Mexico Market Mexico Market Realities & Sales Realities & Sales

Channel StrategiesChannel StrategiesVince Lencioni

LGA Consulting, General Manager

2011

Four Part PresentationFour Part Presentation

I . Mexican Market & Import DynamicI . Mexican Market & Import Dynamic

II. Channel Options & Related Technical II. Channel Options & Related Technical Trade IssuesTrade Issues

III. Retail, Gov´t & B2B Sales Dynamic III. Retail, Gov´t & B2B Sales Dynamic

IV. LGA Services IV. LGA Services

I. Mexican Market I. Mexican Market and Import Dynamicand Import Dynamic

Mexican Regions and CitiesMexican Regions and CitiesI.I. RegionsRegions – Industrial/Business Style Dynamic – Industrial/Business Style Dynamic

1. North (Monterrey & US border) – 29% GDP 2. Central (Mexico City, Guadalajara, Bajio) - 52% GDP3. South (Tourism, oil, least urbanized areas) – 19% GDP

II.II. Major CitiesMajor Cities1. Mexico City: 20 milion+; 31% (40%) GDP; “NY/CHI/LA” 2. Monterrey: 3.8 million+, 7.5% GDP; “Barcelona/Houston” 3. Guadalajara: 5 million+; 6.3% GDP; #1 Agri;“San Diego”

III.III. Other Regional CitiesOther Regional Cities ((1 to 3 million inhabitants1 to 3 million inhabitants))1. North: Tijuana, Juarez, Tampico, other border cities.2. Center/Bajio: Queretaro, Leon, SLP, Aguascalientes3. South: Puebla, Villahermosa, Veracruz, Acapulco

Mexico Indicators & DemographicsMexico Indicators & Demographics

I.I. GDPGDP: $1.5 Trillion; Imports: Over $300 Billion: $1.5 Trillion; Imports: Over $300 BillionI.I. US sells it 50% of Imports, buys 80% of its exportsUS sells it 50% of Imports, buys 80% of its exports

II.II. Population Population – Somewhere between 107 & 125 – Somewhere between 107 & 125 millionmillion

I.I. Urban (72%) vs. Rural (28%)Urban (72%) vs. Rural (28%)

1.1. Working Age Population: 53% large cities, 14% Working Age Population: 53% large cities, 14% medium cities (10,000 to 100,000); 33% small medium cities (10,000 to 100,000); 33% small cities/rural. cities/rural.

1. Employment: Large 10%, Medium 12%, Small/Micro: 66%

I.I. Age: 40% (0-19), 24% (20-34), 36% (35+)Age: 40% (0-19), 24% (20-34), 36% (35+)

I.I. Income: Upper (5%), Middle (40%), Lower (55%)Income: Upper (5%), Middle (40%), Lower (55%)

I.I. Upper and half of middle can buy imports: 25%Upper and half of middle can buy imports: 25%

US Exports to World, Latam, & Mexico US Exports to World, Latam, & Mexico Canada 21%, Mexico 12% Mexico > China + Japan

• China < ½ of Mexico

Export Growth Rates 2008: • Canada 4.8%; Japan 6.2%Canada 4.8%; Japan 6.2%• Mexico 11.3%; China 9.5%Mexico 11.3%; China 9.5%• Germany 10%; Brazil 33%Germany 10%; Brazil 33%

US Exports to Latin America as % of Exports to Mexico:

• Top 10 LatAm:$105 BillionTop 10 LatAm:$105 Billion• 69% of Exports to Mexico69% of Exports to Mexico

Up from 59% (Brazil)Up from 59% (Brazil)• Mexico = 56% EU Top 10Mexico = 56% EU Top 10

Nevada Exports to Latin Amer as % of Exports to Mexico

- Mexico = Top 10 LatamMexico = Top 10 Latam1.1. Argentina 50 Million, Up 33%Argentina 50 Million, Up 33%2.2. Brazil 37 Million, Up 50%Brazil 37 Million, Up 50%3.3. Chile 34 Million, Up 342%Chile 34 Million, Up 342%

0

20

40

60

80

100

120

140

160

2008 US Exports

MexicoChinaJapanGermanyUKBrazil

Mexico Imports: 2008Mexico Imports: 2008

Top SectorsTop Sectors(Up 11.6%, 3 Qtrs up, 4th down)(Up 11.6%, 3 Qtrs up, 4th down)

1. 21.3% Electrcl Mach (+11%)2. 14.6% Industrial Mach (+8%)3. 9.5% Oil (+60%x)4. 8.5% Vehicles (same)5. 5.3% Plastics (+2%) 6. 4% Med Instruments (same)7. 3% Iron & Steel (+29%)8. 3% Chemicals (+18%)9. 2% Iron/Steel Products(+5%)10. 2% Paper Products (+3%)*VERY SIMILAR TO US

EXPORTS TO MEXICO

Mexico Import DynamicMexico Import Dynamic (2006-08) (2006-08)

