Photovoltaic (PV) Solar Energy Equipment in Mexico: A Strategic Reference, 2007 0497823578, 9780497823573, 9781429499996

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Photovoltaic (PV) Solar Energy Equipment in Mexico: A Strategic Reference, 2007

Edited by

Philip M. Parker, Ph.D. Eli Lilly Chair Professor of Innovation, Business and Society INSEAD (Fontainebleau & Singapore)

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COPYRIGHT NOTICE ISBN 0-497-82357-8 All of ICON Group International, Inc. publications are copyrighted. Copying our publications in whole or in part, for whatever reason, is a violation of copyrights laws and can lead to penalties and fines. Should you want to copy tables, graphs, or other materials from our publications, please contact us to request permission. ICON Group International, Inc. often grants permission for very limited reproduction of our publications for internal use, press releases, and academic research. Such reproduction requires, however, confirmed permission from ICON Group International, Inc. Please read the full copyright notice, disclaimer, and user agreement provisions at the end of this report.

IMPORTANT DISCLAIMER

Neither ICON Group International, Inc. nor its employees can be held accountable for the use and subsequent actions of the user of the information provided in this publication. Great efforts have been made to ensure the accuracy of the data, but we cannot guarantee, given the volume of information, accuracy. Since the information given in this report is forward-looking, the reader should read the disclaimer statement and user agreement provisions at the end of this report.

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About Icon Group International, Inc. Icon Group International, Inc.’s primary mission is to assist managers with their international information needs. U.S.-owned and operated, Icon Group has field offices in Paris, Hong Kong, and Lomé, Togo (West Africa). Created in 1994, Icon Group has published hundreds of multi-client databases, and global/regional market data, industry and country publications. Global/Regional Management Studies: Summarizing over 190 countries, management studies are generally organized into regional volumes and cover key management functions. The human resource series covers minimum wages, child labor, unionization and collective bargaining. The international law series covers media control and censorship, search and seizure, and trial justice and punishment. The diversity management series covers a variety of environmental context drivers that effect global operations. These include women’s rights, children’s rights, discrimination/racism, and religious forces and risks. Global strategic planning studies cover economic risk assessments, political risk assessments, foreign direct investment strategy, intellectual property strategy, and export strategies. Financial management studies cover taxes and tariffs. Global marketing studies focus on target segments (e.g. seniors, children, women) and strategic marketing planning. Country Studies: Often managers need an in-depth, yet broad and up-to-date understanding of a country’s strategic market potential and situation before the first field trip or investment proposal. There are over 190 country studies available. Each study consists of analysis, statistics, forecasts, and information of relevance to managers. The studies are continually updated to insure that the reports have the most relevant information available. In addition to raw information, the reports provide relevant analyses which put a more general perspective on a country (seen in the context of relative performance vis-à-vis benchmarks). Industry Studies: Companies are racing to become more international, if not global in their strategies. For over 2000 product/industry categories, these reports give the reader a concise summary of latent market forecasts, pro-forma financials, import competition profiles, contacts, key references and trends across 200 countries of the world. Some reports focus on a particular product and region (up to four regions per product), while others focus on a product within a particular country.

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Table of Contents 1

INTRODUCTION & METHODOLOGY.............................................................................1

1.1

What Does This Report Cover?

1

1.2

How to Strategically Evaluate Mexico

1

1.3

Latent Demand and Accessibility in Mexico

3

2 2.1

PHOTOVOLTAIC (PV) SOLAR ENERGY EQUIPMENT IN MEXICO .......................5 Latent Demand and Accessibility: Background

5

2.2 Latent Demand: Market Composition 5 2.2.1 Renewable Energy Program and FIRCO.................................................................................................... 6 2.2.2 World Bank-SENER Renewable Fund....................................................................................................... 6 2.3

Latent Demand: Market Data

7

2.4

Latent Demand: Statistical Profile

7

2.5

Latent Demand: Leading Segments

8

2.6 Accessibility: The Structure of Competition 8 2.6.1 Key Players ................................................................................................................................................ 8 2.7

Latent Demand: Target Buyers

9

2.8 Import Climate 9 2.8.1 Regulatory Framework............................................................................................................................. 10 2.9 Market Issues and Obstacles 10 2.9.1 Standards .................................................................................................................................................. 10 2.9.2 Import Duties and Rates ........................................................................................................................... 10 2.9.3 Tax Incentives .......................................................................................................................................... 11 2.9.4 The Renewable Energy Regulation – Intermittent Power ........................................................................ 11 2.9.5 Issues and Obstacles................................................................................................................................. 12 2.10 Accessibility: Distribution Strategies 12 2.10.1 Payment Terms and Export Finance......................................................................................................... 13 2.11 Key contacts 13 2.11.1 Trade Events............................................................................................................................................. 13 2.11.2 Industry Associations ............................................................................................................................... 14

3

FINANCIAL INDICATORS: SEMICONDUCTORS AND RELATED DEVICES ......15

3.1 Overview 15 3.1.1 Financial Returns and Gaps in Mexico..................................................................................................... 16 3.1.2 Labor Productivity Gaps in Mexico ......................................................................................................... 18 3.1.3 Limitations and Extensions ...................................................................................................................... 19 3.2 Financial Returns in Mexico: Asset Structure Ratios 20 3.2.1 Overview .................................................................................................................................................. 20 www.icongrouponline.com

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Contents 3.2.2 3.2.3 3.2.4 3.2.5

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Assets – Definitions of Terms .................................................................................................................. 20 Asset Structure: Outlook .......................................................................................................................... 23 Large Variances: Assets ........................................................................................................................... 24 Key Percentiles and Rankings .................................................................................................................. 27

3.3 Financial Returns in Mexico: Liability Structure Ratios 42 3.3.1 Overview .................................................................................................................................................. 42 3.3.2 Liabilities and Equity – Definitions of Terms .......................................................................................... 42 3.3.3 Liability Structure: Outlook ..................................................................................................................... 44 3.3.4 Large Variances: Liabilities ..................................................................................................................... 45 3.3.5 Key Percentiles and Rankings .................................................................................................................. 48 3.4 Financial Returns in Mexico: Income Structure Ratios 61 3.4.1 Overview .................................................................................................................................................. 61 3.4.2 Income Statements – Definitions of Terms .............................................................................................. 61 3.4.3 Income Structure: Outlook ....................................................................................................................... 63 3.4.4 Large Variances: Income.......................................................................................................................... 64 3.4.5 Key Percentiles and Rankings .................................................................................................................. 67 3.5 Financial Returns in Mexico: Profitability Ratios 80 3.5.1 Overview .................................................................................................................................................. 80 3.5.2 Ratios – Definitions of Terms .................................................................................................................. 80 3.5.3 Ratio Structure: Outlook .......................................................................................................................... 82 3.5.4 Large Variances: Ratios ........................................................................................................................... 83 3.5.5 Key Percentiles and Rankings .................................................................................................................. 86 3.6 Productivity in Mexico: Asset-Labor Ratios 101 3.6.1 Overview ................................................................................................................................................ 101 3.6.2 Asset to Labor: Outlook ......................................................................................................................... 102 3.6.3 Asset to Labor: International Gaps......................................................................................................... 103 3.6.4 Key Percentiles and Rankings ................................................................................................................ 106 3.7 Productivity in Mexico: Liability-Labor Ratios 121 3.7.1 Overview ................................................................................................................................................ 121 3.7.2 Liability to Labor: Outlook .................................................................................................................... 122 3.7.3 Liability and Equity to Labor: International Gaps.................................................................................. 123 3.7.4 Key Percentiles and Rankings ................................................................................................................ 126 3.8 Productivity in Mexico: Income-Labor Ratios 139 3.8.1 Overview ................................................................................................................................................ 139 3.8.2 Income to Labor: Outlook ...................................................................................................................... 139 3.8.3 Income to Labor: Gaps ........................................................................................................................... 140 3.8.4 Key Percentiles and Rankings ................................................................................................................ 143

4 4.1

MACRO-ACCESSIBILITY IN MEXICO........................................................................156 Executive Summary

156

4.2 Economic Fundamentals and Dynamics 157 4.2.1 Major Trends and Outlook ..................................................................................................................... 157 4.2.2 Government Role in the Economy ......................................................................................................... 158 4.2.3 Balance of Payments Situation............................................................................................................... 158 4.3

Political Risks

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Contents 4.3.1 4.3.2 4.3.3

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Nature of Bilateral Relationship............................................................................................................. 159 Relations between the Federal Executive and State Leaders.................................................................. 159 The Political System............................................................................................................................... 159

4.4 Marketing Strategies 160 4.4.1 Distribution, Sales Channels, and Partners............................................................................................. 160 4.4.2 Franchising Activities............................................................................................................................. 161 4.4.3 Pricing Issues.......................................................................................................................................... 162 4.4.4 Government Procurement....................................................................................................................... 163 4.4.5 Legal Considerations.............................................................................................................................. 164 4.4.6 Due Diligence......................................................................................................................................... 165 4.4.7 Opening an Office in Mexico ................................................................................................................. 166 4.4.8 NAFTA Certificate of Origin ................................................................................................................. 166 4.4.9 Advertising Options ............................................................................................................................... 167 4.4.10 Demographics......................................................................................................................................... 169 4.4.11 Intellectual Property Risks ..................................................................................................................... 170 4.5 Marketing Strategies 172 4.5.1 Western Region ...................................................................................................................................... 172 4.5.2 Northwestern Region.............................................................................................................................. 176 4.5.3 Northeast Region.................................................................................................................................... 178 4.5.4 Central Region........................................................................................................................................ 180 4.5.5 Southeastern States................................................................................................................................. 181 4.5.6 Yucatan Peninsula .................................................................................................................................. 182 4.6 Import and Export Regulation Risks 183 4.6.1 Tariffs and Fees...................................................................................................................................... 183 4.6.2 Licenses Required for Imports ............................................................................................................... 184 4.6.3 Controls on Exports................................................................................................................................ 185 4.6.4 Local Standards ...................................................................................................................................... 186 4.7 Investment Climate 190 4.7.1 Openness to Foreign Investment ............................................................................................................ 190 4.7.2 Conversion and Transfer Policies........................................................................................................... 192 4.7.3 Expropriation and Compensation ........................................................................................................... 192 4.7.4 Dispute Settlement ................................................................................................................................. 192 4.7.5 Performance Requirements and Incentives ............................................................................................ 193 4.7.6 Right to Private Ownership and Establishment ...................................................................................... 194 4.7.7 Intellectual Property Risks ..................................................................................................................... 195 4.7.8 Transparency of the Regulatory System................................................................................................. 196 4.7.9 Capital Market Risks .............................................................................................................................. 196 4.7.10 Political Violence ................................................................................................................................... 197 4.7.11 Corruption .............................................................................................................................................. 197 4.7.12 Bilateral Investment Agreements ........................................................................................................... 198 4.7.13 Investment Insurance.............................................................................................................................. 199 4.7.14 Labor ...................................................................................................................................................... 199 4.7.15 Free Trade Zone Options........................................................................................................................ 199 4.8 Trade and Project Financing 200 4.8.1 Financing Availability............................................................................................................................ 200 4.8.2 Exchange Control Risks ......................................................................................................................... 203 4.8.3 Project Financing in Mexico .................................................................................................................. 203 4.9

Travel Risks

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Contents 4.9.1 4.9.2 4.9.3 4.9.4 4.9.5 4.9.6 4.9.7 4.9.8 4.9.9 4.9.10 4.9.11

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Transportation and Hotels ...................................................................................................................... 205 Visas and Visitor Fees............................................................................................................................ 205 Language ................................................................................................................................................ 207 Climate ................................................................................................................................................... 207 Health Issues .......................................................................................................................................... 207 Communications..................................................................................................................................... 208 Local Business Customs......................................................................................................................... 209 Security Considerations.......................................................................................................................... 209 Education and Training Services............................................................................................................ 210 Culture and Recreation........................................................................................................................... 210 Country Data .......................................................................................................................................... 211

4.10 Key Contacts 211 4.10.1 U.S. Embassy Contacts Located in Mexico ........................................................................................... 211 4.10.2 Mexican Government Agencies ............................................................................................................. 213 4.10.3 Trade Associations and Chambers of Commerce................................................................................... 215 4.10.4 Product and Quality System Certification Organizations....................................................................... 217 4.10.5 Banking .................................................................................................................................................. 220 4.10.6 U.S. Agricultural Cooperator Offices in Mexico.................................................................................... 226 4.10.7 U.S. Government Contacts in Washington D.C. .................................................................................... 230 4.10.8 U.S.-Based Partners Relevant for Mexico.............................................................................................. 232 4.10.9 Association of State Offices in Mexico (ASOM)................................................................................... 233 4.10.10 Labor Organizations ........................................................................................................................... 239

5

DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS .........242

5.1

Disclaimers & Safe Harbor

242

5.2

Icon Group International, Inc. User Agreement Provisions

243

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1 1.1

INTRODUCTION & METHODOLOGY WHAT DOES THIS REPORT COVER?

The primary audience for this report is managers involved with the highest levels of the strategic planning process and consultants who help their clients with this task. The user will not only benefit from the hundreds of hours that went into the methodology and its application, but also from its alternative perspective on strategic planning relating to photovoltaic (pv) solar energy equipment in Mexico. As the editor of this report, I am drawing on a methodology developed at INSEAD, an international business school (www.insead.edu). For any given industry or sector, including photovoltaic (pv) solar energy equipment, the methodology decomposes a country’s strategic potential along four key dimensions: (1) latent demand, (2) micro-accessibility, (3) proxy operating pro-forma financials, and (4) macro-accessibility. A country may have very high latent demand, yet have low accessibility, making it a less attractive market than many smaller potential countries having higher levels of accessibility. With this perspective, this report provides both a micro and a macro strategic profile of photovoltaic (pv) solar energy equipment in Mexico. It does so by compiling published information that directly relates to latent demand and accessibility, either at the micro or macro level. The reader new to Mexico can quickly understand where Mexico fits into a firm’s strategic perspective. In Chapter 2, the report investigates latent demand and micro-accessibility for photovoltaic (pv) solar energy equipment in Mexico. In Chapters 3 and 4, the report covers proxy operating pro-forma financials and macro-accessibility in Mexico. Macro-accessibility is a general evaluation of investment and business conditions in Mexico.

1.2

HOW TO STRATEGICALLY EVALUATE MEXICO

Perhaps the most efficient way of evaluating Mexico is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to photovoltaic (pv) solar energy equipment are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).

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Introduction & Methodology

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Framework for Prioritizing Countries Demand/Market Potential Driven Firm

High

Highest Priority

High Priority Latent Demand

Moderate Priority Low Priority

Low

Lowest Priority Low

High Relative Accessibility

Accessibility/Supply Averse Firm High Highest Priority High Priority Latent Demand

Moderate Priority Low Priority

Lowest Priority Low High

Low Relative Accessibility

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Introduction & Methodology

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In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market – neither a market-driven nor a costdriven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).

1.3

LATENT DEMAND AND ACCESSIBILITY IN MEXICO

This report provides a detailed overview of factors driving latent demand and accessibility for photovoltaic (pv) solar energy equipment in Mexico. Latent demand is largely driven by economic fundamentals specific to photovoltaic (pv) solar energy equipment. This topic is discussed in Chapter 2 using work carried out in Mexico on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for photovoltaic (pv) solar energy equipment in Mexico. I use the term “micro” since the discussion is focused specifically on photovoltaic (pv) solar energy equipment. Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Mexico. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Mexico. The numbers are only indicative of an average firm whose primary activity is in Mexico. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Mexico. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “semiconductors and related devices”, as defined in Chapter 3. Again, while “semiconductors and related devices” does not exactly equate to “photovoltaic (pv) solar energy equipment”, it nevertheless gives an indicator of how Mexico compares to other countries for a proxy adjacent category along various dimensions. Chapter 4 deals with macro-accessibility and covers factors that go beyond photovoltaic (pv) solar energy equipment. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Mexico: •

Openness to Trade in Mexico

•

Openness to Direct Investment in Mexico

•

Local Marketing and Entry Strategy Alternatives

•

Local Human Resources

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Introduction & Methodology •

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Local Risks

Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Mexico. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Mexico. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.

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2

PHOTOVOLTAIC (PV) SOLAR ENERGY EQUIPMENT IN MEXICO

2.1

LATENT DEMAND AND ACCESSIBILITY: BACKGROUND

The Mexican photovoltaic (PV) market has been slow to develop. Mexico does not mandate renewable portfolios, of which PV constitutes a part, nor is it expected to in the near future. Moreover, Mexico’s constitution prohibits private companies from generating, transmitting or distributing electricity as a public service, activities which are reserved for Mexico’s two state-owned electric power utilities, Comision Federal de Electricidad (CFE—Federal Electricity Commission), and Luz y Fuerza del Centro (LyFC—Central Light and Power Company). Currently, development of photovoltaic projects represents a feasible alternative only under special circumstances, like rural electrification for sites located far away from the electric grid, rural water-pumping, rural telecommunications, refrigeration or remote educational programs, where the high installation cost takes second place. Nevertheless, Mexico’s Secretaria de Energia (SENER – Ministry of Energy) estimates that by 2012, 25 MW of photovoltaic solar power generation will be installed in Mexico, up from the roughly 19 MW that exists today. This will require an investment ranging from USD 24 to 36 million. In 2006, the U.S. participation of the PV market was valued at USD 9.9 Million, 27%, followed by China’s at 20%, Japan’s at 15% and Germany’s 14%.

2.2

LATENT DEMAND: MARKET COMPOSITION

Photovoltaic (PV) solar energy in Mexico is used in the following applications: •

Electricity generation (rural areas, telecommunications, mining, government/military, oil and gas).

•

Hybrid power generation systems (PV and wind or diesel).

•

Solar electric lighting kits for home and street lighting.

•

Agricultural applications including solar electric water pumping systems.

According to Comision Nacional para el Ahorro de Energia (CONAE – National Energy Saving Commission), in Mexico today there exists: •

Over 60,000 PV systems in about 80,000 rural communities in 20 states.

•

127,600 m2 of photovoltaic systems representing an installed capacity of 19 MW, primarily in rural homes and farms not connected to the national power grid.

•

A first-ever application in Mexico of a PV system in Mexicali, state of Baja California, for 220 homes, each with a 1 kW of installed capacity, interconnected to the CFE grid.

•

A CFE hybrid generating plant in San Juanico, Baja California Sur, integrated by an 80 kW diesel generator, 100 kW wind generator and a 17 kW PV module.

When compared with average industry investment standards, photovoltaic-solar power generation currently requires an investment in the range of USD 3,000 to USD 6,000 for one kilowatt of installed capacity—four times that of wind power and twelve times that of combined cycle natural gas-fired plants. The cost per kW-hr generated goes from USD 0.25 to USD 0.50, six to twelve times the cost of combined cycle natural gas-fired plants. As such, only under special circumstances does it represent a feasible alternative, like rural electrification for sites located far away from the electric grid, rural water-pumping, rural telecommunications, refrigeration or remote educational programs. www.icongrouponline.com

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Nevertheless, SENER estimates that by 2012, 25 MW of photovoltaic solar power generation will be installed in Mexico, up from the roughly 19 MW that exists today. This will require an investment ranging from USD 24 to 36 million. According to SENER statistics, from 1992 to 1999, the PV segment grew at an 11% average annually, bringing the total installed PV capacity to 12 MW. From 2000 to 2006, the sector kept growing at a 6% annual rate as a result of implementing programs such as the Fideicomiso de Riesgo Compartido (FIRCO—Shared Risk Trust), the World Bank and NGO’s implementation of rural electrification and water pumping programs in the mid-90s. The major driver in the increase in PV systems installed in Mexico over the last several years has been the efforts of FIRCO and the Mexican Renewable Energy Program (MREP).

2.2.1

Renewable Energy Program and FIRCO

In December 1998, the World Bank granted a USD 445 million loan to the Mexican government to improve the productivity and income of small and poor farmers by the adoption of sustainable agricultural production systems. This program supports productive investments and improved farming practices for the benefit of the agriculture sector. Of this amount, USD 8.9 million was earmarked for renewable electric energy projects. Early in 1999, FIRCO started to implement projects to provide electricity supply in rural areas for productive purposes, in a sustainable manner, and through renewable energy technologies. The program, in addition to an important technical training and studies component, financed the installation of PV systems primarily for water pumping and refrigeration in agriculture with a focus on southern Mexico. Nacional Financiera (NAFIN – National Financing Agency), a development bank, was the executing agency. The MREP was managed by Sandia National Laboratories (SNL) and was supported by the United States Department of Energy (USDOE), Office of Solar Technologies, and the Mexico mission office of USAID. The MREP, established in 1996, focused on the use of renewable energy technologies, particularly photovoltaic and small wind electric systems, for rural, off-grid productive applications. SNL, through the MREP, in partnership with Mexican state and federal organizations and international environmental groups, sponsored nearly 200 photovoltaic (solar) and wind energy projects in eight Mexican states.

2.2.2

World Bank-SENER Renewable Fund

In December 2003, the World Bank approved a USD 70 million loan to SENER to facilitate the development of renewable energy power generation projects in Mexico. Under the program, grants were given to qualifying projects that were shown to be technical viable but required an additional capital contribution to make the investment financially viable vis-à-vis conventional power generation technologies. The fund should go a long way in developing renewable technologies in Mexico, and, collaterally, export opportunities for U.S. companies. Tremendous opportunities exist in Mexico for growth in the use of renewable energy technologies. According to some estimates, more than five million Mexicans do not have access to grid electricity in 88,000 villages, while more than 100,000 rural communities are in need of potable drinking water. More than 600,000 rural ranches need water for livestock or irrigation. Given Mexico’s abundant solar resources, estimated at 5 kW-hr per square meter these rural needs represent a potential market for photovoltaic energy equipment ranging from USD 50 to USD 100 million. The states offering the greatest potential for PV power generation projects include: Sonora; Chiapas, Baja California and Quintana Roo.

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Independently from the above, CFE currently has a hybrid generating plant in San Juanico, Baja California Sur, integrated by a 80 kW diesel generator, 100 kW wind generator and a 17 kW PV module. Additionally, in 2009, CFE plans to install the Agua Prieta II hybrid plant with 642 MW, of which 25 MW will be PV, in northwest Mexico. CFE estimates the investment cost in the order of USD 3,500 to USD 7,000 and USD 0.25 to USD 0.50 per kW-hr.

2.3

LATENT DEMAND: MARKET DATA

To date, in general, investment in the Mexican photovoltaic power generation market has been minimal. Installed capacity from photovoltaic sources currently represents only 0.04% of the national total. Over the next 5 years, approximately USD 30 million is expected to be invested in photovoltaic development, as indicated in the following. This investment will translate into export opportunities for U.S. suppliers of photovoltaic equipment.

Photovoltaic Energy Installed Capacity (MW), 2004-2006 (USD Millions) Type 2004 Photo V 17.14

2005 18.18

2006 19.27

Estimated 2012 25

Investment 2007-2012 30

Source: CONAE; SENER

2.4

LATENT DEMAND: STATISTICAL PROFILE

Market Size for Photovoltaic Energy Equipment, 2005-2007 (USD Millions)

Import Market Local Production Exports Total Market Imports from U.S.

2005 30.620 0 0.525 0.095 10.215

2006 37.453 0 1.382 36.071 9.959

2007 (Est.) 41.143 0 1.367 39.776 10.787

Projected Annual Growth Rate Following 2 years 6% 6% 6% 6%

*Exchange rates (MXP/USD): 2005, 11.02; 2006, 11.21, 2007, 11.15. Estimated future inflation for 2007, 4%. Source: Bancomext, Datacomex Data Bank, Banco de Mexico

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Market Share by Major Competitors, 2004-2007 Market Share U.S. China Japan Germany Italy Malaysia Taiwan Others

2.5

2004 33.4% 9.6% 16.1% 11.0% 2.8% 5.6% 4.0% 17.5%

2005 26.6% 14.1% 11.6% 16.0% 2.8% 5.8% 2.6% 13.2%

2006 27.6% 20.0% 15.4% 14.0% 3.1% 3.0% 2.9% 11.3%

2007 (Est.) 27.7% 21.2% 16.3% 14.8% 3.3% 3.2% 3.0% 10.5%

2007-2006 Growth Rate 6% 6% 6% 6% 6% 6% 6% 6%

LATENT DEMAND: LEADING SEGMENTS

The following HTS Code offers the best sales prospects for photovoltaic equipment: •

HTS Code 8541.4001—solar PV cells and systems, including panels and modules.

2.6

ACCESSIBILITY: THE STRUCTURE OF COMPETITION

Regardless of its slow growth, the PV market attracts participants. The companies most willing to enter the PV sector are the small and medium sized Mexican developers, some of which manufacture and integrate solar PV system components, such as charge controllers, inverters, cables, batteries and control equipment. However, there is no local production of PV cells. U.S. exports represent over 25% of the Mexican PV systems and cells equipment market. The Japanese firm Kyocera and Sanyo export PV cells to Mexico. Modules are integrated/manufactured in Tijuana. Mexican integrators also typically import raw materials for PV cells from the U.S., while Mexican installers and distributors will import complete solar PV modules, inverters, controls, wind turbines and diesel engines for hybrid applications, among other products. In the PV systems sub-sector, because of the existence of strong Mexican integrators, purchasing practices may vary. Mexican integrators typically manufacture the components themselves, import the PV cells, integrate the module, and sell to local installers, who then sell to the end-user. Sometimes, however, installers will purchase the fully integrated module from foreign suppliers, effectively bypassing Mexican suppliers/integrators.

2.6.1

Key Players

There are several Mexican manufacturers and integrators of PV system components, including Grupo Alpe; Alternativa Solar (ALSOL); Condumex; Energía Alternativa de México, among others. However, no Mexican companies actually manufacture the PV cells themselves. U.S. players include Applied Power Corporation (APC); A.Y. Mc Donald Mfg. Co.; Dankoff Solar Pumps; Direct Power and Water; Grundfos Pumps Corporation; Morningstar Corporation; PVPortal; SoListo; Sunwise

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Technologies. Third country players include BP Solar; Kyocera Solar Inc. (Japanese but U.S. production), Genersys and Conergy (Germany), Suntech (China).

2.7

LATENT DEMAND: TARGET BUYERS

Export and procurement opportunities in the Mexican energy market are project-driven, particularly in the PV sector. That is, equipment and accessories are ordered when a given project is approved and goes forward, but not before. Most PV energy equipment is procured by private sector project developers/operators and not by government. CFE has not placed a high priority on developing PV technologies or projects due to the higher cost they represent. In contrast, some municipalities have taken a proactive role in developing PV energy projects. However, local governments will typically contract the private sector to develop and take the project risk. Very seldom will municipal or industrial end-users procure equipment directly outside of a turnkey or long-term build-operate project. Many developers are also manufacturers’ representatives. Thus, to ensure their product is included in the developer’s development plans, U.S. equipment suppliers are advised to seek out long-term relationships with these developers. These relationships may take the form of representation or supply agreements or a project-specific joint venture. In the latter case, the U.S. partner will supply the equipment, know-how and project financing, and the Mexican partner will further project development and work through the maze of federal and local permitting requirements and approvals. If the U.S. firm is willing to take risk and provide low-cost long-term financing, the likelihood of success is increased dramatically, as the lack of financing has been the principal barrier to growth in the PV sub-sector. Most PV solar panel end-users are rural homeowners, farmers and ranchers, rather than electric power development companies. Consequently, purchasing practices are different. The FIRCO and MREP programs have created a niche for small local distributors and installers of PV panels. The installer will enter into a contract with the end-user to supply and install the PV panel, usually at a pre-approved price. The installer’s profit margin is the difference between the price paid to the supplier of the panel and the contract price with the end-user. Thus, price is the most important purchasing factor. U.S. solar PV panel suppliers are advised to seek out supply relationships with one or more of these installers.

2.8

IMPORT CLIMATE

There are no barriers for importing PV energy equipment. However, the Mexican import law is very strict on the required documentation. While it is not required, it may be advantageous when selling equipment to use a reputable customs broker to properly prepare the paperwork needed. The basic documents required include: •

Import petition.

•

NAFTA Certificate of origin.

•

Commercial bill.

•

Insurance and freight bills.

The products qualifying as North American must use the NAFTA Certificate of Origin in order to receive preferential treatment. The exporter or broker may issue such a certificate. It does not have to be validated or formalized. Other entities that may issue a Certificate of Origin include government agencies, producers, exporters, industrial and commercial chambers of commerce, and associations that are legally authorized in the United States. Like the U.S., Mexico uses the Harmonized Tariff System (H.T.S.). However, Mexico uses only eight digits while the U.S. uses up to ten digits. The first six digits used under the HTS system are identical for all countries, the rest may vary. www.icongrouponline.com

2007 Icon Group International, Inc.

Photovoltaic (PV) Solar Energy Equipment

10

The first thing that a company must do before exporting to Mexico is make sure that the buyer is registered with the Importers’ Registry. This registry is filed with the Secretaria de Hacienda y Credito Publico (Hacienda – Treasury Ministry) and only Mexican companies may obtain it. Thus, the importers’ license is the principle obstacle for foreign suppliers who wish to sell and deliver merchandise directly to an end-user who is unwilling or unable to comply with product importation rules. U.S. exporters must also ensure that the Mexican importer has submitted all the necessary information regarding packing, labeling and quality standards certification, Mexican Official Standards (NOMs), and health and safety regulations to the appropriate Mexican Customs officials. In addition to customs restrictions of Hacienda, many other Mexican federal government enforcement agencies and departments impose import restrictions, such as the Health Secretariat, the Economy Secretariat, the Communications and Transportation Secretariat, and the Secretariat of the Environment and Natural Resources.

2.8.1

Regulatory Framework

As discussed previously, PV energy power generation components and parts will typically fall under the 8541.4001 classification and consistent with NAFTA, the import duties on all such products from the U.S. are 0.0%.

2.9 2.9.1

MARKET ISSUES AND OBSTACLES Standards

The Mexican government published its National Standardization Program on April 22, 1998 in the Official Gazette (Federal Register). This program lists the activities that various standards committees will conduct.

2.9.2

Import Duties and Rates

According to 1998 modifications in the Mexican customs law, the participation of a customs broker is not obligatory for imports if all legal and technical requirements are met. In the same change, in order to import some goods, it is now required that the importer be registered as such with Hacienda. The participation of a customs broker is suggested when the exporter is not familiar with the Mexican standards and customs processing procedures. All renewable energy equipment from NAFTA countries is exempt from any import duties. A 15% Value Added Tax (IVA) is assessed on the cumulative value, consisting of the U.S. plant value (invoice) of the product, plus the inland U.S. freight charges, any other costs listed separately on the invoice such as export packing plus the duty. The importer will pay other IVA fees for such services as the inland Mexico freight and warehousing. The IVA tax is only 10% for border area destinations. The IVA is recovered at the point of sale. The following example shows the difference in import costs for a NAFTA firm versus a non-NAFTA firm. The example also shows the effect of the 15% VAT on the final import price versus a non-NAFTA manufacturer’s price.

www.icongrouponline.com

2007 Icon Group International, Inc.

Photovoltaic (PV) Solar Energy Equipment

11

Direct Import Cost Template Base Price Freight (Estimated 8.0%) Insurance (1.5% of C&F) Dutiable Base=CIF Ad Valorem Duty (3.0%) Value Added Tax (15.0%) Total Port Costs (Unloading, Storage, Est 6.0% CIF) Freight Forwarder Fee (Est. 1.5% CIF) Bank Charges (2.0% of FOB Price) Grand Total

2.9.3

U.S. Firm $100.00 8.00 1.62 109.62 0 16.44 $126.06 7.56 1.64 2.00 $137.26

Non-Nafta Firm $100.00 8.00 1.62 109.62 3.29 16.94 $129.85 7.79 1.64 2.00 $141.28

Tax Incentives

Mexico’s federal taxing authority, Hacienda, has in place two tax incentive programs that may be taken advantage of by industry wishing to invest in environmental infrastructure and equipment. The most well-know provision allows for accelerated depreciation of up to 100% of purchases of environmental equipment. Under the tax law, companies not earning a profit can also use the incentive to offset the Mexican Asset Tax for up to ten years. To deter major polluters from locating in Mexico’s three largest and most polluted urban centers, Mexico City, Guadalajara and Monterrey, this tax benefit is limited to firms with no more than USD 1 million in earnings and USD 2 million in assets. Hacienda officials in charge of the program revealed, however, that the provision is very difficult to apply and therefore has not been taken advantage of to its potential. This is due to the fact that no clear definition of “environmental equipment” has been issued. Hacienda and CONAE offer companies the chance to immediately deduct 100% of the investment cost in renewable energies. Like the environmental equipment provision, however, no definition of renewables has been established and thus Hacienda has effectively blocked the implementation of the program. Another incentive implemented through the Procuraduria Federal de Proteccion al Ambiente (PROFEPA)—Mexican Environmental Protection Agency—is the policy that allows industries that are fined for not following environmental regulations, to spend the money on environmental protection equipment (including renewable) rather than paying it to the government. States are also free to promote environmental compliance through fiscal incentives. In Mexico City, for instance, companies may reduce payroll tax payments by one-half and property tax payments by one-quarter by deducting 100% of environmental expenditures. The Mexico City authorities, however, must sign off on the investment as indeed constituting an “environmental improvement” before it is made and again three years later, and not until then may the deduction be taken.

2.9.4

The Renewable Energy Regulation – Intermittent Power

Under the 2003 modified Renewable Energy Regulation, self- and co-generation power plants producing electricity from intermittent energy sources (“Renewable Energy Sources”) may enter into favorable interconnection contracts www.icongrouponline.com

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Photovoltaic (PV) Solar Energy Equipment

12

with CFE that allow the generator to “bank” with the CFE all or a portion of the electricity generated at any given time. In other words, the generator may “deposit” the electricity during high efficiency times (when the plant is generating more than the off-takers require) or non-peak hours (when the off-taker prefers to purchase from CFE because the latter’s non-peak rates are lower that the self-generation supplier’s rates) and later “withdraw” the electricity during low efficiency times (when the generator cannot meet its customer’s demand) or during peak hours (when the generator can sell the power at a significant profit margin). Specifically, the Renewable Energy Source electricity may be sold to the grid at the marginal cost corresponding to the particular time of day (peak, non-peak, etc.) in which it is sold and purchased back from the grid at the marginal cost corresponding to the particular time of day in which it is purchased. According to the CRE, in practice, the highest marginal cost paid by the plant would be no greater than 80% of the lowest marginal cost received. On the other hand, the electricity rates charged to the end-user by CFE (the plant’s only competitor) may vary by up to 300% depending on the particular time and rate. In effect, then, this scheme would enable the plant to continuously sell the power it produces during non-peak hours, buy it back during peak hours, and sell it to the customer at the peak hour at a substantial profit.

2.9.5

Issues and Obstacles

To promote sales of renewable energy equipment, manufacturers should keep in regular contact with project developers, government stakeholders such as CFE or municipal self-supply customers, systems integrators, manufacturer’s reps, and in the PV subsector, installers. Frequent visits are the common means to keep in touch with customers. Sending brochures, newsletters and other promotional materials is also a common practice. Advertising in specialized magazines is still another way to promote sales in this sector. Good sources of competitive intelligence and contact information for distributors and representatives in the Mexican renewable market include: the Mexican Renewable Energy Program Web site (www.re.sandia.gov/index.html); the Mexican Solar Energy Association – ANES (www.anes.org.mx) and the Renewable Energy Source Guide (energy.sourceguides.com/index.shtml). The distribution channels for solar equipment are more complex, given the existence of local production and integration. In either case, U.S. equipment suppliers are advised to seek out a qualified representative capable of building customer relationships.

2.10

ACCESSIBILITY: DISTRIBUTION STRATEGIES

Representatives of foreign firms prefer to have exclusivity from manufacturers to protect against lower prices offered to other importers and distributors. They like to work with foreign firms, and to receive information from manufacturers when new developments on renewable energy equipment are available. It is very important that pricing be maintained in accordance with established agreements, especially if the representative is participating on behalf of the manufacturer in public tenders. Industry Trade Shows are excellent venues to promote products. Most representatives are located in Mexico City, Guadalajara, State of Jalisco, and Monterrey, State of Nuevo Leon.

www.icongrouponline.com

2007 Icon Group International, Inc.

Photovoltaic (PV) Solar Energy Equipment

2.10.1

13

Payment Terms and Export Finance

Payment terms given to suppliers depend on how the deal is financed. If the developer has obtained long-term financing from outside sources or a specific line of credit to pay for the import, he may pay suppliers upon delivery. If no transaction-specific financing is obtained, the developer will likely seek a supplier able to accept payment over the medium term, beginning once the project is on-line. Exports offering this type of financing should insist on substantial guarantees or security interests, such as letters of credit, promissory notes with additional guarantees, reservation of title to the goods to goods sold, industrial mortgages and other mechanisms established under Mexican law. On the other hand, in the case of projects and purchases financed by development banks (e.g., FIRCO PV panel purchases), suppliers will not be expected to finance the sale of equipment. Mexico also offers many sources of domestic (BANOBRAS, NAFIN), bilateral (U.S. EX-IM Bank, USTDA) and multilateral (Inter-American Development Bank (IDB), the World Bank, and the NADBank) financing for renewable energy and environmental projects and exports. Mexico’s commercial banks offer a full spectrum of services within one institution. These services range from offering deposit accounts, consumer and commercial lending, corporate finance, and the operation of trust and mutual funds, to foreign exchange and money market trading. Mexico’s commercial banking sector has been opened to foreign competition. NAFTA permits U.S. and Canadian banks or any other foreign bank with a subsidiary in the U.S. or Canada to establish wholly-owned subsidiaries in Mexico. Development banks in Mexico such as the NAFIN, BANOBRAS and BANCOMEX have become primarily secondtier banks that reach priority sector such as the renewable energy industry by lending through commercial banks and factoring companies. NAFIN and the U.S. EX-IM Bank have programs available to provide Mexican companies with financing to import U.S. equipment. BANCOMEXT, Mexico’s import and export development bank, also works with EX-IM Bank to provide credit lines throughout commercial banks to private companies, contractors and government agencies to purchase goods and services for renewable energy infrastructure. BANOBRAS Mexico’s Public Works Bank works with the World Bank and the Inter-American Development Bank to assist municipalities to modernize or increase their electricity supply service infrastructure by publishing international or domestic public tenders.

2.11

KEY CONTACTS

2.11.1

Trade Events

Enviro Pro and T&D PowerMex Expos October 16-18, 2007 World Trade Center, Mexico City, DF E-mail: [email protected] ISES Latin America Conference October 1-5, 2007 Zacatecas, Zacatecas Web site: www.anes.org/

www.icongrouponline.com

2007 Icon Group International, Inc.

Photovoltaic (PV) Solar Energy Equipment

2.11.2

14

Industry Associations

•

National Association of Solar Energy: www.anes.org/

•

National Chamber of the Manufacturing Industry: www.canacintra.org

•

National Bank for Imports and Exports: www.bancomext.gob.mx

www.icongrouponline.com

2007 Icon Group International, Inc.

15

3 3.1

FINANCIAL INDICATORS: SEMICONDUCTORS AND RELATED DEVICES OVERVIEW

Is Mexico competitive? With the globalization of markets, the increased mobility of corporate assets, and the need for productive human resources, this question has become all the more complex to answer. The financial indicators section was prepared to tackle this question by focusing on certain fundamentals: financial performance and labor productivity. Rather than focus on the economy as a whole, the analysis presented here considers only one sector: semiconductors and related devices. We are essentially interested in the degree to which firms operating in Mexico have fundamentally different financial structures and performance compared to firms located elsewhere. With respect to this view of competitiveness, if one were to invest or operate in Mexico, how would the firm’s asset structure likely vary compared to a firm operating in some other country in Latin America or average location in the world? In Mexico, do firms typically hold more cash and other short term assets, or do they concentrate their assets in physical plant and equipment? On the liability side, do firms operating in Mexico have a higher percent of payables compared to other firms operating in Latin America, or do they hold a higher concentration of long term debt? The structure of the income statement is also telling. Do firms operating in Mexico have relatively higher costs of goods sold, operating costs, or income taxes compared to firms located elsewhere in the region or the world in general? Are returns on equity higher in Mexico? Are profit margins greater? Are inventories held longer? The financial indicators section was designed to answer these and similar questions that naturally affect one’s decision to invest or operate in Mexico. Again, we are particularly interested in semiconductors and related devices, and not the economy as a whole. In many instances, people make all the difference. In addition to financial competitiveness, we consider the extent to which labor deployment and productivity in Mexico differs from regional and global benchmarks. In this case, we are interested in the amount of labor required to operate a typical business in Mexico and the likely returns on this human investment. What is the typical ratio of short-term and long-term assets to employee (employed in semiconductors and related devices operations)? What are typical capital-labor ratios? How different are these ratios to those in Latin America in general and the world as a whole? What are the average sales and net profits per employee in Mexico compared to regional benchmarks? The goal of this section is to assist managers in gauging the competitive performance of Mexico at the global level for semiconductors and related devices. With the globalization of markets, greater foreign competition, and the reduction of entry barriers, it becomes all the more important to benchmark Mexico against other countries on a worldwide basis. Doing so, however, is not an obvious task. This report generates international benchmarks and measures gaps that might be revealed from such an exercise. First, data is collected from companies across all regions of the world. For each of these firms, data are standardized into comparable categories (assets, liabilities, income and ratios), by country, region and on a worldwide basis. From there, we eliminate all currency effects by standardizing within each category. Global benchmarks are then compared to those estimated for semiconductors and related devices in Mexico. Though we heavily rely on historical performance, the figures reported are not historical but are forecasts and projections for the coming fiscal year.

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2007 Icon Group International, Inc.

Financial Indicators

3.1.1

16

Financial Returns and Gaps in Mexico

The approach used in this report to evaluate operating performance for semiconductors and related devices in Mexico is called "vertical analysis." For those unfamiliar with this type of analysis, frequently taught in graduate schools of business, the reader is recommended Jae K. Shim and Joel G. Siegel’s recent book titled Financial Management.1 In their discussion of financial statement analysis and ratios, Skim and Siegel (p. 42-43), describe common-size statement (vertical analysis) as follows: A common-size statement is one that shows each item in percentage terms. Preparation of common-size statements is known as vertical analysis, in which a material financial statement item is used as a base value and all other accounts on the financial statement are compared to it. In the balance sheet, for example, total assets equal 100 percent, and each individual asset is stated as a percentage of total assets. Similarly, total liabilities and stockholders’ equity are assigned a value of 100 percent and each liability or equity account is then stated as a percentage of total liabilities and stockholders’ equity, respectively. … For the income statement, a value of 100 percent is assigned to net sales, and all other revenues and expense accounts are related to it. It is possible to see at a glance how each dollar of sales is distributed among various costs, expenses, and profits. The authors suggest that vertical analyses involve industry-based comparisons. Such a comparison “allows you to answer the question, ‘How does a business fare in the industry?’ You must compare the company’s ratios to… industry norms.” (p. 43-44) This approach is extended to country competitiveness (in this case Mexico) for a particular sector (in this case semiconductors and related devices). This involves calculating country, regional and global norms. This introduction will describe the seven-stage methodology used to perform this analysis. Each stage should be seen as a working assumption behind the numbers presented in later chapters. Stage 1. Industry Classification. This stage begins by classifying the company into an industry. For this, we have relied on a combination of the North American Industry Classification System (NAICS pronounced “Nakes”), a relatively new system for classifying business establishments, and the older Standard Industrial Classification (SIC) system. Adopted in 1997, NAICS codes are the new industry classification codes used by statistical agencies of the United States. NAICS was developed jointly by the U.S., Canada, and Mexico to provide comparability in statistics about business activity across North America. After 60 years of service, the outdated SIC system was retired on October 1, 2000, leaving only the NAICS codes for official use. The NAICS classification system adds some 350 new industries and represents a revision to over 60% of the previous SIC industries. Despite its official retirement, the SIC system is still commonly used (and often reported in firm’s financial statements). For most companies in the world, classification within either the new NAICS or older SIC systems is a rather straight forward exercise. For some, however, it can be problematic. This is true for several reasons. The first being that the SIC or NAICS classification systems are rather broad for many product and industry categories (a firm’s products or services may be only a minor aspect of the classification’s definition). The second is that some firms’ activities span multiple codes. Finally, it is possible that a firm is classified by one source using its SIC code, and by another using its NAICS code, and by a third using both. Furthermore, some sources do not report either code, but instead use qualitative statements of the firm’s activities. Nevertheless, if one wishes to pursue a vertical analysis, some classification needs to take place which selects a peer group. In making this classification, one can rely on a number of sources. In some countries, firms must “self” classify in official periodic reports (e.g. annular reports, 10Ks, etc.) to public authorities (such as the Securities and Exchange Commission). These reports are then open for public scrutiny (e.g. EDGAR filings). In other cases, commercial data vendors or private research firms provide SIC/NAICS codes for specific companies. These include: •

Bloomberg - www.bloomberg.com

•

Datastream (Thomson Financial) - www.datastream.com

1

Skim and Siegel (2000), Financial Management published by Barron’s Educational Series, Inc. (BARON’S BUSINESS LIBRARY Series), ISBN: 0-7641-1402-6. www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators •

17

Dun & Bradstreet - www.dnb.com

•

Hoovers - www.hoovers.com

•

HarrisInfoSource - www.HarrisInfo.com

•

InfoUSA - www.infousa.com

•

Investext (Thomson Financial) - www.investext.com

•

Kompass International Neuenschwander SA. – www.kompass.com

•

Moody's Investors Service - www.moodys.com

•

Primark (Thomson Financial) - www.primark.com

•

Profound (The Dialog Corporation – A Thomson Company) - www.profound.com

•

Reuters - www.reuters.com

•

Standard & Poor's - www.standardandpoors.com

It is interesting to note that commercial vendors often report different qualitative descriptions and industrial classifications from one to another. These descriptions and classifications may also be different from those reported by the firm itself. Anyone hoping to perform a benchmarking study, therefore, has to make a judgment call across these various sources in order to determine a reasonable classification. In this report, we have decided a metaanalytic process, by combining various sources (including linking a classification’s keywords to qualitative descriptions of the firm’s product line). In cases of inconsistency, the most recent or globally comparable available is chosen. Again, the overall goal is to classify firms, which either produce similar products, offer similar services, or are in the same stage of the value chain for a particular industrial classification. In the case of this report, the SIC code selected is: 3674 which is defined as “semiconductors and related devices”. This classification should be seen as a working assumption. In order to obtain a more detailed discussion of this classification, the reader is referred to the Web sites developed by the U.S. Census Bureau: http://www.census.gov/epcd/www/naics.html. Basic definitions and descriptions are provided at: http://www.census.gov/epcd/www/drnaics.htm#q1. A full correspondence table between SIC and NAICS codes, and detailed definitions are given at http://www.census.gov/epcd/www/naicstab.htm. Stage 2. Firm-Level Data Collection. A global search was conducted across over 20,000 companies in over 40 major economies, including Mexico, for those that report financials (balance sheet and income statements) and that are involved in semiconductors and related devices. It should be noted that the public-domain financials can be either historic or projections. It should also be noted that even historic figures can be modified in the future and often represent “estimates” of performance. Stage 3. Standardization. Once collected, public domain financial figures of firms identified in Stage 2 are standardize into comparable categories (assets, liabilities, and income). Again, these are limited to firms involved in some aspect of semiconductors and related devices (i.e. are members of the value chain). From there, we eliminate all currency effects by standardizing within each category (creating ratios). In order to maintain comparability over time and across countries, vertical analysis is used. In the case of a firm’s assets, we treat the total assets as equaling 100, irrespective of the value of the local currency. All other assets are then calculated as a percent of total assets. In this way, the structure of the firm’s assets can be easily interpreted and compared with international benchmarks. For liabilities, total liabilities and equity are indexed to equal to 100. For the income statement, total revenue is indexed to equal 100, and all other figures are calculated as a percent of these figures. Stage 4. Filtering. Not all the firms selected in Stage 2 or the ratios calculated in Stage 3 are used for the country, regional or global benchmarks, as a number of companies are purposely dropped from the analysis. This is justified by the “outlier” phenomenon that plagues such analysis. The problem lies in that any given company in the benchmarking pool may be facing some exceptional event or may be organized in an exceptional way so as to make its ratios vastly different from the norm. By including such firms, the global benchmarks can be overly skewed. In many countries, firms are organized into holding groups. These groups nominally have very few employees (e.g. 4

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2007 Icon Group International, Inc.

Financial Indicators

18

to 25 employees), but have extremely large assets, liabilities, or revenues. As such, the inclusion or exclusion of firms having this form of management can affect the ratios and benchmarks reported. Likewise, some firms have no net sales, no assets, no liabilities, or ratios. Others have ratios that appear implausible for a normal or viable company. In order to not allow these firms to affect the global benchmarks, only those firms with reasonable financials have been chosen. Finally, in some countries, detailed financials are not available or are not comparable to either the company in question or the global norm (e.g. various forms of depreciation). In this case, only those which exist and are comparable are reported. The details, therefore, that comprise a given ratio or set of ratios may not be reported. This may lead to the addition of several ratios, not summing to the whole. Stage 5. Calculation of Global Norms. Once the filtering process has eliminated outliers, a final list of companies included is compiled. Based on this list, the ratios discussed in Stage 3 are calculated for every firm, and then averaged to create country, regional and global benchmarks. The world average is calculated using each country’s population as a weight. Stage 6. Projection of Deviations. The goal of this report is not only to estimate raw ratios or averages, but also to present the difference between Mexico and projected global averages for that same ratio. Furthermore, it can be insightful to know the location of each ratio within the distribution of the countries represented in Stage 5. These deviations, in fact, can be seen as projections or likely scenarios for the future. This is often true for two reasons. First, while a company’s financials change from year to year, its ratios are often stable. This is especially true for the country, regional and global benchmarks which represent averages across companies. From a purely Bayesian sense, the difference between the company’s recent ratios and the benchmarks are a reasonable prior for future deviations. This is true, even if the entire industry is hit by an external or exogenous shock, such as an oil crisis or economic slowdown. In other words, we assume that the structure of the variance in the industry’s financials remains stable. Second, many of the data are based on preliminary reports that might be changed in future filings. As forecasts, therefore, the numbers derived from these are also forecasts of past and future performance (with associated uncertainties). The calculation of the difference between a country’s ratios and the global benchmarks is meant to yield roughly approximate forecasts, or "useful measures". In general, more developed countries have more reliable source data. For many, ratios are econometrically extrapolated using models that use country characteristics (e.g. income per capita) as independent variables (i.e. countries having similar economic structures are assumed to have similar operating ratios). Again, the forecasts are based on the assumption of relative stability. This assumption has proven extremely robust in previous applications of this methodology (i.e. today’s weather is a good predictor of tomorrow’s weather, but not the weather three years from now). The results reported should be viewed as those for a “proto-typical” firm operating in Mexico whose primary activity is semiconductors and related devices. Stage 7. Projection of Ranks and Percentiles. Based on the calculation of deviations, relative ranks and percentiles are calculated across the firms used in the benchmarks. The percentile estimates the percent of a representative sample of countries in the world having values of the ratio lower than Mexico. It is important to note that a percentile being high (or low) does not mean good (or bad) past, present or future financial performance. The reader must draw this conclusion on their own. The estimates provided were created to provide managerial insight, and not a recommendation with respect to particular investments within any country. We graphically report, for each part of the financial statement, the larger structural differences between Mexico and the regional and global benchmarks, and provide a summary table of ranks and percentiles. These are estimates for firm which would be involved in semiconductors and related devices. A deviation from the global norm need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or perhaps signal a country's relative strength or weakness for the coming fiscal year.

