Mexico Business Forum 2019 Impact Report

IMPACT REPORT

2019

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2019 Mexico’s 2018 was marked by significant uncertainty and wariness among investors. In his third presidential campaign, Andrés Manuel López Obrador ran on an anti-corruption and socially-focused platform. He promised to cancel or revisit iconic projects and industry advances, including NAIM and the Energy Reform, which generated concern in the national and international business communities. Following a historic landslide win, López Obrador generated hope for change and opened the door for investment in new sectors. Still, uncertainty lingers and fulfilling campaign promises while maintaining macroeconomic stability will be a tough balancing act, particularly since most promises involve more public spending while reducing tax revenues.

Despite the changes, the Mexican economy remains business as usual. The agricultural, tourism, manufacturing and banking sectors, among others, have gained momentum to become world-class competitors. The renegotiation of the country’s multiple free-trade agreements, including USMCA, TPP11 and a revamped partnership with the EU, have the potential to fuel economic growth while adding a pinch of stability to a weary market. Although the global economy might decelerate, Mexico has an opportunity to reinvent itself alongside the new administration.

The challenge ahead is to implement the right strategies from a public and private sector standpoint to complete Mexico’s transformation and turn it into a true powerhouse of the 21st century.

The third edition of Mexico Business Forum ventured into the strategies the federal administration will put in place to continue Mexico’s streak as a favored investment destination and the efforts to continue marketing the Mexico brand. Mexico Business Forum also provided a space for business leaders to communicate the strategies they are implementing to transform their business, implement new technologies such as AI and the challenges they are experiencing to innovate in the Mexican market.

2019

Quick Look:

“I´ve seen that there´s always a good critical mass of attendees mainly from the corporate world who benefit from doing networking and meeting new people and companies.”

Roberto Martinez, Head of OECD México

INCLUDING: ∙∙ Alberto Uribe, SRE ∙∙ Carlos Morales, Telefónica México ∙∙ Federico Ranero, Uber Mexico ∙∙ Anasofía Sánchez, Waze

21

TOP SPEAKERS

∙∙ Argenis Bauza, KPMG ∙∙ Omar Galicia, Mercado Libre ∙∙ Roberto Martínez, OECD México ∙∙ Gilberto García, SE ∙∙ Alejandro Guzmán, State of Jalisco ∙∙ Gabriel Casillas, Grupo Financiero Banorte

TICKET PRICES FOR 2020

Super Early Bird Rate MX$12,000 + IVA (until 13/03/2020) Early Bird Rate MX$14,000 + IVA (until 10/04/2020) Conference Rate MX$16,000 + IVA (until 05/05/2020)

Get your 2020 tickets now: www.mexicobusinessevents.com

134 COMPANIES REPRESENTED

“This forum was great to meet people from all different businesses.”

Misael Diaz, CETELEM

175

PARTICIPANTS

“It´s a very high-quality event, and I like very much how you mix the challenges of different industries. So we are really talking about how to do business in Mexico not only the challenges of a specific topic or add period after industry.”

