing the pharmaceutical

to consolidate COFEPRIS’ recognition to open new markets

industry in Mexico with three main objectives: sanitary

for the industry. There is great quality in the products

regulation, research and innovation and economic development

manufactured in Mexico and they are competitive. In

and industry policies

addition, we need to continue consolidating regulations.

VIEW FROM THE TOP

BIOTECHNOLOGY DESIGNED TO MEET LOCAL NEEDS FÉLIX SCOTT Director General and Country Chair of Sanofi

Q: How is Sanofi and its biotechnology addressing Mexico’s

Q: As a leader in insulin supply, what innovative solutions

main health concerns?

are you developing for diabetes?

A: We are redefining treatment for cardiovascular

A: Sanofi was the first pharmaceutical company to create

diseases. Sanofi was the first company in Mexico to

glargine insulin, the first analogue insulin that improved

launch a monoclonal antibody for controlling LDLC, a

a patient’s quality of life. Recently we launched a new

solution that revolutionized the industry. The monoclonal

generation of insulin to redefine control of the disease. It is

antibody inhibits a protein called PCSK9, which hinders

a safer insulin because the patient now has a range of up to

the receptor that clears cholesterol from blood. In Mexico,

36 hours between doses, instead of 24 hours. The solution

cholesterol is a critical topic. The burden of cholesterol

is complemented with a platform that provides support

as a cardiovascular risk is due to ethnic features and

to patients in terms of nutrition, exercise and everything

unhealthy lifestyles. Usually, diabetic patients have

related to changing habits.

problems with their lipid levels. Previously, patients were treated with statins, but eventually they reach a point

In a wider context, diabetes and obesity might also lead to

where the statin becomes ineffective. This new therapy

other complications that can result in the need for further

provides patients with an alternative.

treatment, such as knee replacements. For these cases, we developed an injection that helps delay the need for

Q: What role did Mexico play in the development of the

a knee replacement. The treatment restores the cartilage,

dengue vaccine?

providing pain relief in the knee and allowing the patient

A: Mexico was the first country to register the dengue

to continue walking. The cost of knee replacement surgery

vaccine. We are leaders in emerging economies because

is very high and this product, which is already available

we work to meet the specific needs of patients in those

through public institutions, helps reduce costs.

countries. Mexico played a key role in the investigation of the dengue vaccine because, among the 15 countries

Q: What makes Sanofi unique in Mexico?

included in the research program, it was one of only two

A: We are a company focused on people, the development

countries, along with the Philippines, that participated in

of talent, inclusion, diversity and gender equality. What

the phase I clinical studies. That is why Mexico became

makes us different is the human dimension in everything we

the first country to obtain the sanitary registration: it

do, whether working with patient associations, authorities,

was a collaborative approach with the country’s health

doctors or our own employees. This includes, for example,

institutions that enabled us to establish the necessary

helping our employees and their families. Children in Mexico

processes to comply with the many strict requirements of

do not have school on the last Friday of every month, which

the authorities and to provide them with solid local data. It

can be an issue for parents. We established Kids Office Day,

was not an easy process but it was also the first time that

an initiative in which all our employees can bring their children

COFEPRIS had certified a new vaccine before agencies

to work on that Friday. We organize activities for the children

such as the FDA and the EMA.

and in so doing, we help our employees comply with their parenting responsibilities. So far, we have received a great

Q: What other vaccines is Sanofi developing?

response from our employees and their children.

A: Our global operations are developing research for a zika vaccine, among others. We have a collaboration agreement with the US Army to conduct research into this

Sanofi is a pharmaceutical group founded in 2004 after the

type of infection and we believe we are in the best position

merger of Sanofi-Sythelabó and Aventis. It is the world’s

to achieve a fast and efficient solution for zika after our

third-largest pharmaceutical group and a leader in research in

experience with the dengue vaccine.

Mexico with over 35 active studies

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VIEW FROM THE TOP

DIVERSE PORTFOLIO ENSURES GROWTH RODRIGO PUGA President and Country Manager of Pfizer Mexico

Q: Generic medicines are becoming more popular in

starting with the CSG, IMSS, ISSSTE and decentralized

Mexico and innovator patents are expiring. What is Pfizer’s

agencies. A new drug has a patent with 15 years of

strategy to deal with this?

exclusivity from when the molecule is discovered. It takes

A: Access to health services is an important challenge.

eight to 10 years to gain approval and introduce the drug

Mexico spends 6 percent of its GDP on health, the lowest

into a market and in Mexico four to five years for the

expenditure of all OECD member countries, as others spend

product to be available to the public sector.

an average of 9 percent on health. Pfizer has launched its

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first biosimilar, a product for rheumatoid arthritis that IMSS

Q: What is Pfizer’s approach to personalized medicine?

is providing, and we are developing biosimilar versions of

A: Pfizer already has some personalized products in the

its five most-sold biotech medicines to be launched over

market; for example, our therapy for patients with ALK-

the next four or five years. Pfizer’s strategy is to participate

positive non-small cell lung cancer. In immunotherapy,

in attractive segments and to target growth above the

especially oncology, the objective is to strengthen the

market rate. To achieve that goal, we must compete in

immune system to combat cancer. Most cancer treatments

innovation. The company has 90 projects globally and over

use biological and chemical compounds but this Pfizer

US$7 billion invested in R&D. It also has a business base of

treatment could help the immune system target tumor

patent-expired drugs that are still successful due to our

cells directly. In oncology, it is difficult to decide when to

quality prestige. We are successful in emerging markets

launch a product because it does not follow the same cycle

because, although regulations have improved, physicians

as other products. Pfizer’s acquisition of Medivation will

and patients do not trust all generics. However, we have also

enable us to strengthen our clinical research into prostate,

launched a generics line, a segment in which Pfizer enjoys

breast and blood cancer.

an average growth of 35 to 40 percent annually. Q: What are Pfizer Mexico’s priorities in a short term? Q: On what pathologies is your pipeline going to focus?

A: Along with Brazil, Pfizer Mexico is a priority subsidiary.

A: The five main areas in which Pfizer is working are oncology,

Pfizer Mexico’s commercial objective is growing above the

central nervous system, cardiovascular, rare diseases and

market growth of 5 percent. The company will continue

biosimilar drugs. It is hard to say where the best results will

launching innovative medicines, biosimilars and high-quality

be, because out of every 100 projects that start in the clinical

generics. We want to continue working closely with AMIIF

phase, only one will reach the market. We invest about US$7-8

to demonstrate that investing in health is one of the best

billion per year and launch one or two new products per year.

investments in terms of economic impact. We also want to work on innovative access strategies.

Q: What is Pfizer’s strategy to sell innovative drugs to the Mexican public sector?

Pfizer Mexico will also continue innovating in clinical

A: The arthritis biotech product Pfizer introduced to

research. With 121 million inhabitants, excellent professionals

IMSS already existed and we developed the biosimilar

and a decent level of infrastructure, there should be much

version. In innovators, the challenge is showing public

more clinical research in Mexico. This does not happen

health institutions the cost/effectiveness ratio of products,

because administrative processes and institutions delay procedures more than they should. The company has over 400 research centers in Mexico, although it is still an

Pfizer is a US-based global pharmaceutical company present

incipient process. According to AMIIF, Mexico could be

in over 180 countries with a strong research focus. It works in a

looking at a US$500 million investment in clinical research

variety of therapeutic areas including oncology, cardiovascular

in the near future. Pfizer invested US$16 million in Mexico

health, vaccines, ophthalmology and infectious diseases

in research in 2017.

VIEW FROM THE TOP

WITHSTANDING THE TEST OF TIME PEDRO GALVIS General Manager of Merck Mexico

Q: What role will personalized medicine play in

existing opportunities. We have high-quality, innovative

biopharma?

products and a truly motivated and engaged team.

A: This is critical. We have been working on personalized medicine for some years and we were one of the first to

Q: How up-to-speed is regulation of personalized

do so in oncological treatments. For example, Erbitux is

medicine in Mexico?

a product approved for treating metastatic colorectal

A: There are not many challenges in the area of regulation. It

cancer and locally advanced and recurrent metastatic

has not been a critical issue. The authorities have been open

head and neck cancer. We were among the first to

to discussing this and to integrating personalized medicine

implement and generate know-how of genomic testing

into treatments. It is also in the guidelines for most specialists.

in colorectal cancer. Depending on the mutational status of specific genes in a patient’s DNA, a doctor

Q: If regulation is not an issue, what are the main

can decide on the best treatment for that individual. It

challenges that need to be overcome?

has been interesting yet challenging because it entails

A: The biggest challenge we face as an industry is market

much research, education and work with physicians and

access, as our innovative products must be available to

specialists.

the patients who need them. Unfortunately, this situation is not good enough at the moment and is definitely below

Now, personalized medicine is part of our daily life. Many

the international standards set for a country with the

of the products in our pipeline will also be related to

size and population of Mexico. When compared to other

personalized medicine. Avelumab, recently approved

OECD countries and those in the region, Mexico has one

in the US for an aggressive form of skin cancer, will be

of the lowest access indexes, so we are working on this

launched in the field of immuno-oncology.

through AMIIF. First we collaborated with COFEPRIS to try to speed up the regulatory process for registration and

Q: Merck is working with the Seguro Popular. To what

approval. Then, we worked with the CSG and together we

extent is personalized medicine widely available?

managed to improve processes. Finally, our next step will

A: It is starting to be increasingly available. Metastatic

be to work with IMSS and ISSSTE. There is limited access

colorectal cancer was included in the Seguro Popular’s

to innovative products. There have been several budget

catalogue three years ago. It has taken some time for

cuts, the institutions were not financially viable and they

hospitals to get accreditation but now there are around

were really struggling, but this is improving. While we

13-14 hospitals in Mexico that are accredited to provide

understand the issues, the country needs to push for

this treatment on behalf of the Seguro Popular. We expect

health to improve productivity.

that very soon other catastrophic diseases like multiple sclerosis and Turner syndrome will also be included in the

Mexico’s economic situation is not that different to that of

Seguro Popular catalogue to cover those patients in need.

other countries, as budget constraints are an issue all over the world. We have been looking at alternative contracting

Q: Merck operates in many areas, some highly

models and risk-sharing options, among others ideas, to

competitive. What is its strategy to stand out in each?

increase access to innovation.

A: The structure we have implemented allows us to focus on each business sector and especially on our patients’ needs and those of our customers. This latter point is

Merck is the oldest pharmaceutical and chemical company in

key to differentiating our products and services offer. We

the world, founded in 1668 in Germany. It works in biopharma,

continuously adapt our strategy to the local environment

OTCs, allergen immunotherapy, high-tech chemicals and life

and work closely with our team to take advantage of

sciences. Merck has been present in Mexico since 1930

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VIEW FROM THE TOP

BRINGING INNOVATION TO THE ENTIRE POPULATION GUILLERMO IBARRA Director General of Teva Mexico

Q: What are the challenges associated with operating in

products are extremely important for patients undergoing

so many different therapeutic areas?

chemotherapy because they allow them to continue with

A: The biggest challenge Teva faces is to follow people

their treatment without having to suspend due to negative

through all the stages of their life. We are present in several

effects. Some state institutions have already begun using

areas, including CNS, women’s health, pain, multiple-

these products, which suggests that we are on the right

sclerosis and oncology; our goal is to give patients access to

track. We want to have these products included in the

innovative pharmaceutical solutions at an accessible price

National Formulary in the future.

across the countries we work in. We want to contribute to generating greater access to healthcare worldwide.

Q: How many of Teva’s products are included in the National Formulary?

Q: How does Teva operate in both the public and private

A: We participate every year in the public tenders held

sectors and how does it choose which areas to focus on?

by the government through IMSS, ISSSTE and other

A: In Mexico, we take part in the public sector by selling

institutions. Regulation has resulted in many benefits

products to the government and health institutions by

for both patients and the government. We can compete

participating in government tenders. In the private sector we

because we have the necessary scale to offer competitive

participate through chain pharmacies, self-service retailers,

prices, a network of pharmaceutical plants throughout

distributors and local and regional wholesalers. Finally, a

the world and we are also one of the world’s main API

company must choose its therapeutic areas based on its R&D

manufacturers. This gives us significant power to offer

capabilities. Companies must deliver products that provide

quality products at reasonable prices in government

value for the payer, the institution, the patient and the doctor.

tender processes.

Q: How do you choose which products to bring to Mexico?

Q: What is Mexico’s role in Teva’s global operations?

A: There is a selection committee in which medical,

A: Teva has drawn up a list of countries with growth markets

commercial and business development perspectives

and Mexico is among them. One of my jobs has been to

are taken into account. The country faces chronic-

internally sell Mexico to our global headquarters. It is a

degenerative challenges and there is a change underway

country that has industrialized greatly and is not reliant on

in the population pyramid. Twenty years ago, the common

commodities; it has steady economic growth of around 2-2.5

problems patients faced were mainly infections; today, we

percent per year, which in the long term makes Teva Global

face chronic and chronic-degenerative diseases. We try

want to continue investing in the country. We have invested

to balance the products we bring from Teva Global with

many millions of dollars in improving, updating and raising

the needs we see in the country.

the bar for our plants. An economist said that even if we do not want it to happen, Mexico will be the seventh-biggest

Q: Eritropoyetina theta was recently brought to Mexico.

economy in the world by 2027. There is an opportunity for

What are Teva’s expectations for this product?

us to partner with the government, institutions, payers and

A: An area in which Teva is innovating is in its oncology

doctors to provide accessible and innovative medicinal

supportive care portfolio. So far, we have brought

solutions that benefit patients and their families.

two innovative molecules to Mexico. Eritropoyetina theta, which helps patients undergoing chemotherapy treatments improve their levels of red cells by treating

Teva is the world’s largest generics company, producing 120

secondary anemia that results from chemotherapy. The

billion tablets and capsules per year. The Israeli pharmaceutical

second molecule is Lipegfilgrastim, which treats febrile

offers specialty medicines, generics, OTCs and APIs in CNS,

neutropenia (fever and low white blood cells). Both

respiratory, oncology and women’s health

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VIEW FROM THE TOP

THE ANSWER TO TOP HEALTH CONCERNS: TECHNOLOGY JUAN PABLO SOLÍS Vice President and General Manager of Becton Dickinson Mexico, Central America and the Caribbean

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Q: How important is Mexico to Becton Dickinson's (BD)

A: Many innovative medical device companies, including BD,

global position?

offer a set of products that in the short-term may appear

A: Mexico has long been a successful market for the

to be more expensive than traditional devices. However,

company. The country is the second-largest market in Latin

the new features, such as safety for healthcare workers

America after Brazil. Over the years we have gone from

and for patients, bring benefits in the long-run for the

being a syringe company to taking up a leading position in

healthcare system. If a patient can be treated with state-

clinical diagnosis, molecular chemistry and flow cytometry

of-the-art medical devices, it is more likely he or she leaves

markets. Of BD's 45,000 global associates, 9,500 are

the hospital sooner.

Mexican, nearly 20 percent. They are distributed throughout our operations in Mexico City, San Luis Potosi, Sonora and

Q: What business models help keep high technology

Baja California. We export products made in Mexico to the

affordable for the public and private sectors?

