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Mexico highlights

Time to tune in: Latin American companies turn up the volume on global growth

Growing Beyond

2 Growing Beyond

About this report

Forecasting methodology

Rapid-growth markets have largely been viewed and studied from the perspective of inbound investment by companies based in the West. Mexico highlights and the main global report of which it is a part, Time to tune in: Latin American companies turn up the volume on global growth��of outbound investment from companies based in Latin America and provide in-depth perspectives on decision-making for companies from both mature and rapid-growth markets.

Mexico highlights draws upon a survey of 600 business executives based in Argentina, Brazil, Chile, Colombia, Mexico and Peru. The survey was conducted by Oxford Economics in November and December 2012. Among the

respondents, 29% were from Brazil; 24% from Mexico; 13% each from Argentina, Chile and Colombia; and 10% from Peru. Among the companies surveyed, the reported annual revenues were: 25%, US$1 billion or more; 20%, US$500 million to US$999 million; 9%, US$250 million to US$500 million; and 46%, under US$250 million.

Mexico highlights is based on three sources of research: the survey results for Mexico, qualitative interviews with several Ernst & Young sector and country leaders, and the viewpoints of senior executives from companies based in Mexico. Oxford Economics provided analysis of current

Latin American markets and Mexico and the rest of the world.

The bilateral sector export forecasts for the Latin American countries in the survey are underpinned by Oxford Economics’ Global Macroeconomic and Industry Models.

The Oxford Global Model covers 45 economies in detail, with the rest of the world economy covered in six trading blocs. Individual country models are fully linked through global assumptions about internationally traded goods and services, exchange rates, competitiveness, capital markets, interest rates and commodity prices. The

input/output tables to estimate the share of domestic

Oxford Economics’ industry forecasts to inform future demand and production trends.

exports was sourced from the UNComtrade database,

data on exports of services was sourced from the

3Latin American companies turn up the volume on global growth / Mexico highlights

Introduction TMexico and most will tend to know two

there, and second, the country suffers from

This impression is not inaccurate. Manufacturing is an important part of the Mexican story, and drug violence has cost thousands of lives in the past six years.

understates the reality of Mexico, which, despite its challenges as a developing country, has created one of the world’s strongest, most vibrant economies. The International Monetary Fund ranks Mexico as the 14th-largest economy in the world, on the doorstep of the world’s largest market. The North American Free Trade Agreement

with Canada as well. This is only the beginning of an exuberant growth trajectory. We see it every day when we meet our clients here in Mexico City and advise them on their next bold moves. We have observed it on the world stage too – for example, in the summer of 2012 when Mexico

to chair the G20 summit. Jim O’Neill, the Goldman Sachs economist who coined the acronym “BRIC” in 2001, said at a London investment conference in 2012 that he now expects Mexico to become the world’s seventh-largest economy by 2020.1

As was the case in China, Mexico’s economy got its jump-start through manufacturing

tax advantages, North American companies stayed once they saw the valuable role of Mexican factories in their supply chain. And again like China, the hardworking and

are rapidly transforming Mexican-owned companies into world-class competitors with global ambitions. In the past few years, these national champions have been looking abroad, both to the rest of Latin America and to the US. This report focuses on these new champions: the rising cohort of strong and sophisticated Mexican companies. It explores their increasing engagement with external markets, including their goals in growing their business abroad, the strategies they are using to expand and the challenges they face. Whether yours is a foreign company looking to partner with one of Mexico’s new champions or a Mexican business looking for new cross-border

useful.

Alberto Tiburcio Regional Managing Partner, Mexico and Central American Ernst & Young

Mexico highlights and Time to tune in: Latin American companies turn up the volume on global growth are part of Growing Beyond,

new approaches to talent management.

Footnotes

1. ”Mexico as a growth oriented economy,” madeinmexicoinc.com/mexico-as-a-growth-oriented-economy, »16 March 2012, accessed 10 April 2013.

