Mexico Business Review 2019 by Mexico Business Publishing

2019

2019 Mexico’s 2018 was marked by significant uncertainty and wariness among investors. On his third presidential campaign, Andrés Manuel López Obrador ran on an anticorruption and socially-focused platform. He promised to cancel iconic projects and industry advances, including NAIM and the Energy Reform, which generated concern in the national and international business communities. Following a historic landslide win, López Obrador generated hope for change and opened the door for investment in sectors that past administrations did not consider a priority. Still, uncertainty lingers and fulfilling campaign promises while maintaining macroeconomic stability will be a tough balancing act, particularly since most promises involve more public spending while reducing tax income. However, the federal administration has vowed to not incur further debt or lead the country into an economic crisis.

Despite changes, the Mexican economy remains business as usual. The agricultural, tourism, manufacturing and banking sectors, among others, have gained momentum to become world-class competitors. The renegotiation of the country’s multiple free-trade agreements, including USMCA, TPP11 and a revamped partnership with the EU, have the potential to fuel economic growth while adding a pinch of stability to a weary market. Although the global economy might decelerate, Mexico has an opportunity to reinvent itself alongside the new government administration. The challenge ahead is to implement the right strategies from a public and private sector standpoint to complete Mexico’s transformation and turn it into a true powerhouse of the 21st century.

In its second edition, Mexico Business Review 2019 provides insight into the opportunities and challenges that the country faces in the coming years. Through interviews with the leading stakeholders in the public and private sectors, Mexico Business Review shines a light on the national economy and the views of the business community regarding the country’s road toward technology transformation, commercial diversification and regulatory changes.

ALL RIGHTS RESERVED ÂŠ Mexico Business Publications S.A. de C.V., 2019. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Mexico Business Publication S.A. de C.V. Mexico Business Review is a registered trademark.

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

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TABLE OF CONTENTS

NATIONAL CHAMPIONS

AGRIBUSINESS

FINANCE & BANKING

FOOD & BEVERAGES

TECHNOLOGY & TELECOMS

RETAIL

SPORTS & ENTERTAINMENT

MANUFACTURING & LOGISTICS

TOURISM

AEROSPACE & AVIATION

TALENT & CONSULTING

ENERGY

PROFESSIONAL SERVICES

LIFESTYLE

Loteria Nacional Draw

NATIONAL CHAMPIONS

Mexicoâ&#x20AC;&#x2122;s entrepreneurial tradition has given birth to some of the most important companies and influential businesspeople in the world who not only employ a significant number of people but are also key for the countryâ&#x20AC;&#x2122;s GDP growth. These National Champions are economic giants that have played a key role in positioning Mexico as a synonym of quality, attracting a continual stream of investment to the country. Mexico must now translate the success of these Mexican leaders working at national and international companies to broaden the middle class while at the same time increasing the quality of life of the general population.

The first chapter of Mexico Business Review showcases success stories of leading national and international companies led by renowned Mexican businesspeople. The arrival of a new presidential administration opens the door to positive changes and this chapter highlights the strategies that companies are implementing to capitalize on opportunities in the local and international markets.

CHAPTER 1: NATIONAL CHAMPIONS 7

THE YEAR IN REVIEW: Uncertainty, Tepid Optimism Mark AMLO-Private Sector Partnership

SEXENNIAL PLAN: Cooperation Key to Country’s Success

ROUNDTABLE: What Should AMLO Focus on to Boost Development?

VIEW FROM THE TOP: Graciela Márquez, Minister of Economy

VIEW FROM THE TOP: Juan Pablo Castañón, CCE

VIEW FROM THE TOP: Gilberto García, Ministry of Economy

VIEW FROM THE TOP: Román Meyer, Minister of Agrarian, Territorial and Urban Development

VIEW FROM THE TOP: Andrés Conesa, Aeroméxico

VIEW FROM THE TOP: Mario Vela, GNP Seguros

VIEW FROM THE TOP: Fernando Alanís, Industrias Peñoles

VIEW FROM THE TOP: Octavio Alvídrez, Fresnillo

VIEW FROM THE TOP: Mayra González, Nissan Mexicana

VIEW FROM THE TOP: Luis Barrios, Hoteles City Express

VIEW FROM THE TOP: Tomás Bermúdez, IDB

VIEW FROM THE TOP: José-Oriol Bosch, BMV Group

VIEW FROM THE TOP: Ernesto Prieto, LOTENAL and Pronósticos para la Asistencia Pública

VIEW FROM THE TOP: Raúl Beyruti, GINgroup

INSIGHT: Carlos Lukac, Gayosso

VIEW FROM THE TOP: María Fernanda Garza, ICC Mexico

VIEW FROM THE TOP: Armando Ortega, CANCHAM

COMPANY SPOTLIGHT: GINgroup: a Leader in Integral Talent Management

| THE YEAR IN REVIEW

UNCERTAINTY, TEPID OPTIMISM MARK AMLO-PRIVATE SECTOR PARTNERSHIP Stable macroeconomic variables, a significant demographic bonus and a wide network of free-trade agreements have maintained Mexico as a favored investment destination. A new president and new public policies will undoubtedly impact the Mexican economy. Precisely how is the great unknown

For most of its modern history, Mexico has been among the

Economic growth never comes easy, however, especially

steadiest countries in the Latin American region. Since its last

in the first year of a new administration. In 2006, when

economic crisis in 1994, the country has become a model of

Felipe Calderón won the presidential elections, the country

economic stability and since 2000, smooth political transitions

experienced 4.5 percent GDP growth. However, during

have become the rule. Despite changes in the governing party,

Calderón’s first year in power, the country underwent an

the country’s economic ideology remained more or less the

economic deceleration and grew 2.3 percent. The same

same. However, the election of President Andrés Manuel

happened in 2012 when Enrique Peña Nieto won the

López Obrador, who ran on an electoral platform of anti-

presidency. In 2012, the country’s economy expanded 3.6

corruption and reversing iconic projects such as NAIM and

percent, while in 2013 the economy’s expansion equaled

Enrique Peña Nieto’s structural reforms, generated uncertainty

1.4 percent. Martínez-Ostos says this is completely normal.

among investors and business leaders. For most of his

“We are aware that in terms of economic growth, the first

electoral campaign, the private sector did not see eye to eye

year of López Obrador’s administration will be difficult and

with President López Obrador but after his win on July 1, 2018,

the country will experience deceleration. This will be the

with 53.2 percent of the vote, both agreed to move forward

result of 2018’s uncertainty and changes in how the country

and work together toward the country’s development.

operates. However, this is just part of the adjustment.”

“The 2018 presidential elections illustrated the country’s

Government transitions also generate a significant dose of

strong desire for political change,” says Raúl Martínez-

uncertainty among investors and the period between the Peña

Ostos, Chairman of the Board and Director General of Grupo

Nieto and AMLO administrations was no different. Despite

Financiero Barclays México. “Policy continuity has been

promises from the incoming government that contracts

a hallmark of past presidential changes, particularly in the

would be respected and macroeconomic stability would be

economic and financial spheres. This is no longer the case.”

preserved at all costs, markets and investors remained wary.

As part of the promised change, President López Obrador has

Nevertheless, the presentation of the economic package for

built a strategy that at its center plans to battle corruption and

AMLO’s first year in office convinced markets that even if

favor economic growth and austerity, all with a social focus.

the government enforced different policies, macroeconomic

A few days after his victory, AMLO declared to the media

stability would be maintained. “We have to understand that

that the country was bound to experience 4 percent annual

there is and there will be uncertainty, so we must find a way to

GDP growth during his administration. He suggested that

work with it and clarify as much as possible. The government’s

the country’s 2 percent average growth during Enrique Peña

economic program, at least in its first year, is going in the

Nieto’s administration created poverty, insecurity, violence and

right direction, which has had a calming effect. The landscape

migration. For the past eight years, the country has averaged

will gradually clear. The federal administration is thoroughly

2.98 percent yearly growth, which is in line with the global

reviewing the state of the country,” says Martínez-Ostos.

average. According to data from the World Bank, between 2010 and 2017, global GDP grew an average 2.96 percent.

Maintaining fiscal discipline has been key for the country in past years and has been the backbone of Mexico’s

AMLO’s forecasts were challenged by analysts from the private

macroeconomic stability. “We need to gauge the price paid for

and public sector. According to Banxico’s February 2019

Mexico’s economic stability. We need to evaluate all elements

Survey of Economic Growth Expectations from Private Sector

that are a consequence of the financial crises that Mexico

Specialists, the country’s GDP is expected to grow 1.8 percent

suffered in the 1980s and 1990s. The first thing that must be

in 2019 and 1.91 percent in 2020. The starkest contrast between

done is to preserve the country’s macroeconomic stability

the government’s estimates and private-sector forecasts came

and its capacity to absorb external shocks,” says Guillermo

from Bank of America, which lowered its growth expectations

Ortiz, Partner and Board Member of BTG Pactual and former

from 2 percent to 1 percent. Yet, President López Obrador

Minister of Finance during Ernesto Zedillo’s administration.

vowed that during his first year in office, the country would

The fall in oil prices is an example. The country was able to

experience a 2 percent increase in GDP.

absorb this development from a fiscal point of view thanks

to the exchange rate. “Mexico has become a more resilient

implementation of austerity measures that will have long-

economy and we must properly recognize the elements that

lasting effects. AMLO terminated ProMéxico, the government

have fostered this resilience,” says Ortiz.

agency created in 2007 to oversee the country’s international promotion as an investment destination. Although the

AMLO’s promise to bolster the population’s quality of life and

decision was heavily criticized by the private sector, AMLO

purchasing power also led him to increase by decree minimum

split ProMéxico’s functions between the Ministry of Economy

salaries when he became president. Nationwide, the minimum

and the Ministry of Foreign Affairs. “Economic promotion

salary increased by 16 percent and in the northern border,

is important to the federal government and the Ministry of

salaries increased 100 percent. Although the discussion

Economy. This will not change now that ProMéxico no longer

surrounding minimum wage in the country is long overdue,

exists. Our goal is to take the best practices developed by

experts agree that an increase by decree was not the answer.

that organization and others and apply them to continue

“Salaries must increase based on collective negotiations and

stimulating economic development,” says Gilberto García,

this must respond to a productivity element,” says Oscar de

the newly appointed Director General of Direct Foreign

la Vega, Managing Partner at De la Vega & Martínez Rojas.

Investment at the Ministry of Economy.

Moreover, an increase by decree can have significant negative consequences in productivity costs and the country’s inflation

According to García, the FDI strategy of past years was not as

rate. “Given the conditions established in collective contracts,

successful as it could have been. “FDI has remained stagnant

an increase in minimum wages represents an increase in the

for the past few years, with a few peaks caused by acquisitions

entire payroll of these companies, generating a significant

of local companies, such as Banamex or Grupo Modelo,” he

cost issue,” says de la Vega.

says. “Mexico captured about 1.8 percent of the global FDI in 2007 and in 2018 the country captured 1.3 percent. There is a

Above all the promises the government made, the fight against

myth that previous activities to attract FDI led to continuous

corruption has taken a central role in AMLO’s articulation of his

growth of investment in the country but the data proves

political administration. The implementation of the National

otherwise.” García says that the current administration will

Anticorruption System has been a pending issue since the

enforce a different strategy. “In previous years, there was only

Peña Nieto administration, which is why the entire business

a vague definition of the strategic areas and products that

community has closed ranks to ask President López Obrador

should be a priority in investment and trade promotion, which

for a speedy implementation. “Corruption costs us at least 1

led to poor use of resources and results. Now the parameters

percent of the country’s GDP. However, there are studies that

will be very clear. We will use data mining to accurately

put this cost between 1 and 10 percent of the national GDP,”

determine Mexico’s strategic products and sectors and to

says Juan Pablo Castañón, former President of the Mexican

identify how we can better intervene to promote growth. We

Business Council (CCE). “As this was a key topic for President

will analyze each region to evaluate their capability to produce

López Obrador, we would like to see the rapid implementation

added value products, which will in turn generate better jobs

of the National Anticorruption System and specific measures

with better salaries for our population. Our strategy will also

from the federal government to address this situation.”

take into account an analysis of the global supply chains in which Mexico participates.”

OVERSPENDING AND CORRUPTION AMLO’s campaign and the first months of his term in office

ProMéxico was not the only promotion agency that

have been marked by a fight against corruption and the

disappeared. The Mexican Tourism Promotion Board (CPTM)

ECONOMIC GROWTH (PERCENTAGE) ESTIMATED GDP GROWTH (percentage) 6

——Mexico

——World

5 4 3 2 1

2010

2011

Sources: INEGI, OCDE

World Mexico

2012

2013

2014

2015

2016

2017

2018

2019

2020

| THE YEAR IN REVIEW suffered the same fate and elicited a significant number of

assured the general population this was the better option

complaints from the private sector. However, AMLO has

to improve Mexico’s infrastructure and air connectivity, yet

stated that the money used for the promotion of the country

technical, environmental and affordability studies are still due.

will instead be destined for the construction of one of his

administration’s flagship projects: the Tren Maya, or Mayan

Similar to NAIM, canceling or changing the Energy Reform has

Train. Still, the private sector argues that tourism promotion

been a constant in AMLO’s agenda that has also generated

should not be taken lightly and that the country cannot

doubt among investors. Still, many believe the government

do without it. “We have been working for almost 25 years

must be allowed to review the contracts and AMLO has

to position Mexico as a tourism destination and it often

assured on several occasions that during his first three years

takes times to see the tangible result of these promotional

in power, the constitution will not be altered. “Regarding

efforts, sometimes years. If the new administration wants

the Energy Reform, the administration is analyzing the

to build the Mayan Train, the tourism sector will welcome

conditions under which contracts were signed. It wants to

it but the government will need to find new budgetary

maintain good practices and correct those elements that

sources to pay for it, rather than use the money used by

could be done better. This is not a seamless process but we

CPTM for promotional purposes,” says Erika García, CEO

also need to give the administration the benefit of the doubt.

of Vacacionante and Vacations with a Cause Foundation.

Clearly, some investors are nervous, which is understandable as this is unprecedented,” says Martínez-Ostos.

Although the federal administration has argued that the Mayan Train itself will be a promotional tool and visitor

US, MEXICO AND CANADA

magnet, compensating for the lack of tourism promotion,

One of the last tasks Peña Nieto’s administration undertook

representatives of the private sector argue that CPTM's

was the renegotiation of NAFTA. Though slandered by US

disappearance also terminates a successful cooperation

President Donald Trump, María Fernanda Garza, Chair of ICC

model between the public and private sectors. “CPTM’s

Mexico, says the treaty remains an example of a successful

promotional mechanism has been internationally recognized

free-trade agreement. “NAFTA is a perfect example of a

and even replicated. CPTM does not work alone and decides

positive commercial agreement. Moreover, it anticipated

how and where to spend the money jointly with the trusts

the moment we are living right now, in which countries are

that have been set up by different destinations,” says García.

coming together in blocs to compete effectively, such as the European Union bloc. North America is already an integrated

UNDOING PEÑA NIETO’S LEGACY

region; production chains are so articulated that even without

Most of AMLO’s efforts during the transition period and his

the treaty, it would have been impossible to disentangle the

first months in office targeted Peña Nieto’s accomplishments.

economic relationship between Mexico, Canada and the US.”

NAIM’s cancellation was among his most controversial decisions and sent the markets and international investors

After over a year of negotiations, North American mandataries

scrambling. “Actions such as the decision to cancel

announced they had achieved a successful renegotiation

NAIM, which is politically motivated and not justified by

and presented the USMCA treaty. The agreement gave

technical reasons, generate distress that not only impacts

relief to national and international investors, although for

macroeconomic indicators such as interest rates but also

Mexico it was more of a wake-up call. “It is undeniable that

generate a loss in competitiveness,” says Castañón.

Mexico’s interaction with the world will have to change. The renegotiation of NAFTA, now known as USMCA, was

Most analysts agree that the popular consultation carried out

a wake-up call for Mexico and for everyone in the private

to cancel NAIM was not optimal but they also agree that the

sector to diversify contacts and to lessen our focus on the

country will survive the project’s cancellation. “It is important

US. That is the main challenge: to diversify our market and

to remember that an investment project, regardless of how

our sources of investment,” says Enríquez. Despite critics,

important it is for the country, should not define Mexico’s risk,”

both the former and current federal administrations believe

says Raymundo E. Enríquez, National Managing Partner of

that USMCA offers competitive advantages for the Mexican

Baker McKenzie. “The airport consultation was not optimally

industry, particularly for the automotive sector, which was

conducted and as a consequence, it generated a great deal

severely attacked by President Trump. “The changes agreed

of doubt. But in the end, Mexico is more than just one project

in rules of origin will boost a greater degree of integration for

and I think the new government will comply with all its

this industry in North America. An increase in the regional-

obligations and will honor all the contracts that were awarded.

content value (VCR) from 62.5 percent to 75 percent in

We need to put matters in the right perspective.” Despite the

light vehicles reinforces and consolidates production chains

backlash the cancellation generated among business leaders,

further and promotes greater use of inputs sourced in North

AMLO’s administration has decided to move forward with

America, providing greater opportunities for Mexican

the construction of the Santa Lucía Airport. The government

suppliers,” says Graciela Márquez, Minister of Economy.

SEXENNIAL PLAN |

COOPERATION KEY TO COUNTRY’S SUCCESS To ensure growth, there needs to be commitment between the public and private sectors to invest in the country’s economic activities. However, this cannot be guaranteed unless there is trust and mutual reassurance that rule of law will be respected and that businesses will work toward inclusive growth During Carlos Salazar Lomelín’s swearing in as the new

“We need investment to grow between 2 and 4 percent, to double growth during the administration … We need to grow with well-being. We need both feet. If we are missing one, then we are crippled. We need to look for balance”

President of CCE, President López Obrador acknowledged the role that the private sector plays in generating growth, employment and eliminating corruption. In return, Salazar Lomelín asked the president to become obsessed with investment to boost GDP growth to levels of at least 4 percent and promised him the support of the business community. “We do not look for any privilege. Have trust in this sector,” he said to López Obrador. The president’s relationship with the private sector has long been in the spotlight and on many occasions has been rife with tension. However, to ensure economic growth, a permanent collaboration is needed between all players. The government is in charge of establishing a stable regulatory framework that incentivizes investment,

“Carlos (Salazar, President of CCE) says we should make a commitment to attract investment so we can grow at 4 percent. Deal. He also says to make a commitment to end poverty during this administration. Deal. How do I know he will agree with me? I have a single proposal for Carlos and for all: let’s make a commitment to end corruption” February 27, 2019

while the private sector has the money to generate investment and economic activity. Over the past few years, the private sector has also become an active participant in the development of public policies. An example is the publication of the México Mejor Futuro (Mexico, a Better Future) document during the 2018 presidential elections. The document identified five pillars in which the government and the private initiative needed to work together to boost the country’s development. The pillars call for legality and justice, prosperity and innovation, equal opportunities, efficient and transparent governments and sustainability and preservation of natural resources. Cooperation between public and private players is not limited to more investment to increase productive activity. Juan Pablo Castañón, the former President of CCE, acknowledged the need to coordinate efforts between the public and private sectors to foster an environment less prone to violence. “One of the best antidotes to violence is to generate well-paid jobs. By generating better products with more added value, workers will become more specialized, will have more training and we will be able to pay better salaries. With better and innovative products, we can compete in the world and generate greater economic development.”

| ROUNDTABLE

WHAT SHOULD AMLO FOCUS ON TO BOOST DEVELOPMENT?

The arrival of President López Obrador created uncertainty among investors but also provided new opportunities for industries to evolve and contribute to Mexico’s growth. Business leaders across all sectors are willing to work hand in hand with the new government and have also shared a series of recommendations and opinions regarding the public policies the federal government should favor, the priorities it should focus on and the elements needed to boost growth.

It is very important to solve problems related to security and rule of law. The National Anticorruption System needs to start working and we need to have an Anticorruption Prosecutor. This would also allow us to reduce the country cost. Corruption costs us at least 1 percent of the country’s GDP. However, there are studies that put the cost of corruption between 1 and 10 percent of the GDP. As this is a key topic for

JUAN PABLO CASTAÑÓN Former President of CCE

President López Obrador, we would like to see the rapid functioning of the National Anticorruption System and specific measures from the federal government to address this issue.

The most important thing is to spur Mexico’s growth, which has been relatively limited. Rather than growing 2.5 percent, the country should grow at least 5 percent. There were some encouraging changes in the Peña Nieto administration with the structural reforms, but with the start of this new government cycle, economic growth will depend on the investment attracted to the country.

JOSÉ-ORIOL BOSCH CEO of BMV Group

Public policies for the healthy development of the financial system are obvious. We need to continue promoting financial inclusion, which is a topic that has received emphasis in recent years, and to find ways for the informal economy to have more formal financing mechanisms. The informal economy continues to be a burden on the country’s growth and development. It is less productive and does not have access

GUILLERMO ORTIZ Partner and Board Member of BTG Pactual

to formal financing. This implies that its financing schemes are expensive and shortterm, generating a vicious cycle of low productivity.

We need to innovate. The government needs to use new tools available to make its processes more productive and efficient. It will be a challenge for the new government to reduce the federal workforce and to make due will less as a result. However, this will lead to increased efficiency and transparency to eliminate the possibility of corruption. If the government can make these changes while providing

RAYMUNDO E. ENRÍQUEZ National Managing Partner of Baker McKenzie

certainty to investors regarding timelines and results, we will be able to generate much of the investment we need.

Education is key to the digital transformation. Most children in Mexico still receive a traditional education and it is necessary to make technological tools available to them from a very young age. Programming skills will be extremely useful to children, not just because they are in demand but because they teach a flexible way of thinking. Deloitte supports an organization that implements several programming courses for girls and we also have a scholarship program for university students in Queretaro. Developing stronger educational programs will help the country cultivate the capabilities it needs to be more competitive.

LUIS MEZA Managing Partner at Deloitte Consulting Group, México 13

It is important to continue investing in research and development and we need to develop professional talent with expertise in agriculture. With research, it is always important for people to be prepared and ready to continue supporting the development of agriculture. We need to continue favoring export markets that pay well for our products and that help farmers earn money. For the southern part of the country, it is important to develop a production platform. It is equally important to develop storage infrastructure, build highways and to develop cold chains to facilitate exports for producers. We need a public-private policy that favors the development

JAVIER VALDÉS Director General of Syngenta Latin America North

of the small and medium-sized producer.

The new administration must maintain Mexico’s free-trade agreements, since free trade is necessary for the country to achieve long-term competitiveness and greater economic development. The government has to maintain infrastructure investment in the country because South American countries like Ecuador and Colombia are becoming more competitive. Security and rule of law must also play a key role in Mexico’s development because there are some states in the country that are almost nonexistent for doing business. The government needs to balance and strengthen rule of law throughout the country if it wants the country to develop equitably.

LUIS TEJADO President and CEO of Bluedrop Agroforestry

We need to have an administration focused on attracting a greater amount of foreign investment, which we think is the mechanism that will help us become more productive. Things like increasing minimum wages could be feasible if we have more investment. We also need an environment that makes it easier to do business. Sometimes it is very hard to obtain business permits and every state in the country functions differently, which complicates the process of doing business.

LISSETTE MONTEFUSCO Vice President of Strategic Planning at CMR

There are many priorities and not enough budget, so choosing one is not easy. One question that impacts the tourism industry is whether the money that is used for promotion will be used for other purposes. If the new administration wants to build the Mayan Train, the tourism sector will welcome it but the government will need to find new budgetary sources to pay for it, rather than use the money that is used by the CPTM for promotional purposes.

ERIKA GARCÍA CEO of Vacacionante and Vacations with a Cause Foundation

| VIEW FROM THE TOP

STRATEGY FOR INCLUSIVE WEALTH GENERATION GRACIELA MÁRQUEZ Minister of Economy

Q: What will be the Ministry of Economy’s guiding

Innovation is key for our economic policy. We are convinced

principles during the current federal administration?

that only by adapting to and adopting new technologies

A: The Ministry of Economy is responsible for generating

will we be able to produce new goods and services

wealth and increasing the well-being of all Mexicans, both

based on an efficient, competitive and productive supply

of which are also the main objectives of President López

chain that integrates national added value. The Ministry

Obrador’s administration.

of Economy will support innovation through programs such as Programa para el Desarrollo de la Industria del

Mexico is about to close the second decade of the

Software y la Innovación (PROSOFT) and Programa para

21 st century with a trajectory of low growth rates and

la Productividad y Competitividad Industrial (PPCI). We

enormous regional, sectorial and social disparities.

are confident that innovation will help us close inequality

Over the past 12 years, the country has averaged annual

gaps created in the past decades.

growth of 2.1 percent, of which 69 percent originates from foreign companies, while national businesses contributed

The second pillar — diversification — is essential to promote

31 percent. Mexico still must take advantage of its close

exports of goods and services of all productive fields in the

relationship with the global economy and at the same

country, integrating those sectors and regions that have

time strengthen its productive force. In other words, the

been left out of global market participation. Investment

virtuous combination between the global economy and

in logistics, easier paperwork and the provision of market

the domestic market will help the country find the path

information will be the springboards that help national

to sustained, sustainable and inclusive growth for the

producers participate actively in international trade.

coming years. The US is already our main commercial partner but we still

Over the past 12 years, the country has averaged annual growth of 2.1 percent, of which 69 percent originates from foreign companies

have opportunities to increase the presence of Mexican products in some states north of the border. The same can be said about Canada. An increase in commercial integration and productivity in the North American region will generate significant growth for the Mexican economy. Capitalizing on other areas will also complement our trading activities. There are routes for commercial diversification thanks to the recent ratification of the Comprehensive and Progressive Agreement for Trans-

Our objective is not only to reactivate growth at high

Pacific Partnership (CPTPP), which will link the Mexican

and sustained rates but to do so with a focus on solving

economy with one of the most important economic

existing inequalities. This means generating wealth without

engines of the world, and the finished negotiations for a

leaving behind any social sector, production field or region

new treaty with the EU.

of the country. We have set three main pillars that will guide our policies: innovation, diversification and inclusion.

The third pillar that we will boost is inclusion, which

These pillars are not mutually exclusive; they complement

means promoting collaboration of marginalized regions

each other. We are in the middle of the fourth industrial

and population segments in high-productivity activities.

revolution, which is changing the way we understand production of goods and services. The challenge is to

The combination of these strategic pillars will allow us to

adopt these technologies inclusively to benefit the entire

contribute to the country’s growth and to the consolidation

population.

of our strengths according to our industrial calling and

cultural identity. We will articulate a real industrial policy

without including effective promotion and regulation of

through the conjunction of the national industry, society

the mining industry.

and the government, which will increase the well-being of the national population. The greater challenge is to close

Q: What is the ministry’s strategy to promote Mexico’s

the gap between regions and between segments of the

competitiveness as a mining jurisdiction and what

population.

incentives will be offered to possible investors? A: First, we must ensure that all investments have a social

Q: What opportunities will the implementation of USMCA

endorsement, which comes from full acceptance of all

bring to Mexican automotive suppliers and automakers

communities involved in the mining activity. When hosting

with operations in the country?

communities welcome mining activities, it generates a

A: The first highlight from USMCA for the automotive

virtuous cycle that contributes to prosperity and pacification.

industry is that Mexico's preferential access to the US market remains untouched. The changes agreed in rules

We will also work on a reform to the Mining Law that

of origin will boost a greater degree of integration for

modernizes current regulations and introduces the figure

this industry in North America. An increase in the regional

of a mining grid to ease cadastral administration of lots

content value (VCR) from 62.5 percent to 75 percent

to avoid splices and litigation. In addition, the Geological

in light vehicles further reinforces and consolidates

Mexican Survey will be reoriented to concentrate the

production chains and promotes greater use of inputs

localization of deposits that can be exploited in a profitable

sourced in North America, providing greater opportunities

manner so they can be offered to the international

for Mexican suppliers.

investment community with certified data and basic metallurgical information.

Operational costs for automotive manufacturing in Mexico are competitive and offer advantages over most countries in Southeast Asia. At the same time, VCR requirements are an additional incentive for companies to set up shop in Mexico. Although complying with stricter VCR standards will be challenging, the auto parts industry has developed significant capabilities. Furthermore, Mexico offers greater competitive advantages when compared to the other USMCA members. This treaty, in particular regarding the conditions established for the automotive industry, reflects US efforts to relocate manufacturing production to US territory, as well as the need for a strategic manufacturing partner in the region. Mexico has the opportunity to

Innovation, diversification and inclusion will be the three main pillars favored by the Ministry of Economy for economic growth

strengthen European and Asian production chains, creating more incentives for more companies to establish operations

Q: What changes are needed to promote investment,

in North America.

competitivity and improve the performance of the mining sector in the country?

It is important to highlight that the labor component

A: Most importantly, we must incorporate referendums to

included in USMCA’s rules of origin has several

the regulatory process. This is needed, first, because it is

compensation alternatives through investments in R&D

contemplated in international agreements signed by the

activities that will favor the profile of the automotive

country, such as Agreement 169 of the International Labor

companies established in Mexico.

Organization. Second, because these consultations open the door for more satisfactory binding processes between

Q: Why is it important for the Mining Undersecretariat

local communities and project developers. With this, our

to be part of the Ministry of Economy rather than the

goal for communities is to grow the labor force with

Ministry of Energy?

competitive wages, as suppliers and as full beneficiaries

A: Mining policy should be part of an integral industrial

of mining activities.

policy that fosters national competitivity through complete production chains. Mining is a key link in several important production chains that favor the country’s economic

Graciela Márquez was professor and researcher at Colegio de

development, by acting as a supplier in industries like

México. She majored in economics at UNAM, has a Master’s in

metallurgy, metal-mechanic and steel. It would be

economics from the same institution and a Ph.D. from Harvard

impossible to competitively improve these industries

University. She is the first woman to lead the Ministry of Economy

| VIEW FROM THE TOP

BUSINESS COMMUNITY STRIVES TO CREATE A FAIRER, MORE COMPETITIVE MEXICO JUAN PABLO CASTAÑÓN Former President of CCE

Q: What role does CCE play in Mexico’s economic and

At the same time, we have to help and even generate

social development?

pressure on the authorities to solve security issues.

A: We have a variety of organizations that represent businesses in different areas of the economy, either

Another pillar for development is the creation of public

generally or in more specific industries. CCE was created

policies that generate competitiveness. Topics such as

to address the need to share a transversal agenda

deregulation and the combination of efforts between

between all business organizations. Although each

development and commercial banks are key to improving

organization looks for solutions to specific problems

the country’s standing. We also need a public policy

that impact their sector, CCE voices concerns related to

that facilitates communication between SMEs and the

structural problems. CCE is the umbrella organization for

scientific community so they can work together and

most of the country’s business entities.

generate products that have greater added value.

Our transversal agenda includes issues related to economic

Efficiency and transparency of governments are

and financial public policy, which entails decisions that

also fundamental issues. We want all governments,

directly impact the economy. As representatives of the

not only at the federal level but locally as well, to

country’s business organizations, we

commit to the digitalization of their

have direct interaction with both the

processes, which would allow for

legislative and executive branches of government, promoting and analyzing initiatives that we believe can help solve the country’s most pressing issues.

70%

Employment in Mexico generated by SMEs

governmental accountability and comparisons between states. Any efficient government must ensure all economic variables are managed w i t h re s p o n s i b i l i t y to a l l ow fo r

We are interested in the creation of

economic growth.

public policies that help to better organize the market, that allow for free competition and that at the same time

Businesses and society need to always be vigilant and

facilitate the generation of new businesses.

hold whoever governs the country accountable to avoid mistakes in economic policy that could generate

Q: How does CCE comply with its mandate to help

inflation and increase debt. A breakdown of the country’s

develop public policies intended for economic growth

macroeconomic indicators would eliminate the stability

and competitiveness?

businesses need to develop. That is why we insist so

A: Two years ago, we created a document for the

much on Banxico’s independence, on responsible debt

candidates participating in the electoral process,

management from the Ministry of Public Credit and

whether running for president, the legislative branch

on the constant improvement in the management of

or governorships. This document, México Mejor Futuro

PEMEX’s debt indicators, which in the end are related

(Mexico, a Better Future), identified five pillars in which

to management of the national debt. Actions such as

both the government and the private sector need to work.

the cancellation of NAIM, which are politically motivated

The first pillar is rule of law and security and the private

and not justified by technical reasons, generate distress

sector's participation is crucial for this. We need to work

that not only impacts macroeconomic indicators, such as

against corruption, promote integrity and business ethics

interest rates, but also generate a loss in competitiveness.

within companies and initiate codes of conduct regarding corporate governance that can also permeate SMEs, thus

Sustainability is a priority as well. We cannot achieve

creating a culture of greater compliance in the country.

definite development without it being sustainable.

However, sustainability is not only about protecting the

We also need to acquire, develop, import and implement

environment but also about creating companies that

new technologies to generate products with greater added

are profitable and successful over time, generating the

value. Mexico has already taken a step in this regard by

best possible compliance practices. Businesses and their

not competing on the world stage with commodities,

collaborators must also be involved in solving the needs

meaning not competing with agricultural products. When

of their communities.

you compete with commodities, you have to reduce costs because end prices do not depend on you but on

Q: How does the Mexican business community work

international markets. But if we start competing with

alongside the government to foster the creation of an

added value products and new technologies, with Mexican

environment less prone to violence?

design and talent involved, we will generate more and

A: We need to demand more information from the

faster growth.

authorities and coordinate our efforts to monitor specific intervention plans in different regions of the country.

Mexico needs to use the tools at its disposal, including

We also need to generate best practices in terms of

its free trade agreements with 42 countries. However, to

prevention with our workers. One of the best antidotes

use the world more, we require public policy that enables

to violence is to generate well-paid jobs. By generating

Mexican products to go into the world. This means better

better products, with more added value, workers will

infrastructure and logistics systems so inputs can enter

become more specialized, have more training and we will

and products can exit the country more easily, which

be able to pay better salaries. With better and innovative

would make Mexico more attractive and more economical

products, we can compete in the world and generate

than other countries.

greater economic development. Training and prevention are fundamental contributions we can make from our field to generate a better environment to fight violence. We also need to be firm when participating in the efforts made by the federal government and insist that the models that work the best are those of coordination and cooperation.

México Mejor Futuro identifies rule of law, security, business ethics and public policies as priorities for the public and private sector

Q: What policies are necessary for the sustainable development of Mexico’s business community?

Mexico's mission, through the government, is to create

A: It is important to solve the problem of security and

an environment that fosters this exchange so there is

rule of law. The National Anti-corruption System needs

more investment and employment. But the business

to start working and we need to have an Anti-corruption

community needs to do the rest. Today, we could sell

Prosecutor. This would also allow us to reduce the

agricultural products at a price four or five times higher

country’s costs.

in the Middle East than in the US. However, we cannot access those markets that easily because we do not have

Corruption costs us at least 1 percent of GDP, although

the production and logistics viability to get our products

some studies put the cost of corruption between 1 and 10

there economically.

percent of GDP. As this was a key topic for President López Obrador, we would like to see the rapid functioning of the

The business community, including SMEs and big

National Anti-corruption System and specific measures

companies, need to be united in terms of communication

from the federal government to address this situation.

with government institutions in charge of making public policies. Sometimes, communication between the two

Second, the only way to generate opportunities for those

sectors is difficult but if we do not work together,

who have no opportunities is through employment.

development will be halted. The only way to generate

Around 70 percent of employment in Mexico is generated

employment and economic growth for people and their

by SMEs. This means that the country needs an industrial

families is by working together.

policy focused on supporting the creation of SMEs and fostering an environment that facilitates their growth while committing to employment generation. In this regard,

The Mexican Business Coordinating Council (CCE) is the

the country has a challenge in terms of deregulation for

organization that represents the Mexican business community.

businesses. We estimate that excessive regulation costs

Its goal is to boost democracy, social responsibility, equal

us around 2 percent of GDP.

opportunities and a free market economy

| VIEW FROM THE TOP

INCLUSION, DIVERSIFICATION, INNOVATION: PILLARS FOR FDI ATTRACTION GILBERTO GARCÍA Director General of Direct Foreign Investment at the Ministry of Economy

Q: What is the main appeal of Mexico as an investment

promote growth. We will analyze each region to evaluate their

destination?

ability to produce added value products, which will in turn

A: Mexico has a dynamic and attractive economy for

generate better jobs with better salaries for our population.

investment with slow but steady growth. Our industry is

Our strategy will also take into account an analysis of the

increasingly linked to global value chains through productive

global supply chains in which Mexico participates.

companies that grow at an accelerated pace and generate innovative products and services. Another element attracting

The Ministry of Economy follows three pillars: inclusion,

FDI to Mexico is the federal government’s initiative to

diversification and innovation. Inclusion refers not just to

eliminate corruption, which will allow for fair competition

companies that can enter global supply chains but also

among all investors. Mexico is increasingly perceived

companies that can support the economic development

internationally as a solid investment destination but the

of the communities where they are located. Our inclusion

country needs a one-stop solution to serve as a gateway

strategy also targets exports from more regions in Mexico,

for foreign companies looking to set up business in Mexico.

as most exports originate in just 11 or 12 metropolitan areas. In terms of diversification, our goal is to grow the number

Q: What is the administration’s strategy to continue

of companies that export their products. At this point, 90

promoting the country after the termination of ProMéxico?

percent of all exports are done by big companies and we

A: Economic promotion is important to the federal

want SMEs to increase their participation. Moreover, five or

government and the Ministry of Economy. This will not

six products represent 40 percent of Mexico’s exports, which

change now that ProMéxico no longer exists. Our goal is

are mainly destined for the US. We need a diversified export

to take the best practices developed by that organization

chain in terms of products and destinations as this will allow us

and others and apply them to continue stimulating

to minimize risk. Regarding innovation, our goal is to be more

economic development. The new economic promotion

competitive in areas with higher added value, which will also

strategy will come under the jurisdiction of the Global

permit the generation of better work conditions in Mexico.

Economic Intelligence Unit directed by Sergio Silva, in coordination with state and municipal governments and

Q: What is your message for potential investors that have

the Ministry of Foreign Relations (SRE). The objective is to

put their projects on hold until they get a clear perspective

replace ProMéxico’s 46 offices with 150 points of contact

of the administration’s policies?

across the world focused on foreign commerce. We are

A: The country is an investment destination with dozens

also coordinating with state governments and economic

of trade agreements that include first-rate protection

development units to properly channel economic support

schemes. Some infrastructure projects have been canceled

from the federal government to companies that need it.

but these decisions were taken after a revision of priorities and contracts. The goal of this government is to reduce

Q: What elements of Peña Nieto's trade promotion policy

inequality in Mexico in a responsible way by avoiding an

will be kept in place and what will be changed?

increase in taxes or debt. The government is also developing

A: We will use data mining to accurately determine Mexico’s

more social programs and investing in infrastructure

strategic products and sectors and to identify how to best

projects that will increase public spending and increase the country’s connectivity and competitiveness, especially in the south. These policies will lead to a healthy business

The Direct Foreign Investment Direction is part of the new

environment. Mexico will continue to be open for business

Global Economic Intelligence Unit of the Ministry of Economy. It

as it is implementing all the necessary structural changes

oversees the design of Mexico’s economic promotion strategy

that will lead to growth and will continue respecting the

in collaboration with the Ministry of Foreign Affairs

property rights of all investors.

VIEW FROM THE TOP |

MASTER ORGANIZATIONAL PLAN PUTS PEOPLE FRONT AND CENTER ROMÁN MEYER Minister of Agrarian, Territorial and Urban Development

Q: What are SEDATU’s main objectives as a recently

A: Regarding the National Reconstruction Plan, we are

established ministry?

working alongside the Ministry of Land-use Planning, which

A: SEDATU has numerous obligations, which include

focuses mostly on the middle part of Mexico. We are confident

being a bridge between other ministries, such as SCT, the

that state authorities will complete the reconstruction

Welfare Ministry and SADER. We are also in charge of the

projects effectively. We are supporting other states, Morelos

National Housing Plan and, thanks to a change in legislation,

being our priority, but also Oaxaca, Puebla, State of Mexico,

SEDATU is responsible for defining public policies regarding

Tlaxcala and others where there is a lag in reconstruction of

housing, which was previously the purview of the National

housing, health and educational infrastructure, along with

Housing Commission (CONAVI). We are working closely

cultural and INBA-protected landmarks.

with FOVISSSTE, INFONAVIT and BANOBRAS to define the best strategies for the housing sector and our goal is

There are three topics in which we want to focus regarding

to create a policy that understands housing as more than

the reconstruction program. The first is finishing on time and

just an economic indicator. The economic element is central

ensuring the requisite quality. We expect to do most of the

and important but we also need to focus on reducing the

work during 2019. We also want to finish equipping health and

existing lag in social housing. We need to start considering

education centers. We want to also start the reconstruction of

the housing model, its characteristics and what happens

cultural patrimony, such as churches. However, we understand

with houses a few years after they are constructed. The

this is a more artisanal procedure that requires the use of

endgame is to support the segment of the population

special construction techniques, which means the process

without access to the social housing system and housing

could take three to four years to complete.

financing mechanisms like INFONAVIT. Q: What do you want to achieve by the end of the current Another of our responsibilities is the regularization of urban

administration?

territory and the national agrarian registry and policy, which

A: We need to find mechanisms to provide decent, well-

refers to land ownership. We are also looking to encourage

located and culturally adapted housing. Building a house

a generational change in ejidos and to incorporating women

in Oaxaca is different than in Chihuahua. Materials, climate

into the decision-making process in agrarian centers. Finally,

and the house layout, to name a few, are all different and it

we will work for and contribute to the generation of a more

is the government’s obligation to generate guidelines that

robust and structured life in agrarian centers.

establish these differences so social housing can adapt its standards.

Q: What alliances has SEDATU established with international organizations?

We also expect to grow our urban development program.

A: We are working with several UN institutions and we have

This is a very specific initiative for areas within cities where

a collaboration agreement with FAO. The idea is for them to

there are significant lags and that have considerable

help us evaluate the national agrarian policy. However, this is

development opportunities. Today, we are supporting 10

not our only approach with international organizations. Mexico

border cities plus five more with a tourism calling. We

has agreed a set of international obligations and we have the

expect to end 2023 with 100 cities affiliated to the program.

responsibility to see them through. Examples of this are the UN’s Sustainable Development Goals and the implementation of the 2030 Sustainable Development agenda.

Román Meyer is the Minister of Agrarian, Territorial and Urban Development (SEDATU). He has worked on projects focused

Q: What is SEDATU’s role in the reconstruction efforts

on urban and economic development with an emphasis on

following the September 2017 earthquake?

equality. Among his projects are Centro Cultural El Rosario

| VIEW FROM THE TOP

MEXICO’S FLAGSHIP CARRIER CHAMPIONS ECONOMIC DEVELOPMENT ANDRÉS CONESA Director General of Aeroméxico

Q: How has the airline industry evolved since you took

Q: What areas of passenger experience are the top

the reins of Mexico’s flagship airline?

priorities for Aeroméxico?

A: The entire aviation industry, including Aeroméxico, was

A: When asked about customer experience, people

destroying capital back in 2005 because airlines did not

think about the Boeing 787 Dreamliner and onboard

focus on additional or long-term capital investments.

experience. However, the worst thing that can happen to

The industry has since become an attractive sector for

a passenger is a flight cancellation. We are refocusing our

investment. Looking at variables such as the size of the

efforts to deliver the most reliable service. For example,

industry, the average age of the fleet and the strength

in October 2017, we set a record for the industry and our

of human capital, it is evident that the industry is much

airline with only three flight cancellations, which was a

stronger now than 13 years ago. For us, Delta Air Lines’

great achievement since we operate between 650 and

investment in Aeroméxico highlights the evolution the

700 daily flights.

industry has undergone since then. Q: How sensitive are Aeroméxico’s operations to natural Q: What are the main concerns that influence

phenomena and how does that impact passenger

Aeroméxico’s general strategy?

experience?

A: Aeroméxico concentrates on hedging its risk based on

A: A narrow-body usually flies four or five daily trips

the three variables that impact our financial performance

for any airline, so if a plane is delayed for any reason

the most: exchange rates, jet fuel prices and real

throughout the day (including weather delays), the

economic activity. Our sources of foreign revenue are

remaining operations involving that plane will most likely

similar to our foreign expenses, which eliminates the need

be delayed. Passengers may see clear skies at night and

to go to financial markets and bet against exchange rates.

think they are being deceived by the airline when told

Regarding fuel, we rely on the oil derivatives market,

that fog or a similar phenomenon set the flight back. But

hedging half of our jet fuel consumption.

if an aircraft is delayed for three hours in the morning, this delay will have a domino effect for the rest of the day.

The worst mistake in this industry is overcapacity, which is why we have staggered leasing contracts to adjust for

Q: How is the growing competition pushing Aeroméxico

contingencies. We own between 35 and 40 percent of

to reinvent itself?

our aircraft and lease the rest. If something goes wrong,

A: Aviation is one of the most competitive industries

we downsize by not renewing aircraft leasing contracts.

and Mexico’s airline market is largely divided in three

On the other hand, if things go well, we just agree to

similar parts. Aeroméxico also competes with some of the

new leases.

best airlines in the international market, including British Airways, Lufthansa, Iberia, Air France-KLM, American

Q: What is Aeroméxico’s strategy to improve passenger

Airlines, Avianca, United Airlines, Japan Airlines and ANA.

experience?

Having strong competitors in and out of Mexico is what

A: Our goal is to offer the best experience every time,

drives Aeroméxico to reinvent itself.

which is key long-term sustainability. The bulk of our expenses is oriented to buying new aircraft along with

Q: What challenges does a saturated AICM pose to

technological investments, which are divided among all

Aeroméxico and how does the airline address them?

of Aeroméxico’s projects to empower our passengers.

A: The main problem at AICM is not the airport

Our digital ecosystem, including our webpage, app and

terminals but the available number of slots. More than

airport kiosks, is designed to provide all our customers

20 companies are flying through AICM, which suggests

with greater control of their travel experience.

that lack of space is not the problem. Aeroméxico can

increase its seat offering by 30 percent in the next five

Each company must focus on the area in which it excels.

years without changing its current number of slots and

However, we also offer tailor-made products for price-

aircraft. Additionally, our fleet strategy gives us flexibility,

sensitive passengers. For instance, we deploy our all-

since we only operate three types of aircraft, which

economy-cabin planes as a way to offer more competitive

reduces operating costs, and are increasing our fleet size

rates and compete in that segment.

at AICM. Aeroméxico Connect flies an all-Embraer fleet and Aeroméxico sticks to Boeing 737 and 787 aircraft.

Q: How have Delta Air Lines and Aeroméxico benefited from their joint venture?

Q: Some governments are highly proactive with their

A: Both airlines can learn from each other. Delta Air Lines

flag carriers. How does Aeroméxico interact with the

is among the best-run airlines in the world and we can

government?

learn greatly from it, especially regarding its resilience in

A: Airlines are important for economic development

the face of market restrictions, remaining profitable and

because when international companies ponder where

improving its network. Also, Delta Air Lines’ approach to

to invest, one of the first concerns is connectivity. It is

joint partnerships with other airlines, such as Aeroméxico,

necessary to have a hub-and-spoke model to connect a city,

places great importance on its collaborators. On the other

since it is impossible to do only point to point. Aeroméxico

hand, we can share best practices with Delta Air Lines

made its case with Mexico’s anti-trust authorities regarding

regarding our fleet plan execution and our e-commerce

our number of slots at AICM, as the authorities believed

strategy, which can help us build synergies.

we have too many. However, compared to other flagship carriers that usually have 80 percent of the slots in their

We are certain that together we can build stronger and more

hub airports, Aeroméxico holds only 43 percent. Taking

sustainable airlines to better compete in the international

away and limiting the number of slots makes it impossible

arena, specifically against subsidized airlines.

to implement a hub-and-spoke model, which harms the ability of airlines to connect the country. Q: What should the new administration do to support the growth of the airline industry and its national carriers? A: The Mexican airline industry has consolidated through several bankruptcies. In the last 10 years, 10 airlines went bankrupt. This should not be the case. The authorities should change their approach to consolidation so

Aeroméxico has a 30 percent share of the Mexican market versus its two strongest local competitors, which have 26 and 23 percent

economic cycles happen in an orderly fashion rather than as disruptive processes that bankrupt companies.

Q: What milestones does the airline expect to reach in the short term?

First, the government must be disciplined in its macro

A: Aeroméxico is prepared for the short term but the

policies and focus on providing security, education

airline’s strategic decisions must focus on the medium

and health using fiscal discipline while maintaining an

and long term. We need to consolidate the joint venture

independent central bank that fights inflation. Because of

with Delta Air Lines and find new opportunities with

the spike in oil prices, we saw a rise in inflation followed

it. We need to strengthen our service in the cities we

by the depreciation of the peso. Also, the aviation

already serve.

industry needs better infrastructure and the industry’s regulatory framework should be strengthened.

While Aeroméxico has daily flights to Madrid and Tokyo, we need to increase the number of flights on the

Q: What is Aeroméxico’s strategy to compete against

Shanghai-Seoul route. We will also optimize our fleet

low-cost Mexican carriers?

strategy. The company is moving from eight types of

A: A flight seat is not a commodity. People cannot expect

cabin to three and we are retiring the last 777s left in our

to pay the same price for a flight seat in the Mexico

fleet and introducing the new Boeing 737 MAX, of which

City-Monterrey route on Aeroméxico compared to other

we received the first in March 2018.

carriers, when we offer 25 daily flights for that route, the chance to earn miles and both business-class and economy seats.

Aeroméxico is Mexico’s flagship carrier and one of the four founding members of SkyTeam. It is the largest local airline and

It is impossible to be a low-cost carrier, a charter, a

has codeshare agreements with Delta Air Lines, British Airways,

cargo airline and a full-service airline at the same time.

Lufthansa, Air France-KLM and American Airlines, among others

| VIEW FROM THE TOP

PUBLIC-PRIVATE SCHEMES FOR BETTER SERVICE PROVISION MARIO VELA 22

Director General of GNP Seguros

Q: What is GNP Seguros doing to raise awareness about

information in real time about the location of the adjuster

the importance of insurance products?

and the waiting time. We guarantee quality and efficiency

A: Mexico has one of the world’s lowest penetration

in our customer service.

rates in terms of insurance; it is time for authorities to increase the use of tax incentives to make some coverage

GNP Seguros is also working on another app for reporting

mandatory and to encourage people to get insurance.

minor crashes. If a client hits an object or someone

This can create a virtuous cycle so the government and

damages their car, our app allows the user to take a picture

people do not have to absorb all the expenses. The process

to estimate the cost of repair and deductible coverage,

should start with education: people need to know that

in addition to offering recommendations for mechanical

being insured can create a situation of mutual benefit

workshops. Everything is done instantly and in real time.

for the client, the government and the insurance sector.

Technology also serves to provide greater security for

GNP Seguros actively participates in raising awareness so

the insurance sector against possible fraud. Through AI,

Mexicans are taken care of with the products available in

GNP Seguros can detect anomalies and patterns to limit

our portfolio. One of our most successful stories happened

unnecessary expenses and thus keep our premiums low

three years ago, when we created an organ donation

and accessible.

campaign focused on accident prevention and the benefits of being insured. We emphasized the importance of taking

Q: How can insurance companies complement social

precautions at the wheel and also pushed for people to

security and contribute as a financial mechanism for health

subscribe to the official list of organ donors.

management? A: Coverage varies from one health institution to another

Q: How do GNP Seguros’ website and apps address

so we believe the government can approach the insurance

growing consumer demand for digital services?

sector to achieve better access. Seguro Popular and other

A: Most companies are adapting to Industry 4.0 and GNP

institutions do not cover all medical conditions so the

Seguros is no exception. Technology is integral to our

private sector can complement their work. GNP Seguros

customer service and for the quality of the product we

believes that working under a complementary scheme

offer. Our Conecta Móvil app gives the user full control of

will provide the patient with a much better service. This

our services. Our app also provides a GNP card so the client

initiative can be complemented even further if there is

can visit a hospital without major complications and with

standardization of quality, services, protocols and other

all the necessary clinical information. Our digital system

indicators to administer the health system. We have to start

is connected to more than 20 hospitals, which allows us

thinking about the health system as a unitary entity.

to share medical information. GNP Seguros’ technology connects the patient, the hospital and the company in the

Q: What trans-sexennial proposals would GNP Seguros

best way possible to improve processes and results.

suggest to improve the health system and the participation of the insurance sector in Mexico?

Q: How is technology boosting GNP Seguros’ performance?

A: In the private sector, it is necessary to implement and

A: We are betting heavily on digitalization to

maintain quality indicators similar to those of the public

increase sales and to improve our services and claims

sector. The government could start by creating a single

management. We use an AI-based chatbot to sell our new

quality base for all hospitals so that the population has

low-cost insurance line. This chatbot focuses on guiding

better access to healthcare. Another opportunity is to

clients to acquire accessible health policies that cost

incorporate standardizing management tools (GRDs)

around MX$1,000 (US$52) a year. For our car insurance

to create a system of risk adjustments based on the

customers, it is easier to contact the insurer and receive

consumption of patient resources at Mexican hospitals. The

government also could rely on other public-private schemes to reorganize the way health is provided in Mexico. One option could be to expand insurance coverage to increase access. A person affiliated with IMSS or Seguro Popular through an insurance expansion could increase his coverage and have access to private hospitals, which would help balance the burden on health institutions and democratize access to healthcare. Q: One problem insurance companies face is the lack of

assertive verification of services provided by hospitals. How can communication between parties be improved? A: For GNP Seguros and other insurers to simplify the reimbursement process, it is necessary for health service providers to submit more detailed information. GNP Seguros facilitates communication with hospitals through a technology platform that tracks more than 750,000 procedures a year in a faster and more personalized way. The insurance sector requires hospitals to provide a descriptive diagnosis. As a result, it is easier for us to make the payment for hospital services and maintain a low premium for the patient. If insurance companies include unverified payments then the premium increases,

workers. Smart Trip is a car insurance proposal based on

affecting the client, hospitals and access to medical care

the kilometers driven. The app creates a premium that

in general.

covers exactly what you need.

Q: What is GNP Seguros’ participation in the Mexican

Q: What are GNP Seguros’ expansion goals in the

light-vehicle market? How many light vehicles are

Mexican automotive and health sectors? How does the

covered by GNP insurance?

company plan to increase its market share?

A: In Mexico, there are 113 insurance companies. Our

A: GNP Seguros offers unique coverage and top-quality

penetration in the automotive industry is 12 percent. We

service. Mexico is one of only two countries that offer

differentiate ourselves from the rest through the quality

coverage for meteorological and earthquake risks. To

of our services and in the innovative alternatives we offer

achieve this, we signed an alliance with Sompo Canopius,

our clients. We are looking for new ways to increase our

a global insurer and reinsurer. Also, we partnered with

leadership in the market by focusing on cars with one or

Beazley, a British world leader in cyber risks and created

more years of use to strengthen our participation. Only 28

Cyber SafeGNP to cover different-sized companies that

percent of Mexico’s population has car insurance and only

need to protect their information and help them to have

18 states make civil liability mandatory. It is necessary to

a contingency strategy in case of a cyberattack. This is

push for a national insurance regulation that makes civil

how our strong diversification helps us to consolidate as

liability mandatory.

a leader and grow our position in the sector.

Q: How is GNP Seguros bolstering its penetration of auto

Our goal is to innovate by diversifying our services and

insurance in the Mexican market?

to increase our penetration in the market with strong

A: Our company has the highest insurance penetration in

exposure through social media. We are the industry’s most

the country. We are focusing on providing insurance to

active company when it comes to online presence. We

the lower segments of society to increase the country’s

have around six daily publications to share information

health coverage. In the automotive sector, we launched

about prevention, our portfolio of products, insurance

three new products: Smart Drive, Smart Follow and Smart

tips and other relevant topics.

Trip. Smart Drive is an app that encourages drivers to develop preventive driving habits because the better you drive, the lower your car insurance premium will be. Smart

GNP Seguros is the largest multiline insurance company in the

Follow is an app that helps transport service providers

Mexican market. It has more than 116 years of experience in

ensure that their drivers exhibit proper driving behavior

inter-sectoral insurance and is part of Grupo Bal, which brings

throughout a trip to ensure the safety of goods and

together leading companies in a variety of industries

| VIEW FROM THE TOP

SERENITY IN THE FACE OF CHANGE FERNANDO ALANÍS CEO of Industrias Peñoles

Q: How optimistic is Industrias Peñoles regarding industry

A: There are four key principles that companies should always

growth, considering the volatility of the sector?

invest in no matter the price cycle to assure success: security,

A: There are many people within the mining industry

technology, training and maintenance. These elements are

who speculate but few who actually understand what is

sacred to us and even in times of dire budget restrictions,

happening. Precious metals are highly volatile and companies

we do not cut costs in these divisions. We understand the

cannot alter their plans every time there is an unexpected

importance of having trained people who know how to use

change. Successful companies need to have a long-term

technology safely. There is no other way to do business.

vision and not let themselves get carried away by the ups and downs of the price cycle. We need to focus on the few

We are investing in developing our main training facility in

things we can control such as reducing costs, increasing

Velardeña where we will have state-of-the-art technology

productivity and being highly efficient; everything else will

and simulators. We use cabins to educate our operators for

fall into place.

several weeks and have them simulate a variety of situations that are likely to occur in everyday operations. The training

Our company is over 100 years old and is used to constant

center will certify operators through governmental

change and turbulence. We even had to overcome the Mexican

programs that teach them how to properly handle machines

revolution. Peñoles finds that volatility is a normal part of

and carry out maintenance. This training helps keep our

the industry. The landscape may always be in flux but the

mines safe and productive. It is part of the secret recipe

country’s mineral deposits will always remain, as will demand

behind our high levels of production, reduced costs and

for this material. We are strong believers in having a long-term

employee retention.

vision and making sure everything is congruent with our goals. With a clear vision and consistency in commitments, great

Q: What does the country need to become a more

things can be achieved. From the beginning, we knew that

competitive mining jurisdiction?

we wanted to be an international leader in the industry and

A: To experience a boost in the industry, Mexico truly

this vision is reflected in everything we do.

needs clearer public policies. The automotive industry is a good example of this. Many years ago, someone saw

There are four main factors that differentiate us from the rest:

the potential Mexico had in the automotive industry and

the quality of our products, our processes, the excellence

decided to establish a series of public policies to incentivize

of our team and the ethical manner in which we manage

the development of this sector. The country now plays an

our business. To achieve excellence, an operator must not

important role in the automotive sector thanks to the vision

only demand it from its collaborators but also incorporate

this person established. The mining industry in Mexico

processes that uphold this benchmark from recruitment

needs a similar set of actions to take full advantage of the

to training and development. This applies to everything. It

potential of the mining sector.

sounds simple but congruency is not easy to put into practice. To see more projects in the country, we need less Q: How would you describe the key factors behind

jurisdictional volatility to incentivize investment because

Industrias Peñoles’ success?

mining law plays a crucial role in competitivity. The results of the Frasier Institute Report are a clear example of this. In 2011, Mexico’s mining sector experienced US$15 billion

Industrias Peñoles is a 100 percent-owned subsidiary of Grupo

in investment, a record high, while in 2017 it dropped to

BAL. The group is the largest gold and lead producer in Latin

US$3 billion thanks to the changes in the law. Considering

America and through its subsidiary Fresnillo, it is the largest

that the industry requires a long-term investment, public

silver producer in the world

policies should also have a long-term vision.

VIEW FROM THE TOP |

INDUSTRY DOWNTURN COULD LEAD TO TALENT GAP OCTAVIO ALVÍDREZ CEO of Fresnillo

Q: What is the single greatest obstacle that Fresnillo will

A: Before deciding to list on the LSE, we thoroughly

have to overcome in the coming years?

reviewed the markets in London, New York and Toronto.

A: We used to consider our growth objectives to be the

Due to the size of the listing we reduced our options to

biggest challenge that we faced but now that we are about

New York and London. And then we saw that mining had

to meet our IPO goals of doubling production in 10 years, we

greater weight in London than in New York. Due to the

consider the lack of human talent to be a greater obstacle.

listing being primary and a secondary, the tax implications

We have a large portfolio of projects but we consider the

also had a weight on the decision. As a Mexican company

most precious asset in our company to be our talent. The

with more than a century in mining, it was very important

downcycle in the mining industry caused many people to

that despite the fact that Fresnillo would be incorporated

stop working in the industry and now there are many gaps

as a UK company, we would be able to pay all taxes of the

to fill in medium to high-level positions.

listing and then those required in Mexico. This was a strong priority that brought us to the LSE. We have been studying

Q: How will the new anti-bribery and corruption legislation

the possibility of a dual listing in another market but since

impact the mining industry?

only 25 percent of our capital is in the UK market, further

A: This is a very positive initiative not only for the mining

dividing this percentage would only put more pressure

industry but for the entire country. We are listed on the

on the liquidity of our shares. For this reason, we are not

LSE and since day one we have had to comply with the UK

considering it at the moment.

Bribery and Corruption Act. It is very strict but with our company’s values and profile we have not had compliance

Q: What would you like the new administration to prioritize

problems and we have seen and we know the benefits of

when it comes to the mining industry?

following these types of norms. As a company with an

A: The new administration needs to understand the

already-strict governance structure we comply with this

importance of the mining industry in Mexico and its

new initiative in Mexico. The sector is responding positively

ability to compete globally with other jurisdictions.

to the legislation.

Larger companies have the privilege of being able to choose or buy projects in different countries and they

Q: What does the company want to see in Guerrero before

prioritize investments in regions that have the best

advancing projects in this state?

investment platform in terms of permitting processes,

A: Security can be an issue in certain isolated areas within

taxes, infrastructure, mining law, clear and defined mining

the country and even though we have an interesting project

development policies and human talent. It is crucial that

in Guerrero we have not been able to deploy exploration in

the new mining authorities prioritize strengthening the

the area due to these issues. We have tried a couple of times

areas in which we lack competitiveness. We need to make

to start exploring it but unfortunately, we have experienced

exploration 100 percent deductible. We need an efficient

safety problems and have removed our people from the

and clear permitting process, clear rules and processes

area. Thanks to our large project portfolio we can pause our

for indigenous consultation when and if applicable, access

efforts in this area and direct them toward less challenging

to land policies and guidelines and a reduction in security

regions. We hope that the area will be at a more stable

issues to lower the cost of operations in Mexico.

stage in the future. The growing presence of the mining industry has the possibility of changing the reality of the state as it will bring economic growth and quality jobs.

Fresnillo is the world’s largest silver producer and Mexico’s largest gold producer. It is listed on the London Stock

Q: Why did the company decide to list on the LSE over

Exchange and has seven operating mines across Mexico. In

more traditional mining markets such as the TSX?

2017, it produced 58.7 million ounces of silver

| VIEW FROM THE TOP

LEAVING COMFORT ZONE TO BE MORE INNOVATIVE, EMOTIVE MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana

Q: What main factors have allowed Nissan and other

A: The market is reaching a stabilization period and the

Japanese companies to gain a strong foothold in Mexico?

challenge for Nissan was greater after halting production

A: Japanese companies have found Mexico to be a strategic

of Tsuru, which was a representative model and sales

partner and a second home. Though Japanese by origin,

leader for the brand in Mexico for over 30 years. Tsuru

Nissan is a Mexican competitor with over 53 years in the

gave much to Nissan and to Mexico and we ended its

market. Quality is another factor that has given Nissan an

production after 2.4 million units sold. We also announced

additional advantage over competitors.

Tiida’s exit from the market, so it was no surprise to see a decrease in market share. This was a necessary step to

Nissan vehicles are synonymous of quality, durability and

take the company to the next level and to implement the

reliability and that has been one of our main differentiators

concept of Nissan Intelligent Mobility, our vision toward a

to establish ourselves as sales leader in the country for

zero-emissions and zero-accidents future. Tsuru fulfilled

nine consecutive years. That being said, we are now

its purpose and now we are betting on new models

expanding this mindset by giving innovation and emotion

such as GT-R, Murano and X-Trail in its hybrid version,

much bigger roles in our corporate image and products.

as well as special editions such as Kicks Dark Light, a

We are present in most market segments and each of

commemorative edition that reflects our sponsorship with

our vehicles, from March to Kicks to GT-R, offers its own

the Star Wars franchise.

version of technology, innovation and emotion along with quality and reliability.

Q: What are your expectations for the development of the domestic market?

Q: What is the “wow” factor that will ensure the brand’s

A: The domestic market grew to almost twice its size since

continued growth?

2009. Since then, the industry grew nonstop and is naturally

A: Our strategy of innovation and emotion has been

reaching its peak. This is not a crisis, only an adjustment, and

a continuous process that started with the launch of

competition will only make us stronger as a country. The

GT-R and Nissan Motorsports (NISMO). We have also

industry will continue adjusting until it reaches its optimal

made advances beyond our high-performance segment,

point although the government should keep offering

including the development of the hybrid version of X-Trail

incentives to strengthen the market further. From our side,

launched in 2017 and the second generation of our full-

we are fully committed to working with the government to

electric LEAF model launched in the end of summer 2018.

make the country the automotive powerhouse it should be.

We are renewing our entire lineup and we also have new

The industry might not grow in the short term, especially

releases. Murano, for example, was officially launched on

considering the challenges related to an election year, but

June 18, 2018. This model will crown and complement our

it can maintain its current levels.

SUV lineup, which is the sector with the most dynamic development in the country.

Q: How are you facing the competition of new arrivals from Korea and China?

Q: What are Nissan’s strategies to maintain its leadership

A: The arrival of more competitors has forced us to

in the market after a slight decrease in market share?

improve our technology and deliver more quickly on our promise of innovation and emotion. New brands will arrive with new products and they will naturally grow until

Nissan Motor Corporation is part of the Renault-Nissan-

they reach their stabilization point. Nissan has more than

Mitsubishi Alliance. Nissan Mexicana has been the top-

53 years in the market; we have watched every brand

selling brand in Mexico for nine straight years. It has four

arrive and we understand that we must work to retain

manufacturing plants in the country

our position in the market.

VIEW FROM THE TOP |

EXPANSION BEYOND BUSINESS DESTINATIONS LUIS BARRIOS Chairman and CEO of Hoteles City Express

Q: Hoteles City Express is generally associated with business

Q: How has Hoteles City Express attracted the support of

tourism. What opportunities do you see in other niches?

institutional investors for the development of its hotels?

A: Hoteles City Express targets all types of tourism at the

A: Fortunately, Hoteles City Expressâ&#x20AC;&#x2122; growth has never

same time. It started with a focus on business travel because

been hindered by lack of capital. We have been able to

we saw an opportunity in this niche. When we founded the

convince investors thanks to the viability of the project and

company in early 2000, we bet on NAFTA, believing the

the expected economic returns. Investors have a very clear

treaty would generate industrial and commercial activity that

formula: risk and return; the greater the risk, the greater the

would have an impact on different regions of the country.

economic return.

We were not wrong. The treaty generated investment and employment and became a significant currency generator,

In the beginning, the only thing investors had was trust in

which meant an increase in employment, better wages, more

us and in our project. When Hoteles City Express became

consumption and, therefore, social improvements.

a public company, we had been operating for 11 years with proven results, so the market trusted us and decided to

We expected economic growth in different regions,

invest. Before that, between 2002 and 2009, we held four

particularly in all the commercial, business and investment

capital-raising rounds.

routes that would be impacted by NAFTA. However, due to the natural evolution of markets, these routes also generated

Q: Where does Hoteles City Express plan to focus its growth

greater demand in different niches such as pleasure,

strategy in the coming years, in addition to the previous

business, religious, group and medical tourism. None of

focus on business routes?

these niches provide economic viability per se; what makes

A: More than the routes themselves, we focused on the

them profitable is their combination. In this sense, Hoteles

opportunities these locations offered. Today, we have

City Express is immersed in all these areas but despite our

hotels in 30 states and in 70 cities. We are in three cities in

diversification, the business niche remains our main segment.

Colombia and are present in Costa Rica. We will continue expanding where we see growth potential, either in the cities

Q: One of the main features of Hoteles City Express is

we are already in or in those where we do not have presence.

its ability to build hotels quickly. How do you mitigate associated risks?

We need to be aware of where investment will catalyze

A: Hoteles City Express owes its current position to its people.

regional growth. For instance, the newly named strategic

In addition, we have defined a precise strategy focused

economic zones are a good starting point for the future.

on a specific segment of the Mexican market. We analyze

The hotel sector is part of the development of the

destinations and their expected growth. If we conclude the

national infrastructure. You cannot make a Nissan plant

city is bound to experience economic expansion, then having

in Aguascalientes without having hotels in the region. For

a City hotel in that city becomes a must.

these types of projects to be successful you need hotel rooms, as well as highways and airports. It is infrastructure.

This vision has allowed us to maintain our growth rate,

We will be where we detect an increase in growth and

thanks also in part to the fact that we pay attention to the

investment.

necessities, which means having a very robust and focused team with experience and many capabilities. The second element that allowed this growth was to have a team of

Hoteles City Express is a Mexican hotel chain focused on

investors that embraced the project. Another contributor

business tourism. It is Mexicoâ&#x20AC;&#x2122;s second-largest hotel chain.

to our success is the market opportunity for a product like

With a hotel opening almost every six weeks on average, it is

Hoteles City Express.

also one of the fastest-growing hotel chains in the country

| VIEW FROM THE TOP

SOCIAL PROGRAMS BRIDGE MEXICO’S TWO REALITIES TOMÁS BERMÚDEZ Country Representative of IDB

Q: The Update to the Institutional Strategy (UIS) 2016-2019

but we are focusing mostly on the south of the country

targets a reduction in inequality in Latin America and the

because we believe the region requires special intervention.

Caribbean. What results have you seen in Mexico?

If lagging areas are left untouched, the social gap in the

A: One of the bank’s objectives is to improve competitiveness

country will widen and impact its competitiveness and

and close inequality gaps. In Mexico, some institutions work

economic growth. This approach is a kind of Marshall Plan

relatively well compared to others in the region. The country

for the southern part of Mexico. The country needs to work

has a significant commercial relationship with the US and

on several areas, including public services, the government’s

while this has led to economic growth, it has been slow and

ability to respond to its citizens, infrastructure and the

uneven. The result is the creation of two Mexican realities, one

creation and connectivity of value chains.

with OECD development levels and one that significantly lags. Q: What is the bank’s approach in gender equality, climate We are working on social protection and social programs

change and rule of law?

and I think those implemented in the country have been

A: Gender equality is a sensitive issue in Mexico because when

successful. We need to start thinking about how we can

you analyze inclusion of women in the Mexican manufacturing

link these social programs to the manufacturing sector. For

sector, you realize it is among the lowest rates in Latin America.

instance, in its 20 years, the Prospera social program has

In Mexico, only 5 percent of board members are women. This

helped people overcome poverty.

issue is a business opportunity since there are many studies that suggest that broader diversity results in increased

Q: What specific programs is IDB implementing in

productivity. In this regard, the quotas system that has been

Mexico that are having a positive macroeconomic and

implemented in the public sector has been highly effective.

microeconomic impact?

I think the private sector has the will to change things but it

A: We are working on a project with CONAFE, which is part

moves too cautiously. This is an area in which Mexico lags

of the Ministry of Public Education. This project involves

when compared to other Latin American countries.

providing educational services in the most marginalized areas of the country. In these places, CONAFE has

Rule of law is another complicated issue. The 2018 presidential

developed schools especially for teachers who are trained

elections were defined by the population’s perception about

as educators, even though they might not have a teaching

rule of law and corruption. Mexico has good legislation in this

degree. The project also includes the implementation of

regard. The problem lies in the enforcement of those laws.

virtual libraries in those locations to provide kids with

IDB has helped with everything related to the creation of

access to more content. This has been a very successful

the National Anti-Corruption System and we also can help

model that we are trying to replicate in other countries.

in the creation of the country’s Public Prosecutor’s office. A potential solution to the corruption problem is to attack it

We are also working alongside the Bill & Melinda Gates

using technology. I think there is much to do in terms of AI

Foundation to improve prenatal and postnatal care in

and data sharing between governmental agencies.

Chiapas, including the distribution of medications through a digital platform. All our programs have a national scope

Regarding climate change, Mexico is on the front lines in Latin America. During Felipe Calderón’s administration a great deal was done in this area. Given that the objectives

InterAmerican Development Bank (IDB) is an international

set were fairly ambitious, Mexico’s capabilities to comply

financing organization. It provides technical and financial

with them are what worries me. Even so, when you compare

support for countries in Latin America to reduce poverty and

Mexico with the rest of the region, the country’s contribution

inequality

to the fight against climate change has been significant.

VIEW FROM THE TOP |

ENABLING ACCESS TO CAPITAL AND DEBT MARKETS JOSÉ-ORIOL BOSCH CEO of BMV Group

Q: How has BMV Group protected itself against

Q: How can BMV Group help to bridge Mexico’s

external shocks?

infrastructure gap?

A: Companies listed on the BMV are so diversified in terms

A: BMV Group has already helped, considering there are

of sectors, sizes and business segments that the impact

many infrastructure companies listed on the exchange. We

of geopolitical uncertainty has been much less intense in

also have companies accessing financing through debt and

Mexico. I think Mexico, just like Canada and the US, needs to

these are the most traditional instruments in the market. In

see the renegotiation of NAFTA and the subsequent signing

2009, CKDs were created and since then around 100 issues

of USMCA as an opportunity to turn to other markets.

have raised close to MX$170 billion (US$8.85 billion). Of this,

Mexico does not only have North America as a potential

infrastructure represents about 30 percent.

market; it has a great number of free-trade agreements with other countries, even though the majority of trade is

Fibras were first raised in real estate in 2011 and their

focused on the North American region.

numbers continue growing. We are looking at new Fibras and we are about to raise a Fibra in the education sector,

Q: How can the International Quotation System (SIC) help

which will be the first of its kind. Also, Fibra Es were created

to position international companies in Mexico?

in 2015 and the first infrastructure Fibra E was raised by

A: SIC caters to foreign companies that operate in Mexico.

Pinfra in 2016. Since then, we have had various infrastructure

There are over 1,500 foreign securities listed on SIC from

Fibra Es, the latest being that of GACM, as well as a first

different countries and sectors. Of these, approximately half

Fibra E on the energy side issued by CFE. We have a range

are stocks and half are ETFs. In terms of mining, companies

of products for the industry to choose from and in 2017 we

from the US, Canada, the UK and from Latin America are

created the first Special Purpose Acquisition Corporation

listed on this index. This means any investor in Mexico can

(SPAC), which is very common in other markets.

buy these shares. Rather than listings, they can be seen more as a registry of international companies that allows

Q: Why has there been such a lack of demand for CerPIs

Mexican investors to buy shares.

compared to other products? A: In comparison to Fibras, which were a new asset class,

SIC represents more than a third of the total volume of the

CerPI is a product similar to CKDs but with some different

BMV, with the local exchange representing the remaining

management rules, including the role played by the

two-thirds. There is a great deal of interest because a Mexican

administrator. We had the first CerPI issued in real estate

investor can buy shares in an international company, pay in

and I think now we will start to see much more demand for

pesos and sell in pesos, while maintaining a fiscal advantage

the product. There are already various CerPIs that will be

compared to buying the shares in Canada directly.

launched in the coming months. It is always difficult to be the first but now that the first CerPI has been successful,

Q: What should the secondary regulation of the Fintech Act

the door has been opened and we will see more demand. It

include so innovation in the sector is not compromised?

was the same story with Fibras – the first real estate Fibra

A: The goal of the Fintech regulation is to add value. It

was raised by FUNO in 2011 and it was extremely complex

needs to define market value and how it will develop and

but it was more easily understood after the first issuance.

grow. Fintech sounds very nice but obtaining the financing for it is not so simple. We have been talking with those companies because they want to obtain funding to grow

BMV Group offers services for the operation and post-trading of

through the BMV. We are having this same conversation

stocks and derivatives in Mexico. It operates a stock exchange,

with various sectors that do not have access to financing

derivative products, an OTC securities and derivatives brokerage,

or that have trouble finding it.

a securities clearing house and a derivatives clearing house

Loteria Nacional Draw

VIEW FROM THE TOP |

HEALTHY FINANCES PROVIDE MORE SUPPORT FOR MEXICANS ERNESTO PRIETO Director General of LOTENAL and Pronósticos para la Asistencia Pública

Q: What strategies will you put in place to position and

draws per week and each has three sets of tickets or series.

strengthen the Lotería Nacional brand?

Every series except one is done on paper with the exception,

A: Lotería Nacional will turn 250 in 2020 and since its

called “Cachito Electrónico,” performed electronically. The

creation, it has supported the public and economic life of

idea is to have at least three electronic series per week by

the country. Throughout this time, Lotería Nacional has only

2020. Going digital will help us engage millennial clients who

halted its operations for brief moments, during the War of

are accustomed to mobility and digitalization.

Independence and during the Mexican Revolution. Lotería Nacional has provided support for different causes, such as

Q: How is Lotería Nacional planning to position itself to

the building of hospices, the construction of a train between

compete against international lotteries?

Mexico and Toluca during Benito Juárez’s administration,

A: We want to promote Lotería Nacional in the US. The project

the construction of Reforma Avenue and San Andrés

has been presented and we expect to start working alongside

Hospital, which later became Hospital Siglo XXI.

the Ministry of Foreign Affairs to promote the draws of both Lotería Nacional and Pronósticos among Mexicans living in

Unfortunately, today, Lotería Nacional has a deficit of

the US. This is another reason we need to implement a digital

MX$540 million (US$28.4 million). Our goal is to reverse this

component and even develop a Lotería Nacional app. The

deficit through austerity, transparency, efficiency and sales.

market of Mexicans living in the US represents an interesting

Lotería Nacional’s main objective is to contribute to public

opportunity for us and we believe that providing them with

assistance. However, the only way to do this is to increase

the chance to buy Lotería Nacional tickets will help them feel

our sales and boost our resources. Our first objective is to

closer to their country.

reverse Lotería Nacional’s current financial situation and to do that we will merge Lotería Nacional and our betting arm,

Q: What are Lotería Nacional’s goals in terms of income

Pronósticos para la Asistencia Pública. We are just waiting for

and participants?

an answer from the entities involved, such as the Ministry of

A: Each draw has between 2.4 million and 3.6 million

Finance, the Ministry of Public Service, the Attorney General’s

tickets, so we sell hundreds of millions of tickets per year.

Office and the Juridical Advisor of the Presidency to start

We are confident we can reduce Lotería Nacional’s deficit

this unification process. Unlike Lotería Nacional, Pronósticos

by MX$400 million (US$21 million), at least. The situation

does not have a deficit and in fact, provides the federal

at Pronósticos is different. We expect to register 7 percent

treasury with over MX$500 million (US$26.3 million).

growth in 2019, especially since we have had sales above this target for the first two months of the year. Eventually, we will

Another objective is to increase our points of sale. We have

replicate this at Lotería Nacional. We want to leave a Lotería

83 points of sale in the country, with 50 of those in the

Nacional that is financially healthy, with its credibility intact.

Mexico City metropolitan area, plus three virtual outlets.

The Lotería Nacional is among the few public institutions

Lotería Nacional’s clients are older people, around 45-50

recognized by the majority of the population. People identify

years of age on average. This means we have a significant

the Lotería Nacional with its public assistance work, the niños

opportunity to attract younger customers. We want to use

gritones (kids announcing the results) and as a chance for

social media to better and more efficiently promote Lotería

them to turn around their lives.

Nacional and attract a younger demographic. Q: How will Lotería Nacional work toward the digitalization

Lotería Nacional para la Asistencia Pública (LOTENAL) is a

of its offering and services?

decentralized public organization in charge of organizing draws

A: We want to modify the contests. In fact, in 2019, we want to

with cash prices. Its purpose is to collect financial resources to

increase our electronic ticket series. Lotería Nacional holds four

support the federal government’s public assistance goals

| VIEW FROM THE TOP

FLEXIBLE HUMAN RESOURCES FOR A FLEXIBLE WORK MARKET RAÚL BEYRUTI Founder and President of GINgroup

Q: GINgroup integrates several companies with different

A: The first thing we look for is that our suppliers in

services. How do your various offerings complement

Mexico have the capability to supply us in other countries.

each other?

For instance, Zurich and Mapfre are available in Colombia,

A: GINgroup is focused on human capital management.

so we are trying to replicate our agreements with these

However, we have seen the need to make our collaborators

companies there. The idea is to start from what we

happy; if we achieve this, the client will be happy. To

already have in Mexico and to open new partnerships

that end, we created a company called GINxti. This unit

for things that do not exist in Mexico but that do in other

is in charge of imbuing our collaborators with greater

countries. However, everything has to have the same

added value.

characteristics and follow the same process.

Similarly, the other GINgroup divisions were created

Q: What are the main skills that the Mexican talent

to address the particular needs that we have detected

system demands?

in the market. For instance, when we realized that we

A: We are immersed in a process of change. What works

needed our collaborators to speak English, we decided

today will be obsolete tomorrow, so most of our clients

to create a company that focuses on English lessons. It

are looking for people who can speak English perfectly,

is the market itself that generates the demand; we create

who have finished a professional degree, have experience

the companies to provide the solution.

and the desire to improve and who are reliable. There are many necessary characteristics but for me, the

Q: Of GINgroup’s entire portfolio, where do you find your

most important are resourcefulness, knowledge and

largest opportunity areas?

experience.

A: Growth will come from human capital. We have experienced 25 percent growth rates for the past five

Q: What needs has GINgroup identified in healthcare and

years in this sector. We are considered the No. 1 company

how does the company address them?

in Latin America in terms of human capital and we were

A: GINgroup specializes in the acquisition and

also named the best employer in the country.

management of human capital, which is why we offer our collaborators the best possible medical scheme. The

If we continue growing 25 percent in terms of human

group has two types of collaborators: 10,000 internal

capital, this will naturally have a positive effect on the

employees working within GINgroup’s operations and

group as a whole and will help us generate new businesses.

160,000 external collaborators, whom we manage. To

We opened an office in Houston, Texas, and another one in

provide care to our employees, GINgroup has signed

Colombia in April 2018. We have also tackled the Peruvian

several agreements with insurance companies, including

market through Sportway. By the end of 2018, we had

Mapfre and Zurich, and all GINgroup collaborators are

established our presence in Canada and Chile.

granted a policy for minor medical expenses that covers their spouse and children.

Q: How does GINgroup adapt to different countries to provide the same service and level of benefits?

We also have our own hospital network and agreements with other hospitals, so our collaborators have treatment options. All our hospitals are located in Mexico City’s

GINgroup is a Mexican company that specializes in human capital

metropolitan area but we are associated with individual

management and acquisition. The company also has offices in

doctors and we are building a hospital in Tijuana to grow

Dominican Republic, Colombia and Panama and includes GINxti,

our offering in the rest of the country. We also have

GINflex, Sportsclinic, Sportway and Centro Medico GIN

regional agreements with local hospitals.

INSIGHT |

INNOVATION DISRUPTS FUNERAL INDUSTRY CARLOS LUKAC Director General of Gayosso

Innovating is never easy but in a conservative sector

cremation processes and because of rising gas prices, it is

dominated by family-owned companies, it is even harder,

bound to be more economical in the future.”

says Carlos Lukac, Director General of Gayosso, the largest full-service funeral industry provider in Mexico.

There is still a long way to go before the company can

Nonetheless, companies, even in the funeral business,

provide this service nationwide. Lukac says Gayosso has

must follow this path to maintain their leadership. “Family-

had to work with the authorities to obtain the permits

owned companies tend to be traditionalists by nature,

required to introduce this service. However, the company

which makes the funerary industry extremely traditional,

already has its first machine in Tijuana, the second will be

conservative and closed.”

in Monterrey and a third will be in Mexico City, according to Lukac’s expectations. “Aquamation is our latest innovation

Gayosso was a family-owned business for 135 years before

offering. However, we need to always be thinking about

it was acquired in 2008 by private-equity fund Advent

how to continue innovating and offering new products and

International. This spurred a transformation process that

services in the coming years,” says Lukac. “In this industry,

merged a traditional industry with institutional stakeholders.

innovation is a key service differentiator and a growth driver.”

“The result was a radical transformation of our operations,” says Lukac. “We believe that very much like what happened

The company has also transformed the way it markets its

with drugstores or cinemas, the funerary industry is on

products and solutions. In addition to its traditional sales

its way to consolidation, with no more than three large

force of around 1,900 telemarketers and 3,100 people in

institutional players dominating the industry.”

the field, the company is about to launch an e-commerce platform for the online commercialization of pre-need funeral

Although Gayosso remains the sector’s only institutionalized

services. “We believe that the future of our business lies in

player, it is determined to use its leadership position to

offering pre-need funeral services rather than in selling at-

continue growing. The company emphasizes three pillars:

need funeral services,” Lukac says.

a clear value proposition, exceptional service and constant service innovation. Lukac says Gayosso has become a one-

He has good reason for optimism: the at-need funeral

stop shop for funerary services, solving clients’ current and

services business is worth approximately MX$8 billion

future funerary needs and working according to a culture

(US$415 million) while 10 years ago its value was MX$6 billion

focused on exceeding client expectations, which generates

(US$310 million), according to Lukac. The pre-need funeral

loyalty and allows the company to set premium prices for

services market is valued at MX$5 billion (US$260 million)

its services. “Four years ago, we started implementing

compared to only MX$500 million (US$26 million) a decade

a customer satisfaction survey and clients gave us an

ago. “While there is growth in both businesses, pre-need

average 75/100 grade,” he says. “We made changes to our

packages that bundle up funeral services with final resting

service philosophy and today, all our branches average a

place are clearly bound to experience the largest growth in

90/100 grade.”

the future,” he says.

Innovation, Lukac adds, is what keeps Gayosso at the

Migrating Gayosso’s business to pre-need also requires

forefront of the industry. The company is investing

a higher level of institutionalization, as clients want

heavily in technology to modernize its processes and has

assurance that the company will deliver its services years

acquired trade-marked Aquamation equipment to provide

or decades in the future. As such Gayosso’s pre-need,

an alternative to traditional cremation. “The Aquamation

according to Lukac, “is a mixture of the hospitality industry

process is an example of what innovation looks like in this

and an insurance product. Innovation and stability blended

industry,” he says. “It is more ecological than traditional

in one single offering.”

| VIEW FROM THE TOP

FREE TRADE GENERATES COMPETITIVE BLOCS MARÍA FERNANDA GARZA Chair of ICC Mexico

Q: What are the chamber’s priorities in Mexico?

Q: The EU and China have pledged to reform the WTO.

A: ICC Mexico follows ICC’s international agenda, which

What should these reforms include to adapt to the reality

is developed based on global needs. However, we have

of this century?

specific priorities in each country that are set up by local

A: We are convinced about the need to modernize the

experts that analyze the country’s reality and generate

WTO. ICC has a global agenda for international trade and

a work plan with objectives for the year. For Mexico,

we think the WTO continues to be fairly relevant in the

we have established five key issues that need to be

modern trade ecosystem. We are against voices that call

implemented to increase the country’s competitiveness:

for its disappearance.

grow work productivity, promote economic digitalization, internationalize SMEs, increase R&D investment and keep

We recognize that we have not been that efficient and

up the fight against corruption while improving rule of law.

effective in communicating what the WTO really does to improve the lives of billions all over the world. Groups

Q: How does ICC help Mexico foster international trade?

against free trade do not understand that the WTO is

A: Our goal is to improve Mexico’s business environment,

responsible for setting clear rules for every country,

which is why we are constantly generating recommendations

regardless of its size, which allows smaller countries to

for different sectors. At first, we focused on generating rules

fairly compete with larger economies. However, the WTO’s

for international trade, such as the International Commerce

internal mechanisms have been very slow and have failed

Terms (INCOTERMS) and the regulation for letters of credit,

to adapt to current economic conditions. The ICC needs

as well as many recommendations regarding best practices

better external communication and needs to be more agile

for different areas, such as the fight against corruption. In

and quicker in accordance with the times we are living. We

fact, in the 1970s, we were the first international organization

have advanced in many areas, such as trade facilitation, but

to point out the need to have strong corporate governance.

there are still many countries that have inefficient processes

ICC also publishes compendiums of good practices related

that prevent trade agility.

to corporate ethics, business integrity, the digital economy, marketing and publicity, economic competition and intellectual

Despite the necessary changes, we also fully support

property, among others. We provide these guidelines and the

the existence of panels for dispute settlement or anti-

needed training for free so companies can implement them.

dumping panels at the WTO. The role of this organization is extremely important, especially now, given the geopolitical

Another ICC goal is to reconcile the public and private

changes resulting from the 2008-2009 financial crisis and

sectors. For instance, regarding economic digitalization,

the subsequent social crisis. We believe these generated

many governments have a problem understanding how

the social unrest that has led to a less open and more

everything should be managed and there is a great debate

protectionist world.

between governments, businesses and users on how to design regulations. We take an active mediation role to

Q: What opportunities do you see for Mexico to achieve

help governments set the correct regulation rather than

real and effective trade diversification?

over-regulate and possibly sabotage the market’s potential.

A: Mexico has an international calling; it is among the world’s most open economies. With free-trade agreements with 46 countries, Mexico can reach many markets. However, around

The International Chamber of Commerce (ICC) was founded

80 percent of our exports are destined to the US. Due to our

in 1919 and established in Mexico in 1945. Its mandate is to

location, it was logical for Mexico to send all its products

create rules that foster free trade and investment between

to the US but this led us into a comfort zone. The treaties

countries

we had with the rest of the world suggest we are an open

country that favors trade but the truth is that we never

administration outlining how international trade, investment

had strategies nor implemented clear actions to diversify

and globalization can contribute to inclusive growth and

our exports to other markets. Today, we have a significant

how the UN’s sustainable development objectives go hand

opportunity with the TPP11 that will allow us to reach 500

in hand with his agenda. We are convinced that we can

million consumers in countries where we do not have active

achieve sustainable growth with the participation of the

commerce. It represents an important opportunity for the

private sector and that an open economy will allow us to

agricultural, pharmaceutical and electronics sectors.

generate better opportunities for all Mexicans.

Regardless of what President Trump says, NAFTA is a

Q: What are ICC’s expectations in terms of free trade for

perfect example of a positive commercial agreement.

the coming years?

Moreover, it anticipated the moment we are living right now,

A: We will see moderate growth while the commercial

in which countries are coming together in blocs to compete

tension between China and the US lingers. Interest rates

effectively, such as the European Union bloc. North America

are increasing, which will restrict access to finance for

is already an integrated region; production chains in the

developing countries that had been growing at a moderate

region are so articulated that even without the treaty, it

rate and commodity-focused exporting countries will be

would have been impossible to disentangle the economic

impacted as a result.

relationship between Mexico, Canada and the US. Asia is another bloc that is developing strongly, so we need to

Reforms must also continue to make Mexico a more

continue looking for ways to grow as a region.

efficient economy. We cannot allow another 20 years to go by to have a new series of reforms like those that were

Q: How does ICC Mexico collaborate with the Mexican

implemented in Enrique Peña Nieto’s administration. These

government?

do not need to be sweeping reforms. Simple regulatory

A: We provide recommendations based on the experience

changes will suffice but they must be constant so we

we have had in different countries. We have already

can continue being efficient and not lose our place in the

delivered documents to President López Obrador’s

world economy.

VIEW FROM THE TOP |

DIRECT CONNECTIVITY NEEDED TO FOSTER BILATERAL TIES ARMANDO ORTEGA President of CANCHAM

Q: Much of the existing commercial relationship between

Q: In which areas of the Mexican economy do Canadian

Mexico and Canada happens through the US. How can both

companies have the largest participation?

countries strengthen their direct ties?

A: Canadian investments have flowed mostly to the mining

A: Both countries are aware of the need to find direct

sector, as measured by the number of companies devoted

connectivity to foster bilateral trade and investment,

to this activity. Manufacturing in general, and auto parts

avoiding the US as a springboard. Recently, Canadian and

in particular, are leaders in employment and exports.

Mexican airlines, including West Jet, Volaris, Interjet, and

Pharmaceutical, financial services and a big rainbow of

Aeroméxico, have increased the number of direct flights to

other services illustrate the vibrant bilateral trade and

and from various cities to help boost the services industry.

investment between the countries.

The biggest challenge for trade in goods is maritime connection, which is where the East Coast can trigger the first results. The connection between Halifax to Altamira

The Canadian Chamber of Commerce in Mexico (CANCHAM)

and Veracruz is one to watch. However, geography

was created in 1982 to represent Canadian businesses in Mexico

matters and the US will always remain the ham in the

and promote trade and investment between both countries. To

bilateral sandwich.

date, the Chamber represents over 300 companies

| COMPANY SPOTLIGHT

GINGROUP: A LEADER IN INTEGRAL TALENT MANAGEMENT Human resources management, whether focused on a blue or white-collar workforce, is not easy. Companies need a certain level of specialization to handle delicate management tasks like recruitment and personnel planning that directly impact business performance. GINgroup is positioned as a leading player in integral management of human talent in Mexico. GINgroup is a 100 percent Mexican company with over 38 years of experience and more than 2,500 specialists in a variety of human resources areas. The company has more than 4,500 clients in the Mexican market and holds pole position in the human resources management segment. In 2018, GINgroup registered sales totaling MX$31 billion (US$1.64 billion), which represents a 26 percent increase compared to 2017. Overall, GINgroup contributes to the employment of more than 180,000 people nationwide. The company’s specialization areas include payroll processing and management adapted to every position profile, recruitment processes for special positions in different geographic locations, planning and personnel and payroll management focused on accounting, fiscal, legal and administrative matters. The company is also an active promotor of employment formality and is responsible for the management of thousands of employees enrolled with IMSS and INFONAVIT. By adapting its services and solutions to a company’s specific profile, GINgroup is an ally that helps improve labor conditions, maintain an effective positioning and promote growth. GINgroup also develops strategies that generate significant savings, while complying with the clients’ procedures and quality standards. The company has several certifications that vouch for its quality and capabilities: Socially Responsible Company (ESR), Great Place To Work (GPTW), Inclusive Company and Family Responsible Company (EFR), among others. In addition, GINgroup has an agreement with CONACYT that allows the company to access fully updated information on the Mexican labor market and the number of talent-related companies in the country. In Mexico, GINgroup has 11 operational centers, 80 offices and more than 50 subsidiaries. However, its reach is international. In addition to Mexico, GINgroup has operations in the Dominican Republic, Panama, Colombia, Spain, Canada, Peru and the US. It is evaluating opening offices in Paraguay, Chile, Costa Rica, Honduras and Italy.

Ă ngel de la Independencia, Reforma, Mexico City

FINANCE & BANKING

The banking sector has become a growth engine for Mexico over the past 20 years, especially after the arrival of international banks to the country. Despite its success, the sector still faces a significant number of challenges, mostly related to the countryâ&#x20AC;&#x2122;s banking reach, which barely touches 50 percent of the population â&#x20AC;&#x201C; too low compared to other countries in the region.

Financial & Banking focuses on how the sector is working to adapt to the countryâ&#x20AC;&#x2122;s reality and its efforts to include more people in the formal banking segment. Digitalization will play a key role, providing people who do not have access to banking infrastructure with the opportunity to access a bank account through a smartphone, for example. Innovation is a recurrent topic among interviewees, as the banking sector has invested significant resources and partnered with the fintech industry in an effort to generate more financial inclusion.

CHAPTER 02: FINANCE & BANKING

ANALYSIS: Banking Sector Embraces Digitalization, Financial Inclusion

SEXENNIAL PLAN: Competition, Technology to Reduce Banking Commissions

VIEW FROM THE TOP: Julio Carranza, BanCoppel

VIEW FROM THE TOP: Francesc Noguera, Banco Sabadell México

VIEW FROM THE TOP: Ernesto López Clariond, Banco Bancrea

VIEW FROM THE TOP: Juan Carlos Minero, BWC

VIEW FROM THE TOP: Alfredo Alfaro, Northgate Mexico

VIEW FROM THE TOP: Raúl Martínez-Ostos, Grupo Financiero Barclays México

VIEW FROM THE TOP: Guillermo Ortiz, BTG Pactual

VIEW FROM THE TOP: Octavio Liévano, Crédit Agricole CIB

VIEW FROM THE TOP: Pablo Coballasi, PC Capital

VIEW FROM THE TOP: Luz Adriana Ramírez, Visa Mexico

INSIGHT: José María Zas, American Express in Latin America and the Caribbean

VIEW FROM THE TOP: Antonio Junco, Mastercard

ROUNDTABLE: How Can Regulations Boost Technology Development in Financing?

VIEW FROM THE TOP: Daniel Vogel, Bitso

VIEW FROM THE TOP: Fernando Gutiérrez, STP

INSIGHT: Héctor Cárdenas, Conekta

INSIGHT: Omar Galicia, Mercado Libre

INSIGHT: Vicente Fenoll, kubo.financiero

INSIGHT: Juan Carlos Flores, Doopla

INSIGHT: Gerardo Márquez, Evolve Fintech

VIEW FROM THE TOP: Augusto Álvarez, AlphaCredit

Jose Luis Orozco, AlphaCredit

VIEW FROM THE TOP: Gustavo Méndez, Deloitte

VIEW FROM THE TOP: Emilio Gutiérrez Mateos, Gutiérrez Mateos y Asociados

INSIGHT: José Antonio Chávez, Chávez Vargas Minutti Abogados

| ANALYSIS

BANKING SECTOR EMBRACES DIGITALIZATION, FINANCIAL INCLUSION The Mexican banking and financial segments are stronger than ever but a new era is dawning. Social inclusion is long overdue and putting both segments under the spotlight, while digitalization remains the brave new world brought by young and innovative players

National economic development depends heavily on

by the end of 2018. Gustavo Méndez, Advisory Partner and

a country’s financial capabilities and the evolution of a

Financial Services Leader at Deloitte, says this reflects one of

strong and healthy banking and financial ecosystem. For

the greatest strengths of the Mexican banking system. “The

several years, banking and financial entities in Mexico

Mexican financial system is solid and capitalized,” he says.

have enjoyed significant growth rates that have boosted

“The 2014 Financial Reform ensured the solidity and liquidity

the performance of many economic sectors. According to

of banks, resulting in the robust system that we have today.”

INEGI, in 4Q18, the financial services and insurance sector in Mexico surged 9 percent higher compared to the year-

FINANCIAL INCLUSION

earlier period, accounting for MX$924 billion (US$48.1

While the sector is strong, there are glaring gaps that require

billion) for that quarter which was roughly 5 percent of

attention, with financial inclusion among the top priorities.

the country’s total GDP. Significantly, up to that point, the

“The base of the social pyramid has been long underserved,

segment had registered almost eight years of consecutive

un-banked and credit invisible for the financial sector,” says

quarterly growth.

Julio Carranza, Director General of BanCoppel. According to the 2018 National Report on Financial Inclusion, between 2012

According to tCNBV, by January 2019, the country had 50

and 2016 there was a 3.8 percent increase in the number of

multiple banking institutions with a total value at MX$9.4

deposit accounts in the country, which is an average of 12,277

trillion (US$490 billion), up from the MX$8.96 trillion

accounts per every 10,000 adults. However, the IMF’s Financial

(US$480 billion) represented by the Mexican banking

Access Survey (FAS) still puts Mexico below its Latin American

system in January 2018. The total portfolio value of these

peers, such as Peru, Colombia, Argentina and Chile, in terms

companies was MX$5.19 trillion (US$270 billion) in January

of deposit accounts.

2019, a MX$440 billion (US$22.9 billion) increase compared

“

to the same month in 2018.

Financial inclusion in Mexico will come through technology and not from the traditional banking model” Francesc Noguera, Director General of Banco Sabadell México

Méndez adds that the lack of access to financial services is heavily rooted in the country’s economic informality and employment seasonality. “Banks are focused on the formal sectors and can lend money based on this,” he says. “People in the informal sector do not have access to credit since they do not have proof of payment and the bank does not know how much they earn.” However, the blame is not entirely on the financial system. “In Mexico, there is a reluctance to use banks and regulated financial entities. For this reason, using brands that are wellknown but that are not necessarily tied to the financial system, such as Coppel and Elektra, has worked well to lure more people into the banking system,” says Gerardo Márquez,

Given Mexico’s history and past economic crises, capitalization

Founder of Evolve Fintech. Companies like BanCoppel and

has been a crucial issue for authorities and banks themselves.

Banco Azteca have implemented this approach to grown

Mexican regulations establish that banking institutions must

their clientele. “BanCoppel is the second-largest issuer of

have a minimum Capitalization Index (ICAP) of 8 percent.

debit cards in Mexico and the third issuer of credit cards. The

However, Basel III, an international regulatory framework

bank opens on average 600,000 new accounts every month,”

for banks, establishes a minimum ICAP of 10.5 percent. The

says Carranza.

Mexican Banking System passes with flying colors, delivering a 15.9 percent ICAP by 4Q18. According to HR Ratings, the

DIGITALIZATION: ONE BIG STEP FORWARD

strength of the Mexican banking system is such that 35.4

Although bank digitalization is the natural response to

percent of the banks in the country had AAA credit scores

technological advances, in Mexico it also can be a powerful

ally in the sector’s move toward financial inclusion. “Financial BMV, Reforma, Mexico City

inclusion in Mexico will come through technology and not from the traditional banking model,” says Francesc Noguera, Director General of Banco Sabadell México. The incorporation of payments made through smartphones, in particular, will open a window of opportunity to bring more people into the financial system. “Having a significant number of payments made through smartphones … forces people to have a bank account, which then can help to increase credit and to expand services to a larger segment of the population,” Noguera adds.

The government and Banxico are pushing toward the implementation of the CoDi (Digital Payment) platform, which will allow users and businesses to make transactions using QR codes. Antonio Junco, Executive Vice President of Government Relations for Latin America and the Caribbean at Mastercard, points out that the implementation of QR technology can bolster the number of businesses that can accept digital payments and at the same time reduce infrastructure costs. Méndez adds that the use of cellphones as a bank account and payment method could help to eliminate friction in payment systems and to understand the behavior of the informal sector.

areas of the financial sector that need to be addressed. “Programa de Impulso al Sector Financiero covers topics like

But it may be the past that hinders the future, despite the

technology and digitalization,” he says. “At the same time, the

significant strides that banking institutions are making to

initiative tackles the problem of organized crime that affects

implement a digital strategy. “Systems inherent to traditional

the financial sector as much as any other.”

banking players are the biggest challenge when trying to digitalize operations. These do not allow them to move at

The initiative may not be the only measure needed to boost

the speed that the market demands,” says Márquez. The

the sector and alleviate its problems but it is certainly a good

fintech industry is not similarly restrained, which is why it has

place to start, says Martínez-Ostos. “One initiative may not

gained relevance in the past couple of years. “Big banks have

radically change the country’s financial landscape but is an

operating systems with platforms that were created many

important step that authorities are taking along with the

years ago and changing them would cost a lot of money,” says

private sector to pave the road toward greater economic

Méndez. Rather than go it alone, many banks have chosen to

dynamism.”

work in collaboration with fintech businesses, going so far as to integrate them into their processes. “Fintech can help in the innovation and in the evaluation of creditors or borrowers in a nontraditional way,” says Méndez.

PROGRAMMING A BOOST In January 2019, President López Obrador presented his

AMLO’S 8 PILLARS FOR THE FINANCE SECTOR • New payment platform for mobile devices • Payroll loans from any bank • Regulation for repurchase and securities lending transactions

administration’s program to boost the financial sector. The

• Incentives for companies to list on the stock market

plan is centered around eight pillars whose goal is to bolster

while removing discriminatory factors that hinder

the banking and stock markets to “boost more dynamic, inclusive and fair economic growth.” The plan, which will be

investors • Flexibility for financial intermediaries in their repurchase

carried out between Banxico and the SHCP, contemplates the

and securities lending operations

creation of a payment platform using mobile devices, easing

• Flexibility for Afores’ investments

the process to obtain a loan associated with payroll and

• Allowing young people between 15 and 17 years of age

providing flexibility for financial intermediaries and Afores, among other elements. Raúl Martínez-Ostos, Chairman of the Board and Director General of Grupo Financiero Barclays México, says the governmental plan encompasses several

to open a bank account • Focus on national development banks to benefit 15 million new clients in rural areas, vulnerable municipalities and semi-urban areas

Torre Bancomer, Reforma, Mexico City

SEXENNIAL PLAN |

COMPETITION, TECHNOLOGY TO REDUCE BANKING COMMISSIONS New financial solutions based on technology could potentially allow for the reduction of banking commissions. Although this would impact bank revenues directly, President López Obrador’s

“I think we can address calls for the reduction of banking commissions, not with laws and not with regulations. Banks need to regulate banks”

expectation is that this will help to lure more people into the formal banking and financial sector In November 2018, one month before President López Obrador took office, legislators from the Morena party presented a proposal to regulate and ultimately eliminate banking commissions. The proposal garnered much attention and landed a significant blow to the stocks of most major banks in the country. Banorte, Inbursa, Santander, BanBajío and BBVA Bancomer accumulated a MX$103 billion (US$5.4 billion) loss in just one day after the initiative was made public. Although many argued that the initiative had no place in a market economy, it opened the door to constructive dialogue between banking institutions and financial authorities to accommodate a reduction of commissions. CNBV presented a study detailing the percentage of banks’ revenue that comes from commissions and CONDUSEF reported that in 2017, the Mexican banking sector earned MX$108 billion (US$5.7 billion) from commissions, which represents 30 percent of the total income of the banking sector. As part of the dialogue spurred by the Morena initiative, at the 82th Banking Convention in March 2019, President López Obrador assured the banking sector that the country’s executive power would not promote any regulatory change to reduce or eliminate banking commissions. Moreover, the president offered his support to reduce commissions through competition and innovation, rather than through legislation. However, López Obrador did ask banks to work on improving financial inclusion and encouraged them to reduce

“If there are many banks, there is competition and banks will have to offer better conditions to clients. This will allow banking commissions to be reduced” March 22, 2019

commissions applied on remittances. “Next year, I want to recognize the banking institutions that take the initiative and implement a plan to charge less in remittances,” he said. The Mexican Banking Association (ABM) has stated that technology is part of the answer to reduce commissions. “Technology will lead to a reduction of costs but banks cannot agree on how much they should reduce commissions. That goes against the economic competition law,” said Marcos Martínez, former President of ABM.

| VIEW FROM THE TOP

A CREDIT PRODUCT FOR THE BASE OF THE PYRAMID JULIO CARRANZA Director General of BanCoppel 46

Q: What elements allowed BanCoppel to succeed in

Q: How does BanCoppel adjust its business model to meet

penetrating the base of the social pyramid?

the needs and interests of its clients?

A: BanCoppel is the sole bank that offers clients a credit

A: We are a regulated financial entity and strictly comply

card even if they are unable to fully prove their income.

with legal and operational regulations. These are designed

This does not mean that BanCoppel is irresponsible

to protect our customers’ money, investments and savings.

when lending money. In fact, the bank invests heavily in

In addition to complying with all regulations, we created a

technology, systems, software and educational strategies

model that allows us to determine if we can lend money

so its clients can avoid nonpayment.

to a person or not.

We adapted our products to our customers’ needs. For

When we welcome a first-time customer, we digitize their

example, our credit card has a longer expiration date than

fingerprints as a personal identification. This technology

those offered by other banks. We lend money to carpenters,

eases the management of our clients’ needs because,

plumbers, taxi drivers, housewives, teachers, small businesses

frequently, they do not carry official identification. Also,

owners or other people who would normally be excluded from

we personally visit our clients at their homes to verify three

mainstream banking, leaving them without options because

facts: that the client is who he claims to be, that the client

they are unable to prove their income. The base of the social

lives where he says he lives and that he is employed where

pyramid has been neglected too long. BanCoppel decided

he says he works. Although these visits represent higher

to pay attention and serve this social segment, creating a

operating costs, they are helpful tools to provide us with a

uniquely innovative and efficient business model that has

clear vision of our credit portfolio.

attracted more than 30 million clients, issued over 4.5 million credit cards and granted almost 700,000 personal loans.

Q: How does BanCoppel integrate technological solutions to its offering?

BanCoppel is the second-largest issuer of debit cards in

A: A few years ago, our competitors were financial institutions

Mexico and the third issuer of credit cards. The bank has

like Banco Azteca, FAMSA, Compartamos, pawn shops or

more than 16 percent market share in remittance flows,

SOFOMES. Today, the competitive boundaries have expanded

which ranks BanCoppel as the second-biggest remittance

due to technology, which is why we have made substantial

payer in Mexico. Over 50 percent of the customers who

investments in technology. For example, more than 95 percent

open a bank account with BanCoppel do not have another

of the phones sold in Mexico are smartphones and, although

account with other banks and 40 percent of those who

not everyone who buys a smartphone can afford internet

get a loan from us lack a credit score. Approximately 54

packages, there are many open Wi-Fi networks that give

percent of BanCoppel clients are women and the bank

people access to a free internet connection.

opens 600,000 new accounts every month. We have over 1,100 offices located in more than 400 cities in Mexico.

When it comes to high-tech solutions, it is important to

Cities with over 100,000 inhabitants have a Coppel store

remember that we meet the needs of different generations.

and a BanCoppel office. Although the bank’s offices are

Millennials do not want to go to a bank and wait their turn;

located inside the stores, their operations are independent.

they want everything to be quick and simple. But we also have customers who prefer to visit a bank. Although millennials are the customers of the future and we understand that they

BanCoppel is a banking institution and part of Grupo Coppel.

prefer to use the internet, we believe that our offices will not

It focuses on providing banking services to the base of the

disappear. It is possible that in years to come technology and

social pyramid. BanCoppel obtained its registry as a banking

digitalization of services will lead customers to visit banks

institution from the CNBV in 2007

less frequently but they will continue to do so.

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INCREASING FINANCIAL INCLUSION THROUGH TECHNOLOGY FRANCESC NOGUERA Director General of Banco Sabadell México 47

Q: How would you describe Banco Sabadell’s trajectory in

innovation is very limited. In Mexico, we have the luxury of

Mexico and what opportunities the country offers?

being challengers. Having a relevant banking infrastructure

A: We have been in Mexico for 27 years, so we have

takes decades and a huge amount of investment.

deep knowledge of the country. For 14 years, we were

Technology helps us to avoid this barrier.

stockholders in Banco del Bajío, which means that before we made the decision to start operating as a bank, we

Not having bank offices has not slowed our growth. To

already had significant experience in the country. In 2012,

achieve our goals, we have chosen to create an app and

we sold our participation in Banco del Bajío and we started

not a website. We believe that websites are something

working on our own banking project.

from the past since at the end of the day people use their phones for their everyday activities, not their computers.

Mexico offers many opportunities for banks. The economy

The first premise was that there would be no physical bank

is solid but the local banking sector is relatively small

offices and the next decision was to develop only an app,

compared to other countries in the region, such as Brazil

not a website. We launched it with an initial proposition of

or Chile. A historical reason behind this is that in the 1980s

a basic account and gradually added more products. In five

the banks were state-owned and were not active, while

months, we attracted 5,000 clients in Mexico City.

in the 1990s the banks were privatized and then declared bankrupt. It was not until the early 2000s when banks

Q: What are the challenges of implementing this digital

emerged again. This means that there is an inertial lag that

offering while trying to reach new segments of the

is very obvious in the number of people that still do not

population?

have access to banking services.

A: Today, over 90 percent of Mexicans have a smartphone and many people are choosing post-paid schemes rather than

When the economic crisis of 2008 hit Spain, Banco Sabadell

the traditional pre-paid plans. Having a significant number

took the opportunity to buy new banks. This generated even

of payments made through smartphones helps solve the

more appetite to diversify our operations internationally. At

problem of financial inclusion because it forces people to

that time, three countries were identified as priorities for

have a bank account, which then can help to increase credit

Banco Sabadell: UK, Spain and Mexico. In the UK, we chose to

and to expand services to a larger segment of the population.

buy a bank but in Mexico we decided to start from scratch. We now have two vehicles, a bank and a SOFOM, and the results

I believe that financial inclusion in Mexico will come through

have been quite positive. The SOFOM started four years ago

technology and not from the traditional bank offices model.

and focuses on corporate credit and project finance and the

Some people find the latter model insecure because of the

bank started operating two years ago. The SOFOM is twice

problem of crime in the country. Others are frustrated by

the size of the bank. However, if we merged operations, Banco

it because they do not find it helpful. In Mexico, there is a

Sabadell would be the 11th or 12th-largest bank in the country,

significant level of dissatisfaction with the current banking

out of 53. Our portfolio of corporate credit is the 10th-largest

model. It is true that Banco Sabadell is targeting a more

in the country and totals US$2.63 billion.

urban public, with a younger demographic, but it does not discriminate. It is open to anyone who wants to use it.

Q: You have chosen to make Mexico your test-market for a 100 percent digital offer. Why Mexico? A: The world is changing and so is Mexico. What is

Banco Sabadell is a Spanish bank with 11 million clients. It

conventional or traditional will fall into disuse in a few years,

is present in more than 20 countries. In Mexico, it opened

so when you start from zero you can innovate. Meanwhile,

its first representative office in 1991 and in 2014 started

if you have operations in a country like Spain, capacity for

operating as a SOFOM

| VIEW FROM THE TOP

CORDIALITY: AN ENTREPENEUR-ORIENTED BANKING STRATEGY ERNESTO LÓPEZ CLARIOND Chairman of the Board at Banco Bancrea

Q: What makes Banco Bancrea a “cordial bank” and how

business is the people we work with. In all cases, we consider

does that make a difference for clients?

the feasibility of the project to be financed based on the

A: A year and a half before opening Banco Bancrea, we already

proposal and the person, instead of using rigid parameters.

knew that we wanted to be a different kind of bank. Having an entrepreneurial perspective, we developed Bancrea based on

Q: What is the profile of the entrepreneurs with whom

the idea of being a cordial and open banking institution that

Bancrea collaborates?

would deliver financing support to entrepreneurs. After five

A: Bancrea’s goal is to explore innovative and different

years of operations, our portfolio totals MX$11 billion (US$552

ideas. Our team of experts is responsible for evaluating

million) and we know that the most important part of our

the proposal; if it makes sense for us, we support it. Our parameters are personalized, opening the door to the best and most sustainable ideas. Bancrea’s loans average MX$15

Banco Bancrea is a Mexican bank that provides financial

million (US$737,000) but we work with a wide variety of

services, including deposits, financing, investments and

company sizes and profiles. Companies come for a value offer

insurance, to SMEs, larger companies and individuals. The

that includes greater speed, time and personalized attention.

bank’s main offices are located in Monterrey

Our services and solutions are focused on the client.

| VIEW FROM THE TOP

INNOVATIVE MODEL REDUCES ROI PERIOD JUAN CARLOS MINERO Chief Investment Officer of BWC

Q: How does BWC ensure better market opportunities

return on investment. BWC’s actions in risk management are

for clients to capitalize returns in a constantly changing

based on a financial and innovative framework that reduces

financial market?

the time needed to see a return on investment.

A: New trends are focused more on decision-makers and capital rotation. In this context, BWC specializes in the

Q: How does BWC provide added value to its customers,

management of investment funds and active funds. Our

considering they all have different objectives?

added value is that we are disruptive agents of the traditional

A: BWC has a different organizational structure and service

financial ecosystem; we adapt to other strategies to support

provision because we focus on employing highly qualified

our clients in a volatile environment to generate a higher

financial analysists instead of developing a large promotional sales force. This scheme means that 97 percent of our clients have come to us on their own. Our clients are seen

Black Wallstreet Capital (BWC) is an independent investment

as partners because we share with them a discretionary fund

adviser with a global asset management strategy. The company

composed of our clients, employees and partners. We offer

offers investment services, portfolio management and financial

an opportunity for different customer profiles to participate

advice to companies and individuals

with the financial capital that best suits their needs.

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MEDIUM-SIZED COMPANIES: NEGLECTED MARKET WITH GREAT POTENTIAL ALFREDO ALFARO Managing Partner at Northgate Mexico 49

Q: What opportunities did you see in the Mexican market

Q: What risks has Northgate identified that could hinder

to establish here?

investment in Mexico?

A: Northgate Capital started operating in Mexico in 2012.

A: SMEs are a resource for the development of any

We became interested in the country after pension funds,

economy. The country will need to boost commercial

through Afores, were approved to invest in private equity

activities and resources so that entrepreneurial activity

with capability to execute public issuances through CKDs

can prosper. This goes beyond the arrival of a government

on the Mexican Stock Exchange. Given Northgate Capital’s

that can centralize some of the most important economic

international experience, the company decided to offer its

activities, like the energy sector. We do not believe that

fund management expertise and developed a local team to

these conditions hamper the development of the SME

render these services.

sector. Uncertainty goes beyond the dynamism of the internal market. Having conditions where macroeconomic

The central element of our investment strategy in Mexico

variables such as exchange and interest rates are affected,

is growth focused on medium-sized companies, which also

with an internal market that is not growing, could harm

allows us to differentiate from other funds pursuing larger

internal consumption. That is where we see a little more

investments. We are a generalist fund and we are focused

risk: that the conditions for economic growth might decay.

on investments that range between MX$300 million (US$15.5 million) and MX$800 million (US$41.3 million),

What can be improved is the use of technology, especially

which is the amount that has proven to generate impact

as it relates to the needs of medium-sized companies. One

on the expansion plans of medium-size companies. In 2012,

of the most important factors we take into consideration

we launched our fist equity CKD and in 2015, we launched

in our decision-making process is our analysis of how the

our fist Mezzanine debt CKD, giving Mexican companies

use of technology can have a greater impact on two central

two financing options: equity and debt. In December 2017,

company areas: expansion and productivity.

we launched our second equity CKD. We have put around MX$12 billion (US$620 million) into the Mexican market.

Q: Which sectors are most interesting for Northgate Capital in terms of investment allocation?

Q: What risks do medium-sized companies face when

A: In the entertainment sector, we partnered with Grupo Diniz,

trying to expand their operations?

which operates ¡Recórcholis! and is launching an amusement

A: One fundamental challenge is available capital and

park named ¡Kataplum! in 2018 at a Mexico City mall. We

financing options. The reality in Mexico is that medium-sized

are also invested in a company called Elara that operates in

companies have access to financing alternatives or loans that

the telecommunications sector. Through ABC Leasing we

are very limited because banks tend to be more conservative

participate in financial leasing activities that target medium-

toward SMEs, providing more moderate financial support.

sized companies. Another niche in which we are working is

Consequently, to accelerate growth, these companies need

the hotel segment. We have invested in a company called

capital investment and that is where funds can participate.

Extended Suites that is focused on long-term business stays. Our latest investment is in the development of a chain of

Once companies decide to request investment from

natural gas service stations for the Bajio region.

private funds, the next challenge lies in making the company’s information available to the fund. In exchange for shared risk, companies must undergo institutionalization

Northgate Capital is an international fund with presence in the

processes that involve making decisions based on analytical

UK, the US and Mexico. It has been operating in the latter since

information processes and generating information in a

2012 and focuses on medium-sized companies. At a global level,

disciplined, comprehensive and efficient manner.

the company is focused on boosting technology companies

| VIEW FROM THE TOP

GENERATING A PLATFORM THAT CONTRIBUTES TO CERTAINTY RAÚL MARTÍNEZ-OSTOS Chairman of the Board and Director General of Grupo Financiero Barclays México 50

Q: How can Grupo Financiero Barclays México support clients

However, we can help generate these opportunities and

in this market landscape?

channel resources toward them. We are contributing to the

A: We are and will continue to be an important player in

development of the country.

the development of the Mexican debt market, with a strong position in the governmental bonds exchange. In the capital

Q: How can certainty be assured when the new administration

market, we continue looking for opportunities to attract

might change the country’s regulatory framework?

more investment to the country and to the stock market. Our

A: We have to understand that there is and there will be

job is to generate a platform that contributes to providing

uncertainty, so we must find a way to work with it and clarify

certainty, acting as an intermediary and providing liquidity to

as much as possible. The government’s economic program, at

the markets in which we operate. We are also focusing on the

least in its first year, is going in the right direction, which has

investment banking sector, since many projects in the second

had a calming effect. The landscape will gradually clear. The

half of 2018 were delayed due to uncertainty.

federal administration is thoroughly reviewing the state of the country. Regarding the Energy Reform, the administration is

Despite the uncertainty surrounding López Obrador’s

analyzing the conditions under which contracts were signed. It

administration, Barclays helped the government issue

wants to maintain good practices and correct those elements

US$2 billion in government bonds in the main global debt

that could be done better. This is not a seamless process but

markets at a very competitive rate. We were the first bank

we also need to give the administration the benefit of the

in the country to do this, which illustrates our commitment

doubt here as well. Clearly, some investors are nervous, which

to Mexico and the support we can offer the government

is understandable as this process is unprecedented.

and Mexican companies throughout this presidential term. Although many criticized the bond rates, which were higher

People think that changing government administrations is a

than those in 2018, this problem is not specific to Mexico. Risk

smooth process but it is not. There needs to be a diagnosis

rates for emerging markets, along with rates for US Treasury

and there is a learning curve, not only for the government

bills, have also increased.

but also for us. The private and public sectors need to be in constant communication to understand how they can help

Q: What are the main opportunities Grupo Financiero

each other and better coordinate policymaking.