US: from 51 to 49% US: from 51 to 49%

2008 Growth: 10.8%2008 Growth: 10.8%

China: from 9.5 to 11%China: from 9.5 to 11%

2008 Growth: 18.6%2008 Growth: 18.6%

*Elimination of Chinese Quotas will *Elimination of Chinese Quotas will make this dynamic continuemake this dynamic continue

Top 4 Digit Mexican ImportsTop 4 Digit Mexican Imports

1. Oil & Gas +60% (9% of total)1. Oil & Gas +60% (9% of total)

2. Autoparts: +5% (4.3%)2. Autoparts: +5% (4.3%)

3. Tel. Equipt: +94% (3.7%)3. Tel. Equipt: +94% (3.7%)

6. Vehicles: -11.4% (2.6%)6. Vehicles: -11.4% (2.6%)

Mexican Imports by Composition

Mexican Imports by Composition (Jan 2009)

13%

71%

16%

Consumer Goods

Intermed Goods

Capital Goods

NAFTA has been a Bilateral BenefitNAFTA has been a Bilateral Benefit

I.I. NAFTA – Good resulting in BenefitsNAFTA – Good resulting in Benefits1. Trade: Tariff Elimination = trade explosion

a.a. Trilateral Trade: over $900 Billion annuallyTrilateral Trade: over $900 Billion annually

b.b. Bilateral Trade: over $365 Billion annuallyBilateral Trade: over $365 Billion annually

c.c. US Exports to Mexico: Over $150 Billion annually US Exports to Mexico: Over $150 Billion annually

d.d. US Agricultural Exports – Mexico #2 destination US Agricultural Exports – Mexico #2 destination

2. Manufacturinga.a. Production Sharing - bilateral synergiesProduction Sharing - bilateral synergies

b.b. Help keep jobs in the US & region vs. moved to AsiaHelp keep jobs in the US & region vs. moved to Asia

3. Sociala.a. Implementation of progressive measures in MexicoImplementation of progressive measures in Mexico

b.b. US better appreciate and understanding of Mexico, especially US better appreciate and understanding of Mexico, especially since the increase in the importance of Chinese importssince the increase in the importance of Chinese imports

Concern I: NAFTA - Bad or IncompleteConcern I: NAFTA - Bad or Incomplete

I.I. Labor and Environmental MeasuresLabor and Environmental Measures1.1. Ineffective, last minute Clinton iniciativesIneffective, last minute Clinton iniciatives2.2. Environment: Big Need, not regulatory-drivenEnvironment: Big Need, not regulatory-driven

II.II. Government Procurement AccessibilityGovernment Procurement Accessibility1.1. Mexico - Federal: ok; Muni, State, Pemex: sameMexico - Federal: ok; Muni, State, Pemex: same2.2. US - Mexico opportunities are complex/difficultUS - Mexico opportunities are complex/difficult3.3. Superficial/ineffective like labor/environmentSuperficial/ineffective like labor/environment

III.III. Transportation – 1994 and 2008 and 2009Transportation – 1994 and 2008 and 20091.1. Teamsters vs. Canacar: keep border closed Teamsters vs. Canacar: keep border closed 2.2. Does anyone really want the border open? Does anyone really want the border open?

IV.IV. Regulatory Concerns – Noms, PermitsRegulatory Concerns – Noms, Permits1.1. Mexico: Delays, Testing, Enforcement and Mexico: Delays, Testing, Enforcement and

NOM/Permit holding Inconsistencies; US: NOM/Permit holding Inconsistencies; US: Regulatory: very complexRegulatory: very complex

V.V. Feelings by both sides: Reopen NAFTA Feelings by both sides: Reopen NAFTA renegotiationsrenegotiations

II. Channel Options & Related Technical Trade Issues

I. First Experience with Mexico: IndirectI. First Experience with Mexico: Indirect

I.I. Exporting by Diversion – Manufacturer unawareExporting by Diversion – Manufacturer unaware1.1. Product sold to US company, sent to Mexican operationProduct sold to US company, sent to Mexican operation

2.2. Sales to US distributors/reps that end up in MexicoSales to US distributors/reps that end up in Mexico

a.a. Examples: Martinelli and Oshkosh B´GoshExamples: Martinelli and Oshkosh B´Gosh

II.II. Mexican companies request sales and you delivery to US Mexican companies request sales and you delivery to US border and they import itborder and they import it

1.1. Mexican clients trying to go around US distributorsMexican clients trying to go around US distributors

2.2. Or Mexican clients stumble on company websiteOr Mexican clients stumble on company website

III.III. Maquiladora: buying decisions by US home office, product sent Maquiladora: buying decisions by US home office, product sent to US or border locationto US or border location

1.1. Maybe regional rep/distributor calls on Mexican maquila plant but Maybe regional rep/distributor calls on Mexican maquila plant but product shipped to US locationproduct shipped to US location

