Mxico: A Market for Visionary Entrepreneurs

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México A Market for Visionary Entrepreneurs
MEXICO

• June, 2005
• ? Vision Holdings México S. de R.L.

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Mexico Overview

• The Worlds 10th largest economy, larger than
  Brazil and India.
• Exchange and interest rate stability for the last
  10 years, doubled its GDP in the last 15.
• 100 million people, with 20 million more living
  in the U.S. alone, who sent over 16 billion USD
  in remittances last year (14 of global share).

• Mexico is located in North America. Central
  America starts in Guatemala and South America
  starts in Colombia.

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Mexico Foreign Trade Overview

• The most open country in the world (with over 60
  free trading treaties) with total exports of over
  180 billion USD, importing about
• the same ammount 87 of all trade with the
  U.S.,
• but E.U. share increasing with the recent
  EU-México Free Trade agreement.
• Most exports are manufactured goods (TV sets
  where
• we are the largest world producer, appliances,
  cars,
• machinery, packaged/processed food, textiles),
  but
• also a leader in many mineral and oil products
  (crude
• oil, silver, zinc, etc.), fresh produce (fruits,
  vegetables)
• and services
• We are net importers of technology in almost
  every aspect. We also import machinery, cars,
  food, manufactured goods, textiles, services,
  etc.
• We are several countries in one a very US-tied
  north with a large near-shore outsourcing
  industry (maquiladoras), an upper-middle
  class-industrial center and an impoverished
  south-southeast, with 10 million indigenous
  communities with over 76 dialects, scattered in
  10 states close to central america.
• We have a large, skilled workforce with good
  price-performance ratios and a good logistics
  base geared for trade to the US and Canada,
  primarily.

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Mexico Business

• A tough market
• The overwhelming majority of Mexican private
• companies, regardless if they are listed or not,
• large or small, are managed as a family affair,
• with the exception of a very few (Cemex,
• Tamsa).
• Purchasing is always driven by price. Quality,
• additional services, best value, warranties, are
  
• much les important during negotiations.
• Large corporations are technology laggards, not
• innovators they will follow on proven solutions
  put in place by smaller or niche players (i.e.
  Telmex, Cemex, Vitro, America Móvil)
• Many large companies operating in Mexico are
  subsidiaries of multinationals (Philip Morris,
  PepsiCo, Siemens, Santander, Smurffit, etc.),
  which take many strategic decisions at corporate
  or regional (LatinAmerica) offices (some of them
  already moving back to Mexico from Miami or Sao
  Paulo, or in Mexico in the first place. Mexican
  executive in charge of LatinAmerican operations
  HP, Microsoft, Dell, Citibank, Oracle, SAP,
  Motorola, etc.)
• Customers are not that keen on technology (with
  the exception of certain sectors) they are lured
  far more by fashion, sense of belonging,
  price/performance and publicity
• Government business is driven by strict
  purchasing rules that try to avoid corruption
  practices, which makes bidding process unique and
  complicated.

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Mexico Business

• An easy market
• We as customers, spend a lot in non-vital things,
  commonly leaving basic obligations for the quick
  satisfactor
• We like things from abroad, much more than local
  (the Malinche syndrome)
• The higher the purchasing power, the more
  likeliness of acquiring exclusivity
• We work hard, play hard and spend a lot of time
  with family and friends. We give away a lot of
  presents in the most diverse situations, even to
  unknown people
• Financing has come back big time, growth of
  Mexican and Latinamerican economies is the reason
  for it.
• We have built and purchased 2 million new homes
  in the last 3 years alone, along with almost 4
  million new cars in the same period.
• We have a cell phone for every 3 mexicans and
  growing

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How to do business in Mexico

• Some simple rules
• Never come into the market looking for the big
  players. Start with
• smaller customers and create a presence and a
  constituency. Then
• hit the jackpot.
• Always deal with a local partner, or install
  local offices. It is very
• expensive to operate from abroad and multiple
  customer visits
• are required before any possible business. But
  choosing the right
• and serious partner is not easy.
• Business relations are person relations. Mexicans
  never purchase
• from an unknown and will rather obtain
  references or ask an
• acquaintance about a brand, a product or a
  person. But foreigners
• residing in Mexico are commonly well regarded.
• A contract is not a binding obligation, but a
  formality.
• Tener palabra or having word (compliance of
  promises) is far more important.
• Purchase lifecycles can vary in length, but it
  takes similar effort to sell
• 10K or 10 Million
• Logistics infrastructure is under development,
  but you will find serious players as well as
  interesting opportunities in that industry.
• Distribution is key, but it is also challenging.
  There are scores of intermediaries and middlemen
  trying to grab a piece of the commercialization
  chains, street positions, etc., although
  pyramidal schemes are very successful.
• To position a brand or a concept, first go to the
  wealthy and appeal them. Then expand to the rest
  of the population many mexicans purchases are
  aspirational

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Changing Business Environment

• Banking business is changing from a comissions
  based to a product colocation one, so financing
  is expanding and profits are growing
• National Debt has switched from being mostly
  governmental to mostly private, meaning
  businesses are expanding and have better
  qualifications than before, but overall still
  smaller than most OECD countries in proportion
  and value. Public debt obligations through 2007
  are being payed this year.
• Companies are looking for better operational
  expenses and reduced
• costs, to compete with imports and products from
  the likes of
• China, India, South America and the US
• Because of our closeness to the US and the
  location of many
• multinationals, Mexico has published its own
  Compliance
• Regulatory Guidelines as part of a change in the
  Stock
• Markets law, which is forcing for operational
  and organizational
• changes
• Companies and government entities are trying to
  focus in
• its core business and regulatory compliance and
  relying its
• non-core activities (specially IT, logistics,
  and some supplies)
• to third parties or specialyzed companies with
  proven track
• records or brand name recognition
• Because of all that, there is a boom on managed
  services, outsourced solutions, ISO, etc. with
  some contracts reaching tenths of millions of
  dollars per year.