4 Growing Beyond

Fast facts: Mexico

Mexico is one of the world’s most open economies. Its imports and exports represent nearly 60% of total GDP. The US, by contrast, is just 21% open, by that measure, and Brazil just 18.5%. (“Open economy brings rewards,” Financial Times, 16 April 2012)

On Ernst & Young’s 2012 Globalization Index, which rates the extent of globalization of the world’s top 60 countries by GDP, Mexico ranks 37th, well above Brazil, which places 45th. (Looking beyond the obvious: globalization and new opportunities for growth, Ernst & Young, 2013)

The Central Bank of Mexico now holds cash reserves of US$166.3 billion as of early April 2013. (Banco de México weekly report, 16 April 2013)

members of the Organisation for Economic Co-operation and Development (OECD). (“The Rise of Mexico’s Middle Class,” Wall Street Journal, 12 March 2012)

Between 2011 and 2021, exports from Mexico will rise more than anywhere else in Latin America, both as a percentage (7.6% annually) and in absolute numbers, generating a cumulative total of US$3.8 trillion. (Oxford Economics)

In 1980, oil dominated exports, but now represents only 13% of exports. Manufacturing, having grown considerably since 1980, represents twice as much. (Oxford Economics)

Manufacturing exports continue to climb 10% per year. (World Bank Mexico Overview)

Mexico has free trade agreements with more countries than any other nation in the world: 12 agreements with 44 countries. (UK Trade & Investment, 2012)

Mexico has more working-age people than people under 15 or over 65 — and will continue to do so through at least 2050. (Luis de La Calle, Luis Rubio, “Mexico: A Middle Class Society,” Woodrow Wilson Center, 2012)

The OECD considers 50% of Mexicans as middle class, but 65% of Mexicans describe

Washington Post, 23 July 2012)

Germans. (Better Life Index, OECD)


exico is now the 14th-largest economy in the world and is expected to continue

growing for the rest of the decade. One of the most open countries in the world, Mexico is home to a rapidly growing manufacturing sec-tor, with merchandise trade now accounting for more than 60% of GDP, according to the World Bank. Unlike some markets where high commodities prices add a rosy glow to what would otherwise be middling performance, the contribution of commodities to the Mexican economy has declined substantially in recent years — oil, for example, now represents only about 13% of exports. Several other factors are expected to drive growth in the near future, including the deregulation of the energy and telecommunication industries and Mexico’s growing status as a hub for low-cost manufacturing as labor costs rise in China and companies try to reduce their transportation costs.

The results of the Ernst & Young 2013 Latin America Outbound Expansion Survey and our qualitative research show that Mexican com-

investment in external markets. The following

polled expect that the US or Canada will be home to their best growth opportunities in the next three years.

the size of the potential customer base

biggest challenge our Mexican respondents

Executive summary

selling points as the quality of its products or

advantage by only 38% of Mexican respon-dents, compared with 52% among Latin American respondents overall.

believe that their corporate culture needs to be more international.

export will continue to be their top method of expansion, particularly in developed markets

well for many Mexican companies, only 26% are considering pursuing an M&A strategy in

executives are considering it in developed markets than the Latin American average

that greater success abroad will require revamping their company’s sales and market-ing functions.

with 43% of Latin American respondents overall — believe they will need to upgrade their information systems to compete inter-nationally.

Mexico is home to a rapidly growing manufacturing sector, with merchandise trade now accounting for more than 60% of GDP.

M

6 Growing Beyond

Business implications and recommendations

hese opportunities and challenges require several strategic responses from

Mexican companies that wish to succeed in international markets. We recommend the following actions:

Target the Hispanic market in the US. It is

in the US makes up the third-biggest country in Latin America, bigger than every Latin country but Brazil and Mexico. More people in the US now claim Mexican ancestry than Irish, English or Italian. And they’re doing very well: Nielsen, the ratings company, believes that

US$1 trillion in 2010 to US$1.5 trillion in 2015. And although they are increasingly bilingual and assimilated, they are verybrand loyal.

T But make sure to diversify into other countries. Though convenient and enormous, the US is only one market, and a relatively volatile one. Perhaps the biggest lesson to be drawn for Mexican companies from the 2009 downturn, in which Mexico lost 6% of its GDP, is the importance of diversifying exports outside the US market and playing up the advantages of Mexico’s cost-competitive labor. With free trade agreements that give Mexico open access to 44 markets around the world, many options are available.