IV.IV. TERMS: Cash in advance or extending credit to US entity TERMS: Cash in advance or extending credit to US entity

II. Decision to take the next step: II. Decision to take the next step: How to sell more proactively in MexicoHow to sell more proactively in Mexico

I.I. As direct requests or indirect sales increase, or with As direct requests or indirect sales increase, or with addition of new international sales peopleaddition of new international sales people

II.II. Decision – Decision – dictated by costs vs. investmentdictated by costs vs. investment mentality, sector mentality, sector dynamic, Int´l experience (CEO & sales), possibly US DOC, dynamic, Int´l experience (CEO & sales), possibly US DOC, State, or Association export development effortsState, or Association export development efforts

1.1. Using US trading companyUsing US trading company – most expensive option but – most expensive option but can test market and give accesscan test market and give access

a.a. Short term/transitory: Less & less likely for Mexico Short term/transitory: Less & less likely for Mexico 2.2. Direct Sales with own US sales staffDirect Sales with own US sales staff – Right staff, right – Right staff, right

sales volume potential, and finite, large sales targetssales volume potential, and finite, large sales targets3.3. Finding Mexico-based distributor or rep/agent Finding Mexico-based distributor or rep/agent

a.a. Even with resources, local presence often neededEven with resources, local presence often needed

Channel Market Strategies – IntermediariesChannel Market Strategies – Intermediaries

I.I. US intermediaries – Usually very sector and client specificUS intermediaries – Usually very sector and client specific1.1. Rep and distributor options varied and plentifulRep and distributor options varied and plentiful

II.II. Mexico intermediaries – smaller market so much broaderMexico intermediaries – smaller market so much broader1.1. Distributors culture with fewer viable reps who are hard to findDistributors culture with fewer viable reps who are hard to find

a.a. Distributor margins higher than US, more than expectDistributor margins higher than US, more than expect

2.2. No MANA in Mexico, rep agencies few, low-tech approach No MANA in Mexico, rep agencies few, low-tech approach

III.III. National & Multisector Coverage ChallengesNational & Multisector Coverage Challenges1.1. Exclusivity vs. Non-Exclusivity – National, Regional, SectorExclusivity vs. Non-Exclusivity – National, Regional, Sector

2.2. Some Industries require local coverage and stocking and are hard Some Industries require local coverage and stocking and are hard to cover with one intermediary (hardware, MRO).to cover with one intermediary (hardware, MRO).

3.3. Multisector coverage challenges – sector vs. functional focusMultisector coverage challenges – sector vs. functional focus

a.a. Often with overlapping regional coverage issuesOften with overlapping regional coverage issues

b.b. Need for multiple intermediaries = channel conflictsNeed for multiple intermediaries = channel conflicts

Mexican Distributor OptionMexican Distributor OptionI.I. Most typical & traditional market entry strategyMost typical & traditional market entry strategy

1.1. When practical, the first method consideredWhen practical, the first method considered

II.II. RoleRole: Imports product, usually stocks product, buys/resells : Imports product, usually stocks product, buys/resells product, controls price/margins, accepts buyer credit risk product, controls price/margins, accepts buyer credit risk

III.III. AdvantagesAdvantages: Holds stock, does marketing and in-market work, : Holds stock, does marketing and in-market work, provides after-sale service, only one credit issue.provides after-sale service, only one credit issue.

IV.IV. DisadvantagesDisadvantages: No control of price or margins, branding and : No control of price or margins, branding and sales staff control issue, may carry multiple and even sales staff control issue, may carry multiple and even competition product, usually won´t broaden focus for you. competition product, usually won´t broaden focus for you.

V.V. Distributor whenDistributor when: below $5-10,000, commodities, replacement : below $5-10,000, commodities, replacement parts, stocking, if master distributor appropriate, if broad parts, stocking, if master distributor appropriate, if broad coverage needed/wantedcoverage needed/wanted

VI.VI. DecisionDecision: Big fish in small pond vs Small fish in big pond: Big fish in small pond vs Small fish in big pond

Mexican RMexican Rep/Agent Optionep/Agent OptionI.I. Not as typical, growing with push towards selling directNot as typical, growing with push towards selling direct

II.II. Nature of RepsNature of Reps - Hard to find, very small, accidental not - Hard to find, very small, accidental not professional reps, suspicious, little formal organizationprofessional reps, suspicious, little formal organization

III.III. RoleRole: Does not buy/resell nor import product, finds & forwards : Does not buy/resell nor import product, finds & forwards clients. receives commission when client pays, helps with AR. clients. receives commission when client pays, helps with AR.

IV.IV. AdvantagesAdvantages – You control pricing, have better marketing/ branding – You control pricing, have better marketing/ branding control, will help with service, helps with AR with pay contingency; control, will help with service, helps with AR with pay contingency; Better meet commitment & presence expectationsBetter meet commitment & presence expectations. .

