01 December 2015

Where the "Sweet Spots" Are in Mexico, Part 2

Now may be the time for Canadian companies that have hesitated to do business in Mexico to make their move.

In this article, we look at how Canadian companies can evaluate their chances for success in Mexico and what it will take to prosper there in the future

The reasons are many:

  • The Mexican economy is poised to surpass both France and the UK by 2030 (in PPP, purchasing power parity terms), according to PwC1. And, according to the World Bank, Mexico's GDP is already greater than Canada's in PPP terms, making it the 11th largest economy in the world by that measure.
  • In the two decades since NAFTA, an entire continent-wide system of comparable regimes for safety standards, technology, and measurements has taken hold. A cross-border supply chain in agriculture/food, automotive, and aerospace is now a fact.
  • NAFTA also opened the way for Canada to export services in finance, energy, and information/communications technology to Mexico. But it was not until late 2012 that Mexico's President Enrique Peña-Nieto rolled out extensive reforms to liberalize those industries and expand foreign participation.

Not every Canadian company should be rushing into Mexico, however. A report by the Conference Board of Canada, dubbed "Sweet Spots" for Canadian Businesses in Mexico2, says the road is much easier in some industry sectors than others.

Because cross-border risks can be high, the Conference Board of Canada went through a three-step process before designating an industry as a “sweet spot." First, the report looks at both the potential for growth and the presence of trade barriers for Canadian companies in various sectors in Mexico. When those stars are aligned, the report designates an industry as “hot."

The Conference Board of Canada then looks at how Canadian companies have performed in those industries internationally. A sweet spot must exhibit all three characteristics --high growth potential, policy openness, and the ability to leverage Canada's proven trade strengths. So what are these sweet spots? The full list is below.

Manufacturing
Grain and oilseed manufacturing
Animal slaughtering and processing
Sawmills and wood preservation
Converted paper product manufacturing
Steel product manufacturing from purchased steel
Boiler, tank, and shipping container manufacturing
Manufacturing
Grain and oilseed manufacturing
Animal slaughtering and processing
Sawmills and wood preservation

Mining
Natural gas
Gold
Oil

Services
Wholesale and retail trade
Motion picture and sound recording industries
Telecommunications
Insurance
Financial services

Construction
Buildings
Heavy and civil engineering construction
Specialty trade contractors

Utilities
Electricity generation

Of course, there's more to being successful in Mexico than being in an industry sector on a list. So what should a Canadian company do next if it appears well poised to go after a Mexican “sweet spot?"

HSBC Bank Canada recently commissioned the Conference Board of Canada to conduct a study on what traits a company needs in order to succeed in global trade. That report, “Selling to the World: The Keys to International Business Success," says Canadian companies must have, or be willing and able to develop, a Global Competitive Advantage (GCA.)3

A GCA, the report says, is the ability to create more value through differentiation. The most common form that a GCA takes is when a company offers a unique product in a niche market. By definition, a GCA is difficult to imitate, but the path a company must take to create its own unique GCA is repeatable. That path involves developing four key resources:

Skilled executives: For a Canadian company to succeed in global markets, it needs entrepreneurial leaders who are committed to international growth. Ideally, the company should also have leaders who are experienced in global markets.

International networks: Finding success in global markets can be understood as mastering a series of local markets. In other words, the key is to have a support system across markets that mimic the systems at home.

Innovation capabilities: Making it in global markets requires the ability to innovate at the local level, i.e., being able to craft products that meet the needs of international customers, even when those needs differ from those of customers in Canada. A vibrant R&D department, as well as efficient logistics and customer-support services, are key.

Foreign-market knowledge: The 20 Canadian companies featured in the report were unanimous in the belief that having a local presence in foreign markets is crucial. In particular, the experience of globally successful companies emphasizes the need to use professional service organizations and banks that are steeped in knowledge and relationships in a target market.

Putting together the information from the two studies, it becomes clear that two things will give a Canadian company an edge as seeks to expand in Mexico.

First and foremost, the company must have a system in place that allows it to sell in international markets, i.e., a GCA. Second, the company should be operating in --or willing to move into --an industry segment where the odds are stacked in its favor, i.e., a “sweet spot."

In part 3 of this series, we'll look more deeply at some examples of these sweet spots.

Is your company expanding in Mexico? Consult with your legal team and your industry's trade association, and call your Relationship Manager at HSBC Bank Canada.

Where the "Sweet Spots" Are in Mexico, Part 1 - Click here to read more

there's more to being successful in Mexico than being in an industry sector on a list

Source (English only):

  1. http://www.pwc.com/gx/en/issues/the-economy/assets/world-in-2050-summary-report-february-2015.pdf Accessed on Aug 24, 2015
  2. http://www.conferenceboard.ca/e-library/abstract.aspx?did=6433 Accessed on Aug 24, 2015
  3. Selling to the World: The Keys to International Business Success, June 2015
  4. The Conference Board of Canada

Disclaimer
The information presented is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without first obtaining specific professional advice. While reasonable care has been taken in preparing this document, HSBC does not make any guarantee, representation or warranty (express or implied) as to its accuracy or completeness. The information presented in this document is subject to change without notice.

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