There will always be great reasons to meet in person, but we’re really glad to see this cultural shift in favor of videoconferencing. Ask anyone who deals with Mexico City traffic why. Please peruse our presentation below and let us know if we can help you refine your approach to selling in international markets.

El cargo Virtual meetings best practices apareció primero en Neighbors.

El cargo Stuff we can’t fake: Cultural Context apareció primero en Neighbors.

However, putting aside the argument of whether beer itself is essential, especially when you compare it to other distribution networks that have stayed running in Mexico such as soft drinks, there is another critical consideration here that people in developed economies will be prone to overlook. That factor is Mexico’s informal economy.

About half of Mexico’s economy is «informal.» Companies that are not legally registered to pay taxes are informal. Mom and pop corner stores and street vendors sure, but also many, many others. Informal companies are more likely to live week-to-week or even day-to-day. They have no access to or even knowledge of risk management tools like insurance or credit.

On the other hand, even for employees of formal companies, unemployment and welfare benefits are scarce in Mexico. There are some programs at the local level especially, for example in Mexico City. But these by design are not going to cover informal workers.

These businesses and their employees are more exposed to the crisis, but they also don’t have as many leverage points pushing on them to incline them to heed government advisories to shelter in place. No threat of tax penalties, no bank accounts in which to deposit a stimulus, and no incentives to take away.

The Mexican brewers, like Constellation Brands, Modelo-ABInBev, and Heineken-Cuauhtémoc Moctezuma, are part of the formal economy. Regardless of how essential they are, ceasing operations is much more feasible for them than it is for companies in the non-formal economy. Is beer more essential than tamales? Who knows. But is a worker at the Modelo brewery going to go hungry if the operation is suspended? Likely not. Maybe so for the tamale vendor.

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A local photographer in Mexico City has been capturing photos of crowds since the COVID contingencies began. The people in this photo, taken at 6:30PM on Friday, April 17, are likely returning home from work.

Effectively, Mexico has narrowed the definition of «essential» compared to the US because it needs to create leeway for operations that, not from a macroeconomic or functional perspective, but rather from a human perspective, do have less choice in whether to keep going. They are essential for other reasons.

In addition, there is the ability of the Mexican government to motivate, influence or control the informal economy. In some ways Mexico has to be more stringent with the companies it can control– these «formal» companies that tend to have more invested in the civil system, and also more resources to work with– than into allow for movement by those companies it cannot control and who in fact have less choice.

This rationale extends to other «arguably essential» operations in Mexico, such as manufacturing. The Pentagon has recently called on Mexican aerospace manufacturers to re-open so US prime contractors (companies Boeing or Lockheed Martin) can get their air frames. While yes, achieving manufacturing supply chain coordination is essential, is US defense equipment essential from a Mexican perspective?

More essential for the Mexican government is keeping people at a social distance, of course, but also: unlike in the US– and in absence of the social spending that makes Mexican manufacturing labor less expensive– Mexico must use the formal economy to create a margin of movement for the informal economy; segments of society that are ultimately much more vulnerable, and more difficult to influence.

El cargo Why fewer businesses are «essential» in Mexico during COVID-19 lockdown apareció primero en Neighbors.

Our screens are whirling with webinars these days. Today, thanks to ANZMEX, the Australia New Zealand Mexico Business Chamber, we attended a talk with the Economist magazine’s Mexico Bureau Chief Richard Ensor. Some of the things he spoke of had been floating around our minds as well.

Let’s first alight on a fundamental of Mexico, which is its «exposure» to the United States and global economies. Macroeconomic shifts tend to buck Mexico in the same direction as the US goes, but further. We can generally think that whatever the US does on a graph right now, Mexico will do it in parallel, but more extremely.

• 80% of Mexico’s exports, which are primarily machinery/vehicles, machine/vehicle parts, produce, and alcohol are sold to the United States.
• Tourism is perhaps Mexico’s most important export industry, which is not only battered by the US and global market in this case, but the pandemic situation as a whole.
• Remittances, another important source of income for Mexico, come from Mexicans living abroad.
• The suffering of all these activities then converges, on this fact of Mexico’s exposure, to drive the value of the peso down.