Carlos Morales, CEO of Telefonica Movistar

COMPA N Y AT T E N DA N C E Access To Energy

BSCW

Accor Hotels

Bufete Piza Abogados

ACH Foods

Business Sweden

Aeromexico

C&A

AFC Capital

CANCHAM / New Gold

Agile One

Centigon Security Group

Ainda Consultores

CETELEM

Amadeus

COMCE

ANAFARMEX

Comercializadora de calzado M&M

ANDELLAC

Concreto Polimérico de Alta Resistencia Castor

ANICAFE

Conekta

Arbomex

Danpal México

Argentum Textil

Dassault Systemes

Argo Solutions

De la Vega y Martinez Rojas

Arizona Commerce Authority

Dell Technologies

Array Technologies

Dominion Corporate Housing

Assurant Mexico

Dutch Embassy

Avianca

Embajada del Uruguay en México

Avisong Young

Embassy of the Republic of Kazakhstan

AVL Ibérica

Energymex

Axon Interconex

Enestas

Baker & McKenzie

Escuela Bancaria y Comercial

Banco Sabadell

Estado de Jalisco

Basham, Ringe y Correa

Evolve Fintech

Bconnect

Finergreen

Becerril Coca & Becerril

Flight Centre Travel Group

BECSS

Fundación Dibujando Un Mañana

Biz Latin Hub

Gayosso

BL Grupo Consultor

GEMINI MACHINE WORKS INC

Global Health Intelligence

Rengen

Grupo Aldesa

Rocket

Grupo Aries

Salles Sainz Grant Thornton

Grupo Financiero Banorte

Secretaría de Economía

Gympass

Secretaría de Relaciones Exteriores

HASHTAG

Seoane Consulting Group

Helmut Fischer

Single Source Tech

Hermes Systems

Sinnetic

Holcim México

SINTOQUIM

HR Ratings

SÍOLTALIFE

Hub Group

Smart Cities Exchange

Idro Meccanica

SMART SCALE

IMCISS

Speyside Group

INCUBADORA VILLAFLORES GRUPO PECUARIO

SRL Soluciones

Innocentro

STIN

Inspirato

STP

Jones Day

Synfonel

Kelly Services

Syngenta

KPMG

TANE

Latinamerican Invest

TechBA Aerospace

Loteria Nacional

Telefónica

MAG Medical Group

Terceros AVS

Marhnos

The Climate Reality Project

Mercado Libre

The IBH / Clever global

MeroMole

Thermo Fisher Scientific

Miituo

Thinkeen México

Millesime

Uber

Minera del Norte

Valdes Abascal Abogados

MSC Cruceros Mexico

Valid

NFS

VCS Capital

Nike

VISA

Nordiks Global

Vux Comunicación Integral

Northgate Capital

Waze

OECD México

WePort Freight Forwarding

Ormazabal Mexico

WESCO DISTRIBUTION

PA Consulting

Wework

PC Fusion

Wissner Bosserhoff México

Peyrelongue

XARXA

Profile of Attendance

62.7% C-Level 33.1% Upper Management 4.6% Press

Press

Neutral

Networking

Mid-Level

Satisfied

Relevance of

High Level Executives

Very Satisfied

Satisfaction Level

52% Very satisfied 43.3% Satisfied 2.7% Neutral

Most Valuable Element

49.3% Quality of speakers 46.6% Relevance of topics 4% Networking opportunities

Quality of Sp

P R O GR A M

07:30 REGISTRATION 08:30

RENOVATED STRATEGY FOR INVESTMENT ATTRACTION

Speaker:

Alberto Uribe, Director General of Political Coordination of the SRE

09:45

NETWORKING COFFEE BREAK

10:15

SMARTPHONES: KEY TO UNTAPPED POTENTIAL

Moderator:

Alfredo Alfaro, Managing Partner of Northgate Capital

Panelists:

Carlos Morales, CEO of Telefónica México

Emmanuel Got, Head of Business Development of Banco Sabadell Mexico

Federico Ranero, Country Manager of Uber Mexico

Anasofía Sánchez, Director General of Waze

11:15

NETWORKING COFFEE BREAK

11:45

CAN RETAILERS BRAVE THE DIGITAL ERA?

Moderator:

Gabriela Mastache, MBR Industry Analyst

Panelists:

Argenis Bauza, Digital Transformation Partner at KPMG in Mexico

Omar Galicia, Commercial Director of Mercado Libre

Fabian Torres, Digital Commerce Manager of Nike

12:45

WORKPLACE REVOLUTION FOR ENHANCED PERFORMANCE

Speaker:

Mariana Fresnedo, Global Events Manager at WeWork

13:15

NETWORKING LUNCH

14:45

HOW TO MAKE OR BREAK A BUSINESS?

Moderator:

Roberto Corral, President of Innocentro

Panelists:

Rodrigo Vargas, Founder of MeroMole

Carlos Lukac, Director General of Gayosso

Mario Rodríguez, CEO of Arbomex

Leonardo Cortina, Director General of miituo

15:30

NETWORKING COFFEE BREAK

15:45

REDISCOVERING MEXICO’S GLOBAL BRAND

Moderator:

Roberto Martínez, Head of OECD México

Panelists:

Gilberto García, Director General of Foreign Direct Investment of the Ministry of Economy

Paul Verhagen, SVP International Sales of Aeroméxico

Alejandro Guzmán, Strategic General Coordinator of Economic Development and Growth of the State of Jalisco

María Eugenia González O’farrill, Partner at Nordiks Global

16:30

FINANCIAL SECTOR’S WISH LIST FOR 2019-2024

Speaker:

Gabriel Casillas, Deputy Director General of Economic Analysis and Investor Relations at Grupo Financiero Banorte

17:00

NETWORKING COCKTAIL

HIG HL I G HTS 201 9

KEY SPEAKER

ALBERTO URIBE Director General of Political Coordination at the Ministry of Foreign Affairs Alberto Uribe joined the Ministry of Foreign Affairs in December under President López Obrador. From 2015 to 2018, he was Municipal President of Tlajomulco de Zúñiga in the state of Jalisco and from 2013 to 2014 he held the position of General Secretary of the City Hall of the same state. Uribe has two Bachelor’s degrees from the University of Guadalajara, one in law and the other in political and government studies.

He holds a Master’s in constitutional law from ITESO.

RENOVATED STRATEGY FOR INVESTMENT ATTRACTION Mexico’s centralized model has acted as a barrier for the country’s integral development. For that reason, implementing a federal model that supports the economic development of every region in Mexico will be a priority to promote economic development, stated Alberto Uribe, Director General of Political Coordination of SRE, on Wednesday at Mexico Business Forum.

“Our country’s development has not been fair or equal,” said Uribe, “and development must include everyone equally.” He explained that Mexico’s centralized model was a barrier for growth in specific regions, especially in the south. Moreover, older strategies to promote the country and attract FDI did not benefit the country equally as “ProMéxico focused its promotion strategy on only 10 states.”

For that reason, SRE is revamping Mexico’s investment strategy. To do this, Uribe pointed to the book “Why Nations Fail” from top economists Daron Acemoglu and James Robinson and stated SRE’s priority will be to analyze “why nations triumph.”

The country is already a strong, attractive investment destination. “Trade between three countries in North America grew by 258 percent between 1994 and 2018. During that time, Mexico became the US’ main commercial partner for the first time. The

trade flow between both countries is at US$1 million per minute.” Uribe also pointed to the fact that during the last 20 years, Mexico received US$530 billion in FDI, most of it headed to the manufacturing sector.

In 2018, Mexico received a total of US$31.73 billion in FDI, most of it from the US. The main sources for FDI are the US with 38.8 percent, Spain with 13.1 percent, Canada with 10 percent and Germany with 8.2 percent. Moreover, the country expects US$25.251 billion in FDI in 2019, Uribe said.

The new model will focus on strengthening all 32 states in Mexico through equal promotion. “The Ministry of Economy is developing a Global Intelligence Unit to help position Mexico. The country has 147 representatives across the globe but their objectives are unaligned.” The ministry is also developing internal promotion strategies.

“On May 3, we had the first reunion with Ministers of Economic Promotion to showcase to ambassadors across the globe the strengths of every state.”

