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.

Education as a competitiveness factor for Mexico

Education is definitely a strategic matter for every nation. One of its multiple impacts is on labor competitiveness, since a good educational system gives the skills, flexibility and adaptation capabilities to the working force for more complex or sophisticated processes. This analysis will be about 3 relevant aspects of education in Mexico:

Aspect 1: There are progresses, but slower than other countries

According to the Global Competitiveness Report 2010-2011, World Economic Forum, Mexico kept or improved its grade on all the education related elements, but lost positions on the ranking.

On primary education, the Report evaluates quality and enrollment rate. Mexico kept its score on the first one, and improved it on the second one; however lost 5 and 2 places respectively.

	2009-2010		2010-2011
	Score	Place	Score	Place
Quality of primary education (1=poor, 7=excellent)	2.6	115	2.6	120
Primary education enrollment rate	97.6%	27	98.1%	29

Referring to higher education, the Report evaluates enrollment rate, quality, access to internet and staff training infrastructure. Mexico again improved its grade, but lost 5 places, moving from 74 to 79.

	2009-2010		2010-2011
	Score	Place	Score	Place
Higher education and training	3.86	74	3.94	79

The detail of this category is the following:

	2009-2010		2010-2011
	Score	Place	Score	Place
Secondary education enrollment rate	88.7%	64	89.9%	61
Tertiary education enrollment rate	26.9%	75	27.2%	80
Quality of the educational system (score from 1=poor to 7=excellent)	2.8	115	2.9	120
Quality of math and science education (score from 1=poor to 7=excellent)	2.6	127	2.6	128
Quality of management schools (score from 1=poor to 7=excellent)	4.4	49	4.5	52
Internet access in schools (score from 1=poor to 7=excellent)	3.4	77	3.5	89
Local availability of specialized research and training services (score from 1=poor to 7=excellent)	4.2	53	4.3	55
Extent of staff training (score from 1=poor to 7=excellent)	3.8	78	3.8	84

As another reference, OECD applies every 3 years an evaluation to 15 year-old students on OECD’s 34 countries and 31 partner countries, called the PISA Program, to evaluate skills on reading, math and science, as elements that help to understand the performance skills required for the working life. Although Mexico has had improvements in the last 6 years, it is still the last place between OECD countries and ranks between places 48 to 51 on the total ranking.

Scores	Reading	Math	Science
2003	400	386	405
2006	410	406	410
2009	425	419	416

Aspect 2: there are mix results within Latinamerica

The World Economic Forum Report includes 23 Latinamerican countries. Among them, Mexico is on the half of the ranking.

	Place
Quality of primary education	14
Primary education enrollment rate	5
Higher education and training	12

However, according to PISA, out of 9 Latinamerican countries Mexico is on 3^rd place (behind Chile and Uruguay).

Aspect 3: there are important polarizations in the country.

There is in Mexico a national evaluation made by the Ministry of Education, applied to almost 85,000 elementary schools, about 30,000 junior high-schools, and a little more than 10,000 high-schools. On its most recent evaluation, there are big differences under 2 variables:

1.       Marginalization level of the community where the school is. The evaluation distinguishes between low or extremely low marginalization, and high or extremely high. The results are better for schools located on low or extremely low marginalization. About 74% of the enrollment lives on this kind of communities.

2.       Type of school: the difference between private and public schools is a lot more important than the influence of marginalization level. Certainly there is a correlation between these two variables (there are no private schools in high or extremely high marginalization areas); however, there are important differences between private and public schools in the same kind of area. Approximately the 8% of the total enrollment goes to private schools.

	Percentage of students with “Excellent” level, last year of elementary school.
	Spanish	Math	History
Total	2.4%	3.8%	1.8%
Low/Extremely low marginality	4.4%	5.9%	2.8%
High/Extremely high marginality	0.6%	1.8%	0.8%
Private schools	12.2%	10.5%	6.1%
Public schools	1.5%	3.2%	1.4%

	Percentage of students with “Excellent” level, last year of junio high-school.
	Spanish	Math	History
Total	0.5%	2.3%	5.5%
Low/Extremely low marginality	0.9%	2.4%	6.5%
High/Extremely high marginality	0.1%	2.1%	4.4%
Private schools	2.8%	5.1%	14.3%
Public schools	0.2%	1.9%	4.3%

It is important to have national and international evaluations that allow the identification of improvements and opportunities. Undoubtedly, Mexico requires of bigger and faster improvements to be more competitive in the world scenario.