Financial, Economic, Political

1
Financial, Economic, Political Market
Conditions in Mexico

• May 2008
• Vincent Lencioni
• Wisconsin Trade Office Mexico / LGA Consulting

2
Mexicos Overview

• Oil (energetic law reforms)
• Facing US recesssion
• Mexican oil prices
• Mexican government spending
• Mexican consumer/retail
• Mexican manufacturing sector
• Peso and USD

3
Macro Perspective

• Fiscal Reform IETU tax and increase in gasoline
  prices.
• Fiscal Descentralization Transparency in Federal
  government.
• Remmitances 2006
• -2.8 of GDP ? FDI, incoming tourism and
  petroleum surplus)
• 15.1.
• ? Current account deficit
• Growth -Slower this year 3.5 (first year of a
  new sexenio)
• Industrial sectorRapid growth rates in
• Manufacturing 4.7, construction 6.9,
  electricity gas and water 5.0

• Oil revenues prices
• - Rev. 21.1 less
• -Prices from 53.2 to 47 USD. ? 11.5
  Dec06-Jan07
• -Prices lower this year.
• Foreign Investment
• -US 21,868 bi (2007).
• -US is 62 of Mex. FDI.
• Exchange Rate
• -Between 2004-2007 ex. Rate ? 3.7
• Account deficit
• Dropped from US18.01 bi to US1.48 bi
  (2000-2006).

4
Important comments on Mexican economy

• Mexican economists forecast a GDP of 1 to 2
  this year and 2 next year.
• They recommend to have more reliance on
  manufacturing exports instead of relying on oil
  and other commodities. Also, Mexico can protect
  by having a stronger domestic demand,
  diversifying exports and lowering government debt.

5
Continue...

• US- Mexico bilateral trade has increased 377
  from 1993 to 2006.
• Some of the most promising sectors for US firms
  in Mexico are
• Airport ground support equipment, automotive
  parts and supplies, education and training
  services, electronic components, energy
  technology and services, environmental
  technologies and equipment, franchising, hotel
  and restaurant equipment, housing and
  construction, plastic materials/resins, security
  and safety equipment and services,
  telecommunications equipment, transportation
  infrastructure equipment and services and travel
  and tourism services.

6
Continue...

• FDI in Mexico reached US23.2 billion in 2007.
  The US continues to lead FDI in Mexico with
  almost half of the total, followed by
  Netherlands, Spain and France. The states of
  Mexico, Nuevo Leon, Chihuahua, Baja California
  and Puebla were the leading recipients.

7
Mexicos economic forecast (2008-2011)
8
US Wisconsin Exports, Mexico Imports
9
World, US, WI Exports to Mexico
Numbers expressed in billions of dollars
10
Wisconsin Exports by Country

• 1.Canada 30.4 2.Mexico 9
• Mexico ChinaBrazilIndia
• China 62 of Mexico with slower growth 29 vs
  39
• Mexico 1 Growth Top 50
• Canada 4 Japan 6
• Exports to Mexico as of
• Exports to Latin America
• Top 10 LatAm 1.09 Billion
• 58 of Exports to Mexico
• Exports to Europe
• Top 10 Europe 3.48 Billion
• Mexico gt UKGerm Belgium
• Mexico 50 Europe Top 10

11
US Exports by Country

• 1.Canada 21 2.Mexico 11
• Mexico gt ChinaJapan
• China 47 of Mexico
• Export Growth Rates
• Canada 7 Japan 4.8
• Exports to Mexico as of
• Exports to Latin America
• Top 10 LatAm 80 Billion
• 59 of Exports to Mexico
• Exports to Europe
• Top 10 Europe 242 Billion
• Mexico gt Top 3 Europe
• Mexico 56 Europe Top 10

12
US Exports to Mexico
Numbers expressed in billions of dollars
13
Mexican imports
14
Sales and Credit Issues Tips of Doing Business
15
Tips on doing business

• Credit vs LC vs Cash
• - How dysfunctional bank situation affects
  business
• 2. Movement to Selling Direct
• - Traditional distributor culture but moving
  more direct/reps
• 3. Beware of first impression Dating vs.
  Marriage
• - Will say or agree to anything to get business
• - Avoid conflict now, deal with problems later
  mindset
• - High Maintanence partner

• 4. Communication
• - Dealing with silence
• - When yes meansno
• - Handling of Bad News
• - Being direct is rude
• 5. Legal commitments
• - Payment Strategies
• - What a contract means
• - Tolerance for Ambiguity
• 6. Need for Personal Contact
• - Visits vs. Conference Calls
• - More than just initial visit
• - Need to reach correct contact

16
Sales and Credit Strategies

• Selling on Cash Advance Short term/short sided
• Initially maybe but unrealistic in medium term
• With competition, credit can be as important as
  price
• One of most important reasons why reps dont work
  out
• Selling with Open Account Sooner or Later.
• Offer credit and build in 90-120 days of
  financing costs
• Be upfront about financing costs let the client
  decide on price
• Always try to include a promissory note as a
  guarantee
• Dont even think about late fees without
  dependence
• In 2007 74.2 of companies did not use bank
  financing
• Why over 60 of total company credit comes from
  vendors?
• LCs are the most common but not part of business
  culture costs 0.30
• There are other guarantees like stand by which
  costs 2.5- 3 annual
• Financing lease- long term financing for
  acquisition of fixed assets. The client can
  deduct interest depreciation.
• Interest for business loans
• 3 million USD annual sales

