Mexico: Investment and Business Opportunities
Mexico: Investment and business opportunities
Second edition October 2014
Acknowledgements
This publication compiles information published by PwC and other organisations that dedicated time and effort to promote Foreign Direct Investment (FDI) in Mexico. The Mexican Government setup a series of significant and challenging reforms to transform the country and help it become an even more attractive economy to investors that are seeking to expand their presence in Mexico, also for newcomers to the Mexican market to produce and sell their goods or products within Mexico, and at the same time take the Mexican competitive advantage of Nafta, Pacific Alliance and the more than 40 commercial agreements that distinguish the Mexican Economy to expand to other markets. We hope this publication helps you on your path to success. Special thanks to my colleagues that invested their time and dedication to put together this publication: Walter Alejandro Heredia, Senior Manager, International Business Centre Natalia Moncada, Business Intelligence, International Business Centre Lisamaria Markula, Leader Nordic Desk, International Business Centre Carlos Parrodi, Commercial Assurance Services, International Business Centre Guilherme Romeo, Commercial Assurance Services, International Business Centre Gabriel Muñozcano, Designer PwC Mexico Chris Williams, United States Practice Leader, International Business Centre
Juan Luís García Martínez Lead Partner of International Business Centre
Content
Introduction to the Mexican economy United Mexican States 7 Country profile 8 Market information 9 Foreign direct investment 10 Social security system 11 Legal framework 13 Tax system 15 Incentives for Foreign Direct Investment (FDI) 18
Main industry summaries Trends, opportunities and challenges of the following industries: Aerospace 21 Agribusiness & food 25 Automotive 29 Consumer products 32 Energy 37 Health 44 Infrastructure 48 Mining 52 Telecommunications 55
Our clients share their challenges 58 Tools for successful entry into the Mexican market 59 Acronyms 60 Bibliography 62 Introduction to the Mexican economy
6 Mexico: Investment and business opportunities United Mexican States
Mexico is one of the most competitive countries in the world for productive investment due to its macroeconomic and political stability, low inflation, size and the strength of its domestic market, economic growth rate, and capacity to produce advanced manufacturing (high-tech products). Mexico is an open economy that guarantees access to international markets through a network of free trade agreements. The country boasts a strategic geographic location and competitive costs to service global markets. It also has a large pool of young and highly skilled human capital. Moreover, Mexico’s commercial openness has benefited Mexicans by creating jobs and promoting their products and services in international markets. Mexico’s industrial sector has also benefited from the free trade and economic cooperation agreements the country has signed in recent years. Mexico offers countless opportunities thanks to the commitment of President Enrique Peña Nieto’s government to promoting reforms that foster the country’s economic outlook. The government has set five major goals for the country: a peaceful, inclusive, well-educated, prosperous and globally-responsible Mexico. This is Mexico’s moment. The country has an historic opportunity to undertake a profound national transformation to help trigger its integral development in the coming decades. Within this context, the conditions are in place to transform and move Mexico forward towards a future that is ripe with opportunities.
Source: ProMexico.
PwC Mexico/International Business Centre 7 Country profile
75 80
Internet Population: Life expectancy: domain: 75 years (men), 116 million .mx 80 years (women) (UN, 2012) (UN)
Major Monetary unit: International languages: 1 peso dialing code: Mexico City Spanish (Capital city) = 100 Cents +52
Capital: Mexico City Major religions: GNI per capita: Main exports: Machinery and Christianity, US $9,420 Country Area: Roman transport 1.96 million sq km (758,449 sq miles) Catholicism (World Bank, 2011) equipment, mineral fuels and lubricants, food and live animals
Source: BBC News
8 Mexico: Investment and business opportunities Market information
Mexico is the gateway to the Mexico is one of the seven most world’s most important market attractive countries to invest in (UNCTAD)
• It is part of the largest economic block in the world • Mexico climbed 5 positions to rank 7th, after (NAFTA). occupying the 12th spot in the previous survey. • NAFTA Market = almost 18.7 trillion dollars (IMF). • In 2012, Mexico ranked 23rd among the main receiving countries on a global scale. • Mexico has a network of free trade agreements which grants preferential access to 45 countries (almost 1.2 billion people). • It is an ideal export platform to reach two thirds of global Gross Domestic Product (GDP).
Mexico ranks 9th among the 25 most attractive countries Mexico has a favorable business for investors worldwide, environment according to a consulting firm
• Mexico is one of the best places for doing business • Mexico outdid Japan, Russia, France, Switzerland in Latin America. and Poland, among others, in this Index. - Ranked 48th in the World Bank’s “Doing Business 2013” report. - Investors only need nine days and six procedures to start up a business. Pacific Alliance is today • Mexico obtained its best ranking in the World the eight’s largest economy Economic Forum’s Global Competitiveness Report in the world 2012-2013. - The country climbed five positions, from 58th to 53rd place. • Is a regional integration initiative whose member states are Chile, Colombia, Mexico and Peru. • Mexico climbed five positions in the 2013 World Competitiveness Yearbook done by IMD. • It seeks to integrate services, capital, investment - It ranks above countries like India, Brazil and movement of people. and Russia. • It is a dynamic initiative with high business potential. The combination of the member state Source: Promexico economies is the eighth largest in the world.
Source: http://alianzapacifico.net/
PwC Mexico/International Business Centre 9 Foreign direct investment
Accumulated FDI in Mexico by state from 2000 - 2014 (until June, 30) in million of USD
Baja California $13,032.3
San Luis Potosí $2,352.4
Nuevo León $32,690.0
Sonora $4,594.5 Chihuahua $17,352.2 Tamaulipas Coahuila $5,823.4 $4,921.9 Baja California Sur $5,043.1 Sinaloa Durango $1,161.4 $2,689.9 Querétaro $4,732.4 Zacatecas Yucatán $3,797.6 Campeche $558.0 Aguascalientes Hidalgo $-11.7 $3,502.4 $144.2 Nayarit Tlaxcala $1,292.4 Jalisco $625.9 $11,399.7 Veracruz Quintana Roo $1,476.4 $3,699.5 Colima $316.8 Michoacan Tabasco Oaxaca $1,952.9 Chiapas $778.1 Guerrero $492.8 $160.6 $723.6 Guanajuato Puebla $4,271.1 $7,006.0 Estado de México Distrito Federal $17,709.0 $198,510.3 Morelos Total accumulated $1,466.6 FDI in Mexico in Source: Ministry of Economy. million of USD $354,265.9
10 Mexico: Investment and business opportunities The Social security system
The Mexican Social Security Pensions tax-exempt upon withdrawal, Institute (IMSS) was established Old-age and disability pensions together with any other in 1942, and is in effect across have increased in recent years. retirement payments received all of Mexico’s industrial areas The pensions are normally from the employer, in and agricultural zones. In these payable from age 65 if the accordance with the general rule areas, the employers statutory person has paid social security for taxation of pension payments obligations related to premiums for the required (i.e., pensions are taxable only to occupational risks are covered minimum of 1,250 weeks. Early the extent that they exceed nine by social security premium retirement at reduced rates of times the minimum wage). payments. The Institute provides pension can be taken from the Employees may elect a company for employees and their age of 60. authorised to manage the fund dependents’ medical care, (individual account) for the SAR including hospitalisation and There are minimum guaranty (Sistema de Ahorro para el limited unemployment pensions equal to monthly Retiro—SAR). compensation in the event of minimum salaries. Employees currently qualify for one of two illness and maternity, Housing occupational disease and different pensions. Employees On May 1, 1972, the National accidents, in addition to who began working after July 1, Workers’ Housing Fund Institute disability and old-age pensions. 1997 receive their pension (INFONAVIT) was inaugurated A separate social security system through an AFORE; employees under the terms of amendments operates for employees of the who started working before that to the Federal Labour Law and a government and its agencies. date can receive their pensions through the AFORE or through law establishing the Institute. the traditional system Benefits Employer obligations Sickness and disability Retirement Savings System The Mexican Constitution The IMSS provides medical and (SAR) and old age provides that all agricultural, hospital services throughout the In order to supplement industrial, mining, and other country alongside private retirement pensions under the enterprises are required to hospitals and many physicians in regular social security system, provide adequate housing for private practice. It maintains which has been deemed their employees; this obligation modern hospitals and clinics inadequate in providing must be met by means of providing medical attention to retirement benefits, the SAR has contributions on behalf of the covered employees and provides been established. The employer’s individual employee. In free medicines prescribed by its contribution per employee is 2 accordance with the law, doctors. If employees are absent percent of salary, with a wage employers are required to from work for more than three ceiling of 25 times the minimum contribute five percent of their days as a result of a non- wage for Mexico City. The Old employees’ earnings to the occupational illness, job-related Age system includes an institute, calculated on the accident or illness or maternity, additional contribution per same basis as for social security the institute pays 60 to 100 employee of 3.15 percent of purposes. Foreign employees of percent of their regular salary salary. These employer Mexican companies working in during their absence. The contributions are credited to Mexico are also entitled to the employer is relieved of the individual employees’ restricted housing benefit. obligation to pay the salary, interest-bearing bank accounts although in some cases, established specifically for that employers pay the difference. A purpose. The funds accumulated guaranteed minimum salary is over the years may be payable in of the event of a withdrawn, as per certain rules, permanent disability, and only upon retirement or benefits to heirs are provided in unemployment due to disability, the event of death. and are partially or totally
PwC Mexico/International Business Centre 11 Wages and salaries Paid holidays and vacations An employee may appeal his or Minimum daily wages are The present law requires that a her dismissal within two months established for separate regions vacation of six working days be at the Conciliation and of the country by a National granted after the first year of Arbitration Board, an Minimum Wage Committee service, with an additional two administrative agency charged which works through local days for each of the next three with resolving labour disputes. committees made up of subsequent years, and an The employer bears the burden representatives of government, additional two days for every of demonstrating that the organised labour and private five years of service after the employee has engaged in the industry. Recently, new fourth year. A premium of 25 conduct described above. If the minimum wages have been percent of the regular salary employer fails to meet this approved every year, but in the must also be paid during burden, the employee can past, as a result of the relatively vacations. Non-union employees request either reinstatement to high rate of inflation, minimum are commonly granted a his or her position, or a wages were sometimes adjusted two-week vacation period. constitutional indemnification more than once a year. In recent equivalent to three months’ full Termination of employment years, annual increases have not salary, including premiums, exceeded the inflation rates as An employer in Mexico may bonuses, commissions, etc., and measured by the National dismiss an employee without any fringe benefits. In order to Consumer Price Index. The liability other than the seniority prevent such reinstatement, variation in wage rates in the premium only if there is a cause employers usually pay the different regions has been for the dismissal. The Federal severance compensation. The considerably reduced, and only Labour Law lists specific kinds of employee also has the right to three different minimum rates conduct that are a cause for receive back pay with no offset are now in effect, varying from a dismissal: use of false for interim earnings. low of 54.47 pesos per day in documentation to secure some regions to 57.46 pesos per employment; dishonest or The Labour Law specifies that at day in Mexico City and in some violent behaviour on the job; the date of termination of regions near the U.S. border. dishonest or violent behaviour employment, the reasons for against co-workers that disrupts dismissal must be presented to Fringe benefits work discipline; threatening, the employee in writing. It also Collective labour contracts often insulting, or abusing the provides that employees with provide for benefits beyond employer or his or her family, more than 20 years’ service can those stipulated by the Federal unless provoked or acting in be dismissed only for very Labour Law and other legislation self-defence; intentionally serious reasons. with regard to early retirement, damaging the employer’s number of holidays, length of property; negligently causing vacations, and a wide range of serious damage to the employer’s benefits on which employees pay property; carelessly affecting no tax, such as contributions to work-place safety; immoral general savings funds. Many behaviour in the workplace; taxpayers provide coupons for disclosure of trade secrets or meals and groceries, which confidential information; and under certain conditions, are not committing of other acts of taxable for employees. similar severity.
“Three different minimum rates are now in effect, varying from a low of 54.47 pesos per day in some regions to 57.46 pesos per day in Mexico City and in some regions near the U.S. border.”
12 Mexico: Investment and business opportunities Legal framework
Forms of business Principal forms of business enterprise enterprise Stock corporation, stock corporation for the promotion of investment and stock corporation with variable capital (these are the forms most commonly used by The different forms of domestic and foreign investors) organisation of business entities in Mexico are regulated by the Limited liability company (used frequently) General Law of Mercantile General partnership (rarely used by foreign investors because of unlimited liability, Companies (Ley General de unless they want to qualify as a foreign partnership in the home country) Sociedades Mercantiles), the Partnership with limited and unlimited liability partners Commercial Code (Código de Civil partnership, i.e., of a non-commercial nature (used for non-profit entities and Comercio) and the Civil Code by professional practitioners) (Código Civil). Some of these forms are summarised in the Joint venture contract. This is not a legal entity but is treated as a separate entity for income tax purposes following table: Branch of a foreign corporation
Sole proprietorship (a foreigner must qualify as a permanent resident [inmigrado] to be able to do business in this way)
Corporate law is federal in Limited liability These forms of business nature and applies throughout company organisation have most of the the country. Although civil law is attributes associated with the a matter of state law, the In most ways, the limited US concept of a partnership different state civil codes are liability company (Sociedad de because of the unlimited practically identical as to the Responsabilidad Limitada—S. liability of the partners so formation of entities of a civil de R.L.) is similar to an up and designated. nature. running corporation. Partnerships require at least However, as an organisation of two partners. Stock corporation individuals, its by-laws can be One of the most common way for drafted in such a way as to give it domestic and foreign investors to most of the characteristics of a operate in Mexico is through a partnership under the tax laws stock corporation (Sociedad of foreign countries, except for Anónima—S.A.) formed under unlimited liability. the General Law of Mercantile Companies (Ley General de Partnership Sociedades Mercantiles). In this The General Law of Mercantile case, the corporate name Companies also provides for selected is followed by the partnerships (Sociedades en initials S.A., which indicates that Nombre Colectivo), as well as it is a stock corporation. A for partnerships with limited foreign-owned Mexican and unlimited liability partners corporation is subject to the laws (Sociedades en Comandita), but relating to all local as well as to as a result of the unlimited the Foreign Investment Law. liability for all or the general partners, as the case may be, these forms are not common.
