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 Nemak concludes plant purchase
Nemak, a subsidiary of the Mexican company Alfa, completed the
purchase. of an aluminum auto parts plant from TK Aluminum, a Polish
company, in US$71 million transaction, the Company informed last
Thursday.
The Company explained that this transaction was considered in the
agreement signed by and between Nemak and TK Aluminum, on November
2, 2006.
Grupo Alfa is a Mexican company made-up of four business groups,
including Alpek, a petrochemicals company and Sigma, a refrigerated
foods company.
Source: Diario Juarez
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VW produced 82,313 units in the first quarter
In the first quarter of 2007 Volkswagen de Mexico reported an. accrued production in Puebla Plant of 82,313 units, being Bora the model with the largest volume. In a press release, the Company informed that upon closing March, the model with the largest production in said plant was Bora, with 53,421 units. Also, 13,555 units of Jetta model were manufactured; for the New Beetle in its two versions there were 13,918 units produced; 1,022 units have been assembled of Variant, which is also manufactured in Bora's production line; and 397 trucks and buses were produced.
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Mexico and USA sign customs agreement
The US Department of Energy will provide technical. and material assistance to Mexico's General Customs Administration to install high technology equipment for the detection of nuclear and radioactive material in Mexican customs. This support will be possible thanks to the Memo of Understanding signed today by Mexico's Minister of the Treasury, Agustin Carstens and Samuel Bodman, US Secretary of Energy.
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GM projects encourage development
The facts that General Motors tripled the production of Saturn. Vue 2008 with a hybrid engine and that work is already being done in 316 and 318 projects to be manufactured here; and that for the first time Cadillac and Saab automobiles will also be assembled in Mexico, strengthen employment, but most of all the perspectives for growth and development for Coahuila's southeast region.
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Infosys coming to Nuevo León
The largest software company in India has accepted establishing in Nuevo Leon and some. of the Company's executive officers will be here soon to make a formal announcement, a source close to the operation informed. According to this source, which asked to remain anonymous, the Company chose Nuevo Leon because they found the human capital they require, offered by universities, to provide service to their customers in the US market. We approached Samuel Peña, Foreign Investment and International Trade Director in the Ministry of Economic Development, who did not confirm the information, but pointed-out that negotiations with Infosys are very advanced.
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Japanese get investments ready
This year Toyota, Honda and Nissan will make investments in Mexico that will generate. more than 5 thousand direct jobs, announced Eduardo Sojo, Minister of Economy. At the bilateral meeting being held in Japan by government and companies representatives, Minister Sojo declared that Toyota will increase its production in Baja California from 35 thousand to 50 thousand vans and SUVs per year.
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ARTICLE OF THE WEEK
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Innovation in emerging markets
2007 Annual study
Executive Summary (PART I)
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By Deloitte Touche Tohmatsu
Manufacturing
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 Global manufacturers once regarded emerging markets primarily as low-cost locations for routine operations. Now, attracted by the enormous business opportunities, and often encouraged by government policies, manufacturers are locating higher-value activities such as complex production, research and development (R&D), and sales/marketing operations in these rapidly growing economies.
Yet, despite the enormous business opportunities in these markets, a surprising number of companies fall short of their goals. Indeed, Deloitte's Global Manufacturing Industry Group, which is made up of Deloitte member firm manufacturing industry practices, found in its 2007 study of the challenges in emerging markets that less than half of the executives surveyed said their companies had been extremely or very successful in meeting either their operational goals or their revenue goals.
What is preventing so many companies from fulfilling their goals? Most likely, it is because business complexity continues to increase and because managing emerging market operations is a daunting task. To drive revenue growth, companies are developing innovative products that meet the needs of these new and growing markets. But as they locate more sophisticated activities in emerging markets, companies will need to rethink their business approach. They need to tailor their talent management strategy to each market, and go beyond relying only on compensation by placing more emphasis on training, non-monetary rewards and recognition, and career opportunities.
They must be more intelligent about how they effectively manage a highly complex set of risks. And they must install an organizational structure that lets autonomy thrive, while still leveraging strengths from headquarters. In fact, the 2007 study found that manufacturers that take these steps are more likely to be successful.
This report details the key findings of Deloitte's Global Manufacturing Industry Group's 2007 study of the challenges facing manufacturers in emerging markets. This is the second annual edition of this study; the 2006 report focused on how manufacturers can achieve commercial success by developing and producing products at costs that meet the unique needs of consumers and industrial buyers in emerging markets, which have much lower average GDP per capita than in developed markets. (For the 2006 study, please see Innovation in Emerging Markets: Strategies for Achieving Commercial Success).
The 2007 study focused on the operational issues facing manufacturers as they locate and expand in five important markets: China, India, Southeast Asia, Latin America, and Eastern Europe. The research for the study included a survey of 446 executives from manufacturing companies headquartered in 31 countries around the world and in-depth interviews with senior executives at eight major manufacturers. In addition, the study also drew from Deloitte member firm experience in working with manufacturers in emerging markets around the world.