Barclays has identified to boost investor confidence? A: So far, the markets have given López Obrador’s

Q: What are the main challenges in Mexico’s financial future?

administration the benefit of the doubt, which helps

A: The 2018 presidential elections illustrated the country’s

when managing risk. Investors see the government wants

strong desire for political change. López Obrador represented

to improve the country’s savings by creating conditions

that change and our task as financial institutions is to adapt

in which Afores can access new investment alternatives.

to this new reality. Policy continuity has been a hallmark of

We can also participate in this process by helping Afores

past presidential changes, particularly in the economic and

find new investment niches that go beyond government

financial spheres. This is no longer the case.

bonds or stocks. Sectors like infrastructure, energy and agriculture offer attractive participation opportunities

The new administration has experience in different areas

through CKDs and CERPIs.

and is conducting business in its own way. While there is continuity in certain areas, the general environment is one

In 2018, we made several successful transactions in CKDs

of uncertainty. There are many elements still to be defined

and CERPIs and we feel that this year will not be any

but the new government presented a responsible budget,

different. Institutional Mexican investors might be changing

developed an economic program with a focus on public

investment vehicles but they clearly continue to invest.

finances and reiterated the importance of Banxico’s autonomy.

BMV Group, Mexico City

López Obrador’s administration is looking for ways to work

A: The agricultural sector is highly attractive, which is why we

alongside the financial sector to create the conditions for

are trying to create a second CKD especially for this sector.

financial inclusion, while helping the stock market grow and

Several agribusiness niches are very profitable but it is a

incentivizing savings among the population.

fragmented sector in which there is no institutional capital that can provide scalability for Mexican producers to compete

Q: How will the new program to boost the financial sector

against large global companies. Our goal is to find a way to

impact the country’s development?

provide that scalability.

A: From the banking side, there is no denying that Mexico has low banking penetration, which opens the

The technology sector also offers significant opportunities.

door to informality and expensive financing mechanisms.

Although the most attractive projects are companies like

Programa de Impulso al Sector Financiero covers topics

Uber or Amazon, most of the economic activity in this sector

like technology and digitalization to address this issue.

comes from smaller companies that fill in the gaps of the

At the same time, the initiative tackles the problem of

technology ecosystem. I believe there is space for global and

organized crime that affects the financial sector as much

local institutional capital to work with these companies.

as any other. By reducing the use of cash, we can diminish problems related to money laundering and its impact on

Q: What are Barclays' expectations for 2019 and 2020?

the country’s economy.

A: We will work to consolidate our position as an international investment bank. We are committed to Mexico for the long

On the government’s side, the administration is looking for

term. We want to continue providing liquidity to public debt

financial schemes to reinforce capital markets. One reason

and capital markets and to work hand in hand with the Mexican

very few Mexican companies are listed on the stock market

authorities. Grupo Financiero Barclays México is aware that in

is the amount of taxes they must pay when issuing a public

terms of economic growth, the first year of López Obrador’s

offering. Reducing these taxes is an initiative that has been

administration will be difficult and the country will experience

talked about for many years and the new government is

deceleration. This will be the result of 2018’s uncertainty and

reopening the discussion. We expect this will provide an

changes in how the country operates. However, this is just part

opportunity for Mexican companies to carefully review how

of the adjustment. We must continue supporting different

to reach new markets. One initiative may not radically change

economic activities so the country does not stagnate.

the country’s financial landscape but it is an important step that authorities are taking along with the private sector to pave the road toward greater economic dynamism.

Grupo Financiero Barclays México is a subsidiary of Barclays PLC. Its investment banking arm provides financial advisory,

Q: Among the sectors that could attract investment from

capital raising, financing and risk management to corporations,

Afores, which offer the best opportunities?

governments and financial institutions

| VIEW FROM THE TOP

LATIN AMERICAN EXPERTISE TO MANAGE MEXICAN INVESTMENTS GUILLERMO ORTIZ Partner and Board Member of BTG Pactual 52

Q: BTG Pactual is Latin America’s largest investment bank.

this is culture. Many companies do not become public due to

After three years, what is the bank’s position in Mexico?

the conditions that this operation implies, such as the need to

A: BTG Pactual’s largest operations are in Brazil but we also

implement corporate governance and to establish transparent

have operations in Argentina and Peru, with two investment

practices. Some companies are not willing to follow this path,

units in Colombia and Chile. In the latter two, BTG bought the

but those that have done so have discovered that the market

most important local investment banks, so we are very active

is an important source of resources and funds.

in these two countries. In Mexico, we built the operations from the ground up. We have a brokerage house and an

The business community needs to be convinced that

investment fund operator and we do M&As and provide

becoming a public company not only provides access

consultancy for IPOs, among others. In Mexico, we have a

to capital sources but also allows for involvement in

relatively compact operation but we have participated in a

practices like the creation of corporate governance and

significant number of IPOs in the past two and a half years.

can also help solve inheritance problems that many family businesses face.

Q: What have been the largest challenges BTG Pactual has had to overcome in Mexico?

Q: Given the international economic and geopolitical

A: In Mexico, we compete with many investment banks that

outlook, which economic model should a country like

have been operating here for years. Our direct competition

Mexico favor to continue growing?

includes international banks like Morgan Stanley, Goldman

A: We need to gauge the price paid for Mexico’s

Sachs and Barclays and Mexican institutions. It is not an

economic stability and evaluate all the elements that are a

easy task but I think that we have done significant work.

consequence of the financial crises that Mexico suffered in

We are making an effort to increase our brand awareness.

the 1980s and 1990s. The first thing that must be done is

Our distribution capacity in Latin America is a competitive

to preserve the country’s macroeconomic stability and its

advantage we can offer our clients, together with our

capacity to absorb external shocks. The fall in oil prices is

analytical capacity. We have analysts based in Brazil, New

an example. The country was able to absorb this problem

York and London, among others, who are specialists in

from a fiscal point of view thanks to the exchange rate.

different industries and who give us a significant capacity

Mexico has become a more resilient economy and we must

to understand a variety of businesses and sectors.

properly recognize the elements that have fostered this resilience.

Q: What are the challenges of developing a healthy investment ecosystem in Mexico?

We also need to focus on increasing the economy’s

A: The problem we have in Mexico is that there are few issuing

productivity and competitiveness. The structural reforms

entities. The Mexican Stock Exchange is very small compared

represented major milestones but there is still a long way

with its Brazilian counterpart. In Brazil, there are more listed

to go. All this needs to be accompanied by respect for the

companies than in Mexico, which makes it a larger market

rule of law and the country’s institutions. Mexico has been

with greater liquidity. In Mexico, there are many large and

able to build institutions and similarly, the country will be

medium-sized companies that are not listed. One reason for

able to increase its competitiveness and its resilience. A clear example is the autonomy of Mexico’s central bank. The fact that Banxico has been autonomous since 1994

BTG Pactual is a Brazilian investment bank, asset manager and

facilitated the construction of several elements to ensure

wealth manager, and the largest Latin American institution of

macroeconomic stability, such as the central bank’s

this nature. It is present in Brazil, Chile, Peru, Colombia, Mexico,

prohibition against financing the government and its focus

the US, UK and China

on preserving purchasing power.

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NEEDS OF A NEWLY OPENED MARKET OCTAVIO LIÉVANO Country Head of Crédit Agricole CIB 53

Q: In which industry does Crédit Agricole CIB have the

term buyer is called merchant risk; the greater the proportion

biggest portfolio share in Mexico?

of generation that is not secured by a long-term buyer, the

A: In Mexico, the energy industry represents around half of our

greater the risk involved. The financing market in Mexico is

portfolio of activities, followed by the automotive sector and

still in its infancy in terms of handling merchant risk because

construction materials. The projects we get involved with are

of the electricity market’s lack of history but sponsors, off-

generally valued at US$1.5 billion or more. We manage direct

takers and banks like Crédit Agricole CIB continue to innovate.

loans, syndicated loans, hedging (derivatives), debt capital market transactions and M&A and financial advisory. We can

Q: How should factors like merchant risk be tackled in the

also cover interest rate and exchange derivatives as well as

Mexican market?

deposits and other products related to investments. Crédit

A: A select few financial institutions, such as Crédit Agricole

Agricole CIB has significant expertise in all areas of structured

CIB, have international experience in handling these types of

finance, ranking in the Top 5 in the world in areas such as

issues and can use their international knowledge to support

project finance, reserve-based lending, shipping finance,

the development of the market in Mexico. Nevertheless, the

aircraft finance and securitizations. We are also a pioneer

risk from having no historical track record for prices remains,

and worldwide leader in sustainable finance and green bonds.

making it hard to create bankable projects. This, as in other countries like Chile, will continue to develop with time. We

Q: What Crédit Agricole CIB service has been difficult to

are already seeing and considering innovative structures to

introduce to the Mexican market?

finance these types of projects.

A: We are among the most experienced banks globally in reserve-based lending, which has not yet taken off in Mexico

Q: How have CFE and PEMEX evolved as the Energy Reform

because the regulation has not been fully developed to

has unfolded?

support this activity. Through this service, new upstream oil

A: The Energy Reform meant that CFE and PEMEX were

and gas projects can be financed on a non-recourse basis

given the mission of creating value as opposed to maximizing

through the sponsor. A loan is provided on the basis of the

their production volumes or participating in certain projects

amount and value of the reserves of hydrocarbons of a given

that are strategic for Mexico’s development, regardless

project. However, there are a few remaining issues to make

of the company’s expertise or profitability. As productive

this fully bankable in Mexico, like what to do if a block has to

enterprises of the state, these companies could no longer

be reauctioned.

take on those projects. This gave them the chance to focus on more profitable activities.

Q: How has the international industry reacted to the new framework for the Mexican electricity industry?

The new administration seems to want to revert part of this

A: The Mexican electricity market is relatively new and has

trend. This can be positive as some aspects of the Energy

a limited history and track record. This causes final users of

Reform may have been too stringent. However, the challenge

electricity, sponsors and banks to take a cautious approach

going forward will be to wisely allocate PEMEX’s and CFE’s

to the spot market. That being said, we are seeing continued

limited budget to pursue their activities, which means they

activity and efforts by all participants to advance the market

will have to remain selective.

and continue developing projects. Financial innovation will be key in this regard. Crédit Agricole CIB is one of the world’s 10 largest financial

Some projects are being developed without a long-term

institutions. It has been in Mexico since the 1970s and is

contract for the entire energy production. The risk that arises

focused on providing services for corporations and state-

when a power generation project does not have a secure long-

owned companies such as PEMEX and CFE

| VIEW FROM THE TOP

EDUCATION, SUSTAINABILITY, CONSUMER SERVICES DRIVE INVESTMENT FOCUS PABLO COBALLASI Managing Director of PC Capital 54

Q: PC Capital’s private equity fund prefers investing in

A: We want to keep supporting and strengthening SMEs

education, financial services, consumer and sustainability

and their contribution to the Mexican economy. Among

industries. Why these in particular?

the firm’s objectives is to continue investing in sectors that

A: The firm believes that education, sustainability and

benefit Mexico, create wealth and encourage the country’s

consumer services are the pillars of Mexico’s future

economic development. At the same time, PC Capital

development and will require further financial backing to

wants to help these SMEs grow. This new investment fund

continue growing. In the last two years, consumption in

will be launched in 2019 and will invest between US$5

Mexico has been increasing at an accelerated rate because

million and US$25 million per company.

the country’s middle class has also expanded. This sector is expected to continue making a significant contribution

Q: What internal and external elements could hinder

to Mexico’s economy over the next 10 years and PC

investment in Mexico?

Capital does not see any reason to believe otherwise. PC

A: Support for private investment by the new government

Capital’s focus for the short to midterm will be to continue

will be key for the country. It is necessary for the new

supporting SMEs in the consumer sector and in the area

government to support and continue to implement

of sustainability.

public policies that benefit all industries and the active participation of the private sector. The last administration

Q: What are PC Capital’s top success stories?

did a good job in giving the private sector the opportunity

A: One of our success stories in the financial services

to strengthen itself and even openly participate in

industry is our investment in Te Creemos Holding, which

industries where it was not possible before, like the

has now become the largest private microfinance company

energy sector. The government must also be inclusive and

in the country. The company employs over 4,000 people

consider SMEs, since approximately half of Mexico’s GDP

and has grown by more than 10 times in revenue and over

derives from these types of companies, which is also the

15 times in earnings in the last three years. In the consumer

focus of PC Capital’s investments.

services sector, we also had great success with Grupo Filoa, a cafeteria management company that we exited

Q: In 2018, PC Capital celebrated its 10th anniversary in the

this summer with an IRR of over 80 percent. Regarding

Mexican market. What have been the main guidelines for

sustainability, we have also had the benefit of experiencing

PC Capital’s track record over these last 10 years?

tremendous growth derived from the preference of

A: We are very happy to have reached 10 years of working

consumers for sustainable products. An example of that

for our investors in Mexico. PC Capital’s investments in the

is our recent investment in Rancho Los Molinos, which is

country have been very successful and our companies are all

the most important seed distributor in Mexico with sales

leaders in their respective industries. Our goal at PC Capital is

of more than 200 million seeds per year and presence in

to achieve strong financial returns for our investors but also

all major retail chains in the country.

to generate social impact in the community. These guidelines have cemented our investment criteria to help us create

Q: PC Capital has begun talks to raise a new fund of up to

jobs, gender equality and take care of the environment at

US$200 million. Where will this money be invested?

the same time that we achieve financial success. We are proud to say that through our portfolio, we now employ over 5,000 people, of which over 40 percent are women.

PC Capital is a Mexico City-based private investment fund with 10

We are generating economic wealth in every state and are

years of experience working in investment banking, private equity

present in over 3,500 retail outlets that reach both urban and

and real estate. It was previously ranked the top independent

rural communities. These provide sustainable products and

investment banking firm by number of deals closed in Mexico

financial services to all segments of the population.

VIEW FROM THE TOP |

CONTACTLESS TECHNOLOGIES INCREASE FINANCIAL INCLUSION LUZ ADRIANA RAMÍREZ Director General of Visa Mexico 55

Q: What is Visa’s main differentiating value compared

it is possible to obtain a Saldazo debit card in just five

to others in the market?

minutes at any OXXO convenience store and there are

A: Visa is a company with unparalleled scale, innovation,

already more than 8 million accounts. In addition, we are

security and brand recognition. We have a diverse

supporting the Mexican government’s social programs

portfolio in consumer payments products and when

with our bank partners Banco Azteca and Banorte. As

merchants accept Visa, they gain access to 3.2 billion Visa

more and more players in the industry move toward

cardholders. We innovate to provide intuitive experiences

digitalization, we need to make sure consumers are not

by developing, in collaboration with multiple partners,

left behind.

consumer-centric products, solutions and services, so people can continue paying easily and securely.

Q: Samsung Pay for Visa has been available in Mexico since January 2018. How has the service performed and

Q: How much progress has Visa Mexico made in its goal

what is next?

to market Near Field Communications (NFC) terminals

A: Samsung Pay has received a positive response. Visa

among clients?

cardholders with access to Samsung Pay have adopted

A: Contactless technology can help ease the transition

a faster and convenient mobile payment method in

from cash to electronic payments. Visa has worked

Mexico. Besides the seamless experience, transactions

with the industry to quickly advance the deployment of

are protected by multiple layers of security, including Visa

products and enabling mobile points of sale. Visa has

Token Service. Consumers are more demanding and move

made great progress with several business partners to

quickly to participate in the world of digital transactions.

support the adoption of contactless technology, which is

We are supporting our clients to offer consumers a safe,

critical as it will pave the way for next-generation payment

simple and consistent purchasing experience, regardless

technologies, including mobile phones, wearables and

of where they are and what device they are using.

other IoT devices. Q: Visa and the Ministry of Tourism are collaborating to Q: How does Visa collaborate with the industry and the

boost the growth of tourism in Mexico through digital

government to improve financial inclusion?

transformation. What is Visa’s role in this project?

A: Digital technologies are bringing people together.

A: Tourism is a major engine for economic growth in

We have a responsibility to make sure everyone is

Mexico and digital transformation is key to boost further

included in the global digital marketplace. With over 60

development. When payment acceptance is improved

percent of the adult population excluded from financial

in the country’s tourism destinations, consumption is

services in the country, paying with cards is limited

facilitated and the experience is better for tourists. Our

to specific sectors of the socioeconomic pyramid. We

work with governments allows us to drive acceptance

collaborate with governments and with other industry

and promote the use of electronic payments in those

players to promote financial inclusion following two

destinations. Visa also has access to a large amount

central strategies. One is oriented to expanding access

of information that we share with the government to

to products and solutions designed to meet customers’

strengthen tourism strategies.

needs. The other is to increase acceptance of digital payments, as only 10 businesses accept cards per 1,000 inhabitants in Mexico.

Visa is a global payments technology company that connects consumers, businesses, financial institutions and governments

Collaboration is key in transforming the digital payment

in more than 200 countries and territories to fast, secure and

environment. In partnership with OXXO and Citibanamex,

reliable electronic payment systems

| INSIGHT

IN THE DIGITALIZATION DRIVER’S SEAT JOSÉ MARÍA ZAS President and Director General of American Express in Latin America and the Caribbean 56

The rise of the middle class in Mexico has inspired and

education and to understand how contributions to the Tax

challenged companies to provide better services while

Administration Service (SAT) can improve benefits and

adapting to the digital era, says José María Zas, President

contribute to economic growth.

and General Director of American Express in Latin America and the Caribbean, adding that one of the country’s biggest

The fintech industry can play an integral role in this process,

problems, the informal economy, is also an opportunity. “In

Zas says. According to a 2018 report on the Regulatory

Mexico, only 10 percent of all product and service consumption

Sandbox in LATAM and Caribbean for the Fintech Ecosystem

is paid by card. However, this weakness can become a financial

and the Financial System by the InterAmerican Development

opportunity; in other Latin American countries this figure is

Bank, the fintech industry has been growing rapidly in Latin

30 percent,” says Zas.

America and it has become the ideal mechanism to improve

“

In Mexico, only 10 percent of all product and service consumption is paid by card”

financial inclusivity in the region. The report also states that there are around 700 platforms in the region that offer digital financial services and Mexico owns 25.6 percent of these. Zas believes the digital transformation in Mexico is boosting communication between government, banking institutions and fintech developers to help improve inefficiencies in the financial sector. “The relationship between technology and financial services is constantly evolving. The greatest outcome

To meet the financial demand of the Mexican market,

is the ability to reinvent services and products to address the

American Express offers a diverse portfolio of products and

changing needs of the customer,” he says.

services, such as personal credit cards, corporate cards, reward programs, travel services and a global network to complete

The challenges of the technological era are not overtly

the financial experience. “No one among our competition

clear but this uncertainty opens opportunities for new

can replicate the services we provide on a financial level.

products and services. Meanwhile, fintech companies will

Most competitors have a local reach, while our company has

continue to position themselves in the financial market

international connections,” says Zas. “The relationship with

as catalysts for digital change and drivers of innovation

the client is based on world-class assistance. The company

in traditional industries. In March 2018, the Fintech Act

supports its clients wherever they go.”

was approved with 145 articles to regulate crowdfunding companies, virtual currencies and electronic payments,

The informal economy impacts the financial sector in different

according to the report in the Act to Regulate Institutions

ways, according to Zas. First, fewer stores are willing to

of Financial Technology published in the Official Journal

accept cards because there is not a great deal of demand

of the Federation.

for card-payment services. Second, a large percentage of the Mexican population does not have a bank account.

American Express is expanding at great speed thanks to

Third, the percentage of purchases made with a card is low

innovative products with new payment structures, such as

compared to other countries. “An increase in card users

the American Express Platinum credit card and the American

would go a long way to formalizing the national economy,

Express Gold cards, Zas says. “The Mexican market and

improving equity in tax collection, improving security

consumers in the financial sector are spurring demand for

measures and boosting investment in sectors like health,

digitalized services. American Express’s renewed vision is to

education and transportation,” he suggests. This could also

provide the best consumer experience every day, showcasing

open opportunities for people to have a better financial

how the company has changed.”

VIEW FROM THE TOP |

CONTACTLESS, QR TECH DRIVING FINANCIAL GROWTH ANTONIO JUNCO Executive Vice President of Government Relations for Latin America and the Caribbean at Mastercard 57

Q: What is Mastercardâ&#x20AC;&#x2122;s role in creating a digital future

payments are secure. One of the main reasons is that the

in Mexico?

card never leaves your hands.

A: Mastercard achieved significant progress in contactless payment technology in 2017, driven in part by cardholders

Q: How ready is Mexicoâ&#x20AC;&#x2122;s infrastructure to bolster the

who demanded this technology, which is now operational.

adoption of contactless payments?

Businesses are changing their infrastructure to ensure the

A: The challenge we have found in Mexico is the cost of

best customer experience through contactless payments. In

the digital payment infrastructure, which is a barrier for

2018, 30 percent of businesses accepted payments through

many SMEs seeking to integrate into the digital payment

contactless technology and we expect that by the end of 2019

network. There have been several developments that allow

more than 50 percent will do so. One of our main issues in

the reduction of infrastructure costs, such as point of sale

Mexico is financial inclusion, which is why we are developing

(POS) readers or QR technology. These technologies make

technology for the public transportation sector: to ensure

it easy for small businesses that do not have a continuous

that most of the population have access to innovation and

sales volume or for independent professionals like doctors,

to close the gap between financial institutions. We already

dentists or architects, whose businesses do not depend on

have 1.4 million Mastercard Metro cards in the market that

daily transactions, to enter the ecosystem of digital payments.

are equipped with contactless technology.

This is where the next million POS readers will go. They will be placed with professionals, public transportation services and

We believe the use of contactless technology will greatly

in non-urban areas where acceptance of cards needs to grow.

benefit Mexico. Data shows that countries that adopt contactless technology increase the number of registered

Q: What are the emerging opportunities to work with

transactions by 27 percent. In Europe, more than 50

cryptocurrencies or blockchain technology?

percent of transactions are contactless and in countries

A: There are many new and interesting technologies that

like Poland and Sweden, this percentage surpasses 80

have emerged, such as blockchain. We already have several

percent. In Mexico, both issuers and merchants are adopting

applications based on blockchain and several patents for

the technology and as a result, we expect to see strong

blockchain applications as this technology represents an

progress in 2019.

interesting alternative in terms of payments and exchanges. Cryptocurrencies are not a strategic priority for the

Q: How does Mastercard guarantee security of transactions

company but we believe that blockchain technology offers

using its technology?

an interesting future.

A: Security is one of the most important aspects of a financial transaction and it is a top priority for Mastercard.

There are also other interesting technologies that are

We have developed tools and solutions that guarantee

making a difference, including QR. It is necessary to note

security of transactions and that comply with all security

that regardless of whether we use chips, contactless cards

protocols. That said, it is also important to balance this with

or QR codes, we have developed all the technology related

agile solutions.

to fraud and money laundering prevention needed to ensure that transactions are secure.

For instance, the security filters for the purchase of a MX$5 (US$0.3) metro token is different than for a transaction of MX$50,000 (US$2,600). To achieve this balance, we work

Mastercard is a global technology company focused on

with banks to ensure that cardholders always enjoy the

the payment industry. Its main business is the processing of

highest security standards while maintaining the productâ&#x20AC;&#x2122;s

payments between merchant banks and card-issuing banks or

flexibility. The public can be certain that contactless

credit unions. Mastercard became a public company in 2006

| ROUNDTABLE

HOW CAN REGULATIONS BOOST TECHNOLOGY DEVELOPMENT IN FINANCING?

Although Mexican banks have long portrayed themselves as innovators, fintech companies spurred a race in the digital innovation arena and opened the door to new financial regulation aimed at leveling the playing field between traditional financial institutions and digitally-native players. However, new regulations can pose a problem for innovators and entrepreneurs by setting a too-rigid framework that may halt innovation by constraining new activities or setting up sky-high costs for new business ventures. The challenge that authorities and the financial ecosystem face is finding an adequate balance that protects consumers and

encourages innovation.

Fintech can become a provider of technology to the sector, including to stock exchanges. The important thing is to first have a strong primary legislation, which was already published. I think this will allow fintech companies to grow in an orderly and uniform way, so no incident happens that may smear the name of the rest of the industry. The aim of the fintech regulation is to add value. Fintech sounds very nice

JOSĂ&#x2030;-ORIOL BOSCH CEO of BMV Group

but obtaining the financing for it is not so simple, so we have been talking with those companies that want to obtain funding to grow through the BMV. We are having the same conversation with various sectors which do not have access to financing or that find it difficult to find it. One such sector is Sofomes in Mexico. We have an agreement with ASOFOM and we have been able to help many Sofomes, small and large alike, to access funding through the BMV in the capital and debt markets.

All regulations and laws impose restrictions and limits, but these should exist for the right reason. For the Fintech Act, regulators scrutinized laws from around the world and tried to incorporate the best regulations and practices they saw in other countries. The authorities also created the idea of a sandbox that allows fintech companies that are not covered by the main regulation to operate in a controlled

GUSTAVO MĂ&#x2030;NDEZ Advisory Partner and Financial Services Leader at Deloitte

environment with a limited number of users. This provides the space for new ideas to be explored and to be evaluated by the regulator. Regulators are leaving open this sandbox environment so innovation can continue. I do not think the innovation experienced by the sector, nor its speed, will be limited. Moreover, the authority will provide the space for innovation. Companies will have somewhere to reach customers and improve accessibility to services and products.

The Fintech Act is positive because it promotes four fundamental pillars: consumer protection, minimum operation standards, certainty for companies and investors and financial inclusion. It is a very general law that promotes flexibility, which means that changing industry conditions will only imply changes in secondary regulation thus avoiding a legislative process. However, I believe there is a risk that the law will not

DANIEL VOGEL CEO of Bitso

be as permissive as it should be with smaller players, which could halt innovation in the country. Part of our proposal is that regulation should be proportional to the operational level of every company. When it comes to regulation, you have a clear trade off: the level of innovation you want to foster versus the level of risk you want these companies to take on.

When it comes to fintech, the ecosystem is diverse. To define secondary regulations, authorities have sat with different players and associations, which has been fairly positive. We would like to see an environment that fosters the creation of more fintech companies and that allows existing companies to do what they are already doing. Players should continue growing and filling the market niches that had been neglected by traditional financial institutions. The road toward regulation has been collaborative and we want it to generate growth in the sector and at the same time foster financial inclusion.

OMAR GALICIA Comercial Director de Mercado Libre

It is a good thing that we are being regulated. You have to do things right and you cannot have that many companies in limbo. However, it worries us that the law has several requirements that for entrepreneurs are hard to comply with. We expect the CNBV to fix this through the secondary legislation. It would be ideal to have a regulatory sandbox with very basic regulations for startups and once they have grown enough, to subject them to more regulation. This would be particularly beneficial for companies that have a strong risk component, such as crowdfunding or loans.

HÉCTOR CÁRDENAS CEO of Conekta

It is very important to pay attention to detail. One of the things that needs to be carefully considered is the amount of money that regulators will ask fintech companies to withhold in their financial statements. That amount will be determined by the CNBV and will depend on the size of the fintech company, its number of clients and operations. The risk involved here is that probably the minimum threshold required by regulators may be too high for startups. However, the Fintech Act has some good points. For instance, it will force fintech companies to strengthen their KYC processes and have all their clients’ funds divided, meaning the money belonging to each client must be clearly separated

FERNANDO GUTIÉRREZ CEO of STP

from the funds of other clients, identified and made susceptible to audit by a third party.

CNBV, Banxico, CONDUSEF and the Ministry of Finance and Public Credit are in charge of the secondary rules. With these rules, there are two important things to consider. Some must be applied regardless of whether we are banks, SOFIPOS or fintech companies, such as those related to the prevention of money laundering or rights of clients and users. However, the regulation also states that the complexity of the activity and the size of companies will determine the required regulation. It all depends on how the law is applied. If a company is very small, then it should not be asked to make regulatory reports as if it were a big company because the systemic

VICENTE FENOLL Director General of kubo.financiero

risk is lower. This generates fewer operational costs.

Having an ideal law is very hard. However, what the Fintech Act should definitely have is absolute clarity, regardless if the sector is heavily regulated or not. One of the things that has impacted financial institutions the most is that there is a lot of room for interpretation. Compliance officers have different perspectives, there are different rules within banks and it depends greatly on who interprets the regulation. In the US, law interpretation also varies widely, which complicates relationships with financial entities outside Mexico. An ideal law would find a middle ground between being too strict and too permissive and would be absolutely clear with no room for interpretation.

GERARDO MÁRQUEZ Founder of Evolve Fintech

| VIEW FROM THE TOP

DIGITAL CURRENCIES: A TOOL FOR FINANCIAL INCLUSION? DANIEL VOGEL CEO of Bitso 60

Q: What is Bitsoâ&#x20AC;&#x2122;s vision for Bitcoin and other

financial system. This segment of the population views digital

cryptocurrencies as investment, payment and

currencies as money created by their generation. Other

microtransaction tools?

buyers are those over 50 years old who suffered first-hand

A: The technology behind digital currencies must be

the countryâ&#x20AC;&#x2122;s economic crisis and want their money to be in

understood as an enabler for many different things, not only as

a decentralized network without a central entity.

a technology that will impact microtransactions, remittances or as an investment tool. It is a technology that changes the

Q: What are the challenges and opportunities in Mexico

concept of how money works and it opens the door to so

for the use of blockchain to promote financial inclusion?

many things, just like the internet did in the 1990s. In the same

A: The problem of financial inclusion has multiple

way the internet changed the way we access information,

dimensions. However, digital currencies and blockchain

blockchain has the potential to change the way in which we

can be a breakthrough and we are already seeing several

perform transactions and in general, how we transmit value.

indications of this. This technology, however, is not a panacea and cannot solve everything but we are seeing

In 2017, we started to see digital currencies increase in

many cases where digital currencies are helping people who

value, which led many people to invest in them, leading to

are not included in the formal financial system in Mexico.

an even greater rise in value. Many people started buying

Some examples include people who do not have a credit

digital currencies not because they thought it was more

card or a bank account. If these people want to perform any

useful for transactions or because they had a greater affinity

transaction online, many are making transactions through

for virtual money but because they saw it as a new way to

bitcoin or ethereum. Financial inclusion does not need to be

make money. Digital currencies can be alternative assets

defined as having a bank account, it should be defined as

to store value. Nevertheless, at Bitso we believe that the

having access to loans, insurance, a retirement investment

underlying technology is much more than just a store of

fund and so on.

value. It is also a medium of exchange, a way to monetize networks and a tool for disintermediation, among others.

Bitso has more accounts than any brokerage house in the country. In remote places like Sierra Tarahumara, there were

Q: What cultural changes have occurred as a result of the

never fixed telephone lines because it was too expensive

introduction of blockchain and digital currencies?

for companies to set them up. However, today, most

A: In Mexico, we have seen an interesting phenomenon:

people in the Sierra Tarahumara have a mobile phone or a

people have begun buying digital currencies as a means

smartphone. This situation provides the perfect opportunity

to incorporate themselves into the digital economy and

to rethink financial services. We have customers located in

in particular, to make either international payments or

places where there are no banks let alone brokerage houses.

payments on the internet. Most of our clients continue to be

Because the distribution model is completely digital, we

young people, with an average age of 26 years. This segment

think about everything differently.

includes young people who have no bank account or credit card. Similarly, these users dislike the idea of physically

International companies are starting to provide different

going to a bank or have been rejected by the traditional

kinds of credit through blockchain and digital currencies. This means that if you are Mexican and you want to ask for a loan, your choice of offerings no longer originates

Bitso , founded in 2014, is a Mexican online platform for the

only with Mexican banks or Mexican fintech companies but

exchange of digital currencies like Ethereum and Bitcoin. It

with almost any company in the world that wants to have

prioritizes security, transparency and best practices while

exposure in Mexico. When competition stops being local

focusing on innovative product development

and becomes global, that is good news for consumers.

VIEW FROM THE TOP |

ELECTRONIC PAYMENTS GAIN STRENGTH AS SECTOR EVOLVES FERNANDO GUTIÉRREZ CEO of STP 61

Q: How is STP inserting itself into the fintech ecosystem

Q: How is the Mexican electronic payments system evolving

in Mexico?

and how is this translating into benefits for users?

A: STP is an Interbank Electronic Payment System (SPEI)

A: New services are appearing that we believe will transform

participant with 10 years in the large-value payments (LVP)

the banking industry as a whole. Starting on April 30, 2018,

system, performing electronic transfers on behalf of our

banks are required to provide a CLABE account for each

clients to banks, brokerage houses and any other player

financial product their clients have. This is facilitating

connected to SPEI. Although we provide our services to

interbank payments and allowing clients to change or

any type of business, we are an important partner for the

switch banks and perform SPEI payments 24/7 for all their

fintech industry thanks to our leadership in providing hi-

accounts payable, loans, mortgages and leasing products.

tech and expertise solutions, including real-time connection

This will increase the amount of SPEI payments in the near

(API-Fintech), advisory as independent consultants,

future, which at the end of the day will change the way

multivariable technological integration with any platform,

payments are understood. Also, Banxico has unveiled a

language and technology support and automatization of

functionality called “COBRO SPEI,” which is similar to the

income and expenses of both investors and applicants of

US banks’ ACH service, that all banks will be forced to add

Collective Financing Institutions and Electronic Payment

to their app so their clients can approve or reject automated

Fund Institutions in a 24/7 window.

charges from other participants. This will radically transform collection services.

STP allows fintech companies to identify Mexican tax ID numbers (RFC) and the beneficiaries’ name, which allows

Q: SPEI has been operating in the market for several

them to reinforce their KYC procedures through the

years. What will it take for it to become a mass

technological authentication of the Electronic Proof of

consumption service?

Payment (CEP).

A: Although the number of people using the banking system still is not very high, electronic payments are growing

Q: What advantages does STP’s electronic payments

rapidly. What we need now is for cell phones to become

system offer over that of banks?

a payment tool. Banxico is working on new regulations

A: Banks set an upper limit for electronic transactions of

that will allow this change. There is a reason for this: all

MX$8,000 (US$437) after 5pm or on Saturdays, Sundays

transactions done via SPEI are transparent and can be

and bank holidays. The reason for this is that banks use

traced. These can also help reduce the use of cash and

their clients’ money to originate loans. Since we are not in

payments via credit cards, reducing costs.

that kind of business, our clients’ money is always available and ready to be disbursed 24/7 without any amount

The rise in electronic payments can be seen in workers’

restriction and secured by financial guarantees established

remittances. In 2017, almost 90 percent of remittances were

by SPEI rules.

made in cash and only 10 percent were done electronically to bank accounts but the trend is shifting. STP’s goal is

The key competitive advantage offered by STP over

to process electronic remittances to CLABE, debit card or

traditional banks’ payment platforms is that we are

mobile accounts.

integrated technologically into our clients’ systems (H2HERP) through algorithms and webservices that deliver encrypted messages on each transaction. This allows

STP is a Mexican fintech company that specializes in real-time

payments and collections to be made in real time from

electronic payments. It is conformed by a group of experts on

to STP to any bank account, debit card or mobile account

fintech, economy and technology development for financial

in seconds.

institutions

| INSIGHT

BUILDING NEXT-GENERATION FINANCIAL TOOLS HÉCTOR CÁRDENAS CEO of Conekta 62

To enable economic digitalization in Mexico, the banking

and Mexico is among the Top 5 countries for Spotify and

ecosystem must adapt to the needs of consumers. This goes

Netflix.” Being ready, however, does not mean everyone needs

beyond providing credit and debit cards and online banking,

a credit card, he adds. “Consumers are ready for digitalized

says Hector Cárdenas, CEO of Conekta, a fintech company

services but they do not want a credit card because cash is

that offers technological solutions to improve e-commerce

useful to them.”

in Latin America. Real digitalization means the creation of disruptive models that address real-life issues.

Instead of hitting a wall while trying to create a new reality, Conekta chose to generate the necessary tools to improve the

“Mexican society is ready to include technology solutions

conditions of the current reality. “We realized that we were

in everyday life. The only missing element are the tools to

never going to boost e-commerce in Mexico if we did not

implement these solutions. We are a Mexican company

include the percentage of the population that is not part of

that is building next-generation financial solutions through

the banking system,” says Cárdenas. This led to the creation

a disruptive model,” says Cárdenas. Conekta is a payment

of Oxxo Pay, a Conekta system through which users without

gateway company that is trying to change the way money

credit or debit cards can engage in e-commerce activities

is received or collected, while boosting online transactions.

by paying directly at Oxxo convenience stores. “Oxxo has

The path is not easy because for a disruptive model to be

become sort of a banking partner for those without a formal

functional, companies need to find solutions that adjust to

bank,” he says.

the problem instead of copying trends and solutions from other countries. “Countries in Southeast Asia have tried

Oxxo Pay is the first step in solving payment problems in

to solve payment problems and have moved from cash to

Mexico. “With Oxxo Pay we have developed a relationship

smartphones. In Mexico, meanwhile, we are still trying to make

with businesses. Now we have to take this product forward

everyone carry a credit or debit card because that is how it is

and change the payment system in the country.” The more

done in the US,” says Cárdenas.

confidence these platforms instill in users, the easier it will be to move toward a digitalized economy. “Platforms like

The government also plays a role and this can hinder fintech

Amazon provide confidence, which is one of the reasons for

development when not all institutions are as involved as

its success in Mexico,” says Cárdenas.

they should be. “In developed countries, there are three layers: government, banking and technology, which means

Even so, Cárdenas believes the Fintech Act will promote

that as a technology company, you only have to provide the

and provide users with the certainty needed to drive the

technology component because banks have already done

digital transformation. “Many fintech companies have been

the job of providing a credit or debit card to the population,”

consolidated and the government has understood the

says Cárdenas. “In Mexico, we tried to act as the technology

potential we have to generate change and disruption. This

layer but we realized that there was still a great deal to do in

has also impacted traditional financial institutions, which are

the other two layers, so we changed our approach.” Conekta

now beginning to innovate, generating a positive change in

took the leap and began developing payment solutions to

the financial ecosystem.”

counteract the country’s high level of fraud and chargeback. For Cárdenas, there is no better country than Mexico to grow According to Cárdenas, institutional players’ lack of progress

the fintech ecosystem. “We have a great economy and a large

in introducing digital processes does not mean that Mexican

GDP but 61 percent of Mexican adults do not have access to

society is not ready for a digitalized economy. “Around 85

a bank and 82 percent do not have credit cards. If we can

percent of the Mexican population has a smartphone, Mexico

create change, there will be a great opportunity for many

City is the second-most important city for Uber in the world

entrepreneurs and companies to flourish,” he says.

INSIGHT |

E-COMMERCE GROWTH DEPENDS ON PAYMENT DIGITALIZATION OMAR GALICIA Commercial Director of Mercado Libre 63

For e-commerce to work as it is meant to, one element is

the Mexican market still offers many opportunities. “Around

crucial. “Payments are the heart of e-commerce,” says Omar

60 percent of the population does not have access to financial

Galicia, Commercial Director of Mercado Libre. The company

instruments, which means that if we want e-commerce to

has developed several solutions to foster the burgeoning

continue growing, we have to include people that do not have

e-commerce ecosystem, including a fintech subsidiary named Mercado Pago. “We are giving our clients the capability to receive credit and debit card and convenience store payments within a single platform,” says Galicia. “We want companies to worry about attracting traffic to their websites and managing their product portfolio while we handle the payments.” Companies of all sizes are embracing e-commerce to widen sales but many lack the necessary infrastructure or financial ties to go at it alone. “We realized that Mercado Libre was not the only player in the region that needed to tackle the payments issue and that there were many companies that

“

these financial instruments.”

We want companies to worry about attracting traffic to their websites and managing their product portfolio while we handle the payments”

wanted to participate in e-commerce but did not have the necessary connections with financial institutions or the engine

Mercado Pago’s products allow users to make e-commerce

to set up their own e-commerce ecosystem,” says Galicia.

transactions without a card. “We have set up alliances with convenience stores and banks, which helped us create a

Mercado Pago, which specializes in adapting to the payment

network of almost 26,000 physical points at which users can

methods available in each Latin American country and has

pay for their online purchases,” says Galicia. The company also

50 methods available for its 170 million clients, works to

offers a prepaid card developed with MasterCard that users

solve the specific needs of companies, regardless of their

can request online. “Almost 80 percent of the transactions

size. “We process payments from major players, such as Best

that are made with this card are online transactions, which

Buy, Coppel Mexico and Samsung, but we also have very

adds to the e-commerce ecosystem,” Galicia says.

simple solutions for SMEs. An SME can send a WhatsApp or Facebook link and make a payment.” Galicia says Mercado

In addition to payment solutions, finding ways to help SMEs

Pago’s flexibility is about being part of the client’s evolution.

boost their performance is another priority for the company,

“We want to help SMEs to evolve from very simple solutions.

which is why it now offers credit solutions. “The goal of

The idea is to provide support every step of the way.”

Mercado Crédito is to support SMEs by providing them with loans they can use for whatever they need. To approve the

In addition to its online solution, companies can tap into

loan, we use an in-house scoring system that considers factors

Mercado Pago’s real-world offering called Point Blue, a

such as platform sales,” says Galicia.

device that allows card transactions in the physical world and immediately reflects them in Mercado Pago’s platform. “Point

Galicia says Mercado Pago, which has been operating since

Blue is an omnichannel solution for businesses. It allows SMEs

2004, continues to report significant growth. “In 2017, Mercado

to have both the e-commerce solution and the physical-world

Pago processed US$13.7 billion in Latin America, which makes

solution all in one platform,” says Galicia.

it the most relevant fintech company in the region.” There is room for further gains, he adds. “In Mexico, there are around 5

In recent years, the number of companies that offer

million SMEs that need to perform transactions, which makes

e-commerce payment solutions has increased but Galicia says

it a very interesting market for us.”

| INSIGHT

FINANCIAL PRODUCTS AS SOCIAL DEVELOPMENT TOOLS VICENTE FENOLL Founder and CEO of kubo.financiero 64

The future of Mexico’s economy will be built on technology

kubo.financiero’s average loan is MX$30,000 (US$1,550)

but the country must first overcome several challenges,

compared with microfinancing institutions, which range

says Vicente Fenoll, Founder and CEO of kubo.financiero.

from MX$7,000 (US$360) to MX$9,000 (US$470) on

Three particular issues require attention: the use of cash,

average per loan. “We are complementary institutions,

internet access and the disparity between socioeconomic

although our interest rates are lower than those offered

classes. Although companies like kubo.financiero cannot

by microfinanciers,” he continues.

address each issue, they can play a role in the latter. “We want to provide services oriented to helping the base of

In 2018, Google selected the fintech enterprise to

the social pyramid to become part of the middle class.

participate in its Launchpad Accelerator program, which

We create financial products that are social development

helps startups grow their business model. Being part of

tools,” Fenoll says.

the program has helped the company reshape its vision.

“

Regulation must be understood as a competitive advantage and not a necessary evil”

“Google is helping us to change our methodology to what is called Objectives and Key Results (OKR). It is a business methodology that sometimes does not come naturally to businesses but we are working on it.” kubo.financiero’s participation in this program also provided insight on how to improve technical issues. “They told us how to improve our marketing strategies, what techniques and software to use to improve our machine-learning models and techniques for programing our websites.”

Following the fintech wave, kubo.financiero started as a peer-to-peer lending platform that provided access

Fenoll trusts kubo.financiero and other emerging fintech

to credit to micro-entrepreneurs from popular areas

companies are having an impact on the Mexican financial

of Mexico City. However, the success of the platform

ecosystem. “Fintech companies have become part of

has allowed the company to improve its offer. “kubo.

the commercial banking segment and are beginning

financiero now has clients from various socioeconomic

to permeate microfinancing institutions. The impact

levels and although we started in Mexico City, almost 40

is already visible in a significant part of the financial

percent of our clients now are from other states.”

sector.” He adds that there are three areas where fintech companies have made an important statement. “The first

Obtaining permission from CNBV to accept and manage

big change is that being a fintech company has become

savings accounts and deposits from clients allowed kubo.

a key point on the agenda of several important players

financiero to venture into a different range of products.

in the ecosystem. The second is related to volume, since

“We offered an innovative crowdfunding service and

we are attracting large volumes of clients who prefer one

added other digital savings products. We understood

of our solutions to those of traditional banks. The third

that people needed an integral offering of products and

is that all this has resulted in the creation of the Fintech

services,” says Fenoll.

Act that is expected to boost the sector.”

Unlike other fintech companies that compete head to

The Fintech Act will force industry players to adapt, Fenoll

head with banks, Fenoll says kubo.financiero’s offering

says. “Regulation must be understood as a competitive

allows it to position between banks and microfinancing

advantage and not a necessary evil. Without a doubt, we

institutions. “We cater to businesses that are growing

will see new costs and platforms will have to cover those

but that are not big enough to obtain loans from banks.”

expenses adequately.”

INSIGHT |

PEER-TO-PEER LENDING PLATFORM FOR THE MIDDLE CLASS JUAN CARLOS FLORES Co-founder and Director General at Doopla 65

Innovative deployment of technology can empower users,

Doopla’s payroll deduction scheme means the platform has

says Juan Carlos Flores, Co-Founder and Director General

an overdue rate close to 0 percent. But Flores estimates that

of Doopla, a Mexican peer-to-peer lending platform that

this number will likely increase to 2 percent as the company

took a different tack from its fintech peers by focusing on

grows its client portfolio. “Around 30 percent of the loans we

a segment often neglected by its competitors: the middle

have authorized are done through payroll deduction. Our goal

class. “Our value proposition focuses on reducing interest

is to increase this number to 50 percent by the end of 2018

rates through the use of technology and the empowerment

and reach 80 percent in 2020,” he says. The company signs

of the middle class.”

agreements directly with companies so their employees can access this benefit. “Most of the companies with which we

Unlike other fintech players that offer solutions geared

have agreements are medium-sized businesses with about

toward financial inclusion, Doopla is the world’s first peer-to-

500 employees. However, in 2017, PwC became a client.

peer loan platform to offer an innovative payroll deduction

To finalize this agreement, we had to undergo a strict due

solution. “According to data from the National Commission

diligence process but the deal generated trust in the market

for the Protection and Defense of Users of Financial Services (CONDUSEF), those who ask for a MX$10,000 (US$510) loan from traditional financial institutions pay an average annual interest rate of 63 percent,” says Flores. “We do not think that is fair. Providing a loan to a payroll client should be even more economical, given that financial institutions do not accumulate collection expenses. Yet, interest rates remain extremely high.” Inequality is highlighted by the fact that savings accrue an annual average of only 3 percent in interest. Building on the premise that loans to the middle class are extremely expensive, Flores says Doopla focused on reducing

“

and we have been attracting more clients as a result.”

Those who ask for a MX$10,000 loan from traditional financial institutions pay an average annual interest rate of 63 percent”

this cost asymmetry. “Our clients pay an annual 18 percent interest rate on their loans, while our investors receive a net

Flores says Doopla has been well-received. It has over

annual return of 15 percent. Doopla only charges a 6 percent

300,000 registered users, of which 90 percent are loan

fee to successful applicants over the total amount funded.”

applicants and 10 percent are investors. However, he says around 70 percent of investors are recurrent. “The minimum

In addition to a lower cost, Flores says that other factors

required investment is MX$2,500 (US$129), but our average

differentiate Doopla from its competitors, including banks

investment is MX$25,000 (US$1,290). Every month our

or other peer-to-peer loan platforms. “One of the most

investors receive a capital payment as well as interest on their

important differentiators is user experience. Whenever

investment.” The challenge Doopla now faces is attracting

you go to a bank to obtain a loan you need to go several

more investors but rather than focusing on individuals, Flores

times because there is always something missing.” Doopla’s

is trying to lure bigger investors. “The idea is that around 50

platform is designed to avoid this, he says. “You just need

percent of Doopla’s investment will come from sophisticated

to fill out an online application on our website and in 24

investors, such as family businesses and investment funds.”

hours you will know whether the application is approved or

He is confident that the platform’s successful results and the

not. The next step is to obtain funds from our investors. On

company’s transparent and strict underwriting processes

average, a MX$20,000 (US$1,000) loan is resolved in less

for loan origination and corporate governance will help it

than five hours.”

convince these big investors of the platform’s potential.

| INSIGHT

BANKING SERVICES FOR NONTRADITIONAL BANKING COMPANIES GERARDO MÁRQUEZ Founder of Evolve Fintech 66

Financial inclusion and providing access to banking services

services. “The idea is to provide banking services that meet

for as many people as possible, particularly for those at the

specific needs of population segments or companies like

base of the social pyramid, offer significant commercial

retailers, fintechs, social networks or money transmitters.”

opportunities, even to entities that are not related to

Evolve Fintech’s added value lies in the fact that it can

traditional banking, says Gerardo Márquez, Founder of Evolve

generate customized solutions for its clients, leveraged

Fintech. “In Mexico, there is reluctance to use banks and

against a regulated financial institution. But Márquez says this

regulated financial entities. As a result, using brands that are

has not been easy. “The challenge of providing personalized

well-known but that are not necessarily tied to the financial

solutions is to find the appropriate balance between the

system, such as Coppel and Elektra, has worked very well to

segment that you are catering to, profitability and the correct

lure more people into the banking system,” says Márquez,

business model. Too much personalization without enough

whose company specializes in generating customized banking

market complicates the business model.”

and financial solutions for companies under the framework of a regulated financial entity.

Providing the right solutions for the client is easier said than done. Márquez says the only way to do this is by conducting

Evolve Fintech hopes to take advantage of the market

a thorough analysis of the information available. “A regulated

opportunity by providing “white label” banking services

financial entity has a great deal of information regarding its

platforms for companies looking to expand their business

clients. In Mexico, this is not being analyzed or exploited

to include financial services. “In many cases, in Mexico it

correctly.” If banks used tools such as analytics, they could

is not profitable for banks to have offices in every city. But

open a new business line that would allow even traditional

through digital banking solutions offered by companies with

banking institutions to offer more specific products that

different commercial activities, communities can gain access

would generate greater customer loyalty.

to formal banking services.” Márquez does not see that transformation happening anytime According to Márquez, approaching clients through well-

soon. “In places like Europe, financial institutions changed their

known and reliable companies facilitates commitment

focus and now have business areas completely specialized in

to financial products, which makes this the best way to

selling personalized products to each client, increasing the

offer unbanked end users new products and services. This

bank’s profitability per client.” In Mexico, this line of business

process is part of a revolution that Márquez says will change

is not as clear and does not happen as seamlessly as in other

the financial system in the coming years; a change that will

places. “There are still many people who do not have a bank

originate with new digital players like Evolve instead of

account and banks are focused on luring these customers

traditional financial and banking institutions. “The systems

instead of analyzing their existing clientele.”

inherent to traditional banking companies pose the biggest challenge when trying to digitalize operations. Their core

While the fintech sector has gained in relevance in recent

systems do not allow these institutions to move at the

years, Márquez says Evolve Fintech still faces several

speed that the market demands.” In this regard, Márquez

challenges, the most important of which is changing people’s

says that Evolve is the right player to spur the revolution.

perspectives of what a bank is. “Explaining our model is

“Unlike traditional banking, we develop financial products

complicated,” he says. “Many people still picture a bank as

to fit our client’s vision.”

a physical space and bankers as people in suits. Trying to convince potential customers to adopt our solution is not

Part of Márquez’s revolution comes from the development

easy.” However, Evolve Fintech’s founder is confident. “One

of the concept Banking-as-a-Service (BaaS), which allows a

hundred percent digital banking in Mexico is groundbreaking;

more flexible and complete implementation of digital banking

we just need to keep an open mind.”

VIEW FROM THE TOP |

FINANCING FOR EVERYONE AUGUSTO ÁLVAREZ Co-director General of AlphaCredit

JOSE LUIS OROZCO Co-director General of AlphaCredit 67

Q: What is AlphaCredit’s business proposition for the

Q: How does the acquisition of Grupo Finmart strengthen

Mexican market?

your position and add value for your clients?

AA: We are a nonbanking financial entity specialized in two

AA: Grupo Finmart was one of the industry’s founders. We

verticals: consumer lending, which includes our Crediamigo,

combined its experience with our entrepreneurial culture. The

TotalCredit and Vive brands, and loans to SMEs through our

acquisition helped us double the size of the company and

Alcanza Capital brand. Regarding consumer loans, these

expand our distribution footprint to serve a larger customer

can be repaid via a payroll deduction or via a traditional

base, which is positive for creating economies of scale. In

collection through an electronic debit to your bank account.

Mexico, we are present in all states through 180 offices and we

This particular product is offered to sectors that have been

also are present in Colombia’s most important cities.

underserved in Mexico by traditional banks: government employees, pensioners, and the C and D socioeconomic rungs.

Q: How does AlphaCredit's debut on international markets help it to consolidate its operations?

Our SME financing vertical has two products: leasing and

JLO: This was a great milestone for us since it was not only the

factoring. We focus on the underserved SME market in Mexico

largest opening transaction for a nonbank financial institution

where the biggest problem is the lack of access to short-term

since Unifin’s but it was launched at a very attractive interest

working capital financing. Our proposal addresses this with

rate for our investors. It is a five-year bond that took into

tailor-made solutions.

account much of what happened in Mexico, including the elections and other conjunctures. The bond structure

Q: How does AlphaCredit excel in serving the part of the

strengthens our balance sheet and allows us to continue to

population neglected by traditional banking?

grow and reach more customers.

JLO: AlphaCredit has a unique sales strategy. In addition to our wide distribution network across Mexico and Colombia,

Q: What are your top priorities going forward?

we deploy teams that use technology and vans as mobile

AA: We want to continue growing our consumer lending

offices to better reach our clients. We understand the

vertical both in Mexico and Colombia. Some estimates suggest

characteristics of every town and their monetary needs. Our

that credit in general in Mexico accounts for 25 points of the

business model is among the reasons we have succeeded

national GDP. However, we believe that credit for consumption

in this segment. Banks employ a pull model, which means

represents less than five points of those general 25 points,

that they bring people to their offices where managers sell

which means that there is still room for growth. We also want

all types of products to clients. They have this model because

to double our efforts in leasing and factoring. The growth

they need to distribute the fixed costs of having offices to all

potential in these products is still very high as a result of the

their clients through many products and they need to attract

lack of credit available to SMEs. The business sector in Mexico

people through mass marketing.

has an impressive dichotomy. Large Mexican corporations are multinational companies that can access funding and

Our business model is completely different. Unlike traditional

financial markets in two weeks and place bonds easily. For

banks, we want our salespeople on the streets. We want them

them, financing is not a problem. If you are not one of these

to go to our clients’ workplaces, to healthcare clinics and

companies, obtaining financing is very difficult.

offices located far away, to places where traditional banks think it is not profitable to have an office. Banks have a transactional business model but our business model is based

AlphaCredit is a Mexican nonbanking financial entity. It

exclusively on credit. Our business is based on offering the

specializes in two verticals: consumer lending and financing

right product to our customers when they need it and with

for SMEs. It has 210 branches in Mexico, plus 25 more in

the highest customer service standards.

Colombia

| VIEW FROM THE TOP

FINTECH CRUCIAL FOR BANKING REVOLUTION GUSTAVO MĂ&#x2030;NDEZ Advisory Partner and Financial Services Leader at Deloitte 68

Q: What is your assessment of the Mexican financial and

the behavior, consumption patterns and other relevant data

banking systems?

that could help to include this sector of the population in

A: The Mexican financial system is solid and capitalized.

the financial system.

The 2014 Financial Reform ensured the solidity and liquidity of banks, resulting in the robust system we

We see two types of fintech companies: those that will be

have today. After the reform, banks also focused on

integrated into banks and those that will become service

implementing practices to improve customer service, as

providers for banks. Many banks are looking for fintech

well as preventive schemes against money laundering.

companies that can solve the problems banks face and are

Credit has been growing during the past 17 years but

integrating them into their operations, either by buying

it is not enough and there are still many people who

shares or by absorbing them completely.

do not have access to financial services. However, the banking systemâ&#x20AC;&#x2122;s profitability is above 15 percent in return

What could have a major impact on the financial system

on equity.

is the use of cellphones as a bank account and payment method, which has been successful in China. It helps to

Q: How can financial institutions work to expand credit

eliminate friction in payment systems and provides another

opportunities for companies?

source of information for understanding the informal

A: It is not a matter of a lack of appetite from banks; it has

marketâ&#x20AC;&#x2122;s behavior and income.

to do with a macroeconomic environment in which there are no investment projects large enough for companies to apply

Q: How prepared are Mexican banks to face this digital

for financing. It is not just a matter of offer, but of demand.

revolution?

In addition, the Mexican banking system concentrates

A: Excluding new players like Banco Sabadell, which has

about 80 percent of the loan portfolio in seven banks, of

declared itself a digital bank, all big banks have operating

which five have foreign headquarters. More competition

systems with platforms created many years ago and

is required and the big opportunity for smaller banks is to

changing them would cost a lot of money. The advantage

leverage fintech.

of new technologies is that they allow the creation of applications around the central core, emulating what a

Q: How will the development of the fintech sector and

person can do with the system and enabling digitalization

its relationship with traditional banks impact the Mexican

processes. So far, banks are exploring the integration

banking and financial ecosystems?

of artificial intelligence, digitalization and fintech in

A: Fintech can help in the evaluation of creditors or

an exploration mode but this is insufficient. To really

borrowers in a nontraditional way. Today, banks are focused

become leaders, banks will need a holistic strategy and

on the formal sectors to make money-lending decisions.

a pragmatic implementation with the customer as the

For this reason, people in the informal market do not have

center of focus.

access to credit since they do not have proof of payment and the bank does not know how much they earn. The

Deloitte recently conducted a global study that shows

opportunity that fintech opens is to help banks understand

bank branches will not disappear as they are a relevant sales point. The problem now is how to complement bank branches with a digital offering. Sales and customer

Deloitte is a conglomerate of independent firms that offer

interaction can become more digital and banks can better

audit, tax, consulting, risk and financial advisory services. The

understand the behavior of customers to offer customized

company operates in over 150 countries and territories and is

solutions. For customers, it is very important to trust the

one of the Big Four consulting firms

technology that they interact with.

VIEW FROM THE TOP |

UNIQUE STRATEGY PAYS OFF EMILIO GUTIÉRREZ MATEOS Founder and Managing Partner at Gutiérrez Mateos y Asociados

Q: How is Gutiérrez Mateos y Asociados different from other

Q: What are the key elements hindering Mexico’s position as

law firms?

an investment destination?

A: Traditionally, law firms only specialize in one sector.

A: Mexico has always been regarded as a developing

However, we chose to specialize in the financial-business-

country full of uncertainty. Everything that happens

commercial branch, complementing it with civil and penal law.

in the business sector derives from certainty and trust

This gives us the knowledge and infrastructure to handle any

between players. When trust is broken, those who own

civil or business-oriented case. Although we offer an unusual

the money tend to hold their investments until there is

mix of specialization, we have found that it works in our favor.

more certainty about the situation. The clearest example

Clients have different needs and instead of having to find

of this is NAIM.

different lawyers that specialize in only one area, we offer a holistic approach to meet their business needs, which also results in savings related to representation costs. But the most

Gutiérrez Mateos y Asociados is a Mexican law firm that supports

important advantage we can offer is coordination of all legal

clients in the financial sector, such as Banco de México, FIRA,

actions taken, thus reducing the possibility of clients having

IPAB, Bancomext, Nafinsa and Fideicomiso Minero, in financial-

to answer to any legal responsibilities that could be avoided.

commercial-business issues

INSIGHT |

FROM FINANCE TO PROVIDING ANTI-CORRUPTION GUIDANCE JOSÉ ANTONIO CHÁVEZ Managing Partner at Chávez Vargas Minutti Abogados

The main factor inhibiting the development of businesses

all the more relevant for all businesses with operations in

in Mexico is corruption, says José Antonio Chávez,

Mexico, Chavez says. “The National Anti-corruption System

Managing Partner at Chávez Vargas Minutti Abogados.

establishes, through seven pillars, clear practices for the

“Businesspeople are afraid of being forced to commit

private and public sectors that target the elimination of

acts of corruption or being involved in corruption

corruption.”

schemes. This is discouraging the development of more businesses.”

The problem, he adds, is that the new law remains vague in certain areas and leaves it to the authorities to decide

Chávez Vargas Minutti, a boutique Mexican law firm founded

whether businesses are complying or not. Chávez says the

in 2010 and specialized in corporate finance, has been

public is used to corruption scandals surrounding public

working to innovate legal services. The firm is starting to

entities but the private sector is no stranger to these

offer anti-corruption solutions through its subsidiary, CHM

practices. “CHM Compliance helps companies to develop

Compliance. The recent approval of the National Anti-

codes of conduct and to enforce them,” he says. The code

corruption System and the new government's goal of

itself is not enough, however. Companies must find a way

stamping out corruption make Chávez Vargas Minutti’s offer

for these values to reach all their collaborators.

TECHNOLOGY &Â TELECOMS

With new technologies shaping economies and nurturing new businesses, the development of a strong telecommunicationsâ&#x20AC;&#x2122; backbone has become a priority for the country. The Telecommunications Reform opened the door to competition in the sector and led to a price reduction of telecom services. The digital revolution and the transformation of traditional productive industries offers significant opportunities for Mexico, which has long depended on manufacturing activities. However, there is still a long way to go to achieve a comprehensive digital transformation.

In this chapter, industry leaders explain the best strategies to transform Mexico into a technology development hub, following a coherent and joint effort between all industry players to provide universal connectivity throughout the country. Without universal access, the country will struggle to implement Industry 4.0 practices and AI solutions. New technologies entering the industry, partnerships that foster innovation, and social and financial inclusion are showcased in the following interviews.

CHAPTER 3: TECHNOLOGY & TELECOMS

ANALYSIS: Connectivity Spurs New Businesses, Transformation

VIEW FROM THE TOP: Carlos Morales, Telefónica Movistar México

VIEW FROM THE TOP: Elie Hanna, Ericsson Mexico, America and the Caribbean

INSIGHT: Steve Logue, Virgin Mobile Mexico

VIEW FROM THE TOP: Kevin Cohen, ViaSat

VIEW FROM THE TOP: Luis Meza, Deloitte Consulting Group, México

VIEW FROM THE TOP: Maribel Dos Santos, Oracle Mexico

VIEW FROM THE TOP: Federico Casas-Alatriste, T-Systems México

INSIGHT: Juan Francisco Aguilar, Dell EMC Commercial Mexico

VIEW FROM THE TOP: Felipe Labbé, Global Hitss

VIEW FROM THE TOP: Juan Carlos Lovo, Grupo Tecno

VIEW FROM THE TOP: Marco Jiménez, Lenovo México

VIEW FROM THE TOP: Federico Ranero, Uber Mexico

INSIGHT: Germán Montoya, Rokk3r Labs

VIEW FROM THE TOP: Eduardo Farina, BlueMessaging

VIEW FROM THE TOP: Sergio Valencia, SRL Soluciones

VIEW FROM THE TOP: Elie Haibi, Hermes Systems

VIEW FROM THE TOP: José Funcia, Crater Solutions

José Andrés González, Crater Solutions

| ANALYSIS

CONNECTIVITY SPURS NEW BUSINESSES, TRANSFORMATION There is little doubt that Mexico is eager to embrace transformative technology. Many businesses have done their homework and have transformed their operational models. But there is still a significant lack of technology disruption across the country

Transformation and evolution are key for business

are digitally lagging face the possibility of disappearing

survival. Tools like Big Data, AI, machine learning and

in the next five years,” says Aguilar.

automation, combined with the mobile capabilities of smartphones and other devices, have broken paradigms

Despite the operational changes related to digitalization,

regarding the way business is conducted. Today, business

Aguilar believes the main hurdle will come from the software

transformation means more than a change in processes

processing and storage capabilities that companies will

or machinery. Felipe Labbé, CEO of Global Hitss, says the

require. “The challenge of digital transformation is that

digital transformation is based on three cornerstones:

new applications and the way companies interact with

user experience, efficiency and new business models.

their clients require a new level of software development.”

“New business models were generated thanks to new

This is exemplified by the arrival of business models such

technologies that did not exist when many traditional

as OTT (over-the-top) media services and ride-hailing apps

businesses were created. For that reason, companies must

that need to be available 24/7. “These applications must

understand new business models.”

have short response times and understand consumption patterns to achieve a greater degree of interaction,”

The digital transformation is the convergence of two

says Aguilar

opposite approaches, adds Elie Haibi, Co-Founder and CEO of Hermes Systems: “One that originates at

Although some companies have been reluctant to

the business strategy and derives from operational,

incorporate new technologies and change the way

organizational or technological initiatives and another

they approach business, competition from the arrival of

motivated by technology capabilities that enable new

disruptive players has incentivized change, according

operational mechanisms and help to better execute

to Labbé. “Digitalization has created to two types of

a company’s business strategy and even inspire new

companies: digital natives and digital migrants, the latter

strategic objectives.”

being large old companies that are migrating toward a digital model.” That being said, the real driver toward

According to PwC, as a result of the implementation of AI,

digital transformation will be neither companies nor the

by 2030, global GDP could be 14 percent higher. In Mexico,

government but the end consumer. “Users who adopt new

the McKinsey Global Institute found that digitalization and

technologies do not return to old ones. For example, if you

the implementation of transformative tools could boost

can order a taxi through your phone and automatically

the country’s GDP between US$82 billion and US$144

charge it to your credit card, you do not want to wait for

billion per year by 2025. To deal with the transformation,

a taxi and carry cash,” says Labbé.

creating a development strategy for AI is crucial, says Eduardo Farina, Director General of BlueMessaging. “AI

CONNECTIVITY

will provide benefits like increased productivity but will

For consumers to adopt new technologies, the country must

also have a social impact that needs to be considered.”

first solve the key issue for a true digital transformation: connectivity. According to the Federal Institute of

There already is a coherent effort from the Mexican business

Telecommunications (IFT), telephone coverage and 3G

community to transition to a digitally-driven business

mobile internet reach 88.4 percent of the population,

strategy, but Juan Francisco Aguilar, Vice President of

while 4G reaches 84.1 percent of the population. However,

Dell EMC Commercial Mexico, says many Mexican players

President López Obrador argues that only 25 percent

are still not ready to undertake the challenge that such a

of the country’s territory is connected. Although IFT’s

transformation entails. According to Dell’s Index of Digital

measurements reflect international standards, it is

Transformation, six out of every 10 companies already

undeniable that several areas of the country still face

perceive technological disruption in their business and

connectivity issues. The institute states that a 1 percent

six of every 10 companies do not know how their industries

gain in the digitalization index generates a productivity

will work in the next three to five years. “Companies that

increase that translates to a 0.3 percent rise in the country’s

Oracle data center

GDP. The federal administration’s goal is to bolster the

CHANGE IN MINDSET

existing telecom infrastructure to reduce the digital gap.

Along with the implementation of new technologies, there is a need for stronger educational programs with a focus on

Although the previous federal administration focused

technology to help the country become more competitive,

mostly on the implementation of the Shared Network, the

says Luis Meza, Managing Partner at Deloitte Consulting

current government has chosen to implement a so-called

Group. “Most children in Mexico still receive a traditional

Backbone Network in the country. Telecommunications

education and it is necessary to make technological tools

of Mexico (Telecomm) says the implementation of the

available to them from a very young age. Programming

Backbone Network would allow concessionaries and

skills will be extremely useful to children, not just because

marketers to access a high-capacity network to offer more

they are in demand but because they teach a flexible way

telecom services to the general population.

of thinking.”

Given the lack of public telecom infrastructure, the private

The private sector can play a key role in this process.

sector has taken up the challenge to provide telecom

Maribel Dos Santos, Managing Director of Oracle Mexico,

services to remote locations through different business

says part of Oracle’s strategy to strengthen its role

models. Carlos Morales, CEO of Telefónica Movistar

in the community is to establish collaborations with

México, says the company has decided to generate

public academic institutions to lure young people into

alliances to provide these services. “We have a project

the technology environment. “Our goal is to help these

of rural franchises that allows us to make alliances with

students incorporate into the working environment or

engineering and financing companies to provide coverage

support them in the development of their own technology

to small towns across the country. Our allies are in charge

solutions.”

of building the infrastructure and we connect it to our core network. That small town becomes a franchise for

Generating technology-specialized talent obeys to an

the investor and a shared-revenue project with Telefónica

investment need. “Guadalajara is a growing technology

Movistar México.”

hub supported by investment from big tech companies and academia ... It is important to ensure there is enough

Still, Morales believes the only way to convince the private

talent to support these operations and that the country is

sector to work alongside the government to provide

invested in generating more talent. If we do not create a

connectivity is to tackle the problem of spectrum costs

large enough pool of talent, the country’s attractiveness

in the country. “For 2019, our estimates show the country’s

as a technology destination will be threatened,” says

three main players will pay around US$1 billion for use

BlueMessaging’s Farina. The change, adds Aguilar,

of the spectrum,” he says. “Spectrum costs could be

must be extended to society as a whole: “In Mexico, we

lowered in line with international practices to incentivize

need to think not as a manufacturing country but as a

investment. Similarly, the government could provide

country that develops software, applications and new

spectrum-related incentives to companies that invest in

technologies. We need to imagine Mexico as a technology

rural infrastructure.”

development hub.”

| VIEW FROM THE TOP

CHALLENGER PURSUES CONSTANT INNOVATION CARLOS MORALES CEO of Telefónica Movistar México

Q: How is the company strengthening its offering in Mexico?

A: Mexico is a country with extraordinary potential. It has over

A: Telefónica Movistar México entered the country through the

120 million inhabitants in need of connectivity. However, we

acquisition of several carriers established in northern states.

require changes in public policies so investments can enjoy

These companies had around 600,000 clients and today we

higher returns. The Mexican market is basically dominated

have over 26 million users. Telefónica has also made significant

by three large companies and only one has an acceptable

investments in Mexico, including the acquisition of the

profitability. Our business is based on economies of scale,

initial carriers, the country’s spectrum, telecommunications

which means that 26 million clients are not sufficient to reach

infrastructure and stores.

the profitability levels we require.

Telefónica Movistar México has built its image as a company

Profitability also reflects market conditions. In the past two

that defies the status quo by presenting the most innovative

years, telecom prices dropped 50 percent, while operational

products to the market. In the past, carriers used to round up

costs increased because of factors like inflation, volatile

the time spent on a call and charge for those extra seconds. In

exchange rates and the constant investment we make in

2012, Telefónica decided to end this practice and only charge

infrastructure. We also need to factor in spectrum costs in

for the seconds that our clients spent on the phone. In 2013,

Mexico, which are among the most expensive in the world.

we were the first company to launch an unlimited-calls plan

The country has a model for spectrum payment unlike any

and in 2014, we were the first to let Mobile Virtual Operators

other. We have to pay not only when we win a public tender

(MVOs) use our network. In 2017, we launched a fixed wireless

but also every year through rights of use that are discretional

internet modem that connects to our mobile network. Our

and may vary on a yearly basis and increase with inflation.

latest achievement was at the end of 2018 when we launched an unlimited-data plan. Our competitors have followed our

Q: How has Telefónica adapted its business strategy to

example, which is good because end consumers benefit from

compete against other providers and boost profitability?

a broad array of competitive services.

A: We have not stopped investing in our network despite the fall in prices. We have optimized our investments,

Q: How does Telefónica’s progress in Mexico differ from its

directing resources to the most profitable and fastest-

experience in other countries?

growing geographies. Thanks to regulations, we have also

A: Our experience in Mexico has been significantly different.

signed roaming contracts for extended coverage with the

In some of those markets, we bought the preponderant

preponderant player, so clients always have coverage even

operator and started from a larger client base, while in

if Telefónica Movistar México does not have infrastructure in

Mexico we bought small carriers that allowed us to gradually

their region. In terms of data, traffic and use in Mexico are

grow our participation in the market as a challenger to the

increasing exponentially. For the past three years, we have

market leader.

doubled the capacity of our network annually, evolving from 4G to a 4.5G network.

Q: How has Telefónica Movistar México tackled the challenge of low profitability in Mexico and what does that mean for

We also have developed projects through collaborative

the company at a global level?

innovation. We have a project of rural franchises that allows us to make alliances with engineering and financing companies to provide coverage to small towns across the country. Our

Telefónica Movistar México is a telecommunications company

allies are in charge of building the infrastructure and we

with significant presence in 16 countries and over 356 million

connect it to our core network. That small town becomes a

users around the world. Telefónica has a strong presence in

franchise for the investor and shared-revenue project with

Spain, the rest of Europe and Latin America

Telefónica Movistar México.

Part of the company’s transformation is a result of diversifying our revenue streams. Five years ago, around 90 percent of

Telefónica Movistar's Tower, Santa Fe, Mexico City

our income came from our prepaid business. By the end of 2019, we expect prepaid services to account for around twothirds of our revenue. On the other hand, we have boosted our post-payment solutions to target higher socio-economic population segments and we already have 1.2 million clients in this segment. We are also boosting our Full Connection home internet offering, which allows us to be more than just a mobile telecoms company. Within the corporate sector, over the past three years, we have developed four digital services focused on cybersecurity, IoT, cloud and Big Data. This was a natural path to take and already, these services are growing at an annual 30 percent rate. These strategies diversify our portfolio, reduce volatility and fuel profitability. Q: What regulatory changes are needed to foster competition in the market and improve benefits for users? A: Spectrum costs are among the main issues to tackle. In 2019, our estimates show the country’s three main players will pay around US$1 billion for use of the spectrum. Yet, this money will not go to the telecommunications sector. Public policies should ensure resources are destined to investment in connectivity. Spectrum costs could also be lowered in line with international practices to incentivize investment. Similarly, the government could provide spectrum-related incentives to companies that invest in rural infrastructure. Even though the Telecom Reform opened the market to foreign investment, the government must still create a level playing field for competition. The reform, for instance, states that special promotions from the preponderant player must be replicable. However, this analysis is done after the company launches its offer, so other companies have to complain about it for the authorities to check whether it is replicable or not. Other countries force the preponderant player to disclose its future promotions beforehand, which helps to maintain fair competition for smaller players. This sometimes leads to complications, however, because smaller players can copy those strategies and implement them before the preponderant company has a chance to do so. Q: What are Telefónica Movistar México’s goals for the next two years? A: Profitability is essential for us. Therefore, our goals are to optimize our business model, to continue looking for partners and to be an example of what it is like to work with all kinds of alliances. Our short-term goal is to become a more relevant option for clients, while increasing our income in a more responsible and diversified way. We are looking to become an even more open, transparent and trustworthy company.

| VIEW FROM THE TOP

5G DOOR TO PRODUCTIVITY, INNOVATION ELIE HANNA President of Ericsson Mexico, America and the Caribbean

Q: What opportunities has Ericsson identified in the

A: There are many ways to increase connectivity. One

Mexican market?

reason connectivity fails to reach rural areas is that many

A: Mexico is key for Ericsson; it is one of our Top 2 markets

operators do not see a potential return in working there

in Latin America, along with Brazil, and 2019 will be our 115

due to the high fees they must pay the government. One

anniversary in the country. We are well-represented in Mexico

solution would be for Ericsson to build the network for

through our global service center and our customer unit that

Mexico’s mobile operators and lease it back to them.

allows our associates to work directly with employees. We

Another strategy would be for the government to lower

also have a production facility and a warehouse in Guadalajara

the spectrum fees in those areas, which would reduce entry

and we are acquiring the antennae and filter division of the

barriers for investment. Ericsson’s mission is to connect

German company Kathrein, which has a big production plant in

everyone in whichever way we can.

Tlaxcala. This company is among the world’s leading providers of antenna technology, an area we identified as a gap in our

Q: How is Ericsson collaborating in the implementation of

portfolio, especially as we head toward 5G. Kathrein’s large

the 5G network?

facility will be incorporated into Ericsson’s structure and will

A: There are two ways to implement 5G: non-standalone and

strengthen our presence and capabilities.

standalone. We will begin with the non-standalone, which is anchored on 4G networks. The standalone will come later

Q: What strategies is the company favoring to strengthen

when the ecosystem is ready for it. Our goal is to be leaders in

Ericsson’s participation in the local market?

both and we are already in talks with our clients in the Mexican

A: We are well-positioned in the country because we work

market to start taking key steps toward 5G implementation.

with all mobile operators in Mexico. Ericsson has clients for

We will begin with test markets, followed by trials and all

its entire portfolio, from networks to digital services. Our

processes necessary to make the network ready for 5G.

strategy relies on our large local presence, our production facility and global center located in the country that

Q: How will the implementation of the 5G network

facilitates deliveries of products and services.

transform traditional business models in the country? A: 5G will offer more than just higher connection speeds.

Q: Given the fierce competition in the IT sector, what

It will also lower the cost per gigabyte significantly. This

elements does Ericsson highlight as its differentiators?

will allow industrywide connection, which will be a strong

A: The IT sector is huge and Ericsson cannot participate

platform for innovation. Many industries want to improve

in all the inherent activities. We focus on the core of all

their networks and enable more automation, even among

networks: operations support systems/business support

traditional areas like farming. Others, like the automotive

systems (OSS/BSS) and analytics and application services

industry, are already working with us to develop and

for those two areas. We are strong in digital services and

implement automation and 5G solutions.

are among the largest companies in terms of value. Q: What are Ericsson’s growth expectations for the next Q: The provision of connectivity is long overdue in Mexico.

two years?

How can the industry work toward a more connected country?

A: Our goal is to grow faster than the global addressable market, which forecasts single-digit growth. In Mexico, we will continue to work with our customers and ensure that

and

we are relevant and that we do add value to the industry.

and

We have been in Mexico for 115 years and plan to remain

headquartered in Sweden. Ericsson’s networks carry 40

here indefinitely. We transformed the telecoms industry

percent of the world’s mobile traffic

from 1G to 4G and now we are heading toward 5G.

Ericsson

is a

telecommunications

multinational company

networking

founded

1876

INSIGHT |

DIGITALIZING THE TELECOMS INDUSTRY STEVE LOGUE Former CEO of Virgin Mobile Mexico

The Telecommunications Reform approved by President

complicates its analysis. “Virgin Mobile is planning to use

Enrique Peña Nieto in 2013 changed the relationship

Big Data to do market analytics and to take advantage by

between Mexicans and e-commerce, technology and

participating with online networks in a more democratic way.

the internet. It also forced Mexico to adopt international

This is one way to compensate for the differences between

technological standards and allowed the development of

us and the large telecommunications operators,” says Logue.

many companies related to the industry, both Mexican and foreign, says Steve Logue, CEO of Virgin Mobile Mexico,

Another challenge Virgin Mobile faces in Mexico is the low

who expects more innovation as a result.

percentage of users that participate in e-commerce and the country’s limited financial inclusion. However, Logue

“We are innovators in Latin America. We have created a

is optimistic. “We sell more chips than any other supplier

sustainable and viable Mobile Virtual Network Operator

in the industry. We are becoming the telecom leaders in

(MVNO) in countries like Colombia and Chile and now we

e-commerce because our business model adjusts better

are trying to bring these innovations to Mexico,” says Logue.

than traditional models.” According to a Federal Institute

Virgin Mobile, an MVNO, was the first fully digitalized mobile

for Telecommunications (IFT) report titled The Public

phone operator to arrive in Mexico.

Consultation on the Cost Models to Determine Tariffs for the Services Provided, between June 2013 and September

According to the E-commerce Study Mexico 2017 published

2017, total access to broadband grew 37 percent. MVNOs

by Internet Association, 51 percent of online shoppers are

also present a positive growth in their market share, with a

between 18 and 34 years old, 92 percent have a cell phone

total 1.4 million new subscriptions only in 2017, representing

and 70 percent have used it to make a purchase online. For

1.2 percent of the total market and 18 percent more than in

this reason, in countries with telecom operators as strong

2016, according to the IFT.

and large as those in Mexico, MVNOs must differentiate themselves to stand out among the competition. Logue says

Despite the numbers, MVNOs like Virgin Mobile Mexico must

innovation is key. “Virgin Mobile competes in the Mexican

contend with the country’s dominant operators from which

market through innovation processes because it is the best

they rent their networks, which eats up more than 50 percent

way to satisfy the country’s emerging and digitalized market.”

of revenues. “In this context, there is the possibility that MVNOs cannot survive the market unless there are associations that

In this context, Virgin Mobile Mexico has become a benchmark

work together with operators and regulatory authorities,” says

for other Mexican operators because it is the only company

Logue. According to Athens Information Technology, a private

in the sector that has fully digitalized all its processes. The

nonprofit organization that does research into innovative

company is transforming telecommunications services

technologies, the most common conflict between MVNOs

by offering its customers different digital options through

and host operators is access to the network.

alliances with market leaders such as Amazon, Uber and Walmart. “In June 2017, the company’s digital sales

Virgin Mobile Mexico expects a positive evolution in the way

represented only 1 percent; in March 2018, they represented 35

that telecommunications service providers compete in the

percent. We enjoyed a similar experience with our customer

market. In addition, the company believes fervently in the

service, which today is 72 percent digitalized,” Logue says.

opportunities that exist in its market niche in Mexico and wants to continue leading the digitalization and innovation

Digitalization also offers opportunities to capitalize on the

in the market. “The way to provide better services and

use of Big Data, although there are issues. In particular,

digital products is for all players and telecommunications

there is a large amount of unstructured data that is

authorities to focus on improving services and not on

generated through different applications and devices, which

protecting the market,” says Logue.

| VIEW FROM THE TOP

SATELLITE INTERNET PROVIDES ACCESS TO REMOTE LOCALES KEVIN COHEN General Manager, Community Wi-Fi, Americas of ViaSat

Q: What opportunities does the Mexican market offer to a

service. By the end of 2019, we would like to have more

global company like ViaSat?

than 1 million Mexicans connected to our network and to

A: Mexico has become a key market for ViaSat to expand its

continue developing more opportunities and services for

global telecommunications services as an internet provider.

the Mexican market.

Although we have yet to become an ISP for final consumers in the country, it is in our plans. Mexico is a big and important

Q: How does your Community Wi-Fi service work?

market for ViaSat and we want to offer the same value we

A: We link a computer in any of these small communities

offer in the US, where we have around 600,000 subscribers

to the internet through a high-speed connection that uses

and internet speeds between 12 and 100Mbps. Our main

a high-capacity satellite network. The operation involves

market in Mexico is people who do not have access to

a 30-inch satellite dish, about the same size as a satellite

internet or who only have access to very low speeds.

TV dish, and a ViaSat modem. Thanks to the low cost of infrastructure for satellite internet services, ViaSat

We are letting the Mexican population know about us

can reach any location and perform a full installation in a

through interviews with Mexican media and inviting

couple of hours.

them to visit the communities that are benefiting from our Community Wi-Fi service. This service provides

ViaSat also develops all the technology it offers, from the

internet to communities with a population of up to

chip that contains the modem to the software it works

2,500 people. ViaSat has connected more than 100,000

with. The company constructs its own satellites in Arizona.

people in Mexico in over 1,600 communities through this

The first, ViaSat-1, was launched in 2011 with a capacity of 140Gb/s, followed by ViaSat-2 in June 2017 with 260Gb/s and with coverage for Canada, the US, Mexico, Central

that

America and the Caribbean. ViaSat-3 will be launched

provides equipment and services for military and commercial

in 2020 with a capacity of 1Tb/s. Our business model is

communications. It is a global company with more than 4,500

designed to address successfully and sustainably the

employees and 26 offices around the world

community Wi-Fi niche.

ViaSat is

US-based

communications

company

VIEW FROM THE TOP |

ROADMAP FOR DIGITAL TRANSFORMATION LUIS MEZA Managing Partner at Deloitte Consulting Group, México

Q: How would you grade Mexico’s attractiveness for doing

Q: How is Mexico’s economic environment impacting

business after 2018’s political and trade changes?

digital transformation strategies?

A: While some might feel lingering uncertainty, we see a

A: Although some see the economic climate as an obstacle

calm attitude in the sectors in which we participate. The

for investment, I believe it brings new business opportunities.

signing of USMCA has particularly benefited our ability

For instance, there is discussion on whether Mexico will be

to provide professional technology services by letting

able to maintain its position as a car manufacturer under

professionals travel freely to Canada and the US. The US is

new USMCA regulations. However, the sector can use this

restricting the use of foreign personnel. USMCA bypasses

period to implement automation in its manufacturing plants

these restrictions and creates a new area of opportunity for

and improve its practices in production, sales, exports and

Mexicans to offer technology services at competitive costs.

distribution. This is the time to adapt and become more competitive. Mexico can become a professional services

Q: How can companies prepare for a digital transformation?

powerhouse that sells these to the Americas and Europe.

A: Many companies believe that a digital transformation means switching from physical to e-sales. Decision-

Q: Which sectors could benefit from AMLO's transparency

makers need to understand how to integrate digitalization

policies in terms of digital transformation?

into their work culture and to use technology to monitor

A: This is a trend impacting all industries, even those

their entire operations. Today, it is impossible to imagine

that could be considered traditional. The mining sector,

an organization not using technology to interact with

for example, is using digitalization to map mines and

employees, clients and suppliers. However, it is not enough

control ventilation, using motion sensors to control fans

for a company to adopt technology in only some of its

and reduce energy costs. In the agricultural sector we

processes; an entire digital transformation is necessary to

are working with a client that is now monitoring water

build what we call a digital DNA.

distribution through the implementation of humidity sensors in the soil, allowing the company to save water

Q: How can Deloitte support companies going through a

and reduce operating costs.

digital transformation process? A: To embrace the digital transformation we combined

Q: What are your recommendations to potentialize

our usual consulting services with creative solutions. We

Mexico’s digital transformation?

are trying to help our clients identify the best areas of

A: Education is key to the digital transformation. Most

opportunity to generate value from the beginning of their

children in Mexico still receive a traditional education and

operations. Companies often try to go through a digital

it is necessary to make technological tools available to

transformation without a clear strategy in place and without

them from a very young age. Programming skills will be

a clear idea of the reasons why they are implementing these

extremely useful to children, not just because they are in

changes, which normally leads to confusion.

demand but because they teach a flexible way of thinking. Deloitte supports an organization that implements

Successful digitalization must support the company’s core

several programming courses for girls and we also have a

business while helping employees transmit a clear message to

scholarship program for university students in Queretaro.

clients through digital platforms. We develop comprehensive strategies for clients, analyzing the technology they have and the results they want to acquire. This allows us to develop a

Deloitte is a conglomerate of independent firms that offer

roadmap that clearly states the initiatives to implement and

audit, tax, consulting, risk and financial advisory services. The

the goals to achieve. We also help companies transform their

company operates in over 150 countries and territories and is

culture by training their personnel to execute digital strategies.

one of the Big Four consulting firms

| VIEW FROM THE TOP

EMBRACING THE CHALLENGE OF TRANSFORMING TO DIGITAL SERVICES MARIBEL DOS SANTOS Managing Director of Oracle Mexico

Q: How is Oracle’s business transformation impacting its

We will launch an Innovation Lab before the end of

relationship with existing and potential clients?

2019 where we will invite entrepreneurs working on new

A: Oracle’s transformation process is moving from a

technology solutions like blockchain. The lab will have a

product-development focus to a service-oriented strategy.

strong educational focus. As a result, new companies will

In the past, Oracle sold its products physically but we are

be able to get their technology to the market by the hand of

now the first company to have its entire product portfolio

experts. Our purpose is to transform the world, empowering

in the cloud. This transformation will provide Latin America,

people through innovation.

and Mexico in particular, with great benefits. Q: How can Oracle participate in the government’s Mexico, which is our second-most important market in the

objective to seize technology opportunities and digital

region in terms of sales volume, has readily adopted new

transformation?

technologies like the cloud. Now, we want to contribute to

A: Oracle is among the most important technology

the development of emerging technologies, such as IoT,

infrastructure providers to the government and we are in

blockchain and fintech. There used to be a misconception

the process of presenting new solutions to help in different

that Oracle only provided services for big companies. Most

sectors. Given our special interest in education, we have

large players have already incorporated our solutions but we

focused our development in this sector and are working

are seeing a significant number of medium-sized companies

with institutions such as Colegio Nacional de Educación

in the tourism, manufacturing, lodging and retail sectors

Profesional Técnica (CONALEP) and Colegio de Bachilleres.

adopting our services. These players will probably not move

However, the impact Oracle has on Mexican society

their entire operation to the cloud but they are adopting

goes beyond our governmental collaborations. We also

new technologies, which means they need a combination

created Oracle Academy, a program that helps us provide

of CAPEX and OPEX that helps them grow and embrace

educational content to 1.5 million students in Mexico

innovation. Our transformation allows us to provide a service

through our platform. Our goal is to help these students

model where clients can adapt operational costs to their

incorporate into the working environment or to support

current growth, gradually incorporating new technology

them in the development of their own technology solutions.

to be more competitive in the market. Today, we are much more flexible when supporting companies in reaching their

Q: What can Mexico do to strengthen its position as

objectives instead of being just a technology provider.

a technology hub and foster the creation of more development centers like Oracle’s in Guadalajara?

Q: How can Oracle support new businesses, such as

A: Oracle’s development center in Guadalajara is in charge

fintech companies, to help them grow and improve their

of all concentration and management tasks for Latin

operations?

America. It also provides global services and develops

A: Oracle’s strategy is based on four fundamental pillars:

new technologies like AI. This campus employs around

our collaborators, customer satisfaction, technological

1,200 people but once finished, we expect that number

innovation and community. Strengthening this last pillar

to climb to 4,000. We intend to continue developing

is what will help us incorporate startups into the market.

the Guadalajara center and in fact, the government and different ministries have shown interest in visiting the campus because of the important contribution it makes

Oracle is a multinational computer technology corporation

to the country in terms of employment, knowledge and

headquartered in California. It specializes in developing and

technology development. Our goal is for Guadalajara to

marketing database software and technology and cloud

contribute not only to Mexico’s growth but to the entire

services. Oracle is present in 175 countries

Latin American region.

VIEW FROM THE TOP |

TECHNOLOGY ADOPTION BRINGS PUBLIC, PRIVATE SECTORS CLOSER FEDERICO CASAS-ALATRISTE Managing Director of T-Systems México

Q: What opportunities have you recognized in the Mexican

centralization of T-Systems solutions, our clients can organize

market that can stimulate the growth of T-Systems?

their entire IT processes and synchronize their communication

A: Technology is transforming the global economy and

networks, while also centralizing their data management. This

Mexico is no exception. In the public and private sectors,

in turn allows them to focus on their core business.

T-Systems can help to create a more agile, efficient and inclusive society. Technology can help the government to

Q: What benefits can T-Systems offer to clients?

save on resources that can then be directed to necessary

A: Companies with their own IT infrastructure often do

social programs. It can help the private sector improve

not have the experience, investment and specialization

operational performance and further advance its digital

to deal with digital management problems. In the long

transformation. T-systems breaks with traditional IT

term, this generates unplanned costs and makes the use

paradigms to offer customized solutions to both sectors.

of technologies more expensive. Therefore, outsourcing IT services can generate savings that are inaccessible to those

The public and private sectors believe it is better to have

that own their infrastructure. T-Systems’ business model

their own IT technologies but this approach represents

is designed to ensure its clients pay only for the capacity

a large investment in maintenance and qualified labor.

they use. Additionally, the level of security is considerably

T-Systems delivers savings for its customers while increasing

higher than owning their IT infrastructure. Beyond these

the functionality and efficiency of processes. Companies

benefits, T-Systems is primarily useful in helping companies

and institutions that hire us can be certain that T-Systems

quickly become digital businesses that can easily and rapidly

will provide an efficient solution and will work hand in hand

navigate a continuously changing IT environment. T-Systems

with them to achieve their digital transformation goals.

believes the cloud represents the future of corporate IT but it can only be considered a benefit if a company is ready to

Q: T-Systems offers a wide range of cloud-based

employ it and migrate to a digital model.

management solutions. How does the company guarantee that its clients have the best solution for their needs?

Q: What are the company’s growth expectations for the

A: The cloud is now at the top of every business IT agenda as

short and long terms?

the world faces a rapidly changing IT landscape. Companies

A: We are awaiting the ratification of USMCA. We hope to

increasingly require a cloud system that is specifically

continue supporting the manufacturing sector and especially

tailored to their needs and that can simultaneously run their

the automotive industry. On the other hand, in past years,

native applications. Most of our clients, like SAT, belong to

T-Systems has been working with government institutions

the premium segment and have shown interest in using

like SAT and we would like to continue this collaboration.

hybrid cloud environments that have the ability to integrate public and private platforms. With T-Systems’ services,

In the long term, the next opportunity for T-Systems will

companies can handle a wide range of options, such as

be the next great change that is coming to Mexico in terms

improving safeguards, adjusting cloud expenditures and

of technology through blockchain, which will have a similar

relieving the pressure of using complex IT infrastructure.

impact on democratization of technology as the internet

Each company can use the type of cloud that best suits

had on communication.

its operations and budget in a cost-effective way, avoiding underutilization of the same technologies. T-Systems is

German

multinational

computer

and

T-Systems’ solutions can be adapted to any business model

consulting services company founded in October 2000. It is

and allow a client to move from a traditional model to a

part of Deutsche Telekom and operates in 27 countries with

hybrid version. Thanks to their integration efforts and the

55,000 employees

| INSIGHT

WARY COMPANIES MUST EMBRACE DIGITALIZATION OR RISK EXTINCTION JUAN FRANCISCO AGUILAR Vice President of Dell EMC Commercial Mexico

In a constantly changing world, companies need technology

technologies generating the most disruption and that they

that provides them with flexible processing and storage

are already being implemented.

capabilities that can adjust to their future business needs, says Juan Francisco Aguilar, Vice President of Dell EMC

Although companies are already implementing these

Commercial in Mexico. “A few years ago, the conversation

technologies, they are not doing it fast enough. “Companies

was focused on how to use the cloud, while themes such

that are digitally lagging face the possibility of disappearing

as machine learning, AI and virtual and augmented reality

in the next five years.” Of the business leaders interviewed

were anecdotal,” he says. “Today, we are seeing companies

for the Dell Index of Digital Transformation, only 7 percent

adopt technologies that four or five years ago were not

could be considered digital leaders, Aguilar says. “These are

even on their radar.”

the leaders who have transformed their business and have made digital transformation a core in the functioning of their

Technology companies like Dell EMC will have to generate

business.” When it comes to digital transformation, most

flexible and robust solutions to handle the processes and

business leaders are on the fence. Aguilar says that when

different technologies that will become necessary in the

companies realize the importance of digital transformation,

coming years. “The challenge of digital transformation is

it is often too late.

that new applications and the way companies interact with their clients require a new level of software development,”

Among the limiting factors that constrain a company’s

says Aguilar. The appearance of OTT media services, such

digital transformation are the lack of a leader with a digital

as Netflix or Amazon Prime Video and ride-hailing apps, are

vision, qualified personnel, the needed infrastructure to

examples of how the customer experience is changing. “These

process and store information in a dynamic, agile and

new business models must operate 24/7 and have a friendly

safe environment and the lack of public policies that

interface. These applications must have short response times

allow the development of these technologies. “Digital

and understand the consumption patterns of their clients to

transformation has to go well beyond smartphones and

achieve a greater degree of interaction.”

social networks. It entails the creation of innovation areas within companies that can help them become disruptive,”

Aguilar says Dell EMC offers the software and hardware

Aguilar says.

tools that companies need to interact with their clients and to process and store apps. “We complement our

In particular, implementation of the appropriate public

software and hardware offerings with a deep knowledge

policies is vital for Mexico’s transformation, Aguilar says.

of computing users. Dell’s history is based on the

“We need to think not as a manufacturing country but as

profound understanding of its clients’ consumption

a country that develops software, applications and new

history.” The company specializes in helping businesses

technologies. We need to imagine Mexico as a technology

achieve a digital transformation but Aguilar says that in

development hub.” He believes this transformation must go

general, Mexican companies are not ready to undertake

beyond businesses to include society as a whole. “We need

the challenge that this transformation entails. According

to specifically encourage children to pursue technological

to Dell’s Index of Digital Transformation, six out of every

careers and get them interested in software development.”

10 companies already perceive technological disruption in their businesses and six of every 10 companies do not

Aguilar believes Dell has a significant role to play in the

know how their industries will work in the next three to five

digital transformation. “We have the largest portfolio of

years. However, Aguilar says that what the index illustrates

tools to advance the transformation of data, cybersecurity

is that most businesses are now convinced that robotics,

and the workforce. We see ourselves as one of the most

the cloud, IoT, AI and virtual and augmented reality are the

important players for the country’s development.”

VIEW FROM THE TOP |

TOWARD A DIGITAL SOCIETY FELIPE LABBÉ CEO of Global Hitss

Q: How can Global Hitss’ digital solutions and IT services

Q: What are the main challenges for companies

help clients move toward digitalization?

transitioning toward a digital ecosystem?

A: Global Hitss has 30 years of experience and more than

A: The main challenge for an integral digital society is

8,000 employees in eight countries: the US, Brazil, Mexico,

to reach digital maturity. There are a series of steps that

Colombia, Peru, Ecuador, Chile and Argentina. As part of

countries must take before developing a digital society.

América Móvil, the largest telecommunications group in

The first is connectivity, followed by connected appliances,

Latin America, our goal is to develop a modern and inclusive

systems, solutions specifically designed for the needs of

society that can provide solutions to citizens through

this society and sectorial integration, in that order. Each

technology. We do this by providing our clients with a

country is at a different stage and we are working on a

digital strategy that fits their business model and helping

case-by-case basis to introduce the necessary elements to

with its implementation.

develop this digital society.

By 2025, 70 percent of the economy will be controlled

Mexico is in excellent condition compared to other countries

by millennials and members of the so-called Generation

in Latin America to embrace digitalization. Once I was asked

Z, a population group that consumes information very

whether it should be the private sector or the government

differently from previous generations. These changes are

that leads this change and I answered that it should be the

leading us to a collaborative and inclusive community,

individual consumer. Mexico and Brazil are doing very well

rather than to a closed and centralized one. Digitalization

and are investing a great deal in digital transformation, as

has created to two types of companies: digital natives and

are Chile, Argentina and Colombia.

digital migrants, which are large old companies that are migrating toward a digital model. Global Hitss targets both

Q: A common concern of digital companies is reluctance

types of companies; we want to bring our own solutions

of Mexican SMEs to incorporate technology. What is

to digital natives and help migrants to evolve toward a

your view?

digital society.

A: Many SMEs have been reluctant to incorporate new technologies but they are increasingly willing to change

Q: Which sector has better understood how to transition

because they have realized that their competitors are

to a digital ecosystem?

companies with disruptive business models.

A: We are focusing on eight industries that are moving toward a digital ecosystem: banking and finance, retail,

Digital transformation has three main axes: user experience,

health, smart cities, Industry 4.0, education, logistics

efficiency and new business models. If a company focuses

and transport and energy. We have recognized that the

only on the first two, it will not take the appropriate steps

industries that most easily incorporate digitalization are

to develop the services required by its own clients. New

those that deal directly with the final consumer, such as

business models were generated thanks to new technologies

finance, retail and healthcare. Our goal is to help these

that did not exist when many traditional businesses were

companies approach the end consumer and put them at

created. For that reason, these companies must understand

the center of the company’s operations.

these new business models.

Being part of America Móvil puts us in an excellent position to help clients undergo this digital transformation, so we

Global Hitss is a digital solutions and IT services company with

see many opportunities in the market. Of our eight sectors,

30 years of experience and more than 8,000 collaborators in

those which we expect to grow the most are financial, retail,

Latin America, the US and Europe. The company is a subsidiary

healthcare, smart cities and education.

of América Móvil

| VIEW FROM THE TOP

VISION IS KEY TO DRIVING DIGITAL TRANSFORMATION JUAN CARLOS LOVO CEO of Grupo Tecno

Q: How does Grupo Tecno stand out among the market’s

and ruled by Mexican laws, except when data management

existing options?

requirements exceed the capabilities available in Mexico.

A: Grupo Tecno has 35 years of experience and this is a key differentiator compared to other organizations. We

Q: What specific opportunities do you see for the digital

have been working to establish highly effective long-

transformation of the Mexican public sector using Grupo

term business relationships with both customers and

Tecno’s solutions?

suppliers. These relationships allow us to better advise

A: In general, the Mexican public sector is undergoing a

our customers by providing customized technological

digital transformation. Grupo Tecno can provide solutions

solutions and taking advantage of a wide variety of state-

such as Secure City and Electronic Citizen attention

of-the-art hardware and software, including the cloud

centers supported by AI. There is a need to create a

and AI. The endgame is to offer businesses important

unique individual medical history file in the health sector

financial and technical benefits through our key technical

to consolidate health data in one single database hosted

ecosystem, supported by our highly trained and skilled

in the cloud and Grupo Tecno could become a strategic

staff. Another area of expertise is cybersecurity, which has

partner in developing and implementing this solution.

become a main concern and a high risk to organizations

Regarding cybersecurity, it is important to remember

and individuals, particularly after an alarming increase in

that certain strategic government offices are potential

cyberattacks in the last year.

cyberattack targets and our expertise can help them mitigate this risk.

Our culture is another strength. As a company, we are highly committed to our values, our staff and our

Q: What do you think about the evolution of the Mexican

community. Therefore, our reputation in the marketplace

technology industry and the stance of Mexican businesses

is solid. Only time can forge a great organization, which

regarding digital transformation?

startups lack.

A: To address the evolution of technology it is important to understand that there are two key players involved: end

Q: What kinds of companies are best at transitioning to a

users and companies. End users are the agents who are

digital ecosystem?

in daily contact with easily accessible technology, such as

A: Financial institutions, retailers and service providers are

smartphones, tablets and other devices that enable them

leading the adoption of new technologies to successfully

to benefit from the important technological investment and

serve changing consumer habits. The government also has

development big businesses such as financial institutions,

been investing heavily in new technologies. It is interesting

retailers and government agencies are making to offer a

to highlight that when it comes to the cloud, the agreement

wide variety of apps. The most important challenge is for

amending the policies and regulations for the National

companies to decide what technologies they will invest

Digital Strategy related to Information and Communication

in and adapt to meet both their in-house needs and their

Technologies as well as the Administrative Manual for their

customers’ expectations.

General Application dated July 23, 2018, clearly state that data management should be based in Mexican territory

New technologies are available: the cloud, AI, cybersecurity solutions, Big Data, hyperconvergence and virtualization solutions. Mexico is a little behind countries like Brazil,

Grupo Tecno is a Mexican company with over 35 years of

Colombia and Chile in terms of new technologies

experience in the information and communications technology

adoption. Leading technology manufacturers are focusing

business. Its business partners include technology manufacturers,

on supporting Mexican businesses to speed up their

such as Oracle, DELL EMC, Riverbed and Microsoft

technology adoption process.

VIEW FROM THE TOP |

SCALABILITY DEMOCRATIZES TECHNOLOGY, INNOVATION MARCO JIMÉNEZ Director General of Lenovo México

Q: What characteristics of the Mexican market have

We have noticed that consumers feel more comfortable

positioned it as a reference for Lenovo?

buying technology through our website.

A: Mexico is among the 10 most important countries in Lenovo’s strategy. These 10 countries attract the majority

Q: Which Mexican industrial sectors are interested in

of our investment in marketing, commercial efforts, product

Lenovo’s solutions?

development and everything necessary to create and develop

A: We have a great deal of experience in the public sector and

a market. We also have a production plant in Apodaca, Nuevo

we are greatly improving our presence in private industry. We

Leon, that supplies desktop and server equipment from our

are focused on growing in sectors like banking and finance,

commercial line to the entire continent. We see Mexico as one

private and public education, retail and health. We also offer

of the strongest economies in Latin America, which provides

innovative business models, such as leasing and hardware as

us with the security to make decisions regarding investment.

a service, because sometimes companies prefer to invest their CAPEX in their core business and use technology as a service.

Q: What added value can Lenovo offer to the industry? A: Our commercial office in Mexico is divided into three

Q: What type of solutions does Lenovo offer to the

large segments. First, the household and consumer

government?

segments, which we cover through retailers. It represents

A: The Mexican government has chosen a model that we

between 60 and 65 percent of our market. Second, the

consider a pioneer in the region: administrated service.

SMEs segment, through which we offer computer and data

Knowing the difficulties in resource management, the

centers at attractive prices with financial solutions to reduce

government hired an integral service provider that offers

the technology gap. Third, the corporate and government

the installation, maintenance and support for every

segments, where we offer customized solutions regarding

workplace. This model has led institutions to a more

tablets, servers, PCs and storage systems. One of Lenovo’s

efficient expenditure and investment. Our business partners

competitive advantages in its global operations is that it has

are integrating our hardware into that model.

the largest hardware portfolio in the industry. Q: What are Lenovo’s goals for the near term? Q: How does Lenovo maintain a business model that makes

A: First, we must continue growing at a double-digit pace

technology available at affordable prices?

annually. Build the brand is one of our priorities. We want

A: Our strategy is not to be a cheap brand but one that

to position Lenovo as a premium and innovative brand and

offers an interesting cost-benefit to the consumer. Our

continue to work with our business partners to expand in

formula is innovation at an affordable price. We are looking

the private sector and education segments. In addition,

for new technology launches, such as virtual reality devices,

we want to enter the emerging technology market and

ultra-books and convertible PCs entering the market at very

open new categories that help us grow AI and virtual and

high prices. Through scalable models and volume, we can

augmented reality. We also want to establish long-term

offer affordable prices, resulting in the democratization of

relationships with our distributors, retailers and with our

technologies and innovation.

overall channel ecosystem. Last but not least, customer experience is a big focus area in our strategy.

Q: What is the future of distribution in Mexico? A: The large retail segment, in its different formats (specialized stores, department stores, furniture stores and

Lenovo is a Chinese technology company specializing in the

supermarkets) has become stronger, especially in markets

development and manufacture of computers, laptops, servers,

like Latin America. Lenovo reaches SMEs through 10,000

smartphones and tablets. It is headquartered in Beijing and is

retailers in Mexico. In parallel, e-commerce is growing fast.

among the world’s leading personal technology distributors

| VIEW FROM THE TOP

TECHNOLOGY KEY TO STAYING AHEAD OF THE CURVE FEDERICO RANERO General Manager of Uber Mexico

Q: How are you taking advantage of data processing

can apply our technology to solve these and work toward

and machine-learning technologies to boost your

sustainable urban planning.

service offering? A: We have a new machine-learning model that uses data

Uber has become a key element in our usersâ&#x20AC;&#x2122; lives and

from the over 10 billion trips we have completed throughout

thanks to that, we have contributed to improving the living

the world to identify 40 scenarios that could lead to a risky

conditions of the cities where we are present. We have

ride-hailing situation. This refers to a scenario in which our

noticed a significant decrease in incidents related to drunk

users could be endangered but also one in which our terms

driving because now, users know they can ask for an Uber

and conditions are not being followed. We are now blocking

at any time of day or night instead of having to use their

more trips than ever before but we do this to prioritize

car, which in many cases was the only option. Similarly, we

security in our service.

have contributed to transporting more people in fewer cars, which is part of our corporate vision. Finally, the data we

We have also invested in a new verification algorithm for

have generated after 10 billion trips has also led us to take a

new users who only choose the cash-payment method.

more active role in the planning and development of cities.

This has been a concern for many of our partner drivers but scanning the Facebook profiles of new users has

Mobility is a complicated challenge that demands

allowed us to weed out fake applications. Regarding

collaboration from the public and private sectors and

trips, we have developed several telematic applications

opening our data on general traffic flows to the public

to gather information from our drivers, which gives us

through tools such as Uber Movement can help cities ensure

intel on user satisfaction but also the driving habits

any investment made has the biggest return.

of our partners. We keep close tabs on our partnersâ&#x20AC;&#x2122; performance so we can offer punctual advice or in

Q: After five years in Mexico, what is next for Uber and

more extreme cases, deactivate their account. In 2018,

what role will the country play in the companyâ&#x20AC;&#x2122;s strategy?

we deactivated 20,000 partner accounts either due to

A: Over the past five years, we have invested over US$500

security concerns or because of driving practices that

million in the country and yet we still see this as the

failed to live up to the standards we demand to maintain

beginning of our participation in the advancement of

a quality service.

inclusive mobility and economic development. We are committed more than ever to Mexico and it is one of the

Q: What role does Uber want to play in the development

most important countries for the company. Being in Mexico

of a sustainable mobility model in Mexico?

has helped us understand we cannot just export technology

A: Uber was born out of the necessity for an alternative

from one country to another and over the coming years we

to public transportation and private-vehicle use but we

will introduce even more developments to improve the user

never thought we would become part of the solution of

experience with our platform.

a much wider mobility problem. Now that we are a key player in over 600 cities in 80 countries, we are aware of the

Cars are to Uber what books are to Amazon, which means

problems that cities face in terms of mobility and how we

we must evolve from a platform to a marketplace where users can find services to transport themselves or goods, not even by car if necessary. We are already analyzing new

Uber Technologies is an American company based in San

services with bikes, scooters, cargo transport and even

Francisco that provides transportation and mobility services

flying cars to make our offering as efficient as possible,

in over 80 countries. In Mexico, the company has operations

either through our own developments or through alliances

in 44 cities

with third parties.

INSIGHT |

FIVE TRENDS ACCELERATING THE SPEED OF CHANGE GERMÁN MONTOYA Chief Strategy and Creative Officer at Rokk3r Labs

Technology is changing the way business is done and the

solving.” Finally, the concentration of private capital must

winners will be those who understand the changes and

be considered because it is driving the development of

create new value propositions. “We have seen around 20

new technologies, such as autonomous vehicles and

technologies that are changing the world, ranging from

space travel.

robotics, to genetics and bots,” says Germán Montoya, Chief Strategy and Creative Officer at Rokk3r Labs.

Put all these factors together and the landscape takes on a different hue, says Montoya. “Convergence of all

Rokk3r Labs, a consulting company that helps businesses

these technologies and their interaction is what is driving

alter their traditional models through innovative solutions,

change in the world.” Convergence, he adds, allows

has identified five trends or realities of the modern world

for the transformation of traditional business models.

that are accelerating the speed of change. The first is

“There is a significant number of companies that have

connectivity; according to Montoya, there are around 4

collected data from their customers but have not been

billion people connected to the internet, surfing the web

able to use it adequately. Rather than creating new

at an average speed of 3G. It is expected that in five

value propositions that fit their clients, the most they

years the number of people connected will double and

do is create loyalty programs that add little value for

the average speed will climb to 10G, which will open new

their customers or to their businesses,” says Montoya.

business opportunities. Augmented reality, the second

“It is a matter of understanding the market better, of

trend according to Montoya, will also be possible thanks

taking all the available information and correlating it in

to computational power. “Computational power has

a different and more intelligent manner to obtain new

become cheaper, so things that seemed possible only in

correlations that shed light on new market schemes that

theory will be implemented in practice, like AI.”

could be applied.”

Sensors are also an important component of change.

An example, says Montoya, is Uber, which he identifies

Montoya says that there are approximately 50 billion

as a business that has excelled in this regard and that

sensors in the world but that this number is bound

has benefited from the trends identified by Rokk3r Labs.

to more than double in the next 10 years. “With over

“Unlike other companies, Uber provided a solution to

100,000 sensors on each street block, you could sense

something that was already solved. It is not that there

everything, not only temperature but biometric data from

was no public transportation before Uber but it was

people. It will allow us to have a clear visualization of

completely centralized and controlled by local groups.

what is happening in the environment.”

Uber changed that.” Montoya says that “the ‘uberization’ of businesses is not the use of an app but taking a

Montoya says that education is another component of

solution that already exists and offering a modern twist.”

change. He believes the internet has democratized what has been much more a monopoly for a long time. But

Montoya is confident that innovation will soon take hold

the skills required in the future may not reflect current

of the Mexican business community. “Change tends to

thinking. Creative skills, more than programing abilities,

start slowly but when you look at the growth curve, you

will be key, Montoya says. “For several years, people

will see that there is a moment when change accelerates

thought that studying a major related to programing

and the curve becomes very steep. I think we are just in

or computer sciences would be the future but we will

that moment that precedes an increase in the curve and

come to a point where computers themselves will be

very soon we will see the change in business strategies

in charge of programing. The most important skill sets

accelerating to meet the demands of the world. The

for the future will be creativity focused on problem

future is already here.”

| VIEW FROM THE TOP

FINDING THE CHATBOT CONNECTION EDUARDO FARINA Director General of BlueMessaging

Q: What opportunities does the current work environment

Our first chatbot was created in 2011 and started operating

create for BlueMessaging?

in 2012. The technology was understood as an automated

A: There are many opportunities in the Mexican market. Our

client assistant but it was still a foreign concept for many.

solutions entail the creation of chatbots and machine-learning

Today, when you say the word chatbot people know

solutions, which makes us part of the AI transformation in

what we are referring to. Prospective clients are now

the business world. Both in Mexico and the rest of the world,

looking for automated solutions that will allow them to

the trend is to boost the implementation of AI solutions.

offer better services, in better time and in a more cost-

According to a McKinsey Global Institute analysis, by 2030,

efficient manner. The use of social media and different

around 70 percent of all companies will have implemented at

digital channels has potentialized the adoption of these

least one type of AI technology in their business processes.

solutions, since they already provide the infrastructure for

A report from PwC states that AI will add US$15.7 trillion to

this technology to work.

global GDP by 2030, while McKinsey Global Institute points out that Mexicoâ&#x20AC;&#x2122;s GDP could grow by between US$82 billion

In late 2018, we partnered with Google to develop a new

and US$144 billion by 2025 thanks to digitalization.

communication technology now in its beta phase. We are constantly looking for collaboration and synergies with big

It is important to set a country strategy for the development

tech companies, such as Twitter, as well as with startups

of an AI basis that fosters technological growth. We are

that create specific solutions for everyday problems.

among the Top 10 countries in the world, and the only one in Latin America, that have already started setting the

Q: Which business sectors have been the most receptive

basis for the definition of an AI country strategy. If we are

to BlueMessagingâ&#x20AC;&#x2122;s offering?

strategic enough to define an AI ecosystem and the players

A: The financial sector has been the most receptive. The

that will participate in its development, then companies

fintech boom and all the changes it has generated broke

like ours, the government, academia and the industry will

the traditional banking model, so banks are looking for ways

have clearly defined roles and the space to potentialize

to reach the greatest number of customers at a lower cost.

their efforts and generate positive growth. AI will provide

Retail is another sector that is showing more interest. Our

benefits like increased productivity but it will also have a

implementations in the retail and entertainment sectors

social impact that needs to be considered.

have been successful. We believe the healthcare sector also offers significant opportunities for the implementation of

How

has

the

Mexican

market

received

AI solutions.

BlueMessagingâ&#x20AC;&#x2122;s offering? A: We have been in the market for eight years and have

Q: How can BlueMessaging solutions help companies

seen a change in the way our products are presented and

understand clients better?

received. In the past, we had to convince companies to

A: Our platforms use machine-learning algorithms and

use our solutions but now, some of them are asking how

data analysis to help in decision-making and in definition of

to incorporate AI solutions into their processes. This is

processes. Whenever a final user reaches one of our clients

allowing for greater technology adoption.

through one of our solutions, our chatbots can differentiate between transactional information requests, which is what we call public information, or more personalized requests

BlueMessaging is a technology company founded in 2009

that entail an authentication process from the final user,

that connects organizations with people through different

such as a credit card balance request. Applying Big Data

communication channels using AI-based innovation, machine

analysis, brands can not only improve bot services but

learning algorithms and data analysis

target more effective campaigns.

VIEW FROM THE TOP |

DIGITAL CLIENTS DEMAND DIGITAL SERVICES, COMMUNICATION SERGIO VALENCIA Director General of SRL Soluciones

Q: How can SRL Soluciones improve its clientsâ&#x20AC;&#x2122; operations

companies have a consistent service in all communication

in terms of customer management?

channels, as well as knowledge on the context and previous

A: The company first targeted the financial and telecoms

interactions with the customer.

sectors, where there is constant interaction with individual customers. Most companies in our line of work compete

Q: How receptive have clients been to your offering?

on price but we wanted to differentiate our services by

A: The most receptive have been banks, insurers and

providing the solutions that keep customers happy.

telecom companies that must interact with customers through different channels. However, we have seen growing

Our goal has always been to be the best distributor or best

interest from players in the retail sector. Visiting a store

integrator of contact center solutions. We started distributing

was part of the customer experience in retail, which means

contact center software brands from market leaders like

digitalization has blocked part of the companyâ&#x20AC;&#x2122;s role in

Genesys, Aspect, Cisco, Verint and ServiceNow. However,

dealing with the customer. For retailers, it is becoming

we understood that a box product cannot do everything a

increasingly important to transform and to have an efficient

client wants, since they always need customization that goes

back-office process to properly serve customers.

beyond what the original product can offer. That is where our know-how and expertise come in: by customizing products

Even though older technologies are being updated, such

for our clients. The idea is to transform their business without

as the Interactive Voice Response (IVR) used by banks or

losing sight of the operations they want to maintain.

telecom companies, people in Mexico still prefer to speak with a person rather than deal with the IVR. Companies had

Q: According to SRL Soluciones, it is becoming the era of

trouble grasping the importance of this change. As new

the customer. What should companies understand about

technologies started to appear, we integrated them into the

this new era?

IVR to develop a more sophisticated system, which helped

A: There are mature businesses and industries that have

customers feel supported and reduced costs for companies.

always done things the same way. Yet, clients are not comfortable with the same practices anymore. Digitalization

Q: What differences have you found between contact

has changed so much; people are using new channels of

centers in Mexico and around the world?

communication, while some companies still have a hard time

A: In Mexico, customers are open to adopting new

understanding that communicating through social media is

technologies unlike in the US, where they tend to be more

not only appropriate but the preferred way to reach the client.

conservative. Here, companies also normally leave us the responsibility to create their communications solutions,

Today, all our projects involve digital or technological

while in the US and Europe they usually work alongside

transformations and we are helping companies more

the manufacturer to design the solution they need. We are

effectively reach clients through Facebook, Twitter and

starting to see corporate positions focused on customer

WhatsApp. Many startups offer to solve their clientsâ&#x20AC;&#x2122;

experience that previously did not exist. We are trying to

communication needs but they only solve part of the

show people in these positions how to analyze the customer

problem by setting up an email or Facebook account for

experience from a technology standpoint.

the company. Instead, we provide an omnichannel solution that can yield data for posterior analysis. We generate a roadmap to determine where the client wants to be in terms

SRL Soluciones is a Mexican technology company specialized in

of customer relationship management, its current state in

helping companies improve their customer service experience.

terms of company culture and technology and the steps

It has strategic alliances and international certifications and

needed to implement an integrated solution. Once in place,

has installed over 9,000 seats at contact centers in Mexico

| VIEW FROM THE TOP

GRADUAL CHANGES LEAD TO FULL DIGITAL TRANSFORMATION ELIE HAIBI Co-founder and CEO of Hermes Systems

Q: How do you market your services among hesitant clients

origination process becomes digital, there are gains in quality,

and what business opportunities have you detected?

operational efficiency and cost of risk mitigation. Meanwhile,

A: A digital transformation (DT) impacts a company’s business

exploring new business models with agency banking allows

strategy and its operational, organizational and technological

the growth of financial services institutions’ operations without

initiatives. It is motivated by technology capabilities, such as

investing large amounts of money. Companies that want to

AI, IoT, the cloud, mobility, blockchain and Big Data, that

reach the large underserved population in Mexico need to

enable new operational mechanisms and help better execute

grow with speed and quality. Therefore, they must consider

a company’s business strategy.

whether to open hundreds of new branches or partner with a retailer that has thousands of stores and equipping them

Facing such a broad and complex DT program can lead to

with a mobile terminal enabled with basic, low-risk, customer

a long and costly sales cycles if combined with a hesitant

service functions. The answer is a no-brainer.

market. That is why we came up with our micro-DT concept. While limiting the scope of the transformation to a specific

Q: What opportunities does Hermes Systems offer to retail

part of the company, we focus on the capabilities brought by

and e-commerce players and what strategies is it pursuing

mobile technology. Almost everybody uses a smartphone and

to position itself as the market’s best option?

understands well its capabilities, from scanning a bar code to

A: Our focus in retail is on three axes: delivering a

filling a digital form and keeping up with the geo-location of a

differentiated customer experience, building informed and

vehicle. As a result, we deliver smaller but impactful projects

engaged teams and optimizing store processes. The most

and the customer is open to implement more changes,

successful customer-experience models follow practices

allowing us to progressively broaden the scope of the DT.

from the hospitality industry. Hermes Systems can offer technological capabilities, such as customer identification

Q: How can the banking and financial system benefit from

through beacons or face recognition, social listening and

the DT solutions offered by Hermes Systems?

sentiment analysis and personalized service based on data

A: There is room for growth in financial services but that

insights from all past interactions across all channels, to

comes with challenges, such as the required infrastructure,

deliver a superior experience. But these elements are useless

operational performance, customer expectations and risk.

without a solid value proposition in customer experience,

Our advice for companies is to go digital, mind the culture

coupled with systematic mechanisms to make it consistent.

of their organization and explore new business models. To achieve this, we have solutions intended to enable new

Regarding sales teams, connecting with customers who are

strategic capabilities in three specific areas in the financial

often more informed than the employee requires coaching,

sector: customer attraction, collection and agency banking

teacher-led and online self-paced courses, gamification of

with services aggregation.

education, closed customer feedback loops, the opportunity to constantly provide management with feedback on employee

Filling a web or mobile application and receiving the credit

experience and aligning incentives with an omnichannel

approval in less than three minutes has a “wow” effect that

strategy to avoid sales cannibalization. Finally, optimizing

is key for customer attraction. When the end-to-end credit

store processes requires the implementation of strategies that include tracking merchandise from the warehouse to the shelf, performing accurate and rapid stock checks, instant

Hermes Systems is a Mexican company specialized in the

product identification through scanning and monitoring the

digital transformation of businesses. It focuses on providing

performance of individual items. Such initiatives are based on

clients with agile transformation models enhanced by

worldwide retail best practices and are carried out with the

technological tools

help of our technology partners: Apple and IBM.