PwC Mexico/International Business Centre 13 Civil partnership Branch of a foreign Professional practitioners are corporation usually organised as a civil A foreign corporation can be partnership (Sociedad Civil— registered to operate in Mexico, S.C.), which resembles in many with full access to the local ways the limited liability courts, through a branch office partnership (S. de R.L.) (sucursal de sociedad mentioned above. The managing extranjera) after complying with partners have unlimited liability, certain formalities and obtaining while other partners’ liability is the approval of the Mexican limited to the value of their government through the contributions (2704 Civil Code). Department of the Economy. This form is also used by some non-profit entities such as Sole proprietorship educational establishments. By As in many Western countries, definition, these entities should sole proprietorship not engage in commercial (comerciante/persona física) is a operations (any activities very popular form of involving commercial organisation for small speculation). The transferability businesses. However, the of rights, as well as the element of unlimited liability admission of new partners, is generally inhibits the use of this subject to approval of all the form of organisation for large partners. operations, particularly because of the substantial amount of Joint venture contract severance pay that may accrue in Under a joint venture contract favour of employees. Moreover, (Asociación en Participación—A. resident aliens may engage in en P.), a person grants an interest business activities only if their in the profits and losses of a immigration status is that of a specific venture or business to permanent resident (inmigrado). others who provide property or However, in some instances, it services. Such a contract has no has been concluded that non/ legal personality, i.e., no resident individuals with a separate legal entity is created, taxable permanent and operations are conducted in establishment might operate the name of the active managing under the same principles as joint venturer (asociante). The branches of foreign entities. asociante is the only party with any direct liability to third Non-profit parties. The silent partner (asociado) has no direct organisations relationship with third parties. Charitable and other non-profit organisations take the form of a The tax treatment applicable to civil association (Asociación the A. en P. is essentially the Civil—A.C.), whose charter same treatment as for regular prohibits the distribution of corporations solely for tax profits to its members. purposes.
14 Mexico: Investment and business opportunities The Tax System
In Mexico, corporate taxes are Value added tax (VAT) Employees statutory levied by the federal government. Calculated on a monthly basis, profit sharing (PTU) No corporate income taxes are at 16%, on a cash flow basis levied by local governments and • Every entity with employees is the main federal taxes payable in • Taxable activities: required to distribute a portion Mexico are: of its annual profits amongst • Sale of goods. all of its employees. • Income tax. • Rendering of services. • 10% of the entity’s taxable • Flat tax (repealed as of • Leasing of goods. income, adjusted for inflation, January 1st, 2014). applying straight line • Import of goods and services. • Value added tax. depreciation, eliminating • Output VAT on cash receipts NOL’s and adding • Social security and federal for goods or services, can be dividend income. housing dues (employment credited with input VAT paid taxes and dues). • All employees are entitled to suppliers of goods and (except directors, Local taxes include: services. administrators and general • Payroll taxes. • Credits or refunds for excess managers). payments are available. • Tax on transfer of real estate • Not payable during the first (paid by the purchaser). year of operations and limited Local taxes to one month’s remuneration in Corporate income tax • The most relevant state and certain activities such as real local taxes in Mexico: estate rentals and professional • Rate: 30%. service firms. • Payroll tax, with no limit. • Certain deductions are allowed • Tax year end matches calendar (returns and discounts on • Annual property tax on the year (i.e. from January 1st to sales, cost of sales, net cadastral value of property. December 31st). expenses, investments, i.e. • Real estate transfer tax on depreciation or amortisation of • In the following cases there is appraised or fair market fixed assets/deferred an irregular tax year: value. expenses). • Incorporation: from the date • Deductible for Mexican income • Deductible expenses must of incorporation to December tax purposes. comply with several 31st. requirements, such as being • Tax rates depend on the state • Merger: from January 1st to “strictly indispensable” for the in which the employees or the date of merger. business activities of the property are located. taxpayer. • Split (spin-off): from January 1st to the date of • Corporate advance tax Social security dues Employers and employees are split, applicable to the entity payments are calculated on the created in the spin-off or current year’s revenues required to make contributions to the system, based on daily when the original entity multiplied by a “profit factor” disappears. determined on the basis of the salary caps, depending on the prior year’s figures (taxable area in which the work is • Liquidation: from January income/total revenues). performed. The maximum Social 1st to the date on which the Security contribution is liquidation process begins. • Tax Losses (NOLs) are approximately US$ 9,000, yearly, deductible over a ten year once the maximum salary cap is • The period from the carry-forward period. reached. beginning to the end of the liquidation is deemed to be • Transfer pricing – arm’s a single fiscal period. length/OECD compliant.
PwC Mexico/International Business Centre 15 Annual tax opinion • The tax authorities may carry A 100% deduction is allowed for out tax inspections both at the investments in assets intended Certain taxpayers are required taxpayer’s facilities and at the for the production of renewable to obtain an annual tax authority’s offices. Tax audits compliance opinion issued by a energy. should be concluded within the certified public accountant following 12 months after the • Employment incentives (CPA), known as the “dictamen audit is initiated. This term fiscal”, which must be filed These consist of a credit may be suspended in some together with audited financial equivalent to 100% of the specific cases such as a strike. statements and detailed income tax corresponding to the schedules, no later than June salary paid to employees with 15th of the following year. The Statute of limitations certain disabilities and an dictamen fiscal is signed by the The statute of limitations is five additional 25% deduction for CPA and normally states that no years as of the date the last salaries paid to employees over irregularities were observed or annual tax return was filed. In 65 years of age. remain in respect with the some cases, the statute of • Mexican Institute of taxpayer’s compliance with its limitations is extended to ten Cinematography (Fidecine) federal tax obligations in the years when the taxpayer is not prior fiscal year. Any unresolved registered at the Taxpayer Taxpayers may apply a tax credit omissions or situations must be Registry, has no accounting against income tax for the disclosed. This certification books, or has not filed an annual amount contributed to process became elective for most tax return when one is required. investments in Mexican motion other companies, but is widely picture productions as well as chosen because it provides Federal tax incentives Mexican theatre productions. shareholders and management Mexico has opened its doors to with a greater level of comfort foreign investment, providing Other incentives with respect to the entity’s tax the following federal incentives • Zero rated VAT on exports. compliance. up until to 2014 when most • VAT and import duties are incentives were suspended, with waived on temporary import Tax audits only the following still available: programmes for the production • Tax authorities reviewing a • Research and development of goods for exports (IMMEX taxpayer who has filed a (R&D). – Maquiladora Regime) – 2014 dictamen fiscal (sipred system) The Tax Reform has restricted for the year under review must Taxpayers involved in certain elegibility for these incentives. first review the working papers R&D projects are granted a cash of the CPA issuing the tax subsidy to be determined yearly • Sectorial Relief Programme. opinion (currently is optional). by the tax authorities based on a The Sectorial Relief Programme budget approved by the Mexican provides a preferential import • If the authorities are satisfied Congress. with the information provided tariff on goods intended for by the CPA, the procedure production, regardless of the stops there; otherwise, they country of origin. will request the information directly from the company.
16 Mexico: Investment and business opportunities State and local • Increases in tax rates for incentives individuals and certain foreign tax payers from 30% to 35%. Some state governments are willing to grant incentives to 2. New rules for maquiladoras. attract new industries, often in 3. Government Mining Royalties the form of: of 7.5% in general, plus 0.5% for precious metals, apply • Reduced prices or grants for from 2014. land for industrial use. • Reductions in property and Taxable income payroll taxes for agreed • Sale of goods. periods of time. • Independent services. • Development of infrastructure • Leasing of goods. (roads, electrical power, water and sewage). • Royalties to related parties and the most interest are excluded. • Training centres or special programmes at state • Excess expenses over income universities. (multiplied by the flat tax rate) produce a credit that may be To maximise the local incentive carried forward for 10 years. investments as well as to obtain legal certainty on the delivery of those incentives, beyond any “The dictamen fiscal is signed by the change in the government structure, an agreement or CPA and normally states that no formal ruling should be obtained irregularities were observed or remain from the local authorities and the review of certain legal in respect to the taxpayer’s compliance documents is recommended. with its federal tax obligations in the Tax amendments prior fiscal year.” affecting Nordic companies doing business in Mexico 1. Within the new Income Tax Law: • Introduction of a 10% dividend tax (reduced by the tax treaty). • Elimination of most tax incentives. • New restrictions on deductibility of related party payments. • Restriction on deductibility of exempt salaries or benefits.
PwC Mexico/International Business Centre 17 Incentives for Investing in Mexico
In Mexico there are many The main fiscal instruments for • Tax Exemption on possession • Reduction of ISN for programs to support companies investing in the different states or use of used motor vehicles. businesses that create legally constituted and seeking to of Mexico generally consist of new jobs. • Exemption from water invest in the country. These tax exemptions. The local connection and drainage. • Temporary reduction of ISN. programs are designed to cover a governments offer a whole lot of types of organisation and portfolio of incentives to • Reduction of state taxes and • Reduction of Property Tax. challenges they face, from new companies who are interested in fees. • Tax Reduction on the companies or newly established settling in the country. In 2014 • Reduced rights generated by acquisition of property. businesses, to companies looking there were at least 22 different the Public Registry of Property to grow or have greater market incentives. • Reduction in payment of fees and Commerce. positioning. The programs for issuance of building explained below are the main The support for investing in • Reduction of cost of real estate permits. programs and incentives designed Mexico can be: appraisal. • Reduction in fees in specifically for companies and • Temporary exemption from • Reduction of the tax transfer connection to the potable foreign investors. state taxes and fees. domain. water and sewage. • Temporary exemption from • Reduction of tax registration • Special incentives for research ISN to start-ups. and issuance of plates, state and development of • Exemption of duties of the decal and registration technology. Public Registry of Property and certificate of the vehicle. • Special incentives for projects Commerce. • Reduced rights generated as a outside the metropolitan area. • Exemption from zoning license. result of plan review. • Temporary reduction of the • Exemption from construction right of public lighting. license.
The most common incentives are reduction of state taxes and fees and reduction of payroll tax (ISN) to businesses that create new jobs.
18 Mexico: Investment and business opportunities National Institute National Council How can PwC support for Entrepreneurship for Science and your company? (INADEM) Technology (CONACYT)
The National Institute of The National Council for Science PwC has a strong network and Entrepreneurship (INADEM) is and Technology (CONACYT) is a relationships which help our an administrative organisation public organisation responsible clients achieve success in their within the Ministry of Economy, for developing science and initiatives. For the support tools which aims to implement, technology policies in Mexico. and incentives for companies execute and coordinate national CONACYT has various support investing in Mexico, our clients policy of support for programmes for Research, take advantage of such a entrepreneurs from small to Technological Development and network. PwC can support in the medium enterprises. In addition, Innovation which may partially bidding process increasing the INADEM aims to foster finance the projects of success rate for obtaining innovation, competitiveness and companies. incentives and participation in projection in the national and the governmental programs. For Through various types of funds international markets to increase the application it’s required to act CONACYT efforts a multiplier its contribution to economic swiftly as funds are limited and effect on the generation of development and social welfare, sought after. knowledge, innovation, as well as to contribute to the technological development and PwC has professional development of policies that human resource training relationships with governmental promote the culture and business coordination, as well as branches and a large pool of productivity. strengthening the scientific and credentials obtained from years The INADEM has established technological capacity that the of collaboration within “The Entrepreneur Support country requires. Researchers, government and private Network”, which is comprised of academics, technologists, companies. Having the ideal 23 departments and agencies of entrepreneurs, universities and contact with the decision makers the Federal Government, through research centres can apply and high profile officials is the which 65 programmes are to the calls. key for negotiating and obtaining oriented towards increasing the support for companies to grow in productivity; as well as 26 private México. institutions that offer products and services geared to different needs and areas of opportunity for entrepreneurs and businesses.
PwC Mexico/International Business Centre 19 Main industry summaries
20 Mexico: Investment and business opportunities Aerospace Trends
In recent years the Mexican Over the past seven years, aerospace industry has become Mexico’s aerospace sector has 270 companies one of the country’s strengths. established itself as one of the Testifying to confidence in the most important in the world, 31,000 high-level industry, in 2010 and 2011 registering growth of almost 20% professionals numerous plants were opened by per year, and establishing itself as leading North American and a centre of manufacturing, US $7.1 billion European aerospace component design and development of high companies. strategic value. In 2012 there were about 270 companies and Competitive salaries, along with organisations operating in the its proximity to the world’s aerospace sector in Mexico, largest aviation market, enabled employing more than 31,000 the Mexican aviation industry to high-level professionals who weather the worst of the have in most cases been certified economic downturn. Industry by NADCAP and AS9100. Eight statistics continue to show a out of ten aerospace companies positive trend, despite the present in Mexico are involved in slowdown in the specific sector production and assembly, while globally. the remainder is divided between firms specialising in design and engineering and other maintenance, repair and overhaul services. In 2013 the sector reached US $7.1 billion, with a growth of 9.7%.
Mexican Aerospace and Defence sector 2009-2013 (Billion USD)
80 70 60 50 40 30
20 10 0 2009 2010 2011 2012 2013 Source: Aerospace and Defence in Mexico, Marketline, April 2014.
