reaching out for business opportunities in...

BRIEFING SEPTEMBER 2016

Reaching Out for Business Opportunities in Mexico.

At a Glance

• Favourable demographics, key structural reforms, and a booming manufacturingsector will lift economic growth in Mexico over the next five to 10 years, therebyopening up new business opportunities for Canadian firms.

• Building on previous Conference Board of Canada research, we identified 14 Canadianindustries that are well positioned to grow their presence in Mexico. These includeindustries such as auto parts, machinery, fabricated metal manufacturing, and foodmanufacturing, as well as commercial services and transportation services.

• Our interviews with three Canadian firms doing business in Mexico highlightedthe importance of having contacts on the ground to help firms identify potentialopportunities and provide an in-depth understanding of the market.

• Key challenges that firms are likely to face in Mexico relate to security, borderclearance, and corruption issues. These challenges can be overcome, as long asfirms are committed to this market for the long run.

Global Commerce Centre

REAChinG OuT FOR BuSinESS OPPORTuniTiES in MExiCO

2Find Conference Board research at www.e-library.ca.

Forward

For 150 years, hSBC has been at the forefront of helping small, medium,

and large companies grow—connecting them to opportunities and

helping them compete on the international stage. Global trade is in our

DnA, and we are keenly aware of the positive links between exporting

to global markets and greater economic growth. We also see companies

stall by outgrowing their market and failing to expand internationally.

Statistics Canada research tells us that companies that trade

internationally grow faster over the long term. With over 50 free trade

agreements in place, the country’s businesses should be well positioned

to take on the world. Yet only 10 per cent of Canadian companies—98

per cent of which are small and medium enterprises—currently generate

sales abroad, and just 550 firms account for 70 per cent of Canadian

goods exported. By contrast, the remaining 30 per cent is generated by

nearly 40,000 firms.

Companies looking to grow would do well to look to Mexico, our

fifth largest trading partner and one of Canada’s free trade partners

since joining nAFTA in 1994. Mexico’s young population, ambitious

economic reforms, and status as a major manufacturing hub mean big

opportunities for Canadian companies in many sectors; however, they

will need truly differentiated products or services, as competing on costs

is not an option.

in order to help our customers grow, and to learn from them ourselves,

we regularly produce insights gleaned from talking to successful

international businesses. in our report, Selling to the World, we asked

The Conference Board of Canada to look at the key attributes of

businesses that are succeeding on a global stage. Another previous

report, Taking Advantage of the U.S. Economic Rebound, looked at

industries well positioned to succeed in the united States.


The Conference Board of Canada

This year, we asked the Conference Board to look more specifically at

what industries are best prepared to serve Mexico. Many of the report’s

insights come from observing three companies we are proud to call our

customers that demonstrate solid foundations for expansion in Mexico.

The research not only includes what worked best and what could work

for others, but also offers tactics to build success for the future.

According to this research, 14 industries meet three of the four success

criteria set out. There are just three industries that have high growth

potential, export momentum, expected strong export growth in the future,

and the capacity to meet the increased demand. it’s remarkable that

most industries identified in the report are in the manufacturing sector,

despite Mexico having a clear cost advantage over Canadian companies.

it is also interesting that the barriers are not necessarily those that you

would expect—for example, language is not a significant barrier despite

the country being predominantly Spanish speaking.

Why look beyond our borders? Because we can. More importantly,

because doing so allows our country to regain lost ground in productivity,

innovation, and competitiveness—all key indicators of a healthy,

prosperous economy. The more Canadian firms tap into the world’s

opportunities—including those in Mexico—the greater the odds of

ensuring our long-term economic health.

Linda Seymour

Executive Vice President, head of Commercial Banking

hSBC Bank Canada



Executive Summary

Economic growth has slowed in Canada in recent years. And this may be the new normal as population aging is starting to weigh on the country’s economic potential. For this reason, Canadian firms should look internationally for business opportunities. Mexico is one place where we expect opportunities to abound in coming years.

The following factors will support strong economic growth in Mexico

through the end of the decade:

• Mexico has one of the youngest populations in the world, with a median

age of 28 years, compared with 42 years in Canada. Such a young

workforce will support economic growth and help expand the ranks of

the country’s middle class.

• in 2012, Mexico adopted an ambitious plan for structural reforms tackling

the entire economy. According to OECD, this provides the potential to

boost economic growth by as much as 1 percentage point per year over

the next decade.

• Thanks to a tremendous competitiveness improvement since the

early 2000s, Mexico is now becoming a major manufacturing hub in

north America.

Given these reasons for optimism on the Mexican economy, which

Canadian industries are well positioned to tap into this market? And how

can Canadian firms identify business opportunities and overcome the

challenges associated with doing business in Mexico? These are the two

questions this briefing aims to answer, based on previous Conference

Board of Canada research and interviews with three Canadian firms

doing business in Mexico: La Petite Bretonne (Quebec); Morai Logistics

(Ontario); and Energold Drilling (British Columbia). (See Table 1.)


Table 1 Overview of Interviewed Companies

La Petite Bretonne Morai Logistics Energold Drilling

Year started in Mexico 2011 2008 1999

Company description La Petite Bretonne produces about 3 million pastries a day in its two plants in Joliette and Blainville, Quebec, and is known for its Micro Croissants,® the company’s star product. The company sells its products across Canada, the united States, Mexico, and the Caribbean.

Morai Logistics is a third-party logistics provider based in Canada and doing business throughout north America as an authorized agent of u.S-based Mode Transportation. Morai Logistics’ primary focus is delivering full truckload, less-than-truckload (LTL), intermodal, and small package services.

Energold Drilling is a mineral and energy drilling contractor that is internationally recognized for its low-impact social and environmental drilling methods. Energold operates over 230 smaller rigs in 25 countries worldwide, and provides a comprehensive range of drilling services from early-stage exploration to mine site operations for all commodity sectors.

Activities in Mexico La Petite Bretonne sells croissants, chocolate oatmeal cookies, and other pastries in convenience and grocery stores. Clients include retail chains such as Oxxo, City Club, and h-E-B, and will soon include Costco.

Morai specializes in the Mexican market by having an established supplier base of carriers transporting goods to and from Mexico. Services provided include refrigerated transport and special care for certain hazardous materials. The company’s largest clients include auto and food manufacturers.

Energold Drilling provides contracting services for several sectors—primarily in mining, oil and gas, water, and geotechnical services. The company also has a small manufacturing facility in Mexico—industrial Processes Chihuahua—which has become a key supplier of parts for Energold’s global operations.

Differentiator The company’s flaky Micro Croissants® and soft oatmeal cookies correspond to Mexican consumers’ taste buds and cannot easily be replicated by its competitors.

The company’s deep understanding of Mexico’s transportation infrastructure allows it to offer its clients customized and efficient transportation solutions to bring products in and out of the country.

The company’s environmentally sensitive drilling solutions allow the participation and involvement of the local community.