Next up, there’s the systemic factor of Mexico’s two economies. This was a «featured insight» of the consulting firm Mackenzie several years ago, who wrote on the subject well. The concept is a familiar one in Mexican business communities: there’s the «developed» Mexico of 700 Starbucks and the «developing» Mexico that buys piloncillo-infused coffee on the street corner.

Essentially a very small but pronounced portion of the Mexican economy, almost entirely transnational companies, experienced about China-velocity YoY growth since 2010; the rest, over 90%, experienced negative growth each year on average. That netted out nationally to growth averaging between 0 and 3% those years, roughly. Inequality, traditionalism, neoliberalism, mom and pops, family offices, transnationals, holding companies, process management, innovation, investment, and access to risk management support, or lack thereof, are all themes here.

So we need to understand how the two Mexicos will play into each other during the economic fallout of the pandemic. On one hand, transnational Mexico that had liquid assets in-country seems to have sucked them out on and around the week of March 9. Many of its employees can maintain reasonable productivity via remote work, though not all. (See: tourism, manufacturing.)

On the other hand, traditional Mexico does not generally borrow from banks or otherwise buy into financial abstractions. It has a lot of informal workers, and it often lives day-to-day or week-to-week. While the Mexican government has issued a requirement that no employers let go of their workers in the pandemic, that is tough to enforce for companies that aren’t on the books, and much tougher for companies that go out of business.

Overseeing this interplay is the Mexican federal administration.

• President AMLO seems to be willing to let the big businesses («developed» Mexico) fall on their faces if necessary, perhaps because he realizes they ultimately will catch themselves. Also because they do not generally employ the most vulnerable in Mexico.
• The government has offered a loan to the approximately 4 in 10 businesses nationwide that happen to be microcompanies (under 10 employees), 25 thousand pesos each. That amount means very little to a lot of the eligible and very much to many more.
• Companies in the middle (10-300 employees) are likely to seek support from banks, which as mentioned on today’s call, may be according to AMLO’s goals.

The President is a spendthrift and would prefer the companies who can do so hold debt instead of the government. If AMLO really does resent neoliberal policies as he claims, this is an odd way of showing it. Again, though, anyone in a position to use the banking system is not within the President’s definition of vulnerable. Starbucks problems. From our perspective, this laissez-faire attitude could, as a silver lining, stimulate the underdeveloped financial services market for small and medium companies.

Which brings us back to our key interest here, both for Mexican companies and for our international clients that export into Mexico. Those who are only lightly damaged, or are perhaps even at an advantage, in the positioning of their services and products during these shocks and aftershocks. Even the companies with severe damage but still might pivot or reinvent themselves. For them, are there any constructive opportunities in the next 6-24 months? And what are the opportunities?

The government, in its austerity and prioritization of the unbanked, seems unlikely to step in with competing investment opportunities. Committed as it is to not spending money on this crisis, it could potentially brand its already-planned infrastructure projects (the Tren Maya, the Sta. Lucia Airport, and the Dos Bocas Refinery) as its stimulus package. In that sense, short of projects that require extensive federal permitting, private capital investors may meet a very thirsty, and open, market in Mexico.

Today’s conference was under the Chatham House Rule, but the academic in us would feel remiss not to attribute Mr. Ensor here on a point he mentioned more than once: During this massive disruption driven by the SARS-Cov2 virus, some of the things that were impossible three months ago are becoming possible.

We were thinking the same, and we continue to work on this very point for several of our clients. Particularly with logistics, supply chains and digital transformation/Industry 4.0, we believe there are many Mexican companies that are also seeking to seize on the opportunities for change.

El cargo Mexico’s 2 economies in the pandemic: where do the gaps widen? apareció primero en Neighbors.

The Virginia mission, an annual event where a multi-sector group of companies comes to Mexico City to for a week of 1-1 meetings with potential partners and B2B customers, was scheduled to take place the week of March 23. By the time Virginia’s Governor Ralph Northam declared a state of emergency for the Commonwealth on March 12, it had become clear that Virginia could not in good conscience endorse a delegation of companies to attend even a small-scale networking event.