3.1.2

Labor Productivity Gaps in Mexico

In the case of labor productivity measures, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected

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Financial Indicators

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using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. The seven stage approach given above is used in a similar manner. We then report, for each part of the financial statement, the larger labor productivity gaps that Mexico has vis-à-vis the worldwide average (for semiconductors and related devices). Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

3.1.3

Limitations and Extensions

Shim and Siegal (p. 60) stress that “while ratio analysis is an effective tool for assessing a company’s financial condition,” operating Mexico or any other country, “its limitations must be recognized.” They find that (p. 59) “no single ratio or group of ratios is adequate for assessing all aspects of a company’s financial condition” operating in a particular country. The authors note the following limitations associated with ratio analyses which apply to the global benchmarking and vertical analysis presented here (p.60): •

Accounting standards or policies may limit useful comparisons across companies

•

Management accounting practices across companies and countries may not be performed in the same style

•

Ratios are static and do not reveal future trends

•

Ratios do not indicate the quality of the components used to calculate the ratios (i.e. ratios have ambiguous interpretations)

•

Reported ratios may not reflect real values

•

Companies may be highly diversified, limiting the comparability of their ratios to others

•

Industry averages or norms are approximate; finer industry definitions may be required for certain interpretations or comparisons

•

Financial statements and resulting ratios often mean different things to different people depending on their points of view or motivations.

Again, all figures reported here are estimates, so due caution is required. The above caveats, and the fact that statements made in this report are forward-looking, requires that this point be emphasized. A number of intervening factors can have material effect on the ratios and variances forecasted. These include changes in a company's management style, exchange rate volatility, changes in accounting standards, the lack of oversight or comparability in accounting standards, changes in economic conditions, changes in competition, changes in the global economy, changes in source data quality, and similar factors.

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.2 3.2.1

FINANCIAL RETURNS RATIOS

IN

20

MEXICO: ASSET STRUCTURE

Overview

In this chapter we consider the asset structure of companies involved in semiconductors and related devices operating in Mexico benchmarked against global averages. The chapter begins by defining relevant terms. A common-size statement, or vertical analysis of assets is then presented for companies operating in Mexico and the average global benchmarks (total assets = 100 percent). For ratios where there are large deviations between Mexico and the benchmarks, graphics are provided (sometimes referred to as a financial “gap” analysis). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key vertical analysis asset ratios are highlighted across countries in the comparison group.

3.2.2

Assets – Definitions of Terms

The following definitions are provided for those less familiar with the asset-side of financial statement analysis. As this chapter deals with the vertical analysis and global benchmarking of assets, only definitions covering certain terms used in this chapter’s tables and graphs are provided here . The glossary below reflects commonly accepted definitions across various countries and official sources. •

Buildings. Buildings are defined as fixed assets which represent the acquisition and improvement costs of permanent structures owned or held by the company. Such structures include office buildings, storage quarters, or other facilities and also associated items such as loading docks, heating and air-conditioning equipment, refrigeration equipment, and all other property permanently attached to or forming an integral part of the structure. However, it does not include furniture, fixtures, or other equipment which are not an integral part of the building.

•

Cash. Cash is typically defined as money on hand, on deposit with chartered bank, or held in the form of eligible securities.

•

Current Assets. Current assets are generally defined to be resources which are available, or can readily be made available, to meet the cost of operations or to pay current liabilities.

•

Deferred Charges. Deferred charges are generally understood to represent the amount which has been paid for services already received by the company but has not been charged to operations.

•

Finished Goods. Finished goods generally comprise the ready-for-sale inventory.

•

Intangible Other Assets. Intangible assets are generally understood to be nonphysical assets such as legal rights (patents and trademarks) recorded at their historical cost then reduced by systematic amortization.

•

Investments in Unconsolidated Subsidiaries. Investments in unconsolidated subsidiaries are typically defined as investments for the purpose of generating revenue in subsidiaries whose financial statements are not combined with the company's.

•

land. Land is generally considered to be a fixed asset. If land is purchased, its capitalized value typically includes the purchase price plus costs such as legal fees, filling and excavation costs which are incurred to

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•

21

put the land in condition for its intended use. If land is acquired by gift, its capitalized value typically reflects its appraised value at the time of acquisition. Land typically does not include depletable resources. long Term Receivables. Long-term receivables are commonly defined as amounts due within a period exceeding one year from private persons, businesses, agencies, funds, or governmental units which are expected to be collected in the form of moneys, goods, and/or services.

•

Machinery & Equipment. Machinery and equipment is commonly defined as a fixed asset classification which typically includes tangible property (other than land, buildings, and improvements other than buildings) with a life of more than one year. Such assets typically include office equipment, furniture, machine tools, and motor vehicles. Equipment may be attached to a structure for purposes of securing the item, but unless it is permanently attached to an integral part of the building or structure, it will generally be classified as equipment and not buildings. Equipment is generally defined as tangible property other than land, buildings, or improvements other than buildings, which is used in operations. Examples include machinery, tools, trucks, cars, furniture, and furnishings.

•

Prepaid Expenses. Prepaid expenses are typically defined as those supplies and/or services (not inventory) acquired or purchased but not consumed or used at the end of the accounting period.

•

Progress Payments. Progress payments are commonly defined as periodic payments to a supplier, contractor, or subcontractor for work as it is completed as desired, in order to reduce working capital requirements.

•

Property Plant and Equipment - Gross. Gross property, plant and equipment generally consists of the gross book value (rather than the more commonly-used measures of fixed capital stocks in current or real value), of all commercial buildings, associated land and equipment used therein that are owned by the company and that are either used or operated by the company or leased or rented to others.

•

Property Plant and Equipment - Net. Net PP&E equals the original cost of property, plant, and equipment (PP&E), less accumulated depreciation, depletion and amortization (DD&A).

•

Raw Materials. Raw materials are materials which will be converted by a manufacturer into a finished product.

•

Receivables (Net). Net receivables are defined as the net amount due to the company from private persons, businesses, agencies, funds, or governmental units which is expected to be collected in the form of moneys, goods, and/or services.

•

Short Term Investments. Short-term investments are investments which can be typically liquidated in less than one year.

•

Tangible Other Assets. Other tangible assets are commonly understood to be something substantial or real that is capable of being given an actual or approximate value (market or estimated), not classified elsewhere.

•

Total Assets. Total assets are defined as the financial representation of economic resources, the beneficial interest in which is legally or equitably secured to a particular organization as a result of a past transaction or event.

•

Total Inventories. Total inventories are defined as the total amount of goods on hand.

•

Transportation Equipment. Transportation equipment is equipment used for the transportation of goods for sale.

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Work in Process. Work in progress includes goods which have been started but are not yet ready for sale.

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3.2.3

23

Asset Structure: Outlook

Using the methodology described in the introduction, the following table summarizes asset structure benchmarks for firms involved in semiconductors and related devices in Mexico. To allow comparable benchmarking, a common index of Total Assets = 100 is used. All figures are current-year projections for companies operating in Mexico based on latest financial results available. Asset Structure Mexico Latin America World Avg.

_________________________________________________________________________________________________________

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Finished Goods Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

12.91 12.65 0.73 39.28 19.92 3.76 1.06 13.18 2.19 3.34 2.75 77.36 0.56 1.57 0.46 19.52 50.16 0.44 9.89 37.06 0.80 4.71 30.64 0.97 0.00 0.04 0.71 100.00

7.59 7.38 5.30 20.74 17.37 6.83 1.73 7.52 0.91 1.06 1.47 47.53 0.29 2.23 1.07 30.26 60.85 2.08 13.80 37.09 0.65 9.24 32.29 9.43 0.75 0.31 1.15 100.00

12.80 7.61 5.90 23.52 17.08 5.48 2.92 5.87 1.01 1.35 1.33 55.52 0.44 2.64 2.25 27.55 48.25 1.52 9.73 29.92 0.78 7.84 22.80 4.99 0.91 0.37 2.35 100.00

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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3.2.4

24

Large Variances: Assets

The following graphics summarize for semiconductors and related devices the large asset structure gaps between firms operating in Mexico and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Cash 15

12.65

10

7.38

7.61 5.04

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Short Term Investments 5.3

6

5.9

4 2

0.73

0 -2 -4

-5.17

-6 Mexico

Latin Am erica

World Average

Gap

Gap: Receivables (Net) 40

39.28

30 20.74

23.52 15.76

20 10 0 Mexico

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Gap

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Gap: Total Inventories 19.92 20

17.37

17.08

15 10 5

2.84

0 Mexico

Latin Am erica

World Average

Gap

Gap: Finished Goods 15

13.18

10

7.52

7.31

5.87 5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Current Assets - Total 80

77.36

60

47.53

55.52

40 21.84 20 0 Mexico

Latin Am erica

World Average

Gap

Gap: Property Plant and Equipment - Net 40

30.26

30 20

27.55

19.52

10 0 -8.03

-10 Mexico

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World Average

Gap

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Gap: Machinery & Equipment 40

37.06

37.09 29.92

30 20 7.14

10 0 Mexico

Latin Am erica

World Average

Gap

Gap: Other Property Plant & Equipment 9.24

10 5

7.84

4.71

0 -3.13 -5 Mexico

Latin Am erica

World Average

Gap

Gap: Accumulated Depreciation - Total 40 30.64

32.29

30

22.8

20 7.84

10 0 Mexico

Latin Am erica

World Average

Gap

Gap: Other Assets 9.43

10

4.99 5 0.97 0 -4.02

-5 Mexico

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Latin Am erica

World Average

Gap

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3.2.5

27

Key Percentiles and Rankings

We now consider the distribution of asset ratios for semiconductors and related devices using ranks and percentiles. What percent of countries have a value lower or higher than Mexico (what is the ratio's rank or percentile)? The table below answers this question with respect to the vertical analysis of asset structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key vertical asset ratios are highlighted in additional tables. Asset Structure

Mexico

Rank of Total

Percentile

12.91 12.65 0.73 39.28 19.92 3.76 1.06 13.18 2.19 3.34 2.75 77.36 0.56 1.57 0.46 19.52 50.16 0.44 9.89 37.06 0.80 4.71 30.64 0.97 0.00 0.04 0.71 100.00

28 of 53 14 of 48 44 of 46 2 of 53 16 of 53 39 of 47 40 of 47 3 of 47 5 of 46 2 of 37 9 of 53 2 of 53 20 of 36 30 of 48 36 of 46 46 of 53 32 of 48 39 of 41 31 of 48 17 of 48 19 of 39 44 of 48 14 of 47 45 of 53 36 of 37 31 of 33 32 of 51

47.17 70.83 4.35 96.23 69.81 17.02 14.89 93.62 89.13 94.59 83.02 96.23 44.44 37.50 21.74 13.21 33.33 4.88 35.42 64.58 51.28 8.33 70.21 15.09 2.70 6.06 37.25

_________________________________________________________________________________________________________

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Finished Goods Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Cash & Short Term Investments Countries

Value (total assets = 100)

Rank

Percentile

32.55 32.28 25.77 25.57 22.39 22.04 21.94 21.17 20.95 20.91 20.75 20.70 20.55 20.45 18.50 17.90 16.34 16.03 15.53 15.27 15.02 14.73 13.51 13.43 13.23 12.94 12.91 12.74 12.59 12.28 12.06 11.88 11.61 10.49 10.07 9.68 9.62 9.44 8.44 8.29 7.94 7.72 4.69 2.99 1.16

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 23 24 25 26 27 28 29 30 31 32 34 35 38 40 41 42 44 45 46 47 48 50 51 52

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 35.85 33.96 28.30 24.53 22.64 20.75 16.98 15.09 13.21 11.32 9.43 5.66 3.77 1.89

Region

_________________________________________________________________________________________________________

Israel Ireland Norway Portugal New Zealand Brazil Hong Kong USA China Canada Spain Switzerland Austria Singapore Japan Luxembourg South Korea Australia the United Kingdom Finland Malaysia Russia Thailand Taiwan Hungary Turkey Mexico Philippines Belgium France South Africa Sweden Italy Germany Indonesia Pakistan Greece Netherlands Denmark Czech Republic India Argentina Chile Poland Peru

the Middle East Europe Europe Europe Oceana Latin America Asia North America Asia North America Europe Europe Europe Asia Asia Europe Asia Oceana Europe Europe Asia Europe Asia Asia Europe the Middle East Latin America Asia Europe Europe Africa Europe Europe Europe Asia the Middle East Europe Europe Europe Europe Asia Latin America Latin America Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Cash & Short Term Investments (Semiconductors and Related Devices) Countries in Latin America

Value (total assets = 100)

Rank

Percentile

22.04 12.91 12.71 12.70 11.99 11.83 11.17 10.86 10.77 10.46 9.37 7.72 4.69 3.68 3.62 2.98 2.64 1.16 1.05 0.96 0.89 0.88

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Brazil Mexico Bolivia Uruguay Venezuela Falkland Islands Nicaragua Panama Paraguay Colombia Guyana Argentina Chile Costa Rica Belize French Guiana Suriname Peru Guatemala El Salvador Ecuador Honduras

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Receivables (Net) Countries

Value (total assets = 100)

Rank

Percentile

39.39 39.28 35.37 35.35 34.24 33.33 32.44 30.58 29.49 29.40 28.04 27.64 26.98 26.72 26.52 26.52 26.21 26.07 25.96 25.74 25.60 24.71 24.70 24.36 24.35 24.35 24.32 23.86 22.75 22.63 21.16 20.32 20.27 20.08 18.74 18.58 18.31 17.30 17.30 16.48 16.45 16.25 14.05 13.68 12.26

1 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 38 39 41 42 43 44 46 48 49 51

98.11 96.23 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 28.30 26.42 22.64 20.75 18.87 16.98 13.21 9.43 7.55 3.77

Region

_________________________________________________________________________________________________________

Turkey Mexico Greece Poland Netherlands France South Africa India Denmark Italy the United Kingdom Belgium Norway Portugal Japan Czech Republic Sweden Pakistan Germany Malaysia Spain Finland Argentina China New Zealand Singapore Austria Hong Kong Canada Australia Thailand South Korea USA Chile Israel Ireland Russia Philippines Taiwan Brazil Hungary Switzerland Luxembourg Indonesia Peru

the Middle East Latin America Europe Europe Europe Europe Africa Asia Europe Europe Europe Europe Europe Europe Asia Europe Europe the Middle East Europe Asia Europe Europe Latin America Asia Oceana Asia Europe Asia North America Oceana Asia Asia North America Latin America the Middle East Europe Europe Asia Asia Latin America Europe Europe Europe Asia Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Receivables (Net) (Semiconductors and Related Devices) Countries in Latin America

Value (total assets = 100)

Rank

Percentile

39.28 38.64 36.49 35.27 31.17 26.11 25.23 24.70 20.08 17.26 16.87 16.48 16.38 15.75 15.52 15.16 13.50 12.26 11.13 10.15 9.42 9.33

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Venezuela French Guiana Suriname Falkland Islands Guyana Argentina Chile Bolivia Paraguay Brazil Colombia Costa Rica Belize Nicaragua Panama Peru Guatemala El Salvador Ecuador Honduras

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Total Inventories Countries

Value (total assets = 100)

Rank

Percentile

37.32 26.55 25.46 25.35 24.27 24.12 23.64 23.62 23.22 22.44 22.02 21.28 21.22 20.98 19.97 19.92 19.69 19.54 18.45 18.03 17.93 16.91 16.69 16.51 16.41 16.36 16.07 15.81 15.49 14.67 13.98 13.93 13.92 13.80 13.70 13.36 13.12 12.55 12.31 11.94 11.27 10.21 10.13 9.94 7.86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 20 21 22 23 24 25 26 27 28 29 31 32 33 34 35 36 37 39 40 43 44 45 46 47 48 49 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 35.85 33.96 32.08 30.19 26.42 24.53 18.87 16.98 15.09 13.21 11.32 9.43 7.55 3.77

Region

_________________________________________________________________________________________________________

Pakistan Denmark Sweden Czech Republic Canada Italy Norway Argentina South Africa Germany Chile India Peru the United Kingdom Turkey Mexico Australia France Netherlands USA Greece China Austria Finland Belgium Thailand Portugal Spain Brazil Taiwan New Zealand Singapore South Korea Switzerland Hong Kong Malaysia Japan Russia Poland Luxembourg Hungary Israel Ireland Philippines Indonesia

the Middle East Europe Europe Europe North America Europe Europe Latin America Africa Europe Latin America Asia Latin America Europe the Middle East Latin America Oceana Europe Europe North America Europe Asia Europe Europe Europe Asia Europe Europe Latin America Asia Oceana Asia Asia Europe Asia Asia Asia Europe Europe Europe Europe the Middle East Europe Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Total Inventories (Semiconductors and Related Devices) Countries in Latin America

Value (total assets = 100)

Rank

Percentile

36.11 25.36 23.62 22.02 21.22 19.92 19.59 19.26 18.51 17.56 17.27 17.01 16.30 16.15 15.49 13.04 12.66 12.28 10.85 9.91 9.25 8.71

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Guyana Falkland Islands Argentina Chile Peru Mexico Uruguay Guatemala Venezuela El Salvador Costa Rica Belize Ecuador Honduras Brazil Paraguay Colombia French Guiana Suriname Bolivia Panama Nicaragua

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Current Assets - Total Countries

Value (total assets = 100)

Rank

Percentile

77.57 77.36 76.74 74.90 70.02 68.42 68.22 67.39 67.35 66.66 66.45 66.04 64.83 64.61 64.28 64.15 63.72 63.62 63.16 62.40 62.37 62.20 61.58 60.89 60.87 60.50 60.22 59.67 59.07 56.68 56.35 54.69 54.51 52.90 52.16 51.77 51.18 49.34 48.45 47.00 45.75 42.23 41.67 36.80 32.95

1 2 3 4 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 42 43 45 46 48 50

98.11 96.23 94.34 92.45 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 20.75 18.87 15.09 13.21 9.43 5.66

Region

_________________________________________________________________________________________________________

Turkey Mexico Norway Pakistan Canada Portugal South Africa Denmark France the United Kingdom Italy Sweden Greece China Netherlands Israel USA Ireland Germany Spain Austria India Japan New Zealand Finland Czech Republic Singapore Hong Kong Australia Belgium Argentina Brazil Malaysia Switzerland South Korea Thailand Poland Taiwan Chile Russia Luxembourg Hungary Philippines Peru Indonesia

the Middle East Latin America Europe the Middle East North America Europe Africa Europe Europe Europe Europe Europe Europe Asia Europe the Middle East North America Europe Europe Europe Europe Asia Asia Oceana Europe Europe Asia Asia Oceana Europe Latin America Latin America Asia Europe Asia Asia Europe Asia Latin America Europe Europe Europe Asia Latin America Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Current Assets - Total (Semiconductors and Related Devices) Countries in Latin America

Value (total assets = 100)

Rank

Percentile

77.36 76.09 72.48 71.87 65.78 56.35 54.69 51.07 48.45 45.13 41.57 41.27 40.07 38.00 37.43 36.80 36.53 34.65 33.41 30.46 28.27 28.01

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Guyana Venezuela Falkland Islands Argentina Brazil French Guiana Chile Suriname Bolivia Paraguay Colombia Costa Rica Belize Peru Nicaragua Panama Guatemala El Salvador Ecuador Honduras

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Property Plant and Equipment - Net Countries

Value (total assets = 100)

Rank

Percentile

50.76 45.81 43.37 40.66 40.61 40.14 36.55 35.22 34.99 34.53 33.84 32.90 32.59 32.27 32.00 31.81 30.45 30.00 29.65 27.91 27.80 27.61 27.34 27.03 26.64 26.59 25.87 25.40 24.51 23.63 23.15 23.09 23.00 21.35 21.34 21.09 20.67 19.58 19.52 16.98 16.58 15.00 14.99 12.02 11.92

1 2 3 5 6 7 9 10 11 12 14 15 16 17 18 19 21 23 24 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 45 46 48 49 50 51 52 53

98.11 96.23 94.34 90.57 88.68 86.79 83.02 81.13 79.25 77.36 73.58 71.70 69.81 67.92 66.04 64.15 60.38 56.60 54.72 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 15.09 13.21 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Philippines Poland Chile Malaysia Thailand Indonesia Taiwan Brazil Czech Republic New Zealand Hong Kong South Korea Argentina Switzerland Singapore Spain India Portugal Russia Luxembourg Belgium Japan Austria Sweden Hungary Peru Denmark the United Kingdom China Pakistan Germany Finland Italy Australia South Africa USA Canada Turkey Mexico Netherlands France Greece Norway Israel Ireland

Asia Europe Latin America Asia Asia Asia Asia Latin America Europe Oceana Asia Asia Latin America Europe Asia Europe Asia Europe Europe Europe Europe Asia Europe Europe Europe Latin America Europe Europe Asia the Middle East Europe Europe Europe Oceana Africa North America North America the Middle East Latin America Europe Europe Europe Europe the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Property Plant and Equipment - Net (Semiconductors and Related Devices) Countries in Latin America

Value (total assets = 100)

Rank

Percentile

50.65 45.71 44.51 43.37 40.40 35.22 34.01 33.50 32.59 32.37 31.43 26.92 26.59 24.14 22.87 22.01 21.86 20.43 20.24 19.52 19.20 18.14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Bolivia French Guiana Nicaragua Chile Suriname Brazil Costa Rica Belize Argentina Paraguay Colombia Falkland Islands Peru Guatemala Guyana El Salvador Panama Ecuador Honduras Mexico Uruguay Venezuela

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Accumulated Depreciation - Total Countries

Value (total assets = 100)

Rank

Percentile

99.26 59.35 49.90 47.79 46.04 44.54 42.50 39.58 38.15 33.04 31.40 30.72 30.64 30.17 28.01 27.97 27.53 27.20 27.16 26.89 26.62 26.35 25.24 24.43 24.03 23.66 23.18 22.68 20.63 20.29 19.90 19.76 18.11 15.01 14.86 13.23 13.12 11.94 8.42 6.58

1 2 3 4 5 6 7 8 9 10 12 13 14 15 18 19 21 22 23 24 25 26 29 30 31 32 33 34 36 37 38 39 40 41 42 43 44 45 46 47

97.87 95.74 93.62 91.49 89.36 87.23 85.11 82.98 80.85 78.72 74.47 72.34 70.21 68.09 61.70 59.57 55.32 53.19 51.06 48.94 46.81 44.68 38.30 36.17 34.04 31.91 29.79 27.66 23.40 21.28 19.15 17.02 14.89 12.77 10.64 8.51 6.38 4.26 2.13 0.00

Region

_________________________________________________________________________________________________________

Portugal Spain Austria Chile Germany Japan Denmark Brazil Philippines Thailand Switzerland Turkey Mexico Indonesia South Korea Italy the United Kingdom India Luxembourg Sweden France Malaysia Russia Singapore USA New Zealand Hong Kong Hungary Canada Australia Belgium Netherlands Finland South Africa China Israel Ireland Taiwan Greece Norway

Europe Europe Europe Latin America Europe Asia Europe Latin America Asia Asia Europe the Middle East Latin America Asia Asia Europe Europe Asia Europe Europe Europe Asia Europe Asia North America Oceana Asia Europe North America Oceana Europe Europe Europe Africa Asia the Middle East Europe Asia Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Accumulated Depreciation - Total (Semiconductors and Related Devices) Countries in Latin America

Value (total assets = 100)

Rank

Percentile

47.79 39.58 38.06 37.48 36.92 33.45 30.64 30.14 28.46 26.78 26.34 25.57 18.61

1 2 3 4 5 6 7 8 9 10 11 12 13

92.31 84.62 76.92 69.23 61.54 53.85 46.15 38.46 30.77 23.08 15.38 7.69 0.00

_________________________________________________________________________________________________________

Chile Brazil Bolivia Costa Rica Belize Nicaragua Mexico Uruguay Venezuela Falkland Islands Paraguay Colombia Panama

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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40

Intangible Other Assets Countries

Value (total assets = 100)

Rank

Percentile

18.15 14.06 13.62 13.50 11.81 11.68 10.01 9.71 9.24 8.23 7.44 6.52 6.13 4.92 4.50 4.35 4.15 3.89 3.59 3.05 1.94 1.89 1.80 1.64 1.62 1.61 1.46 1.42 1.00 0.71 0.71 0.69 0.66 0.64 0.64 0.64 0.63 0.32 0.11 0.05 0.05 0.03 0.03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 25 26 27 28 29 30 31 32 33 34 36 37 38 39 42 44 45 46 47 49

98.04 96.08 94.12 92.16 90.20 88.24 86.27 84.31 82.35 80.39 78.43 76.47 74.51 72.55 70.59 68.63 66.67 64.71 62.75 60.78 58.82 56.86 54.90 50.98 49.02 47.06 45.10 43.14 41.18 39.22 37.25 35.29 33.33 29.41 27.45 25.49 23.53 17.65 13.73 11.76 9.80 7.84 3.92

Region

_________________________________________________________________________________________________________

Australia Belgium USA Switzerland France Luxembourg Netherlands Germany Finland Canada Italy Norway the United Kingdom Spain Sweden Denmark Chile Austria Greece South Africa Poland China South Korea India Russia Malaysia Hungary Japan Singapore Turkey Mexico Czech Republic Thailand New Zealand Argentina Taiwan Hong Kong Peru Brazil Israel Ireland Philippines Indonesia

Oceana Europe North America Europe Europe Europe Europe Europe Europe North America Europe Europe Europe Europe Europe Europe Latin America Europe Europe Africa Europe Asia Asia Asia Europe Asia Europe Asia Asia the Middle East Latin America Europe Asia Oceana Latin America Asia Asia Latin America Latin America the Middle East Europe Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

41

Intangible Other Assets (Semiconductors and Related Devices) Countries in Latin America

Value (total assets = 100)

Rank

Percentile

4.49 4.15 3.26 3.21 1.94 1.71 1.20 0.71 0.69 0.66 0.64 0.53 0.51 0.32 0.29 0.26 0.24 0.24 0.11 0.03 0.03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

95.24 90.48 85.71 80.95 76.19 71.43 66.67 61.90 57.14 52.38 47.62 42.86 38.10 33.33 28.57 23.81 19.05 14.29 9.52 4.76 0.00

_________________________________________________________________________________________________________

Falkland Islands Chile Costa Rica Belize French Guiana Suriname Panama Mexico Uruguay Venezuela Argentina Paraguay Colombia Peru Guatemala El Salvador Ecuador Honduras Brazil Bolivia Nicaragua

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.3 3.3.1

FINANCIAL RETURNS RATIOS

IN

42

MEXICO: LIABILITY STRUCTURE

Overview

In this chapter we consider the liability structure of firms operating in Mexico benchmarked against global averages. The chapter begins by defining relevant terms. A common-size statement, or vertical analysis of liabilities and shareholder equity is then presented for the proto-typical firm operating in Mexico and the average global benchmarks (sometimes referred to as a financial “gap” analysis). The figure reflect firms involved in semiconductors and related devices in Mexico. For ratios where there are large deviations between Mexico and the benchmarks, graphics are provided (total liabilities and equity = 100 percent). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key vertical analysis liability ratios are highlighted.

3.3.2

Liabilities and Equity – Definitions of Terms

The following definitions are provided for those less familiar with the liability-side of financial statement analysis. As this chapter deals with the vertical analysis and global benchmarking of liabilities and equity, only definitions covering certain terms used in this chapter’s tables and graphs are provided here . The glossary below reflects commonly accepted definitions across various countries and official sources. •

Accounts Payable. Accounts payable are defined as amounts owed on open account to private persons or organizations for goods or services received.

•

Accrued Payroll. Accrued payroll is defined as the cost of payroll that has been incurred but has not yet been paid. Payroll is typically defined as comprising records detailing the salaries, wages, allowances and deductions for each employee for a specific period of time.

•

Capital Surplus. Capital surplus is commonly defined as an amount of equity which is directly contributed capital in excess of the par value.

•

Common Equity. Common equity is defined to equal the company's net worth. It typically comprises capital stock, capital surplus, retained earnings, and, in some cases, net worth reserves. Common equity is the portion of total net worth belonging to the common stockholders. Synonyms which are often used for common equity are “common stock” and “net worth”.

•

Common Stock. Common stock is defined as the securities which represent the company's ownership interest. Common stockholders typically assume greater risk than preferred stockholders; although common stockholders maintain greater control and generally greater dividends and capital appreciation. Common stock can be used interchangeably with the term capital stock when the company has no preferred stock.

•

Current Liabilities - Total. Total current liabilities are defined as the total amount of obligations which would require the use of current assets or other current liabilities to pay.

•

Current Portion of Long Term Debt. The current proportion of long term debt is typically defined as debt which is payable in more than one year.

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43

•

Dividends Payable. Dividends payable typically include the declared dividend dollar amount that a company is obligated to pay. The dividend payment eliminates dividends payable and reduces cash.

•

Income Taxes Payable. Income taxes payable are understood to mean taxes which are levied by state, federal, and local governments on the company's reported accounting profit. Income taxes payable are those which are due in the current accounting period.

•

Long Term Debt. Long-term debt is defined to be due in a period exceeding one year or one operating cycle, whichever is longer. Long-term debt can have an extended repayment period such as a many-year mortgage on land and buildings, or debt that's intended to be permanent such as bonds issued to investors.

•

Long Term Debt Excluding Capitalized Leases. Long term debt excluding capitalized leases is defined as debt which is typically due in a period exceeding one year or one operating cycle, whichever is longer, less capitalized leases (see Long Term Debt for exceptions). Capital leases are generally recorded as assets with liability at the current value of the lease payment.

•

Non-Equity Reserves. Non-equity reserves are the amount set aside for losses or liabilities which are certain to arise but cannot be quantified with certainty, and are not part of the firm’s equity.

•

Retained Earnings. proprietary funds.

•

Shareholders Equity. Shareholders equity is commonly defined to be the amount of total equity reserved for common and preferred shareholders.

•

Short Term Debt. Short term debt is generally defined as debt payable within one year.

•

Total Liabilities. Total liabilities are generally defined to include all the claims against a corporation. Liabilities include accounts and wages and salaries payable, dividends declared payable, accrued taxes payable, fixed or long-term liabilities such as mortgage bonds, debentures, and bank loans.

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Retained earnings is an equity account reflecting the accumulated earnings of

2007 Icon Group International, Inc.

Financial Indicators

3.3.3

44

Liability Structure: Outlook

Using the methodology described in the introduction, the following table summarizes liability and equity structure benchmarks for firms involved in semiconductors and related devices in Mexico. To allow comparable benchmarking, a common index of Total Liabilities & Shareholders Equity = 100 is used. All figures are current-year projections for companies operating in Mexico based on latest financial results available. Liability Structure Mexico Latin America World Avg.

_________________________________________________________________________________________________________

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Accrued Payroll Income Taxes Payable Dividends Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Provision For Risks and Charges Other Liabilities Total Liabilities Non-Equity Reserves Common Equity Common Stock Capital Surplus Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Retained Earnings Total Liabilities & Shareholders Equity

21.07 11.04 0.55 2.97 0.24 12.22 47.25 13.40 13.40 5.24 0.53 65.75 0.06 33.92 5.91 1.92 13.82 1.72 6.90 4.34 100.00

10.76 10.63 1.79 0.93 0.50 11.70 29.65 9.09 9.05 2.45 0.85 41.10 0.28 47.08 14.04 4.77 4.18 14.27 6.24 7.88 100.00

14.50 11.36 1.03 1.01 0.70 9.95 34.95 7.63 7.51 1.49 0.87 44.46 0.17 45.77 10.76 12.88 1.77 7.74 6.92 8.94 100.00

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.3.4

45

Large Variances: Liabilities

The following graphics summarize for semiconductors and related devices the large liability structure gaps between firms operating in Mexico and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Accounts Payable 25

21.07

20 14.5

15

10.76

10

6.57

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Current Liabilities - Total 50

47.25

40

34.95 29.65

30 20

12.3

10 0 Mexico

Latin Am erica

World Average

Gap

Gap: Long Term Debt 15

13.4 9.09

10

7.63 5.77

5 0 Mexico

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Latin Am erica

World Average

Gap

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46

Gap: Long Term Debt Excluding Capitalized Leases 15

13.4 9.05

10

7.51 5.89

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Total Liabilities 80

65.75

60 41.1

44.46

40 21.29 20 0 Mexico

Latin Am erica

World Average

Gap

Gap: Common Equity 50 40 30 20 10 0 -10 -20

47.08

45.77

33.92

-11.85 Mexico

Latin Am erica

World Average

Gap

Gap: Common Stock 14.04

15

10.76 10 5.91 5 0 -5 Mexico

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Latin Am erica

World Average

-4.85 Gap

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47

Gap: Capital Surplus 12.88

15 10 5

1.92

4.77

0 -5 -10

-10.96

-15 Mexico

Latin Am erica

World Average

Gap

Gap: Revaluation Reserves 15

13.82 12.05

10 4.18

5

1.77 0 Mexico

Latin Am erica

World Average

Gap

Gap: Other Appropriated Reserves 14.27

15

7.74

10 5

1.72

0 -5

-6.02

-10 Mexico

Latin Am erica

World Average

Gap

Gap: Retained Earnings 10 5

7.88

8.94

4.34

0 -5 Mexico

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Latin Am erica

World Average

-4.6 Gap

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3.3.5

48

Key Percentiles and Rankings

We now consider the distribution of liability ratios for semiconductors and related devices using ranks and percentiles. What percent of countries have a value lower or higher than Mexico (what is the ratio's rank or percentile)? The table below answers this question with respect to the vertical analysis of liability structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key vertical liability ratios are highlighted in additional tables. Liability Structure

Mexico

Rank of Total

Percentile

21.07 11.04 0.55 2.97 0.24 12.22 47.25 13.40 13.40 5.24 0.53 65.75 0.06 33.92 5.91 1.92 13.82 1.72 6.90 4.34 100.00

4 of 48 23 of 53 24 of 33 4 of 48 20 of 27 20 of 53 3 of 53 7 of 51 7 of 51 9 of 39 32 of 49 2 of 53 16 of 26 51 of 53 40 of 50 40 of 43 3 of 34 38 of 47 12 of 39 41 of 53

91.67 56.60 27.27 91.67 25.93 62.26 94.34 86.27 86.27 76.92 34.69 96.23 38.46 3.77 20.00 6.98 91.18 19.15 69.23 22.64

_________________________________________________________________________________________________________

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Accrued Payroll Income Taxes Payable Dividends Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Provision For Risks and Charges Other Liabilities Total Liabilities Non-Equity Reserves Common Equity Common Stock Capital Surplus Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Retained Earnings Total Liabilities & Shareholders Equity

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

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49

Accounts Payable Countries

Value (total liabilities & equity = 100)

Rank

Percentile

25.55 24.05 21.12 21.07 18.96 18.69 17.34 15.96 15.68 15.29 14.95 14.82 14.65 14.61 14.50 14.20 14.00 13.33 13.24 13.00 12.04 11.95 11.59 10.54 10.35 10.31 10.28 9.06 8.49 8.17 7.81 7.35 7.34 7.24 6.81 6.22 6.03 5.91 5.86 5.21 3.09

1 2 3 4 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 26 27 28 29 31 33 35 37 39 40 41 42 43 44 45 46 47 48

97.92 95.83 93.75 91.67 87.50 85.42 83.33 81.25 79.17 77.08 75.00 72.92 70.83 68.75 66.67 64.58 62.50 60.42 58.33 56.25 54.17 52.08 50.00 45.83 43.75 41.67 39.58 35.42 31.25 27.08 22.92 18.75 16.67 14.58 12.50 10.42 8.33 6.25 4.17 2.08 0.00

Region

_________________________________________________________________________________________________________

India South Africa Turkey Mexico France Canada Spain Singapore China Finland New Zealand the United Kingdom Hong Kong Italy Greece Poland Japan Philippines Portugal Taiwan Australia Sweden Denmark Indonesia Thailand Netherlands Germany South Korea Malaysia Russia USA Norway Hungary Austria Belgium Brazil Switzerland Israel Ireland Luxembourg Chile

Asia Africa the Middle East Latin America Europe North America Europe Asia Asia Europe Oceana Europe Asia Europe Europe Europe Asia Asia Europe Asia Oceana Europe Europe Asia Asia Europe Europe Asia Asia Europe North America Europe Europe Europe Europe Latin America Europe the Middle East Europe Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

50

Accounts Payable (Semiconductors and Related Devices) Countries in Latin America

Value (total liabilities & equity = 100)

Rank

Percentile

21.07 20.72 19.57 14.17 13.29 12.52 11.91 11.68 8.25 8.01 6.22 6.02 3.09 2.43 2.39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

93.33 86.67 80.00 73.33 66.67 60.00 53.33 46.67 40.00 33.33 26.67 20.00 13.33 6.67 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Venezuela French Guiana Bolivia Suriname Falkland Islands Nicaragua Paraguay Colombia Brazil Panama Chile Costa Rica Belize

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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51

Current Liabilities - Total Countries

Value (total liabilities & equity = 100)

Rank

Percentile

47.76 47.38 47.25 46.25 46.19 43.36 43.28 43.18 42.90 41.94 41.70 37.57 37.22 36.85 36.00 35.11 34.94 34.68 34.26 34.00 33.66 33.57 32.88 32.64 32.29 31.57 31.38 31.16 30.33 30.15 29.90 29.10 28.17 28.06 27.84 27.49 27.25 25.04 24.40 24.39 23.01 21.69 21.66 21.09 20.18

1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 32 33 34 35 36 37 38 39 41 43 44 46 47 48 50 52

98.11 96.23 94.34 92.45 90.57 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 22.64 18.87 16.98 13.21 11.32 9.43 5.66 1.89

Region

_________________________________________________________________________________________________________

Pakistan Turkey Mexico Netherlands Greece China South Africa France Italy Denmark India Australia the United Kingdom Brazil Norway Finland Japan Singapore New Zealand Poland South Korea Hong Kong Taiwan Sweden Germany Austria Belgium Thailand Russia Israel Ireland Philippines Chile Canada Portugal Peru Hungary Malaysia Spain Switzerland Indonesia USA Czech Republic Luxembourg Argentina

the Middle East the Middle East Latin America Europe Europe Asia Africa Europe Europe Europe Asia Oceana Europe Latin America Europe Europe Asia Asia Oceana Europe Asia Asia Asia Europe Europe Europe Europe Asia Europe the Middle East Europe Asia Latin America North America Europe Latin America Europe Asia Europe Europe Asia North America Europe Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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52

Current Liabilities - Total (Semiconductors and Related Devices) Countries in Latin America

Value (total liabilities & equity = 100)

Rank

Percentile

47.25 46.47 46.22 43.89 36.85 33.92 32.51 29.98 29.03 28.17 27.49 25.51 24.96 24.84 24.11 22.75 22.36 22.09 21.76 21.12 20.93 20.18

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Guyana Venezuela Brazil French Guiana Falkland Islands Suriname Bolivia Chile Peru Nicaragua Guatemala Paraguay Colombia El Salvador Panama Costa Rica Belize Ecuador Honduras Argentina

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

53

Long Term Debt Countries

Value (total liabilities & equity = 100)

Rank

Percentile

18.57 14.85 14.70 14.25 13.43 13.40 12.96 12.71 12.64 12.59 12.38 12.08 11.94 11.71 11.16 11.10 10.38 10.05 9.16 9.03 8.74 8.55 7.69 7.61 7.57 7.16 6.52 6.37 6.01 5.89 5.59 5.58 5.25 4.66 4.15 3.95 3.28 3.23 3.11 2.85 0.99 0.98 0.30

1 2 3 4 6 7 8 9 10 11 13 14 15 16 17 18 19 21 22 23 24 25 26 27 28 30 32 33 34 35 36 37 38 39 41 42 44 45 46 48 49 50 51

98.04 96.08 94.12 92.16 88.24 86.27 84.31 82.35 80.39 78.43 74.51 72.55 70.59 68.63 66.67 64.71 62.75 58.82 56.86 54.90 52.94 50.98 49.02 47.06 45.10 41.18 37.25 35.29 33.33 31.37 29.41 27.45 25.49 23.53 19.61 17.65 13.73 11.76 9.80 5.88 3.92 1.96 0.00

Region

_________________________________________________________________________________________________________

Peru Denmark Switzerland Finland Turkey Mexico Belgium Luxembourg Poland Italy USA India France Greece South Korea Sweden Netherlands Russia Norway Hungary Thailand the United Kingdom Austria Japan Taiwan Germany Australia Singapore New Zealand Hong Kong South Africa Brazil Philippines Malaysia Indonesia Portugal Canada Pakistan China Chile Israel Ireland Spain

Latin America Europe Europe Europe the Middle East Latin America Europe Europe Europe Europe North America Asia Europe Europe Asia Europe Europe Europe Europe Europe Asia Europe Europe Asia Asia Europe Oceana Asia Oceana Asia Africa Latin America Asia Asia Asia Europe North America the Middle East Asia Latin America the Middle East Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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54

Long Term Debt (Semiconductors and Related Devices) Countries in Latin America

Value (total liabilities & equity = 100)

Rank

Percentile

18.57 16.86 15.37 14.27 14.14 13.40 13.18 12.61 12.45 11.14 11.05 7.41 6.96 6.76 5.58 5.24 4.60 3.13 2.85 2.23 2.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

95.24 90.48 85.71 80.95 76.19 71.43 66.67 61.90 57.14 52.38 47.62 42.86 38.10 33.33 28.57 23.81 19.05 14.29 9.52 4.76 0.00

_________________________________________________________________________________________________________

Peru Guatemala El Salvador Ecuador Honduras Mexico Uruguay French Guiana Venezuela Suriname Falkland Islands Panama Paraguay Colombia Brazil Bolivia Nicaragua Guyana Chile Costa Rica Belize

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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55

Total Liabilities Countries

Value (total liabilities & equity = 100)

Rank

Percentile

65.93 65.75 63.98 61.61 60.75 60.21 58.44 57.81 54.90 53.54 52.84 52.06 50.33 50.03 49.34 49.16 48.35 47.98 47.27 46.95 46.76 46.06 45.23 44.53 44.14 42.38 42.31 41.50 41.19 40.70 39.96 39.89 38.01 37.42 36.92 35.57 35.27 33.97 32.08 31.89 31.46 29.59 26.36 22.43 20.89

1 2 3 4 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 28 29 30 31 32 33 34 35 36 37 38 39 41 43 44 46 48 50 51 53

98.11 96.23 94.34 92.45 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 22.64 18.87 16.98 13.21 9.43 5.66 3.77 0.00

Region

_________________________________________________________________________________________________________

Turkey Mexico Netherlands Italy Denmark France Greece Germany India Austria Poland Sweden Pakistan Finland South Africa Belgium the United Kingdom Switzerland China South Korea Japan Peru Australia Brazil Norway Singapore Russia Luxembourg Taiwan New Zealand Thailand Hong Kong Hungary Philippines USA Israel Ireland Chile Portugal Canada Malaysia Indonesia Spain Czech Republic Argentina

the Middle East Latin America Europe Europe Europe Europe Europe Europe Asia Europe Europe Europe the Middle East Europe Africa Europe Europe Europe Asia Asia Asia Latin America Oceana Latin America Europe Asia Europe Europe Asia Oceana Asia Asia Europe Asia North America the Middle East Europe Latin America Europe North America Asia Asia Europe Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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56

Total Liabilities (Semiconductors and Related Devices) Countries in Latin America

Value (total liabilities & equity = 100)

Rank

Percentile

65.75 64.68 61.08 52.71 51.85 48.70 46.59 46.06 44.53 41.82 38.12 37.33 35.38 35.06 33.97 32.81 31.85 31.19 30.93 26.64 26.24 20.89

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Venezuela French Guiana Falkland Islands Guyana Suriname Peru Brazil Guatemala El Salvador Bolivia Ecuador Honduras Chile Nicaragua Paraguay Panama Colombia Costa Rica Belize Argentina

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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57

Common Equity Countries

Value (total liabilities & equity = 100)

Rank

Percentile

77.39 72.09 67.93 67.92 66.03 65.84 65.23 62.28 60.46 59.96 58.97 58.53 58.19 57.02 55.57 55.46 55.43 54.29 53.94 52.71 52.03 50.79 50.24 49.95 49.86 48.73 47.57 46.84 46.73 46.63 45.97 45.01 44.86 44.33 43.92 43.73 40.70 40.44 38.63 38.30 37.39 37.22 35.85 34.01 33.92

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 25 26 28 29 30 31 32 33 36 37 38 39 41 42 43 45 46 47 48 49 50 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 52.83 50.94 47.17 45.28 43.40 41.51 39.62 37.74 32.08 30.19 28.30 26.42 22.64 20.75 18.87 15.09 13.21 11.32 9.43 7.55 5.66 3.77

Region

_________________________________________________________________________________________________________

Czech Republic Argentina Canada Portugal Spain Malaysia Chile USA Israel Ireland Philippines Thailand New Zealand Hong Kong Singapore Brazil Taiwan Norway Peru Australia Japan Switzerland the United Kingdom South Korea Belgium China Finland Poland Sweden Indonesia South Africa Russia Austria India Luxembourg Pakistan Germany Hungary Denmark France Greece Italy Netherlands Turkey Mexico

Europe Latin America North America Europe Europe Asia Latin America North America the Middle East Europe Asia Asia Oceana Asia Asia Latin America Asia Europe Latin America Oceana Asia Europe Europe Asia Europe Asia Europe Europe Europe Asia Africa Europe Europe Asia Europe the Middle East Europe Europe Europe Europe Europe Europe Europe the Middle East Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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58

Common Equity (Semiconductors and Related Devices) Countries in Latin America

Value (total liabilities & equity = 100)

Rank

Percentile

72.09 65.23 58.84 55.46 53.94 51.70 51.16 50.39 48.97 46.73 46.66 46.54 45.31 44.63 42.32 41.43 41.30 41.06 33.92 33.37 33.18 31.51

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Argentina Chile Bolivia Brazil Peru Nicaragua Costa Rica Belize Guatemala French Guiana Paraguay Falkland Islands Colombia El Salvador Guyana Ecuador Suriname Honduras Mexico Uruguay Panama Venezuela

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

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59

Retained Earnings Countries

Value (total liabilities & equity = 100)

Rank

Percentile

52.25 32.03 31.46 28.81 28.18 27.61 27.41 26.01 25.66 25.32 23.39 23.23 22.50 21.97 21.69 19.69 19.17 16.87 16.17 15.63 15.57 14.45 13.02 11.80 11.70 11.44 10.63 10.26 9.29 8.15 8.08 6.81 6.04 4.36 4.34 4.31 3.91 3.86 1.67 1.12 1.05 -0.03 -0.34 -0.52 -0.96

1 2 3 4 5 6 7 8 9 10 12 13 14 16 17 18 19 20 22 23 24 26 28 29 30 31 33 34 35 36 37 38 39 40 41 42 44 45 46 48 49 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 77.36 75.47 73.58 69.81 67.92 66.04 64.15 62.26 58.49 56.60 54.72 50.94 47.17 45.28 43.40 41.51 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 16.98 15.09 13.21 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Netherlands Canada USA Thailand New Zealand Hong Kong Japan Switzerland Finland the United Kingdom Norway Denmark Luxembourg Austria Malaysia Philippines South Africa Australia Chile Singapore Indonesia South Korea Russia Belgium Hungary Pakistan Sweden Germany Spain Israel Ireland Taiwan Italy Turkey Mexico India France China Peru Czech Republic Argentina Portugal Brazil Greece Poland

Europe North America North America Asia Oceana Asia Asia Europe Europe Europe Europe Europe Europe Europe Asia Asia Africa Oceana Latin America Asia Asia Asia Europe Europe Europe the Middle East Europe Europe Europe the Middle East Europe Asia Europe the Middle East Latin America Asia Europe Asia Latin America Europe Latin America Europe Latin America Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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60

Retained Earnings (Semiconductors and Related Devices) Countries in Latin America

Value (total liabilities & equity = 100)

Rank

Percentile

22.96 22.30 19.64 17.26 16.17 12.68 12.49 11.07 10.59 9.60 4.34 4.27 4.04 1.67 1.52 1.38 1.28 1.27 1.05 -0.34 -0.84 -0.95

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Paraguay Colombia Bolivia Nicaragua Chile Costa Rica Belize Guyana Falkland Islands Panama Mexico Uruguay Venezuela Peru Guatemala El Salvador Ecuador Honduras Argentina Brazil Suriname French Guiana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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3.4 3.4.1

FINANCIAL RETURNS RATIOS

IN

61

MEXICO: INCOME STRUCTURE

Overview

In this chapter we consider the income structure of companies operating in Mexico benchmarked against global averages. The chapter begins by defining relevant terms. A common-size statement, or vertical analysis of income is then presented for the proto-typical firm involved in semiconductors and related devices operating in Mexico and the average global benchmarks (total revenue = 100 percent). For ratios where there are large deviations between Mexico and the benchmarks, graphics are provided. Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key vertical analysis income ratios are highlighted across countries in the comparison group.

3.4.2

Income Statements – Definitions of Terms

The following definitions are provided for those less familiar with the income-side of financial statement analysis. As this chapter deals with the vertical analysis and global benchmarking of income, only definitions covering certain terms used in this chapter’s tables and graphs are provided here . The glossary below reflects commonly accepted definitions across various countries and official sources. •

Amortization. Amortization generally refers to the depreciation, depletion, or charge-off to expense of intangible and tangible assets over a period of time. Amortization is commonly understood to be the taking as an expense (writing off) of the loss of value of an intangible asset such as a copyright, a patent, or a mailing list, in an accounting period.

