Mexico as a Sourcing Hub for ShellTue, 01/22/2013 - 12:15
As well as watching the evolution of the Mexican oil and gas industry very carefully and trying to participate wherever possible with ideas and proposals for its future development, one of the main goals for Shell Mexico in 2013 is to develop its Mexican sourcing office, one of only four such offices around the world.
According to Alberto de la Fuente, President and Director General of Shell Mexico, there were three reasons behind the choice of Mexico for this regional sourcing hub. First is the location: with proximity to the critical North American markets, and good access to the US Gulf, Mexico is well placed in terms of logistics handling and delivery times. Second, the quality of labor is very good in Mexico, with de la Fuente noting that Shell has been very happy with what the company has seen and experienced so far in the country. “The oil and gas service industry in Mexico has been working for Pemex for many years and is used to working along the guidelines laid out by demanding and competitive companies.” Finally, de la Fuente cites cost as one of the contributing factors for choosing the country. “Mexico has good labor for competitive prices. We believe that Mexico can be competitive in the international bids that Shell offers all around the world.”
Mexico is one of Shell’s four international sourcing offices; the others are in China, India and Russia. De la Fuente explains that Russia was chosen because of local content regulations, China because of the size and potential of the domestic market, and India, like Mexico, was chosen for the quality of manufacturing and the availability of cost competitive skilled labor. “I have to say that our presence in Mexico looks beyond simply serving the domestic market and is influenced by global strategies and regional opportunities. Someday we will be able to compare the four offices and see how competitive they are amongst each other, but this will take time. The Mexico office has just been established, for example, but China has been operating a sourcing office for over four years. However, the end goal is for Mexico to be competitive against these other three countries,” de la Fuente explains.
Although some in the industry might question the logic of choosing Mexico over Brazil as the location of the Latin American sourcing office, de la Fuente defends the choice: “Doing business in Brazil is often complicated, because of the tax structure. We also chose Mexico not only because of its physical proximity to the rest of North America, but also because of the free trade agreements that are in place. When all these factors are considered, it is plain to see why we chose Mexico.”
However, there are some hurdles standing in the way of Mexico being the perfect location to place a supplier base. “What we need to do is bring all these companies in line with Shell’s standards when it comes to bribery and corruption, ethics compliance, and HSE standards, just in the same way as these companies prepare when they want to participate in a Pemex tender,” says de la Fuente. In order to combat these challenges, Shell is auditing its suppliers and working closely together to bring their performance up to the standards required for participation in international bids. Shell Mexico’s President notes that international bid regulations can sometimes be very different to those on the Pemex tenders for which Mexican suppliers are used to competing, and adapting can sometimes be a lengthy process.
Although de la Fuente is deliberately vague about the types of companies that Shell is hoping to work with in the future in Mexico, he does reveal that they have focused on a mix of Mexican domestic companies and fabrication yards, international service providers operating in Mexico, and international companies with the potential to one day work in the country but currently do not.
The process to become a certified Shell supplier works as follows: first, a company must face an initial audit, where the necessary adjustments are noted that will be needed for the company to meet the standards for the Shell’s international bid offers. Once these changes are made, a company goes through a second audit. If they pass, the company is certified, but has to wait for a bid to be launched before they can compete. De la Fuente reveals that to date, there have been some very competitive bids from certified Mexican companies. He hopes that 2013 will be the year that a Mexican company wins a certified bid, conforming the competitiveness of the local supply chain.
When asked why Mexico hasn’t taken advantage of its potential as a sourcing hub before, de la Fuente suggests that factors such as the US labor shortage could mean that within the next ten years, Mexico could transform its reputation in the oil and gas industry and take advantage of opportunities, such as those on the US side of the Gulf of Mexico. “Right now, the US rig market is starting to pick up again after Macondo, so there should be some good opportunities for the production of rigs and platforms in Mexican fabrication yards in the coming years.”