Ask the (M)experts 2011
For an update on what’s new in security, infrastructure, and manufacturing in Mexico since last year’s edition of Ask the (M)experts, Inbound Logistics checked in with a new crop of supply chain leaders and economic development experts— and some of last year’s MVPs.
Meet the (M)experts
Gilberto Salinas, vice president— marketing, communications and public affairs, Brownsville, Texas Economic Development Council
Salinas develops marketing campaigns to promote Brownsville, and recruit and expand industry in the region. He also assists in making incentive packages and suitable industrial sites available to companies expanding in the area. In his role as legislative affairs liaison, he ensures the community and its public projects are represented at the Texas Capitol.
John LaRue, executive director, Port Corpus Christi
LaRue oversees the port’s day-to-day operations. He also serves as treasurer of the Port Industries of Corpus Christi; chairman of the International Refrigerated Transport Association; and chairman of the State of Texas Department of Transportation Port Advisory Committee.
Daniel Pardo, country manager for Mexico, DHL Supply Chai
Daniel Pardo has been with DHL Supply Chain for 17 years. In 2003, he led the integration of operations with Tibbet & Britten at DHL Supply Chain, which represented business growth in Mexico of more than 100 percent. Since 2006, he has been vice president and director general of supply chain for DHL Supply Chain in Mexico, responsible for operational, administrative, and business growth.
Bob Cook, president, El Paso Regional Economic Development Corporation (REDCo)
REDCo is responsible for recruiting business and industry to the Greater El Paso/Juarez region. Cook and his staff have teamed with regional partners to recruit several noted businesses to the region since REDCo’s inception in June 2004.
Guillermo Chavez, Business Development Director, Meridian 100°
Chavez’s experience lies in new venture creation and business model strategy. He has been instrumental in developing Meridian 100°’s value proposition, identification, and coordination of strategic advisors. Meridian 100° is a privately owned, Mexico-based logistics infrastructure developer.
Troy Ryley, managing director, Transplace Mexico
Ryley has been involved in Mexico and Latin America logistics since 1993. After graduating with his MBA from The American Graduate School of International Business (Thunderbird), he relocated to Mexico City, where he worked and lived for more than 12 years. He is responsible for directing and managing Transplace’s logistics operations for Mexico and the southern U.S. border.
How does Mexico compare to other global locations in competition for foreign direct investment (FDI)? What are its assets and obstacles?
Gilberto Salinas, VP, Brownsville, Texas Economic Development Council (BEDC): One of Mexico’s most important assets in recruiting FDI is its proximity to the United States. Only one other country can claim that proximity. The country’s affordable, young labor force is another asset.
John LaRue, Executive Director, Port Corpus Christi: Mexico’s two ocean coasts and ample port infrastructure make it an ideal country for international trade companies to invest in infrastructure. Assets such as land and good roads exist close to every deepwater port. The biggest obstacles faced by foreign investors are the myriad government permits required to start a new business. Working with Mexico’s bureaucracy can be time-consuming.
Daniel Pardo, Country Manager for Mexico, DHL Supply Chain: Stable wages, a hardworking and highly skilled labor force, and robust relationships with long-standing trade partners are among Mexico’s greatest assets. The country also offers friendly union relationships overall, including the ability to remain union-free.
Some challenges to address include road infrastructure efficiency, security, and regulatory frameworks, none of which are insurmountable. A more lasting challenge will be driving down transaction costs in comparison to other developed economies.
Bob Cook, President, El Paso Regional Economic Development Corporation: Mexico offers well-developed transportation infrastructure and a range of manufacturing support services. Mexico has historically offered globally competitive manufacturing costs, which are even more competitive in the current environment, with favorable changes in the exchange rate versus the dollar over the past two years.
Troy Ryley, Managing Director, Transplace Mexico: Sourcing goods from Mexico allows companies to benefit from the low cost and flexibility of intermodal transportation and shorter shipping distances. With lead times ranging from 24 to 72 hours, Mexico presents a more palatable sourcing option than locations farther abroad. Companies can save up to 30 days in the forecasting cycle, allowing them to refine forecasts to be more in line with demand. They also gain more flexibility to react in real-time —canceling, increasing, and decreasing order capacity depending on market needs.
Guillermo Chavez, Business Development Director, Meridian 100°: Proximity to the United States gives Mexico a clear competitive advantage. In 2010, trade to North America showed signs of revival after a very uncertain 2009. Major port operators and maritime companies have adjusted their forecasts and still project a monumental volume of goods heading to the North America trade bloc. Rising oil prices will make Mexico a desirable location to near-shore manufacturing or add specialized value to goods heading to the American and Latin-American markets.
What current developments, such as port, inland port, rail, and road projects, will affect trade in Mexico? Why are they significant, and what will be their impact?
Salinas, BEDC: The most significant development is the widening of the Panama Canal. The expansion will provide both opportunity for ports along the Texas and Mexico Gulf Coast and stiff competition for ports along the Mexican Pacific Coast. The Port of Brownsville is investing in major infrastructure in anticipation of the influx of activity from the canal expansion, which is scheduled to be completed in 2014.