US, Asia, Europe and the rest of Latin America. Our success

A: We work on different axes, first generating local clinical

in Mexico can be explained through our commercial and

evidence about the benefits of our innovative products to

manufacturing history of over 60 years.

the healthcare system, then early adopters among public and private institutions embed the new technologies. Once

Q: How has BD permeated the Mexican market to ensure

a product is proven to work, the system tends to adopt it

continued growth?

en masse. At BD, we have a wide range of products that are

A: 2016 was an important year for BD. Globally, it was the

affordable depending on the need, which is why we play

first year we operated with the integration of Carefusion,

at different levels of the healthcare system, following our

acquired in 2015. Carefusion has a strong portfolio of

purpose to advance the world of health.

innovative products and with this alliance, the company widened its footprint around the world. In Mexico, BD

Q: What is BD doing to support the digitalization of the

consolidated its market leadership, focusing on providing

Mexican healthcare system?

solutions for the country’s main health issues. We are

A: We have several technologies that support healthcare-

relevant in key fields such as women’s health and cancer —

system digitalization. Through our solutions for lab

we produce the best technology for the early and accurate

automation, for example, we can connect different

integrated diagnosis of cervical cancer. We continue to be

instruments to link clinical results to a lab and a hospital

an important player in healthcare worker safety, providing

database. Our value proposition in medication-management

a wide range of products that make clinical and medical

systems can help with drug/patient traceability that is so

practices safer for Mexican professionals, and we are

badly needed in our country to avoid medication errors.

becoming more relevant in diabetes management, with a large percentage of patients using our specialized syringes

Q: What type of technology have you developed for the

and pen needles for their daily care.

protection of healthcare professionals? A: We have developments designed to prevent accidental

Q: How can BD technology help to improve the effectiveness

punctures. A traditional syringe has a barrel and a needle,

and productivity of the Mexican public healthcare system?

so when nurses give an injection, they are vulnerable to punctures. With our system, once the injection is made, there is a mechanism activated by a spring that covers the needle.

health

These security products have seen great acceptance in the

technology company focused on IV devices for drug

private sector and we want to show the benefits of this line

administration, cancer diagnosis, diabetes treatment and

to public institutions. Our clinical evidence shows that using

cellular research

these products greatly benefits the entire healthcare system.

Becton

Dickinson is

US-based

international

VIEW FROM THE TOP

CHANGE IN FOCUS FOR MEDICAL DEVICES GIANT ALEJANDRO PAOLINI General Manager of Siemens Healthineers Mesoamerica

Q: There is a trend toward deregulation of medical devices

Siemens as a whole. In addition, there are many synergies

in Mexico. How does this impact your operations?

and similarities between the other parts of the business,

A: This trend is good for us as long as it is done intelligently

although not for healthcare. We can now take strategic

and efficiently. Regulation is a difficult topic because our

decisions faster. If we want to make an M&A decision, take

industry is highly regulated in all parts of the world and

a new strategy or create new products we no longer need

it has to be protecting the population. However, it must

to refer back to Siemens. The brand name is to give us a

also be efficient and not be an obstacle for the population

specific identity. Not everyone understands the meaning

to have access to the latest technology. A balance must

at first but Healthineers expresses our engineering and

be struck between protection and access and I believe

pioneering background applied to the healthcare industry.

COFEPRIS is working on this in an intelligent way. What is important is that COFEPRIS has maintained an open

Q: In 2016 you reached agreements with hospitals in

dialogue with the industry and we need to talk with them

Turkey. To what extent is Siemens interested in agreements

through our associations such as AMID and CANIFARMA.

with hospitals in Mexico?

Serious companies want a regulated industry but regulation

A: We absolutely are. At the same time as continuing

that is efficient enough to avoid being an obstacle.

investment in new products and R&D, we want to expand our business into new services related to our products.

Q: What growth has Siemens Healthineers seen in 2016?

That is the final goal: to be the enabler or facilitator of

What were the main drivers of this?

healthcare providers, enabling them to perform better with

A: In 2016, Siemens Healthineers Mexico had a good year

higher output and lower costs. We are not looking for any

considering the context. We had double-digit growth, so we

specific types of hospitals but it would have to be at least

can say that it was a good period in terms of revenue, as we

a midsized hospital as this is not the type of project that

had many orders pending from 2014/2015. In terms of new

could be implemented with a small hospital.

orders, we continued to grow but this slowed down and we ended 2016 with high-single digit growth. We gained market

Q: In February 2017 Siemens announced a US$200 million

share and we grew above the market, but it was difficult

investment for the next 10 years in Mexico. How much of

because of the peso devaluation against the US dollar and

this is going to healthcare?

public budgets being cut due to a drop in oil prices. However,

A: A small part of it will go to health. There are factories

it was stable thanks to the private market as it continued to

and development centers related to the other businesses

invest despite the fact that the public market contracted.

but it would be difficult to have local production for health. The typical example is magnetic resonance, as the annual

Q: How has rebranding as Siemens Healthineers boosted

Mexican market is probably for around 20-25 systems. This

Siemens’ image and operations? What benefits is it

is not mass production, these are high technology products

bringing to your operations and clients?

and manufacturing is concentrated in one or two places

A: The new brand is just the final stage of a bigger process

across the world. This is why healthcare will only receive

that began with the separation of the healthcare business

a small part of the US$200 million because most of it will

into an independently managed business. The second step

go to plants.

was the implementation of the new strategy. Then, a new structure, new business principles and corporate values and the introduction of the new brand came. The main benefit

Siemens Healthineers is the healthcare branch of the German

is that we have gained speed to react to client and market

electronics giant. It is mostly known for its medical devices,

needs. Siemens is huge and diversified. Total revenue

which cover a wide range of therapeutic areas, with a focus

for health is €15 billion compared to over €80 billion for

on diagnostics, imaging and IT

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VIEW FROM THE TOP

DISPARITY A CHALLENGE IN PUBLIC-PRIVATE COOPERATION ALEJANDRO ALFONSO CEO of ABC Medical Center

Q: How is ABC Medical Center cooperating with the

A: Our relationship is strong but there are certain rules that

public sector?

keep us from offering it more products and services. For

A: The healthcare situation in Mexico demands private

every MX$1 it pays us, we have to give MX$0.19 to the

hospitals work together with the government because it

government. Seguro Popular does not pay VAT but as a

is not economically viable for the government to meet

private hospital we are not exempt. Another issue is the

healthcare service demands by itself. The key is to find

difficulty of selling services to Seguro Popular. Hospitals

the right way to make this happen to avoid the perverse

have to undergo several time-consuming registration

incentives in the private and public sectors that pollute

processes so the patient stream is initially slow. Seguro

association. ABC Medical Center has been working with

Popular was created with the theory that “money will follow

public healthcare through Seguro Popular and by offering

the patient,” so everywhere he or she goes there will be a

occasional services to other government institutions.

budget to pay for the service. The actual situation is that

As a not-for-profit organization, we can afford to treat

the federal government gives each entity a budget targeted

patients below cost and this is important because helping

as money for Seguro Popular but a given entity may not

those who do not have enough resources is a part of

necessarily be equipped with the services specific patients

our founder’s legacy. The challenge is to determine the

need. Therefore, there is a large migration of patients to

price the government can pay for these services and

Mexico City, where large hospitals, specialized clinics and

how economically and clinically efficient we can be as a

good service can be found. When those patients arrive at

private hospital when providing this aid. If there are no

the hospitals in the city, the center’s administrator must find

clear rules about quality and affordability, we may find

a way of covering patient costs because the state to which

ourselves in a situation wherein we can no longer help

the patient belongs will not pay.

the population. The truth is that money does not follow the patient because I am concerned about the decision to create general hospitals

security systems for patient care in Mexico are sectored.

without a structured business plan. The word “general” by

With IMSS coverage, a patient can only go to IMSS facilities.

itself might be counterproductive because it suggests the

Mexico operates a vertical system, so there are many patients

hospital can treat any manner of illness and it does not

for whom there is no budget. We see teenagers with high-

highlight the public’s true needs. A general hospital is not

risk pregnancies camping outside hospitals, waiting for care

built based on a study of the population and popular diseases.

without a place to sleep, and most of these are helped by

For its construction, rent is paid to a private company, which

civil organizations.

fulfils its construction and installation contract, at which point the government takes operational control of that hospital. The

Q: What approach could help solve the health system’s

little money this general hospital receives is spent paying the

current situation?

private company and there is not enough left to treat patients,

A: The solution is not easy and is not short term. First, we

which indebts the government. Instead, to improve existing

have to discuss which healthcare model we want to follow

services there should be an inventory of the country’s hospital

with the participation of many social agents. Once the

capacity and an analysis of how they could be better used.

model is established, we can decide our course of action.

There are empty surgical theaters at certain times of the day in private hospitals that could be used by the lines of people in public hospitals.

ABC Medical Center is a private institution in Mexico City that offers treatment in the fields of oncology, neurology,

Q: What is the thrust of ABC Medical’s relationship with

transplants, OB-GYN, pediatrics, traumatology, preventive

Seguro Popular?

medicine and nutrition

339

VIEW FROM THE TOP

DIFFERENT ISSUES REQUIRE DIFFERENT APPROACHES JAVIER LUNA Senior Manager in Health Nutrition and Wellness at Nestlé México

340

Q: What are the main nutritional issues in Mexico and how

Q: What new technology are you pursuing in children’s

is Nestlé approaching these?

nutrition?

A: Our research has highlighted several issues in Mexico.

A: Infant nutrition is a constant topic for our research

We have conducted a series of studies we developed

budget and we are now focused on low-protein infant

(Kids Nutrition and Health Study and Feeding Infants and

formulas in response to excess protein intake around

Toddlers Study) and we have performed R&D with our

the world, which is known to cause illness, especially

partners at Nestlé Research Center in North Carolina,

in infants. Through our process called OPTIPRO, we are

and Nestlé México has worked with different national

trying to make the milk we use for our infant formula as

research institutes, such as the Public Health Institute

close as possible to breast milk, which will make it easier

(INSP). The first study relates to hydration among

to digest.

children. They consume a large quantity of sugary drinks but lack regular water intake. Second, in Mexico around

Q: How are Nestlé’s programs encouraging healthy eating

17 percent of children and teenagers skip breakfast every

habits in Mexico?

day, which is very serious in nutritional terms. Many of

A: Nestlé has reorganized its business vision to focus on

those who do have this meal eat sugary bread in addition

three areas: the person and the family, the community

to sweetened beverages, while the intake of grains is

and the planet. In the first category, the goal of our full

very low. Finally, a third trend is a shortage of fruit and

portfolio is to provide better nutrition and nutritional

vegetables in infant diets.

options for consumers. Toward that goal, we also have three philanthropic programs: United for Healthier Kids,

To battle these issues, we have established different

Healthy Kids and Start Healthy, Stay Healthy. These three

approaches. Nestlé has pledged to reduce ingredients

programs promote nutritional orientation, the prevention

such as sugar and salt in all its products globally.

of child obesity and healthy pregnancy and baby health.

Locally, we have different action plans. Among these

The second category includes: Cocoa Plan, Nescafé Plan

there is a program called Portion Guidance, which

and Dairy Commitment to ensure a stronger value chain

includes suggested portions in a product’s label.

and to help local agricultural entities become certified

Another campaign related to our water lines promotes

providers for Nestlé. Finally, for the planet, Nestlé has

water consumption and we have also been improving

made a water-usage pledge and implemented a waste-

our cereal brands (no artificial flavors, whole grains as

reduction initiative. In Mexico we even have one factory

a first ingredient and reduced sugar). Mexico Gerber

that operates with zero water.

has reformulated its infant cereals to eliminate added sugar. Gerber has also launched a new organic product

Q: How important is Mexico to Nestlé’s global operations?

of fruits and vegetables for babies and preschoolers that

How much of your manufacturing is done here?

is presented in pouches. Regarding all the diabetes issues

A: Mexico is an important location. Within Nestlé’s global

in the country, in 2017 we launched a new line of products

operations, in terms of sales, it is ranked seventh generally

under the Boost brand called Boost Glucose Control. This

and number three worldwide for infant nutrition. Nestlé

product specializes in nutrition for diabetics.

also has 17 factories in the country. In 2016, we opened our infant nutrition factory called Nantli with an investment of more than US$245 million. This factory will supply markets

Nestlé México is a leading nutrition, health and wellness company

in Mexico, Latin America and Asia. In 2013, Nestlé México

present in more than 197 markets with around 2,000 brands.

exported more than 86 tons of locally manufactured

Nestlé also executes local philanthropic and awareness campaigns

products to 29 countries and imported more than 29 tons

in Mexico to battle the main nutrition problems in the country

from 14 countries.

VIEW FROM THE TOP

ACTIVE AND EXPANDING FABIÁN BIFARETTI CEO of Sports World

Q: How important is it for Mexican companies to work

A: New gyms and studios are constantly appearing and

together, such as Sports World does with Grisi?

innovating with new forms of exercising. The competitive

A: One of the major advantages is the direct contribution

advantage we have is that we can easily adapt to new

to the national economy via the increasing quality of goods

trends and offer those new activities within our facilities

and services that can be attained through joint efforts.

at a very low or zero cost. We have a comprehensive offer

These alliances also foster competition and consumers

that we are constantly innovating and adapting to new

reap the benefits of a bigger and more balanced market.

trends in the market.

Q: Membership also comes with access to Dentalia. What

Q: How many new clubs did you opened in 2017 and how

is the strategy behind this?

you financed that expansion?

A: In line with our wellness strategy, we keep adding

A: By June 2017, we had opened four clubs and four more

different services and products related to enhancing

were under construction with the pre-sale of memberships

our customers’ health and wellbeing. Dentalia offers

ongoing, so we are in line with our expansion plans for

our customers two free-of-charge dental cleanings per

the future. Most of these openings have been and will be

year as well as significant discounts on all their services.

financed with debt.

Some of our additional health benefits are yearly blood tests, nutritional and 24-hour medical phone assistance,

Q: In 2016, Sports World mentioned wanting to expand

two ambulance services per year and special medical

outside of the capital. What growth and results has it

insurance discounts.

seen from this? A: We have 15 clubs outside of Mexico City and its

Q: To what extent has Sports World incorporated activities

metropolitan area. We have had a very good acceptance

for children?

and positive results in the states we are present in and

A: At Sports World we have an area of approximately

we plan to expand to other states. In 2017, three of our

400m named FitKidz that is designed exclusively for

eight new clubs were opened outside of Mexico City. In

children. They can join more than 30 different activities

the coming years, most clubs will be opened outside of

such as SafeSplash, aerial dance, indoor climbing, tae-kwon-

Mexico City but we will continue to look for opportunities

do and baby gym, among others. The goal is to start the

in the capital.

habit of exercising from a very early age and introduce children to a wellness lifestyle.

Q: What are your overall revenue expectations for 2017 and are there any plans to expand internationally?

Q: How can gyms inspire more people to be active and help

A: Our objective is to open eight clubs during 2017,

lower the chronic disease burden in Mexico?

achieving 19-21 percent growth in revenues and an

A: Gyms are able to link sedentary people with a more active

EBITDA margin over revenues of more than 17 percent. In

life, not only through strength and cardio equipment but with

terms of international expansion, we do not have specific

a robust wellness orientation that includes group classes,

plans yet but we are open to opportunities that might

meditation, yoga, Pilates, steam rooms, saunas, massage

come either through organic expansion or acquisitions.

services, nutrition experts, facilities for kids, swimming pools and a Feel Healthy Program (for people with T2D and hypertension), as well as many other special activities.

Sports World is a chain of high-end gyms in Mexico that aims to promote a well-rounded healthy life, going beyond

Q: As new gyms appear, how is Sports World prepared to

providing a space to exercise with classes, nutritional advice

rise above the competition?

and other health services

341

Paseo de la Reforma, Mexico City

DOING BUSINESS IN MEXICO

Since 2000, Mexico has proven to be a strong economy capable of overcoming challenges and appreciating valuable opportunities. However, the new administration in the US and the renegotiation of NAFTA are some of the modern scenarios the Mexican economy and industry must face. Mexico’s strategic location, large and diverse population and sustainable economic indicators should keep the country competitive. As the second-most important economy in Latin America, the country plays an important role in the development of the whole region. In this context, building infrastructure, the modernization of production systems, the reduction of bureaucratic processes for investors, improvements in the rule of law and the creation of new regulatory institutions to assist companies and workers and maintaining the competitiveness of strategic sectors have become some of the country’s top priorities to remain an attractive business opportunity.

