2019
2019 Mexico’s 2018 was marked by significant uncertainty and wariness among investors. On his third presidential campaign, Andrés Manuel López Obrador ran on an anticorruption and socially-focused platform. He promised to cancel iconic projects and industry advances, including NAIM and the Energy Reform, which generated concern in the national and international business communities. Following a historic landslide win, López Obrador generated hope for change and opened the door for investment in sectors that past administrations did not consider a priority. Still, uncertainty lingers and fulfilling campaign promises while maintaining macroeconomic stability will be a tough balancing act, particularly since most promises involve more public spending while reducing tax income. However, the federal administration has vowed to not incur further debt or lead the country into an economic crisis.
Despite changes, the Mexican economy remains business as usual. The agricultural, tourism, manufacturing and banking sectors, among others, have gained momentum to become world-class competitors. The renegotiation of the country’s multiple free-trade agreements, including USMCA, TPP11 and a revamped partnership with the EU, have the potential to fuel economic growth while adding a pinch of stability to a weary market. Although the global economy might decelerate, Mexico has an opportunity to reinvent itself alongside the new government administration. The challenge ahead is to implement the right strategies from a public and private sector standpoint to complete Mexico’s transformation and turn it into a true powerhouse of the 21st century.
In its second edition, Mexico Business Review 2019 provides insight into the opportunities and challenges that the country faces in the coming years. Through interviews with the leading stakeholders in the public and private sectors, Mexico Business Review shines a light on the national economy and the views of the business community regarding the country’s road toward technology transformation, commercial diversification and regulatory changes.
ALL RIGHTS RESERVED Š Mexico Business Publications S.A. de C.V., 2019. 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.
I S B N : 978 -1 -73 2 8 2 5 6 -3 - 5
TABLE OF CONTENTS
1
NATIONAL CHAMPIONS
8
AGRIBUSINESS
2
FINANCE & BANKING
9
FOOD & BEVERAGES
3
TECHNOLOGY & TELECOMS
4
RETAIL
11
SPORTS & ENTERTAINMENT
5
MANUFACTURING & LOGISTICS
12
TOURISM
6
AEROSPACE & AVIATION
13
TALENT & CONSULTING
7
ENERGY
14
PROFESSIONAL SERVICES
10
LIFESTYLE
Loteria Nacional Draw
NATIONAL CHAMPIONS
5
1
Mexico’s entrepreneurial tradition has given birth to some of the most important companies and influential businesspeople in the world who not only employ a significant number of people but are also key for the country’s GDP growth. These National Champions are economic giants that have played a key role in positioning Mexico as a synonym of quality, attracting a continual stream of investment to the country. Mexico must now translate the success of these Mexican leaders working at national and international companies to broaden the middle class while at the same time increasing the quality of life of the general population.
The first chapter of Mexico Business Review showcases success stories of leading national and international companies led by renowned Mexican businesspeople. The arrival of a new presidential administration opens the door to positive changes and this chapter highlights the strategies that companies are implementing to capitalize on opportunities in the local and international markets.
CHAPTER 1: NATIONAL CHAMPIONS 7
8
THE YEAR IN REVIEW: Uncertainty, Tepid Optimism Mark AMLO-Private Sector Partnership
11
SEXENNIAL PLAN: Cooperation Key to Country’s Success
12
ROUNDTABLE: What Should AMLO Focus on to Boost Development?
14
VIEW FROM THE TOP: Graciela Márquez, Minister of Economy
16
VIEW FROM THE TOP: Juan Pablo Castañón, CCE
18
VIEW FROM THE TOP: Gilberto García, Ministry of Economy
19
VIEW FROM THE TOP: Román Meyer, Minister of Agrarian, Territorial and Urban Development
20
VIEW FROM THE TOP: Andrés Conesa, Aeroméxico
22
VIEW FROM THE TOP: Mario Vela, GNP Seguros
24
VIEW FROM THE TOP: Fernando Alanís, Industrias Peñoles
25
VIEW FROM THE TOP: Octavio Alvídrez, Fresnillo
26
VIEW FROM THE TOP: Mayra González, Nissan Mexicana
27
VIEW FROM THE TOP: Luis Barrios, Hoteles City Express
28
VIEW FROM THE TOP: Tomás Bermúdez, IDB
29
VIEW FROM THE TOP: José-Oriol Bosch, BMV Group
31
VIEW FROM THE TOP: Ernesto Prieto, LOTENAL and Pronósticos para la Asistencia Pública
32
VIEW FROM THE TOP: Raúl Beyruti, GINgroup
33
INSIGHT: Carlos Lukac, Gayosso
34
VIEW FROM THE TOP: María Fernanda Garza, ICC Mexico
35
VIEW FROM THE TOP: Armando Ortega, CANCHAM
36
COMPANY SPOTLIGHT: GINgroup: a Leader in Integral Talent Management
| THE YEAR IN REVIEW
UNCERTAINTY, TEPID OPTIMISM MARK AMLO-PRIVATE SECTOR PARTNERSHIP Stable macroeconomic variables, a significant demographic bonus and a wide network of free-trade agreements have maintained Mexico as a favored investment destination. A new president and new public policies will undoubtedly impact the Mexican economy. Precisely how is the great unknown
8
For most of its modern history, Mexico has been among the
Economic growth never comes easy, however, especially
steadiest countries in the Latin American region. Since its last
in the first year of a new administration. In 2006, when
economic crisis in 1994, the country has become a model of
Felipe Calderón won the presidential elections, the country
economic stability and since 2000, smooth political transitions
experienced 4.5 percent GDP growth. However, during
have become the rule. Despite changes in the governing party,
Calderón’s first year in power, the country underwent an
the country’s economic ideology remained more or less the
economic deceleration and grew 2.3 percent. The same
same. However, the election of President Andrés Manuel
happened in 2012 when Enrique Peña Nieto won the
López Obrador, who ran on an electoral platform of anti-
presidency. In 2012, the country’s economy expanded 3.6
corruption and reversing iconic projects such as NAIM and
percent, while in 2013 the economy’s expansion equaled
Enrique Peña Nieto’s structural reforms, generated uncertainty
1.4 percent. Martínez-Ostos says this is completely normal.
among investors and business leaders. For most of his
“We are aware that in terms of economic growth, the first
electoral campaign, the private sector did not see eye to eye
year of López Obrador’s administration will be difficult and
with President López Obrador but after his win on July 1, 2018,
the country will experience deceleration. This will be the
with 53.2 percent of the vote, both agreed to move forward
result of 2018’s uncertainty and changes in how the country
and work together toward the country’s development.
operates. However, this is just part of the adjustment.”
“The 2018 presidential elections illustrated the country’s
Government transitions also generate a significant dose of
strong desire for political change,” says Raúl Martínez-
uncertainty among investors and the period between the Peña
Ostos, Chairman of the Board and Director General of Grupo
Nieto and AMLO administrations was no different. Despite
Financiero Barclays México. “Policy continuity has been
promises from the incoming government that contracts
a hallmark of past presidential changes, particularly in the
would be respected and macroeconomic stability would be
economic and financial spheres. This is no longer the case.”
preserved at all costs, markets and investors remained wary.
As part of the promised change, President López Obrador has
Nevertheless, the presentation of the economic package for
built a strategy that at its center plans to battle corruption and
AMLO’s first year in office convinced markets that even if
favor economic growth and austerity, all with a social focus.
the government enforced different policies, macroeconomic
A few days after his victory, AMLO declared to the media
stability would be maintained. “We have to understand that
that the country was bound to experience 4 percent annual
there is and there will be uncertainty, so we must find a way to
GDP growth during his administration. He suggested that
work with it and clarify as much as possible. The government’s
the country’s 2 percent average growth during Enrique Peña
economic program, at least in its first year, is going in the
Nieto’s administration created poverty, insecurity, violence and
right direction, which has had a calming effect. The landscape
migration. For the past eight years, the country has averaged
will gradually clear. The federal administration is thoroughly
2.98 percent yearly growth, which is in line with the global
reviewing the state of the country,” says Martínez-Ostos.
average. According to data from the World Bank, between 2010 and 2017, global GDP grew an average 2.96 percent.
Maintaining fiscal discipline has been key for the country in past years and has been the backbone of Mexico’s
AMLO’s forecasts were challenged by analysts from the private
macroeconomic stability. “We need to gauge the price paid for
and public sector. According to Banxico’s February 2019
Mexico’s economic stability. We need to evaluate all elements
Survey of Economic Growth Expectations from Private Sector
that are a consequence of the financial crises that Mexico
Specialists, the country’s GDP is expected to grow 1.8 percent
suffered in the 1980s and 1990s. The first thing that must be
in 2019 and 1.91 percent in 2020. The starkest contrast between
done is to preserve the country’s macroeconomic stability
the government’s estimates and private-sector forecasts came
and its capacity to absorb external shocks,” says Guillermo
from Bank of America, which lowered its growth expectations
Ortiz, Partner and Board Member of BTG Pactual and former
from 2 percent to 1 percent. Yet, President López Obrador
Minister of Finance during Ernesto Zedillo’s administration.
vowed that during his first year in office, the country would
The fall in oil prices is an example. The country was able to
experience a 2 percent increase in GDP.
absorb this development from a fiscal point of view thanks
to the exchange rate. “Mexico has become a more resilient
implementation of austerity measures that will have long-
economy and we must properly recognize the elements that
lasting effects. AMLO terminated ProMéxico, the government
have fostered this resilience,” says Ortiz.
agency created in 2007 to oversee the country’s international promotion as an investment destination. Although the
AMLO’s promise to bolster the population’s quality of life and
decision was heavily criticized by the private sector, AMLO
purchasing power also led him to increase by decree minimum
split ProMéxico’s functions between the Ministry of Economy
salaries when he became president. Nationwide, the minimum
and the Ministry of Foreign Affairs. “Economic promotion
salary increased by 16 percent and in the northern border,
is important to the federal government and the Ministry of
salaries increased 100 percent. Although the discussion
Economy. This will not change now that ProMéxico no longer
surrounding minimum wage in the country is long overdue,
exists. Our goal is to take the best practices developed by
experts agree that an increase by decree was not the answer.
that organization and others and apply them to continue
“Salaries must increase based on collective negotiations and
stimulating economic development,” says Gilberto García,
this must respond to a productivity element,” says Oscar de
the newly appointed Director General of Direct Foreign
la Vega, Managing Partner at De la Vega & Martínez Rojas.
Investment at the Ministry of Economy.
Moreover, an increase by decree can have significant negative consequences in productivity costs and the country’s inflation
According to García, the FDI strategy of past years was not as
rate. “Given the conditions established in collective contracts,
successful as it could have been. “FDI has remained stagnant
an increase in minimum wages represents an increase in the
for the past few years, with a few peaks caused by acquisitions
entire payroll of these companies, generating a significant
of local companies, such as Banamex or Grupo Modelo,” he
cost issue,” says de la Vega.
says. “Mexico captured about 1.8 percent of the global FDI in 2007 and in 2018 the country captured 1.3 percent. There is a
Above all the promises the government made, the fight against
myth that previous activities to attract FDI led to continuous
corruption has taken a central role in AMLO’s articulation of his
growth of investment in the country but the data proves
political administration. The implementation of the National
otherwise.” García says that the current administration will
Anticorruption System has been a pending issue since the
enforce a different strategy. “In previous years, there was only
Peña Nieto administration, which is why the entire business
a vague definition of the strategic areas and products that
community has closed ranks to ask President López Obrador
should be a priority in investment and trade promotion, which
for a speedy implementation. “Corruption costs us at least 1
led to poor use of resources and results. Now the parameters
percent of the country’s GDP. However, there are studies that
will be very clear. We will use data mining to accurately
put this cost between 1 and 10 percent of the national GDP,”
determine Mexico’s strategic products and sectors and to
says Juan Pablo Castañón, former President of the Mexican
identify how we can better intervene to promote growth. We
Business Council (CCE). “As this was a key topic for President
will analyze each region to evaluate their capability to produce
López Obrador, we would like to see the rapid implementation
added value products, which will in turn generate better jobs
of the National Anticorruption System and specific measures
with better salaries for our population. Our strategy will also
from the federal government to address this situation.”
take into account an analysis of the global supply chains in which Mexico participates.”
OVERSPENDING AND CORRUPTION AMLO’s campaign and the first months of his term in office
ProMéxico was not the only promotion agency that
have been marked by a fight against corruption and the
disappeared. The Mexican Tourism Promotion Board (CPTM)
ECONOMIC GROWTH (PERCENTAGE) ESTIMATED GDP GROWTH (percentage) 6
——Mexico
——World
5 4 3 2 1
2010
2011
Sources: INEGI, OCDE
World Mexico
2012
2013
2014
2015
2016
2017
2018
2019
2020
9
| THE YEAR IN REVIEW suffered the same fate and elicited a significant number of
assured the general population this was the better option
complaints from the private sector. However, AMLO has
to improve Mexico’s infrastructure and air connectivity, yet
stated that the money used for the promotion of the country
technical, environmental and affordability studies are still due.
will instead be destined for the construction of one of his
10
administration’s flagship projects: the Tren Maya, or Mayan
Similar to NAIM, canceling or changing the Energy Reform has
Train. Still, the private sector argues that tourism promotion
been a constant in AMLO’s agenda that has also generated
should not be taken lightly and that the country cannot
doubt among investors. Still, many believe the government
do without it. “We have been working for almost 25 years
must be allowed to review the contracts and AMLO has
to position Mexico as a tourism destination and it often
assured on several occasions that during his first three years
takes times to see the tangible result of these promotional
in power, the constitution will not be altered. “Regarding
efforts, sometimes years. If the new administration wants
the Energy Reform, the administration is analyzing the
to build the Mayan Train, the tourism sector will welcome
conditions under which contracts were signed. It wants to
it but the government will need to find new budgetary
maintain good practices and correct those elements that
sources to pay for it, rather than use the money used by
could be done better. This is not a seamless process but we
CPTM for promotional purposes,” says Erika García, CEO
also need to give the administration the benefit of the doubt.
of Vacacionante and Vacations with a Cause Foundation.
Clearly, some investors are nervous, which is understandable as this is unprecedented,” says Martínez-Ostos.
Although the federal administration has argued that the Mayan Train itself will be a promotional tool and visitor
US, MEXICO AND CANADA
magnet, compensating for the lack of tourism promotion,
One of the last tasks Peña Nieto’s administration undertook
representatives of the private sector argue that CPTM's
was the renegotiation of NAFTA. Though slandered by US
disappearance also terminates a successful cooperation
President Donald Trump, María Fernanda Garza, Chair of ICC
model between the public and private sectors. “CPTM’s
Mexico, says the treaty remains an example of a successful
promotional mechanism has been internationally recognized
free-trade agreement. “NAFTA is a perfect example of a
and even replicated. CPTM does not work alone and decides
positive commercial agreement. Moreover, it anticipated
how and where to spend the money jointly with the trusts
the moment we are living right now, in which countries are
that have been set up by different destinations,” says García.
coming together in blocs to compete effectively, such as the European Union bloc. North America is already an integrated
UNDOING PEÑA NIETO’S LEGACY
region; production chains are so articulated that even without
Most of AMLO’s efforts during the transition period and his
the treaty, it would have been impossible to disentangle the
first months in office targeted Peña Nieto’s accomplishments.
economic relationship between Mexico, Canada and the US.”
NAIM’s cancellation was among his most controversial decisions and sent the markets and international investors
After over a year of negotiations, North American mandataries
scrambling. “Actions such as the decision to cancel
announced they had achieved a successful renegotiation
NAIM, which is politically motivated and not justified by
and presented the USMCA treaty. The agreement gave
technical reasons, generate distress that not only impacts
relief to national and international investors, although for
macroeconomic indicators such as interest rates but also
Mexico it was more of a wake-up call. “It is undeniable that
generate a loss in competitiveness,” says Castañón.
Mexico’s interaction with the world will have to change. The renegotiation of NAFTA, now known as USMCA, was
Most analysts agree that the popular consultation carried out
a wake-up call for Mexico and for everyone in the private
to cancel NAIM was not optimal but they also agree that the
sector to diversify contacts and to lessen our focus on the
country will survive the project’s cancellation. “It is important
US. That is the main challenge: to diversify our market and
to remember that an investment project, regardless of how
our sources of investment,” says Enríquez. Despite critics,
important it is for the country, should not define Mexico’s risk,”
both the former and current federal administrations believe
says Raymundo E. Enríquez, National Managing Partner of
that USMCA offers competitive advantages for the Mexican
Baker McKenzie. “The airport consultation was not optimally
industry, particularly for the automotive sector, which was
conducted and as a consequence, it generated a great deal
severely attacked by President Trump. “The changes agreed
of doubt. But in the end, Mexico is more than just one project
in rules of origin will boost a greater degree of integration for
and I think the new government will comply with all its
this industry in North America. An increase in the regional-
obligations and will honor all the contracts that were awarded.
content value (VCR) from 62.5 percent to 75 percent in
We need to put matters in the right perspective.” Despite the
light vehicles reinforces and consolidates production chains
backlash the cancellation generated among business leaders,
further and promotes greater use of inputs sourced in North
AMLO’s administration has decided to move forward with
America, providing greater opportunities for Mexican
the construction of the Santa Lucía Airport. The government
suppliers,” says Graciela Márquez, Minister of Economy.
SEXENNIAL PLAN |
COOPERATION KEY TO COUNTRY’S SUCCESS To ensure growth, there needs to be commitment between the public and private sectors to invest in the country’s economic activities. However, this cannot be guaranteed unless there is trust and mutual reassurance that rule of law will be respected and that businesses will work toward inclusive growth During Carlos Salazar Lomelín’s swearing in as the new
“We need investment to grow between 2 and 4 percent, to double growth during the administration … We need to grow with well-being. We need both feet. If we are missing one, then we are crippled. We need to look for balance”
President of CCE, President López Obrador acknowledged the role that the private sector plays in generating growth, employment and eliminating corruption. In return, Salazar Lomelín asked the president to become obsessed with investment to boost GDP growth to levels of at least 4 percent and promised him the support of the business community. “We do not look for any privilege. Have trust in this sector,” he said to López Obrador. The president’s relationship with the private sector has long been in the spotlight and on many occasions has been rife with tension. However, to ensure economic growth, a permanent collaboration is needed between all players. The government is in charge of establishing a stable regulatory framework that incentivizes investment,
“Carlos (Salazar, President of CCE) says we should make a commitment to attract investment so we can grow at 4 percent. Deal. He also says to make a commitment to end poverty during this administration. Deal. How do I know he will agree with me? I have a single proposal for Carlos and for all: let’s make a commitment to end corruption” February 27, 2019
while the private sector has the money to generate investment and economic activity. Over the past few years, the private sector has also become an active participant in the development of public policies. An example is the publication of the México Mejor Futuro (Mexico, a Better Future) document during the 2018 presidential elections. The document identified five pillars in which the government and the private initiative needed to work together to boost the country’s development. The pillars call for legality and justice, prosperity and innovation, equal opportunities, efficient and transparent governments and sustainability and preservation of natural resources. Cooperation between public and private players is not limited to more investment to increase productive activity. Juan Pablo Castañón, the former President of CCE, acknowledged the need to coordinate efforts between the public and private sectors to foster an environment less prone to violence. “One of the best antidotes to violence is to generate well-paid jobs. By generating better products with more added value, workers will become more specialized, will have more training and we will be able to pay better salaries. With better and innovative products, we can compete in the world and generate greater economic development.”
11
| ROUNDTABLE
WHAT SHOULD AMLO FOCUS ON TO BOOST DEVELOPMENT?
The arrival of President López Obrador created uncertainty among investors but also provided new opportunities for industries to evolve and contribute to Mexico’s growth. Business leaders across all sectors are willing to work hand in hand with the new government and have also shared a series of recommendations and opinions regarding the public policies the federal government should favor, the priorities it should focus on and the elements needed to boost growth.
12
It is very important to solve problems related to security and rule of law. The National Anticorruption System needs to start working and we need to have an Anticorruption Prosecutor. This would also allow us to reduce the country cost. Corruption costs us at least 1 percent of the country’s GDP. However, there are studies that put the cost of corruption between 1 and 10 percent of the GDP. As this is a key topic for
JUAN PABLO CASTAÑÓN Former President of CCE
President López Obrador, we would like to see the rapid functioning of the National Anticorruption System and specific measures from the federal government to address this issue.
The most important thing is to spur Mexico’s growth, which has been relatively limited. Rather than growing 2.5 percent, the country should grow at least 5 percent. There were some encouraging changes in the Peña Nieto administration with the structural reforms, but with the start of this new government cycle, economic growth will depend on the investment attracted to the country.
JOSÉ-ORIOL BOSCH CEO of BMV Group
Public policies for the healthy development of the financial system are obvious. We need to continue promoting financial inclusion, which is a topic that has received emphasis in recent years, and to find ways for the informal economy to have more formal financing mechanisms. The informal economy continues to be a burden on the country’s growth and development. It is less productive and does not have access
GUILLERMO ORTIZ Partner and Board Member of BTG Pactual
to formal financing. This implies that its financing schemes are expensive and shortterm, generating a vicious cycle of low productivity.
We need to innovate. The government needs to use new tools available to make its processes more productive and efficient. It will be a challenge for the new government to reduce the federal workforce and to make due will less as a result. However, this will lead to increased efficiency and transparency to eliminate the possibility of corruption. If the government can make these changes while providing
RAYMUNDO E. ENRÍQUEZ National Managing Partner of Baker McKenzie
certainty to investors regarding timelines and results, we will be able to generate much of the investment we need.
Education is key to the digital transformation. Most children in Mexico still receive a traditional education and it is necessary to make technological tools available to them from a very young age. Programming skills will be extremely useful to children, not just because they are in demand but because they teach a flexible way of thinking. Deloitte supports an organization that implements several programming courses for girls and we also have a scholarship program for university students in Queretaro. Developing stronger educational programs will help the country cultivate the capabilities it needs to be more competitive.
LUIS MEZA Managing Partner at Deloitte Consulting Group, México 13
It is important to continue investing in research and development and we need to develop professional talent with expertise in agriculture. With research, it is always important for people to be prepared and ready to continue supporting the development of agriculture. We need to continue favoring export markets that pay well for our products and that help farmers earn money. For the southern part of the country, it is important to develop a production platform. It is equally important to develop storage infrastructure, build highways and to develop cold chains to facilitate exports for producers. We need a public-private policy that favors the development
JAVIER VALDÉS Director General of Syngenta Latin America North
of the small and medium-sized producer.
The new administration must maintain Mexico’s free-trade agreements, since free trade is necessary for the country to achieve long-term competitiveness and greater economic development. The government has to maintain infrastructure investment in the country because South American countries like Ecuador and Colombia are becoming more competitive. Security and rule of law must also play a key role in Mexico’s development because there are some states in the country that are almost nonexistent for doing business. The government needs to balance and strengthen rule of law throughout the country if it wants the country to develop equitably.
LUIS TEJADO President and CEO of Bluedrop Agroforestry
We need to have an administration focused on attracting a greater amount of foreign investment, which we think is the mechanism that will help us become more productive. Things like increasing minimum wages could be feasible if we have more investment. We also need an environment that makes it easier to do business. Sometimes it is very hard to obtain business permits and every state in the country functions differently, which complicates the process of doing business.
LISSETTE MONTEFUSCO Vice President of Strategic Planning at CMR
There are many priorities and not enough budget, so choosing one is not easy. One question that impacts the tourism industry is whether the money that is used for promotion will be used for other purposes. If the new administration wants to build the Mayan Train, the tourism sector will welcome it but the government will need to find new budgetary sources to pay for it, rather than use the money that is used by the CPTM for promotional purposes.
ERIKA GARCÍA CEO of Vacacionante and Vacations with a Cause Foundation
| VIEW FROM THE TOP
STRATEGY FOR INCLUSIVE WEALTH GENERATION GRACIELA MÁRQUEZ Minister of Economy
14
Q: What will be the Ministry of Economy’s guiding
Innovation is key for our economic policy. We are convinced
principles during the current federal administration?
that only by adapting to and adopting new technologies
A: The Ministry of Economy is responsible for generating
will we be able to produce new goods and services
wealth and increasing the well-being of all Mexicans, both
based on an efficient, competitive and productive supply
of which are also the main objectives of President López
chain that integrates national added value. The Ministry
Obrador’s administration.
of Economy will support innovation through programs such as Programa para el Desarrollo de la Industria del
Mexico is about to close the second decade of the
Software y la Innovación (PROSOFT) and Programa para
21 st century with a trajectory of low growth rates and
la Productividad y Competitividad Industrial (PPCI). We
enormous regional, sectorial and social disparities.
are confident that innovation will help us close inequality
Over the past 12 years, the country has averaged annual
gaps created in the past decades.
growth of 2.1 percent, of which 69 percent originates from foreign companies, while national businesses contributed
The second pillar — diversification — is essential to promote
31 percent. Mexico still must take advantage of its close
exports of goods and services of all productive fields in the
relationship with the global economy and at the same
country, integrating those sectors and regions that have
time strengthen its productive force. In other words, the
been left out of global market participation. Investment
virtuous combination between the global economy and
in logistics, easier paperwork and the provision of market
the domestic market will help the country find the path
information will be the springboards that help national
to sustained, sustainable and inclusive growth for the
producers participate actively in international trade.
coming years. The US is already our main commercial partner but we still
Over the past 12 years, the country has averaged annual growth of 2.1 percent, of which 69 percent originates from foreign companies
have opportunities to increase the presence of Mexican products in some states north of the border. The same can be said about Canada. An increase in commercial integration and productivity in the North American region will generate significant growth for the Mexican economy. Capitalizing on other areas will also complement our trading activities. There are routes for commercial diversification thanks to the recent ratification of the Comprehensive and Progressive Agreement for Trans-
Our objective is not only to reactivate growth at high
Pacific Partnership (CPTPP), which will link the Mexican
and sustained rates but to do so with a focus on solving
economy with one of the most important economic
existing inequalities. This means generating wealth without
engines of the world, and the finished negotiations for a
leaving behind any social sector, production field or region
new treaty with the EU.
of the country. We have set three main pillars that will guide our policies: innovation, diversification and inclusion.
The third pillar that we will boost is inclusion, which
These pillars are not mutually exclusive; they complement
means promoting collaboration of marginalized regions
each other. We are in the middle of the fourth industrial
and population segments in high-productivity activities.
revolution, which is changing the way we understand production of goods and services. The challenge is to
The combination of these strategic pillars will allow us to
adopt these technologies inclusively to benefit the entire
contribute to the country’s growth and to the consolidation
population.
of our strengths according to our industrial calling and
cultural identity. We will articulate a real industrial policy
without including effective promotion and regulation of
through the conjunction of the national industry, society
the mining industry.
and the government, which will increase the well-being of the national population. The greater challenge is to close
Q: What is the ministry’s strategy to promote Mexico’s
the gap between regions and between segments of the
competitiveness as a mining jurisdiction and what
population.
incentives will be offered to possible investors? A: First, we must ensure that all investments have a social
Q: What opportunities will the implementation of USMCA
endorsement, which comes from full acceptance of all
bring to Mexican automotive suppliers and automakers
communities involved in the mining activity. When hosting
with operations in the country?
communities welcome mining activities, it generates a
A: The first highlight from USMCA for the automotive
virtuous cycle that contributes to prosperity and pacification.
industry is that Mexico's preferential access to the US market remains untouched. The changes agreed in rules
We will also work on a reform to the Mining Law that
of origin will boost a greater degree of integration for
modernizes current regulations and introduces the figure
this industry in North America. An increase in the regional
of a mining grid to ease cadastral administration of lots
content value (VCR) from 62.5 percent to 75 percent
to avoid splices and litigation. In addition, the Geological
in light vehicles further reinforces and consolidates
Mexican Survey will be reoriented to concentrate the
production chains and promotes greater use of inputs
localization of deposits that can be exploited in a profitable
sourced in North America, providing greater opportunities
manner so they can be offered to the international
for Mexican suppliers.
investment community with certified data and basic metallurgical information.
Operational costs for automotive manufacturing in Mexico are competitive and offer advantages over most countries in Southeast Asia. At the same time, VCR requirements are an additional incentive for companies to set up shop in Mexico. Although complying with stricter VCR standards will be challenging, the auto parts industry has developed significant capabilities. Furthermore, Mexico offers greater competitive advantages when compared to the other USMCA members. This treaty, in particular regarding the conditions established for the automotive industry, reflects US efforts to relocate manufacturing production to US territory, as well as the need for a strategic manufacturing partner in the region. Mexico has the opportunity to
Innovation, diversification and inclusion will be the three main pillars favored by the Ministry of Economy for economic growth
strengthen European and Asian production chains, creating more incentives for more companies to establish operations
Q: What changes are needed to promote investment,
in North America.
competitivity and improve the performance of the mining sector in the country?
It is important to highlight that the labor component
A: Most importantly, we must incorporate referendums to
included in USMCA’s rules of origin has several
the regulatory process. This is needed, first, because it is
compensation alternatives through investments in R&D
contemplated in international agreements signed by the
activities that will favor the profile of the automotive
country, such as Agreement 169 of the International Labor
companies established in Mexico.
Organization. Second, because these consultations open the door for more satisfactory binding processes between
Q: Why is it important for the Mining Undersecretariat
local communities and project developers. With this, our
to be part of the Ministry of Economy rather than the
goal for communities is to grow the labor force with
Ministry of Energy?
competitive wages, as suppliers and as full beneficiaries
A: Mining policy should be part of an integral industrial
of mining activities.
policy that fosters national competitivity through complete production chains. Mining is a key link in several important production chains that favor the country’s economic
Graciela Márquez was professor and researcher at Colegio de
development, by acting as a supplier in industries like
México. She majored in economics at UNAM, has a Master’s in
metallurgy, metal-mechanic and steel. It would be
economics from the same institution and a Ph.D. from Harvard
impossible to competitively improve these industries
University. She is the first woman to lead the Ministry of Economy
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| VIEW FROM THE TOP
BUSINESS COMMUNITY STRIVES TO CREATE A FAIRER, MORE COMPETITIVE MEXICO JUAN PABLO CASTAÑÓN Former President of CCE
16
Q: What role does CCE play in Mexico’s economic and
At the same time, we have to help and even generate
social development?
pressure on the authorities to solve security issues.
A: We have a variety of organizations that represent businesses in different areas of the economy, either
Another pillar for development is the creation of public
generally or in more specific industries. CCE was created
policies that generate competitiveness. Topics such as
to address the need to share a transversal agenda
deregulation and the combination of efforts between
between all business organizations. Although each
development and commercial banks are key to improving
organization looks for solutions to specific problems
the country’s standing. We also need a public policy
that impact their sector, CCE voices concerns related to
that facilitates communication between SMEs and the
structural problems. CCE is the umbrella organization for
scientific community so they can work together and
most of the country’s business entities.
generate products that have greater added value.
Our transversal agenda includes issues related to economic
Efficiency and transparency of governments are
and financial public policy, which entails decisions that
also fundamental issues. We want all governments,
directly impact the economy. As representatives of the
not only at the federal level but locally as well, to
country’s business organizations, we
commit to the digitalization of their
have direct interaction with both the
processes, which would allow for
legislative and executive branches of government, promoting and analyzing initiatives that we believe can help solve the country’s most pressing issues.
70%
Employment in Mexico generated by SMEs
governmental accountability and comparisons between states. Any efficient government must ensure all economic variables are managed w i t h re s p o n s i b i l i t y to a l l ow fo r
We are interested in the creation of
economic growth.
public policies that help to better organize the market, that allow for free competition and that at the same time
Businesses and society need to always be vigilant and
facilitate the generation of new businesses.
hold whoever governs the country accountable to avoid mistakes in economic policy that could generate
Q: How does CCE comply with its mandate to help
inflation and increase debt. A breakdown of the country’s
develop public policies intended for economic growth
macroeconomic indicators would eliminate the stability
and competitiveness?
businesses need to develop. That is why we insist so
A: Two years ago, we created a document for the
much on Banxico’s independence, on responsible debt
candidates participating in the electoral process,
management from the Ministry of Public Credit and
whether running for president, the legislative branch
on the constant improvement in the management of
or governorships. This document, México Mejor Futuro
PEMEX’s debt indicators, which in the end are related
(Mexico, a Better Future), identified five pillars in which
to management of the national debt. Actions such as
both the government and the private sector need to work.
the cancellation of NAIM, which are politically motivated
The first pillar is rule of law and security and the private
and not justified by technical reasons, generate distress
sector's participation is crucial for this. We need to work
that not only impacts macroeconomic indicators, such as
against corruption, promote integrity and business ethics
interest rates, but also generate a loss in competitiveness.
within companies and initiate codes of conduct regarding corporate governance that can also permeate SMEs, thus
Sustainability is a priority as well. We cannot achieve
creating a culture of greater compliance in the country.
definite development without it being sustainable.
However, sustainability is not only about protecting the
We also need to acquire, develop, import and implement
environment but also about creating companies that
new technologies to generate products with greater added
are profitable and successful over time, generating the
value. Mexico has already taken a step in this regard by
best possible compliance practices. Businesses and their
not competing on the world stage with commodities,
collaborators must also be involved in solving the needs
meaning not competing with agricultural products. When
of their communities.
you compete with commodities, you have to reduce costs because end prices do not depend on you but on
Q: How does the Mexican business community work
international markets. But if we start competing with
alongside the government to foster the creation of an
added value products and new technologies, with Mexican
environment less prone to violence?
design and talent involved, we will generate more and
A: We need to demand more information from the
faster growth.
authorities and coordinate our efforts to monitor specific intervention plans in different regions of the country.
Mexico needs to use the tools at its disposal, including
We also need to generate best practices in terms of
its free trade agreements with 42 countries. However, to
prevention with our workers. One of the best antidotes
use the world more, we require public policy that enables
to violence is to generate well-paid jobs. By generating
Mexican products to go into the world. This means better
better products, with more added value, workers will
infrastructure and logistics systems so inputs can enter
become more specialized, have more training and we will
and products can exit the country more easily, which
be able to pay better salaries. With better and innovative
would make Mexico more attractive and more economical
products, we can compete in the world and generate
than other countries.
greater economic development. Training and prevention are fundamental contributions we can make from our field to generate a better environment to fight violence. We also need to be firm when participating in the efforts made by the federal government and insist that the models that work the best are those of coordination and cooperation.
México Mejor Futuro identifies rule of law, security, business ethics and public policies as priorities for the public and private sector
Q: What policies are necessary for the sustainable development of Mexico’s business community?
Mexico's mission, through the government, is to create
A: It is important to solve the problem of security and
an environment that fosters this exchange so there is
rule of law. The National Anti-corruption System needs
more investment and employment. But the business
to start working and we need to have an Anti-corruption
community needs to do the rest. Today, we could sell
Prosecutor. This would also allow us to reduce the
agricultural products at a price four or five times higher
country’s costs.
in the Middle East than in the US. However, we cannot access those markets that easily because we do not have
Corruption costs us at least 1 percent of GDP, although
the production and logistics viability to get our products
some studies put the cost of corruption between 1 and 10
there economically.
percent of GDP. As this was a key topic for President López Obrador, we would like to see the rapid functioning of the
The business community, including SMEs and big
National Anti-corruption System and specific measures
companies, need to be united in terms of communication
from the federal government to address this situation.
with government institutions in charge of making public policies. Sometimes, communication between the two
Second, the only way to generate opportunities for those
sectors is difficult but if we do not work together,
who have no opportunities is through employment.
development will be halted. The only way to generate
Around 70 percent of employment in Mexico is generated
employment and economic growth for people and their
by SMEs. This means that the country needs an industrial
families is by working together.
policy focused on supporting the creation of SMEs and fostering an environment that facilitates their growth while committing to employment generation. In this regard,
The Mexican Business Coordinating Council (CCE) is the
the country has a challenge in terms of deregulation for
organization that represents the Mexican business community.
businesses. We estimate that excessive regulation costs
Its goal is to boost democracy, social responsibility, equal
us around 2 percent of GDP.
opportunities and a free market economy
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| VIEW FROM THE TOP
INCLUSION, DIVERSIFICATION, INNOVATION: PILLARS FOR FDI ATTRACTION GILBERTO GARCÍA Director General of Direct Foreign Investment at the Ministry of Economy
18
Q: What is the main appeal of Mexico as an investment
promote growth. We will analyze each region to evaluate their
destination?
ability to produce added value products, which will in turn
A: Mexico has a dynamic and attractive economy for
generate better jobs with better salaries for our population.
investment with slow but steady growth. Our industry is
Our strategy will also take into account an analysis of the
increasingly linked to global value chains through productive
global supply chains in which Mexico participates.
companies that grow at an accelerated pace and generate innovative products and services. Another element attracting
The Ministry of Economy follows three pillars: inclusion,
FDI to Mexico is the federal government’s initiative to
diversification and innovation. Inclusion refers not just to
eliminate corruption, which will allow for fair competition
companies that can enter global supply chains but also
among all investors. Mexico is increasingly perceived
companies that can support the economic development
internationally as a solid investment destination but the
of the communities where they are located. Our inclusion
country needs a one-stop solution to serve as a gateway
strategy also targets exports from more regions in Mexico,
for foreign companies looking to set up business in Mexico.
as most exports originate in just 11 or 12 metropolitan areas. In terms of diversification, our goal is to grow the number
Q: What is the administration’s strategy to continue
of companies that export their products. At this point, 90
promoting the country after the termination of ProMéxico?
percent of all exports are done by big companies and we
A: Economic promotion is important to the federal
want SMEs to increase their participation. Moreover, five or
government and the Ministry of Economy. This will not
six products represent 40 percent of Mexico’s exports, which
change now that ProMéxico no longer exists. Our goal is
are mainly destined for the US. We need a diversified export
to take the best practices developed by that organization
chain in terms of products and destinations as this will allow us
and others and apply them to continue stimulating
to minimize risk. Regarding innovation, our goal is to be more
economic development. The new economic promotion
competitive in areas with higher added value, which will also
strategy will come under the jurisdiction of the Global
permit the generation of better work conditions in Mexico.
Economic Intelligence Unit directed by Sergio Silva, in coordination with state and municipal governments and
Q: What is your message for potential investors that have
the Ministry of Foreign Relations (SRE). The objective is to
put their projects on hold until they get a clear perspective
replace ProMéxico’s 46 offices with 150 points of contact
of the administration’s policies?
across the world focused on foreign commerce. We are
A: The country is an investment destination with dozens
also coordinating with state governments and economic
of trade agreements that include first-rate protection
development units to properly channel economic support
schemes. Some infrastructure projects have been canceled
from the federal government to companies that need it.
but these decisions were taken after a revision of priorities and contracts. The goal of this government is to reduce
Q: What elements of Peña Nieto's trade promotion policy
inequality in Mexico in a responsible way by avoiding an
will be kept in place and what will be changed?
increase in taxes or debt. The government is also developing
A: We will use data mining to accurately determine Mexico’s
more social programs and investing in infrastructure
strategic products and sectors and to identify how to best
projects that will increase public spending and increase the country’s connectivity and competitiveness, especially in the south. These policies will lead to a healthy business
The Direct Foreign Investment Direction is part of the new
environment. Mexico will continue to be open for business
Global Economic Intelligence Unit of the Ministry of Economy. It
as it is implementing all the necessary structural changes
oversees the design of Mexico’s economic promotion strategy
that will lead to growth and will continue respecting the
in collaboration with the Ministry of Foreign Affairs
property rights of all investors.
VIEW FROM THE TOP |
MASTER ORGANIZATIONAL PLAN PUTS PEOPLE FRONT AND CENTER ROMÁN MEYER Minister of Agrarian, Territorial and Urban Development
Q: What are SEDATU’s main objectives as a recently
A: Regarding the National Reconstruction Plan, we are
established ministry?
working alongside the Ministry of Land-use Planning, which
A: SEDATU has numerous obligations, which include
focuses mostly on the middle part of Mexico. We are confident
being a bridge between other ministries, such as SCT, the
that state authorities will complete the reconstruction
Welfare Ministry and SADER. We are also in charge of the
projects effectively. We are supporting other states, Morelos
National Housing Plan and, thanks to a change in legislation,
being our priority, but also Oaxaca, Puebla, State of Mexico,
SEDATU is responsible for defining public policies regarding
Tlaxcala and others where there is a lag in reconstruction of
housing, which was previously the purview of the National
housing, health and educational infrastructure, along with
Housing Commission (CONAVI). We are working closely
cultural and INBA-protected landmarks.
with FOVISSSTE, INFONAVIT and BANOBRAS to define the best strategies for the housing sector and our goal is
There are three topics in which we want to focus regarding
to create a policy that understands housing as more than
the reconstruction program. The first is finishing on time and
just an economic indicator. The economic element is central
ensuring the requisite quality. We expect to do most of the
and important but we also need to focus on reducing the
work during 2019. We also want to finish equipping health and
existing lag in social housing. We need to start considering
education centers. We want to also start the reconstruction of
the housing model, its characteristics and what happens
cultural patrimony, such as churches. However, we understand
with houses a few years after they are constructed. The
this is a more artisanal procedure that requires the use of
endgame is to support the segment of the population
special construction techniques, which means the process
without access to the social housing system and housing
could take three to four years to complete.
financing mechanisms like INFONAVIT. Q: What do you want to achieve by the end of the current Another of our responsibilities is the regularization of urban
administration?
territory and the national agrarian registry and policy, which
A: We need to find mechanisms to provide decent, well-
refers to land ownership. We are also looking to encourage
located and culturally adapted housing. Building a house
a generational change in ejidos and to incorporating women
in Oaxaca is different than in Chihuahua. Materials, climate
into the decision-making process in agrarian centers. Finally,
and the house layout, to name a few, are all different and it
we will work for and contribute to the generation of a more
is the government’s obligation to generate guidelines that
robust and structured life in agrarian centers.
establish these differences so social housing can adapt its standards.
Q: What alliances has SEDATU established with international organizations?
We also expect to grow our urban development program.
A: We are working with several UN institutions and we have
This is a very specific initiative for areas within cities where
a collaboration agreement with FAO. The idea is for them to
there are significant lags and that have considerable
help us evaluate the national agrarian policy. However, this is
development opportunities. Today, we are supporting 10
not our only approach with international organizations. Mexico
border cities plus five more with a tourism calling. We
has agreed a set of international obligations and we have the
expect to end 2023 with 100 cities affiliated to the program.
responsibility to see them through. Examples of this are the UN’s Sustainable Development Goals and the implementation of the 2030 Sustainable Development agenda.
Román Meyer is the Minister of Agrarian, Territorial and Urban Development (SEDATU). He has worked on projects focused
Q: What is SEDATU’s role in the reconstruction efforts
on urban and economic development with an emphasis on
following the September 2017 earthquake?
equality. Among his projects are Centro Cultural El Rosario
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| VIEW FROM THE TOP
MEXICO’S FLAGSHIP CARRIER CHAMPIONS ECONOMIC DEVELOPMENT ANDRÉS CONESA Director General of Aeroméxico
20
Q: How has the airline industry evolved since you took
Q: What areas of passenger experience are the top
the reins of Mexico’s flagship airline?
priorities for Aeroméxico?
A: The entire aviation industry, including Aeroméxico, was
A: When asked about customer experience, people
destroying capital back in 2005 because airlines did not
think about the Boeing 787 Dreamliner and onboard
focus on additional or long-term capital investments.
experience. However, the worst thing that can happen to
The industry has since become an attractive sector for
a passenger is a flight cancellation. We are refocusing our
investment. Looking at variables such as the size of the
efforts to deliver the most reliable service. For example,
industry, the average age of the fleet and the strength
in October 2017, we set a record for the industry and our
of human capital, it is evident that the industry is much
airline with only three flight cancellations, which was a
stronger now than 13 years ago. For us, Delta Air Lines’
great achievement since we operate between 650 and
investment in Aeroméxico highlights the evolution the
700 daily flights.
industry has undergone since then. Q: How sensitive are Aeroméxico’s operations to natural Q: What are the main concerns that influence
phenomena and how does that impact passenger
Aeroméxico’s general strategy?
experience?
A: Aeroméxico concentrates on hedging its risk based on
A: A narrow-body usually flies four or five daily trips
the three variables that impact our financial performance
for any airline, so if a plane is delayed for any reason
the most: exchange rates, jet fuel prices and real
throughout the day (including weather delays), the
economic activity. Our sources of foreign revenue are
remaining operations involving that plane will most likely
similar to our foreign expenses, which eliminates the need
be delayed. Passengers may see clear skies at night and
to go to financial markets and bet against exchange rates.
think they are being deceived by the airline when told
Regarding fuel, we rely on the oil derivatives market,
that fog or a similar phenomenon set the flight back. But
hedging half of our jet fuel consumption.
if an aircraft is delayed for three hours in the morning, this delay will have a domino effect for the rest of the day.
The worst mistake in this industry is overcapacity, which is why we have staggered leasing contracts to adjust for
Q: How is the growing competition pushing Aeroméxico
contingencies. We own between 35 and 40 percent of
to reinvent itself?
our aircraft and lease the rest. If something goes wrong,
A: Aviation is one of the most competitive industries
we downsize by not renewing aircraft leasing contracts.
and Mexico’s airline market is largely divided in three
On the other hand, if things go well, we just agree to
similar parts. Aeroméxico also competes with some of the
new leases.
best airlines in the international market, including British Airways, Lufthansa, Iberia, Air France-KLM, American
Q: What is Aeroméxico’s strategy to improve passenger
Airlines, Avianca, United Airlines, Japan Airlines and ANA.
experience?
Having strong competitors in and out of Mexico is what
A: Our goal is to offer the best experience every time,
drives Aeroméxico to reinvent itself.
which is key long-term sustainability. The bulk of our expenses is oriented to buying new aircraft along with
Q: What challenges does a saturated AICM pose to
technological investments, which are divided among all
Aeroméxico and how does the airline address them?
of Aeroméxico’s projects to empower our passengers.
A: The main problem at AICM is not the airport
Our digital ecosystem, including our webpage, app and
terminals but the available number of slots. More than
airport kiosks, is designed to provide all our customers
20 companies are flying through AICM, which suggests
with greater control of their travel experience.
that lack of space is not the problem. Aeroméxico can
increase its seat offering by 30 percent in the next five
Each company must focus on the area in which it excels.
years without changing its current number of slots and
However, we also offer tailor-made products for price-
aircraft. Additionally, our fleet strategy gives us flexibility,
sensitive passengers. For instance, we deploy our all-
since we only operate three types of aircraft, which
economy-cabin planes as a way to offer more competitive
reduces operating costs, and are increasing our fleet size
rates and compete in that segment.
at AICM. Aeroméxico Connect flies an all-Embraer fleet and Aeroméxico sticks to Boeing 737 and 787 aircraft.
Q: How have Delta Air Lines and Aeroméxico benefited from their joint venture?
Q: Some governments are highly proactive with their
A: Both airlines can learn from each other. Delta Air Lines
flag carriers. How does Aeroméxico interact with the
is among the best-run airlines in the world and we can
government?
learn greatly from it, especially regarding its resilience in
A: Airlines are important for economic development
the face of market restrictions, remaining profitable and
because when international companies ponder where
improving its network. Also, Delta Air Lines’ approach to
to invest, one of the first concerns is connectivity. It is
joint partnerships with other airlines, such as Aeroméxico,
necessary to have a hub-and-spoke model to connect a city,
places great importance on its collaborators. On the other
since it is impossible to do only point to point. Aeroméxico
hand, we can share best practices with Delta Air Lines
made its case with Mexico’s anti-trust authorities regarding
regarding our fleet plan execution and our e-commerce
our number of slots at AICM, as the authorities believed
strategy, which can help us build synergies.
we have too many. However, compared to other flagship carriers that usually have 80 percent of the slots in their
We are certain that together we can build stronger and more
hub airports, Aeroméxico holds only 43 percent. Taking
sustainable airlines to better compete in the international
away and limiting the number of slots makes it impossible
arena, specifically against subsidized airlines.
to implement a hub-and-spoke model, which harms the ability of airlines to connect the country. Q: What should the new administration do to support the growth of the airline industry and its national carriers? A: The Mexican airline industry has consolidated through several bankruptcies. In the last 10 years, 10 airlines went bankrupt. This should not be the case. The authorities should change their approach to consolidation so
Aeroméxico has a 30 percent share of the Mexican market versus its two strongest local competitors, which have 26 and 23 percent
economic cycles happen in an orderly fashion rather than as disruptive processes that bankrupt companies.
Q: What milestones does the airline expect to reach in the short term?
First, the government must be disciplined in its macro
A: Aeroméxico is prepared for the short term but the
policies and focus on providing security, education
airline’s strategic decisions must focus on the medium
and health using fiscal discipline while maintaining an
and long term. We need to consolidate the joint venture
independent central bank that fights inflation. Because of
with Delta Air Lines and find new opportunities with
the spike in oil prices, we saw a rise in inflation followed
it. We need to strengthen our service in the cities we
by the depreciation of the peso. Also, the aviation
already serve.
industry needs better infrastructure and the industry’s regulatory framework should be strengthened.
While Aeroméxico has daily flights to Madrid and Tokyo, we need to increase the number of flights on the
Q: What is Aeroméxico’s strategy to compete against
Shanghai-Seoul route. We will also optimize our fleet
low-cost Mexican carriers?
strategy. The company is moving from eight types of
A: A flight seat is not a commodity. People cannot expect
cabin to three and we are retiring the last 777s left in our
to pay the same price for a flight seat in the Mexico
fleet and introducing the new Boeing 737 MAX, of which
City-Monterrey route on Aeroméxico compared to other
we received the first in March 2018.
carriers, when we offer 25 daily flights for that route, the chance to earn miles and both business-class and economy seats.
Aeroméxico is Mexico’s flagship carrier and one of the four founding members of SkyTeam. It is the largest local airline and
It is impossible to be a low-cost carrier, a charter, a
has codeshare agreements with Delta Air Lines, British Airways,
cargo airline and a full-service airline at the same time.
Lufthansa, Air France-KLM and American Airlines, among others
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| VIEW FROM THE TOP
PUBLIC-PRIVATE SCHEMES FOR BETTER SERVICE PROVISION MARIO VELA 22
Director General of GNP Seguros
Q: What is GNP Seguros doing to raise awareness about
information in real time about the location of the adjuster
the importance of insurance products?
and the waiting time. We guarantee quality and efficiency
A: Mexico has one of the world’s lowest penetration
in our customer service.
rates in terms of insurance; it is time for authorities to increase the use of tax incentives to make some coverage
GNP Seguros is also working on another app for reporting
mandatory and to encourage people to get insurance.
minor crashes. If a client hits an object or someone
This can create a virtuous cycle so the government and
damages their car, our app allows the user to take a picture
people do not have to absorb all the expenses. The process
to estimate the cost of repair and deductible coverage,
should start with education: people need to know that
in addition to offering recommendations for mechanical
being insured can create a situation of mutual benefit
workshops. Everything is done instantly and in real time.
for the client, the government and the insurance sector.
Technology also serves to provide greater security for
GNP Seguros actively participates in raising awareness so
the insurance sector against possible fraud. Through AI,
Mexicans are taken care of with the products available in
GNP Seguros can detect anomalies and patterns to limit
our portfolio. One of our most successful stories happened
unnecessary expenses and thus keep our premiums low
three years ago, when we created an organ donation
and accessible.
campaign focused on accident prevention and the benefits of being insured. We emphasized the importance of taking
Q: How can insurance companies complement social
precautions at the wheel and also pushed for people to
security and contribute as a financial mechanism for health
subscribe to the official list of organ donors.
management? A: Coverage varies from one health institution to another
Q: How do GNP Seguros’ website and apps address
so we believe the government can approach the insurance
growing consumer demand for digital services?
sector to achieve better access. Seguro Popular and other
A: Most companies are adapting to Industry 4.0 and GNP
institutions do not cover all medical conditions so the
Seguros is no exception. Technology is integral to our
private sector can complement their work. GNP Seguros
customer service and for the quality of the product we
believes that working under a complementary scheme
offer. Our Conecta Móvil app gives the user full control of
will provide the patient with a much better service. This
our services. Our app also provides a GNP card so the client
initiative can be complemented even further if there is
can visit a hospital without major complications and with
standardization of quality, services, protocols and other
all the necessary clinical information. Our digital system
indicators to administer the health system. We have to start
is connected to more than 20 hospitals, which allows us
thinking about the health system as a unitary entity.
to share medical information. GNP Seguros’ technology connects the patient, the hospital and the company in the
Q: What trans-sexennial proposals would GNP Seguros
best way possible to improve processes and results.
suggest to improve the health system and the participation of the insurance sector in Mexico?
Q: How is technology boosting GNP Seguros’ performance?
A: In the private sector, it is necessary to implement and
A: We are betting heavily on digitalization to
maintain quality indicators similar to those of the public
increase sales and to improve our services and claims
sector. The government could start by creating a single
management. We use an AI-based chatbot to sell our new
quality base for all hospitals so that the population has
low-cost insurance line. This chatbot focuses on guiding
better access to healthcare. Another opportunity is to
clients to acquire accessible health policies that cost
incorporate standardizing management tools (GRDs)
around MX$1,000 (US$52) a year. For our car insurance
to create a system of risk adjustments based on the
customers, it is easier to contact the insurer and receive
consumption of patient resources at Mexican hospitals. The
government also could rely on other public-private schemes to reorganize the way health is provided in Mexico. One option could be to expand insurance coverage to increase access. A person affiliated with IMSS or Seguro Popular through an insurance expansion could increase his coverage and have access to private hospitals, which would help balance the burden on health institutions and democratize access to healthcare. Q: One problem insurance companies face is the lack of
23
assertive verification of services provided by hospitals. How can communication between parties be improved? A: For GNP Seguros and other insurers to simplify the reimbursement process, it is necessary for health service providers to submit more detailed information. GNP Seguros facilitates communication with hospitals through a technology platform that tracks more than 750,000 procedures a year in a faster and more personalized way. The insurance sector requires hospitals to provide a descriptive diagnosis. As a result, it is easier for us to make the payment for hospital services and maintain a low premium for the patient. If insurance companies include unverified payments then the premium increases,
workers. Smart Trip is a car insurance proposal based on
affecting the client, hospitals and access to medical care
the kilometers driven. The app creates a premium that
in general.
covers exactly what you need.
Q: What is GNP Seguros’ participation in the Mexican
Q: What are GNP Seguros’ expansion goals in the
light-vehicle market? How many light vehicles are
Mexican automotive and health sectors? How does the
covered by GNP insurance?
company plan to increase its market share?
A: In Mexico, there are 113 insurance companies. Our
A: GNP Seguros offers unique coverage and top-quality
penetration in the automotive industry is 12 percent. We
service. Mexico is one of only two countries that offer
differentiate ourselves from the rest through the quality
coverage for meteorological and earthquake risks. To
of our services and in the innovative alternatives we offer
achieve this, we signed an alliance with Sompo Canopius,
our clients. We are looking for new ways to increase our
a global insurer and reinsurer. Also, we partnered with
leadership in the market by focusing on cars with one or
Beazley, a British world leader in cyber risks and created
more years of use to strengthen our participation. Only 28
Cyber SafeGNP to cover different-sized companies that
percent of Mexico’s population has car insurance and only
need to protect their information and help them to have
18 states make civil liability mandatory. It is necessary to
a contingency strategy in case of a cyberattack. This is
push for a national insurance regulation that makes civil
how our strong diversification helps us to consolidate as
liability mandatory.
a leader and grow our position in the sector.
Q: How is GNP Seguros bolstering its penetration of auto
Our goal is to innovate by diversifying our services and
insurance in the Mexican market?
to increase our penetration in the market with strong
A: Our company has the highest insurance penetration in
exposure through social media. We are the industry’s most
the country. We are focusing on providing insurance to
active company when it comes to online presence. We
the lower segments of society to increase the country’s
have around six daily publications to share information
health coverage. In the automotive sector, we launched
about prevention, our portfolio of products, insurance
three new products: Smart Drive, Smart Follow and Smart
tips and other relevant topics.
Trip. Smart Drive is an app that encourages drivers to develop preventive driving habits because the better you drive, the lower your car insurance premium will be. Smart
GNP Seguros is the largest multiline insurance company in the
Follow is an app that helps transport service providers
Mexican market. It has more than 116 years of experience in
ensure that their drivers exhibit proper driving behavior
inter-sectoral insurance and is part of Grupo Bal, which brings
throughout a trip to ensure the safety of goods and
together leading companies in a variety of industries
| VIEW FROM THE TOP
SERENITY IN THE FACE OF CHANGE FERNANDO ALANÍS CEO of Industrias Peñoles
24
Q: How optimistic is Industrias Peñoles regarding industry
A: There are four key principles that companies should always
growth, considering the volatility of the sector?
invest in no matter the price cycle to assure success: security,
A: There are many people within the mining industry
technology, training and maintenance. These elements are
who speculate but few who actually understand what is
sacred to us and even in times of dire budget restrictions,
happening. Precious metals are highly volatile and companies
we do not cut costs in these divisions. We understand the
cannot alter their plans every time there is an unexpected
importance of having trained people who know how to use
change. Successful companies need to have a long-term
technology safely. There is no other way to do business.
vision and not let themselves get carried away by the ups and downs of the price cycle. We need to focus on the few
We are investing in developing our main training facility in
things we can control such as reducing costs, increasing
Velardeña where we will have state-of-the-art technology
productivity and being highly efficient; everything else will
and simulators. We use cabins to educate our operators for
fall into place.
several weeks and have them simulate a variety of situations that are likely to occur in everyday operations. The training
Our company is over 100 years old and is used to constant
center will certify operators through governmental
change and turbulence. We even had to overcome the Mexican
programs that teach them how to properly handle machines
revolution. Peñoles finds that volatility is a normal part of
and carry out maintenance. This training helps keep our
the industry. The landscape may always be in flux but the
mines safe and productive. It is part of the secret recipe
country’s mineral deposits will always remain, as will demand
behind our high levels of production, reduced costs and
for this material. We are strong believers in having a long-term
employee retention.
vision and making sure everything is congruent with our goals. With a clear vision and consistency in commitments, great
Q: What does the country need to become a more
things can be achieved. From the beginning, we knew that
competitive mining jurisdiction?
we wanted to be an international leader in the industry and
A: To experience a boost in the industry, Mexico truly
this vision is reflected in everything we do.
needs clearer public policies. The automotive industry is a good example of this. Many years ago, someone saw
There are four main factors that differentiate us from the rest:
the potential Mexico had in the automotive industry and
the quality of our products, our processes, the excellence
decided to establish a series of public policies to incentivize
of our team and the ethical manner in which we manage
the development of this sector. The country now plays an
our business. To achieve excellence, an operator must not
important role in the automotive sector thanks to the vision
only demand it from its collaborators but also incorporate
this person established. The mining industry in Mexico
processes that uphold this benchmark from recruitment
needs a similar set of actions to take full advantage of the
to training and development. This applies to everything. It
potential of the mining sector.
sounds simple but congruency is not easy to put into practice. To see more projects in the country, we need less Q: How would you describe the key factors behind
jurisdictional volatility to incentivize investment because
Industrias Peñoles’ success?
mining law plays a crucial role in competitivity. The results of the Frasier Institute Report are a clear example of this. In 2011, Mexico’s mining sector experienced US$15 billion
Industrias Peñoles is a 100 percent-owned subsidiary of Grupo
in investment, a record high, while in 2017 it dropped to
BAL. The group is the largest gold and lead producer in Latin
US$3 billion thanks to the changes in the law. Considering
America and through its subsidiary Fresnillo, it is the largest
that the industry requires a long-term investment, public
silver producer in the world
policies should also have a long-term vision.
VIEW FROM THE TOP |
INDUSTRY DOWNTURN COULD LEAD TO TALENT GAP OCTAVIO ALVÍDREZ CEO of Fresnillo
Q: What is the single greatest obstacle that Fresnillo will
A: Before deciding to list on the LSE, we thoroughly
have to overcome in the coming years?
reviewed the markets in London, New York and Toronto.
A: We used to consider our growth objectives to be the
Due to the size of the listing we reduced our options to
biggest challenge that we faced but now that we are about
New York and London. And then we saw that mining had
to meet our IPO goals of doubling production in 10 years, we
greater weight in London than in New York. Due to the
consider the lack of human talent to be a greater obstacle.
listing being primary and a secondary, the tax implications
We have a large portfolio of projects but we consider the
also had a weight on the decision. As a Mexican company
most precious asset in our company to be our talent. The
with more than a century in mining, it was very important
downcycle in the mining industry caused many people to
that despite the fact that Fresnillo would be incorporated
stop working in the industry and now there are many gaps
as a UK company, we would be able to pay all taxes of the
to fill in medium to high-level positions.
listing and then those required in Mexico. This was a strong priority that brought us to the LSE. We have been studying
Q: How will the new anti-bribery and corruption legislation
the possibility of a dual listing in another market but since
impact the mining industry?
only 25 percent of our capital is in the UK market, further
A: This is a very positive initiative not only for the mining
dividing this percentage would only put more pressure
industry but for the entire country. We are listed on the
on the liquidity of our shares. For this reason, we are not
LSE and since day one we have had to comply with the UK
considering it at the moment.
Bribery and Corruption Act. It is very strict but with our company’s values and profile we have not had compliance
Q: What would you like the new administration to prioritize
problems and we have seen and we know the benefits of
when it comes to the mining industry?
following these types of norms. As a company with an
A: The new administration needs to understand the
already-strict governance structure we comply with this
importance of the mining industry in Mexico and its
new initiative in Mexico. The sector is responding positively
ability to compete globally with other jurisdictions.
to the legislation.
Larger companies have the privilege of being able to choose or buy projects in different countries and they
Q: What does the company want to see in Guerrero before
prioritize investments in regions that have the best
advancing projects in this state?
investment platform in terms of permitting processes,
A: Security can be an issue in certain isolated areas within
taxes, infrastructure, mining law, clear and defined mining
the country and even though we have an interesting project
development policies and human talent. It is crucial that
in Guerrero we have not been able to deploy exploration in
the new mining authorities prioritize strengthening the
the area due to these issues. We have tried a couple of times
areas in which we lack competitiveness. We need to make
to start exploring it but unfortunately, we have experienced
exploration 100 percent deductible. We need an efficient
safety problems and have removed our people from the
and clear permitting process, clear rules and processes
area. Thanks to our large project portfolio we can pause our
for indigenous consultation when and if applicable, access
efforts in this area and direct them toward less challenging
to land policies and guidelines and a reduction in security
regions. We hope that the area will be at a more stable
issues to lower the cost of operations in Mexico.
stage in the future. The growing presence of the mining industry has the possibility of changing the reality of the state as it will bring economic growth and quality jobs.
Fresnillo is the world’s largest silver producer and Mexico’s largest gold producer. It is listed on the London Stock
Q: Why did the company decide to list on the LSE over
Exchange and has seven operating mines across Mexico. In
more traditional mining markets such as the TSX?
2017, it produced 58.7 million ounces of silver
25
| VIEW FROM THE TOP
LEAVING COMFORT ZONE TO BE MORE INNOVATIVE, EMOTIVE MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana
26
Q: What main factors have allowed Nissan and other
A: The market is reaching a stabilization period and the
Japanese companies to gain a strong foothold in Mexico?
challenge for Nissan was greater after halting production
A: Japanese companies have found Mexico to be a strategic
of Tsuru, which was a representative model and sales
partner and a second home. Though Japanese by origin,
leader for the brand in Mexico for over 30 years. Tsuru
Nissan is a Mexican competitor with over 53 years in the
gave much to Nissan and to Mexico and we ended its
market. Quality is another factor that has given Nissan an
production after 2.4 million units sold. We also announced
additional advantage over competitors.
Tiida’s exit from the market, so it was no surprise to see a decrease in market share. This was a necessary step to
Nissan vehicles are synonymous of quality, durability and
take the company to the next level and to implement the
reliability and that has been one of our main differentiators
concept of Nissan Intelligent Mobility, our vision toward a
to establish ourselves as sales leader in the country for
zero-emissions and zero-accidents future. Tsuru fulfilled
nine consecutive years. That being said, we are now
its purpose and now we are betting on new models
expanding this mindset by giving innovation and emotion
such as GT-R, Murano and X-Trail in its hybrid version,
much bigger roles in our corporate image and products.
as well as special editions such as Kicks Dark Light, a
We are present in most market segments and each of
commemorative edition that reflects our sponsorship with
our vehicles, from March to Kicks to GT-R, offers its own
the Star Wars franchise.
version of technology, innovation and emotion along with quality and reliability.
Q: What are your expectations for the development of the domestic market?
Q: What is the “wow” factor that will ensure the brand’s
A: The domestic market grew to almost twice its size since
continued growth?
2009. Since then, the industry grew nonstop and is naturally
A: Our strategy of innovation and emotion has been
reaching its peak. This is not a crisis, only an adjustment, and
a continuous process that started with the launch of
competition will only make us stronger as a country. The
GT-R and Nissan Motorsports (NISMO). We have also
industry will continue adjusting until it reaches its optimal
made advances beyond our high-performance segment,
point although the government should keep offering
including the development of the hybrid version of X-Trail
incentives to strengthen the market further. From our side,
launched in 2017 and the second generation of our full-
we are fully committed to working with the government to
electric LEAF model launched in the end of summer 2018.
make the country the automotive powerhouse it should be.
We are renewing our entire lineup and we also have new
The industry might not grow in the short term, especially
releases. Murano, for example, was officially launched on
considering the challenges related to an election year, but
June 18, 2018. This model will crown and complement our
it can maintain its current levels.
SUV lineup, which is the sector with the most dynamic development in the country.
Q: How are you facing the competition of new arrivals from Korea and China?
Q: What are Nissan’s strategies to maintain its leadership
A: The arrival of more competitors has forced us to
in the market after a slight decrease in market share?
improve our technology and deliver more quickly on our promise of innovation and emotion. New brands will arrive with new products and they will naturally grow until
Nissan Motor Corporation is part of the Renault-Nissan-
they reach their stabilization point. Nissan has more than
Mitsubishi Alliance. Nissan Mexicana has been the top-
53 years in the market; we have watched every brand
selling brand in Mexico for nine straight years. It has four
arrive and we understand that we must work to retain
manufacturing plants in the country
our position in the market.
VIEW FROM THE TOP |
EXPANSION BEYOND BUSINESS DESTINATIONS LUIS BARRIOS Chairman and CEO of Hoteles City Express
Q: Hoteles City Express is generally associated with business
Q: How has Hoteles City Express attracted the support of
tourism. What opportunities do you see in other niches?
institutional investors for the development of its hotels?
A: Hoteles City Express targets all types of tourism at the
A: Fortunately, Hoteles City Express’ growth has never
same time. It started with a focus on business travel because
been hindered by lack of capital. We have been able to
we saw an opportunity in this niche. When we founded the
convince investors thanks to the viability of the project and
company in early 2000, we bet on NAFTA, believing the
the expected economic returns. Investors have a very clear
treaty would generate industrial and commercial activity that
formula: risk and return; the greater the risk, the greater the
would have an impact on different regions of the country.
economic return.
We were not wrong. The treaty generated investment and employment and became a significant currency generator,
In the beginning, the only thing investors had was trust in
which meant an increase in employment, better wages, more
us and in our project. When Hoteles City Express became
consumption and, therefore, social improvements.
a public company, we had been operating for 11 years with proven results, so the market trusted us and decided to
We expected economic growth in different regions,
invest. Before that, between 2002 and 2009, we held four
particularly in all the commercial, business and investment
capital-raising rounds.
routes that would be impacted by NAFTA. However, due to the natural evolution of markets, these routes also generated
Q: Where does Hoteles City Express plan to focus its growth
greater demand in different niches such as pleasure,
strategy in the coming years, in addition to the previous
business, religious, group and medical tourism. None of
focus on business routes?
these niches provide economic viability per se; what makes
A: More than the routes themselves, we focused on the
them profitable is their combination. In this sense, Hoteles
opportunities these locations offered. Today, we have
City Express is immersed in all these areas but despite our
hotels in 30 states and in 70 cities. We are in three cities in
diversification, the business niche remains our main segment.
Colombia and are present in Costa Rica. We will continue expanding where we see growth potential, either in the cities
Q: One of the main features of Hoteles City Express is
we are already in or in those where we do not have presence.
its ability to build hotels quickly. How do you mitigate associated risks?
We need to be aware of where investment will catalyze
A: Hoteles City Express owes its current position to its people.
regional growth. For instance, the newly named strategic
In addition, we have defined a precise strategy focused
economic zones are a good starting point for the future.
on a specific segment of the Mexican market. We analyze
The hotel sector is part of the development of the
destinations and their expected growth. If we conclude the
national infrastructure. You cannot make a Nissan plant
city is bound to experience economic expansion, then having
in Aguascalientes without having hotels in the region. For
a City hotel in that city becomes a must.
these types of projects to be successful you need hotel rooms, as well as highways and airports. It is infrastructure.
This vision has allowed us to maintain our growth rate,
We will be where we detect an increase in growth and
thanks also in part to the fact that we pay attention to the
investment.
necessities, which means having a very robust and focused team with experience and many capabilities. The second element that allowed this growth was to have a team of
Hoteles City Express is a Mexican hotel chain focused on
investors that embraced the project. Another contributor
business tourism. It is Mexico’s second-largest hotel chain.
to our success is the market opportunity for a product like
With a hotel opening almost every six weeks on average, it is
Hoteles City Express.
also one of the fastest-growing hotel chains in the country
27
| VIEW FROM THE TOP
SOCIAL PROGRAMS BRIDGE MEXICO’S TWO REALITIES TOMÁS BERMÚDEZ Country Representative of IDB
28
Q: The Update to the Institutional Strategy (UIS) 2016-2019
but we are focusing mostly on the south of the country
targets a reduction in inequality in Latin America and the
because we believe the region requires special intervention.
Caribbean. What results have you seen in Mexico?
If lagging areas are left untouched, the social gap in the
A: One of the bank’s objectives is to improve competitiveness
country will widen and impact its competitiveness and
and close inequality gaps. In Mexico, some institutions work
economic growth. This approach is a kind of Marshall Plan
relatively well compared to others in the region. The country
for the southern part of Mexico. The country needs to work
has a significant commercial relationship with the US and
on several areas, including public services, the government’s
while this has led to economic growth, it has been slow and
ability to respond to its citizens, infrastructure and the
uneven. The result is the creation of two Mexican realities, one
creation and connectivity of value chains.
with OECD development levels and one that significantly lags. Q: What is the bank’s approach in gender equality, climate We are working on social protection and social programs
change and rule of law?
and I think those implemented in the country have been
A: Gender equality is a sensitive issue in Mexico because when
successful. We need to start thinking about how we can
you analyze inclusion of women in the Mexican manufacturing
link these social programs to the manufacturing sector. For
sector, you realize it is among the lowest rates in Latin America.
instance, in its 20 years, the Prospera social program has
In Mexico, only 5 percent of board members are women. This
helped people overcome poverty.
issue is a business opportunity since there are many studies that suggest that broader diversity results in increased
Q: What specific programs is IDB implementing in
productivity. In this regard, the quotas system that has been
Mexico that are having a positive macroeconomic and
implemented in the public sector has been highly effective.
microeconomic impact?
I think the private sector has the will to change things but it
A: We are working on a project with CONAFE, which is part
moves too cautiously. This is an area in which Mexico lags
of the Ministry of Public Education. This project involves
when compared to other Latin American countries.
providing educational services in the most marginalized areas of the country. In these places, CONAFE has
Rule of law is another complicated issue. The 2018 presidential
developed schools especially for teachers who are trained
elections were defined by the population’s perception about
as educators, even though they might not have a teaching
rule of law and corruption. Mexico has good legislation in this
degree. The project also includes the implementation of
regard. The problem lies in the enforcement of those laws.
virtual libraries in those locations to provide kids with
IDB has helped with everything related to the creation of
access to more content. This has been a very successful
the National Anti-Corruption System and we also can help
model that we are trying to replicate in other countries.
in the creation of the country’s Public Prosecutor’s office. A potential solution to the corruption problem is to attack it
We are also working alongside the Bill & Melinda Gates
using technology. I think there is much to do in terms of AI
Foundation to improve prenatal and postnatal care in
and data sharing between governmental agencies.
Chiapas, including the distribution of medications through a digital platform. All our programs have a national scope
Regarding climate change, Mexico is on the front lines in Latin America. During Felipe Calderón’s administration a great deal was done in this area. Given that the objectives
InterAmerican Development Bank (IDB) is an international
set were fairly ambitious, Mexico’s capabilities to comply
financing organization. It provides technical and financial
with them are what worries me. Even so, when you compare
support for countries in Latin America to reduce poverty and
Mexico with the rest of the region, the country’s contribution
inequality
to the fight against climate change has been significant.
VIEW FROM THE TOP |
ENABLING ACCESS TO CAPITAL AND DEBT MARKETS JOSÉ-ORIOL BOSCH CEO of BMV Group
Q: How has BMV Group protected itself against
Q: How can BMV Group help to bridge Mexico’s
external shocks?
infrastructure gap?
A: Companies listed on the BMV are so diversified in terms
A: BMV Group has already helped, considering there are
of sectors, sizes and business segments that the impact
many infrastructure companies listed on the exchange. We
of geopolitical uncertainty has been much less intense in
also have companies accessing financing through debt and
Mexico. I think Mexico, just like Canada and the US, needs to
these are the most traditional instruments in the market. In
see the renegotiation of NAFTA and the subsequent signing
2009, CKDs were created and since then around 100 issues
of USMCA as an opportunity to turn to other markets.
have raised close to MX$170 billion (US$8.85 billion). Of this,
Mexico does not only have North America as a potential
infrastructure represents about 30 percent.
market; it has a great number of free-trade agreements with other countries, even though the majority of trade is
Fibras were first raised in real estate in 2011 and their
focused on the North American region.
numbers continue growing. We are looking at new Fibras and we are about to raise a Fibra in the education sector,
Q: How can the International Quotation System (SIC) help
which will be the first of its kind. Also, Fibra Es were created
to position international companies in Mexico?
in 2015 and the first infrastructure Fibra E was raised by
A: SIC caters to foreign companies that operate in Mexico.
Pinfra in 2016. Since then, we have had various infrastructure
There are over 1,500 foreign securities listed on SIC from
Fibra Es, the latest being that of GACM, as well as a first
different countries and sectors. Of these, approximately half
Fibra E on the energy side issued by CFE. We have a range
are stocks and half are ETFs. In terms of mining, companies
of products for the industry to choose from and in 2017 we
from the US, Canada, the UK and from Latin America are
created the first Special Purpose Acquisition Corporation
listed on this index. This means any investor in Mexico can
(SPAC), which is very common in other markets.
buy these shares. Rather than listings, they can be seen more as a registry of international companies that allows
Q: Why has there been such a lack of demand for CerPIs
Mexican investors to buy shares.
compared to other products? A: In comparison to Fibras, which were a new asset class,
SIC represents more than a third of the total volume of the
CerPI is a product similar to CKDs but with some different
BMV, with the local exchange representing the remaining
management rules, including the role played by the
two-thirds. There is a great deal of interest because a Mexican
administrator. We had the first CerPI issued in real estate
investor can buy shares in an international company, pay in
and I think now we will start to see much more demand for
pesos and sell in pesos, while maintaining a fiscal advantage
the product. There are already various CerPIs that will be
compared to buying the shares in Canada directly.
launched in the coming months. It is always difficult to be the first but now that the first CerPI has been successful,
Q: What should the secondary regulation of the Fintech Act
the door has been opened and we will see more demand. It
include so innovation in the sector is not compromised?
was the same story with Fibras – the first real estate Fibra
A: The goal of the Fintech regulation is to add value. It
was raised by FUNO in 2011 and it was extremely complex
needs to define market value and how it will develop and
but it was more easily understood after the first issuance.
grow. Fintech sounds very nice but obtaining the financing for it is not so simple. We have been talking with those companies because they want to obtain funding to grow
BMV Group offers services for the operation and post-trading of
through the BMV. We are having this same conversation
stocks and derivatives in Mexico. It operates a stock exchange,
with various sectors that do not have access to financing
derivative products, an OTC securities and derivatives brokerage,
or that have trouble finding it.
a securities clearing house and a derivatives clearing house
29
Loteria Nacional Draw
30
VIEW FROM THE TOP |
HEALTHY FINANCES PROVIDE MORE SUPPORT FOR MEXICANS ERNESTO PRIETO Director General of LOTENAL and Pronósticos para la Asistencia Pública
Q: What strategies will you put in place to position and
draws per week and each has three sets of tickets or series.
strengthen the Lotería Nacional brand?
Every series except one is done on paper with the exception,
A: Lotería Nacional will turn 250 in 2020 and since its
called “Cachito Electrónico,” performed electronically. The
creation, it has supported the public and economic life of
idea is to have at least three electronic series per week by
the country. Throughout this time, Lotería Nacional has only
2020. Going digital will help us engage millennial clients who
halted its operations for brief moments, during the War of
are accustomed to mobility and digitalization.
Independence and during the Mexican Revolution. Lotería Nacional has provided support for different causes, such as
Q: How is Lotería Nacional planning to position itself to
the building of hospices, the construction of a train between
compete against international lotteries?
Mexico and Toluca during Benito Juárez’s administration,
A: We want to promote Lotería Nacional in the US. The project
the construction of Reforma Avenue and San Andrés
has been presented and we expect to start working alongside
Hospital, which later became Hospital Siglo XXI.
the Ministry of Foreign Affairs to promote the draws of both Lotería Nacional and Pronósticos among Mexicans living in
Unfortunately, today, Lotería Nacional has a deficit of
the US. This is another reason we need to implement a digital
MX$540 million (US$28.4 million). Our goal is to reverse this
component and even develop a Lotería Nacional app. The
deficit through austerity, transparency, efficiency and sales.
market of Mexicans living in the US represents an interesting
Lotería Nacional’s main objective is to contribute to public
opportunity for us and we believe that providing them with
assistance. However, the only way to do this is to increase
the chance to buy Lotería Nacional tickets will help them feel
our sales and boost our resources. Our first objective is to
closer to their country.
reverse Lotería Nacional’s current financial situation and to do that we will merge Lotería Nacional and our betting arm,
Q: What are Lotería Nacional’s goals in terms of income
Pronósticos para la Asistencia Pública. We are just waiting for
and participants?
an answer from the entities involved, such as the Ministry of
A: Each draw has between 2.4 million and 3.6 million
Finance, the Ministry of Public Service, the Attorney General’s
tickets, so we sell hundreds of millions of tickets per year.
Office and the Juridical Advisor of the Presidency to start
We are confident we can reduce Lotería Nacional’s deficit
this unification process. Unlike Lotería Nacional, Pronósticos
by MX$400 million (US$21 million), at least. The situation
does not have a deficit and in fact, provides the federal
at Pronósticos is different. We expect to register 7 percent
treasury with over MX$500 million (US$26.3 million).
growth in 2019, especially since we have had sales above this target for the first two months of the year. Eventually, we will
Another objective is to increase our points of sale. We have
replicate this at Lotería Nacional. We want to leave a Lotería
83 points of sale in the country, with 50 of those in the
Nacional that is financially healthy, with its credibility intact.
Mexico City metropolitan area, plus three virtual outlets.
The Lotería Nacional is among the few public institutions
Lotería Nacional’s clients are older people, around 45-50
recognized by the majority of the population. People identify
years of age on average. This means we have a significant
the Lotería Nacional with its public assistance work, the niños
opportunity to attract younger customers. We want to use
gritones (kids announcing the results) and as a chance for
social media to better and more efficiently promote Lotería
them to turn around their lives.
Nacional and attract a younger demographic. Q: How will Lotería Nacional work toward the digitalization
Lotería Nacional para la Asistencia Pública (LOTENAL) is a
of its offering and services?
decentralized public organization in charge of organizing draws
A: We want to modify the contests. In fact, in 2019, we want to
with cash prices. Its purpose is to collect financial resources to
increase our electronic ticket series. Lotería Nacional holds four
support the federal government’s public assistance goals
31
| VIEW FROM THE TOP
FLEXIBLE HUMAN RESOURCES FOR A FLEXIBLE WORK MARKET RAÚL BEYRUTI Founder and President of GINgroup
32
Q: GINgroup integrates several companies with different
A: The first thing we look for is that our suppliers in
services. How do your various offerings complement
Mexico have the capability to supply us in other countries.
each other?
For instance, Zurich and Mapfre are available in Colombia,
A: GINgroup is focused on human capital management.
so we are trying to replicate our agreements with these
However, we have seen the need to make our collaborators
companies there. The idea is to start from what we
happy; if we achieve this, the client will be happy. To
already have in Mexico and to open new partnerships
that end, we created a company called GINxti. This unit
for things that do not exist in Mexico but that do in other
is in charge of imbuing our collaborators with greater
countries. However, everything has to have the same
added value.
characteristics and follow the same process.
Similarly, the other GINgroup divisions were created
Q: What are the main skills that the Mexican talent
to address the particular needs that we have detected
system demands?
in the market. For instance, when we realized that we
A: We are immersed in a process of change. What works
needed our collaborators to speak English, we decided
today will be obsolete tomorrow, so most of our clients
to create a company that focuses on English lessons. It
are looking for people who can speak English perfectly,
is the market itself that generates the demand; we create
who have finished a professional degree, have experience
the companies to provide the solution.
and the desire to improve and who are reliable. There are many necessary characteristics but for me, the
Q: Of GINgroup’s entire portfolio, where do you find your
most important are resourcefulness, knowledge and
largest opportunity areas?
experience.
A: Growth will come from human capital. We have experienced 25 percent growth rates for the past five
Q: What needs has GINgroup identified in healthcare and
years in this sector. We are considered the No. 1 company
how does the company address them?
in Latin America in terms of human capital and we were
A: GINgroup specializes in the acquisition and
also named the best employer in the country.
management of human capital, which is why we offer our collaborators the best possible medical scheme. The
If we continue growing 25 percent in terms of human
group has two types of collaborators: 10,000 internal
capital, this will naturally have a positive effect on the
employees working within GINgroup’s operations and
group as a whole and will help us generate new businesses.
160,000 external collaborators, whom we manage. To
We opened an office in Houston, Texas, and another one in
provide care to our employees, GINgroup has signed
Colombia in April 2018. We have also tackled the Peruvian
several agreements with insurance companies, including
market through Sportway. By the end of 2018, we had
Mapfre and Zurich, and all GINgroup collaborators are
established our presence in Canada and Chile.
granted a policy for minor medical expenses that covers their spouse and children.
Q: How does GINgroup adapt to different countries to provide the same service and level of benefits?
We also have our own hospital network and agreements with other hospitals, so our collaborators have treatment options. All our hospitals are located in Mexico City’s
GINgroup is a Mexican company that specializes in human capital
metropolitan area but we are associated with individual
management and acquisition. The company also has offices in
doctors and we are building a hospital in Tijuana to grow
Dominican Republic, Colombia and Panama and includes GINxti,
our offering in the rest of the country. We also have
GINflex, Sportsclinic, Sportway and Centro Medico GIN
regional agreements with local hospitals.
INSIGHT |
INNOVATION DISRUPTS FUNERAL INDUSTRY CARLOS LUKAC Director General of Gayosso
Innovating is never easy but in a conservative sector
cremation processes and because of rising gas prices, it is
dominated by family-owned companies, it is even harder,
bound to be more economical in the future.”
says Carlos Lukac, Director General of Gayosso, the largest full-service funeral industry provider in Mexico.
There is still a long way to go before the company can
Nonetheless, companies, even in the funeral business,
provide this service nationwide. Lukac says Gayosso has
must follow this path to maintain their leadership. “Family-
had to work with the authorities to obtain the permits
owned companies tend to be traditionalists by nature,
required to introduce this service. However, the company
which makes the funerary industry extremely traditional,
already has its first machine in Tijuana, the second will be
conservative and closed.”
in Monterrey and a third will be in Mexico City, according to Lukac’s expectations. “Aquamation is our latest innovation
Gayosso was a family-owned business for 135 years before
offering. However, we need to always be thinking about
it was acquired in 2008 by private-equity fund Advent
how to continue innovating and offering new products and
International. This spurred a transformation process that
services in the coming years,” says Lukac. “In this industry,
merged a traditional industry with institutional stakeholders.
innovation is a key service differentiator and a growth driver.”
“The result was a radical transformation of our operations,” says Lukac. “We believe that very much like what happened
The company has also transformed the way it markets its
with drugstores or cinemas, the funerary industry is on
products and solutions. In addition to its traditional sales
its way to consolidation, with no more than three large
force of around 1,900 telemarketers and 3,100 people in
institutional players dominating the industry.”
the field, the company is about to launch an e-commerce platform for the online commercialization of pre-need funeral
Although Gayosso remains the sector’s only institutionalized
services. “We believe that the future of our business lies in
player, it is determined to use its leadership position to
offering pre-need funeral services rather than in selling at-
continue growing. The company emphasizes three pillars:
need funeral services,” Lukac says.
a clear value proposition, exceptional service and constant service innovation. Lukac says Gayosso has become a one-
He has good reason for optimism: the at-need funeral
stop shop for funerary services, solving clients’ current and
services business is worth approximately MX$8 billion
future funerary needs and working according to a culture
(US$415 million) while 10 years ago its value was MX$6 billion
focused on exceeding client expectations, which generates
(US$310 million), according to Lukac. The pre-need funeral
loyalty and allows the company to set premium prices for
services market is valued at MX$5 billion (US$260 million)
its services. “Four years ago, we started implementing
compared to only MX$500 million (US$26 million) a decade
a customer satisfaction survey and clients gave us an
ago. “While there is growth in both businesses, pre-need
average 75/100 grade,” he says. “We made changes to our
packages that bundle up funeral services with final resting
service philosophy and today, all our branches average a
place are clearly bound to experience the largest growth in
90/100 grade.”
the future,” he says.
Innovation, Lukac adds, is what keeps Gayosso at the
Migrating Gayosso’s business to pre-need also requires
forefront of the industry. The company is investing
a higher level of institutionalization, as clients want
heavily in technology to modernize its processes and has
assurance that the company will deliver its services years
acquired trade-marked Aquamation equipment to provide
or decades in the future. As such Gayosso’s pre-need,
an alternative to traditional cremation. “The Aquamation
according to Lukac, “is a mixture of the hospitality industry
process is an example of what innovation looks like in this
and an insurance product. Innovation and stability blended
industry,” he says. “It is more ecological than traditional
in one single offering.”
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| VIEW FROM THE TOP
FREE TRADE GENERATES COMPETITIVE BLOCS MARÍA FERNANDA GARZA Chair of ICC Mexico
34
Q: What are the chamber’s priorities in Mexico?
Q: The EU and China have pledged to reform the WTO.
A: ICC Mexico follows ICC’s international agenda, which
What should these reforms include to adapt to the reality
is developed based on global needs. However, we have
of this century?
specific priorities in each country that are set up by local
A: We are convinced about the need to modernize the
experts that analyze the country’s reality and generate
WTO. ICC has a global agenda for international trade and
a work plan with objectives for the year. For Mexico,
we think the WTO continues to be fairly relevant in the
we have established five key issues that need to be
modern trade ecosystem. We are against voices that call
implemented to increase the country’s competitiveness:
for its disappearance.
grow work productivity, promote economic digitalization, internationalize SMEs, increase R&D investment and keep
We recognize that we have not been that efficient and
up the fight against corruption while improving rule of law.
effective in communicating what the WTO really does to improve the lives of billions all over the world. Groups
Q: How does ICC help Mexico foster international trade?
against free trade do not understand that the WTO is
A: Our goal is to improve Mexico’s business environment,
responsible for setting clear rules for every country,
which is why we are constantly generating recommendations
regardless of its size, which allows smaller countries to
for different sectors. At first, we focused on generating rules
fairly compete with larger economies. However, the WTO’s
for international trade, such as the International Commerce
internal mechanisms have been very slow and have failed
Terms (INCOTERMS) and the regulation for letters of credit,
to adapt to current economic conditions. The ICC needs
as well as many recommendations regarding best practices
better external communication and needs to be more agile
for different areas, such as the fight against corruption. In
and quicker in accordance with the times we are living. We
fact, in the 1970s, we were the first international organization
have advanced in many areas, such as trade facilitation, but
to point out the need to have strong corporate governance.
there are still many countries that have inefficient processes
ICC also publishes compendiums of good practices related
that prevent trade agility.
to corporate ethics, business integrity, the digital economy, marketing and publicity, economic competition and intellectual
Despite the necessary changes, we also fully support
property, among others. We provide these guidelines and the
the existence of panels for dispute settlement or anti-
needed training for free so companies can implement them.
dumping panels at the WTO. The role of this organization is extremely important, especially now, given the geopolitical
Another ICC goal is to reconcile the public and private
changes resulting from the 2008-2009 financial crisis and
sectors. For instance, regarding economic digitalization,
the subsequent social crisis. We believe these generated
many governments have a problem understanding how
the social unrest that has led to a less open and more
everything should be managed and there is a great debate
protectionist world.
between governments, businesses and users on how to design regulations. We take an active mediation role to
Q: What opportunities do you see for Mexico to achieve
help governments set the correct regulation rather than
real and effective trade diversification?
over-regulate and possibly sabotage the market’s potential.
A: Mexico has an international calling; it is among the world’s most open economies. With free-trade agreements with 46 countries, Mexico can reach many markets. However, around
The International Chamber of Commerce (ICC) was founded
80 percent of our exports are destined to the US. Due to our
in 1919 and established in Mexico in 1945. Its mandate is to
location, it was logical for Mexico to send all its products
create rules that foster free trade and investment between
to the US but this led us into a comfort zone. The treaties
countries
we had with the rest of the world suggest we are an open
country that favors trade but the truth is that we never
administration outlining how international trade, investment
had strategies nor implemented clear actions to diversify
and globalization can contribute to inclusive growth and
our exports to other markets. Today, we have a significant
how the UN’s sustainable development objectives go hand
opportunity with the TPP11 that will allow us to reach 500
in hand with his agenda. We are convinced that we can
million consumers in countries where we do not have active
achieve sustainable growth with the participation of the
commerce. It represents an important opportunity for the
private sector and that an open economy will allow us to
agricultural, pharmaceutical and electronics sectors.
generate better opportunities for all Mexicans.
Regardless of what President Trump says, NAFTA is a
Q: What are ICC’s expectations in terms of free trade for
perfect example of a positive commercial agreement.
the coming years?
Moreover, it anticipated the moment we are living right now,
A: We will see moderate growth while the commercial
in which countries are coming together in blocs to compete
tension between China and the US lingers. Interest rates
effectively, such as the European Union bloc. North America
are increasing, which will restrict access to finance for
is already an integrated region; production chains in the
developing countries that had been growing at a moderate
region are so articulated that even without the treaty, it
rate and commodity-focused exporting countries will be
would have been impossible to disentangle the economic
impacted as a result.
relationship between Mexico, Canada and the US. Asia is another bloc that is developing strongly, so we need to
Reforms must also continue to make Mexico a more
continue looking for ways to grow as a region.
efficient economy. We cannot allow another 20 years to go by to have a new series of reforms like those that were
Q: How does ICC Mexico collaborate with the Mexican
implemented in Enrique Peña Nieto’s administration. These
government?
do not need to be sweeping reforms. Simple regulatory
A: We provide recommendations based on the experience
changes will suffice but they must be constant so we
we have had in different countries. We have already
can continue being efficient and not lose our place in the
delivered documents to President López Obrador’s
world economy.
VIEW FROM THE TOP |
DIRECT CONNECTIVITY NEEDED TO FOSTER BILATERAL TIES ARMANDO ORTEGA President of CANCHAM
Q: Much of the existing commercial relationship between
Q: In which areas of the Mexican economy do Canadian
Mexico and Canada happens through the US. How can both
companies have the largest participation?
countries strengthen their direct ties?
A: Canadian investments have flowed mostly to the mining
A: Both countries are aware of the need to find direct
sector, as measured by the number of companies devoted
connectivity to foster bilateral trade and investment,
to this activity. Manufacturing in general, and auto parts
avoiding the US as a springboard. Recently, Canadian and
in particular, are leaders in employment and exports.
Mexican airlines, including West Jet, Volaris, Interjet, and
Pharmaceutical, financial services and a big rainbow of
Aeroméxico, have increased the number of direct flights to
other services illustrate the vibrant bilateral trade and
and from various cities to help boost the services industry.
investment between the countries.
The biggest challenge for trade in goods is maritime connection, which is where the East Coast can trigger the first results. The connection between Halifax to Altamira
The Canadian Chamber of Commerce in Mexico (CANCHAM)
and Veracruz is one to watch. However, geography
was created in 1982 to represent Canadian businesses in Mexico
matters and the US will always remain the ham in the
and promote trade and investment between both countries. To
bilateral sandwich.
date, the Chamber represents over 300 companies
35
| COMPANY SPOTLIGHT
36
GINGROUP: A LEADER IN INTEGRAL TALENT MANAGEMENT Human resources management, whether focused on a blue or white-collar workforce, is not easy. Companies need a certain level of specialization to handle delicate management tasks like recruitment and personnel planning that directly impact business performance. GINgroup is positioned as a leading player in integral management of human talent in Mexico. GINgroup is a 100 percent Mexican company with over 38 years of experience and more than 2,500 specialists in a variety of human resources areas. The company has more than 4,500 clients in the Mexican market and holds pole position in the human resources management segment. In 2018, GINgroup registered sales totaling MX$31 billion (US$1.64 billion), which represents a 26 percent increase compared to 2017. Overall, GINgroup contributes to the employment of more than 180,000 people nationwide. The company’s specialization areas include payroll processing and management adapted to every position profile, recruitment processes for special positions in different geographic locations, planning and personnel and payroll management focused on accounting, fiscal, legal and administrative matters. The company is also an active promotor of employment formality and is responsible for the management of thousands of employees enrolled with IMSS and INFONAVIT. By adapting its services and solutions to a company’s specific profile, GINgroup is an ally that helps improve labor conditions, maintain an effective positioning and promote growth. GINgroup also develops strategies that generate significant savings, while complying with the clients’ procedures and quality standards. The company has several certifications that vouch for its quality and capabilities: Socially Responsible Company (ESR), Great Place To Work (GPTW), Inclusive Company and Family Responsible Company (EFR), among others. In addition, GINgroup has an agreement with CONACYT that allows the company to access fully updated information on the Mexican labor market and the number of talent-related companies in the country. In Mexico, GINgroup has 11 operational centers, 80 offices and more than 50 subsidiaries. However, its reach is international. In addition to Mexico, GINgroup has operations in the Dominican Republic, Panama, Colombia, Spain, Canada, Peru and the US. It is evaluating opening offices in Paraguay, Chile, Costa Rica, Honduras and Italy.
37
Ă ngel de la Independencia, Reforma, Mexico City
FINANCE & BANKING
2
The banking sector has become a growth engine for Mexico over the past 20 years, especially after the arrival of international banks to the country. Despite its success, the sector still faces a significant number of challenges, mostly related to the country’s banking reach, which barely touches 50 percent of the population – too low compared to other countries in the region.
Financial & Banking focuses on how the sector is working to adapt to the country’s reality and its efforts to include more people in the formal banking segment. Digitalization will play a key role, providing people who do not have access to banking infrastructure with the opportunity to access a bank account through a smartphone, for example. Innovation is a recurrent topic among interviewees, as the banking sector has invested significant resources and partnered with the fintech industry in an effort to generate more financial inclusion.
39
CHAPTER 02: FINANCE & BANKING
42
ANALYSIS: Banking Sector Embraces Digitalization, Financial Inclusion
45
SEXENNIAL PLAN: Competition, Technology to Reduce Banking Commissions
46
VIEW FROM THE TOP: Julio Carranza, BanCoppel
47
VIEW FROM THE TOP: Francesc Noguera, Banco Sabadell México
48
VIEW FROM THE TOP: Ernesto López Clariond, Banco Bancrea
48
VIEW FROM THE TOP: Juan Carlos Minero, BWC
49
VIEW FROM THE TOP: Alfredo Alfaro, Northgate Mexico
50
VIEW FROM THE TOP: Raúl Martínez-Ostos, Grupo Financiero Barclays México
52
VIEW FROM THE TOP: Guillermo Ortiz, BTG Pactual
53
VIEW FROM THE TOP: Octavio Liévano, Crédit Agricole CIB
54
VIEW FROM THE TOP: Pablo Coballasi, PC Capital
55
VIEW FROM THE TOP: Luz Adriana Ramírez, Visa Mexico
56
INSIGHT: José María Zas, American Express in Latin America and the Caribbean
57
VIEW FROM THE TOP: Antonio Junco, Mastercard
58
ROUNDTABLE: How Can Regulations Boost Technology Development in Financing?
60
VIEW FROM THE TOP: Daniel Vogel, Bitso
61
VIEW FROM THE TOP: Fernando Gutiérrez, STP
62
INSIGHT: Héctor Cárdenas, Conekta
63
INSIGHT: Omar Galicia, Mercado Libre
64
INSIGHT: Vicente Fenoll, kubo.financiero
65
INSIGHT: Juan Carlos Flores, Doopla
66
INSIGHT: Gerardo Márquez, Evolve Fintech
67
VIEW FROM THE TOP: Augusto Álvarez, AlphaCredit
Jose Luis Orozco, AlphaCredit
68
VIEW FROM THE TOP: Gustavo Méndez, Deloitte
69
VIEW FROM THE TOP: Emilio Gutiérrez Mateos, Gutiérrez Mateos y Asociados
69
INSIGHT: José Antonio Chávez, Chávez Vargas Minutti Abogados
41
| ANALYSIS
BANKING SECTOR EMBRACES DIGITALIZATION, FINANCIAL INCLUSION The Mexican banking and financial segments are stronger than ever but a new era is dawning. Social inclusion is long overdue and putting both segments under the spotlight, while digitalization remains the brave new world brought by young and innovative players
42
National economic development depends heavily on
by the end of 2018. Gustavo Méndez, Advisory Partner and
a country’s financial capabilities and the evolution of a
Financial Services Leader at Deloitte, says this reflects one of
strong and healthy banking and financial ecosystem. For
the greatest strengths of the Mexican banking system. “The
several years, banking and financial entities in Mexico
Mexican financial system is solid and capitalized,” he says.
have enjoyed significant growth rates that have boosted
“The 2014 Financial Reform ensured the solidity and liquidity
the performance of many economic sectors. According to
of banks, resulting in the robust system that we have today.”
INEGI, in 4Q18, the financial services and insurance sector in Mexico surged 9 percent higher compared to the year-
FINANCIAL INCLUSION
earlier period, accounting for MX$924 billion (US$48.1
While the sector is strong, there are glaring gaps that require
billion) for that quarter which was roughly 5 percent of
attention, with financial inclusion among the top priorities.
the country’s total GDP. Significantly, up to that point, the
“The base of the social pyramid has been long underserved,
segment had registered almost eight years of consecutive
un-banked and credit invisible for the financial sector,” says
quarterly growth.
Julio Carranza, Director General of BanCoppel. According to the 2018 National Report on Financial Inclusion, between 2012
According to tCNBV, by January 2019, the country had 50
and 2016 there was a 3.8 percent increase in the number of
multiple banking institutions with a total value at MX$9.4
deposit accounts in the country, which is an average of 12,277
trillion (US$490 billion), up from the MX$8.96 trillion
accounts per every 10,000 adults. However, the IMF’s Financial
(US$480 billion) represented by the Mexican banking
Access Survey (FAS) still puts Mexico below its Latin American
system in January 2018. The total portfolio value of these
peers, such as Peru, Colombia, Argentina and Chile, in terms
companies was MX$5.19 trillion (US$270 billion) in January
of deposit accounts.
2019, a MX$440 billion (US$22.9 billion) increase compared
“
to the same month in 2018.
Financial inclusion in Mexico will come through technology and not from the traditional banking model” Francesc Noguera, Director General of Banco Sabadell México
Méndez adds that the lack of access to financial services is heavily rooted in the country’s economic informality and employment seasonality. “Banks are focused on the formal sectors and can lend money based on this,” he says. “People in the informal sector do not have access to credit since they do not have proof of payment and the bank does not know how much they earn.” However, the blame is not entirely on the financial system. “In Mexico, there is a reluctance to use banks and regulated financial entities. For this reason, using brands that are wellknown but that are not necessarily tied to the financial system, such as Coppel and Elektra, has worked well to lure more people into the banking system,” says Gerardo Márquez,
Given Mexico’s history and past economic crises, capitalization
Founder of Evolve Fintech. Companies like BanCoppel and
has been a crucial issue for authorities and banks themselves.
Banco Azteca have implemented this approach to grown
Mexican regulations establish that banking institutions must
their clientele. “BanCoppel is the second-largest issuer of
have a minimum Capitalization Index (ICAP) of 8 percent.
debit cards in Mexico and the third issuer of credit cards. The
However, Basel III, an international regulatory framework
bank opens on average 600,000 new accounts every month,”
for banks, establishes a minimum ICAP of 10.5 percent. The
says Carranza.
Mexican Banking System passes with flying colors, delivering a 15.9 percent ICAP by 4Q18. According to HR Ratings, the
DIGITALIZATION: ONE BIG STEP FORWARD
strength of the Mexican banking system is such that 35.4
Although bank digitalization is the natural response to
percent of the banks in the country had AAA credit scores
technological advances, in Mexico it also can be a powerful
ally in the sector’s move toward financial inclusion. “Financial BMV, Reforma, Mexico City
inclusion in Mexico will come through technology and not from the traditional banking model,” says Francesc Noguera, Director General of Banco Sabadell México. The incorporation of payments made through smartphones, in particular, will open a window of opportunity to bring more people into the financial system. “Having a significant number of payments made through smartphones … forces people to have a bank account, which then can help to increase credit and to expand services to a larger segment of the population,” Noguera adds.
43
The government and Banxico are pushing toward the implementation of the CoDi (Digital Payment) platform, which will allow users and businesses to make transactions using QR codes. Antonio Junco, Executive Vice President of Government Relations for Latin America and the Caribbean at Mastercard, points out that the implementation of QR technology can bolster the number of businesses that can accept digital payments and at the same time reduce infrastructure costs. Méndez adds that the use of cellphones as a bank account and payment method could help to eliminate friction in payment systems and to understand the behavior of the informal sector.
areas of the financial sector that need to be addressed. “Programa de Impulso al Sector Financiero covers topics like
But it may be the past that hinders the future, despite the
technology and digitalization,” he says. “At the same time, the
significant strides that banking institutions are making to
initiative tackles the problem of organized crime that affects
implement a digital strategy. “Systems inherent to traditional
the financial sector as much as any other.”
banking players are the biggest challenge when trying to digitalize operations. These do not allow them to move at
The initiative may not be the only measure needed to boost
the speed that the market demands,” says Márquez. The
the sector and alleviate its problems but it is certainly a good
fintech industry is not similarly restrained, which is why it has
place to start, says Martínez-Ostos. “One initiative may not
gained relevance in the past couple of years. “Big banks have
radically change the country’s financial landscape but is an
operating systems with platforms that were created many
important step that authorities are taking along with the
years ago and changing them would cost a lot of money,” says
private sector to pave the road toward greater economic
Méndez. Rather than go it alone, many banks have chosen to
dynamism.”
work in collaboration with fintech businesses, going so far as to integrate them into their processes. “Fintech can help in the innovation and in the evaluation of creditors or borrowers in a nontraditional way,” says Méndez.
PROGRAMMING A BOOST In January 2019, President López Obrador presented his
AMLO’S 8 PILLARS FOR THE FINANCE SECTOR • New payment platform for mobile devices • Payroll loans from any bank • Regulation for repurchase and securities lending transactions
administration’s program to boost the financial sector. The
• Incentives for companies to list on the stock market
plan is centered around eight pillars whose goal is to bolster
while removing discriminatory factors that hinder
the banking and stock markets to “boost more dynamic, inclusive and fair economic growth.” The plan, which will be
investors • Flexibility for financial intermediaries in their repurchase
carried out between Banxico and the SHCP, contemplates the
and securities lending operations
creation of a payment platform using mobile devices, easing
• Flexibility for Afores’ investments
the process to obtain a loan associated with payroll and
• Allowing young people between 15 and 17 years of age
providing flexibility for financial intermediaries and Afores, among other elements. Raúl Martínez-Ostos, Chairman of the Board and Director General of Grupo Financiero Barclays México, says the governmental plan encompasses several
to open a bank account • Focus on national development banks to benefit 15 million new clients in rural areas, vulnerable municipalities and semi-urban areas
44
Torre Bancomer, Reforma, Mexico City
SEXENNIAL PLAN |
COMPETITION, TECHNOLOGY TO REDUCE BANKING COMMISSIONS New financial solutions based on technology could potentially allow for the reduction of banking commissions. Although this would impact bank revenues directly, President López Obrador’s
“I think we can address calls for the reduction of banking commissions, not with laws and not with regulations. Banks need to regulate banks”
expectation is that this will help to lure more people into the formal banking and financial sector In November 2018, one month before President López Obrador took office, legislators from the Morena party presented a proposal to regulate and ultimately eliminate banking commissions. The proposal garnered much attention and landed a significant blow to the stocks of most major banks in the country. Banorte, Inbursa, Santander, BanBajío and BBVA Bancomer accumulated a MX$103 billion (US$5.4 billion) loss in just one day after the initiative was made public. Although many argued that the initiative had no place in a market economy, it opened the door to constructive dialogue between banking institutions and financial authorities to accommodate a reduction of commissions. CNBV presented a study detailing the percentage of banks’ revenue that comes from commissions and CONDUSEF reported that in 2017, the Mexican banking sector earned MX$108 billion (US$5.7 billion) from commissions, which represents 30 percent of the total income of the banking sector. As part of the dialogue spurred by the Morena initiative, at the 82th Banking Convention in March 2019, President López Obrador assured the banking sector that the country’s executive power would not promote any regulatory change to reduce or eliminate banking commissions. Moreover, the president offered his support to reduce commissions through competition and innovation, rather than through legislation. However, López Obrador did ask banks to work on improving financial inclusion and encouraged them to reduce
“If there are many banks, there is competition and banks will have to offer better conditions to clients. This will allow banking commissions to be reduced” March 22, 2019
commissions applied on remittances. “Next year, I want to recognize the banking institutions that take the initiative and implement a plan to charge less in remittances,” he said. The Mexican Banking Association (ABM) has stated that technology is part of the answer to reduce commissions. “Technology will lead to a reduction of costs but banks cannot agree on how much they should reduce commissions. That goes against the economic competition law,” said Marcos Martínez, former President of ABM.
45
| VIEW FROM THE TOP
A CREDIT PRODUCT FOR THE BASE OF THE PYRAMID JULIO CARRANZA Director General of BanCoppel 46
Q: What elements allowed BanCoppel to succeed in
Q: How does BanCoppel adjust its business model to meet
penetrating the base of the social pyramid?
the needs and interests of its clients?
A: BanCoppel is the sole bank that offers clients a credit
A: We are a regulated financial entity and strictly comply
card even if they are unable to fully prove their income.
with legal and operational regulations. These are designed
This does not mean that BanCoppel is irresponsible
to protect our customers’ money, investments and savings.
when lending money. In fact, the bank invests heavily in
In addition to complying with all regulations, we created a
technology, systems, software and educational strategies
model that allows us to determine if we can lend money
so its clients can avoid nonpayment.
to a person or not.
We adapted our products to our customers’ needs. For
When we welcome a first-time customer, we digitize their
example, our credit card has a longer expiration date than
fingerprints as a personal identification. This technology
those offered by other banks. We lend money to carpenters,
eases the management of our clients’ needs because,
plumbers, taxi drivers, housewives, teachers, small businesses
frequently, they do not carry official identification. Also,
owners or other people who would normally be excluded from
we personally visit our clients at their homes to verify three
mainstream banking, leaving them without options because
facts: that the client is who he claims to be, that the client
they are unable to prove their income. The base of the social
lives where he says he lives and that he is employed where
pyramid has been neglected too long. BanCoppel decided
he says he works. Although these visits represent higher
to pay attention and serve this social segment, creating a
operating costs, they are helpful tools to provide us with a
uniquely innovative and efficient business model that has
clear vision of our credit portfolio.
attracted more than 30 million clients, issued over 4.5 million credit cards and granted almost 700,000 personal loans.
Q: How does BanCoppel integrate technological solutions to its offering?
BanCoppel is the second-largest issuer of debit cards in
A: A few years ago, our competitors were financial institutions
Mexico and the third issuer of credit cards. The bank has
like Banco Azteca, FAMSA, Compartamos, pawn shops or
more than 16 percent market share in remittance flows,
SOFOMES. Today, the competitive boundaries have expanded
which ranks BanCoppel as the second-biggest remittance
due to technology, which is why we have made substantial
payer in Mexico. Over 50 percent of the customers who
investments in technology. For example, more than 95 percent
open a bank account with BanCoppel do not have another
of the phones sold in Mexico are smartphones and, although
account with other banks and 40 percent of those who
not everyone who buys a smartphone can afford internet
get a loan from us lack a credit score. Approximately 54
packages, there are many open Wi-Fi networks that give
percent of BanCoppel clients are women and the bank
people access to a free internet connection.
opens 600,000 new accounts every month. We have over 1,100 offices located in more than 400 cities in Mexico.
When it comes to high-tech solutions, it is important to
Cities with over 100,000 inhabitants have a Coppel store
remember that we meet the needs of different generations.
and a BanCoppel office. Although the bank’s offices are
Millennials do not want to go to a bank and wait their turn;
located inside the stores, their operations are independent.
they want everything to be quick and simple. But we also have customers who prefer to visit a bank. Although millennials are the customers of the future and we understand that they
BanCoppel is a banking institution and part of Grupo Coppel.
prefer to use the internet, we believe that our offices will not
It focuses on providing banking services to the base of the
disappear. It is possible that in years to come technology and
social pyramid. BanCoppel obtained its registry as a banking
digitalization of services will lead customers to visit banks
institution from the CNBV in 2007
less frequently but they will continue to do so.
VIEW FROM THE TOP |
INCREASING FINANCIAL INCLUSION THROUGH TECHNOLOGY FRANCESC NOGUERA Director General of Banco Sabadell México 47
Q: How would you describe Banco Sabadell’s trajectory in
innovation is very limited. In Mexico, we have the luxury of
Mexico and what opportunities the country offers?
being challengers. Having a relevant banking infrastructure
A: We have been in Mexico for 27 years, so we have
takes decades and a huge amount of investment.
deep knowledge of the country. For 14 years, we were
Technology helps us to avoid this barrier.
stockholders in Banco del Bajío, which means that before we made the decision to start operating as a bank, we
Not having bank offices has not slowed our growth. To
already had significant experience in the country. In 2012,
achieve our goals, we have chosen to create an app and
we sold our participation in Banco del Bajío and we started
not a website. We believe that websites are something
working on our own banking project.
from the past since at the end of the day people use their phones for their everyday activities, not their computers.
Mexico offers many opportunities for banks. The economy
The first premise was that there would be no physical bank
is solid but the local banking sector is relatively small
offices and the next decision was to develop only an app,
compared to other countries in the region, such as Brazil
not a website. We launched it with an initial proposition of
or Chile. A historical reason behind this is that in the 1980s
a basic account and gradually added more products. In five
the banks were state-owned and were not active, while
months, we attracted 5,000 clients in Mexico City.
in the 1990s the banks were privatized and then declared bankrupt. It was not until the early 2000s when banks
Q: What are the challenges of implementing this digital
emerged again. This means that there is an inertial lag that
offering while trying to reach new segments of the
is very obvious in the number of people that still do not
population?
have access to banking services.
A: Today, over 90 percent of Mexicans have a smartphone and many people are choosing post-paid schemes rather than
When the economic crisis of 2008 hit Spain, Banco Sabadell
the traditional pre-paid plans. Having a significant number
took the opportunity to buy new banks. This generated even
of payments made through smartphones helps solve the
more appetite to diversify our operations internationally. At
problem of financial inclusion because it forces people to
that time, three countries were identified as priorities for
have a bank account, which then can help to increase credit
Banco Sabadell: UK, Spain and Mexico. In the UK, we chose to
and to expand services to a larger segment of the population.
buy a bank but in Mexico we decided to start from scratch. We now have two vehicles, a bank and a SOFOM, and the results
I believe that financial inclusion in Mexico will come through
have been quite positive. The SOFOM started four years ago
technology and not from the traditional bank offices model.
and focuses on corporate credit and project finance and the
Some people find the latter model insecure because of the
bank started operating two years ago. The SOFOM is twice
problem of crime in the country. Others are frustrated by
the size of the bank. However, if we merged operations, Banco
it because they do not find it helpful. In Mexico, there is a
Sabadell would be the 11th or 12th-largest bank in the country,
significant level of dissatisfaction with the current banking
out of 53. Our portfolio of corporate credit is the 10th-largest
model. It is true that Banco Sabadell is targeting a more
in the country and totals US$2.63 billion.
urban public, with a younger demographic, but it does not discriminate. It is open to anyone who wants to use it.
Q: You have chosen to make Mexico your test-market for a 100 percent digital offer. Why Mexico? A: The world is changing and so is Mexico. What is
Banco Sabadell is a Spanish bank with 11 million clients. It
conventional or traditional will fall into disuse in a few years,
is present in more than 20 countries. In Mexico, it opened
so when you start from zero you can innovate. Meanwhile,
its first representative office in 1991 and in 2014 started
if you have operations in a country like Spain, capacity for
operating as a SOFOM
| VIEW FROM THE TOP
CORDIALITY: AN ENTREPENEUR-ORIENTED BANKING STRATEGY ERNESTO LÓPEZ CLARIOND Chairman of the Board at Banco Bancrea
48
Q: What makes Banco Bancrea a “cordial bank” and how
business is the people we work with. In all cases, we consider
does that make a difference for clients?
the feasibility of the project to be financed based on the
A: A year and a half before opening Banco Bancrea, we already
proposal and the person, instead of using rigid parameters.
knew that we wanted to be a different kind of bank. Having an entrepreneurial perspective, we developed Bancrea based on
Q: What is the profile of the entrepreneurs with whom
the idea of being a cordial and open banking institution that
Bancrea collaborates?
would deliver financing support to entrepreneurs. After five
A: Bancrea’s goal is to explore innovative and different
years of operations, our portfolio totals MX$11 billion (US$552
ideas. Our team of experts is responsible for evaluating
million) and we know that the most important part of our
the proposal; if it makes sense for us, we support it. Our parameters are personalized, opening the door to the best and most sustainable ideas. Bancrea’s loans average MX$15
Banco Bancrea is a Mexican bank that provides financial
million (US$737,000) but we work with a wide variety of
services, including deposits, financing, investments and
company sizes and profiles. Companies come for a value offer
insurance, to SMEs, larger companies and individuals. The
that includes greater speed, time and personalized attention.
bank’s main offices are located in Monterrey
Our services and solutions are focused on the client.
| VIEW FROM THE TOP
INNOVATIVE MODEL REDUCES ROI PERIOD JUAN CARLOS MINERO Chief Investment Officer of BWC
Q: How does BWC ensure better market opportunities
return on investment. BWC’s actions in risk management are
for clients to capitalize returns in a constantly changing
based on a financial and innovative framework that reduces
financial market?
the time needed to see a return on investment.
A: New trends are focused more on decision-makers and capital rotation. In this context, BWC specializes in the
Q: How does BWC provide added value to its customers,
management of investment funds and active funds. Our
considering they all have different objectives?
added value is that we are disruptive agents of the traditional
A: BWC has a different organizational structure and service
financial ecosystem; we adapt to other strategies to support
provision because we focus on employing highly qualified
our clients in a volatile environment to generate a higher
financial analysists instead of developing a large promotional sales force. This scheme means that 97 percent of our clients have come to us on their own. Our clients are seen
Black Wallstreet Capital (BWC) is an independent investment
as partners because we share with them a discretionary fund
adviser with a global asset management strategy. The company
composed of our clients, employees and partners. We offer
offers investment services, portfolio management and financial
an opportunity for different customer profiles to participate
advice to companies and individuals
with the financial capital that best suits their needs.
VIEW FROM THE TOP |
MEDIUM-SIZED COMPANIES: NEGLECTED MARKET WITH GREAT POTENTIAL ALFREDO ALFARO Managing Partner at Northgate Mexico 49
Q: What opportunities did you see in the Mexican market
Q: What risks has Northgate identified that could hinder
to establish here?
investment in Mexico?
A: Northgate Capital started operating in Mexico in 2012.
A: SMEs are a resource for the development of any
We became interested in the country after pension funds,
economy. The country will need to boost commercial
through Afores, were approved to invest in private equity
activities and resources so that entrepreneurial activity
with capability to execute public issuances through CKDs
can prosper. This goes beyond the arrival of a government
on the Mexican Stock Exchange. Given Northgate Capital’s
that can centralize some of the most important economic
international experience, the company decided to offer its
activities, like the energy sector. We do not believe that
fund management expertise and developed a local team to
these conditions hamper the development of the SME
render these services.
sector. Uncertainty goes beyond the dynamism of the internal market. Having conditions where macroeconomic
The central element of our investment strategy in Mexico
variables such as exchange and interest rates are affected,
is growth focused on medium-sized companies, which also
with an internal market that is not growing, could harm
allows us to differentiate from other funds pursuing larger
internal consumption. That is where we see a little more
investments. We are a generalist fund and we are focused
risk: that the conditions for economic growth might decay.
on investments that range between MX$300 million (US$15.5 million) and MX$800 million (US$41.3 million),
What can be improved is the use of technology, especially
which is the amount that has proven to generate impact
as it relates to the needs of medium-sized companies. One
on the expansion plans of medium-size companies. In 2012,
of the most important factors we take into consideration
we launched our fist equity CKD and in 2015, we launched
in our decision-making process is our analysis of how the
our fist Mezzanine debt CKD, giving Mexican companies
use of technology can have a greater impact on two central
two financing options: equity and debt. In December 2017,
company areas: expansion and productivity.
we launched our second equity CKD. We have put around MX$12 billion (US$620 million) into the Mexican market.
Q: Which sectors are most interesting for Northgate Capital in terms of investment allocation?
Q: What risks do medium-sized companies face when
A: In the entertainment sector, we partnered with Grupo Diniz,
trying to expand their operations?
which operates ¡Recórcholis! and is launching an amusement
A: One fundamental challenge is available capital and
park named ¡Kataplum! in 2018 at a Mexico City mall. We
financing options. The reality in Mexico is that medium-sized
are also invested in a company called Elara that operates in
companies have access to financing alternatives or loans that
the telecommunications sector. Through ABC Leasing we
are very limited because banks tend to be more conservative
participate in financial leasing activities that target medium-
toward SMEs, providing more moderate financial support.
sized companies. Another niche in which we are working is
Consequently, to accelerate growth, these companies need
the hotel segment. We have invested in a company called
capital investment and that is where funds can participate.
Extended Suites that is focused on long-term business stays. Our latest investment is in the development of a chain of
Once companies decide to request investment from
natural gas service stations for the Bajio region.
private funds, the next challenge lies in making the company’s information available to the fund. In exchange for shared risk, companies must undergo institutionalization
Northgate Capital is an international fund with presence in the
processes that involve making decisions based on analytical
UK, the US and Mexico. It has been operating in the latter since
information processes and generating information in a
2012 and focuses on medium-sized companies. At a global level,
disciplined, comprehensive and efficient manner.
the company is focused on boosting technology companies
| VIEW FROM THE TOP
GENERATING A PLATFORM THAT CONTRIBUTES TO CERTAINTY RAÚL MARTÍNEZ-OSTOS Chairman of the Board and Director General of Grupo Financiero Barclays México 50
Q: How can Grupo Financiero Barclays México support clients
However, we can help generate these opportunities and
in this market landscape?
channel resources toward them. We are contributing to the
A: We are and will continue to be an important player in
development of the country.
the development of the Mexican debt market, with a strong position in the governmental bonds exchange. In the capital
Q: How can certainty be assured when the new administration
market, we continue looking for opportunities to attract
might change the country’s regulatory framework?
more investment to the country and to the stock market. Our
A: We have to understand that there is and there will be
job is to generate a platform that contributes to providing
uncertainty, so we must find a way to work with it and clarify
certainty, acting as an intermediary and providing liquidity to
as much as possible. The government’s economic program, at
the markets in which we operate. We are also focusing on the
least in its first year, is going in the right direction, which has
investment banking sector, since many projects in the second
had a calming effect. The landscape will gradually clear. The
half of 2018 were delayed due to uncertainty.
federal administration is thoroughly reviewing the state of the country. Regarding the Energy Reform, the administration is
Despite the uncertainty surrounding López Obrador’s
analyzing the conditions under which contracts were signed. It
administration, Barclays helped the government issue
wants to maintain good practices and correct those elements
US$2 billion in government bonds in the main global debt
that could be done better. This is not a seamless process but
markets at a very competitive rate. We were the first bank
we also need to give the administration the benefit of the
in the country to do this, which illustrates our commitment
doubt here as well. Clearly, some investors are nervous, which
to Mexico and the support we can offer the government
is understandable as this process is unprecedented.
and Mexican companies throughout this presidential term. Although many criticized the bond rates, which were higher
People think that changing government administrations is a
than those in 2018, this problem is not specific to Mexico. Risk
smooth process but it is not. There needs to be a diagnosis
rates for emerging markets, along with rates for US Treasury
and there is a learning curve, not only for the government
bills, have also increased.
but also for us. The private and public sectors need to be in constant communication to understand how they can help
Q: What are the main opportunities Grupo Financiero
each other and better coordinate policymaking.