VIEW FROM THE TOP |

BABY STEPS GO A LONG WAY IN DIGITALIZATION

JOSÉ FUNCIA Co-founder of Crater Solutions

JOSÉ ANDRÉS GONZÁLEZ Co-founder of Crater Solutions

Q: What are the main technological options offered by

Q: How do you convince reluctant companies to implement

Crater Solutions to the Mexican business community?

technological changes?

JG: We provide technology solutions for businesses,

JF: We conduct a detailed research of everything the

which range from setting up a web page to more complex

company might need and then we talk to the person in charge

solutions such as implementing e-commerce or internal

of making the decisions. We convince them by showing them

software for better company management. We have

how their activities would improve. We try to work side by side

noticed that people and companies are not always aware

with our clients so that we end up becoming their partners.

of their technology needs. Besides offering technology services, we also help companies to adopt our solutions

JG: Because we present information about how their

so they can improve their overall operations. This is the

business will be affected, the clients can directly see the

added value our clients receive when they hire our services.

benefit. We also try to facilitate the use of technology. Instead of offering them all the services they may need in

Even though our main focus is technology, we work hard to

one shot, we try to provide a step-by-step solution.

provide the best possible customer service. All our clients have constant access not only to our team but to us. You not

Q: How do you determine what solutions to offer clients?

only need to know what you need but also what you want,

JG: Not every company needs all our solutions. Some

which is why we offer our clients consulting services as well.

companies start with just a webpage and from there it all depends on the company’s needs. We also offer augmented

JF: We are a boutique company, since all our services are

and virtual reality solutions but these are usually destined for

tailored. Many of our clients come to us to implement big

more specific clientele, like those in the construction industry.

technology solutions but we have found that sometimes their business capacities do not require that big a solution.

JF: We determine the services we offer based on demand. If a client has any technology requirement, we will find a way

Q: What sector of the Mexican economy has been most

to help them. If we cannot do it, we have strategic partners

receptive to your services?

with expertise in areas where we do not and we connect

JG: More than a particular industry or sector, we like to do

our clients with them.

analyses based on the type of company. Overall, though, the construction industry has been somewhat reluctant

Q: What are the company’s growth strategies?

to implement technological solutions. In some cases,

JG: We are pushing our virtual and augmented reality

companies have taken too much time to adopt technology

projects in the real-estate market. The construction sector

not because they did not want to implement it in their

has been rather slow in the implementation of technologies

processes but because the solution they needed was not

but we have seen that virtual reality can have a significant

ready. In the end, however, it is the decision-maker who

impact when it comes to customer service in real estate.

determines the level of readiness of the company itself

We are also growing our team to widen our reach. By doing

and this is the person who has to break the barrier of fear

so, we can start expanding to other large cities such as

related to technology adoption.

Monterrey, Puebla and Guadalajara.

JF: This happens a lot in family businesses. In general, younger generations are more adventurous, have more

Crater Solutions is a Mexican technology company that

confidence in technology and are able to introduce changes.

specializes in the development of software and other

If control remains with the parents or grandparents, then

technology solutions for businesses. The company also offers

change becomes more complicated.

consultancy services to entrepreneurs

Walmart self-service area

RETAIL

In a country with over 125 million inhabitants, the possibilities offered by the retail sector are on the rise. Whether it is personal goods, clothes, furniture or home repair equipment, the retail sector plays an important role in the country’s economy. Despite external turbulence that has impacted the economy, such as the drop in oil prices, the US dollar’s appreciation and the instability generated by USMCA’s negotiation, domestic consumption has remained one of Mexico’s main growth engines.

The Retail chapter shines a light on how this sector has evolved and the challenges it faces from a social, economic and technological standpoint. Consumer confidence has increased after President López Obrador’s election but the country’s retailers must still innovate not only in their offering but the way they present themselves to consumers to effectively compete with new platforms and their competitors. The challenge is to remain attractive in an increasingly digital world dominated by e-commerce companies.

CHAPTER 4: RETAIL

ANALYSIS: User Experience Becoming a Defining Priority

100

INFOGRAPHIC: Where Does the Money Go?

102

VIEW FROM THE TOP: Carlos Arroyo, Walmex

105

INSIGHT: César Medina,

106

INSIGHT: John Lackner, H&M Mexico

107

INSIGHT: Eric Fortune, Decathlon Mexico

108

INSIGHT: Fernando Silva, Best Buy Mexico

109

VIEW FROM THE TOP: Patrick Devlyn, Grupo Devlyn

110

VIEW FROM THE TOP: Guillermo Martorell, Grupo RFP

111

VIEW FROM THE TOP: Macedonio Garza, Farmacias Benavides

112

VIEW FROM THE TOP: Ricardo Travassos, Coty México

113

VIEW FROM THE TOP: Felipe Sánchez, Assurant Mexico

114

VIEW FROM THE TOP: Michael Gines, Dacomsa

115

VIEW FROM THE TOP: Sergio Álvarez, Hankook Tire de México

Mexico and LATAM

| ANALYSIS

USER EXPERIENCE BECOMING A DEFINING PRIORITY It is a brave new world for retailers. Consumption is on the rise, but the shopping experience is evolving and retailers increasingly see a need to connect with customers through digitalization and e-commerce. These areas have developed in other parts of the world but are only starting to permeate the Mexican landscape

Few areas have felt the impact from digitalization as much

the entire family helps users develop a common topic of

as retail. New payment methods, online shopping and

communication and thus generates an emotional bond with

rapidly evolving consumer habits are creating a much more

the shopping experience.

technology-driven market globally. Although the commerce revolution has been a death knell for traditional shopping

THE E-COMMERCE CHALLENGE

outlets like malls, Mexico continues to buck that trend. But

Although e-commerce has been part of the everyday life of

evolution requires adapting, and in that regard, Mexico is

consumers for several years in the rest of the world, Mexican

no different.

consumers have been late adopters for different reasons. According to the Mexican Association of Online Sales

The new era for retailers, whether in Mexico or abroad,

(AMVO), Mexicans that do not engage in online shopping

entails a transformation that emphasizes the shopping

cite fear of electronic fraud as the main cause for not buying

experience rather than the product. This is among the

online. Other reasons for not choosing e-commerce are

factors for the continued success of malls in Mexico and

fear of introducing bank account details, fear of buying

Latin America, says César Medina, CMO of Miniso Mexico

the wrong product and the lack of understanding of how

and Latin America, who adds that the family and social

to buy online.

components are key for retailers in the region. “In Latin America in general, we go to malls to socialize. Malls

Despite these factors, online shopping in Mexico is growing.

continue to be the place for family entertainment.”

According to AMVO, in 2018, 38 percent of Mexican online shoppers made at least one online purchase per week.

While popularity of e-commerce has meant the demise

While 34 percent made at least one purchase per month.

of many malls and retailers in Europe and the US, John

This represents an increase from the 7 and 29 percent rates

Lackner, Country Sales Manager of H&M Mexico, says

of 2017, respectively. Given that trust is increasing among

retailers in the Mexican market will not face the same fate as

Mexican shoppers, retailers have no option but to set up

long as they can effectively bond with consumers. “Global

an omnichannel strategy that allows them to participate in

consumers want a company they can relate to and believe

different consumption opportunities.

in.” This bond also entails celebrating local culture through stores. “To relate to the Mexican consumer, we have tried

Carlos Arroyo, Senior Vice President and COO of Walmart

to celebrate the local culture and local flare.”

de México y Centro América, says the most important asset for consumers is time, which is why e-commerce is

The focus on Mexican elements to create a bond with

becoming more popular in the country. While that may be,

customers obeys to a change in patterns of consumption.

Lackner is certain that H&M’s e-commerce channel will not

“For a couple of years now, there has been a growing

surpass the performance of the company’s physical stores

interest in locally made products. Before, everything that

anytime soon. This does not mean that retailers should not

came from abroad was perfect. However, we have been

put stock in customer experience through digital mediums.

seeing that more and more people appreciate Mexican

“Each customer has different expectations regarding

products, due to a sense of pride for what this beautiful

their omnichannel experience,” says Lackner. “For us, it is

country has to offer,” says Ralph Simmons, CEO of Tane.

important to have the same commercial message online and at our stores.”

Even though malls and stores in the country have not experienced the same decline in visitors as those in other

Medina believes that even though e-commerce is here to

countries, Lackner says retailers must also play their

stay and that it has revolutionized retail dynamics, it is not

part to maintain a healthy influx of visitors. This means

a panacea. “I believe e-commerce is overrated; rather than

generating spaces that put the customer first and have

being the ultimate commercialization platform, it is just

a product offering that addresses the needs of different

another one.” Simmons sees e-commerce as a tool to reach

customer groups. Medina adds that finding products for

more consumers and to boost the number of customers

Tequila display, Casa Dragones

that visit the physical store. However, he says it will not be

of households across the country and the favorability of

able to replace the experience of going to the store, given

the current environment for the purchase and acquisition

the luxury component of his brand. “We do not expect our

of goods and services.

e-commerce platform to become our No. 1 store but we are confident that it will perform well as part of the company’s

Other data also point to a positive landscape. According

omnichannel strategy.”

to the National Association of Department and Self-service Stores (ANTAD), retailing GDP is growing above the

OPTIMISTIC CONSUMERS

national GDP average. In 2018, the country’s GDP increased

Ultimately, it is the consumer who will dictate retail success

2 percent, while wholesale trade GDP grew 2.4 percent and

and the data suggests that Mexicans are in an optimistic

retail trade GDP rose 3.8 percent. ANTAD, which has 59,000

mood. The February 2019 National Confidence Index

stores, including self-service, department and specialized

registered a 42.1 percent increase from the year-ago period,

stores, among its associates, reports that in 2018, overall

while posting a 5.9 percent rise on the month before. The

trade activities accounted for 19.9 percent of the country’s

National Consumption Index for February 2019 also posted

GDP. Moreover, ANTAD’s total sales registered an 8.5

a year-on-year gain of 52.4 percent in households’ openness

percent increase in that same year, totaling MX$1.8 billion

to acquiring durable goods, such as furniture and home

(US$94 million), with department-store sales experiencing

appliances.

the largest growth at 10.5 percent.

INEGI’s data on private consumption analyzes the evolution

Retail also has an important impact on job creation. Of the

of spending on goods and services. Private consumption

23.5 million people in the formal economy, around 4.04

is the most significant variable for analyzing aggregate

million work in retail. ANTAD estimates that the opening

demand. The National Confidence Index measures the

of a self-service store boosts job creation by 134 percent

perception of the current and expected economic situation

over a six-year period.

| INFOGRAPHIC

WHERE DOES THE MONEY GO? Private consumption has been one of the most stable

performance of the retail sector. Consumption provides an

economic pillars. Despite changes in variables such as

insight into consumer confidence and with the arrival of

the exchange rate between the Mexican peso and the

President AMLO, this indicator has soared. The sector is now

US dollar and inflation, consumption levels in the country

waiting to see whether this increased confidence will translate

have remained stable and continue supporting the positive

to more sales that could boost the country’s internal market.

HOW MANY STORES ARE IN MEXICO?

IMPORTANCE OF RETAIL IN THE MEXICAN ECONOMY • In 2017, retail activities contributed to 19.8 percent of the GDP

100

• ANTAD (National Association of Self-

CHAINS

STANDALONE STORES

55.24% Specialized 31.43% Self-service 13.33% Department

86.3% Specialized 9.36% Self-service 4.33% Department

service and Department Stores) contribute to 3.7 percent of the GDP • Informal commerce is estimated to represent about 12.1 percent of the GDP

58,777 stores are registered with ANTAD

WHAT ARE WE BUYING? (MX$ million) 1000

7.7% Supermarket goods

400 200 0

8.6%

11.4%

Other

600

Clothes & shoes

800

2018 growth year-on-year (%) INEGI'S NATIONAL CONSUMER CONFIDENCE INDICATOR (March 2018-March 2019) 50

48.8

45 42.1

42.2

41.9

41.5

40 35

35.8

36.1

May 2018

41.2

April 2018

47.6

43.8

36.5

March 2019

February 2019

January 2019

December 2018

November 2018

October 2018

September 2018

August 2018

July 2018

June 2018

March 2018

COMPONENTS OF INEGI'S NATIONAL CONSUMER CONFIDENCE INDICATOR 58.4

19.6

10 0

Current economic situation of family members compared to 12 months ago

Expected economic situation of family members in the next 12 months

Current economic situation of the country compared to 12 months ago

27.6

34.7

28.2

30 20

March 2018 March 2019

43.7

48.7

43.6 49.4

59.4

Expected economic situation of the country in the next 12 months

Current possibilities of family members to acquire consumer durable goods

*Estimate

4.5

4.44

4.38*

4.16

4.0

3.84

3.17

19.3

10.3%

101

9.7%

15 7.8%

13.3

20 18.7

——Sales growth % in ANTAD's total stores ——Inflation Average US-Peso exchange rate

15.8

3.0

The three sectors that generate the most sales in retail are: Self‑service stores, engine vehicles, grocery and convenience stores

3.4

3.5

THE PRICE OF THINGS

——MX$ billion

12.8

HOW ARE RETAIL SALES EVOLVING?

5.0

8.5% 10

6.77%

5.1%

5.2%

3.97%

4.08%

4.83% 3.36%

2.13% 2

2013

2014

2015

2016

2017

2018

WHAT ARE WE BUYING ONLINE? Item

Percentage

Fashion Items (Clothes, Shoes and Accesories)

77%

Food Delivery

67%

Electronics (Computers, cameras, cellphones)

65%

Home Furniture

63%

Videogames & Toys

60%

Service

In 2018, 38 percent of buyers acquired a product or service online per week. On 2017, the rate was at 7 percent

Percentage

Subscription services (Movies, TV Series, Music)

77%

DELIVERY SERVICES: HOW DO WE RECEIVE OUR PURCHASES?

Online Banking

77%

Type

Entertainment (Movie Tickets, Concerts, Shows)

76%

Home delivery after online payment

84%

Mobile Communications

70%

Home delivery with payment at delivery

23%

Digital Content (Books and Music Download)

66%

Collection at distribution centers

23%

Collection at stores

20%

DIRECT JOBS IN THE RETAIL SECTOR (2017)

In 2017, the retail sector employed 868,238 people

Percentage

48.2%

Self-service stores

25.6%

Department stores

26.3%

Specialized stores Sources: ANTAD, INEGI, Mexican Association of Online Sales

| VIEW FROM THE TOP

BEYOND E-COMMERCE, RETAIL DEMANDS OMNICHANNEL APPROACH CARLOS ARROYO Senior Vice President and COO of Walmart de México y Centroamérica (Walmex)

102

Q: How do Walmart’s operations in Mexico and Central

Our company’s mission has evolved. While before our goal

America add to the company’s global strategy?

was to be the most trusted retailer in Mexico, now the

A: Walmart’s operations in Mexico are the second-largest

target is to be the most trusted omnichannel proposal for

globally after Walmart US. The first Sam’s Club opened

the Mexican and Central American consumer. We are fully

in Mexico City in 1991 and from that point on, we were

aware that customers want to save not only money but time

highly interested in expanding our operations in the

and to be able to acquire every product through different

country as we recognized significant opportunities. The

channels as easily as possible. This is a significant challenge

company expanded significantly and in 2010, Walmart

as it requires us to develop many new capabilities to be a

Mexico (Walmex) acquired operations in Central America.

step ahead of our customers’ expectations.

Walmex now has more than 2,400 stores in Mexico and an additional 821 in five countries in Central America:

Q: How are Walmex’s practices evolving to become a

Honduras, Nicaragua, El Salvador, Guatemala and Costa

leader in the omnichannel sales business model?

Rica. We are highly committed to bringing our low-price

A: Being an omnichannel retailer means much more than

offering to populations that may be too far away from major

mixing physical stores and e-commerce. Our renovated

cities for customers to travel back and forth.

model allows customers to order online and pick up at the store. It also enables them to use a kiosk to order a

Walmart has over 2,400 stores in Mexico, plus 821 in Central America

product that a particular store does not have in store, pay

At the end of 2014, Walmex set itself the mission to double

Customer needs change all the time but their most valued

its operations in Mexico in the next 10 years, which would

resource is time. If we want to optimize their time, we have

require annual growth of 7 percent minimum. Our offices

to make the best use of our own. For instance, we are now

in Mexico have capitalized on the best practices that

implementing a system that provides store managers with

Walmart offices have implemented in the US, China and

the technological tools to perform all their duties at the

Japan. From 2014 to 2018, Walmex achieved a CAGR rate

front of the store, avoiding the need to visit the store’s

of 10 percent.

warehouses. Previously, store managers were constantly

for it at the counter and receive it at home or pick it up at the same store. Our stores in Mexico are going through our omnichannel transformation, which is leading to daily growth in the number of customers we serve.

going around the store to collect data for reports. Now, Q: How would you describe the evolution of private

this process is done automatically through eight apps that

consumption trends in Mexico?

they can install on their phone. This reduces downtime and

A: Consumer behavior is changing fast and close

allows us to provide better customer service. In 2018, we

monitoring allows us to discover trends not just year

saved 7 million hours of unproductive time as we moved

after year but month after month. Fifteen years ago, our

personnel from the back to the front of the store and

main priority was to offer our customers a broad range

allowed them to treat customers directly.

of products that allowed them to find everything they might need under a single roof and at the best price.

Q: What steps were necessary to turn Walmart into an

Our communication with customers focused on supply,

omnichannel retailer?

availability and price. Now, these three points have

A: This omnichannel proposal would not have been possible

become much more sophisticated due to technology,

without an evolution in our internal operations. We have

creativity and innovation.

implemented much more than an e-commerce platform;

the whole company has evolved to surpass our customers’ expectations. The omnichannel approach used at our store in Toreo is now being replicated in other stores and we closed 2018 with over 113 Walmart Supercenter stores with a sales kiosk and 308 warehouse kiosks, which equated to opening 14 more stores. Our Mexican clientele has been extremely welcoming to this model as it saves time and allows customers to buy whenever they want and in whatever way they prefer. Our business is one of innovation, technology, productivity and creativity. Walmex also manages Sam’s Club, Superama and Bodega Aurrera. At first, we thought Bodega Aurrera was not

103

ready for our e-commerce platforms but we were wrong. The Mexican consumer is evolving at an accelerated pace and is increasingly looking for a sophisticated proposal for their retail needs. A self-service approach is no longer enough. Q: How is Walmart’s investment in logistics supporting Walmart pickup area

your omnichannel goal? A: In 2016, we announced a US$1.3 billion investment in our logistics network in Mexico, given the opportunities to open many more stores in the country. This investment allows

Walmart’s strategy rests on five strategic pillars. The first

us to improve our operations and ensure availability of all

is traffic because the only way for a company to have

products in all communities in Mexico. We have not stopped

sustainable growth is through traffic increase. The second

our investment in the country and we have invested an

is our omnichannel proposal, which puts us one step ahead

additional US$500 million since then. These distribution

of our customers’ expectations. The third is productivity; we

centers are essential to guarantee an excellent customer

must identify all activities that do not provide added value

experience and provide them with fast delivery. We want to

and update them to be closer to our customers at all times.

provide customers with a frictionless experience.

The fourth is our people. We are strongly committed to our workforce; 240,000 families in Mexico and Central America

We are opening two more high-speed distribution centers

depend on us as sources of employment. Our last pillar is

in 2019 in Monterrey and Guadalajara that will cater to

agility. Due to the size of our stores, agility is essential to

e-commerce customers. We are also developing three more

ensure that our operations are fast, efficient and effective.

distribution centers in Villahermosa, Merida and Chihuahua, which will support our physical stores and allow us to open

Q: What are Walmex’s growth expectations for the retail

more. Our goal is to become the best omnichannel provider,

sector and what growth opportunities has the company

which requires investments in physical stores, e-commerce

identified in Mexico?

and in distribution centers.

A: We will continue with the mission we defined in 2014, which is to double our operations by 2024. This is a great

Q: What best practices is Walmex taking from its

moment to work at Walmex, as stores are growing thanks

international counterparts?

to the loyalty of our customers. Walmart has a bright future

A: Mexico and Central America are not just importing best

in Mexico and will continue investing in the country. In 2019,

practices; they are also exporting them. I am proud of what

we will invest MX$20 billion (US$1.03 billion) in Mexico and

the region exports to the world. For instance, Costa Rica has

Central America in existing stores, new stores, logistics,

excellent technology and systems developers, which would

e-commerce, technology and upstreaming our “fresh”

benefit any operation in the world. Mexico is spearheading

strategy to ensure we deliver quality produce.

a transformation process for Walmart worldwide, which means our offices are constantly visited by representatives from around the world. Putting the customer at the center

Walmart is a multinational retailer and the largest company

of all decisions helped us realize that marketing cannot be

in the world by revenue, according to Forbes. The retailer is

separated from sales or operations. For that reason, we are

present in 27 countries and operates in Mexico and Central

integrating all systems.

America under the name Walmex

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INSIGHT |

SMOOTH LOGISTICS ENSURE SUCCESS FOR ASIAN RETAILER CÉSAR MEDINA CMO of Miniso Mexico and LATAM

Any retailer with strong financial muscle can generate an

Although the logistics component is vital to ensure success,

aggressive strategy for physical expansion but the real

Medina says that other elements have contributed to

challenge lies in generating the needed logistics to support

Miniso’s positioning in the country. “From an economic

the business operations of all the stores opened, says César

perspective, Miniso’s business is based on selling products

Medina, CMO of Miniso Mexico and LATAM. “Miniso’s success

with a small profit margin but in large volumes.” From a

as a retailer is partly based on its ability to sort out the

creative point of view, the brand has created a strategy

logistics challenge that every company in this area faces.”

based on “smart consumption,” which entails selling highquality products at affordable prices. Highlighting the price

Miniso, a Japanese-Chinese retailer that has gained

variable has been part of Miniso’s international marketing

recognition for its quick expansion and its assortment of

strategy but Medina says that in Mexico, the company has

daily products at affordable prices, entered the Mexican

chosen to focus on Miniso’s other qualities, leaving price as

market in December 2016. “In less than two years, we have

the last added value in the equation. “In Mexico, we decided

opened 110 stores. In Mexico, we opened on average three

to present a more aspirational Miniso, stressing the design

stores per week during a particularly intense expansion

and quality of our products. As a result, performance of

cycle. In other countries, we open between one and two

Miniso’s boutiques are based on customer experience rather

stores per month,” says Medina.

than on the advertising of prices.”

Although Miniso’s growth in the Mexican market set a

As part of the customer experience that Miniso creates,

milestone in terms of international expansion, Medina says

Medina says that stores are organized following ordered

that sorting out the logistics was the key to the company’s

patterns of accommodation based on repetition, balance

successful growth. “Miniso’s logistics expansion is

and sales psychology. “We have designed a concept of self-

impressive. We reached a point where there was no logistics

service and accommodation that balances the store and

company in the country that could support on its own the

gives users the sense that the store is not saturated, despite

number of operations we required.” To solve this problem,

having over 2,500 Stock Keeping Units (SKUs) on display.”

Miniso took logistics into its own hands. “When we started to accelerate our growth, the company began constructing

In many parts of the world, e-commerce is leading a retailer

its own factories and warehouses to reduce operational

transformation. Medina says the brand is not against

logistics costs.” Its first warehouse in Brazil was supposed

transforming its business model but it will not abandon it

to feed operations across the continent. However, growth

for the sake of doing e-commerce. “I believe e-commerce is

in Mexico forced Miniso to open a warehouse in the country

overrated; rather than being the ultimate commercialization

to support local operations.

platform, it is just another one.” Particularly in Latin America, Medina says conventional retail continues to

“China centralized the logistics operation, creating its own

maintain a social component rather than being a simple

distribution channels, and started shipping containers at

commercial operation. “In Latin America in general, we go

the same speed that products were being manufactured.

to malls to socialize and for family entertainment.” Still,

In Mexico, all the products that are sold arrive at a Mexican

Medina says the brand and its stores are evolving toward

port and then are taken to our warehouse, from where they

more digital concepts. “We are changing to deliver more

are then redistributed to stores across the country,” Medina

digital experiences in our stores that help consumers relate

says. Operations in Mexico have grown in such capacity that

Miniso’s products to their everyday life.” He adds that

Miniso has had to change its warehouse on four occasions

Miniso will venture into e-commerce when it is ready. “We

and is now in the process of opening a second storage

needed to figure out the details and logistics for the current

facility in Cancun to stock stores in the south.

business model before venturing into another.”

105

| INSIGHT

MEXICAN FLAVOR BOOSTS CUSTOMER ATTRACTION, RETENTION JOHN LACKNER Country Sales Manager of H&M Mexico

106

The rise of online shopping has caused a decline in traffic

City will boost the company’s relationship with Mexican

at brick-and-mortar stores in Europe and the US, but the

culture by providing not only a fashion offering but

Mexican market remains an enticing destination for global

also a space to showcase Mexican art. “The store will

retailers that know how to bond with consumers, says John

celebrate up-and-coming Mexican artists,” says Lackner.

Lackner, Country Sales Manager of H&M Mexico. “Global

“H&M’s global campaign for 2020 will transform the way

consumers want a company they can relate to and believe

customers view our store. Instead of a cookie-cutter

in,” says Lackner. “To relate to the Mexican consumer, we

model, the idea is for the space to feel like a part of the

have tried to celebrate the local culture and local flare,

neighborhood.”

creating mutual respect between the country and H&M.” Store openings and a rapid expansion might have driven H&M, the world’s second-largest retailer, entered Mexico

H&M’s success in Mexico but the company is not blind to

in 2012. Since 2016, it has experienced significant growth,

the reality of digitalization. To that end, it is launching

opening on average 10 stores per year. Although this might

an online store in 2019. Although this is an exciting

seem an aggressive expansion strategy, Lackner says it

venture, Lackner adds, H&M also understands that the

makes sense given the potential of the Mexican market.

online market in the country is smaller when compared

“Growing too fast can cause strain in the organization but

to other international regions. Regardless, the company

we believe our development in Mexico is sustainable,” he

will maintain its focus on the customer, just as it does at

says. With 47 stores throughout the country and seven

its brick-and-mortar stores.

more planned for 2019, Lackner says the company’s expansion is rooted in the country’s improved commercial

Online interaction between the brand and the customer

infrastructure. “We are working with all major developers

might not appear to be as direct but Lackner says the

to sustain our growth and to complement their portfolio,”

company is taking significant steps to make the online

he says. “We drive traffic to any shopping mall where we

shopping experience as seamless as possible. “Each client

are present, which provides a mutual benefit to H&M and

has different expectations regarding their omnichannel

its lessors.”

experience,” he says. “For us, it is important to have the same commercial message online and at our stores.” H&M

Mexico has not experienced the same traffic drop at

is applying that same strategy in its marketing efforts,

shopping malls as other regions, mainly because visiting

using both traditional and digital channels to reach the

these is still considered a family activity. As a result, the

customer with a unified message. “We need billboards to

company has made it a priority to implement full concept

communicate with some customers,” says Lackner. “We

stores with enough space to put the customer first. For

also understand that young people always have their

H&M, this means having a fashion offering that addresses

phone at hand, so we have created a blend of marketing

the needs of different customer groups depending on the

strategies for the country.”

store’s location. Sustainability has also become a key element for H&M. H&M has also made a significant effort to blend into the

The company has engaged in a number of initiatives

Mexican culture by celebrating the country’s singularities.

that include the use of recycled fabrics and 100 percent

“We want people to know that H&M celebrates the local

organic cotton to minimize its environmental impact.

culture and that our fashion is for everyone, which is why

“To be leaders in fashion we also need to be leaders in

we launch campaigns using local models and people

sustainability,” says Lackner. “We want to raise awareness

with different body types and genders,” says Lackner.

regarding our sustainability initiatives and share them

H&M’s future flagship store on Masaryk Avenue in Mexico

with our customers to truly be a better company.”

INSIGHT |

QUEST FOR GROWTH IN AN ASPIRATIONAL FIELD ERIC FORTUNE CEO of Decathlon Mexico

The limited offering of equipment brands and their high price

market will generate over the next 10 years. Decathlon also

tags has made sports an aspirational activity for a big segment

decided to introduce its entire portfolio, including equipment

of the Mexican population. However, there is an opportunity

for over 100 sports, an advantage over other international

to welcome more people into a healthier lifestyle, according

retailers, Fortune adds. “Mexicans practice all kinds of sports

to Eric Fortune, CEO of Decathlon in Mexico. “Just as H&M

but sometimes the necessary equipment is not available in

and Zara have worked toward democratizing fashion, we are

the country; as a result, users must look for other options in

democratizing sports and gradually expanding our client base

the US or Europe.”

and the population segments we target,” says Fortune. “We started targeting A, B and C+ segments but now we can even

Fortune also believes that Decathlon’s empowering business

target C- clients.”

model gives it an upper hand in sports retail. Clients can test any product before buying it, which means they do not solely

French designer, manufacturer and distributor of sports

rely on the opinion of salespeople. However, the company

equipment Decathlon made its way to the Americas after

made sure to include athletes in its sales force to create

conquering the European and Asian markets. The company

empathy and a relationship of trust with buyers. This also gives

arrived in Brazil over 15 years ago and eventually recognized

Decathlon a direct insight into what athletes think about its

the existing opportunity in other Latin American countries. In

products. “Our collaborators have complete freedom to stop

2016, the company entered Mexico following a global strategy

selling something if they are not pleased with its results and

established by corporate CEO Michel Aballea to strengthen

they can share that feedback with our product managers,”

Decathlon’s international presence, consolidating the markets

says Fortune. “Our main KPI is our users’ satisfaction, which

where the company already had operations and entering

is reflected in our service and warranty policies. We offer two-

countries with potential for growth.

year warranties for all our products and lifetime warranties for bicycle frames.”

Decathlon rates a country’s attractiveness on the popularity of sports in the country, how developed its sports infrastructure

To deliver on its promise of democratizing sports, Decathlon

is and how easy it is to do business. Mexico was among the

also made sure its distribution model allowed for prices to

company’s preferred destinations based on these standards

remain affordable. The company chose to build standalone

and in 2014, the company began developing a strategy to

stores rather than placing them in shopping malls to avoid

tackle the market and add value to its sports scene. “We want

passing on leasing costs to customers. “Real-estate prices

to become an active participant in the population’s well-being

in such facilities do not allow us to maintain an affordable

and a promotor of good health, boosting sports practices

approach and the available space generally does not allow

and lobbying the government for the development of sports

us to comfortably display our offering in 100 sports,”

infrastructure and nutritional programs,” says Fortune.

says Fortune.

The company opened its pilot store in Queretaro with

Having said that, the company does see these spaces as an

fewer products than what it offers in Europe. “We opened

opportunity to grow its operations, particularly in Mexico City,

with a reduced offer but it was a wise decision that helped

and even to contribute to their development. “Our stores

us to adapt better to the market and to the needs of our

themselves attract customers and do not need to ride on

users,” says Fortune. Based on the positive response from

the popularity of other retailers or services,” says Fortune.

the Mexican public, Decathlon built a development strategy

“In the countries where we do have operations in shopping

for the country’s main cities. The company wants to have

malls, our presence has helped to draw traffic to the mall and

20 stores in Mexico by the end of 2020 to capitalize on the

not vice versa, which is part of the added value we can offer

US$5 billion opportunity that Fortune expects the sports

as a company.”

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| INSIGHT

TRADITION, INNOVATION MERGE AT CLIENT RELATIONSHIPS FERNANDO SILVA President of Best Buy Mexico

108

Braving the e-commerce era is all about evolving alongside

Silva credits these initiatives for making Best Buy the No. 1

clients and technology, says Fernando Silva, President of

and top-of-mind technology retailer in Mexico, even though

Best Buy Mexico. After years of sustainable growth in the

it is the youngest electronics retailer in the country. The good

US and Canada, the multinational consumer electronics

relationship it has developed with its clients has allowed the

“

retailer is adapting its business model to the needs of the

company to grow. “Our best advocates are those who buy

Mexican market.

their electronics from us. Over 90 percent of our clients are

Mexico is our newest operation and the fastest growing for Best Buy. The country is a pillar for growth in the Best Buy 2020 strategy”

returning customers and many of the new ones come through word of mouth. People trust their friends and family a lot more than they trust a brand.” The country’s growing middle class and increasing access to Wi-Fi have also been key for the company’s growth, according to Silva, because customers are increasingly interested in owning electronics and in buying online and through their phones. Best Buy Mexico has bet on a service that mixes both digital and physical sales to address the needs of the Mexican market. “We do not think of the physical world and the digital

“We are opening distinct store formats in Mexico because the

world as different. To us, they are integrated. Merging the two

country is different than our other markets. We are one of the

has allowed us to be successful.”

largest electronics retailers in the world and have a very big operation in Canada and the US,” says Silva. While Best Buy

While customers north of the border are increasingly

has more than 1,200 stores distributed in Mexico, Canada and

shunning traditional retail for e-commerce, this is not the case

the US and made US$42.15 billion in revenue in FY19, Silva says

in Mexico. “Mexicans like to go to malls for entertainment,

the multinational retailer is increasingly paying attention to

especially families, so our stores need to be fun. We often

the Latin American country. “Mexico is our newest operation

see children pulling their parents into the store. We want

and the fastest growing for Best Buy. The country is a pillar

to expand this experience to every segment of the market.

for growth in the Best Buy 2020 strategy.”

People aspire to have a different shopping experience and we are providing that to the Mexican consumer.” The retailer

By the end of FY19, the company had 35 Best Buy and six

wants to get even closer to its Mexican customers, which

Best Buy Express stores in Mexico, along with an e-commerce

is the point of opening Best Buy Express stores, Silva says.

service. Before coming to Mexico, Best Buy’s business model

These stores have an average area of 300m2 but offer

required a representative handle all interactions clients had

the complete Best Buy experience: in-store and online

with the products. The company decided to change this

purchasing, or in-store pickup after placing an order online.

model in Mexico, allowing customers to directly interact with

“We offer a multichannel approach and we are the only ones

all products, giving them access to unbiased information. Best

in the market to offer pickup at stores 60 minutes after the

Buy Mexico also went to great lengths to build trust among

sale is completed online.”

its client base and improve customer relations. “Services are a key differentiator and we do not work on commissions. Our

Best Buy sees a positive future in Mexico. “Best Buy will

sales representatives have a mission to be unbiased informers

continue growing in Mexico and in 2019, we will open

for our clients. We invest a great deal in the training of our

approximately eight more stores. We will also continue

associates so they can help clients make the best decisions

providing excellent services, enriching people’s lives through

for themselves.”

technology,” says Silva.

VIEW FROM THE TOP |

BETTER EYESIGHT CLEARS PATH TO PRODUCTIVITY PATRICK DEVLYN Director General of Grupo Devlyn

Q: How do you expect operations to change now that the

from greater productivity and fewer mistakes. The cost of

Devlyn family has repurchased the company?

frame or contact lenses is minimal when compared to the

A: The repurchase was the result of a cycle coming to an

productivity and engagement benefits that people can get

end with our partner investment fund. We merged with this

from them. Moreover, lenses can also contribute to reducing

fund to strengthen our position and serve the market more

public problems such as road accidents.

competitively. Our goal now is to consolidate the company with a medium and long-term vision focused on our brands:

Q: What recommendations would Grupo Devlyn make to

Devlyn Optics, Optimart, ClĂnicas, Vetro and Poyssa. We

the government to properly address eye health?

also want to strengthen ties with our business partners in

A: If the government, companies and the ophthalmological

department stores and with international brands like Ray-

and optical sectors work together, there can be a favorable

Ban, Vogue, Carrera, Lacoste and Carolina Herrera.

and almost immediate impact on society. At Grupo Devlyn, we believe eye health should be a priority in the national

Q: How is Devlyn approaching its goal of modernization?

healthcare plan and we can and are willing to collaborate

A: Besides strengthening our business relationships, our

with the government to ensure spending on eye health

strategy is focused on better customer service. However,

results in a cost-efficient investment.

the priority is not to open more stores but to improve how existing venues serve customers. What got us to where

Q: What strategies is Grupo Devlyn implementing to

we are now will not keep us there because consumers are

compete against retail giants like Amazon?

not the same as they were 15 years ago. Both the market

A: Competition can come from different sectors, which

and the consumer have evolved, creating new challenges.

means we must be aware of what companies like Amazon

Grupo Devlyn must modernize its service by bringing clients

and Walmart are doing. Our first priority is to make sure we

closer to our opticians to provide quality ophthalmological

know our customers better than anyone else, while prioritizing

exams, access to the best products and proper eye care.

quality and service through a personalized experience.

Grupo Devlyn will operate through an omnichannel

Innovation is another key element in our differentiation

communications system, allowing clients to contact our

strategy. We create new experiences for the client by

stores in the way that best suits them.

employing innovative technologies and new distribution channels that make it easier for our customers to contact us.

Q: According to the World Economic Forum, sight problems should be considered a public health matter

Q: What role do you want Grupo Devlyn to play in the retail

because of their impact on productivity. What is Grupo

sector in Mexico?

Devlynâ&#x20AC;&#x2122;s perspective?

A: Grupo Devlynâ&#x20AC;&#x2122;s priority for 2019 is to better serve its

A: In collaboration with the CCE and other partners

customers and business partners in all segments where

like CANIFARMA, Funsalud and the Mexican Hospital

it participates. Secondly, we want to work more quickly

Consortium, Grupo Devlyn can strengthen public policies

in bringing together the elements and strategies that

geared toward prevention. Approximately 80 percent of all

will exponentially improve our brand positioning and

cases of treatable blindness globally can be resolved with

presence in the market.

a pair of glasses. Therefore, a public health issue becomes solvable through a pair of well-graduated and affordable glasses, creating a significant impact on various segments of

Grupo Devlyn is the largest optical group in Mexico. The

society. With children or young people, better sight translates

company specializes in optometric and ophthalmic solutions and

to improved school performance and greater engagement in

wholesales optical products. It has over 1,000 optical stories in

education. Meanwhile, people already working can benefit

Latin America, plus six regional laboratories and 84 in-shop labs

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| VIEW FROM THE TOP

TECHNOLOGY OFFERS MANY OPPORTUNITIES FOR PHARMACIES GUILLERMO MARTORELL President of Grupo RFP

110

Q: What collaborations does Grupo RFP have in the Mexican

connecting all the agents in the value chain. Our platform

health sector and how do this support the pharmaceutical

will include a communication space between the laboratory,

industry’s development?

the distributor, the point of sale, the hospitals and the

A: Our pharmacies work in two ways: the first is counter sales

medical network until the medicine reaches the patient.

to the general public and the second is through institutional

This symbolizes a very important advance for the group’s

sales. Grupo RFP wants to be more efficient through digital

pharmacies because it opens a more competitive panorama.

development. Traditionally, medical prescriptions are very bureaucratic and have delayed processes. We want to

Q: What are the advantages and drawbacks of using

simplify this communication between us and our customers

technologies for pharmacies?

through a digital platform that connects all players in

A: One of the main limitations is the existing idea that physical

the value chain. Grupo RFP believes that the inclusion

stores could disappear because of technology. However,

of technological tools in its operations can be the key to

at Grupo RFP, we believe that technology can generate a

strengthening areas such as pharmacovigilance, fraud-

positive change. This change will result in greater access to

risk reduction, better traceability of medicines and easier

quality care at more accessible prices. The transformation

communication with laboratories, distributors, and suppliers.

of pharmacies democratizes access to health.

Grupo RFP has 600 pharmacies and 5,000 employees across northwestern Mexico

Q: How does the patient-centric model impact pharmacies? A: Grupo RFP is in the process of changing its business model to deal more accurately with new consumers and the emerging needs of the market. The pharmacies that make up Grupo RFP are adopting a new approach that is compatible with the patient-centric model and are leaving

Q: What impact can the inclusion of technological tools

behind the traditional approach of only selling medicine. The

have on both Grupo RFP and the final customer?

group wants to invest in the professionalization of pharmacy

A: Technology offers many opportunities for the industries

personnel to offer differentiated services such as nutrition

that adopt them. For pharmacies, technology means

and dermatology. We want to transform the way patients

greater control over drugs and an improvement in

see pharmacies.

pharmacovigilance. The operational benefits are only one element because there are other benefits for the patient

Q: In recent years, COFEPRIS has increased the rigor of

and the pharmaceutical companies. Patients can improve

pharmacovigilance. How can pharmacies be part of this

treatment adherence with easier access to medicine.

initiative?

Technology also generates anonymous information that

A: Digitalization can help improve drug control. The main

helps pharmaceutical companies create market intelligence

problems with pharmacovigilance are medicine theft, the

strategies. Technology can offer opportunities that were not

falsification of medicines and the theft of prescription drugs.

possible before. Grupo RFP wants to promote a relationship

Including technology in the pharmacovigilance process

between technology and pharmaceutical products by

can increase the traceability of medicines. Through these mechanisms, pharmacies can guarantee the products that arrive to a patient’s hands are original, safe, accessible

Grupo Regional de Farmacias Productivas (Grupo RFP)

and quality medicines. Grupo RFP’s platform plans to use

has more than 600 pharmacies and over 5,000 employees

technology to validate prescriptions and medications and

in cities such as Colima, Morelia, Guanajuato, Campeche,

to analyze the traceability of the medications purchased by

Veracruz, Puebla and Mexico City

the group.

VIEW FROM THE TOP |

NORTHERN PHARMACY CHAIN EXPANDS THROUGH MEXICO MACEDONIO GARZA Director General of Farmacias Benavides

Q: When Farmacias Benavides turned 100, it established

clients of our loyalty program Beneficio Inteligente (Smart

the goal of launching 100 locations per year. What is the

Benefit). This platform allows us to interact with millions of

status of this plan?

clients and offer them several promotions based on their

A: We are on track. Our focus is on markets where we are

buying profile. Our parent, Walgreens Boots Alliance (WBA),

already present but lack the necessary coverage, mainly in

fills one prescription from a mobile device every second.

the central region of Mexico. After 100 years, our clients

Beyond digital, Walgreens has a track record of innovation,

recognize our expertise in the sector. Over that time, we

trust and care along with deep roots in the community.

have cultivated our connection with our clients through the training our employees undergo. The most important factor

WBA has pioneered newsworthy healthcare innovations,

for pharmacy is that its clients feel safe with the service

mostly in the US but also elsewhere. For example, Boots

provided by our employees. Pharmacy customers also

in the UK has a service called “Medisure,” which provides

value product availability and the industry invests heavily

patients who have complex therapy needs with pre-packed

to maintain large inventories so prescriptions can be filled.

medicines delivered to their pharmacy or home. We have pioneered online pharmacy delivery services in Norway

Q: How are you using technology to improve the efficiency

with “Farmaka” and in the Netherlands with “SPITS.” These

of your distribution center, Centro de Eficiencia Logística?

services include pre-pack and unit dose dispensing. From

A: Our Centro de Eficiencia Logística in Monterrey functions

a customer point of view, Farmacias Benavides uses a mix

as a spearhead for our distribution strategy. This single

of digital platforms to interact with patients and customers

center has sufficient capacity to address our expansion

and our website lets Loyalty Program members check their

needs for the next few years. We are planning to install

balance, transactions and discounts.

a new warehouse management system to improve our distribution capabilities and to plan for future demand.

Q: How did the presence of doctors at the point of sale

This system will also permit efficient distribution to future

improve Farmacias Benavides market penetration?

pharmacies. Our logistics chain has 12 cross-docking centers

A: Our pharmacy doctors are pillars of our business goal,

distributed throughout the country that allow us to reach

which is to provide clients and patients integral solutions

places like Tijuana, Mexicali, Puerto Vallarta and Veracruz.

for their health and well-being. These doctors give patients the opportunity to acquire fast, trustworthy and easy-to-

Farmacias Benavides has also invested in the consolidation

access care. We have built a network of 620 doctor’s offices

of its drug distribution network through the implementation

with more than 900 certified doctors who are prepared

of processes that help predict demand. This allows us to

to treat any primary medical need. We offer general

guarantee the supply of the necessary products, especially

attention, weight and birth-control monitoring, blood

during seasons of high demand.

pressure and glucose tests, injections and verification of health certificates and we keep an electronic record of all

Q: What role will online platforms play in Farmacias

the patients we receive. The clinics provide only primary

Benavides’ future?

attention so if a patient needs a more specialized service

A: Farmacias Benavides itself does not have an online sales

they are channeled to the proper specialist.

platform but we do have a call center that clients can contact and from which they can receive products to their homes. We have a strong presence on social networks, including

Farmacias Benavides , with over 100 years of experience, is one

Facebook, where we have over 445,000 followers. We have

of the largest pharmacy chains in Mexico. The company was

over 9,000 followers on Twitter and 12,000 on Instagram.

acquired by Walgreens Boots Alliance in 2015 and has 1,218

Furthermore, we have a platform that allows us to interact with

points of sale in 24 states

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| VIEW FROM THE TOP

SUCCESS LIES IN CELEBRATING DIVERSITY RICARDO TRAVASSOS Director General of Coty México

112

Q: What role does Coty play in the beauty industry?

A: Mexico is a key market for Coty given the size of its

A: Coty is a world-leading beauty manufacturer of

population, its growing economy, the strong consumption

cosmetics, skincare, fragrances and hair coloring and styling

of beauty products and the country’s inherent growth

brands. Two years ago, we completed a transformational

potential. Our consumer beauty business has been

merger with Procter & Gamble (P&G) Beauty, making

growing at a fast pace quarter after quarter and gaining

Coty the third-largest beauty company in the world with

a bigger share in the most strategic segments. Thanks to

approximately US$9 billion in revenue. The company now

the hair color, color cosmetics and body care divisions,

holds the No. 1 position globally in fragrances, the No. 2

we have secured our place as the third-largest beauty

position in professional hair products and is No. 3 in color

player globally and are well-positioned to continue our

cosmetics. The company has over 20,000 colleagues

growth journey. In Mexico, we have a team of more than

around the world and more than 77 brands sold in over

700 colleagues and a strong and agile industrial footprint

150 countries organized under three divisions: consumer

that helps us to adapt to local needs.

beauty, professional beauty and luxury. Q: How does Coty México add value to its partners across Q: What makes Coty a leading player in the segments

the value chain?

where it participates?

A: After the merger with P&G Beauty, we engaged in

A: In creating the new Coty, we had an amazing opportunity

an incredibly complex transition, fully restructuring our

to redefine what beauty means to us and the impact we

strategic choices and plans, as well as our organization,

can have on society. We have chosen a bold and inspiring

supply, warehousing, logistics and IT to drive value and

purpose to celebrate and liberate beauty diversity. We

superior service to our customers. Our beauty portfolio

believe that the beauty of humanity lies in the individuality

includes leading brands such as Wella–Koleston, Covergirl,

of people and that beauty is at its best when authentic.

Adidas and Sally Hansen. Our added value goes from collecting consumer insights to developing disruptive

The new Coty culture is based on five values: Own it and

innovation, from wide distribution to perfect in-store

Drive It, Win for the Team, Live Beauty and Breath Beauty,

execution, from category vision and captaincies to tailor-

Be Brave and Go Beyond and Think Like a Startup. Despite

made category growth plans. We work hard to combine

our size, we maintain the mentality of a startup. We have also

global expertise with local insights and demand to create

developed a responsible growth strategy. We have partnered

strong business plans oriented to our final users. We

with Global Citizen, a disruptive NGO, to tackle the prejudice

are also investing heavily in consumer education both

and discrimination that prevents people from being able to

offline and online to foster the sustainable growth of our

express their true selves. This program is called “We Stand

business units.

for You” and focuses on those who face discrimination based on their gender, sexual orientation, disability or ethnicity.

Q: What are the emerging beauty trends in Mexico? A: Beauty industry consumers are no longer embracing

Q: What is Mexico’s role in Coty’s consumer

an either-or approach. Users now seek convenience of

beauty business?

purchase, repurchase and use, as well as personalized communication, products and services. They want variety of choice, playful experiences and purposeful brands that

Coty is a multinational beauty company founded in 1904 by

reflect social causes and they trust influencers and brands

François Coty. With its subsidiaries, it develops, manufactures

that are inspirational and authentic. Beauty routines

and distributes 77 brands of fragrances, cosmetics, skincare,

have also changed to combine premium products with

nailcare and both professional and retail hair care products

affordable options.

VIEW FROM THE TOP |

PROTECTING WHAT MATTERS MOST FELIPE SÁNCHEZ President of Assurant Mexico

Q: How do Assurant Mexico’s operations add value to the

standards. These companies are our clients and our strategic

company’s global activities?

partners. An interesting feature of the service we offer is that

A: Mexico plays a significant role in Assurant’s global

even though we are a B2B business, we deal directly with

business. The company has operations in 26 countries and

the client. Assurant is not a well-known brand to the public

in Latin America we operate in Mexico, Colombia, Peru, Chile,

because we sell through our clients’ brand, not our own.

Argentina, Brazil and Puerto Rico. We serve the needs of around 300 million clients around the world, of which 30

Q: How is Assurant reinventing its traditional business to

million are in Latin America. Along with Brazil and Argentina,

include new technologies in its operations?

Mexico is among the most important countries in the region.

A: We are always looking for new ways to offer and deliver our products. Assurant has invested around US$45 million in

Assurant has been in the country for 12 years and during this

startups that we think could change the way we work. For

time we have developed five business lines. The first is Global

example, we are investing in an application that will allow us

Automotive, an area that supplies the automotive industry.

to identify if a cell phone can be covered by insurance. This

Our Extended Service Contracts (ESC) division serves the

application targets the used cell phones market and can be

retail industry. The third business line is focused on mobile

used by any bank for its account holders. Users can create an

devices and offers theft or accidental damage insurance. One

account and then the application performs a calculation of the

of our best-known products is the Switch Up program for

capabilities of the mobile phone, such as camera, microphone,

Apple that, for a fee, allows users to change their smartphone

speakers, screen, battery, software and Bluetooth. After

whenever a new one comes out. Our fourth division is

completing the analysis, the app automatically sends a

Assistance and Financial Products, which offers insurance

price proposal and if it is accepted it sends the contract

for mortgages, car loans, unemployment and permanent

automatically. This is just an example of our innovations, which

disability. Our fifth business line is Property, which offers

focus on protecting what matters most to our customers.

coverage for home damages resulting from natural disasters. Q: Assurant focuses on five business niches. Where do you Q: What characteristics of the Mexican market have helped

see the greater potential for sustained growth?

Assurant grow its business in the country?

A: In the case of Global Automotive and ESC, we have a

A: In Mexico, there is not a great deal of awareness

significant leadership position. In the automotive market we

regarding the importance of protecting what we buy, either

work with 18 of the 31 brands that operate in Mexico, including

through an extended guarantee or an insurance policy. It

the top four automotive brands previously mentioned, and

is increasingly common to have car insurance but when it

in retail we also have a leadership position with clients like

comes to other assets, there is no insurance culture that

Home Depot and Sanborns. The clearest opportunity for

encourages people to purchase protection. This provides

growth is in our other three business lines, although there is

a huge growth opportunity for the company. Also, the

always room for growth in every area due to the existing lack

percentage of people who protect their purchases is very

of awareness about the need to protect what we buy. The

small, which also represents a large area for growth.

insurance industry in Mexico does not even reach 3 percent of national GDP, which means there is still much to do.

Assurant also strives to turn its customer service into a competitive advantage. We have important relationships with large retailers like Liverpool, Palacio de Hierro, Costco

Assurant Mexico is part of Assurant Inc., a leader in specialized

and in the automotive sector with automakers, including

insurance products and services in North America and other

Toyota, Nissan, General Motors and Volkswagen, all of which

international markets. The company is present in 26 countries

are companies that are very selective and have high-quality

and has over 300 million clients

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| VIEW FROM THE TOP

A CHALLENGING POSITION FOR GROWTH MICHAEL GINES Managing Director of Dacomsa

114

Q: What is Dacomsaâ&#x20AC;&#x2122;s strategy to cope with a growing and

manufacturing in 2019 but thanks to our success we

aging vehicle park?

accelerated our process.

A: The age of the vehicle park, far from being an obstacle, is an opportunity to grow our sales. The true challenge for

However, 2018 was so favorable mainly because of three

the aftermarket is to cater to the demands of such a large

factors: the presidential elections, the renegotiation of

and diverse vehicle park. In 1985, there were only 10 or 12

NAFTA and the six-month elimination of the vehicle

types of engines available in Mexico and now there are over

verification program. Although we cannot quantify it

600 models and versions to service. We have had to adapt

precisely, we think the fact that people did not have

our inventories to increase the number of SKUs available

to verify their cars had an impact on the purchase of

while decreasing the stock of each component.

spare components mainly for engines, which represents 55 percent of our total operation. Our performance in

Q: What impact have the scrappage scheme and the import

braking, which contributes 35 percent of our sales, and

of used-vehicles from the US had on Dacomsaâ&#x20AC;&#x2122;s operations?

powertrain, which represents the remaining 10 percent, is

A: The scrappage scheme for heavy vehicles has

still on track and growing, but our sales for engine parts

certainly affected the development of the aftermarket

remained flat in 2018 compared to 2017. That being said,

because most of the units destroyed required constant

our performance outside of Mexico has been successful

replacement components. Used-vehicle imports have

and we are growing significantly. Our priority right now is

presented a much more complicated situation. These cars

to consolidate our operations outside the country, defend

were imported normally after five years of use, which

our position as market leaders and ramp up production

means they were right at the stage where they needed

at our new site in Celaya.

repairs and maintenance. However, many of these models were not available in the Mexican park, which meant

Q: How have customers changed their mindset in favor of

there were no spare parts to meet demand. Now that

high-quality albeit costlier spare parts?

imports have been limited, we have noticed that states

A: Users understand that using quality parts like those

near the border have regularized their vehicle parks with

offered by Dacomsa guarantees their vehicle will remain

national models.

functional for 100,000km to 150,000km. That being said, purchasing power has decreased after the recent increase

Q: What have been Dacomsaâ&#x20AC;&#x2122;s recent results in terms of

in gasoline prices, which has forced clients to go back to

sales and what are your growth projections for the end

cheap, low-quality parts.

of the year? A: 2017 was a very successful year for Dacomsa, particularly

This is a worrisome situation and many distributors

in the braking market. Our results were strong enough for

have faced problems regarding payment collection

us to push our development plans ahead by two years and

but there is only so much we can do in this situation.

we are opening a new manufacturing center in Celaya to

Our strategy to showcase our advantages has been to

increase our brake pad production volume. Our original

contact shops directly and understand how we can help

plan was to start constructing this site in 2018 and begin

them solve recurrent problems. We have several training programs for mechanics that take place at their shops but we have also implemented training via Facebook Live

Dacomsa is a 100-percent Mexican company founded in 2003

and YouTube to avoid affecting schedules. Automotive

as the aftermarket distribution division of Grupo Kuo. The

components are becoming increasingly complex and

company manages several brands including Fritec, Moresa,

our role as a spare parts manufacturer is to help shops

TREMEC and TF Victor

understand these changes.

VIEW FROM THE TOP |

KEY STRATEGIES FOR A GROWING SEGMENT SERGIO ÁLVAREZ Commercial Director of Hankook Tire de México

Q: How did your operations evolve in the north of the

is the fourth element in this growth strategy. For Hankook

country after opening your distribution center in Monterrey?

to be successful, we need distribution partners that believe

A: We opened our first Hankook shop in Monterrey along

in the brand and that know how to showcase its advantages

with Grupo Raga and the goal is to open more by the end

when compared to commodity solutions. Finally, our people

of this year in Chihuahua, Jalisco, Colima, San Luis Potosi,

have been essential in building these relationships and

Yucatan, Queretaro and Mexico City. Although we already

incorporating new ideas into our organization.

are the top brand in Chihuahua, we are just building our brand in Monterrey and San Luis Potosi. The north and south

Q: How has the clients’ mindset changed in favor of quality

are two of our main priorities at the moment, considering

rather than price?

that we now have an established presence in Jalisco,

A: Clients have become much more active when deciding

Guanajuato, Queretaro, Michoacan, Coahuila, Hidalgo,

what tire fits their vehicle best. Normally, they go for the same

Puebla, Veracruz, the State of Mexico and Mexico City.

model the car had when they purchased it but our distributors have also been clever in showing clients the benefits they can

Q: How successful is your strategy to partner with

get from Hankook. Overall, clients are more curious and more

supermarkets for aftermarket operations?

informed about what type of tire they should use according

A: Our relationship with supermarkets has been critical

to the season and the speed range in which they drive. As a

in building our presence throughout the country. This is a

result, quality, safety and performance are trumping price as

much more price-driven market for commodity products

a priority in the consumer’s mind. The fact that companies

but we have also positioned our tires, mainly the Laufenn

are also working to reduce production costs and developing

brand. Our results have been positive and we expect our

more affordable brands within their lineup has also been key

sales in supermarkets to grow approximately 15 percent by

for users to be more attracted to quality products.

the end of 2018 compared to 2017. Q: How important is digitalization to Hankook’s strategy Q: What strategies have you implemented to grow your

in the aftermarket?

presence in a price-driven market like Mexico?

A: Thanks to our growing presence in original equipment,

A: Clients sometimes think tires are all black and round. That

our distribution network has steadily increased with our

is not the case and we have worked on five key elements to

Hankook Masters stores. Our goal is to have 30 Hankook

show the end consumer the advantages that Hankook can

Masters stores by the end of the year. However, demand is

offer. First, we pay close attention to the clients’ needs to

greater and younger generations are now looking for us

then offer product innovation based on those requirements.

online. According to our latest statistics, Hankook is the

South Korean culture is founded on innovation and we are

best-selling tire brand online in Mexico, practically doubling

introducing products to the Mexican market that can offer

the sales of our closest competitor. Today, between 30 and

an added value in terms of safety, comfort, sustainability and

32 percent of all tires sold digitally are Hankook, which

performance. We have also implemented warranties for our

equates to approximately 3 percent of our total sales. My

products as part of our differentiation strategy.

personal goal is to grow our digital operations to 10-12 percent of our total sales by the end of 2019.

Our third strategy is related to cost reduction, both in manufacturing and distribution operations, which is why we now have a total of three distribution centers located in

Hankook Tire is a South Korean tire manufacturer with corporate

Monterrey, Queretaro and Puebla. The latter is focused on the

presence in 30 countries and manufacturing facilities in eight

original equipment segment but the other two support the

of those. The company has close to 22,000 employees globally

development of our aftermarket distribution network, which

and a production capacity of 104 million units as of 2017

115

Tiguan production, Puebla

MANUFACTURING & LOGISTICS

Mexico has developed a strong manufacturing calling over the past five decades. This particular area of expertise has enabled the country to successfully insert itself in the global manufacturing dynamic, fueled by globalization and free trade. From the creation of a screw to the full assembly of vehicles, Mexico has become a world-class manufacturer for almost every product in the world.

Mexico’s standing as a manufacturing country relies heavily on its fortunate geographic positioning. Sharing a border with the US has prompted the development of shared manufacturing activities and the generation of professional logistics services that intrinsically connect Mexico with US industries. However, conditions are evolving. In this chapter, manufacturing and logistics companies explain how the implementation of AI solutions and Industry 4.0 are changing the face of the traditional manufacturing scheme and promise to boost Mexico’s position as a manufacturing powerhouse.

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CHAPTER 5: MANUFACTURING & LOGISTICS

120

ANALYSIS: External, Internal Factors Present Opportunities

121

VIEW FROM THE TOP: Antonio Tejedo, Traxión

122

VIEW FROM THE TOP: Guillermo Godoy, ConaLog

123

INSIGHT: Iker de Luisa, AMF

124

VIEW FROM THE TOP: Artur Bezerra, ONE Mexico

125

INSIGHT: Eduardo Porter, Agility Logistics México

126

VIEW FROM THE TOP: Marcos Sulkin, Promologistics

127

INSIGHT: Ricardo Rochman, WePort

128

VIEW FROM THE TOP: Peter Kroll, everis Mexico

129

VIEW FROM THE TOP: Karl McDermott, Morpheus.Network

130

VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation Mexico and Latin America

131

VIEW FROM THE TOP: Leonardo Romero, Helmut Fischer

132

VIEW FROM THE TOP: Luis Hernández, Caterpillar

133

VIEW FROM THE TOP: Jerzy Sasiada, WillScot Mexico

134

VIEW FROM THE TOP: Luis Antonio González, Concreto Polimérico Castor

135

VIEW FROM THE TOP: Carlos Sierra, Kuraray

136

VIEW FROM THE TOP: Jorge Plata, Argentum Textil

137

VIEW FROM THE TOP: Ricardo Ibarra, BIC LATAM

119

| ANALYSIS

EXTERNAL, INTERNAL FACTORS PRESENT OPPORTUNITIES With a booming industrial sector, Mexico is well on its way to becoming a manufacturing and logistics hub. However, internal and external factors threaten to cast a shadow over the sector’s development. Boosting investment in technology might help tip the scales for the local industry Headwinds for 2019 include the potential for local strikes, the

a young, large and well-qualified workforce, numerous

ratification of USMCA and the ongoing trade war between

trade agreements and an ideal location that serves as an

the US and China, according to INDEX. But challenges often

entry point to North and Latin America. The country also

open opportunities. At a news conference on Dec. 8, 2018,

offers investors a stable political environment, inflation

Luis Aguirre, President of INDEX, called for the return of

rates mostly contained to between 3 and 4 percent and a

tax exemptions on temporary imports and for a removal

large local customer base, all benefits for local and foreign

of the eight-year time limit on the shelter program, which

manufacturers operating in the country. Similarly, the

supports foreign companies starting operations in Mexico.

manufacturing sector is vital for the country, as it represents 30 percent of national GDP, according to the latest data

SERIOUS CONSIDERATIONS

from the World Bank. Deloitte’s Global Manufacturing

In January 2019, President López Obrador announced a plan

Competitiveness Index ranks Mexico eighth and projects

to stimulate the economy in the area close to the US border,

the country will climb to seventh by 2020.

which represented a total of 7.5 percent of the country’s GDP in 2018, according to Minister of Economy Graciela Márquez.

NAFTA was a key element in strengthening the country’s

López Obrador’s strategy would cut corporate and income

manufacturing muscle, as it facilitated imports and

taxes at the border from 30 percent to 20 percent. Moreover,

exports between Mexico and the US. According to INEGI,

it would double the existing minimum wage to a total of

the manufacturing industry represents 88.2 percent of

MX$176.2 (US$9.2) per day. The goal is to attract FDI and

all exports. In 2018, Mexico exported a total of US$280

strengthen the region’s manufacturing capabilities.

billion and this number is expected to increase by 5-7 percent in 2019, according to INDEX. As the US receives

Investment in technology is also key to fostering growth

almost 80 percent of Mexico’s exports, companies on

in the sector. The World Economic Forum, in its Future

both sides of the border held their breath during the

of Manufacturing report, credits globalization of the

NAFTA renegotiation that eventually led to USMCA. While

manufacturing ecosystem for driving prosperity for

the updated treaty does not impact most manufacturing

companies, countries and people, especially in emerging

sectors, it will play a role in the automotive industries of

economies. PwC’s survey Industry 4.0: Building the Digital

both countries because it increases the required content

Enterprise states that surveyed companies expect the

manufactured in North America from 62.5 percent to 66

incorporation of IoT into their supply chains to lead to a 4.1

percent by 2020, followed by a gradual increase to 75

percent increase in efficiency and a 3.6 percent reduction in

percent by 2023.

operational costs on average in the next five years.

INDUSTRIAL SECTOR'S CONTRIBUTION TO GDP (PERCENTAGE)

INDUSTRIAL SECTOR'S CONTRIBUTION TO GDP (percentage)

19 18 17

Source: World Bank.

*World Percentage Estimate

Mexico

World

*2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

——Mexico ——World 2001

2000

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Mexico has a robust industrial sector that capitalizes on

VIEW FROM THE TOP |

CONSTANT INVESTMENT SUPPORTS TRANSPORTATION SECTOR ANTONIO TEJEDO Vice President of Investors Relations with Traxión

Q: What is Traxión’s strategy to grow in the

Q: What factors could hamper Traxión’s growth in the

transportation industry?

A: The two most important transportation segments

A: The transportation industry is a pillar of the Mexican

we cover are cargo and logistics, on the one hand,

economy as all consumption products are transported

and personnel and student transportation services,

by truck at some point. This means transportation is

on the other. Traxión takes advantage of new business

deeply intertwined with Mexico’s domestic consumption,

opportunities in these and other segments covered by

disposable income and the country’s growing middle class

our seven subsidiaries to continue growing in the Mexican

and demographic bonus.

market. In 2019, we plan to invest approximately MX$1.8 billion (US$94 million). This will help us expand our

Macroeconomic trends could pose the biggest challenges

revenue by 20 percent and our EBITDA by 25 percent.

for growth. Although we cannot control exchange

Around 75 percent of our capital expenditure will go to

rates, interest rates or political risks, we need to have

the personnel and school transportation segment and

contingency strategies for each of these macroeconomic

the remaining 25 percent will focus on the renewal of our

trends to mitigate risks and maintain continuous and

cargo and logistics fleet.

profitable growth.

Q: What segments do you expect will experience the most

Q: How is Traxión reducing operating costs to counter the

significant growth?

impact of rising diesel prices?

A: We project great demand for student and personnel

A: Grupo Traxión negotiates a wholesale price for diesel

transportation services in industrialized areas such as

with fuel importers from the US that deliver diesel at the

northern Mexico, the Bajio region and the Mexico City

company’s yards and terminals. We also apply passthroughs

metropolitan area. Traxión plans to increase its share in

of fuel price increases to our clients. Traxión also reduces

these markets and create new opportunities as industrial

operating costs by centralizing the noncore, back-office

regions develop a taste for competitive transportation

areas of its seven subsidiaries and concentrating regional

services. Our size enables us to make strong investments

operations of its companies in less facilities.

in the acquisition of new units and to close large contracts for large clients in this specific transportation format. In

These efficiency strategies have yielded positive results.

1Q19, we invested MX$350 million (US$18.3 million) to

In 2018, Traxión added 71,210m2 of storage to its installed

purchase 100 Hyundai CNG bus units to meet specific client

capacity and increased the efficiency and productivity of

requirements.

its cargo fleet. Despite having 1.7 percent fewer trucks than in 2017, our fleet covered 16.5 million kilometers more. In

In the cargo and logistics segment, we expect reasonable

other words, Traxión covered 9.5 percent more kilometers

growth in demand in 2019. Traxión plans to adopt an

with fewer trucks and increased its revenue per kilometer by

asset-light business model to attack more logistics

10 percent, while only increasing its costs per kilometer by

segments such as last-mile delivery, e-commerce and

5.3 percent in 2018, which translates into more productivity,

freight-forwarding. To grow our logistics umbrella

output and efficiency.

service and offer a one-stop solution to clients, Traxión is strengthening the management, fleet and infrastructure of its Redpack subsidiary. By adopting an end-to-end,

Traxión is the only transportation company listed on the

integrated logistics solution, clients will no longer

Mexican Stock Exchange. The group has seven subsidiary

need to hire four or five suppliers to cover different

companies that target various segments of the transportation

logistics needs.

and logistics market in Mexico

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| VIEW FROM THE TOP

INDUSTRY 4.0 TECHNOLOGIES ENSURE VISIBILITY, BOOST SUPPLY CHAIN COLLABORATION GUILLERMO GODOY Chairman of the Board at ConaLog

122

Q: How does ConaLog help its members improve their

case of the automotive industry, it is important for client

logistics processes?

demands to trickle down the supply chain so component

A: ConaLog’s goal is to develop the competitiveness of

suppliers can know what is behind changes in technical

Mexico’s logistics sector through the exchange of best

specifications. The automotive industry is at the forefront

practices developed by its many associates. ConaLog focuses

of supply chain integration given OEMs’ communication

on linking academic institutions, the logistics industry and the

with Tier 1 and Tier 2 suppliers.

public sector by establishing impartial triple-helix strategies that benefit all players. For instance, the council is promoting

Q: What role does Big Data play in increasing the efficiency

a working plan based on an assessment of warehousing and

of the logistics chain?

logistics needs that was developed in association with the

A: Goods, information and monetary resources are the three

International Youth Foundation and a large logistics provider.

elements flowing across the supply chain and we need tools

This research impacted the academic plans at CONALEP,

that ensure visibility and connectivity to keep track of them.

thus allowing 300 warehouse technicians to graduate with

This includes everything from ERP and Customer Relationship

skills endorsed by the industry.

Management (CRM) software to Warehouse and Transport Management Systems (WMS and TMS). We also need

Q: How should logistics operators and their clients work

strategic tools that help companies design their supply chains

together to maximize efficiencies?

and transform data into useful information. Technologies like

A: Collaboration is the name of the game. This means

IoT come in handy for the latter. All internal and external data

mapping all players and their contribution to the value chain.

from a company needs to work together efficiently and Big

For Mexico to play a significant role as a logistics hub, the

Data analytics, together with artificial intelligence, enable

country needs to develop its infrastructure, as well as lean and

organizations to process information to ensure the needed

agile corporations that live up to the demands of the logistics

visibility and make agile and efficient decisions.

market in terms of reaction speed and efficiency. Next comes technology. It is impossible to have a collaborative economic

The first step toward adopting these technologies is to have

environment if there are no technical platforms that generate

reliable data mining based on strong data governance. This

the visibility that the value chain requires. To maximize

means being able to identify the source that generated

efficiency, it is necessary to be aware of what is going on

every piece of data and the owner of that source. It is also

everywhere at all times. Visibility is achieved when a supply

important that data is generated by technologies like master

chain in any sector can integrate all Industry 4.0 technologies

data management systems that do not depend on humans

to ensure total traceability. To that end, blockchain could be a

logging data. This ensures greater information consistency

great addition for its ability to decentralize and democratize

and a lower margin of error. Next, it is key to offer visibility to

data so all members of the chain can use it to meet their goals.

understand what happened in the logistics process and why it happened. Many companies that are adopting Industry 4.0

This level of integration is commonly found in the consumer

practices are already working on this step.

goods sector, where many companies and brands have an active and direct communication with consumers. In the

Adopting predictive models based on external data that can affect the process comes next. This leads to a stage of adaptation and learning where companies have already

The National Council of Logistics and Supply Chain Executives

earned solid experience and can formulate scenarios to

(ConaLog) is a nonprofit organization that aims to boost the

anticipate changes in the market to generate innovation

integration, development and competitiveness of Mexico’s

and evolve their business. This optimizes processes and

logistics sector through common best practices

ensures the elimination of operational barriers.

INSIGHT |

RAIL FREIGHT COMPETITIVENESS OPENS OPPORTUNITIES IKER DE LUISA Director General of the Mexican Railroad Association (AMF)

As a largely exports-oriented economic sector, Mexico’s

project will require a total investment of US$123.1 million,

automotive industry needs all the logistics advantages it can

according to AMF, and will improve safety and mobility in

muster to ship components and vehicles. Companies tend to

the city, while creating a direct access to the Honda plant and

prefer road or sea transportation but despite the challenges

increasing efficiency in the region’s exports.

it faces, the country’s rail infrastructure remains a competitive alternative, especially for long-haul transportation, according

To counter security problems, AMF members are adopting

to Iker de Luisa, Director General of the Mexican Railroad

new technologies to minimize and ensure quicker reaction

Association (AMF).

times to incidents. Aside from collaborating closely with federal, state and city authorities, AMF is working alongside

“Automotive is the third-most important sector for railway

CONCAMIN on a legislative proposal that disincentivizes train

freight after grains and minerals and cement,” says de Luisa.

robberies. “We seek to have the same status as air and sea

Refineries, breweries and auto-assembly plants tend to set

transportation in terms of security,” says de Luisa.

up shop close to railways because rail-based freight is a highly efficient way to frequently transport large volumes

Successful development of logistics infrastructure requires

of goods over long distances. OEMs alone have consistently

long-term planning for intermodal transportation, says de

grown their exports year-on-year, surpassing the 3 million-

Luisa, and that includes rail infrastructure. “Having integral

vehicle mark in 2017, which makes rail an attractive solution

solutions where transportation means are connected

to take these vehicles to the US. “The longer the distance,

with each other benefits the logistics chain and the end

heavier the weight and larger the volume, the bigger the

consumer,” he says. “Road-based transportation companies

advantage rail can provide over road-based transportation,”

in the US no longer see trains as their competition but as

says de Luisa.

an option to complement their service offering and Mexico could follow that example.” There is a significant intermodal-

Mexico started developing its rail infrastructure a century ago

services offering along the Canada-US-Mexico corridor

but involvement from the private sector in rail operations

that if combined, could ensure JIT logistics are not broken.

began in the mid-1990s. According to de Luisa, after

“Intermodal transportation offers new opportunities for the

railways were licensed, Mexico’s rail-based freight increased

longest hauls to be completed by train and last-mile deliveries

at an average compound annual growth rate of 4.1 percent

by truck,” adds de Luisa. “Such a transformation would enable

through an investment of US$8.5 billion in railroads, trains

all links of the logistics chain to grow, offer more services and

and locomotives. In comparison, the country’s GDP grew at

provide users with better solutions.”

a 2.9 percent rate. “The fact that rail freight has increased 1.4 times more than Mexico’s GDP illustrates the good health of

For intermodality to work, however, port capacity and the

Mexico’s rail sector,” he says.

connectivity of Mexican ports and borders with roads and railways are issues that should be looked at. De Luisa also

Celaya, Guanajuato, is an example of how freight cargo

highlights less obvious challenges for Mexico’s logistics,

has grown as a consequence of the development of the

including inspections, customs, working hours at ports and

automotive industry. The city is a key node thanks to railways

border controls. “Coordination between authorities and

operated by both KCSM and Ferromex that stem to the

the private sector present at the borders or ports is just as

north, south, east and west. The city has an exchange yard

important as the construction of new docks or other expansion

and handles a significant volume of automotive, grain, steel

projects,” he says. “New infrastructure is welcome but paying

and petrochemical freight generated locally. The region’s

attention to synergies between government agencies and the

infrastructure keeps expanding; the Celaya rail beltway

private sector and the implementation of adequate public

project, for example, is already 65 percent complete. This

policies are also important.”

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| VIEW FROM THE TOP

KAIZEN CULTURE KEY TO IMPROVING LOGISTIC PRACTICES ARTUR BEZERRA President of ONE Mexico

124

Q: Ocean Network Express (ONE) resulted from the merger

Japan and Mexico. Also, in Latin America we transport exports

of three Japanese companies. What factors made this

to countries such as Chile, Peru, Brazil and Argentina.

merger a reality? A: In recent years, the container transportation segment has

Q: Security issues have had a negative impact on logistics.

experienced difficulties in terms of demand and efficiency.

How has this affected maritime freight transport?

For this reason, logistics companies NYK, MOL and K-Line

A: Almost 60 percent of our operations in Mexico are related

decided to take advantage of their previous experience and

to intermodal transportation. Programs to protect our

merged to form ONE. In July 2017, the company arrived

shipments, in which we invest considerably, are becoming

in Mexico with the goal of providing quality logistics and

more sophisticated thanks to the use of legal and insurance

customer service, areas where Japanese companies are

mechanisms that guarantee the security of our logistics.

recognized worldwide. Q: Jeremy Nixon, CEO of ONE, says the company needs Q: What is the scope of your operations in Mexico?

to make sure innovation remains its focus. How are you

A: Our Mexico operations are equivalent to approximately

accomplishing that?

3 percent of our container operations worldwide. ONE’s

A: As a logistics company, we try to continuously improve

participation in the global container transportation market

our hardware, our processes and our human talent. The

represents about 7 percent, while our market share in

entire ecosystem of our operations is backed by our Kaizen

Mexico is about 8 percent. Around 70 percent of our

culture of continuous improvement, which helps us deliver

operations in Mexico are concentrated in Colima and we

innovation and provide greater satisfaction to our customers.

expect that in terms of container volume for Mexico, our operations will grow from 10 to 15 percent per year.

Worldwide, we have around 240 vessels operating. A large number of the vessels belong to ONE but we also work with

Q: How will the implementation of the ZEEs impact the

chartered units. In Mexico, we have six services that operate

development of ONE’s business?

from and to the country, so we collaborate with other

A: We believe ZEEs represent one of the greatest growth

associated operators to achieve better economies of scale.

opportunities for our segment. We are analyzing the

This allows us to reach more ports and commercial points

possibility of enhancing our operations in the Gulf of Mexico

more effectively. Within our portfolio, three of our six services

to Europe. We hope the government strengthens other

are concentrated between Asia and Mexico for transporting

ports in the country, as well.

cargo to and from the Pacific and South America. Also, one of our routes provides a niche trade service between Mexico, Los

Q: What are the most popular destinations for

Angeles and Costa Rica, with the possibility of offering trans-

Mexican exports?

shipment services to cargo coming from Asia. Our services in

A: Japan is our main destination for Mexican container exports.

the Atlantic focus on Brazil, Argentina and Europe.

Our market share between Mexico and Japan is almost 12 percent, which is above our share in the world market and

Q: What are ONE’s expectations for the coming years?

illustrates the strong trade relationship that exists between

A: ONE has a positive view of the business opportunities in the country for the container segment. We seek organic growth in line with the economy and we believe Mexico’s

Japanese

strong domestic market can be part of this opportunity.

transportation company. Its main area of operation is

Also, we would like to expand our services in the country

international container shipping. It was founded in 2017 as a

once our brand is well-positioned and there is a commercial

joint venture between three Japanese companies

opportunity to explore.

Ocean

Network

Express

(ONE) is

global

INSIGHT |

MOVING CARGO AND OPPORTUNITIES THROUGH TECHNOLOGY EDUARDO PORTER CEO of Agility Logistics México

In a globalized, changing and competitive economy,

2.2 million m2 of warehousing and storage in over 100

technology has become an opportunity catalyst. Logistics

countries. “In South America, we are leaders in logistics

plays a fundamental role in guaranteeing optimal

services for the export of salmon and berries by air cargo,

relations with customers and suppliers. When logistics

in Europe we are leaders in perishable products, while in

meets technology, distribution channels and the supply

India we are focused on the transport of generics for the

chain evolve toward new ways of moving cargo, says

pharmaceutical industry,” says Porter. “Overall, we are

Eduardo Porter, CEO of Agility Logistics México. “Agility

leaders in different sectors all around the world and we

sees itself as a technology company that moves cargo

also want to become leaders in Mexico.”

and goes beyond being a traditional logistics company. Globally, Agility Logistics places great emphasis on the

Agility’s global experience in e-logistics benefits the supply

simplification of logistics processes through technology,”

chain of international companies but also local companies

says Porter. “We want to take advantage of the facilities

nationwide. According to the Emerging Market Logistics Index

of electronic invoicing to be more efficient, help the

2018 published by Agility Logistics, the growth prospects for

environment and facilitate the work of our employees by

SMEs and large companies in emerging markets are positive for

going paperless,” he adds.

the coming years, which translates into growth opportunities for the logistics sector. The report also highlights that Mexico

The implementation of new information and communication

has three major challenges to overcome to achieve a greater

technologies in the traditional logistics sector is essential

development of its economy: structural reforms, the change

to manage the information flow used in such operations.

of government as well as growth of e-commerce. Mexico is a

However, the main areas that continue to influence the

country with great commercial appeal, both for companies

performance of the value chain are, according to the WTO,

that seek to export to other countries and for those in the

customs procedures, private sector development, business

country that want to operate internationally.

facilities, attractiveness and infrastructure. “Mexico has the necessary infrastructure to develop in the logistics sector.

“Unlike other Latin American countries like Brazil, Mexico

However, improving the conditions related to land transport,

has many facilities to perform logistics services. Mexico has

tractors with double trailers and insecurity could boost

the best documentation process for imports and exports in

the performance of both the economy and the logistics

the region and has very good infrastructure,” Porter adds.

sector,” he says.

For emerging economies like Mexico, the WTO recommends focusing on providing the necessary investments in basic

Agility Logistics’ global headquarters is responsible for

infrastructure and its maintenance, as well as developing a

identifying market trends and the commercial approach

broad program to promote trade.

in the countries it operates. “Agility Logistics analyzes what are the most attractive markets for the company

Agility’s efforts are focused on pooling the company’s

in Mexico, which is why our focus is on the automotive

experience in other countries to better develop its services

and construction sectors. However, our headquarters have

in Mexico. Agility believes the essential factor to promote

identified opportunities for Agility Logistics to operate in

this development is human talent. “The secret to being a

the pharmaceutical and food industries. We are leaders in

successful logistics company in multiple sectors is partly

perishable logistics in other parts of the world. We think we

due to technology and experience but a large part is also

can also be competitive in Mexico,” says Porter.

due to the people who work to provide these services. It is essential for Agility to have well-trained professionals

Each year, Agility Logistics provides around 415,000 tons of

who are experts in the industries we work with to continue

air freight and 740,000 TEU of ocean freight and manages

providing the best solutions for our customers,” says Porter.

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| VIEW FROM THE TOP

TECHNOLOGY FOR BOUTIQUE LOGISTICS SERVICES MARCOS SULKIN CEO of Promologistics

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Q: How does Promologistics' focus on logistics and loyalty

personalized solutions. Over our 12 years of experience,

programs help you stand out in the market?

we have recognized that spinning off some of our services

A: Promologistics has been in the market for 12 years but

into separate businesses would result in a more professional

has almost 20 years of experience in logistic services. The

overall operation, which resulted in the development of

company was founded to provide added value services to

our Next Cloud technology company. We also developed

the entire supply chain and our initial goal was to cater to

another business unit that helps companies grow through

SMEs. However, over time we changed our mission and now

e-commerce and another focused on the creation and

focus on providing services to Triple-A companies.

management of loyalty programs. We have developed six companies in total, including Promologistics.

We want to become a consulting partner for our clients and help them focus on their core business and invest in more

Q: What is the added value of Promologistics’ reverse

strategic and commercial projects, which in turn helps them

logistics service?

to create new business lines. For instance, we have developed

A: This is a service that usually nobody wants to provide

two projects with Grupo Modelo. One is called Beerhouse,

because a common belief is that once the product has

which centers on the distribution of craft beer. We manage the

been shipped that is the end of the company’s service.

warehousing, picking and packaging processes and product

Reverse logistics is very important but unfortunately many

delivery. We are also in charge of Grupo Modelo’s Amigos

companies do not pay as much attention to this area. A

Modelo business, which distributes Grupo Modelo’s brand and

quality reverse logistics service provides a significant

promotional products. For this project, we are also oversee

opportunity to build client loyalty.

the picking and packaging and delivery processes. Our call center is staffed with 250 people who provide In terms of loyalty programs, we manage everything related

what we call our “last-mile” service and who are part of

to the product offering with a portfolio of more than 5,000

the reverse logistics offering. We verify that the product is

options. We manage the creation of digital and printed

delivered on time and to the right place. We are connected

catalogs, as well as the digital platform, product delivery

with all our couriers through different technologies; if the

and reverse logistics for each program. For example, we

courier arrives to our client’s house and no one is there to

manage the loyalty programs for many banks in Mexico and

receive the product, our system is notified. Many clients hire

create a personalized experience in product packaging for

us exclusively for our reverse logistics services.

their products throughout the redemption process. Q: What advantages does Promologistics offer over its Q: How has Promologistics’ offering evolved in line with

competitors?

the market’s needs?

A: We have very few competitors because very few

A: We have invested in technology and human resources to

companies offer our 360° service. We have created a

better provide ad-hoc solutions for our clients. We strongly

sophisticated network that has allowed us to become

believe that being close to our clients will help us gain

experts in specialized deliveries. Since we do not have the

the necessary understanding and knowledge to develop

infrastructure of large carriers, we developed alliances with them so we can use their networks. Our service is boutique. We take advantage of the strength of carriers like Estafeta

Promologistics is a Mexican company that designs and executes

and, together with our technology and agility, we create

customized logistics solutions for companies looking to solve

new services and added value within the logistics world.

their logistics needs over the medium and long terms, allowing

Managing a last-mile service helps us identify any problem

them to focus on their core business and achieve their goals

that might arise and to be proactive in solving it.

INSIGHT |

SPEEDING UP THE DIGITAL TRANSFORMATION RICARDO ROCHMAN CEO and Founder of WePort

Mexican freight forwarders and customs brokers tend to

is to convince them to use our WeTrack tool for their

operate offline, largely missing out on the benefits of the

information needs,” says Rochman.

digital transformation taking place within the logistics segment, says Ricardo Rochman, CEO and Founder of

WePort must also stand out in a segment that is lightly

WePort, a Mexican customs broker startup that seeks to

regulated, leading to sometimes shady practices. “There

revolutionize the way processes are carried out in the

is no regulation that provides a right legal figure or

sector. “Customs brokers and the international logistics

framework for freight forwarders in Mexico, which means

business continue to be primarily offline. Everything is

that almost anyone can call themselves an international

done through email, Excel and Word documents that only

freight broker. This generates fears for customers and

generate a large amount of work,” says Rochman.

challenges for competitors,” explains Rochman.

WePort hopes to disrupt the segment with its tracking

Despite international trade being heavily affected by

solution. “Through our WeTrack tool, we unite all entities

variables such as exchange rates and the unstable

involved in the customs and logistics process. WeTrack

environment of international free trade agreements,

controls operations, processes, events, KPIs, services and

Rochman says the industry has been growing intensively

alerts, among many other things.” This tool has become

in Mexico both in imports and exports. Still, companies

WePort’s added value and has generated a great deal of

face constant logistics and geo-economics challenges.

interest from clients and competitors, Rochman adds.

“They do not know how to send a product from Mexico to other countries using an effective logistics solution that

WeTrack’s relevance becomes apparent when looking at

pursues agility and cost reduction,” he says. “They tend to

the number of people and companies involved in a single

be unaware of commercialization requirements, regulations

operation, complicating communication between entities.

and needed certifications.”

“In each import and export operation there are at least seven companies involved, including the manufacturer,

Although Mexico enjoys several free trade agreements,

the transport company in the country of origin, the freight

Rochman points out that the country is not among the

agent in the country of origin, the shipping company,

easiest when it comes to importing products. “There have

the insurance entity, the freight agent in the country of

been several complaints regarding the existing barriers for

destination and the customs broker.” WeTrack allows

importing products to Mexico. The necessary documentation

for unified control, according to Rochman. In addition,

is impressive.” Rochman says these hurdles discourage

every WePort client has direct contact with its executive

many entrepreneurs and SMEs that aspire to venture into

account representative. “Our clients can contact us

the Mexican market, adding that the authorities need to

24/7 and we guarantee a response in minutes. We have

have greater flexibility. “Importers are aware that they must

operations all over the world so there is always someone

comply with nontariff restrictions but in Mexico, bureaucracy

in charge.”

and waiting times delay import and commercialization processes, which can wear out a company.”

Changing the sector mindset and asking clients to adopt innovative strategies has been among the company’s

Although WePort has enjoyed almost double-digit annual

most difficult challenges. “We work in an industry with

growth, Rochman says the company can be heavily impacted

people of very different personalities. For the youngest,

by two elements: the evolution of the shipping business and

using our tool to track your load is quite easy but those

the USMCA agreement. “As a company, we need to continue

who have been in the industry for a longer time are

doing things the right way. This will help us take advantage

used to doing things in a certain way. Our challenge

of the opportunities and diversify our operations.”

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GROW PRODUCTION, THEN BUILD DIGITAL FUTURE PETER KROLL CEO of everis Mexico

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Q: How much has everis’ position in Mexico’s industrial

A: everis has business and digital consulting experience

segment grown and how important is the automotive

but we also have developed as systems integrators and

industry in your strategy for this market?

developers. Thanks to this duality, we can help clients to

A: We have advanced considerably, focusing on

really understand what Industry 4.0 is and how it comprises

what we call AUTOMAN, meaning automotive and

a number of different concepts and technologies that need

discrete manufacturing. We have brought in a new vice

to come together for a holistic operation. Robotics and

president for this division and his focus is mostly on the

automation are definitely a part of the Industry 4.0 idea but

automotive industry.

it is also an integrated vision that includes manufacturing operations, the company’s back office, its supply chain and

Most of the latest automotive projects and incoming plants

its clients.

are duplicates of operations in other parts of the world. BMW’s plant in San Luis Potosi, for example, is a copy of

At the same time, we can identify an area of opportunity

the OEM’s operation in Spartanburg, which means that all

within a company and start piloting a new development.

the best practices implemented there are now in Mexico.

We can use Big Data and analytics to understand

But this is just the first step. Next, these companies launch

patterns that allow us to predict when equipment will

their operations with the goal of ramping up production.

need maintenance. The information we analyze comes

After that, they advance to the next stage in their

from the equipment itself or the product once it goes

strategy to become a digital operation with Industry 4.0

through quality control and that helps the system become

implementations.

a self-learning mechanism that reduces unscheduled downtime. We can also help workers increase their

As a controlled and isolated environment, Mexico offers

productivity using smart glasses and other wearables

a great opportunity for investors to test new concepts

to introduce augmented reality and reduce errors

and develop new technologies that would be otherwise

related to customization in different vehicle units. We

too complicated to install in already established plants in

have even developed a software specifically oriented to

Germany or the US. Companies understand this and they

maintenance called everis drizzle. This platform is based

are willing to take this step. However, their first priority

on a SAP Leonardo solution and uses IoT and Big Data

is to develop production properly so they can then

capabilities to improve maintenance.

apply new ideas, such as Big Data, analytics, predictive manufacturing and augmented reality for the production

Q: How are you collaborating with OEMs, distributors and

floor. Eventually, Mexico will have an excellent opportunity

aftersales service providers to help them understand and

to be at the forefront of the digital revolution and we

embrace digitalization?

are already working on some projects with companies

A: In the sales part of the automotive business, we

in this sector.

are collaborating on the development of a digital user experience and aftersales service. There is a great deal to be

Q: What role does everis want to play in the evolution of

done in Mexico in this segment, especially considering that

the technology implementation process in Mexico?

globally dealership visits are decreasing from an average of 2.8 five years ago to 0.7 when clients look to buy a new car. In Mexico, there is still time before dealerships really

everis is a Spanish technology consulting and outsourcing

transform the industry but we are moving closer to that.

company that is now part of the NTT DATA company. everis is

Processes are becoming much more digital and new tools

present in 16 countries and participates in several industries,

such as virtual and augmented reality are creating a whole

including automotive

new experience for clients.

VIEW FROM THE TOP |

TRILLIONS IN SAVINGS HIDE BEHIND DISRUPTIVE TECHNOLOGY KARL MCDERMOTT Global Head of Business Development at Morpheus.Network

Q: As a developer of a supply chain platform based on

be automated to increase efficiency at border crossings.

blockchain tech, how would you describe the disruptive

There are also release procedures with customs and border

nature of this technology?

protection that can be digitalized to expedite movements.

A: Blockchain has the same transformative power the

Our goal is to have all information gathered in a single

internet had in the early 1990s. Just like our lives changed

platform and use an API to send it to border protection,

thanks to the internet, processes will be revolutionized

thus avoiding having cars waiting at the border for the right

through automation and blockchain implementations.

documentation.

This technology offers a unique way of connecting and storing data, so people can trust it is not hackable and

Q: What can Morpheus.Network offer to help solve the

it can be used to connect businesses. It is important

security issues plaguing the country?

to note, however, that the idea of a universal registry

A: Security is an issue that has to be tackled in most

of information for business is actually referred to as

developed countries, both in terms of security of the

distributed ledger technology (DLT). Blockchain refers

product and protecting the value chain from dubious

more to crypto science and dealing with investments,

imports. Regarding physical security, companies must

while DLT seeks to apply a similar methodology to

know the location of their shipments at all times and they

improve corporate processes.

must be aware of the last incidents that affected cargo and itineraries. Although GPS technology has been in the

As an example, DHL is contracted to ship auto parts from

country for years, it can only show the trucks’ location

Germany to Veracruz and then to Puebla, where the parts

but not what is happening with it when it stays in one

are integrated into a chassis that is finally sent to the US.

place for two hours. By providing a richer dataset through

IBM researchers found 40 different touchpoints where

more sensors and actuators, companies can manage their

data had to be received and analyzed. Each of these points

operations more precisely. Installing a panic button, for

represents a cost-savings opportunity that adds up to a

example, has helped clients register the truck’s last known

potential US$2 trillion to optimize the entire supply chain

location after a robbery to immediately alert the authorities

through blockchain.

and recover the merchandise before it was too late.

Q: How would you rate Mexico’s position as a logistics hub?

The second security issue plaguing the industry is related

A: From a global perspective, the way Mexico interacts in a

to activities in the black and grey markets. The higher the

global supply chain is not so different from what happens

value of a product, the higher the risk of having to deal with

in other countries like Russia, Canada, the US or Argentina.

forging activities. By using blockchain and a radio frequency

The biggest area of opportunity to improve logistics

ID tag (RFID), companies can track each component from

processes in Mexico is to focus on activities where there

the place it was manufactured to its current location. If

is human intervention. Since there is a huge talent pool in

suddenly there are several products with the same RFID or

the country, at times there are too many hands on the same

that lack information within the blockchain registry, retailers

bowl. Technology allows the improvement of processes, not

and even end consumers will know these are probably

by displacing people but by empowering them to create

stolen or illegally-traded goods.

an added value. We are working on automating cross-border processes.

Morpheus.Network is a global developer of a full-service supply

When USMCA is implemented, automotive companies will

chain platform based on blockchain technology and an integrated

have to present a certificate of origin that states 75 percent

cryptocurrency payment system. The company has partnerships

of the car was built in North America. That process can

with leading software developers and global carriers

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TECHNOLOGY INTEGRATION DEMANDS QUALIFIED TALENT VÍCTOR FUENTES Director of Mitsubishi Electric Automation Mexico and Latin America

130

Q: What is your assessment of the adoption of Industry

through human labor. I am in favor of adopting more

4.0 practices in the Mexican automotive industry?

robots inasmuch as people are trained to program and

A: Industry 4.0 is a concept launched by the German

operate these robots simultaneously. We need to provide

government about a decade ago and adopted by German

Mexican engineering students with the tools they will

companies. IIoT referred to the same concept, only under a

use when they enter the labor market, which is why

different name preferred in the US. For Mitsubishi Electric,

Mitsubishi Electric invests around US$200,000 annually

our goal is to turn what we call e-F@ctory into a reality:

to support academic institutions in Aguascalientes,

an integration of systems and technologies that allows the

Coahuila, Queretaro and Guanajuato, supplying them

industry to produce more with less, knowing how much

with the latest technology. We plan to do the same with

processes cost and how to improve them. We believe the

either IPN or UNAM.

Mexican industry offers good conditions for technology adoption, whatever its name.

Q: How has Mitsubishi Electric’s strategy of reducing ownership costs through expense amortization over a

OEMs are already built around these concepts and the

project’s lifespan boosted adoption of automation?

Mexican industry is working to embrace them, supported

A: Through this strategy, Mitsubishi Electric has maintained

by the authorities. The state governments of Nuevo Leon

a technology standard among clients and helped

and Aguascalientes emphasize the training of qualified

companies migrate toward newer control equipment.

engineers who can understand and work with these trends.

Furthermore, it has secured our position among Japanese

Technology will make local companies more competitive

players and made it more difficult for our competitors to

but they must be willing to invest in it. It is necessary to be

enter the market. When clients spend years without an

at the forefront of technological development to produce

equipment-related failure because of our solutions, they

components.

become interested in adopting our latest technologies and the more technology clients have installed at their

Q: What challenges do high staff turnover rates present to

plants, the lower ppm rates they will face and the greater

automotive companies?

processing speeds their programmable logic controllers

A: Staff turnover is a huge problem in the sector, especially

(PLC) will achieve.

in the Bajio region, where companies can lose up to 25 collaborators per week and must bear huge related costs.

Q: How has political uncertainty derived from USMCA

We need to shift the mindset from just needing labor to

negotiations and the 2018 federal elections affected

demanding qualified workers who can operate equipment

investment from Mitsubishi Electric’s clients in Mexico?

differently. To that end, Mitsubishi Electric not only focuses

A: Many investments remain on stand-by but this situation

on marketing automation technology but also on training

has little to do with USMCA and the 2018 Mexican elections

the people who will use it.

and more with a significant drop in car sales in the US. Consumers in that market are not purchasing as many

Many processes can be automated within the industry but

new vehicles and trends in this market are changing. Older

companies still think most of these should be managed

generations demanded large, eight-cylinder muscle cars several decades ago and this demand eventually shifted toward compact vehicles and later minivans. Hybrids are

Mitsubishi Electric is a global company with over 40 years in

in demand now but they may go out of style in a few years

Mexico. It develops and manufactures electric products and

as OEMs accelerate the development of EVs, which will

systems, including industrial robots, motion control systems,

have a great impact on the automotive industry as suppliers

operator interfaces and computer numerical controls

change and new manufacturing demands arise.

VIEW FROM THE TOP |

ADVANCED SOLUTIONS BOOST SEGMENT DIVERSIFICATION LEONARDO ROMERO Country Business Manager of Helmut Fischer

Q: What is Helmut Fischer’s strategy to automate

their penetration in the Mexican market will depend on

measurement processes?

the introduction of new paints that can be measured

A: We are working to mount our metrology equipment

with this technology. Helmut Fischer has also advanced

directly on clients’ assembly operations. Helmut Fischer is in

in other types of optic metrology, such as X-ray

talks to automate some measuring processes at TRW’s and

fluorescence, which has been well-received in segments

Lincoln Electric’s operations. We have also partnered with

like jewelry. We expect the jewelry segment to increase

Autechnik, a Queretaro-based company that automates

in importance in 2019.

production lines. We provide the metrology technology and our partners automate the process using collaborative

Q: How is Helmut Fischer working to improve regulations

robots or measuring cells.

covering measurement equipment? A: Helmut Fischer collaborates with the Mexican Metrology

Helmut Fischer’s headquarters has worked to launch

Center (CENAM) to update official norms for the jewelry

instruments that are friendlier to automation equipment

segment, such as NOM-033-SCFI-1994. This process will

and can be easily implemented. As an example, we want to

result in new opportunities for Helmut Fischer to increase

replace wire-based probes with wireless sensors.

its visibility and sales among companies that need to characterize alloys and measure the caratage of their

Q: How is Helmut Fischer changing its software to

jewelry. As prices for this equipment fall, more small jewelry

complement its equipment offering?

shops will gain access to our technology. This will enable

A: In terms of digitalization, Helmut Fischer develops new

these family companies to certify their products and start

communication cards that make its metrology equipment

exporting.

compatible with data transmission protocols, such as Profibus or Profinet, that are integrated in ERP systems.

Q: What opportunities have prompted Helmut Fischer to

This is a key step toward Big Data as our equipment can

diversify the sectors it supports?

be escalated to decision-making systems. Helmut Fischer

A: In 2018, we started to consider supporting the oil and

is also working to increase the flexibility of the software

gas industry but it will still take a while for this to come to

solutions of its measuring equipment to make sure that it

fruition. However, the development of new product lines,

can operate on several platforms.

including corrosion prevention instruments, will help us increase our presence in new sectors.

Software solutions used to be largely centered on desktop applications but the growing adoption of smartphones

While we have some projects with automotive companies,

has prompted Helmut Fischer to create apps to keep

their success will depend largely on the trade environment

track of production. In Mexico, companies tend to prefer

resulting from USMCA and new regulations for the sale

larger and more robust measuring equipment that are

of vehicles. Whether it is X-ray fluorescence metrology

hard to misplace and can stand harsh conditions. As a

equipment, micro-indentation instruments or anodizing

result, the adoption of our app solutions has faced some

technologies, we will diversify our operations and continue

resistance.

training our staff.

Q: How important are optic metrology technologies for Helmut Fischer’s Mexico operations?

Helmut Fischer is a German metrology equipment manufacturer

A: In terms of optic metrology, Helmut Fischer has added

that specializes in measuring coating thickness, material analysis

pulsed-laser technology to its product portfolio. These

and micro-hardness testing. The company operates in several

products are still under development in Germany but

industrial sectors including automotive and aerospace

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PRODUCTIVITY, EFFICIENCY AND SAFETY REDUCE OPERATIONAL COSTS LUIS HERNÁNDEZ Country Manager of Caterpillar

132

Q: How does Caterpillar help the industry to increase its

new equipment. 2015 and 2016 were hard but the industry

efficiency and become more cost-efficient?

began to stabilize in 2017. These economic fluctuations

A: Caterpillar is evolving alongside the industry. We are

led our clients to improve their cost structures, so they

introducing a new platform for hydraulic excavators for

are increasingly preferring to lease the equipment instead

the Mexican construction market. This new generation of

of buying it. Moreover, clients have also become more

excavators increases productivity by up to 40 percent,

interested in refurbished equipment.

reduces maintenance costs by 15 percent and fuel consumption by 20 percent in comparison to our previous

Q: Considering these changes, how do you expect the

series of excavators. With this offering, Caterpillar aims to

infrastructure sector to perform during the coming five years?

change the construction industry by increasing efficiency,

A: President Andrés Manuel López Obrador’s policy

productivity and operator safety to altogether reduce total

proposals include interesting infrastructure projects. For

operational costs.

that reason, we believe that the incoming presidential administration will bring great opportunities for us in the

Our mission is to provide solutions to our clients to build

sector. Expectations change with every governmental

a better world. Caterpillar can offer these products thanks

transition but it is likely to include an increase in investment

to the excellent support of our three dealers in Mexico:

for the sector.

Madisa, Tracsa and Matco. These three privately-owned companies distribute our lines for mining, infrastructure

All governments in Mexico must invest in infrastructure,

and energy generation. Caterpillar subsidiary Solar Turbines

as this is essential for the country’s competitiveness. As

directly distributes gas compression turbines for the oil and

a result, we expect the infrastructure market to continue

gas sector and Progress Rail supplies locomotive, railcar

developing. The only change we expect is for investment

products and services to the railroad industry.

to be more concentrated in the south and southeast of the country, which was announced as part of the

Q: What main changes has the industry faced during

new government’s 25 main projects, of which many are

the past few years and how have they influenced

infrastructure related. Furthermore, we expect an increase

Caterpillar’s strategy?

in PPPs. Overall, we are optimistic about the future.

A: The construction industry in Mexico has significantly evolved due to the country’s changing economy. While

Q: Caterpillar acts as an umbrella for other brands. Which

there is still investment in new equipment, economic

of these provides the strongest added value in Mexico?

fluctuations in the sector led us to increase our service

A: We have added many different brands to our portfolio,

offering. The construction sector was very strong following

including some for the energy sector, such as the MaK brand

the recession in 2009, a trend that continued until 2014

for marine engines. Solar Turbines, MWM, Perkins, Progress

when the industry peaked. After that, global trends hit

Rail, SEM and Yellowmark are all in our portfolio. These are

Mexico, leading the government to reduce spending on civil

our strongest lines in Mexico but Caterpillar is by far our main

construction, which in turn caused a significant contraction

brand. We continue to be leaders in the construction market

in the infrastructure industry as clients stopped investing in

thanks to design improvements that increase efficiency. Moreover, the Product Link system allows for all equipment to collect and send operational data on fuel usage, efficiency,

Caterpillar is the world’s leading manufacturer of construction

productivity and maintenance to a server. Currently, we have

and mining equipment, diesel and natural gas engines, industrial

around 14,000 assets connected, which allows us to determine

gas turbines and diesel-electric locomotives. It is a leader with

what the market needs in terms of spare parts and where

the largest global presence in the industries it serves

those are needed. This will allow us to better serve our clients.

VIEW FROM THE TOP |

TEMPORARY INFRASTRUCTURE SOLUTIONS OFFER ARRAY OF OPPORTUNITIES JERZY SASIADA Director General and Managing Director of WillScot Mexico

Q: WillScot is a global leader in the mobile offices

solution like provisional housing has not been explored. It

segment. How do your operations in Mexico add value to

has been a challenge to convince decision-makers of the

your global business?

benefits of doing so. Our solutions would be ideal because

A: Williams Scotsman, now WillScot, has been in Mexico

they are temporary and easy to install and dismantle.

for almost 13 years. We are a multinational company

Although they do not provide the comfort of a permanent

that constantly looks for growth opportunities and our

house, they are better than the current solution.

operations in Mexico play an important role in this plan. The country is already ranked among those with the greatest

We can participate in many industries. In the health sector,

growth potential, despite the uncertainty generated by the

the establishment of provisional points of care to reach more

country’s new government and other internal and external

communities is a perfect example of how our product can be

circumstances, such as lower oil prices, Brexit and changes

used. We are also working with banks to create spaces for

in the commercial relationship between the US and China

provisional ATMs or public customer service points.

that might impact Mexico’s economic development. We understand this is all part of a natural cycle and expect the

Q: How have client needs changed in recent years and how

situation to stabilize in 2019.

has WillScot adapted its portfolio accordingly? A: Adaptability is a necessary strategy and we have created

Q: Besides the oil and gas and energy sectors, where does

different systems to get closer to clients and identify their

WillScot see the biggest opportunity to develop its business?

needs. As part of this, we launched our Ready to Work

A: We are growing our presence in the education sector,

product line. Traditionally, companies like ours offered an

where we have found really good projects and our products

empty box as a product but clients need ready-to-use

have had a positive reception. Given the versatility and

facilities equipped with furniture. We started incorporating

flexibility of our solutions, they can easily be adapted to meet

this offering a few years ago and it has become an integral

the specific needs of the sector and its final users. A school

part of our portfolio. We are providing turnkey solutions; if

cannot change its infrastructure in a short period of time but

a client asks for a unit, we provide it in three days directly

our products allow them to increase or reduce capacity on a

to the site where they need it and with the necessary

yearly basis, depending on the number of students they have.

equipment to start operations immediately.

Renewable energy projects have also become a priority for

We are also studying new products and new types of spaces

the company. This industry is quickly developing in Mexico,

to integrate into our offering. We are stepping beyond the

particularly for solar plants and wind farms. Since these

traditional cubicle and although it remains our flagship

installations are in remote places, construction companies

product because it is what the market demands, we have

need to solve the problem of tool storage and housing

also included modular units that can grow vertically or

services for the construction team. Our solutions are ideal

horizontally, depending on the space requirements. All our

to avoid losing time in transportation. We can create a small

products can be transported should a client decide to move

campus where people can live for a few months with zero

them to another location. Around 95 percent of the materials

impact on the environment.

we use can be disassembled, transported and reassembled.

Another area in which we could easily participate but which has not yet developed in Mexico is related to natural disaster

WillScot is an international company that specializes in providing

response. Mexico is prepared to address the basic needs,

temporary turnkey workspaces configured to client specifications.

such as medical attention or sleeping quarters, of those

The company has operations in the US, Canada and Mexico and is

hit by these events. However, providing a medium-term

North America’s leading provider of temporary workspaces

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MEXICAN TECHNOLOGY PRODUCES DURABLE, RESISTANT MATERIALS LUIS ANTONIO GONZÁLEZ Commercial Director of Concreto Polimérico Castor

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Q: Concreto Polimérico Castor specializes in products

There is a great difference between our solutions and the

for construction, sewage, telephony and electricity. What

products of our competitors. For instance, a ductile cast iron

distinguishes its offering?

cover can cost around MX$5,000 and MX$6,000 (US$264-

A: What differentiates us is our service culture. We provide

US$317). The same product made of polymeric concrete costs

our clients with unique commercial conditions, such as

around MX$1,500 (US$79) but it has the same durability and

offering a three-year warranty against any fracture in our

will not get stolen because it has no value in the black market.

products. No other company does this. We also make sure our products are resistant and durable. They are subjected

Q: What opportunities does Concreto Polimérico Castor

to lab tests conducted by top Mexican and Central American

expect from the government’s planned infrastructure

companies specialized in this segment and certified by the

investment?

Mexican Accreditation Entity (EMA).

A: The change in federal administration has impacted our business. We were previously involved in several important

We also are a Mexican company that uses Mexican technology.

projects, including the Toluca-Mexico City passenger train,

Our machines were built in Mexico in collaboration with

the Mexico City-Queretaro train and NAIM. Regardless, we

experts from UNAM, which provided us with expertise in

have presented our product to the new authorities and are

polymers. The university has also helped our company

positioned as an option for new projects to come.

develop more resistant products. This is another differentiating factor, particularly as the industry undergoes a change from

One example is the proposed Mayan Train. It will be

metal products to polymeric concrete products, given their

constructed on saline soil. We propose to do what they

resistance, durability and lower environmental impact.

do in Canada and fabricate the railway ties with polymeric concrete, which does not require rods and neither expands

We also are entering the fiberglass posts and luminaires

nor contracts. Lighter posts also work better on saline or

business. Our goal is to replace wood and concrete posts

lacustrine roads. Transport of a half-ton concrete post like

with our fiberglass product. Among the advantages of this

those we see in cities to remote areas requires a helicopter

product are its 70-year durability and its light weight. The

or specialized equipment for difficult terrain, which can be

product’s flexibility also makes it an excellent solution for

very expensive. Our 9m post weighs just 50kg and can be

areas that experience high winds.

pulled or carried. They also can be set in any type of soil, even mud. We believe our products are the perfect choice

Q: What steps is the company taking to position itself as

for all these new projects.

the best supplier of these products for the public sector? A: We visit the different governmental institutions to

Q: How does Concreto Polimérico Castor innovate in its

demonstrate our solutions. Even though polymeric concrete

solutions portfolio?

has been in the Mexican market for over 20 years, it is still

A: We are trying to achieve more durability and resistance

unknown in many engineering areas. Part of our approach

with less material because the company is aware that

has always been to show the product, its certifications and

plastic takes a long time to decompose. But we also want

its benefits.

our products to last as long as possible in the function they were created for. Part of our new offering includes the development of transparent glass fiber posts, which

Concreto Polimérico Castor is a Mexican polymer concrete

incorporate LED lighting. This is an inexpensive solution

company with 25 years of experience in the market. Its product

that can help improve the urban image. Also, we want to

portfolio includes polymeric concrete sewer covers and it has

construct wind turbine blades from glass fiber and position

ventured into the creation of glass fiber products such as posts

our glass fiber posts with CFE for use in transmission lines.

VIEW FROM THE TOP |

POSITIVE EXPECTATIONS FOR AUTOMOTIVE AND CONSTRUCTION SECTORS CARLOS SIERRA Director General of Kuraray

Q: How has Kuraray’s entry to Mexico altered its game

Q: Does Kuraray have any plans to expand its Mexican

plan in the country and its relationship with distributors?

subsidiary and establish manufacturing operations?

A: Kuraray is a Japanese company founded over 90 years

A: Although we do not have manufacturing facilities in Mexico,

ago. Originally, the company was focused entirely on Asia,

Kuraray is always looking for opportunities to grow. We have

but it is now a global business with a variety of products

finalized the purchase of Calgon Carbon Corporation, an

in the markets of specialty chemicals, fibers, faux leather

activated carbon company with a strong presence in North

and dental products, among many others. Most of the Latin

America. In 2015, Kuraray bought Plantic, which manufactures

American subsidiaries, including Mexico, opened in June

polymers derived from cornstarch, and in 2012 Kuraray bought

of 2014 after the company completed the purchase of

MonoSol, a manufacturer of water-soluble film.

DuPont’s Glass Laminating Solutions and Vinyl businesses. Q: How does Kuraray work to position its brand in the Having a subsidiary in Mexico offers interesting possibilities

market and among its clients?

for Kuraray. When a company does not have a local subsidiary

A: The company’s focus has always been on the client and in

in the country, it has to depend on third-party distributors

Mexico, our growth has been extraordinary. In 2017, Kuraray

with goals that may not be completely aligned with that of

Mexico experienced the largest growth in Latin America. We

the company. Our distributors’ main focus is profitability and

have very successful products, such as SentryGlas, which

the sale of different products that could act as competition.

experiences double-digit growth every year in the country. We

Part of our business strategy in Mexico has been to maintain

are doing things right and we are growing. Mexico accounts

our current relationships with our distributor network and

for a small percentage of Kuraray Group’s sales. However,

analyze where they continue to add value to our operations.

the country continues to grow its wide range of products. At

In the past, distributors helped us with import and storage

the same time, we must standardize processes and unify our

but now we can do that through Kuraray Mexico.

different business units with the Kuraray culture.

Mexico offers attractive opportunities for a company like

Q: As a chemicals company, what strategy is Kuraray

Kuraray. Geographically, it is next to our biggest client, which

following to reduce its environmental footprint?

helps logistically. We have a skilled workforce and a network

A: To undertake companywide environmental conservation

of free-trade agreements with several countries and regions.

activities, Kuraray established the Environmental Conservation Working Team (WT) and Global Warming

Q: Where does Kuraray see the best opportunities to grow

WT within the Corporate Social Responsibility Committee.

in the Mexican market?

These teams promote measures to counter global

A: We have identified the automotive and construction

warming, manage chemical substance emissions and

industries as our largest opportunities. Mexico is the

ensure the beneficial use of waste. Our goal to improve the

world’s sixth-largest car manufacturer and the third-largest

environment and positively impact people’s lives with our

exporter. Manufacturing and exporting at such high levels

technology. Kuraray has taken many steps to diminish the

is possible because the industry has organized productive

negative effects our industry may have on the environment

chains intended as long-term investments.

and the communities where we live and work.

Mexico will continue to solidify its role as an exporter. There are many countries capable of buying Mexican products,

Kuraray is a world leader in specialty chemicals, polymers,

not only the US and Canada. We have to take advantage

fibers and textiles. In 2014, Kuraray acquired DuPont’s Glass

of the country’s free-trade agreements with other Latin

Laminating Solutions and Vinyl businesses, which nearly

American countries too.

doubled the company’s footprint in the Americas

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| VIEW FROM THE TOP

TEXTILES FOR PROTECTION, PREVENTION JORGE PLATA CEO of Argentum Textil

136

Q: Which industries does Argentum Textil target with

50 cents. It is harder to make the required changes in the

its products?

manufacturing process rapidly and effectively.

A: Argentum Textil specializes in functional textiles. We participate in three markets: the electricity and energy

Q: What makes Argentum Textilâ&#x20AC;&#x2122;s business model different

sector, providing protection from electric arcs; the metal-

from its competitors?

mechanics segment, particularly in the auto industry where

A: The traditional business model we learned was based

our products protect against splatter from molten metal and

on price and time periods. The buyer pushed you to sell at

the oil and gas industry where we provide protection from

deeper discounts and negotiations were, up to a point, hostile.

explosions. In metal-mechanics, for example, we provide

However, when we started Argentum, we decided to do

anti-cuts made from the same material as bulletproof vests.

things differently and implemented a policy we call â&#x20AC;&#x153;Radical

We also supply products for automotive plants, where some

Transparency.â&#x20AC;? This policy ensures we are transparent with our

processes are still manual and operators are exposed to

suppliers regarding our costs and the profit margin we expect

a variety of dangers, such as high temperatures from

on each product. This might seem a disadvantage but in fact

welding. Our textiles are used for the sleeves that workers

it has helped us to gain expertise. Suppliers sometimes advise

wear to prevent cuts and to protect their body against the

us when they feel one of our processes is too expensive and

welding heat.

offer their help to reduce costs. The implementation of this policy has created a relationship that the industry may not be

Unfortunately, Mexico is lagging in terms of safety

used to but for us it has worked really well.

equipment; the existing regulation is wide open and allows business owners to provide their workers only the

We also have a German certification called OEKO-TEX

protection that they deem necessary. As a result, around

100 Class 1, which specifies there are no hazardous

80 percent of our production goes to Europe.

substances in any of the textiles we use. This certification allows for traceability, starting with the fiber and ending

Q: How does Argentum Textile tackle the operational

with the finished product. All our suppliers must have this

challenges associated with producing differentiated products?

certification, which ensures that there are no substances

A: Producing differentiated products is complicated.

that pose a danger when in immediate contact with the

You need to have the necessary technology, a flexible

skin. Having this certification is also a differentiator for our

workforce and production processes that can be easily

company in the Mexican market because companies are

adapted. However, staying within a particular price range

not used to having certifications regarding fair trade or

is the most difficult element. Since our production varies

sustainability. Having these certifications is complicated and

depending on what our clients require, we cannot employ

expensive but they help position your company differently.

a flat process that would allow us to set exact costs. Every product we design is different, so establishing fixed costs is

Q: What are the challenges that Argentum Textil has faced

somewhat complex. However, setting a higher price when

as a Mexican company in a specialized market?

offering differentiated products with added value is not a

A: Most of our production is sent to Europe, although that

constraint since you are not fighting with a competitor over

does not mean that our products are not used in Mexico. Unfortunately, corruption continues to be an impediment to doing business in the country. The lack of regulation is

Argentum Textil is a Mexican textiles company located in the

another hindrance to our participation here. You cannot

state of Puebla. The company specializes in the production

evaluate a product if you do not have a regulation to

of functional and differentiated textile products intended to

measure it against. The Energy Reform and the entrance

protect workers in manufacturing activities

of foreign companies will force a change in this condition.

VIEW FROM THE TOP |

R&D VITAL FOR DAILY PRODUCTS RICARDO IBARRA Director General of BIC LATAM

Q: What is BIC’s role in Latin America and Mexico in

certain characteristics that makes it iconic. The hexagonal

particular?

shape is intended to make transport more efficient, since

A: BIC is a world and Latin American leader in stationery,

it makes it easier to store pens, increasing the number of

lighters and shaving products and we are part of the daily

units per box. The cap of the pen has a small hole designed

life of millions of people. The main characteristic of our

to prevent asphyxiation in case someone swallows it.

products is that they are of high quality and accessible.

Also, the enigmatic hole found on the side of all BIC pens

We need to be distributed in all stores, so consumers

serves to equalize atmospheric pressure inside and outside

can find our products anywhere. Our strategy is always

the pen. Without this feature, it would be impossible to

based on being close to the consumer. One of the main

correctly use the product inside an airplane or on top of

characteristics of the Latin American market is the existence

a very tall building, for example.

of small traditional businesses that sell water, soft drinks, snacks and lighters. In Mexico, there are around 700,000

When it comes to lighters, we manufacture the best

businesses of this kind, while in Brazil there are as many as

product on the market. All our lighters comply with ISO

1 million. These businesses are important to us, since more

9994 quality and safety standards EN13869, ASTM F400

than 80 percent of our lighter sales originates with these

and US CPSC. By complying with these, we avoid possible

types of businesses. The same is true for small stationary

accidents among our consumers. Regarding razors, BIC

stores that are still found in every neighborhood.

has always worked to offer consumers the best shaving solutions, introducing to the market a complete range of

Q: How are your two plants in Mexico helping BIC bolster its

shavers that offer technological innovations at a fair price.

position in the market and what quality control measures

We have very well-established products in the market but

are in place?

this does not mean that we do not develop new products.

A: 29.1 percent of all BIC factories are in Latin America.

We will soon launch a new product called “Tattoo Marker,”

We have seven manufacturing facilities in the region, of

which is a special marker for making temporary tattoos.

which two are in Mexico, four in Brazil and one in Ecuador. Our plant in Cuautitlan, State of Mexico, specializes in

Q: What role does sustainability play in your operations?

stationary products and annually produces around 2 billion

A: One goal of BIC’s business strategy for 2025 is to reduce

writing instruments, 20 percent of which are for domestic

our environmental footprint and act firmly against climate

consumption and 80 percent for exporting to 27 countries.

change. We want to ensure that 80 percent of the energy

Our plant in Ramos Arizpe, Coahuila, produces 98 million

used in our plants comes from renewable sources by 2025.

razors per year. It is the fourth-largest plant in the world in

All our factories have environmental management systems,

terms of rake manufacturing.

certifications, measures to reduce water and energy consumption, reduction of greenhouse gas emissions,

Q: How relevant is R&D in a market where products might

recycling and waste reuse policies. We also are targeting

appear to be the same at first sight?

zero-carbon emissions in terms of transportation and

A: The most important element is to deliver high-quality

we have reduced water consumption at our plants by 85

products that meet consumer expectations. BIC’s business

percent per ton of production.

strategy for 2025 aims to promote sustainable innovation in BIC products, leveraging the circular economy. To achieve this, R&D plays a fundamental role. Behind each

BIC is a world leader in stationary, lighters and razors. With

pen, there is an important R&D process that allows us

over 60 years in the global market, BIC employs more than

to offer durable products of the highest quality. A BIC

15,000 people worldwide and sells more than 11 billion products

pen gives you more than 2 kilometers of writing and has

annually. The company is listed on the Paris Stock Exchange

137

AEROSPACE &Â AVIATION

Mexico aims to become a key player in the global aerospace supply chain thanks to its competitiveness as a manufacturing platform, free-trade agreements with 46 countries and a highly skilled workforce. The country is increasingly becoming a hub for aerospace investment and a magnet for companies interested in maintaining their competitiveness while lowering manufacturing costs. Mexico is now home to over 300 aerospace companies and the country has sets its sights high as it aims to enter the Top 10 of aerospace manufacturers by 2020.