This chapter will discuss how Mexico will address these outstanding issues. Also, lawyers, consultants and economy experts will explain how the implementation of the structural reforms, those approved by Congress and those waiting to be discussed, will be Mexico’s tools to overcome the current difficulties and to boost the country’s growth as one of the Top 15 economies in the world.

343

CHAPTER 14: DOING BUSINESS IN MEXICO 346

ANALYSIS: 17 Years of Challenges Lead to Stability

348

VIEW FROM THE TOP: Roberto Cabrera, KPMG

349

INSIGHT: Ignacio Aldonza, EY Mexico

350

VIEW FROM THE TOP: Mauricio Brizuela, Salles Sainz Grant Thornton

351

VIEW FROM THE TOP: Fernando Garrido, TMF Group

352

INSIGHT: Germán Hernández, Spencer Stuart's Mexico City Office

352

DIVERSITY REQUIRES CULTURAL SHIFT

353

VIEW FROM THE TOP: Juan Pablo Murguía, Murguía Consultores

355

VIEW FROM THE TOP: Juan Casanueva, INTERprotección

356

VIEW FROM THE TOP: Reynaldo Vizcarra-Méndez, Baker McKenzie

357

VIEW FROM THE TOP: Cristina Sánchez, Sánchez Devanny

358

INSIGHT: Tomás Natividad, Natividad Abogados

359

VIEW FROM THE TOP: César Maillard, Maillard, Cerbón, Canudas, Argumedo, Palma y Asociados

360

VIEW FROM THE TOP: Hugo Cuesta, Cuesta Campos Abogados

361

INSIGHT: Ángel Junquera, Junquera y Forcada

362

VIEW FROM THE TOP: Eduardo Molina, WeWork Mexico and Colombia

363

VIEW FROM THE TOP: Eduardo Rosenberg, Grupo RO

364

VIEW FROM THE TOP: Ricardo Barrera, The Cocktail

José M. García-Hoz, The Cocktail

365

VIEW FROM THE TOP: Gabriel Aparicio, Kelly Services

366

VIEW FROM THE TOP: José Luis Castro, Corporate Travel Services (CTS)

366

INSIGHT: Juan Rincón, Sabre Travel Network

367

INSIGHT: Beat Wille, BCD Travel México

367

VIEW FROM THE TOP: Gerardo Vera, CWT for Mexico and Central America

368

VIEW FROM THE TOP: Filiberto Mondragón, Pentafon

369

VIEW FROM THE TOP: Edmund Duckwitz, CAMEXA

369

BUILDING PLATFORMS BETWEEN HONG KONG AND MEXICO

345

ANALYSIS

17 YEARS OF CHALLENGES LEAD TO STABILITY In the last 17 years, Mexico has proven to be both a challenging and an attractive place for doing business. Solid economic growth and advantageous geographical features are incentives for investment, but the lack of a solid public policy represents obstacles for investors Since 2000, when Vicente Fox was elected president, Mexico

and aerospace industries have the greatest potential among

has experienced its greatest economic stability in decades,

Mexico’s economic sectors. In fact, different manufacturing

which has helped change the external perception of the

industries have created hubs in the country: the top medical

country. At the beginning of the century, while most countries

devices manufacturers have settled in Baja California, the

in Latin America were focusing on internal policies, Mexico

automotive industry in the Bajío and the aerospace industry

took a risk and opened up, following the economic approach

in Queretaro, Chihuahua and Baja California.

of leading economies. Breaking into the new century with a Political alternation has also provided security for investors.

ladder, placing it in the top 15 economies in the world,

Since 2000, Mexico has had three presidents from two

according to the World Bank GDP Ranking for 2016. This

political parties. Another attraction for business in Mexico is its

stability has allowed a propitious environment for economic

massive population. Between 1980 and 2015, the population

growth and investment.

almost doubled, from almost 67 million in 1980 to 120 million in 2015. In addition, thanks to health policies, life expectancy

GLASS HALF FULL

increased from 73 years in 2000 to 76 in 2016.

One of the main drivers of business opportunities in Mexico is its strategic location, since it is a neighbor of the world’s

GLASS HALF EMPTY

largest economy, is strategically located between Europe and

However, despite the country’s sustainable development, there

Asia and acts as a corridor for Central and South America

are social gaps that need to be supplemented by reforms that

and the Caribbean. In addition, the Pacific Ocean, the Gulf

provide the ideal conditions for doing business. “The reforms

of Mexico and the Caribbean Sea make Mexico the ideal

represent an enormous legislative change. The objectives

place to establish manufacturing facilities and improve

outlined during the [Peña Nieto’s] presidential campaign were

global distribution. With this geographic positioning, it is not

achieved, but for all the legislative changes, implementation

surprising that Mexico has 12 free trade agreements with 46

still has a long way to go,” says Ángel Junquera, Founder

countries, which give it the potential to attract business from

of law firm Junquera y Forcada, referring to the numerous

virtually anywhere in the world.

reforms enacted by the Peña Nieto government after his election in 2012.

Another advantage of the country is its competitive manufacturing prices. Fernando Garrido, Managing Director

One the main obstacles for investment is corruption. Mexico

of TMF Group, believes that telecom, IT, automotive, finance

ranks 28th among the 176 countries evaluated by the Corruption

Source: Banco de México

13,905.99

10,918.94

12,611.34

9,964.81

6,981.01

2001 2002 2003 2004 2005 2006 2007 2008 2009

*Data from IED

7,896.4*

2000

7,023.85

2015

2016

863.36

8,805.65

4,420.67

7,543.25

10,096.08

16,342.79

17,230.98

25,990.38

32,529.41

INVERSIÓN EXTRANJERA TOTAL (MILLONES DE DÓLARES) FOREIGN DIRECT INVESTMENT (FDI) (US$ MILLIONS)

717.09

346

different attitude abetted Mexico’s move up the economic

2010

2011

2012

2013

2014

GDPAND EVOLUTION GDP ANNUAL(%) INFLATION EVOLUTION (percent) 10 8

8.9 6.9

3.9 4.4

2 0 -2

1.3

5.5

5.1 3.0

0.9

6.05*

6.5

5.7

3.3 4.8

3.7 4.0

3.3

1.3

3.5

4.1

3.9

3.8

3.5

3.9

4.0 2.5

1.2

2.8

2.1

2.3

2.2*

2014

2015

2016

2017

-0.3

-4 -6 -8

——Yearly Inflation

——GDP evolution

-6.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2011

2012

2013

Source: World Bank and Banxico

Perception Index done by Transparency International. The

WTI BRENT MME year for schooling in Mexico is nine. “The Educational Reform

Fuente: Secretaria de economia National Anticorruption System (SNA) was established in

is fundamental for the future of the country. It is the main

2015, but there are no structural bodies functioning yet. “If

vehicle of transformation. Without it, we will not change

corruption is the condition that hurts Mexican society the

anything,” says Junquera. Even though some changes have

most, it is unacceptable that the SNA has not been completed

already been implemented, he adds, these have not reached

and the anticorruption prosecutor has not been designated,”

the more needed communities.

says Junquera. Also, Reynaldo Vizcarra-Méndez, National

347

Managing Partner of Baker McKenzie, believes it is necessary

GREAT EXPECTATIONS

to change the perception of the country to attract more

Despite these difficulties, expectations in Mexico are high. Over

foreign investment. “This will be achieved only through having

the past 17 years, the country has demonstrated its ability to

a strong SNA and ensuring that laws are enforced,” he adds.

address the challenges and economic opportunities that have emerged and the adoption of structural reforms demonstrates

Another area waiting for reforms is the labor sector. Despite

this provision. This is further illustrated by projects such as the

having a 120 million population, almost 30 million citizens

ZEEs and the multiple trade agreements that Mexico has with

work in informal businesses. This is almost 50 percent of

the major economies of the world, which in turn will shape

the total active population, according to INEGI, so there is

the country’s macro-economic future. According to PwC, by

a need for a labor reform to integrate more people into the

2050 emerging economies like Mexico, Turkey and Vietnam

formal system. “Public policy should focus on the creation

could overtake current top-ranking economies like the UK,

of employment. The reform [Labor Reform] should support

France and Italy. Based on the different elements analyzed

recruitment systems and include fiscal stimulus… The

by PwC, Mexico will occupy the 7th place, above economic

included fiscal stimulus should be strong and promote formal

powers like Japan, Germany and Italy.

employment but it should also gradually transform informality into formality,” says César Maillard, Manager Partner at EASE OF DOING BUSINESS RANKING IN THE AMERICAS

Maillard, Cerbón, Canudas, Argumedo, Palma y Asociados. The lack of formality limits the population’s access to services

Country

Global Ranking

Score

and therefore reduces the space for the population to grow

and become more competitive. According to the National

Canada

78.5

Survey on Financial Inclusion, only 40 percent of the Mexican

Mexico

Colombia

Peru

Chile

69.5

Costa Rica

68.5

Jamaica

67.5

This lack of formality and poor coverage of basic services

Panama

relates to a limited access to opportunities, in many cases

Santa Lucia

adult population has a bank account. People in the informal sector have limited access to public healthcare and incur outof-pocket expenditures. Besides, less than 8 percent of the population has access to private insurance, according to the Mexican Association of Insurance Institutes (AMIS).

because of the low level of education reached by most of the population. According to INEGI, the average number of

Source: Doing Business Report 2017, World Bank Group

VIEW FROM THE TOP

NEW OPPORTUNITIES IN A CHANGING MEXICO ROBERTO CABRERA Managing Partner at Industries and Markets of KPMG

Q: What does Mexico offer to international investors

competitive with the corruption levels that exist in Mexico.

interested in entering the country, given the US political

Second, increasing public security is a must. In many other

climate?

countries companies do not need to invest in security to

A: Even though the environment is challenging, it is bringing

protect their operations. Third, upgrade the local image.

us a historic opportunity to move out of the comfort zone

Mexico has a lot to brag about and our manual labor is

we have been settled in for years. Several factors led us to

very qualified, as we have seen in the aerospace industry.

this comfort zone. First, through NAFTA we took the risk of

Universities are also improving their development of talent

selling 80 percent of our exports to one country. Second,

so promoting the brand Hecho en Mexico is a great idea.

through the migration of 11 million Mexicans we assumed 348

the idea that it was not Mexico’s responsibility to provide

With this order of priorities, the main objective is to

them opportunities. That comfort zone has also made us

increase our macroeconomic levels by battling corruption

tolerate situations like bad administrations and corruption,

and improving security. We are going in the right direction

so the current scenario is full of opportunities.

but at the wrong speed. The anticorruption law is a very good norm but it took years to approve and we are still

Q: How is Mexico positioned compared with emerging

discussing it. The US situation will pressure us to speed

economies competing for the same markets?

up our actions.

A: Mexico is in a great position because it is a competitive economy. A KPMG study says that we are 12.5 percent

Q: On which countries and industries should the Mexican

cheaper and we have more effective corporate income

economy focus its efforts?

tax rates than other economies. Plus, with or without a

A: The first and simplest approach should be Latin America.

free trade agreement with the US and Canada, we are still

According to our KPMG survey Senior Management

neighbors of the most important economy and owners

Perspectives in Mexico 2017, top managers are considering

of a strategic logistical location. We have a very health

investments in countries that economically are well-

macroeconomy and even though debt has grown, it is

positioned, such as Colombia, Peru, Chile and Argentina.

better than that in other countries. We also have great

There are also good opportunities in Central America. A

human capital with a lot of potential to keep improving. In

second target should be Europe because of its economic

addition, Mexico’s demographic is a bonus and domestic

potential and size. We have not given Europe the importance

consumption is growing. That is why someone can come

it deserves and it could be a great destination for Mexican

and invest in Mexico, not necessarily thinking about selling

products. Finally, a third target could be Asia. Countries

to the US.

such as China are complicated to do business with; however, the current situation is making China look at us.

Q: What are the expectations for the Hecho en México program?

Q: What changes are required for Mexican industry to

A: There are certain priorities the government should

compete efficiently on cost and quality in international

address to make Mexico more competitive. First, continue

markets?

the fight against corruption because a country cannot be

A: Mexican companies have to realize that innovation has become a must in their activities. In the last two to three years, the market has experienced many changes and the

KPMG is a global consulting firm that offers audits and

only way to keep up is through innovation. If companies

advisory of financial and legal affairs. Its network of

do not innovate they will not survive. The biggest goal for

independent member firms helps clients mitigate risks and

Mexican companies must be investing in technology and

grasp opportunities

innovation to become economically sustainable.

INSIGHT

TECHNOLOGY TO BOOST THE FINANCIAL ECOSYSTEM IGNACIO ALDONZA Lead Partner for Financial Services at EY Mexico

The structural reforms implemented during Enrique Peña

had invested US$3.5 billion and will invest another US$1.5

Nieto’s administration have elevated optimism about Mexico,

billion, Citibanamex is committing US$1.5 billion to renovate

despite the economic and political uncertainty in some of the

its infrastructure and Banorte will invest US$1 billion, all aimed

world’s most influential countries, says Ignacio Aldonza, Lead

at strengthening their digital strategy. “Banks are committing

Partner for the Financial Services Office at EY Mexico. “There

a significant amount of resources to enter the digital world.”

are so many reasons for confidence as the structural reforms move forward. Although the expected level of growth and

To fully develop this emerging market, the government

investment varies according to sector, in the financial segment

must do its part to ensure a level playing field for the new

we see a clear bet in favor of Mexico.”

players going up against their established counterparts. “The government must play a role in the development of

That bet is heavily favoring digital technology and leading

the fintech ecosystem. It must help these new companies to

to the rise of a fintech ecosystem with the potential to reach

compete fairly with banks but also to provide them with a

segments of the population that until now have had little

legal framework that protects users,” Aldonza says.

or no access to banking services, including loans. Smaller companies and startups are spearheading the fintech push,

The nascent focus on technology is bound to provide the

supported by private capital funds. “Companies like Clip,

system with one element it currently lacks: dynamism. In

kubo.financiero, Konfío and Kuspit have received funding

addition, new players will boost competition and force those

valued at around MX$88 million. Investors look for two things:

already entrenched here to improve their services. Aldonza

a capable management team and an idea that is viable,”

says that promoting competition is one reason behind the

Aldonza says, adding: “We want Mexico to become a fintech

creation of BIVA, the second Mexican stock exchange. In his

development hub.”

view, the world is moving toward digitalization and the further

“

In the digital world, everyone has access to information and the customer is king”

use of technologies to reduce costs, a message the current stock exchange needs to hear. “Perhaps the purpose of BIVA is to encourage the Mexican Stock Exchange to incorporate technological tools and become more competitive,” he adds. While market players across industries remain jittery about the nationalistic rhetoric coming from the administration of US President Trump, Aldonza says investments already made in Mexico will remain and some sectors will be relatively

Technology is revolutionizing industries, including the financing

unaffected, regardless of how that rhetoric plays out. “The

segment, and creating significant cost reductions, accessibility

US business community will avoid any direct challenge to

and an undeniable focus on the client. “In the digital world,

their president but they will not pull out investment already

everyone has access to information and the customer is king.

committed to Mexico.” Besides, even if the US were to pull

What companies are doing to remain competitive is to lower

back, for instance in the automotive industry, others would be

their prices, transforming into businesses with low profit

more than happy to step in. “Mexico is not a fiscal paradise.

margins where volume plays a larger role,” says Aldonza.

This means that companies established in the country have not followed the logic of paying less taxes. Companies with

Recognizing the impact that digitalization and an expanding

operations in the country are here because the country offers

fintech market will inevitably have on the sector, the bigger

significant and real competitive advantages.” In the end,

banks are also putting their money where their ideas are. In

Aldonza says, US consumers will not be willing to finance

the early months of 2017, Aldonza says that BBVA Bancomer

their president’s patriotism.