Barclays has identified to boost investor confidence? A: So far, the markets have given López Obrador’s
Q: What are the main challenges in Mexico’s financial future?
administration the benefit of the doubt, which helps
A: The 2018 presidential elections illustrated the country’s
when managing risk. Investors see the government wants
strong desire for political change. López Obrador represented
to improve the country’s savings by creating conditions
that change and our task as financial institutions is to adapt
in which Afores can access new investment alternatives.
to this new reality. Policy continuity has been a hallmark of
We can also participate in this process by helping Afores
past presidential changes, particularly in the economic and
find new investment niches that go beyond government
financial spheres. This is no longer the case.
bonds or stocks. Sectors like infrastructure, energy and agriculture offer attractive participation opportunities
The new administration has experience in different areas
through CKDs and CERPIs.
and is conducting business in its own way. While there is continuity in certain areas, the general environment is one
In 2018, we made several successful transactions in CKDs
of uncertainty. There are many elements still to be defined
and CERPIs and we feel that this year will not be any
but the new government presented a responsible budget,
different. Institutional Mexican investors might be changing
developed an economic program with a focus on public
investment vehicles but they clearly continue to invest.
finances and reiterated the importance of Banxico’s autonomy.
BMV Group, Mexico City
51
López Obrador’s administration is looking for ways to work
A: The agricultural sector is highly attractive, which is why we
alongside the financial sector to create the conditions for
are trying to create a second CKD especially for this sector.
financial inclusion, while helping the stock market grow and
Several agribusiness niches are very profitable but it is a
incentivizing savings among the population.
fragmented sector in which there is no institutional capital that can provide scalability for Mexican producers to compete
Q: How will the new program to boost the financial sector
against large global companies. Our goal is to find a way to
impact the country’s development?
provide that scalability.
A: From the banking side, there is no denying that Mexico has low banking penetration, which opens the
The technology sector also offers significant opportunities.
door to informality and expensive financing mechanisms.
Although the most attractive projects are companies like
Programa de Impulso al Sector Financiero covers topics
Uber or Amazon, most of the economic activity in this sector
like technology and digitalization to address this issue.
comes from smaller companies that fill in the gaps of the
At the same time, the initiative tackles the problem of
technology ecosystem. I believe there is space for global and
organized crime that affects the financial sector as much
local institutional capital to work with these companies.
as any other. By reducing the use of cash, we can diminish problems related to money laundering and its impact on
Q: What are Barclays' expectations for 2019 and 2020?
the country’s economy.
A: We will work to consolidate our position as an international investment bank. We are committed to Mexico for the long
On the government’s side, the administration is looking for
term. We want to continue providing liquidity to public debt
financial schemes to reinforce capital markets. One reason
and capital markets and to work hand in hand with the Mexican
very few Mexican companies are listed on the stock market
authorities. Grupo Financiero Barclays México is aware that in
is the amount of taxes they must pay when issuing a public
terms of economic growth, the first year of López Obrador’s
offering. Reducing these taxes is an initiative that has been
administration will be difficult and the country will experience
talked about for many years and the new government is
deceleration. This will be the result of 2018’s uncertainty and
reopening the discussion. We expect this will provide an
changes in how the country operates. However, this is just part
opportunity for Mexican companies to carefully review how
of the adjustment. We must continue supporting different
to reach new markets. One initiative may not radically change
economic activities so the country does not stagnate.
the country’s financial landscape but it is an important step that authorities are taking along with the private sector to pave the road toward greater economic dynamism.
Grupo Financiero Barclays México is a subsidiary of Barclays PLC. Its investment banking arm provides financial advisory,
Q: Among the sectors that could attract investment from
capital raising, financing and risk management to corporations,
Afores, which offer the best opportunities?
governments and financial institutions
| VIEW FROM THE TOP
LATIN AMERICAN EXPERTISE TO MANAGE MEXICAN INVESTMENTS GUILLERMO ORTIZ Partner and Board Member of BTG Pactual 52
Q: BTG Pactual is Latin America’s largest investment bank.
this is culture. Many companies do not become public due to
After three years, what is the bank’s position in Mexico?
the conditions that this operation implies, such as the need to
A: BTG Pactual’s largest operations are in Brazil but we also
implement corporate governance and to establish transparent
have operations in Argentina and Peru, with two investment
practices. Some companies are not willing to follow this path,
units in Colombia and Chile. In the latter two, BTG bought the
but those that have done so have discovered that the market
most important local investment banks, so we are very active
is an important source of resources and funds.
in these two countries. In Mexico, we built the operations from the ground up. We have a brokerage house and an
The business community needs to be convinced that
investment fund operator and we do M&As and provide
becoming a public company not only provides access
consultancy for IPOs, among others. In Mexico, we have a
to capital sources but also allows for involvement in
relatively compact operation but we have participated in a
practices like the creation of corporate governance and
significant number of IPOs in the past two and a half years.
can also help solve inheritance problems that many family businesses face.
Q: What have been the largest challenges BTG Pactual has had to overcome in Mexico?
Q: Given the international economic and geopolitical
A: In Mexico, we compete with many investment banks that
outlook, which economic model should a country like
have been operating here for years. Our direct competition
Mexico favor to continue growing?
includes international banks like Morgan Stanley, Goldman
A: We need to gauge the price paid for Mexico’s
Sachs and Barclays and Mexican institutions. It is not an
economic stability and evaluate all the elements that are a
easy task but I think that we have done significant work.
consequence of the financial crises that Mexico suffered in
We are making an effort to increase our brand awareness.
the 1980s and 1990s. The first thing that must be done is
Our distribution capacity in Latin America is a competitive
to preserve the country’s macroeconomic stability and its
advantage we can offer our clients, together with our
capacity to absorb external shocks. The fall in oil prices is
analytical capacity. We have analysts based in Brazil, New
an example. The country was able to absorb this problem
York and London, among others, who are specialists in
from a fiscal point of view thanks to the exchange rate.
different industries and who give us a significant capacity
Mexico has become a more resilient economy and we must
to understand a variety of businesses and sectors.
properly recognize the elements that have fostered this resilience.
Q: What are the challenges of developing a healthy investment ecosystem in Mexico?
We also need to focus on increasing the economy’s
A: The problem we have in Mexico is that there are few issuing
productivity and competitiveness. The structural reforms
entities. The Mexican Stock Exchange is very small compared
represented major milestones but there is still a long way
with its Brazilian counterpart. In Brazil, there are more listed
to go. All this needs to be accompanied by respect for the
companies than in Mexico, which makes it a larger market
rule of law and the country’s institutions. Mexico has been
with greater liquidity. In Mexico, there are many large and
able to build institutions and similarly, the country will be
medium-sized companies that are not listed. One reason for
able to increase its competitiveness and its resilience. A clear example is the autonomy of Mexico’s central bank. The fact that Banxico has been autonomous since 1994
BTG Pactual is a Brazilian investment bank, asset manager and
facilitated the construction of several elements to ensure
wealth manager, and the largest Latin American institution of
macroeconomic stability, such as the central bank’s
this nature. It is present in Brazil, Chile, Peru, Colombia, Mexico,
prohibition against financing the government and its focus
the US, UK and China
on preserving purchasing power.
VIEW FROM THE TOP |
NEEDS OF A NEWLY OPENED MARKET OCTAVIO LIÉVANO Country Head of Crédit Agricole CIB 53
Q: In which industry does Crédit Agricole CIB have the
term buyer is called merchant risk; the greater the proportion
biggest portfolio share in Mexico?
of generation that is not secured by a long-term buyer, the
A: In Mexico, the energy industry represents around half of our
greater the risk involved. The financing market in Mexico is
portfolio of activities, followed by the automotive sector and
still in its infancy in terms of handling merchant risk because
construction materials. The projects we get involved with are
of the electricity market’s lack of history but sponsors, off-
generally valued at US$1.5 billion or more. We manage direct
takers and banks like Crédit Agricole CIB continue to innovate.
loans, syndicated loans, hedging (derivatives), debt capital market transactions and M&A and financial advisory. We can
Q: How should factors like merchant risk be tackled in the
also cover interest rate and exchange derivatives as well as
Mexican market?
deposits and other products related to investments. Crédit
A: A select few financial institutions, such as Crédit Agricole
Agricole CIB has significant expertise in all areas of structured
CIB, have international experience in handling these types of
finance, ranking in the Top 5 in the world in areas such as
issues and can use their international knowledge to support
project finance, reserve-based lending, shipping finance,
the development of the market in Mexico. Nevertheless, the
aircraft finance and securitizations. We are also a pioneer
risk from having no historical track record for prices remains,
and worldwide leader in sustainable finance and green bonds.
making it hard to create bankable projects. This, as in other countries like Chile, will continue to develop with time. We
Q: What Crédit Agricole CIB service has been difficult to
are already seeing and considering innovative structures to
introduce to the Mexican market?
finance these types of projects.
A: We are among the most experienced banks globally in reserve-based lending, which has not yet taken off in Mexico
Q: How have CFE and PEMEX evolved as the Energy Reform
because the regulation has not been fully developed to
has unfolded?
support this activity. Through this service, new upstream oil
A: The Energy Reform meant that CFE and PEMEX were
and gas projects can be financed on a non-recourse basis
given the mission of creating value as opposed to maximizing
through the sponsor. A loan is provided on the basis of the
their production volumes or participating in certain projects
amount and value of the reserves of hydrocarbons of a given
that are strategic for Mexico’s development, regardless
project. However, there are a few remaining issues to make
of the company’s expertise or profitability. As productive
this fully bankable in Mexico, like what to do if a block has to
enterprises of the state, these companies could no longer
be reauctioned.
take on those projects. This gave them the chance to focus on more profitable activities.
Q: How has the international industry reacted to the new framework for the Mexican electricity industry?
The new administration seems to want to revert part of this
A: The Mexican electricity market is relatively new and has
trend. This can be positive as some aspects of the Energy
a limited history and track record. This causes final users of
Reform may have been too stringent. However, the challenge
electricity, sponsors and banks to take a cautious approach
going forward will be to wisely allocate PEMEX’s and CFE’s
to the spot market. That being said, we are seeing continued
limited budget to pursue their activities, which means they
activity and efforts by all participants to advance the market
will have to remain selective.
and continue developing projects. Financial innovation will be key in this regard. Crédit Agricole CIB is one of the world’s 10 largest financial
Some projects are being developed without a long-term
institutions. It has been in Mexico since the 1970s and is
contract for the entire energy production. The risk that arises
focused on providing services for corporations and state-
when a power generation project does not have a secure long-
owned companies such as PEMEX and CFE
| VIEW FROM THE TOP
EDUCATION, SUSTAINABILITY, CONSUMER SERVICES DRIVE INVESTMENT FOCUS PABLO COBALLASI Managing Director of PC Capital 54
Q: PC Capital’s private equity fund prefers investing in
A: We want to keep supporting and strengthening SMEs
education, financial services, consumer and sustainability
and their contribution to the Mexican economy. Among
industries. Why these in particular?
the firm’s objectives is to continue investing in sectors that
A: The firm believes that education, sustainability and
benefit Mexico, create wealth and encourage the country’s
consumer services are the pillars of Mexico’s future
economic development. At the same time, PC Capital
development and will require further financial backing to
wants to help these SMEs grow. This new investment fund
continue growing. In the last two years, consumption in
will be launched in 2019 and will invest between US$5
Mexico has been increasing at an accelerated rate because
million and US$25 million per company.
the country’s middle class has also expanded. This sector is expected to continue making a significant contribution
Q: What internal and external elements could hinder
to Mexico’s economy over the next 10 years and PC
investment in Mexico?
Capital does not see any reason to believe otherwise. PC
A: Support for private investment by the new government
Capital’s focus for the short to midterm will be to continue
will be key for the country. It is necessary for the new
supporting SMEs in the consumer sector and in the area
government to support and continue to implement
of sustainability.
public policies that benefit all industries and the active participation of the private sector. The last administration
Q: What are PC Capital’s top success stories?
did a good job in giving the private sector the opportunity
A: One of our success stories in the financial services
to strengthen itself and even openly participate in
industry is our investment in Te Creemos Holding, which
industries where it was not possible before, like the
has now become the largest private microfinance company
energy sector. The government must also be inclusive and
in the country. The company employs over 4,000 people
consider SMEs, since approximately half of Mexico’s GDP
and has grown by more than 10 times in revenue and over
derives from these types of companies, which is also the
15 times in earnings in the last three years. In the consumer
focus of PC Capital’s investments.
services sector, we also had great success with Grupo Filoa, a cafeteria management company that we exited
Q: In 2018, PC Capital celebrated its 10th anniversary in the
this summer with an IRR of over 80 percent. Regarding
Mexican market. What have been the main guidelines for
sustainability, we have also had the benefit of experiencing
PC Capital’s track record over these last 10 years?
tremendous growth derived from the preference of
A: We are very happy to have reached 10 years of working
consumers for sustainable products. An example of that
for our investors in Mexico. PC Capital’s investments in the
is our recent investment in Rancho Los Molinos, which is
country have been very successful and our companies are all
the most important seed distributor in Mexico with sales
leaders in their respective industries. Our goal at PC Capital is
of more than 200 million seeds per year and presence in
to achieve strong financial returns for our investors but also
all major retail chains in the country.
to generate social impact in the community. These guidelines have cemented our investment criteria to help us create
Q: PC Capital has begun talks to raise a new fund of up to
jobs, gender equality and take care of the environment at
US$200 million. Where will this money be invested?
the same time that we achieve financial success. We are proud to say that through our portfolio, we now employ over 5,000 people, of which over 40 percent are women.
PC Capital is a Mexico City-based private investment fund with 10
We are generating economic wealth in every state and are
years of experience working in investment banking, private equity
present in over 3,500 retail outlets that reach both urban and
and real estate. It was previously ranked the top independent
rural communities. These provide sustainable products and
investment banking firm by number of deals closed in Mexico
financial services to all segments of the population.
VIEW FROM THE TOP |
CONTACTLESS TECHNOLOGIES INCREASE FINANCIAL INCLUSION LUZ ADRIANA RAMÍREZ Director General of Visa Mexico 55
Q: What is Visa’s main differentiating value compared
it is possible to obtain a Saldazo debit card in just five
to others in the market?
minutes at any OXXO convenience store and there are
A: Visa is a company with unparalleled scale, innovation,
already more than 8 million accounts. In addition, we are
security and brand recognition. We have a diverse
supporting the Mexican government’s social programs
portfolio in consumer payments products and when
with our bank partners Banco Azteca and Banorte. As
merchants accept Visa, they gain access to 3.2 billion Visa
more and more players in the industry move toward
cardholders. We innovate to provide intuitive experiences
digitalization, we need to make sure consumers are not
by developing, in collaboration with multiple partners,
left behind.
consumer-centric products, solutions and services, so people can continue paying easily and securely.
Q: Samsung Pay for Visa has been available in Mexico since January 2018. How has the service performed and
Q: How much progress has Visa Mexico made in its goal
what is next?
to market Near Field Communications (NFC) terminals
A: Samsung Pay has received a positive response. Visa
among clients?
cardholders with access to Samsung Pay have adopted
A: Contactless technology can help ease the transition
a faster and convenient mobile payment method in
from cash to electronic payments. Visa has worked
Mexico. Besides the seamless experience, transactions
with the industry to quickly advance the deployment of
are protected by multiple layers of security, including Visa
products and enabling mobile points of sale. Visa has
Token Service. Consumers are more demanding and move
made great progress with several business partners to
quickly to participate in the world of digital transactions.
support the adoption of contactless technology, which is
We are supporting our clients to offer consumers a safe,
critical as it will pave the way for next-generation payment
simple and consistent purchasing experience, regardless
technologies, including mobile phones, wearables and
of where they are and what device they are using.
other IoT devices. Q: Visa and the Ministry of Tourism are collaborating to Q: How does Visa collaborate with the industry and the
boost the growth of tourism in Mexico through digital
government to improve financial inclusion?
transformation. What is Visa’s role in this project?
A: Digital technologies are bringing people together.
A: Tourism is a major engine for economic growth in
We have a responsibility to make sure everyone is
Mexico and digital transformation is key to boost further
included in the global digital marketplace. With over 60
development. When payment acceptance is improved
percent of the adult population excluded from financial
in the country’s tourism destinations, consumption is
services in the country, paying with cards is limited
facilitated and the experience is better for tourists. Our
to specific sectors of the socioeconomic pyramid. We
work with governments allows us to drive acceptance
collaborate with governments and with other industry
and promote the use of electronic payments in those
players to promote financial inclusion following two
destinations. Visa also has access to a large amount
central strategies. One is oriented to expanding access
of information that we share with the government to
to products and solutions designed to meet customers’
strengthen tourism strategies.
needs. The other is to increase acceptance of digital payments, as only 10 businesses accept cards per 1,000 inhabitants in Mexico.
Visa is a global payments technology company that connects consumers, businesses, financial institutions and governments
Collaboration is key in transforming the digital payment
in more than 200 countries and territories to fast, secure and
environment. In partnership with OXXO and Citibanamex,
reliable electronic payment systems
| INSIGHT
IN THE DIGITALIZATION DRIVER’S SEAT JOSÉ MARÍA ZAS President and Director General of American Express in Latin America and the Caribbean 56
The rise of the middle class in Mexico has inspired and
education and to understand how contributions to the Tax
challenged companies to provide better services while
Administration Service (SAT) can improve benefits and
adapting to the digital era, says José María Zas, President
contribute to economic growth.
and General Director of American Express in Latin America and the Caribbean, adding that one of the country’s biggest
The fintech industry can play an integral role in this process,
problems, the informal economy, is also an opportunity. “In
Zas says. According to a 2018 report on the Regulatory
Mexico, only 10 percent of all product and service consumption
Sandbox in LATAM and Caribbean for the Fintech Ecosystem
is paid by card. However, this weakness can become a financial
and the Financial System by the InterAmerican Development
opportunity; in other Latin American countries this figure is
Bank, the fintech industry has been growing rapidly in Latin
30 percent,” says Zas.
America and it has become the ideal mechanism to improve
“
In Mexico, only 10 percent of all product and service consumption is paid by card”
financial inclusivity in the region. The report also states that there are around 700 platforms in the region that offer digital financial services and Mexico owns 25.6 percent of these. Zas believes the digital transformation in Mexico is boosting communication between government, banking institutions and fintech developers to help improve inefficiencies in the financial sector. “The relationship between technology and financial services is constantly evolving. The greatest outcome
To meet the financial demand of the Mexican market,
is the ability to reinvent services and products to address the
American Express offers a diverse portfolio of products and
changing needs of the customer,” he says.
services, such as personal credit cards, corporate cards, reward programs, travel services and a global network to complete
The challenges of the technological era are not overtly
the financial experience. “No one among our competition
clear but this uncertainty opens opportunities for new
can replicate the services we provide on a financial level.
products and services. Meanwhile, fintech companies will
Most competitors have a local reach, while our company has
continue to position themselves in the financial market
international connections,” says Zas. “The relationship with
as catalysts for digital change and drivers of innovation
the client is based on world-class assistance. The company
in traditional industries. In March 2018, the Fintech Act
supports its clients wherever they go.”
was approved with 145 articles to regulate crowdfunding companies, virtual currencies and electronic payments,
The informal economy impacts the financial sector in different
according to the report in the Act to Regulate Institutions
ways, according to Zas. First, fewer stores are willing to
of Financial Technology published in the Official Journal
accept cards because there is not a great deal of demand
of the Federation.
for card-payment services. Second, a large percentage of the Mexican population does not have a bank account.
American Express is expanding at great speed thanks to
Third, the percentage of purchases made with a card is low
innovative products with new payment structures, such as
compared to other countries. “An increase in card users
the American Express Platinum credit card and the American
would go a long way to formalizing the national economy,
Express Gold cards, Zas says. “The Mexican market and
improving equity in tax collection, improving security
consumers in the financial sector are spurring demand for
measures and boosting investment in sectors like health,
digitalized services. American Express’s renewed vision is to
education and transportation,” he suggests. This could also
provide the best consumer experience every day, showcasing
open opportunities for people to have a better financial
how the company has changed.”
VIEW FROM THE TOP |
CONTACTLESS, QR TECH DRIVING FINANCIAL GROWTH ANTONIO JUNCO Executive Vice President of Government Relations for Latin America and the Caribbean at Mastercard 57
Q: What is Mastercard’s role in creating a digital future
payments are secure. One of the main reasons is that the
in Mexico?
card never leaves your hands.
A: Mastercard achieved significant progress in contactless payment technology in 2017, driven in part by cardholders
Q: How ready is Mexico’s infrastructure to bolster the
who demanded this technology, which is now operational.
adoption of contactless payments?
Businesses are changing their infrastructure to ensure the
A: The challenge we have found in Mexico is the cost of
best customer experience through contactless payments. In
the digital payment infrastructure, which is a barrier for
2018, 30 percent of businesses accepted payments through
many SMEs seeking to integrate into the digital payment
contactless technology and we expect that by the end of 2019
network. There have been several developments that allow
more than 50 percent will do so. One of our main issues in
the reduction of infrastructure costs, such as point of sale
Mexico is financial inclusion, which is why we are developing
(POS) readers or QR technology. These technologies make
technology for the public transportation sector: to ensure
it easy for small businesses that do not have a continuous
that most of the population have access to innovation and
sales volume or for independent professionals like doctors,
to close the gap between financial institutions. We already
dentists or architects, whose businesses do not depend on
have 1.4 million Mastercard Metro cards in the market that
daily transactions, to enter the ecosystem of digital payments.
are equipped with contactless technology.
This is where the next million POS readers will go. They will be placed with professionals, public transportation services and
We believe the use of contactless technology will greatly
in non-urban areas where acceptance of cards needs to grow.
benefit Mexico. Data shows that countries that adopt contactless technology increase the number of registered
Q: What are the emerging opportunities to work with
transactions by 27 percent. In Europe, more than 50
cryptocurrencies or blockchain technology?
percent of transactions are contactless and in countries
A: There are many new and interesting technologies that
like Poland and Sweden, this percentage surpasses 80
have emerged, such as blockchain. We already have several
percent. In Mexico, both issuers and merchants are adopting
applications based on blockchain and several patents for
the technology and as a result, we expect to see strong
blockchain applications as this technology represents an
progress in 2019.
interesting alternative in terms of payments and exchanges. Cryptocurrencies are not a strategic priority for the
Q: How does Mastercard guarantee security of transactions
company but we believe that blockchain technology offers
using its technology?
an interesting future.
A: Security is one of the most important aspects of a financial transaction and it is a top priority for Mastercard.
There are also other interesting technologies that are
We have developed tools and solutions that guarantee
making a difference, including QR. It is necessary to note
security of transactions and that comply with all security
that regardless of whether we use chips, contactless cards
protocols. That said, it is also important to balance this with
or QR codes, we have developed all the technology related
agile solutions.
to fraud and money laundering prevention needed to ensure that transactions are secure.
For instance, the security filters for the purchase of a MX$5 (US$0.3) metro token is different than for a transaction of MX$50,000 (US$2,600). To achieve this balance, we work
Mastercard is a global technology company focused on
with banks to ensure that cardholders always enjoy the
the payment industry. Its main business is the processing of
highest security standards while maintaining the product’s
payments between merchant banks and card-issuing banks or
flexibility. The public can be certain that contactless
credit unions. Mastercard became a public company in 2006
| ROUNDTABLE
HOW CAN REGULATIONS BOOST TECHNOLOGY DEVELOPMENT IN FINANCING?
Although Mexican banks have long portrayed themselves as innovators, fintech companies spurred a race in the digital innovation arena and opened the door to new financial regulation aimed at leveling the playing field between traditional financial institutions and digitally-native players. However, new regulations can pose a problem for innovators and entrepreneurs by setting a too-rigid framework that may halt innovation by constraining new activities or setting up sky-high costs for new business ventures. The challenge that authorities and the financial ecosystem face is finding an adequate balance that protects consumers and
58
encourages innovation.
Fintech can become a provider of technology to the sector, including to stock exchanges. The important thing is to first have a strong primary legislation, which was already published. I think this will allow fintech companies to grow in an orderly and uniform way, so no incident happens that may smear the name of the rest of the industry. The aim of the fintech regulation is to add value. Fintech sounds very nice
JOSÉ-ORIOL BOSCH CEO of BMV Group
but obtaining the financing for it is not so simple, so we have been talking with those companies that want to obtain funding to grow through the BMV. We are having the same conversation with various sectors which do not have access to financing or that find it difficult to find it. One such sector is Sofomes in Mexico. We have an agreement with ASOFOM and we have been able to help many Sofomes, small and large alike, to access funding through the BMV in the capital and debt markets.
All regulations and laws impose restrictions and limits, but these should exist for the right reason. For the Fintech Act, regulators scrutinized laws from around the world and tried to incorporate the best regulations and practices they saw in other countries. The authorities also created the idea of a sandbox that allows fintech companies that are not covered by the main regulation to operate in a controlled
GUSTAVO MÉNDEZ Advisory Partner and Financial Services Leader at Deloitte
environment with a limited number of users. This provides the space for new ideas to be explored and to be evaluated by the regulator. Regulators are leaving open this sandbox environment so innovation can continue. I do not think the innovation experienced by the sector, nor its speed, will be limited. Moreover, the authority will provide the space for innovation. Companies will have somewhere to reach customers and improve accessibility to services and products.
The Fintech Act is positive because it promotes four fundamental pillars: consumer protection, minimum operation standards, certainty for companies and investors and financial inclusion. It is a very general law that promotes flexibility, which means that changing industry conditions will only imply changes in secondary regulation thus avoiding a legislative process. However, I believe there is a risk that the law will not
DANIEL VOGEL CEO of Bitso
be as permissive as it should be with smaller players, which could halt innovation in the country. Part of our proposal is that regulation should be proportional to the operational level of every company. When it comes to regulation, you have a clear trade off: the level of innovation you want to foster versus the level of risk you want these companies to take on.
When it comes to fintech, the ecosystem is diverse. To define secondary regulations, authorities have sat with different players and associations, which has been fairly positive. We would like to see an environment that fosters the creation of more fintech companies and that allows existing companies to do what they are already doing. Players should continue growing and filling the market niches that had been neglected by traditional financial institutions. The road toward regulation has been collaborative and we want it to generate growth in the sector and at the same time foster financial inclusion.
OMAR GALICIA Comercial Director de Mercado Libre
59
It is a good thing that we are being regulated. You have to do things right and you cannot have that many companies in limbo. However, it worries us that the law has several requirements that for entrepreneurs are hard to comply with. We expect the CNBV to fix this through the secondary legislation. It would be ideal to have a regulatory sandbox with very basic regulations for startups and once they have grown enough, to subject them to more regulation. This would be particularly beneficial for companies that have a strong risk component, such as crowdfunding or loans.
HÉCTOR CÁRDENAS CEO of Conekta
It is very important to pay attention to detail. One of the things that needs to be carefully considered is the amount of money that regulators will ask fintech companies to withhold in their financial statements. That amount will be determined by the CNBV and will depend on the size of the fintech company, its number of clients and operations. The risk involved here is that probably the minimum threshold required by regulators may be too high for startups. However, the Fintech Act has some good points. For instance, it will force fintech companies to strengthen their KYC processes and have all their clients’ funds divided, meaning the money belonging to each client must be clearly separated
FERNANDO GUTIÉRREZ CEO of STP
from the funds of other clients, identified and made susceptible to audit by a third party.
CNBV, Banxico, CONDUSEF and the Ministry of Finance and Public Credit are in charge of the secondary rules. With these rules, there are two important things to consider. Some must be applied regardless of whether we are banks, SOFIPOS or fintech companies, such as those related to the prevention of money laundering or rights of clients and users. However, the regulation also states that the complexity of the activity and the size of companies will determine the required regulation. It all depends on how the law is applied. If a company is very small, then it should not be asked to make regulatory reports as if it were a big company because the systemic
VICENTE FENOLL Director General of kubo.financiero
risk is lower. This generates fewer operational costs.
Having an ideal law is very hard. However, what the Fintech Act should definitely have is absolute clarity, regardless if the sector is heavily regulated or not. One of the things that has impacted financial institutions the most is that there is a lot of room for interpretation. Compliance officers have different perspectives, there are different rules within banks and it depends greatly on who interprets the regulation. In the US, law interpretation also varies widely, which complicates relationships with financial entities outside Mexico. An ideal law would find a middle ground between being too strict and too permissive and would be absolutely clear with no room for interpretation.
GERARDO MÁRQUEZ Founder of Evolve Fintech
| VIEW FROM THE TOP
DIGITAL CURRENCIES: A TOOL FOR FINANCIAL INCLUSION? DANIEL VOGEL CEO of Bitso 60
Q: What is Bitso’s vision for Bitcoin and other
financial system. This segment of the population views digital
cryptocurrencies as investment, payment and
currencies as money created by their generation. Other
microtransaction tools?
buyers are those over 50 years old who suffered first-hand
A: The technology behind digital currencies must be
the country’s economic crisis and want their money to be in
understood as an enabler for many different things, not only as
a decentralized network without a central entity.
a technology that will impact microtransactions, remittances or as an investment tool. It is a technology that changes the
Q: What are the challenges and opportunities in Mexico
concept of how money works and it opens the door to so
for the use of blockchain to promote financial inclusion?
many things, just like the internet did in the 1990s. In the same
A: The problem of financial inclusion has multiple
way the internet changed the way we access information,
dimensions. However, digital currencies and blockchain
blockchain has the potential to change the way in which we
can be a breakthrough and we are already seeing several
perform transactions and in general, how we transmit value.
indications of this. This technology, however, is not a panacea and cannot solve everything but we are seeing
In 2017, we started to see digital currencies increase in
many cases where digital currencies are helping people who
value, which led many people to invest in them, leading to
are not included in the formal financial system in Mexico.
an even greater rise in value. Many people started buying
Some examples include people who do not have a credit
digital currencies not because they thought it was more
card or a bank account. If these people want to perform any
useful for transactions or because they had a greater affinity
transaction online, many are making transactions through
for virtual money but because they saw it as a new way to
bitcoin or ethereum. Financial inclusion does not need to be
make money. Digital currencies can be alternative assets
defined as having a bank account, it should be defined as
to store value. Nevertheless, at Bitso we believe that the
having access to loans, insurance, a retirement investment
underlying technology is much more than just a store of
fund and so on.
value. It is also a medium of exchange, a way to monetize networks and a tool for disintermediation, among others.
Bitso has more accounts than any brokerage house in the country. In remote places like Sierra Tarahumara, there were
Q: What cultural changes have occurred as a result of the
never fixed telephone lines because it was too expensive
introduction of blockchain and digital currencies?
for companies to set them up. However, today, most
A: In Mexico, we have seen an interesting phenomenon:
people in the Sierra Tarahumara have a mobile phone or a
people have begun buying digital currencies as a means
smartphone. This situation provides the perfect opportunity
to incorporate themselves into the digital economy and
to rethink financial services. We have customers located in
in particular, to make either international payments or
places where there are no banks let alone brokerage houses.
payments on the internet. Most of our clients continue to be
Because the distribution model is completely digital, we
young people, with an average age of 26 years. This segment
think about everything differently.
includes young people who have no bank account or credit card. Similarly, these users dislike the idea of physically
International companies are starting to provide different
going to a bank or have been rejected by the traditional
kinds of credit through blockchain and digital currencies. This means that if you are Mexican and you want to ask for a loan, your choice of offerings no longer originates
Bitso , founded in 2014, is a Mexican online platform for the
only with Mexican banks or Mexican fintech companies but
exchange of digital currencies like Ethereum and Bitcoin. It
with almost any company in the world that wants to have
prioritizes security, transparency and best practices while
exposure in Mexico. When competition stops being local
focusing on innovative product development
and becomes global, that is good news for consumers.
VIEW FROM THE TOP |
ELECTRONIC PAYMENTS GAIN STRENGTH AS SECTOR EVOLVES FERNANDO GUTIÉRREZ CEO of STP 61
Q: How is STP inserting itself into the fintech ecosystem
Q: How is the Mexican electronic payments system evolving
in Mexico?
and how is this translating into benefits for users?
A: STP is an Interbank Electronic Payment System (SPEI)
A: New services are appearing that we believe will transform
participant with 10 years in the large-value payments (LVP)
the banking industry as a whole. Starting on April 30, 2018,
system, performing electronic transfers on behalf of our
banks are required to provide a CLABE account for each
clients to banks, brokerage houses and any other player
financial product their clients have. This is facilitating
connected to SPEI. Although we provide our services to
interbank payments and allowing clients to change or
any type of business, we are an important partner for the
switch banks and perform SPEI payments 24/7 for all their
fintech industry thanks to our leadership in providing hi-
accounts payable, loans, mortgages and leasing products.
tech and expertise solutions, including real-time connection
This will increase the amount of SPEI payments in the near
(API-Fintech), advisory as independent consultants,
future, which at the end of the day will change the way
multivariable technological integration with any platform,
payments are understood. Also, Banxico has unveiled a
language and technology support and automatization of
functionality called “COBRO SPEI,” which is similar to the
income and expenses of both investors and applicants of
US banks’ ACH service, that all banks will be forced to add
Collective Financing Institutions and Electronic Payment
to their app so their clients can approve or reject automated
Fund Institutions in a 24/7 window.
charges from other participants. This will radically transform collection services.
STP allows fintech companies to identify Mexican tax ID numbers (RFC) and the beneficiaries’ name, which allows
Q: SPEI has been operating in the market for several
them to reinforce their KYC procedures through the
years. What will it take for it to become a mass
technological authentication of the Electronic Proof of
consumption service?
Payment (CEP).
A: Although the number of people using the banking system still is not very high, electronic payments are growing
Q: What advantages does STP’s electronic payments
rapidly. What we need now is for cell phones to become
system offer over that of banks?
a payment tool. Banxico is working on new regulations
A: Banks set an upper limit for electronic transactions of
that will allow this change. There is a reason for this: all
MX$8,000 (US$437) after 5pm or on Saturdays, Sundays
transactions done via SPEI are transparent and can be
and bank holidays. The reason for this is that banks use
traced. These can also help reduce the use of cash and
their clients’ money to originate loans. Since we are not in
payments via credit cards, reducing costs.
that kind of business, our clients’ money is always available and ready to be disbursed 24/7 without any amount
The rise in electronic payments can be seen in workers’
restriction and secured by financial guarantees established
remittances. In 2017, almost 90 percent of remittances were
by SPEI rules.
made in cash and only 10 percent were done electronically to bank accounts but the trend is shifting. STP’s goal is
The key competitive advantage offered by STP over
to process electronic remittances to CLABE, debit card or
traditional banks’ payment platforms is that we are
mobile accounts.
integrated technologically into our clients’ systems (H2HERP) through algorithms and webservices that deliver encrypted messages on each transaction. This allows
STP is a Mexican fintech company that specializes in real-time
payments and collections to be made in real time from
electronic payments. It is conformed by a group of experts on
to STP to any bank account, debit card or mobile account
fintech, economy and technology development for financial
in seconds.
institutions
| INSIGHT
BUILDING NEXT-GENERATION FINANCIAL TOOLS HÉCTOR CÁRDENAS CEO of Conekta 62
To enable economic digitalization in Mexico, the banking
and Mexico is among the Top 5 countries for Spotify and
ecosystem must adapt to the needs of consumers. This goes
Netflix.” Being ready, however, does not mean everyone needs
beyond providing credit and debit cards and online banking,
a credit card, he adds. “Consumers are ready for digitalized
says Hector Cárdenas, CEO of Conekta, a fintech company
services but they do not want a credit card because cash is
that offers technological solutions to improve e-commerce
useful to them.”
in Latin America. Real digitalization means the creation of disruptive models that address real-life issues.
Instead of hitting a wall while trying to create a new reality, Conekta chose to generate the necessary tools to improve the
“Mexican society is ready to include technology solutions
conditions of the current reality. “We realized that we were
in everyday life. The only missing element are the tools to
never going to boost e-commerce in Mexico if we did not
implement these solutions. We are a Mexican company
include the percentage of the population that is not part of
that is building next-generation financial solutions through
the banking system,” says Cárdenas. This led to the creation
a disruptive model,” says Cárdenas. Conekta is a payment
of Oxxo Pay, a Conekta system through which users without
gateway company that is trying to change the way money
credit or debit cards can engage in e-commerce activities
is received or collected, while boosting online transactions.
by paying directly at Oxxo convenience stores. “Oxxo has
The path is not easy because for a disruptive model to be
become sort of a banking partner for those without a formal
functional, companies need to find solutions that adjust to
bank,” he says.
the problem instead of copying trends and solutions from other countries. “Countries in Southeast Asia have tried
Oxxo Pay is the first step in solving payment problems in
to solve payment problems and have moved from cash to
Mexico. “With Oxxo Pay we have developed a relationship
smartphones. In Mexico, meanwhile, we are still trying to make
with businesses. Now we have to take this product forward
everyone carry a credit or debit card because that is how it is
and change the payment system in the country.” The more
done in the US,” says Cárdenas.
confidence these platforms instill in users, the easier it will be to move toward a digitalized economy. “Platforms like
The government also plays a role and this can hinder fintech
Amazon provide confidence, which is one of the reasons for
development when not all institutions are as involved as
its success in Mexico,” says Cárdenas.
they should be. “In developed countries, there are three layers: government, banking and technology, which means
Even so, Cárdenas believes the Fintech Act will promote
that as a technology company, you only have to provide the
and provide users with the certainty needed to drive the
technology component because banks have already done
digital transformation. “Many fintech companies have been
the job of providing a credit or debit card to the population,”
consolidated and the government has understood the
says Cárdenas. “In Mexico, we tried to act as the technology
potential we have to generate change and disruption. This
layer but we realized that there was still a great deal to do in
has also impacted traditional financial institutions, which are
the other two layers, so we changed our approach.” Conekta
now beginning to innovate, generating a positive change in
took the leap and began developing payment solutions to
the financial ecosystem.”
counteract the country’s high level of fraud and chargeback. For Cárdenas, there is no better country than Mexico to grow According to Cárdenas, institutional players’ lack of progress
the fintech ecosystem. “We have a great economy and a large
in introducing digital processes does not mean that Mexican
GDP but 61 percent of Mexican adults do not have access to
society is not ready for a digitalized economy. “Around 85
a bank and 82 percent do not have credit cards. If we can
percent of the Mexican population has a smartphone, Mexico
create change, there will be a great opportunity for many
City is the second-most important city for Uber in the world
entrepreneurs and companies to flourish,” he says.
INSIGHT |
E-COMMERCE GROWTH DEPENDS ON PAYMENT DIGITALIZATION OMAR GALICIA Commercial Director of Mercado Libre 63
For e-commerce to work as it is meant to, one element is
the Mexican market still offers many opportunities. “Around
crucial. “Payments are the heart of e-commerce,” says Omar
60 percent of the population does not have access to financial
Galicia, Commercial Director of Mercado Libre. The company
instruments, which means that if we want e-commerce to
has developed several solutions to foster the burgeoning
continue growing, we have to include people that do not have
e-commerce ecosystem, including a fintech subsidiary named Mercado Pago. “We are giving our clients the capability to receive credit and debit card and convenience store payments within a single platform,” says Galicia. “We want companies to worry about attracting traffic to their websites and managing their product portfolio while we handle the payments.” Companies of all sizes are embracing e-commerce to widen sales but many lack the necessary infrastructure or financial ties to go at it alone. “We realized that Mercado Libre was not the only player in the region that needed to tackle the payments issue and that there were many companies that
“
these financial instruments.”
We want companies to worry about attracting traffic to their websites and managing their product portfolio while we handle the payments”
wanted to participate in e-commerce but did not have the necessary connections with financial institutions or the engine
Mercado Pago’s products allow users to make e-commerce
to set up their own e-commerce ecosystem,” says Galicia.
transactions without a card. “We have set up alliances with convenience stores and banks, which helped us create a
Mercado Pago, which specializes in adapting to the payment
network of almost 26,000 physical points at which users can
methods available in each Latin American country and has
pay for their online purchases,” says Galicia. The company also
50 methods available for its 170 million clients, works to
offers a prepaid card developed with MasterCard that users
solve the specific needs of companies, regardless of their
can request online. “Almost 80 percent of the transactions
size. “We process payments from major players, such as Best
that are made with this card are online transactions, which
Buy, Coppel Mexico and Samsung, but we also have very
adds to the e-commerce ecosystem,” Galicia says.
simple solutions for SMEs. An SME can send a WhatsApp or Facebook link and make a payment.” Galicia says Mercado
In addition to payment solutions, finding ways to help SMEs
Pago’s flexibility is about being part of the client’s evolution.
boost their performance is another priority for the company,
“We want to help SMEs to evolve from very simple solutions.
which is why it now offers credit solutions. “The goal of
The idea is to provide support every step of the way.”
Mercado Crédito is to support SMEs by providing them with loans they can use for whatever they need. To approve the
In addition to its online solution, companies can tap into
loan, we use an in-house scoring system that considers factors
Mercado Pago’s real-world offering called Point Blue, a
such as platform sales,” says Galicia.
device that allows card transactions in the physical world and immediately reflects them in Mercado Pago’s platform. “Point
Galicia says Mercado Pago, which has been operating since
Blue is an omnichannel solution for businesses. It allows SMEs
2004, continues to report significant growth. “In 2017, Mercado
to have both the e-commerce solution and the physical-world
Pago processed US$13.7 billion in Latin America, which makes
solution all in one platform,” says Galicia.
it the most relevant fintech company in the region.” There is room for further gains, he adds. “In Mexico, there are around 5
In recent years, the number of companies that offer
million SMEs that need to perform transactions, which makes
e-commerce payment solutions has increased but Galicia says
it a very interesting market for us.”
| INSIGHT
FINANCIAL PRODUCTS AS SOCIAL DEVELOPMENT TOOLS VICENTE FENOLL Founder and CEO of kubo.financiero 64
The future of Mexico’s economy will be built on technology
kubo.financiero’s average loan is MX$30,000 (US$1,550)
but the country must first overcome several challenges,
compared with microfinancing institutions, which range
says Vicente Fenoll, Founder and CEO of kubo.financiero.
from MX$7,000 (US$360) to MX$9,000 (US$470) on
Three particular issues require attention: the use of cash,
average per loan. “We are complementary institutions,
internet access and the disparity between socioeconomic
although our interest rates are lower than those offered
classes. Although companies like kubo.financiero cannot
by microfinanciers,” he continues.
address each issue, they can play a role in the latter. “We want to provide services oriented to helping the base of
In 2018, Google selected the fintech enterprise to
the social pyramid to become part of the middle class.
participate in its Launchpad Accelerator program, which
We create financial products that are social development
helps startups grow their business model. Being part of
tools,” Fenoll says.
the program has helped the company reshape its vision.
“
Regulation must be understood as a competitive advantage and not a necessary evil”
“Google is helping us to change our methodology to what is called Objectives and Key Results (OKR). It is a business methodology that sometimes does not come naturally to businesses but we are working on it.” kubo.financiero’s participation in this program also provided insight on how to improve technical issues. “They told us how to improve our marketing strategies, what techniques and software to use to improve our machine-learning models and techniques for programing our websites.”
Following the fintech wave, kubo.financiero started as a peer-to-peer lending platform that provided access
Fenoll trusts kubo.financiero and other emerging fintech
to credit to micro-entrepreneurs from popular areas
companies are having an impact on the Mexican financial
of Mexico City. However, the success of the platform
ecosystem. “Fintech companies have become part of
has allowed the company to improve its offer. “kubo.
the commercial banking segment and are beginning
financiero now has clients from various socioeconomic
to permeate microfinancing institutions. The impact
levels and although we started in Mexico City, almost 40
is already visible in a significant part of the financial
percent of our clients now are from other states.”
sector.” He adds that there are three areas where fintech companies have made an important statement. “The first
Obtaining permission from CNBV to accept and manage
big change is that being a fintech company has become
savings accounts and deposits from clients allowed kubo.
a key point on the agenda of several important players
financiero to venture into a different range of products.
in the ecosystem. The second is related to volume, since
“We offered an innovative crowdfunding service and
we are attracting large volumes of clients who prefer one
added other digital savings products. We understood
of our solutions to those of traditional banks. The third
that people needed an integral offering of products and
is that all this has resulted in the creation of the Fintech
services,” says Fenoll.
Act that is expected to boost the sector.”
Unlike other fintech companies that compete head to
The Fintech Act will force industry players to adapt, Fenoll
head with banks, Fenoll says kubo.financiero’s offering
says. “Regulation must be understood as a competitive
allows it to position between banks and microfinancing
advantage and not a necessary evil. Without a doubt, we
institutions. “We cater to businesses that are growing
will see new costs and platforms will have to cover those
but that are not big enough to obtain loans from banks.”
expenses adequately.”
INSIGHT |
PEER-TO-PEER LENDING PLATFORM FOR THE MIDDLE CLASS JUAN CARLOS FLORES Co-founder and Director General at Doopla 65
Innovative deployment of technology can empower users,
Doopla’s payroll deduction scheme means the platform has
says Juan Carlos Flores, Co-Founder and Director General
an overdue rate close to 0 percent. But Flores estimates that
of Doopla, a Mexican peer-to-peer lending platform that
this number will likely increase to 2 percent as the company
took a different tack from its fintech peers by focusing on
grows its client portfolio. “Around 30 percent of the loans we
a segment often neglected by its competitors: the middle
have authorized are done through payroll deduction. Our goal
class. “Our value proposition focuses on reducing interest
is to increase this number to 50 percent by the end of 2018
rates through the use of technology and the empowerment
and reach 80 percent in 2020,” he says. The company signs
of the middle class.”
agreements directly with companies so their employees can access this benefit. “Most of the companies with which we
Unlike other fintech players that offer solutions geared
have agreements are medium-sized businesses with about
toward financial inclusion, Doopla is the world’s first peer-to-
500 employees. However, in 2017, PwC became a client.
peer loan platform to offer an innovative payroll deduction
To finalize this agreement, we had to undergo a strict due
solution. “According to data from the National Commission
diligence process but the deal generated trust in the market
for the Protection and Defense of Users of Financial Services (CONDUSEF), those who ask for a MX$10,000 (US$510) loan from traditional financial institutions pay an average annual interest rate of 63 percent,” says Flores. “We do not think that is fair. Providing a loan to a payroll client should be even more economical, given that financial institutions do not accumulate collection expenses. Yet, interest rates remain extremely high.” Inequality is highlighted by the fact that savings accrue an annual average of only 3 percent in interest. Building on the premise that loans to the middle class are extremely expensive, Flores says Doopla focused on reducing
“
and we have been attracting more clients as a result.”
Those who ask for a MX$10,000 loan from traditional financial institutions pay an average annual interest rate of 63 percent”
this cost asymmetry. “Our clients pay an annual 18 percent interest rate on their loans, while our investors receive a net
Flores says Doopla has been well-received. It has over
annual return of 15 percent. Doopla only charges a 6 percent
300,000 registered users, of which 90 percent are loan
fee to successful applicants over the total amount funded.”
applicants and 10 percent are investors. However, he says around 70 percent of investors are recurrent. “The minimum
In addition to a lower cost, Flores says that other factors
required investment is MX$2,500 (US$129), but our average
differentiate Doopla from its competitors, including banks
investment is MX$25,000 (US$1,290). Every month our
or other peer-to-peer loan platforms. “One of the most
investors receive a capital payment as well as interest on their
important differentiators is user experience. Whenever
investment.” The challenge Doopla now faces is attracting
you go to a bank to obtain a loan you need to go several
more investors but rather than focusing on individuals, Flores
times because there is always something missing.” Doopla’s
is trying to lure bigger investors. “The idea is that around 50
platform is designed to avoid this, he says. “You just need
percent of Doopla’s investment will come from sophisticated
to fill out an online application on our website and in 24
investors, such as family businesses and investment funds.”
hours you will know whether the application is approved or
He is confident that the platform’s successful results and the
not. The next step is to obtain funds from our investors. On
company’s transparent and strict underwriting processes
average, a MX$20,000 (US$1,000) loan is resolved in less
for loan origination and corporate governance will help it
than five hours.”
convince these big investors of the platform’s potential.
| INSIGHT
BANKING SERVICES FOR NONTRADITIONAL BANKING COMPANIES GERARDO MÁRQUEZ Founder of Evolve Fintech 66
Financial inclusion and providing access to banking services
services. “The idea is to provide banking services that meet
for as many people as possible, particularly for those at the
specific needs of population segments or companies like
base of the social pyramid, offer significant commercial
retailers, fintechs, social networks or money transmitters.”
opportunities, even to entities that are not related to
Evolve Fintech’s added value lies in the fact that it can
traditional banking, says Gerardo Márquez, Founder of Evolve
generate customized solutions for its clients, leveraged
Fintech. “In Mexico, there is reluctance to use banks and
against a regulated financial institution. But Márquez says this
regulated financial entities. As a result, using brands that are
has not been easy. “The challenge of providing personalized
well-known but that are not necessarily tied to the financial
solutions is to find the appropriate balance between the
system, such as Coppel and Elektra, has worked very well to
segment that you are catering to, profitability and the correct
lure more people into the banking system,” says Márquez,
business model. Too much personalization without enough
whose company specializes in generating customized banking
market complicates the business model.”
and financial solutions for companies under the framework of a regulated financial entity.
Providing the right solutions for the client is easier said than done. Márquez says the only way to do this is by conducting
Evolve Fintech hopes to take advantage of the market
a thorough analysis of the information available. “A regulated
opportunity by providing “white label” banking services
financial entity has a great deal of information regarding its
platforms for companies looking to expand their business
clients. In Mexico, this is not being analyzed or exploited
to include financial services. “In many cases, in Mexico it
correctly.” If banks used tools such as analytics, they could
is not profitable for banks to have offices in every city. But
open a new business line that would allow even traditional
through digital banking solutions offered by companies with
banking institutions to offer more specific products that
different commercial activities, communities can gain access
would generate greater customer loyalty.
to formal banking services.” Márquez does not see that transformation happening anytime According to Márquez, approaching clients through well-
soon. “In places like Europe, financial institutions changed their
known and reliable companies facilitates commitment
focus and now have business areas completely specialized in
to financial products, which makes this the best way to
selling personalized products to each client, increasing the
offer unbanked end users new products and services. This
bank’s profitability per client.” In Mexico, this line of business
process is part of a revolution that Márquez says will change
is not as clear and does not happen as seamlessly as in other
the financial system in the coming years; a change that will
places. “There are still many people who do not have a bank
originate with new digital players like Evolve instead of
account and banks are focused on luring these customers
traditional financial and banking institutions. “The systems
instead of analyzing their existing clientele.”
inherent to traditional banking companies pose the biggest challenge when trying to digitalize operations. Their core
While the fintech sector has gained in relevance in recent
systems do not allow these institutions to move at the
years, Márquez says Evolve Fintech still faces several
speed that the market demands.” In this regard, Márquez
challenges, the most important of which is changing people’s
says that Evolve is the right player to spur the revolution.
perspectives of what a bank is. “Explaining our model is
“Unlike traditional banking, we develop financial products
complicated,” he says. “Many people still picture a bank as
to fit our client’s vision.”
a physical space and bankers as people in suits. Trying to convince potential customers to adopt our solution is not
Part of Márquez’s revolution comes from the development
easy.” However, Evolve Fintech’s founder is confident. “One
of the concept Banking-as-a-Service (BaaS), which allows a
hundred percent digital banking in Mexico is groundbreaking;
more flexible and complete implementation of digital banking
we just need to keep an open mind.”
VIEW FROM THE TOP |
FINANCING FOR EVERYONE AUGUSTO ÁLVAREZ Co-director General of AlphaCredit
JOSE LUIS OROZCO Co-director General of AlphaCredit 67
Q: What is AlphaCredit’s business proposition for the
Q: How does the acquisition of Grupo Finmart strengthen
Mexican market?
your position and add value for your clients?
AA: We are a nonbanking financial entity specialized in two
AA: Grupo Finmart was one of the industry’s founders. We
verticals: consumer lending, which includes our Crediamigo,
combined its experience with our entrepreneurial culture. The
TotalCredit and Vive brands, and loans to SMEs through our
acquisition helped us double the size of the company and
Alcanza Capital brand. Regarding consumer loans, these
expand our distribution footprint to serve a larger customer
can be repaid via a payroll deduction or via a traditional
base, which is positive for creating economies of scale. In
collection through an electronic debit to your bank account.
Mexico, we are present in all states through 180 offices and we
This particular product is offered to sectors that have been
also are present in Colombia’s most important cities.
underserved in Mexico by traditional banks: government employees, pensioners, and the C and D socioeconomic rungs.
Q: How does AlphaCredit's debut on international markets help it to consolidate its operations?
Our SME financing vertical has two products: leasing and
JLO: This was a great milestone for us since it was not only the
factoring. We focus on the underserved SME market in Mexico
largest opening transaction for a nonbank financial institution
where the biggest problem is the lack of access to short-term
since Unifin’s but it was launched at a very attractive interest
working capital financing. Our proposal addresses this with
rate for our investors. It is a five-year bond that took into
tailor-made solutions.
account much of what happened in Mexico, including the elections and other conjunctures. The bond structure
Q: How does AlphaCredit excel in serving the part of the
strengthens our balance sheet and allows us to continue to
population neglected by traditional banking?
grow and reach more customers.
JLO: AlphaCredit has a unique sales strategy. In addition to our wide distribution network across Mexico and Colombia,
Q: What are your top priorities going forward?
we deploy teams that use technology and vans as mobile
AA: We want to continue growing our consumer lending
offices to better reach our clients. We understand the
vertical both in Mexico and Colombia. Some estimates suggest
characteristics of every town and their monetary needs. Our
that credit in general in Mexico accounts for 25 points of the
business model is among the reasons we have succeeded
national GDP. However, we believe that credit for consumption
in this segment. Banks employ a pull model, which means
represents less than five points of those general 25 points,
that they bring people to their offices where managers sell
which means that there is still room for growth. We also want
all types of products to clients. They have this model because
to double our efforts in leasing and factoring. The growth
they need to distribute the fixed costs of having offices to all
potential in these products is still very high as a result of the
their clients through many products and they need to attract
lack of credit available to SMEs. The business sector in Mexico
people through mass marketing.
has an impressive dichotomy. Large Mexican corporations are multinational companies that can access funding and
Our business model is completely different. Unlike traditional
financial markets in two weeks and place bonds easily. For
banks, we want our salespeople on the streets. We want them
them, financing is not a problem. If you are not one of these
to go to our clients’ workplaces, to healthcare clinics and
companies, obtaining financing is very difficult.
offices located far away, to places where traditional banks think it is not profitable to have an office. Banks have a transactional business model but our business model is based
AlphaCredit is a Mexican nonbanking financial entity. It
exclusively on credit. Our business is based on offering the
specializes in two verticals: consumer lending and financing
right product to our customers when they need it and with
for SMEs. It has 210 branches in Mexico, plus 25 more in
the highest customer service standards.
Colombia
| VIEW FROM THE TOP
FINTECH CRUCIAL FOR BANKING REVOLUTION GUSTAVO MÉNDEZ Advisory Partner and Financial Services Leader at Deloitte 68
Q: What is your assessment of the Mexican financial and
the behavior, consumption patterns and other relevant data
banking systems?
that could help to include this sector of the population in
A: The Mexican financial system is solid and capitalized.
the financial system.
The 2014 Financial Reform ensured the solidity and liquidity of banks, resulting in the robust system we
We see two types of fintech companies: those that will be
have today. After the reform, banks also focused on
integrated into banks and those that will become service
implementing practices to improve customer service, as
providers for banks. Many banks are looking for fintech
well as preventive schemes against money laundering.
companies that can solve the problems banks face and are
Credit has been growing during the past 17 years but
integrating them into their operations, either by buying
it is not enough and there are still many people who
shares or by absorbing them completely.
do not have access to financial services. However, the banking system’s profitability is above 15 percent in return
What could have a major impact on the financial system
on equity.
is the use of cellphones as a bank account and payment method, which has been successful in China. It helps to
Q: How can financial institutions work to expand credit
eliminate friction in payment systems and provides another
opportunities for companies?
source of information for understanding the informal
A: It is not a matter of a lack of appetite from banks; it has
market’s behavior and income.
to do with a macroeconomic environment in which there are no investment projects large enough for companies to apply
Q: How prepared are Mexican banks to face this digital
for financing. It is not just a matter of offer, but of demand.
revolution?
In addition, the Mexican banking system concentrates
A: Excluding new players like Banco Sabadell, which has
about 80 percent of the loan portfolio in seven banks, of
declared itself a digital bank, all big banks have operating
which five have foreign headquarters. More competition
systems with platforms created many years ago and
is required and the big opportunity for smaller banks is to
changing them would cost a lot of money. The advantage
leverage fintech.
of new technologies is that they allow the creation of applications around the central core, emulating what a
Q: How will the development of the fintech sector and
person can do with the system and enabling digitalization
its relationship with traditional banks impact the Mexican
processes. So far, banks are exploring the integration
banking and financial ecosystems?
of artificial intelligence, digitalization and fintech in
A: Fintech can help in the evaluation of creditors or
an exploration mode but this is insufficient. To really
borrowers in a nontraditional way. Today, banks are focused
become leaders, banks will need a holistic strategy and
on the formal sectors to make money-lending decisions.
a pragmatic implementation with the customer as the
For this reason, people in the informal market do not have
center of focus.
access to credit since they do not have proof of payment and the bank does not know how much they earn. The
Deloitte recently conducted a global study that shows
opportunity that fintech opens is to help banks understand
bank branches will not disappear as they are a relevant sales point. The problem now is how to complement bank branches with a digital offering. Sales and customer
Deloitte is a conglomerate of independent firms that offer
interaction can become more digital and banks can better
audit, tax, consulting, risk and financial advisory services. The
understand the behavior of customers to offer customized
company operates in over 150 countries and territories and is
solutions. For customers, it is very important to trust the
one of the Big Four consulting firms
technology that they interact with.
VIEW FROM THE TOP |
UNIQUE STRATEGY PAYS OFF EMILIO GUTIÉRREZ MATEOS Founder and Managing Partner at Gutiérrez Mateos y Asociados
Q: How is Gutiérrez Mateos y Asociados different from other
Q: What are the key elements hindering Mexico’s position as
law firms?
an investment destination?
A: Traditionally, law firms only specialize in one sector.
A: Mexico has always been regarded as a developing
However, we chose to specialize in the financial-business-
country full of uncertainty. Everything that happens
commercial branch, complementing it with civil and penal law.
in the business sector derives from certainty and trust
This gives us the knowledge and infrastructure to handle any
between players. When trust is broken, those who own
civil or business-oriented case. Although we offer an unusual
the money tend to hold their investments until there is
mix of specialization, we have found that it works in our favor.
more certainty about the situation. The clearest example
Clients have different needs and instead of having to find
of this is NAIM.
different lawyers that specialize in only one area, we offer a holistic approach to meet their business needs, which also results in savings related to representation costs. But the most
Gutiérrez Mateos y Asociados is a Mexican law firm that supports
important advantage we can offer is coordination of all legal
clients in the financial sector, such as Banco de México, FIRA,
actions taken, thus reducing the possibility of clients having
IPAB, Bancomext, Nafinsa and Fideicomiso Minero, in financial-
to answer to any legal responsibilities that could be avoided.
commercial-business issues
INSIGHT |
FROM FINANCE TO PROVIDING ANTI-CORRUPTION GUIDANCE JOSÉ ANTONIO CHÁVEZ Managing Partner at Chávez Vargas Minutti Abogados
The main factor inhibiting the development of businesses
all the more relevant for all businesses with operations in
in Mexico is corruption, says José Antonio Chávez,
Mexico, Chavez says. “The National Anti-corruption System
Managing Partner at Chávez Vargas Minutti Abogados.
establishes, through seven pillars, clear practices for the
“Businesspeople are afraid of being forced to commit
private and public sectors that target the elimination of
acts of corruption or being involved in corruption
corruption.”
schemes. This is discouraging the development of more businesses.”
The problem, he adds, is that the new law remains vague in certain areas and leaves it to the authorities to decide
Chávez Vargas Minutti, a boutique Mexican law firm founded
whether businesses are complying or not. Chávez says the
in 2010 and specialized in corporate finance, has been
public is used to corruption scandals surrounding public
working to innovate legal services. The firm is starting to
entities but the private sector is no stranger to these
offer anti-corruption solutions through its subsidiary, CHM
practices. “CHM Compliance helps companies to develop
Compliance. The recent approval of the National Anti-
codes of conduct and to enforce them,” he says. The code
corruption System and the new government's goal of
itself is not enough, however. Companies must find a way
stamping out corruption make Chávez Vargas Minutti’s offer
for these values to reach all their collaborators.
69
TECHNOLOGY &Â TELECOMS
3
With new technologies shaping economies and nurturing new businesses, the development of a strong telecommunications’ backbone has become a priority for the country. The Telecommunications Reform opened the door to competition in the sector and led to a price reduction of telecom services. The digital revolution and the transformation of traditional productive industries offers significant opportunities for Mexico, which has long depended on manufacturing activities. However, there is still a long way to go to achieve a comprehensive digital transformation.
In this chapter, industry leaders explain the best strategies to transform Mexico into a technology development hub, following a coherent and joint effort between all industry players to provide universal connectivity throughout the country. Without universal access, the country will struggle to implement Industry 4.0 practices and AI solutions. New technologies entering the industry, partnerships that foster innovation, and social and financial inclusion are showcased in the following interviews.
71
CHAPTER 3: TECHNOLOGY & TELECOMS
74
ANALYSIS: Connectivity Spurs New Businesses, Transformation
76
VIEW FROM THE TOP: Carlos Morales, Telefónica Movistar México
78
VIEW FROM THE TOP: Elie Hanna, Ericsson Mexico, America and the Caribbean
79
INSIGHT: Steve Logue, Virgin Mobile Mexico
80
VIEW FROM THE TOP: Kevin Cohen, ViaSat
81
VIEW FROM THE TOP: Luis Meza, Deloitte Consulting Group, México
82
VIEW FROM THE TOP: Maribel Dos Santos, Oracle Mexico
83
VIEW FROM THE TOP: Federico Casas-Alatriste, T-Systems México
84
INSIGHT: Juan Francisco Aguilar, Dell EMC Commercial Mexico
85
VIEW FROM THE TOP: Felipe Labbé, Global Hitss
86
VIEW FROM THE TOP: Juan Carlos Lovo, Grupo Tecno
87
VIEW FROM THE TOP: Marco Jiménez, Lenovo México
88
VIEW FROM THE TOP: Federico Ranero, Uber Mexico
89
INSIGHT: Germán Montoya, Rokk3r Labs
90
VIEW FROM THE TOP: Eduardo Farina, BlueMessaging
91
VIEW FROM THE TOP: Sergio Valencia, SRL Soluciones
92
VIEW FROM THE TOP: Elie Haibi, Hermes Systems
93
VIEW FROM THE TOP: José Funcia, Crater Solutions
73
José Andrés González, Crater Solutions
| ANALYSIS
CONNECTIVITY SPURS NEW BUSINESSES, TRANSFORMATION There is little doubt that Mexico is eager to embrace transformative technology. Many businesses have done their homework and have transformed their operational models. But there is still a significant lack of technology disruption across the country
74
Transformation and evolution are key for business
are digitally lagging face the possibility of disappearing
survival. Tools like Big Data, AI, machine learning and
in the next five years,” says Aguilar.
automation, combined with the mobile capabilities of smartphones and other devices, have broken paradigms
Despite the operational changes related to digitalization,
regarding the way business is conducted. Today, business
Aguilar believes the main hurdle will come from the software
transformation means more than a change in processes
processing and storage capabilities that companies will
or machinery. Felipe Labbé, CEO of Global Hitss, says the
require. “The challenge of digital transformation is that
digital transformation is based on three cornerstones:
new applications and the way companies interact with
user experience, efficiency and new business models.
their clients require a new level of software development.”
“New business models were generated thanks to new
This is exemplified by the arrival of business models such
technologies that did not exist when many traditional
as OTT (over-the-top) media services and ride-hailing apps
businesses were created. For that reason, companies must
that need to be available 24/7. “These applications must
understand new business models.”
have short response times and understand consumption patterns to achieve a greater degree of interaction,”
The digital transformation is the convergence of two
says Aguilar
opposite approaches, adds Elie Haibi, Co-Founder and CEO of Hermes Systems: “One that originates at
Although some companies have been reluctant to
the business strategy and derives from operational,
incorporate new technologies and change the way
organizational or technological initiatives and another
they approach business, competition from the arrival of
motivated by technology capabilities that enable new
disruptive players has incentivized change, according
operational mechanisms and help to better execute
to Labbé. “Digitalization has created to two types of
a company’s business strategy and even inspire new
companies: digital natives and digital migrants, the latter
strategic objectives.”
being large old companies that are migrating toward a digital model.” That being said, the real driver toward
According to PwC, as a result of the implementation of AI,
digital transformation will be neither companies nor the
by 2030, global GDP could be 14 percent higher. In Mexico,
government but the end consumer. “Users who adopt new
the McKinsey Global Institute found that digitalization and
technologies do not return to old ones. For example, if you
the implementation of transformative tools could boost
can order a taxi through your phone and automatically
the country’s GDP between US$82 billion and US$144
charge it to your credit card, you do not want to wait for
billion per year by 2025. To deal with the transformation,
a taxi and carry cash,” says Labbé.
creating a development strategy for AI is crucial, says Eduardo Farina, Director General of BlueMessaging. “AI
CONNECTIVITY
will provide benefits like increased productivity but will
For consumers to adopt new technologies, the country must
also have a social impact that needs to be considered.”
first solve the key issue for a true digital transformation: connectivity. According to the Federal Institute of
There already is a coherent effort from the Mexican business
Telecommunications (IFT), telephone coverage and 3G
community to transition to a digitally-driven business
mobile internet reach 88.4 percent of the population,
strategy, but Juan Francisco Aguilar, Vice President of
while 4G reaches 84.1 percent of the population. However,
Dell EMC Commercial Mexico, says many Mexican players
President López Obrador argues that only 25 percent
are still not ready to undertake the challenge that such a
of the country’s territory is connected. Although IFT’s
transformation entails. According to Dell’s Index of Digital
measurements reflect international standards, it is
Transformation, six out of every 10 companies already
undeniable that several areas of the country still face
perceive technological disruption in their business and
connectivity issues. The institute states that a 1 percent
six of every 10 companies do not know how their industries
gain in the digitalization index generates a productivity
will work in the next three to five years. “Companies that
increase that translates to a 0.3 percent rise in the country’s
Oracle data center
75
GDP. The federal administration’s goal is to bolster the
CHANGE IN MINDSET
existing telecom infrastructure to reduce the digital gap.
Along with the implementation of new technologies, there is a need for stronger educational programs with a focus on
Although the previous federal administration focused
technology to help the country become more competitive,
mostly on the implementation of the Shared Network, the
says Luis Meza, Managing Partner at Deloitte Consulting
current government has chosen to implement a so-called
Group. “Most children in Mexico still receive a traditional
Backbone Network in the country. Telecommunications
education and it is necessary to make technological tools
of Mexico (Telecomm) says the implementation of the
available to them from a very young age. Programming
Backbone Network would allow concessionaries and
skills will be extremely useful to children, not just because
marketers to access a high-capacity network to offer more
they are in demand but because they teach a flexible way
telecom services to the general population.
of thinking.”
Given the lack of public telecom infrastructure, the private
The private sector can play a key role in this process.
sector has taken up the challenge to provide telecom
Maribel Dos Santos, Managing Director of Oracle Mexico,
services to remote locations through different business
says part of Oracle’s strategy to strengthen its role
models. Carlos Morales, CEO of Telefónica Movistar
in the community is to establish collaborations with
México, says the company has decided to generate
public academic institutions to lure young people into
alliances to provide these services. “We have a project
the technology environment. “Our goal is to help these
of rural franchises that allows us to make alliances with
students incorporate into the working environment or
engineering and financing companies to provide coverage
support them in the development of their own technology
to small towns across the country. Our allies are in charge
solutions.”
of building the infrastructure and we connect it to our core network. That small town becomes a franchise for
Generating technology-specialized talent obeys to an
the investor and a shared-revenue project with Telefónica
investment need. “Guadalajara is a growing technology
Movistar México.”
hub supported by investment from big tech companies and academia ... It is important to ensure there is enough
Still, Morales believes the only way to convince the private
talent to support these operations and that the country is
sector to work alongside the government to provide
invested in generating more talent. If we do not create a
connectivity is to tackle the problem of spectrum costs
large enough pool of talent, the country’s attractiveness
in the country. “For 2019, our estimates show the country’s
as a technology destination will be threatened,” says
three main players will pay around US$1 billion for use
BlueMessaging’s Farina. The change, adds Aguilar,
of the spectrum,” he says. “Spectrum costs could be
must be extended to society as a whole: “In Mexico, we
lowered in line with international practices to incentivize
need to think not as a manufacturing country but as a
investment. Similarly, the government could provide
country that develops software, applications and new
spectrum-related incentives to companies that invest in
technologies. We need to imagine Mexico as a technology
rural infrastructure.”
development hub.”
| VIEW FROM THE TOP
CHALLENGER PURSUES CONSTANT INNOVATION CARLOS MORALES CEO of Telefónica Movistar México
76
Q: How is the company strengthening its offering in Mexico?
A: Mexico is a country with extraordinary potential. It has over
A: Telefónica Movistar México entered the country through the
120 million inhabitants in need of connectivity. However, we
acquisition of several carriers established in northern states.
require changes in public policies so investments can enjoy
These companies had around 600,000 clients and today we
higher returns. The Mexican market is basically dominated
have over 26 million users. Telefónica has also made significant
by three large companies and only one has an acceptable
investments in Mexico, including the acquisition of the
profitability. Our business is based on economies of scale,
initial carriers, the country’s spectrum, telecommunications
which means that 26 million clients are not sufficient to reach
infrastructure and stores.
the profitability levels we require.
Telefónica Movistar México has built its image as a company
Profitability also reflects market conditions. In the past two
that defies the status quo by presenting the most innovative
years, telecom prices dropped 50 percent, while operational
products to the market. In the past, carriers used to round up
costs increased because of factors like inflation, volatile
the time spent on a call and charge for those extra seconds. In
exchange rates and the constant investment we make in
2012, Telefónica decided to end this practice and only charge
infrastructure. We also need to factor in spectrum costs in
for the seconds that our clients spent on the phone. In 2013,
Mexico, which are among the most expensive in the world.
we were the first company to launch an unlimited-calls plan
The country has a model for spectrum payment unlike any
and in 2014, we were the first to let Mobile Virtual Operators
other. We have to pay not only when we win a public tender
(MVOs) use our network. In 2017, we launched a fixed wireless
but also every year through rights of use that are discretional
internet modem that connects to our mobile network. Our
and may vary on a yearly basis and increase with inflation.
latest achievement was at the end of 2018 when we launched an unlimited-data plan. Our competitors have followed our
Q: How has Telefónica adapted its business strategy to
example, which is good because end consumers benefit from
compete against other providers and boost profitability?
a broad array of competitive services.
A: We have not stopped investing in our network despite the fall in prices. We have optimized our investments,
Q: How does Telefónica’s progress in Mexico differ from its
directing resources to the most profitable and fastest-
experience in other countries?
growing geographies. Thanks to regulations, we have also
A: Our experience in Mexico has been significantly different.
signed roaming contracts for extended coverage with the
In some of those markets, we bought the preponderant
preponderant player, so clients always have coverage even
operator and started from a larger client base, while in
if Telefónica Movistar México does not have infrastructure in
Mexico we bought small carriers that allowed us to gradually
their region. In terms of data, traffic and use in Mexico are
grow our participation in the market as a challenger to the
increasing exponentially. For the past three years, we have
market leader.
doubled the capacity of our network annually, evolving from 4G to a 4.5G network.
Q: How has Telefónica Movistar México tackled the challenge of low profitability in Mexico and what does that mean for
We also have developed projects through collaborative
the company at a global level?
innovation. We have a project of rural franchises that allows us to make alliances with engineering and financing companies to provide coverage to small towns across the country. Our
Telefónica Movistar México is a telecommunications company
allies are in charge of building the infrastructure and we
with significant presence in 16 countries and over 356 million
connect it to our core network. That small town becomes a
users around the world. Telefónica has a strong presence in
franchise for the investor and shared-revenue project with
Spain, the rest of Europe and Latin America
Telefónica Movistar México.
Part of the company’s transformation is a result of diversifying our revenue streams. Five years ago, around 90 percent of
Telefónica Movistar's Tower, Santa Fe, Mexico City
our income came from our prepaid business. By the end of 2019, we expect prepaid services to account for around twothirds of our revenue. On the other hand, we have boosted our post-payment solutions to target higher socio-economic population segments and we already have 1.2 million clients in this segment. We are also boosting our Full Connection home internet offering, which allows us to be more than just a mobile telecoms company. Within the corporate sector, over the past three years, we have developed four digital services focused on cybersecurity, IoT, cloud and Big Data. This was a natural path to take and already, these services are growing at an annual 30 percent rate. These strategies diversify our portfolio, reduce volatility and fuel profitability. Q: What regulatory changes are needed to foster competition in the market and improve benefits for users? A: Spectrum costs are among the main issues to tackle. In 2019, our estimates show the country’s three main players will pay around US$1 billion for use of the spectrum. Yet, this money will not go to the telecommunications sector. Public policies should ensure resources are destined to investment in connectivity. Spectrum costs could also be lowered in line with international practices to incentivize investment. Similarly, the government could provide spectrum-related incentives to companies that invest in rural infrastructure. Even though the Telecom Reform opened the market to foreign investment, the government must still create a level playing field for competition. The reform, for instance, states that special promotions from the preponderant player must be replicable. However, this analysis is done after the company launches its offer, so other companies have to complain about it for the authorities to check whether it is replicable or not. Other countries force the preponderant player to disclose its future promotions beforehand, which helps to maintain fair competition for smaller players. This sometimes leads to complications, however, because smaller players can copy those strategies and implement them before the preponderant company has a chance to do so. Q: What are Telefónica Movistar México’s goals for the next two years? A: Profitability is essential for us. Therefore, our goals are to optimize our business model, to continue looking for partners and to be an example of what it is like to work with all kinds of alliances. Our short-term goal is to become a more relevant option for clients, while increasing our income in a more responsible and diversified way. We are looking to become an even more open, transparent and trustworthy company.
77
| VIEW FROM THE TOP
5G DOOR TO PRODUCTIVITY, INNOVATION ELIE HANNA President of Ericsson Mexico, America and the Caribbean
78
Q: What opportunities has Ericsson identified in the
A: There are many ways to increase connectivity. One
Mexican market?
reason connectivity fails to reach rural areas is that many
A: Mexico is key for Ericsson; it is one of our Top 2 markets
operators do not see a potential return in working there
th
in Latin America, along with Brazil, and 2019 will be our 115
due to the high fees they must pay the government. One
anniversary in the country. We are well-represented in Mexico
solution would be for Ericsson to build the network for
through our global service center and our customer unit that
Mexico’s mobile operators and lease it back to them.
allows our associates to work directly with employees. We
Another strategy would be for the government to lower
also have a production facility and a warehouse in Guadalajara
the spectrum fees in those areas, which would reduce entry
and we are acquiring the antennae and filter division of the
barriers for investment. Ericsson’s mission is to connect
German company Kathrein, which has a big production plant in
everyone in whichever way we can.
Tlaxcala. This company is among the world’s leading providers of antenna technology, an area we identified as a gap in our
Q: How is Ericsson collaborating in the implementation of
portfolio, especially as we head toward 5G. Kathrein’s large
the 5G network?
facility will be incorporated into Ericsson’s structure and will
A: There are two ways to implement 5G: non-standalone and
strengthen our presence and capabilities.
standalone. We will begin with the non-standalone, which is anchored on 4G networks. The standalone will come later
Q: What strategies is the company favoring to strengthen
when the ecosystem is ready for it. Our goal is to be leaders in
Ericsson’s participation in the local market?
both and we are already in talks with our clients in the Mexican
A: We are well-positioned in the country because we work
market to start taking key steps toward 5G implementation.
with all mobile operators in Mexico. Ericsson has clients for
We will begin with test markets, followed by trials and all
its entire portfolio, from networks to digital services. Our
processes necessary to make the network ready for 5G.
strategy relies on our large local presence, our production facility and global center located in the country that
Q: How will the implementation of the 5G network
facilitates deliveries of products and services.
transform traditional business models in the country? A: 5G will offer more than just higher connection speeds.
Q: Given the fierce competition in the IT sector, what
It will also lower the cost per gigabyte significantly. This
elements does Ericsson highlight as its differentiators?
will allow industrywide connection, which will be a strong
A: The IT sector is huge and Ericsson cannot participate
platform for innovation. Many industries want to improve
in all the inherent activities. We focus on the core of all
their networks and enable more automation, even among
networks: operations support systems/business support
traditional areas like farming. Others, like the automotive
systems (OSS/BSS) and analytics and application services
industry, are already working with us to develop and
for those two areas. We are strong in digital services and
implement automation and 5G solutions.
are among the largest companies in terms of value. Q: What are Ericsson’s growth expectations for the next Q: The provision of connectivity is long overdue in Mexico.
two years?
How can the industry work toward a more connected country?
A: Our goal is to grow faster than the global addressable market, which forecasts single-digit growth. In Mexico, we will continue to work with our customers and ensure that
and
we are relevant and that we do add value to the industry.
and
We have been in Mexico for 115 years and plan to remain
headquartered in Sweden. Ericsson’s networks carry 40
here indefinitely. We transformed the telecoms industry
percent of the world’s mobile traffic
from 1G to 4G and now we are heading toward 5G.
Ericsson
is a
telecommunications
multinational company
networking
founded
in
1876
INSIGHT |
DIGITALIZING THE TELECOMS INDUSTRY STEVE LOGUE Former CEO of Virgin Mobile Mexico
79
The Telecommunications Reform approved by President
complicates its analysis. “Virgin Mobile is planning to use
Enrique Peña Nieto in 2013 changed the relationship
Big Data to do market analytics and to take advantage by
between Mexicans and e-commerce, technology and
participating with online networks in a more democratic way.
the internet. It also forced Mexico to adopt international
This is one way to compensate for the differences between
technological standards and allowed the development of
us and the large telecommunications operators,” says Logue.
many companies related to the industry, both Mexican and foreign, says Steve Logue, CEO of Virgin Mobile Mexico,
Another challenge Virgin Mobile faces in Mexico is the low
who expects more innovation as a result.
percentage of users that participate in e-commerce and the country’s limited financial inclusion. However, Logue
“We are innovators in Latin America. We have created a
is optimistic. “We sell more chips than any other supplier
sustainable and viable Mobile Virtual Network Operator
in the industry. We are becoming the telecom leaders in
(MVNO) in countries like Colombia and Chile and now we
e-commerce because our business model adjusts better
are trying to bring these innovations to Mexico,” says Logue.
than traditional models.” According to a Federal Institute
Virgin Mobile, an MVNO, was the first fully digitalized mobile
for Telecommunications (IFT) report titled The Public
phone operator to arrive in Mexico.
Consultation on the Cost Models to Determine Tariffs for the Services Provided, between June 2013 and September
According to the E-commerce Study Mexico 2017 published
2017, total access to broadband grew 37 percent. MVNOs
by Internet Association, 51 percent of online shoppers are
also present a positive growth in their market share, with a
between 18 and 34 years old, 92 percent have a cell phone
total 1.4 million new subscriptions only in 2017, representing
and 70 percent have used it to make a purchase online. For
1.2 percent of the total market and 18 percent more than in
this reason, in countries with telecom operators as strong
2016, according to the IFT.
and large as those in Mexico, MVNOs must differentiate themselves to stand out among the competition. Logue says
Despite the numbers, MVNOs like Virgin Mobile Mexico must
innovation is key. “Virgin Mobile competes in the Mexican
contend with the country’s dominant operators from which
market through innovation processes because it is the best
they rent their networks, which eats up more than 50 percent
way to satisfy the country’s emerging and digitalized market.”
of revenues. “In this context, there is the possibility that MVNOs cannot survive the market unless there are associations that
In this context, Virgin Mobile Mexico has become a benchmark
work together with operators and regulatory authorities,” says
for other Mexican operators because it is the only company
Logue. According to Athens Information Technology, a private
in the sector that has fully digitalized all its processes. The
nonprofit organization that does research into innovative
company is transforming telecommunications services
technologies, the most common conflict between MVNOs
by offering its customers different digital options through
and host operators is access to the network.
alliances with market leaders such as Amazon, Uber and Walmart. “In June 2017, the company’s digital sales
Virgin Mobile Mexico expects a positive evolution in the way
represented only 1 percent; in March 2018, they represented 35
that telecommunications service providers compete in the
percent. We enjoyed a similar experience with our customer
market. In addition, the company believes fervently in the
service, which today is 72 percent digitalized,” Logue says.
opportunities that exist in its market niche in Mexico and wants to continue leading the digitalization and innovation
Digitalization also offers opportunities to capitalize on the
in the market. “The way to provide better services and
use of Big Data, although there are issues. In particular,
digital products is for all players and telecommunications
there is a large amount of unstructured data that is
authorities to focus on improving services and not on
generated through different applications and devices, which
protecting the market,” says Logue.
| VIEW FROM THE TOP
SATELLITE INTERNET PROVIDES ACCESS TO REMOTE LOCALES KEVIN COHEN General Manager, Community Wi-Fi, Americas of ViaSat
80
Q: What opportunities does the Mexican market offer to a
service. By the end of 2019, we would like to have more
global company like ViaSat?
than 1 million Mexicans connected to our network and to
A: Mexico has become a key market for ViaSat to expand its
continue developing more opportunities and services for
global telecommunications services as an internet provider.
the Mexican market.
Although we have yet to become an ISP for final consumers in the country, it is in our plans. Mexico is a big and important
Q: How does your Community Wi-Fi service work?
market for ViaSat and we want to offer the same value we
A: We link a computer in any of these small communities
offer in the US, where we have around 600,000 subscribers
to the internet through a high-speed connection that uses
and internet speeds between 12 and 100Mbps. Our main
a high-capacity satellite network. The operation involves
market in Mexico is people who do not have access to
a 30-inch satellite dish, about the same size as a satellite
internet or who only have access to very low speeds.
TV dish, and a ViaSat modem. Thanks to the low cost of infrastructure for satellite internet services, ViaSat
We are letting the Mexican population know about us
can reach any location and perform a full installation in a
through interviews with Mexican media and inviting
couple of hours.
them to visit the communities that are benefiting from our Community Wi-Fi service. This service provides
ViaSat also develops all the technology it offers, from the
internet to communities with a population of up to
chip that contains the modem to the software it works
2,500 people. ViaSat has connected more than 100,000
with. The company constructs its own satellites in Arizona.
people in Mexico in over 1,600 communities through this
The first, ViaSat-1, was launched in 2011 with a capacity of 140Gb/s, followed by ViaSat-2 in June 2017 with 260Gb/s and with coverage for Canada, the US, Mexico, Central
that
America and the Caribbean. ViaSat-3 will be launched
provides equipment and services for military and commercial
in 2020 with a capacity of 1Tb/s. Our business model is
communications. It is a global company with more than 4,500
designed to address successfully and sustainably the
employees and 26 offices around the world
community Wi-Fi niche.
ViaSat is
a
US-based
communications
company
VIEW FROM THE TOP |
ROADMAP FOR DIGITAL TRANSFORMATION LUIS MEZA Managing Partner at Deloitte Consulting Group, México
Q: How would you grade Mexico’s attractiveness for doing
Q: How is Mexico’s economic environment impacting
business after 2018’s political and trade changes?
digital transformation strategies?
A: While some might feel lingering uncertainty, we see a
A: Although some see the economic climate as an obstacle
calm attitude in the sectors in which we participate. The
for investment, I believe it brings new business opportunities.
signing of USMCA has particularly benefited our ability
For instance, there is discussion on whether Mexico will be
to provide professional technology services by letting
able to maintain its position as a car manufacturer under
professionals travel freely to Canada and the US. The US is
new USMCA regulations. However, the sector can use this
restricting the use of foreign personnel. USMCA bypasses
period to implement automation in its manufacturing plants
these restrictions and creates a new area of opportunity for
and improve its practices in production, sales, exports and
Mexicans to offer technology services at competitive costs.
distribution. This is the time to adapt and become more competitive. Mexico can become a professional services
Q: How can companies prepare for a digital transformation?
powerhouse that sells these to the Americas and Europe.
A: Many companies believe that a digital transformation means switching from physical to e-sales. Decision-
Q: Which sectors could benefit from AMLO's transparency
makers need to understand how to integrate digitalization
policies in terms of digital transformation?
into their work culture and to use technology to monitor
A: This is a trend impacting all industries, even those
their entire operations. Today, it is impossible to imagine
that could be considered traditional. The mining sector,
an organization not using technology to interact with
for example, is using digitalization to map mines and
employees, clients and suppliers. However, it is not enough
control ventilation, using motion sensors to control fans
for a company to adopt technology in only some of its
and reduce energy costs. In the agricultural sector we
processes; an entire digital transformation is necessary to
are working with a client that is now monitoring water
build what we call a digital DNA.
distribution through the implementation of humidity sensors in the soil, allowing the company to save water
Q: How can Deloitte support companies going through a
and reduce operating costs.
digital transformation process? A: To embrace the digital transformation we combined
Q: What are your recommendations to potentialize
our usual consulting services with creative solutions. We
Mexico’s digital transformation?
are trying to help our clients identify the best areas of
A: Education is key to the digital transformation. Most
opportunity to generate value from the beginning of their
children in Mexico still receive a traditional education and
operations. Companies often try to go through a digital
it is necessary to make technological tools available to
transformation without a clear strategy in place and without
them from a very young age. Programming skills will be
a clear idea of the reasons why they are implementing these
extremely useful to children, not just because they are in
changes, which normally leads to confusion.
demand but because they teach a flexible way of thinking. Deloitte supports an organization that implements
Successful digitalization must support the company’s core
several programming courses for girls and we also have a
business while helping employees transmit a clear message to
scholarship program for university students in Queretaro.
clients through digital platforms. We develop comprehensive strategies for clients, analyzing the technology they have and the results they want to acquire. This allows us to develop a
Deloitte is a conglomerate of independent firms that offer
roadmap that clearly states the initiatives to implement and
audit, tax, consulting, risk and financial advisory services. The
the goals to achieve. We also help companies transform their
company operates in over 150 countries and territories and is
culture by training their personnel to execute digital strategies.
one of the Big Four consulting firms
81
| VIEW FROM THE TOP
EMBRACING THE CHALLENGE OF TRANSFORMING TO DIGITAL SERVICES MARIBEL DOS SANTOS Managing Director of Oracle Mexico
82
Q: How is Oracle’s business transformation impacting its
We will launch an Innovation Lab before the end of
relationship with existing and potential clients?
2019 where we will invite entrepreneurs working on new
A: Oracle’s transformation process is moving from a
technology solutions like blockchain. The lab will have a
product-development focus to a service-oriented strategy.
strong educational focus. As a result, new companies will
In the past, Oracle sold its products physically but we are
be able to get their technology to the market by the hand of
now the first company to have its entire product portfolio
experts. Our purpose is to transform the world, empowering
in the cloud. This transformation will provide Latin America,
people through innovation.
and Mexico in particular, with great benefits. Q: How can Oracle participate in the government’s Mexico, which is our second-most important market in the
objective to seize technology opportunities and digital
region in terms of sales volume, has readily adopted new
transformation?
technologies like the cloud. Now, we want to contribute to
A: Oracle is among the most important technology
the development of emerging technologies, such as IoT,
infrastructure providers to the government and we are in
blockchain and fintech. There used to be a misconception
the process of presenting new solutions to help in different
that Oracle only provided services for big companies. Most
sectors. Given our special interest in education, we have
large players have already incorporated our solutions but we
focused our development in this sector and are working
are seeing a significant number of medium-sized companies
with institutions such as Colegio Nacional de Educación
in the tourism, manufacturing, lodging and retail sectors
Profesional Técnica (CONALEP) and Colegio de Bachilleres.
adopting our services. These players will probably not move
However, the impact Oracle has on Mexican society
their entire operation to the cloud but they are adopting
goes beyond our governmental collaborations. We also
new technologies, which means they need a combination
created Oracle Academy, a program that helps us provide
of CAPEX and OPEX that helps them grow and embrace
educational content to 1.5 million students in Mexico
innovation. Our transformation allows us to provide a service
through our platform. Our goal is to help these students
model where clients can adapt operational costs to their
incorporate into the working environment or to support
current growth, gradually incorporating new technology
them in the development of their own technology solutions.
to be more competitive in the market. Today, we are much more flexible when supporting companies in reaching their
Q: What can Mexico do to strengthen its position as
objectives instead of being just a technology provider.
a technology hub and foster the creation of more development centers like Oracle’s in Guadalajara?
Q: How can Oracle support new businesses, such as
A: Oracle’s development center in Guadalajara is in charge
fintech companies, to help them grow and improve their
of all concentration and management tasks for Latin
operations?
America. It also provides global services and develops
A: Oracle’s strategy is based on four fundamental pillars:
new technologies like AI. This campus employs around
our collaborators, customer satisfaction, technological
1,200 people but once finished, we expect that number
innovation and community. Strengthening this last pillar
to climb to 4,000. We intend to continue developing
is what will help us incorporate startups into the market.
the Guadalajara center and in fact, the government and different ministries have shown interest in visiting the campus because of the important contribution it makes
Oracle is a multinational computer technology corporation
to the country in terms of employment, knowledge and
headquartered in California. It specializes in developing and
technology development. Our goal is for Guadalajara to
marketing database software and technology and cloud
contribute not only to Mexico’s growth but to the entire
services. Oracle is present in 175 countries
Latin American region.
VIEW FROM THE TOP |
TECHNOLOGY ADOPTION BRINGS PUBLIC, PRIVATE SECTORS CLOSER FEDERICO CASAS-ALATRISTE Managing Director of T-Systems México
83
Q: What opportunities have you recognized in the Mexican
centralization of T-Systems solutions, our clients can organize
market that can stimulate the growth of T-Systems?
their entire IT processes and synchronize their communication
A: Technology is transforming the global economy and
networks, while also centralizing their data management. This
Mexico is no exception. In the public and private sectors,
in turn allows them to focus on their core business.
T-Systems can help to create a more agile, efficient and inclusive society. Technology can help the government to
Q: What benefits can T-Systems offer to clients?
save on resources that can then be directed to necessary
A: Companies with their own IT infrastructure often do
social programs. It can help the private sector improve
not have the experience, investment and specialization
operational performance and further advance its digital
to deal with digital management problems. In the long
transformation. T-systems breaks with traditional IT
term, this generates unplanned costs and makes the use
paradigms to offer customized solutions to both sectors.
of technologies more expensive. Therefore, outsourcing IT services can generate savings that are inaccessible to those
The public and private sectors believe it is better to have
that own their infrastructure. T-Systems’ business model
their own IT technologies but this approach represents
is designed to ensure its clients pay only for the capacity
a large investment in maintenance and qualified labor.
they use. Additionally, the level of security is considerably
T-Systems delivers savings for its customers while increasing
higher than owning their IT infrastructure. Beyond these
the functionality and efficiency of processes. Companies
benefits, T-Systems is primarily useful in helping companies
and institutions that hire us can be certain that T-Systems
quickly become digital businesses that can easily and rapidly
will provide an efficient solution and will work hand in hand
navigate a continuously changing IT environment. T-Systems
with them to achieve their digital transformation goals.
believes the cloud represents the future of corporate IT but it can only be considered a benefit if a company is ready to
Q: T-Systems offers a wide range of cloud-based
employ it and migrate to a digital model.
management solutions. How does the company guarantee that its clients have the best solution for their needs?
Q: What are the company’s growth expectations for the
A: The cloud is now at the top of every business IT agenda as
short and long terms?
the world faces a rapidly changing IT landscape. Companies
A: We are awaiting the ratification of USMCA. We hope to
increasingly require a cloud system that is specifically
continue supporting the manufacturing sector and especially
tailored to their needs and that can simultaneously run their
the automotive industry. On the other hand, in past years,
native applications. Most of our clients, like SAT, belong to
T-Systems has been working with government institutions
the premium segment and have shown interest in using
like SAT and we would like to continue this collaboration.
hybrid cloud environments that have the ability to integrate public and private platforms. With T-Systems’ services,
In the long term, the next opportunity for T-Systems will
companies can handle a wide range of options, such as
be the next great change that is coming to Mexico in terms
improving safeguards, adjusting cloud expenditures and
of technology through blockchain, which will have a similar
relieving the pressure of using complex IT infrastructure.
impact on democratization of technology as the internet
Each company can use the type of cloud that best suits
had on communication.
its operations and budget in a cost-effective way, avoiding underutilization of the same technologies. T-Systems is
a
German
multinational
computer
and
T-Systems’ solutions can be adapted to any business model
consulting services company founded in October 2000. It is
and allow a client to move from a traditional model to a
part of Deutsche Telekom and operates in 27 countries with
hybrid version. Thanks to their integration efforts and the
55,000 employees
| INSIGHT
WARY COMPANIES MUST EMBRACE DIGITALIZATION OR RISK EXTINCTION JUAN FRANCISCO AGUILAR Vice President of Dell EMC Commercial Mexico
84
In a constantly changing world, companies need technology
technologies generating the most disruption and that they
that provides them with flexible processing and storage
are already being implemented.
capabilities that can adjust to their future business needs, says Juan Francisco Aguilar, Vice President of Dell EMC
Although companies are already implementing these
Commercial in Mexico. “A few years ago, the conversation
technologies, they are not doing it fast enough. “Companies
was focused on how to use the cloud, while themes such
that are digitally lagging face the possibility of disappearing
as machine learning, AI and virtual and augmented reality
in the next five years.” Of the business leaders interviewed
were anecdotal,” he says. “Today, we are seeing companies
for the Dell Index of Digital Transformation, only 7 percent
adopt technologies that four or five years ago were not
could be considered digital leaders, Aguilar says. “These are
even on their radar.”
the leaders who have transformed their business and have made digital transformation a core in the functioning of their
Technology companies like Dell EMC will have to generate
business.” When it comes to digital transformation, most
flexible and robust solutions to handle the processes and
business leaders are on the fence. Aguilar says that when
different technologies that will become necessary in the
companies realize the importance of digital transformation,
coming years. “The challenge of digital transformation is
it is often too late.
that new applications and the way companies interact with their clients require a new level of software development,”
Among the limiting factors that constrain a company’s
says Aguilar. The appearance of OTT media services, such
digital transformation are the lack of a leader with a digital
as Netflix or Amazon Prime Video and ride-hailing apps, are
vision, qualified personnel, the needed infrastructure to
examples of how the customer experience is changing. “These
process and store information in a dynamic, agile and
new business models must operate 24/7 and have a friendly
safe environment and the lack of public policies that
interface. These applications must have short response times
allow the development of these technologies. “Digital
and understand the consumption patterns of their clients to
transformation has to go well beyond smartphones and
achieve a greater degree of interaction.”
social networks. It entails the creation of innovation areas within companies that can help them become disruptive,”
Aguilar says Dell EMC offers the software and hardware
Aguilar says.
tools that companies need to interact with their clients and to process and store apps. “We complement our
In particular, implementation of the appropriate public
software and hardware offerings with a deep knowledge
policies is vital for Mexico’s transformation, Aguilar says.
of computing users. Dell’s history is based on the
“We need to think not as a manufacturing country but as
profound understanding of its clients’ consumption
a country that develops software, applications and new
history.” The company specializes in helping businesses
technologies. We need to imagine Mexico as a technology
achieve a digital transformation but Aguilar says that in
development hub.” He believes this transformation must go
general, Mexican companies are not ready to undertake
beyond businesses to include society as a whole. “We need
the challenge that this transformation entails. According
to specifically encourage children to pursue technological
to Dell’s Index of Digital Transformation, six out of every
careers and get them interested in software development.”
10 companies already perceive technological disruption in their businesses and six of every 10 companies do not
Aguilar believes Dell has a significant role to play in the
know how their industries will work in the next three to five
digital transformation. “We have the largest portfolio of
years. However, Aguilar says that what the index illustrates
tools to advance the transformation of data, cybersecurity
is that most businesses are now convinced that robotics,
and the workforce. We see ourselves as one of the most
the cloud, IoT, AI and virtual and augmented reality are the
important players for the country’s development.”
VIEW FROM THE TOP |
TOWARD A DIGITAL SOCIETY FELIPE LABBÉ CEO of Global Hitss
Q: How can Global Hitss’ digital solutions and IT services
Q: What are the main challenges for companies
help clients move toward digitalization?
transitioning toward a digital ecosystem?
A: Global Hitss has 30 years of experience and more than
A: The main challenge for an integral digital society is
8,000 employees in eight countries: the US, Brazil, Mexico,
to reach digital maturity. There are a series of steps that
Colombia, Peru, Ecuador, Chile and Argentina. As part of
countries must take before developing a digital society.
América Móvil, the largest telecommunications group in
The first is connectivity, followed by connected appliances,
Latin America, our goal is to develop a modern and inclusive
systems, solutions specifically designed for the needs of
society that can provide solutions to citizens through
this society and sectorial integration, in that order. Each
technology. We do this by providing our clients with a
country is at a different stage and we are working on a
digital strategy that fits their business model and helping
case-by-case basis to introduce the necessary elements to
with its implementation.
develop this digital society.
By 2025, 70 percent of the economy will be controlled
Mexico is in excellent condition compared to other countries
by millennials and members of the so-called Generation
in Latin America to embrace digitalization. Once I was asked
Z, a population group that consumes information very
whether it should be the private sector or the government
differently from previous generations. These changes are
that leads this change and I answered that it should be the
leading us to a collaborative and inclusive community,
individual consumer. Mexico and Brazil are doing very well
rather than to a closed and centralized one. Digitalization
and are investing a great deal in digital transformation, as
has created to two types of companies: digital natives and
are Chile, Argentina and Colombia.
digital migrants, which are large old companies that are migrating toward a digital model. Global Hitss targets both
Q: A common concern of digital companies is reluctance
types of companies; we want to bring our own solutions
of Mexican SMEs to incorporate technology. What is
to digital natives and help migrants to evolve toward a
your view?
digital society.
A: Many SMEs have been reluctant to incorporate new technologies but they are increasingly willing to change
Q: Which sector has better understood how to transition
because they have realized that their competitors are
to a digital ecosystem?
companies with disruptive business models.
A: We are focusing on eight industries that are moving toward a digital ecosystem: banking and finance, retail,
Digital transformation has three main axes: user experience,
health, smart cities, Industry 4.0, education, logistics
efficiency and new business models. If a company focuses
and transport and energy. We have recognized that the
only on the first two, it will not take the appropriate steps
industries that most easily incorporate digitalization are
to develop the services required by its own clients. New
those that deal directly with the final consumer, such as
business models were generated thanks to new technologies
finance, retail and healthcare. Our goal is to help these
that did not exist when many traditional businesses were
companies approach the end consumer and put them at
created. For that reason, these companies must understand
the center of the company’s operations.
these new business models.
Being part of America Móvil puts us in an excellent position to help clients undergo this digital transformation, so we
Global Hitss is a digital solutions and IT services company with
see many opportunities in the market. Of our eight sectors,
30 years of experience and more than 8,000 collaborators in
those which we expect to grow the most are financial, retail,
Latin America, the US and Europe. The company is a subsidiary
healthcare, smart cities and education.
of América Móvil
85
| VIEW FROM THE TOP
VISION IS KEY TO DRIVING DIGITAL TRANSFORMATION JUAN CARLOS LOVO CEO of Grupo Tecno
86
Q: How does Grupo Tecno stand out among the market’s
and ruled by Mexican laws, except when data management
existing options?
requirements exceed the capabilities available in Mexico.
A: Grupo Tecno has 35 years of experience and this is a key differentiator compared to other organizations. We
Q: What specific opportunities do you see for the digital
have been working to establish highly effective long-
transformation of the Mexican public sector using Grupo
term business relationships with both customers and
Tecno’s solutions?
suppliers. These relationships allow us to better advise
A: In general, the Mexican public sector is undergoing a
our customers by providing customized technological
digital transformation. Grupo Tecno can provide solutions
solutions and taking advantage of a wide variety of state-
such as Secure City and Electronic Citizen attention
of-the-art hardware and software, including the cloud
centers supported by AI. There is a need to create a
and AI. The endgame is to offer businesses important
unique individual medical history file in the health sector
financial and technical benefits through our key technical
to consolidate health data in one single database hosted
ecosystem, supported by our highly trained and skilled
in the cloud and Grupo Tecno could become a strategic
staff. Another area of expertise is cybersecurity, which has
partner in developing and implementing this solution.
become a main concern and a high risk to organizations
Regarding cybersecurity, it is important to remember
and individuals, particularly after an alarming increase in
that certain strategic government offices are potential
cyberattacks in the last year.
cyberattack targets and our expertise can help them mitigate this risk.
Our culture is another strength. As a company, we are highly committed to our values, our staff and our
Q: What do you think about the evolution of the Mexican
community. Therefore, our reputation in the marketplace
technology industry and the stance of Mexican businesses
is solid. Only time can forge a great organization, which
regarding digital transformation?
startups lack.
A: To address the evolution of technology it is important to understand that there are two key players involved: end
Q: What kinds of companies are best at transitioning to a
users and companies. End users are the agents who are
digital ecosystem?
in daily contact with easily accessible technology, such as
A: Financial institutions, retailers and service providers are
smartphones, tablets and other devices that enable them
leading the adoption of new technologies to successfully
to benefit from the important technological investment and
serve changing consumer habits. The government also has
development big businesses such as financial institutions,
been investing heavily in new technologies. It is interesting
retailers and government agencies are making to offer a
to highlight that when it comes to the cloud, the agreement
wide variety of apps. The most important challenge is for
amending the policies and regulations for the National
companies to decide what technologies they will invest
Digital Strategy related to Information and Communication
in and adapt to meet both their in-house needs and their
Technologies as well as the Administrative Manual for their
customers’ expectations.
General Application dated July 23, 2018, clearly state that data management should be based in Mexican territory
New technologies are available: the cloud, AI, cybersecurity solutions, Big Data, hyperconvergence and virtualization solutions. Mexico is a little behind countries like Brazil,
Grupo Tecno is a Mexican company with over 35 years of
Colombia and Chile in terms of new technologies
experience in the information and communications technology
adoption. Leading technology manufacturers are focusing
business. Its business partners include technology manufacturers,
on supporting Mexican businesses to speed up their
such as Oracle, DELL EMC, Riverbed and Microsoft
technology adoption process.
VIEW FROM THE TOP |
SCALABILITY DEMOCRATIZES TECHNOLOGY, INNOVATION MARCO JIMÉNEZ Director General of Lenovo México
87
Q: What characteristics of the Mexican market have
We have noticed that consumers feel more comfortable
positioned it as a reference for Lenovo?
buying technology through our website.
A: Mexico is among the 10 most important countries in Lenovo’s strategy. These 10 countries attract the majority
Q: Which Mexican industrial sectors are interested in
of our investment in marketing, commercial efforts, product
Lenovo’s solutions?
development and everything necessary to create and develop
A: We have a great deal of experience in the public sector and
a market. We also have a production plant in Apodaca, Nuevo
we are greatly improving our presence in private industry. We
Leon, that supplies desktop and server equipment from our
are focused on growing in sectors like banking and finance,
commercial line to the entire continent. We see Mexico as one
private and public education, retail and health. We also offer
of the strongest economies in Latin America, which provides
innovative business models, such as leasing and hardware as
us with the security to make decisions regarding investment.
a service, because sometimes companies prefer to invest their CAPEX in their core business and use technology as a service.
Q: What added value can Lenovo offer to the industry? A: Our commercial office in Mexico is divided into three
Q: What type of solutions does Lenovo offer to the
large segments. First, the household and consumer
government?
segments, which we cover through retailers. It represents
A: The Mexican government has chosen a model that we
between 60 and 65 percent of our market. Second, the
consider a pioneer in the region: administrated service.
SMEs segment, through which we offer computer and data
Knowing the difficulties in resource management, the
centers at attractive prices with financial solutions to reduce
government hired an integral service provider that offers
the technology gap. Third, the corporate and government
the installation, maintenance and support for every
segments, where we offer customized solutions regarding
workplace. This model has led institutions to a more
tablets, servers, PCs and storage systems. One of Lenovo’s
efficient expenditure and investment. Our business partners
competitive advantages in its global operations is that it has
are integrating our hardware into that model.
the largest hardware portfolio in the industry. Q: What are Lenovo’s goals for the near term? Q: How does Lenovo maintain a business model that makes
A: First, we must continue growing at a double-digit pace
technology available at affordable prices?
annually. Build the brand is one of our priorities. We want
A: Our strategy is not to be a cheap brand but one that
to position Lenovo as a premium and innovative brand and
offers an interesting cost-benefit to the consumer. Our
continue to work with our business partners to expand in
formula is innovation at an affordable price. We are looking
the private sector and education segments. In addition,
for new technology launches, such as virtual reality devices,
we want to enter the emerging technology market and
ultra-books and convertible PCs entering the market at very
open new categories that help us grow AI and virtual and
high prices. Through scalable models and volume, we can
augmented reality. We also want to establish long-term
offer affordable prices, resulting in the democratization of
relationships with our distributors, retailers and with our
technologies and innovation.
overall channel ecosystem. Last but not least, customer experience is a big focus area in our strategy.
Q: What is the future of distribution in Mexico? A: The large retail segment, in its different formats (specialized stores, department stores, furniture stores and
Lenovo is a Chinese technology company specializing in the
supermarkets) has become stronger, especially in markets
development and manufacture of computers, laptops, servers,
like Latin America. Lenovo reaches SMEs through 10,000
smartphones and tablets. It is headquartered in Beijing and is
retailers in Mexico. In parallel, e-commerce is growing fast.
among the world’s leading personal technology distributors
| VIEW FROM THE TOP
TECHNOLOGY KEY TO STAYING AHEAD OF THE CURVE FEDERICO RANERO General Manager of Uber Mexico
88
Q: How are you taking advantage of data processing
can apply our technology to solve these and work toward
and machine-learning technologies to boost your
sustainable urban planning.
service offering? A: We have a new machine-learning model that uses data
Uber has become a key element in our users’ lives and
from the over 10 billion trips we have completed throughout
thanks to that, we have contributed to improving the living
the world to identify 40 scenarios that could lead to a risky
conditions of the cities where we are present. We have
ride-hailing situation. This refers to a scenario in which our
noticed a significant decrease in incidents related to drunk
users could be endangered but also one in which our terms
driving because now, users know they can ask for an Uber
and conditions are not being followed. We are now blocking
at any time of day or night instead of having to use their
more trips than ever before but we do this to prioritize
car, which in many cases was the only option. Similarly, we
security in our service.
have contributed to transporting more people in fewer cars, which is part of our corporate vision. Finally, the data we
We have also invested in a new verification algorithm for
have generated after 10 billion trips has also led us to take a
new users who only choose the cash-payment method.
more active role in the planning and development of cities.
This has been a concern for many of our partner drivers but scanning the Facebook profiles of new users has
Mobility is a complicated challenge that demands
allowed us to weed out fake applications. Regarding
collaboration from the public and private sectors and
trips, we have developed several telematic applications
opening our data on general traffic flows to the public
to gather information from our drivers, which gives us
through tools such as Uber Movement can help cities ensure
intel on user satisfaction but also the driving habits
any investment made has the biggest return.
of our partners. We keep close tabs on our partners’ performance so we can offer punctual advice or in
Q: After five years in Mexico, what is next for Uber and
more extreme cases, deactivate their account. In 2018,
what role will the country play in the company’s strategy?
we deactivated 20,000 partner accounts either due to
A: Over the past five years, we have invested over US$500
security concerns or because of driving practices that
million in the country and yet we still see this as the
failed to live up to the standards we demand to maintain
beginning of our participation in the advancement of
a quality service.
inclusive mobility and economic development. We are committed more than ever to Mexico and it is one of the
Q: What role does Uber want to play in the development
most important countries for the company. Being in Mexico
of a sustainable mobility model in Mexico?
has helped us understand we cannot just export technology
A: Uber was born out of the necessity for an alternative
from one country to another and over the coming years we
to public transportation and private-vehicle use but we
will introduce even more developments to improve the user
never thought we would become part of the solution of
experience with our platform.
a much wider mobility problem. Now that we are a key player in over 600 cities in 80 countries, we are aware of the
Cars are to Uber what books are to Amazon, which means
problems that cities face in terms of mobility and how we
we must evolve from a platform to a marketplace where users can find services to transport themselves or goods, not even by car if necessary. We are already analyzing new
Uber Technologies is an American company based in San
services with bikes, scooters, cargo transport and even
Francisco that provides transportation and mobility services
flying cars to make our offering as efficient as possible,
in over 80 countries. In Mexico, the company has operations
either through our own developments or through alliances
in 44 cities
with third parties.
INSIGHT |
FIVE TRENDS ACCELERATING THE SPEED OF CHANGE GERMÁN MONTOYA Chief Strategy and Creative Officer at Rokk3r Labs
89
Technology is changing the way business is done and the
solving.” Finally, the concentration of private capital must
winners will be those who understand the changes and
be considered because it is driving the development of
create new value propositions. “We have seen around 20
new technologies, such as autonomous vehicles and
technologies that are changing the world, ranging from
space travel.
robotics, to genetics and bots,” says Germán Montoya, Chief Strategy and Creative Officer at Rokk3r Labs.
Put all these factors together and the landscape takes on a different hue, says Montoya. “Convergence of all
Rokk3r Labs, a consulting company that helps businesses
these technologies and their interaction is what is driving
alter their traditional models through innovative solutions,
change in the world.” Convergence, he adds, allows
has identified five trends or realities of the modern world
for the transformation of traditional business models.
that are accelerating the speed of change. The first is
“There is a significant number of companies that have
connectivity; according to Montoya, there are around 4
collected data from their customers but have not been
billion people connected to the internet, surfing the web
able to use it adequately. Rather than creating new
at an average speed of 3G. It is expected that in five
value propositions that fit their clients, the most they
years the number of people connected will double and
do is create loyalty programs that add little value for
the average speed will climb to 10G, which will open new
their customers or to their businesses,” says Montoya.
business opportunities. Augmented reality, the second
“It is a matter of understanding the market better, of
trend according to Montoya, will also be possible thanks
taking all the available information and correlating it in
to computational power. “Computational power has
a different and more intelligent manner to obtain new
become cheaper, so things that seemed possible only in
correlations that shed light on new market schemes that
theory will be implemented in practice, like AI.”
could be applied.”
Sensors are also an important component of change.
An example, says Montoya, is Uber, which he identifies
Montoya says that there are approximately 50 billion
as a business that has excelled in this regard and that
sensors in the world but that this number is bound
has benefited from the trends identified by Rokk3r Labs.
to more than double in the next 10 years. “With over
“Unlike other companies, Uber provided a solution to
100,000 sensors on each street block, you could sense
something that was already solved. It is not that there
everything, not only temperature but biometric data from
was no public transportation before Uber but it was
people. It will allow us to have a clear visualization of
completely centralized and controlled by local groups.
what is happening in the environment.”
Uber changed that.” Montoya says that “the ‘uberization’ of businesses is not the use of an app but taking a
Montoya says that education is another component of
solution that already exists and offering a modern twist.”
change. He believes the internet has democratized what has been much more a monopoly for a long time. But
Montoya is confident that innovation will soon take hold
the skills required in the future may not reflect current
of the Mexican business community. “Change tends to
thinking. Creative skills, more than programing abilities,
start slowly but when you look at the growth curve, you
will be key, Montoya says. “For several years, people
will see that there is a moment when change accelerates
thought that studying a major related to programing
and the curve becomes very steep. I think we are just in
or computer sciences would be the future but we will
that moment that precedes an increase in the curve and
come to a point where computers themselves will be
very soon we will see the change in business strategies
in charge of programing. The most important skill sets
accelerating to meet the demands of the world. The
for the future will be creativity focused on problem
future is already here.”
| VIEW FROM THE TOP
FINDING THE CHATBOT CONNECTION EDUARDO FARINA Director General of BlueMessaging
90
Q: What opportunities does the current work environment
Our first chatbot was created in 2011 and started operating
create for BlueMessaging?
in 2012. The technology was understood as an automated
A: There are many opportunities in the Mexican market. Our
client assistant but it was still a foreign concept for many.
solutions entail the creation of chatbots and machine-learning
Today, when you say the word chatbot people know
solutions, which makes us part of the AI transformation in
what we are referring to. Prospective clients are now
the business world. Both in Mexico and the rest of the world,
looking for automated solutions that will allow them to
the trend is to boost the implementation of AI solutions.
offer better services, in better time and in a more cost-
According to a McKinsey Global Institute analysis, by 2030,
efficient manner. The use of social media and different
around 70 percent of all companies will have implemented at
digital channels has potentialized the adoption of these
least one type of AI technology in their business processes.
solutions, since they already provide the infrastructure for
A report from PwC states that AI will add US$15.7 trillion to
this technology to work.
global GDP by 2030, while McKinsey Global Institute points out that Mexico’s GDP could grow by between US$82 billion
In late 2018, we partnered with Google to develop a new
and US$144 billion by 2025 thanks to digitalization.
communication technology now in its beta phase. We are constantly looking for collaboration and synergies with big
It is important to set a country strategy for the development
tech companies, such as Twitter, as well as with startups
of an AI basis that fosters technological growth. We are
that create specific solutions for everyday problems.
among the Top 10 countries in the world, and the only one in Latin America, that have already started setting the
Q: Which business sectors have been the most receptive
basis for the definition of an AI country strategy. If we are
to BlueMessaging’s offering?
strategic enough to define an AI ecosystem and the players
A: The financial sector has been the most receptive. The
that will participate in its development, then companies
fintech boom and all the changes it has generated broke
like ours, the government, academia and the industry will
the traditional banking model, so banks are looking for ways
have clearly defined roles and the space to potentialize
to reach the greatest number of customers at a lower cost.
their efforts and generate positive growth. AI will provide
Retail is another sector that is showing more interest. Our
benefits like increased productivity but it will also have a
implementations in the retail and entertainment sectors
social impact that needs to be considered.
have been successful. We believe the healthcare sector also offers significant opportunities for the implementation of
Q:
How
has
the
Mexican
market
received
AI solutions.
BlueMessaging’s offering? A: We have been in the market for eight years and have
Q: How can BlueMessaging solutions help companies
seen a change in the way our products are presented and
understand clients better?
received. In the past, we had to convince companies to
A: Our platforms use machine-learning algorithms and
use our solutions but now, some of them are asking how
data analysis to help in decision-making and in definition of
to incorporate AI solutions into their processes. This is
processes. Whenever a final user reaches one of our clients
allowing for greater technology adoption.
through one of our solutions, our chatbots can differentiate between transactional information requests, which is what we call public information, or more personalized requests
BlueMessaging is a technology company founded in 2009
that entail an authentication process from the final user,
that connects organizations with people through different
such as a credit card balance request. Applying Big Data
communication channels using AI-based innovation, machine
analysis, brands can not only improve bot services but
learning algorithms and data analysis
target more effective campaigns.
VIEW FROM THE TOP |
DIGITAL CLIENTS DEMAND DIGITAL SERVICES, COMMUNICATION SERGIO VALENCIA Director General of SRL Soluciones
91
Q: How can SRL Soluciones improve its clients’ operations
companies have a consistent service in all communication
in terms of customer management?
channels, as well as knowledge on the context and previous
A: The company first targeted the financial and telecoms
interactions with the customer.
sectors, where there is constant interaction with individual customers. Most companies in our line of work compete
Q: How receptive have clients been to your offering?
on price but we wanted to differentiate our services by
A: The most receptive have been banks, insurers and
providing the solutions that keep customers happy.
telecom companies that must interact with customers through different channels. However, we have seen growing
Our goal has always been to be the best distributor or best
interest from players in the retail sector. Visiting a store
integrator of contact center solutions. We started distributing
was part of the customer experience in retail, which means
contact center software brands from market leaders like
digitalization has blocked part of the company’s role in
Genesys, Aspect, Cisco, Verint and ServiceNow. However,
dealing with the customer. For retailers, it is becoming
we understood that a box product cannot do everything a
increasingly important to transform and to have an efficient
client wants, since they always need customization that goes
back-office process to properly serve customers.
beyond what the original product can offer. That is where our know-how and expertise come in: by customizing products
Even though older technologies are being updated, such
for our clients. The idea is to transform their business without
as the Interactive Voice Response (IVR) used by banks or
losing sight of the operations they want to maintain.
telecom companies, people in Mexico still prefer to speak with a person rather than deal with the IVR. Companies had
Q: According to SRL Soluciones, it is becoming the era of
trouble grasping the importance of this change. As new
the customer. What should companies understand about
technologies started to appear, we integrated them into the
this new era?
IVR to develop a more sophisticated system, which helped
A: There are mature businesses and industries that have
customers feel supported and reduced costs for companies.
always done things the same way. Yet, clients are not comfortable with the same practices anymore. Digitalization
Q: What differences have you found between contact
has changed so much; people are using new channels of
centers in Mexico and around the world?
communication, while some companies still have a hard time
A: In Mexico, customers are open to adopting new
understanding that communicating through social media is
technologies unlike in the US, where they tend to be more
not only appropriate but the preferred way to reach the client.
conservative. Here, companies also normally leave us the responsibility to create their communications solutions,
Today, all our projects involve digital or technological
while in the US and Europe they usually work alongside
transformations and we are helping companies more
the manufacturer to design the solution they need. We are
effectively reach clients through Facebook, Twitter and
starting to see corporate positions focused on customer
WhatsApp. Many startups offer to solve their clients’
experience that previously did not exist. We are trying to
communication needs but they only solve part of the
show people in these positions how to analyze the customer
problem by setting up an email or Facebook account for
experience from a technology standpoint.
the company. Instead, we provide an omnichannel solution that can yield data for posterior analysis. We generate a roadmap to determine where the client wants to be in terms
SRL Soluciones is a Mexican technology company specialized in
of customer relationship management, its current state in
helping companies improve their customer service experience.
terms of company culture and technology and the steps
It has strategic alliances and international certifications and
needed to implement an integrated solution. Once in place,
has installed over 9,000 seats at contact centers in Mexico
| VIEW FROM THE TOP
GRADUAL CHANGES LEAD TO FULL DIGITAL TRANSFORMATION ELIE HAIBI Co-founder and CEO of Hermes Systems
92
Q: How do you market your services among hesitant clients
origination process becomes digital, there are gains in quality,
and what business opportunities have you detected?
operational efficiency and cost of risk mitigation. Meanwhile,
A: A digital transformation (DT) impacts a company’s business
exploring new business models with agency banking allows
strategy and its operational, organizational and technological
the growth of financial services institutions’ operations without
initiatives. It is motivated by technology capabilities, such as
investing large amounts of money. Companies that want to
AI, IoT, the cloud, mobility, blockchain and Big Data, that
reach the large underserved population in Mexico need to
enable new operational mechanisms and help better execute
grow with speed and quality. Therefore, they must consider
a company’s business strategy.
whether to open hundreds of new branches or partner with a retailer that has thousands of stores and equipping them
Facing such a broad and complex DT program can lead to
with a mobile terminal enabled with basic, low-risk, customer
a long and costly sales cycles if combined with a hesitant
service functions. The answer is a no-brainer.
market. That is why we came up with our micro-DT concept. While limiting the scope of the transformation to a specific
Q: What opportunities does Hermes Systems offer to retail
part of the company, we focus on the capabilities brought by
and e-commerce players and what strategies is it pursuing
mobile technology. Almost everybody uses a smartphone and
to position itself as the market’s best option?
understands well its capabilities, from scanning a bar code to
A: Our focus in retail is on three axes: delivering a
filling a digital form and keeping up with the geo-location of a
differentiated customer experience, building informed and
vehicle. As a result, we deliver smaller but impactful projects
engaged teams and optimizing store processes. The most
and the customer is open to implement more changes,
successful customer-experience models follow practices
allowing us to progressively broaden the scope of the DT.
from the hospitality industry. Hermes Systems can offer technological capabilities, such as customer identification
Q: How can the banking and financial system benefit from
through beacons or face recognition, social listening and
the DT solutions offered by Hermes Systems?
sentiment analysis and personalized service based on data
A: There is room for growth in financial services but that
insights from all past interactions across all channels, to
comes with challenges, such as the required infrastructure,
deliver a superior experience. But these elements are useless
operational performance, customer expectations and risk.
without a solid value proposition in customer experience,
Our advice for companies is to go digital, mind the culture
coupled with systematic mechanisms to make it consistent.
of their organization and explore new business models. To achieve this, we have solutions intended to enable new
Regarding sales teams, connecting with customers who are
strategic capabilities in three specific areas in the financial
often more informed than the employee requires coaching,
sector: customer attraction, collection and agency banking
teacher-led and online self-paced courses, gamification of
with services aggregation.
education, closed customer feedback loops, the opportunity to constantly provide management with feedback on employee
Filling a web or mobile application and receiving the credit
experience and aligning incentives with an omnichannel
approval in less than three minutes has a “wow” effect that
strategy to avoid sales cannibalization. Finally, optimizing
is key for customer attraction. When the end-to-end credit
store processes requires the implementation of strategies that include tracking merchandise from the warehouse to the shelf, performing accurate and rapid stock checks, instant
Hermes Systems is a Mexican company specialized in the
product identification through scanning and monitoring the
digital transformation of businesses. It focuses on providing
performance of individual items. Such initiatives are based on
clients with agile transformation models enhanced by
worldwide retail best practices and are carried out with the
technological tools
help of our technology partners: Apple and IBM.