•

Cost of Goods Sold (excluding depreciation). For retail companies, cost of goods sold is generally defined as the equivalent of starting inventory plus purchases minus ending inventory. In manufacturing, cost of goods sold is defined to equal the starting inventory plus the cost of goods manufactured minus ending inventory. Most pure service firms do not generally have cost of goods sold.

•

Depletion. Depletion is commonly defined to be included as one of the elements of amortization, and is understood to be the portion of the carrying value (other than the portion associated with tangible assets) prorated in each accounting period for financial reporting purposes.

•

Depreciation. Depreciation generally is defined as the expiration in the service life of fixed assets, other than depletable assets, attributable to wear and tear, deterioration, action of the physical elements, inadequacy and obsolescence. Depreciation is commonly defined as the portion of the cost of a fixed asset charged as an expense during a particular period. In accounting for depreciation, the cost of a fixed asset, less any salvage value, is prorated over the estimated service life of such an asset, and each period is charged with a portion of such cost. Through this process, the cost of the asset is ultimately charged off as an expense.

•

Earnings Before Interest and Taxes (EBIT). EBIT is a financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and non-operating profit before the deduction of interest and income taxes.

•

Gross Income. Gross income is commonly defined as all the money, goods, and property received by the company that must be included as taxable income.

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62

•

Income Taxes. Income taxes are defined to include those taxes levied by state, federal, and local governments on the company's reported accounting profit. Income taxes generally include both deferred and paid taxes. They are generally determined after the interest expense has been deducted.

•

Interest Expense on Debt. Interest expenses on debt are those which are spent on current debt and added to the net income so avoid underestimating interest coverage.

•

Net Income Available to Common. Net income available to common is defined as the net income available to common stockholders.

•

Net Income Before Preferred Dividends. Net income before preferred dividends is generally calculated as the difference between total revenues and total expense prior to the granting of preferred dividends.

•

Net Sales or Revenues. Revenues or net sales are defined as payments made to and received by an entity. May take the form of taxes, user fees, fines, fees for service, and so on.

•

Non-Operating Interest Income. Non-operating interest income is generally understood to be any interest received (e.g., royalty, production payment, net profits interest) that does not involve the operation of the company.

•

Operating Income. Operating income is generally defined to equal operating revenues less operating expenses. It typically excludes items of other revenue and expense such as equity in earnings of unconsolidated companies, dividends, interest income and expense, income taxes, extraordinary items, and cumulative effect of accounting changes.

•

Pretax Income. Pretax income is generally defined as income before tax deductions.

•

Selling, General & Administrative Expenses. Selling, general and administrative expenses are expenses independent from cost of sales for the purpose of illustrating the amount of the company's selling and administrative costs. Generally included in this figure are the costs of employees' salaries, commissions, and travel expenses; company payroll and office costs; and advertising and promotion.

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3.4.3

63

Income Structure: Outlook

Using the methodology described in the introduction, the following table summarizes income structure benchmarks for firms involved in semiconductors and related devices in Mexico. To allow comparable benchmarking, a common index of Net Sales or Revenues = 100 is used. All figures are current-year projections for companies operating in Mexico based on latest financial results available. Income Structure Mexico Latin America World Avg.

_________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Pretax Income Income Taxes Net Income Before Extra Items/Prefer Dividends Net Income Before Preferred Dividends Net Income Available to Common

100.00 63.60 6.36 29.77 19.35 89.01 10.42 2.11 0.80 4.30 3.84 19.16 10.55 8.62 2.70 5.92 5.92 5.92

100.00 62.42 4.46 22.00 14.33 84.51 5.82 0.61 0.28 2.63 1.74 9.35 4.72 4.63 0.67 3.74 3.75 3.74

100.00 66.35 4.51 18.89 9.61 80.77 6.55 0.29 0.69 1.05 1.28 8.36 2.74 5.63 1.26 4.27 4.27 4.26

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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3.4.4

64

Large Variances: Income

The following graphics summarize for semiconductors and related devices the large income structure gaps between firms operating in Mexico and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Cost of Goods Sold (Excluding Depreciation) 80

63.6

62.42

66.35

60 40 20 0

-2.75

-20 Mexico

Latin Am erica

World Average

Gap

Gap: Depreciation, Depletion & Amortization 8

6.36

6

4.46

4.51

4 1.85

2 0 Mexico

Latin Am erica

World Average

Gap

Gap: Gross Income 30

29.77 22

25

18.89

20 15

10.88

10 5 0 Mexico

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Latin Am erica

World Average

Gap

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Gap: Selling, General & Administrative Expenses 20

19.35 14.33

15

9.61

10

9.74

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Other Operating Expenses 100

89.01

84.51

80.77

80 60 40 20

8.24

0 Mexico

Latin Am erica

World Average

Gap

Gap: Operating Income 12

10.42

10 8

5.82

6

6.55 3.87

4 2 0 Mexico

Latin Am erica

World Average

Gap

Gap: Non-Operating Interest Income 5

4.3

4

3.25 2.63

3 2

1.05

1 0 Mexico

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Latin Am erica

World Average

Gap

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Gap: Other Income/Expense Net 4

3.84

3

2.56 1.74

2

1.28

1 0 Mexico

Latin Am erica

World Average

Gap

Gap: Earnings Before Interest and Taxes (EBIT) 20

19.16

15 9.35

10

10.8 8.36

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Interest Expense on Debt 12

10.55

10

7.81

8 6

4.72

4

2.74

2 0 Mexico

Latin Am erica

World Average

Gap

Gap: Pretax Income 10

8.62

8 6

4.63

5.63 2.99

4 2 0 Mexico

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World Average

Gap

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3.4.5

67

Key Percentiles and Rankings

We now consider the distribution of income ratios for semiconductors and related devices using ranks and percentiles. What percent of countries have a value lower or higher than Mexico (what is the ratio's rank or percentile)? The table below answers this question with respect to the vertical analysis of income structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key vertical income ratios are highlighted in additional tables. Income Structure

Mexico

Rank of Total

Percentile

100.00 63.60 6.36 29.77 19.35 89.01 10.42 2.11 0.80 4.30 3.84 19.16 10.55 8.62 2.70 5.92 5.92 5.92

36 of 52 14 of 53 12 of 52 19 of 44 39 of 50 4 of 53 2 of 33 20 of 41 6 of 50 6 of 53 2 of 53 2 of 53 10 of 53 8 of 50 12 of 53 12 of 53 12 of 53

30.77 73.58 76.92 56.82 22.00 92.45 93.94 51.22 88.00 88.68 96.23 96.23 81.13 84.00 77.36 77.36 77.36

_________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Pretax Income Income Taxes Net Income Before Extra Items/Prefer Dividends Net Income Before Preferred Dividends Net Income Available to Common

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Cost of Goods Sold (Excluding Depreciation) Countries

Value (total revenue = 100)

Rank

Percentile

96.56 92.13 85.82 83.69 81.05 77.76 77.10 75.10 74.86 74.77 74.66 74.59 74.08 74.07 73.73 72.89 72.79 72.61 72.57 71.86 71.53 71.37 71.36 70.07 70.01 69.45 69.00 68.25 65.61 65.08 64.93 63.77 63.74 63.71 63.60 63.27 62.95 61.76 60.54 59.91 53.41 47.87 41.92 41.58

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 41 42 46 48 50 51

98.08 96.15 94.23 92.31 90.38 88.46 86.54 84.62 82.69 80.77 78.85 76.92 75.00 73.08 71.15 69.23 67.31 65.38 63.46 61.54 59.62 55.77 53.85 51.92 50.00 48.08 46.15 44.23 42.31 40.38 38.46 36.54 34.62 32.69 30.77 28.85 26.92 25.00 21.15 19.23 11.54 7.69 3.85 1.92

Region

_________________________________________________________________________________________________________

Portugal Czech Republic Argentina India France South Korea Finland Denmark Peru Germany Spain China Singapore New Zealand Sweden Malaysia Poland Thailand Hong Kong Netherlands Japan Austria South Africa Russia Norway Taiwan the United Kingdom Belgium Australia Brazil Chile Turkey Italy Canada Mexico Greece Hungary Switzerland Philippines USA Luxembourg Indonesia Israel Ireland

Europe Europe Latin America Asia Europe Asia Europe Europe Latin America Europe Europe Asia Asia Oceana Europe Asia Europe Asia Asia Europe Asia Europe Africa Europe Europe Asia Europe Europe Oceana Latin America Latin America the Middle East Europe North America Latin America Europe Europe Europe Asia North America Europe Asia the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Cost of Goods Sold (Excluding Depreciation) (Semiconductors and Related Devices) Countries in Latin America

Value (total revenue = 100)

Rank

Percentile

85.82 74.86 73.44 72.62 67.96 65.08 64.93 64.19 63.60 62.55 61.95 60.40 59.08 57.88 57.51 56.98 56.20 53.08 51.65 50.92 50.16

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

95.24 90.48 85.71 80.95 76.19 71.43 66.67 61.90 57.14 52.38 47.62 42.86 38.10 33.33 28.57 23.81 19.05 14.29 9.52 4.76 0.00

_________________________________________________________________________________________________________

Argentina Peru Falkland Islands French Guiana Guatemala Brazil Chile Suriname Mexico Uruguay El Salvador Bolivia Venezuela Paraguay Ecuador Honduras Colombia Nicaragua Panama Costa Rica Belize

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Selling, General & Administrative Expenses Countries

Value (total revenue = 100)

Rank

Percentile

49.28 48.88 37.18 26.82 26.49 26.45 24.84 23.95 23.24 22.82 22.11 21.78 21.54 20.10 19.96 19.96 19.75 19.40 19.35 19.08 16.08 14.78 14.77 14.70 14.60 14.53 14.41 13.23 11.67 11.06 10.12 9.91 9.59 9.20 8.29 7.83 7.45

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 22 23 24 25 26 27 28 29 30 31 32 33 34 36 40 41 42

97.73 95.45 93.18 90.91 88.64 86.36 84.09 81.82 79.55 77.27 75.00 72.73 70.45 68.18 65.91 63.64 61.36 59.09 56.82 54.55 50.00 47.73 45.45 43.18 40.91 38.64 36.36 34.09 31.82 29.55 27.27 25.00 22.73 18.18 9.09 6.82 4.55

Region

_________________________________________________________________________________________________________

Israel Ireland Netherlands USA Canada Belgium Greece Sweden Switzerland the United Kingdom Denmark Italy Germany Luxembourg Japan Australia France Turkey Mexico Chile Brazil Poland Taiwan New Zealand South Africa China Hong Kong Singapore Malaysia Thailand Austria Philippines Finland South Korea Russia Indonesia Hungary

the Middle East Europe Europe North America North America Europe Europe Europe Europe Europe Europe Europe Europe Europe Asia Oceana Europe the Middle East Latin America Latin America Latin America Europe Asia Oceana Africa Asia Asia Asia Asia Asia Europe Asia Europe Asia Europe Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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71

Selling, General & Administrative Expenses (Semiconductors and Related Devices) Countries in Latin America

Value (total revenue = 100)

Rank

Percentile

23.86 19.35 19.08 19.03 17.98 16.08 14.96 14.75 14.74 13.04 9.89 8.81 8.69 8.56 6.11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

93.33 86.67 80.00 73.33 66.67 60.00 53.33 46.67 40.00 33.33 26.67 20.00 13.33 6.67 0.00

_________________________________________________________________________________________________________

Falkland Islands Mexico Chile Uruguay Venezuela Brazil Costa Rica French Guiana Belize Suriname Bolivia Paraguay Nicaragua Colombia Panama

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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72

Operating Income Countries

Value (total revenue = 100)

Rank

Percentile

10.82 10.69 10.45 10.42 10.37 8.94 8.83 8.82 8.49 8.40 8.40 8.39 8.32 8.31 7.35 7.14 6.44 6.38 6.36 6.36 6.33 5.78 5.70 5.43 5.29 5.12 4.78 4.49 4.18 4.15 3.95 3.94 3.89 3.40 3.32 3.30 2.96 0.95 0.75 0.50 -0.25 -0.32 -1.62 -1.74 -2.04

1 2 3 4 5 7 8 9 10 11 12 13 14 15 17 18 21 22 23 24 25 26 27 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 48 50 51 52 53

98.11 96.23 94.34 92.45 90.57 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 67.92 66.04 60.38 58.49 56.60 54.72 52.83 50.94 49.06 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 9.43 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Chile Australia Turkey Mexico India Thailand Brazil Taiwan New Zealand Canada South Africa Pakistan USA Hong Kong Peru South Korea Russia Belgium Singapore China the United Kingdom Hungary Finland Malaysia Greece Italy Denmark France Israel Ireland Japan Switzerland Norway Luxembourg Spain Sweden Austria Poland Germany Netherlands Indonesia Philippines Argentina Czech Republic Portugal

Latin America Oceana the Middle East Latin America Asia Asia Latin America Asia Oceana North America Africa the Middle East North America Asia Latin America Asia Europe Europe Asia Asia Europe Europe Europe Asia Europe Europe Europe Europe the Middle East Europe Asia Europe Europe Europe Europe Europe Europe Europe Europe Europe Asia Asia Latin America Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Operating Income (Semiconductors and Related Devices) Countries in Latin America

Value (total revenue = 100)

Rank

Percentile

10.82 10.42 10.25 9.68 8.83 8.49 8.36 8.12 7.35 7.13 6.92 6.67 6.08 5.65 5.60 4.75 3.29 0.95 0.84 -0.28 -0.32 -1.62

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Chile Mexico Uruguay Venezuela Brazil Costa Rica Belize Guyana Peru Paraguay Colombia Guatemala El Salvador Ecuador Honduras Panama Falkland Islands French Guiana Suriname Nicaragua Bolivia Argentina

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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74

Earnings Before Interest and Taxes (EBIT) Countries

Value (total revenue = 100)

Rank

Percentile

19.21 19.16 16.59 16.38 12.72 11.48 10.93 10.91 10.60 10.38 9.61 9.48 9.46 9.27 9.12 9.03 8.88 8.81 8.81 8.20 7.91 7.77 7.23 7.06 7.04 7.00 6.90 6.85 6.56 6.31 6.29 6.07 5.94 5.50 5.46 5.36 5.24 4.97 4.96 4.59 3.16 2.70 -0.33 -0.42 -1.05

1 2 4 5 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 24 25 26 27 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 50 52 53

98.11 96.23 92.45 90.57 86.79 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 54.72 52.83 50.94 49.06 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 5.66 1.89 0.00

Region

_________________________________________________________________________________________________________

Turkey Mexico Brazil Thailand Taiwan Peru Finland India South Africa Greece Canada Australia New Zealand Hong Kong Chile China Israel Pakistan Ireland Belgium USA South Korea Singapore Malaysia Czech Republic Russia the United Kingdom Italy Argentina Switzerland Hungary Austria Poland France Luxembourg Denmark Germany Spain Norway Sweden Netherlands Japan Indonesia Philippines Portugal

the Middle East Latin America Latin America Asia Asia Latin America Europe Asia Africa Europe North America Oceana Oceana Asia Latin America Asia the Middle East the Middle East Europe Europe North America Asia Asia Asia Europe Europe Europe Europe Latin America Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Asia Asia Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Earnings Before Interest and Taxes (EBIT) (Semiconductors and Related Devices) Countries in Latin America

Value (total revenue = 100)

Rank

Percentile

19.16 18.85 17.80 16.59 13.06 12.68 11.48 10.42 9.50 9.12 8.82 8.74 8.53 7.15 7.04 6.56 5.93 5.24 5.16 4.57 -0.37 -0.42

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Venezuela Brazil Paraguay Colombia Peru Guatemala El Salvador Chile Ecuador Honduras Guyana Costa Rica Belize Argentina French Guiana Suriname Panama Falkland Islands Nicaragua Bolivia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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76

Pretax Income Countries

Value (total revenue = 100)

Rank

Percentile

14.40 11.17 11.09 9.58 9.32 9.26 8.64 8.62 8.41 8.38 8.24 7.30 7.18 7.00 6.99 6.94 6.88 6.76 6.32 6.21 6.06 5.77 5.20 5.19 4.95 4.68 4.54 4.25 4.21 4.21 4.07 3.91 3.75 3.68 3.44 3.14 2.64 2.30 2.03 1.89 1.58 0.43 -1.06 -1.17 -1.48

1 3 5 6 7 8 9 10 11 12 13 15 16 17 18 19 20 21 22 23 24 25 26 27 28 30 31 32 33 34 35 36 37 38 39 40 41 42 43 45 46 47 49 51 53

98.11 94.34 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 15.09 13.21 11.32 7.55 3.77 0.00

Region

_________________________________________________________________________________________________________

Thailand Taiwan Brazil Finland Canada South Africa Turkey Mexico New Zealand Australia Hong Kong India Chile China USA Israel Ireland Pakistan Greece Belgium Singapore the United Kingdom South Korea Malaysia Austria Russia Italy Switzerland Norway Hungary Germany France Spain Luxembourg Sweden Denmark Peru Japan Czech Republic Argentina Netherlands Poland Portugal Indonesia Philippines

Asia Asia Latin America Europe North America Africa the Middle East Latin America Oceana Oceana Asia Asia Latin America Asia North America the Middle East Europe the Middle East Europe Europe Asia Europe Asia Asia Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Latin America Asia Europe Latin America Europe Europe Europe Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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77

Pretax Income (Semiconductors and Related Devices) Countries in Latin America

Value (total revenue = 100)

Rank

Percentile

11.48 11.15 11.09 8.62 8.47 8.00 7.18 6.54 5.63 5.54 3.45 3.42 2.64 2.40 2.19 2.03 2.01 1.89 0.43 0.38 -1.30 -1.48

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Paraguay Colombia Brazil Mexico Uruguay Venezuela Chile Guyana Costa Rica Belize Panama Falkland Islands Peru Guatemala El Salvador Ecuador Honduras Argentina French Guiana Suriname Nicaragua Bolivia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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78

Income Taxes Countries

Value (total revenue = 100)

Rank

Percentile

3.35 3.24 3.15 3.10 2.98 2.79 2.70 2.70 2.60 2.56 2.26 2.09 1.98 1.74 1.59 1.46 1.41 1.36 1.33 1.30 1.27 1.23 1.20 1.19 1.17 1.11 1.10 1.10 1.07 1.07 1.07 1.05 1.00 0.99 0.97 0.95 0.94 0.40 0.32 0.02 -0.02 -0.97

1 2 3 4 5 6 7 8 9 10 12 13 14 15 16 17 18 19 20 21 22 23 25 27 28 30 31 32 33 34 35 36 37 38 39 40 41 42 44 47 48 50

98.00 96.00 94.00 92.00 90.00 88.00 86.00 84.00 82.00 80.00 76.00 74.00 72.00 70.00 68.00 66.00 64.00 62.00 60.00 58.00 56.00 54.00 50.00 46.00 44.00 40.00 38.00 36.00 34.00 32.00 30.00 28.00 26.00 24.00 22.00 20.00 18.00 16.00 12.00 6.00 4.00 0.00

Region

_________________________________________________________________________________________________________

Australia Canada Norway Greece Belgium South Africa Turkey Mexico Finland Italy USA the United Kingdom India Austria Brazil Thailand Netherlands Malaysia Japan South Korea France Switzerland Chile Germany Russia Israel Ireland Taiwan Sweden Luxembourg Singapore Hungary Denmark Spain New Zealand Hong Kong China Philippines Indonesia Portugal Poland Peru

Oceana North America Europe Europe Europe Africa the Middle East Latin America Europe Europe North America Europe Asia Europe Latin America Asia Europe Asia Asia Asia Europe Europe Latin America Europe Europe the Middle East Europe Asia Europe Europe Asia Europe Europe Europe Oceana Asia Asia Asia Asia Europe Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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79

Income Taxes (Semiconductors and Related Devices) Countries in Latin America

Value (total revenue = 100)

Rank

Percentile

2.70 2.65 2.50 1.59 1.20 1.16 1.13 1.07 0.94 0.92 0.86 0.40 0.35 -0.02 -0.02 -0.74 -0.74 -0.80 -0.88 -0.97

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

95.00 90.00 85.00 80.00 75.00 70.00 65.00 60.00 55.00 50.00 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Venezuela Brazil Chile Paraguay Colombia Falkland Islands Costa Rica Belize Panama Bolivia Nicaragua Suriname French Guiana Honduras Ecuador El Salvador Guatemala Peru

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.5 3.5.1

80

FINANCIAL RETURNS IN MEXICO: PROFITABILITY RATIOS Overview

In this chapter we consider additional financial ratios estimated for firms involved in semiconductors and related devices operating in Mexico benchmarked against global averages. The chapter begins by defining relevant terms. Estimates are then presented for the proto-typical firm operating in Mexico compared to average global benchmarks. For ratios where there are large deviations between the average firm in Mexico and the benchmarks, graphics are provided. Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key ratios are highlighted across countries in the comparison group.

3.5.2

Ratios – Definitions of Terms

The following definitions are provided for those less familiar with financial ratio analysis. As this chapter deals with the global benchmarking of ratios, only definitions covering certain terms used in this chapter’s tables and graphs are provided here . The glossary below reflects commonly accepted definitions across various countries and official sources. •

Accounts Receivables Days. The number of days' receivable sales generally correlates to the amount of the accounts receivables to the average daily sales on account. Accounts receivables days is often determined by dividing the gross receivables by (net sales/365).

•

Cash Earnings Return On Equity (%). Cash earnings return on equity generally measures the return of revenues to the shareholders. This ratio is generally calculated by dividing (net income before nonrecurring items minus preferred dividends) by the average common equity.

•

Cash Flow. Cash flow is generally defined as being equal to the company's net income plus the charge-off amounts for depreciation, depletion, amortization, extraordinary charges to reserves. These are bookkeeping deductions which are not paid out as cash.

•

Current Ratio. The current ratio is generally defined as a ratio of liquidity measuring the ability of a business to pay its current obligations when due. The current ratio is generally calculated by dividing total current assets by total current liabilities. Managers and lenders often want the current ratio to be 2.00 or greater. This ratio is often seen as an indication of short-term debt-paying ability. The higher the ratio, the more liquid the company.

•

Dividend Payout (% Earnings) - Total Dividends (%). The dividend payout ratio is generally used to measure the amount of current earnings per common share which are paid out in dividends. This ratio is generally determined by dividing dividends per common share by diluted earnings per share.

•

Fixed Charge Coverage Ratio. The fixed charge coverage ratio is generally seen as an indication of the company's ability to cover its fixed charges. This ratio is typically determined by dividing recurring earnings excluding interest expense, tax expense, equity earnings, and minority earnings plus interest from rentals by interest expense including capitalized interest and interest from rentals.

•

Gross Profit Margin (%). The gross profit margin is typically defined to equals the difference, in percent, between net sales revenue and the cost of goods sold.

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•

Inventories (# of Days) Held. Inventory days held is generally determined by dividing the ending inventory by (the cost of goods held/365). The number of days held results in the average daily cost of goods held.

•

Inventory Turnover (%). Inventory turnover is used as a measure of the balance of inventory. It generally compares the amount of inventory with the total sales for the year. The ratio can reflect both on the quality of the inventory and the efficiency of management. Typically, the higher the turnover rate, the greater the likelihood that profits would be larger and less working capital bound up in inventory.

•

Net Margin (%). The net margin is the ratio of net income dollars generated by each dollar of sales.

•

Operating Profit Margin (%). Operating profit margin percent is the ratio of operating profit to net sales. Operating profit (loss) is income or loss before taxes calculated by the difference between total revenues and total expense disregarding the effects of any extraordinary transactions.

•

Quick Ratio. The quick ratio, also commonly known as the “acid test ratio”, is a refined current ratio and is often seen as a more conservative measure of liquidity. The quick ratio is generally determined by dividing cash and equivalents plus trade receivables by total current liabilities. The ratio shows the degree to which a company's current liabilities can be covered by the most liquid current assets. Financial management texts generally conclude that any value of less than 1 to 1 implies a reciprocal dependency on inventory or other current assets to liquidate short-term debt.

•

Reinvestment Rate - Total (%). The reinvestment rate is typically defined as the rate at which an investor assumes interest payments made on a debt security can be reinvested over the life of that security.

•

Return on Assets (%). Return on assets is generally used to measure a company's ability to use assets to create profit.

•

Return on Equity - Total (%). The return on total equity ratio is often seen to reflect the profitability of the company's operations after income taxes. Return on equity is often considered to be a good measure of the company's profitability. Tax laws and tax loss carryovers can affect the net income and therefore can also affect the return on equity.

•

Return on Invested Capital (%). The ratio of return on invested capital is typically defined as an evaluation of earnings performance without regard to the method of financing. This ratio measures the earnings on investment and is an indication of how well the company utilizes its asset base. Return on investment is a type of return on capital, therefore this ratio can be an indication of the company’s ability to reward investors who provide long-term funds and to attract future investors.

•

Tax Rate (%). The tax rate is typically defined as the average rate of domestic tax owed to government by the company.

•

Working Capital. Net working capital equals the difference between total current assets and total current liabilities. Working capital often reflects a company's ability to expand volume and meet obligations. Since growth is usually one goal, the amount of working capital on this year's balance sheet should be greater than that of the previous year's. This is an efficiency, or turnover, ratio which benchmarks the rate at which current assets less current liabilities are used by the company in making sales. A low ratio can indicate a less profitable use of working capital in making sales. On the other hand, a very high ratio can indicate the company is wasting current assets which could be more efficiently deployed in production and in increasing sales and profits; or that the company my be undercapitalized, and thus vulnerable to liquidity problems in a period of weak business conditions.

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3.5.3

82

Ratio Structure: Outlook

Using the methodology described in the introduction, the following table summarizes ratio structure benchmarks for firms involved in semiconductors and related devices in Mexico. All figures are current-year projections for companies operating in Mexico based on latest financial results available. Ratios Mexico Latin America World Avg.

_________________________________________________________________________________________________________

Profitability Return on Equity - Total (%) Reinvestment Rate - Total (%) Return on Assets (%) Return on Invested Capital (%) Cash Earnings Return On Equity (%) Cash Flow % Sales Cost Goods Sold / Sales (%) Gross Profit Margin (%) Selling, General & Administrative Expense/Net Sales (%) Research & Development / Net Sales (%) Operating Profit Margin (%) Operating Inc / Total Capital (%) Pretax Margin (%) Tax Rate (%) Net Margin (%) Total Asset Turnover (X) th USD Asset Utilization Inventory Turnover (%) Net Sales % Working Capital Capital Expenditure % Gross Fixed Assets Capital Expenditure % Total Assets Capital Expenditure % Total Sales Accumulated Depreciation % Gross Fixed Assets Leverage Total Debt % Total Capital Long Term Debt % Total Capital Equity % Total Capital Fixed Charge Coverage Ratio Dividend Payout (% Earnings) - Total Dividends Fixed Assets % Common Equity Working Capital % Total Capital Liquidity Quick Ratio Current Ratio Inventories % Total Current Assets Accounts Receivables Days Inventories (# of Days) Held

24.41 21.07 24.01 37.35 83.78 14.20 63.60 29.77 17.41 1.95 10.42 50.56 8.62 35.67 5.92 1.34

9.89 5.61 9.04 12.90 26.47 8.39 62.42 22.00 13.67 2.20 5.82 15.05 4.63 35.77 3.75 0.88

12.18 8.44 7.68 11.07 26.50 9.64 66.35 18.89 8.76 1.31 6.55 15.65 5.63 34.30 4.27 0.95

6.70 5.25 10.68 6.01 5.00 61.99

4.06 10.84 8.47 3.87 4.19 46.82

5.07 2.05 9.08 4.37 5.39 39.31

40.81 29.75 69.86 4.37 16.16 64.89 63.27

25.93 14.91 72.73 174.55 17.69 63.03 29.27

25.87 13.04 75.65 90.19 18.07 65.96 32.46

1.14 1.71 26.54 95.60 77.90

0.91 1.56 34.14 79.57 102.82

1.26 1.88 28.63 94.56 92.91

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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3.5.4

83

Large Variances: Ratios

The following graphics summarize for semiconductors and related devices the large ratio structure gaps between firms operating in Mexico and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Reinvestment Rate - Total (%) 25

21.07

20 12.63

15 8.44

10

5.61

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Return on Assets (%) 25

24.01

20

16.33

15 9.04

10

7.68

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Return on Invested Capital (%) 40

37.35 26.28

30 20

12.9

11.07

10 0 Mexico

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Latin Am erica

World Average

Gap

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Gap: Cash Earnings Return On Equity (%) 100

83.78

80 57.28

60 40

26.47

26.5

20 0 Mexico

Latin Am erica

World Average

Gap

Gap: Operating Inc / Total Capital (%) 60

50.56

50 34.91

40 30 15.05

20

15.65

10 0 Mexico

Latin Am erica

World Average

Gap

Gap: Accumulated Depreciation % Gross Fixed Assets 80 61.99 60

46.82

39.31

40 22.68 20 0 Mexico

Latin Am erica

World Average

Gap

Gap: Total Debt % Total Capital 50

40.81

40 25.93

30

25.87 14.94

20 10 0 Mexico

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Latin Am erica

World Average

Gap

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Gap: Long Term Debt % Total Capital 30

29.75

25 20

14.91

15

16.71 13.04

10 5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Fixed Charge Coverage Ratio 174.55

200 150

90.19

100 50

4.37

0 -50 -85.82

-100 Mexico

Latin Am erica

World Average

Gap

Gap: Working Capital % Total Capital 80 63.27 60 40

29.27

32.46

30.81

20 0 Mexico

Latin Am erica

World Average

Gap

Gap: Inventories (# of Days) Held 120 100 80 60 40 20 0 -20

102.82

92.91

77.9

-15.01 Mexico

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Latin Am erica

World Average

Gap

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3.5.5

86

Key Percentiles and Rankings

We now consider the distribution of financial ratios for semiconductors and related devices using ranks and percentiles. What percent of countries have a value lower or higher than Mexico (what is the ratio's rank or percentile)? The table below answers this question with respect to financial ratios. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key financial ratios are highlighted in additional tables. Ratios

Mexico

Rank of Total

Percentile

24.41 21.07 24.01 37.35 83.78 14.20 63.60 29.77 17.41 1.95 10.42 50.56 8.62 35.67 5.92 1.34

5 of 53 5 of 53 3 of 53 3 of 53 2 of 53 7 of 53 36 of 52 12 of 52 15 of 44 21 of 39 4 of 53 2 of 53 10 of 53 14 of 47 12 of 53 10 of 53

90.57 90.57 94.34 94.34 96.23 86.79 30.77 76.92 65.91 46.15 92.45 96.23 81.13 70.21 77.36 81.13

6.70 5.25 10.68 6.01 5.00 61.99

14 of 53 17 of 53 27 of 48 18 of 53 27 of 53 5 of 47

73.58 67.92 43.75 66.04 49.06 89.36

40.81 29.75 69.86 4.37 16.16 64.89 63.27

5 of 53 2 of 51 40 of 53 38 of 53 25 of 47 27 of 53 3 of 53

90.57 96.08 24.53 28.30 46.81 49.06 94.34

1.14 1.71 26.54 95.60 77.90

35 of 53 36 of 53 29 of 53 15 of 53 27 of 53

33.96 32.08 45.28 71.70 49.06

_________________________________________________________________________________________________________

Profitability Return on Equity - Total (%) Reinvestment Rate - Total (%) Return on Assets (%) Return on Invested Capital (%) Cash Earnings Return On Equity (%) Cash Flow % Sales Cost Goods Sold / Sales (%) Gross Profit Margin (%) Selling, General & Administrative Expense/Net Sales (%) Research & Development / Net Sales (%) Operating Profit Margin (%) Operating Inc / Total Capital (%) Pretax Margin (%) Tax Rate (%) Net Margin (%) Total Asset Turnover (X) th USD Asset Utilization Inventory Turnover (%) Net Sales % Working Capital Capital Expenditure % Gross Fixed Assets Capital Expenditure % Total Assets Capital Expenditure % Total Sales Accumulated Depreciation % Gross Fixed Assets Leverage Total Debt % Total Capital Long Term Debt % Total Capital Equity % Total Capital Fixed Charge Coverage Ratio Dividend Payout (% Earnings) - Total Dividends Fixed Assets % Common Equity Working Capital % Total Capital Liquidity Quick Ratio Current Ratio Inventories % Total Current Assets Accounts Receivables Days Inventories (# of Days) Held

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Gross Profit Margin (%) Countries

Value

Rank

Percentile

Israel Ireland USA Canada Switzerland Greece Chile Philippines Australia Italy Turkey Mexico Brazil Norway the United Kingdom Luxembourg South Africa Peru Indonesia Japan Netherlands New Zealand Hong Kong Sweden Taiwan Poland China Austria Belgium Singapore Spain Thailand Denmark Germany Malaysia Finland South Korea Russia France Hungary India Czech Republic Argentina Portugal

53.47 53.02 35.12 30.91 30.75 30.53 30.48 30.45 30.22 30.06 29.86 29.77 29.06 27.46 27.07 26.59 26.12 24.09 24.08 23.64 23.23 23.17 22.70 22.69 22.43 21.73 21.06 20.78 20.58 20.48 20.23 20.20 20.04 20.04 18.97 17.83 16.70 15.05 13.54 13.52 13.16 2.31 2.15 -1.54

1 2 3 4 5 6 7 8 9 10 11 12 13 15 16 17 18 20 21 22 23 24 25 26 28 29 30 31 32 33 34 35 36 37 38 40 43 46 47 48 49 50 51 52

98.08 96.15 94.23 92.31 90.38 88.46 86.54 84.62 82.69 80.77 78.85 76.92 75.00 71.15 69.23 67.31 65.38 61.54 59.62 57.69 55.77 53.85 51.92 50.00 46.15 44.23 42.31 40.38 38.46 36.54 34.62 32.69 30.77 28.85 26.92 23.08 17.31 11.54 9.62 7.69 5.77 3.85 1.92 0.00

Region

_________________________________________________________________________________________________________

the Middle East Europe North America North America Europe Europe Latin America Asia Oceana Europe the Middle East Latin America Latin America Europe Europe Europe Africa Latin America Asia Asia Europe Oceana Asia Europe Asia Europe Asia Europe Europe Asia Europe Asia Europe Europe Asia Europe Asia Europe Europe Europe Asia Europe Latin America Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Gross Profit Margin (%) (Semiconductors and Related Devices) Countries in Latin America

Value

Rank

Percentile

Chile Bolivia Mexico Uruguay Brazil Venezuela Nicaragua Peru Costa Rica Belize Falkland Islands Guatemala French Guiana El Salvador Suriname Ecuador Honduras Paraguay Colombia Panama Argentina

30.48 30.38 29.77 29.29 29.06 27.66 26.70 24.09 23.90 23.55 22.60 21.87 21.68 19.93 19.16 18.50 18.33 16.10 15.63 11.09 2.15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

95.24 90.48 85.71 80.95 76.19 71.43 66.67 61.90 57.14 52.38 47.62 42.86 38.10 33.33 28.57 23.81 19.05 14.29 9.52 4.76 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Pretax Margin (%) Countries

Value

Rank

Percentile

Thailand Taiwan Brazil Finland Canada South Africa Turkey Mexico New Zealand Australia Hong Kong India Chile China USA Israel Ireland Pakistan Greece Belgium Singapore the United Kingdom South Korea Malaysia Austria Russia Italy Switzerland Norway Hungary Germany France Spain Luxembourg Sweden Denmark Peru Japan Czech Republic Argentina Netherlands Poland Portugal Indonesia Philippines

14.40 11.17 11.09 9.58 9.32 9.26 8.64 8.62 8.41 8.38 8.24 7.30 7.18 7.00 6.99 6.94 6.88 6.76 6.32 6.21 6.06 5.77 5.20 5.19 4.95 4.68 4.54 4.25 4.21 4.21 4.07 3.91 3.75 3.68 3.44 3.14 2.64 2.30 2.03 1.89 1.58 0.43 -1.06 -1.17 -1.48

1 3 5 6 7 8 9 10 11 12 13 15 16 17 18 19 20 21 22 23 24 25 26 27 28 30 31 32 33 34 35 36 37 38 39 40 41 42 43 45 46 47 49 51 53

98.11 94.34 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 15.09 13.21 11.32 7.55 3.77 0.00

Region

_________________________________________________________________________________________________________

Asia Asia Latin America Europe North America Africa the Middle East Latin America Oceana Oceana Asia Asia Latin America Asia North America the Middle East Europe the Middle East Europe Europe Asia Europe Asia Asia Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Latin America Asia Europe Latin America Europe Europe Europe Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Pretax Margin (%) (Semiconductors and Related Devices) Countries in Latin America

Value

Rank

Percentile

Paraguay Colombia Brazil Mexico Uruguay Venezuela Chile Guyana Costa Rica Belize Panama Falkland Islands Peru Guatemala El Salvador Ecuador Honduras Argentina French Guiana Suriname Nicaragua Bolivia

11.48 11.15 11.09 8.62 8.47 8.00 7.18 6.54 5.63 5.54 3.45 3.42 2.64 2.40 2.19 2.03 2.01 1.89 0.43 0.38 -1.30 -1.48

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Quick Ratio Countries

Value

Rank

Percentile

2.80 2.35 2.27 2.12 2.11 2.09 2.07 1.91 1.91 1.90 1.88 1.87 1.86 1.82 1.77 1.72 1.67 1.62 1.53 1.53 1.51 1.49 1.48 1.36 1.34 1.25 1.21 1.20 1.19 1.19 1.16 1.16 1.15 1.14 1.14 1.13 1.09 1.08 1.06 1.06 1.00 0.92 0.84 0.75 0.49

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 41 42 43 45 48 50 52

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 22.64 20.75 18.87 15.09 9.43 5.66 1.89

Region

_________________________________________________________________________________________________________

USA Malaysia Czech Republic Argentina Norway Israel Ireland New Zealand Canada Spain Portugal Hong Kong Japan Germany Switzerland Austria Singapore the United Kingdom China Luxembourg Taiwan South Korea Belgium Brazil Russia Finland Hungary Sweden Italy France Australia Thailand Turkey Mexico India Poland Netherlands Greece Philippines South Africa Denmark Chile Indonesia Pakistan Peru

North America Asia Europe Latin America Europe the Middle East Europe Oceana North America Europe Europe Asia Asia Europe Europe Europe Asia Europe Asia Europe Asia Asia Europe Latin America Europe Europe Europe Europe Europe Europe Oceana Asia the Middle East Latin America Asia Europe Europe Europe Asia Africa Europe Latin America Asia the Middle East Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Quick Ratio (Semiconductors and Related Devices) Countries in Latin America

Value

Rank

Percentile

2.12 1.36 1.19 1.14 1.13 1.12 1.06 1.06 0.99 0.99 0.93 0.92 0.92 0.90 0.73 0.72 0.71 0.49 0.44 0.40 0.38 0.37

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Argentina Brazil Falkland Islands Mexico Uruguay French Guiana Venezuela Bolivia Suriname Panama Nicaragua Chile Paraguay Colombia Costa Rica Guyana Belize Peru Guatemala El Salvador Ecuador Honduras

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Current Ratio Countries

Value

Rank

Percentile

4.05 3.86 3.60 3.15 2.90 2.80 2.74 2.56 2.46 2.44 2.42 2.40 2.39 2.38 2.35 2.33 2.27 2.13 2.13 2.09 2.08 2.06 2.03 2.01 2.00 1.91 1.87 1.85 1.83 1.80 1.76 1.76 1.72 1.72 1.71 1.67 1.64 1.63 1.57 1.52 1.50 1.46 1.46 1.34 1.15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 29 30 31 32 33 34 35 36 37 38 39 41 42 43 45 46 48 50

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 22.64 20.75 18.87 15.09 13.21 9.43 5.66

Region

_________________________________________________________________________________________________________

USA Czech Republic Argentina Malaysia Canada Germany Norway Spain Portugal Japan Switzerland Israel New Zealand Ireland Hong Kong Austria the United Kingdom Taiwan Singapore Luxembourg Sweden Belgium South Korea China Brazil India Finland Chile Russia Italy Denmark Thailand Turkey France Mexico Australia Hungary South Africa Pakistan Netherlands Poland Greece Philippines Peru Indonesia

North America Europe Latin America Asia North America Europe Europe Europe Europe Asia Europe the Middle East Oceana Europe Asia Europe Europe Asia Asia Europe Europe Europe Asia Asia Latin America Asia Europe Latin America Europe Europe Europe Asia the Middle East Europe Latin America Oceana Europe Africa the Middle East Europe Europe Europe Asia Latin America Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Current Ratio (Semiconductors and Related Devices) Countries in Latin America

Value

Rank

Percentile

3.60 2.07 2.00 1.85 1.71 1.68 1.59 1.51 1.50 1.46 1.45 1.43 1.40 1.36 1.35 1.34 1.32 1.28 1.22 1.11 1.03 1.02

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Argentina Falkland Islands Brazil Chile Mexico Uruguay Venezuela Guyana French Guiana Bolivia Costa Rica Belize Paraguay Colombia Panama Peru Suriname Nicaragua Guatemala El Salvador Ecuador Honduras

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Inventories % Total Current Assets Countries

Value

Rank

Percentile

Peru Pakistan Chile Czech Republic Argentina Sweden Denmark Germany India Canada Italy Australia South Africa Norway the United Kingdom Thailand Belgium Taiwan Brazil Switzerland USA Finland France South Korea Netherlands Austria Turkey Mexico Spain Luxembourg Malaysia China Greece New Zealand Russia Hong Kong Poland Portugal Singapore Hungary Philippines Japan Indonesia Israel Ireland

57.66 50.12 46.87 42.20 39.31 38.67 38.16 36.85 35.92 35.47 35.15 35.06 34.43 33.28 32.03 30.98 30.63 29.77 29.33 29.18 28.55 28.30 28.23 27.45 27.44 27.33 26.61 26.54 25.34 25.24 25.23 25.16 25.09 24.81 24.73 24.31 23.65 23.48 22.65 22.22 21.87 21.53 17.29 13.85 13.74

1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 32 33 35 36 37 38 40 42 43 44 45 46 47 49 51 52

98.11 96.23 94.34 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 33.96 32.08 30.19 28.30 24.53 20.75 18.87 16.98 15.09 13.21 11.32 7.55 3.77 1.89

Region

_________________________________________________________________________________________________________

Latin America the Middle East Latin America Europe Latin America Europe Europe Europe Asia North America Europe Oceana Africa Europe Europe Asia Europe Asia Latin America Europe North America Europe Europe Asia Europe Europe the Middle East Latin America Europe Europe Asia Asia Europe Oceana Europe Asia Europe Europe Asia Europe Asia Asia Asia the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Inventories % Total Current Assets (Semiconductors and Related Devices) Countries in Latin America

Value

Rank

Percentile

Peru Guatemala Guyana El Salvador Chile Ecuador Honduras Argentina Falkland Islands Costa Rica Belize Brazil Mexico Uruguay Paraguay Venezuela Colombia French Guiana Bolivia Suriname Nicaragua Panama

57.66 52.34 48.50 47.71 46.87 44.29 43.89 39.31 38.52 36.76 36.21 29.33 26.54 26.10 24.69 24.65 23.97 23.60 21.82 20.85 19.18 18.23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

97

Accounts Receivables Days Countries

Value

Rank

Percentile

Greece Italy China Malaysia India Peru Poland France Czech Republic Belgium Japan Argentina Portugal Turkey Mexico Spain Austria Thailand Switzerland New Zealand Taiwan Netherlands Hong Kong South Africa Australia Singapore Norway Pakistan Denmark South Korea Germany Luxembourg the United Kingdom Chile Finland Israel Ireland Russia Sweden Philippines USA Canada Hungary Brazil Indonesia

146.93 136.93 134.59 127.67 116.04 112.07 111.64 109.94 106.71 105.78 100.62 99.40 99.07 95.86 95.60 93.40 90.24 88.39 86.81 81.62 80.87 80.23 79.98 79.66 79.59 79.59 78.26 76.49 75.83 75.30 75.23 75.07 75.05 71.23 70.36 70.23 69.65 67.86 65.11 64.78 64.78 62.08 60.97 53.56 51.22

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 19 20 22 23 24 25 26 27 28 29 30 31 32 33 34 35 37 38 39 40 43 44 45 46 47 48 50 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 64.15 62.26 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 30.19 28.30 26.42 24.53 18.87 16.98 15.09 13.21 11.32 9.43 5.66 3.77

Region

_________________________________________________________________________________________________________

Europe Europe Asia Asia Asia Latin America Europe Europe Europe Europe Asia Latin America Europe the Middle East Latin America Europe Europe Asia Europe Oceana Asia Europe Asia Africa Oceana Asia Europe the Middle East Europe Asia Europe Europe Europe Latin America Europe the Middle East Europe Europe Europe Asia North America North America Europe Latin America Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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2007 Icon Group International, Inc.

Financial Indicators

98

Accounts Receivables Days (Semiconductors and Related Devices) Countries in Latin America

Value

Rank

Percentile

112.07 111.39 101.74 99.40 98.45 95.60 94.03 92.74 88.81 86.09 85.31 74.02 71.23 70.47 68.42 64.85 64.63 56.80 55.87 55.03 53.56 50.02

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Peru French Guiana Guatemala Argentina Suriname Mexico Uruguay El Salvador Venezuela Ecuador Honduras Guyana Chile Paraguay Colombia Falkland Islands Bolivia Nicaragua Costa Rica Belize Brazil Panama

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

99

Inventories (# of Days) Held Countries

Value

Rank

Percentile

Italy Peru Czech Republic Argentina China USA Belgium Chile Canada India Denmark Switzerland Malaysia Pakistan Germany Taiwan Sweden Luxembourg Spain France South Africa the United Kingdom Greece Austria Turkey Mexico Brazil Israel Ireland Australia Thailand Japan Philippines Netherlands South Korea Finland New Zealand Hong Kong Singapore Russia Norway Poland Indonesia Hungary Portugal

338.72 232.94 126.61 117.93 114.31 107.23 102.39 101.65 99.97 99.49 99.29 98.49 98.48 96.90 96.64 93.88 87.21 85.18 84.69 83.68 83.43 81.10 81.01 78.28 78.11 77.90 77.65 77.59 76.95 76.11 75.94 74.74 71.48 71.15 69.01 68.06 67.04 65.69 62.67 62.19 60.56 56.62 56.52 55.87 52.13

1 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 35 36 37 38 39 40 43 44 46 48 49 50 52

98.11 96.23 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 33.96 32.08 30.19 28.30 26.42 24.53 18.87 16.98 13.21 9.43 7.55 5.66 1.89

Region

_________________________________________________________________________________________________________

Europe Latin America Europe Latin America Asia North America Europe Latin America North America Asia Europe Europe Asia the Middle East Europe Asia Europe Europe Europe Europe Africa Europe Europe Europe the Middle East Latin America Latin America the Middle East Europe Oceana Asia Asia Asia Europe Asia Europe Oceana Asia Asia Europe Europe Europe Asia Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

100

Inventories (# of Days) Held (Semiconductors and Related Devices) Countries in Latin America

Value

Rank

Percentile

232.94 211.47 192.76 178.94 177.31 117.93 101.65 93.77 86.86 79.73 78.53 77.90 77.65 76.62 72.37 71.32 62.67 60.54 58.78 56.50 49.93 45.84

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Peru Guatemala El Salvador Ecuador Honduras Argentina Chile Guyana Falkland Islands Costa Rica Belize Mexico Brazil Uruguay Venezuela Bolivia Nicaragua Paraguay Colombia French Guiana Suriname Panama

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.6 3.6.1

101

PRODUCTIVITY IN MEXICO: ASSET-LABOR RATIOS Overview

In this chapter, we consider numerous asset-labor ratios for semiconductors and related devices in Mexico benchmarked against global averages. Productivity and utilization ratios are presented for companies oprating in Mexico and the average global benchmarks for semiconductors and related devices. For ratios where there are large deviations between Mexico and the benchmarks, graphics are provided (sometimes referred to as a “gap” analysis). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain asset-labor ratios are highlighted across countries in the comparison group. In the case of asset-labor ratios, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. We then report the larger asset-labor ratio gaps for semiconductors and related devices that Mexico has vis-à-vis the worldwide average. Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

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2007 Icon Group International, Inc.

Financial Indicators

3.6.2

102

Asset to Labor: Outlook

The following tables and graphs are prepared using the methodology described at the beginning of this section. All units are in thousands of US dollars per employee. All figures are current-year projections for semiconductors and related devices in Mexico based on latest financial results available. Labor-asset Ratios ($k/employee) Mexico Latin America World Avg.

_________________________________________________________________________________________________________

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Finished Goods Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

21.00 21.63 1.04 53.56 28.75 4.45 1.48 21.96 2.47 5.19 4.23 111.43 0.89 2.31 0.66 22.81 61.37 0.53 12.50 45.26 0.85 6.69 38.56 1.51 0.00 0.05 1.24 138.55

9.65 9.74 6.54 26.25 23.47 6.65 2.33 10.24 1.23 1.69 2.42 62.38 0.46 4.22 1.96 44.58 77.12 2.80 16.94 41.33 0.65 20.09 40.05 19.95 1.73 0.56 2.24 130.57

21.33 12.46 12.27 39.86 34.95 16.62 10.48 10.50 1.33 1.80 2.39 99.52 0.77 5.01 3.95 50.37 81.35 5.41 23.72 40.38 1.13 16.86 32.67 46.01 1.59 0.87 40.74 203.64

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.6.3

103

Asset to Labor: International Gaps

The following graphics summarize for semiconductors and related devices the large labor-asset gaps between firms operating in Mexico and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Short Term Investments ($k/employee) 12.27

15 10 5

6.54 1.04

0 -5 -10

-11.23

-15 Mexico

Latin Am erica

World Average

Gap

Gap: Receivables (Net) ($k/employee) 60

53.56

50

39.86

40 26.25

30 20

13.7

10 0 Mexico

Latin Am erica

World Average

Gap

Gap: Raw Materials ($k/employee) 20 15 10 5 0 -5 -10 -15

16.62 4.45

6.65

-12.17 Mexico

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Latin Am erica

World Average

Gap

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104

Gap: Finished Goods ($k/employee) 25

21.96

20 15

10.24

11.46

10.5

10 5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Current Assets - Total ($k/employee) 120

111.43 99.52

100 80

62.38

60 40 11.91

20 0 Mexico

Latin Am erica

World Average

Gap

Gap: Property Plant and Equipment - Net ($k/employee) 60

44.58

40

50.37

22.81

20 0 -20

-27.56

-40 Mexico

Latin Am erica

World Average

Gap

Gap: Property Plant and Equipment - Gross ($k/employee) 100 80

77.12

81.35

61.37

60 40 20 0 -20 Mexico

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Latin Am erica

World Average

-19.98 Gap

2007 Icon Group International, Inc.

Financial Indicators

105

Gap: Buildings ($k/employee) 30 20

23.72 12.5

16.94

10 0 -10

-11.22

-20 Mexico

Latin Am erica

World Average

Gap

Gap: Other Assets ($k/employee) 60

46.01

40 20

19.95 1.51

0 -20 -40

-44.5

-60 Mexico

Latin Am erica

World Average

Gap

Gap: Intangible Other Assets ($k/employee) 60

40.74

40 20

1.24

2.24

0 -20 -39.5 Gap

-40 Mexico

Latin Am erica

World Average

Gap: Total Assets ($k/employee) 250 200 150 100 50 0 -50 -100

203.64 138.55

130.57

-65.09 Mexico

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Latin Am erica

World Average

Gap

2007 Icon Group International, Inc.

Financial Indicators

3.6.4

106

Key Percentiles and Rankings

We now consider the distribution of asset-labor ratios using ranks and percentiles across . What percent of countries have a productivity indicator lower or higher than Mexico (what is the indicator's rank or percentile)? The table below answers this question with respect to asset-labor structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance or productivity. After the summary table below, a few key asset-labor ratios are highlighted in additional tables. Asset Structure ($k/employee)

Mexico

Rank of Total

Percentile

21.00 21.63 1.04 53.56 28.75 4.45 1.48 21.96 2.47 5.19 4.23 111.43 0.89 2.31 0.66 22.81 61.37 0.53 12.50 45.26 0.85 6.69 38.56 1.51 0.00 0.05 1.24 138.55

28 of 53 13 of 48 42 of 46 12 of 53 18 of 53 33 of 47 35 of 47 5 of 47 12 of 46 6 of 37 16 of 53 19 of 53 22 of 36 27 of 48 32 of 46 44 of 53 29 of 48 31 of 41 31 of 48 19 of 48 22 of 39 39 of 48 21 of 47 45 of 53 36 of 37 31 of 33 36 of 51 30 of 53

47.17 72.92 8.70 77.36 66.04 29.79 25.53 89.36 73.91 83.78 69.81 64.15 38.89 43.75 30.43 16.98 39.58 24.39 35.42 60.42 43.59 18.75 55.32 15.09 2.70 6.06 29.41 43.40

_________________________________________________________________________________________________________

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Finished Goods Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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2007 Icon Group International, Inc.

