2013 US Export Opportunities to Mexico

An Expert's View about Economic Trends/Outlook in Mexico

Posted on: 30 Apr 2013

Proprietary market research focusing on the best new market opportunities in Mexico for US producers.

U.S. Export Opportunities to Mexico in 2013 Prepared exclusively for Axia Capital by Elizabeth Helsley/Global Luxe November 30, 2012 Table of Contents BACKGROUND ........................................................................................................................................................... 3 KEY SECTORS ............................................................................................................................................................. 4 OVERVIEW OF KEY OPPORTUNITIES ........................................................................................................................... 5 MAP OF MEXICO’S KEY SECTORS ........................................................................................................................................ 6 TOP10 STATES FOR US EXPORTS TO MEXICO ................................................................................................................. 7 AUTOMOTIVE ......................................................................................................................................................... 8-9 FOOD AND BEVERAGE .............................................................................................................................................. 10 IT ............................................................................................................................................................................. 11 AGRIBUSINESS ........................................................................................................................................................ 12 CONSUMER PRODUCTS ............................................................................................................................................ 13 SOURCES ................................................................................................................................................................. 14 2 BACKGROUND In response to request for information on export opportunities to the Mexican market, using a number of different resources combined with first hand market knowledge, Global Luxe has put together this report examining the most promising export sectors for 2013. This piece of work was designed to be a fact finding document with a particular focus on export opportunities from the United States and Canada with reasonable time of entry to the market. The main findings of the research are: ξ Several sectors/areas of opportunity are recommended by a number of foreign government export departments, indicating a very high growth potential. ξ The barriers to entry are dependent upon the solicitation of Mexican government permits, which can be somewhat unpredictable. Permits are issued to the importer of record and are typically valid for one year (renewable). The initial paperwork is tedious and time consuming, but the renewal process after the initial application is fairly straightforward. Manufacturers must make sure each SKU is registered or they will not be able to import. ξ The Mexican distribution network is often fragmented, so many companies deal with regional distributors/importers in four main areas: Mexico City, Monterrey, Guadalajara/Western Mexico, Southern Mexico ξ Although it was not mentioned as a standalone opportunity, servicing the Hotel, Restaurant and Institutional (HRI) sector is an area that many exporters are looking to target. The two areas of opportunity that include the HRI sectors are Food and Beverage and Consumer Goods. Hotels and restaurants are constantly in need of new equipment and food products, as well as amenities. 3 KEY SECTORS: EXPORTS TO MEXICO 2013 4 OVERVIEW OF KEY OPPORTUNITIES BARRIER TO SPEED OF MARKET SECTOR OPPORTUNITY ASSESSMENT N ENTRY EN OTES TRY spare and replacement parts for gasoline and diesel engines, electrical parts, collision repair parts, gear boxes, drive axles, catalytic converters, and steering wheels. In the first and second- tier supply chain sector, opportunities include: OEM Automotive Sector parts and components, Promotion Program precision assembly devices, machined (PROSEC) has reduced parts, hybrid vehicle components, Automotive LOW 1-4 months tariffs greatly in the suspension systems, and pre-assembly auto industry. Tariffs components such as small and on imported auto parts progressive stampings. Other products range from 0-10%. in demand include electronic components, specialized tooling, systems that eliminate waste and green technologies such as new combustion systems to reduce gas emission and oil consumption. All goods and products Software as a service (SaaS), wirel imported into Mexico ess, must comply with gaming, mobile applications, CATV netw applicable technical ork applications, NOCs (network operation centers), SOCs (system regulations and labeling s g LOW 3 months avera e to IT operations centers), training software, requirements published get NOM approval server virtualization, on dem by the Mexican and Government in the products, IT security, animation and new m Diario Oficial de la edia Federacion (Official Gazette) Dinners/prepared frozen meals, kosher products, sauces, condiments, dressings, gourmet, appetizers, cakes/pastries, dessert toppings, frozen 3 months average to Products must be Food/Beverage pizza, snack food, jalapeno poppers, MEDIUM get COFEPRIS registered with potato skins, breads, seafood, gluten approval COFEPRIS/SSA, NOM 51 free and organic, ethnic