Photo credit: Corona Extra by YEAH!!! Design
Ministry of Economy announced that, during first six months of 2013, direct foreign investment in Mexico (FDI) soared 2.5 times in respect to the same period of 2012, reaching a historic record of $23.8 Billion USD.
FDI was 58% for new investments, 24% for profit re-investments and 18% for inter-companies operations.
By sector FDI was: 83% in manufacturing; 8% in trade; 3% in construction; 2% in professional, scientific and technical; and 2% in transport, courier and storage. Remaining 2% to diverse.
By country was: 56% from Belgium, 23% from USA, 4% from UK, 4% from Japan and 4% from Netherlands; remaining 9% was disperse between 55 countries.
The unusual soar resulted from the AB Inbev-Modelo purchase. However, if this operation is taken off from the FDI number, there is still an increase of $11.5 Billion USD (10% increase).
With these numbers, Mexico confirm its appeal to international investors, but also shows interest of international corporations to merge Mexican-made enterprises. Will second have another merger on Mexican company and show higher numbers?
Photo credit: Copenhagen Takeoff by Julien Menichini
The aerospace manufacturing industry in Mexico has been building momentum over the last decade. The national government has been focused on developing domestic industry to build the Mexican economy. This focus of priorities has encouraged the growth of the aerospace industry from $146 million of exports in 2004 through to $3.5 billion in 2010.
The Aerospace Summit taking place in Mexico September 2013 will showcase this growth and is aimed at building further growth. The summit will allow visitors to appreciate the competitive advantages which can be enjoyed by manufacturers operating in Mexico. It also looks set to detail the logistics and business dynamics of aerospace manufacture in Mexico, with tours of plants and facilities, exhibitions and seminars from experts within the industry.
This can only strengthen the position of Mexican estimates that the aerospace industry is forecast to achieve consistent growth of up to twenty percent per year through to 2016. This would boost the economy considerably and be responsible for the creation of approximately 37,000 jobs across 350 companies.
There are numerous benefits for companies looking to establish operations in Mexico, including significant cost savings. Recent research conducted documented savings of approximately thirty percent when compared to operational costs in other countries. Mexico manufacturers currently produce engine parts, turbines, landing gear, fuselages and other components. However, there is a great effort to coordinate the resources of state and federal government together with private industry to allow the further and strengthened development of the infrastructure including education to facilitate and support further industry growth.
Mexico has been keen to welcome businesses within a number of industries including the aerospace field to encourage establishing operations. Many companies have been attracted by the lower structure of wages in Mexico which allows manufacturers to pay a fraction of the assembly wage costs in the United States. Expert analysis estimate the job costs of Mexico manufacturing is approximately ten percent of U.S costs and almost thirty percent of European costs. This could be explained as different levels of skill but Mexico on state and national levels is aggressively pursuing aerospace investment and jobs to broaden their industrial base beyond current expectations of electronics and auto-motives. This approach appears to be extremely effective as two hundred and seventy aerospace companies now have factories within various regions of Mexico.
In fact, the World Bank now reports that ninety percent of Mexico’s exports are now industrial products and their economy is now classified as the thirteenth largest in nominal terms with a ranking of eleventh for purchasing power. This explains why the label of made in Mexico is becoming more familiar and commonplace.
The geography of Mexico, free trade attitude and adoption of new legal processes are also huge factors in this industry growth. These measures have removed a great deal of the bureaucracy and red tape for foreign owned companies looking to establish production operations. It has also allowed for efficient and speedy establishment of factories which far outstrip factory creation in the European or U.S market.
All these factors combine to confirm that aviation manufacturing has certainly found a home in Mexico, where it looks set to stay in years to come. Now, you may add that automotive industry has established a blooming industry that share IMMEX (export incentive program) with aerospace manufacturing. With IMMEX program, operations reduce and sometimes, eliminate duties and taxes. Mexico is building “the” automotive/aerospace cluster.