To avoid cancelling the mission altogether, in addition to the option of rescheduling, Virginia gave the 9 companies the option of «a virtual mission,» meaning they would do videoconferencing instead of in-person meetings. In one form or another, 6 companies took this option, though just 1 could do the whole mission virtually. We’ve had 30 scheduled meetings to take place virtually so far, and just one cancelled at the last minute, so we consider that pretty seamless.

• 9 business meetings with Mexican local, state or federal government customers
• 12 meetings with Mexican channel partners in digital transformation, logistics management, specialized marketing services, or security
• 9 meetings with Mexican B2B customers in retail, logistics, the chemical industries

That’s only actually about 25% of our expected mission load that has now been taken care of virtually, but already we’re seeing it bode well as a pathway to the new normal, where companies won’t necessarily be able to travel at the drop of a hat, even given the relative proximity of Mexico City to Virginia.

What do we predict? Well, we’ve recommended that companies generally consider doing video meetings before they travel to qualify their contacts, and we’ve proven that it can be done with relative ease. This is important for companies whose opportunities may surface before they have the all-clear to travel. Furthermore, a hybrid approach may even ensure that once companies do hold in-person meetings they are more productive work session instead of casual get-to-know-yous.

El cargo How the 2020 Virginia Trade Mission went Virtual apareció primero en Neighbors.

Yesterday AMLO won the Mexican Presidency by a large margin, 30%, and by all accounts fairly. He was up against 3 other very strong, well-qualified and/or likeable candidates, so it was not a «lesser of evils» contest. Furthermore, his party, Morena, which he personally founded in 2011, took the majority in the lower legislative house and a near-majority in the Mexican Senate.

His victory is based on demand for change from the large number of Mexicans who live in or near poverty, who do not see access to decent jobs near their homes, and who live in localities literally without law enforcement and justice. AMLO is the candidate who most reached out to them, something he has been doing for the last 12 years since he left his role as Mayor of Mexico City.

Despite what seems to be a crystal-clear mandate to improve economic opportunities for Mexicans, there is concern about whether the change AMLO promises is real or simply about letting a new group of people call the shots. It will be important to watch what the new Mexican Government, which enters December 1, is really doing to correct imbalances in the economy. Are the solutions short-term or long-term, cosmetic or structural? Are they actually solutions?

Graciela Marquez, a economics historian who will become AMLO’s Secretary of the Economy, signals stronger iterations of policies already in motion. Look for initiatives benefiting rural populations. Infrastructure investment in the southeast, a gradually increased minimum wage combined with training for improved labor productivity, a return to Mexican-grown agricultural products, regional innovation centers, training to incentivize fiscal formality in business, and continuity or acceleration of education reforms, though probably not in exactly the same way they were set out in 2012. Some voters, though AMLO is considered culturally conservative, hope rural economic development could include taking a look at activities of the cartels, mainly drug trafficking, that could be legitimized.

Whatever form they take, if the changes are real, change is prone to generate uncertainty whether or not it is for the better. If the changes are superficial, perhaps that will preserve stability once the changing of the guard is done. However, in the case of merely a symbolic shift, or worse, a real-but-unproductive change of course, the new government would not be responding to its mandate. If Mexico continues to neglect its large population of people who are asking for help, it’s going to undermine the strides certain portions of the economy here have made since NAFTA. Meanwhile, if it complies with the mandate in a productive way, that will generate its own form of stability that is likely better than what Mexico currently enjoys.

Marquez notes that AMLO has emphasized to all cabinet members the importance of maintaining balanced budgets, though that does not guarantee Congress will budget responsibly. He also supports a better NAFTA. Regarding doing business in Mexico, our response is much the same as the answer we gave in early 2017 when the US Administration took office, which is that the more actively you and your Mexican counterparts collaborate in profitable business, the more you influence it and the less you leave up to the politicians. If money talks, the opportunities we are creating for each other should talk louder.

Links of interest: Graciela Marquez, AMLO’s to-be Secretary of the Economy, spoke at the Wilson Center in Washington this April; Mexico’s Messiah? a 2003 article by the late professor George Grayson of William & Mary. Professor Grayson got to know AMLO when he was writing the biography of him, Mexican Messiah.