349

VIEW FROM THE TOP

MAKING TRANSPARENCY THE NORM MAURICIO BRIZUELA CEO of Salles Sainz Grant Thornton

Q: What aggregate value does Grant Thornton bring to

However, there are industries that can be more profitable. For

the Mexican economy?

example, consumer products and manufacturing are near 28

A: Our differentiator is our technical capacity. We have

percent of our total revenue, services represent 15 percent,

good people and we want to continue enriching our

industrial products are at 13 percent, financial is 10 percent

quality system to provide better services. Also, we want to

and health companies are 3 percent.

expand and establish in the cities that could benefit from

350

our services. The third goal is to continue to be the support

Q: What type of services do most of these industries

our clients need to overcome the economic difficulties they

require?

are experiencing, especially regarding tax issues.

A: Our most common service is audit. Sixty percent of our income comes from the external auditing of financial

Q: What are the expectations for Mexican companies in the

statements, social security and local taxes, among others.

new economic environment?

We mainly work with foreign companies that have just

A: It is clear that new market rules are going to create lower

arrived in Mexico and need help complying with the fiscal

sale prices and bigger costs for Mexican companies due to the

and accounting regulations.

exchange rates and tax prices. However, the Mexican investor is determined to develop new plans to optimize costs. In fact, our clients are seeking advice on how to make their operations

INFORMAL SECTOR IN MEXICO GRANT THORNTON MAIN CLIENT DIVISION*

more efficient to achieve more competitive prices.

26% Consumer

Q: Which industrial sectors are requesting more support?

15% Service Areas 15% Industrial

Products

A: The tourism sector is growing and becoming stronger,

Products

given the number of Mexican tourist sites and attractions.

14% Financial Services & Banking

Therefore, there are many investors in the hotel industry looking to expand their infrastructure and service offering.

5% Real Estate 5% Technology

The energy sector has also advanced. Salles Sainz Grant Thornton has requests from American, Canadian and New

Media & Telecom

Zealand companies that want to establish infrastructure in Mexico. The last area would be construction. Q: What percentage of your efforts is focused in each industrial sector? A: Of our total clients, 26 percent are from the consumer products sector and 15 percent are from the services area. Industrial products occupy 15 percent, financial services and

11% Mazapil

3.6% Health 2% Sahuaripa16.4% Others

*Only main Grant Thornton client 9% Cananea 2% Morelos divisions are factored in Source: Salles Sainz Grant Thornton 7% Nacozari de Garcia 2% Eduardo Neri

5% Fresnillo

2% Aquila

4% Ocampo 2% Alamos Q: What strategies do you employ to help Mexican and 4% Caborca 1% Chinipas foreign companies avoid corruption? 2% Sierra Mojada 47% other A: We work with companies from the financial sector, 1

Source: CGM, Ministry of Economy With figures to March of 2015

banking hold 14 percent, real estate has 5 percent, technology,

such as banks, stock brokerage firms and SOFOMs, and

media and telecoms have 5 percent and health is at 3.6 percent.

all are obligated to provide the CNBV with a transparency report. There are certain rules regarding money laundering that also apply to companies in other industries. Besides

Salles Sainz Grant Thornton is a consulting firm that offers

compliance advisory, our money laundering-prevention

services including audits, outsourcing, taxes and advisory. It is

strategy is focused on ensuring that all companies have

focused on dynamic organizations. It operates in 130 countries

a compliance officer who guarantees that the company is

and has over 42,000 member firm personnel

complying with all that is demanded by law.

VIEW FROM THE TOP

TODAY THE US AND CANADA, TOMORROW ASIA FERNANDO GARRIDO Managing Director of TMF Group

Q: What are the most attractive sectors for foreign investment

to Mexico. Our clients come from all industries and we help

in Mexico?

ensure their operations are as transparent as possible and that

A: The energy sector is attractive all over the world, including

they are compliant with local regulations.

solar and wind, as well as traditional energies. There is a global boom in telecommunications and information technology and

Q: What is TMF Group’s strategy to attract more companies

Mexico is taking a proactive role in bolstering its participation

to its business?

in these areas. The country is also growing its automotive

A: We want the companies to get to know us from their

industry. Today, most of Mexico’s production is exported to

countries of origin. We can provide great value because we

the US and Canada but tomorrow we will easily export to Asia.

have knowledge about the countries they are arriving to.

We have major competitors in that area, such as China, India

Instead of worrying about processes they can focus on their

and Russia, but Mexico has a solid manufacturing industry,

core business and leave the rest to us.

especially in automotive. The aerospace industry has a lot of

investment in technology continues to grow. In Guadalajara,

FDI IN MEXICO DURING PEÑA NIETO´S ADMINISTRATION (US$ billion) 25

for example, about 70 percent of the world’s technology companies are present and there is great potential in states

18.52

The third area we have found attractive is technology. Direct

20.94

potential too and we have a significant and growing niche.

their largest operating margins in Mexico.

12.16

sector is interesting, as the biggest banks in the world enjoy

12.19

economic incentives are implemented. Finally, the financial

value of Japan, China and South Korea

12.69

like Oaxaca, Chiapas, Veracruz and Guerrero if fiscal and

North America Accumulated

2016

of large companies while also acquiring niche operations in certain countries, especially in Europe. In 2006, TMF Group

Source: MInistry of Economy

4.39 0.44

2017 (jan-mar)

2.46

2.54

2015

0 2014

acquire the Business Process Outsourcing (BPO) divisions

2012

services company. Subsequently, the company began to

2.00

A: TMF was born 29 years ago in Amsterdam as a financial

2.41

2013

in the country?

2.05

Q: How can companies benefit from TMF Group’s services

entered Mexico with a clear strategic line and today we have two big business divisions in the country: our financial branch,

Q: What are TMF Group’s short-term plans?

for trade and corporate services, and our Global Business

A: Our strategy is organic. We want to continue gaining market

Services (GBS).

share through the value of our services and by ensuring client satisfaction. That said, we are always open to inorganic

In terms of demand, our most frequent clients are large foreign

growth. TMF Group is always looking for strategic alliances

companies that want to open new businesses in new countries

with firms and companies that complement our services.

or win a market against their competitors. We are responsible for their corporate secretariat and for some legal processes, as well as matters related to compliance, accounting, regulation,

TMF Group is a global company focused on providing

human resources and payroll. This helps the company to

business solutions, financial and administrative services. It

reduce costs and time and gives it access to local experience.

was founded in the Netherlands 25 years ago and arrived in

TMF’s strategy focuses on the foreign investment that comes

Mexico in 2006

351

INSIGHT

THERE IS NO ONE-SIZE-FITS-ALL CEO GERMÁN HERNÁNDEZ Office Manager of Spencer Stuart's Mexico City Office

Leadership positions are the hardest for organizations to

see the writing on the wall and simply accept that it has

fill. But Germán Hernández, Office Manager of Spencer

to adapt to the faster pace digital has created. They need

Stuart's Mexico City office, says hiring the right CEO is an

to identify younger, digital-savvy leaders and bring their

absolutely crucial decision. “The wrong CEO can destroy

insight into their company’s forward-looking strategy.”

the value and reputation of an organization,” he says. Hernández says the new digital era is changing the way

352

Even though CEO succession has always been a

business is done, and some large organizations that used

challenge, Hernández says there is often a disconnect

to be important are failing to keep up with the new normal.

between the next generation of leaders and the needs

An example can be found in the telecommunications

of the organization. In many cases, younger leaders with

sector, where the radical changes are forcing companies

considerable digital abilities do not necessarily have

to question the abilities of their traditional executives.

the leadership aptitudes needed to climb to the higher corporate ranks. “The challenge is to close the leadership

Leadership positions have always been invaluable,

gap between the generations,” he adds. The solution is

but Hernández says the challenges posed by the new

to integrate both generations into the business model.

business environment requires company leaders to have a broader, multi-country and industry vision. This means

While he believes that some in the younger generations

understanding requirements from consumers of different

lack the needed leadership aptitudes, Hernández says

countries and the importance of automated processes

this issue can be reversed. “Mexico’s leadership needs to

among others.

DIVERSITY REQUIRES CULTURAL SHIFT

A 2016 study by the Peterson Institute for International Economics (PIIE) found that almost 60 percent of companies had no female board members and more than 95 percent did not have a female CEO. Germán Hernández, Office Manager of Spencer Stuart’s Mexico City office, believes that improvement can only happen when a cultural shift takes place that leads to more opportunities for women to obtain senior leadership positions. Several countries have resorted to quotas to create balance. Norway implemented a system in which state-owned companies must have at least a 40 percent representation of women on their boards. Denmark and Finland have also followed this path. According to the same PIIE study, France implemented a 20 percent quota for female board members in 2014, and a 40 percent representation will be mandatory by the end of 2017. Hernández says Latin American countries face this same issue, but he notes the problem is more of cultural here. While Colombia, Chile and Argentina are excellent examples of countries that have managed to start creating leadership roles for women, Hernández believes the greater Latin American region still has a great deal of work to do. Gender under-representation is not restricted to leadership roles. A 2016 McKinsey study showed women lagged behind men at every level of the corporate ladder, especially in management promotions. Still, not everything is lost, Spencer Stuart found that female representation on S&P 500 boards increased from 15 to 21 percent over a 10-year period, suggesting there has been improvement, albeit it slow.

VIEW FROM THE TOP

SURETY BONDS A STRONG GROWTH OPPORTUNITY JUAN PABLO MURGUÍA Director General of Murguía Consultores

Q: What challenges do insurance brokers face after the

Not all insurance companies are interested in the micro-

emergence of new markets in the Mexican economy?

insurance market because in this segment you need to have

A: There are several issues related to regulations and the

a large sales volume to see some profit. We would need to

lack of knowledge of how the market will work. For instance,

generate more incentives, maybe at a regulatory level, to

the authorities are asking for liability insurance with insured

convince more companies to participate in this business.

amounts that are stratospheric. We need to understand the

For instance, the automotive sector has strong growth

new risks that companies such as PEMEX or CFE face when

potential and there are already regulatory efforts to make

hiring subcontractors. Whenever there is a risk that is too

insurance mandatory. The problem with these regulatory

large for any insurance company in Mexico to take on, it

efforts is that, even though they are mandatory, there is no

is pulverized and falls directly into the reinsurance market

real system of consequences in place, so people can easily

where several companies around the world can act on it.

ignore the regulation.

Insurance companies are trying to accommodate new risks in policies from American or European companies that have

There are also growth opportunities on the macro level.

experience managing risk.

The Energy Reform created a new market for insurance companies and it is something we need to tap into. There

When it comes to renewable energies, we are facing the

are other infrastructure projects that could also contribute

same situation because it is a new market and regulations

to the sector’s growth, such as the Mexico City-Toluca

remain unclear. As brokers, we have developed a specialty

Interurban Train. The involved construction companies

for insuring particularities of this new market, such as solar

will need civil liability insurance for this infrastructure.

panels. We were responsible for insuring Mexico’s largest

The big infrastructure project on the horizon is the New

solar panel farm. After Hurricane Odile destroyed the farm,

Mexico City International Airport (NAICM). It will generate

the client was reimbursed for the entire insured amount.

growth opportunities but only for those companies that

Murguía has also participated in insuring hydroelectric power

can participate in the project.

plants, wind farms, biomass and thermosolar projects. Q: What are the challenges and risks of participating in Q: How deeply has insurance penetrated the market in

the reinsurance market?

Mexico?

A: The reinsurance market can challenge the stability of

A: Insurance penetration in the country accounts for 1.9

the Mexican insurance system. For instance, there is no

percent of Mexico’s GDP. It is a very small percentage,

insurance company in the country that has the necessary

especially when compared with countries having similar

funds to insure an oil platform so insurance companies look

characteristics. To the third quarter of 2016, the insurance

to the international reinsurance market to take on the risk.

sector grew 9.3 percent and the estimated growth of the

The reinsurance markets follow demand cycles. If you try

sector for all of 2016 is 11.1 percent. Estimates for 2017

to buy a reinsurance policy for a city after an earthquake,

are around 7 percent. When measured as part of the

the policy will be considerably more expensive. If you buy

participation of the country’s GDP, Mexico is in the very

the policy 20 years after, its price would have gone down

early stages, which means the country has a major growth

considerably. This situation replicates itself with every event.

opportunity. Insurance companies are always fighting for big corporations and we sometimes forget to target regular citizens. One way the sector can grow is through the micro-

Murguía Consultores is insurance broker with 15 years of

insurance market. In a country like Mexico, I estimate that an

experience,

adequate level of insurance penetration needs to be above

insurance and risk administration. Murguía has offices in Mexico’s

5 percent of the country’s GDP.

main cities and also has international alliances

specialized

advance

payment

guarantees,

353

VIEW FROM THE TOP

INSURING MEXICO’S MOST VALUABLE ASSETS JUAN CASANUEVA Chairman and CEO of INTERprotección

Q: How is INTERprotección convincing the Mexican market

very well-received and we already have more than 10 million

of the importance of insurance?

people insured with this product.

A: Insurance in Mexico has never been the most popular sector. INTERprotección has worked long and hard to

We believe that those who say Mexico lacks an insurance

change this perception by doing things differently. We focus

culture are wrong. Proof of this is the fact that we are

on technology, innovation and service. We have focused on

selling insurance to the base of the social pyramid. For

removing the fine print from our clients’ coverage, which

this segment, we have also launched a medical-expenses

means that our customers can use their coverage whenever

policy and a catastrophic-risk product, which covers natural

they need it.

hazards such as hurricanes and floods.

Q: What is the main added value INTERprotección offers

Q: How do natural phenomena like hurricanes affect

its clients?

insurance companies?

A: What we sell is service. Offering lower prices is easier

A: The losses generated by Hurricane Harvey in Texas and

and several companies can do that, but offering a good

Hurricane Irma in Florida have affected the entire insurance

service and paying on time when disaster strikes is not

market. All insurance and reinsurance companies are

something that everyone does. That is our added value.

linked on a global level; for this reason, whenever there are significant losses due to catastrophe, premiums rise

We are always looking for products and services from other

and affect the entire market. The losses generated in the

countries that are more advanced than we are, and we try to

US by these hurricanes will definitely have an impact in

bring those here and adapt them to the Mexican reality. We

the insurance costs we see across the entire world, Mexico

are Mexico’s largest broker and we compete internationally.

included. Damages in the Caribbean negatively impact

Most of the brokers in the country are subsidiaries, hence

the areas of Cancun and Riviera Maya, with hotel and boat

their decision-making process is slower. Our flexibility and

premiums increasing. That is why it is important to have

quick decision-making is a very important added value,

insurance before a catastrophic event happens.

combined with service and innovation. Q: What challenges does the current political and Q: How can innovation and technology play into a sector

economic situation entail for the insurance sector?

that appears static?

