Sounding Off: Mexico as an emerging Latin American Market
In this Sounding Off column Guillaume Copart (photo), Managing Director of Americas Market Intelligence, shares his view of the different Latin American national markets. In his view, Mexico offers interesting opportunities due to its stable macroeconomic policies, although challenges like insecurity and weak fiscal policies remain.
Contrary to a commonly held view among certain foreign companies, Latin America is not an “unexplored land full of opportunities.” The opportunities do indeed exist, but the region hosts numerous big, established local players as well as multinationals, making this a very competitive market. And though there are common regional trends and themes, the reality is that the region is comprised of several markets, each with its own challenges and opportunities. Among those that stand out, Mexico cuts a particularly attractive figure, though it still requires a smart market entry strategy to make investments pay off handsomely.
What are the common challenges of market entry into Latin America, specifically Mexico?
The particularities of Latin America—starting with the language, but also its complex legal and accounting systems, lack of infrastructure, and discrepancies between consumer preferences across countries and local cultures—makes it difficult for a seamless entrance into the region.
For many foreign investors, the greatest challenge will be the rule of law—or the lack thereof—which can prove especially costly in highly regulated industries such as utilities, transportation, banking, mining, and others that often require new entrants a horizon of at least 10 years to recoup their investment.
For exporters trying to penetrate the market the greatest challenge may be identifying and negotiating favorable terms with competent, forthright, and well-run distributors and business partners.
Which are the most attractive Latin American markets?
Brazil has been on everyone’s lips for the past 10 years and is often synonymous with Latin America. Taking a look at other countries in the region, Colombia is probably the most cited “darling” of investors. It has certainly regained credibility among investors after making significant headway in fighting drug cartels over the past 10 years and bringing safety and security to citizens and investors alike. Two successive administrations have also worked hard to simplify the complex regulatory environment and reinvest in the country’s infrastructure. Colombia is blessed with many natural resources, a well-educated and industrious workforce, and one of the most talented and respected governments in power in the region.
Peru is also a growing market in Latin America that still remains largely undervalued. The mining sector plays a strong role in this country’s economy and the middle class is growing, turning the country into an attractive consumer base.
Mexico remains an attractive destination for making a first foray into the region, and many companies eventually headquarter their Latin American operations here. As a first step for a broader, regional strategy, Mexico still remains second to none in Latin America.
Should you be investing in Mexico?
Mexico has enjoyed several advantages over its regional peers for a number of years, including the all-important proximity to U.S. markets. While the country has made progress in relying less on exports to the U.S., challenges persist, notably relating to pervasive insecurity, the high taxation burden, and the barring of investments by foreign companies in the energy sector, to name but a few. Nevertheless, such challenges are no different from those seen in other emerging markets.
That said, Mexico has been plagued with a tarnished image of late: from the drug war to corruption, the foreign press has been less than kind to the country in recent years. Yet despite the constant stream of unflattering headlines, the government has succeeded in enacting sound macroeconomic policies and strengthening the domestic economy, which have helped Mexico weather the global economic crisis. More importantly, Mexico combines a stable economic climate with reliable growth in key sectors and a growing internal market, presenting an attractive landscape for future growth.
Indeed, manufacturing (primarily the Maquila industry) and mining still represent the country’s economic pillars, accounting for 17% and 10% of the economy respectively. Meanwhile retail and business support services are continually growing in importance, accounting for 16% and 9% of GDP, respectively. Following the 2008 economic crisis, FDI is now again picking up in the manufacturing sector, accounting for 58% of all FDI in 2010 and 44% in 2011. Insurance and financial services also represent a growing share of FDI, with a combined 18% of inflows in 2011.
How can international companies capture the right opportunities in Mexico at the right time? The answer depends on a company’s goals as well as its market-entry strategy.
How to take a deeper look at Mexico’s most promising opportunities—and avoid common mistakes of new entrants
Mexico is a very dynamic economy and with over 112 million consumers, including some of the world’s wealthiest people, the country boasts a very competitive marketplace. Understanding how to navigate the business landscape can be very challenging and companies often underestimate the difficulties that this can pose and the timelines involved.
Certain market segments are dominated by oligopolies, making market penetration very challenging (if not impossible). Others are so highly regulated that even market monitoring can present difficulties. Obtaining accurate basic information can quickly become a complex task that many companies are not ready to deal with.
Investing in Mexico usually happens on one of two levels: either companies intend to produce in Mexico for export to the United States or they look to sell directly into Mexico. Depending on the strategy that a company is looking to employ, gathering intelligence on the market will entail very different approaches.
Getting a full view on the Competition, Clients and Company (the "3 C’s") as well as the economic and political landscape is essential in order to succeed in the Mexican market.
Guillaume Corpart is the Managing Director of Americas Market Intelligence and a veteran of Latin American competitive intelligence and strategy consulting.
Guillaume Corpart | Managing Director
Americas Market Intelligence
Article Source: http://americasmi.com/en_US/expertise/articles-trends/page/emerging-markets-mexico
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