Chamber of Commerce (BritCham) – Stephen Smith OBE, President – Mexico
The President of the British Chamber of Commerce explains how Mexico has matured into a vibrant emerging economy that it increasingly featuring on the radar of the international investment community. He analyses the forthcoming energy reforms to be good news for British business in a whole host of sectors ranging from upstream E&P, to vocational education, to certification and standards. He also speaks about the recent opening of British Business Centre Mexico (BBCM) and how it will bridge the gap between strategic bilateral energy exchange and on-the ground oil and gas sector priorities.
Mexico has been going through a period of Macroeconomic stability: 12 free trade agreements with 44 markets, a population of over 115 million, an average age of 26 and a growing middle class. How strategically important is this country to British industry?
Mexico is enjoying unprecedented economic stability and this is very healthy for the country. For those of us who have been in Mexico for some time, we almost had to relearn how to conduct business in a stable environment. We had become such good crisis managers and so used to planning everything on a short term basis that we had forgotten how to deal strategically with the marketplace in a normal sense.
There has actually been a positive trend in the right direction ever since the signing of the North American Free Trade Agreement (NAFTA) in 1994 which served as the trigger for reform and consolidated Mexico as an important trading nation. The stability that NAFTA provided combined with enhanced access to information and the internationalization of local enterprise and business thinking encouraged Mexicans to start looking at the rest of the world and to compare Mexico’s performance against international standards. For many years, Mexico was considered merely a country with ‘great potential’. Nowadays we instead hear about Mexican ’competitivity’. This change of semantics is emblematic of the paradigm shift that has taken place within the last couple of decades.If you examine the costs of production between China and Mexico, previously there was a 400 percent difference, but that gap is now down to only 20 percent. This is not because Mexicans are cheaper to employ, but rather because productivity and efficiency have improved enormously.
Mexico is firmly emerging as a major international business power and, for the first time in 30 years, I am seeing a platform for all that promise and potential to come to fruition. For once, there is the political will to enact the sorts of reforms that most equivalent countries have already undergone to differing degrees of excellence. Of course, there is still much to achieve in the social arena and the wealth generated through economic reform needs to be much better distributed across the country, but poverty is ultimately best tackled by giving people opportunity rather than hand-outs and new opportunities is precisely what the current energy reforms are all about. From a British industry perspective, Mexico is now open for business.
When we apply ‘being open for business’ to the oil and gas sector, we notice that the UK and Mexico face very similar challenges: declining reserves, a need to maintain energy outputs and a need to protect the environment. How well positioned are British companies to engage with the Mexican oil and gas market?
British firms in oil and gas have tended to demonstrate a great aptitude in terms of strategic thinking in short, medium and long-term scenarios, which has enabled them to develop the necessary flexibility and adaptability to changing market and environmental conditions both within Britain and internationally. When British oilfield service companies build the capacity to undertake something, they tend to simultaneously position themselves for the broader market opportunities whether this is about benefiting from overseas market interactions or extending into adjacent market niches. Once they develop a particular capability they display an immense willingness and talent for deploying those resources and expertise in attacking other markets in other countries.
One area in which British industry has excelled has been the development of secondary recovery and marginal fields and this is an segment where there is much scope for exporting knowledge, technology and expertise to hitherto underdeveloped energy markets like that of Mexico. That know-how even extends todeveloping the surrounding legislation frameworks for production of complex fields to become economically and practically viable. In short, there are great lessons to be learned from British experiences in the North Sea.
Some British companies had been performing very well even before it became clear that the Mexican energy market was set for a dramatic transformation. Grupo Sentry, for example, has been successfully marketing Rolls-Royce manufactured turbines for power generation for the past six years. Petrofac is another company that has been doing very well as lead operator on production enhancement projects. Often it is a case of the ‘early bird catching the worm’ with the first movers reaping the greatest rewards and that is precisely why we are so eager to get British companies involved from the outset.