A: The US political administration represents a political

A: The insurance industry has not undergone the

challenge and the renegotiation of NAFTA will also result

modernization process that other industries have experienced,

in significant changes, particularly for export insurance.

so three years ago we decided that we wanted to change this. We started attending different courses, especially at

Whenever a client enters a new market, we perform an

Singularity University in San Francisco, where we amassed

analysis regarding the way our client operates and its

several ideas that were implemented later in Mexico. In

needs. We then offer the appropriate insurance. We have

addition, we created an innovation lab where we test new

the capacity to attend our clients in Mexico and in over

ideas for different types of insurance, such as cyber-risk

100 countries.

protection. INTERprotección is also analyzing the possibility of insuring against identity theft. We have done tests with various types of insurance that are not as complicated, such

INTERprotección is an insurance, reinsurance and surety bonds

as pet insurance, mainly for cats and dogs, which is a growing

broker with almost 40 years operating in the Mexican market

market in Mexico. We also have a life insurance product that

and abroad. It offers a wide range of insurance products for

costs only MX$1 per week. This particular product has been

both, individuals and corporations

355

VIEW FROM THE TOP

THINKING AHEAD OF THE CURVE REYNALDO VIZCARRA-MĂ&#x2030;NDEZ National Managing Partner of Baker McKenzie

Q: What is your perception of the development and

certain sectors, we have not taken on the responsibility of

implementation of the structural reforms by the present

being innovative and creating competitive processes. More

administration?

than the conditions imposed by a system or a government,

A: The approval of structural reforms has been one of

and instead of trying to close the door to international

the greatest achievements of the present administration,

participation, you need to step up and offer better services.

without them we would not have such a positive growth

356

outlook. Among those, the new anticorruption laws are one

Q: What must companies keep in mind when deliberating

of the most significant legislative changes. Despite being

their potential participation in the federal ZEEs program?

overshadowed by a number of factors, this will have an

A: For them, the most important thing is to understand the

important impact on the perception of the country, both

countryâ&#x20AC;&#x2122;s business culture. Doing business in Monterrey is not

nationally and internationally in a short and medium term.

the same as doing business in Tijuana or Juarez City. A ZEE in the southern part of the country where people and businesses

Q: What changes are needed for Mexico to continue being

are not accustomed to international connection, will require

competitive and attractive to foreign investors?

a period of understanding and communication, because

A: The government is doing what needs to be done.

people can be very protectionist. Certainly, the creation of

Although the countryâ&#x20AC;&#x2122;s economic growth is not as stellar

these zones will help to open the country to international

as we would like, we are still experiencing growth. At a

companies; the states in the south will be forced to receive

macroeconomic level, certain elements like inflation, that

the operations of a number of companies.

could be considered negative, are being contained by the actions enforced by Banxico. When it comes to managing

Q: Baker McKenzie created an innovation committee that

macroeconomic foundations of the country, authorities are

will incorporate tools like design thinking. What spurred the

doing a good job. Banxico is taking appropriate measures,

firm to apply design thinking on a global scale?

and the management of public finances is under control.

A: At Baker McKenzie, we like to think ahead of the curve. We try to be strategic partners for our clients, but we

We want to attract more foreign investment, but to do this

cannot be considered strategic partners if we only act as

we need to work on changing many perceptions. This will

reactive advisers. Therefore, our approach to our clients has

be achieved only through having a strong SNA and ensuring

been through industry knowledge. If, for example, we want

that laws are enforced.

to provide the best possible services to our clients in the pharmaceutical industry, we need to become experts in the

Q: How can investment in strategic industries such as

field from different approaches.

energy be reconciled with populist demands arising from nationalistic tendencies?

We have achieved a high level of expertise in every one of

A: We must be aware that in the world we are living, we

our practices through an innovation committee that helps us

are no longer only competing with our next-door neighbor,

to be on the front lines when it comes to providing what is

we are competing with foreign companies that are better

required in any particular industry. The automotive industry

than Mexican companies at what they do. I think that in

in Mexico, for example, is enjoying rapid development. So, our questions are: what does the automotive industry need to experience even more growth? What does the industry

Baker McKenzie is an international law firm that has been

need to stay ahead of the renegotiation of NAFTA? How

operating in Mexico for over 50 years in the main economic

do we anticipate the coming discussion of rules of origin?

sectors. The firm has offices in Mexico City, Monterrey,

We must innovate and prepare ourselves to answer these

Guadalajara, Juarez City and Tijuana

questions.

VIEW FROM THE TOP

WADING THROUGH THE LEGISLATIVE WATERS CRISTINA SÁNCHEZ Partner at Sánchez Devanny

Q: What challenges do foreign companies face when

There are several aspects of the treaty that could be better

establishing operations in Mexico?

for Mexico, which could improve commercial relations. The

A: There are several conditions that impact them. We have

important thing is for Mexico to maintain a strong position in

come across many investors who have experience with

front of other negotiators. Our country has the most number

investment in foreign countries. Working with them is easy

of free trade agreements and for several years Mexico has

because they already know the general rules, how the

taken important steps to establish diplomatic relationships

money is going to flow into the country, how to handle taxes,

with other countries, so now is the time to focus on those

how to move the money back to their country or to other

relationships as well.

investments and import and export rules. This country can be more bureaucratic than others, that is why it is important

Q: Does the current legislative framework offer the needed

to partner with firms such as Sánchez Devanny that have the

certainty for foreign companies to invest in Mexico?

experience to navigate and see things through.

A: Definitely yes. Investing in Mexico has become more bureaucratic than it used to be. Several of the rules that

Unfortunately, many investors believe all the bad publicity

apply are well intentioned and were drafted with the hope of

Mexico sometimes gets in foreign media. It is true that

providing benefits for Mexico and providing more certainty

Mexico has a sizable level of corruption that needs to be

for investors. However they have not had the desired effect.

tackled but this does not mean you cannot do business

In practice, Mexican legislation is contradictory. In spite of all

in Mexico or that you need to be involved in corruption to

the flaws the Mexican system might have, the legal-judicial

operate in Mexico. Doing business in Mexico effectively,

system works and there is certainty regarding the security of

without engaging in corruptive practices, is possible. The

investments. Mexico would not continue to have the amount

firm has been involved in several public biddings, where we

of foreign investment it has if this certainty did not exist.

have counseled companies and they have won the bidding processes fair and square. Mexico also has a highly skilled

Q: What measures should the government implement to

and specialized workforce. This sometimes comes as a shock

attract more investment?

for investors who believe that Mexico only has untrained

A: The current international scenario has put Mexico in an

blue-collar workers.

excellent position to make legislative changes that can boost companies’ productivity. For instance, in terms of

I believe there are several misconceptions of what Mexico

taxes, the current fiscal scheme has not made the country

is and this is the most important challenge we face:

more competitive so there is an opportunity there. Another

convincing companies and investors that Mexico can offer

example relates to the strategies states use to attract

certainty despite all the unfortunate situations the country

investment, which most of the time take a short-term

sometimes faces.

view. A long-term plan would be beneficial. For instance, Guanajuato was promoted heavily as an automotive hub

Q: What has been the extent of legislative change since the

but now it is facing a shortage of specialized labor for the

present administration’s structural reforms were approved?

automotive industry. Investors have no clear plan on how

A: We have had significant changes in Mexico but I would

to tackle that issue.

not say they have been as disruptive as NAFTA was. I believe that the intentions of the reforms were to increase the investment in the country but they have not worked

Sánchez Devanny is a law firm specialized in helping companies

out that way. The country is ready for a change, so in this

enter Mexico. The firm focuses on a wide array of areas that

regard the attempts of the US political administration to

include economic competition, foreign trade, corporate

renegotiate NAFTA might not be as bad as they seem.

government, intellectual property and dispute settlement

357

INSIGHT

DISRUPTING THE MEXICAN LABOR SYSTEM TOMÁS NATIVIDAD Director of Natividad Abogados

Thanks to the legislative, economic, political and social

according to Natividad another key component will

changes undertaken by Mexico 16 years ago, the country

revolutionize the system: the minimum wage. In 2014,

entered a new era. However, labor law was one of the subject

Miguel Ángel Mancera, Mexico City’s mayor, presented

areas that remained long overdue for a much-needed change.

a proposition to increase the minimum wage from $67.3

The Labor Reform, approved unanimously by 17 states in

to $171.3 pesos by 2018. The proposal was received with

February 2017, will disrupt the entire Mexican labor market,

mixed reviews from the government, business leaders

says Tomás Natividad, Director of Natividad Abogados.

and scholars and even fueled a response from Banxico’s Governor Agustín Carstens.

Among the most important changes are modifications 358

to the union system in the country, rules for collective

Mancera’s proposition was not fruitful, but it unleashed a

employment contracts and the nature of Conciliation

public discussion on the value of Mexican wages and led to

and Arbitration Boards. “Mexico has enjoyed a solid legal

a series of coordinated actions between the government

framework for workers that has guaranteed industrial and

and the private sector to increase wages. According to

labor peace for over 86 years. The new reform aims to

Natividad, the National Commission on Minimum Wages

further this peaceful condition while creating a deep change

had started a wages unification process in 2012, but

in the Mexican labor system.”

not much could be done without authorities untangling minimum wages from federal and local legislations. “We

In Mexico, the right to form unions and participate in strikes

could not move minimum wages as Mancera wanted.

goes back to the first years after the Revolution, but its

There were 680 legislations that were calculated using

insertion into the political system has given workers an

the minimum wage, ranging from fines, administrative

enviable position that permits them to sometimes even hold

sanctions and social security contributions up to financing

companies captive. “Theoretically, workers must choose

for political parties.”

unions, not companies. However, in Mexico this does not happen, because businesses are forced to choose a union

To resolve the issue, the Unit of Measurement and Update

even before its operations start.”

(UMA) was created. The UMA is intended to provide a reference value for legislations that used to depend on the

Natividad says the changes that will come will hurt neither

minimum wage. “It was not until the UMA was created that

workers nor companies, but will diminish the power of

the Commission was able to work on strengthening the

unions. “A union should be an association of workers

value of wages,” says Natividad. “To recover the value, we

constituted for the defense and improvement of their

have created an Independent Sum for Recuperation (MIR)

interests. It should increase the bargaining power of workers

that is added to the value of the wages in addition to the

to match that of its employers.” Unions and collective hiring

projected inflation rate. We plan to increase the number of

were intended to protect workers and obtain benefits

MIRs to the minimum wage in a manner that is consistent

exceeding those contemplated by the law, but Natividad

with the performance of the Mexican economy. We expect

says the country’s new reality calls for a change in the

minimum wages to surpass Mancera’s expectations, but

role they play. “Today, big companies enter the country

not by 2018.”

offering contracts with labor-market benefits; other types of benefits are contingent upon results and merits. That is

Big changes are sometimes hard to see, particularly when

the modern labor market.”

it comes to revamping the country’s basic scaffolding. However, once all the changes are applied, ordinary

While the change regarding unions has been among the

citizens will witness improvements. “It is a matter of time,

most overdue tasks for the Mexican legislative system,

but rules and things will change,” says Natividad.

VIEW FROM THE TOP

FACING MEXICO’S LABOR CHALLENGES CÉSAR MAILLARD Manager Partner at Maillard, Cerbón, Canudas, Argumedo, Palma y Asociados

Q: How do you see Mexico’s Labor Reform shaping up

a long time to apply the results and recommendations.

and what factors should be considered in its formation?

In Mexico, 40 percent of employment is formal and 60

A: Public policy should focus on the creation of

percent is informal. A large portion of the population

employment. The reform should support recruitment

does not pay taxes, something that does not happen in

systems and include fiscal stimulus. The systems should

developed countries. We are also working with the STPS

also facilitate a possible breakdown between employee

on boosting competitiveness through a project that should

and employer. The included fiscal stimulus should be

be ready in 2017.

strong and promote formal employment but it should also gradually transform informality into formality. Also,

Q: Mexico has a strong union tradition. How must labor

meritocracy should be implemented and we must change

unions adapt to the new social and economic conditions

from utility distribution to performance bonuses. The

in a changing country?

government should incorporate these types of public

A: The upcoming Labor Reform will incorporate a series

policies in the reform to create more employment and

of requirements that will be almost impossible to apply.

provide legal certainty. Mexico is the favored Latin

It will be very hard to register collective agreements,

American destination for foreign investment and we

soconfeder unions will have to be accredited and keep

must emulate more developed countries. Germany and

all their documentation in order. Every employee should

the Netherlands, for instance, employ more outsourcing.

be aware of unions but many do not know their rights

Employees are hired by specialized recruiters so

and there are not enough talented union leaders who can

companies can focus more on their core business.

correctly implement the collective contracts using the

Developed countries are also more focused on the

right processes. The new reform has the right spirit but

creation of software, technology and services, while

the interesting part is how it will be applied and how the

emerging countries, where labor is cheaper, concentrate

private and public sectors can participate.

on manufacturing. However, providing legal certainty to local and foreign investors will create more employment.

Q: Trade unions have always been highly politicized in Mexico. How can the law eliminate the relationship

Q: What are the challenges that Mexican companies face

between unions and political parties?

under the current labor law?

A: The law has already eliminated this but several unions

A: The law does not say that we require collective labor

have always belonged to a party, like the Confederation of

contracts, but in Mexico a union is allowed to call a strike

Mexican Workers (CTM), the Revolutionary Confederation

to get them. We hope the Labor Reform addresses this and

of Labor and Farmers (CROC) and the Mexican Regional

changes it. Ninety-eight percent of companies in Mexico

Labor Confederation (CROM), which belong to PRI. The

are SMEs, so if a small company loses a claim against an

rest, called independent, do not belong to a political party

employee it automatically loses its business. The Federal

but we see social movements that are associated with

Labor Law under which we are working is a very high-risk

unions to maintain their activities. The big unions have

legislation.

always been related with the government. It is inevitable and in fact, we have many leaders who belong to unions.

Q: What steps is the country taking to normalize its informal economy? A: The STPS hosts various activities with the private

Maillard, Cerbón, Canudas, Argumedo, Palma y Asociados is a

sector, unions and the International Labor Organization

Mexican law firm focused on labor law and offering services to

to address this. There have been many studies on how to

Mexican and transnational companies since 1983. It specializes

reduce informality but under current conditions it will take

in preventing labor conflicts

359

VIEW FROM THE TOP

APPLYING INTERNATIONAL STANDARDS TO LOCAL WAYS HUGO CUESTA Partner at Cuesta Campos Abogados

Q: In which legal areas do foreign companies face the most

government could take is to introduce a number of other

issues when establishing operations in Mexico?

deductions that are badly needed, such as employment

A: A common pitfall that foreign companies encounter

benefits and medical expenses.

is antitrust. In Mexico, business arrangements evolve at a faster pace than legal requirements. Frequently, clients

Q: How does Cuesta Campos contribute to anticorruption

approach us for advice on antitrust matters after they have

efforts in the country?

reached a preliminary agreement and that is a problem.

A: We are one of the strongest advocates behind a number of international standards that could be applied to companies

360

Q: How is Mexican law evolving after the strategic reforms

to reduce corruption alongside Mexican anticorruption laws.

introduced by Peña Nieto’s administration?

We have worked on important initiatives, such as the 3de3

A: Based on the information we have received, we have

law, which demands that any candidate to any public position

concluded that the impact and benefits from a number of

comply with the transparency provisions of this law. We also

these reforms are being felt right now. As of today, US$70

have seen a level of improvement regarding corruption,

billion have been committed in investments by foreign

particularly in certain states. We believe that the appointment

entities in the energy sector. That is one of the reasons the

of the Anti-Corruption Prosecutor is urgently needed.

government needed to liberalize oil prices to adjust them to international markets. Right now, one of the main risks for

Q: What are the main challenges and growth opportunities

the Mexican economy is the financial deficit, which is the

that Cuesta Campos expects during 2017?

result of the debt acquired by federal and local governments.

A: The main challenges we anticipate will come from the

Having a tighter fiscal policy is extremely important. Other

positioning of the US political administration and the

significant reforms that have been approved and will be

possible reduction of foreign investment, particularly from

felt shortly are the Telecommunications Reform and, most

American companies in Mexico. Another challenge we

importantly, the Education Reform. The latter will have the

foresee is the exchange rate and market volatility, as well

most significant impact on Mexico in the coming years.

as the uncertainty surrounding global economies.

Q: What modifications to the current fiscal scheme could

However, there are also significant growth opportunities,

boost foreign investment in Mexico?

particularly for our banking and finance area. We expect

A: Considering the US political administration’s

a significant number of existing credits to be restructured

intention to change the country’s fiscal scheme, Mexican

as well as new loans. This situation will require some heavy

authorities will be forced to enact changes in response.

lifting and the participation of experienced law firms to

This fiscal adjustment should include two things. One is to

successfully renegotiate these types of agreements.

significantly expand the base of taxpayers in Mexico; the other is to grant specific incentives to the most important

I would strongly encourage businesspeople to concentrate

taxpayers in the country, so those companies do not lose

on the facts and not to be distracted by what they read

competitive advantages as a result of a very burdensome

in the media regarding the supposedly terrible situation

and heavy fiscal apparatus. An additional measure the

of the country. There are various strong indicators that the Mexican economy is healthy, much less dependent on American investment and oil prices than in the past. We

Cuesta Campos Abogados provides legal services to multinational

need to stop speculating and understand that Mexico is

corporations. It is a member of Meritas Law Firms Worldwide and

in it for the long haul and that the relationship with the

it is recommended by several specialized publications, including

US has always had ups and downs. We believe that, in

Chambers & Partners, Legal 500 and Latin Lawyer

the end, reason will prevail.