Watch your transfer pricing. All this export activity tends to create potential transfer pric-ing problems. Manuel Solano, Tax Managing Partner for Ernst & Young in Mexico, warns that the Government has decided to make it an area of focus. “If I had to pinpoint where within the various tax issues taxpayers are most vulnerable, it would be in transfer pric-

transfer pricing as basically an area where there is low-hanging fruit, and they’re very keen on focusing on that aspect.”

Consider an M&A strategy. Despite the suc-cesses that bread manufacturer Bimbo and other Mexican companies have enjoyed in mergers and acquisitions, and the operational expertise of many top Mexican manufacturers, our survey suggests that relatively few com-

interest rates still low and the US economy on the rise, it may be time to start looking for assets that may be up for sale.

Replicate. One old song says that if you can make it in New York, you can make it anywhere. But these days, it may be truer in Mexico City. Consider the presence of 400 million Spanish speakers worldwide, and bil-lions of newly middle class consumers in the world’s rapid-growth markets. This means that concepts such as KidZania, the children’s role-playing city being franchised all over the world

-lated to other markets. Just as McDonald’s grew rapidly in the US before being replicated successfully abroad, so Mexican consumer

just as well elsewhere. Tweaks may not even be necessary: for example, Genomma Lab, the Mexican pharmaceutical and personal care giant, launches products elsewhere only after they succeed in Mexico — and changes almost nothing internationally, either in packaging or


erhaps the most telling indicator of Mexico’s economic health is that after

decades of constant migration to the US, the

down to zero. These days, Mexicans in search of a land of opportunity don’t have to ford rivers or cross any deserts. They just step outside their door.

Mexico is the fourth-largest economy in the Americas and among the largest in the world. Ernst & Young’s Rapid-Growth Markets

economy will grow 3.7% in 2013 and remain above 3% through 2016 as the US regains steam. Oxford Economics analysts forecast that between 2011 and 2021, exports from Mexico will rise more than anywhere else in

-

map, “Mexico regional goods exports by US$b,

If this steady growth keeps up, some leading economists believe, Mexico could become one of the world’s top 10 economies in just a few years. No wonder the economy attracted US$19.5 billion in foreign direct investment

Foreign Direct Investment in Latin America and the Carib-bean, 2011, the United Nations Economic Commission for Latin America and the Carib-

P

temporarily, but now that the US is moving forward, Mexico is also growing solidly. “The economic crisis did not hit Mexico directly, because banks never acquired the bad paper that caused so many problems around the world, but the markets slowed,” says Alberto Tiburcio, Regional Managing Partner, Mexico

The US$1.2 trillion economy is home to 11 of the Forbes Global 2000, the second most represented Latin American country in the rankings after Brazil. And other Mexican companies are following close behind. With relatively low wages compared with Latin America’s other leading economies, a shared border with the US and free trade agreements with most of the world’s largest economies, Mexico provides its businesses with a good strategic position to grow internationally.

The time is right: despite Mexico’s positive strategic position as an exporter, outward bound foreign direct investment fell sharply between 2010 and 2011, to US$8.946 billion, about a third less than the prior year, marking only the second year in negative FDI growth since 2001. Most of the investments focused on the US, including Alfa’s US$600 million ac-quisition of an Eastman Chemical plastics and

“ The economic crisis did not hit Mexico directly, because banks never acquired the bad paper that caused so many problems around the world, but the markets slowed.”

Alberto Tiburcio, Regional Managing Partner, Mexico and Central America, Ernst & Young

Business environment and economic outlook

acid unit, CEMEX’s US$360 million investment in its US subsidiary, and Bimbo’s US$157 million increased stake in Sara Lee Corp. The bigger deals were farther south, however, such as Grupo Mexico’s US$934 million mining investment in Peru and America Movil’s US$5.837 billion in telephone infrastructure investments in Argentina, Brazil, Chile, the Dominican Republic and Peru Foreign Direct Investment in Latin America

and the Caribbean, 2011companies are therefore poised to expand

One major advantage they have is Mexico’s stable and sophisticated tax system. In an era when many governments are shifting tax and tariff rules to enhance their revenue or for political advantage, “Mexico has by far the most developed tax system in the region,” says Ernst & Young’s Solano. “It’s sort of the exporter of tax legislation.” Given its proximity to the US and its own historical traditions — Mexico’s tax system dates back to the Aztecs — Mexico is at the forefront of world tax develop-ments, according to Solano. “Mexico is among the pioneers in the world when it comes to transfer pricing, CFC [controlled foreign com-pany] legislation, foreign tax credits and the