PwC Mexico/International Business Centre 21 Analysis of the national trend in aerospace and defense
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Brain drain
Growth of the active population Social Confidence in Mexico as a partner in the use of technology and engineering
Aircraft design is affected by the feedback of the passengers
Domestic investment in developing new materials
Use of nanocomposites in military and civil aviation
Technologic Conversion from the hidraulic system to electric COMAC presents the C919
Increase in military operations with UAVs Combat UAVs will replace military troops around the world
OEMs recognize the Mexican aerospace industry Integration of the NAFTA and LATAM agreements
Integration of a Hub for Aeronautical Service (MRQ) Monopoly of regional airline companies
Economic Using components off-the-shelf for the defense system KPO development of emerging economies
Greater protectionism of the development of economy
Alternative fuel research Manufacture and assembly of 100% environmental materials
Quieter engines research
Environmental Cleaner component research CO2 emissions from aircraft Environmental standards and taxes on emissions
Global agreements on CO2 emissions
Flight agreements with Canada
Llegada de más empresaAgreements de defensa for tra thes control of exports
Politic Mexico joins the Wassenaar agreement (exports control) and legal More competitive legal frame
Elections in Mexico and the US Flight agreements with NAFTA countries
Source: Promexico Opportunities
Among the opportunities are a OEM suppliers per company in Aside from these locations, the The small number of specialised strong presence in Mexico is Airbus 36, Boeing 26, aircraft industrial base in Mexico SMEs currently operating in manufacturing and assembly Bombardier 13 and Embraer 17. is mainly represented by: Mexico has created substantial that offers real opportunities for growth potential for companies Furthermore, international • International Tier 1 and Tier 2 small and medium-sized in the following areas: companies are also present in (respectively direct and enterprises (SMEs). metallurgy, machining (5-axis engineering; such as Honeywell indirect suppliers OEM), machine tools and complex In terms of original equipment (300 engineers in Mexicali), GE including: Aernnova, parts), surface treatment, manufacturers (OEM), in IQ (1,300 engineers in Bodycote, Daher, Delphi, structures and materials addition to the implementation Querétaro) and Tata Eaton, Honeywell, GKN, (composites, particularly of Bombardier (five plants) and Technologies. Given the number Goodrich, ITP, Labinal titanium). the recent Eurocopter there are of aircraft fleets and helicopters Latécoère, Manoir Industries, US manufacturers of business in Mexico (second private Messier Dowty, Senior aircraft Cessna, Gulfstream, aircraft park in the world: +7 Aerospace, Snecma and Hawker Beechcraft and Bell 000), there are numerous MRO Radiall. helicopters. It is important to (Maintenance, Repair, and • Tier 1-2 Mexico: Frisa and note that the Safran Group is the Operations) companies for Alexia (formerly) Kuo. leading aerospace employer in helicopters (Eurocopter will also Mexico. According to FEMIA have its own maintenance centre (Mexican Association of the for Central America) and Aviation Industry) the number of business aviation.
22 Mexico: Investment and business opportunities A regional Private strategy aviation The industry is concentrated in and cargo certain states. Indeed, 74% of State/City Specialty Players businesses are located in five Baja California Manufacture of electric 59 companies including: Mexico has the second largest large states forming regional Mexicali and electronic equipment • Honeywell fleet of private aircraft in the clusters. Each state has a Tecate • Zodiac world. It amounted to 7,552 Tijuana • Hutchinson (Stillman registered aircraft, implying specialisation that aerospace Ensenada Seal) manufacturing companies imports worth US $600 million wishing to produce in Mexico Sonora Manufacture of engines, 42 companies including: per year in aircraft parts and US Hermosillo turbines, airframes and • Latécoère $1.8 billion per year of raw must take into account: Guaymas composites • Goodrich Obregón • Esco materials and inputs. There are • Baja California: electrical and business opportunities in the electronic components. Chihuahua Airframe equipment, 36 companies including: markets of commercial aviation, Chihuahua electrical and electronic, • Cessna • Chihuahua: engine parts, interior and mechanical • Textron/Bell private aviation and cargo. With electrical and electronic manufacturing • Safran (Labinal) a large private aircraft fleet and 85 airports that are handling components. Querétaro Engine parts, assembly, 36 companies including: Querétaro MRO and landing gear • Bombardier 500 million tons of cargo per • Querétaro: engine manufacturing • Eurocopter year. These three segments are components, heat subassembly • Safran (Messier Dowty, in particular need of and surface treatment. Messier Services, replacement parts, preventive Snecma, Sames) • Nuevo León: overhaul and and corrective maintenance maintenance. Nuevo León Forges, component 26 companies including: service, training of pilots and Monterrey manufacturing, • Frisa Aerospace technicians and peripheral mechanical • M.D Helicopters • Sonora: Manufacturing of equipment for the operation of engines and turbines, Source: Ubifrance airports. composites and fuselages.
Different clusters in consolidation (including the number of companies by state)
Sonora42
Chihuahua36
Baja59 California
Nuevo26 León Source: Ubifrance
Querétaro36
PwC Mexico/International Business Centre 23 Challenges
Certification of companies This is compounded by the Stimulation of further based in Mexico to become difficulty of trade agreements activities in research and world-class suppliers with OEMs for ensuring development and implement Mexico still has a shortage of minimum purchase volumes. of new technologies many highly-qualified industrial The Mexican aviation sector is Even today, the Mexican processes in the aerospace thus engaged in a complicated government invests only 0.5% of industry, putting industry spiral: its GDP in research and providers in a quandary. They • OEM growth is hampered by development. Private companies must choose between: the lack of an established local are also investing small amounts. • Increasing costs of supply chain in the field. Like most businesses, Mexican transporting parts for • Tier 1 companies are reluctant aerospace companies are certification or specialised to invest in Mexico because of subsidiaries of transnational manufacturing (mainly the the lack of Tier 2 companies. corporations. The transfer of United States). technological development to • Tier 2 reluctance to invest Mexican subsidiaries depends on • The construction of a in a market they consider the business strategy and the production facility in Mexico, inadequate. feasible benefits. which implies significant costs (capital, technology risks, Training of specialists and Companies transfer technology among others). high-level technicians only to their Mexican subsidiaries with efficient operation of the For these suppliers, the strategic The development of local and facilities on site. Advanced business decision as to whether international suppliers seems to research is largely done at to make an investment in Mexico be the target of many state companies’ headquarters. is hampered by: governments, including the most dynamic states (Querétaro, Complementing and • Significant investment in Nuevo Leon, Chihuahua, Sonora machinery to improve strengthening the supply and Baja California) and major chain sector operational efficiency and a clients, such as Bombardier and lack of suppliers and the Safran Group. This growth is Mexican companies in the sector distributors of specialty alloys hampered by two factors: (1) the are still few and generally small for Tier 2 companies. lack of qualified, skilled or medium sized. Developing their technologies depends on • Scant savings on the cost of technicians including labour and their own resources. Federal and labour for machine processes (2) the fact that Mexico does not local, as well as national that are not labour intensive. yet have all the necessary international certifications. For research centres and state these reasons, knowledge governments are trying to help transfer in vocational training companies develop and becomes controversial and strengthen the sector’s supply strategic. chain.
24 Mexico: Investment and business opportunities Agribusiness & food Trends
Agri-food exports (including Meat agricultural and agro industrial) Mexico consumes a limited increased 7%, in 2013, according amount of meat products. A to the Ministry of Agriculture, Mexican consumes an average of Livestock, Rural Development, 55 kg of meat per year; mainly Fisheries and Food (SAGARPA). chicken 24 kg, pork 16 kg and The main agricultural goods beef 15 kg. However, Mexico is exported in 2013 were: malt one of the largest consumers of beer, worth 2,211 million USD; eggs in the world at 22.8 kg per tequila, 996 million; bakery year per capita. Consumption of products, 754 million; sugar, 726 seafood is minimal (7 Kg/year/ million; chocolate, 598 million; inhabitant). beef, 523 million; malt extract, 397 million; pork, 393 million; Dairy Industry prepared food, 335 million; and Milk production represents one canned fruit, 323 million, among fifth of the total value of 1 others. domestic livestock output, According to the National ranking third after pork and Institute of Statistics and eggs. Geography (INEGI) agricultural While growth in primary activities (agriculture, livestock production is solid, when taking and fishing) grew 5.1% between in to account the rate of January and March 2014. During population growth it is not that period a surplus of 72.1 enough to supply industry million USD was registered in demands. contrast to the previous trend, as the balance has registered an National Production 2010-2014 (million litres) average deficit of 500 million USD over the last five years.2 *2014
2013
2012
2011
2010
0 2,000 4,000 6,000 8,000 10,000 12,000 *January-March Source: National Chamber of the Milk Industry (Canilec)
1Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food (SAGARPA), www.sagarpa.gob.mx 2IBID PwC Mexico/International Business Centre 25 Milk consumption has increased more than domestic production translating into a milk production deficit.
Production and consumption 2005 - 2013 (million litres)
18,000 16,026 16,000 15,257 14,837 15,007 15,632 15,825 14,000 15,012 14,896 13,852 12,000 10,601 10,711 10,946 10,000 10,592 10,743 10,926 10,088 10,346 9,868 8,000
6,000
4,000
2,000
0 2005 2006 2007 2008 2009 2010 2011 2012 2013
National consumption Milk production
Source: National Chamber of the Milk Industry (Canilec)
26 Mexico: Investment and business opportunities Agricultural products Wine Food consumption Fertilizers Mexico exports more than 290 In 2000, Mexico’s annual wine Mexico produces about 4% of the and pesticides food products (including coffee, consumption was 27 million world’s food with 28 million tons America remains a key region for chocolate, tequila, tomato and litres, compared to 70 million produced per year and a the usage of fertilizers. Although avocado), which are sent to more litres in 2013. The outlook for production capacity of 35 million Canada is a major exporter, the than 160 countries and 2020 is 200 million litres per tons. It is the 4th largest US continues to maintain a territories. year. producer in the Americas after production surplus, while other the US (146 million tons), Brazil The main agricultural products The industry has grown Latin American countries are (61 million tons) and Canada (30 Mexico sells abroad are: red significantly in recent years. importers of three types of million tons), and ranks 6th tomatoes, which grew 8.7% According to Marketline, total nutrients. North America is the worldwide. reaching 1.856 billion USD; revenue for the Mexican wine largest regional producer and avocado, an increase of 24.5% industry was 748.3 million USD According to Business Monitor exporter of fertilizers, and the and a value of 1.228 billion USD; in 2012. Its compound annual International, per capita food second largest consumer. Asia is and bell pepper, with an increase growth rate (CAGR) for the Consumption in Mexico is the largest fertilizer market, but of 12.3 % and a contribution to period between 2008 and 2012 expected to grow by 24.3% (in Latin America has the highest exports of $ 876 million USD.3 was 9.9%. In comparison, the US nominal, local currency terms), growth rate. According to the wine market grew 3.6% and the while total food consumption is United Nations Food and In the last 3 years Mexico has Canadian market 3.3%.The expected to grow by 31.2% (in Agriculture Organization (FAO), opened the market to other biggest player in the Americas local currency terms) reaching fertilizer demand in Latin countries other than the US such wine market is the United States MXN2,091bn by 2017. This will America is set to increase by as Japan, Venezuela, Russia, and representing 65.5% of total be driven in part by a growing 17.6% between 2011 and 2015. China. market value. population and the increasing prevalence of mass grocery Mexico accounts for 1.4% of this retail.5 market value.4
Americas wine market geography segmentation (million USD, 2012) Food consumption 2010-2017
Country Market value (million USD) Market share (%) 3,000 18,000 United States 35,134.6 65.5%
Canada 7,398.80 13.8% 2,000 16,000 Brazil 4,172.5 7.8%
Mexico 748.3 1.4% 1,000 14,000 Rest of the Americas 6,169.3 11.5%
Total 53,623.50 100% 0 12,000 Source: Marketline, “Wine in Mexico”, 2013
2010 2011 2012 2013 2014 2015 2016 2017
Food consumption, MXNbn (LHS) Food consumption, MXN per capita (RHS) Source: Mexico food and drink report, Business Monitor International, Q1 2014
3SAGARPA, www.sagarpa.gob.mx/ 4Marketline, Wine in Mexico, August 2013, www.marketiline.com 5Business Monitor International, Mexico Food and Drink Report 2014, www.businessmonitor.com PwC Mexico/International Business Centre 27 Opportunities Challenges
Given the evolution of Mexican • Foreign investment rules are • The technological gap between agriculture and government relatively relaxed in some Mexico and its competitors. goals (modernisation, sectors, with majority improvement of infrastructure, ownership allowed in certain • Although Mexico’s structuring of industries, higher circumstances. demographics can benefit the yields), foreign companies should consumption of agricultural • Mexico’s varied landscape be able to gain a foothold in goods, it is also a challenge for allows for large-scale Mexico by leveraging their the rural population. At the agriculture involving a diverse technical expertise in areas such beginning of the 20th century range of products. as the farming machinery sector the rural population accounted for more than 70% of the total (complementary machines and • NAFTA allows Mexico to population, while urban wear parts), or the modernisation export products with tariff- population was less than 30%. of the irrigation systems. free access to the North Now these numbers have been American region. In 2013 one • In coordination with the reversed, according to the 2010 of the most benefited sectors Ministry of Communications general population and was livestock. One of the and Transport, Telecom housing census. benefits of the agreement for Mexico (TELECOMM) will Mexico is the technology that install 30 satellite antennas to • Environmental changes are a has supported domestic provide connectivity and big challenge for this industry producers in becoming more internet to Rural Development because of their direct impact competitive. Support Centres (CADERs) on production. benefiting half a million • The objective of the • Compared to US farms, producers. government Infrastructure Mexican farms are often very Plan is to improve Mexico’s • Mexico’s demographic small and performance is low. infrastructure in order to situation (consisting of a attract more foreign • Health risk suits can growing young labour investment and increase sometimes occur in Mexican population, rising incomes and productivity, i.e. lowering agriculture due to poor the consolidation of the middle transportation costs. hygiene and quality. class) is ensuring greater domestic demand for • The government appears to be • Due to a high rate of diabetes agricultural products. committed to free trade and and obesity among the has been slowly diversifying its Mexican population, the • The Pacific Alliance constitutes export base away from government has developed a benefit for the agricultural dependence on the US among programmes to combat sector. these is the Asian markets, in unhealthy eating habits, • There is an opportunity to particular Japan and China. including a sugar tax that consolidate and increase affects non-alcoholic Mexican farming production beverages. without having to expand the • Education is an issue, with cultivated area because of Mexico having one of the current low yields and the lowest levels of educational fragmented state of Mexican achievement of all OECD farming. countries. • A more focused regional policy is required to help distribute resources more fairly. • Heavily regulated labour “NAFTA allows Mexico to export products with a tariff-free markets and powerful trade unions make hiring and firing access to the North American region. In 2013 one of the difficult for employers. most benefited sectors was livestock.”