VIEW FROM THE TOP |
BABY STEPS GO A LONG WAY IN DIGITALIZATION
JOSÉ FUNCIA Co-founder of Crater Solutions
JOSÉ ANDRÉS GONZÁLEZ Co-founder of Crater Solutions
Q: What are the main technological options offered by
Q: How do you convince reluctant companies to implement
Crater Solutions to the Mexican business community?
technological changes?
JG: We provide technology solutions for businesses,
JF: We conduct a detailed research of everything the
which range from setting up a web page to more complex
company might need and then we talk to the person in charge
solutions such as implementing e-commerce or internal
of making the decisions. We convince them by showing them
software for better company management. We have
how their activities would improve. We try to work side by side
noticed that people and companies are not always aware
with our clients so that we end up becoming their partners.
of their technology needs. Besides offering technology services, we also help companies to adopt our solutions
JG: Because we present information about how their
so they can improve their overall operations. This is the
business will be affected, the clients can directly see the
added value our clients receive when they hire our services.
benefit. We also try to facilitate the use of technology. Instead of offering them all the services they may need in
Even though our main focus is technology, we work hard to
one shot, we try to provide a step-by-step solution.
provide the best possible customer service. All our clients have constant access not only to our team but to us. You not
Q: How do you determine what solutions to offer clients?
only need to know what you need but also what you want,
JG: Not every company needs all our solutions. Some
which is why we offer our clients consulting services as well.
companies start with just a webpage and from there it all depends on the company’s needs. We also offer augmented
JF: We are a boutique company, since all our services are
and virtual reality solutions but these are usually destined for
tailored. Many of our clients come to us to implement big
more specific clientele, like those in the construction industry.
technology solutions but we have found that sometimes their business capacities do not require that big a solution.
JF: We determine the services we offer based on demand. If a client has any technology requirement, we will find a way
Q: What sector of the Mexican economy has been most
to help them. If we cannot do it, we have strategic partners
receptive to your services?
with expertise in areas where we do not and we connect
JG: More than a particular industry or sector, we like to do
our clients with them.
analyses based on the type of company. Overall, though, the construction industry has been somewhat reluctant
Q: What are the company’s growth strategies?
to implement technological solutions. In some cases,
JG: We are pushing our virtual and augmented reality
companies have taken too much time to adopt technology
projects in the real-estate market. The construction sector
not because they did not want to implement it in their
has been rather slow in the implementation of technologies
processes but because the solution they needed was not
but we have seen that virtual reality can have a significant
ready. In the end, however, it is the decision-maker who
impact when it comes to customer service in real estate.
determines the level of readiness of the company itself
We are also growing our team to widen our reach. By doing
and this is the person who has to break the barrier of fear
so, we can start expanding to other large cities such as
related to technology adoption.
Monterrey, Puebla and Guadalajara.
JF: This happens a lot in family businesses. In general, younger generations are more adventurous, have more
Crater Solutions is a Mexican technology company that
confidence in technology and are able to introduce changes.
specializes in the development of software and other
If control remains with the parents or grandparents, then
technology solutions for businesses. The company also offers
change becomes more complicated.
consultancy services to entrepreneurs
93
Walmart self-service area
RETAIL
4
In a country with over 125 million inhabitants, the possibilities offered by the retail sector are on the rise. Whether it is personal goods, clothes, furniture or home repair equipment, the retail sector plays an important role in the country’s economy. Despite external turbulence that has impacted the economy, such as the drop in oil prices, the US dollar’s appreciation and the instability generated by USMCA’s negotiation, domestic consumption has remained one of Mexico’s main growth engines.
The Retail chapter shines a light on how this sector has evolved and the challenges it faces from a social, economic and technological standpoint. Consumer confidence has increased after President López Obrador’s election but the country’s retailers must still innovate not only in their offering but the way they present themselves to consumers to effectively compete with new platforms and their competitors. The challenge is to remain attractive in an increasingly digital world dominated by e-commerce companies.
95
CHAPTER 4: RETAIL
97
98
ANALYSIS: User Experience Becoming a Defining Priority
100
INFOGRAPHIC: Where Does the Money Go?
102
VIEW FROM THE TOP: Carlos Arroyo, Walmex
105
INSIGHT: César Medina,
106
INSIGHT: John Lackner, H&M Mexico
107
INSIGHT: Eric Fortune, Decathlon Mexico
108
INSIGHT: Fernando Silva, Best Buy Mexico
109
VIEW FROM THE TOP: Patrick Devlyn, Grupo Devlyn
110
VIEW FROM THE TOP: Guillermo Martorell, Grupo RFP
111
VIEW FROM THE TOP: Macedonio Garza, Farmacias Benavides
112
VIEW FROM THE TOP: Ricardo Travassos, Coty México
113
VIEW FROM THE TOP: Felipe Sánchez, Assurant Mexico
114
VIEW FROM THE TOP: Michael Gines, Dacomsa
115
VIEW FROM THE TOP: Sergio Álvarez, Hankook Tire de México
Mexico and LATAM
| ANALYSIS
USER EXPERIENCE BECOMING A DEFINING PRIORITY It is a brave new world for retailers. Consumption is on the rise, but the shopping experience is evolving and retailers increasingly see a need to connect with customers through digitalization and e-commerce. These areas have developed in other parts of the world but are only starting to permeate the Mexican landscape
98
Few areas have felt the impact from digitalization as much
the entire family helps users develop a common topic of
as retail. New payment methods, online shopping and
communication and thus generates an emotional bond with
rapidly evolving consumer habits are creating a much more
the shopping experience.
technology-driven market globally. Although the commerce revolution has been a death knell for traditional shopping
THE E-COMMERCE CHALLENGE
outlets like malls, Mexico continues to buck that trend. But
Although e-commerce has been part of the everyday life of
evolution requires adapting, and in that regard, Mexico is
consumers for several years in the rest of the world, Mexican
no different.
consumers have been late adopters for different reasons. According to the Mexican Association of Online Sales
The new era for retailers, whether in Mexico or abroad,
(AMVO), Mexicans that do not engage in online shopping
entails a transformation that emphasizes the shopping
cite fear of electronic fraud as the main cause for not buying
experience rather than the product. This is among the
online. Other reasons for not choosing e-commerce are
factors for the continued success of malls in Mexico and
fear of introducing bank account details, fear of buying
Latin America, says César Medina, CMO of Miniso Mexico
the wrong product and the lack of understanding of how
and Latin America, who adds that the family and social
to buy online.
components are key for retailers in the region. “In Latin America in general, we go to malls to socialize. Malls
Despite these factors, online shopping in Mexico is growing.
continue to be the place for family entertainment.”
According to AMVO, in 2018, 38 percent of Mexican online shoppers made at least one online purchase per week.
While popularity of e-commerce has meant the demise
While 34 percent made at least one purchase per month.
of many malls and retailers in Europe and the US, John
This represents an increase from the 7 and 29 percent rates
Lackner, Country Sales Manager of H&M Mexico, says
of 2017, respectively. Given that trust is increasing among
retailers in the Mexican market will not face the same fate as
Mexican shoppers, retailers have no option but to set up
long as they can effectively bond with consumers. “Global
an omnichannel strategy that allows them to participate in
consumers want a company they can relate to and believe
different consumption opportunities.
in.” This bond also entails celebrating local culture through stores. “To relate to the Mexican consumer, we have tried
Carlos Arroyo, Senior Vice President and COO of Walmart
to celebrate the local culture and local flare.”
de México y Centro América, says the most important asset for consumers is time, which is why e-commerce is
The focus on Mexican elements to create a bond with
becoming more popular in the country. While that may be,
customers obeys to a change in patterns of consumption.
Lackner is certain that H&M’s e-commerce channel will not
“For a couple of years now, there has been a growing
surpass the performance of the company’s physical stores
interest in locally made products. Before, everything that
anytime soon. This does not mean that retailers should not
came from abroad was perfect. However, we have been
put stock in customer experience through digital mediums.
seeing that more and more people appreciate Mexican
“Each customer has different expectations regarding
products, due to a sense of pride for what this beautiful
their omnichannel experience,” says Lackner. “For us, it is
country has to offer,” says Ralph Simmons, CEO of Tane.
important to have the same commercial message online and at our stores.”
Even though malls and stores in the country have not experienced the same decline in visitors as those in other
Medina believes that even though e-commerce is here to
countries, Lackner says retailers must also play their
stay and that it has revolutionized retail dynamics, it is not
part to maintain a healthy influx of visitors. This means
a panacea. “I believe e-commerce is overrated; rather than
generating spaces that put the customer first and have
being the ultimate commercialization platform, it is just
a product offering that addresses the needs of different
another one.” Simmons sees e-commerce as a tool to reach
customer groups. Medina adds that finding products for
more consumers and to boost the number of customers
99
Tequila display, Casa Dragones
that visit the physical store. However, he says it will not be
of households across the country and the favorability of
able to replace the experience of going to the store, given
the current environment for the purchase and acquisition
the luxury component of his brand. “We do not expect our
of goods and services.
e-commerce platform to become our No. 1 store but we are confident that it will perform well as part of the company’s
Other data also point to a positive landscape. According
omnichannel strategy.”
to the National Association of Department and Self-service Stores (ANTAD), retailing GDP is growing above the
OPTIMISTIC CONSUMERS
national GDP average. In 2018, the country’s GDP increased
Ultimately, it is the consumer who will dictate retail success
2 percent, while wholesale trade GDP grew 2.4 percent and
and the data suggests that Mexicans are in an optimistic
retail trade GDP rose 3.8 percent. ANTAD, which has 59,000
mood. The February 2019 National Confidence Index
stores, including self-service, department and specialized
registered a 42.1 percent increase from the year-ago period,
stores, among its associates, reports that in 2018, overall
while posting a 5.9 percent rise on the month before. The
trade activities accounted for 19.9 percent of the country’s
National Consumption Index for February 2019 also posted
GDP. Moreover, ANTAD’s total sales registered an 8.5
a year-on-year gain of 52.4 percent in households’ openness
percent increase in that same year, totaling MX$1.8 billion
to acquiring durable goods, such as furniture and home
(US$94 million), with department-store sales experiencing
appliances.
the largest growth at 10.5 percent.
INEGI’s data on private consumption analyzes the evolution
Retail also has an important impact on job creation. Of the
of spending on goods and services. Private consumption
23.5 million people in the formal economy, around 4.04
is the most significant variable for analyzing aggregate
million work in retail. ANTAD estimates that the opening
demand. The National Confidence Index measures the
of a self-service store boosts job creation by 134 percent
perception of the current and expected economic situation
over a six-year period.
| INFOGRAPHIC
WHERE DOES THE MONEY GO? Private consumption has been one of the most stable
performance of the retail sector. Consumption provides an
economic pillars. Despite changes in variables such as
insight into consumer confidence and with the arrival of
the exchange rate between the Mexican peso and the
President AMLO, this indicator has soared. The sector is now
US dollar and inflation, consumption levels in the country
waiting to see whether this increased confidence will translate
have remained stable and continue supporting the positive
to more sales that could boost the country’s internal market.
HOW MANY STORES ARE IN MEXICO?
IMPORTANCE OF RETAIL IN THE MEXICAN ECONOMY • In 2017, retail activities contributed to 19.8 percent of the GDP
100
• ANTAD (National Association of Self-
CHAINS
STANDALONE STORES
55.24% Specialized 31.43% Self-service 13.33% Department
86.3% Specialized 9.36% Self-service 4.33% Department
service and Department Stores) contribute to 3.7 percent of the GDP • Informal commerce is estimated to represent about 12.1 percent of the GDP
58,777 stores are registered with ANTAD
WHAT ARE WE BUYING? (MX$ million) 1000
7.7% Supermarket goods
400 200 0
8.6%
11.4%
Other
600
Clothes & shoes
800
2018 growth year-on-year (%) INEGI'S NATIONAL CONSUMER CONFIDENCE INDICATOR (March 2018-March 2019) 50
48.8
45 42.1
42.2
41.9
41.5
40 35
35.8
36.1
May 2018
41.2
April 2018
35
47.6
46
43.8
36.5
March 2019
February 2019
January 2019
December 2018
November 2018
October 2018
September 2018
August 2018
July 2018
June 2018
March 2018
30
COMPONENTS OF INEGI'S NATIONAL CONSUMER CONFIDENCE INDICATOR 58.4
19.6
10 0
Current economic situation of family members compared to 12 months ago
Expected economic situation of family members in the next 12 months
Current economic situation of the country compared to 12 months ago
27.6
34.7
28.2
30 20
March 2018 March 2019
43.7
48.7
40
43.6 49.4
50
59.4
60
Expected economic situation of the country in the next 12 months
Current possibilities of family members to acquire consumer durable goods
*Estimate
4.5
4.44
4.38*
4.16
4.0
3.84
3.17
19.3
10.3%
101
9.7%
15 7.8%
13.3
8
20 18.7
——Sales growth % in ANTAD's total stores ——Inflation Average US-Peso exchange rate
15.8
3.0
10
The three sectors that generate the most sales in retail are: Self‑service stores, engine vehicles, grocery and convenience stores
3.4
19
3.5
12
THE PRICE OF THINGS
——MX$ billion
12.8
HOW ARE RETAIL SALES EVOLVING?
5.0
8.5% 10
6
4
6.77%
5.1%
5.2%
3.97%
4.08%
4.83% 3.36%
2.13% 2
2013
2014
5
2015
2016
2017
0
2018
WHAT ARE WE BUYING ONLINE? Item
Percentage
Fashion Items (Clothes, Shoes and Accesories)
77%
Food Delivery
67%
Electronics (Computers, cameras, cellphones)
65%
Home Furniture
63%
Videogames & Toys
60%
Service
In 2018, 38 percent of buyers acquired a product or service online per week. On 2017, the rate was at 7 percent
Percentage
Subscription services (Movies, TV Series, Music)
77%
DELIVERY SERVICES: HOW DO WE RECEIVE OUR PURCHASES?
Online Banking
77%
Type
Entertainment (Movie Tickets, Concerts, Shows)
76%
Home delivery after online payment
84%
Mobile Communications
70%
Home delivery with payment at delivery
23%
Digital Content (Books and Music Download)
66%
Collection at distribution centers
23%
Collection at stores
20%
DIRECT JOBS IN THE RETAIL SECTOR (2017)
In 2017, the retail sector employed 868,238 people
Percentage
48.2%
Self-service stores
25.6%
Department stores
26.3%
Specialized stores Sources: ANTAD, INEGI, Mexican Association of Online Sales
| VIEW FROM THE TOP
BEYOND E-COMMERCE, RETAIL DEMANDS OMNICHANNEL APPROACH CARLOS ARROYO Senior Vice President and COO of Walmart de México y Centroamérica (Walmex)
102
Q: How do Walmart’s operations in Mexico and Central
Our company’s mission has evolved. While before our goal
America add to the company’s global strategy?
was to be the most trusted retailer in Mexico, now the
A: Walmart’s operations in Mexico are the second-largest
target is to be the most trusted omnichannel proposal for
globally after Walmart US. The first Sam’s Club opened
the Mexican and Central American consumer. We are fully
in Mexico City in 1991 and from that point on, we were
aware that customers want to save not only money but time
highly interested in expanding our operations in the
and to be able to acquire every product through different
country as we recognized significant opportunities. The
channels as easily as possible. This is a significant challenge
company expanded significantly and in 2010, Walmart
as it requires us to develop many new capabilities to be a
Mexico (Walmex) acquired operations in Central America.
step ahead of our customers’ expectations.
Walmex now has more than 2,400 stores in Mexico and an additional 821 in five countries in Central America:
Q: How are Walmex’s practices evolving to become a
Honduras, Nicaragua, El Salvador, Guatemala and Costa
leader in the omnichannel sales business model?
Rica. We are highly committed to bringing our low-price
A: Being an omnichannel retailer means much more than
offering to populations that may be too far away from major
mixing physical stores and e-commerce. Our renovated
cities for customers to travel back and forth.
model allows customers to order online and pick up at the store. It also enables them to use a kiosk to order a
Walmart has over 2,400 stores in Mexico, plus 821 in Central America
product that a particular store does not have in store, pay
At the end of 2014, Walmex set itself the mission to double
Customer needs change all the time but their most valued
its operations in Mexico in the next 10 years, which would
resource is time. If we want to optimize their time, we have
require annual growth of 7 percent minimum. Our offices
to make the best use of our own. For instance, we are now
in Mexico have capitalized on the best practices that
implementing a system that provides store managers with
Walmart offices have implemented in the US, China and
the technological tools to perform all their duties at the
Japan. From 2014 to 2018, Walmex achieved a CAGR rate
front of the store, avoiding the need to visit the store’s
of 10 percent.
warehouses. Previously, store managers were constantly
for it at the counter and receive it at home or pick it up at the same store. Our stores in Mexico are going through our omnichannel transformation, which is leading to daily growth in the number of customers we serve.
going around the store to collect data for reports. Now, Q: How would you describe the evolution of private
this process is done automatically through eight apps that
consumption trends in Mexico?
they can install on their phone. This reduces downtime and
A: Consumer behavior is changing fast and close
allows us to provide better customer service. In 2018, we
monitoring allows us to discover trends not just year
saved 7 million hours of unproductive time as we moved
after year but month after month. Fifteen years ago, our
personnel from the back to the front of the store and
main priority was to offer our customers a broad range
allowed them to treat customers directly.
of products that allowed them to find everything they might need under a single roof and at the best price.
Q: What steps were necessary to turn Walmart into an
Our communication with customers focused on supply,
omnichannel retailer?
availability and price. Now, these three points have
A: This omnichannel proposal would not have been possible
become much more sophisticated due to technology,
without an evolution in our internal operations. We have
creativity and innovation.
implemented much more than an e-commerce platform;
the whole company has evolved to surpass our customers’ expectations. The omnichannel approach used at our store in Toreo is now being replicated in other stores and we closed 2018 with over 113 Walmart Supercenter stores with a sales kiosk and 308 warehouse kiosks, which equated to opening 14 more stores. Our Mexican clientele has been extremely welcoming to this model as it saves time and allows customers to buy whenever they want and in whatever way they prefer. Our business is one of innovation, technology, productivity and creativity. Walmex also manages Sam’s Club, Superama and Bodega Aurrera. At first, we thought Bodega Aurrera was not
103
ready for our e-commerce platforms but we were wrong. The Mexican consumer is evolving at an accelerated pace and is increasingly looking for a sophisticated proposal for their retail needs. A self-service approach is no longer enough. Q: How is Walmart’s investment in logistics supporting Walmart pickup area
your omnichannel goal? A: In 2016, we announced a US$1.3 billion investment in our logistics network in Mexico, given the opportunities to open many more stores in the country. This investment allows
Walmart’s strategy rests on five strategic pillars. The first
us to improve our operations and ensure availability of all
is traffic because the only way for a company to have
products in all communities in Mexico. We have not stopped
sustainable growth is through traffic increase. The second
our investment in the country and we have invested an
is our omnichannel proposal, which puts us one step ahead
additional US$500 million since then. These distribution
of our customers’ expectations. The third is productivity; we
centers are essential to guarantee an excellent customer
must identify all activities that do not provide added value
experience and provide them with fast delivery. We want to
and update them to be closer to our customers at all times.
provide customers with a frictionless experience.
The fourth is our people. We are strongly committed to our workforce; 240,000 families in Mexico and Central America
We are opening two more high-speed distribution centers
depend on us as sources of employment. Our last pillar is
in 2019 in Monterrey and Guadalajara that will cater to
agility. Due to the size of our stores, agility is essential to
e-commerce customers. We are also developing three more
ensure that our operations are fast, efficient and effective.
distribution centers in Villahermosa, Merida and Chihuahua, which will support our physical stores and allow us to open
Q: What are Walmex’s growth expectations for the retail
more. Our goal is to become the best omnichannel provider,
sector and what growth opportunities has the company
which requires investments in physical stores, e-commerce
identified in Mexico?
and in distribution centers.
A: We will continue with the mission we defined in 2014, which is to double our operations by 2024. This is a great
Q: What best practices is Walmex taking from its
moment to work at Walmex, as stores are growing thanks
international counterparts?
to the loyalty of our customers. Walmart has a bright future
A: Mexico and Central America are not just importing best
in Mexico and will continue investing in the country. In 2019,
practices; they are also exporting them. I am proud of what
we will invest MX$20 billion (US$1.03 billion) in Mexico and
the region exports to the world. For instance, Costa Rica has
Central America in existing stores, new stores, logistics,
excellent technology and systems developers, which would
e-commerce, technology and upstreaming our “fresh”
benefit any operation in the world. Mexico is spearheading
strategy to ensure we deliver quality produce.
a transformation process for Walmart worldwide, which means our offices are constantly visited by representatives from around the world. Putting the customer at the center
Walmart is a multinational retailer and the largest company
of all decisions helped us realize that marketing cannot be
in the world by revenue, according to Forbes. The retailer is
separated from sales or operations. For that reason, we are
present in 27 countries and operates in Mexico and Central
integrating all systems.
America under the name Walmex
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INSIGHT |
SMOOTH LOGISTICS ENSURE SUCCESS FOR ASIAN RETAILER CÉSAR MEDINA CMO of Miniso Mexico and LATAM
Any retailer with strong financial muscle can generate an
Although the logistics component is vital to ensure success,
aggressive strategy for physical expansion but the real
Medina says that other elements have contributed to
challenge lies in generating the needed logistics to support
Miniso’s positioning in the country. “From an economic
the business operations of all the stores opened, says César
perspective, Miniso’s business is based on selling products
Medina, CMO of Miniso Mexico and LATAM. “Miniso’s success
with a small profit margin but in large volumes.” From a
as a retailer is partly based on its ability to sort out the
creative point of view, the brand has created a strategy
logistics challenge that every company in this area faces.”
based on “smart consumption,” which entails selling highquality products at affordable prices. Highlighting the price
Miniso, a Japanese-Chinese retailer that has gained
variable has been part of Miniso’s international marketing
recognition for its quick expansion and its assortment of
strategy but Medina says that in Mexico, the company has
daily products at affordable prices, entered the Mexican
chosen to focus on Miniso’s other qualities, leaving price as
market in December 2016. “In less than two years, we have
the last added value in the equation. “In Mexico, we decided
opened 110 stores. In Mexico, we opened on average three
to present a more aspirational Miniso, stressing the design
stores per week during a particularly intense expansion
and quality of our products. As a result, performance of
cycle. In other countries, we open between one and two
Miniso’s boutiques are based on customer experience rather
stores per month,” says Medina.
than on the advertising of prices.”
Although Miniso’s growth in the Mexican market set a
As part of the customer experience that Miniso creates,
milestone in terms of international expansion, Medina says
Medina says that stores are organized following ordered
that sorting out the logistics was the key to the company’s
patterns of accommodation based on repetition, balance
successful growth. “Miniso’s logistics expansion is
and sales psychology. “We have designed a concept of self-
impressive. We reached a point where there was no logistics
service and accommodation that balances the store and
company in the country that could support on its own the
gives users the sense that the store is not saturated, despite
number of operations we required.” To solve this problem,
having over 2,500 Stock Keeping Units (SKUs) on display.”
Miniso took logistics into its own hands. “When we started to accelerate our growth, the company began constructing
In many parts of the world, e-commerce is leading a retailer
its own factories and warehouses to reduce operational
transformation. Medina says the brand is not against
logistics costs.” Its first warehouse in Brazil was supposed
transforming its business model but it will not abandon it
to feed operations across the continent. However, growth
for the sake of doing e-commerce. “I believe e-commerce is
in Mexico forced Miniso to open a warehouse in the country
overrated; rather than being the ultimate commercialization
to support local operations.
platform, it is just another one.” Particularly in Latin America, Medina says conventional retail continues to
“China centralized the logistics operation, creating its own
maintain a social component rather than being a simple
distribution channels, and started shipping containers at
commercial operation. “In Latin America in general, we go
the same speed that products were being manufactured.
to malls to socialize and for family entertainment.” Still,
In Mexico, all the products that are sold arrive at a Mexican
Medina says the brand and its stores are evolving toward
port and then are taken to our warehouse, from where they
more digital concepts. “We are changing to deliver more
are then redistributed to stores across the country,” Medina
digital experiences in our stores that help consumers relate
says. Operations in Mexico have grown in such capacity that
Miniso’s products to their everyday life.” He adds that
Miniso has had to change its warehouse on four occasions
Miniso will venture into e-commerce when it is ready. “We
and is now in the process of opening a second storage
needed to figure out the details and logistics for the current
facility in Cancun to stock stores in the south.
business model before venturing into another.”
105
| INSIGHT
MEXICAN FLAVOR BOOSTS CUSTOMER ATTRACTION, RETENTION JOHN LACKNER Country Sales Manager of H&M Mexico
106
The rise of online shopping has caused a decline in traffic
City will boost the company’s relationship with Mexican
at brick-and-mortar stores in Europe and the US, but the
culture by providing not only a fashion offering but
Mexican market remains an enticing destination for global
also a space to showcase Mexican art. “The store will
retailers that know how to bond with consumers, says John
celebrate up-and-coming Mexican artists,” says Lackner.
Lackner, Country Sales Manager of H&M Mexico. “Global
“H&M’s global campaign for 2020 will transform the way
consumers want a company they can relate to and believe
customers view our store. Instead of a cookie-cutter
in,” says Lackner. “To relate to the Mexican consumer, we
model, the idea is for the space to feel like a part of the
have tried to celebrate the local culture and local flare,
neighborhood.”
creating mutual respect between the country and H&M.” Store openings and a rapid expansion might have driven H&M, the world’s second-largest retailer, entered Mexico
H&M’s success in Mexico but the company is not blind to
in 2012. Since 2016, it has experienced significant growth,
the reality of digitalization. To that end, it is launching
opening on average 10 stores per year. Although this might
an online store in 2019. Although this is an exciting
seem an aggressive expansion strategy, Lackner says it
venture, Lackner adds, H&M also understands that the
makes sense given the potential of the Mexican market.
online market in the country is smaller when compared
“Growing too fast can cause strain in the organization but
to other international regions. Regardless, the company
we believe our development in Mexico is sustainable,” he
will maintain its focus on the customer, just as it does at
says. With 47 stores throughout the country and seven
its brick-and-mortar stores.
more planned for 2019, Lackner says the company’s expansion is rooted in the country’s improved commercial
Online interaction between the brand and the customer
infrastructure. “We are working with all major developers
might not appear to be as direct but Lackner says the
to sustain our growth and to complement their portfolio,”
company is taking significant steps to make the online
he says. “We drive traffic to any shopping mall where we
shopping experience as seamless as possible. “Each client
are present, which provides a mutual benefit to H&M and
has different expectations regarding their omnichannel
its lessors.”
experience,” he says. “For us, it is important to have the same commercial message online and at our stores.” H&M
Mexico has not experienced the same traffic drop at
is applying that same strategy in its marketing efforts,
shopping malls as other regions, mainly because visiting
using both traditional and digital channels to reach the
these is still considered a family activity. As a result, the
customer with a unified message. “We need billboards to
company has made it a priority to implement full concept
communicate with some customers,” says Lackner. “We
stores with enough space to put the customer first. For
also understand that young people always have their
H&M, this means having a fashion offering that addresses
phone at hand, so we have created a blend of marketing
the needs of different customer groups depending on the
strategies for the country.”
store’s location. Sustainability has also become a key element for H&M. H&M has also made a significant effort to blend into the
The company has engaged in a number of initiatives
Mexican culture by celebrating the country’s singularities.
that include the use of recycled fabrics and 100 percent
“We want people to know that H&M celebrates the local
organic cotton to minimize its environmental impact.
culture and that our fashion is for everyone, which is why
“To be leaders in fashion we also need to be leaders in
we launch campaigns using local models and people
sustainability,” says Lackner. “We want to raise awareness
with different body types and genders,” says Lackner.
regarding our sustainability initiatives and share them
H&M’s future flagship store on Masaryk Avenue in Mexico
with our customers to truly be a better company.”
INSIGHT |
QUEST FOR GROWTH IN AN ASPIRATIONAL FIELD ERIC FORTUNE CEO of Decathlon Mexico
The limited offering of equipment brands and their high price
market will generate over the next 10 years. Decathlon also
tags has made sports an aspirational activity for a big segment
decided to introduce its entire portfolio, including equipment
of the Mexican population. However, there is an opportunity
for over 100 sports, an advantage over other international
to welcome more people into a healthier lifestyle, according
retailers, Fortune adds. “Mexicans practice all kinds of sports
to Eric Fortune, CEO of Decathlon in Mexico. “Just as H&M
but sometimes the necessary equipment is not available in
and Zara have worked toward democratizing fashion, we are
the country; as a result, users must look for other options in
democratizing sports and gradually expanding our client base
the US or Europe.”
and the population segments we target,” says Fortune. “We started targeting A, B and C+ segments but now we can even
Fortune also believes that Decathlon’s empowering business
target C- clients.”
model gives it an upper hand in sports retail. Clients can test any product before buying it, which means they do not solely
French designer, manufacturer and distributor of sports
rely on the opinion of salespeople. However, the company
equipment Decathlon made its way to the Americas after
made sure to include athletes in its sales force to create
conquering the European and Asian markets. The company
empathy and a relationship of trust with buyers. This also gives
arrived in Brazil over 15 years ago and eventually recognized
Decathlon a direct insight into what athletes think about its
the existing opportunity in other Latin American countries. In
products. “Our collaborators have complete freedom to stop
2016, the company entered Mexico following a global strategy
selling something if they are not pleased with its results and
established by corporate CEO Michel Aballea to strengthen
they can share that feedback with our product managers,”
Decathlon’s international presence, consolidating the markets
says Fortune. “Our main KPI is our users’ satisfaction, which
where the company already had operations and entering
is reflected in our service and warranty policies. We offer two-
countries with potential for growth.
year warranties for all our products and lifetime warranties for bicycle frames.”
Decathlon rates a country’s attractiveness on the popularity of sports in the country, how developed its sports infrastructure
To deliver on its promise of democratizing sports, Decathlon
is and how easy it is to do business. Mexico was among the
also made sure its distribution model allowed for prices to
company’s preferred destinations based on these standards
remain affordable. The company chose to build standalone
and in 2014, the company began developing a strategy to
stores rather than placing them in shopping malls to avoid
tackle the market and add value to its sports scene. “We want
passing on leasing costs to customers. “Real-estate prices
to become an active participant in the population’s well-being
in such facilities do not allow us to maintain an affordable
and a promotor of good health, boosting sports practices
approach and the available space generally does not allow
and lobbying the government for the development of sports
us to comfortably display our offering in 100 sports,”
infrastructure and nutritional programs,” says Fortune.
says Fortune.
The company opened its pilot store in Queretaro with
Having said that, the company does see these spaces as an
fewer products than what it offers in Europe. “We opened
opportunity to grow its operations, particularly in Mexico City,
with a reduced offer but it was a wise decision that helped
and even to contribute to their development. “Our stores
us to adapt better to the market and to the needs of our
themselves attract customers and do not need to ride on
users,” says Fortune. Based on the positive response from
the popularity of other retailers or services,” says Fortune.
the Mexican public, Decathlon built a development strategy
“In the countries where we do have operations in shopping
for the country’s main cities. The company wants to have
malls, our presence has helped to draw traffic to the mall and
20 stores in Mexico by the end of 2020 to capitalize on the
not vice versa, which is part of the added value we can offer
US$5 billion opportunity that Fortune expects the sports
as a company.”
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| INSIGHT
TRADITION, INNOVATION MERGE AT CLIENT RELATIONSHIPS FERNANDO SILVA President of Best Buy Mexico
108
Braving the e-commerce era is all about evolving alongside
Silva credits these initiatives for making Best Buy the No. 1
clients and technology, says Fernando Silva, President of
and top-of-mind technology retailer in Mexico, even though
Best Buy Mexico. After years of sustainable growth in the
it is the youngest electronics retailer in the country. The good
US and Canada, the multinational consumer electronics
relationship it has developed with its clients has allowed the
“
retailer is adapting its business model to the needs of the
company to grow. “Our best advocates are those who buy
Mexican market.
their electronics from us. Over 90 percent of our clients are
Mexico is our newest operation and the fastest growing for Best Buy. The country is a pillar for growth in the Best Buy 2020 strategy”
returning customers and many of the new ones come through word of mouth. People trust their friends and family a lot more than they trust a brand.” The country’s growing middle class and increasing access to Wi-Fi have also been key for the company’s growth, according to Silva, because customers are increasingly interested in owning electronics and in buying online and through their phones. Best Buy Mexico has bet on a service that mixes both digital and physical sales to address the needs of the Mexican market. “We do not think of the physical world and the digital
“We are opening distinct store formats in Mexico because the
world as different. To us, they are integrated. Merging the two
country is different than our other markets. We are one of the
has allowed us to be successful.”
largest electronics retailers in the world and have a very big operation in Canada and the US,” says Silva. While Best Buy
While customers north of the border are increasingly
has more than 1,200 stores distributed in Mexico, Canada and
shunning traditional retail for e-commerce, this is not the case
the US and made US$42.15 billion in revenue in FY19, Silva says
in Mexico. “Mexicans like to go to malls for entertainment,
the multinational retailer is increasingly paying attention to
especially families, so our stores need to be fun. We often
the Latin American country. “Mexico is our newest operation
see children pulling their parents into the store. We want
and the fastest growing for Best Buy. The country is a pillar
to expand this experience to every segment of the market.
for growth in the Best Buy 2020 strategy.”
People aspire to have a different shopping experience and we are providing that to the Mexican consumer.” The retailer
By the end of FY19, the company had 35 Best Buy and six
wants to get even closer to its Mexican customers, which
Best Buy Express stores in Mexico, along with an e-commerce
is the point of opening Best Buy Express stores, Silva says.
service. Before coming to Mexico, Best Buy’s business model
These stores have an average area of 300m2 but offer
required a representative handle all interactions clients had
the complete Best Buy experience: in-store and online
with the products. The company decided to change this
purchasing, or in-store pickup after placing an order online.
model in Mexico, allowing customers to directly interact with
“We offer a multichannel approach and we are the only ones
all products, giving them access to unbiased information. Best
in the market to offer pickup at stores 60 minutes after the
Buy Mexico also went to great lengths to build trust among
sale is completed online.”
its client base and improve customer relations. “Services are a key differentiator and we do not work on commissions. Our
Best Buy sees a positive future in Mexico. “Best Buy will
sales representatives have a mission to be unbiased informers
continue growing in Mexico and in 2019, we will open
for our clients. We invest a great deal in the training of our
approximately eight more stores. We will also continue
associates so they can help clients make the best decisions
providing excellent services, enriching people’s lives through
for themselves.”
technology,” says Silva.
VIEW FROM THE TOP |
BETTER EYESIGHT CLEARS PATH TO PRODUCTIVITY PATRICK DEVLYN Director General of Grupo Devlyn
Q: How do you expect operations to change now that the
from greater productivity and fewer mistakes. The cost of
Devlyn family has repurchased the company?
frame or contact lenses is minimal when compared to the
A: The repurchase was the result of a cycle coming to an
productivity and engagement benefits that people can get
end with our partner investment fund. We merged with this
from them. Moreover, lenses can also contribute to reducing
fund to strengthen our position and serve the market more
public problems such as road accidents.
competitively. Our goal now is to consolidate the company with a medium and long-term vision focused on our brands:
Q: What recommendations would Grupo Devlyn make to
Devlyn Optics, Optimart, ClĂnicas, Vetro and Poyssa. We
the government to properly address eye health?
also want to strengthen ties with our business partners in
A: If the government, companies and the ophthalmological
department stores and with international brands like Ray-
and optical sectors work together, there can be a favorable
Ban, Vogue, Carrera, Lacoste and Carolina Herrera.
and almost immediate impact on society. At Grupo Devlyn, we believe eye health should be a priority in the national
Q: How is Devlyn approaching its goal of modernization?
healthcare plan and we can and are willing to collaborate
A: Besides strengthening our business relationships, our
with the government to ensure spending on eye health
strategy is focused on better customer service. However,
results in a cost-efficient investment.
the priority is not to open more stores but to improve how existing venues serve customers. What got us to where
Q: What strategies is Grupo Devlyn implementing to
we are now will not keep us there because consumers are
compete against retail giants like Amazon?
not the same as they were 15 years ago. Both the market
A: Competition can come from different sectors, which
and the consumer have evolved, creating new challenges.
means we must be aware of what companies like Amazon
Grupo Devlyn must modernize its service by bringing clients
and Walmart are doing. Our first priority is to make sure we
closer to our opticians to provide quality ophthalmological
know our customers better than anyone else, while prioritizing
exams, access to the best products and proper eye care.
quality and service through a personalized experience.
Grupo Devlyn will operate through an omnichannel
Innovation is another key element in our differentiation
communications system, allowing clients to contact our
strategy. We create new experiences for the client by
stores in the way that best suits them.
employing innovative technologies and new distribution channels that make it easier for our customers to contact us.
Q: According to the World Economic Forum, sight problems should be considered a public health matter
Q: What role do you want Grupo Devlyn to play in the retail
because of their impact on productivity. What is Grupo
sector in Mexico?
Devlyn’s perspective?
A: Grupo Devlyn’s priority for 2019 is to better serve its
A: In collaboration with the CCE and other partners
customers and business partners in all segments where
like CANIFARMA, Funsalud and the Mexican Hospital
it participates. Secondly, we want to work more quickly
Consortium, Grupo Devlyn can strengthen public policies
in bringing together the elements and strategies that
geared toward prevention. Approximately 80 percent of all
will exponentially improve our brand positioning and
cases of treatable blindness globally can be resolved with
presence in the market.
a pair of glasses. Therefore, a public health issue becomes solvable through a pair of well-graduated and affordable glasses, creating a significant impact on various segments of
Grupo Devlyn is the largest optical group in Mexico. The
society. With children or young people, better sight translates
company specializes in optometric and ophthalmic solutions and
to improved school performance and greater engagement in
wholesales optical products. It has over 1,000 optical stories in
education. Meanwhile, people already working can benefit
Latin America, plus six regional laboratories and 84 in-shop labs
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| VIEW FROM THE TOP
TECHNOLOGY OFFERS MANY OPPORTUNITIES FOR PHARMACIES GUILLERMO MARTORELL President of Grupo RFP
110
Q: What collaborations does Grupo RFP have in the Mexican
connecting all the agents in the value chain. Our platform
health sector and how do this support the pharmaceutical
will include a communication space between the laboratory,
industry’s development?
the distributor, the point of sale, the hospitals and the
A: Our pharmacies work in two ways: the first is counter sales
medical network until the medicine reaches the patient.
to the general public and the second is through institutional
This symbolizes a very important advance for the group’s
sales. Grupo RFP wants to be more efficient through digital
pharmacies because it opens a more competitive panorama.
development. Traditionally, medical prescriptions are very bureaucratic and have delayed processes. We want to
Q: What are the advantages and drawbacks of using
simplify this communication between us and our customers
technologies for pharmacies?
through a digital platform that connects all players in
A: One of the main limitations is the existing idea that physical
the value chain. Grupo RFP believes that the inclusion
stores could disappear because of technology. However,
of technological tools in its operations can be the key to
at Grupo RFP, we believe that technology can generate a
strengthening areas such as pharmacovigilance, fraud-
positive change. This change will result in greater access to
risk reduction, better traceability of medicines and easier
quality care at more accessible prices. The transformation
communication with laboratories, distributors, and suppliers.
of pharmacies democratizes access to health.
Grupo RFP has 600 pharmacies and 5,000 employees across northwestern Mexico
Q: How does the patient-centric model impact pharmacies? A: Grupo RFP is in the process of changing its business model to deal more accurately with new consumers and the emerging needs of the market. The pharmacies that make up Grupo RFP are adopting a new approach that is compatible with the patient-centric model and are leaving
Q: What impact can the inclusion of technological tools
behind the traditional approach of only selling medicine. The
have on both Grupo RFP and the final customer?
group wants to invest in the professionalization of pharmacy
A: Technology offers many opportunities for the industries
personnel to offer differentiated services such as nutrition
that adopt them. For pharmacies, technology means
and dermatology. We want to transform the way patients
greater control over drugs and an improvement in
see pharmacies.
pharmacovigilance. The operational benefits are only one element because there are other benefits for the patient
Q: In recent years, COFEPRIS has increased the rigor of
and the pharmaceutical companies. Patients can improve
pharmacovigilance. How can pharmacies be part of this
treatment adherence with easier access to medicine.
initiative?
Technology also generates anonymous information that
A: Digitalization can help improve drug control. The main
helps pharmaceutical companies create market intelligence
problems with pharmacovigilance are medicine theft, the
strategies. Technology can offer opportunities that were not
falsification of medicines and the theft of prescription drugs.
possible before. Grupo RFP wants to promote a relationship
Including technology in the pharmacovigilance process
between technology and pharmaceutical products by
can increase the traceability of medicines. Through these mechanisms, pharmacies can guarantee the products that arrive to a patient’s hands are original, safe, accessible
Grupo Regional de Farmacias Productivas (Grupo RFP)
and quality medicines. Grupo RFP’s platform plans to use
has more than 600 pharmacies and over 5,000 employees
technology to validate prescriptions and medications and
in cities such as Colima, Morelia, Guanajuato, Campeche,
to analyze the traceability of the medications purchased by
Veracruz, Puebla and Mexico City
the group.
VIEW FROM THE TOP |
NORTHERN PHARMACY CHAIN EXPANDS THROUGH MEXICO MACEDONIO GARZA Director General of Farmacias Benavides
Q: When Farmacias Benavides turned 100, it established
clients of our loyalty program Beneficio Inteligente (Smart
the goal of launching 100 locations per year. What is the
Benefit). This platform allows us to interact with millions of
status of this plan?
clients and offer them several promotions based on their
A: We are on track. Our focus is on markets where we are
buying profile. Our parent, Walgreens Boots Alliance (WBA),
already present but lack the necessary coverage, mainly in
fills one prescription from a mobile device every second.
the central region of Mexico. After 100 years, our clients
Beyond digital, Walgreens has a track record of innovation,
recognize our expertise in the sector. Over that time, we
trust and care along with deep roots in the community.
have cultivated our connection with our clients through the training our employees undergo. The most important factor
WBA has pioneered newsworthy healthcare innovations,
for pharmacy is that its clients feel safe with the service
mostly in the US but also elsewhere. For example, Boots
provided by our employees. Pharmacy customers also
in the UK has a service called “Medisure,” which provides
value product availability and the industry invests heavily
patients who have complex therapy needs with pre-packed
to maintain large inventories so prescriptions can be filled.
medicines delivered to their pharmacy or home. We have pioneered online pharmacy delivery services in Norway
Q: How are you using technology to improve the efficiency
with “Farmaka” and in the Netherlands with “SPITS.” These
of your distribution center, Centro de Eficiencia Logística?
services include pre-pack and unit dose dispensing. From
A: Our Centro de Eficiencia Logística in Monterrey functions
a customer point of view, Farmacias Benavides uses a mix
as a spearhead for our distribution strategy. This single
of digital platforms to interact with patients and customers
center has sufficient capacity to address our expansion
and our website lets Loyalty Program members check their
needs for the next few years. We are planning to install
balance, transactions and discounts.
a new warehouse management system to improve our distribution capabilities and to plan for future demand.
Q: How did the presence of doctors at the point of sale
This system will also permit efficient distribution to future
improve Farmacias Benavides market penetration?
pharmacies. Our logistics chain has 12 cross-docking centers
A: Our pharmacy doctors are pillars of our business goal,
distributed throughout the country that allow us to reach
which is to provide clients and patients integral solutions
places like Tijuana, Mexicali, Puerto Vallarta and Veracruz.
for their health and well-being. These doctors give patients the opportunity to acquire fast, trustworthy and easy-to-
Farmacias Benavides has also invested in the consolidation
access care. We have built a network of 620 doctor’s offices
of its drug distribution network through the implementation
with more than 900 certified doctors who are prepared
of processes that help predict demand. This allows us to
to treat any primary medical need. We offer general
guarantee the supply of the necessary products, especially
attention, weight and birth-control monitoring, blood
during seasons of high demand.
pressure and glucose tests, injections and verification of health certificates and we keep an electronic record of all
Q: What role will online platforms play in Farmacias
the patients we receive. The clinics provide only primary
Benavides’ future?
attention so if a patient needs a more specialized service
A: Farmacias Benavides itself does not have an online sales
they are channeled to the proper specialist.
platform but we do have a call center that clients can contact and from which they can receive products to their homes. We have a strong presence on social networks, including
Farmacias Benavides , with over 100 years of experience, is one
Facebook, where we have over 445,000 followers. We have
of the largest pharmacy chains in Mexico. The company was
over 9,000 followers on Twitter and 12,000 on Instagram.
acquired by Walgreens Boots Alliance in 2015 and has 1,218
Furthermore, we have a platform that allows us to interact with
points of sale in 24 states
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| VIEW FROM THE TOP
SUCCESS LIES IN CELEBRATING DIVERSITY RICARDO TRAVASSOS Director General of Coty México
112
Q: What role does Coty play in the beauty industry?
A: Mexico is a key market for Coty given the size of its
A: Coty is a world-leading beauty manufacturer of
population, its growing economy, the strong consumption
cosmetics, skincare, fragrances and hair coloring and styling
of beauty products and the country’s inherent growth
brands. Two years ago, we completed a transformational
potential. Our consumer beauty business has been
merger with Procter & Gamble (P&G) Beauty, making
growing at a fast pace quarter after quarter and gaining
Coty the third-largest beauty company in the world with
a bigger share in the most strategic segments. Thanks to
approximately US$9 billion in revenue. The company now
the hair color, color cosmetics and body care divisions,
holds the No. 1 position globally in fragrances, the No. 2
we have secured our place as the third-largest beauty
position in professional hair products and is No. 3 in color
player globally and are well-positioned to continue our
cosmetics. The company has over 20,000 colleagues
growth journey. In Mexico, we have a team of more than
around the world and more than 77 brands sold in over
700 colleagues and a strong and agile industrial footprint
150 countries organized under three divisions: consumer
that helps us to adapt to local needs.
beauty, professional beauty and luxury. Q: How does Coty México add value to its partners across Q: What makes Coty a leading player in the segments
the value chain?
where it participates?
A: After the merger with P&G Beauty, we engaged in
A: In creating the new Coty, we had an amazing opportunity
an incredibly complex transition, fully restructuring our
to redefine what beauty means to us and the impact we
strategic choices and plans, as well as our organization,
can have on society. We have chosen a bold and inspiring
supply, warehousing, logistics and IT to drive value and
purpose to celebrate and liberate beauty diversity. We
superior service to our customers. Our beauty portfolio
believe that the beauty of humanity lies in the individuality
includes leading brands such as Wella–Koleston, Covergirl,
of people and that beauty is at its best when authentic.
Adidas and Sally Hansen. Our added value goes from collecting consumer insights to developing disruptive
The new Coty culture is based on five values: Own it and
innovation, from wide distribution to perfect in-store
Drive It, Win for the Team, Live Beauty and Breath Beauty,
execution, from category vision and captaincies to tailor-
Be Brave and Go Beyond and Think Like a Startup. Despite
made category growth plans. We work hard to combine
our size, we maintain the mentality of a startup. We have also
global expertise with local insights and demand to create
developed a responsible growth strategy. We have partnered
strong business plans oriented to our final users. We
with Global Citizen, a disruptive NGO, to tackle the prejudice
are also investing heavily in consumer education both
and discrimination that prevents people from being able to
offline and online to foster the sustainable growth of our
express their true selves. This program is called “We Stand
business units.
for You” and focuses on those who face discrimination based on their gender, sexual orientation, disability or ethnicity.
Q: What are the emerging beauty trends in Mexico? A: Beauty industry consumers are no longer embracing
Q: What is Mexico’s role in Coty’s consumer
an either-or approach. Users now seek convenience of
beauty business?
purchase, repurchase and use, as well as personalized communication, products and services. They want variety of choice, playful experiences and purposeful brands that
Coty is a multinational beauty company founded in 1904 by
reflect social causes and they trust influencers and brands
François Coty. With its subsidiaries, it develops, manufactures
that are inspirational and authentic. Beauty routines
and distributes 77 brands of fragrances, cosmetics, skincare,
have also changed to combine premium products with
nailcare and both professional and retail hair care products
affordable options.
VIEW FROM THE TOP |
PROTECTING WHAT MATTERS MOST FELIPE SÁNCHEZ President of Assurant Mexico
Q: How do Assurant Mexico’s operations add value to the
standards. These companies are our clients and our strategic
company’s global activities?
partners. An interesting feature of the service we offer is that
A: Mexico plays a significant role in Assurant’s global
even though we are a B2B business, we deal directly with
business. The company has operations in 26 countries and
the client. Assurant is not a well-known brand to the public
in Latin America we operate in Mexico, Colombia, Peru, Chile,
because we sell through our clients’ brand, not our own.
Argentina, Brazil and Puerto Rico. We serve the needs of around 300 million clients around the world, of which 30
Q: How is Assurant reinventing its traditional business to
million are in Latin America. Along with Brazil and Argentina,
include new technologies in its operations?
Mexico is among the most important countries in the region.
A: We are always looking for new ways to offer and deliver our products. Assurant has invested around US$45 million in
Assurant has been in the country for 12 years and during this
startups that we think could change the way we work. For
time we have developed five business lines. The first is Global
example, we are investing in an application that will allow us
Automotive, an area that supplies the automotive industry.
to identify if a cell phone can be covered by insurance. This
Our Extended Service Contracts (ESC) division serves the
application targets the used cell phones market and can be
retail industry. The third business line is focused on mobile
used by any bank for its account holders. Users can create an
devices and offers theft or accidental damage insurance. One
account and then the application performs a calculation of the
of our best-known products is the Switch Up program for
capabilities of the mobile phone, such as camera, microphone,
Apple that, for a fee, allows users to change their smartphone
speakers, screen, battery, software and Bluetooth. After
whenever a new one comes out. Our fourth division is
completing the analysis, the app automatically sends a
Assistance and Financial Products, which offers insurance
price proposal and if it is accepted it sends the contract
for mortgages, car loans, unemployment and permanent
automatically. This is just an example of our innovations, which
disability. Our fifth business line is Property, which offers
focus on protecting what matters most to our customers.
coverage for home damages resulting from natural disasters. Q: Assurant focuses on five business niches. Where do you Q: What characteristics of the Mexican market have helped
see the greater potential for sustained growth?
Assurant grow its business in the country?
A: In the case of Global Automotive and ESC, we have a
A: In Mexico, there is not a great deal of awareness
significant leadership position. In the automotive market we
regarding the importance of protecting what we buy, either
work with 18 of the 31 brands that operate in Mexico, including
through an extended guarantee or an insurance policy. It
the top four automotive brands previously mentioned, and
is increasingly common to have car insurance but when it
in retail we also have a leadership position with clients like
comes to other assets, there is no insurance culture that
Home Depot and Sanborns. The clearest opportunity for
encourages people to purchase protection. This provides
growth is in our other three business lines, although there is
a huge growth opportunity for the company. Also, the
always room for growth in every area due to the existing lack
percentage of people who protect their purchases is very
of awareness about the need to protect what we buy. The
small, which also represents a large area for growth.
insurance industry in Mexico does not even reach 3 percent of national GDP, which means there is still much to do.
Assurant also strives to turn its customer service into a competitive advantage. We have important relationships with large retailers like Liverpool, Palacio de Hierro, Costco
Assurant Mexico is part of Assurant Inc., a leader in specialized
and in the automotive sector with automakers, including
insurance products and services in North America and other
Toyota, Nissan, General Motors and Volkswagen, all of which
international markets. The company is present in 26 countries
are companies that are very selective and have high-quality
and has over 300 million clients
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| VIEW FROM THE TOP
A CHALLENGING POSITION FOR GROWTH MICHAEL GINES Managing Director of Dacomsa
114
Q: What is Dacomsa’s strategy to cope with a growing and
manufacturing in 2019 but thanks to our success we
aging vehicle park?
accelerated our process.
A: The age of the vehicle park, far from being an obstacle, is an opportunity to grow our sales. The true challenge for
However, 2018 was so favorable mainly because of three
the aftermarket is to cater to the demands of such a large
factors: the presidential elections, the renegotiation of
and diverse vehicle park. In 1985, there were only 10 or 12
NAFTA and the six-month elimination of the vehicle
types of engines available in Mexico and now there are over
verification program. Although we cannot quantify it
600 models and versions to service. We have had to adapt
precisely, we think the fact that people did not have
our inventories to increase the number of SKUs available
to verify their cars had an impact on the purchase of
while decreasing the stock of each component.
spare components mainly for engines, which represents 55 percent of our total operation. Our performance in
Q: What impact have the scrappage scheme and the import
braking, which contributes 35 percent of our sales, and
of used-vehicles from the US had on Dacomsa’s operations?
powertrain, which represents the remaining 10 percent, is
A: The scrappage scheme for heavy vehicles has
still on track and growing, but our sales for engine parts
certainly affected the development of the aftermarket
remained flat in 2018 compared to 2017. That being said,
because most of the units destroyed required constant
our performance outside of Mexico has been successful
replacement components. Used-vehicle imports have
and we are growing significantly. Our priority right now is
presented a much more complicated situation. These cars
to consolidate our operations outside the country, defend
were imported normally after five years of use, which
our position as market leaders and ramp up production
means they were right at the stage where they needed
at our new site in Celaya.
repairs and maintenance. However, many of these models were not available in the Mexican park, which meant
Q: How have customers changed their mindset in favor of
there were no spare parts to meet demand. Now that
high-quality albeit costlier spare parts?
imports have been limited, we have noticed that states
A: Users understand that using quality parts like those
near the border have regularized their vehicle parks with
offered by Dacomsa guarantees their vehicle will remain
national models.
functional for 100,000km to 150,000km. That being said, purchasing power has decreased after the recent increase
Q: What have been Dacomsa’s recent results in terms of
in gasoline prices, which has forced clients to go back to
sales and what are your growth projections for the end
cheap, low-quality parts.
of the year? A: 2017 was a very successful year for Dacomsa, particularly
This is a worrisome situation and many distributors
in the braking market. Our results were strong enough for
have faced problems regarding payment collection
us to push our development plans ahead by two years and
but there is only so much we can do in this situation.
we are opening a new manufacturing center in Celaya to
Our strategy to showcase our advantages has been to
increase our brake pad production volume. Our original
contact shops directly and understand how we can help
plan was to start constructing this site in 2018 and begin
them solve recurrent problems. We have several training programs for mechanics that take place at their shops but we have also implemented training via Facebook Live
Dacomsa is a 100-percent Mexican company founded in 2003
and YouTube to avoid affecting schedules. Automotive
as the aftermarket distribution division of Grupo Kuo. The
components are becoming increasingly complex and
company manages several brands including Fritec, Moresa,
our role as a spare parts manufacturer is to help shops
TREMEC and TF Victor
understand these changes.
VIEW FROM THE TOP |
KEY STRATEGIES FOR A GROWING SEGMENT SERGIO ÁLVAREZ Commercial Director of Hankook Tire de México
Q: How did your operations evolve in the north of the
is the fourth element in this growth strategy. For Hankook
country after opening your distribution center in Monterrey?
to be successful, we need distribution partners that believe
A: We opened our first Hankook shop in Monterrey along
in the brand and that know how to showcase its advantages
with Grupo Raga and the goal is to open more by the end
when compared to commodity solutions. Finally, our people
of this year in Chihuahua, Jalisco, Colima, San Luis Potosi,
have been essential in building these relationships and
Yucatan, Queretaro and Mexico City. Although we already
incorporating new ideas into our organization.
are the top brand in Chihuahua, we are just building our brand in Monterrey and San Luis Potosi. The north and south
Q: How has the clients’ mindset changed in favor of quality
are two of our main priorities at the moment, considering
rather than price?
that we now have an established presence in Jalisco,
A: Clients have become much more active when deciding
Guanajuato, Queretaro, Michoacan, Coahuila, Hidalgo,
what tire fits their vehicle best. Normally, they go for the same
Puebla, Veracruz, the State of Mexico and Mexico City.
model the car had when they purchased it but our distributors have also been clever in showing clients the benefits they can
Q: How successful is your strategy to partner with
get from Hankook. Overall, clients are more curious and more
supermarkets for aftermarket operations?
informed about what type of tire they should use according
A: Our relationship with supermarkets has been critical
to the season and the speed range in which they drive. As a
in building our presence throughout the country. This is a
result, quality, safety and performance are trumping price as
much more price-driven market for commodity products
a priority in the consumer’s mind. The fact that companies
but we have also positioned our tires, mainly the Laufenn
are also working to reduce production costs and developing
brand. Our results have been positive and we expect our
more affordable brands within their lineup has also been key
sales in supermarkets to grow approximately 15 percent by
for users to be more attracted to quality products.
the end of 2018 compared to 2017. Q: How important is digitalization to Hankook’s strategy Q: What strategies have you implemented to grow your
in the aftermarket?
presence in a price-driven market like Mexico?
A: Thanks to our growing presence in original equipment,
A: Clients sometimes think tires are all black and round. That
our distribution network has steadily increased with our
is not the case and we have worked on five key elements to
Hankook Masters stores. Our goal is to have 30 Hankook
show the end consumer the advantages that Hankook can
Masters stores by the end of the year. However, demand is
offer. First, we pay close attention to the clients’ needs to
greater and younger generations are now looking for us
then offer product innovation based on those requirements.
online. According to our latest statistics, Hankook is the
South Korean culture is founded on innovation and we are
best-selling tire brand online in Mexico, practically doubling
introducing products to the Mexican market that can offer
the sales of our closest competitor. Today, between 30 and
an added value in terms of safety, comfort, sustainability and
32 percent of all tires sold digitally are Hankook, which
performance. We have also implemented warranties for our
equates to approximately 3 percent of our total sales. My
products as part of our differentiation strategy.
personal goal is to grow our digital operations to 10-12 percent of our total sales by the end of 2019.
Our third strategy is related to cost reduction, both in manufacturing and distribution operations, which is why we now have a total of three distribution centers located in
Hankook Tire is a South Korean tire manufacturer with corporate
Monterrey, Queretaro and Puebla. The latter is focused on the
presence in 30 countries and manufacturing facilities in eight
original equipment segment but the other two support the
of those. The company has close to 22,000 employees globally
development of our aftermarket distribution network, which
and a production capacity of 104 million units as of 2017
115
Tiguan production, Puebla
MANUFACTURING & LOGISTICS
5
Mexico has developed a strong manufacturing calling over the past five decades. This particular area of expertise has enabled the country to successfully insert itself in the global manufacturing dynamic, fueled by globalization and free trade. From the creation of a screw to the full assembly of vehicles, Mexico has become a world-class manufacturer for almost every product in the world.
Mexico’s standing as a manufacturing country relies heavily on its fortunate geographic positioning. Sharing a border with the US has prompted the development of shared manufacturing activities and the generation of professional logistics services that intrinsically connect Mexico with US industries. However, conditions are evolving. In this chapter, manufacturing and logistics companies explain how the implementation of AI solutions and Industry 4.0 are changing the face of the traditional manufacturing scheme and promise to boost Mexico’s position as a manufacturing powerhouse.
117
CHAPTER 5: MANUFACTURING & LOGISTICS
120
ANALYSIS: External, Internal Factors Present Opportunities
121
VIEW FROM THE TOP: Antonio Tejedo, Traxión
122
VIEW FROM THE TOP: Guillermo Godoy, ConaLog
123
INSIGHT: Iker de Luisa, AMF
124
VIEW FROM THE TOP: Artur Bezerra, ONE Mexico
125
INSIGHT: Eduardo Porter, Agility Logistics México
126
VIEW FROM THE TOP: Marcos Sulkin, Promologistics
127
INSIGHT: Ricardo Rochman, WePort
128
VIEW FROM THE TOP: Peter Kroll, everis Mexico
129
VIEW FROM THE TOP: Karl McDermott, Morpheus.Network
130
VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation Mexico and Latin America
131
VIEW FROM THE TOP: Leonardo Romero, Helmut Fischer
132
VIEW FROM THE TOP: Luis Hernández, Caterpillar
133
VIEW FROM THE TOP: Jerzy Sasiada, WillScot Mexico
134
VIEW FROM THE TOP: Luis Antonio González, Concreto Polimérico Castor
135
VIEW FROM THE TOP: Carlos Sierra, Kuraray
136
VIEW FROM THE TOP: Jorge Plata, Argentum Textil
137
VIEW FROM THE TOP: Ricardo Ibarra, BIC LATAM
119
| ANALYSIS
EXTERNAL, INTERNAL FACTORS PRESENT OPPORTUNITIES With a booming industrial sector, Mexico is well on its way to becoming a manufacturing and logistics hub. However, internal and external factors threaten to cast a shadow over the sector’s development. Boosting investment in technology might help tip the scales for the local industry Headwinds for 2019 include the potential for local strikes, the
a young, large and well-qualified workforce, numerous
ratification of USMCA and the ongoing trade war between
trade agreements and an ideal location that serves as an
the US and China, according to INDEX. But challenges often
entry point to North and Latin America. The country also
open opportunities. At a news conference on Dec. 8, 2018,
offers investors a stable political environment, inflation
Luis Aguirre, President of INDEX, called for the return of
rates mostly contained to between 3 and 4 percent and a
tax exemptions on temporary imports and for a removal
large local customer base, all benefits for local and foreign
of the eight-year time limit on the shelter program, which
manufacturers operating in the country. Similarly, the
supports foreign companies starting operations in Mexico.
manufacturing sector is vital for the country, as it represents 30 percent of national GDP, according to the latest data
SERIOUS CONSIDERATIONS
from the World Bank. Deloitte’s Global Manufacturing
In January 2019, President López Obrador announced a plan
Competitiveness Index ranks Mexico eighth and projects
to stimulate the economy in the area close to the US border,
the country will climb to seventh by 2020.
which represented a total of 7.5 percent of the country’s GDP in 2018, according to Minister of Economy Graciela Márquez.
NAFTA was a key element in strengthening the country’s
López Obrador’s strategy would cut corporate and income
manufacturing muscle, as it facilitated imports and
taxes at the border from 30 percent to 20 percent. Moreover,
exports between Mexico and the US. According to INEGI,
it would double the existing minimum wage to a total of
the manufacturing industry represents 88.2 percent of
MX$176.2 (US$9.2) per day. The goal is to attract FDI and
all exports. In 2018, Mexico exported a total of US$280
strengthen the region’s manufacturing capabilities.
billion and this number is expected to increase by 5-7 percent in 2019, according to INDEX. As the US receives
Investment in technology is also key to fostering growth
almost 80 percent of Mexico’s exports, companies on
in the sector. The World Economic Forum, in its Future
both sides of the border held their breath during the
of Manufacturing report, credits globalization of the
NAFTA renegotiation that eventually led to USMCA. While
manufacturing ecosystem for driving prosperity for
the updated treaty does not impact most manufacturing
companies, countries and people, especially in emerging
sectors, it will play a role in the automotive industries of
economies. PwC’s survey Industry 4.0: Building the Digital
both countries because it increases the required content
Enterprise states that surveyed companies expect the
manufactured in North America from 62.5 percent to 66
incorporation of IoT into their supply chains to lead to a 4.1
percent by 2020, followed by a gradual increase to 75
percent increase in efficiency and a 3.6 percent reduction in
percent by 2023.
operational costs on average in the next five years.
INDUSTRIAL SECTOR'S CONTRIBUTION TO GDP (PERCENTAGE)
INDUSTRIAL SECTOR'S CONTRIBUTION TO GDP (percentage)
20
19 18 17
Source: World Bank.
Source: World Bank.
*World Percentage Estimate
Mexico
World
*2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
15
——Mexico ——World 2001
16
2000
120
Mexico has a robust industrial sector that capitalizes on
VIEW FROM THE TOP |
CONSTANT INVESTMENT SUPPORTS TRANSPORTATION SECTOR ANTONIO TEJEDO Vice President of Investors Relations with Traxión
Q: What is Traxión’s strategy to grow in the
Q: What factors could hamper Traxión’s growth in the
transportation industry?
transportation industry?
A: The two most important transportation segments
A: The transportation industry is a pillar of the Mexican
we cover are cargo and logistics, on the one hand,
economy as all consumption products are transported
and personnel and student transportation services,
by truck at some point. This means transportation is
on the other. Traxión takes advantage of new business
deeply intertwined with Mexico’s domestic consumption,
opportunities in these and other segments covered by
disposable income and the country’s growing middle class
our seven subsidiaries to continue growing in the Mexican
and demographic bonus.
market. In 2019, we plan to invest approximately MX$1.8 billion (US$94 million). This will help us expand our
Macroeconomic trends could pose the biggest challenges
revenue by 20 percent and our EBITDA by 25 percent.
for growth. Although we cannot control exchange
Around 75 percent of our capital expenditure will go to
rates, interest rates or political risks, we need to have
the personnel and school transportation segment and
contingency strategies for each of these macroeconomic
the remaining 25 percent will focus on the renewal of our
trends to mitigate risks and maintain continuous and
cargo and logistics fleet.
profitable growth.
Q: What segments do you expect will experience the most
Q: How is Traxión reducing operating costs to counter the
significant growth?
impact of rising diesel prices?
A: We project great demand for student and personnel
A: Grupo Traxión negotiates a wholesale price for diesel
transportation services in industrialized areas such as
with fuel importers from the US that deliver diesel at the
northern Mexico, the Bajio region and the Mexico City
company’s yards and terminals. We also apply passthroughs
metropolitan area. Traxión plans to increase its share in
of fuel price increases to our clients. Traxión also reduces
these markets and create new opportunities as industrial
operating costs by centralizing the noncore, back-office
regions develop a taste for competitive transportation
areas of its seven subsidiaries and concentrating regional
services. Our size enables us to make strong investments
operations of its companies in less facilities.
in the acquisition of new units and to close large contracts for large clients in this specific transportation format. In
These efficiency strategies have yielded positive results.
1Q19, we invested MX$350 million (US$18.3 million) to
In 2018, Traxión added 71,210m2 of storage to its installed
purchase 100 Hyundai CNG bus units to meet specific client
capacity and increased the efficiency and productivity of
requirements.
its cargo fleet. Despite having 1.7 percent fewer trucks than in 2017, our fleet covered 16.5 million kilometers more. In
In the cargo and logistics segment, we expect reasonable
other words, Traxión covered 9.5 percent more kilometers
growth in demand in 2019. Traxión plans to adopt an
with fewer trucks and increased its revenue per kilometer by
asset-light business model to attack more logistics
10 percent, while only increasing its costs per kilometer by
segments such as last-mile delivery, e-commerce and
5.3 percent in 2018, which translates into more productivity,
freight-forwarding. To grow our logistics umbrella
output and efficiency.
service and offer a one-stop solution to clients, Traxión is strengthening the management, fleet and infrastructure of its Redpack subsidiary. By adopting an end-to-end,
Traxión is the only transportation company listed on the
integrated logistics solution, clients will no longer
Mexican Stock Exchange. The group has seven subsidiary
need to hire four or five suppliers to cover different
companies that target various segments of the transportation
logistics needs.
and logistics market in Mexico
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| VIEW FROM THE TOP
INDUSTRY 4.0 TECHNOLOGIES ENSURE VISIBILITY, BOOST SUPPLY CHAIN COLLABORATION GUILLERMO GODOY Chairman of the Board at ConaLog
122
Q: How does ConaLog help its members improve their
case of the automotive industry, it is important for client
logistics processes?
demands to trickle down the supply chain so component
A: ConaLog’s goal is to develop the competitiveness of
suppliers can know what is behind changes in technical
Mexico’s logistics sector through the exchange of best
specifications. The automotive industry is at the forefront
practices developed by its many associates. ConaLog focuses
of supply chain integration given OEMs’ communication
on linking academic institutions, the logistics industry and the
with Tier 1 and Tier 2 suppliers.
public sector by establishing impartial triple-helix strategies that benefit all players. For instance, the council is promoting
Q: What role does Big Data play in increasing the efficiency
a working plan based on an assessment of warehousing and
of the logistics chain?
logistics needs that was developed in association with the
A: Goods, information and monetary resources are the three
International Youth Foundation and a large logistics provider.
elements flowing across the supply chain and we need tools
This research impacted the academic plans at CONALEP,
that ensure visibility and connectivity to keep track of them.
thus allowing 300 warehouse technicians to graduate with
This includes everything from ERP and Customer Relationship
skills endorsed by the industry.
Management (CRM) software to Warehouse and Transport Management Systems (WMS and TMS). We also need
Q: How should logistics operators and their clients work
strategic tools that help companies design their supply chains
together to maximize efficiencies?
and transform data into useful information. Technologies like
A: Collaboration is the name of the game. This means
IoT come in handy for the latter. All internal and external data
mapping all players and their contribution to the value chain.
from a company needs to work together efficiently and Big
For Mexico to play a significant role as a logistics hub, the
Data analytics, together with artificial intelligence, enable
country needs to develop its infrastructure, as well as lean and
organizations to process information to ensure the needed
agile corporations that live up to the demands of the logistics
visibility and make agile and efficient decisions.
market in terms of reaction speed and efficiency. Next comes technology. It is impossible to have a collaborative economic
The first step toward adopting these technologies is to have
environment if there are no technical platforms that generate
reliable data mining based on strong data governance. This
the visibility that the value chain requires. To maximize
means being able to identify the source that generated
efficiency, it is necessary to be aware of what is going on
every piece of data and the owner of that source. It is also
everywhere at all times. Visibility is achieved when a supply
important that data is generated by technologies like master
chain in any sector can integrate all Industry 4.0 technologies
data management systems that do not depend on humans
to ensure total traceability. To that end, blockchain could be a
logging data. This ensures greater information consistency
great addition for its ability to decentralize and democratize
and a lower margin of error. Next, it is key to offer visibility to
data so all members of the chain can use it to meet their goals.
understand what happened in the logistics process and why it happened. Many companies that are adopting Industry 4.0
This level of integration is commonly found in the consumer
practices are already working on this step.
goods sector, where many companies and brands have an active and direct communication with consumers. In the
Adopting predictive models based on external data that can affect the process comes next. This leads to a stage of adaptation and learning where companies have already
The National Council of Logistics and Supply Chain Executives
earned solid experience and can formulate scenarios to
(ConaLog) is a nonprofit organization that aims to boost the
anticipate changes in the market to generate innovation
integration, development and competitiveness of Mexico’s
and evolve their business. This optimizes processes and
logistics sector through common best practices
ensures the elimination of operational barriers.
INSIGHT |
RAIL FREIGHT COMPETITIVENESS OPENS OPPORTUNITIES IKER DE LUISA Director General of the Mexican Railroad Association (AMF)
As a largely exports-oriented economic sector, Mexico’s
project will require a total investment of US$123.1 million,
automotive industry needs all the logistics advantages it can
according to AMF, and will improve safety and mobility in
muster to ship components and vehicles. Companies tend to
the city, while creating a direct access to the Honda plant and
prefer road or sea transportation but despite the challenges
increasing efficiency in the region’s exports.
it faces, the country’s rail infrastructure remains a competitive alternative, especially for long-haul transportation, according
To counter security problems, AMF members are adopting
to Iker de Luisa, Director General of the Mexican Railroad
new technologies to minimize and ensure quicker reaction
Association (AMF).
times to incidents. Aside from collaborating closely with federal, state and city authorities, AMF is working alongside
“Automotive is the third-most important sector for railway
CONCAMIN on a legislative proposal that disincentivizes train
freight after grains and minerals and cement,” says de Luisa.
robberies. “We seek to have the same status as air and sea
Refineries, breweries and auto-assembly plants tend to set
transportation in terms of security,” says de Luisa.
up shop close to railways because rail-based freight is a highly efficient way to frequently transport large volumes
Successful development of logistics infrastructure requires
of goods over long distances. OEMs alone have consistently
long-term planning for intermodal transportation, says de
grown their exports year-on-year, surpassing the 3 million-
Luisa, and that includes rail infrastructure. “Having integral
vehicle mark in 2017, which makes rail an attractive solution
solutions where transportation means are connected
to take these vehicles to the US. “The longer the distance,
with each other benefits the logistics chain and the end
heavier the weight and larger the volume, the bigger the
consumer,” he says. “Road-based transportation companies
advantage rail can provide over road-based transportation,”
in the US no longer see trains as their competition but as
says de Luisa.
an option to complement their service offering and Mexico could follow that example.” There is a significant intermodal-
Mexico started developing its rail infrastructure a century ago
services offering along the Canada-US-Mexico corridor
but involvement from the private sector in rail operations
that if combined, could ensure JIT logistics are not broken.
began in the mid-1990s. According to de Luisa, after
“Intermodal transportation offers new opportunities for the
railways were licensed, Mexico’s rail-based freight increased
longest hauls to be completed by train and last-mile deliveries
at an average compound annual growth rate of 4.1 percent
by truck,” adds de Luisa. “Such a transformation would enable
through an investment of US$8.5 billion in railroads, trains
all links of the logistics chain to grow, offer more services and
and locomotives. In comparison, the country’s GDP grew at
provide users with better solutions.”
a 2.9 percent rate. “The fact that rail freight has increased 1.4 times more than Mexico’s GDP illustrates the good health of
For intermodality to work, however, port capacity and the
Mexico’s rail sector,” he says.
connectivity of Mexican ports and borders with roads and railways are issues that should be looked at. De Luisa also
Celaya, Guanajuato, is an example of how freight cargo
highlights less obvious challenges for Mexico’s logistics,
has grown as a consequence of the development of the
including inspections, customs, working hours at ports and
automotive industry. The city is a key node thanks to railways
border controls. “Coordination between authorities and
operated by both KCSM and Ferromex that stem to the
the private sector present at the borders or ports is just as
north, south, east and west. The city has an exchange yard
important as the construction of new docks or other expansion
and handles a significant volume of automotive, grain, steel
projects,” he says. “New infrastructure is welcome but paying
and petrochemical freight generated locally. The region’s
attention to synergies between government agencies and the
infrastructure keeps expanding; the Celaya rail beltway
private sector and the implementation of adequate public
project, for example, is already 65 percent complete. This
policies are also important.”
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| VIEW FROM THE TOP
KAIZEN CULTURE KEY TO IMPROVING LOGISTIC PRACTICES ARTUR BEZERRA President of ONE Mexico
124
Q: Ocean Network Express (ONE) resulted from the merger
Japan and Mexico. Also, in Latin America we transport exports
of three Japanese companies. What factors made this
to countries such as Chile, Peru, Brazil and Argentina.
merger a reality? A: In recent years, the container transportation segment has
Q: Security issues have had a negative impact on logistics.
experienced difficulties in terms of demand and efficiency.
How has this affected maritime freight transport?
For this reason, logistics companies NYK, MOL and K-Line
A: Almost 60 percent of our operations in Mexico are related
decided to take advantage of their previous experience and
to intermodal transportation. Programs to protect our
merged to form ONE. In July 2017, the company arrived
shipments, in which we invest considerably, are becoming
in Mexico with the goal of providing quality logistics and
more sophisticated thanks to the use of legal and insurance
customer service, areas where Japanese companies are
mechanisms that guarantee the security of our logistics.
recognized worldwide. Q: Jeremy Nixon, CEO of ONE, says the company needs Q: What is the scope of your operations in Mexico?
to make sure innovation remains its focus. How are you
A: Our Mexico operations are equivalent to approximately
accomplishing that?
3 percent of our container operations worldwide. ONE’s
A: As a logistics company, we try to continuously improve
participation in the global container transportation market
our hardware, our processes and our human talent. The
represents about 7 percent, while our market share in
entire ecosystem of our operations is backed by our Kaizen
Mexico is about 8 percent. Around 70 percent of our
culture of continuous improvement, which helps us deliver
operations in Mexico are concentrated in Colima and we
innovation and provide greater satisfaction to our customers.
expect that in terms of container volume for Mexico, our operations will grow from 10 to 15 percent per year.
Worldwide, we have around 240 vessels operating. A large number of the vessels belong to ONE but we also work with
Q: How will the implementation of the ZEEs impact the
chartered units. In Mexico, we have six services that operate
development of ONE’s business?
from and to the country, so we collaborate with other
A: We believe ZEEs represent one of the greatest growth
associated operators to achieve better economies of scale.
opportunities for our segment. We are analyzing the
This allows us to reach more ports and commercial points
possibility of enhancing our operations in the Gulf of Mexico
more effectively. Within our portfolio, three of our six services
to Europe. We hope the government strengthens other
are concentrated between Asia and Mexico for transporting
ports in the country, as well.
cargo to and from the Pacific and South America. Also, one of our routes provides a niche trade service between Mexico, Los
Q: What are the most popular destinations for
Angeles and Costa Rica, with the possibility of offering trans-
Mexican exports?
shipment services to cargo coming from Asia. Our services in
A: Japan is our main destination for Mexican container exports.
the Atlantic focus on Brazil, Argentina and Europe.
Our market share between Mexico and Japan is almost 12 percent, which is above our share in the world market and
Q: What are ONE’s expectations for the coming years?
illustrates the strong trade relationship that exists between
A: ONE has a positive view of the business opportunities in the country for the container segment. We seek organic growth in line with the economy and we believe Mexico’s
Japanese
strong domestic market can be part of this opportunity.
transportation company. Its main area of operation is
Also, we would like to expand our services in the country
international container shipping. It was founded in 2017 as a
once our brand is well-positioned and there is a commercial
joint venture between three Japanese companies
opportunity to explore.
Ocean
Network
Express
(ONE) is
a
global
INSIGHT |
MOVING CARGO AND OPPORTUNITIES THROUGH TECHNOLOGY EDUARDO PORTER CEO of Agility Logistics México
In a globalized, changing and competitive economy,
2.2 million m2 of warehousing and storage in over 100
technology has become an opportunity catalyst. Logistics
countries. “In South America, we are leaders in logistics
plays a fundamental role in guaranteeing optimal
services for the export of salmon and berries by air cargo,
relations with customers and suppliers. When logistics
in Europe we are leaders in perishable products, while in
meets technology, distribution channels and the supply
India we are focused on the transport of generics for the
chain evolve toward new ways of moving cargo, says
pharmaceutical industry,” says Porter. “Overall, we are
Eduardo Porter, CEO of Agility Logistics México. “Agility
leaders in different sectors all around the world and we
sees itself as a technology company that moves cargo
also want to become leaders in Mexico.”
and goes beyond being a traditional logistics company. Globally, Agility Logistics places great emphasis on the
Agility’s global experience in e-logistics benefits the supply
simplification of logistics processes through technology,”
chain of international companies but also local companies
says Porter. “We want to take advantage of the facilities
nationwide. According to the Emerging Market Logistics Index
of electronic invoicing to be more efficient, help the
2018 published by Agility Logistics, the growth prospects for
environment and facilitate the work of our employees by
SMEs and large companies in emerging markets are positive for
going paperless,” he adds.
the coming years, which translates into growth opportunities for the logistics sector. The report also highlights that Mexico
The implementation of new information and communication
has three major challenges to overcome to achieve a greater
technologies in the traditional logistics sector is essential
development of its economy: structural reforms, the change
to manage the information flow used in such operations.
of government as well as growth of e-commerce. Mexico is a
However, the main areas that continue to influence the
country with great commercial appeal, both for companies
performance of the value chain are, according to the WTO,
that seek to export to other countries and for those in the
customs procedures, private sector development, business
country that want to operate internationally.
facilities, attractiveness and infrastructure. “Mexico has the necessary infrastructure to develop in the logistics sector.
“Unlike other Latin American countries like Brazil, Mexico
However, improving the conditions related to land transport,
has many facilities to perform logistics services. Mexico has
tractors with double trailers and insecurity could boost
the best documentation process for imports and exports in
the performance of both the economy and the logistics
the region and has very good infrastructure,” Porter adds.
sector,” he says.
For emerging economies like Mexico, the WTO recommends focusing on providing the necessary investments in basic
Agility Logistics’ global headquarters is responsible for
infrastructure and its maintenance, as well as developing a
identifying market trends and the commercial approach
broad program to promote trade.
in the countries it operates. “Agility Logistics analyzes what are the most attractive markets for the company
Agility’s efforts are focused on pooling the company’s
in Mexico, which is why our focus is on the automotive
experience in other countries to better develop its services
and construction sectors. However, our headquarters have
in Mexico. Agility believes the essential factor to promote
identified opportunities for Agility Logistics to operate in
this development is human talent. “The secret to being a
the pharmaceutical and food industries. We are leaders in
successful logistics company in multiple sectors is partly
perishable logistics in other parts of the world. We think we
due to technology and experience but a large part is also
can also be competitive in Mexico,” says Porter.
due to the people who work to provide these services. It is essential for Agility to have well-trained professionals
Each year, Agility Logistics provides around 415,000 tons of
who are experts in the industries we work with to continue
air freight and 740,000 TEU of ocean freight and manages
providing the best solutions for our customers,” says Porter.
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TECHNOLOGY FOR BOUTIQUE LOGISTICS SERVICES MARCOS SULKIN CEO of Promologistics
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Q: How does Promologistics' focus on logistics and loyalty
personalized solutions. Over our 12 years of experience,
programs help you stand out in the market?
we have recognized that spinning off some of our services
A: Promologistics has been in the market for 12 years but
into separate businesses would result in a more professional
has almost 20 years of experience in logistic services. The
overall operation, which resulted in the development of
company was founded to provide added value services to
our Next Cloud technology company. We also developed
the entire supply chain and our initial goal was to cater to
another business unit that helps companies grow through
SMEs. However, over time we changed our mission and now
e-commerce and another focused on the creation and
focus on providing services to Triple-A companies.
management of loyalty programs. We have developed six companies in total, including Promologistics.
We want to become a consulting partner for our clients and help them focus on their core business and invest in more
Q: What is the added value of Promologistics’ reverse
strategic and commercial projects, which in turn helps them
logistics service?
to create new business lines. For instance, we have developed
A: This is a service that usually nobody wants to provide
two projects with Grupo Modelo. One is called Beerhouse,
because a common belief is that once the product has
which centers on the distribution of craft beer. We manage the
been shipped that is the end of the company’s service.
warehousing, picking and packaging processes and product
Reverse logistics is very important but unfortunately many
delivery. We are also in charge of Grupo Modelo’s Amigos
companies do not pay as much attention to this area. A
Modelo business, which distributes Grupo Modelo’s brand and
quality reverse logistics service provides a significant
promotional products. For this project, we are also oversee
opportunity to build client loyalty.
the picking and packaging and delivery processes. Our call center is staffed with 250 people who provide In terms of loyalty programs, we manage everything related
what we call our “last-mile” service and who are part of
to the product offering with a portfolio of more than 5,000
the reverse logistics offering. We verify that the product is
options. We manage the creation of digital and printed
delivered on time and to the right place. We are connected
catalogs, as well as the digital platform, product delivery
with all our couriers through different technologies; if the
and reverse logistics for each program. For example, we
courier arrives to our client’s house and no one is there to
manage the loyalty programs for many banks in Mexico and
receive the product, our system is notified. Many clients hire
create a personalized experience in product packaging for
us exclusively for our reverse logistics services.
their products throughout the redemption process. Q: What advantages does Promologistics offer over its Q: How has Promologistics’ offering evolved in line with
competitors?
the market’s needs?
A: We have very few competitors because very few
A: We have invested in technology and human resources to
companies offer our 360° service. We have created a
better provide ad-hoc solutions for our clients. We strongly
sophisticated network that has allowed us to become
believe that being close to our clients will help us gain
experts in specialized deliveries. Since we do not have the
the necessary understanding and knowledge to develop
infrastructure of large carriers, we developed alliances with them so we can use their networks. Our service is boutique. We take advantage of the strength of carriers like Estafeta
Promologistics is a Mexican company that designs and executes
and, together with our technology and agility, we create
customized logistics solutions for companies looking to solve
new services and added value within the logistics world.
their logistics needs over the medium and long terms, allowing
Managing a last-mile service helps us identify any problem
them to focus on their core business and achieve their goals
that might arise and to be proactive in solving it.
INSIGHT |
SPEEDING UP THE DIGITAL TRANSFORMATION RICARDO ROCHMAN CEO and Founder of WePort
Mexican freight forwarders and customs brokers tend to
is to convince them to use our WeTrack tool for their
operate offline, largely missing out on the benefits of the
information needs,” says Rochman.
digital transformation taking place within the logistics segment, says Ricardo Rochman, CEO and Founder of
WePort must also stand out in a segment that is lightly
WePort, a Mexican customs broker startup that seeks to
regulated, leading to sometimes shady practices. “There
revolutionize the way processes are carried out in the
is no regulation that provides a right legal figure or
sector. “Customs brokers and the international logistics
framework for freight forwarders in Mexico, which means
business continue to be primarily offline. Everything is
that almost anyone can call themselves an international
done through email, Excel and Word documents that only
freight broker. This generates fears for customers and
generate a large amount of work,” says Rochman.
challenges for competitors,” explains Rochman.
WePort hopes to disrupt the segment with its tracking
Despite international trade being heavily affected by
solution. “Through our WeTrack tool, we unite all entities
variables such as exchange rates and the unstable
involved in the customs and logistics process. WeTrack
environment of international free trade agreements,
controls operations, processes, events, KPIs, services and
Rochman says the industry has been growing intensively
alerts, among many other things.” This tool has become
in Mexico both in imports and exports. Still, companies
WePort’s added value and has generated a great deal of
face constant logistics and geo-economics challenges.
interest from clients and competitors, Rochman adds.
“They do not know how to send a product from Mexico to other countries using an effective logistics solution that
WeTrack’s relevance becomes apparent when looking at
pursues agility and cost reduction,” he says. “They tend to
the number of people and companies involved in a single
be unaware of commercialization requirements, regulations
operation, complicating communication between entities.
and needed certifications.”
“In each import and export operation there are at least seven companies involved, including the manufacturer,
Although Mexico enjoys several free trade agreements,
the transport company in the country of origin, the freight
Rochman points out that the country is not among the
agent in the country of origin, the shipping company,
easiest when it comes to importing products. “There have
the insurance entity, the freight agent in the country of
been several complaints regarding the existing barriers for
destination and the customs broker.” WeTrack allows
importing products to Mexico. The necessary documentation
for unified control, according to Rochman. In addition,
is impressive.” Rochman says these hurdles discourage
every WePort client has direct contact with its executive
many entrepreneurs and SMEs that aspire to venture into
account representative. “Our clients can contact us
the Mexican market, adding that the authorities need to
24/7 and we guarantee a response in minutes. We have
have greater flexibility. “Importers are aware that they must
operations all over the world so there is always someone
comply with nontariff restrictions but in Mexico, bureaucracy
in charge.”
and waiting times delay import and commercialization processes, which can wear out a company.”
Changing the sector mindset and asking clients to adopt innovative strategies has been among the company’s
Although WePort has enjoyed almost double-digit annual
most difficult challenges. “We work in an industry with
growth, Rochman says the company can be heavily impacted
people of very different personalities. For the youngest,
by two elements: the evolution of the shipping business and
using our tool to track your load is quite easy but those
the USMCA agreement. “As a company, we need to continue
who have been in the industry for a longer time are
doing things the right way. This will help us take advantage
used to doing things in a certain way. Our challenge
of the opportunities and diversify our operations.”
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GROW PRODUCTION, THEN BUILD DIGITAL FUTURE PETER KROLL CEO of everis Mexico
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Q: How much has everis’ position in Mexico’s industrial
A: everis has business and digital consulting experience
segment grown and how important is the automotive
but we also have developed as systems integrators and
industry in your strategy for this market?
developers. Thanks to this duality, we can help clients to
A: We have advanced considerably, focusing on
really understand what Industry 4.0 is and how it comprises
what we call AUTOMAN, meaning automotive and
a number of different concepts and technologies that need
discrete manufacturing. We have brought in a new vice
to come together for a holistic operation. Robotics and
president for this division and his focus is mostly on the
automation are definitely a part of the Industry 4.0 idea but
automotive industry.
it is also an integrated vision that includes manufacturing operations, the company’s back office, its supply chain and
Most of the latest automotive projects and incoming plants
its clients.
are duplicates of operations in other parts of the world. BMW’s plant in San Luis Potosi, for example, is a copy of
At the same time, we can identify an area of opportunity
the OEM’s operation in Spartanburg, which means that all
within a company and start piloting a new development.
the best practices implemented there are now in Mexico.
We can use Big Data and analytics to understand
But this is just the first step. Next, these companies launch
patterns that allow us to predict when equipment will
their operations with the goal of ramping up production.
need maintenance. The information we analyze comes
After that, they advance to the next stage in their
from the equipment itself or the product once it goes
strategy to become a digital operation with Industry 4.0
through quality control and that helps the system become
implementations.
a self-learning mechanism that reduces unscheduled downtime. We can also help workers increase their
As a controlled and isolated environment, Mexico offers
productivity using smart glasses and other wearables
a great opportunity for investors to test new concepts
to introduce augmented reality and reduce errors
and develop new technologies that would be otherwise
related to customization in different vehicle units. We
too complicated to install in already established plants in
have even developed a software specifically oriented to
Germany or the US. Companies understand this and they
maintenance called everis drizzle. This platform is based
are willing to take this step. However, their first priority
on a SAP Leonardo solution and uses IoT and Big Data
is to develop production properly so they can then
capabilities to improve maintenance.
apply new ideas, such as Big Data, analytics, predictive manufacturing and augmented reality for the production
Q: How are you collaborating with OEMs, distributors and
floor. Eventually, Mexico will have an excellent opportunity
aftersales service providers to help them understand and
to be at the forefront of the digital revolution and we
embrace digitalization?
are already working on some projects with companies
A: In the sales part of the automotive business, we
in this sector.
are collaborating on the development of a digital user experience and aftersales service. There is a great deal to be
Q: What role does everis want to play in the evolution of
done in Mexico in this segment, especially considering that
the technology implementation process in Mexico?
globally dealership visits are decreasing from an average of 2.8 five years ago to 0.7 when clients look to buy a new car. In Mexico, there is still time before dealerships really
everis is a Spanish technology consulting and outsourcing
transform the industry but we are moving closer to that.
company that is now part of the NTT DATA company. everis is
Processes are becoming much more digital and new tools
present in 16 countries and participates in several industries,
such as virtual and augmented reality are creating a whole
including automotive
new experience for clients.
VIEW FROM THE TOP |
TRILLIONS IN SAVINGS HIDE BEHIND DISRUPTIVE TECHNOLOGY KARL MCDERMOTT Global Head of Business Development at Morpheus.Network
Q: As a developer of a supply chain platform based on
be automated to increase efficiency at border crossings.
blockchain tech, how would you describe the disruptive
There are also release procedures with customs and border
nature of this technology?
protection that can be digitalized to expedite movements.
A: Blockchain has the same transformative power the
Our goal is to have all information gathered in a single
internet had in the early 1990s. Just like our lives changed
platform and use an API to send it to border protection,
thanks to the internet, processes will be revolutionized
thus avoiding having cars waiting at the border for the right
through automation and blockchain implementations.
documentation.
This technology offers a unique way of connecting and storing data, so people can trust it is not hackable and
Q: What can Morpheus.Network offer to help solve the
it can be used to connect businesses. It is important
security issues plaguing the country?
to note, however, that the idea of a universal registry
A: Security is an issue that has to be tackled in most
of information for business is actually referred to as
developed countries, both in terms of security of the
distributed ledger technology (DLT). Blockchain refers
product and protecting the value chain from dubious
more to crypto science and dealing with investments,
imports. Regarding physical security, companies must
while DLT seeks to apply a similar methodology to
know the location of their shipments at all times and they
improve corporate processes.
must be aware of the last incidents that affected cargo and itineraries. Although GPS technology has been in the
As an example, DHL is contracted to ship auto parts from
country for years, it can only show the trucks’ location
Germany to Veracruz and then to Puebla, where the parts
but not what is happening with it when it stays in one
are integrated into a chassis that is finally sent to the US.
place for two hours. By providing a richer dataset through
IBM researchers found 40 different touchpoints where
more sensors and actuators, companies can manage their
data had to be received and analyzed. Each of these points
operations more precisely. Installing a panic button, for
represents a cost-savings opportunity that adds up to a
example, has helped clients register the truck’s last known
potential US$2 trillion to optimize the entire supply chain
location after a robbery to immediately alert the authorities
through blockchain.
and recover the merchandise before it was too late.
Q: How would you rate Mexico’s position as a logistics hub?
The second security issue plaguing the industry is related
A: From a global perspective, the way Mexico interacts in a
to activities in the black and grey markets. The higher the
global supply chain is not so different from what happens
value of a product, the higher the risk of having to deal with
in other countries like Russia, Canada, the US or Argentina.
forging activities. By using blockchain and a radio frequency
The biggest area of opportunity to improve logistics
ID tag (RFID), companies can track each component from
processes in Mexico is to focus on activities where there
the place it was manufactured to its current location. If
is human intervention. Since there is a huge talent pool in
suddenly there are several products with the same RFID or
the country, at times there are too many hands on the same
that lack information within the blockchain registry, retailers
bowl. Technology allows the improvement of processes, not
and even end consumers will know these are probably
by displacing people but by empowering them to create
stolen or illegally-traded goods.
an added value. We are working on automating cross-border processes.
Morpheus.Network is a global developer of a full-service supply
When USMCA is implemented, automotive companies will
chain platform based on blockchain technology and an integrated
have to present a certificate of origin that states 75 percent
cryptocurrency payment system. The company has partnerships
of the car was built in North America. That process can
with leading software developers and global carriers
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TECHNOLOGY INTEGRATION DEMANDS QUALIFIED TALENT VÍCTOR FUENTES Director of Mitsubishi Electric Automation Mexico and Latin America
130
Q: What is your assessment of the adoption of Industry
through human labor. I am in favor of adopting more
4.0 practices in the Mexican automotive industry?
robots inasmuch as people are trained to program and
A: Industry 4.0 is a concept launched by the German
operate these robots simultaneously. We need to provide
government about a decade ago and adopted by German
Mexican engineering students with the tools they will
companies. IIoT referred to the same concept, only under a
use when they enter the labor market, which is why
different name preferred in the US. For Mitsubishi Electric,
Mitsubishi Electric invests around US$200,000 annually
our goal is to turn what we call e-F@ctory into a reality:
to support academic institutions in Aguascalientes,
an integration of systems and technologies that allows the
Coahuila, Queretaro and Guanajuato, supplying them
industry to produce more with less, knowing how much
with the latest technology. We plan to do the same with
processes cost and how to improve them. We believe the
either IPN or UNAM.
Mexican industry offers good conditions for technology adoption, whatever its name.
Q: How has Mitsubishi Electric’s strategy of reducing ownership costs through expense amortization over a
OEMs are already built around these concepts and the
project’s lifespan boosted adoption of automation?
Mexican industry is working to embrace them, supported
A: Through this strategy, Mitsubishi Electric has maintained
by the authorities. The state governments of Nuevo Leon
a technology standard among clients and helped
and Aguascalientes emphasize the training of qualified
companies migrate toward newer control equipment.
engineers who can understand and work with these trends.
Furthermore, it has secured our position among Japanese
Technology will make local companies more competitive
players and made it more difficult for our competitors to
but they must be willing to invest in it. It is necessary to be
enter the market. When clients spend years without an
at the forefront of technological development to produce
equipment-related failure because of our solutions, they
components.
become interested in adopting our latest technologies and the more technology clients have installed at their
Q: What challenges do high staff turnover rates present to
plants, the lower ppm rates they will face and the greater
automotive companies?
processing speeds their programmable logic controllers
A: Staff turnover is a huge problem in the sector, especially
(PLC) will achieve.
in the Bajio region, where companies can lose up to 25 collaborators per week and must bear huge related costs.
Q: How has political uncertainty derived from USMCA
We need to shift the mindset from just needing labor to
negotiations and the 2018 federal elections affected
demanding qualified workers who can operate equipment
investment from Mitsubishi Electric’s clients in Mexico?
differently. To that end, Mitsubishi Electric not only focuses
A: Many investments remain on stand-by but this situation
on marketing automation technology but also on training
has little to do with USMCA and the 2018 Mexican elections
the people who will use it.
and more with a significant drop in car sales in the US. Consumers in that market are not purchasing as many
Many processes can be automated within the industry but
new vehicles and trends in this market are changing. Older
companies still think most of these should be managed
generations demanded large, eight-cylinder muscle cars several decades ago and this demand eventually shifted toward compact vehicles and later minivans. Hybrids are
Mitsubishi Electric is a global company with over 40 years in
in demand now but they may go out of style in a few years
Mexico. It develops and manufactures electric products and
as OEMs accelerate the development of EVs, which will
systems, including industrial robots, motion control systems,
have a great impact on the automotive industry as suppliers
operator interfaces and computer numerical controls
change and new manufacturing demands arise.
VIEW FROM THE TOP |
ADVANCED SOLUTIONS BOOST SEGMENT DIVERSIFICATION LEONARDO ROMERO Country Business Manager of Helmut Fischer
Q: What is Helmut Fischer’s strategy to automate
their penetration in the Mexican market will depend on
measurement processes?
the introduction of new paints that can be measured
A: We are working to mount our metrology equipment
with this technology. Helmut Fischer has also advanced
directly on clients’ assembly operations. Helmut Fischer is in
in other types of optic metrology, such as X-ray
talks to automate some measuring processes at TRW’s and
fluorescence, which has been well-received in segments
Lincoln Electric’s operations. We have also partnered with
like jewelry. We expect the jewelry segment to increase
Autechnik, a Queretaro-based company that automates
in importance in 2019.
production lines. We provide the metrology technology and our partners automate the process using collaborative
Q: How is Helmut Fischer working to improve regulations
robots or measuring cells.
covering measurement equipment? A: Helmut Fischer collaborates with the Mexican Metrology
Helmut Fischer’s headquarters has worked to launch
Center (CENAM) to update official norms for the jewelry
instruments that are friendlier to automation equipment
segment, such as NOM-033-SCFI-1994. This process will
and can be easily implemented. As an example, we want to
result in new opportunities for Helmut Fischer to increase
replace wire-based probes with wireless sensors.
its visibility and sales among companies that need to characterize alloys and measure the caratage of their
Q: How is Helmut Fischer changing its software to
jewelry. As prices for this equipment fall, more small jewelry
complement its equipment offering?
shops will gain access to our technology. This will enable
A: In terms of digitalization, Helmut Fischer develops new
these family companies to certify their products and start
communication cards that make its metrology equipment
exporting.
compatible with data transmission protocols, such as Profibus or Profinet, that are integrated in ERP systems.
Q: What opportunities have prompted Helmut Fischer to
This is a key step toward Big Data as our equipment can
diversify the sectors it supports?
be escalated to decision-making systems. Helmut Fischer
A: In 2018, we started to consider supporting the oil and
is also working to increase the flexibility of the software
gas industry but it will still take a while for this to come to
solutions of its measuring equipment to make sure that it
fruition. However, the development of new product lines,
can operate on several platforms.
including corrosion prevention instruments, will help us increase our presence in new sectors.
Software solutions used to be largely centered on desktop applications but the growing adoption of smartphones
While we have some projects with automotive companies,
has prompted Helmut Fischer to create apps to keep
their success will depend largely on the trade environment
track of production. In Mexico, companies tend to prefer
resulting from USMCA and new regulations for the sale
larger and more robust measuring equipment that are
of vehicles. Whether it is X-ray fluorescence metrology
hard to misplace and can stand harsh conditions. As a
equipment, micro-indentation instruments or anodizing
result, the adoption of our app solutions has faced some
technologies, we will diversify our operations and continue
resistance.
training our staff.
Q: How important are optic metrology technologies for Helmut Fischer’s Mexico operations?
Helmut Fischer is a German metrology equipment manufacturer
A: In terms of optic metrology, Helmut Fischer has added
that specializes in measuring coating thickness, material analysis
pulsed-laser technology to its product portfolio. These
and micro-hardness testing. The company operates in several
products are still under development in Germany but
industrial sectors including automotive and aerospace
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PRODUCTIVITY, EFFICIENCY AND SAFETY REDUCE OPERATIONAL COSTS LUIS HERNÁNDEZ Country Manager of Caterpillar
132
Q: How does Caterpillar help the industry to increase its
new equipment. 2015 and 2016 were hard but the industry
efficiency and become more cost-efficient?
began to stabilize in 2017. These economic fluctuations
A: Caterpillar is evolving alongside the industry. We are
led our clients to improve their cost structures, so they
introducing a new platform for hydraulic excavators for
are increasingly preferring to lease the equipment instead
the Mexican construction market. This new generation of
of buying it. Moreover, clients have also become more
excavators increases productivity by up to 40 percent,
interested in refurbished equipment.
reduces maintenance costs by 15 percent and fuel consumption by 20 percent in comparison to our previous
Q: Considering these changes, how do you expect the
series of excavators. With this offering, Caterpillar aims to
infrastructure sector to perform during the coming five years?
change the construction industry by increasing efficiency,
A: President Andrés Manuel López Obrador’s policy
productivity and operator safety to altogether reduce total
proposals include interesting infrastructure projects. For
operational costs.
that reason, we believe that the incoming presidential administration will bring great opportunities for us in the
Our mission is to provide solutions to our clients to build
sector. Expectations change with every governmental
a better world. Caterpillar can offer these products thanks
transition but it is likely to include an increase in investment
to the excellent support of our three dealers in Mexico:
for the sector.
Madisa, Tracsa and Matco. These three privately-owned companies distribute our lines for mining, infrastructure
All governments in Mexico must invest in infrastructure,
and energy generation. Caterpillar subsidiary Solar Turbines
as this is essential for the country’s competitiveness. As
directly distributes gas compression turbines for the oil and
a result, we expect the infrastructure market to continue
gas sector and Progress Rail supplies locomotive, railcar
developing. The only change we expect is for investment
products and services to the railroad industry.
to be more concentrated in the south and southeast of the country, which was announced as part of the
Q: What main changes has the industry faced during
new government’s 25 main projects, of which many are
the past few years and how have they influenced
infrastructure related. Furthermore, we expect an increase
Caterpillar’s strategy?
in PPPs. Overall, we are optimistic about the future.
A: The construction industry in Mexico has significantly evolved due to the country’s changing economy. While
Q: Caterpillar acts as an umbrella for other brands. Which
there is still investment in new equipment, economic
of these provides the strongest added value in Mexico?
fluctuations in the sector led us to increase our service
A: We have added many different brands to our portfolio,
offering. The construction sector was very strong following
including some for the energy sector, such as the MaK brand
the recession in 2009, a trend that continued until 2014
for marine engines. Solar Turbines, MWM, Perkins, Progress
when the industry peaked. After that, global trends hit
Rail, SEM and Yellowmark are all in our portfolio. These are
Mexico, leading the government to reduce spending on civil
our strongest lines in Mexico but Caterpillar is by far our main
construction, which in turn caused a significant contraction
brand. We continue to be leaders in the construction market
in the infrastructure industry as clients stopped investing in
thanks to design improvements that increase efficiency. Moreover, the Product Link system allows for all equipment to collect and send operational data on fuel usage, efficiency,
Caterpillar is the world’s leading manufacturer of construction
productivity and maintenance to a server. Currently, we have
and mining equipment, diesel and natural gas engines, industrial
around 14,000 assets connected, which allows us to determine
gas turbines and diesel-electric locomotives. It is a leader with
what the market needs in terms of spare parts and where
the largest global presence in the industries it serves
those are needed. This will allow us to better serve our clients.
VIEW FROM THE TOP |
TEMPORARY INFRASTRUCTURE SOLUTIONS OFFER ARRAY OF OPPORTUNITIES JERZY SASIADA Director General and Managing Director of WillScot Mexico
Q: WillScot is a global leader in the mobile offices
solution like provisional housing has not been explored. It
segment. How do your operations in Mexico add value to
has been a challenge to convince decision-makers of the
your global business?
benefits of doing so. Our solutions would be ideal because
A: Williams Scotsman, now WillScot, has been in Mexico
they are temporary and easy to install and dismantle.
for almost 13 years. We are a multinational company
Although they do not provide the comfort of a permanent
that constantly looks for growth opportunities and our
house, they are better than the current solution.
operations in Mexico play an important role in this plan. The country is already ranked among those with the greatest
We can participate in many industries. In the health sector,
growth potential, despite the uncertainty generated by the
the establishment of provisional points of care to reach more
country’s new government and other internal and external
communities is a perfect example of how our product can be
circumstances, such as lower oil prices, Brexit and changes
used. We are also working with banks to create spaces for
in the commercial relationship between the US and China
provisional ATMs or public customer service points.
that might impact Mexico’s economic development. We understand this is all part of a natural cycle and expect the
Q: How have client needs changed in recent years and how
situation to stabilize in 2019.
has WillScot adapted its portfolio accordingly? A: Adaptability is a necessary strategy and we have created
Q: Besides the oil and gas and energy sectors, where does
different systems to get closer to clients and identify their
WillScot see the biggest opportunity to develop its business?
needs. As part of this, we launched our Ready to Work
A: We are growing our presence in the education sector,
product line. Traditionally, companies like ours offered an
where we have found really good projects and our products
empty box as a product but clients need ready-to-use
have had a positive reception. Given the versatility and
facilities equipped with furniture. We started incorporating
flexibility of our solutions, they can easily be adapted to meet
this offering a few years ago and it has become an integral
the specific needs of the sector and its final users. A school
part of our portfolio. We are providing turnkey solutions; if
cannot change its infrastructure in a short period of time but
a client asks for a unit, we provide it in three days directly
our products allow them to increase or reduce capacity on a
to the site where they need it and with the necessary
yearly basis, depending on the number of students they have.
equipment to start operations immediately.
Renewable energy projects have also become a priority for
We are also studying new products and new types of spaces
the company. This industry is quickly developing in Mexico,
to integrate into our offering. We are stepping beyond the
particularly for solar plants and wind farms. Since these
traditional cubicle and although it remains our flagship
installations are in remote places, construction companies
product because it is what the market demands, we have
need to solve the problem of tool storage and housing
also included modular units that can grow vertically or
services for the construction team. Our solutions are ideal
horizontally, depending on the space requirements. All our
to avoid losing time in transportation. We can create a small
products can be transported should a client decide to move
campus where people can live for a few months with zero
them to another location. Around 95 percent of the materials
impact on the environment.
we use can be disassembled, transported and reassembled.
Another area in which we could easily participate but which has not yet developed in Mexico is related to natural disaster
WillScot is an international company that specializes in providing
response. Mexico is prepared to address the basic needs,
temporary turnkey workspaces configured to client specifications.
such as medical attention or sleeping quarters, of those
The company has operations in the US, Canada and Mexico and is
hit by these events. However, providing a medium-term
North America’s leading provider of temporary workspaces
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MEXICAN TECHNOLOGY PRODUCES DURABLE, RESISTANT MATERIALS LUIS ANTONIO GONZÁLEZ Commercial Director of Concreto Polimérico Castor
134
Q: Concreto Polimérico Castor specializes in products
There is a great difference between our solutions and the
for construction, sewage, telephony and electricity. What
products of our competitors. For instance, a ductile cast iron
distinguishes its offering?
cover can cost around MX$5,000 and MX$6,000 (US$264-
A: What differentiates us is our service culture. We provide
US$317). The same product made of polymeric concrete costs
our clients with unique commercial conditions, such as
around MX$1,500 (US$79) but it has the same durability and
offering a three-year warranty against any fracture in our
will not get stolen because it has no value in the black market.
products. No other company does this. We also make sure our products are resistant and durable. They are subjected
Q: What opportunities does Concreto Polimérico Castor
to lab tests conducted by top Mexican and Central American
expect from the government’s planned infrastructure
companies specialized in this segment and certified by the
investment?
Mexican Accreditation Entity (EMA).
A: The change in federal administration has impacted our business. We were previously involved in several important
We also are a Mexican company that uses Mexican technology.
projects, including the Toluca-Mexico City passenger train,
Our machines were built in Mexico in collaboration with
the Mexico City-Queretaro train and NAIM. Regardless, we
experts from UNAM, which provided us with expertise in
have presented our product to the new authorities and are
polymers. The university has also helped our company
positioned as an option for new projects to come.
develop more resistant products. This is another differentiating factor, particularly as the industry undergoes a change from
One example is the proposed Mayan Train. It will be
metal products to polymeric concrete products, given their
constructed on saline soil. We propose to do what they
resistance, durability and lower environmental impact.
do in Canada and fabricate the railway ties with polymeric concrete, which does not require rods and neither expands
We also are entering the fiberglass posts and luminaires
nor contracts. Lighter posts also work better on saline or
business. Our goal is to replace wood and concrete posts
lacustrine roads. Transport of a half-ton concrete post like
with our fiberglass product. Among the advantages of this
those we see in cities to remote areas requires a helicopter
product are its 70-year durability and its light weight. The
or specialized equipment for difficult terrain, which can be
product’s flexibility also makes it an excellent solution for
very expensive. Our 9m post weighs just 50kg and can be
areas that experience high winds.
pulled or carried. They also can be set in any type of soil, even mud. We believe our products are the perfect choice
Q: What steps is the company taking to position itself as
for all these new projects.
the best supplier of these products for the public sector? A: We visit the different governmental institutions to
Q: How does Concreto Polimérico Castor innovate in its
demonstrate our solutions. Even though polymeric concrete
solutions portfolio?
has been in the Mexican market for over 20 years, it is still
A: We are trying to achieve more durability and resistance
unknown in many engineering areas. Part of our approach
with less material because the company is aware that
has always been to show the product, its certifications and
plastic takes a long time to decompose. But we also want
its benefits.
our products to last as long as possible in the function they were created for. Part of our new offering includes the development of transparent glass fiber posts, which
Concreto Polimérico Castor is a Mexican polymer concrete
incorporate LED lighting. This is an inexpensive solution
company with 25 years of experience in the market. Its product
that can help improve the urban image. Also, we want to
portfolio includes polymeric concrete sewer covers and it has
construct wind turbine blades from glass fiber and position
ventured into the creation of glass fiber products such as posts
our glass fiber posts with CFE for use in transmission lines.
VIEW FROM THE TOP |
POSITIVE EXPECTATIONS FOR AUTOMOTIVE AND CONSTRUCTION SECTORS CARLOS SIERRA Director General of Kuraray
Q: How has Kuraray’s entry to Mexico altered its game
Q: Does Kuraray have any plans to expand its Mexican
plan in the country and its relationship with distributors?
subsidiary and establish manufacturing operations?
A: Kuraray is a Japanese company founded over 90 years
A: Although we do not have manufacturing facilities in Mexico,
ago. Originally, the company was focused entirely on Asia,
Kuraray is always looking for opportunities to grow. We have
but it is now a global business with a variety of products
finalized the purchase of Calgon Carbon Corporation, an
in the markets of specialty chemicals, fibers, faux leather
activated carbon company with a strong presence in North
and dental products, among many others. Most of the Latin
America. In 2015, Kuraray bought Plantic, which manufactures
American subsidiaries, including Mexico, opened in June
polymers derived from cornstarch, and in 2012 Kuraray bought
of 2014 after the company completed the purchase of
MonoSol, a manufacturer of water-soluble film.
DuPont’s Glass Laminating Solutions and Vinyl businesses. Q: How does Kuraray work to position its brand in the Having a subsidiary in Mexico offers interesting possibilities
market and among its clients?
for Kuraray. When a company does not have a local subsidiary
A: The company’s focus has always been on the client and in
in the country, it has to depend on third-party distributors
Mexico, our growth has been extraordinary. In 2017, Kuraray
with goals that may not be completely aligned with that of
Mexico experienced the largest growth in Latin America. We
the company. Our distributors’ main focus is profitability and
have very successful products, such as SentryGlas, which
the sale of different products that could act as competition.
experiences double-digit growth every year in the country. We
Part of our business strategy in Mexico has been to maintain
are doing things right and we are growing. Mexico accounts
our current relationships with our distributor network and
for a small percentage of Kuraray Group’s sales. However,
analyze where they continue to add value to our operations.
the country continues to grow its wide range of products. At
In the past, distributors helped us with import and storage
the same time, we must standardize processes and unify our
but now we can do that through Kuraray Mexico.
different business units with the Kuraray culture.
Mexico offers attractive opportunities for a company like
Q: As a chemicals company, what strategy is Kuraray
Kuraray. Geographically, it is next to our biggest client, which
following to reduce its environmental footprint?
helps logistically. We have a skilled workforce and a network
A: To undertake companywide environmental conservation
of free-trade agreements with several countries and regions.
activities, Kuraray established the Environmental Conservation Working Team (WT) and Global Warming
Q: Where does Kuraray see the best opportunities to grow
WT within the Corporate Social Responsibility Committee.
in the Mexican market?
These teams promote measures to counter global
A: We have identified the automotive and construction
warming, manage chemical substance emissions and
industries as our largest opportunities. Mexico is the
ensure the beneficial use of waste. Our goal to improve the
world’s sixth-largest car manufacturer and the third-largest
environment and positively impact people’s lives with our
exporter. Manufacturing and exporting at such high levels
technology. Kuraray has taken many steps to diminish the
is possible because the industry has organized productive
negative effects our industry may have on the environment
chains intended as long-term investments.
and the communities where we live and work.
Mexico will continue to solidify its role as an exporter. There are many countries capable of buying Mexican products,
Kuraray is a world leader in specialty chemicals, polymers,
not only the US and Canada. We have to take advantage
fibers and textiles. In 2014, Kuraray acquired DuPont’s Glass
of the country’s free-trade agreements with other Latin
Laminating Solutions and Vinyl businesses, which nearly
American countries too.
doubled the company’s footprint in the Americas
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| VIEW FROM THE TOP
TEXTILES FOR PROTECTION, PREVENTION JORGE PLATA CEO of Argentum Textil
136
Q: Which industries does Argentum Textil target with
50 cents. It is harder to make the required changes in the
its products?
manufacturing process rapidly and effectively.
A: Argentum Textil specializes in functional textiles. We participate in three markets: the electricity and energy
Q: What makes Argentum Textil’s business model different
sector, providing protection from electric arcs; the metal-
from its competitors?
mechanics segment, particularly in the auto industry where
A: The traditional business model we learned was based
our products protect against splatter from molten metal and
on price and time periods. The buyer pushed you to sell at
the oil and gas industry where we provide protection from
deeper discounts and negotiations were, up to a point, hostile.
explosions. In metal-mechanics, for example, we provide
However, when we started Argentum, we decided to do
anti-cuts made from the same material as bulletproof vests.
things differently and implemented a policy we call “Radical
We also supply products for automotive plants, where some
Transparency.� This policy ensures we are transparent with our
processes are still manual and operators are exposed to
suppliers regarding our costs and the profit margin we expect
a variety of dangers, such as high temperatures from
on each product. This might seem a disadvantage but in fact
welding. Our textiles are used for the sleeves that workers
it has helped us to gain expertise. Suppliers sometimes advise
wear to prevent cuts and to protect their body against the
us when they feel one of our processes is too expensive and
welding heat.
offer their help to reduce costs. The implementation of this policy has created a relationship that the industry may not be
Unfortunately, Mexico is lagging in terms of safety
used to but for us it has worked really well.
equipment; the existing regulation is wide open and allows business owners to provide their workers only the
We also have a German certification called OEKO-TEX
protection that they deem necessary. As a result, around
100 Class 1, which specifies there are no hazardous
80 percent of our production goes to Europe.
substances in any of the textiles we use. This certification allows for traceability, starting with the fiber and ending
Q: How does Argentum Textile tackle the operational
with the finished product. All our suppliers must have this
challenges associated with producing differentiated products?
certification, which ensures that there are no substances
A: Producing differentiated products is complicated.
that pose a danger when in immediate contact with the
You need to have the necessary technology, a flexible
skin. Having this certification is also a differentiator for our
workforce and production processes that can be easily
company in the Mexican market because companies are
adapted. However, staying within a particular price range
not used to having certifications regarding fair trade or
is the most difficult element. Since our production varies
sustainability. Having these certifications is complicated and
depending on what our clients require, we cannot employ
expensive but they help position your company differently.
a flat process that would allow us to set exact costs. Every product we design is different, so establishing fixed costs is
Q: What are the challenges that Argentum Textil has faced
somewhat complex. However, setting a higher price when
as a Mexican company in a specialized market?
offering differentiated products with added value is not a
A: Most of our production is sent to Europe, although that
constraint since you are not fighting with a competitor over
does not mean that our products are not used in Mexico. Unfortunately, corruption continues to be an impediment to doing business in the country. The lack of regulation is
Argentum Textil is a Mexican textiles company located in the
another hindrance to our participation here. You cannot
state of Puebla. The company specializes in the production
evaluate a product if you do not have a regulation to
of functional and differentiated textile products intended to
measure it against. The Energy Reform and the entrance
protect workers in manufacturing activities
of foreign companies will force a change in this condition.
VIEW FROM THE TOP |
R&D VITAL FOR DAILY PRODUCTS RICARDO IBARRA Director General of BIC LATAM
Q: What is BIC’s role in Latin America and Mexico in
certain characteristics that makes it iconic. The hexagonal
particular?
shape is intended to make transport more efficient, since
A: BIC is a world and Latin American leader in stationery,
it makes it easier to store pens, increasing the number of
lighters and shaving products and we are part of the daily
units per box. The cap of the pen has a small hole designed
life of millions of people. The main characteristic of our
to prevent asphyxiation in case someone swallows it.
products is that they are of high quality and accessible.
Also, the enigmatic hole found on the side of all BIC pens
We need to be distributed in all stores, so consumers
serves to equalize atmospheric pressure inside and outside
can find our products anywhere. Our strategy is always
the pen. Without this feature, it would be impossible to
based on being close to the consumer. One of the main
correctly use the product inside an airplane or on top of
characteristics of the Latin American market is the existence
a very tall building, for example.
of small traditional businesses that sell water, soft drinks, snacks and lighters. In Mexico, there are around 700,000
When it comes to lighters, we manufacture the best
businesses of this kind, while in Brazil there are as many as
product on the market. All our lighters comply with ISO
1 million. These businesses are important to us, since more
9994 quality and safety standards EN13869, ASTM F400
than 80 percent of our lighter sales originates with these
and US CPSC. By complying with these, we avoid possible
types of businesses. The same is true for small stationary
accidents among our consumers. Regarding razors, BIC
stores that are still found in every neighborhood.
has always worked to offer consumers the best shaving solutions, introducing to the market a complete range of
Q: How are your two plants in Mexico helping BIC bolster its
shavers that offer technological innovations at a fair price.
position in the market and what quality control measures
We have very well-established products in the market but
are in place?
this does not mean that we do not develop new products.
A: 29.1 percent of all BIC factories are in Latin America.
We will soon launch a new product called “Tattoo Marker,”
We have seven manufacturing facilities in the region, of
which is a special marker for making temporary tattoos.
which two are in Mexico, four in Brazil and one in Ecuador. Our plant in Cuautitlan, State of Mexico, specializes in
Q: What role does sustainability play in your operations?
stationary products and annually produces around 2 billion
A: One goal of BIC’s business strategy for 2025 is to reduce
writing instruments, 20 percent of which are for domestic
our environmental footprint and act firmly against climate
consumption and 80 percent for exporting to 27 countries.
change. We want to ensure that 80 percent of the energy
Our plant in Ramos Arizpe, Coahuila, produces 98 million
used in our plants comes from renewable sources by 2025.
razors per year. It is the fourth-largest plant in the world in
All our factories have environmental management systems,
terms of rake manufacturing.
certifications, measures to reduce water and energy consumption, reduction of greenhouse gas emissions,
Q: How relevant is R&D in a market where products might
recycling and waste reuse policies. We also are targeting
appear to be the same at first sight?
zero-carbon emissions in terms of transportation and
A: The most important element is to deliver high-quality
we have reduced water consumption at our plants by 85
products that meet consumer expectations. BIC’s business
percent per ton of production.
strategy for 2025 aims to promote sustainable innovation in BIC products, leveraging the circular economy. To achieve this, R&D plays a fundamental role. Behind each
BIC is a world leader in stationary, lighters and razors. With
pen, there is an important R&D process that allows us
over 60 years in the global market, BIC employs more than
to offer durable products of the highest quality. A BIC
15,000 people worldwide and sells more than 11 billion products
pen gives you more than 2 kilometers of writing and has
annually. The company is listed on the Paris Stock Exchange
137
AEROSPACE &Â AVIATION
6
Mexico aims to become a key player in the global aerospace supply chain thanks to its competitiveness as a manufacturing platform, free-trade agreements with 46 countries and a highly skilled workforce. The country is increasingly becoming a hub for aerospace investment and a magnet for companies interested in maintaining their competitiveness while lowering manufacturing costs. Mexico is now home to over 300 aerospace companies and the country has sets its sights high as it aims to enter the Top 10 of aerospace manufacturers by 2020.
