Section V. Marketing U.S. Products and Services Depending upon the sector and product, distribution and sales channels in Mexico may differ from those in the U.S. Most foreign companies sell into Mexico by means of a local agent or distributor. As more large retailers establish outlets in Mexican cities, and as more warehousing centers are completed, distribution of consumer goods should become easier. Telemarketing is still rarely used as a strategy. Frequent personal contact by a sales force is generally critical to success, and personal relationships between buyer and seller help to establish credibility and customer loyalty. Mexican manufacturing industries tend to be small. Of the approximately 127,000 registered firms, eighty percent have annual sales under $200,000 and 15 percent under $2 million. U.S. owned manufacturers in Mexico, particularly maquiladoras, source the majority of their inputs from the United States. Procurement decisions may be made or subject to approval by staff in the United States. If the authority is delegated to the overseas plant, criteria applied will be equal to or very similar to those used domestically. While some large retailers may purchase consumer goods directly from manufacturers, small shops will buy from a wholesaler or distributor. Retailers are unwilling to warehouse high volumes of stock and will expect to place smaller orders more frequently during the season, with virtually immediate delivery. During the recent years of adjustment in the Mexican economy, many companies that had been manufacturers became interested in serving as representatives or distributors for imported goods. Especially in the Mexico City metropolitan area, however, saturation has appeared in some sectors. It is becoming increasingly difficult for U.S. companies to obtain the partners they would prefer. Under such conditions American executives should plan to make a personal presentation to potential Mexican counterparts. An Agent Distributor Service (ADS), available through the U.S. and Foreign Commercial Service, should be followed up with a personal trip. Assistance in identifying and scheduling appointments can also be provided through USFCS Mexico's Gold Key program. Another approach may be to appoint companies based in smaller secondary cities as regional distributors. Possibilities could include Monterrey, Guadalajara, Puebla, Leon, Toluca, Aguascalientes, San Luis Potosi, Queretaro, Saltillo, and others. Although US&FCS Mexico only has commercial offices in Mexico City, Monterrey, and Guadalajara, it maintains a list of key contacts in manufacturing and retailing chambers, as well as state development offices. These may help U.S. companies to meet qualified counterparts. Agent/Distributor. Companies seeking representatives may also wish to participate in one of the hundreds of exhibitions held each year. There are several facilities in Mexico City for such shows including the FCS U.S. Trade Center, and Monterrey and Guadalajara have large, modern exhibition centers. Selection of the appropriate agent or distributor requires time, effort, and financial resources. Expectations should be clearly defined, and continuous communication will be necessary to maintain the business relationship. English language ability should not be overemphasized. Other criteria such as product and industry knowledge and contacts, track record, enthusiasm and commitment should be weighed heavily. Although exclusivity will be requested by many potential distributors, their real capacity for nationwide activity should be reviewed carefully. If the product concept is new to the market, or if the market is extremely competitive, advertising and other promotional support should be seriously considered. For most products, service and price are extremely important to Mexican buyers. U.S. firms generally have a reputation for product quality and follow-up support. Careful planning should be made for provision of replacement parts and for technical support of complex products. Many U.S. manufacturers invite personnel of the counterpart firm to spend time at their plants for training. Franchises in Mexico have been growing rapidly, at a rate of 20 to 30 percent per year since 1991. More than 80 U.S. companies have established franchises in Mexico in the last three years. These include restaurants, postal and communications services, video sales and rentals, hotels, car rentals, real estate companies, and dry cleaners. According to SECOFI (Mexican Secretariat of Commerce and Industry) figures, sales at the chains' over 4,000 retail outlets reached $4 billion, with about $156 million paid in franchise fees. About 70 percent of all franchises in Mexico are of international origin. Franchises currently employ about 24,000 workers. There are no barriers to franchisors of any products or services. The direct marketing industry in Mexico is in its infancy. Few goods are yet sold by catalog. Buyers are uncertain about shopping this way, especially for clothing. Available mailing lists have been relatively small, unsophisticated, and infrequently updated, and there have been questions about the reliability of the postal system. Recently there have been developments in sophisticated telemarketing centers that can also handle fulfillment, toll-free telephone service, and improved overnight package delivery. Mexico now has a television broadcast sales channel. Some U.S. catalogers have entered the market within the last year, and more are researching prospects. Joint ventures between foreign and Mexican companies are increasingly popular, with U.S. companies bringing technology, expertise, and equipment and the Mexican partners supplying knowledge of the markets, distribution systems, labor practices, and local laws and regulations. Foreign direct investment in Mexico was $42.5 billion dollars in 1993, with $26.2 billion being of U.S. origin. Under the revised foreign investment law percentage limitations on foreign investment exist only in a few sectors, which include transportation, financial services, communications, and