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Mexico special report

Mexico Special Report September 2009 3

ContentsMexico has many attractions to global

suppliers of fine and speciality chemicals:

a large and increasingly

wealthy population,

greater political sta-

bility, proximity

to the US,

membership

of NAFTA,

potentially vast resources of oil and gas

and so on.

However, Mexico is also a market with its

own particular challenges, not least the

long shadow cast by the state-owned

petrochemicals giant Pemex over the

domestic industry. This factor, more than

any other, has prevented the Mexican

chemicals market from reaching its full

potential in the past two decades while

Brazil has forged ahead.

To help readers of Speciality Chemicals

Magazine find out more about the

Mexican market, Global Business Reports

has compiled this Special Publication.

Based on in-depth field research in Mexico,

it will bring you fully up to date with what

is happening in the key markets for fine

and speciality chemicals there.

This report was written by Clotilde

Bonetto Gandolfi, Alfonso Tejerina, Sam

Joll, Hayley Windsor and Mercedes

Ortelli of Global Business Reports

5Rethinking the futureWhere is Mexico’s chemicals industry heading after the drastic

changes brought in by globalisation? The implementation of NAFTA and

falling competitiveness across the value chain

6Q&A with ANIQWe asked Ing. Miguel Benedetto of ANIQ about the future of the

Mexican chemicals sector

8Agrochemicals: Large and strong but fragmented

Mexico’s agrochemicals industry is in the midst of a transformation due

to the introduction, next year, of changes to the regulations governing

product registration

14Pharmaceuticals: Powerful potential in the Mexican market

Mexico has the largest and most developed pharmaceuticals market in

Latin America, the ninth biggest in the world and one of the ten largest

producers of medicines worldwide

20Distributors: Subcontracting efficiencyIn a country like Mexico traders make sense because they play

a very important role in connecting producers with their clients

22Paints & coatings: Holding on tight in hardtimes

The Mexican coatings industry has experienced significant upheaval over

the last few years

24Useful contacts

Introduction

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Two decades ago, the chemicals industryaccounted for nearly 6% of Mexico’sGDP. Today, its leaders are seriously

evaluating where it should be heading to inthe medium term, after the drastic changesbrought in by globalisation, the implementa-tion of NAFTA and falling competitivenessacross the value chain, due especially to thehigh cost of basic petrochemicals.

The economic crisis and the devaluation of theMexican peso - from 10 pesos to the US dollar inAugust 2008 to 15 in March 2009, before stabilisingat about 13 - have exposed the weaknesses of thecurrent system, which is highly dependent onimports of raw materials.

Many industry leaders, not only the nostalgicones, agree that reactivating the national petrochem-icals industry is an imperative, given that Mexico hasthe hydrocarbon resources needed to feed it andthat doing so would create thousands of jobs in theprocess and would attract a significant wave of pri-vate investment to the sector.

The problem is how to implement this. Nationalregulations give Pemex, the state-owned oil and gascompany, a monopoly over the production of basicpetrochemicals but Pemex does not have the infra-structure needed to produce them at competitiveprices. As a result, products like urea or ammoniaend up being imported from countries such as Chileor Russia.

“About 15 years ago the Brazilian petrochemicalindustry was a third the size of the Mexican industry.Now it is twice the size”, explains Pedro Fernández,vice-president of DuPont for the American continent.“There are big gaps in the supply chain and the onlycompany that can fill them is Pemex. Unfortunately,they are not getting the funds neccessary to do so”.

The truth is, whenever Pemex can offer the rawmaterials to the industry, economic development fol-lows, with private capital pouring in. A multinationallike Clariant, for instance, has invested right at thedoor of one of Pemex’ complexes, as its managingdirector, Fernando Hernández, explains.

“We have one of the world’s most modernethoxylation plant in Coatzacoalcos, near Veracruz,just two kilometres from the supply of ethyleneoxide, the main raw material. This has improvedClariant’s efficiency and safety standards becausewe do not need to move the raw materials for longdistances,” he says.

Hernández believes that, with this plant, Mexicohas become one of the strongest manufacturingcountries for Clariant in ethylene oxide derivatives.Needless to say, it would be very positive for theMexican industry to replicate this model across thechemical spectrum, but the regulatory framework isquite strict when it comes to private investment inthis area.