28 Mexico: Investment and business opportunities Automotive Trends and Developments
In 2013, sales of light vehicles The first few months of 2014 saw The business is highly (passenger cars and commercial growth in Mexican exports, concentrated in the Federal vehicles) in Mexico grew by 7.7% which amounted to 124,944 District and the State of Mexico. year over year to 1,063,363 billion USD. According to INEGI In 2013, 4 of every 10 vehicles units. Light vehicle production in (National Institute of statistics sold were sold in these two Mexico declined 9.1% in and geography), this number federal entities. December, to 164,221 units. represents the highest level of In 2013, 9.8% of vehicle sales sales outside Mexico.6 However, in 2013 output in this corresponded to the higher segment increased 1.7% to purchasing power segment, 2,769,244 units. A number of Vehicle sales namely luxury and sports cars factors, such as the low In 2013, sales of new vehicles with price tags of more than production capacity of regional increased 10% in 13 of the 30,000 USD. Domestic sales of competitors, the revival of the country’s states (Zacatecas, such vehicles rose 1.2% US vehicle market, positive Colima, Yucatán, From January to April 2014, developments in the domestic Aguascalientes, Oaxaca, 327,989 light vehicles were sold supply chain and competitive Durango, Guanajuato, Tlaxcala, in the domestic market, while wages in Mexico are driving this Querétaro, Puebla, San Luis production reached 1,022,762 growth. Potosí, Coahuila and Tabasco). units manufactured in Mexico in the first 4 months of the year.7
Sales
Mexico’s Car Sales by Segment – Historical Data and Forecasts (2013-2018)
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Total Vehicle 927,207 1,004,450 1,079,461 1,144,120 1,229,137 1,331,423 1,459,109 1,615,383 Units
Vehicles, 10.4 8.3 7.5 6.0 7.4 8.3 9.6 10.7 % chg
Passenger 591,598 649,333 698,217 735,921 784,001 848,930 935,971 1,049,272 cars, Units
Passenger 17.4 9.8 7.5 5.4 6.5 8.3 10.3 12.1 cars, & chg
Commercial 335,609 355,117 381,244 408,200 445,136 482,493 523,127 566,111 vehicles, units
Commercial -0.3 5.8 7.4 7.1 9.0 8.4 8.4 8.2 vehicles, & chg
Motorbikes, 109,838 150,392 135,327 140,494 146,410 152,467 159,121 166,222 units
Motorbikes, 65.6 36.9 -10.0 3.8 4.2 4.1 4.4 4.5 & chg
Source: Mexico autos report, Business Monitor International, Q2 2014 e= estimated f= forecast
6INEGI, http://www.inegi.org.mx/ 7AMIA (Mexican association of the automotive sector), http://www.amia.com.mx/ PwC Mexico/International Business Centre 29 Production The short-term outlook for the Mexico’s Car Production by Segment – Historical Data and Forecasts Mexican automotive industry is 2011 2012 2013e 2014f 2015f 2016f 2017f 2018f promising if the domestic and Total Vehicle 2,681,050 3.001,974 3,082,570 3,254,704 3,442,178 3,648,312 3,891,900 4,179,978 international economies manage Units to maintain the current pace of growth. Vehicles, % 14.5 12.0 2.7 5.6 5.8 6.0 6.7 7.4 chg Medium and long-term growth Passenger 1,657,080 1,810,007 1,771,016 1,873,735 1,969,511 2,074,562 2,194,222 2,327,790 prospects are good, but still cars, Units depend on the performance of Passenger 19.5 9.2 -2.2 5.8 5.1 5.3 5.8 6.1 the US economy (which ranked cars, & chg second in the world in car engine production in 2012). Commercial 1,023,970 1,191,967 1,311,554 1,380,969 1,472,667 1,573,751 1,697,679 1,852,188 vehicles, Over the next five years growth units rate of the Mexican automotive Commercial 7.2 16.4 10.0 5.3 6.6 6.9 7.9 9.1 industry could easily reach the vehicles, & 5% to 9% range. chg
Source: Mexico autos report, Business Monitor International, Q2 2014
The US Market strong position to recover Mexico’s main export destinations, January-April 2014 pre-crisis sales levels. This Many manufacturers of vehicles growth should continue to drive and vehicle parts outsource their 0.4% Mexican vehicle production and 0.5% production to Mexico to benefit exports. Indeed, from January to 0.6% from easier and less costly 3.9% April 2014, exports to the US 1.2% production than in the US. U.S. grew 18.2% compared to the 2.2% Indeed, Mexico’s advantageous same period in 2013. geographic location promotes Canada 2.4% exports to the US market, The Mexican government seems Brazil offering significant savings in to be committed to the principles 3.9% terms of time, cost of production of free trade, and is diversifying Germany and transport. This proximity to its export base to lower 4.5% the United States and dependence on the United China membership of NAFTA offers States. The Mexican Association 9.8% 70.6% Colombia significant advantages in of Automotive Suppliers (INA) negotiations between Mexico has identified Brazil, Argentina, Argentina and the US market. Uruguay and Colombia as Mexico’s main export markets in Saudi Arabia The strength of the US Latin America, while exports to automotive market is a key factor Peru the European and Asian markets behind the growth in Mexican are also on the rise. vehicle exports. Total light Italy vehicle sales are on the rise in Others the US, putting the country in a Source: AMIA (Mexican association of the automotive sector), http://www.amia.com.mx/
30 Mexico: Investment and business opportunities Opportunities Challenges
• Mexico has access to 45 • There is ample installed • Although Mexico’s geographic • Increasing local and regional countries through its 10 free production capacity, which location is an advantage for integration and value added trade agreements. continues to grow as a result of trade with North America, it percentages. annual investment also creates dependence on • One of these agreements is the • Searching for improvements or programmes by large this region, which is why Pacific Alliance, which is benefits through strategic multinational manufacturers Mexico must diversify its currently the world’s eighth alliances or mergers. operating in Mexico. exports. largest economy. • Attracting more high-level • In central and northern • Mexico controls environmental • Significant investments have specialised professionals to the Mexico there are 13 clusters of damage by regulating the been announced by major automotive industry. automotive industry suppliers entry of old cars that pollute manufacturers throughout the with a long tradition of relatively more. This is a • Eradicating or significantly supply chain. manufacturing auto parts. measure for combating one of reducing all types of vehicle • Export diversification will the biggest problems in the theft. • High-tech production lines. likely reduce dependence on sector: used car imports. In • Risks related to companies that the US in the long run. • Manufacturing systems 2013, 644,209 used vehicles are part of the automotive operating with quality entered the country, up 40.6% • Local suppliers are industry supply chain as a standards surpassing those of from 2012. increasingly being exposed to result of their transnational competitors in Latin America non-traditional markets and • The searching for alliances operations and search to lower and Asian countries, such as are developing their that can bring about an costs. China and India. relationships with foreign improvement (knowledge, • The constant pressure suppliers, thus fostering the • An exporting tradition and the techniques, production, assemblers place on their emergence of a strong local advantages of the commercial distribution, technology, etc.) suppliers to reduce costs. supply base. treaties signed with the US in the sector. and Canada, the European • Mexico’s strategic geographic • Detecting of new market Union, Japan and other position next to North niches throughout the sector countries in Central and South American markets facilitates value chain, from auto part America. trade with this region. companies to automotive and transportation equipment • The labour force is less insurers. expensive in Mexico than in developed countries.
“Mexico has access to 45 countries through its 10 free trade agreements. One of these agreements is the Pacific Alliance, which is now the world’s eighth largest economy.”
PwC Mexico/International Business Centre 31 Consumer products Trends
Greater wealth, population The formalisation of the 112,336,538 in 2010, according growth, and the strong economy is a positive aspect for to the census conducted by development of retail companies in this industry. INEGI. GDP per capita is infrastructure are key factors Consumers are increasingly expected to increase by 28.1%, behind the forecasted growth of placing value on the idea and reaching 14,576 USD in 2017. retail in Mexico. Other factors, consistency of brands. Unemployment, which is such as the large number of historically low, reached 5.1% in Another trend that will probably women active in the country, the March 2014.9 In addition, the transform sector companies is increase in jobs and wages also urbanisation trend is expected to technological progress.8 explain this growth, in addition continue, growing to a rate of to the consolidation of the The value of the trade retail 80.8% in 2020. From February middle class in the region. At the segment is expected to increase to May 2014, consumer same time, more affluent 17.8% between 2013 and 2017 to confidence increased 0.69% Mexicans enjoy a more 264.61 billion USD. Similarly, according to INEGI data.10 comfortable lifestyle facilitated Mexico’s GDP is expected to by easier access to consumer grow by 3.7% per year between credit. In recent years, foreign 2013 and 2017, according to the banks have significantly World Trade Organisation expanded their debt portfolios of (WTO). The population forecast Mexican credit cards. is 122,500,000 in 2017 vs.
Household spending by category, % of total
Food and non-alcoholic drinks spending
14 Clothing and footwear spending 26 Housing and utilities spending 4 Furnishing and home spending
Alcoholic drinks Health spending 9 and tobacco spending 0 Transport spending
4 6 Communications spending Recreation and culture spending 5 9 Education spending
Restaurants and hotels spending 14 7 2 Personal insurance and other spending
Source: Mexico retail report, Business Monitor International, Q2 2014
8Fabian Gosselin Castro, General Director of Alsea in interview with PwC Mexico for the 5th CEO Survey 9OECD, The Organisation for Economic Co-operation and Development, http://www.oecd.org/ 32 Mexico: Investment and business opportunities 10INEGI 2013 Global Retail Development Index
2013 Rank Country Region Market Country risk Market Time pressure GRDI score Change in rank attractiveness (25%) Saturation (25%) compared to (25%) (25%) 2012
1 Brazil Latin America 100.0 86.2 43.3 48.3 69.5 -
2 Chile Latin America 95.6 100.0 18.7 54.3 67.1 -
3 Uruguay Latin America 92.0 73.9 63.5 36.5 66.5 +1
4 China Asia 62.1 67.9 34.3 100.0 66.1 -1
5 United Arab MENA 95.8 94.6 3.0 60.8 63.5 +2 Emirates
6 Turkey Eastern Europe 86.8 83.7 28.9 50.9 62.6 +7
7 Mongolia Asia 17.7 37.0 99.0 96.5 62.5 +2
8 Georgia Central Asia 36.6 63.8 83.4 61.9 61.4 -2
9 Kuwait MENA 87.8 87.1 36.4 22.2 58.4 +3
10 Armenia Central Asia 32.3 63.6 93.5 43.6 58.2 N/A
11 Kazakhstan Central Asia 44.1 51.9 76.2 57.8 57.5 +8
12 Peru Latin America 52.9 60.4 63.4 49.3 56.5 -2
13 Malaysia Asia 63.4 95.8 22.0 39.8 55.3 -2
14 India Asia 36.8 59.4 63.3 60.6 55.0 -9
15 Sri Lanka Asia 16.6 60.5 81.8 58.6 54.4 -
16 Saudi Arabia MENA 71.4 79.2 35.6 30.7 54.2 -2
17 Oman MENA 77.5 97.8 11.3 29.1 53.9 -9
18 Colombia Latin America 59.2 73.6 43.0 32.4 52.1 +5
19 Indonesia Asia 47.4 49.6 49.3 61.4 51.9 -3
20 Jordan MENA 53.1 65.0 65.9 19.6 50.9 -2
21 Mexico Latin America 79.0 75.0 12.1 30.6 49.2 +7
22 Panama Latin America 49.7 70.8 37.2 37.2 48.7 +2
23 Russia Eastern Europe 92.4 44.0 21.1 37.4 48.7 +3
24 Lebanon MENA 74.1 32.9 48.6 38.4 48.5 -2
25 Botswana Sub-Saharan Africa 38.7 82.0 31.8 38.5 47.8 -5
26 Namibia Sub-Saharan Africa 20.8 77.1 12.6 73.2 45.9 N/A
27 Morocco MENA 30.1 60.5 48.7 44.0 45.8 -
28 Macedonia Eastern Europe 40.7 42.3 56.0 43.9 45.7 -7
29 Azerbaijan Central Asia 28.5 26.0 90.3 37.3 45.5 -12
30 Albania Eastern Europe 30.6 35.0 73.6 40.9 45.1 -5
0= low attractiveness 0= High risk 0= saturated 0= No time pressure 100= high attractiveness 100= Low risk 100= not 100= Urgency to enter saturated
Sources: The 2013 Global Retail Development Index, Global Retailers: Cautiously Agressive or Agressively Cautious?, AT Kearney Inc. 2013
PwC Mexico/International Business Centre 33 Food and transport account for the biggest share with a total of 40% between the categories, followed by personal, insurance and other spending with 14%. Even amid a complex international environment and significant local challenges, Mexico continues to offer a big opportunity for retail development. The Convention Coalition for Continuous Improvement of Competitive Business Practices was signed in 2009. The objective is to promote the identification, development and implementation of best business practices by respecting competition that leads to healthy coexistence among producers, distributors, retailers, department stores and other entities involved in the production and distribution of goods and services for the benefit of productivity and competitiveness. Mexico currently ranks 21st in the Global Retail Development Index (GRDI), up seven places from 2012 due to renewed optimism concerning the economic and political environment. Per-capita consumer spending grew 5.3% in 2013, driven by a stronger peso, lower interest rates that led to more credit availability, and moderate inflation.