V.V. DisadvantagesDisadvantages – You are responsible for invoicing, importing – You are responsible for invoicing, importing AR/credit risk with clients, no stock in country = delays, AR/credit risk with clients, no stock in country = delays,

VI.VI. Rep WhenRep When: Above $5-10,000, capital goods, non-stocking, master : Above $5-10,000, capital goods, non-stocking, master distributor inappropriate, want more than distributor distributor inappropriate, want more than distributor support, and/or support, and/or service/technical knowledge important.service/technical knowledge important.

VII.VII. DecisionDecision: Agency vs. One man vs. De facto employee: Agency vs. One man vs. De facto employee1.1.Possible need for “dependent” rep/”de facto” employeePossible need for “dependent” rep/”de facto” employee

a.a. Need for “Evangelism” and Industrial Rep Challenges Need for “Evangelism” and Industrial Rep Challenges b.b. Nevada company exampleNevada company example

Reasons for Incorporation in MexicoReasons for Incorporation in MexicoI.I. Selling through intermediaries not viableSelling through intermediaries not viable

1.1. Service requirements require OEM local presenceService requirements require OEM local presence

2.2. Simple client demands (automotive)Simple client demands (automotive)

3.3. Want rep but need to stock productWant rep but need to stock product

4.4. Import Registrations and NOM control issuesImport Registrations and NOM control issues

5.5. Government procurement viability needs Government procurement viability needs

6.6. Local Invoicing requirements (e.g. catalog sales)Local Invoicing requirements (e.g. catalog sales)

7.7. High demand but price sensitivity won´t allow for High demand but price sensitivity won´t allow for intermediary margins and commissionintermediary margins and commission

8.8. Channel market complexity requires local presence, Channel market complexity requires local presence, warehousing, and distribution.warehousing, and distribution.

9.9. Market Potential and importance to overall export sales Market Potential and importance to overall export sales warrants investment in proprietary staff and distribution. warrants investment in proprietary staff and distribution.

Mexico Incorporation Options & DetailsMexico Incorporation Options & Details

I.I. Incorporation OptionsIncorporation Options 1. SA (Limited Liability Corp., similar to a C Corporation)

a.a. Traditional incorporation mode in MexicoTraditional incorporation mode in Mexico

2. SC (Civil Society, similar to partnership)a.a. Traditional entity for law and accounting firmsTraditional entity for law and accounting firms

3. SRL (Limited Liability Corp. with some minor partnership elements, similar to a S Corporation)

4. Honorarios (Independent contract like sole proprietorship)5. AC (Civil Association, similar to non-profit corporation)6. Limited Partnerships exist but are not used in Mexico7. Branches were “non grata” in Mexico, still seldom used

II. Board of Directors vs. Sole Administrator

III. Powers and Liabilities

IV. Procedure: Time, Costs (Notary & Registration)

Contracts in MexicoContracts in Mexico

General Contracts IssuesGeneral Contracts IssuesI.I. Always use contractsAlways use contracts - W - With intermediaries, clients, & employeesII.II. Mexican Distribution ContractsMexican Distribution Contracts

1. Mostly based on free will of parties: : US = Mexico2.2. Avoiding violations in Local Civil & Commercial Law ImperativesAvoiding violations in Local Civil & Commercial Law Imperatives3. Typical Conctract Clause Elements – virtually same as in US

a.a. Definitions, Appointment/Agreement, Obligations of Distributor & Definitions, Appointment/Agreement, Obligations of Distributor & Manufacturer, Commercial and Technical Terms, Intellectual Property, Manufacturer, Commercial and Technical Terms, Intellectual Property, Legal /Law Aspects, Termination & Renewal, Dispute Resolution, Other Legal /Law Aspects, Termination & Renewal, Dispute Resolution, Other ProvisionsProvisions

III.III. Basic Mexican Contractual formality IssuesBasic Mexican Contractual formality Issues

1. Preamble/Declarations2. Rep of signing parties duly empowered3. Applicable Language4. Does not create employee relationship

a.a. Labor LiabilitiesLabor Liabilities5. Termination Conditions

a.a. Labor RegulationsLabor Regulations6. Law and Tribunals: Specified vs Applicable

a.a. Location of goodsLocation of goods7. Two witnesses

NOMS & Other Technical Trade IssuesNOMS & Other Technical Trade Issues

I.I. Obligatory Product Certifications/RegistrationsObligatory Product Certifications/Registrations1.1. Performance and Safety Standards to protect Performance and Safety Standards to protect

consumers not normally applicable to industryconsumers not normally applicable to industry

2.2. Importer held, some can be held by US companiesImporter held, some can be held by US companies

a.a. Discrepancies between government agenciesDiscrepancies between government agencies

II.II. Label Retail/Consumer RequirementsLabel Retail/Consumer Requirements1.1. General and Food products: NOM 50 and 51General and Food products: NOM 50 and 51