In 2005, for example, the Fénix project envisageda $2 billion investment to expand petrochemical sites

in partnership with private investors. Pemex had tocancel the initiative because the Ministry of Financerefused to provide raw materials at preferential pricesto the partners in the project.

In fact, private investment in the area is veryrare. Raúl Baz, president and CEO of GrupoPetroquímico Beta, declares that the company, cre-ated in 2005, is “probably the only start-up of aMexican in petrochemical company in the last 15years in the country”.

Beta has a pentane ethoxylation facility and isopening a plant at the end of the year for the pro-duction of hydroxyethyl cellulose (HEC), a specialityproduct used as a thickener for architectural paints,cosmetics and detergents. This is expected toaccount for 80% of its exports in five years time.

“We focus on opportunities and in Pemex thereare many. With the high cost of refining right nowthere is a huge opportunity for foreign companieswho produce ethoxylates and are looking to expandtheir capacity to start refining Pemex’s output inMexico. If you are willing to make a major invest-ment, you will find Pemex is flexible”, argues Baz.

Adding valueIn order to take the petrochemicals industry back toits former glory, the country not only needs a moreefficient framework for cooperation between Pemexand private investors but also more hydrocarbons.Based on its reserves, Pemex is the world’s 11thlargest oil company, but production in its traditional‘elephant’ deposit, Cantarell, is declining significantly,forcing it to look for other reservoirs, while thedemand for energy in a country of over 100 millionpeople continues to increase.

Héctor Ochoa, a manager in Pemex Exploration &Production and president of the Mexican Institute ofChemical Engineers (IMIQ), believes that Mexiconeeds to rethink its use of hydrocarbons. “Countingon renewable energy alternatives, such as solar orwind power, the most intelligent option would be toproduce petrochemicals that will support the wholechemicals industry.” he says.

Gilberto Ortiz, president of the petrochemicalssub-division of Canacintra, an industry association,believes that a country importing $18 billion in petro-chemicals, as Mexico did in 2008, should have anenormous intermediates industry and that all of these

petrochemicals should be produced here. The recentincreases in oil prices and the devaluation of the pesomake this even more urgent.

Many importers, in a context like this, would bebetter off having a local provider, says AzaelCisneros, president of Canacintra’s chemical division:“Many companies will probably find it more eco-nomic to manufacture in Mexico than to import finalproducts. This could be a boost for the local industrybut to develop it we need capital and financing isvery expensive in Mexico. It is a real challenge”.

ProspectsAccording to Canacintra sources, Mexico had about7,500 chemicals companies producing intermediatesand 20,000 manufacturing finished products beforeNAFTA entered into force. Blaming NAFTA for theindustry’s decline, however, would be unfair.

Companies need to adapt to a changing econom-ic and trade environment and identify new opportu-nities as old ones become unprofitable. And, whilstfree trade agreements can harm local suppliers whosuddenly face new competition from abroad, theyare definitely a great opportunity for a country sittingnext to the world’s largest economy.

Today, Mexico is one of the most liberal countriesin the world trade-wise, according to JoséSantamarina, executive director of export develop-ment at ProMéxico, the government’s investmentpromotion agency. Meanwhile, Leopoldo Aristoy,general manager of Univar, a multinational distribu-tor of chemicals, warns: “Mexicans need to be moreprepared for the global economy. We live in a glob-al world and the system will not go back to protec-tionism any more.”

Many leaders have already woken up to this fact,and the industry is already reacting. A more flexiblebusiness climate in the area of hydrocarbons andpetrochemicals would definitely help but the chemi-cals industry in Mexico has the potential to rebound,says Ochoa of IMIQ.

“Mexico has the raw materials to produce basicpetrochemicals at the scale it did before,” he pointsout “It has a privileged location, next to the US andwith access to both the Atlantic and the Pacific and ithas the skilled people to undertake big projects suc-cessfully”.

The sector has suffered many setbacks in the lastyears, yet “the industry is still there, improving the lifeof the population”, says Hernández of Clariant. “Thechemicals industry acts as a strategic partner of theeconomy and it will continue to do so”.

This is a moment of change and it will be inter-esting to see how the sector adapts to the globalisedenvironment. Numerous investors are willing to goto Mexico and if some structural changes are imple-mented, the already significant Mexican chemicalsindustry will be able to take off again, profiting fromstrong internal demand and even conquering inter-national markets. Yet, for the size of the investmentsrequired, this will not be achieved overnight.



