We interviewed Cresa’s Jeffrey Garza Walker, Senior Vice President, and Joshua Rodriguez, 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.
Supply Chain Giants Throughout the Americas
Josh Rodriguez (JR): The major markets in Latin America… let's start off with Mexico, right? Mexico has three major markets. One is Mexico City, obviously, then Guadalajara, and Monterrey. Monterrey is actually industrial capital of all Mexico. It's a growing market as we speak. And then the rest of Latin America, we're talking about major cities, capitals of each of each country, like Buenos Aires in Argentina, Chile, [specifically] Santiago, Chile. Then you have Lima, Peru. Just like I mentioned, it's the major capitals that make a big difference in the South American region.
Jeffrey Garza Walker (JGW): Supply chain is much different there, [and] I say different in the sense of everybody needs to get their product moved to the end. But for example, as you know here, if you order a product from Amazon, that usually will get to you– now they're trying to get the same day, whereas if you order that product down there, it could take you two weeks to a month. So there's just a difference in the amount of the velocity at which you can receive packages. But again, remember [that’s] Latin America. Mexico is catching up by leaps and bounds, [especially related to] the sustainability requirement… It's just increasing the velocity, being able to close that last mile. But then again, there's a well-established supply chain that runs all the way down, so you could move your products quite easily and freely. But I think there's a huge opportunity for a lot of companies down there to develop that last mile. And… they're encouraging that with the deregulation in Mexico.
JR: So, part of the deregulations in Mexico is that the Mexican government is wanting to spur private investment, and by doing that, they're deregulating in the sense that a lot of the departments that are housed just in Mexico City are starting to be spread out to the rest of the country. In addition to that, it’s allowing more privatization for gas and oil and electrical companies to be able to penetrate that market because it was only guided by and owned by the Mexican government. So, allowing that is spurring the economy and, quite frankly, makes Mexico City not able to continue with their infrastructure because with 22 million people in [Greater] Mexico City being the largest city in the world, right, they cannot sustain that. So, they need to [spread] out their business practices and invite more private companies to the country to spur the economy further. Well that just means bigger opportunities, right? It means that Mexico is ripe for a new influx of investment, whether in commercial real estate, business.
The U.S. – Mexico Border Investment Opportunities
JR: Along the border in Mexico, you have a lot of maquiladoras, which are the manufacturing hubs just south of the border. But what companies are seeing is that there's a new talent pool. There's higher educated labor force in these markets as well. And being in those markets just gives them another competitive edge, whether to transport their product or, you know, just the presence there.
JGW: Yeah, as you talk about, what does that mean along the border? Is that what companies are looking for, how do I more easily integrate and move my product from here to there? Really, that's what you're getting down to the end of the day. Do I want to be stuck at the ports with produce for two weeks? I mean, those are legitimate questions. ...the Mesa Gateway project is going to be the first ever airport where they will have a Mexican customs agent actually located with an American customs agent from United States, that when you fly your goods, they will be checked there and be able to be distributed. Jeffrey Garza Walker, Senior Vice President, Cresa
[An example of] what we're seeing is in Arizona. Actually, the Mesa Gateway project is going to be the first ever airport where they will have a Mexican customs agent actually located with an American customs agent from United States, that when you fly your goods, they will be checked there and be able to be distributed. So now that's just resulted into millions of square feet of industrial. They're going built around that because you can move your products in quicker. You can get it to go throughout, and this is something that’s going to roll out throughout the United States. Mesa Gateways is the first, but it won't be the last.
And so those are things we're seeing for companies that we work with, like REMA, who is the largest plastics manufacturer in all of Mexico. They actually wanted to come up into the United States and have a presence. Manufacturing, look, it's going to stay down there. It's just cheaper to do. That's not going to happen and move up here. But what is happening is [REMA wanted to] put distribution houses up here because then they can move their product a lot quicker by building up the mass. Well, what that's resulted in for REMA was they actually were able to get a lot of U.S. business, such as Shamrock Farms, which is a large dairy farmer in Arizona that provides milk, all that. Well, they said, “Hey, since you're located here in the U.S., we’ll go ahead and use your products.” Well now REMA wants to roll out and have distribution sites in Texas and Nevada because they realized by having a presence in the United States that makes it a more business-friendly decision for those companies in the U.S. And vice versa, U.S. companies still want to go down there and manufacture.