Photo credit: datenfluss by Willi Heidelbach
I hope you have read the First and Second Parts of this Post. If not, feel free to catch up here and here. This is part 3 of 3-part post on the recently published Mexican Telecom Reform. Follow me to explore the great opportunities to come.
Content is King.
After the Reform, all CATV/FTA telecom operators have the obligations of must-carry/must-offer (MC/MO). This part of the Reform is not trivial, as FTA channels are widely accepted in Mexico. This provision ends up with several legal battles between CATVs and FTAs. Mexico has a 94.7% of coverage of FTA and a 26.7% of CATV, with average annual growing of 16% (Cable/DTH). MC/MO has increased the value of content displayed on FTA, as coverage will be extended to CATVs. In turn, CATVs can acquire clients, as in many parts of Mexico highest rating channels/shows are FTA-only and do not cover all the country.
It is expected that during 2014, IFETEL will publish the tender for a national network of free-to-air Digital TV, which will increase the need for content. Market will decide whether this bidding is worth the money.
Plus, VOD in Mexico is growing. Xbox and Claro Video (Telmex) have just agreed to distribute content through XBox Live. Cinepolis, biggest cinema chain of Mexico has launched VOD with parallel release dates for theaters and VOD. The list of competitors is growing to join Blockbuster (not yet launched in Mexico), Vudu and Netflix.
Industries like animation and video home can find several channels of distribution. Independent producers can get into the market, as Mexico imports several contents (like Asian animation), but domestic industry is growing, and of course, there is the option for BTL marketing services in movies, which also may be eligible for tax-deduction. Content is accumulative and is adaptable to a wide range of distribution channels, so this is why content is king now.
Beware of the fine print of the Internet services.
Social networks are a great example of new complex services that require going further. However, Bitcoin is the perfect example: A decentralized currency challenging the policies and tradition of central banks around the world. For now, Mexico would regulate Bitcon like many countries, by Banco de Mexico (central bank), and by Banking Commission for payment processors. Physical currency would be prohibited. And of course, Tax Law would be updated for miners to accumulate income.
In the long term, Bitcoin could be the legacy technology for One-Net integrating financial services with retail, telecom, education and other services. Current regulation could give Bitcoin developers an advantage for exploring business possibilities on P2P. But it is time to think about a solution that includes the future of Internet services involving IFETEL.
Smart Objects, Naive Law.
Mexico is following the world legal trend for regulating the Internet of things: It has no regulation. If the machines would rise today, they would be put in stand-by until IFETEL updates regulation on homologation/certification of smart devices, telecom licenses sending data on public networks, resolve the dilemma on who is guilty when an illegal act takes place with a given IP address, and so on the list.
On the other side, data protection and privacy is the biggest problem to tackle, but the IFAI (personal information agency) is in charge. Coordination is a key. The opportunities are for manufacturers of electronic devices, as Mexico has a vast installed capacity and faces a good moment for manufacturing. Also, the opportunity is for privacy hardware and software companies, for manufacturing/developing in Mexico, as well as for selling to the inner market while demands for privacy and security increases.
Internet of things is a work in progress, and regulation has to remain as neutral as possible to promote growing of this technology, but what if the internet of things could detect and whistle-blow counterfeits? Could health IT use full potential for diagnosis? Could it be integrated into humans to create the internet of everything?
Infrastructure is everybody’s game.
Currently, telecom operators need to present a business plan and an investment commitment in order to get a license. One of the targets of the Reform is to remove such barriers, and give flexibility to operators to manage the license “under their own risk”. Investment minimum requirements could just remain to spectrum and satellite tenders, as they are linked to public assets. Report and other basic obligations sure will remain. The expected growth of the Reform will increase demand for infrastructure. Infrastructure used for telecom services does not necessarily mean acquiring and maintaining a license or become regulated by IFETEL.
Currently, active telecom infrastructure used by operators is regulated (by license, permits or registration), while passive has not regulation at all. Infrastructure owned by non-operators is not regulated by telecom law. The spirit of this Reform will merge all authorizations into one single type of telecom license, introducing the concept of essential facilities. Most probably, all telecom infrastructures of operators will be subject to interconnection under the essential facilities doctrine. However, it is not certain what will happen to infrastructure from non-operators. Probably will be subject to regular commercial law.
