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Interview

with Diego Herkommer Ummelmann, General Manager LAN & Caribbean, TYCO

01.09.2011 / Energyboardroom

Can you please give our readers a summary of the history of Tyco’s presence in Mexico?

Tyco has been here in Mexico since 1997 when it acquired the Keystone Company. Since then we have been established in Mexico with our own locations and services premises. For us it is very important to be present here since as it is a very big market with a lot of potential. And now that Pemex is doing important investments in E&P, it is crucial for us to be present in the country, and be able to supply locally the products we have for the industry.

The situation in Mexico is that for many service companies there is only one real contractor and one client, which is PeMex. How do you take this into account in your development strategy?

First of all it is important to understand how things work within the Pemex bureaucracy. Then build a close relation with them. In order to be successful we need to know in what Pemex is going to be investing and focusing their efforts on. This way we can plan and invest according to Pemex’s strategies. At the end of the day we need to understand that Pemex has many channels and ways of acquiring services and products. As a result, we need to handle EPC and purchasing companies to equally serve them with the products and services that we offer.

Of the three different core business that Tyco has – valves and controls, thermal controls and water environment – which is the one that offers the best potential in the Mexican oil and gas industry?

Tyco is now organized in four different verticals and by verticals I mean market segments. We are focusing on oil and gas, mining, process, and power. Within those four verticals we are trying to have more focus on selling our diverse products that are very suitable for the mentioned market segments. The fact that you have dedicated sales resources with focus capabilities on these markets will give us the opportunity to offer better products and services to our customers but most importantly solutions for their specific applications.

Saying that, in Mexico we will definitely be focusing in the Oil and Gas segments offering our valves and controls business. Our valves and control business is where we have a lot more experience in this market. Indeed, we have been selling our products to Pemex for almost 25 years. We have a very important baseline for the valves and controls business and this will continue to be our core business here.However, we also see a lot of potential in our thermal business since we sell mainly cables and products that offer Pemex an increase in production and efficiency in extracting oil from the ground. Today, we are not at the levels that we would like to be in the mention niche that is why we are investing on that.

In Mexico there are some good companies like Walworth or Worcester that are very well positioned in the market. How is the Tyco brand recognized in the Mexican market?

We are recognized by our own brands that we provide to Pemex. For instance we are very well known for Vanesa valves, Morin and Biffi Actuators, Westlock positioners and Keystone Valves.

Even though valves is your core business in this market, with the new challenges created by the increasing environmental requirements in the oil and gas industry what are the opportunities that Tyco sees in water and environmental systems?

Currently we are really focusing more on the oil and gas side of the business. But we recognize that the infrastructure in Mexico has to improve and it has a lot of challenges especially around the big cities. Hence we understand that there is a lot of potential and significant investments going into water transportation as well as water treatment. In this regards, we are focusing on providing the Butterfly valve that are very suitable for this sector. In the same line, we provide some of our Keystone products. These products have been in the Mexican market for 45 years in the Mexican. We have a baseline for our water business and we are trying to expand it by bringing in some additional products like gate valves for water applications.

As we have been discussing, the past five years have been very tough for the sector in general. How has this affected the company? How did you get through those hard times?

We have seen some the downturn within the Mexican economy and Pemex , but we have been able to diversify our business by making an additional offer to the market, especially to Pemex this is the: service side. As a result, we have been able to service some of the platforms that Pemex have offshore in the Sonda de Campeche and for a couple of years, we have been servicing them with contracts for maintenance between $6-7 million in yearly basis. Indeed, we are very glad since this year we won a five year maintenance contract for around $22 million under which we will service all of our equipment that are in certain platforms. In short I would day, that having a diversify portfolio – selling products as well as giving maintenance- have been a very useful situation to face the downturns.

With the industry going up how are you preparing to seize the new opportunities arising from this investment plan and the new contractor offers coming from PeMex?

Talking about servicing, one of our main focuses. We are already preparing some investments near the Sonda de Campeche so that we can be near our main customer ,PeMex. This will allow us to provide the services and maintain it, as well as venture in some startups.

If we come back here in five years what can we expect from Tyco?

In the next five years we expect that Tyco Mexico double its business. We believe we are going to be a very big player in the service market as well as in the thermal controls business. We expect that to be our growth path in the next five years. In the other hand , we would like to be present in one of the verticals where we don’t have a participation at the moment: the power business. Saying that, we expect that in the next five years we will become a big player in that segment and we get 15-20 percent of the market share.