Aerospace & Aviation showcases some of the biggest names in both sectors. From OEMs to suppliers, airlines and MROs, this chapter illustrates how local players are targeting the consolidation of the supply chain and attracting sufficient qualified human capital for Mexico to reach its ambitious sky and space goals.
139
CHAPTER 6: AEROSPACE & AVIATION
142
ANALYSIS: Clear Skies as Industry Continues High-flying Ways
143
VIEW FROM THE TOP: Luis Lizcano, FEMIA
144
VIEW FROM THE TOP: Carlos Robles, Bombardier Aerospace Mexico
146
VIEW FROM THE TOP: Jesús Navarro, Mexicana MRO Services
148
VIEW FROM THE TOP: Alejandro Rosas, Haskell
149
VIEW FROM THE TOP: Juan José Simón, SAE
150
VIEW FROM THE TOP: Juan Carlos Corral, Queretaro Aerocluster
151
José Antonio Velázquez, Queretaro Aerocluster
VIEW FROM THE TOP: Rogelio Cisneros, Monterrey Aerocluster
Claire Barnouin, Monterrey Aerocluster
152
VIEW FROM THE TOP: Rene Espinosa, Chihuahua Aerospace Cluster
153
VIEW FROM THE TOP: Enrique Ruiz, ProSonora
154
PROJECT SPOTLIGHT: Mexicana MRO Services: Cargo Demand Spurs Transformation
156
VIEW FROM THE TOP: Eugenio Marín, TechBA Madrid-Montreal & TechBA Aerospace
157
INFOGRAPHIC: Soaring Aerospace Sector
158
INSIGHT: Roberto Corral, InnoCentro
159
VIEW FROM THE TOP: Kevin O’Shea, ACA
160
INSIGHT: Yousefh Pineda, Cramex Aerospace
161
VIEW FROM THE TOP: Beatriz Aguilar, Axon’ Interconex
162
VIEW FROM THE TOP: José Figueroa, Marposs México
163
VIEW FROM THE TOP: Gunther Barajas, Dassault Systèmes de México
164
INFOGRAPHIC: Solid Results for Commercial Aviation
166
VIEW FROM THE TOP: Miguel Cardona, Avianca
167
VIEW FROM THE TOP: Luis Alvarado, AeroUnion
168
MRO SPOTLIGHT: SAE: the Pleasure of Flying
141
| ANALYSIS
CLEAR SKIES AS INDUSTRY CONTINUES HIGH-FLYING WAYS Mexico’s aviation and aerospace industries reached new heights in 2018, with an increase in the value of aircraft component exports and record-breaking growth in passenger and cargo traffic. Both sectors will continue flying high thanks to growing demand for flight tickets and new aircraft but there are still challenges to overcome Rising global demand for plane tickets continues to underpin
tons of cargo handled, 2018 was the seventh year of record-
new aircraft orders. Despite a slight decrease in orders in 2018,
breaking growth in passenger traffic and fifth in cargo traffic.
both Boeing and Airbus maintain a healthy backlog for the
The domestic passenger subsegment was the most dynamic
coming years and project positive demand for commercial
for the country’s aviation industry with growth of 9.5 percent,
aircraft through 2037.
followed by international passengers with 5.6 percent.
“The world will need over 33,000 aircraft within the next 10
Together, Mexican airlines reached a solid 10.3 percent of
years and existing supply chains are unable to deal with this
aggregate growth in passenger traffic. Grupo Aeroméxico
significant demand,” says Eduardo Marín, CEO of TechBA
remains the most important player with market shares of 22.4
Madrid-Montreal and TechBA Aerospace. According to FEMIA,
percent of the country’s total passenger traffic (21.8 million
the Mexican aerospace industry achieved exports worth
people) and 12.8 percent of all cargo transported (117,094
around US$8.5 billion in 2018, a figure that is expected to
tons). Volaris held the second-largest share of total passengers
climb to US$12 billion by 2020. Luis Lizcano, Director General
transported with 17.5 percent (17 million passengers), followed
of the Federation, says Mexico is well on track to reach its
by Interjet with 14.3 percent (13.9 million passengers). While
goals and enter the Top 10 global aerospace suppliers by
these three airlines maintained their positions as the largest
export value by the end of 2020. However, there are gaps to
Mexican aviation players, Viva Aerobus beat them in terms
be filled and obstacles to overcome for Mexico to reach its
of growth, posting a 22.4 percent gain compared to 2017’s
true aerospace potential.
passenger traffic figures.
142
The Mexican aviation industry contributed 1.4 million jobs and US$37.1 billion to the country’s GDP in 2018
IATA projects a solid performance for Mexico’s aviation sector over the next 20 years, particularly in the segments of domestic connectivity and diversification of direct international connections. However, the association points to Mexico’s strained airport infrastructure as the main challenge that could put the brakes on the country’s aviation growth. The Mexico City International Airport (AICM), the country’s most
A study carried out by FEMIA and TechBA as part of FEMIA’s
important airport terminal, was originally designed to support
National Suppliers Development Program found several areas
32 million passengers; it reached a new level of saturation in
of opportunity for Mexican SMEs in composites and foundry
2018 when it catered to 47.7 million passengers and 581,675
components and a limited offering for highly specialized
tons of cargo. With a projected capacity to support traffic of
processes for the aerospace industry. Additionally, the
120 million passengers and 2 million tons of cargo per year
lack of quality management certifications and other entry
when completed, NAIM was former President Enrique Peña
requirements for the aerospace industry are among the
Nieto’s bet to alleviate AICM’s saturation. But its cancelation
most important challenges Mexican SMEs must overcome.
by the López Obrador administration puts pressure on the
According to the study, it is necessary to establish strategies
long-term growth of the aviation sector.
that strengthen SMEs in the areas of quality, financing and business culture within the aerospace industry.
Still, IATA maintains its growth projections for Mexican aviation. By 2037, Mexico could double its annual passenger
MEXICO’S AVIATION THRUST
traffic to 196 million people per year, create another 8 million
The Mexican aviation industry contributed US$37.1 billion to
aviation jobs and increase its aviation GDP to US$80 billion,
Mexico’s GDP and 1.4 million jobs in 2018, according to IATA.
as long as aviation-friendly policies are in place. But IATA also
Data from DGAC shows that Mexico’s commercial aviation
warns that the absence of NAIM will lead to a shortfall in
industry achieved solid growth rates of 7.6 percent and 12.8
capacity of 20 million passengers per year in 2035 that is yet
percent in passenger and cargo traffic, respectively, in that
to be covered and could lead to losses of US$20 billion out
same year. With 9.3 million people transported and 909,763
of the country’s GDP by 2035.
VIEW FROM THE TOP |
STABLE DEMAND WILL LEAD TO CONTINUOUS GROWTH LUIS LIZCANO Director General of FEMIA
Q: How close is the country to reach Pro-Aéreo’s goal to
FEMIA created a national program for the development
rank among the Top 10 aerospace suppliers by 2020?
of aerospace suppliers with three phases. The first is the
A: The industry has grown significantly in the last few
identification and quantification of supply gaps in the sector
years. Preliminary data indicates that the local aerospace
and at this stage we have identified annual opportunities
industry registered over 13 percent growth in 2018, from
for over US$630 million in several technological areas.
about US$7.6 billion in component production in 2017 to
The second phase, which was implemented in 2018 in
US$8.6 billion. Few industries grow at a double-digit pace.
collaboration with TechBA, was the identification of potential
For that reason, I am certain that Mexico will enter the Top
suppliers in related fields. We evaluated more than 400
10 global aerospace suppliers by the end of 2020.
companies and we are characterizing their capabilities. Once we have this data, the final phase will be to match demand to
In the first Pro-Aéreo, we had calculated a much higher figure
potential suppliers. This is a complicated matter as contracts
for employment, which was inadequate given that aerospace
in the aerospace industry are extremely complex. We have
operations require a smaller workforce than other sectors.
not officially started the third phase but we are having some
However, these individuals require much more training and
early results and have assigned contracts worth US$37
specialization so their jobs have more responsibilities and
million to 15 Mexican suppliers, many of them SMEs and most
higher pay. We are working with INEGI and the Ministry of
of them with a Mexican capital origin. After implementing
Economy to create a detailed plan to measure how many jobs
this plan, we realized that we needed to work more toward
the aerospace sector creates. By 2020, we expect the sector
having suppliers ready as there was a gap in the capabilities
to employ around 70,000 individuals, up from the 55,000
of these companies and the demands of the sector.
direct jobs we estimate the industry generated by 2018. Q: What opportunities do you see for the Mexican Q: How important is the aerospace industry to the
aerospace sector and how can foreign competition impact
development of the Mexican economy?
its development?
A: The country continues to receive FDI projects, although
A: The aerospace sector welcomes competition. As the
they have been somewhat delayed due to the change in
sector operates at a global level, a company in Mexico
administration and the USMCA negotiations. However,
competes with those in the US, eastern Europe and Asia.
investments in the aerospace sector are often planned
Between 90 and 95 percent of Mexico’s aerospace industry
years in advance and they will continue despite any short-
focuses on commercial and civil aircraft, a sector that could
term circumstances. We do not have exact data to calculate
be subject to migration toward Asia because the region is
the impact of the aerospace industry on Mexico’s GDP but
experiencing growing demand for these flights. However,
as the sector continues to grow, we are certain that it is
once a company enters the sector it can supply many
increasingly playing a bigger role in the country’s GDP.
other countries besides Mexico. While Asia is expected to eventually surpass North America in flight demand, this
Q: How is FEMIA addressing the main gaps in the Mexican
is unlikely to have a strong impact on the industry, which
aerospace supply chain?
would not be the case in other sectors like automotive,
A: The Mexican aerospace supply chain has significant gaps
where end-product logistics play an important role.
in metal-mechanic capabilities, including sector-specific casting and forging. The sector also has a need for other special processes specific to the industry. Our goal is to
The Mexican Federation of the Aerospace Industry (FEMIA)
identify companies that can satisfy this demand and bring
is a private, nonprofit organization. Its main objective is to
them to Mexico. Another goal is to consolidate the local
group national and foreign companies that operate in Mexico’s
supply chain to then focus on exports.
aerospace industry to generate synergies and positive leverage
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| VIEW FROM THE TOP
A PIECE OF MEXICO IN EVERY PLANE CARLOS ROBLES Vice President of Bombardier Aerospace Mexico
144
Q: How has the executive aviation sector reacted to
Global 7500 program but in 2019 our job will be to consolidate
Bombardier Aerospace’s new Global 7500 plane?
our component production for this aircraft. Taking this step
A: Global 7500 received its airworthiness certificate in
means increasing the efficiency of Bombardier Aerospace’s
September 2018 and entered service three months later.
Queretaro operations, developing the support capabilities for
Since then, this plane has set new speed records for business
any production rhythm the market demands and improving
aircraft, covering the London-New York route in 5.5 hours
our current processes to create better opportunities in
and Los Angeles-New York in four hours. This project was
the future.
originally launched as Global 7000 but its innovative wing design and other features increased its range by 500 nautical
Q: How important are Bombardier Aerospace’s Mexico-made
miles and prompted the company to launch it as Global 7500.
components for the company’s aircraft lineup?
Bombardier projects demand at 8,300 new business aircraft
A: Bombardier Aerospace Mexico has focused mainly on
toward 2025. We expect this plane to capture a meaningful
supporting Global 7500 as it leaves the project phase and
share of this segment, which will translate to growth for
becomes an aircraft production program but all Bombardier
our Mexico operations as more fuselage components and
Aerospace business and commercial aircraft have Mexico-
harnesses are needed. Project cycles in the aerospace
made content from Queretaro. This is also the case for the
industry tend to be long, which is why the entry to service
Airbus A220 that has doors manufactured in Mexico. We have
and first deliveries of the Global 7500 are key milestones for
some smaller projects focused on changing the configuration
our operations.
of executive and commercial aircraft that are already in service, such as the Challenger 350 and CRJ Series. The new
The aft fuselage and all electric harnesses of the Global 7500 business jet are produced at Bombardier’s facility in Queretaro
Atmosphère cabin of the CRJ Series comes with a larger
Q: What does this mean for Bombardier Aerospace Mexico’s
for sale under the Airbus brand. The main reason behind
operations?
this step was the challenge Bombardier faced in the areas
A: Bombardier Aerospace Mexico had a very good 2018.
of marketing and aftersales service. Airbus is a much larger
Thanks to our local collaborators, we delivered great results.
OEM than Bombardier and has solid distribution channels
Financially, it was one of the best years for our Queretaro
and aftersales service, as well as strong marketing capacities.
business class that requires new components and harnesses produced in Queretaro. Q: How will the joint venture between Bombardier and Airbus in the A220 program impact Bombardier’s Mexico operations? A: Bombardier and Airbus created a joint venture for this program, which resulted in the C Series being renamed A220
operations, which projects credibility and stability for the company. We support the production of the Global 7500
This partnership helped Bombardier gain leverage in
from our Queretaro facility, where the aft fuselage and all
negotiations to supply aerospace components. As the
electric harnesses for this business aircraft are assembled.
A220 is an Airbus production program with a larger consumption volume, Bombardier has the possibility to
The new challenge for Bombardier Aerospace Mexico is to
supply a much larger volume of components. The changes
ramp up production to meet international demand for the
in this program have also pushed Bombardier to offer more
Global 7500. Our operations had been mostly focused on
competitive prices, which forces us to reduce our costs
creating prototypes and advancing the development of the
and deliver a more attractive offering. Several significant
orders for the A220 were placed after the joint venture between Bombardier and Airbus was announced. For instance, United Airlines has placed an interesting order for this aircraft program. This has had a positive effect on Bombardier Aerospace Mexico because it means a greater demand for Mexican content.
The partnership between Bombardier and Airbus in the A220 program brings new opportunities for Bombardier’s Mexico-made content
Q: How on track is Mexico to enter the Top 10 global aerospace exporters ranking by value?
While it is advantageous that automotive companies have
A: FEMIA’s goal for Mexico is to reach US$12 billion worth
already reached a solid production level, earning the necessary
of aerospace exports by 2020. Since no aircraft are built in
certifications for the aerospace industry requires significant
Mexico, growing exports means that more Mexico-made
investments coupled with lower production volumes and
content will be part of aircraft assembled abroad. Bombardier
much longer payback times. Supplying for several OEMs is a
Aerospace Mexico is working with FEMIA to locate, on one
way for companies to reach greater production volumes and
side, the capacities of local companies that could be useful
develop the critical mass necessary to justify the investment
to the aerospace industry and, on the other side, demand for
needed to become a certified aerospace supplier.
these capacities. The main goal of this project is to create matches between existing demand and potential suppliers
Q: What challenges and opportunities can the Mexican
based in Mexico.
aerospace industry expect from the new trade environment in North America?
At the same time, foreign companies have approached FEMIA
A: USMCA will not have a meaningful commercial impact on
looking for help to identify potential suppliers in Mexico or
the Mexican aerospace industry but it establishes a basis for
for support to land their operations in the country. These
dialogue between Mexico’s aviation authority DGAC and its
processes attract FDI to the country and make it easier for
US and Canadian counterparts, which could have an indirect
newly arrived companies to land their operations. FEMIA works
and positive impact on the sector. Some logistics matters on
with aerospace companies to consolidate demand volumes so
the handling of chemicals are addressed in this agreement,
local suppliers gain access to better business opportunities.
which may work to the advantage of the aerospace industry.
Collaboration of regional aerospace clusters with FEMIA and
The US is the largest aerospace market in the world and
private companies is a source of synergies that promote the
several US companies are interested in procuring components
development of the Mexican aerospace industry.
in Mexico. This is not only due to a more competitive cost but also the high quality and added value that Mexican aerospace
Q: What are the main gaps in Mexico’s aerospace
suppliers can deliver.
supplier base? A: The country has more or less covered the Tier 1 and Tier 2
Q: What policies should the new federal administration put in
levels but there is a huge need to develop Tier 3s and Tier 4s
place to promote growth of the Mexican aerospace industry?
to strengthen the supply chain. Mexico needs to fill several
A: The Mexican aerospace sector needs to remain in
gaps in the areas of raw materials, forged and foundry
contact with the government, which is FEMIA’s main role.
components and local production of composite materials,
The federation has been in direct contact with President
including carbon fiber. However, the most important
López Obrador since his first event as president-elect. It is
gaps are in the area of special treatments for aerospace
paramount for us to raise awareness about the needs of
components, such as coatings, painting and some chemical
the Mexican aerospace industry and find ways to continue
surface treatments like nickel-plating. Mexico also has a
generating jobs and promoting growth of the Mexican
pressing need to develop its foundry component offering
economy. As representatives of the sector, we must educate
for the aerospace industry to continue supporting the area
public officers of the new administration on the importance
of machining and laminating processes, which is relatively
of our sector. This entails showing what aerospace products
developed in Mexico.
are manufactured in Mexico, the export levels the industry has achieved, their role in the Mexican economy and the number
Q: What are the main challenges that Mexican suppliers
and type of jobs that this sector creates.
must overcome to become more competitive in aerospace activities? A: The main challenge is the lack of necessary quality
Bombardier is an OEM that builds high-speed and public transit
certifications. There are several Mexican automotive
trains, as well as executive and commercial aircraft through
companies that have an interest in diversifying into the
its Bombardier Aerospace division. With 68,000 employees
aerospace industry but these are radically different sectors.
worldwide, the company is a global leader in transportation
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AVIATION GROWTH DRIVES LOCAL MRO OPERATIONS JESÚS NAVARRO CEO of Mexicana MRO Services
146
Q: How did Mexicana MRO Services capitalize on the
A: Mexicana MRO Services has received 19 country
growth of Mexican aviation in 2018?
aeronautics certifications, including FAA and EASA, that
A: In 2018, Mexicana MRO Services exceeded significantly
enable the company to service aircraft from countries
its sales results of 2017 without increasing the size of
that include the EU, Mexico, the US, El Salvador, Brazil,
its hangar at AICM. By improving our MRO processes
Bolivia, Argentina and Cuba. Latin America remains the
and adding new capabilities, we increased sales by 19
most important market for Mexicana MRO Services. We
percent and provided minor and major maintenance to
work with the flagship operators and top carriers of
more aircraft than before. Mexicana MRO also achieved
several South and Central American countries, including
the successful conversion of four Boeing 767 passenger
Brazil’s Azul Airlines, Colombia’s Viva Air and Avianca,
aircraft to freighter planes. Mexicana MRO Services has
Equator’s Tame, Chile’s Sky Airline, Bolivia’s Boliviana
signed the agreements necessary to start converting
de Aviación and LATAM Airlines, which has operations
the new generation of Boeing 737-700 and 737-800
in Chile, Brazil, Argentina, Peru and other countries. In
passenger planes to cargo aircraft. We have improved the
Mexico, we offer support to the four most important
tools in our shop, adapted storage and production control
airlines: Aeroméxico, Interjet, Volaris and Viva Aerobus.
points and offered new training to our staff so Mexicana MRO Services can convert its first B737 in April 2019.
Q: What is Mexicana MRO Services’ strategy to differentiate from other MROs competing in the
Mexicana MRO Services’ shop in Mexico has operated continuously for 98 years
Mexican market? A: We have several business lines that client airlines do not usually have in-house or cannot find in a single MRO. These include services such as line maintenance, major maintenance for both wide-body and narrow-body aircraft, conversion of both bodies from passenger to freighter plane, aircraft painting, total or partial repairs and testing of some aircraft components. There is no other MRO in Latin America that offers all these services,
Q: What prompted Mexicana MRO Services to start offering
which makes us a one-stop solution for potential client
B737 passenger-to-cargo conversions?
operators. We can provide maintenance for the Airbus
A: Our decision resulted from the rising demand for freighter
A320 and A330 families, the Boeing 727, 737, 757 and
planes to cover short and medium-haul cargo operations.
767 series and to Bombardier CRJ200 and Fokker 100
Smaller freighter planes allow for more efficient cargo
aircraft. In addition, we are the only aircraft shop in
distribution over short distances and have become the
Mexico that has offered maintenance services for 98
second-largest segment in cargo aircraft.
years continuously. We hold 19 aeronautics repair-station certifications. This broad experience is a competitive
Q: What are the main target markets for Mexicana MRO
advantage that no other MRO in the Mexican market
Services’ solutions?
can offer. Mexicana MRO Services is collaborating with the Mexican
Mexicana MRO Services provides line and major maintenance
federal government to earn the shop certification of the
and aircraft conversions for Airbus, Boeing, Bombardier and
Canadian aviation authority. There is no shop in Latin
Fokker aircraft, as well as aircraft painting and component
America that is certified to service Canadian aircraft and
repairs. It was the first MRO to join ALTA
in 2019, we expect to become the first.
147
MRO Services, AICM, Mexico City
Q: What are the company’s main growth expectations and
A: For the Mexican aviation industry to grow, it is necessary
expansion plans for 2019?
that leisure and business tourism grow as well. As long as the
A: 2019 will be a transformational year for Mexicana MRO
Mexican economy expands and business remains good, the
Services. The company has set itself the goal of growing
aviation industry and Mexicana MRO Services will continue
around 10 percent in 2019 in terms of sales and serviced aircraft.
to prosper. More business opportunities translate to greater
We will focus on capitalizing on the potential opportunities
demand for flight tickets, which prompts airlines to increase
that originated as a result of the new government’s policies.
their operations and incentivizes the purchase or leasing of
Despite the challenges resulting from AICM’s saturation, we
new aircraft by operators. This, in turn, spurs demand for MRO
grew 10 percent in January and February 2019 compared to
services.
the previous year thanks to the optimization of our production processes and the adoption of new technologies. We also plan
Q: What are the main differences between airline and
to relaunch maintenance for the Bombardier CRJ200 aircraft.
independent MROs? A: Being an independent MRO poses more challenges than
Q: How will the simultaneous operation of a new airport in
the in-house MROs of airlines are used to facing. MROs like
the Santa Lucia military base, AICM and the International
Delta-TechOps or Interjet MRO Solutions have a percentage
Airport of Toluca (AIT) impact your operations?
of their operations secured because they are the go-to MRO
A: The construction of a new airport in Santa Lucia and the
for their parent airlines’ aircraft. These companies only need
simultaneous operation with AIT has little direct impact
to attract outside aircraft to complement the remaining share
on Mexicana MRO Services’ operations. The saturation of
of their maintenance operations. Independent MROs need to
AICM, however, poses several challenges for us because we
attract 100 percent of their customer base.
are based in that airport. The lack of slots at AICM makes it difficult for Mexicana MRO Services to conduct test flights or
Q: What milestones have been reached toward solving the
clear and send off aircraft that have completed maintenance.
conflict between defunct carrier Mexicana and its union?
These planes must often stand and wait until 3am for the
A: As a former business unit of Mexico’s defunct flagship airline
control tower to assign them a slot and clear them for takeoff.
Mexicana de Aviación, Mexicana MRO Services is currently for sale. The resources obtained from this transaction will be used
Q: What are the main factors that will boost growth in the
to pay former Mexicana de Aviación workers, including the
Mexican aviation sector?
pilots’ and flight attendants’ unions.
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DIFFERENTIATED SERVICES ALLOW FOR BALANCED PORTFOLIO ALEJANDRO ROSAS Managing Director LATAM at Haskell
148
Q: What is Haskell’s value proposition for the
engineers to see the manufacturing process as it would
aerospace sector?
occur in real time.
A: We entered the Mexican aerospace sector through some key clients that wanted to protect their investment by working
Q: How will Haskell capitalize on its experience in the food
with a constructor that could provide them with a problem-
and beverage sector to expand into the aerospace industry?
free plant. Haskell might not be the least expensive company
A: Haskell is the Top 1 firm in the food and beverages sector,
to work with but no company cares more than we do about
a Top 5 green manufacturing company, among the Top 30
customer experience. We have worked with one of the largest
designers in the world and in the Top 7 for sea construction.
aerospace suppliers for over 20 years. We built many plants
Haskell’s main strength is its employees and we ensure they
for that company in Mexico and the US and we are now in
have the best available working conditions. Haskell has been in
charge of the construction of its third plant in Mexico.
Mexico for 20 years and has not had a fatal accident in 10 years due to its strong safety protocols. The food and beverages
Our differentiator is the service we provide to our clients.
sector has remained stable over these years and continues to
The company is fully focused on generating comprehensive
grow steadily, unlike sectors more prone to ups and downs,
technical documents. Working with the aerospace and the
such as aerospace, automotive, metals and pharmaceuticals.
pharmaceutical sectors requires high precision, constant
Eighty percent of the company’s revenue comes from the
communication throughout the manufacturing plant, many
food and beverages sector, while the remaining 20 comes
clear rooms and a minimum amount of waste. Few companies
from aerospace, automotive, metals and pharmaceuticals.
can offer the same levels of quality that Haskell can. Moreover,
The former will continue to be our core, but we are looking
all projects delivered in Mexico are reviewed by our US arm.
to balance our portfolio by growing in our other industries.
Q: What technology trends have you identified in the
The aerospace sector is among the niches we will focus on the
aerospace market?
most. We expect the aerospace sector to represent 15 percent
A: We expect Mexico’s aerospace industry will continue
of Haskell’s profits in Latin America. In Mexico, we have good
growing and eventually the country will be capable
relationships with FEMIA and other players in the sector, so
of assembling its own aircraft. This opens interesting
we expect this area to continue growing.
opportunities for Tier 1 companies with high-tech requirements for their plants. We employ our Virtual
Q: What are Haskell’s growth expectations for Mexico and
Construction Group, an operational line that focuses on
Latin America?
technology generation, to comply with these demands.
A: We expect to close 2019 with US$2 billion in revenue,
This division has created innovative software for the use of
which would be a 100 percent increase compared to our 2018
drones, which are now replacing topographic crews. These
results. Half our revenue will come from company acquisitions
drones also monitor all equipment operations. Our software
and the other half from organic growth. Haskell is growing
can also calculate with a single click all the supplies required
and entering new markets; we now have clients in the retail,
to build a manufacturing plant. One of our divisions handles
automotive and aerospace industries. We believe that Mexico
virtual simulations of manufacturing facilities, allowing
will go from 80 percent of revenue for Haskell LATAM to only 50 percent revenue as we expand our markets in other countries in the region. In the next two or three years, we
Haskell was founded in 1968 as a company specialized in food
hope to double or triple our revenue for the entire region. The
and beverages but expanded its capabilities to other sectors. It
first expansion phase will be to Panama and Ecuador and the
is now recognized as the leading general contractor in the US
second to Argentina, Paraguay and Uruguay, although Mexico
and one of the world’s largest industrial construction businesses
will remain a pillar for the region.
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NEW BUSINESS STRATEGY FOR EXPANDING MEXICAN FBO JUAN JOSÉ SIMÓN Director General of SAE
Q: How did SAE’s hangar operations perform last year?
dispatch and attention to clients cannot be matched by
A: Until 2018, hangar space demand was higher than it is
our competitors and our experience allows us to anticipate
today. The market has changed and FBOs must adapt to
these needs and provide the best possible service. In 2017,
growing competition and innovate in customer service.
we performed over 12,000 operations for an average of 33
SAE’s focus is to create personalized experiences for our
operations per day. This is not a challenge due to the size
customers. This has helped us maintain stable operations
of our platform, which allows us to perform up to seven
throughout the years. Our company’s core business relies on
operations simultaneously. This is a strong competitive
our newly refurbished fixed-based operator hangar, which
advantage.
handles around 15,000 operations a year. We pride ourselves on being the largest FBO at Toluca International Airport. Q: How is SAE growing its business after 30 years in the market?
SAE performed 12,000 operations in 2017
A: We have invested in the company’s infrastructure, expanding our fleet for jet rental services and increasing
Q: What are SAE’s expectations for 2019?
hangar capacity. We have also invested in a new and modern
A: We want to maintain our in-house clients and we are
maintenance facility. In terms of space, we have a combined
making significant efforts to attract more customers from
hangar capacity of over 8,700m and we have expanded
abroad. Our objective is to grow the number of clients
our ramp space to approximately 7,000m2, giving us more
coming from abroad by 5 percent. This objective may be
efficient ground operations. We store over 45 aircraft and
hard to reach because there is greater competition but
have 12 more under management.
we believe that with the service we offer we will achieve
2
this goal. Our business has always included aircraft storage, traffic and dispatch, air taxi rentals and aircraft management but we
Q: What elements could boost SAE’s performance
are starting a new business: a fractional model that works
as an FBO?
as a time share for airplanes with several customers. Aircraft
A: When it comes to general aviation, Toluca is among the
ownership costs are exceedingly high but we have found
largest airports in the world and Mexico’s most important
customers that find value in dividing these costs between
airport for private aviation. Because our customs offices are
multiple partners. This helps in lowering cost per flight hour
saturated, flights tend to be delayed, which means that part
and makes the service more attractive to our customers.
of the attraction of having an executive airplane is diluted since our clients must arrive with a lot of time to spare or
Q: What is the typical profile of SAE’s clients?
they may have to stand in line. The best way to approach this
A: SAE’s operations are focused both on business and
would be for FBOs to have their own customs offices, just
pleasure. Our international clients usually come to Toluca
like in the Acapulco and Monterrey airports. This strategy
for business. Nevertheless, we have noticed that our number
would boost the Toluca International Airport’s position as a
of daily operations increases during the weekends to the
leader in private aviation.
most popular cities and beach resorts. Q: What strategies is SAE implementing to remain the best
Servicios Aéreos Estrella (SAE) is a Mexican FBO and MRO
option for its clients amid increased competition?
based at Toluca International Airport (AIT) with over 30 years
A: We are betting on our experience and human talent.
in the Mexican market. In 2016, the company invested in a
The service provided by SAE in platform, ramp, traffic,
4,000m2 platform and relocated its offices to AIT
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AEROSPACE CLUSTER STRENGTHENS SME CORE JUAN CARLOS CORRAL President of Queretaro Aerocluster
150
JOSÉ ANTONIO VELÁZQUEZ Managing Director of Queretaro Aerocluster
Q: How has the country’s talent shortage impacted
Q: How is the cluster helping SMEs adapt to the needs of
Queretaro’s aerospace industry?
the global aerospace industry?
A: The strong and sustained growth of aerospace companies
A: With the help of the Queretaro State Ministry of
based in Queretaro led to an increasing need for specialized
Economic Development, we have channeled resources
and highly trained people for manufacturing, MRO, design
to assist local SMEs mainly with training in several areas
and engineering activities. UNAQ and other public and
of expertise, such as quality certifications, quality tools,
private universities are supplying engineers that in some
advanced manufacturing, nondestructive testing, human
cases require further training. At the same time, companies
capabilities and Industry 4.0.
are attracting experienced talent from other industries, such as automotive and metal-mechanic. An important number
Less than five years ago, the vast majority of our companies
of technicians are coming from other states as well, not
were large international businesses coming mostly from
only because of the job opportunities available but because
Europe and North America. In 2019, more than 50 percent of
Queretaro offers a good quality of life that is not available
our companies are SMEs from Mexico and other countries,
in other cities.
mainly specialized in manufacturing, special processes, MRO services, design and engineering.
However, talent demand forces companies in Queretaro to hire people with higher salaries than what they
Q: How is Queretaro Aerocluster working with fellow
get in their current jobs, which causes salary inflation
aeroclusters, local governments, FEMIA and the federal
that clearly impacts the competitiveness of the local
government to promote the consolidation?
aerospace sector.
A: We are working on very specific activities with clusters in northern Mexico and sharing good practices with them.
Q: What new collaborations is Queretaro Aerocluster
We are constantly connecting opportunities between
establishing with academic institutions such as UNAQ to
companies that belong to different clusters. With FEMIA,
boost the development of aerospace talent?
we are sharing information and supporting initiatives that
A: This year we are launching one of our most ambitious
benefit us and its members. We believe that we have
projects yet: a major initiative called ON BOARD, which
complimentary goals, us as cluster working at the state
consists of three key activities. The first is to develop a
level and FEMIA having a broader reach. We hope this
communication strategy that will allow us to reach the local
relationship becomes more proactive in the years to come,
community to present a wide variety of job opportunities
considering the great opportunities ahead. Competition can
for students and workers. The second is to provide an
only take us so far but collaboration will take us even further.
online tool that will give users a better understanding of the training opportunities available at several academic
Q: What are your main growth expectations for the Mexican
institutions and research centers. Finally, we are planning
aerospace industry in 2019 ?
to develop a strategy to communicate and reward success
A: The state’s aerospace sector will continue growing at a
stories to help us motivate younger generations to become
double-digit rate, attracting more FDI and strengthening
part of our accomplishments.
local companies, especially SMEs. We foresee the development of new strategies at a federal level that will help to align efforts in terms of public financing, scientific
Queretaro Aerocluster promotes the sustainable development
and technological development. Similarly, we expect to
of the aeronautical and space industries in Queretaro. The
see broader support for clusters, which would allow the
cluster
continuation of ongoing projects and activities to benefit
brings
together
aerospace
companies,
centers, academia and government institutions
research
our members.
VIEW FROM THE TOP |
CONSOLIDATING NUEVO LEON’S AEROSPACE CAPABILITIES ROGELIO CISNEROS President of Monterrey Aerocluster
CLAIRE BARNOUIN Executive Director of Monterrey Aerocluster
Q: How has Monterrey Aerocluster promoted the
CB: There is no federal policy that requires foreign aerospace
certification of aerospace companies in Nuevo Leon?
investors to engage in supplier development, integration of
CB: In 2018, Monterrey Aerocluster offered auditing
local content or technical training for locals. Such a policy
training on the AS9100 quality norm for the aerospace
would have a positive effect on the development of regional
sector that was well-received. 2018 was a year of transition
aerospace value chains. A project to create a public sector-
from AS9100 to the new AS9100 Revision D, so several
specific fund that supports Mexico’s aeronautics industry
companies were interested in updating their certifications.
would also be an advantage. There is a similar fund that
We also worked closely with the US FAA to certify three
supports research, technology development and innovation
MRO shops based in Nuevo Leon. These companies
for the space sector, despite Mexico having a small
received the 14 CFR Part 145 certifications, which allows
participation in the development of space components,
them to service US aircraft.
but there is nothing of the sort for aerospace production.
Q: What strategies is Monterrey Aerocluster implementing
RC: The government must implement a policy to level
to boost local aerospace companies?
Mexico’s aerospace trade balance. There is a significant
RC: Special chemical finishes, thermal treatments and
trade deficit for this sector but no government-backed
other services that fall under the scope of metal finishes
project that requires aerospace companies to develop the
are the most important gaps. This challenge prevents us
capabilities of local suppliers.
from producing more machined or sheet metal components in Nuevo Leon. Certifications needed for some of these
Q: What milestones has Monterrey Aerocluster reached in
processes are an area of opportunity that local companies
its collaboration with local academic institutions?
have not yet developed. Monterrey Aerocluster plans to
CB: Monterrey Aerocluster opened new offices at the Center
launch a new initiative to help members close this gap
for Research and Innovation in Aeronautics Engineering
before the end of 2021.
(CIIIA) of the Autonomous University of Nuevo Leon (UANL). Having a direct presence at the center fostered
Aside from supporting technical training for certifications,
greater participation between UANL and Monterrey
Monterrey Aerocluster also offers a series of seminars to
Aerocluster’s work committees and enabled us to organize
help SMEs meet potential buyers and to attract more metal-
more matchmaking events for suppliers and clients. We have
mechanic companies to the aerospace sector. Our objective
also collaborated with ITESM in entrepreneurial areas, such
is to develop a solid supplier base that consolidates Nuevo
as the definition of a strategic plan for our manufacturing
Leon’s manufacturing capabilities.
work committee, as well as with the Monterrey University and the Regiomontana University to a minor extent.
CB: Monterrey Aerocluster saw its membership grow with 12 new companies. These are metal-mechanic companies,
That being said, our cooperation with academic institutions
thermal treatment suppliers, manufacturing companies
is more with technical schools. Monterrey Aerocluster works
and MRO services for executive aviation. Some of our new
with CONALEP, CECATI and CBTIS, all of which graduate
members do not target the aerospace sector directly but
technicians in areas such as tooling and machinery.
are interested in improving their production processes, which is one of the advantages of being part of Monterrey Aerocluster.
Monterrey Aerocluster is a nonprofit organization that promotes the development of the aerospace sector in Nuevo
Q: How can Mexico’s new federal administration support
Leon. It works to incorporate local suppliers into the national
the development of the aerospace sector?
and international aerospace value chains
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INTEGRATION, SPECIALIZATION: KEY STRATEGIES FOR AEROSPACE CLUSTER RENE ESPINOSA President of the Chihuahua Aerospace Cluster
152
Q: Boeing and Airbus project solid growth in sales and
We expect the Mexican aerospace industry to continue
deliveries of commercial aircraft. How can the country
growing at a double-digit rate in 2019. Chihuahua Aerospace
harness this demand?
Cluster is adding value to the national industry and helping
A: The biggest challenge we face as a country is supply chain
in the development of the sector as a whole. Our main
integration and development. Mexico faces an inverted supply
competitors are not other regions in Mexico; we are one
chain pyramid problem, meaning that we have the presence
big cluster competing with outside regions, such as North
of OEMs and Tier 1 companies but we need a more robust
Africa, Asia Pacific and Eastern Europe.
supplier base with different capabilities. We must continue supporting and developing local SMEs to close the gaps in
Q: How has Chihuahua’s appeal as an aerospace
the supply chain. Foreign SMEs are starting to look at Mexico
destination evolved?
as a region with constant growth. Over 50 percent of Europe
A: We now have heat-treatment capabilities, as well as hot
and North America’s workforce will retire in the next five years,
isostatic pressing (hipping) and metallographic analysis
forcing key players in the aerospace industry to expand or
through local SMEs. We continue developing our machining
develop suppliers in countries like Mexico.
capabilities among many small players, all of them AS9100 certified. At the same time, we have a Tier 1 established in the
Q: How have the cluster’s initiatives to promote the
region that is now developing capabilities for the fabrication of
development of the local supply chain advanced?
composites, which will help to develop new technologies such
A: This is a priority not only for the cluster but also for FEMIA
as ultrasonic testing (UT) inspection. These new capabilities
at a national level. We are supporting the National Supplier
will strengthen the national supply chain, which will allow
Development Program, which started two years ago. We
companies to deploy and relocate new production lines in
have identified companies that are already established in
the region. This growth also introduces new opportunities for
the region and local SMEs with the capabilities to serve
foreign suppliers to invest in the country and fill gaps in areas
the industry’s needs and have the desire to participate
such as forgings and castings. Recently the fDi Aerospace
in the aerospace supply chain. We have also signed
Cities of the Future 2018/19 Outlook recognized Chihuahua
important collaboration agreements and coordinated
as one of the Top 5 cities with the best FDI strategy and one
important agendas with renowned international clusters
of the Top 10 for best cost-effectiveness in the world.
and organizations, such as GIFAS in France and ACstyria Mobilitätscluster in Austria.
Q: How does Chihuahua complement the aerospace capabilities of other states in the north of Mexico and in
Q: What are the main gaps in the North American
the Bajio region?
aerospace supply chain?
A: Each region has developed its own capabilities and
A: There are gaps in the sub-tier levels of the supply chain,
specialization over the past 10 years. Chihuahua specializes
including secondary services. Mexican companies need to
in interiors, engines, aerostructures and sheet metal parts,
take advantage of these gaps and continue diversifying
composites, safety and evacuation equipment, machining,
their certifications to meet not only North American market
thermal and surface treatments, NDT services, engineering
needs but European needs as well.
and design. These are essential to the national supply chain and complement the needs of all other states participating in this sector. For instance, we process parts in Chihuahua
The Chihuahua Aerospace Cluster has over 40 members,
that have been machined in Hermosillo, Queretaro, and
including five OEMs. The state receives over US$1 billion in
Monterrey; this integration and codependency among
local and foreign investment and exports over US$1.5 billion
regions is helping Mexico to gain new projects and continue
annually across all sectors
growing in the aerospace sector.
VIEW FROM THE TOP |
NEW ENTITY CONSOLIDATES SUPPLIER DEVELOPMENT STRATEGY ENRIQUE RUIZ Director General of ProSonora
Q: How has the Sonora aerospace industry developed over
workforce training. ProSonora runs an aerospace vocational
the past two years and what will be the role of the newly
school in Hermosillo and coordinates with other institutions
created ProSonora office in boosting the sector’s growth?
outside this city to ensure that companies have access to the
A: We experienced sustained growth in the aerospace
skilled personnel they require. We also support companies
industry for those two years. With 65 aerospace companies,
in accessing programs and funds available from various
Sonora enjoys a large and diversified base of aerospace Tier
federal and state entities like CONACYT and INADEM. Lastly,
2 suppliers. Most of these companies enjoyed a significant
as coordinators, we act as a focal point for networking and
increase in business, which was a direct response to the
communication between companies located in several key
increase in production at their OEM clients. Growth has
production centers in Nogales, Hermosillo and Guaymas. A
also come from major investments announced in the last
scattered supply chain provides several benefits, including
two years that are now reaching their operational stage. In
limited competition for skilled labor. However, it also presents
late 2017, for example, Sonora received a 400-employee
challenges in terms of coordination.
facility from AT Engine Mexico. The facility is focused on the production of highly complex components for GE Aviation’s
Q: How have Sonora’s manufacturing and MRO
LEAP engine that is now in its initial steps toward production.
capabilities evolved? A: Dozens of new processes and several sophisticated pieces
ProSonora was formed from the merger of three entities
of equipment have been implemented at our companies.
at Sonora’s Ministry of Economy — the Sonora Industrial
Ellison Surface Technologies, for example, implemented a
Park System, the Economic Development Commission and
second Vapor Phase Aluminizing (VPA) coating machine,
the Council for the Economic Promotion of Sonora — that
which is a diffusion coating process for the protection of
previously worked, in one way or another, for the development
turbine components against corrosive and hostile operating
of local companies and the attraction of new investments.
conditions. Ellison Surface Technologies is the only third-
By bringing together these entities under a single roof and
party supplier in Mexico capable of providing this service.
under the management of the ministry, we can offer a more
Meanwhile, Shimtech Composites has fired up the largest
comprehensive approach and better coordination to investors
autoclave in Mexico destined for aerospace components,
and local companies. With SMEs, for example, we are now
which will open the possibility to manufacture the largest
better equipped to match our support programs for these
composite components ever made in this country.
companies with the needs of the local aerospace industry, which is in line with our aerospace development roadmap.
AT Engine is clearly a major milestone in the development of our aerospace capabilities. GE Aviation, after much scrutiny,
Q: What is ProSonora’s role in supporting the development
decided to outsource critical components for the production
of the aerospace sector?
of the LEAP engine to AT Engine, including blisks, high-
A: Our strategy is based on three pillars: promotion, facilitation
pressure turbines and high-pressure compressor spools. These
and coordination. Promotion is not limited to the attraction of
components are so complex that GE Aviation developed its
new investments. ProSonora creates several opportunities for
own manufacturing processes and technologies. Sonora is
established companies in our region by raising their visibility
now the recipient of these technologies.
through our participation in the most important aerospace trade shows, as well as other promotional activities. ProSonora is the new government entity in charge of
Our role as facilitators allows aerospace companies to reach
promoting investment opportunities in Sonora. The office
out to our office to obtain support on matters regarding
absorbed the responsibilities of three offices of Sonora’s
competitiveness. We particularly focus on issues regarding
Ministry of Economy
153
| PROJECT SPOTLIGHT
154
MEXICANA MRO SERVICES: CARGO DEMAND SPURS TRANSFORMATION Growing freight aircraft demand for efficient short and medium-haul cargo operations has prompted independent MRO supplier Mexicana MRO Services to start converting Boeing 737-700 and 737-800 passenger aircraft into cargo planes. According to Jesús Navarro, CEO of Mexicana MRO Services, the company upgraded the tools at its shop, adapted its storage capacity and trained its staff to achieve its first B737 conversion in April 2019. These new capabilities are part of the company’s strategy to deliver a comprehensive service offering and become a one-stop solution for airline operators. With 98 consecutive years of experience in aircraft care, Mexicana MRO Services offers line and major aircraft maintenance services, plane repairs, passenger-to-freighter plane conversions, aircraft painting and testing of some components at its 92,505ft2 hangar at tAICM. “There is no other MRO in Latin America that offers all these services, which makes us a one-stop solution for potential client operators,” highlights Navarro. Mexicana MRO Solutions can service Airbus’ A320 and A330 families, Boeing’s 727, 737, 757 and 767 series, as well as Bombardier CRJ200 and Fokker 100 aircraft. After delivering its first converted B767 in November 2017, the company converted another four aircraft from this series in 2018 and is prepared to start converting Boeing 737 passenger planes into freighters. Its 19 aeronautics repair-station certifications, including FAA and EASA, are a testament to Mexicana MRO Services' quality. These certifications enable Mexicana MRO Services to serve aircraft from Mexico, the US, the EU, El Salvador, Chile, Brazil, Bolivia, Argentina and Cuba, among others. According to Navarro, Mexicana MRO is working with the Mexican government to earn a shop certification from the Canadian aviation authority and become the first MRO in Latin America to serve Canadian aircraft by 2019. Mexico’s top carriers Aeroméxico, Interjet, Volaris, and Viva Aerobus, as well as flagship operators and world-class airlines in Latin America such as LATAM Airlines, Brazil’s Azul, Colombia’s Viva Air and Avianca, Ecuador’s Tame, Chile’s Sky and Bolivia’s Boliviana de Aviación are among Mexicana MRO Services’ clients, along with several public entities, including Mexico’s Air Force and Federal Police and Colombia’s Air Force.
155
| VIEW FROM THE TOP
OPPORTUNITY DEPENDS ON SUPPLIER DEVELOPMENT SUCCESS EUGENIO MARÍN CEO of TechBA Madrid-Montreal & TechBA Aerospace
156
Q: How is TechBA supporting companies to take advantage
Our strategy is to work closely with states because we do
of growing opportunities in the aerospace sector?
not have the resources to target company by company. We
A: The world will need over 33,000 aircraft within the next
chose Aguascalientes and State of Mexico because those
10 years and existing supply chains are unable to deal with
states have strong industrial capabilities but no aerospace
this significant demand. In 2018, Mexico exported US$8.3
industry. We have now developed strategic war rooms to
billion in aerospace components and the sector continues
help companies pinpoint opportunities in the aerospace
growing at a double-digit rate. The country has a great
sector. We are also training them in other areas, including
opportunity to supply between 10 and 15 percent of the
quotations for the aerospace sector, cost-containment
components needed by aerospace OEMs within the next
strategies, regulations and supply chain development.
five years. To achieve this, FEMIA launched a Supplier Development Program to close gaps in the Mexican supply
Q: What role do clusters play in the evolution of the local
chain currently valued at US$650 million on a yearly basis,
supply chain?
which is significantly more than the US$50 million in
A: Cluster members are companies that are already selling
contracts the country had closed between January 2018
to the aerospace sector. We are working with companies
and March 2019.
that are not in the sector but could participate in it, filling niches in the existing supply chain and strengthening the
We are supporting FEMIA’s program by identifying
network of 300 aerospace companies in Mexico. Many
companies that can enter the local aerospace supply chain.
clusters are establishing their own supplier development
In 2018, we performed a diagnosis of the companies that
committees focused on specific specialties, such as
could participate in this initiative and we identified 180
machining. They are also forming strategies to better
possible suppliers. The goal is to increase the number of
promote their members. Clusters aim to specialize their
Mexico’s aerospace companies from about 300 to over 500
capabilities in ways that can complement those of other
in the next couple of years. We are now working to help 15
clusters and together offer a stronger value proposition
companies in Aguascalientes and 10 in the State of Mexico
for the global aerospace sector.
that operated in different sectors, including automotive, metal-mechanics, electronics and medical devices, to enter
Q: What is hindering the development of local design and
the aerospace sector.
engineering operations in aerospace? A: There are already excellent design centers in the country,
Q: How does TechBA identify potential suppliers for
such as GE’s that employs 2,000 engineers working in
the aerospace sector and what are the most important
turbine design. There is talent and quality education in
strengths and opportunities the company has identified
Mexico; what is missing is the infrastructure and software
in the Mexican supply chain?
necessary to engage in design and engineering practices
A: The main strength we have identified is human capital.
and employ more qualified talent, as some companies
Local companies have highly qualified employees but they
consider the initial investment in technology to be very
lack quality processes, design, engineering, systems, digital
high. It is necessary to change the corporate culture so
tools and certifications.
companies can start developing their own technology locally. This will be a slow process as Mexico is at an early stage in terms of the aerospace industry and most of its
TechBA is a technology business accelerator for SMEs in different
manufacturing capabilities follow blueprints developed
sectors, including aerospace, automotive, pharmaceutical and
by other companies. Few players have the capability to
agrifood. TechBA opened an aerospace division in 2008 and
improve and change the given designs and create added
works closely with FEMIA to promote the sector’s development
value for clients.
INFOGRAPHIC |
SOARING AEROSPACE SECTOR Mexico's aerospace sector has grown steadily for several
42,730 and 37,230 commercial aircraft, respectively, so
decades, powered by rising demand for flight tickets that
growth opportunities are ripe for Mexican aerospace
translates to more aircraft orders and deliveries. While net
suppliers. With the support of FEMIA’s National Supplier
orders to OEMs have decreased, the four most important
Development Program, Mexico's aerospace industry has
planemakers have a healthy backlog and are ramping up
set ambitious goals for 2020, including entering the Top
operations to boost deliveries. Boeing and Airbus have
10 ranking of aerospace exporters worldwide and reaching
maintained a positive demand forecast to 2037 with
annual exports worth US$12 billion.
Commercial aircraft net orders (units) OEM 2018
2017
Variation
Most ordered commercial aircraft
Commercial aircraft deliveries (units) 2018
2017
Variation
Most delivered commercial aircraft
Backlog as of 4Q18 (units) 157
Airbus
747
1109
-32.6%
A320 family aircraft (545 units2)
Boeing
893
912
-2.1%
B737 family aircraft (675 units)
806
763
5.6%
B737 family (580 units)
5,873
Bombardier1
47
58
-19.0%
CRJ Series aircraft (34 units)
35
56
-37.5%
CRJ Series (20 units)
97
Embraer
-
-
-
-
90
101
-10.9%
E175 (67 units)
368
800
718
11.4%
A320 family (626 units)
7,5772
1. Excluding orders of 30 CS300 units and deliveries of 13 planes that occurred after Airbus took over the CS Series program and rebranded it as A220 2. Estimate
The US is the largest investor in Mexico's aerospace sector with 61.7 percent of the FDI that the industry received between 1999 and 2018
Country of origin
MEXICO'S AEROSPACE FDI BY COUNTRY (1999 - 2018)
LIST OF AEROSPACE PRODUCTS AND SERVICES IN MEXICO
• Components for landing gears • High-precision machining
61.7% US 26.4% Canada 7.8% France 3.5% Spain 0.3% South Korea 0.2% Other
2,006.8
Total
DISTRIBUTION OF AEROSPACE FDI BY STATE (1999 - 2018)
• Plastic components • Surface treatments for parts
4
2,55.1
11
1,15.1
12
10.8
1
6.0
2
3,252.5
90
30.1 % Queretaro 20.2 % Baja California 19.9 % Chihuahua 12.5 % Nuevo Leon 7.2 % Sonora 10.1% Other Total
• Electric and electronic systems
60
858.7
State
• Powertrain components • Aerostructures (sheet metal)
Number of FDI (US$ companies with million) aerospace FDI
US$ million 979.0 657.0 647.2 406.6 234.2 328.5 3,252.5
• Interiors • Composite-material components • Engineering & design operations • MRO services
US$8.6 billion was the value of Mexico's aerospace exports in 2018
Source: FEMIA, Ministry of Economy, Airbus, Boeing, Bombardier, Embraer
In 2018, Mexico received US$161.5 million in FDI for the aerospace sector compared to US$146.7 million in 2017
| INSIGHT
SUPPLIER CULTURE BASIS FOR SUSTAINABLE GROWTH ROBERTO CORRAL President of InnoCentro
158
Having the necessary certifications and an attractive product
suppliers to control their processes and ensure sustainable
offering can go a long way to entering the aerospace industry.
growth. “In the case of InnoCentro, the use of the BlueStar
These factors, coupled with strict financing discipline, a
ERP enabled the company to triple its sales,” says Corral.
reliable management software system and a down-to-
“Having a robust ERP enables aerospace suppliers to
earth supplier culture, make up the recipe for sustainable
manage projects efficiently and to keep tight control of
growth rarely seen among Mexican suppliers, says Roberto
on-time product deliveries to uphold commitments to
Corral, President of InnoCentro, a supplier of interiors and
clients.” BlueStar helped InnoCentro control its production
components for aircraft and trains.
and delivery times as well as its organization modules, which ignited the creation of five sister companies in
“Serving the aerospace sector is no easy feat due to
2018 that support new sectors, including real estate and
strict quality and traceability requirements uncommon in
connectivity.
other manufacturing sectors,” says Corral. However, the challenges Mexican companies face to migrate into this
Although the company does not expect to reach the triple-
industry are not necessarily in their installed capacities but
digit sales growth it enjoyed in 2017, it hopes for modest
in corporate culture issues that hamper their development.
progress powered by demand in the aftermarket segment in the short term. “It is naturally difficult to maintain the
Aside from basic requirements, such as quality management
300 percent growth we achieved in 2017, which means that
certifications AS9100 and ISO:9001, Corral says financial
2019 will be slower compared to previous years,” Corral
education is the most significant challenge that small Mexican
says. InnoCentro has also put its plan to offer MRO services
aerospace suppliers face. “Prudence is key when investing
on hold while consolidating its new acquisitions. In 2019,
resources and using credit,” he says. “Companies need to look
InnoCentro acquired a German company that focuses on
for ways to self-finance new projects and effectively control
passenger cabin components and tests strategic systems
their organic growth.” This strategy has helped InnoCentro act
for Airbus’ wings. InnoCentro will transfer part of the
as its own bank when it comes to financing projects.
technology used by that company to Mexico to complement its offering in the country and leverage new opportunities to
The lack of a supplier culture is a common issue that harms
supply for airlines and OEMs in the Mexican market.
both local aerospace SMEs and the Mexican sector in general. According to Corral, Mexican suppliers tend to believe they
As a founding member of FEMIA, InnoCentro also helps
can take on production of any aerospace component, even
other Mexican SMEs enter the aerospace sector. Corral says
when these projects are outside their core business or area of
Mexico is on track to meet FEMIA’s annual aerospace export
expertise. Mexican aerospace SMEs also tend to neglect the
goals for 2020 and that the country remains an attractive
possibility of developing a manufacturing project in tandem
market for aerospace FDI but highlights that Mexico still has
with foreign aerospace clients, which harms their growth
a long way to go to develop its supplier base with talent
opportunities in the sector. “Mexican suppliers must be honest
shortages being a key challenge. “Mexico needs to train
when evaluating whether they can take on a production
the certified technicians the country’s aerospace industry
project, so they do not lose face by failing to deliver,” says
needs,” he says. MROs based in Mexico, in particular, will
Corral. “Companies that try to take on projects beyond
face new opportunities following the modernization and
their capacities are not doing anyone any favors, neither for
expansion of AICM’s terminals and the construction of a
themselves nor the Mexican aerospace sector in general.”
new airport in the Valley of Mexico. “There is space at AICM and other Mexican airports for players interested in offering
Adoption of a management software system in the form of
MRO services, as long as they have the technical, financial
an ERP or similar can be a great advantage for aerospace
and labor resources that such projects require.”
VIEW FROM THE TOP |
STATE-COUNTRY PARTNERSHIP FUELS INDUSTRY TAKE-OFF KEVIN O’SHEA Vice President of International Trade at ACA
Q: Arizona has a thriving aerospace industry. What
Q: What initiatives is ACA developing with Mexican
significant gaps has ACA identified within the Mexican
aerospace clusters and local governments?
aerospace industry?
A: Arizona is collaborating closely with FEMIA to match
A: Arizona sees great opportunities to partner with the
Arizona’s supply chain capabilities to critical gaps in
various aerospace clusters in Mexico and to fill some
Mexico’s supply chains. Arizonian and Mexican companies
critical supply chain gaps, including plastic injection
are interacting directly with each other and Arizona
molding, machining, harnesses and heat treatment. With
continues to work closely with Mexico’s aerospace cluster
1,200 aerospace companies, including OEMs and suppliers
leadership to promote cooperation. Arizona has been
of all levels, and logistically just-in-time proximity to
collaborating with clusters in Baja California, Chihuahua,
Mexico, Arizona has the capacity to fill many of these
Guanajuato, Nuevo Leon, Queretaro and Sonora.
gaps effectively and efficiently. In addition, Arizona has a substantial number of AS9100 and ISO 9001 certified
Q: What are ACA’s main achievements in the aerospace
aerospace companies that can be of immediate assistance
industry in recent years?
to the Mexican market.
A: Under Governor Doug Ducey’s leadership, Arizona is arguably the most prominently engaged US state in Mexico
Q: With over 1,200 aerospace and defense companies,
and is recognized as a national model in cross-border
what is ACA’s strategy to support these when targeting
collaboration. ACA works closely with Mexican aerospace
new areas of opportunity in Mexico?
clusters and companies and Arizona has the largest US
A: Via various export facilitation programs, ACA is assisting
state presence at key Mexican aerospace events including
Arizona aerospace companies to pursue both supply chain
FAMEX and the Aerospace Summit in Queretaro. ACA has
and final product sales opportunities in Mexico. These
also led delegations of Arizonian aerospace companies
programs support initiatives that include participation
to other key industry markets and trade events in Europe
at FAMEX, as well as at the Aerospace Summit and B2B
(including the Paris Air Show), Asia (at the Singapore Air
Meetings in Queretaro. In addition, ACA brings delegations
Show), the Middle East (with the Bahrain International Air
of Arizonian companies on trade missions to Mexico and
Show) and Australia (at the Avalon Air Show). On these
facilitates pre-arranged, pre-vetted B2B matchmaking
trade missions and events, Arizona companies are securing
meetings with Mexican companies in the aerospace sector.
sales channel partners for country and regional markets, as
Arizona’s trade office and trade team in Mexico City are key
well as making direct sales with end users.
to supporting Arizonian companies and serve as the B2B and B2G matchmakers for these players in Mexico.
Q: What are ACA’s priorities for 2019 in terms of targeting areas of opportunity in the Mexican aerospace industry?
Q: What are the main challenges Arizonian companies
A: ACA will work closely with FEMIA and Mexico’s aerospace
face when landing in the country and how does ACA
clusters to further strengthen collaboration between Arizonian
support them?
and Mexican companies based on the main opportunities that
A: Mexico has a dynamic, growing and sophisticated
we have identified in the industry. These synergies provide
aerospace sector. It is important for Arizonian companies
great opportunities for both Arizona and Mexico.
to have industry-recognized certifications, such as ISO 9001 and AS9100, so they can be of immediate benefit to Mexico in filling critical supply chain gaps. ACA also provides
Arizona
training for companies regarding trade with Mexico and how
development organization that aims to strengthen Arizona’s
to do business in the country. This gives them familiarity
economy. The state is home to 1,200 aerospace companies
with and sensitivity to Mexico’s business culture.
of all sizes, including OEMs and suppliers
Commerce
Authority
(ACA) is
an
economic
159
| INSIGHT
OUTDATED REGULATION HAMPERS UAV ADOPTION YOUSEFH PINEDA CEO of Cramex Aerospace
160
While Mexico has regulatory and policy challenges to
Pineda. “The sector grew 30 percent between 2017 and
overcome, penetration of new aviation technologies and
2018, which resulted in several opportunities for Cramex.”
practices means new opportunities for local aviation companies. According to Yousefh Pineda, CEO of Cramex
As a DGAC-certified training center and heliport developer,
Aerospace, Mexico needs to develop a series of policies that
Cramex has graduated around 130 licensed UAV pilots
support the adoption of new technologies and cater to the
since it started offering its services in 2017. Cramex has
current needs of Mexican aviation.
become the top trainer of pilots for these aircraft in Mexico, which adds to the company’s 15 years of experience in the
“The federal administration needs to understand the
development of helipads.
importance of aviation for the Mexican economy,” says Pineda. “Even without the challenges brought by the cancellation of
Pineda says demand for these platforms increased in 2018
NAIM, Mexico needs a true aeronautics policy.” Pineda points
powered by the construction of new IMSS public hospitals in
out that Mexican aviation regulations require an urgent update
Chiapas, Nuevo Leon and Guanajuato, even though private
as several of these norms are 20 years old and one even dates
developers reduced their demand. “Due to uncertainty related
back to the 1950s. Similarly, projects to improve Mexico’s
to the change in government in 2018, several real-estate
aviation authority, such as the restructuration of DGAC and its
developers put their projects on stand-by but this situation
transformation into the independent Federal Aviation Agency
should change with time,” says Pineda. Cramex has kept a
(AFC), are long overdue.
steady project portfolio despite that challenge thanks to a healthy backlog of heliport projects for corporate buildings
Old regulations are among the main challenges preventing
agreed in 2017. “As these buildings enter the final construction
faster adoption of UAVs in the Mexican market, according
stages, Cramex has guided developers in the development
to Pineda. There are a few scattered guidelines regulating
of their helipad platforms,” says Pineda. The company stands
these aircraft but a consolidated NOM would boost
out in this segment thanks to its expertise in aeronautical
adoption of these highly sought-after tools. “We have seen
engineering. “We understand the various safety and design
significant growth in the adoption of UAVs in Mexico,” says
elements that developing this infrastructure entails."
VIEW FROM THE TOP |
MARS MISSION SUPPLIER TO PRODUCE FOR ONEWEB PROJECT FROM MEXICO BEATRIZ AGUILAR General Manager of Axon’ Interconex
Q: How are Axon’ Interconex’s components adding value
Q: How is Axon’ Interconex’s aerospace production divided
to space missions?
between the domestic and foreign markets?
A: Axon’ Interconex has collaborated on all missions to Mars
A: Up to 99 percent of the aerospace components that we
through its products. Our components are mounted on ESA’s
produce in Mexico are exported. We only supply for a Mexican
ExoMars probe and on NASA’s InSight and Curiosity rovers.
UAV OEM based in Guadalajara but we have looked for
Curiosity uses Axon’ Interconex harnesses in its chemical
opportunities with other aerospace OEMs in Mexico, including
chamber. All images that are relayed back to Earth go through
Queretaro’s manufacturers. In 2019, Axon’ Interconex will start
a piece of our equipment. InSight’s seismograph also uses an
supplying components directly to Bombardier’s plant in El
Axon’ Interconex harness and we are working on a new rover
Marques from our factory in Queretaro. We are also working
that ESA will launch. Our Queretaro manufacturing facility will
to be validated as an aeronautics supplier for other Tier 1s.
soon start producing harnesses that will be used in a massive
When USMCA becomes a reality, it may push aerospace
space project called OneWeb, which is placing hundreds of
companies to procure more components locally. This could
satellites in low orbit to boost global communications and
empower Axon’ Interconex’s Mexico operations and enable it
internet coverage. Axon’ produces harnesses for that project
to invoice directly to Mexico-based customers as a Mexican
in Latvia but production will be shifted to Mexico between
company, which will help us increase sales.
2022 and 2024 once our processes are validated. Q: How is Axon’ Interconex changing its product offering Q: How important are Mexico’s advanced-manufacturing
for aerospace applications?
capabilities for Axon’ Interconex’s operations?
A: Most of these products are imported. For instance, Axon’
A: Thanks to our IATF and AS9100 quality certifications,
Interconex supplies cables and other accessories to Safran’s
automotive remains the most important sector for our
Chihuahua plant that are used for several Airbus programs.
Mexico operations, followed by aerospace. Axon’ Interconex
These cables, however, are not supplied from the Queretaro
is a key supplier of mechatronic connectors and electric
plant but from another facility in France.
motors for window elevators used in FCA Group cars, for instance. We also supply flat cables for airbags to several Tier
Q: What are Axon’ Interconex’s main growth projections
1 and Tier 2 suppliers, including Kostal, Valeo and Continental.
and expansion plans for 2019? A: Axon’ Interconex needs to further position its brand so new
Q: How is Axon’ Interconex promoting stricter regulations
customers are aware of its capabilities. We will achieve this
for aerospace parts?
by offering more technical seminars at academic institutions
A: Axon’ Interconex is a member of the COTENNE committee,
that specialize in electronics, as well as working together with
where it collaborates with other aerospace entities to develop
AEM to raise awareness of new challenges in interconnection.
new NOMs for the sector. For instance, we are collaborating
We are members of several associations in the automotive
with the Mexican Space Agency (AEM) to develop a new
and aerospace sectors, including INA, the Queretaro
regulation related to the quality of harnesses and other
Aerocluster and FEMIA, which has resulted in sound business
space components. This NOM has been validated and is
opportunities. We are part of FEMIA’s Supply Chain Program,
in the process of being enforced. As a global leader in the
which helps us to find good opportunities with OEMs.
production of space components, Axon’ Interconex works with ESA, NASA and other space agencies on several projects to validate its products. Aerospace harnesses must withstand
Axon’ Interconex is a French-based manufacturer of specialty
extremely high and low temperatures, pressures and radiation.
interconnection solutions, including cables, connectors and
Our cables have been validated by these partners and we are
other components. In Mexico, it supports aerospace and
validating the connectors that these cables require.
automotive companies with high-tech wiring applications
161
| VIEW FROM THE TOP
TALENT, INVESTMENT NECESSARY TO GROW AEROSPACE CAPABILITIES JOSÉ FIGUEROA Director General of Marposs México
162
Q: How will Marposs’ new Queretaro offices help the
Q: What is Marposs’ strategy to expand its participation in
company grow in the Mexican market?
the Mexican aerospace sector?
A: The bulk of our Queretaro operations will target the
A: In 2019, Marposs will continue penetrating new regional
aerospace industry and the rest will cater to the measuring
markets in Mexico by collaborating with the regional aerospace
needs of local automotive companies. We expect to reach
clusters. We have made a great push to open Queretaro’s
new customers in the aerospace industry as that sector
aerospace cluster and now that we have positioned ourselves
develops locally. The company still has a long way to go in the
in this area, the next step is to dabble in other aerospace-
aerospace industry but Marposs is gaining a solid presence
intensive regions, such as Nuevo Leon, Sonora and Chihuahua.
thanks to its investments in Queretaro. On the automotive
We expect to take advantage of the experience the company
side, the Bajio region has become one of the most dynamic
has gained while supporting Queretaro’s aerospace industry
areas in Mexico thanks to the arrival of OEMs like Honda,
to attract more aerospace clients.
Mazda and Volkswagen to Guanajuato. Marposs’ new offices in Queretaro will help the company remain close to these
Q: What is Marposs’ strategy to stand out in the
automotive clients and offer quality customer service.
measurement-equipment market? A: Clients look for industrial equipment applications
Q: How in line are Mexican graduates with the needs of
that cater to their specific needs. Even in cases in which
the aerospace sector?
two of Marposs’ clients produce the same component,
A: Several schools have been founded in the last 10 to 15
each company will have its own tailor-made solution.
years to cater to that sector. These schools are already
For example, the crankshafts used by one carmaker are
graduating the engineers that aerospace companies need.
radically different from those used by other companies, so
Even if the demand for aerospace talent has not been fully
the measurement applications that Marposs delivers must
covered, the fact that some Mexican universities now offer
be customized for each. In that sense, Marposs becomes
degrees focused 100 percent on aerospace careers has
its clients’ partner because these companies trust that the
been a key step toward reaching that goal.
solution provided by Marposs will meet the specifications required by their production processes. We are engaged
We look for well-trained professionals with a solid education
with clients since the beginning of the production process
who can help us develop the capabilities of our company.
and offer advice on how to measure parts.
Marposs sells technology, so having a strong engineering staff is important for our business. This is one reason why
Q: What are your projections for the growth of advanced-
graduates from academic institutions like IPN are common
manufacturing sectors in Mexico?
among our personnel. Engineers graduated from Mexican
A: Mexico is ready to grow but this growth will not only
schools have the quality level to support companies like
depend on the performance of companies and universities. All
Marposs. On the aerospace side, we have also hired some
aerospace and automotive players, including the government,
graduates from the Autonomous University of Queretaro
must be ready to go the distance to attract FDI. Mexico’s
who have experience working at aerospace companies,
new federal administration, however, seems to be following a
which means they have solid training.
route different than previous governments, which has created some uncertainty for investment as companies wait to see the first results. Previous federal administrations placed great
Marposs México is part of Italy-based Marposs Group. The
importance on FDI attraction, which boosted the growth of
company offers measuring solutions and supplies services
Mexico’s aerospace and automotive sectors. If that policy is
and products that improve manufacturing efficiency and
carried on by the new government, Mexico will continue to
effectiveness in ensuring product quality
grow as a competitive manufacturing destination.
VIEW FROM THE TOP |
BOOSTING R&D THROUGH SOFTWARE-BASED VISIBILITY GUNTHER BARAJAS Vice President and Senior Director General of Dassault Systèmes de México
Q: How is Dassault Systèmes working to promote Industry
Q: What role does Dassault Systèmes play in talent
4.0 principles in Mexico?
development?
A: Our goal is to transform jobs so that people engage in
A: In September 2018, Dassault Systèmes signed an
added-value activities related to customer experience, while
agreement with the Ministry of Economic Development of
automating other processes and developing schemes where
the State of Mexico, the Automotive Cluster of the State
humans and machines collaborate to increase efficiency. We
of Mexico and the Autonomous University of the State of
developed the “Industry of the Future” concept that puts
Mexico (UAEM) to create capable talent to develop EVs
human beings at the core of the 4.0 Revolution. In Mexico,
and self-driving cars. Dassault Systèmes will open two
aerospace and automotive remain our core industries but
technology areas at UAEM so the university can start training
other sectors, such as energy and consumer products, are
students in new manufacturing technologies. We plan to
gaining momentum.
replicate the success of a similar program implemented in Wichita, Kansas. The company’s 3DEXPERIENCE Center
Q: How does Dassault’s 3DEXPERIENCE platform help
focuses on the aerospace industry and several companies
companies improve their design and engineering processes?
are taking advantage of it to carry out their R&D operations.
A: Our platform creates a collaborative environment that factors in many more elements that previously would not
Q: How will the new trade environment resulting from
be considered. Companies can now reflect comments from
USMCA impact Dassault Systèmes’ operations in
social media when developing the next generation of their
North America?
products. Similarly, having several areas of a company
A: Dassault Systèmes de México now competes with its US
collaborating simultaneously helps an organization reduce
and Canadian counterparts in terms of developing local
its engineering costs, response times and ppm rates while
suppliers. The country that manages to develop suppliers
increasing product quality from a component’s design stage.
the fastest will capture a greater percentage of regional content production. For Mexico to maintain its productivity
Q: What gaps in Mexico’s aerospace industry are addressed
level, the country needs to secure more contracts to supply
by the implementation of the 3DEXPERIENCE platform?
components.
A: 3DEXPERIENCE is the best possible communication link between OEMs and their suppliers because it ensures
Q: What are your growth expectations for 2019?
designs, simulations and working plans are shared among
A: We achieved our 20-percent growth goal for 2018. While
companies. This gives OEMs the certainty that they are
3Q18 was challenging because of changes in the energy sector
working with suppliers that have formal, well-defined
that impacted Dassault Systèmes’ energy-oriented operations,
processes. We are launching new cloud-based software
the aerospace and automotive industries remained strong. We
packages so SMEs can access this technology and achieve
expect to maintain this momentum through 2019 and achieve
direct communication with their Tier 1 or OEM clients.
a similar growth rate with these sectors as our most important revenue generators. We expect energy activities to remain
Key aerospace OEMs Airbus and Boeing are adopting
sluggish but the consumer goods area is likely to increase in
the 3DEXPERIENCE platform and this trickles down the
importance as consumer habits change.
supply chain. Instead of sharing files through e-mail or File Transfer Protocol (FTP), this platform allows for real-time collaboration between all tiers. Since all companies involved
Dassault Systèmes is a French software developer that offers
are aware of the final result that must be achieved, they
solutions for 3D design and product life-cycle management. Its
can start performing analysis of weight, performance and
3DEXPERIENCE platform allows companies to optimize design
design and manufacturing times.
and manufacturing processes
163
| INFOGRAPHIC
SOLID RESULTS FOR COMMERCIAL AVIATION Despite rising jet fuel costs and the strains of a saturated
A YOUNGER FLEET
airport infrastructure, Mexican aviation closed a successful
• In 2018, the size of Mexico's commercial fleet increased but the average fleet age remained the same
2018. The country broke its records for both passenger
• The average age of Mexico's commercial fleet fell steadily between 2014 and 2017
and cargo traffic for the seventh and fifth consecutive years, respectively, and is projected to keep its momentum. As the sector contributes to approximately 2.9 percent of Mexico's GDP and accounts for 1.4 million direct and indirect jobs, according to IATA, a solid performance from Mexico's airline industry is good news for the country. The cancellation of NAIM in Texcoco, which according to IATA could cost Mexico the opportunity to serve over 20
164
million passengers by 2035, as well as a GDP contribution of US$20 billion and up to 200,000 avation jobs, has not
11
370 10.5
360
360
10.5
355
10
350
9.5
340 9.1
330 320
saturation of AICM, the most important airport in terms of
310
both passenger and cargo traffic, remains one of the main
300
challenges in aviation. Mexico's fleet grew by eight aircraft
9 8.6
317
impacted growth in air traffic so far. However, the increasing
in 2018 while the average fleet age was steady at 8.2 years.
363
8.2
8.5 8.2
305 2014
2015
Number of aircraft
2016
2017
2018
8 7.5
——Average age (years)
PASSENGER TRAFFIC BY AIRLINE (Jan-Dec 2018) Viva Aerobus: Growth compared to 2017: 331.6% | Passengers in 2018: 371,800
50
Total share by country of origin 66.6% Mexican 33.4% Foreign
45
22.4% Grupo Aeroméxico
35 Growth compared to 2017 (%)
2018 was the seventhconsecutive year of recordbreaking growth in passenger traffic
Total share by airline
40
2.6% Other Mexican Airlines
14.3% Interjet
30
17.5% Volaris
25
9.8% Viva Aerobus
22.3% US Airlines 11.1% Other Foreign Airlines
20 15 10 5 0 -5 -10
1
•• National
2
3
4
5
6
7
8
9
international
10
11
12
Growth compared to 2017 (%)
PASSENGER TRAFFIC BY AIRPORT GROUP
14
15
16
17
MARKET SHARE (%)
12
18
19
20
21
22
23
24
25
148.6 million
passengers used Mexican airports, which represented an increase of 8.8 percent compared to 2017
11 10 9 8 7 6
32.1% GACM (AICM)
5 4
13
Passengers (thousands)
0
10
Sources: DGAC, IATA
20 30 Passengers (millions)
40
50
14.5% OMA
26.9% GAP
2.1% Sociedades ASA
22.4% ASUR
2% ASA
FLEET SHARE BY AIRCRAFT TYPE 35
30
35
• Airbus A320 are the most common aircraft in Mexico's commercial fleet, followed by Boeing 737s
Airbus A320
• Members of the A320 aircraft family (including A320s, A321s and A320neos) account for 45.1 percent of Mexico's commercial fleet
30
119
363
25
25
20
20
Others
Boeing 737
70
15
15
65
Embraer E190
10
Airbus A321
Airbus A320neo Boeing 787
21
17
165
10
47
5
Percentage
Percentage
total number of aircraft in Mexico
5
24
0
0
CARGO TRAFFIC BY AIRLINE (Jan-Dec 2018) AeroUnion: Growth compared to 2017: 114.2% | Cargo in 2018: 12,898 tons
60
Total share by country of origin 44.5% Mexican 55.5% Foreign
55
Total share by airline
Growth compared to 2017 (%)
50 45
12.9% Grupo Aeroméxico
40
11.4% AeroUnion 6.7% Mas Air
35
3.6% Estafeta
30
9.9% Other Mexican Airlines
25
16.2% European Airlines 11.6% Asian Airlines
2018 was the fifth-consecutive year of recordbreaking growth for the cargo segment
4.6% Other Foreign Airlines
23.1% US Airlines
20 15 10 5 0 -5 -10
0
10 20
•• National
30 40
50
international
60
70
80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 Cargo (thousand tons)
MARKET SHARE (%)
Growth compared to 2017 (%)
CARGO TRAFFIC BY AIRPORT GROUP 35
1.05 million
tons of cargo were handled at Mexican airport terminals in 2018, 9 percent more than in 2017
30 25 20 15 10
55.1% GACM (AICM)
5 0
0
100
200 300 400 Cargo (thousand tons)
500
600
8.6% Sociedades ASA
20.3% GAP
6% ASUR
9.6% OMA
0.4% ASA
| VIEW FROM THE TOP
COLOMBIA-MEXICO: ROUTE TO LATIN AMERICAN SUCCESS MIGUEL CARDONA Commercial Director of Avianca
166
Q: What were Avianca’s main growth milestones in 2018
generate a series of services that will offer added value
in terms of revenue and passenger traffic?
to passengers.
A: 2018 was a year of transition and consolidation for Avianca. Globally, our aircraft load factor was 83 percent,
Q: How has Avianca advanced in its strategy to become a
which is well among the best in the industry at a global
technology company that flies?
level. We transported 30.5 million passengers in total,
A: This strategy is bearing fruit. In 2018, we revamped
which was 1 million more than in the previous year, while
Avianca.com, making the webpage more interactive to
generating US$4.8 billion in income. These results are
allow visitors to save their search preferences and to
strengthening our position as a top Latin American airline.
increase our online sales by making the sale much faster
In 2019, Avianca will turn 100 years old with the airline in
and improving the user experience. We continue to
a good position.
promote our app that gives our customers 24/7 access to the platform. From 2019, our loyalty program will no
Avianca Mexico also had an excellent 2018, carrying 949,000
longer offer physical cards as everything will be done
passengers, 200,000 more than in 2015. We are among
through the app.
the airlines capitalizing on the growing popularity of Latin America among the Mexican population. The Colombia-
Q: What are the most important challenges hampering the
Mexico routes are now the most important in the region
growth of Mexican aviation?
with an annual growth in passenger volume of 15 percent. In
A: 2018 was a positive year for the Mexican aviation industry,
the last months of 2018, we redesigned our flight operations
both in the national and international markets. Growth was
bank in the Bogota airport, which implied a complete
possible partly thanks to the increase in seating capacity
redesign of our arrivals and departures to make better use
for all local airlines. Ten years ago, the average seating
of the local infrastructure. This strategy allowed us to ensure
capacity of the industry ranged between 100 and 120 seats.
that our flights could take advantage of scheduling valleys,
Now, it is 150 seats because local players are increasingly
which allowed clients to benefit from shorter waiting times
betting on aircraft with more seats. This allows airlines to
and face less risk of missed connections and mishandled
bear the slow pace of airport infrastructure growth. The
baggage events.
federal administration should prioritize the improvement of the aviation industry in order to provide safety, good
We have introduced a development plan that will improve
passenger experience and increased connectivity within
Avianca’s profitability and operational efficiency. We want
Mexico and abroad.
to focus on the strengths inherent to each of our hubs while we develop a financial strategy that hedges against
Q: What challenges might Avianca Mexico face from three
market changes. Jet fuel prices increased significantly in
airports operating simultaneously in the Valley of Mexico?
2H18, which had a double-digit impact on the finances
A: Our operational efficiency relies on hubs that have the
of most airlines. For that reason, we are focusing on
appropriate infrastructure to facilitate the transport of
choosing routes not just in terms of passengers but
individuals within a single building, just like in Bogota,
in terms of overall profitability, which will allow us to
San Salvador and Lima. When we connect with our partners like United Airlines in New York or London, we focus our operations in a single building, which greatly
Avianca has been the national airline and flag carrier of
facilitates operations for airlines and passengers. We are
Colombia since 1919, making it the world’s second-oldest
waiting to see the infrastructure plan before adapting our
airline. It is headquartered in Bogota with its main hub at El
operational strategy to continue operating in Mexico as
Dorado International Airport
efficiently as possible.
VIEW FROM THE TOP |
BETTING ON TECHNOLOGY FOR SUSTAINABLE GROWTH LUIS ALVARADO Director General of AeroUnion
Q: What factors are powering growth in AeroUnion’s
as the logistics coordination will become more difficult,
airborne cargo traffic in Mexico?
especially if the final destination is outside the country.
A: By continuing with the commercial strategy that AeroUnion
167
designed in 2017, the company grew its air traffic by 25
AeroUnion expects to collaborate with Mexican aeronautics
percent in 2017 compared to the previous year and by 8
companies and with the government to find a better
percent in 2018. This strategy is based on three pillars. First,
solution for this problem. Mexico has the potential to be the
AeroUnion has strengthened its core business lines. Second,
most important cargo hub in Latin America, provided the
we concluded our organizational restructuring in 2018, which
right investments are made. Colombia, Peru and Brazil have
enabled us to be more commercially sustainable. Third, we
an advantage over Mexico in that sense. However, Mexico’s
continued to invest in the technological transformation of our
connectivity with Asia, Europe, North and Latin America
company and will finish this process in 2019. AeroUnion has
gives the country an edge to compete against and beat all
reached a milestone in terms of brand positioning and service
rivals in Latin America. It is necessary that both aviation
consistency. We now have a better understanding of what the
authorities and airlines cooperate to reach that goal.
market demands from cargo airlines and can act accordingly. Q: How attractive are dynamic hubs like AIQ and AIT when Q: What enticed AeroUnion to invest in new technologies?
cargo airlines want to expand?
A: Previously, AeroUnion compensated its limited access
A: Regional airports are always interesting for the aviation
to technologies with a highly personalized operational and
industry but they do not have as large a cargo flow as AICM.
administrative service. However, our growth forced us to
In the case of AeroUnion, it is attractive to serve these hubs
leverage technologies like ERPs or Electronic Cargo Tracking
but they are not an option for us to migrate our operations.
Systems (ECTS) to ensure sustainability. The business
Shifting cargo out of AICM is not an option to cope with its
volume that AeroUnion handles and the speed required
saturation. AeroUnion operates some flights to Queretaro
to manage it properly made the adoption of technology
(AIQ) and Bajio (BJC) as middle points to Los Angeles but
a must. Trying to maintain our growth momentum with
only when there are opportunities to market cargo aviation
manual processes but without additional technology could
services. We have brought cargo to these hubs but loading
turn this strength into a weakness and manual processes
cargo at these airports is challenging.
into an obstacle to sustainable growth. Q: What is AeroUnion’s fleet refurbishing strategy for 2019? Q: What are the most important challenges that Mexican
A: As of March 2019, we are using three types of aircraft,
aviation faces to continue growing?
which increases the complexity of an airline the size of
A: AICM is a key challenge. The airport’s administration
AeroUnion. This factor pushes us to use resources that
needs to cope with the arrival of new airlines and the
otherwise could make the airline much more efficient if
growing number of flight operations in a saturated airport. It
we had a simpler fleet. AeroUnion’s goal is to reduce its
is necessary to understand the growth projections of newly-
Airbus A300-200 fleet by using A300-600 units in 2019.
arrived airlines and evaluate potential airport alternatives to
Our long-term goal is to keep only Boeing 767-200s and
shift cargo. Mexican aviation needs a development vision
Airbus A300-600s and operate more efficiently.
that includes the perspectives of both the government and aviation players. The simultaneous operation of AICM, AIT and the new airport that is projected to be built at
AeroUnion is a Mexican cargo airline founded in 1999 with its
Santa Lucia could also introduce new challenges for both
main base in the Mexico City International Airport. In 2018,
passenger and cargo flights. This is particularly true for
AeroUnion handled 11.4 percent of the total Mexican airborne
connecting flights that go through the Valley of Mexico,
cargo traffic, according to DGAC
| MRO SPOTLIGHT
168
SAE: THE PLEASURE OF FLYING Thanks to its strategic location in the Toluca International Airport (AIT) and its extensive infrastructure and fleet, Servicios Aéreos Estrella (SAE) can provide a variety of aviation services, including FBO operations, air taxi, aircraft maintenance, management and sheltering. SAE performs over 12,000 FBO operations per year and up to six simultaneous dispatches with a clear ramp for business aircraft of all sizes. Although SAE usually performs 30 operations a day, it has the capacity to perform twice as many. SAE has renewed and expanded its ramp equipment, particularly GPUs and gear to handle aircraft weighing up to 110,000lbs. Also, having a hangar next to the airport authority, immigration and customs ramp and offices enables SAE to expedite international flight operations. SAE’s managed fleet includes three Learjets, two Challengers, one Hawker, one Citation, two Turbo Commanders, one King Air 200 and one Augusta helicopter for its air taxi services. This gives the company flexibility to provide a broad range of missions depending on the needs of the client. SAE is authorized by DGAC and the FAA to provide maintenance to aircraft, which allows the company to service aircraft with either Mexican or American plates. SAE is the only Twin Commander authorized maintenance center in Mexico and an authorized service facility of Bombardier for the Learjet series. SAE’s three enclosed-roof hangars can house over 50 business aircraft. These hangars extend over 8,395m2 and SAE’s storage ramp has been expanded by 4,500m to ensure it has capacity to accommodate aircraft staying overnight without affecting operations in the main ramp. As part of its ongoing renovation, SAE invested in a new dispatch facility. This new facility will include a pilot lounge with full amenities to cater to the needs of crews and will be separated from the VIP passenger area. This investment enabled SAE to remodel its original FBO building and repurpose it to serve VIP passengers. “With an eye to future growth, SAE focuses on exceeding customer expectations and attracting a selected portfolio of clients, both domestic and international,” says Juan José Simón, Operations Manager of SAE. “We are keeping a close eye on changing market dynamics, so we can take proactive action to react and adapt and continue to serve customers.” SAE’s most important strategy is innovating in the services it provides and striving for consistent customer satisfaction.
169
Grupo Mexico's El Retiro wind farm, Juchitan, Oaxaca
ENERGY
7
The Energy Reform introduced a wide array of possibilities to the country. The sector, key to Mexico’s structural development, opened to private participation. Although many of the possibilities brought about by the new legislation have not yet materialized, the reform still presents a growth scenario for the sector that will be mainly based on the legal security of investors. The electricity market will be another major player thanks to the complete opening to private investment.
However, the arrival of President López Obrador has infused the sector with uncertainty. While PEMEX will be an important focus throughout the administration, other aspects that had been opened with the Energy Reform, such as the participation of private players and the spotlight on renewable energies, remain in doubt. This chapter provides insight into the different sides of the energy and oil and gas sectors. Leading players share their vision for the development of Mexico’s open market and their expectations regarding López Obrador’s proposed changes.
171
CHAPTER 7: ENERGY
174
ANALYSIS: Uncertainty Dominates a Succesful Energy Market
175
VIEW FROM THE TOP: Guillermo García, CRE
176
INFOGRAPHIC: Energy Mix 2032 Outlook
178
VIEW FROM THE TOP: Paolo Romanacci, Enel Green Power Mexico
179
VIEW FROM THE TOP: Enrique Alba, Iberdrola México and Mexican Energy Association
180
VIEW FROM THE TOP: Miguel Ángel Alonso, ACCIONA Energía
181
VIEW FROM THE TOP: Gerardo Pérez, EDF Renewables
182
VIEW FROM THE TOP: Leopoldo Rodríguez, AMDEE
182
VIEW FROM THE TOP: Héctor Olea, ASOLMEX
183
VIEW FROM THE TOP: Irene Espinola, Grupo Bimbo
184
INSIGHT: Natalia Lever, Climate Reality Project
185
INSIGHT: Luis Vera, V&A
186
VIEW FROM THE TOP: Marco de la Peña, Cuatrecasas
188
SEXENNIAL PLAN: AMLO’s Plan to Save, Transform Pemex
189
VIEW FROM THE TOP: Matt McCaroll, Fieldwood Energy
194
VIEW FROM THE TOP: Alberto Galvis, Citla Energy
195
VIEW FROM THE TOP: Javier Zambrano, Jaguar E&P
196
VIEW FROM THE TOP: Patricio Álvarez, Perforadora Central
197
VIEW FROM THE TOP: Luis Vázquez, Diavaz and AMGN
198
VIEW FROM THE TOP: Mike Train, Emerson
199
Vernon Murray, Emerson
VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation Mexico and Latin America
173
| ANALYSIS
UNCERTAINTY DOMINATES A SUCCESFUL ENERGY MARKET The Energy Reform implemented during the Peña Nieto administration provided private players with a framework to participate in the country’s energy market. However, President López Obrador’s comments on the reform have generated a wave of uncertainty in a sector that had become a favorite of foreign investors As Mexico’s energy mix is injected with additional renewable-
decision to adapt its thermoelectric plants to dual combustion
energy capacity, natural gas is expected to play a critical
processes to gradually transition from fuel oil to natural gas.
role as a transition fuel, either through continued imports
174
or increased domestic production, which López Obrador is
Given natural gas’ contribution to the country’s power
championing. Cheaper and more environmentally friendly
supply, it comes as no surprise that CENAGAS is looking
compared to other conventional fuels, natural gas could
to use natural gas as a lever for national development
ignite the regional development of Mexico’s economically
and reach greater economic growth rates. The national
vulnerable southern region. AMLO’s chief concern is that he
pipeline administrator announced a MX$1.75 billion (US$91.2
believes contracts awarded for pipeline construction are not
million) investment in the Yucatan Peninsula. “Part of this
beneficial for the country and are costing CFE up to eight
investment will be allocated to the reconfiguration of the
times more than what they should cost. “We do not want
Zempoala compression station and the interconnection
to affect companies. We want to reach an agreement,” said
of the Tuxpan pipeline. Another project to be financed
AMLO at one of his daily press conferences.
by this investment is Engie’s interconnection between the Mayacan system with SISTRANGAS pipelines in the
With a cumulated pipeline of 58 clean-energy projects
southeastern region of the country to freely transit toward
totaling 8GW of installed capacity and US$8 billion in
the Yucatan Peninsula,” said David Madero, Director General
investments, Mexico’s long-term electricity auctions have
of CENAGAS, to Mexico Energy Review 2019.
consolidated their status as the success story of the country’s energy transition and its 2024 landmark objective
To guarantee reliability and safety to natural gas supply
of 35 percent clean energy generation. Although the fourth
for power generation purposes, CENAGAS and CENACE,
auction has been suspended, the aggressive package
the electricity system administrator, modified a critical
prices showcased in previous editions have limited auction
coordination agreement in 2017, two years after its signature
participation to a specific player profile. This includes
in 2015. “Our core objective as control centers is to offer the
utility-comparable companies with the business model and
safest, most reliable and efficient transport system aligned
financial capacity to enable an efficient and standardized
perfectly with CENACE’s mission to offer an electricity system
project development model suitable for utility-scale projects.
that is equally safe, reliable and efficient,” said Madero.
The design of Mexico’s energy market avoids cornering
The wrench in the energy industry’s machinery is the new
project developers to rely on a single scheme. On the
government presided by López Obrador. His calls to revisit
contrary, it incentivizes companies with different risk
and potentially revise the Energy Reform rattled investors
preferences and commercial objectives to look for
throughout 2018 as the presidential campaign unfolded and
alternatives in the market. Mexico is consolidating a pool
then with his victory and subsequent inauguration. Industry
of project sponsors and IPPs that are more comfortable
insiders have been unified in their calls for reform continuity,
relying on nodal prices and private off-takers rather than
which they view as mostly successful. However, the signs
auction prices and CFE as the final off-taker.
so far have been mixed. López Obrador took office with a blistering attack on the Energy Reform, which he said “had
Despite Mexico’s efforts to transition toward renewable
only meant a drop in oil production and rise in gasoline prices.”
energy, natural gas still accounts for 70 percent of fossil-
He has vowed to strengthen both PEMEX and CFE with a
fuel demand for power generation purposes. According to
mandate to thrive under market conditions, bolstering both
PRODESEN 2018-2032, combined-cycle generation alone
their budgets for 2019. The suspension of the fourth long-term
accounts for half the country’s power generation. Highly
auction also helped crack the egg of certainty that had settled
cost-effective and environmentally friendly, Mexico’s access
over the industry. The new administration has also expressed
to natural gas’ cheapest market, the US, has placed this fuel
interest in revamping the country’s hydroelectric assets and
at the center of the country’s power generation plans to
has been adamant about securing the continuity of renewable
transition toward renewable energy. In 2014, CFE made the
energy’s penetration in the energy mix.
VIEW FROM THE TOP |
TRANSITIONING TO THE NEW ENERGY POLICY GUILLERMO GARCÍA President Commissioner of CRE
Q: What will be the 2019 priorities for CRE in order to ensure a
pieces, the most important being collective distributed
competitive market while adjusting to the new policy regime?
generation. This means that a group of people can set
A: 2018 was an interesting year in terms of electricity tariffs.
up a renewable electricity installation and share among
The tariff we had before 2018 was a closed fee that obeyed
themselves all the benefits. This model has already been
to an income objective and that did not recover CFE’s costs,
implemented elsewhere in the world and it is something
so every year CFE saw its assets reduced. The change in the
that the industry has requested, so we are working on its
LIE, took this responsibility from CFE and sent it to us. The law
regulation. The second priority will be to promote the use
states that we need to recognize the costs of providing light
of EV charging stations. At the end of 2018, we published
and energy to different points across the country. We had to
the regulation that permits the installation of EV charging
analyze their efficiency and then translate these costs to the
stations and to charge for the use of electricity. In previous
tariff being paid by users in different regions. In the regions
years, EV charging stations in malls were cost-free and
where energy generation is expensive because diesel is used,
although this might sound like a good thing, for investors
there was a higher rebounding of tariffs than in other areas
it was not an incentive to set up these types of installations.
that did not have this characteristic. It was important to send this signal because this is what invites investment in regions
Today, there are around 2,000 EV charging stations in the
where energy can be offered at a lower cost.
country and almost all have been installed by automotive OEMs. The idea of this regulation is to tell them that they can
Obviously, the possibility of having these tariffs that recognize
resell electricity and by establishing a regulatory framework
the generation cost means that people now think about their
that provides certainty to investors, they can now set up EV
electricity bill. When the electricity bill is subsidized, people
charging stations throughout the country. This will prove to
do not worry about looking for other options, installing solar
be important for the country’s energy security. Inasmuch
panels, hiring a supplier, entering a bilateral contract or any
as a country diversifies its use of energy for transportation,
other possibility. We are now seeing more businesses worry
we will not depend that much on gasoline and diesel and
about having an electricity strategy for their companies. When
we will be able to have electric cars as part of the public
you realize that 60 percent of manufacturing costs come from
transportation system.
electricity, it makes a lot of sense to put someone in charge of the energy strategy for the company.
The third topic that is important to mention for 2019 is related to storage capacities. In this sense we are working on several
Also, in 2019, we will see the entrance of a significant number
regulatory pieces and we are in the process of identifying
of renewable energy plants. CENACE estimates that by the
the services that provide storage. We have identified over 18
summer of 2019, there will be 84 new electric centrals that
storage services, such as frequency regulation, transmission in
will add 12,429MW to the National Interconnected System;
peak periods, generation in peak periods, storage in hours of
this will allow less dependence on expensive fuels. What is
negative costs and sale in hours of high costs. The first private
important for the new administration is to continue with
storage terminals have been installed in Baja California Sur,
the exercises we have been doing, such as long-term and
complementing a solar power plant. Given this experience, I
medium-term auctions, and to continue with gas production
think we will see more energy storage in our country.
in the country, so we can have low-cost natural gas. Q: What will be CRE’s priorities for the electricity
Guillermo García has served as President Commissioner
sector in 2019?
of CRE since April 2016. García took part in the technical
A: In the electricity sector, we want to finish the regulation
and drafting group for the 2013-2014 Energy Reform and
intended for distributed generation. We are missing some
conducted support studies for the 2008 Energy Reform
175
| INFOGRAPHIC
ENERGY MIX 2032 OUTLOOK PREDOMINANT TECHNOLOGY PER STATE
According to PRODESEN 2018-2032, 66,912MW of additional installed capacity is required to satisfy energy demand during this period. This represents a total investment of MX$1.7 billion over the next 15 years. This additional capacity is expected to be comprised of 45 percent conventional technologies, where combined
8
cycle projects will have a major participation with an
4
installed capacity of 28,105MW. The remaining 55 percent
10
is expected to be generated by clean technologies, with
CAPACIDAD wind, solar, cogeneration and nuclear leading generation.
42% Combined cycle 22.1% Wind 17.1% Solar 6.1% Nuclear 3.6% Efficient cogeneration 3.3% Hydroelectric 2% Turbogas 1.4% Bioenergy 1.2% Geothermal 0.9% Coal and fluidized bed 0.3% Internal combustion
176
66,912MW
total installed capacity needed from 2018-2032
6
% OF PARTICIPATION ON AUTOMOTIVE INDUSTRY IN 2015
427
26
11
Efficient cogeneration
Bioenergy
3
Hydroelectric
2
Geothermal
Turbogas
Internal combustion
0
47
48
10
4
85
84
Solar
20
107
Wind
60 40 terminal production
Nuclear
80 Auto parts
projects are expected be developed between 2018 and 2032
Coal and fluidized bed
100
Combined cycle
120
INSTALLED CAPACITY (MW) AND PROJECTS PER STATE 2018-2032 6,500 5,500 29
1,886
9
731
Morelos
218
6
Michoacan
Mexico City
Jalisco
24
4 5
Hidalgo
Guerrero
Guanajuato
4
240
1,097
Durango
Colima
Coahuila
1
24
4
1,270
599
2
Campeche
Baja California Sur 324
Baja California
9
3,451
16 2,661
3,357
32
9
1,101
Aguascalientes
500
12
Chiapas
2,500 1,500
20
3,543
3,500
4,004
18
Chihuahua
4,500
Electricity consumption is projected to grow an average 3.1 percent annually between 2018 and 2032
TOP 10 POWER PRODUCER STATES Ranking
State
Installed Capacity (MW)
1
Veracruz
6,039
2
Tamaulipas
5,565
3
Nuevo Leon
5,136
4
Sonora
4,852
5
Oaxaca
4,237
6
Sinaloa
4,215
7
Coahuila
4,004
8
Baja California
3,543
9
Jalisco
3,451
10
Chihuahua
3,357
7 177
3
38.6%
2
of energy mix from clean energy generation expected by 2032 9
1
Wind Bioenergy Solar Combined cycle Hydroelectric Geothermal Efficient cogeneration Nuclear
5
Quintana Roo is the only state that does not produce energy
27
4,852
6
1,141
Yucatan
Veracruz
Tlaxcala
Tamaulipas
Tabasco
State of Mexico
Sonora
Sinaloa
9 1,271
6 1,009
1,858
2,353 179
0
San Luis Potosi
Queretaro
6
Quintana Roo
Source: PROSEDEN 2018-2032
Puebla
Oaxaca
343
Nuevo Leon
Nayarit
979
16 6
16
Zacatecas
13
30 3,220
4,215
9
5,565
26 22 4,237
5,136
23
6,039
32
| VIEW FROM THE TOP
ITALIAN GIANT WANTS MORE PAOLO ROMANACCI Director General of Enel Green Power Mexico
178
Q: What role does Enel Green Power (EGP) Mexico play in
that we want to focus our business. Mexico, for instance, is
the regional operations of Enel Group?
among the wealthiest countries in terms of resources for
A: In Latin America, EGP manages renewable energy plants
producing energy from the wind and sun. According to data
in Mexico, Costa Rica, Guatemala, Panama, Chile, Brazil,
from the Ministry of Energy, the country will build 40 solar
Colombia, Uruguay, Peru and Argentina. In Mexico, EGP is
and 25 wind power plants in the next three years and, of
the largest renewable energy player in the country in terms
course, we will play an important role in this.
of managed capacity with 2,014MW, of which 873MW are derived from wind, around 1,089MW from solar and
Q: What role does the company play in the hydro power
approximately 53MW from hydro. Mexico represents one of
generation segment?
the fastest growing markets in the region and the world. Our
A: EGP manages hydro plants in Mexico, Costa Rica,
projects here include Villanueva, the largest solar park in the
Guatemala, Panama, Chile, Brazil, Colombia and
Americas, and Amistad, which will be the country’s biggest
Argentina. Thanks to its hundred years of experience
wind farm when construction is completed.
in the field of geothermal energy, EGP is exploring and developing new opportunities in this sector. In Mexico,
Q: What features of the Mexican market are attractive to
however, EGP is primarily focused on solar and wind
EGP Mexico and what is behind the company’s results?
power generation. We manage 52MW of hydro power
A: Mexico has become one of the most attractive countries
in the country, through three plants located in Jalisco,
in the world to invest in renewable energy projects. One
Michoacan and Guerrero.
feature that has marked the country is the operation of the Wholesale Electricity Market, which has allowed
Q: What is EGP doing differently to achieve successful
industrial players to choose the energy supplier that suits
financing for its projects in the country?
its energy consumption needs under a legal framework that
A: EGP employs the BSO model, which allows us to
enables regulators to develop this market in an efficient
capitalize the portfolio of renewable energy projects more
and competitive way. In terms of PPAs, Mexico and the
quickly, reducing overall risk and accelerating the creation
US are the worldwide pioneers, and EGP’s results in this
of value. In September 2018, we announced the sale of an
area are remarkable. Our client contracts are uniquely
80 percent share in eight wind and solar plants in Mexico
structured, offering a commercial sophistication and a level
with a total capacity of 1.8GW. This strategy allows us to
of personalization that is a great differentiator. We offer
sell participation in our projects, while continuing their
access to the best financial conditions and we have the
operation and management to generate cash and invest in
ability to manage complex contracts that involve servicing
PPAs, as well as to continue developing new projects with
hundreds of freight centers spread across the country.
the resources obtained from this operation.
Q: What is your strategy to diversify EGP's project portfolio
Q: How do Enel Energía and EGP Mexico work together to
into technologies like geothermal energy and biomass?
achieve common goals?
A: We believe that wind and solar energy will allow us to
A: Renewable power generation and the sale of energy
move toward a sustainable world and it is in these sources
coexist and nourish each other within our two business units. With our qualified supplier, Enel Energía, we are closing different agreements with different commercial
Enel Green Power is the renewable energy division of Enel Group,
and industrial users under the regulatory framework of
present in 30 countries. Enel Group is a global leader in the
the Wholesale Electricity Market. For example, our plant
green energy sector with a managed capacity of around 40GW,
Magdalena II, which we just started constructing, is the
including wind, solar, geothermal, biomass and hydropower
result of different contracts with these types of customers.
VIEW FROM THE TOP |
MANY ‘FIRSTS’ AS ENERGY REFORM UNFOLDS ENRIQUE ALBA CEO of Iberdrola México and President of the Mexican Energy Association
Q: What is Iberdrola’s main contribution to Mexico’s energy
other outputs to meet demand growth, which is around 3
transition and what are the main challenges ahead?
percent annually. This requires building new plants and the
A: Iberdrola has been working in Mexico for 20 years and
rehabilitation and substitution of old ones to ensure eco-
we have a long-term view of our bet in the country, which
friendly and sustainable generation. The goal is to shift to
translates to constant operational growth. We are going
a more economic and environmentally-competitive energy.
through a key turning point in the energy and electricity
Also, I think that Mexico is the most competitive region in
sectors. We understand that our best contribution in this
the world for natural gas, given gas availability in the south
scenario is to participate in all the initiatives promoted by
of the US and Mexico’s own production. While the latter is
the Energy Reform. For example, before we could sell to
not being exploited to its fullest yet, the country has great
industrial clients under a self-sufficiency scheme but the new
reserves and potential. These conditions lead Iberdrola to
market opened-up the wholesale electricity market and we
believe that natural gas prices will perform steadily for the
were the first private electricity company to sell to a private
next 15 to 10 years. Gas should gradually substitute other
customer in Baja California with Soriana supermarkets. Also,
sources such as diesel, coal and fuel oil.
we participated from the beginning in the long-term auctions as sellers and when the possibility to join as a buyer was
Q: What is Iberdrola’s assessment of the Mexican Energy
opened in 2017, we jumped in as the first private company.
Association's performance and goals? A: The Mexican Energy Association (AME) has been in place
Mexico has a significant electricity market which is growing.
for over 20 years and convenes the main gas generation
The sector will require a great investment in transmission,
companies in the country, totaling an accumulated energy
generation and distribution infrastructure of approximately
worth of US$25 billion. AME was not created with the goal of
US$100 billion over a 15-year period. When you combine a big
representing gas generation, but as the years passed, other
market with high industrial demand and increasing industrial
agencies were created for wind, hydraulic and solar energy,
investment, you need to create a tool to allow the joint public-
among others. About three years ago, AME members saw the
private collaboration to face market challenges and meet
need to refocus the association’s activities to represent the
demand. We must keep working to fulfill the ambitions of
interest of gas generators. Since AME was reoriented, it has
the Energy Reform. For example, some aspects will require
continued growing and engaging new members. In the two
process re-engineering to adapt to the results from the
years that I will be acting as President, the goal is to focus
first four years. Another challenge is having more market
on the aspects that are particular to gas generation, such as
participants, such as qualified users. Transmission is another
IPP contracts improvement. As Iberdrola, our role is to keep
objective to overcome in obtaining more even prices across
working toward strengthening the association, always aligned
the country. While the reform has been very successful for
with its goals. The idea is not to promote any disruptive
renewable generation, investment for baseload energy must
actions but to further travel the path that was defined two
be further fostered. In short, there is a clear need to cope
years ago. The association will keep gaining relevance in
with the sector’s future demand and meeting it will only be
defending the interests of gas generation and playing a key
achieved through close collation of all the actors involved.
role in the Mexican energy sector as 50 percent of the power demand in the country is covered by gas generation.
Q: What midterm role will natural gas have in energy generation in Mexico? A: Mexico has approximately 75,000MW installed capacity,
Iberdrola is a Spanish public multinational electricity utility
as of 2017 data. These continue to incorporate generation
based in Bilbao. It has a presence in dozens of countries on four
from diesel, coal and fuel oil. If we look 15 years ahead,
continents serving around 100 million customers. Its subsidiaries
it is clear that the energy matrix will need to include
include Scottish Power, Avangrid and Elektro Holding
179
| VIEW FROM THE TOP
AUCTION WINNER STRIKES AGAIN MIGUEL ÁNGEL ALONSO Mexico Country Manager of ACCIONA Energía
180
Q: How did 2018 unfold for ACCIONA and how do you
sunlight a day allows the country to structure a photovoltaic
evaluate the last administration’s performance?
scheme to cover its energy needs. A solar park of 145,000ha
A: Last year was one of the most challenging and successful
could meet Mexico’s energy demand, according to my
years in the history of ACCIONA Energy as we worked
calculations. I am convinced that the country could rely 100
to complete the construction of the projects that were
percent on green energy and further bet on electric mobility
awarded to us during the first and second long-term
for its future sustainable transportation initiatives. Mexico
electricity auctions. The goal was almost 600MW in total
could also lead any initiative to fight climate change, reduce
and we accomplished it with the Puerto Libertad plant
carbon emissions and promote renewable energy. Mexico
in Sonora and the Cortijo project in Reynosa. I believe
can be self-sufficient in green energy. While I advocate
these projects were a milestone not only for us but for
for a diversification of the energy matrix and the inclusion
the Mexican energy sector as they provided certainty to
of innovative technologies, I also believe in Mexico as a
the auctions. It was also a successful year for us because
leader in the energy sector worldwide. ACCIONA will be
we sent the message to the country and its past and
there to help the country attain this leadership and the
present administrations that things were done properly,
change the energy system needs. The new administration
proving the success of the Energy Reform. We were able
has announced its pursuit of this change. We have been in
to get important projects running at very favorable costs.
contact with several government officials and are confident
Cheaper energy is coming into the market. We thank the
that we must keep betting on Mexico and collaborating
past administration for implementing such a well-structured
with the government.
world-class Energy Reform in such a short time. As for the new administration and the future, I hope our work will give
Q: What are the company’s expectations for the
it the confidence that the reform is working for the market.
near future? A: ACCIONA wants to almost double its capacity by 2020
Q: What is your assessment of the renewable energy
in Mexico, which means starting 2021 with 2,000MW of
industry’s future and what role will ACCIONA play?
installed capacity in renewable energy. While we used to
A: The energy that we got under the first two long-term
work mainly with wind farms, the Puerto Libertad project
electricity auctions is directly delivered to CFE as the
got us to 35 percent of photovoltaic installed capacity,
Clearing House had not been established by then. As for the
so we will continue to seek a balance between wind and
third auction, there are no ongoing projects yet. We have
solar energy. We have three more plants in the pipeline for
accumulated 1,200MW of installed capacity, which is equal
construction in 2019. This implies an additional investment
to providing energy to 1 million families of four people.
in the country of US$1-1.2 billion over the next two years. Our
Mexico achieved record-breaking energy prices in 2017,
partner company Nordex opened a new wind blades plant
with the lowest historic price in the world of US$17.9/MW.
in Matamoros in March 2019, which will create 900 new
Mexico is a privileged country as it has high solar irradiation
jobs. This plant speaks to our solid bet on Mexico and our
across its 3,400km at the northern border. The country
commitment to bringing development to those states that
has almost 12 hours of daylight, plus another four hours
need it and have the natural resources, such as Tamaulipas.
of light between dawn and dusk. Having about 16 hours of
We also want to be integrated with the communities in which we work and to deliver shared value to them. This is our company’s mission so we will continue to pursue
ACCIONA Energía , a subsidiary of ACCIONA, is a global
it in every project in which we work. Our investment in
operator of renewable energies with more than 9,000MW under
social development in Mexico is significant and tangible.
ownership. It has 222 wind farms, 76 hydro plants, several large
For example, we have been doing social work in Reynosa,
PV plants, biomass installations and a CSP plant
especially with local schools.
VIEW FROM THE TOP |
FRENCH GIANT EYES DG, QUALIFIED SUPPLY GERARDO PÉREZ Director General of EDF Renewables
Q: Considering EDF Renewables’ experience, what
moving forward and we believe that around February or
possibilities do you see in it becoming a qualified supplier?
March 2019 we will be able to start construction.
A: EDF Renewables has a sister company called EDF Trading, located in Houston, which is a qualified supplier.
Q: What is EDF Renewables’ method to approach smaller
Though in the past EDF Trading has not been interested in
companies and supply them with electricity?
participating in Mexico, we are in discussions to see if the
A: For these companies, we are fortifying the sales structure
Mexican market has become more appealing. However, we
with special personnel that will take our clients by the hand
are also looking for new business model alternatives with
when they do not have the relevant energy expertise.
other types of generation such as distributed generation,
The idea is to have a team with a strong commercial and
and we are in the process of designing a strategy for
advisory profile that can provide the technical expertise,
these alternatives. Preparing for this, we acquired two
which will be the key to doing business with these clients.
companies in the US that will strengthen our capabilities in this regard.
When we present ourselves to big companies that have an energy department, we are all speaking the same language.
Q: In addition to the distributed generation opportunity,
However, with smaller clients we advise them and show
which other niches is EDF exploring to generate presence
them the benefits of the new structure. These are clients
and add value to the market?
that want to see a quick return on their investment. So, we
A: We are working on two different options. The first is
have to be creative in the way we offer the product, where
transmission, where we are actively participating in one of
clients see benefits as soon as possible.
the consortiums bidding on a direct-current transmission line in Oaxaca, through our affiliate company, RTE, the
Q: What can we expect from EDF in terms of participation
French transmission system operator. RTE has also signed
in the generation niche?
a memorandum of understanding with CENACE for
A: This will be determined by whether any future auctions
technology and information transfer, since it is the world’s
take place given that the fourth long-term electricity
most qualified company in the area of electricity grids.
auction was put on hold by the new administration. Our participation in auctions depends a lot on their continuity.
The second is a French company that we are just starting
We also just signed an important bilateral PPA.
to work with that provides engineering services for various fields, including nuclear, hydraulic, thermic, transmission,
We expect to continue with PPAs. We have a disadvantage
direct-current and renewables. It will also work for third
as we are not a qualified supplier, which would allow us to
parties and as advisors to the government on topics
sell directly to the final user. We are making associations with
regarding nuclear plants, an area where there is not a lot
several qualified suppliers, so we will be able to participate
of expertise in Mexico.
in the market with them. Our trading affiliate must first show interest in participating in trading in Mexico before we can
We are also opening a business line for operation and
become a qualified supplier, but it is already operating on a
maintenance for third parties. In fact, we have already
global level. This is something we will discuss in 2019.
signed three important contracts for maintenance and operation of third-party solar and wind-power projects. EDF Renewables is a market leading independent power
We completed the Sonora solar project in December 2018
producer and service provider with over 30 years of expertise
and started operations in January 2019. The wind project
in renewable energy. It works across the value chain, in grid-
in Oaxaca, which had certain social issues to be solved, is
scale power, distributed solutions and asset optimization
181
| VIEW FROM THE TOP
MORE TRANSMISSION LINES ARE NEEDED TO BOOST WIND GENERATION LEOPOLDO RODRÍGUEZ President of AMDEE
182
Q: Which market scheme is best suited for the development
be established because O&M costs are low and there is no fuel
of wind energy projects?
in between, which means low volatility. Under the previous
A: Wind energy projects manage high volumes of generation
regulatory framework, it was not easy for small or medium
in Mexico. This technology is benefiting from PPA schemes and
sized consumers to participate in the PPA structure. Before,
the long-term electricity auctions. Bilateral private contracts
the off-taker had to become partner of the project in question.
are gaining traction because the prices offered by wind
It was a game in which only big players could participate. Now,
projects are at least as competitive as conventional energy
every consumer can participate without becoming a partner
sources and usually, even more competitive. Additionally, they
in the project. Before the implementation of the new energy
represent long-term price certainty. Long-term contracts can
model, we were used to having fixed prices for at least one month but now these prices change every hour. We also still have a methodology to define electricity tariffs and this is
The Mexican Wind Energy Association (AMDEE), founded in
limiting smaller consumers’ participation in bilateral contracts.
2005, brings together developers, manufacturers and service
Long-term electricity auctions allow the purchasing parties,
providers to represent common issues before the authorities,
mainly CFE Suministro Básico, to fulfill their energy needs
society and economic players related to the wind energy sector
without the need of investing.
| VIEW FROM THE TOP
A UNITED SOLAR FRONT HÉCTOR OLEA President of ASOLMEX
Q: What has been ASOLMEX’s major contribution to the
distributed generation. This kind of unification did
solar industry in Mexico?
not exist a few years ago and has motivated a greater
A: ASOLMEX has achieved many objectives in the past
interaction with relevant decision-makers, such as the
few years. In 2014, when we started the association,
Ministry of Energy, CRE, CENACE and even CFE. During
ASOLMEX was comprised of 10 founders and to date
this journey, we have fought many battles, including the
it has more than 110 members. The first achievement
removal of the 15 percent import tariff imposed on solar
is the consolidation of an industry in constant growth.
panel technology.
ASOLMEX unites the interests of all the parties involved in the solar industry value chain, from big utilities to
Among the association’s activities, one of the most interesting initiatives is Ilumínate. This social program delivers solar lamp kits to communities that do not have
Mexican Association of Solar Energy (ASOLMEX) groups
access to the grid. It is one of the flagship projects we are
operators, investors, providers and developers of utility-scale solar
most proud of. ASOLMEX’s main goal is to develop the
projects. It represents the interests of the industry and motivates
solar industry in Mexico and energy democratization plays
the advancement of the regulatory and legal framework
an important role within this.
VIEW FROM THE TOP |
CLEAN ENERGY USE A COMPETITIVE ADVANTAGE IRENE ESPINOLA Global Renewable Energy Director at Grupo Bimbo
Q: Grupo Bimbo is a world-renowned bread-maker and
Q: What was the main driver behind being the first
also part of the RE100 global initiative. What was the
company to issue a CEL through distributed generation?
main reason for joining and what is its purpose?
A: We do not have a set goal for CEL but we already have
A: RE100 is a collaborative, global initiative that brings
covered this requirement due to the legacy contract the
together more than 100 influential businesses committed to
company holds with Piedra Larga’s wind farm. As Grupo
100-percent renewable electricity consumption. In fact, we
Bimbo, we do not need to accomplish that goal as we
are the first company in Mexico and even in Latin America
are registered as basic users with CFE, so we are already
to join this movement. Generally, in these initiatives, Grupo
paying for CEL in the tariff CFE is charging. Even so, we are
Bimbo participates as an agent of change. The idea is that
participating with our distributed generation facilities. The
after taking the first step, more companies follow up by
goal is to generate 5 percent of clean energy in 2018 and
identifying successful case studies. This has an important
to increase that to 8 percent in 2019. We do not need that
impact in Mexico as renewable energy is the best option
renewable energy certificate as we are already covered
for achieving sustainability. For Grupo Bimbo, being able
but the idea is to offer these certificates in the market for
to use clean energy represents a competitive advantage
other companies that cannot invest in clean technologies
from a social, environmental and economic perspective.
but must comply with this requirement. So far, Enlight has served as the generator and ENGIE has acted as our
Q: What is the company’s guideline when selecting
qualified supplier for trading these certificates in the
strategic alliances to work with?
market. This company reports these CEL in the system
A: Grupo Bimbo is present in 32 countries. Our strategic
and collocates them in the market.
allies are located in every region we open. We do not always work with the same companies but we explore
Q: What differentiates Mexico from the other 31 countries
options in each location. When we enter a country, we
where Grupo Bimbo holds operations?
get to know the current legislation and open auctions
A: Mexico was the first country where we started with
related to energy topics. For these auctions, we seek out
the RE100 initiative. We began in 2012 with the Piedra
companies that we already know so they can introduce us
Larga wind farm located in Oaxaca. Through this project,
to other players. In the end, the energy industry is small
we supply 70 percent of our national operations. The
and we all know each other. These auctions are open to the
remaining 30 percent comes from solar distributed
market and any player that wants to participate, can do so.
generation and the installment of another wind farm. With this capacity, Grupo Bimbo produces 40 percent
Q: What is Grupo Bimbo’s role is the solar distributed
of its global energy supply through renewable energy
generation segment?
generation. For 2019, we have signed a contract with
A: We are installing 20MW at our 42 producing plants in
Invenergy to construct a 100MW plant in Texas that
Mexico through this scheme. This project is already being
will start operations this same year. This installment will
executed and we hope to finish it by July 2019. For this
provide an additional 35 percent capacity globally. With
project specifically, we conducted a national auction
this, we still face a 25 percent generation deficit that will
process. We weighed whether to address installments
be supplied from other geographies.
individually or the project as a whole. In the end, we realized the most beneficial thing to do was to select a partner at a national level because it is quite complicated to have
Grupo Bimbo is a world-renowned Mexican bread-maker with
various partners and control all this equipment in many
operations in 32 countries in the Americas, Asia, Africa and
locations. We are working with Enlight on this project as it
Europe. The company produces more than 13,000 products
is the biggest distributed generation company in Mexico.
through 100 different brands, employing 139,000 people
183
| INSIGHT
JOINT GLOBAL ACTION NEEDED TO STEM CLIMATE CHANGE NATALIA LEVER Regional Director of Climate Reality Project
184
Climate change is the most significant threat the world
reduce their carbon emissions or pay more to keep
and humanity has ever faced, says Natalia Lever, Regional
business as usual. “Each company will decide how much
Director of Climate Reality Project, an international
it wants to invest. In the long run, it will be more profitable
organization that seeks to catalyze solutions to stop this
to reduce carbon emissions than to continue paying to
phenomenon. “Climate Reality Project’s goal is to empower
maintain current emissions.”
citizens by providing them with information about climate change. We have over 17,000 members. This means 17,000
Lever says renewable energy solutions must also be
people talking about climate change and helping decision-
available to the overall population. “We do not necessarily
makers take notice of the problem in over 149 countries.”
need big solar farms to produce clean energy in cities. We could use the roofs of buildings and houses for solar panels.