8 Growing Beyond

Although the Government has focused largely on building its export economy, Mexico also shows promise as a consumer economy, and domestic consumption is increasingly seen as an important engine of growth in its own right. With a population of 114 million, Mexico is the largest market of Spanish-speaking consum-ers in the world, and these days, more than half are middle class. Beyond that, the new President, Enrique Peña Nieto, has signaled his intention to open several important sectors to more competition, including telecommu-nications and energy, and to try to reduce drug-related violence. As a member of the

holds a majority in Congress, Peña Nieto is expected to be able to pass more of his legisla-tion than his predecessor, Felipe Calderón, who belonged to the opposition National Ac-

-forms, the subject of debate among the politi-cal parties, are regarded by many analysts as Peña Nieto’s signature proposals. Currently, Mexico has the lowest tax receipts relative to GDP within the OECD. One factor is the informal economy, which accounts for 57% of the workforce and pays no or few taxes. Taxes on oil revenue contribute about one third of the government’s income. The reform talks are politically sensitive and little information

“large.” Observers believe that Mexico needs to increase tax receipts by six to eight percent-

Finance Minister says tax reform will be

“ If you’re investing in Latin America, you should explore whether Mexico should be

Manuel Solano, Tax Managing Partner, Ernst & Young, Mexico

Ernst & Young’s Tiburcio says that the new ad-ministration has already succeeded in focusing the attention of the public and the world more on Mexico’s opportunities than its challenges.

that although violence exists, “we are dealing with it, but there are other things that are very important, and we are also very much focused on those.”

The “other things” include several key sources of competitive advantage — all of which seem likely to become more important over the next decade:

Strong managerial skills.factor is the bench strength of Mexican management. “The management of Mexican companies has become much more profes-sional in the last 20 years,” says Tiburcio. “In the past they were more family-owned and family-managed. Now they are becoming more professional. They are dealing with the real issues, and learning how to grow.”

Another key advantage, according to some observers, is the degree of loyalty these managers show to their company and to their country. Many are proud of their companies’ accomplishments and of how far their coun-try has come in such a short time. “Mexico is still a nationalistic country – not as much as Japan, but nationalism is part of the culture,” says Tiburcio. “This is something that is very valuable.”

Location, location, location. Location is a key advantage for Mexico with at least three of its top industries. As a manufacturer, its proximity to the US is a lasting advantage. As a tourist destination, sunny Mexico continues to attract more and more visitors, and if secu-rity is brought under control tourism could

huge oil and gas reserves.

%

Argentina

Real GDP growth in Latin America

10

9

8

7

6

5

4

3

2

1

02012 2013 2014 20152011 2016

Source: Ernst & Young Rapid-Growth Markets Forecast, Winter edition, January 2013

Colombia

Chile

Brazil

Mexico


Rest of Asia

India

China

Mexico

United States

Europe

Rest ofLatin America

Middle East andNorth Africa

5

6

17

40

16

541

275

30

17

3

1

211

Mexico regional goods exports by US$b, 2011-21

Source: Oxford Economics�

2021

201120

Free trade agreements — and a free trade consensus. Mexico has 44 bilateral free trade agreements, more than any other country in the world. As a result, international trade is now more than 60% of the economy, accord-ing to Oxford Economics. Most economists agree that free trade leads ultimately to more trade and sooner or later enriches both parties. Yet although this principle is well established, maintaining a political consen-

trade are often counterintuitive to someone in an industry that suddenly faces tough foreign competition but Mexico has somehow achieved it.

A high number of double-taxation treaties. Mexico has tax treaties with 31 countries, including almost all the OECD members, quite a few Asian countries and a number of Latin American countries as well. This could well give Mexico an edge in becoming Latin Amer-

America, you should explore whether Mexico

should be the holding company for the region

Ernst & Young’s Solano.

Openness to business. Mexico is the fourth most business-friendly market in Latin

Colombia, and is in the top third of business-

More Spanish consumers. Approximately

language worldwide; 113 million of them live in Mexico, nearly double the population of any other Spanish-speaking market in the world. Although each market has its par-ticular character, for some consumer goods, Mexican companies should have a scale advantage as they market to other Spanish-speaking countries.