Growing Economic Powerhouses
The tremendous opportunities offered by emerging markets continue to be high on the agendas of manufacturers. In 2005, emerging markets accounted for more than half of world GDP measured at purchasing power parity (which takes into account differences in the relative prices of goods and services) *1. Their share of world exports is now 43 percent, up from 20 percent in 1970, and they consume more than half the world's energy.*2
They are also growing rapidly. While GDP in developed economies expanded by an average 2.3 percent annually over the last five years, annual growth in emerging markets has been almost 7 percent *3. The Economist predicted, "China, India and other developing countries are set to give the world economy its biggest boost in the whole of history. . ." *4
As a result, companies are now operating complex global business networks in which they are designing, supplying, building, selling, and distributing everywhere around the world. Among the executives surveyed, 59 percent said their companies had operations in China, while more than one-third had operations in Eastern Europe, Southeast Asia, and Latin America (Exhibit 1). *5 Not surprisingly, larger companies-those with $1 billion or more in annual revenues-were even more likely to be operating in these locations. More than three-quarters of these executives said their companies had operations in China, and roughly half or more reported having operations in each of the other markets.
Many executives also expect their companies to increase their investments in emerging markets in the coming years. Roughly two-thirds of executives expected their companies would establish or significantly expand their operations in China over the next five years, while roughly half said the same about India, Eastern Europe, Latin America, and Southeast Asia (Exhibit 2).
Among executives who thought it was at least somewhat likely that their companies would invest over the next five years, expanding sales/distribution operations was an important element of their strategies, with roughly three-quarters anticipating they would invest in these operations in each of the emerging markets (Exhibit 3). More than 80 percent of these executives expected their companies would invest in production operations in China, while roughly half anticipated an expansion of production activities in the other markets. Many of these executives who anticipated increased investment also said they expected their companies would expand their research and development activities. Forty-four percent thought it was likely their companies would expand R&D in China, while roughly half expected R&D investments in India and Eastern Europe.
At one time, manufacturing investment in emerging markets was largely about lowering costs through tapping less expensive labor, materials, and components. But today, companies are seeing these locations as new markets for their products and as sources of innovation. The top-rated reason for investments in emerging markets, even more than cost reduction, was to increase revenues and market share rated as extremely or very important by 84 percent of executives (Exhibit 4). Reducing time-to-market, diversifying revenues sources, and accessing talent were other factors rated highly.
Adapting Operations
Seizing this wider range of business opportunities requires companies to rethink how they operate in emerging markets. In many cases, they will need to acquire an entirely new set of skills, processes, and organizational structures. Just as it is critical to produce products that meet the unique preferences of customers in each market, companies will need to adjust business processes, operational approaches, and governance models as well. As a Director of Global Process Optimization at a major US manufacturer explained, "You cannot simply take a North American version of a business practice, move it to China or India, and just flip the switch. It won't work."
Although some approaches are proving to be more successful overall, each manufacturer should craft an operational approach tailored to its specific situation. How a company addresses issues such as talent management or risk management will depend critically on its industry, specific products, and the nature of the operation or process. Clearly, it also depends on the characteristics of the individual emerging market including the labor market, risk profile, nature of sales/distribution, government regulations and incentives, and culture, to name a few. These issues not only vary from country to country, they can also vary within a single market. For example, with foreign investment concentrated in a few locations, there is a wide variation in the labor markets in different locations across China and India.
But attracting skilled workers is often not as great a challenge as retaining them. Roughly one-third of the executives reported that holding on to qualified employees was very difficult in China, India, and Southeast Asia-even more than reported problems in hiring. Indeed, roughly two-thirds of executives reported that retaining qualified employees was at least somewhat difficult in each of the five emerging markets examined.
In China, the booming economy has made it easy for talented, ambitious workers jump to a new job for small increases in pay or better perceived career opportunities. Several executives interviewed said turnover rates for their operations in China were significantly higher than in developed markets. The costs of replacing a high-performing manager have been estimated to range from three times to as much as 20 times the employee's salary.*8 In the American Chamber of Commerce's annual member survey, human resources was the most important concern about doing business in China, ranked higher than such issues as government bureaucracy and corruption. *9
Manufacturers face difficulties in attracting and retaining qualified workers in other markets as well. A 2006 survey by the Japan External Trade Organization of Japanese companies found an unmet need for qualified mid-level managers and engineers in India and Southeast Asia as well as in China. *10 The survey found Thailand had the most severe shortage of engineers, due to the influx of R&D operations by major automobile manufacturers. A 2006 survey across 26 countries by Manpower Inc. found the largest shortages of professional workers in Mexico, where 41 percent of companies said they would have hired more professional staff over the preceding six months if they had been able to find qualified applicants. *11 Increased demand, both from global and local manufacturers, and growing labor shortages have led to rising labor rates in many countries. Wages of factory workers in some regions of China have been raising at double-digit rates, despite the migration of workers from the interior to the more developed coast. *12 In the Czech Republic, wages were up 10 percent in the year ending in the second quarter of 2006, one of the highest rates in the EU. *13
Executives expect this competition for labor will continue to drive up labor costs, especially in China. Forty-one percent of the executives expected labor costs in China to increase substantially over the next five years, while 26 percent had the same expectation for Eastern Europe and 24 percent did for India. Despite the competition they reported in attracting and retaining qualified workers, only 10 percent of executives surveyed expected they would face substantial labor cost increases over the next five years in Latin America and 9 percent did for Southeast Asia.
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MEXICO'S WEEKLY HEADLINES
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| » There is potential to grow 6% |
| » Deputies, ready for fiscal reform |
| » With IVA, the best fiscal reform: World Bank
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| » The regulation on commercial bank will be hardened |
| » Advance of 80% in the fiscal proposal: SHCP
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