INSIGHT

IMPLEMENTATION TO FOSTER CHANGE ÁNGEL JUNQUERA Founding Partner of Junquera y Forcada

The reforms approved by the Mexican Congress during

of the SNA and also the new Attorney’s General Office was

the first years of President Peña Nieto’s administration

perfect; however, problems emerged from the moment of

represent a before and an after in the country’s history.

implementation.”

The challenge for the next occupant of Los Pinos will be implementing these reforms in a way that delivers the

While the Justice Reform is among the most pressing

expected results, says Ángel Junquera, Founder of law firm

issues, Junquera says the most neglected is the Educational

Junquera y Forcada. “The reforms represent an enormous

Reform. “The Educational Reform is fundamental for the

legislative change. The objectives outlined during the

future of the country. It is the main vehicle of transformation.

campaign were achieved, but for all the legislative changes,

Without it, we will not change anything,” he says. It is true

implementation still has a long way to go.”

that several advances have been made, but Junquera believes that the reform has yet to reach small communities.

While some reforms are progressing and generating positive

“We have to make sure that the reform is implemented

results, such as the Energy Reform, there are others that

in the most unattended states and municipalities of the

are equally important but whose implementation has been

country.” He believes the proper implementation of the

delayed. This is the case of the Criminal Justice Reform.

Educational Reform will create new opportunities. “In

In 2008, the Mexican Congress approved a constitutional

Mexico, we tend to disdain technical careers, but those are

reform aimed at changing the face of justice in the country. However, according to Junquera, the accusatory criminal system shows deficiencies nine years after its approval. “There was no investment in training, hence the country has not been able to enforce an adequate implementation of the reform.” The application of a comprehensive Justice Reform is an issue that addresses several subjects and directly affects investment in the country in addition to the impact on legal certainty. “For those who have done business in Mexico and who have experienced the judicial process, the perception is that local judicial bodies tend to overlook the law. However, once the conflict escalates to the federal level, there is greater professionalism and respect for the rule of law,” says

“

among the country’s most in-demand fields.”

The reforms represent an enormous legislative change. The objectives outlined during the campaign were achieved, but for all the legislative changes, implementation still has a long way to go”

Junquera. “We have to make a clearer effort to strengthen, professionalize, revise and sanction local judicial bodies.”

Ensuring the implementation of Mexico’s rule of law and the reforms has always been one of Mexico’s opportunity

Junquera believes that the Mexican Congress has overlooked

areas. However, Junquera says that these are just symptoms

two pillars of the new legal system the country is working

of a larger disease: the lack of political cultural in Mexican

on: the appointment of an anticorruption prosecutor and

society. “Citizens must demand clear governmental

the creation of a new, independent Attorney General’s

accountability, but we do not do it. I would dare say that

Office. “If corruption is the condition that hurts Mexican

less than 1 percent of the country’s population knows the

Society the most, it is unacceptable that the SNA has not

name of their representatives at both the local and federal

been completed and the anticorruption prosecutor has not

levels. Hence, only a small percentage of the population

been designated,” says Junquera. “On paper, the creation

complains to their representatives.”

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VIEW FROM THE TOP

FOSTERING THE CREATION OF COMMUNITIES EDUARDO MOLINA General Manager of WeWork Mexico and Colombia

Q: After one year operating in Mexico, how has the market

global members and to our infrastructure, both digital and

received WeWork’s offering?

physical. This means that if one of our members in Mexico

A: Our first location had a capacity for 1,500 people.

has to travel to Shanghai or Berlin or London, they can go

One year later, we have opened five locations, we have

to the WeWork space in that city and the local community

approximately 8,500 members and we expect to reach

will receive them. We intend to add multiple locations each

10,000 members before the end of 2017. The company’s

month around the world, meaning that our 150,000-strong

growth in Mexico is among the fastest WeWork has

community will continue growing. What differentiates us

experienced. This has a lot to do with the fact that we

is our focus on community and our global infrastructure.

have learned since launching operations seven years ago 362

how to grow more quickly. Mexico City has been incredibly

Q: What other trends do you perceive in the labor market?

receptive and has easily accepted the experience WeWork

A: We have discovered a change in people’s mindset in

brings to the market.

the way they want to work. Not necessarily in the physical spaces but that people want to be a part of something

Q: How does the labor ecosystem in Mexico City compare

bigger than themselves. They want to be in an environment

to that in other cities of the country?

where they can share and get to know other people who

A: We see Mexico City as a global business center and a

contribute to their work. One of the most important

bridge to the rest of Latin America, which is why multinational

transformations we have seen is that people do not want

companies want to have a presence here. Our approach has

to divide their life in two: the working part and the actually

always been to open in world capitals and once stationed

part of living life. The line between work and life is becoming

there, to connect to other cities in those countries. On several

blurred and people want to do something that thrills them

occasions, our members have told us where they need us to

when they are working and that provides them with a road

be. That was the case of the members in our Miami offices

to self-realization. This shift in mentality, of wanting to be

who asked us to open locations in Mexico City. Now that we

something bigger than your work, is part of the change and

have operations here we are seeing the same phenomenon

it is something that we are perceiving everywhere. The more

happening, and that is why we continue opening so many

you feel you are doing something important, something

locations in Latin America.

that adds value to the community, you feel more fulfilled as a person. This transformation and trend is not precisely

Q: What added value does WeWork offer to companies

related to a physical space. That’s why WeWork’s mission

and professionals using its spaces?

is helping people create a life, not a living.

A: WeWork’s priority is the community we are building, which means that the entire infrastructure we are developing

Q: How do you convince large traditional corporations of

is designed to foster the creation of this community. The

the value WeWork can offer to their operations?

idea is for our members to find in a single space an entire

A: When WeWork started, we were mostly associated with

team focused on understanding the needs of their business.

startups and early-stage technology companies. Now, we

Our technology supplements this understanding. It allows

are attracting every kind of business. At the end of the day,

us to connect our 8,500 members in Mexico to our 150,000

big companies or corporations are made up of people and these people want to be a part of something bigger than themselves. Hence, companies understand that their future

WeWork is a global co-working platform for all types of

depends on the talent they can recruit. Having a set-up

enterprises, including startups, freelancers and SMEs as well

in spaces like WeWork allows them to recruit and retain

as multinational companies. Members of WeWork can use their

better talent, since it is a space where people want to be

membership anywhere in the world

and where they feel more comfortable.

VIEW FROM THE TOP

CLEAR RULES FOR RESPONSIBLE SOURCING EDUARDO ROSENBERG Director General of Grupo RO

Q: Grupo RO is a consortium that integrates several

growth strategy, we tried to migrate our model. However,

companies. How does it work?

we felt it would be better to venture into the South American

A: We started as a law firm focused on providing legal

market with acquisitions of companies that are already in

assessment on labor litigation across the country, which

compliance with local laws and then adapt our services.

spurred the development of a responsible-sourcing vertical. Considering the complexity of the legal aspects on collective

Q: What are the challenges of implementing responsible-

labor relations in Mexico, we also provide companies proper

sourcing practices in the country?

assessment to negotiate with unions and handle contract

A: Sourcing depends heavily on your perspective. If you

terminations. If needed, we can handle the labor-related part

approach the subject from the point of view of compliance,

of their operations. Today, one of the consortium’s largest

the criteria are increasingly complex. We work hand in

companies is Human Access.

hand with triple A-rated companies. However, taking into consideration Mexico’s reality, growth opportunities

Our emphasis on providing responsible-sourcing practices and

are not with triple-A companies but with medium-sized

services also led the group to create Money Access, a SOFOM

businesses that tend to be neglected. This, combined with

that provides services to all Human Access employees. We

stricter regulations from the SHCP, sometimes forces them

also have Vínculo Systems, which provides technology

to engage in hiring practices that fall within a gray legal

services to all the consortiums’ companies and clients.

area. We offer these clients services that in the long run will help them become more competitive. Practices and

Not all our growth, however, has been organic. Real estate is

requirements from SHCP should become more flexible to

a good example. A few years ago, some of our clients in the

help companies.

construction sector faced liquidity constraints. Rather than money, they paid us in kind, with houses and buildings. As

We still need the new labor regulations to determine how

a result, we created a development company to sell those

sourcing practices will work. There is still a significant gray

assets. In the past three years, Grupo RO started acquiring

area in which sourcing companies operate. In fact, several

several properties in and around Mexico City, where we see

sourcing companies that are constantly branded as not

a lot of potential. In addition to companies, Grupo RO has a

responsible are in fact operating in this gray area that is

foundation that focuses on helping to develop communities

not illegal. According to the reforms introduced in the

in the south of the country.

last few years, the labor law should be front and center. However, in practice this does not happen and we are

Q: What is Grupo RO’s largest area of interest?

seeing Social Security and SAT taking on responsibilities

A: We need to return our focus to basic areas such as

that do not correspond to their area. Sourcing companies

Corpusiure, our law firm. Grupo RO is expanding operations

will not disappear because they help companies make their

toward South America and the US so we are in the process of

operations more efficient. The focus of all these changes

understanding how to adapt our services to other countries.

should be to make business operations easier. However, the

It is easier to export a product than it is to export a service,

authorities are making the rules more complicated, just to

particularly legal services; therefore, we are consolidating

improve tax collection.

Corpusiure in the Central and South America regions through strategic alliances with law firms in different countries. Grupo RO is a consortium that has been operating for over 30

Sourcing is also a vertical that is bound to experience

years. The consortium has several verticals that include a law

growth. We are studying the possibility of purchasing human

firm, a sourcing company, technology and digital marketing

resources companies in South America. As part of that

and the infrastructure sector

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VIEW FROM THE TOP

TAKING MEXICO’S MARKET TO A DIGITAL LEVEL Ricardo Barrera CEO of The Cocktail

José M. García-Hoz COO of The Cocktail

Q: What was behind The Cocktail’s decision to open an

carry out a project, we must get involved in logistics, talent,

office in Mexico City?

technology, distribution and operations.

A: We decided to come to Latin America because we

364

believed there was a lot we could do in this growing market.

Q: Which industries could most benefit from digitalization?

The company was founded in Spain 14 years ago and in

A: I think the Mexican spectrum is going to change given

2012 we opened the office in Mexico to identify trends in

the current market environment. Compared to Europe,

the digital market and to the needs of our customers. In

Mexico has low financial inclusion and lacks an insurance

Mexico, we work in five sectors: banking, insurance, retail,

culture. In this case, digitalization could help increase the

travel and media, where we mainly offer e-commerce and

customer base, reduce commercial costs and raise value

transactional banking services. We also want to reach

per client. The travel and retail sectors must accelerate

pharma, which we believe is a very interesting sector.

their digital growth. First, due to the appearance of new players like Amazon that are changing consumer patterns

Q: How does Mexico compare with other countries in the

and improving the industry, and second, because local users

region regarding e-commerce?

are becoming more used to conducting transactions and

A: Mexico is an important market but the penetration

shopping via the internet.

of e-commerce and mobile transactions over total retail operations is very low. Other countries like Brazil, Argentina

Q: You have worked with top brands in Spain. How do you

and Colombia are more advanced. The challenge in Mexico

reach your clients?

is that there is a large number of family businesses in which

A: In Spain, we have worked with almost every company

the decision-making is more centralized. Because there

in the IBEX 35. We do not have an ad hoc commercial

are no middlemen who own the budget, every decision

team, so we live on the success of other projects and

on a project can only be made through someone with the

brand recognition. In Mexico, at first, it was hard to get

power to decide.

the big companies because when we arrived here there was already a group of consultancies with long experience.

Q: How do your services benefit companies?

Also, things here work differently than in Spain, but for us

A: We create digital transformation projects. When we

it is a great opportunity to have this learning experience.

develop a project, we activate different handles. For example,

In the end, what makes The Cocktail is the great talent our

we evaluate what type of structure the company has and if

team has in different areas like design, strategy, research

it can support a digital strategy. From the internal structure,

and technology and how this talent adapts to each project.

we consider capacity, skills and personnel, while from the

We are a young team with different methods and we offer

external structure we evaluate the type of processes and

a growing opportunity for our clients and our people.

suppliers. Finally, we offer our customers information through

Therefore, once a client works with us, they will continue

our market research agency focused on the digital market,

bringing us new challenges.

so we can offer structural changes a company can introduce based on the knowledge we have of the consumer and their

Q: What are your growth expectations for the next year?

patterns of use of products, services and content. When we

A: Our objective in Mexico is to reach the size we have in Spain, where we have more than 250 consultants and are growing at a good pace. In Latin America, we have about

The Cocktail i s a consultancy focused on developing digital

30 people and growth is also moving quickly. Considering

strategies and operations plans, offering support in the

industries, we want to get stronger in retail and work much

development of products, strategies, technology and data

more in insurance and banking, which are our strongest

management. It operates in Spain, Mexico and Colombia

sectors.

VIEW FROM THE TOP

FINDING MEXICOâ&#x20AC;&#x2122;S FUTURE TALENT GABRIEL APARICIO Country Manager of Kelly Services

Q: What role does Kelly Services play in the transformation

Q: How will countries deal with the work displacement that

of the Mexican labor market?

I4.0 will generate among low-skilled workers?

A: Industry 4.0 (I4.0) and the digital revolution demand the

A: The change we are bound to experience will demand

market provide flexibility and personalization. These two

different skills from people. The WEF states that in the

needs are associated with productivity, competitiveness,

worldâ&#x20AC;&#x2122;s 15 most developed countries, more than 7 million

cost and quality products and services. Kelly Services inserts

jobs will disappear in the next five years due to automation

itself perfectly into this dynamic. We can help companies by

and digitalization. In the next 20 years, at a global level a

allowing them flexibility and personalization when it comes

total of 2 billion jobs will disappear due to this fourth

to the talent they need.

revolution. Alongside the demand for new skills and abilities, new professions will appear. The development of scientific

Q: What specific needs do companies in Mexico have

knowledge and technology innovation will demand that

regarding human resources?

countries focus their efforts on generating talent with

A: The most important thing is talent generation. The reforms

innovation skills, scientists and engineers. For this reason, it

the government made are important investments and job

is vital that countries, including Mexico, understand what the

generators and as a country we must do what we can to supply

future will bring and how they can develop their talent and

the needed talent. Around 50 percent of people employed

human capital.

are in a position that does not match their profile. Solving this problem is a joint responsibility between companies like Kelly

According to a study by McKinseyâ&#x20AC;&#x2122;s Global Institute, up to

Services and public institutions, that interprets the industry

25 million jobs in Mexico will disappear as a result of the

needs and tries to create synergies between universities and

fourth industrial revolution. These jobs will mainly be those

the government.

associated with retail trade, manufacturing, agricultural and construction activities. That is why we have to focus

Q: What changes does the digital revolution and I4.0

on generating knowledge. The countries that will make a

entail for the Mexican labor force?

difference are those that not only acquire knowledge but

A: It is undeniable that the economic engines of any

develop knowledge.

country are technology innovation and the generation of scientific knowledge. These two engines depend heavily on the quality of human capital. The fourth industrial revolution we are living will completely change our view

25 million jobs in Mexico will disappear as a result of I4.0

of what work, talent and companies look like. Taking into consideration these three variables, it is unavoidable

While it is true that Industry 4.0 will generate work

that business models will change and different business

displacement. Mexico is in a different situation. It has a

models will require different professions.

young workforce and in this regard, education becomes a centerpiece. Universities are in charge of cultivating

What will prevail in the future will be networks, made up

knowledge and organizations are in charge of generating a

of people but empowered by organizations. This will lead

consciousness of continuous learning and training.

to hyperconnected organizations. This hyperconnection will be related to the management of collective talent, where trust, collaboration and transparency will become

Kelly Services is a human resources company focused on

the most important values in organizations. The most

talent management. It is present in 37 countries with over 70

important productive future element in this digital

years in the market and 25 in Mexico. The services it offers

revolution will be the people.

include recruiting and payroll outsourcing

365

VIEW FROM THE TOP

TECHNOLOGY FOR BENEFITS, SAVINGS AND CUSTOM-MADE SOLUTIONS JOSÉ LUIS CASTRO CEO of Corporate Travel Services (CTS)

Q: CTS is now part of Travel Leaders Group. What

resources, alliances and talent. This gives us leverage when

advantages does this represent for the company and its

negotiating with other companies.

clients? A: We have been an independent company for 21 years.