10 Growing Beyond

North America is by far the top destination, followed by Brazil and China

ith dozens of free trade agreements, including accords with China, the

US and Canada, Mexico is — not surprisingly — home to a high level of export activity. Seventy-six percent of Mexican executives say that their companies export to or sell outside the Latin American region, higher than the regional average. The vast majority of Mexico’s international business is conducted in North America — 77%, compared with a Latin market

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Where, why and how Mexican companies are expanding

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Figure 1: Mexican companies conduct most of their international business in North America

business (excluding your company’s home country)? Select all that apply.

United States or Canada

Brazil

Colombia

China

Middle East and North Africa

Source: Ernst & Young 2013 Latin America Outbound Expansion Survey

Western Europe

Costa Rica

Argentina

Panama

Chile

Mexico Latin America

Overall, Mexican companies are much more heavily reliant on the US and Canada for

sources of international business are Brazil

executives polled expect that the US or Canada will be home to their best growth opportunities in the next three years, while 28% cite Brazil and 21% point to China.

markets are bound to remain minor trading partners compared with a market right in the neighborhood. It’s about the law of gravity, says Jorge Lopez Perez, Regional Director for North America at ProMexico, a Mexican Government investment promotion agency. The nearer the object, the stronger the attraction, Lopez Perez says: “Gravitational laws work. That’s just the way it is. The politicians forget Newton, but you cannot convince me. I’ve been a company owner, I understand economics, so why are we going to Argentina if we can go to El Paso, Texas?”


Reaching new customers and sales growth are the main reasons for expansion

Whether they are looking to expand into rapid-growth markets within Latin America or elsewhere, or to reach developed markets, our respondents agree that their top goal is reaching new customers and driving sales growth, followed by accessing new distribution channels. To a much lesser extent, they seek to access technology or innovations or to obtain natural resources or raw materials. When targeting a new market, they look most

Most of the time, businesses from rapid-growth markets are expected to produce something that developed markets can already produce, just more cheaply or in larger quantities. Increasingly, however, businesses are emerging in Latin America that are creating entirely new kinds of value.

KidZania is one such business, an indoor theme park built to scale for 4- to 12-year-olds, complete with buildings, paved streets, vehicles, shops sponsored and branded by leading multinational and local brands – and a functioning economy.

Over 20 million people have visited one of the locations where, as KidZania’s web site explains, “Children perform ‘jobs’ and are either

Founded by Mexican entrepreneur Xavier López Ancona and a group of associates, KidZania has grown by franchise from one location

that opened in a Mexico City suburb in 1999 to 10 locations in eight countries. Part of the key to the company’s success is the care that KidZania executives bring to decisions as to where they allow a franchise and to whom they give the license. “We look for markets with certain characteristics, with respect to a minimal population of children, as well as income per capita,” says Sixto Uribe, Finance Secretary and CFO of KidZania. “And there are qualitative issues pertaining to the social and political stability of the country.”

The company targets markets with a per capita income of at least US$20,000, according to Uribe. Other requirements are a good location — “a very good commercial center,” in Uribe’s view — and franchisees who are “well known in the local market, with contacts with business partners and backers, and a good reputation.” KidZania also tries to take advantage of any treaties that enable the company to avoid double taxation and stay out of markets that turn up on money-laundering blacklists. The company avoids these locations

Turning a toy town into a global business

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Which aspects of the business environment do you assess most carefully when targeting an

Macroeconomic stability

Size of potential customer base

Local trade barriers or protectionism

Quality of research and development centers


Exchange rate stability

Legal and regulatory environment

Geographic proximity

Access to low-cost labor

Political stability

Cost of capital Mexico Latin America

12 Growing Beyond

As for what they bring to the party, Mexican executives are most likely to tout the quality

An interesting discrepancy in our survey is that executives don’t feel too strongly about the quality of their workers as a competitive advantage: only 38% claim it as a key advantage, compared with a Latin American

make greater investments in worker training and the Mexican educational system, or it could

the US market and exposure to more mature-

American market, Mexico is on the front line with the developed world.

when expanding abroad is identifying reliable

and putting the right managers on the ground

the Mexico-based hotel chain Grupo Posadas, advises that “it is essential to have someone with relevant local representation to enter a new territory. It facilitates understanding the culture and the way of doing business.”