“Trade between three countries in North America grew by 258 percent between 1994 and 2018. During that time, Mexico became the US’ main commercial partner for the first time. The trade flow between both countries is at US$1 million per minute” Alberto Uribe, Director General of Political Coordination at the Ministry of Foreign Affairs

The Ministry has many more projects planned, including one for June 6 and 7, which will be the first summit of city mayors from Mexico, the US and Canada with the goal of creating alliances between these cities. Uribe highlighted the importance of alliances between cities; some even surpasses the states they are part of in terms of investment, he said.

Other actions include a “recently signed collaboration agreement to help Mexican companies penetrate global supply chains, which will allow the country to ratify its position as a key strategic partner to the US.” Uribe also highlighted many infrastructure projects, including State of Mexico’s US$466 million investment in the industrial development Arco 57 and Coahuila’s “Ports to Plains,” a US$3.6 billion initiative to connect highways between Mexico, the US and Canada.

Uribe also highlighted the two major infrastructure projects proposed by the current administration for the economic development of the country: the Mayan Train and the Transístmico project. The first will link Chiapas, Tabasco, Campeche, Yucatan and Quintana Roo, which together host 6.8 million tourists per year. This project will require an investment of “up to US$1.5 billion and has attracted the interest of many companies, including Bombardier.”

The Transístmico project will be a point of access to the southeast. “It will join two oceans, supply electricity and oil and support the poorest areas of Mexico. Thus, it will be a key for the country’s economic development. This project links the isthmus with global logistic networks and will strengthen the country’s productive capacity and create jobs.” Uribe stated that the project has atracted large investors such as BlackRock and will represent an investment of US$2.15 billion.

Uribe highlighted Mexico’s many opportunities to expand and strengthen trade networks and indicated that one of SRE’s many priorities will be to diversify its trade partners with an eye toward Latin America and the Caribbean, China and Europe.

The ministry’s priorities include identifying areas of opportunity to increase FDI attraction, developing investment opportunities in the energy sector and ratifying USMCA. Key to achieving these goals will be to eliminate corruption, strengthen the rule of law and reduce bureaucracy, said Uribe.

HIG HL I G HTS 201 9 “Between 2019 and 2020, Mexico will grow its GDP between 1.5 and 1.8 percent.” To do so, FDI will be essential, which can only be done by developing new trade partners while strengthening relations with current allies, especially the country’s main commercial partner, the US. ”We do not need a wall; we must build a trade zone.”

KEY SPEAKER

SMARTPHONES: KEY TO UNTAPPED POTENTIAL Smartphones gave customers access to countless digital platforms and the arrival of 5G will only increase the impact of these devices in people’s lives. According to Alfredo Alfaro, Managing Partner of Northgate Capital and moderator of the first panel of Mexico Business Forum 2019 held at the Marquis Reforma hotel in Mexico City, beyond technology, disruption will impact customers’ habits of interaction and consumption.

“We are moving from an industrial to a digital age. Networks will be essential to enable this transformation, using data as their fuel,” said Carlos Morales, CEO of Telefónica Movistar México. Some companies are already taking advantage of

CARLOS MORALES

this transformation, updating or creating new business models to make everyday

CEO of Telefónica Movistar México

operations more efficient. The opportunities that digitalization and mobility bring

Carlos Morales has worked for

are such that, according to Federico Ranero, Country Manager of Uber Mexico, the

Telefónica for 16 years in a variety

opportunity for collaboration and dependability between companies is incredible.

of positions in Spain, Brazil and

“Companies now have the role of understanding local needs and adapting them

Mexico. His background includes

to the existing technological offering. We are both technology developers and

business development, marketing,

preachers of new ideas among our customers,” he said.

sales, operations and digital business.

Prior to becoming CEO, Morales

Panelists agreed that Mexico is an attractive market for digital business models in

was Vice President of Operations

terms of smartphone penetration. Yet, there are technological, social and cultural

and Consumption in Brazil and was

challenges that hinder the potential growth of disruptive platforms. Among those,

also the Global Managing Director

Ranero referred to the country’s banking penetration rate, highlighting that 56

M2M (machine to machine), Cloud

percent of the population does not have access to a bank account, while 92 percent

Computing & Apps. Morales holds a

prefer to pay by cash. “Developing solutions to open the door to this segment of

civil engineering degree from La Salle

the population helps us preach about the benefits of digitalization and promote the

University, an MBA from Carnegie

use of digital and noncash payments,” he said.

Mellon and an Advanced Management Program (AMP) from Harvard

According to Emmanuel Got, Head of Business Development at Banco Sabadell

University.

Mexico, the bank realized the opportunity that existed in the country, which was only accentuated by the rise of fintech players that he considers a force to be reckoned with. “Mexico is already the second-most important market for Sabadell behind Brazil and the future looks bright for the country,” he said. “The industry is still deciding whether fintechs are friends or foes but for us, they are strategic allies that can help innovate in such a traditional sector.”

Connectivity and telecommunications are also revolutionizing mobility and the role it plays in customers’ lives. In Mexico Automotive Review 2018, former Minister of Planning at SEMOVI Laura Ballesteros highlighted that mobility is a gateway to rights like education and quality of life and for Anasofía Sánchez, Director General of Waze in Mexico, the use of digital platforms and the incorporation of advanced technologies of Big Data and machine learning are key for platforms like Waze or Uber to help fix the mobility issues plaguing megacities like Mexico City. “At the moment, Mexico’s car occupancy rate is 1.2,” she said. “Using the data provided by our own users, we can learn how people move around and implement new solutions like carpooling to improve the country’s car occupancy rate.”

