Construction in Mexico: recovering, but still a long way to go

Extract of the article published in Plaza de Armas (www.plazadearmas.com.mx), May 2nd 2011.

Construction represents 6% of the National GDP, and 8% of the employment. Besides, according to the Mexican Chamber of Construction, this sector has a direct influence in the development of other 37 economic sectors that are suppliers of materials and services. That’s why, traditionally, the economic sector is considered as a good indicator of the economic health of a country.

In Mexico, although the national economy has recovered the levels it had at 2008 1^st Q, construction is still 7% below the peak it had 3 years ago; in other words, it is at the levels it had at beginnings of 2007… so far, 4 years lost for the sector.

Elaborated by Atalaya, with data from INEGI.

(Seasonally adjusted, constant currency)

2008 1^st Q=100

A good result is that during the 4 quarters of 2010, it had a growing trend that resulted in a growth of 4.2% (you can read precedents of Construction and other economic sectors here).

What has happened at the beginning of 2011? The most recent figures come from the National Survey of Construction Companies, that do not represent the total of the sector, but let us know the level of activity of those companies by State and by kind of construction. According to the survey, the first 2 months of the year show an increase of 5.3% compared with the same months of 2010, in all the kinds of construction, including buildings (housing, schools, offices, industrial and commercial buildings, hospitals, etc.), that was the sector with more lags.

The perspectivas for the resto f the year are of growth. The Chamber has an estimate of 2.6%, less than the one obtained the last year; but other estimates of commercial banks gathered by the same Chamber has an average estimate of 4.5% growth. If this last forecast is fulfilled, the sector will be hardly reaching the levels it had at the end of 2007, still behind the peak of 2008; so, the perspectives keep positive but there is still a long way to go to have a total recovery.

In Queretaro, 2009 and 2010 had annual falls of 7.7% and 7% respectively. 2011 begins with an important growth in building and hydraulic constructions. Last week, the Secretary of Sustainable Development in the municipality of Queretaro announced the arrival of $4,000 million pesos in investments for executive hotels, industries, services and commerce companies. So, all the companies that participate in the productive chains for these constructions will have different opportunities during the year if the investments arrive.

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.