Source: Company interviews.

A total of 14 Canadian industries were identified as likely to benefit from

new exporting opportunities in Mexico, with several of the industries

coming from the manufacturing sector. in turn, these industries can be

broken down into three key areas: industrial goods, consumer products,

and services. (See Table 2.)



Table 2 Canadian Industries Well Positioned for Growth in Mexico

Underlying Demand Driver Type of Products Selected Canadian Industries

Mexico’s growing manufacturing hub industrial goods Motor vehicle parts manufacturing

Primary metal manufacturing

Motor vehicle manufacturing

Synthetic rubber and fibres manufacturing

Machinery manufacturing

Plastics and rubber products manufacturing

Fabricated metal manufacturing

Aerospace product and parts manufacturing

Miscellaneous products manufacturing

Other transportation manufacturing

Mexico’s expanding middle class Consumer products Food manufacturing

Other chemical manufacturing

increased trade across north America Services Commercial services

Transportation services

Note: Industries highlighted in blue may need to invest in additional capacity to seize opportunities in Mexico. Source: The Conference Board of Canada.

however, to succeed in Mexico, competing on costs will not be a viable

option for Canadian firms, no matter which industries they operate in.

instead, Canadian companies need to focus on niche and differentiated

products for which Mexican firms may not have the necessary expertise

or resources. That is, Canadian firms require a global competitive

advantage (CGA): they need the ability to create more value for their

potential customers in Mexico than their competitors do. And firms can

achieve this by differentiating themselves.

Once a company has identified the way to stand out in the Mexican

market, how should it go about tapping into potential opportunities?

Based on the interviews we conducted, firms need to leverage their

international networks and develop an in-depth understanding of the

Mexican market. First, companies need to find someone with experience


in Mexico who can open a few doors for them. Then, once they have

a foot in the Mexican market, it becomes much easier to gather the

necessary market intelligence the companies need to expand.

And what about the challenges Canadian firms face when doing

business in Mexico? The three key areas we identified during our

interviews relate to security, border clearance, and corruption issues.

Luckily, companies can overcome these challenges as long as they are

committed to this market for the long run. As for the language barrier, it

is significantly reduced by the widespread use of the English language in

the Mexican business community and by hiring Spanish-speaking staff in

Canada or Mexico.

Introduction

With economic growth bound to slow in Canada due to population aging,

Canadian firms are encouraged to look internationally for business

opportunities. in that respect, Mexico will have plenty to offer in the

coming years. The Mexican economy is poised for robust growth in

the years ahead on the back of favourable demographics, a booming

manufacturing sector, and targeted structural reforms.

There is no doubt that competition from Mexican firms will become

fiercer in certain sectors, particularly manufacturing. Given Mexico’s

clear cost advantage, Canadian firms will find it difficult to compete

on this front. however, they can compete by offering innovative and

differentiated products and services, leveraging the latest available

technology, and making the most of Canada’s highly skilled workforce.

in fact, although Canada still has a significant trade deficit with Mexico,

Canadian merchandise exports to Mexico have posted a 30 per cent

increase since 2010, reaching $6.5 billion in 2015. (See “An Overview

of Canadian Exports to Mexico.”) Trade between the two countries is

thus gathering momentum, and this could open new opportunities for

Canadian firms.



An Overview of Canadian Exports to Mexico

Mexico is the fifth largest destination for Canadian goods exports, after the united

States, China, the united Kingdom, and Japan. in 2015, Canadian exports to

Mexico reached $6.6 billion, an increase of 30 per cent, or $1.5 billion, over 2010.

During this period, only Canada’s exports to india, China, and the u.S. posted

stronger growth, while Canada’s exports to the rest of the world increased by

only 15 per cent. Therefore, although Mexico accounts for less than 2 per cent of

Canadian exports, it has been a source of growth for Canadian exporters.

The most important Canadian industries exporting goods to Mexico are the

automotive industry, agriculture, primary metal manufacturing, chemical

manufacturing, food manufacturing, and machinery manufacturing. Together,

these six industries accounted for over 75 per cent of Canadian goods exports

to Mexico in 2015, with annual shipments that ranged from $500 million to

$1.2 billion. in addition, excluding agriculture, each industry has seen its exports to

Mexico rise by more than 30 per cent since 2010. (See Chart 1.) in particular,

the motor vehicle and parts manufacturing industry has increased its exports to

Mexico by 75 per cent since 2010. Such growth has largely been driven by the

robust increase in shipments of auto parts, which rose from $433 million to

$815 million between 2010 and 2015.

Chart 1Canada’s Exports to Mexico See Growth Across Many Sectors (exports for selected industries; $ millions)

Sources: The Conference Board of Canada; Innovation, Science and Economic Development Canada, Trade Data Online.

Automotive Agriculture Primarymetal

Chemical Food products

Machinery0

200

400

600

800

1000

1200

1400

2010 2015


As with goods exports, Canada’s services exports to Mexico also posted

robust growth in recent years. As shown in Chart 2, Canadian exports of travel,

commercial, transportation, and government services (combined) surpassed the

$1-billion mark for the first time in 2014—an increase of 37 per cent compared

with 2010. Commercial services played a key role behind this increase, rising

by 45 per cent between 2010 and 2014. Commercial services now account for

60 per cent of Canada’s services trade with Mexico, compared with 46 per cent

a decade earlier.

Source: The Conference Board of Canada.

The aim of this briefing is to shed light on Mexico’s business potential

for Canadian firms. First, we look at the key trends currently shaping

the Mexican economy that will support demand growth for Canadian

goods and services in the coming years. Second, we build on previous

Conference Board of Canada research to identify those Canadian

Chart 2Canadian Services Exports to Mexico Surpassed the $1 Billion Mark in 2014($ millions)

Note: The breakdown by service category for 2014 is estimated, based on total services exports. Sources: The Conference Board of Canada; Statistics Canada.

2005 06 07 08 09 10 11 12 13 14*0

200

400

600

800

1,000

1,200

Travel services

Commercial services

Transport and government services



industries that are well positioned to take advantage of Mexico’s

growth potential. And lastly, based on interviews we conducted with

three companies doing business in Mexico—La Petite Bretonne, Morai

Logistics, and Energold Drilling—we outline the key ways for Canadian

businesses to identify opportunities in this market and how to overcome

the key challenges they are likely to face. (See Table 3.)

Table 3 Overview of Interviewed Companies

La Petite Bretonne Morai Logistics Energold Drilling

Year started in Mexico 2011 2008 1999

Company description La Petite Bretonne produces about 3 million pastries a day in its two plants in Joliette and Blainville, Quebec, and is known for its Micro Croissants,® the company’s star product. The company sells its products across Canada, the united States, Mexico, and the Caribbean.

Morai Logistics is a third-party logistics provider based in Canada and doing business throughout north America as an authorized agent of u.S-based Mode Transportation. Morai Logistics’ primary focus is delivering full truckload, less-than-truckload (LTL), intermodal, and small package services.