the media. To establish a business in Mexico several procedures must be undertaken. Under the NAFTA, the new Mexican foreign investment law virtually all sectors of the Mexican economy are opened to foreign investors without prior government approval. Companies of any size must obtain a federal taxpayer number from the Secretaria de Hacienda y Credito Publico (Treasury). The company must then be registered with SECOFI; papers to be presented must include the Income Tax Identification Number (R.F.C.) obtained from Hacienda as well as the incorporation papers. If no objection is received from SECOFI within 20 days, the application is considered to have been accepted. The Secretariat of Foreign Affairs (SRE) then gives permission to incorporate the company, and it is then incorporated with a Notario Publico (special type of attorney's office similar to a U.S. notary public). Upon completion of this process, the company should be entered in the Registro Publico de la Propiedad y el Comercio (public register). Business organizations must register with social security (IMSS) for employee benefits, and must obtain a license, involving an environmental impact assessment, from Secretariat of Social Development (SEDESOL). An operating license may be required from the Secretariat of Health. Also all business entities must be members of an appropriate chamber of commerce or industry in Mexico. Companies must also be registered with appropriate state and municipal treasuries for tax purposes and with municipal authorities. Most companies employ attorneys or consultants to assist with the registration procedures. Acquistions of Mexican companies valued at over $25 million must be approved by the National Foreign Investment Commission. Advertising and Marketing. A wide range of broadcast and print media are available in Mexico for trade promotion purposes, including many industry specific media. These are listed in appropriate Industry Sector Analyses prepared by FCS Mexico and available through U.S. Department of Commerce District Offices or the National Trade Data Bank (NTDB) (See Appendix D for Details). Many specialized business magazines are published in Mexico. Mexico City has over 15 newspapers. Advertising in Mexican print media is usually more expensive than in the United States. Mexico City has 25 FM and 35 AM Spanish-language radio stations. Radio VIP (FM 88.1) broadcasts in English. A magazine published by Medios Publicitarios Mexicanos, S.A. de C. V. specializes in radio and television stations. It includes all the radio stations in Mexico with their addresses and telephone numbers. Mexico City has two television networks with a total of seven channels, all in Spanish. Over 500,000 families, hotels, etc. subscribe to Cablevision in Mexico City. Another 200,000 subscribe to a second cable service, Multivision. Both contain a considerable number of U.S. - origin channels, some with advertising in Spanish. Some important business publications in Mexico include: Business Mexico (Monthly) Carlos Pozos, Advertising The American Chamber of Commerce of Mexico Lucerna 78, Col. Ju rez 06600 M xico, D.F. Tel: (525) 724-3800 Fax: (525) 703-2911 or 703-3908 Circulation 10,000 Contact: Ms. Diane Hemelberg de Hern ndez, Editor Published by the American Chamber of Commerce of Mexico. Readers are senior Mexican and American executives in Mexico. Many Mexican companies that do business with U.S. companies are subscribers. Expansion (Twice monthly) Jose Antonio de Colsa Production and Distribution Manager Sinaloa No. 149, 9th. Floor Col. Roma Sur 06700 Mexico, D.F. Tel: (525) 207-2176 Fax: (525) 511-6351 Mexico's international business magazine. In-depth news and analysis on Mexico business, finance, trade and politics. El Financiero Weekly International Edition 2300 S. Broadway Los Angeles, CA 90007 Tel: (213) 747-7547, (800) 433-4872 Fax: (213) 747-2489 Affiliated with Mexico's newspaper El Financiero. The international edition has a circulation of 64,000. Registro Industrial Mexicano - annual Noticiario Industrial - monthly Modernizacion de la Planta - monthly Published by: Editorial RIM Goldsmith 38-301 Mexico, D.F. 11560 Tel: (525) 280-6525 Fax: (525) 280-1644 These publications promote all types of industrial products and equipment. Medios Publicitarios Mexicanos, S.A. de C. V. Radio and T.V. Av. Mexico 99-303 Col. Hip dromo Condesa 06170 M xico, D. F. Tel: (525) 574-2604 or 574-2668 Fax: (525) 574-2668 Contact: Jos A. Villamil Duarte, Director This company publishes a directory of advertising media in Mexico which includes almost all magazines, newspapers, and radio and TV chains. The directory is published quarterly and yearly subscriptions are available. Transformacion - monthly Published by CANACINTRA (National Chamber of the Manufacturing Industry) San Antonio 256 Col. Ampliaci n Napoles 03849 M xico, D.F. Tel: (525) 611-3227 Fax: (525) 598-5888 Contact: Lic. Luc a Covarrubias, Communications Manager Official magazine of CANACINTRA. Circulates among business and industry people of all specialties. Industria - monthly Published by: Confederaci n de C maras Industriales Manuel Mar a Contreras 133-1 Col. Cuauht moc 06597 M xico, D.F. Tel: (525) 592-0529 Fax: (525) 535-6871 Contact: Lic. Perla Guti rrez Zamora, Editor This is the business magazine of the confederation of Industrial Chambers in Mexico, which circulates among industrial sectors. El Aguila Published bimonthly by the U.S. Trade Center P.O. Box 3087 Laredo, TX 78044-3087 Tel: (525) 591-0155 Fax: (525) 566-1115 Contact: Steve Sarro Two different bimonthly editions (one in English and one in Spanish) cover different issues. El Aguila is distributed to 6,000 businesses, associations, chambers, and government offices. Advertising rates generally approximate those of other large international cities. 