LaRue, Port Corpus Christi: Trade via rail and truck continues to grow between Mexico and the United States. Kansas City Southern de Mexico and Ferromex have developed inland hubs/ports in various Mexican states for container operations. In addition, to reduce heavy truck congestion on the border, investing firms are seeking construction of another bridge crossing, as well as free trade zone facilities on both sides of the border.
Chavez, Meridian 100°: Metropolitan areas will be better connected by 2012. For example, the North Arc highway, which already serves as a Mexico City bypass, will eventually link the states in the center of Mexico. New highway development has given more viability to several industrial parks that are now under construction.
Other important investments are being deployed in the Pacific in the Port of Lázaro Cárdenas. In addition to its container terminal, the port will create a new rail facility. Mexico will benefit from the increase of trade to the North America bloc if it is capable of providing world-class port and transportation infrastructure, which will attract major global port operators and create a healthy competitive climate.
What are the growth opportunities for FDI and trade as a result of the growing Mexican consumer class?
Salinas, BEDC: The Mexican consumer class has come a long way, but it is still at least a generation away from making any significant strides in regards to foreign direct investment. U.S. and European manufacturers continue to be the major draw for foreign direct investment activity in Mexico.
Pardo, DHL Supply Chain: The Mexican consumer is getting more sophisticated and demanding. Disposable income spending patterns have shifted, most noticeably in consumer goods such as electronics, mobile phones, and automobiles; and services such as banking, food, and leisure. Mexican consumers tend to be more loyal than their developed country counterparts, so partnering with established brand names looking to innovate and stay ahead of the curve is a good idea.
On the other hand, and contrary to the economic law of one price, a surprising percentage of the goods desirable to the ‘new’ Mexican consumer are still considered, taxed, and marked up as luxury items or services. This gives higher margins to companies that can offer what the consumers want.
There is strong growth potential for industries with labor-intensive processes and specialized labor needs, including food and consumer goods companies’ inbound and outbound supply chains.
Cook, REDCo: Mexico has not experienced the mortgage/debt crisis that has hampered the U.S. economy. With more than half of its population younger than 30 years old, the country has a strong and growing internal market. The Mexican banking system is solid, with more than $100 billion in reserve, and a current per-capita income of approximately $8,000 and growing. Like any emerging economy, Mexico provides solid opportunities for both FDI and trade.
Ryley, Transplace Mexico: Over the past 10 years, the Mexican middle class has gained access to conventional consumer credit, which has changed the dynamics of their purchasing habits tremendously. This increased spending is evidenced by the presence of new cars and housing developments, and the large selection of global products from both U.S. and Mexican retailers in the stores.
Chavez, Meridian 100°: FDI can be beneficially allocated in areas such as logistics and industrial facilities. Mexico has three major cities and more than 50 metropolitan areas, so local and regional distribution and manufacturing centers will be needed, as well as infrastructure improvements. Transportation companies and 3PLs can also reinforce their global transportation strategies in Mexico.
The aeronautics and automobile industries in Mexico benefit from the country’s skilled workforce and business conditions favorable to specialized industries.
Finally, the rise of metropolitan areas such as Queretaro and Aguascalientes creates potential for developing services related-facilities, from call centers to software development.
What is the status of cross-border security in Mexico? Have government programs to combat crime been effective? Do you predict crime rates will rise or drop over the next five years?
LaRue, Port Corpus Christi: To enhance security around the border, the government has established Federal Police and Army checkpoints, which have been somewhat effective. Customs officials also have screening systems to check trailers and railcars moving in both directions across the border. With U.S. and Mexico authorities working together, crime rates should continue to drop over the next five years.
Cook, El Paso: Cartel-related violence has increased in Mexico over the past 36 months, but it has had little direct impact on the country’s manufacturing and distribution sector. Manufacturing jobs in Ciudad Juarez have increased by 22,000 over the past 16 months, and the volume of manufacturing-related import/export trade in our region increased by 56 percent during the first three quarters of 2010, compared to the same period last year.
We hope that the new strategies being implemented by local and state governments, along with assistance provided by the U.S. government, will reduce the incidents of violent crime over the next few months, and certainly within the next five years.
Ryley, Transplace Mexico: While Mexico’s security issues are far from resolved, recent meetings with Homeland Security have helped improve the situation, and collaboration between Mexico and the United States is at an all-time high. The recent capture of noted crime figures, including La Barbie and members of La Familia, has impacted the drug cartels’ effectiveness. There are more roadside checks, and the Mexican government is breaking seals in more locations to look for drugs and arms in shipments moving across the border. The cartel problems, however, will continue to affect trade and merchandise security through the next few years, and the increased security efforts have come at a great cost to the country’s current economic strategy.
Chavez, Meridian 100°: The Mexican government’s decision to confront drug dealers proved to be effective in curbing the rise of illegal drugs in the United States, but the increased violence between cartels has been a negative consequence. Nonetheless, business continues in Mexico and along the border, as the world’s most important and admired companies import and/or manufacture goods in Mexico.