Also, while the Reform will increase data speed in Mexico, such speed will not go up instantly. In the meantime, there will be a need for infrastructure dedicated to transport, IXPs, local cloud servers, muxing, etc., as operators will not catch up so fast to follow the growing demand. Opportunities for lease, financial lease and lease-back are on the landscape.
In relation to telecom hotels, on March 2012, the Federal Government started a telecom-hotel program so operators can use federal buildings for installing infrastructure. Still, a lot of opportunities for constructors, security and encrypting services companies.
Does this Reform have what it takes to disrupt the status quo and create open markets?
Yes it has. The opportunities are growing, and could be exponential, as new technologies are being deployed into Mexico. It is a first-mover advantage. Followers will fight uphill.
It is not possible to learn in advance how the market will react, but this Reform combined with the growing number of users and volume of consumption of telecom services in Mexico, predicts that the table is set.
Now that I have shared my spots, it is your turn. What is your sweet spot of this Reform?
Photo credit: Hacking Circuits, Digital DNA, City of Palo Alto, Art in Public Places, 9.01.05, California, USA by Wonderlane
I hope you have read the First Part of this Post. If not, feel free to catch up here. This is part 2 of 3-part post on the recently published Mexican Telecom Reform. Follow me to explore the great opportunities to come.
It´s STEM People time.
The debate of immigration across the US is being fueled by the lack of STEM professionals (science, technology, engineering and math). The scarcity of STEM people in Silicon Valley has forced the tech community to push US Congress for a flexible immigration bill that can attract foreign tech startups and talent, as Toronto and other places are doing.
Mexico has a base of 400,000 software engineers and 65,000 graduating every year that could fill-in the needs for tech people in the Mexican telecom industry. With the right infrastructure, a successful outsourcing service can be set up to serve the US and the world. Even more, such services are eligible for IMMEX export incentives in Mexico.
Mexico also has the advantage of having a flexible immigration policy for qualified technicians/professionals and businessmen, as well as great conditions for startups. The opportunity and the challenge will be for schools and human resources. They need to create better models for attracting and keeping up the best. Companies could expand work-from-home policies, a very limited spread in Mexico.
In my recent post “Mexican Telecom Reform: The Rise of the STEM Lawyers”, I discussed that this Reform will be taken at court very often. Incumbents will play defending tower, and entrants will try to siege the market. STEM lawyers will play an essential role on arguing complicated concepts like dominant player, relevant and related markets, essential facilities and substitutes with the variables of regulation for each service. These are concepts taken from economic theories inserted into the Law, but lawyers will be in charge to enforce them.
Now, you may add that telecom courts will have a learning curve, and the scarcity of STEM lawyers in Mexico will not make an even battlefield for the parties. Also, technology is ever changing and converging. All these changes are the cue for the legal industry worldwide to develop business in a non-liberalised legal market.
Broadband Internet Access.
The Reform granted all Mexican citizens and residents the constitutional right to broadband and Internet. This acknowledged right has effects on the business environment.
First, no authority, of any level, can unreasonable obstruct telecom infrastructure.
Second, any Project pitched to the Government under the Public Private Associations with the label “broadband” increases its chances to get public funding.
Third, the term “essential facilities” will be key for telecom and IT businesses, as convergence makes it difficult to unbundle essential from accessory facilities. Again, court will decide.
Fourth, long-term growing and sustainability will require open and collaborative models, as restrictions could be declared unconstitutional.
Fifth, universal broadband service is still in discussion as to the speed, if it will apply for corporations or how to enforce it and up to what extend.
Sixth, Supreme Court has just started its electronic signature and file program. The intention of the Court is that all federal proceedings would be electronic. A major overhaul in firms and courts will be needed to migrate from paper to electronic, as major part of commercial proceedings are in written.