Energold Drilling is a mineral and energy drilling contractor that is internationally recognized for its low-impact social and environmental drilling methods. Energold operates over 230 smaller rigs in 25 countries worldwide, and provides a comprehensive range of drilling services from early-stage exploration to mine site operations for all commodity sectors.

Activities in Mexico La Petite Bretonne sells croissants, chocolate oatmeal cookies, and other pastries in convenience and grocery stores. Clients include retail chains such as Oxxo, City Club, and h-E-B, and will soon include Costco.

Morai specializes in the Mexican market by having an established supplier base of carriers transporting goods to and from Mexico. Services provided include refrigerated transport and special care for certain hazardous materials. The company’s largest clients include auto and food manufacturers.

Energold Drilling provides contracting services for several sectors—primarily in mining, oil and gas, water, and geotechnical services. The company also has a small manufacturing facility in Mexico—industrial Processes Chihuahua—which has become a key supplier of parts for Energold’s global operations.

Differentiator The company’s flaky Micro Croissants® and soft oatmeal cookies correspond to Mexican consumers’ taste buds and cannot easily be replicated by its competitors.

The company’s deep understanding of Mexico’s transportation infrastructure allows it to offer its clients customized and efficient transportation solutions to bring products in and out of the country.

The company’s environmentally sensitive drilling solutions allow the participation and involvement of the local community.

Source: Company interviews.


The Mexican Economy: Reasons for Growing Optimism

Mexico is the world’s 15th largest economy and has a population

equivalent to France and the u.K. combined. Moreover, there are

reasons for growing optimism about Mexico’s growth prospects. And,

Canada has the advantage of geographical proximity to Mexico as well

as relatively free market access under the north American Free Trade

Agreement.

Since 2014, Mexico and Canada experienced similar “headwinds.”

Like Canada, Mexico is an important producer and exporter of oil,

accounting for 11 per cent of u.S. oil imports, and was negatively

impacted by tumbling oil prices. in turn, falling oil prices, combined with

the strengthening u.S. dollar, have led to a significant depreciation in the

Mexican peso, thereby lifting the costs of imported goods.

however, similar to Canada’s situation, a weaker currency has improved

the competitiveness of Mexican exports to the united States—the

country’s number-one export destination. And thanks to robust growth

in consumer demand on the back of rising employment, wage growth,

and credit expansion, the economy still managed to expand by 2.5 per

cent in 2015, or more than twice the growth pace of the Canadian

economy.1 Moving forward, there are several reasons to be optimistic

about the Mexican economy. in particular, we see three key trends that

will support economic growth in Mexico in the next five years: favourable

demographics, ongoing economic reforms, and a strengthening

manufacturing sector.

Demographics Between 2005 and 2015, Mexico’s population increased by 15 per cent,

or 17 million individuals. This compares with a population increase of

11 per cent in Canada and 9 per cent in the united States. in addition,

Mexico can count on one of the youngest populations in the world.

1 The World Bank, Mexico Overview.

Favorable demographics, economic reforms and a booming manufacturing sector will support economic growth in Mexico.



Mexico’s median age is 28 years, compared with 31 years in Brazil,

37 years in China, and 42 years in Canada. in turn, according to

the Boston Consulting Group, Mexico’s rapidly expanding workforce

combined with the declining fertility rate will yield a “demographic

dividend”—a tremendous driver that will fuel growth in consumer

spending.2 Essentially, Mexico could benefit from a similar economic

boom to what Canada and the u.S. experienced in the 1970s, when the

wave of baby boomers entered the workforce. As a result, millions of

Mexican households will be joining the middle class in coming years,

which is likely to fuel robust growth in consumer spending.3

Economic ReformsSince 2012, Mexico has unveiled an ambitious package of structural

reforms to bolster economic growth and improve its institutions. These

reforms were made possible by the signature of the Pacto por México,

an agreement among the country’s three main political parties. The

adopted reforms target the following areas: competition, education,

labour markets, the tax system, and the energy, financial services, and

telecommunications sectors.4 Given the extent of these reforms, Mexico

stood out as the OECD’s Top Reformer in 2013–14—adopting close

to 60 per cent of OECD’s recommended reforms. (See Chart 3.) And,

based on OECD’s projections, these reforms have the potential to lift

economic growth in Mexico by 1 percentage point per year over the

next decade.5

2 Muniz and Chias, Is It Mexico’s Moment?, 5.

3 ibid.

4 OECD, Economic Surveys Mexico.

5 OECD, Economic Survey of Mexico 2015.


A Strengthening Manufacturing SectorMexico’s manufacturing sector is well positioned to expand at a robust

pace in coming years. As such, the Boston Consulting Group (BCG)

identified the country as a “rising global star”6 in the manufacturing

sector. Thanks to moderate wage growth, sustained productivity gains,

and affordable energy costs, it is now cheaper for firms to manufacture

goods in Mexico than in China. in fact, based on BCG’s Global

Manufacturing Cost Competitiveness index, production costs in Mexico

improved the most out of the 25 analyzed economies.7

What is more, thanks to its 10 free trade agreements covering a total

of 45 countries8—including the u.S., the European union, Japan, and

numerous Latin American countries—Mexico can trade freely with

more countries than any other nation. Being able to ship goods duty-

free to so many destinations is a key advantage that China, the world’s

manufacturing powerhouse, does not have. it is, therefore, no surprise

that every car manufacturer now has production facilities in Mexico,

which provides them free market access to the world’s largest economy.

6 Sirkin, Zinser, and Rose, The Shifting Economics of Global Manufacturing.

7 ibid.

8 ProMéxico, Trade Agreements.

Chart 3Mexico Stands Out as the OECD’s Top Reformer in 2013–14 (share of OECD reform recommendations, per cent)

Source: OECD, Economic Survey of Mexico 2015.

G7 OECD European Union

Emerging OECD

Southern Europe

Mexico0

10

20

30

40

50

60



now that Mexico has become one the most competitive manufacturing

locations in the world, we expect it will continue to attract large amounts

of foreign direct investment, as multinationals will want to make the most

of Mexico’s cost advantage.

Therefore, favourable demographics, structural reforms, and a booming

manufacturing sector will be key factors underpinning stronger economic

growth in Mexico in the years ahead. As a result, the Mexican economy,

which has rebounded more rapidly than the u.S. and Canada following

the 2009 recession, will expand at a faster pace than its northern

neighbours in the second half of the decade. (See Chart 4.) however, the

picture is not all rosy for Mexico, as there is no quick fix for the country’s

ongoing struggle with organized crime, corruption, and widespread

inequality. (See “Despite Growing Optimism, Mexico Still Faces a

number of Challenges.”)