There is a lot of talk about energy reform and it passing in 2008. Some people say it was a failed reform. Have you seen things change for your business in the energy reform or do you think things are the same? For example, working with PeMex.

I think it is going to be easier to work with them and I have seen that already. We have been struggling with some changes that they did first because we needed to understand how they changed the rules and how they will be placing the purchase orders or the bidding process. However, we already see changes that will make it easier to work with Pemex. What I mean by that is that they are trying to focus on the long term instead of the short term. That means they are focusing on getting better relationships with suppliers in the long run. So they expect for us, being suppliers, to provide them with solutions that can help them to be more efficient in the future. Even the reform has been a small step we are on the right path. Giving this incentive contract out is going to help Pemex to have a more technology available and better solutions. However, the fiscal reforms for example, need to be coming as well. We need to provide Pemex with more resources to be able to invest in the long term. Because right now we see that the investments in E&P are coming as a reaction to the shortfall that Pemex is currently having, but investments have to be constant and sustainable. Saying that, this reform should have had a little bit more, going into the founding of the future investments of PeMex, rather than focusing on the mid-term.

You mentioned long term vision. Companies, especially foreign companies, maintain it is difficult to sell Mexico to their headquarters because the country lacks a long term vision. How challenging is it for you to get the money and investment from your headquarters?

It is challenging. However the last two-three years, Mexico has been pretty stable in its economy. By stable I mean we do not have these big hiccups that we have had in the past. Right now we have inflation control and we have a Central Bank that is giving very good support to the government. That gives confidence and stability to our investors.What really brings more results or more resources into this country is the way we have been operating and giving results to our corporate headquarters. Because at the end of the day that is what they are looking for, if we can make a good business case for the next three to four years and a good ROI for sure that is going to give us funding. It is challenging to put the business case together, but within the stable ambience we have now it is easier, especially with regards the performance on the service side. As I have mentioned. We have been dealing with Pemex service contracts for five-six years that have given us very good results. Hence we are willing to invest in the service part. Indeed, we are going to be investing around 700 to 900 K in service locations to set up a service center near the Sonda de Campeche. For this, we are going to be hiring between 10-15 people to allow us to have an additional team. In other things, we are also going to be investing locally, here in Guadalajara, in our plant by expanding our automation center. This is going to give us another thousand square meters of space more or less that we will have available to provide automation controls and inspection capabilities, as well as start up capabilities for our customers.

What is your final message about on how the government, Pemex, private companies and the diverse stakeholders can all cooperate together in the industry to really transform and enhance the Mexican oil and gas industry?

Talking about the private initiative, what we can do is have more access to new technologies, if we provide new technologies and get that type of business into our country that will allow us to be more efficient and productive. Furthermore, I believe it will also help to open up the eyes of the external investors within the big oil and gas companies. Mexico has a lot of resources and by opening up to that ambitious program of having them investing in Mexico it will give us a lot of opportunity to grow the oil and gas sector. Regarding Pemex what I would say is that we really need to have that reform completed, especially the fiscal reform that need to provide Pemex with the resources and money to further invest to keep its current performance.

What is the most rewarding part of working in a company and industry like this one?

I love working in the oil and gas industry because there are a lot of changes and you have to use a lot of your management skills and styles to be able to accommodate all the different personalities and different ways of thinking in the industry. I also love working for Tyco as this has been a growing experience for me. I started here as a materials manager and I have been growing all the way to become the general manager of the company. I would say that Tyco provides a considerable opportunity of growth for its employees. It promotes a very forward type of attitude, very unique. If you have something to say you just put it on the table and people will listen to you. They will understand where you are coming from and will try to give you an opportunity. And all this is very rewarding.

What is your final message to our readers?

I believe in Mexico very much. We have the potential to become one of the most important oil and gas participants in the world. We just need to take the next step – to participate more actively in our government decisions and propositions and, instead of complaining, be more proactive and try to give out more solutions instead of problems. That is the way we can change the attitude of everybody in this country. Tyco is looking at emerging markets as one of the important means of growth for the company. We are investing in Service capabilities as well as product capabilities in these countries. Brazil is a very important area and we have made some important acquisitions that are targeted to complete our product offering in those contries with local manufacturing capabilities to comply with Petrobras requirements.

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