Financial Indicators

107

Cash & Short Term Investments Countries

Value ($K/employee)

Rank

Percentile

363.59 103.17 102.70 101.85 85.85 83.83 82.27 72.50 62.63 58.57 52.78 47.42 37.29 36.82 34.88 33.08 32.30 31.87 30.25 28.47 27.56 25.96 25.15 21.87 21.16 21.06 21.00 20.47 17.45 17.10 17.01 13.46 13.39 10.13 9.60 7.59 7.27 7.26 6.85 4.78 4.45 4.18 3.62 2.95 2.56

1 2 3 4 5 6 7 8 9 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 32 33 34 35 36 37 39 40 41 43 47 48 49 50 51 52

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 35.85 33.96 32.08 30.19 26.42 24.53 22.64 18.87 11.32 9.43 7.55 5.66 3.77 1.89

Region

_________________________________________________________________________________________________________

Australia Norway Israel Ireland Taiwan Switzerland USA Luxembourg Japan South Korea Russia Hungary Canada Portugal the United Kingdom Austria Finland France Netherlands Belgium Brazil China Italy Spain Singapore Turkey Mexico Germany New Zealand Hong Kong Greece Sweden Denmark Malaysia Philippines Indonesia Thailand South Africa Chile Czech Republic Argentina India Pakistan Poland Peru

Oceana Europe the Middle East Europe Asia Europe North America Europe Asia Asia Europe Europe North America Europe Europe Europe Europe Europe Europe Europe Latin America Asia Europe Europe Asia the Middle East Latin America Europe Oceana Asia Europe Europe Europe Asia Asia Asia Asia Africa Latin America Europe Latin America Asia the Middle East Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

108

Cash & Short Term Investments (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

38.91 27.56 21.00 20.66 19.51 13.41 9.58 8.42 6.85 5.80 5.63 5.37 5.29 4.45 3.50 2.94 2.60 2.56 2.32 2.12 1.97 1.95

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Panama Brazil Mexico Uruguay Venezuela Falkland Islands Bolivia Nicaragua Chile Paraguay Colombia Costa Rica Belize Argentina Guyana French Guiana Suriname Peru Guatemala El Salvador Ecuador Honduras

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

109

Receivables (Net) Countries

Value ($K/employee)

Rank

Percentile

3308.56 125.23 78.70 77.34 71.81 69.70 66.77 62.62 59.77 53.70 53.56 51.68 48.50 46.62 41.46 41.11 40.86 40.52 40.29 38.48 38.43 36.51 35.39 34.84 34.25 33.18 32.80 31.10 29.65 29.59 28.99 27.08 26.99 21.59 21.15 19.76 17.91 17.47 17.04 15.21 13.81 12.97 12.47 12.08 8.95

1 2 3 4 5 7 8 9 10 11 12 13 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 39 40 41 42 43 45 47 48 49 53

98.11 96.23 94.34 92.45 90.57 86.79 84.91 83.02 81.13 79.25 77.36 75.47 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 26.42 24.53 22.64 20.75 18.87 15.09 11.32 9.43 7.55 0.00

Region

_________________________________________________________________________________________________________

Australia Taiwan Japan South Korea Greece Russia Italy Hungary Netherlands Turkey Mexico France Belgium Norway Denmark Germany Israel Ireland Switzerland Portugal Finland China USA Luxembourg Austria Canada Poland the United Kingdom Chile Singapore Sweden Peru Spain New Zealand Hong Kong Malaysia India Philippines South Africa Brazil Indonesia Czech Republic Thailand Argentina Pakistan

Oceana Asia Asia Asia Europe Europe Europe Europe Europe the Middle East Latin America Europe Europe Europe Europe Europe the Middle East Europe Europe Europe Europe Asia North America Europe Europe North America Europe Europe Latin America Asia Europe Latin America Europe Oceana Asia Asia Asia Asia Africa Latin America Asia Europe Asia Latin America the Middle East

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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Financial Indicators

110

Receivables (Net) (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

53.56 52.68 51.38 49.75 32.72 29.65 28.92 28.88 27.08 24.58 23.25 22.90 22.41 20.80 20.61 17.43 15.31 15.21 12.08 9.94 9.65 8.66

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Panama Venezuela French Guiana Chile Suriname Falkland Islands Peru Guatemala Costa Rica Belize El Salvador Ecuador Honduras Bolivia Nicaragua Brazil Argentina Paraguay Colombia Guyana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

111

Total Inventories Countries

Value ($K/employee)

Rank

Percentile

4819.42 116.85 85.55 48.36 46.86 43.58 42.63 39.16 36.14 35.46 33.94 33.72 33.03 31.85 28.83 28.75 28.57 28.23 27.73 27.65 26.73 26.47 24.50 23.14 22.90 20.57 20.26 20.18 18.63 17.13 16.67 13.99 13.88 12.81 12.47 12.29 11.75 11.62 11.62 10.69 10.47 10.47 7.24 5.03 3.98

1 2 3 4 5 7 8 9 10 11 13 14 15 16 17 18 19 20 21 22 23 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 49 51

98.11 96.23 94.34 92.45 90.57 86.79 84.91 83.02 81.13 79.25 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 7.55 3.77

Region

_________________________________________________________________________________________________________

Australia Taiwan Italy South Korea Peru Russia Denmark Hungary Greece Germany Japan Chile USA Canada Turkey Mexico Belgium Netherlands Norway Sweden France Switzerland the United Kingdom Portugal Luxembourg China Brazil Austria Finland Singapore Spain Israel Ireland Pakistan Czech Republic South Africa India Poland Argentina New Zealand Hong Kong Malaysia Thailand Philippines Indonesia

Oceana Asia Europe Asia Latin America Europe Europe Europe Europe Europe Asia Latin America North America North America the Middle East Latin America Europe Europe Europe Europe Europe Europe Europe Europe Europe Asia Latin America Europe Europe Asia Europe the Middle East Europe the Middle East Europe Africa Asia Europe Latin America Oceana Asia Asia Asia Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

112

Total Inventories (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

46.86 42.54 38.78 35.99 35.67 33.72 32.13 28.75 28.28 27.54 26.70 26.45 26.05 20.26 12.39 11.62 11.59 10.24 5.77 5.60 5.02 4.41

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Peru Guatemala El Salvador Ecuador Honduras Chile Panama Mexico Uruguay Falkland Islands Venezuela Costa Rica Belize Brazil Guyana Argentina French Guiana Suriname Paraguay Colombia Bolivia Nicaragua

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

113

Current Assets - Total Countries

Value ($K/employee)

Rank

Percentile

8596.25 360.97 193.82 186.57 180.46 177.79 174.65 160.81 160.65 159.48 156.92 155.29 134.30 128.48 127.03 114.83 111.73 111.43 105.67 105.07 104.85 102.15 98.53 94.92 93.19 89.07 85.36 81.27 73.24 72.42 68.90 65.77 63.36 49.77 48.76 47.87 40.73 36.92 35.05 33.81 30.37 28.29 27.99 26.73 26.18

1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 24 25 26 27 28 29 30 31 32 33 34 35 37 38 39 40 41 42 43 44 46 47 48 49

98.11 96.23 94.34 92.45 90.57 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 13.21 11.32 9.43 7.55

Region

_________________________________________________________________________________________________________

Australia Taiwan South Korea Japan Italy Norway Russia Israel USA Ireland Hungary Switzerland Luxembourg Greece Netherlands France Turkey Mexico Belgium Germany Canada Denmark Portugal Finland the United Kingdom Austria China Peru Sweden Chile Singapore Spain Brazil New Zealand Hong Kong Poland Malaysia South Africa India Philippines Czech Republic Argentina Thailand Indonesia Pakistan

Oceana Asia Asia Asia Europe Europe Europe the Middle East North America Europe Europe Europe Europe Europe Europe Europe the Middle East Latin America Europe Europe North America Europe Europe Europe Europe Europe Asia Latin America Europe Latin America Asia Europe Latin America Oceana Asia Europe Asia Africa Asia Asia Europe Latin America Asia Asia the Middle East

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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Financial Indicators

114

Current Assets - Total (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

128.74 111.43 109.60 103.51 81.27 73.78 72.95 72.42 67.25 63.36 62.43 61.86 56.80 55.95 47.76 42.21 33.73 29.64 28.29 25.33 22.31 21.66

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Panama Mexico Uruguay Venezuela Peru Guatemala Falkland Islands Chile El Salvador Brazil Ecuador Honduras Costa Rica Belize French Guiana Suriname Bolivia Nicaragua Argentina Guyana Paraguay Colombia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

115

Property Plant and Equipment - Net Countries

Value ($K/employee)

Rank

Percentile

3528.70 293.88 131.15 118.18 106.18 81.72 71.76 68.00 61.48 58.73 56.56 54.01 53.79 53.77 53.17 52.70 45.84 43.20 42.00 41.28 40.38 39.95 36.10 35.49 33.53 33.10 32.40 31.42 30.17 28.92 27.42 27.42 27.07 26.86 23.47 22.87 22.81 19.59 19.43 18.42 16.47 15.74 15.34 11.14 6.40

1 2 3 5 6 7 8 9 10 11 13 14 15 16 17 18 20 22 23 24 25 26 28 29 30 31 32 33 34 36 38 39 40 41 42 43 44 46 47 48 49 50 51 52 53

98.11 96.23 94.34 90.57 88.68 86.79 84.91 83.02 81.13 79.25 75.47 73.58 71.70 69.81 67.92 66.04 62.26 58.49 56.60 54.72 52.83 50.94 47.17 45.28 43.40 41.51 39.62 37.74 35.85 32.08 28.30 26.42 24.53 22.64 20.75 18.87 16.98 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Taiwan South Korea Russia Hungary Chile Japan Philippines Switzerland Peru Belgium Brazil New Zealand Indonesia Luxembourg Hong Kong Italy Portugal Poland Austria China USA France Thailand Spain Germany Denmark Netherlands Sweden Malaysia Singapore Greece Finland Canada the United Kingdom Turkey Mexico Israel Ireland India Czech Republic Norway Argentina South Africa Pakistan

Oceana Asia Asia Europe Europe Latin America Asia Asia Europe Latin America Europe Latin America Oceana Asia Europe Asia Europe Europe Europe Europe Asia North America Europe Asia Europe Europe Europe Europe Europe Asia Asia Europe Europe North America Europe the Middle East Latin America the Middle East Europe Asia Europe Europe Latin America Africa the Middle East

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

116

Property Plant and Equipment - Net (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

87.12 81.72 67.84 64.10 63.13 59.62 58.73 54.01 53.31 48.60 45.11 44.70 41.91 37.04 30.05 28.29 27.47 22.81 22.44 21.19 15.34 6.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Panama Chile Bolivia Costa Rica Belize Nicaragua Peru Brazil Guatemala El Salvador Ecuador Honduras French Guiana Suriname Falkland Islands Paraguay Colombia Mexico Uruguay Venezuela Argentina Guyana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

117

Accumulated Depreciation - Total Countries

Value ($K/employee)

Rank

Percentile

938.61 142.96 106.52 100.53 90.92 81.93 73.61 67.49 66.90 66.04 62.57 59.76 58.36 58.09 51.39 50.47 43.19 42.48 38.67 38.56 37.93 29.62 29.31 28.99 27.59 27.36 26.43 26.17 24.31 23.44 22.57 21.82 20.69 19.62 17.49 16.02 15.70 15.17 12.61 9.28

1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 24 25 26 27 28 29 30 31 32 33 35 36 37 40 42 43 44 46 47

97.87 95.74 93.62 91.49 89.36 85.11 82.98 80.85 78.72 76.60 74.47 72.34 70.21 68.09 65.96 63.83 61.70 59.57 57.45 55.32 53.19 48.94 46.81 44.68 42.55 40.43 38.30 36.17 34.04 31.91 29.79 25.53 23.40 21.28 14.89 10.64 8.51 6.38 2.13 0.00

Region

_________________________________________________________________________________________________________

Australia Portugal Japan Taiwan South Korea Russia Hungary Austria Brazil Chile Spain Italy Switzerland Germany Denmark Luxembourg Belgium USA Turkey Mexico France Netherlands China Sweden Israel Ireland Canada Philippines the United Kingdom Finland Singapore Thailand Indonesia Norway Malaysia New Zealand Hong Kong India Greece South Africa

Oceana Europe Asia Asia Asia Europe Europe Europe Latin America Latin America Europe Europe Europe Europe Europe Europe Europe North America the Middle East Latin America Europe Europe Asia Europe the Middle East Europe North America Asia Europe Europe Asia Asia Asia Europe Asia Oceana Asia Asia Europe Africa

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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118

Accumulated Depreciation - Total (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

66.90 66.04 60.40 51.79 51.02 38.56 37.93 35.82 28.87 26.11 22.95 17.39 16.89

1 2 3 4 5 6 7 8 9 10 11 12 13

92.31 84.62 76.92 69.23 61.54 53.85 46.15 38.46 30.77 23.08 15.38 7.69 0.00

_________________________________________________________________________________________________________

Brazil Chile Panama Costa Rica Belize Mexico Uruguay Venezuela Falkland Islands Bolivia Nicaragua Paraguay Colombia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

119

Intangible Other Assets Countries

Value ($K/employee)

Rank

Percentile

11567.94 39.43 34.62 31.28 30.17 27.05 19.75 19.32 19.29 16.95 13.47 10.66 10.24 9.97 9.53 7.91 6.88 6.62 6.29 5.19 4.58 4.12 3.70 3.49 2.69 2.13 1.74 1.55 1.46 1.43 1.39 1.24 1.24 0.88 0.87 0.70 0.32 0.30 0.09 0.06 0.06 0.01 0.01

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 23 24 25 26 28 30 31 32 33 34 35 36 38 39 40 42 43 44 45 46 47 49

98.04 96.08 94.12 92.16 90.20 88.24 86.27 84.31 82.35 80.39 78.43 76.47 74.51 72.55 70.59 68.63 66.67 64.71 62.75 60.78 58.82 54.90 52.94 50.98 49.02 45.10 41.18 39.22 37.25 35.29 33.33 31.37 29.41 25.49 23.53 21.57 17.65 15.69 13.73 11.76 9.80 7.84 3.92

Region

_________________________________________________________________________________________________________

Australia Netherlands Belgium Switzerland USA Luxembourg Germany France Canada Italy Norway Taiwan Finland Chile the United Kingdom Greece Austria Denmark Sweden Spain South Korea Russia Hungary Japan Thailand China Poland South Africa India Malaysia Singapore Turkey Mexico New Zealand Hong Kong Peru Czech Republic Argentina Brazil Israel Ireland Philippines Indonesia

Oceana Europe Europe Europe North America Europe Europe Europe North America Europe Europe Asia Europe Latin America Europe Europe Europe Europe Europe Europe Asia Europe Europe Asia Asia Asia Europe Africa Asia Asia Asia the Middle East Latin America Oceana Asia Latin America Europe Latin America Latin America the Middle East Europe Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

120

Intangible Other Assets (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

9.97 7.82 7.71 6.27 3.04 2.14 2.08 1.74 1.53 1.24 1.22 1.15 0.70 0.64 0.58 0.54 0.54 0.30 0.09 0.01 0.01

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

95.24 90.48 85.71 80.95 76.19 71.43 66.67 61.90 57.14 52.38 47.62 42.86 38.10 33.33 28.57 23.81 19.05 14.29 9.52 4.76 0.00

_________________________________________________________________________________________________________

Chile Costa Rica Belize Falkland Islands Panama Paraguay Colombia French Guiana Suriname Mexico Uruguay Venezuela Peru Guatemala El Salvador Ecuador Honduras Argentina Brazil Bolivia Nicaragua

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

3.7 3.7.1

121

PRODUCTIVITY IN MEXICO: LIABILITY-LABOR RATIOS Overview

In this chapter we consider the liability-labor ratios of companies operating in Mexico benchmarked against global averages for semiconductors and related devices. For ratios where there are large deviations between Mexico and the benchmarks, graphics are provided (sometimes referred to as a “gap” analysis). Then the distribution of productivity ratios is presented in the form of ranks and percentiles. Certain key liability-labor ratios are highlighted for semiconductors and related devices across countries in the comparison group. Definitions of liability statement terms are given in Chapter 3. In the case of liability-labor ratios, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. I then report the larger liability-labor ratio gaps for semiconductors and related devices that Mexico has vis-à-vis the worldwide average. Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

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Financial Indicators

3.7.2

122

Liability to Labor: Outlook

The following tables and graphs are prepared using the methodology described at the beginning of this section. All units are in thousands of US dollars per employee. All figures are current-year projections for semiconductors and related devices in Mexico based on latest financial results available. Labor-liability Ratios ($k/employee) Mexico Latin America World Avg.

_________________________________________________________________________________________________________

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Accrued Payroll Income Taxes Payable Dividends Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Provision For Risks and Charges Other Liabilities Total Liabilities Non-Equity Reserves Common Equity Common Stock Capital Surplus Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Retained Earnings Total Liabilities & Shareholders Equity

32.21 12.45 0.35 4.26 0.14 20.14 68.72 16.15 16.15 6.61 0.59 91.25 0.06 47.25 7.87 2.66 16.88 2.36 12.78 6.18 138.55

13.22 15.79 1.37 1.33 0.87 17.13 42.18 16.53 16.46 3.03 1.66 62.31 0.14 66.85 15.22 7.16 6.86 11.91 7.46 9.76 130.57

24.79 31.05 3.12 1.34 3.69 14.97 74.24 13.64 12.86 2.02 1.76 93.88 0.08 105.89 56.59 22.18 3.52 6.79 6.63 15.95 203.64

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

3.7.3

123

Liability and Equity to Labor: International Gaps

The following graphics summarize for semiconductors and related devices the large labor-liability gaps between firms operating in Mexico and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Accounts Payable ($k/employee) 40

32.21

30

24.79

20

13.22 7.42

10 0 Mexico

Latin Am erica

World Average

Gap

Gap: Short Term Debt & Current Portion of Long Term Debt ($k/employee) 40

31.05

30 20

12.45

15.79

10 0 -10 -20 Mexico

Latin Am erica

World Average

-18.6 Gap

Gap: Other Current Liabilities ($k/employee) 25

20.14

20

17.13

14.97

15 10

5.17

5 0 Mexico

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Latin Am erica

World Average

Gap

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124

Gap: Current Liabilities - Total ($k/employee) 80

74.24

68.72

60

42.18

40 20 0

-5.52

-20 Mexico

Latin Am erica

World Average

Gap

Gap: Common Equity ($k/employee) 150

105.89

100 50

47.25

66.85

0 -50

-58.64

-100 Mexico

Latin Am erica

World Average

Gap

Gap: Common Stock ($k/employee) 56.59

60 40 20

7.87

15.22

0 -20 -40

-48.72

-60 Mexico

Latin Am erica

World Average

Gap

Gap: Capital Surplus ($k/employee) 30

22.18

20 10

2.66

7.16

0 -10 -20 Mexico

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Latin Am erica

World Average

-19.52 Gap

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125

Gap: Revaluation Reserves ($k/employee) 20

16.88 13.36

15 10

6.86 3.52

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Unappropriated Reserves ($k/employee) 15

12.78

10

7.46

6.63

6.15

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Retained Earnings ($k/employee) 20

15.95

15 10

9.76 6.18

5 0 -5 -10 Mexico

Latin Am erica

World Average

-9.77 Gap

Gap: Total Liabilities & Shareholders Equity ($k/employee) 250 200 150 100 50 0 -50 -100

203.64 138.55

130.57

-65.09 Mexico

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Latin Am erica

World Average

Gap

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Financial Indicators

3.7.4

126

Key Percentiles and Rankings

We now consider the distribution of liability-labor ratios using ranks and percentiles across . What percent of countries have a value lower or higher than Mexico (what is the indicator's rank or percentile)? The table below answers this question with respect to liability-labor ratios. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance or productivity. After the summary table below, a few key liabilitylabor ratios are highlighted in additional tables. Liability Structure ($k/employee)

Mexico

Rank of Total

Percentile

32.21 12.45 0.35 4.26 0.14 20.14 68.72 16.15 16.15 6.61 0.59 91.25 0.06 47.25 7.87 2.66 16.88 2.36 12.78 6.18 138.55

7 of 48 26 of 53 29 of 33 4 of 48 24 of 27 22 of 53 12 of 53 20 of 51 19 of 51 13 of 39 31 of 49 16 of 53 17 of 26 40 of 53 36 of 50 36 of 43 7 of 34 34 of 47 11 of 39 39 of 53 30 of 53

85.42 50.94 12.12 91.67 11.11 58.49 77.36 60.78 62.75 66.67 36.73 69.81 34.62 24.53 28.00 16.28 79.41 27.66 71.79 26.42 43.40

_________________________________________________________________________________________________________

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Accrued Payroll Income Taxes Payable Dividends Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Provision For Risks and Charges Other Liabilities Total Liabilities Non-Equity Reserves Common Equity Common Stock Capital Surplus Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Retained Earnings Total Liabilities & Shareholders Equity

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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127

Accounts Payable Countries

Value ($K/employee)

Rank

Percentile

2842.73 112.62 42.08 35.67 33.44 32.30 32.21 28.90 28.30 26.04 23.40 23.02 21.37 20.97 19.07 18.99 18.94 18.36 18.28 17.55 15.62 15.49 15.43 15.36 14.51 13.92 13.51 13.29 12.29 12.21 12.09 11.99 11.95 9.87 9.72 9.69 9.49 6.08 5.82 5.50 4.27

1 2 3 4 5 6 7 9 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 37 38 39 40 43 44 45 48

97.92 95.83 93.75 91.67 89.58 87.50 85.42 81.25 79.17 75.00 72.92 70.83 68.75 66.67 64.58 62.50 60.42 58.33 56.25 54.17 52.08 50.00 47.92 45.83 43.75 41.67 39.58 37.50 35.42 33.33 31.25 29.17 27.08 22.92 20.83 18.75 16.67 10.42 8.33 6.25 0.00

Region

_________________________________________________________________________________________________________

Australia Taiwan Japan Italy France Turkey Mexico South Korea Canada Russia Hungary Norway Greece Finland Portugal Netherlands China Singapore Spain Germany Switzerland the United Kingdom USA India South Africa Denmark Luxembourg Sweden Philippines Poland Israel Ireland Belgium Austria Indonesia New Zealand Hong Kong Brazil Thailand Malaysia Chile

Oceana Asia Asia Europe Europe the Middle East Latin America Asia North America Europe Europe Europe Europe Europe Europe Europe Asia Asia Europe Europe Europe Europe North America Asia Africa Europe Europe Europe Asia Europe the Middle East Europe Europe Europe Asia Oceana Asia Latin America Asia Asia Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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128

Accounts Payable (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

32.21 31.68 29.92 19.20 13.23 12.26 12.18 10.77 10.77 6.08 4.64 4.50 4.27 3.35 3.30

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

93.33 86.67 80.00 73.33 66.67 60.00 53.33 46.67 40.00 33.33 26.67 20.00 13.33 6.67 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Venezuela Panama Falkland Islands Bolivia French Guiana Nicaragua Suriname Brazil Paraguay Colombia Chile Costa Rica Belize

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

129

Current Liabilities - Total Countries

Value ($K/employee)

Rank

Percentile

8983.70 290.35 136.09 128.56 122.64 110.18 97.12 90.56 87.57 68.91 68.72 67.62 63.91 63.44 63.39 60.71 56.86 53.61 52.97 52.80 51.63 49.49 48.45 48.13 48.00 45.81 43.91 43.27 42.40 42.31 40.10 37.54 37.40 31.91 31.62 31.58 25.72 25.00 22.79 22.58 21.84 18.81 16.60 8.82 8.21

1 2 3 4 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21 22 23 24 25 26 27 28 30 31 32 33 34 35 36 37 38 39 41 42 44 45 46 47 51 52 53

98.11 96.23 94.34 92.45 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 22.64 20.75 16.98 15.09 13.21 11.32 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Taiwan South Korea Italy Russia Hungary Japan Netherlands Greece Turkey Mexico France Israel China Ireland Peru Denmark Germany Switzerland Norway Chile Finland Belgium Singapore Austria Luxembourg USA New Zealand Hong Kong the United Kingdom Portugal Canada Sweden Brazil Philippines Poland Spain Indonesia South Africa India Thailand Malaysia Pakistan Czech Republic Argentina

Oceana Asia Asia Europe Europe Europe Asia Europe Europe the Middle East Latin America Europe the Middle East Asia Europe Latin America Europe Europe Europe Europe Latin America Europe Europe Asia Europe Europe North America Oceana Asia Europe Europe North America Europe Latin America Asia Europe Europe Asia Africa Asia Asia Asia the Middle East Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

130

Current Liabilities - Total (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

90.40 68.72 67.60 63.84 60.71 55.11 51.63 50.24 46.63 46.21 40.50 39.89 37.25 31.91 31.55 31.51 27.85 27.72 17.41 16.90 16.06 8.21

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Panama Mexico Uruguay Venezuela Peru Guatemala Chile El Salvador Ecuador Honduras Costa Rica Belize Falkland Islands Brazil Bolivia French Guiana Suriname Nicaragua Paraguay Colombia Guyana Argentina

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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2007 Icon Group International, Inc.

Financial Indicators

131

Long Term Debt Countries

Value ($K/employee)

Rank

Percentile

168.01 53.02 47.78 43.95 42.93 42.59 41.01 36.84 31.03 31.00 28.84 26.59 25.71 24.50 19.53 19.24 16.19 16.15 14.95 14.22 14.07 12.34 11.42 11.24 10.97 10.40 10.32 8.30 7.26 7.04 6.68 5.69 5.21 4.39 4.31 4.05 3.76 3.39 2.51 1.22 1.21 0.61 0.32

1 2 4 5 6 7 8 9 10 11 13 14 15 16 17 18 19 20 22 23 24 25 28 29 30 33 34 35 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

98.04 96.08 92.16 90.20 88.24 86.27 84.31 82.35 80.39 78.43 74.51 72.55 70.59 68.63 66.67 64.71 62.75 60.78 56.86 54.90 52.94 50.98 45.10 43.14 41.18 35.29 33.33 31.37 27.45 25.49 23.53 21.57 19.61 17.65 15.69 13.73 11.76 9.80 7.84 5.88 3.92 1.96 0.00

Region

_________________________________________________________________________________________________________

Australia South Korea Russia Taiwan Hungary Switzerland Peru Luxembourg Greece Belgium France Italy Netherlands USA Japan Denmark Turkey Mexico Finland Philippines Thailand Austria Sweden Indonesia Poland India Germany Chile China the United Kingdom Norway Portugal Singapore New Zealand Hong Kong Brazil Canada Malaysia South Africa Israel Ireland Pakistan Spain

Oceana Asia Europe Asia Europe Europe Latin America Europe Europe Europe Europe Europe Europe North America Asia Europe the Middle East Latin America Europe Asia Asia Europe Europe Asia Europe Asia Europe Latin America Asia Europe Europe Europe Asia Oceana Asia Latin America North America Asia Africa the Middle East Europe the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

132

Long Term Debt (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

41.01 37.23 35.22 33.94 31.50 31.21 16.15 15.88 15.00 14.18 12.46 11.37 11.21 10.95 10.89 9.67 8.30 6.51 6.42 4.05 0.59

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

95.24 90.48 85.71 80.95 76.19 71.43 66.67 61.90 57.14 52.38 47.62 42.86 38.10 33.33 28.57 23.81 19.05 14.29 9.52 4.76 0.00

_________________________________________________________________________________________________________

Peru Guatemala Panama El Salvador Ecuador Honduras Mexico Uruguay Venezuela Bolivia Nicaragua Falkland Islands Paraguay French Guiana Colombia Suriname Chile Costa Rica Belize Brazil Guyana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

133

Total Liabilities Countries

Value ($K/employee)

Rank

Percentile

10028.76 345.90 195.12 175.83 168.43 157.97 131.59 127.04 119.65 117.06 104.34 101.72 101.23 91.50 91.25 90.98 89.46 80.99 77.34 75.00 74.38 72.75 71.77 65.20 64.43 58.13 57.40 57.02 56.99 52.37 48.45 47.87 46.90 46.20 45.08 41.97 37.22 36.23 33.52 27.79 25.39 23.46 16.82 9.31 8.67

1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 20 21 23 24 25 26 27 28 29 30 31 32 33 34 36 37 38 39 41 42 43 44 48 49 50 51 52 53

98.11 96.23 94.34 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 62.26 60.38 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 32.08 30.19 28.30 26.42 22.64 20.75 18.87 16.98 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Taiwan South Korea Russia Italy Hungary Netherlands Japan Greece Switzerland France Peru Luxembourg Turkey Mexico Germany Belgium Denmark Austria Israel Ireland USA China Chile Finland Sweden Singapore Philippines Norway the United Kingdom Poland New Zealand Hong Kong Portugal Indonesia Canada Brazil Thailand India Spain South Africa Malaysia Pakistan Czech Republic Argentina

Oceana Asia Asia Europe Europe Europe Europe Asia Europe Europe Europe Latin America Europe the Middle East Latin America Europe Europe Europe Europe the Middle East Europe North America Asia Latin America Europe Europe Asia Asia Europe Europe Europe Oceana Asia Europe Asia North America Latin America Asia Asia Europe Africa Asia the Middle East Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

134

Total Liabilities (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

129.61 101.72 92.34 91.25 89.75 84.77 84.17 78.13 77.42 65.20 57.90 56.89 51.14 50.37 49.99 48.34 42.73 37.22 28.88 28.04 16.28 8.67

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Panama Peru Guatemala Mexico Uruguay Venezuela El Salvador Ecuador Honduras Chile Falkland Islands Bolivia Costa Rica Belize Nicaragua French Guiana Suriname Brazil Paraguay Colombia Guyana Argentina

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

135

Common Equity Countries

Value ($K/employee)

Rank

Percentile

13665.38 323.09 197.06 195.43 170.03 162.98 160.14 153.22 149.89 137.66 130.18 119.10 112.58 109.11 107.65 102.34 97.82 92.41 87.12 79.22 76.40 74.14 72.87 72.74 70.84 69.60 65.35 65.15 62.70 62.37 56.78 55.63 54.43 53.07 48.24 47.74 47.38 47.25 43.89 43.04 39.10 36.42 24.75 24.41 15.16

1 2 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 43 44 47 49 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 18.87 16.98 11.32 7.55 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Taiwan Israel Ireland South Korea USA Japan Russia Norway Hungary Switzerland Peru Luxembourg Canada Belgium Chile Portugal Netherlands Brazil Italy Finland the United Kingdom Germany Singapore France Spain China Austria Greece Denmark New Zealand Hong Kong Philippines Sweden Malaysia Thailand Turkey Mexico Poland Indonesia Czech Republic Argentina South Africa India Pakistan

Oceana Asia the Middle East Europe Asia North America Asia Europe Europe Europe Europe Latin America Europe North America Europe Latin America Europe Europe Latin America Europe Europe Europe Europe Asia Europe Europe Asia Europe Europe Europe Oceana Asia Asia Europe Asia Asia the Middle East Latin America Europe Asia Europe Latin America Africa Asia the Middle East

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

136

Common Equity (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

119.10 112.94 108.12 102.34 98.56 91.49 90.66 87.12 80.27 79.06 54.31 52.86 47.72 47.25 46.48 43.89 43.79 38.70 38.06 36.95 36.42 14.67

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Peru Panama Guatemala Chile El Salvador Ecuador Honduras Brazil Costa Rica Belize Bolivia Falkland Islands Nicaragua Mexico Uruguay Venezuela French Guiana Suriname Paraguay Colombia Argentina Guyana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

137

Retained Earnings Countries

Value ($K/employee)

Rank

Percentile

712.13 174.36 91.51 91.04 72.48 51.70 51.00 48.48 47.90 44.10 43.17 38.78 38.77 36.07 35.27 33.83 31.81 26.27 23.15 22.68 21.38 16.61 16.01 13.71 13.67 12.09 10.93 10.84 10.21 9.79 8.23 6.19 6.18 5.11 3.69 2.16 1.90 1.77 0.33 -0.04 -0.28 -0.84 -1.35 -1.36 -2.67

1 2 3 4 5 6 7 8 9 10 12 13 14 15 16 17 18 21 22 23 24 25 26 27 28 29 31 32 33 35 36 38 39 41 42 44 45 46 47 48 49 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 77.36 75.47 73.58 71.70 69.81 67.92 66.04 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 33.96 32.08 28.30 26.42 22.64 20.75 16.98 15.09 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Netherlands Japan Norway USA Canada Switzerland Finland South Korea Luxembourg Russia Hungary Belgium Thailand Taiwan the United Kingdom Austria Denmark New Zealand Hong Kong Chile Germany Malaysia Philippines Italy South Africa Singapore Indonesia Sweden Spain France Turkey Mexico China Peru Pakistan Czech Republic Argentina India Portugal Brazil Poland Ireland Israel Greece

Oceana Europe Asia Europe North America North America Europe Europe Asia Europe Europe Europe Europe Asia Asia Europe Europe Europe Oceana Asia Latin America Europe Asia Asia Europe Africa Asia Asia Europe Europe Europe the Middle East Latin America Asia Latin America the Middle East Europe Latin America Asia Europe Latin America Europe Europe the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Retained Earnings (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

31.82 28.75 27.92 21.38 16.77 16.52 13.68 12.02 10.17 6.18 6.07 5.74 3.69 3.35 3.05 2.83 2.81 2.09 1.77 -0.28 -0.74 -0.84

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Panama Paraguay Colombia Chile Costa Rica Belize Bolivia Nicaragua Falkland Islands Mexico Uruguay Venezuela Peru Guatemala El Salvador Ecuador Honduras Guyana Argentina Brazil Suriname French Guiana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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Financial Indicators

3.8 3.8.1

139

PRODUCTIVITY IN MEXICO: INCOME-LABOR RATIOS Overview

In this chapter we consider the income-labor ratios for semiconductors and related devices in Mexico benchmarked against global averages. For ratios where there are large deviations between the average firm operating in Mexico and the benchmarks, graphics are provided (sometimes referred to as a “gap” analysis). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key income-labor ratios are highlighted across countries in the comparison group. In the case of income-labor ratios, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. We then report the larger income-labor ratio gaps for semiconductors and related devices that Mexico has vis-à-vis the worldwide average. Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

3.8.2

Income to Labor: Outlook

The following tables and graphs are prepared using the methodology described at the beginning of this section. All units are in thousands of US dollars per employee. All figures are current-year projections for semiconductors and related devices in Mexico based on latest financial results available. Labor-income Ratios ($k/employee) Mexico Latin America World Avg.

_________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Pretax Income Income Taxes Net Income Before Extra Items/Prefer Dividends Net Income Before Preferred Dividends Net Income Available to Common

165.16 106.07 10.15 48.94 31.60 144.03 17.34 3.41 1.20 6.53 6.67 31.65 17.91 13.74 4.32 9.42 9.42 9.42

103.90 68.68 5.16 29.71 19.26 109.70 7.43 0.84 0.57 2.53 1.75 11.05 5.74 5.31 0.97 4.18 4.18 4.17

115.78 84.67 5.21 27.76 14.81 103.13 7.39 0.48 1.11 1.19 1.09 9.00 3.18 5.91 1.46 4.34 4.34 4.32

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

3.8.3

140

Income to Labor: Gaps

The following graphics summarize for semiconductors and related devices the large labor-income gaps between firms operating in Mexico and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Net Sales or Revenues ($k/employee) 200

165.16

150 103.9

115.78

100 49.38 50 0 Mexico

Latin Am erica

World Average

Gap

Gap: Cost of Goods Sold (Excluding Depreciation) ($k/employee) 120

106.07

100

84.67 68.68

80 60 40

21.4

20 0 Mexico

Latin Am erica

World Average

Gap

Gap: Gross Income ($k/employee) 50

48.94

40

29.71

30

27.76 21.18

20 10 0 Mexico

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Latin Am erica

World Average

Gap

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141

Gap: Selling, General & Administrative Expenses ($k/employee) 40 31.6 30 19.26

20

16.79

14.81

10 0 Mexico

Latin Am erica

World Average

Gap

Gap: Other Operating Expenses ($k/employee) 150

144.03 109.7

103.13

100 40.9

50 0 Mexico

Latin Am erica

World Average

Gap

Gap: Operating Income ($k/employee) 20

17.34

15 9.95 10

7.43

7.39

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Non-Operating Interest Income ($k/employee) 8

6.53 5.34

6 4

2.53 1.19

2 0 Mexico

www.icongrouponline.com

Latin Am erica

World Average

Gap

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142

Gap: Other Income/Expense Net ($k/employee) 8

6.67 5.58

6 4 1.75

2

1.09

0 Mexico

Latin Am erica

World Average

Gap

Gap: Earnings Before Interest and Taxes (EBIT) ($k/employee) 40 31.65 30

22.65

20 11.05 10

9

0 Mexico

Latin Am erica

World Average

Gap

Gap: Interest Expense on Debt ($k/employee) 20

17.91 14.73

15 10 5.74 3.18

5 0 Mexico

Latin Am erica

World Average

Gap

Gap: Pretax Income ($k/employee) 15

13.74

10

7.83 5.31

5.91

5 0 Mexico

www.icongrouponline.com

Latin Am erica

World Average

Gap

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Financial Indicators

3.8.4

143

Key Percentiles and Rankings

We now consider the distribution of income-labor ratios using ranks and percentiles across . What percent of countries have a value lower or higher than Mexico (what is the ratio's rank or percentile)? The table below answers this question with respect to income-labor ratios. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance or productivity. After the summary table below, a few key income-labor ratios are highlighted in additional tables. Income Structure ($k/employee)

Mexico

Rank of Total

Percentile

165.16 106.07 10.15 48.94 31.60 144.03 17.34 3.41 1.20 6.53 6.67 31.65 17.91 13.74 4.32 9.42 9.42 9.42

22 of 53 22 of 52 14 of 53 19 of 52 19 of 44 23 of 50 10 of 53 3 of 33 26 of 41 4 of 50 4 of 53 3 of 53 2 of 53 11 of 53 14 of 50 13 of 53 13 of 53 13 of 53

58.49 57.69 73.58 63.46 56.82 54.00 81.13 90.91 36.59 92.00 92.45 94.34 96.23 79.25 72.00 75.47 75.47 75.47

_________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Pretax Income Income Taxes Net Income Before Extra Items/Prefer Dividends Net Income Before Preferred Dividends Net Income Available to Common

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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144

Cost of Goods Sold (Excluding Depreciation) Countries

Value ($K/employee)

Rank

Percentile

510.28 258.20 232.67 225.18 223.36 209.04 160.26 154.50 147.95 139.22 139.21 123.59 121.78 116.45 114.18 113.53 111.25 109.30 108.44 106.36 106.07 104.75 99.09 97.20 90.59 80.91 77.89 76.16 69.13 67.06 65.18 64.90 64.36 64.23 62.56 56.37 55.23 53.41 37.33 35.99 30.09 23.79 21.35 19.89

1 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 42 43 45 48 50 51

98.08 96.15 92.31 90.38 88.46 86.54 84.62 82.69 80.77 78.85 76.92 75.00 73.08 71.15 69.23 67.31 65.38 63.46 61.54 59.62 57.69 55.77 53.85 50.00 48.08 46.15 44.23 42.31 40.38 38.46 36.54 34.62 32.69 30.77 28.85 26.92 25.00 23.08 19.23 17.31 13.46 7.69 3.85 1.92

Region

_________________________________________________________________________________________________________

Taiwan South Korea Russia Norway Japan Hungary Germany Portugal France Finland Netherlands Sweden USA Canada Italy Denmark the United Kingdom Singapore Belgium Turkey Mexico Switzerland Austria China Luxembourg Poland Spain Chile Peru Australia Greece Israel Ireland Brazil India New Zealand Hong Kong South Africa Malaysia Thailand Philippines Indonesia Czech Republic Argentina

Asia Asia Europe Europe Asia Europe Europe Europe Europe Europe Europe Europe North America North America Europe Europe Europe Asia Europe the Middle East Latin America Europe Europe Asia Europe Europe Europe Latin America Latin America Oceana Europe the Middle East Europe Latin America Asia Oceana Asia Africa Asia Asia Asia Asia Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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145

Cost of Goods Sold (Excluding Depreciation) (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

171.51 123.10 106.07 104.33 98.54 80.72 76.16 71.35 69.13 64.23 62.76 59.73 58.84 57.21 53.11 52.62 30.02 28.69 27.86 26.38 19.89

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

95.24 90.48 85.71 80.95 76.19 71.43 66.67 61.90 57.14 52.38 47.62 42.86 38.10 33.33 28.57 23.81 19.05 14.29 9.52 4.76 0.00

_________________________________________________________________________________________________________

Panama Falkland Islands Mexico Uruguay Venezuela French Guiana Chile Suriname Peru Brazil Guatemala Costa Rica Belize El Salvador Ecuador Honduras Bolivia Paraguay Colombia Nicaragua Argentina

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

146

Selling, General & Administrative Expenses Countries

Value ($K/employee)

Rank

Percentile

156.68 92.02 91.88 91.26 56.24 53.30 51.41 49.86 49.39 47.36 41.71 37.90 37.45 36.99 36.18 35.84 32.39 31.69 31.60 30.72 27.68 27.41 24.87 24.79 16.43 16.16 14.58 14.18 12.77 12.23 12.18 10.34 10.13 7.64 6.04 5.94 5.65

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 23 24 25 26 27 28 29 30 31 32 33 34 35 36 38 39 41

97.73 95.45 93.18 90.91 88.64 86.36 84.09 81.82 79.55 77.27 75.00 72.73 70.45 68.18 65.91 63.64 61.36 59.09 56.82 54.55 47.73 45.45 43.18 40.91 38.64 36.36 34.09 31.82 29.55 27.27 25.00 22.73 20.45 18.18 13.64 11.36 6.82

Region

_________________________________________________________________________________________________________

Netherlands Israel Taiwan Ireland USA Japan Canada Belgium France Germany Finland Sweden Switzerland Italy Denmark the United Kingdom Luxembourg Turkey Mexico South Korea Russia Chile Hungary Greece Poland Australia Brazil China South Africa Austria Singapore New Zealand Hong Kong Philippines Indonesia Malaysia Thailand

Europe the Middle East Asia Europe North America Asia North America Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe the Middle East Latin America Asia Europe Latin America Europe Europe Europe Oceana Latin America Asia Africa Europe Asia Oceana Asia Asia Asia Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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2007 Icon Group International, Inc.

Financial Indicators

147

Selling, General & Administrative Expenses (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

37.75 31.60 31.08 29.36 27.41 21.50 21.17 20.41 16.39 14.58 14.49 7.62 6.69 4.50 4.37

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

93.33 86.67 80.00 73.33 66.67 60.00 53.33 46.67 40.00 33.33 26.67 20.00 13.33 6.67 0.00

_________________________________________________________________________________________________________

Falkland Islands Mexico Uruguay Venezuela Chile Costa Rica Belize Panama French Guiana Brazil Suriname Bolivia Nicaragua Paraguay Colombia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

148

Operating Income Countries

Value ($K/employee)

Rank

Percentile

32.05 24.83 22.38 20.30 20.10 18.30 18.06 17.38 17.34 16.68 13.78 13.07 12.79 11.39 10.22 9.20 9.18 8.87 8.58 8.40 8.21 7.95 7.94 7.80 7.80 6.84 6.79 6.08 6.03 5.87 5.16 4.65 4.40 4.16 4.10 3.46 3.39 3.05 2.69 2.68 1.77 0.99 0.39 0.37 -3.27

1 2 4 5 6 7 8 9 10 11 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 35 36 37 38 40 42 43 45 46 49 50 51 52 53

98.11 96.23 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 33.96 32.08 30.19 28.30 24.53 20.75 18.87 15.09 13.21 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Taiwan South Korea Russia Norway Hungary Australia USA Turkey Mexico Finland Chile Belgium Japan the United Kingdom Italy Canada Switzerland France New Zealand Hong Kong Denmark Netherlands Luxembourg Greece Brazil South Africa Peru Israel Ireland India Sweden China Thailand Austria Pakistan Spain Philippines Singapore Malaysia Indonesia Germany Poland Czech Republic Argentina Portugal

Asia Asia Europe Europe Europe Oceana North America the Middle East Latin America Europe Latin America Europe Asia Europe Europe North America Europe Europe Oceana Asia Europe Europe Europe Europe Latin America Africa Latin America the Middle East Europe Asia Europe Asia Asia Europe the Middle East Europe Asia Asia Asia Asia Europe Europe Europe Latin America Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

149

Operating Income (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

17.34 17.05 16.49 16.10 13.78 10.80 10.64 7.80 6.79 6.16 5.62 5.21 5.17 5.14 3.97 3.50 3.40 3.38 2.97 0.99 0.87 0.37

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Panama Venezuela Chile Costa Rica Belize Brazil Peru Guatemala El Salvador Ecuador Honduras Falkland Islands Guyana Paraguay Colombia Bolivia Nicaragua French Guiana Suriname Argentina

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

150

Earnings Before Interest and Taxes (EBIT) Countries

Value ($K/employee)

Rank

Percentile

43.94 31.74 31.65 27.88 25.13 24.53 22.58 20.66 17.09 16.46 15.07 14.26 13.35 13.31 13.29 12.99 12.80 12.70 11.54 11.53 11.40 11.34 11.29 10.92 10.60 10.37 10.28 9.84 9.01 8.83 8.62 8.44 7.33 7.24 6.61 5.24 5.18 5.13 4.32 3.27 2.46 2.29 1.50 1.18 -1.69

1 2 3 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 35 38 39 40 41 42 43 44 45 46 47 48 50 53

98.11 96.23 94.34 90.57 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 33.96 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 5.66 0.00

Region

_________________________________________________________________________________________________________

Taiwan Turkey Mexico South Korea Russia Norway Hungary Finland Australia USA Belgium Greece Switzerland Brazil Italy Netherlands Israel Ireland Luxembourg Germany the United Kingdom Japan Chile France Peru Canada Thailand Denmark New Zealand Hong Kong South Africa Austria China Sweden Poland India Spain Singapore Pakistan Malaysia Czech Republic Argentina Philippines Indonesia Portugal

Asia the Middle East Latin America Asia Europe Europe Europe Europe Oceana North America Europe Europe Europe Latin America Europe Europe the Middle East Europe Europe Europe Europe Asia Latin America Europe Latin America North America Asia Europe Oceana Asia Africa Europe Asia Europe Europe Asia Europe Asia the Middle East Asia Europe Latin America Asia Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

151

Earnings Before Interest and Taxes (EBIT) (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

31.65 31.14 29.41 18.52 13.31 11.29 10.60 9.62 8.86 8.77 8.72 8.19 8.14 8.07 7.95 7.21 6.60 5.83 4.18 2.29 1.49 1.31

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Venezuela Panama Brazil Chile Peru Guatemala Costa Rica El Salvador Belize Paraguay Ecuador Honduras Colombia Falkland Islands French Guiana Suriname Guyana Argentina Bolivia Nicaragua

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

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Financial Indicators

152

Pretax Income Countries

Value ($K/employee)

Rank

Percentile

35.27 22.94 19.04 18.58 16.74 16.10 15.83 15.04 13.78 13.74 12.43 11.52 11.43 10.39 10.09 10.01 9.95 9.45 9.33 9.23 9.22 9.10 8.72 8.24 8.19 7.97 7.73 7.64 7.49 6.79 5.98 5.32 4.93 3.91 3.69 3.52 3.33 2.51 2.44 1.24 1.15 0.50 -0.70 -0.89 -1.69

1 2 3 4 6 7 8 9 10 11 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 32 34 35 36 37 38 39 40 41 42 43 45 46 47 50 52 53

98.11 96.23 94.34 92.45 88.68 86.79 84.91 83.02 81.13 79.25 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 15.09 13.21 11.32 5.66 1.89 0.00

Region

_________________________________________________________________________________________________________

Taiwan Norway Finland South Korea Russia Australia USA Hungary Turkey Mexico Belgium Israel Ireland Japan Netherlands Canada the United Kingdom Italy Brazil Thailand Switzerland Germany France Greece Chile Luxembourg South Africa New Zealand Hong Kong Austria Denmark Sweden China Spain Pakistan Singapore India Malaysia Peru Czech Republic Argentina Poland Indonesia Philippines Portugal

Asia Europe Europe Asia Europe Oceana North America Europe the Middle East Latin America Europe the Middle East Europe Asia Europe North America Europe Europe Latin America Asia Europe Europe Europe Europe Latin America Europe Africa Oceana Asia Europe Europe Europe Asia Europe the Middle East Asia Asia Asia Latin America Europe Latin America Europe Asia Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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Financial Indicators

153

Pretax Income (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

13.74 13.51 12.76 12.34 9.33 8.19 7.36 7.14 6.42 6.33 5.30 3.57 2.44 2.22 2.02 1.88 1.86 1.15 0.50 0.44 -0.78 -0.88

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

95.45 90.91 86.36 81.82 77.27 72.73 68.18 63.64 59.09 54.55 50.00 45.45 40.91 36.36 31.82 27.27 22.73 18.18 13.64 9.09 4.55 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Venezuela Panama Brazil Chile Paraguay Colombia Costa Rica Belize Falkland Islands Guyana Peru Guatemala El Salvador Ecuador Honduras Argentina French Guiana Suriname Nicaragua Bolivia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

Financial Indicators

154

Income Taxes Countries

Value ($K/employee)

Rank

Percentile

15.94 6.93 5.67 5.59 5.51 5.06 5.01 4.84 4.83 4.52 4.39 4.33 4.32 4.20 4.06 3.73 3.07 2.63 2.59 2.59 2.48 2.46 2.24 1.74 1.60 1.59 1.46 1.20 1.13 1.03 1.02 0.92 0.90 0.89 0.81 0.71 0.58 0.22 0.17 0.03 0.02 -0.89

1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 41 42 44 47 48 50

98.00 96.00 94.00 92.00 90.00 88.00 86.00 84.00 82.00 78.00 76.00 74.00 72.00 70.00 68.00 64.00 62.00 60.00 58.00 56.00 54.00 52.00 50.00 48.00 46.00 44.00 42.00 40.00 38.00 36.00 34.00 32.00 30.00 28.00 26.00 24.00 18.00 16.00 12.00 6.00 4.00 0.00

Region

_________________________________________________________________________________________________________

Norway Taiwan Belgium Finland Australia Italy South Korea Japan USA Russia Netherlands Turkey Mexico Canada Hungary the United Kingdom Greece Germany Austria Switzerland South Africa France Luxembourg Sweden Israel Ireland Denmark Singapore Chile Spain Brazil New Zealand Hong Kong India Thailand Malaysia China Philippines Indonesia Portugal Poland Peru

Europe Asia Europe Europe Oceana Europe Asia Asia North America Europe Europe the Middle East Latin America North America Europe Europe Europe Europe Europe Europe Africa Europe Europe Europe the Middle East Europe Europe Asia Latin America Europe Latin America Oceana Asia Asia Asia Asia Asia Asia Asia Europe Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

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2007 Icon Group International, Inc.