September 2009 Mexico Special Report 5

Rethinking the future

Baz - Pemex is open to collaboration

mexico_intro 15/9/09 11:41



6 September 2009 Mexican Special Report

Q&A with ANIQWe asked Ing. Miguel Benedetto, director general of ANIQ, about the future of the Mexican chemicals sector

QThe poor performance of thepetrochemicals sector is an

obstacle to industry development,as raw materials are not widelyavailable nationally. What initiativescould be taken to overcome thisbottleneck?

AWe are working on improvingthe energy sector. We believe

that as long as there are raw materi-als available at competitive prices theindustry has a very good chance ofgrowing. Mexico has good reservesof oil, natural gas and ethane. Theproblem is that, as private compa-nies, we are not allowed to invest inexcavation and refining. Only Pemexmakes raw materials and not neces-sarily in the quantities that the indus-try requires. ANIQ does not want toget actively involved in raw materialsbut we want to ensure that enoughare available at a competitive price. IfPemex cannot do this, we would likethe opportunity to invest to get theraw materials we need to keep grow-ing the industry.

QThe 2008 energy reform wasmeant to open up the market.

How effective was it?

AThe original reform that was sug-gested allowed private invest-

ments in petrochemical and natural

gas production. In the end, the reformdid not allow this and was not effec-tive. We are basically in the same situ-ation as before.

QDo you anticipate that themarket will open up and when

might this happen?

AI know that the governmentwould like to open up the

industry. It understands that thecountry needs resources and this isone of the industries in which pri-vate enterprise could help to devel-op the infrastructure that is needed.

One recent example of change isapproval for the building of a newrefinery in Tula, which will providemuch needed raw materials. Energyreform would attract the investmentthat the country needs. Investorsknow that the raw materials areavailable and that there is a largemarket in Mexico, but many peopleare looking for political securitybefore investing. We know that if weachieve these reforms we willreceive a lot of investment, as hashappened in Brazil. However, it isdifficult to say when these changesmight happen.

QIn the shorter term, whatmeasures can be put in place

to help the industry and introducenecessary changes to help it tomove forward?

AThere is good will between our-selves and the government and a

mutual desire to create a good legalframework to help the industry grow.We are evaluating how we can workwith Pemex by providing them withresources. For example Rijel, aBrazilian company, has recentlyinvested in Pemex facilities, which hadnever happened before. We are opento any type of new scheme that willbenefit the industry.

QIn the face of increasing com-petition from abroad, particu-

larly from China and India, how areyou ensuring that the Mexicanindustry remains competitive?

AWe are trying to reduce bureau-cracy and increase registration

speeds. We are also working withour association partners in theUnited States and Canada in orderto have the same levels and mutualrecognition of standards. In logistics,we are working to have the samesystems of classification to ensure asmooth transition across internation-al borders. We want standard, com-patible legislation that meets bothnational and international require-ments.

QWhat is your aim for thefuture of the Mexican chemi-

cals industry?

AOur goal in 15 years time is forthe industry to have the same

share of GDP as we did in the late1980s, around 5.5%. For the nextfew years, we want to keep it at 2%.There is still a very good chance forthe industry to grow. Only 4% ofMexico, for example, has been sur-veyed for natural gas and there issignificant potential to discover fur-ther reserves.

Benedetto - Raw materialavailability the key

q&A 15/9/09 11:42

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Like its pharmaceuticalsindustry, Mexico’s agro-chemicals industry is in the

midst of a transformation due tothe introduction, in 2010, ofchanges to the regulations gov-erning product registration.What will not change is theattraction of Mexico to agro-chemicals producers and distrib-utors all over the world becauseof its strong agricultural tradi-tion and weather conditions thatallow for year-round harvestingin many areas.

The Mexican agrochemicals indus-try is currently dominated by multina-tionals, who have about 70% of amarket estimated at $735 million in2009 by UMFFAAC, an industryassociation of the main Mexican agro-chemicals companies. The main prob-lem for those looking for big accountsis a high level of fragmentation.Unlike Brazil or Argentina, Mexico isa country of small landowners.

Consolidation may or may notcome to the Mexican agricultural sec-tor, but certainly a handful of Mexicanagrochemicals companies have man-aged to grow to the point where theyare starting to compete with the multi-nationals at home, and even takingtheir products abroad.

Velsimex, Bravo IngenieríaIndustrial and Internacional Químicade Cobre (IQC) are good examples ofthis trend. José Escalante, president ofUMFFAAC and also president andCEO of Velsimex, describes how thecompany has become the sixthlargest player in the industry.

