Luis Doménech
Co-Founder and Managing Director
MILA
/
Insight

Doors Open to Foreign Investment

Tue, 11/01/2016 - 14:17

Mexico has flung open its doors with reforms that have turned international attention to the country’s industry potential. Propositions such as the National Infrastructure Plan and Energy Reform have broadened the landscape for competition. As international companies begin formulating their plans to participate in the numerous opportunities that are arising, Luis Doménech has a warning: it might not be as easy as you think. Doménech, Director General of MILA, a consulting firm that specializes in market research for Mexico

and Latin America, says that companies wanting to enter a highly competitive sector or industry, such as infrastructure, should establish adequate local partners, hire local labor and build relationships with local technology suppliers.

“In some cases, international companies can come up against more competition in Mexico than they would back in their country,” he says. “Mexico is replete with competitive infrastructure groups that are compelled

means the commerce is extremely unstable and weather- dependent, so there is a push toward more covered retail spaces. Parking also is beneficial as this creates more comfort for the customer. Large spaces are popular because the mall can organize events. In Santiago Tianguistenco, State of Mexico the shopping center we helped plan is close to a high school and the managers of the center discovered the kids in the school play chess. The managers invited the young people to play at the food court area of the mall. Things like that will incentivize loyalty and with the time spent in the food court, those kids also are likely to buy food or drinks.

JR: We opened a Cinépolis there with five theaters and it has become the most successful and profitable low-profile Cinépolis across the entire chain because people need this facility. People were already going to the cinema regularly but the difference was the lack of convenience due to poor public transport links. The MX$50 (US$2.60) each way they would have spent in the taxi can now be spent in the shopping mall. When we began developing this mall, we held a recruitment fair and received over 1,000 applications from people eager to find employment. This is another need we are meeting.

GM: We also offer greater security. Five years ago, we developed a shopping center with only one public entrance, and this provided increased security especially for parents whose children would normally socialize in a park or another potentially dangerous environment. There is a police officer stationed at the exit to ensure no unaccompanied minors leave the building so the protection is tangible. To compete with the low prices of Spanish companies and with Germany’s state-of-the-art technologies.” He adds that although the competition is tough, Mexico is opening its doors to all investment and is creating new opportunities for any number of businesses. Doménech expects an expanded market of competition will also bring improved technology into the market. Firms can tout advances that may be slightly more expensive but deliver better results in the long term as they vie for government contracts that traditionally have gone to the lowest bidder.

Thanks to new plans and reforms, opportunity is knocking in industries such as railroad and energy but the government must do more, says Doménech. “The railroad industry is filled with countless new projects but due to the large investment needed, it is essential that the government provides incentives by subsidizing the biggest projects,” he says. “The energy industry also offers a significant number of prospects, for both conventional and renewable

Q: How are you incorporating SMEs into your developments?

JR: We want to do so but it is a question of whether they have the product and the administrative capacity to provide greater efficiency. The problem here is that a large percentage of SMEs are not really SMEs in the traditional sense, but rather tiny family-run companies that do not have the management capabilities to work on such a large scale. In Mexico, 30 percent of new companies fail within one year, and this is not due to poor market conditions, but because of a lack of business knowledge. We are open to working with these companies if they are able to provide the right product at a competitive price. Bringing professional retail to small towns will also bring higher quality and lower prices to the people who need them most.

GM: Most of the time, the reaction to large multinationals entering small towns is due to a small number of caciques (bosses) who monopolize the local trade and do not want to see prices being lowered by professional businesses. This was the case when Walmart entered Teotihuacan. We invite mom and pop stores to our shopping centers so there is still a place for those types of retail outlets but the price must reflect the rest of the market. This also allows shoppers to maintain the comfort they want. At the recently opened shopping center we developed in Zinacantepec, State of Mexico, more than half the retailers are local with no more than five stores. This is a viable growth strategy for SMEs because they are in the same arena with major outlets and facilities like Cinépolis.