34 Mexico: Investment and business opportunities Opportunities
• Mexico has a large middle class Food & beverage • Despite the growth in the retail • Consumers are being attracted with higher incomes. With opportunities sector, food retailing is by a greater variety of young people in the country fragmented with traditional convenience products at not getting married until later, • The performance of the outlets still representing about competitive prices. there is a large pool of well- industry is forecasted to 50% of sales. • Private label products, and travelled young professionals accelerate with anticipated • In small towns, villages, and more specifically under that have more disposable projected CAGR of 2.8% for the some suburbs of large cities, brands, should experience income to spend, not only on five-year period from 2011 to less than 50% of grocery strong growth, particularly in the basic necessities but also 2016. This is expected to take purchases are made in low-income households. on a variety of products such as the industry’s value to 163.83 supermarkets. fashionable clothes, electronic billion USD (2,129.8 billion equipment, and household MXP) by the end of 2016. • Consolidation of the food appliances. • The modern distribution retailing area is a fact in the consumer products industry, • Proximity to the US market formats are proving popular and large mergers, alliances and Mexico’s NAFTA with consumers; hypermarkets and acquisitions have taken memberships provide and discount stores are place. significant advantages. expected to experience growth. • The Pacific Alliance fosters international trade and investment. • The value of the retail trade Mexico food retail industry value and forecast (2007-2016) sector is expected to grow 17.8% by 2017, from 217.35 2500 8 billion USD in 2013 to 264.61 2,129.8 1,858.2 billion USD. 2000 1,698.4 4 • There is an opportunity outside Mexico’s urban areas. 1500 MGR (Modern Mass Grocery 0 retailing) operators in 1000 Colombia had positive -4.1 -4 experiences following their 500 decision to do business in small towns or cities. 0 -8 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 • Mexico currently has a broad free-trade agreement network MX $ billion % growth that includes North America, Source: Data Monitor the European Union, Japan and some South American countries. These agreements have substantially reduced tariff and nontariff barriers. Exchange rates are determined by supply and demand and foreign currency is freely available.
PwC Mexico/International Business Centre 35 Apparel opportunities Mexico’s apparel retail industry value forecast: $ billion USD, 2012-17 The retail industry is forecasted to reach a value of $6.7 billion, 8 4.0 an increase of 17.5% from 2012. The annual growth rate of the 7 3.5 industry for the period 2012–17 is expected to be 3.4%. 6 3.0 The industry has short product life cycles and is characterised 5 2.5 by demand fluctuation. Due to the growing middle class and 4 2.0 increasing disposable incomes,
Mexico is being targeted by $ billion 3 1.5 international apparel chains. % growth 2 1.0
1 0.5
0 0 2012 2013 2014 2015 2016 2017 year $ billion USD % growth
Source: Apparel Retail in Mexico, Marketline, February 2013 Challenges
• Fight against piracy and • The policy of President Enrique smuggling in Mexico. Piracy Peña Nieto on income chalks up losses of nearly 75 inequality and wealth billion USD annually. distribution in the country will be a determining factor for the • According to the Economic retail sector. Commission of the United Nations on Poverty in America, • Domestic chains are being the number of poor people in side-lined by larger regional Mexico has increased 1.5% and international players. over the past 20 years, despite • Government health campaigns the overall poverty rate of the government and dropping from 48.4% to 31.4% Mexico’s sugar tax could in Latin America. reduce growth opportunities in the non-alcoholic beverages segment.
36 Mexico: Investment and business opportunities Energy Oil & gas
The 2013 energy reform goes a 3. Production-Sharing Contracts long way towards addressing • Oil Company carries out E&P weaknesses in Mexico’s oil and activities and shares a % of the gas sector. The bill does not oil production from the dispute the dominant national project. Financial Risk borne narrative that hydrocarbons by the Oil Company. belong to the State. Indeed, 4. License Contracts Article 27 restates that fact. The • Oil Company acquires title of reform does, however, take hydrocarbons at wellhead after major steps to not only permit, paying taxes. These contracts but actively attract foreign are expected to operate investment. It creates a system in similarly to concessions. which the State is empowered to grant a number of different 5. Combinations of Various contracts based on the level of Contracts risk involved in developing the • Hybrid Contracts. resources. These include: 6. Others. 1. Service Contracts: • The constitutional amendment • Oil Company carries out opens up the possibility for Energy & Petroleum (E&P) other types of contracts in the activities on behalf of the secondary laws. State. Financial Risk borne by the State. 2. Profit-sharing Contracts • Oil Company carries out E&P activities and shares a % of the profit from the project. Financial Risk borne by the Oil Company.
PwC Mexico/International Business Centre 37 Trends
In 2012, Mexico’s average daily Reserves In recent years, Pemex has oil production was about 2.5 As for dry gas, the trend also invested about 15 billion pesos million barrels, 75% of which decreased from 2002 to 2010, (1.18 billion USD) in research came from oil rigs in the Gulf of but since 2011 has resumed an activities in the deep-water areas Mexico and 25% from land upward path. of the Gulf of Mexico. The oil deposits. fields were discovered in 2011 at The main crude oil extraction a depth of 5431 meters and a Pemex estimates that 1P oil site is Ku-Maloob-Zaap with 33% seabed of 1,928 meters. Pemex reserves (proven reserves) will of total production amounting to has used data on seismic be used up over the next decade an average of 841,818 barrels performance to begin the and 3P (potential reserves) will per day. Pemex, however, placed drilling of five new wells. be consumed over the next thirty its bet on Chicontepec, and its years, provided production levels production has already The results of Pemex’s deep- are consistent. increased from 45,000 barrels water research were inconclusive until the discovery of the Production declined to 2,550 per day in 2010 to 64,000 barrels Supremus, Trion, and Maximus million barrels per day in 2012 per day in 2011, and is expected sites. compared to 3,382 million to reach from 550,000 to barrels per day in 2004. 600,000 barrels per day by 2021. Petroleos Mexicanos (Pemex) has launched a series of investments in exploration Hydrocarbons reserves. 2002-2013 (Millions of barrels of crude oil equivalent) activities in order to return to a 60,000 production level of 3 million barrels per day over the next 5 years. 40,000
In 2013 production increased 20,000 from 43,837.3 million barrels in 2012 to 44, 530.0 million barrels. 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: PEMEX
Reserves of dry gas. 2002-2013 (Thousands of millions of cubic feet)
52,000
50,000
48,000
46,000
44,000
42,000
40,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: PEMEX
38 Mexico: Investment and business opportunities Opportunities Challenges
Opportunities for the private • The petroleum tradition has • The complexity of energy • There is social unrest which sector are not limited only to oil. made the energy sector in reforms and difficulties in promotes immobilisation at the There are also opportunities in Mexico a well- developed identifying opportunities for expense of reforms aimed at bioenergy. Article 11 of the Law high-skills sector. foreign companies that want to halting production. for the Promotion and come to Mexico. • Pemex has authorised the • Finding talented human Development of Bioenergy, came construction of four new resources is one of the sector’s into force on February 2, 2008. It • Oil production has been refineries biggest challenges. provides that licenses for the declining for several years and will continue to decline until production of biofuels from corn • In 2014, Pemex plans to invest • Climate change is one of the 2021. may be granted to individuals $27 million in areas with a key trends that will transform when surplus stocks of maize manufacturing presence. • Despite large domestic oil the industry in the coming production are likely to exceed production, Mexico is still years. • The reform aimed at energy domestic consumption. dependent on other countries sector liberalisation is for oil derivative refining. The energy reforms represent a expected to revitalise the major breakthrough because for sector’s potential and attract • The laws imposed by Pemex the first time in history the foreign investment. remain very strict for private national energy company companies in terms of profit • The deep waters of the Gulf of Petróleos Mexicanos (Pemex) sharing, tax systems and Mexico remain a widely has opened its doors to projects. unexplored territory. Recent collaboration with private discoveries have highlighted companies. The reform will the enormous potential of facilitate the entry of these sites. international companies into Mexico’s energy sector by • Insecure hot spots in the offering incentives. country that could affect investments have been • O&G companies and service reduced. providers are expected to profit from the Mexican O&G • Financing is available for sector openings by working entrepreneurs who want to with Pemex, and/or focusing actively participate in the on business opportunities in sector’s supply chain. the brand new private sector. • Technical and specialised • Short-term opportunities in personnel are needed by Mexico for contractors will productive and transformative thus be centred around processes at all stages of onshore and shallow water preparation. E&P services for Pemex. “The energy reforms • One key point that will Mid-term opportunities will represent a major transform the industry is the arise for new IOCs/NOCs with matter of technological breakthrough because for oil field contracts in Round advances. One and Onwards and for the the first time in history the oil contractors focused on the national energy company, exploration of those oil fields. Pemex, has opened its doors • The base of Mexico’s oil resources is one of the largest to collaboration with private in the entire American companies.” hemisphere.
PwC Mexico/International Business Centre 39 Renewable energy Trends
According to the latest data The Energy Regulatory from the Secretary of Energy Commission (ERC) has approved (SENER), in 2012 total the implementation of many electricity production amounted projects for autonomous turbines to 260,498 GWh. Total national with a total capacity of 2727 MW capacity of electric power of power, 488.7 MW of which are production was equal to 53,845 already in operation, 1928 MW MW, 24.9% of which consisted of which are under construction of clean technologies: 4.2% and 310 MW of which are renewable (excluding large inactive. hydro), 18.4% large hydro and 2.24% nuclear.
Forecast net demand by sector for 2011-2016, including energy saving plans
400
350
300 Residential
250 Commercial services 200
150
100 Industry
50
0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Sources: SENER, PwC
Electricity demand in Mexico is 24.9% of total electricity expected to grow at an average generated in Mexico. The need annual rate of 4.1 % between to comply with the objective of 2011 and 2016. This growth in 35% represents a significant demand implies the need to opportunity for the development install new electricity capacity of renewable energy projects. amounting to around 50,000 Private actors have the MW, equivalent to about 80 % of opportunity to invest in installed capacity to date. renewable energy by signing a Clean energy production is PPA (power purchase expected to increase by 2024. agreement) with the Federal The target set by the Law on Electricity Commission Renewable Energy Sources is for (Comisión Federal de renewable energy sources to Electricidad, CFE), and are also represent up to 35 % of the total allowed to participate in the energy production in the tendering or the construction of country. In 2012, renewable plants for domestic consumption energy sources accounted for in the country.
40 Mexico: Investment and business opportunities Opportunities
• The General Law on Climate Change (adopted in June 2012) Electricity has set stringent targets for renewable energy and carbon production: dioxide emissions. This focus the potential on a green energy agenda will no doubt encourage the of renewable development of the renewable energy sector. energy • Mexico’s oilfields are aging and Wind energy production is in decline. Considering that oil currently Estimated wind power potential contributes nearly 17% to the exceeds 71,000 MW, according total electricity mix, Mexico is to data provided by the Research in search of alternatives. Institute for Electricity (Instituto de Investigaciones Electricas, • President Enrique Peña Nieto’s IIE) and the Ministry of Energy reform drive will attract (Secretaría de Energía, significant investment over the SENER).11 22 out of 30 states in coming years. Mexico could install wind farms. Investments calculated for these projects are expected to reach $5.5 billion and create more than10,000 direct and indirect jobs. Based on the cost of wind energy and the Cost Projections Combined Cycle (CCGT), the proposal is to introduce a national plan to achieve 12 GW of wind power by 2020.
Development of wind power (2010-2020)
USs/MWh 110 Wind 30% 100
90
80
70
60 Wind 45% 50 2010 2012 2014 2016 2018 2020 Source: SENER
11SENER, Secretaría de Energía, http://www.sener.gob.mx/ PwC Mexico/International Business Centre 41 Solar energy Changes in the competitive photovoltaic potential in the housing sector in various states Almost 90% of Mexican territory of the Republic in accordance with the rates segment has an average level of solar radiation that is among the 8 N. León Nayarit highest in the world: between 5 7 6.4 Tlaxcala and 6 KW/h per square metre. It Oaxaca is therefore estimated that a 6 Hidalgo total capacity of 25.11 MW of Puebla 5 4.8 BCS photovoltaic energy which will Aguascalientes require a total investment of 4 3.5 Sonora 125.5 million USD. The federal 2.7 Zacatecas 3 2.6 BCS government has developed 2 numerous incentive initiatives to install solar energy systems, 1 DAC including the Programme for the 0 Promotion 2012 2016 2017 2018 2019 2020 of Solar Collectors for Water (Programa para la Promoción de 100% DAC Calentadores Solares de Agua, Low consumption 0% 0% 1% 4% 11% 18% PROCASOL). High end % Potential Client The graph shows the evolution of Source: PwC analysis the residential use of solar photovoltaic systems in various states of Mexico according to the tariff segment up to 2020. Forecasts prepared by PwC for the Department of Energy show how PV becomes competitive from 2017 to 2020. This growth could attract potential customers to the domestic market for low-supply power.