El cargo A note on AMLO apareció primero en Neighbors.

The news story is that 13 new malls are scheduled to open this year in the Mexico City metropolitan area. Hear, again, that’s Thirteen New Shopping Malls to Open in One City in Twelve Months. That is 3.9 million square feet, and one-third of the malls that will open this year in the country. So approximately 40 malls are set to open nationwide. This after the largest mall in Latin America opened a little over a year ago between Mexico City and Queretaro.

The mall. I know Mexico City is big but that is explosive growth. I will be watching for the diversity of midrange stores within said malls, as Inditex— the company that owns Zara– and the three big department stores– Sears (Grupo Carso), Liverpool and Palacio de Hierro (Grupo Bal)– have tended to dominate. We’ll see how that turns out. I believe there is significant anti-dumping penalty observance going on for textile imports from China, which has fed a retail hegemony here, historically. There is hope, though, as the potential of the large, growing, and underserved market that is the Mexican middle class is recognized. Since 2013 retailers like H&M and Forever21 have begun to break in, as well as American Eagle Outfitters. American Eagle no doubt recognized the ginormous representation of pesos that flow into its stores at outlet malls in Texas and Arizona.

Either way, this little microcosm of news demonstrates something I fear usually comes out too understated when I just say it myself, which is, «the Mexican middle class.» Get ready. Thirteen Malls!

El cargo The news malls of Mexico City apareció primero en Neighbors.

The IMF produced a numbers-heavy analysis on how the Reforms should affect manufacturing in Mexico. Here’s one of the graphics in it, which illustrates how different manufacturing subsectors important to Mexico are negatively effected by increases in energy prices. As they sum it up, all of manufacturing suffers in Mexico when energy prices go up. Even the petroleum industry. (Elasticity was calculated considering both natural gas prices and electricity prices.)

El cargo Energy Reforms and Manufacturing in Mexico apareció primero en Neighbors.

Both US and Mexican governments recognize cooperation as critical to regional security. Collaboration in this area between US companies and the Mexican federal government is relatively close. However, the presence in Mexico’s security sector of European and other international companies, despite the relative proximity and potential cultural advantages of US companies, is quite strong. This indicates that, with well-informed strategy, there is room for US companies to make more headway in the market.

Neighbors will be in Norfolk, Virginia Nov 2-6, 2015 as part of the Virginia Economic Development Partnership’s 67th Conference on World Trade. If you’re going, we’d be happy to talk to you more there about the following opportunities, but of course feel free to get in touch with us either directly or, if you are based in Virginia, through the VEDP Going Global Defense Initiative.

End-User Demand

Mexican defense spending is projected to increase from $6.9bn to $11.6bn by 2019. Surveillance, aircraft, naval vessels, border and port security, intelligence and special operations capabilities, and communications systems are all expected to be in the budget.

Like the Mexican Federal government, Mexico City’s police force has indicated that intelligence is a priority. Across Mexico, Smart City projects are catching on, following the successful implementation of Mexico City’s «Ciudad Segura» program. Also in law enforcement, due to a historic criminal trial process reform placing burden of proof on the state, police and prosecutors nationwide are training their personnel in forensics and chain of custody.

For capabilities that can be applied in the private sector, industry has significant appetite for asset protection, and for large multinationals especially, cyber security.

Mexican Channel Partners

Local distributors catering to defense, law enforcement, aviation and private security are numerous. Security and technology integrators often seek to enhance their offerings to government and private clients alike with unique and innovative products, as well as through high-value-added services such as training and consulting.

Spanish language ability, localized marketing and frequent in-person sales calls are essential, and Mexican channel partners will prove invaluable in these areas. Good partners can also assist in navigating government purchasing requirements and customs regulations, and many are familiar with ITAR and EAR controls. If opting for a partner, plan to travel to Mexico several times to foster your relationship with them and help them get to know your product.