The sky is the limit when it comes to technology implementation but opportunities are grounded by the country’s current state in terms of telecommunications. Morales

said 5G is a completely different animal. Today, Mexico operates 2G, 3G and 4G networks simultaneously and Morales said that due to data density, 5G will require a 5:1 or 10:1 ratio of antennas to properly operate. “New devices such as autonomous vehicles demand extremely narrow latency rates, which is only achievable through higher data transmission,” he said. Added to that is the issue of profitability, which is limited by the competition conditions in the country and the outdated regulations in terms of spectrum use related to price. “Telecommunications prices have dropped over 50 percent in the past three years. Yet, spectrum costs are still on the rise, normally following inflation rates.”

There is still a long way to go but the country is moving forward in adapting its regulations to new market conditions. Got said one key example is the CoDi initiative the country is working to implement to transform the financial ecosystem and reduce the use of cash as a payment option. “Talking about new technologies, just for the sake of it, is irrelevant. Technology must serve the client and help make processes more efficient,” he said.

CAN RETAILERS BRAVE THE DIGITAL AREA? The digitalization of traditional value chains in the retail segment is not only changing the way consumers interact with service providers but also how service providers structure their business, panelists at Mexico Business Forum 2019 said on Wednesday at the Hotel Marquis Reforma in Mexico City.

“In Mexico, 3 percent of retail sales are digital. In Latin America this amount averages 5 percent and in more advanced countries, it increases to 10 percent. Physical points will not disappear, they will grow together with digital platforms to complement services and offer an omnichannel strategy,” said Fabian Torres, Digital Commerce Manager of Nike, during the morning panel discussion.

According to Argenis Bauza, Digital Transformation Partner at KPMG in México, there is a general belief that e-commerce is less expensive. “Logistics prices rise and the velocity that these businesses experience in terms of demand is higher,” he suggested. Torres added that even though e-commerce platforms can decrease

HIG HL I G HTS 201 9 KEY SPEAKER

costs like rent or payroll, there are other significant associated costs, and benefits.

“The countercharges due to failed operations and delivery charges are present. By having both physical and digital platforms, you can exchange traffic between them.

You can use physical points as storage and delivery facilities or like a reconnection point with your logistics companies.”

Not all companies are ready to make this digital leap, said Omar Galicia, Commercial Director of Mercado Libre. “Traffic generation investments are lower for a company that already transitioned to an e-commerce platform. The first step for any company without this kind of experience should be to enter into a marketplace as your only

ARGENIS BAUZA

job is to make sure your product is available. Then, you can focus your efforts on

Head of Supply Chain LatAm

marketing strategies on site.”

Hub, KPMG in Mexico Argenis Bauza is a consultant with

Another important element is to create a trustworthy environment for your customers

more than 20 years of experience in

to embrace these novel platforms. As Bauza said: “In Latin America, customers do

various leadership positions related

not trust the delivery service.” In this sense, Torres said: “If you are promising a

to transformation and operations

certain delivery time frame, you have to achieve it or do it in the average time frame

consulting and the development of

of your competitors. The company’s internal logistics have to be efficient as well, as

projects in various Latin American

you cannot generate disgust from your client.”

countries. He focuses on employing innovative approaches to help

Some companies are also innovating on the payment side. “Mercado Libre was born

companies complete their digital

digital. There is a trend in the digital payment segment and its financial inclusion.

transformation to be more successful.

In the next two years, there will be a revolution with tools such as wallets that will

Argenis has worked with clients in a

allow customers to make investments, ask for loans and make payments through QR

variety of industries (manufacturing,

codes. We are already working with Mercado Pago platform in this sense”.

agro-industry, services and retail, among others) on transformation

Aligned with the payment method, security is important. “To date, there are many

projects focused on generating value.

tools that reduce payment risk,” Torres said. “In this planification, you have to take a step ahead and explore all the available payment channels in the market. There is cash payment on delivery, or cash payment with a commercial partner. Wallets like Mercado Pago are an option too. Even if you introduce gift cards, you help mitigate the dependency on debit and credit cards, and per se fraud risks”.

WORKPLACE REVOLUTION FOR ENHANCED PERFORMANCE As people and cultures evolve, it is necessary for workplaces to adapt to the changing needs of their employees, Mariana Fresnedo, Global Events Manager of WeWork, told Mexico Business Forum 2019 held Wednesday at Hotel Marquis Reforma in Mexico City. Through an open environment that promotes collaboration, it is possible to generate a positive workplace culture that leads to happy employees, which in turn leads to higher productivity.

“Going to work does not have to be torture, especially as we spend 36 percent of our life at our job,” said Fresnedo.

While the vast majority of individuals work, data indicates they are not too happy about it. “We measured that 76 percent of all employees are actively looking for a new job and 66 percent do not feel valued at their workplace.”

She also explained that 85 percent of employees do not like their workplace and about 50 percent are unhappy with their work amenities. “Most shockingly, 58 percent of employees trust a stranger more than their own boss.”

As examples of the need for evolution in many aspects of life, Fresnedo pointed to disruptors that have fundamentally changed common activities that seemed set in stone, such as Uber’s impact on transportation. “However, offices remain the same: gray and unwelcoming.” She highlights that companies need to change. “New workspace cultures must be people-centered, as workers are a company’s main assets. This will allow companies to reach new levels.”

KEY SPEAKER

Many aspects impact a employee’s happiness at work, Fresnedo said, from something as simple as giving an employee the tools to perform their work, to generating a welcoming culture. For that reason, WeWork is developing innovative workspaces that focus on flexibility, which she said is key for innovation, talent retention, productivity, flexibility and workspace community. “At WeWork we focus on more than a workspace; we focus on creating a work environment.”