Transportation and Hydropower Geothermal energy Cogeneration infrastructure in Mexico have According to data published by In terms of production capacity Cogeneration capacity installed improved greatly in recent CFE and the Energy Regulatory of geothermal energy, Mexico is in Mexico has developed over the decades. Commission (Comisión de among the top countries in the last ten years at an annual While there is still much to be Energía Regulaorda, CRE), world. According to data growth rate of 10%. However, done, infrastructure should take Mexico has small hydropower released by SENER, Mexico has only 28% of the potential has a great leap forward in the next plants with a capacity of 392 geothermal reserves of 10,644 been realised. The development five to 10 years. In MW. It is estimated, however, MW, 1,144MW of which classify of the gas network in Mexico is transportation, several that there is potential for a much as proven reserves, 2077MW as necessary to promote growth in initiatives have been taken by higher capacity of about 3,250 probable reserves and 7 423MW the field of cogeneration. the new government to improve MW, which means that the as possible reserves. At the end The national energy strategy infrastructure. Amount generated today is only of 2011, production was 6,507 provides for an increase of 38% 12% of the potential capacity. GWh corresponding to 2.5% of between 2010 and 2026. Private total domestic production operators began participating in capacity. natural gas distribution for the first time in 1995. Since then, increased demand from new and existing customers and new customers has highlighted the urgent need to invest in the expansion of the transportation network.
42 Mexico: Investment and business opportunities Challenges
• High distribution costs and logistics issues. This is a challenge that needs to be resolved with the private and public sector so the industry can prevent or minimise its losses. • Although the energy reform contributes to the development of the sector, there is still no clear regulatory structure for encouraging investment. Resolution is required to attract the investment. • Mexico needs to achieve its goals in the renewable energy sector. • According to the OECD Mexico is amongst the 34 members of the organisation with the highest electricity prices.
PwC Mexico/International Business Centre 43 Health Pharmaceutical market Trends
Over the last decade, the Market access could reflect a certain level of Mexican government has for medicines protectionism are subject to acknowledged the importance of great scrutiny. investing in scientific and Historically, the rules for COFEPRIS is the body that technological know-how and medicines entering the Mexican authorises clinical trials in the establishing science and healthcare sector have been country. Most patients who take technology development as a more severe than for other part in clinical trials are state policy for the Federal industries. The explanation recruited through public Government’s National given by the authorities is, in healthcare institutions. Mexico Development Plan for the general terms, that they have the has the opportunity to increase 2007-2012 period. Some of the right and the obligation to its participation in the clinical key points are the support of protect the health of the Mexican trial process based on the fact scientific, technological and population, regardless of the that diabetes mellitus, high innovation activities designed to provisions of foreign legislation. blood pressure, obesity and improve Mexican Since Mexico began its foreign cancer are the main causes of competitiveness. This has been a trade regime (it has now signed death in the country. Since 2012, relevant factor in Mexico’s a significant number of free- COFEPRIS has sped up the emergence as one of the main trade agreements), any marketing authorisation process pharmaceutical and medical healthcare regulations that for generic medicines. equipment markets in Latin America. Medicine market in Mexico (Thousands of millions of USD) Since 2001, through the National Council for Science and Technology (CONACYT in Spanish), the Federal Government has supported $1.70 scientific and technological Generic research through tax, financial, medicines foreign-trade and training incentives. CONACYT provides $1.79 Free sales financial support to individuals $9.87 medicines and companies with Patent technological development and medicines innovation projects. Furthermore, it gives priority to projects linked to universities and research centres. In 2013 the Federal Commission for the Protection Against Sanitary Risks (COFEPRIS) signed an agreement, as part of Source: Megashifts, Impulso al sector salud, Doing Business in Mexico, PwC México 2013 the Pacific Alliance with Colombia, Peru and Chile, that facilitates the trade of pharmaceutical products in the region.
44 Mexico: Investment and business opportunities Opportunities Challenges
• The second largest • Pressure on the government to • Despite recent reforms, • Lack of coordination between pharmaceutical market in extend the Over-the-Counter application of the patent law is the IMPI (Mexican Institute of Latin America after Brazil. classification (OTC) may still problematic. Industrial Property) and encourage the unrestricted COFEPRIS has slowed the • One of the most developed • Copied and imitated medicines sale of more types of drugs. improvement of patent Latin American markets with are still widespread. protection. regulatory standards above • Good opportunities for • With approximately 10% of the those of most neighbouring medical tourism for U.S. • Excessive bureaucracy in the population lacking health countries. patients, especially in Tijuana. management of the ISSSTE by insurance, the drug market in the IMSS has resulted in long • The pharmaceutical industry is • Mexico is facing a major Mexico is sensitive to economic waiting periods for approval of competitive and well challenge, non-transmissible swings. clinical trials, slowing down developed, comprising 200 diseases like diabetes and • Ineffective coordination of investment in the national and a significant obesity being at the top of the regulatory policies in the pharmaceutical industry. number of multinational list. This is a significant health sector has contributed enterprises. opportunity for • Risk of lower levels of local to higher prices for pharmaceutical companies to production due to increasing • A major effort by the Mexican pharmaceuticals. develop more sophisticated competition by imports from government to tackle and effective medicines with • Persistent failure to comply China, India and Brazil. counterfeit drugs while which to treat these diseases. with the national patent law continuing to support patents may continue to limit and pharmaceutical • With the implementation of the investment and product companies. National Strategy for the launches by multinationals. Prevention and Control of • New legislation on Overweight, Obesity and bioequivalence was approved Diabetes, the government is These challenges can be understood more clearly in the following and offers growth potential for working to guarantee the chart that shows key features of the health sector: the generic drug market. supply of medicines and • The reform of the health sector laboratory tests, and monitor Consumer Competition Regulations Social and expansion of programmes the supply chain. responsibility such as the “Seguro Popular” • The entry of the principal More demanding Erosion of More government Development should encourage health self-service chains into the margins intervention spending. pharmaceutical business and Less fidelity More rivalry Anti-monopoly Society
• Public procurement through the consolidation of Diversity of needs New distribution More tax Environment IMSS is placing more and more independent pharmacies into channels regulations emphasis on generic drugs, commercial chains has Changes in Technological Environment Workers indicating good potential for resulted in laboratories decision criteria development regulations the expansion of that market. gradually changing their business model and decreasing • Access to the public market is the use of specialised now open to all distributors without having pharmaceutical companies Company problems as concerns the Products/Processes operating in Mexico (not just supply of products to the end Source: PwC analysis Mexican companies), making consumer. the market more competitive.
PwC Mexico/International Business Centre 45 Medical devices Trends
For health record purposes, According to the study “Mexican medical devices are classified Market of Medical Devices: according to the risk involved in Adapting Solutions for the New their use: Supply Chain”, conducted by DHL Supply Chain, demand for Class 1: Devices whose safety medical devices in Mexico will and efficiency are verified, and grow 5% annually from 2013 to do not generally interfere with 2020, every year, making t the organism. he country attractive for Class 2: Devices that can vary as international producers of concerns the material they are medical devices. made of, and generally remain The organisation that authorises in the organism for less than 30 the sanitary certificate for days. medical devices Class 3: Devices recently is COFEPRIS. accepted into the medical practice or those that remain in Regulations the organism for more than 30 To enter the Mexican market a days. product must be registered with Medical device imports grew by the sanitary authorities: 8.7% in the second quarter of • To sell a product in the public 2013, reaching 873.8 million sector, a company must have USD. Growth was led by the document “Cuadro Básico diagnostic imaging, Interinstitucional”, and in consumables and other medical order to be included in the devices. respective basic charts.
“Medical device imports grew by 8.7% in the second quarter of 2013, reaching 873.8 million USD.”
46 Mexico: Investment and business opportunities Opportunities Challenges
• The cost of manufacturing in • In 2012, the annual cost of Mexico is 23% cheaper than in treating diabetes was 3,872 the United States. million USD, considering that the cost per person is 707 USD. • Increase of specific health Compared to 2011, that issues in the population such us number increased 13%. obesity, diabetes, and diet- related diseases. • Obesity represents a threat to the Mexican population. • While in 2000 the active Among men over 20, 42.6% are population (15-64 years) overweight and 26.8% obese. increased to almost 60 million, 35.5 % of women are in 2015 it will be 80.5, and overweight and 37.5% are 75.5 by 2050.12 By 2050 obese. 19.8% of children Mexico must take measures to (5-11years old) are overweight transform and strengthen the and 14.6% are obese. health system. • The annual cost of government healthcare for 14 health complications, arising from four groups of diseases linked to obesity, was estimated at 42 billion pesos in 2008; equal to 13% of total health expenditure in that year. • Given a rising urban population and decreasing rural population, healthcare in rural areas is insufficient. • According to the 2012 National Survey of Health and Nutrition, 21.3% of the population stills reports a lack of any form of financial protection.13
12Ordorica M, 2012. The projections of the population until the half of the XXI century. El Colegio de México. 13Secretary of Health (2013), National Survey of Health and Nutrition 2012. 47 Infrastructure Trends
The priority of the specific agreements, ten of federal government which are directly related to infrastructure. Although there is During his initial days as no linear relationship between president-elect, Enrique Peña the commitments of Pact for Nieto was able to establish an Mexico and the federal budget, agreement with the main focus on infrastructure in the political forces, an initiative government programme is an called Pact for Mexico (Pacto por encouraging sign for new México). This document investment in the sector. contains a set of ninety-five
Infrastructure commitments for the 2013-2018 presidential term (number of projects)
152 Infrastructure 1 92 transport 1 Logistics projects infrastructure 5 Mass Transportation projects 7 6 Railroads 9 6 Ports 8 Airports 19 Transport Health Water Science and education 92 66 Roads Tourism Security 24
Source: PwC analysis based on various public available sources Notes: commitment to safety provides 10 different projects National Infrastructure Legal framework: The this law is the recognition of Plan (NIP) PPP law and regulation unsolicited proposals for new infrastructure proposals On the basis of strategic The legal framework in Mexico (“Propuestas No Solicitadas”). guidelines laid down in the PND, is considered by some investors These allow private companies the Secretary of Transport and to be complex and uncertain to offer new projects that are Communications (SCT) has with regard to major considered relevant. On the created the National infrastructure projects. To basis of these proposals (and Infrastructure Plan (NIP: change this perception, the new feasibility studies), the Programa Nacional de Law of Public-Private government could then decide to Infraestructura), which outlines Partnerships was approved in implement a process of public- the projects to be executed over 2012. private partnership, granting the next six years. The 2014- This reform should provide a certain benefits to the 2018 National Infrastructure more robust regulation for submitting company. Programme accounts for a total public-private projects. One of investment of ~596 billion USD the most attractive features of for 743 projects.
48 Mexico: Investment and business opportunities Opportunities
Transport and economic development. It is communications estimated that the sector will require an overall investment of The objective of the NIP is to 101,547 million USD for 223 build up modern infrastructure projects, of which 103 are and a transportation and government commitments and communications platform that 120 are strategic. will boost competitiveness, productivity and social and
Subsector Million Number of projects USD (2014) Strategic Government Total projects commitments
Telecom 51,826 5 5
Road 30,383 78 73 151 Infrastructure
Railways 10,989 4 8 12
Ports 5,240 15 6 21
Mass urban 2,219 1 6 7 transit
Logistics 347 2 2 infrastructure
Airports 279 14 6 20
Others 263 1 4 5
Total 101,547 120 103 223
Transport The following commitments and strategic projects are planned:
Road infrastructure Mass transit and rail
34 highways 3 passenger trains 49 routes 6 mass transport 33 secondary roads 1 bus terminal 22 intersections 8 cargo paths 9 rural roads 1 reporting system for railway 1 road maintenance programme 1 programme of rural road
Ports Aiports
3 new ports 19 modernisations 5 extensions 1 building improving connectivity 12 specialised terminals Completion of the construction of an 1 ferry airport
PwC Mexico/International Business Centre 49 Railways Roads Rail projects represent one of the Roads remain the most used major opportunities. Below are transport infrastructure in the three main projects to be Mexico. Many roads are in need implemented during the current of expansions or upgrades by the administration: new government. In addition, public-private projects for road • Mexico - Queretaro: $4 million maintenance could represent an granted for feasibility studies interesting opportunity for • Mexico - Toluca: $6 million business. On the basis of granted for feasibility studies presidential engagements, several road projects throughout • Merida - Quintana Roo: $2.4 Mexico should be completed: million granted for feasibility studies Road Projects of the Federal State
Baja Campeche Chiapas Coahuila Oaxaca Puebla Querétaro Quintana California Roo
1 2 7 3 4 5 2 1
Colima Durango Estado Guanajuato San Luis Sonora Tabasco Tamaulipas de México Potosí
2 1 6 3 1 1 2 3
Hidalgo Jalisco Michoacán Morelos Tlaxcala Veracruz Yucatán Zacatecas
2 4 5 2 1 6 1 1
Source: PwC Analysis based on the Presidential Commitments
50 Mexico: Investment and business opportunities Ports Water The expansion of the port of Investment in the water sector is Veracruz could be the largest intended to promote green project of this presidential term. growth that will preserve the In addition, investments are environment and generate expected in the ports of wealth, competitiveness and Manzanillo, Tuxpan, Campeche, jobs. Chiapas and Guaymas. The programme contemplates 84 projects for the water sector, Airports with an investment of 32 billion The largest airport project is the USD, 34 of which are new Mexico City airport. So far government commitments and no date or location have been set 50 of which are strategic projects. for this new infrastructure project. However, an alternative Health to this is to promote the Toluca Challenges The investment in hospital airport, which attracts air traffic infrastructure is designed to from the Mexico City airport. ensure access to health services Other Mexican states wishing to • Fraud and corruption cases. in Mexico. There will be 87 develop their airport projects in this sector requiring • Several large-scale tenders infrastructure are Chihuahua, an investment of 5 billion USD, have been postponed Jalisco and Nuevo León. 27 of which are government numerous times, eroding commitments, and 60 of which confidence in the private Energy are strategic projects. sector. Pemex will seek to extend and • Institutional delays continue to develop existing infrastructure, Education increase hydrocarbon processing affect the implementation of At least nine major science capacity and promote and construction projects in 2014. education projects are expected develop the Mexican including the construction of • The construction sector was in petrochemical industry. On the new universities, schools and recession since 2013. other hand, CFE will promote technical institutions in nine the creation of infrastructure for • The housing market was hit different states. the generation, transmission and hard by the new National distribution of electricity. Housing Plan with many Security companies facing bankruptcy. • Pemex: Overall projected The former government investment is 253.8 billion • Security risks and high levels promoted the construction and of violence. USD covering 124 strategic operation of new prisons under a projects. public-private plan, and • CFE: The estimated investment modernisation efforts should for development of electricity continue. The new infrastructure is 46 billion administration plans to build at USD assigned to 138 strategic least 10 new prisons through a projects. public-private partnership. There are also opportunities in Urban development social infrastructure. On several occasions the president has and housing stressed the need to increase the For the 4 projects planned for the quality of public services, and urban development and housing improving well-being is a sector, the 2014-2018 NIP priority. contemplates an investment of 143 billion USD.