2.2. Specific Product labeling standards:electronics,clothingSpecific Product labeling standards:electronics,clothing

3.3. Products not sold in retail environment can be exemptProducts not sold in retail environment can be exempt

III.III. Importers must insure that products meet these Importers must insure that products meet these standards before they can import, unlike ULstandards before they can import, unlike UL

Mexico Customs IssuesMexico Customs Issues I.I. Tariffs at 0% (Tariffs at 0% (except with retaliation, 90 at 20%*except with retaliation, 90 at 20%*))

1.1. Europe close to 0% as well – no US advantageEurope close to 0% as well – no US advantage

2.2. Rest of world without trade agreements: closer to 20%*Rest of world without trade agreements: closer to 20%*

II.II. IVA vs. Sales Taxes: import & sales processingIVA vs. Sales Taxes: import & sales processing

III.III. Intercompany pricing & customs valuation issuesIntercompany pricing & customs valuation issues

IV.IV. Non-tariff issues if not barriersNon-tariff issues if not barriers1.1. Mexican NAFTA retaliation measuresMexican NAFTA retaliation measures

2.2. Chinese Quotas and Safeguard MechanismsChinese Quotas and Safeguard Mechanisms

3.3. RegulatoryRegulatory

a.a. NOMs – Border vs Domestic EnforcementNOMs – Border vs Domestic Enforcement

b.b. Health Permits – Cofepris problems/delaysHealth Permits – Cofepris problems/delays

III. Retail, Gov´t & III. Retail, Gov´t & B2B Sales DynamicB2B Sales Dynamic

Credit & Collections Challenges & Credit & Collections Challenges & Realities in MexicoRealities in Mexico

I.I. Finance/Credit Finance/Credit 1.1. Upfront or 50/50 – maybe initially, but….Upfront or 50/50 – maybe initially, but….

a.a. LC use limited – not Asia or EuropeLC use limited – not Asia or Europeb.b. Credit can sometimes be more important than price to Credit can sometimes be more important than price to

both the representative and your client – lesson from both the representative and your client – lesson from Asians/EuropeansAsians/Europeans

2.2. Bank lending to business up in 2008 (18%) but in 2009? Bank lending to business up in 2008 (18%) but in 2009? a.a. 2007: 75% of companies did not want bank financing 2007: 75% of companies did not want bank financing b.b. 60% relied on vendor credit before crisis, now? 60% relied on vendor credit before crisis, now?

3.3. Selling with Open Account – Sooner or Later…. Selling with Open Account – Sooner or Later…. a.a. Offer credit and build in 90-120 days of financing costsOffer credit and build in 90-120 days of financing costsb.b. Be upfront about financing costs: let the client decide Be upfront about financing costs: let the client decide c.c. Always try to include a promissory note as a guaranteeAlways try to include a promissory note as a guaranteed.d. Don´t even think about late fees without dependenceDon´t even think about late fees without dependence

Business Financing SourcesBusiness Financing Sources

Percent of Percent of Total Total

FinancingFinancing

20072007

ALLALL20082008

ALLALL20082008

SMALLSMALL20082008

MEDMED20082008

LARGE LARGE 20082008

AAAAAA

Vendor Vendor 61.861.8 56.356.3 65.5 65.5 (70.1)(70.1)

54.7 54.7 (60.4)(60.4)

50.3 50.3 (53.8)(53.8)

36.0 36.0 (46.4)(46.4)

Mexico Mexico BankBank

17.3317.33 20.020.0 16.6 16.6 (12.8)(12.8)

20.5 20.5 (18.8)(18.8)

22.3 22.3 (20.4)(20.4)

26.9 26.9 (26.8)(26.8)

Foreign Foreign BankBank

2.382.38 3.23.2 1.4 (1.0)1.4 (1.0) 3.4 3.4 (2.3)(2.3)

4.1 (4.5)4.1 (4.5) 9.7 9.7 (5.0)(5.0)

Subsid Subsid GroupGroup

12.612.6 13.313.3 11.7 11.7 (11.9)(11.9)

15.6 15.6 (14.9)(14.9)

11.9 11.9 (10.3)(10.3)

10.7 10.7 (10.3)(10.3)

Source: Banco de Mexico; Numbers in ( ) = last years figures

Trade Finance & Credit – Due DiligenceTrade Finance & Credit – Due Diligence I.I. Offering financing/credit terms to clients Offering financing/credit terms to clients

i.i. Important & unavoidable (See Business Financing Table)Important & unavoidable (See Business Financing Table)

ii.ii. Before extending credit, review Mexican credit reports, Before extending credit, review Mexican credit reports, consider export insurance, check foreign referencesconsider export insurance, check foreign references

i.i. Payment problems before crisis (#6 Latam), worse now. Payment problems before crisis (#6 Latam), worse now.

ii.ii. Before crisis: Terms given (62) vs. terms offered (48).Before crisis: Terms given (62) vs. terms offered (48).