Still, for the three reasons we discussed, Mexico will be a growing

source of business opportunities for Canadian exporters in coming

years. According to The Conference Board of Canada’s Trade Forecast,

Canadian nominal exports to Mexico are forecast to increase by nearly

Chart 4Mexico Is North America’s Fastest-Growing Economy (index for GDP at constant prices for selected countries, 2005 = 100)

f = forecast Sources: The Conference Board of Canada; International Monetary Fund.

2005 6 7 8 9 10 11 12 13 14 15 16f 17f 18f 19f 20f

95

115

135

155

Mexico United States Canada

Forecast


30 per cent between 2015 and 2019.9 This makes Mexico the top

destination for Canadian exports in growth terms—a position that will be

shared with China. (See Chart 5.)

Despite Growing Optimism, Mexico Still Faces a Number of Challenges

Despite several reasons for optimism, significant challenges remain for Mexico—

particularly the country’s ongoing struggle with organized crime, corruption,

and economic inequality. in its most recent Global Competitiveness Report,

the World Economic Forum (WEF) ranked Mexico 135th and 136th among

140 countries for the business costs of crime and violence and the organized

crime indicators.10 The countries doing worse than Mexico on these indicators

were Guatemala, Jamaica, El Salvador, and Venezuela. And, according to the

9 The Conference Board of Canada, Canadian Interactive Trade Forecast—2015.

10 Schwab, The Global Competitiveness Report 2015–2016.

Chart 5Mexico Expected to Become One of Canada’s Fastest Growth Export Markets (growth in nominal exports, 2015–19, per cent)

Source: The Conference Board of Canada, Canadian Interactive Trade Forecast.

Mexico

China

South Korea

United States

United Kingdom

European Union

Japan

Brazil

Rest of the world

0 5 10 15 20 25 30



respondents of the WEF’s survey, the three most important problematic issues

for doing business in Mexico are corruption, inefficient government bureaucracy,

and crime and theft.

in regard to economic inequality, the top 10 per cent of income earners in

Mexico earn 39 per cent of the country’s total income. This figure compares

with 30 per cent in the united States and 26 per cent in Canada.11 One reason

behind the significant income disparity in the country is the coexistence of two

parallel economies in Mexico: the highly modern and productive economy and

the low-productivity, traditional economy that employs more than half of the non-

agricultural workers.12 The traditional economy is filled with informal businesses

that do not comply with various rules and regulations, and their poor productivity

performance is limiting Mexico’s overall growth potential.13 Therefore, to achieve

more inclusive growth across the Mexican society, the government needs to

adopt policies and measures that encourage informal businesses to move

toward becoming modern and more productive firms.


Areas of Opportunity for Canadian Companies

Looking ahead, which Canadian industries are well positioned to

succeed in the Mexican market? To answer this question, we built upon

previous Conference Board of Canada research to identify those areas

with bright potential for Canadian businesses in Mexico. in particular, we

looked at two key indicators driving an industry’s likelihood to succeed

internationally: a growing demand for its products, and available capacity

to meet it.

As shown in Exhibit 1, being competitive is also essential for industries

to succeed. however, each industry is composed of a wide array

of different goods and services—produced by competitive and less

11 The World Bank, Income Share Held by Highest 10%. Estimates are based on 2012 data for Mexico, 2010 data for Canada, and 2013 data for the united States.

12 Bolio and others, A Tale of Two Mexicos.

13 ibid.

The traditional economy is limiting Mexico’s overall growth potential.


competitive firms. Therefore, competitiveness can also be viewed as a

company-level variable. Prior Conference Board of Canada research has

identified the keys for individual businesses to compete and succeed in

global markets, which can also be applied in the case of Mexico. These

keys are summarized in the next section.

For the demand component, we took into account the industries

identified in the report “Sweet Spots” for Canadian Businesses in

Mexico,14 Canadian industries’ recent export performance,15 and future

export growth based on our 2015 trade forecast.16 For industrial capacity,

we used the analysis presented in the report Canada’s Next Trade Era.17

For each of these four sources of information, we selected a threshold

for industries to meet. The selected industries were those meeting

three out of the four specified thresholds. Detailed criteria used and

corresponding results are summarized in Appendix A.

14 haimowitz, “Sweet Spots” for Canadian Businesses in Mexico.

15 Based on data from innovation Science and Economic Development Canada, Trade Data Online.


17 Palladini, Canada’s Next Trade Era.

Exhibit 1Success: Intersection of Demand, Capacity, and Competitiveness


1

CapacityCapacity Competitiveness

Demand

Success



A total of 14 Canadian industries have been identified, with the majority

of them being from the manufacturing sector. These can be grouped into

three categories, based on their respective products: industrial goods,

consumer products, and services. industries highlighted in blue are

those that met three out of four criteria, but not the capacity criteria.

(See Table 4.)

Table 4 Canadian Industries Well-Positioned for Growth in Mexico

Underlying Demand Driver Type of Products Selected Canadian Industries

Mexico’s growing manufacturing hub industrial goods Motor vehicle parts manufacturing

Primary metal manufacturing

Motor vehicle manufacturing

Synthetic rubber and fibres manufacturing

Machinery manufacturing

Plastics and rubber products manufacturing

Fabricated metal manufacturing

Aerospace product and parts manufacturing

Miscellaneous products manufacturing

Other transportation manufacturing

Mexico’s expanding middle class Consumer products Food manufacturing

Other chemical manufacturing

increased trade across north America Services Commercial services

Transportation services

Note: Industries highlighted in blue may need to invest in additional capacity to seize opportunities in Mexico. Source: The Conference Board of Canada.

As Mexico’s manufacturing sector continues to expand at a solid pace in

the years ahead, so will its demand for industrial goods. And, Mexico’s

growing middle class will fuel robust increases in spending on consumer

products. Providing that protectionism measures do not increase in

the years ahead as a result of political pressures, we foresee further

integration of north American supply chains and increased trade in the


region. in turn, increased trade between Canada and Mexico would fuel

demand from Mexico for a wide range of necessary commercial and

transportation services along the supply chains.

Industrial Goods: Strengthening Links With Mexico’s Growing Manufacturing HubAs mentioned earlier in this briefing, Mexico’s manufacturing sector

appears to be entering a golden age, with numerous factors encouraging

multinationals from around the world to set up production facilities in the

country. These factors include the country’s proximity to the u.S market,

skilled labour, decent infrastructure, competitive operating costs, and

market access to 45 countries supported by free trade agreements.

The Mexican automotive sector (including autos and auto parts) is,

by far, the largest beneficiary of the above factors. in 2015, Mexico

produced more than 3.5 million vehicles, making it the world’s 7th largest

car manufacturer. By comparison, Canada held the 10th rank, with

2.3 million manufactured vehicles.18 The automotive sector accounts for

a third of Mexico’s exports; 17 per cent of its manufacturing sector; and

3 per cent of the country’s gross domestic product.19 And this impressive

economic footprint will continue to grow in coming years. According to

the president of the Mexican Automotive industry Association, vehicle

production is forecast to surpass 5 million vehicles by 2020.20 Such

growth will be supported by numerous multi-billion-dollar investments

currently being made by global car manufacturers such as GM, Ford,

Toyota, Mazda, honda, Volkswagen, BMW, Kia, nissan, and Chrysler.

