Podcast Transcript - Mexico: Your other North American partner
Host: Michael Mancini
In 1994 business in Mexico changed forever. With the creation of the North American Free Trade Agreement (or NAFTA) Canada, the US and Mexico became the world’s largest free trade area. Since then, companies in all three countries have been deepening their relationships in what many call the North American platform. Today we’re going to explore opportunities in Mexico. I’m Michael Mancini, editor of CanadExport, the government of Canada’s magazine for entrepreneurs who want to compete, partner and prosper in the global marketplace. Look for our magazine.
Since NAFTA was signed, Canadians have invested some 6 billion dollars in Mexico, making Canada the fifth largest foreign investor in Mexico. So whether you’re looking to invest, partner, set up a manufacturing operation or sell to Mexico’s growing consumer market, opportunities are plentiful. Today we’ll speak to four Canadians who will share their unique perspective on taking on the Mexican market, and on how important our sunny southern neighbour is to Canada’s competitiveness.
My first guest is Rosalind Wilson, General Director of Canadian Pacific Railway limited in Mexico, and president of the Canadian Chamber of Commerce in Mexico. Thank you for joining us, Ms. Wilson.
Rosalind Wilson: Thank you very much, it’s a pleasure.
Michael Mancini: So, tell me about the opportunities available for Canadian entrepreneurs in Mexico.
Rosaline Wilson: Well, Mexico is obviously a huge consumer market. It’s also a big industrial manufacturer, and a country that’s committed to being competitive and adopting better practices. So there are opportunities in consumer goods, technology and services, as well as clear investment opportunities for countries who are interested in infrastructure projects and supplying and setting up sort of second tier manufacturing to supply the big manufacturers. There’s a huge, a huge gambit of opportunities here. We actually opened our office in 2000, we were a little late to start after NAFTA was signed, and since 2000 we’ve actually grown our Mexico business five times; so at the same rate that NAFTA grows, we’re a little bit more accelerated with trade. We’ve seen huge growth. We now have very, very clear services in, and we’ve got some great partners down here and we’re very, very happy.
Michael Mancini: What are some of the challenges faced by Canadian companies moving into Mexico?
Rosaline Wilson: It’s obviously very different doing business in Mexico. It’s a Latin country, and like all Latin countries they do like to see, understand and trust the people they’re doing business with. Not that Canadians don’t, but there’s definitely more emphasis on face-to-face in Mexico. So you’ll get far more done by taking the time to sit down with somebody and investing that initial upfront time than you do by email. There are obviously other cultural barriers, language being the clear one, and subtleties of that are important, but I think the most important thing that Canadians should expect is that they will need to invest time in their initial set up and getting themselves in a position in the market. I would say many companies come down and they just sort of think it’s like doing business in their own country, so they don’t make the time upfront to research the market and find a good partner. Many companies just come down and think that it’s just going to be easy to walk in because somebody said yes, they wanted their product, and that was it, they go home and send an email and think that that’s good enough.
Michael Mancini: What do you see happening economically in Mexico over the next five years?
Rosaline Wilson: I see Mexico as a huge growth opportunity for Canadian companies over the next five years. As I say, many of the NAFTA growing pains, the initial bureaucratic problems, have been ironed out now. The new administration in Mexico, under Philippe Calderon, is absolutely committed to NAFTA and growth. And Mexico really likes Canada. So I see this now as, we had the initial sort of NAFTA, “Oh my goodness, here it is,” and then there was a bit of a lull, and now I think our two countries are well positioned to start really increasing trade and investment over the next five years.
Michael Mancini: Thanks for your time, Ms. Wilson.
Rosaline Wilson: Thank you very much, it was a pleasure.
Michael Mancini: Now, let’s go to Montréal, where William Polushin is on the line. Mr. Polushin is president of Amaxis, an international business development firm, and he’s a lecturer in the Faculty of Management at McGill University. Thanks for joining us, Mr. Polushin.
William Polushin: My pleasure. I appreciate the time.
Michael Mancini: What challenges do you see Canadian small and medium sized enterprises facing in Mexico today, as NAFTA continues to open the country to investment and trade?
William Polushin: The game has come to the SME level, meaning that they do have to be an active participate in working with Mexico. And that brings with it different challenges, because the SMEs have different resource capabilities, in terms of human resources, in terms of financial resources at their availability. So from the outset, they must be much more prudent in how they engage Mexico and the other parts of NAFTA, in terms of getting capital, human resources, they lack the experience. So they must be much more prudent in pushing their agenda forward. Meaning that they have to be ready, in terms of their export investment readiness, again in dealing with a market that may not have a great deal of experience with. They have to be very effective in how they execute the business plans into these markets. Since NAFTA came into effect, we’ve effectively seen a doubling of merchandise trade, up to today’s terms close to 1 trillion dollars in trilateral trade, so what we’ve seen is definitely the positive effects of creating a favourable trading and investment environment that Canadian and US companies, and Mexican companies, can take advantage to better foster creative investment flows across the North American region.
Michael Mancini: So how can Canadian companies take advantage of Mexico’s role in supply chains?