17
Why Bank Financing is not Used
18
Interest Rates
19
2006 Mexico Trends

• Bank lending to Mexico private sector up
• 2005 20 up 2006 28.4 up 2006 22.5 up
• Lending to businesses up 29 2006-2007
• BUT still low and insufficient as GDP
• 2001 7 2005 10 2006 11.7
• AND banks not really interested in businesses
• 2001 66 of lending to private sector 2007
  only 44
• Consumer and Mortage lending Historical Highs
• Consumer Mortage 2001 25, and 2006 50
• Consumer as private lending 2001 13 2006
  33
• Mortgage lending growth 2004 25 2005 46
  2006 80
• Mortages as bank lending 12 (2001) to 18
  (2006)

20
Business Financing Sources
21
Offer Credit Protect Yourself Collections
Guarantees

• Before credit extension
• Mexican Credit Reports
• Export Insurance vs. AR
• US foreign references
• Financing/Credit terms
• Offered to Clients
• 2007 62 days
• Accepted from vendors
• 2007 48 days
• Guarantee Limitations
• No More Payment Bonds
• Little Secured Financing
• Guarantee Options
• Encumbrances/Liens, Leasing, Trusts, Credit
  Assignment
• Promissory Notes

• Promissory Notes (Pagare)
• Fast, Easy, Simple
• Regular, part of invoice
• Company Owner backed
• Companies with Assets
• Client Cant Complain
• No collateral, no fees
• No high interest rates
• Credit requires guarantees
• Action against non-payment
• Secure Financial Fixed Assets inside of 2
  months
• 6-8 months settlement
• Relatively short/secure
• Client normally ready to settle once in motion

22
Services for Wisconsin Exporters their Mexico
Subsidiaries

• Client Search Service
• For the Exporter or their on the ground
  distributors
• Product/Market Viability Analysis Service
• New to market viability and competition price
  review
• Distributor/Rep Search Services
• Mexico Sales Manager Search Service
• If a rep or distributor strategy is not
  working..
• Product Certification Assistance - NOM Standards,
  Labeling, Registrations, Import Authorizations
• Procurement/Government Sales Assistance
• Sales Shelter Services for companies that
  need in-country presence to compete without
  costs/hassle.
• Collections, Credit, Finance Orientation and
  Assistance
• Legal, Fiscal Orientation and Assistance
• Customs Classification Assistance

23
LGA Consulting Services

• 1. Market Viability Analysis and Detailed Price
  Studies Consulting/Service Viability Evaluation
  New Product Service Launch/New Sector Focus
  Assistance Business Plan/Project Viability
  Evaluation. Mexican Subsidiary Marketing and
  Sales Team Evaluation.
• 2. Export Operations, Incorporation, Warehousing,
  and Service Center Evaluation and Strategies
  Customs Problems Resolution and Customs Operation
  Evaluation.
• 3. Sales Shelter Plan / Rep Shelter Services
  Assistance with Catalog Sales and Operations and
  Retail Sales Strategies and Buyer Interface.
• 4. Distributor/Agent Location and Strategy
  Evaluation Assistance Identifying Client Base
  for New Distributors/Agents Monitoring
  Distributor/Agent Performance Search Services
  for De facto Sales Managers.
• 5. Business and Consumer Surveying Full Range of
  Client Identification and Sales Follow-up
  Services.
• 6. Government Procurement Sales Assistance
  Lobbying Mexican Government Officials at All
  Levels.
• 7. Holistic Office and Operation Set-up Services
  Fiscal, Legal, and Related Corporate Operations
  Evaluation Mexico Fiscal and Legal Services
  Complete Market Evaluation and Mexico Office
  Set-Up Assistance for Associations.
• 8. Strategic Alliance Search/Evaluation Liaison
  Assistance and Mexican Partner Evaluation and
  Monitoring. Sourcing Partner Location and
  Strategy Evaluation Some Manufacturing and
  Assembly Option Analysis and Evaluation.
• 9. Complete Assistance with Mexican Product and
  Label Standards and Import Permits Strategy
  Evaluation and Obtaining.
• 10. Transaction Contract, Guarantee and Financing
  Review and Consulting

24

• Contact Information
• tel. [phone] or 40
• e-mail info_at_lgaconsulting.com
• Website www.lgaconsulting.com

25
Annexes
26
Mexican Sector Growth Increases
27
Manufacturing Sector
28
(No Transcript)
29
(No Transcript)
30
Business Financing Sources
31
2006 Mexico Trends

• Bank lending to Mexico private sector up
• 2004 20 up 2005 20 up 2006 28.4 up
• Lending to businesses up 20 2005-2006
• BUT still low and insufficient as GDP
• 2001 7 2005 10 2006 11.7
• AND banks not really interested in businesses
• 2001 66 of lending to private sector 2007
  only 44
• Consumer and Mortage lending Historical Highs
• Consumer Mortage 2001 25, and 2006 50
• Consumer as private lending 2001 13 2006
  33
• Mortgage lending growth 2004 25 2005 46
  2006 80
• Mortages as bank lending 12 (2001) to 18
  (2006)