II.II. Credit Strategies to avoid non-payment and litigation Credit Strategies to avoid non-payment and litigation 1.1. Promissory Notes, Guarantees, Liens, Trusts, Transfers.Promissory Notes, Guarantees, Liens, Trusts, Transfers.

a.a. Fast, Easy, no collateral, no fees, no interest ratesFast, Easy, no collateral, no fees, no interest rates

b.b. Secured financing still underdeveloped / underusedSecured financing still underdeveloped / underused

2.2. Need to verify that company is good for guaranteeNeed to verify that company is good for guarantee

3.3. Make owner sign guarantee as individual as well.Make owner sign guarantee as individual as well.

III.III. Bankruptcy – Improved laws and debt securityBankruptcy – Improved laws and debt securityi.i. Only as good as position in debt line, still long delays Only as good as position in debt line, still long delays

Payments: Mexico vs. LatamPayments: Mexico vs. Latam

CountryCountry Prompt PayPrompt Pay 30 days +30 days + 60 days +60 days +

1. Brazil1. Brazil 63%63% 27%27% 15%15%

2.Colombia2.Colombia 67%67% 32%32% 16%16%

3. Peru3. Peru 61%61% 32%32% 16%16%

4. 4. VenezuelaVenezuela 62%62% 32%32% 18%18%

5. Chile5. Chile 58%58% 37%37% 17%17%

6. Mexico6. Mexico 57%57% 36%36% 19%19%

7. 7. ArgentinaArgentina 52%52% 37%37% 17%17%

Source: Latin America Business Monitor (2008)

Mexican Mexican Collections AdviceCollections Advice

I.I. Preparation ActionsPreparation Actions (before there is a problem) (before there is a problem)i.i. Check out financial viability – especially distributorsCheck out financial viability – especially distributorsii.ii. Sign guarantees or include guarantees in invoiceSign guarantees or include guarantees in invoiceiii.iii. Keeping good reception document recordsKeeping good reception document recordsiv.iv. Payment delays = prompt further sales freezePayment delays = prompt further sales freeze

II.II. US company collection efforts in MexicoUS company collection efforts in Mexico1.1. US company or collection agency – little affect, no fearUS company or collection agency – little affect, no fear2.2. Local Mexican agency calling – some affectLocal Mexican agency calling – some affect

a.a. Often never get decision-maker to answerOften never get decision-maker to answer3.3. Local Mexican attorney discussing litigation – bestLocal Mexican attorney discussing litigation – best4.4. Sometimes debtor will wait until start of litigation to paySometimes debtor will wait until start of litigation to pay

III.III. Litigation threat essential: low non-payment Litigation threat essential: low non-payment consequencesconsequences

1.1. Small amounts, high costs – no small claims courtSmall amounts, high costs – no small claims court2.2. $20,000 or less: Mexicans believe exporters won´t litigate, $20,000 or less: Mexicans believe exporters won´t litigate,

and they shouldn´t unless they want to “publickly punish”and they shouldn´t unless they want to “publickly punish”

IV. LGA Services

Current LGA Staff and InfrastructureCurrent LGA Staff and Infrastructure

I.I. OfficeOffice in northern Mexico City suburb in northern Mexico City suburb

II.II. Staff of 9Staff of 9 – Retail, B2B, Catalog, & Government – Retail, B2B, Catalog, & Government sales experience; and Legal, Accounting, sales experience; and Legal, Accounting, channel market strategy & logistics experiencechannel market strategy & logistics experience

III.III. Alliances and Collaborators:Alliances and Collaborators: in Guadalajara, in Guadalajara, Monterrey, Brazil, Argentina, & the UK. Monterrey, Brazil, Argentina, & the UK.

1.1. Partner with locally-based NCED Italy rep on projectsPartner with locally-based NCED Italy rep on projects

2.2. MANA Member - Service provider in Mexico and will MANA Member - Service provider in Mexico and will be participating in MANA webinar on Latin Americabe participating in MANA webinar on Latin America

3.3. Alliance for collection services with Receivables Alliance for collection services with Receivables Control Corporation (RCC). Control Corporation (RCC).

LGA Services – Two Service GroupsLGA Services – Two Service Groups

I.I. Export Business & Sales Development: Mexico & Export Business & Sales Development: Mexico & Latin AmericaLatin America1.1. B2B – Majority of work that we have done for WisconsinB2B – Majority of work that we have done for Wisconsin

2.2. Retail/Catalog – Strong staff expertise & current clients. Retail/Catalog – Strong staff expertise & current clients.

