Understanding the businesses’ profile in Queretaro

Published on Plaza de Armas, newspaper from Queretaro, February 21st 2011. (www.plazadearmas.com.mx)

During the last year and the beginning of this, we’ve heard a lot about the arrival of new investments to Queretaro from big companies, mainly focused in the aerospace industry: Bombardier with a factory for planes, Safran with 2 factories for plane’s components, DHL with its new hub at Intercontinental Airport, General Electric’s Engineering Center inaugurated last week, and plans for installing the first biotechnology cluster as well as talks with Sikorsky United Technologies to install a plant for helicopters, just to mention a few.

Definitely, these are good news, and the results are that Queretaro practically recovered from the 2009 fall, according to preliminary figures.

But let’s make a detailed analysis of the different characteristics of the businesses present in the State, and what opportunities they create. The most recent figures are from 2009 Economic Census, and it establishes the presence of more than 56,300 economic units from the private sector and government’s partially-owned companies, that bought 232 billion pesos in goods and services during 2008 (an economic unit is an organization dedicated mainly to one kind of activity on permanent facilities).

Half of that purchases concentrates on almost 250 organizations that belong to 2 big sectors: the manufacturing sector (mainly those companies with more than 100 people in the  transportation equipment building industry, food industry and chemistry industry), and in the wholesale commerce sector, with a big concentration in the raw materials industry for agricultural, forestry and industry. In other words, only 0.4% of the economic units represent 50% of the consumption of goods and services in the State!

This high level of concentration makes these organizations very attractive due to the high volumes of goods and services they buy; but these are also organizations with strong negotiation leverage, and lots of suppliers at their doors, that generates a very competitive dynamic for which you must have a clear differentiation strategy.

But, let’s not forget about the rest of businesses that still have the need of 100 billion pesos in goods and services that someone must deliver. It is definitely a complicated segment due to its pulverization and, very probably, low institutionalization levels (86% of the economic units in the State have 5 people or less), but you can establish niche strategies to facilitate the delivery and you can have a better negotiation position.

You must work to have a clear understanding and evaluation of your potential markets, with the purpose to identify the opportunities and how to seize them. This will allow you to be effective in your commercial efforts and to develop the right strategies.

The economic performance of each State in Mexico

I published this article on Plaza de Armas, newspaper from Queretaro, February 14th, 2011 (http://www.plazadearmas.com.mx/)

To complete this analysis about the ups and downs of Mexico’s economic fall and recovery, let’s analyze from the perspective of each State performance.

I will make this analysis with data for 2009, since GDP’s data for 2010 by State is still unavailable. However, this figures let us understand the impact of the recent financial crisis.

The economic crisis was of different magnitude for each State, depending on the composition of their economic sectors.

We can see that the northern border States, that depend heavily on commerce and manufacturing, had falls from 9% to 12%. On the other hand, most of the States on the Pacific coast had milder falls (between 2% and 5%), mainly because they have a strong primary sector (agriculture, cattle, fishing, forestry) that kept its level or improved it during 2009.

Only 4 States had a growth during 2009, and all of them driven by different reasons: Baja California Sur was pushed by an impressive growth in the construction sector, Tabasco by oil activities, Zacatecas by commerce and the primary sector, and Morelos, that kept almost the same economic level than 2008.

In the Central region, the States had falls of different magnitude. Meanwhile Puebla had a fall of almost 9% (caused mainly by the machinery and equipment sector, and commerce), Guanajuato’s fall was of 4% (driven by the machinery and equipment sector, and the foods, beverages and tobacco sector).

Referring to Querétaro, during the period 2003-2008 it was the State with the second biggest growth in the country (35.8%), driven by the growth in three main sectors: commerce sector, transportation, couriers and storage services, and construction. However, these same sectors fell from 8% to 15% during 2009, resulting in the tenth biggest fall of the States, and its GDP went back to 2007 levels.

Practically, every economic sector had growth during 2010; therefore, all the States that had a fall below 5% in 2009 may have already recovered during 2010, and if the trends remain, the rest of the States will do it during 2011 and 2012.

This detailed understanding of the country’s economic outlook is useful to have a better evaluation of business opportunities. If you make evaluations based only in perceptions, or with general data, you can outlook opportunities or have unrealistic expectations.

Mexico’s productive sectors economic reality

I published this article on Plaza de Armas, newspaper from Queretaro, January 31^st 2011 (http://www.plazadearmas.com.mx/)

Last week I mentioned that according to the latest economic growth data, Mexico has reached the same GDP levels than before the crisis (first quarter 2008). At a high level, these are definitely good news to keep the growing trend, but there are also elements that show that the negative effects of the economic crisis have not been completely overcome yet.

Let’s analyze the country’s economic sectors to identify which have grown, and which have still gaps to be closed. I’ll take as reference points 2010 1^stQ and 2008 3^rdQ.