Fresnedo encouraged attendees at Mexico Business Forum to closely examine their workplace culture and gave them two initiatives to measure how welcoming their

MARIANA FRESNEDO

workspace is. The first was an analysis of the use of space in an office and whether it

Global Events Manager at WeWork

allows for communication flow. The second is the use of a private office for a month

Mariana Fresnedo was previously

at WeWork. She encouraged them to take a deep look at their culture for employee

Enterprise Account Executive at

retention. “Happy millennials are 25 times likelier to remain in a company long term.”

WeWork before becoming Global Events Manager. Prior to WeWork, she was Wholesale Marketing

HOW TO MAKE OR BREAK A BUSINESS?

Manager of Levi Strauss & Co. and

Regardless of their focus or area of expertise, companies live under an undeniable

Marketing Manager and Public

premise: to renew or die. This is true for companies of all sizes and regardless of

Relations for Tissot. Her professional

whether they are new to the market or have years of accumulated experience,

experience also includes being

according to four decision-makers from four Mexican companies at Mexico Business

Brand Coordinator at Grupo Dicano,

Forum at the Marquis Reforma hotel in Mexico City on Wednesday.

Consultant at Logyt and Risk Analyst at Grupo Agrifin. Fresnedo has an

The four leaders shared their vision and strategies for sustained growth in a discussion

engineering degree from Anahuac

led by Roberto Corral, President of the aerospace industry manufacturer Innocentro.

University.

HIG HL I G HTS 201 9 Carlos Lukac, Director General of the 148-year-old funerary company Gayosso, said the key to innovation in an old and traditional industry is finding added-value services that can meet clients’ needs and expectations. “We are all about breaking paradigms.

Though we might be in the funerary business, we must consider ourselves part of the hospitality and real-estate sector,” he said. “In that sense, we must think as hoteliers and realters and optimize our service, occupancy rates and average ticket value.”

Mario Rodríguez, CEO of camshaft manufacturer Arbomex, agreed with Lukac in his views on the importance of innovation, saying that this is a priority that must be cultivated from within. “Innovation comes from a corporate culture. To innovate, you have to believe, then create and then grow,” he said.

“Innovation comes from a corporate culture. To innovate, you have to believe, then create and then grow, similarly, you need creativity to face any obstacles that might emerge.

Creativity can drive a business and even make it disruptive”

“Similarly, you need creativity to face any obstacles that

Mario Rodríguez, CEO of camshaft manufacturer Arbomex

that even though his company had a unique offering, it

might emerge. Creativity can drive a business and even make it disruptive.”

The challenges Rodríguez mentioned, however, vary depending on the stage at which the company finds itself. For more consolidated companies, obstacles might refer to the best strategies to sustain growth; for newer players, the challenge might be to properly establish a defined value proposition to compete in the market.

Rodrigo Vargas, Founder of MeroMole, a consulting company focused on the restaurant sector, highlighted still faced challenges related to inherent conditions in the

market. “90 percent of all restaurateurs do not hire professional services to build their business. Most business owners think they can make it on their own, but the fact is that eight out of every 10 restaurants close before their five-year anniversary,” he said.

Leonardo Cortina, Director General of miituo, on the other hand, faced the challenge of entering a consolidated and traditionalist industry. As an insurance broker with a disruptive model to sell cheaper auto policies charged by kilometer, Cortina had to approach insurance companies with a strategy that could generate interest among players with greater market experience. However, there is always untapped potential to draw from, he said. “People want to take care of their investments but they do not want to contract a policy because they do not use their car often enough. Our

business proposal, therefore, tackled a market segment that insurers had not been able to properly address,” he said.

The risk in finding a proper business model might be more apparent for young companies but Corral also brought up the disruptive nature of technology and its impact on companies that have been working in an industry for years. As a consolidated company in the automotive industry and the second-largest camshaft manufacturer in the world, Arbomex is no stranger to the industry’s transformation toward electric vehicles and for Rodríguez, the best way to target this challenge is by understanding the market and the way the company can change its business to adapt to new conditions. “Electric vehicles might not represent our sudden death but they are certainly worthy of attention,” he said. By 2035, Rodríguez says Arbomex wants to remain the biggest camshaft company in the world but it has also worked to open new market niches and to adopt new materials and processes to participate in a renovated industry.

Meanwhile, Lukac highlighted the importance of the human factor in reinvigorating a business. “People are the source of all innovation and renovation,” he said. He also pointed out that before thinking about what is next for the company, its management must establish a strategic discipline vision to make sure it has already taken the most advantage from its current market. “The grass is always greener on the other side.

However, we must learn to take advantage of the opportunities that other players and industries have learned to seize,” he said.

REDISCOVERING MEXICO’S GLOBAL BRAND Given the disappearance of ProMéxico, a new strategy must rise among private and public entities to maintain Mexico’s brand attractiveness for private investment, panelists at Mexico Business Forum 2019 said on Wednesday at the Hotel Marquis Reforma in Mexico City. “Mexico’s tourism industry represents 8.7 percent of the country’s GDP. It is the country’s third-largest industry by income and generates 10 million jobs,” said María Eugenia González O’Farrill, Partner at Nordiks Global.

The new challenge, she said, relies on consolidating a new image through a common front between the involved stakeholders. In this sense, the federal government, states and municipalities need to work together and align their priorities. “First, we need to define the type of investment we want to attract. Every dollar counts but not every dollar weights the same,” added Gilberto García, Director General of Foreign Investment of the Ministry of Economy. He said there needs to be a focus on the specific value chains that will have a major impact in the country’s economy.