PwC Mexico/International Business Centre 51 Mining sector Trends
While the drop in prices for some Variation of Mexican mining production of precious metals metals has not been as severe as as an annual % change, 2007-2012 during the 2008-09 global recession, the fall from record or 30% near-record levels in 2011 has Gold created some setbacks. A drop in 25% commodity prices has led to Silver lower revenues for mining 20% companies, causing most to cut back on operations and 15% spending. In some extreme cases, companies have taken 10% billions of US dollars worth of write downs to account for the 5% lower value of their assets compared to only a couple years 0% earlier. Few commodities in the mining sector have escaped the -5% 2007 2008 2009 2010 2011 2012 Source: Statistical Yearbook of the Mexican Mining, 2013, 2012, 2011, 2010, 2009, 2008, 2007 downturn caused by global economic uncertainty and volatile markets. Gold, silver and Gold production by state, 2012 copper are among the most closely watched metals; and 29.2% among the hardest hit in 2013.14 21.1% Sonora Zacatecas Mexican mining, 19.2% Chihuahua digging its way Guerrero 10.9% in the world Others 10.4% Thanks to large reserves of Durango important minerals, and due to an investment friendly business 9.2% environment, Mexico is one of the major players in the global mining industry. Source: SE, January 2014 Mexico has a long history in Silver production by state, 2012 mining that dates back to the colonial period. Diverse geography, rich geology, and a skilled workforce fostering a 43.6% Zacatecas strong, sustainable and dynamic Chihuahua mining industry. Mexico is an 19.2% Others important global player for 15% Durango mining investment and Sonora 15 production. 12.1% México 6.7% 3.4%
Source: SE, January 2014
14PwC “Gold, silver and cooper Price report 2014” 52 Mexico: Investment and business opportunities 15Promexico (http://negocios.promexico.gob.mx/20.2.2014) Variation of Mexican mining production of industrial Variation of Mexican mining production of metallic minerals non-metallic minerals as an annual % change, 2007-2012 as an annual % change, 2007-2012
200% 60% Copper Coal 50% Zinc Iron 150% 40% Molybdenum Manganeso 30% Lead 100% 20%
10%
50% 0% 2007 2008 2009 2010 2011 2012 10% 0% 20% 2007 2008 2009 2010 2011 2012 30% -50% 40% Source: Statistical Yearbook of the Mexican Mining, Source: Statistical Yearbook of the Mexican Mining,
Copper production by state, 2012 Iron production by state, 2012
27.2% Sonora 21.3% Michoacán Zacatecas Coahuila San Luis Potosí 19% Colima Others 77.8% Others Chihuahua 14.5% Jalisco 10.2% 9.2% Sonora 4.6% 4.2% 8.8% 3.2%
Source: SE, January 2014 Source: SE, January 2014
Lead production by state, 2012
Zacatecas Chihuahua Others 53.2% Durango Aguascalientes 22.3% 12.1% 8.4% 4%
Source: SE, January 2014
PwC Mexico/International Business Centre 53 Opportunities Challenges
• The Latin American region • Mexican President Enrique • Compared to other industries, • Metal and non-metal mines, continues to be one of the most Peña Nieto has announced the the mining industry is smelters, and refineries attractive for mining National Infrastructure becoming more sustainable consuming a substantial investment due to its large Programme (NIP), which is and decreasing its energy amount of energy release a resource base, especially expected to steer the nation’s consumption. Major energy significant volume of non-renewable resources. development plans for the next sources used in mining include greenhouse gases (GHG). Latin America spent about 25% six years. According to the natural (dry and liquefied gas), • Carbon Monoxide (CO), of the global total (18.2 billion programme, the government of electricity, and petroleum (fuel Nitrogen Oxides (NO), Volatile USD) on mineral exploration in Mexico will invest several oil). Electricity consumption Organic Compounds (VOC), 2011. Over the last two billion USD in the country’s accounted for 29.8% of total and Nitrogen Gases [i.e. decades, the Mexican infrastructure and seek private energy demand of the Mexican Ammonia (NH3)] are indirect government has removed funding to finance the new mining industry, natural gas greenhouse gases. Also, several investment plan. 46.1%, petroleum fuels 22.3%, pollution varies depending on requirements and created a and derivatives with carbon, • A notable increase is forecasted the type of commodity being legal framework (the North 1.8%. Major energy in investment in railways, extracted. Atmospheric issues American Free Trade requirements include while roads & bridges, airports are attracting interest from Agreement), that encourages electricity for ventilation and ports will see only a mining companies as well as investment in the mining systems in the underground marginal decrease. Although governmental organisations industry. mining and processing of public investment is expected resulting in procedures and minerals, water pumping, and • There is growing demand for to slow, private investment technologies that minimize crushing and grinding robotics and underground should pick up. As a result, emissions. operations. The fuels are used excavators among mining growth is expected to decline for hauling and other companies in Mexico. to 4.1% per year from 2013 to transportation needs, use of 2016. In 2011, the • Digitalisation and satellite dredging machinery, casting predominant mode of images are widely used by materials and more. Energy transport for Mexican mining companies in Mexico to spot requirements vary between exports and imports was ore deposits. The biotic- every mineral commodity and charter transport, with 55.25% bioleaching process is now type of mine, whether of total export value and used in Mexico to extract underground or surface, 50.84% of total import value, specific metals i.e. gold and whether it must be beneficiated respectively. Therefore, due to copper from ore. or processed, and the extent to the mining industry’s high which it is must be beneficiated • Technological developments in dependence on infrastructure, or processed. the mining industry have mining companies should facilitated exploration with a invest in road construction and low level of environmental improvement of utilities. issues and made the exploitation of previously inaccessible mineral reserves economically feasible.
“Mexican President Enrique Peña Nieto has announced the National Infrastructure Programme (NIP), which is expected to steer the nation’s development plans for the next six years.”
54 Mexico: Investment and business opportunities Telecommunications Trends
The telecommunications sector The mobile market represented $4.1 billion in 2013 Mexico has a relatively lower and grew 7% compared to 2012. mobile phone market Smartphones were the growth penetration rate compared to the driver for the sector. Sales of rest of Latin America due to a mobile phones in Mexico were lack of competition. estimated at about 16.4 million Approximately 70% of the units in 2013, vs. 15.7 million in market is controlled by Telcel 2012. Sales are expected to rise America Movil. and despite to 20 million units by 2017. efforts by regulators and Mobile phone market competitors, growth has only penetration reached 88% in decreased by 6% since 2005. The 2013 and is expected to reach Mexican telecommunications 92% by 2017. However, market has one of the highest according to the data controller ARPU (Average Revenue Per COFETEL (Federal Commission User) levels in the region, again of Telecommunication) nearly indicating a lack of competition. 40% of Mexican households have 3G services and packages are no landline connection, making still uncommon because they are this segment a target for sales of too expensive for a large part of mobile phones. the population. The Mexican market is 79.6% dominated by pre-paid services.
Mexico mobile market, 2013
Operator Subscribers (‘000) Market share (%)
Telcel 73,505 70.9
TMM (Movistar) 20,333 19.6
Lusacell (e) 6,500 6.3
Nextel 3,265 3.2
Total 103,602 100.0
Source: Mexico Telecommunications report, Business Monitor International, Q3 2014
PwC Mexico/International Business Centre 55 Fixed telephones Fixed telephony annual subscriptions According to the latest estimates issued by COFETEL, there were 25,000,000 20.5 million lines in service in 2013. In the last decade, annual 20,000,000 fixed telephony subscriptions have increased every year except 15,000,000 for 2009. 10,000,000
5,000,000
0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Cofetel
Pay TV Pay TV annual subscriptions According to COFETEL, there were 14.7 million subscribers to Annual subscriptions pay for TV in 2013. Of these, the largest proportion, 53.4%, had 16,000,000 satellite connections; 45.6% cable and 1% microwave, which 14,000,000 has been in sharp decline in Satellite recent years. Satellite TV 12,000,000 Cable surpassed cable TV in 2011 and Microwave has grown at a much faster pace. 10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Cofetel
Pay TV Market Pay TV subscribers (‘000) Market share (%) by Operators SKY México (Televisa) 6000 40.6
TV Azteca 4600 31.1
Dish Mexico 2500 16.9
Others 1690 11.4
Total 12,950 -
Source: Mexico Telecommunications report, Business Monitor International, Q3 2014
56 Mexico: Investment and business opportunities Broadband Internet subscriptions by technology type; annual series. According COFETEL there were Year Dial-up XDSL Coaxial Cable Others Total more than 45.1 million internet users in Mexico, increasing the 2008 702,391.00 5,670,890.00 1,615,688.00 246,346.00 8,235,315.00 availability of services. COFETEL 2009 395,588.00 7,328,785.00 1,876,848.00 523,076.00 10,124,297.00 also says that most users access 2010 305,279.00 8,825,569.00 2,133,548.00 610,549.00 11,874,945.00 internet services outside the home, such as, in the workplace, 2011 p/ 260,399.00 9,340,035.00 2,366,206.00 781,591.00 12,748,231.00 universities and cafes. The 2012 p/ 220,276.00 9,430,945.00 2,757,386.00 1,115,561.00 13,524,168.00 number of broadband subscribers in 2011 was 12.8 Source: Cofetel million, an increase of 8% over the previous year. Broadband market share 2012
4%
11% Telmex
4% Others
4% TVI
59% Megacable 6% Cablemas 2% Cablevisión
11% Maxcom Axtel
Source: Mexico Telecommunications report, Business Monitor International, Q3 2014
PwC Mexico/International Business Centre 57 Opportunities
The optical fiber Governmental actions • There is competition in the • Mobile number portability has area of fixed telephony, as been introduced. In September 2011, Telefónica, In June 2013, President Enrique alternative operators continue Televisa and Megacable Peña Nieto approved a new law • New legislation aimed at to expand their market share. announced the formation of a of telecommunications opening up the mobile market consortium to develop a fiber (telephone, internet and • Some operators have reported should stimulate competition optic network in Mexico that is television) to create greater growth in demand for fixed and lead to lower prices. to compete with the giant competition in the telecom telephone services. • Nextel has built a 3G network Telmex. Three companies industry. This will reduce the • The bundled services (Triple in collaboration with Huawei. recently won the tenders for a power of the dominant Play + or Internet telephony) This means that Nextel will total of 884 million pesos from companies in the broadband helped encourage fixed significantly expand its the CFE (Comisión Federal de sector, and help Mexico achieve telephony and caused an coverage. Electricidad) to operate 18,000 its goal of universal internet increase in the market share of km of fiber optic wire across the access. During the presentation • With a relatively low market small operators. country. The consortium, called of the text of the reform, Peña penetration rate, there are still GTAC, won the tender in June Nieto identified six key points in • Portability should allow many opportunities for growth 2010. In May 2011, Telmex which the success of the reform alternative operators to in the mobile market; revealed that it had selected will depend: continue to nibble at Telmex’s especially in rural regions. Alcatel-Lucent to build the market share. • Support human rights, • The government’s proposal to Mexico FTTH (Fiber To The freedom of expression and raise the ceiling on foreign Home) cabling. Telmex’s optical • Operators continue to reduce access to information. investment in fixed telephony fiber network has helped to bring the cost of broadband, while increasing speed. from its current 49% limit internte acces to an additional • Modernise existing legislation should encourage investment. one million Mexican households. in order to follow the evolution • Cable TV operators will offer In addition, Telmex intends to of technology that cheaper bundled services expand the new network to 40 characterises the (telephony, internet and TV). more Mexican cities. telecommunications sector. • A new fiber optic network will In Mexico City, the • Strengthen government be operated by an alliance: “Metropolitan Converged institutions through the Telefónica, Televisa and Network” will help boost access creation of a new regulating Megacable. points for users on an optical body (Federal Institute of fiber network to be deployed Telecommunications, Ifetel) • The reform will allow better through the city’s metro with an increased ability to control of the sector by the network. fight against monopolistic authorities. practices. The deployment will use a lot • Cofetel is committed to more fiber than is required by • Promote competition by reducing costs and has taken a current demand. This will allow eliminating the 49% ceiling on stronger stance on competition the system to meet future foreign investments in fixed in the mobile market. increased demand, especially for telecommunications (foreign • 3G services have been heavy bandwidth applications, investment is already available for several years; such as connecting other city authorized at 100% in mobile demand for mobile data services (i.e. emergency services, communications). services is growing. intranets government, CCTV, • Adopt policies that access traffic lights and vehicle • Two operators have launched universal and digital inclusion. registration services). The new 4G services. network aims at more effective • Use the switchover to release a management of the metropolitan 700MHz spectrum used to be area. Projects such as the for a public converged metro network should telecommunications network promote the ongoing which will extend service development of services. coverage.