Perhaps surprisingly, in view of Mexico’s strong global focus, 55% of the executives we surveyed believe that their corporate culture needs to be more international, more than the

This seeming contradiction could be because Mexican executives understand the importance of a global culture better than their Latin American counterparts because they have

is less concern about parochialism at the top: only 35% think their board needs to be more representative of global markets, compared with the Latin American average of 55%.

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Figure 3: Finding reliable business partners is the biggest challenge when expanding internationally Overall, what do you see as the biggest challenges for a Latin American company planning international expansion? Select up to three.

Identifying reliable business partners

Gaining detailed market understanding

Getting the right managers at the country level


Developing leading-edge products/services

Getting the right blend of skills

Integrating products and brands Mexico Latin America

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55

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Figure 4: Making corporate culture more international is the most important change needed to expand successfully Which of the following changes will be most important for your business to succeed with its international expansion plans? Select up to three.

Making our corporate culture more international

Making our board more representative of global markets

Decentralizing decision-making


Entering new market segments

Altering the value proposition for customers

Developing new distribution channels

Changing our organizational structure

Getting the right local partners

Strengthening corporate governance


“ It is essential to have someone with relevant local representation to enter a new territory. It facilitates understanding the culture and the way of doing business.”


Stanley sprange

Direct export is the preferred expansion method, but other strategies may take root

Over the next few years, our Mexican respondents believe that direct export will continue to be their top method of expansion, but whether they pursue other strategies will depend on the destination. Within Latin America, they foresee expanding mainly

growth markets outside Latin America, they see some sort of outsourcing arrangement — a hint perhaps that the greater growth opportunity with rapid-growth markets may turn out to be in services — and in developed markets, they are looking to forge partnerships or alliances with

Interestingly, despite the success some Mexican companies have had in M&A, acquisitions are relatively low on their list of preferred

expansion methods, and seen as an option by 26% within Latin America, 11% in rapid-growth markets outside Latin America and 18% in developed markets.

As is true almost everywhere else in Latin America, Mexican executives believe in exactly

that requires the most change if they are going to succeed with foreign expansion. They also believe, like their other Latin colleagues, that their company could use better strategic

perhaps because their proximity to the US and heavy involvement in exports have facilitated

say corporate governance is a priority, Ernst & Young’s Tiburcio says that many Mexican companies have begun to consider governance issues seriously. Often controlled by families in the past, businesses now seek more broad-based ownership. “They are looking for more investors, and they want to do things differently, with better structures, better procedures and better corporate governance practices,” he says.

A Mexican company that markets pharmaceutical and dermo-cosmetic products, Genomma Lab has made millions of Latin Americans look and feel better. Among those who have some extra spring in their step these days are Genomma’s investors: the Mexican company’s sales grew 21% in 2012 alone, to 9.8 billion pesos in net sales. And that wasn’t an exceptional year for Genomma — in 2006, its sales were only 1.3 billion pesos. In fact, Genomma has been so successful it is now the largest pharmaceutical company in Mexico, with about a 13% market share that has put it ahead of Bayer.

At that size, Genomma’s Executive Vice President and Chief Financial

but to focus on foreign expansion. “The way we view it, we have two options: we stay static and grow moderately or we continue looking for opportunities abroad to replicate our business model, which has been successful both within and outside Mexico. That’s what we’re doing.”

Even as it focuses abroad, however, Mexico remains key to Genomma’s business: the company introduces products to the market only after they have sold well in Mexico — and when it does, it uses the same packaging and the same advertisements that worked at home.

“We don’t take a brand outside the local market, which is Mexico, until that brand has proven successful,” says Villalobos. “And what we take is the best corporate practice, understood as if it were a franchise, and we replicate it. If the product, package and TV campaign proves to be

simply replicate it in the rest of our markets. In other words, we don’t run around using trial and error.”

Genomma is equally methodical in the way it goes about targeting a new export market. In identifying a new market, Villalobos says he looks for two things: television time at reasonable rates and enough frequency of access, and partners who can provide good distribution. “If I have television but inadequate distribution, then I gain nothing,” he explains.