And several car manufacturers have been investing in manufacturing

plants to start producing higher-end vehicles in Mexico, including Audi’s

new facilities in San Jose Chiapa to produce its Q5 SuV.

18 Organisation internationale des Constructeurs d’Automobiles, Production Statistics.

19 ProMéxico, “The Mexican Automotive industry,” 18.

20 ibid., 6.

increased trade with Mexico will support demand for Canadian commercial services.



The expansion of Mexico’s automotive sector has quickly escalated after

the recession, as shown by the country’s rapidly growing exports to the

u.S., which rose by more than 75 per cent between 2010 and 2015. As

a result, Mexico has now surpassed Canada as the largest exporter of

autos and auto parts to the united States market. (See Chart 6.)

Mexico’s booming automotive sector means increased competition for

Canadian auto and auto parts manufacturers. however, it also means

increased opportunities for Canadian businesses, particularly for those

firms able to carve themselves a niche where Mexican firms might not be

able to compete. in fact, although Canadian autos and auto parts exports

to the united States flatlined in recent years, Canada’s exports to Mexico

have boomed—from $700 to $1.2 billion—mainly driven by the auto parts

segment. This is not surprising given Mexico’s growing role within north

America’s highly integrated supply chain in the automotive sector.

Chart 6Mexico Is Now the Largest Auto and Auto Parts Exporter to the United States (auto and auto parts exports to the U.S., US$ billions)

Sources: The Conference Board of Canada; International Trade Administration, Global Patterns of U.S. Merchandise Trade.

2005 06 07 08 09 10 11 12 13 14 15

20

30

40

50

60

70

Mexico Canada


But, although opportunities may be there for Canadian auto parts

manufacturers, robust growth is not assured. As such, the auto part

manufacturing industry was identified as having low capacity21 to take

on additional demand, which could limit the industry’s ability to meet

rising demand from Mexico moving forward. Also, given Mexico’s clear

cost advantage in this industry, Canadian firms will have to compete on

other grounds, mainly through offering differentiated products. The best-

equipped firms to establish themselves as key players in this transformed

automotive supply chain will be the innovative ones able to leverage

expertise that their Mexican counterparts may not have.

Mexico’s growing automotive sector is also opening a wide range of new

opportunities for other Canadian industries that supply the automotive

sector with key materials and components. These manufacturing

industries include primary metal, fabricated metal, plastics, and rubber

products. All four industries saw their exports to Mexico rising at a

double-digit pace since 2010 and Mexico’s booming automotive sector

has likely played a key role behind the growing demand for these

industries’ products. A good example is the fivefold increase in exports of

motor vehicle plastics parts and tires—from $30 million to $154 million—

between 2010 and 2015.

Although Mexico’s automotive sector is, by far, the country’s largest

manufacturing industry, it is not the only one poised for robust growth

in coming years. A wide range of manufacturing industries could also

be positioned for strong growth in Mexico in coming years—including

machinery and appliances, consumer electronics, and aerospace. in

fact, much focus has been made in recent months around the concept

of re-shoring—i.e., the return of previously off-shored activities in north

America. And Mexico could be a key beneficiary of this trend, as shown

by a recent survey performed by Deloitte.22 One-third of the survey

respondents—i.e., global u.S. manufacturers with revenues ranging

between uS$500 billion and uS$10 billion—that off-shored activities

21 See Appendix A.

22 Deloitte, and the Manufacturers Alliance for Productivity and innovation, Footprint 2020.

Mexico’s growing automotive sector will lead to new opportunities for Canadian manufacturers.



in the past two decades are now considering re-shoring. And these

respondents identified Mexico as the number-one destination for doing

so, followed by the united States. in turn, increased re-shoring activities

would translate into additional opportunities for Canadian firms to

expand their reach in Mexico, across all of the manufacturing industries

highlighted in Table 4.

in particular, the construction of new manufacturing plants in Mexico

on the back of re-shoring could lead to robust demand growth for high-

tech manufacturing equipment, thereby lifting demand for Canadian

machinery. For this reason, the Canadian machinery manufacturing

industry is forecast to see its exports to Mexico rising at the fastest pace

among all industries covered, with an expected increase in nominal

exports of more than 45 per cent between 2015 and 2019.23

Consumer Products—Tapping Into Mexico’s Increasing Middle ClassAccording to the Boston Consulting Group, the growing middle class,

coupled with high optimism among the Mexican population, will lead

to robust growth in consumer spending, with increases of more than

7 per cent annually until the end of the decade.24 Based on our analysis,

we identified two industries that will benefit from this trend: food

manufacturing and other chemical manufacturing—particularly soap and

cosmetic manufacturing.

in the food manufacturing industry, there has been a significant increase

in Canadian exports of meat to Mexico, particularly of pork and beef,

which rose from $287 million to $375 million between 2010 and 2015.25

And Mexico’s growing middle class will no doubt support demand for

quality Canadian meat in the years ahead. however, the future is not

only bright for meat products. A wide range of Canadian food products


24 Muniz and Chias, Is It Mexico’s Moment?

25 innovation Science and Economic Development Canada, Trade Data Online: NAICS 3116–Meat Product Manufacturing.


have the potential to succeed in the Mexican market, as shown by La

Petite Bretonne’s rapid expansion in this market in recent years. The

company has achieved this by exporting its Micro Croissants® and

oatmeal cookies to local chains, including Oxxo, City Club, h-E-B, as

well as Costco in the near future.

Pet food is another food manufacturing segment with promising export

potential in Mexico. Our pet food exports, albeit relatively small in

contrast with those of other industries, have gone from essentially

nothing back in 2010 to $15 million in 2015.26 As such, Canada’s trade

strength in the manufacturing of pet food products was outlined in a

2014 report by The Conference Board of Canada.27 According to this

report’s findings, the key factor behind Canadian pet manufacturers’

competiveness in foreign markets is our “Made in Canada” advantage,

as Canada is globally recognized for producing quality food products

in clean facilities. in 2014, sales of pet food products in Mexico totalled

more than $2.3 billion.28 There is clearly potential for Canadian pet

food manufacturers to start tapping into this huge market, particularly

in the higher-end segment in which they are internationally renowned.

however, it is worth mentioning that Canadian pet food manufacturers’

competitiveness could be affected by the 16 per cent tax applied on

imports of pet food products since 2013, when the Mexican Congress

approved the tax reform.29

The other industry that could significantly benefit from Mexico’s rapidly

growing middle class is other chemical manufacturing, which includes the

soap, perfumes, and cosmetic manufacturing segments. in fact, cosmetics

were another product category for which Canada has trade strength,

according to The Conference Board of Canada’s 2014 report Competing

Globally.30 Canada’s presence in the Mexican market seems well-poised

26 innovation Science and Economic Development Canada, Trade Data Online: NAICS 311111–Dog and Cat Food Manufacturing.

