Diversify for Survival, Stability and GrowthFri, 09/01/2017 - 11:22
When the peso plunged to its lowest level ever against the dollar after the US presidential election and continued its slide in the following days to slip past MX$21, aftermarket participants took a cautious stance. Coupled with the renegotiation of NAFTA, the new landscape has its challenges but it also has spurred companies in Mexico to diversify, says Eduardo Tamer, Director General of Industrias Tamer.
“The market is changing and it is increasingly necessary for companies to develop specialized business models in many different areas,” he says. In the near term, however, the exchange rate is reining in spending. “Aftermarket clients are showing more responsibility by keeping purchases in check and only buying what is needed,” Tamer says, adding that he expects this conservative trend to continue throughout 2017. Industrias Tamer, which commercializes its own Mikel’s brand of aftermarket equipment including wrenches, jacks and other tuning tools, grew at over 20 percent for the past 15 years and Tamer expects net growth for 2017 of approximately 12 percent.
As the NAFTA talks get underway, Tamer sees many significant growth opportunities for the country and for the automotive industry thanks to Mexico’s manufacturing capabilities. “As a low-cost country, Mexico has known how to take advantage of its capabilities to increase its exports and manufacturing base,” he says. “Even if investment from the US falls, the Mexican automotive sector is still attractive enough to many other destinations.” Mexico has a significant manufacturing automotive industry beyond the US. In fact, in 2015 most of the cars manufactured in Mexico were from Japanese maker Nissan, totaling 822,948 units.
Tamer says he is also seeking further opportunities in other locations, even if this is a slow process. “We increased our exports to Central and South America by 2 percentage points in 2015 and now this market represents 7 percent of our sales.” Companies troubled by this period of uncertainty may find it convenient to diversify more. One area Tamer finds attractive is e-commerce. “For our company, e-commerce has grown over 100 percent during the past year.” Online sales are increasingly gaining strength in Mexico.
According to a study by technological consulting company Tecnocom, by mid-2016 about 65 percent of Mexican companies had a webpage and 22.5 percent of those businesses were selling online, either through their own platform or a third party’s site. This percentage is expected to reach 40.6 percent by the end of 2017, according to Tecnocom. “Those who are not using this tool should pay attention and those who are using it quickly notice the speed with which Mexicans are adopting this medium,” says Tamer. This sales tool has its own added challenges because sellers sometimes do not take packaging and distribution costs into consideration, according to Tamer, only noticing later that their pricing strategy may not be turning a profit.
Industrias Tamer is also entering the air conditioner niche as part of its diversification strategy. “We produce a manifold product which can be used by Carrier, Rim Air and Calorex,” says Tamer. “While this sector is very different from the automotive industry, they resemble each other in audits and the need for efficiency alongside competitive prices.”
Diversification can be a necessary strategy and is exactly what Mexican industry must do to survive long term, says Tamer. Industrias Tamer supports its automotive activities with other divisions, while Mexico supports its trade balance targeting destinations other than the US. The Director General of Grupo Bursamétrica, Ernesto O’Farrill Santoscoy, is among those that encourage diversification as a method to survive transitions, “Mexico needs to diversify its markets, either through new international agreements such as the Asia-Pacific Economic Forum (APEC) or new bilateral agreements in the Asia-Pacific region.”
To weather the current conditions surrounding US trade, Tamer recommends both precaution and perseverance. “We took preventive measures against economic hurdles but it may not have been enough to account for the cost of the dollar,” Tamer said. “Yet, our work will continue no matter the exchange rate as we do not take unnecessary risks.” Tamer has hopes for expanding his market north of the border. “We are looking for a partner to generate a market in the US. Once we find one, we will be able to grow in this market.”