Aerospace & Aviation showcases some of the biggest names in both sectors. From OEMs to suppliers, airlines and MROs, this chapter illustrates how local players are targeting the consolidation of the supply chain and attracting sufficient qualified human capital for Mexico to reach its ambitious sky and space goals.

139

CHAPTER 6: AEROSPACE & AVIATION

142

ANALYSIS: Clear Skies as Industry Continues High-flying Ways

143

VIEW FROM THE TOP: Luis Lizcano, FEMIA

144

VIEW FROM THE TOP: Carlos Robles, Bombardier Aerospace Mexico

146

VIEW FROM THE TOP: Jesús Navarro, Mexicana MRO Services

148

VIEW FROM THE TOP: Alejandro Rosas, Haskell

149

VIEW FROM THE TOP: Juan José Simón, SAE

150

VIEW FROM THE TOP: Juan Carlos Corral, Queretaro Aerocluster

151

José Antonio Velázquez, Queretaro Aerocluster

VIEW FROM THE TOP: Rogelio Cisneros, Monterrey Aerocluster

Claire Barnouin, Monterrey Aerocluster

152

VIEW FROM THE TOP: Rene Espinosa, Chihuahua Aerospace Cluster

153

VIEW FROM THE TOP: Enrique Ruiz, ProSonora

154

PROJECT SPOTLIGHT: Mexicana MRO Services: Cargo Demand Spurs Transformation

156

VIEW FROM THE TOP: Eugenio Marín, TechBA Madrid-Montreal & TechBA Aerospace

157

INFOGRAPHIC: Soaring Aerospace Sector

158

INSIGHT: Roberto Corral, InnoCentro

159

VIEW FROM THE TOP: Kevin O’Shea, ACA

160

INSIGHT: Yousefh Pineda, Cramex Aerospace

161

VIEW FROM THE TOP: Beatriz Aguilar, Axon’ Interconex

162

VIEW FROM THE TOP: José Figueroa, Marposs México

163

VIEW FROM THE TOP: Gunther Barajas, Dassault Systèmes de México

164

INFOGRAPHIC: Solid Results for Commercial Aviation

166

VIEW FROM THE TOP: Miguel Cardona, Avianca

167

VIEW FROM THE TOP: Luis Alvarado, AeroUnion

168

MRO SPOTLIGHT: SAE: the Pleasure of Flying

141

| ANALYSIS

CLEAR SKIES AS INDUSTRY CONTINUES HIGH-FLYING WAYS Mexico’s aviation and aerospace industries reached new heights in 2018, with an increase in the value of aircraft component exports and record-breaking growth in passenger and cargo traffic. Both sectors will continue flying high thanks to growing demand for flight tickets and new aircraft but there are still challenges to overcome Rising global demand for plane tickets continues to underpin

tons of cargo handled, 2018 was the seventh year of record-

new aircraft orders. Despite a slight decrease in orders in 2018,

breaking growth in passenger traffic and fifth in cargo traffic.

both Boeing and Airbus maintain a healthy backlog for the

The domestic passenger subsegment was the most dynamic

coming years and project positive demand for commercial

for the country’s aviation industry with growth of 9.5 percent,

aircraft through 2037.

followed by international passengers with 5.6 percent.

“The world will need over 33,000 aircraft within the next 10

Together, Mexican airlines reached a solid 10.3 percent of

years and existing supply chains are unable to deal with this

aggregate growth in passenger traffic. Grupo Aeroméxico

significant demand,” says Eduardo Marín, CEO of TechBA

remains the most important player with market shares of 22.4

Madrid-Montreal and TechBA Aerospace. According to FEMIA,

percent of the country’s total passenger traffic (21.8 million

the Mexican aerospace industry achieved exports worth

people) and 12.8 percent of all cargo transported (117,094

around US$8.5 billion in 2018, a figure that is expected to

tons). Volaris held the second-largest share of total passengers

climb to US$12 billion by 2020. Luis Lizcano, Director General

transported with 17.5 percent (17 million passengers), followed

of the Federation, says Mexico is well on track to reach its

by Interjet with 14.3 percent (13.9 million passengers). While

goals and enter the Top 10 global aerospace suppliers by

these three airlines maintained their positions as the largest

export value by the end of 2020. However, there are gaps to

Mexican aviation players, Viva Aerobus beat them in terms

be filled and obstacles to overcome for Mexico to reach its

of growth, posting a 22.4 percent gain compared to 2017’s

true aerospace potential.

passenger traffic figures.

142

The Mexican aviation industry contributed 1.4 million jobs and US$37.1 billion to the country’s GDP in 2018

IATA projects a solid performance for Mexico’s aviation sector over the next 20 years, particularly in the segments of domestic connectivity and diversification of direct international connections. However, the association points to Mexico’s strained airport infrastructure as the main challenge that could put the brakes on the country’s aviation growth. The Mexico City International Airport (AICM), the country’s most

A study carried out by FEMIA and TechBA as part of FEMIA’s

important airport terminal, was originally designed to support

National Suppliers Development Program found several areas

32 million passengers; it reached a new level of saturation in

of opportunity for Mexican SMEs in composites and foundry

2018 when it catered to 47.7 million passengers and 581,675

components and a limited offering for highly specialized

tons of cargo. With a projected capacity to support traffic of

processes for the aerospace industry. Additionally, the

120 million passengers and 2 million tons of cargo per year

lack of quality management certifications and other entry

when completed, NAIM was former President Enrique Peña

requirements for the aerospace industry are among the

Nieto’s bet to alleviate AICM’s saturation. But its cancelation

most important challenges Mexican SMEs must overcome.

by the López Obrador administration puts pressure on the

According to the study, it is necessary to establish strategies

long-term growth of the aviation sector.

that strengthen SMEs in the areas of quality, financing and business culture within the aerospace industry.

Still, IATA maintains its growth projections for Mexican aviation. By 2037, Mexico could double its annual passenger

MEXICO’S AVIATION THRUST

traffic to 196 million people per year, create another 8 million

The Mexican aviation industry contributed US$37.1 billion to

aviation jobs and increase its aviation GDP to US$80 billion,

Mexico’s GDP and 1.4 million jobs in 2018, according to IATA.

as long as aviation-friendly policies are in place. But IATA also

Data from DGAC shows that Mexico’s commercial aviation

warns that the absence of NAIM will lead to a shortfall in

industry achieved solid growth rates of 7.6 percent and 12.8

capacity of 20 million passengers per year in 2035 that is yet

percent in passenger and cargo traffic, respectively, in that

to be covered and could lead to losses of US$20 billion out

same year. With 9.3 million people transported and 909,763

of the country’s GDP by 2035.

VIEW FROM THE TOP |

STABLE DEMAND WILL LEAD TO CONTINUOUS GROWTH LUIS LIZCANO Director General of FEMIA

Q: How close is the country to reach Pro-Aéreo’s goal to

FEMIA created a national program for the development

rank among the Top 10 aerospace suppliers by 2020?

of aerospace suppliers with three phases. The first is the

A: The industry has grown significantly in the last few

identification and quantification of supply gaps in the sector

years. Preliminary data indicates that the local aerospace

and at this stage we have identified annual opportunities

industry registered over 13 percent growth in 2018, from

for over US$630 million in several technological areas.

about US$7.6 billion in component production in 2017 to

The second phase, which was implemented in 2018 in

US$8.6 billion. Few industries grow at a double-digit pace.

collaboration with TechBA, was the identification of potential

For that reason, I am certain that Mexico will enter the Top

suppliers in related fields. We evaluated more than 400

10 global aerospace suppliers by the end of 2020.

companies and we are characterizing their capabilities. Once we have this data, the final phase will be to match demand to

In the first Pro-Aéreo, we had calculated a much higher figure

potential suppliers. This is a complicated matter as contracts

for employment, which was inadequate given that aerospace

in the aerospace industry are extremely complex. We have

operations require a smaller workforce than other sectors.

not officially started the third phase but we are having some

However, these individuals require much more training and

early results and have assigned contracts worth US$37

specialization so their jobs have more responsibilities and

million to 15 Mexican suppliers, many of them SMEs and most

higher pay. We are working with INEGI and the Ministry of

of them with a Mexican capital origin. After implementing

Economy to create a detailed plan to measure how many jobs

this plan, we realized that we needed to work more toward

the aerospace sector creates. By 2020, we expect the sector

having suppliers ready as there was a gap in the capabilities

to employ around 70,000 individuals, up from the 55,000

of these companies and the demands of the sector.

direct jobs we estimate the industry generated by 2018. Q: What opportunities do you see for the Mexican Q: How important is the aerospace industry to the

aerospace sector and how can foreign competition impact

development of the Mexican economy?

its development?

A: The country continues to receive FDI projects, although

A: The aerospace sector welcomes competition. As the

they have been somewhat delayed due to the change in

sector operates at a global level, a company in Mexico

administration and the USMCA negotiations. However,

competes with those in the US, eastern Europe and Asia.

investments in the aerospace sector are often planned

Between 90 and 95 percent of Mexico’s aerospace industry

years in advance and they will continue despite any short-

focuses on commercial and civil aircraft, a sector that could

term circumstances. We do not have exact data to calculate

be subject to migration toward Asia because the region is

the impact of the aerospace industry on Mexico’s GDP but

experiencing growing demand for these flights. However,

as the sector continues to grow, we are certain that it is

once a company enters the sector it can supply many

increasingly playing a bigger role in the country’s GDP.

other countries besides Mexico. While Asia is expected to eventually surpass North America in flight demand, this

Q: How is FEMIA addressing the main gaps in the Mexican

is unlikely to have a strong impact on the industry, which

aerospace supply chain?

would not be the case in other sectors like automotive,

A: The Mexican aerospace supply chain has significant gaps

where end-product logistics play an important role.

in metal-mechanic capabilities, including sector-specific casting and forging. The sector also has a need for other special processes specific to the industry. Our goal is to

The Mexican Federation of the Aerospace Industry (FEMIA)

identify companies that can satisfy this demand and bring

is a private, nonprofit organization. Its main objective is to

them to Mexico. Another goal is to consolidate the local

group national and foreign companies that operate in Mexico’s

supply chain to then focus on exports.

aerospace industry to generate synergies and positive leverage

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| VIEW FROM THE TOP

A PIECE OF MEXICO IN EVERY PLANE CARLOS ROBLES Vice President of Bombardier Aerospace Mexico

144

Q: How has the executive aviation sector reacted to

Global 7500 program but in 2019 our job will be to consolidate

Bombardier Aerospace’s new Global 7500 plane?

our component production for this aircraft. Taking this step

A: Global 7500 received its airworthiness certificate in

means increasing the efficiency of Bombardier Aerospace’s

September 2018 and entered service three months later.

Queretaro operations, developing the support capabilities for

Since then, this plane has set new speed records for business

any production rhythm the market demands and improving

aircraft, covering the London-New York route in 5.5 hours

our current processes to create better opportunities in

and Los Angeles-New York in four hours. This project was

the future.

originally launched as Global 7000 but its innovative wing design and other features increased its range by 500 nautical

Q: How important are Bombardier Aerospace’s Mexico-made

miles and prompted the company to launch it as Global 7500.

components for the company’s aircraft lineup?

Bombardier projects demand at 8,300 new business aircraft

A: Bombardier Aerospace Mexico has focused mainly on

toward 2025. We expect this plane to capture a meaningful

supporting Global 7500 as it leaves the project phase and

share of this segment, which will translate to growth for

becomes an aircraft production program but all Bombardier

our Mexico operations as more fuselage components and

Aerospace business and commercial aircraft have Mexico-

harnesses are needed. Project cycles in the aerospace

made content from Queretaro. This is also the case for the

industry tend to be long, which is why the entry to service

Airbus A220 that has doors manufactured in Mexico. We have

and first deliveries of the Global 7500 are key milestones for

some smaller projects focused on changing the configuration

our operations.

of executive and commercial aircraft that are already in service, such as the Challenger 350 and CRJ Series. The new

The aft fuselage and all electric harnesses of the Global 7500 business jet are produced at Bombardier’s facility in Queretaro

Atmosphère cabin of the CRJ Series comes with a larger

Q: What does this mean for Bombardier Aerospace Mexico’s

for sale under the Airbus brand. The main reason behind

operations?

this step was the challenge Bombardier faced in the areas

A: Bombardier Aerospace Mexico had a very good 2018.

of marketing and aftersales service. Airbus is a much larger

Thanks to our local collaborators, we delivered great results.

OEM than Bombardier and has solid distribution channels

Financially, it was one of the best years for our Queretaro

and aftersales service, as well as strong marketing capacities.

business class that requires new components and harnesses produced in Queretaro. Q: How will the joint venture between Bombardier and Airbus in the A220 program impact Bombardier’s Mexico operations? A: Bombardier and Airbus created a joint venture for this program, which resulted in the C Series being renamed A220

operations, which projects credibility and stability for the company. We support the production of the Global 7500

This partnership helped Bombardier gain leverage in

from our Queretaro facility, where the aft fuselage and all

negotiations to supply aerospace components. As the

electric harnesses for this business aircraft are assembled.

A220 is an Airbus production program with a larger consumption volume, Bombardier has the possibility to

The new challenge for Bombardier Aerospace Mexico is to

supply a much larger volume of components. The changes

ramp up production to meet international demand for the

in this program have also pushed Bombardier to offer more

Global 7500. Our operations had been mostly focused on

competitive prices, which forces us to reduce our costs

creating prototypes and advancing the development of the

and deliver a more attractive offering. Several significant

orders for the A220 were placed after the joint venture between Bombardier and Airbus was announced. For instance, United Airlines has placed an interesting order for this aircraft program. This has had a positive effect on Bombardier Aerospace Mexico because it means a greater demand for Mexican content.

The partnership between Bombardier and Airbus in the A220 program brings new opportunities for Bombardier’s Mexico-made content

Q: How on track is Mexico to enter the Top 10 global aerospace exporters ranking by value?

While it is advantageous that automotive companies have

A: FEMIA’s goal for Mexico is to reach US$12 billion worth

already reached a solid production level, earning the necessary

of aerospace exports by 2020. Since no aircraft are built in

certifications for the aerospace industry requires significant

Mexico, growing exports means that more Mexico-made

investments coupled with lower production volumes and

content will be part of aircraft assembled abroad. Bombardier

much longer payback times. Supplying for several OEMs is a

Aerospace Mexico is working with FEMIA to locate, on one

way for companies to reach greater production volumes and

side, the capacities of local companies that could be useful

develop the critical mass necessary to justify the investment

to the aerospace industry and, on the other side, demand for

needed to become a certified aerospace supplier.

these capacities. The main goal of this project is to create matches between existing demand and potential suppliers

Q: What challenges and opportunities can the Mexican

based in Mexico.

aerospace industry expect from the new trade environment in North America?

At the same time, foreign companies have approached FEMIA

A: USMCA will not have a meaningful commercial impact on

looking for help to identify potential suppliers in Mexico or

the Mexican aerospace industry but it establishes a basis for

for support to land their operations in the country. These

dialogue between Mexico’s aviation authority DGAC and its

processes attract FDI to the country and make it easier for

US and Canadian counterparts, which could have an indirect

newly arrived companies to land their operations. FEMIA works

and positive impact on the sector. Some logistics matters on

with aerospace companies to consolidate demand volumes so

the handling of chemicals are addressed in this agreement,

local suppliers gain access to better business opportunities.

which may work to the advantage of the aerospace industry.

Collaboration of regional aerospace clusters with FEMIA and

The US is the largest aerospace market in the world and

private companies is a source of synergies that promote the

several US companies are interested in procuring components

development of the Mexican aerospace industry.

in Mexico. This is not only due to a more competitive cost but also the high quality and added value that Mexican aerospace

Q: What are the main gaps in Mexico’s aerospace

suppliers can deliver.

supplier base? A: The country has more or less covered the Tier 1 and Tier 2

Q: What policies should the new federal administration put in

levels but there is a huge need to develop Tier 3s and Tier 4s

place to promote growth of the Mexican aerospace industry?

to strengthen the supply chain. Mexico needs to fill several

A: The Mexican aerospace sector needs to remain in

gaps in the areas of raw materials, forged and foundry

contact with the government, which is FEMIA’s main role.

components and local production of composite materials,

The federation has been in direct contact with President

including carbon fiber. However, the most important

López Obrador since his first event as president-elect. It is

gaps are in the area of special treatments for aerospace

paramount for us to raise awareness about the needs of

components, such as coatings, painting and some chemical

the Mexican aerospace industry and find ways to continue

surface treatments like nickel-plating. Mexico also has a

generating jobs and promoting growth of the Mexican

pressing need to develop its foundry component offering

economy. As representatives of the sector, we must educate

for the aerospace industry to continue supporting the area

public officers of the new administration on the importance

of machining and laminating processes, which is relatively

of our sector. This entails showing what aerospace products

developed in Mexico.

are manufactured in Mexico, the export levels the industry has achieved, their role in the Mexican economy and the number

Q: What are the main challenges that Mexican suppliers

and type of jobs that this sector creates.

must overcome to become more competitive in aerospace activities? A: The main challenge is the lack of necessary quality

Bombardier is an OEM that builds high-speed and public transit

certifications. There are several Mexican automotive

trains, as well as executive and commercial aircraft through

companies that have an interest in diversifying into the

its Bombardier Aerospace division. With 68,000 employees

aerospace industry but these are radically different sectors.

worldwide, the company is a global leader in transportation

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AVIATION GROWTH DRIVES LOCAL MRO OPERATIONS JESÚS NAVARRO CEO of Mexicana MRO Services

146

Q: How did Mexicana MRO Services capitalize on the

A: Mexicana MRO Services has received 19 country

growth of Mexican aviation in 2018?

aeronautics certifications, including FAA and EASA, that

A: In 2018, Mexicana MRO Services exceeded significantly

enable the company to service aircraft from countries

its sales results of 2017 without increasing the size of

that include the EU, Mexico, the US, El Salvador, Brazil,

its hangar at AICM. By improving our MRO processes

Bolivia, Argentina and Cuba. Latin America remains the

and adding new capabilities, we increased sales by 19

most important market for Mexicana MRO Services. We

percent and provided minor and major maintenance to

work with the flagship operators and top carriers of

more aircraft than before. Mexicana MRO also achieved

several South and Central American countries, including

the successful conversion of four Boeing 767 passenger

Brazil’s Azul Airlines, Colombia’s Viva Air and Avianca,

aircraft to freighter planes. Mexicana MRO Services has

Equator’s Tame, Chile’s Sky Airline, Bolivia’s Boliviana

signed the agreements necessary to start converting

de Aviación and LATAM Airlines, which has operations

the new generation of Boeing 737-700 and 737-800

in Chile, Brazil, Argentina, Peru and other countries. In

passenger planes to cargo aircraft. We have improved the

Mexico, we offer support to the four most important

tools in our shop, adapted storage and production control

airlines: Aeroméxico, Interjet, Volaris and Viva Aerobus.

points and offered new training to our staff so Mexicana MRO Services can convert its first B737 in April 2019.

Q: What is Mexicana MRO Services’ strategy to differentiate from other MROs competing in the

Mexicana MRO Services’ shop in Mexico has operated continuously for 98 years

Mexican market? A: We have several business lines that client airlines do not usually have in-house or cannot find in a single MRO. These include services such as line maintenance, major maintenance for both wide-body and narrow-body aircraft, conversion of both bodies from passenger to freighter plane, aircraft painting, total or partial repairs and testing of some aircraft components. There is no other MRO in Latin America that offers all these services,

Q: What prompted Mexicana MRO Services to start offering

which makes us a one-stop solution for potential client

B737 passenger-to-cargo conversions?

operators. We can provide maintenance for the Airbus

A: Our decision resulted from the rising demand for freighter

A320 and A330 families, the Boeing 727, 737, 757 and

planes to cover short and medium-haul cargo operations.

767 series and to Bombardier CRJ200 and Fokker 100

Smaller freighter planes allow for more efficient cargo

aircraft. In addition, we are the only aircraft shop in

distribution over short distances and have become the

Mexico that has offered maintenance services for 98

second-largest segment in cargo aircraft.

years continuously. We hold 19 aeronautics repair-station certifications. This broad experience is a competitive

Q: What are the main target markets for Mexicana MRO

advantage that no other MRO in the Mexican market

Services’ solutions?

can offer. Mexicana MRO Services is collaborating with the Mexican

Mexicana MRO Services provides line and major maintenance

federal government to earn the shop certification of the

and aircraft conversions for Airbus, Boeing, Bombardier and

Canadian aviation authority. There is no shop in Latin

Fokker aircraft, as well as aircraft painting and component

America that is certified to service Canadian aircraft and

repairs. It was the first MRO to join ALTA

in 2019, we expect to become the first.

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MRO Services, AICM, Mexico City

Q: What are the company’s main growth expectations and

A: For the Mexican aviation industry to grow, it is necessary

expansion plans for 2019?

that leisure and business tourism grow as well. As long as the

A: 2019 will be a transformational year for Mexicana MRO

Mexican economy expands and business remains good, the

Services. The company has set itself the goal of growing

aviation industry and Mexicana MRO Services will continue

around 10 percent in 2019 in terms of sales and serviced aircraft.

to prosper. More business opportunities translate to greater

We will focus on capitalizing on the potential opportunities

demand for flight tickets, which prompts airlines to increase

that originated as a result of the new government’s policies.

their operations and incentivizes the purchase or leasing of

Despite the challenges resulting from AICM’s saturation, we

new aircraft by operators. This, in turn, spurs demand for MRO

grew 10 percent in January and February 2019 compared to

services.

the previous year thanks to the optimization of our production processes and the adoption of new technologies. We also plan

Q: What are the main differences between airline and

to relaunch maintenance for the Bombardier CRJ200 aircraft.

independent MROs? A: Being an independent MRO poses more challenges than

Q: How will the simultaneous operation of a new airport in

the in-house MROs of airlines are used to facing. MROs like

the Santa Lucia military base, AICM and the International

Delta-TechOps or Interjet MRO Solutions have a percentage

Airport of Toluca (AIT) impact your operations?

of their operations secured because they are the go-to MRO

A: The construction of a new airport in Santa Lucia and the

for their parent airlines’ aircraft. These companies only need

simultaneous operation with AIT has little direct impact

to attract outside aircraft to complement the remaining share

on Mexicana MRO Services’ operations. The saturation of

of their maintenance operations. Independent MROs need to

AICM, however, poses several challenges for us because we

attract 100 percent of their customer base.

are based in that airport. The lack of slots at AICM makes it difficult for Mexicana MRO Services to conduct test flights or

Q: What milestones have been reached toward solving the

clear and send off aircraft that have completed maintenance.

conflict between defunct carrier Mexicana and its union?

These planes must often stand and wait until 3am for the

A: As a former business unit of Mexico’s defunct flagship airline

control tower to assign them a slot and clear them for takeoff.

Mexicana de Aviación, Mexicana MRO Services is currently for sale. The resources obtained from this transaction will be used

Q: What are the main factors that will boost growth in the

to pay former Mexicana de Aviación workers, including the

Mexican aviation sector?

pilots’ and flight attendants’ unions.

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DIFFERENTIATED SERVICES ALLOW FOR BALANCED PORTFOLIO ALEJANDRO ROSAS Managing Director LATAM at Haskell

148

Q: What is Haskell’s value proposition for the

engineers to see the manufacturing process as it would

aerospace sector?

occur in real time.

A: We entered the Mexican aerospace sector through some key clients that wanted to protect their investment by working

Q: How will Haskell capitalize on its experience in the food

with a constructor that could provide them with a problem-

and beverage sector to expand into the aerospace industry?

free plant. Haskell might not be the least expensive company

A: Haskell is the Top 1 firm in the food and beverages sector,

to work with but no company cares more than we do about

a Top 5 green manufacturing company, among the Top 30

customer experience. We have worked with one of the largest

designers in the world and in the Top 7 for sea construction.

aerospace suppliers for over 20 years. We built many plants

Haskell’s main strength is its employees and we ensure they

for that company in Mexico and the US and we are now in

have the best available working conditions. Haskell has been in

charge of the construction of its third plant in Mexico.

Mexico for 20 years and has not had a fatal accident in 10 years due to its strong safety protocols. The food and beverages

Our differentiator is the service we provide to our clients.

sector has remained stable over these years and continues to

The company is fully focused on generating comprehensive

grow steadily, unlike sectors more prone to ups and downs,

technical documents. Working with the aerospace and the

such as aerospace, automotive, metals and pharmaceuticals.

pharmaceutical sectors requires high precision, constant

Eighty percent of the company’s revenue comes from the

communication throughout the manufacturing plant, many

food and beverages sector, while the remaining 20 comes

clear rooms and a minimum amount of waste. Few companies

from aerospace, automotive, metals and pharmaceuticals.

can offer the same levels of quality that Haskell can. Moreover,

The former will continue to be our core, but we are looking

all projects delivered in Mexico are reviewed by our US arm.

to balance our portfolio by growing in our other industries.

Q: What technology trends have you identified in the

The aerospace sector is among the niches we will focus on the

aerospace market?

most. We expect the aerospace sector to represent 15 percent

A: We expect Mexico’s aerospace industry will continue

of Haskell’s profits in Latin America. In Mexico, we have good

growing and eventually the country will be capable

relationships with FEMIA and other players in the sector, so

of assembling its own aircraft. This opens interesting

we expect this area to continue growing.

opportunities for Tier 1 companies with high-tech requirements for their plants. We employ our Virtual

Q: What are Haskell’s growth expectations for Mexico and

Construction Group, an operational line that focuses on

Latin America?

technology generation, to comply with these demands.

A: We expect to close 2019 with US$2 billion in revenue,

This division has created innovative software for the use of

which would be a 100 percent increase compared to our 2018

drones, which are now replacing topographic crews. These

results. Half our revenue will come from company acquisitions

drones also monitor all equipment operations. Our software

and the other half from organic growth. Haskell is growing

can also calculate with a single click all the supplies required

and entering new markets; we now have clients in the retail,

to build a manufacturing plant. One of our divisions handles

automotive and aerospace industries. We believe that Mexico

virtual simulations of manufacturing facilities, allowing

will go from 80 percent of revenue for Haskell LATAM to only 50 percent revenue as we expand our markets in other countries in the region. In the next two or three years, we

Haskell was founded in 1968 as a company specialized in food

hope to double or triple our revenue for the entire region. The

and beverages but expanded its capabilities to other sectors. It

first expansion phase will be to Panama and Ecuador and the

is now recognized as the leading general contractor in the US

second to Argentina, Paraguay and Uruguay, although Mexico

and one of the world’s largest industrial construction businesses

will remain a pillar for the region.

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NEW BUSINESS STRATEGY FOR EXPANDING MEXICAN FBO JUAN JOSÉ SIMÓN Director General of SAE

Q: How did SAE’s hangar operations perform last year?

dispatch and attention to clients cannot be matched by

A: Until 2018, hangar space demand was higher than it is

our competitors and our experience allows us to anticipate

today. The market has changed and FBOs must adapt to

these needs and provide the best possible service. In 2017,

growing competition and innovate in customer service.

we performed over 12,000 operations for an average of 33

SAE’s focus is to create personalized experiences for our

operations per day. This is not a challenge due to the size

customers. This has helped us maintain stable operations

of our platform, which allows us to perform up to seven

throughout the years. Our company’s core business relies on

operations simultaneously. This is a strong competitive

our newly refurbished fixed-based operator hangar, which

advantage.

handles around 15,000 operations a year. We pride ourselves on being the largest FBO at Toluca International Airport. Q: How is SAE growing its business after 30 years in the market?

SAE performed 12,000 operations in 2017

A: We have invested in the company’s infrastructure, expanding our fleet for jet rental services and increasing

Q: What are SAE’s expectations for 2019?

hangar capacity. We have also invested in a new and modern

A: We want to maintain our in-house clients and we are

maintenance facility. In terms of space, we have a combined

making significant efforts to attract more customers from

hangar capacity of over 8,700m and we have expanded

abroad. Our objective is to grow the number of clients

our ramp space to approximately 7,000m2, giving us more

coming from abroad by 5 percent. This objective may be

efficient ground operations. We store over 45 aircraft and

hard to reach because there is greater competition but

have 12 more under management.

we believe that with the service we offer we will achieve

this goal. Our business has always included aircraft storage, traffic and dispatch, air taxi rentals and aircraft management but we

Q: What elements could boost SAE’s performance

are starting a new business: a fractional model that works

as an FBO?

as a time share for airplanes with several customers. Aircraft

A: When it comes to general aviation, Toluca is among the

ownership costs are exceedingly high but we have found

largest airports in the world and Mexico’s most important

customers that find value in dividing these costs between

airport for private aviation. Because our customs offices are

multiple partners. This helps in lowering cost per flight hour

saturated, flights tend to be delayed, which means that part

and makes the service more attractive to our customers.

of the attraction of having an executive airplane is diluted since our clients must arrive with a lot of time to spare or

Q: What is the typical profile of SAE’s clients?

they may have to stand in line. The best way to approach this

A: SAE’s operations are focused both on business and

would be for FBOs to have their own customs offices, just

pleasure. Our international clients usually come to Toluca

like in the Acapulco and Monterrey airports. This strategy

for business. Nevertheless, we have noticed that our number

would boost the Toluca International Airport’s position as a

of daily operations increases during the weekends to the

leader in private aviation.

most popular cities and beach resorts. Q: What strategies is SAE implementing to remain the best

Servicios Aéreos Estrella (SAE) is a Mexican FBO and MRO

option for its clients amid increased competition?

based at Toluca International Airport (AIT) with over 30 years

A: We are betting on our experience and human talent.

in the Mexican market. In 2016, the company invested in a

The service provided by SAE in platform, ramp, traffic,

4,000m2 platform and relocated its offices to AIT

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AEROSPACE CLUSTER STRENGTHENS SME CORE JUAN CARLOS CORRAL President of Queretaro Aerocluster

150

JOSÉ ANTONIO VELÁZQUEZ Managing Director of Queretaro Aerocluster

Q: How has the country’s talent shortage impacted

Q: How is the cluster helping SMEs adapt to the needs of

Queretaro’s aerospace industry?

the global aerospace industry?

A: The strong and sustained growth of aerospace companies

A: With the help of the Queretaro State Ministry of

based in Queretaro led to an increasing need for specialized

Economic Development, we have channeled resources

and highly trained people for manufacturing, MRO, design

to assist local SMEs mainly with training in several areas

and engineering activities. UNAQ and other public and

of expertise, such as quality certifications, quality tools,

private universities are supplying engineers that in some

advanced manufacturing, nondestructive testing, human

cases require further training. At the same time, companies

capabilities and Industry 4.0.

are attracting experienced talent from other industries, such as automotive and metal-mechanic. An important number

Less than five years ago, the vast majority of our companies

of technicians are coming from other states as well, not

were large international businesses coming mostly from

only because of the job opportunities available but because

Europe and North America. In 2019, more than 50 percent of

Queretaro offers a good quality of life that is not available

our companies are SMEs from Mexico and other countries,

in other cities.

mainly specialized in manufacturing, special processes, MRO services, design and engineering.

However, talent demand forces companies in Queretaro to hire people with higher salaries than what they

Q: How is Queretaro Aerocluster working with fellow

get in their current jobs, which causes salary inflation

aeroclusters, local governments, FEMIA and the federal

that clearly impacts the competitiveness of the local

government to promote the consolidation?

aerospace sector.

A: We are working on very specific activities with clusters in northern Mexico and sharing good practices with them.

Q: What new collaborations is Queretaro Aerocluster

We are constantly connecting opportunities between

establishing with academic institutions such as UNAQ to

companies that belong to different clusters. With FEMIA,

boost the development of aerospace talent?

we are sharing information and supporting initiatives that

A: This year we are launching one of our most ambitious

benefit us and its members. We believe that we have

projects yet: a major initiative called ON BOARD, which

complimentary goals, us as cluster working at the state

consists of three key activities. The first is to develop a

level and FEMIA having a broader reach. We hope this

communication strategy that will allow us to reach the local

relationship becomes more proactive in the years to come,

community to present a wide variety of job opportunities

considering the great opportunities ahead. Competition can

for students and workers. The second is to provide an

only take us so far but collaboration will take us even further.

online tool that will give users a better understanding of the training opportunities available at several academic

Q: What are your main growth expectations for the Mexican

institutions and research centers. Finally, we are planning

aerospace industry in 2019 ?

to develop a strategy to communicate and reward success

A: The state’s aerospace sector will continue growing at a

stories to help us motivate younger generations to become

double-digit rate, attracting more FDI and strengthening

part of our accomplishments.

local companies, especially SMEs. We foresee the development of new strategies at a federal level that will help to align efforts in terms of public financing, scientific

Queretaro Aerocluster promotes the sustainable development

and technological development. Similarly, we expect to

of the aeronautical and space industries in Queretaro. The

see broader support for clusters, which would allow the

cluster

continuation of ongoing projects and activities to benefit

brings

together

aerospace

companies,

centers, academia and government institutions

research

our members.

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CONSOLIDATING NUEVO LEON’S AEROSPACE CAPABILITIES ROGELIO CISNEROS President of Monterrey Aerocluster

CLAIRE BARNOUIN Executive Director of Monterrey Aerocluster

Q: How has Monterrey Aerocluster promoted the

CB: There is no federal policy that requires foreign aerospace

certification of aerospace companies in Nuevo Leon?

investors to engage in supplier development, integration of

CB: In 2018, Monterrey Aerocluster offered auditing

local content or technical training for locals. Such a policy

training on the AS9100 quality norm for the aerospace

would have a positive effect on the development of regional

sector that was well-received. 2018 was a year of transition

aerospace value chains. A project to create a public sector-

from AS9100 to the new AS9100 Revision D, so several

specific fund that supports Mexico’s aeronautics industry

companies were interested in updating their certifications.

would also be an advantage. There is a similar fund that

We also worked closely with the US FAA to certify three

supports research, technology development and innovation

MRO shops based in Nuevo Leon. These companies

for the space sector, despite Mexico having a small

received the 14 CFR Part 145 certifications, which allows

participation in the development of space components,

them to service US aircraft.

but there is nothing of the sort for aerospace production.

Q: What strategies is Monterrey Aerocluster implementing

RC: The government must implement a policy to level

to boost local aerospace companies?

Mexico’s aerospace trade balance. There is a significant

RC: Special chemical finishes, thermal treatments and

trade deficit for this sector but no government-backed

other services that fall under the scope of metal finishes

project that requires aerospace companies to develop the

are the most important gaps. This challenge prevents us

capabilities of local suppliers.

from producing more machined or sheet metal components in Nuevo Leon. Certifications needed for some of these

Q: What milestones has Monterrey Aerocluster reached in

processes are an area of opportunity that local companies

its collaboration with local academic institutions?

have not yet developed. Monterrey Aerocluster plans to

CB: Monterrey Aerocluster opened new offices at the Center

launch a new initiative to help members close this gap

for Research and Innovation in Aeronautics Engineering

before the end of 2021.

(CIIIA) of the Autonomous University of Nuevo Leon (UANL). Having a direct presence at the center fostered

Aside from supporting technical training for certifications,

greater participation between UANL and Monterrey

Monterrey Aerocluster also offers a series of seminars to

Aerocluster’s work committees and enabled us to organize

help SMEs meet potential buyers and to attract more metal-

more matchmaking events for suppliers and clients. We have

mechanic companies to the aerospace sector. Our objective

also collaborated with ITESM in entrepreneurial areas, such

is to develop a solid supplier base that consolidates Nuevo

as the definition of a strategic plan for our manufacturing

Leon’s manufacturing capabilities.

work committee, as well as with the Monterrey University and the Regiomontana University to a minor extent.

CB: Monterrey Aerocluster saw its membership grow with 12 new companies. These are metal-mechanic companies,

That being said, our cooperation with academic institutions

thermal treatment suppliers, manufacturing companies

is more with technical schools. Monterrey Aerocluster works

and MRO services for executive aviation. Some of our new

with CONALEP, CECATI and CBTIS, all of which graduate

members do not target the aerospace sector directly but

technicians in areas such as tooling and machinery.

are interested in improving their production processes, which is one of the advantages of being part of Monterrey Aerocluster.

Monterrey Aerocluster is a nonprofit organization that promotes the development of the aerospace sector in Nuevo

Q: How can Mexico’s new federal administration support

Leon. It works to incorporate local suppliers into the national

the development of the aerospace sector?

and international aerospace value chains

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INTEGRATION, SPECIALIZATION: KEY STRATEGIES FOR AEROSPACE CLUSTER RENE ESPINOSA President of the Chihuahua Aerospace Cluster

152

Q: Boeing and Airbus project solid growth in sales and

We expect the Mexican aerospace industry to continue

deliveries of commercial aircraft. How can the country

growing at a double-digit rate in 2019. Chihuahua Aerospace

harness this demand?

Cluster is adding value to the national industry and helping

A: The biggest challenge we face as a country is supply chain

in the development of the sector as a whole. Our main

integration and development. Mexico faces an inverted supply

competitors are not other regions in Mexico; we are one

chain pyramid problem, meaning that we have the presence

big cluster competing with outside regions, such as North

of OEMs and Tier 1 companies but we need a more robust

Africa, Asia Pacific and Eastern Europe.

supplier base with different capabilities. We must continue supporting and developing local SMEs to close the gaps in

Q: How has Chihuahua’s appeal as an aerospace

the supply chain. Foreign SMEs are starting to look at Mexico

destination evolved?

as a region with constant growth. Over 50 percent of Europe

A: We now have heat-treatment capabilities, as well as hot

and North America’s workforce will retire in the next five years,

isostatic pressing (hipping) and metallographic analysis

forcing key players in the aerospace industry to expand or

through local SMEs. We continue developing our machining

develop suppliers in countries like Mexico.

capabilities among many small players, all of them AS9100 certified. At the same time, we have a Tier 1 established in the

Q: How have the cluster’s initiatives to promote the

region that is now developing capabilities for the fabrication of

development of the local supply chain advanced?

composites, which will help to develop new technologies such

A: This is a priority not only for the cluster but also for FEMIA

as ultrasonic testing (UT) inspection. These new capabilities

at a national level. We are supporting the National Supplier

will strengthen the national supply chain, which will allow

Development Program, which started two years ago. We

companies to deploy and relocate new production lines in

have identified companies that are already established in

the region. This growth also introduces new opportunities for

the region and local SMEs with the capabilities to serve

foreign suppliers to invest in the country and fill gaps in areas

the industry’s needs and have the desire to participate

such as forgings and castings. Recently the fDi Aerospace

in the aerospace supply chain. We have also signed

Cities of the Future 2018/19 Outlook recognized Chihuahua

important collaboration agreements and coordinated

as one of the Top 5 cities with the best FDI strategy and one

important agendas with renowned international clusters

of the Top 10 for best cost-effectiveness in the world.

and organizations, such as GIFAS in France and ACstyria Mobilitätscluster in Austria.

Q: How does Chihuahua complement the aerospace capabilities of other states in the north of Mexico and in

Q: What are the main gaps in the North American

the Bajio region?

aerospace supply chain?

A: Each region has developed its own capabilities and

A: There are gaps in the sub-tier levels of the supply chain,

specialization over the past 10 years. Chihuahua specializes

including secondary services. Mexican companies need to

in interiors, engines, aerostructures and sheet metal parts,

take advantage of these gaps and continue diversifying

composites, safety and evacuation equipment, machining,

their certifications to meet not only North American market

thermal and surface treatments, NDT services, engineering

needs but European needs as well.

and design. These are essential to the national supply chain and complement the needs of all other states participating in this sector. For instance, we process parts in Chihuahua

The Chihuahua Aerospace Cluster has over 40 members,

that have been machined in Hermosillo, Queretaro, and

including five OEMs. The state receives over US$1 billion in

Monterrey; this integration and codependency among

local and foreign investment and exports over US$1.5 billion

regions is helping Mexico to gain new projects and continue

annually across all sectors

growing in the aerospace sector.

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NEW ENTITY CONSOLIDATES SUPPLIER DEVELOPMENT STRATEGY ENRIQUE RUIZ Director General of ProSonora

Q: How has the Sonora aerospace industry developed over

workforce training. ProSonora runs an aerospace vocational

the past two years and what will be the role of the newly

school in Hermosillo and coordinates with other institutions

created ProSonora office in boosting the sector’s growth?

outside this city to ensure that companies have access to the

A: We experienced sustained growth in the aerospace

skilled personnel they require. We also support companies

industry for those two years. With 65 aerospace companies,

in accessing programs and funds available from various

Sonora enjoys a large and diversified base of aerospace Tier

federal and state entities like CONACYT and INADEM. Lastly,

2 suppliers. Most of these companies enjoyed a significant

as coordinators, we act as a focal point for networking and

increase in business, which was a direct response to the

communication between companies located in several key

increase in production at their OEM clients. Growth has

production centers in Nogales, Hermosillo and Guaymas. A

also come from major investments announced in the last

scattered supply chain provides several benefits, including

two years that are now reaching their operational stage. In

limited competition for skilled labor. However, it also presents

late 2017, for example, Sonora received a 400-employee

challenges in terms of coordination.

facility from AT Engine Mexico. The facility is focused on the production of highly complex components for GE Aviation’s

Q: How have Sonora’s manufacturing and MRO

LEAP engine that is now in its initial steps toward production.

capabilities evolved? A: Dozens of new processes and several sophisticated pieces

ProSonora was formed from the merger of three entities

of equipment have been implemented at our companies.

at Sonora’s Ministry of Economy — the Sonora Industrial

Ellison Surface Technologies, for example, implemented a

Park System, the Economic Development Commission and

second Vapor Phase Aluminizing (VPA) coating machine,

the Council for the Economic Promotion of Sonora — that

which is a diffusion coating process for the protection of

previously worked, in one way or another, for the development

turbine components against corrosive and hostile operating

of local companies and the attraction of new investments.

conditions. Ellison Surface Technologies is the only third-

By bringing together these entities under a single roof and

party supplier in Mexico capable of providing this service.

under the management of the ministry, we can offer a more

Meanwhile, Shimtech Composites has fired up the largest

comprehensive approach and better coordination to investors

autoclave in Mexico destined for aerospace components,

and local companies. With SMEs, for example, we are now

which will open the possibility to manufacture the largest

better equipped to match our support programs for these

composite components ever made in this country.

companies with the needs of the local aerospace industry, which is in line with our aerospace development roadmap.

AT Engine is clearly a major milestone in the development of our aerospace capabilities. GE Aviation, after much scrutiny,

Q: What is ProSonora’s role in supporting the development

decided to outsource critical components for the production

of the aerospace sector?

of the LEAP engine to AT Engine, including blisks, high-

A: Our strategy is based on three pillars: promotion, facilitation

pressure turbines and high-pressure compressor spools. These

and coordination. Promotion is not limited to the attraction of

components are so complex that GE Aviation developed its

new investments. ProSonora creates several opportunities for

own manufacturing processes and technologies. Sonora is

established companies in our region by raising their visibility

now the recipient of these technologies.

through our participation in the most important aerospace trade shows, as well as other promotional activities. ProSonora is the new government entity in charge of

Our role as facilitators allows aerospace companies to reach

promoting investment opportunities in Sonora. The office

out to our office to obtain support on matters regarding

absorbed the responsibilities of three offices of Sonora’s

competitiveness. We particularly focus on issues regarding

Ministry of Economy

153

| PROJECT SPOTLIGHT

154

MEXICANA MRO SERVICES: CARGO DEMAND SPURS TRANSFORMATION Growing freight aircraft demand for efficient short and medium-haul cargo operations has prompted independent MRO supplier Mexicana MRO Services to start converting Boeing 737-700 and 737-800 passenger aircraft into cargo planes. According to Jesús Navarro, CEO of Mexicana MRO Services, the company upgraded the tools at its shop, adapted its storage capacity and trained its staff to achieve its first B737 conversion in April 2019. These new capabilities are part of the company’s strategy to deliver a comprehensive service offering and become a one-stop solution for airline operators. With 98 consecutive years of experience in aircraft care, Mexicana MRO Services offers line and major aircraft maintenance services, plane repairs, passenger-to-freighter plane conversions, aircraft painting and testing of some components at its 92,505ft2 hangar at tAICM. “There is no other MRO in Latin America that offers all these services, which makes us a one-stop solution for potential client operators,” highlights Navarro. Mexicana MRO Solutions can service Airbus’ A320 and A330 families, Boeing’s 727, 737, 757 and 767 series, as well as Bombardier CRJ200 and Fokker 100 aircraft. After delivering its first converted B767 in November 2017, the company converted another four aircraft from this series in 2018 and is prepared to start converting Boeing 737 passenger planes into freighters. Its 19 aeronautics repair-station certifications, including FAA and EASA, are a testament to Mexicana MRO Services' quality. These certifications enable Mexicana MRO Services to serve aircraft from Mexico, the US, the EU, El Salvador, Chile, Brazil, Bolivia, Argentina and Cuba, among others. According to Navarro, Mexicana MRO is working with the Mexican government to earn a shop certification from the Canadian aviation authority and become the first MRO in Latin America to serve Canadian aircraft by 2019. Mexico’s top carriers Aeroméxico, Interjet, Volaris, and Viva Aerobus, as well as flagship operators and world-class airlines in Latin America such as LATAM Airlines, Brazil’s Azul, Colombia’s Viva Air and Avianca, Ecuador’s Tame, Chile’s Sky and Bolivia’s Boliviana de Aviación are among Mexicana MRO Services’ clients, along with several public entities, including Mexico’s Air Force and Federal Police and Colombia’s Air Force.

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| VIEW FROM THE TOP

OPPORTUNITY DEPENDS ON SUPPLIER DEVELOPMENT SUCCESS EUGENIO MARÍN CEO of TechBA Madrid-Montreal & TechBA Aerospace

156

Q: How is TechBA supporting companies to take advantage

Our strategy is to work closely with states because we do

of growing opportunities in the aerospace sector?

not have the resources to target company by company. We

A: The world will need over 33,000 aircraft within the next

chose Aguascalientes and State of Mexico because those

10 years and existing supply chains are unable to deal with

states have strong industrial capabilities but no aerospace

this significant demand. In 2018, Mexico exported US$8.3

industry. We have now developed strategic war rooms to

billion in aerospace components and the sector continues

help companies pinpoint opportunities in the aerospace

growing at a double-digit rate. The country has a great

sector. We are also training them in other areas, including

opportunity to supply between 10 and 15 percent of the

quotations for the aerospace sector, cost-containment

components needed by aerospace OEMs within the next

strategies, regulations and supply chain development.

five years. To achieve this, FEMIA launched a Supplier Development Program to close gaps in the Mexican supply

Q: What role do clusters play in the evolution of the local

chain currently valued at US$650 million on a yearly basis,

supply chain?

which is significantly more than the US$50 million in

A: Cluster members are companies that are already selling

contracts the country had closed between January 2018

to the aerospace sector. We are working with companies

and March 2019.

that are not in the sector but could participate in it, filling niches in the existing supply chain and strengthening the

We are supporting FEMIA’s program by identifying

network of 300 aerospace companies in Mexico. Many

companies that can enter the local aerospace supply chain.

clusters are establishing their own supplier development

In 2018, we performed a diagnosis of the companies that

committees focused on specific specialties, such as

could participate in this initiative and we identified 180

machining. They are also forming strategies to better

possible suppliers. The goal is to increase the number of

promote their members. Clusters aim to specialize their

Mexico’s aerospace companies from about 300 to over 500

capabilities in ways that can complement those of other

in the next couple of years. We are now working to help 15

clusters and together offer a stronger value proposition

companies in Aguascalientes and 10 in the State of Mexico

for the global aerospace sector.

that operated in different sectors, including automotive, metal-mechanics, electronics and medical devices, to enter

Q: What is hindering the development of local design and

the aerospace sector.

engineering operations in aerospace? A: There are already excellent design centers in the country,

Q: How does TechBA identify potential suppliers for

such as GE’s that employs 2,000 engineers working in

the aerospace sector and what are the most important

turbine design. There is talent and quality education in

strengths and opportunities the company has identified

Mexico; what is missing is the infrastructure and software

in the Mexican supply chain?

necessary to engage in design and engineering practices

A: The main strength we have identified is human capital.

and employ more qualified talent, as some companies

Local companies have highly qualified employees but they

consider the initial investment in technology to be very

lack quality processes, design, engineering, systems, digital

high. It is necessary to change the corporate culture so

tools and certifications.

companies can start developing their own technology locally. This will be a slow process as Mexico is at an early stage in terms of the aerospace industry and most of its

TechBA is a technology business accelerator for SMEs in different

manufacturing capabilities follow blueprints developed

sectors, including aerospace, automotive, pharmaceutical and

by other companies. Few players have the capability to

agrifood. TechBA opened an aerospace division in 2008 and

improve and change the given designs and create added

works closely with FEMIA to promote the sector’s development

value for clients.

INFOGRAPHIC |

SOARING AEROSPACE SECTOR Mexico's aerospace sector has grown steadily for several

42,730 and 37,230 commercial aircraft, respectively, so

decades, powered by rising demand for flight tickets that

growth opportunities are ripe for Mexican aerospace

translates to more aircraft orders and deliveries. While net

suppliers. With the support of FEMIA’s National Supplier

orders to OEMs have decreased, the four most important

Development Program, Mexico's aerospace industry has

planemakers have a healthy backlog and are ramping up

set ambitious goals for 2020, including entering the Top

operations to boost deliveries. Boeing and Airbus have

10 ranking of aerospace exporters worldwide and reaching

maintained a positive demand forecast to 2037 with

annual exports worth US$12 billion.

Commercial aircraft net orders (units) OEM 2018

2017

Variation

Most ordered commercial aircraft

Commercial aircraft deliveries (units) 2018

2017

Variation

Most delivered commercial aircraft

Backlog as of 4Q18 (units) 157

Airbus

747

1109

-32.6%

A320 family aircraft (545 units2)

Boeing

893

912

-2.1%

B737 family aircraft (675 units)

806

763

5.6%

B737 family (580 units)

5,873

Bombardier1

-19.0%

CRJ Series aircraft (34 units)

-37.5%

CRJ Series (20 units)

Embraer

101

-10.9%

E175 (67 units)

368

800

718

11.4%

A320 family (626 units)

7,5772

1. Excluding orders of 30 CS300 units and deliveries of 13 planes that occurred after Airbus took over the CS Series program and rebranded it as A220 2. Estimate

The US is the largest investor in Mexico's aerospace sector with 61.7 percent of the FDI that the industry received between 1999 and 2018

Country of origin

MEXICO'S AEROSPACE FDI BY COUNTRY (1999 - 2018)

LIST OF AEROSPACE PRODUCTS AND SERVICES IN MEXICO

• Components for landing gears • High-precision machining

61.7% US 26.4% Canada 7.8% France 3.5% Spain 0.3% South Korea 0.2% Other

2,006.8

Total

DISTRIBUTION OF AEROSPACE FDI BY STATE (1999 - 2018)

• Plastic components • Surface treatments for parts

2,55.1

1,15.1

10.8

6.0

3,252.5

30.1 % Queretaro 20.2 % Baja California 19.9 % Chihuahua 12.5 % Nuevo Leon 7.2 % Sonora 10.1% Other Total

• Electric and electronic systems

858.7

State

• Powertrain components • Aerostructures (sheet metal)

Number of FDI (US$ companies with million) aerospace FDI

US$ million 979.0 657.0 647.2 406.6 234.2 328.5 3,252.5

• Interiors • Composite-material components • Engineering & design operations • MRO services

US$8.6 billion was the value of Mexico's aerospace exports in 2018

Source: FEMIA, Ministry of Economy, Airbus, Boeing, Bombardier, Embraer

In 2018, Mexico received US$161.5 million in FDI for the aerospace sector compared to US$146.7 million in 2017

| INSIGHT

SUPPLIER CULTURE BASIS FOR SUSTAINABLE GROWTH ROBERTO CORRAL President of InnoCentro

158

Having the necessary certifications and an attractive product

suppliers to control their processes and ensure sustainable

offering can go a long way to entering the aerospace industry.

growth. “In the case of InnoCentro, the use of the BlueStar

These factors, coupled with strict financing discipline, a

ERP enabled the company to triple its sales,” says Corral.

reliable management software system and a down-to-

“Having a robust ERP enables aerospace suppliers to

earth supplier culture, make up the recipe for sustainable

manage projects efficiently and to keep tight control of

growth rarely seen among Mexican suppliers, says Roberto

on-time product deliveries to uphold commitments to

Corral, President of InnoCentro, a supplier of interiors and

clients.” BlueStar helped InnoCentro control its production

components for aircraft and trains.

and delivery times as well as its organization modules, which ignited the creation of five sister companies in

“Serving the aerospace sector is no easy feat due to

2018 that support new sectors, including real estate and

strict quality and traceability requirements uncommon in

connectivity.

other manufacturing sectors,” says Corral. However, the challenges Mexican companies face to migrate into this

Although the company does not expect to reach the triple-

industry are not necessarily in their installed capacities but

digit sales growth it enjoyed in 2017, it hopes for modest

in corporate culture issues that hamper their development.

progress powered by demand in the aftermarket segment in the short term. “It is naturally difficult to maintain the

Aside from basic requirements, such as quality management

300 percent growth we achieved in 2017, which means that

certifications AS9100 and ISO:9001, Corral says financial

2019 will be slower compared to previous years,” Corral

education is the most significant challenge that small Mexican

says. InnoCentro has also put its plan to offer MRO services

aerospace suppliers face. “Prudence is key when investing

on hold while consolidating its new acquisitions. In 2019,

resources and using credit,” he says. “Companies need to look

InnoCentro acquired a German company that focuses on

for ways to self-finance new projects and effectively control

passenger cabin components and tests strategic systems

their organic growth.” This strategy has helped InnoCentro act

for Airbus’ wings. InnoCentro will transfer part of the

as its own bank when it comes to financing projects.

technology used by that company to Mexico to complement its offering in the country and leverage new opportunities to

The lack of a supplier culture is a common issue that harms

supply for airlines and OEMs in the Mexican market.

both local aerospace SMEs and the Mexican sector in general. According to Corral, Mexican suppliers tend to believe they

As a founding member of FEMIA, InnoCentro also helps

can take on production of any aerospace component, even

other Mexican SMEs enter the aerospace sector. Corral says

when these projects are outside their core business or area of

Mexico is on track to meet FEMIA’s annual aerospace export

expertise. Mexican aerospace SMEs also tend to neglect the

goals for 2020 and that the country remains an attractive

possibility of developing a manufacturing project in tandem

market for aerospace FDI but highlights that Mexico still has

with foreign aerospace clients, which harms their growth

a long way to go to develop its supplier base with talent

opportunities in the sector. “Mexican suppliers must be honest

shortages being a key challenge. “Mexico needs to train

when evaluating whether they can take on a production

the certified technicians the country’s aerospace industry

project, so they do not lose face by failing to deliver,” says

needs,” he says. MROs based in Mexico, in particular, will

Corral. “Companies that try to take on projects beyond

face new opportunities following the modernization and

their capacities are not doing anyone any favors, neither for

expansion of AICM’s terminals and the construction of a

themselves nor the Mexican aerospace sector in general.”

new airport in the Valley of Mexico. “There is space at AICM and other Mexican airports for players interested in offering

Adoption of a management software system in the form of

MRO services, as long as they have the technical, financial

an ERP or similar can be a great advantage for aerospace

and labor resources that such projects require.”

VIEW FROM THE TOP |

STATE-COUNTRY PARTNERSHIP FUELS INDUSTRY TAKE-OFF KEVIN O’SHEA Vice President of International Trade at ACA

Q: Arizona has a thriving aerospace industry. What

Q: What initiatives is ACA developing with Mexican

significant gaps has ACA identified within the Mexican

aerospace clusters and local governments?

aerospace industry?

A: Arizona is collaborating closely with FEMIA to match

A: Arizona sees great opportunities to partner with the

Arizona’s supply chain capabilities to critical gaps in

various aerospace clusters in Mexico and to fill some

Mexico’s supply chains. Arizonian and Mexican companies

critical supply chain gaps, including plastic injection

are interacting directly with each other and Arizona

molding, machining, harnesses and heat treatment. With

continues to work closely with Mexico’s aerospace cluster

1,200 aerospace companies, including OEMs and suppliers

leadership to promote cooperation. Arizona has been

of all levels, and logistically just-in-time proximity to

collaborating with clusters in Baja California, Chihuahua,

Mexico, Arizona has the capacity to fill many of these

Guanajuato, Nuevo Leon, Queretaro and Sonora.

gaps effectively and efficiently. In addition, Arizona has a substantial number of AS9100 and ISO 9001 certified

Q: What are ACA’s main achievements in the aerospace

aerospace companies that can be of immediate assistance

industry in recent years?

to the Mexican market.

A: Under Governor Doug Ducey’s leadership, Arizona is arguably the most prominently engaged US state in Mexico

Q: With over 1,200 aerospace and defense companies,

and is recognized as a national model in cross-border

what is ACA’s strategy to support these when targeting

collaboration. ACA works closely with Mexican aerospace

new areas of opportunity in Mexico?

clusters and companies and Arizona has the largest US

A: Via various export facilitation programs, ACA is assisting

state presence at key Mexican aerospace events including

Arizona aerospace companies to pursue both supply chain

FAMEX and the Aerospace Summit in Queretaro. ACA has

and final product sales opportunities in Mexico. These

also led delegations of Arizonian aerospace companies

programs support initiatives that include participation

to other key industry markets and trade events in Europe

at FAMEX, as well as at the Aerospace Summit and B2B

(including the Paris Air Show), Asia (at the Singapore Air

Meetings in Queretaro. In addition, ACA brings delegations

Show), the Middle East (with the Bahrain International Air

of Arizonian companies on trade missions to Mexico and

Show) and Australia (at the Avalon Air Show). On these

facilitates pre-arranged, pre-vetted B2B matchmaking

trade missions and events, Arizona companies are securing

meetings with Mexican companies in the aerospace sector.

sales channel partners for country and regional markets, as

Arizona’s trade office and trade team in Mexico City are key

well as making direct sales with end users.

to supporting Arizonian companies and serve as the B2B and B2G matchmakers for these players in Mexico.

Q: What are ACA’s priorities for 2019 in terms of targeting areas of opportunity in the Mexican aerospace industry?

Q: What are the main challenges Arizonian companies

A: ACA will work closely with FEMIA and Mexico’s aerospace

face when landing in the country and how does ACA

clusters to further strengthen collaboration between Arizonian

support them?

and Mexican companies based on the main opportunities that

A: Mexico has a dynamic, growing and sophisticated

we have identified in the industry. These synergies provide

aerospace sector. It is important for Arizonian companies

great opportunities for both Arizona and Mexico.

to have industry-recognized certifications, such as ISO 9001 and AS9100, so they can be of immediate benefit to Mexico in filling critical supply chain gaps. ACA also provides

Arizona

training for companies regarding trade with Mexico and how

development organization that aims to strengthen Arizona’s

to do business in the country. This gives them familiarity

economy. The state is home to 1,200 aerospace companies

with and sensitivity to Mexico’s business culture.

of all sizes, including OEMs and suppliers

Commerce

Authority

(ACA) is

economic

159

| INSIGHT

OUTDATED REGULATION HAMPERS UAV ADOPTION YOUSEFH PINEDA CEO of Cramex Aerospace

160

While Mexico has regulatory and policy challenges to

Pineda. “The sector grew 30 percent between 2017 and

overcome, penetration of new aviation technologies and

2018, which resulted in several opportunities for Cramex.”

practices means new opportunities for local aviation companies. According to Yousefh Pineda, CEO of Cramex

As a DGAC-certified training center and heliport developer,

Aerospace, Mexico needs to develop a series of policies that

Cramex has graduated around 130 licensed UAV pilots

support the adoption of new technologies and cater to the

since it started offering its services in 2017. Cramex has

current needs of Mexican aviation.

become the top trainer of pilots for these aircraft in Mexico, which adds to the company’s 15 years of experience in the

“The federal administration needs to understand the

development of helipads.

importance of aviation for the Mexican economy,” says Pineda. “Even without the challenges brought by the cancellation of

Pineda says demand for these platforms increased in 2018

NAIM, Mexico needs a true aeronautics policy.” Pineda points

out that Mexican aviation regulations require an urgent update

Chiapas, Nuevo Leon and Guanajuato, even though private

as several of these norms are 20 years old and one even dates

developers reduced their demand. “Due to uncertainty related

back to the 1950s. Similarly, projects to improve Mexico’s

to the change in government in 2018, several real-estate

aviation authority, such as the restructuration of DGAC and its

developers put their projects on stand-by but this situation

transformation into the independent Federal Aviation Agency

should change with time,” says Pineda. Cramex has kept a

(AFC), are long overdue.

steady project portfolio despite that challenge thanks to a healthy backlog of heliport projects for corporate buildings

Old regulations are among the main challenges preventing

agreed in 2017. “As these buildings enter the final construction

faster adoption of UAVs in the Mexican market, according

stages, Cramex has guided developers in the development

to Pineda. There are a few scattered guidelines regulating

of their helipad platforms,” says Pineda. The company stands

these aircraft but a consolidated NOM would boost

out in this segment thanks to its expertise in aeronautical

adoption of these highly sought-after tools. “We have seen

engineering. “We understand the various safety and design

significant growth in the adoption of UAVs in Mexico,” says

elements that developing this infrastructure entails."

VIEW FROM THE TOP |

MARS MISSION SUPPLIER TO PRODUCE FOR ONEWEB PROJECT FROM MEXICO BEATRIZ AGUILAR General Manager of Axon’ Interconex

Q: How are Axon’ Interconex’s components adding value

Q: How is Axon’ Interconex’s aerospace production divided

to space missions?

between the domestic and foreign markets?

A: Axon’ Interconex has collaborated on all missions to Mars

A: Up to 99 percent of the aerospace components that we

through its products. Our components are mounted on ESA’s

produce in Mexico are exported. We only supply for a Mexican

ExoMars probe and on NASA’s InSight and Curiosity rovers.

UAV OEM based in Guadalajara but we have looked for

Curiosity uses Axon’ Interconex harnesses in its chemical

opportunities with other aerospace OEMs in Mexico, including

chamber. All images that are relayed back to Earth go through

Queretaro’s manufacturers. In 2019, Axon’ Interconex will start

a piece of our equipment. InSight’s seismograph also uses an

supplying components directly to Bombardier’s plant in El

Axon’ Interconex harness and we are working on a new rover

Marques from our factory in Queretaro. We are also working

that ESA will launch. Our Queretaro manufacturing facility will

to be validated as an aeronautics supplier for other Tier 1s.

soon start producing harnesses that will be used in a massive

When USMCA becomes a reality, it may push aerospace

space project called OneWeb, which is placing hundreds of

companies to procure more components locally. This could

satellites in low orbit to boost global communications and

empower Axon’ Interconex’s Mexico operations and enable it

internet coverage. Axon’ produces harnesses for that project

to invoice directly to Mexico-based customers as a Mexican

in Latvia but production will be shifted to Mexico between

company, which will help us increase sales.

2022 and 2024 once our processes are validated. Q: How is Axon’ Interconex changing its product offering Q: How important are Mexico’s advanced-manufacturing

for aerospace applications?

capabilities for Axon’ Interconex’s operations?

A: Most of these products are imported. For instance, Axon’

A: Thanks to our IATF and AS9100 quality certifications,

Interconex supplies cables and other accessories to Safran’s

automotive remains the most important sector for our

Chihuahua plant that are used for several Airbus programs.

Mexico operations, followed by aerospace. Axon’ Interconex

These cables, however, are not supplied from the Queretaro

is a key supplier of mechatronic connectors and electric

plant but from another facility in France.

motors for window elevators used in FCA Group cars, for instance. We also supply flat cables for airbags to several Tier

Q: What are Axon’ Interconex’s main growth projections

1 and Tier 2 suppliers, including Kostal, Valeo and Continental.

and expansion plans for 2019? A: Axon’ Interconex needs to further position its brand so new

Q: How is Axon’ Interconex promoting stricter regulations

customers are aware of its capabilities. We will achieve this

for aerospace parts?

by offering more technical seminars at academic institutions

A: Axon’ Interconex is a member of the COTENNE committee,

that specialize in electronics, as well as working together with

where it collaborates with other aerospace entities to develop

AEM to raise awareness of new challenges in interconnection.

new NOMs for the sector. For instance, we are collaborating

We are members of several associations in the automotive

with the Mexican Space Agency (AEM) to develop a new

and aerospace sectors, including INA, the Queretaro

regulation related to the quality of harnesses and other

Aerocluster and FEMIA, which has resulted in sound business

space components. This NOM has been validated and is

opportunities. We are part of FEMIA’s Supply Chain Program,

in the process of being enforced. As a global leader in the

which helps us to find good opportunities with OEMs.

production of space components, Axon’ Interconex works with ESA, NASA and other space agencies on several projects to validate its products. Aerospace harnesses must withstand

Axon’ Interconex is a French-based manufacturer of specialty

extremely high and low temperatures, pressures and radiation.

interconnection solutions, including cables, connectors and

Our cables have been validated by these partners and we are

other components. In Mexico, it supports aerospace and

validating the connectors that these cables require.

automotive companies with high-tech wiring applications

161

| VIEW FROM THE TOP

TALENT, INVESTMENT NECESSARY TO GROW AEROSPACE CAPABILITIES JOSÉ FIGUEROA Director General of Marposs México

162

Q: How will Marposs’ new Queretaro offices help the

Q: What is Marposs’ strategy to expand its participation in

company grow in the Mexican market?

the Mexican aerospace sector?

A: The bulk of our Queretaro operations will target the

A: In 2019, Marposs will continue penetrating new regional

aerospace industry and the rest will cater to the measuring

markets in Mexico by collaborating with the regional aerospace

needs of local automotive companies. We expect to reach

clusters. We have made a great push to open Queretaro’s

new customers in the aerospace industry as that sector

aerospace cluster and now that we have positioned ourselves

develops locally. The company still has a long way to go in the

in this area, the next step is to dabble in other aerospace-

aerospace industry but Marposs is gaining a solid presence

intensive regions, such as Nuevo Leon, Sonora and Chihuahua.

thanks to its investments in Queretaro. On the automotive

We expect to take advantage of the experience the company

side, the Bajio region has become one of the most dynamic

has gained while supporting Queretaro’s aerospace industry

areas in Mexico thanks to the arrival of OEMs like Honda,

to attract more aerospace clients.

Mazda and Volkswagen to Guanajuato. Marposs’ new offices in Queretaro will help the company remain close to these

Q: What is Marposs’ strategy to stand out in the

automotive clients and offer quality customer service.

measurement-equipment market? A: Clients look for industrial equipment applications

Q: How in line are Mexican graduates with the needs of

that cater to their specific needs. Even in cases in which

the aerospace sector?

two of Marposs’ clients produce the same component,

A: Several schools have been founded in the last 10 to 15

each company will have its own tailor-made solution.

years to cater to that sector. These schools are already

For example, the crankshafts used by one carmaker are

graduating the engineers that aerospace companies need.

radically different from those used by other companies, so

Even if the demand for aerospace talent has not been fully

the measurement applications that Marposs delivers must

covered, the fact that some Mexican universities now offer

be customized for each. In that sense, Marposs becomes

degrees focused 100 percent on aerospace careers has

its clients’ partner because these companies trust that the

been a key step toward reaching that goal.

solution provided by Marposs will meet the specifications required by their production processes. We are engaged

We look for well-trained professionals with a solid education

with clients since the beginning of the production process

who can help us develop the capabilities of our company.

and offer advice on how to measure parts.

Marposs sells technology, so having a strong engineering staff is important for our business. This is one reason why

Q: What are your projections for the growth of advanced-

graduates from academic institutions like IPN are common

manufacturing sectors in Mexico?

among our personnel. Engineers graduated from Mexican

A: Mexico is ready to grow but this growth will not only

schools have the quality level to support companies like

depend on the performance of companies and universities. All

Marposs. On the aerospace side, we have also hired some

aerospace and automotive players, including the government,

graduates from the Autonomous University of Queretaro

must be ready to go the distance to attract FDI. Mexico’s

who have experience working at aerospace companies,

new federal administration, however, seems to be following a

which means they have solid training.

route different than previous governments, which has created some uncertainty for investment as companies wait to see the first results. Previous federal administrations placed great

Marposs México is part of Italy-based Marposs Group. The

importance on FDI attraction, which boosted the growth of

company offers measuring solutions and supplies services

Mexico’s aerospace and automotive sectors. If that policy is

and products that improve manufacturing efficiency and

carried on by the new government, Mexico will continue to

effectiveness in ensuring product quality

grow as a competitive manufacturing destination.

VIEW FROM THE TOP |

BOOSTING R&D THROUGH SOFTWARE-BASED VISIBILITY GUNTHER BARAJAS Vice President and Senior Director General of Dassault Systèmes de México

Q: How is Dassault Systèmes working to promote Industry

Q: What role does Dassault Systèmes play in talent

4.0 principles in Mexico?

development?

A: Our goal is to transform jobs so that people engage in

A: In September 2018, Dassault Systèmes signed an

added-value activities related to customer experience, while

agreement with the Ministry of Economic Development of

automating other processes and developing schemes where

the State of Mexico, the Automotive Cluster of the State

humans and machines collaborate to increase efficiency. We

of Mexico and the Autonomous University of the State of

developed the “Industry of the Future” concept that puts

Mexico (UAEM) to create capable talent to develop EVs

human beings at the core of the 4.0 Revolution. In Mexico,

and self-driving cars. Dassault Systèmes will open two

aerospace and automotive remain our core industries but

technology areas at UAEM so the university can start training

other sectors, such as energy and consumer products, are

students in new manufacturing technologies. We plan to

gaining momentum.

replicate the success of a similar program implemented in Wichita, Kansas. The company’s 3DEXPERIENCE Center

Q: How does Dassault’s 3DEXPERIENCE platform help

focuses on the aerospace industry and several companies

companies improve their design and engineering processes?

are taking advantage of it to carry out their R&D operations.

A: Our platform creates a collaborative environment that factors in many more elements that previously would not

Q: How will the new trade environment resulting from

be considered. Companies can now reflect comments from

USMCA impact Dassault Systèmes’ operations in

social media when developing the next generation of their

North America?

products. Similarly, having several areas of a company

A: Dassault Systèmes de México now competes with its US

collaborating simultaneously helps an organization reduce

and Canadian counterparts in terms of developing local

its engineering costs, response times and ppm rates while

suppliers. The country that manages to develop suppliers

increasing product quality from a component’s design stage.

the fastest will capture a greater percentage of regional content production. For Mexico to maintain its productivity

Q: What gaps in Mexico’s aerospace industry are addressed

level, the country needs to secure more contracts to supply

by the implementation of the 3DEXPERIENCE platform?

components.

A: 3DEXPERIENCE is the best possible communication link between OEMs and their suppliers because it ensures

Q: What are your growth expectations for 2019?

designs, simulations and working plans are shared among

A: We achieved our 20-percent growth goal for 2018. While

companies. This gives OEMs the certainty that they are

3Q18 was challenging because of changes in the energy sector

working with suppliers that have formal, well-defined

that impacted Dassault Systèmes’ energy-oriented operations,

processes. We are launching new cloud-based software

the aerospace and automotive industries remained strong. We

packages so SMEs can access this technology and achieve

expect to maintain this momentum through 2019 and achieve

direct communication with their Tier 1 or OEM clients.

a similar growth rate with these sectors as our most important revenue generators. We expect energy activities to remain

Key aerospace OEMs Airbus and Boeing are adopting

sluggish but the consumer goods area is likely to increase in

the 3DEXPERIENCE platform and this trickles down the

importance as consumer habits change.

supply chain. Instead of sharing files through e-mail or File Transfer Protocol (FTP), this platform allows for real-time collaboration between all tiers. Since all companies involved

Dassault Systèmes is a French software developer that offers

are aware of the final result that must be achieved, they

solutions for 3D design and product life-cycle management. Its

can start performing analysis of weight, performance and

3DEXPERIENCE platform allows companies to optimize design

design and manufacturing times.

and manufacturing processes

163

| INFOGRAPHIC

SOLID RESULTS FOR COMMERCIAL AVIATION Despite rising jet fuel costs and the strains of a saturated

A YOUNGER FLEET

airport infrastructure, Mexican aviation closed a successful

• In 2018, the size of Mexico's commercial fleet increased but the average fleet age remained the same

2018. The country broke its records for both passenger

• The average age of Mexico's commercial fleet fell steadily between 2014 and 2017

and cargo traffic for the seventh and fifth consecutive years, respectively, and is projected to keep its momentum. As the sector contributes to approximately 2.9 percent of Mexico's GDP and accounts for 1.4 million direct and indirect jobs, according to IATA, a solid performance from Mexico's airline industry is good news for the country. The cancellation of NAIM in Texcoco, which according to IATA could cost Mexico the opportunity to serve over 20

164

million passengers by 2035, as well as a GDP contribution of US$20 billion and up to 200,000 avation jobs, has not

370 10.5

360

10.5

355

350

9.5

340 9.1

330 320

saturation of AICM, the most important airport in terms of

310

both passenger and cargo traffic, remains one of the main

300

challenges in aviation. Mexico's fleet grew by eight aircraft

9 8.6

317

impacted growth in air traffic so far. However, the increasing

in 2018 while the average fleet age was steady at 8.2 years.

363

8.2

8.5 8.2

305 2014

2015

Number of aircraft

2016

2017

2018

8 7.5

——Average age (years)

PASSENGER TRAFFIC BY AIRLINE (Jan-Dec 2018) Viva Aerobus: Growth compared to 2017: 331.6% | Passengers in 2018: 371,800

Total share by country of origin 66.6% Mexican 33.4% Foreign

22.4% Grupo Aeroméxico

35 Growth compared to 2017 (%)

2018 was the seventhconsecutive year of recordbreaking growth in passenger traffic

Total share by airline

2.6% Other Mexican Airlines

14.3% Interjet

17.5% Volaris

9.8% Viva Aerobus

22.3% US Airlines 11.1% Other Foreign Airlines

20 15 10 5 0 -5 -10

•• National

international

Growth compared to 2017 (%)

PASSENGER TRAFFIC BY AIRPORT GROUP

MARKET SHARE (%)

148.6 million

passengers used Mexican airports, which represented an increase of 8.8 percent compared to 2017

11 10 9 8 7 6

32.1% GACM (AICM)

5 4

Passengers (thousands)

Sources: DGAC, IATA

20 30 Passengers (millions)

14.5% OMA

26.9% GAP

2.1% Sociedades ASA

22.4% ASUR

2% ASA

FLEET SHARE BY AIRCRAFT TYPE 35

• Airbus A320 are the most common aircraft in Mexico's commercial fleet, followed by Boeing 737s

Airbus A320

• Members of the A320 aircraft family (including A320s, A321s and A320neos) account for 45.1 percent of Mexico's commercial fleet

119

363

Others

Boeing 737

Embraer E190

Airbus A321

Airbus A320neo Boeing 787

165

Percentage

total number of aircraft in Mexico

CARGO TRAFFIC BY AIRLINE (Jan-Dec 2018) AeroUnion: Growth compared to 2017: 114.2% | Cargo in 2018: 12,898 tons

Total share by country of origin 44.5% Mexican 55.5% Foreign

Total share by airline

Growth compared to 2017 (%)

50 45

12.9% Grupo Aeroméxico

11.4% AeroUnion 6.7% Mas Air

3.6% Estafeta

9.9% Other Mexican Airlines

16.2% European Airlines 11.6% Asian Airlines

2018 was the fifth-consecutive year of recordbreaking growth for the cargo segment

4.6% Other Foreign Airlines

23.1% US Airlines

20 15 10 5 0 -5 -10

10 20

•• National

30 40

international

80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 Cargo (thousand tons)

MARKET SHARE (%)

Growth compared to 2017 (%)

CARGO TRAFFIC BY AIRPORT GROUP 35

1.05 million

tons of cargo were handled at Mexican airport terminals in 2018, 9 percent more than in 2017

30 25 20 15 10

55.1% GACM (AICM)

5 0

100

200 300 400 Cargo (thousand tons)

500

600

8.6% Sociedades ASA

20.3% GAP

6% ASUR

9.6% OMA

0.4% ASA

| VIEW FROM THE TOP

COLOMBIA-MEXICO: ROUTE TO LATIN AMERICAN SUCCESS MIGUEL CARDONA Commercial Director of Avianca

166

Q: What were Avianca’s main growth milestones in 2018

generate a series of services that will offer added value

in terms of revenue and passenger traffic?

to passengers.

A: 2018 was a year of transition and consolidation for Avianca. Globally, our aircraft load factor was 83 percent,

Q: How has Avianca advanced in its strategy to become a

which is well among the best in the industry at a global

technology company that flies?

level. We transported 30.5 million passengers in total,

A: This strategy is bearing fruit. In 2018, we revamped

which was 1 million more than in the previous year, while

Avianca.com, making the webpage more interactive to

generating US$4.8 billion in income. These results are

allow visitors to save their search preferences and to

strengthening our position as a top Latin American airline.

increase our online sales by making the sale much faster

In 2019, Avianca will turn 100 years old with the airline in

and improving the user experience. We continue to

a good position.

promote our app that gives our customers 24/7 access to the platform. From 2019, our loyalty program will no

Avianca Mexico also had an excellent 2018, carrying 949,000

longer offer physical cards as everything will be done

passengers, 200,000 more than in 2015. We are among

through the app.

the airlines capitalizing on the growing popularity of Latin America among the Mexican population. The Colombia-

Q: What are the most important challenges hampering the

Mexico routes are now the most important in the region

growth of Mexican aviation?

with an annual growth in passenger volume of 15 percent. In

A: 2018 was a positive year for the Mexican aviation industry,

the last months of 2018, we redesigned our flight operations

both in the national and international markets. Growth was

bank in the Bogota airport, which implied a complete

possible partly thanks to the increase in seating capacity

redesign of our arrivals and departures to make better use

for all local airlines. Ten years ago, the average seating

of the local infrastructure. This strategy allowed us to ensure

capacity of the industry ranged between 100 and 120 seats.

that our flights could take advantage of scheduling valleys,

Now, it is 150 seats because local players are increasingly

which allowed clients to benefit from shorter waiting times

betting on aircraft with more seats. This allows airlines to

and face less risk of missed connections and mishandled

bear the slow pace of airport infrastructure growth. The

baggage events.

federal administration should prioritize the improvement of the aviation industry in order to provide safety, good

We have introduced a development plan that will improve

passenger experience and increased connectivity within

Avianca’s profitability and operational efficiency. We want

Mexico and abroad.

to focus on the strengths inherent to each of our hubs while we develop a financial strategy that hedges against

Q: What challenges might Avianca Mexico face from three

market changes. Jet fuel prices increased significantly in

airports operating simultaneously in the Valley of Mexico?

2H18, which had a double-digit impact on the finances

A: Our operational efficiency relies on hubs that have the

of most airlines. For that reason, we are focusing on

appropriate infrastructure to facilitate the transport of

choosing routes not just in terms of passengers but

individuals within a single building, just like in Bogota,

in terms of overall profitability, which will allow us to

San Salvador and Lima. When we connect with our partners like United Airlines in New York or London, we focus our operations in a single building, which greatly

Avianca has been the national airline and flag carrier of

facilitates operations for airlines and passengers. We are

Colombia since 1919, making it the world’s second-oldest

waiting to see the infrastructure plan before adapting our

airline. It is headquartered in Bogota with its main hub at El

operational strategy to continue operating in Mexico as

Dorado International Airport

efficiently as possible.

VIEW FROM THE TOP |

BETTING ON TECHNOLOGY FOR SUSTAINABLE GROWTH LUIS ALVARADO Director General of AeroUnion

Q: What factors are powering growth in AeroUnion’s

as the logistics coordination will become more difficult,

airborne cargo traffic in Mexico?

especially if the final destination is outside the country.

A: By continuing with the commercial strategy that AeroUnion

167

designed in 2017, the company grew its air traffic by 25

AeroUnion expects to collaborate with Mexican aeronautics

percent in 2017 compared to the previous year and by 8

companies and with the government to find a better

percent in 2018. This strategy is based on three pillars. First,

solution for this problem. Mexico has the potential to be the

AeroUnion has strengthened its core business lines. Second,

most important cargo hub in Latin America, provided the

we concluded our organizational restructuring in 2018, which

right investments are made. Colombia, Peru and Brazil have

enabled us to be more commercially sustainable. Third, we

an advantage over Mexico in that sense. However, Mexico’s

continued to invest in the technological transformation of our

connectivity with Asia, Europe, North and Latin America

company and will finish this process in 2019. AeroUnion has

gives the country an edge to compete against and beat all

reached a milestone in terms of brand positioning and service

rivals in Latin America. It is necessary that both aviation

consistency. We now have a better understanding of what the

authorities and airlines cooperate to reach that goal.

market demands from cargo airlines and can act accordingly. Q: How attractive are dynamic hubs like AIQ and AIT when Q: What enticed AeroUnion to invest in new technologies?

cargo airlines want to expand?

A: Previously, AeroUnion compensated its limited access

A: Regional airports are always interesting for the aviation

to technologies with a highly personalized operational and

industry but they do not have as large a cargo flow as AICM.

administrative service. However, our growth forced us to

In the case of AeroUnion, it is attractive to serve these hubs

leverage technologies like ERPs or Electronic Cargo Tracking

but they are not an option for us to migrate our operations.

Systems (ECTS) to ensure sustainability. The business

Shifting cargo out of AICM is not an option to cope with its

volume that AeroUnion handles and the speed required

saturation. AeroUnion operates some flights to Queretaro

to manage it properly made the adoption of technology

(AIQ) and Bajio (BJC) as middle points to Los Angeles but

a must. Trying to maintain our growth momentum with

only when there are opportunities to market cargo aviation

manual processes but without additional technology could

services. We have brought cargo to these hubs but loading

turn this strength into a weakness and manual processes

cargo at these airports is challenging.

into an obstacle to sustainable growth. Q: What is AeroUnion’s fleet refurbishing strategy for 2019? Q: What are the most important challenges that Mexican

A: As of March 2019, we are using three types of aircraft,

aviation faces to continue growing?

which increases the complexity of an airline the size of

A: AICM is a key challenge. The airport’s administration

AeroUnion. This factor pushes us to use resources that

needs to cope with the arrival of new airlines and the

otherwise could make the airline much more efficient if

growing number of flight operations in a saturated airport. It

we had a simpler fleet. AeroUnion’s goal is to reduce its

is necessary to understand the growth projections of newly-

Airbus A300-200 fleet by using A300-600 units in 2019.

arrived airlines and evaluate potential airport alternatives to

Our long-term goal is to keep only Boeing 767-200s and

shift cargo. Mexican aviation needs a development vision

Airbus A300-600s and operate more efficiently.

that includes the perspectives of both the government and aviation players. The simultaneous operation of AICM, AIT and the new airport that is projected to be built at

AeroUnion is a Mexican cargo airline founded in 1999 with its

Santa Lucia could also introduce new challenges for both

main base in the Mexico City International Airport. In 2018,

passenger and cargo flights. This is particularly true for

AeroUnion handled 11.4 percent of the total Mexican airborne

connecting flights that go through the Valley of Mexico,

cargo traffic, according to DGAC

| MRO SPOTLIGHT

168

SAE: THE PLEASURE OF FLYING Thanks to its strategic location in the Toluca International Airport (AIT) and its extensive infrastructure and fleet, Servicios Aéreos Estrella (SAE) can provide a variety of aviation services, including FBO operations, air taxi, aircraft maintenance, management and sheltering. SAE performs over 12,000 FBO operations per year and up to six simultaneous dispatches with a clear ramp for business aircraft of all sizes. Although SAE usually performs 30 operations a day, it has the capacity to perform twice as many. SAE has renewed and expanded its ramp equipment, particularly GPUs and gear to handle aircraft weighing up to 110,000lbs. Also, having a hangar next to the airport authority, immigration and customs ramp and offices enables SAE to expedite international flight operations. SAE’s managed fleet includes three Learjets, two Challengers, one Hawker, one Citation, two Turbo Commanders, one King Air 200 and one Augusta helicopter for its air taxi services. This gives the company flexibility to provide a broad range of missions depending on the needs of the client. SAE is authorized by DGAC and the FAA to provide maintenance to aircraft, which allows the company to service aircraft with either Mexican or American plates. SAE is the only Twin Commander authorized maintenance center in Mexico and an authorized service facility of Bombardier for the Learjet series. SAE’s three enclosed-roof hangars can house over 50 business aircraft. These hangars extend over 8,395m2 and SAE’s storage ramp has been expanded by 4,500m to ensure it has capacity to accommodate aircraft staying overnight without affecting operations in the main ramp. As part of its ongoing renovation, SAE invested in a new dispatch facility. This new facility will include a pilot lounge with full amenities to cater to the needs of crews and will be separated from the VIP passenger area. This investment enabled SAE to remodel its original FBO building and repurpose it to serve VIP passengers. “With an eye to future growth, SAE focuses on exceeding customer expectations and attracting a selected portfolio of clients, both domestic and international,” says Juan José Simón, Operations Manager of SAE. “We are keeping a close eye on changing market dynamics, so we can take proactive action to react and adapt and continue to serve customers.” SAE’s most important strategy is innovating in the services it provides and striving for consistent customer satisfaction.

169

Grupo Mexico's El Retiro wind farm, Juchitan, Oaxaca

ENERGY

The Energy Reform introduced a wide array of possibilities to the country. The sector, key to Mexico’s structural development, opened to private participation. Although many of the possibilities brought about by the new legislation have not yet materialized, the reform still presents a growth scenario for the sector that will be mainly based on the legal security of investors. The electricity market will be another major player thanks to the complete opening to private investment.

However, the arrival of President López Obrador has infused the sector with uncertainty. While PEMEX will be an important focus throughout the administration, other aspects that had been opened with the Energy Reform, such as the participation of private players and the spotlight on renewable energies, remain in doubt. This chapter provides insight into the different sides of the energy and oil and gas sectors. Leading players share their vision for the development of Mexico’s open market and their expectations regarding López Obrador’s proposed changes.

171

CHAPTER 7: ENERGY

174

ANALYSIS: Uncertainty Dominates a Succesful Energy Market

175

VIEW FROM THE TOP: Guillermo García, CRE

176

INFOGRAPHIC: Energy Mix 2032 Outlook

178

VIEW FROM THE TOP: Paolo Romanacci, Enel Green Power Mexico

179

VIEW FROM THE TOP: Enrique Alba, Iberdrola México and Mexican Energy Association

180

VIEW FROM THE TOP: Miguel Ángel Alonso, ACCIONA Energía

181

VIEW FROM THE TOP: Gerardo Pérez, EDF Renewables

182

VIEW FROM THE TOP: Leopoldo Rodríguez, AMDEE

182

VIEW FROM THE TOP: Héctor Olea, ASOLMEX

183

VIEW FROM THE TOP: Irene Espinola, Grupo Bimbo

184

INSIGHT: Natalia Lever, Climate Reality Project

185

INSIGHT: Luis Vera, V&A

186

VIEW FROM THE TOP: Marco de la Peña, Cuatrecasas

188

SEXENNIAL PLAN: AMLO’s Plan to Save, Transform Pemex

189

VIEW FROM THE TOP: Matt McCaroll, Fieldwood Energy

194

VIEW FROM THE TOP: Alberto Galvis, Citla Energy

195

VIEW FROM THE TOP: Javier Zambrano, Jaguar E&P

196

VIEW FROM THE TOP: Patricio Álvarez, Perforadora Central

197

VIEW FROM THE TOP: Luis Vázquez, Diavaz and AMGN

198

VIEW FROM THE TOP: Mike Train, Emerson

199

Vernon Murray, Emerson

VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation Mexico and Latin America

173

| ANALYSIS

UNCERTAINTY DOMINATES A SUCCESFUL ENERGY MARKET The Energy Reform implemented during the Peña Nieto administration provided private players with a framework to participate in the country’s energy market. However, President López Obrador’s comments on the reform have generated a wave of uncertainty in a sector that had become a favorite of foreign investors As Mexico’s energy mix is injected with additional renewable-

decision to adapt its thermoelectric plants to dual combustion

energy capacity, natural gas is expected to play a critical

processes to gradually transition from fuel oil to natural gas.

role as a transition fuel, either through continued imports

174

or increased domestic production, which López Obrador is

Given natural gas’ contribution to the country’s power

championing. Cheaper and more environmentally friendly

supply, it comes as no surprise that CENAGAS is looking

compared to other conventional fuels, natural gas could

to use natural gas as a lever for national development

ignite the regional development of Mexico’s economically

and reach greater economic growth rates. The national

vulnerable southern region. AMLO’s chief concern is that he

pipeline administrator announced a MX$1.75 billion (US$91.2

believes contracts awarded for pipeline construction are not

million) investment in the Yucatan Peninsula. “Part of this

beneficial for the country and are costing CFE up to eight

investment will be allocated to the reconfiguration of the

times more than what they should cost. “We do not want

Zempoala compression station and the interconnection

to affect companies. We want to reach an agreement,” said

of the Tuxpan pipeline. Another project to be financed

AMLO at one of his daily press conferences.

by this investment is Engie’s interconnection between the Mayacan system with SISTRANGAS pipelines in the

With a cumulated pipeline of 58 clean-energy projects

southeastern region of the country to freely transit toward

totaling 8GW of installed capacity and US$8 billion in

the Yucatan Peninsula,” said David Madero, Director General

investments, Mexico’s long-term electricity auctions have

of CENAGAS, to Mexico Energy Review 2019.

consolidated their status as the success story of the country’s energy transition and its 2024 landmark objective

To guarantee reliability and safety to natural gas supply

of 35 percent clean energy generation. Although the fourth

for power generation purposes, CENAGAS and CENACE,

auction has been suspended, the aggressive package

the electricity system administrator, modified a critical

prices showcased in previous editions have limited auction

coordination agreement in 2017, two years after its signature

participation to a specific player profile. This includes

in 2015. “Our core objective as control centers is to offer the

utility-comparable companies with the business model and

safest, most reliable and efficient transport system aligned

financial capacity to enable an efficient and standardized

perfectly with CENACE’s mission to offer an electricity system

project development model suitable for utility-scale projects.

that is equally safe, reliable and efficient,” said Madero.

The design of Mexico’s energy market avoids cornering

The wrench in the energy industry’s machinery is the new

project developers to rely on a single scheme. On the

government presided by López Obrador. His calls to revisit

contrary, it incentivizes companies with different risk

and potentially revise the Energy Reform rattled investors

preferences and commercial objectives to look for

throughout 2018 as the presidential campaign unfolded and

alternatives in the market. Mexico is consolidating a pool

then with his victory and subsequent inauguration. Industry

of project sponsors and IPPs that are more comfortable

insiders have been unified in their calls for reform continuity,

relying on nodal prices and private off-takers rather than

which they view as mostly successful. However, the signs

auction prices and CFE as the final off-taker.

so far have been mixed. López Obrador took office with a blistering attack on the Energy Reform, which he said “had

Despite Mexico’s efforts to transition toward renewable

only meant a drop in oil production and rise in gasoline prices.”

energy, natural gas still accounts for 70 percent of fossil-

He has vowed to strengthen both PEMEX and CFE with a

fuel demand for power generation purposes. According to

mandate to thrive under market conditions, bolstering both

PRODESEN 2018-2032, combined-cycle generation alone

their budgets for 2019. The suspension of the fourth long-term

accounts for half the country’s power generation. Highly

auction also helped crack the egg of certainty that had settled

cost-effective and environmentally friendly, Mexico’s access

over the industry. The new administration has also expressed

to natural gas’ cheapest market, the US, has placed this fuel

interest in revamping the country’s hydroelectric assets and

at the center of the country’s power generation plans to

has been adamant about securing the continuity of renewable

transition toward renewable energy. In 2014, CFE made the

energy’s penetration in the energy mix.

VIEW FROM THE TOP |

TRANSITIONING TO THE NEW ENERGY POLICY GUILLERMO GARCÍA President Commissioner of CRE

Q: What will be the 2019 priorities for CRE in order to ensure a

pieces, the most important being collective distributed

competitive market while adjusting to the new policy regime?

generation. This means that a group of people can set

A: 2018 was an interesting year in terms of electricity tariffs.

up a renewable electricity installation and share among

The tariff we had before 2018 was a closed fee that obeyed

themselves all the benefits. This model has already been

to an income objective and that did not recover CFE’s costs,

implemented elsewhere in the world and it is something

so every year CFE saw its assets reduced. The change in the

that the industry has requested, so we are working on its

LIE, took this responsibility from CFE and sent it to us. The law

regulation. The second priority will be to promote the use

states that we need to recognize the costs of providing light

of EV charging stations. At the end of 2018, we published

and energy to different points across the country. We had to

the regulation that permits the installation of EV charging

analyze their efficiency and then translate these costs to the

stations and to charge for the use of electricity. In previous

tariff being paid by users in different regions. In the regions

years, EV charging stations in malls were cost-free and

where energy generation is expensive because diesel is used,

although this might sound like a good thing, for investors

there was a higher rebounding of tariffs than in other areas

it was not an incentive to set up these types of installations.

that did not have this characteristic. It was important to send this signal because this is what invites investment in regions

Today, there are around 2,000 EV charging stations in the

where energy can be offered at a lower cost.

country and almost all have been installed by automotive OEMs. The idea of this regulation is to tell them that they can

Obviously, the possibility of having these tariffs that recognize

resell electricity and by establishing a regulatory framework

the generation cost means that people now think about their

that provides certainty to investors, they can now set up EV

electricity bill. When the electricity bill is subsidized, people

charging stations throughout the country. This will prove to

do not worry about looking for other options, installing solar

be important for the country’s energy security. Inasmuch

panels, hiring a supplier, entering a bilateral contract or any

as a country diversifies its use of energy for transportation,

other possibility. We are now seeing more businesses worry

we will not depend that much on gasoline and diesel and

about having an electricity strategy for their companies. When

we will be able to have electric cars as part of the public

you realize that 60 percent of manufacturing costs come from

transportation system.

electricity, it makes a lot of sense to put someone in charge of the energy strategy for the company.

The third topic that is important to mention for 2019 is related to storage capacities. In this sense we are working on several

Also, in 2019, we will see the entrance of a significant number

regulatory pieces and we are in the process of identifying

of renewable energy plants. CENACE estimates that by the

the services that provide storage. We have identified over 18

summer of 2019, there will be 84 new electric centrals that

storage services, such as frequency regulation, transmission in

will add 12,429MW to the National Interconnected System;

peak periods, generation in peak periods, storage in hours of

this will allow less dependence on expensive fuels. What is

negative costs and sale in hours of high costs. The first private

important for the new administration is to continue with

storage terminals have been installed in Baja California Sur,

the exercises we have been doing, such as long-term and

complementing a solar power plant. Given this experience, I

medium-term auctions, and to continue with gas production

think we will see more energy storage in our country.

in the country, so we can have low-cost natural gas. Q: What will be CRE’s priorities for the electricity

Guillermo García has served as President Commissioner

sector in 2019?

of CRE since April 2016. García took part in the technical

A: In the electricity sector, we want to finish the regulation

and drafting group for the 2013-2014 Energy Reform and

intended for distributed generation. We are missing some

conducted support studies for the 2008 Energy Reform

175

| INFOGRAPHIC

ENERGY MIX 2032 OUTLOOK PREDOMINANT TECHNOLOGY PER STATE

According to PRODESEN 2018-2032, 66,912MW of additional installed capacity is required to satisfy energy demand during this period. This represents a total investment of MX$1.7 billion over the next 15 years. This additional capacity is expected to be comprised of 45 percent conventional technologies, where combined

cycle projects will have a major participation with an

installed capacity of 28,105MW. The remaining 55 percent

is expected to be generated by clean technologies, with

CAPACIDAD wind, solar, cogeneration and nuclear leading generation.

42% Combined cycle 22.1% Wind 17.1% Solar 6.1% Nuclear 3.6% Efficient cogeneration 3.3% Hydroelectric 2% Turbogas 1.4% Bioenergy 1.2% Geothermal 0.9% Coal and fluidized bed 0.3% Internal combustion

176

66,912MW

total installed capacity needed from 2018-2032

% OF PARTICIPATION ON AUTOMOTIVE INDUSTRY IN 2015

427

Efficient cogeneration

Bioenergy

Hydroelectric

Geothermal

Turbogas

Internal combustion

Solar

107

Wind

60 40 terminal production

Nuclear

80 Auto parts

projects are expected be developed between 2018 and 2032

Coal and fluidized bed

100

Combined cycle

120

INSTALLED CAPACITY (MW) AND PROJECTS PER STATE 2018-2032 6,500 5,500 29

1,886

731

Morelos

218

Michoacan

Mexico City

Jalisco

4 5

Hidalgo

Guerrero

Guanajuato

240

1,097

Durango

Colima

Coahuila

1,270

599

Campeche

Baja California Sur 324

Baja California

3,451

16 2,661

3,357

1,101

Aguascalientes

500

Chiapas

2,500 1,500

3,543

3,500

4,004

Chihuahua

4,500

Electricity consumption is projected to grow an average 3.1 percent annually between 2018 and 2032

TOP 10 POWER PRODUCER STATES Ranking

State

Installed Capacity (MW)

Veracruz

6,039

Tamaulipas

5,565

Nuevo Leon

5,136

Sonora

4,852

Oaxaca

4,237

Sinaloa

4,215

Coahuila

4,004

Baja California

3,543

Jalisco

3,451

Chihuahua

3,357

7 177

38.6%

of energy mix from clean energy generation expected by 2032 9

Wind Bioenergy Solar Combined cycle Hydroelectric Geothermal Efficient cogeneration Nuclear

Quintana Roo is the only state that does not produce energy

4,852

1,141

Yucatan

Veracruz

Tlaxcala

Tamaulipas

Tabasco

State of Mexico

Sonora

Sinaloa

9 1,271

6 1,009

1,858

2,353 179

San Luis Potosi

Queretaro

Quintana Roo

Source: PROSEDEN 2018-2032

Puebla

Oaxaca

343

Nuevo Leon

Nayarit

979

16 6

Zacatecas

30 3,220

4,215

5,565

26 22 4,237

5,136

6,039

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ITALIAN GIANT WANTS MORE PAOLO ROMANACCI Director General of Enel Green Power Mexico

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Q: What role does Enel Green Power (EGP) Mexico play in

that we want to focus our business. Mexico, for instance, is

the regional operations of Enel Group?

among the wealthiest countries in terms of resources for

A: In Latin America, EGP manages renewable energy plants

producing energy from the wind and sun. According to data

in Mexico, Costa Rica, Guatemala, Panama, Chile, Brazil,

from the Ministry of Energy, the country will build 40 solar

Colombia, Uruguay, Peru and Argentina. In Mexico, EGP is

and 25 wind power plants in the next three years and, of

the largest renewable energy player in the country in terms

course, we will play an important role in this.

of managed capacity with 2,014MW, of which 873MW are derived from wind, around 1,089MW from solar and

Q: What role does the company play in the hydro power

approximately 53MW from hydro. Mexico represents one of

generation segment?

the fastest growing markets in the region and the world. Our

A: EGP manages hydro plants in Mexico, Costa Rica,

projects here include Villanueva, the largest solar park in the

Guatemala, Panama, Chile, Brazil, Colombia and

Americas, and Amistad, which will be the country’s biggest

Argentina. Thanks to its hundred years of experience

wind farm when construction is completed.

in the field of geothermal energy, EGP is exploring and developing new opportunities in this sector. In Mexico,

Q: What features of the Mexican market are attractive to

however, EGP is primarily focused on solar and wind

EGP Mexico and what is behind the company’s results?

power generation. We manage 52MW of hydro power

A: Mexico has become one of the most attractive countries

in the country, through three plants located in Jalisco,

in the world to invest in renewable energy projects. One

Michoacan and Guerrero.

feature that has marked the country is the operation of the Wholesale Electricity Market, which has allowed

Q: What is EGP doing differently to achieve successful

industrial players to choose the energy supplier that suits

financing for its projects in the country?

its energy consumption needs under a legal framework that

A: EGP employs the BSO model, which allows us to

enables regulators to develop this market in an efficient

capitalize the portfolio of renewable energy projects more

and competitive way. In terms of PPAs, Mexico and the

quickly, reducing overall risk and accelerating the creation

US are the worldwide pioneers, and EGP’s results in this

of value. In September 2018, we announced the sale of an

area are remarkable. Our client contracts are uniquely

80 percent share in eight wind and solar plants in Mexico

structured, offering a commercial sophistication and a level

with a total capacity of 1.8GW. This strategy allows us to

of personalization that is a great differentiator. We offer

sell participation in our projects, while continuing their

access to the best financial conditions and we have the

operation and management to generate cash and invest in

ability to manage complex contracts that involve servicing

PPAs, as well as to continue developing new projects with

hundreds of freight centers spread across the country.

the resources obtained from this operation.

Q: What is your strategy to diversify EGP's project portfolio

Q: How do Enel Energía and EGP Mexico work together to

into technologies like geothermal energy and biomass?

achieve common goals?

A: We believe that wind and solar energy will allow us to

A: Renewable power generation and the sale of energy

move toward a sustainable world and it is in these sources

coexist and nourish each other within our two business units. With our qualified supplier, Enel Energía, we are closing different agreements with different commercial

Enel Green Power is the renewable energy division of Enel Group,

and industrial users under the regulatory framework of

present in 30 countries. Enel Group is a global leader in the

the Wholesale Electricity Market. For example, our plant

green energy sector with a managed capacity of around 40GW,

Magdalena II, which we just started constructing, is the

including wind, solar, geothermal, biomass and hydropower

result of different contracts with these types of customers.

VIEW FROM THE TOP |

MANY ‘FIRSTS’ AS ENERGY REFORM UNFOLDS ENRIQUE ALBA CEO of Iberdrola México and President of the Mexican Energy Association

Q: What is Iberdrola’s main contribution to Mexico’s energy

other outputs to meet demand growth, which is around 3

transition and what are the main challenges ahead?

percent annually. This requires building new plants and the

A: Iberdrola has been working in Mexico for 20 years and

rehabilitation and substitution of old ones to ensure eco-

we have a long-term view of our bet in the country, which

friendly and sustainable generation. The goal is to shift to

translates to constant operational growth. We are going

a more economic and environmentally-competitive energy.

through a key turning point in the energy and electricity

Also, I think that Mexico is the most competitive region in

sectors. We understand that our best contribution in this

the world for natural gas, given gas availability in the south

scenario is to participate in all the initiatives promoted by

of the US and Mexico’s own production. While the latter is

the Energy Reform. For example, before we could sell to

not being exploited to its fullest yet, the country has great

industrial clients under a self-sufficiency scheme but the new

reserves and potential. These conditions lead Iberdrola to

market opened-up the wholesale electricity market and we

believe that natural gas prices will perform steadily for the

were the first private electricity company to sell to a private

next 15 to 10 years. Gas should gradually substitute other

customer in Baja California with Soriana supermarkets. Also,

sources such as diesel, coal and fuel oil.

we participated from the beginning in the long-term auctions as sellers and when the possibility to join as a buyer was

Q: What is Iberdrola’s assessment of the Mexican Energy

opened in 2017, we jumped in as the first private company.

Association's performance and goals? A: The Mexican Energy Association (AME) has been in place

Mexico has a significant electricity market which is growing.

for over 20 years and convenes the main gas generation

The sector will require a great investment in transmission,

companies in the country, totaling an accumulated energy

generation and distribution infrastructure of approximately

worth of US$25 billion. AME was not created with the goal of

US$100 billion over a 15-year period. When you combine a big

representing gas generation, but as the years passed, other

market with high industrial demand and increasing industrial

agencies were created for wind, hydraulic and solar energy,

investment, you need to create a tool to allow the joint public-

among others. About three years ago, AME members saw the

private collaboration to face market challenges and meet

need to refocus the association’s activities to represent the

demand. We must keep working to fulfill the ambitions of

interest of gas generators. Since AME was reoriented, it has

the Energy Reform. For example, some aspects will require

continued growing and engaging new members. In the two

process re-engineering to adapt to the results from the

years that I will be acting as President, the goal is to focus

first four years. Another challenge is having more market

on the aspects that are particular to gas generation, such as

participants, such as qualified users. Transmission is another

IPP contracts improvement. As Iberdrola, our role is to keep

objective to overcome in obtaining more even prices across

working toward strengthening the association, always aligned

the country. While the reform has been very successful for

with its goals. The idea is not to promote any disruptive

renewable generation, investment for baseload energy must

actions but to further travel the path that was defined two

be further fostered. In short, there is a clear need to cope

years ago. The association will keep gaining relevance in

with the sector’s future demand and meeting it will only be

defending the interests of gas generation and playing a key

achieved through close collation of all the actors involved.

role in the Mexican energy sector as 50 percent of the power demand in the country is covered by gas generation.

Q: What midterm role will natural gas have in energy generation in Mexico? A: Mexico has approximately 75,000MW installed capacity,

Iberdrola is a Spanish public multinational electricity utility

as of 2017 data. These continue to incorporate generation

based in Bilbao. It has a presence in dozens of countries on four

from diesel, coal and fuel oil. If we look 15 years ahead,

continents serving around 100 million customers. Its subsidiaries

it is clear that the energy matrix will need to include

include Scottish Power, Avangrid and Elektro Holding

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AUCTION WINNER STRIKES AGAIN MIGUEL ÁNGEL ALONSO Mexico Country Manager of ACCIONA Energía

180

Q: How did 2018 unfold for ACCIONA and how do you

sunlight a day allows the country to structure a photovoltaic

evaluate the last administration’s performance?

scheme to cover its energy needs. A solar park of 145,000ha

A: Last year was one of the most challenging and successful

could meet Mexico’s energy demand, according to my

years in the history of ACCIONA Energy as we worked

calculations. I am convinced that the country could rely 100

to complete the construction of the projects that were

percent on green energy and further bet on electric mobility

awarded to us during the first and second long-term

for its future sustainable transportation initiatives. Mexico

electricity auctions. The goal was almost 600MW in total

could also lead any initiative to fight climate change, reduce

and we accomplished it with the Puerto Libertad plant

carbon emissions and promote renewable energy. Mexico

in Sonora and the Cortijo project in Reynosa. I believe

can be self-sufficient in green energy. While I advocate

these projects were a milestone not only for us but for

for a diversification of the energy matrix and the inclusion

the Mexican energy sector as they provided certainty to

of innovative technologies, I also believe in Mexico as a

the auctions. It was also a successful year for us because

leader in the energy sector worldwide. ACCIONA will be

we sent the message to the country and its past and

there to help the country attain this leadership and the

present administrations that things were done properly,

change the energy system needs. The new administration

proving the success of the Energy Reform. We were able

has announced its pursuit of this change. We have been in

to get important projects running at very favorable costs.

contact with several government officials and are confident

Cheaper energy is coming into the market. We thank the

that we must keep betting on Mexico and collaborating

past administration for implementing such a well-structured

with the government.

world-class Energy Reform in such a short time. As for the new administration and the future, I hope our work will give

Q: What are the company’s expectations for the

it the confidence that the reform is working for the market.

near future? A: ACCIONA wants to almost double its capacity by 2020

Q: What is your assessment of the renewable energy

in Mexico, which means starting 2021 with 2,000MW of

industry’s future and what role will ACCIONA play?

installed capacity in renewable energy. While we used to

A: The energy that we got under the first two long-term

work mainly with wind farms, the Puerto Libertad project

electricity auctions is directly delivered to CFE as the

got us to 35 percent of photovoltaic installed capacity,

Clearing House had not been established by then. As for the

so we will continue to seek a balance between wind and

third auction, there are no ongoing projects yet. We have

solar energy. We have three more plants in the pipeline for

accumulated 1,200MW of installed capacity, which is equal

construction in 2019. This implies an additional investment

to providing energy to 1 million families of four people.

in the country of US$1-1.2 billion over the next two years. Our

Mexico achieved record-breaking energy prices in 2017,

partner company Nordex opened a new wind blades plant

with the lowest historic price in the world of US$17.9/MW.

in Matamoros in March 2019, which will create 900 new

Mexico is a privileged country as it has high solar irradiation

jobs. This plant speaks to our solid bet on Mexico and our

across its 3,400km at the northern border. The country

commitment to bringing development to those states that

has almost 12 hours of daylight, plus another four hours

need it and have the natural resources, such as Tamaulipas.

of light between dawn and dusk. Having about 16 hours of

We also want to be integrated with the communities in which we work and to deliver shared value to them. This is our company’s mission so we will continue to pursue

ACCIONA Energía , a subsidiary of ACCIONA, is a global

it in every project in which we work. Our investment in

operator of renewable energies with more than 9,000MW under

social development in Mexico is significant and tangible.

ownership. It has 222 wind farms, 76 hydro plants, several large

For example, we have been doing social work in Reynosa,

PV plants, biomass installations and a CSP plant

especially with local schools.

VIEW FROM THE TOP |

FRENCH GIANT EYES DG, QUALIFIED SUPPLY GERARDO PÉREZ Director General of EDF Renewables

Q: Considering EDF Renewables’ experience, what

moving forward and we believe that around February or

possibilities do you see in it becoming a qualified supplier?

March 2019 we will be able to start construction.

A: EDF Renewables has a sister company called EDF Trading, located in Houston, which is a qualified supplier.

Q: What is EDF Renewables’ method to approach smaller

Though in the past EDF Trading has not been interested in

companies and supply them with electricity?

participating in Mexico, we are in discussions to see if the

A: For these companies, we are fortifying the sales structure

Mexican market has become more appealing. However, we

with special personnel that will take our clients by the hand

are also looking for new business model alternatives with

when they do not have the relevant energy expertise.

other types of generation such as distributed generation,

The idea is to have a team with a strong commercial and

and we are in the process of designing a strategy for

advisory profile that can provide the technical expertise,

these alternatives. Preparing for this, we acquired two

which will be the key to doing business with these clients.

companies in the US that will strengthen our capabilities in this regard.

When we present ourselves to big companies that have an energy department, we are all speaking the same language.

Q: In addition to the distributed generation opportunity,

However, with smaller clients we advise them and show

which other niches is EDF exploring to generate presence

them the benefits of the new structure. These are clients

and add value to the market?

that want to see a quick return on their investment. So, we

A: We are working on two different options. The first is

have to be creative in the way we offer the product, where

transmission, where we are actively participating in one of

clients see benefits as soon as possible.

the consortiums bidding on a direct-current transmission line in Oaxaca, through our affiliate company, RTE, the

Q: What can we expect from EDF in terms of participation

French transmission system operator. RTE has also signed

in the generation niche?

a memorandum of understanding with CENACE for

A: This will be determined by whether any future auctions

technology and information transfer, since it is the world’s

take place given that the fourth long-term electricity

most qualified company in the area of electricity grids.

auction was put on hold by the new administration. Our participation in auctions depends a lot on their continuity.

The second is a French company that we are just starting

We also just signed an important bilateral PPA.

to work with that provides engineering services for various fields, including nuclear, hydraulic, thermic, transmission,

We expect to continue with PPAs. We have a disadvantage

direct-current and renewables. It will also work for third

as we are not a qualified supplier, which would allow us to

parties and as advisors to the government on topics

sell directly to the final user. We are making associations with

regarding nuclear plants, an area where there is not a lot

several qualified suppliers, so we will be able to participate

of expertise in Mexico.

in the market with them. Our trading affiliate must first show interest in participating in trading in Mexico before we can

We are also opening a business line for operation and

become a qualified supplier, but it is already operating on a

maintenance for third parties. In fact, we have already

global level. This is something we will discuss in 2019.

signed three important contracts for maintenance and operation of third-party solar and wind-power projects. EDF Renewables is a market leading independent power

We completed the Sonora solar project in December 2018

producer and service provider with over 30 years of expertise

and started operations in January 2019. The wind project

in renewable energy. It works across the value chain, in grid-

in Oaxaca, which had certain social issues to be solved, is

scale power, distributed solutions and asset optimization

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MORE TRANSMISSION LINES ARE NEEDED TO BOOST WIND GENERATION LEOPOLDO RODRÍGUEZ President of AMDEE

182

Q: Which market scheme is best suited for the development

be established because O&M costs are low and there is no fuel

of wind energy projects?

in between, which means low volatility. Under the previous

A: Wind energy projects manage high volumes of generation

regulatory framework, it was not easy for small or medium

in Mexico. This technology is benefiting from PPA schemes and

sized consumers to participate in the PPA structure. Before,

the long-term electricity auctions. Bilateral private contracts

the off-taker had to become partner of the project in question.

are gaining traction because the prices offered by wind

It was a game in which only big players could participate. Now,

projects are at least as competitive as conventional energy

every consumer can participate without becoming a partner

sources and usually, even more competitive. Additionally, they

in the project. Before the implementation of the new energy

represent long-term price certainty. Long-term contracts can

model, we were used to having fixed prices for at least one month but now these prices change every hour. We also still have a methodology to define electricity tariffs and this is

The Mexican Wind Energy Association (AMDEE), founded in

limiting smaller consumers’ participation in bilateral contracts.

2005, brings together developers, manufacturers and service

Long-term electricity auctions allow the purchasing parties,

providers to represent common issues before the authorities,

mainly CFE Suministro Básico, to fulfill their energy needs

society and economic players related to the wind energy sector

without the need of investing.

| VIEW FROM THE TOP

A UNITED SOLAR FRONT HÉCTOR OLEA President of ASOLMEX

Q: What has been ASOLMEX’s major contribution to the

distributed generation. This kind of unification did

solar industry in Mexico?

not exist a few years ago and has motivated a greater

A: ASOLMEX has achieved many objectives in the past

interaction with relevant decision-makers, such as the

few years. In 2014, when we started the association,

Ministry of Energy, CRE, CENACE and even CFE. During

ASOLMEX was comprised of 10 founders and to date

this journey, we have fought many battles, including the

it has more than 110 members. The first achievement

removal of the 15 percent import tariff imposed on solar

is the consolidation of an industry in constant growth.

panel technology.

ASOLMEX unites the interests of all the parties involved in the solar industry value chain, from big utilities to

Among the association’s activities, one of the most interesting initiatives is Ilumínate. This social program delivers solar lamp kits to communities that do not have

Mexican Association of Solar Energy (ASOLMEX) groups

access to the grid. It is one of the flagship projects we are

operators, investors, providers and developers of utility-scale solar

most proud of. ASOLMEX’s main goal is to develop the

projects. It represents the interests of the industry and motivates

solar industry in Mexico and energy democratization plays

the advancement of the regulatory and legal framework

an important role within this.

VIEW FROM THE TOP |

CLEAN ENERGY USE A COMPETITIVE ADVANTAGE IRENE ESPINOLA Global Renewable Energy Director at Grupo Bimbo

Q: Grupo Bimbo is a world-renowned bread-maker and

Q: What was the main driver behind being the first

also part of the RE100 global initiative. What was the

company to issue a CEL through distributed generation?

main reason for joining and what is its purpose?

A: We do not have a set goal for CEL but we already have

A: RE100 is a collaborative, global initiative that brings

covered this requirement due to the legacy contract the

together more than 100 influential businesses committed to

company holds with Piedra Larga’s wind farm. As Grupo

100-percent renewable electricity consumption. In fact, we

Bimbo, we do not need to accomplish that goal as we

are the first company in Mexico and even in Latin America

are registered as basic users with CFE, so we are already

to join this movement. Generally, in these initiatives, Grupo

paying for CEL in the tariff CFE is charging. Even so, we are

Bimbo participates as an agent of change. The idea is that

participating with our distributed generation facilities. The

after taking the first step, more companies follow up by

goal is to generate 5 percent of clean energy in 2018 and

identifying successful case studies. This has an important

to increase that to 8 percent in 2019. We do not need that

impact in Mexico as renewable energy is the best option

renewable energy certificate as we are already covered

for achieving sustainability. For Grupo Bimbo, being able

but the idea is to offer these certificates in the market for

to use clean energy represents a competitive advantage

other companies that cannot invest in clean technologies

from a social, environmental and economic perspective.

but must comply with this requirement. So far, Enlight has served as the generator and ENGIE has acted as our

Q: What is the company’s guideline when selecting

qualified supplier for trading these certificates in the

strategic alliances to work with?

market. This company reports these CEL in the system

A: Grupo Bimbo is present in 32 countries. Our strategic

and collocates them in the market.

allies are located in every region we open. We do not always work with the same companies but we explore

Q: What differentiates Mexico from the other 31 countries

options in each location. When we enter a country, we

where Grupo Bimbo holds operations?

get to know the current legislation and open auctions

A: Mexico was the first country where we started with

related to energy topics. For these auctions, we seek out

the RE100 initiative. We began in 2012 with the Piedra

companies that we already know so they can introduce us

Larga wind farm located in Oaxaca. Through this project,

to other players. In the end, the energy industry is small

we supply 70 percent of our national operations. The

and we all know each other. These auctions are open to the

remaining 30 percent comes from solar distributed

market and any player that wants to participate, can do so.

generation and the installment of another wind farm. With this capacity, Grupo Bimbo produces 40 percent

Q: What is Grupo Bimbo’s role is the solar distributed

of its global energy supply through renewable energy

generation segment?

generation. For 2019, we have signed a contract with

A: We are installing 20MW at our 42 producing plants in

Invenergy to construct a 100MW plant in Texas that

Mexico through this scheme. This project is already being

will start operations this same year. This installment will

executed and we hope to finish it by July 2019. For this

provide an additional 35 percent capacity globally. With

project specifically, we conducted a national auction

this, we still face a 25 percent generation deficit that will

process. We weighed whether to address installments

be supplied from other geographies.

individually or the project as a whole. In the end, we realized the most beneficial thing to do was to select a partner at a national level because it is quite complicated to have

Grupo Bimbo is a world-renowned Mexican bread-maker with

various partners and control all this equipment in many

operations in 32 countries in the Americas, Asia, Africa and

locations. We are working with Enlight on this project as it

Europe. The company produces more than 13,000 products

is the biggest distributed generation company in Mexico.

through 100 different brands, employing 139,000 people

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| INSIGHT

JOINT GLOBAL ACTION NEEDED TO STEM CLIMATE CHANGE NATALIA LEVER Regional Director of Climate Reality Project

184

Climate change is the most significant threat the world

reduce their carbon emissions or pay more to keep

and humanity has ever faced, says Natalia Lever, Regional

business as usual. “Each company will decide how much

Director of Climate Reality Project, an international

it wants to invest. In the long run, it will be more profitable

organization that seeks to catalyze solutions to stop this

to reduce carbon emissions than to continue paying to

phenomenon. “Climate Reality Project’s goal is to empower

maintain current emissions.”

citizens by providing them with information about climate change. We have over 17,000 members. This means 17,000

Lever says renewable energy solutions must also be

people talking about climate change and helping decision-

available to the overall population. “We do not necessarily

makers take notice of the problem in over 149 countries.”

need big solar farms to produce clean energy in cities. We could use the roofs of buildings and houses for solar panels.

According to Lever, climate change can only be addressed

The important thing is to give people the opportunity to

through joint actions, although countries must take

choose the source of the energy they consume.”

individual measures to reduce their greenhouse emissions. This joint commitment resulted in the Paris Agreement,

Contrary to popular belief, renewable energy projects

in which Mexico assumed a leadership role. “Mexico’s

have become profitable for businesses and accessible

participation in the Paris Agreement was historic given

to consumers, Lever says. “A few years ago, this was an

the ambitious commitments it subscribed to and how it

expensive technology but prices have come down. It

opened the door for more developing countries to commit

is no more expensive than what we have now and it is

themselves in an important way.”

even more economical when compared with the costs of pollution and its consequences.” She points out that it

Mexico has also put action to words, Lever says, creating

would be even cheaper for the government if subsidies

a number of entities to help it achieve its goals. “Mexico

applied to electricity were used to pay for solar cells or

has developed several institutions to address climate

energy efficiency technologies. “The government would

change. We have a general law, state laws, a fund and a

stop paying the subsidy once the asset is completely paid.”

council to help with the fight. The country also has several inter-ministerial entities in charge of complying with the

Businesses and the government must remember that

Paris Agreement commitments, which puts us in a viable

complying with the commitments of the Paris Agreement

context to comply with our objectives,” she says.

requires a coordinated action between the public and private sectors, Lever adds. “The industry needs to

Lever highlights two specific points regarding Mexico’s

understand the benefits of having economic practices

determination to see its commitments to fruition: the

without negative externalities.” Lever also says the

energy transition and the carbon market, although there is

government must double its efforts to go beyond the

still a considerable way to go. “We have made progress in

institutional framework. “The government needs to create

this regard but much remains to be done. Industries need

a roadmap that allows us to know which industrial and

to better understand the benefits of renewable energies

economic sectors need to participate and how they

and there is no clarity regarding the national market’s

will do it.”

conditions for this new type of energy.” Despite the threat that climate change poses, Lever says The carbon trading market is another important piece of

that it is not too late to do something, “We like to say

the puzzle. “The market will offer an important incentive for

that the sustainable revolution has the same power as the

companies because it directly impacts competitiveness,”

industrial revolution but with the speed of the technology

Lever says. The market will force companies to either

revolution.”