27 Audet, Competing Globally: Canada’s Hidden Success Stories.

28 Agriculture and Agri-Food Canada, Agriculture, Food and Beverage Profile—Mexico.

29 ibid.


There is potential for growth in Mexico for Canadian pet food and cosmetics manufacturers.



for rapid growth in coming years. Canada’s soap, perfumes, and cosmetic

manufacturing exports to Mexico increased by two-thirds between

2010 and 2015, from $15 million to $26 million.31 Canadian cosmetics

manufacturers’ competitive advantage in non-u.S. countries generally

rests on companies’ ability to establish themselves at an early stage in

fast-growth markets, and to commercialize new and innovative products.32

Services—Piggybacking on Rising Merchandise Trade Across North America With Mexican demand for industrial and consumer goods set to post

robust increases in coming years, so will demand for a wide range of

necessary services along the supply chains. (See Exhibit 2.) in particular,

we expect increased demand for transportation and logistics services,

and for commercial services such as design, research and development,

advertising, maintenance and repairs, and financial services. Between

2010 and 2014—the latest year for which data are available—Canadian

exports of commercial services to Mexico increased by 45 per cent,

to $600 million. This is more than Canadian machinery manufacturing

exports to Mexico, which were worth $530 million in 2015.

Morai Logistics has been leveraging Mexico’s increased trade with

the u.S. and Canada for the past few years. in fact, the company’s

CEO, Kelli Saunders, wants the company’s logistics services offered in

Mexico to become a core competency of the firm, given the country’s

tremendous growth potential in the years ahead. in particular, Saunders

anticipates robust demand for logistics services due to the growing

number of manufacturing firms moving their facilities to Mexico, and now

having to transport their products in and out of the country. And, building

on topics previously discussed, Morai Logistics’ largest clients happen to

be automotive and food manufacturers!

31 innovation Science and Economic Development Canada, Trade Data Online: NAICS 3256–Soap, Cleaning Compound and Toilet Preparation Manufacturing.



What About the Industries That Were Not Selected?The focus of the analysis presented here has been on a small selection

of Canadian industries poised for robust growth in Mexico. however,

as explained in the report Competing Globally,33 Canada’s ability

to compete internationally in any given industry often rests on the

shoulders of a handful of ambitious and innovative companies. And

these companies operate in a diverse and unexpected mix of industries.

Therefore, every industry is likely to have its own hidden gem—i.e.,

companies having great success at leveraging Mexico’s bright potential.

Energold Drilling is an example of this. The company operates in the

highly cyclical commodity sector, offering drilling services to companies

in the mining and energy sectors. not surprisingly, the mining and oil and

gas industries did not stand out as being particularly promising based

on our analysis, given the current economic context. With the significant

33 ibid.

Exhibit 2“Smiling Curve” of Production Value

Source: Adapted from Stan Shih, Me Too Is Not My Style.

Research anddevelopment

Intellectualproperty

Design

Purchasing

ManufacturingFinancingoptions

Production chainTime

Higher

Value-added

Lower

Maintenance,training,and support

Marketing

Transportationand storage

Wholesaleand retail



decline in commodity prices, particularly for oil and metals, commodity-

extracting firms have been going through difficult times, cutting

production and shedding jobs. however, this hasn’t stopped Energold

Drilling from maintaining its long-time presence in Mexico, having been

in this market for over 15 years. Obviously, times have been more

challenging in Mexico recently, as it has been the case around the world

due to weaker demand for drilling services from commodity producers.

Luckily, Energold Drilling is increasingly diversifying its activities. The

company also provides geotechnical and seismic drilling services

used to gather information on the properties of soils and rocks ahead

of construction activity—notably for infrastructure. And this is an area

where the Mexican government will invest a significant amount in coming

years. in its latest national infrastructure Program, which covers the

2014–18 period, the government promised infrastructure investment

totalling nearly $600 billion.34

Another way Energold is diversifying its activities is through its

manufacturing facilities, one of which is located in Chihuahua, Mexico,

and is known as industrial Processes Chihuahua (iPC). iPC, which

was acquired in 2011, produces parts for new drilling rigs and for the

maintenance of the rig fleet. Since the acquisition, iPC has now become

a key supplier of parts for Energold’s global operations.

in the longer term, Energold still has a lot of faith in a promising future

for Mexico’s energy sector. According to Mr. Jerry huang, Director of

Corporate Development and investor Relations, once energy prices

recover, Mexico will have huge potential for oil and gas extraction

activities. As such, “Mexico has been coined the undeveloped Texas

of the 50s by many oil and gas experts.” With the company’s energy

divisions cumulating more than 50 years of expertise in the oil and gas

sector, Energold is well-prepared to tap into the Mexican opportunities

that will come out of a future oil recovery.

34 PricewaterhouseCoopers (PwC), National Infrastructure Program 2014–2018.

Canadian companies with the potential to succeed in Mexico can emerge from any industries.


Lessons From Experienced Firms

how can Canadian firms leverage the opportunities that Mexico will

offer in the next few years while mitigating the risks it entails? First, the

companies have to ensure they have a global competitive advantage

(GCA) that can be leveraged in the Mexican market.

A GCA refers to a firm’s ability to create more value for its international

customers than its competitors.35 For example, La Petite Bretonne’s

GCA lies in its innovative and quality pastries—particularly its flaky

Micro Croissants® and soft oatmeal cookies—that correspond to

Mexican consumers’ taste buds and cannot easily be replicated by its

competitors. Morai Logistics’s GCA resides in its deep understanding of

Mexico’s transportation infrastructure, allowing the company to offer its

clients customized and efficient transportation solutions. And Energold

Drilling’s GCA consists of its environmentally sensitive drilling solutions

that allow the participation and involvement of the local community.

But how can other firms develop their GCA? Previous Conference Board

of Canada research identified four key resources underlying every firm’s

GCA. These resources are skilled executives, foreign market knowledge,

innovation capabilities, and international networks. (See Exhibit 3.)

in turn, these resources—particularly firms’ international networks

and market knowledge—are essential to identify and act on business

opportunities worth pursuing in Mexico.

35 Audet, Selling to the World: The Keys to International Business Success.



Identifying Business Opportunities in MexicoBased on our three interviews with firms doing business in Mexico,

having a key contact with experience, combined with an in-depth

understanding of the market, played a crucial role behind these firms’

success. From these findings, we identified three important steps that

allowed the interviewed firms to tap into opportunities in Mexico:

1. finding someone with experience in Mexico

2. building market intelligence on the ground

3. leveraging government resources and other business networks

Exhibit 3Key Resources for Building a Global Competitive Advantage

Source: Audet, Selling to the World.