Alejandro Guzmán, Strategic General Coordinator of Economic Development and Growth of the State of Jalisco, said that there is potential that resources could be lost. “In our case, we have the Jalisco brand, but also the Guadalajara brand and even the Puerto Vallarta brand. If we do not define our targets, resources could

“Mexico’s tourism industry represents 8.7 percent of the country’s GDP. It is the country’s third-largest industry by income and generates 10 million jobs” María Eugenia González O’Farrill, Partner at Nordiks Global

get lost in this process. The state is following this strategy and after defining specific targets of investment, establishing the mechanisms to do it and with which strategic partners this will materialize is the next step,” he said. “Mexico has different tourism models such as medical, sports, adventure and

HIG HL I G HTS 201 9 KEY SPEAKER

business. With this opportunity, we need to collaborate with the government, tourism promotion offices, airlines and private companies.”

On the private sector side, the country’s flagship carrier has a strategic role to play. “Mexico’s brand has a total value of US$1 billion. Our priority is to continue with its promotion. Following the past administration’s strategy, we developed an annual promotion plan together with ProMéxico and the National Council of Tourism Promotion (CPTM). During this transition phase, we will reinforce this promotion through the airline,” said Paul Verhagen, SVP International Sales of Aeroméxico

GILBERTO GARCÍA

Gúzman added that the disappearance of ProMéxico had to be done gradually to

Director General of Foreign

allow the incoming administration to take advantage of these resources before

Direct Investment at the

changing strategy. “There are many embassies and consulates around the world.

Ministry of Economy

Nevertheless, to achieve successful results, we need qualified people who have not

Gilberto García has extensive experience

only the experience in managing these topics but also the availability to comply with

in the public sector and academia,

their responsibilities and promote Mexico at the same time.”

working in innovation, project development and the introduction of

On the other hand, García said that resources could be better used. “In this

creative solutions to face the challenges

decentralized effort, we need coordination with the rest of the governmental

of sustainable development. Previously,

agencies. Mexico has 46 foreign services offices; we need to focus on a strategy

García was Adviser to the Director

that is attractive for investment in terms of security, infrastructure and through the

General of PEMEX. In the private sector,

consolidation of a qualified workforce.” In the short term, the SE in coordination

he worked as Director of Operations

with the SRE is developing a Global Economic Intelligence Unit. “The idea of this

and Technology at PointVerde and

unit is that it develops business intelligence and data analysis to identify competitive

Director of Energy Government Affairs

markets in states and municipalities. We want to link those with the private industry.”

and Policies for Latin America at GE. García has a degree in economics

The panelists agreed there is an urgency among both the private and public sectors

from the Autonomous University of

to respond quickly to this shift. “It is important to put pressure on this coordination.

Guadalajara and a Master’s in public

We have been meeting with chambers such as CONCAMIN and CONCANACO, in

policies from CIDE.

addition to promoting alliances with other stakeholders. In this sense, the private segment is organizing more quickly,” said González O’Farrill.

FINANCIAL SECTOR’S WISH LIST FOR 2019-2024 Uncertainty was the name of the game in 2018, but Gabriel Casillas, Deputy Director General of Economic Analysis and Investors Relations at Grupo Financiero Banorte, said this year is different.

“There is no uncertainty, AMLO is following his development plans to the letter,” he told the audience at on Wednesday at Mexico Business Forum held at the hotel Marquis Reforma in Mexico City.Casillas did acknowledge, however, that the new administration’s plans is having an impact on the investment climate. “The cancellation of the New International Airport of Mexico generated a reluctance to invest,” he said. “This reluctance was seen in many aspects of economy, including an increase in interest rates on government bonds.”

Other initiatives presented by members of the Morena party at the start of the administration, such as canceling mining concessions or using Banxico’s reserves for infrastructure projects, also generated anxiety among investors who believed that policy initiatives were becoming unpredictable. Casillas countered: “Before he became president, Andrés Manuel López Obrador wrote a series of books that clearly detail his policy objectives,” Casillas said. “He is prioritizing infrastructure, social projects and undoing policies from previous administrations. There is no uncertainty, the president is following the development plans he wrote about.”

While there has been much noise regarding the deceleration of Mexico’s economy after the election of President López Obrador, Casillas said this is actually a common phenomenon. “Our statistics show that the first year in every presidential administration is one of slow growth. Companies postpone investments during election periods. Thus, there is a vacuum in private investment. Moreover, public investment takes a long time to flow and when there is little public and private investment there is little growth.”

KEY SPEAKER Banorte has used this information to create an estimation of Mexico’s economic growth for 2018. “We initially estimated 1.8 percent growth in GDP. However, gasoline shortages, strikes in Tamaulipas and railroad blockades in Michoacan led to production stoppages at many companies, so we reduced our forecast to 1.5 percent.” Moreover, there are many signs that the economy is on its way to recovery.

“Investment in Mexico slowed down after Donald Trump became president but gained strength again after Mexico, the US and Canada agreed on the USMCA. Moreover, the trade war between China and the US helped Mexico to become the top trade partner with the US. Mexico has been the winner of this commercial war.”

GABRIEL CASILLAS There will be challenges, however. For instance, Casillas said consumer confidence

Deputy Director General of

is at its highest in history but as credit penetration is very low in Mexico it is not

Economic Analysis and Investor

directly affecting consumption. “What is benefiting consumption is the labor reform

Relations

because it has greatly strengthened formal work, which will lead to more credit and

at Grupo Financiero Banorte

consumption.” Another hurdle is PEMEX, which is a “proverbial stone in our shoe,”

Gabriel Casillas worked at Banxico for

he said. “The previous administration wanted PEMEX to invest in profitable projects,

over 10 years in the areas of Economic

such as farmouts. The new administration wants to invest in less profitable areas

Research, Central Bank Operations

such as a refineries.” Casillas believes that the construction of a refinery will happen

and Risk Management. Before joining

and that “it is possible to make a refinery profitable if the government gives it its

Banorte, Casillas also worked as Chief

full support.”