Q: How are millennials changing the business tourism

That has allowed us to develop our operations with our

industry?

own resources and talent. Travel Leaders Group has an

A: Millennials do a significant amount of research before

important regional and global presence, which makes

traveling. They demand information and mobile devices

us stronger because we are now part of a group that

have enabled this change in behavior. Millennials are

has more technology development, capital, human

contributing to the generation of a sort of hybrid model that takes its shape from Airbnb and small business hotels.

366

CTS is a company specialized in business travel. It is the only

In the future, this change will impact the way hotels sell

Mexican Travel Management Company (TMC), with more than

their services. We will see more people making reservations

20 years of experience. It has branches and points of contact in

but paying upon arrival instead of paying in advance. This

Mexico City, Monterrey, Queretaro and Houston

will force hotels to offer lower prices and better services.

INSIGHT

TECHNOLOGY HELPS GROW THE TRAVEL SECTOR JUAN RINCÓN Director General of Sabre Travel Network

Traditional travel agencies still exist in Mexico but the internet

priority for the company. “Sabre has always used data and

has drastically changed the landscape, says Juan Rincón,

has always been at the forefront of information management.

Director General of Sabre Travel Network. “The internet has

Our servers around the world allow us to access a wide range

been a game changer. It provides users with more alternatives

of data,” says Rincón. The use of technology and advanced

to the traditional agencies.”

algorithms is what provides Sabre with a competitive advantage against its competitors, he adds. “We offer robust

While most are familiar with travel agencies, few are familiar

and more economical tariffs than the competition. We can

with technology providers of solutions for travel agencies.

do this because our tariffs algorithm is better managed.”

Sabre Travel Network is a B2B travel marketplace that provides technology solutions for travel agencies, corporations, and

Mexico's importance has not been overlooked in the

government. Rincón says travel agencies constitute about 60

traveling sector, with major players established in Mexico.

percent of Sabre’s client portfolio.

Rincón says that “due to its market size, geographical importance and proximity to the US, the most important

Though Sabre has been around for a fairly long time, the

Travel Management Companies (TMCs) have operations

use of data and technology solutions has always been a

in Mexico.”

VIEW FROM THE TOP

MOBILE: THE FUTURE OF CORPORATE TRAVEL BEAT WILLE Country General Manager of BCD Travel México

Q: What are the main challenges BCD Travel México faces

platform. For example, we service many pharma that

in this large and diverse country ?

now can compare themselves to their industry peers. The

A: Planning processes can be a challenge because a high

generation of good data and its analysis is crucial. We also

percent of the trips we manage are classed as urgent.

guide our clients toward the usage of corporate online

However, the habit of planning is improving. When

booking tools, that give the individual traveler access to

customers do not plan in advance often only higher fares

book directly, similar to a consumer site but in a controlled

are available and part of our role is to help customers identify

environment that respects the company’s policies and rules.

opportunities to save. We create value for companies.

Having customers with high online adoption allows us to offer them more attractive prices.

Q: How do you see technology being applied in travel management in a country like Mexico? A: Technology is our selling point. We are moving toward

BCD

Big Data and working on larger projects to further enhance

management. Headquartered in Utrecht, Netherlands and

the ability to make even better projections and establish

founded in 2006, it has a presence in 108 countries and employs

benchmarks as can be done within the DecisionSource

almost 13,000 people. BCD Travel is part of the BCD Group

Travel

México provides

global

corporate

travel

INSIGHT

TECHNOLOGY TO ENSURE PERSONALIZATION AND SAVINGS GERARDO VERA Director General of Carlson Wagonlit Travel (CWT) for Mexico and Central America

For corporate-travel managers, the “travel” part of the

analytics. CWT manages all the travel services a company’s

equation comes easy. The remaining elements are what

employees might need, including flights, hotel reservations,

differentiate the trailblazers from the laggards, says Gerardo

taxi reservations and restaurant selections, all within

Vera, Director General of Carlson Wagonlit Travel (CWT),

one platform. “One of the biggest challenges we have

the global market leader in corporate travel arrangements.

encountered is providing our clients with a solution that

A keen on eye for technology trends and how to apply them

aggregates everything in one place,” says Vera. “We are

to the service offering also helps.

trying hard to offer clients an app that meets our customer’s every need.”

“Traveling is just a small part of our value proposition. The core of everything is to manage a company’s travel budget,

While the biggest challenge might be aggregation, the next

to provide it with exceptional service, great prices and

big challenge is to make every piece of information relevant

savings while ensuring the security of its employees,” he says.

and useful to the user. “Everything our platform offers must adhere to the client company’s own policies,” says Vera. This

The sophistication of CWT’s services is the result of

key feature is why Vera says CWT must be seen as an ally

its integration of technology, data management and

and part of the team of any company.

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VIEW FROM THE TOP

IMPROVING BUSINESS PERFORMANCE THROUGH SPECIALIZED CONTACT FILIBERTO MONDRAGÓN CEO of Pentafon

Q: What are Pentafon’s business niches and how does

answering the phone on the first day of work is not the same

the company improve the business performance of its

as someone with a month of experience.

customers?

368

A: Our operations touch upon several market niches,

Q: What is the most pressing challenge you face in the

including customer support, collection, sales and back office

contact-center industry?

operations. In 2016, 60 percent of our operations targeted

A: The industry has a high level of personnel rotation

the private sector and 40 percent targeted the public sector

because people who work in call centers usually do it as

but those numbers have inverted since the beginning of 2017.

a temporary job. We have designed a plan to measure

Banking, telecom, airlines and retail companies are among

and analyze the variables that come into play in personnel

our most important clients. On the public side, we handle

rotation. We analyze how and where applicants saw the

the government’s channel for communications with citizens.

job posting, how many reach the training level, how many stay on board and how many leave.

We manage MEXITEL, the Ministry of Foreign Affairs’ service that deals with issues concerning Mexicans living in the US,

In Apr. 2017, we managed to lower personnel rotation to

such as those who need to renew a passport or to get new

less than 7 percent, while the industry average is in the

ID. We have over 1,300 work stations in four centers: two in

double-digit range. Each area also has different rotation

Mexico City, one in Morelia and one in Venezuela. Our most

averages. For instance, sales is a high-pressure job so it

important differentiator is based on our three most important

has one of the highest rotation averages in the industry.

pillars: certifications, technology and human talent.

Customer service, meanwhile, has rotation levels of less than 5 percent.

Certifications are important because they help us offer our clients the security that their customers’ databases

Q: What strategies does Pentafon use to keep up to date

will be safely guarded. We invest heavily in certifications

and ready to compete with new technologies such as

such as ISO 27001, related to information security; PCI,

online chats?

which focuses on banking transactions; and the ISO 9000

A: Our technology focus considers market communication

certification. No more than five or six players in Mexico have

trends. Today, the voice channel, which includes telephone,

both certifications, ISO 270001 and PCI. When it comes to

is the most important. Still, we expect that in 10 years

technology, we focus on two aspects. One is our Genesys

younger generations will prefer digital communication

technology platform that guarantees the availability and

methods. We have a voice channel and multichannel

efficiency of our centers. The other is a business intelligence

technology, which offers voice combined with web chats,

tool that measures our staff’s performance.

web collaborations and call backs.

People are the foundation of our business and our main

Q: What are the challenges of offshoring contact-center

cost. We have to take care of them because their training

operations?

entails a significant cost for us and for our clients, especially

A: Offshoring has been a steady practice since the mid-

considering the learning curve that is involved. Someone

2000s when the US market started moving operations offshore. The Mexican market then followed suit, exporting these operations to countries such as Guatemala and El

Pentafon is a Mexican contact center with 11 years of

Salvador. Offshoring is basically a logical response to costs.

experience in the market. It works both with the public

Even though offshoring sometimes make sense, cultural

and private sectors. Its main operations include customer

barriers represent a challenge. Things like language and

support, collection, sales and back office

idioms play an important role.

VIEW FROM THE TOP

GERMANY, IN MEXICO FOR THE LONG RUN EDMUND DUCKWITZ President of the German-Mexican Chamber of Commerce and Industry (CAMEXA)

Q: CAMEXA’s main task is to foster trade between Germany

Q: NAFTA made Mexico one of the most attractive

and Mexico. What strategies do you have in place to achieve

destinations for investment. What impact do you expect

this goal?

from a renegotiated treaty?

A: We are in close contact with the governments of both

A: The investments made in Mexico by the likes of Audi or

countries. In addition to the relationship with national entities,

BMW are not only aimed at the US market, but worldwide,

this contact includes relationships with local or regional

which shows that even though NAFTA is important, it is

governments. We have several programs in place to foster

not everything. Mexico has several important advantages,

trade, including several business missions. We also support

such as labor costs and the quality of its human resources.

German companies that are preparing to invest in Mexico and

For Mexico the US market is important but Mexico is also

we organize a series of seminars on different topics that could

very important for the US.

be of interest to companies. There are many US companies with commercial interests Our members include companies from both, Mexico and

in Mexico, for instance in the automotive industry,

Germany, which means that our role is not limited to helping

Mexico imports many parts from the US. It is completely

German companies established in Mexico, but also helping

inaccurate to say that NAFTA only benefits Mexico.

Mexican companies do business in Germany. Today, there are 1,900 German companies in Mexico, but in 2000 there were only 1,100. The growth has been enormous and shows

CAMEXA is a non profit business association made up of

the confidence that investors have in the country. These

German and Mexican companies. Its main objective is to

companies employ around 130,000 people. After the US,

further the trade and commercial relationship between Mexico

Germany is the largest investor in Mexico.

and Germany.

Globalization has allowed businesses to expand their horizons. Given an uncertain international landscape, expanding Mexican ventures outside traditional markets and toward Asia represents an untapped opportunity for the Mexican business community, says Amapola Grijalva, Representative in Mexico of the Hong Kong Trade Development Council. “Asian economies are blooming. As a country, Mexico has everything it needs to participate in them,” says Grijalva, adding that the Hong Trade Development Council is the only institution in the world that helps both exporters and importers do business in China and the rest of Asia. While Hong Kong in particular offers significant opportunities for the Mexican business community, Grijalva says the relationship works both ways, with Mexico hosting a number of interesting companies from Hong Kong in range of sectors. “Among the sectors we are interested in exploring are organic food, green energy, power generation, assembly industries, waste management, financial services, innovation, design, technology, infrastructure and real estate.” The successful participation of Hong Kong companies in Mexican industry can be seen in the automotive sector, with examples such as Johnson Electric. The infrastructure segment has also been a recipient of investment from Hong Kong. with important participation from Hutchinson Ports. Mexico is not short of business opportunities, but Grijalva believes that the only way for the economy to continue prospering is to provide investors with certainty regarding their investments and the execution of contracts. “We need to convey the message that doing business in Mexico is safe, profitable and a path to expansion in the long run.”