Market knowledge

Skilled executives

Innovationcapabilities

Internationalnetworks

Market knowledge• Market orientation• Local presence• Prioritizing foreign markets• Adapting to client needs

Skilled executives• Entrepreneurial leaders• Commitment to international growth• International experience

Innovation capabilities• New and improved products• R&D investment• Adopting new technology• Innovative processes

International networks• Existing customers• Local distributors• Government contacts• Professional service firms

Globalcompetitiveadvantage


1. Finding someone with experience in Mexico: Selling to a foreign

market cannot be done blindly. This is why the three companies we

interviewed took their first dive into the Mexican market by leveraging

a contact with prior experience in Mexico. Kelli Saunders saw an

opportunity with one of her largest clients from the united States

about eight years ago, and it snowballed from there. “This client had

manufacturing coming out of Mexico, which sparked our interest and

propelled us into going down to Mexico and bringing our suppliers into

the equation.”

At La Petite Bretonne, it was through meeting someone from h-E-B—

a supermarket chain from Texas that has stores in Mexico—that the

Mexican market suddenly appeared on the firm’s radar. h-E-B was

interested in launching some of La Petite Bretonne’s products in Mexico

under private labels, and the two companies have now been doing

business together for more than a decade.36

When Energold Drilling was looking for opportunities in Mexico, it

was through a local contact in the country that the company realized

the potential for its portable drilling rigs in that market. in turn, this

contact helped Energold set up a formal business in Mexico and

market its services.

2. Building market intelligence on the ground: Once a company has a

foot in Mexico, it becomes a lot easier to gather the necessary market

intelligence to expand its reach. Every company interviewed highlighted

the importance of having a physical presence in Mexico to identify new

leads. For example, La Petite Bretonne has retained the services of two

commercial agents based in Mexico who import the company’s products,

represent it at food shows, and deal with local customers. On top of that,

these local agents know the Mexican market and its regulations.

36 Vallerand, “Ces Bisquits Qui Cartonnent Au Mexique.”



At Morai Logistics, a key strategy used to identify potential leads is to

visit distribution centres and manufacturing plants in the auto, household

goods, and consumer products industries in Mexico. Similarly, at

Energold Drilling, one of the key channels used to collect information on

the Mexican market is through people on the ground. According to Jerry

huang, “There’s no replacement for local knowledge.”

3. Leveraging government resources and other business networks:

Local market intelligence can be supplemented with information gathered

from trade shows, industry magazines, and through government

resources such as trade commissioners and export agencies. For

example, through participating in fairs and trade missions organized

by the Agri-Food Export Group Québec–Canada, La Petite Bretonne

secured meetings and appointments with potential distributors. in

addition, the company benefited from the assistance of the Canadian

Trade Commissioner in Mexico and the Quebec Ministry of Agriculture,

Fisheries and Food, which also introduced the company’s sales team

to potential buyers. This view was also echoed by Jerry huang from

Energold Drilling, who mentioned receiving assistance from the Mexican

and Canadian governments—particularly trade commissioners and

export agencies in the form of useful market intelligence to identify leads.

For Morai Logistics, it was not so much government resources that

propelled the company’s activities in Mexico, but rather the networking

opportunities made possible through WEConnect international and

Women Business Enterprises (WBE) Canada. WEConnect is a global

network connecting women-owned businesses with potential customers.

Similarly, WBE Canada also introduces women-owned businesses to

potential corporate clients with supplier diversity programs, and certifies

those Canadian organizations that are at least 51 per cent owned,

managed, and controlled by women. As Morai Logistics is a women-

owned company, Kelli Saunders strategically looks, by way of corporate

supplier diversity programs, for clients in Mexico that support diversity.

in turn, corporations with such programs in place, including some of the

large auto manufacturers, tend to be active in the WEConnect and WBE

Canada networks.


Overcoming the Challenges of Doing Business in MexicoDoing business in a foreign market comes with several challenges. And,

this is particularly true when pursuing opportunities in a less-developed

country like Mexico. however, in contrast with commonly held beliefs,

language barriers are not one of the challenges. none of the firms we

spoke with identified the use of the Spanish language in Mexico as a

barrier to doing business there.

According to Kelli Saunders, the language barrier rapidly dissolved

since business people in Mexico are generally well-educated and often

speak multiple languages—often up to five of them, including English.

in addition, Morai Logistics also has three employees based in Canada

who are fluent in Spanish, which adds a level of comfort for clients

and suppliers who are more at ease speaking Spanish. At La Petite

Bretonne, the company relies on its local agents who speak both English

and Spanish. And for Energold, the language is not an issue as the

company has over 600 employees in Mexico, all speaking Spanish.

Therefore, Canadian firms wishing to do business in Mexico should not

let a potential language barrier dissuade them. it turns out the language

barrier is significantly reduced by the widespread use of the English

language in the Mexican business community and by hiring Spanish-

speaking staff in Canada or Mexico. And what about Mexico’s different

culture? Again, this is not an issue for the interviewed firms. All three

companies highlighted the ease of doing business in Mexico, notably

because people are generally very friendly. Kelli Saunders reported that

she “never had better hospitality and better business meetings than

in Mexico!”

Still, key challenges do remain when doing business in Mexico and,

based on our three interviews, they concern three areas: security,

shipment of goods, and corruption.

Challenges when doing business in Mexico concern security, shipment of goods, and corruption.



Security IssuesAccording to Dominique Bohec, Vice-President Sales and Marketing at

La Petite Bretonne, security and safety is indeed an issue in Mexico.

“The reality is that you must be careful. it’s not Montréal or Toronto. it

can be a rough country and you must understand the risks and take

precautions.” he suggests taking measures when travelling for business

in Mexico. These include using your own drivers instead of taxis, and

regularly changing up the places where you stay and eat. Also, security

issues can be more acute outside of urban areas, where “pressures

from illicit drug trade inevitably happen.” The best way to mitigate these

risks, according to Jerry huang from Energold, is to have adequate local

knowledge and ensure people are fully trained so that they can anticipate

potential issues.

Another type of security challenge mentioned relates to transportation

equipment and infrastructure. Morai Logistics, for example, has

recognized the threat posed by the potential theft of transportation

equipment. To reduce this risk, the company offers an intermodal product

line to its customers, through leveraging Mexico’s railway system. As

Kelli Saunders put it: “Fewer miles travelled on the road reduce the

potential for theft.” At the beginning, she reported it took some time for

her to convince her clients to put their goods on rail in Mexico instead

of transporting it by truck. “We worked feverishly to convince clients it

made better sense to put their products on rail in Mexico in order for

us to provide them with better-secured service. now many people have

jumped on that bandwagon.” And, as to transportation infrastructure

security issues, Ms. Saunders identified the weather as being an

important risk factor. heavy storms, tornadoes, and other unexpected

weather conditions can damage the transportation network and disrupt

the north American supply chain.