William Polushin: It’s no longer sufficient just to think, okay I’m a Canadian company, whether it’s a goods provider or services provider, and export to Mexico, as a final destination. I have to understand that the nature of trade today is multidimensional, multidirectional; that means I have to think about, do I look at Mexico or the United States? Do I have to bring a product in from those countries, as an imported, to make sure that my export product is that much more competitive? Do I have to consider partnering or investing in one of these two countries to make sure that I have better access to my clients in those markets? Because, again, to me it’s not just a matter of looking at Mexico as a final destination, it’s a case of looking at Mexico as a business partner, and saying: “Okay, if I’m going to work with Mexico as a sourcing point, in what areas and why?” If I’m going to look at Mexico as a destination, same sort of thing. Absolutely a good market, a growing market, but how? Recognizing that I am not the only competitor in Mexico, we have significant competition from the US, from Asia, from Europe, etc. And then the final point is, what’s the most effective way of penetrating the market? Do I need to consider the investment component of this equation, and if I don’t have the resources, maybe I look at a partnering structure. If I’m a traditional supplier to Nortel, for example in Montreal, and suddenly Nortel decides to sell off its manufacturing and assembling operations to Flextronics and Electron, these are two international contract manufacturers, headquartered outside of Canada. And they start moving their assemblies, let’s say from St.Laurent down to Mexico or other parts of the world. So if I’m a traditional Canadian supplier to a company like Nortel, suddenly I have to be capable and aware of, well if I don’t want to lose that business, I have to start following the business. Meaning that, I have to be able to effectively go into Mexico and if I’m going to work with Flextronics, which is headquartered out of Singapore, I need to understand how to become an effective supplier to them now, not just Nortel, but Flextronics. When I first went to Mexico I thought as a traditional exporters, I want to get our project into Mexico. But, 14 years later, no that’s not good enough, we must be much more sophisticated in how we carry it out. Because again those companies that do it, for example the Bank of Nova Scotia, Magna, and again these are the larger companies, but I think we can learn from the larger companies. Let’s understand exactly the advantages, whether it’s Canada, the United States or Mexico, brings them into the global supply chain, the global value chain, and figure out how do we leverage those relationships. And if you don’t have those relationships, you better start creating them and creating them fast, and if your SME is a particular challenge because you don’t have the experience or the same resources to draw upon in terms of having offices in these three countries, or the same level of network.
Michael Mancini: And, how important is the fostering of relationships in this market?
William Polushin: You cannot just walk into Mexico. Even our largest companies, you would expect to be welcomed, but at the same time you must earn your stripes in that country. That means don’t expect to be effective in Mexico without having close allies; in terms of the Mexican business community itself. Because they have the in-roads, they have the knowledge, and they have the experience in dealing with the challenges of doing business in Mexico. Even ourselves, we have a partner in Mexico, and even Mexicans dealing with Mexicans. It’s not an easy environment at times. From the outset I’ve been dealing with Mexico for the last 14 years and there are very few exceptions where things are just black and white. The word “no” doesn’t exist for the most part. So you have to understand the shades of, when somebody says “yes”, exactly what does that “yes” mean. And it’s shades of grey, let’s call it. You have to have the savvy, you have the have the experience, you have to have the knowledge, and if you don’t have it yourself, it’s critical that you ally yourself with that kind of type of knowledge base. We are truly living in Darwinian times from a business perspective, it really is survival of the fittest right now. If you want to survive and thrive you have to be very agile in today’s environment.
Michael Mancini: Thank you for your time, Mr. Polushin.
William Polushin: Alright, take care.
Michael Mancini: I have been speaking to William Polushin, president of Amaxis, and a lecturer in the Faculty of Management at McGill University. He was speaking to me from Montreal.
One Canadian company that knows the benefits of integrating into the Mexican market quite well is Span International, a Toronto based provider of logistics and manufacturing services to the electronics industry worldwide. Earlier I spoke with Max Chipman, the company's Vice President and Director of Business Development. This is what he had to say about how NAFTA is affecting supply chain management for Span International today.
Max Chipman: You know this is one of our core competencies, and this is actually what we brought into Mexico as a service offering. And it was to facilitate the growth of the Makiladora infrastructure in our chase in the vertical of high technology or electronics, and I mentioned that many of the suppliers to that industry are foreign based suppliers, primarily out of Asia, whether it's Japan, Taiwan, China, Korea, they do not have a presence in many cases in North America, let along in Mexico, so they need the partnership of a strong supply chain management party, or third party logistics provider, to facilitate how they are going to get their supply line to their end customers in Mexico, and many of those end customers are the large contract manufactures building products like IMB computers or Hewlett-Packard computers, and such.
Michael Mancini: Mr. Chipman also gave us some insight into the strategies for entering the Mexican market.