Financial Indicators

155

Income Taxes (Semiconductors and Related Devices) Countries in Latin America

Value ($K/employee)

Rank

Percentile

4.32 4.25 4.01 3.33 1.74 1.13 1.02 0.88 0.87 0.64 0.62 0.22 0.19 0.02 0.02 -0.68 -0.69 -0.74 -0.81 -0.89

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

95.00 90.00 85.00 80.00 75.00 70.00 65.00 60.00 55.00 50.00 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00

_________________________________________________________________________________________________________

Mexico Uruguay Venezuela Panama Falkland Islands Chile Brazil Costa Rica Belize Paraguay Colombia Bolivia Nicaragua French Guiana Suriname Honduras Ecuador El Salvador Guatemala Peru

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2007

www.icongrouponline.com

2007 Icon Group International, Inc.

156

4

MACRO-ACCESSIBILITY IN MEXICO

4.1

EXECUTIVE SUMMARY

The U.S.-Mexico bilateral relationship is of paramount importance for both countries. It is a broad and complex tapestry reflecting cultural differences, economic disparities, mutual interests, shared problems, and growing interdependence. The two countries cooperate on trade, finance, narcotics, immigration, labor, environment, science and technology, and cultural relations. Beyond those diplomatic and official contacts, extensive networks of commercial, cultural, and educational ties flourish, especially along our 2,000-mile border where state and local governments as well as citizens’ groups interact closely. The most outstanding feature of our bilateral relationship has been the North American Free Trade Agreement (NAFTA), which created a free trade zone for Mexico, the United States, and Canada. Since the enactment of NAFTA in January 1994, Mexico’s imports from the U.S. have grown exponentially. The U.S. share of Mexico’s trade has likewise increased with NAFTA. Mexico is now the second most important U.S. trading partner after Canada. U.S. exports to Mexico are greater than U.S. exports to the rest of Latin America combined. U.S. companies interested in capitalizing on the enormous market opportunities in Mexico should keep the following points in mind when evaluating potential business: •

Mexico’s size and diversity is often under appreciated by U.S. exporters. It can be difficult to find a single agent or distributor to cover this vast market. The principal commercial centers of Mexico City, Guadalajara, Monterrey, Ciduad Juarez, and Tijuana each offer a different mix of leading industries and often a distinctive business culture. In addition, a host of secondary commercial centers offer significant market opportunities. See Chapter 5 for a discussion of Mexico’s different commercial regions.

•

The Mexican legal system differs in many significant ways from the U.S. system. U.S. firms should consult with competent legal counsel before entering into any business agreements with Mexican partners. The U.S. Commercial Service office at the U.S. Embassy in Mexico City can provide a list of attorneys with experience in dealing with U.S. corporate clients.

•

The banking system in Mexico is generally weak and undercapitalized, and interest rates are high. Only about 36 percent of Mexican companies utilize or have access to bank financing. Most importing is conducted on open account. Consequently, U.S. companies need to conduct thorough due diligence before entering into business with a Mexican firm, and should be conservative in extending credit and alert to payment delays. As one element in a prudent due-diligence process, the U.S. Commercial Service offices in Mexico can conduct background checks on potential Mexican partners. There is a fee for this service.

•

Mexican customs regulations, product standards, and labor laws may offer pitfalls to unwary U.S. companies. U.S. Embassy commercial, agricultural, and labor attaches are available to counsel firms with respect to regulations that affect their particular export product or business interest.

•

Have patience. Everything takes more time to accomplish in Mexico than what U.S. companies are used to or would like. It is important to take time to develop a personal relationship with a potential business partner - this is the keystone to successfully doing business in Mexico.

www.icongrouponline.com

2007 Icon Group International, Inc.

Macro-Accessibility

4.2

157

ECONOMIC FUNDAMENTALS AND DYNAMICS

4.2.1

Major Trends and Outlook

In 1998, Mexico’s Congress created the Institute for the Protection of Bank Savings (IPAB) to take over the assets and liabilities formerly held by the now-defunct FOBAPROA and to act as a deposit insurance fund. That step was fundamental to the rebuilding of the banking sector, which had collapsed during the 1994-1995 peso crisis. By June of 1999, IPAB had assumed $65 billion in liabilities, and has since begun liquidating FOBAPROA assets. The elimination of government restrictions on foreign ownership of the largest banks has resulted in substantial merger activity. Citibank’s purchase of Banacci (Banamex) in 2001 left only 20 percent of Mexican banking, measured by assets, under Mexican ownership. Nevertheless, consumers as well as small and medium enterprises do not have sufficient access to bank credit and are forced to rely on other institutions or trade arrangements for credit. Thus, the economic expansion has taken place without a significant contribution from domestic banks, and has mostly benefited large firms with access to foreign credit, an imbalance that may have exacerbated Mexico’s income inequality. The Mexican Congress authorized the privatization of the national railroad system in 1995. By 2000, concessions had been granted for all three major railroad lines and four short-haul lines. Since a related 1995 law provided for 50-year airport concessions to private investors, three out of Mexico’s four regional group clusters have come under private sector management. In 1995, Congress eliminated Pemex’s monopoly over the transportation, storage, and distribution of natural gas. Over 110 natural gas transport and distribution permits have been granted, including contracts for Mexico City and the surrounding area. The remainder of the energy sector has seen little change, with Pemex remaining the sole supplier. Mexico is vigorously pursuing free trade agreements with other countries in order to reap the benefits of trade and to reduce its dependence on the U.S. market. Mexico has a free-trade agreement with the European Union similar in coverage to NAFTA, and also benefits from agreements with: •

Chile

•

Costa Rica

•

Uruguay

•

Bolivia

•

Colombia and Venezuela

•

Nicaragua

•

Israel

•

"Northern Triangle" (Guatemala, El Salvador, and Honduras)

•

European Free Trade Association (Norway, Switzerland, Iceland, and Liechtenstein)

Negotiations to liberalize trade are ongoing with Brazil, Argentina, Panama, and Japan. Mexico’s membership in APEC, its active participation in the creation of the Free Trade Area of the Americas, and its pursuit of bilateral investment treaties give further testimony to Mexico’s commitment to economic liberalization.

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Government Role in the Economy

Mexico’s growing commitment to free and open markets resulted in a dramatic reduction in the number and importance of parastatal enterprises. An exception has been the energy sector. Pemex, the state petroleum and natural gas enterprise, is considered part of the "national patrimony" and is constitutionally closed to foreign or private investment. Similarly, the government retains ownership of the electric power transmission grid, although it has worked hard within existing rules to attract more private investment in electric power generation.

4.2.3

Balance of Payments Situation

Mexico’s 1994 current account deficit was $29.7 billion, equivalent to 8.2 percent of GDP. It was financed mostly by inflows of portfolio investment, primarily in short-term government debt. That deficit and a sharp reversal of short-term capital flows combined to force the December 1994 devaluation and subsequent float of the peso, and a deep, if relatively short, recession. The trade balance was dramatically reversed as a consequence. Mexico’s trade deficit of $18.5 billion in 1994 turned into a surplus of $7.1 billion in 1995 on the strength of a 31 percent growth in exports and a 9 percent decline in imports. The 1994 current account deficit of $29.7 billion was cut to just $1.6 million in 1995, or to 0.6 percent of GDP. Mexico maintained a trade surplus throughout 1996 and 1997. As the economy recovered and the peso appreciated, imports grew faster than exports and the surplus diminished. During those two years, Mexico ran a small but growing current account deficit. Unstable financial markets in Argentina and Brazil have not alarmed investors in Mexico. Foreign oil sales are the main reason that the Bank of Mexico currently counts near-record levels of foreign reserves.

4.3

POLITICAL RISKS

The U.S. - Mexico relationship is a tapestry of mutual interests, shared problems, and growing interdependence in which state and local governments as well as citizens’ groups are all important players. Since 1981, the U.S.-Mexico Bi-National Commission (BNC), composed of U.S. and Mexican Cabinet members, has formalized bilateral discussions on issues of mutual interest. The most outstanding feature of our bilateral relationship in recent years has been the North American Free Trade Agreement (NAFTA) among Mexico, the United States, and Canada, which created a free trade zone in the three-nation area. Elections have steadily become more free and fair, and the general political climate is calm. In the state of Chiapas, there has been no combat between government and guerrilla forces since 1994, aside from the occasional small skirmish. Civil society activity is rapidly expanding throughout Mexico. The Business Coordinating Council (CCE) carries the views of the major business chambers to the government, and the Mexican Council for Foreign Trade (COCME) represents the interests of the private sector during free-trade negotiations. The Institutional Revolutionary Party (PRI), the largest and oldest political party, likes to claim the center of Mexican politics, but in reality the party has often modified its ideology for political advantage. The PAN advocates private sector-oriented policies and is generally less inclined than the other two parties to encourage or tolerate government intervention in the economy. The PRD espouses a populist ideology and believes in more government intervention in the economy than the other two major parties.

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Nature of Bilateral Relationship

Broad and complex, the U.S. - Mexico relationship is the paramount bilateral relationship for both countries. The two countries cooperate on trade, finance, narcotics, immigration, labor, environment, science and technology, and cultural relations. Both countries also maintain a bilateral dialogue on human rights issues. Beyond those diplomatic and official contacts, extensive networks of commercial, cultural, and educational ties flourish, especially along our 2,000-mile border where state and local governments as well as citizens’ groups interact closely. A strong and economically healthy Mexico is a fundamental U.S. interest. The BNC, composed of U.S. and Mexican cabinet members, provides a forum for bilateral discussions on ways to improve cooperation on a range of issues impacting both the U.S. and Mexico. The Commission holds annual plenary meetings, and its many subgroups meet at various times during the year to discuss a myriad of topics, such as trade negotiations, migration, law enforcement, cultural relations, education, border cooperation, and the environment. NAFTA, which created a free trade zone for Mexico, the U.S. and Canada, continues to define more broadly the bilateral relationship between the U.S. and Mexico. With parallel agreements on the environment and labor rights, NAFTA also created the North American Development Bank to help finance border infrastructure and environmental projects.

4.3.2

Relations between the Federal Executive and State Leaders

The states have few means of raising their own revenues. In fact, about 80% of the average state budget comes from the central government, and that money has traditionally been distributed disproportionately to the southern states, which are both poorer on average and have been more consistently pro-PRI. Northern and more prosperous states have long groused that their citizens contribute substantially more to federal coffers than they receive back from the federal government either in services or budgetary support. During PRI-led administrations, opposition governors often complained about a lack of state-federal government coordination, especially on law enforcement issues. The PRI has begun to advocate less centralization in favor of an enhanced federalism.

4.3.3

The Political System

The structure of the Mexican government resembles that of the United States as both countries have divided power among three branches: Executive, Legislative, and Judicial. However, by tradition and law, Mexico’s President is far more powerful than his U.S. counterpart and has traditionally dominated the other two branches and politics in general. The President is elected to a six-year term and cannot be re-elected. The Mexican judiciary has long been subject to presidential influence and consequently was unable to assert itself as an equal branch of government. Major judicial reforms have made some progress toward solving these systemic problems, and the current Supreme Court has recently emphasized its independence from the President, the Congress, and the political parties. A non-partisan council runs the IFE, the agency that oversees federal elections. Corresponding bodies administer state-level elections, and the judiciary is empowered to protect civil rights in voting matters. Moreover, Mexicans now have the right to observe the electoral process from start to finish with specific legal authority to report irregularities. Foreign "visitors" have also been welcomed to witness Mexican elections. The IFE provides technical support and training to state and local electoral authorities.

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MARKETING STRATEGIES Distribution, Sales Channels, and Partners

American firms that seek to sell their products in the Mexican market can use different approaches to achieve this goal.

Selling Directly to the End-User This approach allows firms to eliminate the middleman and reap the benefits of direct contact. Negotiations will take less time. There is no distributor mark-up, and the U.S. firm can know first-hand the requirements of the client. Many Mexican firms employ English speaking staff, but it is a good idea for the U.S. company to employ Spanish-speaking sales representatives. One drawback is that the American firm must be much more knowledgeable regarding the Mexican commercial environment. There also are cost considerations: Sales representatives based in the United States may have to do extensive travel in Mexico.

Selling through Distributors in the United States Mexican firms generally prefer to deal directly with the manufacturer rather than through U.S. distributors, since this incurs an extra mark-up. For U.S. firms, however, the advantage of this approach is that the costs of market development and any risks associated with non-payment are borne by the U.S. distributor. It is common for Mexican firms in the northern region to purchase through distributors located on the U.S. side of the border, as this can be cheaper than purchasing through a Mexican distributor.

Selling through a Mexican Manufacturer Some Mexican manufacturers sell products manufactured by American firms. Usually, the Mexican manufacturer seeks to complement its product line using this method. American firms that want to use this distribution channel should consider registering their products in Mexico in order to avoid possible patent infringements.

Selling through a Wholesaler Some American firms use a Mexican wholesaler to distribute their products. Through this channel, American firms can take advantage of the wholesaler’s distribution infrastructure. In addition, by using this channel, American firms negotiate with only one party, smoothing the distribution process. However, some industry sectors have few, if any, wholesalers. A wholesaler is an efficient channel for consumer products or business and industrial consumables.

Selling through a Distributor/Retailer Many American firms use a distributor and/or retailer to distribute their products in Mexico. This channel can be used to distribute products in various regions or to distribute to several lines of business. For example, a distributor can be used to sell to the automobile industry, and another distributor to sell to the financial sector. This channel is also efficient when the distributor is required to have a stock of the product.

Selling through Agents Some American firms sell their products through a sales agent. Usually, a sales agent is a freelancer. However, some Mexican firms are interested in serving as sales agents for American firms. This channel can be efficient for reaching the smaller cities or more remote locations of the country.

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Selection of the appropriate agent or distributor requires time and effort. Though there may be many qualified candidates, U.S. firms should use high standards in selecting the agent/distributor. Since most Mexican firms are selling into a limited area, U.S. companies should consider appointing representatives in multiple cities to broaden distribution, and rarely, if ever, grant an exclusive, national agreement. It is important to develop a close working relationship with the appointed agent/distributor. Providing appropriate training, product support, and timely supply of spare parts is critical to your chances for success. There are no indemnity laws to prevent a company from canceling an agent or distributor agreement, but the cancellation clause should include specifics and this clause should be free of vague language. Sales performance clauses in agent/distributor agreements are permitted and failure to meet established standards can be a reasonable cause for contract cancellation. Before signing the agent/distributor agreement, make certain that the person understands the terms and conditions and the relationship to be developed. Many relationships are strained because insufficient time is invested in developing a full understanding of what is expected. The Commercial Service and other organizations, such as the American Chamber of Commerce and U.S. state government offices, maintain lists of Mexican agents/distributors, manufacturers, Mexican government offices, and private sector trade organizations. After identifying a suitable agent/distributor, the U.S. exporter is encouraged to conduct a commercial background check on the Mexican firm, such as offered by the U.S. Commerce Department’s International Company Profile (ICP) report. If the product is new to the market, or if the market is extremely competitive, advertising and other promotional support should be negotiated in detail with your representative. Product and industry knowledge, track record, enthusiasm and commitment should be weighted heavily. Service and price are extremely important to Mexican buyers. The U.S. exporter should also schedule frequent visits of Mexican personnel to the U.S. companies for training. Other factors to consider include financing, as the commercial and industrial sectors’ resources are limited due to high interest rates. Joint venture arrangements should also be investigated to strengthen market penetration. Direct marketing and telemarketing are still evolving as a marketing strategy, but they are gaining in popularity and scope.

4.4.2

Franchising Activities

The franchise sector in Mexico has become one of the most successful sectors in Mexico despite the uncertainty of the economy in the global market. Mexico is the 11th leading nation worldwide in franchise development. Services franchises have shown rapid growth in the last few years. Particularly popular are: •

Education and training services

•

Business services

•

Advertising

•

Financial consulting

•

Printing and publishing

•

Temporary job services

•

Health care services

•

Automotive services

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In an effort to support the establishment and expansion of franchises in Mexico, the Mexican government has signed an agreement with the Overseas Private Investment Corporation (OPIC) to provide financial aid to Mexican individuals interested in U.S. franchises. There are no barriers to franchisers of any products or services in Mexico.

4.4.3

Pricing Issues

Exporters should look carefully at import duties (taking into account the NAFTA progressive tariff reductions), broker’s fees, transportation costs, and taxes to determine if the product/service can be priced competitively. The import duty, if applicable, is calculated on the U.S. plant value (F.O.B. price) of the product, plus the inland U.S. freight charges to the border and any other costs listed separately on the invoice and paid by the importer. These can include charges such as export packaging, inland freight cost, and insurance.

Value Added Tax (IVA) Mexican Customs collects a value-added tax or IVA from the importer, on foreign transactions, upon entry of the merchandise into Mexico. This IVA is assessed on the cumulative value consisting of the U.S. plant value (f.o.b. price) of the product(s), plus the inland U.S. freight charges, any other costs listed separately on the invoice such as export packing, insurance, plus the duty, if applicable. The IVA is 10 percent for products exported to the "border zone", defined as 20 km from the U.S.-Mexico border. For final shipping points, other than the border zone, a 15 percent IVA is charged. The importer will pay other IVA fees for such services as inland Mexico freight, warehousing, and custom brokerage fees, if applicable. The IVA typically is recovered at the point of sale. Sales of real property (real estate) within the border zone are taxed at the 15 percent IVA rate. The law considers several exceptions for the payment of the IVA taxes, including: •

Products imported under the PITEX program (Program of temporary imports to produce articles to be exported), when they comply with the requirements specified for this program.

•

Donated products imported by institutions accredited and authorized to receive donations from foreign institutions.

Estimated Minimum Prices To avoid dumping practices, the Mexican authorities have set minimum prices for a wide range of imported products, including: •

Textiles

•

Clothing

•

Leather products

•

Shoes

•

Some metals

•

Stationary products

•

Tools

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Some glass products

•

Bicycles

•

Children accessories

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These minimum prices will be taken as the base for calculating any duty or taxes, if applicable, for all products imported under certain Harmonized System Codes.

4.4.4

Government Procurement

The Secretariat for Public Services (Secretaria de la Funcion Publica) implements the laws that regulate government procurement known as the Public Sector Law of Purchases, Leases, and Service (LAPAS) and the Law of Public Works and Related Services (LAOPS). These laws address the participation of local and foreign firms in projects at the federal, state and municipal levels. United States firms should be aware that state and municipal contracts are not subject to the NAFTA Chapter 10 rules and guarantees. The most relevant items of both laws are: •

The two laws do not apply to tenders of the Government of Mexico City and the Office of Mexico City’s Attorney General.

•

The laws allow for the use of electronic media during the different procedures - no other Mexican law has this characteristic. This includes electronic signatures and electronic security systems/devices/procedures.

•

The laws indicate that the purchasing committees of all the nine federal secretariats, PEMEX (governmentowned petroleum company), and CFE (Federal Electricity Commission), including the Secretariats of the Defense and the Navy, are the entities authorized to process purchases of equipment and supplies.

•

The laws are very specific in regards to the sanctions for irregularities in the purchasing process.

•

The laws require a 10 percent bond of the total project value only for companies that have been awarded a contract.

American firms, their Mexican agents, distributors, and representatives interested in government procurement should become familiar with these laws and any potential revisions to the laws. American firms may take advantage of electronic means to participate in the bidding process. American firms that want to learn more about tenders and bids can check the following electronic Web page address, which includes all information on current tenders, statistics, and complaints: http://www.compranet.com.mx. According to the Federal Government Annual Budget Plan, the entities having the largest purchasing budgets include: •

Petroleos Mexicanos - PEMEX

•

Federal Electricity Commission (Comision Federal de Electricidad - CFE)

•

Secretariat of Communications and Transport (Secretaria de Comunicaciones y Transportes - SCT)

•

Mexican Social Security Institute (Instituto Mexicano del Seguro Social - IMSS)

•

Institute of Security and Social Services for the Government Workers (Instituto de Seguridad y Servicios Social para los Trabajadores del Estado - ISSSTE)

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American firms are encouraged to carefully analyze with their representative the tender specifications. They may differ from entity to entity, depending on the value of operation, type of goods or services, budget limitations, etc. A bid will be disqualified if not received within the specified period of time. Likewise, each tender includes a specific period of time for participants to ask questions. By paying attention to all details, the unnecessary disqualification of a firm may be avoided. In some tenders, only written questions are permitted. Replies are given to all purchasers of the tender documents. The U.S. Trade and Development Agency (USTDA) can provide de minimus training grants and other forms of technical assistance to help a U.S. company or consortium win a competitive tender. For more information on USTDA, please see Chapter 9: Trade and Project Financing. If a tender specifies a certain brand or gives preference to a supplier, a complaint can be filed with the General Directorate of Complaints. Do not wait for the contract to be awarded. Bid only on the exact specifications listed in the tender. "Solutions" and or specifications not listed will disqualify the bid. Finally, U.S. firms should communicate regularly with their Mexican representative and fine-tune all details related to the required documents. There have been numerous cases of disqualification based upon seemingly insignificant failures on the part of bidders to comply with tender regulations and procedures to the letter of the law.

4.4.5

Legal Considerations

The legal and regulatory requirements in any country affect the way a company does business, and maneuvering through the legal maze in Mexico can present many pitfalls for foreign firms. After the North American Free Trade Agreement (NAFTA) was signed in 1992, Mexico undertook a concerted effort to bring its laws and regulations into line with the accord’s provisions, as well as to adopt commercial laws more in line with standard international practices. This has resulted in greater legal continuity among the NAFTA countries, but important differences remain. Many U.S. firms make the mistake of assuming that Mexico’s legal framework is very similar to that of the United States and depend on their U.S. legal counsel to advise them on doing business in Mexico. However, Mexico’s legal tradition is based on the Napoleonic Code, rather than English common law, and therefore much of the advice that would be applicable to a business venture in the United States is inappropriate for Mexico. Indeed, unlike the United States, where judge-made law (common law and precedent) shapes much of the legal landscape, the Mexican legal framework is built on a system of codes, which govern all civil, criminal and commercial matters. Because of these and other differences, the U.S. Embassy recommends that a Mexican lawyer, or an American lawyer trained in Mexican law, review all legal documents related to the firm’s business operations in Mexico, including labor contracts, leases, and all other commercial agreements. The advice of an experienced Mexican corporate lawyer can be indispensable in, for example, conducting due diligence prior to investing and entering into a partnership or acquisition in Mexico. Moreover, litigation, as in the United States, is both lengthy and costly, and the outcome may be uncertain. Although the vast majority of laws affecting U.S. companies doing business in Mexico will come under federal jurisdiction (e.g. corporate law, international trade regulations, labor and employment law, intellectual property protection), companies must also be alert to the requirements of state codes when investing in Mexico. In our experience, the majority of investment disputes have been handled in state courts, which are largely independent of the federal legal system. U.S. and Mexican parties enjoy freedom of contract with respect to the content of agency, distributorship, and partnership agreements to be carried out in Mexico. However, considerable Mexican tax and labor obligations may flow from agency agreements not carefully drafted in accordance with Mexican and international law. In addition,

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contracts should contain all of the elements considered prudent in the United States, such as rights and responsibilities of the partners, compensation, term, escape clauses, and designate the applicable law and forum for resolving commercial disputes. U.S. firms seeking to do business in Mexico have a full range of options to consider with respect to business entities, each presenting different legal issues. Other legal aspects, such as foreign investment regulations and standards are discussed in other sections of this report. Mexico’s Foreign Investment Law (FIL), enacted in 1993, delineates those sectors and activities in which foreign participation is restricted or limited. The FIL also outlines the limitations placed on foreigners wishing to acquire property on the Mexican border and in coastal zones. However, the FIL establishes as its basic premise that foreign investors may hold unlimited equity in Mexican corporations, acquire fixed assets, expand into new areas of economic activity, and own and operate all types of enterprises in Mexico, except as otherwise stated in the law. Accordingly, before committing resources to a given activity or initiative, U.S. companies are advised to consult the specific limitations and restrictions set out in the FIL. U.S. firms making direct sales to companies in Mexico need to be more concerned about following good international trade practices than about Mexican law. The biggest worry for a company selling internationally concerns payment risks. There are many types of payment commonly used, which include letters of credit, prepayment, documents against payment, receivable insurance, and open account. The latter is sometimes a source of headaches for U.S. exporters wishing to increase their sales. They should be aware of the prolonged lack of liquidity in Mexico, which causes many firms to default or delay payments. Take care before granting "open account" treatment. Mexico is a member of the United Nations Convention on International Sales of Goods, and American firms are encouraged to become familiar with this treaty as they can request the Mexican importer to honor the provisions of this convention, if appropriate. Firms doing business from the United States that do not establish a fiscal or physical presence in Mexico do not create income tax or other obligations with the Mexican government. However, in order for the Mexican buyer to carry out the importation, the buyer may require a Certificate of Origin from the U.S. firm in order to obtain preferred NAFTA treatment. In addition, the U.S. company is expected to issue an invoice, which includes its tax registration number. This is used by Mexican customs for the purpose of assigning a value to the goods and determining the taxes to be paid by the importer. These documents are only intended for the Mexican importer, and they will not be a cause of commitment by the U.S. firm to any Mexican authority.

4.4.6

Due Diligence

U.S. firms must keep in mind that it is recommended to do due diligence on a Mexican firm or individual before entering in any type of agreement. In Mexico’s larger cities, it is possible to find a local consulting or law firm that can find information on a firm or individual. Also, local chambers and associations can assist U.S. firms in locating economic reports on a particular firm There are only a few private firms that do due diligence all over the country. U.S. firms should know that the FCS has a service called International Company Profile (ICP) that can be ordered from our offices in Tijuana, Monterrey, Guadalajara, and Mexico City. The ICP is a report in English that includes financial and commercial information on a Mexican firm or an individual. The service can also be ordered and paid for in any of the more than 100 U.S. Department of Commerce Export Assistance Centers located in major cities of the U.S.

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Opening an Office in Mexico

For U.S. companies wanting to establish a presence in Mexico, the General Law of Mercantile Organizations (or the Civil Code) regulates the many different forms of business entities. The type of business incorporation that a U.S. company or individual chooses is extremely important because it determines the operations they are allowed to perform in Mexico and, among other liabilities, the amount of taxes they pay. Some of the most commonly used types of business forms are the Sociedad Anonima (Corporation) identified with "S.A." at the end of the company name, and the Sociedad Anonima de Capital Variable (Corporation with Variable Capital) identified with "S.A. de C.V.". One of the advantages of the latter is that the minimum fixed capital can be changed subsequent to the initial formation. The Limited Liability Partnership (Sociedad de Responsabilidad Limitada) identified with "S. de R.L." is similar to a closed corporation in the United States and it also has the option of having a variable capital ("S. de R.L. de C.V."). As this is an organization formed by individuals, it can have similar characteristics to a partnership with the exception of the unlimited liability. Civil Partnership (Sociedad Civil) is the most common organization for professional service providers. It has no minimum capital requirements and no limit in the number of partners, but it is taxable in the same way as a corporation. It is identified with "S.C." Civil Association (Asociacion Civil) is the form that charitable or nonprofit organizations adopt to operate and is identified with "A.C." Many industrial and commercial firms and professional organizations are grouped into this form. A foreign company may open a branch ("sucursal") in Mexico as an alternative to incorporating. A branch can provide rights and responsibilities similar to a corporation, including tax liability and access to local courts, but requires the approval of the National Foreign Investment Commission.

4.4.8

NAFTA Certificate of Origin

The NAFTA certificate of origin is a legal and binding document and the signatory bears legal responsibility. Mexican customs authorities are increasingly checking the validity of such documents, given the flood of illegal shipments coming from the U.S. supposedly under the aegis of NAFTA. In particular, the textile industry is fraught with examples of shipments from Asia being stamped as U.S-made and entering Mexico with fraudulent documents. While it is not a requirement to supply a NAFTA certificate of origin, it is in the best interest of the U.S. company to do so if the product actually qualifies. Completing the due diligence and supplying the NAFTA Certificate of Origin when a product qualifies gives the importing customer reductions of import duties or helps a manufacturer using the NAFTA component to qualify the finished good. Not having a NAFTA certificate of origin increases the likelihood of higher tariffs and it could jeopardize a potential sale to a Mexican client. However, falsely completing the legal document could jeopardize the signatory and his company. To determine whether your goods qualify for a NAFTA certificate of origin, substantial analysis must be performed. There are two methods: •

A tariff shift, which signifies a transition from one harmonized number to another harmonized number in the manufacturing process

•

A regional value content, whereby you have to calculate a number according to specific rules, which are predetermined and not selected by the importer or exporter.

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As a producer or exporter, you select the appropriate rule for your product based on the harmonized trade number (HS) and analyze the NAFTA rule of origin. For more information on how to identify your HS number or undertake these calculations to determine whether your product qualifies for the NAFTA certificate of origin, please refer to the International Marketing Insight report called "Completing the NAFTA Certificate of Origin Analysis." This report is available on www.buyusa.gov.

4.4.9

Advertising Options

There is a wide range of broadcast and print media available in Mexico. There are approximately 20.7 million homes in Mexico. Ninety five percent, or 19.7 million of these homes have electric power. Around 86 percent of homes have at least one radio and 87 percent of homes have at least one TV. Radio has the widest coverage, and there are 384 FM and 758 AM radio stations throughout Mexico. Most of the stations broadcast 24 hours a day. There are eight TV networks that have national coverage, and more than 636 local or regional TV stations. "Televisa" and "Television Azteca" are the largest standard broadcast TV networks. CNN Canal 40 is a newcomer in the field, increasing its market penetration. In addition, there are 564 cable TV systems offering services to around 3.0 million subscribers nationwide. The largest cable TV company is Cablevision, owned by Televisa, which has 407,000 subscribers in Mexico City. Also important are Megacable with 324,363 subscribers, DirectTV with 315,000 subscribers, Cablemar with 279,048, and Acotel with 118,563 subscribers. There are also two Spanish language direct-to-home satellite networks, Multivision and Sky. According to data provided by the National Chamber of the Publishing Industry, more than 420 newspapers and 1600 magazines are published in Mexico. The major newspapers include: •

El Universal

•

Reforma

•

La Jornada

•

El Financiero

•

Milenio

•

El Sol de México

•

El Economista

Among the top magazines in Mexico are: •

Proceso

•

Milenio Semanal

•

Vértigo

•

Expansión

•

Líderes Mexicanas

Many magazines are industry specific. Advertising in Mexican print media is usually more expensive than in the United States. Advertising rates generally approximate those of large international cities. Advertising on billboards is also common in Mexico. There are more than 100 billboard companies in Mexico offering various kinds of billboards, ranging from plain paper billboards to electronically controlled billboards.

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According to data provided by Medios Publicitarios Mexicanos, there are over 131 advertising agencies, 40 market research companies, 8 direct mailing companies, 21 sales promotion agencies, and 7 direct marketing agencies. In Mexico City, by far the largest billboard advertising area, the local government is developing laws to regulate billboards location and permits. Successful ad campaigns are generally described as having a local touch, which may include both linguistic and cultural considerations. Exporters may wish to seek assistance from one of the many full-service advertising agencies in Mexico City, many of which are branches of U.S. and foreign firms.

Key Contacts for Advertising Camara Mexican de la Industria Editorial (Mexican Chamber of the Publishing Industry) Holanda No. 13 Col. San Diego Churubusco 04120 Mexico, D.F. Tel: (011-52) 5688-2221, 5688-2434 Fax: (011-52) 5604-4347, 5604-3147 Contact: Lic. Enrique Perez Claudin, General Director Lic. Alicia Velazquez, Statistics Coordinator E-mail: [email protected] Web: www.caniem.com Asociacion de Editores de Periodicos Diarios de la Republica Mexicana, A.C. (Mexican Association of Newspaper Publishers) Paseo de la Reforma no. 122, piso 10-C Col. Juarez 06600 Mexico, D.F. Tel: (011-52) 5705-1870, 5592-1785 Fax: (011-52) 5592-1785 Contact: Rafael Ruano Uribe, General Manager Camara Nacional de la Industria de la Television por Cable (National Chamber of the Cable TV Industry Monte Alban No. 281 Col. Narvarte 03020 Mexico, D.F. Tel: (011-52) 5682-0298, 5669-3691 Fax: (011-52) 5682-0881, 5682-3750 Contact: Lic. Jorge Cuevas Renaud, President Srita. Mirsa Avila, Editorial Manager E-mail: [email protected] Web: www.canitec.org Asociacion Mexicana de Agencias de Publicidad, A.C. (Mexican Association of Advertising Agencies) Bosques de Duraznos No. 75, 6o. piso, desp. 602-603 Col. Bosques de las Lomas 11560 Mexico, D.F. Tel & Fax: (011-52) 5281-5225, 5281-0568, 5281-4066 Contact: Lic. Sergio Armando Lopez Zepeda, General Director Contact: Sra. Leticia Melero, Public Relations Manager

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Asociacion Mexicana de Publicidad Exterior, A.C. San Lorenzo No. 153, Desp. 303 Col. Del Valle 03100 Mexico, D.F. Tel: (011-52) 5575-6179 Fax: (011-52) 5559-1523 Contact: Lic. Jesus Caudillo Alegria, General Director E-mail: [email protected] Camara Nacional de la Industria de Radio y Television (National Chamber of the Radio and Television Industries) Av. Horacio No. 1013 Col. Polanco Reforma 05120 Mexico, D.F. Tel: (011-52) 5726-9909 Fax: (011-52) 5254-8930 Contact: Lic. Nury Poma, Public Relations Manager Contact: Lic. Adrian Angel, Information and Research Manager Web: www.cirt.com.mx

4.4.10

Demographics

Based on the results of the official 2000 Census, Mexico’s population reached 97.5 million with an annual average increase of 1.5 percent. Approximately 24.5 percent of the population lives in rural areas (having less than 2,500 inhabitants), 13.7 percent live in semi-urban areas (having 2,500-15,000 inhabitants), and 61 percent live in urban areas (having more than 15,000 inhabitants). The Mexico City Metropolitan area accounts for 18 percent of the total population. Five states have reported the highest population increases in the last decade: Mexico, Jalisco, Puebla, Baja California and Nuevo Leon. The Mexican population is 51.2 percent female and 48.8 percent male. If divided into three main demographic regions, the northern region of the country has 62 percent of the territory, with 26 percent of the total population, and generates 30 percent of the GNP. The central region has 18 percent of the territory, 50 percent of the total population, and generates 60 percent of the GNP. The south-east region has 20 percent of the territory, 16 percent of the total population, and generates only 10 percent of the GNP. Mexico has a very young population. Thirty-three percent of the people are under 15 years of age, 62 percent are between 15 and 64 years of age, and 5 percent are older than 64 years of age. Forty-four percent of the population is part of the active workforce, of which 65 percent are male and 35 percent female. Mexican homes are becoming better equipped with consumer electronics. About 87 percent homes have TV, 86 percent have radios, 69 percent have refrigerators, 79 percent have blenders, 52 percent have washing machines, 43 percent have hot water heaters, 37 percent have telephones, 39 percent have video-recorders, and 10 percent have computers. Thirty-three percent of Mexican families have at least one car. Only 10 percent of the population is defined as wealthy, accounting for 38 percent of the national income. This group is composed of people who tend to have a high level of education, live in luxury housing and own vacation homes, own multiple vehicles, and have the resources to travel internationally and to send their children to college outside of Mexico. The upper-middle class represents about 10 percent of the population. The upper middle class accounts for 17 percent of the national income. It is composed of university-educated people who serve as professionals or company managers, own homes and cars, have ability to buy a wide range of household appliances, and occasionally travel internationally. The lower-middle class comprises about 40 percent of the population and accounts for 32 percent of the national income. People in this group live in smaller houses or apartments, have few opportunities for

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travel, and spend most of their income on basic goods. The remaining 40 percent of the population lives in poverty and accounts for only 13 percent of the national income. These individuals live in marginal urban suburbs or in rural areas, are underemployed or unemployed, and can barely afford basic necessities.

4.4.11

Intellectual Property Risks

The Mexican Institute of Industrial Property (Instituto Mexicano de la Propiedad Industrial, IMPI) is the legal authority charged with administering and protecting intellectual property rights in Mexico. Intellectual property rights are divided into two basic categories. The first, the invention side, includes patents, utility models, industrial models, industrial drawings, and trade secrets. The second classification, the distinctiveness side, includes trademarks, trade names, slogans, and designation of origin. Consequently, two different laws exist for the protection of intellectual property, The Industrial Property Law (Ley de Propiedad Industrial) and the Federal Copyright Law (Ley Federal del Derecho de Autor). In 1994, the Industrial Property Law was reformed considerably and the IMPI was created as a public decentralized legal body. The most significant reform to the Industrial Property Law in 1994 allows authorities to halt activities presumed to be illegal during infringement proceedings rather than waiting for a court decision to be made. This change occurred as a result of the need to provide more efficient enforcement and to harmonize Mexican law with the North American Free Trade Agreement (NAFTA). Offenders are now required to pay fines rather than receiving imprisonment for violations. Nevertheless, the criminal code and several other statutes are currently being debated in the Mexican Congress as part of a campaign to discourage criminal conduct through tougher penalties. The IMPI experienced another significant change in 2000 when it strengthened regulatory protection for intellectual property and doubled its workforce. In addition, Mexico signed the Patent Cooperation Treaty in Geneva, Switzerland in 1994, which allows for simplified patent registration procedure when applying for patents in more than one country at the same time. This reduces registration procedures and costs. Mexico is a signatory of at least fifteen international treaties including the Paris Convention for the Protection of Industrial Property and the NAFTA. However, it is necessary to register any patent or trademark in Mexico in order to claim an exclusive right to any given product. A prior registration in the United States does not guarantee its exclusivity and proper use in Mexico, but serves merely as support for the authenticity of any claim you might make, should you take legal action in Mexico. The required documents for filing a patent application with the IMPI are: •

Application duly filled out and signed with four copies.

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Original payment receipt and two copies.

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Detailed description of the invention to be protected in Spanish language and three copies thereof.

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Drawings, flowcharts, photographs, blueprints, etc.

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Power of Attorney Document, if the case is handled by a Mexican attorney, duly certified and legalized by Apostille as per the Hague Convention.

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Assignment of Invention signed by the inventor(s) as assignor and the legal representative of the company as assignee.

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Priority document, with its Spanish translation, if the patent is filed under the Paris Convention. Claiming a Patent priority has to be done within the first year after the registering the invention in the country of origin.

•

All documents filed before the IMPI must be in Spanish.

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In order to motivate independent inventors, the IMPI will give a fifty percent discount in official rights when presenting an Affidavit Document in original and signed by the inventor. For further information regarding patent registrations please contact: Instituto Mexicano de la Propieded Industrial Fabian Salazar Garcia Patent Division Director Arenal No. 550 Col. Tepepan Xochimilco C.P. 16020 Delegacion Xochimilco Mexico Tel: (011-52) 5334-0710 Ext., 5010 In order to avoid paying for third-party rights’ infringement in the event that a prior trademark is in existence, experts recommend a search by class, phonetics, and multi-class before presenting a trademark application before the IMPI. Once a favorable search has resulted, the trademark application can be presented attaching the following documents: •

Application duly filled out and signed with four copies.

•

Original payment receipt and two copies.

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Trademark prints.

•

As per the International Classification, it is necessary to indicate the correct class to protect the product or service, i.e. Class 1 to 34 is reserved for products and from class 35 to 42 for services (only one single application is allowed per class).

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Power of Attorney Document, if the case is handled by an attorney in Mexico duly certified and legalized by Apostille as per the Hague Convention

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Priority document, with its Spanish translation, if the patent is filed under the Paris Convention. Priority for trademarks must be claimed within the first six months after the trademark has been filed in the country of origin.

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Letter of Consent, in the event that a Priority is in existence and when the authorization to use the trademark must be obtained from the rights’ owner.

•

All documents filed before the IMPI must be in Spanish.

Note: The requirements for registrations of trademarks may vary depending on the product’s characteristics. For further information regarding trademark applications please contact: Instituto Mexicano de la Propiedad Industrial Joseph Kahwage Trademark Division Director Periferico Sur No. 3106 Col. Jardines del Pedregal 01900, Mexico, D.F. Tel: (011-52) 5624-0400 ext. 4747, or 4744 Fax: (011-52) 5624-0437 E-mail: [email protected]

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Information sources: The Mexican Institute of Industrial Property, IMPI Web site: http://www.impi.gob.mx American Chamber of Commerce, Amcham Web site: http://amcham.com.mx Although a firm or individual may apply directly, most foreign firms hire local law firms specializing in intellectual property. The U.S. Embassy commercial section will provide a list of such law firms in Mexico upon request.

4.5

MARKETING STRATEGIES

The Agricultural Trade Office (ATO) serves as the U.S. Department of Agriculture’s (USDA) marketing arm in Mexico. The ATO’s primary mission is to assist in the market development and promotion of U.S. agricultural, fishery, and forestry products in Mexico. In addition to offering U.S. exporters of agricultural products a modern business facility in Mexico City outside of the U.S. Embassy, the ATO in Mexico City is also home to eight "cooperator groups" that promote sales of U.S. food and agricultural products in Mexico from their respective producer groups in the United States. The ATO provides U.S. exporters of food and agricultural products and U.S. agribusiness representatives a variety of export services. These services include: •

Organization of trade shows and export promotion programs

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Compilation and distribution of market information and lists of distributors and importers by product

•

Export counseling

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Export credit assistance

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Online information access via Internet.

A second ATO opened in 2002, in Monterrey, Nuevo Leon. Representatives of U.S. agribusinesses are also colocated in that office. The regional ATO offers all the services described above to U.S. exporters and agribusiness representatives who are interested in developing the northern Mexican market for their products.

4.5.1

Western Region

Western Mexico, comprised of the states of Aguascalientes, Colima, Jalisco, Guanajuato, Michoacan, Nayarit, and Sinaloa, is covered by the Commercial Service at the U.S. Consulate in Guadalajara. This region, roughly the size of Arizona, has an economy larger than that of Chile or Colombia, or all of Central America combined, at just over US $100 billion. The population of 20 million is concentrated in Jalisco and Guanajuato, which along with Aguascalientes, are key manufacturing and industrial states, while Michoacan, Nayarit, Colima, and Sinaloa are important agricultural producers. Major subsectors within the region include auto parts, electronics, jewelry, furniture, textiles, footwear, tourism, metalworking, processed foods, agricultural equipment, dairy products, and fruits and vegetables.

Jalisco With a population of 6,322,002, the state of Jalisco has the fourth largest economy in Mexico, with 6.3% of national GDP. Originally agricultural and trade-focused, it has diversified and become one of the largest recipients of foreign investment in Mexico. Twenty-five percent of employment is now industrial (mining, manufacturing, and

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electricity), with 32% in services, 20% in commerce, and 11% in agriculture. Although Jalisco is still very traditional, in that small and medium-sized businesses employ 64% of the workforce, the number of large state-ofthe-art manufacturing plants has been steadily increasing. Jalisco has a young and educated workforce (92% literacy) with low turnover rate (1%). There are 16 colleges and universities dispersed throughout the state, including the oldest private institute of higher learning and the second largest university in the country. Principal cities in the state include the capital, Guadalajara, and Puerto Vallarta. Considered one of Mexico’s most beautiful and livable cities, Guadalajara has experienced explosive growth, especially in electronics manufacturing. The Guadalajara area produces over 60% of Mexico’s entire computer output and is frequently referred to as the "Silicon Valley" of Mexico. It is also known as the "city of malls"; Jalisco has evolved into a main center of distribution for both central and western Mexico, and Guadalajara is the second largest distribution and retail center in Mexico. Guadalajara boasts one of the most modern exhibition centers in Latin America--ExpoGuadalajara--which has trade shows scheduled year-round. Jalisco’s industrial sector ranks fourth at the national level, excelling in petrochemicals, footwear manufacturing, leather goods, dairy produce, sugar, paper and cellulose. Fruit growing--particularly avocados, mangos and citrus fruit--is widespread in the coastal areas, as are vegetable crops. Jalisco is renowned for its tequila, produced from the agave plant. The state has become Mexico’s leading meat, egg and dairy producer. Additional information on Jalisco is available on the official Mexican government Web site: www.jalisco.gob.mx.

Guanajuato Located in the center of Mexico, and the home state of President Vicente Fox, Guanajuato is a progressive state with a population of 4,663,032 living in 46 municipalities. The state capital, also known as Guanajuato, is a beautiful colonial city and a UNESCO World Heritage Site. Leon is the largest and most important industrial city, primarily known for its footwear industry. Other principal cities include Celaya and Irapuato. Twenty-two percent of the state’s workforce is employed in industry, 25% in agriculture/livestock, 20% in commerce, and 24% in services. Political stability and strong government leadership have attracted US $4 billion in foreign investment during the past decade. Major international companies with investments in the state include General Motors, American Axle, Green Manor, Flex-n-gate, Aventec, KBL, Avon Cosmetics, Osfordautom, Meridian Automotive Systems, Mission Hills, Quail & Pipe, Weyerhaeuser, etc. Guanajuato has one of Latin America’s most important refineries, two thermoelectric plants and a turbo-gas plant. It has an excellent transportation system with modern highways, railroads, and airports, and an established industrial infrastructure, with thirteen industrial parks. The city of Leon has been Mexico’s shoe capital for over 300 years. Some of the major brands that are currently manufactured in the area include Hush Puppies, Florsheim, Caterpillar, Ecco, Steve Madden, Red Wing, Justin Boots, Stride Rite, Flexi Country, Concord, Duque DaMilano, etc. Best opportunities for U.S. suppliers include quality leather and tanning & related chemicals. Leon hosts SAPICA, Mexico’s largest footwear exhibition, and ANPIC, the largest shoe components/machinery exhibition. Ninety-six percent of Guanajuato’s cultivated land is irrigated by wells. Vegetable production is mainly concentrated in the Bajio region of the state, where 59% of land is dedicated to high value crops. Much of Guanajuato’s agricultural production goes through a variety of value-added processes, such as freezing, dehydration, meat processing and packing, dairy product processing, flour, vegetable oil, and animal feed production, among others.

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The state government is promoting the development of an automotive parts supply cluster, based around important plants such as the light truck assembly plant of General Motors, located in Silao. In this sector, opportunities can be found for manufacturers of leather seats, electric and electronic components, air conditioners, oil and fuel filters, suspensions, paints, tires, batteries, wheels and rims, springs, shock absorbers, engine parts, gears, alternators, starters, brake systems, etc. There is a strong state government emphasis on cleaning up Leon’s air and water, which presents opportunities for wastewater treatment and pollution control. Other projects of state interest include an inter-urban fast train, Irapuato 20-20 (an urban development center) and an expansion of the Poliform exhibition center. Additional information on Guanajuato is available on the official Mexican government Web site: www.guanajuato.gob.mx.

Aguascalientes Located in central Mexico, the state of Aguascalientes, although small in size, has a strong economic position in Mexico owing to its important automotive cluster and traditionally strong textile industry. It has one of the highest GDP per capita in all of Mexico. The services sector comprises 32% of the state’s employment, followed by the industrial sector with 24%, commerce with 20% and agriculture/livestock at 9%. With an impressive GDP growth of 5% during the past 10 years, Aguascalientes is now considered a main player in the industrial development of Mexico and offers a high quality of life for its 994,285 inhabitants. The capital of the state, also known as Aguascalientes, has a population of 800,000. Other important cities are Rincon de Romos, Pabellon de Arteaga and Calvillo. Industry, services, and trade account for 85% of the state’s GDP. Most industry is located in the AguascalientesRincon de Romos corridor, in two industrial parks in the capital and two parks outside of it. Main industrial sectors are automobiles (Nissan) and auto parts, textiles (yarns and acrylic knits) and apparel. Flextronics and Texas Instruments represent the electronics sector. There are several major infrastructure projects planned in Aguascalientes, including a passenger suburban train to connect the main cities in the state. Water management equipment and services offer an area of opportunity, as sources of water in the state are becoming scarce. The Aguascalientes automotive cluster represents one of the major industrial markets in Mexico for automotiverelated business. Food processing has been growing, primarily in frozen and canned foods, which represent opportunities for packaging and food-handling equipment and supplies. Excellent business potential also exists in consumer and industrial services, such as international transportation, air cargo, logistics, water treatment, waste treatment and computer software. There is an ABIC (American Business Information Center) in Aguascalientes sponsored by the Commercial Service that is co-located with the U.S.-Mexico Chamber of Commerce (Chapter Aguascalientes) tel: +52 (449) 912-8622. Its main purpose is to provide information to area businesses on U.S. companies, sources of supply, and trade events. Additional information on Aguascalientes is available on the official State government Web site: www.aguascalientes.gob.mx.