Supply Chains Between the U.S. and Latin America
JGW: Well, I would say that [for] U.S.-based companies looking to establish operations in Latin America, I think one of the first things that you need to really look at it is what's the product that you're looking to develop or manufacture? What countries do well at that down there? What locations should I be looking at? What are some of the safety requirements that need to be aware of as I establish operations down there, and in the long term, where do I want my business to grow and thrive as I roll out into these markets?
So, for example, we worked with Emerson down there, who actually originally 40 years ago, bought property in the heart of Mexico City, which is worth millions of dollars to them. But now they want to relocate, and they're gonna move to the outer rim of the city because they don't need to be in the interior and they can use that asset. Those are some strategic decisions that we can help with… because you have to be in it for the long term. And I think if you think about a market that way, it's gonna create a much better opportunity for you to be successful in those marketplaces. And then as you go further south, there are some advantages with even cheaper labor pools down there. But then again, it just depends on what your margins are… Some of these companies are working on razor-thin margins, and that matters to them. The good news is all that supply chains are well established… so it's just a matter of what things your company needs to do in order to be successful. But there again, there's great opportunity in going to those other regions and taking advantage of those opportunities.
JR: I think the first and foremost [Latin American companies] need to seek advisory. So obviously commercial real estate brokers or sites selectors or consultants and, most importantly, any organization that will allow them to establish here so that they are informed with the nuances of establishing a location here so that they know specifically… what locations makes sense for them, depending on their key performance indicators and depending on the target market [where they need to sell the product. And that's where we come in, where we provide those advisory services to them so that the decision that they made for the real estate is the best and most effective decision.
JGW: I think first you have to recognize that the reason Mexico so prevalent is they’re the largest trading partner with United States, number one. Number two, you have to realize that when you look at Mexico from that standpoint, it makes a lot of sense because they’re a Top 10 economy so they're creating a lot of velocity right now. So what I would tell you is that as you go further down, there's absolutely opportunities to work in Costa Rica; Panama; Lima, Peru; Bogota, Colombia; Santiago, Chile; [and] Buenos Aires, Argentina. These are places that… you could take advantage of if that makes sense for you to keep going down to those markets. And so I think that's the question you have to ask, is what are you really seeking? Because from a labor standpoint, it gets cheaper as you go down further south, but they do offer other things as well, because there's a need for those products in those areas, so a lot of times it's how you expand your network out as you're looking. So I think it's just a matter of what's the goal for the company? Do you truly want to be a multinational company and you want to have presence throughout the entire Latin American continent? Or are you just really looking to develop products specific to your manufacturer?
What Top Execs Should Consider about Latin American Investment Opportunities
JGW: Well, if you're a CFO – we love CFOs – so, it's kind of interesting. You know 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… They have a much higher level of looking at the company, saying, “what's gonna make us profitable and thrive in the future?” Not just looking at real estate as a liability, but, quite frankly, helping look at it like an asset. How do we leverage that asset to grow the company? So… we can take any metric that you have, and we can 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 in every location, because for [them] to make a decision on our overall platform, [they] need to know who's spending insurance in which locations. Because that's important to [them]. That's a CFO type question that you're able to help them understand, if there's something important to your business and it isn't necessarily about, what am I paying for that space? But really, what makes that occupying that more probable? Our company? Absolutely. We can answer those questions, and I think CFO is really appreciate that.
I think with the CEO compared the CFO… they're tied to the vision of the company. What do [they] want [their] company to look like as [they] move forward into the next 5 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 [they’re] going to move forward into what [they] want that company to be. So when you look at companies such as Anixter, Scientific Games, the CEOs really drove a lot of vision of saying, “Look, we need to be in those places because by having a presence there that's going to expand our capabilities and create more opportunities for us because they use our products and service.” … But CEOs love us because we can come to you and talk to you about what are all the amazing opportunities that you could take advantage of by operating in another country and being able to expand really your mission, your vision and accomplishing that and return on revenue.
And so we always talk about, “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. But then again, by being in high-growth markets, you're taking advantage of those, and that's helping spur you to the next level.