3.3. Government Procurement – Water/Environmental FocusGovernment Procurement – Water/Environmental Focus

a.a. Commercial, Industrial, Municipal, ResidentialCommercial, Industrial, Municipal, Residential

II.II. In-Country ServicesIn-Country Services1.1. Technical Assistance for In-Country set-up and operationsTechnical Assistance for In-Country set-up and operations

a.a. Legal, Regulatory, Accounting, Fiscal, CollectionsLegal, Regulatory, Accounting, Fiscal, Collections

2.2. Specialized Assistance for small foreign subsidiariesSpecialized Assistance for small foreign subsidiaries

3.3. Sourcing, Strategic Alliance, & Joint Venture AssistanceSourcing, Strategic Alliance, & Joint Venture Assistance

Realities about Secondary Information on Realities about Secondary Information on Mexico segments/MarketMexico segments/Market

I.I. Secondary Information – Non-Existent, Bad, or Out of Secondary Information – Non-Existent, Bad, or Out of DateDate1.1. Market Information - NTDB, Canadian, SpanishMarket Information - NTDB, Canadian, Spanish

a.a. Not always up to date, sometimes too broad Not always up to date, sometimes too broad

2.2. Market Size – No information, need for models Market Size – No information, need for models

3.3. Import Data – Not readily available, need to get raw data and Import Data – Not readily available, need to get raw data and know how to analyze know how to analyze

4.4. Lists of Distributors and Reps – Non-Existent in Mexico Lists of Distributors and Reps – Non-Existent in Mexico unlike in US, Asia, and Europe.unlike in US, Asia, and Europe.

5.5. Company database Information – Local (Ibcon), US and Company database Information – Local (Ibcon), US and International (Harris, Hoovers, Business Monitor) - International (Harris, Hoovers, Business Monitor) - problematic, not complete, not updated effectivelyproblematic, not complete, not updated effectively

II.II. Why obtaining info on your own is difficult:Why obtaining info on your own is difficult:1.1. Mexican AssociationsMexican Associations – political, not institutional, not well – political, not institutional, not well

funded, non-civil membership attitudefunded, non-civil membership attitude2.2. Mexican public informationMexican public information - difficult to access, and - difficult to access, and

government statistical information not always goodgovernment statistical information not always good3.3. Problems carrying out traditional surveysProblems carrying out traditional surveys – suspicious of – suspicious of

people asking questions much more than in the USpeople asking questions much more than in the US4.4. Difficulty of getting info from intermediariesDifficulty of getting info from intermediaries = they see = they see

info as commodity and do not want to share it.info as commodity and do not want to share it.

III.III. Related Problem: Attitude of US exportersRelated Problem: Attitude of US exporters – – would would rather just find an intermediary to sell their product rather than rather just find an intermediary to sell their product rather than investigate first to determine viability of market and channel investigate first to determine viability of market and channel strategies. strategies.

IV.IV. LGA can help fill in these gaps so that you can have LGA can help fill in these gaps so that you can have the tools to make Mexico market decisionsthe tools to make Mexico market decisions

Preliminary Market Analysis ServicesPreliminary Market Analysis Services

I.I. Market Product Viability AnalysisMarket Product Viability Analysis1.1. Estimated landed price for your product in MexicoEstimated landed price for your product in Mexico2.2. Compare with competition – product mix & pricesCompare with competition – product mix & prices3.3. Help determine viability to decide about market entry or Help determine viability to decide about market entry or

about how to change strategies to be more viableabout how to change strategies to be more viable

II.II. White Board Calls & VisitsWhite Board Calls & Visits1.1. Conference calls with company decision-makers Conference calls with company decision-makers

III.III. Secondary source location, evaluation, and Primary Secondary source location, evaluation, and Primary InvestigationInvestigation

1.1. Determine what information does exist and its valueDetermine what information does exist and its valuea.a. Mexico Import data to better understand competitionMexico Import data to better understand competition

2.2. Primary effortsPrimary efforts: Potential client search for viability : Potential client search for viability information, Client or intermediary surveying, market size information, Client or intermediary surveying, market size model creation.model creation.

3.3. Price & Competition AnalysisPrice & Competition Analysis – One time or on-going – One time or on-going

Market Access and Channel ServicesMarket Access and Channel Services I.I. New to Market & Growth StrategiesNew to Market & Growth Strategies: Retail, Wholesale, : Retail, Wholesale,

B2B, CatalogB2B, Catalog1.1. White Board Calls and VisitsWhite Board Calls and Visits2.2. Client Searches to help determine best channel market Client Searches to help determine best channel market

strategies before doing intermediary search strategies before doing intermediary search

II.II. Channel Market StrategiesChannel Market Strategies – Intermediary (Rep, – Intermediary (Rep, Distributor), Sales Manager, Alliance SearchesDistributor), Sales Manager, Alliance Searches

1.1. Candidate SearchesCandidate Searchesa.a. Basic and More Advanced Options: Locate and coordinate Basic and More Advanced Options: Locate and coordinate

visit vs. locate, interview, & decide. visit vs. locate, interview, & decide. 2.2. Monitoring and interfacing with chosen intermediary until sales Monitoring and interfacing with chosen intermediary until sales

begin in earnest to ensure successbegin in earnest to ensure successa.a. Frustration of spending time & money on a search to see it Frustration of spending time & money on a search to see it

fall apart during first six months.fall apart during first six months.