Seventh, MVS won a constitutional writ to recover part of the 2.5 GHz band. There is a possibility to keep enough bandwidth to implement his broadband-for-everyone Plan with Intel and Clearwire.
Bonus life, Gartner calculated that during 2011, there was a spending of $74 US Billions in video games. Mexico spent $1.2 US Billion in video games that year, with the growing annual tendency of 25%. Microsoft has already announced that “Xbox-One” (due by December 2013), will require always-online. Adding up the trend of free-to-play, VOD, paid content/subscriptions, mobile and social gaming, this represents a heavy amount of GBs that will be demanded in the mid-term. Even PROMEXICO (Mexican Promotion Agency) has placed a bet on video game production in Mexico.
Third and last instalment is coming in a couple of days …
Photo credit: EPROM CLCC-44 Devices by yellowcloud
This is part 1 of 3-part post on the recently published Mexican Telecom Reform. Follow me to explore the great opportunities to come.
What ever happened to the Telecom Market.
Mexican Telecom Reform is now on effects. It is the end of the industry, as we all knew it. Frankly, I feel fine and exited about the new regulation.
We need to double-check landmark case law on interconnection, spectrum assignment and antitrust to connect the dots backwards. All those years in court made telecom law history, though.
This Reform offers a fresh start for entrants and opens a wide range of opportunities, as now investors have less barriers for mobile, data and TV.
Telecom regulation is moving in gigaflops. Just now, COFETEL (telecom body) has concentrated all operators annual report formats into one single document. Also, has reduced the local service areas from 397 to 172. Satellite services, fixed-mobile cost models, standards for DTV decoders (NOM-192) and mobile antennas installation are under review. Other issues like passive infrastructure interconnection and white spaces are between the lines on the debate.
Now, foreign companies and individuals can invest in telecom companies up to 100%, and 49% in TV/radio companies (the latter subject to country reciprocity to Mexicans in those sectors). Previously, some investors invested only in no-voting shares with the obvious consequences.
From recent data of COFETEL, telecom services increased an aggregate of 12.5% during first quarter of 2013, comprising broadband connections up to 12 million, CATV up to 13 million, DTH up to 7 million, mobile users up to 101 million and fixed lines up to 20 million. Satellite and trunking decreased.
After the transition, the new IFETEL (succeeding to COFETEL) will review and simplify telecom licenses in one single type, and hopefully will reduce red tape to obtain it.
While the reforms encourage and support free competition on these telecom services, it is also true that incumbents have been preparing for this face-off for years. Yes, it is great for telecom lawyers, but paradise for antitrust telecom lawyers.
However, the less explored side of the Reforms is niches, trends and side markets that could generate businesses while the telecom industry grows in the years to come. Also, the Public Private Associations Law grants rights to private companies or individuals to pitch projects on all levels of Government, so the sky is the limit.
A sweet spot is in cameo here. The Reform is a game changer and abilities of the entrants and possibilities created could generate business, and hopefully profit will come along. Where to start digging?
Project Finance, Convertible Debentures, Secured Loans and other Financial Operations.
Telecom is a money consuming business with small incremental profits. It requires big amounts to acquire infrastructure and clients, as well as to run and expand the business. Now that foreign investment caps have disappeared for telecom and have risen for TV/radio, loans secured with shares can be fully executed in an event of default, as transfer of property is no longer restricted to Mexicans-only. Also, foreign VCs can acquire voting shares without restrictions on caps (except TV/radio).
TelecomMexico will become a market incubator.
Telecommuncaciones de México (TelecomMexico), is a state-owned company operates satellite services, money wires and telegraphy in Mexico. Along with the Telecom Reform, TelecomMexico is in the process of getting a telecom license for SMS, voice and data, fixed and mobile through cellular technology and satellite backbone. TelecomMexico will target low-income communities to reduce the digital divide. This strategy is expected to be in the digital agenda, which could include universal broadband. As TelecomMexico is paying for sunk costs of bringing on telecom services to low-income users, operators could ask for interconnection whether for transporting throughout that area or providing low-income niches services.
Second installment is coming in a couple of days …