BUILDING PLATFORMS BETWEEN HONG KONG AND MEXICO

369

ACRONYMS AFORE

Domestic Pension FundsÂ

AIMC

Media Research Association

ALTA AMEXCAP AMIS

Mexican Association of Insurance

INEGI

National Institute for Statistics and

Latin American and Caribbean Air

IOCs

International Oil Companies

Transport Association

LCOE

Levelized Cost of Electricity

Mexican Private Equity Association

LDLC

Low-density lipoprotein cholesterol

LEED

Leadership in Energy and Environmental

Geography

Institutes APEAM

Design

Association of Avocado Producers and

MEM

Wholesale Electricity Market

Exporters from Michoacan

MTS

Mass Transportation System

API

Active Pharmaceutical Ingredient

NIP

National Infrastructure Program

CEL

Clean Energy Certificate

NOCs

National Oil Companies

CENAGAS

National Center of Natural Gas Control

O&M

Operation and Management

CEPAL

Economic Commission for Latin America

OECD

Organization of Economic Co-operation

CETRAM

Mexico City Modal Transfer Centers

OEM

Original Equipment Manufacturer

CFE

Federal Electricity Commission

PAN

National Action Party

CIVyL

Spirits and Wine Industry Commission

PPA

Power Purchase Agreement

CKD

Structured Equity Securities

PRD

Democratic Revolution Party

CMIC

Mexican Chamber of the Construction

PRI

Institutional Revolutionary Party

Industry

PRODESEN

National Electricity System Development

CMPT

Mexican Chamber of Tourism

COFECE

Federal Antitrust Commission

ROW

Right of Way

COFEPRIS

Federal Commission for the Protection

SAGARPA

Ministry of Agriculture, Livestock and

Against Sanitary Risks

Rural Development, Fisheries and Food

CONACYT

National Council of Science and

of Mexico

CRE

Energy Regulatory Commission

CSG

General Health Council

SECTUR

Ministry of Tourism

C-TPAT

Customs-Trade Partnership Against

SEDATU

Ministry of Agricultural, Urban and

Distributed Generation

SENASICA

National Health Service, Food Safety and

DGAC

General Direction of Civil Aviation

FEMIA

Mexican Federation of Aerospace

SGM

Mexican Geologic Service

Industry

SOFOL

Limited Object Financial Society

FIBRA

Mexican Real Estate Investment Trust for

SOFOM

Multiple Object Financial Society

the Energy and Infrastructure Sectors

USP

Unsolicited Proposals

GHG

Green House Gas

WEF

World Economic Forum

HVDC

High Voltage Direct Current

WTI

West Texas Intermediate

IATA

International Air Transport Association

ZEE

Special Economic Zone

IMSS

Mexican Institute of Social Security

and the Caribbean

Technology

and Development

Program

SCT

Ministry of Communications and Transport

Terrorism

Territorial Development Food Quality

INDEX A-E ABC Medical Center 200, 339

CENAGAS 68, 161, 207, 212, 370

Afore XXI Banorte 273

Centraal 33, 35

AgroBIO MÉXICO 116

CFE 68, 179, 186, 201, 210, 211, 213, 215, 216-217, 222, 223,

Agroenzymas 119

224, 353, 370

Agros 129

CIBanco 67

Airbus 294, 298, 299, 302-303, 305, 307, 309, 310, 313, 314

Cinépolis 61

Airbus Helicopters 309

Citibanamex 5, 9, 17, 35, 58, 59, 73, 349

Aliada 32, 50

CLAUGTO 283

Amar Hidroponia 110, 111, 128

Clifford Chance 224

AMDA 278

Clip 36, 45, 349

AME 215

CLUSMIN 234

American Express 77

CMIC 253, 255, 262, 263, 370

Americas Mining Corporation 22

CNET 145

AMIA 278, 279

CNH 14, 157, 161, 162, 165, 166, 170, 171, 174, 176, 178, 181

AMIIF 332, 333

Juan Carlos Zepeda 165

Angel Ventures 33, 36

Héctor Moreira 170

Arbomex 288

COCONAL 258, 259

Arla Foods 126

CODETUR NL 146

ASEA 161, 173, 174

Coeur Mining 238

Aspen Labs 323

COFEPRIS 49, 116, 119, 325, 330, 331, 333, 337, 370

APEAM 130, 370

Conagra Brands Mexico 131

AT&T 83

Conekta 32, 44

Audi 278

Corporate Travel Services 366

BAIC 278

CRE 15, 186, 211, 213, 215, 222, 223, 370

Baker McKenzie 9, 347, 356

Crédit Agricole 59, 68

Banco Finterra 121

Cuauhtémoc Moctezuma, Heineken 123

Bancomext 60-61, 63, 71, 83, 210, 211, 271

Cuesta Campos Abogados 360

Banco Sabadell 71

Dada Room 48

Bankaool 37

Dätwyler Cabling Solutions 78, 101

BBVA 35, 59, 110, 349

Dell México 98

Becton Dickinson 336

Deloitte 289, 298, 299

Bell Helicopter 308

Detector Exploraciones 245

Bimbo 35, 61, 73, 278

DGAC 299, 312, 315, 317, 370

Bitso 39

Diageo Mexico 122

BIVA 349

Dräger 323

BMV Group 58, 75

DuPont Performance Materials 291

BMW 278

Endeavor 32, 34, 53, 54

BNP Paribas Personal Finance México 284, 292

Endeavour Silver 237, 239

Boeing 298, 300-301, 305, 307, 310, 312, 313, 314

Enel Green Power 219, 225

Bombardier Aerospace 304

ENGIE México 218

Robert Bosch Mexico 35, 58, 286

everis México 33, 103

Braskem IDESA 185

Exxon 36

Bright 47

EY 299, 349

Broxel Fintech 104

Facebook 5, 19, 32, 33, 42, 43, 47, 48

CAABSA Infraestructura 265

Federal Authority for the Development of Special Economic

Cabify 281

Zones 26

CAMEXA 9, 369

Feher & Feher 51

CANIFARMA 328, 330, 337

FEMIA 298, 299, 301, 304, 305, 370

Carlson Wagonlit Travel 367

Femsa 187

CA Technologies 102

Fibra Uno 263, 267, 269

CEMEX 35

Fisterra Energy 222

CENACE 161, 207, 213, 215, 218, 222, 223

Fondo de Fondos 63

INDEX F-M Ford 279, 283

JAC 278

Four Seasons 138, 147, 266

Jaguar E&P 170, 178

FR-EE 257

Government of the State of Jalisco 142

Fresnillo 23, 230, 231, 235, 236, 237, 239

Janssen 322

FUNSALUD 324

J.D. Power 284

GACM 253, 256

Juniper Networks 102

Gamesa 206

Junquera y Forcada 346, 361

GCMA 113, 115

Kelly Services 365

Gemalto 99

Kia Motors México 278, 284

Giant Motors 278

Kichink 43

GKN 283

Kootenay Silver 241

GM 283

KPMG 9, 110, 210, 323, 348

Goldcorp 230, 231, 237, 245

kubo.financiero 32, 38, 349

Google 5, 18, 33, 35, 36, 47, 82, 93

Lamborghini 274

Gruma 61, 202

Latécoère 301, 310

Grupo Bimbo 73, 278

LEGORRETA® 266

Grupo Dragón 223

LONGi Green Energy Technology 221

Grupo Financiero Barclays México 10, 59, 69

M4Tel 45

Grupo Financiero Interacciones 8, 10, 66

MAG Silver 237

Grupo Habita 151

Maillard, Cerbón, Canudas, Argumedo, Palma y

Grupo Hunan 132

Asociados 347, 359

Grupo Indi 270

MAN Truck & Bus México 285

Grupomar 25

Marathon Group 101

Grupo México 22, 231, 237

Mastercard 58, 72

Grupo Omega 261

Mazda 283

Grupo Peñafiel 110, 125

McEwen Mining 245

Grupo Picacho 278

Mercedes-Benz 278

Grupo Posadas 21, 202

Merck Mexico 333

Grupo Pueblo Bonito Hotels and Resorts 150

Mexicana MRO Services 313

Grupo RO 363

Mexican Geological Survey 232, 233

Grupo Sordo Madaleno 267

México Calidad Suprema 111, 130

Grupo Tecno 97

Minera Frisco 234

Government of the State of Guanajuato 138, 143, 283

Ministry of Economy 9, 13, 110, 116, 111, 126, 230, 232, 298,

Halliburton 183

351

Hecla Mining 237

Ministry of Economy and Labor of the State of Nuevo

Hermes Systems 82, 90-91

Leon 85, 146

Higia Technologies 49, 322

Ministry of Energy 160, 162-163, 174, 201, 210, 211, 212, 213,

Hino Motors 283

215, 222

Honda 283

Ministry of Health 49, 116, 141, 322, 324, 326, 327, 329

Hong Kong Trade Development Council 369

Ministry of Tourism 13, 71, 138, 140-141, 146

Hoteles City Express 21, 149

Mi Valedor 52

HSBC 9, 58, 59, 64-65

Moldex 278

Hyundai 284

Murguía Consultores 353

ICAO 299, 314

National Soft 133

IHG 138, 148

National Tourism Business Council 145

INADEM 29, 32, 74

Natividad Abogados 358

Industrias Energéticas 179

Nestlé México 225, 340

Industrias Peñoles 23, 231, 235, 237

New Gold 247

INFINITI 278, 280

Nexxus Capital 59, 76

InstaFit 51

Nissan Mexicana 278, 280-281

INTERprotección 355

NR Finance 280, 281

ISSSTE 322, 325, 326, 332, 333, 335

OHL Desarrollos México 152

INDEX M-Z Oracle Mexico 82, 88, 97

SOFAGRO 111, 120

OXXO 32, 44, 73, 187

Spencer Stuart 352

OXXO GAS 187

Sports World 76, 341

Pan American Silver 237, 241

StarGo 100

Patrón Spirits Mexico 124

STP 70, 105

PC Capital 9, 74

SuKarne 114

PEMEX 14, 15, 68, 156, 157, 160, 161, 162, 163, 165, 168, 170,

Symantec 99

171, 174, 175, 177, 179, 182, 184, 185, 186, 187, 200, 201, 327, 162

Syngenta Mexico 111, 117

José Antonio González Anaya 14-15

TalentLab 52

Juan Javier Hinojosa 174

Talos Energy 168, 176

José Antonio Escalera 175

TechOps Mexico 312

Carlos Murrieta 184

Telefónica Movistar México 84

Marco Navarrete-Prida 327

Tetra Pak Mexico 127

Pentafon 368

Teva Mexico 322, 335

Pfizer Mexico 332

The Chemours Company 9, 246

Premo 37

The Coca-Cola Company 35

Primero Mining 243

The Cocktail 364

ProMéxico 13, 110, 111, 143, 283, 301, 325

Timmins Gold 231

PwC 32, 33, 210, 252, 279, 298, 347

TMF Group 346, 351

Qualcomm 45, 92

Torex Gold 237, 242

RCI 155

Toyota 278, 283

Renault 278, 280, 281

TRW 287

Resorts Advantage 154

T-Systems Mexico 89

Robert Bosch México 286

Uber 281

Sabre Travel Network 366

United Airlines 153, 317

Sacyr México 264

Ventus 220

Safran Mexico 298, 299, 307

Virtual Pipelines Mexico 218

SAGARPA 110, 111, 113, 114, 120, 370

Visa México 58, 73

Salles Sainz Grant Thornton 350

Volkswagen 283, 285

Sánchez Devanny 357

VUHL 278

Sanofi 329, 331

Walmart 36, 129, 202

Schlumberger Mexico 182

weex 83, 95

Seguro Popular 322, 333, 339

Wizeline 82, 93

SEMOVI 293

Wood Mackenzie 176, 177

SGM 232, 233

Yogome 33, 53

Siemens Healthineers 337

ZF Services 287

Sierra Oil & Gas 176, 177

Zodiac Aerospace 298, 299, 311

TECHNOLOGY AND PROJECT SPOTLIGHTS 70

SPEI – The 24/7 Money Transfer Solution

86-87

Nuevo Leon 4.0 – A Smart State

258

The Road Now Taken

ADVERTISING INDEX 6 Bancomext

208

LONGi Solar

12 Murguía

220

Crédit Agricole

16 SENER

228

Williams Scotsman

40-41

Junquera y Forcada

250

Grupo RO

BNP Paribas

268

iOS Offices

Fondo de Fondos

276

Sánchez Devanny

Gobierno de Nuevo Leon

296

Grupo IPS

Hermes Systems

320

Sports World

Grupo Tecno

328 CANIFARMA

104 STP

344

Maillard Abogados

136

Four Seasons

354

Kelly Services

158

Industrias Energéticas

INFOGRAPHIC AND MAP INDEX 112-113

Infographic: Opportune Time to Exploit Primary Sector

139

Infographic: Mexico Climbing Global Rankings

166-167 Map: Awarded Blocks 168-171

Table: Awarded Blocks

180-181 Map: Licensing Rounds 2018 236-237 Infographic: Silver: Mexico's Favorite Metal 262-263 Infographic: The Legacy of Mexico's Construction Giants

PHOTO CREDITS 4 BMV

36 MBP

Presidential Office

Minister of Economy

38 MBP

MBP, MBP

14 PEMEX

39 MBP

15 PEMEX

42 MBP

17 Citibanamex

43 Kichink

18 Google

44 Conekta

19 Facebook

47 MBP

Grupo Posadas

MBP, Clip

22 MBP

Dada Room

Higia Technologies

Fresnillo, Fresnillo

25 MBP

50 Aliada

26 ZEE

MBP, MBP

28 Oracle

MBP, MBP, MBP

33 Facebook

MBP, MBP

34 Endeavor

54 BMV

35 Centraal

60 MBP

PHOTO CREDITS 63

Fondo de Fondos

133

National Soft

64 HSBC

134 SECTUR

65 HSBC

140 SECTUR

66 MBP

141 SECTUR

67 MBP

142

Government of Jalisco

143

Government of Guanajuato

Crédit Agricole

69 MBP

144 SECTUR

70 MBP

145

71 MBP

146 MBP

72 MBP

147 MBP

73 MBP

148 MBP

74 MBP

149 MBP

75 MBP

150

Grupo Pueblo Bonito Hotels and Resorts

76 MBP

151

Grupo Habita, Grupo habita

MBP, MBP

152 MBP

Dätwyler Cabling Solutions

153 MBP

Telefónica Movistar México

154

Grupo Posadas

Resorts Advantage

85 MBP

156 PEMEX

Ministry of Economy and Labor of the State

162 SENER

of Nuevo Leon

165 CNH

88 Oracle

170 CNH

89 T-Systems

173 ASEA

90 MBP

174 PEMEX

92 Qualcomm

175 MBP

93 Wizeline

176

Talos Energy

94 MBP

177

Sierra Oil & Gas

95 MBP

178 MBP

179 MBP

MBP, MBP

98 Dell

182 Schlumberger

183 Halliburton

Gemalto, MBP

100 MBP

184 PEMEX

101

MBP, MBP

185

102

Juniper Networks, CA Technologies

186 MBP

Braskem IDESA

103 MBP

187

104

188 BMV

Broxel Fintech

OXXO GAS

105 STP

190 Reuters

106 APEAM

192 Reuters

114 SuKarne

195 Reuters

115 MBP

197 Reuters

116 MBP

198 Reuters

117 MBP

201 Reuters

118

202 Reuters

Amar Hidroponia

119 MBP

203 Reuters

120 MBP

204 Reuters

121

205 Reuters

MBP, APEAM

122 Diageo

206 Gamesa

123 MBP

212 SENER

124 MBP

213 CRE

125

215 AME

Grupo Peñafiel

126 MBP

216 CFE

127 MBP

218 MBP

130

219

México Calidad Suprema, APEAM

Enel Green Power Mexico

131 MBP

220 MBP

132 MBP

221 MBP

PHOTO CREDITS

222

Fisterra Energy

308 MBP

223 MBP

309

224

Clifford Chance, Clifford Chance

310 MBP

225

Nestlé México

311

226

Grupo México

312 MBP

Airbus Helicopters Zodiac Aerospace

232 MBP

313 MBP

233 SGM

314 ICAO

234 MBP

315 DGAC

235

317

Industrias Peñoles

TAR Aerolíneas

238 MBP

318 Dräger

239

324

Endeavour Silver, Endeavour Silver

Ministry of Health

241 MBP

325 MBP

242

Torex Gold

326 MBP

243

Primero Mining

327 MBP

245 MBP

329 MBP

246 MBP

330 MBP

247 MBP

331 Sanofi

248

332 Pfizer

GM Capital

255 CMIC

333 MBP

256 GACM

335 MBP

257 MBP

336 MBP

258 COCONAL

337 MBP

259 COCONAL

339

ABC Medical Center

261 MBP

340

Nestlé México

264 MBP

341 MBP

265 MBP

342 Arquitectoma

266

348 KPMG

Legorreta (Con la R de Registered)

267 GSM

349 EY

269 MBP

350

270 MBP

351 MBP

271 Bancomext

352

Spencer Stuart

272 MBP

353

Murguía Consultores

273 MBP

355 MBP

274 Lamborghini

356

280

Nissan Mexicana

357 MBP

283

Government of Guanajuato

358 MBP

Salles Sainz Grant Thorton

Baker McKenzie

284 MBP

359

Maillard, Cerbón, Canudas, Argumedo, Palma

285

MAN Truck & Bus México

y Asociados

286

Robert Bosch México

360

Cuesta Campos Abogados

287

ZF Services

361 MBP

288 MBP

362 WeWork

289

MBP, MBP

363 MBP

291

DuPont Performance Materials - NEP/HPS

364

292

BNP Paribas Personal Finance México

365 MBP

The Cocktail, The Cocktail

293 SEMOVI

366

CTS, Sabre

294

367

BCD Travel, CWT

Air France

300 Boeing

368 MBP

302 Airbus

369 MBP

304 FEMIA

Cover

305 MBP

Inner Inside Cover SECTUR

307

Inner Inside Back Cover MBP

Safran México

Ministry of Tourism of Mexico City

CREDITS JOURNALIST & INDUSTRY ANALYST: Gabriela Mastache JOURNALIST & INDUSTRY ANALYST: Camila Del Villar EDITORIAL MANAGER: Daniel González EDITOR: Ricardo Guzmán López MANAGING EDITOR: Mario Di Simine PUBLICATION COORDINATOR: Rebeca Garduño PUBLICATION COORDINATOR: Agata Sobolewska PUBLICATION COORDINATOR: Lorena Valadéz COMMERCIAL MANAGER: Bruna Brandao COMMERCIAL DIRECTOR: Jack Miller GRAPHIC DESIGNER: Ailette Córdova JUNIOR DESIGNER: Mónica López DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez SOCIAL MEDIA COORDINATOR: Karen Sujo COLLABORATOR: Alejandro Salas COLLABORATOR: Alicia Arizpe COLLABORATOR: Brenda Salas COLLABORATOR: María Elena Noriega CIRCULATION MANAGER: Elizabeth Solis DIRECTOR GENERAL: Jeroen Posma *Stories in chapters 7 to 13 were previously published in other Mexico Business Publishing editions

PRINTED BY Foli, Negra Modelo # 4 Bodega A Fracc. Cervecería Modelo, Naucalpan Estado de México T:. 9159 2100

Mexico Business Review 2018

Articles inside

Thinking Ahead of The Curve

NEW OPPORTUNITIES IN A CHANGING MEXICO

Boosting Mexico’s Tourism Potential

Spirits Market an Attractive Opportunity

FROM MEXICO, WITH BEEF

From Device Suppliers to End-to-end Solutions

NEW APPROACHES DRIVE CHANGE

ENABLING BUSINESSES THROUGH DIGITAL TRANSFORMATION

15 Years Growing in Mexico’s Rising Telecom Industry

Capitalizing ON the Mexican Stock Market

SPURRING GROWTH AT MEXICAN COMPANIES

Rapid Innovation, Technologies Help Expand Reach

Embracing the Digital Challenge

Bridging the Gap Between North and South

Innovation and Sustainability for Mexico’s Fishing Future

50-50 BET Provides Competitive Advantage

Developing Digital Opportunities in Mexico

Furthering Financial Inclusion and Credit Expansion

Ensuring Mexico’s International Competitiveness

Building a Prosperous Mexico