Difficulties With Goods Crossing the Mexican BorderAnother issue that was mentioned during our interviews concerns the

difficulties encountered when shipping goods to Mexico. According to

Dominque Bohec from La Petite Bretonne, this process can be particularly

complex as there are a number of regulations and requirements to comply

with and these can change rapidly. in fact, the complexity of Mexico’s

regulations seems to be particularly an issue for food products. As such,

Agriculture and Agri-Food Canada recommends Canadian exporters “work

closely with their Mexican importers to ensure all requirements for their

products are properly fulfilled.”37 Mr. Bohec says that “every shipment is

a challenge.” To mitigate the related risks, La Petite Bretonne assigns

tasks related to product shipment to Mexico to specific employees who

understand these issues and who can deal with the potential problems at

the border as they arise.

CorruptionOut of the three interviewed companies, Energold is the only one with

activities in frontier-developing areas in Mexico. These are areas where

corruption can be more problematic than in large urban cities, especially

17 years ago when Energold started doing business in Mexico. At the

time, it was not uncommon for politicians and local police to ask for

bribes. But, as Jerry huang puts it: “it’s a slippery slope and a short-

sighted way of doing business, which is unacceptable for a public

company.” To address these issues, Energold’s policy consists of a

“uniform and consistent decline for any discussions, as any faltered

step sets a difficult precedence.” And to reduce potential pressure, “it’s

important to set the tone early on.” This way, once operations get larger,

the company is then left alone. There is clearly a trade-off between

short-term gains and long-term benefits, as some opportunities may

have to be turned down. however, doing things right from the get-go can

save a lot of headaches down the road, according to Jerry huang.

37 Agriculture and Agri-Food Canada, Agriculture, Food and Beverage Profile—Mexico.



Tips to Succeed in MexicoBased on our conversations with companies doing business in Mexico,

two key tips have emerged to succeed in this market: building trust with

people, and being committed for the long term. Both Morai Logistics and

La Petite Bretonne highlighted the importance of building trust with their

business partners in Mexico. Personal relationships are very important

in the Mexican culture. As such, “Mexicans want to know about you and

your family and tell you about their family,” according to Kelli Saunders

from Morai Logistics. Dominique Bohec from La Petite Bretonne shared

a similar view: “For Mexicans, the human side is very important.”

To this effect, Ms. Saunders shared an anecdote illustrating the

importance of building relationships at a more personal level with

Mexican business people. Once, her one-hour meeting turned into a

full-day event, bringing 14 people together. And, it was filled with laughs,

candies, cakes, and homemade enchiladas. in turn, it is encounters

like these that help build the necessary trust with business partners

Canadian firms need to succeed in Mexico. As Kelli Saunders put it:

“Once you have the rapport, it becomes easier and most enjoyable to

do business.”

however, building strong relationships and establishing a profitable

business in a foreign market takes time. As Dominique Bohec puts it: “Be

prepared to invest and take time to build relationships.” And, according to

Jerry huang from Energold, it is also essential to communicate the firm’s

long-term commitment in a foreign market to all of its stakeholders.

Conclusion

Mexico’s booming manufacturing sector and favourable demographics

will open up business opportunities for Canadian firms in coming

years. With Mexico becoming a manufacturing powerhouse in north

America, we foresee increased demand for Canadian industrial

goods—including auto parts, machinery, plastics, and rubber, as well

as primary metals and fabricated metals. On the consumer goods

side, Mexico’s growing middle class will support demand for Canadian


food products—particularly meat, pet food, and cosmetics. in turn,

strengthening trade ties between Canada and Mexico, particularly on the

back of Mexico’s growing role in the north American supply chain, will

increase demand for commercial and transportation services.

To identify business opportunities in Mexico, our interviews with three

Canadian companies confirmed the importance of having a network of

useful contacts on the ground, as well as an in-depth understanding

of the market. Doing business in Mexico does not come without its

challenges, particularly in the areas of security, border clearance, and

corruption. Luckily, companies can overcome these challenges, as long

as they are committed to this market for the long run.

Canadian companies confirmed the importance of having a network of useful contacts.


Find Conference Board research at www.e-library.ca. 36

APPENDIX A

Canadian Industries Poised for Robust Growth in Mexico

Table 1Canadian Industries Poised for Robust Growth in Mexico

Demand Capacity

Industries

High Growth Potential in

Mexico*Export

Momentum**

Strong Export Growth Expected in the Future***

Available Capacity****

Primary sector

Crop production n.a. • •

Animal production n.a. • •

Fishing, hunting, and trapping n.a. •

Mining (except oil and gas) n.a. •

Manufacturing

Food manufacturing • • •

Beverage and tobacco product manufacturing • •

Textile mills •

Textile product mills

Clothing manufacturing

Leather and allied product manufacturing •

Wood product manufacturing • •

Paper manufacturing •

Printing and related support activities •

(continued ...)

37

Appendix A | The Conference Board of Canada

Find Conference Board research at www.e-library.ca.

Table 1 (cont’d)Canadian Industries Poised for Robust Growth in Mexico

Demand Capacity

IndustriesHigh Growth

Potential in Mexico*Export

Momentum**

Strong Export Growth Expected in the Future***

Available Capacity****

Petroleum and coal products manufacturing • •

Basic chemical manufacturing •

Synthetic rubber and fibres manufacturing • • •

Pharmaceutical and medicine manufacturing • •

Other chemical manufacturing • • • •

Plastics and rubber products manufacturing • • •

non-metallic mineral product manufacturing

Primary metal manufacturing • • • •

Fabricated metal product manufacturing • • •

Machinery manufacturing • • • •

Computer and electronic product manufacturing • •

Electrical equipment and appliances manufacturing •

Motor vehicle manufacturing • • •

Motor vehicle parts manufacturing • • •

Aerospace product and parts manufacturing • • •

Other transportation manufacturing • • •

Furniture and related product manufacturing

Miscellaneous mfg. • • •

Services

Travel services •

Commercial services • • •

Transportation and government services • • •

Notes: Industries highlighted in blue met a minimum of three criteria, including the capacity threshold. Industries highlighted in grey met three criteria, excluding the capacity threshold. *industries listed as having high-growth potential in Mexico are based on the Trade Openness Indicator presented in Haimowitz, “Sweet Spots” for CanadianBusinesses in Mexico **industries that saw their nominal exports increase by more than 4 per cent per year since 2010 are based on data from Innovation Science and EconomicDevelopment Canada, Trade Data Online***industries with projected nominal export growth, which is higher than 4 per cent annually for the period 2015–19, are based on The Conference Board ofCanada, Canadian Interactive Trade Forecast—2015 ****industries identified as having “high” or “moderate” capacity levels are based on Palladini, Canada’s Next Trade EraSource: The Conference Board of Canada.


Find Conference Board research at www.e-library.ca. 38

APPENDIX B

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Insights. Understanding. Impact.

Reaching Out for Business Opportunities in Mexico Kristelle Audet

To cite this briefing: Audet, Kristelle. Reaching Out for Business Opportunities in Mexico. Ottawa: The Conference Board of Canada, 2016.

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