Mexico becomes a strategic market to Chinese investors

Published: 4 June 2013

• In 2012 the bilateral trade between China and Mexico reached more than US$62 billion
• US – China trade frictions are pushing Chinese investors to establish in northern Mexico as means to develop the US market
• There are unexplored investment opportunities in the infrastructure, mining and manufacturing sectors

Do Mexican consumers and industries really matter to Chinese companies? According to official statistics for 2012 the bilateral trade reached around US$62 billion. To get a better idea on how important is this trend we could consider that the bilateral trade between China and Mexico was almost as significant as the one of China with India which reached about US$66 billion in the same period. An impressive amount if we consider Mexico and China do not share borders as China and India does, as well as Mexican population is around ten times smaller than the one in India.

Nowadays we can identify many success stories from Chinese companies growing in Mexico. The examples includes from small and medium-size companies selling to Mexico manufactured goods ranging from raw materials like fabrics, spare parts for automotive industry to even food. Mexican consumers watch their favorite programs on TV sets manufactured by Hisense, students go to classes with their Lenovo laptops as well as many Mexican mobile device users are starting to connect with friends using text and voice messaging communication services like WeChat developed by Tencent. This trend goes even further, construction companies now use Liugong machinery as well as leading construction companies like China Harbour were granted EPC projects to increase the capacity of Manzanillo container terminal.

While there is already a significant presence of Chinese investors in Mexico, a consumer-oriented economy like this, have room for further growth. The Mexican government has a clear direction on diversifying new energy sources with a focus on non-fossil fuels as well as modernizing energy infrastructure and the development of the national petroleum industry. The new leadership in Mexico has publicly stated that energy deregulation is necessary to provide Pemex the capital needed for deep-water oil exploration and technology upgrades.

During the past presidential administration (2006-2012), the average annual investment in infrastructure sector represented around 4.5% of GDP. Based on campaign commitments and recent announcements, investment in infrastructure is expected to continue with the arrival of the new administration. Government officials estimate total infrastructure expenditures to be 5% of GDP.

On the opinion of Mr. Lawrence Chia, Deloitte's Chinese Services Group Co-chairman, "under this scenario, Mexican and Chinese firms will have to understand each other better as market forces are bringing them closer than ever. Mexico is to North America as China´s is to the Asian market."

Mr. Gonzalo Gomez, Chinese Services Group Leader in Deloitte Mexico also emphasizes "forging partnerships between Mexican and Chinese firms will imply organizational learning and greater openness to cross-cultural sensitiveness to successfully build a long standing relationship. Local expertise provides endless advantages such as greater knowledge of customer habits, brand awareness in the market and more experience in managing relationships with local stakeholders."

"It seems inevitable, that in order to become a significant player in Latin America, Chinese companies can’t afford keeping themselves away from the opportunities brought by recent changes in manufacturing costs; and as a Mexican one to ignore the potential positives outcomes represented by setting up complementary business relationships with Chinese entrepreneurs," added Mr. Gomez.

"Reaching opportunities in new markets means the company will have to acclimate to the new surroundings; protecting proprietary information, building reliable supply chain base, challenges to traditional strengths, identifying reliable local business partners, finding talented employees, understanding tax regulations, complying with local regulations," among many others was added shared by Mr. David Chen, Mexico Chinese Services Group National Director.

At Deloitte's Chinese Services Group, we are attempting to create value for our clients. Our commitment is to continue producing pragmatic analyses on doing business in Mexico in simplified Chinese which companies can apply to transform their knowledge into specific actions that generate value on the China and Mexico bilateral relationship.