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What Should a CFO Know About Investment Opportunities in Latin America

In addition to manufacturing and supply chain opportunities in Mexico and Latin America, U.S companies can take advantage of more beneficial intellectual property laws, the growing tech workforce across the region, the massive consumer base and the partnership between the United States and Latin America. Despite tenuous political rhetoric about Mexico and Latin America, companies from there and American companies have been working together to bring each other new opportunities—and those mutual benefits will only grow into the future. We interviewed Cresa’s Jeffrey Garza Walker, Senior Vice President, at the 2019 Area Development Consultants Forum in Houston about some of these insights. Below are some excerpts from our interview, which you can also watch here.

Q4 2020
Jeffrey Garza Walker, Senior Vice President, and Joshua Rodriguez, Vice President, Cresa, spoke with Area Development about the state of cross border investment between the United States, Mexico and Latin America after their presentation at our 2019 Houston Consultants Forum. Interview conducted by Margy Sweeney, Founder and CEO, Akrete Inc., and Area Development Editorial Board member.
What CFOs and CEOs Should Consider About Latin American Investment Opportunities
We say we're the largest occupier-centric company in the world. And—no offense—we like working with real estate directors, but CFOs get the bigger picture. If I'm a CFO and I'm thinking about key performance indicators, CFOs have a much higher-level perspective when looking at the company. They’re asking, “What's going to make us profitable and thrive in the future?” They’re not just looking at real estate as a liability, but, quite frankly, looking at it like an asset. CFOs consider how they can leverage that asset to grow the company.

One of the things that we can do is take any metric that you have, put that into our business intelligence tool and give that back to you. For example, we've worked with some dental clients who wanted to know what insurance is being spent at every location. For them to make a decision on their overall platform, they needed to know who's spending insurance at which locations because that's important to them. That's a CFO-type question. If you're able to help them understand that there's something important to their business and it isn't necessarily about what they’re paying for that space, but rather, what makes occupying that space more profitable for their company? We can answer those questions, and CFOs really appreciate that.

The CFO is looking at the metrics, and the CEO is also tied to the vision of the company. CEOs are considering what they want their company to look like as we move forward into the next five to 10 to 20 years. And the CEO really is looking at the overall vision of how they’re going to accomplish that and how we're going to move forward into what we want that company to be.

When you look at companies such as Anixter or Scientific Games, the CEOs really drove a lot of vision of saying, “Look, we need to be in those places. By having a presence there, that's going to expand our capabilities and create more opportunities for us because they use our products and services.” They’re telling the CFO, “This is what we need to do. I want you to go out and make sure that we're being profitable and driving that to the bottom line.” It's the vision and it's the metrics, and how those two come together.

But CEOs appreciate that we can talk to them about all the amazing opportunities that they could take advantage of by operating in another country and being able to expand their mission, vision and accomplishing a return on revenue. Companies have to be profitable to thrive, I think we're at a time where companies not only here in the United States, but also in Latin America, are able to take advantage of trade across our borders. Companies are able to leverage that.

We always ask, “Do you want a company that's sitting in one location and everything is dependent on that market? Or do you want to be a company that's in multiple locations and, when you have fluctuations in those markets, you're able to leverage against that and be able to sustain yourself?” And by being in high-growth markets, companies are taking advantage of that, and that's helping spur them to the next level. A lot of companies that we work with are seeing the results by making that investment in Latin America and vice versa. We also see companies that come here to the United States and they acquire.

When you go down to Mexico, your intellectual property rights are protected. Just like being in the United States, if they infringe upon that, you have protection from the Mexican government that will come in and take action. We work with Sigma Alimentos, the largest food supplier in all of Latin America and Mexico. They wanted to come to the United States, so what did they do? They acquired Bar-S Foods. So Mexican and Latin American companies are doing the same thing—they're acquiring businesses up here. They’re looking at how to expand their portfolio without coming to the United States and just doing acquiring one location at a time—so they buy a whole portfolio. That’s what happening, and the velocity of that in the last 10 years—it’s been amazing how fast it's moving on a daily basis.

Global Innovation Hubs in Mexico and Latin America
Monterey has a tech summit every year in November, and we did a trade mission down there [in November 2019]. It’s basically an incubator for tech companies in Mexico that want to find financing or investment partners to really help them grow their companies. And then a lot of U.S. companies come down there because they want to see what's going on tech-wise in Latin America, and see how they can maybe have those companies grow and bring that technology to the United States. Another thing that we're seeing is that Mexico City is actually becoming renowned for its tech workforce. You're seeing a lot of companies that are actually utilizing that tech workforce down there, and that’s something that they're becoming known for. So those are two areas of Mexico that are very hot right now.

I would also say that São Paulo, Brazil, is absolutely one of the hottest markets down there from a tech standpoint. Any of the major Latin American capitals like Bogota and Buenos Aires have investments into technology. That's why you're seeing companies utilizing those capital markets, they're making the investment into the new tech workforce. And that's actually created more opportunity along the border towns. We're seeing call centers along the border now, taking the tech calls and having a tech workforce situated right there on the border because you can draw that labor force up there and take advantage of that. These are things that we haven't seen in the last five to 10 years. It’s a much different opportunity and velocity of what we're seeing happen in the technology sector.