Given the United States’ recent elections and Mexico’s upcoming elections, what are the prospects for closer cooperation between the two governments?
LaRue, Port Corpus Christi: Historically, and independently of who will be the next president in Mexico or the United States, cooperation between both countries’ governments has been cordial. Mexico is one of the United States’ largest global partners for trade and development. That relationship should continue for the foreseeable future.
Pardo, DHL Supply Chain: NAFTA countries depend on each other for diverse factors, such as raw materials, hourly labor, engineering, manufacturing best practices, management skills, and expansion into new markets. A few chapters of NAFTA have not been realized, and they need to be reviewed with a holistic, global view to determine how to generate a win-win situation for both countries.
The United States and Mexico will do well to recognize that partnership is not only natural but necessary to thrive as part of the ‘new normal,’ and that it is a key way to maintain a strong presence in their respective arenas. Stronger links between diplomacy, industry, and government will need to be formed in order to align the wills and the spirits of both populations.
After the countries achieve this stability, cooperation will flow in five key streams: more efficient regulatory frameworks, simplification of trade terms with a focus on the real goals, elimination of infrastructure bottlenecks, bilateral capacity planning, and the creation of geographic industry clusters that work in unison to enhance each country’s competitiveness. That said, cooperation between immediate neighbors is seldom automatic —it requires strong leaders and a concerted, cohesive effort.
Cook, REDCo: The United States and Mexico share a common border of more than 2,000 miles, and our countries have common interests relating to economic, social, and security issues, which necessitates collaboration on trade and immigration. For example, in the U.S. government, new U.S. Customs and Border Protection Commissioner Alan Bersin is spearheading initiatives at the ports of entry along the southwest border, which should increase security while enhancing the flow of commerce and people with legitimate business purposes.
Ryley, Transplace Mexico: For the past decade, there has been tremendous interest and support for developing bilateral government programs and trade pacts between the United States and Mexico. Because Mexico is our closest neighbor on the southern border, it serves our interest to continue to have close ties and increased cooperation and trade between the two countries.
What role can Mexico play in helping multinational companies expand their opportunities throughout Latin America?
LaRue, Port Corpus Christi: Mexico’s economy and finances are strong, its import and export trade is balanced, and the peso has maintained its value for the past five years. The country is well-positioned to serve as a hub for multinational corporations, which can expand with Spanish-speaking personnel who are attuned to the Latin way of doing business.
Pardo, DHL Supply Chain: Mexico is an ideal pilot environment where companies can easily learn consumption patterns and spending behavior representative of the entire region. Its cultural and geographical proximity to the United States allows companies to set up competence centers where products can be customized for Latin America, and manufacturing innovations can easily be replicated from an origination country into Mexico. The country’s world-class education institutions produce workers with a unique pool of skills and creativity who are suited for successful deployment across the region.
Chavez, Meridian 100°: As the North American trade bloc remains the biggest consumer market in the world, Mexico will become the logistics hub for trade heading to North America from southeast Asia, South America, and Europe. Latin American countries producing goods in Mexico can benefit from its diverse commercial agreements and foreign trade zones.
Have recent rail infrastructure investments been adequate? What further development is needed?
LaRue, Port Corpus Christi: All the rail companies operating in Mexico have invested billions of dollars in track upgrades, tunnel expansions, and inland hubs to enhance their logistics operations and save freight costs for local clients. But because of increases in container trade and general/bulk cargo volumes, additional infrastructure is still required.
Pardo, DHL Supply Chain: Infrastructure and service offerings have improved, but there are still areas of opportunity in the amount of volume that could be handled via rail. Much more needs to be done to increase rail capacity and use.
Cook, REDCo: Privatization of the country’s three principal corridors linking to the United States significantly improved their efficiency, which increased use of the system. There has been about $4 billion invested in rail upgrades, split almost evenly between Mexico’s public and private sectors.
Ryley, Transplace Mexico: Although there have been improvements in the Mexican rail system, it still lacks the agility that we are accustomed to in the United States. And in many cases, rail is more expensive than over-the-road truck for short and mid-distance hauls.
Kansas City Southern has improved some lines of service, but even with its significant investments, Mexico’s rail infrastructure needs improvement to make it as competitive as other countries’ systems.
A Global Player
Mexico’s economy ranks as the world’s 12th largest. The following statistics help bring the country’s role in global trade into focus.
80 percent of Mexico’s international trade is with the United States.
In 2009, the United States and Mexico conducted an estimated $305.5 billion in trade; for the first 10 months of 2010, their trade was worth $322 billion.
Mexico is the United States’ third-largest trading partner —ranking only behind Canada and China —making up 12.3 percent of all U.S. trade.
In 2009, 23 U.S. states exported $1 billion or more in products and services to Mexico, creating thousands of jobs in each state.
Source: Bob Cook, El Paso Regional Economic Development Corporation