According to Lever, climate change can only be addressed
The important thing is to give people the opportunity to
through joint actions, although countries must take
choose the source of the energy they consume.”
individual measures to reduce their greenhouse emissions. This joint commitment resulted in the Paris Agreement,
Contrary to popular belief, renewable energy projects
in which Mexico assumed a leadership role. “Mexico’s
have become profitable for businesses and accessible
participation in the Paris Agreement was historic given
to consumers, Lever says. “A few years ago, this was an
the ambitious commitments it subscribed to and how it
expensive technology but prices have come down. It
opened the door for more developing countries to commit
is no more expensive than what we have now and it is
themselves in an important way.”
even more economical when compared with the costs of pollution and its consequences.” She points out that it
Mexico has also put action to words, Lever says, creating
would be even cheaper for the government if subsidies
a number of entities to help it achieve its goals. “Mexico
applied to electricity were used to pay for solar cells or
has developed several institutions to address climate
energy efficiency technologies. “The government would
change. We have a general law, state laws, a fund and a
stop paying the subsidy once the asset is completely paid.”
council to help with the fight. The country also has several inter-ministerial entities in charge of complying with the
Businesses and the government must remember that
Paris Agreement commitments, which puts us in a viable
complying with the commitments of the Paris Agreement
context to comply with our objectives,” she says.
requires a coordinated action between the public and private sectors, Lever adds. “The industry needs to
Lever highlights two specific points regarding Mexico’s
understand the benefits of having economic practices
determination to see its commitments to fruition: the
without negative externalities.” Lever also says the
energy transition and the carbon market, although there is
government must double its efforts to go beyond the
still a considerable way to go. “We have made progress in
institutional framework. “The government needs to create
this regard but much remains to be done. Industries need
a roadmap that allows us to know which industrial and
to better understand the benefits of renewable energies
economic sectors need to participate and how they
and there is no clarity regarding the national market’s
will do it.”
conditions for this new type of energy.” Despite the threat that climate change poses, Lever says The carbon trading market is another important piece of
that it is not too late to do something, “We like to say
the puzzle. “The market will offer an important incentive for
that the sustainable revolution has the same power as the
companies because it directly impacts competitiveness,”
industrial revolution but with the speed of the technology
Lever says. The market will force companies to either
revolution.”
INSIGHT |
RECONCILING SOCIAL AND ENVIRONMENTAL PROTECTION WITH BUSINESS DEVELOPMENT LUIS VERA Former Partner at V&A
A first reading of the energy industry’s regulatory framework
includes two additional development phases that will add
suggests that environmental impact assessments should be
another 150MW of installed capacity. “Each development
prioritized, followed by indigenous consultations and finally,
stage required a different assessment, including social and
the social impact assessment. But Luis Vera, Former Partner
environmental impact assessments,” says Vera. Based on the
at socio-environmental law firm V&A, says this is not always
firm’s extensive work dealing with social and environmental
the case. “The logic behind this established timeline is at
issues, Vera believes it is essential for developers to be
odds with the actual fieldwork,” he says. “Environmental
aware of the importance of these steps. “Investors must
impact assessments have looser time frames and we use
become increasingly aware that nontechnical issues have a
this time to simultaneously cover the social aspects that
prominent social component,” he says. “Anthropologists and
overlap with environmental issues.” This means the firm
sociologists must be involved to build lasting relationships
can get a sneak peek at social insights such as indigenous
with local communities.”
presence or sensitive environmental areas prior to carrying out the consultation process.
When presenting its social and environmental impact assessments, V&A adds a chapter that takes into account
Compliance with the social and environmental requirements
the project location’s needs and regional development
when developing a large-scale energy project can prove
goals. “By doing so, our clients obtain increased certainty
challenging, especially considering the regulatory
on where to focus their investment, not only to grow
framework remains largely in the draft stage. Duplication
the company’s own business but also to contribute to
of responsibilities within government agencies does
the long-term regional development of the project’s
little to solve the problem, says Vera. “SEMARNAT and
location,” Vera says. The firm is also actively involved in
ASEA developed two different standards of the same
the public side of the social and environmental equation.
regulatory framework due to their respective mandates,”
“One of our partners is developing an algorithm together
he says. “Meanwhile, the Ministry of Energy’s social impact
with the Ministry of Energy so it can be more selective
guidelines are still on the drafting table, meaning social
in the projects it reviews, shifting from anecdotal to
impact assessments lack an established reference.”
standardized procedures.”
In 2017, the firm obtained 43 authorized social impact
In the near term, Vera worries litigation services will be
assessments, with 24 more in the pipeline for 2018. Using
more in demand due to the way the first procurements
this experience, V&A established a series of precedents
and allotments were carried out after the reform passed,
related to energy law interpretation and how environmental
both in the oil and gas licensing rounds and the long-
legislation applies to both regulated and nonregulated
term electricity auctions. “ASEA’s and SEMARNAT’s early
users. “V&A showcased consistency in all its assessments
heavy workload and understaffed agencies mean some
and legal interpretation to help decision-makers streamline
shortcuts were taken, such as hastily granted authorizations
their authorization and permitting processes,” he says. “Our
and procedures, casting doubt over the legality of a few
work also generates certainty in evaluation by financial
projects,” Vera explains.
entities.” From its outset, V&A established itself as a strategy firm Oak Creek’s Tres Mesas wind farm in Tamaulipas is among
rather than a litigation firm, given effective strategies
the large-scale energy projects V&A was involved in. It
eliminate the potential for later litigation, but that is
started as a pilot project that soon extended to a first and
changing. “We prioritized creativity over legal defense. But
second development phase totaling 148MW of installed
considering the coming scenario, we are also developing a
capacity, operating since May 2017. The project now
specialized litigation department,” says Vera.
185
| VIEW FROM THE TOP
THE CONSTITUTIONAL RATIONALE BEHIND THE ENERGY REFORM MARCO DE LA PEÑA Partner at Cuatrecasas
186
Q: One of the strongest areas for Cuatrecasas in Mexico
related to our clients’ projects. Additionally, Cuatrecasas
is energy. How does the company provide value to its
collaborates with the authorities to communicate the
customers?
needs of the private sector and provide opportunities
A: Cuatrecasas opened its office in Mexico with the goal
for cooperation, allowing both authorities and clients to
of becoming a leading firm in the energy sector providing
understand the needs and specific interests of the other
a unique multinational value based on our experience,
and reduce risks.
which is unparalleled among our competition. We are an international firm and our goal is to provide our clients with
Q: One objective of the ZEEs is to improve the economies
a complete service in legal areas, including infrastructure,
of southern states. What should be the government’s main
oil and gas and renewable energy. Cuatrecasas incorporates
considerations for this project to be successful?
the experience of more than 100 years of service in Spain
A: Given our experience, we believe the government should
and the experience of our Mexican specialists.
create business incentives for companies interested in developing projects in southern Mexico through, among
Q: How can Cuatrecasas help to strengthen the
others, simplifying legal procedures and providing legal
competitiveness of its national and international customers
certainty to long-term investments. Cuatrecasas has
in Mexico?
collaborated with some local governments to create tax
A: Thanks to the current legal framework governing energy
incentives to increase private investments, consequently
matters, Mexico closed 2018 with 111 signed exploration and
benefiting investors and local governments.
extraction contracts with approximately 75 companies from 25 countries. These numbers show the legal framework’s
As established, governments should simplify procedures,
stability, which will continue to support the industry.
making them more efficient and “user-friendly.”
Cuatrecasas provides complete legal assessment in
Additionally, public registry platforms and services should
constitutional and energy matters, according to the specific
be updated and provide complete and timely information.
needs of our clients. We provide them with legal options to
It would be a great idea to incorporate municipal, state
resolve any issue that may arise regarding energy-related
and federal registrations. Through simpler and more
matters, among others.
efficient administrative procedures, expenses for both the government and companies can be reduced, generating a
We trust the legal framework because it guarantees a space
more attractive and certain investment.
for fair competition and an opening to the downstream and midstream sectors without compromising the ownership of
Q: Does Mexico have the appropriate legal framework to
Mexico’s resources. Our experience allows us to generate
ensure economic and social development?
complete and integrated analysis regarding specific
A: Mexico has a multicultural and diverse population,
activities and legal frameworks that measure or estimate
so legal frameworks must address scenarios that are in
possible risks in the energy and infrastructure sectors. We
constant change and development. The country also
are especially proficient in reviewing different procedures
incorporates a complete and extensive legal framework to
and advising on overcoming legal and contractual obstacles
create a prosperous economic and social environment. In our opinion, one of the main problems regarding the legal framework lies in its application. Instead of focusing on
Cuatrecasas is a Spanish-Portuguese law firm present in 12
improving its legal frameworks, Mexico should focus on
countries that represents leading companies and advises them
strengthening rule of law. This change in Mexico would not
on their market investments. Cuatrecasas also has expertise in
only improve the life quality of its people but could also
litigation and international arbitration
change the sometimes negative perception that national
and international companies have of the country and its
Q: What measures should be implemented to strengthen
business environment. Law firms like Cuatrecasas have a
Mexico’s energy sector?
responsibility to aid the government, private entities and
A: The new administration could review the constitutional
foreign investors in creating a working communication
and legal scope of the energy legal framework based on
through which real problems are considered and workable
international trends and analyze business strategies for the
solutions are proposed.
development of public companies, private companies and Mexico’s best interests. It is necessary to review an energy
Q: What is more demanding for Cuatrecasas: providing
model beyond the current legal framework that allows
services to Mexican companies with national operations or
growth for private entities and the Mexican economy. There
providing services to foreign companies in Mexico?
has been much discussion about investments and capital
A: As an international law firm, we have both types
inflows in the energy sector but little has been said about
of clients and legal experts capable of addressing the
the management, planning and allocation of those resources.
specific requirements of each. Generally, it can be more demanding to help foreign companies wanting to invest in
The new administration should propose strategies to
Mexico mainly because they are not familiar with specific
strengthen the legal and constitutional framework to
regulations or applications that in Mexico may vary
improve the development of the oil and gas industry
from international standards. As an example, oil and gas
and renewable energies. Additionally, it could strengthen
biddings follow a national procedure, whereas international
its productive state companies (PEMEX and CFE), while
conditions have been and are currently being implemented
allowing the development of clean and renewables projects.
in other countries. Our wish regarding the new administration includes Cuatrecasas has outstanding experience in providing
strengthening the energy sector through both productive
international legal assessments to different types of
state companies and private investment opportunities,
clients. We have introduced this experience to Mexico,
providing legal certainty and generating incentives for the
taking advantage of over 100 years of knowledge and
development of Mexico’s energy and infrastructure industry.
experience in European legislation and incorporating it into
This administration should target win-win scenarios in which
our assessment of legal Mexican frameworks through our
economic and legal benefits are provided to the industry to
local legal experts.
promote social and economic growth in Mexico.
187
| SEXENNIAL PLAN
AMLO’S PLAN TO SAVE, TRANSFORM PEMEX The Energy Reform has suffered attacks from the presidential administration, to the point that investors fear the door that liberalized the energy market will once again close. President López Obrador has set direct strategies to salvage PEMEX’s operations. It is a brave new world but also an uncertain one The energy sector and rescuing PEMEX are two essential points on President López Obrador’s agenda. Although the administration says that all contracts agreed by the 188
previous administration will be respected, there has been a surge of uncertainty regarding the fate of the Energy Reform and of investments already made from the private sector.
“We are at the beginning of a new paradigm to transform Petróleos Mexicanos (PEMEX) into a lever for development”
President López Obrador says that PEMEX is experiencing its worst production crisis in four decades. To address this, in March 2019, the president released his plans to rescue the national oil-producing company. “We are going to rescue the national oil industry,” he said. Part of his plan to give PEMEX new life is to inject fiscal resources to increase its production. The plan, however, has failed to win over international rating agencies like Fitch Ratings, which lowered PEMEX's credit score for the Mexican productive enterprise from BBB+ to BBBin both national and foreign currencies. Fitch Ratings said the plan announced by the government is not
“We are going to rehabilitate our six refineries. We will build another one in Dos Bocas. We will produce more oil and gasoline without gasolinazos and without an increase in taxes”
enough to counteract the deterioration of the company’s credit profile. According to Octavio Romero, Director General of PEMEX, the company’s crisis is the result of the Energy Reform. Romero says that as a result of the reform, the government reduced federal resources that were used for exploration and instead diverted them to seismic and deepwater perforation studies. AMLO’s strategy dictates the government will now divert a significant amount of resources to well drilling. The president is determined to rescue PEMEX and has stated that this does not entail automatically canceling the exploration and production contracts that have
administration will give the private sector the opportunity
“We are going to prove which is better: for PEMEX to hire or privatization. No ideologies, just practical judgement”
to compete in the Mexican market.
March 19, 2019
already been assigned with international oil businesses. As a result of the Energy Reform, the private sector’s net production account is only 4,000b/d, which is “very marginal for the needs of the country,” says López Obrador. He added, however, that the federal
VIEW FROM THE TOP |
BLAZING A PRODUCTION TRAIL IN SHALLOW WATERS MATT MCCAROLL CEO at Fieldwood Energy
Q: Why did Fieldwood Energy increased the estimated
jacket will be set before other wells are drilled. Three or
reserves at the Block 4 field off the coast of Tabasco?
four additional wells are likely in Ichalkil and one or two
A: From the beginning, we believed the figures to be low. The
in Pokoch during the first phase. The company’s plan also
revised 455MMb estimate includes only oil and we believe the
involves laying pipeline from our block to an unused PEMEX
recoverable reserves to be much higher, around 650MMb. The
platform where we will transfer custody of the oil and gas
estimate is a result of drilling, completing and testing on only
from Fieldwood to PEMEX. The agreement for this transfer
two wells in Pokoch and Ichalkil; there will be more to come.
of custody point is being finalized and is the most efficient
We have both Jurassic and Cretaceous reservoirs and we think
way to begin production quickly.
the field will be huge. The company is on schedule to hit first production in 2020 while maximum production, which CNH
Q: How will Fieldwood guarantee the correct measurement
estimates at 104Mb/d, should occur in 2026. At the same time,
of well production?
we expect gas production to hit 140MMcf/d.
A: Fieldwood will install meters for the measurement at the transfer of custody point. Metering is a big issue in Mexico
Fieldwood was able to increase reserve estimates almost
because it was not a common practice before. But our
sevenfold because the rock properties and reservoir
company possesses the technology to carry out metering
characteristics were better quality in the wells we drilled
simply and with accuracy. We will have to agree with PEMEX
than those found in the initial PEMEX wells. We moved
on the meter readings at the custody transfer point and
between 4,000-5,000ft away from PEMEX’s wells and
PEMEX will then have the option to transfer or buy the
found a thicker reservoir. Second, we did not find a water
production. We have discussed entering a contract with
level in the Jurassic or Cretaceous reservoirs, so the extent
Trafigura, which is responsible for marketing the government’s
of the area is larger than first thought. Third, on the Ichalkil
production, giving us multiple buyer options. Quality must
field, the company found that the Jurassic reservoir extends
also be agreed because we believe we have very high-quality
further east than PEMEX had realized. Fourth, because we
oil. We do not want to sell 36°API at a 26°API price.
were able to conduct extensive production tests for weeks at a time, we have determined the most efficient flow
Q: What are the next steps for Fieldwood Energy in Mexico?
rate for these wells. We now know the real deliverability
A: Our Phase 2 plan is to control our volume in Ichalkil
in terms of production volumes. While overall reserve size
and Pokoch by building a pipeline to the Dos Bocas
and recoverability is important, the way those reserves are
terminal between 2021 and 2023. But our current Mexican
developed is the key. It is the recovery amount per well
project is large and should rival the size of our US projects
where Fieldwood and the Mexican government will profit.
so we expect to remain busy for the next few years. Fieldwood has now had a footprint in Mexico for three
Platforms on this site are due this summer and the drilling
and a half years and we have built a strong relationship
rigs are scheduled to begin drilling later this year. Fieldwood
with PetroBAL. The company has established itself as
Energy is confident that the US$500 million investment
a quality operator and would consider any production-
to hit first production and the speed with which we are
sharing contract. If or when the bid rounds start again,
progressing makes this field very attractive. We already
we will certainly be involved.
have the capital in place to fund the entire development. Q: How will Fieldwood get to first production in Pokoch
Fieldwood Energy is an E&P company that focuses on offshore.
and Ichalkil?
Based in Houston, it is present in both the US and Mexico. In
A: Phase 1 of our development plan includes installing
2017, Fieldwood became the first US company in 75 years to
platforms, one at Pokoch and another one at Ichalkil. The
drill an offshore well in Mexican territory
189
| ONSHORE ROUNDS MAP
a
4 4 a 1
8
9
20
5
18 190
2
5
5 3
12
21
7
1
2 3
8
1 b
13
23 16
19 10 2
1
14 4
9 15
5
25
1 10
17
6
22 6
11
7 8 b
14 Bid R1-L3 R2-L2 R2-L3 Farmout
11
7
12 10 13
9
ONSHORE ROUNDS
Block 1
All onshore fields offered by PEMEX and CNH through the
6
three bidding rounds were provided through license contracts,
2
which involve the least government participation of all the contracting models allowed by the Energy Reform, making them the closest thing to a traditional concession contract. This provided an attractive offer for companies willing to do the complicated work of establishing or increasing production
3 12 4 13
in mature and unconventional fields that are extremely rich in
5
reserves, both proven and prospective, but whose extraction
18
involves the labor-intensive and capital-intensive application
21
of more specialized technology due to their difficult
7
geological conditions. Operators also need to account for
17
Winning Bidder Diavaz Offshore Sistemas Integrales de Compresión in consortium with Nuvoil and Constructora Marusa Consorcio Manufacturero Mexicano
Grupo Diarqco
Strata Campos Maduros
Servicios de Extracción Petrolera Lifting de México
the cumbersome geography of the jungle environments in
9
the states of Chiapas, Tabasco, Veracruz and Tamaulipas, in
23
addition to issues related to security, ecological regulations
8
Construcciones y Servicios Industriales Globales
10
Ingeniería, Construcciones y Equipos Conequipos Ing in consortium with Industrial Consulting, Desarrolladora Oleum, Marat International and Constructora Tzaulan
and community engagement. However, they do have the advantage of being situated close to Mexico’s legacy locations for the oil and gas industry, in many cases preceding the Mexican Revolution and the formation of PEMEX, so access to infrastructure and transportation facilities is simplified.
11 15 19
Farmouts
Winning Bidder
1
Ogarrio
Dea Deutsche Erdoel AG
2
Cárdenas-Mora
Cheiron Holdings
The fields were mostly awarded to newly formed independent Mexican operators like Jaguar E&P, along with larger established national players, such as Diavaz and Grupo Carso, that are getting involved in these rounds to launch their
Compañía Petrolera Perseus
Renaissance Oil Corporation
25 14
Canamex Dutch in consortium with Perfolat de México and American Oil Tools
16
Roma Energy Holdings in consortium with Tubular Technology and Gx Geoscience Corporation
20
GS Oil & Gas
22
Grupo R Exploración y Producción in consortium with Constructora y Arrendadora México
24
Tonalli Energía
operational and asset management capabilities. On the other
4
hand, the onshore farmouts were won by more established but
5
still relatively independent international E&P companies with a
7
degree of previous experience in Mexico, specifically German
8
DEA Deutsche Erdoel AG and Egyptian Cheiron Holdings.
9
The future success of these partnerships with PEMEX will
10
determine whether this particular form of tendering will be
1
expanded in the rounds to come as the AMLO administration
1
follows through on its plans to reinvigorate PEMEX.
4 2 3
Sun God (o) and Jaguar E&P
Iberoamericana de Hidrocarburos and PJP4
Newpek Exploración y Extracción and Verdad Exploration
6 10
Shandong Kerui, Sicoval MX and Nuevas Soluciones Energéticas
11 5 7 8
Jaguar E&P
9 14 12 Source: CNH
13
Carso Oil and Gas
191
| OFFSHORE ROUNDS MAP
2 1 1 3 2 4
5 3
4
192
7
5 6
12
11 13
10
12 15 16
20
14
21
17 18
23
1 2 25
24
22
26 34
28 18
3
35
4 5 32
1
11
10 28
7 29
8
9
2
30
R1-L1
R2-L1
R1-L2
R2-L4
R1-L4 Salina
R3-L1
R1-L4 Perdio
Farmout
2 31
1
14 33
7
6
Bid
12
4 15
OFFSHORE ROUNDS
Block 1
Farmout
Winning Bidder
Trion
BHP Billiton
During the bidding rounds, 64 offshore wells were committed,
has a 29 percent probability of geological success with
which is equivalent to 20 percent of all the exploration wells
prospective resources of 893 million barrels of 24° API.
in Mexico’s history, with four IOCs authorized to drill as of April 2019. The winning consortiums led by Talos Energy,
Activity is also gearing up in Mexico’s shallow water blocks,
Pan American Energy, Murphy Sur and PC Cargali have
with companies carrying out drilling operations in hopes of
started drilling operations in Mexico’s deep sea. BHP was
meeting President López Obrador’s 2.4Mb/d goal by 2024.
the first IOC to drill in the country’s deepwaters and has
Premier Oil, Talos Energy and DEA also hit black gold in
announced it will drill its third evaluation well in Trion in 2Q19.
2017 with the Zama-1 discovery, with projected resources
The company began drilling two exploratory wells in October
of 1.4-2 billion BOE. Since then, the consortium has drilled
2018 and continues to develop studies to confirm the volume
three appraisal wells, through which Zama-2 confirmed it
and composition of the hydrocarbons located in Trion, as
reservoir modeling. Hokchi Energy is also actively drilling
well as the viability of the area. Round 1 winners Total and
in Mexico’s shallow waters with its exploratory well Acan-1
Murphy Sur will soon begin drilling in their respective Etzil-1
in block 2 near the coast of Coatzacoalcos. Operators are
and Cholula-1 wells while PC Carigali expects to begin drilling
investing billions of dollars into exploring Mexico’s offshore
its first well in 2019 with an investment of US$92.8 million.
and are awaiting word on Rounds 3.2 and 3.3 that have been
Its Yaxchián well, located in area 4 and won in Round 1.4,
postponed by President López Obrador.
Block 2 7
Winning Bidder Talos Energy, Sierra Oil and Gas and Premier Oil
Block
Winning Bidder
12
PC Carigali, Ophir and PTTEP
14
Repsol and PC Carigali
1
ENI International
24
ENI and Qatar Petroleum
2
Pan American Energy and E&P Hidrocarburos
20
4
Fieldwood Energy and PetroBAL
21
1 3
Statoil, BP and Total PC Carigali and Sierra Oil and Gas
5
Murphy Oil, Ophir, PC Carigali and Sierra Oil and Gas
4 2 3 22
Shell
28
4
1
23
China Offshore Oil Corporation Total and ExxonMobil
29 5 18
PEMEX
29 2 35
Chevron, PEMEX and INPEX
Repsol, PC Carigali, Sierra O&G and PTTEP
5 11
Shell and PEMEX Repsol Exploración
2
PEMEX and DEA Deutsche
6
PC Carigali and Ecopetrol
7
ENI México, Capricorn Energy and Citla Energy
12
Repsol Exploración
8
PEMEX and Ecopetrol
15
Capricorn and Citla
9
Capricorn Energy and Citla Energy
17
10
ENI México
16
11
Repsol Exploración and Sierra Perote
18
12
Lukoil International
25
14
ENI México and Citla Energy
26
15
Total E&P and Shell
28
ENI and Lukoil
30
DEA Deutsche, Premier Oil and Sapura
31
Pan American
3 4 6
Shell and Qatar Petroleum
7 10
13
33 32
Repsol, PC Carigali and Ophir
Source: CNH
34
Premier Oil
PEMEX, DEA Deutsche and CEPSA PEMEX and CEPSA PC Carigali
Total and PEMEX Total, BP and Pan American
193
| VIEW FROM THE TOP
MIXING WITH MAJORS BRINGS OPTIMISM, OPPORTUNITY FOR MEXICAN E&PS ALBERTO GALVIS CEO at Citla Energy
Q: How is Citla developing its shallow water blocks – 7, 9
the block into a commercial development. We will make a
and 14 – won in Round 2.1, and Block 15 won in Round 3.1?
decision to drill or not by the end of 2019.
A: We have made significant progress in maturing 194
opportunities in our blocks. Citla has, carried out seismic
On the Tampico-Misantla Block 15, Citla did not make any
reprocessing to identify prospects and make them drillable
drilling commitments, although we see definite geological
targets. These studies, have confirmed our technical thesis
potential here. But, while surveying, we saw a number of
regarding the potential existence of significant quantities
environmentally sensitive areas owing to its proximity to
of oil in a number of our known prospects. The company is
the coast and that the areas of greater prospectivity were
now deciding where to drill the first wells from the options
on the eastern side of the block, away from the coast.
we have selected, although in Blocks 7 and 9, both located
Therefore, Citla and its partners took the decision to
in Salina del Istmo, we have two commitment wells and
relinquish the environmentally sensitive, less prospective
already know where they will go.
area, some 49 percent of its total size.
We are working closely with our operators and are proud
Q: How has Citla consolidated its position in Mexico
to be the only Mexican company to have partnered with
following its successful bids and where has the company
an oil major, Eni. This fact highlights the commercial and
identified areas of growth?
technical capacity Citla provides. Our relationship with our
A: We have plans to expand, although our current focus is
partner exploration company, Cairn, is also very strong. The
on our four blocks, which cover an area of around 1,500km2.
joint venture also has been progressing with the permitting
The blocks are a major commitment, contain multiple
processes, making sure the decisions, actions and surveying
prospects and will demand substantial work. Although there
activities we have undertaken on the blocks are clearly
is great room for development within our existing portfolio,
stated, including environmental considerations. We have also
CITLA continues to look for opportunities. Although the
undertaken environmental and social studies to identify any
new bids have been suspended, we predict that the market
potentially sensitive areas in which local communities might
will become more dynamic this year and into 2020, with
be affected by our operations. These have all been passed on
M&A activity growing as the winners and losers of Round
to the authorities. Exploration plans for Block 7 and Block 9
2 begin to act. Those companies that have been successful
have already been approved; we are missing only the drilling
will expand and consolidate while those that have endured
permits, which we believe will be issued soon. By the end of
difficulties may decide to sell to avoid the next commitment
summer 2019, we will be ready to drill in both blocks.
wells or risk further financial investment.
The development of Block 14, also located in the Salina del
Q: How will the suspension of PEMEX farmouts impact
Istmo, is at an earlier stage and we must first identify the
the administration’s production target of 2.6MMb/d by the
prospects here. But this block already has the advantage of
end of 2024?
a previous discovery – Xulum – that was not developed due
A: The farmouts were a great opportunity to enhance
to its size and heavy oil characteristics. Citla and its partner
PEMEX production and would have brought extra hands
are trying to find more prospects in this area to convert
and expertise to aid what is a difficult endeavor for just one company. Farmouts could have supported secondary recovery rates and delivered gas and water injections to
Citla Energy , is a Mexican and independent E&P company with
increase production levels. In the two farmouts that took
stakes in four shallow water blocks. The company combines local
place, PEMEX received sizable funds and the companies
oil and gas industry expertise with strong financial backing for
involved will now invest hundreds of millions of dollars that
asset acquisition focused on onshore and offshore environments
will lead to increased production from mature fields.
VIEW FROM THE TOP |
EARLY PRODUCTION WITH PLANS FOR THE LONG RUN JAVIER ZAMBRANO CEO of Jaguar E&P
Q: How has Jaguar E&P strengthened its business through
Q: What production levels can be expected from Jaguar
its JV with Vista Oil & Gas?
E&P for the next year?
A: Our JV with Vista Oil & Gas has been a great success.
A: We are not ready yet to talk about an average production
We are blending Jaguar E&P’s experience working in Mexico
for 2019, as there are many elements to consider in the
with Vista Oil & Gas’ strong track record as operators in Latin
equation. Depending on the scope of the activities to be
America. When working with such a volatile commodity it
performed, it can take up to a year to get all of the permits,
is necessary to have a strong focus on costs. Together with
even if we already have the teams and the required capital
Vista’s experience, we believe we can accomplish this more
ready. 2019 will be a busy year for us given the number of
effectively. We are proud of what we have accomplished
licenses we have. If the government decides to keep going
as a team and we continue strengthening our capabilities.
with the licensing rounds, we would of course be happy to
Having said that, we are open to partner with companies that
participate and grow our portfolio of onshore fields.
share our vision, always considering the added value they provide, either in the financial, managerial or technical areas.
Q: How can regulation be improved to allow for an increase in production levels in Mexico?
Q: In May 2018, Jaguar announced its intention to invest
A: Regulators have done an excellent job in ensuring that all
US$110 million before the end of 2019. How will that
processes during the licensing rounds were transparent for
capital be used?
everyone. However, on the operational side, there is a great
A: We have already invested US$60 million in the upfront
deal of room for improvement. The amount of paperwork
bonus for the awarded blocks, which means that over half
requested for permits is overwhelming and even redundant
of that commitment has been already covered. We are
in some cases. We should aim for a regulatory approach like
waiting for permits to be granted before investing the
that in Colombia, Argentina or Canada, where permits are
rest of the capital. If everything goes according to plan,
granted in much shorter time frames, while ensuring that
we would be able to complete some workovers by 1H19
operators are aware of all the required compliance elements
and start drilling exploratory wells by 2H19. This year is
for their activities.
our initial phase. Jaguar has a long way to go and we are working diligently to invest every penny where it has
Q: How does Jaguar E&P adjust to the social and
the highest impact. Throughout our development phase,
environmental aspects of the areas it works in?
Jaguar’s investment will be much more than the $110
A: We have an area solely dedicated to addressing all the
million mentioned for this phase.
environmental and social aspects of our operations. We have invested heavily to better understand the situation of the areas
Q: How would you rate the statements of the new
where we operate. Also, the team has been busy meeting
administration focused on increasing production?
with communities and municipal authorities within the blocks
A: It is encouraging to hear there will be a strong push for
where we operate. A very specific aspect our team found
more production. As private operators, it is our objective,
during their studies and interactions is the lack of drinking
just like that of the government, to increase production,
water and proper housing. We are working closely with local
so our goals align very well. I believe this can be achieved
authorities to find solutions with a quick and effective impact.
by speeding up processes and ensuring that regulation is performed effectively, which is an issue we have had to deal with constantly. Mexico has to create the right
Jaguar E&P is a Mexican oil and gas exploration and production
conditions for investments to flow. Capital has no flag
company. It was awarded 11 onshore blocks in Rounds 2.2 and
and it will go wherever it is incentivized to go, meaning
2.3. As part of its strategy, Jaguar E&P has also deployed
wherever it finds the best ROI.
capital in the Caribbean
195
| VIEW FROM THE TOP
RIGS READY FOR DRILLING IN MEXICO’S SHALLOW WATERS PATRICIO ÁLVAREZ Vice President of Perforadora Central
196
Q: How has Perforadora Central, a Mexican drilling services
also important to understand the Mexican market to build a
provider, evolved in the Mexican oil and gas market?
strong relationship with PEMEX. All international companies
A: We have been drilling in shallow waters since the early
that enter the Mexican market understand that they need
1990s. At that time, we did turnkey projects for PEMEX with
the support of a local company. It is crucial to understand
just two rigs while working outside Ciudad del Carmen.
the language, regulations and framework to be successful.
In 1998, we began our first major project, which was the construction of an ultra-premium jackup rig that would work
Q: What role does Perforadora Central want to play in
with a capacity of up to 375ft of water. From 2000-2016,
boosting the country’s production in the next six years?
we engaged in building one rig every two to three years.
A: President López Obrador wants to revamp production and the government will be injecting sufficient funds into
In 2015, the oil price crisis began and many Mexican companies
PEMEX to help make that happen. To truly boost the
suffered as a result. PEMEX began struggling greatly with its
industry, machinery will have to be from Mexico because the
resources and its spending. It got to a point where we only had
costs of importing will be way too high. It makes sense to
one rig working at a very low day rate of US$70,000, when
mobilize local firms. We will be ready with two rigs: Tuxpan
in 2014 the daily rate was US$150,000. It was a very difficult
and Panuco. We need two to three months per rig to get
time but we were able to continue negotiating with PEMEX.
them operational and ready to compete in Clusters 3 and
Gradually, our rigs started operations again and now we have
4. PEMEX will also continue to rent rigs as it did before
three of our six ultra-premium jackups working. We are close
through daily rates, with its staff operating the rigs and
to putting a fourth to work with an international oil company.
taking all of the risk.
Q: What has been Perforadora Central’s experience working
Q: What new technologies are international oil companies
with PEMEX and what advice does it have for other players?
demanding to drill in shallow waters?
A: We have been working for PEMEX for many years. You
A: With the Energy Reform, many blocks were awarded to
need to create a long-lasting relationship with the company
large companies like Fieldwood and Talos Energy, which
and carefully maintain the rigs and equipment. If you can
take on all the risk. They contract jackups but they crew,
meet its requirements, you will enjoy a long and fruitful
maintain and operate them. If they find a good well, then
relationship with the company. Payments are on time,
the sky is the limit and all the risk would be rewarded. Our
except in the last couple of years when the sector was
main advantage is that we already have two ultra-premium
in crisis and most contractors agreed to 180-day terms.
rigs ready for operation in Ciudad del Carmen.
Nevertheless, everything appears to be returning to normal. Operators are asking for hydraulics and blow out preventers When working with the government, companies must
above 15,000PSI. We only have two rigs with that capacity:
be very flexible. To withstand such long payment terms,
the other four are 10,000PSI. We have drilled for 25 years in
companies need to reduce costs, negotiate with their banks
various areas in Mexico with 10,000PSI and it is enough. We
and restructure their finances. Perforadora Central was able
are sure that you do not need to have more than that. It is,
to do all this and adapt to the changing conditions. It is
however, an international requirement that was introduced by operators that are starting to work in Mexico. New rigs come with at least 15,000PSI and it is not cheap to convert
Perforadora Central is a Mexican drilling services provider. It
the rigs to that capacity. To upgrade the four rigs, we would
has six jackup rigs and has worked both in the Gulf of Mexico
need to invest US$5-6 million per rig and three to five months
and in international waters. The company has been drilling in
of work. We would need at least a four-year contract with a
shallow waters since the 1990s
great daily rate for us to make that investment.
VIEW FROM THE TOP |
RESULTS NEEDED TO REOPEN BLOCK ROUNDS LUIS VÁZQUEZ Chairman of the Board of Diavaz and President of the Mexican Natural Gas Association (AMGN)
Q: What role will Diavaz and the private sector play in
A: In our services division we are developing interconnections
increasing the country’s production?
at a number of marine platforms and we are providing reliability
A: Mexico produces 1.7 million b/d. The goal is to bring
and integrity maintenance to PEMEX’s Dos Bocas terminal,
Mexico’s production to 2.4 million b/d. Those numbers
which is one of the largest in the world. Approximately 1.3
represent the same production level as previous years.
million b/d go through the terminal. In our E&P division, we
Mexico should produce a minimum of 2.8 million b/d by
have four fields assigned to us and the company is producing
2024. PEMEX and the government say that by October
18,000 b/d. We are second only to PEMEX in petroleum
2019 the new fields starting production will start to increase
production in Mexico, followed by Petrofac and Renaissance.
their oil output.
We operate four fields under contracts awarded by CNH: Catedral in Chiapas, Barcordon in Tamaulipas, Ebano in San
The private sector has committed to producing 280,000
Luis Potosi and Miquetla in Veracruz. Diavaz believes that in
b/d. The president has said that there will be no further
three to four years we will be producing 50,000 b/d from
block rounds until the government sees a positive result
those fields. Another two fields, Cuervito and Fronterizo, are
from the previous rounds. There have been 120 contracts
service contracts with PEMEX. At our E&P fields, part of the
awarded since the Energy Reform was enacted and so far,
production goes to the government as Mexican crude and
production only increased 20,000 b/d. We expect that
we keep the other part, which is shared with our partners.
the private sector will increase production in the following months, which will open the possibility to discuss new rounds
Q: What types of contracts are most profitable for the federal
with the government. We expect this to happen within 10
government when incorporating the private sector in E&P?
months. In the meantime, PEMEX will invite the private sector
A: From 2006-2012, operations in the Ebano field were carried
to participate in service-field contracts called CSIEEs. Diavaz
out under a transactional service contract with PEMEX.
will be involved in these projects and we hope to be awarded
From 2012-2018, PEMEX switched the contract model to an
some contracts. There is a large appetite for investing in the
incentivized contract, which means that Diavaz will recover
Mexican oil and gas sector and Diavaz wants to be a player
75 percent of all expenses and receive US$8 per barrel. In the
in the country’s future energy development. Diavaz will also
last stage, the contract migrated to a 30-year production-
look at taking its E&P division public in a couple of years.
sharing contract with CNH in partnership with PEMEX under the scheme developed through the Energy Reform.
Q: What is Diavaz’s experience participating in previous PEMEX projects and what were the main characteristics
We studied which of the three models was the most profitable
PEMEX was looking for in a partner like you?
for the government. Our analysis proved that the last scheme
A: We bid for the engineering and construction of marine
developed during the Energy Reform was by far the most
infrastructure contract for PEMEX. When tendering a contract,
profitable as the government would receive the greatest
PEMEX looks for several characteristics among participants.
profitability from the income plus a percentage in income
First, the company needs to be Mexican or have a great
taxes, while taking zero risk and making no investment. In the
amount of local content. We bid on the A and B clusters of
end, this scheme is not only profitable for the government but
marine infrastructure, placing second in both. Unfortunately,
also for the private sector. It is a win-win situation.
the times stipulated to carry out the work were too tight and there was a huge LD penalty for any delays. We put part of the LD into the price tag, which resulted in a higher cost.
Diavaz is a Mexican company founded in 1973 and made up of business units focused on E&P, gas, marine operations and oil
Q: What is the status of Diavaz’s fields and what strategies
installations integrity. It was jointly created through strategic
will provide the government with the desired results?
and commercial alliances with energy-sector leaders
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| VIEW FROM THE TOP
SAFETY, EFFICIENCY WITH A TECHNOLOGICAL EDGE MIKE TRAIN President of Emerson
VERNON MURRAY Latin America President of Emerson
Q: What trends has Emerson identified in Mexico?
so far; leveraging technologies so that personnel can spend
VM: Emerson is seeing heavy investment in upstream. This is
time more productively is vital.
directed at the maintenance of offshore infrastructure with 198
a strong emphasis on productivity and safety. Investment
VM: Mexico is experiencing a period of huge change. The
in infrastructure maintenance had not happened for many
move from a 75-year PEMEX monopoly to competition is
years. The impact of international companies through
a major exercise in change management. Infrastructure,
partnerships in the Gulf of Mexico is beginning to be felt
institutions and personnel must all be guided and regulation
and national companies are realizing that working with
has had to be redeveloped. This cross-level evolution can be
international companies is different to working with PEMEX.
supported by the digitalization that Emerson can help lead.
Not better or worse but different. Q: What can Emerson offer to the Dos Bocas refinery? There is also a great deal of movement in construction
MT: Emerson’s value is in implementation. Our technology
and permitting in midstream. Midstream infrastructure
and work processes deliver faster schedules or enable
is expanding as companies that were unable to handle
co-engineering with different project partners. We are
hydrocarbons at their terminals prior to the Energy Reform
pushing for the use of new technologies to build a modern,
are now becoming involved. This generates automation
competitive refinery.
work for Emerson, focused on safety and supply chain integrity. We have been impressed by the administration’s
VM: The IMP will play a large role in the construction of Dos
decision to tackle pipeline theft and believe technology will
Bocas and they appear to be very open to new technologies.
play a central role.
PEMEX and the administration also seem willing to look at the best practices being deployed in automation to improve
Downstream activity also is growing with the announcement
the functionality of the refinery.
of Dos Bocas and the renovation of existing refineries. In all, there is a great deal of optimism in the Mexican market.
Q: How does Emerson overcome arguments against technology use, such as jobs generation?
Q: How does Emerson support the digitalization of
MT: Employing enhanced technology does not always
Mexico’s oil and gas industry?
reduce the need for personnel, it just allows those personnel
MT: Any company can buy a software system but this
to move to different jobs where they can improve their
is only valuable if the work is improved as a result.
skills. Emerson now has over 20 manufacturing plants in
Emerson is approaching the digitalization of the industry
Mexico and other companies want to enter the country
in a deliberate and practical manner, understanding that
to manufacture. I do not believe technology will create
software is only functional if personnel understand its use.
a jobs issue in Mexico’s oil and gas industry; with proper
We are approaching clients to sketch out a roadmap for
infrastructure and the correct cost placements, there will
change within their company, advancing step by step to
be many new work opportunities.
demonstrate the benefits. We have built a consultancy service around this. Offering products only gets the client
VM: Emerson has been involved in job creation and education in Mexico for many years. For the last seven years we have worked with the University of Villahermosa
Emerson is a leading technology and engineering company.
to train our automation engineers. They can provide the
Present in Mexico for over 67 years, it works throughout the oil
skills necessary for the current market. We do not believe
and gas value chain to deliver improved efficiencies and safety
that automation means fewer jobs, we believe it means
through the application of software and automation processes
different jobs.
VIEW FROM THE TOP |
NEW AUTOMATION CONCEPT AN ANSWER TO INDUSTRY 4.0 VÍCTOR FUENTES Director of Mitsubishi Electric Automation Mexico and Latin America
Q: What new technologies or services is Mitsubishi Electric
been used at the country’s oil and gas facilities for a long
Automation introducing to the Mexican market?
time. In 2021, Mitsubishi Electric Corporation will turn 100
A: While increasing our presence through traditional
years old, which is a clear statement to the long-term vision
distribution channels, we are pushing to popularize
that the company follows for all its activities.
our e-F@ctory concept, which is Mitsubishi Electric Automation’s answer to the Industry 4.0 trend. Through
Q: What is Mitsubishi Electric Automation’s take on cyber-
e-F@ctory, our goal is to provide customers with proven
security risks?
and reliable solutions that can help them become more
A: Every automation provider focuses on connecting
efficient in industrial processes, reduce capital investment
systems and automating processes but few are focusing
requirements and increase process reliability.
on cyber-security issues. The more connected and automated processes are, the higher the cyber-security
Q: What benefits can e-F@ctory provide to the oil and
risks are. Although a piece of equipment may be extremely
gas industry?
safe, as soon as the data it measures or manages is on
A: e-F@ctory can get data from equipment of any size,
the web, it is exposed to cyber-attacks. We have a strong
so clients know exactly where they are losing energy and
focus on R&D to ensure that our clients are always backed
therefore money. We believe that small actions can generate
up by the Mitsubishi Electric Automation brand. Mitsubishi
great changes and while monitoring the life cycle of a motor
Electric has R&D facilities in the US, Japan, China and
in a facility with thousands of systems may seem like a very
Europe and invests over US$2 billion in R&D per year so
small action, the improvement in the overall system is huge by
our specialized engineers and scientists can deliver the
avoiding downtime and losses resulting from faulty elements.
best technologies, always emphasizing the resiliency and
While the most well-known area for the implementation of
security of all processes.
e-F@ctory is in production facilities, such as refineries, it can also be included in oil and gas production rigs or even offshore
Q: How does Mitsubishi Electric Automation help in the
housing units. We are already working at offshore facilities
development of Mexican human capital?
with the e-F@ctory concept using SCADA to measure the use
A: Mitsubishi Electric Automation has a university support
and control of HVAC systems in housing platforms.
program that provides, free of charge, new equipment that universities can use in their programs. In 2017, the company
Q: What is Mitsubishi Electric Automation’s approach
invested approximately US$250,000 in the program, which
to creating long-term relationships and how do these
not only included equipment but also advisory and training
contribute to the company’s growth?
through a “train the trainer” scheme that focuses on training
A: One of our core values is trust. A trust-based relationship
teachers on how to install and use the equipment, both at
goes both ways and we only work with companies that
our facilities and at their universities. We believe in the talent
have the same values as us. This is because we will never
and capabilities of the Mexican workforce, which is why our
jeopardize the company’s name or reputation. We have
efforts are focused on developing Mexican human capital
Japanese DNA and such an approach to business is in
to meet the challenges brought about by an ever-changing
our blood. Thanks to the long-term trust we create with
industry with increasingly complex technology systems.
our customers, we have worked with many companies in Europe and the US that are just entering Mexico, which further increases our business opportunities in the country.
Mitsubishi Electric Automation has a history of over 30 years in Mexico. It is a subsidiary of Japan-based industrial giant
While our presence in the Mexican oil and gas industry is
Mitsubishi Electric Corporation, which operates across several
relatively new in the area of services, our products have
industrial markets with an automation product line
199
Teak plantation
AGRIBUSINESS
8
Mexico, a leader in exports of avocados and berries and one of the world’s leading tomato producers, faces a complication that must be solved in the next few years: disparity among large producers and small farmers. Land use and modernization of production systems should be a priority for companies and politicians, alongside the improvement of infrastructure that would allow for better distribution of products in a country that connects the largest consumer in the world, the US, and one of the largest agricultural areas, Latin America.
This chapter delves into the existing challenges to modernize the Mexican agricultural industry and to diversify exports. Interviewees reflect on the opportunities available to transform the industry and provide it with more dynamism and growth opportunities, while addressing the social issues plaguing the country.
201
CHAPTER 8: AGRIBUSINESS
204
ANALYSIS: Agriculture 4.0, Training Needed to Keep Growth Momentum
205
GUEST ARTICLE: Enrique Alfaro, State of Jalisco
206
VIEW FROM THE TOP: Bosco de la Vega, CNA
208
VIEW FROM THE TOP: Juan Carlos Anaya, GCMA
210
INSIGHT: Carla Suárez, COMECARNE
203
211
VIEW FROM THE TOP: Alejandro Monteagudo, AgroBIO México
212
INFOGRAPHIC: Primary Success
214
VIEW FROM THE TOP: Manuel Bravo, Monsanto
215
INSIGHT: Javier Valdés, Syngenta Latin America North
216
VIEW FROM THE TOP: José Escalante, Velsimex
217
VIEW FROM THE TOP: Alberto Amkie, Agropark
218
VIEW FROM THE TOP: Javier Martínez, Groasis
219
VIEW FROM THE TOP: Gastón Mauvezin, Proteak
220
VIEW FROM THE TOP: Rodrigo Domenzain, Amar Hidroponia
221
VIEW FROM THE TOP: Íñigo Pérez-Rasilla, Sofagro
222
VIEW FROM THE TOP: Diego Martínez, Aneberries
223
INSIGHT: Félix Martínez, ANICAFE
224
VIEW FROM THE TOP: Luis Tejado, BlueDrop Agroforestry
225
VIEW FROM THE TOP: Juan Pablo Flores, AVS
| ANALYSIS
AGRICULTURE 4.0, TRAINING NEEDED TO KEEP GROWTH MOMENTUM Agreements like NAFTA have greatly improved the country’s agricultural sector productivity. However, they have also shone a light on the stark contrast between the successful exporting industry and under-performing traditional farmers. The challenge is to reduce the gap to create a more uniform, cohesive and fairer sector
204
Mexico is an agricultural powerhouse. In 2017, the country’s
alleviating this issue. “Financing in the agricultural sector has
livestock, fishing and agricultural production, including
the same problems as other sectors. The largest and most
fruit and vegetables, totaled 30.7 million tons with a value
sophisticated producers find financing relatively easily,” he
of MX$853.7 billion (US$44.6 billion). With exports in 2017
says. "Unfortunately, farmers tend to have limited resources
accounting for US$32.58 billion, the agricultural sector is a
and do not have the money to invest in technology. This is
top performer in Mexican exports, just behind the automotive
where the private initiative can promote modernization.”
and manufacturing industries. “All in all, the agricultural sector
The cooperation between large private players and small
is performing well and continues to grow,” says Juan Carlos
producers to which Pérez-Rasilla refers is contract farming,
Anaya, Director General of GCMA. “Growth for the past three
which he says has become fairly popular in the last few years.
years has been above the country’s GDP gains.”
“Small and medium farmers who work for large traders receive investment to modernize their production processes, build
Multiple free-trade agreements that have helped the country’s
greenhouses and buy better seeds and agrochemicals. This
assert itself on the global landscape have proven beneficial
results in a win-win situation for both farmers and marketers.”
to the agricultural sector. However, Bosco de La Vega, President of the National Agricultural Council, says continued
TWO FACES
modernization of the sector is of utmost priority. “We need
Despite being a top performer of the Mexican economy,
to work on what is called ‘Agriculture 4.0.’ We need to work
agriculture faces many problems, one of the most serious
on having an intensive agriculture sector, modernized and
being low wages and the stark contrast between small farmers
supported by research, and we need to train our personnel
and large agricultural producers. “Mexican agriculture has two
to generate more opportunities.” Implementation of new
faces and the industry is highly fragmented. It is necessary
technologies not only helps to reduce production prices but
to understand that, unlike other sectors, there are no great
also to provide a better income for farmers. Javier Valdés,
players that completely control the sector. We need to nourish
Director General of Syngenta Latin America North, says
the places and farmers that have the greatest opportunities
the use of enhanced seeds can help in that regard. “Seed
for growth,” says Luis Tejado, President and CEO of BlueDrop
genetics have a major impact on what farmers harvest; our
Agroforestry. “The country’s arable land is limited, which
research focuses on that. We develop hybrid materials that
means that to increase production it is necessary to help
allow seeds to tolerate different temperatures, droughts,
producers. Modernization includes not only implementing
pests and diseases.” Even a small increase in productivity
new methods for growing crops but also changing the crops
can generate major increases in farmers’ income, according
that are traditionally grown,” says Pérez-Rasilla.
to Valdés. “For every 1 percent increase in farm productivity, income is likely to rise between six and seven times.”
Regardless of the sector’s productivity, the stark contrast in the Mexican agricultural sector has reached an unsustainable
Generating added value is a must to improve agricultural
point, according to de la Vega. “There is significant migration
activities and their impact on social and economic
from rural areas, which combined with the average age
development. “Generating products with added value in
of farmers of around 58 years, generates a significant
the agricultural sector is a priority for us. We have examples
problem. We need to find ways to retain younger people.”
of meat companies generating their own production chains,
De la Vega says the sector is already working toward the
a process that is being replicated for pork and rabbits. We
creation of more educational opportunities for farmers. “We
have seen companies that process fruits and vegetables
have already signed a project with the Ministry of Public
also riding this wave of added-value products. It is a matter
Education through which SEP provides scholarships and we
of exploiting what we already have,” says de la Vega.
provide part-time jobs.” Technology can also play a key role in retaining people. “We want to help farmers stay in their
However, modernization does not come easy, particularly
local communities and not migrate to larger cities or to the
for small producers. Íñigo Pérez-Rasilla, Director General
US. The only way to achieve this is to make their activities
of Sofagro, says the private sector can play a key role in
more profitable and attractive,” adds de la Vega.
GUEST ARTICLE |
NATIONAL POSITIONING THROUGH SOCIAL EMPOWERMENT ENRIQUE ALFARO Governor of the State of Jalisco
The previous state administration referred to Jalisco as an
According to our most recent data, the agri-industrial
agri-food giant. I do not believe that designation is correct.
sector in the state hosts 12,529 economic units. Of this total,
Rather, Jalisco is positioned nationally as an industrial hub
11,773 are microbusinesses while 529 are small businesses.
due to the level of investment we have attracted in the
These are the two areas we will focus on strengthening.
agroindustry, innovation and technology segments. Despite
One strategy we are already implementing is to provide
the state’s growth, it would be false to say the economic
municipalities with machinery that will enhance agricultural
policies implemented in the past have been a success. Jalisco
productivity. This equipment will be used to maintain roads
still has 2.5 million people living in poverty. Around 40 percent
between crops, construct troughs and dredge rivers. The
of the state’s population receives an income below the welfare
machinery will also allow municipalities to deal with damage
line and half the population does not have social security.
generated by natural disasters like storms, floods or fires.
Moreover, almost 61 percent of the employed population earns an income equal to or less than three times the minimum wage.
Our commitment to Jalisco’s agricultural sector is clear: we
Unfortunately, the situation is even more dire among the rural
want it to continue growing. We want Jalisco to maintain its
population; 87 percent of the rural population receives less
productive leadership in the country but we want to do it
than three times the minimum wage and around 90 percent
by putting farmers front and center so we can help elevate
of those who work in the agricultural sector have neither a
their quality of life. Our strategy is to position Jalisco as the
pension nor access to a dignified retirement. Given these
national leader in economic value and social contributions
conditions, we cannot say that Jalisco is an agri-food giant.
through the development of strategic production chains. These will take advantage of our regionalization strategy and
It is clear that the strategies implemented by previous
our local talent, benefiting the entire population. Throughout,
administrations have not resulted in the conditions needed
we will maintain a responsible and sustainable focus.
to reduce the inequality gap. Although we recognize that important steps have been taken, it is necessary to consolidate Jalisco’s leadership beyond employment generation and exports. We also need to increase the population’s income level. Our administration seeks
COMPANIES IN JALISCO'S AGROINDUSTRY Micro
Small
Medium
Large
Total
11,773
529
159
68
12,529
to generate economic development through regional specialization. This means that we will take advantage
Overall, our modus operandi will be based on two pillars:
of the strengths and opportunities offered by Jalisco’s
the strengthening of, and respect for, the rule of law and
different regions to foster sustainable development that
the improvement of physical and digital infrastructure. We
first and foremost benefits our population. As the new state
also will base our economic development on processes that
government, we take this commitment very seriously.
improve the state’s regulations, sustainability and social responsibility, while also implementing an integral educational
The agroindustry will ignite economic activity in the
project. For the state, is important to take into consideration
agricultural regions of the state. Paradoxically, although this
the strengths and opportunities in each region to generate
industry is considered an engine for economic growth, the
a focused educational program. The proposition will be
living conditions of those in the sector have not improved.
complemented with strategies for regional development
We must reverse this situation. We cannot continue to foster
and the internal strengthening of the state’s capabilities.
an agricultural sector that generates significant wealth but
Ultimately, our strategy will attract greater investment, help to
at the same time delivers poverty to those who work in it.
integrate the labor sector into the overall growth strategy and
Jalisco should not be an agri-food giant that condemns its
strengthen the state’s SMEs and the use of innovation, science
citizens to poverty or migration.
and technology development as engines of Jalisco’s economy.
205
| VIEW FROM THE TOP
PUBLIC POLICY BASED ON OPPORTUNITY, LONG‑TERM VISION BOSCO DE LA VEGA President of CNA
206
Q: CNA has been in the country for over 30 years. What
CNA is working on its 2030 vision, a long-term plan that
is its relevance in modern Mexico?
encompasses subjects like budget, water, social security,
A: Mexico is the most open country in the world. We
research, infrastructure and storage. The country has great
have 12 free-trade agreements with 46 countries and we
potential but needs investment to foster growth. Mexico
continue to work on our commercial relationships. 2018
exported US$4 billion in agricultural products to the US in
was about solidifying those relationships through the
2017 and we finished the year with exports equivalent to
signing of USMCA, the treaty with the EU, the Pacific
US$32.5 billion, which is higher than remittances, tourism
Alliance, the Agreement of Economic Complementarity
or oil. Alongside exports of vehicles and electronics,
with Argentina (ACE 6) and the Agreement of Economic
agricultural products are the third-largest source of
Complementarity with Brazil (ACE 53). We are trying to
exporting revenue for the country.
influence how fast the treaties are implemented and the strategy for their implementation. We are looking out
Q: How can the principle of added-value products be
for Mexico’s interests and making sure that the future
implemented in the agribusiness sector?
of the Mexican agricultural industry is backed by better
A: Generating products with added value in the agricultural
agreements.
sector is a priority for us. We have examples of meat
US$4 billion – Mexico’s exports of agricultural products to the US in 2017
companies generating their own productive chains, a process that is being replicated for pork and rabbits. We have seen companies that process fruits and vegetables also riding the wave of added-value products. It is a matter of exploiting what we already have. Around 32 percent of what we produce in the agricultural sector goes to waste due to factors that include logistics, price and infrastructure.
Q: Mexico is the 12th-largest food exporter in the world.
Q: Sometimes small producers are not interested in
What strategies must be implemented to increase its
inserting themselves into export or productive chains.
world ranking?
What is CNA doing to address this?
A: We need to work on what it is called “Agriculture 4.0.”
A: Within CNA, we have a foundation that focuses on
There is much to be done in terms of research, patents,
small farmers, transfers technology to them and provides
seeds, product positioning, modernization of irrigation,
guidance on how to produce more efficiently. We also
fertilizers, agrochemicals and satellite information
cooperate with the World Economic Forum’s VIDA project.
regarding the effects of climate change, plague monitoring
This project helps small farmers by providing them with
and sensors to measure humidity. We need to work on
enhanced seeds, insurance and technical assistance. The
having an intensive agriculture sector, modernized and
project also helps farmers create partnerships with their
supported by research, and we need to train our personnel
neighbors so they all focus on a single product and puts
to generate more opportunities. The problem we are now
them in contact with companies that are in need of that
facing in the agricultural sector is a lack of human capital.
product. It is a project we are very proud of and has helped
To address this issue, we are working on agreements with
a total of 32,000 farmers.
Central America to allow access to temporary workers who can help us during the harvest season. However, this
Q: How do you reconcile the nationalistic discourse
is not enough; we need to invest in technology, talent and
that exists in the Mexican agricultural sector with its
infrastructure of cold chains, among many other issues.
modernization needs?
Teak plantation
207
A: The issue we see is that it has come to a point where
within their facilities pre-certificates of origin, making the
it is unsustainable. Public budgets for the agricultural
crossing between the two countries even faster. These are
sector have been limited. Eight years ago, around 30
just two of the great added values that exist in the trade
percent of SAGARPA’s budget was destined directly to
between Mexico and the US.
the agricultural sector; today, it is around 20 percent. If farmers do not change their mentality, they will not
Q: What is your long-term vision for the Mexican
survive. There is significant migration from rural areas,
agricultural sector?
which combined with the average age of farmers, which
A: Sometimes, in cities like Mexico City, the agricultural
is around 58 years old, generates a significant problem.
sector is not as valued as it should be. But there are cities
We need to find ways to retain younger people.
where GDP is derived almost exclusively from the food sector. In Mexico, we have seen many significant crises
Q: How is CNA working to make the agricultural sector
and I have learned that during those times the agricultural
more attractive to younger generations?
sector is the only one that grows.
A: The first approach is to have more schools and universities that offer academic programs focused on the
By 2050, the global population is estimated to hit 9.3
agricultural sector. We have developed a project through
billion people and the Food and Agriculture Organization
CNA’s foundation called “Dual Education.” We have
of the United Nations (FAO) recommends that by then, we
already registered this project with the Ministry of Public
should grow our food production by at least 65 percent. By
Education (SEP) so it can provide scholarships while we
2030, we expect to have 140 million inhabitants in Mexico.
offer part-time jobs. Students also have a job once they
Agriculture is the one sector we cannot do without. Those
graduate. The advantage is that while they are studying,
of us in the sector are always striving to generate new
they can participate in their classes with already proven
products, to have access to new markets and to produce
experience.
products that have a healthy impact on the consumer.
Q: Given Mexico’s experience with free-trade agreements,
Still, it is a sector that faces two significant challenges:
how could the country benefit from the USMCA?
climate change and urban sprawl, meaning that the land
A: First, there must be fair and balanced treatment.
available for growing food is becoming smaller and climate
Also, standards of quality, health and safety need to be
change is making some areas more arid. As farmers, we
improved. Facilitation of border crossings is another issue
need to do more intensive farming.
that also impacts products. A practical case from which we could learn is the cross-border point in Arizona. All US governmental agencies needed to approve products
The National Agricultural Council (CNA) is a Mexican business
for the US market are in this one location, facilitating and
association founded in 1984 that groups the agricultural,
expediting the entrance of agricultural products to the
livestock and agroindustry sectors. It represents the interests
US. In some cases, large agricultural companies can have
of the agricultural sector to other private and public players
| VIEW FROM THE TOP
ESTABLISH SELF‑SUFFICIENCY PRIORITIES JUAN CARLOS ANAYA Director General of GCMA
208
Q: How did the agricultural sector perform overall during
is self-sufficient in the production of white corn, used
the last presidential administration?
for human consumption and Mexico’s flagship product.
A: During the administration of Enrique Peña Nieto, the
In fact, we have a surplus of white corn, which is also
agricultural sector experienced significant growth. Since
exported to countries like Venezuela. Other products in
2015, the agricultural commercial balance has been in
the grains and oilseeds category in which Mexico is self-
surplus, which can be explained by the significant increase
sufficient are beans, sorghum and durum wheat.
in the production and trade of fruits and vegetables. This sector has grown steadily since 1994, when NAFTA was
Regarding livestock, although we have increased our
enacted. In almost 24 years, production volume of fruits
production, the country still cannot cover its own
and vegetables has increased over 130 percent and is
demand, with a deficit of around 40 percent in pork, 20
now on par with the country’s production of grains and
percent in chicken and 19 percent in milk. However, we are
oilseeds.
self-sufficient in beef and eggs. We are also self-sufficient and significant exporters of coffee and sugar. We are the
The livestock segment has also enjoyed successful results,
eighth-largest exporter of the latter globally.
growing almost 100 percent in the past 24 years from 12 million tons to 23 million tons of beef, pork, chicken
No country in the world is 100 percent self-sufficient in
and eggs. Growth in this segment suggests an increase
terms of alimentary products. What we need to do as a
in consumption of animal protein and has also boosted
country is protect our food supply and our comparative
imports of yellow corn, which is basically used to feed
advantages. We cannot be champions of every product,
livestock. In fact, in 2018, Mexico was the world’s top
which is why it is important to establish priorities.
importer of yellow corn. It is true that we need to make certain logistics All in all, the agricultural sector is performing well
adjustments within the country. For instance, we move
and continues to grow. This sector is the third-largest
a great deal of white corn from the north of the country
exporter in the country, just behind the automotive and
to the southern and southeastern states. In this regard,
manufacturing industries. Growth rates for the past three
we agree with the president that production of such
years have been above the country’s GDP gains.
commodities in the south could boost development of the area. However, while these states have the required
Q: President López Obrador has vowed to make Mexico
water to engage in production activities, the government
self-sufficient in terms of agriculture. What opportunities
also needs to participate in the development of public
does this create?
services, such as irrigation infrastructure, highways and
A: Agricultural self-sufficiency depends on the product.
storage facilities. If we can do this, the southern states
For instance, when it comes to grains and oilseeds,
can start their own production instead of constantly
Mexico is not self-sufficient. The country does not
paying freight from Sinaloa.
produce enough to cover the demand for rice, yellow corn, soy and wheat used in breadmaking. However, it
Another example is rice. Because this crop requires a great deal of water, we need to define whether it makes more sense to grow it ourselves or to import it. On many
Grupo Consultor de Mercados Agrícolas (GCMA) is a Mexican
occasions, importing makes better sense and is more
consultancy with over 22 years of experience. It contributes
economical. For instance, Mexico imports 95 percent of
to the development of commercialization strategies for
its total soy bean consumption. Most of these imports are
producers, distributors, service providers and the government
used for the production of oils for domestic consumption,
Agriculture is the third-largest exporting industry in the country, after the automotive and manufacturing industries
95 percent of which are made in the country. The remainder is then transformed into soy pasta, which is used to feed livestock. Mexico is the fourth-largest producer of soy pasta for the livestock sector. In this case, it makes more sense to import the raw product and then transform it to provide an added value. Each case is different and must be analyzed independently, rather than as a whole. GCMA has generated different
A: Now that the USMCA negotiation has ended, the
indicators that can be used by the government to conduct
government must focus on ratifying the agreement along
respective analyses.
with Canada and the US. Having a treaty provides the markets with a degree of certainty, especially considering
Q: How do you expect the federal government’s program
the geopolitical problems that are surfacing between the
of guaranteed prices to impact the market?
US and China.
A: Guaranteed prices can lead to market distortion. Purchasing products from small farmers at a high price
If these problems continue, the Mexican market could benefit
also can have significant budget repercussions. We agree
from our advantages in the agri-industrial sector, mainly with
with President López Obrador that there is a high rate of
products where we have a competitive advantage, such as
poverty in the rural sector that hurts the country and we
fruits and vegetables and certain livestock that complements
support his administration’s effort to fix this. However, we
the US offering. USMCA’s ratification also provides us with
believe that guaranteed prices should be implemented
access to raw materials, such as grains and oilseeds, from
in regions that suffer from a production deficit, such as
the largest exporter of these products in the world, which
the southern states.
guarantees the country’s national supply.
The idea behind guaranteed prices, which are above
It is important to have an open market and to continue
the market average, is to help farmers increase their
working to diversify our exports in the agricultural sector.
production and productivity. Instead of producing 2 tons
I am convinced that by the end of 2019, Mexico will still
of product per hectare, they can produce 5 or 6 tons per
be among the 10 largest agri-industrial powerhouses in
hectare. However, this program must be accompanied
the world. We estimate an increase in production of all
by improved seeds, technology, training and technical
agricultural products from 281 million tons to 284 million
assistance. We also need to make sure the program is
tons. The fruits and vegetables segment will continue
well-implemented, with an accurate registry of eligible
expanding but we need to increase our production of
companies. Otherwise, we risk having medium-sized or
grains and oilseeds to reduce our imports in this category.
large producers trying to be included in the program.
Coffee and sugar will remain stable while the livestock segment will also continue growing. We expect this will
Q: What are GCMA’s expectations for the agricultural market in the coming years?
allow us to guarantee supply and the degree of alimentary safety that the country requires.
209
| INSIGHT
JOINT INDUSTRY EFFORTS TO POSITION THE MEAT INDUSTRY
“
New generations are demanding sustainable practices from companies. We owe it to the industry, to the consumer and to the planet to adopt these practices”
210
Carla Suárez, President of COMECARNE
a significant effort to ensure the safety of meat and to communicate this to consumers. “All our products are safe and healthy. Unfortunately, we do not always properly highlight that meat protein is essential,” she says. “All alimentary guides mention the importance of consuming animal-origin protein for a healthy and balanced diet.” Another issue for COMECARNE is that meat protein consumption is sometimes hard given the budget families have available. “We are working to offer meat protein for every budget, whether people get it from sausages, chicken or from rib-eye steaks. Packaged meats are accessible and play a central role in the Mexican diet,”
For meat production to grow, meat protein consumption
says Suárez. She adds that it is imperative for the industry
must also increase, says Carla Suárez, President of
to have cost-efficient processes. “We must ensure that
COMECARNE. “The main objective of COMECARNE is to
our partners remain competitive so they can offer their
promote the consumption of meat protein; if consumption
products at a competitive price.”
grows, the whole chain grows.” Suárez highlights five key points the industry follows COMECARNE, an association of meat producers with
to improve its competitiveness levels: available and
89 affiliates, is divided in two groups: partners and
competitive inputs, more sources of international supply,
associates. “Partners transform the meat at the different
regulations, technology and joint efforts between the
levels of the production chain, while associates provide
private sector and academia. To ensure availability of
us with the necessary products for this transformation,”
competitive products, COMECARNE works alongside pig
says Suárez. At first, the chamber was only conformed
farmers, poultry farmers and cattle feeders to boost the
by packaging companies but COMECARNE found there
availability of national inputs. “COMECARNE wants all
was more value in having a unified chamber rather than
parties involved to understand that we work as part of
just representing a few members of the chain. “Over time,
the same chain.” This goes hand in hand with opening up
we have incorporated companies from different parts of
to more international sources. “If we limit international
the value chain and today COMECARNE is the leading
sources, the product will become more expensive,” says
organization in the sector.”
Suárez. COMECARNE is in constant communication with the authorities to broaden the variety of imports with the
The association’s objective is to expand meat protein
necessary sanitary authorizations. “COMECARNE works
consumption in Mexico but Suárez says there is a long way
with the authorities and the rest of the production chain to
to go, considering Mexicans are not among the biggest
ensure that existing regulations do not inhibit the growth
consumers of this type of protein. In Latin America,
and competitiveness of the sector,” she says.
Argentina leads in consumption of bovine meat with 56kg per capita in 2017, while Mexico is at 14.8kg. When it comes
Much like any other industry in the country, technology has
to pork consumption, Europeans led the way at 40kg per
become increasingly important to remain competitive and
capita, while Mexico records consumption of 19kg per
cost-efficient. The implementation of Industry 4.0 elements
capita. With chicken, Asian consumers take the lead with
is an area where Mexico has a significant development
Malaysia having the most consumption of this type of
opportunity, according to Suárez. “Industry 4.0 is latching
protein, consuming around 55.8kg per capita, followed
on to the meat industry and it is increasingly common to
by the US at 47.7kg per capita and Mexico at 33.3kg.
see meat processing plants with automation technology.” COMECARNE acts as a liaison between producers and
According to Suárez, there are challenges to convince
technology providers and these efforts are combined
Mexican consumers to increase their intake of meat protein,
with a close relationship with academia. “We want these
including negative news or perceptions that sometimes
joint efforts to generate research and knowledge transfer
surround these products. However, COMECARNE makes
through the entire meat protein chain,” she says.
VIEW FROM THE TOP |
KNOWLEDGE SHARING: KEY STEP FOR AGRICULTURAL BIOTECH PENETRATION ALEJANDRO MONTEAGUDO Former CEO and Director General of AgroBIO México
Q: What changes is AgroBIO México expecting regarding
scale in the latter. One estimate suggests that for every dollar
agricultural practices and is Mexico ready to face them?
a producer invests in genetically modified seeds, he gets
A: Modernization and innovation efforts in the Mexican
between US$3.6 and US$5.3 in exchange, which means that
agricultural sector have been insufficient. Mexico still
in the end there is a tangible benefit from this investment. 211
suffers a deficit in terms of food security. For a country to be considered sovereign in terms of food security it must
While it is true that genetically modified seeds can be more
produce at least 75 percent of the food consumed by its
expensive than hybrid and conventional seeds, it is also true
inhabitants. For many years, our country has oscillated
that producers end up seeing it as an investment because
between 58 and 60 percent. Although Mexico is a large
it helps make their production profitable. These seeds also
exporter of many products, there are others that are
allow producers to reduce other types of inputs, such as
strategic, such as yellow corn, in which the country is not
fertilizers and agrochemicals. Nevertheless, it is true that
self-sufficient. The national consumption of yellow corn is
the seed’s price is something we must work on.
approximately 13 million tons per year, of which Mexico only produces about 10 percent. We believe the solution
Q: What is the relationship between AgroBIO, educational
lies in innovation, modernization and access to technology.
institutions and research centers in Mexico?
Unfortunately, there has been resistance to the use of new
A: Throughout our 19 years in Mexico, AgroBIO has presented
technologies due to a lack of knowledge and a lack of
several initiatives to incentivize joint ventures so people stop
action from the authorities, which has resulted in issues
seeing multinational companies as the driving force of the
regarding access to these technologies.
industry, with a goal to take over the Mexican countryside. It is a sector that is willing to work with all interested parties,
Agricultural biotechnology is focused on specific needs and
including academia and the public sector. A few years ago,
that is completely fine. The problem is that due to the lack
when the sowing of genetically modified seeds began, we
of governmental action, many farmers cannot access this
worked with several academic institutions, including the
technology. In Mexico, there is a technology backlog that
Autonomous University of Sinaloa, the Technologic Institute
will be hard to eliminate, considering we have not been
of Sonora and the Autonomous University of Nuevo Leon.
able to agree on the biotechnology discussion for the past 22 years. In 2017, there were 60 million ha sowed with
There is still a great deal of interest among academic
genetically modified corn all around the world and over 91
institutions to continue the research. Unfortunately,
million tons of genetically modified soy. Around 78 percent
misinformation about transgenics has led to judicial
of the soy and 33 percent of the corn consumed globally
actions that have prevented authorities from making
comes from genetically modified seeds. At an international
certain decisions that would ease access to this
level, the trend is for increased adoption of this technology.
technology. When it comes to production, this inaction means we are lagging behind other countries. However, it
Q: How can the industry reconcile technology’s high costs and
also has a parallel effect which we do not usually measure,
make genetically modified seeds accessible to small farmers?
which is the discouragement it generates when it comes
A: The seed’s price is among the most important hurdles.
to working in this area.
The annual value of the global seeds market is US$45 billion and approximately one-third of that represents genetically modified seeds. Approximately 85 percent of the farmers
AgroBIO México is a civil association founded in 1999 that
who sow transgenic seeds can be found in developing
groups the five largest agricultural biotechnology companies.
countries, such as Colombia, Bolivia, Costa Rica, Brazil, South
The main objective is to broadcast the benefits and potential
Africa, India, China and Mexico, although on a very small
of agricultural biotechnology
| INFOGRAPHIC
PRIMARY SUCCESS Mexico’s wide network of free-trade agreements has allowed
For all the success that the agribusiness industry enjoys,
the country’s primary sector to become the third-most
there is a significant percentage of the population employed
important driver for exports. NAFTA led to an increase in
in agricultural activities that lives below the poverty line. The
national agricultural production of more than 50 percent and
challenge for the sector in the coming years is to maintain
an increase in value of over 100 percent. Although most of the
its productivity and exporting strength, while finding ways
country’s income in the primary sector comes from agriculture,
to improve the living conditions of those that depend on
livestock and fishing have also become top performers.
the sector for a living.
EVOLUTION OF THE AGRIBUSINESS SECTOR
Largest producer and exporter of agribusiness products
PRODUCTION VALUE (2012, 2017) GRAPH TITLE
500
Livestock
2.1
Fishing
50
40
0
30 20
——2012's Volume ——2017's Volume
5.8
2012's Value 2017's Value
1.7
2018 AGRIBUSINESS TRADE BALANCE (US$ billion)
28.41
Agriculture
21.1
21.6
19.1
29.8
100 100
34.25
150
billion tons
355.5
200
200
0
10th
250
317.8
300
235
468.3
MX$ million
400
263
386.7
212
300
10 0
*Year base 2013
Exports
Imports
Net Balance
HOW MUCH DO WE PRODUCE? (agriculture, livestock and fishing) 22.5
Harvested Surface (million ha)
58
284
22.0 21.4
21.5 21.0
Value of Production (US$billion)
Volume of National Production (million tons) 285 284.7
20.9
56
282 281
20.0
280
60 58
283
20.5
Estimates for 2018
58.4
54
20.9
52 50
Estimates for 2019
NAFTA'S LEGACY (1994-2018)
0
29.1 Grains and oilseeds
14.04
19.13
25.4
Livestock and fishing
(million tons)*
5.8
10
(million tons)
2018 Production
6.01 9.3
20
12.66
30
10.08
22.47
40
1994 Production
41.17
39.4
50
Fruits and vegetables
1994 Value of
production (US$ billion)
2018 Value of
production (US$ billion)*
*Estimate
Mexico produced approximately 1.7% of the total world agribusiness production in 2018 Sources: Grupo Consultor de Mercados Agrícolas (GCMA), Agroalimentary Atlas 2012-2018; Ministry of Agriculture and Rural Development (SADER)
MAIN FRUITS HARVESTED IN MEXICO IN 2017 (thousand tons) 5,000
Grapes
Guava 12.5324.7
415.9 195.9
Grapefruit 22.9441.9
470.2
Tuna
17
605.1 137.4
Strawberry
Apple 0.9
Cantaloupe
658.4 283.4
714.1
945.2 88.1
Pineapple
Papaya
Mango
Watermelon
164
424
961.8
1,331.5 670.3
1,003
Avocado
Lemon
Banana
75.6
Orange
0
578
729.6
2,000 1,000
1,958.4
2,030
3,000
2,229.5
2,513.4
4,629.7
4,000
Production Exports
Mexico is the 4th-largest fruit exporter and the 6th-largest fruit producer in the world
Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center
213
GUARANTEED PRICES OF 4 BASIC GRAINS AND MILK 0
20
40
60
80
100
120
8.2
20 Corn
5.6
MX$ per liter of fresh milk
15 Beans 6.1 100 Bread-making wheat
5.8
100
120 Rice
0
1
2
3
4
5
6
liters of fresh milk per farmer
6.1
7
8
GRAP
Government purchasing limit (tons per farmer) Price per ton (thousand MX$/ton)
LE
H TIT
THE SOCIAL ASPECT OF MEXICO'S AGRIBUSINESS (2017)
6.78 million Total agribusiness workforce
Male workers
Fishing
83.8% Agricultural sector
12.2%
11.6%
1.4% Others
Livestock
Female workers
LEVEL OF INCOME
27% Less or equal to 1
11.5% Between 2 and 5
27% Without payment 26.1% Between 1 and 2
7% Not Indicated 1.4% More than 5 minimum
minimum daily wage
88.6% Working population in other sectors 11.4% Working population in primary sectors
minimum daily wages
*Minimum daily wage in 2017: MX$80.04
minimum daily wages
daily wages
GRAPH TITLE
88.4%
2.6%
| VIEW FROM THE TOP
TECHNOLOGY AND SUSTAINABLE MODELS OF AGRIBUSINESS MANUEL BRAVO President and Director General of Monsanto
Q: Monsanto is now part of Germany’s Bayer. How will this
images, create valuable personalized and up-to-date
merger impact the agricultural industry in Mexico?
information for the producer that translates to opportunities
A: Bayer and Monsanto, which is now part of Bayer’s crop
for improvement regarding productivity and profitability.
science division, hope to introduce more innovation and 214
technology to the Mexican agribusiness sector to help
Climate’s Fieldview, our Silicon Valley digital platform, is
the country face the alimentary challenges of the future.
the basis for developing the digital solutions that we apply
This acquisition will redirect investment in a more efficient
to agriculture to add value along the entire process. Data
way. Once the integration is consolidated, we will begin to
collection leads to many opportunities for the producer
provide faster and better opportunities in digital agriculture,
because it creates value related to the specific needs of
conventional breeding, biological, biotechnological and
the farmer.
agrochemical products. Q: How can Monsanto’s digital approach shape the Mexican Q: How does Monsanto provide added value to agricultural
agribusiness industry?
producers in Mexico?
A: The development of data analysis can make production
A: Every year, Monsanto invests US$1.5 billion in R&D
cycles more efficient. The information retrieved can boost
globally. Even after establishing our venture with Bayer,
the conventional and biotechnological development of
investment will continue and possibly increase to accelerate
seeds to resist specific pests, improve their tolerance
the production of innovative products. About 50 percent of
to climatic conditions and other agricultural constraints
our resources are allocated to conventional breeding and
resulting from Mexico’s natural geography. We can
the rest to the development of our other four innovation
customize solutions for farmers and companies anywhere
platforms, including digital agriculture. Monsanto manages
in the world.
a Big Data platform in other parts of the world, such as Brazil, Ukraine and the US, that helps improve the efficiency
Q: What would Monsanto say to those who remain skeptical
of the crops of local producers. We believe that our
about the use of genetic engineering in agriculture?
know-how and our technology are vital to boost Mexico’s
A: Genetic engineering in agricultural products can help
agribusiness industry through quality, speed and innovation.
reduce considerably the application of chemicals and, at the same time, reduce the industry’s environmental impact.
Q: How can digital tools and Big Data benefit agricultural
Developing these products can help Mexico improve its
development in Mexico?
food sovereignty through local production and ensure long-
A: The potential of Big Data in agriculture lies in providing
term nutrition for its population.
information that helps farmers make better decisions regarding the productive cycle of their crops. Monsanto
Q: What does Mexico need to do to become an agribusiness
wants to help farmers with seed selection according
leader in Latin America?
to the conditions of the soil, water availability and
A: Geographical and natural conditions do not change with
agronomic practices related to agricultural production.
borders. The soil, weather and other conditions are the same
The technologies we use, such as soil sensors and satellite
in Guatemala and the south of Mexico or in Tijuana and San Diego. Mexico needs greater political will to support the agricultural industry. The use of hybrid and other modern
Monsanto is an American multinational focused on agrochemical
agriculture technologies could become fundamental to
and agricultural biotechnology. Headquartered in St. Louis,
the country’s growth in agribusiness. It is necessary for the
Missouri, its goal is to develop agricultural technology for seeds,
government to bet on the modernization of agricultural
biotechnology and products for crop protection
products and infrastructure to be more competitive.
INSIGHT |
HYBRID CROPS PROTECT MEXICO’S AGRICULTURE JAVIER VALDÉS Director General of Syngenta Latin America North
Mexico is already among the biggest food exporters in the
“For every 1 percent increase in farm productivity, income
according to SAGARPA, but genetic
is likely to rise between six and seven times,” he continues.
research can help the country improve its standing while
Helping to boost profitability also helps keep farmers at home.
providing farmers with a better income, says Javier Valdés,
“We want to help farmers stay in their local communities and
Director General of Syngenta Latin America North. “Mexico
not migrate to cities or to the US. The only way to achieve this
world, ranking 12
th
has been growing in terms of exports. At Syngenta, we contribute to this growth through genetic research. We help Mexico’s farmers make the most of their crops by developing products with the physical characteristics that the US or European markets need.” Syngenta is making a strong bet on the seeds market, in which the company ranks third worldwide. “The Mexican seed market is worth US$1 billion but globally the market is valued at US$40 billion, which makes it an important segment for us,” says Valdés. The main threats to seeds are weather, pests and diseases. However, hybrid materials
“
is to make their activities more profitable and more attractive through the use of new technologies.”
The Mexican seed market is worth US$1 billion but globally the market is valued at US$40 billion” In addition to boosting productivity, Syngenta is involved in expanding the producer value chain. The company
can better fight against these elements. “The genetics of
has established working relations with important food
the seed have a major impact on what farmers harvest.
companies, providing them with high-quality seeds and crop
Our research focuses on that,” he says. “We develop hybrid
protection products. “We are working with food companies
materials that allow seeds to tolerate different temperatures,
to insert producers into their value chains. The idea is to help
droughts, pests and diseases.”
companies develop a high-quality national supply chain and to help farmers by connecting them with the industries that
Development of seeds, in most cases, adheres to the specific
need their product,” says Valdés.
needs of each country but having a broader vision of what is happening elsewhere can help develop solutions to problems
Syngenta Mexico is an active participant in the New Vision for
that are not yet in Mexico. “One of the advantages we have is
Agriculture (VIDA) program defined by the World Economic
that we can identify the mechanics and movements of crop
Forum, a project dedicated to sustainable agricultural practices
diseases and plagues and develop the technologies needed
that deliver food security, environmental sustainability and
to protect crops against them,” explains Valdés, highlighting
economic opportunity. The program involves over 600 private
the problem of coffee rust in Colombia. “We realized that
sector organizations and 21 countries.
the problem started to spread to Central America, so we developed solutions for this. When the rust problem attacked
Although Syngenta participates in the first stages of the
Mexican crops, we were ready for it.”
agricultural production chain, Valdés is determined to deepen the company’s support of the Mexican agricultural ecosystem.
To help improve sustainability in the agriculture sector,
“We collaborate heavily with farmers to help their crops
Syngenta laid out The Good Growth Plan, targeting an
achieve the correct flavor, color and physical characteristics
increase in farm productivity by 2020. In Mexico, the company
demanded by clients. We will continue collaborating to
has already surpassed expectations. “We have done a really
further develop Mexico’s role as an exporting platform and
good job to increase crop productivity in Mexico. In some
for Mexican consumers to have high-quality products. In a
places, potato productivity has increased by 20 percent and
few years, Mexico will be among the Top 10 food producers
in some areas tomato productivity has doubled,” says Valdés.
in the world,” he says.
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AGROCHEMICALS TO MODERNIZE THE MEXICAN COUNTRYSIDE JOSÉ ESCALANTE CEO of Velsimex
216
Q: How do Velsimex technologies help farmers and
There are also many products that politicians have targeted
what challenges do you face because of the nature of
with special taxes. Legislators think that the IEPS tax
your products?
encourages farmers to use more products that have less
A: The agrochemical segment is similar to pharmaceuticals
toxicity, but the fact is that farmers use specific products
in the sense that there is a group of companies doing
depending on the plague that attacks their crops. The grade
research to present a new drug every year. In the
of toxicity of an agrochemical is not a decisive factor.
agrochemical market, companies present between four and five new products a year. The development of an
Q: What role do private companies like Velsimex play in
original agrochemical product can take between US$100
modernizing the Mexican countryside?
million and US$500 million. Velsimex commercializes post-
A: For many years, the perception in Mexico was that crop
patent products. We also hold the exclusive distribution
extension was necessary to increase productivity in the
of a patented agrochemical enhancer. We are the largest
agricultural sector. As a result, the government provided
Mexican agrochemical group.
free assistance, including technical, which meant that agronomists traveled the country to help farmers extend
The agrochemical enhancer we distribute is called 2X
their crops to more fields. However, an analysis of what
Potencior. This product allows farmers to obtain better
happened in Europe, Israel and the US, shows that the great
results and at the same time helps to control weeds, insects
driver of productivity in the countryside was the private
or fungi that have proven to be resistant to other pesticides.
sector. Fertilizer manufacturers visited farms to analyze
Having this product also helps distributors to sell more,
the soil. They were able to identify which components the
which means that we generate a win-win chain in which
soil lacked and thus recommend fertilizers accordingly.
we all come out ahead: the distributor, the farmers and us.
Phytosanitary product companies do the same: recommend
Our contribution also extends to education. We provide
the ideal product to combat each plague. This is how
presentations on the proper handling of agrochemicals
private companies like ours make a difference.
(PURA), for example. Another program, called ATOX, provides information on toxicity and what to do in case of
Q: What strategies should be implemented to increase
poisoning from an agrochemical product.
crop productivity? A: In Mexico, there are around 23 million ha of cultivable
Unfortunately, pesticides are demonized around the
land, of which 7 million are destined for corn. Mexico is a
world. Today, COFEPRIS does not allow any product with
mountainous country with a lot of desert and jungle, so
teratogenic, mutagenic or carcinogenic characteristics into
increasing the number of cultivable hectares is practically
the market. The list of agrochemicals permitted in Mexico
impossible. Of those 7 million ha of corn only 2 million are
is similar to that in the US, Europe or Japan. However, there
completely modernized and use hybrid corn. In my opinion,
are some differences because we have crops, like agave,
it is a mistake that genetically-modified corn seeds are not
that they do not grow. Mexico grows fruits, vegetables
approved for growing in Mexico because in most cases,
and flowers, which are exported, meaning that we use and
these seeds have been modified just to resist the use of
recommend only safe and pro-ecology products.
glyphosate, a nonselective herbicide that kills everything, including the crop unless it is transgenic. Around 98 percent of the corn the country imports for meals is transgenic
Velsimex is a Mexican agrochemical company ranked fifth
but the corn we produce is not. If the arguments against
globally in terms of market share. Its product portfolio includes
transgenic corn were related to health issues, we would not
insecticides, herbicides, fungicides, bactericides, rodenticides
import transgenic corn. Mexico’s population is consuming
and crop enhancers
transgenic corn but its farmers cannot produce it.
VIEW FROM THE TOP |
A BET ON NEW FORMS OF BUSINESS ALBERTO AMKIE Director General of Agropark
Q: What is Agropark’s role in developing local producers
and plan according to a long-term vision. To join Agropark
and their surrounding community?
is to bet on the development of new forms of agricultural
A: Agropark was founded in 2006 with the goal of
business and to participate in the creation of best practices
creating a sustainable project that adheres to international
for quality exports. Companies that want to be our partners
standards. Agropark is a cluster of greenhouses specialized
must be aware that Agropark is an investment to enter the
in providing an ideal hydroponic environment for products
food industry with technology. The cluster has different
approved by the US FDA. Also, it offers world-class services
technological systems from different parts of the world,
and infrastructure to its members.
such as Germany, Italy, Israel and Holland, which improve the quality of the products we export to the US. At
Agropark was launched in two phases. The first has 300ha,
Agropark, we give our companies the freedom to choose
of which 250ha are dedicated to greenhouses, while the
the technology that best suits them but we demand that it
remaining are common service areas. The cluster has 12
adheres to our quality parameters.
companies that oversee the production and export of products that generate added value for our customers. The
Q: What makes the Agro-Intelligent Solutions Center the
second phase will include 500ha to double the cluster’s
most ambitious agricultural project in Mexico and how
productivity; it will generate more than 5,000 jobs and
does it improve the country’s agribusiness sector?
the construction of 10,000 housing developments for
A: All participating companies collaborate in synchrony
the municipality of Colon, Queretaro. Agropark promotes
and contribute best practices. We follow the highest
growth in the community by developing better economic
standards and go beyond traditional agriculture. Within the
and productive prospects for companies, job opportunities
greenhouses, we can control the production process of all
and adjacent services related to the greenhouses. We also
our products, down to the last detail; if there is a plague, we
allocate more than 50ha to the reforestation of the area.
can contain it and treat it. Our pollination methods employ insects to avoid the use of chemicals and pesticides. Also,
Q: What are Agropark’s most important products?
all companies re-use water and work according to FDA
A: Our two main products are tomatoes and peppers. We
regulations regarding exports to the US.
have more than 10 varieties of tomatoes, from cherry, globe and roma to heirloom. We also produce cucumber and
Q: Agropark exports 95 percent of its production to the
zucchini, but to a lesser extent. One of our medium and
US and Canada. Do you have plans to further diversify?
long-term objectives is to incorporate commercial flower
A: Demand for vegetables from the US exceeds the existing
exports. Among our differentiators are the conditions of
supply capacity, so we are expanding to meet the demand
our greenhouses, which are ideal for the production of
in this market. Agropark does not rule out the possibility
flowers because there are no maximum temperatures. Also,
of expanding to other markets in the long term but in the
the land is favorable for the construction of infrastructure
short and medium term we continue to focus our exports
and we have enough water to create a suitable habitation
on the US market. The relationship will be maintained due
for hydroponics. We are 20km away from an international
to the commercial agreements we already have, our quality
highway, which allows us to send our products across the
and the type of products we offer.
US border in less than 24 hours. Q: What are the requirements for a producer to join Agropark?
Agropark was founded in 2006 as a high-tech greenhouse
A: Mainly we look for consolidated and forward-looking
cluster for flower and vegetable producers that want to
companies. The agriculture business is so protected that it
compete in export markets worldwide, such as the US and
requires companies that are willing to invest in technology
Canada. The company has 12 members
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DUTCH TECH RECLAIMS BARREN LANDSCAPES JAVIER MARTÍNEZ Director General of Groasis
218
Q: How can Groasis play a role in Mexico’s reforestation efforts?
A: The company is in close contact with the federal
A: Our technology ensures a 90 percent survival rate and
government, which has already started to use Groasis’
90 percent savings in water consumption compared to any
technology. This collaboration is helping us reach new
traditional system. Groasis’ technology is patented in 120
companies that could benefit from Groasis’ technology.
countries. We decided to set up shop in Mexico in 2019 and
The company’s philosophy is based on using technology to
started manufacturing and exporting from here to other
generate savings and to develop more efficient reforestation.
countries. Groasis offers Dutch reforestation technology
We believe Groasis can be a strong partner to companies
manufactured in Tijuana and distributed beyond Mexican
and the government to help them implement a sustainable
borders, with a high survival rate. We manage our entire
and affordable CSR. Also, our philosophy is to connect
supply chain and have strategic partnerships with NGOs,
companies and the government with NGOs that are strongly
private companies, state governments and other players to
committed to Mexico’s reforestation. Our idea is to create
boost reforestation in Mexico.
a network where everyone can become part of this effort.
Q: What areas in Mexico could benefit the most from your
Q: What opportunities do you see to collaborate with the
technology?
mining sector in Mexico?
A: In Mexicali, Baja California, Groasis has achieved a 93
A: The National Meteorological Service (SMN) sees our
percent reforestation rate in designated areas. In Yucatan,
technology as a viable and desirable technology for the mining
Groasis has achieved a 98 percent survival rate in its
sector, following successful results in countries like France and
reforestation activities despite challenging soil and weather
Spain. Therefore, we expect to develop a strong collaboration
conditions. In general, the whole country can benefit from
in the near future with the mining sector in Mexico. Our key
our technology and to maximize these benefits, Groasis
partnerships with NGOs in the country will help us reach the
builds tailor-made projects for those clients that require it.
sector and its companies. Another attractive market is food and beverages because of its high-water consumption and
We work with a wide range of clients, including the
interest in balancing their environmental footprint.
National Institute of Agricultural and Livestock Forestry Research (INIFAP), the Autonomous Agrarian University
Q: What can companies and the Mexican government get
Antonio Narro, Anahuac University and the Comprehensive
from partnering with Groasis?
Evaluation Center (CICESE) in Baja California. In the public
A: Groasis saw the opportunity to bring its technology to
sector, Groasis works closely with the National Commission
Mexico to help potential clients in the reforestation of dry,
of Arid Zones (CONAZA), which is a commission from
eroded and derelict areas and its Ecological Water Saving
SADER that focuses on developing soil and water
Technology is the perfect solution to plant trees using
conservation projects, as well as with the National Forestry
less water. This technology can use 1L instead of 10L while
Commission (CONAFOR).
planting in dry areas.
Q: How can Groasis’ technology contribute to the
The Dutch government considers Groasis a national icon.
government’s philosophy of austerity?
We were recognized as the most innovative company in the Netherlands by the Dutch Chamber of Commerce because of our technology’s high social, environmental
Groasis is a Dutch company founded by Pieter Hoff that specializes
and economic impact. In 2019, the Khalifa International
in forestation of man-made deserts. It aims to contribute to the
Award for Date Palm and Agricultural Innovation selected
forestation of 2 billion hectares in various countries by developing
Groasis as the winner of the Pioneering and Sophisticated
and implementing cost-effective solutions
Innovations Serving the Agricultural Sector.
VIEW FROM THE TOP |
QUESTION EVERYTHING TO BREAK PARADIGMS GASTÓN MAUVEZIN CEO of Proteak
Q: What processes have made Proteak a disruptive
Q: How has Proteak tackled the Asian market, which is one
business model for the Mexican industry?
of the most important teak-producing regions?
A: It is the combination of three different factors. The first
A: Teak is native to Asia but breaking paradigms in Mexico
is that Proteak was built by entrepreneurs with the help of
has allowed us to succeed in the rest of the world. The Asian
industry experts who had access to capital. The second factor
teak industry is characterized by having large extensions
is a lack of respect for paradigms. The same combination of
with low productivity. Proteak prefers to have fewer tracts
entrepreneurs and specialists has allowed us to break different
of land but with high productivity and quality levels, which
paradigms because we question everything. The last factor is
allows us to be very competitive and to develop business
that Mexico has fabulous conditions. The country has a great
niches in which Asian countries cannot compete because
capacity to develop any kind of industry due to its internal
their products do not meet certain physical qualities.
market and because of its export strength. For instance, Proteak exports teak logs to China and India, even though
Q: In which emerging business niches do you see the
the teak industry is not as developed as it is in Asian countries.
greatest possibilities?
We are on a crusade to make the forestry industry one of the
A: We would like to develop a competitive furniture industry
most important industries in the country. Forestry in Mexico
through the use of wood panels. To achieve this, our strategy
has been totally disregarded and underdeveloped, despite
is to educate consumers. The lack of a local furniture industry
the country’s great potential.
has made imports necessary to meet local demand. When compared to other countries, Mexico lags in this industry.
Q: What strategies can help develop the sector?
For instance, Brazil’s medium-density fireboard (MDF)
A: Unfortunately, Proteak’s efforts to develop the industry
production is approximately 4,500 million m3 per year. In
are not enough. What we need is a public policy coordinated
Mexico, the industry only generates 700,000m3 per year.
from the highest possible levels that focuses on the different aspects that require development, such as access to land. In
Q: How does Proteak establish a working relationship with
Mexico, access to land has always been highly fragmented
local communities?
and there are multiple regimes surrounding land ownership,
A: Our operations are in the least developed and most
which sometimes lead to conflict. Our largest land extension
marginalized rural communities in the country, where the
is around 900ha but we have competitors in Brazil with
main activities are related to the agricultural sector. This
250,000ha for a single field.
sector is has the largest percentage of informality. For this reason, we developed a program called “Fair Employer” in
The tax scheme is also not suitable for boosting the industry.
which we have worked to increase employee productivity;
By this I do not mean that we need tax cuts or subsidies. We
we provide all our employees with better work conditions,
need to level the playing field so the sector’s tax burden is
fair salaries, social security, access to banking services
similar to that of other industries, while taking into account
and safe and efficient transportation services. We have
its specific needs. We also need to develop financing and
many rural employees and in the high season we have
insurance schemes for the industry and educate investors
almost 1,000 rural employees between our permanent and
who usually focus on other types of industries, such as
temporary staff.
automotive, telecommunications or retail. The Mexican forest industry’s trade deficit is almost US$7
Proteak is the largest Mexican forestry company in the country
billion but the industry has the export potential to create
and one of the largest teak producers in the world. It was
a surplus. With the proper political reform, I am sure that
founded in 2000 and became a public company in 2010. In
in five to 10 years we could become an exporting country.
2017, Proteak opened the first MDF plant in the country
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BLOCKCHAIN, CRYPTOCURRENCIES BOOST SECTOR RODRIGO DOMENZAIN President of Amar Hidroponia
220
Q: How does Amar Hidroponia's model benefit from the
After thoroughly researching different types of
creation of Agrocoin?
investments, we concluded that cryptocurrencies and
A: We started Amar Hidroponia 18 years ago, while the
blockchain offered an interesting opportunity. This led
Agrocoin project started in August 2017. Agrocoin is an
us to create the first Mexican cryptocurrency and the
investment vehicle that we developed because many
first cryptocurrency in the world related to agribusiness.
people wanted to invest in Amar Hidroponia’s franchise
Each Agrocoin is directly related to 1m2 of hydroponic
model but did not have the MX$3.15 million (US$160,000)
habanero pepper production, which means that the owner
needed to participate. Through this cryptocurrency model,
of one Agrocoin is the owner of the production of 1m2 of
it is possible to invest with only MX$500 (US$26), which is
hydroponic habanero peppers.
the price of one Agrocoin. We designed Agrocoin with a key that allows our investors to trade it after one year of investment through platforms Amar Hidroponia is a Mexican agricultural company that
like Bitso. Since blockchain technology allows for electronic
encourages fair trade of greenhouse-grown crops. Incorporating
notarized transactions with a unique code, Agrocoin allows
economies of scale, the company developed a franchising model
us to attract formal investors from any part of the world. It
for growing and commercializing habanero peppers
is a way to democratize investment.
VIEW FROM THE TOP |
MODERNIZATION REQUIRED TO MAKE AGRICULTURE A NATIONAL PRIORITY ÍÑIGO PÉREZ-RASILLA Director General of Sofagro
Q: Sofagro has extensive experience in financing the
micro-financiers. Sofagro plays an important role in this
agricultural sector. In what specific areas do you see
segment, especially in the sugarcane field.
opportunities? A: We are creating financial products to meet the sector’s
Q: President López Obrador has made the Mexican
needs and we are adapting these products to the needs of
agricultural sector a priority. What impact do you expect
emerging companies. Our job is to talk to them, understand
that to have on the industry?
their requirements and create products that are unique to
A: Agricultural is a priority for the government not because
them. We will continue to work in the segments we already
of the government’s ideology but because the sector is
are in, boosting our financing solution via dispersion to
among the country’s main industries. Although the sector
small farmers in the sugarcane segment or other crops like
had perfected its working dynamic over the years with its
strawberries or broccoli.
international counterparts, USMCA's negotiation should be taken as an incentive for the industry to improve the quality of
We are also working to develop greenhouses and we are
its products and to diversify its exports. When we talk about
venturing into financing marketers, which adds a higher
the quality of our agricultural products, the path we must
degree of complexity. Marketers that export often require
follow is quite clear since natural and organic goods are the
repurchase agreements. For instance, if a marketer has
most popular. However, these two changes cannot happen
a contract with a client to sell a determined crop year-
without modernizing and professionalizing the sector.
round but that crop is only produced four months a year, the marketer must buy the entire production in this short
Both modernization and professionalization also depend
period of time and find a way to preserve it to be able
to a large extent on the participation of the private sector.
to supply its client for the entire year. Because the client
Unfortunately, farmers tend to have limited resources and
will not pay in advance for the product, marketers require
do not have the money to invest in technology. This is where
financing. This is where we participate; we buy the product
private initiatives can promote modernization.
from them with the promise of reselling it at an agreed price in the future, which provides traders with liquidity.
We are seeing more investment, which is good news. One
These agreements are fairly common for grains and sugar
area that has become quite common for promoting the
but we are venturing into creating these agreements for
sector’s modernization is contract farming, a model in
new products.
which small and medium-sized farming operations that work for large traders receive investment to modernize
Q: What opportunities do new financial instruments such
their production processes, build greenhouses and buy
as CKDs offer?
better seeds and agrochemicals. This results in a win-win
A: Financing in the agricultural sector has the same
situation for both farmers and marketers. The government
problems other sectors have. The largest and most
also needs to provide more legal and judicial certainty
sophisticated producers find financing relatively easily.
related to land-ownership laws. Agriculture is among
However, traditional financing companies cannot meet
Mexico’s most important sectors and it has the potential
the needs of these large players because they do not
to continue growing.
understand the sector’s requirements. Medium-sized companies have problems finding financing because their operations are considered small for big banks, while other
Sofagro is a nonbanking financial institution that operates
financing options tend to be unprofessional and not suitable
under the SOFOM regime. It specializes in providing
for the business niche and its real needs. Small farmers
financing and funding to companies and cooperatives in the
suffer the most and tend to obtain their financing from
agricultural sector
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MEXICO’S GEOGRAPHY KEY TO AGRIBUSINESS GROWTH DIEGO MARTÍNEZ President of Aneberries
222
Q: What is the main differentiating value Aneberries offers
differentiated by the quality and purity that our geographical
in terms of export support for producers?
position allows. Mexico can deliver any product in North
A: Since its creation, Aneberries’ goal has been to group
America in seven days, while Chile and other countries need
the largest number of berry producers and to promote
more than 30 days to export to the same market.
this industry in Mexico. Today, we represent 28 exporting companies, and between 80 and 85 percent of the country’s
Q: What was the idea behind the creation of the Berries
berry exports. Aneberries offers producers and exporters
de México brand?
comprehensive services that include consulting in food
A: We want to position Mexico’s berries as quality and safe
safety, genetics and phytosanitary regulations, as well as
products for consumption. In international markets, such
support, financing and training in new technologies for
as Europe, the new brand will encourage consumers to see
irrigation, hoops and harvesting, among others, to position
Berries de México as a quality product. This project benefits
Mexican berries in the international market. Aneberries
the industry because a sustainable agribusiness model can
exports to 32 countries around the world, although our
improve farming and the national economy by ensuring that
main markets are the US, Canada, the UK, Holland, Italy,
natural resources are cared for.
Belgium, Germany, Russia, Hong Kong, Japan and the United Arab Emirates.
Q: How can Mexican producers become part of Aneberries? A: Producers, small or large, need to be aware of the
Q: What factors have helped Mexican berry producers
investment and agricultural requirements of being a berry
become competitive in Asia?
producer in Mexico. We look for members who are aligned
A: Mexico has positioned itself in the Asian market thanks
with the international quality standards that guarantee their
to fresh berries; previously many countries in the region
products are safe and free of pesticides. We not only want
only consumed frozen versions of this product. Mexico
to export berries but also to develop the industry and the
contributes added value through the quality of its products.
human environment that surrounds it.
We are working with the government to open new business opportunities in that region but the process has been slow
Q: Which product offers the most interesting prospects
due to the rigorous phytosanitary regulations of some
for Aneberries?
countries. In the case of China, a two-year period was
A: Our flagship product is strawberries, followed by
necessary to open the export protocol for blackberries and
blackberries, raspberries and blueberries, the latter of which
raspberries, including visits from the country’s auditors and
are the most expensive in the market. Production volumes
agricultural authorities.
and the time frame for a return on investment vary from one berry to another, so producers must consider these factors
Q: What role does geography play in your international
to increase their productivity.
development strategy? A: Unlike Chile, which needs to fumigate its fruits to export
Q: What is Aneberries doing to drive Mexican producers
them to the US market, our products do not need cold
to the next level?
treatment or pesticide applications. Our products are
A: The berries industry in Mexico produces around US$1.9 billion a year. We are valuable to the agribusiness sector so government support is key to help us boost this industry.
The National Association of Berries Exporters in Mexico
Also, we need the government to get more involved
(Aneberries) groups companies that produce berries for
because part of our value chain depends on the services,
export. The association works with 28 exporters of blueberries,
infrastructure and conditions that the government provides
raspberries, strawberries and blackberries
to the agribusiness sector.
INSIGHT |
AFTER RUST CRISIS, MEXICAN COFFEE BREWS SUCCESS FÉLIX MARTÍNEZ President of the National Association of the Coffee Industry (ANICAFE)
The Mexican coffee sector has been hit hard in recent years by
One area of opportunity for further growth is exports. “Coffee
an epidemic of coffee leaf rust, a fungus-based disease. But the
exports had fallen substantially but they are now picking up,
industry is recovering and despite negative external factors,
which is the best parameter we have to illustrate growth in
consumption and exports are on the verge of increasing,
production,” Martínez says. Some coffee companies weathered
says Félix Martínez, President of the National Association of
the rust crisis through coffee exports that included added
the Coffee Industry (ANICAFE). “The rust crisis of 2012-13
value, such as instant coffee. Mexico’s capacity to produce
affected the Mexican industry. However, a joint effort between
instant coffee is almost equal to Brazil’s. “Brazil can produce
the private and public sectors has repositioned the industry
around 100,000 tons of instant coffee per year, while Mexico’s
and we are again experiencing growth.”
capacity is around 96,000 tons. We expect to surpass Brazil
“
in a couple of years.”
The Mexican market had faced challenges before but Martínez says the inadequate management of the first stages of the epidemic caused Mexico’s coffee production to plummet. This led all members of ANICAFE, a 40-year-old association that groups the 35 most important companies in the sector, to participate in solving the crisis. “We went from producing 4.4 million 60kg sacks of coffee to 2.3 million, dropping from fourth to 11th in the international ranking," Martínez says. One action implemented by the government, coffee farmers and the association was the incorporation of genetically modified, rust-bug-resistant seeds. “A few years
Brazil can produce around 100,000 tons of instant coffee per year, while Mexico’s capacity is around 96,000 tons. We expect to surpass Brazil in a couple of years”
ago, genetic material for coffee seeds was nonexistent in Mexico. The rust crisis led us to import seeds with new
Like its other exports, Martínez says Mexico’s success as a
characteristics and to develop research centers that
coffee exporter lies in its geographical location. “We have
would allow us to generate our own seeds.” In addition to
taken advantage of Mexico’s location next to the US. Our
introducing these new seeds, Martínez says the epidemic
members import coffee from Vietnam and Brazil, process it
led the industry to change the way coffee beans are grown.
and then export it to the US.” He believes there are many other
“To recover production, we increased the density of crops.
markets that have high potential for coffee exports and instant
Instead of having 1,500 coffee plants per hectare, we now
coffee in particular, including England, Japan and South Korea.
have 3,000 per hectare, which means higher production from the same land space.”
The domestic industry also offers untapped opportunities, such as ecotourism, an area in which countries like Costa
Martínez says the local industry also has been boosted
Rica and Colombia have taken the lead. “Coffee is a crop that
by an increase in consumption levels in the country. “We
preserves the biodiversity of the areas where it is harvested
estimate that coffee consumption in Mexico is around 1.45kg
and can become a fundamental piece in the ecotourism
per capita.” He also suggests that the growth the industry
segment,” says Martínez. “Countries like Colombia and
has experienced in recent years is related to the successful
Costa Rica offer tours around coffee plantations that let
business model of Starbucks. “The phenomenon of coffee
visitors observe local flora and fauna while learning more
shops began when Starbucks arrived in the country more than
about coffee plants. Mexican states like Chiapas, Veracruz
15 years ago. Many other brands and several of our associates
and Puebla are already offering these kinds of tours but we
have decided to establish similar shops.”
can do more.”
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DIFFERENT REALITIES OF THE SAME AGRIBUSINESS LUIS TEJADO President and CEO of BlueDrop Agroforestry
224
Q: BlueDrop Agroforestry specializes in developing
BlueDrop Agroforestry. We are already conducting our due
agricultural and forestry companies. How do you ensure
diligence with Afores and we hope to raise MX$4 billion
sustainability in your investments?
(US$210 million) to grow the companies that we already
A: Purchases and investments made by BlueDrop Agroforestry
have and to invest in other areas, such as pineapples,
are always sustainable. Recently, we were about to buy a
coconuts and other citrus fruits.
3,000ha plot in Tabasco but we renounced the purchase because it is the natural habitat of an endemic turtle in the
Q: What are the main risks in the agricultural sector and
region. We always buy privately-owned land parcels, normally
how do you mitigate them?
in the southeast of the country where deforestation had taken
A: We are one of the few funds in the agriculture and
place during the 1960s and 1970s. When we buy these plots,
forestry sectors that also have the capacity to speak with
we implement a reforestation program to regenerate the area.
Afores and landowners. Our vision focuses on minimizing risks instead of maximizing profits because in case of a
Sustainability is at the core of our business and includes
contingency we have more room to control the results. Also,
our employees and our processes. Our main objective is
we make sure that the projects we select have commercial
to do business according to a framework of sustainability,
potential and growth opportunities. We like to invest in
ecology and social responsibility.
buying our own land because we can minimize risk and guarantee long-term productivity.
Q: What made Proteak, Tropical Organic Growers and Prolade attractive investments for BlueDrop Agroforestry?
Q: What are the characteristics inherent to the sector that
A: BlueDrop Agroforestry started as a fund that looked
should be understood by a funding company like BlueDrop
for the best opportunities in the agricultural and forestry
Agroforestry?
sectors. Before investing, we conduct an extensive analysis
A: When Mexico emerged as an independent country and
of the market, technologies and available workers. The
only had land to grow its economy, it was reasonable for the
most interesting segments for us are palm oil, organic
country to base its economy on agriculture. Now, Mexico is a
bananas, melina trees and blueberries and with these
multisectoral economy and the agricultural sector faces two
projects we have raised around MX$800 million (US$41.5
realities. On the one hand, there are the common farmers with
million). We also have the possibility to scale the business
an average land size of 2ha who lack knowledge, technologies
opportunities for each one. Prolade, our sustainable palm
and investment capital to increase the profitability of their
oil company, has cultivated around 3,000ha of palm oil
land. On the other, there are farmers who own 50ha or more
and we plan to invest MX$15 million (US$780,000) to
and produce legumes and vegetables with high investment
expand that to 5,000ha by 2020.
and returns. We do not need to buy more seeds or go back to being an agricultural country to boost Mexico’s economy.
Q: Who are BlueDrop Agroforestry’s main investors?
What we need is to invest efficiently in the sector to make
A: Afores are our main investors, having put money into
low-producing land more profitable.
Proteak in 2010. That was the first project we developed. In 2012, when I left the leadership of Proteak, I founded
If the government wants to change the agricultural sector, it has to understand that Mexican agriculture has two faces and that the industry is highly fragmented. At the same
BlueDrop Agroforestry specializes in the development of
time, unlike other sectors, there are no great players that
agricultural and forestry industry, helping companies build
completely control the sector. We need to nourish the
their operations depending on market opportunities. The
places and the farmers that have the greatest opportunities
company is present in four continents and in 13 countries
for growth.
VIEW FROM THE TOP |
SPEEDY ALTERNATIVES FOR LENGTHY GOVERNMENT APPROVALS JUAN PABLO FLORES Director General of AVS
Q: What led COFEPRIS to grant third-party authorizations
third parties, any registration can be obtained in less than six
for the agrochemical sector?
months. This effort translates to prompt commercialization
A: COFEPRIS does not have the capacity to satisfy the
of products.
demands of the agrochemical industry. Some years ago, the pharmaceutical industry had the same problem so the
Companies need the capability to plan and map the
council used authorized third parties to address the issue.
market. They cannot do this because they do not know
This model has been successful in the pharma industry,
if their product’s registration will be ready on time. It
particularly the verification units for drug products and
is a matter of strategic planning. Mexico is the world’s
medical devices. In only five years, they have provided
12th-largest food exporter but we expect that by 2050
over 10,000 new registrations. The pharma industry can
the country will take a leap forward to become a Top 8
now complete these registrations in only a few months.
exporter. The only way to lower prices is to have more
The agrochemical sector has been requesting this from
participants in the industry offering innovative products
COFEPRIS for two years and we expect to replicate the
and generics. Many farmers use counterfeit goods because
success this scheme has had in the pharmaceutical industry.
they cannot afford patented products. This new regulation will help spur both growth and the introduction of new
Q: How have you been received by the market and are two
products at more competitive prices, which means that
authorized third parties enough to cover demand?
farmers will have the capability to purchase registered
A: Every two years, COFEPRIS launches an open call for
products and generics. That will be beneficial for the
new companies to participate as authorized third parties.
agricultural sector overall.
COFEPRIS expected more companies to obtain the authorization but the truth is that the processes are very
Q: Between 2010 and 2017, COFEPRIS granted over
strict and rigorous. The authorization of two companies is
7,000 pesticide registrations. How will the introduction
not enough for the entire market but it is a first step. At
of authorized third parties impact future results?
AVS, we have four reviewers with different authorizations.
A: The problem COFEPRIS faces is its capabilities. It has a
For instance, all four experts oversee plant nutrients, three
significant backlog for new product registrations because
are authorized for a chemistry specialty and two for the
it does not have the human resources to quickly review all
toxicology specialty. Although we only have four reviewers
the new applications.
at the moment, we can increase our number of reviewers to meet demand.
We expect the number of registrations will increase because there will be more reviewers in charge of doing what
Despite being authorized by COFEPRIS, some companies
COFEPRIS is doing now. There will be more products on
are reluctant to use our services. Large companies that also
the market and many producers of agrochemical products
have experience with third parties in the pharmaceutical
will be able to standardize their operations. I do not have
industry have no problem working with us but the vast
an estimate regarding the magnitude of the growth that
majority of companies are still waiting for the first round
the industry will experience but I have no doubt that the
of proceedings to be completed before deciding whether
industry and the number of reviewers will grow.
to use our services. Q: How do your services add value to the operations of
AVS is an authorized third party that focuses on agrochemical
pesticides or nutrients companies?
products for the Mexican market. The figure of authorized third
A: The goal is to shorten time frames. It takes up to 36
parties, designated by COFEPRIS, for the agrochemical sector
months to obtain a new registration but by using authorized
was announced in early 2018
225
Beer production process
FOOD & BEVERAGES
9
Avocados and berries have become flagship products for Mexico but the country also excels in other alimentary segments. Due to its strategic location, production capabilities and logistics, Mexico has also become a hub for food manufacturing companies. Changes in consumption patterns not only in Mexico but throughout the world have also fostered the introduction of added-value goods to Mexico’s industry and have given the country the opportunity to become a hub for R&D related to nutritional products.
Food & Beverages showcases leading agro-industrial companies from segments like beer, tequila and mezcal that have become best-performers in the US and European markets. Strategies are also analyzed to find ways to replicate the success of these products in other food and beverages categories in order to present a cohesive industry that has a wide offering not only for national consumers but for international markets.
227
CHAPTER 9: FOOD & BEVERAGES
230
ANALYSIS: Changing Trends Drive Consumption of Premium Products
231
VIEW FROM THE TOP: Maribel Quiroga, Cerveceros de México
232
VIEW FROM THE TOP: Jonás Murillo, CANAINCA
234
INSIGHT: Alfonso Vázquez, Pinsa Comercial
235
VIEW FROM THE TOP: Raúl Peláez, Kua Mex Foods
236
VIEW FROM THE TOP: Enrique Hernández-Pons, Aires de Campo
237
VIEW FROM THE TOP: Sophie Vanderbecken, Le Caméléon
238
VIEW FROM THE TOP: Mario Vazquez, ACH Foods México
239
VIEW FROM THE TOP: Alejandro Rosas, Haskell
240
INFOGRAPHIC: Beer, Tequila and Mezcal: Kings of Exports
242
VIEW FROM THE TOP: Carlos Álvarez, Bacardi Mexico
243
VIEW FROM THE TOP: Jaime Costa, BLN
244
INSIGHT: Pablo de Brito, Beam Suntory
245
VIEW FROM THE TOP: Lissette Montefusco, CMR
246
INSIGHT: Federico Rigoletti, Bajo de la Tintorera
247
INSIGHT: Eduardo Méndez, Mero Mole
Rodrigo Vargas, Mero Mole
229
| ANALYSIS
CHANGING TRENDS DRIVE CONSUMPTION OF PREMIUM PRODUCTS With over 790,000 employees across the country, the food and beverages industry has become an important pillar for the manufacturing sector. Tequila and mezcal are among the industry’s stars and healthy options are trending. Despite the successes, the industry faces perils, particularly in terms of security The food and beverages sector is an increasingly relevant
in Mexico has been growing at a double-digit rate over the
segment of the Mexican economy. Agro-industrial exports,
past five years.” More importantly, Álvarez says the Mexican
including food and beverages, accounted for US$17.78
consumer is evolving, moving to consumption of beverages
billion in exports and US$15.2 billion in imports in 2018 for a
from the premium segment. “In Mexico, the premium segment
commercial surplus of US$2.5 billion, according to INEGI. An
represents 30 percent of the liquor market. This segment has
analysis from ProMéxico in 2017 showed Mexico was the No.
also experienced double-digit growth in recent years and we
2 supplier of processed food to the US and the third-largest
expect these rates to continue for at least another five years.”
producer of processed foods in the Americas, just behind the 230
US and Brazil. Adding to its clout, nine of the sector’s 10 most
Jaime Costa, Director General of BLN, says that very much
important companies are present in the country.
like what is happening in other product categories, Mexican consumers are shifting their preferences toward Mexican
The surplus in Mexico’s trade balance is mostly driven by the
traditional spirits. “Tequila accounts for approximately 34
country’s best performing products: beer, tequila, mezcal,
percent of the total spirits market.” Costa adds that the market
bread products, confectionery, chocolates and fruit preserves.
is increasingly welcoming mezcal. “We see many opportunities
The sector also plays a significant role in employment
in the mezcal category,” he says. “It is showing steady growth
generation. According to ProMéxico, over 792,000 people
but it has a very small following. Younger consumers are
work in the industry and Jonás Murillo, Director General of
learning to drink mezcal and it is this demographic that is
CANAINCA, says the sector is among the largest employers
driving the trend for mezcal and also wine.”
in the country. “The 40 companies affiliated with CANAINCA generate 40,000-45,000 direct jobs and the multiplying effect
Consumption of mezcal and tequila is also booming abroad,
of the industry in terms of employment is above average.
which has led to the acquisition of Mexican brands by
For every direct job in the industry, around seven indirect
international companies. Such is the case of Tequila Patrón,
positions are generated, while the average in the country is
which was acquired by Bacardi to position the rum company in
three indirect jobs per every direct job.” Murillo adds that five
the premium tequila market. “One way to grow and diversify is
out of the seven indirect jobs created are in the farming sector.
through the development of existing brands and acquisitions of new ones. Tequila Patrón plays a key role in the premium,
The beverages industry is a major engine for the sector.
super-premium and ultra-premium segments,” says Álvarez.
Beer, tequila and mezcal are Mexico’s top performers in the
“Foreign companies often have the financial resources to
agro-industrial commercial balance. Maribel Quiroga, CEO
invest in the long-term success of a brand, increasing its
of Cerveceros de México, says Mexico is the fourth-largest
ability to expand, to employ even more people in Mexico,
producer of beer in the world but ranks first in exports. “The
contribute to the community and further introduce tequila
Mexican beer industry is positioned above other traditional
and the tradition and culture of Mexico across the world.”
beer producers like Germany.” In addition to the success that Mexican beer represents, Quiroga believes the beer industry is
Despite the success of the industry, it remains susceptible to
a perfect example of how the agricultural and agro-industrial
the insecurity problems plaguing other sectors, particularly
sectors can work together. “Grupo Modelo created an initiative
when it comes to logistics. “Security is a key issue. We must
called Agricultural Development in Mexico that aims to
transport products from Veracruz to Mexico City. Along the
promote production of barley and improve the quality of life
way, we have had to deal with several robberies. This has
of the country’s producers. Heineken México also developed
forced us to use additional security elements for our freight
a technology program focused on sustainability.”
transport, which increases overall costs,” says Álvarez. Costa adds that security issues have gained such relevance that
Although exports play a major role in the country’s economic
the insurance industry no longer wants to cover the risks
life, the domestic market is also key for the industry. According
associated with transportation. “We are facing a situation
to Carlos Álvarez, Managing Director of Bacardi Mexico, Mexico
where insurance companies no longer want to provide
is among Bacardi’s Top 10 countries in sales. “The business
insurance for our shipping.”
VIEW FROM THE TOP |
BEER: A STRONG NATIONAL AND INTERNATIONAL ECONOMIC PILLAR MARIBEL QUIROGA CEO of Cerveceros de México
Q: What is Cerveceros de México's impact in the local beer
followed by China with 2.3 percent, Chile with 1.6 percent and
industry?
Canada with 1.4 percent. Beers made in Mexico are present
A: Cerveceros de México’s goal as a chamber of Mexican
in more than 180 countries. Our internationalization plan is to
industrial and craft brewers is to promote the brewing
continue consolidating the countries where we already have
industry in Mexico. The chamber strives to participate
a presence but we also want our beers to reach every corner
beyond regulatory and fiscal matters and has broadened
of the world. Cerveceros de México wants Mexican beer to
its scope over the past years to promote the national beer
be recognized as a symbol of quality throughout the world.
industry, as well as responsible alcohol consumption to nurture the culture of beer and beer-related topics. One of
Q: How do beer companies work with the agricultural
the objectives of Cerveceros de México is to highlight the
sector and producers?
importance of beer and the brewing industry in the country’s
A: Malt barley production in Mexico has been positive in
economy. We also battle underage drinking through the
recent years. Between 2007 and 2017, production grew at
campaign ¡No te hagas güey! (Do not play dumb!).
an annual average rate of 4.2 percent, from 653,000 tons in 2007 to 982,000 tons in 2017. Between 2007 and 2017, the
Q: How does Mexico rank in terms of beer production
average yield increased from 2.3 to 2.8 tons per hectare. In
compared to the rest of the world?