“On one hand, we try to give big-ger margins to our distributors, whichis key to ensuring their loyalty. On theother, we saw that we had to competewith the multinationals across thewhole product range. This is how wecompiled a very comprehensive port-folio,” he says.

Escalante believes that Mexicancompanies could be far stronger if theauthorities eased the tough require-ments to register generics: “In theMexican market, about 300 mole-cules have gone off-patent, yet themultinationals maintain their monop-oly over many of them because thereare very few registration profiles avail-able,” he contends.

As a result, it is impossible to regis-ter generic versions. “The new regula-tion was passed in 2004 and sincethen there have been two registra-tions for equivalences, which is noth-ing. As well as hindering the develop-ment of the Mexican chemical indus-try, the regulation is an obstacle to thefarmers’ competitiveness.”

When asked about this issue, themultinationals, grouped in anotherassociation called AMIFAC, generallysay that registration procedures mustbe very strict to guarantee productquality and, even more importantly,public health. The two sides useopposing arguments, both with mar-ket share in mind, but all seem toagree on one point: the industrywould generally benefit from moreclarity in the regulations.

Arturo Kaplún, commercial manag-er of Agroquímica Tridente, a medi-um-sized Mexican producer, regretsthat the rules were published in 2005,“yet only now is the process becom-ing a bit clear. We have been stuck forfour years, not being able to enlargeour portfolio as rapidly as we wouldhave liked”.

Meanwhile, Ernesto Trejo, manag-ing director of Danish-based genericsfirm Cheminova, which both importsproducts manufactured elsewhereand formulates locally through tollmanufacturers, says that “if the rules

were clear and the registrationprocess transparent, that would bepositive for everyone”.

Manuel Gurrola, general directorof medium-sized Mexican formulatorAnajalsa feels more confident aboutthe future. He believes that the indus-try has got beyond lack of unity andcommunication that in the pastallowed the government to passunfeasible laws.

“As an industry sector, we haveunited and started working to changethe regulatory framework. We pre-sented a model in which we can reg-ister the product and meet the samerequirements as in Europe,” he says.

With a preliminary plan alreadyapproved by the government,Gurrola is confident that “next yearwe will have the regulatory frame-work changed, just in time for manycompanies to renew the registrationof our products.”

“The laws, as with every industry inMexico, are very good. The problemlies in the interpretation and lack ofclarity of the authorities when it comesto enforcing them”, says on Luis Villa,director general of Arysta LifeScience,a Japan-based multinational that in2007 acquired GBM, then a majorsupplier to the Mexican fruit and veg-etable market.

Registering all the old molecules asgenerics to comply with the new regu-

lation will be expensive. Mexico doesnot have laboratories to carry out therequired toxicity studies, so these needto be done abroad, at a higher price.“This encourages the informality ofsmall companies, which in turn resultsin unfair competition”, says JuliánIbarlucea, managing director of GrupoIbarquim, a Mexican SME.

That said, those who are investingtime and money in updating theirregistrations, should see themselves ina strong position in one or two years’time. “It will be a turning point for theindustry, a filter for the best players,because many companies will fail tomeet these new regulations andrestrictions,” says Alberto Bravo, CEOof Bravo.

More valueThe generics market is undoubtedly agreat opportunity in the medium-term, but Mexican companies are alsotrying to move up the value chain inorder to maintain reasonable marginsin the highly competitive market.Bravo, for instance, has a group work-ing on environmentally friendly prod-ucts, an area that is expected to growrapidly.

“A year ago, we launched a line ofgreen products. We also introduced aformulation type called HC-free,where, instead of using saline or typi-cal petrochemical solvents that are

8 September 2009 Mexico Special Report

Agrochemicals: Large and strong b

Packaging area of the operating department at Grupo Ibarquim factory

agro 15/9/09 11:43



normally aggressive, we employorganic-type solvents that are safe forthe crops and those who handlethem,” says Alberto Bravo.

Similarly Tecnica Mineral, new tothe market in 2007, is producingorganically certified mineral-basedfertilisers that offer considerable bene-fits. Commercial director RaúlCampos explains: “Non-metallic min-erals are commonly used in the agri-cultural industry as carriers for pesti-cides but these compounds can beused alone and are very effective andcheaper than the ‘high-tech’ activeingredients. They have no impact onthe environment.”