US Government Channels

Companies new to exporting may gain access and valuable experience in Mexico through the US Federal Government, which issues tenders in support of joint US-Mexico projects. One avenue is the Merida Initiative, in which the US acquires goods and services on behalf of Mexican law enforcement, for counternarcotics efforts. Note that Merida acquisition requests originate with the Mexican beneficiary, so it is important when courting these opportunities to visit the Mexican client to explain your product benefits and suggest they take advantage of Merida. US Government contracts deliverable in Mexico are announced through regular US Government purchasing platforms such as FBO.

El cargo Mexico Opportunities: Security and Defense apareció primero en Neighbors.

In terms of getting our shipments through, the results with each have been the same in the sense that you’ve really got to err on the side of being overly transparent (yet innocuous) and obviously within the bounds of commercial, duty and prohibited items guidelines. And even still some things might not get through. Having a broker is required by law in Mexico– only they can make customs declarations, so the point of whether to get one is moot; however, it’s worth emphasizing that from a practical standpoint, having a good broker is also required.

A good broker = one who will help you fill out your sender paperwork clearly and accurately; also, occasionally it becomes important for a broker to have solid relationships with customs officials at the entry point you ship to.

Note that I do not say «solid relationships» euphemistically. What I mean is, really, it helps if customs officials know, and even like, your broker, because it helps ensure they are listened to. Let me explain.

Mexico’s legal system has until recently been «guilty until proven innocent.» A corollary of this is that the «reasonable doubt» and «unreasonable search and seizure» are not the institutions in Mexico that they are in the US. Historically, an accused person is arrested and hopefully released on a sort of bail (amparo) as the case is being built up to charge him/her. That’s actually been reformed in the past couple of years, but it still hasn’t been implemented universally.

From a shipping standpoint, this way of doing things means that a customs officer can effectively detain your shipment for… whatever. Based on his good judgment or cautious outlook. (Not that this doesn’t also happen in the US, so I’ve heard!) Examples:

• Trade show display posters/pop-ups, flagged for import fees of hundreds of dollars.
• Bottles of maple syrup, leave-behind gifts from a Canadian government entity, held pending a letter of chemical content.
• Samples of an illustrator’s work licensed for merchandising on temporary tattoos, flagged as prohibited due to possible therapeutic/medicinal nature– they are a chemical substance applied to the skin– and destroyed.
• AV recording equipment detained and destroyed for having HS codes in common with certain surveillance applications that were at the time prohibited in Mexico.
• A box of dominoes from a Barnes & Noble store in the US sent as a Christmas gift in their original, shrink-wrapped packaging, detained as suspicious and flagged for destruction.

All of these instances were legitimate detentions according to Mexican customs policy and policy interpretations. Furthermore, as an FYI, Mexican customs officials performing inspections are required to be observed/double-checked by a third party.

In the case of the dominoes, our broker intervened to have them returned to the US sender. He explained that the reason customs considered the dominoes suspicious is because they are associated with gambling and have been found to be concealing drug shipments in the past. Had he been consulted prior to sending, he told us, he would have advised labelling them «wooden blocks» or «table game» rather than «dominoes.» Furthermore, we can assume, if these shrink-wrapped dominoes were legitimately suspected of containing prohibited substances, they should have been destroyed. They were not destroyed, but rather released and returned to the same United States port they were shipped from for pick-up, probably because our broker was able to communicate effectively with the customs office holding them.

(Note: we were ultimately glad the dominoes were sent back to the US; had they not been, we would have been charged an 80-120% duty because they were made in China. Games/toys and other specific categories of items made in China are penalized in Mexico on anti-dumping grounds. Our broker would have told us that, too, if we had asked him.)

Your importer (ie, your customer, distributor, or subsidiary) in Mexico is in charge of hiring your customs broker, as the recipient is responsible for the item entering the country. If you ship through a commercial logistics service (any of the companies I mentioned at the top of this post), they have their own brokers who handle standard declarations and entry for you. If you are shipping through one of them, definitely call them if you would like help filling out your forms. FedEx has really well-developed information on their website (FedEx Mexico country profile). However, if you plan on sending lots of domino shipments, or certain classes of AV equipment, you might want to think about finding your own dedicated, experienced broker based near the entry point you’ll be using.

Here’s a basic overview we prepared on importing into Mexico.

El cargo Customs / Aduanas / Freight Forwarding apareció primero en Neighbors.