INSIGHT |

RECONCILING SOCIAL AND ENVIRONMENTAL PROTECTION WITH BUSINESS DEVELOPMENT LUIS VERA Former Partner at V&A

A first reading of the energy industry’s regulatory framework

includes two additional development phases that will add

suggests that environmental impact assessments should be

another 150MW of installed capacity. “Each development

prioritized, followed by indigenous consultations and finally,

stage required a different assessment, including social and

the social impact assessment. But Luis Vera, Former Partner

environmental impact assessments,” says Vera. Based on the

at socio-environmental law firm V&A, says this is not always

firm’s extensive work dealing with social and environmental

the case. “The logic behind this established timeline is at

issues, Vera believes it is essential for developers to be

odds with the actual fieldwork,” he says. “Environmental

aware of the importance of these steps. “Investors must

impact assessments have looser time frames and we use

become increasingly aware that nontechnical issues have a

this time to simultaneously cover the social aspects that

prominent social component,” he says. “Anthropologists and

overlap with environmental issues.” This means the firm

sociologists must be involved to build lasting relationships

can get a sneak peek at social insights such as indigenous

with local communities.”

presence or sensitive environmental areas prior to carrying out the consultation process.

When presenting its social and environmental impact assessments, V&A adds a chapter that takes into account

Compliance with the social and environmental requirements

the project location’s needs and regional development

when developing a large-scale energy project can prove

goals. “By doing so, our clients obtain increased certainty

challenging, especially considering the regulatory

on where to focus their investment, not only to grow

framework remains largely in the draft stage. Duplication

the company’s own business but also to contribute to

of responsibilities within government agencies does

the long-term regional development of the project’s

little to solve the problem, says Vera. “SEMARNAT and

location,” Vera says. The firm is also actively involved in

ASEA developed two different standards of the same

the public side of the social and environmental equation.

regulatory framework due to their respective mandates,”

“One of our partners is developing an algorithm together

he says. “Meanwhile, the Ministry of Energy’s social impact

with the Ministry of Energy so it can be more selective

guidelines are still on the drafting table, meaning social

in the projects it reviews, shifting from anecdotal to

impact assessments lack an established reference.”

standardized procedures.”

In 2017, the firm obtained 43 authorized social impact

In the near term, Vera worries litigation services will be

assessments, with 24 more in the pipeline for 2018. Using

more in demand due to the way the first procurements

this experience, V&A established a series of precedents

and allotments were carried out after the reform passed,

related to energy law interpretation and how environmental

both in the oil and gas licensing rounds and the long-

legislation applies to both regulated and nonregulated

term electricity auctions. “ASEA’s and SEMARNAT’s early

users. “V&A showcased consistency in all its assessments

heavy workload and understaffed agencies mean some

and legal interpretation to help decision-makers streamline

shortcuts were taken, such as hastily granted authorizations

their authorization and permitting processes,” he says. “Our

and procedures, casting doubt over the legality of a few

work also generates certainty in evaluation by financial

projects,” Vera explains.

entities.” From its outset, V&A established itself as a strategy firm Oak Creek’s Tres Mesas wind farm in Tamaulipas is among

rather than a litigation firm, given effective strategies

the large-scale energy projects V&A was involved in. It

eliminate the potential for later litigation, but that is

started as a pilot project that soon extended to a first and

changing. “We prioritized creativity over legal defense. But

second development phase totaling 148MW of installed

considering the coming scenario, we are also developing a

capacity, operating since May 2017. The project now

specialized litigation department,” says Vera.

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| VIEW FROM THE TOP

THE CONSTITUTIONAL RATIONALE BEHIND THE ENERGY REFORM MARCO DE LA PEÑA Partner at Cuatrecasas

186

Q: One of the strongest areas for Cuatrecasas in Mexico

related to our clients’ projects. Additionally, Cuatrecasas

is energy. How does the company provide value to its

collaborates with the authorities to communicate the

customers?

needs of the private sector and provide opportunities

A: Cuatrecasas opened its office in Mexico with the goal

for cooperation, allowing both authorities and clients to

of becoming a leading firm in the energy sector providing

understand the needs and specific interests of the other

a unique multinational value based on our experience,

and reduce risks.

which is unparalleled among our competition. We are an international firm and our goal is to provide our clients with

Q: One objective of the ZEEs is to improve the economies

a complete service in legal areas, including infrastructure,

of southern states. What should be the government’s main

oil and gas and renewable energy. Cuatrecasas incorporates

considerations for this project to be successful?

the experience of more than 100 years of service in Spain

A: Given our experience, we believe the government should

and the experience of our Mexican specialists.

create business incentives for companies interested in developing projects in southern Mexico through, among

Q: How can Cuatrecasas help to strengthen the

others, simplifying legal procedures and providing legal

competitiveness of its national and international customers

certainty to long-term investments. Cuatrecasas has

in Mexico?

collaborated with some local governments to create tax

A: Thanks to the current legal framework governing energy

incentives to increase private investments, consequently

matters, Mexico closed 2018 with 111 signed exploration and

benefiting investors and local governments.

extraction contracts with approximately 75 companies from 25 countries. These numbers show the legal framework’s

As established, governments should simplify procedures,

stability, which will continue to support the industry.

making them more efficient and “user-friendly.”

Cuatrecasas provides complete legal assessment in

Additionally, public registry platforms and services should

constitutional and energy matters, according to the specific

be updated and provide complete and timely information.

needs of our clients. We provide them with legal options to

It would be a great idea to incorporate municipal, state

resolve any issue that may arise regarding energy-related

and federal registrations. Through simpler and more

matters, among others.

efficient administrative procedures, expenses for both the government and companies can be reduced, generating a

We trust the legal framework because it guarantees a space

more attractive and certain investment.

for fair competition and an opening to the downstream and midstream sectors without compromising the ownership of

Q: Does Mexico have the appropriate legal framework to

Mexico’s resources. Our experience allows us to generate

ensure economic and social development?

complete and integrated analysis regarding specific

A: Mexico has a multicultural and diverse population,

activities and legal frameworks that measure or estimate

so legal frameworks must address scenarios that are in

possible risks in the energy and infrastructure sectors. We

constant change and development. The country also

are especially proficient in reviewing different procedures

incorporates a complete and extensive legal framework to

and advising on overcoming legal and contractual obstacles

create a prosperous economic and social environment. In our opinion, one of the main problems regarding the legal framework lies in its application. Instead of focusing on

Cuatrecasas is a Spanish-Portuguese law firm present in 12

improving its legal frameworks, Mexico should focus on

countries that represents leading companies and advises them

strengthening rule of law. This change in Mexico would not

on their market investments. Cuatrecasas also has expertise in

only improve the life quality of its people but could also

litigation and international arbitration

change the sometimes negative perception that national

and international companies have of the country and its

Q: What measures should be implemented to strengthen

business environment. Law firms like Cuatrecasas have a

Mexicoâ&#x20AC;&#x2122;s energy sector?

responsibility to aid the government, private entities and

A: The new administration could review the constitutional

foreign investors in creating a working communication

and legal scope of the energy legal framework based on

through which real problems are considered and workable

international trends and analyze business strategies for the

solutions are proposed.

development of public companies, private companies and Mexicoâ&#x20AC;&#x2122;s best interests. It is necessary to review an energy

Q: What is more demanding for Cuatrecasas: providing

model beyond the current legal framework that allows

services to Mexican companies with national operations or

growth for private entities and the Mexican economy. There

providing services to foreign companies in Mexico?

has been much discussion about investments and capital

A: As an international law firm, we have both types

inflows in the energy sector but little has been said about

of clients and legal experts capable of addressing the

the management, planning and allocation of those resources.

specific requirements of each. Generally, it can be more demanding to help foreign companies wanting to invest in

The new administration should propose strategies to

Mexico mainly because they are not familiar with specific

strengthen the legal and constitutional framework to

regulations or applications that in Mexico may vary

improve the development of the oil and gas industry

from international standards. As an example, oil and gas

and renewable energies. Additionally, it could strengthen

biddings follow a national procedure, whereas international

its productive state companies (PEMEX and CFE), while

conditions have been and are currently being implemented

allowing the development of clean and renewables projects.

in other countries. Our wish regarding the new administration includes Cuatrecasas has outstanding experience in providing

strengthening the energy sector through both productive

international legal assessments to different types of

state companies and private investment opportunities,

clients. We have introduced this experience to Mexico,

providing legal certainty and generating incentives for the

taking advantage of over 100 years of knowledge and

development of Mexicoâ&#x20AC;&#x2122;s energy and infrastructure industry.

experience in European legislation and incorporating it into

This administration should target win-win scenarios in which

our assessment of legal Mexican frameworks through our

economic and legal benefits are provided to the industry to

local legal experts.

promote social and economic growth in Mexico.

187

| SEXENNIAL PLAN

AMLO’S PLAN TO SAVE, TRANSFORM PEMEX The Energy Reform has suffered attacks from the presidential administration, to the point that investors fear the door that liberalized the energy market will once again close. President López Obrador has set direct strategies to salvage PEMEX’s operations. It is a brave new world but also an uncertain one The energy sector and rescuing PEMEX are two essential points on President López Obrador’s agenda. Although the administration says that all contracts agreed by the 188

previous administration will be respected, there has been a surge of uncertainty regarding the fate of the Energy Reform and of investments already made from the private sector.

“We are at the beginning of a new paradigm to transform Petróleos Mexicanos (PEMEX) into a lever for development”

President López Obrador says that PEMEX is experiencing its worst production crisis in four decades. To address this, in March 2019, the president released his plans to rescue the national oil-producing company. “We are going to rescue the national oil industry,” he said. Part of his plan to give PEMEX new life is to inject fiscal resources to increase its production. The plan, however, has failed to win over international rating agencies like Fitch Ratings, which lowered PEMEX's credit score for the Mexican productive enterprise from BBB+ to BBBin both national and foreign currencies. Fitch Ratings said the plan announced by the government is not

“We are going to rehabilitate our six refineries. We will build another one in Dos Bocas. We will produce more oil and gasoline without gasolinazos and without an increase in taxes”

enough to counteract the deterioration of the company’s credit profile. According to Octavio Romero, Director General of PEMEX, the company’s crisis is the result of the Energy Reform. Romero says that as a result of the reform, the government reduced federal resources that were used for exploration and instead diverted them to seismic and deepwater perforation studies. AMLO’s strategy dictates the government will now divert a significant amount of resources to well drilling. The president is determined to rescue PEMEX and has stated that this does not entail automatically canceling the exploration and production contracts that have

administration will give the private sector the opportunity

“We are going to prove which is better: for PEMEX to hire or privatization. No ideologies, just practical judgement”

to compete in the Mexican market.

March 19, 2019

already been assigned with international oil businesses. As a result of the Energy Reform, the private sector’s net production account is only 4,000b/d, which is “very marginal for the needs of the country,” says López Obrador. He added, however, that the federal

VIEW FROM THE TOP |

BLAZING A PRODUCTION TRAIL IN SHALLOW WATERS MATT MCCAROLL CEO at Fieldwood Energy

Q: Why did Fieldwood Energy increased the estimated

jacket will be set before other wells are drilled. Three or

reserves at the Block 4 field off the coast of Tabasco?

four additional wells are likely in Ichalkil and one or two

A: From the beginning, we believed the figures to be low. The

in Pokoch during the first phase. The company’s plan also

revised 455MMb estimate includes only oil and we believe the

involves laying pipeline from our block to an unused PEMEX

recoverable reserves to be much higher, around 650MMb. The

platform where we will transfer custody of the oil and gas

estimate is a result of drilling, completing and testing on only

from Fieldwood to PEMEX. The agreement for this transfer

two wells in Pokoch and Ichalkil; there will be more to come.

of custody point is being finalized and is the most efficient

We have both Jurassic and Cretaceous reservoirs and we think

way to begin production quickly.

the field will be huge. The company is on schedule to hit first production in 2020 while maximum production, which CNH

Q: How will Fieldwood guarantee the correct measurement

estimates at 104Mb/d, should occur in 2026. At the same time,

of well production?

we expect gas production to hit 140MMcf/d.

A: Fieldwood will install meters for the measurement at the transfer of custody point. Metering is a big issue in Mexico

Fieldwood was able to increase reserve estimates almost

because it was not a common practice before. But our

sevenfold because the rock properties and reservoir

company possesses the technology to carry out metering

characteristics were better quality in the wells we drilled

simply and with accuracy. We will have to agree with PEMEX

than those found in the initial PEMEX wells. We moved

on the meter readings at the custody transfer point and

between 4,000-5,000ft away from PEMEX’s wells and

PEMEX will then have the option to transfer or buy the

found a thicker reservoir. Second, we did not find a water

production. We have discussed entering a contract with

level in the Jurassic or Cretaceous reservoirs, so the extent

Trafigura, which is responsible for marketing the government’s

of the area is larger than first thought. Third, on the Ichalkil

production, giving us multiple buyer options. Quality must

field, the company found that the Jurassic reservoir extends

also be agreed because we believe we have very high-quality

further east than PEMEX had realized. Fourth, because we

oil. We do not want to sell 36°API at a 26°API price.

were able to conduct extensive production tests for weeks at a time, we have determined the most efficient flow

Q: What are the next steps for Fieldwood Energy in Mexico?

rate for these wells. We now know the real deliverability

A: Our Phase 2 plan is to control our volume in Ichalkil

in terms of production volumes. While overall reserve size

and Pokoch by building a pipeline to the Dos Bocas

and recoverability is important, the way those reserves are

terminal between 2021 and 2023. But our current Mexican

developed is the key. It is the recovery amount per well

project is large and should rival the size of our US projects

where Fieldwood and the Mexican government will profit.

so we expect to remain busy for the next few years. Fieldwood has now had a footprint in Mexico for three

Platforms on this site are due this summer and the drilling

and a half years and we have built a strong relationship

rigs are scheduled to begin drilling later this year. Fieldwood

with PetroBAL. The company has established itself as

Energy is confident that the US$500 million investment

a quality operator and would consider any production-

to hit first production and the speed with which we are

sharing contract. If or when the bid rounds start again,

progressing makes this field very attractive. We already

we will certainly be involved.

have the capital in place to fund the entire development. Q: How will Fieldwood get to first production in Pokoch

Fieldwood Energy is an E&P company that focuses on offshore.

and Ichalkil?

Based in Houston, it is present in both the US and Mexico. In

A: Phase 1 of our development plan includes installing

2017, Fieldwood became the first US company in 75 years to

platforms, one at Pokoch and another one at Ichalkil. The

drill an offshore well in Mexican territory

189

| ONSHORE ROUNDS MAP

4 4 a 1

18 190

5 3

2 3

1 b

23 16

19 10 2

14 4

9 15

1 10

22 6

7 8 b

14 Bid R1-L3 R2-L2 R2-L3 Farmout

12 10 13

ONSHORE ROUNDS

Block 1

All onshore fields offered by PEMEX and CNH through the

three bidding rounds were provided through license contracts,

which involve the least government participation of all the contracting models allowed by the Energy Reform, making them the closest thing to a traditional concession contract. This provided an attractive offer for companies willing to do the complicated work of establishing or increasing production

3 12 4 13

in mature and unconventional fields that are extremely rich in

reserves, both proven and prospective, but whose extraction

involves the labor-intensive and capital-intensive application

of more specialized technology due to their difficult

geological conditions. Operators also need to account for

Winning Bidder Diavaz Offshore Sistemas Integrales de Compresión in consortium with Nuvoil and Constructora Marusa Consorcio Manufacturero Mexicano

Grupo Diarqco

Strata Campos Maduros

Servicios de Extracción Petrolera Lifting de México

the cumbersome geography of the jungle environments in

the states of Chiapas, Tabasco, Veracruz and Tamaulipas, in

addition to issues related to security, ecological regulations

Construcciones y Servicios Industriales Globales

Ingeniería, Construcciones y Equipos Conequipos Ing in consortium with Industrial Consulting, Desarrolladora Oleum, Marat International and Constructora Tzaulan

and community engagement. However, they do have the advantage of being situated close to Mexico’s legacy locations for the oil and gas industry, in many cases preceding the Mexican Revolution and the formation of PEMEX, so access to infrastructure and transportation facilities is simplified.

11 15 19

Farmouts

Winning Bidder

Ogarrio

Dea Deutsche Erdoel AG

Cárdenas-Mora

Cheiron Holdings

The fields were mostly awarded to newly formed independent Mexican operators like Jaguar E&P, along with larger established national players, such as Diavaz and Grupo Carso, that are getting involved in these rounds to launch their

Compañía Petrolera Perseus

Renaissance Oil Corporation

25 14

Canamex Dutch in consortium with Perfolat de México and American Oil Tools

Roma Energy Holdings in consortium with Tubular Technology and Gx Geoscience Corporation

GS Oil & Gas

Grupo R Exploración y Producción in consortium with Constructora y Arrendadora México

Tonalli Energía

operational and asset management capabilities. On the other

hand, the onshore farmouts were won by more established but

still relatively independent international E&P companies with a

degree of previous experience in Mexico, specifically German

DEA Deutsche Erdoel AG and Egyptian Cheiron Holdings.

The future success of these partnerships with PEMEX will

determine whether this particular form of tendering will be

expanded in the rounds to come as the AMLO administration

follows through on its plans to reinvigorate PEMEX.

4 2 3

Sun God (o) and Jaguar E&P

Iberoamericana de Hidrocarburos and PJP4

Newpek Exploración y Extracción and Verdad Exploration

6 10

Shandong Kerui, Sicoval MX and Nuevas Soluciones Energéticas

11 5 7 8

Jaguar E&P

9 14 12 Source: CNH

Carso Oil and Gas

191

| OFFSHORE ROUNDS MAP

2 1 1 3 2 4

5 3

192

5 6

11 13

12 15 16

17 18

1 2 25

26 34

28 18

4 5 32

10 28

7 29

R1-L1

R2-L1

R1-L2

R2-L4

R1-L4 Salina

R3-L1

R1-L4 Perdio

Farmout

2 31

14 33

Bid

4 15

OFFSHORE ROUNDS

Block 1

Farmout

Winning Bidder

Trion

BHP Billiton

During the bidding rounds, 64 offshore wells were committed,

has a 29 percent probability of geological success with

which is equivalent to 20 percent of all the exploration wells

prospective resources of 893 million barrels of 24° API.

in Mexico’s history, with four IOCs authorized to drill as of April 2019. The winning consortiums led by Talos Energy,

Activity is also gearing up in Mexico’s shallow water blocks,

Pan American Energy, Murphy Sur and PC Cargali have

with companies carrying out drilling operations in hopes of

started drilling operations in Mexico’s deep sea. BHP was

meeting President López Obrador’s 2.4Mb/d goal by 2024.

the first IOC to drill in the country’s deepwaters and has

Premier Oil, Talos Energy and DEA also hit black gold in

announced it will drill its third evaluation well in Trion in 2Q19.

2017 with the Zama-1 discovery, with projected resources

The company began drilling two exploratory wells in October

of 1.4-2 billion BOE. Since then, the consortium has drilled

2018 and continues to develop studies to confirm the volume

three appraisal wells, through which Zama-2 confirmed it

and composition of the hydrocarbons located in Trion, as

reservoir modeling. Hokchi Energy is also actively drilling

well as the viability of the area. Round 1 winners Total and

in Mexico’s shallow waters with its exploratory well Acan-1

Murphy Sur will soon begin drilling in their respective Etzil-1

in block 2 near the coast of Coatzacoalcos. Operators are

and Cholula-1 wells while PC Carigali expects to begin drilling

investing billions of dollars into exploring Mexico’s offshore

its first well in 2019 with an investment of US$92.8 million.

and are awaiting word on Rounds 3.2 and 3.3 that have been

Its Yaxchián well, located in area 4 and won in Round 1.4,

postponed by President López Obrador.

Block 2 7

Winning Bidder Talos Energy, Sierra Oil and Gas and Premier Oil

Block

Winning Bidder

PC Carigali, Ophir and PTTEP

Repsol and PC Carigali

ENI International

ENI and Qatar Petroleum

Pan American Energy and E&P Hidrocarburos

Fieldwood Energy and PetroBAL

1 3

Statoil, BP and Total PC Carigali and Sierra Oil and Gas

Murphy Oil, Ophir, PC Carigali and Sierra Oil and Gas

4 2 3 22

Shell

China Offshore Oil Corporation Total and ExxonMobil

29 5 18

PEMEX

29 2 35

Chevron, PEMEX and INPEX

Repsol, PC Carigali, Sierra O&G and PTTEP

5 11

Shell and PEMEX Repsol Exploración

PEMEX and DEA Deutsche

PC Carigali and Ecopetrol

ENI México, Capricorn Energy and Citla Energy

Repsol Exploración

PEMEX and Ecopetrol

Capricorn and Citla

Capricorn Energy and Citla Energy

ENI México

Repsol Exploración and Sierra Perote

Lukoil International

ENI México and Citla Energy

Total E&P and Shell

ENI and Lukoil

DEA Deutsche, Premier Oil and Sapura

Pan American

3 4 6

Shell and Qatar Petroleum

7 10

33 32

Repsol, PC Carigali and Ophir

Source: CNH

Premier Oil

PEMEX, DEA Deutsche and CEPSA PEMEX and CEPSA PC Carigali

Total and PEMEX Total, BP and Pan American

193

| VIEW FROM THE TOP

MIXING WITH MAJORS BRINGS OPTIMISM, OPPORTUNITY FOR MEXICAN E&PS ALBERTO GALVIS CEO at Citla Energy

Q: How is Citla developing its shallow water blocks – 7, 9

the block into a commercial development. We will make a

and 14 – won in Round 2.1, and Block 15 won in Round 3.1?

decision to drill or not by the end of 2019.

A: We have made significant progress in maturing 194

opportunities in our blocks. Citla has, carried out seismic

On the Tampico-Misantla Block 15, Citla did not make any

reprocessing to identify prospects and make them drillable

drilling commitments, although we see definite geological

targets. These studies, have confirmed our technical thesis

potential here. But, while surveying, we saw a number of

regarding the potential existence of significant quantities

environmentally sensitive areas owing to its proximity to

of oil in a number of our known prospects. The company is

the coast and that the areas of greater prospectivity were

now deciding where to drill the first wells from the options

on the eastern side of the block, away from the coast.

we have selected, although in Blocks 7 and 9, both located

Therefore, Citla and its partners took the decision to

in Salina del Istmo, we have two commitment wells and

relinquish the environmentally sensitive, less prospective

already know where they will go.

area, some 49 percent of its total size.

We are working closely with our operators and are proud

Q: How has Citla consolidated its position in Mexico

to be the only Mexican company to have partnered with

following its successful bids and where has the company

an oil major, Eni. This fact highlights the commercial and

identified areas of growth?

technical capacity Citla provides. Our relationship with our

A: We have plans to expand, although our current focus is

partner exploration company, Cairn, is also very strong. The

on our four blocks, which cover an area of around 1,500km2.

joint venture also has been progressing with the permitting

The blocks are a major commitment, contain multiple

processes, making sure the decisions, actions and surveying

prospects and will demand substantial work. Although there

activities we have undertaken on the blocks are clearly

is great room for development within our existing portfolio,

stated, including environmental considerations. We have also

CITLA continues to look for opportunities. Although the

undertaken environmental and social studies to identify any

new bids have been suspended, we predict that the market

potentially sensitive areas in which local communities might

will become more dynamic this year and into 2020, with

be affected by our operations. These have all been passed on

M&A activity growing as the winners and losers of Round

to the authorities. Exploration plans for Block 7 and Block 9

2 begin to act. Those companies that have been successful

have already been approved; we are missing only the drilling

will expand and consolidate while those that have endured

permits, which we believe will be issued soon. By the end of

difficulties may decide to sell to avoid the next commitment

summer 2019, we will be ready to drill in both blocks.

wells or risk further financial investment.

The development of Block 14, also located in the Salina del

Q: How will the suspension of PEMEX farmouts impact

Istmo, is at an earlier stage and we must first identify the

the administration’s production target of 2.6MMb/d by the

prospects here. But this block already has the advantage of

end of 2024?

a previous discovery – Xulum – that was not developed due

A: The farmouts were a great opportunity to enhance

to its size and heavy oil characteristics. Citla and its partner

PEMEX production and would have brought extra hands

are trying to find more prospects in this area to convert

and expertise to aid what is a difficult endeavor for just one company. Farmouts could have supported secondary recovery rates and delivered gas and water injections to

Citla Energy , is a Mexican and independent E&P company with

increase production levels. In the two farmouts that took

stakes in four shallow water blocks. The company combines local

place, PEMEX received sizable funds and the companies

oil and gas industry expertise with strong financial backing for

involved will now invest hundreds of millions of dollars that

asset acquisition focused on onshore and offshore environments

will lead to increased production from mature fields.

VIEW FROM THE TOP |

EARLY PRODUCTION WITH PLANS FOR THE LONG RUN JAVIER ZAMBRANO CEO of Jaguar E&P

Q: How has Jaguar E&P strengthened its business through

Q: What production levels can be expected from Jaguar

its JV with Vista Oil & Gas?

E&P for the next year?

A: Our JV with Vista Oil & Gas has been a great success.

A: We are not ready yet to talk about an average production

We are blending Jaguar E&P’s experience working in Mexico

for 2019, as there are many elements to consider in the

with Vista Oil & Gas’ strong track record as operators in Latin

equation. Depending on the scope of the activities to be

America. When working with such a volatile commodity it

performed, it can take up to a year to get all of the permits,

is necessary to have a strong focus on costs. Together with

even if we already have the teams and the required capital

Vista’s experience, we believe we can accomplish this more

ready. 2019 will be a busy year for us given the number of

effectively. We are proud of what we have accomplished

licenses we have. If the government decides to keep going

as a team and we continue strengthening our capabilities.

with the licensing rounds, we would of course be happy to

Having said that, we are open to partner with companies that

participate and grow our portfolio of onshore fields.

share our vision, always considering the added value they provide, either in the financial, managerial or technical areas.

Q: How can regulation be improved to allow for an increase in production levels in Mexico?

Q: In May 2018, Jaguar announced its intention to invest

A: Regulators have done an excellent job in ensuring that all

US$110 million before the end of 2019. How will that

processes during the licensing rounds were transparent for

capital be used?

everyone. However, on the operational side, there is a great

A: We have already invested US$60 million in the upfront

deal of room for improvement. The amount of paperwork

bonus for the awarded blocks, which means that over half

requested for permits is overwhelming and even redundant

of that commitment has been already covered. We are

in some cases. We should aim for a regulatory approach like

waiting for permits to be granted before investing the

that in Colombia, Argentina or Canada, where permits are

rest of the capital. If everything goes according to plan,

granted in much shorter time frames, while ensuring that

we would be able to complete some workovers by 1H19

operators are aware of all the required compliance elements

and start drilling exploratory wells by 2H19. This year is

for their activities.

our initial phase. Jaguar has a long way to go and we are working diligently to invest every penny where it has

Q: How does Jaguar E&P adjust to the social and

the highest impact. Throughout our development phase,

environmental aspects of the areas it works in?

Jaguar’s investment will be much more than the $110

A: We have an area solely dedicated to addressing all the

million mentioned for this phase.

environmental and social aspects of our operations. We have invested heavily to better understand the situation of the areas

Q: How would you rate the statements of the new

where we operate. Also, the team has been busy meeting

administration focused on increasing production?

with communities and municipal authorities within the blocks

A: It is encouraging to hear there will be a strong push for

where we operate. A very specific aspect our team found

more production. As private operators, it is our objective,

during their studies and interactions is the lack of drinking

just like that of the government, to increase production,

water and proper housing. We are working closely with local

so our goals align very well. I believe this can be achieved

authorities to find solutions with a quick and effective impact.

by speeding up processes and ensuring that regulation is performed effectively, which is an issue we have had to deal with constantly. Mexico has to create the right

Jaguar E&P is a Mexican oil and gas exploration and production

conditions for investments to flow. Capital has no flag

company. It was awarded 11 onshore blocks in Rounds 2.2 and

and it will go wherever it is incentivized to go, meaning

2.3. As part of its strategy, Jaguar E&P has also deployed

wherever it finds the best ROI.

capital in the Caribbean

195

| VIEW FROM THE TOP

RIGS READY FOR DRILLING IN MEXICO’S SHALLOW WATERS PATRICIO ÁLVAREZ Vice President of Perforadora Central

196

Q: How has Perforadora Central, a Mexican drilling services

also important to understand the Mexican market to build a

provider, evolved in the Mexican oil and gas market?

strong relationship with PEMEX. All international companies

A: We have been drilling in shallow waters since the early

that enter the Mexican market understand that they need

1990s. At that time, we did turnkey projects for PEMEX with

the support of a local company. It is crucial to understand

just two rigs while working outside Ciudad del Carmen.

the language, regulations and framework to be successful.

In 1998, we began our first major project, which was the construction of an ultra-premium jackup rig that would work

Q: What role does Perforadora Central want to play in

with a capacity of up to 375ft of water. From 2000-2016,

boosting the country’s production in the next six years?

we engaged in building one rig every two to three years.

A: President López Obrador wants to revamp production and the government will be injecting sufficient funds into

In 2015, the oil price crisis began and many Mexican companies

PEMEX to help make that happen. To truly boost the

suffered as a result. PEMEX began struggling greatly with its

industry, machinery will have to be from Mexico because the

resources and its spending. It got to a point where we only had

costs of importing will be way too high. It makes sense to

one rig working at a very low day rate of US$70,000, when

mobilize local firms. We will be ready with two rigs: Tuxpan

in 2014 the daily rate was US$150,000. It was a very difficult

and Panuco. We need two to three months per rig to get

time but we were able to continue negotiating with PEMEX.

them operational and ready to compete in Clusters 3 and

Gradually, our rigs started operations again and now we have

4. PEMEX will also continue to rent rigs as it did before

three of our six ultra-premium jackups working. We are close

through daily rates, with its staff operating the rigs and

to putting a fourth to work with an international oil company.

taking all of the risk.

Q: What has been Perforadora Central’s experience working

Q: What new technologies are international oil companies

with PEMEX and what advice does it have for other players?

demanding to drill in shallow waters?

A: We have been working for PEMEX for many years. You

A: With the Energy Reform, many blocks were awarded to

need to create a long-lasting relationship with the company

large companies like Fieldwood and Talos Energy, which

and carefully maintain the rigs and equipment. If you can

take on all the risk. They contract jackups but they crew,

meet its requirements, you will enjoy a long and fruitful

maintain and operate them. If they find a good well, then

relationship with the company. Payments are on time,

the sky is the limit and all the risk would be rewarded. Our

except in the last couple of years when the sector was

main advantage is that we already have two ultra-premium

in crisis and most contractors agreed to 180-day terms.

rigs ready for operation in Ciudad del Carmen.

Nevertheless, everything appears to be returning to normal. Operators are asking for hydraulics and blow out preventers When working with the government, companies must

above 15,000PSI. We only have two rigs with that capacity:

be very flexible. To withstand such long payment terms,

the other four are 10,000PSI. We have drilled for 25 years in

companies need to reduce costs, negotiate with their banks

various areas in Mexico with 10,000PSI and it is enough. We

and restructure their finances. Perforadora Central was able

are sure that you do not need to have more than that. It is,

to do all this and adapt to the changing conditions. It is

however, an international requirement that was introduced by operators that are starting to work in Mexico. New rigs come with at least 15,000PSI and it is not cheap to convert

Perforadora Central is a Mexican drilling services provider. It

the rigs to that capacity. To upgrade the four rigs, we would

has six jackup rigs and has worked both in the Gulf of Mexico

need to invest US$5-6 million per rig and three to five months

and in international waters. The company has been drilling in

of work. We would need at least a four-year contract with a

shallow waters since the 1990s

great daily rate for us to make that investment.

VIEW FROM THE TOP |

RESULTS NEEDED TO REOPEN BLOCK ROUNDS LUIS VÁZQUEZ Chairman of the Board of Diavaz and President of the Mexican Natural Gas Association (AMGN)

Q: What role will Diavaz and the private sector play in

A: In our services division we are developing interconnections

increasing the country’s production?

at a number of marine platforms and we are providing reliability

A: Mexico produces 1.7 million b/d. The goal is to bring

and integrity maintenance to PEMEX’s Dos Bocas terminal,

Mexico’s production to 2.4 million b/d. Those numbers

which is one of the largest in the world. Approximately 1.3

represent the same production level as previous years.

million b/d go through the terminal. In our E&P division, we

Mexico should produce a minimum of 2.8 million b/d by

have four fields assigned to us and the company is producing

2024. PEMEX and the government say that by October

18,000 b/d. We are second only to PEMEX in petroleum

2019 the new fields starting production will start to increase

production in Mexico, followed by Petrofac and Renaissance.

their oil output.

We operate four fields under contracts awarded by CNH: Catedral in Chiapas, Barcordon in Tamaulipas, Ebano in San

The private sector has committed to producing 280,000

Luis Potosi and Miquetla in Veracruz. Diavaz believes that in

b/d. The president has said that there will be no further

three to four years we will be producing 50,000 b/d from

block rounds until the government sees a positive result

those fields. Another two fields, Cuervito and Fronterizo, are

from the previous rounds. There have been 120 contracts

service contracts with PEMEX. At our E&P fields, part of the

awarded since the Energy Reform was enacted and so far,

production goes to the government as Mexican crude and

production only increased 20,000 b/d. We expect that

we keep the other part, which is shared with our partners.

the private sector will increase production in the following months, which will open the possibility to discuss new rounds

Q: What types of contracts are most profitable for the federal

with the government. We expect this to happen within 10

government when incorporating the private sector in E&P?

months. In the meantime, PEMEX will invite the private sector

A: From 2006-2012, operations in the Ebano field were carried

to participate in service-field contracts called CSIEEs. Diavaz

out under a transactional service contract with PEMEX.

will be involved in these projects and we hope to be awarded

From 2012-2018, PEMEX switched the contract model to an

some contracts. There is a large appetite for investing in the

incentivized contract, which means that Diavaz will recover

Mexican oil and gas sector and Diavaz wants to be a player

75 percent of all expenses and receive US$8 per barrel. In the

in the country’s future energy development. Diavaz will also

last stage, the contract migrated to a 30-year production-

look at taking its E&P division public in a couple of years.

sharing contract with CNH in partnership with PEMEX under the scheme developed through the Energy Reform.

Q: What is Diavaz’s experience participating in previous PEMEX projects and what were the main characteristics

We studied which of the three models was the most profitable

PEMEX was looking for in a partner like you?

for the government. Our analysis proved that the last scheme

A: We bid for the engineering and construction of marine

developed during the Energy Reform was by far the most

infrastructure contract for PEMEX. When tendering a contract,

profitable as the government would receive the greatest

PEMEX looks for several characteristics among participants.

profitability from the income plus a percentage in income

First, the company needs to be Mexican or have a great

taxes, while taking zero risk and making no investment. In the

amount of local content. We bid on the A and B clusters of

end, this scheme is not only profitable for the government but

marine infrastructure, placing second in both. Unfortunately,

also for the private sector. It is a win-win situation.

the times stipulated to carry out the work were too tight and there was a huge LD penalty for any delays. We put part of the LD into the price tag, which resulted in a higher cost.

Diavaz is a Mexican company founded in 1973 and made up of business units focused on E&P, gas, marine operations and oil

Q: What is the status of Diavaz’s fields and what strategies

installations integrity. It was jointly created through strategic

will provide the government with the desired results?

and commercial alliances with energy-sector leaders

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| VIEW FROM THE TOP

SAFETY, EFFICIENCY WITH A TECHNOLOGICAL EDGE MIKE TRAIN President of Emerson

VERNON MURRAY Latin America President of Emerson

Q: What trends has Emerson identified in Mexico?

so far; leveraging technologies so that personnel can spend

VM: Emerson is seeing heavy investment in upstream. This is

time more productively is vital.

directed at the maintenance of offshore infrastructure with 198

a strong emphasis on productivity and safety. Investment

VM: Mexico is experiencing a period of huge change. The

in infrastructure maintenance had not happened for many

move from a 75-year PEMEX monopoly to competition is

years. The impact of international companies through

a major exercise in change management. Infrastructure,

partnerships in the Gulf of Mexico is beginning to be felt

institutions and personnel must all be guided and regulation

and national companies are realizing that working with

has had to be redeveloped. This cross-level evolution can be

international companies is different to working with PEMEX.

supported by the digitalization that Emerson can help lead.

Not better or worse but different. Q: What can Emerson offer to the Dos Bocas refinery? There is also a great deal of movement in construction

MT: Emerson’s value is in implementation. Our technology

and permitting in midstream. Midstream infrastructure

and work processes deliver faster schedules or enable

is expanding as companies that were unable to handle

co-engineering with different project partners. We are

hydrocarbons at their terminals prior to the Energy Reform

pushing for the use of new technologies to build a modern,

are now becoming involved. This generates automation

competitive refinery.

work for Emerson, focused on safety and supply chain integrity. We have been impressed by the administration’s

VM: The IMP will play a large role in the construction of Dos

decision to tackle pipeline theft and believe technology will

Bocas and they appear to be very open to new technologies.

play a central role.

PEMEX and the administration also seem willing to look at the best practices being deployed in automation to improve

Downstream activity also is growing with the announcement

the functionality of the refinery.

of Dos Bocas and the renovation of existing refineries. In all, there is a great deal of optimism in the Mexican market.

Q: How does Emerson overcome arguments against technology use, such as jobs generation?

Q: How does Emerson support the digitalization of

MT: Employing enhanced technology does not always

Mexico’s oil and gas industry?

reduce the need for personnel, it just allows those personnel

MT: Any company can buy a software system but this

to move to different jobs where they can improve their

is only valuable if the work is improved as a result.

skills. Emerson now has over 20 manufacturing plants in

Emerson is approaching the digitalization of the industry

Mexico and other companies want to enter the country

in a deliberate and practical manner, understanding that

to manufacture. I do not believe technology will create

software is only functional if personnel understand its use.

a jobs issue in Mexico’s oil and gas industry; with proper

We are approaching clients to sketch out a roadmap for

infrastructure and the correct cost placements, there will

change within their company, advancing step by step to

be many new work opportunities.

demonstrate the benefits. We have built a consultancy service around this. Offering products only gets the client

VM: Emerson has been involved in job creation and education in Mexico for many years. For the last seven years we have worked with the University of Villahermosa

Emerson is a leading technology and engineering company.

to train our automation engineers. They can provide the

Present in Mexico for over 67 years, it works throughout the oil

skills necessary for the current market. We do not believe

and gas value chain to deliver improved efficiencies and safety

that automation means fewer jobs, we believe it means

through the application of software and automation processes

different jobs.

VIEW FROM THE TOP |

NEW AUTOMATION CONCEPT AN ANSWER TO INDUSTRY 4.0 VÍCTOR FUENTES Director of Mitsubishi Electric Automation Mexico and Latin America

Q: What new technologies or services is Mitsubishi Electric

been used at the country’s oil and gas facilities for a long

Automation introducing to the Mexican market?

time. In 2021, Mitsubishi Electric Corporation will turn 100

A: While increasing our presence through traditional

years old, which is a clear statement to the long-term vision

distribution channels, we are pushing to popularize

that the company follows for all its activities.

our e-F@ctory concept, which is Mitsubishi Electric Automation’s answer to the Industry 4.0 trend. Through

Q: What is Mitsubishi Electric Automation’s take on cyber-

e-F@ctory, our goal is to provide customers with proven

security risks?

and reliable solutions that can help them become more

A: Every automation provider focuses on connecting

efficient in industrial processes, reduce capital investment

systems and automating processes but few are focusing

requirements and increase process reliability.

on cyber-security issues. The more connected and automated processes are, the higher the cyber-security

Q: What benefits can e-F@ctory provide to the oil and

risks are. Although a piece of equipment may be extremely

gas industry?

safe, as soon as the data it measures or manages is on

A: e-F@ctory can get data from equipment of any size,

the web, it is exposed to cyber-attacks. We have a strong

so clients know exactly where they are losing energy and

focus on R&D to ensure that our clients are always backed

therefore money. We believe that small actions can generate

up by the Mitsubishi Electric Automation brand. Mitsubishi

great changes and while monitoring the life cycle of a motor

Electric has R&D facilities in the US, Japan, China and

in a facility with thousands of systems may seem like a very

Europe and invests over US$2 billion in R&D per year so

small action, the improvement in the overall system is huge by

our specialized engineers and scientists can deliver the

avoiding downtime and losses resulting from faulty elements.

best technologies, always emphasizing the resiliency and

While the most well-known area for the implementation of

security of all processes.

e-F@ctory is in production facilities, such as refineries, it can also be included in oil and gas production rigs or even offshore

Q: How does Mitsubishi Electric Automation help in the

housing units. We are already working at offshore facilities

development of Mexican human capital?

with the e-F@ctory concept using SCADA to measure the use

A: Mitsubishi Electric Automation has a university support

and control of HVAC systems in housing platforms.

program that provides, free of charge, new equipment that universities can use in their programs. In 2017, the company

Q: What is Mitsubishi Electric Automation’s approach

invested approximately US$250,000 in the program, which

to creating long-term relationships and how do these

not only included equipment but also advisory and training

contribute to the company’s growth?

through a “train the trainer” scheme that focuses on training

A: One of our core values is trust. A trust-based relationship

teachers on how to install and use the equipment, both at

goes both ways and we only work with companies that

our facilities and at their universities. We believe in the talent

have the same values as us. This is because we will never

and capabilities of the Mexican workforce, which is why our

jeopardize the company’s name or reputation. We have

efforts are focused on developing Mexican human capital

Japanese DNA and such an approach to business is in

to meet the challenges brought about by an ever-changing

our blood. Thanks to the long-term trust we create with

industry with increasingly complex technology systems.

our customers, we have worked with many companies in Europe and the US that are just entering Mexico, which further increases our business opportunities in the country.

Mitsubishi Electric Automation has a history of over 30 years in Mexico. It is a subsidiary of Japan-based industrial giant

While our presence in the Mexican oil and gas industry is

Mitsubishi Electric Corporation, which operates across several

relatively new in the area of services, our products have

industrial markets with an automation product line

199

Teak plantation

AGRIBUSINESS

Mexico, a leader in exports of avocados and berries and one of the worldâ&#x20AC;&#x2122;s leading tomato producers, faces a complication that must be solved in the next few years: disparity among large producers and small farmers. Land use and modernization of production systems should be a priority for companies and politicians, alongside the improvement of infrastructure that would allow for better distribution of products in a country that connects the largest consumer in the world, the US, and one of the largest agricultural areas, Latin America.

This chapter delves into the existing challenges to modernize the Mexican agricultural industry and to diversify exports. Interviewees reflect on the opportunities available to transform the industry and provide it with more dynamism and growth opportunities, while addressing the social issues plaguing the country.

201

CHAPTER 8: AGRIBUSINESS

204

ANALYSIS: Agriculture 4.0, Training Needed to Keep Growth Momentum

205

GUEST ARTICLE: Enrique Alfaro, State of Jalisco

206

VIEW FROM THE TOP: Bosco de la Vega, CNA

208

VIEW FROM THE TOP: Juan Carlos Anaya, GCMA

210

INSIGHT: Carla Suárez, COMECARNE

203

211

VIEW FROM THE TOP: Alejandro Monteagudo, AgroBIO México

212

INFOGRAPHIC: Primary Success

214

VIEW FROM THE TOP: Manuel Bravo, Monsanto

215

INSIGHT: Javier Valdés, Syngenta Latin America North

216

VIEW FROM THE TOP: José Escalante, Velsimex

217

VIEW FROM THE TOP: Alberto Amkie, Agropark

218

VIEW FROM THE TOP: Javier Martínez, Groasis

219

VIEW FROM THE TOP: Gastón Mauvezin, Proteak

220

VIEW FROM THE TOP: Rodrigo Domenzain, Amar Hidroponia

221

VIEW FROM THE TOP: Íñigo Pérez-Rasilla, Sofagro

222

VIEW FROM THE TOP: Diego Martínez, Aneberries

223

INSIGHT: Félix Martínez, ANICAFE

224

VIEW FROM THE TOP: Luis Tejado, BlueDrop Agroforestry

225

VIEW FROM THE TOP: Juan Pablo Flores, AVS

| ANALYSIS

AGRICULTURE 4.0, TRAINING NEEDED TO KEEP GROWTH MOMENTUM Agreements like NAFTA have greatly improved the country’s agricultural sector productivity. However, they have also shone a light on the stark contrast between the successful exporting industry and under-performing traditional farmers. The challenge is to reduce the gap to create a more uniform, cohesive and fairer sector

204

Mexico is an agricultural powerhouse. In 2017, the country’s

alleviating this issue. “Financing in the agricultural sector has

livestock, fishing and agricultural production, including

the same problems as other sectors. The largest and most

fruit and vegetables, totaled 30.7 million tons with a value

sophisticated producers find financing relatively easily,” he

of MX$853.7 billion (US$44.6 billion). With exports in 2017

says. "Unfortunately, farmers tend to have limited resources

accounting for US$32.58 billion, the agricultural sector is a

and do not have the money to invest in technology. This is

top performer in Mexican exports, just behind the automotive

where the private initiative can promote modernization.”

and manufacturing industries. “All in all, the agricultural sector

The cooperation between large private players and small

is performing well and continues to grow,” says Juan Carlos

producers to which Pérez-Rasilla refers is contract farming,

Anaya, Director General of GCMA. “Growth for the past three

which he says has become fairly popular in the last few years.

years has been above the country’s GDP gains.”

“Small and medium farmers who work for large traders receive investment to modernize their production processes, build

Multiple free-trade agreements that have helped the country’s

greenhouses and buy better seeds and agrochemicals. This

assert itself on the global landscape have proven beneficial

results in a win-win situation for both farmers and marketers.”

to the agricultural sector. However, Bosco de La Vega, President of the National Agricultural Council, says continued

TWO FACES

modernization of the sector is of utmost priority. “We need

Despite being a top performer of the Mexican economy,

to work on what is called ‘Agriculture 4.0.’ We need to work

agriculture faces many problems, one of the most serious

on having an intensive agriculture sector, modernized and

being low wages and the stark contrast between small farmers

supported by research, and we need to train our personnel

and large agricultural producers. “Mexican agriculture has two

to generate more opportunities.” Implementation of new

faces and the industry is highly fragmented. It is necessary

technologies not only helps to reduce production prices but

to understand that, unlike other sectors, there are no great

also to provide a better income for farmers. Javier Valdés,

players that completely control the sector. We need to nourish

Director General of Syngenta Latin America North, says

the places and farmers that have the greatest opportunities

the use of enhanced seeds can help in that regard. “Seed

for growth,” says Luis Tejado, President and CEO of BlueDrop

genetics have a major impact on what farmers harvest; our

Agroforestry. “The country’s arable land is limited, which

research focuses on that. We develop hybrid materials that

means that to increase production it is necessary to help

allow seeds to tolerate different temperatures, droughts,

producers. Modernization includes not only implementing

pests and diseases.” Even a small increase in productivity

new methods for growing crops but also changing the crops

can generate major increases in farmers’ income, according

that are traditionally grown,” says Pérez-Rasilla.

to Valdés. “For every 1 percent increase in farm productivity, income is likely to rise between six and seven times.”

Regardless of the sector’s productivity, the stark contrast in the Mexican agricultural sector has reached an unsustainable

Generating added value is a must to improve agricultural

point, according to de la Vega. “There is significant migration

activities and their impact on social and economic

from rural areas, which combined with the average age

development. “Generating products with added value in

of farmers of around 58 years, generates a significant

the agricultural sector is a priority for us. We have examples

problem. We need to find ways to retain younger people.”

of meat companies generating their own production chains,

De la Vega says the sector is already working toward the

a process that is being replicated for pork and rabbits. We

creation of more educational opportunities for farmers. “We

have seen companies that process fruits and vegetables

have already signed a project with the Ministry of Public

also riding this wave of added-value products. It is a matter

Education through which SEP provides scholarships and we

of exploiting what we already have,” says de la Vega.

provide part-time jobs.” Technology can also play a key role in retaining people. “We want to help farmers stay in their

However, modernization does not come easy, particularly

local communities and not migrate to larger cities or to the

for small producers. Íñigo Pérez-Rasilla, Director General

US. The only way to achieve this is to make their activities

of Sofagro, says the private sector can play a key role in

more profitable and attractive,” adds de la Vega.

GUEST ARTICLE |

NATIONAL POSITIONING THROUGH SOCIAL EMPOWERMENT ENRIQUE ALFARO Governor of the State of Jalisco

The previous state administration referred to Jalisco as an

According to our most recent data, the agri-industrial

agri-food giant. I do not believe that designation is correct.

sector in the state hosts 12,529 economic units. Of this total,

Rather, Jalisco is positioned nationally as an industrial hub

11,773 are microbusinesses while 529 are small businesses.

due to the level of investment we have attracted in the

These are the two areas we will focus on strengthening.

agroindustry, innovation and technology segments. Despite

One strategy we are already implementing is to provide

the state’s growth, it would be false to say the economic

municipalities with machinery that will enhance agricultural

policies implemented in the past have been a success. Jalisco

productivity. This equipment will be used to maintain roads

still has 2.5 million people living in poverty. Around 40 percent

between crops, construct troughs and dredge rivers. The

of the state’s population receives an income below the welfare

machinery will also allow municipalities to deal with damage

line and half the population does not have social security.

generated by natural disasters like storms, floods or fires.

Moreover, almost 61 percent of the employed population earns an income equal to or less than three times the minimum wage.

Our commitment to Jalisco’s agricultural sector is clear: we

Unfortunately, the situation is even more dire among the rural

want it to continue growing. We want Jalisco to maintain its

population; 87 percent of the rural population receives less

productive leadership in the country but we want to do it

than three times the minimum wage and around 90 percent

by putting farmers front and center so we can help elevate

of those who work in the agricultural sector have neither a

their quality of life. Our strategy is to position Jalisco as the

pension nor access to a dignified retirement. Given these

national leader in economic value and social contributions

conditions, we cannot say that Jalisco is an agri-food giant.

through the development of strategic production chains. These will take advantage of our regionalization strategy and

It is clear that the strategies implemented by previous

our local talent, benefiting the entire population. Throughout,

administrations have not resulted in the conditions needed

we will maintain a responsible and sustainable focus.

to reduce the inequality gap. Although we recognize that important steps have been taken, it is necessary to consolidate Jalisco’s leadership beyond employment generation and exports. We also need to increase the population’s income level. Our administration seeks

COMPANIES IN JALISCO'S AGROINDUSTRY Micro

Small

Medium

Large

Total

11,773

529

159

12,529

to generate economic development through regional specialization. This means that we will take advantage

Overall, our modus operandi will be based on two pillars:

of the strengths and opportunities offered by Jalisco’s

the strengthening of, and respect for, the rule of law and

different regions to foster sustainable development that

the improvement of physical and digital infrastructure. We

first and foremost benefits our population. As the new state

also will base our economic development on processes that

government, we take this commitment very seriously.

improve the state’s regulations, sustainability and social responsibility, while also implementing an integral educational

The agroindustry will ignite economic activity in the

project. For the state, is important to take into consideration

agricultural regions of the state. Paradoxically, although this

the strengths and opportunities in each region to generate

industry is considered an engine for economic growth, the

a focused educational program. The proposition will be

living conditions of those in the sector have not improved.

complemented with strategies for regional development

We must reverse this situation. We cannot continue to foster

and the internal strengthening of the state’s capabilities.

an agricultural sector that generates significant wealth but

Ultimately, our strategy will attract greater investment, help to

at the same time delivers poverty to those who work in it.

integrate the labor sector into the overall growth strategy and

Jalisco should not be an agri-food giant that condemns its

strengthen the state’s SMEs and the use of innovation, science

citizens to poverty or migration.

and technology development as engines of Jalisco’s economy.

205

| VIEW FROM THE TOP

PUBLIC POLICY BASED ON OPPORTUNITY, LONG‑TERM VISION BOSCO DE LA VEGA President of CNA

206

Q: CNA has been in the country for over 30 years. What

CNA is working on its 2030 vision, a long-term plan that

is its relevance in modern Mexico?

encompasses subjects like budget, water, social security,

A: Mexico is the most open country in the world. We

research, infrastructure and storage. The country has great

have 12 free-trade agreements with 46 countries and we

potential but needs investment to foster growth. Mexico

continue to work on our commercial relationships. 2018

exported US$4 billion in agricultural products to the US in

was about solidifying those relationships through the

2017 and we finished the year with exports equivalent to

signing of USMCA, the treaty with the EU, the Pacific

US$32.5 billion, which is higher than remittances, tourism

Alliance, the Agreement of Economic Complementarity

or oil. Alongside exports of vehicles and electronics,

with Argentina (ACE 6) and the Agreement of Economic

agricultural products are the third-largest source of

Complementarity with Brazil (ACE 53). We are trying to

exporting revenue for the country.

influence how fast the treaties are implemented and the strategy for their implementation. We are looking out

Q: How can the principle of added-value products be

for Mexico’s interests and making sure that the future

implemented in the agribusiness sector?

of the Mexican agricultural industry is backed by better

A: Generating products with added value in the agricultural

agreements.

sector is a priority for us. We have examples of meat

US$4 billion – Mexico’s exports of agricultural products to the US in 2017

companies generating their own productive chains, a process that is being replicated for pork and rabbits. We have seen companies that process fruits and vegetables also riding the wave of added-value products. It is a matter of exploiting what we already have. Around 32 percent of what we produce in the agricultural sector goes to waste due to factors that include logistics, price and infrastructure.

Q: Mexico is the 12th-largest food exporter in the world.

Q: Sometimes small producers are not interested in

What strategies must be implemented to increase its

inserting themselves into export or productive chains.

world ranking?

What is CNA doing to address this?

A: We need to work on what it is called “Agriculture 4.0.”

A: Within CNA, we have a foundation that focuses on

There is much to be done in terms of research, patents,

small farmers, transfers technology to them and provides

seeds, product positioning, modernization of irrigation,

guidance on how to produce more efficiently. We also

fertilizers, agrochemicals and satellite information

cooperate with the World Economic Forum’s VIDA project.

regarding the effects of climate change, plague monitoring

This project helps small farmers by providing them with

and sensors to measure humidity. We need to work on

enhanced seeds, insurance and technical assistance. The

having an intensive agriculture sector, modernized and

project also helps farmers create partnerships with their

supported by research, and we need to train our personnel

neighbors so they all focus on a single product and puts

to generate more opportunities. The problem we are now

them in contact with companies that are in need of that

facing in the agricultural sector is a lack of human capital.

product. It is a project we are very proud of and has helped

To address this issue, we are working on agreements with

a total of 32,000 farmers.

Central America to allow access to temporary workers who can help us during the harvest season. However, this

Q: How do you reconcile the nationalistic discourse

is not enough; we need to invest in technology, talent and

that exists in the Mexican agricultural sector with its

infrastructure of cold chains, among many other issues.

modernization needs?

Teak plantation

207

A: The issue we see is that it has come to a point where

within their facilities pre-certificates of origin, making the

it is unsustainable. Public budgets for the agricultural

crossing between the two countries even faster. These are

sector have been limited. Eight years ago, around 30

just two of the great added values that exist in the trade

percent of SAGARPA’s budget was destined directly to

between Mexico and the US.

the agricultural sector; today, it is around 20 percent. If farmers do not change their mentality, they will not

Q: What is your long-term vision for the Mexican

survive. There is significant migration from rural areas,

agricultural sector?

which combined with the average age of farmers, which

A: Sometimes, in cities like Mexico City, the agricultural

is around 58 years old, generates a significant problem.

sector is not as valued as it should be. But there are cities

We need to find ways to retain younger people.

where GDP is derived almost exclusively from the food sector. In Mexico, we have seen many significant crises

Q: How is CNA working to make the agricultural sector

and I have learned that during those times the agricultural

more attractive to younger generations?

sector is the only one that grows.

A: The first approach is to have more schools and universities that offer academic programs focused on the

By 2050, the global population is estimated to hit 9.3

agricultural sector. We have developed a project through

billion people and the Food and Agriculture Organization

CNA’s foundation called “Dual Education.” We have

of the United Nations (FAO) recommends that by then, we

already registered this project with the Ministry of Public

should grow our food production by at least 65 percent. By

Education (SEP) so it can provide scholarships while we

2030, we expect to have 140 million inhabitants in Mexico.

offer part-time jobs. Students also have a job once they

Agriculture is the one sector we cannot do without. Those

graduate. The advantage is that while they are studying,

of us in the sector are always striving to generate new

they can participate in their classes with already proven

products, to have access to new markets and to produce

experience.

products that have a healthy impact on the consumer.

Q: Given Mexico’s experience with free-trade agreements,

Still, it is a sector that faces two significant challenges:

how could the country benefit from the USMCA?

climate change and urban sprawl, meaning that the land

A: First, there must be fair and balanced treatment.

available for growing food is becoming smaller and climate

Also, standards of quality, health and safety need to be

change is making some areas more arid. As farmers, we

improved. Facilitation of border crossings is another issue

need to do more intensive farming.

that also impacts products. A practical case from which we could learn is the cross-border point in Arizona. All US governmental agencies needed to approve products

The National Agricultural Council (CNA) is a Mexican business

for the US market are in this one location, facilitating and

association founded in 1984 that groups the agricultural,

expediting the entrance of agricultural products to the

livestock and agroindustry sectors. It represents the interests

US. In some cases, large agricultural companies can have

of the agricultural sector to other private and public players

| VIEW FROM THE TOP

ESTABLISH SELF‑SUFFICIENCY PRIORITIES JUAN CARLOS ANAYA Director General of GCMA

208

Q: How did the agricultural sector perform overall during

is self-sufficient in the production of white corn, used

the last presidential administration?

for human consumption and Mexico’s flagship product.

A: During the administration of Enrique Peña Nieto, the

In fact, we have a surplus of white corn, which is also

agricultural sector experienced significant growth. Since

exported to countries like Venezuela. Other products in

2015, the agricultural commercial balance has been in

the grains and oilseeds category in which Mexico is self-

surplus, which can be explained by the significant increase

sufficient are beans, sorghum and durum wheat.

in the production and trade of fruits and vegetables. This sector has grown steadily since 1994, when NAFTA was

Regarding livestock, although we have increased our

enacted. In almost 24 years, production volume of fruits

production, the country still cannot cover its own

and vegetables has increased over 130 percent and is

demand, with a deficit of around 40 percent in pork, 20

now on par with the country’s production of grains and

percent in chicken and 19 percent in milk. However, we are

oilseeds.

self-sufficient in beef and eggs. We are also self-sufficient and significant exporters of coffee and sugar. We are the

The livestock segment has also enjoyed successful results,

eighth-largest exporter of the latter globally.

growing almost 100 percent in the past 24 years from 12 million tons to 23 million tons of beef, pork, chicken

No country in the world is 100 percent self-sufficient in

and eggs. Growth in this segment suggests an increase

terms of alimentary products. What we need to do as a

in consumption of animal protein and has also boosted

country is protect our food supply and our comparative

imports of yellow corn, which is basically used to feed

advantages. We cannot be champions of every product,

livestock. In fact, in 2018, Mexico was the world’s top

which is why it is important to establish priorities.

importer of yellow corn. It is true that we need to make certain logistics All in all, the agricultural sector is performing well

adjustments within the country. For instance, we move

and continues to grow. This sector is the third-largest

a great deal of white corn from the north of the country

exporter in the country, just behind the automotive and

to the southern and southeastern states. In this regard,

manufacturing industries. Growth rates for the past three

we agree with the president that production of such

years have been above the country’s GDP gains.

commodities in the south could boost development of the area. However, while these states have the required

Q: President López Obrador has vowed to make Mexico

water to engage in production activities, the government

self-sufficient in terms of agriculture. What opportunities

also needs to participate in the development of public

does this create?

services, such as irrigation infrastructure, highways and

A: Agricultural self-sufficiency depends on the product.

storage facilities. If we can do this, the southern states

For instance, when it comes to grains and oilseeds,

can start their own production instead of constantly

Mexico is not self-sufficient. The country does not

paying freight from Sinaloa.

produce enough to cover the demand for rice, yellow corn, soy and wheat used in breadmaking. However, it

Another example is rice. Because this crop requires a great deal of water, we need to define whether it makes more sense to grow it ourselves or to import it. On many

Grupo Consultor de Mercados Agrícolas (GCMA) is a Mexican

occasions, importing makes better sense and is more

consultancy with over 22 years of experience. It contributes

economical. For instance, Mexico imports 95 percent of

to the development of commercialization strategies for

its total soy bean consumption. Most of these imports are

producers, distributors, service providers and the government

used for the production of oils for domestic consumption,

Agriculture is the third-largest exporting industry in the country, after the automotive and manufacturing industries

95 percent of which are made in the country. The remainder is then transformed into soy pasta, which is used to feed livestock. Mexico is the fourth-largest producer of soy pasta for the livestock sector. In this case, it makes more sense to import the raw product and then transform it to provide an added value. Each case is different and must be analyzed independently, rather than as a whole. GCMA has generated different

A: Now that the USMCA negotiation has ended, the

indicators that can be used by the government to conduct

government must focus on ratifying the agreement along

respective analyses.

with Canada and the US. Having a treaty provides the markets with a degree of certainty, especially considering

Q: How do you expect the federal government’s program

the geopolitical problems that are surfacing between the

of guaranteed prices to impact the market?

US and China.

A: Guaranteed prices can lead to market distortion. Purchasing products from small farmers at a high price

If these problems continue, the Mexican market could benefit

also can have significant budget repercussions. We agree

from our advantages in the agri-industrial sector, mainly with

with President López Obrador that there is a high rate of

products where we have a competitive advantage, such as

poverty in the rural sector that hurts the country and we

fruits and vegetables and certain livestock that complements

support his administration’s effort to fix this. However, we

the US offering. USMCA’s ratification also provides us with

believe that guaranteed prices should be implemented

access to raw materials, such as grains and oilseeds, from

in regions that suffer from a production deficit, such as

the largest exporter of these products in the world, which

the southern states.

guarantees the country’s national supply.

The idea behind guaranteed prices, which are above

It is important to have an open market and to continue

the market average, is to help farmers increase their

working to diversify our exports in the agricultural sector.

production and productivity. Instead of producing 2 tons

I am convinced that by the end of 2019, Mexico will still

of product per hectare, they can produce 5 or 6 tons per

be among the 10 largest agri-industrial powerhouses in

hectare. However, this program must be accompanied

the world. We estimate an increase in production of all

by improved seeds, technology, training and technical

agricultural products from 281 million tons to 284 million

assistance. We also need to make sure the program is

tons. The fruits and vegetables segment will continue

well-implemented, with an accurate registry of eligible

expanding but we need to increase our production of

companies. Otherwise, we risk having medium-sized or

grains and oilseeds to reduce our imports in this category.

large producers trying to be included in the program.

Coffee and sugar will remain stable while the livestock segment will also continue growing. We expect this will

Q: What are GCMA’s expectations for the agricultural market in the coming years?

allow us to guarantee supply and the degree of alimentary safety that the country requires.

209

| INSIGHT

JOINT INDUSTRY EFFORTS TO POSITION THE MEAT INDUSTRY

“

New generations are demanding sustainable practices from companies. We owe it to the industry, to the consumer and to the planet to adopt these practices”

210

Carla Suárez, President of COMECARNE

a significant effort to ensure the safety of meat and to communicate this to consumers. “All our products are safe and healthy. Unfortunately, we do not always properly highlight that meat protein is essential,” she says. “All alimentary guides mention the importance of consuming animal-origin protein for a healthy and balanced diet.” Another issue for COMECARNE is that meat protein consumption is sometimes hard given the budget families have available. “We are working to offer meat protein for every budget, whether people get it from sausages, chicken or from rib-eye steaks. Packaged meats are accessible and play a central role in the Mexican diet,”

For meat production to grow, meat protein consumption

says Suárez. She adds that it is imperative for the industry

must also increase, says Carla Suárez, President of

to have cost-efficient processes. “We must ensure that

COMECARNE. “The main objective of COMECARNE is to

our partners remain competitive so they can offer their

promote the consumption of meat protein; if consumption

products at a competitive price.”

grows, the whole chain grows.” Suárez highlights five key points the industry follows COMECARNE, an association of meat producers with

to improve its competitiveness levels: available and

89 affiliates, is divided in two groups: partners and

competitive inputs, more sources of international supply,

associates. “Partners transform the meat at the different

regulations, technology and joint efforts between the

levels of the production chain, while associates provide

private sector and academia. To ensure availability of

us with the necessary products for this transformation,”

competitive products, COMECARNE works alongside pig

says Suárez. At first, the chamber was only conformed

farmers, poultry farmers and cattle feeders to boost the

by packaging companies but COMECARNE found there

availability of national inputs. “COMECARNE wants all

was more value in having a unified chamber rather than

parties involved to understand that we work as part of

just representing a few members of the chain. “Over time,

the same chain.” This goes hand in hand with opening up

we have incorporated companies from different parts of

to more international sources. “If we limit international

the value chain and today COMECARNE is the leading

sources, the product will become more expensive,” says

organization in the sector.”

Suárez. COMECARNE is in constant communication with the authorities to broaden the variety of imports with the

The association’s objective is to expand meat protein

necessary sanitary authorizations. “COMECARNE works

consumption in Mexico but Suárez says there is a long way

with the authorities and the rest of the production chain to

to go, considering Mexicans are not among the biggest

ensure that existing regulations do not inhibit the growth

consumers of this type of protein. In Latin America,

and competitiveness of the sector,” she says.

Argentina leads in consumption of bovine meat with 56kg per capita in 2017, while Mexico is at 14.8kg. When it comes

Much like any other industry in the country, technology has

to pork consumption, Europeans led the way at 40kg per

become increasingly important to remain competitive and

capita, while Mexico records consumption of 19kg per

cost-efficient. The implementation of Industry 4.0 elements

capita. With chicken, Asian consumers take the lead with

is an area where Mexico has a significant development

Malaysia having the most consumption of this type of

opportunity, according to Suárez. “Industry 4.0 is latching

protein, consuming around 55.8kg per capita, followed

on to the meat industry and it is increasingly common to

by the US at 47.7kg per capita and Mexico at 33.3kg.

see meat processing plants with automation technology.” COMECARNE acts as a liaison between producers and

According to Suárez, there are challenges to convince

technology providers and these efforts are combined

Mexican consumers to increase their intake of meat protein,

with a close relationship with academia. “We want these

including negative news or perceptions that sometimes

joint efforts to generate research and knowledge transfer

surround these products. However, COMECARNE makes

through the entire meat protein chain,” she says.

VIEW FROM THE TOP |

KNOWLEDGE SHARING: KEY STEP FOR AGRICULTURAL BIOTECH PENETRATION ALEJANDRO MONTEAGUDO Former CEO and Director General of AgroBIO México

Q: What changes is AgroBIO México expecting regarding

scale in the latter. One estimate suggests that for every dollar

agricultural practices and is Mexico ready to face them?

a producer invests in genetically modified seeds, he gets

A: Modernization and innovation efforts in the Mexican

between US$3.6 and US$5.3 in exchange, which means that

agricultural sector have been insufficient. Mexico still

in the end there is a tangible benefit from this investment. 211

suffers a deficit in terms of food security. For a country to be considered sovereign in terms of food security it must

While it is true that genetically modified seeds can be more

produce at least 75 percent of the food consumed by its

expensive than hybrid and conventional seeds, it is also true

inhabitants. For many years, our country has oscillated

that producers end up seeing it as an investment because

between 58 and 60 percent. Although Mexico is a large

it helps make their production profitable. These seeds also

exporter of many products, there are others that are

allow producers to reduce other types of inputs, such as

strategic, such as yellow corn, in which the country is not

fertilizers and agrochemicals. Nevertheless, it is true that

self-sufficient. The national consumption of yellow corn is

the seed’s price is something we must work on.

approximately 13 million tons per year, of which Mexico only produces about 10 percent. We believe the solution

Q: What is the relationship between AgroBIO, educational

lies in innovation, modernization and access to technology.

institutions and research centers in Mexico?

Unfortunately, there has been resistance to the use of new

A: Throughout our 19 years in Mexico, AgroBIO has presented

technologies due to a lack of knowledge and a lack of

several initiatives to incentivize joint ventures so people stop

action from the authorities, which has resulted in issues

seeing multinational companies as the driving force of the

regarding access to these technologies.

industry, with a goal to take over the Mexican countryside. It is a sector that is willing to work with all interested parties,

Agricultural biotechnology is focused on specific needs and

including academia and the public sector. A few years ago,

that is completely fine. The problem is that due to the lack

when the sowing of genetically modified seeds began, we

of governmental action, many farmers cannot access this

worked with several academic institutions, including the

technology. In Mexico, there is a technology backlog that

Autonomous University of Sinaloa, the Technologic Institute

will be hard to eliminate, considering we have not been

of Sonora and the Autonomous University of Nuevo Leon.

able to agree on the biotechnology discussion for the past 22 years. In 2017, there were 60 million ha sowed with

There is still a great deal of interest among academic

genetically modified corn all around the world and over 91

institutions to continue the research. Unfortunately,

million tons of genetically modified soy. Around 78 percent

misinformation about transgenics has led to judicial

of the soy and 33 percent of the corn consumed globally

actions that have prevented authorities from making

comes from genetically modified seeds. At an international

certain decisions that would ease access to this

level, the trend is for increased adoption of this technology.

technology. When it comes to production, this inaction means we are lagging behind other countries. However, it

Q: How can the industry reconcile technology’s high costs and

also has a parallel effect which we do not usually measure,

make genetically modified seeds accessible to small farmers?

which is the discouragement it generates when it comes

A: The seed’s price is among the most important hurdles.

to working in this area.

The annual value of the global seeds market is US$45 billion and approximately one-third of that represents genetically modified seeds. Approximately 85 percent of the farmers

AgroBIO México is a civil association founded in 1999 that

who sow transgenic seeds can be found in developing

groups the five largest agricultural biotechnology companies.

countries, such as Colombia, Bolivia, Costa Rica, Brazil, South

The main objective is to broadcast the benefits and potential

Africa, India, China and Mexico, although on a very small

of agricultural biotechnology

| INFOGRAPHIC

PRIMARY SUCCESS Mexico’s wide network of free-trade agreements has allowed

For all the success that the agribusiness industry enjoys,

the country’s primary sector to become the third-most

there is a significant percentage of the population employed

important driver for exports. NAFTA led to an increase in

in agricultural activities that lives below the poverty line. The

national agricultural production of more than 50 percent and

challenge for the sector in the coming years is to maintain

an increase in value of over 100 percent. Although most of the

its productivity and exporting strength, while finding ways

country’s income in the primary sector comes from agriculture,

to improve the living conditions of those that depend on

livestock and fishing have also become top performers.

the sector for a living.

EVOLUTION OF THE AGRIBUSINESS SECTOR

Largest producer and exporter of agribusiness products

PRODUCTION VALUE (2012, 2017) GRAPH TITLE

500

Livestock

2.1

Fishing

30 20

——2012's Volume ——2017's Volume

5.8

2012's Value 2017's Value

1.7

2018 AGRIBUSINESS TRADE BALANCE (US$ billion)

28.41

Agriculture

21.1

21.6

19.1

29.8

100 100

34.25

150

billion tons

355.5

200

10th

250

317.8

300

235

468.3

MX$ million

400

263

386.7

212

300

10 0

*Year base 2013

Exports

Imports

Net Balance

HOW MUCH DO WE PRODUCE? (agriculture, livestock and fishing) 22.5

Harvested Surface (million ha)

284

22.0 21.4

21.5 21.0

Value of Production (US$billion)

Volume of National Production (million tons) 285 284.7

20.9

282 281

20.0

280

60 58

283

20.5

Estimates for 2018

58.4

20.9

52 50

Estimates for 2019

NAFTA'S LEGACY (1994-2018)

29.1 Grains and oilseeds

14.04

19.13

25.4

Livestock and fishing

(million tons)*

5.8

(million tons)

2018 Production

6.01 9.3

12.66

10.08

22.47

1994 Production

41.17

39.4

Fruits and vegetables

1994 Value of

production (US$ billion)

2018 Value of

production (US$ billion)*

*Estimate

Mexico produced approximately 1.7% of the total world agribusiness production in 2018 Sources: Grupo Consultor de Mercados Agrícolas (GCMA), Agroalimentary Atlas 2012-2018; Ministry of Agriculture and Rural Development (SADER)

MAIN FRUITS HARVESTED IN MEXICO IN 2017 (thousand tons) 5,000

Grapes

Guava 12.5324.7

415.9 195.9

Grapefruit 22.9441.9

470.2

Tuna

605.1 137.4

Strawberry

Apple 0.9

Cantaloupe

658.4 283.4

714.1

945.2 88.1

Pineapple

Papaya

Mango

Watermelon

164

424

961.8

1,331.5 670.3

1,003

Avocado

Lemon

Banana

75.6

Orange

578

729.6

2,000 1,000

1,958.4

2,030

3,000

2,229.5

2,513.4

4,629.7

4,000

Production Exports

Mexico is the 4th-largest fruit exporter and the 6th-largest fruit producer in the world

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

213

GUARANTEED PRICES OF 4 BASIC GRAINS AND MILK 0

100

120

8.2

20 Corn

5.6

MX$ per liter of fresh milk

15 Beans 6.1 100 Bread-making wheat

5.8

100

120 Rice

liters of fresh milk per farmer

6.1

GRAP

Government purchasing limit (tons per farmer) Price per ton (thousand MX$/ton)

H TIT

THE SOCIAL ASPECT OF MEXICO'S AGRIBUSINESS (2017)

6.78 million Total agribusiness workforce

Male workers

Fishing

83.8% Agricultural sector

12.2%

11.6%

1.4% Others

Livestock

Female workers

LEVEL OF INCOME

27% Less or equal to 1

11.5% Between 2 and 5

27% Without payment 26.1% Between 1 and 2

7% Not Indicated 1.4% More than 5 minimum

minimum daily wage

88.6% Working population in other sectors 11.4% Working population in primary sectors

minimum daily wages

*Minimum daily wage in 2017: MX$80.04

minimum daily wages

daily wages

GRAPH TITLE

88.4%

2.6%

| VIEW FROM THE TOP

TECHNOLOGY AND SUSTAINABLE MODELS OF AGRIBUSINESS MANUEL BRAVO President and Director General of Monsanto

Q: Monsanto is now part of Germany’s Bayer. How will this

images, create valuable personalized and up-to-date

merger impact the agricultural industry in Mexico?

information for the producer that translates to opportunities

A: Bayer and Monsanto, which is now part of Bayer’s crop

for improvement regarding productivity and profitability.

science division, hope to introduce more innovation and 214

technology to the Mexican agribusiness sector to help

Climate’s Fieldview, our Silicon Valley digital platform, is

the country face the alimentary challenges of the future.

the basis for developing the digital solutions that we apply

This acquisition will redirect investment in a more efficient

to agriculture to add value along the entire process. Data

way. Once the integration is consolidated, we will begin to

collection leads to many opportunities for the producer

provide faster and better opportunities in digital agriculture,

because it creates value related to the specific needs of

conventional breeding, biological, biotechnological and

the farmer.

agrochemical products. Q: How can Monsanto’s digital approach shape the Mexican Q: How does Monsanto provide added value to agricultural

agribusiness industry?

producers in Mexico?

A: The development of data analysis can make production

A: Every year, Monsanto invests US$1.5 billion in R&D

cycles more efficient. The information retrieved can boost

globally. Even after establishing our venture with Bayer,

the conventional and biotechnological development of

investment will continue and possibly increase to accelerate

seeds to resist specific pests, improve their tolerance

the production of innovative products. About 50 percent of

to climatic conditions and other agricultural constraints

our resources are allocated to conventional breeding and

resulting from Mexico’s natural geography. We can

the rest to the development of our other four innovation

customize solutions for farmers and companies anywhere

platforms, including digital agriculture. Monsanto manages

in the world.

a Big Data platform in other parts of the world, such as Brazil, Ukraine and the US, that helps improve the efficiency

Q: What would Monsanto say to those who remain skeptical

of the crops of local producers. We believe that our

about the use of genetic engineering in agriculture?

know-how and our technology are vital to boost Mexico’s

A: Genetic engineering in agricultural products can help

agribusiness industry through quality, speed and innovation.

reduce considerably the application of chemicals and, at the same time, reduce the industry’s environmental impact.

Q: How can digital tools and Big Data benefit agricultural

Developing these products can help Mexico improve its

development in Mexico?

food sovereignty through local production and ensure long-

A: The potential of Big Data in agriculture lies in providing

term nutrition for its population.

information that helps farmers make better decisions regarding the productive cycle of their crops. Monsanto

Q: What does Mexico need to do to become an agribusiness

wants to help farmers with seed selection according

leader in Latin America?

to the conditions of the soil, water availability and

A: Geographical and natural conditions do not change with

agronomic practices related to agricultural production.

borders. The soil, weather and other conditions are the same

The technologies we use, such as soil sensors and satellite

in Guatemala and the south of Mexico or in Tijuana and San Diego. Mexico needs greater political will to support the agricultural industry. The use of hybrid and other modern

Monsanto is an American multinational focused on agrochemical

agriculture technologies could become fundamental to

and agricultural biotechnology. Headquartered in St. Louis,

the country’s growth in agribusiness. It is necessary for the

Missouri, its goal is to develop agricultural technology for seeds,

government to bet on the modernization of agricultural

biotechnology and products for crop protection

products and infrastructure to be more competitive.

INSIGHT |

HYBRID CROPS PROTECT MEXICO’S AGRICULTURE JAVIER VALDÉS Director General of Syngenta Latin America North

Mexico is already among the biggest food exporters in the

“For every 1 percent increase in farm productivity, income

according to SAGARPA, but genetic

is likely to rise between six and seven times,” he continues.

research can help the country improve its standing while

Helping to boost profitability also helps keep farmers at home.

providing farmers with a better income, says Javier Valdés,

“We want to help farmers stay in their local communities and

Director General of Syngenta Latin America North. “Mexico

not migrate to cities or to the US. The only way to achieve this

world, ranking 12

has been growing in terms of exports. At Syngenta, we contribute to this growth through genetic research. We help Mexico’s farmers make the most of their crops by developing products with the physical characteristics that the US or European markets need.” Syngenta is making a strong bet on the seeds market, in which the company ranks third worldwide. “The Mexican seed market is worth US$1 billion but globally the market is valued at US$40 billion, which makes it an important segment for us,” says Valdés. The main threats to seeds are weather, pests and diseases. However, hybrid materials

“

is to make their activities more profitable and more attractive through the use of new technologies.”

The Mexican seed market is worth US$1 billion but globally the market is valued at US$40 billion” In addition to boosting productivity, Syngenta is involved in expanding the producer value chain. The company

can better fight against these elements. “The genetics of

has established working relations with important food

the seed have a major impact on what farmers harvest.

companies, providing them with high-quality seeds and crop

Our research focuses on that,” he says. “We develop hybrid

protection products. “We are working with food companies

materials that allow seeds to tolerate different temperatures,

to insert producers into their value chains. The idea is to help

droughts, pests and diseases.”

companies develop a high-quality national supply chain and to help farmers by connecting them with the industries that

Development of seeds, in most cases, adheres to the specific

need their product,” says Valdés.

needs of each country but having a broader vision of what is happening elsewhere can help develop solutions to problems

Syngenta Mexico is an active participant in the New Vision for

that are not yet in Mexico. “One of the advantages we have is

Agriculture (VIDA) program defined by the World Economic

that we can identify the mechanics and movements of crop

Forum, a project dedicated to sustainable agricultural practices

diseases and plagues and develop the technologies needed

that deliver food security, environmental sustainability and

to protect crops against them,” explains Valdés, highlighting

economic opportunity. The program involves over 600 private

the problem of coffee rust in Colombia. “We realized that

sector organizations and 21 countries.

the problem started to spread to Central America, so we developed solutions for this. When the rust problem attacked

Although Syngenta participates in the first stages of the

Mexican crops, we were ready for it.”

agricultural production chain, Valdés is determined to deepen the company’s support of the Mexican agricultural ecosystem.

To help improve sustainability in the agriculture sector,

“We collaborate heavily with farmers to help their crops

Syngenta laid out The Good Growth Plan, targeting an

achieve the correct flavor, color and physical characteristics

increase in farm productivity by 2020. In Mexico, the company

demanded by clients. We will continue collaborating to

has already surpassed expectations. “We have done a really

further develop Mexico’s role as an exporting platform and

good job to increase crop productivity in Mexico. In some

for Mexican consumers to have high-quality products. In a

places, potato productivity has increased by 20 percent and

few years, Mexico will be among the Top 10 food producers

in some areas tomato productivity has doubled,” says Valdés.

in the world,” he says.

215

| VIEW FROM THE TOP

AGROCHEMICALS TO MODERNIZE THE MEXICAN COUNTRYSIDE JOSĂ&#x2030; ESCALANTE CEO of Velsimex

216

Q: How do Velsimex technologies help farmers and

There are also many products that politicians have targeted

what challenges do you face because of the nature of

with special taxes. Legislators think that the IEPS tax

your products?

encourages farmers to use more products that have less

A: The agrochemical segment is similar to pharmaceuticals

toxicity, but the fact is that farmers use specific products

in the sense that there is a group of companies doing

depending on the plague that attacks their crops. The grade

research to present a new drug every year. In the

of toxicity of an agrochemical is not a decisive factor.

agrochemical market, companies present between four and five new products a year. The development of an

Q: What role do private companies like Velsimex play in

original agrochemical product can take between US$100

modernizing the Mexican countryside?

million and US$500 million. Velsimex commercializes post-

A: For many years, the perception in Mexico was that crop

patent products. We also hold the exclusive distribution

extension was necessary to increase productivity in the

of a patented agrochemical enhancer. We are the largest

agricultural sector. As a result, the government provided

Mexican agrochemical group.

free assistance, including technical, which meant that agronomists traveled the country to help farmers extend

The agrochemical enhancer we distribute is called 2X

their crops to more fields. However, an analysis of what

Potencior. This product allows farmers to obtain better

happened in Europe, Israel and the US, shows that the great

results and at the same time helps to control weeds, insects

driver of productivity in the countryside was the private

or fungi that have proven to be resistant to other pesticides.

sector. Fertilizer manufacturers visited farms to analyze

Having this product also helps distributors to sell more,

the soil. They were able to identify which components the

which means that we generate a win-win chain in which

soil lacked and thus recommend fertilizers accordingly.

we all come out ahead: the distributor, the farmers and us.

Phytosanitary product companies do the same: recommend

Our contribution also extends to education. We provide

the ideal product to combat each plague. This is how

presentations on the proper handling of agrochemicals

private companies like ours make a difference.

(PURA), for example. Another program, called ATOX, provides information on toxicity and what to do in case of

Q: What strategies should be implemented to increase

poisoning from an agrochemical product.

crop productivity? A: In Mexico, there are around 23 million ha of cultivable

Unfortunately, pesticides are demonized around the

land, of which 7 million are destined for corn. Mexico is a

world. Today, COFEPRIS does not allow any product with

mountainous country with a lot of desert and jungle, so

teratogenic, mutagenic or carcinogenic characteristics into

increasing the number of cultivable hectares is practically

the market. The list of agrochemicals permitted in Mexico

impossible. Of those 7 million ha of corn only 2 million are

is similar to that in the US, Europe or Japan. However, there

completely modernized and use hybrid corn. In my opinion,

are some differences because we have crops, like agave,

it is a mistake that genetically-modified corn seeds are not

that they do not grow. Mexico grows fruits, vegetables

approved for growing in Mexico because in most cases,

and flowers, which are exported, meaning that we use and

these seeds have been modified just to resist the use of

recommend only safe and pro-ecology products.

glyphosate, a nonselective herbicide that kills everything, including the crop unless it is transgenic. Around 98 percent of the corn the country imports for meals is transgenic

Velsimex is a Mexican agrochemical company ranked fifth

but the corn we produce is not. If the arguments against

globally in terms of market share. Its product portfolio includes

transgenic corn were related to health issues, we would not

insecticides, herbicides, fungicides, bactericides, rodenticides

import transgenic corn. Mexicoâ&#x20AC;&#x2122;s population is consuming

and crop enhancers

transgenic corn but its farmers cannot produce it.

VIEW FROM THE TOP |

A BET ON NEW FORMS OF BUSINESS ALBERTO AMKIE Director General of Agropark

Q: What is Agropark’s role in developing local producers

and plan according to a long-term vision. To join Agropark

and their surrounding community?

is to bet on the development of new forms of agricultural

A: Agropark was founded in 2006 with the goal of

business and to participate in the creation of best practices

creating a sustainable project that adheres to international

for quality exports. Companies that want to be our partners

standards. Agropark is a cluster of greenhouses specialized

must be aware that Agropark is an investment to enter the

in providing an ideal hydroponic environment for products

food industry with technology. The cluster has different

approved by the US FDA. Also, it offers world-class services

technological systems from different parts of the world,

and infrastructure to its members.

such as Germany, Italy, Israel and Holland, which improve the quality of the products we export to the US. At

Agropark was launched in two phases. The first has 300ha,

Agropark, we give our companies the freedom to choose

of which 250ha are dedicated to greenhouses, while the

the technology that best suits them but we demand that it

remaining are common service areas. The cluster has 12

adheres to our quality parameters.

companies that oversee the production and export of products that generate added value for our customers. The

Q: What makes the Agro-Intelligent Solutions Center the

second phase will include 500ha to double the cluster’s

most ambitious agricultural project in Mexico and how

productivity; it will generate more than 5,000 jobs and

does it improve the country’s agribusiness sector?

the construction of 10,000 housing developments for

A: All participating companies collaborate in synchrony

the municipality of Colon, Queretaro. Agropark promotes

and contribute best practices. We follow the highest

growth in the community by developing better economic

standards and go beyond traditional agriculture. Within the

and productive prospects for companies, job opportunities

greenhouses, we can control the production process of all

and adjacent services related to the greenhouses. We also

our products, down to the last detail; if there is a plague, we

allocate more than 50ha to the reforestation of the area.

can contain it and treat it. Our pollination methods employ insects to avoid the use of chemicals and pesticides. Also,

Q: What are Agropark’s most important products?

all companies re-use water and work according to FDA

A: Our two main products are tomatoes and peppers. We

regulations regarding exports to the US.

have more than 10 varieties of tomatoes, from cherry, globe and roma to heirloom. We also produce cucumber and

Q: Agropark exports 95 percent of its production to the

zucchini, but to a lesser extent. One of our medium and

US and Canada. Do you have plans to further diversify?

long-term objectives is to incorporate commercial flower

A: Demand for vegetables from the US exceeds the existing

exports. Among our differentiators are the conditions of

supply capacity, so we are expanding to meet the demand

our greenhouses, which are ideal for the production of

in this market. Agropark does not rule out the possibility

flowers because there are no maximum temperatures. Also,

of expanding to other markets in the long term but in the

the land is favorable for the construction of infrastructure

short and medium term we continue to focus our exports

and we have enough water to create a suitable habitation

on the US market. The relationship will be maintained due

for hydroponics. We are 20km away from an international

to the commercial agreements we already have, our quality

highway, which allows us to send our products across the

and the type of products we offer.

US border in less than 24 hours. Q: What are the requirements for a producer to join Agropark?

Agropark was founded in 2006 as a high-tech greenhouse

A: Mainly we look for consolidated and forward-looking

cluster for flower and vegetable producers that want to

companies. The agriculture business is so protected that it

compete in export markets worldwide, such as the US and

requires companies that are willing to invest in technology

Canada. The company has 12 members

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DUTCH TECH RECLAIMS BARREN LANDSCAPES JAVIER MARTÍNEZ Director General of Groasis

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Q: How can Groasis play a role in Mexico’s reforestation efforts?

A: The company is in close contact with the federal

A: Our technology ensures a 90 percent survival rate and

government, which has already started to use Groasis’

90 percent savings in water consumption compared to any

technology. This collaboration is helping us reach new

traditional system. Groasis’ technology is patented in 120

companies that could benefit from Groasis’ technology.

countries. We decided to set up shop in Mexico in 2019 and

The company’s philosophy is based on using technology to

started manufacturing and exporting from here to other

generate savings and to develop more efficient reforestation.

countries. Groasis offers Dutch reforestation technology

We believe Groasis can be a strong partner to companies

manufactured in Tijuana and distributed beyond Mexican

and the government to help them implement a sustainable

borders, with a high survival rate. We manage our entire

and affordable CSR. Also, our philosophy is to connect

supply chain and have strategic partnerships with NGOs,

companies and the government with NGOs that are strongly

private companies, state governments and other players to

committed to Mexico’s reforestation. Our idea is to create

boost reforestation in Mexico.

a network where everyone can become part of this effort.

Q: What areas in Mexico could benefit the most from your

Q: What opportunities do you see to collaborate with the

technology?

mining sector in Mexico?

A: In Mexicali, Baja California, Groasis has achieved a 93

A: The National Meteorological Service (SMN) sees our

percent reforestation rate in designated areas. In Yucatan,

technology as a viable and desirable technology for the mining

Groasis has achieved a 98 percent survival rate in its

sector, following successful results in countries like France and

reforestation activities despite challenging soil and weather

Spain. Therefore, we expect to develop a strong collaboration

conditions. In general, the whole country can benefit from

in the near future with the mining sector in Mexico. Our key

our technology and to maximize these benefits, Groasis

partnerships with NGOs in the country will help us reach the

builds tailor-made projects for those clients that require it.

sector and its companies. Another attractive market is food and beverages because of its high-water consumption and

We work with a wide range of clients, including the

interest in balancing their environmental footprint.

National Institute of Agricultural and Livestock Forestry Research (INIFAP), the Autonomous Agrarian University

Q: What can companies and the Mexican government get

Antonio Narro, Anahuac University and the Comprehensive

from partnering with Groasis?

Evaluation Center (CICESE) in Baja California. In the public

A: Groasis saw the opportunity to bring its technology to

sector, Groasis works closely with the National Commission

Mexico to help potential clients in the reforestation of dry,

of Arid Zones (CONAZA), which is a commission from

eroded and derelict areas and its Ecological Water Saving

SADER that focuses on developing soil and water

Technology is the perfect solution to plant trees using

conservation projects, as well as with the National Forestry

less water. This technology can use 1L instead of 10L while

Commission (CONAFOR).

planting in dry areas.

Q: How can Groasis’ technology contribute to the

The Dutch government considers Groasis a national icon.

government’s philosophy of austerity?

We were recognized as the most innovative company in the Netherlands by the Dutch Chamber of Commerce because of our technology’s high social, environmental

Groasis is a Dutch company founded by Pieter Hoff that specializes

and economic impact. In 2019, the Khalifa International

in forestation of man-made deserts. It aims to contribute to the

Award for Date Palm and Agricultural Innovation selected

forestation of 2 billion hectares in various countries by developing

Groasis as the winner of the Pioneering and Sophisticated

and implementing cost-effective solutions

Innovations Serving the Agricultural Sector.

VIEW FROM THE TOP |

QUESTION EVERYTHING TO BREAK PARADIGMS GASTÓN MAUVEZIN CEO of Proteak

Q: What processes have made Proteak a disruptive

Q: How has Proteak tackled the Asian market, which is one

business model for the Mexican industry?

of the most important teak-producing regions?

A: It is the combination of three different factors. The first

A: Teak is native to Asia but breaking paradigms in Mexico

is that Proteak was built by entrepreneurs with the help of

has allowed us to succeed in the rest of the world. The Asian

industry experts who had access to capital. The second factor

teak industry is characterized by having large extensions

is a lack of respect for paradigms. The same combination of

with low productivity. Proteak prefers to have fewer tracts

entrepreneurs and specialists has allowed us to break different

of land but with high productivity and quality levels, which

paradigms because we question everything. The last factor is

allows us to be very competitive and to develop business

that Mexico has fabulous conditions. The country has a great

niches in which Asian countries cannot compete because

capacity to develop any kind of industry due to its internal

their products do not meet certain physical qualities.

market and because of its export strength. For instance, Proteak exports teak logs to China and India, even though

Q: In which emerging business niches do you see the

the teak industry is not as developed as it is in Asian countries.

greatest possibilities?

We are on a crusade to make the forestry industry one of the

A: We would like to develop a competitive furniture industry

most important industries in the country. Forestry in Mexico

through the use of wood panels. To achieve this, our strategy

has been totally disregarded and underdeveloped, despite

is to educate consumers. The lack of a local furniture industry

the country’s great potential.

has made imports necessary to meet local demand. When compared to other countries, Mexico lags in this industry.

Q: What strategies can help develop the sector?

For instance, Brazil’s medium-density fireboard (MDF)

A: Unfortunately, Proteak’s efforts to develop the industry

production is approximately 4,500 million m3 per year. In

are not enough. What we need is a public policy coordinated

Mexico, the industry only generates 700,000m3 per year.

from the highest possible levels that focuses on the different aspects that require development, such as access to land. In

Q: How does Proteak establish a working relationship with

Mexico, access to land has always been highly fragmented

local communities?

and there are multiple regimes surrounding land ownership,

A: Our operations are in the least developed and most

which sometimes lead to conflict. Our largest land extension

marginalized rural communities in the country, where the

is around 900ha but we have competitors in Brazil with

main activities are related to the agricultural sector. This

250,000ha for a single field.

sector is has the largest percentage of informality. For this reason, we developed a program called “Fair Employer” in

The tax scheme is also not suitable for boosting the industry.

which we have worked to increase employee productivity;

By this I do not mean that we need tax cuts or subsidies. We

we provide all our employees with better work conditions,

need to level the playing field so the sector’s tax burden is

fair salaries, social security, access to banking services

similar to that of other industries, while taking into account

and safe and efficient transportation services. We have

its specific needs. We also need to develop financing and

many rural employees and in the high season we have

insurance schemes for the industry and educate investors

almost 1,000 rural employees between our permanent and

who usually focus on other types of industries, such as

temporary staff.

automotive, telecommunications or retail. The Mexican forest industry’s trade deficit is almost US$7

Proteak is the largest Mexican forestry company in the country

billion but the industry has the export potential to create

and one of the largest teak producers in the world. It was

a surplus. With the proper political reform, I am sure that

founded in 2000 and became a public company in 2010. In

in five to 10 years we could become an exporting country.

2017, Proteak opened the first MDF plant in the country

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BLOCKCHAIN, CRYPTOCURRENCIES BOOST SECTOR RODRIGO DOMENZAIN President of Amar Hidroponia

220

Q: How does Amar Hidroponia's model benefit from the

After thoroughly researching different types of

creation of Agrocoin?

investments, we concluded that cryptocurrencies and

A: We started Amar Hidroponia 18 years ago, while the

blockchain offered an interesting opportunity. This led

Agrocoin project started in August 2017. Agrocoin is an

us to create the first Mexican cryptocurrency and the

investment vehicle that we developed because many

first cryptocurrency in the world related to agribusiness.

people wanted to invest in Amar Hidroponiaâ&#x20AC;&#x2122;s franchise

Each Agrocoin is directly related to 1m2 of hydroponic

model but did not have the MX$3.15 million (US$160,000)

habanero pepper production, which means that the owner

needed to participate. Through this cryptocurrency model,

of one Agrocoin is the owner of the production of 1m2 of

it is possible to invest with only MX$500 (US$26), which is

hydroponic habanero peppers.

the price of one Agrocoin. We designed Agrocoin with a key that allows our investors to trade it after one year of investment through platforms Amar Hidroponia is a Mexican agricultural company that

like Bitso. Since blockchain technology allows for electronic

encourages fair trade of greenhouse-grown crops. Incorporating

notarized transactions with a unique code, Agrocoin allows

economies of scale, the company developed a franchising model

us to attract formal investors from any part of the world. It

for growing and commercializing habanero peppers

is a way to democratize investment.

VIEW FROM THE TOP |

MODERNIZATION REQUIRED TO MAKE AGRICULTURE A NATIONAL PRIORITY ÍÑIGO PÉREZ-RASILLA Director General of Sofagro

Q: Sofagro has extensive experience in financing the

micro-financiers. Sofagro plays an important role in this

agricultural sector. In what specific areas do you see

segment, especially in the sugarcane field.

opportunities? A: We are creating financial products to meet the sector’s

Q: President López Obrador has made the Mexican

needs and we are adapting these products to the needs of

agricultural sector a priority. What impact do you expect

emerging companies. Our job is to talk to them, understand

that to have on the industry?

their requirements and create products that are unique to

A: Agricultural is a priority for the government not because

them. We will continue to work in the segments we already

of the government’s ideology but because the sector is

are in, boosting our financing solution via dispersion to

among the country’s main industries. Although the sector

small farmers in the sugarcane segment or other crops like

had perfected its working dynamic over the years with its

strawberries or broccoli.

international counterparts, USMCA's negotiation should be taken as an incentive for the industry to improve the quality of

We are also working to develop greenhouses and we are

its products and to diversify its exports. When we talk about

venturing into financing marketers, which adds a higher

the quality of our agricultural products, the path we must

degree of complexity. Marketers that export often require

follow is quite clear since natural and organic goods are the

repurchase agreements. For instance, if a marketer has

most popular. However, these two changes cannot happen

a contract with a client to sell a determined crop year-

without modernizing and professionalizing the sector.

round but that crop is only produced four months a year, the marketer must buy the entire production in this short

Both modernization and professionalization also depend

period of time and find a way to preserve it to be able

to a large extent on the participation of the private sector.

to supply its client for the entire year. Because the client

Unfortunately, farmers tend to have limited resources and

will not pay in advance for the product, marketers require

do not have the money to invest in technology. This is where

financing. This is where we participate; we buy the product

private initiatives can promote modernization.

from them with the promise of reselling it at an agreed price in the future, which provides traders with liquidity.

We are seeing more investment, which is good news. One

These agreements are fairly common for grains and sugar

area that has become quite common for promoting the

but we are venturing into creating these agreements for

sector’s modernization is contract farming, a model in

new products.

which small and medium-sized farming operations that work for large traders receive investment to modernize

Q: What opportunities do new financial instruments such

their production processes, build greenhouses and buy

as CKDs offer?

better seeds and agrochemicals. This results in a win-win

A: Financing in the agricultural sector has the same

situation for both farmers and marketers. The government

problems other sectors have. The largest and most

also needs to provide more legal and judicial certainty

sophisticated producers find financing relatively easily.

related to land-ownership laws. Agriculture is among

However, traditional financing companies cannot meet

Mexico’s most important sectors and it has the potential

the needs of these large players because they do not

to continue growing.

understand the sector’s requirements. Medium-sized companies have problems finding financing because their operations are considered small for big banks, while other

Sofagro is a nonbanking financial institution that operates

financing options tend to be unprofessional and not suitable

under the SOFOM regime. It specializes in providing

for the business niche and its real needs. Small farmers

financing and funding to companies and cooperatives in the

suffer the most and tend to obtain their financing from

agricultural sector

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MEXICO’S GEOGRAPHY KEY TO AGRIBUSINESS GROWTH DIEGO MARTÍNEZ President of Aneberries

222

Q: What is the main differentiating value Aneberries offers

differentiated by the quality and purity that our geographical

in terms of export support for producers?

position allows. Mexico can deliver any product in North

A: Since its creation, Aneberries’ goal has been to group

America in seven days, while Chile and other countries need

the largest number of berry producers and to promote

more than 30 days to export to the same market.

this industry in Mexico. Today, we represent 28 exporting companies, and between 80 and 85 percent of the country’s

Q: What was the idea behind the creation of the Berries

berry exports. Aneberries offers producers and exporters

de México brand?

comprehensive services that include consulting in food

A: We want to position Mexico’s berries as quality and safe

safety, genetics and phytosanitary regulations, as well as

products for consumption. In international markets, such

support, financing and training in new technologies for

as Europe, the new brand will encourage consumers to see

irrigation, hoops and harvesting, among others, to position

Berries de México as a quality product. This project benefits

Mexican berries in the international market. Aneberries

the industry because a sustainable agribusiness model can

exports to 32 countries around the world, although our

improve farming and the national economy by ensuring that

main markets are the US, Canada, the UK, Holland, Italy,

natural resources are cared for.

Belgium, Germany, Russia, Hong Kong, Japan and the United Arab Emirates.

Q: How can Mexican producers become part of Aneberries? A: Producers, small or large, need to be aware of the

Q: What factors have helped Mexican berry producers

investment and agricultural requirements of being a berry

become competitive in Asia?

producer in Mexico. We look for members who are aligned

A: Mexico has positioned itself in the Asian market thanks

with the international quality standards that guarantee their

to fresh berries; previously many countries in the region

products are safe and free of pesticides. We not only want

only consumed frozen versions of this product. Mexico

to export berries but also to develop the industry and the

contributes added value through the quality of its products.

human environment that surrounds it.

We are working with the government to open new business opportunities in that region but the process has been slow

Q: Which product offers the most interesting prospects

due to the rigorous phytosanitary regulations of some

for Aneberries?

countries. In the case of China, a two-year period was

A: Our flagship product is strawberries, followed by

necessary to open the export protocol for blackberries and

blackberries, raspberries and blueberries, the latter of which

raspberries, including visits from the country’s auditors and

are the most expensive in the market. Production volumes

agricultural authorities.

and the time frame for a return on investment vary from one berry to another, so producers must consider these factors

Q: What role does geography play in your international

to increase their productivity.

development strategy? A: Unlike Chile, which needs to fumigate its fruits to export

Q: What is Aneberries doing to drive Mexican producers

them to the US market, our products do not need cold

to the next level?

treatment or pesticide applications. Our products are

A: The berries industry in Mexico produces around US$1.9 billion a year. We are valuable to the agribusiness sector so government support is key to help us boost this industry.

The National Association of Berries Exporters in Mexico

Also, we need the government to get more involved

(Aneberries) groups companies that produce berries for

because part of our value chain depends on the services,

export. The association works with 28 exporters of blueberries,

infrastructure and conditions that the government provides

raspberries, strawberries and blackberries

to the agribusiness sector.

INSIGHT |

AFTER RUST CRISIS, MEXICAN COFFEE BREWS SUCCESS FÉLIX MARTÍNEZ President of the National Association of the Coffee Industry (ANICAFE)

The Mexican coffee sector has been hit hard in recent years by

One area of opportunity for further growth is exports. “Coffee

an epidemic of coffee leaf rust, a fungus-based disease. But the

exports had fallen substantially but they are now picking up,

industry is recovering and despite negative external factors,

which is the best parameter we have to illustrate growth in

consumption and exports are on the verge of increasing,

production,” Martínez says. Some coffee companies weathered

says Félix Martínez, President of the National Association of

the rust crisis through coffee exports that included added

the Coffee Industry (ANICAFE). “The rust crisis of 2012-13

value, such as instant coffee. Mexico’s capacity to produce

affected the Mexican industry. However, a joint effort between

instant coffee is almost equal to Brazil’s. “Brazil can produce

the private and public sectors has repositioned the industry

around 100,000 tons of instant coffee per year, while Mexico’s

and we are again experiencing growth.”

capacity is around 96,000 tons. We expect to surpass Brazil

“

in a couple of years.”

The Mexican market had faced challenges before but Martínez says the inadequate management of the first stages of the epidemic caused Mexico’s coffee production to plummet. This led all members of ANICAFE, a 40-year-old association that groups the 35 most important companies in the sector, to participate in solving the crisis. “We went from producing 4.4 million 60kg sacks of coffee to 2.3 million, dropping from fourth to 11th in the international ranking," Martínez says. One action implemented by the government, coffee farmers and the association was the incorporation of genetically modified, rust-bug-resistant seeds. “A few years

Brazil can produce around 100,000 tons of instant coffee per year, while Mexico’s capacity is around 96,000 tons. We expect to surpass Brazil in a couple of years”

ago, genetic material for coffee seeds was nonexistent in Mexico. The rust crisis led us to import seeds with new

Like its other exports, Martínez says Mexico’s success as a

characteristics and to develop research centers that

coffee exporter lies in its geographical location. “We have

would allow us to generate our own seeds.” In addition to

taken advantage of Mexico’s location next to the US. Our

introducing these new seeds, Martínez says the epidemic

members import coffee from Vietnam and Brazil, process it

led the industry to change the way coffee beans are grown.

and then export it to the US.” He believes there are many other

“To recover production, we increased the density of crops.

markets that have high potential for coffee exports and instant

Instead of having 1,500 coffee plants per hectare, we now

coffee in particular, including England, Japan and South Korea.

have 3,000 per hectare, which means higher production from the same land space.”

The domestic industry also offers untapped opportunities, such as ecotourism, an area in which countries like Costa

Martínez says the local industry also has been boosted

Rica and Colombia have taken the lead. “Coffee is a crop that

by an increase in consumption levels in the country. “We

preserves the biodiversity of the areas where it is harvested

estimate that coffee consumption in Mexico is around 1.45kg

and can become a fundamental piece in the ecotourism

per capita.” He also suggests that the growth the industry

segment,” says Martínez. “Countries like Colombia and

has experienced in recent years is related to the successful

Costa Rica offer tours around coffee plantations that let

business model of Starbucks. “The phenomenon of coffee

visitors observe local flora and fauna while learning more

shops began when Starbucks arrived in the country more than

about coffee plants. Mexican states like Chiapas, Veracruz

15 years ago. Many other brands and several of our associates

and Puebla are already offering these kinds of tours but we

have decided to establish similar shops.”

can do more.”

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DIFFERENT REALITIES OF THE SAME AGRIBUSINESS LUIS TEJADO President and CEO of BlueDrop Agroforestry

224

Q: BlueDrop Agroforestry specializes in developing

BlueDrop Agroforestry. We are already conducting our due

agricultural and forestry companies. How do you ensure

diligence with Afores and we hope to raise MX$4 billion

sustainability in your investments?

(US$210 million) to grow the companies that we already

A: Purchases and investments made by BlueDrop Agroforestry

have and to invest in other areas, such as pineapples,

are always sustainable. Recently, we were about to buy a

coconuts and other citrus fruits.

3,000ha plot in Tabasco but we renounced the purchase because it is the natural habitat of an endemic turtle in the

Q: What are the main risks in the agricultural sector and

region. We always buy privately-owned land parcels, normally

how do you mitigate them?

in the southeast of the country where deforestation had taken

A: We are one of the few funds in the agriculture and

place during the 1960s and 1970s. When we buy these plots,

forestry sectors that also have the capacity to speak with

we implement a reforestation program to regenerate the area.

Afores and landowners. Our vision focuses on minimizing risks instead of maximizing profits because in case of a

Sustainability is at the core of our business and includes

contingency we have more room to control the results. Also,

our employees and our processes. Our main objective is

we make sure that the projects we select have commercial

to do business according to a framework of sustainability,

potential and growth opportunities. We like to invest in

ecology and social responsibility.

buying our own land because we can minimize risk and guarantee long-term productivity.

Q: What made Proteak, Tropical Organic Growers and Prolade attractive investments for BlueDrop Agroforestry?

Q: What are the characteristics inherent to the sector that

A: BlueDrop Agroforestry started as a fund that looked

should be understood by a funding company like BlueDrop

for the best opportunities in the agricultural and forestry

Agroforestry?

sectors. Before investing, we conduct an extensive analysis

A: When Mexico emerged as an independent country and

of the market, technologies and available workers. The

only had land to grow its economy, it was reasonable for the

most interesting segments for us are palm oil, organic

country to base its economy on agriculture. Now, Mexico is a

bananas, melina trees and blueberries and with these

multisectoral economy and the agricultural sector faces two

projects we have raised around MX$800 million (US$41.5

realities. On the one hand, there are the common farmers with

million). We also have the possibility to scale the business

an average land size of 2ha who lack knowledge, technologies

opportunities for each one. Prolade, our sustainable palm

and investment capital to increase the profitability of their

oil company, has cultivated around 3,000ha of palm oil

land. On the other, there are farmers who own 50ha or more

and we plan to invest MX$15 million (US$780,000) to

and produce legumes and vegetables with high investment

expand that to 5,000ha by 2020.

and returns. We do not need to buy more seeds or go back to being an agricultural country to boost Mexicoâ&#x20AC;&#x2122;s economy.

Q: Who are BlueDrop Agroforestryâ&#x20AC;&#x2122;s main investors?

What we need is to invest efficiently in the sector to make

A: Afores are our main investors, having put money into

low-producing land more profitable.

Proteak in 2010. That was the first project we developed. In 2012, when I left the leadership of Proteak, I founded

If the government wants to change the agricultural sector, it has to understand that Mexican agriculture has two faces and that the industry is highly fragmented. At the same

BlueDrop Agroforestry specializes in the development of

time, unlike other sectors, there are no great players that

agricultural and forestry industry, helping companies build

completely control the sector. We need to nourish the

their operations depending on market opportunities. The

places and the farmers that have the greatest opportunities

company is present in four continents and in 13 countries

for growth.

VIEW FROM THE TOP |

SPEEDY ALTERNATIVES FOR LENGTHY GOVERNMENT APPROVALS JUAN PABLO FLORES Director General of AVS

Q: What led COFEPRIS to grant third-party authorizations

third parties, any registration can be obtained in less than six

for the agrochemical sector?

months. This effort translates to prompt commercialization

A: COFEPRIS does not have the capacity to satisfy the

of products.

demands of the agrochemical industry. Some years ago, the pharmaceutical industry had the same problem so the

Companies need the capability to plan and map the

council used authorized third parties to address the issue.

market. They cannot do this because they do not know

This model has been successful in the pharma industry,

if their productâ&#x20AC;&#x2122;s registration will be ready on time. It

particularly the verification units for drug products and

is a matter of strategic planning. Mexico is the worldâ&#x20AC;&#x2122;s

medical devices. In only five years, they have provided

12th-largest food exporter but we expect that by 2050

over 10,000 new registrations. The pharma industry can

the country will take a leap forward to become a Top 8

now complete these registrations in only a few months.

exporter. The only way to lower prices is to have more

The agrochemical sector has been requesting this from

participants in the industry offering innovative products

COFEPRIS for two years and we expect to replicate the

and generics. Many farmers use counterfeit goods because

success this scheme has had in the pharmaceutical industry.

they cannot afford patented products. This new regulation will help spur both growth and the introduction of new

Q: How have you been received by the market and are two

products at more competitive prices, which means that

authorized third parties enough to cover demand?

farmers will have the capability to purchase registered

A: Every two years, COFEPRIS launches an open call for

products and generics. That will be beneficial for the

new companies to participate as authorized third parties.

agricultural sector overall.

COFEPRIS expected more companies to obtain the authorization but the truth is that the processes are very

Q: Between 2010 and 2017, COFEPRIS granted over

strict and rigorous. The authorization of two companies is

7,000 pesticide registrations. How will the introduction

not enough for the entire market but it is a first step. At

of authorized third parties impact future results?

AVS, we have four reviewers with different authorizations.

A: The problem COFEPRIS faces is its capabilities. It has a

For instance, all four experts oversee plant nutrients, three

significant backlog for new product registrations because

are authorized for a chemistry specialty and two for the

it does not have the human resources to quickly review all

toxicology specialty. Although we only have four reviewers

the new applications.

at the moment, we can increase our number of reviewers to meet demand.

We expect the number of registrations will increase because there will be more reviewers in charge of doing what

Despite being authorized by COFEPRIS, some companies

COFEPRIS is doing now. There will be more products on

are reluctant to use our services. Large companies that also

the market and many producers of agrochemical products

have experience with third parties in the pharmaceutical

will be able to standardize their operations. I do not have

industry have no problem working with us but the vast

an estimate regarding the magnitude of the growth that

majority of companies are still waiting for the first round

the industry will experience but I have no doubt that the

of proceedings to be completed before deciding whether

industry and the number of reviewers will grow.

to use our services. Q: How do your services add value to the operations of

AVS is an authorized third party that focuses on agrochemical

pesticides or nutrients companies?

products for the Mexican market. The figure of authorized third

A: The goal is to shorten time frames. It takes up to 36

parties, designated by COFEPRIS, for the agrochemical sector

months to obtain a new registration but by using authorized

was announced in early 2018

225

Beer production process

FOOD & BEVERAGES

Avocados and berries have become flagship products for Mexico but the country also excels in other alimentary segments. Due to its strategic location, production capabilities and logistics, Mexico has also become a hub for food manufacturing companies. Changes in consumption patterns not only in Mexico but throughout the world have also fostered the introduction of added-value goods to Mexicoâ&#x20AC;&#x2122;s industry and have given the country the opportunity to become a hub for R&D related to nutritional products.

Food & Beverages showcases leading agro-industrial companies from segments like beer, tequila and mezcal that have become best-performers in the US and European markets. Strategies are also analyzed to find ways to replicate the success of these products in other food and beverages categories in order to present a cohesive industry that has a wide offering not only for national consumers but for international markets.

227

CHAPTER 9: FOOD & BEVERAGES

230

ANALYSIS: Changing Trends Drive Consumption of Premium Products

231

VIEW FROM THE TOP: Maribel Quiroga, Cerveceros de México

232

VIEW FROM THE TOP: Jonás Murillo, CANAINCA

234

INSIGHT: Alfonso Vázquez, Pinsa Comercial

235

VIEW FROM THE TOP: Raúl Peláez, Kua Mex Foods

236

VIEW FROM THE TOP: Enrique Hernández-Pons, Aires de Campo

237

VIEW FROM THE TOP: Sophie Vanderbecken, Le Caméléon

238

VIEW FROM THE TOP: Mario Vazquez, ACH Foods México

239

VIEW FROM THE TOP: Alejandro Rosas, Haskell

240

INFOGRAPHIC: Beer, Tequila and Mezcal: Kings of Exports

242

VIEW FROM THE TOP: Carlos Álvarez, Bacardi Mexico

243

VIEW FROM THE TOP: Jaime Costa, BLN

244

INSIGHT: Pablo de Brito, Beam Suntory

245

VIEW FROM THE TOP: Lissette Montefusco, CMR

246

INSIGHT: Federico Rigoletti, Bajo de la Tintorera

247

INSIGHT: Eduardo Méndez, Mero Mole

Rodrigo Vargas, Mero Mole

229

| ANALYSIS

CHANGING TRENDS DRIVE CONSUMPTION OF PREMIUM PRODUCTS With over 790,000 employees across the country, the food and beverages industry has become an important pillar for the manufacturing sector. Tequila and mezcal are among the industry’s stars and healthy options are trending. Despite the successes, the industry faces perils, particularly in terms of security The food and beverages sector is an increasingly relevant

in Mexico has been growing at a double-digit rate over the

segment of the Mexican economy. Agro-industrial exports,

past five years.” More importantly, Álvarez says the Mexican

including food and beverages, accounted for US$17.78

consumer is evolving, moving to consumption of beverages

billion in exports and US$15.2 billion in imports in 2018 for a

from the premium segment. “In Mexico, the premium segment

commercial surplus of US$2.5 billion, according to INEGI. An

represents 30 percent of the liquor market. This segment has

analysis from ProMéxico in 2017 showed Mexico was the No.

also experienced double-digit growth in recent years and we

2 supplier of processed food to the US and the third-largest

expect these rates to continue for at least another five years.”

producer of processed foods in the Americas, just behind the 230

US and Brazil. Adding to its clout, nine of the sector’s 10 most

Jaime Costa, Director General of BLN, says that very much

important companies are present in the country.

like what is happening in other product categories, Mexican consumers are shifting their preferences toward Mexican

The surplus in Mexico’s trade balance is mostly driven by the

traditional spirits. “Tequila accounts for approximately 34

country’s best performing products: beer, tequila, mezcal,

percent of the total spirits market.” Costa adds that the market

bread products, confectionery, chocolates and fruit preserves.

is increasingly welcoming mezcal. “We see many opportunities

The sector also plays a significant role in employment

in the mezcal category,” he says. “It is showing steady growth

generation. According to ProMéxico, over 792,000 people

but it has a very small following. Younger consumers are

work in the industry and Jonás Murillo, Director General of

learning to drink mezcal and it is this demographic that is

CANAINCA, says the sector is among the largest employers

driving the trend for mezcal and also wine.”

in the country. “The 40 companies affiliated with CANAINCA generate 40,000-45,000 direct jobs and the multiplying effect

Consumption of mezcal and tequila is also booming abroad,

of the industry in terms of employment is above average.

which has led to the acquisition of Mexican brands by

For every direct job in the industry, around seven indirect

international companies. Such is the case of Tequila Patrón,

positions are generated, while the average in the country is

which was acquired by Bacardi to position the rum company in

three indirect jobs per every direct job.” Murillo adds that five

the premium tequila market. “One way to grow and diversify is

out of the seven indirect jobs created are in the farming sector.

through the development of existing brands and acquisitions of new ones. Tequila Patrón plays a key role in the premium,

The beverages industry is a major engine for the sector.

super-premium and ultra-premium segments,” says Álvarez.

Beer, tequila and mezcal are Mexico’s top performers in the

“Foreign companies often have the financial resources to

agro-industrial commercial balance. Maribel Quiroga, CEO

invest in the long-term success of a brand, increasing its

of Cerveceros de México, says Mexico is the fourth-largest

ability to expand, to employ even more people in Mexico,

producer of beer in the world but ranks first in exports. “The

contribute to the community and further introduce tequila

Mexican beer industry is positioned above other traditional

and the tradition and culture of Mexico across the world.”

beer producers like Germany.” In addition to the success that Mexican beer represents, Quiroga believes the beer industry is

Despite the success of the industry, it remains susceptible to

a perfect example of how the agricultural and agro-industrial

the insecurity problems plaguing other sectors, particularly

sectors can work together. “Grupo Modelo created an initiative

when it comes to logistics. “Security is a key issue. We must

called Agricultural Development in Mexico that aims to

transport products from Veracruz to Mexico City. Along the

promote production of barley and improve the quality of life

way, we have had to deal with several robberies. This has

of the country’s producers. Heineken México also developed

forced us to use additional security elements for our freight

a technology program focused on sustainability.”

transport, which increases overall costs,” says Álvarez. Costa adds that security issues have gained such relevance that

Although exports play a major role in the country’s economic

the insurance industry no longer wants to cover the risks

life, the domestic market is also key for the industry. According

associated with transportation. “We are facing a situation

to Carlos Álvarez, Managing Director of Bacardi Mexico, Mexico

where insurance companies no longer want to provide

is among Bacardi’s Top 10 countries in sales. “The business

insurance for our shipping.”

VIEW FROM THE TOP |

BEER: A STRONG NATIONAL AND INTERNATIONAL ECONOMIC PILLAR MARIBEL QUIROGA CEO of Cerveceros de México

Q: What is Cerveceros de México's impact in the local beer

followed by China with 2.3 percent, Chile with 1.6 percent and

industry?

Canada with 1.4 percent. Beers made in Mexico are present

A: Cerveceros de México’s goal as a chamber of Mexican

in more than 180 countries. Our internationalization plan is to

industrial and craft brewers is to promote the brewing

continue consolidating the countries where we already have

industry in Mexico. The chamber strives to participate

a presence but we also want our beers to reach every corner

beyond regulatory and fiscal matters and has broadened

of the world. Cerveceros de México wants Mexican beer to

its scope over the past years to promote the national beer

be recognized as a symbol of quality throughout the world.

industry, as well as responsible alcohol consumption to nurture the culture of beer and beer-related topics. One of

Q: How do beer companies work with the agricultural

the objectives of Cerveceros de México is to highlight the

sector and producers?

importance of beer and the brewing industry in the country’s

A: Malt barley production in Mexico has been positive in

economy. We also battle underage drinking through the

recent years. Between 2007 and 2017, production grew at

campaign ¡No te hagas güey! (Do not play dumb!).

an annual average rate of 4.2 percent, from 653,000 tons in 2007 to 982,000 tons in 2017. Between 2007 and 2017, the

Q: How does Mexico rank in terms of beer production

average yield increased from 2.3 to 2.8 tons per hectare. In

compared to the rest of the world?

