Although the Mexican economy has undergone a severe crisis, economic indicators are continuing to point to better times ahead. And as the economy rebounds, many export and investment opportunities for U.S. firms are becoming more evident -- and can benefit U.S. firms in 1996.

Our list of the top 14 of 26 non-agricultural goods and services projected to be in demand in Mexico throughout 1996 and into the next several years follows:

Automotive Parts and Service Equipment

The Mexican automotive industry has undergone a severe crisis. Sales of new vehicles dropped 60% in 1995. The industry, however, is expected to recover this year.

As a result of a lack of discretionary funds, Mexican automobile owners are keeping their vehicles for a longer period of time. Consequently, the need for replacement parts has increased. With approximately 13 million vehicles on the road in Mexico today, auto replacement parts, maintenance, and service equipment will continue to be in demand.

In an attempt to weather the storm, the Mexican auto parts industry has increased export sales -- which continue to rise. And because at least 60% of the parts sold in Mexico are imported, U.S. exporters of auto parts can benefit.

The demand for the following parts is especially high: connecting rods, fuel injection tracks, valves, automatic transmissions, turbochargers, electronic engine management systems, power steering, anti-lock braking systems, suspension parts, emission equipment, catalytic converters, steering wheels, plastic molded products such as bumpers, panels and gas tanks, auto alarms, auto stereos, luggage racks, headlights, sunroofs, rims, rear-view mirrors, moldings, and hubcaps.

Franchising

Despite Mexico's economic situation, the franchising market is expected to continue its growth, but at a very slow rate. A survey conducted by the Mexican Franchise Association indicates that about one-third of franchises have been negatively affected by the peso devaluation. Their inputs have continued to rise which have necessitated price increases resulting in fewer sales and profits.

In 1994, total sales of franchises represented 1% of the gross domestic product (GDP). The franchising sector is composed of approximately 375 master franchises, representing 18,724 selling locations, employing 133,235 people. In the first quarter of 1995, sales by franchising outlets declined approximately 28%.

Of the total franchises operating in Mexico, 52.7% are national and 47.3% are foreign-owned. There are 69 different types of franchises of which fast-food accounts for 17% of the market, other restaurants account for 11%, and apparel and footwear franchises account for 14%. Those that continue to grow include convenience stores, gas stations and laundries, or provide automotive goods and services, cleaning services, and electronic components.

Pollution Control Equipment

Mexico's environmental programs have presented opportunities for the pollution control equipment industry over last several years. Its has subscribed to environmental policies implemented by developed countries and is continuing to enforce its regulations in all of the regions of the country. Major opportunities projected over the next several years are in the municipal and industrial waste water area, and the solid and hazardous waste equipment and services sector.

The government has indicated that it will continue enforcing regulations regardless of the severity of economic conditions. As a result, both private and public companies will need to continue to install pollution control equipment and use environmental consulting services.

Additionally, states and municipalities are continuing to encourage new private investment to comply with new regulations, and multilateral development banks have indicated that they will continue to provide Mexico with more lines of credit to develop its environmental infrastructure.

Chemical Production Machinery

Investment in chemical production machinery is expected to increase over the next decade in order to make the chemical industry more efficient, globally competitive, and to increase output in order to meet the demands of the domestic market. Mexico's chemical sector includes 400 small, mid-size and big companies.

The big companies, which comprise about 2% of all chemical companies, will continue to invest in modern production machinery and the smaller firms are likely to increase investment in new production machinery as the economy grows. Major investments in machinery will also be needed to build new chemical installations in the country. It is expected that this sector will become more integrated and competitive as it increases its exports.

Telecommunications Equipment

Even though the Mexican peso was devaluated in December, 1994, the telecommunications sector is expected to grow 11%% due to a recently enacted Mexican telecommunications law which opens the telecommunications sector to domestic and foreign competition. This opportunity will likely result in the purchases of U.S. telecommunications equipment and improve telecommunications services.

Building Products

In the past, domestic producers supplied about 88% of building products consumed in Mexico. The devaluation of the currency, however, has forced these producers to raise prices by 30% in order to cover high domestic interest rates and increase their debts paid in dollars. As a result, imports have become more competitive in the Mexican market.

The best prospects include the following items which are not generally produced in Mexico: prefabricated parts for buildings, deluxe finishing products, treated wood, environmentally-friendly drainpipes, plumbing materials, and paint. Mexico does not have extensive forestry resources and little hardwood is produced there. Consequently, there is no domestic substitute for many wood products.

Management Consulting Services

This sector showed a growth rate of 30% from 1992 through 1994. It is estimated to have declined by an average of 4% in 1995 and will likely recover by 2% this year. It is expected that the sector will not reach its 1994 level until 1998.

Small and mid-size management consulting firms, once expected to constitute an important growth segment, are reducing personnel and expenses. As a result, the market will likely be sustained by large companies. Opportunities for U.S. firms working independently are limited. The best strategy is to work with a Mexican partner. The consulting services with best opportunities are those related to Mexican exports.

Apparel

U.S.-made women's and girls' clothing are considered to be of high quality, superior design and competitively priced. Many US exporters offer four seasonal lines in the Mexican market. European manufacturers generally produce only two seasonal product lines, and the variety is limited.

Mexican global imports of men's apparel have increased significantly since the opening of the Mexican market in 1986. These primarily consist of fine designer garments, casual wear, as well as lower priced garments supplied by Asian countries. US apparel imports were anticipated to increase when a 35% import tax for non-NAFTA countries was applied in August 1995.