The U.S.–China Trade War and Its Impact on U.S. Trade with Latin America
People ask us, “What do you think about what’s going on with China and the tariffs?” We love it, because a lot of companies have had to pivot from offshoring in China and they’re now going back to Mexico. One of the benefits of locating in Mexico and Latin America is that they don’t have the IP problems because they’re right there on the border. The proximity allows much more of a partnership between the United States and Latin America. There’s a much better comfort level, whereas in China, that’s been a big issue because you have to give up your intellectual property rights. We’re seeing that it’s actually creating a much better flow of technology between the United States and Mexico.

The key difference is that, if you go to China, you have to give up your intellectual property rights to them for three to five years. When you go there, you're laying it all out to them saying, “This is how we build it, this is how we do it.” That's why you have a lot of Chinese companies that are able to take your technology and, quite frankly, put it to their own use. And then what do you do as a company? Because that's in the laws of China.

When you go down to Mexico, your intellectual property rights are protected. Just like being in the United States, if they infringe upon that, you have protection from the Mexican government that will come in and take action. It's also a much friendlier atmosphere and, because the tech workforce has been developed down there with the United States in mind, a lot of what they've learned over the past 10 years was brought from the United States. The United States intended that it’d be a partnership to help Mexico develop a much different type of technology-based workforce that allows the United States to have a much more thriving economy. They've seen results of that, and that's something that has become much more prevalent than what's happened with China over the last few years.

Political Factors in United States–Mexican Business Relationships
Do we have border issues? Do we have immigration issues? Sure, we do. But you have to make sure you keep those things separate, right? At the end of the day, people that are making a plan to come to this country for a better way of life and living, that's a different issue than companies that are looking to establish and operate either there or here. So be clear about what the intention for what you need to accomplish, because Mexico and Latin America has a thriving workforce that wants to work. They want to put their best foot forward. They've shown that and companies have been rewarded with that by establishing operations down there. If you can bring the work to them, they absolutely will be there to do the work. And vice versa, when companies come up here, it's a little bit of an eye opener for them when they come into the United States and they realize how much opportunity is here.

One thing we've talked to economic development groups about is that there really aren't a ton of economic development groups down there. You have the governments that are willing to assist, but it's much more driven here in the United States. You've got economic development groups in every county, every town, which is great. When companies come up here from down there, they think, “Wow, look at all the help that we're getting, this is amazing. We’re coming up here with open arms and you really want to do business with us.”

Mexico right now is at the same velocity that a lot of our industrial markets are here in the United States. In fact, we're seeing a bit of a cooling trend right now in some of the velocity. It's not cooled down in Mexico—in Mexico, it's red hot. Now, are there political actions and strife that create a little tension and make people stop and pause a little bit? Absolutely. That's a reality. But nothing supersedes that more than the ability to grow and create and thrive in other markets. When people and businesses see that, it overcomes all the rhetoric. I'm not trying to downplay the issues that are going on, but those issues are being propped up for other reasons and—in my opinion—not for the right reasons. The companies that are down there coming here are very happy, and the companies that are based here doing business down there are absolutely happy.

The Consumer Opportunity for U.S. Companies and Mexican Consumers
Companies that are going down there to sell their goods and services—such as Anixter, Scientific Games, Emerson, EIS Motions Industries—are establishing operations down there to sell their goods and products in those regions. A lot of consumers down there, they want what we have. They want to have Amazon delivery timeframes. They want to have those products at their fingertips. There’s a huge opportunity because companies are looking at how to deliver like Amazon, where now it's delivering within a day down there, not weeks.

The real opportunity is that they want the goods and services that that we offer, but they need better infrastructure or better way to get those products delivered to them. And that's all coming. You're seeing leaps and bounds every year with those products being able to move down to the country and that's going to create a much higher velocity of companies taking their products down there and being able to sell them into those countries.

Spec Industrial Buildings in the United States vs. Latin America
A lot of the spec projects that you talk about are being built by companies that are based out of the United States. For example, Prologis is the largest landlord for industrial properties in the world. A lot of their blueprint is what you see down there. Vesta is one of the largest REITs down there and, if you walk into an industrial park, it's going to look like one of ours. And Mexico right now is at the same velocity that a lot of our industrial markets are here in the United States. In fact, we're seeing a bit of a cooling trend right now in some of the velocity. It's not cooled down in Mexico - in Mexico, it's red hot.

They're building industrial parks every day, because there's a huge manufacturing need down there. With that said, they're anticipating a little bit of a cool-off. But as far as how that looks and feels, it's the same. We're seeing clear-heights there reaching 40 to 45 feet. Now Prologis has a design where they're putting an industrial warehouse on top of another one, so you have a two-story where they drive the truck up to the second level. That’s something that we haven't seen in the United States that have actually come online in the last three to five years. So you're going to see some of those concepts.

As we talk about sustainability and how we can decrease our carbon footprint, those are some of the design elements that you may see in the future. As of right now, are those in Mexico and Latin America? We haven't seen that quite yet, but I think it's coming.

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