58 Mexico: Investment and business opportunities Challenges
Telephony Data Broadband • New business model for • Ability to reconcile clients and • Telmex’s dominance has delivery and billing services details of physical and virtual limited the growth of the – VoIP. links of the network elements broadband sector. to billing, including control • Precision and accuracy in • Mexico’s size makes it difficult systems and provisioning billing through the to deploy the infrastructure for workflows. implementation of complex landlines. new tariff plans and billing • Inventory accuracy and circuit • Alternative operators are much elements – VoIP, content, etc. links, differentiating network smaller than Telmex and “core” circuitry and billable • Correspondence between generally concentrated in large links. billed revenues and costs cities. associated with the generation • Maximising existing network • Mobile broadband is becoming of income – interconnection elements. one of the key drivers of costs. • Minimisation of the cost for the market growth, which limits • Emergence of new players in rental links to other carriers. opportunities for fixed the traditional telephony operators. market. Cable/Satellite • Although there are four • Accuracy in the payment of operators in the mobile fees for transmitted signals. market, America Movil Telcel • Reliability of the subscriber hinders competition with base. relatively high rates. • Billing of elements based on • Mobile substitution will the use of pay-per-view. eventually reduce demand for fixed services.
PwC Mexico/International Business Centre 59 Our clients share their challenges
In our past publications we have • The way Pemex is forced to run Most CEOs mention interviewed several CEOs in their contracts. (Oil & Gas Mexico as a place of different industries such as food, sector) mining, construction, toys, opportunity, although • Merging is a big challenge. logistics, pharmaceutical, companies entering the Managing the people and the energy, paper, automotive, merged company; at the same Mexican market telecommunications, health time be concerned about the and aerospace, as well as in continue to face many customers and keep all the different countries such as challenges. stakeholders happy. France, Italy, Sweden, Norway, Finland and Denmark. • Bureaucracy. At PwC we understand the When conducting those • Generating a high-performing challenges a company entering interviews, we identified some work team. the Mexican market faces. We challenges for entering the • Keeping the talent in the understand their questions Mexican market which we have organisation with motivated regarding the Mexican market, compiled in this segment. people. the legal system, logistics, the • Issues with accounting and tax. culture, opportunities, financing • Talent management. Grow the and processes. • Understanding the Mexican business with new people. systems and laws and • Understanding the market complying with them. dynamic. • Compliance. • Learning in terms of knowing • Tax system. the local context, the management culture and the • Significant competition. organisation of work teams. • Norms the public sector uses to • Adaptation. buy equipment are very old. Knowing how to reach the • Access to credit. operators and users, besides • Complying with tax the administrative staff, is also obligations. a challenge. • Finding talent to maintain “It is extremely growth. important to find • Trying to convince people of people you can trust more efficient ways to do their here and the right jobs. partners to assist you” • Expanding to other sectors. Soren Ustrup, CEO Arla Foods • The cultural difference, and Ingredients, Denmark accepting that you will not necessarily get the business merely at the best price.
60 Mexico: Investment and business opportunities Tools for successful entry into the Mexican market
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• PwC as a full service provider with solutions for any challenge and question you may have regarding entering the Mexican market. • Efficient communication with one PwC contact person who guides you through the whole life cycle of your market entry. • The turnkey set up of a foreign entity according to our proven company-in-the-box model. • Our extensive local network of potential suppliers and clients.
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• PwC Mexico staff from your home country that help you understand and overcome cultural and business differences with governmental institutions, regulators, industry networks and other key organizations. • Our team of experts have ample experience with the critical success factors of operating in Mexico.
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• Our modular service portfolio from which you can choose the elements required for your specific market entry initiative. • Sophisticated databases, tools & methods adapted to the specifics of your initiative. • Our outsourcing capacities that can be utilized as part of your operations within Mexico for a wide range of functional expertise.
Our detailed, comprehensive approach lays the foundation for a successful international expansion
Strategy, planning Preparation, Market entry, Growth, regulation & decisions concept & design organization & network & optimisation
• Investment planning. • Financing. • Set up of financial management. • Financial and working capital Financing, investment • Business case. • Cash flow & budget planning. • Controlling. management: optimisation of debts & reporting • Investor management. • Reporting and regulation, and equity structures. • Financing modeling. • Investor and portfolio management. • Local funding. Treasury, etc. • Internationalisation strategy. • Set up of organisational structure • Growth & sales initiatives. • Market research. • Site selection. and infrastructure. • Continuous improvement • Availability of resources. • Corporate design. • Stakeholder communications. Strategy, organisation, • Partner search. of the organisational structure. • Product and service design. • Network integration. processes & systems • Feasibility Studies and localisation • Processes & systems. • Analysis and contracting • Set-up and IT integration. requirements. • Work force optimization. • Production / product and service • Business model. of suppliers & clients, • Change management. launches. • HR-Strategy. HR-Planning and Selection. • Stakeholders management.
• Location choice & legal filings. • Contract and license • Tax strategy. • Tax Planning. management. • Tax strategy improvement; • Legal structuring. Taxes, legalisation • Import/Export duty rates • Customs organisation License management. • Regulation. & customs and other barriers to market entry. & logistics. • Contract optimisation • Government incentives. • Contact negotiations. • Transfer pricing; andlabor relations. customs calculations.
• Compliance with all general • Establishment of financial • Continuous improvement. Compliance, • Compliance & CSR strategy. and industry specific regulatory departments. • Investor relations & stakehoder sustainability • Consideration of specific standards (organisation, • Reporting systems & auditing. communication. Mexican requirements & • Bookkeeping & compliance. & accounting processes, methods, guidelines, • Outsourcing. • Management of standards regulations. T-systems, etc). • Training & Payroll. to comply with. Overall project, change & risk management for your market entry
PwC Mexico/International Business Centre 61 Acronyms
• A. en P.: Joint-Venture Contract • CONACYT: National Council • IIE: Research Institute of for the Science and Technology Electricity • A.C.: Civil Association • CPA: Certified Public Account • IMMEX: Programme for the • AFORE: Fund Administrator Manufacturing, Maquiladora for Retirement • CRE: Energy Regulatory and Export Services Commission • ARPU: Average Revenue per • IMPI: Mexican Institute of User • E&P: Energy and Petroleum Industrial Property • CADER’S: Rural Development • ERC: Energy Regulatory • IMSS: Mexican Social Security Support Centres Commission System • CAGR: Compound Annual • FAO: Food and Agriculture • INA: Mexican Association of Growth Organisation of the United Automotive Suppliers Nations • CANILEC: National Chamber • INEGI: National Institute of of the Milk Industry • FEMIA: Mexican Association Statistics and Geography of Aviation Industry • CCGT: Combined Cycle Gas • INFONAVIT: Institute of the Turbine • FIDECINE: Mexican Institute National Housing Fund for of Cinematography • CCTV: Closed Circuit Workers Television • FTTH: Fibre to the Home • ISSSTE: Institute of Security • CFE: Federal Electricity • GDP: Gross Domestic Product and Social Services for State Commission Workers • GHG: Greenhouse Gases • CHG: Change • IT: Information Technology • GNI: Gross National Income • COFEPRIS: Commission for the • MGR: Modern Mass Grocery • GRDI: Global Retail Protection against Sanitary Retailing Development Index Risks • MRO: Maintenance, Repair • GW: Gigawatt • COFETEL: Federal Commission and Operation of Telecommunications • IFETEL: Federal Institute of • MW: Megawatt Telecommunications
62 Mexico: Investment and business opportunities • MXN: Mexican Peso • S.C: Civil Partnership • NADCAP: The National • S.de R.L.: Limited Liability Aerospace and Defense Company Contractors Accreditation • SAR: Retirement Savings Programme System • NAFTA: North American Free • SCT: Secretary of Transport Trade Agreement • SENER: Secretary of Energy • NIP: National Infrastructure Plan • SMEs: Small and Medium- Sized Enterprises • NOL’s: Tax Losses • U.S.: United States • O&G: Oil and Gas • UAV: Unmanned Aerial Vehicle • OECD: Organisation for Economic Cooperation and • UNCTAD: United Nations Development Conference on Trade and Development • OEM: Original Equipment Manufacturers • USD: United States Dollar • OTC: Over the Counter • VAT: Value Added Tax • PROCASOL: Programme for • VOIP: Voice Over IP the Promotion of Solar Collectors for Water • PTU: Employee Participation in Profits • R&D: Research and Development • S.A: Stock Corporation
PwC Mexico/International Business Centre 63 Bibliography
Business Monitor International Nordic Investment in Mexico; Se développer et investir au (BMI), Food and Drink Report Nordic Desk; PwC Mexico, 2014, Mexique, Les opportunités 2014, www.businessmonitor.com http://www.pwc.com/mx/es/ d’affaires; French Executive international-business-center/ Network ;PwC Mexico, 2013, Fabián Gosselin Castro, General nordic-investment.jhtml https://www.pwc.com/mx/es/ Director of Alsea in interview publicaciones/francia- with PwC Mexico for the 5th Ordorica M. The Projections desarrollar-e-invertir-en-mexico. CEO Survey, 2014, of the Population until the half jhtml www.pwc.com/mx/ecuesta-ceo of the XXI Century. El Colegio de México, 2012 Ministry of Agriculture, Federal Commission Livestock, Rural Development, of Telecommunications Petróleos Mexicanos (PEMEX), Fisheries and Food (SAGARPA), (COFETEL), http://www.pemex.com/ www.sagarpa.gob.mx http://www.cofetel.gob.mx/ Presenza e sviluppo delle Ministry of Energy (SENER), Global Retail Development imprese italiene in Messico; Desk http://www.sener.gob.mx/ Index 2013 Italia; PwC Mexico, 2013, http://www.pwc.com/mx/es/ Ministry of Health (2013), Marketline, Wine in Mexico, publicaciones/presenza-messico. National Survey of Health August 2013, jhtml and Nutrition 2012, www.marketline.com http://ensanut.insp.mx/ Promexico, Mexican Association of the http://www.promexico.gob.mx/ Statistical Yearbook of the Automotive Sector (AMIA), Mexican Mining, http://www.amia.com.mx PwC “Metals mired in global http://www.sgm.gob.mx/ uncertainty; gold, silver and National Chamber of the Milk productos/pdf/Statistical%20 copper price report 2014”, Industry (CANILEC), Yearbook%202012.pdf http://www.pwc.com/ca/en/ http://www.canilec.org.mx/ mining/global-gold-price- The Organisation for Economic National Institute of Statistics survey-results.jhtml Cooperation and Development and Geography (INEGI), (OECD), http://www.oecd.org/ http://www.inegi.org.mx Ubifrance, http://www.ubifrance.com/mx/
64 Mexico: Investment and business opportunities PwC Mexico/International Business Centre 65 The International Business Centre is the only business group in the market that is fully dedicated to supporting the success of foreign businesses and investors in Mexico.
We offer solutions in the native language of our clients, with an understanding of their business culture.
66 Mexico: Investment and business opportunities PwC Mexico/International Business Centre 67 Contacts
Juan Luis Garcia-Martinez Bjoern Buerger Clients and Markets Mexican/German Business International Business Centre Group Director Lead Partner [email protected] [email protected] Office:+52 (55) 5263 6000 ext.8955 Office:+52 (55) 5263 6093
Walter Heredia Kazuhiro Ejima Luca Torosani International Business Centre Mexican/Japanese Business Desk Italia Manager Senior Manager/ Network Manager [email protected] French Executive Network/ [email protected] Office:+52 (55) 5263 6000 ext.6674 Desk UK/Desk Netherlands Office:+52 (55) 5263 6000 ext.8987 [email protected] Office:+52 (55) 5263 6000 ext.6698
Joey He Lisamaria Markula Pavlo Pereira China Business Group, Nordic Desk Latin American Desk Taiwan and Singapore [email protected] [email protected] [email protected] Office:+52 (55) 5263 6000 ext.6958 Office: +52 (55) 5263 6000 ext. 5351 Office:+52 (55) 5263 6000 ext.554
Jason Patrick Morgan Chris Williams Vinicius Marques Pimenta Desk Canada, Australia United States Practice Desk Brazil and New Zealand [email protected] [email protected] [email protected] Office: +52 (55) 5263 6000 ext. 7987 Office: +52 (55) 5263 6000 ext. 6273 Office: +52 (55) 5263 6000 ext. 6271
Vaibhav Toshniwal Min Ho Jung Natalia Moncada Desk India Korean Business Desk Business Intelligence [email protected] [email protected] [email protected] Office: +52 (55) 5263 6000 Office: +52 (55) 5263 6000 ext. 6608 Office: +52 (55) 5263 6000 ext. 5333
Vito Cimmarusti Raehyun Im IBC Bajío IBC North West [email protected] [email protected] Office: +52 (442) 290 6900 ext. 6876 Office: +52 (664) 615 5000
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