Michoacan Michoacan is one of Mexico’s most beautiful states, with numerous natural resources, and a population of 3,979,177. Principal cities within the state include the capital, Morelia, Uruapan and Zamora. A full 29 % of the state’s employment is agriculture, 23% in services, 16% in commerce, and 14% in industry.

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Michoacan produces a large proportion of foodstuffs for the domestic market and a considerable amount of fruit for export. It is Mexico’s number one producer of strawberries and avocados, and the second largest producer of pine and oak, accounting for 15% of Mexico’s timber production. Main industrial activities are the processing of agricultural products for the international market and the wood and paper industries. As the leading Mexican iron producer, Michoacan is home to a significant steel industry which produces high-quality steel, metal sheets and pipes. Mining of copper, manganese, mercury, silica, kaolin, marble, onyx, and mica is growing rapidly. A new US $700 million harbor at the port of Lazaro Cardenas is currently under construction, and is expected to strengthen the shipping industry and international trade. Additional information on Michoacan is available on the official Mexican government Web site: www.michoacan.gob.mx.

Nayarit The state of Nayarit has a population of 919,739. Its major source of employment is the service sector, composing 29% of the state’s employment, followed by agriculture/livestock with 26%, commerce with 19% and industry with 12%. Tepic is the capital and the state’s principal city. Nayarit is Mexico’s leading tobacco grower. Its tropical and humid climate favors the cultivation of tropical fruit, sugarcane, corn, beans, coffee, and sorghum. There are numerous lagoons that are ideal for shrimp and oyster aquaculture; the main fisheries center is the coastal town of San Blas, where there is an oyster research center. Timber harvesting has been steadily increasing. Gold, silver, and lead are mined and processed in two plants. Overall, Nayarit’s industrial development has been limited. Additional information on Nayarit is available on the official Mexican government Web site: www.nayarit.gob.mx.

Colima With a population of 542,627, Colima’s economy is dominated by the services sector, composing a full third of the state’s employment, compared to the 19% in commerce, 14% agriculture, and 13% in industry. Mountainous Colima is known for its lemons, supplying 60% of the domestic market, and is a leading producer of bananas and coconuts. Projects are underway to irrigate 60% of its agricultural land. Along its 100 miles of coastline and inland waters, fisheries are an important activity and aquaculture is growing in importance. The manufacturing industry is based on the production of lemon byproducts, coconut-copra, sugar, and seafood processing. There is potential for developing the mining sector, mainly for the extraction of iron ore. Although Colima is the official capital of the state, Manzanillo, the busiest Pacific port in Latin America, provides an important trade link to the United States, Central and South America and other countries of the Pacific Rim. Tourism is also growing in importance and more hotel facilities are being built to meet international demand. Additional information on Colima is available on the official Mexican government Web site: www.colimaestado.gob.mx.

Sinaloa With a population of 2,536,844, Sinaloa is strategically located in the northwest of Mexico (500 miles south of the U.S. border) granting the state access to the markets of the United States over modern four-lane highways reaching to the U.S. border. Sinaloa has three international airports with direct daily flights to Los Angeles and other major cities in the U.S. Principal cities include Culiacan, the state’s capital, Mazatlan and Los Mochis. Employment in the www.icongrouponline.com

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state is concentrated in services (28%) and agriculture (24%), with commerce and industry making up 21% and 12%, respectively. The ports in Mazatlan (south) and Topolobampo (north) are used to transport merchandise throughout the Pacific Basin. Mazatlan is also a port for major cruise liners. The port of Topolobampo (connected to the U.S. via railroad Chihuahua-Pacifico) has the infrastructure and facilities for handling containers, agricultural bulk and minerals. Sinaloa is Mexico’s leading vegetable producer and second leading cereal producer. Three quarters of the state’s area is devoted to the production of rice, sugarcane, wheat, vegetables, and fruit. Culiacan hosts Expo Agro Sinaloa every January, Mexico’s largest agriculture exhibition. Fishing (sardines, oysters, shark, and anchovies) is one of the state’s main sources of foreign exchange. The agriculture, livestock, and fisheries sectors have spurred the development of agribusiness, particularly in such fields as meat and produce processing, sugar and vegetable oil production, animal fodder, and fruit and seafood canning. There are several mineral-rich zones with potential for gold, silver, copper, lead, zinc, etc. Additional information on Sinaloa is available on the official Mexican government Web site: www.sinaloa.gob.mx.

4.5.2

Northwestern Region

The U.S. Commercial Service office in Tijuana has responsibility for the northwestern region comprised of the States of Baja California, Baja California Sur and Sonora. The State of Baja California shares its northern border with California and Arizona, and is known as an active industrial, agricultural, in-bond manufacturing and tourist area. The Pacific Ocean surrounds Baja California Sur on the left and the Gulf of California on the right. Located in the lower part of the California peninsula, this sparsely populated state is making major investments to develop its exclusive resort areas concentrated in the south, and is a significant producer of seafood and agricultural products. The State of Sonora, recognized for its livestock, shares its border with Arizona to the North and Sinaloa to the south. Its industrial, fishing and agricultural sectors offer market prospects for industrial supplies and U.S. agribusiness interests. A significant infrastructure project that involves the three states in the region is the Nautical Route of the Sea of Cortes. With an estimated initial investment of US$747 million aims to contribute to the development of the tourist industry on the coasts of Baja California, Baja California Sur, Sonora and Sinaloa by attracting investment to the region. The project includes the construction of 10,500 hotel rooms in a period of 10 years, with an investment of US$1.26 billion; 22,250 new marina slips with an investment of nearly US$460 million, creating over 53,000 new jobs.

Baja California With a population of approximately 3.5 million, an annual growth rate of 4 percent, and a GDP of $18.5 billion, Baja California is Mexico’s leading producer of television and computer monitors. It is divided into five municipalities: •

Tijuana with 46.9 percent of the population

•

Mexicali, the state’s capital, with 33.0 percent

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Ensenada with 14.9 percent

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Tecate with 3.0 percent

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Playas de Rosarito with 2.2 percent

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One of the State’s most important sectors is the maquiladora industry, representing 16% of its GDP. There are over 1,000 plants in the state, which makes this sector the second leading employer with nearly 221,000 employees. The majority of these plants are located in Tijuana (460), Mexicali (120), and Tecate (123). Despite the contraction with the maquiladora industry, the state’s economy continues to be supported by this industry and foreign investment plays an important role in the region’s development. Most of the state’s production is exported to the United States, and over 90 percent of it is attributable to the electronic maquiladora industry. There are important plants located throughout the state including Samsung, Sanyo, Sony, Panasonic, Sharp, Daewoo, Hitachi, Canon, Hyundai, Honeywell, JVC, Maxell and others. Despite a prolonged trend in which these plants reduced production, closed facilities and laid off workers, recently, the situation seems to be stable. The large production of television sets and computer monitors is roughly equivalent to the size of the U.S. market, and has generated a separate need for printing and graphic services for the production of manuals and bar codes. Currently, over 90 percent of the printed material used is imported from the U.S. and Asia. Most significant maquiladora-related imports include electrical machinery, sound and television components, subassemblies and equipment, plastics, machinery, iron and steel products, paper and paperboard, wood, aluminum, rubber and glass. The state has approximately 860 miles of coastline, and fisheries generate important revenues. Its fishing industry is based on high market value species such as tuna, lobster, shrimp, sardines, and other fish species. It has four ports: Ensenada , El Sauzal, San Felipe, and Isla de Cedros. Baja California’s infrastructure for the processing of fishing products is one of the most important in the country. Baja California’s service industry, which includes tourism, is one of the state’s largest and contributes over 23 percent to its GDP. Currently, the state has over 400 hotels. The Tijuana-Ensenada corridor represents 75 percent of the hotel supply and attracts 60 percent of the tourists. Of those, 82 percent stay in Tijuana and Rosarito and the rest go to Ensenada. In addition, the state has 400 restaurants. On the Tijuana-Ensenada coast there are two marinas with a capacity of 430 slips, with two more under construction with an additional capacity of 380 slips. To supply the growing industrial and residential needs of the state, several major infrastructure projects are being developed, including an aqueduct, several power plants, water treatment plants, a natural gas pipeline, a convention center, an intermodal terminal, and upgrading of the sewage systems. There are five companies - U.S. and European - that had expressed interest in locating their LNG plants in Baja California, including Marathon Oil, Sempra-CMS, Phillips Petroleum-El Paso Energy, Shell and Chevron-Texaco. For more information on Baja California, please see www.bajacalifornia.gob.mx.

Baja California Sur Baja California Sur has 531,000 inhabitants with approximately 180,000 employed, concentrated around the tip of the peninsula. The services sector, primarily tourism, is most prominent, followed by construction, manufacturing, agriculture, and fishing. Best prospects for U.S. exports and investment are in tourism-related equipment and materials, construction, nautical/marina equipment and services, and consumer goods. Major projects underway include water desalinization plants, marina complexes, golf courses, and airport expansion. The major centers are La Paz, the state capital, supported by fishing, agriculture and tourism; Los Cabos, an 18-mile corridor of high-end resorts comprising most of the state’s hotels and marinas; and Guerrero Negro, with its vast salt mines. More information on Baja California Sur is available at www.gbcs.gob.mx.

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Sonora With a population of approximately 3 million and a GDP of $7 billion, Sonora is Mexico’s leading producer of livestock for both national and foreign consumption, especially for the U.S. market. The main cities are Hermosillo (the state capital), the border town of Nogales, and the fishing and resort towns of Guaymas and Rocky Mountain. One of Sonora’s most important sectors is the maquiladora industry with 211 maquiladoras, making this sector the leading employer with 71,000 employees. The main cities where the majority of these plants are located are Nogales, Hermosillo and San Luis Rio Colorado. These plants are labor-intensive assembly operations, and import over 80 percent of all inputs from the United States. Sonora’s economy traditionally has been tied to the United States, and over 90 percent of its exports are destined for U.S. markets. Sonora’s export market has demonstrated sustained growth since the mid-1980s, attributable to the automotive and maquiladora industries. The most important plants belong to Ford, Daewoo, Bose, AMP, Xerox, Leoni Cable, GE, ACCO, and General Instruments. The State’s governor recently announced the interest of Ford Company to invest in a mega project to expand its current facility in Hermosillo. This investment would exceed US$1 billion. The broad mix of industries and products has prevented Sonora from the sharper production drop suffered in Baja California, where plants are less diversified. Among the maquiladora-related imports are: electrical apparatus, insulated wire, cables, articles of plastics, electric transformers, electronic integrated circuits, articles of iron, parts for electronic apparatus, thermionic, polyethers, expoxides, containers (boxes and bags), printed circuits, cartons, papers, parts for television, and semiconductor devices. Along the state’s 600-mile coastline, fisheries generate a considerable amount of foreign exchange. With a fleet of 7,000 vessels, the "Sonorenses" harvest large volumes of shrimp, sardine, shark, sea bass, sole and tuna. The port of Guaymas, on the Pacific Ocean, is well known for the production of shrimp. The State also has a significant agriculture industry, and the most important crops include wheat, cotton, grapes, nuts, safflower, sorghum and soybeans, located in the Southern part of Sonora. Sonora is Mexico’s top producer of copper. Other minerals include silver, graphite, barite, zinc, gold and tungsten. Sonora has also been developing the tourism industry, capitalizing on its beaches and eco-tourism. The State’s main tourism destination is Puerto Penasco (Rocky Mountain). Sonora’s government focused on promoting investment by offering tax and fiscal incentives to investors. It is also paying attention on developing the infrastructure of highways to facilitate access and flow of investment to the region. Historically, Sonora and Arizona have had close socio-economic ties. The Arizona-Mexico Commission (AMC) was formed in 1959 as a forum for social and cultural exchange and economic development. The AMC has obtained funds from the Arizona legislature to study streamlining procedures at ports of entry, and $1.5 million to fund transportation projects in the border region. Additional information about the state of Sonora is online at www.sonora.gob.mx.

4.5.3

Northeast Region

The U.S. Commercial Service in Monterrey, Mexico covers north and northeast Mexico, including the states of Nuevo Leon, Chihuahua, Coahuila, Durango, San Luis Potosi, Tamaulipas, and Zacatecas. Northeastern Mexico, with its business climate and culture similar to that of the United States, offers a wealth of opportunities for U.S. exporters. The total GDP of these seven states is approximately 135 billion US dollars. The GDP of the state of Nuevo Leon, of which Monterrey is the capital city, is higher than that of Peru. Imports into these states are also very

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high due to the area’s strong manufacturing base and proximity to the US. Its estimated 20 billion in imports (goods only), with approximately 74% of US origin, exceeds total imports of all Latin American countries with the exception of Brazil. This growing region contains some of Mexico’s most important industrial centers. Major industries include mining, steel, glass, aluminum, cement, auto parts and automotive assembly, and maquiladora export manufacturing sector.

Nuevo Leon Located in northeastern Mexico, Nuevo Leon is one of Mexico’s leading industrial states. The GDP of Nuevo Leon is US $48 billion. Its capital city, Monterrey, has a population of 3.8 million. It is a home to Mexico’s largest conglomerates that rank among the largest in Latin America as well. They are world-class manufacturers of iron, steel, glass, textiles, petrochemicals and capital goods. Monterrey is the banking and distribution center for north central and northeast Mexico. One hundred and seventy six maquiladoras are located in Monterrey. Monterrey was named by Fortune magazine as the best city in Latin America in which to do business. The official Web site of Nuevo Leon is www.nl.gob.mx.

Chihuahua Chihuahua has a population of 3.6 million and is located in north-central Mexico, and geographically is Mexico’s largest state. Chihuahua has an annual GDP of approximately US $6.2 billion, which is equivalent to around 2.9% of Mexico’s total GDP. Ciudad Juarez and Chihuahua are the state’s major industrial cities. Additional information is available at www.chihuahua.gob.mx. Ciudad Juarez is Mexico’s fourth largest city with a population of 1.3 million and is located in the state of Chihuahua. According to the Export Manufacturing (Maquiladora) Association, there are 298 maquiladora plants in Ciudad Juarez employing 208,077 people, the highest in Mexico. US Fortune 500 corporations own over 70 of the maquiladora plants in Ciudad Juarez. It has a busy truck border crossing with El Paso, with over 10 international bridges, and is responsible for importing over US $100 million annually in goods. The principal industrial sectors are electronic components, electric and electronic appliances and auto parts manufacturing. The city of Chihuahua (pop. 670,000) is the home of the state government and principal universities. The State Industrial Development Department, in conjunction with the Chihuahua State University, created a very large industrial research and development center where research on software, computer systems, industrial process controls and agro-industrial projects are continuously being developed.

Coahuila Coahuila is located east of Chihuahua along the border with Texas, is also an important manufacturing state, with more than US $1 billion worth of imports annually. Coahuila is Mexico’s main coal producer, ranks second in national steel production (behind Nuevo Leon), and produces over thirty percent of the country’s cars and trucks. Coahuila’s principal cities are Saltillo and Torreon. Saltillo has 577,000 inhabitants and is the capital of the state. It is home to General Motors and Daimler Chrysler plants. It also has steel mills, foundries, aluminum die cast molding, and ceramic product facilities. Torreon, with its 530,000 inhabitants, is the headquarters of several mining and smelting companies, cotton mills, and denim textile plants. Monclova has 200,000 inhabitants and is the home of Mexico’s largest steel mill as well as several other steel and aluminum product manufacturing companies. Coahuila’s Web site is www.coahuila.gob.mx.

Tamaulipas tamaulipas has a population of approximately 3.1 million and is located in the northeastern corner of Mexico, with Texas to the north and the Gulf of Mexico to the east. Its principal industries are agriculture, oil and gas,

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petrochemicals, and in-bond assembly plants. The city of Ciudad Victoria (pop. 260,000) is capital of the state. Principal activities are the state government, universities, and an agricultural distribution center. Several food production plants have recently opened in the area. The Tampico-Ciudad Madero-Altamira metropolitan area (pop. 750,000), a major maritime transportation center on the Gulf coast, is now the most important petrochemical production area of Mexico. The Port of Altamira is considered one of the largest and most important freight container ports. Together, Altamira, Ciudad Madero, and Tampico handle about 55% of the total import-export maritime traffic of Mexico. More information about the state is online at www.tamaulipas.gob.mx.

Durango Durango, with its 1.2 million inhabitants, has recently begun to attract industrial enterprises. Mining, metal mechanics, forestry and wood products, and textiles and apparel are their primary industries. Its principal cities are Gomez Palacio (pop. 270,000) and Durango (pop. 490,000), the capital of the state. Its Web site is www.durango.gob.mx.

San Luis Potosi Located in the central part of Mexico, San Luis Potosi has long been an important rail center, and it is rapidly developing into a manufacturing and distribution center. The leading manufacturing activities are the automobile industry, non-metallic minerals, the metal and mechanical industry, base metals, food processing, textiles and beverage production. For further information, you can access the state’s Web site at www.sanluispotosi.gob.mx.

Zacatecas Zacatecas, with a population of 1,441,734 inhabitants, depends upon cattle raising, agriculture, mining, communications, food processing, tourism, and transportation for its source of income. Although much of Zacatecas is desert, the primary economic driver of the state is agriculture. Zacatecas is Mexico’s foremost producer of beans, chili peppers and cactus leaves, and holds second place in guava production, third in grapes, and fifth in peaches. Zacatecas’ Web site is www.zacatecas.gob.mx.

4.5.4

Central Region

The central area of Mexico includes Mexico City and the states of Mexico, Morelos, Hidalgo, and Puebla. The total population for the five entities was estimated at 43 million inhabitants at the end of 2002. This region is also the political and financial center of Mexico, and constitutes over 45 percent of Mexico’s total industrial base. Mexico City, known also as the Federal District or D.F., is the capital city of Mexico. The city is the seat of the Federal Government and houses all the ministries, most government agencies, and over 400,000 firms. Mexico City and the 21 principal municipalities of the surrounding State of Mexico are home to 40 percent of Mexico’s industrial base.

Mexico City Mexico City is considered the most important distribution center in the country. During the last five years, major U.S. retail stores such as JC Penny’s, Wal-Mart, Home Mart and Office Depot have opened new stores and sell many U.S. and local products to Mexican customers. Also, there are more franchise restaurants and stores in this area than any other part of the country. Additional information is available at www.df.gob.mx.

The State of Mexico The State of Mexico has 150,000 firms. It is divided in 122 municipalities, the largest being Toluca, Naucalpan, Tlalnepantla, Cuautitlan and Atizapan. The capital of the state is Toluca, the location of three large industrial parks. www.icongrouponline.com

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Industrial activity in the state is highly diversified due to proximity to the large regional market. Some of the international companies with manufacturing facilities in Toluca are Celanese, Kimberly Clark, General Motors, and Daimler Chrysler. Ford Motor has a major plant located nearby in the city of Cuautitlan. The state’s Web site is www.edomexico.gob.mx.

Morelos Morelos has 33 municipalities. The three largest are Cuernavaca, Cuautla and Yautepec, each one with at least two industrial parks. Cuernavaca, the capital city, is home to more than 25,000 firms in the textile, auto parts, pharmaceutical, food processing, electrical equipment, electronics, machine tools, cosmetics, and agricultural industries. Some of the international companies located in Cuernavaca are BASF, Beecham, Nissan Motors, and Ponds. For further information please see www.morelos.gob.mx.

Hidalgo Hidalgo has 84 municipalities and over 26,000 firms concentrated basically in the industrial cities of Ciudad Sahagun, Tula, Pachuca, Tulancingo, and Ixmiquilpan. Ciudad Sahagun has numerous industrial plants for assembly of subway and railroad cars, heavy machinery, automobiles, trucks and tractors. Other principal sectors in the state include mining, textiles, food processing, machine tools, petroleum refining, petrochemicals, and agricultural products. The state of Hidalgo’s Web site is www.hidalgo.gob.mx.

Puebla Puebla has 217 municipalities and it is one of the top seven states in terms of its share of Mexico’s GDP. Puebla’s largest municipalities are Huachinango, Tehuacan, and Puebla. The state has 80,000 firms and 40 percent are located in the capital city of the state, also called Puebla. The state has a very diversified economy. Some of the important industrial sectors are sugar, paper, petrochemicals, textiles, automobiles, and autoparts. Volkswagen has a large automobile assembly plant in the city of Puebla, and many primary and secondary suppliers to this plant also have located in the area. For more information visit www.puebla.gob.mx.

4.5.5

Southeastern States

Chiapas The southeastern state of Chiapas is a mountainous state along the southeastern Pacific coast with a population of 3.9 million. It is among the poorest states in Mexico. Out of the 31 states and 1 federal district in Mexico, Chiapas is ranked as the 31st poorest state. The low level of welfare has been exacerbated by periodic civil uprisings and political scandals, including the 1994 Zapatista uprising. The Fox Government has tried to improve the situation by promoting an indigenous rights bill. On a positive note, Chiapas is one of the six states with the least unemployment and is fifth in new job creation. The primary economic sectors in Chiapas continue to be agricultural (coffee, banana, sugarcane), cattle, and forestry. The governor of Chiapas recently announced a new fund for agro-industrial development. Of secondary importance are the construction and fishing sectors. 88% of the construction is in the public sector. Other key sectors are commerce, financial services, and tourism. Chiapas has great biodiversity and rich indigenous cultures which attract eco, adventure, and cultural tourists. For further information visit www.chiapas.gob.mx.

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Oaxaca Oaxaca is another poor mountainous Pacific coast state in the southeast. It has a population of 3.3 million spread among 570 municipalities. Oaxaca’s population includes 16 ethno-linguistic groups. The United Nations ranks Oaxaca second to last (just ahead of Chiapas) in terms of quality of life. In order to improve the state’s economic development, the government actively promotes and supports investment in the state through its online Oaxaca Link program. More information is available at www.oaxaca.gob.mx. The main industries in Oaxaca are: agriculture (tropical fruits, citrus, melons), fishing (tilapia, shrimp), agroindustrial products, forestry, and mining (gold, silver, antimony, titanium, quartz graphite, plaster, marble, mica, onyx, salt).

4.5.6

Yucatan Peninsula

The Yucatan Peninsula was traditionally an agricultural economy dependent on henequen and other crops until the mid 1980s. Since then, the installation of in-bond companies has provided the state with a new economic profile, as has increasing archaeological and cultural tourism. The business community in Merida, the capital and commercial/industrial center of Yucatan, is strongly oriented toward doing business with the United States with a particular preference for Florida based firms due to proximity and language. The state development program identified six industrial sectors that it is seeking to develop. These include textiles, furniture, medical services and equipment, information technology, aerospace, and agribusiness. The port of Progreso has been a fundamental platform for economic growth in this region, contributing to the development of key sectors such as cattle, the manufacturing industry and trade exchange, especially with the United States, Central America and the Caribbean. Progreso also plays an important part in the supply of fuel to the region. A new international airport was built in November 2000 to the south of Chichen Itza (an archaeological site popular with tourists) between Merida and Cancun to serve the growing tourism industry within the state. The airport accommodates B-727, B-737 and DC9 charters, connecting Yucatan with Canada and Italy. Amerijet, Aeoromexpress, Fedex, and UPS provide cargo and express delivery services. Yucatan is the center of medical facilities in southeastern Mexico. Public and private healthcare facilities offer the most advanced technology, a variety of clinical laboratories and highly specialized personnel. Many private hospitals have agreements with clinics in Houston and Miami. Additional information on the state of Yucatan is available at www.yucatan.gob.mx.

Quintana Roo The economy of Quintana Roo, located on the east coast of the Yucatan peninsula, is dominated by the tourism industry. The well-known resort areas include Cancun, Cozumel, and Playa del Carmen. However, the state is seeking to expand investment in other areas such as agriculture, cattle, forestry, fishing, construction and manufacturing. The official Quintana Roo site is www.quintanaroo.gob.mx.

Campeche Among the three states of the peninsula, the western coastal state of Campeche has been first in terms of job creation. Its primary productive sectors are fishing, agriculture (corn, rice, sorghum), cattle, timber, oil and gas. The secondary productive sector includes manufacturing (textiles, leather, non-metallic and metallic minerals), construction, electricity, and water. In the last few years the archaeological and ecotourism industry has been in

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increasing in importance. Six new hotels have been completed and two more are under construction. This construction has been in concert with efforts to improve road infrastructure. More information is available at www.campeche.gob.mx. The Yucatan Peninsula is covered to a limited degree by the U.S. Commercial Service office in Mexico City. There is also a U.S. Consulate in Merida, Yucatan.

4.6 4.6.1

IMPORT AND EXPORT REGULATION RISKS Tariffs and Fees

When NAFTA came into force on January 1, 1994, Mexico embarked on a progressive, scheduled reduction of tariffs on U.S. and Canadian goods. NAFTA progressively eliminates tariffs and non-tariff barriers to trade in goods; improves access for services trade; establishes rules for investment; strengthens protection of intellectual property rights; and creates a dispute settlement mechanism. Mexican tariffs on U.S. goods currently are between zero and ten percent ad valorem, with an average of 0.1 percent. At present, more than 80 percent of U.S. goods enter Mexico duty-free. Under the NAFTA, tariffs on U.S. goods will be phased out over a 10-year period with a few exceptions on selective products, mostly agricultural commodities, which will be phased out over a 15-year period. Prior to NAFTA, the average tariff facing U.S. goods entering Mexico was 10 percent; the average tariff on Mexican goods entering the United States was 2 percent. On January 1, 2003, the tariff for most agricultural goods was reduced to zero with exceptions for sugar, corn, non-fat dry milk, and beans. Mexico has negotiated free trade agreements with 32 countries, including the European Union, European Free Trade Area, Israel, and 10 countries in Latin America. The agreement with the European Union was modeled after NAFTA and provides EU goods with rough NAFTA parity. Mexico is holding free trade discussions with additional Latin American and Asian trading partners including Brazil, Argentina, Panama and Japan. The significance of this for U.S. exporters is that many of our strongest international trade competitors enjoy duty free access to the Mexican market equivalent to that provided by NAFTA. Mexico also has implemented what are called "Sectoral Promotion Programs (PROSEC)" which reduce MFN tariffs to 0 or 5 percent on a wide range of important inputs needed by Mexico’s export manufacturing sector. This program includes some 20 different industry sectors and affects 16,000 tariff line items. Mexican companies must be registered under this program to participate, and it can be difficult to qualify. Again, the significance for U.S. exporters is that manufacturing inputs from competitors in other countries may be able to enter Mexico duty free or pay only a 5 percent tariff, which diminishes the relative advantage enjoyed under NAFTA. Another consideration for U.S. exporters is that it may not be necessary for Asian companies to comply with the requirements of NAFTA in order to sell duty free (or at minimal duty) in Mexico. Exporters should consider whether or not the product and the Mexican end-user are covered under the PROSEC program, or if the product enjoys a zero or minimal MFN tariff in general. However, exporters also must be alert to the fact that Mexico imposes punitive anti-dumping duties on products from certain countries, particularly footwear and apparel from China. If a good cannot be definitely proven to originate from a country not subject to such duties, the good may be assumed to be subject to these duties. Under NAFTA, the import duty is calculated on the U.S. plant value of the product(s) (invoice) plus the inland U.S. freight charges to the border and any other costs listed separately on the invoice and paid by the importer such as export packing. All products imported definitively into Mexico no longer need to pay the customs processing fee (CPF). Products temporarily imported for processing and re-export may be subject to the CPF since the imports are not considered "definitive."

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Mexico has, in addition, a value-added tax (IVA) on most sales transactions, including sales of foreign products. The IVA is 10 percent for products staying in the Mexican border region and 15 percent for products that enter the interior of Mexico. Basic products such as food and drugs (but not processed foods) are exempt from the IVA. The 10-15 percent value added tax is assessed on the cumulative value of the transaction as listed above, plus the duty. The importer will pay other IVA fees for such services as the inland Mexico freight and warehousing. The IVA typically is recovered at the point of sale. The IVA may be waived for imports by a manufacturing plant registered under an approved Mexican government program (e.g. maquila plant). Some products classified as luxury goods must pay an additional 5 percent IVA. A special tax on production and services (IEPS) is assessed to the importation of alcoholic beverages, cigarettes, cigars, and non-alcoholic beverages with a sweetener other than cane sugar, among others. This tax may vary from 20 to 110 percent depending on the product. Where an "arms length" transaction does not exist between seller and importer, such as in intra-company sales or transfers, Mexico applies valuation rules that are compatible with the Brussels Customs Valuation Code. Goods for which the NAFTA preferential tariff treatment is not requested are valued on a C.I.F. basis. 0n November 1992, Mexico published a list of goods (with several subsequent updates and expansions) previously susceptible to fraudulent customs under-valuation and established a "minimum estimated price" for such goods. This minimum estimated price is also referred to as a "reference price." Importers of some 200 subject goods (including categories of liquor, apparel, chemicals, footwear, steel, hand tools, appliances, plywood, apples, rice, and poultry, among others) must post a guarantee representing any difference in duties and taxes if the declared customs value is less than the established reference price. This guarantee usually is in the form of a cash deposit, trust, or line of credit established with an authorized bank (Bancomer, Banamex, or Bital), which charge high fees to open, manage, and close the accounts. Mexican government authorities then have up to six months to decide whether to start a formal investigation or to release the guarantee. U.S. exporters may expedite this review by providing an invoice certified by their local chamber of commerce. Exemptions from this regulation exist for active or highly capitalized importers. This policy is subject of negotiations between the U.S. and Mexican Governments, with the United States claiming it to be a violation of WTO rules.

4.6.2

Licenses Required for Imports

Certain sensitive products must obtain an import license for which the difficulty varies according to the nature of the product. Periodically, the Mexican government publishes lists that identify the different items that have a specific import control. Items are identified according to their Harmonized System (HS) code number; therefore, it is important the U.S. exporters have their products correctly classified. U.S. exporters are encouraged to check with customs brokers as to the accurate classification of their products. The following are examples of import licenses required and the Mexican government agencies that administer the particular licenses. (Note: This is not a complete list.) •

The Secretariat of Economy requires import licenses for weapons and ammunition, used goods, and refurbished equipment, among others.

•

The Secretariat of Agriculture (SAGARPA) requires prior import authorization for some leather and fur products, fresh/chilled and frozen meat, and agricultural machinery among others.

•

The Secretariat of Health (SSA) requires either an "advance sanitary import authorization" or "notification of sanitary import" for medical products and equipment, pharmaceuticals, diagnostic products, toiletries, processed food, and certain chemicals. Food supplements and herbal products are highly regulated in Mexico, unlike in the U.S. In some cases only pharmaceutical-like companies may be eligible to import them.

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•

The Secretariat of the Environment (SEMARNAT) requires import authorizations for products made from endangered species such as eggs, ivory, certain types of wood, furs, etc.

•

Toxic and hazardous products have to comply with import authorization from an interagency commission called CICOPLAFEST which gathers the four agencies mentioned above. This list includes a large number of organic and inorganic chemicals.

Commercial samples of controlled products shipped by courier are also subject to these regulations. Some special treatment may apply in the case of samples intended for research, product registration or certification. Unless returned at the sender’s expense, Customs often confiscates or destroys samples lacking the proper documentation. For tax purposes, all Mexican importers must apply and be listed on the "Padron de Importadores" maintained by the Secretariat of Finance and Public Credit (Hacienda). In addition, Hacienda maintains special sectoral registries. To be eligible to import more than 400 different items, including agricultural products, textiles, chemicals, electronics, and auto parts, Mexican importers must apply to Hacienda to be listed on these special industry sector registries. Infrequently, U.S. exporters have encountered problems when products are added to the list without notice or importers are summarily dropped from the registry without prior notice or subsequent explanation.

4.6.3

Controls on Exports

Mexico is not subject to any special U.S. export control regimes, and is designated as a Category I country (the least restrictive) for receipt of U.S. high technology products.

Documentation The basic Mexican import document is the "pedimiento de importacion". This document must be accompanied by a commercial invoice (in Spanish), a bill of lading, documents demonstrating guarantee of payment of additional duties for undervalued goods if applicable, and documents demonstrating compliance with Mexican product safety and performance regulations, if applicable. The import documentation may be prepared and submitted by a licensed Mexican customs house broker or by an importer with sufficient experience in completing the documents. Products qualifying as North American must use the NAFTA Certificate of Origin in order to receive preferential treatment. This must be issued by the exporter and does not have to be validated or formalized. Unless the importer is accredited to act as Mexican customs broker, the participation of a professional customs broker is necessary to ensure compliance with Mexico’s customs regulations. Mexican customs law is very strict regarding proper submission and preparation of customs documentation. Errors in paperwork can result in fines and even confiscation of merchandise as contraband. Exporters are advised to ensure that Mexican clients employ competent, reputable Mexican importers or customs house brokers. Because customs brokers are subject to sanctions if they violate customs laws, some have been very restrictive in their interpretation of Mexican regulations and standards.

Temporary Importation Temporary imports from the United States do not pay import duties, taxes nor compensatory fees, but they must comply with all other obligations set forth in (Article 104 of the Mexican Customs Law. There are different types of temporary imports into Mexico, including: •

Temporary imports to be returned in the same condition;

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Temporary imports for manufacturing, transformation, and repair under the Maquila and Pitex programs;

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Instruments of foreign artists;

•

Temporary imports for cultural and sporting events;

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Temporary imports for conventions and congresses;

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Temporary imports for the press, journalism, and cinematography.

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Category “temporary imports to be returned in the same condition” applies to temporary imports that remain in Mexico for a limited time and with a specific purpose and are returned to the U.S. in the same condition and within the time limits established in the Law (Art. 106). Such is the case of demonstration equipment that is temporarily imported into Mexico for exhibitions or sales visits. In such cases, U.S. representatives do not need to contract the services of a Mexican customs broker, and may themselves do the declaration of the products to Mexican Customs, using the declaration lane at the time of entry. Overlooking this requirement may result in the confiscation of the products without possibility of recovery, unless a high penalty fee is paid to the Mexican Government. Temporary imports may remain in Mexico for up to six months. The import is processed under a temporary importation form and there are basic requirements to obtain the clearance from Customs, including: •

A list of the products for temporary importation into Mexico;

•

A letter from the U.S. company stating that the product(s) is for temporary entry into Mexico and that it will not be sold;

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A letter from the Mexican partner or company indicating that they take full responsibility for ensuring that the products are returned to the U.S. within the period allowed. The letter should also indicate that there is a business relationship between the Mexican party and the importer;

•

Preparation of a Temporary Customs Entry form (Pedimento de Importacion Temporal);

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A fee of US$15.00 or its equivalent in Mexico’s currency must be paid in cash to Mexican Customs;

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The list of the products to be temporarily imported into Mexico must also be presented to U.S. Customs before the equipment enters Mexico in order to facilitate the duty free return to the U.S.

For temporary imports related to the manufacture, transformation, or repair under the Maquila and Pitex programs, exporters should obtain expert advice from a Mexican customs broker or other consultant with expertise in this area.

4.6.4

Local Standards

Under Chapter IX of the NAFTA, Mexico, the United States, and Canada agreed to provide national treatment in standards related issues. National treatment simply means that imported products will have to comply with the same requirements as locally manufactured ones. Mexico has also affirmed its WTO (GATT) obligations to adopt international standards whenever possible. The extent to which these international standards are compatible with U.S. standards varies by industry sector. The Mexican government only recognizes as international standards those issued by the ISO/IEC. These standards tend to favor European manufacturers. Compliance with international standards does not translate to compliance with Mexican standards. Even if Mexican standards are compatible with those of the United States and Canada, companies must show compliance with mandatory Mexican standards, known as Normas Oficiales Mexicanas (NOMs). Several NOMs cover labeling requirements while others cover user safety and other requirements. The cornerstone of conformity assessment in Mexico is the 1992 Federal Law of Metrology and Standardization (as amended on December 24, 1996, May 20, 1997, and May 19, 1999), which provides for greater transparency. It also provides opportunities to the public and interested parties to participate in the standard development process. Another www.icongrouponline.com

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key document is the regulations to the Federal Law of Metrology published on January 14, 1999. Poorly drafted regulations and inadequate communication between enforcement agencies, such as Customs, have occasionally led to trade disruptions. As a result of the 1992 Law, all mandatory standards had to be reissued as Normas Oficiales Mexicanas (NOM). Since the bulk of the mandatory standards of Mexico became NOMs several years ago at around the same time and each NOM must be reevaluated at a five year interval, this plan covers the largest amount of standards to review to date. Thus it is very important for the U.S. importer to be aware of and check for changing standards even if the importer has been importing into Mexico for a number of years. A certificate of compliance with mandatory standards is required to import into Mexico many goods and different types of merchandise. Specific NOM requirements are listed by harmonized tariff system (HTS or HS) code numbers. Not all HTS code numbers have mandatory standards assigned. The Mexican government publishes lists and updates of HTS code numbers with the corresponding NOMs to be complied with. The Ministry of the Economy publishes the main list, known in Spanish as the ‘Acuerdo NOM’ (NOM Agreement). The NOM Agreement describes the situations under which products and merchandise do not have to comply with mandatory standards. These circumstances are described under Article 10 of the document and include shipments valued at less than US$1,000, goods intended for use in maquila and other industrial operations, samples, and others. Typically a mandatory NOM deals with the safety or efficiency of the product in question. There are also several NOMs dealing with labeling requirements of numerous products. In addition to the NOM Agreement, the Ministry of the Economy also publishes other lists of HTS codes granting the authority to regulate the import of products to other government Ministries. The most relevant are the lists of HTS codes under the jurisdiction of the Ministry of Agriculture, the Ministry of Health, and the Ministry of the Environment. These Ministries can impose additional requirements, beyond the basic NOM Agreement, for the importation of goods including compliance with NOMs issued by the specific ministries. In addition to mandatory standards (NOMs), there are numerous voluntary standards known as Normas Mexicanas or NMXs. NMXs become mandatory for importation purposes when they are referred to in a NOM. The current trend in Mexico is to update and develop new NOMs using and quoting existing NMXs. This practice is consistent with the WTO agreements on standard related measures. Many NOMs include labeling requirements that are applicable to the products covered by those NOMs. Other NOMs are exclusively on labeling requirements for a particular product or family of products. The official labeling guide for NOM-050-SCFI-1994, which covers labeling for most commercial products, lists 37 other labeling NOMs applicable to specific products. There are many other labeling regulations in place. It is vital that the exporter check labeling NOMs. Some of the many product labeling NOMs Mexico has issued include the following (this list is not all inclusive): •

NOM-004-SCFI-1994 for textiles published on January 24, 1996 in the Diario Oficial.

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NOM-006-SCFI-1994 for tequila published on September 3, 1997 in the Diario Oficial.

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NOM-015-SCFI-1998 for toys published on March 5, 1999 in the Diario Oficial.

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NOM-020-SCFI-1997 for leather and synthetic leather materials published on April 27, 1998 in the Diario Oficial.

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NOM-024-SCFI-1998, which applies to labeling, instruction manuals, warranties, and other relevant information particular to electric/electronic products and household appliances. Published on January 15, 1999 in the Diario Oficial.

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NOM-050-SCFI-1994, which applies to consumer products not covered by other NOMs. It covers instructions, operation manuals, and warranties. Published on January 24, 1996 in the Diario Oficial.

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•

NOM-051-SCFI-1994 for prepackaged foods and non-alcoholic beverages. Under this NOM, nutritional information is voluntary, unless a nutritional claim is made. Published on January 24, 1996 in the Diario Oficial.

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NOM-116-SCFI-1997 for oils and lubricants for gasoline and diesel engines published on May 4, 1998 in the Diario Oficial.

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NOM-120-SCFI-1996 for table grapes published on November 22, 1996 in the Diario Oficial.

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NOM-003-SSA1-1993, for labeling paints and related products published in the Diario Oficial on August 12, 1994.

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NOM-137-SSA1-1995, for labeling of medical devices published in the Diario Oficial on November 18, 1998.

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NOM-141-SSA1-1995 for perfumes and prepackaged cosmetic products published on July 18, 1997 in the Diario Oficial.

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NOM-142-SSA1-1995 for alcoholic beverages (other than tequila) published on July 9, 1997 in the Diario Oficial.

The common feature of most labeling requirements is that package labels must carry commercial information in Spanish. If the required information appears in a language other than Spanish, then this information must appear in Spanish in the same font size, format, and clarity as it appears in the other language. Consequently, many of the labels added to packages in the past for the Mexican market are not acceptable. However, placing stickers over information preprinted on a package or label is allowed as long as the resulting label complies with the labeling requirements. Additionally, labels can be applied or modified in Mexico provided that the process complies with Mexico’s verification procedures. A comma must be used as a decimal point in the quantity declaration on packages, as required by NOM-008-SCFI1993. Imported products using a period as a decimal point are likely to be rejected by Mexican Customs officials. Accredited label verification units exist in Mexico, where companies can obtain an evaluation of their labels prior to export to Mexico for a small fee (usually below US$100.00). Examples of required commercial information follow below, based upon NOMs 050 and 051. Not all products are required to have all of the information. The applicable NOM for a specific product must be referenced to determine what is required. •

Name or business name, address and fax number of the importer

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Name or business name of the producer of an imported product must be provided to the Ministry of the Economy

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Trademark or commercial name brand of the product

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Net contents (as specified in NOM-030-SCFI-1993) (A comma must be used as the decimal point.)

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Expiration date (required for prepackaged foods and nonalcoholic beverages) or date of recommended consumption

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Use, handling, and care instructions for the product as required

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Warnings or precautions on hazardous products

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Country of origin

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List of ingredients

This information must be on the packages or the products as presented for retail sale. Listing this information on the container in which a good is packed for shipment will not satisfy the labeling requirement.

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NOM Certification Requirements The NOM Agreement issued on March 27, 2002 provides a list of products, by harmonized tariff system (HTS) code that are subject to compliance with NOMs. Next to each HTS code is the applicable NOM, if any. There are two types of certification requirements, namely, one for labeling and commercial information, and another for product safety. If a product is covered by an HTS code with a mandatory product safety NOM it must be tested in laboratories accredited by Mexico, found to comply with the applicable NOM, and receive a certificate attesting to the fact that the product complies with the applicable NOM. Laboratory test results are sent to Mexican certification bodies that issue a certificate of compliance. The certificate of compliance is presented to Mexican customs officials at the entry point into Mexico. If a product is required to comply with a labeling and commercial information NOM, a sample label and/or a sample of the required commercial information may be sent to a labeling verification unit for evaluation. The verification unit will determine compliance. Once the label and or the commercial information comply with the requirements, the verification unit will issue a document called a ‘Constancia’ indicating said compliance. This ‘Constancia’ is presented to Mexican customs for the product to enter into Mexico. Numerous products are subject to regulations in addition to or in place of NOMs. Most of these requirements are permits prior to importation as well as the registration of importers of records, among others. In these cases, the Ministry responsible for the regulation must be contacted for information. Common examples are the many regulations required for the importation of medical devices, pharmaceuticals, nutritional supplements, chemicals, and other products. Mexican customs brokers and agents generally have the information about NOMs that must be complied with to import into Mexico as well as other regulatory requirements for importation. For car tires, Mexico and the United States have mutual recognition agreements allowing for product testing to be performed by laboratories in both countries. For some products there is a lack of test laboratories. Occasionally, the only accredited test laboratory is the laboratory of a competitor. Some manufacturers have concerns about the proprietary nature of the test results and are not willing to submit their products to their competitors for a test. Mexico is currently revising many of its standards, eliminating some, and upgrading or adding others. The May 20, 1997, revision to Mexico’s Federal Law on Metrology and Standardization requires that all NOMs be reviewed at least every five years. Around every April 15, Mexico publishes, in the Diario Oficial, its annual standardization program with a subsequent amendment published in the fall of the same year. This annual program lists all committees working in the development, update, or cancellation of NOMs and NMXs for the year. Individuals, businesses, and institutions interested in influencing this process in Mexico are strongly encouraged to consult the annual plan. As of January 1998, conformity assessment bodies located in the United States and Canada may apply for accreditation to test products to Mexican standards. Through NAFTA, Mexico is committed to recognizing conformity assessment bodies of other NAFTA members on terms no less favorable than those used for Mexican conformity assessment bodies. The May 1997 revision of the 1992 Federal Law of Metrology and Standardization stated that the governmentoperated laboratory accreditation program would be turned over to the private sector, but remain under the supervision of the Government. On January 15, 1999, the Mexican government published the authorization for the Entidad Mexicana de Acreditacion (EMA) - the Mexican Accreditation Entity -- to operate. EMA is a quasi-private sector body recognized by all nine government ministries to be in charge of the accreditation of all test and calibration laboratories, certification bodies, and quality system registrars. This includes foreign test and calibration laboratories wishing to be accredited to test for compliance with Mexican NOMs, as well as foreign quality system registrars. If a NOM-issuing government agency decides to conduct all conformity assessment activities for a given NOM, then it does not have to abide by EMA procedures nor allow for the participation of foreign test laboratories to test for compliance with its NOMs. A number of key ministries have decided to conduct all of their conformity assessment procedures.

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Further information concerning Mexican standards and product certification requirements can be obtained from the National Center for Standards and Certification Information, National Institute of Standards and Technology, telephone: 301-975-4040, fax: 301-926-1559, e-mail: [email protected]. Another useful source of information is the www.export.gov site where one can find lists of recently proposed and enacted standards in Mexico as well as other market research information. The actual text of most standards can be downloaded from the Web page of the Mexican General Directorate for Standards (DGN) of the Ministry of the Economy. The Web page address is: http://www.economia.gob.mx. Once in the Web page go to the tab "Normatividad Empresarial" and then to the "Normas" tab. Once there, go to the "Catalogo de Normas". In this section one can search for mandatory and voluntary standards by generic product name, HTS code number, standard title, or by the government ministry that issues the standard. At this same Web site, one can also download a list of accredited test laboratories and verification units (for labeling NOMs) by going into the "Acreditacion" section, and a list of product certification bodies under the "Certificacion" section.

4.7 4.7.1

INVESTMENT CLIMATE Openness to Foreign Investment

Mexico is open to foreign direct investment (FDI) in most economic sectors and is consistently one of the largest recipients of FDI among emerging markets. However, foreign investment in the energy sector--particularly petroleum--is sharply limited by the Mexican Constitution. Legislation has been proposed that would reform the electricity sector to allow private participation. The United States is the largest source of FDI in Mexico by far. The Government of Mexico has had some success in simplifying the process of investing in Mexico. The Secretariat of Economy (SECON) Web site offers "one-stop shopping" for online regulatory compliance across several categories, including export and import permits, temporary import permits, and foreign direct investment. The SECON Web site also contains the link to the Rapid Business Start-Up System (SARE). SARE reduces the number of government formalities required to open a low-risk business from eight to two steps and reduces the time required for these steps to one day from up to three months. SECON also publishes two excellent volumes on investing in Mexico called "Clima de Inversion Extranjera en Mexico," which are partly in English. These publications can be obtained free of charge. The address and Web site for SECON is provided below. Secretaria de Economia Alfonso Reyes No. 30, Piso 18 Col. Hipodromo Condesa C.P. 06179, Mexico, D.F. Tel: 52-55-5729-9100 www.economia.gob.mx The Embassy advises potential investors to contact SECON for detailed information on investing in Mexico. The 1993 Foreign Investment Law is the basic statute governing foreign investment in Mexico. The law is consistent with the foreign investment chapter of the NAFTA, provides national treatment for most foreign investment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment. U.S. and Canadian investors generally receive national and most-favored-nation treatment in setting up operations or acquiring firms. Exceptions exist for investments for which the Government of Mexico recorded its intent in NAFTA to restrict certain industries to Mexican nationals. U.S. and Canadian companies have the right under NAFTA to international arbitration and the right to transfer funds without restrictions. NAFTA also eliminated some barriers to investment in Mexico such as trade balancing and domestic content requirements.

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Local governments must accord national treatment to investors from the NAFTA countries. There have been a few cases, however, of local governments not providing national treatment. Approximately 95 percent of all foreign investment transactions do not require government approval. Foreign investments requiring applications and not exceeding US $25 million are automatically approved, unless the proposed investment is in a sector subject to restrictions. The National Foreign Investment Commission determines whether investments in restricted sectors may go forward and has 45 working days to make a decision. Criteria for approval include employment and training considerations, technological contributions, and contributions to productivity and competitiveness. The Commission may reject applications to acquire Mexican companies for national security reasons. The Secretariat of Foreign Relations (SRE) must issue a permit for foreigners to establish or change the nature of Mexican companies. The country’s constitution and Foreign Investment Law reserve certain sectors for the state and Mexican nationals. The Mexican Constitution reserves the bulk of energy industries to the state. Oil and gas exploration and production are a monopoly of Pemex, the state petroleum company, and most electric service may only be supplied by two state owned companies, CFE and LFC. There has been some opening to private capital. Private electric co-generation and self-supply are allowed. Private investors may build independent power projects but all of their excess output must be sold to the Federal Electricity Commission (CFE) in wholesale transactions. Private construction of generation for export is permitted. In 1995, amendments to the Petroleum Law opened transportation, storage, marketing and distribution of natural gas imports and issued open access regulations for Pemex’ natural gas transportation network. Retail distribution of Mexico’s natural gas is open to private investment. The secondary petrochemical industry is open to private capital. Mexico allows up to 49 percent FDI in companies that provide telecommunications networks and services. There is no limit on FDI in companies providing cellular services. Mexico does not allow the resale of private lines for long distance services. Several large U.S. telecom businesses are active in Mexico. AT&T is partnered with Alestra while Worldcom maintains a minority share of Avantel. SBC works closely in Mexico with its partner, Telmex. Shares of Telmex, Mexico’s dominant carrier (and former state monopoly), are traded on the New York Stock Exchange. Mexico has so far not been an aggressive promoter of competition in the telecommunications sector, resulting in Telmex remaining a de-facto monopoly and making competition with Telmex extremely challenging. Investment restrictions still prohibit foreigners from acquiring title to residential real estate within 50 kilometers of the nation’s coast and 100 kilometers of the borders. Nonetheless, foreigners may acquire the effective use of residential property in the residential zones via a trust arrangement through a Mexican bank. Real estate investors should, however, be careful in performing due diligence to ensure that there are no other claimants for the property to be acquired. Mexico does not have a system equivalent to title insurance. Private investors may invest in airports, although foreign ownership is limited to 49 percent. The Mexican government allows up to 49 percent foreign ownership of 50-year concessions to operate parts of the railroad system, renewable for a second 50-year period. The Mexican Foreign Investment Law identifies 704 activities, 606 of which are open for 100 percent FDI stakes. There are 35 activities in which foreigners may only invest 49 percent; 37 of which require Foreign Investment National Commission approval for a 100 percent stake; 16 reserved for Mexican nationals; and 10 reserved for the Mexican state. Articles 6-8 provide the details. Below is a summary of activities subject to investment restrictions.