Max Chipman: Well, I guess looking back, I look at all the things that we did that we felt were right under advisement of one of our lead customers that took us into Mexico, and that was Ford Motor company. And we took their advice to engage with a top international law firm, which happened to be their law firm as well, to go through our incorporation in Mexico, and that was with Baker and McKenzie. So I would strong recommend the same for anyone looking at that. I would also suggest that the opportunities to understand some of the challenges going in, and some of the requirements, they should look to our government agencies as a first step to see what services are available, and the experience that is available. That certainly is a first step; and I have often, not necessarily in Mexico, but one of the things that we did not do was take advantage of some of the government agencies that perhaps could have made it less of a work load on us on entry, but the experience in Mexico helped us when we went on to the next country, which is Brazil, where I certainly reached out to our government agencies for some help. So I would strong advise that. And thirdly, if you're looking at establishing manufacturing capabilities for products in Mexico, there is an option to partner with companies like our own, who already have been well established in Mexico, and can operate under what is referred to in the Makiladora industry as a shelter operation, where companies do not in fact have to incorporate, they can achieve the same end result, but under a sub-contract arrangement, with companies like Span.
Michael Mancini: That was Max Chipman, vice-president of and Director of Business Development for Span International. He was in Toronto.
Finally, let’s hear from John Gartke, a Trade Commissioner at the Canadian Embassy in Mexico City, about how the Canadian Trade Commissioner Service can help companies break into the Mexican market.
Hi John, thanks for speaking with me today.
John Gartke: No problem, pleasure to be here.
Michael Mancini: So, NAFTA has really helped Mexico become a very attractive place for Canadians to do business. From your perspective as a Trade Commissioner, how can Mexico improve?
John Gartke: Of course, not without it’s challenges, but I would say that the challenges are not related to market access. I think some of the challenges that we continue to face here are some infrastructure challenges, the roads, rail linkages, there could be perhaps more advancement on air transportation. Here domestically, of course, there’s a whole range of political domestic reforms that have been started and then have advanced only a certain way; tax reforms, social reforms. Certainly what we’ve been actively doing is beyond outreach here in the country, digging up opportunities and leads for Canadian clients, is to bring to our Canadian clients a good understanding about what some of those challenges are, in terms of domestic competition, and a lot of the regulatory environment that they might find a bit different, not only culturally but just from a business environment that they might not be accustomed to back home.
Michael Mancini: Now, we heard about how important relationships are in Mexico. How challenging are these relationships to develop?
John Gartke: It’s not hard to find the right people, but it takes time to develop the relationship. Unfortunately some people have the impression that they can come to the market and conclude a sale in one or two visits, and that’s simply not the case. You have to really come here, get to know the local market and players in the market, and take the time to develop the relationship; because it’s a risk proposition I think for both sides. Certainly we help with trying to find the right people that have the right resources to make it easier for Canadian client to enter the market, but I can’t stress enough that it takes time to develop trust in to ensuring that it’s a win-win situation for both sides.
Michael Mancini: Mr. Polushin said that entrepreneurs have to think of Mexico as more than just an export market, but also in terms of supply chains. How can you help with that?
John Gartke: Now, with the NAFTA and globalization in general, Mexico is really a key component in what I would call the North American value chain, and you really see that in some of the manufacturing industries, for example the automotive industry. It’s one that’s growing fast in Mexico and for Mexico, the Mexican government, and foreign investment and trade commotion identity, is optimistic that Mexico will become one of the top 10 manufacturers in the automotive sector in the next few years. And a lot of industry is responding to that. The main OAM manufacturers, Ford, Chrysler, Nissan-Toyota, Volkswagen, are all here in Mexico with assembly plants and a lot of the suppliers are really taking a hard look at Mexico in order to be in a position to supply those manufacturers.
Michael Mancini: So, any final pieces of advice for Canadian entrepreneurs looking to Mexico?
John Gartke: Make a commitment to the market, because Mexico is an important market in and of itself, but increasingly in the North American value chain, and in the American value chain; trade is expanding with Columbia, Chile, other countries in South America. And Mexico can be a hub for that. And I think obviously, talk to us. Talk to the Trade Commissioner here or in any one of our service point in Mexico, talk to the people at the regional office across Canada on advice, best practices, because we have the network not only in Mexico City but also in Monterrey and Guadalajara. We can put them quickly in touch with people who really have a good understanding of the market, who can help Canadians penetrate this market, and really without any regard to specific sectors; we have a position here in the market that will save Canadian exporters, a first time exporter for sure, a tremendous amount of time and money, and effort and grief in terms of talking to people and really trying to navigate their way into trying to understand how they can position themselves in the market.
Michael Mancini: Thanks John.
John Gartke: No problem. Glad to be with you.
Michael Mancini: I have been speaking with John Gartke, Trade Commissioner with the Canadian Embassy in Mexico.
Well, that’s it for our show. I hope you’ve enjoyed our discussion on the Mexican market. To learn more about how the Canadian Trade Commissioner Service can help your company, you can visit us at tradecommissioner.gc.ca. To subscribe to CanadExport, our twice monthly magazine. I’m Michael Mancini. Join me in the New Year when we look at managing risk in China. So long for now.
To download our other episodes, just go to www.canadexport.gc.ca or go to iTunes and use the searchword “CanadExport.”
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