The great achievement about the energy reform is that it is creating new opportunities not just in oil and gas, but also in all the feeder industries that supply the sector such as logistics and manpower provision. Many of the success stories of the future may well be drawn from a much wider spread of types of service provider. British companies such as Westhaven Logistics are already spotting gaps in what will be a much wider market and establishing decent business propositions accordingly. The impact of this reform must not be underestimated. The pact for Mexico united people to do what was good for Mexico and, even if that pact is now fragmenting and fraying at the edges, change is in full motion and the steps that have been committed to are now practically irreversible. This is great news for Mexico which can look forward to increased prosperity and good news for British industry too.
In February, Deputy PM Nick Clegg accompanied a delegation of 40 British business leaders to Mexico City in what was branded by the press as a ‘catch up mission’ to boost bilateral trade. What was eye-catching was the number of British universities and manpower providers participating. What do you perceive to be the opportunities for such entities to supply skilled labor to the Mexican energy market?
Over the last few years, we have seen growing interest in Mexico from British universities. For some it is about seeking alliances in technical areas and for others it is about attracting international students and gaining a foothold in Latin America. As Mexico’s economy gains in stature globally, we can expect to see a lot more of these kinds of initiatives. At the same time, the energy reforms are going to place massive demand on the education sector and the existing apparatus is going to struggle to meet that demand. This in turn will translate into significant commercial opportunities for provision of human capital.
It is worth remembering that incoming investment in upstream oil and gas will have the effect of triggering smaller investments right across the value chain and the vocational training and manpower sectors will be some of the primary beneficiaries. When you consider how much investment is needed for a major international oil company to implement a sound country entry strategy and then launch exploration and production activities, you are talking about serious amounts of money. To make it really worthwhile so that their return on investment fits their international expectations, they are going to be looking at a minimum of five blocks. To carry out this scale of activities there will be a need for additional labor of all types – from base office staff right the way up to highly skilled engineers and geophysicists. As the universe grows, something has to fill it. And if the required personnel are not to be found within the country, then the industry will seek it elsewhere. The task for British vocational institutions and business recruitment outsourcing companies will be to bring the know-how to Mexico and then make it happen here in Mexico by training up and developing talent.
You have recently set up a British Business Centre to assist incoming SMEs which will be official unveiled on 15 May. What is the full purpose of this new entity and how is it’s offering distinct from BritCham’s usual services?
The British Business Centre is jointly powered by BritCham and UKTI and seeks to align our respective areas of focus – that is government and business – in a more comprehensive and harmonious way to facilitate the start-up of British businesses in Mexico. It’s really about uniting the disciplines of statecraft, business and culture in a positive and healthy manner. By integrating high-level trade relations with practical business thinking, we can jointly enhance our offering to any British firm, whether big or small, seeking to get to grips with Mexican markets. In the future, new entrants will not just benefit from UK government support and access to local business networks, but will also have facilities at their disposal for office and meeting space, and easy recourse to legal, financial and practical advice.
Our intention is to establish a one-stop-shop of support that will enable firms to penetrate Mexico as quickly and effectively as possible through an enhanced understanding of the market and reliable contact structures. We are even working on an accreditation initiative for our Mexican members with a view to recognizing some of them as suppliers of choice and also setting in place a mentoring scheme where complimentary advice can swiftly develop into long-term partnerships and new business opportunities. Ultimately the greatest source of new opportunity is talking to different stakeholders and the British Business Centre will be the appropriate forum for these sorts of interactions.
What are BritCham’s strategic priorities going forwards?
Going forwards, we want to expand our capabilities to foster business between both countries. UKTI tends to focus upon inward and outward investment flows affecting Britain, whereas we tend to be more bilateral because many of our members are Mexican. Already we are starting to see significant interest from different trade associations both in Britain and Mexico seeking to engage their members. From the British side, business groups have heard about the wealth of new opportunities on the horizon in Mexico and are keen to raise awareness amongst their membership which is, of course, an aspect we can assist with. On the Mexican side, firms are also becoming increasingly aware of new possibilities such as partnership and joint venture opportunities as they prepare to compete alongside foreign multinationals. Our aspiration is to develop a whole network capability by integrating much more closely with these associations and by sharing our knowledge, contacts and methods of information management.
To read more articles and interviews from Mexico, and to download the latest free report on the country, click here.