Sectors Reserved for the State in Whole or in Part •

Petroleum and other hydrocarbons

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Basic petrochemicals

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Telegraphic and radio telegraphic services

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Radioactive materials

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Electric power generation, transmission, and distribution

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Nuclear energy

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Coinage and printing of money

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Postal service

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Airports

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Sectors Reserved for Mexican Nationals •

Retail sales of gasoline and liquid petroleum gas

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Non-cable radio and television services

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Credit Unions, Savings and Loan Institutions, and Development Banks

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Certain professional and technical services

•

Non-rail land transportation within Mexico of passengers and freight, except for messenger or package delivery services. However, majority stakes in companies providing point-to-point-trucking services are permitted.

4.7.2

Conversion and Transfer Policies

Mexico has open conversion and transfer policies as a result of its membership in NAFTA and the Organization for Economic Cooperation and Development (OECD). In general, capital and investment transactions, remittance of profits, dividends, royalties, technical service fees, and travel expenses are handled at market-determined exchange rates. Peso/dollar foreign exchange is available on same-day, 24- and 48-hour settlement bases. Most large foreign exchange transactions are settled in 48 hours. The International Electronic Funds Transfer System (TEFI) reduces the cost of financial transactions for funds flows in both directions between the United States and Mexico.

4.7.3

Expropriation and Compensation

Under NAFTA, Mexico may not expropriate property, except for a public purpose and on a non-discriminatory basis. Expropriations are governed by international law, and require rapid fair market value compensation, including accrued interest. Investors have the right to international arbitration for violations of this or any other rights included in the investment chapter of the NAFTA. A NAFTA investor may choose either to seek monetary compensation through binding international arbitration or to use the registering country’s court system.

4.7.4

Dispute Settlement

The Mexican government has a good record of handling investment disputes. Despite the large amount of U.S. investment in Mexico, the Embassy is aware of only ten unresolved cases. Both the WTO and NAFTA provide mechanisms for dispute settlement. Investors eligible for WTO and NAFTA treatment can choose either forum for dispute settlement. NAFTA investors may also have recourse to the World Bank’s International Center for the Settlement of Investment Disputes.

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Under NAFTA, the first step in dispute settlement is consultations. Should consultations fail to resolve an issue within 30 to 45 days, any member country may call a meeting of the NAFTA Trade Commission. Absent a satisfactory solution there, a balanced and mutually agreed upon five-member panel of experts resolves disputes. Panel members are chosen from a roster of trade, legal and other experts, including experts from countries outside NAFTA. The panel issues its initial report within 90 days and a final report 30 days later. Once a panel decision has been made, either country may request the establishment of a three-member extraordinary challenge committee, comprising judges from the two countries. The committee may overturn a panel decision, in which case a new panel is established. There have been cases in which local executives of U.S. multinationals have been threatened with lawsuits involving potential arrest and detention, but the Embassy is not aware of any arrests being carried out. American investors should nonetheless understand that under Mexican law, many commercial disputes that would be treated as civil cases in the U.S. could also be treated as criminal proceedings in Mexico. Based upon the evidence presented, a judge may decide to issue arrest warrants. In such cases, Mexican law also provides for a judicial official to issue an "amparo" (injunction) to shield defendants from arrest. U.S. investors involved in commercial disputes should therefore obtain competent Mexican legal counsel, and inform the U.S. Embassy if arrest warrants are issued.

4.7.5

Performance Requirements and Incentives

The 1993 Foreign Investment Law eliminates such restrictions as export requirements (except for maquiladora industries), capital controls, and domestic content percentages, which are prohibited under NAFTA. Foreign investors already in Mexico at the time that law became effective could apply for cancellation of prior commitments. Foreign investors who failed to apply for the revocation of existing performance requirements remained subject to them. The Mexican government has designated both priority development zones and priority industries as eligible for special incentives, such as exemptions from import taxes for inputs into the production process (e.g. machinery and equipment, computers, raw materials, spare parts etc.). Among the priority zones are seacoasts, ports, and border zones where industrial development is encouraged to help expand exports. Specifically excluded are heavily populated urban areas such as Mexico City, Guadalajara, and Monterrey. The Mexican Government has eliminated most direct tax incentives. The only significant federal tax incentive is accelerated depreciation. Investors should consult tax lawyers for detailed information. The Mexican government is also proposing a fiscal reform law. The law is currently with the Mexican Congress for consideration. Most observers believe a fiscal reform law will eventually pass, although probably with many amendments. Investors should follow this closely as whatever legislation emerges from Congress could have implications for investors. Investors should specifically consult the Finance, Economy, and Environmental Secretariats for more information on fiscal incentives. Under the in-bond or maquiladora program, duty free imports of equipment and goods for subsequent re-export and for input in the production of exports is authorized. But as required by NAFTA, Mexico enacted legislation imposing most-favored-nation (MFN) tariff duties on the import of items that do not originate in NAFTA countries. The maquiladora industry has been partly compensated for the loss of the tariff import benefits through sectoral promotion programs. Publishing companies and businesses engaged in agriculture, stockbreeding, fishing and timber qualify for tax reductions of 50 percent of their income tax liabilities. State tax incentives are limited. Some Mexican states have development programs for attracting industry. These include reduction of real estate taxes, land transfer taxes, and deed registration taxes. Since 1971, foreign investors have bee n encouraged to participate in the development of resort areas. Fonatur, a government trust fund administered by the Secretariat of Tourism, has made large infrastructure investments to develop such resort areas as Cancun, Ixtapa, and Huatulco. Fonatur designs most priority resort development projects

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and sells rights to use land for hotels, condominiums and shopping centers. The National Foreign Investment Commission may authorize foreign investors and companies to participate in non-renewable investment trusts (e.g., in a factory) lasting up to 20 years in order to obtain shares in Mexican companies in restricted zones, in cases where the Mexican company is facing severe financial difficulties or needs capital investment to increase exports. Mexico’s "sectoral promotion program" (PROSEC) reduces MFN import duties on certain inputs for manufacturers of specified products. While the program is intended to reduce the impact of changes to the maquiladora program, it is available to all producers, even if the final product is sold domestically (this is what makes the program NAFTA compatible). There are broad ranges of industries, which benefit from this program. For more information, consult the Secretariat of Economy (SECON) Web site: www.economia.gob.mx. SECON has industrial development programs for the capital goods, metallurgical and mechanical goods, and chemical and consumer products industries to stimulate domestic production of these items. Benefits are negotiated case-by-case and often include a reduction in import duties in exchange for commitments to increase local content over an agreed period of time. There is a state-owned development bank, Nacional Financiera, S.A., which provides loans to companies in priority development areas and industries. It is active in promoting joint Mexican-foreign ventures for the production of capital goods. It offers preferential, fixed-rated financing for the following types of activities: small and medium businesses; environmental improvements; studies and consulting assistance; technological development; infrastructure and industrial deconcentration; modernization; and capital contribution. The National Foreign Trade Bank (FOMEX) offers financing for both export and pre-export loans. Its principal programs provide financing for sales and sales promotion, working capital, and imports, which are used as inputs into products, destined for export. Mexico has two programs to stimulate manufactured exports. The two programs, maquiladora and PITEX (Program for Temporary Imports to Produce Exports) largely operate in the same manner. The first is focused on companies that specialize in in-bond manufacturing and export, while the second is for companies that may have significant domestic sales. Initially the maquiladora program was restricted to border zones, but it is now applicable throughout Mexico. Both programs exempt imported inputs, capital goods, and lubricants from import duties and taxes provided they are used to make exported manufactured goods.

4.7.6

Right to Private Ownership and Establishment

Foreign and domestic private entities are permitted to establish and own business enterprises and engage in all forms of remunerative activity in Mexico. The most common type of business entities are corporations and limited partnerships (under any of these legal entities, a foreign company may operate an independent company, a branch, affiliate, or subsidiary company in Mexico). The two most common ways of structuring a company are Corporations (Sociedad Anónima) and Limited Liability Companies (Sociedad de Responsibilidad Limitada). The rules and regulations for starting an enterprise differ for the two types of enterprise structures.

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Limited Liability Companies (Sociedad de Responsibilidad Limitada)

•

Can be up to 100% foreign-owned.

•

Must have a minimum of MP50,000 in capital stock • to start.

Must have a minimum of MP3,000 in capital stock to start.

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Must have a minimum of 2 shareholders. There is • no maximum. A Board of Directors can run the actual administration of the company.

Must have a minimum of 2 partners to incorporate a corporation with limited liability. The partners must manage the company.

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The enterprise has an indefinite life span.

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Exists only while there is a business purpose and partners remain the same.

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Free transferability of stock ownership is permitted. •

Restricted transferability of partnership shares. Any changes in the partnership composition may cause the partnership to be liquidated.

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Operational losses incurred by the Mexican entity on subsidiary may not be used by the U.S. parent company.

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If structured properly, it may offer tax advantages by allowing operational losses incurred by the Mexican entity to be used by the U.S. parent company.

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Limited liability to shareholders.

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Limited liability is afforded the partners.

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Can be up to 100% foreign-owned.

Risk to companies starting up in Mexico is mitigated by entities such as the World Bank partial risk guarantee and, hopefully in the near future, the Overseas Private Investment Corporation. Private entities are allowed to establish, acquire, and dispose of interests in business enterprises within the parameters of the aforementioned guidelines and within the laws and regulations of local companies and foreign investment. Upon registration with the Secretariat of Foreign Relations, Mexican companies with foreign participation are allowed to own land in restricted border areas for non-residential purposes. Source: Online Guide to Mexico, http://www.mexonline.com/busines1.htm.

4.7.7

Intellectual Property Risks

Mexico has an extensive legal framework for the protection of intellectual property rights (IPR), as required by NAFTA and the WTO agreement on trade-related aspects of intellectual property rights. Mexico is a signatory to the WIPO (World Intellectual Property Organization) Copyright Treaty (WCT) and to the WIPO Performances and Phonograms Treaty (WPPT). In addition, Mexico is a signatory to most other major international IPR conventions. Mexico’s 1994 Intellectual Property Law provides protection for patents, trademarks, industrial designs, trade secrets, geographical indicators, and integrated circuit layout design. Mexico has a solid legal framework for IPR enforcement, but has been to date unable to properly execute the law. In general, the Mexican judiciary does not regard intellectual property crimes as a serious offense; therefore very few federal prosecutors take the time to bring counterfeiters to court. As a result, IPR-related convictions continue to remain at low levels.

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Transparency of the Regulatory System

The Federal Commission on Regulatory Improvement, and SECON, are the entities charged with lessening the regulatory burden on business. New government rules and regulations must meet the following criteria: •

There must be a clear justification for government involvement.

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Regulations must be maintained or issued only on evidence that their potential benefits exceed their potential costs.

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There must not exist regulatory alternatives that would cost less.

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Regulations must minimize the negative impact they have on businesses, especially small and medium firms.

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Regulations must be backed by sufficient budgetary and administrative resources to ensure their effective administration and enforcement.

The federal law of administrative procedures represents another significant investment policy accomplishment. The law requires all regulatory agencies to prepare an impact statement for new regulations, which must include detailed information on the problem being addressed, the proposed solutions, the alternatives considered, and the quantitative and qualitative costs and benefits and any changes in the amount of paperwork businesses would face if a proposed regulation is to be implemented. Despite these measures, many difficulties remain. Foreign firms continue to list bureaucracy, slow government decisionmaking, and lack of transparency among the principal negative factors inhibiting investment in Mexico. Other factors listed include the tax burden and labor difficulties. Mexico is starting to focus on strategic manufacturing, such as uniforms and boots for North American defense needs; and intermediate technology manufacturing, such as electronics and electrical components. However, the lack of a clear regulatory framework for the "Maquiladora" industry may discourage long-term investment. The new Secretariat of Public Administration (formerly the Secretariat of the Comptroller) has made considerable strides in improving the culture of transparency in government, including government contracting and direct involvement of the private sector in enhancing transparency and fighting corruption. Transparency, however, remains an issue.

4.7.9

Capital Market Risks

The Mexican banking sector is still recovering from the 1994 peso crisis, which left the system virtually insolvent. The Zedillo administration created a more favorable economic and regulatory environment to foster banking-sector growth by reforming bankruptcy and lending laws, moving the pension fund administration to the private sector, and raising the maximum foreign bank participation allowance. The bankruptcy and lending reforms passed by Congress have made it easier for creditors to collect debts in cases of insolvency through creating Mexico’s first effective legal framework for the granting of collateral. Allowing employees to choose their own pension plan and allowing banks or their holding companies to manage these funds provides additional capital to the banking sector while utilizing competition to increase the pension funds profitability. The financial profile of the banking sector has improved due to the reduction in the problem assets brought about by write-offs, problem loan sales, and the conclusion of most debt-relief programs. In addition, loan loss reserve coverage has risen to over 100 percent. These developments, combined with the anticipation of more stringent capital requirements, have contributed to an improvement in the level and composition of capital across the banking system, particularly among the larger institutions. Concerns among bankers, officials, and market analysts regarding the financial condition of the banking sector have shifted from capital adequacy and asset quality concerns to the need for banks to continue to reduce costs and improve core profitability.

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Foreign bank participation, at over 80 percent of the banking system, is having a positive effect on Mexico’s banking sector. The most apparent impact is the large size of equity investments, which have been used to clean the acquired institutions’ balance sheets. Additionally, higher foreign participation should improve the technology and risk management techniques (i.e. standards in auditing, accounting and disclosure) of the banking system. Examples of changes implemented by foreign bank owners include improvements in credit approval processes, loan documentation, and credit-related management information systems. With the support of strong international shareholders, these banks should also benefit from greater access to funding. Commercial loans for established, top-earning companies are available in Mexico, but many large companies have resorted to utilizing retained earnings to fund growth. Regulation costs are enormous, with deposit insurance adding 43 basis points onto every bank liability. Non-bank financing is a source of funding for private sector companies that has increased in importance since the 1994 financial crisis. Non-bank financing is generally available, however, only to large-scale companies with strong credit ratings and important commercial ties with their suppliers - i.e., companies that could easily procure bank financing. The Secretariat of Finance and Public Credit is the primary regulator of the banking system, doing much of its monitoring through the National Securities and Banking Commission (CNBV). The Bank of Mexico influences interest rates by setting the "corto," the minimum amount of reserves that banks must hold for interbank lending. The Institute for the Protection of Bank Savings (IPAB) handles deposit insurance and is charged finishing the work of the former insurance and bank rescue fund, FOBAPROA. In January 1997, the government introduced a diluted version of U.S. GAAP-based accounting standards, with full GAAP compliance mandatory for all banking institutions by 2003. A credit bureau was also established in 1997. The implementation of NAFTA opened the Mexican securities market to U.S. and Canadian firms. Under NAFTA’s national treatment guarantee, U.S. securities firms and investment funds, acting through local subsidiaries, have the right to engage in the full range of activities permitted in Mexico. Foreign entities may freely invest in government securities. Foreign investors may also purchase non-voting shares through mutual funds, trusts, offshore funds, and American depository receipts. They also have the right to buy directly limited or non-voting shares as well as free subscription shares, or "B" shares, which carry voting rights. Finally, foreigners may purchase an interest in "A" shares, which are normally reserved for Mexican citizens, through a neutral fund operated by the Mexican Development Bank.

4.7.10

Political Violence

Political violence, in the form of small skirmishes and intercommunal disputes, has been largely confined to the southern states of Mexico and should not be a source of major concern to potential investors. Since the initial uprising of the Zapatista National Liberation Army (EZLN) in Chiapas in January 1994, government forces and the EZLN have clashed on only one occasion. Chiapas has also experienced unrelated local violence. The Popular Revolutionary Army (EPR) and the Revolutionary Army of the People’s Insurgency (ERPI) emerged in June 1996 and June 1998, respectively. They have carried out a number of small attacks. Peaceful mass demonstrations are common in the larger metropolitan areas such as Mexico City, Guadalajara, and Monterrey.

4.7.11

Corruption

Government agencies at the federal, state and municipal levels are engaged in the anti-corruption campaign. The Secretariat of Public Administration (formerly the Secretariat of the Comptroller, SECODAM) has the lead on coordinating government anti-corruption policy.

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Mexico ratified the OECD convention on combating bribery in May 1999. The Mexican Congress passed the legislation implementing the convention that same month. The legislation includes provisions making the bribing of foreign officials a criminal offense. A bribe to a foreign official cannot be deducted from taxes. Mexico is also a party to the OAS Convention against Corruption. The government has enacted strict laws attacking corruption and bribery, with average penalties of five to ten years in prison. Although enforcement is a challenge in Mexico’s fight against corruption, many officials have been found guilty of corruption, with punishment including prison time and/or fines. Corruption has been pervasive in almost all levels of government and society. The Mexican government has established several Internet sites to increase transparency of government processes and establish guidelines for the conduct of government officials. "Normateca" provides information on government regulations; "Compranet" allows for on-line federal government procurement; "Tramitanet" permits electronic processing of transactions within the bureaucracy thereby reducing the chances for bribes; and "Declaranet" allows for on-line filing of income for federal employees. Local civil society organizations are still developing in Mexico’s anti-corruption field. The USAID-funded Project Atlatl has worked to coordinate and promote anti-corruption activities with Mexican civil society (www.atlatl.com.mx). The Mexican branch of the international NGO Transparency International also operates in Mexico. The best source of Mexican government information on anti-corruption initiatives is the Secretariat of Public Administration (www.sfp.gob.mx).

4.7.12

Bilateral Investment Agreements

NAFTA governs U.S. and Canadian investment in Mexico. In addition to NAFTA, most of Mexico’s free trade agreements (FTAs) cover investment protection, with a notable exception being the Mexico-European Union FTA. The network of FTAs containing investment clauses encompasses the countries of Bolivia, Chile, Costa Rica, Colombia, El Salvador, Guatemala, Honduras, Nicaragua, and Venezuela. Mexico has enacted formal bilateral investment protection agreements with 15 countries 10 of the 15 European Union Countries (Austria, Denmark, Finland, France, Germany, Greece, the Netherlands, Portugal, Spain, Sweden), as well as Argentina, Cuba, South Korea, Switzerland, and Uruguay. Agreements with the Belgium-Luxembourg Union, the Czech Republic, Iceland, and Italy have been Senate-ratified, but have not yet entered into force. Mexico continues to negotiate bilateral investment treaties with Ireland, Paraguay, and the United Kingdom, and is negotiating investment protection as components of trade agreements with Israel and Japan. The United States and Mexico have a bilateral tax treaty to avoid double taxation and to prevent tax evasion. Important provisions of the treaty establish ceilings for Mexican withholding taxes on interest payments and U.S. withholding taxes on dividend payments. Mexico and the United States also have a tax information exchange agreement to assist the two countries in enforcing their tax laws. The Financial Information Exchange Agreement (FIEA) was enacted in 1995, pursuant to the Mutual Legal Assistance Treaty. The agreements cover information that may affect the determination, assessment, and collection of taxes, and investigation and prosecution of tax crimes. The FIEA permits the exchange of information with respect to large value or suspicious currency transactions to combat illegal activities, particularly money laundering.

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Investment Insurance

Mexico is not a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA), and has no plans to join. According to the World Bank, the Secretariat of the Economy provides the relevant services that MIGA would offer in Mexico.

4.7.14

Labor

Mexico’s Federal Labor Law, enacted in 1931 and revised in 1970, is based on article 123 of the Mexican constitution. Mexican workers enjoy the rights to associate, collectively bargain, and strike. The Labor Law sets a standard six-day workweek with one paid day off. For overtime, workers must be paid twice their normal rate and three times the hourly rate for overtime exceeding nine hours per week. Employees are entitled to most holidays, paid vacation (after one year of service), vacation bonuses, and an annual bonus equivalent to at least two weeks pay. Companies are also responsible for these additional costs, according to the Federal Labor Law. The costs usually add about 30 to 35 percent of salaries. Employers must also contribute a tax-deductible two percent of each employee’s salary into an individual retirement account. Most employers are required to distribute ten percent of their pre-tax profits for profit sharing. The strength of organized labor in Mexico has generally been on the wane, particularly during the economic crisis years of 1982-1987 and 1994-1995. The country’s large labor unions generally supported the previous government’s economic restructuring program. In part because of their long-time close ties to the Institutional Revolutionary Party (PRI) and in part because real wages in most sectors of the economy had begun to rise, although they have not regained buying power lost during the last two decades. The Federal Labor Law provides that a union can be formed with a minimum of twenty workers. For the past few years, strikes have been limited and they are usually settled quickly. Strikes that are more difficult will usually draw government mediators to help the settlement process. Independent unions have been playing an increasingly significant role, particularly since the formation of the new Labor Federation (National Union of Workers) in November 1997. Information on unions registered with federal labor authorities is now available to the public via Internet. For more detailed information on the labor sector see "Annual Labor Trends - Mexico" published by the U.S. Department of Labor. There is a large surplus of labor in the formal economy, largely composed of low-skilled or unskilled workers. On the other hand, there is a shortage of technically skilled workers, engineers and senior managers, which leads to raiding of companies for such personnel. Labor-management relations are uneven, depending upon the unions holding contracts and the industry concerned. In the past several years the number of strikes has decreased. Mexican manufacturing operations are experiencing stiff wage competition from Central America, China, India, and elsewhere in low technology work, such as textile and garment manufacturing.

4.7.15

Free Trade Zone Options

Mexico has two duty-free ports: •

Puerto Mexico

•

Salina Cruz

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TRADE AND PROJECT FINANCING

A critical step in the export procedure is to receive the money for the products sold to Mexican end-users. The two most important points are correctly finishing export documents, including banking paperwork, and identifying a secure method of payment. There is no room for errors in preparation of export documents, either in dealing with banks or Mexican customs officials. Documents should be forwarded the same day the shipment leaves the factory or point of origin. Original export documents should not be entrusted to truck drivers for delivery to anyone.

4.8.1

Financing Availability

Credit is limited and expensive in Mexico, with interest rates typically averaging 20 percentage points over the 28day government bond rate (CETES). Only about 36 percent of all Mexican companies utilize or have access to commercial bank financing. For this reason, most Mexican customers ask for financing from the manufacturer and/or distributor on 60 or 90-day terms. Products are ordered as they are needed, and it can be difficult to find stocking distributors.

Advance Payment Exporters will find a very limited universe of customers willing and/or able to purchase through advance payment. This method of payment is used mainly to pay for consumer products or for products whose price is relatively low. However, some American exporters of industrial products request advance payment when they sell spare parts, when selling small quantities of raw or intermediate materials, or when they sell sporadically.

Letters of Credit A letter of credit (L.C.) is the preferred method of paying for imports because it provides assurance to the exporter and to the importer that they will receive what they expect. Nevertheless, most Mexican companies are reluctant to pay for their purchases through an L.C. because banks require 100 percent collateral either in the form of a cash deposit or an approved line of credit, the latter of which is unavailable to the majority of small and medium size Mexican companies. Thus, the L.C. is perceived to be virtually equivalent to a cash payment, with a hefty fee attached. Many small and medium size Mexican distributors lack sufficient liquidity or credit to pay a U.S. supplier until they themselves have sold the imported good(s) and collected payment. Major commercial banks in Mexico and the National Bank for Foreign Trade (Banco Nacional de Comercio Exterior - BANCOMEXT) offer letters of credit to Mexican importers. BANCOMEXT has also undertaken the responsibility of educating small and medium firms to use L.C.s to pay for their imports.

Documentary Collections There are two types of documentary collections: cash against documents (usually referred to as sight drafts) and documents against acceptance. Banks manage both types, which are similar to L.C.s. In a cash against documents transaction, the exporter sends the shipping documents and a collection form to a bank designated by the importer. The importer’s bank calls the importer to tell him that the documents have arrived, and to come to pay for them. Once the importer pays for the shipment, the bank delivers the documents to the importer who can then take possession of the goods. Finally, the importer’s bank sends the money to the exporter’s bank. Documents against acceptance is a slight variation of this method. However, instead of paying for the goods immediately, the importer signs a draft agreeing to pay at some date specified in the collection form. Although the importer may fail to honor his agreement, this method provides a documented trail in case of a dispute. In addition, the importer can be persuaded because his bank will know of the failure. www.icongrouponline.com

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While documentary collection entails more risk than a Letter of Credit, advance due diligence and prudent credit review practices may allow U.S. companies to sell under this payment form without undertaking undue risk. Use of the Commercial Service’s International Company Profile report (ICP) can help assure the U.S. supplier of the credit worthiness of the Mexican firm.

Open Account Many U.S. companies sell to Mexico via open account. Most Mexican distributors ask for open account to pay for imported goods. The basic requirement for using this method is that the Mexican company proves its credit worthiness. It is not at all unusual, and experience indicates that, with prudent due diligence and credit review practices, open account sales in Mexico need not be inherently risky. Credit information is available through the Commercial Service’s International Company Profile report (ICP) as well as through private credit reporting agencies. For any sizeable transaction or relationship, exporters should demand financial statements just as they might in the U.S., and they should visit the customer’s facility and meet with the major officers to assess their capacity and seriousness. Open account is a relatively secure method to get paid for once a business relationship has been established.

U.S. Ex-Im Bank The Export-Import Bank of the United States, an independent agency of the federal government, offers various short, medium and long-term export finance and insurance programs. Of specific interest to U.S. exporters are the guarantees for medium-term loans to purchasers of capital equipment. Most loans are actually made by American banks with Exim Bank’s guarantee. Exim Bank is active in Mexico. Much of Exim Bank’s activity is under so-called bundling facilities. A bundling facility is a large medium-term loan made to a Mexican bank by an American bank with the guarantee of Exim Bank. The Mexican bank then makes loans for the purchase of American capital goods to Mexican companies. It undertakes the credit assessment and risk since it effectively counter guarantees the loans it makes. There also are a number of U.S.-based banks that extend Exim Bank credits in Mexico. The major Mexican commercial banks have signed agreements with Exim Bank to grant lines of credit to Mexican firms that purchase U.S.-made products. Such credits generally are available only to Mexican blue chip companies and to their suppliers with firm contracts. Small and medium size Mexican firms may be able to indirectly access Exim Bank credit through the programs of the Mexican small business development bank, Nafinsa. For more information, please see www.exim.gov.

Receivables Insurance Several parties offer receivables insurance in Mexico. The best known are the U.S. Export-Import Bank, American International Group (AIG), and the Foreign Credit Insurance Association (FCIA). This insurance can enable a company to give terms of up to 180 days to purchasers. Knowledgeable international banks will finance insured receivables, whereas most banks will not finance uninsured foreign receivables that are not under letters of credit. The cost of the insurance and the financing can often be passed on to the customer as a higher product price. It is not recommended that financing costs, whether under insurance or any other financing mechanism, be set out as a separate line item such as in a pro forma invoice since a Mexican tax liability will arise from the payment of interest.

U.S. Small Business Administration The U.S. Small Business Administration (SBA) provides financial and business development assistance to encourage and help small businesses in developing export markets. The SBA assists businesses in obtaining the capital needed to explore, establish, or expand international markets. SBA’s export loans are available under SBA’s guaranty

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program. Prospective applicants should tell their lenders to seek SBA participation, if the lender is unable or unwilling to make the loan directly. SBA also offers an Export Revolving Line of Credit (ERLC) program that is designed to help small businesses obtain short-term financing to sell their products and services abroad. The program guarantees repayment to a lender in the event an exporter defaults. By reducing a lender’s risk, the ERLC provides an incentive for lenders to finance small business exporters’ working capital needs. The ERLC provides only the lender from default by the exporter; it does not cover the exporter should a foreign buyer default on payment. Lenders and exporters must determine whether foreign receivables need credit risk protection. Borrowers can use different SBA loan programs and types of loan guarantees simultaneously, as long as the total SBA-guaranteed portion does not exceed the agency’s $750,000 statutory loan guaranty limit to any one borrower.

Credit Programs for U.S. Food and Agriculture Products The U.S. Agricultural Trade Office (ATO) administers four export credit guarantee programs in Mexico. The GSM102 and GSM-103 Credit Guarantee Programs facilitate the export of U.S. agricultural products by providing credit guarantees to U.S. exporters from 90 days to two years for GSM-102 coverage, and from three to seven years for GSM-103 coverage. The ATO also administers the Supplier Credit Guarantee Program (SCGP). The SCGP is designed to assist exporters of U.S. agricultural commodities who wish to directly provide relatively short-term credits (15 to 180 days) to their importers. Finally, the Facility Guarantee Program (FGP) is a relatively new program that provides credit guarantees for the sale of U.S. capital goods and services. Detailed program information is available at http://www.fas.usda.gov/export.html.

Local Sources of Financing Exporters should be aware that Banco Nacional de Comercio Exterior (BANCOMEXT, Mexico’s equivalent of Exim Bank) and Nacional Financiera (Nafinsa, a government- owned development bank) have programs to finance imports by Mexican companies. Covered products include capital goods and technology intended to modernize companies to enable them to become more competitive and to export, as well as raw materials and other inputs. Many Mexican companies may have difficulty accessing financing under these programs, however, or may be unaware that they exist.

Commercial Banks Mexico’s commercial banks offer a full spectrum of services within one institution. These services range from offering deposit accounts, consumer and commercial lending, corporate finance, and the operation of trusts and mutual funds, to foreign exchange and money market trading. Mexico’s commercial banking sector has been opened to foreign competition. The North American Free Trade Agreement (NAFTA) permits U.S. and Canadian banks or any other foreign bank with a subsidiary in the U.S. or Canada to establish wholly owned subsidiaries in Mexico. Foreign banks are now allowed to operate in Mexico. They are allowed to undertake financial inter-mediation or to solicit customers for their parent bank. The Secretariat of Finance, the National Banking and Securities Commission, and the Bank of Mexico are the principal regulators of the banking system. The Secretariat of Finance is concerned with institutional issues such as licensing and sets credit and fiscal policies. The Bank of Mexico (the Central Bank) implements these policies and also operates inter-bank check clearing and compensation systems. The Institute for the Protection of Bank Savings (IPAB, replacing the former institution FOBAPROA) acts as a deposit insurance institution. The National Banking and Securities Commission, a semi-autonomous government agency, is responsible for supervision and vigilance. The Mexican Banking Association (ABM) represents the interests of Mexico’s banks. www.icongrouponline.com

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Development Banks The mission of development banks is to fill financing shortfalls in the commercial banking sector. Mexico has eight government-owned development banks that provide services to specific areas of the economy. The dominant institutions are Nacional Financiera (Nafinsa) and the Foreign Trade Bank (Bancomext). These institutions have become primarily second-tier banks that reach priority sectors by lending through commercial banks and other financial intermediaries such as credit unions, savings and loans, and leasing and factoring companies. Nafinsa’s primary program funds micro, small and medium-sized businesses. Nafinsa also undertakes strategic equity investments and contributes equity to joint ventures. The other Mexican development banks are BANOBRAS (Public Works Infrastructure Bank) and FINANCIERA RURAL (Rural Agriculture Bank). The U.S. Exim Bank has a program through Nafinsa to provide small and medium size Mexican companies with financing to import U.S. manufacturing inputs. A facility with BANOBRAS is under discussion to enable Mexican municipalities to purchase U.S. goods and services for environmental infrastructure projects such as water treatment, solid waste disposal, and renewable energy. Bancomext provides financing to Mexican exports and to small and medium-sized companies. It also offers working capital, project lending, and training to firms in several specific sectors that require support, such as textiles and footwear.

4.8.2

Exchange Control Risks

There are no controls on the transfer of dollars into and out of Mexico. This means that profits can be repatriated freely.

4.8.3

Project Financing in Mexico

Project financing is separated into pure project financing and financing for projects. These two are not synonymous.

Pure Project Financing Pure project financing requires that the only source of collateral, investment return, and loan repayment be revenues derived from services and/or products resulting from the investment. The project must be literally self-financing, without reliance on guarantees or other undertakings from owners or third parties. Examples of this type of financing are typically seen in utility industries such as electrical power, water supplies, drainage, and certain environmental projects. Banks, investor groups, large institutional investors such as insurance companies, public offerings of bonds, and other capital market instruments often provide financing. Such financing is in its infancy in Mexico as the Government of Mexico (GOM) has previously been the owner of these types of projects. The financing required by the GOM has been handled either through large international loan syndication direct to the federal government or its operating entities or through multilateral credits. Mexico has entered a new era in granting concessions for seaports, airports, railroads, satellite communications, power generation plants, and natural gas distribution systems. The winning Mexican and foreign firms of these activities must arrange the pure project financing required.

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Financing for Projects In general, Mexican and foreign firms that win bids and tenders need to finance major purchases of both equipment and services. American firms should learn about the programs of the U.S. Exim Bank, the World Bank, the Inter-American Development Bank (IDB), and the North American Development Bank (NAD Bank - used for environmental infrastructure projects along the U.S.-Mexico border). Funding for selected project feasibility studies is available from the U.S. Trade and Development Agency, along with project-related training grants that can serve as "sweeteners" to support U.S. bidders. There is also activity by the Japanese EXIM and other national export credit entities, but they are typically less useful to U.S. companies.

Inter-American Development Bank The Inter-American Development Bank (IDB) finances public sector projects in Mexico and the other 25 borrowing countries in Latin America and the Caribbean. U.S. companies are eligible to compete for contract awards from public sector executing agencies. The IDB has focused its lending programs on infrastructure needs in Mexico, while the World Bank has favored human resource development and structural reform initiatives. In contrast to trade finance institutions, U.S. companies do not apply directly to the IDB to finance U.S. exports of goods and services. United States companies interested in competing for public sector projects financed by the IDB may maximize their chances of winning by contracting a local partner in Mexico. United States companies may call on various IDB resources including monthly business briefings at the Washington D.C. headquarters, subscription to the IDB project pipeline, or registration as a project consultant. The U.S. Commercial Service maintains an office in the IDB to assist U.S. companies in taking advantage of IDB funded projects. Tel: 202-623-3821; fax: 202-623-2039.

Trade and Development Agency The U.S. Trade and Development Agency (USTDA) provides funding for feasibility studies and other forms of technical assistance to help promote U.S. exports. By assisting U.S. firms to become involved in the early stages of infrastructure project development, USTDA leverages U.S. exports during the implementation stages. USTDA works closely with the various development banks, including the World Bank and the Inter-American Development Bank, to help U.S. firms take advantage of those banks’ projects. Additionally, In the case of a competitive bid for a large infrastructure project, USTDA can offer a de minimus training grant, or another form of technical assistance, to help the U.S. company or consortium make their bid more attractive. USTDA has an active program in Mexico, funding projects in a wide range of sectors. USTDA’s Web site is www.tda.gov.

4.9

TRAVEL RISKS

Mexico shares a border of over 2,000 miles with the United States and offers a wide variety of business destinations, often with distinct cultures, infrastructure, and different levels of security concern. The following information pertains to the capital, Mexico City. With a population of some 20 million people, Mexico City is a cosmopolitan, world-class city with all the advantages and disadvantages of a huge urban center.

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Transportation and Hotels

Mexico City has frequent direct and non-stop flights from major U.S. cities. American carriers to Mexico include American, Continental, Delta, America West, United and Northwest. Mexican carriers providing scheduled service within Mexico include Mexicana, Aeromexico and several feeder carriers. Many business class hotels are available in Mexico City, including Marriott, Intercontinental, Radisson, Four Seasons, and Sheraton, among others. All of these hotels offer business centers and most offer fitness centers. Rack rates are comparable to most major U.S. cities, ranging from $280 to $700 per night. The Mexico City Benito Juarez International Airport offers a fixed price (depending on destination) taxi service to any point in the city. Tickets are purchased at a booth within the baggage claim area. This taxi service is governmentally regulated and monitored. For security reasons it is recommended that travelers do not use any other private taxi services offered on-site. It is easy to exchange dollars for pesos at the airport at a reasonable rate. In addition to bank cashier windows, cash machines are available that accept U.S. credit and debit cards and provide pesos. For travel in Mexico City, most visitors prefer taxis to car rentals. Rental cars are very expensive (around U.S.$100/day and up) and Mexico City is difficult to navigate. For reasons of security, visitors are strongly urged to avoid using taxis roaming the streets and to use only sitio (stationary/radio) taxis. Sitios are located throughout the city. Your hotel can call you a sitio cab and you can obtain a card from the driver with the telephone number to call when you are ready to return; or alternatively, you can call your hotel again and request a return cab. Most restaurants and places of business also are accustomed to calling sitios for their clients. Private cars with bilingual drivers can be hired at most business hotels; they will negotiate fees on an hourly or daily basis but are considerably more expensive. While the Embassy has no information to indicate that official or private U.S. travelers to Mexico are specifically targeted for terrorist or criminal activity, there is continuing risk. Visitors should take precautions against street crimes such as armed robbery and pick pocketing - additional information is provided below.

Tipping Practices Tipping is common in Mexico. Calculate 10-15 percent of restaurant bills and one U.S. dollar per bag to bellmen.

4.9.2

Visas and Visitor Fees

There is a single visa form for tourist and business visitors, valid for 30 days upon entry with no fee. This form is normally distributed on all arriving aircraft. Business visitors must be careful not to enter as a tourist if their reason for visiting includes any of the following activities: •

Business meetings

•

Trade events

•

Consulting

•

Technical support

•

Marketing

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Contracts and other business agreements entered into while an American visitor to Mexico is traveling on tourist rather than business status are not legal, and there have been rare instances of immigration authorities detaining visitors doing business while on tourist status, resulting in fines up to $2,000. Immigration officials also have the authority to bar such travelers from obtaining visas in the future. Immigration status can be adjusted fairly easily while in country for tourists who later find they want to do business. In Mexico City, visa status can be converted at the following immigration office, located not far from several major business hotels: Delegación Regional Instituto Nacional de Migracion (INM) Lic. Francesco Grassi Garibay Ejercito Nacional No. 862 Col. Polanco, 2a. Sección 11570 Mexico, D.F. Phone: 5281-0105 If a U.S. business person wants to reside in Mexico and work on a more permanent basis, it is necessary to obtain an FM-3 immigration form. This form may be obtained with validity up to one year, renewable up to a total of five years. A NAFTA-FMN entry permit can be converted to an FM-3 visa in country at the nearest immigration office. To obtain the FM-3 the traveler must present any of the following documents: •

Valid passport.

•

Proof that the traveler is engaged in international business and that he will receive his income from the U.S. company (e.g. a letter from the U.S. employer). A verbal declaration may be acceptable.

For further information, please contact the Mexican Embassy or Consulate nearest to you, or visit the Mexican Embassy Web site at www.embassyofmexico.org. Mexico has 45 consulate offices in the U.S. The Mexican immigration authority has reinstated a visitor’s fee that was dropped over 30 years ago. Mexico’s Congress authorized the fee to be collected from foreign visitors with the stated goal of computerizing visitor entry and expanding tourist services. The fee is set at $195 Mexican pesos. Visitors are not required to pay the fee if they: •

Are Mexican citizens;

•

Are aliens residing in Mexico;

•

Are students with a current Mexican student ID;

•

Enter by land or sea but stay less than 72 hours;

•

Enter Mexico by land, stay more than 72 hours, but do not proceed beyond the 26-kilometer checkpoints;

•

Enter Mexico by land, stay more than 72 hours, but do proceed beyond the 26-kilometer checkpoints unless to one of the "exempted" areas (see SECTUR Web site below for a list of exempted areas.)

Visitors ARE required to pay the fee if they: •

Arrive by air (it will be included in your airfare);

•

Arrive by sea and stay in any Mexican port longer than 72 hours (with a maximum of one fee per cruise; it will be included in your cruise package); or

•

Arrive by land, stay longer than 72 hours, and proceed beyond the checkpoints or the exempted areas.

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If you enter by land on a business visa you are entitled to unlimited ingress and egress to and from Mexico for 30 days after payment of the fee. If you enter by land on a tourist visa you are entitled to unlimited ingress and egress to and from Mexico for 180 days after payment of the fee. Visitors entering by land transportation may pay the fee at any Mexican bank before leaving the country. IMPORTANT NOTE: All foreign visitors should keep their Visitor Card (Forma Migratoria) bearing the official "FEE PAID" stamp as it will be subject to verification by inspectors of Mexico’s National Immigration Institute. For further information please contact: Mexican Embassy, Consulate, or visit the Mexican Ministry of Tourism (SECTUR) Web site at http://www.sectur.gob.mx.

Traveling with Children Visitors should keep in mind that Mexican law requires children under 18 to carry a notarized affidavit from any absent parent when traveling into or out of Mexico. U.S. airlines will not allow one parent to board a plane with children if no notarized statement from the other parent is available. Having the necessary documentation ready will make vacations more pleasant for the entire family.

4.9.3

Language

Spanish is the official language of Mexico. While many people in the large cities speak some English, it may be difficult for them to conduct detailed discussions. Non-Spanish speaking visitors to Mexico may wish to hire an interpreter. It is considered courteous for U.S. business people to speak a few words of Spanish. Most mid and highlevel government officials and business executives speak English and many are U.S.-educated.

4.9.4

Climate

Mexico stands out for its great diversity in weather and topography. Most Mexican terrain is classified as mountainous or hilly and is divided into three vertical zones: hot, temperate and cool. Hot land ranges between sea level and 3,000 feet. This includes Puerto Vallarta, Acapulco and other beach resorts, as well as the desert Northeast and border zone. The temperate area is found between 3,000 and 6,000 feet. Guadalajara and Chapala are in this category. Above this is the cool region, including Mexico City, at 7,300 feet. Most parts of the country have fairly well defined wet and dry seasons. The rainy season in Mexico City starts in May or June and runs through September. Rains, at times torrential, usually come in the late afternoon and can tie up traffic. An umbrella is a necessity during this season. It will rain occasionally in other months. Spring/fall attire is suitable year round in Mexico City. During most of the year, the weather is warm during the day and cool in the early morning and evening. During the cooler part of the dry season (December to February) it may be chilly during the day and cold at night. Layered clothing is recommended. Business travelers should wear normal business attire. Shorts are worn only in resort areas.

4.9.5

Health Issues

A high standard of medical care is available in the principal cities from private hospitals and doctors. Many private Mexican doctors have U.S. training and speak English.

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U.S. Embassy staff who need urgent medical care generally visit: ABC Hospital Tel: 5230-8000 Emergency ward: 5230-8161-4 Other good private hospitals and clinics located around the city include: •

Angeles Group (various locations)

•

Medica Sur (south Mexico City)

•

Clinica Londres (central)

Visitors should follow standard international dietary precautions in Mexico. It is best to drink bottled beverages without ice. Bottled water is readily available. Raw salads should not be consumed, all fruits should be peeled, only pasteurized dairy products should be consumed, and meat should be ordered well done. Hotels and business restaurants in general cater to foreign visitors and fulfill all sanitary requirements. Many American fast food chains have franchises in Mexico with similar standards as in the U.S. Air pollution in the Valley of Mexico (Mexico City and adjacent areas) is chronic. Contaminants in excess of U.S. and Mexican standards pollute the air many days during the year. Air pollution is at its peak from November to April, during the dry season, and may aggravate allergy and cardiopulmonary problems. The relatively high altitude of Mexico City, a long winter dry season, and air pollution can cause irritation of the respiratory tract, nose and eyes - the latter especially for contact lens wearers. Visitors to Mexico City should remember the high altitude and be prepared to move slowly, getting sufficient rest, until they have adjusted. Upon arrival in Mexico City, the sensation of increased respiration, rapid heart rate, and mild dizziness are normal adaptive processes. Insomnia, fatigue, circulatory problems, symptoms of dehydration, and nausea are common, but pass quickly. Alcoholic beverages have a stronger effect. Newcomers may find it beneficial to drink plenty of water.

4.9.6

Communications

Telephone service is usually reliable and most parts of Mexico have direct dialing to the United States. Telephone service is heavily taxed in Mexico, causing costs to be expensive by U.S. standards. Sprint, MCI, and AT&T calling cards may be used in Mexico. Cellular telephones are available and widely used. Mexico City has 31 AM and 22 FM radio stations and eight local TV stations that broadcast Spanish language programming. Several local companies offer cable and direct satellite service with a wide range of English and Spanish language stations. CNN and other programs popular with business travelers are routinely available in hotel rooms. Twenty Spanish-language newspapers and one English-language daily, the Miami Herald, are published in Mexico City. The New York Times, the Wall Street Journal, Journal of Commerce, the Washington Post, Los Angeles Times, and USA Today usually arrive the day of or the day after publication. Many English language books and magazines are available at newsstands in the airport and at the Sanborns chain of drug and variety stores. Mail service can be unreliable. Messengers and private delivery services routinely are used to deliver correspondence both intra- and inter-city.

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Local Business Customs

Business and social customs vary widely in Mexico. It is best to be observant and flexible, and to take cues from the Mexicans around you. The length of the workday varies depending on the region of the country and the type of organization. In Mexico City, companies typically open at 9:00 and work until 6:00 or 7:00 P.M., with a long lunch beginning at 2:00 P.M. or later. In the north the workday may begin and end earlier with lunch at 1:00 P.M. Federal government offices in Mexico City traditionally have started work at about 10:00 A.M., with a break at 2:00 or 3:00 P.M. for lunch and a return at 5:00 P.M. or 6:00 P.M to work into the evening until 9:00 P.M. Beginning April 1, 1999, the federal government issued new instructions for offices to operate between the hours of 8:00 AM and 6:00 PM with flexible arrival and departure times for employees. In practice, however, many offices continue to operate according to the traditional schedule. Business cards are used extensively. Come with a large supply. Mexicans make extensive use of professional titles (doctor, profesor, licenciado, ingeniero). It is courteous to address them by their titles. Along with this formality is an emphasis on appearances -- avoid casual dress. When meeting in a group, it is customary to shake hands with all upon arrival and departure. Special respect may be given to older members. A single air-kiss on the cheek is expected for all women present, although this is not necessary in the first meeting. Business meals are important, especially lunch. Mexicans are accustomed to smoking and drinking freely at business meals. Participation in social activities is very important to succeed in the Mexican business world. Patience is the key to doing business in Mexico. Business meetings in Mexico will often take longer than they would in the States. Etiquette often includes much small talk before getting into business. Ask about your counterpart’s hometown, university, personal interests including sports, and family. On the other hand, some U.S. executives have found their Mexican counterparts to be initially brusque and perhaps wary of the U.S. company’s sincerity or intentions. Again, it is difficult to make generalities. Yes does not always mean yes. Mexican social etiquette makes it difficult to say no. In conversation, Mexicans emphasize tactful and indirect phrasing, and may be more effusive than Americans with praise and emotional expressions. Do not be overly aggressive while negotiating; it is considered rude. The concept of time is flexible in Mexico. Guests to social events (except in the case of cities in the North) can arrive an hour late. Punctuality is observed for most government appointments and social functions. Although the presence of businesswomen is increasing, business in Mexico remains male-oriented. However, this need not be considered an obstacle to the participation of U.S. businesswomen in Mexico.

4.9.8

Security Considerations

Street crime is common, especially in urban areas. If accosted, DO NOT RESIST, as resistance is the number one reason that otherwise non-violent crime becomes violent. Do not leave your pockets unprotected or purses open, any more than you would in any large city. Avoid wearing expensive watches and jewelry and carrying large sums of cash, your passport, and multiple credit cards. Leave these in a hotel safe, not in your room. Make sure you know the PIN numbers for any credit or debit/cash cards you carry, and do not carry cards for which you do not have a PIN. If necessary, write any PIN numbers on a piece of paper and carry it with you separate from your wallet.

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The U.S. Embassy advises its personnel not to travel on Mexican highways after dark and not to take roving taxi cabs in Mexico City. These taxis are frequently used to apprehend visitors and hold them until sufficient money is extracted using their credit cards in automatic teller machines (hence the importance of knowing all PIN numbers). Use only taxis called by your hotel, place of business or from "sitios" (cab stands). Exercise caution walking in areas frequented by tourists and shoppers. Do not walk alone at night, and do not get involved in conversations with strangers, a favorite tactic of con artists and thieves.

4.9.9

Education and Training Services

Dependents of foreigners generally attend private schools. There are several excellent bilingual private schools in Mexico City. Entrance examinations are sometimes required. The Mexican government requires all bilingual schools to provide some Spanish language instruction at the primary level, beginning with first grade. A few of the more popular bilingual schools in Mexico City include •

The American School Foundation, a large school (2,500 students) accredited by the U.S. Southern Association of College and Schools (K-12).

•

Greengates School, a co-educational school based on the British system, with 1,050 students from 42 different nationalities (K-12).

•

Colegio Junipero, a parochial school associated with the Dominican Sisters of California and the only Catholic bilingual school in Mexico City (K-6 with 450 students).

Other bilingual schools used by expatriates include: •

Lomas Altas

•

Sierra Nevada

•

Colegio de Mexico (Escuela Campestre)

•

Westhill Academy

4.9.10

Culture and Recreation

Mexico City has a vibrant cultural life offering concerts, opera, and theater as well as art galleries and many museums. Excellent cuisine and nightlife are also available. There are several golf, tennis, and social clubs available to the foreign community. Exercise gyms are very popular and widely available. Mexico City also offers many nearby points of interest that can be visited in one or two days to escape the big city. These include Cuernavaca, Taxco, Querétaro, Tequesquitengo, Tequisquiapan, Toluca, Valle de Bravo, San Miguel Allende, Guanajuato, and Tepozotlan, to mention a few.