foods, ice cream/frozen novelties, prepared meats and poultry, soups and stocks Affordable fertilizer, modern Livestock and agricultural machinery, enhanced Agribusiness MEDIUM-HIGH unprocessed products pesticides, animal feed, packaging require special equipment permits Consumer Beauty and personal care products, 3 months average to Some products must be G toys, household appliances, luxury MEDIUM get COFEPRIS registered with oods products, footwear and apparel approval COFEPRIS/SSA 5 MAP OF MEXICO’S KEY SECTORS 6 TOP TEN STATES FOR US EXPORTS TO MEXICO EXPORT VOLUME (IN USD) BY STATE 7 AUTOMOTIVE Mexico’s automotive industry has experienced tremendous growth over the past several years and currently ranks as the 8th largest vehicle producer in the world. The auto manufacturing industry represents 17% of Mexico’s total manufacturing industry. Its low labor cost, coupled with its skilled workforce and ideal location for supplying the North and South American markets make Mexico an ideal location for auto manufacturers to set up operations. Mexico imports 50% of the parts and components required for automotive assembly. Of that number, more than half are imported from the United States. Auto parts and components exports to Mexico from the US increased 9% in 2011, and are expected to increase even more in coming years. The Mexican government’s restriction on used car imports has contributed to the increase in the need for imported auto parts. Mexico’s increasingly stable economy and growing middle class is causing luxury car brands to take notice and open operations in Mexico. Many luxury brands have seen rising incomes in Mexico that are creating a new type of consumer that demands both quality and luxury. The luxury car market in Mexico is booming and grew 75% from 2011 to 2012, and is expected to grow even more with the arrival of new brands. Luxury cars are classified as those models with a sticker price upwards of $30,000 USD. Infiniti initiated operations in Mexico in 2011 with five models and is currently looking at possible production facilities in the country. Audi recently announced a million dollar investment in a plant to keep up with the demand in the Mexican market. There are a number of programs that support the Mexican auto industry including the ProMexico fund and the corporate benefits for the manufacturing of new light vehicles. 8 AUTOMOTIVE (Cont…) KEY AREAS OF OPPORTUNITY: Spare and replacement parts for gasoline and diesel engines, electrical parts, collision repair parts, gear boxes, drive axles, catalytic converters, and steering wheels. In the first and second-tier supply chain sector, opportunities include: OEM parts and components, precision assembly devices, machined parts, hybrid vehicle components, suspension systems, and pre-assembly components such as small and progressive stampings. Other products in demand include electronic components, specialized tooling, systems that eliminate waste and green technologies such as new combustion systems to reduce gas emission and oil consumption. Sound systems and generally all types of accessories. 9 FOOD AND BEVERAGE As tastes expand and Mexican consumers become more demanding, the food and beverage market is poised for growth. Mexicans purchase 60% of food products from grocery stores, while the remaining 30% are purchased at local farmers markets and mom and pop stores (abarroteras). The three main areas for imported food distribution are Mexico City, Monterrey, and Guadalajara, but in recent years demand for imported food products has spread to Tier-2 cities like Puebla, and beach areas with a large concentration of expats. The lives of Mexicans are becoming increasingly hectic and thus the demand for convenient products like ready-made meals and frozen dinners are more in demand than ever. The food and beverage retail sector is expected to grow 32.7 percent from $72 Billion USD in 2011 to $95 Billion USD in 2014. Mexico is the 13th largest importer of agri-foods products globally, with consumer goods comprising 70% of imports. The United States controls 71% of the $27 Billion USD agri-food import market in Mexico, but Canadian agri-food exports to Mexico are on the rise. FOOD AND BEVERAGE IMPORTS TO MEXICO BY COUNTRY KEY AREAS OF OPPORTUNITY: Dinners/prepared frozen meals, kosher products, sauces, condiments, dressings, gourmet, appetizers, cakes/pastries, dessert toppings, frozen pizza, snack food, jalapeno poppers, potato skins, breads, seafood, gluten free and organic, ethnic foods, ice cream/frozen novelties, prepared meats and poultry, soups and stocks 10 INFORMATION TECHNOLOGY (IT) Mexico’s IT sector is one of the most promising areas of growth. In 2010, it was valued at $39.7 Billion USD, with software accounting for $1.5 Billion. Throughout Mexico, there are over 25 IT clusters which are home to many of the Business Process Outsourcing (BPOs) centers including call centers, software development, and engineering services. According to research by Business Monitor, Mexico’s IT sector is poised to see annual growth rates of 11% per year for the next 5 years. Mexico hopes to attract foreign direct investment upwards of $10 Billion USD over the next 5 to 10 years, with the creation of the Ciudad Creativa Digital (Digital City) in Guadalajara. Governments and corporations alike have dramatically increased their IT budgets over the past couple years, as more streamlined processes and cost reduction have become mainstream trends. In 2012, the Mexican tax authority (SAT) required all businesses to issue electronic tax receipts via third party software providers. Although government entities and larger corporations are quick to adopt new