Construction Equipment and Building Products in Mexico: A Strategic Reference, 2006
ICON Group International, July 2007, Pages: 245
How to Strategically Evaluate Mexico
Perhaps the most efficient way of evaluating Mexico is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to construction equipment and building products are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).
Latent Demand and Accessibility in Mexico
This report provides a detailed overview of factors driving latent demand and accessibility for construction equipment and building products in Mexico. Latent demand is largely driven by economic fundamentals specific to construction equipment and building products. This topic is discussed in Chapter 2 using work carried out in Mexico on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for construction equipment and building products in Mexico. I use the term “micro” since the discussion is focused specifically on construction equipment and building products.
Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Mexico. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Mexico. The numbers are only indicative of an average firm whose primary activity is in Mexico. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Mexico. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “construction machinery and equipment”, as defined in Chapter 3. Again, while “construction machinery and equipment” does not exactly equate to “construction equipment and building products”, it nevertheless gives an indicator of how Mexico compares to other countries for a proxy adjacent category along various dimensions.
Chapter 4 deals with macro-accessibility and covers factors that go beyond construction equipment and building products. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Mexico:
Openness to Trade in Mexico
Openness to Direct Investment in Mexico
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Mexico. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Mexico. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.
1 INTRODUCTION & METHODOLOGY 1
1.1 What Does This Report Cover? 1
1.2 How to Strategically Evaluate Mexico 1
1.3 Latent Demand and Accessibility in Mexico 3
2 CONSTRUCTION EQUIPMENT AND BUILDING PRODUCTS IN MEXICO 5
2.1 Latent Demand and Accessibility: Background 5
2.2 Latent Demand: Market Composition 5
2.3 Accessibility: Trade Barriers 6
2.4 Market Trends 7
2.5 Accessibility: Local Production 8
2.6 Accessibility: Foreign Entrants 8
2.7 End Users 8
2.7.1 Private Sector 8
2.7.2 Public Sector 9
2.7.3 Major Government Agencies 9
2.7.4 Public Housing Organizations 10
2.8 Latent Demand: Leading Segments 10
2.9 Market Issues and Obstacles 11
2.9.1 Import Climate 11
2.9.2 Distribution and Business Practices 11
2.9.3 Tariffs 11
2.9.4 Certificate of Origin 12
2.9.5 Import Duties 12
2.9.6 VAT 13
2.9.7 Delivery and Contract Practices 13
2.9.8 Financing 14
3 FINANCIAL INDICATORS: CONSTRUCTION MACHINERY AND EQUIPMENT 15
3.1 Overview 15
3.1.1 Financial Returns and Gaps in Mexico 16
3.1.2 Labor Productivity Gaps in Mexico 18
3.1.3 Limitations and Extensions 19
3.2 Financial Returns in Mexico: Asset Structure Ratios 20
3.2.1 Overview 20
3.2.2 Assets - Definitions of Terms 20
3.2.3 Asset Structure: Outlook 22
3.2.4 Large Variances: Assets 23
3.2.5 Key Percentiles and Rankings 26
3.3 Financial Returns in Mexico: Liability Structure Ratios 41
3.3.1 Overview 41
3.3.2 Liabilities and Equity - Definitions of Terms 41
3.3.3 Liability Structure: Outlook 43
3.3.4 Large Variances: Liabilities 44
3.3.5 Key Percentiles and Rankings 47
3.4 Financial Returns in Mexico: Income Structure Ratios 60
3.4.1 Overview 60
3.4.2 Income Statements - Definitions of Terms 60
3.4.3 Income Structure: Outlook 62