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4.9.11

Country Data Population (year-end 2000, millions) Population Growth (% change p.a.) Religions Government System Languages Work Week

4.10 4.10.1

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97.4 1.5 Roman Catholic - 89%; Protestant - 6% Federal republic under centralized government Spanish; Various Indian dialects 48 hours, one paid day of rest

KEY CONTACTS U.S. Embassy Contacts Located in Mexico

Mr. Jerry Mitchell Minister Counselor for Commercial Affairs United States Trade Center Liverpool 31, Col. Juarez 06600 México, D.F. Tel: (011-52-55) 5140-2601 Fax: (011-52-55) 5705-0065 Mail: P.O. Box 9000 Brownsville, TX 78520-0900 E-mail: [email protected] URL: http://www.buyusa.com Ms. Deborah Schwartz Minister Counselor for Economic Affairs Embassy of the United States of America Paseo de la Reforma 305 Col. Cuauhtemoc 6500 Mexico D. F. Tel: (011-52-55) 5080-2850 Fax: (011-52-55) 5514-1187 Mail: P.O. Box 9000 Brownsville, TX 78520-0900 E-mail: [email protected] URL: http://www.usembassy-mexico.gov

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Mr. William Brant Minister Counselor for Agricultural Affairs Embassy of the United States of America Paseo de la Reforma 305 Col. Cuauhtemoc 6501 México D. F. Tel: (011-52-55) 5080-2532 Fax: (011-52-55) 5080-2776 / 2130 Mail: P.O. Box 9000 Brownsville, TX 78520-0900 E-mail: [email protected]; [email protected] URL: http://www.usembassy-mexico.gov U.S. Agricultural Trade Office Mr. Bruce Zanin, Director Jaime Balmes No. 8-201 Col. Los Morales Polanco 11510 México D. F. Tel: (011-52-55) 5280-5291 / 5281-6586 Fax: (011-52-55) 5281-6093 Mail: P.O. Box 9000 Brownsville, TX 78520-0900 E-mail: [email protected] URL: http://www.fas-la.com/mexico U.S. Agricultural Trade Office, Monterrey Mr. Dan Martinez, Director Oficinas en el Parque, Torre II Blvd. Diaz Ordaz No.140, piso 20, suite 2015 Col. Santa María, CP 64650 Monterrey, Nuevo León. Tel: (011-52-81) 8333-5289 Fax: (011-52-81) 8333-1248 Mail: P.O. Box 9000 Brownsville, TX 78520-0900 E-mail: [email protected] URL: http://www.fas-la.com/mexico U.S. Consulate, Monterrey Ellen Lenny-Pessagno, Principal Commercial Officer Ave. Constitución No. 411 Pte., Col. Centro, Monterrey, N.L. Postal Code: 64000 Tel: 011 (52 81) 83 43 44 50 Fax: 011 (52 81) 83 42 51 72 Mail: P.O. Box 9000 Brownsville, TX 78520-0900 E-mail: [email protected] URL: www.buyusa.com

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U.S. Consulate, Guadalajara Ms. Isabella Cascarano, Principal Commercial Officer Principal Commercial Officer Lopez Cotilla No. 2032, piso 4 44130 Guadalajara, Jalisco Tel: (011-52-33) 3825-1200 -Consulado (011-52-33) 3615-1140 directo Fax: (011-52-33) 3615-7665 Mail: P.O. Box 9000 Brownsville, TX 78520-0900 E-mail: [email protected] URL: http://www.buyusa.com U.S. Consulate General, Tijuana Ms. Judith Valdes Senior Commercial Specialist Tapachula No. 96 22420 Tijuana, Baja California Norte Tel: (011-52-664) 6228627 Fax: (011-52-664) 681-8910 Mail: P.O. Box 9000 San Diego, Ca. 92143-9039 E-mail: [email protected] URL: http://www.buyusa.com

4.10.2

Mexican Government Agencies

Secretaria de Economia (Former SECOFI-Secretariat of Commerce and Industrial Development) Dr. Angel Villalobos Rodriguez Under Secretary of Foreign Trade and Investment Alfonso Reyes 30, Piso 9 Colonia Hipodromo Condesa 06179 México, D.F. Tel: (011-52-55) 5729-9101 / 02 Fax: (011-52-55) 5729-9307 E-mail: [email protected] URL: http://www.economia.gob.mx Instituto Mexicano de la Propiedad Industrial (IMPI) (Mexican Institute of Industrial Property and Technological Development) Lic. Jorge Amigo Castañeda General Director Periferico Sur No. 3106 Col. Jardines del Pedregal 01900 Mexico, D.F. Tel: (011-52-55) 5624-0401 thru 04 Fax: (011-52-55) 5624-0406 E-mail: [email protected] URL: http://www.impi.gob.mx

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Secretaria de Educacion Publica (SEP) (Secretariat of Public Education) Lic. Adolfo Eduardo Montoya Jarkin Director of the National Instutute of Copyrights Dinamarca No. 84 piso 3 Colonia Juarez 06600 México, D.F. Tel: (011-52-55) 5328-1000 Ext 21181 Fax: (011-52-55) 5230-7644 E-mail: [email protected] URL: http://www.sep.gob.mx Secretaria de Economia (Former SECOFI-Secretariat of Commerce and Industrial Development) Dr. Salvador Ortiz Mines General Coordinator Puente de Tecamachalco # 26 anexo P.B. Col. Lomas de Chapultepec 11000 Mexico, D.F. Tel: (011-52-55) 5202-7339 / 7345 Fax: (011-52-55) 5202-0016 E-mail: [email protected] Secretaria de Energia (SE) (Secretariat of Energy) Ing. Juan Antonio Barges Under Secretary of Hydrocarbons Avenida Insurgentes No. 890, floor 15 Col. del Valle 03100 México, D.F. Tel: (011-52-55) 5448-6000/6070/ 6071 / 6072 Fax: (011-52-55) 5448-6225 E-mail: [email protected] Secretaria de Medio Ambiente, Recursos Naturales Dr. Victor Lichtinger Secretario de Medio Ambiente y Rescursos Naturales (Secretariat of the Environment, Natural Resources) Lateral Anillo Periferico Sur No. 4209 piso 6 Col. Fracc. Jardines en la Montana 14210 Mexico, D.F. Tel: (011-52-55) 528 0602 thru 0605 Fax: (011-52-55) 5628 0643/44 E-mail: [email protected] URL: http://www.semarnat.gob.mx

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Secretaria de Comunicaciones y Transportes (SCT) (Secretariat of Communications and Transport) Dr. Aaron Dychter Poltolarek Under Secretary of Transportation Centro Nacional SCT Av. Universidad y Xola s/n Bldg.C, floor 1 - Ala Oriente Col. Narvarte 03028 México, D.F. Tel: (011-52-55) 5519-4468/ 530-7390 Fax: (011-52-55) 5519-48-71 E-mail: [email protected] URL: http://www.sct.gob.mx

4.10.3

Trade Associations and Chambers of Commerce

American Chamber of Commerce - Mexico, A.C. Mr. Jack V. Sweeney Executive Vice President Lucerna No. 78 Col. Juárez 06600 México, D.F. Tel: (011-52-55) 5140-3800 / 3820 Fax: (011-52-55) 5703-2911 / 3908 E-mail: [email protected] URL: http://www.amcham.com.mx Camara de Comercio Hispana de los Estados Unidos United States Hispanic Chamber of Commerce (CONCANACO-SERVYTUR) Ing. Claudia Guerrero Director of International Affairs Puerto Real 11, P.B. Col. Condesa 06170 México, D.F. Tel: (011-52-55) 5286-0564 Fax: (011-52-55) 5553-4327 E-mail: [email protected] URL: http://www.ushcc.com Camara Nacional de Comercio de la Ciudad de México (CANACO) (National Chamber of Commerce of Mexico City) Lic. Roman Vidal Tamayo Director of Trade Development Paseo de la Reforma No. 42 Col. Centro 06048 México, D.F. Tel: (011-52-55) 5592-2677 / 2665 Fax: (011-52-55) 5703-2958 E-mail: [email protected] URL: http://www.ccmexico.com.mx

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Confederacion de Camaras Nacionales de Comercio, Servicios y Turismo (CONCANACO- SERVITUR) (Confederation of National Chambers of Commerce) General Director Lic. Carlos Mora Alvarez Balderas No. 144, floor 3 Col. Centro 06079 México, D.F. Tel: (011-52-55) 5722-9302 DL - SWB 5722-9300 Fax: (011-52-55) 5722-9300 EXT. 9410 E-mail: [email protected]; [email protected] URL: http://www.concanacored.com Camara Nacional de la Industria de la Transfomacion (National Manufacturing Industry Chamber) Lic. Leonardo Gordon General Director Avenida San Antonio No. 256 Col. Ampliación Napoles 03849 México, D.F. Tel: (011-52-55) 5563-3400 Fax: (011-52-55) 5482-3002 E-mail: [email protected] URL: http://www.canacintra.org.mx Confederación de Camaras Industriales de los Estados Unidos Mexicanos (CONCAMIN) (Confederation of Industrial Chambers of Mexico) Lic. Gerardo Barrios Espinoza General Director Manuel Ma. Contreras No. 133, floor 7 y 8 Col. Cuauhtemoc 06500 México, D.F. Tel: (011-52-55) 5140-7800 / 19 Fax: (011-52-55) 5140-7831 E-mail: [email protected]; [email protected] URL: http://www.concamin.org.mx Asociación Nacional de Importadores y Exportadores de la Republica Mexicana, A.C. (ANIERM) Association of Importers and Exporters of México Lic. Manuel Javier Muñoz Martinez President Monterrey No. 130 Col. Roma. 06700 México, D.F. Tel: (011-52-55) 5584-9522 / 5564-8618 Fax: (011-52-55) 5584-5317 E-mail: [email protected] URL: http://www.anierm.org.mx

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JP.Morgan Asociación de Instituciones Financieras Morgan Guaranty Trust Company of New York Sr. Eduardo Cepeda General Director Torre Optima Paseo de las Palmas No. 405 - floor 16 Col. Lomas de Chapultepec 11000 México, D.F. Tel: (011-52-55) 5540-9333 Fax: (011-52-55) -5540-9548 E-mail: [email protected] URL: http://www.jpmorgan.com It should be noted that there are hundreds of specialized and regional associations and chambers in Mexico, which could not be included here.

4.10.4

Product and Quality System Certification Organizations

Asociación de Normalización y Certificación del Sector Electrico,A.C. (ANCE) (National Association for the Standards & Certification of the Electrical Sector) Ing. Martin Flores Ruiz Director of Operations Av. Lazaro Cardenas No. 869, Fracc. 3, esq. con Jupiter, Col. Nueva Industrial Vallejo, C.P. 07700, México, D. F. Tel: (011-52-55) 5747-4550 Fax: (011-52-55) 5747-4560 E-mail: [email protected] URL: http://www.ance.org.mx Standards area: Electrical and gas Normalización y Certificación Electronica, A.C. (NYCE) (Electronic Standards & Certification) Ing. Claudio Bortolus Orlandi President Av. Lomas de Sotelo No. 1097 Col. Lomas de Sotelo 11200 México, D.F. Tel: (011-52-55) 5395-0810 / 0860 / 0893 / 0983 Fax: (011-52-55) 5395-0700 E-mail: [email protected] URL: http://www.nyce.org.mx Standards area: Electronics and rubber (tires)

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Calidad Mexicana Certificada (CALMECAC) (Mexican Quality Certification) Lic. Jaime Acosta Polanco President Jose Vasconcelos No. 83 Col. San Miguel Chapultepec 11850 México,D.F. Tel: (011-52-55) 5553-0571 / 5211-8052 Fax: (011-52-55) 5211-6702 E-mail: [email protected] URL: http://www.calmecac.com.mx Standards area: General and quality systems Instituto Mexicano de Normalización y Certificación, A.C. (IMNC) (Mexican Standards & Certification Institute) Dra. Mercedes Irueste Alejandre General Director Manuel Ma. Contreras No. 133 floor 6 Col. San Rafael 06500 México, D.F. Tel: (011-52-55) 5535-5872, 566-4750 Fax: (011-52-55) 5705-3686 E-mail: [email protected]; [email protected] URL: http://www.imnc.org.mx Standards area: General and quality systems Sociedad Mexicana de Normalización y Certificación, S.C. NORMEX (Mexican Standards & Certification Society) Dr. Jaime Gonzalez Basurto General Director Alfredo B. Nobel No. 21 Centro Industrial Puente de Vigas 54070 Tlalnepantla, Edo. de México Tel: (011-52-55) 5390-4152 (12 Lines); Office: 5374-1402 Fax: (011-52-55) 5565-7217 E-mail: [email protected] URL: http://www.normex.com.mx Standards area: Foods, beverages, packaging, packages, and quality systems Organismo Nacional de Normalización y Certificación de la Construcción y Edificación, S.C. ONNCCE (National Body for the Standardization and Certification of Constructions and Buildings) Arq. Franco Mauricio Bucio Mujica Technical Director Constitución No. 50 Col. Escandón 11800 México, D.F. Tel: (011-52-55) 5273-3399 / 1991 Fax: (011-52-55) 5273-3431 E-mail: [email protected] URL: http://www.onncce.org.mx Standards area: Construction

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Societé General de Surveillance de México, S.A. de C.V., División ICS International Certification Services (General Surviellance Society of México) Ing. Alejandro Rios Alvarado Divisional Director Ingenieros Militares No. 85, Piso 5 Col. Argentina Poniente 11230 Mexico, D.F. Tel: (011-52-55) 5387-2100 Fax: (011-52-55) 5387-2182 E-mail: [email protected] URL: http://www.sgs.com.mx Standards area: General and quality systems Consejo para el Fomento de la Calidad de la Leche y sus Derivados, A.C. COFOCALEC (Council for the promotion of the quality of milk and its by-products) Dr. Sergio Soltero Gardea Director General Calle Pedro Moreno No. 1743, Piso 3 Colonia Americana 44660 Guadalajara, Jalisco Tel: (011-52-33) 3630-2976 Fax: (011-52-33) 3630-2976 E-mail: [email protected] URL: http://www.cofocalec.org.mx Standards area: Milk and milk products Dirección General de Normas (General Directorate of Standards) Secretaria de Economia (SEC) C.P. Miguel Aguilar Romo Director General Av. Puente de Tecamachalco No. 6 Lomas de Tecamachalco Naucalpan de Juarez, 53950 Edo. de México, México Tel: (011-52-55) 5729-9475/9476 Fax: (011-52-55) 5520-9715 E-mail: [email protected] URL: http://www.economia.gob.mx Standards area: General and metrology

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4.10.5

220

Banking

Mexican Commercial Banks Grupo Financiero Santander- Serfin, S.A. Ing. Marcos Martinez Gavica Director General Prol. Paseo de la Reforma No. 500 Col. Lomas de Santa Fé 01219 México, D.F. Tel: (011-52-55) 257-8000 Fax: (011-52-55) 5269-2555 URL: http://www.serfin.com.mx; http://www.bsantander.com.mx E-mail: [email protected] Grupo Financiero Bital.S.A Mr. Alexander Flockhart Presidente Paseo de la Reforma No. 156 - piso 3 Col. Juaréz 06600, México, D.F. Tel: (011-52-55) 5721-2937 (011-52-55) 5721-2222 SWB Fax: (011-52-55) 5721-2993 E-mail: [email protected] URL: http://www.bital.com Grupo Financiero Inbursa, S.A. de C.V. Lic. José Ponce Hernandez Promotion Director Paseo de las Palmas No. 736, Planta Baja Col. Lomas de Chapultepec 11000 México D. F. Tel: (011-52-55) 202-1122 Fax: (011-52-55) 5520-0389 E-mail : [email protected] URL: www.inbursa.com Banco Mercantil del Norte, S.A. Institución de Banca Múltiple Grupo Financiero (Banorte) C.P. Othón Ruiz General Director Paseo de la Reforma No. 359 Col. Cuauhtémoc 06500 México, D.F. Tel: (011-52-55) 5208-2044 Fax: (011-52-55) 5625-4851 E-mail: [email protected] URL: http://www.banorte.com.mx

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Banco Nacional de Mexico, S.A. (Banamex) C.P. Alfredo Harp Helu Chairman of the Board of Grupo Financiero Banamex Accival Isabel la Católica No. 44, 1er Piso Col. Centro 06089 México, D.F. Tel: (011-52-55) 1226-5178 Fax: (011-52-55) 1226-4039 E-mail: [email protected] URL: http://www.banamex.com.mx Banco Nacional de México, S. A. (Banamex) Mr. Julio A. de Quesada Corporate Director (Banca Corporativa y de Inversion de Banamex Actuario Roberto Medellin No. 800, Torre Sur, Piso 5 Col. Santa Fe 01210 México D. F. Tel: (011-52-55) 1226-6742 Fax: (011-52-55) 2226 7671 E-mail: [email protected] URL: http://www.banamex.com BBVA - Bancomer, S.A. Ing. Ricardo Guajardo Touche President Ave. Universidad No.1200, 2o. Piso Col. Xoco 03339 México, D.F. Tel: (011-520 5621-3301 (011-52-55) 5621-3434 SWB Fax: (011-52-55) 5621-3988 E-mail: [email protected] URL: http://www.bancomer.com Grupo Financiero Scotia Bank Inverlat, S.A. Mr. Peter Cardinal President and CEO Blvd. M. Avila Camacho No. 1, Piso 19 11009 México, D.F. Tel: (011-52-55) 5229-2760; (011-52-55) 5229-2929 Fax: (011-52-55) 5229-2144 E-mail: [email protected] URL: http://www.scotiabankinverlat.com

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Mexican Development Banks Banco Nacional de Comercio Exterior (Bancomext) Lic. Jose Luis Romero Hicks General Director Camino a Sta. Teresa No. 1679, Piso 12, Col. Jardines del Pedregal 01900 México, D.F. Tel: (011-52-55) 5481-6012 (011-52-55) 5481-6000 SWB Fax: (011-52-55) 5652-9408 E-mail: [email protected] URL: http://www.bancomext.com.mx Financiera Rural (Banrural) Dr. Jose Antonio Meade Kuribreña General Director Agrarismo No. 227 Col. Escandón 11800 México, D.F. Tel: (011-52-55) 5273-1465 (011-52-55) 5723-1300 SWB; ext. 2022, 2004 Fax: (011-52-55) 5230 1639 E-mail: [email protected] URL: http://www.financierarural.gob.mx Banco Nacional de Obras y Servicios Públicos, S.N.C. (Banobras) Lic. Felipe Calderón Hinojoza Javier barrio sierra 515 7-floor Col. Lomas de Santa Fe 01219 México, D.F. Tel: (011-52-55) 5270-1200 Fax: (011-52-55) 5270-1564 E-mail: [email protected] URL: http://www.banobras.gob.mx Banco Nacional del Ejército, Fuerza Aérea y Armada, S.N.C. (Banjército) Gral de Brigada Diplomado del Estado Mayor Fernando Millan Villegas General Director Ave. Industria Militar No. 1055 Col. Lomas de Sotelo 11200 México, D.F. Tel: (011-52-55) 5557-8661 (011-52-55) 5557-9188 SWB Fax: (011-52-55) 5557-6249 E-mail: [email protected] URL: www.banjercito.com.mx

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Nacional Financiera, SNC Lic. Roberto Casillas Contreras Medellín Under Internacional Director Insurgentes Sur No. 1971, Torre III y IV, nivel jardin anexo piso financiero Col. Guadalupe Inn 01020 México, D.F. Tel: (011-52-55) 5325-7050 / 51; (011-52-55) 5325-6000 Fax: (011-52-55) 5325-7557 E-mail: [email protected] URL: http://www.nafin.gob.m

U.S. Bank Offices in Mexico American Express Bank (México),S.A. C.P. Manuel Armendariz General Director Av. Patriotismo No. 635, Piso 4 Col. Ciudad de los Deportes 03710 México, D.F. Tel: (011-52-55) 5326-2907 / 01 Fax: (011-52-55) 5326-2908 E-Mail: [email protected] Bank of America Mexico Mr. John S. Donnelly President Lic . Gerbert Perez General Director Av. Paseo de la Reforma 265, Piso 22 PH 1,2,3 Col. Cuauhtémoc 06500 México, D.F. Tel: (011-52-55) 5230-6300 / 6400 / 6300 Fax: (011-52-55) 5230-6369 Julio de Quesada Director Corporativo de Banca Corporativa y de Inversion BANAMEX CITI GROUP Address: Actuario Roberto Medellin, No. 800 -Piso 5 Col. Santa Fe 01210 Mexico,D.F. E-mail: [email protected]

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Bank of Boston Mr. Jim Callahan Representative Bosque de Alisos No. 47, B. Piso 3 Col. Bosques de las Lomas 05120 México D. F. Tel: (011-52-55) 5257-7900 Fax: (011-52-55) 5257-7979/7950 E-mail: [email protected] URL: http://www.bankboston.com.mx Bank of New York Walfer Mejia Representative Andrés Bello No. 10 - 8vo. Piso Col. Chapultepec Polanco 11560 Mexico, D.F Tel.: 5282-9190 to 93 Fax: 5282-9194 E-mail: [email protected] URL: http://www.bankofny.com Bank One International Corporation Mr. Carlos Damaso Galguera Martinez Representative Río Sena No. 54, Planta Baja Col. Cuauhtémoc 06500 México D.F. Tel: (011-52-55) 5546-7178 Fax: (011-52-55) 5566-2997 E-mail: [email protected] URL: http://www.bankone.com Bank One Mexico S.A. Institución de Banca Múltiple Sr. Julio Gomez General Director Rubén Darío No. 281, Piso 10 Col. Bosque de Chapultepec 11580 México, D.F. Tel: (011-52-55) 5283-3300 Fax: (011-52-55) 5283-3320 E-mail: [email protected]; [email protected]

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Barclays Bank Lic. Roberto Latapí Fox Representative Torre Chapultepec Ruben Dario No.281- 15th.floor Col. Bosques de Chapultepec 11580 Mexico, D. F. Tel: 5281-3323 Fax: 5281-3591 E-mail: [email protected] First International Bank Ing. Jorge Navarro Moreno Representative WORLD TRADE CENTER Montecito No. 38, Piso 30, Ofna 34 Col. Napoles 03810 México D.F. Tel: (011-52-55) 5488 2276 Fax: (011-52-55) 5488 2776 E-mail: [email protected] URL: www.bankboston.com.mx HSBC Bank Mexico S.A. Mr. Alexander Flockhart General Director Ing. Luis Miguel Vilatela Subdirector Reforma 156 3-floor Col. Juaréz 06600 México, D.F. Tel: (011-52-55) 5721-6976 Fax: (011-52-55) 5721-2993 JP Morgan Bank Sr. Eduardo Cepeda Fernández Representative Paseo de las Palmas No. 405 - 16th.floor -Torre Optima Col. Lomas de Chapultepec 11000 - México, D.F. Tel: 5540-9333/5540-9594 Fax: 5540-9548 E-mail: [email protected] URL: http://www.jpmorgan.com

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National Bank for Cooperatives (CoBank) Lic. Francisco Zamores Representative Insurgentes Sur No. 1802, Piso 2 Col. Florida San Angel 01030 México, D.F. Tel: (011-52-55) 5661-2776 / 9408 / 9785 Fax: (011-52-55) 5661-9408 E-mail: [email protected]

4.10.6

U.S. Agricultural Cooperator Offices in Mexico

American Forest & Paper Association Ms. Claudia Villagomez Director Jaime Balmes No. 8 - 201 Col. Los Morales Polanco 11510 México, D.F. Tel: (011-52-55) 5282-2111 / 5282-0993 Fax: (011-52-55) 5282-0919 E-mail: [email protected] URL: http://www.afandpamexico.org American Hardwood Export Council Mr. Luis Zertuche Director Jaime Balmes No. 8 - 201 Col. Los Morales Polanco 11510 México, D.F. Tel: (011-52-55) 5282-0909 / 0918 Fax: (011-52-55) 5282-0919 E-mail: [email protected]; [email protected] URL: http://www.ahec-mexico.org American Peanut Council Ms. Ma Cristina Compean Palacios Representative Cerrada de La Otra Banda No. 58-4 Tizapán San Angel 01090 México, D.F. Tel: (011-52-55) 5616-6580 Fax: (011-52-55) 5616-4362 E-mail: [email protected]

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American Soybean Association Mr. Mark Andersen, Regional Director Lic.(por el momento esta vacante) Deputy Director Jaime Balmes No. 8 - 201 Col. Los Morales Polanco 11510 México, D.F. Tel: (011-52-55) 5281-0120 / 5281-6150 Fax: (011-52-55) 5281-6154 E-mail: [email protected] URL: www.soyamex.com.mx APA The Engineered Wood Association Mr. Philippe Mercado Director Jaime Balmes No, 8 - 201 Col. Los Morales Polanco 11510 México, D.F. Tel: (011-52-55) 5273-7203 Fax: (011-52-55) 5281 6089 E-mail: [email protected] Cotton Incorporated Mr. Gerardo Lastiri Director Av. Insurgentes Sur No. 1605, 9-C Col. San José Insurgentes 03900 México, D.F. Tel: (011-52-55) 5663-4020 Fax: (011-52-55) 5663-4023 E-mail: [email protected]; [email protected] URL: www.cottoninc.com Grupo PM SA DE CV Mr. Luis Moreno Aguilar Director General Sol esq Mercurio No. 24 Col. Jardines de Cuernavaca 62360 Cuernavaca, Morelos Tel: (011-525) 7-77316-7370 Fax: (011-52-5) 7-77316-7369 E-mail: [email protected] National Cottonseed Products Association Mr. Ricardo Silva Representative Paseo de las Eglandinas #4157 Col. Parques de la Canada 25080 Saltillo, Coahuila Tel/Fax: (011-52-5) 844-489-3285 E-mail: [email protected]; [email protected]

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Marketing Solutions Mr. Ricardo Nakachima -Director Mintla No.221 Col. Narvarte 03020 México, D.F. Tel: (011-52-55) 9180-2311 / 12 /13 Fax: (011-52-55) 9180-2310 E-mail: [email protected]; [email protected] National Renderers Association Mr. German Davalos Larrea Director Jaime Balmes No. 8 - 20 Col. Los Morales Polanco 11510 México, D.F. Tel: (011-52-55) 5281-6080 Fax: (011-52-55) 5281-6085 E-mail: [email protected]; [email protected] URL: www.nra.com National Sunflower Association Mr. Jose Luis Escamilla Representative Jose Ma. Rico No. 212-702 Col. Del Valle 03100 México, D.F. Tel: (011-52-55) 5524-8273 / 5524-8192 Fax: (011-52-55) 5534-8997 E-mail: [email protected] URL: www.sunflowernsa.com Southern Softwood Export Council Dr. Ramon Echenique Manrique Director Km. 3.5 Carretera Coatepec - Las Trancas Col. El Grande 91607 Coatepec, Ver. Tel (011-52-55) 22- 8816-4780 Fax: (011-52-55)22 - 8816-3850 E-mail: [email protected]; spcsec@mecma_sa.com U.S. Dairy Export Council Mr. Larry Solberg Chrising Director Matanzas No. 733 - C Col.Lindavista 07300 México, D.F. Tel: (011-52-55) 5119-0475 / 76 Fax: (011-52--55) 5119-0477 E-mail: [email protected] URL: www.usdecmex.org.mx

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U.S. Grains Council Dr. Ricardo Celma Director Jaime Balmes No. 8 - 201 Col. Los Morales Polanco 11510 México, D.F. Tel: (011-52-55) 5282-0973 / 0974 / 0977 / 0244 Fax: (011-52-55) 5282-0969 E-mail: [email protected] URL: www.grains.org U.S. Meat Export Federation Sr. Gilberto Lozano Director General Jaime Balmes No. 8 - 201 Col. Los Morales Polanco 11510 México, D.F. Tel: (011-52-55) 5281-6100 / 5281-6016 thru 20 Fax: (011-52-55) 5281-6013 E-mail: [email protected] URL: www.usmef.org.mx U.S. Poultry & Egg Export Council Mr. Jose Luis Cruz Director Blvd. Diaz Ordaz No. 140 piso 7 Col. Santa Maria 64650 Monterrey, N. L. Tel: (011-52-55) 81-8333 7582 / 88 Fax: (011-52- 55) 81-8333 3731 E-mail: [email protected] Oficina en México D. F. of the U.S. Poultry & Egg Export Council Lic. Susana Cortes Marketing Manager Jaime Balmes # 8 - 201 Col. Los Morales Polanco 11510 México, D.F. Tel: (011-52-55) 5282-0946 / 0933 / 0942 Fax: (011-52-55) 5282-0952 E-mail: [email protected] URL: www.usapeec-mex.org U.S. Wheat Associates Mr. Mitch Skalicky Director Jaime Balmes No. 8 - 201 Col. Los Morales Polanco 11510 Mexico, D.F. Tel: (011-52-55) 5281-6560 Fax: (011-52-55) 5281-3455 E-mail: [email protected]; [email protected] URL: www.uswheat.org www.icongrouponline.com

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U.S. Government Contacts in Washington D.C.

U.S. Department of Commerce International Trade Administration Office of NAFTA Mr. Andrew Rudman, Acting Director 14th Street & Constitution Avenue, NW Room No. 3024 Washington, D.C. 20230 E-mail: [email protected] Tel: (202) 482-0507/0393 Fax: (202) 482-5865 U.S. Company Advisement/Advocacy at the IDB Commerce Department Liaison Unit Office of U.S. Executive Director Mr. Gene Harris Inter-American Development Bank 1300 New York Avenue, NW Washington, D.C. 20577 Tel: (202) 623-3821 Fax: (202) 623-2039 E-mail: [email protected] URL: http://www.iadb.org Deborah S. Moronese Manager, Latin America Investment Development & Economic Growth OPIC 1100 New York Ave, NW Washington, D.C. 20520 Tel: 202-336-8647 Fax: 202-218-0315 E-mail: [email protected] URL: www.opic.gov Export-Import Bank of the United States Ms. Michelle Wilkins Loan Officer for Mexico International Business Development 811 Vermont Avenue, N.W. Washington, D.C. 20571 Tel: (202) 565-3743 Fax: (202) 565-3420 URL: http://www.exim.gov

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Xiomara Creque Business Development Officer International Business Development Export-Import Bank of the United States 811 Vermont Avenue, NW Washington, DC 20571 Tel: 202-565-3475 Fax: 202 565-3961 E-mail: [email protected] U.S. Trade and Development Agency Mr. Albert W. Angulo Regional Director Kenny Miller Country Manager Latin American and the Caribbean 1000 Arlington Blvd, Suite 1600 Arlington, Va 22209-3901 Tel: (703) 875-4357 Fax: (703) 875-4009 E-mail: [email protected] URL: http://www.tda.gov U.S. Department of State Bureau of Inter-American Affairs Office of Mexican Affairs Roberto Jacobson Director 2201 C Street, N.W., Rm. 4258 Washington, D.C. 20520 E-mail: [email protected] Tel: (202) 647-9894 Fax: (202) 647-5752 Office of the United States Trade Representative Mr. John Melle Senior Director for North American Affairs 600 17th Street, NW Washington, DC 20508 Tel: (202) 395-3412 Fax: (202) 395-9675

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U.S.-Based Partners Relevant for Mexico

United States Chamber of Commerce Mr. Stephen Jordan Director of Special Programs for the Chamber & Executive Director for the Center for Corporate Citizenship Mr. John Murphy Executive Director, Latin American Affairs 1615 H Street, NW Washington, D.C. 20062-2000 Tel: (202) 463-5490/3133 Fax: (202) 463-3126 E-mail: [email protected]; [email protected] URL: http://www.uschamber.com United States-México Chamber of Commerce Mr. Gerardo Funes Communications Director and business research 1300 Pennsylvania Avenue N.W, Suite 270 Washington, D.C. 20004 Tel: (202) 371-8680 ext 815 Fax: (202) 371-8686 E-mail: [email protected]; [email protected] URL: http://www.usmcoc.org United States Hispanic Chamber of Commerce Mr. George Herrera President and CEO 2175 K Street, N.W. Suite 100 Washington, D.C. 20037 Tel: (202) 842-1212 Fax: (202) 842-3221 E-mail: [email protected] URL: http://www.ushcc.com Inter-American Development Bank John Ferriter Public Information Center 1300 New York Avenue, N.W. Washington, D.C. 20577 Tel: 202/623-1000/2096 Fax: 202/623-3096/1928 E-mail: [email protected] URL: http://www.eadb.org

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233

Association of State Offices in Mexico (ASOM)

The U.S. state offices in Mexico can assist firms with business counseling, locating agents, distributors, and buyers, participation in trade exhibitions, and other forms of market entry assistance.

Arizona Steven Sullivan - Director Av. Hidalgo No. 2375 - 6th floor Col. Vallarta Norte 44690 Guadalajara Jalisco Tel: (011-52) 33 3630-2755 / 3615 5379 Fax: (011-52) 33 3630 4432 E-mail: [email protected]

Arkansas John Leonard - Representative Durango No. 353 - 1 Piso Col. Roma 06700 México D.F. Tel: (011-52-55) 5211-6243 / 6308 Fax: (011-52-55) 5211-5776 E-mail: [email protected]; [email protected] URL: www.ccgamericas.com

California Douglas Smurr - Director Paseo de la Reforma No. 265 Piso 14 Col. Cuauhtémoc 06500 México, D.F. Tel: (001-52-55) 5533-1111 Fax: (011-52-55) 5533-5202 E-mail: [email protected] URL: www.california.org.mx

Colorado - New Mexico Felipe Corrales - Director Mariano Otero No. 1332 Col. Jardines del Bosque 44530 Guadalajara, Jalisco Tel: (011-52) 33 3647-5908 / 9799 Fax: (011-52) 33 3122-2963 E-mail: [email protected]

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Connecticut Noe de la Flor - Representative Llianten No. 54 (esq. Mandrano) Col. Xotepingo 04610 México D.F. Tel: (011-52-55) 5544-5138 / 5682-2811 Fax: (011-52-55) 5689-1909 E-mail: [email protected]

Florida Ana Arroyo - Director U.S. Commercial Trade Center Liverpool No. 31 Col. Juaréz 06600 México, D.F. Tel: (011-52-55) 5140-2600 / 2677 Fax: (011-52-55) 5535-2545 E-mail: [email protected]

Georgia Roberto Coeto - Director U.S. Commercial Trade Center Liverpool No. 31 Col. Juaréz 06600 México, D.F. Tel: (011-52-55) 5140-2600 / 2676 Fax: (011-52-55) 5535-2545 E-mail: [email protected]

Idaho Ing. Armando Orellana - Representative Av. Niños Héroes No. 2905 - Ofna. 6 Col. Jardines del Bosque 44520 Guadalajara, Jalisco Tel: (011-52) 33 3121-2220 Fax: (011-52) 33 3121-1778 E-mail: [email protected] URL: www.idahodrade.com

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Illinois Raymundo Flores - Director (Commerce) Amparo Garza-Lang - Director (Agriculture) Paseo de la Reforma No. 265 - Piso 14 Col. Cuauhtémoc 06500 México D.F. Tel: (011-52-55) 5533-6666 / 5174 Fax: (011-52-55) 5533-5163 E-mail: [email protected]; [email protected] URL: www.illinoislatinoamerica.org

Indiana, Iowa, Kansas, and Oregon Antoinette Allegretti- Representative Av. Nueva York No. 273 Col. Nápoles 03810 Mexico, D.F. Tel: (011-52-55) 5687-5615 / 5623 Fax: (011-52-55) 5682-0748 E-mail: [email protected] URL: www.tmsamericas.com

Kentucky Marcos Castillo - Director Av. Niños Heroes No. 2903-6 Col. Jardines del Bosque 44520 Guadalajara, Jalisco Tel: (011-52) 33 3122-8105 Fax: (011-52) 33 3122-5930 E-mail: [email protected] URL: www.kentucky.org.mx

Maryland Cariline Verut de Breña - Representative Bucareli No. 128 - F8 Col. Centro México D.F. Tel: (011-52-55) 5512 4053; 04455 54334926 Fax: (011-52-55) 5512 4053 E-mail: [email protected]

Michigan Manuel Otalora - Director Acordada No. 18 - 201 San José Insurgentes 03900 México D.F. Tel: (011-52-55) 5611-8954 / 8958 Fax: (011-52-55) 5563-8150 E-mail: [email protected] www.icongrouponline.com

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Missouri - Agriculture Oscar Andres Gonzalez Ortiz - Director Representacion Oficial Agricola del Edo. De Missouri for Latino America Simon Bolivar No.469 Col. Lafayette 44150 Guadalajara, Jal. Tel: (011-52) 33-3616-6251 / 3615-3472 Fax: (011-52) 33-3616-6554 Email: [email protected]; [email protected]; [email protected]

Missouri - Commerce David Eaton - Director Justo Sierra No. 371 Col. Anahuac San Nicolas de las Garzas 66450 Monterrey, N. L. Tel: (011-52) 81-8332-3538 Fax: (011-52) 81-8332-3349 E-mail: [email protected] Suc. Guadalajara Lic. Enrique Gonzalez Rodríguez Eulogia Parra No. 1730 Col. Ladron de Guevara 44600 Guadalajara, Jal. Tel: (011-52) 33-36168369 Fax: (011-52) 33-36168369 E-mail: [email protected]

New Jersey Jose Ramon Fernandez - Director Homero No. 538-303 Col. Polanco 11600 México, D.F. Tel: (011-52-55) 5240-5722 Fax: (011-52-55) 5240-5723 E-mail: [email protected]

New York Cecilia Via - Director U.S. Commercial Trade Center Liverpool 31 Col. Juarez 06600 México, D.F. Tel: (011-52-55) 5140-2600 / 2675 Fax: (011-52-55) 5535-2545 E-mail: [email protected]

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North Carolina David Stamey - Director Av. Magno Centro No. 11, Piso 5 Col. Centro Urbano Interlomas 52760 Huixquilucan, Edo. de México Tel: (011-52-55) 5245-9041 / 42 Fax: (011-52-55) 5245-9049 E-mail: [email protected]

Ohio Miguel de Regil - Director Blvd. Manuel Avila Camacho No. 88, piso 1, Desp. 104 Torre Picasso Col. Lomas de Chapultepec 11000 México D.F. Tel: (011-52-55) 5540-2825 Fax: (011-52-55) 5540-7313 E-mail: [email protected]; [email protected]

Oklahoma Luis Domenech Macias- Representative Jorge Elliot No. 12, Piso 701 Col. Polanco 11560 México D.F. Tel: (011-52-55) 5280-7233 / 9688 / 9087 Fax: (011-52-55) 5281-0578 E-mail: [email protected]

Pennsylvania Joaquin Frias Maurer - Director Jose Maria Velasco No. 67 Col. San Jose Insurgentes 03900 México D. F. Tel: (011-52-55) 1087-2828 Fax: (011-52-55) 1087-2822 E-mail: [email protected]; [email protected]

Puerto Rico Fernando Rivera - Director Laba No. 232 Col. Jardines del Pedregal 01900 México D. F. Tel: (011-52-55) 5553-2730 Fax: (011-52-55) 5211-9583 E-mail: [email protected]

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Texas Julio Bastarrachea - Director Hotel Ma. Isabel Sheraton Paseo de la Reforma No. 325, P.B. Col. Cuauhtemoc 06500 México D.F. Tel: (011-52-55) 5514-8100 / 2371 Fax: (011-52-55) 5514-6628 E-mail: [email protected]

Utah Guadalupe M. de Escalante - Director Florencia No. 39, piso 6 Col. Juarez 06600 México D.F. Tel: (011-52-55) 5544 5142 Fax: (011-52-55) 5689 1969 E-mail: [email protected]

Virginia Margo Galvan - Directora U.S. Trade Center Liverpool No. 31 Col. Juarez 06600 México D.F. Tel: (011-52-55) 5140-2674 Fax: (011-52-55) 5535-2545 E-mail: [email protected]

Wisconsin Vincent Lencioni - Director P. de la Reforma No. 199 - 1401 Col Cuauhtemoc 06500 México, D.F. Tel: (011-52-55) 5546-9252 / 9361 / 9581 / 9765 Fax: (011-52-55) 5546-9819 E-mail: [email protected] URL: www.commerce.wi.uf

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Labor Organizations

Congreso del Trabajo (CT) Leonardo Rodriguez Alcaine, President Antonio Reyes, Vice President Leonel Dominguez, Vice President Av. Ricardo Flores Magon 44, 7o. Piso Col. Guerrero 06300 México D. F. Tel: (011-52-55) 5583-5779 / 3817; direct: 5703 3112 ext. 228 Fax: (011-52-55) 5583-7506 E-mail: [email protected] Coordinating mechanism (not really an organization), and service and research center. Independent Federations and Unions not in Congress of Labor Apolitical Federations (Often called "White" or Company Union, Federation) Federacion Nacional de Sindicatos Independientes (FNSI) Jacinto Padilla Valdez, Secretary General Isaac Garza y Galena 311 Ote. Col. Centro Monterrey, N. L. Tel: (011-52) 81 8375 6664 / 8374 1774 E-mail: [email protected] Federación de Sindicatos Libres Lic. Juan Alberto Escamilla Garza - Secretary General Henry Dunant No. 334 Col 15 de Mayo 64410 Monterrey, N. L. Tel: (011-52) 81 8374 0567/5582/6844 Fax: (011-52) 81 8374 0678 E-mail: [email protected] URL: www.idhyal.com Federación de Trabajadores de los Sindicatos Autonomos Pedro Esquivel Trejo, Secretary General Amado Nervo 130 Nte. Monterrey, N. L. Tel/Fax: (011-52) 81 8342 0588

Other Forum Members National Union of Workers (UNT) Francisco Hernandez Juarez, Francisco Rocha, and Agustin Rodriguez Co-Presidents C/O STRM Manuel Villalongin No. 50 Col. Cuauhtemoc 06500 México, D. F. Tel: (011-52-55) 5140 1400 Fax: (011-52-55) 5703 2583

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Federal Government and Tripartite Federal Labor Bodies or Institutions Secretaria del Trabajo y Prevision Social (STPS) Lic. Carlos Abascal Carranza, Secretary Tel: (011-52-55) 5645 5591/2962 Fax: (011-52-55) 5645 5594 E-mail: [email protected] Lic. Fernando Franco Gonzalez S., Under Secretary (Juridical: Labor Relations, Unions, etc.) Tel: (011-52-55) 5645 2344/4340 Fax: (011-52-55) 5645 2345 E-mail: [email protected] Lic. Hipolito Treviño, Acting Under Secretary (Employment, Training, Productivity) Tel: (011-52-55) 5645 2965/6057/3472 Fax: (011-52-55) 5644-0392 E-mail: [email protected] Lic. Francisco Xavier Salazar Saenz, Under Secretary (Social Prevention) Tel: (011-52-55) 5449 2185/645 3995 Ext. 2185 Fax: (011-52-55) 5645 3995 Ext. 2344 E-mail: [email protected] Lic. Claudia Franco Hijuelos, General Coordinator of International Affairs Tel: (011-52-55) 5645 2841 Fax: (011-52-55) 5645 4218 E-mail: [email protected] Lic. Claudia Anel Valencia, Secetary, Mexican National Administrative Office (NAO) for the North American Agreement on Labor Cooperation (NALC, NAFTA Cooperation) Periferico Sur 4271 Blg. A P.B Col. Fuentes del Pedregal 14149 México, D. F. Tel: (011-52-55) 5645 2218/3342 Fax: (011-52-55) 5645 4218 E-mail: [email protected]; [email protected] Federal Conciliation and Arbitration Board (JFCA) Lic. Virgilio Mena Becerra - President Dr. Andrade 45 piso 2 Col. Doctores 06720 México D. F. Tel: (011-52-55) 5722 8768 Fax: (011-52-55) 5722 8702 E-mail: [email protected]

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National Minimum Wage Commission (CNSM) Lic. Basilio Gonzalez Nuñez, President Av. Cuauhtemoc 14 - piso 2 Col. Doctores 06720 México D. F. Tel: (011-52-55) 5761 6033/80 Fax: (011-52-55) 5578 5775 E-mail: [email protected] National Worker Housing Institute (INFONAVIT) Instituto del Fondo Nacional de la Vivienda para los Trabajadores C.P. Victor Manuel Borras Setien - Director General Barranca del Muerto 280 piso 4 Col. Guadalupe Inn 01029 México D. F. Tel: (011-52-55) 5322-6888 Fax: (011-52-55) 5322-6831 E-mail: [email protected] Office of the Federal Prosecutor for the Defense of Workers (PROFEDET) Procuraduria Federal de la Defensa del Trabajo Lic. Miguel Angel Gutierrez Cantu - Procurador General Dr. Vertíz 211 - piso 3 Col Doctores. 06720 México D.F. Tel: (011-52-55) 5761 1581/1730 Fax: (011-52-55) 5761 1580 ext. 4509 E-mail: [email protected]

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5 5.1

DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS DISCLAIMERS & SAFE HARBOR

Summary Disclaimer. This publication ("Report") does not constitute legal, valuation, tax, or financial consulting advice. Nor is it a statement on the performance, management capability or future potential (good or bad) of the company(ies), industry(ies), product(s), region(s), city(ies) or country(ies) discussed. It is offered as an information service to clients, associates, and academicians. Those interested in specific guidance for legal, strategic, and/or financial or accounting matters should seek competent professional assistance from their own advisors. Information was furnished to Icon Group International, Inc. ("Icon Group"), and its subsidiaries, by its internal researchers and/or extracted from public filings, or sources available within the public domain, including other information providers (e.g. EDGAR filings, national organizations and international organizations). Icon Group does not promise or warrant that we will obtain information from any particular independent source. Published regularly by Icon Group, this and similar reports provide analysis on cities, countries, industries, and/or foreign and domestic companies which may or may not be publicly traded. Icon Group reports are used by various companies and persons including consulting firms, investment officers, pension fund managers, registered representatives, and other financial service professionals. Any commentary, observations or discussion by Icon Group about a country, city, region, industry or company does not constitute a recommendation to buy or sell company shares or make investment decisions. Further, the financial condition or outlook for each industry, city, country, or company may change after the date of the publication, and Icon Group does not warrant, promise or represent that it will provide report users with notice of that change, nor will Icon Group promise updates on the information presented. Safe Harbor for Forward-Looking Statements. Icon Group reports, including the present report, make numerous forward-looking statements which should be treated as such. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995, and similar local laws. Forward-looking statements involve known and unknown risks and uncertainties, which may cause a company's, city's, country's or industry's actual results or outlook in future periods to differ materially from those forecasted. These risks and uncertainties include, among other things, product price volatility, exchange rate volatility, regulation volatility, product demand volatility, data inaccuracies, computer- or software-generated calculation inaccuracies, market competition, changes in management style, changes in corporate strategy, and risks inherent in international and corporate operations. Forward-looking statements can be identified in statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate,'' "estimate," "expect,'' "project,'' "intend,'' "plan,'' "feel", "think", "hear," "guess," "forecast," "believe," and other words and terms of similar meaning in connection with any discussion of future operating, economic or financial performance. This equally applies to all statements relating to an industry, city, country, region, economic variable, or company financial situation. Icon Group recommends that the reader follow the advice of Nancy M. Smith, Director of SEC's Office of Investor Education and Assistance, who has been quoted to say, "Never, ever, make an investment based solely on what you read in an online newsletter or Internet bulletin board, especially if the investment involves a small, thinly-traded company that isn't well known … Assume that the information about these companies is not trustworthy unless you can prove otherwise through your own independent research." Similar recommendations apply to decisions relating to industry studies, product category studies, corporate strategies discussions and country evaluations. In the case of Icon Group reports, many factors can affect the actual outcome of the period discussed, including exchange rate volatility, changes in accounting standards, the lack of oversight or comparability in accounting standards, changes in economic conditions, changes in competition, changes in the global economy, changes in source data quality, changes in reported data quality, changes in methodology and similar factors. Information Accuracy. Although the statements in this report are derived from or based upon various information sources and/or econometric models that Icon Group believes to be reliable, we do not guarantee their accuracy, reliability, quality, and any such information, or resulting analyses, may be incomplete, rounded, inaccurate or condensed. All estimates included in this report are subject to change without notice. This report is for informational purposes only and is not intended as a recommendation to invest in a city, country, industry or product area, or an offer or solicitation with respect to the purchase or sale of a security, stock, or financial instrument. This report does not take into account the investment

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objectives, financial situation or particular needs of any particular person or legal entity. With respect to any specific company, city, country, region, or industry that might be discussed in this report, investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the information in this report. Investing in either U.S. or non-U.S. securities or markets entails inherent risks. In addition, exchange rate movements may have an effect on the reliability of the estimates provided in this report. Icon Group is not a registered Investment Adviser or a Broker/Dealer.

5.2

ICON GROUP INTERNATIONAL, INC. USER AGREEMENT PROVISIONS

Ownership. User agrees that Icon Group International, Inc. ("Icon Group") and its subsidiaries retain all rights, title and interests, including copyright and other proprietary rights, in this report and all material, including but not limited to text, images, and other multimedia data, provided or made available as part of this report ("Report"). Restrictions on Use. User agrees that it will not copy nor license, sell, transfer, make available or otherwise distribute the Report to any entity or person, except that User may (a) make available to its employees electronic copies of Report, (b) allow its employees to store, manipulate, and reformat Report, and (c) allow its employees to make paper copies of Report, provided that such electronic and paper copies are used solely internally and are not distributed to any third parties. In all cases the User agrees to fully inform and distribute to other internal users all discussions covering the methodology of this Report and the disclaimers and caveats associated with this Report. User shall use its best efforts to stop any unauthorized copying or distribution immediately after such unauthorized use becomes known. The provisions of this paragraph are for the benefit of Icon Group and its information resellers, each of which shall have the right to enforce its rights hereunder directly and on its own behalf. No Warranty. The Report is provided on an "AS IS" basis. ICON GROUP DISCLAIMS ANY AND ALL WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, RELATING TO THIS AGREEMENT, PERFORMANCE UNDER THIS AGREEMENT, THE REPORT. Icon Group makes no warranties regarding the completeness, accuracy or availability of the Report. Limitation of Liability. In no event shall Icon Group, its employees or its agent, resellers and distributors be liable to User or any other person or entity for any direct, indirect, special, exemplary, punitive, or consequential damages, including lost profits, based on breach of warranty, contract, negligence, strict liability or otherwise, arising from the use of the report or under this Agreement or any performance under this Agreement, whether or not they or it had any knowledge, actual or constructive, that such damages might be incurred. Indemnification. User shall indemnify and hold harmless Icon Group and its resellers, distributors and information providers against any claim, damages, loss, liability or expense arising out of User's use of the Report in any way contrary to this Agreement. © Icon Group International, Inc., 2007. All rights reserved. Any unauthorized use, duplication or disclosure is prohibited by law and will result in prosecution. Text, graphics, and HTML or other computer code are protected by U.S. and International Copyright Laws, and may not be copied, reprinted, published, translated, hosted, or otherwise distributed by any means without explicit permission. Permission is granted to quote small portions of this report with proper attribution. Media quotations with source attributions are encouraged. Reporters requesting additional information or editorial comments should contact Icon Group via email at [email protected]. Sources: This report was prepared from a variety of sources including excerpts from documents and official reports or databases published by the World Bank, the U.S. Department of Commerce, the U.S. State Department, various national agencies, the International Monetary Fund, the Central Intelligence Agency, and Icon Group International, Inc.

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