Imports from the United States increased 91% from $193.8 million in 1992 to $370.4 million in 1994. With the economic slow down, U.S. market share was reduced by 14.7% due to Mexican consumers increasing their purchases of lower priced Asian apparel. The U.S. is a strong supplier of quality and design casual and sport slacks, jackets, shirts and suits.

The main competitors are Italy, Germany and Spain, which supply quality and fashion design garments, and Hong Kong and Taiwan, which supply low-end garments. The United States maintains a 30% import market share; followed by Hong Kong with 16.7%; Italy with 13.5%; Taiwan with 4.6%; Germany with 3.1%; Spain with 2.8%; and France with 1.2%.

Aircraft and Parts

Mexico is highly dependent on imported aircraft and parts. There are approximately 102 commercial, cargo and private airlines operating in Mexico. Approximately 35 of these are international lines, 6 are national lines (with Mexicana, Aeromexico and Taesa being the largest), 13 are regional lines, and 48 are private lines.

For safety reasons, the aviation industry must maintain its fleet in good operating conditions. The economic situation in Mexico and the devaluation of the peso has made major purchases of new aircraft difficult. As a result, major purchases of aircraft are not expected in the near future. However, imports of parts will continue.

The Mexican aviation industry is modernizing. The recovery of the air transport industry in Mexico will be slow. However, the market for airplane parts remains steady with the private and regional lines being the most promising areas.

Electronic Components

The December 1994 devaluation of the Mexican peso resulted in a recession that has reduced the 1995 growth of electronic components to near zero. This situation has limited imports and has increased the competitiveness of locally produced electronic components.

Mexican manufacturers of electronic components have changed many of their product lines, (eliminating some and adding others to adjust to market conditions), reduced staff, and closed some facilities. Manufacturers are focusing on reducing costs. Adjustments in other industrial sectors will affect this industry. As the economy recovers, however, U.S. exports to Mexico are anticipated to increase.

Water Resources Equipment and Services

Mexico's rising demand for drinking and irrigated water have forced the government to implement conservation and recycling programs. However, many municipalities and industries in the country lack the proper equipment to comply with the existing regulations.

Government officials have repeatedly indicated that the best way to solve the water shortage problem is to encourage private investment in new industrial and municipal waste water treatment facilities. The National Water Commission (CNA) is working with multilateral development banks to secure new loans necessary to keep capital flowing. As capital becomes available, U.S. imports of water resources equipment and services will be sought.

Construction Equipment

The concessions program initiated during the Salinas administration made it possible for the private sector to increase investments in roads, schools, hospitals, shopping centers, etc. Although the construction industry has been hurt by the economic crisis, it is expected to rebound this year.

The largest Mexican construction companies have forged strategic alliances with foreign construction firms in an attempt to enhance their strength and participation in this sector. The type of projects planned during the next several years require modern imported equipment, much of which will be come from the United States. Also, Mexican authorities have indicated that construction companies need to source newer technologies to build a greater number of homes at more affordable prices.

Architecture, Construction and Engineering Services

The construction, architecture and engineering industry has been one of the most dynamic sectors in Mexico's economy during the last 20 years. The country has developed very ambitious plans for the next ten years designed to expand and modernize its basic infrastructure.

Concessions granted to the private sector are expected to increase the demand of engineering services in areas such as pipelines for gas, power generation plants, roads, ports, and airports. The demand for engineering services by Mexico's large manufacturing companies for expansion of their present facilities is also expected to rise.

Air Conditioning and Refrigeration Equipment

The Mexican market for air conditioning and refrigeration equipment is principally supplied by domestic production (70%). U.S. imports account for 78% of total imports with a market share of 23%. The commercial market accounts for about 70% of the total purchases.

Due to the economic situation in Mexico, the market for air conditioning and refrigeration equipment decreased by about 10% during 1995. However, it is expected to grow 3% this year.

As the country recovers from the crisis, the demand for air conditioning and refrigeration equipment will certainly increase. Mexican imports of parts will continue. And as the benefits of NAFTA accrue, U.S. import share will increase.

Medical Equipment, Instruments and Disposables

Due to the Mexican economic crisis, coupled with Mexican government agencies delays in publishing bids, imports of medical equipment, instruments and disposables were expected to decline 30% 1995. Imports of syringes, catheters, bandages, gauze and similar products were down by more -- approximately 45% in 1995. However, the Mexican industry as a whole was expected to reveal a decline of 9% last year.

The market, however, is expected to recover more easily than other markets, mainly due to the strong support that President Zedillo promised for those public institutions providing services related to the well-being of the people, including social security and medical services. As a result of this and other factors, the market for medical instruments and equipment is expected to register an average minimal annual growth rate of 5% starting in 1996 and continue well into the future.

The best prospects for 1996 include: X-ray equipment, laser equipment, endoscopy equipment, anesthetic equipment, ultrasound equipment, and instruments for general surgery endoscopy, ophthalmology, laparoscopy, neurosurgery and urology. The most important competitive factors are high technology, quality, service, maintenance, and price.

There should be good opportunities for U.S. firms in the medium term. The United States maintains 55% of the Mexican import market. International competitors in this market include Germany and Japan with 15% and 11% of the import market share respectively.

This article appeared in The Exporter, February 1996.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is chair of the Upstate New York District Export Council and founder of the ManzellaReport.com and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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