Investors Bullish on Mexico

Spanish investors looking for opportunities in Latin America most often target Mexico, enticed by progress in economic reform and the market potential.

In addition to 80 million Mexican consumers, prospective investors see the possibility of access to 280 million consumers in the United States and Canada if the proposed North America free trade agreement is signed.

“For many years, Mexico has been and continues to be one of the principal destinations for Spanish investment,” said Apolonio Ruiz Ligero, deputy chairman of Iberia Airlines and president of the Mexico-Spain Businessmen’s Committee.

Officially, Spanish investment in Mexico totals $727 million. However, knowledgeable sources said actual investment is probably twice that much, because a considerable sum of Spanish capital enters through third countries for tax reasons.

Mexico is especially interested in the investments because of Spain’s experience in dealing with the transition from protectionism to open markets as it entered the European Economic Community.

“In 1992 and 1993, there will be a very important increase in investments,” predicted Jesus Silva Herzog, Mexico’s ambassador to Spain. “Not a week goes by that I do not get a call or visit from a Spanish group interested in investing in Mexico.”

Silva Herzog envisions Spain and Mexico building a bridge between the EEC and the nascent trading region in the Americas.

That is not just a diplomat’s dream.

Champagne maker Freixenet set up shop in Mexico in 1982 with a $10-million investment, harvesting its first Mexican grapes in 1986 and selling the champagne from them in 1989.

“The idea of an investment in Mexico was that we could serve the Central and South American markets from here,” said Jacinto Cusco, general manager of the wholly owned Mexican subsidiary. “We would save money in fleet. We also believe quality wines can be produced in Mexico.”

Freixenet’s Mexican subsidiary now exports 15% of its production to the United States, Venezuela, Honduras and Cuba, as well as Europe. The company also imports high-end wines and champagnes that account for about 55% of Mexican wine and champagne sales--about $3 million last year.

Freixenet’s success has helped counterbalance bitter memories of Spaniards who invested in Mexico in the late 1970s and early 1980s.

“In 1982, several Spanish investor groups ended up with their fingers stuck in the door,” when the Third World debt crisis struck, said Silva Herzog. They invested just before Mexico’s economy entered a long depression that resulted in the recent reforms.

However, those Spanish investors were also to blame, said Eduardo Celorio, who at the time was a consultant specializing in setting up joint ventures between Spanish and Mexican business groups.

“Those companies came here to try to solve a crisis at home,” he said. “Instead, they made it worse.” Spain was being squeezed by high oil prices and companies believedthat entering the oil-rich Mexican market would solve their problems.

“Currently, both Spain and Mexico are in a positive economic situation,” he said. “The investment (today) is for international expansion, not to solve a domestic crisis,” Celorio said.

For example, Mapfre International, Spain’s largest insurer, became a partner in Seguros Tepeyac, the seventh-largest Mexican insurer, because it needed a revenue base outside its domestic market and it needed to grow to compete effectively with other large European financial groups.

In this new atmosphere, longtime relationships are blossoming.

When Esteve Quimica, a Barcelona pharmaceutical company, paid $5 million for a pharmaceutical plant north of Mexico City last December, it was able to sell a 20% interest in the new Quimical company to Mefar, a Barcelona-based chemical development company, in part because Mefar supplied technology to the Mexican plant for 10 years.

“We knew the plant well and we knew Mexico,” said Josep Maria Torres I Esteban, Mefar’s major shareholder, who was also familiar with Esteve Quimica.

The plant, which once produced only for the Mexican market, now exports to Europe and has orders from Thailand. Before the end of the year, Quimical plans to request U.S. Food and Drug Administration permission to export to the United States.

“The raw materials available here will permit us to make products we do not make in Spain,” said Carles Metje, assistant finance director of Esteve. “Whether in Spain or Mexico, we want our plants manufacturing for the world market.”

Joaquin Saez Merino, the Spanish maker of Lois jeans and a dozen other brands of casual clothes, now manufactures in Mexico for export, a complete switch from the way the company started out here.

The company came to Mexico in 1981, planning to start a joint venture with Mexican investors. When the economic crisis arose, the Mexican investors backed out, said Ruben Estrada, who runs the Mexican subsidiary, Ginsa Textil, named on a whim for the famous Tokyo shopping district.

As an alternative, Saez Merino contracted out the manufacture of one of its mid-price brands. The garment maker who had the contract lost his shop in the 1985 Mexico City earthquake.

The company then began licensing its brands to a manufacturer. With the profits of the licensing agreement, Estrada looked for ways to start the company’s own shop. Last year, he struck a deal with officials in Morelos, Zacatecas, a village of 4,000 about eight miles from the capital of a central Mexico mining state, to set up shop in the municipal auditorium until he got a factory built.

Today, 38 workers--mainly young women--are making 1,100 pairs of jeans a day from imported denim and zippers in the auditorium. Ginsa makes the jeans at 40% of production costs in Spain, said Estrada. Once the factory is built, he expects to save another 10% on costs.

“Right now, I can sell everything I make in Europe,” he said. But if a free trade agreement is reached, he has hopes of sharing production with company affiliates in the United States, importing their brands and selling them his Mexican goods.

The proposed free trade agreement and proximity to the United States played an important role in their decision to invest in Mexico, most Spanish investors said.

For a group of eight Spanish investors that will be partners in an $80-million, 1,000-acre resort on the northwest corner of the Sea of Cortez, proximity to the United States was critical.

They are counting on Southern Californians to drive across the border to fill their hotels and trailer park.

The investors are all motel, trailer park and restaurant owners from northern Spain who made their money by providing services to European tourists who arrived by auto.

“We’re not just building another hotel in Cancun or Puerto Vallarta,” said Martinez Guitron. “We are introducing a new concept that will make overland tourism successful in Mexico for the first time.”

Spanish enthusiasm for Mexico has even begun to infect investors from the United States, which dominates foreign investment here.

Thanks to its relationship with Santander, a major Spanish insurer, Metropolitan Life is the first U.S. insurer to invest in Mexico’s insurance industry.

“We have been partners in Spain for five years,” said Rafael Galdon, administrator of Santander’s investment arm. When the Spanish firm bought half of a Mexican insurance company and switched its name to Santander, inviting its U.S. partner to participate “seemed to us to be an ideal relationship,” Galdon said.