Economist for Mexico at J.P. Morgan Chase & Co. He is a member of the

Other Banorte forecasts include a dollar valued at MX$21.30 by 2020 and a 3.5

“Leaders of the Future” group of the

percent inflation rate for 2019. Whatever happens with the public sector, Casillas sees

IIF and President of the Committee of

a positive future for Mexico’s economic growth. “Mexico’s economy is represented

Economic Studies of IMEF. Casillas has

by 84 percent by the private sector so whatever the government does, its impact

a degree in economics from ITESM and

will be contained.”

a Ph.D. in economics from Texas A&M.

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THE TOP

MAURICIO HERRERA

Executive and

Administrativ e Coordinator

Q: How has the FMP’s relationship with authorities regulators evolved and in the last year?

A: It has been excellent. The Energy Reform is something that happened very fast as the Fund started operations and we already in 2015 have a full round of oil bidding under our belt. processes CNH is about to launch Round Two. Because of the speed at which this happened some elements in the law were not very clear or only partially defined.

of the Mexican

OF FUNDS

Petroleum Fund

(FMP)

A: From the start of its operation, the Fund established three clear objectives: administer the oil income and the corresponding make transfers, handle the financial of the oil contracts dealings and administer the long-term The latter will reserve. take some time to consolidate because with oil prices at current levels it is difficult to foresee annual revenues arising from hydrocarbons production activities to surpass the 4.7 percent of GDP threshold that has been set before we can begin accumulating a long-term reserve.

Therefore, our efforts have focused on the first two.

Today, the responsibilitie s have been assigned to authority and each coordination is good. This year one of the main elements of the reform is the creation of the new market agent Immediately for the state and after we started this is bringing operations back the Ministry of Finance, Ministry in January 2015, we concentrated of Energy, CNH and FMP together our efforts to make this on preparing a reality. Before, infrastructure the required to PEMEX’s PEP receive the oil unit handled crude oil marketing income from PEMEX and transfer duties in Mexico it to the different and its PMI Comercio Internacional stabilization and the Ministry unit did it abroad. funds of Finance.

Now the law allows for one or several companies taking over these duties hydrocarbons for all Another project and that is a challenge that that was fundamental demands great coordination. at the beginning the design and was implementatio n of our IT system, the System for the Payments of Assignments Q: What will and Contracts be FMP’s role which had to (SIPAC), in this new state be ready before marketer? the contracts A: Legally FMP came force is responsible in August and into for requesting allows us to receive that CNH hire the market agent all the information in the contract. from 2018 through In this sense, a bidding process. we have been PMI will act as able to set effective short-term the market agent throughout 2017. objectives to 2018 onward comply with From main functions. the market agent our two In the near term, will be the winner we will also be bidding process of the of receiving the in charge that CNH will funds of the state launch. The most market agent, important area where the the VAT, which including Fund and its has to be transferred technical committee participating will be to the Mexican Authorities (SAT). is in establishing Tax the maximum market agent price the can charge for its services. It has to send an opinion for CNH Q: How are you to consider, including ensuring your pricing schemes stakeholders a fixed quota like that operations are transparent? or a percentage of the sale. This is a work in progress right A: By law, the now.

Fund has to observe strict transparency obligations regarding the information Q: What has about production of the new E&P been the Fund’s contracts. In particular, strategy to consolidate operations in the Fund is obliged its to publish the such a short time? volumes produced in each contractual as well as the area, costs, expenses and investments by the contractor incurred as part of its The Mexican operations. The receives and Petroleum Fund Fund processes this receives, manages information distributes revenues and through SIPAC and later publishes derived from it on its website. oil exploration production assignments In this way, even and a third party and contracts. if would like to The Fund reproduce also the financial aspects manages the Fund’s figures and calculations of such contracts it could do so through the information we make available.

Transparency is not an end in itself because a large part of making this information and costs publicly available has do with another to important objective of the reform, generating increased which is competitivity in the Mexican With more operators market. and participants there is a need everyone to guarantee for they are operating to the highest most efficient and industry standards.

The public has that companies to know are not generating inefficiencies or incurring costs for the state above the international standards.

Specialist will be able to see the cost of drilling Mexico and compare a well in it to similar operations in other parts of the world.

Q: How is the FMP structuring its collections mechanisms?

A: Ninety percent of the Fund’s income is generated PEMEX assignments, from with the remaining 10 percent coming from the new E&P contracts.

Although the share of income from contracts is still small they represent the largest share of workload for the Fund because we are responsible the administration for of the financial aspect of each while for PEMEX’s contract, assignments this is not the complexity arises case. The because the contracts from a particular bidding process contain a specific economic model, differs for each which bid.

Resources received in 2016 by the FMP

MX$308 billion equivalent to 1.6 percent* of GDP

Stabilization Transferred to

SHAPING THE CONVERSATION

Funds

Sectorial Funds Resources for the oversight of oil income Federal Budget

The majority of the resourc es came from PEMEX In 2017** accumulate d transfers to the Treasury reached

MX$122.2 billion This was from

465

contributions

from

There has been a steep learning curve for both the Mexican Petroleum Fund and the contractors PEMEX assignments and with time has been an contracts with there improved understanding private companies of the calculation mechanics and the different economic models. been complex This has *Not enough because each to accumulate of CNH’s bidding a long term savings **From Jan. 1 has introduced to Mar. 31, 2017 reserve rounds tweaks to the contract model. adjustment mechanisms, There are for example, to change royalty payments in view Q: How will the of the price of recent recovery oil and these terms of oil prices from contract change impact the eventual creation to contract. On our side, we of the long-term have to make sure that after savings fund?