Business Development ServicesBusiness Development Services

I.I. Client and Buyer SearchesClient and Buyer Searches1.1. For direct sales or to share with intermediaries to ensure For direct sales or to share with intermediaries to ensure

they adjust sales focus areas to your productthey adjust sales focus areas to your product

II.II. Government Bid AssistanceGovernment Bid Assistance – Direct & Indirect – Direct & Indirect 1.1. Analyze current and past government demand, competition Analyze current and past government demand, competition

dynamic, and integrator optionsdynamic, and integrator options

a.a. Search for Integrators and/or for IntermediariesSearch for Integrators and/or for Intermediaries

2.2. Help with government bid process if selling direct.Help with government bid process if selling direct.

III.III. Sourcing, joint venture, alliance partner searchesSourcing, joint venture, alliance partner searches1.1. Sourcing – With peso devaluations, Mexico is bargain, LGA Sourcing – With peso devaluations, Mexico is bargain, LGA

can help identify and get quotes from partnerscan help identify and get quotes from partners

2.2. If you need a business partner, LGA can help find themIf you need a business partner, LGA can help find them

Corporate Legal and Accounting ServicesCorporate Legal and Accounting Services

I.I. Corporate Law ServicesCorporate Law Services – Incorporation, Contracts, – Incorporation, Contracts, Collections, Litigation supervision, labor Issues, Collections, Litigation supervision, labor Issues, intellectual property, “legal rep” intellectual property, “legal rep”

II.II. Regulatory Regulatory – Identify & explain compliance for – Identify & explain compliance for product and labeling standards (NOMs) and import product and labeling standards (NOMs) and import permits and registrationspermits and registrations

1.1. Experience obtaining permits & standard compliance Experience obtaining permits & standard compliance

III.III. Accounting Accounting – Mexican accounting, payroll, tax – Mexican accounting, payroll, tax paying, independent audit, litigation supervision, paying, independent audit, litigation supervision, fiscal domicile, and tax reimbursement servicesfiscal domicile, and tax reimbursement services

Collections and Litigation SupervisionCollections and Litigation Supervision

I.I. Extra LegalExtra Legal – Interface/visit with client as attorney, try to collect – Interface/visit with client as attorney, try to collect using litigation threatusing litigation threat

1.1. Little or now upfront funds – based on paymentLittle or now upfront funds – based on payment2.2. Current Workload: Receivables Control Corporation (RCC) and Current Workload: Receivables Control Corporation (RCC) and

Wisconsin exporters (NACM/ICE) Wisconsin exporters (NACM/ICE)

II.II. Pre Litigation AnalysisPre Litigation Analysis - to determine viability - to determine viability 1.1. BIL litigation review, bank & property asset review, BIL litigation review, bank & property asset review,

document/case review document/case review 2.2. Relatively low cost; can be done as package or piece mealRelatively low cost; can be done as package or piece meal

III.III. Litigation SupervisionLitigation Supervision – If after exhausting all other efforts and – If after exhausting all other efforts and payment is not forthcomingpayment is not forthcoming

1.1. With guarantee (Executive) or without (ordinary)With guarantee (Executive) or without (ordinary)2.2. Find litigation attorney, work with and supervise throughtout the Find litigation attorney, work with and supervise throughtout the

litigation process.litigation process.3.3. Mexican litigation without LGA supervision will be nightmareMexican litigation without LGA supervision will be nightmare

LGA: Strategic Assistance with focus on LGA: Strategic Assistance with focus on and services for local implementationand services for local implementation

I.I. Allows companies to access market worry-freeAllows companies to access market worry-free

II.II. Can do everything but sell your product for youCan do everything but sell your product for you

III.III. One stop assistance: Business (Sourcing, One stop assistance: Business (Sourcing, Sales, Channels), Legal, Collections, Sales, Channels), Legal, Collections, AccountingAccounting

IV.IV. Working with LGA is like working with a US firm Working with LGA is like working with a US firm – communications, follow-through, follow-up.– communications, follow-through, follow-up.

V.V. LGA can offer you the custom (not boiler plate) LGA can offer you the custom (not boiler plate) services (a) to meet your specific costs/needs, services (a) to meet your specific costs/needs, and (b) en ensure your success in Mexico.and (b) en ensure your success in Mexico.

LGA ConsultingLGA Consulting

(Mexico City)(Mexico City)US Toll Free Number: 1-888-750-0988

Tel. Tel. 011-52-555-378-3890 or 40

E-mail: E-mail: vlencionivlencioni@@lgaconsulting.comlgaconsulting.com

Website: Website: www.lgaconsulting.comwww.lgaconsulting.com