Markeset: Mexico needs to go first-tier

 
By Michael Hissam

Supply chain implies one basic fact: Something has to move from Point A to Point B, and then along the chain to the consumer or end user.
Life in the supply chain may not be as simple as “Point A to Point B.”.
Getting to, along or among those points – and doing so in a smarter and more cost efficient or profitable way – means continuous examination of the latest information to drive those smarter business decisions…

Erik Markeset, president of the Council of Supply Chain Management professionals Mexico and founder of TSOL, works as a management consultant focused on business strategy and the global logistics industry.

Traditionally people looked at Mexico as low-cost labor, but should we have a different perspective for the future?

The emphasis on labor is valid. I do not think that goes away. We also need to look at Mexico from a first-tier industrial perspective because the evidence bears it out, particularly in the automotive and aerospace industries.

The whole aerospace cluster in Queretaro is impressive. Bombardier has set up operations there; the fact that Mexico is looking at producing its first complete jet aircraft sometime in the next 10 years. If you have not been to Queretaro, I would recommend it. It is just impressive to see the industry that has taken place there, the quality of the people there, the number of engineers who are graduated in Mexico is great.

Mexico’s model in a global economy is not just about low-cost labor but qualified labor. One difference between Mexico and a fully-developed economy is that we might not be the source of intellectual capital, maybe we are not designing the aircraft but we are building them. That would be where we stand.

President Peña Nieto, early in the term, talked about transforming Mexico into a high value-added, global logistics center. He has been in office almost a couple of years now. What progress have you seen?

I have seen a continuation of what was done in the Calderón government. We are in touch with the Ministry of Economy and the Secretary of Communications and Transportations. I have not seen anything particularly revolutionary in this administration or any dramatic change — acceleration or deceleration — in terms of the logistics infrastructure. There is a lot of focus right now on telecom and the same ministry that governs infrastructure also governs telecom.

The focus right now is around telecom laws, what to do about the monopolies or oligopolies that we have in the country. Most of the declarations that you will see from the Ministry of Communication and Transportation have to do with that. In terms of infrastructure there is a continuation on bettering roads and ports, but I have not seen anything dramatically different than what the Calderón government was doing and that was good.

Let’s look at potential infrastructure improvements from an “Erik Markeset Wish List” that would help logistics in Mexico. What would you like to see change that really could make a major difference in logistics?

Let me take a step back on the previous question, my focus is on cargo and where the government is putting a lot of emphasis is on passenger transportation, there are plans for rail between Queretaro and Mexico City, Toluca and Mexico City and a rail in the Yucatan Peninsula, which I do not quite understand.

From a passenger perspective there are improvements, from a cargo perspective nothing dramatic. What I would like to see, there are a couple of projects around rail that would allow efficiency by-passing a few cities, like the city of Celaya, perhaps expanding a few tunnels to allow double stacked trains.

From a highway perspective, Mexicans have trouble in general with the concept of maintenance; building something and just letting it sit there. Highways in general in Mexico are pretty good, but emphasizing on maintaining them and improving them is probably fair.

To what extent do you still see opportunities from the U.S. side to become an ever-greater supplier into Mexico manufacturing and consumer markets?

We need to look at ourselves as a region more so than as two or three countries. When we think about Mexico as a first-tier manufacturer, it is with parts, many of which are coming from the United States and Canada, as well as from Asia. It is not a new trend but it is increasing and it is parts going from the US, getting value added in Mexico and coming back to the States.

As Mexicans increase the standard of living, that’s an export market for consumer goods, that could be manufactured or designed in the States. I definitely think it is in the United States’ interest to look at Mexico as a customer. The Mexican economy has not grown as much as we would have liked. We are hoping that it will continue to grow and be a market from both a consumer and an industrial perspective.

Besides China, should Mexico keep a close eye on any other country?

India represents both an opportunity and a threat. Interestingly, I have been to India and the ambassador to India from Mexico is a friend of mine. There is an important market opportunity in India that Mexico is not completely exploiting. There are a few Mexican companies that are penetrating in India. Interestingly, one is Cinepolis which is the second- or third-largest movie theater company in the world and they are now in India. Mexico’s GRUMA produces and exports corn flour. And CEMEX also exports.

India is also looking at Mexico as a market, particularly on the technology side. I was approached by a couple of Indian companies asking if I would be interested in representing them in Mexico, but I do not have the band-width for that.

It is also a threat in the sense that, particularly the outsourcing of service or off-shoring of services from the U.S. is a trend that continues and Mexico is building its base for IT related services. It is interesting that there are a couple of these big Indian companies such as Infosys and Tata Consulting who have operations in Mexico. When companies in the U.S. or Europe look at where to develop software or maintain applications, India is perhaps the first choice but Mexico is also a good choice. Mexico does compete with India on that front.

Let’s look at the winners and losers in transportation or logistics. With all the changes in the market, the changes in infrastructure and near-shoring, who is winning and who is losing?

Winning are truck transportation and rail transportation, and also brokers who are involved with cross border trade. Losers would be logistic service operators who are involved across the Pacific. We would expect to see deceleration in ocean container freight between China and Mexico. Globally, air cargo is flat and falling and that is part of a global modal shift from air to ocean.