2017, the state of Guanajuato was crowned the top producer
A: Mexico is the fourth-largest beer producer after China,
of malt barley in the country with 358,000 tons, followed
the US and Brazil. In 2017, the country produced 110 million
by Hidalgo with 240,000 tons, Puebla with 85,000 tons
hL, while China produced 449 million hL, the US 219 million
and the State of Mexico with 50,000 tons. In the same
hL and Brazil 129 million hL. The Mexican beer industry
year, Queretaro’s production grew 42 percent compared
is positioned above other traditional beer producers like
to 2016, with over 40,000 produced tons, a production
Germany. In overall export percentages, Mexico ranks first
level that had not been seen in 11 years. Our affiliates Grupo
with 21 percent of the global beer exports, followed by the
Modelo and Heineken México are committed to investing
Netherlands with 14.4 percent and Belgium at 11 percent.
in the entire value chain and both groups expect that 100 percent of the barley used for beer will be domestically
Q: What impact is technology having on the brewing
produced by 2020.
industry’s value chain? A: Beer production in Mexico is growing and with it the
In 2016, Grupo Modelo created an initiative called Agricultural
technological development of the industry. Technology
Development in Mexico to promote the production of barley
improves processes through greater digitalization and
and improve the quality of life of the country’s producers.
automation but also improves the use of resources
In addition, Grupo Modelo supports its programs through
needed to brew. Heineken has opened a plant in Meoqui,
a barley collection center in Sobrerete, Zacatecas and a
Chihuahua, which exceeds the traditional technological
sustainable agricultural program that provides technical
methods of brewing in Mexico. It can be considered the
advice to barley growers in the area. In the case of Heineken
most technologically advanced plant in the world. In the
México, the company has developed a technology program
beginning of 2019, Grupo Modelo opened a plant in Hidalgo
focused on sustainability.
with an initial investment of MX$1.4 billion (US$72.3 million). Q: Which countries are the top consumers of Mexican beer
Cerveceros de México is a chamber that represents Mexican
and how are brewers diversifying export destinations?
industrial and craft brewers. Its objective is to grow the value of
A: The US is the main buyer of Mexican beer, taking 81 percent
the brewing industry and promote its impact on the country’s
of our exports. The UK is next with 2.8 percent of exports,
economic development
231
| VIEW FROM THE TOP
A UNITED VOICE FOR FOOD PRESERVES JONÁS MURILLO Director General of CANAINCA
232
Q: What is CANAINCA’s role in the Mexican food and
Q: What challenges and opportunities does CANAINCA
beverages sector?
expect from USMCA, the FTA with the EU and the TPP11?
A: We group 95 percent of all companies in the food preserves
A: The negotiation or renegotiation of free-trade agreements
business, except for milk. We have 40 members. These
has not had a major impact on our day-to-day activities.
companies are the main players in the fishery, beverages and
Overall, we face the same issues and benefits as other
general food sectors. Although the number might seem low,
sectors, although the improvement or maintenance of free-
CANAINCA’s members represent almost the entire national
trade conditions are always beneficial.
production from this sector, which accounted for MX$270 billion (US$14.1 billion) in annual sales in 2017. Once the
Particularly with USMCA, the impact has been almost
government presents its final figures for 2018, we expect this
null. We are a sector that commercializes products that
number to grow by 7 percent, which is the average growth
cannot be substituted and there is high demand in the US
we have enjoyed in the past years. Although growth varies
for our products. Unlike the automotive industry where
depending on the subsector, the most significant development
companies can manufacture their components anywhere
has been in the beverages sector, especially juices and nectars,
in the world, even in the US, beans and peppers cannot
along with tuna, beans and peppers.
be managed in the same way. The US does not produce habanero pepper sauce but its population consumes it
The 40 companies affiliated with CANAINCA generate
in large quantities. We can proudly say that in the US,
40,000-45,000 direct jobs and the multiplying effect of the
the industry no longer lives off the 30 million Mexicans
industry in terms of employment is above average. For every
who live there and consume these products. Today, there
direct job in the industry, around seven indirect positions
are several US population segments that actively look
are generated, while the average of indirect employment
for Mexican products. It is a market that has significant
creation is three indirect jobs per every direct job. Out of
opportunities.
these seven jobs, five are in the farming sector, which puts us among the largest employers in the agricultural sector. In
Of our associates, at least 70 percent sell products to the
terms of agricultural products, CANAINCA companies move
US. In fact, of our entire exports, practically 90 percent
around 8 million tons of food throughout the year, both in
goes to the US and the other 10 percent is destined
sea products as well as fruits and vegetables.
for the rest of the world, mostly to European markets and a smaller percentage to South American and Asia.
Q: How does CANAINCA work alongside its associates to
Although the Asian market is large and offers interesting
increase the sector’s competitiveness?
commercialization opportunities, our products still do
A: As a chamber, our job is to represent and defend the
not have the push that they need. However, in Europe
sector’s interests, preventing attacks against our associates
they have received a significant boost, which is reflected
and positioning them in national and international markets.
in sales and popularity. Our associates selling nopales
We have several commissions that touch upon different areas,
(cactus) in Sweden say the product is being well-received,
such as human resources, marketing, sustainability, technical,
for example.
legal and environmental issues. Each of these works hand in hand with the directors of each of our members.
The FTA with the EU has favored us significantly. After lengthy negotiations, we achieved a Geographic Indication
When CANAINCA presents a proposal, the entire sector
recognition for the chipotle pepper and the Mexican
backs it up. The goal of all our proposals is to boost the
jalapeño pepper. This is a major victory for us. With the
sector or find ways to reformulate initiatives that otherwise
chipotle pepper, there were not many problems since
would impact negatively on the sector or consumers.
this is a 100 percent Mexican product that results from a
Aires de Campo food display
transformation process of the serrano pepper. However, the
A: In this regard, we rely on strategic partners. The
jalapeño peppers had some issues because Turkey, Peru and
Association for Packaging and Processing Technologies
some Asian countries also produce these, although they
(PMMI) is our primary partner. Our relationship is based on
are of different and lesser quality. Producers from these
sharing information and offering feedback to one another to
countries were also using the image of Mexico to sell their
communicate what we need and what companies can offer
jalapeño peppers, which represented a problem for Mexican
us in terms of new technologies, not only in the packaging
companies.
stage but also in the production process.
The Geographic Indication gives us the same protections
Q: What is CANAINCA’s relationship with the Mexican
as a Denomination of Origin, with one main difference.
government in promoting the food and beverages’
Instead of being restricted by territorial continuity, the
preserves sector?
Geographic Indication offers protection to the entire
A: It has been difficult to establish a common agenda with
country for production of peppers, whether they
the new federal administration. There have been many
come from Sinaloa, Chihuahua or Veracruz. This was
internal changes and we need to see how the Ministry of
fundamental because the country has intermediate areas
Agriculture and Rural Development will be structured in
where there is no production of peppers. Now we need
the end. However, we have received a good reception from
the Mexican government to mirror what we have achieved
those we have been able to approach. They are aware of
in Europe; the country is still in the process of recognizing
the importance of the companies we represent and our role
Geographic Indications, which means that today we have
in helping eradicate poverty. It is a sector that is priority for
more protection in Europe than in Mexico.
the government.
Q: What efforts have CANAINCA and its members
There is also an opportunity in terms of legal certainty. As an
made to position their products among international
industry, we need to provide security to investors and reject
consumers?
corruption. We want to support the government in its effort
A: Product promotion is done more through the brand
to terminate corruption.
itself. The budget they have is by far larger than what we as a chamber could muster. We do help them with the
We believe the sector will continue growing but we must
legal conditions they must meet to commercialize their
be mindful of how businesses expand and how beneficial
products but the companies themselves oversee all their
certain proposals are for the overall population. We also need
promotion. For instance, during the 2018 football World
to improve both the products we sell and our international
Cup, all big companies were promoting their products in
efforts to position Mexican products throughout the world.
Russia. The target was not Mexicans living there but other global consumers. The National Chamber of the Food Preserves Industry
Q: What investment and innovation efforts is the industry
(CANAINCA ) is the chamber that represents companies in
making to ensure its packaging solutions comply with security
the food preserves business. Among its associates are Grupo
standards while being sustainable and cost-effective?
Jumex, Conservas La Costeña, Herdez and Jugos Del Valle
233
| INSIGHT
TUNA FROM MEXICO TO THE WORLD ALFONSO VÁZQUEZ Commercial Director of Pinsa Comercial
Mexico is a tuna dynamo. With a total 96,793 tons of tuna
average per capita tuna consumption at 2.6kg per year, more
captured in 2017, the country contributed 4.7 percent to total
than doubling Mexican consumption.
world production. Alfonso Vázquez, Commercial Director
234
at Pinsa Comercial, believes, however, that the home game
Vázquez says Pinsa Comercial’s strategy to increase tuna
remains a good bet for growth. “Mexico’s tuna consumption
consumption in the country is based on new methods
is not low but we believe the domestic market offers a
of innovation, commercialization and communication.
significant opportunity that could boost the industry.”
“Beyond commercializing extra tuna brands, we need to commercialize product innovation. Consumers should
Grupo Pinsa is the umbrella group for independent companies
start thinking about tuna through different concepts.”
dedicated to specific tasks within the production chain of the
An example of innovation that, according to Vázquez,
tuna and sardine industries, which makes it self-sufficient in
had a positive impact on consumption levels is related
all processes. In addition to canned tuna, it has a frozen tuna
to packaging. “Our packaging with a lid and a spoon for
division that is taking off thanks to exports. Pinsa Comercial
instant consumption was an innovation that encouraged
operates the commercial branch. “Our task is to commercialize
people to consume more canned tuna.”
for the mass market all the products generated by the group
“
but also brands that could be outside our production scope,
Consumer communication is another important variable.
like a line of Canadian snacks called Brunswick,” says Vázquez.
“Consumers need to be more aware of the benefits of
Mexico’s tuna consumption is not low but we believe the domestic market offers a significant opportunity that could boost the industry”
eating tuna,” says Vázquez. “We need to invite consumers to eat canned tuna in different ways.” An important factor in favor of canned tuna is related to prices. “In Mexico, a can of tuna is more economical than in other parts of the world,” says Vázquez, who adds that in the US a can of tuna can be up to 30 or 40 percent more expensive than in Mexico. Although Mexico stands out as one of the world’s most important tuna producers, Vázquez says exports have not grown as expected due to trade limitations such as those imposed by the US tuna embargo. The establishment of
According to SAGARPA’s 2018 National Agroalimentary
USMCA, therefore, would likely have no direct impact on
Atlas, Mexico is the 13th-largest tuna producer in the world.
the company’s operations. “Even if the US decided to impose
With seven brands, three of them canned tuna, Grupo Pinsa
taxes on Mexican tuna, we have experienced nontariff barriers
has positioned itself as the clear industry leader. “Canned
that are tougher than any tax.” Vázquez says that Grupo
tuna represents almost 5 percent of the entire category
Pinsa has positioned its products in Hispanic neighborhoods
of processed food and within the canned tuna market we
in the US but not at national supermarket chains.
hold between 55 and 60 percent of the market share,” says Vázquez. He says consumption in Mexico averages eight cans
The US market has proven a complicated arena for Mexican
of tuna per person annually, a number that SAGARPA rounds
tuna but Japan has been a different story as it received a
up to 1.1kg per capita. “We believe that tuna consumption could
significant share of Mexican tuna exports in 2016. Vázquez
reach the levels of other canned products,” says Vázquez.
is convinced that the coming two years will be profitable for
According to a study by The Pew Charitable Trusts, the largest
the group. “In the past, we have grown over seven points in
consumer of canned tuna in the world is the US, followed by
market share, we have expanded the canned tuna category
Japan, the UK and Spain. The European Commission puts
and we continue to see opportunities in the market.”
VIEW FROM THE TOP |
CONSUMERS DEMAND HEALTHIER, BUT STILL DELICIOUS, PRODUCTS RAÚL PELÁEZ President of the Board and CEO of Kua Mex Foods
Q: Kua Mex Foods offers two product lines: healthy and
Q: How does Kua Mex Foods support the brands it works with?
gourmet. How do you differentiate these lines from others
A: We invest in companies that are already positioned in the
in the market?
Mexican market and help them to continue growing through
A: Kua Mex Foods’ healthy and gourmet business model
innovation and by introducing them to new channels and
is an innovative and disruptive approach to the food
clients. The first company we invested in was Nopalia, which
industry in Mexico. The wellness niche that has grown with
produces nopal (cactus) tortillas and snacks. Their products
the arrival of millennials has proven to be highly profitable
were good but it was our strategic alliance that made them
and is growing quickly on a global scale. Kua offers highly-
great. One of the best products in our portfolio is Churritos
differentiated products that are not only affordable and
de Nopal that became a blockbuster in Mexico and abroad.
have great taste, but are also a great alternative to help
Since the acquisition, the company has grown 45 times in
fight obesity and overweight in Mexico. Our goal is to offer
less than five years.
healthier and better products to our customers. Q: What changes and trends do you see in Mexican Q: How does the company develop its products and what
consumption patterns?
protocols do you follow to add new ones to your portfolio?
A: There has never been such a high level of health and
A: Kua Mex Foods is driven by innovation. We are
wellness awareness as there is today. People are becoming
constantly creating new products and brands in line with
ever more conscious of how they feed their body and
our wellness approach of healthy and gourmet. Among
the repercussions food can have in either causing or
the most distinguishable attributes of our products are
preventing health problems. There has been a global shift
high quality and exquisite flavor. We have a robust team
in consumption patterns toward healthier, more natural
that specializes in the development of new formulas for
products that provide nutritional benefits. This has proven
products that merge health, great taste and affordability
to be an opportunity for Kua to introduce high-quality,
for our consumers. Our products are certified by the most
healthy and gourmet products to these fast-growing
prestigious national and international agencies in the food
markets. We plan to acquire one or two more companies
industry. Moreover, we look to acquire new companies that
to double our current size, with a sales target of US$300
fit our differentiated product portfolio.
million by 2022 and an EBITDA margin of 16 percent. This will pave the way to an IPO.
Q: How have your exports been received abroad and what are the challenges of marketing and commercializing
Q: What is Kua Mex Foods’ added value??
traditional Mexican products like nopal?
A: Externally, our mission is to provide healthier products at
A: Kua Mex Foods exports to several countries. In past years,
a reasonable price with great taste. Internally, we are proud
the global demand for healthy products reached double-
of hiring mostly women, who now represent 70 percent of
digit growth. Japan, which stands out for its healthy eating
our total workforce. We also buy our raw materials from
habits and general wellness lifestyle, has had the highest
small producers at a fair-trade price to support small and
growth in demand. As the millennial-driven wellness trend
medium businesses, while still generating great value to
continues to expand, however, we expect more countries
our shareholders through high-quality, affordable products.
to join the customer list. To help accelerate this growth, we attend annual national and international expos to showcase our products and attract new customers. In 2018, exports
Kua Mex Foods is a Mexican company specialized in the
represented 20 percent of our total revenue, compared
production of gourmet foods and beverages. Its health line
to 5 percent the previous year. We estimate exports will
includes products such as Frutos de vida, Kua Candy, Manitoba,
represent 50 percent of our total revenue by 2022.
Nopalitoz and Nopalia
235
| VIEW FROM THE TOP
SOCIOECONOMIC DIFFERENCES, BUREAUCRACY OBSTACLES FOR ORGANIC FOOD MARKET ENRIQUE HERNÁNDEZ-PONS CEO of Aires de Campo
236
Q: What conditions allowed for the creation of Aires
Q: What advantages and limitations exist in the Mexican
de Campo?
market for organic products?
A: Aires de Campo was founded in 2001, a time when
A: About 40 percent of the Mexican population lives in
national organic products were exported mainly to the US
poverty and 10 percent lives in extreme poverty. These
since there was no such market in Mexico. The original idea
socioeconomic conditions hamper the commercialization
was to create a market for organic products to promote a
of organic products in the country because these tend
healthy diet, a responsible carbon footprint and strengthen
to be priced higher than non-organic products due
the value chain of organic production. During the past five
to the cost of production. The yield in animal protein
years, our sales have grown continuously as more and more
production, for example, is lower because it is only
people show an interest in consuming organic products.
possible to place six chickens per square meter compared to the 28 chickens that can be placed by non-organic
Q: How do products from Aires de Campo differ
producers. However, the price, considering its high added
from others in the market and what is the company’s
value, is not really the problem; the problem is the lack
differentiating factor?
of accessibility caused by socioeconomic differences in
A: The main distinction is between organic and non-organic
Mexico. Aires de Campo is working to reduce this gap by
products. Aires de Campo’s products are free of chemicals,
improving production efficiencies to reduce costs and
agrochemicals and pesticides, they are non-transgenic and
offer better quality.
are only irrigated by seasonal waters to avoid contaminating aquifers. The company guarantees that its chickens and
To improve the organic market in Mexico there must also
eggs do not contain antibiotics, vaccines or hormones,
be changes in bureaucratic processes to make it easier for
while our organic protocols help our customers feel safe
farmers to obtain funds. Norms related to organic products
about the quality of our products.
also should be strengthened through the creation of a regulatory body to ensure greater coordination between
Q: How does Aires de Campo ensure the organic element
SAGARPA, COFEPRIS and PROFECO.
is maintained throughout the entire value chain? A: Aires de Campo supports the collaborators in its value
Q: What are Aires de Campo’s expansion plans?
chain. The company has more than 80 producers working
A: Aires de Campo’s philosophy is to commercialize
under the Aires de Campo brand. In the area of agriculture,
national organic products in Mexico. Today, approximately
the company provides farmers with seed capital, as well
70 percent of Aires de Campo’s sales are concentrated in
as support through certifications, advice, counseling
Mexico City and the rest is distributed in states such as
for obtaining public funds and more. Aires de Campo is
Jalisco, Nuevo Leon and Queretaro. We want to consolidate
involved in the entire process to guarantee the successful
Aires de Campo in Guadalajara and Monterrey and are
production of norm-regulated organic products and to
looking for opportunities in areas like the Bajio region,
ensure farmers their products will be purchased. In this way,
where we see the possibility of having a strong presence.
the company helps relieve the economic burden on farmers and facilitates the continuation of agricultural production.
Our goal is to continue growing until Aires de Campo is positioned as a company of relevant size in the food industry and as the leader in the organic foods market. In
Aires de Campo is the first distribution and marketing
the past five years, we have multiplied our sales fivefold.
company for organic foods in Mexico. It was founded in 2001
Now, our objective is to strengthen our products’ presence
as a producer and distributor of organic and natural products
in middle and lower-income homes, as well as to continue
in Mexico, Monterrey, Guadalajara and Cancun, among others
innovating with trendy products for our customers.
VIEW FROM THE TOP |
BEAN-TO-BAR CHOCOLATE: PRODUCTION WITH PURPOSE SOPHIE VANDERBECKEN Director General and Founder of Le Caméléon
Q: What is the main differentiating value of Le Caméléon
chocolate exhibitions or gourmet food events, which lead
compared to other brands of handmade chocolates?
Le Caméléon to its next steps: exports and developing a
A: In 2008, we launched Xocoteca, which focused on
presence in large grocery stores.
showcasing the sensory virtues of tasting chocolate. Eventually, Le Caméléon began to expand toward
Q: What are the main difficulties Le Caméléon has
chocolate events, tastings and pairings to educate palates
overcome in Mexico?
and showcase chocolate from a different perspective. In
A: Making real Mexican chocolate is difficult. The country
2010, Le Caméléon created a line of five chocolates called
produces approximately 27,000 tons of cocoa in Tabasco,
Mexicanismo, each with ingredients of Mexican origin, such
Chiapas, Guerrero, Yucatan and other states but according
as cacao criollo, chipotle, mole, grasshoppers and hibiscus.
to data from the National Association of Manufacturers of
The differentiating value is the balance between the
Chocolates, Sweets and Similar (ASCHOCO), the national
chocolate and the ingredients that bring to light all flavors.
market requires an average of 133,000 tons of cocoa. Cocoa plantations are located in complicated areas with a
Q: How do you combine Belgian and Mexican heritages
high level of humidity, high temperatures and exposure to
in your products?
many insects, which are all necessary for the production
A: Historically, Mexican chocolate para mesa (table
of cocoa. Mexico already has a chocolate culture, so many
chocolate) was made of ingredients such as sugar, cinnamon
cocoa plantations respect the environment and regularize
and over-roasted cocoa, which is a culturally accepted
their operations naturally without pesticides or chemicals.
flavor although it is technically wrong to over-roast cocoa.
But global warming affects production and increases prices.
Le Caméléon uses Belgian techniques with Mexican flavors to fuse both cultures. We also use selected Mexican cocoas
Q: In comparison to other countries, what limitations and
to process particular chocolates whose aromas reflect the
advantages does the country have when commercializing
biodiversity of Mexico.
chocolate-based products? A: Mexico is not a major producer of cocoa. The Ivory Coast
Q: What is behind your production process and who is
is the world’s top producer, with approximately 2 million
involved in each step?
tons per year. Africa accounts for approximately 70 percent
A: With our new bean-to-bar line SoXo, Le Caméléon
of the world’s cocoa production, the Americas represent 17
begins the chocolate-making process with the selection
percent and the rest is produced on the Asian continent. At
of the beans. We work with farmers to improve their
its cocoa-producing peak, Mexico reached between 50,000
post-harvest process and produce quality cocoa that is
and 60,000 tons per year and then gradually decreased to
free of defects. We handle the cocoa roasting following
23,000 tons. The yield of one hectare of cocoa in Mexico is
specific time and temperature parameters to guarantee our
between 350kg and 450kg of cocoa. In Peru, one hectare
chocolate’s quality.
yields 800kg and Ecuador has reached some 2,000kg to 3,000kg per hectare. Mexico, however, has a more aromatic
Q: How is Le Caméléon growing its distribution and are
cocoa in comparison to other countries that plant cocoa
there plans to expand its presence in the country?
variations that are more productive but also more common.
A: Our main distributors are gourmet stores, hotels, museums, coffee shops and restaurants. Le Caméléon is present in Mexico City, Cancun, Baja California, Ciudad
Le Caméléon is a Mexican artisan chocolate company that
Juarez, Queretaro, Puebla, Morelia, Hidalgo and Yucatan
fuses the food cultures of Belgium and Mexico to promote the
but we also offer home delivery to any part of the country,
creation of chocolates with hibiscus, grasshoppers, chipotle
Europe and the US. Other points of sale are specialized
pepper, mole and chai tea, among other ingredients
237
| VIEW FROM THE TOP
COMMUNICATION, LESSERKNOWN BRANDS ARE CORNERSTONES FOR GROWTH MARIO VAZQUEZ General Manager of ACH Foods México
238
Q: ACH Foods México is part of ACH Foods Company and
A: We position our brands through communication,
Associated British Foods (ABF). How does your business
particularly in categories that are not well-known in the
in Mexico add to the global operations of ACH Foods?
country, such as peanut butter. Our goal is to make them
A: ABF Group is among the Top 10 most important food
relevant to consumers and we use a variety of communication
companies globally. ACH Foods belongs to the groceries
channels, including advertising at points of sale, digital
division within ABF. We are a diverse and successful group
media, television and billboards. You have to find a way to
that is always looking for additional business opportunities.
let consumers know that the product is a good and healthy alternative. Twinings, for instance, is a leader in the segment
Mexico’s potential is much greater than our current market
of premium teas and we do not want to compete in any other
share. We want to grow and we believe the country represents
category. This is a very clear strategy for the ABF Group.
the perfect opportunity to expand our business toward the Latin American market. Mexico is an important business
Q: What makes Mexico an interesting market for ACH Foods
region for the group but our current position is not even close
and what conditions have allowed the company to grow?
to what the group believes we can be in the medium term.
A: Mexico is an attractive country for foreign capital. When you look at other countries in the region, you see that there
Q: ACH Foods has built a portfolio of local and international
is much uncertainty. Mexico has a significant market size,
brands. How do you approach these to ensure growth?
with a growing population that has particular consumption
A: Within our portfolio of oils and fats, we have well-known
habits in the food segment. Mexicans are willing to sacrifice
prestigious brands that are already mature in their segment,
many things but not food or flavor. This gives our company
which makes growth a challenge. Our most important brand in
many growth opportunities.
the oils and fats segment in terms of sales volume is Capullo, which participates in a category that continues to grow but
The oils category is large, with many players, and is still
not as fast as others. Our best opportunity is with brands
growing in revenue rather than volume. Categories in Mexico
that are not as known as we would like or that are in under-
shift constantly and are very dynamic, while consumers are
developed market segments. For instance, peanut butter, in
high-minded. This is what makes the country attractive as
which we are leaders, is a category that is just starting to
a foreign investment destination.
become popular in Mexico and is now growing at a doubledigit rate on a year-on-year basis. Tea is a similar example.
Q: What consumer trends are you discerning in the national
Our Twinings brand participates in this segment and is well-
market and how is ACH Foods working to position its
positioned in the market but not to the level we want it to be.
products given these new trends?
The plan is to grow our brands by communicating with the
A: Mexico tends to follow US trends. For instance, gluten-
consumer. We have a good balance and can easily implement
free products are in strong demand in the US and they are
the strategies required to boost growth in these segments.
starting to become popular in Mexico. Increasingly, there are more gluten-free products and consumers are willing to pay
Q: How do you market your foreign brands in the Mexican
more for them. As a result, it has become a more profitable
market and do they need to be adapted to local tastes?
category that is experiencing high double-digit growth rates. Organic products are also growing in popularity, along with products that come in biodegradable containers.
ACH Foods México is a subsidiary of Associated British
The industry needs to move at the speed consumers want
Foods. The company started operating in Mexico in February
us to. We are creating a joint group between Mexico and
2004 and manages well-established brands, such as Capullo,
the US to either develop or acquire products in line with
Twinings, Karo, Mazola, Inca and Aladino
these new trends.
VIEW FROM THE TOP |
FOOD AND BEVERAGES EXPERIENCE OPENS DOOR TO OTHER SECTORS ALEJANDRO ROSAS Managing Director LATAM at Haskell
Q: What is Haskell's strategy to promote its architecture,
Q: What are the regulatory and logistics challenges that
engineering and construction services in the Mexican market?
companies face in this sector in Mexico?
A: Founded in 1968, Haskell is a US company that specialized at
A: Besides adhering to COFEPRIS regulations, our
first in food and beverages and then expanded its capabilities
largest clients must also follow FDA guidelines to be able
to other sectors. Now, the company is recognized as the
to export their products to the US. COFEPRIS is more
most important general contractor in the US and one of the
advanced than other regulators in Latin America but the
largest firms for industrial construction in the world. Haskell
council could be stricter with some regulations to ensure
grew its business through acquisitions and now has divisions
manufacturing facilities are designed to even higher
specializing in hospitals, oil and gas and infrastructure,
sanitary requirements. Haskell has over 1,300 engineers
among others. We can participate in the entire product cycle,
and 150 are based in Mexico. They have worked for the
from predesign and design to program and construction
company for at least 10 years and fully understand the
management. We are also studying the development of a port
regulatory environment and all changes that might ensue.
in the Dominican Republic, an industrial park in Colombia and
This allows us to make sure clients comply with all related
many plant expansions in Mexico. This last includes breweries
sanitary regulations so they can focus on manufacturing
and automotive companies. We are also in talks to build two
and exporting their products.
Mormon temples in Mexico. The infrastructure sector is highly sensitive to any Haskell has been in Mexico for 20 years. The food and
governmental change but we are focused exclusively on the
beverages sector has remained stable over these years and
private market; we do not participate in public construction.
continues to grow steadily, unlike sectors more prone to
As a result, we are shielded against changes in the sector.
ups and downs, such as aerospace or automotive. Eighty
Moreover, about 90 percent of investment in food and
percent of the company’s revenue originates in this sector
beverages comes from the private sector.
and the remaining 20 comes from aerospace, automotive, metals and pharmaceuticals. While food and beverages will
Q: Considering Haskell’s strengths in the food and
continue to be our core, we are looking to balance our
beverages sector, what potential does the company see
portfolio by entering other areas. In Mexico, we believe that
in alcoholic drinks?
the food and beverages sector will continue growing for
A: Mexico is enjoying a beer boom, which we expect to
the next three years thanks to a solid pipeline. We do not
continue, mainly in the artisanal beer niche. Haskell has
believe that the issues impacting the Mexican economy will
several divisions but food and beverages is the strongest,
have a negative effect on Haskell’s operations.
with over 580 clients. Within this division the beer, wine and spirits segment manages beer and spirits, an area
Q: What sets Haskell apart from other constructors
we expect to continue growing. This division works with
operating in Mexico?
Bacardi, José Cuervo and Diageo, among many others.
A: Haskell is the No. 1 firm in food and beverages and is in
In Mexico, we have participated in tenders to build
the Top 5 of green manufacturing companies. It is among
manufacturing plants for tequila, brandy and cognac
the Top 30 designers in the world and in the Top 7 for sea
companies.
construction. Haskell’s main strength is its employees and we ensure they have the best available working conditions. Haskell has not had a fatal accident in 10 years due to our strong
Haskell , a US company founded in 1968, specialized in food
safety protocols. Our consumer products area has worked
and beverages but later expanded to other sectors. Today, the
with international brands, including Home Depot, Johnson &
company is recognized as the leading general contractor in the
Johnson, Unilever, Coca-Cola, Nestlé, Bimbo and Mars.
US and one of the largest industrial construction businesses
239
| INFOGRAPHIC
BEER, TEQUILA AND MEZCAL: KINGS OF EXPORTS MAIN FOOD AND BEVERAGES EXPORTS IN 2018 (US$ billion)
The agro-industrial sector is an important component of manufacturing activity in the country. Beverages such as
4.49 Beer
beer, tequila and mezcal represent a significant component of the trade balance. Equally important, food and beverages
1.64 Tequila and mezcal
exports contribute to the positioning of the Mexico brand,
1.32 Bread products
including its image and culture, in international markets. However, not everything is alcoholic beverages. Products
0.73 Confections without cocoa
such as bread, confections, sugar, chocolate, fruit preserves
0.71 Sugar
and juices take a predominant role in the food and
0.61 Chocolate and other products with cocoa
beverages industry.
0.57 Fruit preserves 0.54 Pork
AGRIBUSINESS EXPORTS AND IMPORTS (2018)
0.41 Sauces, spices and seasonings
240
0.4 Frozen orange juice
34.25
28.41
billion US$ in exports
0.38 Malt extract
billion US$ in imports
0.26 Puffed cereal products 0.25 Frozen strawberries and berries
50.9% Agri-industrial 43.1% Agricultural 3.1% Fishing 2.9% Livestock
53.5% Agri-industrial 38.8% Agricultural 5.3% Livestock 2.5% Fishing
0.22 Concentrated milk with or without sugar 0.2 Unfermented juices (excluding orange)
0
1
2
TEQUILA AND MEZCAL PRODUCTION
3
4
5
TOP 10 STATE PRODUCERS OF TEQUILA AGAVE IN 2017 State
8 5 6
9 states have a mezcal denomination of origin
4
1
Production volume (tons)
1
Jalisco
1,126,361
2
Guanajuato
256,620
3
Michoacan
36,335
4
Nayarit
35,398
5
Zacatecas
16,278
6
Tamaulipas
14,826
7
State of Mexico
11,416
8
Sinaloa
2,840
9
Guerrero
828
10
Morelos
178
2
Mexican tequila is commercialized in 120 countries
7
3
10
9
50
1
0
0
2012
2013
2014
2015
Tequila production Tequila 100% agave production
2016
2017
2018
Tequila exports Tequila 100% agave exports
2013
2014
2015
2016
Mezcal production Mezcal exports
2017
5.1 3.5
3.98 2.8
3.03 2.01
1.48
2.5 2012
1.45 1.15
2
100
1.04 0.76
3
150
2.49
5 4
0.91
224.1
6
309.1
271.4 213.3
273.3 197.9
228.5 182.9
242.4 172.5
200
226.2 172
250
166.7
350 300
253.2
TEQUILA AND MEZCAL PRODUCTION AND EXPORTS 2012-2018 (million liters)
2018*
MEXICO'S MAIN BEER EXPORT DESTINATIONS (2018)
BEER EXPORTERS (2017)
74% US 4.2% China 3.3% UK 2.1% Australia 1.6% Colombia 14.8% Others
21% Mexico 14.4% Netherlands 11% Belgium 9.9% Germany 43.7% Others
241
Mexican beer reaches over 180 countries
• Beer production is among the 14 most important
1 of every 5 beers meant for export globally is made in Mexico GLOBAL TOP 4 BEER PRODUCERS IN 2018 Country
Million hL
1
China
2
US
217
3
Brazil
140
4
Mexico
120
440
manufacturing activities in the country • In 2018, Mexican beer production grew 8.8% for a total of 119.8 million hL • The total beer industry value chain in Mexico contributes 1% of national GDP
MEXICO'S BEER IMPORTS
3.5% Belgium
94% US
ARTISANAL BEER PRODUCTION • Micro breweries have 0.1% of the total market in Mexico • There are over 600 artisanal beer projects in the country • The main states with artisanal breweries are (in order): Baja California, Mexico City, Michoacan, Jalisco and
0.5% Germany
0.6% Netherlands
0.3% UK
0.1% Others
25% of Mexico's agro‑industrial exports are beer
Nuevo Leon
Sources: Ministry of Agriculture and Rural Development (SADER), Cerveceros de México, Tequila Regulatory Council (CRT), Mezcal Regulatory Council (CRM)
| VIEW FROM THE TOP
MAINTAINING LEADING POSITION REQUIRES DIVERSIFICATION CARLOS ÁLVAREZ Managing Director of Bacardi Mexico
Q: As the largest privately-owned spirits company in the
through our social media content, which helps us build our
world, how does Mexico add to your global operations?
brand. One of the advantages of being an over 85-year-
A: Bacardi brands are present in 170 countries and Mexico
old brand in the country is that we already have a base of
is among the Top 10 countries globally in sales of Bacardi
consumers, so our job is to attract new ones.
rum. It is also one of our main markets in Latin America. 242
The Bacardi rum brand has experienced significant
Q: In January 2018, Bacardi announced the acquisition of
transformation by connecting with consumers through a
Tequila Patrón. How will this impact Bacardi?
variety of new channels and our business in Mexico has grown
A: One way to grow and diversify is through the
at a double-digit rate over the past five years. In August 2018,
development of existing brands and the acquisitions of new
we launched three new rum products: Bacardi Añejo Cuatro,
ones. Tequila Patrón plays a key role in the premium, super-
Bacardi 8 y Gran Reserva Diez. We are convinced that rum
premium and ultra-premium segments. Tequila represents
is the next market to undergo premiumization and we want
30 percent of spirits sales in Mexico and is a segment that
to be at the forefront of that industry change.
is growing rapidly. This acquisition helps to strengthen our portfolio and business opportunities.
In Mexico, the premium segment comprises 30 percent of the liquor market. A premium beverage is a higher quality
Patrón is, and always has been, proudly produced 100 percent
product, with fresher ingredients. The premium segment
in Mexico by Mexicans. Foreign companies often have the
has also experienced double-digit growth in recent years
financial resources to invest in the long-term success of a
and we expect these rates to continue for at least another
brand, increasing its ability to expand, to employ even more
five years. The Mexican consumer is changing and prefers
people in Mexico, to contribute to the community and further
to drink less but with higher quality. Mexican consumers
introduce tequila and the tradition and culture of Mexico
also enjoy cocktails and food and beverage pairing. Both
across the world. We are also venturing into the mezcal
trends help the premium segment grow significantly.
market. It is a small category that is experiencing triple-digit
Although premium spirits are on the rise, growth depends
growth rates so we are required to participate in that segment.
on the category. Around 60 percent of the whiskey market is considered premium, for gin this percentage hits 90
Q: How does Bacardi include sustainability in its
percent and about 30 percent of the tequila market is
business strategy?
considered premium.
A: In 2014, Bacardi launched an ambitious environmental sustainability program called “Good Spirited: Building
Q: What strategies have you put in place to strengthen
a Sustainable Future” with specific goals in sourcing,
Bacardi’s participation in the national market?
packaging and operations by 2022. Building on current
A: Bacardi leads the rum category and we are going to
programs and efficiencies that reduce water and energy use
defend this leadership. Consumers know our brand and are
and greenhouse gas emissions, the Bacardi global platform
loyal to it but there are new consumers that we can recruit.
reinforces the company’s leadership in corporate social
Our work in digital media is very important. We make a
responsibility. The material derived from raw sugarcane that
significant effort to help consumers identify with Bacardi
we use for Bacardi rums must come from certified sources, meaning that our suppliers cannot have a negative impact on the environment, cannot employ children, must comply
Bacardi is the largest privately-owned spirits company in the
with all laws and offer competitive wages. In addition,
world. Founded in 1862 in Cuba, Bacardi is now present in 180
Bacardi is an integral part of trade and social organizations
countries. The company has a wide portfolio of drinks that
that combat issues of alcohol abuse, particularly underage
includes rum, vodka, whiskey, gin and tequila
drinking, binge drinking and drunk driving.
VIEW FROM THE TOP |
CONSUMER PREFERENCES DETERMINE INDUSTRY TRENDS JAIME COSTA Director General of BLN
Q: In which segment has BLN developed the most, wine
Q: What actions has BLN taken to conquer positioning
or spirits?
challenges in a market as competitive as Mexico?
A: The wine segment is experiencing greater growth and
A: Taking note of what is happening around the world is
Mexican wine, specifically, has seen significant market
the most important factor. Another strategy has been to
expansion. Most Mexican wines are enjoying double-digit
approach younger consumers. We have done significant
growth and for the first time, they are outselling Spanish
work to promote responsible consumption and like many
labels. Within the spirits category, gin, tequila and whiskey
other spirits companies in the country, we are associated
have been solid performers. It is interesting to see how
with the Social Researcher Foundation (FISAC), an NGO
Mexican preferences have evolved from just a few years
that promotes responsible alcohol consumption. We are
ago when brandy and rum led the market. We have seen an
also trying to give brandy a new and youthful look. To that
increase in what is known as “value whiskies” or economical
end, we are launching a Torres can that is ready-to-drink.
whiskies, which are products that do not surpass the MX$150 mark (US$7.75). In the case of tequila, we are also
Q: How do you expect consumption trends to develop in
seeing significant growth, particularly in the crystalline
the coming years?
category. These changes are the result of the investment
A: I think preference for expensive tequila will continue to
made by tequila and whiskey manufacturers in recent years.
grow. The tequila segment occupies over 30 percent of the total spirits market but we have seen predominance
Q: What role does BLN play within the ecosystem of spirits
of products called “agave distillates” that are not tequila
commercialization?
and are sold at incredibly cheap prices. These products
A: BLN is focused on transforming the Mexican market
have grown a great deal, selling about 6 million boxes per
into a premium market; our portfolio includes several of
year, which has negatively impacted the effort to popularize
the highest-consumption tickets in the market, such as
the tequila brand. The cost of agave has also been a
Glenfiddich, Hendricks and Torres. We have a really good
challenge. Agave went from MX$4 (US$0.21) per kilogram
portfolio with high-value products. For instance, in the wine
to MX$22 (US$1.14) per kilogram in 2018. I think this price
segment, we are value leaders thanks to our Matarromera
phenomenon will correct in a few years.
and Torres products. We are also leaders in the gin category thanks to Hendricks, in the brandy segment with the Torres
Q: What opportunities does BLN see in the repositioning
brand and in the malts segment with Glenfiddich.
of traditional Mexican drinks like mezcal? A: We see great opportunities in the mezcal category. We
Q: What strategies does BLN use to maintain its leadership
are already working with two brands of mezcal. We are
in the premium segment of the spirits category?
associated with Montelobos, a top brand in the Mexican
A: We have clearly identified what restaurants or places
market, and Gusano Rojo, which has been in the market
can help us with brand recognition and we focus on these.
for over 40 years. Mezcal is showing steady growth but it
These consumers are key in generating trends. The idea is to
has a very small base. Younger consumers are learning to
break through in the upper part of the population pyramid
drink mezcal and it is this demographic that is driving the
and work downward, attracting more consumers. We also
trend for mezcal and wine.
take notice of the success other products are enjoying in other parts of the world and work to introduce them to the Mexican market. For instance, we have just introduced
BLN is a Mexican wine and spirits distribution company that has
Tito’s, an artisanal vodka from the US that is the best-selling
been in the market since 1946. It distributes premium brands,
brand in that country. It sells around 8 million cases and in
such as Ron Flor de Caña, William Grant & Sons, Disaronno,
Mexico we expect to sell over 15,000 boxes in the first year.
Grupo Matarromera and Monte Xanic
243
| INSIGHT
LOCAL GROWTH MUST CATCH UP TO GLOBAL SUCCESS PABLO DE BRITO General Manager Mexico of Beam Suntory
Evolving consumer tastes are tilting the scale toward
have the portfolio and capabilities to compete in around
consumption of premium and craft spirits in Mexico, a
80 percent of the market.” Mexico is one of Beam Suntory’s
trend that is providing significant growth opportunities,
four most strategic markets to boost growth, along with
says Pablo de Brito, General Manager of Beam Suntory
Russia, India and China.
Mexico. “Consumers are looking for crafted spirits within 244
the premium segment and we believe this trend will boost
Given Mexico’s potential, Beam Suntory has refocused its
consumption of tequila, whiskey and gin.”
strategy for its core products to incentivize consumption and brand awareness. “When it comes to tequila, we can highlight
Although at a global level Beam Suntory is the third-largest
Casa Sauza and Hornitos as synonyms of quality,” says de
spirits company in the world with a diverse portfolio of
Brito. “What we want to do now is to refresh their value
whiskey, gin and tequila, de Brito says the company’s
proposition and revitalize their standing among consumers.”
position in the Mexican market does not reflect its global
This strategy includes the launch of the Sauza Conmemorativo
success. “In Mexico, we are ranked fifth and seventh,
tequila and the presentation of the Hornitos Cristalino tequila.
depending on the product segment. Our goal is to double
Having a Cristalino option for tequila has become a must for
our operations in the next five years and establish a position
the company. “The rise in tequila consumption is probably due
that is consistent with our global standing.”
to the revolution that the Cristalino product has generated,” he says. “Traditionally, tequila was a product consumed more
While the Mexican market is highly competitive, de Brito says
by men than women. However, due to its smoother taste, the
the company has the right capabilities to achieve its growth
Cristalino option has helped tequila to capture new consumers
goals. “Mexico’s spirits retail segment is worth around US$3
that felt its traditional alternatives to be stronger.”
billion and grows approximately at a 10 percent rate on an annual basis.” De Brito adds that the premium category is
The company’s goal is to strengthen and revitalize its
experiencing the greatest expansion. “Although in volume the
position with a diversified portfolio offering. “Our product
market is growing at a 4 percent rate, in terms of value this
diversity is part of our company’s richness,” says de Brito.
number jumps to 10 percent. This means there is an increase
Particularly in the whiskey market, he believes Beam Suntory
in sales of premium products.” This 10 percent growth has
has the opportunity to consolidate its position. Almost 90
created a perfect opportunity for Beam Suntory to connect
percent of the whiskey market in Mexico is dominated by
demand for premium products with its own offering.
Scotch brands, which means Beam Suntory’s offering of American and Japanese whiskies can help to diversify
Another factor that makes Mexico an interesting and
demand. “Our Japanese and US whiskies comply with high
imperative market for Beam Suntory is the relevance that
quality standards. If we want to double the volume of our
tequila and whiskey have within the total spirits market, at a
operations in Mexico in the next five years, we need to
35 to 38 percent share independently, which is not common
position all our products successfully.”
in any country. Gin, the other important component in Beam Suntory’s portfolio, has not reached the consumption levels
For many years, Beam Suntory only operated through
that tequila and whiskey enjoy, but de Brito says it is the
distributors in Mexico. However, the company has seen
fastest-growing category at 50 percent year-on-year.
enough opportunity to establish long-term operations here. De Brito says the company’s products are already present in
Growth in the Mexican market and changes in consumer
the main retail channels at a national level and reach 20 major
preferences make it an interesting country for a company
cities, so there are no concerns about further development.
like Beam Suntory, says de Brito. “When you analyze the
“We will consolidate what we have built and will be able to
country and its characteristics, you will notice that we
participate in all relevant commercialization channels,” he says.
VIEW FROM THE TOP |
VALUE EXPERIENCE TRUMPS PRICE LISSETTE MONTEFUSCO Vice President of Strategic Planning at CMR
Q: CMR incorporates several brands and concepts. What
Q: How will the new Nescafé business impact CMR and
strategies has the company implemented to remain
the market?
successful?
A: Consumption patterns are changing. There are daytime
A: CMR started as a family business that developed a
consumption opportunities that we had not targeted
clear vision to introduce to Mexico the best of the world
with our restaurants, such as the growing trend toward
in terms of restaurants. This vision had two steps. The first
midmorning and midafternoon snacking. Nestlé recognized
was the creation of our own brands. Our first brand was
that coffee consumption in Mexico is growing outside the
Wings and we gradually developed more. Since we own
home and it wanted to have presence in this segment.
these brands, we have the option of exporting these and
This situation led us to work together. Our concept has
their related concepts to other countries. The second step
been in operation for more than a year and a half. We are
was to introduce brands or concepts that are relevant to
considering opening 150 stores in the next five to eight
the Mexican market, such as Chili’s, Olive Garden and Red
years. However, this number could vary depending on the
Lobster, through the creation of alliances.
reception in the market.
We have important partners like Brinker, the owner of the
Q: How has CMR adapted its business strategies to fit new
Chili’s brand. In fact, we are the largest franchiser of Chili’s
consumption patterns and channels?
in the world and Brinker’s largest partner thanks to our 69
A: There are two important trends to consider. The first
restaurants. Another strategic partner is Darden, the owner
is that consumption outside the house is growing, which
of Olive Garden, Longhorn and Capital Grille. Golden Gate
has led to more people consuming in restaurants and to a
Capital, the owner of Red Lobster, is an important partner
proliferation of new restaurants. This helps to professionalize
for us and Nestlé is also a strategic partner through its
the sector and to create new solutions.
brand Nescafé. We have many partners, each with different purposes. Some only provide their brand and content and
The other trend we are seeing is consumption through
together with others, such as Nestlé, we are developing
digital channels. More than 80 percent of the population
new concepts.
has access to smartphones, which allows consumers to have access to more information about restaurants and to
Q: CMR has become an expert both in the development of
the new platforms operating in the segment, such as Uber
franchises and new concepts. Which will offer the greater
Eats and Rappi. These new platforms also provide more
opportunity in the coming years?
accessibility to our consumers. We have offered delivery
A: Both models have their virtues. Although it seems easy,
services since 2016 and in 2017 we started working with
franchises have a significant degree of complexity, especially
SinDelantal. When Uber Eats arrived to the market, we were
since not everything can be applied to the Mexican market.
among the first big companies to work with them. These
You need to have some negotiating flexibility to adapt the
platforms complement what we do. Working with them
concept to Mexico.
allows us to combine the best of both worlds. It is also a way to reach new consumers and generations that would
On the other hand, when you create, you have complete
otherwise not go to a restaurant.
freedom to do anything you want but this implies a new level of internal infrastructure, including people with different skill sets, such as marketing and design. Fortunately, the
Corporación Mexicana de Restaurantes (CMR) is a Mexican
Mexican market has been really receptive to our brands
restaurant conglomerate that has been in the market for over
but we have found the market also wants Mexican concepts
50 years. With more than 140 restaurants, it is one of the most
created by Mexicans.
important restaurant groups in Mexico
245
| INSIGHT
PROPER DEVELOPMENT FACES QUALITY, PRODUCT STANDARDIZATION HURDLES FEDERICO RIGOLETTI Partner and Managing Director of Bajo de la Tintorera
246
The food service sector in Mexico has tremendous potential
part of the rib. This has forced us to bring rib cuts from the
just waiting to be tapped but challenges that include
US in an attempt to ensure product standardization at all
standardized food quality, security and a lax regulatory
our restaurants.” While proximity to the US combined with
environment are holding the segment back, says Federico
NAFTA’s advantages were an appealing solution, peso-dollar
Rigoletti, Partner and Managing Director at Bajo de la
exchange rate volatility in recent years is now a bigger factor
Tintorera, a restaurant operator located in Mexico City. “If you
in the equation. “The country’s proximity to the US has put
allow the sector to flourish, it will flourish on its own. If you
us in a somewhat complicated position. Although NAFTA
allow for development, development will happen on its own.
opened the door to obtaining a larger product portfolio it has
Stagnation is not born from a lack of creativity, willingness,
also put us at a disadvantage due to the existing exchange
hard work or manpower but of institutional problems.”
rate and the demographic we want to reach,” says Rigoletti.
Although challenges vary, Rigoletti says the lack of locally
Another key hurdle not only for Bajo la Tintorera but for
sold, high-quality and standardized food products has the
the sector in general has to do with service quality and the
greatest impact on groups like Bajo de la Tintorera, which
available workforce. “In Mexico, the workforce issue is more
owns and manages the Puntarena, Torino, Primos and Porco
related to productivity and education. There are few options
Rosso brands. This is not due to a lack of high-quality food
for recruiting qualified personnel. You have to develop
producers but rather, the market cannot pay the higher
people and that is a more complicated issue,” Rigoletti says.
prices demanded by these products to ensure that national production can be sold locally. “A significant portion of
In spite of the challenges, Bajo de la Tintorera has enjoyed
Mexico’s food production tends to go to outlets in markets
growth in Mexico City and is venturing into nearby Puebla.
with higher prices. These are all outside the country and all
However, Rigoletti says the decision to expand to new cities
pay in US dollars,” he says.
depends heavily on the security that the country’s institutions can provide. “There are interesting cities with impressive
Ensuring top-notch basic ingredients alongside impeccable
growth rates but you have to consider the institutional issue
service has always been the group’s motto, an approach
and security constraints. More often than not, security has
that has helped the company maintain growth. “Our value
become a problem hindering the growth of different sectors
proposition is highly focused on basic ingredients and the cost-
and it has taken a particular toll on sectors like ours.”
quality benefit, as well as the presentation of an innovative concept,” says Rigoletti. With 22 restaurants, Bajo de la
Although Bajo de la Tintorera does not operate abroad, the
Tintorera has assembled an innovative and diverse portfolio
group has invested in a restaurant in the US. This experience
that caters to a varied clientele. But Rigoletti says the lack of
has provided Rigoletti with insight into the restaurant business
standardization in the quality of basic products used by the
in the US and how it differs from that in Mexico. “Profit margins
brands has been a constant challenge. “Finding high-quality
are very similar. The real difference lies in how institutions
standardized food producers for one or two restaurants is not
work and in security and regulations. It is far easier to open a
that complicated. However, the situation changes when you
business in the US and the regulations are very clear,” he says.
are trying to apply this to over 20 restaurants.” Rigoletti says Bajo de la Tintorera is undergoing an The situation is forcing restaurant owners and operators to
institutionalization process to strengthen the company
find their basic ingredients in other markets, Rigoletti says,
and allow for expansion. “This will help us access financing
using Bajo la Tintorera’s own Porco Rosso restaurant as an
opportunities that will boost the growth of our brands and
example. “In Mexico there is a higher demand for pork loin
realize their potential while generating a larger offering
than for ribs, hence butchers would rather sell loin, sacrificing
based on quality of basic ingredients and service.”
INSIGHT |
HUMAN FACTOR THE BASIS FOR HOSPITALITY BUSINESS EDUARDO MÉNDEZ Founding Partner at Mero Mole
RODRIGO VARGAS Founding Partner at Mero Mole
The hospitality industry has a problem: it emphasizes sales
This emphasis on the gastronomic experience has to
rather than people. Rodrigo Vargas and Eduardo Méndez,
do with the change of mentality that consumers are
Founding Partners of Mero Mole, a Mexican consultancy
experiencing. “Amazon is having a great deal of success
specialized in the food and beverages industry, believe the
because of changes in consumer habits: today’s consumers
sector needs to refocus to achieve greater success. “The
prefer to pay for experiences instead of products,” says
hospitality business is made of people serving people but
Méndez. How malls operate is also changing, with a greater
not many restauranteurs give the human factor the visibility
percentage of space going to the food and beverage
it deserves in their business,” says Méndez.
segment, boosting the vertical’s attractiveness to Mero Mole. “There was a time when malls could have 10 percent
Mero Mole’s focus is on two verticals: clients and restaurant
of their gross leasable area (GLA) destined for food and
staff. “Our core business is to revolutionize the consumer
beverages. Now, they are devoting up to 25 percent of
experience,” says Vargas. This is sometimes easier said
their GLA to this segment.”
than done given the lack of professionalism in the food and beverage industry, which can often put a restaurant
Mero Mole arrived to the market three years ago and
out of business. “The National Chamber of Restaurants and
has since collaborated with more than 70 restaurants.
Seasoned Food Industry (CANIRAC) says eight out of every
However, according to Méndez, the sector remains wary
10 restaurants in the country close within five years."
of hiring consulting services. “In Mexico, there are very few restaurants with strategic consulting services. Many people
The firm started by operating exclusively with restaurants
believe that they can open a restaurant because they know
but has since expanded its services to four other sectors of
how to cook. This has led to an excess of empty chairs in
the hospitality industry: food halls, malls, urban destinations
certain neighborhoods and lagging sales as a consequence.”
and staff training. Mero Mole sees the customer as the key to success, both for its clients and its own business. “Our
In addition to the shortage of professional advisers, both
added-value in these sectors is our obsessive approach to
Vargas and Méndez agree that the other constraint the
improving the consumer experience. We need to evolve
industry faces is the lack of staff training and high turnover.
formulas that have proven successful,” says Vargas.
“In the US, official figures put turnover at 72 percent. In Mexico, there are no official figures but it is estimated that
The food halls and malls verticals offer significant growth
turnover is between 80 and 100 percent,” says Vargas. “On
opportunities for the consulting company, which sees food
average, the restaurant industry provides training to around
courts usually found in malls as rough diamonds that could
60 percent of all establishments once a year.” This statistic,
be upgraded to what is known as food halls. “We want
combined with staff turnover, means that there is basically
to replace the traditional food court; having food halls in
no training in the sector, he suggests.
malls offers a more attractive and complete experience for customers,” says Vargas. “The number of malls will double in
To address the training hurdle, Mero Mole created Hero
the next 10 to 20 years and if the evolution of food courts into
Guest, a tech platform that focuses on providing training
food halls does not include a focus on customer experience,
to restaurant staff. “We believe that if you do not train your
they will disappear.” Méndez agrees that food courts offer
staff, you cannot demand they provide excellent service
interesting possibilities. “What we like about food courts is
and if you do not measure it, you cannot improve it. This is
the average spending amount, the high consumption and
what Hero Guest does: trains and measures,” says Méndez.
that they are open to everyone, from families to white-
Unlike training manuals and shadowing practices, Méndez
collar workers. However, we believe that fast food brands
says that Mero Mole’s Hero Guest platform intends to make
do nothing to improve the gastronomic offer.”
training a fun process.
247
Tequila Casa Dragones showroom
LIFESTYLE
10
A middle class with growing purchasing power has allowed the expansion of luxury products and services in the country. The growth that lifestyle companies have seen in the past couple of years has also been boosted by improved financial services and growth in payment digitalization, as well as changes in the demographic pyramid and in consumption patterns of new generations.
This chapter focuses on how a change in consumers’ mindset that favors national and sustainable products has enabled the positive performance of luxury brands that choose to highlight these elements in their offering. Both national and international success stories are featured, as well as their views on how lifestyle and luxury approaches are changing.
249
CHAPTER 10: LIFESTYLE
252
ANALYSIS: Luxury Market Strengthens Foothold
253
INSIGHT: Ralph Simons, Tane
254
INSIGHT: Bertha González Nieves, Tequila Casa Dragones
255
VIEW FROM THE TOP: Rene Garza, Jet Mach
256
VIEW FROM THE TOP: Martin Josephi, Lamborghini, Aston Martin, Caterham and Morgan Mexico
257
VIEW FROM THE TOP: Adam Gron, McLaren Automotive
260
INSIGHT: Carlos González, Sotheby’s International Realty Mexico
261
VIEW FROM THE TOP: Jimmy Arakanji, Thor Urbana
262
INSIGHT: Giorgio Brignone, Costa Careyes
263
VIEW FROM THE TOP: Nico Wilmes, Los Amigos Tulum
264
INSIGHT: Guillermo Ordóñez, Inspirato
265
INSIGHT: Manuel Quintanero, Millesime México
266
VIEW FROM THE TOP: Aldonza Ramírez Mayans, Dominion Corporate Housing
268
VIEW FROM THE TOP: Roberto Esses, Gympass
269
VIEW FROM THE TOP: José Antonio Mársico, Grupo Body Systems
251
| ANALYSIS
LUXURY MARKET STRENGTHENS FOOTHOLD A stable economy and the stronger purchasing power of the upper and uppermiddle classes are leading to higher sales in Mexico’s luxury market. Technology that creates new experiences is becoming increasingly important in this segment that is targeting new consumers with added values that exceed the concept of high quality Mexican consumers increasingly have a taste for the
is experiencing a vibrant moment in major aspects, such
luxurious lifestyle and high-end brands are taking notice.
as its gastronomy, design, culture and art.”
“Mexico has become one of the main markets for luxury products,” says Guillermo Ordóñez, Regional Director of
Similar to traditional retail products, e-commerce or
Mexico and Latin America of Inspirato. The glaring factor
omnichannel experiences are increasingly important in the
behind the market’s success in Mexico is the growth of
luxury segment but Deloitte’s study also states that luxury
the upper and middle classes.
sales are boosted by the construction of large multi-brand malls that host luxury brands. Jimmy Arakanji, Co-Founder
252
INEGI data show that in 2014, almost 16 million families
and CEO of Thor Urbana, agrees. He says commercial real-
belonged to the middle class. Although there has not
estate developers help different brands enter the Mexican
been a significant increase in salaries, INEGI’s figures
market with innovate projects. “Commercial real estate is in
show that consumption represents 30 percent of
an upswing and demand will only continue to grow,” he says.
families’ income. Moreover, the data shows that credit for consumption has increased steadily over the years,
Still, the omnichannel strategy, along with the introduction
reaching a historic mark in 2017 of almost MX$900 billion
of technologies like augmented reality, AI and IoT, will be
(US$47.8 billion), up from the MX$44 billion (US$2.3
key for luxury brands, according to Deloitte. This is all based
billion) registered in 2000.
on the premise of not focusing on the product but on the customer experience. According to the Boston Consulting
According to Deloitte’s Global Powerhouses of Luxury
Group, there is a rise in experiential luxury, which includes
Items 2018 analysis, the country is the most attractive
categories such as high-end food and beverages, hotels
market for luxury brands in Latin America. Boston
and vacations. González believes that the excitement that
Consulting Group adds that the Mexican luxury market
surrounds Mexican products and cuisine allows consumers
will experience growth rates of around 6 percent, which is
to appreciate the country’s history. “Consumers today want
above the 4.5 percent the industry experiences globally.
to interact with a complete product repertoire. They fall in love with a category and want to learn from it and establish
The increase demand, business digitalization and new ways
a relationship with the brands.”
of communicating with users have also led to a change in the way luxury brands interact with consumers. “If there
Ordóñez says the hype for unique experiences has also
is one element that is gaining importance each day in the
translated to the traveling sector. “Mexico is in the global
luxury market given the digital revolution, it is storytelling,”
Top 10 for travel and luxury accommodations,” he says,
says Ralph Simmons, CEO of Tane. For the Mexican luxury
adding that Mexicans also know what they want. “The
brand, telling a gripping story is key to keeping existing
Mexican service level is among the Top 5 in the world. This
customers engaged while attracting new ones. “Posting
makes Mexican travelers among the most demanding in
pictures on Instagram or any other social media is not
terms of quality, service and details.”
enough. Nobody is going to engage with it unless there is a story that they can relate to,” says Simmons.
The idea of luxury is changing, however, and it is not just about comfort anymore. According to Deloitte, sustainability
Particularly in Mexico, there has been a cultural shift
is becoming a key factor for luxury brands, given an increase
that is boosting the consumption of Mexican products.
in consciousness among younger generations. Nico Wilmes,
“We have seen that more and more people appreciate
CEO of Los Amigos Tulum, believes that luxury does not
locally made products, due to a sense of pride for what
run counter to sustainability. “Clients who visit Tulum want
this beautiful country has to offer,” Simmons says.
luxurious services and to enjoy a high-level and unique
The upswing for Mexican products extends into the
experience,” he says. “Although sustainable developments
beverages segment, adds Bertha González Nieves, Co-
are more expensive, clients are prepared to pay a little bit
Founder and CEO of Casa Dragones. “Mexico in general,
more for this.”
INSIGHT |
MEXICO’S CULTURE PROVES A HIT RALPH SIMONS CEO of Tane
In today’s luxury retail segment, engaging customers is crucial
consumers with a new e-commerce platform. “Creating an
and the best way to do that is to create and tell a gripping
exciting brand experience for our customers both off and
story, says Ralph Simons, CEO of Tane. “If there is one element
online and expanding geographically are important focus
that is gaining importance each day in the luxury market given
areas for Tane, which is why we will launch our e-commerce
the digital revolution, it is storytelling.” Tane, Mexico’s only
platform for domestic sales in 2019. By 2020 we will expand
high-end jewelry brand with 77 years of experience, is part
to reach more countries,” says Simons. As a luxury brand,
of Grupo BAL. The retailer is undergoing a transformation to
Simons understands that visiting the store is an essential part
create a narrative that it expects will not only please existing
of the customer journey, but he is positive its e-commerce
customers but also attract new consumers. “Posting pictures
venture will be attractive to consumers. “We do not expect
on Instagram or any other social media is not enough,” Simons
our e-commerce platform to become our No. 1 store but
says. “Nobody is going to engage with it unless there is a story
we are confident that it will perform well as part of the
that they can relate to.”
company’s omni-channel strategy.”
Simons believes that part of the brand’s storytelling must
E-commerce is one element in a commercial strategy to
depend heavily on its Mexican origins and the company’s
boost the number of clients it can reach but physical retail
silversmithing tradition. “For the past 77 years, we have
will continue to play a major role. “Our market strategy has
worked to reflect the unique elements of Mexico through
a healthy mix of 25 standalone stores and boutiques inside
our pieces. We have always been specialized in handmade
El Palacio de Hierro, as well as other channels including
jewelry and art objects and we are one of the last vertically
a corporate sales division,” Simons says, adding that this
integrated silver houses in the world. This gives us a very
combination improves the brand’s sales dynamics. “Traffic
unique feature.” To highlight its Mexican origins and attract
at El Palacio de Hierro boutiques tends to be higher on
younger customers, Tane has launched México mi Amor
average and the company’s special promotions add to the
(Mexico my love), a collection that taps into different
business’ dynamism, while standalone locations provide
elements of the Mexican culture. “México mi Amor is a very
clients with the complete brand experience.”
good example of a collection that highlights our Mexicanism and our origin,” Simons says. In particular, he says the
Tane will continue to invest in its physical locations, Simons
collection has reached a younger demographic. “With this
says. “In fact, a key element of our strategic three-year plan
collection, we have generated significant engagement with
is the renovation, expansion and innovation of our sales
customers aged 25-34 years old.”
channels, which means that all our retail locations will be remodeled in the next years, starting with four stores in 2019.”
The success of a collection largely based on Mexican elements
The goal is to modernize them and to appear more accessible
obeys a shift in the attitudes of Mexicans toward locally-
and engaging. “We want to create a luxurious, welcoming
manufactured products. “For a couple of years, there has
and comfortable environment that makes our customers feel
been a growing interest in locally-made products. Before,
special and at home.” The luxury market has been growing
everything that came from abroad was perfect. However, we
globally and Mexico is no exception. “Mexico is the most
have seen that more and more people appreciate locally made
important luxury market in Latin America. We are seeing an
products and have a sense of pride for what the country has
increase in the demand for luxury products,” says Simons. To
to offer.” adds Simons. “As the only truly world-class Mexican
ensure it grabs a good portion of that demand, the company
luxury brand, Tane fits perfectly in that picture.”
is also accelerating the modernization of its product portfolio, to rejuvenate its image and captivate new customers, while
The México mi Amor collection is also attracting the attention
remaining attractive to its existing and loyal clientele. “We are
of consumers from abroad. Tane will soon reach those
introducing about 300 new products in 2019.”
253
| INSIGHT
MEXICAN TEQUILA TAKES CENTER STAGE BERTHA GONZÁLEZ NIEVES Co-Founder and CEO of Casa Dragones
254
From food to gastronomy, Mexican culture is enjoying an
international markets, González says the company’s goal is
upswing in popularity both at home and abroad, providing
to venture well beyond the positioning of a beverage. “We
a significant opportunity for the country’s key spirit: tequila.
want to be part of the growth of the tequila industry and to
“Mexico is experiencing a vibrant moment in major aspects,
showcase the image of a modern and professional Mexico
such as its gastronomy, design, culture and art. We thought
that pays meticulous attention to detail.” Despite the boom
this excitement needed to be transmitted to the tequila
tequila and agave distillates have enjoyed in foreign markets,
industry,” says Bertha González Nieves, Co-Founder and CEO
González says Mexico remains a priority. “The Mexican market
of Casa Dragones.
is the heart of what we are and what we do. It is important for
“
Mexico is experiencing a vibrant moment in major aspects. We thought this excitement needed to be transmitted to the tequila industry”
us to have a significant presence in the country.” González says the brand also has had very good reception in the US and that it has made significant advances in conquering the European market. “We like to think that Casa Dragones has had an important role in starting the conversation that surrounds tequila in Europe in countries like England, Spain, France, Greece and Italy.” It plans to continue strengthening its presence in the markets in which the brand already exists. “Japan and Australia are markets with interesting opportunities but it is important to continue consolidating our position where we already are,” González says.
Casa Dragones is a Mexican tequila distiller that specializes in the production of high-quality tequila, producing less than
Rather than focus its strategy on younger consumers, as
500 cases per batch, generating product exclusivity. Although
other brands are doing, Casa Dragones works to attract the
the company has been in the market for just over 10 years,
market segment that wants high-quality products. “We are
in 2010 it became the first Mexican brand to be recognized
focusing on attracting customers whose lifestyle is aligned to
by the prestigious “Grand Prix Strategies du Luxe,” which
our product,” says González. “They are quality-seekers who
recognizes luxury brands globally.
look for brands that share their principles. This encompasses people of all ages.”
The hype that has surrounded tequila and a growing appetite for high-quality products were key to Casa Dragones’ success.
To further position its brand internationally, Casa Dragones
“We wanted to deliver a product that was completely unique
employs a strategy of partnerships with restaurants, such
in terms of taste, history and design. It was a matter of
as the recent opening of a Thomas Keller restaurant in New
innovation and of delivering something different than what
York that pairs a Casa Dragones tequila with its dishes. “We
was offered in the tequila category,” says González. Tequila
are trying to show that tequila has a place on the table of
has grown so much in popularity that consumers now demand
international cuisine. These are the types of partnerships
a wider variety with added value. “Consumers today want to
and exchanges that we believe are the dynamic life of the
interact with a complete repertoire. They fall in love with a
company.” Gónzalez adds that the company also is focused on
category and want to learn from it and establish a relationship
advancing the tequila tradition globally and the Denomination
with the brands.”
of Origin of agave distillates. “There are close to 200 different types of agave and only five Denominations of Origin for agave
Although Casa Dragones has played a significant role in
distillates. If we invest in infrastructure and education, there
positioning Mexico and tequila as a high-quality product in
can be many more products with Denomination of Origin.”
VIEW FROM THE TOP |
LONG-TERM APPROACH NEEDED IN AIRCRAFT BROKERAGE BUSINESS RENE GARZA President and Founder of Jet Mach
Q: What are the main challenges to buying and selling
we sold one Hawker 400, one Challenger 300, one Challenger
aircraft in Mexico?
350 and purchased one Legacy 650 and a Gulfstream 450.
A: Buying or selling aircraft is a long process. However, since
Our hangar in Monterrey is already saturated and we are
Jet Mach’s operations often involve the import or export of
considering building another. This project has the potential
aircraft, the process is slower because aviation authorities of
to double our sheltering infrastructure and operations and
two different countries are involved. When buying an aircraft,
could be finished by 2020. We also want to increase the
our main challenge is to find the best value jet in its class and
amount of Skywash specialized cleaning products we sell
many times we find it in a foreign market. When selling, usually
fourfold. This year we started to sell to commercial airlines,
there is much competition and owners always think that their
which increased our sales by 300 percent year-over-year.
aircraft is the world’s best and so they want to sell it over its market price. Our main challenge is to educate owners about
Q: What changes are needed in Mexico for executive
market reality and still find the right buyer at the right time.
aviation to grow? A: Mexico has the second-largest executive jet fleet in
Q: What is Jet Mach’s strategy to stand out while
the world but there are hundreds of old planes reaching
competing in the business aircraft market?
obsolescence and many others need to be upgraded. There
A: We take full responsibility for the purchase or sale
is great potential for growth in Mexico’s aviation market. For
throughout all stages of the process. We strive to deliver
instance, some people do not need to own a plane because
great service because we place the highest value on our
they only fly between 50 and 150 hours a year and there
long-term relationships with customers. Aircraft are not
are special packages that would suit their needs. Airport
products that are constantly renewed. It usually takes seven
infrastructure and more professionalized executive aviation
years for companies to replace their planes, so we need to
companies are needed for Mexico to grow its executive
remain in contact with clients throughout that time and
aviation segment. While it is possible to reach almost any
support them when they need us. Dassault Falcon and
point in the US by plane thanks to that country’s extensive
Bombardier are the main brands we sell because we have
airport network, Mexico lacks the necessary infrastructure
a long-standing business relationship with them. Jet Mach
to achieve that air connectivity.
has been Bombardier’s exclusive representative in Mexico for over 10 years. The market identifies us with these brands
Q: What actions should the government take to strengthen
and we sell many Learjet, Challenger and few Global jets. We
aviation in Mexico?
also sell Hawker, Citation, Gulfstream and Embraer planes.
A: Mexico still has not had a president that understands the importance of supporting executive aviation. The next
Q: How does Jet Mach plan to expand its operations in the
administration must assign enough budget and equipment
Mexican market?
for the Mexican aviation authorities to support the growth
A: We are introducing more salespeople because we want
of aviation in general and executive aviation in particular.
to reach a greater market share and grow our brokerage
It is necessary to recognize the importance of aviation to
operations by 20 percent. It makes more sense for Jet Mach
Mexico’s economy and evaluate all the deficiencies that hurt
to focus on the main corporate jet aircraft owners, keeping
DGAC to successfully alleviate them.
a strong and solid relationship with the top 50 Mexican businesspeople. There are many different kinds of aircraft; while some planes may cost US$500,000 dollars, others may
Jet Mach is a Mexican aircraft brokerage company and a
cost US$60 million. We focus on the high end of the market.
distributor of Skywash aircraft-cleaning products. It also
Jet Mach only makes four to five transactions a year and we
shelters aircraft at its hangar in Monterrey. The company offers
want to increase that to six or seven. In the first half of 2018,
its clients consulting and manages administrative procedures
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| VIEW FROM THE TOP
SUSTAINED GROWTH DESPITE A DECELERATING MARKET MARTIN JOSEPHI Director General of Lamborghini, Aston Martin, Caterham and Morgan Mexico
256
Q: How have your results evolved considering the overall
style and luxury. Only 30 percent of our clients go for both. In
growth of the luxury market?
terms of sales, we had very similar results until 2017. However,
A: The exotic super-sports car (ESSC) market has enjoyed
with the introduction of Urus, we expect to see a much more
continuous growth for the past five years. Between 2012 and
defined difference after a probable growth of 100 percent in
2013, this segment was controlled by Lamborghini, Ferrari,
Lamborghini’s sales. We forecast significant growth for Aston
Bentley, Porsche’s high-end line and Maserati. Since then, new
Martin as well, but more in the 30 percent range. Maybe when
brands have entered, including Aston Martin, McLaren, Rolls-
the brand releases its DBX SUV in 2019 or 2020, results will
Royce, Lotus and other smaller brands such as Caterham and
again be similar between Lamborghini and Aston Martin.
Morgan. Practically all brands are now competing in the ESSC Mexican market but still, we are selling more than in the early
Regarding our Caterham and Morgan brands, they are part
days. We do not know how long this trend will last but in the
of an even more exclusive niche for clients that are looking
case of Lamborghini and Aston Martin, we sold our entire
for something very classic. Although models have evolved
stock through December 2018 by July 2018.
in terms of under-the-hood technology, they have remained true to their origins in design. These brands have much
Q: What reasons are behind the growth in the overall
more reduced sales than Lamborghini or Aston Martin but
luxury segment?
even so, both Caterham’s and Morgan’s offices have been
A: Economically, Mexico is going through a favorable
surprised to see such acceptance in the Mexican market.
period. There are still problems but the country has improved greatly in terms of infrastructure, not only
Q: What are your priorities for Aston Martin in 2018 and
in Mexico City but in other states. Security remains a
what new models are you bringing to the market?
concern but that has been compensated by the support
A: Currently, our volumes depend mostly on the DB11. This
of a growing upper class. Having said that, there are still
model was originally launched with a V12 engine and it then
areas of improvement that if addressed would help the
moved to a V8 configuration. Now, we are unveiling the DB11
ESSC market grow threefold. Stability has been a key
AMR version that goes back to the original V12 engine but
factor in helping clients gain more confidence, particularly
adds 300hp of power and a convertible version as well. At
in the luxury segment. It is true that worries regarding the
the same time, we are launching the new Vantage, which
elections and Mexico’s relationship with the US affected
was our most important release in 2018. This model arrived
the peso but even then, the country has managed to stay
in August 2018 and we presold units. Vantage will become
within certain levels of stability.
our entry model, allowing us to compete with brands such as Porsche and McLaren.
Q: How does sales performance compare in each of your brands?
By the end of the year we received the first units of the
A: Even though both Lamborghini and Aston Martin participate
DBS Superleggera, which was unveiled in June 2018 and
in the same market segment, they are completely different
substitutes our previous Vanquish family. This model is our
brands. Lamborghini is the exotic and performance-driven
top-of-the-line unit and a new flagship vehicle for Aston
end of the market, while Aston Martin is more oriented to
Martin. The car has a carbon fiber body and an engine that delivers 715hp and torque of over 900Nm. With the introduction of DBS Superleggera, the brand marks a
Lamborghini, Aston Martin, Caterham and Morgan are
specific differentiation between families. This vehicle is
distributed in Mexico through DB Imports, managed by
Aston Martin’s most radical offering, DB11 is the core of
Martin Josephi. The company has three dealerships in
the brand and a more refined alternative, while Vantage is
Mexico City
firmly positioned as the sports car of the brand.
VIEW FROM THE TOP |
F1 TECHNOLOGY PROVIDES UNIQUE DRIVING EXPERIENCE ADAM GRON Marketing and PR Manager for Middle East, Africa and Latin America at McLaren Automotive
Q: Four years after opening its first dealership in Mexico,
the carbon fiber Monocell Two, which is a light monocoque
how has the Mexican exotic vehicle segment reacted to
that provides structural rigidity. This has a massive impact
McLaren’s high-performance lineup?
on driver engagement and also provides safety thanks to
A: McLaren began operations in Mexico in September 2015.
the material’s physical properties.
The Mexican market has been really good to us as people in the country have really taken to the cars, especially those
Q: What milestones has McLaren achieved in developing
who love racing or exotic models. The McLaren brand has
a 100 percent electric super-sports car?
been successful in Mexico and the country is now one of
A: In 2013, we became the first supercar company to introduce
our largest markets in terms of volume for the Middle East,
a performance-focused hybrid to the market. This vehicle
Africa and Latin America regions. McLaren is an exclusive
incorporated a conventional powertrain coupled with an
brand and seeing one on the road is an unforgettable
electric motor that filled the gaps in torque delivery, translating
sight. In 2018, McLaren sold over 4,800 cars globally and
to phenomenal performance. We are not ruling out a fully
we expect a similar figure for 2019. These figures will allow
electric vehicle but we will only launch it if a steep change in
us to be quite profitable and invest in new products, while
technology occurs that would allow us to develop an electric
maintaining the exclusivity that customers expect from us.
vehicle that provides the McLaren driving experience.
Q: One of McLaren’s differentiators is its driving experience.
There are many issues to address before launching a fully
What else makes the brand stand out in the luxury market?
electric vehicle, including battery weight and composition.
A: McLaren focuses on technology to enhance the driving
At this point, most technological developments for batteries
experience. We are a racing company at heart. We started
focus either on power density or range; McLaren vehicles
in 1963 as a racing team but since 2010, we have set our
need both. We want to create a car that customers can
sights on becoming an iconic supercar company. From that
drive to the track, take a few laps and then drive back from
point on, we have been using many F1-derived technologies
the track. So far, this technology does not exist. We recently
to enhance the performance of our vehicles.
announced our Track 25 business plan, which will hopefully lead us to such a development by the end of 2025.
Design is very important for us and another big differentiator. We follow the “form-follows-function” design philosophy,
Q: As an independent OEM, what competitive advantages
in which the shape of the car is usually dictated by its
does McLaren have in terms of technology development
aerodynamic performance. There is nothing in the car that
and original design?
does not serve a function. For instance, our McLaren 720s
A: Being an independent company allows us to be nimble,
introduced a new headlight design that also makes them
react to the market and make decisions quickly. We can also
active air intakes to support the cooling system. It looks
develop new products quickly, which helps to introduce new
cool but it also has a real use. The 720s also incorporate
technologies to the market faster. Moreover, as we are not
another F1-derived technology that allows the spoiler to
partnered with another OEM, every single car component is
extend, reducing drag and improving performance.
100 percent McLaren, granting a unique driving experience characteristic to the brand.
Carbon fiber is the most important technology we have translated from F1 to commercial cars. McLaren is a carbon fiber pioneer; in 1981, we became the first driving team to
McLaren is a car-racing team and exotic and supercar OEM
use this material. In the early 1990s, we produced the first
based in England. It is the second-oldest F1 competitor and the
road car with carbon fiber and every single racing car has
second-most successful team in F1 history. McLaren sold about
used it since then. Our cars have carbon fiber tabs, including
4,800 exclusive cars in 2018 worldwide
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| INSIGHT
LOCAL STRATEGY MINIMIZES CRISIS EFFECTS CARLOS GONZÁLEZ Chairman and CEO of Sotheby’s International Realty Mexico
260
Mexico’s fragmented real estate market has made it a
emotional buyers and flippers. “Two thirds of our business
competitive destination for the luxury and second-home
disappeared and our influx of stable buyers was reduced
segments, according to Carlos González, Chairman and CEO
by 50 percent,” says González. “Overall, the second-home
of Sotheby’s International Realty Mexico. “The fragmented
market experienced an 80 percent decrease in volume sales
nature of the real-estate business makes competition feasible,”
during the years of the crisis, fueled also by the swine flu
he says. “Companies do not have to compete against a leader
outbreak in 2009 and the government’s strategy to combat
that monopolizes the industry.”
organized crime.”
Sotheby’s International Realty Mexico is a real estate
To remain profitable, Sotheby’s International Realty Mexico
franchise of Sotheby’s International Realty, founded in
strengthened its offering for locals and extended its franchise
1976 by auction house Sotheby’s and now a subsidiary of
reach to cover the entire country. “The second-homes business
real estate franchising company Realogy Holdings Corp.
remains an important part of our strategy but the local market
“Around 20 years ago, Mexico presented a significant
is very large and quickly catching up,” González says. “We will
business opportunity in the market for second homes,”
soon have a 50-50 ratio between both segments.”
says González. “Many foreigners were buying real estate in Latin American tourism centers, including Mexico and Costa
Sotheby’s International Realty Mexico is in a growing phase
Rica.” González saw an opportunity to take advantage of
and even though the change in the federal administration
the market’s conditions to target a niche among top-tier
created uncertainty in the business community in the second
properties that were not necessarily associated with a
half of 2018 and in early 2019, González is convinced that more
high price tag but with a high value proposition. Although
business opportunities will emerge. “Our offering has enjoyed
Mexico competes directly with countries in the Caribbean
a good reception in Mexico City. We are a known brand
and Central America, its privileged position in terms of
and developers trust us,” he says. Furthermore, Sotheby’s
geographic location and climate led González to acquire
International Realty Mexico is among the few international
the first Sotheby’s International Realty franchise for
brands with a permit for project marketing and a portfolio of
eight states: Baja California, Baja California Sur, Yucatan,
flagship projects that include Chapultepec Uno. The market
Campeche, Quintana Roo, Colima, Jalisco and Nayarit.
has also recovered from the Lehman Brothers’ crises, thus
“
The fragmented nature of the realestate business makes competition feasible”
opening a bigger market for Sotheby’s International Realty in Mexico. However, factors such as interest rates and a volatile peso-dollar exchange rate remain obstacles for the real estate industry. “The assets we commercialize require access to longterm financing. Without it, the industry would practically be non-existent,” says González. Lack of financing for nonresidents, in particular, has taken a toll on Sotheby’s International Realty Mexico’s business
The company’s first focus was on the second-home
opportunity. According to González, US banks have no
market for nonresidents but the bankruptcy of Lehman
problem offering credit to their clients but fail to understand a
Brothers forced Sotheby’s International Realty to change
property’s appraisal and guarantee prices. Meanwhile, Mexican
its approach. It had already identified three important
banks understand the property but not the client’s payment
market niches: emotional buyers, house flippers and stable
capabilities. “Lack of cross-border funding represents a
buyers. However, the deteriorated state of the industry for
structural problem but at the same time an important business
second homes after 2008 erased the opportunity among
opportunity,” he says. “Private funds can easily fill this gap.”
VIEW FROM THE TOP |
CREATING 21ST CENTURY TOWN SQUARES JIMMY ARAKANJI Co-Founder and Co-CEO of Thor Urbana
Q: Why has Thor Urbana decided to focus on the Mexican
City squares, or Zocalos, were traditionally the meeting point
commercial real estate market?
of communities throughout Latin America and we want our
A: There continues to be a deficit in quality commercial
projects to serve the same purpose for the new generations.
spaces required to meet the demand of Mexico’s growing
Many countries, including Mexico, have strayed away from
population. We continue to see great activity in the
spending time in their city squares due to insecurity. By
construction of commercial real estate and Thor Urbana
providing secure environments, we can give back a sense
wants to continue creating new retail and mixed-use
of community and strengthen the social tissue. By investing
projects that adapt to the needs of the 21st century market.
in these inclusive spaces we are able to generate win-win
We have noticed that modern society is no longer interested
situations where our tenants are able to retain customers
in the traditional commercial spaces as people now seek
longer and continue attracting new ones. We are developing
social, community and experiential spaces that add value
projects with these characteristics in Metepec, Merida,
to their everyday life.
Guadalajara, Cancun, San Luis Potosi and Tijuana, and look to continue doing so within new booming cities.
Thor Urbana has identified many cities that have the right combination of demographics and economic development
Q: Why did Thor Urbana decide to construct Town
for commercial development. Commercial real estate is
Square Metepec?
continuing on an upswing and demand will only continue
A: Our value proposition brings with it a variety of
to grow. There are many new brands that want to penetrate
entertainment and restaurant options. A great example is
the Mexican market through innovative projects such as
Town Square Metepec. The Toluca Valley has more than 3
the ones we are developing. We are leading commercial
million people and there was no project that offered the
developers but we want to make sure that we continue to
type of experience, lifestyle and tenant mix that we are
create truly unique projects that bring cities to life.
offering in our project. Most of the residents of Metepec had to travel to Santa Fe to find these kinds of amenities.
Q: What is the role commercial real estate developers have
This project will break the traditional paradigm and will give
in transforming Mexico’s secondary cities?
Metepec a new city center for social interaction.
A: Developers have a considerable responsibility in detonating investment in secondary cities through the
Almost all real estate projects are accompanied with social,
creation of valuable real estate projects. Ultimately,
environmental and economic implications that developers
developers have a direct impact on the urban landscape
must solve and there will always be groups that are in favor
of a city or neighborhood through what they construct. We
or opposition to its construction. That is the law of real estate
have the ability to develop world-class projects that will not
development all over the world. Thor Urbana wants to be the
only boost the aesthetics of an area but also its economic
best neighbor possible and acts responsibly to improve the
activity. Thor Urbana wants to continue developing spaces
quality of life of the area and bring a new value proposition
that have a positive impact on their surroundings. The type
that did not exist before. We investigate and run focus groups
of real estate investments that we are making generate
to ensure that the project is of the expected quality and that
employment and boost economic development, but what
it will have a positive impact on its surroundings.
we really want to achieve is the creation of a project that society can truly benefit from. The types of projects we are creating go beyond serving a mere commercial purpose but
Thor Urbana is one of Mexico’s leading real-estate investment and
actually aim to create spaces within the community that
development companies. It specializes in mixed-use projects with
promote social interaction and well-being among clients
developments in Metepec, Merida, Mexico City and Guadalajara.
without them necessarily having to purchase an item.
It is developing over 10 million ft2 across the country
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| INSIGHT
MEDITERRANEAN STYLE ON THE MEXICAN COAST GIORGIO BRIGNONE Director General of Costa Careyes
262
Castles, villas and small houses located next to the sea
according to Brignone is both an advantage and a problem.
with Mediterranean-inspired architecture – the scene could
“It has been good because it has allowed us to offer a
be Spain, Greece or Italy; however, it is not necessary
quality product to a select clientele. However, it has also
to travel so far to find a similar location in Mexico. The
been a problem since by not being part of a specific tourist
issue, says Giorgio Brignone, General Director of Costa
route we have never had government promotion.” Another
Careyes, an exclusive tourism destination in southern
of the difficulties Costa Careyes faced was infrastructure,
Jalisco, is connectivity. “Most of our visitors come through
which it developed on its own to provide basic services
the Colima, Manzanillo or Puerto Vallarta airports but
such as water, cleaning, garbage collection or medical
poor road conditions between these cities can lead to
clinics. “We are autonomous when it comes to services
connectivity problems.”
that depend on the government,” Brignone explains.
It is a problem familiar to many out-of-the-way
Brignone says there are four elements that make Careyes
destinations. With a new government in power, Brignone
unique: hospitality, architecture, events and nature. Costa
says there is an opportunity for action. “The Ministry of
Careyes is taking advantage of all these to position itself
Tourism should not focus only on known destinations but
as a unique destination in the country. “One of our most
support different experiences that offer new products and
important characteristics is that we are a destination that
that could also be an important magnet for tourism.” Costa
does not have a hotel. Visitors can rent a castle, a house or
Careyes, however, is not waiting for the government to
an apartment. We want to illustrate that destinations can
tackle this issue. The company has worked to improve the
have a tourism influx without having a hotel.” Combined
condition of roads leading to its luxury complex, installing
with a Mediterranean architecture, Brignone says Careyes
lighting and signaling, which has had a significant impact
offers a unique feeling and style. “The development is a
on improving road connectivity.
combination between Mexico and the Mediterranean. No other development in the country has this.”
Costa Careyes expands across 12km of beach and is located within the ChamelaCuixmala biosphere reserve
Careyes also serves as a source of income for owners, Brignone adds. “You can buy apartments and houses that range from US$350,000 to US$10 million. If the owner wishes, we can manage the house and rent it to visitors.” Costa Careyes has hosted a number of events to help position itself in the market, including Arte Careyes, a film
Brignone says that Costa Careyes was his family’s attempt
festival; Ondalinda, a music and arts festival and AguaAlta,
to create something similar to Costa Smeralda in Sardinia.
a polo championship.
“Costa Careyes was created in 1968, when there were no rules on real-estate development. We strived to create a
Because it is located in the Chamela-Cuixmala Biosphere
planned community that focused on development density
Reserve, the resort emphasizes its environmental
and architecture. We have a planning model that does not
responsibilities. It partnered with the local community
exist in almost any other development in Mexico,” he says.
to provide education on the importance of preserving local flora and fauna. Its relationship with the community
Located between Puerto Vallarta and Manzanillo in the
is ascribed in the work Costa Careyes does through its
municipality of Costa Alegre, in Jalisco, Costa Careyes
Careyes Foundation that also teaches English to the
expands along 12km of beach and is located within the
community, organizes art workshops and promotes social
Chamela-Cuixmala Biosphere Reserve, a location that
cohesion through sports.
VIEW FROM THE TOP |
CREATING PROFITABLE, SUSTAINABLE DEVELOPMENT NICO WILMES CEO of Los Amigos Tulum
Q: Why did Los Amigos Tulum settle on the Tulum tourism
with the people who surround you and with the region.
area for its business operations?
Sustainable development is really an option for places that
A: When we arrived in Tulum, we recognized the area’s
have great growth potential, which is why it is important
growth potential. There also were no developments focused
to note that all the technology that we are using in Tulum
on sustainability. Although there are efforts across the
can be used in other areas.
country to increase the use of renewable energy, there is still a lack of focus on sustainable development, which is what
Q: As developers of residential units, what opportunities
areas like Tulum need, especially given its natural beauty.
can investors take advantage of to bolster their returns? A: Most of our clients do not live in the unit they purchase.
Los Amigos Tulum provides a sustainable development
Most live elsewhere and obtain rental income from these units.
alternative. Our real-estate developments combine the use
Along the Riviera Maya and many other tourist destinations,
of sustainable technologies, such as water treatment plants
there is a great deal of competition among big hotel chains,
and infrastructure to generate electricity through renewable
so there is a significant offering of accommodations.
sources that are natural to the area. For instance, we
However, in Tulum, there are no international hotel chains
introduced an advanced wind system that can be integrated
operating, so small investors who buy a single unit can
into our condominiums. This is a first for Mexico. Previously,
generate investment returns through rental income.
this type of system could not be integrated into condominiums because they were too noisy for residential use. However, the
In addition to designing, developing, constructing and selling
new system imitates the sound of trees moving.
the units, we can handle vacation rentals for our clients. We rent the units as if they were in a five-star hotel, with all the
Q: How does Los Amigos Tulum interact with governmental
services and amenities they would find in a luxurious hotel.
agencies to develop projects in harmony with the
Although some owners prefer to handle the rental of the unit
environment?
on their own, we recommend the rental be supported by a
A: Many Mexican regions have experienced rapid growth
brand so it can be better positioned in the market.
and it is difficult for authorities to keep up, in particular with infrastructure projects. But developers need to stop
Q: What is Los Amigos Tulum’s strategy to design and
depending on the government and offer sustainable products
construct sustainable real estate at a competitive price?
through the use of technology that makes a difference. At the
A: Clients who visit Tulum want luxurious services and to
end of the day, we are responsible for the product we offer
enjoy a unique and high-level experience. To deliver this, we
to the market.
need to invest in our developments and in the technology. For instance, our water treatment plants cost us around
Q: How is Los Amigos Tulum positioned in Tulum?
MX$110 million (US$5.8 million), including installation. But
A: In six years, we have developed over 10 real estate
this is an investment; although sustainable development is
projects in Tulum. We have experienced very rapid growth;
more expensive, our clients are prepared to pay a little bit
the company started with just two people and we now have
more for this. We do not sell cheap accommodations. We
a large team that comprises over 500 collaborators. We
sell experiences in sustainable developments.
are all united and committed to making a positive impact and to contribute to a more sustainable Mexico. Part of our success comes from the fact that people are now much
Los Amigos Tulum launched operations in 2012 as a developer,
more conscious of the importance of having sustainable
constructor and operator of real-estate projects. It is the
development. Sustainable development is a broad concept,
largest real-estate developer in Tulum and has over 10 projects
it is not just about construction but how you interact
in its portfolio. All its developments are solar powered
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| INSIGHT
CREATING TAILORED EXPERIENCES FOR GUESTS GUILLERMO ORDÓÑEZ Regional Director Mexico and Latin America of Inspirato
For many years, timeshares were considered the antithesis
of family. Another important component Mexicans take into
of luxury travel. However, the right business model and
consideration is service. “Mexicans’ service level is among
concept can turn around even the staunchest critic, says
the Top 5 in the world. This makes Mexican travelers among
Guillermo Ordóñez, Regional Director Mexico and Latin
the most demanding in terms of quality, service and details.”
America of Inspirato, a provider of luxury-branded vacation 264
homes. “Inspirato’s founding partners were CEOs of one
According to Ordóñez, each house in the Inspirato network is
of the most successful timeshare models. However, when
valued at an average of US$3.3 million and each real-estate
the traditional model became saturated, they decided to
acquisition made by the company or its members is backed
create a new luxury model targeting a specific audience.”
by its own team of real-estate agents and interior designers. As a result, it can ensure that each property meets Inspirato’s
Inspirato’s model offers its members the opportunity to
requirements. Every house comes with a butler service to
travel around the world and stay in luxury houses or hotels.
attend the needs of visitors, which also includes procuring
“We have a unique portfolio of houses and residences that
tickets for a show, hiring a professional chef or a nanny.
are not open to anyone other than our members. This allows us to offer high-quality standards at all our destinations
“Our Mexican members tend to ask for tickets for the US
and to customize our service to meet the needs of all our
Open, the Super Bowl or The Masters events, while members
guests,” says Ordóñez. However, Inspirato’s exclusivity does
from abroad coming to Mexico want archeological visits and
not come cheap. Its three types of memberships are Key,
gastronomy.” To comply with requests, Inspirato has a team
Family and Executive, all with different initial prices and an
in charge of forging alliances that allow its members access
annual maintenance fee of US$3,600. Membership provides
to all the relevant events that might take place in a city. “We
access to Inspirato’s portfolio of more than 200 houses
employ a destination manager who generates a benchmark
and residences in over 235 destinations worldwide. Should
of member requests. For instance, we have tickets for the US
Inspirato not have a residence in a specific location, Ordóñez
Open, Wimbledon and Formula 1 races, which we offer to our
says the company has entered a series of agreements with
members at competitive prices,” says Ordóñez.
hotel chains that comply with Inspirato’s profile. “We are a travel club for a very specific audience,” says Ordóñez.
Inspirato has a well-defined target for its memberships but Ordóñez says the company is not stuck on a single business
Ordóñez adds that the Mexican market fits the profile of
model and is exploring new possibilities. “Our main target
Inspirato’s members, especially since Mexico has become
is people between 40 to 60 years old but we need to keep
one of the main markets for luxury products. “Mexico is in
in mind the millennial factor. That is why we are thinking of
the global Top 10 for travel and luxury accommodations. It is
a new type of membership for this market.” Ordoñez says
a strategic market for us.” Such is its strategic value that of
that in addition to managing its own houses, Inspirato has
the company’s total 16,000 memberships, 1,250 come from
a home-owner model through which members can include
the Mexican market. Ordóñez says the Mexican market also
their own houses in the program.
has a higher retention rate than in the US. When it comes to destinations, Ordóñez says the company Despite Inspirato being a global product, Ordóñez
purchases properties depending on market demand. “In
says that there are cultural differences in the way the
Mexico, we have properties in nine different destinations,
product is accepted and commercialized. “Of our three
with Los Cabos holding the most properties.” Traveling
membership levels, the most popular in Mexico is the
Mexicans, however, prefer destinations outside the
Family membership.” Ordóñez says that in this regard,
country. “The most popular destination for Mexicans is
Mexican travelers resemble Brazilians, with a strong sense
Vail, Colorado.”
INSIGHT |
CONNECTING COMPANIES THROUGH HAUTE CUISINE MANUEL QUINTANERO Director General of Millesime México
Marrying the concepts of food and networking can be the
The other two business lines are more discreet but also
perfect match for companies looking to do business, says
maintain the concept of haute cuisine at heart. Estudio
Manuel Quintanero, Director General of Millesime México,
Millesime, which is a private club, was inaugurated in
but making it a unique experience can guarantee a higher
Mexico City in 2013. Taking the concept of exclusivity
level of success. “Networking and business are done over
to a different level, Quintanero says memberships to
food. However, for us it is not just about providing a meal but
Estudio Millesime are capped at 80 members; it already
generating a unique experience that includes not only the
has 69 and any prospective member must first receive an
food but also decoration, illumination, service and details,”
invitation from an existing member. “It is a very exclusive
says Quintanero.
and small concept that we do not like to promote,” he says. The third business line is Millesime Xperience,
Millesime, whose objective is to create links between different
which Quintanero describes as a catering company that
companies through haute cuisine, began in Spain in 2007
has been operating for less than a year but that follows
as a networking tool for companies, using hospitality and
Millesime’s gastronomic philosophy.
gastronomy to bring all these elements together. Entering Mexico has opened a plethora of opportunities, according
Quintanero says Mexico complies with a series of
to Quintanero. “I do not think there is a country better than
conditions that make it the ideal market for his company.
Mexico for Millesime’s concepts,” he says. The company has
Top of the list is the understanding of and passion
been able to develop three business lines in the country
for food. “Mexico has a gastronomic history that few
that are not found anywhere else: Millesime México, Estudio
countries have. Some of its recipes are 500 years old.”
Millesime and Millesime Xperience. Although Millesime’s
In addition to its strong gastronomic lineage, Quintanero
target audience is concentrated in the corporate sector,
points out that the country’s relationship with food also
each business line offers a different concept aimed at various
encompasses the present. “There are Mexican chefs in
niches but they remain perfectly intertwined by three key
almost all the best restaurants in the world. Mexican
factors: haute cuisine, exclusivity and unique experiences.
cuisine has become among the most important globally.” The other element of Millesime’s successful model in
Quintanero says when Millesime began in Mexico eight
Mexico is the Mexican business community. “The country
years ago, it was a highly corporate product, since most
clearly has a very strong business sector. Almost every
of its clients were companies. However, a boom in Mexican
major corporation has an office in the country,” says
gastronomy and a worldwide focus on Mexican chefs allowed
Quintanero.
Millesime to expand its market niche. “At first, only corporate directors knew us, but we have evolved toward a more
The gastronomic boom the country has experienced
social business, with a recurrent clientele who value and are
in the last decade has also contributed to Millesime’s
attracted to the gastronomic world.”
expansion and success. “Millesime arrived at a moment when Mexican gastronomy was just taking off. The boom
Millesime first ventured into the Mexican market in 2010
was not associated with Millesime but we have played
with Millesime México, the first of its business lines and now
an interesting role in bringing people closer to Mexican
an annual event in Mexico City combining unique culinary
cuisine,” says Quintanero. Among the company’s most
experiences with renowned Mexican and international chefs
important accomplishments has been to help put the
and mixology. Millesime México is not only the company’s
spotlight on Mexican gastronomy. “For us, it has been
oldest concept in the country but also the most recognized,
very important to see how people have started to value
as Quintanero explains: “Millesime México is our most massive
their own chefs and their own products. This was not the
event and the one that has given us the greatest notoriety.”
case 10 years ago.”
265
| VIEW FROM THE TOP
A HOME AWAY FROM HOME ALDONZA RAMÍREZ MAYANS Co-owner and COO at Dominion Corporate Housing
266
Q: What opportunities in the Mexican market led you to
Q: How do you position your services among international
create a corporate housing offer?
corporations?
A: We started in the Mexican market 20 years ago with a
A: We are pioneers in this business niche in Mexico and we
property that was originally intended for diplomats and
have earned the trust of our clients through the years thanks
representatives of the US Embassy in Mexico City. We then
to exceptional service as well as the quality and safety of
developed this concept to offer executives and diplomats
our accommodations. We offer a “built-to-suit” service for
safe and comfortable services to facilitate their stay in
our clients, considering they all have different needs. It is all
Mexico. Later we began to formally integrate hotel services,
about “experience.” Today, we have four properties in Mexico
which has been a success to date. Dominion Corporate
City and two more opening soon. We are proud to say that
Housing has evolved into a real-estate operator that offers
we are the leading corporate housing company in Mexico.
hotel services to its guests.
We are part of many recognized international mobility and corporate housing associations and have been certified by
Dominion Corporate Housing has evolved into a real-estate operator that offers hotel services to its guests
specialized professionals in the field. Q: What alliances or agreements with travel agencies have you reached to promote your services? A: All of our properties can be booked through online travel agencies, global distribution systems, tour operators, as well as through our own website. Our guests are free to stay from one night to weeks, months and even years. Dominion Corporate Housing’s sales department also allies with national and international companies to attract customers. Most of our domestic clients come from Mexico
Q: What characteristics do you look for in properties that
City, Guadalajara and Monterrey, while our international
will be included in your corporate housing offer?
customers are mostly from the US, Europe and Latin
A: Our main clients are foreigners who visit Mexico for a
America. At an international level, Dominion Corporate
temporary period for work reasons, although we are also
Housing is expanding thanks to its American and European
hosting some leisure travel guests in some of our properties.
certifications, as well as its presence in international trade
They come to us because they are looking for a living space
fairs and sales blitz.
that offers them the feeling of being at home when they are far from it.
Q: What are your expansion plans related to the number of accommodations in Mexico City?
Dominion Corporate Housing seeks properties that fit high
A: Our plan is to expand to strategic areas of Mexico City.
quality construction standards and that are well-located in
Dominion Corporate Housing also is planning to open a new
safe and exclusive areas of the city with nearby services
property on Paseo de la Reforma to cater to the increasing
and amenities.
number of finance corporations in the area. We want to offer their executives a housing space that provides all the amenities they need. This offer will be available in 2020. We
Dominion Corporate Housing is a leader in the administration
also are considering looking for properties in the south of
and management of extended stay facilities, with more than 20
the city, such as San Jeronimo, Coyoacan and nearby areas
years of experience in Mexico. It has four properties in Mexico
to meet the expansion of laboratories, clinics and health-
City, located in Polanco, Condesa, Interlomas and Lomas Altas
related companies.
Given the needs of the corporate housing market in the country, Dominion Corporate Housing is also looking for partnerships in the cities of Leon, Monterrey, Queretaro and Guadalajara, as well as alliances and investors to bring our concept to these cities. These cities are a good business opportunity for Dominion Corporate Housing. Q: What new trends have you identified in the corporate travel and housing segment? A: Wellness is an important trend. Our customers are usually travelers who need to adapt their daily life to a new business environment while still enjoying the same facilities and amenities they would have at home. Dominion Corporate Housing pampers its guests with pillow menus, smart TVs where you can still watch your favorite TV series, healthy breakfasts, eco-friendly amenities and we are of course pet friendly. In the near future, we want to include services such as aromatherapy, yoga and meditation, as well as a personal trainer. Q: What standards do you follow when providing corporate services? A: Dominion Corporate Housing follows standards from both Europe and the US. We not only ensure our guests’ comfort but also their safety. We provide companies the opportunity to inspect the premises beforehand to ensure it meets their service and security requirements. We also provide all the necessary equipment to enhance the security of our guests such as 24-hour security guards, CCTV, smoke detectors, fire blankets in every suite, rescue equipment and other components. We like to collaborate with our clients and make sure they are comfortable in every way. Duty of care is a must with all of our guests and company clients. Q: How does Dominion Corporate Housing operate its properties? A: All our properties have a manager who is in charge of the property but our operations are carried out centrally. Operations, finances, human resources, sales and marketing, as well as our accounting departments are all in our main office. This allows us to maintain our standards and the quality of our services. Q: What is Dominion Corporate Housing’s growth forecast for the coming years? A: Our main objective is to continue to take Dominion Corporate Housing to a higher level and exceed our clients’ expectations. At the same time, we want to increase our number of properties under management and to expand to other parts of the country through partnerships that help us attract more customers. Finally, we want to increase our base of foreign clients for our local properties and expand our base of clients traveling or moving abroad.
267
| VIEW FROM THE TOP
THOUSANDS OF OPTIONS FOR A HEALTHIER LIFESTYLE ROBERTO ESSES Country Manager of Gympass
268
Q: What internal and external conditions have permitted
having a tool for attraction and retention of talent. We
growth in the fitness industry?
understand that there are several emotional and physical
A: According to IHRSA, the fitness industry worldwide grew
barriers that prevent people from becoming active and
6.5 percent, from 162 million people in 2017 to 174 million
our goal is to help them overcome these. Companies have
in 2018. It also enjoyed a 5 percent increase in revenue,
influence and credibility and can communicate with their
from US$83.1 billion in 2017 to US$87.2 billion in 2018.
employees better than anyone else, stimulating them to
Mexico ranks third globally behind the US and Brazil in
have a healthier and more active life.
terms of most gyms, with almost 13,000. The desire for a healthier lifestyle is a worldwide trend, especially related to
Q: What are Gympass’ main development opportunities in
workplace well-being and work-life balance. According to
the Mexican market?
the WHO, physical inactivity is the fourth-leading risk factor
A: Mexico was the first country we tackled after Brazil.
for mortality globally. This has encouraged people and
The decision was made based on demand from our own
companies to become more active. Companies now know
clients, who after seeing the impact our benefit had on
that investing in well-being initiatives generates excellent
their workforce wanted to implement it at their offices in
results and improves their employees’ quality of life.
other countries.
Q: What trends are impacting the fitness sector and how
We have a great opportunity to help people become more
is Gympass taking advantage of these?
active and we believe there are several opportunities for
A: According to ACSM’s Health & Fitness Journal, group
Gympass in Mexico, since obesity and lack of physical
training, HIIT programs, programs for older adults, yoga and
activity are huge issues in the country.
outdoor activities are some of the main trends among gym goers. The study also points at worksite health promotion
Q: How receptive has the Mexican market been to
and workplace well-being programs as the 15th-ranked
Gympass’ offering?
fitness trend for 2019, which reinforces Gympass’ role
A: Gympass has more than 3,100 associates in Mexico
in the market. By partnering with companies, Gympass
and over 43,000 worldwide. The reception in Mexico
introduces more people to the fitness world and helps
been has great. Gympass has a disruptive business model
foster greater economic activity. We offer more than 800
that offers a new way to access gyms and other fitness
types of activities worldwide and 400 in Mexico. Everyone,
facilities. Companies are investing more and more in their
no matter their age, gender or social status, can find an
corporate wellness programs and need a flexible solution
activity they love.
to encourage their employees to exercise that could meet each individual’s needs. In partnership with their HR
Q: Why should companies choose Gympass as a partner
departments, Gympass allows companies’ employees to
in building wellness programs?
access thousands of gyms and try different activities in
A: Companies benefit in a variety of ways, including a
different locations through a single membership with up to
reduction in healthcare costs and absenteeism, having a
a 70 percent discount. However, Gympass is more than a
healthier, more productive and engaged workforce and
gym discount benefit. Through our product, communication and customer support services, we help companies develop their wellness programs and engage with their employees.
Gympass is a Brazilian company that provides access to
This is a challenge and at the same time a huge opportunity
thousands of gyms through corporate and individual plans.
for companies because a successful wellness program can
The company is associated with over 3,100 gyms in Mexico and
attract and retain talent, increase engagement and reduce
offers 400 different sports activities
healthcare costs.
VIEW FROM THE TOP |
GROUP AIMS TO INCLUDE WELLNESS IN THE WORKPLACE JOSÉ ANTONIO MÁRSICO President of Grupo Body Systems
Q: Grupo Body Systems is a holding that includes several
information regarding the health of their workers. I also
business lines. How do these lines complement each other?
think that the use of wearables will help fitness trainers
A: Grupo Body Systems was founded 15 years ago with our
and management areas of sports clubs or gyms to track
Body Systems Activation House business line, which focuses
the performance of their clients, which will allow them to
on sports clubs and fitness training of groups. Ten years ago,
optimize the services and products being used.
we started Body Systems Corporate Wellness, which targets companies and their employees. Wellness is a more inclusive
Another likely and interesting change is related to virtual
concept than fitness, since it includes healthy eating and how
group classes, which can be implemented in gyms. However,
to manage emotions and stress. This line offers us access to
I do not think we could ever fully replace the existence of
40 million Mexicans. Given that Mexicans work long hours,
trainers in the fitness experience. Live instructors generate
face long commutes and spend a significant part of their
more enthusiasm than any virtual instructor.
day sitting, we believe they are bound to suffer higher stress levels. We have created experiences that can last between five
Q: What are the company’s expectations for the
minutes to one hour. These are the things that allow workers to
coming years?
improve their quality of life and to achieve a work-life balance.
A: We want to continue helping in the development of a wellness culture in Mexico. When we started, only 1.8
Q: What reception has Grupo Body Systems’ services
percent of the Mexican population was an active user of
received in Mexico?
sports facilities and there were no more than 3,000 sports
A: We launched Body Systems Corporate Wellness at the same
facilities in the country. According to our 2017 survey, there
time the Ministry of Health announced that Mexico is ranked
are 12,700 sports facilities in the country, with almost 4.2
second worldwide for adult obesity. At that moment, only 2
million users; this means that more than 3 percent of the
percent of the Mexican population had a gym membership.
Mexican population uses these facilities.
We decided that the best way to have a major impact was to work with companies.
We believe that the industry has a great deal of potential. After 15 years in business, we are impacting between
Since then, our program has been well-received and we are
80,000 and 100,000 people weekly. We are present in
confident that adoption rates will increase. Around 40 percent
over 300 sports facilities and we work with 37 national
of the labor force in Mexico is composed of millennials, a
and transnational companies helping them create and
generation that values work environment and what a company
develop their wellness programs, delivering thousands of
can offer them in terms of wellness. Companies that are truly
life-transforming experiences to their employees. We are
engaged with the development of their employees know that
optimistic that these numbers can easily grow. We have
they can no longer generate engagement by simply offering
transformed into a strategic partner for big companies,
the promise of a career path within the company. Talent
gyms, sports clubs and sports facilities. We have helped
recruiters also know that their companies must have these
them attract and engage both the best talent and members
kinds of initiatives and benefits to lure the best candidates.
through our portfolio, showing them that their most
We believe this will lead to an exponential adoption of our
strategic partner is Body Systems.
corporate wellness program. Q: What trends do you expect in terms of wellness and fitness
Grupo Body Systems was founded 15 years ago and is focused
for both users and companies in the coming years?
on fitness and wellness. Providing a variety of programs, the
A: Technology is impacting everything, including the wellness
company targets different population segments with the
and fitness industry. This will allow organizations to obtain
mission of helping them become more active
269
Car Rally Altius event
SPORTS & ENTERTAINMENT
11
Over the past couple of years, Mexico has hosted a number of top international entertainment events, including Formula 1, NFL and NBA games and a wide range of concerts. The domestic sports sector has also grown in importance, with events attracting more people on a yearly basis. Mexico’s consolidation as a world-class destination for sports and entertainment events generates publicity and visibility globally that contributes to the country’s international positioning.
Sports & Entertainment highlights the country’s success and shows how this sector’s economic impact contributes to the construction of infrastructure while highlighting its lasting effect on social cohesion. The chapter touches on the different factors that have enabled Mexico’s success as a host for international sports events, how the entertainment industry is evolving and the strategies that the most important players in the sector are using to capitalize on new opportunities.
271
CHAPTER 11: SPORTS & ENTERTAINMENT
274
ANALYSIS: Finding the Hidden Value of Entertainment
276
INFOGRAPHIC: More Than Just Fun and Games
278
VIEW FROM THE TOP: Horacio de la Vega, Indeporte
279
VIEW FROM THE TOP: Carlos Padilla, COM
280
INSIGHT: Javier Salinas, LMB
281
INSIGHT: Raúl Zurutuza, Mextenis
282
INSIGHT: Arturo Olivé, NFL Mexico
283
INSIGHT: Raúl Zárraga, NBA Mexico
284
INSIGHT: Max Nogueira, Play Marketing
285
INSIGHT: Ernesto Rivas, Altius Events
286
VIEW FROM THE TOP: Emilio Hank, Grupo Caliente and Caliente Interactive
287
VIEW FROM THE TOP: Rodrigo Gómez, HR Media
288
INFOGRAPHIC: Prime-time Entertainment
290
VIEW FROM THE TOP: Rogelio Vélez, Cinemex
291
VIEW FROM THE TOP: Mónica Lozano, Alebrije Producciones
292
VIEW FROM THE TOP: Jaime Romandia, Mantarraya Producciones
293
INSIGHT: Marco Forte, VCS Capital
294
VIEW FROM THE TOP: Roberto López, Sony Music Entertainment México
295
VIEW FROM THE TOP: Antonio Quevedo, Grupo Diniz
273
| ANALYSIS
FINDING THE HIDDEN VALUE OF ENTERTAINMENT Sports and entertainment are a wealth generator in many countries. In Mexico, major events, such as the Mexico City Grand Prix and the NFL, are not just revenue sources; they are an opportunity to showcase the Mexico brand and culture. However, success requires a coordinated effort between the public and private sectors The sports and entertainment industries have a unique
promise, you need to deliver. It does not matter if it is a yoga
power to bring people together while bolstering city
class with 200 participants, the construction of a baseball
and community economics by generating revenue and
stadium or a MX$1.5 billion (US$79.3 million) investment in
employment. Mexico, which is recognized as a world-class
the Hermanos Rodríguez racetrack.”
destination for sports and entertainment events, also benefits from the accompanying publicity and global visibility that
During the previous political administration, sports events
contributes to its international positioning. But to realize the
in 55 cities and 26 states generated an economic impact
full potential this sector offers, cooperation between the
of over US$5.3 billion in Mexico. International events, such
public and private sectors is necessary.
as the NFL games, generated revenue of around MX$840 million (US$44.6 million). The 2015, 2016 and 2017 editions
274
During Enrique Peña Nieto’s administration, Mexico
of the Mexico City Grand Prix together generated revenue
hosted over 35 international sports events and Mexico
of more than MX$23 billion (US$1.2 billion). All five races
City alone hosted more than 450 sports events annually,
in the contract the city has with Formula 1 are expected
both of local and national scope. Horacio de la Vega,
to bring over MX$40 billion (US$2.1 billion) in terms
former Director General of the Institute of Sports of
of revenue.
Mexico City (Indeporte), says 2013 and 2014 were difficult because there was no interest from the private sector to
The economic impact is not the only lasting effect that
support the organization of these events. An effective
sports events have. The organization of different activities
alliance between the public and private sectors was
surrounding the main sports event contributes to the
fundamental in improving the landscape. “I am convinced
creation of social cohesion. “Even for projects such as
that the success we have experienced has been the result
those involving the NFL, NBA or MLB, our vision has
of the joint participation of the government and the
always been to have a broader impact beyond the big
“
private sector,” he says.
We need to find a way to support national professional sports leagues in their efforts to develop athletes and sports events that bolster the development of local communities and contribute economically to the country” Javier Salinas, Executive President of the Liga Mexicana de Béisbol (LMB)
event through the participation of passive spectators,” says de la Vega. As an example, de la Vega points to the associated events that accompany NFL games, such as the NFL Experience, which includes a series of activities for families and a flag football tournament prior to the game. “Our goal is to reach all levels of society through these projects. This contributes to improving social cohesion because it is no longer a matter of being a passive spectator but of actively participating.”
CHALLENGES Although largely successful, the sports industry in the country faces significant challenges, particularly at a local level. Javier Salinas, Executive President of the Liga Mexicana de Béisbol (LMB), says the development and professionalization of national sports leagues and athletes requires support from the authorities. “We need to find a way to support national professional sports leagues in their efforts to develop athletes and sports events that bolster the development of local communities and contribute economically to the
De la Vega says these relationships must be based on
country,” says Salinas. Part of the problem he adds, is that
trust and credibility but they must also encompass an
when it comes to federal funds allocation, foreign sports are
understanding of what the private sector needs. “What you
favored over national leagues.
Salinas says obtaining funds through the sponsorship model is always complicated in Mexico because sponsors demand a
Altius' highline event, Reforma, Mexico City
return on investment that is faster and more quantifiable than before. Adds de la Vega: “It is crucial to understand what our private-sector partners expect from their participation in an event.” Beyond their recreational value, Salinas says pro sports are economic units that fully compete in the entertainment segment. “We play in the entertainment arena, where Netflix, Cinépolis, Disney or the National Auditorium also play. It is an industry that is very diverse and complex.” However, unlike other entertainment options, sports have a real-time component. Raúl Zárraga, Vice President and Managing Director of NBA México, says sports events need to work alongside TV channels to broadcast games, since, unlike other countries, TV viewership is not plummeting in Mexico. “Television is still king when it comes to massifying products.” 275
EVOLUTION OF MEDIA AND ENTERTAINMENT The entertainment market and the media industry have evolved, but also fragmented, says Rodrigo Gómez, CEO of HR Media, citing the arrival of OTT media services such as Netflix, Amazon Prime and similar platforms. “New audiences are emerging, who can consume and produce content through different channels. TV consumption continues to grow steadily and will not disappear but digital media is opening access to content.” Gómez says this change in consumption also reflects a change in consumer attitude. “Today, consumers are no longer passive, they also create content. This does not mean that TV is dying. On the contrary, TV audiences keep growing and people now consume video content in other media besides TV.” The appearance of OTT media services and the subsequent fragmentation of viewership impacts traditional entertainment models like the cinema industry. “Netflix and Amazon are positioning themselves as significant players and are investing in the production and distribution of film content. These platforms are also fighting for the
it comes to entertainment spaces, there is a significant
opportunity to release films on their platform at the same
misrepresentation of national content. “In Mexico, cinemas
time as cinemas, which puts exhibitors and studios at a
are supposed to reserve 10 percent of their screen share for
disadvantage because it takes away the appeal of movies
national movies but this is not clearly defined.” She says the
being premiered at theaters,” says Rogelio Vélez, Director
lack of clarity in the law allows for exhibitors to prioritize
General of Cinemex. Mónica Lozano, Founder of Alebrije
movies premiered rather than screen time, which prevents
Producciones, says that studios must also adapt to the new
Mexican movies from finding an audience. “We believe that
reality generated by OTTs. “We are living in a multiscreen
Mexican movies should be guaranteed at least a two-week run
world … and all the audiovisuals that younger generations
in theaters so these can find their audience.” Achieving this
consume come from digital services,” she says.
degree of visibility for the national industry is of the utmost importance. “We have to understand that this industry also
Mexican content, in particular, has faced a disadvantage in
has an impact on the economy, tourism, foreign relations,
such a competitive environment. Lozano says that when
employment, economic competition and culture,” she says.
| INFOGRAPHIC
MORE THAN JUST FUN AND GAMES With more than 35 international sports events per year, Mexico has become a world-class sports host. Although each event itself is unique and important, NFL games, Formula 1 races and NBA games have done the most to elevate Mexico’s profile on the international landscape and
Mexico City hosted the most international sports events in the country in 2012-2018: F1, Formula E, NBA, NFL, UFC, Liga MX, WWE, Mexico City Stage of the Tour de France, among others HOW IS THE ECONOMIC IMPACT MEASURED?
have become important sources for international promotion. The flawless organization and execution of the Mexico City Grand Prix, combined with a successful promotion strategy, prompted Formula 1 to label the Mexico event, broadcast in 200 countries, as the best race in the global championship.
Direct Impact: Creation of direct jobs, wages and salaries
Indirect: Third-party spending related to infrastructure construction
Induced: Visitors' spending within sports facilities
Sports events averaged 52,000 attendees
276
Since 2015, the Mexico City Grand Prix has been recognized as the best race in the championship by the Federation Internationale de l'Automobile (FIA)
FORMULA
1
Mexico is the only country that has been awarded this recognition four years in a row
The 2015, 2016 and 2017 editions of the Mexico City Grand Prix generated an economic revenue of over
MX$23 billion,
The Mexico City Grand Prix is broadcasted in 200 countries and in 2017 received 2,400 hours of coverage globally
six times what the government invested to bring the race
The 2017 Grand Prix generated around
8,700 jobs, which accounted for over
MX$1.7 billion in wages
The Mexico City Grand Prix was the most popular sports event in the country with around 330,000 attendees Sources: Indeporte, El Universal, Animal Político, F1 Gran Premio de México, NBA, El Economista.
ECONOMIC IMPACT OF SPORTS EVENTS IN MEXICO CITY (MX$ billion)
Direct multiplying effect of Mexico City sports events
201
7
2015
Total return for Mexico City
Visitors' expenses in
20 16
2016
2017
Between 2012 and 2018, Mexico City hosted on average 35 sports events per year
20 15
Mexico City sports events
Media value for Mexico City
17 20
In these six years, sports events generated an economic impact in 55 cities totaling over
16 20 5
201
2017 2016
US$5.3 billion
277
2015 0.0
0.5
1.0
1.5
2.0
Mexico has the second-largest NFL fanbase worldwide
NFL games in Mexico result in economic revenue of around
MX$840 million In 2018, the NFL game was canceled due to problems with the stadium lawn, causing the city to lose
For an NFL game, foreign visitors stay 5.5 days and spend
MX$990 million
MX$5,700
in potential revenue
per night in the country
In 2017, 77,357 people went to the game between the New England Patriots and the Oakland Raiders.