2017, the state of Guanajuato was crowned the top producer

A: Mexico is the fourth-largest beer producer after China,

of malt barley in the country with 358,000 tons, followed

the US and Brazil. In 2017, the country produced 110 million

by Hidalgo with 240,000 tons, Puebla with 85,000 tons

hL, while China produced 449 million hL, the US 219 million

and the State of Mexico with 50,000 tons. In the same

hL and Brazil 129 million hL. The Mexican beer industry

year, Queretaro’s production grew 42 percent compared

is positioned above other traditional beer producers like

to 2016, with over 40,000 produced tons, a production

Germany. In overall export percentages, Mexico ranks first

level that had not been seen in 11 years. Our affiliates Grupo

with 21 percent of the global beer exports, followed by the

Modelo and Heineken México are committed to investing

Netherlands with 14.4 percent and Belgium at 11 percent.

in the entire value chain and both groups expect that 100 percent of the barley used for beer will be domestically

Q: What impact is technology having on the brewing

produced by 2020.

industry’s value chain? A: Beer production in Mexico is growing and with it the

In 2016, Grupo Modelo created an initiative called Agricultural

technological development of the industry. Technology

Development in Mexico to promote the production of barley

improves processes through greater digitalization and

and improve the quality of life of the country’s producers.

automation but also improves the use of resources

In addition, Grupo Modelo supports its programs through

needed to brew. Heineken has opened a plant in Meoqui,

a barley collection center in Sobrerete, Zacatecas and a

Chihuahua, which exceeds the traditional technological

sustainable agricultural program that provides technical

methods of brewing in Mexico. It can be considered the

advice to barley growers in the area. In the case of Heineken

most technologically advanced plant in the world. In the

México, the company has developed a technology program

beginning of 2019, Grupo Modelo opened a plant in Hidalgo

focused on sustainability.

with an initial investment of MX$1.4 billion (US$72.3 million). Q: Which countries are the top consumers of Mexican beer

Cerveceros de México is a chamber that represents Mexican

and how are brewers diversifying export destinations?

industrial and craft brewers. Its objective is to grow the value of

A: The US is the main buyer of Mexican beer, taking 81 percent

the brewing industry and promote its impact on the country’s

of our exports. The UK is next with 2.8 percent of exports,

economic development

231

| VIEW FROM THE TOP

A UNITED VOICE FOR FOOD PRESERVES JONÁS MURILLO Director General of CANAINCA

232

Q: What is CANAINCA’s role in the Mexican food and

Q: What challenges and opportunities does CANAINCA

beverages sector?

expect from USMCA, the FTA with the EU and the TPP11?

A: We group 95 percent of all companies in the food preserves

A: The negotiation or renegotiation of free-trade agreements

business, except for milk. We have 40 members. These

has not had a major impact on our day-to-day activities.

companies are the main players in the fishery, beverages and

Overall, we face the same issues and benefits as other

general food sectors. Although the number might seem low,

sectors, although the improvement or maintenance of free-

CANAINCA’s members represent almost the entire national

trade conditions are always beneficial.

production from this sector, which accounted for MX$270 billion (US$14.1 billion) in annual sales in 2017. Once the

Particularly with USMCA, the impact has been almost

government presents its final figures for 2018, we expect this

null. We are a sector that commercializes products that

number to grow by 7 percent, which is the average growth

cannot be substituted and there is high demand in the US

we have enjoyed in the past years. Although growth varies

for our products. Unlike the automotive industry where

depending on the subsector, the most significant development

companies can manufacture their components anywhere

has been in the beverages sector, especially juices and nectars,

in the world, even in the US, beans and peppers cannot

along with tuna, beans and peppers.

be managed in the same way. The US does not produce habanero pepper sauce but its population consumes it

The 40 companies affiliated with CANAINCA generate

in large quantities. We can proudly say that in the US,

40,000-45,000 direct jobs and the multiplying effect of the

the industry no longer lives off the 30 million Mexicans

industry in terms of employment is above average. For every

who live there and consume these products. Today, there

direct job in the industry, around seven indirect positions

are several US population segments that actively look

are generated, while the average of indirect employment

for Mexican products. It is a market that has significant

creation is three indirect jobs per every direct job. Out of

opportunities.

these seven jobs, five are in the farming sector, which puts us among the largest employers in the agricultural sector. In

Of our associates, at least 70 percent sell products to the

terms of agricultural products, CANAINCA companies move

US. In fact, of our entire exports, practically 90 percent

around 8 million tons of food throughout the year, both in

goes to the US and the other 10 percent is destined

sea products as well as fruits and vegetables.

for the rest of the world, mostly to European markets and a smaller percentage to South American and Asia.

Q: How does CANAINCA work alongside its associates to

Although the Asian market is large and offers interesting

increase the sector’s competitiveness?

commercialization opportunities, our products still do

A: As a chamber, our job is to represent and defend the

not have the push that they need. However, in Europe

sector’s interests, preventing attacks against our associates

they have received a significant boost, which is reflected

and positioning them in national and international markets.

in sales and popularity. Our associates selling nopales

We have several commissions that touch upon different areas,

(cactus) in Sweden say the product is being well-received,

such as human resources, marketing, sustainability, technical,

for example.

legal and environmental issues. Each of these works hand in hand with the directors of each of our members.

The FTA with the EU has favored us significantly. After lengthy negotiations, we achieved a Geographic Indication

When CANAINCA presents a proposal, the entire sector

recognition for the chipotle pepper and the Mexican

backs it up. The goal of all our proposals is to boost the

jalapeño pepper. This is a major victory for us. With the

sector or find ways to reformulate initiatives that otherwise

chipotle pepper, there were not many problems since

would impact negatively on the sector or consumers.

this is a 100 percent Mexican product that results from a

Aires de Campo food display

transformation process of the serrano pepper. However, the

A: In this regard, we rely on strategic partners. The

jalapeño peppers had some issues because Turkey, Peru and

Association for Packaging and Processing Technologies

some Asian countries also produce these, although they

(PMMI) is our primary partner. Our relationship is based on

are of different and lesser quality. Producers from these

sharing information and offering feedback to one another to

countries were also using the image of Mexico to sell their

communicate what we need and what companies can offer

jalapeño peppers, which represented a problem for Mexican

us in terms of new technologies, not only in the packaging

companies.

stage but also in the production process.

The Geographic Indication gives us the same protections

Q: What is CANAINCA’s relationship with the Mexican

as a Denomination of Origin, with one main difference.

government in promoting the food and beverages’

Instead of being restricted by territorial continuity, the

preserves sector?

Geographic Indication offers protection to the entire

A: It has been difficult to establish a common agenda with

country for production of peppers, whether they

the new federal administration. There have been many

come from Sinaloa, Chihuahua or Veracruz. This was

internal changes and we need to see how the Ministry of

fundamental because the country has intermediate areas

Agriculture and Rural Development will be structured in

where there is no production of peppers. Now we need

the end. However, we have received a good reception from

the Mexican government to mirror what we have achieved

those we have been able to approach. They are aware of

in Europe; the country is still in the process of recognizing

the importance of the companies we represent and our role

Geographic Indications, which means that today we have

in helping eradicate poverty. It is a sector that is priority for

more protection in Europe than in Mexico.

the government.

Q: What efforts have CANAINCA and its members

There is also an opportunity in terms of legal certainty. As an

made to position their products among international

industry, we need to provide security to investors and reject

consumers?

corruption. We want to support the government in its effort

A: Product promotion is done more through the brand

to terminate corruption.

itself. The budget they have is by far larger than what we as a chamber could muster. We do help them with the

We believe the sector will continue growing but we must

legal conditions they must meet to commercialize their

be mindful of how businesses expand and how beneficial

products but the companies themselves oversee all their

certain proposals are for the overall population. We also need

promotion. For instance, during the 2018 football World

to improve both the products we sell and our international

Cup, all big companies were promoting their products in

efforts to position Mexican products throughout the world.

Russia. The target was not Mexicans living there but other global consumers. The National Chamber of the Food Preserves Industry

Q: What investment and innovation efforts is the industry

(CANAINCA ) is the chamber that represents companies in

making to ensure its packaging solutions comply with security

the food preserves business. Among its associates are Grupo

standards while being sustainable and cost-effective?

Jumex, Conservas La Costeña, Herdez and Jugos Del Valle

233

| INSIGHT

TUNA FROM MEXICO TO THE WORLD ALFONSO VÁZQUEZ Commercial Director of Pinsa Comercial

Mexico is a tuna dynamo. With a total 96,793 tons of tuna

average per capita tuna consumption at 2.6kg per year, more

captured in 2017, the country contributed 4.7 percent to total

than doubling Mexican consumption.

world production. Alfonso Vázquez, Commercial Director

234

at Pinsa Comercial, believes, however, that the home game

Vázquez says Pinsa Comercial’s strategy to increase tuna

remains a good bet for growth. “Mexico’s tuna consumption

consumption in the country is based on new methods

is not low but we believe the domestic market offers a

of innovation, commercialization and communication.

significant opportunity that could boost the industry.”

“Beyond commercializing extra tuna brands, we need to commercialize product innovation. Consumers should

Grupo Pinsa is the umbrella group for independent companies

start thinking about tuna through different concepts.”

dedicated to specific tasks within the production chain of the

An example of innovation that, according to Vázquez,

tuna and sardine industries, which makes it self-sufficient in

had a positive impact on consumption levels is related

all processes. In addition to canned tuna, it has a frozen tuna

to packaging. “Our packaging with a lid and a spoon for

division that is taking off thanks to exports. Pinsa Comercial

instant consumption was an innovation that encouraged

operates the commercial branch. “Our task is to commercialize

people to consume more canned tuna.”

for the mass market all the products generated by the group

“

but also brands that could be outside our production scope,

Consumer communication is another important variable.

like a line of Canadian snacks called Brunswick,” says Vázquez.

“Consumers need to be more aware of the benefits of

Mexico’s tuna consumption is not low but we believe the domestic market offers a significant opportunity that could boost the industry”

eating tuna,” says Vázquez. “We need to invite consumers to eat canned tuna in different ways.” An important factor in favor of canned tuna is related to prices. “In Mexico, a can of tuna is more economical than in other parts of the world,” says Vázquez, who adds that in the US a can of tuna can be up to 30 or 40 percent more expensive than in Mexico. Although Mexico stands out as one of the world’s most important tuna producers, Vázquez says exports have not grown as expected due to trade limitations such as those imposed by the US tuna embargo. The establishment of

According to SAGARPA’s 2018 National Agroalimentary

USMCA, therefore, would likely have no direct impact on

Atlas, Mexico is the 13th-largest tuna producer in the world.

the company’s operations. “Even if the US decided to impose

With seven brands, three of them canned tuna, Grupo Pinsa

taxes on Mexican tuna, we have experienced nontariff barriers

has positioned itself as the clear industry leader. “Canned

that are tougher than any tax.” Vázquez says that Grupo

tuna represents almost 5 percent of the entire category

Pinsa has positioned its products in Hispanic neighborhoods

of processed food and within the canned tuna market we

in the US but not at national supermarket chains.

hold between 55 and 60 percent of the market share,” says Vázquez. He says consumption in Mexico averages eight cans

The US market has proven a complicated arena for Mexican

of tuna per person annually, a number that SAGARPA rounds

tuna but Japan has been a different story as it received a

up to 1.1kg per capita. “We believe that tuna consumption could

significant share of Mexican tuna exports in 2016. Vázquez

reach the levels of other canned products,” says Vázquez.

is convinced that the coming two years will be profitable for

According to a study by The Pew Charitable Trusts, the largest

the group. “In the past, we have grown over seven points in

consumer of canned tuna in the world is the US, followed by

market share, we have expanded the canned tuna category

Japan, the UK and Spain. The European Commission puts

and we continue to see opportunities in the market.”

VIEW FROM THE TOP |

CONSUMERS DEMAND HEALTHIER, BUT STILL DELICIOUS, PRODUCTS RAÚL PELÁEZ President of the Board and CEO of Kua Mex Foods

Q: Kua Mex Foods offers two product lines: healthy and

Q: How does Kua Mex Foods support the brands it works with?

gourmet. How do you differentiate these lines from others

A: We invest in companies that are already positioned in the

in the market?

Mexican market and help them to continue growing through

A: Kua Mex Foods’ healthy and gourmet business model

innovation and by introducing them to new channels and

is an innovative and disruptive approach to the food

clients. The first company we invested in was Nopalia, which

industry in Mexico. The wellness niche that has grown with

produces nopal (cactus) tortillas and snacks. Their products

the arrival of millennials has proven to be highly profitable

were good but it was our strategic alliance that made them

and is growing quickly on a global scale. Kua offers highly-

great. One of the best products in our portfolio is Churritos

differentiated products that are not only affordable and

de Nopal that became a blockbuster in Mexico and abroad.

have great taste, but are also a great alternative to help

Since the acquisition, the company has grown 45 times in

fight obesity and overweight in Mexico. Our goal is to offer

less than five years.

healthier and better products to our customers. Q: What changes and trends do you see in Mexican Q: How does the company develop its products and what

consumption patterns?

protocols do you follow to add new ones to your portfolio?

A: There has never been such a high level of health and

A: Kua Mex Foods is driven by innovation. We are

wellness awareness as there is today. People are becoming

constantly creating new products and brands in line with

ever more conscious of how they feed their body and

our wellness approach of healthy and gourmet. Among

the repercussions food can have in either causing or

the most distinguishable attributes of our products are

preventing health problems. There has been a global shift

high quality and exquisite flavor. We have a robust team

in consumption patterns toward healthier, more natural

that specializes in the development of new formulas for

products that provide nutritional benefits. This has proven

products that merge health, great taste and affordability

to be an opportunity for Kua to introduce high-quality,

for our consumers. Our products are certified by the most

healthy and gourmet products to these fast-growing

prestigious national and international agencies in the food

markets. We plan to acquire one or two more companies

industry. Moreover, we look to acquire new companies that

to double our current size, with a sales target of US$300

fit our differentiated product portfolio.

million by 2022 and an EBITDA margin of 16 percent. This will pave the way to an IPO.

Q: How have your exports been received abroad and what are the challenges of marketing and commercializing

Q: What is Kua Mex Foods’ added value??

traditional Mexican products like nopal?

A: Externally, our mission is to provide healthier products at

A: Kua Mex Foods exports to several countries. In past years,

a reasonable price with great taste. Internally, we are proud

the global demand for healthy products reached double-

of hiring mostly women, who now represent 70 percent of

digit growth. Japan, which stands out for its healthy eating

our total workforce. We also buy our raw materials from

habits and general wellness lifestyle, has had the highest

small producers at a fair-trade price to support small and

growth in demand. As the millennial-driven wellness trend

medium businesses, while still generating great value to

continues to expand, however, we expect more countries

our shareholders through high-quality, affordable products.

to join the customer list. To help accelerate this growth, we attend annual national and international expos to showcase our products and attract new customers. In 2018, exports

Kua Mex Foods is a Mexican company specialized in the

represented 20 percent of our total revenue, compared

production of gourmet foods and beverages. Its health line

to 5 percent the previous year. We estimate exports will

includes products such as Frutos de vida, Kua Candy, Manitoba,

represent 50 percent of our total revenue by 2022.

Nopalitoz and Nopalia

235

| VIEW FROM THE TOP

SOCIOECONOMIC DIFFERENCES, BUREAUCRACY OBSTACLES FOR ORGANIC FOOD MARKET ENRIQUE HERNÁNDEZ-PONS CEO of Aires de Campo

236

Q: What conditions allowed for the creation of Aires

Q: What advantages and limitations exist in the Mexican

de Campo?

market for organic products?

A: Aires de Campo was founded in 2001, a time when

A: About 40 percent of the Mexican population lives in

national organic products were exported mainly to the US

poverty and 10 percent lives in extreme poverty. These

since there was no such market in Mexico. The original idea

socioeconomic conditions hamper the commercialization

was to create a market for organic products to promote a

of organic products in the country because these tend

healthy diet, a responsible carbon footprint and strengthen

to be priced higher than non-organic products due

the value chain of organic production. During the past five

to the cost of production. The yield in animal protein

years, our sales have grown continuously as more and more

production, for example, is lower because it is only

people show an interest in consuming organic products.

possible to place six chickens per square meter compared to the 28 chickens that can be placed by non-organic

Q: How do products from Aires de Campo differ

producers. However, the price, considering its high added

from others in the market and what is the company’s

value, is not really the problem; the problem is the lack

differentiating factor?

of accessibility caused by socioeconomic differences in

A: The main distinction is between organic and non-organic

Mexico. Aires de Campo is working to reduce this gap by

products. Aires de Campo’s products are free of chemicals,

improving production efficiencies to reduce costs and

agrochemicals and pesticides, they are non-transgenic and

offer better quality.

are only irrigated by seasonal waters to avoid contaminating aquifers. The company guarantees that its chickens and

To improve the organic market in Mexico there must also

eggs do not contain antibiotics, vaccines or hormones,

be changes in bureaucratic processes to make it easier for

while our organic protocols help our customers feel safe

farmers to obtain funds. Norms related to organic products

about the quality of our products.

also should be strengthened through the creation of a regulatory body to ensure greater coordination between

Q: How does Aires de Campo ensure the organic element

SAGARPA, COFEPRIS and PROFECO.

is maintained throughout the entire value chain? A: Aires de Campo supports the collaborators in its value

Q: What are Aires de Campo’s expansion plans?

chain. The company has more than 80 producers working

A: Aires de Campo’s philosophy is to commercialize

under the Aires de Campo brand. In the area of agriculture,

national organic products in Mexico. Today, approximately

the company provides farmers with seed capital, as well

70 percent of Aires de Campo’s sales are concentrated in

as support through certifications, advice, counseling

Mexico City and the rest is distributed in states such as

for obtaining public funds and more. Aires de Campo is

Jalisco, Nuevo Leon and Queretaro. We want to consolidate

involved in the entire process to guarantee the successful

Aires de Campo in Guadalajara and Monterrey and are

production of norm-regulated organic products and to

looking for opportunities in areas like the Bajio region,

ensure farmers their products will be purchased. In this way,

where we see the possibility of having a strong presence.

the company helps relieve the economic burden on farmers and facilitates the continuation of agricultural production.

Our goal is to continue growing until Aires de Campo is positioned as a company of relevant size in the food industry and as the leader in the organic foods market. In

Aires de Campo is the first distribution and marketing

the past five years, we have multiplied our sales fivefold.

company for organic foods in Mexico. It was founded in 2001

Now, our objective is to strengthen our products’ presence

as a producer and distributor of organic and natural products

in middle and lower-income homes, as well as to continue

in Mexico, Monterrey, Guadalajara and Cancun, among others

innovating with trendy products for our customers.

VIEW FROM THE TOP |

BEAN-TO-BAR CHOCOLATE: PRODUCTION WITH PURPOSE SOPHIE VANDERBECKEN Director General and Founder of Le Caméléon

Q: What is the main differentiating value of Le Caméléon

chocolate exhibitions or gourmet food events, which lead

compared to other brands of handmade chocolates?

Le Caméléon to its next steps: exports and developing a

A: In 2008, we launched Xocoteca, which focused on

presence in large grocery stores.

showcasing the sensory virtues of tasting chocolate. Eventually, Le Caméléon began to expand toward

Q: What are the main difficulties Le Caméléon has

chocolate events, tastings and pairings to educate palates

overcome in Mexico?

and showcase chocolate from a different perspective. In

A: Making real Mexican chocolate is difficult. The country

2010, Le Caméléon created a line of five chocolates called

produces approximately 27,000 tons of cocoa in Tabasco,

Mexicanismo, each with ingredients of Mexican origin, such

Chiapas, Guerrero, Yucatan and other states but according

as cacao criollo, chipotle, mole, grasshoppers and hibiscus.

to data from the National Association of Manufacturers of

The differentiating value is the balance between the

Chocolates, Sweets and Similar (ASCHOCO), the national

chocolate and the ingredients that bring to light all flavors.

market requires an average of 133,000 tons of cocoa. Cocoa plantations are located in complicated areas with a

Q: How do you combine Belgian and Mexican heritages

high level of humidity, high temperatures and exposure to

in your products?

many insects, which are all necessary for the production

A: Historically, Mexican chocolate para mesa (table

of cocoa. Mexico already has a chocolate culture, so many

chocolate) was made of ingredients such as sugar, cinnamon

cocoa plantations respect the environment and regularize

and over-roasted cocoa, which is a culturally accepted

their operations naturally without pesticides or chemicals.

flavor although it is technically wrong to over-roast cocoa.

But global warming affects production and increases prices.

Le Caméléon uses Belgian techniques with Mexican flavors to fuse both cultures. We also use selected Mexican cocoas

Q: In comparison to other countries, what limitations and

to process particular chocolates whose aromas reflect the

advantages does the country have when commercializing

biodiversity of Mexico.

chocolate-based products? A: Mexico is not a major producer of cocoa. The Ivory Coast

Q: What is behind your production process and who is

is the world’s top producer, with approximately 2 million

involved in each step?

tons per year. Africa accounts for approximately 70 percent

A: With our new bean-to-bar line SoXo, Le Caméléon

of the world’s cocoa production, the Americas represent 17

begins the chocolate-making process with the selection

percent and the rest is produced on the Asian continent. At

of the beans. We work with farmers to improve their

its cocoa-producing peak, Mexico reached between 50,000

post-harvest process and produce quality cocoa that is

and 60,000 tons per year and then gradually decreased to

free of defects. We handle the cocoa roasting following

23,000 tons. The yield of one hectare of cocoa in Mexico is

specific time and temperature parameters to guarantee our

between 350kg and 450kg of cocoa. In Peru, one hectare

chocolate’s quality.

yields 800kg and Ecuador has reached some 2,000kg to 3,000kg per hectare. Mexico, however, has a more aromatic

Q: How is Le Caméléon growing its distribution and are

cocoa in comparison to other countries that plant cocoa

there plans to expand its presence in the country?

variations that are more productive but also more common.

A: Our main distributors are gourmet stores, hotels, museums, coffee shops and restaurants. Le Caméléon is present in Mexico City, Cancun, Baja California, Ciudad

Le Caméléon is a Mexican artisan chocolate company that

Juarez, Queretaro, Puebla, Morelia, Hidalgo and Yucatan

fuses the food cultures of Belgium and Mexico to promote the

but we also offer home delivery to any part of the country,

creation of chocolates with hibiscus, grasshoppers, chipotle

Europe and the US. Other points of sale are specialized

pepper, mole and chai tea, among other ingredients

237

| VIEW FROM THE TOP

COMMUNICATION, LESSERKNOWN BRANDS ARE CORNERSTONES FOR GROWTH MARIO VAZQUEZ General Manager of ACH Foods México

238

Q: ACH Foods México is part of ACH Foods Company and

A: We position our brands through communication,

Associated British Foods (ABF). How does your business

particularly in categories that are not well-known in the

in Mexico add to the global operations of ACH Foods?

country, such as peanut butter. Our goal is to make them

A: ABF Group is among the Top 10 most important food

relevant to consumers and we use a variety of communication

companies globally. ACH Foods belongs to the groceries

channels, including advertising at points of sale, digital

division within ABF. We are a diverse and successful group

media, television and billboards. You have to find a way to

that is always looking for additional business opportunities.

let consumers know that the product is a good and healthy alternative. Twinings, for instance, is a leader in the segment

Mexico’s potential is much greater than our current market

of premium teas and we do not want to compete in any other

share. We want to grow and we believe the country represents

category. This is a very clear strategy for the ABF Group.

the perfect opportunity to expand our business toward the Latin American market. Mexico is an important business

Q: What makes Mexico an interesting market for ACH Foods

region for the group but our current position is not even close

and what conditions have allowed the company to grow?

to what the group believes we can be in the medium term.

A: Mexico is an attractive country for foreign capital. When you look at other countries in the region, you see that there

Q: ACH Foods has built a portfolio of local and international

is much uncertainty. Mexico has a significant market size,

brands. How do you approach these to ensure growth?

with a growing population that has particular consumption

A: Within our portfolio of oils and fats, we have well-known

habits in the food segment. Mexicans are willing to sacrifice

prestigious brands that are already mature in their segment,

many things but not food or flavor. This gives our company

which makes growth a challenge. Our most important brand in

many growth opportunities.

the oils and fats segment in terms of sales volume is Capullo, which participates in a category that continues to grow but

The oils category is large, with many players, and is still

not as fast as others. Our best opportunity is with brands

growing in revenue rather than volume. Categories in Mexico

that are not as known as we would like or that are in under-

shift constantly and are very dynamic, while consumers are

developed market segments. For instance, peanut butter, in

high-minded. This is what makes the country attractive as

which we are leaders, is a category that is just starting to

a foreign investment destination.

become popular in Mexico and is now growing at a doubledigit rate on a year-on-year basis. Tea is a similar example.

Q: What consumer trends are you discerning in the national

Our Twinings brand participates in this segment and is well-

market and how is ACH Foods working to position its

positioned in the market but not to the level we want it to be.

products given these new trends?

The plan is to grow our brands by communicating with the

A: Mexico tends to follow US trends. For instance, gluten-

consumer. We have a good balance and can easily implement

free products are in strong demand in the US and they are

the strategies required to boost growth in these segments.

starting to become popular in Mexico. Increasingly, there are more gluten-free products and consumers are willing to pay

Q: How do you market your foreign brands in the Mexican

more for them. As a result, it has become a more profitable

market and do they need to be adapted to local tastes?

category that is experiencing high double-digit growth rates. Organic products are also growing in popularity, along with products that come in biodegradable containers.

ACH Foods México is a subsidiary of Associated British

The industry needs to move at the speed consumers want

Foods. The company started operating in Mexico in February

us to. We are creating a joint group between Mexico and

2004 and manages well-established brands, such as Capullo,

the US to either develop or acquire products in line with

Twinings, Karo, Mazola, Inca and Aladino

these new trends.

VIEW FROM THE TOP |

FOOD AND BEVERAGES EXPERIENCE OPENS DOOR TO OTHER SECTORS ALEJANDRO ROSAS Managing Director LATAM at Haskell

Q: What is Haskell's strategy to promote its architecture,

Q: What are the regulatory and logistics challenges that

engineering and construction services in the Mexican market?

companies face in this sector in Mexico?

A: Founded in 1968, Haskell is a US company that specialized at

A: Besides adhering to COFEPRIS regulations, our

first in food and beverages and then expanded its capabilities

largest clients must also follow FDA guidelines to be able

to other sectors. Now, the company is recognized as the

to export their products to the US. COFEPRIS is more

most important general contractor in the US and one of the

advanced than other regulators in Latin America but the

largest firms for industrial construction in the world. Haskell

council could be stricter with some regulations to ensure

grew its business through acquisitions and now has divisions

manufacturing facilities are designed to even higher

specializing in hospitals, oil and gas and infrastructure,

sanitary requirements. Haskell has over 1,300 engineers

among others. We can participate in the entire product cycle,

and 150 are based in Mexico. They have worked for the

from predesign and design to program and construction

company for at least 10 years and fully understand the

management. We are also studying the development of a port

regulatory environment and all changes that might ensue.

in the Dominican Republic, an industrial park in Colombia and

This allows us to make sure clients comply with all related

many plant expansions in Mexico. This last includes breweries

sanitary regulations so they can focus on manufacturing

and automotive companies. We are also in talks to build two

and exporting their products.

Mormon temples in Mexico. The infrastructure sector is highly sensitive to any Haskell has been in Mexico for 20 years. The food and

governmental change but we are focused exclusively on the

beverages sector has remained stable over these years and

private market; we do not participate in public construction.

continues to grow steadily, unlike sectors more prone to

As a result, we are shielded against changes in the sector.

ups and downs, such as aerospace or automotive. Eighty

Moreover, about 90 percent of investment in food and

percent of the company’s revenue originates in this sector

beverages comes from the private sector.

and the remaining 20 comes from aerospace, automotive, metals and pharmaceuticals. While food and beverages will

Q: Considering Haskell’s strengths in the food and

continue to be our core, we are looking to balance our

beverages sector, what potential does the company see

portfolio by entering other areas. In Mexico, we believe that

in alcoholic drinks?

the food and beverages sector will continue growing for

A: Mexico is enjoying a beer boom, which we expect to

the next three years thanks to a solid pipeline. We do not

continue, mainly in the artisanal beer niche. Haskell has

believe that the issues impacting the Mexican economy will

several divisions but food and beverages is the strongest,

have a negative effect on Haskell’s operations.

with over 580 clients. Within this division the beer, wine and spirits segment manages beer and spirits, an area

Q: What sets Haskell apart from other constructors

we expect to continue growing. This division works with

operating in Mexico?

Bacardi, José Cuervo and Diageo, among many others.

A: Haskell is the No. 1 firm in food and beverages and is in

In Mexico, we have participated in tenders to build

the Top 5 of green manufacturing companies. It is among

manufacturing plants for tequila, brandy and cognac

the Top 30 designers in the world and in the Top 7 for sea

companies.

construction. Haskell’s main strength is its employees and we ensure they have the best available working conditions. Haskell has not had a fatal accident in 10 years due to our strong

Haskell , a US company founded in 1968, specialized in food

safety protocols. Our consumer products area has worked

and beverages but later expanded to other sectors. Today, the

with international brands, including Home Depot, Johnson &

company is recognized as the leading general contractor in the

Johnson, Unilever, Coca-Cola, Nestlé, Bimbo and Mars.

US and one of the largest industrial construction businesses

239

| INFOGRAPHIC

BEER, TEQUILA AND MEZCAL: KINGS OF EXPORTS MAIN FOOD AND BEVERAGES EXPORTS IN 2018 (US$ billion)

The agro-industrial sector is an important component of manufacturing activity in the country. Beverages such as

4.49 Beer

beer, tequila and mezcal represent a significant component of the trade balance. Equally important, food and beverages

1.64 Tequila and mezcal

exports contribute to the positioning of the Mexico brand,

1.32 Bread products

including its image and culture, in international markets. However, not everything is alcoholic beverages. Products

0.73 Confections without cocoa

such as bread, confections, sugar, chocolate, fruit preserves

0.71 Sugar

and juices take a predominant role in the food and

0.61 Chocolate and other products with cocoa

beverages industry.

0.57 Fruit preserves 0.54 Pork

AGRIBUSINESS EXPORTS AND IMPORTS (2018)

0.41 Sauces, spices and seasonings

240

0.4 Frozen orange juice

34.25

28.41

billion US$ in exports

0.38 Malt extract

billion US$ in imports

0.26 Puffed cereal products 0.25 Frozen strawberries and berries

50.9% Agri-industrial 43.1% Agricultural 3.1% Fishing 2.9% Livestock

53.5% Agri-industrial 38.8% Agricultural 5.3% Livestock 2.5% Fishing

0.22 Concentrated milk with or without sugar 0.2 Unfermented juices (excluding orange)

TEQUILA AND MEZCAL PRODUCTION

TOP 10 STATE PRODUCERS OF TEQUILA AGAVE IN 2017 State

8 5 6

9 states have a mezcal denomination of origin

Production volume (tons)

Jalisco

1,126,361

Guanajuato

256,620

Michoacan

36,335

Nayarit

35,398

Zacatecas

16,278

Tamaulipas

14,826

State of Mexico

11,416

Sinaloa

2,840

Guerrero

828

Morelos

178

Mexican tequila is commercialized in 120 countries

2012

2013

2014

2015

Tequila production Tequila 100% agave production

2016

2017

2018

Tequila exports Tequila 100% agave exports

2013

2014

2015

2016

Mezcal production Mezcal exports

2017

5.1 3.5

3.98 2.8

3.03 2.01

1.48

2.5 2012

1.45 1.15

100

1.04 0.76

150

2.49

5 4

0.91

224.1

309.1

271.4 213.3

273.3 197.9

228.5 182.9

242.4 172.5

200

226.2 172

250

166.7

350 300

253.2

TEQUILA AND MEZCAL PRODUCTION AND EXPORTS 2012-2018 (million liters)

2018*

MEXICO'S MAIN BEER EXPORT DESTINATIONS (2018)

BEER EXPORTERS (2017)

74% US 4.2% China 3.3% UK 2.1% Australia 1.6% Colombia 14.8% Others

21% Mexico 14.4% Netherlands 11% Belgium 9.9% Germany 43.7% Others

241

Mexican beer reaches over 180 countries

• Beer production is among the 14 most important

1 of every 5 beers meant for export globally is made in Mexico GLOBAL TOP 4 BEER PRODUCERS IN 2018 Country

Million hL

China

217

Brazil

140

Mexico

120

440

manufacturing activities in the country • In 2018, Mexican beer production grew 8.8% for a total of 119.8 million hL • The total beer industry value chain in Mexico contributes 1% of national GDP

MEXICO'S BEER IMPORTS

3.5% Belgium

94% US

ARTISANAL BEER PRODUCTION • Micro breweries have 0.1% of the total market in Mexico • There are over 600 artisanal beer projects in the country • The main states with artisanal breweries are (in order): Baja California, Mexico City, Michoacan, Jalisco and

0.5% Germany

0.6% Netherlands

0.3% UK

0.1% Others

25% of Mexico's agro‑industrial exports are beer

Nuevo Leon

Sources: Ministry of Agriculture and Rural Development (SADER), Cerveceros de México, Tequila Regulatory Council (CRT), Mezcal Regulatory Council (CRM)

| VIEW FROM THE TOP

MAINTAINING LEADING POSITION REQUIRES DIVERSIFICATION CARLOS ÁLVAREZ Managing Director of Bacardi Mexico

Q: As the largest privately-owned spirits company in the

through our social media content, which helps us build our

world, how does Mexico add to your global operations?

brand. One of the advantages of being an over 85-year-

A: Bacardi brands are present in 170 countries and Mexico

old brand in the country is that we already have a base of

is among the Top 10 countries globally in sales of Bacardi

consumers, so our job is to attract new ones.

rum. It is also one of our main markets in Latin America. 242

The Bacardi rum brand has experienced significant

Q: In January 2018, Bacardi announced the acquisition of

transformation by connecting with consumers through a

Tequila Patrón. How will this impact Bacardi?

variety of new channels and our business in Mexico has grown

A: One way to grow and diversify is through the

at a double-digit rate over the past five years. In August 2018,

development of existing brands and the acquisitions of new

we launched three new rum products: Bacardi Añejo Cuatro,

ones. Tequila Patrón plays a key role in the premium, super-

Bacardi 8 y Gran Reserva Diez. We are convinced that rum

premium and ultra-premium segments. Tequila represents

is the next market to undergo premiumization and we want

30 percent of spirits sales in Mexico and is a segment that

to be at the forefront of that industry change.

is growing rapidly. This acquisition helps to strengthen our portfolio and business opportunities.

In Mexico, the premium segment comprises 30 percent of the liquor market. A premium beverage is a higher quality

Patrón is, and always has been, proudly produced 100 percent

product, with fresher ingredients. The premium segment

in Mexico by Mexicans. Foreign companies often have the

has also experienced double-digit growth in recent years

financial resources to invest in the long-term success of a

and we expect these rates to continue for at least another

brand, increasing its ability to expand, to employ even more

five years. The Mexican consumer is changing and prefers

people in Mexico, to contribute to the community and further

to drink less but with higher quality. Mexican consumers

introduce tequila and the tradition and culture of Mexico

also enjoy cocktails and food and beverage pairing. Both

across the world. We are also venturing into the mezcal

trends help the premium segment grow significantly.

market. It is a small category that is experiencing triple-digit

Although premium spirits are on the rise, growth depends

growth rates so we are required to participate in that segment.

on the category. Around 60 percent of the whiskey market is considered premium, for gin this percentage hits 90

Q: How does Bacardi include sustainability in its

percent and about 30 percent of the tequila market is

business strategy?

considered premium.

A: In 2014, Bacardi launched an ambitious environmental sustainability program called “Good Spirited: Building

Q: What strategies have you put in place to strengthen

a Sustainable Future” with specific goals in sourcing,

Bacardi’s participation in the national market?

packaging and operations by 2022. Building on current

A: Bacardi leads the rum category and we are going to

programs and efficiencies that reduce water and energy use

defend this leadership. Consumers know our brand and are

and greenhouse gas emissions, the Bacardi global platform

loyal to it but there are new consumers that we can recruit.

reinforces the company’s leadership in corporate social

Our work in digital media is very important. We make a

responsibility. The material derived from raw sugarcane that

significant effort to help consumers identify with Bacardi

we use for Bacardi rums must come from certified sources, meaning that our suppliers cannot have a negative impact on the environment, cannot employ children, must comply

Bacardi is the largest privately-owned spirits company in the

with all laws and offer competitive wages. In addition,

world. Founded in 1862 in Cuba, Bacardi is now present in 180

Bacardi is an integral part of trade and social organizations

countries. The company has a wide portfolio of drinks that

that combat issues of alcohol abuse, particularly underage

includes rum, vodka, whiskey, gin and tequila

drinking, binge drinking and drunk driving.

VIEW FROM THE TOP |

CONSUMER PREFERENCES DETERMINE INDUSTRY TRENDS JAIME COSTA Director General of BLN

Q: In which segment has BLN developed the most, wine

Q: What actions has BLN taken to conquer positioning

or spirits?

challenges in a market as competitive as Mexico?

A: The wine segment is experiencing greater growth and

A: Taking note of what is happening around the world is

Mexican wine, specifically, has seen significant market

the most important factor. Another strategy has been to

expansion. Most Mexican wines are enjoying double-digit

approach younger consumers. We have done significant

growth and for the first time, they are outselling Spanish

work to promote responsible consumption and like many

labels. Within the spirits category, gin, tequila and whiskey

other spirits companies in the country, we are associated

have been solid performers. It is interesting to see how

with the Social Researcher Foundation (FISAC), an NGO

Mexican preferences have evolved from just a few years

that promotes responsible alcohol consumption. We are

ago when brandy and rum led the market. We have seen an

also trying to give brandy a new and youthful look. To that

increase in what is known as “value whiskies” or economical

end, we are launching a Torres can that is ready-to-drink.

whiskies, which are products that do not surpass the MX$150 mark (US$7.75). In the case of tequila, we are also

Q: How do you expect consumption trends to develop in

seeing significant growth, particularly in the crystalline

the coming years?

category. These changes are the result of the investment

A: I think preference for expensive tequila will continue to

made by tequila and whiskey manufacturers in recent years.

grow. The tequila segment occupies over 30 percent of the total spirits market but we have seen predominance

Q: What role does BLN play within the ecosystem of spirits

of products called “agave distillates” that are not tequila

commercialization?

and are sold at incredibly cheap prices. These products

A: BLN is focused on transforming the Mexican market

have grown a great deal, selling about 6 million boxes per

into a premium market; our portfolio includes several of

year, which has negatively impacted the effort to popularize

the highest-consumption tickets in the market, such as

the tequila brand. The cost of agave has also been a

Glenfiddich, Hendricks and Torres. We have a really good

challenge. Agave went from MX$4 (US$0.21) per kilogram

portfolio with high-value products. For instance, in the wine

to MX$22 (US$1.14) per kilogram in 2018. I think this price

segment, we are value leaders thanks to our Matarromera

phenomenon will correct in a few years.

and Torres products. We are also leaders in the gin category thanks to Hendricks, in the brandy segment with the Torres

Q: What opportunities does BLN see in the repositioning

brand and in the malts segment with Glenfiddich.

of traditional Mexican drinks like mezcal? A: We see great opportunities in the mezcal category. We

Q: What strategies does BLN use to maintain its leadership

are already working with two brands of mezcal. We are

in the premium segment of the spirits category?

associated with Montelobos, a top brand in the Mexican

A: We have clearly identified what restaurants or places

market, and Gusano Rojo, which has been in the market

can help us with brand recognition and we focus on these.

for over 40 years. Mezcal is showing steady growth but it

These consumers are key in generating trends. The idea is to

has a very small base. Younger consumers are learning to

break through in the upper part of the population pyramid

drink mezcal and it is this demographic that is driving the

and work downward, attracting more consumers. We also

trend for mezcal and wine.

take notice of the success other products are enjoying in other parts of the world and work to introduce them to the Mexican market. For instance, we have just introduced

BLN is a Mexican wine and spirits distribution company that has

Tito’s, an artisanal vodka from the US that is the best-selling

been in the market since 1946. It distributes premium brands,

brand in that country. It sells around 8 million cases and in

such as Ron Flor de Caña, William Grant & Sons, Disaronno,

Mexico we expect to sell over 15,000 boxes in the first year.

Grupo Matarromera and Monte Xanic

243

| INSIGHT

LOCAL GROWTH MUST CATCH UP TO GLOBAL SUCCESS PABLO DE BRITO General Manager Mexico of Beam Suntory

Evolving consumer tastes are tilting the scale toward

have the portfolio and capabilities to compete in around

consumption of premium and craft spirits in Mexico, a

80 percent of the market.” Mexico is one of Beam Suntory’s

trend that is providing significant growth opportunities,

four most strategic markets to boost growth, along with

says Pablo de Brito, General Manager of Beam Suntory

Russia, India and China.

Mexico. “Consumers are looking for crafted spirits within 244

the premium segment and we believe this trend will boost

Given Mexico’s potential, Beam Suntory has refocused its

consumption of tequila, whiskey and gin.”

strategy for its core products to incentivize consumption and brand awareness. “When it comes to tequila, we can highlight

Although at a global level Beam Suntory is the third-largest

Casa Sauza and Hornitos as synonyms of quality,” says de

spirits company in the world with a diverse portfolio of

Brito. “What we want to do now is to refresh their value

whiskey, gin and tequila, de Brito says the company’s

proposition and revitalize their standing among consumers.”

position in the Mexican market does not reflect its global

This strategy includes the launch of the Sauza Conmemorativo

success. “In Mexico, we are ranked fifth and seventh,

tequila and the presentation of the Hornitos Cristalino tequila.

depending on the product segment. Our goal is to double

Having a Cristalino option for tequila has become a must for

our operations in the next five years and establish a position

the company. “The rise in tequila consumption is probably due

that is consistent with our global standing.”

to the revolution that the Cristalino product has generated,” he says. “Traditionally, tequila was a product consumed more

While the Mexican market is highly competitive, de Brito says

by men than women. However, due to its smoother taste, the

the company has the right capabilities to achieve its growth

Cristalino option has helped tequila to capture new consumers

goals. “Mexico’s spirits retail segment is worth around US$3

that felt its traditional alternatives to be stronger.”

billion and grows approximately at a 10 percent rate on an annual basis.” De Brito adds that the premium category is

The company’s goal is to strengthen and revitalize its

experiencing the greatest expansion. “Although in volume the

position with a diversified portfolio offering. “Our product

market is growing at a 4 percent rate, in terms of value this

diversity is part of our company’s richness,” says de Brito.

number jumps to 10 percent. This means there is an increase

Particularly in the whiskey market, he believes Beam Suntory

in sales of premium products.” This 10 percent growth has

has the opportunity to consolidate its position. Almost 90

created a perfect opportunity for Beam Suntory to connect

percent of the whiskey market in Mexico is dominated by

demand for premium products with its own offering.

Scotch brands, which means Beam Suntory’s offering of American and Japanese whiskies can help to diversify

Another factor that makes Mexico an interesting and

demand. “Our Japanese and US whiskies comply with high

imperative market for Beam Suntory is the relevance that

quality standards. If we want to double the volume of our

tequila and whiskey have within the total spirits market, at a

operations in Mexico in the next five years, we need to

35 to 38 percent share independently, which is not common

position all our products successfully.”

in any country. Gin, the other important component in Beam Suntory’s portfolio, has not reached the consumption levels

For many years, Beam Suntory only operated through

that tequila and whiskey enjoy, but de Brito says it is the

distributors in Mexico. However, the company has seen

fastest-growing category at 50 percent year-on-year.

enough opportunity to establish long-term operations here. De Brito says the company’s products are already present in

Growth in the Mexican market and changes in consumer

the main retail channels at a national level and reach 20 major

preferences make it an interesting country for a company

cities, so there are no concerns about further development.

like Beam Suntory, says de Brito. “When you analyze the

“We will consolidate what we have built and will be able to

country and its characteristics, you will notice that we

participate in all relevant commercialization channels,” he says.

VIEW FROM THE TOP |

VALUE EXPERIENCE TRUMPS PRICE LISSETTE MONTEFUSCO Vice President of Strategic Planning at CMR

Q: CMR incorporates several brands and concepts. What

Q: How will the new Nescafé business impact CMR and

strategies has the company implemented to remain

the market?

successful?

A: Consumption patterns are changing. There are daytime

A: CMR started as a family business that developed a

consumption opportunities that we had not targeted

clear vision to introduce to Mexico the best of the world

with our restaurants, such as the growing trend toward

in terms of restaurants. This vision had two steps. The first

midmorning and midafternoon snacking. Nestlé recognized

was the creation of our own brands. Our first brand was

that coffee consumption in Mexico is growing outside the

Wings and we gradually developed more. Since we own

home and it wanted to have presence in this segment.

these brands, we have the option of exporting these and

This situation led us to work together. Our concept has

their related concepts to other countries. The second step

been in operation for more than a year and a half. We are

was to introduce brands or concepts that are relevant to

considering opening 150 stores in the next five to eight

the Mexican market, such as Chili’s, Olive Garden and Red

years. However, this number could vary depending on the

Lobster, through the creation of alliances.

reception in the market.

We have important partners like Brinker, the owner of the

Q: How has CMR adapted its business strategies to fit new

Chili’s brand. In fact, we are the largest franchiser of Chili’s

consumption patterns and channels?

in the world and Brinker’s largest partner thanks to our 69

A: There are two important trends to consider. The first

restaurants. Another strategic partner is Darden, the owner

is that consumption outside the house is growing, which

of Olive Garden, Longhorn and Capital Grille. Golden Gate

has led to more people consuming in restaurants and to a

Capital, the owner of Red Lobster, is an important partner

proliferation of new restaurants. This helps to professionalize

for us and Nestlé is also a strategic partner through its

the sector and to create new solutions.

brand Nescafé. We have many partners, each with different purposes. Some only provide their brand and content and

The other trend we are seeing is consumption through

together with others, such as Nestlé, we are developing

digital channels. More than 80 percent of the population

new concepts.

has access to smartphones, which allows consumers to have access to more information about restaurants and to

Q: CMR has become an expert both in the development of

the new platforms operating in the segment, such as Uber

franchises and new concepts. Which will offer the greater

Eats and Rappi. These new platforms also provide more

opportunity in the coming years?

accessibility to our consumers. We have offered delivery

A: Both models have their virtues. Although it seems easy,

services since 2016 and in 2017 we started working with

franchises have a significant degree of complexity, especially

SinDelantal. When Uber Eats arrived to the market, we were

since not everything can be applied to the Mexican market.

among the first big companies to work with them. These

You need to have some negotiating flexibility to adapt the

platforms complement what we do. Working with them

concept to Mexico.

allows us to combine the best of both worlds. It is also a way to reach new consumers and generations that would

On the other hand, when you create, you have complete

otherwise not go to a restaurant.

freedom to do anything you want but this implies a new level of internal infrastructure, including people with different skill sets, such as marketing and design. Fortunately, the

Corporación Mexicana de Restaurantes (CMR) is a Mexican

Mexican market has been really receptive to our brands

restaurant conglomerate that has been in the market for over

but we have found the market also wants Mexican concepts

50 years. With more than 140 restaurants, it is one of the most

created by Mexicans.

important restaurant groups in Mexico

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| INSIGHT

PROPER DEVELOPMENT FACES QUALITY, PRODUCT STANDARDIZATION HURDLES FEDERICO RIGOLETTI Partner and Managing Director of Bajo de la Tintorera

246

The food service sector in Mexico has tremendous potential

part of the rib. This has forced us to bring rib cuts from the

just waiting to be tapped but challenges that include

US in an attempt to ensure product standardization at all

standardized food quality, security and a lax regulatory

our restaurants.” While proximity to the US combined with

environment are holding the segment back, says Federico

NAFTA’s advantages were an appealing solution, peso-dollar

Rigoletti, Partner and Managing Director at Bajo de la

exchange rate volatility in recent years is now a bigger factor

Tintorera, a restaurant operator located in Mexico City. “If you

in the equation. “The country’s proximity to the US has put

allow the sector to flourish, it will flourish on its own. If you

us in a somewhat complicated position. Although NAFTA

allow for development, development will happen on its own.

opened the door to obtaining a larger product portfolio it has

Stagnation is not born from a lack of creativity, willingness,

also put us at a disadvantage due to the existing exchange

hard work or manpower but of institutional problems.”

rate and the demographic we want to reach,” says Rigoletti.

Although challenges vary, Rigoletti says the lack of locally

Another key hurdle not only for Bajo la Tintorera but for

sold, high-quality and standardized food products has the

the sector in general has to do with service quality and the

greatest impact on groups like Bajo de la Tintorera, which

available workforce. “In Mexico, the workforce issue is more

owns and manages the Puntarena, Torino, Primos and Porco

related to productivity and education. There are few options

Rosso brands. This is not due to a lack of high-quality food

for recruiting qualified personnel. You have to develop

producers but rather, the market cannot pay the higher

people and that is a more complicated issue,” Rigoletti says.

prices demanded by these products to ensure that national production can be sold locally. “A significant portion of

In spite of the challenges, Bajo de la Tintorera has enjoyed

Mexico’s food production tends to go to outlets in markets

growth in Mexico City and is venturing into nearby Puebla.

with higher prices. These are all outside the country and all

However, Rigoletti says the decision to expand to new cities

pay in US dollars,” he says.

depends heavily on the security that the country’s institutions can provide. “There are interesting cities with impressive

Ensuring top-notch basic ingredients alongside impeccable

growth rates but you have to consider the institutional issue

service has always been the group’s motto, an approach

and security constraints. More often than not, security has

that has helped the company maintain growth. “Our value

become a problem hindering the growth of different sectors

proposition is highly focused on basic ingredients and the cost-

and it has taken a particular toll on sectors like ours.”

quality benefit, as well as the presentation of an innovative concept,” says Rigoletti. With 22 restaurants, Bajo de la

Although Bajo de la Tintorera does not operate abroad, the

Tintorera has assembled an innovative and diverse portfolio

group has invested in a restaurant in the US. This experience

that caters to a varied clientele. But Rigoletti says the lack of

has provided Rigoletti with insight into the restaurant business

standardization in the quality of basic products used by the

in the US and how it differs from that in Mexico. “Profit margins

brands has been a constant challenge. “Finding high-quality

are very similar. The real difference lies in how institutions

standardized food producers for one or two restaurants is not

work and in security and regulations. It is far easier to open a

that complicated. However, the situation changes when you

business in the US and the regulations are very clear,” he says.

are trying to apply this to over 20 restaurants.” Rigoletti says Bajo de la Tintorera is undergoing an The situation is forcing restaurant owners and operators to

institutionalization process to strengthen the company

find their basic ingredients in other markets, Rigoletti says,

and allow for expansion. “This will help us access financing

using Bajo la Tintorera’s own Porco Rosso restaurant as an

opportunities that will boost the growth of our brands and

example. “In Mexico there is a higher demand for pork loin

realize their potential while generating a larger offering

than for ribs, hence butchers would rather sell loin, sacrificing

based on quality of basic ingredients and service.”

INSIGHT |

HUMAN FACTOR THE BASIS FOR HOSPITALITY BUSINESS EDUARDO MÉNDEZ Founding Partner at Mero Mole

RODRIGO VARGAS Founding Partner at Mero Mole

The hospitality industry has a problem: it emphasizes sales

This emphasis on the gastronomic experience has to

rather than people. Rodrigo Vargas and Eduardo Méndez,

do with the change of mentality that consumers are

Founding Partners of Mero Mole, a Mexican consultancy

experiencing. “Amazon is having a great deal of success

specialized in the food and beverages industry, believe the

because of changes in consumer habits: today’s consumers

sector needs to refocus to achieve greater success. “The

prefer to pay for experiences instead of products,” says

hospitality business is made of people serving people but

Méndez. How malls operate is also changing, with a greater

not many restauranteurs give the human factor the visibility

percentage of space going to the food and beverage

it deserves in their business,” says Méndez.

segment, boosting the vertical’s attractiveness to Mero Mole. “There was a time when malls could have 10 percent

Mero Mole’s focus is on two verticals: clients and restaurant

of their gross leasable area (GLA) destined for food and

staff. “Our core business is to revolutionize the consumer

beverages. Now, they are devoting up to 25 percent of

experience,” says Vargas. This is sometimes easier said

their GLA to this segment.”

than done given the lack of professionalism in the food and beverage industry, which can often put a restaurant

Mero Mole arrived to the market three years ago and

out of business. “The National Chamber of Restaurants and

has since collaborated with more than 70 restaurants.

Seasoned Food Industry (CANIRAC) says eight out of every

However, according to Méndez, the sector remains wary

10 restaurants in the country close within five years."

of hiring consulting services. “In Mexico, there are very few restaurants with strategic consulting services. Many people

The firm started by operating exclusively with restaurants

believe that they can open a restaurant because they know

but has since expanded its services to four other sectors of

how to cook. This has led to an excess of empty chairs in

the hospitality industry: food halls, malls, urban destinations

certain neighborhoods and lagging sales as a consequence.”

and staff training. Mero Mole sees the customer as the key to success, both for its clients and its own business. “Our

In addition to the shortage of professional advisers, both

added-value in these sectors is our obsessive approach to

Vargas and Méndez agree that the other constraint the

improving the consumer experience. We need to evolve

industry faces is the lack of staff training and high turnover.

formulas that have proven successful,” says Vargas.

“In the US, official figures put turnover at 72 percent. In Mexico, there are no official figures but it is estimated that

The food halls and malls verticals offer significant growth

turnover is between 80 and 100 percent,” says Vargas. “On

opportunities for the consulting company, which sees food

average, the restaurant industry provides training to around

courts usually found in malls as rough diamonds that could

60 percent of all establishments once a year.” This statistic,

be upgraded to what is known as food halls. “We want

combined with staff turnover, means that there is basically

to replace the traditional food court; having food halls in

no training in the sector, he suggests.

malls offers a more attractive and complete experience for customers,” says Vargas. “The number of malls will double in

To address the training hurdle, Mero Mole created Hero

the next 10 to 20 years and if the evolution of food courts into

Guest, a tech platform that focuses on providing training

food halls does not include a focus on customer experience,

to restaurant staff. “We believe that if you do not train your

they will disappear.” Méndez agrees that food courts offer

staff, you cannot demand they provide excellent service

interesting possibilities. “What we like about food courts is

and if you do not measure it, you cannot improve it. This is

the average spending amount, the high consumption and

what Hero Guest does: trains and measures,” says Méndez.

that they are open to everyone, from families to white-

Unlike training manuals and shadowing practices, Méndez

collar workers. However, we believe that fast food brands

says that Mero Mole’s Hero Guest platform intends to make

do nothing to improve the gastronomic offer.”

training a fun process.

247

Tequila Casa Dragones showroom

LIFESTYLE

A middle class with growing purchasing power has allowed the expansion of luxury products and services in the country. The growth that lifestyle companies have seen in the past couple of years has also been boosted by improved financial services and growth in payment digitalization, as well as changes in the demographic pyramid and in consumption patterns of new generations.

This chapter focuses on how a change in consumersâ&#x20AC;&#x2122; mindset that favors national and sustainable products has enabled the positive performance of luxury brands that choose to highlight these elements in their offering. Both national and international success stories are featured, as well as their views on how lifestyle and luxury approaches are changing.

249

CHAPTER 10: LIFESTYLE

252

ANALYSIS: Luxury Market Strengthens Foothold

253

INSIGHT: Ralph Simons, Tane

254

INSIGHT: Bertha González Nieves, Tequila Casa Dragones

255

VIEW FROM THE TOP: Rene Garza, Jet Mach

256

VIEW FROM THE TOP: Martin Josephi, Lamborghini, Aston Martin, Caterham and Morgan Mexico

257

VIEW FROM THE TOP: Adam Gron, McLaren Automotive

260

INSIGHT: Carlos González, Sotheby’s International Realty Mexico

261

VIEW FROM THE TOP: Jimmy Arakanji, Thor Urbana

262

INSIGHT: Giorgio Brignone, Costa Careyes

263

VIEW FROM THE TOP: Nico Wilmes, Los Amigos Tulum

264

INSIGHT: Guillermo Ordóñez, Inspirato

265

INSIGHT: Manuel Quintanero, Millesime México

266

VIEW FROM THE TOP: Aldonza Ramírez Mayans, Dominion Corporate Housing

268

VIEW FROM THE TOP: Roberto Esses, Gympass

269

VIEW FROM THE TOP: José Antonio Mársico, Grupo Body Systems

251

| ANALYSIS

LUXURY MARKET STRENGTHENS FOOTHOLD A stable economy and the stronger purchasing power of the upper and uppermiddle classes are leading to higher sales in Mexico’s luxury market. Technology that creates new experiences is becoming increasingly important in this segment that is targeting new consumers with added values that exceed the concept of high quality Mexican consumers increasingly have a taste for the

is experiencing a vibrant moment in major aspects, such

luxurious lifestyle and high-end brands are taking notice.

as its gastronomy, design, culture and art.”

“Mexico has become one of the main markets for luxury products,” says Guillermo Ordóñez, Regional Director of

Similar to traditional retail products, e-commerce or

Mexico and Latin America of Inspirato. The glaring factor

omnichannel experiences are increasingly important in the

behind the market’s success in Mexico is the growth of

luxury segment but Deloitte’s study also states that luxury

the upper and middle classes.

sales are boosted by the construction of large multi-brand malls that host luxury brands. Jimmy Arakanji, Co-Founder

252

INEGI data show that in 2014, almost 16 million families

and CEO of Thor Urbana, agrees. He says commercial real-

belonged to the middle class. Although there has not

estate developers help different brands enter the Mexican

been a significant increase in salaries, INEGI’s figures

market with innovate projects. “Commercial real estate is in

show that consumption represents 30 percent of

an upswing and demand will only continue to grow,” he says.

families’ income. Moreover, the data shows that credit for consumption has increased steadily over the years,

Still, the omnichannel strategy, along with the introduction

reaching a historic mark in 2017 of almost MX$900 billion

of technologies like augmented reality, AI and IoT, will be

(US$47.8 billion), up from the MX$44 billion (US$2.3

key for luxury brands, according to Deloitte. This is all based

billion) registered in 2000.

on the premise of not focusing on the product but on the customer experience. According to the Boston Consulting

According to Deloitte’s Global Powerhouses of Luxury

Group, there is a rise in experiential luxury, which includes

Items 2018 analysis, the country is the most attractive

categories such as high-end food and beverages, hotels

market for luxury brands in Latin America. Boston

and vacations. González believes that the excitement that

Consulting Group adds that the Mexican luxury market

surrounds Mexican products and cuisine allows consumers

will experience growth rates of around 6 percent, which is

to appreciate the country’s history. “Consumers today want

above the 4.5 percent the industry experiences globally.

to interact with a complete product repertoire. They fall in love with a category and want to learn from it and establish

The increase demand, business digitalization and new ways

a relationship with the brands.”

of communicating with users have also led to a change in the way luxury brands interact with consumers. “If there

Ordóñez says the hype for unique experiences has also

is one element that is gaining importance each day in the

translated to the traveling sector. “Mexico is in the global

luxury market given the digital revolution, it is storytelling,”

Top 10 for travel and luxury accommodations,” he says,

says Ralph Simmons, CEO of Tane. For the Mexican luxury

adding that Mexicans also know what they want. “The

brand, telling a gripping story is key to keeping existing

Mexican service level is among the Top 5 in the world. This

customers engaged while attracting new ones. “Posting

makes Mexican travelers among the most demanding in

pictures on Instagram or any other social media is not

terms of quality, service and details.”

enough. Nobody is going to engage with it unless there is a story that they can relate to,” says Simmons.

The idea of luxury is changing, however, and it is not just about comfort anymore. According to Deloitte, sustainability

Particularly in Mexico, there has been a cultural shift

is becoming a key factor for luxury brands, given an increase

that is boosting the consumption of Mexican products.

in consciousness among younger generations. Nico Wilmes,

“We have seen that more and more people appreciate

CEO of Los Amigos Tulum, believes that luxury does not

locally made products, due to a sense of pride for what

run counter to sustainability. “Clients who visit Tulum want

this beautiful country has to offer,” Simmons says.

luxurious services and to enjoy a high-level and unique

The upswing for Mexican products extends into the

experience,” he says. “Although sustainable developments

beverages segment, adds Bertha González Nieves, Co-

are more expensive, clients are prepared to pay a little bit

Founder and CEO of Casa Dragones. “Mexico in general,

more for this.”

INSIGHT |

MEXICO’S CULTURE PROVES A HIT RALPH SIMONS CEO of Tane

In today’s luxury retail segment, engaging customers is crucial

consumers with a new e-commerce platform. “Creating an

and the best way to do that is to create and tell a gripping

exciting brand experience for our customers both off and

story, says Ralph Simons, CEO of Tane. “If there is one element

online and expanding geographically are important focus

that is gaining importance each day in the luxury market given

areas for Tane, which is why we will launch our e-commerce

the digital revolution, it is storytelling.” Tane, Mexico’s only

platform for domestic sales in 2019. By 2020 we will expand

high-end jewelry brand with 77 years of experience, is part

to reach more countries,” says Simons. As a luxury brand,

of Grupo BAL. The retailer is undergoing a transformation to

Simons understands that visiting the store is an essential part

create a narrative that it expects will not only please existing

of the customer journey, but he is positive its e-commerce

customers but also attract new consumers. “Posting pictures

venture will be attractive to consumers. “We do not expect

on Instagram or any other social media is not enough,” Simons

our e-commerce platform to become our No. 1 store but

says. “Nobody is going to engage with it unless there is a story

we are confident that it will perform well as part of the

that they can relate to.”

company’s omni-channel strategy.”

Simons believes that part of the brand’s storytelling must

E-commerce is one element in a commercial strategy to

depend heavily on its Mexican origins and the company’s

boost the number of clients it can reach but physical retail

silversmithing tradition. “For the past 77 years, we have

will continue to play a major role. “Our market strategy has

worked to reflect the unique elements of Mexico through

a healthy mix of 25 standalone stores and boutiques inside

our pieces. We have always been specialized in handmade

El Palacio de Hierro, as well as other channels including

jewelry and art objects and we are one of the last vertically

a corporate sales division,” Simons says, adding that this

integrated silver houses in the world. This gives us a very

combination improves the brand’s sales dynamics. “Traffic

unique feature.” To highlight its Mexican origins and attract

at El Palacio de Hierro boutiques tends to be higher on

younger customers, Tane has launched México mi Amor

average and the company’s special promotions add to the

(Mexico my love), a collection that taps into different

business’ dynamism, while standalone locations provide

elements of the Mexican culture. “México mi Amor is a very

clients with the complete brand experience.”

good example of a collection that highlights our Mexicanism and our origin,” Simons says. In particular, he says the

Tane will continue to invest in its physical locations, Simons

collection has reached a younger demographic. “With this

says. “In fact, a key element of our strategic three-year plan

collection, we have generated significant engagement with

is the renovation, expansion and innovation of our sales

customers aged 25-34 years old.”

channels, which means that all our retail locations will be remodeled in the next years, starting with four stores in 2019.”

The success of a collection largely based on Mexican elements

The goal is to modernize them and to appear more accessible

obeys a shift in the attitudes of Mexicans toward locally-

and engaging. “We want to create a luxurious, welcoming

manufactured products. “For a couple of years, there has

and comfortable environment that makes our customers feel

been a growing interest in locally-made products. Before,

special and at home.” The luxury market has been growing

everything that came from abroad was perfect. However, we

globally and Mexico is no exception. “Mexico is the most

have seen that more and more people appreciate locally made

important luxury market in Latin America. We are seeing an

products and have a sense of pride for what the country has

increase in the demand for luxury products,” says Simons. To

to offer.” adds Simons. “As the only truly world-class Mexican

ensure it grabs a good portion of that demand, the company

luxury brand, Tane fits perfectly in that picture.”

is also accelerating the modernization of its product portfolio, to rejuvenate its image and captivate new customers, while

The México mi Amor collection is also attracting the attention

remaining attractive to its existing and loyal clientele. “We are

of consumers from abroad. Tane will soon reach those

introducing about 300 new products in 2019.”

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| INSIGHT

MEXICAN TEQUILA TAKES CENTER STAGE BERTHA GONZÁLEZ NIEVES Co-Founder and CEO of Casa Dragones

254

From food to gastronomy, Mexican culture is enjoying an

international markets, González says the company’s goal is

upswing in popularity both at home and abroad, providing

to venture well beyond the positioning of a beverage. “We

a significant opportunity for the country’s key spirit: tequila.

want to be part of the growth of the tequila industry and to

“Mexico is experiencing a vibrant moment in major aspects,

showcase the image of a modern and professional Mexico

such as its gastronomy, design, culture and art. We thought

that pays meticulous attention to detail.” Despite the boom

this excitement needed to be transmitted to the tequila

tequila and agave distillates have enjoyed in foreign markets,

industry,” says Bertha González Nieves, Co-Founder and CEO

González says Mexico remains a priority. “The Mexican market

of Casa Dragones.

is the heart of what we are and what we do. It is important for

“

Mexico is experiencing a vibrant moment in major aspects. We thought this excitement needed to be transmitted to the tequila industry”

us to have a significant presence in the country.” González says the brand also has had very good reception in the US and that it has made significant advances in conquering the European market. “We like to think that Casa Dragones has had an important role in starting the conversation that surrounds tequila in Europe in countries like England, Spain, France, Greece and Italy.” It plans to continue strengthening its presence in the markets in which the brand already exists. “Japan and Australia are markets with interesting opportunities but it is important to continue consolidating our position where we already are,” González says.

Casa Dragones is a Mexican tequila distiller that specializes in the production of high-quality tequila, producing less than

Rather than focus its strategy on younger consumers, as

500 cases per batch, generating product exclusivity. Although

other brands are doing, Casa Dragones works to attract the

the company has been in the market for just over 10 years,

market segment that wants high-quality products. “We are

in 2010 it became the first Mexican brand to be recognized

focusing on attracting customers whose lifestyle is aligned to

by the prestigious “Grand Prix Strategies du Luxe,” which

our product,” says González. “They are quality-seekers who

recognizes luxury brands globally.

look for brands that share their principles. This encompasses people of all ages.”

The hype that has surrounded tequila and a growing appetite for high-quality products were key to Casa Dragones’ success.

To further position its brand internationally, Casa Dragones

“We wanted to deliver a product that was completely unique

employs a strategy of partnerships with restaurants, such

in terms of taste, history and design. It was a matter of

as the recent opening of a Thomas Keller restaurant in New

innovation and of delivering something different than what

York that pairs a Casa Dragones tequila with its dishes. “We

was offered in the tequila category,” says González. Tequila

are trying to show that tequila has a place on the table of

has grown so much in popularity that consumers now demand

international cuisine. These are the types of partnerships

a wider variety with added value. “Consumers today want to

and exchanges that we believe are the dynamic life of the

interact with a complete repertoire. They fall in love with a

company.” Gónzalez adds that the company also is focused on

category and want to learn from it and establish a relationship

advancing the tequila tradition globally and the Denomination

with the brands.”

of Origin of agave distillates. “There are close to 200 different types of agave and only five Denominations of Origin for agave

Although Casa Dragones has played a significant role in

distillates. If we invest in infrastructure and education, there

positioning Mexico and tequila as a high-quality product in

can be many more products with Denomination of Origin.”

VIEW FROM THE TOP |

LONG-TERM APPROACH NEEDED IN AIRCRAFT BROKERAGE BUSINESS RENE GARZA President and Founder of Jet Mach

Q: What are the main challenges to buying and selling

we sold one Hawker 400, one Challenger 300, one Challenger

aircraft in Mexico?

350 and purchased one Legacy 650 and a Gulfstream 450.

A: Buying or selling aircraft is a long process. However, since

Our hangar in Monterrey is already saturated and we are

Jet Mach’s operations often involve the import or export of

considering building another. This project has the potential

aircraft, the process is slower because aviation authorities of

to double our sheltering infrastructure and operations and

two different countries are involved. When buying an aircraft,

could be finished by 2020. We also want to increase the

our main challenge is to find the best value jet in its class and

amount of Skywash specialized cleaning products we sell

many times we find it in a foreign market. When selling, usually

fourfold. This year we started to sell to commercial airlines,

there is much competition and owners always think that their

which increased our sales by 300 percent year-over-year.

aircraft is the world’s best and so they want to sell it over its market price. Our main challenge is to educate owners about

Q: What changes are needed in Mexico for executive

market reality and still find the right buyer at the right time.

aviation to grow? A: Mexico has the second-largest executive jet fleet in

Q: What is Jet Mach’s strategy to stand out while

the world but there are hundreds of old planes reaching

competing in the business aircraft market?

obsolescence and many others need to be upgraded. There

A: We take full responsibility for the purchase or sale

is great potential for growth in Mexico’s aviation market. For

throughout all stages of the process. We strive to deliver

instance, some people do not need to own a plane because

great service because we place the highest value on our

they only fly between 50 and 150 hours a year and there

long-term relationships with customers. Aircraft are not

are special packages that would suit their needs. Airport

products that are constantly renewed. It usually takes seven

infrastructure and more professionalized executive aviation

years for companies to replace their planes, so we need to

companies are needed for Mexico to grow its executive

remain in contact with clients throughout that time and

aviation segment. While it is possible to reach almost any

support them when they need us. Dassault Falcon and

point in the US by plane thanks to that country’s extensive

Bombardier are the main brands we sell because we have

airport network, Mexico lacks the necessary infrastructure

a long-standing business relationship with them. Jet Mach

to achieve that air connectivity.

has been Bombardier’s exclusive representative in Mexico for over 10 years. The market identifies us with these brands

Q: What actions should the government take to strengthen

and we sell many Learjet, Challenger and few Global jets. We

aviation in Mexico?

also sell Hawker, Citation, Gulfstream and Embraer planes.

A: Mexico still has not had a president that understands the importance of supporting executive aviation. The next

Q: How does Jet Mach plan to expand its operations in the

administration must assign enough budget and equipment

Mexican market?

for the Mexican aviation authorities to support the growth

A: We are introducing more salespeople because we want

of aviation in general and executive aviation in particular.

to reach a greater market share and grow our brokerage

It is necessary to recognize the importance of aviation to

operations by 20 percent. It makes more sense for Jet Mach

Mexico’s economy and evaluate all the deficiencies that hurt

to focus on the main corporate jet aircraft owners, keeping

DGAC to successfully alleviate them.

a strong and solid relationship with the top 50 Mexican businesspeople. There are many different kinds of aircraft; while some planes may cost US$500,000 dollars, others may

Jet Mach is a Mexican aircraft brokerage company and a

cost US$60 million. We focus on the high end of the market.

distributor of Skywash aircraft-cleaning products. It also

Jet Mach only makes four to five transactions a year and we

shelters aircraft at its hangar in Monterrey. The company offers

want to increase that to six or seven. In the first half of 2018,

its clients consulting and manages administrative procedures

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| VIEW FROM THE TOP

SUSTAINED GROWTH DESPITE A DECELERATING MARKET MARTIN JOSEPHI Director General of Lamborghini, Aston Martin, Caterham and Morgan Mexico

256

Q: How have your results evolved considering the overall

style and luxury. Only 30 percent of our clients go for both. In

growth of the luxury market?

terms of sales, we had very similar results until 2017. However,

A: The exotic super-sports car (ESSC) market has enjoyed

with the introduction of Urus, we expect to see a much more

continuous growth for the past five years. Between 2012 and

defined difference after a probable growth of 100 percent in

2013, this segment was controlled by Lamborghini, Ferrari,

Lamborghini’s sales. We forecast significant growth for Aston

Bentley, Porsche’s high-end line and Maserati. Since then, new

Martin as well, but more in the 30 percent range. Maybe when

brands have entered, including Aston Martin, McLaren, Rolls-

the brand releases its DBX SUV in 2019 or 2020, results will

Royce, Lotus and other smaller brands such as Caterham and

again be similar between Lamborghini and Aston Martin.

Morgan. Practically all brands are now competing in the ESSC Mexican market but still, we are selling more than in the early

Regarding our Caterham and Morgan brands, they are part

days. We do not know how long this trend will last but in the

of an even more exclusive niche for clients that are looking

case of Lamborghini and Aston Martin, we sold our entire

for something very classic. Although models have evolved

stock through December 2018 by July 2018.

in terms of under-the-hood technology, they have remained true to their origins in design. These brands have much

Q: What reasons are behind the growth in the overall

more reduced sales than Lamborghini or Aston Martin but

luxury segment?

even so, both Caterham’s and Morgan’s offices have been

A: Economically, Mexico is going through a favorable

surprised to see such acceptance in the Mexican market.

period. There are still problems but the country has improved greatly in terms of infrastructure, not only

Q: What are your priorities for Aston Martin in 2018 and

in Mexico City but in other states. Security remains a

what new models are you bringing to the market?

concern but that has been compensated by the support

A: Currently, our volumes depend mostly on the DB11. This

of a growing upper class. Having said that, there are still

model was originally launched with a V12 engine and it then

areas of improvement that if addressed would help the

moved to a V8 configuration. Now, we are unveiling the DB11

ESSC market grow threefold. Stability has been a key

AMR version that goes back to the original V12 engine but

factor in helping clients gain more confidence, particularly

adds 300hp of power and a convertible version as well. At

in the luxury segment. It is true that worries regarding the

the same time, we are launching the new Vantage, which

elections and Mexico’s relationship with the US affected

was our most important release in 2018. This model arrived

the peso but even then, the country has managed to stay

in August 2018 and we presold units. Vantage will become

within certain levels of stability.

our entry model, allowing us to compete with brands such as Porsche and McLaren.

Q: How does sales performance compare in each of your brands?

By the end of the year we received the first units of the

A: Even though both Lamborghini and Aston Martin participate

DBS Superleggera, which was unveiled in June 2018 and

in the same market segment, they are completely different

substitutes our previous Vanquish family. This model is our

brands. Lamborghini is the exotic and performance-driven

top-of-the-line unit and a new flagship vehicle for Aston

end of the market, while Aston Martin is more oriented to

Martin. The car has a carbon fiber body and an engine that delivers 715hp and torque of over 900Nm. With the introduction of DBS Superleggera, the brand marks a

Lamborghini, Aston Martin, Caterham and Morgan are

specific differentiation between families. This vehicle is

distributed in Mexico through DB Imports, managed by

Aston Martin’s most radical offering, DB11 is the core of

Martin Josephi. The company has three dealerships in

the brand and a more refined alternative, while Vantage is

Mexico City

firmly positioned as the sports car of the brand.

VIEW FROM THE TOP |

F1 TECHNOLOGY PROVIDES UNIQUE DRIVING EXPERIENCE ADAM GRON Marketing and PR Manager for Middle East, Africa and Latin America at McLaren Automotive

Q: Four years after opening its first dealership in Mexico,

the carbon fiber Monocell Two, which is a light monocoque

how has the Mexican exotic vehicle segment reacted to

that provides structural rigidity. This has a massive impact

McLaren’s high-performance lineup?

on driver engagement and also provides safety thanks to

A: McLaren began operations in Mexico in September 2015.

the material’s physical properties.

The Mexican market has been really good to us as people in the country have really taken to the cars, especially those

Q: What milestones has McLaren achieved in developing

who love racing or exotic models. The McLaren brand has

a 100 percent electric super-sports car?

been successful in Mexico and the country is now one of

A: In 2013, we became the first supercar company to introduce

our largest markets in terms of volume for the Middle East,

a performance-focused hybrid to the market. This vehicle

Africa and Latin America regions. McLaren is an exclusive

incorporated a conventional powertrain coupled with an

brand and seeing one on the road is an unforgettable

electric motor that filled the gaps in torque delivery, translating

sight. In 2018, McLaren sold over 4,800 cars globally and

to phenomenal performance. We are not ruling out a fully

we expect a similar figure for 2019. These figures will allow

electric vehicle but we will only launch it if a steep change in

us to be quite profitable and invest in new products, while

technology occurs that would allow us to develop an electric

maintaining the exclusivity that customers expect from us.

vehicle that provides the McLaren driving experience.

Q: One of McLaren’s differentiators is its driving experience.

There are many issues to address before launching a fully

What else makes the brand stand out in the luxury market?

electric vehicle, including battery weight and composition.

A: McLaren focuses on technology to enhance the driving

At this point, most technological developments for batteries

experience. We are a racing company at heart. We started

focus either on power density or range; McLaren vehicles

in 1963 as a racing team but since 2010, we have set our

need both. We want to create a car that customers can

sights on becoming an iconic supercar company. From that

drive to the track, take a few laps and then drive back from

point on, we have been using many F1-derived technologies

the track. So far, this technology does not exist. We recently

to enhance the performance of our vehicles.

announced our Track 25 business plan, which will hopefully lead us to such a development by the end of 2025.

Design is very important for us and another big differentiator. We follow the “form-follows-function” design philosophy,

Q: As an independent OEM, what competitive advantages

in which the shape of the car is usually dictated by its

does McLaren have in terms of technology development

aerodynamic performance. There is nothing in the car that

and original design?

does not serve a function. For instance, our McLaren 720s

A: Being an independent company allows us to be nimble,

introduced a new headlight design that also makes them

react to the market and make decisions quickly. We can also

active air intakes to support the cooling system. It looks

develop new products quickly, which helps to introduce new

cool but it also has a real use. The 720s also incorporate

technologies to the market faster. Moreover, as we are not

another F1-derived technology that allows the spoiler to

partnered with another OEM, every single car component is

extend, reducing drag and improving performance.

100 percent McLaren, granting a unique driving experience characteristic to the brand.

Carbon fiber is the most important technology we have translated from F1 to commercial cars. McLaren is a carbon fiber pioneer; in 1981, we became the first driving team to

McLaren is a car-racing team and exotic and supercar OEM

use this material. In the early 1990s, we produced the first

based in England. It is the second-oldest F1 competitor and the

road car with carbon fiber and every single racing car has

second-most successful team in F1 history. McLaren sold about

used it since then. Our cars have carbon fiber tabs, including

4,800 exclusive cars in 2018 worldwide

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| INSIGHT

LOCAL STRATEGY MINIMIZES CRISIS EFFECTS CARLOS GONZÁLEZ Chairman and CEO of Sotheby’s International Realty Mexico

260

Mexico’s fragmented real estate market has made it a

emotional buyers and flippers. “Two thirds of our business

competitive destination for the luxury and second-home

disappeared and our influx of stable buyers was reduced

segments, according to Carlos González, Chairman and CEO

by 50 percent,” says González. “Overall, the second-home

of Sotheby’s International Realty Mexico. “The fragmented

market experienced an 80 percent decrease in volume sales

nature of the real-estate business makes competition feasible,”

during the years of the crisis, fueled also by the swine flu

he says. “Companies do not have to compete against a leader

outbreak in 2009 and the government’s strategy to combat

that monopolizes the industry.”

organized crime.”

Sotheby’s International Realty Mexico is a real estate

To remain profitable, Sotheby’s International Realty Mexico

franchise of Sotheby’s International Realty, founded in

strengthened its offering for locals and extended its franchise

1976 by auction house Sotheby’s and now a subsidiary of

reach to cover the entire country. “The second-homes business

real estate franchising company Realogy Holdings Corp.

remains an important part of our strategy but the local market

“Around 20 years ago, Mexico presented a significant

is very large and quickly catching up,” González says. “We will

business opportunity in the market for second homes,”

soon have a 50-50 ratio between both segments.”

says González. “Many foreigners were buying real estate in Latin American tourism centers, including Mexico and Costa

Sotheby’s International Realty Mexico is in a growing phase

Rica.” González saw an opportunity to take advantage of

and even though the change in the federal administration

the market’s conditions to target a niche among top-tier

created uncertainty in the business community in the second

properties that were not necessarily associated with a

half of 2018 and in early 2019, González is convinced that more

high price tag but with a high value proposition. Although

business opportunities will emerge. “Our offering has enjoyed

Mexico competes directly with countries in the Caribbean

a good reception in Mexico City. We are a known brand

and Central America, its privileged position in terms of

and developers trust us,” he says. Furthermore, Sotheby’s

geographic location and climate led González to acquire

International Realty Mexico is among the few international

the first Sotheby’s International Realty franchise for

brands with a permit for project marketing and a portfolio of

eight states: Baja California, Baja California Sur, Yucatan,

flagship projects that include Chapultepec Uno. The market

Campeche, Quintana Roo, Colima, Jalisco and Nayarit.

has also recovered from the Lehman Brothers’ crises, thus

“

The fragmented nature of the realestate business makes competition feasible”

opening a bigger market for Sotheby’s International Realty in Mexico. However, factors such as interest rates and a volatile peso-dollar exchange rate remain obstacles for the real estate industry. “The assets we commercialize require access to longterm financing. Without it, the industry would practically be non-existent,” says González. Lack of financing for nonresidents, in particular, has taken a toll on Sotheby’s International Realty Mexico’s business

The company’s first focus was on the second-home

opportunity. According to González, US banks have no

market for nonresidents but the bankruptcy of Lehman

problem offering credit to their clients but fail to understand a

Brothers forced Sotheby’s International Realty to change

property’s appraisal and guarantee prices. Meanwhile, Mexican

its approach. It had already identified three important

banks understand the property but not the client’s payment

market niches: emotional buyers, house flippers and stable

capabilities. “Lack of cross-border funding represents a

buyers. However, the deteriorated state of the industry for

structural problem but at the same time an important business

second homes after 2008 erased the opportunity among

opportunity,” he says. “Private funds can easily fill this gap.”

VIEW FROM THE TOP |

CREATING 21ST CENTURY TOWN SQUARES JIMMY ARAKANJI Co-Founder and Co-CEO of Thor Urbana

Q: Why has Thor Urbana decided to focus on the Mexican

City squares, or Zocalos, were traditionally the meeting point

commercial real estate market?

of communities throughout Latin America and we want our

A: There continues to be a deficit in quality commercial

projects to serve the same purpose for the new generations.

spaces required to meet the demand of Mexicoâ&#x20AC;&#x2122;s growing

Many countries, including Mexico, have strayed away from

population. We continue to see great activity in the

spending time in their city squares due to insecurity. By

construction of commercial real estate and Thor Urbana

providing secure environments, we can give back a sense

wants to continue creating new retail and mixed-use

of community and strengthen the social tissue. By investing

projects that adapt to the needs of the 21st century market.

in these inclusive spaces we are able to generate win-win

We have noticed that modern society is no longer interested

situations where our tenants are able to retain customers

in the traditional commercial spaces as people now seek

longer and continue attracting new ones. We are developing

social, community and experiential spaces that add value

projects with these characteristics in Metepec, Merida,

to their everyday life.

Guadalajara, Cancun, San Luis Potosi and Tijuana, and look to continue doing so within new booming cities.

Thor Urbana has identified many cities that have the right combination of demographics and economic development

Q: Why did Thor Urbana decide to construct Town

for commercial development. Commercial real estate is

Square Metepec?

continuing on an upswing and demand will only continue

A: Our value proposition brings with it a variety of

to grow. There are many new brands that want to penetrate

entertainment and restaurant options. A great example is

the Mexican market through innovative projects such as

Town Square Metepec. The Toluca Valley has more than 3

the ones we are developing. We are leading commercial

million people and there was no project that offered the

developers but we want to make sure that we continue to

type of experience, lifestyle and tenant mix that we are

create truly unique projects that bring cities to life.

offering in our project. Most of the residents of Metepec had to travel to Santa Fe to find these kinds of amenities.

Q: What is the role commercial real estate developers have

This project will break the traditional paradigm and will give

in transforming Mexicoâ&#x20AC;&#x2122;s secondary cities?

Metepec a new city center for social interaction.

A: Developers have a considerable responsibility in detonating investment in secondary cities through the

Almost all real estate projects are accompanied with social,

creation of valuable real estate projects. Ultimately,

environmental and economic implications that developers

developers have a direct impact on the urban landscape

must solve and there will always be groups that are in favor

of a city or neighborhood through what they construct. We

or opposition to its construction. That is the law of real estate

have the ability to develop world-class projects that will not

development all over the world. Thor Urbana wants to be the

only boost the aesthetics of an area but also its economic

best neighbor possible and acts responsibly to improve the

activity. Thor Urbana wants to continue developing spaces

quality of life of the area and bring a new value proposition

that have a positive impact on their surroundings. The type

that did not exist before. We investigate and run focus groups

of real estate investments that we are making generate

to ensure that the project is of the expected quality and that

employment and boost economic development, but what

it will have a positive impact on its surroundings.

we really want to achieve is the creation of a project that society can truly benefit from. The types of projects we are creating go beyond serving a mere commercial purpose but

Thor Urbana is one of Mexicoâ&#x20AC;&#x2122;s leading real-estate investment and

actually aim to create spaces within the community that

development companies. It specializes in mixed-use projects with

promote social interaction and well-being among clients

developments in Metepec, Merida, Mexico City and Guadalajara.

without them necessarily having to purchase an item.

It is developing over 10 million ft2 across the country

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| INSIGHT

MEDITERRANEAN STYLE ON THE MEXICAN COAST GIORGIO BRIGNONE Director General of Costa Careyes

262

Castles, villas and small houses located next to the sea

according to Brignone is both an advantage and a problem.

with Mediterranean-inspired architecture – the scene could

“It has been good because it has allowed us to offer a

be Spain, Greece or Italy; however, it is not necessary

quality product to a select clientele. However, it has also

to travel so far to find a similar location in Mexico. The

been a problem since by not being part of a specific tourist

issue, says Giorgio Brignone, General Director of Costa

route we have never had government promotion.” Another

Careyes, an exclusive tourism destination in southern

of the difficulties Costa Careyes faced was infrastructure,

Jalisco, is connectivity. “Most of our visitors come through

which it developed on its own to provide basic services

the Colima, Manzanillo or Puerto Vallarta airports but

such as water, cleaning, garbage collection or medical

poor road conditions between these cities can lead to

clinics. “We are autonomous when it comes to services

connectivity problems.”

that depend on the government,” Brignone explains.

It is a problem familiar to many out-of-the-way

Brignone says there are four elements that make Careyes

destinations. With a new government in power, Brignone

unique: hospitality, architecture, events and nature. Costa

says there is an opportunity for action. “The Ministry of

Careyes is taking advantage of all these to position itself

Tourism should not focus only on known destinations but

as a unique destination in the country. “One of our most

support different experiences that offer new products and

important characteristics is that we are a destination that

that could also be an important magnet for tourism.” Costa

does not have a hotel. Visitors can rent a castle, a house or

Careyes, however, is not waiting for the government to

an apartment. We want to illustrate that destinations can

tackle this issue. The company has worked to improve the

have a tourism influx without having a hotel.” Combined

condition of roads leading to its luxury complex, installing

with a Mediterranean architecture, Brignone says Careyes

lighting and signaling, which has had a significant impact

offers a unique feeling and style. “The development is a

on improving road connectivity.

combination between Mexico and the Mediterranean. No other development in the country has this.”

Costa Careyes expands across 12km of beach and is located within the ChamelaCuixmala biosphere reserve

Careyes also serves as a source of income for owners, Brignone adds. “You can buy apartments and houses that range from US$350,000 to US$10 million. If the owner wishes, we can manage the house and rent it to visitors.” Costa Careyes has hosted a number of events to help position itself in the market, including Arte Careyes, a film

Brignone says that Costa Careyes was his family’s attempt

festival; Ondalinda, a music and arts festival and AguaAlta,

to create something similar to Costa Smeralda in Sardinia.

a polo championship.

“Costa Careyes was created in 1968, when there were no rules on real-estate development. We strived to create a

Because it is located in the Chamela-Cuixmala Biosphere

planned community that focused on development density

Reserve, the resort emphasizes its environmental

and architecture. We have a planning model that does not

responsibilities. It partnered with the local community

exist in almost any other development in Mexico,” he says.

to provide education on the importance of preserving local flora and fauna. Its relationship with the community

Located between Puerto Vallarta and Manzanillo in the

is ascribed in the work Costa Careyes does through its

municipality of Costa Alegre, in Jalisco, Costa Careyes

Careyes Foundation that also teaches English to the

expands along 12km of beach and is located within the

community, organizes art workshops and promotes social

Chamela-Cuixmala Biosphere Reserve, a location that

cohesion through sports.

VIEW FROM THE TOP |

CREATING PROFITABLE, SUSTAINABLE DEVELOPMENT NICO WILMES CEO of Los Amigos Tulum

Q: Why did Los Amigos Tulum settle on the Tulum tourism

with the people who surround you and with the region.

area for its business operations?

Sustainable development is really an option for places that

A: When we arrived in Tulum, we recognized the areaâ&#x20AC;&#x2122;s

have great growth potential, which is why it is important

growth potential. There also were no developments focused

to note that all the technology that we are using in Tulum

on sustainability. Although there are efforts across the

can be used in other areas.

country to increase the use of renewable energy, there is still a lack of focus on sustainable development, which is what

Q: As developers of residential units, what opportunities

areas like Tulum need, especially given its natural beauty.

can investors take advantage of to bolster their returns? A: Most of our clients do not live in the unit they purchase.

Los Amigos Tulum provides a sustainable development

Most live elsewhere and obtain rental income from these units.

alternative. Our real-estate developments combine the use

Along the Riviera Maya and many other tourist destinations,

of sustainable technologies, such as water treatment plants

there is a great deal of competition among big hotel chains,

and infrastructure to generate electricity through renewable

so there is a significant offering of accommodations.

sources that are natural to the area. For instance, we

However, in Tulum, there are no international hotel chains

introduced an advanced wind system that can be integrated

operating, so small investors who buy a single unit can

into our condominiums. This is a first for Mexico. Previously,

generate investment returns through rental income.

this type of system could not be integrated into condominiums because they were too noisy for residential use. However, the

In addition to designing, developing, constructing and selling

new system imitates the sound of trees moving.

the units, we can handle vacation rentals for our clients. We rent the units as if they were in a five-star hotel, with all the

Q: How does Los Amigos Tulum interact with governmental

services and amenities they would find in a luxurious hotel.

agencies to develop projects in harmony with the

Although some owners prefer to handle the rental of the unit

environment?

on their own, we recommend the rental be supported by a

A: Many Mexican regions have experienced rapid growth

brand so it can be better positioned in the market.

and it is difficult for authorities to keep up, in particular with infrastructure projects. But developers need to stop

Q: What is Los Amigos Tulumâ&#x20AC;&#x2122;s strategy to design and

depending on the government and offer sustainable products

construct sustainable real estate at a competitive price?

through the use of technology that makes a difference. At the

A: Clients who visit Tulum want luxurious services and to

end of the day, we are responsible for the product we offer

enjoy a unique and high-level experience. To deliver this, we

to the market.

need to invest in our developments and in the technology. For instance, our water treatment plants cost us around

Q: How is Los Amigos Tulum positioned in Tulum?

MX$110 million (US$5.8 million), including installation. But

A: In six years, we have developed over 10 real estate

this is an investment; although sustainable development is

projects in Tulum. We have experienced very rapid growth;

more expensive, our clients are prepared to pay a little bit

the company started with just two people and we now have

more for this. We do not sell cheap accommodations. We

a large team that comprises over 500 collaborators. We

sell experiences in sustainable developments.

are all united and committed to making a positive impact and to contribute to a more sustainable Mexico. Part of our success comes from the fact that people are now much

Los Amigos Tulum launched operations in 2012 as a developer,

more conscious of the importance of having sustainable

constructor and operator of real-estate projects. It is the

development. Sustainable development is a broad concept,

largest real-estate developer in Tulum and has over 10 projects

it is not just about construction but how you interact

in its portfolio. All its developments are solar powered

263

| INSIGHT

CREATING TAILORED EXPERIENCES FOR GUESTS GUILLERMO ORDÓÑEZ Regional Director Mexico and Latin America of Inspirato

For many years, timeshares were considered the antithesis

of family. Another important component Mexicans take into

of luxury travel. However, the right business model and

consideration is service. “Mexicans’ service level is among

concept can turn around even the staunchest critic, says

the Top 5 in the world. This makes Mexican travelers among

Guillermo Ordóñez, Regional Director Mexico and Latin

the most demanding in terms of quality, service and details.”

America of Inspirato, a provider of luxury-branded vacation 264

homes. “Inspirato’s founding partners were CEOs of one

According to Ordóñez, each house in the Inspirato network is

of the most successful timeshare models. However, when

valued at an average of US$3.3 million and each real-estate

the traditional model became saturated, they decided to

acquisition made by the company or its members is backed

create a new luxury model targeting a specific audience.”

by its own team of real-estate agents and interior designers. As a result, it can ensure that each property meets Inspirato’s

Inspirato’s model offers its members the opportunity to

requirements. Every house comes with a butler service to

travel around the world and stay in luxury houses or hotels.

attend the needs of visitors, which also includes procuring

“We have a unique portfolio of houses and residences that

tickets for a show, hiring a professional chef or a nanny.

are not open to anyone other than our members. This allows us to offer high-quality standards at all our destinations

“Our Mexican members tend to ask for tickets for the US

and to customize our service to meet the needs of all our

Open, the Super Bowl or The Masters events, while members

guests,” says Ordóñez. However, Inspirato’s exclusivity does

from abroad coming to Mexico want archeological visits and

not come cheap. Its three types of memberships are Key,

gastronomy.” To comply with requests, Inspirato has a team

Family and Executive, all with different initial prices and an

in charge of forging alliances that allow its members access

annual maintenance fee of US$3,600. Membership provides

to all the relevant events that might take place in a city. “We

access to Inspirato’s portfolio of more than 200 houses

employ a destination manager who generates a benchmark

and residences in over 235 destinations worldwide. Should

of member requests. For instance, we have tickets for the US

Inspirato not have a residence in a specific location, Ordóñez

Open, Wimbledon and Formula 1 races, which we offer to our

says the company has entered a series of agreements with

members at competitive prices,” says Ordóñez.

hotel chains that comply with Inspirato’s profile. “We are a travel club for a very specific audience,” says Ordóñez.

Inspirato has a well-defined target for its memberships but Ordóñez says the company is not stuck on a single business

Ordóñez adds that the Mexican market fits the profile of

model and is exploring new possibilities. “Our main target

Inspirato’s members, especially since Mexico has become

is people between 40 to 60 years old but we need to keep

one of the main markets for luxury products. “Mexico is in

in mind the millennial factor. That is why we are thinking of

the global Top 10 for travel and luxury accommodations. It is

a new type of membership for this market.” Ordoñez says

a strategic market for us.” Such is its strategic value that of

that in addition to managing its own houses, Inspirato has

the company’s total 16,000 memberships, 1,250 come from

a home-owner model through which members can include

the Mexican market. Ordóñez says the Mexican market also

their own houses in the program.

has a higher retention rate than in the US. When it comes to destinations, Ordóñez says the company Despite Inspirato being a global product, Ordóñez

purchases properties depending on market demand. “In

says that there are cultural differences in the way the

Mexico, we have properties in nine different destinations,

product is accepted and commercialized. “Of our three

with Los Cabos holding the most properties.” Traveling

membership levels, the most popular in Mexico is the

Mexicans, however, prefer destinations outside the

Family membership.” Ordóñez says that in this regard,

country. “The most popular destination for Mexicans is

Mexican travelers resemble Brazilians, with a strong sense

Vail, Colorado.”

INSIGHT |

CONNECTING COMPANIES THROUGH HAUTE CUISINE MANUEL QUINTANERO Director General of Millesime México

Marrying the concepts of food and networking can be the

The other two business lines are more discreet but also

perfect match for companies looking to do business, says

maintain the concept of haute cuisine at heart. Estudio

Manuel Quintanero, Director General of Millesime México,

Millesime, which is a private club, was inaugurated in

but making it a unique experience can guarantee a higher

Mexico City in 2013. Taking the concept of exclusivity

level of success. “Networking and business are done over

to a different level, Quintanero says memberships to

food. However, for us it is not just about providing a meal but

Estudio Millesime are capped at 80 members; it already

generating a unique experience that includes not only the

has 69 and any prospective member must first receive an

food but also decoration, illumination, service and details,”

invitation from an existing member. “It is a very exclusive

says Quintanero.

and small concept that we do not like to promote,” he says. The third business line is Millesime Xperience,

Millesime, whose objective is to create links between different

which Quintanero describes as a catering company that

companies through haute cuisine, began in Spain in 2007

has been operating for less than a year but that follows

as a networking tool for companies, using hospitality and

Millesime’s gastronomic philosophy.

gastronomy to bring all these elements together. Entering Mexico has opened a plethora of opportunities, according

Quintanero says Mexico complies with a series of

to Quintanero. “I do not think there is a country better than

conditions that make it the ideal market for his company.

Mexico for Millesime’s concepts,” he says. The company has

Top of the list is the understanding of and passion

been able to develop three business lines in the country

for food. “Mexico has a gastronomic history that few

that are not found anywhere else: Millesime México, Estudio

countries have. Some of its recipes are 500 years old.”

Millesime and Millesime Xperience. Although Millesime’s

In addition to its strong gastronomic lineage, Quintanero

target audience is concentrated in the corporate sector,

points out that the country’s relationship with food also

each business line offers a different concept aimed at various

encompasses the present. “There are Mexican chefs in

niches but they remain perfectly intertwined by three key

almost all the best restaurants in the world. Mexican

factors: haute cuisine, exclusivity and unique experiences.

cuisine has become among the most important globally.” The other element of Millesime’s successful model in

Quintanero says when Millesime began in Mexico eight

Mexico is the Mexican business community. “The country

years ago, it was a highly corporate product, since most

clearly has a very strong business sector. Almost every

of its clients were companies. However, a boom in Mexican

major corporation has an office in the country,” says

gastronomy and a worldwide focus on Mexican chefs allowed

Quintanero.

Millesime to expand its market niche. “At first, only corporate directors knew us, but we have evolved toward a more

The gastronomic boom the country has experienced

social business, with a recurrent clientele who value and are

in the last decade has also contributed to Millesime’s

attracted to the gastronomic world.”

expansion and success. “Millesime arrived at a moment when Mexican gastronomy was just taking off. The boom

Millesime first ventured into the Mexican market in 2010

was not associated with Millesime but we have played

with Millesime México, the first of its business lines and now

an interesting role in bringing people closer to Mexican

an annual event in Mexico City combining unique culinary

cuisine,” says Quintanero. Among the company’s most

experiences with renowned Mexican and international chefs

important accomplishments has been to help put the

and mixology. Millesime México is not only the company’s

spotlight on Mexican gastronomy. “For us, it has been

oldest concept in the country but also the most recognized,

very important to see how people have started to value

as Quintanero explains: “Millesime México is our most massive

their own chefs and their own products. This was not the

event and the one that has given us the greatest notoriety.”

case 10 years ago.”

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| VIEW FROM THE TOP

A HOME AWAY FROM HOME ALDONZA RAMÍREZ MAYANS Co-owner and COO at Dominion Corporate Housing

266

Q: What opportunities in the Mexican market led you to

Q: How do you position your services among international

create a corporate housing offer?

corporations?

A: We started in the Mexican market 20 years ago with a

A: We are pioneers in this business niche in Mexico and we

property that was originally intended for diplomats and

have earned the trust of our clients through the years thanks

representatives of the US Embassy in Mexico City. We then

to exceptional service as well as the quality and safety of

developed this concept to offer executives and diplomats

our accommodations. We offer a “built-to-suit” service for

safe and comfortable services to facilitate their stay in

our clients, considering they all have different needs. It is all

Mexico. Later we began to formally integrate hotel services,

about “experience.” Today, we have four properties in Mexico

which has been a success to date. Dominion Corporate

City and two more opening soon. We are proud to say that

Housing has evolved into a real-estate operator that offers

we are the leading corporate housing company in Mexico.

hotel services to its guests.

We are part of many recognized international mobility and corporate housing associations and have been certified by

Dominion Corporate Housing has evolved into a real-estate operator that offers hotel services to its guests

specialized professionals in the field. Q: What alliances or agreements with travel agencies have you reached to promote your services? A: All of our properties can be booked through online travel agencies, global distribution systems, tour operators, as well as through our own website. Our guests are free to stay from one night to weeks, months and even years. Dominion Corporate Housing’s sales department also allies with national and international companies to attract customers. Most of our domestic clients come from Mexico

Q: What characteristics do you look for in properties that

City, Guadalajara and Monterrey, while our international

will be included in your corporate housing offer?

customers are mostly from the US, Europe and Latin

A: Our main clients are foreigners who visit Mexico for a

America. At an international level, Dominion Corporate

temporary period for work reasons, although we are also

Housing is expanding thanks to its American and European

hosting some leisure travel guests in some of our properties.

certifications, as well as its presence in international trade

They come to us because they are looking for a living space

fairs and sales blitz.

that offers them the feeling of being at home when they are far from it.

Q: What are your expansion plans related to the number of accommodations in Mexico City?

Dominion Corporate Housing seeks properties that fit high

A: Our plan is to expand to strategic areas of Mexico City.

quality construction standards and that are well-located in

Dominion Corporate Housing also is planning to open a new

safe and exclusive areas of the city with nearby services

property on Paseo de la Reforma to cater to the increasing

and amenities.

number of finance corporations in the area. We want to offer their executives a housing space that provides all the amenities they need. This offer will be available in 2020. We

Dominion Corporate Housing is a leader in the administration

also are considering looking for properties in the south of

and management of extended stay facilities, with more than 20

the city, such as San Jeronimo, Coyoacan and nearby areas

years of experience in Mexico. It has four properties in Mexico

to meet the expansion of laboratories, clinics and health-

City, located in Polanco, Condesa, Interlomas and Lomas Altas

related companies.

Given the needs of the corporate housing market in the country, Dominion Corporate Housing is also looking for partnerships in the cities of Leon, Monterrey, Queretaro and Guadalajara, as well as alliances and investors to bring our concept to these cities. These cities are a good business opportunity for Dominion Corporate Housing. Q: What new trends have you identified in the corporate travel and housing segment? A: Wellness is an important trend. Our customers are usually travelers who need to adapt their daily life to a new business environment while still enjoying the same facilities and amenities they would have at home. Dominion Corporate Housing pampers its guests with pillow menus, smart TVs where you can still watch your favorite TV series, healthy breakfasts, eco-friendly amenities and we are of course pet friendly. In the near future, we want to include services such as aromatherapy, yoga and meditation, as well as a personal trainer. Q: What standards do you follow when providing corporate services? A: Dominion Corporate Housing follows standards from both Europe and the US. We not only ensure our guestsâ&#x20AC;&#x2122; comfort but also their safety. We provide companies the opportunity to inspect the premises beforehand to ensure it meets their service and security requirements. We also provide all the necessary equipment to enhance the security of our guests such as 24-hour security guards, CCTV, smoke detectors, fire blankets in every suite, rescue equipment and other components. We like to collaborate with our clients and make sure they are comfortable in every way. Duty of care is a must with all of our guests and company clients. Q: How does Dominion Corporate Housing operate its properties? A: All our properties have a manager who is in charge of the property but our operations are carried out centrally. Operations, finances, human resources, sales and marketing, as well as our accounting departments are all in our main office. This allows us to maintain our standards and the quality of our services. Q: What is Dominion Corporate Housingâ&#x20AC;&#x2122;s growth forecast for the coming years? A: Our main objective is to continue to take Dominion Corporate Housing to a higher level and exceed our clientsâ&#x20AC;&#x2122; expectations. At the same time, we want to increase our number of properties under management and to expand to other parts of the country through partnerships that help us attract more customers. Finally, we want to increase our base of foreign clients for our local properties and expand our base of clients traveling or moving abroad.

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| VIEW FROM THE TOP

THOUSANDS OF OPTIONS FOR A HEALTHIER LIFESTYLE ROBERTO ESSES Country Manager of Gympass

268

Q: What internal and external conditions have permitted

having a tool for attraction and retention of talent. We

growth in the fitness industry?

understand that there are several emotional and physical

A: According to IHRSA, the fitness industry worldwide grew

barriers that prevent people from becoming active and

6.5 percent, from 162 million people in 2017 to 174 million

our goal is to help them overcome these. Companies have

in 2018. It also enjoyed a 5 percent increase in revenue,

influence and credibility and can communicate with their

from US$83.1 billion in 2017 to US$87.2 billion in 2018.

employees better than anyone else, stimulating them to

Mexico ranks third globally behind the US and Brazil in

have a healthier and more active life.

terms of most gyms, with almost 13,000. The desire for a healthier lifestyle is a worldwide trend, especially related to

Q: What are Gympass’ main development opportunities in

workplace well-being and work-life balance. According to

the Mexican market?

the WHO, physical inactivity is the fourth-leading risk factor

A: Mexico was the first country we tackled after Brazil.

for mortality globally. This has encouraged people and

The decision was made based on demand from our own

companies to become more active. Companies now know

clients, who after seeing the impact our benefit had on

that investing in well-being initiatives generates excellent

their workforce wanted to implement it at their offices in

results and improves their employees’ quality of life.

other countries.

Q: What trends are impacting the fitness sector and how

We have a great opportunity to help people become more

is Gympass taking advantage of these?

active and we believe there are several opportunities for

A: According to ACSM’s Health & Fitness Journal, group

Gympass in Mexico, since obesity and lack of physical

training, HIIT programs, programs for older adults, yoga and

activity are huge issues in the country.

outdoor activities are some of the main trends among gym goers. The study also points at worksite health promotion

Q: How receptive has the Mexican market been to

and workplace well-being programs as the 15th-ranked

Gympass’ offering?

fitness trend for 2019, which reinforces Gympass’ role

A: Gympass has more than 3,100 associates in Mexico

in the market. By partnering with companies, Gympass

and over 43,000 worldwide. The reception in Mexico

introduces more people to the fitness world and helps

been has great. Gympass has a disruptive business model

foster greater economic activity. We offer more than 800

that offers a new way to access gyms and other fitness

types of activities worldwide and 400 in Mexico. Everyone,

facilities. Companies are investing more and more in their

no matter their age, gender or social status, can find an

corporate wellness programs and need a flexible solution

activity they love.

to encourage their employees to exercise that could meet each individual’s needs. In partnership with their HR

Q: Why should companies choose Gympass as a partner

departments, Gympass allows companies’ employees to

in building wellness programs?

access thousands of gyms and try different activities in

A: Companies benefit in a variety of ways, including a

different locations through a single membership with up to

reduction in healthcare costs and absenteeism, having a

a 70 percent discount. However, Gympass is more than a

healthier, more productive and engaged workforce and

gym discount benefit. Through our product, communication and customer support services, we help companies develop their wellness programs and engage with their employees.

Gympass is a Brazilian company that provides access to

This is a challenge and at the same time a huge opportunity

thousands of gyms through corporate and individual plans.

for companies because a successful wellness program can

The company is associated with over 3,100 gyms in Mexico and

attract and retain talent, increase engagement and reduce

offers 400 different sports activities

healthcare costs.

VIEW FROM THE TOP |

GROUP AIMS TO INCLUDE WELLNESS IN THE WORKPLACE JOSÉ ANTONIO MÁRSICO President of Grupo Body Systems

Q: Grupo Body Systems is a holding that includes several

information regarding the health of their workers. I also

business lines. How do these lines complement each other?

think that the use of wearables will help fitness trainers

A: Grupo Body Systems was founded 15 years ago with our

and management areas of sports clubs or gyms to track

Body Systems Activation House business line, which focuses

the performance of their clients, which will allow them to

on sports clubs and fitness training of groups. Ten years ago,

optimize the services and products being used.

we started Body Systems Corporate Wellness, which targets companies and their employees. Wellness is a more inclusive

Another likely and interesting change is related to virtual

concept than fitness, since it includes healthy eating and how

group classes, which can be implemented in gyms. However,

to manage emotions and stress. This line offers us access to

I do not think we could ever fully replace the existence of

40 million Mexicans. Given that Mexicans work long hours,

trainers in the fitness experience. Live instructors generate

face long commutes and spend a significant part of their

more enthusiasm than any virtual instructor.

day sitting, we believe they are bound to suffer higher stress levels. We have created experiences that can last between five

Q: What are the company’s expectations for the

minutes to one hour. These are the things that allow workers to

coming years?

improve their quality of life and to achieve a work-life balance.

A: We want to continue helping in the development of a wellness culture in Mexico. When we started, only 1.8

Q: What reception has Grupo Body Systems’ services

percent of the Mexican population was an active user of

received in Mexico?

sports facilities and there were no more than 3,000 sports

A: We launched Body Systems Corporate Wellness at the same

facilities in the country. According to our 2017 survey, there

time the Ministry of Health announced that Mexico is ranked

are 12,700 sports facilities in the country, with almost 4.2

second worldwide for adult obesity. At that moment, only 2

million users; this means that more than 3 percent of the

percent of the Mexican population had a gym membership.

Mexican population uses these facilities.

We decided that the best way to have a major impact was to work with companies.

We believe that the industry has a great deal of potential. After 15 years in business, we are impacting between

Since then, our program has been well-received and we are

80,000 and 100,000 people weekly. We are present in

confident that adoption rates will increase. Around 40 percent

over 300 sports facilities and we work with 37 national

of the labor force in Mexico is composed of millennials, a

and transnational companies helping them create and

generation that values work environment and what a company

develop their wellness programs, delivering thousands of

can offer them in terms of wellness. Companies that are truly

life-transforming experiences to their employees. We are

engaged with the development of their employees know that

optimistic that these numbers can easily grow. We have

they can no longer generate engagement by simply offering

transformed into a strategic partner for big companies,

the promise of a career path within the company. Talent

gyms, sports clubs and sports facilities. We have helped

recruiters also know that their companies must have these

them attract and engage both the best talent and members

kinds of initiatives and benefits to lure the best candidates.

through our portfolio, showing them that their most

We believe this will lead to an exponential adoption of our

strategic partner is Body Systems.

corporate wellness program. Q: What trends do you expect in terms of wellness and fitness

Grupo Body Systems was founded 15 years ago and is focused

for both users and companies in the coming years?

on fitness and wellness. Providing a variety of programs, the

A: Technology is impacting everything, including the wellness

company targets different population segments with the

and fitness industry. This will allow organizations to obtain

mission of helping them become more active

269

Car Rally Altius event

SPORTS & ENTERTAINMENT

Over the past couple of years, Mexico has hosted a number of top international entertainment events, including Formula 1, NFL and NBA games and a wide range of concerts. The domestic sports sector has also grown in importance, with events attracting more people on a yearly basis. Mexico’s consolidation as a world-class destination for sports and entertainment events generates publicity and visibility globally that contributes to the country’s international positioning.

Sports & Entertainment highlights the country’s success and shows how this sector’s economic impact contributes to the construction of infrastructure while highlighting its lasting effect on social cohesion. The chapter touches on the different factors that have enabled Mexico’s success as a host for international sports events, how the entertainment industry is evolving and the strategies that the most important players in the sector are using to capitalize on new opportunities.

271

CHAPTER 11: SPORTS & ENTERTAINMENT

274

ANALYSIS: Finding the Hidden Value of Entertainment

276

INFOGRAPHIC: More Than Just Fun and Games

278

VIEW FROM THE TOP: Horacio de la Vega, Indeporte

279

VIEW FROM THE TOP: Carlos Padilla, COM

280

INSIGHT: Javier Salinas, LMB

281

INSIGHT: Raúl Zurutuza, Mextenis

282

INSIGHT: Arturo Olivé, NFL Mexico

283

INSIGHT: Raúl Zárraga, NBA Mexico

284

INSIGHT: Max Nogueira, Play Marketing

285

INSIGHT: Ernesto Rivas, Altius Events

286

VIEW FROM THE TOP: Emilio Hank, Grupo Caliente and Caliente Interactive

287

VIEW FROM THE TOP: Rodrigo Gómez, HR Media

288

INFOGRAPHIC: Prime-time Entertainment

290

VIEW FROM THE TOP: Rogelio Vélez, Cinemex

291

VIEW FROM THE TOP: Mónica Lozano, Alebrije Producciones

292

VIEW FROM THE TOP: Jaime Romandia, Mantarraya Producciones

293

INSIGHT: Marco Forte, VCS Capital

294

VIEW FROM THE TOP: Roberto López, Sony Music Entertainment México

295

VIEW FROM THE TOP: Antonio Quevedo, Grupo Diniz

273

| ANALYSIS

FINDING THE HIDDEN VALUE OF ENTERTAINMENT Sports and entertainment are a wealth generator in many countries. In Mexico, major events, such as the Mexico City Grand Prix and the NFL, are not just revenue sources; they are an opportunity to showcase the Mexico brand and culture. However, success requires a coordinated effort between the public and private sectors The sports and entertainment industries have a unique

promise, you need to deliver. It does not matter if it is a yoga

power to bring people together while bolstering city

class with 200 participants, the construction of a baseball

and community economics by generating revenue and

stadium or a MX$1.5 billion (US$79.3 million) investment in

employment. Mexico, which is recognized as a world-class

the Hermanos Rodríguez racetrack.”

destination for sports and entertainment events, also benefits from the accompanying publicity and global visibility that

During the previous political administration, sports events

contributes to its international positioning. But to realize the

in 55 cities and 26 states generated an economic impact

full potential this sector offers, cooperation between the

of over US$5.3 billion in Mexico. International events, such

public and private sectors is necessary.

as the NFL games, generated revenue of around MX$840 million (US$44.6 million). The 2015, 2016 and 2017 editions

274

During Enrique Peña Nieto’s administration, Mexico

of the Mexico City Grand Prix together generated revenue

hosted over 35 international sports events and Mexico

of more than MX$23 billion (US$1.2 billion). All five races

City alone hosted more than 450 sports events annually,

in the contract the city has with Formula 1 are expected

both of local and national scope. Horacio de la Vega,

to bring over MX$40 billion (US$2.1 billion) in terms

former Director General of the Institute of Sports of

of revenue.

Mexico City (Indeporte), says 2013 and 2014 were difficult because there was no interest from the private sector to

The economic impact is not the only lasting effect that

support the organization of these events. An effective

sports events have. The organization of different activities

alliance between the public and private sectors was

surrounding the main sports event contributes to the

fundamental in improving the landscape. “I am convinced

creation of social cohesion. “Even for projects such as

that the success we have experienced has been the result

those involving the NFL, NBA or MLB, our vision has

of the joint participation of the government and the

always been to have a broader impact beyond the big

“

private sector,” he says.

We need to find a way to support national professional sports leagues in their efforts to develop athletes and sports events that bolster the development of local communities and contribute economically to the country” Javier Salinas, Executive President of the Liga Mexicana de Béisbol (LMB)

event through the participation of passive spectators,” says de la Vega. As an example, de la Vega points to the associated events that accompany NFL games, such as the NFL Experience, which includes a series of activities for families and a flag football tournament prior to the game. “Our goal is to reach all levels of society through these projects. This contributes to improving social cohesion because it is no longer a matter of being a passive spectator but of actively participating.”

CHALLENGES Although largely successful, the sports industry in the country faces significant challenges, particularly at a local level. Javier Salinas, Executive President of the Liga Mexicana de Béisbol (LMB), says the development and professionalization of national sports leagues and athletes requires support from the authorities. “We need to find a way to support national professional sports leagues in their efforts to develop athletes and sports events that bolster the development of local communities and contribute economically to the

De la Vega says these relationships must be based on

country,” says Salinas. Part of the problem he adds, is that

trust and credibility but they must also encompass an

when it comes to federal funds allocation, foreign sports are

understanding of what the private sector needs. “What you

favored over national leagues.

Salinas says obtaining funds through the sponsorship model is always complicated in Mexico because sponsors demand a

Altius' highline event, Reforma, Mexico City

return on investment that is faster and more quantifiable than before. Adds de la Vega: “It is crucial to understand what our private-sector partners expect from their participation in an event.” Beyond their recreational value, Salinas says pro sports are economic units that fully compete in the entertainment segment. “We play in the entertainment arena, where Netflix, Cinépolis, Disney or the National Auditorium also play. It is an industry that is very diverse and complex.” However, unlike other entertainment options, sports have a real-time component. Raúl Zárraga, Vice President and Managing Director of NBA México, says sports events need to work alongside TV channels to broadcast games, since, unlike other countries, TV viewership is not plummeting in Mexico. “Television is still king when it comes to massifying products.” 275

EVOLUTION OF MEDIA AND ENTERTAINMENT The entertainment market and the media industry have evolved, but also fragmented, says Rodrigo Gómez, CEO of HR Media, citing the arrival of OTT media services such as Netflix, Amazon Prime and similar platforms. “New audiences are emerging, who can consume and produce content through different channels. TV consumption continues to grow steadily and will not disappear but digital media is opening access to content.” Gómez says this change in consumption also reflects a change in consumer attitude. “Today, consumers are no longer passive, they also create content. This does not mean that TV is dying. On the contrary, TV audiences keep growing and people now consume video content in other media besides TV.” The appearance of OTT media services and the subsequent fragmentation of viewership impacts traditional entertainment models like the cinema industry. “Netflix and Amazon are positioning themselves as significant players and are investing in the production and distribution of film content. These platforms are also fighting for the

it comes to entertainment spaces, there is a significant

opportunity to release films on their platform at the same

misrepresentation of national content. “In Mexico, cinemas

time as cinemas, which puts exhibitors and studios at a

are supposed to reserve 10 percent of their screen share for

disadvantage because it takes away the appeal of movies

national movies but this is not clearly defined.” She says the

being premiered at theaters,” says Rogelio Vélez, Director

lack of clarity in the law allows for exhibitors to prioritize

General of Cinemex. Mónica Lozano, Founder of Alebrije

movies premiered rather than screen time, which prevents

Producciones, says that studios must also adapt to the new

Mexican movies from finding an audience. “We believe that

reality generated by OTTs. “We are living in a multiscreen

Mexican movies should be guaranteed at least a two-week run

world … and all the audiovisuals that younger generations

in theaters so these can find their audience.” Achieving this

consume come from digital services,” she says.

degree of visibility for the national industry is of the utmost importance. “We have to understand that this industry also

Mexican content, in particular, has faced a disadvantage in

has an impact on the economy, tourism, foreign relations,

such a competitive environment. Lozano says that when

employment, economic competition and culture,” she says.

| INFOGRAPHIC

MORE THAN JUST FUN AND GAMES With more than 35 international sports events per year, Mexico has become a world-class sports host. Although each event itself is unique and important, NFL games, Formula 1 races and NBA games have done the most to elevate Mexico’s profile on the international landscape and

Mexico City hosted the most international sports events in the country in 2012-2018: F1, Formula E, NBA, NFL, UFC, Liga MX, WWE, Mexico City Stage of the Tour de France, among others HOW IS THE ECONOMIC IMPACT MEASURED?

have become important sources for international promotion. The flawless organization and execution of the Mexico City Grand Prix, combined with a successful promotion strategy, prompted Formula 1 to label the Mexico event, broadcast in 200 countries, as the best race in the global championship.

Direct Impact: Creation of direct jobs, wages and salaries

Indirect: Third-party spending related to infrastructure construction

Induced: Visitors' spending within sports facilities

Sports events averaged 52,000 attendees

276

Since 2015, the Mexico City Grand Prix has been recognized as the best race in the championship by the Federation Internationale de l'Automobile (FIA)

FORMULA

Mexico is the only country that has been awarded this recognition four years in a row

The 2015, 2016 and 2017 editions of the Mexico City Grand Prix generated an economic revenue of over

MX$23 billion,

The Mexico City Grand Prix is broadcasted in 200 countries and in 2017 received 2,400 hours of coverage globally

six times what the government invested to bring the race

The 2017 Grand Prix generated around

8,700 jobs, which accounted for over

MX$1.7 billion in wages

The Mexico City Grand Prix was the most popular sports event in the country with around 330,000 attendees Sources: Indeporte, El Universal, Animal Político, F1 Gran Premio de México, NBA, El Economista.

ECONOMIC IMPACT OF SPORTS EVENTS IN MEXICO CITY (MX$ billion)

Direct multiplying effect of Mexico City sports events

201

2015

Total return for Mexico City

Visitors' expenses in

20 16

2016

2017

Between 2012 and 2018, Mexico City hosted on average 35 sports events per year

20 15

Mexico City sports events

Media value for Mexico City

17 20

In these six years, sports events generated an economic impact in 55 cities totaling over

16 20 5

201

2017 2016

US$5.3 billion

277

2015 0.0

0.5

1.0

1.5

2.0

Mexico has the second-largest NFL fanbase worldwide

NFL games in Mexico result in economic revenue of around

MX$840 million In 2018, the NFL game was canceled due to problems with the stadium lawn, causing the city to lose

For an NFL game, foreign visitors stay 5.5 days and spend

MX$990 million

MX$5,700

in potential revenue

per night in the country

In 2017, 77,357 people went to the game between the New England Patriots and the Oakland Raiders.