technology, it should be noted that currently only one third of Mexican SMEs use computers in their businesses. In a 2011 report, AT Kearney ranks Mexico as the number one location in Latin America to set up an IT company, due to Mexico’s numerous advantages including skilled labor force, proximity to the US, government support, and competitive costs. Mexico currently has an internet penetration rate of 31% and is one of the fastest growing in the world. As more and more consumers gain access to the Internet, the IT landscape in Mexico will have to change to keep up with the pace of growth. KEY AREAS OF OPPORTUNITY: Software as a service (SaaS), wireless, gaming, mobile applications, CATV network applications, NOCs (network operation centers), SOCs (systems operations centers), training software, server virtualization, on demand products, IT security, animation and new media The key industries that are leading the changes in the IT sector are: government, healthcare, transportation, security, manufacturing, energy, retail and financial. 11 AGRIBUSINESS In 2011 and 2012, Mexico’s agricultural sector was hit hard by some of the worst droughts in recorded history. Despite the setbacks, the sector is bouncing back quickly and in March 2012 the Secretariat of Agriculture, Livestock, Rural Development, Fisheries and Food ( SAGARPA) developed a $42 Million USD project to conserve and restore grazing lands in affected area. The agricultural sector in Mexico provides income for more than 20% of the population. The United States is Mexico’s principal supplier of agricultural equipment and products. In 2011, Mexico imported $50 Billion USD worth of tractor equipment from the US. As demand for organic produce increases at 32% per year, Mexican producers must innovate to keep up with the demand. There are 1.3 Million acres of land dedicated to organic farming in Mexico. The organic produce market in Mexico was valued at $370 Million USD, with over 80% of the produce destined for export, mainly to the United States. Domestic demand for organics is also increasing, as 15% of the produce is sold nationally while 10 years ago it was only 2-3%. The Mexican organic produce sector is comprised of a number of smaller producers as well as co-ops. As Mexico’s agricultural sector continues to boom, agribusiness companies have a tremendous opportunity for export. The sector is expected to grow at least 2% annually for the next few years and over 90% of the products in the agribusiness sector are imported. Over 70% of Mexico’s crops are still harvested with manual labor using rudimentary and less than 20% of croplands are irrigated. Mexico has no national fertilizer industry; so many crops go without fertilization. The Mexican government has created a number of programs to support farmers, including subsidizing pesticides. Many producers are now packaging their own products and offering private labeling services for their clients abroad. Since exported products require special labeling and standardized packaging, producers have to rely on imported machinery to make sure they are in compliance. KEY AREAS OF OPPORTUNITY Affordable fertilizer, modern agricultural machinery, enhanced pesticides, animal feed, packaging equipment 12 CONSUMER PRODUCTS As a new middle class emerges in Mexico, consumers are snapping up “Made in the USA” goods. Big box retailers like Costco are becoming more popular, as Mexicans realize that buying in bulk for the family results in significant cost savings and they can find items that they can’t find at their local mom and pop shop. Sales of consumer electronics are expected to increase by 33 percent between 2011 and 2014, from $10.89 Billion USD to $13.5 Billion USD. Costco’s sales in Mexico are up 12% from 2011, and the trend doesn’t seem to be letting up any time soon. The middle class consumers in Mexico are demanding higher quality products, and the “Made in the USA” sticker seems to instill a sense of quality and freshness. Costco is not the only retailer feeling the demand for American made products. Other U.S. based retailers like Wal Mart and Sam’s Club are also expanding their offerings within Mexico. The U.S. and Mexico did $461 Billion USD worth of trade in 2011, and Mexico is the 3rd largest importer of American products in the world, behind China and Canada. Mexico is the second largest traditional toys and games market in Latin America (behind Brazil), with value sales reaching almost $2.1 Billion USD in 2011. Luxury goods are the second most important segment after mass market consumer products. Mexico represents 55% of all luxury goods sales in Latin America. According to AC Nielsen, 6.4 million Mexicans will have annual incomes of over US$60,000 by 2030. Analysts predict that the Mexican retail sector will grow 43% over the next 5 years. Liverpool, one of Mexico’s main retailers has plans to open 5 new stores in 2013. KEY AREAS OF OPPORTUNITY Beauty and personal care products, toys, household appliances, luxury products, footwear and apparel 13 SOURCES ProMexico - http://www.promexico.gob.mx/en_mx/promexico/Empresario_Extranjero US Commercial Service – http://www.export.gov USITC - http://dataweb.usitc.gov/ EDC - https://www.edc.ca/en/Pages/default.aspx UKTI - http://www.ukti.gov.uk/home.html?guid=none Austrade – http://www.austrade.gov.au/ New Zealand Trade & Enterprise - http://www.nzte.govt.nz/Pages/default.aspx SAGARPA – http://www.sagarpa.gob.mx/Paginas/default.aspx CANIETI - http://www.canieti.org/ INA - http://www.ina.org.mx/ AT Kearny – http://www.atkearney.com/ Gartner Research - http://www.gartner.com/technology/home.jsp 14
Posted: 30 April 2013

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