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New Market for IT Shops

• No more Business Redesign, Technology
  Solutions, Best Practices, Process
  Reengineering offers are credible
• Standards are all the rage
• Standards in Hardware
• Standards in processes
• Standards in Software
• Bottom line, standard means cost-savings and
  better services
• Technology is going the business way, so
• IT Processes have to be aligned with the
  business, not the other way around
• IT Expenditure is limited to ROI and TOC
  considerations, linked
• to benefits in the cost structure, rather than
  increased sales
• CIO position is diminishing, reporting to CFO
  once again
• End users and end customers rule
• IT have to deliver with less resources, better
  business acumen and improved timing
• Compliance is driving business strategy and IT
  requirements, stretching far more the limited
  available resources.

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What we have found in Mexico (and in other
countries)

• Two main markets are considering all of the
  above
• Large Corporate Accounts
• Government (federal and state)
• The main driver is IT budget constraint, but
  there are other reasons too
• Assessment that IT investment has not produced
  acceptable ROI
• Best practices are out there, already in place
  and for a cheap price
• Implementing process redesing or best practices
  at home is really expensive and time consuming
• Outsourcing is out, Infrastructure Service
  Operations is in (ISO)
• People are already out with previous cost-cutting
  initiatives, and internal and business related
  service levels are deteriorating
• Managing and operating Wintel is an absolute
  time-consuming, high complexity endeavour that
  generates the least value imaginable for IT, but
  is of the most priority to users
• PC, Networing, Servers and software are a very
  complex and changing environment, that is better
  served by experts
• Companies and institutions should focus in its
  core business and leave specialties to third
  parties

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Multiyear Managed Services Contract

• What we have designed and have developed with
  several partners is a new offer named Multiyear
  Managed Services contract, in which all ISO
  operations are offered under an umbrella that
  includes
• Hardware provisioning
• Software licensing, management and control
• Maintenance and operations services
• Help Desk (Service desk)
• Proactive monitoring and management
• Networking
• Application Certification Lab
• Security Management
• Financing
• Management and operations
• for a monthly fee for the duration of the
  contract.

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Multiyear Managed Services Contract
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This model goes beyond just HW provisioning

• We have aligned all processes to CobiT and ITIL
  standards
• We have created specific offers for every part of
  the equation

Help in the contract design, SLA design,
management and control tools implementation,
processes setup
Consortium Organization
MMS Contract
Customer
Front Supplier
Supplier 1
Supplier 2
Supplier n
Design the specific needs solution, organize
project, manage project (PMO), manage suppliers
(from design table to roll-out, delivery)
Design, specify and deliver the specific MMS
contract that would suite customers needs and
match it with offerings in the market
Help develop offers and take them to market, help
in the selling process, bring opportunities and
develop processes and alliances
Analize, qualify and align second-tier,suppliers
to project and offer needs, implement processes
and help create practices
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Trends in Government purchasing

• Services contracts allow savings in several
  fronts
• Efficient use of annual budget
• No need to sell national assets
• Withdraws obsolescence
• Allows for the clear measurement of IT
  organizations operational efficiency,
  stablishing SLAs and OLAs within those
  contracts
• Allows for the access to best practices and
  technologies for the cheap
• There are several methodologies for these type of
  contracts
• Multiyear Managed Services
• Public-Private Partnership (PPP)
• Specialized services contracts

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Purchasing vs. MMS
Example considering 7000 equipments at market
prices. Net Present value is overwhemly favorable
for the MMS model, the longer the timeframe, the
bigger the return.
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And we have set the right alliances

• PC, Servers, Network Gear Dell, Cisco
• Imaging, Printing, Copying Xerox
• Proactive monitoring, management, SLA Computer
  Associates
• Big ticket services EDS, Compusoluciones
• Help and Service Desk Servinext, Unisys, EDS,
  Teletech
• Field services and Break Fix Unisys,
  Compusoluciones
• Point of Sale systems NCR, Dell
• Telecom Telmex, Satmex, Motorola
• Other support hardware MGE, Capstone, IGSA
• Software Escher, Oracle, NewScale,
  Computer Associates
• Standards Pink Elephant, Cynthus
  (Cobit), Vanti

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In Summary

• Strategies
• Large Corporations
• Medium sized visionary companies, those competig
  with the large corporations
• Existing Customers elsewhere in the world
• Taking advantage of Méxicos NAFTA position
• Multinationals with significant operations in
  Mexico
• Mexican multinationals foreign operations

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In Summary

• Reccomendations and Lessons Learned
• Mexican partner or mexican-based operations, run
  by mexicans
• Patience and perseverance, local partner takes
  the risk
• No direct sales against the channel and partners
• Takes several years to develop and mature the
  market (Hyperion, Microsoft, Oracle)
• Irish model of developing speciallized,
  innovative product in niche markets a winner
• Capitalize success in other parts of the world
  credibility and experience
• With all its uniqueness, México is like many
  other countries and markets locally based,
  relationship driven business model

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• Dr. Raul Medina-Mora Icaza
• Director General
• Vision Holdings México, S. de R.L.