But as solid as the foreign performance has been so far, the best may be yet to come. In February 2013, Genomma announced a distribution deal with Wal-Mart in the United States. Analysts estimate that this deal alone could add 4% to 6% to the 16% growth the company had

14 Growing Beyond

Looking ahead: from exports to expansion

Mexico is already one of the Americas’ most indispensable economies. Over the next decade, it is likely to grow more important still. After enduring the discipline of open markets, it is now reaping its reward: a strong and vibrant economy that seems sure to grow even stronger.

a long-standing strength in exports that has paid off and is likely to lead to a major push into other kinds of investment in external markets. Mexico has been pursuing an export agenda for a long time, at least since the 1970s, according to ProMexico’s Jorge Lopez Perez. In some sectors, the country has been extremely successful in attracting foreign direct investment to build up its export business, especially the automotive industry: not only are most of the world’s top original equipment manufacturers in Mexico, but so are their suppliers.

“ If the product, package and TV campaign proves to be

Oscar Villalobos, Executive Vice President and CFO, Genomma Labs, Mexico

After the Government had put capital controls in place to keep money in Argentina, one Peruvian mining company saw an opportunity.

pick up money in Argentina for a mining project, but in this case [the Government] gave the order to repatriate all of their foreign currency, so all the big institutions are fully loaded with pesos and there aren’t

says Diego Benavides, President of Minera IRL.

“On the other hand, the Argentine Government needs to compensate or balance the transference of foreign currency abroad with the income of foreign currency into the country,” he adds. “So the

better invest in projects that will bring dollars in.’ So, what better than

a gold project that is going to start production in 2014 to bring dollars into Argentina?”

In the end, Argentina’s capital situation has given Minera access to a number of new, enthusiastic partners. “For us, it’s a fantastic opportunity — I wouldn’t have that opportunity if the market was on

made all the difference to the development of the mine. “We got our

months in Argentina. That’s a record! We had to pass through six institutions.”

The moral for Benavides is that in Argentina, Government support matters: “We got it because we lined up our policy with the authorities’

An accidental gold mine

But efforts to integrate Mexican companies into other markets are less advanced. Lopez Perez says he started trying to help Mexican companies foster their globalization just

the right chord. Now, ProMexico is working with 90 Mexican companies that are trying to invest abroad in the US and Canada. In addition, the agency has helped Mexico take more than US$2 billion worth of businesses abroad, mostly in chemicals and construction. The agency is working now too with Mexican companies already established in the US to enhance their performance. When bread manufacturer Bimbo bought US-based Sara Lee, for instance, ProMexico worked with the

help it improve its US supply chain.


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ensure the success of your company’s international expansion plans? Select up to three.

Sales and marketing

Strategic planning


Information technology

Internal communications

Tax planning

Financial management

Financial reporting

Risk management/enterprise

Public relations


Still, in Mexico, as in most developing countries, challenges remain. Violence remains a serious problem in some parts of the country. The middle class is growing, but 52 million Mexicans, 46.2% of the population, still live in poverty, and 11.7 million of

month. Over time, however, the country’s determination and increasing wealth seem almost certain to overcome these problems, just as it has overcome so many others. And

from the positive outcome.

Ernst & Young

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This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Mancera SC nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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Growing Beyond

In these challenging economic times, opportunities still exist for growth. In Growing Beyond, we’re exploring how companies can best exploit these opportunities — by

new ways to innovate and taking new approaches to talent. You’ll gain practical insights into what you need to do to grow. Join the debate at www.ey.com/growingbeyond.

ContactsAlberto Tiburcio Regional Managing Partner Mexico and Central America Tel: +52 55 5283 1301 Email: [email protected] Fernando Garrido Advisory Leader Mexico and Central America Tel: +52 55 5283 1375 Email: [email protected]

Olivier Hache Transaction Advisory Services Managing Partner Mexico and Central America Tel: +52 55 5283 1310 Email: [email protected]

Sam H. Fouad Americas Emerging Markets Leader, SASA Market Leader Tel: +1 212 773 3504 Email: [email protected]

www.ey.com/latinamerica

For more information on how Ernst & Young can help you in a globalized world, please visit us at: www.ey.com/growingbeyond.

time to tune in: latin american companies turn up the ...mexico... · latin american companies turn...

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