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 other firms. Pricing. Many observers have considered profit margins on goods sold in Mexico to be high, but economic considerations and increased market competition have begun to exert an influence. Exporters should look carefully at import duties, (taking into account NAFTA tariff reductions) brokers' fees, transportation costs, and taxes before establishing their local prices. Sales for inventory reduction are less common than in the United States, as are factory stores rebating seconds or overstocks. Both consumer and industrial markets have shown increased price sensitivity during the previous economic recession. Four classes of Mexican consumers are generally defined by market researchers. The A group is an upper class characterized by luxury housing, multiple vehicles, frequent international travel, and extensive private education, including overseas university training. This is approximately 2 percent of the population. B's are an upper middle class, about 20 percent of Mexicans, university educated, serving as professionals or company managers. They have nice homes, household help, more than one auto, a wide range of household appliances. They do some international travel. Both of these groups constitute excellent markets for U.S. products. C's are a lower middle class, living in a small house, and spending a greater percentage of their income on basic necessities. They comprise about 49 percent of the population. D's are rural, underemployed, or unemployed. Government Procurement. Government of Mexico bidding opportunities appear in major newspapers, and a weekly private publication entitled, "Resumen de Convocatorias" (Editorial Grupo Miranova, Moras 736-B, Colonia del Valle, 03100 Mexico D.F. Telephone (52-5) 524-7154 or 524-7254. Fax (52-5) 524-7094. Mexican law and the NAFTA have mandated specific lead times for bids of certain estimated value. Each parastatal or government agency is now responsible for reviewing the financial solvency, technical capability, and moral character of its suppliers and contractors. Therefore, they may request registration by suppliers, even though this procedure is no longer mandated by law. Registration can usually take place at the time of bidding. Documents required for registration may include legal or incorporation papers, the business license, proof of membership in the appropriate business chamber, proof of property tax payment, audited financial statements, and/or a power of attorney statement naming the legal representative in Mexico. Documents usually must be in Spanish. While maintaining a representative or office is not a prerequisite to obtaining contracts, it can facilitate obtaining the information needed to prepare bid documents and support of after-sales service and parts supply. Some government entities publish development or procurement plans for as much as five years in advance. Protection of Intellectual Property. Mexico is member of the major international organizations regulating the protection of intellectual property rights (IPR) --the World Intellectual Property Organization, the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention and the Brussels Satellite Convention. To obtain patent or trademark protection in Mexico, a request must be submitted in writing to the Mexican Institute for Industrial Property. To obtain copywright protection, a request must be submitted in writing to the Director General or copywrights in the Secretariat of Public Education. The Mexican government strengthened its domestic legal framework for protecting intellectual property in 1991 with the promulgation of a new industrial property law (patents and trademarks), effective June 28, 1991, and an extensive revision of its copyright law, effective August 1991. Product patent protection was extended to virtually all processes and products, including chemicals, alloys, pharmaceuticals, biotechnology and plant varieties. The term of patent protection was extended from 14 to 20 years from the date of filing. Trademarks are now granted for 10 year renewable periods. The enhanced copyright law provides protection for computer programs against unauthorized reproduction for a period of 50 years. Sanctions and penalties against infingements were increased and damages now can be claimed regardless of the application of sanctions. Excessive amendments to the patent and copyright laws were issued on August 2, 1994 and the new laws and their regulations are expected to enter into force in late 1994. The amendments are designed to eliminate defects in the existing laws and to bring Mexico's laws into conformity with its NAFTA commitments on Intellectual Property Rights enforcement. Implementation of the NAFTA provisions will further strengthen IPR protection by providing for nondiscriminatory national treatment of IPR matters, establishing certain minimum standards for protection of sound recordings, computer programs and proprietary data, and by providing express protection for trade secrets and proprietary information. Although raids by federal authorities led to the confiscation and destruction of hundreds of thousands of pirated audio and video cassettes in 1993 and early 1994, U.S. industry sources estimate that two out of every three audio tapes sold in Mexico still are pirated products (an annual loss of about USD 240 million). While these raids have affected street vendors, they have not produced indictments or prosecutions of large-scale pirates. In an effort to improve enforcement and put teeth into its IPR laws, the Mexican government formed an inter-secretarial commission in October 1993 to cut through the bureucratic obstacles hindering effective action to date. The Mexican Attorney General's Office created a special investigative section to give priority attention to IPR enforcement. In addition, the government began a radio and television advertising campaign designed to raise public awareness of the destructive effects of IPR piracy on Mexico's own economic growth and development. Attorneys. Attorneys can assist companies with registration, intellectual property issues, labor law, trade disputes, and some representational issues. Lists of firms active in commercial law are available from the U.S. Embassy and the Consulates in Monterrey and Guadalajara.