3.4.4 Large Variances: Income 63
3.4.5 Key Percentiles and Rankings 66
3.5 Financial Returns in Mexico: Profitability Ratios 77
3.5.1 Overview 77
3.5.2 Ratios - Definitions of Terms 77
3.5.3 Ratio Structure: Outlook 79
3.5.4 Large Variances: Ratios 80
3.5.5 Key Percentiles and Rankings 83
3.6 Productivity in Mexico: Asset-Labor Ratios 98
3.6.1 Overview 98
3.6.2 Asset to Labor: Outlook 99
3.6.3 Asset to Labor: International Gaps 100
3.6.4 Key Percentiles and Rankings 103
3.7 Productivity in Mexico: Liability-Labor Ratios 118
3.7.1 Overview 118
3.7.2 Liability to Labor: Outlook 119
3.7.3 Liability and Equity to Labor: International Gaps 120
3.7.4 Key Percentiles and Rankings 123
3.8 Productivity in Mexico: Income-Labor Ratios 136
3.8.1 Overview 136
3.8.2 Income to Labor: Outlook 136
3.8.3 Income to Labor: Gaps 137
3.8.4 Key Percentiles and Rankings 140
4 MACRO-ACCESSIBILITY IN MEXICO 151
4.1 Executive Summary 151
4.2 Economic Fundamentals and Dynamics 152
4.2.1 Major Trends and Outlook 152
4.2.2 Government Role in the Economy 153
4.2.3 Balance of Payments Situation 153
4.3 Political Risks 153
4.3.1 Nature of Bilateral Relationship 154
4.3.2 Relations between the Federal Executive and State Leaders 154
4.3.3 The Political System 154
4.4 Marketing Strategies 155
4.4.1 Distribution, Sales Channels, and Partners 155
4.4.2 Franchising Activities 156
4.4.3 Pricing Issues 157
4.4.4 Government Procurement 158
4.4.5 Legal Considerations 159
4.4.6 Due Diligence 160
4.4.7 Opening an Office in Mexico 161
4.4.8 NAFTA Certificate of Origin 161
4.4.9 Advertising Options 162
4.4.10 Demographics 164
4.4.11 Intellectual Property Risks 165
4.5 Marketing Strategies 167
4.5.1 Western Region 167
4.5.2 Northwestern Region 171
4.5.3 Northeast Region 173
4.5.4 Central Region 175
4.5.5 Southeastern States 176
4.5.6 Yucatan Peninsula 177
4.6 Import and Export Regulation Risks 178
4.6.1 Tariffs and Fees 178
4.6.2 Licenses Required for Imports 179
4.6.3 Controls on Exports 180
4.6.4 Local Standards 181
4.7 Investment Climate 185
4.7.1 Openness to Foreign Investment 185
4.7.2 Conversion and Transfer Policies 187
4.7.3 Expropriation and Compensation 187
4.7.4 Dispute Settlement 187
4.7.5 Performance Requirements and Incentives 188
4.7.6 Right to Private Ownership and Establishment 189
4.7.7 Intellectual Property Risks 190
4.7.8 Transparency of the Regulatory System 191
4.7.9 Capital Market Risks 191
4.7.10 Political Violence 192
4.7.11 Corruption 192
4.7.12 Bilateral Investment Agreements 193
4.7.13 Investment Insurance 194
4.7.14 Labor 194
4.7.15 Free Trade Zone Options 194
4.8 Trade and Project Financing 195
4.8.1 Financing Availability 195
4.8.2 Exchange Control Risks 198
4.8.3 Project Financing in Mexico 198
4.9 Travel Risks 199
4.9.1 Transportation and Hotels 200
4.9.2 Visas and Visitor Fees 200
4.9.3 Language 202
4.9.4 Climate 202
4.9.5 Health Issues 202
4.9.6 Communications 203
4.9.7 Local Business Customs 204
4.9.8 Security Considerations 204
4.9.9 Education and Training Services 205
4.9.10 Culture and Recreation 205
4.9.11 Country Data 205
4.10 Key Contacts 206
4.10.1 U.S. Embassy Contacts Located in Mexico 206
4.10.2 Mexican Government Agencies 208
4.10.3 Trade Associations and Chambers of Commerce 209
4.10.4 Product and Quality System Certification Organizations 212
4.10.5 Banking 214
4.10.6 U.S. Agricultural Cooperator Offices in Mexico 220
4.10.7 U.S. Government Contacts in Washington D.C. 224
4.10.8 U.S.-Based Partners Relevant for Mexico 226
4.10.9 Association of State Offices in Mexico (ASOM) 227
4.10.10 Labor Organizations 233
5 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 236
5.1 Disclaimers & Safe Harbor 236
5.2 Icon Group International, Inc. User Agreement Provisions 237
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