9,000 people were from abroad

NBA has organized games in Mexico City for

Mexico has the third-largest NBA fanbase worldwide

over 25 years

NBA

Every NFL game generates 2,840 direct jobs

For the federal government, NFL games generate around

MX$67 million in tax income

According to estimates, around 30 million Mexicans play basketball or Per season, consume NBA there are usually products four games, attracting around

80,000 spectators

| VIEW FROM THE TOP

TRANSFORMING MEXICO CITY INTO A SPORTS CAPITAL HORACIO DE LA VEGA Former Director General of Indeporte

Q: What are Indeporte’s most important achievements of

(US$76.7 million) investment for the Hermanos Rodríguez

the past six years?

racetrack. It is also crucial to understand what our private

A: When my administration started in 2012, we developed a

sector partners expect of an event in which they participate.

four-axis plan for sports in Mexico City: infrastructure, social

We have to organize ourselves so private players can enjoy

sports, high performance and macro events. The first two

the return on investment they expect.

years were difficult because the private sector was not very 278

interested in supporting sports in general. Today, Indeporte

Q: What effort has Indeporte made to democratize access

operates, manages and supports more than 35 international

to sports and to generate social cohesion in Mexico City?

sports events in Mexico City annually. This means that the city

A: We have developed and executed over 32 social sports

hosts an international event on 75 percent of the weekends

projects. These projects include tournaments or leagues

of every year, including Formula 1, Formula E, PGA, LPGA,

that look to attract participants from every neighborhood

WEC, WRC and over 10 World Championships of different

in the city. Even for projects that involve the NFL, NBA

sports. We also have between 450 and 500 local or national

or MLB, our vision has always been to have a broader

events per year, which means that we have over 1.2 sports

impact beyond the big event through the participation

events per day in Mexico City.

of passive spectators. For instance, when we help put on the NFL game, we also include the NFL Experience, which

Q: How have alliances with the private sector and sports

has activities for children and families, and a flag football

organizations influenced Indeporte?

tournament that has 18,000 participants annually. These

A: Developing a close relationship with the private sector

examples are also replicated with the NBA and MLB. Our

helped strengthen Indeporte in the past six years. We

goal is to reach all levels of society through these projects.

are proud that even the smallest event we organized was

There has also been significant growth in the number of

sponsored by at least one brand. If a company or sponsor is

private gyms but we recognize that not everyone can

interested in organizing a socially and economically viable

afford these. As a result, we implemented a project called

sports event, we provide the necessary support for the project

urban gyms. These were established in urban spaces

to happen. We also generate alliances with international

located in public parks, public gyms and lower-income

organizations, such as the NFL, NBA, MLB and UFC.

apartment complexes.

Q: How did Indeporte attract the participation of the

Q: How can the city strengthen its sports infrastructure to

private sector to local and smaller sports events?

ensure durability and accessibility?

A: First, we built a relationship based on trust and

A: There are two types of sports infrastructure: large sports

credibility. If we say we are going to organize one of the

facilities to host major events like the NFL, NBA and other

most important marathons in the world and ask for Telcel’s

professional sports and local infrastructure, which has

support and then fail to deliver on that promise, we would

a more social function but which has been neglected.

lose credibility. What you promise, you need to deliver. It

In 2001, sports in the city were decentralized and local

does not matter if it is a yoga class with 200 participants,

administrations took over management of sports facilities.

the construction of a baseball stadium or a MX$1.5 billion

Some administrations did a fairly good job, invested money and kept their sports facilities in good shape but most local authorities did a poor job and the facilities were neglected.

The Institute of Sports of Mexico City (Indeporte) is a local

What these facilities need is investment; however, this does

institution dependent of the Mexico City government. Its mission

not necessarily need to come from the government. In

is to foster the creation of a physical and sports culture through

most cases, self-generated resources can be reinvested to

coordinated programs between private and public entities

improve the conditions of sports facilities.

VIEW FROM THE TOP |

ATHLETE DEVELOPMENT PROVIDES SOCIAL, ECONOMIC BENEFITS CARLOS PADILLA President of COM

Q: How does COM support Mexican athletes?

between San Diego and Tijuana. The proposal has not been

A: COM supports the development and preparation of Mexican

consolidated but is very well-prepared. One main issue we

athletes and helps with the necessary economic resources

are contending with is finding a quick and less bureaucratic

to ensure their professional growth inside and outside the

way for participants to cross the US-Mexico border, such as

country. We strive to provide all our athletes with the support

a preferential lane or another mechanism to facilitate the

and competencies necessary to prepare for events like the

mobility of athletes.

Central American and Caribbean Games, the Pan-American Games and the Olympic Games, bolstering their chances for

Q: In Mexico, soccer is king, even among big sponsors.

success. This includes providing food, transportation, lodging

What should top brands and big corporations know about

and other necessities. More importantly, COM helps its athletes

investing in Mexico’s Olympic athletes?

develop professional careers outside of sports. We want our

A: It is true that soccer is the most popular sport in Mexico but

athletes to have at least a bachelor’s degree so at the end of

baseball, basketball and others also have solid sponsorship

their athletic career they can continue growing.

agreements. In general, sponsors are mostly attracted to sports that perform well and have good administration.

Q: How does COM work with sponsors and what benefits

COM’s relationship with its sponsors includes the sports

derive from these relationships?

federations that can most benefit from that sponsor, such

A: Sponsors are a fundamental element of the sports

as the Mexican Federation of Athletics Associations, Mexican

movement because they help provide the economic resources

Boxing Federation, Mexican Cycling Federation, Mexican

to support athletes and contribute to their improvement. Our

Judo Federation and Mexican Equestrian Federation.

marketing department promotes COM to attract sponsorship resources but companies and marketing firms also reach

Q: Some people say Olympics success is only measured in

out to us. The International Olympic Committee (IOC) is

medals. Beyond that, what is the ROI of investing in athletes?

in charge of managing top contracts with companies like

A: Mexico’s young athletes are the most important ROI for

Coca-Cola, Atos, Bridgestone, Dow, Intel, Omega, Panasonic,

sports federations, sponsors and the country itself because

Toyota, Alibaba, Samsung, General Electric and P&G. COM’s

their effort and professional preparation benefit society

National Olympic Committee (CON) branch can sign

and bolster the image of Mexico abroad. Because of their

individual contracts with sponsors like Li-Lining and SisNova

training, athletes develop important skills that will later help

that do not overlap with our top sponsors.

them perform to high standards in society, a company or an institution. Throughout their athletic career, they learn

Q: Tijuana, Mexico City, Guadalajara and Monterrey are

to work with discipline, commitment, long-term vision

considered potential Olympics hosts. What makes these

and in teams — all necessary qualities in a professional

cities attractive and what challenges do host cities face?

working environment. This is an important ROI because it

A: These cities have the necessary hotel, sports and mobility

guarantees that the athletes companies sponsor today will

infrastructure, as well as the social stability and security to

later become part of the professional workforce that pushes

host the Olympic Games. There is an ongoing effort to lower

not only the sports industry but also Mexico’s social and

the requirements for Olympic venues to avoid cases such as

economic development.

that in Brazil, where the conclusion of the Games gave rise to social, political and economic problems in the country. IOC is aware of this and it is expected that the requirements for

The Mexico Olympic Committee (COM) oversees the Olympic

future venues will be much more flexible. For example, the

movement and sports in general. It was created in 1923 and

Olympic Charter already establishes the possibility of allowing

oversees participation of Mexican athletes in the Olympics, Pan-

binational venues. To this end, we have a co-hosting proposal

American Games and Central American and Caribbean Games

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| INSIGHT

TAPPING UNEXPLORED BASEBALL POTENTIAL JAVIER SALINAS Executive President of the Liga Mexicana de Béisbol (LMB)

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The Mexican government should provide support for the

Having a deep bag of distribution options gives the

development and professionalization of national sports

league one of the most interesting entertainment

leagues and athletes, which is long overdue, according to

offerings in the market, Salinas says. He acknowledges

Javier Salinas, Executive President of the Liga Mexicana de

that having all these choices might not necessarily mean

Béisbol (LMB). “We need to find a way to support national

a greater number of viewers. Yet, the rules of the game

professional sports leagues in their efforts to develop

have changed and what matters today is not how many

athletes and sporting events that bolster the development

people see the game but how they interact with the game

of local communities and contribute economically to the

and the brands surrounding it. “Through our Facebook

country,” he says.

transmissions, we have been able to reach international markets such as the Czech Republic, Germany, France,

According to Salinas, funding should focus on home teams

Italy, the Netherlands, South Korea, Taiwan, Japan and

rather than spending federal resources on attracting foreign

parts of South America. We would not have this reach

leagues for one-off events. “We have to ask ourselves

through television,” says Salinas.

this question: What type of sport do we want? Mexican professional sports have a great value; they generate jobs

Professionalization also comes through new sponsorship

and identity. The government needs to realize this.”

models, which for Salinas is a complex issue. Dynamics of sponsorship have changed, with sponsors demanding a

Professional sports are more than recreational organizations;

return on investment that is faster and more quantifiable

they are multifaceted businesses that compete against

than before. “Mexican baseball is a great product. It is

recognized names in the entertainment segment. “We play

played at a high level and has great potential. It is the

in the entertainment arena, where Netflix, Cinépolis, Disney

fourth-best league in the world and the national baseball

or the National Auditorium also play. It is an industry that is

team is ranked fifth. The product is done, we just need to

very diverse and complex,” he says. “Traditional businesses

deliver it correctly to our sponsors.” To make the product

have defined targets and profiles but we have to find a way

more attractive, Salinas implemented changes that divided

to communicate to the entire public, which encompasses

the regular season into two to make it more dynamic and

everyone from children to seniors.”

competitive and to generate more hype around the playoffs, providing more value for fans, media, sponsors and teams.

Given that broad demographic, an extraordinary degree of

The efforts have paid off and the league increased its

professionalization is also required. Salinas says for the LMB,

income 400 percent year on year in 2017.

this means more than having a marketing strategy. “When you talk about professionalization, everybody says marketing.

Although the LMB might not attract the attention that

However, for us, a professionalization strategy is 25 percent

other sports like soccer receive in the country, Salinas says

marketing and 75 percent structural topics such as operations

baseball has a larger impact than some might realize. “On

and organization.” LMB has a comprehensive media strategy

a yearly basis, a total of 5 million fans visit our stadiums,

that includes video production of 100 percent of the league’s

while only 3.9 million fans go to soccer games. We are

games. “We have a significant segmentation for different

present in 13 states, meaning that we reach around 76

media outputs that obeys to a very modern segmentation of

million people and we have teams in eight of the country’s

audiences.” The league’s plan includes broadcasting games via

10 most important cities, including Monterrey, Mexico City,

open and cable TV; LMBtv, an online platform that broadcasts

Tijuana, Puebla, Merida and Cancun.” Salinas adds that

all games; Cinépolis KLIC and social media platforms such

although the league is focused on strengthening its 16

as Facebook and Twitter, where LMB became a pioneer by

teams, several cities and businesspeople have voiced their

broadcasting through these platforms.

interest in acquiring an LMB franchise.

INSIGHT |

LOCAL TENNIS ORGANIZATION TARGETS THE SPOTLIGHT RAÚL ZURUTUZA Director General of Mextenis

Unlike soccer, boxing or baseball, tennis has not achieved

Zurutuza says having two ATP World Tour franchises

mainstream popularity in Mexico. Introduced to the country

places the country in a privileged position, although the

by the British in the late 19th century, the game evolved as

ATP’s franchise structure makes it unlikely for Mexican

an elite sport. Raúl Zurutuza, Director General of Mextenis,

tournaments to enter the Masters 1000 level. “There

believes tennis is now ready to hit another level. “The

are only nine Masters 1000 franchises, 13 ATP 500

expectations and desire to see tennis are there, we just

tournaments and more than 30 ATP 250 tournaments,”

need tournaments that are attractive enough. We are in

he says. “The best way to understand it is to imagine

the business of creating spectacles and events must be

tournaments as cars. If you want to drive one of those

in place for about five years to become a permanent part

cars, someone has to get out. No city wants to give up

of people’s schedules. It is hard but we are getting there.”

their spot at the Masters 1000.”

Mextenis is the organization owned by Grupo Pegaso

Still, the tournaments in Acapulco and Los Cabos position

in charge of organizing the Abierto Mexicano Telcel

the country in the global ATP Tour and although both

presentado por HSBC (Mexican Tennis Open Telcel

tournaments are owned by Grupo Pegaso and share some

presented by HSBC) in Acapulco and the Abierto Mexicano

characteristics, each one has its own identity. “Los Cabos

MIFEL presentado por Cinemex (Mexican Tennis Open

and Acapulco are two separate business units with their

MIFEL presented by Cinemex) in Los Cabos, as well as the

own history and their own characteristics. We work to make

CDMX Open Challenger tournament.

sure each tournament works in a different way, although both sport the Pegaso seal,” Zurutuza says.

One hurdle to growing the sport is the operational side of the international governing organization ATP, which oversees the

Although tennis is not among the most popular sports

ATP World Tour for professional men’s tournaments (WTA

in the country, Mextenis has made significant progress

organizes the women’s schedule). “ATP works through

to position the tournaments in the market. The Acapulco

franchises or properties,” Zurutuza says. “It is possible to buy

tournament, for instance, is a clear example of growth.

a Masters 1000, a World Tour 500 or 250. The problem is that

“We have been doing this event for 25 years and it is now

these franchises are limited and if somebody is interested in

consolidated. In 2018, we sold 90 percent of the tickets

buying one, they must wait until an owner no longer wants

in less than two months,” Zurutuza says. However, its

it.” The Masters 1000 series of tournaments are the third-

importance lies not only in the number of sold tickets but

highest tier of men’s ATP World Tour tournaments after

in what it means for the state and the city in economic

the Grand Slam events and the ATP Finals. Mextenis has

terms. “The week of the tournament represents the

participated actively in the purchase of these properties,

second-most important week in terms of economic income

positioning Mexico as a destination for tennis players.

for the city. We believe that Los Cabos will experience a similar dynamic in about four years.”

Mextenis, under the umbrella of Grupo Pegaso, acquired the country’s first franchise in 1992, which would later

Zurutuza adds that it is hard to place a specific monetary

become the Mexican Tennis Open Telcel presented by

value on the tournaments. “In general, the value of an ATP

HSBC tournament. After almost four years of searching

500 franchise averages US$10 million to US$12 million but

for an additional franchise, three years ago the company

this value changes depending on where in the calendar it

acquired the rights to what would become the MIFEL

is placed. For Mexico, the value of this kind of tournament

tournament. Starting in 2018, Mextenis also participates in

is much higher than that. It is a tournament with a lot of

the organization of a tournament that is part of the ATP

history that allows us to sell an image that we could not

Challenger Tour: the CDMX Open.

sell differently."

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| INSIGHT

50 YEARS OF FAITHFUL FOOTBALL FANDOM ARTURO OLIVÉ Director General of NFL Mexico

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The US National Football League (NFL) officially returned

When it comes to broadcasting games, Olivé says Mexico is

to Mexico in 2016 when the Oakland Raiders beat the

a leader, surpassing even the US. “We have the largest TV

Houston Texans 27-20 in the first regular season game

broadcasting on a national level. In the US, some games are

in the country since Mexico hosted the NFL’s first

only broadcasted regionally but in Mexico the nine games

regular season game outside the US in 2005. According

that are televised have national coverage.” TV coverage also

to Arturo Olivé, Director General of the NFL Mexico,

implements what is called the “NFL Red Zone,” in which the

the 2016 game was the result of years of hard work to

broadcaster shows the best plays from every game. While

transform Mexico into a profitable market, a goal that was

this does not attract diehard fans, Olivé says the segment

achieved by creating customized solutions. “The Mexican

works perfectly for those who are just getting to know to

and US markets are different and the way you sell and

the game. “Some traditional fans complain that with this

commercialize the brand is different.”

modality they cannot watch the entire game, but in general we have had positive results and TV Azteca’s ratings have

A clear example relates to licensing and merchandising,

gone up as a result.”

which in the US can be applied to specialized products like medical scrubs but in Mexico needs to be targeted to

Although TV broadcasting still attracts the biggest

a broader population to guarantee profitability. “We have

audience, Olivé says the NFL is exploring new channels to

chosen to develop local suppliers to generate products

reach even more people, such as “NFL Game Pass,” a pre-

at an accessible price for the base of the social pyramid

paid service that allows users to watch the game they want

and we help them reach retailers, such as Walmart, sports

on the internet. “We need to make the NFL more accessible

retailers and convenience stores. For the area of licensing

through different devices. This forces us to generate high-

and merchandising to be successful, we need to find ways

quality content rather than niche content.”

to bring the products to the customer.” Olivé says a key element to creating a successful brand Access to official merchandising is just part of the business

such as the NFL is also having commercial partners

equation, which in Mexico has four variables: media

to cover distribution. In Mexico, this is done through

and marketing, sponsorships, merchandising and fan

traditional products like beer and cars but also applies

development. Making Mexico the No. 1 NFL fanbase outside

to other nontraditional sponsorships, such as milk and

the US has been a team effort, says Olivé. “The success of

dairy. “A few years ago, some of our partners told us that

the NFL in Mexico is the result of joint efforts of all those

they were paying us because we were the NFL but that

involved, from the government, to TV stations, airports and

their participation did not translate into additional sales.

people within the organization.”

Fortunately, this has changed. Today, we are partnered with 25 companies for 35 official NFL products and we have

American football is not new to Mexico, which is

positioned ourselves as a useful tool for them in terms of

traditionally a soccer country. “Football has been played

sales and promotion.”

in Mexico for more than 100 years and the country has been a faithful supporter of the NFL for almost 50 years.

The success of the NFL games held in Mexico City is just

It is a sport with a long tradition.” However, Olivé says

the tip of the iceberg and reflects all the hard work done

that gaining recognition within the NFL has also been

in the country to create a healthy and sustainable business

a feat in itself. “The NFL has been selling broadcasting

ecosystem that is beneficial for everyone, says Olivé.

rights to Televisa and TV Azteca for over 40 years but

“Holding games in Mexico City is an example of the trust

it was until 1998 that they decided to open an office in

the organization has in us. For the NFL it is just one game

Mexico City.”

but for Mexico it is an opportunity that cannot be missed.”

INSIGHT |

WANTED: FORMULA THAT TURNS CURIOUS FANS INTO CORE SUPPORTERS RAÚL ZÁRRAGA Vice President and Managing Director of NBA Mexico

In Mexico, only soccer outranks basketball in popularity and

It is not the NBA’s intention, however, to compete for fans

the local representative of the National Basketball Association

and viewers of other sports, Zárraga says. He acknowledges

(NBA) says the key to even greater success is to turn fans into

that there might be more hype surrounding NFL games and

consumers. “When it comes to team sports, basketball is the

the Formula 1 in Mexico City, for example, but there is good

second-most popular sport in the country. Our priority is to

reason for that. “After 25 years of games in Mexico City,

maintain this popularity and translate it into consumption for

having regular season games in the country has become

the NBA and its partners,” says Raúl Zárraga, Vice President

rather normal and the noise that surrounds us is different

and Managing Director of NBA Mexico.

than that surrounding these events that had not been in the country for several years. If we consider the total

Zárraga estimates there are 30 million Mexican fans that

attendance at our four games, we attract around 80,000

either play basketball or consume NBA content by either

fans to Arena Ciudad de México, which is equivalent to the

buying products or watching games on TV. NBA categorizes

spectators that the NFL game attracts.”

its fans in three blocks: curious, casual and core. “Our task is to find a formula that turns curious fans into core supporters.”

In addition to promoting NBA games, Zárraga says it is equally important to encourage the creation of talent for the NBA in

The country’s established fan base and the game’s success

Mexico. “If we want the market and consumption to grow, we

here has made Mexico a priority for the NBA. “Although

have to generate a basketball ecosystem that makes sense.

the Mexican market might seem much smaller than others,

That is why we have set up different platforms like the NBA

Zárraga says there are several factors that make Mexico a

Academy, which is a platform for inorganic growth.” The NBA

priority. “Population, market size, the number of people

Academy is an elite basketball training center located within

playing basketball, closeness to the US and a history of

CONADE’s basketball academy. It hosts 12 players: seven

regular season NBA games in the country make Mexico

Mexicans and five from other Latin American countries. “The

important for the organization.”

Academy’s players travel to other countries to compete, all financed by the NBA. The idea is to generate elite talent for

As in any sport, developing a broader market and fanbase

the association,” says Zárraga. It is an ambitious goal; only

depends heavily on access. For that reason, Zárraga focuses

four Mexicans have ever played in the NBA. Jorge Gutierrez

NBA Mexico’s efforts on the creation of content. “Our strategy

was the last, having been cut by the Brooklyn Nets prior to

includes broadcasting through three main points of contact:

the 2017 season, according to NBA.com.

open and cable TV and mobile carriers. We also have the NBA TV option, which allows users to watch content on

Zárraga says the NBA is considering setting up a farm team

the internet.” Unlike other countries where TV ratings have

in Mexico to capitalize on the sport’s popularity and develop

declined, Zárraga says in Mexico television continues to play a

local talent. “We are analyzing the possibility of creating a

major role. “Television is still king when it comes to massifying

G-League team, which is the NBA’s development league.

products. Televisa is our partner for broadcasting games on

Around 50 percent of NBA players drafted in the first round

open TV and ESPN is our ally for cable TV transmissions,

come from a G-League team,” he says. Although there are

broadcasting up to eight games per week.” The creation of

still several financial details to iron out, Zárraga believes

content, both for TV and digital media, is integral to NBA

having a G-League team could be a precursor to establishing

Mexico’s business development strategy. “Content is sold to

an NBA team in Mexico. The idea is not without precedent as

sponsors and advertisers but this only works if there is an

hockey’s professional league, the National Hockey League,

audience. The only way to have an audience is to have great

has teams based in both Canada and the US. Until that day,

content.” Content is also NBA’s best tool for competing with

Zárraga says NBA Mexico will continue with its mission:

other entertainment activities, Zárraga adds.

bringing NBA content and products to the Mexican people.

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| INSIGHT

OPPORTUNITIES IN SPORTS GO WAY BEYOND SOCCER MAX NOGUEIRA Director General of Play Marketing

Mexico is a major consumer of soccer, from local Sunday

The industry also needs to understand how to sell to the

matches to the World Cup, but this singular focus masks

private sector and how to offer a business plan. It is about

the fact that other sports also attract large audiences in

aligning priorities and resources.”

the country, suggesting major untapped potential in terms

284

of marketing, says Max Nogueira, Director General of Play

Helping to build a brand communication strategy and

Marketing, a sports marketing agency. “Unfortunately, in

business plan is where Play Marketing comes in. “We need

Mexico we have soccer and then all other sports. But it is

to find a way to communicate and convince both sports

precisely in those other sports where we see the greatest

clubs and businesses of the importance of having a solid

opportunity.”

business plan and then deliver results,” says Nogueira, adding that the company has already tackled this challenge.

As big as the soccer industry is in Mexico, Nogueira believes

“Our work with the Mexican Golf Federation is one example

other sports, such as running or basketball, could make a

of our success. We helped to develop the brand and to put

greater dent if they move beyond their amateur status and

it in the minds of potential sponsors.” Nogueira also believes

develop the professionalization and investment required to

that part of the issue lies with a company’s approach to

reach the next level. The growing fanbase of the National

sponsorship dynamics. “One of the main problems with

Football League (NFL), for example, is a testament to the

sponsorships is that businesses do not see tangible results

potential waiting to be unlocked. “There is a lot of potential

from their participation. Many people still believe that what

in other sport niches. These may not be as big as soccer

matters to sponsors is how many people they reach through

but they are still worth exploiting,” he says. Play Marketing

a TV ad and that is not true. What matters is how people

is targeting these niches through its business lines in areas

interact with the brand.”

such as logistics and event planning, sports as a lifestyle, public relations, sponsorship management and the use of

Another hurdle for other sports in Mexico is soccer’s

sports as a means of wellness within organizations.

popularity. “Soccer has become the yardstick of success for every other sport, which puts them in a very difficult

Nogueira says the relationship between sporting federations

position since they are not able to compete with it. That

and the government is one factor that is holding back growth.

is why many sports in Mexico would rather retain their

“The lack of transparency in the use of private and public

amateur status.” While there is no easy solution, Nogueira

funds in some national sports federations is preventing growth

says other sports need to focus on keeping their current

because it generates distrust within the private sector and

fanbase and strive to obtain new fans by offering different

keeps it from investing more in the development of national

value propositions. “Sports should be more proactive when

sports.” Greater professionalization, he says, can help deliver

it comes to their offer. They should look for ways to attract

concrete results for sponsors and the business community. “If

more people to stadiums, even if they are not regular fans.

we could produce measurable results for sponsors, it would

Those who attend the games should feel that they left the

not be so difficult for professional sports federations to find

stadium with the best possible experience because this

more resources. That would generate a win-win situation for

leads to more fans and more resources.”

everyone: sports, athletes, the business community and fans.” Despite the challenges, Nogueira is confident that Play To reach this goal, two elements are required: commitment

Marketing can make an impact on the industry. “We have

and communication. “Clubs, federations and sports

a found a way to make sport itself our client. The industry

institutions must commit to the development of sports.

still lacks much in terms of growth and professionalization

Whenever they have the resources, they should invest in

but instead of looking at the downside, we treat it as the

people with experience and talent to develop the sector.

great opportunity it is.”

INSIGHT |

ALTERNATIVE SPORTS AN INNOVATIVE PATH TO TOURISM ERNESTO RIVAS Co-founder and Director General of Altius Events

Mexico is among the most visited countries in the world and

Altius Event is recognized for organizing events with high

its tourism industry is economically strategic, accounting

media impact and for working with large organizations,

for 8.7 percent of national GDP, according to the OECD.

such as Televisa, ESPN, Discovery Channel and TV Azteca,

To maintain this growth pace, the industry needs to

to guarantee customers a greater return on their investment.

diversify to continue competing with other major tourism

“One of the best events we organized took place in Puebla,

powers such as France, the US and Spain, says Ernesto

where we combined a concert by the band Café Tacuba and

Rivas, Co-Founder and Director General of Altius Events, a

a book-style motocross competition. This type of mixture

company that promotes Mexico through the organization

helps to reactivate tourism and creates opportunities in

of innovative sports events and marketing strategies. “Altius Events was founded 17 years ago with the purpose of marketing the country in a different way,” says Rivas. “The idea is to demonstrate how alternative sporting events and innovative forms of entertainment can improve the country’s image abroad. We work with the best athletes in the world and everything we organize is designed to popularize Mexico.” Altius Events, a 100 percent Mexican company, puts worldrenowned athletes in attractive natural and urban spaces

“

places that need it,” says Rivas.

The idea is to demonstrate how ... innovative forms of entertainment can improve the country's image abroad”

The 2018 Tourism Highlights Edition published by the World

to create sporting challenges that make a difference,

Tourism Organization (WTO) puts France as the most visited

says Rivas. According to the Ministry of Tourism, sports

country in the world with 86.9 million arrivals, followed by

tourism has become a catalyst to position Mexico abroad.

Spain with 81.8 million, the US with 76.9 million and China

In addition, it has also had a significant economic impact

with 60.7 million. Mexico ranks sixth with 39.3 million visitors.

in cities and states that host events. The sports and entertainment industry in Mexico is small Former President Peña Nieto’s National Development

compared to other countries but Rivas believes Altius Events

Plan (NDP) 2013-2018 focused on economic development

has revolutionized the way sports and entertainment are

through strategic areas that included tourism. The plan

synchronized. “The work of Altius Events is not limited to

emphasized the possibility of creating better economic

organizing world-class events; we also focus on promoting

opportunities, jobs and market diversification through

Mexican athletes and having them compete at an international

tourism along with the preservation of natural resources

level. We believe this is the best way to promote Mexico’s

and the promotion of Mexico’s cultural wealth. Altius Events

image inside and outside the country,” he says.

saw an opportunity to work in close collaboration with the government to organize world-class events in places that

Mexico has a unique tourism potential, since the country

have traditionally been left out of the mainstream tourism

is perfectly positioned in different types of destinations:

circuit. These events are reported to the general public

sun and beach, cultural tourism, ecotourism and adventure,

using social networks and the latest video technologies.

health tourism and cruises, among other segments. Although

“We try to bring together the best elements from everything

the international expansion of Altius Events is a possibility,

we are. Altius Events’ commitment is to create quality

the company wants to keep Mexico as its central objective.

content to maintain our excellent position at a national and

“All Altius events were created to publicize Mexico and we

international level,” Rivas says.

want to continue doing it in our own style,” says Rivas.

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| VIEW FROM THE TOP

TECHNOLOGY RAISES STAKES FOR SPORTS BETTING EMILIO HANK President and CEO of Grupo Caliente and Caliente Interactive

Q: What opportunities in the entertainment sector led to

industry in terms of market share. We want to grow our

the establishment of Grupo Caliente?

brand’s presence and become the Telcel of online betting.

A: Online sports betting has a long history in Europe.

286

England implemented online betting in late 1999s and

Q: What strategies is Caliente Interactive implementing to

early 2000s, which spurred the creation of many betting

increase its presence in the online betting market?

companies. Mexico, however, was not ready at that time

A: At this point, the most popular sports for online betting

for the introduction of online betting, as e-commerce had

are soccer, baseball and boxing, with tennis, basketball and

little penetration due to the low bandwidth in the country.

American football fighting for fourth place. The first step

As e-commerce evolved and the bandwidth infrastructure

to grow this market niche was to familiarize Mexicans with

improved, the conditions to introduce online betting

soccer bets. In 2014, most sports betting done in Mexico

consolidated. Companies launched online betting products

focused on sports played in the US. Now, betting on Mexican

in Mexico as early as 2009 but these still performed poorly.

soccer games is part of the mainstream so we are focusing

It was not until 2014 that we deemed it appropriate to

on other sports like baseball by allying with Liga Mexicana del

launch Caliente Interactive, which was quickly adopted

Pacífico (LMP). We will focus on baseball in 2019 and gradually

thanks to Mexicans’ love for sports.

incorporate other sports, including basketball and boxing.

Q: How could regulatory conditions improve to foster the

We invest in advertising to generate traffic to the

legal development of this business niche?

webpage. Once clients are there, our strategy is to keep

A: We estimate that about 50 percent of the online betting

a good relationship with them through a good customer

market in Mexico is illegal. Some companies do not pay

relationship-management platform. We invest in providing

taxes and might be taking advantage of minors. The sector

our clients with a personalized experience and offer them

needs a new law that regulates online casinos and it is

the products they like. It is all about knowing our users

necessary for authorities to work together with certified

and for them to see online betting as entertainment, not

companies to develop it. There are many strategies to tackle

an addiction. We are working with regulators to ensure

illegal gambling, but I believe the most effective will be for

this is a healthy industry that promotes the development

the Ministry of Communications to block access to online

of Mexico’s sports industry and does not generate social

pages that promote or take part in illegal gambling.

problems. Caliente Interactive has even incorporated a system to protect users, blocking or regulating their

Q: How big is the Caliente Interactive business within

account when we feel they might be overusing the systems.

Grupo Caliente and what are your strategies to keep

We also channel users who fear their gambling is becoming

growing its importance?

a problem toward professional care institutions, so they can

A: Caliente Interactive represents between 35 and 40

receive treatment.

percent of Grupo Caliente’s revenue. We expect this rate and our number of users to increase by 40-50 percent in

Q: How can Caliente Interactive create value for its

2019. Caliente Interactive has a 10-year plan to consolidate

partners, such as LMP?

the company as the leader of the Mexican online betting

A: Betting goes hand in hand with the sport itself. For that reason, we work together with sports associations and teams to create more entertainment options for fans.

Grupo Caliente is a Mexican company with almost 100 years in

Through bets, it is possible for fans of a specific team to

the entertainment sector. The company has several casinos in

show interest in other teams, even if their favorite is not

Mexico and 12 countries in Central and South America and has

playing. Our strongest allies are our sports partners, without

developed a platform for online betting called Caliente Interactive

whom we would not be able to provide these services.

VIEW FROM THE TOP |

TECHNOLOGY, METHODOLOGY CRUCIAL TO TRANSCEND MEDIA RATINGS RODRIGO GĂ&#x201C;MEZ CEO of HR Media

Q: HR Media specializes in measuring TV ratings. How do your

voice or video. We discovered a strongly developed market

team and methodology make a difference for your clients?

in South Korea that uses a people meter that incorporates

A: HR Media focuses on two key areas: providing the industry

Israeli technology. This technology makes automatic audio

with total transparency by publishing all our information

signature matches, similar to Shazam, and can recognize any

on the Internet and reinforcing the methodology and

audio from Mexican open TV channels, paid TV channels and

technology that allows us to innovate the way in which

other video digital content, such as Netflix, Blim or others,

TV content is measured. HR Media breaks with traditional

which helps us report on more than 400 channels. 287

media classifications; we measure all content, whether broadcast on TV, streaming or multiplatform.

Q: What changes has HR Media observed in the way in which TV is consumed in Mexico?

HR Media is strongly positioned in the industry with a

A: Consumers are no longer passive; they create content.

broad geographic coverage and customer base. We work

We recognize that audiences are fragmenting and have

with two of the biggest TV broadcasters in the country,

more devices to access video content. This does not mean

some agencies, advertisers and all public TV channels. The

that TV is dying; TV audiences keep growing but people

company has carried out projects that have generated good

now consume video content through other media. HR Media

results with a national impact but also with an international

recognizes this new reality and our technology measures

one, which has made companies from other countries in the

TV content and online TV streaming as well.

region want to collaborate with us. Our vision is to become the No. 1 company in the country for audience measurement.

Q: HR Media offers services related to audience measurement, ad spend monitoring, program monitoring and ad hoc

Q: How does HR Media validate its measurements?

studies. How do potential clients benefit from these?

A: The measurement industry requires a solid methodology

A: Television Audience Measurements, our Ad Spend

to be able to project reliable figures and reveal useful

Monitoring Service and Program Monitoring Services are

information. HR Media has validated its methodological

complementary measurements and our Ad Hoc Studies

framework with sampling experts from ITAM and the

are for more specific purposes. Large TV companies,

University of Southampton, as well as other statistical entities,

media agencies and advertisers seek solutions that

such as the Research Institute in Applied Mathematics and

include all these services, while smaller companies and

Systems (IMAS) and the Media Research Council (CIM). We

public channels can benefit from our Ad Hoc Studies. HR

also got support from the Media Rating Council (MRC),

Mediaâ&#x20AC;&#x2122;s software allows our customers to receive real-

a US-based media auditing Council, and through 3M3A,

time information about the full multimedia performance

an international media audience auditing company that

of their channel. For example, through our software, TV

evaluated our technology, statistical methodology, the

Azteca and Multimedios can know how many people

composition of our audiences, sampling and other media

are watching their soap operas, the sociodemographic

components. We have been congratulated for the quality

profile of the audience, how much time people spend

of our sample study that includes 81 percent of the total

watching these programs and from which channels they

urban population in Mexico.

reach the program.

Q: What is the differentiating value offered by HR Mediaâ&#x20AC;&#x2122;s technology?

HR Media is a media research center specialized in television

A: After strengthening our statistical methodology, we

audience measurement. It collects and processes video content

looked for the best technology to measure the media market

information to produce data on ratings, reach, frequency and

passively, automatically and with automatic recognition of

composition of audience

| INFOGRAPHIC

PRIME-TIME ENTERTAINMENT

AVERAGE TICKET PRICES AND

With 129 million inhabitants, Mexico is the perfect country for developing and promoting entertainment options.

MEXICAN’S AVERAGE ANNUAL MOVIE VISITS CINEMA ATTRACTIVENESS AND COST IN MEXICO 55

Cinema, TV and OTT media services have found the country a prime location for business development. In particular, the cinema industry has bloomed in Mexico, with the country ranking fourth for most movie screens and most tickets sold. Although demand for OTT media services has increased in the country, TV audiences also continue to grow, proving that screen-based entertainment remains a profitable business in the country.

2016

2017

Ticket price (MX$)

2018

Average annual visits to cinemas

Average ticket price 2018

288

2018Per Habitant Average Visits

2017

2017 81

33 2

16.

BOX-OFFICE INCOME IN MEXICO (MX$ billion)

2016

TICKETS SOLD AT BOX OFFICE (million)

2016

400

300

200

331

100

15.25

296

13.79

2015

In 2018, there was a 1 percent increase in box-office revenue, even though ticket sales fell by 4.6 percent. This was caused by a 5.8 percent increase in the average price of

11.9

2013

7 25

2014

25 7

movie tickets

0 .0 12

2014

2013

Avengers: Infinity War was the largestgrossing movie at the Mexican box office in 2018 with MX$1.1 billion, followed by The Incredibles 2 with MX$749 million and Jurassic World: Fallen Kingdom with MX$692 million Sources: CANACINE, HR Ratings Media

TOP 3 MEXICAN BOX-OFFICE HITS IN 2018

MX$5.91 billion

Total revenue of Top 10 foreign films in Mexican cinemas

Name

Box-office revenue (MX$ million)

Attendees (millions)

Ya veremos

197.7

4.1

La boda de Valentina 159.1

3.3

Una mujer sin filtro

2.1

103.5

Total revenue of Top 10 Mexican films in Mexican cinemas

1,300

1,200

1,100

1,000

900

800

2013

2014

——Attendees Revenue

2015

2016

2017

2018

700

—— Share of Mexican films from total box office revenue

TOP 5 COUNTRIES WITH THE MOST MOVIE SCREENS (2017)

China 59,026 US

40,575

India

9,523

Mexico

7,106

France

5,991

On average, 7 out of 10 Mexicans watch TV for over 5 hours per day

Top 10 countries with the most tickets sold annually (million)

Position

Percentage

1,400

WHO ELSE LOVES GOING TO THE MOVIES? (2017)

MX$ million

Million

INCOME VS AUDIENCE OF MEXICAN FILMS AND CONTRIBUTION OF MEXICAN FILMS TO TOTAL BOX-OFFICE REVENUE 35

MX$890.6 million

1,978

India

1,749

China

9,155

1,206

Japan

2,094

332

Mexico

1,724

223

Russia

India

1,583

222

South Korea

1,581

200

France

1,501

178

Japan

Germany

1,108

176

Russia

984

163

Brazil

Australia

954

Top 10 countries by box-office revenue (US$ million)

11,079

289

Mexico ranks 11th with a total box-office revenue of US$884 million

48%

People with

of people in Mexico City, Guadalajara and Monterrey have at least one TV with cable

cable watch 34 minutes more TV per day than those without it

HOW DO WE WATCH TV?* (million people) VIEWER DAILY AVERAGE 0

120

160

200

Canal de Las Estrellas

16.8 Open TV

7.8 7.1 Cable TV

Other devices

Azteca Uno Imagen TV Distrito Comedia Fox TNT YouTube Netflix

0 * Daily average

Million people

Minutes spent watching

| VIEW FROM THE TOP

INNOVATION DRIVES THE MAGIC OF CINEMA ROGELIO VÉLEZ Director General of Cinemex

Q: What characteristics differentiate Cinemex from its

having a large number of movie theaters, does not have

main competitors?

the kind of cinema complexes that exist in Mexico. Our

A: Cinemex has been innovating and improving the

US operations include 37 cinemas and about 400 screens.

cinema experience through comfortable facilities, state-

We are positioning the company as the most exclusive

of-the-art technology and a very high-quality service.

brand in the US exhibition industry.

The cinema exhibition industry has two strong players 290

that hold more than 95 percent of the market. Cinemex

Q: How does Cinemex apply the concept of innovation

ranks second in Mexico and is a strong ally for those

to its cinematic experience?

service providers who support our offering. Cinemex is

A: Beyond the comforts and services provided, exhibitors

a consolidated exhibitor with presence throughout the

can innovate with the audio and video technology and

country. Our strongest foothold is in Mexico City, which

the type of room. Cinemex offers 2D, 3D and 4D rooms

is the most important market for the company in Mexico

with IMAX video quality and Dolby Atmos audio. Laser

by far. Cinemex’s motto is “The Magic of Cinema” and we

projection is the latest revolution in cinema, as it offers

deliver this through the combination of technology and

deeper blacks, brighter colors and a sharper image.

high service standards.

The next step for Cinemex is to offer rooms with laser projection. In addition, we want to continue involving the

Q: How has Cinemex improved the entertainment

viewer in the cinematic experience thanks to our surround

experience?

sound and 30,000W of power.

A: Cinemex offers several entertainment concepts aimed at different types of audiences. Our Platinum

Q: What impact do stream platforms have on Cinemex’s

theater offers seat-side service and more spacious and

activities?

comfortable seating. In our Premium theaters, the public

A: Netflix and Amazon are positioning themselves as

can enjoy a comfortable armchair and an extensive

significant players and are investing in the production

offering of sweets. In addition to movie theaters,

and distribution of film content. These platforms are

Cinemex offers a wide variety of venues that range from

also fighting for the opportunity to release films on

showrooms to concepts like Alboa and Arena. Alboa is an

their platform at the same time as cinemas, which puts

entertainment space that features elements like bowling

exhibitors and studios at a disadvantage because it takes

and other games, sports bars and restaurants. Arena

away the appeal of movies being premiered in theaters.

offers videogames and targets the millennial generation.

As a result, it is important for the exhibition industry

Given everything we offer, Cinemex can be a strong ally

and studios to maintain adequate viewing windows

to developers of shopping centers.

at theaters before releasing the content on streaming platforms.

Q: Why did Cinemex choose to expand to the US and what advantages does it see in that market?

Q: What are Cinemex’s midterm goals?

A: Today, Cinemex has 332 complexes in Mexico. Last year,

A: Cinemex will continue with its expansion nationally

we began operating in the US. The US market, despite

and internationally. In Mexico, we want to increase our presence in those urban areas where there is not enough offer. However, the US is where we see the opportunity

Cinemex is a Mexican company founded in 1995. It is the

for expansion, given the demands and conditions of

seventh-largest cinema chain in the world thanks to more than

the industry in that country. In the mid and long term,

332 complexes and 2,851 screens in Mexico. Its products include

we want to expand to other countries and grow our

3D and 4D cinema, Cinemex Platino and Premium Cinemex

entertainment concepts like Alboa and Arena.

VIEW FROM THE TOP |

LEGAL MODERNIZATION KEY STEP FOR MEXICAN CINEMA MÓNICA LOZANO Founder of Alebrije Producciones

Q: In some countries, the law imposes a national content

A: The current law is almost 20 years old and in my opinion

share on cinemas. How does this model work in Mexico?

is obsolete and cannot regulate the market. The country

A: In Mexico, cinemas are supposed to reserve 10 percent

needs a new law that should be developed transversally.

of their screen share for national movies but this is not

We have to understand that this industry also has an

clearly defined. The law needs to be more precise and

impact on the economy, tourism, foreign relations,

ensure that exhibitors deliver 10 percent of screen time at

employment, economic competition and culture.

all cinemas on every day of the year to national movies. The important element is time on screen, not just the

In terms of ticket sales, Mexico is the fourth-largest

number of movies premiered. The law needs to be clear

market in the world. We are the 11 th-largest economy

so everyone understands it refers to 10 percent of total

when it comes to cinema revenue, the second-largest

screening time.

in terms of Netflix subscriptions and we consume per capita a larger universe of audiovisual content than

The Mexican Academy of Film Arts and Sciences has been

other countries. The difficulty we face is that the overall

working for the past five years to define what should be

population’s purchasing power is not high enough to

done about it. We have created a document in which we

access these entertainment options. That is why we

deliver our recommendations, including a modification of

insist on the need to change the model. The arrival of a

the Federal Law of Cinematography. We need a global

new federal administration provides a great opportunity

law that covers all audiovisual materials, not just cinema.

to implement this change. It is important to prioritize

The modification of certain articles in the law would give

national content.

cinemas a clearer idea of how to demarcate their screen time to Mexican productions. We believe that Mexican

Q: What are Alebrije Producciones’ main funding sources

movies should be guaranteed at least a two-week run in

and how can the industry attract greater investments

theaters so they can find their public. It is important to

from funds or private investors?

note that some movies have their own niche, they are not

A: Unfortunately, in Mexico, experience is not rewarded. In

all mass-marketed. On average, a blockbuster film occupies

the same way that we need to allow the development of

between 70 and 80 percent of screens, which prevents

new talent, we must also allow experience to consolidate.

plurality and diversity.

We have been fortunate that over 20 years, Alebrije Producciones has gained legitimacy. Some of our teams

The government also needs to work on creating a global

have been very popular, we have received recognition

audiovisual ecosystem where cinema and public TV work

from the academy and we have made movies that have

together. Countries like France have established similar

had an impact at foreign festivals. This legitimacy is

systems where cinema and audiovisual industries are

attractive to the different investment funds that want to

considered a strategic activity for the country. This system

collaborate with us. Having a good record, guaranteeing

ensures that around 5 percent of public TV advertising

the investment of those that participate with us and

revenue is allocated to the production of national and

transparency in resource management has allowed us

independent films. Another proposal is to provide incentives

to obtain a good reputation and to solidify our position.

to movie theaters that surpass the 10 percent quota and achieve 35 percent. Such incentives would motivate others to follow suit. This is how audiences are created.

Alebrije Producciones is a Mexican audiovisual production company that emerged from what used to be Altavista Films in

Q: What elements should a new law for film and

2008. It is behind the production of successful Mexican films such

audiovisuals include?

as ¿Qué Culpa Tiene el Niño? and No se Aceptan Devoluciones

291

| VIEW FROM THE TOP

CREATING A SPACE FOR AUTEUR CINEMA JAIME ROMANDIA Founder and Director General of Mantarraya Producciones

Q: How is Mantarraya Producciones positioned in the

very few movies in Mexico that do not have the support of

landscape of Mexican cinema?

public funds. Mantarraya Producciones takes an amount

A: Mantarraya Producciones is positioned in the niche

of money from public funds and then approaches other

of auteur cinema. The films we distribute in Mexico

countries, mainly in Europe, to finance a movie. Almost all

target people who enjoy going to the movies but who

our films are co-productions between Mexico and France,

are highly selective. In almost 20 years in the Mexican

Germany, the Netherlands or Denmark.

market, Mantarraya Producciones’ distribution division 292

has put together a catalog of around 80 movies, many of

I think Mexico does not have the necessary conditions

which have been award-winners at the most prestigious

for a film produced locally to generate the needed

international festivals. In 20 years, we have produced

profitability for private investors. There are very few films

around 35 movies.

produced in Mexico that really recover their investment. Even films destined for commercial cinema depend on

Q: What opportunities do streaming platforms offer for

external funds, mainly from the US.

both Mantarraya Producciones and Mexican cinema? A: Many countries have enjoyed a positive transition but the

Q: What strategies can be put in place to increase audience

truth is that Mexico is still in the process of change. Even

numbers for independent cinema and to strengthen

though Mexico is the second-largest market for Netflix, we are

the industry?

in a kind of limbo because we do not know what will happen

A: It is somewhat complex. Mantarraya Producciones

with Mexican platforms like Blim, Claro video, FilminLatino and

produces the film and then takes it to the distributor, which

Cinepolis Klic. These platforms are really good but they have

in turn takes it to the movie theaters. In Mexico, both Cinépolis

not reached the level of expansion needed to compensate

and Cinemex, the two largest exhibitors, reserve space

what we lost with the disappearance of DVDs. We know that

for the screening of these films. However, this means that

the future lies in the use of this new technology but we do

independent cinema must compete with commercial projects.

not know when we will see a rapid and balanced expansion

If we also consider that Mantarraya Producciones’ productions

in Mexico like that observed in other markets.

might be considered radical, then our niche within movie theaters becomes more difficult to defend. We have to create

Q: One of the most pressing issues in almost any industry

the market and the conditions that allow the existence of

is funding. How does Mantarraya Producciones navigate

these types of films but we also need to have a fair box office

this hurdle?

distribution, as happens in other countries. Mexico is among

A: Investment in Mexican cinema is risky, especially when

the world’s largest cinema markets, ranking fourth after the

it comes to auteur cinema. Although exhibitors in Mexico

US, China and India, which means that there is a market for

reserve space for independent cinema, the truth is that

this type of cinema.

the profit percentage that these movies generate at the box office is not very attractive for private investors. For

Q: What are Mantarraya Producciones’ plans for the next

this reason, most of these filmmakers in Mexico use public

two years?

and international funds to finance their movies. There are

A: We will continue producing films in the coming years. We just opened a company called Fotosíntesis Media that produces animation films with a social focus. We try to join

Mantarraya Producciones is a Mexican film production

forces with civil associations to use movies as a platform to

company founded in 1998 that not only produces Mexican

tell a story. We also have a film university that offers a major

films but also has a distribution company that deals with

in cinema. Since January 2019, we are also offering a major

foreign films

in digital animation.

INSIGHT |

HELPING MAKE MEXICAN CINEMA A REAL, PROFITABLE INDUSTRY MARCO FORTE Fund Manager of VCS Capital

The biggest hurdle for most business ventures is funding.

healthy player in the industry. “Our investment committee

This is particularly true in the audiovisual segment where

always focuses on taking on projects that have clear

risks are high and investors are skeptical. Marco Forte,

commercialization elements,” says Forte.

Fund Manager of VCS Capital, the only private fund in the country specialized in financing audiovisual content for the

The fact that there are no other players involved in financing

entertainment sector, is determined to change this, and for

Mexican films and TV projects stems from the perception

good reason. “The entertainment industry is completely

of the industry as a lightweight in terms of significant

abandoned when it comes to funding and financing, which

business opportunities. However, the increase in successful

means there is a significant opportunity for a company like

Mexican productions in recent years has helped to change

VCS Capital,” he says.

this view. “2013 was an atypical year. The industry released two blockbuster movies: No se aceptan devoluciones

Several factors hinder investment, Forte says. Chief

(Instructions Not Included) and Nosotros los Nobles (The

among them is bank inflexibility. “Banks in Mexico are

Noble Family). Their success shone a spotlight on Mexican

not very flexible. They have highly profitable businesses

cinema. Suddenly, it was considered a real and profitable

in mortgages, credit cards and auto loans, so they are

commercial opportunity.” Although Mexican cinema has not

not as interested in developing other products to help a

seen another year quite like 2013, Forte says it is now more

sector like the creation of audiovisuals. The same is true of

common to see Mexican film projects exceed the barrier

Sofomes, which focus on more profitable products.” Forte

of 2 million tickets sold, which means that the market is

adds that the element of risk associated with the industry

interested in local products.

generates reticence. “When it comes to cinema funding, the risk is high and as an investor you have to be willing

Thanks to these successes, the industry is beginning to

to bear the costs.”

grow, although Forte says the level of success will depend on the industry’s ability to produce good content. “What

VCS Capital mitigates risk by getting producers to accept

Mexicans like the most are comedy and horror movies, so it

its methodology. “The audiovisual industry has never been

is up to the industry to produce different content to educate

in the formal financing market. It is still artisanal and

audiences and help the market evolve. At the end of the

producers still want to manage their funds in their own

day, the market consumes what is produced. If the industry

way,” Forte says. For every project in which VCS Capital

only produces comedy films then the market will only

participates, the fund invests in resources as well as in

consume comedy films,” says Forte. Another key factor for

management. “We ask producers to comply with a certain

the industry’s newfound dynamism is government support,

methodology related to different processes. We also

such as fiscal incentives and the availability of public funds

ensure that the project’s funds are managed responsibly.

destined for the creation of cinematographic projects. VCS

In some cases, producers have asked us to take charge

Capital also receives public investment. “Around 30 percent

of the administrative part of the project since that is not

of our funds come from Nacional Financiera (NAFIN). We

their main strength.”

also have money from INADEM while the rest comes from private investors,” says Forte.

Although VCS Capital participates in a creative industry, Forte ensures that the fund follows the usual logic of a

Despite being in business for just two years, VCS Capital

venture capital entity. “We have two business models,

has already participated in nine projects and has invested

one focused on private capital and the other on financing,

around MX$70 million (US$3.6 million). “We are a relevant

which allows us to have a balanced risk in our portfolio.”

player and we hope that soon other funds will follow

That approach has also allowed VCS Capital to remain a

suit,” Forte says.

293

| VIEW FROM THE TOP

ENTERTAINMENT OFFERING COMPLEMENTS TRADITIONAL MUSIC BUSINESS ROBERTO LĂ&#x201C;PEZ President of Sony Music Entertainment MĂŠxico

294

Q: Sony Music Entertainment has gone through a business

the music industry on a global level. In fact, 2016 was a global

transformation. What challenges arose from this change?

inflection point, which happened thanks to the presence of

A: We had to change our vision when we went from being

digital distribution platforms. The largest growth opportunity

a company that sells recorded music to an entertainment

is in the speed at which the audience adopts these platforms

company. This transformation allowed for income

and in that regard the opportunity for Mexico is enormous.

diversification and a transformation of our activities. We

There are still relatively few subscribers paying for music in

have become active participants in live entertainment. We

Mexico but the number is growing rapidly.

participate in the industry through strategic agreements with management agencies and concert promotion

Q: What factors have led to the Mexican market being one

agencies. We act as an entertainment agency. When there

of the most relevant for Sony Music Entertainment?

is an opportunity of an advertisement or a communication

A: Mexico is assuming a more relevant role in the industry

campaign, we present our creative proposal based on the

worldwide, as evidenced by the fact that in 2017, it ranked

music and the image of our artists. That is how we came

18th in the entertainment industry. Mexico is an extremely

up with campaigns with artists like Chayanne with Coppel

important country for digital media, which today is the most

or Ricky Martin with NescafĂŠ.

important means of distributing music. For Spotify, Mexico is the fourth-largest country in the world in terms of total

This transformation has allowed us as to have more

subscribers, just below the US, the UK and Brazil. However,

presence in more aspects related to music than before,

in volume of streams, Mexico is the second-most important

when our main activity was the sale of recorded music.

country for Spotify, just below the US. Mexicans have a very

Both in Mexico and in Latin America, this situation was

important connection with music, it is part of their lives.

forced by the problems we suffered in the past related to piracy, which generated a significant drop in our traditional

Q: What are your expectations regarding the future of the

revenues and forced us to sit down with our partners and

entertainment industry?

our artists to find new agreements to expand our activities.

A: I have an optimistic vision regarding our industry and Sony Music Entertainment. The growth opportunities that

Q: How does the company maintain profitability in the face

will arise from the advance of digitally distributed music

of new players such as Spotify and Apple Music?

are immense. When Mexico has as many subscribers to

A: We used to sell recorded, physical mediums, such as vinyl

music streaming services as cable television services, for

records and CDs. At first, we had to battle piracy issues

example, the industry will have the highest values in history.

because it was so easy to go out and find pirated CDs.

We would like to see double-digit growth. In recent years,

We also faced pirated music in digital distribution. Today,

the industry has registered annual declines, so talking about

services like Spotify, Apple Music, Google Play, Vevo and

double-digit growth means that we are in a situation that

YouTube are legal. They offer content based on agreements

fosters a great deal of optimism.

with recording companies like Sony Music and we have designed a business model for this. We are not against them.

Q: What other business lines could the company venture into?

These digital platforms are allowing the revival and growth of

A: We are analyzing activities that could be related to music, such as gastronomy or sports, but always with music as the core of the business. While it is true that we have transformed

Sony Music Entertainment is a music and entertainment

the company, the heart of our activities will always be music

company owned by Sony. It is the largest music producing

and the quality of our content and artists. If we do not have

and recording company in Mexico and one of the three largest

great artists and great music, we will not have commercial

record companies globally

activities or distribution of recorded or live music.

VIEW FROM THE TOP |

MEXICAN COMPANY SURPRISES THE ENTERTAINMENT SECTOR ANTONIO QUEVEDO Executive President of Grupo Diniz

Q: What elements have allowed ¡Recórcholis! to expand to

A: ¡Kataplum! is a 100 percent Grupo Diniz investment;

22 states since its founding in 1999?

Grupo Danhos rents the mall space to us. It is important to

A: We recognized from the start that entertainment was an

note that, in addition to leasing us the space for 20 years,

essential part of every shopping mall and our idea behind

Grupo Danhos provided us with all the possible advantages

¡Recórcholis! was to provide family entertainment centers

for the construction of the park. We are already working on

within malls. Today you cannot deliver a mall without an

¡Kataplum! II, which will also be located in a mall built by

entertainment offer. These centers have become areas

Fibra Danhos in the northern part of Mexico City. 295

for socialization. People go to malls not only to purchase goods, but also to eat and to discover entertainment

Q: Has the company experienced any slowdown in sales

options. Today, the role of the shopping mall could be

given the general uncertainty the country has experienced?

compared to that played by the central squares in small

A: Over the past three years we have had stable sales and

cities in the last century.

when it comes to entertainment in general, we have seen steady growth in recent years. It is important to note that

It is important to understand that in recent years malls have

entertainment is always the last link in the chain of needs.

begun to lose traffic due to e-commerce. Making purchases

When people have less disposable income, they will trim back

of clothes or technological devices over the internet is now

entertainment costs. Of course, the opposite is also true and

much easier. However, you cannot go bowling or ice skating

we are the first to feel it when the economy is gaining speed

at home. That is why we have become an important anchor

because people start having more spending cash. However,

for new shopping centers. The oldest shopping centers are

Grupo Diniz is sensitive to the exchange rate between the

also reaching out to us because they have realized that one

Mexican peso and the US dollar since all our main inputs are

way to maintain traffic is through the entertainment sector.

imported. Also, around 50-60 percent of the materials used

Over the last 25 years, we implemented a variety of games

for the construction of our venues depend on the price of the

and models until we found the perfect fit for malls. Today,

dollar, which includes air conditioners and electric staircases.

every ¡Recórcholis! space is built inside a shopping center and all have an average area of between 1,800m2 and 2,200m2.

Q: What strategies differentiate Grupo Diniz from its competition?

Q: How do Grupo Diniz’s business units complement

A: Our vision is to continue offering family entertainment

each other?

without consideration to socioeconomic factors. This means

A: Grupo Diniz has two branches: ¡Recórcholis! and

that the ¡Recórcholis! in Interlomas, in the State of Mexico,

¡Kataplum! The former has five available elements that can

is identical to the ¡Recórcholis! in other less expensive

be implemented: arcade-style machines, ice rinks, bowling

locations. We have a single standard for all venues and

alleys, food and beverages and day care centers. We also

I think that this has been part of our success. In certain

host children’s parties. Depending on the size of the mall,

lower socio-economic zones, people cannot afford to go

we define which of the five areas will be set up. Out of the

somewhere for a vacation and so they regard entertainment

last 20 ¡Recórcholis! venues we have opened, around 80

offerings as their holidays; this is why we strive to maintain

percent have all five areas. We also have started our new

a quality standard regardless of the location.

branch called ¡Kataplum!, which is basically an amusement park. ¡Kataplum! also follows our strategy of having a mall location to help attract more traffic.

Grupo Diniz is a Mexican entertainment company constituted in

1999

that

focuses

family-oriented

recreational

Q: What is the company’s relationship with Grupo Danhos

entertainment options through its ¡Recórcholis! and ¡Kataplum!

to expand the ¡Kataplum! project?

business lines

Altius event

TOURISM

Tourism has become a key contributor to Mexicoâ&#x20AC;&#x2122;s economic development and its international image. The sector has not stopped growing thanks to the countryâ&#x20AC;&#x2122;s natural beauty, as well as promotional efforts to attract visitors and investment. Today, tourism contributes to 9.5 percent of the national GDP and generates 9 million direct jobs. According to the World Tourism Organization (WTO), Mexico ranks sixth in international tourist arrivals but has still to crack the Top 10 in international receipts.

Although it is a success story for the Mexican economy, the sector is now at risk of losing ground due to budget decisions made by President LĂłpez Obrador. Throughout the chapter, stakeholders from the sector talk about the strategies they are setting up to reshape the narrative of what the country offers, how they are evolving their models to cater to new generations and the diversification strategies they are implementing to attract tourists from new markets.

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CHAPTER 12: TOURISM

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ANALYSIS: Tourism’s Light Shines Over Mexico

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INFOGRAPHIC: Looking Past the Sun and Beach

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SEXENNIAL PLAN: Santa Lucia and the NAIM Cancellation Odyssey

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VIEW FROM THE TOP: Luis Barrios, ANCH

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VIEW FROM THE TOP: Gerardo Murray, IHG

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VIEW FROM THE TOP: Sandra Hernández, Club Med Mexico

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VIEW FROM THE TOP: Sergio Zertuche, Palladium Hotel Group

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VIEW FROM THE TOP: Blanca Rodríguez, BTCM IM

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VIEW FROM THE TOP: Javier López, AccorHotels

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VIEW FROM THE TOP: Erika García, Vacacionante and Vacation With a Cause Foundation

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SEXENNIAL PLAN: Mayan Train Faces Complications Even With Government Support

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INSIGHT: Sara Gómez-Ortigoza, MSC Cruceros Mexico

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VIEW FROM THE TOP: Jorge Ojeda, Grupo Aries

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VIEW FROM THE TOP: Ana Paola Durón, Amadeus Mexico

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VIEW FROM THE TOP: Brenda Alonso, Argo Solutions

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INSIGHT: Julián Abad, Salles Sainz - Grant Thornton

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VIEW FROM THE TOP: Ricardo Schöndube, Schöndube Abogados

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| ANALYSIS

TOURISM’S LIGHT SHINES OVER MEXICO Year after year, more people are seduced by Mexico's breathtaking destinations thanks to strong promotion efforts. However, recent government decisions have put the country's tourism attractiveness at risk. Private investors call for continuity and clarity in the way the new administration will handle tourism resources

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A strong promotion strategy and attractive destinations

THE MEXICO EXPERIENCE

helped Mexico regain its Top 10 ranking as a tourism

Mexico is among the main beneficiaries of this uptick in travel,

magnate in the last few years but a greater investment is

capitalizing on its beautiful beaches, archeology, welcoming

required to maintain its momentum. “To continue growing

culture, picturesque towns and diverse communities to

the way we have been growing, we need to have really good

develop a strong tourism arm, which helped the country

infrastructure, such as roads and airports,” says Gerardo

become the sixth-most visited destination in the world in

Murray, Vice President of Brands and Marketing for Mexico,

2017. The tourism sector contributed a total of 17.2 percent

Latin America and the Caribbean at IHG. “Despite the

to the country’s GDP, for a total of US$209.4 billion in direct

many differences that might exist between the public and

and indirect activities in 2018, according to the World Travel

private sectors, the strategic vision is set. We know what

& Tourism Council (WTTC). In 2018, Mexico was visited by

we need to do.”

41.45 million tourists, according to the Ministry of Tourism (SECTUR), spending a total of US$22.51 billion. This represents

Globally, 1.33 billion people traveled internationally in 2017,

a 5.5 percent increase in direct expenditure, according to

which is a 7 percent increase over the previous year, according

INEGI. The sector generated 4.19 million jobs that represented

to UNWTO’s Tourism Highlights 2018 report. Europe was by

8.6 percent of the national employment, SECTUR data show.

far the most popular international destination, followed by Asia-Pacific and the Americas. These tourists generated total

Of the total tourists Mexico received in 2018, 18.08 million

revenue of US$1.34 trillion in 2017, according to the report,

traveled near the US-Mexico border, with 15.38 million tourists

which marks a 5 percent increase over the previous year.

crossing by car and the rest by foot. The other 23.37 million

Europe’s success is based on tourists traveling within their

traveled to the rest of the country, 19.37 million of them by air

own region. However, emerging economies in Latin America,

and the rest by land, according to SECTUR. Most of Mexico’s

Africa, Eastern Europe and the Middle East are growing

international tourists arrive from the US and Canada, following

their tourism sector thanks to increased disposable income,

the siren call to a beach destination. “Mexico is very good at

according to UNWTO.

offering its beach and sun destinations, which tend to attract several nationalities, such as US and Canadian visitors,” says

INTERNATIONAL TOURIST INTERNATIONAL TOURIST EXPENDITURE BY REGION EXPENDITURE BY REGION (PERCENTAGE) (percentage)

Middle East

US$1.35 trillion spent in 2018

Europe 51% Africa 24% Asia Pacific 16% Americas Americas 5% Africa 4% Middle East

Asia Pacific

Murray. However, there are increasing efforts to attract visitors from other parts of the world. China, Germany and the UK, which are the first, third and fourth-largest tourism spenders according to UNWTO, could be attractive targets. But to do so it is necessary to revamp Mexico’s image as more than a beach destination. “Diversifying the tourism offering to include cultural options allows Mexico to promote itself in markets with higher purchasing power, such as Japan,” Murray adds. Efforts to promote the country continue to bear fruit. In 2019, Mexico is expected to welcome 43.60 million international

Europe Source: UNWTO Tourism Highlights 2018.

tourists, a 5.2 percent increase over the year before, according to SECTUR. Their expenditure is also expected to rise: the ministry foresees a 5.2 percent increase for a total of US$23.68 billion. The industry credits strong government promotion

The Americas were third in international visitors in 2017, which

as a factor for its continued success. “Part of the great

amounted to 211 million passengers, and in tourist expenditure,

success Mexico has experienced is a result of the appropriate

which represented approximately US$326 billion. Of those

development of public policies. Marketing campaigns extolling

that came to the Americas, 62.5 percent chose North America

Mexico as a tourist destination are very well-focused,” said

as their preferred destination, with the region showing a 4.2

Javier López, Vice President of North America Operations

percent increase in arrivals between 2016 and 2017.

at AccorHotels.

While the sector posted positive results in previous years,

Tourism by sea is a less common but powerful force in the

some are worried about a potential slowdown caused by less

sector. Mexico received 7.86 million cruise tourists, a 7.6

international promotion. President López Obrador’s decision

percent growth over the previous year, according to Miguel

to close the Council of Mexico’s Tourism Promotion (CPTM),

Turruco Márquez, Minister of Tourism. Of those, 75.9 percent

was greeted with concern from former SECTUR directors

visited the Gulf of Mexico and the rest traveled through the

and industry representatives. Enrique de la Madrid, Minister

Pacific. The most visited destinations were Cozumel and

of Tourism from 2015 to 2018, told media in March 2019 that

Mahahual in Quintana Roo, Ensenada in Baja California and

“if we remove investment in tourism promotion, the number

Cabo San Lucas in Baja California Sur. There is still room for

of tourists coming to Mexico will drop.” The President of the

growth in this segment but that also requires infrastructure.

National Tourism Business Council (CNET), Pablo Azcárraga,

“A base port would allow more cruises to depart and arrive

also criticized the lack of promotion, which he claims is already

in Mexico and would greatly contribute to creating more

hurting companies and could cost the country MX$20 billion

jobs in the sector. We also need better infrastructure, with

(US$1.06 billion) by 2024.

more ports along the Mexican coasts. Improved security for our travelers, both national and international, is also a

FINDING A MARKET WITHIN

must,” says Sara Gómez-Ortigoza, Director General of MSC

Mexico’s diverse towns, cities and beaches are also attractive

Cruceros Mexico.

destinations for locals. In 2017, 235 million national tourists traveled throughout Mexico, mainly to Mexico City, Acapulco,

AMLO’S TOURISM BET

Guadalajara, Cancun, Veracruz and Puebla, according to the

The most ambitious tourism project targets much more than

Integral System of Information of Tourism Markets (SIIMT).

attracting visitors; its goal is to be an engine for economic

Mexicans are increasingly investing in tourism as the number

development in the southeast of the country. The Mayan Train,

of local tourists has grown steadily since 2012.

a railroad that will connect the 11 main archeological regions of five different states, is among the largest infrastructure projects

For Mexicans tourists, hotels are not the first choice for

supported by President López Obrador’s administration. The

accommodations when traveling. Only 39 percent booked

project is expected to take over four years of construction

a reservation and the rest chose alternative housing, such

and cost between US$6 billion and US$8 billion, financed by

as a second home, a time share or a relative’s house. SIIMT

public and private institutions.

also indicates that, on average, local tourists spend MX$6,281 (US$331) on a vacation, including transport and housing.

While extremely ambitious, the project has generated concern

Their average vacation lasts five days and 41 percent prefer

due to its high costs and potential environmental impact.

to travel by car. Considering this number, many in the

Moreover, some question whether it is the best choice to

industry argue for better road infrastructure to strengthen

improve mobility in the region. “We cannot talk about the

national tourism. “It is not only necessary to improve airports

Mayan Train without talking about the current needs of Cancun

but also highways. An interesting example is the construction

and the Riviera Maya. There are other infrastructure projects

of the highway between Durango and Mazatlan, which has

that could be carried out to improve mobility or services in

completely changed the city, increasing the influx of people

the region, such as a train between Cancun and Bacalar or a

visiting from the center of the country,” says López. “This is

bridge that crosses the Nichupte Lagoon to improve mobility

the type of infrastructure that needs significant government

in Cancun,” says Ricardo Schondube, Managing Partner of

investment.”

Schondube Abogados.

GROWTH IN IN NATIONAL TOURISTS GROWTH NATIONAL TOURISTS 10

100

National tourists (million)

——Growth rate (percentage) 8

6 4

2.80

4.66

5.09

6.34

6.44

20 0

2013

2014

2015

2016

Source: SIIMT.

National tourists (million)

Growth rate

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

2017

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| INFOGRAPHIC

LOOKING PAST THE SUN AND BEACH Joining the Top 10 ranking of most-visited countries made

WHAT TOURISM MEANS TO THE COUNTRY

tourism a national priority for Mexico and solidified the

In 2018, the tourism sector employed over 4.14 million

sector as an important economic driver. This was largely

people directly (Number of people insured by IMSS)

the result of joint-promotional efforts undertaken by

That represents a 2% increase from the number of

the public and private sectors. There could be trouble

people working in tourism in 2017

ahead, however, as the López Obrador's adminsitration's

Tourism GDP growth between January and September

austerity policy has limited the resources used for tourism

2018 compared to the same period in 2017: 2.5%

promotion.

GLOBAL EMPLOYMENT AND GDP CONTRIBUTION EXPECTATIONSFROM EMPLOYMENT EXPECTATIONS TOURISM AND INVESTMENT 450

420

IT'S NOT ALL BEACH AND SUN

Jobs (million) ——GDP contribution (US$ trillion)

390

302

360

330

300

2017

2018*

2028*

Mexico's ranking

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Towns in the country

16.7

10.6

*Estimates

2.59 & 2.66

COUNTRIES MOST ATTRACTED TO MEXICO IN 2018 (number of visitors)

US 10,496,435 Canada 2,155,387 UK 590,945

of most cities designated as World Heritage

with the “Pueblo Mágico” designation Million people visited the country's archaeological zones in 2018 Million people visited the country's museums in 2018 Million visitors the National Museum of Anthropology and the National History Museum attracted in 2018

74.09 million tourists traveled by air around Mexico in 2018

Colombia 557,614 Argentina 490,212 Brazil 389,605

Spain 386,258 Germany 289,776 France 286,848 Peru 257,138

Sources: World Travel & Tourism Council, Ministry of Tourism (SECTUR), United Nations World Tourism Organization (UNWTO), INAH

INTERNATIONAL TOURIST ARRIVALS

INTERNATIONAL ARRIVALS PER AIRPORT INTOURIST 2018 PER AIRPORT IN 2018

Cozumel Monterrey

7.85 million tourists arrived to Mexico aboard 2,668 cruises in Puerto Vallarta 2018, an increase of 7.6% from 2017 Los Cabos Guadalajara

17.35 million passengers

Mexico City Cancun

44.96% Cancun 27.67% Mexico City 9.97% Los Cabos 8.65% Puerto Vallarta

INTERNATIONAL TOURIST ARRIVALS AND

INTERNATIONAL TOURIST ARRIVALS AND INCOME INCOME RECEIPTS BETWEEN 2012-2018 RECEIPTS IN MEXICO (2012-2018)

6.05% Guadalajara 1.56% Monterrey 1.15% Cozumel

50 45

Tourists (million) Income (US$ billion)

40 35 30

HOTEL OCCUPANCY Year

Hotel occupancy

Tourists in hotel rooms (million)

2017

61.2%

79.65

2018

60.9%

82.72

25 20

303

15 10

2012

2013

2014

2015

2016

2017

2018

US$ billion MOST-VISITED COUNTRIES IN 2017 (million passengers)

1 France

INTERNATIONAL

Number of tourists INCOME RECEIPTS IN (million) 2017 (US$ billion)

210.7

86.9

1 US Spain

Spain

81.8

76.9

France

60.7

China

60.7

Thailand

57.5

Italy

58.3

51.2

Mexico

39.3

Italy

44.2

37.7

Australia

41.7

Turkey

37.6

Germany

39.8

Germany

37.5

Macao

35.6

35.4

Japan

34.1

10 Thailand

Mexico registered US$21.3 billion in receipts from international tourists in 2017, outside the Top 10 countries in this category. In 2018, this increased toTOURISM US$22.5 billion BIG SPENDERS INfigured INTERNATIONAL IN 2018 BIG SPENDERS IN INTERNATIONAL TOURISM IN 2018 (US$ billion) 300 257.7

250 200 150

135

71.4 27.7

Italy

30.6

31.1

South Korea Russia

31.8

34.2

41.4

Canada

Australia

France

US$ BILLION

89.1

100 50

Germany

USA

China

| SEXENNIAL PLAN

SANTA LUCIA AND THE NAIM CANCELLATION ODYSSEY The Peña Nieto administration announced the NAIM project with much fanfare. However, President López Obrador’s decision to cancel the infrastructure project generated a noticeable backlash among investors, leading his own team to acknowledge that the way the project was canceled was a mistake Despite López Obrador’s landslide election victory, his decision to organize a public consultation months before being sworn in as president to decide whether to cancel or to continue with the construction of NAIM was heavily criticized by members of the private sector and the general public.

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According to the president, the NAIM project was plagued by corruption scandals and was not technically viable. “In that lake, we were always going to suffer from sinking and maintenance was going to cost us a lot,” he said. After the project was canceled and in an attempt to offer certainty to investors and all parties involved in its construction, AMLO assured that companies that already had construction contracts for NAIM would participate in the construction of the Santa Lucia Airport, his proposed alternative. The use of the Santa Lucia military base as a new international airport to replace NAIM had been a long-

“We are at the beginning of the Santa Lucia project. Canceling the Texcoco project has taken time. We have already repaid a third of the bonds and the investors’ money. We are just missing construction companies. Even with the costs that this cancellation implied, I stand firm that this was the best decision”

in-the-making strategy for AMLO and his team. The president has already stated that the Santa Lucia airport will be administered by the Ministry of Defense (SEDENA) and that it would follow regulations established by the Ministry of Communications and Transportation (SCT). The economic benefits stemming from operating the airport would be transferred to SEDENA and used to strengthen the ministry’s operation. Although Santa Lucia appears to be a done deal, members of the private sector are still not content with the way the decision was taken. Ricardo Salinas, a member of President López Obrador’s Business Advisory Council, said the president made a mistake when he canceled NAIM and that he is promoting policies that are destined to fail. Salinas’ declarations were quickly answered by Javier Jiménez Espriu, Minister of SCT, who assured the business community that the government would present a document where it would explain the logic behind NAIM’s cancellation. Still, Alfonso Romo, Head of the Presidency Office, said the decision to cancel NAIM had alienated the private sector and acknowledged that the way in which the decision had been taken had not been optimal.

“We are going to solve the saturation problem (at the airport) in less time. It will take just three years and it will be a long-term solution, of better quality, without corruption and savings of over MX$100 billion” March 11, 2019

VIEW FROM THE TOP |

JOINT EFFORTS NEEDED TO INCREASE TOURISM INTO MEXICO LUIS BARRIOS President of ANCH

Q: Tourism has become an important economic engine for

Q: What can be done to curb the violence and insecurity

the country. What elements have allowed this expansion?

impacting tourism?

A: In terms of tourism, Mexico ranks sixth in terms of

A: Violence and insecurity cannot be ignored. Unfortunately,

most visited countries, although it is important to note

there have been incidents in certain destinations

that foreign tourism accounts for about one-fifth of

accompanied by news coverage that has been somewhat

the country’s total tourism GDP. The rest comes from

exaggerated. In certain regions we have to work hard

Mexicans traveling around Mexico. In recent years, tourism

to improve conditions and create crisis management

has increased, particularly among foreigners who travel

programs, which many cities around the world already have.

to the country for several reasons, one of them being location. The promotion of Mexico has also been very

Q: What are your expectations for the sector?

important and effective in attracting more visitors.

A: We need to keep in mind that there are cycles and that

Another factor to consider is that the purchasing power

the sector cannot always grow exponentially. We are bound

of the US market, which is an important source of tourists,

to have moments of stabilization and of decline, but I do

has also increased.

not see elements that could imply that the Mexican tourism sector is fading. If the US economy continues growing as

Mexico faces several challenges but the investment

forecast, we can expect it to continue buying from us and

the country has received in recent years has generated

for visitors to keep coming to Mexico. The one thing that

employment that adds to the country’s total payroll. In just

could stop growth is insecurity, which is very important for

two years, minimum wages have risen 12 percent. When a

international travelers. To maintain growth, we must provide

country’s total payroll increases, people start to travel more

several elements: security, infrastructure, communications

and even choose to stay in hotels instead of staying in with

and highways. I think we have the conditions to maintain

a family member or friend.

current levels or even to grow further.

Q: How have volatility and uncertainty impacted the

Q: What should be the elements of a long-term public

sector’s performance?

policy for the tourism sector?

A: In 2017, tourism grew significantly. However, in 1Q18,

A: According to international studies, Mexico ranks around

we saw a slight decrease in the number of foreigners who

40th in tourism competitiveness. When you analyze how

visited the country and there was also a slowdown in terms

tourism competitiveness is defined around the world,

of national tourists in 2Q18. It is important to note that in

the main variables are rule of law, insecurity and fiscal

this quarter there were two elements that impacted the

transparency. These are the variables we need to improve.

sector: the presidential elections and the slowdown in

There are many elements that should be included in a

GDP growth, which were accompanied by nervousness

long-term public policy. All in all, I would say that the three

and volatility.

main things would be connectivity, reinforcing rule of law and improving security. However, these elements are not

From an economic perspective, I think markets and

only for tourism; you can apply them and several economic

investors have already gone through the uncertainty

sectors would benefit.

phase associated with the presidential elections. There are elements of the new government’s platform that everyone can support, such as the reduction of the country’s poverty

The Mexican Association of Hotel Chains (ANCH) groups

levels, its anti-corruption stance and its goal to reduce

Mexico’s 20 most important and prestigious hotel chains. Over

violence, as well as the application of rule of law. Another

460 hotels in the country are represented in the ANCH and its

challenging variable was the signing of USMCA.

members employ over 75,000 people

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| VIEW FROM THE TOP

MAINTAINING BRAND CONSISTENCY GENERATES CLIENT LOYALTY GERARDO MURRAY Regional Vice President Marketing, Commercial and Revenue Strategy for Mexico, Latin America and the Caribbean at IHG

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Q: IHG has been in Mexico for 48 years. How has IHG’s

components of our success story by growing together with

business evolved over the years?

us. Some of our franchisees include Grupo Fibra Inn, Grupo

A: The company started with a Holiday Inn in the city of

MileniuM and Grupo Presidente just to mention a few. Our

Tampico. Our development is based on the needs of our

relationship with these groups spans several years and has

clients, as illustrated by the expansion of our catalogue,

been built on a foundation of trust, which is bolstered by the

which now encompasses 15 brands. Each brand is directed

fact that IHG’s brands are economically sound, well-positioned

toward a very specific market segment. For instance, our

on a global level and have an important loyal client base.

prime brands, such as Kimpton® Hotels & Restaurants, InterContinental® Hotels & Resorts or HUALUXE® Hotels

Q: Given your international experience and your expertise

and Resorts, cater to the needs of travelers who want

in the Mexican market, how would you assess the evolution

extraordinary service and sophistication, while those

of Mexico’s tourism sector?

looking for value for price can choose our Holiday Inn and

A: The past two presidential administrations made direct

Holiday Inn Express brands. We also offer brands that cater

efforts to boost the sector, particularly the administration

to specific travel requirements, such as extended stays at

of President Peña Nieto, which was strategic and focused

our Staybridge Suites® or Candlewood Suites®.

on positioning Mexico not only as a sun and beach destination but as a multifunctional destination, including

As the company evolved, we started targeting younger

cultural, medical and religious offerings. This strategic

travelers who want basic services at a good price with

diversification, with each pillar having its own specific

exceptional delivery. We now cater to this segment through

agenda for promotion, generated a significant impact

our avid® hotels brand, which was created in 2017 and now

helping Mexico rise to sixth from 12th in the rankings of

has 150 signed franchises slated for the US, Canada and

most-visited countries in the world.

Mexico. Four of these will be in Mexico and are expected to start operating in 2023.

Q: Which pillars should the public and private sectors work on to maintain Mexico’s momentum in the tourism sector?

Q: Considering IHG’s vast portfolio, which brand best

A: The tourism industry is a service industry, which

accommodates the needs of Mexican travelers?

means that we need to ensure collaborators are highly

A: A key example of the levels of acceptance and affinity

qualified to deliver the best service that as a country we

between our brands and travelers is Holiday Inn and Holiday

want to be remembered by. The second point is related

Inn Express, which comprises most of our portfolio. Out

to infrastructure. To continue growing the way we have

of the 141 hotels we have in the country, 112 belong to the

been growing, we need to have really good infrastructure,

Holiday Inn portfolio. Part of our success and acceptance

such as roads and airports, in addition to good hotels.

is based on consistency and service. When our clients see

Another point is security. To ensure growth we need to

our brands, they know what they will receive. Another

ensure security. Despite the many differences that might

brand that has been very well-received is InterContinental

exist between the public and private sectors, the strategic

Hotels and Resorts. The Presidente InterContinental® hotels

vision is set. We know what we need to do; it is up to us to

in Polanco, Cancun and Cozumel are among the best in

decide whether we want to do it or not.

the world. Q: Palladium Group told us that one of the biggest Q: What impact do partnerships have on IHG’s growth

challenges the tourism sector faces is attracting quality

in Mexico?

tourism. How can the private sector contribute to this end?

A: In Mexico, we employ the franchising model to ensure

A: It has to do with diversification, to stop focusing all our

growth. Our franchisees believe in our brands and are key

efforts on a single tourism product. For instance, Mexico

Buenaventura Inspirato Residence, Los Cabos, Baja California

307

is very good at offering its beach and sun destinations,

a hotel offering that provides defined services, strong

which tend to attract several nationalities of travelers

brands, a great loyalty program and focus on delivering

such as US and Canadian visitors. However, diversifying

our service the best way possible through a great sleep

the tourism offering to include cultural options allows

experience and a memorable dining experience, just to

Mexico to promote itself in markets that might have

mention a few. Digitalization allows us to showcase these

higher purchasing power, such as Japan or certain Asian

services.

countries. Almost 95 percent of our hotels now have a new reservations That said, we cannot deny that one of the country’s main

system that provides more functionality. When clients

attractions is the sun and our beaches. There is a market

access the platform, they have more options to choose from

segment, such as the European or the Russian segment,

for their stay, including the type of room, the view from

that is willing to pay for a more sophisticated service

the room, whether it is the more economical option or the

scheme related to this option. Many hotel groups, including

most expensive and all the additional services we offer. We

IHG, have diversified their brands after understanding that

also ensure that our hotels offer up-to-date content, which

there is room on this field. Today, around 50 percent of

gives us a strong presence on digital platforms. When you

travel purchases are by people over 50 years of age who

combine this with strategies that optimize organic or paid

have a higher purchasing power and are focused on having

search optimization, then you can position yourself among

a more complete experience.

the top results.

The tourism industry holds significant weight in the

Q: What are IHG’s growth expectations for the short term?

country’s GDP. We are a country perceived as one of the

A: Over the next three years, we plan to open 37 new hotels

top travel destinations worldwide and we need to continue

in Mexico. More importantly, we will continue diversifying

boosting it and taking advantage of it. I am certain this will

our presence. We are focusing on strengthening our well-

be top of mind for our new Minister of Tourism, who is a

known brands, such as Holiday Inn and Holiday Inn Express.

highly recognized individual within the country’s tourism

Our new avid brand and the growth of our extended

community.

stay catalogue are another source of diversification in the country.

Q: Last year you talked about the company’s digitalization efforts. How can the traditional hotel offering compete with the likes of Airbnb?

InterContinental Hotels Group (IHG) operates several hotel

A: You cannot stop competition nor digitalization. I

brands internationally. The British company is one of the

think that we need to analyze the ways in which we can

world’s leading hotel companies in terms of number of hotels.

compete and provide guests what they need. We sell

It has been in Mexico for 48 years, where it operates 8 brands

| VIEW FROM THE TOP

SAFETY, SUSTAINABILITY PRIORITIES FOR FRENCH TOURISM COMPANY SANDRA HERNÁNDEZ Director General of Club Med Mexico

308

Q: What value do your Mexican destinations add to the

Q: How is your responsible tourism initiative reflected in

global Club Med portfolio?

your business strategy?

A: Cancun is the jewel in Club Med’s crown in Mexico. It is the

A: In 2018, Club Med received the Green Globe award for the

No. 1 resort in sales and numbers of visitors, both national

third consecutive year. This prize is awarded to companies

and international. For Club Med, Mexico is a very important

that make positive contributions to the environment and

country due to the enormous growth of the tourism sector.

the region where they have operations. Club Med supports

The company also has increased the number of Mexicans

communities through the purchase of local products. Our

staying at our hotels in Cancun and Ixtapa, which represent

buildings are also equipped with solar tiles that help reduce

69 percent of our overall sales in the country.

electricity consumption.

69 percent of Club Med’s overall sales in Mexico are for its hotels in Cancun and Ixtapa

Q: Your resorts are located in Ixtapa and Cancun, both zones that have been impacted by security issues. How do you deal with these problems? A: Club Med works closely with other accommodation providers to protect the area and boost tourism appeal. We also work in close collaboration with the authorities to

Q: Mexico has a broad tourism offer. How do you position

create an ideal environment and offer a differentiated value.

the Club Med brand ahead of your competitors?

In the last four years, we have had no negative experience

A: Sixty-eight years ago, when Club Med was founded, we

or security incidents at Club Med. Our security service and

became the pioneers of the all-inclusive concept, which

our collaboration with other entities allow us to offer peace

gave us the opportunity to face different markets with a

of mind to our visitors in all the locations where we operate.

considerable advantage. We are not a traditional hotel chain, as we offer different added values for Club Med guests.

Q: What tourism trends are beginning to emerge?

Our services go beyond food and lodging services; we

A: We have seen an increase in travelers in the Caribbean

offer innovative experiences with the best amenities. Our

region and there is greater motivation from airlines and other

company vision is to be the creators of happiness and our

industries to build the necessary infrastructure and to boost

hotels offer a wide variety of options for all ages.

tourism in the region. Also, more Mexicans travel abroad, although mobility is being held back by the volatility of the

Q: What has been the greatest challenge related to Club

peso against the dollar and the country’s political uncertainty.

Med’s ability to position the brand and destinations offered? A: The repositioning of Club Med over time has been the

Q: What are your growth expectations?

biggest challenge for us. Approximately 14 years ago, we

A: Club Med’s vision is to look to other continents to create

catered to adults and couples but later started targeting

new tourist destinations that are attractive to our customers.

the family segment. This change has taken time and

To achieve this, we have signed an alliance with Group Fosun,

continuously demands that we innovate our approach to

which is one of the most important investment conglomerates

provide the best services.

in China. We want to look to the Asian continent and invest in the construction of hotels in strategic countries. The flow of business and tourism travelers between the Americas and

Club Med is a private French company founded in 1950

Europe to Asia has increased, so we want to take advantage

and specialized in premium all-inclusive holidays. It is

of this opportunity in the medium term. Club Med will also

headquartered in Paris and has over 20,000 employees in a

continue its strategy of opening between three and five

number of exotic locations

hotels per year.

VIEW FROM THE TOP |

IBIZAN STYLE COMES TO THE MEXICAN COASTS SERGIO ZERTUCHE Chief Sales and Marketing Officer at Palladium Hotel Group

Q: What is Palladium Hotel Group’s main offer for the

transmit is that we offer the freshness and essence of an

Mexican market?

Ibizan company. We used to think that we competed with

A: Palladium Hotel Group is a Spanish group committed

other Spanish hotel chains but after all this investment we

to the Mexican market. We have two hotel complexes,

are competing at a higher level. We must be consistent with

one in Riviera Nayarit with 521 rooms and another in

the delivery of the product so that the customer perceives

Riviera Maya that has four hotels and a total of 1,554

the relationship between quality and product. We are a

rooms, including our new TRS Yucatan Hotel, which is a

company that is highly focused on the client.

conversion and rebranding of what used to be The Royal Suites brand (TRS Hotels). We destined US$30 million

Since we are targeting higher-level customers in the national

for the conversion of the TRS Yucatan, which went from

market, we are also making changes to our distribution

135 rooms to 454 rooms. The TRS Hotel brand is our

strategy. We work through channels such as Viajes Palacio,

adults-only, upscale offering that we are trying to position

Aeroméxico, Interjet and Viajes El Corte Inglés to reach

with unique offerings such as the Helios Beach Club,

clients with greater purchasing power.

which is our effort to import the entertainment concept and atmosphere of Ibiza to our beach clubs. Another

Q: What value do your destinations in Mexico add to your

distinguishing factor is our Chic Cabaret & Restaurant

portfolio?

Cabaret, which is listed on platforms like TripAdvisor as

A: Including Costa Mujeres, we contribute around 3,200

the No. 1 restaurant in Playa del Carmen. These are the

rooms to the Mexican market. That is 44 percent of the total

elements through which we create a differentiated offer.

rooms Palladium Hotel Group has in the continent. Globally, Mexico represents 25 percent of our inventory.

Since November 2018, we have a new hotel complex in Costa Mujeres with two hotels totaling more than 1,000

Fifteen percent of the clients at our Riviera Maya and Riviera

rooms: a Grand Palladium with 676 rooms and the TRS

Nayarit hotels are Mexican, while in Puerto Vallarta we have

Coral Hotel with 476 rooms. Our hotels have the necessary

a 50 percent Mexican occupation between the months of

infrastructure to hold weddings and all kinds of events.

May and October. The Costa Mujeres complex is aimed at

Particularly at Costa Mujeres, we see a great opportunity

the Mexican market since the Cancun area does not receive

to develop this segment.

many European visitors as they prefer the Riviera Maya; this means that for our Costa Mujeres project we have to

Q: Palladium Hotel Group targets a very specific market

develop a more Cancun-oriented clientele. For instance,

segment. How do you position your offer among the

most Brazilians and Colombians coming to Mexico stay in

numerous options that can be found in the Mexican market?

Cancun, rather than going to the Riviera Maya. Since we do

A: We understood that to conquer the segment of the

not have that many origin markets for our Costa Mujeres

Mexican market with the highest purchasing power, it was

hotels, the development of the national market has become

necessary to make some changes to our products. For

very important and strategic for us. Costa Mujeres is a zone

instance, we now offer premium drinks at all our hotel

with significant development potential and the expectation

bars, which attracts another profile of visitors. Mexican

is that it will host up to 30,000 rooms.

guests tend to demand better-quality products and services than other guests and that is something we are willing to cater to.

Palladium Hotel Group is based in Spain and has operations in Spain, Italy, Brazil, Jamaica, the Dominican Republic and Mexico.

Our main challenge is to communicate and explain our new

In the latter, the group has presence in the Riviera Nayarit area,

offer to the local market. The story we want our hotels to

as well as the Riviera Maya and Costa Mujeres, in Quintana Roo

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CULTURAL, ARCHEOLOGICAL ALTERNATIVES TO BEACH TOURISM BLANCA RODRÍGUEZ Partner at BTCM IM

310

Q: How is BTCM IM positioned in the Mexican

auto regenerative cities. These constructions do not depend

tourism industry?

on the services provided by the government, since they

A: BTCM IM works in several fields within the tourism sector.

generate what they need. The idea is to set up tents or

As a consultancy, we advise different players and hotels,

rural cabins that can be moved to different locations. We

such as Banyan Tree. In 2015, we partnered with Banyan

are considering Chiapas, Chetumal, Ensenada and Todos

Tree to establish a private equity fund to boost the sector.

Santos. All these areas have the necessary infrastructure

Due to factors such as volatility generated by elections and

and connectivity, but at the same time they are somewhat

the dollar-peso exchange rate, the fund was put on hold

isolated, which generates a different travel experience. Our

but the idea is for it to continue. In addition to the fund,

target is the segment of the luxury market that does not

we also provide consulting services to tourism businesses.

want to stay in a luxury resort; it is more adventurous and connected with local communities.

In the past five years, the tourism sector has grown at a very fast rate. Mexico has become the sixth most-visited

Within these communities we are also creating innovation

country in the world, according to the Ministry of Tourism,

and technology centers. The idea is for people to come and

with around 40 million foreign tourists visiting the country in

study how local communities grow their food. It is not just

2018. The tourism sector demands significant requirements

about going on a vacation to do nothing but to learn and

of human capital, which makes it a significant generator

become submerged in a different experience.

of employment and a crucial engine for many areas in the country. These are some of the factors behind BTCM IM’s

Q: How will sophisticated financial instruments such as

decision to translate its experience in the real estate industry

Fibras impact financing in the tourism industry?

to the tourism sector. We plan to set up projects in states

A: The tourism sector has traditionally been one of the most

such as Chiapas, Quintana Roo and Baja California Sur with a

difficult to finance, since many companies and investors

focus on low environmental impact and social responsibility.

do not treat tourism as they would real estate. Financing an industrial warehouse is not the same as a hotel with

Q: Beyond places like Cancun and the Riviera Maya, what

different occupancy rates. In addition, tourism markets are

other locations are likely to develop as tourism hubs?

subject to different variables. The emergence of these new

Places like Cancun, Los Cabos or Riviera Nayarit

financial vehicles is creating financing opportunities for the

are extremely important. Riviera Nayarit is registering

sector. Although private banking has not always been a fan

impressive growth rates and still has room to expand its

of the hotels segment, development banks like Bancomext

offering. The same is true for Los Cabos, an area that in

are extremely committed to the industry’s development.

the next two to three years will add a significant amount of rooms. In the Riviera Maya, some locations are a little

Q: How can the industry change the narrative related to

saturated, but there is still a good deal of room for growth.

perceived must-see destinations in Mexico? A: That is what we want to do. Through this new business

We have partnered with Terragon Off-Grid, a company that

model, we are trying to convey the message that Mexico

specializes in constructing self-sufficient units as part of

has more than just beach tourism and that only one hour away from popular beach destinations visitors can become submerged in cultural or archaeological activities. Because

BTCM Investment Management (BTCM IM) is a consulting

our units are nomadic, we can place them in one location

firm that works alongside hotel developers, operators, cruise

for one season and then move them to a different area for

companies and other touristic service providers, advising them

the next. This will help create regional tourism that better

on how the sector works

promotes more of Mexico.

VIEW FROM THE TOP |

DIVERSIFICATION KEY STRATEGY FOR RAPIDLY EVOLVING MARKET JAVIER LÓPEZ Vice President of North America Operations at AccorHotels

Q: What differentiating value does AccorHotels offer

A: Part of the great success Mexico has experienced is a

through its hotel brands?

result of the appropriate development of public policies.

A: AccorHotels is a multinational company that manages

Marketing campaigns extolling Mexico as a tourist

three segments: luxury, midscale and economy. We also

destination are very well-focused. We could work more

have a range of complementary companies and products

closely with SECTUR in the area of staff training for hotels.

for the hotel sector, which means that we own companies in

There are many regions in the country that lack that

different business lines, such as food and beverage, catering

resources to properly train personnel. SECTUR could play

and concierge services. In the past, the group owned the

a more active role in this regard.

buildings where our hotels were installed but as part of a new growth strategy, we decided to sell around 60 percent

Q: What other factors must be addressed to successfully

of the buildings, which generated a significant cash flow

develop the tourism sector?

that has allowed us to acquire major hotel chains such as

A: Compared to other countries in Latin America, Mexico

the Fairmont brand. More recently, we acquired groups

has a good tourism infrastructure but it must continue to

in South and Central America, South Africa, Australia

develop this sector. For instance, Mazatlan is a beautiful

and Switzerland. We are multidisciplinary and we play in

destination but reaching the city is very difficult due to

different segments with complementary businesses.

the lack of connectivity, which also happens in Sonora. It is not only necessary to improve airports but also

In Mexico, we have 23 hotels and most operate under the

highways. An interesting example is the construction of

Ibis brand, although we also have two Novotel properties

the highway between Durango and Mazatlan, which has

and a Fairmont in Mayakoba, Quintana Roo. This is our

completely changed the city, increasing the influx of

inventory so far but we have a significant portfolio of hotels

people visiting from the center of the country. This is the

under construction. In 2019, Sofitel Mexico City Reforma will

type of infrastructure that needs significant government

open, which will be an iconic hotel for us.

investment.

Q: In which hotel segments do you see the best possibilities

Q: What untapped possibilities is AccorHotels eyeing

for the positioning AccorHotels’ portfolio?

in Mexico?

A: We see a great opportunity for growth in the economical

A: AccorHotels is a leader everywhere but in North

segment since we only compete against two or three players.

America. It has been a difficult market for us, including

In many US cities, around 70 percent of the hotel companies

Mexico. Given that we are not among the strongest

are independent and only 30 percent of the inventory

players, the development of new brands has always

corresponds to branded hotels. In the future, independent

been difficult. Since the group has access to cash flow,

hotels will suffer since in evolving economies people prefer

we will start making regional acquisitions of well-known

brands and recognized products. We believe that many

strategic brands in the luxury sector. Today, 50 percent

independent hotels can start to migrate toward established

of our hotels are economy, 25 percent are in the middle

brands. That is why we expect to continue developing the Ibis

sector and only 25 percent fall into the luxury and up-

branch through franchises. We also believe that the market is

scale segments.

open for the rest of our luxury brands as cities like Los Cabos, Puerto Vallarta and Cancun offer space for our brands. AccorHotels is a global hospitality leader present in 100

Q: How successful has SECTUR been regarding the

countries with over 4,300 hotels. The group works with more

industry’s development and where should it further

than 20 luxury and economic brand hotels, such as Raffles,

collaborate with the private sector?

Sofitel, Mantis, Fairmont, Ibis, Mantra, Novotel and Andagio

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A NEW APPROACH FOR MARKETING MEXICO ERIKA GARCÍA CEO of Vacacionante and Vacation with a Cause Foundation

Q: How do you position the Vacacionante brand in a highly

It is important to note that the number of international visitors

competitive market like Mexico?

to Mexico has been a controversial issue. Tourists who visit and

A: The best way to reach consumers is through a 360°

spend nights in the country are different from those who use

strategy. We need to be present on TV but we must also

Mexico as a flight hub or who cross the border daily.

complement our positioning with a digital offer. It is necessary

312

to generate an audience and segment it to know how to

Q: What elements should be highlighted to promote

approach each group. We created several companies, such as

Mexico and Quintana Roo in particular as touristic

Vacacionante.com, which is a very successful brand in South

destinations abroad?

America. Through it, we sell vacation programs to several

A: The 9/11 attacks in the US changed the way in which we

destinations that include Quintana Roo but also Florida and

promoted Mexico. Before that date, the country depended

the Caribbean region.

totally on American tourists. After that, however, tourism from the US fell and we began to receive more visitors from other

In an attempt to broaden our operations and create more

latitudes. This led to an internal reflection of how the sector

positive results for the sector, we are establishing alliances

was acting and industry companies agreed that we needed to

with Guanajuato and Puebla. Airlines like Volaris, Interjet and

treat visitors better, regardless of their origin. We also agreed

Viva Aerobus are increasing the number of internal flights in

that we needed to start marketing Mexico and its destinations

the country and are also increasing their market share. This

in a different way and not just sell sun and beach destination.

ensures that visitors travel to more than one place.

As a result, we decided to launch a direct marketing campaign. We decided to sell Quintana Roo, Cancun, the Riviera Maya

Q: What elements have helped Mexico improve its global

and Tulum as niche products and to market specialized

touristic ranking and become the sixth-most visited country

products such as golf, adventure tourism, maritime activities,

in the world?

spas, weddings, gastronomy and shopping.

A: There are several elements that allowed this. We have been working for almost 25 years to position Mexico as a touristic

Q: What can be done to increase the average amount that

destination but it often takes time to see the tangible result

tourists spend in Mexico?

of these promotions, sometimes years. The Mexican Tourism

A: Measuring this number is controversial. The new presidential

Board (CPTM) and the private sector implemented significant

administration wants to analyze tourism spending as a per

marketing strategies over the past 25 years. During this time,

capita measure. However, not all tourism is the same, nor is

tourism figures grew due to several external conditions. One

the expense. For instance, tourists from holiday or time-share

is the debt crisis that Greece suffered 10 years ago, which

clubs spend up to US$900 more than traditional tourism

prevented the country from participating actively in tourism

customers and stay on average 7.2 nights, a number greater

promotion. Turkey also saw a reduction in tourists in the

than traditional stays, in which the average ranges between

wake of internal strife a few years ago, while Spain lacked

4.7 and 5.1 nights. Tourists from other segments, such as

the needed tourist infrastructure to receive tourists. These

cruises, also have higher spending levels. The cruise industry

situations combined with other elements, such as Brexit,

in Mexico does not compete with hotels for customers but

increased Mexico’s popularity as a tourist destination.

these cruises are important for destinations like Cozumel because they provide an average expenditure of US$72 per day per tourist, which is higher than what is registered in the

Vacacionante is a tourism promotion company that focuses

rest of the Caribbean.

on the Latin American market in the US and Canada. It is an integral part of the Marketing 4 Sunset Group and part of the

On the private sector side, businesses need to generate

marketing and sales department of Sunset World hotels

alliances. One misconception is that when tourists stay at

all-inclusive hotels they prefer to eat at the resort, instead

Q: What policies should be implemented by the government

of dining out, which could not be farther from the truth. We

to further strengthen Mexicoâ&#x20AC;&#x2122;s position as a touristic

need to figure out how different entities in the sector can

destination?

complement each other. For instance, restauranteurs can

A: There are many priorities and not enough budget, so

ask hotels to send customers their way and in return the

choosing one is not easy. One question that impacts the

restaurant will provide the customer with a free drink.

tourism industry is whether the money that is used for promotion will be used for other purposes. If the new

Q: How can new and disruptive tourism models such as

administration wants to build the Mayan Train, the tourism

Airbnb and traditional hoteliers work to boost tourism?

sector will welcome it but the government will need to

A: Airbnb is introducing an additional offer to the tourist

find new budgetary sources to pay for it, rather than use

portfolio, which is good for visitors and also hoteliers

the money that was used by the CPTM for promotional

because it forces us to innovate. We are seeing an interesting

purposes.

phenomenon. Around 15 percent of our guests go to an Airbnb before or after their stay with us, which means that they are

The promotion mechanism that was implanted by the CPTM

not choosing one or the other; they use both options. It is

was internationally recognized and even replicated. The

very easy to attack something we do not know or understand

board did not work alone and decided how and where

but we should get to know what they are doing and try to

to spend the money jointly with the trusts that were set

incorporate what we can to improve our own services.

up by different destinations. Sometimes, the money in a destinationâ&#x20AC;&#x2122;s trust was used to promote the destination

Q: What are the sectorâ&#x20AC;&#x2122;s expectations for the coming years?

on its own and sometimes it was added to money from

A: We need to consolidate the numbers we already have,

the CPTM for national campaigns. Another scheme

defend the number of tourists that come to the country and

we developed allowed for different funding inputs; if a

replace routes that we have lost, like the Russian market. We

destination wanted to attract an international event, such

were creative enough to get Turkish Airlines to open a direct

as a golf or tennis event or a convention, but did not have

flight between Istanbul and Cancun and I see companies from

enough money, the destination trust put up part of the

Cozumel very committed to opening new routes. In addition,

investment, businesses put up another part and CPTM

Mexican airlines like Viva Aerobus are gaining a significant

matched that total investment. This turned out to be a

share of the national market.

successful strategy over the past few years.

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| SEXENNIAL PLAN

MAYAN TRAIN FACES COMPLICATIONS EVEN WITH GOVERNMENT SUPPORT The Mayan Train is one of AMLO’s flagship infrastructure projects. Despite the full support the project has from the government, the private sector is reluctant, not because of the viability of the project itself but because it entails shifting money from tourism promotion to the construction of the train The Mayan Train will be “modern, touristic and cultural,” says President López Obrador, and will connect Chiapas, Tabasco, Campeche, Yucatan and Quintana Roo through 1,500km of railway. According to the president, the construction project 314

will not have a negative environmental impact and will ignite the economic development of regional tourism destinations like Cancun, Tulum, Calakmul, Palenque and Chichen Itza. The objective is to have the train finished in four years at a cost between US$6 billion and US$8 billion. According to Miguel Torruco, Minister of Tourism, the train will leave from

“It is not a whim nor an imposition stemming from the fact that I am from the southeast. (This train) is, above all, an act of justice because this has been the most neglected region in the country”

Cancun Airport and travel through Playa del Carmen, Tulum, Bacalar, Campeche, Calakmul, Escarcega, Palenque, the city of Campeche, Merida and Chichen Itza, ending in Valladolid. AMLO has announced that the Mayan Train will be partially funded by the Mexican government, although he has stated that funding will not be not enough and has repeatedly called for the private sector to participate in its construction. In an attempt to make the offer more enticing, López Obrador has promised a governmental subvention for companies that participate in the project. However, the construction of the Mayan Train has not generated enthusiasm among the private sector and there has been disagreement over the source of the resources that the government will use for the project. López Obrador’s election led to the elimination of CPTM and tourism authorities have said the money that was traditionally allocated for the promotional organization

authorizations and the respective consultations with the

“In the budget … there is already MX$6 billion (US$317 million) to start. But it is not enough. Those are public funds and we need a mix of resources; we also need private investment”

indigenous people of the affected areas.

December 16, 2018

would be redirected toward the construction of the Mayan Train. This news has not been well-received and even though the private sector has offered its support for the Mayan Train, it has asked the president to maintain the budget for the country’s tourism promotion. Despite complaints, the project continues and the first public tenders for the construction of the first stage of the Mayan Train will be held in 2Q19. Authorities have explained that they will not start any work unless they have all the environmental

INSIGHT |

OPEN SEAS FOR MEXICO’S CRUISE INDUSTRY SARA GÓMEZ-ORTIGOZA Director General of MSC Cruceros Mexico

Although the Mexican tourism industry is on the rise, one

Having a port in Cozumel to board passengers has

area that has yet to reach its potential is cruise ship travel.

also gone a long way to improving access for middle-

Sara Gómez-Ortigoza, Director General of Italian cruise

income travelers, says Gómez-Ortigoza. “Mexico has

liner MSC Cruceros, says cruises have gained in popularity

great potential and MSC Cruceros offers accessible rates.

in recent years but their contribution to Mexico’s economy

But Mexicans required a US visa to embark from Miami.

could increase with the existence of a base port in Mexico.

Leaving from Cozumel has opened up the possibility for

“A base port would allow more cruises to depart and arrive

more people to travel and we have seen an increase in

in Mexico and would greatly contribute to creating more

clients from the southeast of the country.”

jobs in the sector.” Positioning a base port in the country would do even more Gómez-Ortigoza says the work the cruise segment has

to bolster the industry. “When there are home ports, there

done in recent years to position itself in the minds of

is usually an agreement between the local navy workforce

Mexican travelers as a holiday option has borne fruit,

and shipping companies that allows members of the local

although MSC Cruceros is still better known outside the

navy workforce to be employed on ships,” says Gómez-

country. “MSC Cruceros is the No. 1 cruise company in

Ortigoza. “Additional employment opportunities are also

Italy, Germany and Spain but in Mexico we have problems

available to chefs or waiters who speak several languages. It

positioning ourselves.” These challenges, she adds, are

can be a new source of income for many Mexicans.” Mexican

due to two reasons: the monopoly held by large and

personnel would be particularly welcome in the service

traditional cruise companies and the belief that cruises

area, says Gómez-Ortigoza. “When it comes to service in

are expensive. “When we started operating in Mexico,

the tourism sector, Mexico has a true calling. We have very

we immediately began to compete with companies that

qualified personnel compared to other countries.”

had several years of experience. Competition is difficult because many travel agencies face restrictions related to

Gómez-Ortigoza believes the industry could become

which new cruise packages they can accept,” says Gómez-

more dynamic but it requires more public sector support.

Ortigoza. To overcome these restrictions, MSC Cruceros

“The government needs to support companies, even if

implemented a long-term strategy. “We are introducing an

they are foreign, and to invest in tourism infrastructure,

offer we are still improving. We want potential customers

including the development of better airports, ports and

to get to know our offerings and to enjoy and compare.”

services.” She adds that the public sector should support the development of more options that leave from Mexico.

Changing the Mexican perception of cruise travel is also

“I would also ask the public sector to help companies like

a challenge. “In the past, if Mexican travelers wanted to

MSC Cruceros by making administrative procedures and

travel on a cruise, they had to go to Europe or the US to

paperwork much easier. Unfortunately, in Mexico anything

embark. There was a misconception that traveling on a

related to administrative procedures even for the simplest

cruise was reserved only for those with high purchasing

thing is very complicated.”

power,” says Gómez-Ortigoza. However, the industry has taken significant steps to change this perception. “The

Gómez-Ortigoza also highlights the economic benefits

secret is to plan in advance. When travelers plan their

that the sector can offer the Mexican workforce. “I would

trips in advance, they can access better prices and travel

also ask for fiscal incentives for companies that provide

with more options. It has been a matter of educating the

employment and benefits to Mexicans. We also need better

Mexican travel sector to plan ahead and to help them

infrastructure, with more ports along the Mexican coasts.

understand that they too can access this better type of

Improved security for our travelers, both national and

pleasure trip.”

international, is also a must.”

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HELPING MEXICANS STRENGTHEN THEIR LEGACY JORGE OJEDA CEO of Grupo Aries

Q: How would you describe the state of the real-estate

the possibility to build their dream house with the best

sector in the country’s northern region?

architecture, space distribution and the highest quality

A: The area has been steadily recovering since the 2008

standards with the help of our contractors, always with

US financial crisis. Some real-estate associations such

attractive payment options.

as AMPI suggest the market has recovered around 80

316

percent compared to its level prior to the crisis. I do

Regarding the tourism sector, our successful business and

not believe we have reached the same levels yet, but

marketing model has managed to attract investors with

we have noticed a significant recovery, which I think will

high level projects to construct world-class hotels in some

continue over the coming years. Therefore, it is an ideal

of our residential areas, along with the construction of

time to invest.

luxury malls and high-rise towers to provide exclusivity with the best quality of life. This provides the public with

Q: How does Grupo Aries benefit the Mexican tourism and

a five-diamond experience, generating a virtuous win-win

real-estate sectors?

cycle for all.

A: We are a leading real-estate group with a clear business vision. We are creators of a strategic anti-crisis business

Q: Why did Grupo Aries choose to establish in Baja

model that allows any person from any part of the world

California and Mazatlan?

to construct their dream house in an ideal location, either

A: We chose these locations because we have seen an

with ocean views, in a ranch, or in the countryside. Clients

imminent need for high-level residentials in these locations.

can have several desirable payment options, regardless of

We can guarantee clients their dream house with attractive

their financial situation, credit history or income. This model

payment options, the highest possible capital returns and

also allows them to strengthen their wealth, with the highest

absolute legal certainty. We are a company that strongly

returns and absolute legal certainty.

believes in the value of family and the importance of leaving wealth to our loved ones, which is why we guarantee to all

Ciudad Paraíso, Grupo Aries' megaproject in San Jose del Cabo willextend over 500ha

our investors the highest legal certainty through a public or property deed. Our destinations in the Baja California peninsula are priced in US dollars because they are sold to Mexicans living in the US, which we attract using our expert and creative promotion strategy on important Hispanic TV networks in the US, such as Univisión and Telemundo. Regarding Mazatlan, this is an international destination with tropical weather, idealic

Around 80 percent of our clients are Mexicans but live

beaches, dining excellence and entertainment options for

and work in the US and invest in a parcel of land with

the entire family. The emblematic road between Durango

us. This investment shows yearning for their México lindo

and Mazatlan offers us good prospects to invest in our

y querido (beautiful and loved Mexico) and allows them

beach-side residential.

to build their dream house, either for their retirement, for holidays, as a second home or just as an investment. We

Q: What other regions offer interesting business

guarantee clients an ROI up to 300 percent in a five to 10-

opportunities for Grupo Aries?

year time frame. This ROI depends on the global economic

A: Part of Grupo Aries’ aim is to implement our anti-crisis

conditions but it is delivered through residencies with first-

business model across the country, so we have developed

class amenities and services. In addition, we offer them

a national business plan for this. We are a socially inclusive

Grupo Aries guarantees a 300 percent ROI in five to 10 years

company and we want to democratize our product through the entire country, so regardless of their economic situation, any person can have a first-class residential land lot, with great payment options and without interest. Guaranteed! Q: Given its anti-crisis business model, how does Grupo Aries protect its portfolio from default? A: We protect ourselves by retaining the domain of the

In addition to the privilege and satisfaction of helping these

property, as well as with attractive loyalty programs.

causes, this has brought us accreditations, distinctions

However, we do make the physical delivery of the property

and recognitions in Sao Paulo, Paris, Miami, California and

once the buyer has paid 50 percent of the total value and

obviously in our country. It has positioned us as a business

is up to date in its maintenance fees. Once the buyer pays

revelation in the country, which in turn empowers us as a

the property in full, we transfer the domain to them and

Great Place to Work company committed to social inclusion.

we provide them with legal assistance so they obtain their

Our strategy has also helped us to win the preference and

public or property deed.

trust of our investors and public in general. This is what we call a virtuous win-win circle. We are convinced that with

Q: What efforts is the company making to participate in

more socially responsible companies in the country, we will

the Mexican Stock Exchange?

have the Mexico we all want: a clean, educated, prepared,

A: Indeed, we want to become a public company to attract

honest, productive, conscious and responsible country. It

more capital and boost our business model to achieve our

will be a virtuous and winning Mexico.

national plan of strengthening the wealth of our families with the highest capital returns and absolute legal certainty

Q: In addition to becoming a public company, what are

in the entire country.

Grupo Aries’ growth expectations for the next two years? A: We want to develop our megaproject in San Jose del

We are establishing processes to standardize, systematize,

Cabo, which extends over 500ha and will become a city

professionalize and automate all our processes. This will

in itself. Ciudad Paraíso, as we call it, will have first-class

allow us to offer our client-investors an immediate, efficient

amenities and services, as well as high-level projects, such

response. Becoming a public company will help us to fulfill

as a luxurious high-rise tower, malls and a world-class hotel

our desire to become a SOFOM and to deliver the best

chain. On the financial side, we want to issue and promote

real-estate, financial and investment products that the

our new credit card Visa Aries Fortalece Tu Patrimonio with

market offers.

attractive benefits for our investors, such as free internet in their residence, life insurance, and the option to terminate

Q: In today’s business world, how important is social

the remaining debt in case of the death of the cardholder.

responsibility for a company? A: It is essential. There is no truly successful business that is

Other projects include the commercialization of a world-

not socially responsible. It is not an option but an obligation

class vacations concept. In terms of management, we want

we have as human beings and as a company. Social

to continue with the constant and relentless improvement

responsibility is an excellent vehicle to generate wealth. It

of all our processes according to our ISO 9001-2015

is not a charity business or just giving money away for the

certification. That way, we can guarantee our clients the

sake of giving it away; it is a win-win tool.

highest quality standards in their investment or product acquisition.

Grupo Aries has a constant, systematic and ordered participation in socially responsible activities, which

Q: What is on Grupo Aries’ wish list for the new presidential

has made us the first socially inclusive company in Baja

administration?

California. We have also been formally recognized by

A: We wish a lot of success to our new President. We are a

the Mexican Center of Philanthropy (CEMEFI), where we

Great Place to Work, committed to social inclusion in the

will soon have a meeting room called Aries Fortalece Tu

country, and we reassert that we are safe and strategic allies

Patrimonio at its new philanthropy house in Mexico City. This

to work toward the Mexico we all want.

means that all our investors, in addition to strengthening their patrimony with the highest capital gains, will directly support talent, sports, the environment, education, art and

Grupo Aries is a Mexican tourism and real-estate company that

culture, low-income families, handicapped children, as well

has been in the market for 15 years. It has a unique anti-crisis

as people affected by natural disasters like earthquakes

business model that allows anyone to own property through

and fires.

different payment plans, regardless of their financial position

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| VIEW FROM THE TOP

INTEGRATED OFFERING BOOSTS TRAVEL EXPERIENCE ANA PAOLA DURÓN Country Manager of Amadeus Mexico

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Q: What role does a technology company like Amadeus

A: There needs to be communication and synergy between

play in the tourism and travel sector?

the different players, including the government, private

A: Amadeus is the global technology leader for the tourism

initiatives and other members of the tourism sector.

industry. We are the bridge between all players in the sector,

Amadeus is a key player in making this connection. We

including travel agencies, hotels, car rental companies,

have an important relationship with the government,

insurance companies, airports and airlines. We provide the

companies from the private sector, tourism associations

technology and platforms that connect these companies

and representatives from different tourism destinations,

and act as a consultant when developing their business

providing not only technology but enabling business

strategies, helping them to analyze their expectations and

development.

their current processes. Q: What future travel trends has Amadeus identified? We are the owners of our technology and do not rely on

A: The tourism industry is extremely dynamic. We have seen

third-party collaborations to offer our technology solutions.

the change from paper tickets to full digitalization, which

Since we also own our data center, we have the capability to

was a milestone. These changes are happening constantly

not only manage all travel transactions but also to generate

and they prioritize the travel experience.

business intelligence and discern trends in the travel sector. All this helps us to complement our services beyond the

Travelers not only look for the product itself, the airplane

technology element.

or the hotel; they want to live an experience that starts the moment they begin their travel research. It continues

Q: How does the company’s operations in Mexico add value

throughout the travel period itself and even after it has

to the business globally?

ended. Technology must be present at every stage. Today,

A: Amadeus considers Mexico a strategic country, not only

if someone has a bad travel experience the entire world

because of its geographic location that connects the Pacific

knows about it because of social media. We support our

with the Atlantic ocean and the north with the south of the

clients and help them ensure that the final travel experience

continent but also because of the potential of the tourism

exceeds expectations.

sector here. Connectivity is also crucial. Travelers want to know in real Mexico is a rich country in terms of biodiversity, destinations,

time if any detail of their trip has changed. In this sense,

traditions and culture and we believe tourism should be

technology becomes essential. We know the human touch

among the country’s engines of economic development. In

will never be replaced but we also understand that adding

general, tourism contributes over 8 percent of the country’s

technology to the human element helps to improve the

GDP. We want this to continue growing and Amadeus to be

overall travel experience.

the technology ally for all tourism service providers. Another trend we have identified is that travelers expect to Q: What are the challenges you perceive in Mexico for the

find all their travel options in one place, which means having

development of a stronger tourism sector?

the plane, hotel, shows, activities and dinner options on the same platform. It is important to note that travelers are not always looking for the most economical option. There are

Amadeus is a technology company that specializes in the

those who are focused on luxury or niche travel, so it is

tourism and travel sector. It is present in more than 190

important to also cater to them. All these options need to

countries, with over 30 years in the market and 23 years in

be in a single, agile platform that allows the search process

Mexico

to be done quickly. Segmentation is key.

VIEW FROM THE TOP |

LATIN AMERICAN TECHNOLOGY FOR LATIN AMERICAN NEEDS BRENDA ALONSO Country Manager of Argo Solutions

Q: As a Latin American company, what is Argo Solutions

country is the second-largest economy in the region and

proposal for the Mexican market?

has similar complexities to those we experienced in the

A: Argo is Latin American technology for Latin American

Brazilian market. One of our greatest added values is that

countries. Thirteen years ago, when the company was

we are a platform that understands the complexities of the

founded in Brazil, we decided to take advantage of

Latin American market.

something called New Distribution Capability (NDC), which was in vogue with local airlines. NDC allows airlines to open

Q: How does Argo differentiate its services from those

up their inventories to companies so they no longer have to

offered by traditional players like Sabre?

pay commissions to third-party distributors, such as global

A: It is precisely our knowledge and expertise of the Latin

distribution systems or travel agencies. Argo offers the

American market that differentiates us. Argo not only offers

Mexican market this disintermediation between airlines and

travel reservations but everything related to travel expense

the tourism and corporate markets. So far, we have 45 direct

management. We understand the needs of the market and

connections, meaning that 45 airlines or hotel aggregators

have created specific technology for markets like Mexico,

provide us with a connection through their own APIs so we

Colombia and Argentina. That is our strength. For Argo,

can distribute their inventory across all of Latin America.

Latin America is 100 percent of its market, while for other companies like Sabre, Latin America represents a very small

Argo Solutionsâ&#x20AC;&#x2122; business model is divided into two

percentage of their global market. For us, Latin America

segments: travel, in which we sell franchised licenses to

is everything, which is why we strive to create solutions

significant players such as American Express, CWT or BCD.

specific to the region.

This means that they take our technology, implement it and become a search engine and management of corporate

Q: How does Argo Solutions overcome reluctance from

travel. We also have a travel expense management segment,

businesses to implement new technologies?

through which we sell our solution directly to businesses.

A: It is a big challenge since Mexicans tend to be wary by

The Latin American market, which includes all the countries

nature. We have found that Mexican corporate travelers like

outside Brazil, represents between 12 and 14 percent of

to send an email to travel agencies indicating flight dates

Argoâ&#x20AC;&#x2122;s income. Our goal is that in five years this market will

and their preferences. Travel agencies send the available

represent 50 percent.

options. The problem is that there is no guarantee that the rate that the travel agency offers will hold up, which means

Q: What opportunities did Argo observe in the Mexican

that companies do not actually save money. This is where

market that led the company to establish operations here?

technology comes in with all its benefits.