The three sectors with the biggest setbacks are:

1. Construction: its GDP is 9.2% below 2008 level. The good news are that this sector stopped its contraction on 2009 4^thQ, and it had a 1.9% growth during 2010 first 3 quarters. Perspectives are favorable for 2011, but not enough to close the gap.
2. Lodging, food and beverage services: this sector is 6.7% below 2008 level. After a strong fall that had its lowest level on 2009 2^ndQ (caused by the economic crisis and the swine influenza alarm), it has had a 12.5% growth since then. Official figures about currency flow shows that 2010 was a better year than 2009 for foreign tourism, but still below 2008 peak. Perspectives are also favorable since insecurity is affecting on the destinations chosen more than on the total volume of tourists; local tourism is still an unresolved matter sin the domestic market is still weak.
3. Professional, scientific and technical services: a sector still 4.9% below 2008 level. Its fall was less dramatic, but its recovery is also slower; it started by the end of 2010.

On the other hand, there are sectors that have had a growth since 2008, and that practically didn’t have a setback on these three years.

1. Government and international organisms activities: it refers to the services offered by Mexican government (education, health, recreational, cultural, etc.), and diplomatic relationships, economic support, technological, commercial programs, etc. from international organisms. This sector has grown 10.1% and reflects the government role (as in all the world) to ease the economic crisis.
2. Media information: considers printed and electronic media. This sector is 8.3% bigger than in 2008.
3. Agriculture, cattle, forestry, fishing and hunting: this sector covers all the primary activities. The sector has grown 7.4%. Although it had been relatively stable during most of the period analyzed, it had an important growth on the last semester due to a positive performance from agricultural products and cattle.

This analysis allows having a better understanding of the different economic recovery nuances, and therefore helps to identify business opportunities and potential risks. Next week I’ll analyze economic performance by states to complete the understanding of the current economic situation.

GDP comparison for the rest of economic sectors, 2010 3rdQ vs. 2008 1stQ (2003 pesos, seasonally adjusted). Elaborated with data from INEGI.
Sectors with regression		Sectors with growth
Sector	Change	Sector	Change
Commerce	-3.6%	Educational services	6.2%
Business support and waste handling services	-3.5%	Corporate	4.7%
Recreational, cultural and sports services	-2.8%	Electricity, water and gas supply to final consumer	2.6%
Manufacturing industries	-2.3%	Real state, and rent of tangible and intangible assets	2.3%
Transportation, post and courier services, and warehousing	-1.4%	Other services except government activities	1.3%
Financial and insurance services	-1.2%	Health services	0.7%
Mining	-0.3%

2010 Mexico’s GDP: recovery and current situation

I published this article on Plaza de Armas, newspaper from Queretaro, January 24^th 2011 (http://www.plazadearmas.com.mx/)

During December and January there have been different estimates about the economic growth for Mexico during 2010. These goes from 5% to 5.4%, all of them are figures that exceed the previous forecasts from different organizations.

Definitely, a year with this growth rate will always be good news; but it is also important to put it in context to clearly understand the country’s situation. According to INEGI, 2010 3^rdQ is still a little below the level we had prior to the world economic crisis (2008 1^stQ). That means we are just reaching the point we were three years ago!

 

Elaborated with data from INEGI

Base 100=2008 1st Q

This information could make us believe that 3 years later, we have finally overcome the economic crisis pot hole. However, let’s consider that although the production level is the same, we are now more Mexicans than 3 years ago (2 millions more according to INEGI). As a result, the GDP per capita of 2010 is still 2.8% below the 2008 1^stQ. The GDP per capita is used as a proxy for wages in a country; therefore, according to this perspective, we are still living the effects of the 2008 crisis.

¿What expectations are for 2011? Forecasts are that the growth will be between 3.6% and 4.8%. If forecasts come true, we will recover the same GDP per capita sometime during 2011.

Institution	2011 Forecast
CEPAL	Above 3.5%
World Bank	3.6%
Ministry of Economy	4%
UBS Brokerage	4.3%
Banamex	4.8%

We are having a positive perspective. True, the crisis will have 3.5 to 4 years to have a complete recovery if we consider the indicator of GDP per capita, but it is good to know that the fears of a double-dip have disappeared.

Mexico’s challenges are still on different areas: a weak domestic market; a huge exports concentration in the United States; the existence of different economic sectors with production levels below those of 2008; insecurity and its effect on the economy; financial and fiscal risks on different countries; uncertainty regarding the currency policies from emerging markets, etc. However, it is important to plan over the positive perspectives, and keep a track of these risks to respond opportunely. I agree with a statement from the United States Chamber of Commerce, let’s be “cautiously optimistic” and begin to design our companies’ strategies according to these encouraging scenarios.