9,000 people were from abroad
NBA has organized games in Mexico City for
Mexico has the third-largest NBA fanbase worldwide
over 25 years
NBA
Every NFL game generates 2,840 direct jobs
For the federal government, NFL games generate around
MX$67 million in tax income
According to estimates, around 30 million Mexicans play basketball or Per season, consume NBA there are usually products four games, attracting around
80,000 spectators
| VIEW FROM THE TOP
TRANSFORMING MEXICO CITY INTO A SPORTS CAPITAL HORACIO DE LA VEGA Former Director General of Indeporte
Q: What are Indeporte’s most important achievements of
(US$76.7 million) investment for the Hermanos Rodríguez
the past six years?
racetrack. It is also crucial to understand what our private
A: When my administration started in 2012, we developed a
sector partners expect of an event in which they participate.
four-axis plan for sports in Mexico City: infrastructure, social
We have to organize ourselves so private players can enjoy
sports, high performance and macro events. The first two
the return on investment they expect.
years were difficult because the private sector was not very 278
interested in supporting sports in general. Today, Indeporte
Q: What effort has Indeporte made to democratize access
operates, manages and supports more than 35 international
to sports and to generate social cohesion in Mexico City?
sports events in Mexico City annually. This means that the city
A: We have developed and executed over 32 social sports
hosts an international event on 75 percent of the weekends
projects. These projects include tournaments or leagues
of every year, including Formula 1, Formula E, PGA, LPGA,
that look to attract participants from every neighborhood
WEC, WRC and over 10 World Championships of different
in the city. Even for projects that involve the NFL, NBA
sports. We also have between 450 and 500 local or national
or MLB, our vision has always been to have a broader
events per year, which means that we have over 1.2 sports
impact beyond the big event through the participation
events per day in Mexico City.
of passive spectators. For instance, when we help put on the NFL game, we also include the NFL Experience, which
Q: How have alliances with the private sector and sports
has activities for children and families, and a flag football
organizations influenced Indeporte?
tournament that has 18,000 participants annually. These
A: Developing a close relationship with the private sector
examples are also replicated with the NBA and MLB. Our
helped strengthen Indeporte in the past six years. We
goal is to reach all levels of society through these projects.
are proud that even the smallest event we organized was
There has also been significant growth in the number of
sponsored by at least one brand. If a company or sponsor is
private gyms but we recognize that not everyone can
interested in organizing a socially and economically viable
afford these. As a result, we implemented a project called
sports event, we provide the necessary support for the project
urban gyms. These were established in urban spaces
to happen. We also generate alliances with international
located in public parks, public gyms and lower-income
organizations, such as the NFL, NBA, MLB and UFC.
apartment complexes.
Q: How did Indeporte attract the participation of the
Q: How can the city strengthen its sports infrastructure to
private sector to local and smaller sports events?
ensure durability and accessibility?
A: First, we built a relationship based on trust and
A: There are two types of sports infrastructure: large sports
credibility. If we say we are going to organize one of the
facilities to host major events like the NFL, NBA and other
most important marathons in the world and ask for Telcel’s
professional sports and local infrastructure, which has
support and then fail to deliver on that promise, we would
a more social function but which has been neglected.
lose credibility. What you promise, you need to deliver. It
In 2001, sports in the city were decentralized and local
does not matter if it is a yoga class with 200 participants,
administrations took over management of sports facilities.
the construction of a baseball stadium or a MX$1.5 billion
Some administrations did a fairly good job, invested money and kept their sports facilities in good shape but most local authorities did a poor job and the facilities were neglected.
The Institute of Sports of Mexico City (Indeporte) is a local
What these facilities need is investment; however, this does
institution dependent of the Mexico City government. Its mission
not necessarily need to come from the government. In
is to foster the creation of a physical and sports culture through
most cases, self-generated resources can be reinvested to
coordinated programs between private and public entities
improve the conditions of sports facilities.
VIEW FROM THE TOP |
ATHLETE DEVELOPMENT PROVIDES SOCIAL, ECONOMIC BENEFITS CARLOS PADILLA President of COM
Q: How does COM support Mexican athletes?
between San Diego and Tijuana. The proposal has not been
A: COM supports the development and preparation of Mexican
consolidated but is very well-prepared. One main issue we
athletes and helps with the necessary economic resources
are contending with is finding a quick and less bureaucratic
to ensure their professional growth inside and outside the
way for participants to cross the US-Mexico border, such as
country. We strive to provide all our athletes with the support
a preferential lane or another mechanism to facilitate the
and competencies necessary to prepare for events like the
mobility of athletes.
Central American and Caribbean Games, the Pan-American Games and the Olympic Games, bolstering their chances for
Q: In Mexico, soccer is king, even among big sponsors.
success. This includes providing food, transportation, lodging
What should top brands and big corporations know about
and other necessities. More importantly, COM helps its athletes
investing in Mexico’s Olympic athletes?
develop professional careers outside of sports. We want our
A: It is true that soccer is the most popular sport in Mexico but
athletes to have at least a bachelor’s degree so at the end of
baseball, basketball and others also have solid sponsorship
their athletic career they can continue growing.
agreements. In general, sponsors are mostly attracted to sports that perform well and have good administration.
Q: How does COM work with sponsors and what benefits
COM’s relationship with its sponsors includes the sports
derive from these relationships?
federations that can most benefit from that sponsor, such
A: Sponsors are a fundamental element of the sports
as the Mexican Federation of Athletics Associations, Mexican
movement because they help provide the economic resources
Boxing Federation, Mexican Cycling Federation, Mexican
to support athletes and contribute to their improvement. Our
Judo Federation and Mexican Equestrian Federation.
marketing department promotes COM to attract sponsorship resources but companies and marketing firms also reach
Q: Some people say Olympics success is only measured in
out to us. The International Olympic Committee (IOC) is
medals. Beyond that, what is the ROI of investing in athletes?
in charge of managing top contracts with companies like
A: Mexico’s young athletes are the most important ROI for
Coca-Cola, Atos, Bridgestone, Dow, Intel, Omega, Panasonic,
sports federations, sponsors and the country itself because
Toyota, Alibaba, Samsung, General Electric and P&G. COM’s
their effort and professional preparation benefit society
National Olympic Committee (CON) branch can sign
and bolster the image of Mexico abroad. Because of their
individual contracts with sponsors like Li-Lining and SisNova
training, athletes develop important skills that will later help
that do not overlap with our top sponsors.
them perform to high standards in society, a company or an institution. Throughout their athletic career, they learn
Q: Tijuana, Mexico City, Guadalajara and Monterrey are
to work with discipline, commitment, long-term vision
considered potential Olympics hosts. What makes these
and in teams — all necessary qualities in a professional
cities attractive and what challenges do host cities face?
working environment. This is an important ROI because it
A: These cities have the necessary hotel, sports and mobility
guarantees that the athletes companies sponsor today will
infrastructure, as well as the social stability and security to
later become part of the professional workforce that pushes
host the Olympic Games. There is an ongoing effort to lower
not only the sports industry but also Mexico’s social and
the requirements for Olympic venues to avoid cases such as
economic development.
that in Brazil, where the conclusion of the Games gave rise to social, political and economic problems in the country. IOC is aware of this and it is expected that the requirements for
The Mexico Olympic Committee (COM) oversees the Olympic
future venues will be much more flexible. For example, the
movement and sports in general. It was created in 1923 and
Olympic Charter already establishes the possibility of allowing
oversees participation of Mexican athletes in the Olympics, Pan-
binational venues. To this end, we have a co-hosting proposal
American Games and Central American and Caribbean Games
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| INSIGHT
TAPPING UNEXPLORED BASEBALL POTENTIAL JAVIER SALINAS Executive President of the Liga Mexicana de Béisbol (LMB)
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The Mexican government should provide support for the
Having a deep bag of distribution options gives the
development and professionalization of national sports
league one of the most interesting entertainment
leagues and athletes, which is long overdue, according to
offerings in the market, Salinas says. He acknowledges
Javier Salinas, Executive President of the Liga Mexicana de
that having all these choices might not necessarily mean
Béisbol (LMB). “We need to find a way to support national
a greater number of viewers. Yet, the rules of the game
professional sports leagues in their efforts to develop
have changed and what matters today is not how many
athletes and sporting events that bolster the development
people see the game but how they interact with the game
of local communities and contribute economically to the
and the brands surrounding it. “Through our Facebook
country,” he says.
transmissions, we have been able to reach international markets such as the Czech Republic, Germany, France,
According to Salinas, funding should focus on home teams
Italy, the Netherlands, South Korea, Taiwan, Japan and
rather than spending federal resources on attracting foreign
parts of South America. We would not have this reach
leagues for one-off events. “We have to ask ourselves
through television,” says Salinas.
this question: What type of sport do we want? Mexican professional sports have a great value; they generate jobs
Professionalization also comes through new sponsorship
and identity. The government needs to realize this.”
models, which for Salinas is a complex issue. Dynamics of sponsorship have changed, with sponsors demanding a
Professional sports are more than recreational organizations;
return on investment that is faster and more quantifiable
they are multifaceted businesses that compete against
than before. “Mexican baseball is a great product. It is
recognized names in the entertainment segment. “We play
played at a high level and has great potential. It is the
in the entertainment arena, where Netflix, Cinépolis, Disney
fourth-best league in the world and the national baseball
or the National Auditorium also play. It is an industry that is
team is ranked fifth. The product is done, we just need to
very diverse and complex,” he says. “Traditional businesses
deliver it correctly to our sponsors.” To make the product
have defined targets and profiles but we have to find a way
more attractive, Salinas implemented changes that divided
to communicate to the entire public, which encompasses
the regular season into two to make it more dynamic and
everyone from children to seniors.”
competitive and to generate more hype around the playoffs, providing more value for fans, media, sponsors and teams.
Given that broad demographic, an extraordinary degree of
The efforts have paid off and the league increased its
professionalization is also required. Salinas says for the LMB,
income 400 percent year on year in 2017.
this means more than having a marketing strategy. “When you talk about professionalization, everybody says marketing.
Although the LMB might not attract the attention that
However, for us, a professionalization strategy is 25 percent
other sports like soccer receive in the country, Salinas says
marketing and 75 percent structural topics such as operations
baseball has a larger impact than some might realize. “On
and organization.” LMB has a comprehensive media strategy
a yearly basis, a total of 5 million fans visit our stadiums,
that includes video production of 100 percent of the league’s
while only 3.9 million fans go to soccer games. We are
games. “We have a significant segmentation for different
present in 13 states, meaning that we reach around 76
media outputs that obeys to a very modern segmentation of
million people and we have teams in eight of the country’s
audiences.” The league’s plan includes broadcasting games via
10 most important cities, including Monterrey, Mexico City,
open and cable TV; LMBtv, an online platform that broadcasts
Tijuana, Puebla, Merida and Cancun.” Salinas adds that
all games; Cinépolis KLIC and social media platforms such
although the league is focused on strengthening its 16
as Facebook and Twitter, where LMB became a pioneer by
teams, several cities and businesspeople have voiced their
broadcasting through these platforms.
interest in acquiring an LMB franchise.
INSIGHT |
LOCAL TENNIS ORGANIZATION TARGETS THE SPOTLIGHT RAÚL ZURUTUZA Director General of Mextenis
Unlike soccer, boxing or baseball, tennis has not achieved
Zurutuza says having two ATP World Tour franchises
mainstream popularity in Mexico. Introduced to the country
places the country in a privileged position, although the
by the British in the late 19th century, the game evolved as
ATP’s franchise structure makes it unlikely for Mexican
an elite sport. Raúl Zurutuza, Director General of Mextenis,
tournaments to enter the Masters 1000 level. “There
believes tennis is now ready to hit another level. “The
are only nine Masters 1000 franchises, 13 ATP 500
expectations and desire to see tennis are there, we just
tournaments and more than 30 ATP 250 tournaments,”
need tournaments that are attractive enough. We are in
he says. “The best way to understand it is to imagine
the business of creating spectacles and events must be
tournaments as cars. If you want to drive one of those
in place for about five years to become a permanent part
cars, someone has to get out. No city wants to give up
of people’s schedules. It is hard but we are getting there.”
their spot at the Masters 1000.”
Mextenis is the organization owned by Grupo Pegaso
Still, the tournaments in Acapulco and Los Cabos position
in charge of organizing the Abierto Mexicano Telcel
the country in the global ATP Tour and although both
presentado por HSBC (Mexican Tennis Open Telcel
tournaments are owned by Grupo Pegaso and share some
presented by HSBC) in Acapulco and the Abierto Mexicano
characteristics, each one has its own identity. “Los Cabos
MIFEL presentado por Cinemex (Mexican Tennis Open
and Acapulco are two separate business units with their
MIFEL presented by Cinemex) in Los Cabos, as well as the
own history and their own characteristics. We work to make
CDMX Open Challenger tournament.
sure each tournament works in a different way, although both sport the Pegaso seal,” Zurutuza says.
One hurdle to growing the sport is the operational side of the international governing organization ATP, which oversees the
Although tennis is not among the most popular sports
ATP World Tour for professional men’s tournaments (WTA
in the country, Mextenis has made significant progress
organizes the women’s schedule). “ATP works through
to position the tournaments in the market. The Acapulco
franchises or properties,” Zurutuza says. “It is possible to buy
tournament, for instance, is a clear example of growth.
a Masters 1000, a World Tour 500 or 250. The problem is that
“We have been doing this event for 25 years and it is now
these franchises are limited and if somebody is interested in
consolidated. In 2018, we sold 90 percent of the tickets
buying one, they must wait until an owner no longer wants
in less than two months,” Zurutuza says. However, its
it.” The Masters 1000 series of tournaments are the third-
importance lies not only in the number of sold tickets but
highest tier of men’s ATP World Tour tournaments after
in what it means for the state and the city in economic
the Grand Slam events and the ATP Finals. Mextenis has
terms. “The week of the tournament represents the
participated actively in the purchase of these properties,
second-most important week in terms of economic income
positioning Mexico as a destination for tennis players.
for the city. We believe that Los Cabos will experience a similar dynamic in about four years.”
Mextenis, under the umbrella of Grupo Pegaso, acquired the country’s first franchise in 1992, which would later
Zurutuza adds that it is hard to place a specific monetary
become the Mexican Tennis Open Telcel presented by
value on the tournaments. “In general, the value of an ATP
HSBC tournament. After almost four years of searching
500 franchise averages US$10 million to US$12 million but
for an additional franchise, three years ago the company
this value changes depending on where in the calendar it
acquired the rights to what would become the MIFEL
is placed. For Mexico, the value of this kind of tournament
tournament. Starting in 2018, Mextenis also participates in
is much higher than that. It is a tournament with a lot of
the organization of a tournament that is part of the ATP
history that allows us to sell an image that we could not
Challenger Tour: the CDMX Open.
sell differently."
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| INSIGHT
50 YEARS OF FAITHFUL FOOTBALL FANDOM ARTURO OLIVÉ Director General of NFL Mexico
282
The US National Football League (NFL) officially returned
When it comes to broadcasting games, Olivé says Mexico is
to Mexico in 2016 when the Oakland Raiders beat the
a leader, surpassing even the US. “We have the largest TV
Houston Texans 27-20 in the first regular season game
broadcasting on a national level. In the US, some games are
in the country since Mexico hosted the NFL’s first
only broadcasted regionally but in Mexico the nine games
regular season game outside the US in 2005. According
that are televised have national coverage.” TV coverage also
to Arturo Olivé, Director General of the NFL Mexico,
implements what is called the “NFL Red Zone,” in which the
the 2016 game was the result of years of hard work to
broadcaster shows the best plays from every game. While
transform Mexico into a profitable market, a goal that was
this does not attract diehard fans, Olivé says the segment
achieved by creating customized solutions. “The Mexican
works perfectly for those who are just getting to know to
and US markets are different and the way you sell and
the game. “Some traditional fans complain that with this
commercialize the brand is different.”
modality they cannot watch the entire game, but in general we have had positive results and TV Azteca’s ratings have
A clear example relates to licensing and merchandising,
gone up as a result.”
which in the US can be applied to specialized products like medical scrubs but in Mexico needs to be targeted to
Although TV broadcasting still attracts the biggest
a broader population to guarantee profitability. “We have
audience, Olivé says the NFL is exploring new channels to
chosen to develop local suppliers to generate products
reach even more people, such as “NFL Game Pass,” a pre-
at an accessible price for the base of the social pyramid
paid service that allows users to watch the game they want
and we help them reach retailers, such as Walmart, sports
on the internet. “We need to make the NFL more accessible
retailers and convenience stores. For the area of licensing
through different devices. This forces us to generate high-
and merchandising to be successful, we need to find ways
quality content rather than niche content.”
to bring the products to the customer.” Olivé says a key element to creating a successful brand Access to official merchandising is just part of the business
such as the NFL is also having commercial partners
equation, which in Mexico has four variables: media
to cover distribution. In Mexico, this is done through
and marketing, sponsorships, merchandising and fan
traditional products like beer and cars but also applies
development. Making Mexico the No. 1 NFL fanbase outside
to other nontraditional sponsorships, such as milk and
the US has been a team effort, says Olivé. “The success of
dairy. “A few years ago, some of our partners told us that
the NFL in Mexico is the result of joint efforts of all those
they were paying us because we were the NFL but that
involved, from the government, to TV stations, airports and
their participation did not translate into additional sales.
people within the organization.”
Fortunately, this has changed. Today, we are partnered with 25 companies for 35 official NFL products and we have
American football is not new to Mexico, which is
positioned ourselves as a useful tool for them in terms of
traditionally a soccer country. “Football has been played
sales and promotion.”
in Mexico for more than 100 years and the country has been a faithful supporter of the NFL for almost 50 years.
The success of the NFL games held in Mexico City is just
It is a sport with a long tradition.” However, Olivé says
the tip of the iceberg and reflects all the hard work done
that gaining recognition within the NFL has also been
in the country to create a healthy and sustainable business
a feat in itself. “The NFL has been selling broadcasting
ecosystem that is beneficial for everyone, says Olivé.
rights to Televisa and TV Azteca for over 40 years but
“Holding games in Mexico City is an example of the trust
it was until 1998 that they decided to open an office in
the organization has in us. For the NFL it is just one game
Mexico City.”
but for Mexico it is an opportunity that cannot be missed.”
INSIGHT |
WANTED: FORMULA THAT TURNS CURIOUS FANS INTO CORE SUPPORTERS RAÚL ZÁRRAGA Vice President and Managing Director of NBA Mexico
In Mexico, only soccer outranks basketball in popularity and
It is not the NBA’s intention, however, to compete for fans
the local representative of the National Basketball Association
and viewers of other sports, Zárraga says. He acknowledges
(NBA) says the key to even greater success is to turn fans into
that there might be more hype surrounding NFL games and
consumers. “When it comes to team sports, basketball is the
the Formula 1 in Mexico City, for example, but there is good
second-most popular sport in the country. Our priority is to
reason for that. “After 25 years of games in Mexico City,
maintain this popularity and translate it into consumption for
having regular season games in the country has become
the NBA and its partners,” says Raúl Zárraga, Vice President
rather normal and the noise that surrounds us is different
and Managing Director of NBA Mexico.
than that surrounding these events that had not been in the country for several years. If we consider the total
Zárraga estimates there are 30 million Mexican fans that
attendance at our four games, we attract around 80,000
either play basketball or consume NBA content by either
fans to Arena Ciudad de México, which is equivalent to the
buying products or watching games on TV. NBA categorizes
spectators that the NFL game attracts.”
its fans in three blocks: curious, casual and core. “Our task is to find a formula that turns curious fans into core supporters.”
In addition to promoting NBA games, Zárraga says it is equally important to encourage the creation of talent for the NBA in
The country’s established fan base and the game’s success
Mexico. “If we want the market and consumption to grow, we
here has made Mexico a priority for the NBA. “Although
have to generate a basketball ecosystem that makes sense.
the Mexican market might seem much smaller than others,
That is why we have set up different platforms like the NBA
Zárraga says there are several factors that make Mexico a
Academy, which is a platform for inorganic growth.” The NBA
priority. “Population, market size, the number of people
Academy is an elite basketball training center located within
playing basketball, closeness to the US and a history of
CONADE’s basketball academy. It hosts 12 players: seven
regular season NBA games in the country make Mexico
Mexicans and five from other Latin American countries. “The
important for the organization.”
Academy’s players travel to other countries to compete, all financed by the NBA. The idea is to generate elite talent for
As in any sport, developing a broader market and fanbase
the association,” says Zárraga. It is an ambitious goal; only
depends heavily on access. For that reason, Zárraga focuses
four Mexicans have ever played in the NBA. Jorge Gutierrez
NBA Mexico’s efforts on the creation of content. “Our strategy
was the last, having been cut by the Brooklyn Nets prior to
includes broadcasting through three main points of contact:
the 2017 season, according to NBA.com.
open and cable TV and mobile carriers. We also have the NBA TV option, which allows users to watch content on
Zárraga says the NBA is considering setting up a farm team
the internet.” Unlike other countries where TV ratings have
in Mexico to capitalize on the sport’s popularity and develop
declined, Zárraga says in Mexico television continues to play a
local talent. “We are analyzing the possibility of creating a
major role. “Television is still king when it comes to massifying
G-League team, which is the NBA’s development league.
products. Televisa is our partner for broadcasting games on
Around 50 percent of NBA players drafted in the first round
open TV and ESPN is our ally for cable TV transmissions,
come from a G-League team,” he says. Although there are
broadcasting up to eight games per week.” The creation of
still several financial details to iron out, Zárraga believes
content, both for TV and digital media, is integral to NBA
having a G-League team could be a precursor to establishing
Mexico’s business development strategy. “Content is sold to
an NBA team in Mexico. The idea is not without precedent as
sponsors and advertisers but this only works if there is an
hockey’s professional league, the National Hockey League,
audience. The only way to have an audience is to have great
has teams based in both Canada and the US. Until that day,
content.” Content is also NBA’s best tool for competing with
Zárraga says NBA Mexico will continue with its mission:
other entertainment activities, Zárraga adds.
bringing NBA content and products to the Mexican people.
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| INSIGHT
OPPORTUNITIES IN SPORTS GO WAY BEYOND SOCCER MAX NOGUEIRA Director General of Play Marketing
Mexico is a major consumer of soccer, from local Sunday
The industry also needs to understand how to sell to the
matches to the World Cup, but this singular focus masks
private sector and how to offer a business plan. It is about
the fact that other sports also attract large audiences in
aligning priorities and resources.”
the country, suggesting major untapped potential in terms
284
of marketing, says Max Nogueira, Director General of Play
Helping to build a brand communication strategy and
Marketing, a sports marketing agency. “Unfortunately, in
business plan is where Play Marketing comes in. “We need
Mexico we have soccer and then all other sports. But it is
to find a way to communicate and convince both sports
precisely in those other sports where we see the greatest
clubs and businesses of the importance of having a solid
opportunity.”
business plan and then deliver results,” says Nogueira, adding that the company has already tackled this challenge.
As big as the soccer industry is in Mexico, Nogueira believes
“Our work with the Mexican Golf Federation is one example
other sports, such as running or basketball, could make a
of our success. We helped to develop the brand and to put
greater dent if they move beyond their amateur status and
it in the minds of potential sponsors.” Nogueira also believes
develop the professionalization and investment required to
that part of the issue lies with a company’s approach to
reach the next level. The growing fanbase of the National
sponsorship dynamics. “One of the main problems with
Football League (NFL), for example, is a testament to the
sponsorships is that businesses do not see tangible results
potential waiting to be unlocked. “There is a lot of potential
from their participation. Many people still believe that what
in other sport niches. These may not be as big as soccer
matters to sponsors is how many people they reach through
but they are still worth exploiting,” he says. Play Marketing
a TV ad and that is not true. What matters is how people
is targeting these niches through its business lines in areas
interact with the brand.”
such as logistics and event planning, sports as a lifestyle, public relations, sponsorship management and the use of
Another hurdle for other sports in Mexico is soccer’s
sports as a means of wellness within organizations.
popularity. “Soccer has become the yardstick of success for every other sport, which puts them in a very difficult
Nogueira says the relationship between sporting federations
position since they are not able to compete with it. That
and the government is one factor that is holding back growth.
is why many sports in Mexico would rather retain their
“The lack of transparency in the use of private and public
amateur status.” While there is no easy solution, Nogueira
funds in some national sports federations is preventing growth
says other sports need to focus on keeping their current
because it generates distrust within the private sector and
fanbase and strive to obtain new fans by offering different
keeps it from investing more in the development of national
value propositions. “Sports should be more proactive when
sports.” Greater professionalization, he says, can help deliver
it comes to their offer. They should look for ways to attract
concrete results for sponsors and the business community. “If
more people to stadiums, even if they are not regular fans.
we could produce measurable results for sponsors, it would
Those who attend the games should feel that they left the
not be so difficult for professional sports federations to find
stadium with the best possible experience because this
more resources. That would generate a win-win situation for
leads to more fans and more resources.”
everyone: sports, athletes, the business community and fans.” Despite the challenges, Nogueira is confident that Play To reach this goal, two elements are required: commitment
Marketing can make an impact on the industry. “We have
and communication. “Clubs, federations and sports
a found a way to make sport itself our client. The industry
institutions must commit to the development of sports.
still lacks much in terms of growth and professionalization
Whenever they have the resources, they should invest in
but instead of looking at the downside, we treat it as the
people with experience and talent to develop the sector.
great opportunity it is.”
INSIGHT |
ALTERNATIVE SPORTS AN INNOVATIVE PATH TO TOURISM ERNESTO RIVAS Co-founder and Director General of Altius Events
Mexico is among the most visited countries in the world and
Altius Event is recognized for organizing events with high
its tourism industry is economically strategic, accounting
media impact and for working with large organizations,
for 8.7 percent of national GDP, according to the OECD.
such as Televisa, ESPN, Discovery Channel and TV Azteca,
To maintain this growth pace, the industry needs to
to guarantee customers a greater return on their investment.
diversify to continue competing with other major tourism
“One of the best events we organized took place in Puebla,
powers such as France, the US and Spain, says Ernesto
where we combined a concert by the band Café Tacuba and
Rivas, Co-Founder and Director General of Altius Events, a
a book-style motocross competition. This type of mixture
company that promotes Mexico through the organization
helps to reactivate tourism and creates opportunities in
of innovative sports events and marketing strategies. “Altius Events was founded 17 years ago with the purpose of marketing the country in a different way,” says Rivas. “The idea is to demonstrate how alternative sporting events and innovative forms of entertainment can improve the country’s image abroad. We work with the best athletes in the world and everything we organize is designed to popularize Mexico.” Altius Events, a 100 percent Mexican company, puts worldrenowned athletes in attractive natural and urban spaces
“
places that need it,” says Rivas.
The idea is to demonstrate how ... innovative forms of entertainment can improve the country's image abroad”
The 2018 Tourism Highlights Edition published by the World
to create sporting challenges that make a difference,
Tourism Organization (WTO) puts France as the most visited
says Rivas. According to the Ministry of Tourism, sports
country in the world with 86.9 million arrivals, followed by
tourism has become a catalyst to position Mexico abroad.
Spain with 81.8 million, the US with 76.9 million and China
In addition, it has also had a significant economic impact
with 60.7 million. Mexico ranks sixth with 39.3 million visitors.
in cities and states that host events. The sports and entertainment industry in Mexico is small Former President Peña Nieto’s National Development
compared to other countries but Rivas believes Altius Events
Plan (NDP) 2013-2018 focused on economic development
has revolutionized the way sports and entertainment are
through strategic areas that included tourism. The plan
synchronized. “The work of Altius Events is not limited to
emphasized the possibility of creating better economic
organizing world-class events; we also focus on promoting
opportunities, jobs and market diversification through
Mexican athletes and having them compete at an international
tourism along with the preservation of natural resources
level. We believe this is the best way to promote Mexico’s
and the promotion of Mexico’s cultural wealth. Altius Events
image inside and outside the country,” he says.
saw an opportunity to work in close collaboration with the government to organize world-class events in places that
Mexico has a unique tourism potential, since the country
have traditionally been left out of the mainstream tourism
is perfectly positioned in different types of destinations:
circuit. These events are reported to the general public
sun and beach, cultural tourism, ecotourism and adventure,
using social networks and the latest video technologies.
health tourism and cruises, among other segments. Although
“We try to bring together the best elements from everything
the international expansion of Altius Events is a possibility,
we are. Altius Events’ commitment is to create quality
the company wants to keep Mexico as its central objective.
content to maintain our excellent position at a national and
“All Altius events were created to publicize Mexico and we
international level,” Rivas says.
want to continue doing it in our own style,” says Rivas.
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| VIEW FROM THE TOP
TECHNOLOGY RAISES STAKES FOR SPORTS BETTING EMILIO HANK President and CEO of Grupo Caliente and Caliente Interactive
Q: What opportunities in the entertainment sector led to
industry in terms of market share. We want to grow our
the establishment of Grupo Caliente?
brand’s presence and become the Telcel of online betting.
A: Online sports betting has a long history in Europe.
286
England implemented online betting in late 1999s and
Q: What strategies is Caliente Interactive implementing to
early 2000s, which spurred the creation of many betting
increase its presence in the online betting market?
companies. Mexico, however, was not ready at that time
A: At this point, the most popular sports for online betting
for the introduction of online betting, as e-commerce had
are soccer, baseball and boxing, with tennis, basketball and
little penetration due to the low bandwidth in the country.
American football fighting for fourth place. The first step
As e-commerce evolved and the bandwidth infrastructure
to grow this market niche was to familiarize Mexicans with
improved, the conditions to introduce online betting
soccer bets. In 2014, most sports betting done in Mexico
consolidated. Companies launched online betting products
focused on sports played in the US. Now, betting on Mexican
in Mexico as early as 2009 but these still performed poorly.
soccer games is part of the mainstream so we are focusing
It was not until 2014 that we deemed it appropriate to
on other sports like baseball by allying with Liga Mexicana del
launch Caliente Interactive, which was quickly adopted
Pacífico (LMP). We will focus on baseball in 2019 and gradually
thanks to Mexicans’ love for sports.
incorporate other sports, including basketball and boxing.
Q: How could regulatory conditions improve to foster the
We invest in advertising to generate traffic to the
legal development of this business niche?
webpage. Once clients are there, our strategy is to keep
A: We estimate that about 50 percent of the online betting
a good relationship with them through a good customer
market in Mexico is illegal. Some companies do not pay
relationship-management platform. We invest in providing
taxes and might be taking advantage of minors. The sector
our clients with a personalized experience and offer them
needs a new law that regulates online casinos and it is
the products they like. It is all about knowing our users
necessary for authorities to work together with certified
and for them to see online betting as entertainment, not
companies to develop it. There are many strategies to tackle
an addiction. We are working with regulators to ensure
illegal gambling, but I believe the most effective will be for
this is a healthy industry that promotes the development
the Ministry of Communications to block access to online
of Mexico’s sports industry and does not generate social
pages that promote or take part in illegal gambling.
problems. Caliente Interactive has even incorporated a system to protect users, blocking or regulating their
Q: How big is the Caliente Interactive business within
account when we feel they might be overusing the systems.
Grupo Caliente and what are your strategies to keep
We also channel users who fear their gambling is becoming
growing its importance?
a problem toward professional care institutions, so they can
A: Caliente Interactive represents between 35 and 40
receive treatment.
percent of Grupo Caliente’s revenue. We expect this rate and our number of users to increase by 40-50 percent in
Q: How can Caliente Interactive create value for its
2019. Caliente Interactive has a 10-year plan to consolidate
partners, such as LMP?
the company as the leader of the Mexican online betting
A: Betting goes hand in hand with the sport itself. For that reason, we work together with sports associations and teams to create more entertainment options for fans.
Grupo Caliente is a Mexican company with almost 100 years in
Through bets, it is possible for fans of a specific team to
the entertainment sector. The company has several casinos in
show interest in other teams, even if their favorite is not
Mexico and 12 countries in Central and South America and has
playing. Our strongest allies are our sports partners, without
developed a platform for online betting called Caliente Interactive
whom we would not be able to provide these services.
VIEW FROM THE TOP |
TECHNOLOGY, METHODOLOGY CRUCIAL TO TRANSCEND MEDIA RATINGS RODRIGO GĂ“MEZ CEO of HR Media
Q: HR Media specializes in measuring TV ratings. How do your
voice or video. We discovered a strongly developed market
team and methodology make a difference for your clients?
in South Korea that uses a people meter that incorporates
A: HR Media focuses on two key areas: providing the industry
Israeli technology. This technology makes automatic audio
with total transparency by publishing all our information
signature matches, similar to Shazam, and can recognize any
on the Internet and reinforcing the methodology and
audio from Mexican open TV channels, paid TV channels and
technology that allows us to innovate the way in which
other video digital content, such as Netflix, Blim or others,
TV content is measured. HR Media breaks with traditional
which helps us report on more than 400 channels. 287
media classifications; we measure all content, whether broadcast on TV, streaming or multiplatform.
Q: What changes has HR Media observed in the way in which TV is consumed in Mexico?
HR Media is strongly positioned in the industry with a
A: Consumers are no longer passive; they create content.
broad geographic coverage and customer base. We work
We recognize that audiences are fragmenting and have
with two of the biggest TV broadcasters in the country,
more devices to access video content. This does not mean
some agencies, advertisers and all public TV channels. The
that TV is dying; TV audiences keep growing but people
company has carried out projects that have generated good
now consume video content through other media. HR Media
results with a national impact but also with an international
recognizes this new reality and our technology measures
one, which has made companies from other countries in the
TV content and online TV streaming as well.
region want to collaborate with us. Our vision is to become the No. 1 company in the country for audience measurement.
Q: HR Media offers services related to audience measurement, ad spend monitoring, program monitoring and ad hoc
Q: How does HR Media validate its measurements?
studies. How do potential clients benefit from these?
A: The measurement industry requires a solid methodology
A: Television Audience Measurements, our Ad Spend
to be able to project reliable figures and reveal useful
Monitoring Service and Program Monitoring Services are
information. HR Media has validated its methodological
complementary measurements and our Ad Hoc Studies
framework with sampling experts from ITAM and the
are for more specific purposes. Large TV companies,
University of Southampton, as well as other statistical entities,
media agencies and advertisers seek solutions that
such as the Research Institute in Applied Mathematics and
include all these services, while smaller companies and
Systems (IMAS) and the Media Research Council (CIM). We
public channels can benefit from our Ad Hoc Studies. HR
also got support from the Media Rating Council (MRC),
Media’s software allows our customers to receive real-
a US-based media auditing Council, and through 3M3A,
time information about the full multimedia performance
an international media audience auditing company that
of their channel. For example, through our software, TV
evaluated our technology, statistical methodology, the
Azteca and Multimedios can know how many people
composition of our audiences, sampling and other media
are watching their soap operas, the sociodemographic
components. We have been congratulated for the quality
profile of the audience, how much time people spend
of our sample study that includes 81 percent of the total
watching these programs and from which channels they
urban population in Mexico.
reach the program.
Q: What is the differentiating value offered by HR Media’s technology?
HR Media is a media research center specialized in television
A: After strengthening our statistical methodology, we
audience measurement. It collects and processes video content
looked for the best technology to measure the media market
information to produce data on ratings, reach, frequency and
passively, automatically and with automatic recognition of
composition of audience
| INFOGRAPHIC
PRIME-TIME ENTERTAINMENT
AVERAGE TICKET PRICES AND
With 129 million inhabitants, Mexico is the perfect country for developing and promoting entertainment options.
MEXICAN’S AVERAGE ANNUAL MOVIE VISITS CINEMA ATTRACTIVENESS AND COST IN MEXICO 55
3
50
2
45
1
Cinema, TV and OTT media services have found the country a prime location for business development. In particular, the cinema industry has bloomed in Mexico, with the country ranking fourth for most movie screens and most tickets sold. Although demand for OTT media services has increased in the country, TV audiences also continue to grow, proving that screen-based entertainment remains a profitable business in the country.
40
2016
2017
Ticket price (MX$)
0
2018
Average annual visits to cinemas
Average ticket price 2018
288
2018Per Habitant Average Visits
2017
2017 81
33 2
16.
16
.6
BOX-OFFICE INCOME IN MEXICO (MX$ billion)
6
2016
8
TICKETS SOLD AT BOX OFFICE (million)
34
2016
5
10
400
300
200
15
331
100
20
15.25
296
13.79
2015
2015
In 2018, there was a 1 percent increase in box-office revenue, even though ticket sales fell by 4.6 percent. This was caused by a 5.8 percent increase in the average price of
11.9
2013
®
7 25
2014
25 7
movie tickets
1
0 .0 12
2014
2013
Avengers: Infinity War was the largestgrossing movie at the Mexican box office in 2018 with MX$1.1 billion, followed by The Incredibles 2 with MX$749 million and Jurassic World: Fallen Kingdom with MX$692 million Sources: CANACINE, HR Ratings Media
TOP 3 MEXICAN BOX-OFFICE HITS IN 2018
MX$5.91 billion
Total revenue of Top 10 foreign films in Mexican cinemas
Name
Box-office revenue (MX$ million)
Attendees (millions)
Ya veremos
197.7
4.1
La boda de Valentina 159.1
3.3
Una mujer sin filtro
2.1
103.5
Total revenue of Top 10 Mexican films in Mexican cinemas
30
1,300
25
1,200
20
1,100
15
1,000
10
900
5
800
0
2013
2014
——Attendees Revenue
2015
2016
2017
2018
700
—— Share of Mexican films from total box office revenue
TOP 5 COUNTRIES WITH THE MOST MOVIE SCREENS (2017)
China 59,026 US
40,575
India
9,523
Mexico
7,106
France
5,991
On average, 7 out of 10 Mexicans watch TV for over 5 hours per day
Top 10 countries with the most tickets sold annually (million)
Position
Percentage
1,400
WHO ELSE LOVES GOING TO THE MOVIES? (2017)
MX$ million
Million
INCOME VS AUDIENCE OF MEXICAN FILMS AND CONTRIBUTION OF MEXICAN FILMS TO TOTAL BOX-OFFICE REVENUE 35
MX$890.6 million
1,978
India
1
US
1,749
China
2
China
9,155
1,206
US
3
Japan
2,094
332
Mexico
4
UK
1,724
223
Russia
5
India
1,583
222
South Korea
6
South Korea
1,581
200
France
7
France
1,501
178
Japan
8
Germany
1,108
176
UK
9
Russia
984
163
Brazil
Australia
954
10
Top 10 countries by box-office revenue (US$ million)
11,079
289
Mexico ranks 11th with a total box-office revenue of US$884 million
48%
People with
of people in Mexico City, Guadalajara and Monterrey have at least one TV with cable
cable watch 34 minutes more TV per day than those without it
HOW DO WE WATCH TV?* (million people) VIEWER DAILY AVERAGE 0
2
4
6
8
10
40
80
120
160
200
Canal de Las Estrellas
16.8 Open TV
7.8 7.1 Cable TV
Other devices
Azteca Uno Imagen TV Distrito Comedia Fox TNT YouTube Netflix
0 * Daily average
Million people
Minutes spent watching
| VIEW FROM THE TOP
INNOVATION DRIVES THE MAGIC OF CINEMA ROGELIO VÉLEZ Director General of Cinemex
Q: What characteristics differentiate Cinemex from its
having a large number of movie theaters, does not have
main competitors?
the kind of cinema complexes that exist in Mexico. Our
A: Cinemex has been innovating and improving the
US operations include 37 cinemas and about 400 screens.
cinema experience through comfortable facilities, state-
We are positioning the company as the most exclusive
of-the-art technology and a very high-quality service.
brand in the US exhibition industry.
The cinema exhibition industry has two strong players 290
that hold more than 95 percent of the market. Cinemex
Q: How does Cinemex apply the concept of innovation
ranks second in Mexico and is a strong ally for those
to its cinematic experience?
service providers who support our offering. Cinemex is
A: Beyond the comforts and services provided, exhibitors
a consolidated exhibitor with presence throughout the
can innovate with the audio and video technology and
country. Our strongest foothold is in Mexico City, which
the type of room. Cinemex offers 2D, 3D and 4D rooms
is the most important market for the company in Mexico
with IMAX video quality and Dolby Atmos audio. Laser
by far. Cinemex’s motto is “The Magic of Cinema” and we
projection is the latest revolution in cinema, as it offers
deliver this through the combination of technology and
deeper blacks, brighter colors and a sharper image.
high service standards.
The next step for Cinemex is to offer rooms with laser projection. In addition, we want to continue involving the
Q: How has Cinemex improved the entertainment
viewer in the cinematic experience thanks to our surround
experience?
sound and 30,000W of power.
A: Cinemex offers several entertainment concepts aimed at different types of audiences. Our Platinum
Q: What impact do stream platforms have on Cinemex’s
theater offers seat-side service and more spacious and
activities?
comfortable seating. In our Premium theaters, the public
A: Netflix and Amazon are positioning themselves as
can enjoy a comfortable armchair and an extensive
significant players and are investing in the production
offering of sweets. In addition to movie theaters,
and distribution of film content. These platforms are
Cinemex offers a wide variety of venues that range from
also fighting for the opportunity to release films on
showrooms to concepts like Alboa and Arena. Alboa is an
their platform at the same time as cinemas, which puts
entertainment space that features elements like bowling
exhibitors and studios at a disadvantage because it takes
and other games, sports bars and restaurants. Arena
away the appeal of movies being premiered in theaters.
offers videogames and targets the millennial generation.
As a result, it is important for the exhibition industry
Given everything we offer, Cinemex can be a strong ally
and studios to maintain adequate viewing windows
to developers of shopping centers.
at theaters before releasing the content on streaming platforms.
Q: Why did Cinemex choose to expand to the US and what advantages does it see in that market?
Q: What are Cinemex’s midterm goals?
A: Today, Cinemex has 332 complexes in Mexico. Last year,
A: Cinemex will continue with its expansion nationally
we began operating in the US. The US market, despite
and internationally. In Mexico, we want to increase our presence in those urban areas where there is not enough offer. However, the US is where we see the opportunity
Cinemex is a Mexican company founded in 1995. It is the
for expansion, given the demands and conditions of
seventh-largest cinema chain in the world thanks to more than
the industry in that country. In the mid and long term,
332 complexes and 2,851 screens in Mexico. Its products include
we want to expand to other countries and grow our
3D and 4D cinema, Cinemex Platino and Premium Cinemex
entertainment concepts like Alboa and Arena.
VIEW FROM THE TOP |
LEGAL MODERNIZATION KEY STEP FOR MEXICAN CINEMA MÓNICA LOZANO Founder of Alebrije Producciones
Q: In some countries, the law imposes a national content
A: The current law is almost 20 years old and in my opinion
share on cinemas. How does this model work in Mexico?
is obsolete and cannot regulate the market. The country
A: In Mexico, cinemas are supposed to reserve 10 percent
needs a new law that should be developed transversally.
of their screen share for national movies but this is not
We have to understand that this industry also has an
clearly defined. The law needs to be more precise and
impact on the economy, tourism, foreign relations,
ensure that exhibitors deliver 10 percent of screen time at
employment, economic competition and culture.
all cinemas on every day of the year to national movies. The important element is time on screen, not just the
In terms of ticket sales, Mexico is the fourth-largest
number of movies premiered. The law needs to be clear
market in the world. We are the 11 th-largest economy
so everyone understands it refers to 10 percent of total
when it comes to cinema revenue, the second-largest
screening time.
in terms of Netflix subscriptions and we consume per capita a larger universe of audiovisual content than
The Mexican Academy of Film Arts and Sciences has been
other countries. The difficulty we face is that the overall
working for the past five years to define what should be
population’s purchasing power is not high enough to
done about it. We have created a document in which we
access these entertainment options. That is why we
deliver our recommendations, including a modification of
insist on the need to change the model. The arrival of a
the Federal Law of Cinematography. We need a global
new federal administration provides a great opportunity
law that covers all audiovisual materials, not just cinema.
to implement this change. It is important to prioritize
The modification of certain articles in the law would give
national content.
cinemas a clearer idea of how to demarcate their screen time to Mexican productions. We believe that Mexican
Q: What are Alebrije Producciones’ main funding sources
movies should be guaranteed at least a two-week run in
and how can the industry attract greater investments
theaters so they can find their public. It is important to
from funds or private investors?
note that some movies have their own niche, they are not
A: Unfortunately, in Mexico, experience is not rewarded. In
all mass-marketed. On average, a blockbuster film occupies
the same way that we need to allow the development of
between 70 and 80 percent of screens, which prevents
new talent, we must also allow experience to consolidate.
plurality and diversity.
We have been fortunate that over 20 years, Alebrije Producciones has gained legitimacy. Some of our teams
The government also needs to work on creating a global
have been very popular, we have received recognition
audiovisual ecosystem where cinema and public TV work
from the academy and we have made movies that have
together. Countries like France have established similar
had an impact at foreign festivals. This legitimacy is
systems where cinema and audiovisual industries are
attractive to the different investment funds that want to
considered a strategic activity for the country. This system
collaborate with us. Having a good record, guaranteeing
ensures that around 5 percent of public TV advertising
the investment of those that participate with us and
revenue is allocated to the production of national and
transparency in resource management has allowed us
independent films. Another proposal is to provide incentives
to obtain a good reputation and to solidify our position.
to movie theaters that surpass the 10 percent quota and achieve 35 percent. Such incentives would motivate others to follow suit. This is how audiences are created.
Alebrije Producciones is a Mexican audiovisual production company that emerged from what used to be Altavista Films in
Q: What elements should a new law for film and
2008. It is behind the production of successful Mexican films such
audiovisuals include?
as ¿Qué Culpa Tiene el Niño? and No se Aceptan Devoluciones
291
| VIEW FROM THE TOP
CREATING A SPACE FOR AUTEUR CINEMA JAIME ROMANDIA Founder and Director General of Mantarraya Producciones
Q: How is Mantarraya Producciones positioned in the
very few movies in Mexico that do not have the support of
landscape of Mexican cinema?
public funds. Mantarraya Producciones takes an amount
A: Mantarraya Producciones is positioned in the niche
of money from public funds and then approaches other
of auteur cinema. The films we distribute in Mexico
countries, mainly in Europe, to finance a movie. Almost all
target people who enjoy going to the movies but who
our films are co-productions between Mexico and France,
are highly selective. In almost 20 years in the Mexican
Germany, the Netherlands or Denmark.
market, Mantarraya Producciones’ distribution division 292
has put together a catalog of around 80 movies, many of
I think Mexico does not have the necessary conditions
which have been award-winners at the most prestigious
for a film produced locally to generate the needed
international festivals. In 20 years, we have produced
profitability for private investors. There are very few films
around 35 movies.
produced in Mexico that really recover their investment. Even films destined for commercial cinema depend on
Q: What opportunities do streaming platforms offer for
external funds, mainly from the US.
both Mantarraya Producciones and Mexican cinema? A: Many countries have enjoyed a positive transition but the
Q: What strategies can be put in place to increase audience
truth is that Mexico is still in the process of change. Even
numbers for independent cinema and to strengthen
though Mexico is the second-largest market for Netflix, we are
the industry?
in a kind of limbo because we do not know what will happen
A: It is somewhat complex. Mantarraya Producciones
with Mexican platforms like Blim, Claro video, FilminLatino and
produces the film and then takes it to the distributor, which
Cinepolis Klic. These platforms are really good but they have
in turn takes it to the movie theaters. In Mexico, both Cinépolis
not reached the level of expansion needed to compensate
and Cinemex, the two largest exhibitors, reserve space
what we lost with the disappearance of DVDs. We know that
for the screening of these films. However, this means that
the future lies in the use of this new technology but we do
independent cinema must compete with commercial projects.
not know when we will see a rapid and balanced expansion
If we also consider that Mantarraya Producciones’ productions
in Mexico like that observed in other markets.
might be considered radical, then our niche within movie theaters becomes more difficult to defend. We have to create
Q: One of the most pressing issues in almost any industry
the market and the conditions that allow the existence of
is funding. How does Mantarraya Producciones navigate
these types of films but we also need to have a fair box office
this hurdle?
distribution, as happens in other countries. Mexico is among
A: Investment in Mexican cinema is risky, especially when
the world’s largest cinema markets, ranking fourth after the
it comes to auteur cinema. Although exhibitors in Mexico
US, China and India, which means that there is a market for
reserve space for independent cinema, the truth is that
this type of cinema.
the profit percentage that these movies generate at the box office is not very attractive for private investors. For
Q: What are Mantarraya Producciones’ plans for the next
this reason, most of these filmmakers in Mexico use public
two years?
and international funds to finance their movies. There are
A: We will continue producing films in the coming years. We just opened a company called Fotosíntesis Media that produces animation films with a social focus. We try to join
Mantarraya Producciones is a Mexican film production
forces with civil associations to use movies as a platform to
company founded in 1998 that not only produces Mexican
tell a story. We also have a film university that offers a major
films but also has a distribution company that deals with
in cinema. Since January 2019, we are also offering a major
foreign films
in digital animation.
INSIGHT |
HELPING MAKE MEXICAN CINEMA A REAL, PROFITABLE INDUSTRY MARCO FORTE Fund Manager of VCS Capital
The biggest hurdle for most business ventures is funding.
healthy player in the industry. “Our investment committee
This is particularly true in the audiovisual segment where
always focuses on taking on projects that have clear
risks are high and investors are skeptical. Marco Forte,
commercialization elements,” says Forte.
Fund Manager of VCS Capital, the only private fund in the country specialized in financing audiovisual content for the
The fact that there are no other players involved in financing
entertainment sector, is determined to change this, and for
Mexican films and TV projects stems from the perception
good reason. “The entertainment industry is completely
of the industry as a lightweight in terms of significant
abandoned when it comes to funding and financing, which
business opportunities. However, the increase in successful
means there is a significant opportunity for a company like
Mexican productions in recent years has helped to change
VCS Capital,” he says.
this view. “2013 was an atypical year. The industry released two blockbuster movies: No se aceptan devoluciones
Several factors hinder investment, Forte says. Chief
(Instructions Not Included) and Nosotros los Nobles (The
among them is bank inflexibility. “Banks in Mexico are
Noble Family). Their success shone a spotlight on Mexican
not very flexible. They have highly profitable businesses
cinema. Suddenly, it was considered a real and profitable
in mortgages, credit cards and auto loans, so they are
commercial opportunity.” Although Mexican cinema has not
not as interested in developing other products to help a
seen another year quite like 2013, Forte says it is now more
sector like the creation of audiovisuals. The same is true of
common to see Mexican film projects exceed the barrier
Sofomes, which focus on more profitable products.” Forte
of 2 million tickets sold, which means that the market is
adds that the element of risk associated with the industry
interested in local products.
generates reticence. “When it comes to cinema funding, the risk is high and as an investor you have to be willing
Thanks to these successes, the industry is beginning to
to bear the costs.”
grow, although Forte says the level of success will depend on the industry’s ability to produce good content. “What
VCS Capital mitigates risk by getting producers to accept
Mexicans like the most are comedy and horror movies, so it
its methodology. “The audiovisual industry has never been
is up to the industry to produce different content to educate
in the formal financing market. It is still artisanal and
audiences and help the market evolve. At the end of the
producers still want to manage their funds in their own
day, the market consumes what is produced. If the industry
way,” Forte says. For every project in which VCS Capital
only produces comedy films then the market will only
participates, the fund invests in resources as well as in
consume comedy films,” says Forte. Another key factor for
management. “We ask producers to comply with a certain
the industry’s newfound dynamism is government support,
methodology related to different processes. We also
such as fiscal incentives and the availability of public funds
ensure that the project’s funds are managed responsibly.
destined for the creation of cinematographic projects. VCS
In some cases, producers have asked us to take charge
Capital also receives public investment. “Around 30 percent
of the administrative part of the project since that is not
of our funds come from Nacional Financiera (NAFIN). We
their main strength.”
also have money from INADEM while the rest comes from private investors,” says Forte.
Although VCS Capital participates in a creative industry, Forte ensures that the fund follows the usual logic of a
Despite being in business for just two years, VCS Capital
venture capital entity. “We have two business models,
has already participated in nine projects and has invested
one focused on private capital and the other on financing,
around MX$70 million (US$3.6 million). “We are a relevant
which allows us to have a balanced risk in our portfolio.”
player and we hope that soon other funds will follow
That approach has also allowed VCS Capital to remain a
suit,” Forte says.
293
| VIEW FROM THE TOP
ENTERTAINMENT OFFERING COMPLEMENTS TRADITIONAL MUSIC BUSINESS ROBERTO LĂ“PEZ President of Sony Music Entertainment MĂŠxico
294
Q: Sony Music Entertainment has gone through a business
the music industry on a global level. In fact, 2016 was a global
transformation. What challenges arose from this change?
inflection point, which happened thanks to the presence of
A: We had to change our vision when we went from being
digital distribution platforms. The largest growth opportunity
a company that sells recorded music to an entertainment
is in the speed at which the audience adopts these platforms
company. This transformation allowed for income
and in that regard the opportunity for Mexico is enormous.
diversification and a transformation of our activities. We
There are still relatively few subscribers paying for music in
have become active participants in live entertainment. We
Mexico but the number is growing rapidly.
participate in the industry through strategic agreements with management agencies and concert promotion
Q: What factors have led to the Mexican market being one
agencies. We act as an entertainment agency. When there
of the most relevant for Sony Music Entertainment?
is an opportunity of an advertisement or a communication
A: Mexico is assuming a more relevant role in the industry
campaign, we present our creative proposal based on the
worldwide, as evidenced by the fact that in 2017, it ranked
music and the image of our artists. That is how we came
18th in the entertainment industry. Mexico is an extremely
up with campaigns with artists like Chayanne with Coppel
important country for digital media, which today is the most
or Ricky Martin with NescafĂŠ.
important means of distributing music. For Spotify, Mexico is the fourth-largest country in the world in terms of total
This transformation has allowed us as to have more
subscribers, just below the US, the UK and Brazil. However,
presence in more aspects related to music than before,
in volume of streams, Mexico is the second-most important
when our main activity was the sale of recorded music.
country for Spotify, just below the US. Mexicans have a very
Both in Mexico and in Latin America, this situation was
important connection with music, it is part of their lives.
forced by the problems we suffered in the past related to piracy, which generated a significant drop in our traditional
Q: What are your expectations regarding the future of the
revenues and forced us to sit down with our partners and
entertainment industry?
our artists to find new agreements to expand our activities.
A: I have an optimistic vision regarding our industry and Sony Music Entertainment. The growth opportunities that
Q: How does the company maintain profitability in the face
will arise from the advance of digitally distributed music
of new players such as Spotify and Apple Music?
are immense. When Mexico has as many subscribers to
A: We used to sell recorded, physical mediums, such as vinyl
music streaming services as cable television services, for
records and CDs. At first, we had to battle piracy issues
example, the industry will have the highest values in history.
because it was so easy to go out and find pirated CDs.
We would like to see double-digit growth. In recent years,
We also faced pirated music in digital distribution. Today,
the industry has registered annual declines, so talking about
services like Spotify, Apple Music, Google Play, Vevo and
double-digit growth means that we are in a situation that
YouTube are legal. They offer content based on agreements
fosters a great deal of optimism.
with recording companies like Sony Music and we have designed a business model for this. We are not against them.
Q: What other business lines could the company venture into?
These digital platforms are allowing the revival and growth of
A: We are analyzing activities that could be related to music, such as gastronomy or sports, but always with music as the core of the business. While it is true that we have transformed
Sony Music Entertainment is a music and entertainment
the company, the heart of our activities will always be music
company owned by Sony. It is the largest music producing
and the quality of our content and artists. If we do not have
and recording company in Mexico and one of the three largest
great artists and great music, we will not have commercial
record companies globally
activities or distribution of recorded or live music.
VIEW FROM THE TOP |
MEXICAN COMPANY SURPRISES THE ENTERTAINMENT SECTOR ANTONIO QUEVEDO Executive President of Grupo Diniz
Q: What elements have allowed ¡Recórcholis! to expand to
A: ¡Kataplum! is a 100 percent Grupo Diniz investment;
22 states since its founding in 1999?
Grupo Danhos rents the mall space to us. It is important to
A: We recognized from the start that entertainment was an
note that, in addition to leasing us the space for 20 years,
essential part of every shopping mall and our idea behind
Grupo Danhos provided us with all the possible advantages
¡Recórcholis! was to provide family entertainment centers
for the construction of the park. We are already working on
within malls. Today you cannot deliver a mall without an
¡Kataplum! II, which will also be located in a mall built by
entertainment offer. These centers have become areas
Fibra Danhos in the northern part of Mexico City. 295
for socialization. People go to malls not only to purchase goods, but also to eat and to discover entertainment
Q: Has the company experienced any slowdown in sales
options. Today, the role of the shopping mall could be
given the general uncertainty the country has experienced?
compared to that played by the central squares in small
A: Over the past three years we have had stable sales and
cities in the last century.
when it comes to entertainment in general, we have seen steady growth in recent years. It is important to note that
It is important to understand that in recent years malls have
entertainment is always the last link in the chain of needs.
begun to lose traffic due to e-commerce. Making purchases
When people have less disposable income, they will trim back
of clothes or technological devices over the internet is now
entertainment costs. Of course, the opposite is also true and
much easier. However, you cannot go bowling or ice skating
we are the first to feel it when the economy is gaining speed
at home. That is why we have become an important anchor
because people start having more spending cash. However,
for new shopping centers. The oldest shopping centers are
Grupo Diniz is sensitive to the exchange rate between the
also reaching out to us because they have realized that one
Mexican peso and the US dollar since all our main inputs are
way to maintain traffic is through the entertainment sector.
imported. Also, around 50-60 percent of the materials used
Over the last 25 years, we implemented a variety of games
for the construction of our venues depend on the price of the
and models until we found the perfect fit for malls. Today,
dollar, which includes air conditioners and electric staircases.
every ¡Recórcholis! space is built inside a shopping center and all have an average area of between 1,800m2 and 2,200m2.
Q: What strategies differentiate Grupo Diniz from its competition?
Q: How do Grupo Diniz’s business units complement
A: Our vision is to continue offering family entertainment
each other?
without consideration to socioeconomic factors. This means
A: Grupo Diniz has two branches: ¡Recórcholis! and
that the ¡Recórcholis! in Interlomas, in the State of Mexico,
¡Kataplum! The former has five available elements that can
is identical to the ¡Recórcholis! in other less expensive
be implemented: arcade-style machines, ice rinks, bowling
locations. We have a single standard for all venues and
alleys, food and beverages and day care centers. We also
I think that this has been part of our success. In certain
host children’s parties. Depending on the size of the mall,
lower socio-economic zones, people cannot afford to go
we define which of the five areas will be set up. Out of the
somewhere for a vacation and so they regard entertainment
last 20 ¡Recórcholis! venues we have opened, around 80
offerings as their holidays; this is why we strive to maintain
percent have all five areas. We also have started our new
a quality standard regardless of the location.
branch called ¡Kataplum!, which is basically an amusement park. ¡Kataplum! also follows our strategy of having a mall location to help attract more traffic.
Grupo Diniz is a Mexican entertainment company constituted in
1999
that
focuses
on
family-oriented
recreational
Q: What is the company’s relationship with Grupo Danhos
entertainment options through its ¡Recórcholis! and ¡Kataplum!
to expand the ¡Kataplum! project?
business lines
Altius event
TOURISM
12
Tourism has become a key contributor to Mexico’s economic development and its international image. The sector has not stopped growing thanks to the country’s natural beauty, as well as promotional efforts to attract visitors and investment. Today, tourism contributes to 9.5 percent of the national GDP and generates 9 million direct jobs. According to the World Tourism Organization (WTO), Mexico ranks sixth in international tourist arrivals but has still to crack the Top 10 in international receipts.
Although it is a success story for the Mexican economy, the sector is now at risk of losing ground due to budget decisions made by President LĂłpez Obrador. Throughout the chapter, stakeholders from the sector talk about the strategies they are setting up to reshape the narrative of what the country offers, how they are evolving their models to cater to new generations and the diversification strategies they are implementing to attract tourists from new markets.
297
CHAPTER 12: TOURISM
300
ANALYSIS: Tourism’s Light Shines Over Mexico
302
INFOGRAPHIC: Looking Past the Sun and Beach
304
SEXENNIAL PLAN: Santa Lucia and the NAIM Cancellation Odyssey
305
VIEW FROM THE TOP: Luis Barrios, ANCH
306
VIEW FROM THE TOP: Gerardo Murray, IHG
308
VIEW FROM THE TOP: Sandra Hernández, Club Med Mexico
309
VIEW FROM THE TOP: Sergio Zertuche, Palladium Hotel Group
310
VIEW FROM THE TOP: Blanca Rodríguez, BTCM IM
311
VIEW FROM THE TOP: Javier López, AccorHotels
312
VIEW FROM THE TOP: Erika García, Vacacionante and Vacation With a Cause Foundation
314
SEXENNIAL PLAN: Mayan Train Faces Complications Even With Government Support
315
INSIGHT: Sara Gómez-Ortigoza, MSC Cruceros Mexico
316
VIEW FROM THE TOP: Jorge Ojeda, Grupo Aries
318
VIEW FROM THE TOP: Ana Paola Durón, Amadeus Mexico
319
VIEW FROM THE TOP: Brenda Alonso, Argo Solutions
320
INSIGHT: Julián Abad, Salles Sainz - Grant Thornton
321
VIEW FROM THE TOP: Ricardo Schöndube, Schöndube Abogados
299
| ANALYSIS
TOURISM’S LIGHT SHINES OVER MEXICO Year after year, more people are seduced by Mexico's breathtaking destinations thanks to strong promotion efforts. However, recent government decisions have put the country's tourism attractiveness at risk. Private investors call for continuity and clarity in the way the new administration will handle tourism resources
300
A strong promotion strategy and attractive destinations
THE MEXICO EXPERIENCE
helped Mexico regain its Top 10 ranking as a tourism
Mexico is among the main beneficiaries of this uptick in travel,
magnate in the last few years but a greater investment is
capitalizing on its beautiful beaches, archeology, welcoming
required to maintain its momentum. “To continue growing
culture, picturesque towns and diverse communities to
the way we have been growing, we need to have really good
develop a strong tourism arm, which helped the country
infrastructure, such as roads and airports,” says Gerardo
become the sixth-most visited destination in the world in
Murray, Vice President of Brands and Marketing for Mexico,
2017. The tourism sector contributed a total of 17.2 percent
Latin America and the Caribbean at IHG. “Despite the
to the country’s GDP, for a total of US$209.4 billion in direct
many differences that might exist between the public and
and indirect activities in 2018, according to the World Travel
private sectors, the strategic vision is set. We know what
& Tourism Council (WTTC). In 2018, Mexico was visited by
we need to do.”
41.45 million tourists, according to the Ministry of Tourism (SECTUR), spending a total of US$22.51 billion. This represents
Globally, 1.33 billion people traveled internationally in 2017,
a 5.5 percent increase in direct expenditure, according to
which is a 7 percent increase over the previous year, according
INEGI. The sector generated 4.19 million jobs that represented
to UNWTO’s Tourism Highlights 2018 report. Europe was by
8.6 percent of the national employment, SECTUR data show.
far the most popular international destination, followed by Asia-Pacific and the Americas. These tourists generated total
Of the total tourists Mexico received in 2018, 18.08 million
revenue of US$1.34 trillion in 2017, according to the report,
traveled near the US-Mexico border, with 15.38 million tourists
which marks a 5 percent increase over the previous year.
crossing by car and the rest by foot. The other 23.37 million
Europe’s success is based on tourists traveling within their
traveled to the rest of the country, 19.37 million of them by air
own region. However, emerging economies in Latin America,
and the rest by land, according to SECTUR. Most of Mexico’s
Africa, Eastern Europe and the Middle East are growing
international tourists arrive from the US and Canada, following
their tourism sector thanks to increased disposable income,
the siren call to a beach destination. “Mexico is very good at
according to UNWTO.
offering its beach and sun destinations, which tend to attract several nationalities, such as US and Canadian visitors,” says
INTERNATIONAL TOURIST INTERNATIONAL TOURIST EXPENDITURE BY REGION EXPENDITURE BY REGION (PERCENTAGE) (percentage)
Middle East
US$1.35 trillion spent in 2018
Europe 51% Africa 24% Asia Pacific 16% Americas Americas 5% Africa 4% Middle East
Asia Pacific
Murray. However, there are increasing efforts to attract visitors from other parts of the world. China, Germany and the UK, which are the first, third and fourth-largest tourism spenders according to UNWTO, could be attractive targets. But to do so it is necessary to revamp Mexico’s image as more than a beach destination. “Diversifying the tourism offering to include cultural options allows Mexico to promote itself in markets with higher purchasing power, such as Japan,” Murray adds. Efforts to promote the country continue to bear fruit. In 2019, Mexico is expected to welcome 43.60 million international
Europe Source: UNWTO Tourism Highlights 2018.
tourists, a 5.2 percent increase over the year before, according to SECTUR. Their expenditure is also expected to rise: the ministry foresees a 5.2 percent increase for a total of US$23.68 billion. The industry credits strong government promotion
The Americas were third in international visitors in 2017, which
as a factor for its continued success. “Part of the great
amounted to 211 million passengers, and in tourist expenditure,
success Mexico has experienced is a result of the appropriate
which represented approximately US$326 billion. Of those
development of public policies. Marketing campaigns extolling
that came to the Americas, 62.5 percent chose North America
Mexico as a tourist destination are very well-focused,” said
as their preferred destination, with the region showing a 4.2
Javier López, Vice President of North America Operations
percent increase in arrivals between 2016 and 2017.
at AccorHotels.
While the sector posted positive results in previous years,
Tourism by sea is a less common but powerful force in the
some are worried about a potential slowdown caused by less
sector. Mexico received 7.86 million cruise tourists, a 7.6
international promotion. President López Obrador’s decision
percent growth over the previous year, according to Miguel
to close the Council of Mexico’s Tourism Promotion (CPTM),
Turruco Márquez, Minister of Tourism. Of those, 75.9 percent
was greeted with concern from former SECTUR directors
visited the Gulf of Mexico and the rest traveled through the
and industry representatives. Enrique de la Madrid, Minister
Pacific. The most visited destinations were Cozumel and
of Tourism from 2015 to 2018, told media in March 2019 that
Mahahual in Quintana Roo, Ensenada in Baja California and
“if we remove investment in tourism promotion, the number
Cabo San Lucas in Baja California Sur. There is still room for
of tourists coming to Mexico will drop.” The President of the
growth in this segment but that also requires infrastructure.
National Tourism Business Council (CNET), Pablo Azcárraga,
“A base port would allow more cruises to depart and arrive
also criticized the lack of promotion, which he claims is already
in Mexico and would greatly contribute to creating more
hurting companies and could cost the country MX$20 billion
jobs in the sector. We also need better infrastructure, with
(US$1.06 billion) by 2024.
more ports along the Mexican coasts. Improved security for our travelers, both national and international, is also a
FINDING A MARKET WITHIN
must,” says Sara Gómez-Ortigoza, Director General of MSC
Mexico’s diverse towns, cities and beaches are also attractive
Cruceros Mexico.
destinations for locals. In 2017, 235 million national tourists traveled throughout Mexico, mainly to Mexico City, Acapulco,
AMLO’S TOURISM BET
Guadalajara, Cancun, Veracruz and Puebla, according to the
The most ambitious tourism project targets much more than
Integral System of Information of Tourism Markets (SIIMT).
attracting visitors; its goal is to be an engine for economic
Mexicans are increasingly investing in tourism as the number
development in the southeast of the country. The Mayan Train,
of local tourists has grown steadily since 2012.
a railroad that will connect the 11 main archeological regions of five different states, is among the largest infrastructure projects
For Mexicans tourists, hotels are not the first choice for
supported by President López Obrador’s administration. The
accommodations when traveling. Only 39 percent booked
project is expected to take over four years of construction
a reservation and the rest chose alternative housing, such
and cost between US$6 billion and US$8 billion, financed by
as a second home, a time share or a relative’s house. SIIMT
public and private institutions.
also indicates that, on average, local tourists spend MX$6,281 (US$331) on a vacation, including transport and housing.
While extremely ambitious, the project has generated concern
Their average vacation lasts five days and 41 percent prefer
due to its high costs and potential environmental impact.
to travel by car. Considering this number, many in the
Moreover, some question whether it is the best choice to
industry argue for better road infrastructure to strengthen
improve mobility in the region. “We cannot talk about the
national tourism. “It is not only necessary to improve airports
Mayan Train without talking about the current needs of Cancun
but also highways. An interesting example is the construction
and the Riviera Maya. There are other infrastructure projects
of the highway between Durango and Mazatlan, which has
that could be carried out to improve mobility or services in
completely changed the city, increasing the influx of people
the region, such as a train between Cancun and Bacalar or a
visiting from the center of the country,” says López. “This is
bridge that crosses the Nichupte Lagoon to improve mobility
the type of infrastructure that needs significant government
in Cancun,” says Ricardo Schondube, Managing Partner of
investment.”
Schondube Abogados.
GROWTH IN IN NATIONAL TOURISTS GROWTH NATIONAL TOURISTS 10
100
National tourists (million)
——Growth rate (percentage) 8
60
6 4
2.80
40
4.66
5.09
6.34
6.44
80
20 0
2013
2014
2
2015
2016
Source: SIIMT.
National tourists (million)
Growth rate
Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center
2017
0
301
| INFOGRAPHIC
LOOKING PAST THE SUN AND BEACH Joining the Top 10 ranking of most-visited countries made
WHAT TOURISM MEANS TO THE COUNTRY
tourism a national priority for Mexico and solidified the
In 2018, the tourism sector employed over 4.14 million
sector as an important economic driver. This was largely
people directly (Number of people insured by IMSS)
the result of joint-promotional efforts undertaken by
That represents a 2% increase from the number of
the public and private sectors. There could be trouble
people working in tourism in 2017
ahead, however, as the López Obrador's adminsitration's
Tourism GDP growth between January and September
austerity policy has limited the resources used for tourism
2018 compared to the same period in 2017: 2.5%
promotion.
GLOBAL EMPLOYMENT AND GDP CONTRIBUTION EXPECTATIONSFROM EMPLOYMENT EXPECTATIONS TOURISM AND INVESTMENT 450
420
IT'S NOT ALL BEACH AND SUN
Jobs (million) ——GDP contribution (US$ trillion)
12
390
11
302
360
10
330
9
300
2017
2018*
2028*
4
Mexico's ranking
111
Towns in the country
th
13
16.7
8
10.6
*Estimates
2.59 & 2.66
COUNTRIES MOST ATTRACTED TO MEXICO IN 2018 (number of visitors)
US 10,496,435 Canada 2,155,387 UK 590,945
of most cities designated as World Heritage
with the “Pueblo Mágico” designation Million people visited the country's archaeological zones in 2018 Million people visited the country's museums in 2018 Million visitors the National Museum of Anthropology and the National History Museum attracted in 2018
74.09 million tourists traveled by air around Mexico in 2018
Colombia 557,614 Argentina 490,212 Brazil 389,605
Spain 386,258 Germany 289,776 France 286,848 Peru 257,138
Sources: World Travel & Tourism Council, Ministry of Tourism (SECTUR), United Nations World Tourism Organization (UNWTO), INAH
INTERNATIONAL TOURIST ARRIVALS
INTERNATIONAL ARRIVALS PER AIRPORT INTOURIST 2018 PER AIRPORT IN 2018
Cozumel Monterrey
7.85 million tourists arrived to Mexico aboard 2,668 cruises in Puerto Vallarta 2018, an increase of 7.6% from 2017 Los Cabos Guadalajara
17.35 million passengers
Mexico City Cancun
44.96% Cancun 27.67% Mexico City 9.97% Los Cabos 8.65% Puerto Vallarta
INTERNATIONAL TOURIST ARRIVALS AND
INTERNATIONAL TOURIST ARRIVALS AND INCOME INCOME RECEIPTS BETWEEN 2012-2018 RECEIPTS IN MEXICO (2012-2018)
6.05% Guadalajara 1.56% Monterrey 1.15% Cozumel
50 45
Tourists (million) Income (US$ billion)
40 35 30
HOTEL OCCUPANCY Year
Hotel occupancy
Tourists in hotel rooms (million)
2017
61.2%
79.65
2018
60.9%
82.72
25 20
303
15 10
2012
2013
2014
2015
2016
2017
2018
US$ billion MOST-VISITED COUNTRIES IN 2017 (million passengers)
1 France
INTERNATIONAL
Number of tourists INCOME RECEIPTS IN (million) 2017 (US$ billion)
210.7
86.9
1 US Spain
68
2
Spain
81.8
2
3
US
76.9
3
France
60.7
4
China
60.7
4
Thailand
57.5
5
Italy
58.3
5
UK
51.2
6
Mexico
39.3
6
Italy
44.2
7
UK
37.7
7
Australia
41.7
8
Turkey
37.6
8
Germany
39.8
9
Germany
37.5
9
Macao
35.6
35.4
10
Japan
34.1
10 Thailand
Mexico registered US$21.3 billion in receipts from international tourists in 2017, outside the Top 10 countries in this category. In 2018, this increased toTOURISM US$22.5 billion BIG SPENDERS INfigured INTERNATIONAL IN 2018 BIG SPENDERS IN INTERNATIONAL TOURISM IN 2018 (US$ billion) 300 257.7
250 200 150
135
71.4 27.7
Italy
30.6
31.1
South Korea Russia
31.8
34.2
41.4
Canada
Australia
France
US$ BILLION
89.1
100 50
UK
Germany
USA
China
0
| SEXENNIAL PLAN
SANTA LUCIA AND THE NAIM CANCELLATION ODYSSEY The Peña Nieto administration announced the NAIM project with much fanfare. However, President López Obrador’s decision to cancel the infrastructure project generated a noticeable backlash among investors, leading his own team to acknowledge that the way the project was canceled was a mistake Despite López Obrador’s landslide election victory, his decision to organize a public consultation months before being sworn in as president to decide whether to cancel or to continue with the construction of NAIM was heavily criticized by members of the private sector and the general public.
304
According to the president, the NAIM project was plagued by corruption scandals and was not technically viable. “In that lake, we were always going to suffer from sinking and maintenance was going to cost us a lot,” he said. After the project was canceled and in an attempt to offer certainty to investors and all parties involved in its construction, AMLO assured that companies that already had construction contracts for NAIM would participate in the construction of the Santa Lucia Airport, his proposed alternative. The use of the Santa Lucia military base as a new international airport to replace NAIM had been a long-
“We are at the beginning of the Santa Lucia project. Canceling the Texcoco project has taken time. We have already repaid a third of the bonds and the investors’ money. We are just missing construction companies. Even with the costs that this cancellation implied, I stand firm that this was the best decision”
in-the-making strategy for AMLO and his team. The president has already stated that the Santa Lucia airport will be administered by the Ministry of Defense (SEDENA) and that it would follow regulations established by the Ministry of Communications and Transportation (SCT). The economic benefits stemming from operating the airport would be transferred to SEDENA and used to strengthen the ministry’s operation. Although Santa Lucia appears to be a done deal, members of the private sector are still not content with the way the decision was taken. Ricardo Salinas, a member of President López Obrador’s Business Advisory Council, said the president made a mistake when he canceled NAIM and that he is promoting policies that are destined to fail. Salinas’ declarations were quickly answered by Javier Jiménez Espriu, Minister of SCT, who assured the business community that the government would present a document where it would explain the logic behind NAIM’s cancellation. Still, Alfonso Romo, Head of the Presidency Office, said the decision to cancel NAIM had alienated the private sector and acknowledged that the way in which the decision had been taken had not been optimal.
“We are going to solve the saturation problem (at the airport) in less time. It will take just three years and it will be a long-term solution, of better quality, without corruption and savings of over MX$100 billion” March 11, 2019
VIEW FROM THE TOP |
JOINT EFFORTS NEEDED TO INCREASE TOURISM INTO MEXICO LUIS BARRIOS President of ANCH
Q: Tourism has become an important economic engine for
Q: What can be done to curb the violence and insecurity
the country. What elements have allowed this expansion?
impacting tourism?
A: In terms of tourism, Mexico ranks sixth in terms of
A: Violence and insecurity cannot be ignored. Unfortunately,
most visited countries, although it is important to note
there have been incidents in certain destinations
that foreign tourism accounts for about one-fifth of
accompanied by news coverage that has been somewhat
the country’s total tourism GDP. The rest comes from
exaggerated. In certain regions we have to work hard
Mexicans traveling around Mexico. In recent years, tourism
to improve conditions and create crisis management
has increased, particularly among foreigners who travel
programs, which many cities around the world already have.
to the country for several reasons, one of them being location. The promotion of Mexico has also been very
Q: What are your expectations for the sector?
important and effective in attracting more visitors.
A: We need to keep in mind that there are cycles and that
Another factor to consider is that the purchasing power
the sector cannot always grow exponentially. We are bound
of the US market, which is an important source of tourists,
to have moments of stabilization and of decline, but I do
has also increased.
not see elements that could imply that the Mexican tourism sector is fading. If the US economy continues growing as
Mexico faces several challenges but the investment
forecast, we can expect it to continue buying from us and
the country has received in recent years has generated
for visitors to keep coming to Mexico. The one thing that
employment that adds to the country’s total payroll. In just
could stop growth is insecurity, which is very important for
two years, minimum wages have risen 12 percent. When a
international travelers. To maintain growth, we must provide
country’s total payroll increases, people start to travel more
several elements: security, infrastructure, communications
and even choose to stay in hotels instead of staying in with
and highways. I think we have the conditions to maintain
a family member or friend.
current levels or even to grow further.
Q: How have volatility and uncertainty impacted the
Q: What should be the elements of a long-term public
sector’s performance?
policy for the tourism sector?
A: In 2017, tourism grew significantly. However, in 1Q18,
A: According to international studies, Mexico ranks around
we saw a slight decrease in the number of foreigners who
40th in tourism competitiveness. When you analyze how
visited the country and there was also a slowdown in terms
tourism competitiveness is defined around the world,
of national tourists in 2Q18. It is important to note that in
the main variables are rule of law, insecurity and fiscal
this quarter there were two elements that impacted the
transparency. These are the variables we need to improve.
sector: the presidential elections and the slowdown in
There are many elements that should be included in a
GDP growth, which were accompanied by nervousness
long-term public policy. All in all, I would say that the three
and volatility.
main things would be connectivity, reinforcing rule of law and improving security. However, these elements are not
From an economic perspective, I think markets and
only for tourism; you can apply them and several economic
investors have already gone through the uncertainty
sectors would benefit.
phase associated with the presidential elections. There are elements of the new government’s platform that everyone can support, such as the reduction of the country’s poverty
The Mexican Association of Hotel Chains (ANCH) groups
levels, its anti-corruption stance and its goal to reduce
Mexico’s 20 most important and prestigious hotel chains. Over
violence, as well as the application of rule of law. Another
460 hotels in the country are represented in the ANCH and its
challenging variable was the signing of USMCA.
members employ over 75,000 people
305
| VIEW FROM THE TOP
MAINTAINING BRAND CONSISTENCY GENERATES CLIENT LOYALTY GERARDO MURRAY Regional Vice President Marketing, Commercial and Revenue Strategy for Mexico, Latin America and the Caribbean at IHG
306
Q: IHG has been in Mexico for 48 years. How has IHG’s
components of our success story by growing together with
business evolved over the years?
us. Some of our franchisees include Grupo Fibra Inn, Grupo
A: The company started with a Holiday Inn in the city of
MileniuM and Grupo Presidente just to mention a few. Our
Tampico. Our development is based on the needs of our
relationship with these groups spans several years and has
clients, as illustrated by the expansion of our catalogue,
been built on a foundation of trust, which is bolstered by the
which now encompasses 15 brands. Each brand is directed
fact that IHG’s brands are economically sound, well-positioned
toward a very specific market segment. For instance, our
on a global level and have an important loyal client base.
prime brands, such as Kimpton® Hotels & Restaurants, InterContinental® Hotels & Resorts or HUALUXE® Hotels
Q: Given your international experience and your expertise
and Resorts, cater to the needs of travelers who want
in the Mexican market, how would you assess the evolution
extraordinary service and sophistication, while those
of Mexico’s tourism sector?
looking for value for price can choose our Holiday Inn and
A: The past two presidential administrations made direct
Holiday Inn Express brands. We also offer brands that cater
efforts to boost the sector, particularly the administration
to specific travel requirements, such as extended stays at
of President Peña Nieto, which was strategic and focused
our Staybridge Suites® or Candlewood Suites®.
on positioning Mexico not only as a sun and beach destination but as a multifunctional destination, including
As the company evolved, we started targeting younger
cultural, medical and religious offerings. This strategic
travelers who want basic services at a good price with
diversification, with each pillar having its own specific
exceptional delivery. We now cater to this segment through
agenda for promotion, generated a significant impact
our avid® hotels brand, which was created in 2017 and now
helping Mexico rise to sixth from 12th in the rankings of
has 150 signed franchises slated for the US, Canada and
most-visited countries in the world.
Mexico. Four of these will be in Mexico and are expected to start operating in 2023.
Q: Which pillars should the public and private sectors work on to maintain Mexico’s momentum in the tourism sector?
Q: Considering IHG’s vast portfolio, which brand best
A: The tourism industry is a service industry, which
accommodates the needs of Mexican travelers?
means that we need to ensure collaborators are highly
A: A key example of the levels of acceptance and affinity
qualified to deliver the best service that as a country we
between our brands and travelers is Holiday Inn and Holiday
want to be remembered by. The second point is related
Inn Express, which comprises most of our portfolio. Out
to infrastructure. To continue growing the way we have
of the 141 hotels we have in the country, 112 belong to the
been growing, we need to have really good infrastructure,
Holiday Inn portfolio. Part of our success and acceptance
such as roads and airports, in addition to good hotels.
is based on consistency and service. When our clients see
Another point is security. To ensure growth we need to
our brands, they know what they will receive. Another
ensure security. Despite the many differences that might
brand that has been very well-received is InterContinental
exist between the public and private sectors, the strategic
Hotels and Resorts. The Presidente InterContinental® hotels
vision is set. We know what we need to do; it is up to us to
in Polanco, Cancun and Cozumel are among the best in
decide whether we want to do it or not.
the world. Q: Palladium Group told us that one of the biggest Q: What impact do partnerships have on IHG’s growth
challenges the tourism sector faces is attracting quality
in Mexico?
tourism. How can the private sector contribute to this end?
A: In Mexico, we employ the franchising model to ensure
A: It has to do with diversification, to stop focusing all our
growth. Our franchisees believe in our brands and are key
efforts on a single tourism product. For instance, Mexico
Buenaventura Inspirato Residence, Los Cabos, Baja California
307
is very good at offering its beach and sun destinations,
a hotel offering that provides defined services, strong
which tend to attract several nationalities of travelers
brands, a great loyalty program and focus on delivering
such as US and Canadian visitors. However, diversifying
our service the best way possible through a great sleep
the tourism offering to include cultural options allows
experience and a memorable dining experience, just to
Mexico to promote itself in markets that might have
mention a few. Digitalization allows us to showcase these
higher purchasing power, such as Japan or certain Asian
services.
countries. Almost 95 percent of our hotels now have a new reservations That said, we cannot deny that one of the country’s main
system that provides more functionality. When clients
attractions is the sun and our beaches. There is a market
access the platform, they have more options to choose from
segment, such as the European or the Russian segment,
for their stay, including the type of room, the view from
that is willing to pay for a more sophisticated service
the room, whether it is the more economical option or the
scheme related to this option. Many hotel groups, including
most expensive and all the additional services we offer. We
IHG, have diversified their brands after understanding that
also ensure that our hotels offer up-to-date content, which
there is room on this field. Today, around 50 percent of
gives us a strong presence on digital platforms. When you
travel purchases are by people over 50 years of age who
combine this with strategies that optimize organic or paid
have a higher purchasing power and are focused on having
search optimization, then you can position yourself among
a more complete experience.
the top results.
The tourism industry holds significant weight in the
Q: What are IHG’s growth expectations for the short term?
country’s GDP. We are a country perceived as one of the
A: Over the next three years, we plan to open 37 new hotels
top travel destinations worldwide and we need to continue
in Mexico. More importantly, we will continue diversifying
boosting it and taking advantage of it. I am certain this will
our presence. We are focusing on strengthening our well-
be top of mind for our new Minister of Tourism, who is a
known brands, such as Holiday Inn and Holiday Inn Express.
highly recognized individual within the country’s tourism
Our new avid brand and the growth of our extended
community.
stay catalogue are another source of diversification in the country.
Q: Last year you talked about the company’s digitalization efforts. How can the traditional hotel offering compete with the likes of Airbnb?
InterContinental Hotels Group (IHG) operates several hotel
A: You cannot stop competition nor digitalization. I
brands internationally. The British company is one of the
think that we need to analyze the ways in which we can
world’s leading hotel companies in terms of number of hotels.
compete and provide guests what they need. We sell
It has been in Mexico for 48 years, where it operates 8 brands
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SAFETY, SUSTAINABILITY PRIORITIES FOR FRENCH TOURISM COMPANY SANDRA HERNÁNDEZ Director General of Club Med Mexico
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Q: What value do your Mexican destinations add to the
Q: How is your responsible tourism initiative reflected in
global Club Med portfolio?
your business strategy?
A: Cancun is the jewel in Club Med’s crown in Mexico. It is the
A: In 2018, Club Med received the Green Globe award for the
No. 1 resort in sales and numbers of visitors, both national
third consecutive year. This prize is awarded to companies
and international. For Club Med, Mexico is a very important
that make positive contributions to the environment and
country due to the enormous growth of the tourism sector.
the region where they have operations. Club Med supports
The company also has increased the number of Mexicans
communities through the purchase of local products. Our
staying at our hotels in Cancun and Ixtapa, which represent
buildings are also equipped with solar tiles that help reduce
69 percent of our overall sales in the country.
electricity consumption.
69 percent of Club Med’s overall sales in Mexico are for its hotels in Cancun and Ixtapa
Q: Your resorts are located in Ixtapa and Cancun, both zones that have been impacted by security issues. How do you deal with these problems? A: Club Med works closely with other accommodation providers to protect the area and boost tourism appeal. We also work in close collaboration with the authorities to
Q: Mexico has a broad tourism offer. How do you position
create an ideal environment and offer a differentiated value.
the Club Med brand ahead of your competitors?
In the last four years, we have had no negative experience
A: Sixty-eight years ago, when Club Med was founded, we
or security incidents at Club Med. Our security service and
became the pioneers of the all-inclusive concept, which
our collaboration with other entities allow us to offer peace
gave us the opportunity to face different markets with a
of mind to our visitors in all the locations where we operate.
considerable advantage. We are not a traditional hotel chain, as we offer different added values for Club Med guests.
Q: What tourism trends are beginning to emerge?
Our services go beyond food and lodging services; we
A: We have seen an increase in travelers in the Caribbean
offer innovative experiences with the best amenities. Our
region and there is greater motivation from airlines and other
company vision is to be the creators of happiness and our
industries to build the necessary infrastructure and to boost
hotels offer a wide variety of options for all ages.
tourism in the region. Also, more Mexicans travel abroad, although mobility is being held back by the volatility of the
Q: What has been the greatest challenge related to Club
peso against the dollar and the country’s political uncertainty.
Med’s ability to position the brand and destinations offered? A: The repositioning of Club Med over time has been the
Q: What are your growth expectations?
biggest challenge for us. Approximately 14 years ago, we
A: Club Med’s vision is to look to other continents to create
catered to adults and couples but later started targeting
new tourist destinations that are attractive to our customers.
the family segment. This change has taken time and
To achieve this, we have signed an alliance with Group Fosun,
continuously demands that we innovate our approach to
which is one of the most important investment conglomerates
provide the best services.
in China. We want to look to the Asian continent and invest in the construction of hotels in strategic countries. The flow of business and tourism travelers between the Americas and
Club Med is a private French company founded in 1950
Europe to Asia has increased, so we want to take advantage
and specialized in premium all-inclusive holidays. It is
of this opportunity in the medium term. Club Med will also
headquartered in Paris and has over 20,000 employees in a
continue its strategy of opening between three and five
number of exotic locations
hotels per year.
VIEW FROM THE TOP |
IBIZAN STYLE COMES TO THE MEXICAN COASTS SERGIO ZERTUCHE Chief Sales and Marketing Officer at Palladium Hotel Group
Q: What is Palladium Hotel Group’s main offer for the
transmit is that we offer the freshness and essence of an
Mexican market?
Ibizan company. We used to think that we competed with
A: Palladium Hotel Group is a Spanish group committed
other Spanish hotel chains but after all this investment we
to the Mexican market. We have two hotel complexes,
are competing at a higher level. We must be consistent with
one in Riviera Nayarit with 521 rooms and another in
the delivery of the product so that the customer perceives
Riviera Maya that has four hotels and a total of 1,554
the relationship between quality and product. We are a
rooms, including our new TRS Yucatan Hotel, which is a
company that is highly focused on the client.
conversion and rebranding of what used to be The Royal Suites brand (TRS Hotels). We destined US$30 million
Since we are targeting higher-level customers in the national
for the conversion of the TRS Yucatan, which went from
market, we are also making changes to our distribution
135 rooms to 454 rooms. The TRS Hotel brand is our
strategy. We work through channels such as Viajes Palacio,
adults-only, upscale offering that we are trying to position
Aeroméxico, Interjet and Viajes El Corte Inglés to reach
with unique offerings such as the Helios Beach Club,
clients with greater purchasing power.
which is our effort to import the entertainment concept and atmosphere of Ibiza to our beach clubs. Another
Q: What value do your destinations in Mexico add to your
distinguishing factor is our Chic Cabaret & Restaurant
portfolio?
Cabaret, which is listed on platforms like TripAdvisor as
A: Including Costa Mujeres, we contribute around 3,200
the No. 1 restaurant in Playa del Carmen. These are the
rooms to the Mexican market. That is 44 percent of the total
elements through which we create a differentiated offer.
rooms Palladium Hotel Group has in the continent. Globally, Mexico represents 25 percent of our inventory.
Since November 2018, we have a new hotel complex in Costa Mujeres with two hotels totaling more than 1,000
Fifteen percent of the clients at our Riviera Maya and Riviera
rooms: a Grand Palladium with 676 rooms and the TRS
Nayarit hotels are Mexican, while in Puerto Vallarta we have
Coral Hotel with 476 rooms. Our hotels have the necessary
a 50 percent Mexican occupation between the months of
infrastructure to hold weddings and all kinds of events.
May and October. The Costa Mujeres complex is aimed at
Particularly at Costa Mujeres, we see a great opportunity
the Mexican market since the Cancun area does not receive
to develop this segment.
many European visitors as they prefer the Riviera Maya; this means that for our Costa Mujeres project we have to
Q: Palladium Hotel Group targets a very specific market
develop a more Cancun-oriented clientele. For instance,
segment. How do you position your offer among the
most Brazilians and Colombians coming to Mexico stay in
numerous options that can be found in the Mexican market?
Cancun, rather than going to the Riviera Maya. Since we do
A: We understood that to conquer the segment of the
not have that many origin markets for our Costa Mujeres
Mexican market with the highest purchasing power, it was
hotels, the development of the national market has become
necessary to make some changes to our products. For
very important and strategic for us. Costa Mujeres is a zone
instance, we now offer premium drinks at all our hotel
with significant development potential and the expectation
bars, which attracts another profile of visitors. Mexican
is that it will host up to 30,000 rooms.
guests tend to demand better-quality products and services than other guests and that is something we are willing to cater to.
Palladium Hotel Group is based in Spain and has operations in Spain, Italy, Brazil, Jamaica, the Dominican Republic and Mexico.
Our main challenge is to communicate and explain our new
In the latter, the group has presence in the Riviera Nayarit area,
offer to the local market. The story we want our hotels to
as well as the Riviera Maya and Costa Mujeres, in Quintana Roo
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CULTURAL, ARCHEOLOGICAL ALTERNATIVES TO BEACH TOURISM BLANCA RODRÍGUEZ Partner at BTCM IM
310
Q: How is BTCM IM positioned in the Mexican
auto regenerative cities. These constructions do not depend
tourism industry?
on the services provided by the government, since they
A: BTCM IM works in several fields within the tourism sector.
generate what they need. The idea is to set up tents or
As a consultancy, we advise different players and hotels,
rural cabins that can be moved to different locations. We
such as Banyan Tree. In 2015, we partnered with Banyan
are considering Chiapas, Chetumal, Ensenada and Todos
Tree to establish a private equity fund to boost the sector.
Santos. All these areas have the necessary infrastructure
Due to factors such as volatility generated by elections and
and connectivity, but at the same time they are somewhat
the dollar-peso exchange rate, the fund was put on hold
isolated, which generates a different travel experience. Our
but the idea is for it to continue. In addition to the fund,
target is the segment of the luxury market that does not
we also provide consulting services to tourism businesses.
want to stay in a luxury resort; it is more adventurous and connected with local communities.
In the past five years, the tourism sector has grown at a very fast rate. Mexico has become the sixth most-visited
Within these communities we are also creating innovation
country in the world, according to the Ministry of Tourism,
and technology centers. The idea is for people to come and
with around 40 million foreign tourists visiting the country in
study how local communities grow their food. It is not just
2018. The tourism sector demands significant requirements
about going on a vacation to do nothing but to learn and
of human capital, which makes it a significant generator
become submerged in a different experience.
of employment and a crucial engine for many areas in the country. These are some of the factors behind BTCM IM’s
Q: How will sophisticated financial instruments such as
decision to translate its experience in the real estate industry
Fibras impact financing in the tourism industry?
to the tourism sector. We plan to set up projects in states
A: The tourism sector has traditionally been one of the most
such as Chiapas, Quintana Roo and Baja California Sur with a
difficult to finance, since many companies and investors
focus on low environmental impact and social responsibility.
do not treat tourism as they would real estate. Financing an industrial warehouse is not the same as a hotel with
Q: Beyond places like Cancun and the Riviera Maya, what
different occupancy rates. In addition, tourism markets are
other locations are likely to develop as tourism hubs?
subject to different variables. The emergence of these new
A:
Places like Cancun, Los Cabos or Riviera Nayarit
financial vehicles is creating financing opportunities for the
are extremely important. Riviera Nayarit is registering
sector. Although private banking has not always been a fan
impressive growth rates and still has room to expand its
of the hotels segment, development banks like Bancomext
offering. The same is true for Los Cabos, an area that in
are extremely committed to the industry’s development.
the next two to three years will add a significant amount of rooms. In the Riviera Maya, some locations are a little
Q: How can the industry change the narrative related to
saturated, but there is still a good deal of room for growth.
perceived must-see destinations in Mexico? A: That is what we want to do. Through this new business
We have partnered with Terragon Off-Grid, a company that
model, we are trying to convey the message that Mexico
specializes in constructing self-sufficient units as part of
has more than just beach tourism and that only one hour away from popular beach destinations visitors can become submerged in cultural or archaeological activities. Because
BTCM Investment Management (BTCM IM) is a consulting
our units are nomadic, we can place them in one location
firm that works alongside hotel developers, operators, cruise
for one season and then move them to a different area for
companies and other touristic service providers, advising them
the next. This will help create regional tourism that better
on how the sector works
promotes more of Mexico.
VIEW FROM THE TOP |
DIVERSIFICATION KEY STRATEGY FOR RAPIDLY EVOLVING MARKET JAVIER LÓPEZ Vice President of North America Operations at AccorHotels
Q: What differentiating value does AccorHotels offer
A: Part of the great success Mexico has experienced is a
through its hotel brands?
result of the appropriate development of public policies.
A: AccorHotels is a multinational company that manages
Marketing campaigns extolling Mexico as a tourist
three segments: luxury, midscale and economy. We also
destination are very well-focused. We could work more
have a range of complementary companies and products
closely with SECTUR in the area of staff training for hotels.
for the hotel sector, which means that we own companies in
There are many regions in the country that lack that
different business lines, such as food and beverage, catering
resources to properly train personnel. SECTUR could play
and concierge services. In the past, the group owned the
a more active role in this regard.
buildings where our hotels were installed but as part of a new growth strategy, we decided to sell around 60 percent
Q: What other factors must be addressed to successfully
of the buildings, which generated a significant cash flow
develop the tourism sector?
that has allowed us to acquire major hotel chains such as
A: Compared to other countries in Latin America, Mexico
the Fairmont brand. More recently, we acquired groups
has a good tourism infrastructure but it must continue to
in South and Central America, South Africa, Australia
develop this sector. For instance, Mazatlan is a beautiful
and Switzerland. We are multidisciplinary and we play in
destination but reaching the city is very difficult due to
different segments with complementary businesses.
the lack of connectivity, which also happens in Sonora. It is not only necessary to improve airports but also
In Mexico, we have 23 hotels and most operate under the
highways. An interesting example is the construction of
Ibis brand, although we also have two Novotel properties
the highway between Durango and Mazatlan, which has
and a Fairmont in Mayakoba, Quintana Roo. This is our
completely changed the city, increasing the influx of
inventory so far but we have a significant portfolio of hotels
people visiting from the center of the country. This is the
under construction. In 2019, Sofitel Mexico City Reforma will
type of infrastructure that needs significant government
open, which will be an iconic hotel for us.
investment.
Q: In which hotel segments do you see the best possibilities
Q: What untapped possibilities is AccorHotels eyeing
for the positioning AccorHotels’ portfolio?
in Mexico?
A: We see a great opportunity for growth in the economical
A: AccorHotels is a leader everywhere but in North
segment since we only compete against two or three players.
America. It has been a difficult market for us, including
In many US cities, around 70 percent of the hotel companies
Mexico. Given that we are not among the strongest
are independent and only 30 percent of the inventory
players, the development of new brands has always
corresponds to branded hotels. In the future, independent
been difficult. Since the group has access to cash flow,
hotels will suffer since in evolving economies people prefer
we will start making regional acquisitions of well-known
brands and recognized products. We believe that many
strategic brands in the luxury sector. Today, 50 percent
independent hotels can start to migrate toward established
of our hotels are economy, 25 percent are in the middle
brands. That is why we expect to continue developing the Ibis
sector and only 25 percent fall into the luxury and up-
branch through franchises. We also believe that the market is
scale segments.
open for the rest of our luxury brands as cities like Los Cabos, Puerto Vallarta and Cancun offer space for our brands. AccorHotels is a global hospitality leader present in 100
Q: How successful has SECTUR been regarding the
countries with over 4,300 hotels. The group works with more
industry’s development and where should it further
than 20 luxury and economic brand hotels, such as Raffles,
collaborate with the private sector?
Sofitel, Mantis, Fairmont, Ibis, Mantra, Novotel and Andagio
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A NEW APPROACH FOR MARKETING MEXICO ERIKA GARCÍA CEO of Vacacionante and Vacation with a Cause Foundation
Q: How do you position the Vacacionante brand in a highly
It is important to note that the number of international visitors
competitive market like Mexico?
to Mexico has been a controversial issue. Tourists who visit and
A: The best way to reach consumers is through a 360°
spend nights in the country are different from those who use
strategy. We need to be present on TV but we must also
Mexico as a flight hub or who cross the border daily.
complement our positioning with a digital offer. It is necessary
312
to generate an audience and segment it to know how to
Q: What elements should be highlighted to promote
approach each group. We created several companies, such as
Mexico and Quintana Roo in particular as touristic
Vacacionante.com, which is a very successful brand in South
destinations abroad?
America. Through it, we sell vacation programs to several
A: The 9/11 attacks in the US changed the way in which we
destinations that include Quintana Roo but also Florida and
promoted Mexico. Before that date, the country depended
the Caribbean region.
totally on American tourists. After that, however, tourism from the US fell and we began to receive more visitors from other
In an attempt to broaden our operations and create more
latitudes. This led to an internal reflection of how the sector
positive results for the sector, we are establishing alliances
was acting and industry companies agreed that we needed to
with Guanajuato and Puebla. Airlines like Volaris, Interjet and
treat visitors better, regardless of their origin. We also agreed
Viva Aerobus are increasing the number of internal flights in
that we needed to start marketing Mexico and its destinations
the country and are also increasing their market share. This
in a different way and not just sell sun and beach destination.
ensures that visitors travel to more than one place.
As a result, we decided to launch a direct marketing campaign. We decided to sell Quintana Roo, Cancun, the Riviera Maya
Q: What elements have helped Mexico improve its global
and Tulum as niche products and to market specialized
touristic ranking and become the sixth-most visited country
products such as golf, adventure tourism, maritime activities,
in the world?
spas, weddings, gastronomy and shopping.
A: There are several elements that allowed this. We have been working for almost 25 years to position Mexico as a touristic
Q: What can be done to increase the average amount that
destination but it often takes time to see the tangible result
tourists spend in Mexico?
of these promotions, sometimes years. The Mexican Tourism
A: Measuring this number is controversial. The new presidential
Board (CPTM) and the private sector implemented significant
administration wants to analyze tourism spending as a per
marketing strategies over the past 25 years. During this time,
capita measure. However, not all tourism is the same, nor is
tourism figures grew due to several external conditions. One
the expense. For instance, tourists from holiday or time-share
is the debt crisis that Greece suffered 10 years ago, which
clubs spend up to US$900 more than traditional tourism
prevented the country from participating actively in tourism
customers and stay on average 7.2 nights, a number greater
promotion. Turkey also saw a reduction in tourists in the
than traditional stays, in which the average ranges between
wake of internal strife a few years ago, while Spain lacked
4.7 and 5.1 nights. Tourists from other segments, such as
the needed tourist infrastructure to receive tourists. These
cruises, also have higher spending levels. The cruise industry
situations combined with other elements, such as Brexit,
in Mexico does not compete with hotels for customers but
increased Mexico’s popularity as a tourist destination.
these cruises are important for destinations like Cozumel because they provide an average expenditure of US$72 per day per tourist, which is higher than what is registered in the
Vacacionante is a tourism promotion company that focuses
rest of the Caribbean.
on the Latin American market in the US and Canada. It is an integral part of the Marketing 4 Sunset Group and part of the
On the private sector side, businesses need to generate
marketing and sales department of Sunset World hotels
alliances. One misconception is that when tourists stay at
all-inclusive hotels they prefer to eat at the resort, instead
Q: What policies should be implemented by the government
of dining out, which could not be farther from the truth. We
to further strengthen Mexico’s position as a touristic
need to figure out how different entities in the sector can
destination?
complement each other. For instance, restauranteurs can
A: There are many priorities and not enough budget, so
ask hotels to send customers their way and in return the
choosing one is not easy. One question that impacts the
restaurant will provide the customer with a free drink.
tourism industry is whether the money that is used for promotion will be used for other purposes. If the new
Q: How can new and disruptive tourism models such as
administration wants to build the Mayan Train, the tourism
Airbnb and traditional hoteliers work to boost tourism?
sector will welcome it but the government will need to
A: Airbnb is introducing an additional offer to the tourist
find new budgetary sources to pay for it, rather than use
portfolio, which is good for visitors and also hoteliers
the money that was used by the CPTM for promotional
because it forces us to innovate. We are seeing an interesting
purposes.
phenomenon. Around 15 percent of our guests go to an Airbnb before or after their stay with us, which means that they are
The promotion mechanism that was implanted by the CPTM
not choosing one or the other; they use both options. It is
was internationally recognized and even replicated. The
very easy to attack something we do not know or understand
board did not work alone and decided how and where
but we should get to know what they are doing and try to
to spend the money jointly with the trusts that were set
incorporate what we can to improve our own services.
up by different destinations. Sometimes, the money in a destination’s trust was used to promote the destination
Q: What are the sector’s expectations for the coming years?
on its own and sometimes it was added to money from
A: We need to consolidate the numbers we already have,
the CPTM for national campaigns. Another scheme
defend the number of tourists that come to the country and
we developed allowed for different funding inputs; if a
replace routes that we have lost, like the Russian market. We
destination wanted to attract an international event, such
were creative enough to get Turkish Airlines to open a direct
as a golf or tennis event or a convention, but did not have
flight between Istanbul and Cancun and I see companies from
enough money, the destination trust put up part of the
Cozumel very committed to opening new routes. In addition,
investment, businesses put up another part and CPTM
Mexican airlines like Viva Aerobus are gaining a significant
matched that total investment. This turned out to be a
share of the national market.
successful strategy over the past few years.
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| SEXENNIAL PLAN
MAYAN TRAIN FACES COMPLICATIONS EVEN WITH GOVERNMENT SUPPORT The Mayan Train is one of AMLO’s flagship infrastructure projects. Despite the full support the project has from the government, the private sector is reluctant, not because of the viability of the project itself but because it entails shifting money from tourism promotion to the construction of the train The Mayan Train will be “modern, touristic and cultural,” says President López Obrador, and will connect Chiapas, Tabasco, Campeche, Yucatan and Quintana Roo through 1,500km of railway. According to the president, the construction project 314
will not have a negative environmental impact and will ignite the economic development of regional tourism destinations like Cancun, Tulum, Calakmul, Palenque and Chichen Itza. The objective is to have the train finished in four years at a cost between US$6 billion and US$8 billion. According to Miguel Torruco, Minister of Tourism, the train will leave from
“It is not a whim nor an imposition stemming from the fact that I am from the southeast. (This train) is, above all, an act of justice because this has been the most neglected region in the country”
Cancun Airport and travel through Playa del Carmen, Tulum, Bacalar, Campeche, Calakmul, Escarcega, Palenque, the city of Campeche, Merida and Chichen Itza, ending in Valladolid. AMLO has announced that the Mayan Train will be partially funded by the Mexican government, although he has stated that funding will not be not enough and has repeatedly called for the private sector to participate in its construction. In an attempt to make the offer more enticing, López Obrador has promised a governmental subvention for companies that participate in the project. However, the construction of the Mayan Train has not generated enthusiasm among the private sector and there has been disagreement over the source of the resources that the government will use for the project. López Obrador’s election led to the elimination of CPTM and tourism authorities have said the money that was traditionally allocated for the promotional organization
authorizations and the respective consultations with the
“In the budget … there is already MX$6 billion (US$317 million) to start. But it is not enough. Those are public funds and we need a mix of resources; we also need private investment”
indigenous people of the affected areas.
December 16, 2018
would be redirected toward the construction of the Mayan Train. This news has not been well-received and even though the private sector has offered its support for the Mayan Train, it has asked the president to maintain the budget for the country’s tourism promotion. Despite complaints, the project continues and the first public tenders for the construction of the first stage of the Mayan Train will be held in 2Q19. Authorities have explained that they will not start any work unless they have all the environmental
INSIGHT |
OPEN SEAS FOR MEXICO’S CRUISE INDUSTRY SARA GÓMEZ-ORTIGOZA Director General of MSC Cruceros Mexico
Although the Mexican tourism industry is on the rise, one
Having a port in Cozumel to board passengers has
area that has yet to reach its potential is cruise ship travel.
also gone a long way to improving access for middle-
Sara Gómez-Ortigoza, Director General of Italian cruise
income travelers, says Gómez-Ortigoza. “Mexico has
liner MSC Cruceros, says cruises have gained in popularity
great potential and MSC Cruceros offers accessible rates.
in recent years but their contribution to Mexico’s economy
But Mexicans required a US visa to embark from Miami.
could increase with the existence of a base port in Mexico.
Leaving from Cozumel has opened up the possibility for
“A base port would allow more cruises to depart and arrive
more people to travel and we have seen an increase in
in Mexico and would greatly contribute to creating more
clients from the southeast of the country.”
jobs in the sector.” Positioning a base port in the country would do even more Gómez-Ortigoza says the work the cruise segment has
to bolster the industry. “When there are home ports, there
done in recent years to position itself in the minds of
is usually an agreement between the local navy workforce
Mexican travelers as a holiday option has borne fruit,
and shipping companies that allows members of the local
although MSC Cruceros is still better known outside the
navy workforce to be employed on ships,” says Gómez-
country. “MSC Cruceros is the No. 1 cruise company in
Ortigoza. “Additional employment opportunities are also
Italy, Germany and Spain but in Mexico we have problems
available to chefs or waiters who speak several languages. It
positioning ourselves.” These challenges, she adds, are
can be a new source of income for many Mexicans.” Mexican
due to two reasons: the monopoly held by large and
personnel would be particularly welcome in the service
traditional cruise companies and the belief that cruises
area, says Gómez-Ortigoza. “When it comes to service in
are expensive. “When we started operating in Mexico,
the tourism sector, Mexico has a true calling. We have very
we immediately began to compete with companies that
qualified personnel compared to other countries.”
had several years of experience. Competition is difficult because many travel agencies face restrictions related to
Gómez-Ortigoza believes the industry could become
which new cruise packages they can accept,” says Gómez-
more dynamic but it requires more public sector support.
Ortigoza. To overcome these restrictions, MSC Cruceros
“The government needs to support companies, even if
implemented a long-term strategy. “We are introducing an
they are foreign, and to invest in tourism infrastructure,
offer we are still improving. We want potential customers
including the development of better airports, ports and
to get to know our offerings and to enjoy and compare.”
services.” She adds that the public sector should support the development of more options that leave from Mexico.
Changing the Mexican perception of cruise travel is also
“I would also ask the public sector to help companies like
a challenge. “In the past, if Mexican travelers wanted to
MSC Cruceros by making administrative procedures and
travel on a cruise, they had to go to Europe or the US to
paperwork much easier. Unfortunately, in Mexico anything
embark. There was a misconception that traveling on a
related to administrative procedures even for the simplest
cruise was reserved only for those with high purchasing
thing is very complicated.”
power,” says Gómez-Ortigoza. However, the industry has taken significant steps to change this perception. “The
Gómez-Ortigoza also highlights the economic benefits
secret is to plan in advance. When travelers plan their
that the sector can offer the Mexican workforce. “I would
trips in advance, they can access better prices and travel
also ask for fiscal incentives for companies that provide
with more options. It has been a matter of educating the
employment and benefits to Mexicans. We also need better
Mexican travel sector to plan ahead and to help them
infrastructure, with more ports along the Mexican coasts.
understand that they too can access this better type of
Improved security for our travelers, both national and
pleasure trip.”
international, is also a must.”
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| VIEW FROM THE TOP
HELPING MEXICANS STRENGTHEN THEIR LEGACY JORGE OJEDA CEO of Grupo Aries
Q: How would you describe the state of the real-estate
the possibility to build their dream house with the best
sector in the country’s northern region?
architecture, space distribution and the highest quality
A: The area has been steadily recovering since the 2008
standards with the help of our contractors, always with
US financial crisis. Some real-estate associations such
attractive payment options.
as AMPI suggest the market has recovered around 80
316
percent compared to its level prior to the crisis. I do
Regarding the tourism sector, our successful business and
not believe we have reached the same levels yet, but
marketing model has managed to attract investors with
we have noticed a significant recovery, which I think will
high level projects to construct world-class hotels in some
continue over the coming years. Therefore, it is an ideal
of our residential areas, along with the construction of
time to invest.
luxury malls and high-rise towers to provide exclusivity with the best quality of life. This provides the public with
Q: How does Grupo Aries benefit the Mexican tourism and
a five-diamond experience, generating a virtuous win-win
real-estate sectors?
cycle for all.
A: We are a leading real-estate group with a clear business vision. We are creators of a strategic anti-crisis business
Q: Why did Grupo Aries choose to establish in Baja
model that allows any person from any part of the world
California and Mazatlan?
to construct their dream house in an ideal location, either
A: We chose these locations because we have seen an
with ocean views, in a ranch, or in the countryside. Clients
imminent need for high-level residentials in these locations.
can have several desirable payment options, regardless of
We can guarantee clients their dream house with attractive
their financial situation, credit history or income. This model
payment options, the highest possible capital returns and
also allows them to strengthen their wealth, with the highest
absolute legal certainty. We are a company that strongly
returns and absolute legal certainty.
believes in the value of family and the importance of leaving wealth to our loved ones, which is why we guarantee to all
Ciudad Paraíso, Grupo Aries' megaproject in San Jose del Cabo willextend over 500ha
our investors the highest legal certainty through a public or property deed. Our destinations in the Baja California peninsula are priced in US dollars because they are sold to Mexicans living in the US, which we attract using our expert and creative promotion strategy on important Hispanic TV networks in the US, such as Univisión and Telemundo. Regarding Mazatlan, this is an international destination with tropical weather, idealic
Around 80 percent of our clients are Mexicans but live
beaches, dining excellence and entertainment options for
and work in the US and invest in a parcel of land with
the entire family. The emblematic road between Durango
us. This investment shows yearning for their México lindo
and Mazatlan offers us good prospects to invest in our
y querido (beautiful and loved Mexico) and allows them
beach-side residential.
to build their dream house, either for their retirement, for holidays, as a second home or just as an investment. We
Q: What other regions offer interesting business
guarantee clients an ROI up to 300 percent in a five to 10-
opportunities for Grupo Aries?
year time frame. This ROI depends on the global economic
A: Part of Grupo Aries’ aim is to implement our anti-crisis
conditions but it is delivered through residencies with first-
business model across the country, so we have developed
class amenities and services. In addition, we offer them
a national business plan for this. We are a socially inclusive
Grupo Aries guarantees a 300 percent ROI in five to 10 years
company and we want to democratize our product through the entire country, so regardless of their economic situation, any person can have a first-class residential land lot, with great payment options and without interest. Guaranteed! Q: Given its anti-crisis business model, how does Grupo Aries protect its portfolio from default? A: We protect ourselves by retaining the domain of the
In addition to the privilege and satisfaction of helping these
property, as well as with attractive loyalty programs.
causes, this has brought us accreditations, distinctions
However, we do make the physical delivery of the property
and recognitions in Sao Paulo, Paris, Miami, California and
once the buyer has paid 50 percent of the total value and
obviously in our country. It has positioned us as a business
is up to date in its maintenance fees. Once the buyer pays
revelation in the country, which in turn empowers us as a
the property in full, we transfer the domain to them and
Great Place to Work company committed to social inclusion.
we provide them with legal assistance so they obtain their
Our strategy has also helped us to win the preference and
public or property deed.
trust of our investors and public in general. This is what we call a virtuous win-win circle. We are convinced that with
Q: What efforts is the company making to participate in
more socially responsible companies in the country, we will
the Mexican Stock Exchange?
have the Mexico we all want: a clean, educated, prepared,
A: Indeed, we want to become a public company to attract
honest, productive, conscious and responsible country. It
more capital and boost our business model to achieve our
will be a virtuous and winning Mexico.
national plan of strengthening the wealth of our families with the highest capital returns and absolute legal certainty
Q: In addition to becoming a public company, what are
in the entire country.
Grupo Aries’ growth expectations for the next two years? A: We want to develop our megaproject in San Jose del
We are establishing processes to standardize, systematize,
Cabo, which extends over 500ha and will become a city
professionalize and automate all our processes. This will
in itself. Ciudad Paraíso, as we call it, will have first-class
allow us to offer our client-investors an immediate, efficient
amenities and services, as well as high-level projects, such
response. Becoming a public company will help us to fulfill
as a luxurious high-rise tower, malls and a world-class hotel
our desire to become a SOFOM and to deliver the best
chain. On the financial side, we want to issue and promote
real-estate, financial and investment products that the
our new credit card Visa Aries Fortalece Tu Patrimonio with
market offers.
attractive benefits for our investors, such as free internet in their residence, life insurance, and the option to terminate
Q: In today’s business world, how important is social
the remaining debt in case of the death of the cardholder.
responsibility for a company? A: It is essential. There is no truly successful business that is
Other projects include the commercialization of a world-
not socially responsible. It is not an option but an obligation
class vacations concept. In terms of management, we want
we have as human beings and as a company. Social
to continue with the constant and relentless improvement
responsibility is an excellent vehicle to generate wealth. It
of all our processes according to our ISO 9001-2015
is not a charity business or just giving money away for the
certification. That way, we can guarantee our clients the
sake of giving it away; it is a win-win tool.
highest quality standards in their investment or product acquisition.
Grupo Aries has a constant, systematic and ordered participation in socially responsible activities, which
Q: What is on Grupo Aries’ wish list for the new presidential
has made us the first socially inclusive company in Baja
administration?
California. We have also been formally recognized by
A: We wish a lot of success to our new President. We are a
the Mexican Center of Philanthropy (CEMEFI), where we
Great Place to Work, committed to social inclusion in the
will soon have a meeting room called Aries Fortalece Tu
country, and we reassert that we are safe and strategic allies
Patrimonio at its new philanthropy house in Mexico City. This
to work toward the Mexico we all want.
means that all our investors, in addition to strengthening their patrimony with the highest capital gains, will directly support talent, sports, the environment, education, art and
Grupo Aries is a Mexican tourism and real-estate company that
culture, low-income families, handicapped children, as well
has been in the market for 15 years. It has a unique anti-crisis
as people affected by natural disasters like earthquakes
business model that allows anyone to own property through
and fires.
different payment plans, regardless of their financial position
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| VIEW FROM THE TOP
INTEGRATED OFFERING BOOSTS TRAVEL EXPERIENCE ANA PAOLA DURÓN Country Manager of Amadeus Mexico
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Q: What role does a technology company like Amadeus
A: There needs to be communication and synergy between
play in the tourism and travel sector?
the different players, including the government, private
A: Amadeus is the global technology leader for the tourism
initiatives and other members of the tourism sector.
industry. We are the bridge between all players in the sector,
Amadeus is a key player in making this connection. We
including travel agencies, hotels, car rental companies,
have an important relationship with the government,
insurance companies, airports and airlines. We provide the
companies from the private sector, tourism associations
technology and platforms that connect these companies
and representatives from different tourism destinations,
and act as a consultant when developing their business
providing not only technology but enabling business
strategies, helping them to analyze their expectations and
development.
their current processes. Q: What future travel trends has Amadeus identified? We are the owners of our technology and do not rely on
A: The tourism industry is extremely dynamic. We have seen
third-party collaborations to offer our technology solutions.
the change from paper tickets to full digitalization, which
Since we also own our data center, we have the capability to
was a milestone. These changes are happening constantly
not only manage all travel transactions but also to generate
and they prioritize the travel experience.
business intelligence and discern trends in the travel sector. All this helps us to complement our services beyond the
Travelers not only look for the product itself, the airplane
technology element.
or the hotel; they want to live an experience that starts the moment they begin their travel research. It continues
Q: How does the company’s operations in Mexico add value
throughout the travel period itself and even after it has
to the business globally?
ended. Technology must be present at every stage. Today,
A: Amadeus considers Mexico a strategic country, not only
if someone has a bad travel experience the entire world
because of its geographic location that connects the Pacific
knows about it because of social media. We support our
with the Atlantic ocean and the north with the south of the
clients and help them ensure that the final travel experience
continent but also because of the potential of the tourism
exceeds expectations.
sector here. Connectivity is also crucial. Travelers want to know in real Mexico is a rich country in terms of biodiversity, destinations,
time if any detail of their trip has changed. In this sense,
traditions and culture and we believe tourism should be
technology becomes essential. We know the human touch
among the country’s engines of economic development. In
will never be replaced but we also understand that adding
general, tourism contributes over 8 percent of the country’s
technology to the human element helps to improve the
GDP. We want this to continue growing and Amadeus to be
overall travel experience.
the technology ally for all tourism service providers. Another trend we have identified is that travelers expect to Q: What are the challenges you perceive in Mexico for the
find all their travel options in one place, which means having
development of a stronger tourism sector?
the plane, hotel, shows, activities and dinner options on the same platform. It is important to note that travelers are not always looking for the most economical option. There are
Amadeus is a technology company that specializes in the
those who are focused on luxury or niche travel, so it is
tourism and travel sector. It is present in more than 190
important to also cater to them. All these options need to
countries, with over 30 years in the market and 23 years in
be in a single, agile platform that allows the search process
Mexico
to be done quickly. Segmentation is key.
VIEW FROM THE TOP |
LATIN AMERICAN TECHNOLOGY FOR LATIN AMERICAN NEEDS BRENDA ALONSO Country Manager of Argo Solutions
Q: As a Latin American company, what is Argo Solutions
country is the second-largest economy in the region and
proposal for the Mexican market?
has similar complexities to those we experienced in the
A: Argo is Latin American technology for Latin American
Brazilian market. One of our greatest added values is that
countries. Thirteen years ago, when the company was
we are a platform that understands the complexities of the
founded in Brazil, we decided to take advantage of
Latin American market.
something called New Distribution Capability (NDC), which was in vogue with local airlines. NDC allows airlines to open
Q: How does Argo differentiate its services from those
up their inventories to companies so they no longer have to
offered by traditional players like Sabre?
pay commissions to third-party distributors, such as global
A: It is precisely our knowledge and expertise of the Latin
distribution systems or travel agencies. Argo offers the
American market that differentiates us. Argo not only offers
Mexican market this disintermediation between airlines and
travel reservations but everything related to travel expense
the tourism and corporate markets. So far, we have 45 direct
management. We understand the needs of the market and
connections, meaning that 45 airlines or hotel aggregators
have created specific technology for markets like Mexico,
provide us with a connection through their own APIs so we
Colombia and Argentina. That is our strength. For Argo,
can distribute their inventory across all of Latin America.
Latin America is 100 percent of its market, while for other companies like Sabre, Latin America represents a very small
Argo Solutions’ business model is divided into two
percentage of their global market. For us, Latin America
segments: travel, in which we sell franchised licenses to
is everything, which is why we strive to create solutions
significant players such as American Express, CWT or BCD.
specific to the region.
This means that they take our technology, implement it and become a search engine and management of corporate
Q: How does Argo Solutions overcome reluctance from
travel. We also have a travel expense management segment,
businesses to implement new technologies?
through which we sell our solution directly to businesses.