A: Argo is a leader in the Brazilian market, with over 60 percent market share, but the company realized that if

What we are doing is implementing best practices, working

it wanted to grow it needed to participate in other Latin

with our resellers, educating travel agencies and businesses

American markets, such as Mexico, Colombia and Argentina,

about the benefits of automating their processes. The

where demand existed. Technology that comes from the US

advantage we see is that once Mexicans learn and adopt

or Europe is geared toward the Anglo-Saxon market and

these technologies, they do not let go of them.

does not meet the needs of the Latin American segment. That is how the expansion project began. Argo Solutions is a Latin American leader in the travel and

Markets like Argentina and Colombia were obvious

expenses management segments. It has offices in Brazil and

expansion choices because of geography. However, Argo

Mexico and operates in over 19 countries, with 4 million active

took the decision to open offices in Mexico because the

users and almost 3,800 clients

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| INSIGHT

DISRUPTION NOT A FRIEND TO EVERYONE JULIÁN ABAD Partner at Salles Sainz - Grant Thornton

Technology has inevitably disrupted the hospitality

estimates that in low seasons, occupancy rates fall up to

business in Mexico, generating a division between large

40 percent due to Airbnb, while occupancy during high

companies and small businesses, says Julián Abad, Partner

season drops 20 percent.

at global consulting firm Salles Sainz - Grant Thornton.

320

“There has always been a gap between large business

Still, the sector continues to offer many opportunities

groups and small businesses and technology is widening

to grow and innovate, which is why Salles Sainz - Grant

it. Large companies are becoming monopolies, while small

Thornton is venturing into the industry. “In Mexico, tourism

businesses are struggling to survive,” says Abad.

carries significant weight in the economy, which is why we are taking up the hospitality business as an area of

The internet, in particular, has changed the way the hotel

interest.”

industry works all over the world, creating new business models and allowing the entry of new players. “The internet

Despite the widespread permeation of technology across

has allowed hoteliers to share risk. This means they sell

the sector that has helped put Mexican destinations on the

about half the available rooms to a tourism wholesaler

tourism radar, Abad says Mexican government institutions

that in turn offers these rooms through search engines

have also played a role in creating new destinations.

like Trivago. As a result, the hotel only has to sell part of

Specifically, he highlights the National Fund for Tourism

its total occupancy.”

Development (FONATUR). “FONATUR is in charge of developing tourism destinations from scratch. Its first

Abad says this model allows hotels to guarantee a

success was Cancun in the 1970s but since then it has

minimum occupancy rate in low season and have a cash

continued to create different tourism poles, although not

influx that permits them to pay for maintenance expenses.

all have been as successful as Cancun.”

Although the model has allowed consumers to access more affordable prices, Abad says it has generated a

There are many factors that have impeded the development

negative impact for small hoteliers who cannot absorb

of other destinations, with a lack of connectivity ranking

costs as large hotel chains do. “Tourism wholesalers offer

high. “Ixtapa, Guerrero and Huatulco, Oaxaca are two

accommodations at rack rates that allow tourists to pay

examples of destinations that have had problems taking

lower prices.”

off because of connectivity issues.” Unfortunately, Abad says that connectivity is just one of the hurdles these

The internet has also opened the door to the gig economy

destinations face. Others include social unrest, insecurity

with business models like Airbnb. “Airbnb represents an

and organized crime.

unfair competition for the hotel sector because it does not pay the same amount of taxes. Airbnb gets a rent

Yet, Cancun remains a good example of what is possible.

commission from the listed unit but unless clearly stated

“FONATUR’s development of Cancun led to the creation

in local laws, it does not pay the same occupation tax as

of the state of Quintana Roo, which used to be federal

hotels, nor does it generate the same income for the sector

territory.” Natural beauty has helped to put Cancun on

as a hotel,” says Abad.

the map but according to Abad, the city is taking on a predominant role as an air hub. “The arrival of Donald

Airbnb pays some local taxes in places like Mexico City and

Trump as US president and the toughening of US visa

Cancun but it does not pay federal taxes, such as income

requirements have led Cancun to take on the role Miami

tax and VAT, while hotels do, says Abad. As a result, the

used to play as an air hub for flights to Europe from Central

Mexican hotel industry continues to ask for regulation to

and South America.” At least two-thirds of the passengers

oversee such platforms. According to Abad, the industry

going through the Cancun airport are in transit, says Abad.

VIEW FROM THE TOP |

FOSTERING THE CREATION OF A SUSTAINABLE TOURISM OFFERING RICARDO SCHÖNDUBE Managing Partner of Schöndube Abogados

Q: What opportunities did Schöndube Abogados identify

If hoteliers start reducing their tariffs because of excess

in the hospitality sector to specialize in the area?

offering, this will generate a decline in the quality of the

A: Tourism is a significant component of the country’s GDP

service provided. What we need to do is achieve balance

and cities like Cancun, Merida, Playa del Carmen and Tulum

with sustainable projects. This means generating projects

have experienced unprecedented growth. We see significant

that offer different options to sun and beach and that are

growth opportunities in the south of Quintana Roo and

not concentrated in areas where you no longer can fit more

the northern part of Cancun, in niches that go beyond the

hotels, such as Cancun’s hotel strip. However, to ensure

traditional tourism offering of sun and beach. Quintana

Quintana Roo’s viability as an investment destination, the

Roo is a state with many natural resources that allow for

government needs to implement legal processes that are

the development of the tourism industry. We need to take

transparent and that do not allow for corruption.

advantage of this and generate a sustainable tourism product. Q: What is Schöndube Abogados assessment of the Another opportunity is to continue investing in the

construction of the Mayan Train?

southern part of the country, not necessarily the Riviera

A: We cannot talk about the Mayan train without talking

Maya or Cancun. There are many places that could receive

about the current needs of Cancun and the Riviera Maya.

investments and we need to take advantage of the

Before the project is done, we need to clarify the objective

connectivity that Cancun airport offers. When it comes to

of the train, including how many people are going to benefit,

international flights, Cancun is the airport with the highest

which places it will impact that today cannot be reached by

traffic and the second-most important airport in the country

car or bus and so on. I am in favor of the construction of the

in terms of traffic for national flights.

Mayan Train but at the same time I think that the government should consider other priorities before constructing it. There

Q: Quintana Roo has received significant investment in the

are also other infrastructure projects that could be carried

past years. What could hinder further investment in the state?

out to improve mobility or services in the region, such as a

A: Security and rule of law are fundamental. Mobility in the

train between Cancun and Bacalar or a bridge that crosses

city of Cancun and the state of Quintana Roo is another

the Nichupte Lagoon to improve mobility in Cancun.

issue. We are starting to see Cancun becoming overloaded and the journey between Cancun and the Riviera Maya is

Q: What type of projects would Schöndube Abogados like

now taking too much time. This is a sign that the existing

to be a part of in the future?

infrastructure to transport tourists between the airport and

A: We are participating in a hotel project that has been a

their final destinations is inadequate.

great challenge and that is the largest in terms of square meters in the municipality of Benito Juarez in Cancun. We

Q: Quintana Roo and the Cancun area have seen an increase

seek to make every project we are a part of sustainable and

in the number of hotels and hospitality infrastructure. Has

compliant with rule of law. Our firm does not participate

the region reached a saturation point?

in any project of any client that does not comply with

A: Cancun is a destination that has been averaging

environmental and urban frameworks. We want to continue

occupancy rates above 80 percent in the last few years.

working with clients that are doing things the right way.

If you consider the entire corridor of the Riviera Maya, you can probably reach around 75 percent occupancy rates. This data tells us that we need more hotel rooms

Schöndube Abogados is a law and consulting firm founded in

and that as long as there is sustainable investment and we

2009. Based in Cancun, it is a leader in the hospitality sector.

have conditions to receive and provide excellent services,

The firm advises clients in the structuring and optimization of

investors and tourists will continue coming to the state.

their business

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Facebook's offices, Torre Virreyes, Mexico City

TALENT & CONSULTING

New technologies, such as Industry 4.0 practices and AI, put a strain not only on the countryâ&#x20AC;&#x2122;s productive activities but also on its talent needs. The disappearance of traditional jobs, as well as the evolution of the skills needed to participate in innovative industries, impact society as a whole. Educational institutions have the challenge of adapting their academic programs to new industry realities that may not even exist yet and to teach their students soft, rather than hard skills to stand out.

Talent & Consulting explains how the talent sectorâ&#x20AC;&#x2122;s transformation impacts players from several sectors and industries, as well as the countryâ&#x20AC;&#x2122;s legislative framework. Changes in the labor law have long been demanded by talent-related companies but now that USMCA and other international agreements, such as TPP11 and the ratification of the Convention 98, are a reality, the government is finally open to move forward with these. Change does not come easy and it remains to be seen how organizations and companies will adapt to the new reality.

323

CHAPTER 13: TALENT & CONSULTING

326

ANALYSIS: Technology, Globalization Call for Change in Labor Environment

327

VIEW FROM THE TOP: Carlos Prieto, EBC

329

VIEW FROM THE TOP: José Antonio Lozano, UP and IPADE

330

INSIGHT: José Raul Guerrero, Korn Ferry

331

VIEW FROM THE TOP: Alexis de Bretteville, Morgan Philips Group

332

INSIGHT: Gabriel Aparicio, Kelly Services

333

VIEW FROM THE TOP: Jorge Pérez, Grupo PAE

334

INSIGHT: Andrés Díaz, China Campus Network

335

Sergio Masse, China Campus Network

INSIGHT: Oscar de la Vega, De la Vega & Martínez Rojas

Ricardo Martínez, De la Vega & Martínez Rojas

336

VIEW FROM THE TOP: Gabriel Pizá, Pizá Attorneys at Law

337

VIEW FROM THE TOP: César Maillard Cárdenas, Maillard Abogados Laborales

325

| ANALYSIS

TECHNOLOGY, GLOBALIZATION CALL FOR CHANGE IN LABOR ENVIRONMENT As industries evolve, so do talent needs. Although many companies have made an effort to train their employees in new technologies and capabilities, the challenge is not theirs alone. The entire Mexican education system needs to put analytical capabilities at the forefront to enable the transformation of the Mexican economy Mexico has banked on its low-cost landscape to attract

is to offer education that can adapt to the jobs that will appear

investment and position itself as a manufacturing hub.

in the coming years. We have realized that hard skills are not

But what worked before will not necessarily carry into the

so important, since what we teach students today may be very

future. This is the juncture at which the country finds itself.

different from what they will need in five years.” Regardless

“We cannot deny we are a manufacturing country. However,

of the change that might come, Prieto says all students

we need to change this mindset and become a hub for

must develop leadership, problem-solving and innovation

technology innovation and knowledge generation. This will

capabilities. “What we really need to do is help our students

lead to an increase in competitiveness and productivity,” says

develop skills that allow them to adapt to any kind of job.”

Gabriel Aparicio, Country Manager of Kelly Services. A full transformation of the working environment, however,

326

The implementation of Industry 4.0 practices in many of

would not be complete without a change in the country’s

Mexico’s economic activities has shone a spotlight on the

labor legislation to allow for talent mobility or flexibility.

need for change. According to the World Economic Forum

“Organizations and institutions need to start a re-education

(WEF), the future of the working environment will endure

process to break the stigma regarding flexible work,” says

three different stages: technological change, learning

Aparicio. “Work flexibility helps organizations to complement

evolution and talent mobility. WEF estimates that between

their existing workforce.” Talent-related companies have

2015 and 2020, 7.1 million traditional jobs could be lost due

long demanded changes to the labor law. It was not until

to disruptive changes in the market stemming from Industry

the signing of USMCA and other international agreements,

4.0. Jorge Pérez, CEO of Grupo PAE, believes there is a pool

such as TPP11 and the ratification of the Convention 98 of the

of talent that will not be able to get a job because of the

International Labor Organization, that this became part of a

lack of experience regarding the most elementary digital

more mainstream discussion. “Mexican law is emulating the US

skills. “If someone does not know how to handle a computer,

model … the labor reform we will experience is a response to

that person’s employment opportunities are reduced. This

international paradigms more than the will of internal players.

represents a huge problem because we have a critical mass

Labor law has stopped being a local issue,” says Oscar de la

of talent that, unfortunately, has not been developed due to

Vega, Managing Partner at De la Vega & Martínez Rojas.

a lack of opportunities.” Pérez adds that this is a common phenomenon across Latin America.

Labor environment and conditions also put Mexican wages under the spotlight. De la Vega says that for many years, one

José Raul Guerrero, President of Mexico and Central America

of Mexico’s selling points was its low-cost labor force. This

at Korn Ferry, says the changes generated by Industry 4.0

has taken a toll on the country’s social tissue. “Since 1994,

will irreversibly alter existing work dynamics. “All jobs

the country’s low labor cost has been presented as a selling

considered mechanical or repetitive will disappear if they

point for investors but this is no longer sustainable. We need

can be automated or solved through AI. We have not seen

an integral work policy that provides added value to the

the whole scope of this transformation,” he says. “It is very

workforce,” he says.

hard to define what is going to come in terms of employment … but it cannot be denied that companies need to reinvent

As worrisome as wage conditions are, the steps taken by the

themselves to understand technology and how to compete

current administration regarding wage increases by decree

in this environment.”

go against the country’s free-market logic and could create a more serious problem for its economic units. “Individual

SOFT-SKILL DEVELOPMENT

salaries should be linked to each person’s performance and

The evolution of skills and education is impacting all academic

not to the minimum established as the national average.

institutions in the country. Carlos Prieto, Dean of EBC, says

The new government’s proposal of increasing the current

educational institutions must focus on two areas: adapt their

minimum wage without taking into consideration inflation will

study programs to the new industry realities and teach their

create a significant economic unbalance,” says César Maillard

students soft skills rather than hard skills. “Our main challenge

Cárdenas, Partner at Maillard Abogados Laborales.

VIEW FROM THE TOP |

90 YEARS OF CHANGING MEXICO’S FINANCIAL EDUCATION CARLOS PRIETO Dean of EBC

Q: EBC is celebrating its 90th anniversary in 2019. What

Q: How do you position EBC against other private and

is your general assessment of the school’s impact in

public universities?

these 90 years?

A: Students can study finance at EBC, ITESM or other

A: Our main contribution has been our 170,000 graduates.

universities; the difference at EBC is its DNA, which is

EBC is the oldest private institution for higher learning in

embedded in our mission. We have clearly defined that we

the country and was created as a Banxico training center.

must train professionals with an entrepreneurial vein. For

In 1929, when the school was created, the country had

us, an entrepreneur is someone who dares to do new things

just emerged from the revolution, so the financial system

and who is not necessarily comfortable with the status

was disorganized. One of the first problems the country

quo. Our hallmark is that our graduates need to have an

faced was that there were not enough educated people to

entrepreneurial spirit.

manage the financial system. EBC was created as a result and later became an independent institution.

Each university has its own characteristics. Our principles define the EBC community and our students understand

Throughout these 90 years, EBC has grown and evolved

that they will be students forever, in the sense that our

but we remain committed to our principles. With 15,000

students must understand that any knowledge that we pass

students, 1,200 faculty members and 800 administrative

on to them will soon be obsolete. We believe that those

personnel, EBC is a community of around 17,000 people

who are in our classrooms are fortunate. In this country,

that continues to grow. In 2000, the school decided to

only around 35 percent of those who graduate from high

venture to other cities and today we are located in 10 states.

school start a college education. We teach students how to create and distribute wealth, having the consciousness

Q: How are you adapting your programs to cope with new

to do so in a responsible and ethical manner.

technologies and regulations? A: In 1929, to study a higher education program at EBC,

Q: What is the extent of EBC’s Aulas Remotas (remote

students only had to graduate from elementary school. The

classrooms) project? Why did you choose Universia and

most robust careers at that time were private accounting

Banco Santander as partners?

and banking. Today, we offer eight careers focused on

A: Banco Santander has a project related to social

business area some master’s degrees. At first, we only

responsibility and within this project they selected higher

taught through physical mediums, which meant that

education as the area to support. The institution within

students had to go and sit in our classrooms. Now we have

Banco Santander in charge of this project is Universia,

the option of distance learning. Although everyone now

which sponsors us and supports our Aulas Remotas project.

knows what distance learning is, when we implemented it was revolutionary.

The issue we face is how to bring education of quality to remote locations. Through this technology, we can provide

Our main challenge is to offer an education that can be

quality education to students that might be in San Luis

applied to the jobs that will appear in the coming years.

Potosi or Merida while the professor is in Mexico City or

We have realized that hard skills are not so important, since

Guadalajara.

what we teach students today may be very different from what they will need in five years. What we really need to do is help our students develop skills that allow them to

Escuela Bancaria y Comercial (Banking and Commercial

adapt to any kind of job. Regardless of their hard skills, we

School) , or EBC, is a Mexican private university founded in

help our students develop leadership, problem-solving and

1929, making it the oldest private university in Mexico. The

innovation skills, along with team work and communication.

school offers majors focused mainly on business

327

Render Ciudad UP, Bosque Real, State of Mexico

VIEW FROM THE TOP |

BUSINESS-FOCUSED EDUCATION WITH A HUMAN TOUCH JOSÉ ANTONIO LOZANO Dean of UP and IPADE

Q: What are IPADE’s main contributions to the Mexican

A: It is a huge challenge related to the concept of the university

business community since the school’s founding in 1967?

of the future. Academic programs have to adapt to a more

A: In the 1960s, the country did not have a developed

complex reality, one that is more evolved in technological

business culture. It had a commercial culture and there were

themes and relational styles. We need to be up to date on the

some Mexican businesses that enjoyed social prestige, but

current business environment and have the flexibility to teach

that was it. A group of businesspeople were concerned

relevant content. However, our programs would be superficial

about this and created the business school. IPADE offers

if they were not accompanied by solid training in mental logic

academic programs in upper management using the case

and processes, which is why we teach students how to solve

method as its educational strategy. The school has created

problems and face and adapt to new realities.

an ecosystem in which participants face everyday problems related to business and has looked for ways to instill a solid

Q: What collaborations or partnerships with other academic

ethical vision and sense of social responsibility in its graduates.

institutions and businesses has IPADE developed?

IPADE started operating in 1967 and it has close to 40,000

A: In the past, our goal was to have the largest number

graduates. According to a commissioned qualitative study,

of academic exchanges with the most possible countries.

IPADE has impacted several business communities in the

We have taken another step and now target well-chosen

country regarding their long-term business vision.

strategic partners to establish not only students but also professor exchanges and to work on joint academic research

Q: What makes an IPADE graduate more competitive than

programs. We have relationships with five of the world’s

a counterpart from other universities?

Top 10 business schools, including Harvard Business School

A: IPADE has two distinctive elements. First, its programs are

and the Kellogg Business School. Instead of implementing

directed to upper-management positions. This means that

volunteer international exchanges, we have developed

our programs focus on leadership skills alongside technical

complete courses wherein students are obligated to spend

knowledge. Second, IPADE is centered on an anthropological

three weeks abroad to complete the course.

model of business that answers to the needs of society. The school’s graduates are businesspeople whose main goals

Q: What challenges do Mexico’s post-graduate

are not only the generation of revenue but of added value.

institutions face? A: In general, education in Mexico faces significant

Q: Companies sometimes choose executives from abroad.

challenges. According to INEGI, Mexico’s natality rate is

What are the management and leadership needs of the

below 2 percent, which means the population is starting

Mexican business community?

to decrease. As a result, in the coming years fewer people

A: Globally, we are seeing an appreciation for soft skills in

will be going to university. Mexico has the largest number

management and middle-management positions in different

of registered universities in the world, with over 3,000.

sectors. These soft skills are more focused on negotiation,

We must find a new business model that does not rely on

ability to create teams, working under pressure and decision-

tuition, such as alumni support, research projects or patent

making in uncertain scenarios. IPADE has fostered these skills

generation, that could become a source of revenue and

for years but they are only now being valued by the business

sustainability for the university in the long term.

community. The world is facing a moment of high volatility, uncertainty, complexity and anxiety. In light of this, business leaders require adaptability and a focus on collaborative work.

The High Corporate Management Panamerican Institute (IPADE) is Panamerican University’s (UP) graduate school.

Q: What are the challenges of keeping academic business

It was founded in 1967 and specializes in business-focused

programs up to date?

graduate programs for upper management

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| INSIGHT

UNCERTAINTY AN OPPORTUNITY TO INVEST IN TALENT JOSÉ RAUL GUERRERO President of Mexico and Central America at Korn Ferry

Technology and innovation are meant to help companies

crucial role in growing the company’s presence in the talent

pare costs and boost efficiencies, but they might not

services market, providing the tools to build an integral

be ready for such disruption, says José Raul Guerrero,

offering rather than punctual recruitment services.

President of Mexico and Central America at Korn Ferry.

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“Changes will come that will alter our work dynamics,”

Although Korn Ferry’s business diversification has been

he says. “All jobs considered mechanical or repetitive will

an ongoing effort, the acquisition of Hay Group generated

disappear if they can be automated or solved through AI.

buzz in the market, according to Guerrero. “We had already

We have not seen the whole scope of this transformation.”

acquired several firms to strengthen our talent services business. However, the acquisition of Hay Group for US$400

Technology changes might generate uncertainty but

million attracted a great deal of attention and helped us to

Guerrero says they also offer an opportunity for companies

become an important competitor in this market.” As a result,

to reinvent themselves. As an example, he highlights the

the company in Mexico is now 70 percent headhunting and

15-year transformation at Korn Ferry, a company with

30 percent talent consulting. Korn Ferry Mexico’s local

over 40 years of experience in Mexico. Korn Ferry moved

projection is to reach a 50-50 ratio in the short to medium

from being an executive search headhunter to a full-scale

term. “Our advisory business is not a short-term venture; it

provider of products and services related to talent matters.

is a long-term vision that we will develop over the next two

The company’s executive database, once the essence of the

to five years without neglecting our core business,” says

company, was put into question when LinkedIn disrupted

Guerrero. “Once the strategy is fully implemented, growth

the whole industry of talent attraction. “When LinkedIn

will come from an impeccable execution.”

arrived, people got nervous and said the platform was going to destroy our line of business,” says Guerrero. “We realized

Just like Korn Ferry, Guerrero says organizations need to

that if we wanted to maintain our presence in the market,

transform internally to endure into the future and tackle the

we had to reinvent our business. Instead of disappearing,

changes to come. “It is very hard to define what is going

our operations grew because we were quick to respond.”

to come in terms of employment,” he says. “But it cannot be denied that companies need to reinvent themselves

Korn Ferry’s transformation continues today. “In the past

to understand technology and how to compete in this

15 years, we have diversified and reinvented our services.

environment.”

We went from being purely a headhunting firm to a onestop shop operation regarding talent,” says Guerrero. “We

Juncture moments are important opportunities for companies

are in charge not only of finding the adequate candidate

to steer the wheel and whenever there is uncertainty,

but also overseeing talent development, talent assessment,

businesses and investors must make a push to have the best

employee engagement, executive and employee

possible talent in their organizations. According to Guerrero,

compensation, among other aspects in the talent arena.”

in the past half-year there has been a spike in the requisition of general managers and finance directors, key positions for

Technology and intellectual property were among the

setting a company’s strategy and managing its budget. “When

main reasons behind this transformation, along with the

companies are facing uncertainty, they need to have the best

firm’s need to diversify its business opportunities. “The

possible person at the top to help navigate turbulent waters,”

headhunting business is profitable but limited. The talent

he says. Given the current geopolitical conditions, Guerrero

consulting business, on the other hand, is a considerably

believes this spike in executive searches will continue all

more sizeable market, since companies must always

through 2019. “It is time for companies to reinvent themselves,

continue developing their available talent.” Korn Ferry’s

step out of the box and their comfort zone. The problem is

acquisition of Hay Group, completed in 2015, played a

that many of them do not realize they are in this zone.”

VIEW FROM THE TOP |

TECHNOLOGY DOES NOT ELIMINATE HUMAN APPROACH IN RECRUITMENT ALEXIS DE BRETTEVILLE Deputy CEO of Morgan Philips Group

Q: Why did Morgan Philips choose Mexico as its only

A: Our business is based on three main services. Executive

location in Latin America and what separates your offer

search focuses on the selection of talent for senior

from the competition?

management levels and involves the all-important human

A: We are a startup with less than five years in the global

touch but also innovative tools for sourcing and candidate

market, led by people with significant experience in the

identification. We also provide a talent consulting service

human resources arena. We understand that the talent

that includes going to companies and executing programs

selection market is changing rapidly thanks to the revolution

for high-potential employees. We conduct evaluations

launched by machines, AI and social networks. However,

and activities that generate commitment, in addition to

many talent selection companies only provide a transactional

motivating employees by helping them to understand the

service, meaning that the only thing they do is send CVs to

company’s purpose. Having a corporate vision is crucial

companies. This is not the way the industry is trending. We

for the success of any company, as well as for increasing

must provide a service with greater added value in addition

profit and attracting the best talent. Our third pillar is our

to creating disruption in the selection market through a focus

Fyte service brand, which is a very technological and digital

on technology that helps companies to improve their hiring

branch that focuses on the selection of midlevel talent.

processes. Though we invest in technology, we also want to maintain the human part of our service because we believe

Q: How will the appearance of new technologies such as

it is indispensable in our line of work. It is very important to

AI and Industry 4.0 impact the talent market in Mexico?

combine what we call high-tech and high-touch, which is the

A: Previously, companies looked for skills or abilities but

human touch that is always needed in selection processes.

that has changed. Now companies are focused on attitude and personality. We have developed a test called Pulse

Given our high-tech focus, we have introduced new

Mindset that allows us to asses a candidate’s mindset.

technologies to Mexico that change recruitment processes.

We know that skills can be acquired and that a candidate

For a midlevel position, we will send the company a select few

might have experience in a determined sector, but the most

people who have already completed short video interviews,

important thing for a company is how people react and how

which allow human resources departments to gauge the

will their personality integrate into the company’s culture.

applicant’s fit with the company. Also, instead of publishing

We work a lot with emotional intelligence and personal

their vacancies on social networks, our consultants record

development, which are highly linked.

their own video in which they talk about the job vacancies. These are tools that did not exist in Mexico and that provide

Q: What are Morgan Philips’ expectations for the midterm

us with an advantage. We also use all the information in

and what will be Mexico’s role in the company’s strategy?

our databases to feed our predictive recruitment tools. We

A: We are ambitious and see Mexico as a country that will

have introduced all these tools to Mexico because we think

allow us to grow. We want Mexico to be the base of our

this market offers significant opportunities. The Mexican

development in the Americas. Our intention is to set up a team

market is not mature enough in terms of competition. Most

in Mexico that will be in charge of developing our presence in

companies still conduct their own recruitment process. Part

South America. We believe Mexico has a bright future and we

of what we do is to contact people who are not even looking

have significant and aggressive expansion plans.

for a job, those who are below the radar. We have a sourcing center in Mexico that is aimed at identifying people who are passively looking for work.

Morgan Philips is a human resources company with presence in 22 countries. In the Americas, the firm has operations

Q: How do your solutions complement each other to

in Canada and Mexico, where the company launched its

generate a comprehensive service for clients?

business in 2016

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| INSIGHT

SPECIALIZED TALENT MEETS FUTURE NEEDS GABRIEL APARICIO Country Manager of Kelly Services

Constant technology advances have made innovation and

need to look for flexible labor that can provide a solution. Still,

knowledge generation the two most important drivers in

companies tend to oppose this flexible model because they

economic development and Mexico is no stranger to this

are afraid the quality of their services will be compromised,

trend, according to Gabriel Aparicio, Country Manager of

Aparicio adds.

recruitment and talent management company Kelly Services.

332

“To comply with investors’ needs and attract further FDI,

According to “Eight Futures of Work,” a white paper released

we require a combination of material resources, adequate

by the World Economic Forum (WEF), flexibility— considered

technology and talent,” he says.

as varying working hours and a mix of full-time and parttime jobs — is a key element in addressing labor surplus and

Although it offers many favorable investment conditions,

deficit. Aparicio says globally, one in every three employees

the country still needs to bolster its talent specialization

is hired under a flexible work scheme, with Asian countries

to increase economic competitiveness. However, talent

being the main adopters of this trend. Even though Latin

specialization does not come easy and Aparicio says the

American countries are not among the early adopters, most

country needs to change its educational model and make

countries in the region have made significant advances

it shorter to deliver the personnel the industry demands. “If

in its implementation and now legislation must catch up

students graduated from college in less time than they do

to incentivize the use of this scheme. “Organizations and

now, this could help to satisfy the existing talent demand in

institutions need to start a re-education process to break

the market,” he says. “We need to reduce dropout rates at

the stigma regarding non-traditional work styles,” he says.

the college level, which is among the main obstacles to talent

“According to WEF, 80 percent of the work we will do by 2020

specialization.”

will be completed in nontraditional places. This will require hyper-connectivity, collaboration and transparency to reach

Along with changing the education model, Aparicio says

results.” Adding to the need of flexible talent, WEF states

a change in mindset among students and employees is

that between 2015 and 2020, a total of 7.1 million traditional

also necessary to incentivize continuous education toward

jobs could be lost due to disruptive changes in the market

specialization, the lack of which is impacting the country’s

stemming from Industry 4.0, which is why Aparicio argues

ability to fully participate in Industry 4.0 “We cannot deny

that job flexibility will provide new employment options.

we are a manufacturing country,” says Aparicio. “However, we need to change this mindset and become a hub for

Before moving into new trends, however, Aparicio says the

technology innovation and knowledge generation. This will

country should focus its efforts on tackling labor informality

lead to greater competitiveness and productivity.”

or it could lose its economic competitiveness. “In Mexico, one in every six jobs is linked to informality,” he says.

Beyond manufacturing processes, changes deriving from

“These workers have no access to social security, which is

Industry 4.0 will impact people’s way of life, work and

an important component of a person’s well-being and a

management practices used in the corporate sector. Work

key to ensure productivity.” Kelly Services is adapting its

flexibility based on talent availability for temporary hiring will

processes to continue leading in the job recruitment sector,

be among the practices that will attract the most attention,

under new paradigms privileging non-traditional workstyles.

although Aparicio thinks this type of work has been unfairly

Together with flexibility, the company has made specialization

stigmatized in various regions. “A flexible workforce helps

a priority, without dropping the ball on the importance of

organizations to complement their internal talent, thus driving

talent formality. “Kelly Services was the pioneer in outsourcing

growth,” he says. In the manufacturing industry, in particular,

services in the country,” says Aparicio. “To help the country

companies must solve problems immediately, which means

move forward, we must be promoters of formal employment,

that if their in-house talent cannot solve these issues, they

which is the only thing that will make the country grow.”

VIEW FROM THE TOP |

RESPONSIBLE TALENT SOURCING TO GROW THE INDUSTRY JORGE PÉREZ CEO of Grupo PAE

Q: Grupo PAE is celebrating its 25th anniversary. What factors

Q: There has been an effort to eradicate so-called bad

have permitted the company’s expansion over the years?

outsourcing. What actions can be taken to reduce the

A: Grupo PAE is among the founders of the staffing industry

number of these companies ?

in Mexico and part of our philosophy has always been not

A: AMECH was created to differentiate the companies

to limit ourselves, which has made us the only Mexican

that do things right and those that operate outside the

human resources company with presence in so many

law. All members are audited to certify that they comply

countries. In addition to being a pioneer in the Mexican

with the law, an initiative that has been operating for 18

staffing industry, as a result of the changes in Mexican law

years. Eradicating bad practices, however, is a shared

and the appearance of new players in the sector, Grupo PAE

responsibility between the industry, the law and companies,

became one of the founders of the Mexican Association of

which makes this a social responsibility issue. Companies

Human Capital (AMECH) in 2001.

need to be coherent and not hire outsourcing companies that offer much lower prices by operating outside the law.

One of Mexico's realities is that the informal economy continues to grow at a rapid pace. In Mexico, most

Q: How does Grupo PAE implement technology and

outsourcing companies do not comply with the law, offering

innovation in the services it offers?

lower costs at the expense of social security payments for

A: We have changed the way we communicate with our

workers. Part of AMECH’s mission has been to structure and

candidates. We have also developed technological platforms

formalize outsourcing companies and to limit the appearance

for both talent attraction and payroll processing. This gives

of informal outsourcing companies. In this context, PAE has

our users and clients more accessibility. Although technology

played a relevant role in the development of the outsourcing

improves processes, the benefit also depends on how this

industry in Mexico, which is something we are very proud of.

technology can be applied in each country. There are many countries, like Mexico, where it is necessary to provide signed

Q: How does the Mexican business compare with other

physical documents because digital applications are not

Grupo PAE locations?

valid. The more we can implement new technologies, the

A: The difference can be found in local laws and in the

more we will be able to innovate the services we provide.

strength of unions. In 1985, in Mexico you could not find any outsourcing company outside of Mexico City. The signing of

Q: When it comes to talent, what are the most important

NAFTA, as well as the growing need for companies to have

needs of companies?

flexible staff, allowed the outsourcing industry to develop

A: Companies look for agility, speed and access to talent,

and, as there was no regulation, models began to appear

although the historical moment we are living in is preventing

wherein the worker was not protected. At that time, we saw

many people from being employed. It is a phenomenon we

the opportunity to do things right, to approach companies

see a lot in Latin America. If someone does not know how to

with a flexible scheme and with talent mobility options.

handle a computer, that person’s employment opportunities are reduced. This represents a huge problem because we

The industry needs employees in all countries; for this

have a critical mass of talent that unfortunately has not

reason, the sector grows at an average rate of 5 percent

been developed due to a lack of opportunities.

each year. It is expected that in 2018 it will grow 6 percent to a value of US$450 billion. The industry has expanded heavily and is a strong component of any country’s workforce. In

Grupo PAE is a Mexican human resources company with

the US, for instance, 2.1 percent of the country’s workforce is

25 years of experience in the market. It is present in over 10

provided by staffing services. In Mexico there are no official

countries. Among its services, Grupo PAE manages payrolls, fleet

metrics but we estimate that the figure is above 2 percent.

administration, payment of travel expenses and talent attraction

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| INSIGHT

BRIDGING CHINA AND MEXICO WITH HUMAN CAPITAL

ANDRÉS DÍAZ CEO of Mexico and Latin America at China Campus Network

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SERGIO MASSE Partner and Marketing Director at China Campus Network

In the 16th century, Mexico and China enjoyed a privileged

says Díaz. Associations like the Confederation of National

commercial relationship, with the Manila Galleon visiting the

Chambers on Trade, Services and Tourism (CONCANACO)

country twice a year and bringing Chinese products for local

and the Mexican National Farmers’ Association (CNC) have

consumption. Five centuries later, China is doing more than

already become trusted partners. “With CONCANACO,

just delivering products: it wants to invest in Mexico’s human

we are doing a trade promotion program and we created

capital. “In 2013, China announced the One Belt One Road

a degree on cross-border e-commerce. With CNC, we are

initiative, with the goal of investing in growing economies

also promoting a program that intends to invite college-age

to encourage the generation of wealth,” says Andrés Díaz,

students from rural communities to study in China so they

CEO of Mexico and Latin America at China Campus Network.

can later implement projects intended to modernize and automatize agricultural practices,” adds Díaz.

According to Díaz, in 2018 the One Belt One Road initiative contemplated a US$1.1 trillion investment in over 900 projects

Scholarships provided by universities and the Chinese

in more than 80 countries, with Mexico playing a key role.

government through China Campus Network are part of

“Chinese President Xi Jinping has said Mexico is the natural

an investment in the country, explains Díaz. “The Chinese

extension of the One Belt One Road Initiative for Latin America.

government is willing to invest in Mexico because it wants

Given the nationalistic declarations of US President Donald

to have trained human resources that can make their

Trump, Mexico and China have begun a rapprochement, with

companies even more successful.” Chinese companies

Mexican government officials visiting China and saying the

struggle to find local human talent that can understand their

country is ready to receive Chinese investment.”

business culture; that is why they tend to have a very high ratio of Chinese employees rather than local employees.

To do that, Mexico must improve the one key component

“On average, 75 percent of a Chinese company’s employees

it lacks to make the country fully attractive to China:

are Chinese, while only 25 percent are local workers. China

human resources that understand Chinese businesses and

wants to reverse this percentage,” says Masse.

entrepreneurial culture. China Campus Network, a program that joins China’s best 28 universities and promotes them

Díaz says China Campus Network is just one part of the

by providing scholarships to students and fostering

Chinese effort to achieve a change in mentality in how to

educational exchange between China and other countries,

do business with China. “If you google how to do business

can make a difference, says Díaz. “We have three main

in China, you will not find a simple guide. No one will tell you

objectives: attract FDI, generate innovation and encourage

what paperwork you need, where to register your company or

trade through our academic programs.”

who can distribute your product. We want to change that.” The group has created a certification that will help SMEs sell their

For Sergio Masse, Partner & Marketing Director at China

products in China. “In 2017, Jack Ma, the founder of Alibaba,

Campus Network, opening an office in Mexico reflects the

came to Mexico and signed an agreement with the Ministry

potential China sees in the country. “In the two years the

of Economy. It specified that SMEs would be trained on how

program has been operating, we have opened nine offices in

to sell their products to the Chinese market on the Alibaba

Asia, Europe and Africa. The office in Mexico will be the first

platform,” says Díaz. China Campus Network is also trying to

on the American continent.” For the project to be successful,

boost this agreement. “Some of the students we are taking to

Díaz and Masse have joined forces with business associations

China will participate in the Global E-commerce Talent (GET)

that would benefit from trained human resources. “We have

program created by Alibaba and will receive a certification

mapped Mexico’s needs in terms of human capital and we

from the platform. We want to bring the program to Mexico,

have developed more accurate academic programs. This

so Mexican entrepreneurs can participate in the program and

has helped us to get more business partners on board,”

get the certification without having to go to China.”

INSIGHT |

FORESIGHT KEY TO SOLVING INTRICATE LABOR PROBLEMS

OSCAR DE LA VEGA Managing Partner at De la Vega & Martínez Rojas

RICARDO MARTÍNEZ Managing Partner at De la Vega & Martínez Rojas

A political change, a complex social situation, the

earning low wages and performing jobs with almost no

international environment and the negotiation of USMCA

added value, along with a corrupt union system that does

have ignited significant change in the country’s labor

not represent workers.” Although low wages have been

environment, say Oscar de la Vega and Ricardo Martínez,

a long-in-the-making problem, de la Vega says that it

Managing Partners at De la Vega & Martínez Rojas. “Many

represents a failure not only of the private sector but also

of the country’s labor-related problems, particularly in

of authorities. “Since 1994, the country’s low labor cost

the Matamoros area, are the result of a series of political

has been presented as a selling point for investors but this

and social elements related to instability and the social

is no longer sustainable. We need an integral work policy

demands of workers that have gone unanswered,” says

that provides added value to the workforce.” However, de

De la Vega.

la Vega adds that increasing wages through presidential decrees, as was done before, is never the answer. “Salaries

De la Vega & Martínez Rojas is a boutique Mexican law

must increase based on collective negotiations and this

firm that has positioned itself in the heavily competed

must respond to a productivity element.” He says the

labor arena. “Our firm has 40 lawyers but we have the

presidential decree to increase salaries by 16 percent

capabilities to manage any labor issue that arises,” says

nationwide and by 100 percent in the northern border

Martínez. In addition to its human capital differentiator,

represents a real problem for companies. “Given the

De la Vega & Martínez Rojas is a member of L&E Global

conditions established in collective contracts, an increase in

Alliance, which de la Vega says is an important asset

minimum wages represents an increase in the entire payroll

given that it puts the 3-year-old firm in close contact with

of these companies, generating a significant cost issue.”

labor leaders from around the world. “Labor problems are becoming increasingly complex and the exchange of talent

The lack of union representation also adds to social

is a regular occurrence. As part of this alliance, we can offer

problems. De la Vega says that in the past, Mexico’s

our clients global solutions.”

unions worked hand in hand with the ruling party, which provided the system with stability but also meant weak

The alliance, both lawyers say, is particularly relevant now,

representation for workers. “There is no union transparency

given the changes that Mexican labor law is experiencing.

or accountability, so tension has built up and it easily

“Mexican law is emulating the US model,” says de la Vega,

explodes.” He adds that the landscape is primed to

referring to the new labor legislation to be approved by

encroach on other industries. “The government, companies

the end of April. This, along with the pressure resulting

and unions need to work together. Otherwise, this situation

from international treaties, such as USMCA, TPP11 and the

will spread easily to other sectors,” says de la Vega.

ratification of Convention 98 of the International Labor Organization (ILO), requires international expertise, says

Although labor movements are alien to Mexico, Martínez

Martínez. “What we are seeing is an effect of globalization.

says that previously, these movements were contained by

The labor reform we will experience is a response to

the government to avoid generating fear among investors.

international entities more than the will of internal players.

But the current response from the government has been

Labor law has stopped being a local issue.”

different. “The federal government has said that it will not meddle in the situation but will respect the freedom

The complex environment has created a breeding ground

of each party. The problem is that, according to several

for labor conflicts in the northern part of the country,

labor-related international agreements Mexico has signed,

particularly in the Matamoros area, according to de la

the government is obligated to act as an intermediary

Vega. “In Matamoros’ maquila industry, we are seeing

whenever these conflicts arise, especially since any labor

the combination of different realities: a mass of workers

problem always impacts investment.”

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| VIEW FROM THE TOP

GUIDANCE HELPS NAVIGATE LABOR LAW COMPLEXITIES GABRIEL PIZÁ Managing Partner of Pizá Attorneys at Law

Q: In which areas do companies usually face the most legal

pay between 28 and 35 percent of a worker’s salary to

issues and how does Pizá Attorneys at Law assist them?

the institution. This means that you must register your

A: Bureaucracy is always the first obstacle that companies

employees with IMSS, a process for which it is necessary

face. Mexico puts up too many administrative obstacles

to meet more than 100 requirements. The difficulty of these

for a new company to be legally constituted. Regarding

processes reinforces the desire of companies to contract

labor issues, companies must not neglect the execution

outsourcing companies to avoid this administrative burden.

of a collective bargaining agreement. In Mexico, there

336

is a conciliation hearing that forces employers to sign a

Q: What impact will the proposed changes to the

collective bargaining agreement at risk of facing a labor

outsourcing model have on the Mexican labor market?

strike. This contract is one of the first things that a company

A: It is difficult to say since we are waiting for secondary

should have in Mexico before it starts doing business.

regulation, but with the general law we have today there is already an impact. The only form of outsourcing allowed is for

Once the company is established, the hiring process begins

specialized tasks, which means that the outsourcing companies

and employers must decide not only who they want to

that can operate are those that act as intermediaries. However,

hire but how they want to hire them. The Federal Labor

the legal consequence of this situation is that companies

Act outlines many types of contracts that must be used

that hire intermediaries automatically become employers.

according to the needs of the company, such as seasonal

At the end, employers want to protect themselves because

or hourly contracts. Our function is to provide clients with

the federal law protects the employee, so the government

the guidance to understand their needs and what is best

needs to balance this. The way that employers have found

for them. If companies do not hire people properly, it is

around this situation is through subcontracting companies.

likely that they will end up in a lawsuit. On the contrary, if

As in any other sector, there are good and bad outsourcing

companies have adequate hiring practices and are ethical

companies. The law must identify which ones do not pay the

and professional, they are less likely to experience problems

corresponding taxes or that do not do their work according

when deciding to terminate an employment relationship.

to the current law.

Q: How can you adapt what can be seen as a rigid law for

Q: What paradigm should the country follow to guarantee

employers to meet the current needs of businesses?

a modern labor law?

A: The Mexican Labor Law approved in the 1970s was

A: We need legislation in which the employer and the

designed to protect the employee from the employer. The

employee, depending on the industry, agree on how they

employer referred to by the law is the archaic figure of

will operate. Our law is very protectionist. What people

employers who owned everything and tried to underpay

want is to be able to work and for that, the law should allow

their workers or exclude them from IMSS and other benefits.

employers and employees to decide on those issues, always

However, employers have evolved since the law was

respecting a minimum standard.

approved. Our firm provides advice to companies on how to work with the law. For instance, if you hire a new employee,

Q: What role does Pizá Abogados wants to play in the

the first problem you will find is IMSS and that you must

coming years? A: We have experienced significant growth over the past eight years. We are very practical with companies and we do not lie

Pizá Attorneys at Law is a Mexican law firm that specializes

to them. We need to prevent employers and employees from

in labor law. Its areas of practice include labor consulting

acting contrary to the law and to be very strict in this regard.

and

Although it might be harder, companies need to act according

compliance,

outsourcing

litigation,

collective

negotiation

and

to the law and we want to be their ally in this process.

VIEW FROM THE TOP |

OUTDATED LABOR LAW SHOULD REFLECT PRIVATE SECTOR NEEDS CÉSAR MAILLARD CÁRDENAS Partner at Maillard Abogados Laborales

Q: What are the main obstacles that companies face when

compensated according to all that is stated under articles

trying to do business in Mexico and how can Maillard

48 and 50 of the Federal Labor Law.

Abogados Laborales make this process easier for its clients? A: Companies face many fiscal obstacles. Instead of offering

Q: What is your view of the Labor Ministry and how will

incentives, the government puts up entry barriers and special

Maillard Abogados Laborales participate in shaping a new

taxes that apply to starting and developing a business. These

labor environment?

obstacles also relate to workforce management, despite

A: Labor Minister Luisa Alcalde has faith in her proposals and

the country’s cheap labor. The issue of profit sharing is a

expects good implementation of those policies. Unions are a

particular example. Mexico is the only country in the world

priority at the moment, supported by Mexico’s involvement in

with this scheme, which usually puts off investors that do

many international agreements, but we also see the possibility

not understand why they are required to share their profits

of workers not being forced to join a union as something

with employees that are not stakeholders. The country is

positive. If workers are happy and do not wish to join a union,

well-positioned against other business hubs, considering

then these associations cannot be used as an extorsion tool

costs represent approximately 56 percent of the company’s

against companies. That will make them focus on their true

revenue. The problem is that, unlike what happens in leading

purpose of watching over the well-being of the country’s

economies, companies tend to not see their tax contributions

workforce. We are already participating in the drafting of a

reflected in social security.

new reform but we would like the government to take more notice of the private sector in its proposals. Corporations are

Q: What challenges do you see regarding labor law in Mexico?

villainized in Mexico and even in the SME sector, it takes more

A: Mexico’s labor law was created in 1931 and even though

resources to pay for taxes to establish a new company than

it was reformed in 1970, 1980 and 2012, regulations remain

what is needed for the company to ramp up its operations.

practically unchanged and are now outdated. During the Peña Nieto administration it seemed there would be a

Q: How can the country better address increments in the

positive change that would favor the private initiative but

minimum wage and factor in the productivity component?

under López Obrador’s government the situation seems to

A: The minimum wage has nothing to do with productivity.

be reversed. Furthermore, companies have become even

Individual salaries should be linked to each person’s

more restless after the signing of Agreement C098 of the

performance but not the minimum established as the

International Labor Organization. Free unionization has

national average. Mexico’s Constitution establishes that the

always existed in Mexico but now it is backed up by an

National Commission of Minimum Wages is the only entity

international agreement. The only thing left to see is how

capable of determining minimum wage increments based on

regulation will be translated into Mexican law.

inflation rates. The new government’s proposal of increasing the current minimum wage without taking into consideration

The law is divided into public, private and social regulations.

inflation will create a significant economic unbalance. The

Labor is part of the social branch, mainly because workers

best way to move forward is to maintain things as they

sustain their families, which are the foundation of society.

are, with increments managed by a commission of labor

As a result, the law has always given more power to the

representatives, company leaders and the government.

employee rather than the employer, even though it should be considered a civil or private relationship. In Mexico, there is even an Employment Stability Theory that basically

Maillard Abogados Laborales is a law firm founded in 1983

states that once someone is hired, this person and the

and specialized in labor law. It serves national and international

company are together until death do them part. This is

clients in the private sector, providing expertise in areas such

why companies cannot simply fire someone unless they are

as collective contracts, internal guidelines and agreements

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PROFESSIONAL SERVICES

Regulatory issues and legislative changes are among the biggest pet peeves of investors and businesses when a new government enters office. The arrival of President López Obrador was no different and while AMLO’s ascendency offered the possibility to unlock a few regulatory issues given his party’s majority in Congress, it has also generated fear due to a potential change in the country’s constitutional framework. Regardless of the party in power, there are certain issues, such as economic competition, that cannot be neglected.

The country has enjoyed relative economic and political stability for years that, combined with its wide network of free-trade agreements, has made Mexico a country with a vibrant economy in need of a variety of professional services. Mexico Business Review’s final chapter features the opinions and insights of several private-sector players on the best strategies for the country to move forward amid a political and economic transition.

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CHAPTER 14: PROFESSIONAL SERVICES

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ANALYSIS: Legislative Stability Ensures Smooth Political Transition

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VIEW FROM THE TOP: Juan López de Silanes, Basham, Ringe y Correa

Eduardo Kleinberg, Basham, Ringe y Correa

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VIEW FROM THE TOP: Juan Francisco Torres Landa, Hogan Lovells

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VIEW FROM THE TOP: Raymundo Enríquez, Baker McKenzie

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VIEW FROM THE TOP: Rafael Valdes Abascal, Valdes Abascal Abogados SC

Enrique de la Peña, Valdes Abascal Abogados SC

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VIEW FROM THE TOP: Angel Junquera, Junquera y Forcada

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VIEW FROM THE TOP: Hugo Cuesta, CCA

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VIEW FROM THE TOP: Pedro Prieto, SINNETIC Analytics Mexico

Lucie Poisson, SINNETIC Analytics Mexico

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VIEW FROM THE TOP: Eduardo Molina, WeWork Mexico and Colombia

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VIEW FROM THE TOP: Mauricio Brizuela, Salles Sainz - Grant Thornton

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INSIGHT: Jorge Santibáñez, Mazars

354

INSIGHT: Carlos Seoane, Seoane Consulting Group

355

VIEW FROM THE TOP: Daniel Medina, Quadrum

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VIEW FROM THE TOP: Marcela Flores, Lockton México

357

VIEW FROM THE TOP: Juan Pablo Murguía, Murguía

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VIEW FROM THE TOP: Gerardo Vera, Carlson Wagonlit Travel for Mexico and Central America

359

VIEW FROM THE TOP: Manuel Viñas, FCTG Mexico

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VIEW FROM THE TOP: Óscar Portillo, PC Fusion

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| ANALYSIS

LEGISLATIVE STABILITY ENSURES SMOOTH POLITICAL TRANSITION President López Obrador vowed to change Mexico's legislative framework. NAIM’s cancellation and a less-than-friendly position toward the Energy Reform only fueled uncertainty among investors. A few months into his administration, international markets and the country’s business sector are giving him the benefit of the doubt The arrival of a new government offers the possibility to

with the penalties established in those contracts.” Even

unlock regulatory issues that in many cases are dragged

though NAIM’s cancellation generated fear among investors

around by other government officers. It also opens up the

and credit rating agencies, many, including international

door to changes in the country’s constitutional framework,

financial markets, believe it will be business as usual. “So far,

which could generate instability and fear among investors.

the markets have given López Obrador’s administration the

“It is hard to predict where the country is going, since the

benefit of the doubt, which helps when managing risk,” says

new government took office very recently,” says Eduardo

Martínez-Ostos. “The government’s economic program, at

Kleinberg, Managing Partner at Basham, Ringe y Correa.

least in its first year, is going in the right direction, which has had a calming effect. The landscape will gradually clear.”

The Mexican economy has enjoyed stability in the past few

342

years, which has helped maintain its attractiveness among

INTERNAL FACTORS

investors. A wrong turn in terms of policymaking could

The negotiation of USMCA pushed the country to move

send investors scrambling. Raymundo Enríquez, National

toward a new commercial paradigm with the US. “The

Managing Partner of Baker McKenzie, says change is always

paradigm shift, in which the US promotes protectionism and

inevitable but, on many occasions, it offers the possibility for

China promotes free trade, is an indication that Mexico must

growth. Mexico is no exception. “The fourth transformation

adjust its foreign policies,” says Hugo Cuesta, Managing

announced by the new presidential administration implies

Partner at Cuesta Campos y Asociados. “Mexico … will have

a change in the way things are done and the way the

to recognize other countries, including China, as potential

government and private sector interact.” he says. More

partners and allies.”

than a problem itself, Enríquez sees the current scenario as an opportunity for different players to participate as

Despite the uncertainty generated by international trade

investors and for law firms established in Mexico to guide

disputes, there are many internal elements in which the

them through the complexities of the law.

government could focus on to maintain the country’s competitiveness as an investment destination. An example

Reasserting trust in a convulsed environment is particularly

would be improving the level of economic competition in the

important, especially after the cancellation of iconic projects

country. “For many years, monopolies negatively impacted

such as NAIM. “I believe the airport consultation was not

Mexico’s competitiveness,” says Enríquez. “Competition

optimally conducted and generated a great deal of doubt.

is good for everyone since it lowers prices, generates

But in the end, Mexico is more than just one project and I think

employment and improves the population’s well-being.”

that the new government will comply with its obligations and

Rafael Valdes, Partner at Valdes Abascal Abogados SC,

will honor all the contracts that were awarded,” says Enríquez.

says economic competition should not be neglected by the

Despite the uncertainty, the private sector must find a way

government. “Mexico’s economic growth and its exposure

to work alongside the new government, adds Raúl Martínez-

to the international market have bolstered the country’s

Ostos, Chairman of the Board and Director General of Grupo

competitiveness and productivity but this has also generated

Financiero Barclays México. “We have to understand that

a more complex scenario for ensuring a fair and competitive

there is and there will be uncertainty, so we must find a way

environment for companies.”

to work with it and clarify as much as possible.” Despite the expectations generated by the arrival of a Juan López de Silanes, Managing Partner at Basham, Ringe

new government, Martínez-Ostos says the country needs

y Correa, says that although the government might try to

to be patient. “People think that changing government

change the laws, undoing the legislative changes of the

administrations is a smooth process but it is not. There needs

previous federal administration would not be as easy as

to be a diagnosis and there is a learning curve, not only for

many believe. “The federal administration must follow the

the government but also for us. The private and public sectors

rules under which previous contracts and tenders took place

need to be in constant communication to understand how

and, should the case arise, the government must comply

they can help each other and better coordinate policymaking.”

VIEW FROM THE TOP |

100 YEARS OF EXPERIENCE PROVIDES CERTAINTY JUAN LÓPEZ DE SILANES Managing Partner at Basham, Ringe y Correa

EDUARDO KLEINBERG Managing Partner at Basham, Ringe y Correa

Q: How does Basham, Ringe y Correa innovate in a field

companies and investors. We believe the national economy

as traditional as law services?

will maintain pace and that new opportunities will appear for

JLS: We analyze the market and new companies being

anyone who is willing to seize this moment of change.

established, as well as their needs. We pay close attention to what will be required and how we can help investors

JLS: Reforms established by past political administrations

from a legal perspective. What companies want from law

cannot be undone in one day, despite the arrival of a new

firms has changed; they now ask for added-value legal

government and its desire to change the law. The federal

services rather than a commodity. Over the past 100

administration must follow the rules under which previous

years, the country also has experienced many changes,

contracts and tenders took place and should the case arise,

crises and social movements. Basham, Ringe y Correa has

the government must comply with those contracts.

survived and has modified its offering, evolving alongside the country to meet emerging economic and political

Q: What strategies can the government implement to

challenges. In past years, we have seen significant foreign

continue boosting economic competitiveness?

investment in energy and infrastructure development and

EK: Competitiveness is generated by the government

legal compliance is a crucial part of these projects. Basham

working alongside the private sector. So far, we do not see

created specialized divisions within the firm, such as data

enough patents or licenses being developed at the level

protection and franchising, to support our core practices in

Mexico requires, especially when compared to much smaller

intellectual property, labor, fiscal, regulation, mergers and

countries with smaller populations. This halts the creation

acquisitions. There are also many changes and advances

of new companies and jobs and the generation of positive

in the technology sector for which we are implementing

economic cycles. There needs to be more consciousness

an area of technology innovation. We are also working on

about the relevance of research centers. The government

opening offices within the country, specialized in areas

needs to work with these institutions, providing support for

where we believe there will be a change in regulation, such

the development of technology startups.

as infrastructure, sports and cannabis. Q: What strategies can be implemented to level the EK: Even though the law may at times seem static, the

country’s investment needs with the government’s tax

way we practice it is not. We have developed new ways

collection capabilities?

of internal communication, along with new forms of doing

EK: Lower tax collection impacts the government’s

things so they can be done faster and more efficiently.

finances directly, which in turn is detrimental to investment projects in infrastructure and other areas that could make

Q: What is Basham, Ringe y Correa’s take on the country

the country more competitive. Some people believe that

and its business opportunities under President López

lowering taxes in areas like the northern border would

Obrador’s administration?

contribute to incentivizing investment, while others

EK: It is hard to predict where the country is going since the

believe such a strategy would reduce the government’s

government took office recently. In general terms, Mexico

collection capabilities. We will have to wait and see how

has had a stable economy. Therefore, while there could be

the government’s vision materializes.

changes that could weaken the economy, there could also be changes that could strengthen it. We have not noticed significant investment cancellations but companies are

Basham, Ringe y Correa is a full-service Mexican law firm

assessing the situation and are waiting to see how business

established in 1912. Although the firm does not have any offices

conditions develop. Should we enter a moment of crisis, it is

abroad, it has developed expertise in assisting clients both in

important to remember that this also creates opportunities for

Mexico and other countries

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| VIEW FROM THE TOP

USMCA: SPRINGBOARD TO TECH DEVELOPMENT JUAN FRANCISCO TORRES LANDA Partner at Hogan Lovells

344

Q: What are the business community’s main sources of

Q: What advantages can carmakers find in collaborative

uncertainty in terms of investment and how can they be

development of components and systems for EVs?

addressed?

A: Gaining the ability to supply such components is both a

A: Issues such as the cancellation of NAIM are impacting

race against time and a matter of survival for automotive

investment certainty, so we expect 2019 to be a complicated

companies. Vehicle electrification will shake the automotive

year for the country. At the same time, there are obstacles

industry to its very core. In the 20th century, engine size and

that must be tackled for the industry to grow effectively.

power output were the main differentiators for vehicles.

Infrastructure in areas such as telecommunications, ports,

In the 21st century, the number and quality of added-value

railroads and roads must be improved to ensure medium

services that vehicles can offer, including connectivity,

and long-term growth. Security concerns are also impacting

autonomy and efficiency, will be the most important factors

the automotive industry, since companies can see their

in the customer’s decision-making process. The market has

assets threatened by possible criminal activity.

understood the importance of collaboration to shorten times and enhance technological developments.

The automotive industry is the sector with the most employers nationally, so it is important to preserve it. Hogan

Several world-class OEM groups, including Daimler and

Lovells has been in talks with the Ministry of Economy and

BMW, have announced their willingness to collaborate to

the federal administration and we have been assured that

develop technology for EVs, while others, such as Ford and

the development of Mexico’s automotive industry will be

Volkswagen, are on it already. This is a matter of efficiency.

safeguarded and even boosted. This is a strategic area and

The more companies, resources and people are involved in

will be treated and sponsored as such.

the development of electrification technologies, the less time it will take to come up with innovative solutions to not only

Q: What opportunities will USMCA’s rules of origin bring

survive but grow in a fiercely competitive market. Technology

to Mexican automotive suppliers?

companies are also key elements in these partnerships. Some

A: The new rules of origin may not be ideal for some but

are helping to develop smaller battery packs that have

they ensure continuous development of the automotive

greater storage capacity to improve autonomy.

industry in the face of political uncertainty. Moreover, new wage requirements will create opportunities for Mexico

Q: If demand for internal-combustion vehicles plummeted,

to participate in added-value manufacturing and design

where would that leave Mexico?

activities. Overall, USMCA will help the country transform

A: Certain regions in Europe and the US are projected to

from a manufacturing country to a technology investment

ban these vehicles in the next 10 to 20 years. This will be a

destination, which is crucial for Mexico to remain a leader

turning point for the industry and manufacturing companies

in the industry. While companies like Rassini or Nemak are

will need to migrate toward EV components rapidly. For

great examples of Mexico’s automotive capabilities, the

many companies, this would mean an imminent end to their

country still needs to improve its local supplier base by

business, which is why some are investing aggressively in

promoting investment in R&D operations and persevere to

the development of new components for the EV market.

really collaborate with big players in the industry.

Having said that, internal-combustion vehicles will remain part of the mainstream, especially in developing countries where it is difficult to develop electrification infrastructure.

Hogan Lovells is a world-class law firm that advises clients in

Most exports from Mexico target the US and there are

various industries on complex legal issues. In the automotive

also shipments to European markets to a lower extent, so

sector, the firm has counseled leading OEMs, automotive parts

demand for electrified vehicles in those markets will set the

suppliers and distributors

pace for Mexico's migration toward electrification.

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MEXICO IS MORE THAN JUST ONE PROJECT RAYMUNDO ENRÍQUEZ National Managing Partner at Baker McKenzie

Q: What is Baker McKenzie’s take on Mexico’s business

including AI technology and elements of Design Thinking

opportunities and the firm’s role going forward?

in its processes. This has permitted the automation of many

A: A phrase that fits very nicely with the vision we have

processes, making them rapid and efficient, and allowed

at Baker McKenzie is that change is inevitable but growth

us to apply our lawyers’ talent to more specific problems.

is optional. The fourth transformation announced by the new presidential administration implies a change in the way

Q: How would you qualify the government’s cancelation of

things will be done and the way the government and private

NAIM and its impact on investor confidence?

sector interact. That is why Baker McKenzie is the firm for

A: It is important to remember that an investment project,

this moment. Our vision is to help our clients navigate a

regardless of how important it is for the country, should not

world that is becoming more complex.

define Mexico’s risk. I believe the airport consultation was not optimally conducted. As a consequence, it generated a great

It is undeniable that Mexico’s interaction with the world will

deal of doubt. But in the end, Mexico is more than just one

also have to change. The renegotiation of NAFTA, now known

project and I think that the new government will comply with

as USMCA, was a wake-up call for Mexico as a country and for

all its obligations and will honor all the contracts that were

everyone in the private sector to diversify our contacts and

awarded. We need to put matters in the right perspective.

to lessen our focus on the US. That is the main challenge: to diversify our market and our sources of investment. The new

Q: What opportunities do you see for the new

presidential administration has a social focus with significant

administration to continue boosting Mexico’s economic

projects in this regard that will need a great deal of foreign

competitiveness?

and national investment. For us, this means an opportunity to

A: For many years, monopolies negatively impacted Mexico’s

help all these potential clients take advantage of the prospects

competitiveness. However, the Economic Competition Reform

that will present themselves. We see this new presidential

enacted by President Peña Nieto was extremely important,

administration as an opportunity, not a threat.

since it gave the Federal Economic Competition Commission (COFECE) the tools to regulate the market. The reform not

Q: Why is Baker McKenzie the best firm to help companies

only empowered COFECE but also gave it independence from

navigate the evolving Mexican market?

political swings. As a result, COFECE has been able to do an

A: We offer several differentiators but I would like to highlight

extraordinary job. One area where COFECE has done good

our global structure. We have been operating for over 60 years

work is in showing people that the beneficiaries of the reform

with 77 offices in 47 countries, including Latin America, where

have not been big corporations but the consumer. At the end

we have the broadest international presence in the region’s

of the day, regular people reap the benefits of competition,

largest seven economies. In Mexico, we offer significant

since it entails better prices for all of us. We are starting to see

coverage through our five offices. In addition to our global

the benefits of this reform, particularly in the telecoms sector.

structure, we focus on two pillars: our clients and our talent.

It is important to note and applaud that the new USMCA

When it comes to our clients, we are making an effort to get

includes a specific chapter on economic competition, with

closer to them and better understand the industries in which

specific obligations for each country. I have no doubt that the

they operate. Regarding our internal talent, we are constantly

new administration will continue reinforcing this area.

training our collaborators. We have incorporated innovative platforms that allow our people to develop professionally and personally, based on excellence in a diverse environment.

Baker McKenzie is an international law firm that has been operating in Mexico for over 50 years in the main economic

On a global level, we are incorporating innovation to

sectors. The firm has offices in Mexico City, Monterrey,

make our business more efficient. In 2017, the firm began

Guadalajara, Juarez City and Tijuana

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LOCAL FIRM SUPPORTS COUNTRY’S ECONOMIC GROWTH RAFAEL VALDES ABASCAL Partner at Valdes Abascal Abogados SC

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ENRIQUE DE LA PEÑA Senior Associate at Valdes Abascal Abogados SC

Q: What significant changes have impacted the competition

Q: How has competition law evolved and what are the key

and antitrust legal landscape in Mexico?

issues you face?

RV: The Mexican economy has become highly dynamic,

RV: Mexico’s economic growth and its exposure to

which was a key factor in establishing the former Federal

the international market have bolstered the country’s

Economic Competition Law that was developed in parallel

competitiveness and productivity, but this has also

to NAFTA. The market for the provision of competition and

generated a more complex scenario for ensuring a fair

antitrust legal services has also grown in Mexico, which

and competitive environment for companies. As a firm,

has led to greater competition among law firms. Valdes

we are prepared to face all kinds of antitrust matters

Abascal has participated in some the most emblematic

such as counseling and representation in investigations

cases in Mexico since the creation of the law in a wide

regarding absolute or relative monopolistic practices, pre-

range of industries, including telecommunications,

merger notifications, compliance programs, design and

television, radio, ports, airports, railways, energy and other

implementation of regulation, among others.

regulated sectors, as well as retail and many other goods and services markets.

EP: Pre-merger notification processes have always played a large role in Mexico’s competitive environment but in

Q: How does the firm provide added value in its services?

recent years they have increased considerably. At the

RV: We are among the most experienced firms in competition

same time, the number of investigations regarding anti-

and antitrust because our firm was practically born with

competitive practices among companies is also on the rise,

the former Federal Economic Competition Law. This law

resulting in a greater need for the services we provide. We

was enforced in 1993 and we established ourselves as a

believe that Mexico can continue to grow nationally and

law firm shortly afterward. There are not many firms that

internationally with the implementation of solid competition

specialize in this area in Mexico because it is very complex

and antitrust culture.

and is constantly changing. Our advantage is that almost 100 percent of the services that we provide are related to

Q: What has been done specifically to ensure a level and

competition and antitrust, which makes us the best option

fair playing field in Mexico?

for companies seeking specialized services in this area.

RV: The Constitutional Reform of 2013 and the Federal Economic Competition Law of 2014 generated a process

EP: We have long-time loyal clients because they see in

of adjustments that have helped to improve the Mexican

Valdes Abascal a serious and reliable law firm. Our years

economy. These modifications have improved access to

of experience and our close relationship with competition

inputs and made it easier for international competition to

authorities, COFECE and IFT, make us the ideal ally for them.

enter the country.

Large law firms in Mexico oversee a wide variety of areas but they do not necessarily have the knowledge to address

EP: The Federal Economic Competition Law of 2014

specific issues related to competition and antitrust law.

robustly regulates economic competition and punishes

Even other law firms seek our experience in competition

severely antitrust behavior in Mexico. New players in high-

and antitrust matters.

concentration sectors are more willing and motivated to participate if there is just economic interaction with state-owned companies and large private companies. By

Valdes Abascal Abogados SC is a boutique counseling and

enforcing the law, authorities are protecting competitive

litigation law firm, highly specialized in competition and

process and preventing the formation of monopolistic

antitrust law. Since 1996, the firm has represented Mexican and

practices that affect the market and consumers. This also

foreign companies in several industries

encourages companies to be more efficient.

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RULE OF LAW, TRANSPARENCY NEEDED FOR GREATER ECONOMIC DEVELOPMENT ANGEL JUNQUERA Managing Partner of Junquera y Forcada

Q: Junquera y Forcada specializes in legal accounting. How

The new government should focus not only on fulfilling

does the firm provide an added value in its core business?

campaign promises but analyze what initiatives are

A: While I participate more in litigation, the firm has a

appropriate or not for the welfare of the country. For

greater participation in the corporate and litigation niches.

example, NAIM’s cancellation is disappointing because the

Junquera y Forcada has developed a new division that

new administration did not make a thorough analysis and

helps companies prevent legal problems. We are one of

used the airport as a pawn in the rivalry among political

the few firms that offer this service, making it a key added

parties. Also, the political decree to lower the income of

value. We created this new section because we believe that

public officials so that they do not earn more than the

any evolving society must have a philosophy to not only

president is a mistake.

solve the problems that already exist but to avoid them altogether so it can continue to prosper.

Q: The new US tax plan has generated a discussion regarding Mexico’s fiscal competitiveness. What approach

Prevention must be a high priority for all companies.

should the AMLO administration take?

Law firms like Junquera y Forcada can guide them in

A: As a member of the Mexican Academy of Tax Law, I

implementing this philosophy. Junquera y Forcada focuses

believe the new administration should focus on collecting

on providing legal assistance related to the prevention of

taxes from consumer spending. If all the operations that

problems through the revision of contracts, services, hiring

generate consumption become tax deductible, a systematic

and any other key business matter. The firm helps companies

spending cross is generated. The government would then

analyze and minimize their risks, allowing them to anticipate

be able to collect a percentage of all the transactions that

future problems with greater certainty and effectiveness.

are made from purchases of any kind, from tortillas to airplanes, a house or a building. It is an effective way to

Q: In your experience, in which areas do companies usually

expand the revenue base.

face the most problems? How does Junquera y Forcada assist them?

Junquera y Forcada has done studies on the amount that

A: Two of the country’s biggest problems are the bureaucratic

is crossed in the Courts of Justice of Mexico City related

processes applied to receiving foreign investment and the

to commercial operations that are completed by means of

fear that derives from the lack of rule of law. In the public

a judicial resolution. We found that taxes are not paid on

sector, the Chambers of Deputies and Senators seem

these. There is more than MX$10 billion (US$520 million)

interested in strengthening rule of law in Mexico. However,

that could be taxed each year but it is not being done,

at this moment there is a power struggle in both houses

not in Mexico City or in any other city. What the new

and there are changes in the distribution of power. This is

government must do is collect taxes and collect them

a natural process that always happens in any country when

well to have greater liquidity, in addition to being very

there is a change in government. Junquera y Forcada’s vision

selective in spending. The government should not be

is to provide solid legal support to its clients so that we can

devoted to saving money just to save it but to allocate

help them prepare for these times of change.

it effectively to the areas that can generate a benefit for the country.

Q: What would you say are the most complex challenges the country will face in the short, medium and long terms? A: Change always generates public concern. The breakdown

Junquera y Forcada is a legal accounting firm with 28 years

of the old system happened due to an excess of corruption

of experience. Its team of experienced public accountants and

that gave way to the formation of a new political philosophy

lawyers provide advice, consulting, administration services,

in the country.

billing and collection

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| VIEW FROM THE TOP

RULE OF LAW, STABILITY, PRO-BUSINESS GOVERNMENT KEYS TO INVESTMENT HUGO CUESTA Managing Partner at CCA

Q: Given national and global uncertainty, why should

A: Mexico is among the countries with the largest number

investors be confident about their prospects here?

of signed free-trade agreements so it has already diversified

A: The perspective on the situation varies considerably

despite the natural tendency to focus on the US as our

depending on each industry, with some more concerned

main trading partner. The paradigm shift, in which the US

than others, whether it is because of López Obrador’s

promotes protectionism and China promotes free trade, is

administration, the signing of USMCA or US politics. In

an indication that Mexico must adjust its foreign policies.

Mexico, the balance of political forces is a factor that favors

Mexico will have to recognize other countries, including

investors and will continue to help maintain objectivity of

China, as potential partners and allies.

the decisions made in the country. 348

Q: You offer specialized services to Japanese investors. What Q: Organisms like the OECD say Mexico needs to increase

opportunities led the firm to offer a specific service to Japan?

tax collection. What approach should López Obrador take?

A: We have a strong presence in the Bajio area with an office

A: The focus should be to expand the taxpayer base and

and a predominantly Japanese client portfolio. This area of

reduce informality. The tax burden falls on a very small

the country has benefited from the arrival of many Japanese

percentage of people and the extension of the taxpayer

companies but their arrival has also created the need to

base can generate greater fiscal efficiency. A problem for

contract services like ours. The Japanese industry believes in

our government is that it cannot compete with the tax rates

our firm because we have international and national expertise.

offered by the US because Mexico does not have a similarly large taxpayer base. Furthermore, the impact of the US

Q: Innovation is becoming the key to offering new and

trade war with China, its imposition of sanctions on steel and

improved services. How does a traditional law firm offer

aluminum imports and its targeting of the automotive sector

innovation?

could generate a climate of mistrust if not resolved soon.

A: Clients are increasingly demanding services that offer added value and efficiency. We use technology to provide a

Q: What actions can boost the country’s competitiveness?

differentiating value to the client and we build the innovation

A: International investors seek three things when doing

of our services around it. Our law firm understands the

business in a foreign country: legal certainty (rule of law),

paradigm shifts of the industry and also the forces that affect

stability and a pro-business government. If those conditions

them. We believe that technology offers the possibility to

are provided in Mexico in an optimal, clear and viable way, we

improve the value added derived from the legal industry. The

will attract more investors and increase our competitiveness.

challenge for the future will be in the industry’s ability to make

The government needs to deliver attractive incentives to

the shift to develop a vocation of service with technology.

attract direct investment, with industries offering a high level of expertise to profit from these incentives.

Q: What would you say are the most complex challenges that the country will face in the future?

Q: Cuesta Campos y Asociados has an active role in

A: It is imperative for the government to respect the conditions

terms of international trade. Where do Mexico’s untapped

that were offered to investors at the time of their arrival into

commercial opportunities lie?

Mexico and facilitate a positive business environment. Also, the country’s bureaucracy must be simplified to improve industry response times and guarantee each sector’s effectiveness. An

Cuesta Campos y Asociados (CCA) is a Mexican firm recognized

improvement in the bureaucratic-administrative apparatus

for its expertise on corporate law, M&A, banking and finance,

means an improvement in the economic sectors of the

labor and employment, real estate and IP matters. The firm has

country. Reduction of corruption and impunity are critical to

offices in Mexico City, Guadalajara and the Bajio region

maintain and increase Mexico’s competitiveness.

VIEW FROM THE TOP |

AI CAN PROVIDE INSIGTHFUL MARKET INFORMATION PEDRO PRIETO General Manager of SINNETIC Analytics Mexico

LUCIE POISSON Partner at SINNETIC Analytics Mexico

Q: What sparked the idea to launch SINNETIC in the

at the forefront of methodological issues and research

Mexican market?

techniques, competing with any country in the world.

PP: Mexico is a country that offers many opportunities but clients always demand more. They want new visions

Q: How does AI benefit the market research business and

and new ways of analyzing information. That was the

the companies that contract these services?

opportunity that my partner in Colombia, Lucie, and I saw.

LP: Decision-making is becoming faster and requires greater

We developed new products that helped our clients make

accuracy. That is where technology like AI can help, by

decisions based on the facts that have an impact on the

providing faster and more relevant results and insights. We

operation’s profitability and sustainability. Our strategic

work alongside SAS, which helps us to develop the tools we

alliance with SAS is one of our strengths. We are using all

need and we implement them with the client following our

the capabilities of SAS’ software to generate models that

philosophy of being faster and more accurate. The tools we

help our clients make strategic decisions.

develop are fed by the information our clients already have. In this regard, it is very important to consider time. The idea of

Q: How is SINNETIC’s portfolio built and what is your

machine learning or AI is that the system receives feedback

approach to market research?

automatically and instantly. As a result, the client does not

PP: We have developed business units specializing in the

have to wait another three months for further analysis.

handling and use of different information sources: internal, external and digital. These units have unique methodologies

Q: How do you expect the use of machine learning and Big

that cover market opportunities, innovation, consumer

Data to change the business world?

insights, brand experience, digital analytics, data mining,

LP: I think these new technologies will change business

predictive analytics, forecasting and optimization.

strategies and make them more customer-centric. In the end, this is what companies want. They want more certainty

LP: Regarding our approach, an analyst who provides

about the launch of their products, their campaigns, their

recommendations to a company must have the necessary

investments in media and their positioning in sales channels.

knowledge of each sector beyond what simply appears in

The idea is that these new technologies provide companies

the research. We focus on both methodology and sector

with the necessary tools to better position themselves

experience. This helps us also to develop new products

against their competitors.

and new ways of approaching the people we are surveying. Q: What are your expectations for your business in Mexico PP: This is an important topic for us. For instance, the

in the coming years?

agricultural sector behaves differently from the mass-

PP: After four years in SINNETIC and more than 20 in the

consumption segment and if you do not have this expertise

industry, we can say that we have great expectations. The

and do not make an effort to understand the topics that

industry has responded very well and our client portfolio

are important for companies like Monsanto or Syngenta, it

has been growing. We have decided to continue as a

becomes hard to speak their language.

boutique agency so we can continue providing our clients with the level of service they deserve.

Q: How does the rate of adoption of market research services in Mexico compare with other countries? PP: The countries that invest the most in Latin America are

SINNETIC Analytics Mexico is a Mexican company that

Brazil, Mexico and Colombia. Mexico invested about MX$6

specializes in market research. The company has been in the

billion (US$312.4 million) in market research in 2017. In Mexico

market for four years. It also operates in Colombia, Peru and

we can feel very proud to have a research industry that is

Ecuador

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Torre Virreyes, Mexico City

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WORK SPACES BRING TOGETHER PEOPLE, BUSINESSES EDUARDO MOLINA General Manager of WeWork Mexico and Colombia

Q: What are WeWork’s main achievements in Mexico?

Q: What are the particularities, advantages and limitations

A: WeWork’s business model is to let companies focus

WeWork has found in Mexico?

on their core business, while we handle the operation of

A: Our operations are fairly similar whether in Mexico, in

their physical workspace. We have over 15,000 members

New York or Brazil. The mindset at companies regarding the

in Mexico City and we are present in Monterrey with three

workplace is changing all over the world, which means that

locations and Guadalajara with two. Overall, WeWork’s

our offering has been well-received internationally. People

community in Mexico is close to 20,000 members and our

want to participate in projects bigger than themselves

goal is to end 2019 with 30,000. While we will maintain our

and they want to be in spaces that respond to that kind

focus on the three states where we are already present,

of mindset. Having said that, we understand we have to

we do not rule out expanding to another city. We want to

regionalize our operations. Our team is formed by people

continue connecting our members and more regions with

who know the Mexican culture, the way Mexicans interact

WeWork’s global community.

and do business. This helps us understand what our members require and how to add value to the companies

Our fast expansion is based on the strong interest we

that are with us.

have received from all types of companies from different industries and of different sizes. WeWork does not

Q: What are the main problems that real-estate brokers

only target SMEs or freelancers; big corporations are

face in Mexico and how can WeWork’s Broker Partnership

approaching us because they recognize the experience

Program help them find a solution?

we provide is what they need to retain and attract talent,

A: Brokers in Mexico are usually motivated to lease larger

improve work culture, be more productive and become

spaces under long-term contracts. When people sign a

more efficient in their operations.

five-year contract, they tend to lease more space than what they need at the moment because they project that

Q: What is the company profile that WeWork is trying to

in five years they will be using more space than what they

reach in Mexico?

currently require. Given that these are spaces that are

A: With SMEs, we look for members that can connect

not ready to be used, companies need to have a budget

with other companies that are at the same stage of their

available to furnish them and adapt them to the type of

development process, so together they can share ideas

space they need.

on how to reach their targets. Many SMEs working in WeWork find their customers or suppliers at the workplace.

Our program gives brokers access to a larger pool of

Our global infrastructure is also interesting for SMEs. If

clients that might be interested in more flexible contracts.

companies want to internationalize their operation, they can

We offer ready-to-use spaces that do not require further

take advantage of our international office network. These

investment, which generally helps to sign the contract

are among the most immediate advantages companies get

faster. Since brokers normally work on commission,

from becoming part of the WeWork community.

they can get the most of the transaction because our membership contract includes all the services the

With big corporations we try to help them solve one

company will need.

of their main issues: attract and retain talent. WeWork provides an environment where their workforce wants to be. A corporation with offices in the Santa Fe area of

WeWork is an American company that offers shared work

Mexico City is not very attractive for people living on the

spaces and services to entrepreneurs, freelancers, startups, small

other side of the city; with WeWork the company can

businesses and large companies. It was founded in 2010 and is

expand its reach.

present in several countries including Mexico and Argentina

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REINVENTING MEXICO FOR LONG-TERM GROWTH MAURICIO BRIZUELA CEO of Salles Sainz - Grant Thornton

Q: In the 2018 IMD World Competitiveness Ranking, Mexico

entire population. Simply implementing a reduction in the

fell from 48 to 51 . What steps must be taken to improve

tax rate is not enough because it would not be possible

the country’s competitiveness?

to subtract the expenses that we must pay. It is not just

A: The same problems that are hindering our competitiveness

about lowering the rate. The government needs to support

will become the source of our future growth. The country

industries by encouraging them to pay taxes to further

must reinvent itself, redefine its internal and external trade,

boost the country’s economic growth. If individuals and

diversify its commercial partners and open new markets like

legal entities saw a return after paying their taxes, collection

Asia. Mexico’s dependence on the US will decrease but the

would be different. The Ministry of Finance and Public

relationship will continue to be key.

Credit and the federal government must promote a reform

352

that motivates production and productivity. Reciprocity in Q: What impact can these rankings have on foreign

the payment of taxes must be used by the government to

investment arriving to the country?

invest in improvements for the companies that are already

A: All rankings have an effect and we cannot disqualify

here. In addition, it is necessary to take into account that

them by choosing some over others because they all

greater investments in infrastructure and other strategic

provide us with relevant information about the country.

areas can generate greater productivity and economic

However, they must be analyzed and understood to gain

growth for Mexico.

the kind of solid information that supports decision-making. If we want to improve in the rankings, as a country we must

Q: How is the US dollar and Mexican peso fluctuation

unite different sectors to generate opportunities that make

impacting businesses?

us improve.

A: We have all kinds of clients and some are more affected than others by the exchange rate. Products

Q: Given new technologies, where should Mexico focus

from companies that have higher dollar-peso transactions

its efforts to improve the financial sector’s development?

become more expensive, which then affects consumers.

A: Mexico needs new lines of investment oriented to the

Most companies protect themselves by hedging their

financial sector through technology to better meet the

interest and exchange rates. The smart use of financial

needs of the country. Also, the government must identify

mechanisms can help contain the impact from exchange

the opportunities that exist in the country to strengthen

rate volatility.

the banking and financial system more effectively. Other productive areas can benefit from a stronger banking

Q: How can the Project of Technology Customs Integration

system, which can also help promote innovation.

promote the commercial relationship between Mexico and the US?

Q: What approach should the current presidential

A: There have been positive changes over the years but we

administration take regarding tax collection?

are still at a disadvantage because we have more complexity

A: We are part of the group of countries that collect less

in imports and exports. Also, elements like drug trafficking

despite having higher tax rates. This means that we do

generate more processes related to trade, which slows

not raise enough taxes because we are not including the

down productivity. The Project of Technology Customs Integration must be used to boost trade. Technology can increase the efficiency of import and export processes

Salles Sainz - Grant Thornton is a Mexican consulting and

but we still have work to do before we have world-class

accounting firm founded in 1979 and current member of Grant

processes. To achieve a commercial improvement, we must

Thornton International. The firm has offices in Mexico City,

work on three key issues: corruption, the transportation

Guadalajara, Monterrey and Puebla, among other cities

system and simplifying imports.

INSIGHT |

INTANGIBLE SERVICES OFFER UNIQUE INNOVATION OPPORTUNITY JORGE SANTIBÁÑEZ Managing Partner of Mazars

Innovating is never easy, particularly in a somewhat

Besides technology, Mazars considers social responsibility

commoditized industry focused on intangibles. Jorge

a key component when innovating processes within the

Santibáñez, Managing Partner of Mazars Mexico, has found

company’s operations and those of its clients. Among other

a way around this hurdle. “Many firms define their service

processes, it designed the Global Human Rights Auditing

offering as unique but they do not understand that their

Standards for companies, a global and widely accepted

portfolio is what they have in common with every other

assurance standard to assess companies’ performance

competitor,” he says. “At Mazars, we highlight the uniqueness

with regard to human rights risk management. This

of our processes and the relevance of our innovation.”

process was based on the valuable experience gained by Mazars in developing its own award-winning human rights

Mazars, a French auditing, consulting and accounting firm that is present in 89 countries, has been in Mexico for over nine years. Despite a high level of competition, Santibáñez says the firm has expanded to nine offices across the country by providing innovative services for its clients, which are companies of all sizes, nationalities and from both the public and private sectors. “We strive for innovation in everything we do,” says Santibáñez. “We have an innovation department but we also look for ways to invite people from across the organization to participate in our innovation processes.” Including all levels of the organization in this process is a pillar of the firm’s strategy. “We believe in shared learning.

“ audit process.

We believe in shared learning. This means we believe that progress in our firm is guided by a collective thinking process and that we all have much to give and learn”

This means that progress in our firm is guided by a collective thinking process and that we all have much to give and

Although Mazars has wide international presence, the

learn.” Mazars encourages all employees to participate in

firm’s operations in Mexico are key to its global strategy.

internal campaigns to create fresh service solutions.

“The country is the second-most important economy in Latin America and second in terms of foreign investment

Achieving innovation when it comes to services is not

in the region,” Santibáñez says. “Countries like Chile

an easy feat, however, which is why Santibáñez says the

and Colombia have developed investment attraction

company focuses on technology. Mazars developed a

strategies but Mexico remains an important developing

project called Atlas, which transformed its auditing platform

market where companies can capitalize on the highly

by allowing teams in different parts of the world to access

talented, low-cost workforce.”

a project’s documentation and work simultaneously. The platform also allows a client’s team to monitor Mazars’

Mazars itself finds Mexico attractive for further investment

work progress through access to a shared dashboard. “In

from a commercial perspective since, beyond its competitive

the past, we would conduct random tests to analyze data

advantages, the country hosts many of Mazars’ international

when auditing a company’s financial information. However,

clients that require similar services to those they demand in

given the high level of operations companies engage in,

their home countries. The firm’s services have reached such a

these samples are quickly outdated, making it very difficult

level of acceptance in Mexico that Santibáñez expects to end

for us to reach definitive conclusions,” says Santibáñez.

2019 with growth levels above what was projected for 2020.

“Technology allows us to use larger data sets instead of just

“We have had very positive double-digit organic growth,” he

small samples. This gives us the ability to analyze almost

says. “We intend to continue diversifying our offering and to

all the available information related to a certain operation.”

open at least two more offices before 2021.”

353

| INSIGHT

LONG-TERM APPROACH TO BUSINESS SECURITY CARLOS SEOANE Director General of Seoane Consulting Group

When it comes to security, talking about “what ifs” when

including natural disasters, criminality and geopolitics. “It

something has already happened is the last thing a company

is not just about spending money for the sake of spending

should do, says Carlos Seoane, Director General of Seoane

money on security but about investing in the right fit for

Consulting Group, a security consulting firm whose services

their operations.” Misconceptions about what private

range from operational issues like consulting and training

security entails also stem from the fact that the industry

to more complex matters such as crisis management and

is still developing. “In Mexico, private security is still in the

emergency response planning. “Unfortunately, prevention

early stages and there are people with very little training,

has always played a secondary role in Mexico,” says Seoane.

who work long hours or have several responsibilities but are paid low wages,” Seoane says, adding that this is a natural

354

The protection industry remains in its adolescence, despite

process that other countries have also experienced.

security being a national concern, according to Seoane. This is partly attributable to a lack of knowledge from the Mexican

Maturity is starting to emerge as professionalization slowly

business community regarding both the risks they face and

penetrates the industry. “Twenty years ago, whenever

the available solutions. Many companies look at security as

transnational companies opened up operations here, they

solely executive protection and perimeter and access control.

would bring security people from their headquarters rather

But it entails much more than that. “It is a business of many

than use local players. They did not trust us,” says Seoane. “But

layers,” says Seoane. “At times, it has nothing to do with

bringing an entourage of private security from other countries

the day-to-day operations but instead, focuses on long-term

became very expensive. Combined with the professionalization

strategy.” This includes elements such as business continuity,

of the local industry, this allowed us to change the dynamic.”

strategic planning and crisis management.

With the change in federal administration, Seoane says clarity in regulations would go a long way to bolstering the industry.

Rather than straight-ahead security, Seoane Consulting

“The first regulatory framework for private security was

focuses on offering tailored solutions that address and solve

created in 1989. Even though today there is more regulation,

specific company needs. He points out that companies face

some aspects are not clear. This forces many companies to

an array of complex issues that could hinder their business,

depend on their good name, reputation and work ethics.”

VIEW FROM THE TOP |

RESPONSIBLE ACCOUNTING ESSENTIAL FOR SUSTAINABLE GROWTH DANIEL MEDINA Director General of Quadrum

Q: What is the full extent of Quadrum CFDI’s services?

Q: What are your clients’ main concerns?

A: The government has made a clear bet on the introduction

A: Those responsible for the management of a company

of technology for tax collection purposes. In fact, Mexico is

want to do things right; that is their objective. But in the

among the leading countries for technological advancements

end, you cannot rule out the human factor that can lead

in terms of tax levying capabilities, which has led to radical

to mistakes. That is why audit processes must be applied.

changes in the workings of companies’ internal administration

I would say that the main occupation for people in charge

areas, such as accounting and finance. The current tax policy

of these management areas is complying with all their

focuses on collecting all possible information to increase

obligations. We focus on providing them with the right

tax collection. To achieve this, the government certified a

tools so they have the adequate financial information and

number of companies for this purpose. Today, there are 78

procedures to make decisions.

companies with this certification. Q: What are the main difficulties faced by companies A fundamental part of our business is related to the duty

like Quadrum when trying to keep up with SAT’s

of stamp, a process of information certification that passes

requirements?

through several filters until the information is verified by

A: We have a strong training program, which means

different channels and a digital document is approved and

that we try to make sure that our employees undergo

then sent to SAT. Although duty of stamp is part of our

thorough and constant training. We also provide training

core business, we decided to expand our capabilities by

to our clients and belong to different associations in the

launching a payroll system. Companies face a significant

fiscal, technology and accounting sectors. We expect

challenge in the area of human resources. All our products

that the new presidential administration will undertake

are technology tools that help in the daily management of

a comprehensive tax reform. A tax reform is not only

a company. They are especially focused on taxes because

important but also necessary, especially after the tax

these are products that help companies to correctly meet

reform implemented in the US. In that sense, Mexico is

their tax obligations. We also work alongside a company’s

lagging and needs to update its regulations. Otherwise, it

board, providing them with the necessary tools to make

faces competitive disadvantages.

decisions on fiscal, budgetary and treasury matters. Q: What changes to the tax code are required? Q: How does Quadrum position its offering against

A: We need to work toward having a new legislative body

competitors?

that can implement the necessary changes in the tax code so

A: We focus on turning our products into a solution for the

Mexican companies maintain their level of competitiveness

tax problems companies have. Part of our differentiating

against their foreign counterparts. Whenever you analyze

value is that we have a group of specialists composed

other countries, you see that their income tax is lower than

of accountants, lawyers and administrators who focus

in Mexico. If you make Mexican companies pay high tax

on the tax arena. The service is not just a system but a

rates and then compete with foreign companies paying

full support for their operations. We have a call center

lower taxes, you will see that Mexican companies are at a

through which lawyers and accountants help our clients

disadvantage.

with their actual problems related to tax compliance. We offer a 24/7 service because we understand that when it comes to invoicing and accounting there are no schedules.

Quadrum is a Mexican technology company that provides

We understand that the service we provide is critical for

services to be used in the accounting and fiscal sectors and has

companies’ operations and that a mistake in this sense

been for five years in the Mexican market. It is among the few

might result in severe monetary consequences for firms.

companies certified by the SAT to manage fiscal information

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| VIEW FROM THE TOP

COMPLEX RISK ASSESMENT FOR THE CORPORATE WORLD MARCELA FLORES CEO of Lockton México

Q: Lockton México specializes in insurance but its

not make a change and create awareness, the country will

operations have an impact on many other sectors. What

face a very difficult situation in a few years.

is the full range of services Lockton México offers?

356

A: We are more than insurance brokers. When we first

Q: How have Mexican companies adapted to risk mitigation?

started, we only provided consultancy in the area of

A: More and more companies are instituting risk committees

pensions but given our technical, mathematical and actuarial

that play an important role in raising awareness among

experience, we opened new lines of business. Today, we also

managers and administrative boards about the importance

provide consulting for projects that require mathematical

of mapping risks. Many companies have created these

models with a certain degree of specialization.

special committees to address significant risks, be it financial or cybernetic, but there are still some risks to which

We also started to participate in the employee benefits

companies do not attach the appropriate importance. We

area. Our work in this area involves managing benefits

continue to see low awareness of risk in small and medium-

and compensation programs. We are pioneers in what

sized companies, which, in many cases, simply ask an

we call flexible benefits; this means that through a

insurance company to generate a budget on how much

platform, collaborators of a company can visualize their

it would cost to ensure a certain situation. Companies do

compensation and select the benefits they want within a

not analyze if the insurance coverage is adequate or if the

regulatory framework, taking into account their situation

wording of the policy is adequate to guarantee that it can

or particular needs. One of the most common benefits for

be applied with ease. We are also seeing that this type of

employees is medical insurances. In this area, we operate as

insurance decision is mainly based on price rather than on

insurance brokers and look for the best costs and benefits

an in-depth analysis of the situation and risk management.

for our clients. Lockton México also has a risk division. Through this department we help companies determine

Q: What is Lockton México doing to raise awareness about

the risks they may face and, through different actuarial and

the importance of insurance products?

mathematical models, we define the probability of each

A: Communication and education are two important areas

risk and the estimated damage. We also tell clients how to

for us. Once we have a client, we work to find educational

mitigate or reduce risk and suggest alternatives.

schemes for their employees and generate processes to ensure that all areas involved are aware of the company’s

Q: Given Lockton México’s experience with pensions

situation. We also participate in forums organized by IMEF,

and retirement plans, what is your view regarding the

AMEDIRH and the American Chamber of Commerce, among

regulations for private pensions?

other associations.

A: We believe some changes are required. We have been working on this for many years and we have been pushing

Q: Your services are offered in different segments. Is there

for change. We work with companies to help them raise

a sector or segment where you have identified reticence

awareness among their employees about the importance

from companies?

of having a retirement plan and a savings culture. Mexico is

A: There is still reticence from certain companies that

a country with low levels of savings for pensions. If we do

say they do not need to create a retirement plan for their employees and there are certain companies that are under regulatory guidelines that prevent them from doing so.

Lockton México is a consultant focused on risk benefits,

There are still many companies that are only looking for the

actuarial

insurance

most economical option. However, most companies, once

management, bonds and automobiles. It is a subsidiary of

they understand the problem and develop a plan, become

Lockton International

convinced of the benefits of doing so.

consulting,

compensations,

risk

and

VIEW FROM THE TOP |

INSURANCE, SURETY BONDS PROVIDE GROWTH OPPORTUNITIES JUAN PABLO MURGUÍA CEO of Murguía

Q: How has the change in presidential administration

is a great deal of development in the Bajio area, so this

impacted Murguía’s business operations?

office, along with our Monterrey location, are experiencing

A: Given that Murguía participated in important

significant growth. We are developing our office in San Luis

infrastructure projects with the previous presidential

Potosi and investing in our Guadalajara location, as well.

administration, such as NAIM, the impact has been rather

Merida and Tijuana are two places in which we could also

significant. We managed the surety bonds and the civil

set up operations.

liability insurance for NAIM’s terminal building and runway number three, so we suffered a significant blow with its

Merida, in particular, offers interesting growth opportunities

cancellation. We now are in the process of analyzing what

in the renewable energy sector, given the number of new

will happen, whether the guarantees will be claimed and

developments for the production of clean energy. There

what will happen with the civil liability insurance. Leaving

are many innovative projects in the renewables sector and

aside the impact on our business, the decision to cancel

Murguía’s experience in this regard is unique. Our firm is

NAIM was political in nature, which we believe was not

No. 1 in surety bonds and even though we are a medium-

appropriate for the country or for the creation of an

sized broker for insurance, in the verticals of construction,

international trade, logistics and tourism hub.

infrastructure, housing, civil work and renewable energy we hold a leadership position.

Despite NAIM’s cancellation, Murguía continues to participate in governmental infrastructure projects like

Q: What is Murguía’s assessment of the risk management

the Toluca Train. We are analyzing the possibility of

culture in Mexico?

participating in the Mayan Train and in other infrastructure

A: Insurance culture in Mexico is lacking. While the

projects the government has announced. If President López

concept of risk management has permeated the corporate

Obrador encourages the construction of infrastructure and

segment much more than the overall population, we remain

housing the way he did when he governed Mexico City, the

committed to working on both fronts and we will continue

sector will grow and for us this will represent an important

promoting integral risk management strategies. We need

opportunity.

to advance insurance penetration in the country but this must be perpetrated by the industry, its associations and

Q: How does Murguía’s portfolio reflect the existing

the Ministry of Finance to reach the entire population.

opportunities of the insurance sector in the Mexican market? A: Our product portfolio is extremely diversified. We offer

As a company, we do collaborate on the creation of a

benefits and insurance policies for corporate employees, auto,

risk management culture and a sense of awareness. We

civil liability, construction all risk, and we are also present in

conduct marketing campaigns in this regard and we have

the renewable energy and oil and gas sectors. However, we

founded a company called Don Juan Microinsurance and

are also diversifying our offering and are managing other

Affinity that is focused on products that target the base

insurance solutions, such as for soccer teams or universities.

of the social pyramid. This company works to generate

The truth is that we manage all types of insurance.

awareness among those that do not feel the need to protect their assets.

Another element that has helped our diversification strategy is the geographic dispersion of our offices. Although most of our offices are in Mexico, we have opened a location in

Murguía is a Mexican insurance broker with over 20 years

Houston and we see opportunities in Central and South

of experience. Its specialization includes surety bonds,

America. Our diversification strategy allows us to reduce

insurance and risk administration and has offices in Mexico

the country-risk of our operations. In Mexico, we find there

and in Houston

357

| VIEW FROM THE TOP

TECHNOLOGY, INNOVATION AND AI CAN IMPROVE BUSINESS TOURISM GERARDO VERA Director General of CWT for Mexico and Central America

Q: How has CWTâ&#x20AC;&#x2122;s overall global strategy changed

For this reason, it is necessary to have the infrastructure

to reflect Mexicoâ&#x20AC;&#x2122;s higher ranking as a world tourism

to respond to all possibilities. Technology plays a key role

destination?

in service innovation, such as AI, offering 24/7 services

A: For many years, Mexico and the Latin American

or having a predictive knowledge platform to analyze

region were immersed in a dynamic whose objective

customer behavior. All this helps companies generate a

was to retain customers, so business in the region was

great savings.

leveraged by the sales we had from global clients. In

358

the last two years, we have increased our sales team by

We have developed a tool called Price Tracking that helps

more than 20 percent to attract more customers, which

our clients save on prices even after they have already

has led us to unprecedented growth. This has made the

bought their ticket. If the system notices that there is

global organization turn its eyes to Latin America, as it

a better price than that the client already paid for and

should have done from the start, and begin considering

that price proves beneficial even with the cancellation

the region as a growth engine.

fees, then it automatically cancels the previous ticket and gets the new one, providing savings to our customers.

Our CEO has already visited the region and wants to

This helps to generate additional savings and ensures

know why the US is forecasting one-digit growth rates

our clients that they will always be buying the best

while Latin America is forecasting double-digit growth.

possible ticket.

We are a growing region, attracting new clients and in the case of Mexico, experiencing high levels of profitability.

There is an additional factor that has great relevance:

That has been our main focus: profitability through the

security. As a TMC, we need to know where travelers

attraction of new clients.

are all the time. We have many alliances with security companies that have several protocols in case of natural

Q: Beyond low prices or access to more hotels, what is

disasters or terrorist attacks. These are some of the

the added value that CWT offers its clients and users?

factors that help differentiate us from other companies.

A: A large company with a large budget for travel needs to have the appropriate administration to get better

Q: Last year, you told MBR that you were directing your

results. The only effective way to have control of the travel

efforts toward digitalization and the use of Big Data.

budget is with the assistance of a company that helps

What results have you achieved?

you manage it and sets the needed criteria and policies.

A: We have an omnichannel strategy, meaning that travelers can contact us by phone, email or through our

Differentiating ourselves from other travel management

app, CWT to Go. What we are trying to do is to push the

companies (TMCs) is important. For us it is very simple:

digital experiences of our travelers through CWT to Go,

the recipe is innovation and service. We are a service

which improves the door-to-door experience for business

company and we must offer our clients the best possible

travelers. We hope this will generate more appetite from

service. When it comes to traveling, it is impossible not

our clients, especially considering the potential of the

to make any mistakes, as many variables come into play.

millennial generation, which is completely adapted to digital environments.

Carlson Wagonlit Travel (CWT) is a business travel manager for

We achieved growth rates of almost 25 percent in 2017

companies and governments. In addition to travel arrangements,

and over 50 percent of our clientsâ&#x20AC;&#x2122; interactions with us

CWT also delivers efficient and innovative solutions to optimize

are done through digital channels. For us, digitalization

travel and meetings and event management

implies greater efficiency and a better level of service.

VIEW FROM THE TOP |

ADDED VALUE FOR CORPORATE TRAVEL MANUEL VIÑAS Director General of FCTG Mexico

Q: What is the key differentiator of FCTG's offering in

Q: The internet has simplified travel planning. What

Mexico compared to its competitors?

added value do products and services like Travel

A: Unlike other companies, FCTG has a broad brand portfolio

Associates provide?

that allows it to cater to all the travel needs of its clients.

A: Anyone can go online and look for travel options but

Though other companies compete with us in the corporate

working with us provides a number of added values. For

travel vertical, we are different. Around the world, FCTG

instance, anyone can book a room at a five starts hotel, but

has over 30 brands that offer services to all the possible

if you book as one of our clients, we can secure an upgrade

options for travel and tourism. In Mexico, we have three

or provide additional services. These are the small details

brands in operation. The largest is FCM Travel Solutions, a

and added value that our service provides.

global brand that looks after large market and multinational corporate clients. Among our offering is the management of company travel programs through technology solutions and

Flight Centre Travel Group (FCTG) is a global travel company

personalized service. These technology solutions also help

with a portfolio of over 40 brands, of which three are offered in

companies know where their personnel are when traveling

Mexico. It was founded in the early 1980s and in 1995 was listed

and provide travel assistance.

on the Australian Securities Exchange

VIEW FROM THE TOP |

TECHNOLOGY A CORPORATE NECESSITY ÓSCAR PORTILLO Commercial Director of PC Fusion

Q: PC Fusion offers computers, servers, notebooks, AIO,

demanding in these cases. For example, at Expo Mascota,

workstations, tablets, printers and projectors. What is your

vendors were promoting their products with screens or

most demanded service and why?

surveying their clients using tablets.

A: Our main offer is the leasing of technology equipment, such as TVs, touch screens, cameras, projectors and printers,

Long-term leases involve a variety of clients from different

but the company also offers services like web installations,

industries in Mexico. PC Fusion helps satisfy the IT needs

system configurations and firewalls. We later sell this IT to

of automotive, insurance and finance companies. Today,

a secondary market so the client has no pressure when

Mexican companies, regardless of their size, consider

replacing their technology working tools.

technology not as a luxury, but as a necessity.

Q: Where is PC Fusion’s biggest business opportunity in terms of business segments?

PC Fusion is a Mexican company founded in 2009 that

A: With short leases, meaning one day or more. Our main

specializes in providing computing and audiovisual equipment

line of business tends to come from conferences and

for rent and sale. The company provides preventive and

events because the technological requirements are more

corrective maintenance of technological devices

359

| ACRONYMS AI

Artificial Intelligence

AICM

International Airport Mexico City

OTT Over-the-top

CNBV

National Banking and Securities

TPP11

Trans-pacific Partnership

Commission

USMCA

US, Mexico, Canada

FTA

Free Trade Agreement

WHO

World Health Organization

IoT

Internet of Things

WTO

World Trade Organization

NAIM

New International Airport Mexico City

| SPOTLIGHTS AND ROUNDTABLES

12-13

What Should Be AMLO's Focus to Boost Development?

36-37

GINgroup: a Leader in Integral Talent Management

58-59

How Can Regulations Boost Technology Development in Financing?

154-155

Mexicana MRO Services: Cargo Demand Spurs Transformation

168-169

SAE: the Pleasure of Flying

| MAPS AND INFOGRAPHICS 100-101 Where Does the Money Go? 157

Soaring Aerospace Sector

164-165 Solid Results for Commercial Aviation 176-177 Energy Mix 2032 Outlook 190-193 O&G Map 212-213 Primary Success 240-241 Beer, Tequila and Mezcal: Kings of Exports 276-277 More Than Just Fun and Games 288-289 Prime-time Entertainment 302-303 Looking Past the Sun and Beach

| ADVERTISING INDEX Opening Spread

Grupo Aries

209 GCMA

6 MBP

220 Sofagro

40 MBC

228

72 Smartcities

250 PEYRELONGUE

258-259 Montelobos

The Hidden Kitchen

Ancho Reyes

118 Evonik

267

140

Mexicana MRO Services

272 Gympass

160

Axon' Interconex

298 Amdetur

Dominion Corporate Housing

172 MOGS

313 SAE

187 Cuatrecasas

324 MTF

202 Velsimex

340

Salles Sainz - Grant Thornton

INDEX A-E |

ACCIONA 180

BlueMessaging 74, 75, 90

ACCIONA Energía 180

BMV Group 7, 12, 29, 51, 58

AccorHotels 300, 311

Boeing 20, 21, 142, 146, 152, 155, 157, 163, 165, 167

ACH Foods 238

Bombardier 144-145, 146, 147, 155, 157, 161, 169, 255

Aeroméxico 7, 20-21, 35, 142, 146, 155, 164, 165, 309

BTCM IM 310

Agility Logistics México 125

BTG Pactual 8, 12, 52

AgroBIO 211

CANAINCA 230, 232-233

Agropark 217

CANCHAM 7, 35

Airbus 142, 144, 145, 146, 152, 155, 157, 158, 161, 163, 165, 167

Carlson Wagonlit Travel 358

Aires de Campo 233, 236

Casa Dragones 248, 254

Alebrije Producciones 275, 291

Caterpillar 132

AlphaCredit 67

CCA 348

Altius Events 285

CCE 7, 9, 11, 12, 16-17, 109

Amadeus 318

CENACE 174, 175, 181, 182

Amar Hidroponia 220

CENAGAS 174

Amazon 51, 62, 79, 84, 88, 109, 247, 275, 290

Cerveceros de México 230, 231, 241

AMDEE 182

CFE 29, 53, 134, 174, 175, 180, 182, 183, 187

American Express 56, 319

Chávez Vargas Minutti Abogados 69

AMF 123

Chihuahua Aerospace Cluster 152

AMGN 197

China Campus Network 334

ANCH 305

Cinemex 275, 281, 290, 292

Aneberries 222

Citla Energy 194

ANICAFE 223

Climate Reality Project 184

Apple 92, 113, 294

Club Med 308

Argentum Textil 136

CMR 13, 245

Argo Solutions 319

CNA 206-207

Arizona Commerce Authority 159

Coca-Cola 239, 279

ASOLMEX 182

COFEPRIS 110

Assurant 113

COM 279

Aston Martin 256

COMECARNE 210

Avianca 20, 146, 155, 166

ConaLog 122

AVS 225

Concreto Polimérico Castor 134

Axon’ Interconex 161

Conekta 59, 62

Bacardi 242

Costa Careyes 262

Bajo de la Tintorera 246

Coty México 112

Baker McKenzie 10, 12, 342, 345

Cramex Aerospace 160

Banco Bancrea 48

Crater Solutions 93

Bancomer 44, 45

CRE 175, 182

BanCoppel 42, 46

Crédit Agricole CIB 53

Banco Sabadell 42, 43, 47, 68

Cuatrecasas 186-187

Banorte 45, 55

Dacomsa 114

Barclays 8, 43, 50-51, 52, 342

Dassault Systèmes de México 163

Basham, Ringe y Correa 342, 343

Decathlon 107

Beam Suntory 244

De la Vega & Martínez Rojas 9, 326, 335

Bentley 256

Dell EMC 74, 84

Best Buy 63, 108

Deloitte 13, 42, 58, 68, 75, 81, 120, 252

BIC 137

Devlyn 109

Bitso 58, 60, 220

Diavaz 197

Black Wallstreet Capital 48

Dominion Corporate Housing 266-267

BLN 230, 243

Doopla 65

BlueDrop Agroforestry 204, 224

EDF Renewables 181

| INDEX E-P Embraer 21, 157, 255

Jalisco 115

Emerson 198

Jet Mach 255

Enel Green Power Mexico 178

Junquera y Forcada 347

Ericsson Mexico, America and the Caribbean 78

Kelly Services 326, 332

everis 128

Korn Ferry 326, 330

Evolve Fintech 42, 59, 66

Kua Mex Foods 235

Facebook 63, 88, 91, 111, 114, 280, 322

kubo.financiero 59, 64

Farmacias Benavides 111

Kuraray 135

FCA Group 161

Lamborghini 256

FEMIA 142, 143, 145, 148, 150, 152, 156, 157, 158, 159, 161

Le Caméléon 237

Fieldwood Energy 189

Lenovo 87

Flight Centre Travel Group 359

LMB 280

Ford 344

Lockton México 356

Fresnillo , 7, 24, 25

Los Amigos Tulum 252, 263

Gayosso 7, 33

LOTENAL 31

GCMA 204, 208-209, 212

Maillard Abogados 326, 337

GINgroup 7, 32, 37

Mantarraya Producciones 292

Global Hitss 74, 85

Marposs México 162

Google 64, 90, 294

Mastercard 43, 57

Groasis 218

Mazars 353

Grupo Aries 316-317

McLaren Automotive 256, 257

Grupo Bimbo 183

Mercado Libre 63

Grupo Body Systems 269

Mero Mole 247

Grupo Caliente and Caliente Interactive 286

Mexicana MRO 146-147, 155

Grupo Diniz 49, 295

Mextenis 281

Grupo Jumex 233

Microsoft 86

Grupo Modelo 9, 126, 230, 231

Millesime 265

Grupo PAE 326, 333

Miniso 98, 104, 105

Grupo RFP 110

Ministry of Economy 7, 9, 14-15, 18, 143, 153, 157, 334, 344

Grupo Tecno 86

Ministry of Energy 178, 182, 185

Gutiérrez Mateos y Asociados 69

Mitsubishi Electric 130, 199

Gympass 268

Monsanto 214, 349

Hankook Tire 115

Monterrey Aerocluster 151

Haskell 148, 239

Morgan Philips 331

Helmut Fischer 131

Morpheus.Network 129

Hermes Systems 74, 92

MSC Cruceros 301, 315

H&M 98, 106, 107

Murguía 357

Hogan Lovells 344

NBA 271, 274, 275, 276, 277, 278, 283

Hoteles City Express 7, 27

Nestlé 239, 245

HR Media 275, 287

NFL Mexico 282

Iberdrola 179

Nissan 26

ICC 7, 10, 34-35

Northgate Capital 49

IHG 300, 306-307

Ocean Network Express 124

Indeporte 274, 276, 278

Oracle Mexico 75, 82

Industrias Peñoles 7, 24

OXXO 55

InnoCentro 158

Palacio de Hierro 113, 253

Inspirato 252, 264, 307

Palladium Hotel Group 309

InterAmerican Development Bank 28, 56

PC Capital 54

Interjet 35, 142, 146, 147, 155, 164, 309, 312

PC Fusion 359

Invenergy 183

PEMEX 16, 53, 171, 174, 187, 188, 189, 196, 197

IPADE 329

Perforadora Central 196

Jaguar E&P 195

Pinsa Comercial 234

INDEX P-W | Play Marketing 284

Syngenta 13, 204, 215, 349

Porsche 256

Tane 253

ProMéxico 9, 18, 230

TechBA 142, 143, 156

Promologistics 126

Telefónica Movistar 76-77

ProSonora 153

Thor Urbana , 252, 261

Proteak 219, 224

Traxión 121

Puebla 115

TREMEC 114

Quadrum CFDI 355

TSX 25

Queretaro Aerocluster 150, 161

T-Systems 83

Renault 26

Uber 51, 62, 79, 88, 89, 245

Rokk3r Labs 89

V&A 185

SAE 149, 169

Vacacionante 312-313

Salles Sainz - Grant Thornton 320, 352

Valdes Abascal Abogados 342, 346

Samsung 55, 63, 279

VCS Capital 293

Schöndube Abogados 321

Velsimex 216

SEDATU 19

Virgin Mobile 79

Seoane Consulting Group 354

Visa 55, 317

SINNETIC 349

Viva Aerobus 142, 146, 155, 164, 312, 313

Sofagro 204, 221

Volaris 35, 142, 146, 155, 164, 312

Sony Music 294

Walmart 79, 94, 98, 102-103, 109, 282

Sotheby’s International Realty Mexico 260

WePort 127

SRL Soluciones 91

WillScot 133

STP 59, 61

| PHOTO CREDITS Cover SECTUR

68 Deloitte

LOTENAL and Pronósticos para la Asistencia Pública

Gutiérrez Mateos y Asociados, Chávez Vargas Minutti Abogados

MBP, BMV Group, MBP, MBP

70 Oracle

Deloitte Consulting Group, México; MBP;

75 Oracle

Bluedrop Agrofestry; CMR; MBP

Telefónica Movistar México

Ministry of Economy

Telefónica Movistar México

16 MBP

Ericsson Mexico, America and the Caribbean

18 MBP

79 MBP

19 SEDATU

80 ViaSat

20 MBP

Deloitte Consulting Group, México

GNP Seguros

Oracle Mexico

GNP Seguros

T-Systems México

Industrias Peñoles

84 MBP

25 Fresnillo

85 MBP

Nissan Mexicana

86 MBP

Hoteles City Express

Lenovo México

28 MBP

Uber Mexico

BMV Group

Rokk3r Labs

LOTENAL and Pronósticos para la

90 MBP

Asistencia Pública

91 MBP

31 MBP

92 MBP

32 GINgroup

33 Gayosso

94 Walmex

ICC Mexico

MBP, MBP Casa Dragones

35 CANCHAM

102 Walmex

36-37 Envato

103 Walmex

38 NEC

104

Miniso Mexico and LATAM

105

Miniso Mexico and LATAM

BMV Group

44 LEGORRETA

106 MBP

107

Decathlon Mexico

46 MBP

108

Best Buy Mexico

Banco Sabadell México

109

Grupo Devlyn

Banco Bancrea, MBP

110 MBP

BMV Group

49 MBP

111

Farmacias Benavides

50 MBP

112

Coty México

113 MBP

BMV Group

52 MBP

114 MBP

115 MBP

Crédit Agricole CIB

54 MBP

116

55 MBP

121 Traxión

56 MBP

122 MBP

57 MBP

123 MBP

BMV Group, Deloitte, Bitso

124 MBP

Mercado Libre, Conekta, MBP, MBP,

125 MBP

Evolve Fintech

126 Promologistics

Volkswagen de México

60 Bitso

127 MBP

61 MBP

128 MBP

62 Conekta

129 MBP

130

Mercado Libre

64 MBP

Mitsubishi Electric Automation Mexico and Latin America

65 MBP

131

Evolve Fintech

132 MBP

AlphaCredit, AlphaCredit

133 MBP

Helmut Fischer

134 MBP

216 Velsimex

135 MBP

217 MBP

136 MBP

218 Groasis

137

219 Proteak

BIC LATAM

138 Lufthansa

220 MBP

143 FEMIA

221 MBP

144 FEMIA

222 Aneberries

146

Mexicana MRO Services

223 ANICAFE

147

Mexicana MRO Services

224

Bluedrop Agroforestry

148 MBP

225 MBP

149 SAE

226

Cerveceros de México

150

MBP, MBP

231

Cerceveros de México

151

Monterrey Aerocluster, Monterrey Aerocluster

232 MBP

152 MBP

233

153 ProSonora

234 MBP

154-155 Mexicana MRO Services

235

156 MBP

236 MBP

158 InnoCentro

237 MBP

159 ACA

238

160 MBP

239 MBP

161 MBP

242 MBP

162 MBP

243 MBP

163 MBP

244 MBP

166 MBP

245 CMR

167 MBP

246 MBP

168-169 SAE

247

MBP, MBP

170

248

Casa Dragones

Grupo México, Energy Division

Aires de Campo Kua Mex Foods

ACH Foods México

175 MBP

253 Tane

178

Enel Green Power Mexico

254

Casa Dragones

179

IBERDROLA México

255

Jet Mach

180

ACCIONA Energía

256

DB Imports

181 MBP

257 MBP

182

260

Sotheby's International Realty Mexico

183 MBP

261

Thor Urbana

184 MBP

262

Costa Careyes

185 MBP

263 MBP

186 MBP

264 MBP

188 PEMEX

265

Millesime Mexico

189 MBP

266

Dominion Corporate Housing

194 MBP

268 Gympass

195 MBP

269

Grupo Body Systems

196

MBP, ASOLMEX

Perforadora Central

270

Altius Events

197 MBP

275

Altius Events

198

Emerson, MBP

278 Indeporte

199

Mitsubishi Electric Automation Mexico and

279 COM

Latin America

280

Liga Mexicana de Béisbol

200 Proteak

281 Mextenis

205

282 MBP

Government of Jalisco

206 MBP

283

207 Proteak

284 MBP

208 MBP

285 MBP

211 MBP

286

214 MBP

287 MBP

215 MBP

290 Cinemex

NBA Mexico

Grupo Caliente

291 MBP

314 SECTUR

292 MBP

315

MSC Cruceros

293

VCS Capital

316

Grupo Aries

294

Sony Music Entertainment

318 Amadeus

295

Grupo Diniz

319 MBP

296

Altius Events

320 MBP

305

Hoteles City Express

321

Schรถndube Abogados

306 IHG

322 Facebook

307 Inspirato

327 MBP

308

Club Med

328

UP and IPADE

309

Palladium Hotel Group

329

UP and IPADE

310 MBP

330

Korn Ferry

311 AccorHotels

331

Morgan Philips Group

312 MBP

332 MBP

333 MBP

349

334

MBP, MBP

350 Facebook

335

De la Vega & Martínez Rojas, De la Vega &

351

WeWork Mexico and Colombia

Martínez Rojas

352

Salles Sainz - Grant Thornton

Pizá Attorneys at Law

353 Mazars

336

MBP, MBP

337 MBP

354 MBP

338 Envato

355 Quadrum

343

Basham, Ringe y Correa; Basham,

356 MBP

Ringe y Correa

357 Murguía

344

Hogan Lovells

358 CWT

345

Baker McKenzie

359

346

MBP, MBP

366-367 SECTUR

347 MBP 348 CCA

FCTG, PC Fusion

Inside Back Cover SECTUR

| CREDITS

SENIOR JOURNALIST & INDUSTRY ANALYST: Gabriela Mastache JUNIOR JOURNALIST & INDUSTRY ANALYST: Alessa Flores JOURNALIST & INDUSTRY ANALYST: Luis Pesce SENIOR WRITER: Alicia Arizpe EDITORIAL MANAGER: Daniel González SENIOR EDITORIAL MANAGER: Alejandro Salas EDITOR: Ricardo Guzmán López MANAGING EDITOR: Mario Di Simine SENIOR PUBLICATION COORDINATOR: Omar Martínez PUBLICATION COORDINATOR: Cagla Polat PUBLICATION COORDINATOR: Mariana Montes de Oca PUBLICATION COORDINATOR: Rebeca Garduño PUBLICATION COORDINATOR: Laura Criollo PUBLICATION COORDINATOR: Yohana Bolivar COMMERCIAL MANAGER: Bruna Brandão COMMERCIAL DIRECTOR: Jack Miller SENIOR GRAPHIC DESIGNER: Ailette Córdova GRAPHIC DESIGNER: Mónica López DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez SOCIAL MEDIA COORDINATOR: Karen Sujo COLLABORATOR: Brenda Salas COLLABORATOR: Peter Appleby COLLABORATOR: Tathiana Martín CIRCULATION MANAGER: Elizabeth Solis DIRECTOR GENERAL: Jeroen Posma PRINTED BY LITOPROCESS S.A. DE C.V.

$199.00 ISBN 978-1-7328256-3-5

59999

9 781732 825635

Mexico Business Review 2019

Articles inside

PUBLIC POLICY BASED ON OPPORTUNITY, LONG‑TERM VISION

NATIONAL POSITIONING THROUGH SOCIAL EMPOWERMENT

CONSTANT INVESTMENT SUPPORTS TRANSPORTATION SECTOR

BEYOND E-COMMERCE, RETAIL DEMANDS OMNICHANNEL APPROACH

A CREDIT PRODUCT FOR THE BASE OF THE PYRAMID

ENABLING ACCESS TO CAPITAL AND DEBT MARKETS

LEAVING COMFORT ZONE TO BE MORE INNOVATIVE, EMOTIVE

MEXICO’S FLAGSHIP CARRIER CHAMPIONS ECONOMIC DEVELOPMENT

BUSINESS COMMUNITY STRIVES TO CREATE A FAIRER, MORE COMPETITIVE MEXICO

STRATEGY FOR INCLUSIVE WEALTH GENERATION