A: The 4.7 percent every round and with every of GDP figure contract we incorporate these was based on numbers. In new economic 2013 that year, PEMEX models into our contributed The contractors system.

4.7 percent of GDP to the themselves are government's in charge of accounts, with making the calculations for a production level of around their own payments, 2.4 million b/d our system acts at a price of verification tool as a US$100/b.

If production in case of discrepancies. levels had remained stable, which did not, we would they have to see a price around Q: What effect US$100/b before or above does the higher payments to relevance of the long-term payments over royalty fund would savings the additional be made because investment factor the country’s the Fund’s operation? have on increased.

GDP has A: The operation of the Fund has not been impacted recent changes by It is important on bidding design. to remember For instance, that this is a long-term Trion bidding in the and the idea the upfront payment project is that the Fund played an important becomes a reality role in determining industry develops as the the winning and consolidates. bid but once resources reached Deepwater projects those will start production the Fund they basically followed eight years from same treatment the now and as country’s production as those received the from royalties level increases, distributed to and were it will eventually allow us to accumulate the stabilization funds and the funds. This is Treasury. Upfront Federal a project to Mexico a stabilization payments or give royalties only fund for its budget affect the timing of the so government expenses can resources’ entry be covered into the FMP, in a responsible projects like Trion since for actual investment way. The royalty payments decisions regarding will not start until to 10 years from eight the reserve are our responsibility now. following the technical committee’s guidelines.

30

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The success of

INSIGHT

Here, the business opportunities popping up for exploration companies in and drilling the wake of past and future licensing rounds are examined, as the needs as well of developers and the technologi cal advances that are changing hydrocarbons industry.

Maintenance

ANO

JAVIER ZAMBR Director

of Jaguar

which he

E&P

hopes will

71

gas licensing

the face of the

LEAP’ IN ‘QUANTUM NEEDED ORATION Executive

EXPLORATIO N & DRILLING

rounds since 2016 points to truth: the Latin a simple American country is soon going to need a lot of rigs to explore, drill and turn the promise of the nation’s reserves both on and offshore flow of real and into a profitable oil production. The resulting challenges underestimated, are not to be as the recovery in oil prices and profitability-related are expected concerns to press the country’s industry regarding both human resources equipment and availability. Thus, national industry will have to come and bridge the together learning gap faster to deliver quality results in a pinch.

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COSL

65

result in fewer

” “irrational

next tenders, forward the process.

CNH moves bids hindering gas regulator learning ncy of new oil and transpare round and As Mexico’s CNH for the , of each bidding credit to ncy, I Zambrano the terms transpare does give es, Javier to optimize Zambrano process on tion and experienc to rate the not center collabora successes “If I had protests do from past E&P, believes Round 1.3. he says. His of Jaguar efforts specific Director ensure its them a 10/10,” d but on Executive s is vital to would give was conducte calls ng E&P companie the process where he with participati contracts, on the way ive in the bidding l. s set out more collaborat are successfu regulation have to be n and n. “We all exploratio he says. cooperatio to CNH,” for more ent Mexican with feedback bids for the , an independ proactive His company that submitted and more one of 40 r 2015. s are moving n firm, was in Decembe 1.3 authoritie productio in Round that the learned up for grabs and modifying remains positive lessons were onshore blocks to players Zambrano a block, many by listening process.”

“Instead to secure direction Despite failing s, albeit slowly. as “an insightful in the right describes ent to their comment a quantum improvem based on , we need areas of in what Zambrano the terms to highlight are observing es that Jaguar he is keen steps we Although he emphasiz of the baby success, oil and the rounds’ Mexican says. in the maximize leap,” he to growth point for dedicated be “the tipping E&P remains 2017 will predicting gas market, ent.” developm the industry’s

“

to be We all have orative more collab with proactive and more to CNH” feedback

royalty is the high points out target issue Zambrano 1.3. “Jaguar’s The first in Round market but for the blocks the Mexican rates offered player in percent royalty a long-term is to be paying 80 for if you are no room possible it leaves that is not nt because s to on focused obligation the governme remains rates to Jaguar E&P’s , the company ity and t,” he says.

Jaguar E&P, problems the profitabil industry. future investmen Despite the it must take oil and gas this s ers mean he adds. For g in the Mexican nt and universitie its stakehold succeedin very seriously, governme venture with the ons for explore and lity of any is working forced to and certificati sustainabi he says, has been The despite provide training the company Leon to gas industry. very reason and the Caribbean in Nuevo the oil and to enter in Latin America duate and on the promising wishing deploy capital students offer undergra ly to capitalize actively of the specifical UNAM, which a reminder of its staff s such as being created majority t Energy Reform, in institution investmen of Mexico’s the country. level courses in in attracting gap potential play graduate terms about a talent that bidding worry less central role makes him market. oil and gas here for the and we are into the country’s ground up, who new the players Jaguar from different E&P is a relatively “We built bids from fund assures. Jaguar costs and saw ultra-high Zambrano walk-away private equity “Round 1.3 long run,” of the low belongs to in 2013. It promise about bidding taking advantage founded secure. The were likely to learn more company, financially ents just of the Zambrano and is therefore t commitm that, in terms investmen in 2017 makes Grupo Topaz says. He worries industry for to the work ,” Zambrano E&P looks oil and gas processes weight given As Jaguar of Mexico’s the limited new Energy year ahead. variables, about the y, talent and to derail the awarding optimistic technolog blocks threatens values of the potential reflect its of awarded to come. to maximize programs partners who best is yet the ultimately is that is pleased goal, which is convinced . The company Reform’s ideas, he on resources for the hydrocarb CNH set of Mexico’s cation standards pre-qualifi to see higher

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