A: It is a big challenge since Mexicans tend to be wary by
The Latin American market, which includes all the countries
nature. We have found that Mexican corporate travelers like
outside Brazil, represents between 12 and 14 percent of
to send an email to travel agencies indicating flight dates
Argo’s income. Our goal is that in five years this market will
and their preferences. Travel agencies send the available
represent 50 percent.
options. The problem is that there is no guarantee that the rate that the travel agency offers will hold up, which means
Q: What opportunities did Argo observe in the Mexican
that companies do not actually save money. This is where
market that led the company to establish operations here?
technology comes in with all its benefits.
A: Argo is a leader in the Brazilian market, with over 60 percent market share, but the company realized that if
What we are doing is implementing best practices, working
it wanted to grow it needed to participate in other Latin
with our resellers, educating travel agencies and businesses
American markets, such as Mexico, Colombia and Argentina,
about the benefits of automating their processes. The
where demand existed. Technology that comes from the US
advantage we see is that once Mexicans learn and adopt
or Europe is geared toward the Anglo-Saxon market and
these technologies, they do not let go of them.
does not meet the needs of the Latin American segment. That is how the expansion project began. Argo Solutions is a Latin American leader in the travel and
Markets like Argentina and Colombia were obvious
expenses management segments. It has offices in Brazil and
expansion choices because of geography. However, Argo
Mexico and operates in over 19 countries, with 4 million active
took the decision to open offices in Mexico because the
users and almost 3,800 clients
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| INSIGHT
DISRUPTION NOT A FRIEND TO EVERYONE JULIÁN ABAD Partner at Salles Sainz - Grant Thornton
Technology has inevitably disrupted the hospitality
estimates that in low seasons, occupancy rates fall up to
business in Mexico, generating a division between large
40 percent due to Airbnb, while occupancy during high
companies and small businesses, says Julián Abad, Partner
season drops 20 percent.
at global consulting firm Salles Sainz - Grant Thornton.
320
“There has always been a gap between large business
Still, the sector continues to offer many opportunities
groups and small businesses and technology is widening
to grow and innovate, which is why Salles Sainz - Grant
it. Large companies are becoming monopolies, while small
Thornton is venturing into the industry. “In Mexico, tourism
businesses are struggling to survive,” says Abad.
carries significant weight in the economy, which is why we are taking up the hospitality business as an area of
The internet, in particular, has changed the way the hotel
interest.”
industry works all over the world, creating new business models and allowing the entry of new players. “The internet
Despite the widespread permeation of technology across
has allowed hoteliers to share risk. This means they sell
the sector that has helped put Mexican destinations on the
about half the available rooms to a tourism wholesaler
tourism radar, Abad says Mexican government institutions
that in turn offers these rooms through search engines
have also played a role in creating new destinations.
like Trivago. As a result, the hotel only has to sell part of
Specifically, he highlights the National Fund for Tourism
its total occupancy.”
Development (FONATUR). “FONATUR is in charge of developing tourism destinations from scratch. Its first
Abad says this model allows hotels to guarantee a
success was Cancun in the 1970s but since then it has
minimum occupancy rate in low season and have a cash
continued to create different tourism poles, although not
influx that permits them to pay for maintenance expenses.
all have been as successful as Cancun.”
Although the model has allowed consumers to access more affordable prices, Abad says it has generated a
There are many factors that have impeded the development
negative impact for small hoteliers who cannot absorb
of other destinations, with a lack of connectivity ranking
costs as large hotel chains do. “Tourism wholesalers offer
high. “Ixtapa, Guerrero and Huatulco, Oaxaca are two
accommodations at rack rates that allow tourists to pay
examples of destinations that have had problems taking
lower prices.”
off because of connectivity issues.” Unfortunately, Abad says that connectivity is just one of the hurdles these
The internet has also opened the door to the gig economy
destinations face. Others include social unrest, insecurity
with business models like Airbnb. “Airbnb represents an
and organized crime.
unfair competition for the hotel sector because it does not pay the same amount of taxes. Airbnb gets a rent
Yet, Cancun remains a good example of what is possible.
commission from the listed unit but unless clearly stated
“FONATUR’s development of Cancun led to the creation
in local laws, it does not pay the same occupation tax as
of the state of Quintana Roo, which used to be federal
hotels, nor does it generate the same income for the sector
territory.” Natural beauty has helped to put Cancun on
as a hotel,” says Abad.
the map but according to Abad, the city is taking on a predominant role as an air hub. “The arrival of Donald
Airbnb pays some local taxes in places like Mexico City and
Trump as US president and the toughening of US visa
Cancun but it does not pay federal taxes, such as income
requirements have led Cancun to take on the role Miami
tax and VAT, while hotels do, says Abad. As a result, the
used to play as an air hub for flights to Europe from Central
Mexican hotel industry continues to ask for regulation to
and South America.” At least two-thirds of the passengers
oversee such platforms. According to Abad, the industry
going through the Cancun airport are in transit, says Abad.
VIEW FROM THE TOP |
FOSTERING THE CREATION OF A SUSTAINABLE TOURISM OFFERING RICARDO SCHÖNDUBE Managing Partner of Schöndube Abogados
Q: What opportunities did Schöndube Abogados identify
If hoteliers start reducing their tariffs because of excess
in the hospitality sector to specialize in the area?
offering, this will generate a decline in the quality of the
A: Tourism is a significant component of the country’s GDP
service provided. What we need to do is achieve balance
and cities like Cancun, Merida, Playa del Carmen and Tulum
with sustainable projects. This means generating projects
have experienced unprecedented growth. We see significant
that offer different options to sun and beach and that are
growth opportunities in the south of Quintana Roo and
not concentrated in areas where you no longer can fit more
the northern part of Cancun, in niches that go beyond the
hotels, such as Cancun’s hotel strip. However, to ensure
traditional tourism offering of sun and beach. Quintana
Quintana Roo’s viability as an investment destination, the
Roo is a state with many natural resources that allow for
government needs to implement legal processes that are
the development of the tourism industry. We need to take
transparent and that do not allow for corruption.
advantage of this and generate a sustainable tourism product. Q: What is Schöndube Abogados assessment of the Another opportunity is to continue investing in the
construction of the Mayan Train?
southern part of the country, not necessarily the Riviera
A: We cannot talk about the Mayan train without talking
Maya or Cancun. There are many places that could receive
about the current needs of Cancun and the Riviera Maya.
investments and we need to take advantage of the
Before the project is done, we need to clarify the objective
connectivity that Cancun airport offers. When it comes to
of the train, including how many people are going to benefit,
international flights, Cancun is the airport with the highest
which places it will impact that today cannot be reached by
traffic and the second-most important airport in the country
car or bus and so on. I am in favor of the construction of the
in terms of traffic for national flights.
Mayan Train but at the same time I think that the government should consider other priorities before constructing it. There
Q: Quintana Roo has received significant investment in the
are also other infrastructure projects that could be carried
past years. What could hinder further investment in the state?
out to improve mobility or services in the region, such as a
A: Security and rule of law are fundamental. Mobility in the
train between Cancun and Bacalar or a bridge that crosses
city of Cancun and the state of Quintana Roo is another
the Nichupte Lagoon to improve mobility in Cancun.
issue. We are starting to see Cancun becoming overloaded and the journey between Cancun and the Riviera Maya is
Q: What type of projects would Schöndube Abogados like
now taking too much time. This is a sign that the existing
to be a part of in the future?
infrastructure to transport tourists between the airport and
A: We are participating in a hotel project that has been a
their final destinations is inadequate.
great challenge and that is the largest in terms of square meters in the municipality of Benito Juarez in Cancun. We
Q: Quintana Roo and the Cancun area have seen an increase
seek to make every project we are a part of sustainable and
in the number of hotels and hospitality infrastructure. Has
compliant with rule of law. Our firm does not participate
the region reached a saturation point?
in any project of any client that does not comply with
A: Cancun is a destination that has been averaging
environmental and urban frameworks. We want to continue
occupancy rates above 80 percent in the last few years.
working with clients that are doing things the right way.
If you consider the entire corridor of the Riviera Maya, you can probably reach around 75 percent occupancy rates. This data tells us that we need more hotel rooms
Schöndube Abogados is a law and consulting firm founded in
and that as long as there is sustainable investment and we
2009. Based in Cancun, it is a leader in the hospitality sector.
have conditions to receive and provide excellent services,
The firm advises clients in the structuring and optimization of
investors and tourists will continue coming to the state.
their business
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Facebook's offices, Torre Virreyes, Mexico City
TALENT & CONSULTING
13
New technologies, such as Industry 4.0 practices and AI, put a strain not only on the country’s productive activities but also on its talent needs. The disappearance of traditional jobs, as well as the evolution of the skills needed to participate in innovative industries, impact society as a whole. Educational institutions have the challenge of adapting their academic programs to new industry realities that may not even exist yet and to teach their students soft, rather than hard skills to stand out.
Talent & Consulting explains how the talent sector’s transformation impacts players from several sectors and industries, as well as the country’s legislative framework. Changes in the labor law have long been demanded by talent-related companies but now that USMCA and other international agreements, such as TPP11 and the ratification of the Convention 98, are a reality, the government is finally open to move forward with these. Change does not come easy and it remains to be seen how organizations and companies will adapt to the new reality.
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CHAPTER 13: TALENT & CONSULTING
326
ANALYSIS: Technology, Globalization Call for Change in Labor Environment
327
VIEW FROM THE TOP: Carlos Prieto, EBC
329
VIEW FROM THE TOP: José Antonio Lozano, UP and IPADE
330
INSIGHT: José Raul Guerrero, Korn Ferry
331
VIEW FROM THE TOP: Alexis de Bretteville, Morgan Philips Group
332
INSIGHT: Gabriel Aparicio, Kelly Services
333
VIEW FROM THE TOP: Jorge Pérez, Grupo PAE
334
INSIGHT: Andrés Díaz, China Campus Network
335
Sergio Masse, China Campus Network
INSIGHT: Oscar de la Vega, De la Vega & Martínez Rojas
Ricardo Martínez, De la Vega & Martínez Rojas
336
VIEW FROM THE TOP: Gabriel Pizá, Pizá Attorneys at Law
337
VIEW FROM THE TOP: César Maillard Cárdenas, Maillard Abogados Laborales
325
| ANALYSIS
TECHNOLOGY, GLOBALIZATION CALL FOR CHANGE IN LABOR ENVIRONMENT As industries evolve, so do talent needs. Although many companies have made an effort to train their employees in new technologies and capabilities, the challenge is not theirs alone. The entire Mexican education system needs to put analytical capabilities at the forefront to enable the transformation of the Mexican economy Mexico has banked on its low-cost landscape to attract
is to offer education that can adapt to the jobs that will appear
investment and position itself as a manufacturing hub.
in the coming years. We have realized that hard skills are not
But what worked before will not necessarily carry into the
so important, since what we teach students today may be very
future. This is the juncture at which the country finds itself.
different from what they will need in five years.” Regardless
“We cannot deny we are a manufacturing country. However,
of the change that might come, Prieto says all students
we need to change this mindset and become a hub for
must develop leadership, problem-solving and innovation
technology innovation and knowledge generation. This will
capabilities. “What we really need to do is help our students
lead to an increase in competitiveness and productivity,” says
develop skills that allow them to adapt to any kind of job.”
Gabriel Aparicio, Country Manager of Kelly Services. A full transformation of the working environment, however,
326
The implementation of Industry 4.0 practices in many of
would not be complete without a change in the country’s
Mexico’s economic activities has shone a spotlight on the
labor legislation to allow for talent mobility or flexibility.
need for change. According to the World Economic Forum
“Organizations and institutions need to start a re-education
(WEF), the future of the working environment will endure
process to break the stigma regarding flexible work,” says
three different stages: technological change, learning
Aparicio. “Work flexibility helps organizations to complement
evolution and talent mobility. WEF estimates that between
their existing workforce.” Talent-related companies have
2015 and 2020, 7.1 million traditional jobs could be lost due
long demanded changes to the labor law. It was not until
to disruptive changes in the market stemming from Industry
the signing of USMCA and other international agreements,
4.0. Jorge Pérez, CEO of Grupo PAE, believes there is a pool
such as TPP11 and the ratification of the Convention 98 of the
of talent that will not be able to get a job because of the
International Labor Organization, that this became part of a
lack of experience regarding the most elementary digital
more mainstream discussion. “Mexican law is emulating the US
skills. “If someone does not know how to handle a computer,
model … the labor reform we will experience is a response to
that person’s employment opportunities are reduced. This
international paradigms more than the will of internal players.
represents a huge problem because we have a critical mass
Labor law has stopped being a local issue,” says Oscar de la
of talent that, unfortunately, has not been developed due to
Vega, Managing Partner at De la Vega & Martínez Rojas.
a lack of opportunities.” Pérez adds that this is a common phenomenon across Latin America.
Labor environment and conditions also put Mexican wages under the spotlight. De la Vega says that for many years, one
José Raul Guerrero, President of Mexico and Central America
of Mexico’s selling points was its low-cost labor force. This
at Korn Ferry, says the changes generated by Industry 4.0
has taken a toll on the country’s social tissue. “Since 1994,
will irreversibly alter existing work dynamics. “All jobs
the country’s low labor cost has been presented as a selling
considered mechanical or repetitive will disappear if they
point for investors but this is no longer sustainable. We need
can be automated or solved through AI. We have not seen
an integral work policy that provides added value to the
the whole scope of this transformation,” he says. “It is very
workforce,” he says.
hard to define what is going to come in terms of employment … but it cannot be denied that companies need to reinvent
As worrisome as wage conditions are, the steps taken by the
themselves to understand technology and how to compete
current administration regarding wage increases by decree
in this environment.”
go against the country’s free-market logic and could create a more serious problem for its economic units. “Individual
SOFT-SKILL DEVELOPMENT
salaries should be linked to each person’s performance and
The evolution of skills and education is impacting all academic
not to the minimum established as the national average.
institutions in the country. Carlos Prieto, Dean of EBC, says
The new government’s proposal of increasing the current
educational institutions must focus on two areas: adapt their
minimum wage without taking into consideration inflation will
study programs to the new industry realities and teach their
create a significant economic unbalance,” says César Maillard
students soft skills rather than hard skills. “Our main challenge
Cárdenas, Partner at Maillard Abogados Laborales.
VIEW FROM THE TOP |
90 YEARS OF CHANGING MEXICO’S FINANCIAL EDUCATION CARLOS PRIETO Dean of EBC
Q: EBC is celebrating its 90th anniversary in 2019. What
Q: How do you position EBC against other private and
is your general assessment of the school’s impact in
public universities?
these 90 years?
A: Students can study finance at EBC, ITESM or other
A: Our main contribution has been our 170,000 graduates.
universities; the difference at EBC is its DNA, which is
EBC is the oldest private institution for higher learning in
embedded in our mission. We have clearly defined that we
the country and was created as a Banxico training center.
must train professionals with an entrepreneurial vein. For
In 1929, when the school was created, the country had
us, an entrepreneur is someone who dares to do new things
just emerged from the revolution, so the financial system
and who is not necessarily comfortable with the status
was disorganized. One of the first problems the country
quo. Our hallmark is that our graduates need to have an
faced was that there were not enough educated people to
entrepreneurial spirit.
manage the financial system. EBC was created as a result and later became an independent institution.
Each university has its own characteristics. Our principles define the EBC community and our students understand
Throughout these 90 years, EBC has grown and evolved
that they will be students forever, in the sense that our
but we remain committed to our principles. With 15,000
students must understand that any knowledge that we pass
students, 1,200 faculty members and 800 administrative
on to them will soon be obsolete. We believe that those
personnel, EBC is a community of around 17,000 people
who are in our classrooms are fortunate. In this country,
that continues to grow. In 2000, the school decided to
only around 35 percent of those who graduate from high
venture to other cities and today we are located in 10 states.
school start a college education. We teach students how to create and distribute wealth, having the consciousness
Q: How are you adapting your programs to cope with new
to do so in a responsible and ethical manner.
technologies and regulations? A: In 1929, to study a higher education program at EBC,
Q: What is the extent of EBC’s Aulas Remotas (remote
students only had to graduate from elementary school. The
classrooms) project? Why did you choose Universia and
most robust careers at that time were private accounting
Banco Santander as partners?
and banking. Today, we offer eight careers focused on
A: Banco Santander has a project related to social
business area some master’s degrees. At first, we only
responsibility and within this project they selected higher
taught through physical mediums, which meant that
education as the area to support. The institution within
students had to go and sit in our classrooms. Now we have
Banco Santander in charge of this project is Universia,
the option of distance learning. Although everyone now
which sponsors us and supports our Aulas Remotas project.
knows what distance learning is, when we implemented it was revolutionary.
The issue we face is how to bring education of quality to remote locations. Through this technology, we can provide
Our main challenge is to offer an education that can be
quality education to students that might be in San Luis
applied to the jobs that will appear in the coming years.
Potosi or Merida while the professor is in Mexico City or
We have realized that hard skills are not so important, since
Guadalajara.
what we teach students today may be very different from what they will need in five years. What we really need to do is help our students develop skills that allow them to
Escuela Bancaria y Comercial (Banking and Commercial
adapt to any kind of job. Regardless of their hard skills, we
School) , or EBC, is a Mexican private university founded in
help our students develop leadership, problem-solving and
1929, making it the oldest private university in Mexico. The
innovation skills, along with team work and communication.
school offers majors focused mainly on business
327
Render Ciudad UP, Bosque Real, State of Mexico
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BUSINESS-FOCUSED EDUCATION WITH A HUMAN TOUCH JOSÉ ANTONIO LOZANO Dean of UP and IPADE
Q: What are IPADE’s main contributions to the Mexican
A: It is a huge challenge related to the concept of the university
business community since the school’s founding in 1967?
of the future. Academic programs have to adapt to a more
A: In the 1960s, the country did not have a developed
complex reality, one that is more evolved in technological
business culture. It had a commercial culture and there were
themes and relational styles. We need to be up to date on the
some Mexican businesses that enjoyed social prestige, but
current business environment and have the flexibility to teach
that was it. A group of businesspeople were concerned
relevant content. However, our programs would be superficial
about this and created the business school. IPADE offers
if they were not accompanied by solid training in mental logic
academic programs in upper management using the case
and processes, which is why we teach students how to solve
method as its educational strategy. The school has created
problems and face and adapt to new realities.
an ecosystem in which participants face everyday problems related to business and has looked for ways to instill a solid
Q: What collaborations or partnerships with other academic
ethical vision and sense of social responsibility in its graduates.
institutions and businesses has IPADE developed?
IPADE started operating in 1967 and it has close to 40,000
A: In the past, our goal was to have the largest number
graduates. According to a commissioned qualitative study,
of academic exchanges with the most possible countries.
IPADE has impacted several business communities in the
We have taken another step and now target well-chosen
country regarding their long-term business vision.
strategic partners to establish not only students but also professor exchanges and to work on joint academic research
Q: What makes an IPADE graduate more competitive than
programs. We have relationships with five of the world’s
a counterpart from other universities?
Top 10 business schools, including Harvard Business School
A: IPADE has two distinctive elements. First, its programs are
and the Kellogg Business School. Instead of implementing
directed to upper-management positions. This means that
volunteer international exchanges, we have developed
our programs focus on leadership skills alongside technical
complete courses wherein students are obligated to spend
knowledge. Second, IPADE is centered on an anthropological
three weeks abroad to complete the course.
model of business that answers to the needs of society. The school’s graduates are businesspeople whose main goals
Q: What challenges do Mexico’s post-graduate
are not only the generation of revenue but of added value.
institutions face? A: In general, education in Mexico faces significant
Q: Companies sometimes choose executives from abroad.
challenges. According to INEGI, Mexico’s natality rate is
What are the management and leadership needs of the
below 2 percent, which means the population is starting
Mexican business community?
to decrease. As a result, in the coming years fewer people
A: Globally, we are seeing an appreciation for soft skills in
will be going to university. Mexico has the largest number
management and middle-management positions in different
of registered universities in the world, with over 3,000.
sectors. These soft skills are more focused on negotiation,
We must find a new business model that does not rely on
ability to create teams, working under pressure and decision-
tuition, such as alumni support, research projects or patent
making in uncertain scenarios. IPADE has fostered these skills
generation, that could become a source of revenue and
for years but they are only now being valued by the business
sustainability for the university in the long term.
community. The world is facing a moment of high volatility, uncertainty, complexity and anxiety. In light of this, business leaders require adaptability and a focus on collaborative work.
The High Corporate Management Panamerican Institute (IPADE) is Panamerican University’s (UP) graduate school.
Q: What are the challenges of keeping academic business
It was founded in 1967 and specializes in business-focused
programs up to date?
graduate programs for upper management
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| INSIGHT
UNCERTAINTY AN OPPORTUNITY TO INVEST IN TALENT JOSÉ RAUL GUERRERO President of Mexico and Central America at Korn Ferry
Technology and innovation are meant to help companies
crucial role in growing the company’s presence in the talent
pare costs and boost efficiencies, but they might not
services market, providing the tools to build an integral
be ready for such disruption, says José Raul Guerrero,
offering rather than punctual recruitment services.
President of Mexico and Central America at Korn Ferry.
330
“Changes will come that will alter our work dynamics,”
Although Korn Ferry’s business diversification has been
he says. “All jobs considered mechanical or repetitive will
an ongoing effort, the acquisition of Hay Group generated
disappear if they can be automated or solved through AI.
buzz in the market, according to Guerrero. “We had already
We have not seen the whole scope of this transformation.”
acquired several firms to strengthen our talent services business. However, the acquisition of Hay Group for US$400
Technology changes might generate uncertainty but
million attracted a great deal of attention and helped us to
Guerrero says they also offer an opportunity for companies
become an important competitor in this market.” As a result,
to reinvent themselves. As an example, he highlights the
the company in Mexico is now 70 percent headhunting and
15-year transformation at Korn Ferry, a company with
30 percent talent consulting. Korn Ferry Mexico’s local
over 40 years of experience in Mexico. Korn Ferry moved
projection is to reach a 50-50 ratio in the short to medium
from being an executive search headhunter to a full-scale
term. “Our advisory business is not a short-term venture; it
provider of products and services related to talent matters.
is a long-term vision that we will develop over the next two
The company’s executive database, once the essence of the
to five years without neglecting our core business,” says
company, was put into question when LinkedIn disrupted
Guerrero. “Once the strategy is fully implemented, growth
the whole industry of talent attraction. “When LinkedIn
will come from an impeccable execution.”
arrived, people got nervous and said the platform was going to destroy our line of business,” says Guerrero. “We realized
Just like Korn Ferry, Guerrero says organizations need to
that if we wanted to maintain our presence in the market,
transform internally to endure into the future and tackle the
we had to reinvent our business. Instead of disappearing,
changes to come. “It is very hard to define what is going
our operations grew because we were quick to respond.”
to come in terms of employment,” he says. “But it cannot be denied that companies need to reinvent themselves
Korn Ferry’s transformation continues today. “In the past
to understand technology and how to compete in this
15 years, we have diversified and reinvented our services.
environment.”
We went from being purely a headhunting firm to a onestop shop operation regarding talent,” says Guerrero. “We
Juncture moments are important opportunities for companies
are in charge not only of finding the adequate candidate
to steer the wheel and whenever there is uncertainty,
but also overseeing talent development, talent assessment,
businesses and investors must make a push to have the best
employee engagement, executive and employee
possible talent in their organizations. According to Guerrero,
compensation, among other aspects in the talent arena.”
in the past half-year there has been a spike in the requisition of general managers and finance directors, key positions for
Technology and intellectual property were among the
setting a company’s strategy and managing its budget. “When
main reasons behind this transformation, along with the
companies are facing uncertainty, they need to have the best
firm’s need to diversify its business opportunities. “The
possible person at the top to help navigate turbulent waters,”
headhunting business is profitable but limited. The talent
he says. Given the current geopolitical conditions, Guerrero
consulting business, on the other hand, is a considerably
believes this spike in executive searches will continue all
more sizeable market, since companies must always
through 2019. “It is time for companies to reinvent themselves,
continue developing their available talent.” Korn Ferry’s
step out of the box and their comfort zone. The problem is
acquisition of Hay Group, completed in 2015, played a
that many of them do not realize they are in this zone.”
VIEW FROM THE TOP |
TECHNOLOGY DOES NOT ELIMINATE HUMAN APPROACH IN RECRUITMENT ALEXIS DE BRETTEVILLE Deputy CEO of Morgan Philips Group
Q: Why did Morgan Philips choose Mexico as its only
A: Our business is based on three main services. Executive
location in Latin America and what separates your offer
search focuses on the selection of talent for senior
from the competition?
management levels and involves the all-important human
A: We are a startup with less than five years in the global
touch but also innovative tools for sourcing and candidate
market, led by people with significant experience in the
identification. We also provide a talent consulting service
human resources arena. We understand that the talent
that includes going to companies and executing programs
selection market is changing rapidly thanks to the revolution
for high-potential employees. We conduct evaluations
launched by machines, AI and social networks. However,
and activities that generate commitment, in addition to
many talent selection companies only provide a transactional
motivating employees by helping them to understand the
service, meaning that the only thing they do is send CVs to
company’s purpose. Having a corporate vision is crucial
companies. This is not the way the industry is trending. We
for the success of any company, as well as for increasing
must provide a service with greater added value in addition
profit and attracting the best talent. Our third pillar is our
to creating disruption in the selection market through a focus
Fyte service brand, which is a very technological and digital
on technology that helps companies to improve their hiring
branch that focuses on the selection of midlevel talent.
processes. Though we invest in technology, we also want to maintain the human part of our service because we believe
Q: How will the appearance of new technologies such as
it is indispensable in our line of work. It is very important to
AI and Industry 4.0 impact the talent market in Mexico?
combine what we call high-tech and high-touch, which is the
A: Previously, companies looked for skills or abilities but
human touch that is always needed in selection processes.
that has changed. Now companies are focused on attitude and personality. We have developed a test called Pulse
Given our high-tech focus, we have introduced new
Mindset that allows us to asses a candidate’s mindset.
technologies to Mexico that change recruitment processes.
We know that skills can be acquired and that a candidate
For a midlevel position, we will send the company a select few
might have experience in a determined sector, but the most
people who have already completed short video interviews,
important thing for a company is how people react and how
which allow human resources departments to gauge the
will their personality integrate into the company’s culture.
applicant’s fit with the company. Also, instead of publishing
We work a lot with emotional intelligence and personal
their vacancies on social networks, our consultants record
development, which are highly linked.
their own video in which they talk about the job vacancies. These are tools that did not exist in Mexico and that provide
Q: What are Morgan Philips’ expectations for the midterm
us with an advantage. We also use all the information in
and what will be Mexico’s role in the company’s strategy?
our databases to feed our predictive recruitment tools. We
A: We are ambitious and see Mexico as a country that will
have introduced all these tools to Mexico because we think
allow us to grow. We want Mexico to be the base of our
this market offers significant opportunities. The Mexican
development in the Americas. Our intention is to set up a team
market is not mature enough in terms of competition. Most
in Mexico that will be in charge of developing our presence in
companies still conduct their own recruitment process. Part
South America. We believe Mexico has a bright future and we
of what we do is to contact people who are not even looking
have significant and aggressive expansion plans.
for a job, those who are below the radar. We have a sourcing center in Mexico that is aimed at identifying people who are passively looking for work.
Morgan Philips is a human resources company with presence in 22 countries. In the Americas, the firm has operations
Q: How do your solutions complement each other to
in Canada and Mexico, where the company launched its
generate a comprehensive service for clients?
business in 2016
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| INSIGHT
SPECIALIZED TALENT MEETS FUTURE NEEDS GABRIEL APARICIO Country Manager of Kelly Services
Constant technology advances have made innovation and
need to look for flexible labor that can provide a solution. Still,
knowledge generation the two most important drivers in
companies tend to oppose this flexible model because they
economic development and Mexico is no stranger to this
are afraid the quality of their services will be compromised,
trend, according to Gabriel Aparicio, Country Manager of
Aparicio adds.
recruitment and talent management company Kelly Services.
332
“To comply with investors’ needs and attract further FDI,
According to “Eight Futures of Work,” a white paper released
we require a combination of material resources, adequate
by the World Economic Forum (WEF), flexibility— considered
technology and talent,” he says.
as varying working hours and a mix of full-time and parttime jobs — is a key element in addressing labor surplus and
Although it offers many favorable investment conditions,
deficit. Aparicio says globally, one in every three employees
the country still needs to bolster its talent specialization
is hired under a flexible work scheme, with Asian countries
to increase economic competitiveness. However, talent
being the main adopters of this trend. Even though Latin
specialization does not come easy and Aparicio says the
American countries are not among the early adopters, most
country needs to change its educational model and make
countries in the region have made significant advances
it shorter to deliver the personnel the industry demands. “If
in its implementation and now legislation must catch up
students graduated from college in less time than they do
to incentivize the use of this scheme. “Organizations and
now, this could help to satisfy the existing talent demand in
institutions need to start a re-education process to break
the market,” he says. “We need to reduce dropout rates at
the stigma regarding non-traditional work styles,” he says.
the college level, which is among the main obstacles to talent
“According to WEF, 80 percent of the work we will do by 2020
specialization.”
will be completed in nontraditional places. This will require hyper-connectivity, collaboration and transparency to reach
Along with changing the education model, Aparicio says
results.” Adding to the need of flexible talent, WEF states
a change in mindset among students and employees is
that between 2015 and 2020, a total of 7.1 million traditional
also necessary to incentivize continuous education toward
jobs could be lost due to disruptive changes in the market
specialization, the lack of which is impacting the country’s
stemming from Industry 4.0, which is why Aparicio argues
ability to fully participate in Industry 4.0 “We cannot deny
that job flexibility will provide new employment options.
we are a manufacturing country,” says Aparicio. “However, we need to change this mindset and become a hub for
Before moving into new trends, however, Aparicio says the
technology innovation and knowledge generation. This will
country should focus its efforts on tackling labor informality
lead to greater competitiveness and productivity.”
or it could lose its economic competitiveness. “In Mexico, one in every six jobs is linked to informality,” he says.
Beyond manufacturing processes, changes deriving from
“These workers have no access to social security, which is
Industry 4.0 will impact people’s way of life, work and
an important component of a person’s well-being and a
management practices used in the corporate sector. Work
key to ensure productivity.” Kelly Services is adapting its
flexibility based on talent availability for temporary hiring will
processes to continue leading in the job recruitment sector,
be among the practices that will attract the most attention,
under new paradigms privileging non-traditional workstyles.
although Aparicio thinks this type of work has been unfairly
Together with flexibility, the company has made specialization
stigmatized in various regions. “A flexible workforce helps
a priority, without dropping the ball on the importance of
organizations to complement their internal talent, thus driving
talent formality. “Kelly Services was the pioneer in outsourcing
growth,” he says. In the manufacturing industry, in particular,
services in the country,” says Aparicio. “To help the country
companies must solve problems immediately, which means
move forward, we must be promoters of formal employment,
that if their in-house talent cannot solve these issues, they
which is the only thing that will make the country grow.”
VIEW FROM THE TOP |
RESPONSIBLE TALENT SOURCING TO GROW THE INDUSTRY JORGE PÉREZ CEO of Grupo PAE
Q: Grupo PAE is celebrating its 25th anniversary. What factors
Q: There has been an effort to eradicate so-called bad
have permitted the company’s expansion over the years?
outsourcing. What actions can be taken to reduce the
A: Grupo PAE is among the founders of the staffing industry
number of these companies ?
in Mexico and part of our philosophy has always been not
A: AMECH was created to differentiate the companies
to limit ourselves, which has made us the only Mexican
that do things right and those that operate outside the
human resources company with presence in so many
law. All members are audited to certify that they comply
countries. In addition to being a pioneer in the Mexican
with the law, an initiative that has been operating for 18
staffing industry, as a result of the changes in Mexican law
years. Eradicating bad practices, however, is a shared
and the appearance of new players in the sector, Grupo PAE
responsibility between the industry, the law and companies,
became one of the founders of the Mexican Association of
which makes this a social responsibility issue. Companies
Human Capital (AMECH) in 2001.
need to be coherent and not hire outsourcing companies that offer much lower prices by operating outside the law.
One of Mexico's realities is that the informal economy continues to grow at a rapid pace. In Mexico, most
Q: How does Grupo PAE implement technology and
outsourcing companies do not comply with the law, offering
innovation in the services it offers?
lower costs at the expense of social security payments for
A: We have changed the way we communicate with our
workers. Part of AMECH’s mission has been to structure and
candidates. We have also developed technological platforms
formalize outsourcing companies and to limit the appearance
for both talent attraction and payroll processing. This gives
of informal outsourcing companies. In this context, PAE has
our users and clients more accessibility. Although technology
played a relevant role in the development of the outsourcing
improves processes, the benefit also depends on how this
industry in Mexico, which is something we are very proud of.
technology can be applied in each country. There are many countries, like Mexico, where it is necessary to provide signed
Q: How does the Mexican business compare with other
physical documents because digital applications are not
Grupo PAE locations?
valid. The more we can implement new technologies, the
A: The difference can be found in local laws and in the
more we will be able to innovate the services we provide.
strength of unions. In 1985, in Mexico you could not find any outsourcing company outside of Mexico City. The signing of
Q: When it comes to talent, what are the most important
NAFTA, as well as the growing need for companies to have
needs of companies?
flexible staff, allowed the outsourcing industry to develop
A: Companies look for agility, speed and access to talent,
and, as there was no regulation, models began to appear
although the historical moment we are living in is preventing
wherein the worker was not protected. At that time, we saw
many people from being employed. It is a phenomenon we
the opportunity to do things right, to approach companies
see a lot in Latin America. If someone does not know how to
with a flexible scheme and with talent mobility options.
handle a computer, that person’s employment opportunities are reduced. This represents a huge problem because we
The industry needs employees in all countries; for this
have a critical mass of talent that unfortunately has not
reason, the sector grows at an average rate of 5 percent
been developed due to a lack of opportunities.
each year. It is expected that in 2018 it will grow 6 percent to a value of US$450 billion. The industry has expanded heavily and is a strong component of any country’s workforce. In
Grupo PAE is a Mexican human resources company with
the US, for instance, 2.1 percent of the country’s workforce is
25 years of experience in the market. It is present in over 10
provided by staffing services. In Mexico there are no official
countries. Among its services, Grupo PAE manages payrolls, fleet
metrics but we estimate that the figure is above 2 percent.
administration, payment of travel expenses and talent attraction
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| INSIGHT
BRIDGING CHINA AND MEXICO WITH HUMAN CAPITAL
ANDRÉS DÍAZ CEO of Mexico and Latin America at China Campus Network
334
SERGIO MASSE Partner and Marketing Director at China Campus Network
In the 16th century, Mexico and China enjoyed a privileged
says Díaz. Associations like the Confederation of National
commercial relationship, with the Manila Galleon visiting the
Chambers on Trade, Services and Tourism (CONCANACO)
country twice a year and bringing Chinese products for local
and the Mexican National Farmers’ Association (CNC) have
consumption. Five centuries later, China is doing more than
already become trusted partners. “With CONCANACO,
just delivering products: it wants to invest in Mexico’s human
we are doing a trade promotion program and we created
capital. “In 2013, China announced the One Belt One Road
a degree on cross-border e-commerce. With CNC, we are
initiative, with the goal of investing in growing economies
also promoting a program that intends to invite college-age
to encourage the generation of wealth,” says Andrés Díaz,
students from rural communities to study in China so they
CEO of Mexico and Latin America at China Campus Network.
can later implement projects intended to modernize and automatize agricultural practices,” adds Díaz.
According to Díaz, in 2018 the One Belt One Road initiative contemplated a US$1.1 trillion investment in over 900 projects
Scholarships provided by universities and the Chinese
in more than 80 countries, with Mexico playing a key role.
government through China Campus Network are part of
“Chinese President Xi Jinping has said Mexico is the natural
an investment in the country, explains Díaz. “The Chinese
extension of the One Belt One Road Initiative for Latin America.
government is willing to invest in Mexico because it wants
Given the nationalistic declarations of US President Donald
to have trained human resources that can make their
Trump, Mexico and China have begun a rapprochement, with
companies even more successful.” Chinese companies
Mexican government officials visiting China and saying the
struggle to find local human talent that can understand their
country is ready to receive Chinese investment.”
business culture; that is why they tend to have a very high ratio of Chinese employees rather than local employees.
To do that, Mexico must improve the one key component
“On average, 75 percent of a Chinese company’s employees
it lacks to make the country fully attractive to China:
are Chinese, while only 25 percent are local workers. China
human resources that understand Chinese businesses and
wants to reverse this percentage,” says Masse.
entrepreneurial culture. China Campus Network, a program that joins China’s best 28 universities and promotes them
Díaz says China Campus Network is just one part of the
by providing scholarships to students and fostering
Chinese effort to achieve a change in mentality in how to
educational exchange between China and other countries,
do business with China. “If you google how to do business
can make a difference, says Díaz. “We have three main
in China, you will not find a simple guide. No one will tell you
objectives: attract FDI, generate innovation and encourage
what paperwork you need, where to register your company or
trade through our academic programs.”
who can distribute your product. We want to change that.” The group has created a certification that will help SMEs sell their
For Sergio Masse, Partner & Marketing Director at China
products in China. “In 2017, Jack Ma, the founder of Alibaba,
Campus Network, opening an office in Mexico reflects the
came to Mexico and signed an agreement with the Ministry
potential China sees in the country. “In the two years the
of Economy. It specified that SMEs would be trained on how
program has been operating, we have opened nine offices in
to sell their products to the Chinese market on the Alibaba
Asia, Europe and Africa. The office in Mexico will be the first
platform,” says Díaz. China Campus Network is also trying to
on the American continent.” For the project to be successful,
boost this agreement. “Some of the students we are taking to
Díaz and Masse have joined forces with business associations
China will participate in the Global E-commerce Talent (GET)
that would benefit from trained human resources. “We have
program created by Alibaba and will receive a certification
mapped Mexico’s needs in terms of human capital and we
from the platform. We want to bring the program to Mexico,
have developed more accurate academic programs. This
so Mexican entrepreneurs can participate in the program and
has helped us to get more business partners on board,”
get the certification without having to go to China.”
INSIGHT |
FORESIGHT KEY TO SOLVING INTRICATE LABOR PROBLEMS
OSCAR DE LA VEGA Managing Partner at De la Vega & Martínez Rojas
RICARDO MARTÍNEZ Managing Partner at De la Vega & Martínez Rojas
A political change, a complex social situation, the
earning low wages and performing jobs with almost no
international environment and the negotiation of USMCA
added value, along with a corrupt union system that does
have ignited significant change in the country’s labor
not represent workers.” Although low wages have been
environment, say Oscar de la Vega and Ricardo Martínez,
a long-in-the-making problem, de la Vega says that it
Managing Partners at De la Vega & Martínez Rojas. “Many
represents a failure not only of the private sector but also
of the country’s labor-related problems, particularly in
of authorities. “Since 1994, the country’s low labor cost
the Matamoros area, are the result of a series of political
has been presented as a selling point for investors but this
and social elements related to instability and the social
is no longer sustainable. We need an integral work policy
demands of workers that have gone unanswered,” says
that provides added value to the workforce.” However, de
De la Vega.
la Vega adds that increasing wages through presidential decrees, as was done before, is never the answer. “Salaries
De la Vega & Martínez Rojas is a boutique Mexican law
must increase based on collective negotiations and this
firm that has positioned itself in the heavily competed
must respond to a productivity element.” He says the
labor arena. “Our firm has 40 lawyers but we have the
presidential decree to increase salaries by 16 percent
capabilities to manage any labor issue that arises,” says
nationwide and by 100 percent in the northern border
Martínez. In addition to its human capital differentiator,
represents a real problem for companies. “Given the
De la Vega & Martínez Rojas is a member of L&E Global
conditions established in collective contracts, an increase in
Alliance, which de la Vega says is an important asset
minimum wages represents an increase in the entire payroll
given that it puts the 3-year-old firm in close contact with
of these companies, generating a significant cost issue.”
labor leaders from around the world. “Labor problems are becoming increasingly complex and the exchange of talent
The lack of union representation also adds to social
is a regular occurrence. As part of this alliance, we can offer
problems. De la Vega says that in the past, Mexico’s
our clients global solutions.”
unions worked hand in hand with the ruling party, which provided the system with stability but also meant weak
The alliance, both lawyers say, is particularly relevant now,
representation for workers. “There is no union transparency
given the changes that Mexican labor law is experiencing.
or accountability, so tension has built up and it easily
“Mexican law is emulating the US model,” says de la Vega,
explodes.” He adds that the landscape is primed to
referring to the new labor legislation to be approved by
encroach on other industries. “The government, companies
the end of April. This, along with the pressure resulting
and unions need to work together. Otherwise, this situation
from international treaties, such as USMCA, TPP11 and the
will spread easily to other sectors,” says de la Vega.
ratification of Convention 98 of the International Labor Organization (ILO), requires international expertise, says
Although labor movements are alien to Mexico, Martínez
Martínez. “What we are seeing is an effect of globalization.
says that previously, these movements were contained by
The labor reform we will experience is a response to
the government to avoid generating fear among investors.
international entities more than the will of internal players.
But the current response from the government has been
Labor law has stopped being a local issue.”
different. “The federal government has said that it will not meddle in the situation but will respect the freedom
The complex environment has created a breeding ground
of each party. The problem is that, according to several
for labor conflicts in the northern part of the country,
labor-related international agreements Mexico has signed,
particularly in the Matamoros area, according to de la
the government is obligated to act as an intermediary
Vega. “In Matamoros’ maquila industry, we are seeing
whenever these conflicts arise, especially since any labor
the combination of different realities: a mass of workers
problem always impacts investment.”
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| VIEW FROM THE TOP
GUIDANCE HELPS NAVIGATE LABOR LAW COMPLEXITIES GABRIEL PIZÁ Managing Partner of Pizá Attorneys at Law
Q: In which areas do companies usually face the most legal
pay between 28 and 35 percent of a worker’s salary to
issues and how does Pizá Attorneys at Law assist them?
the institution. This means that you must register your
A: Bureaucracy is always the first obstacle that companies
employees with IMSS, a process for which it is necessary
face. Mexico puts up too many administrative obstacles
to meet more than 100 requirements. The difficulty of these
for a new company to be legally constituted. Regarding
processes reinforces the desire of companies to contract
labor issues, companies must not neglect the execution
outsourcing companies to avoid this administrative burden.
of a collective bargaining agreement. In Mexico, there
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is a conciliation hearing that forces employers to sign a
Q: What impact will the proposed changes to the
collective bargaining agreement at risk of facing a labor
outsourcing model have on the Mexican labor market?
strike. This contract is one of the first things that a company
A: It is difficult to say since we are waiting for secondary
should have in Mexico before it starts doing business.
regulation, but with the general law we have today there is already an impact. The only form of outsourcing allowed is for
Once the company is established, the hiring process begins
specialized tasks, which means that the outsourcing companies
and employers must decide not only who they want to
that can operate are those that act as intermediaries. However,
hire but how they want to hire them. The Federal Labor
the legal consequence of this situation is that companies
Act outlines many types of contracts that must be used
that hire intermediaries automatically become employers.
according to the needs of the company, such as seasonal
At the end, employers want to protect themselves because
or hourly contracts. Our function is to provide clients with
the federal law protects the employee, so the government
the guidance to understand their needs and what is best
needs to balance this. The way that employers have found
for them. If companies do not hire people properly, it is
around this situation is through subcontracting companies.
likely that they will end up in a lawsuit. On the contrary, if
As in any other sector, there are good and bad outsourcing
companies have adequate hiring practices and are ethical
companies. The law must identify which ones do not pay the
and professional, they are less likely to experience problems
corresponding taxes or that do not do their work according
when deciding to terminate an employment relationship.
to the current law.
Q: How can you adapt what can be seen as a rigid law for
Q: What paradigm should the country follow to guarantee
employers to meet the current needs of businesses?
a modern labor law?
A: The Mexican Labor Law approved in the 1970s was
A: We need legislation in which the employer and the
designed to protect the employee from the employer. The
employee, depending on the industry, agree on how they
employer referred to by the law is the archaic figure of
will operate. Our law is very protectionist. What people
employers who owned everything and tried to underpay
want is to be able to work and for that, the law should allow
their workers or exclude them from IMSS and other benefits.
employers and employees to decide on those issues, always
However, employers have evolved since the law was
respecting a minimum standard.
approved. Our firm provides advice to companies on how to work with the law. For instance, if you hire a new employee,
Q: What role does Pizá Abogados wants to play in the
the first problem you will find is IMSS and that you must
coming years? A: We have experienced significant growth over the past eight years. We are very practical with companies and we do not lie
Pizá Attorneys at Law is a Mexican law firm that specializes
to them. We need to prevent employers and employees from
in labor law. Its areas of practice include labor consulting
acting contrary to the law and to be very strict in this regard.
and
Although it might be harder, companies need to act according
compliance,
outsourcing
litigation,
collective
negotiation
and
to the law and we want to be their ally in this process.
VIEW FROM THE TOP |
OUTDATED LABOR LAW SHOULD REFLECT PRIVATE SECTOR NEEDS CÉSAR MAILLARD CÁRDENAS Partner at Maillard Abogados Laborales
Q: What are the main obstacles that companies face when
compensated according to all that is stated under articles
trying to do business in Mexico and how can Maillard
48 and 50 of the Federal Labor Law.
Abogados Laborales make this process easier for its clients? A: Companies face many fiscal obstacles. Instead of offering
Q: What is your view of the Labor Ministry and how will
incentives, the government puts up entry barriers and special
Maillard Abogados Laborales participate in shaping a new
taxes that apply to starting and developing a business. These
labor environment?
obstacles also relate to workforce management, despite
A: Labor Minister Luisa Alcalde has faith in her proposals and
the country’s cheap labor. The issue of profit sharing is a
expects good implementation of those policies. Unions are a
particular example. Mexico is the only country in the world
priority at the moment, supported by Mexico’s involvement in
with this scheme, which usually puts off investors that do
many international agreements, but we also see the possibility
not understand why they are required to share their profits
of workers not being forced to join a union as something
with employees that are not stakeholders. The country is
positive. If workers are happy and do not wish to join a union,
well-positioned against other business hubs, considering
then these associations cannot be used as an extorsion tool
costs represent approximately 56 percent of the company’s
against companies. That will make them focus on their true
revenue. The problem is that, unlike what happens in leading
purpose of watching over the well-being of the country’s
economies, companies tend to not see their tax contributions
workforce. We are already participating in the drafting of a
reflected in social security.
new reform but we would like the government to take more notice of the private sector in its proposals. Corporations are
Q: What challenges do you see regarding labor law in Mexico?
villainized in Mexico and even in the SME sector, it takes more
A: Mexico’s labor law was created in 1931 and even though
resources to pay for taxes to establish a new company than
it was reformed in 1970, 1980 and 2012, regulations remain
what is needed for the company to ramp up its operations.
practically unchanged and are now outdated. During the Peña Nieto administration it seemed there would be a
Q: How can the country better address increments in the
positive change that would favor the private initiative but
minimum wage and factor in the productivity component?
under López Obrador’s government the situation seems to
A: The minimum wage has nothing to do with productivity.
be reversed. Furthermore, companies have become even
Individual salaries should be linked to each person’s
more restless after the signing of Agreement C098 of the
performance but not the minimum established as the
International Labor Organization. Free unionization has
national average. Mexico’s Constitution establishes that the
always existed in Mexico but now it is backed up by an
National Commission of Minimum Wages is the only entity
international agreement. The only thing left to see is how
capable of determining minimum wage increments based on
regulation will be translated into Mexican law.
inflation rates. The new government’s proposal of increasing the current minimum wage without taking into consideration
The law is divided into public, private and social regulations.
inflation will create a significant economic unbalance. The
Labor is part of the social branch, mainly because workers
best way to move forward is to maintain things as they
sustain their families, which are the foundation of society.
are, with increments managed by a commission of labor
As a result, the law has always given more power to the
representatives, company leaders and the government.
employee rather than the employer, even though it should be considered a civil or private relationship. In Mexico, there is even an Employment Stability Theory that basically
Maillard Abogados Laborales is a law firm founded in 1983
states that once someone is hired, this person and the
and specialized in labor law. It serves national and international
company are together until death do them part. This is
clients in the private sector, providing expertise in areas such
why companies cannot simply fire someone unless they are
as collective contracts, internal guidelines and agreements
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PROFESSIONAL SERVICES
14
Regulatory issues and legislative changes are among the biggest pet peeves of investors and businesses when a new government enters office. The arrival of President López Obrador was no different and while AMLO’s ascendency offered the possibility to unlock a few regulatory issues given his party’s majority in Congress, it has also generated fear due to a potential change in the country’s constitutional framework. Regardless of the party in power, there are certain issues, such as economic competition, that cannot be neglected.
The country has enjoyed relative economic and political stability for years that, combined with its wide network of free-trade agreements, has made Mexico a country with a vibrant economy in need of a variety of professional services. Mexico Business Review’s final chapter features the opinions and insights of several private-sector players on the best strategies for the country to move forward amid a political and economic transition.
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CHAPTER 14: PROFESSIONAL SERVICES
342
ANALYSIS: Legislative Stability Ensures Smooth Political Transition
343
VIEW FROM THE TOP: Juan López de Silanes, Basham, Ringe y Correa
Eduardo Kleinberg, Basham, Ringe y Correa
344
VIEW FROM THE TOP: Juan Francisco Torres Landa, Hogan Lovells
345
VIEW FROM THE TOP: Raymundo Enríquez, Baker McKenzie
346
VIEW FROM THE TOP: Rafael Valdes Abascal, Valdes Abascal Abogados SC
Enrique de la Peña, Valdes Abascal Abogados SC
347
VIEW FROM THE TOP: Angel Junquera, Junquera y Forcada
348
VIEW FROM THE TOP: Hugo Cuesta, CCA
349
VIEW FROM THE TOP: Pedro Prieto, SINNETIC Analytics Mexico
Lucie Poisson, SINNETIC Analytics Mexico
351
VIEW FROM THE TOP: Eduardo Molina, WeWork Mexico and Colombia
352
VIEW FROM THE TOP: Mauricio Brizuela, Salles Sainz - Grant Thornton
353
INSIGHT: Jorge Santibáñez, Mazars
354
INSIGHT: Carlos Seoane, Seoane Consulting Group
355
VIEW FROM THE TOP: Daniel Medina, Quadrum
356
VIEW FROM THE TOP: Marcela Flores, Lockton México
357
VIEW FROM THE TOP: Juan Pablo Murguía, Murguía
358
VIEW FROM THE TOP: Gerardo Vera, Carlson Wagonlit Travel for Mexico and Central America
359
VIEW FROM THE TOP: Manuel Viñas, FCTG Mexico
359
VIEW FROM THE TOP: Óscar Portillo, PC Fusion
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| ANALYSIS
LEGISLATIVE STABILITY ENSURES SMOOTH POLITICAL TRANSITION President López Obrador vowed to change Mexico's legislative framework. NAIM’s cancellation and a less-than-friendly position toward the Energy Reform only fueled uncertainty among investors. A few months into his administration, international markets and the country’s business sector are giving him the benefit of the doubt The arrival of a new government offers the possibility to
with the penalties established in those contracts.” Even
unlock regulatory issues that in many cases are dragged
though NAIM’s cancellation generated fear among investors
around by other government officers. It also opens up the
and credit rating agencies, many, including international
door to changes in the country’s constitutional framework,
financial markets, believe it will be business as usual. “So far,
which could generate instability and fear among investors.
the markets have given López Obrador’s administration the
“It is hard to predict where the country is going, since the
benefit of the doubt, which helps when managing risk,” says
new government took office very recently,” says Eduardo
Martínez-Ostos. “The government’s economic program, at
Kleinberg, Managing Partner at Basham, Ringe y Correa.
least in its first year, is going in the right direction, which has had a calming effect. The landscape will gradually clear.”
The Mexican economy has enjoyed stability in the past few
342
years, which has helped maintain its attractiveness among
INTERNAL FACTORS
investors. A wrong turn in terms of policymaking could
The negotiation of USMCA pushed the country to move
send investors scrambling. Raymundo Enríquez, National
toward a new commercial paradigm with the US. “The
Managing Partner of Baker McKenzie, says change is always
paradigm shift, in which the US promotes protectionism and
inevitable but, on many occasions, it offers the possibility for
China promotes free trade, is an indication that Mexico must
growth. Mexico is no exception. “The fourth transformation
adjust its foreign policies,” says Hugo Cuesta, Managing
announced by the new presidential administration implies
Partner at Cuesta Campos y Asociados. “Mexico … will have
a change in the way things are done and the way the
to recognize other countries, including China, as potential
government and private sector interact.” he says. More
partners and allies.”
than a problem itself, Enríquez sees the current scenario as an opportunity for different players to participate as
Despite the uncertainty generated by international trade
investors and for law firms established in Mexico to guide
disputes, there are many internal elements in which the
them through the complexities of the law.
government could focus on to maintain the country’s competitiveness as an investment destination. An example
Reasserting trust in a convulsed environment is particularly
would be improving the level of economic competition in the
important, especially after the cancellation of iconic projects
country. “For many years, monopolies negatively impacted
such as NAIM. “I believe the airport consultation was not
Mexico’s competitiveness,” says Enríquez. “Competition
optimally conducted and generated a great deal of doubt.
is good for everyone since it lowers prices, generates
But in the end, Mexico is more than just one project and I think
employment and improves the population’s well-being.”
that the new government will comply with its obligations and
Rafael Valdes, Partner at Valdes Abascal Abogados SC,
will honor all the contracts that were awarded,” says Enríquez.
says economic competition should not be neglected by the
Despite the uncertainty, the private sector must find a way
government. “Mexico’s economic growth and its exposure
to work alongside the new government, adds Raúl Martínez-
to the international market have bolstered the country’s
Ostos, Chairman of the Board and Director General of Grupo
competitiveness and productivity but this has also generated
Financiero Barclays México. “We have to understand that
a more complex scenario for ensuring a fair and competitive
there is and there will be uncertainty, so we must find a way
environment for companies.”
to work with it and clarify as much as possible.” Despite the expectations generated by the arrival of a Juan López de Silanes, Managing Partner at Basham, Ringe
new government, Martínez-Ostos says the country needs
y Correa, says that although the government might try to
to be patient. “People think that changing government
change the laws, undoing the legislative changes of the
administrations is a smooth process but it is not. There needs
previous federal administration would not be as easy as
to be a diagnosis and there is a learning curve, not only for
many believe. “The federal administration must follow the
the government but also for us. The private and public sectors
rules under which previous contracts and tenders took place
need to be in constant communication to understand how
and, should the case arise, the government must comply
they can help each other and better coordinate policymaking.”
VIEW FROM THE TOP |
100 YEARS OF EXPERIENCE PROVIDES CERTAINTY JUAN LÓPEZ DE SILANES Managing Partner at Basham, Ringe y Correa
EDUARDO KLEINBERG Managing Partner at Basham, Ringe y Correa
Q: How does Basham, Ringe y Correa innovate in a field
companies and investors. We believe the national economy
as traditional as law services?
will maintain pace and that new opportunities will appear for
JLS: We analyze the market and new companies being
anyone who is willing to seize this moment of change.
established, as well as their needs. We pay close attention to what will be required and how we can help investors
JLS: Reforms established by past political administrations
from a legal perspective. What companies want from law
cannot be undone in one day, despite the arrival of a new
firms has changed; they now ask for added-value legal
government and its desire to change the law. The federal
services rather than a commodity. Over the past 100
administration must follow the rules under which previous
years, the country also has experienced many changes,
contracts and tenders took place and should the case arise,
crises and social movements. Basham, Ringe y Correa has
the government must comply with those contracts.
survived and has modified its offering, evolving alongside the country to meet emerging economic and political
Q: What strategies can the government implement to
challenges. In past years, we have seen significant foreign
continue boosting economic competitiveness?
investment in energy and infrastructure development and
EK: Competitiveness is generated by the government
legal compliance is a crucial part of these projects. Basham
working alongside the private sector. So far, we do not see
created specialized divisions within the firm, such as data
enough patents or licenses being developed at the level
protection and franchising, to support our core practices in
Mexico requires, especially when compared to much smaller
intellectual property, labor, fiscal, regulation, mergers and
countries with smaller populations. This halts the creation
acquisitions. There are also many changes and advances
of new companies and jobs and the generation of positive
in the technology sector for which we are implementing
economic cycles. There needs to be more consciousness
an area of technology innovation. We are also working on
about the relevance of research centers. The government
opening offices within the country, specialized in areas
needs to work with these institutions, providing support for
where we believe there will be a change in regulation, such
the development of technology startups.
as infrastructure, sports and cannabis. Q: What strategies can be implemented to level the EK: Even though the law may at times seem static, the
country’s investment needs with the government’s tax
way we practice it is not. We have developed new ways
collection capabilities?
of internal communication, along with new forms of doing
EK: Lower tax collection impacts the government’s
things so they can be done faster and more efficiently.
finances directly, which in turn is detrimental to investment projects in infrastructure and other areas that could make
Q: What is Basham, Ringe y Correa’s take on the country
the country more competitive. Some people believe that
and its business opportunities under President López
lowering taxes in areas like the northern border would
Obrador’s administration?
contribute to incentivizing investment, while others
EK: It is hard to predict where the country is going since the
believe such a strategy would reduce the government’s
government took office recently. In general terms, Mexico
collection capabilities. We will have to wait and see how
has had a stable economy. Therefore, while there could be
the government’s vision materializes.
changes that could weaken the economy, there could also be changes that could strengthen it. We have not noticed significant investment cancellations but companies are
Basham, Ringe y Correa is a full-service Mexican law firm
assessing the situation and are waiting to see how business
established in 1912. Although the firm does not have any offices
conditions develop. Should we enter a moment of crisis, it is
abroad, it has developed expertise in assisting clients both in
important to remember that this also creates opportunities for
Mexico and other countries
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| VIEW FROM THE TOP
USMCA: SPRINGBOARD TO TECH DEVELOPMENT JUAN FRANCISCO TORRES LANDA Partner at Hogan Lovells
344
Q: What are the business community’s main sources of
Q: What advantages can carmakers find in collaborative
uncertainty in terms of investment and how can they be
development of components and systems for EVs?
addressed?
A: Gaining the ability to supply such components is both a
A: Issues such as the cancellation of NAIM are impacting
race against time and a matter of survival for automotive
investment certainty, so we expect 2019 to be a complicated
companies. Vehicle electrification will shake the automotive
year for the country. At the same time, there are obstacles
industry to its very core. In the 20th century, engine size and
that must be tackled for the industry to grow effectively.
power output were the main differentiators for vehicles.
Infrastructure in areas such as telecommunications, ports,
In the 21st century, the number and quality of added-value
railroads and roads must be improved to ensure medium
services that vehicles can offer, including connectivity,
and long-term growth. Security concerns are also impacting
autonomy and efficiency, will be the most important factors
the automotive industry, since companies can see their
in the customer’s decision-making process. The market has
assets threatened by possible criminal activity.
understood the importance of collaboration to shorten times and enhance technological developments.
The automotive industry is the sector with the most employers nationally, so it is important to preserve it. Hogan
Several world-class OEM groups, including Daimler and
Lovells has been in talks with the Ministry of Economy and
BMW, have announced their willingness to collaborate to
the federal administration and we have been assured that
develop technology for EVs, while others, such as Ford and
the development of Mexico’s automotive industry will be
Volkswagen, are on it already. This is a matter of efficiency.
safeguarded and even boosted. This is a strategic area and
The more companies, resources and people are involved in
will be treated and sponsored as such.
the development of electrification technologies, the less time it will take to come up with innovative solutions to not only
Q: What opportunities will USMCA’s rules of origin bring
survive but grow in a fiercely competitive market. Technology
to Mexican automotive suppliers?
companies are also key elements in these partnerships. Some
A: The new rules of origin may not be ideal for some but
are helping to develop smaller battery packs that have
they ensure continuous development of the automotive
greater storage capacity to improve autonomy.
industry in the face of political uncertainty. Moreover, new wage requirements will create opportunities for Mexico
Q: If demand for internal-combustion vehicles plummeted,
to participate in added-value manufacturing and design
where would that leave Mexico?
activities. Overall, USMCA will help the country transform
A: Certain regions in Europe and the US are projected to
from a manufacturing country to a technology investment
ban these vehicles in the next 10 to 20 years. This will be a
destination, which is crucial for Mexico to remain a leader
turning point for the industry and manufacturing companies
in the industry. While companies like Rassini or Nemak are
will need to migrate toward EV components rapidly. For
great examples of Mexico’s automotive capabilities, the
many companies, this would mean an imminent end to their
country still needs to improve its local supplier base by
business, which is why some are investing aggressively in
promoting investment in R&D operations and persevere to
the development of new components for the EV market.
really collaborate with big players in the industry.
Having said that, internal-combustion vehicles will remain part of the mainstream, especially in developing countries where it is difficult to develop electrification infrastructure.
Hogan Lovells is a world-class law firm that advises clients in
Most exports from Mexico target the US and there are
various industries on complex legal issues. In the automotive
also shipments to European markets to a lower extent, so
sector, the firm has counseled leading OEMs, automotive parts
demand for electrified vehicles in those markets will set the
suppliers and distributors
pace for Mexico's migration toward electrification.
VIEW FROM THE TOP |
MEXICO IS MORE THAN JUST ONE PROJECT RAYMUNDO ENRÍQUEZ National Managing Partner at Baker McKenzie
Q: What is Baker McKenzie’s take on Mexico’s business
including AI technology and elements of Design Thinking
opportunities and the firm’s role going forward?
in its processes. This has permitted the automation of many
A: A phrase that fits very nicely with the vision we have
processes, making them rapid and efficient, and allowed
at Baker McKenzie is that change is inevitable but growth
us to apply our lawyers’ talent to more specific problems.
is optional. The fourth transformation announced by the new presidential administration implies a change in the way
Q: How would you qualify the government’s cancelation of
things will be done and the way the government and private
NAIM and its impact on investor confidence?
sector interact. That is why Baker McKenzie is the firm for
A: It is important to remember that an investment project,
this moment. Our vision is to help our clients navigate a
regardless of how important it is for the country, should not
world that is becoming more complex.
define Mexico’s risk. I believe the airport consultation was not optimally conducted. As a consequence, it generated a great
It is undeniable that Mexico’s interaction with the world will
deal of doubt. But in the end, Mexico is more than just one
also have to change. The renegotiation of NAFTA, now known
project and I think that the new government will comply with
as USMCA, was a wake-up call for Mexico as a country and for
all its obligations and will honor all the contracts that were
everyone in the private sector to diversify our contacts and
awarded. We need to put matters in the right perspective.
to lessen our focus on the US. That is the main challenge: to diversify our market and our sources of investment. The new
Q: What opportunities do you see for the new
presidential administration has a social focus with significant
administration to continue boosting Mexico’s economic
projects in this regard that will need a great deal of foreign
competitiveness?
and national investment. For us, this means an opportunity to
A: For many years, monopolies negatively impacted Mexico’s
help all these potential clients take advantage of the prospects
competitiveness. However, the Economic Competition Reform
that will present themselves. We see this new presidential
enacted by President Peña Nieto was extremely important,
administration as an opportunity, not a threat.
since it gave the Federal Economic Competition Commission (COFECE) the tools to regulate the market. The reform not
Q: Why is Baker McKenzie the best firm to help companies
only empowered COFECE but also gave it independence from
navigate the evolving Mexican market?
political swings. As a result, COFECE has been able to do an
A: We offer several differentiators but I would like to highlight
extraordinary job. One area where COFECE has done good
our global structure. We have been operating for over 60 years
work is in showing people that the beneficiaries of the reform
with 77 offices in 47 countries, including Latin America, where
have not been big corporations but the consumer. At the end
we have the broadest international presence in the region’s
of the day, regular people reap the benefits of competition,
largest seven economies. In Mexico, we offer significant
since it entails better prices for all of us. We are starting to see
coverage through our five offices. In addition to our global
the benefits of this reform, particularly in the telecoms sector.
structure, we focus on two pillars: our clients and our talent.
It is important to note and applaud that the new USMCA
When it comes to our clients, we are making an effort to get
includes a specific chapter on economic competition, with
closer to them and better understand the industries in which
specific obligations for each country. I have no doubt that the
they operate. Regarding our internal talent, we are constantly
new administration will continue reinforcing this area.
training our collaborators. We have incorporated innovative platforms that allow our people to develop professionally and personally, based on excellence in a diverse environment.
Baker McKenzie is an international law firm that has been operating in Mexico for over 50 years in the main economic
On a global level, we are incorporating innovation to
sectors. The firm has offices in Mexico City, Monterrey,
make our business more efficient. In 2017, the firm began
Guadalajara, Juarez City and Tijuana
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| VIEW FROM THE TOP
LOCAL FIRM SUPPORTS COUNTRY’S ECONOMIC GROWTH RAFAEL VALDES ABASCAL Partner at Valdes Abascal Abogados SC
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ENRIQUE DE LA PEÑA Senior Associate at Valdes Abascal Abogados SC
Q: What significant changes have impacted the competition
Q: How has competition law evolved and what are the key
and antitrust legal landscape in Mexico?
issues you face?
RV: The Mexican economy has become highly dynamic,
RV: Mexico’s economic growth and its exposure to
which was a key factor in establishing the former Federal
the international market have bolstered the country’s
Economic Competition Law that was developed in parallel
competitiveness and productivity, but this has also
to NAFTA. The market for the provision of competition and
generated a more complex scenario for ensuring a fair
antitrust legal services has also grown in Mexico, which
and competitive environment for companies. As a firm,
has led to greater competition among law firms. Valdes
we are prepared to face all kinds of antitrust matters
Abascal has participated in some the most emblematic
such as counseling and representation in investigations
cases in Mexico since the creation of the law in a wide
regarding absolute or relative monopolistic practices, pre-
range of industries, including telecommunications,
merger notifications, compliance programs, design and
television, radio, ports, airports, railways, energy and other
implementation of regulation, among others.
regulated sectors, as well as retail and many other goods and services markets.
EP: Pre-merger notification processes have always played a large role in Mexico’s competitive environment but in
Q: How does the firm provide added value in its services?
recent years they have increased considerably. At the
RV: We are among the most experienced firms in competition
same time, the number of investigations regarding anti-
and antitrust because our firm was practically born with
competitive practices among companies is also on the rise,
the former Federal Economic Competition Law. This law
resulting in a greater need for the services we provide. We
was enforced in 1993 and we established ourselves as a
believe that Mexico can continue to grow nationally and
law firm shortly afterward. There are not many firms that
internationally with the implementation of solid competition
specialize in this area in Mexico because it is very complex
and antitrust culture.
and is constantly changing. Our advantage is that almost 100 percent of the services that we provide are related to
Q: What has been done specifically to ensure a level and
competition and antitrust, which makes us the best option
fair playing field in Mexico?
for companies seeking specialized services in this area.
RV: The Constitutional Reform of 2013 and the Federal Economic Competition Law of 2014 generated a process
EP: We have long-time loyal clients because they see in
of adjustments that have helped to improve the Mexican
Valdes Abascal a serious and reliable law firm. Our years
economy. These modifications have improved access to
of experience and our close relationship with competition
inputs and made it easier for international competition to
authorities, COFECE and IFT, make us the ideal ally for them.
enter the country.
Large law firms in Mexico oversee a wide variety of areas but they do not necessarily have the knowledge to address
EP: The Federal Economic Competition Law of 2014
specific issues related to competition and antitrust law.
robustly regulates economic competition and punishes
Even other law firms seek our experience in competition
severely antitrust behavior in Mexico. New players in high-
and antitrust matters.
concentration sectors are more willing and motivated to participate if there is just economic interaction with state-owned companies and large private companies. By
Valdes Abascal Abogados SC is a boutique counseling and
enforcing the law, authorities are protecting competitive
litigation law firm, highly specialized in competition and
process and preventing the formation of monopolistic
antitrust law. Since 1996, the firm has represented Mexican and
practices that affect the market and consumers. This also
foreign companies in several industries
encourages companies to be more efficient.
VIEW FROM THE TOP |
RULE OF LAW, TRANSPARENCY NEEDED FOR GREATER ECONOMIC DEVELOPMENT ANGEL JUNQUERA Managing Partner of Junquera y Forcada
Q: Junquera y Forcada specializes in legal accounting. How
The new government should focus not only on fulfilling
does the firm provide an added value in its core business?
campaign promises but analyze what initiatives are
A: While I participate more in litigation, the firm has a
appropriate or not for the welfare of the country. For
greater participation in the corporate and litigation niches.
example, NAIM’s cancellation is disappointing because the
Junquera y Forcada has developed a new division that
new administration did not make a thorough analysis and
helps companies prevent legal problems. We are one of
used the airport as a pawn in the rivalry among political
the few firms that offer this service, making it a key added
parties. Also, the political decree to lower the income of
value. We created this new section because we believe that
public officials so that they do not earn more than the
any evolving society must have a philosophy to not only
president is a mistake.
solve the problems that already exist but to avoid them altogether so it can continue to prosper.
Q: The new US tax plan has generated a discussion regarding Mexico’s fiscal competitiveness. What approach
Prevention must be a high priority for all companies.
should the AMLO administration take?
Law firms like Junquera y Forcada can guide them in
A: As a member of the Mexican Academy of Tax Law, I
implementing this philosophy. Junquera y Forcada focuses
believe the new administration should focus on collecting
on providing legal assistance related to the prevention of
taxes from consumer spending. If all the operations that
problems through the revision of contracts, services, hiring
generate consumption become tax deductible, a systematic
and any other key business matter. The firm helps companies
spending cross is generated. The government would then
analyze and minimize their risks, allowing them to anticipate
be able to collect a percentage of all the transactions that
future problems with greater certainty and effectiveness.
are made from purchases of any kind, from tortillas to airplanes, a house or a building. It is an effective way to
Q: In your experience, in which areas do companies usually
expand the revenue base.
face the most problems? How does Junquera y Forcada assist them?
Junquera y Forcada has done studies on the amount that
A: Two of the country’s biggest problems are the bureaucratic
is crossed in the Courts of Justice of Mexico City related
processes applied to receiving foreign investment and the
to commercial operations that are completed by means of
fear that derives from the lack of rule of law. In the public
a judicial resolution. We found that taxes are not paid on
sector, the Chambers of Deputies and Senators seem
these. There is more than MX$10 billion (US$520 million)
interested in strengthening rule of law in Mexico. However,
that could be taxed each year but it is not being done,
at this moment there is a power struggle in both houses
not in Mexico City or in any other city. What the new
and there are changes in the distribution of power. This is
government must do is collect taxes and collect them
a natural process that always happens in any country when
well to have greater liquidity, in addition to being very
there is a change in government. Junquera y Forcada’s vision
selective in spending. The government should not be
is to provide solid legal support to its clients so that we can
devoted to saving money just to save it but to allocate
help them prepare for these times of change.
it effectively to the areas that can generate a benefit for the country.
Q: What would you say are the most complex challenges the country will face in the short, medium and long terms? A: Change always generates public concern. The breakdown
Junquera y Forcada is a legal accounting firm with 28 years
of the old system happened due to an excess of corruption
of experience. Its team of experienced public accountants and
that gave way to the formation of a new political philosophy
lawyers provide advice, consulting, administration services,
in the country.
billing and collection
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| VIEW FROM THE TOP
RULE OF LAW, STABILITY, PRO-BUSINESS GOVERNMENT KEYS TO INVESTMENT HUGO CUESTA Managing Partner at CCA
Q: Given national and global uncertainty, why should
A: Mexico is among the countries with the largest number
investors be confident about their prospects here?
of signed free-trade agreements so it has already diversified
A: The perspective on the situation varies considerably
despite the natural tendency to focus on the US as our
depending on each industry, with some more concerned
main trading partner. The paradigm shift, in which the US
than others, whether it is because of López Obrador’s
promotes protectionism and China promotes free trade, is
administration, the signing of USMCA or US politics. In
an indication that Mexico must adjust its foreign policies.
Mexico, the balance of political forces is a factor that favors
Mexico will have to recognize other countries, including
investors and will continue to help maintain objectivity of
China, as potential partners and allies.
the decisions made in the country. 348
Q: You offer specialized services to Japanese investors. What Q: Organisms like the OECD say Mexico needs to increase
opportunities led the firm to offer a specific service to Japan?
tax collection. What approach should López Obrador take?
A: We have a strong presence in the Bajio area with an office
A: The focus should be to expand the taxpayer base and
and a predominantly Japanese client portfolio. This area of
reduce informality. The tax burden falls on a very small
the country has benefited from the arrival of many Japanese
percentage of people and the extension of the taxpayer
companies but their arrival has also created the need to
base can generate greater fiscal efficiency. A problem for
contract services like ours. The Japanese industry believes in
our government is that it cannot compete with the tax rates
our firm because we have international and national expertise.
offered by the US because Mexico does not have a similarly large taxpayer base. Furthermore, the impact of the US
Q: Innovation is becoming the key to offering new and
trade war with China, its imposition of sanctions on steel and
improved services. How does a traditional law firm offer
aluminum imports and its targeting of the automotive sector
innovation?
could generate a climate of mistrust if not resolved soon.
A: Clients are increasingly demanding services that offer added value and efficiency. We use technology to provide a
Q: What actions can boost the country’s competitiveness?
differentiating value to the client and we build the innovation
A: International investors seek three things when doing
of our services around it. Our law firm understands the
business in a foreign country: legal certainty (rule of law),
paradigm shifts of the industry and also the forces that affect
stability and a pro-business government. If those conditions
them. We believe that technology offers the possibility to
are provided in Mexico in an optimal, clear and viable way, we
improve the value added derived from the legal industry. The
will attract more investors and increase our competitiveness.
challenge for the future will be in the industry’s ability to make
The government needs to deliver attractive incentives to
the shift to develop a vocation of service with technology.
attract direct investment, with industries offering a high level of expertise to profit from these incentives.
Q: What would you say are the most complex challenges that the country will face in the future?
Q: Cuesta Campos y Asociados has an active role in
A: It is imperative for the government to respect the conditions
terms of international trade. Where do Mexico’s untapped
that were offered to investors at the time of their arrival into
commercial opportunities lie?
Mexico and facilitate a positive business environment. Also, the country’s bureaucracy must be simplified to improve industry response times and guarantee each sector’s effectiveness. An
Cuesta Campos y Asociados (CCA) is a Mexican firm recognized
improvement in the bureaucratic-administrative apparatus
for its expertise on corporate law, M&A, banking and finance,
means an improvement in the economic sectors of the
labor and employment, real estate and IP matters. The firm has
country. Reduction of corruption and impunity are critical to
offices in Mexico City, Guadalajara and the Bajio region
maintain and increase Mexico’s competitiveness.
VIEW FROM THE TOP |
AI CAN PROVIDE INSIGTHFUL MARKET INFORMATION PEDRO PRIETO General Manager of SINNETIC Analytics Mexico
LUCIE POISSON Partner at SINNETIC Analytics Mexico
Q: What sparked the idea to launch SINNETIC in the
at the forefront of methodological issues and research
Mexican market?
techniques, competing with any country in the world.
PP: Mexico is a country that offers many opportunities but clients always demand more. They want new visions
Q: How does AI benefit the market research business and
and new ways of analyzing information. That was the
the companies that contract these services?
opportunity that my partner in Colombia, Lucie, and I saw.
LP: Decision-making is becoming faster and requires greater
We developed new products that helped our clients make
accuracy. That is where technology like AI can help, by
decisions based on the facts that have an impact on the
providing faster and more relevant results and insights. We
operation’s profitability and sustainability. Our strategic
work alongside SAS, which helps us to develop the tools we
alliance with SAS is one of our strengths. We are using all
need and we implement them with the client following our
the capabilities of SAS’ software to generate models that
philosophy of being faster and more accurate. The tools we
help our clients make strategic decisions.
develop are fed by the information our clients already have. In this regard, it is very important to consider time. The idea of
Q: How is SINNETIC’s portfolio built and what is your
machine learning or AI is that the system receives feedback
approach to market research?
automatically and instantly. As a result, the client does not
PP: We have developed business units specializing in the
have to wait another three months for further analysis.
handling and use of different information sources: internal, external and digital. These units have unique methodologies
Q: How do you expect the use of machine learning and Big
that cover market opportunities, innovation, consumer
Data to change the business world?
insights, brand experience, digital analytics, data mining,
LP: I think these new technologies will change business
predictive analytics, forecasting and optimization.
strategies and make them more customer-centric. In the end, this is what companies want. They want more certainty
LP: Regarding our approach, an analyst who provides
about the launch of their products, their campaigns, their
recommendations to a company must have the necessary
investments in media and their positioning in sales channels.
knowledge of each sector beyond what simply appears in
The idea is that these new technologies provide companies
the research. We focus on both methodology and sector
with the necessary tools to better position themselves
experience. This helps us also to develop new products
against their competitors.
and new ways of approaching the people we are surveying. Q: What are your expectations for your business in Mexico PP: This is an important topic for us. For instance, the
in the coming years?
agricultural sector behaves differently from the mass-
PP: After four years in SINNETIC and more than 20 in the
consumption segment and if you do not have this expertise
industry, we can say that we have great expectations. The
and do not make an effort to understand the topics that
industry has responded very well and our client portfolio
are important for companies like Monsanto or Syngenta, it
has been growing. We have decided to continue as a
becomes hard to speak their language.
boutique agency so we can continue providing our clients with the level of service they deserve.
Q: How does the rate of adoption of market research services in Mexico compare with other countries? PP: The countries that invest the most in Latin America are
SINNETIC Analytics Mexico is a Mexican company that
Brazil, Mexico and Colombia. Mexico invested about MX$6
specializes in market research. The company has been in the
billion (US$312.4 million) in market research in 2017. In Mexico
market for four years. It also operates in Colombia, Peru and
we can feel very proud to have a research industry that is
Ecuador
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Torre Virreyes, Mexico City
VIEW FROM THE TOP |
WORK SPACES BRING TOGETHER PEOPLE, BUSINESSES EDUARDO MOLINA General Manager of WeWork Mexico and Colombia
Q: What are WeWork’s main achievements in Mexico?
Q: What are the particularities, advantages and limitations
A: WeWork’s business model is to let companies focus
WeWork has found in Mexico?
on their core business, while we handle the operation of
A: Our operations are fairly similar whether in Mexico, in
their physical workspace. We have over 15,000 members
New York or Brazil. The mindset at companies regarding the
in Mexico City and we are present in Monterrey with three
workplace is changing all over the world, which means that
locations and Guadalajara with two. Overall, WeWork’s
our offering has been well-received internationally. People
community in Mexico is close to 20,000 members and our
want to participate in projects bigger than themselves
goal is to end 2019 with 30,000. While we will maintain our
and they want to be in spaces that respond to that kind
focus on the three states where we are already present,
of mindset. Having said that, we understand we have to
we do not rule out expanding to another city. We want to
regionalize our operations. Our team is formed by people
continue connecting our members and more regions with
who know the Mexican culture, the way Mexicans interact
WeWork’s global community.
and do business. This helps us understand what our members require and how to add value to the companies
Our fast expansion is based on the strong interest we
that are with us.
have received from all types of companies from different industries and of different sizes. WeWork does not
Q: What are the main problems that real-estate brokers
only target SMEs or freelancers; big corporations are
face in Mexico and how can WeWork’s Broker Partnership
approaching us because they recognize the experience
Program help them find a solution?
we provide is what they need to retain and attract talent,
A: Brokers in Mexico are usually motivated to lease larger
improve work culture, be more productive and become
spaces under long-term contracts. When people sign a
more efficient in their operations.
five-year contract, they tend to lease more space than what they need at the moment because they project that
Q: What is the company profile that WeWork is trying to
in five years they will be using more space than what they
reach in Mexico?
currently require. Given that these are spaces that are
A: With SMEs, we look for members that can connect
not ready to be used, companies need to have a budget
with other companies that are at the same stage of their
available to furnish them and adapt them to the type of
development process, so together they can share ideas
space they need.
on how to reach their targets. Many SMEs working in WeWork find their customers or suppliers at the workplace.
Our program gives brokers access to a larger pool of
Our global infrastructure is also interesting for SMEs. If
clients that might be interested in more flexible contracts.
companies want to internationalize their operation, they can
We offer ready-to-use spaces that do not require further
take advantage of our international office network. These
investment, which generally helps to sign the contract
are among the most immediate advantages companies get
faster. Since brokers normally work on commission,
from becoming part of the WeWork community.
they can get the most of the transaction because our membership contract includes all the services the
With big corporations we try to help them solve one
company will need.
of their main issues: attract and retain talent. WeWork provides an environment where their workforce wants to be. A corporation with offices in the Santa Fe area of
WeWork is an American company that offers shared work
Mexico City is not very attractive for people living on the
spaces and services to entrepreneurs, freelancers, startups, small
other side of the city; with WeWork the company can
businesses and large companies. It was founded in 2010 and is
expand its reach.
present in several countries including Mexico and Argentina
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| VIEW FROM THE TOP
REINVENTING MEXICO FOR LONG-TERM GROWTH MAURICIO BRIZUELA CEO of Salles Sainz - Grant Thornton
Q: In the 2018 IMD World Competitiveness Ranking, Mexico
entire population. Simply implementing a reduction in the
fell from 48 to 51 . What steps must be taken to improve
tax rate is not enough because it would not be possible
the country’s competitiveness?
to subtract the expenses that we must pay. It is not just
A: The same problems that are hindering our competitiveness
about lowering the rate. The government needs to support
will become the source of our future growth. The country
industries by encouraging them to pay taxes to further
must reinvent itself, redefine its internal and external trade,
boost the country’s economic growth. If individuals and
diversify its commercial partners and open new markets like
legal entities saw a return after paying their taxes, collection
Asia. Mexico’s dependence on the US will decrease but the
would be different. The Ministry of Finance and Public
relationship will continue to be key.
Credit and the federal government must promote a reform
th
352
st
that motivates production and productivity. Reciprocity in Q: What impact can these rankings have on foreign
the payment of taxes must be used by the government to
investment arriving to the country?
invest in improvements for the companies that are already
A: All rankings have an effect and we cannot disqualify
here. In addition, it is necessary to take into account that
them by choosing some over others because they all
greater investments in infrastructure and other strategic
provide us with relevant information about the country.
areas can generate greater productivity and economic
However, they must be analyzed and understood to gain
growth for Mexico.
the kind of solid information that supports decision-making. If we want to improve in the rankings, as a country we must
Q: How is the US dollar and Mexican peso fluctuation
unite different sectors to generate opportunities that make
impacting businesses?
us improve.
A: We have all kinds of clients and some are more affected than others by the exchange rate. Products
Q: Given new technologies, where should Mexico focus
from companies that have higher dollar-peso transactions
its efforts to improve the financial sector’s development?
become more expensive, which then affects consumers.
A: Mexico needs new lines of investment oriented to the
Most companies protect themselves by hedging their
financial sector through technology to better meet the
interest and exchange rates. The smart use of financial
needs of the country. Also, the government must identify
mechanisms can help contain the impact from exchange
the opportunities that exist in the country to strengthen
rate volatility.
the banking and financial system more effectively. Other productive areas can benefit from a stronger banking
Q: How can the Project of Technology Customs Integration
system, which can also help promote innovation.
promote the commercial relationship between Mexico and the US?
Q: What approach should the current presidential
A: There have been positive changes over the years but we
administration take regarding tax collection?
are still at a disadvantage because we have more complexity
A: We are part of the group of countries that collect less
in imports and exports. Also, elements like drug trafficking
despite having higher tax rates. This means that we do
generate more processes related to trade, which slows
not raise enough taxes because we are not including the
down productivity. The Project of Technology Customs Integration must be used to boost trade. Technology can increase the efficiency of import and export processes
Salles Sainz - Grant Thornton is a Mexican consulting and
but we still have work to do before we have world-class
accounting firm founded in 1979 and current member of Grant
processes. To achieve a commercial improvement, we must
Thornton International. The firm has offices in Mexico City,
work on three key issues: corruption, the transportation
Guadalajara, Monterrey and Puebla, among other cities
system and simplifying imports.
INSIGHT |
INTANGIBLE SERVICES OFFER UNIQUE INNOVATION OPPORTUNITY JORGE SANTIBÁÑEZ Managing Partner of Mazars
Innovating is never easy, particularly in a somewhat
Besides technology, Mazars considers social responsibility
commoditized industry focused on intangibles. Jorge
a key component when innovating processes within the
Santibáñez, Managing Partner of Mazars Mexico, has found
company’s operations and those of its clients. Among other
a way around this hurdle. “Many firms define their service
processes, it designed the Global Human Rights Auditing
offering as unique but they do not understand that their
Standards for companies, a global and widely accepted
portfolio is what they have in common with every other
assurance standard to assess companies’ performance
competitor,” he says. “At Mazars, we highlight the uniqueness
with regard to human rights risk management. This
of our processes and the relevance of our innovation.”
process was based on the valuable experience gained by Mazars in developing its own award-winning human rights
Mazars, a French auditing, consulting and accounting firm that is present in 89 countries, has been in Mexico for over nine years. Despite a high level of competition, Santibáñez says the firm has expanded to nine offices across the country by providing innovative services for its clients, which are companies of all sizes, nationalities and from both the public and private sectors. “We strive for innovation in everything we do,” says Santibáñez. “We have an innovation department but we also look for ways to invite people from across the organization to participate in our innovation processes.” Including all levels of the organization in this process is a pillar of the firm’s strategy. “We believe in shared learning.
“ audit process.
We believe in shared learning. This means we believe that progress in our firm is guided by a collective thinking process and that we all have much to give and learn”
This means that progress in our firm is guided by a collective thinking process and that we all have much to give and
Although Mazars has wide international presence, the
learn.” Mazars encourages all employees to participate in
firm’s operations in Mexico are key to its global strategy.
internal campaigns to create fresh service solutions.
“The country is the second-most important economy in Latin America and second in terms of foreign investment
Achieving innovation when it comes to services is not
in the region,” Santibáñez says. “Countries like Chile
an easy feat, however, which is why Santibáñez says the
and Colombia have developed investment attraction
company focuses on technology. Mazars developed a
strategies but Mexico remains an important developing
project called Atlas, which transformed its auditing platform
market where companies can capitalize on the highly
by allowing teams in different parts of the world to access
talented, low-cost workforce.”
a project’s documentation and work simultaneously. The platform also allows a client’s team to monitor Mazars’
Mazars itself finds Mexico attractive for further investment
work progress through access to a shared dashboard. “In
from a commercial perspective since, beyond its competitive
the past, we would conduct random tests to analyze data
advantages, the country hosts many of Mazars’ international
when auditing a company’s financial information. However,
clients that require similar services to those they demand in
given the high level of operations companies engage in,
their home countries. The firm’s services have reached such a
these samples are quickly outdated, making it very difficult
level of acceptance in Mexico that Santibáñez expects to end
for us to reach definitive conclusions,” says Santibáñez.
2019 with growth levels above what was projected for 2020.
“Technology allows us to use larger data sets instead of just
“We have had very positive double-digit organic growth,” he
small samples. This gives us the ability to analyze almost
says. “We intend to continue diversifying our offering and to
all the available information related to a certain operation.”
open at least two more offices before 2021.”
353
| INSIGHT
LONG-TERM APPROACH TO BUSINESS SECURITY CARLOS SEOANE Director General of Seoane Consulting Group
When it comes to security, talking about “what ifs” when
including natural disasters, criminality and geopolitics. “It
something has already happened is the last thing a company
is not just about spending money for the sake of spending
should do, says Carlos Seoane, Director General of Seoane
money on security but about investing in the right fit for
Consulting Group, a security consulting firm whose services
their operations.” Misconceptions about what private
range from operational issues like consulting and training
security entails also stem from the fact that the industry
to more complex matters such as crisis management and
is still developing. “In Mexico, private security is still in the
emergency response planning. “Unfortunately, prevention
early stages and there are people with very little training,
has always played a secondary role in Mexico,” says Seoane.
who work long hours or have several responsibilities but are paid low wages,” Seoane says, adding that this is a natural
354
The protection industry remains in its adolescence, despite
process that other countries have also experienced.
security being a national concern, according to Seoane. This is partly attributable to a lack of knowledge from the Mexican
Maturity is starting to emerge as professionalization slowly
business community regarding both the risks they face and
penetrates the industry. “Twenty years ago, whenever
the available solutions. Many companies look at security as
transnational companies opened up operations here, they
solely executive protection and perimeter and access control.
would bring security people from their headquarters rather
But it entails much more than that. “It is a business of many
than use local players. They did not trust us,” says Seoane. “But
layers,” says Seoane. “At times, it has nothing to do with
bringing an entourage of private security from other countries
the day-to-day operations but instead, focuses on long-term
became very expensive. Combined with the professionalization
strategy.” This includes elements such as business continuity,
of the local industry, this allowed us to change the dynamic.”
strategic planning and crisis management.
With the change in federal administration, Seoane says clarity in regulations would go a long way to bolstering the industry.
Rather than straight-ahead security, Seoane Consulting
“The first regulatory framework for private security was
focuses on offering tailored solutions that address and solve
created in 1989. Even though today there is more regulation,
specific company needs. He points out that companies face
some aspects are not clear. This forces many companies to
an array of complex issues that could hinder their business,
depend on their good name, reputation and work ethics.”
VIEW FROM THE TOP |
RESPONSIBLE ACCOUNTING ESSENTIAL FOR SUSTAINABLE GROWTH DANIEL MEDINA Director General of Quadrum
Q: What is the full extent of Quadrum CFDI’s services?
Q: What are your clients’ main concerns?
A: The government has made a clear bet on the introduction
A: Those responsible for the management of a company
of technology for tax collection purposes. In fact, Mexico is
want to do things right; that is their objective. But in the
among the leading countries for technological advancements
end, you cannot rule out the human factor that can lead
in terms of tax levying capabilities, which has led to radical
to mistakes. That is why audit processes must be applied.
changes in the workings of companies’ internal administration
I would say that the main occupation for people in charge
areas, such as accounting and finance. The current tax policy
of these management areas is complying with all their
focuses on collecting all possible information to increase
obligations. We focus on providing them with the right
tax collection. To achieve this, the government certified a
tools so they have the adequate financial information and
number of companies for this purpose. Today, there are 78
procedures to make decisions.
companies with this certification. Q: What are the main difficulties faced by companies A fundamental part of our business is related to the duty
like Quadrum when trying to keep up with SAT’s
of stamp, a process of information certification that passes
requirements?
through several filters until the information is verified by
A: We have a strong training program, which means
different channels and a digital document is approved and
that we try to make sure that our employees undergo
then sent to SAT. Although duty of stamp is part of our
thorough and constant training. We also provide training
core business, we decided to expand our capabilities by
to our clients and belong to different associations in the
launching a payroll system. Companies face a significant
fiscal, technology and accounting sectors. We expect
challenge in the area of human resources. All our products
that the new presidential administration will undertake
are technology tools that help in the daily management of
a comprehensive tax reform. A tax reform is not only
a company. They are especially focused on taxes because
important but also necessary, especially after the tax
these are products that help companies to correctly meet
reform implemented in the US. In that sense, Mexico is
their tax obligations. We also work alongside a company’s
lagging and needs to update its regulations. Otherwise, it
board, providing them with the necessary tools to make
faces competitive disadvantages.
decisions on fiscal, budgetary and treasury matters. Q: What changes to the tax code are required? Q: How does Quadrum position its offering against
A: We need to work toward having a new legislative body
competitors?
that can implement the necessary changes in the tax code so
A: We focus on turning our products into a solution for the
Mexican companies maintain their level of competitiveness
tax problems companies have. Part of our differentiating
against their foreign counterparts. Whenever you analyze
value is that we have a group of specialists composed
other countries, you see that their income tax is lower than
of accountants, lawyers and administrators who focus
in Mexico. If you make Mexican companies pay high tax
on the tax arena. The service is not just a system but a
rates and then compete with foreign companies paying
full support for their operations. We have a call center
lower taxes, you will see that Mexican companies are at a
through which lawyers and accountants help our clients
disadvantage.
with their actual problems related to tax compliance. We offer a 24/7 service because we understand that when it comes to invoicing and accounting there are no schedules.
Quadrum is a Mexican technology company that provides
We understand that the service we provide is critical for
services to be used in the accounting and fiscal sectors and has
companies’ operations and that a mistake in this sense
been for five years in the Mexican market. It is among the few
might result in severe monetary consequences for firms.
companies certified by the SAT to manage fiscal information
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| VIEW FROM THE TOP
COMPLEX RISK ASSESMENT FOR THE CORPORATE WORLD MARCELA FLORES CEO of Lockton México
Q: Lockton México specializes in insurance but its
not make a change and create awareness, the country will
operations have an impact on many other sectors. What
face a very difficult situation in a few years.
is the full range of services Lockton México offers?
356
A: We are more than insurance brokers. When we first
Q: How have Mexican companies adapted to risk mitigation?
started, we only provided consultancy in the area of
A: More and more companies are instituting risk committees
pensions but given our technical, mathematical and actuarial
that play an important role in raising awareness among
experience, we opened new lines of business. Today, we also
managers and administrative boards about the importance
provide consulting for projects that require mathematical
of mapping risks. Many companies have created these
models with a certain degree of specialization.
special committees to address significant risks, be it financial or cybernetic, but there are still some risks to which
We also started to participate in the employee benefits
companies do not attach the appropriate importance. We
area. Our work in this area involves managing benefits
continue to see low awareness of risk in small and medium-
and compensation programs. We are pioneers in what
sized companies, which, in many cases, simply ask an
we call flexible benefits; this means that through a
insurance company to generate a budget on how much
platform, collaborators of a company can visualize their
it would cost to ensure a certain situation. Companies do
compensation and select the benefits they want within a
not analyze if the insurance coverage is adequate or if the
regulatory framework, taking into account their situation
wording of the policy is adequate to guarantee that it can
or particular needs. One of the most common benefits for
be applied with ease. We are also seeing that this type of
employees is medical insurances. In this area, we operate as
insurance decision is mainly based on price rather than on
insurance brokers and look for the best costs and benefits
an in-depth analysis of the situation and risk management.
for our clients. Lockton México also has a risk division. Through this department we help companies determine
Q: What is Lockton México doing to raise awareness about
the risks they may face and, through different actuarial and
the importance of insurance products?
mathematical models, we define the probability of each
A: Communication and education are two important areas
risk and the estimated damage. We also tell clients how to
for us. Once we have a client, we work to find educational
mitigate or reduce risk and suggest alternatives.
schemes for their employees and generate processes to ensure that all areas involved are aware of the company’s
Q: Given Lockton México’s experience with pensions
situation. We also participate in forums organized by IMEF,
and retirement plans, what is your view regarding the
AMEDIRH and the American Chamber of Commerce, among
regulations for private pensions?
other associations.
A: We believe some changes are required. We have been working on this for many years and we have been pushing
Q: Your services are offered in different segments. Is there
for change. We work with companies to help them raise
a sector or segment where you have identified reticence
awareness among their employees about the importance
from companies?
of having a retirement plan and a savings culture. Mexico is
A: There is still reticence from certain companies that
a country with low levels of savings for pensions. If we do
say they do not need to create a retirement plan for their employees and there are certain companies that are under regulatory guidelines that prevent them from doing so.
Lockton México is a consultant focused on risk benefits,
There are still many companies that are only looking for the
actuarial
insurance
most economical option. However, most companies, once
management, bonds and automobiles. It is a subsidiary of
they understand the problem and develop a plan, become
Lockton International
convinced of the benefits of doing so.
consulting,
compensations,
risk
and
VIEW FROM THE TOP |
INSURANCE, SURETY BONDS PROVIDE GROWTH OPPORTUNITIES JUAN PABLO MURGUÍA CEO of Murguía
Q: How has the change in presidential administration
is a great deal of development in the Bajio area, so this
impacted Murguía’s business operations?
office, along with our Monterrey location, are experiencing
A: Given that Murguía participated in important
significant growth. We are developing our office in San Luis
infrastructure projects with the previous presidential
Potosi and investing in our Guadalajara location, as well.
administration, such as NAIM, the impact has been rather
Merida and Tijuana are two places in which we could also
significant. We managed the surety bonds and the civil
set up operations.
liability insurance for NAIM’s terminal building and runway number three, so we suffered a significant blow with its
Merida, in particular, offers interesting growth opportunities
cancellation. We now are in the process of analyzing what
in the renewable energy sector, given the number of new
will happen, whether the guarantees will be claimed and
developments for the production of clean energy. There
what will happen with the civil liability insurance. Leaving
are many innovative projects in the renewables sector and
aside the impact on our business, the decision to cancel
Murguía’s experience in this regard is unique. Our firm is
NAIM was political in nature, which we believe was not
No. 1 in surety bonds and even though we are a medium-
appropriate for the country or for the creation of an
sized broker for insurance, in the verticals of construction,
international trade, logistics and tourism hub.
infrastructure, housing, civil work and renewable energy we hold a leadership position.
Despite NAIM’s cancellation, Murguía continues to participate in governmental infrastructure projects like
Q: What is Murguía’s assessment of the risk management
the Toluca Train. We are analyzing the possibility of
culture in Mexico?
participating in the Mayan Train and in other infrastructure
A: Insurance culture in Mexico is lacking. While the
projects the government has announced. If President López
concept of risk management has permeated the corporate
Obrador encourages the construction of infrastructure and
segment much more than the overall population, we remain
housing the way he did when he governed Mexico City, the
committed to working on both fronts and we will continue
sector will grow and for us this will represent an important
promoting integral risk management strategies. We need
opportunity.
to advance insurance penetration in the country but this must be perpetrated by the industry, its associations and
Q: How does Murguía’s portfolio reflect the existing
the Ministry of Finance to reach the entire population.
opportunities of the insurance sector in the Mexican market? A: Our product portfolio is extremely diversified. We offer
As a company, we do collaborate on the creation of a
benefits and insurance policies for corporate employees, auto,
risk management culture and a sense of awareness. We
civil liability, construction all risk, and we are also present in
conduct marketing campaigns in this regard and we have
the renewable energy and oil and gas sectors. However, we
founded a company called Don Juan Microinsurance and
are also diversifying our offering and are managing other
Affinity that is focused on products that target the base
insurance solutions, such as for soccer teams or universities.
of the social pyramid. This company works to generate
The truth is that we manage all types of insurance.
awareness among those that do not feel the need to protect their assets.
Another element that has helped our diversification strategy is the geographic dispersion of our offices. Although most of our offices are in Mexico, we have opened a location in
Murguía is a Mexican insurance broker with over 20 years
Houston and we see opportunities in Central and South
of experience. Its specialization includes surety bonds,
America. Our diversification strategy allows us to reduce
insurance and risk administration and has offices in Mexico
the country-risk of our operations. In Mexico, we find there
and in Houston
357
| VIEW FROM THE TOP
TECHNOLOGY, INNOVATION AND AI CAN IMPROVE BUSINESS TOURISM GERARDO VERA Director General of CWT for Mexico and Central America
Q: How has CWT’s overall global strategy changed
For this reason, it is necessary to have the infrastructure
to reflect Mexico’s higher ranking as a world tourism
to respond to all possibilities. Technology plays a key role
destination?
in service innovation, such as AI, offering 24/7 services
A: For many years, Mexico and the Latin American
or having a predictive knowledge platform to analyze
region were immersed in a dynamic whose objective
customer behavior. All this helps companies generate a
was to retain customers, so business in the region was
great savings.
leveraged by the sales we had from global clients. In
358
the last two years, we have increased our sales team by
We have developed a tool called Price Tracking that helps
more than 20 percent to attract more customers, which
our clients save on prices even after they have already
has led us to unprecedented growth. This has made the
bought their ticket. If the system notices that there is
global organization turn its eyes to Latin America, as it
a better price than that the client already paid for and
should have done from the start, and begin considering
that price proves beneficial even with the cancellation
the region as a growth engine.
fees, then it automatically cancels the previous ticket and gets the new one, providing savings to our customers.
Our CEO has already visited the region and wants to
This helps to generate additional savings and ensures
know why the US is forecasting one-digit growth rates
our clients that they will always be buying the best
while Latin America is forecasting double-digit growth.
possible ticket.
We are a growing region, attracting new clients and in the case of Mexico, experiencing high levels of profitability.
There is an additional factor that has great relevance:
That has been our main focus: profitability through the
security. As a TMC, we need to know where travelers
attraction of new clients.
are all the time. We have many alliances with security companies that have several protocols in case of natural
Q: Beyond low prices or access to more hotels, what is
disasters or terrorist attacks. These are some of the
the added value that CWT offers its clients and users?
factors that help differentiate us from other companies.
A: A large company with a large budget for travel needs to have the appropriate administration to get better
Q: Last year, you told MBR that you were directing your
results. The only effective way to have control of the travel
efforts toward digitalization and the use of Big Data.
budget is with the assistance of a company that helps
What results have you achieved?
you manage it and sets the needed criteria and policies.
A: We have an omnichannel strategy, meaning that travelers can contact us by phone, email or through our
Differentiating ourselves from other travel management
app, CWT to Go. What we are trying to do is to push the
companies (TMCs) is important. For us it is very simple:
digital experiences of our travelers through CWT to Go,
the recipe is innovation and service. We are a service
which improves the door-to-door experience for business
company and we must offer our clients the best possible
travelers. We hope this will generate more appetite from
service. When it comes to traveling, it is impossible not
our clients, especially considering the potential of the
to make any mistakes, as many variables come into play.
millennial generation, which is completely adapted to digital environments.
Carlson Wagonlit Travel (CWT) is a business travel manager for
We achieved growth rates of almost 25 percent in 2017
companies and governments. In addition to travel arrangements,
and over 50 percent of our clients’ interactions with us
CWT also delivers efficient and innovative solutions to optimize
are done through digital channels. For us, digitalization
travel and meetings and event management
implies greater efficiency and a better level of service.
VIEW FROM THE TOP |
ADDED VALUE FOR CORPORATE TRAVEL MANUEL VIÑAS Director General of FCTG Mexico
Q: What is the key differentiator of FCTG's offering in
Q: The internet has simplified travel planning. What
Mexico compared to its competitors?
added value do products and services like Travel
A: Unlike other companies, FCTG has a broad brand portfolio
Associates provide?
that allows it to cater to all the travel needs of its clients.
A: Anyone can go online and look for travel options but
Though other companies compete with us in the corporate
working with us provides a number of added values. For
travel vertical, we are different. Around the world, FCTG
instance, anyone can book a room at a five starts hotel, but
has over 30 brands that offer services to all the possible
if you book as one of our clients, we can secure an upgrade
options for travel and tourism. In Mexico, we have three
or provide additional services. These are the small details
brands in operation. The largest is FCM Travel Solutions, a
and added value that our service provides.
global brand that looks after large market and multinational corporate clients. Among our offering is the management of company travel programs through technology solutions and
Flight Centre Travel Group (FCTG) is a global travel company
personalized service. These technology solutions also help
with a portfolio of over 40 brands, of which three are offered in
companies know where their personnel are when traveling
Mexico. It was founded in the early 1980s and in 1995 was listed
and provide travel assistance.
on the Australian Securities Exchange
VIEW FROM THE TOP |
TECHNOLOGY A CORPORATE NECESSITY ÓSCAR PORTILLO Commercial Director of PC Fusion
Q: PC Fusion offers computers, servers, notebooks, AIO,
demanding in these cases. For example, at Expo Mascota,
workstations, tablets, printers and projectors. What is your
vendors were promoting their products with screens or
most demanded service and why?
surveying their clients using tablets.
A: Our main offer is the leasing of technology equipment, such as TVs, touch screens, cameras, projectors and printers,
Long-term leases involve a variety of clients from different
but the company also offers services like web installations,
industries in Mexico. PC Fusion helps satisfy the IT needs
system configurations and firewalls. We later sell this IT to
of automotive, insurance and finance companies. Today,
a secondary market so the client has no pressure when
Mexican companies, regardless of their size, consider
replacing their technology working tools.
technology not as a luxury, but as a necessity.
Q: Where is PC Fusion’s biggest business opportunity in terms of business segments?
PC Fusion is a Mexican company founded in 2009 that
A: With short leases, meaning one day or more. Our main
specializes in providing computing and audiovisual equipment
line of business tends to come from conferences and
for rent and sale. The company provides preventive and
events because the technological requirements are more
corrective maintenance of technological devices
359
| ACRONYMS AI
Artificial Intelligence
AICM
International Airport Mexico City
OTT Over-the-top
CNBV
National Banking and Securities
TPP11
Trans-pacific Partnership
Commission
USMCA
US, Mexico, Canada
FTA
Free Trade Agreement
WHO
World Health Organization
IoT
Internet of Things
WTO
World Trade Organization
NAIM
New International Airport Mexico City
| SPOTLIGHTS AND ROUNDTABLES
12-13
What Should Be AMLO's Focus to Boost Development?
36-37
GINgroup: a Leader in Integral Talent Management
58-59
How Can Regulations Boost Technology Development in Financing?
154-155
Mexicana MRO Services: Cargo Demand Spurs Transformation
168-169
SAE: the Pleasure of Flying
| MAPS AND INFOGRAPHICS 100-101 Where Does the Money Go? 157
Soaring Aerospace Sector
164-165 Solid Results for Commercial Aviation 176-177 Energy Mix 2032 Outlook 190-193 O&G Map 212-213 Primary Success 240-241 Beer, Tequila and Mezcal: Kings of Exports 276-277 More Than Just Fun and Games 288-289 Prime-time Entertainment 302-303 Looking Past the Sun and Beach
| ADVERTISING INDEX Opening Spread
Grupo Aries
209 GCMA
6 MBP
220 Sofagro
40 MBC
228
72 Smartcities
250 PEYRELONGUE
96
258-259 Montelobos
The Hidden Kitchen
Ancho Reyes
118 Evonik
267
140
Mexicana MRO Services
272 Gympass
160
Axon' Interconex
298 Amdetur
Dominion Corporate Housing
172 MOGS
313 SAE
187 Cuatrecasas
324 MTF
202 Velsimex
340
Salles Sainz - Grant Thornton
INDEX A-E |
ACCIONA 180
BlueMessaging 74, 75, 90
ACCIONA Energía 180
BMV Group 7, 12, 29, 51, 58
AccorHotels 300, 311
Boeing 20, 21, 142, 146, 152, 155, 157, 163, 165, 167
ACH Foods 238
Bombardier 144-145, 146, 147, 155, 157, 161, 169, 255
Aeroméxico 7, 20-21, 35, 142, 146, 155, 164, 165, 309
BTCM IM 310
Agility Logistics México 125
BTG Pactual 8, 12, 52
AgroBIO 211
CANAINCA 230, 232-233
Agropark 217
CANCHAM 7, 35
Airbus 142, 144, 145, 146, 152, 155, 157, 158, 161, 163, 165, 167
Carlson Wagonlit Travel 358
Aires de Campo 233, 236
Casa Dragones 248, 254
Alebrije Producciones 275, 291
Caterpillar 132
AlphaCredit 67
CCA 348
Altius Events 285
CCE 7, 9, 11, 12, 16-17, 109
Amadeus 318
CENACE 174, 175, 181, 182
Amar Hidroponia 220
CENAGAS 174
Amazon 51, 62, 79, 84, 88, 109, 247, 275, 290
Cerveceros de México 230, 231, 241
AMDEE 182
CFE 29, 53, 134, 174, 175, 180, 182, 183, 187
American Express 56, 319
Chávez Vargas Minutti Abogados 69
AMF 123
Chihuahua Aerospace Cluster 152
AMGN 197
China Campus Network 334
ANCH 305
Cinemex 275, 281, 290, 292
Aneberries 222
Citla Energy 194
ANICAFE 223
Climate Reality Project 184
Apple 92, 113, 294
Club Med 308
Argentum Textil 136
CMR 13, 245
Argo Solutions 319
CNA 206-207
Arizona Commerce Authority 159
Coca-Cola 239, 279
ASOLMEX 182
COFEPRIS 110
Assurant 113
COM 279
Aston Martin 256
COMECARNE 210
Avianca 20, 146, 155, 166
ConaLog 122
AVS 225
Concreto Polimérico Castor 134
Axon’ Interconex 161
Conekta 59, 62
Bacardi 242
Costa Careyes 262
Bajo de la Tintorera 246
Coty México 112
Baker McKenzie 10, 12, 342, 345
Cramex Aerospace 160
Banco Bancrea 48
Crater Solutions 93
Bancomer 44, 45
CRE 175, 182
BanCoppel 42, 46
Crédit Agricole CIB 53
Banco Sabadell 42, 43, 47, 68
Cuatrecasas 186-187
Banorte 45, 55
Dacomsa 114
Barclays 8, 43, 50-51, 52, 342
Dassault Systèmes de México 163
Basham, Ringe y Correa 342, 343
Decathlon 107
Beam Suntory 244
De la Vega & Martínez Rojas 9, 326, 335
Bentley 256
Dell EMC 74, 84
Best Buy 63, 108
Deloitte 13, 42, 58, 68, 75, 81, 120, 252
BIC 137
Devlyn 109
Bitso 58, 60, 220
Diavaz 197
Black Wallstreet Capital 48
Dominion Corporate Housing 266-267
BLN 230, 243
Doopla 65
BlueDrop Agroforestry 204, 224
EDF Renewables 181
| INDEX E-P Embraer 21, 157, 255
Jalisco 115
Emerson 198
Jet Mach 255
Enel Green Power Mexico 178
Junquera y Forcada 347
Ericsson Mexico, America and the Caribbean 78
Kelly Services 326, 332
everis 128
Korn Ferry 326, 330
Evolve Fintech 42, 59, 66
Kua Mex Foods 235
Facebook 63, 88, 91, 111, 114, 280, 322
kubo.financiero 59, 64
Farmacias Benavides 111
Kuraray 135
FCA Group 161
Lamborghini 256
FEMIA 142, 143, 145, 148, 150, 152, 156, 157, 158, 159, 161
Le Caméléon 237
Fieldwood Energy 189
Lenovo 87
Flight Centre Travel Group 359
LMB 280
Ford 344
Lockton México 356
Fresnillo , 7, 24, 25
Los Amigos Tulum 252, 263
Gayosso 7, 33
LOTENAL 31
GCMA 204, 208-209, 212
Maillard Abogados 326, 337
GINgroup 7, 32, 37
Mantarraya Producciones 292
Global Hitss 74, 85
Marposs México 162
Google 64, 90, 294
Mastercard 43, 57
Groasis 218
Mazars 353
Grupo Aries 316-317
McLaren Automotive 256, 257
Grupo Bimbo 183
Mercado Libre 63
Grupo Body Systems 269
Mero Mole 247
Grupo Caliente and Caliente Interactive 286
Mexicana MRO 146-147, 155
Grupo Diniz 49, 295
Mextenis 281
Grupo Jumex 233
Microsoft 86
Grupo Modelo 9, 126, 230, 231
Millesime 265
Grupo PAE 326, 333
Miniso 98, 104, 105
Grupo RFP 110
Ministry of Economy 7, 9, 14-15, 18, 143, 153, 157, 334, 344
Grupo Tecno 86
Ministry of Energy 178, 182, 185
Gutiérrez Mateos y Asociados 69
Mitsubishi Electric 130, 199
Gympass 268
Monsanto 214, 349
Hankook Tire 115
Monterrey Aerocluster 151
Haskell 148, 239
Morgan Philips 331
Helmut Fischer 131
Morpheus.Network 129
Hermes Systems 74, 92
MSC Cruceros 301, 315
H&M 98, 106, 107
Murguía 357
Hogan Lovells 344
NBA 271, 274, 275, 276, 277, 278, 283
Hoteles City Express 7, 27
Nestlé 239, 245
HR Media 275, 287
NFL Mexico 282
Iberdrola 179
Nissan 26
ICC 7, 10, 34-35
Northgate Capital 49
IHG 300, 306-307
Ocean Network Express 124
Indeporte 274, 276, 278
Oracle Mexico 75, 82
Industrias Peñoles 7, 24
OXXO 55
InnoCentro 158
Palacio de Hierro 113, 253
Inspirato 252, 264, 307
Palladium Hotel Group 309
InterAmerican Development Bank 28, 56
PC Capital 54
Interjet 35, 142, 146, 147, 155, 164, 309, 312
PC Fusion 359
Invenergy 183
PEMEX 16, 53, 171, 174, 187, 188, 189, 196, 197
IPADE 329
Perforadora Central 196
Jaguar E&P 195
Pinsa Comercial 234
INDEX P-W | Play Marketing 284
Syngenta 13, 204, 215, 349
Porsche 256
Tane 253
ProMéxico 9, 18, 230
TechBA 142, 143, 156
Promologistics 126
Telefónica Movistar 76-77
ProSonora 153
Thor Urbana , 252, 261
Proteak 219, 224
Traxión 121
Puebla 115
TREMEC 114
Quadrum CFDI 355
TSX 25
Queretaro Aerocluster 150, 161
T-Systems 83
Renault 26
Uber 51, 62, 79, 88, 89, 245
Rokk3r Labs 89
V&A 185
SAE 149, 169
Vacacionante 312-313
Salles Sainz - Grant Thornton 320, 352
Valdes Abascal Abogados 342, 346
Samsung 55, 63, 279
VCS Capital 293
Schöndube Abogados 321
Velsimex 216
SEDATU 19
Virgin Mobile 79
Seoane Consulting Group 354
Visa 55, 317
SINNETIC 349
Viva Aerobus 142, 146, 155, 164, 312, 313
Sofagro 204, 221
Volaris 35, 142, 146, 155, 164, 312
Sony Music 294
Walmart 79, 94, 98, 102-103, 109, 282
Sotheby’s International Realty Mexico 260
WePort 127
SRL Soluciones 91
WillScot 133
STP 59, 61
| PHOTO CREDITS Cover SECTUR
68 Deloitte
4
69
LOTENAL and Pronósticos para la Asistencia Pública
Gutiérrez Mateos y Asociados, Chávez Vargas Minutti Abogados
12
MBP, BMV Group, MBP, MBP
70 Oracle
13
Deloitte Consulting Group, México; MBP;
75 Oracle
Bluedrop Agrofestry; CMR; MBP
76
Telefónica Movistar México
Ministry of Economy
77
Telefónica Movistar México
16 MBP
78
Ericsson Mexico, America and the Caribbean
18 MBP
79 MBP
19 SEDATU
80 ViaSat
20 MBP
81
Deloitte Consulting Group, México
22
GNP Seguros
82
Oracle Mexico
23
GNP Seguros
83
T-Systems México
24
Industrias Peñoles
84 MBP
14
25 Fresnillo
85 MBP
26
Nissan Mexicana
86 MBP
27
Hoteles City Express
87
Lenovo México
28 MBP
88
Uber Mexico
29
BMV Group
89
Rokk3r Labs
30
LOTENAL and Pronósticos para la
90 MBP
Asistencia Pública
91 MBP
31 MBP
92 MBP
32 GINgroup
93
33 Gayosso
94 Walmex
34
99
ICC Mexico
MBP, MBP Casa Dragones
35 CANCHAM
102 Walmex
36-37 Envato
103 Walmex
38 NEC
104
Miniso Mexico and LATAM
43
105
Miniso Mexico and LATAM
BMV Group
44 LEGORRETA
106 MBP
45
107
Decathlon Mexico
46 MBP
108
Best Buy Mexico
47
Banco Sabadell México
109
Grupo Devlyn
48
Banco Bancrea, MBP
110 MBP
BMV Group
49 MBP
111
Farmacias Benavides
50 MBP
112
Coty México
51
113 MBP
BMV Group
52 MBP
114 MBP
53
115 MBP
Crédit Agricole CIB
54 MBP
116
55 MBP
121 Traxión
56 MBP
122 MBP
57 MBP
123 MBP
58
BMV Group, Deloitte, Bitso
124 MBP
59
Mercado Libre, Conekta, MBP, MBP,
125 MBP
Evolve Fintech
126 Promologistics
Volkswagen de México
60 Bitso
127 MBP
61 MBP
128 MBP
62 Conekta
129 MBP
63
130
Mercado Libre
64 MBP
Mitsubishi Electric Automation Mexico and Latin America
65 MBP
131
66
Evolve Fintech
132 MBP
67
AlphaCredit, AlphaCredit
133 MBP
Helmut Fischer
134 MBP
216 Velsimex
135 MBP
217 MBP
136 MBP
218 Groasis
137
219 Proteak
BIC LATAM
138 Lufthansa
220 MBP
143 FEMIA
221 MBP
144 FEMIA
222 Aneberries
146
Mexicana MRO Services
223 ANICAFE
147
Mexicana MRO Services
224
Bluedrop Agroforestry
148 MBP
225 MBP
149 SAE
226
Cerveceros de México
150
MBP, MBP
231
Cerceveros de México
151
Monterrey Aerocluster, Monterrey Aerocluster
232 MBP
152 MBP
233
153 ProSonora
234 MBP
154-155 Mexicana MRO Services
235
156 MBP
236 MBP
158 InnoCentro
237 MBP
159 ACA
238
160 MBP
239 MBP
161 MBP
242 MBP
162 MBP
243 MBP
163 MBP
244 MBP
166 MBP
245 CMR
167 MBP
246 MBP
168-169 SAE
247
MBP, MBP
170
248
Casa Dragones
Grupo México, Energy Division
Aires de Campo Kua Mex Foods
ACH Foods México
175 MBP
253 Tane
178
Enel Green Power Mexico
254
Casa Dragones
179
IBERDROLA México
255
Jet Mach
180
ACCIONA Energía
256
DB Imports
181 MBP
257 MBP
182
260
Sotheby's International Realty Mexico
183 MBP
261
Thor Urbana
184 MBP
262
Costa Careyes
185 MBP
263 MBP
186 MBP
264 MBP
188 PEMEX
265
Millesime Mexico
189 MBP
266
Dominion Corporate Housing
194 MBP
268 Gympass
195 MBP
269
Grupo Body Systems
196
MBP, ASOLMEX
Perforadora Central
270
Altius Events
197 MBP
275
Altius Events
198
Emerson, MBP
278 Indeporte
199
Mitsubishi Electric Automation Mexico and
279 COM
Latin America
280
Liga Mexicana de Béisbol
200 Proteak
281 Mextenis
205
282 MBP
Government of Jalisco
206 MBP
283
207 Proteak
284 MBP
208 MBP
285 MBP
211 MBP
286
214 MBP
287 MBP
215 MBP
290 Cinemex
NBA Mexico
Grupo Caliente
291 MBP
314 SECTUR
292 MBP
315
MSC Cruceros
293
VCS Capital
316
Grupo Aries
294
Sony Music Entertainment
318 Amadeus
295
Grupo Diniz
319 MBP
296
Altius Events
320 MBP
305
Hoteles City Express
321
Schรถndube Abogados
306 IHG
322 Facebook
307 Inspirato
327 MBP
308
Club Med
328
UP and IPADE
309
Palladium Hotel Group
329
UP and IPADE
310 MBP
330
Korn Ferry
311 AccorHotels
331
Morgan Philips Group
312 MBP
332 MBP
333 MBP
349
334
MBP, MBP
350 Facebook
335
De la Vega & Martínez Rojas, De la Vega &
351
WeWork Mexico and Colombia
Martínez Rojas
352
Salles Sainz - Grant Thornton
Pizá Attorneys at Law
353 Mazars
336
MBP, MBP
337 MBP
354 MBP
338 Envato
355 Quadrum
343
Basham, Ringe y Correa; Basham,
356 MBP
Ringe y Correa
357 Murguía
344
Hogan Lovells
358 CWT
345
Baker McKenzie
359
346
MBP, MBP
366-367 SECTUR
347 MBP 348 CCA
FCTG, PC Fusion
Inside Back Cover SECTUR
| CREDITS
SENIOR JOURNALIST & INDUSTRY ANALYST: Gabriela Mastache JUNIOR JOURNALIST & INDUSTRY ANALYST: Alessa Flores JOURNALIST & INDUSTRY ANALYST: Luis Pesce SENIOR WRITER: Alicia Arizpe EDITORIAL MANAGER: Daniel González SENIOR EDITORIAL MANAGER: Alejandro Salas EDITOR: Ricardo Guzmán López MANAGING EDITOR: Mario Di Simine SENIOR PUBLICATION COORDINATOR: Omar Martínez PUBLICATION COORDINATOR: Cagla Polat PUBLICATION COORDINATOR: Mariana Montes de Oca PUBLICATION COORDINATOR: Rebeca Garduño PUBLICATION COORDINATOR: Laura Criollo PUBLICATION COORDINATOR: Yohana Bolivar COMMERCIAL MANAGER: Bruna Brandão COMMERCIAL DIRECTOR: Jack Miller SENIOR GRAPHIC DESIGNER: Ailette Córdova GRAPHIC DESIGNER: Mónica López DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez SOCIAL MEDIA COORDINATOR: Karen Sujo COLLABORATOR: Brenda Salas COLLABORATOR: Peter Appleby COLLABORATOR: Tathiana Martín CIRCULATION MANAGER: Elizabeth Solis DIRECTOR GENERAL: Jeroen Posma PRINTED BY LITOPROCESS S.A. DE C.V.
$199.00 ISBN 978-1-7328256-3-5
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