Internacional Quimica de Cobre(IQC)) an ISO 9001-certified Mexicanproducer focused on fungicides, isalso diversifying. The companyalready exports its products toEurope, mainly Spain, and has a finan-cial arm that provides small Mexicanfarmers with funding. Managingdirector Juan Manuel Ramírezexpects its biotechnology research tobear fruit.

“The challenge of biotechnology islogistics: live organisms need refriger-ation in order to be moved around.We are researching biotechnologyproducts that are easy to transport”,he says, adding that IQC dedicates10-15% of its annual budget to R&D.

Amy O’Shea, general director ofMexico for FMC Corporation, howev-er, believes that conditions within themarket can hinder the introduction ofnew products. “It is not so easy toshow the results of innovations quick-ly, due to the crop cycle. Thus it takeslonger to persuade people. There isslower adoption in large parts of thecountry, not just among growers butalso among distributors and at gov-ernment level.”

Tecnica Mineral’s Campos has alsofound persuading customers of thebenefits of their products challenging,because “growers are accustomed tousing synthetic products and oldbrands and they want to have rapideffects against pests with higher dosesevery season.”

Thus, with much of the market stillunwilling to embrace innovation, mostproducers are continuing to concen-trate on developing existing mole-cules and proven formulations andare investing little in original R&D.

Finding the raw materialsIn addition to the fragmentation of themarket and the resulting need for dis-tributors, together with the issue ofmoney collection, the Mexican agro-chemical industry faces the same chal-lenge as other chemicals industry sec-tors: access to raw materials.

The decline of petrochemical pro-duction and the current monopoly ofstate-owned Pemex has resulted inmany raw materials no longer beingavailable locally and companies hav-ing to source them from abroad.

“Mexico used to produce all theraw materials needed by the industry,but today we probably import 90% ofthem. There’s no production of urea,ammonium sulphate or phosphoricacid, which has made the marketmuch more expensive,” explainsIbarquim’s Ibarlucea. With activeingredients constituting more than90% of the cost of agrochemical pro-duction the situation is particularlyimportant in this industry.

The cost of importing active ingredi-ents has increased significantly in thelast year, due to the strong devaluationof the peso. Companies that only sell tothe national market have suffered fromthis. “What we try to do, as a strategy,is to find a balance between importsand exports, to decrease the risk of cur-rency fluctuations. Our exportsaccount for 25-30% of our sales”, saysRamírez of IQC.

For companies more involved inexports, the current exchange rate isnot proving to be quite so negative.Emilio Assam, executive director ofPyosa, a large Mexican chemical firmspecialising in pigments and dye pro-duction as well as agricultural contractmanufacturing, feels that the situationhas improved.

“The problem was that the pesowas very strong for so many years,”he says. “While the current exchangerate means we cannot be super-com-petitive, I think it is at a good level.”Since stabilising, the recent currencyfluctuations are no longer having sucha detrimental effect on cost structures.

Asia has become a particularlyimportant source for imports.Anajalsa’s Gurrola says: “In Mexico,everything comes from China andIndia. China has become very aggres-sive during the last ten years, withquality products. Many big companieshave facilities there or buy fromChinese factories.”

Escalante of Velsimex, however,feels that Chinese products are not asprice-competitive as they used to be.“China used to have export subsidies,power usage subsidies, an artificiallylow currency and very low salaries.But now the situation has changed,”he says.

“We have seen in the last year thatthere are less products available in theinternational market and at higherprices,” notes Mario Abedrop manag-ing director of Química Foliar, aMexican company focused on tollmanufacturing. However, with crudeoil prices down and less demand forraw materials due to decreases inmanufacturing, prices have fallen to amore acceptable level in 2009.

While access to raw materials isproving problematic, it is not entirelycrippling production in the country.Companies such as Agri Star, part ofAmerican agrochemicals producerAlbaugh, are still managing to oper-ate large-scale manufacturing opera-

tions, producing 6,000 tonnes/yearof copper fungicide at a plant inChihuahua for export to more than26 countries.

Escalante believes that “there isgoing to be an opportunity to manu-facture active ingredients again inLatin America.” With significantinvestment costs, bureaucratic andregulatory hurdles, heavy competitionfrom abroad and Pemex’s continuedmonopoly, however, it remains to beseen if this happens in Mexico andnot everyone is convinced that localproduction would significantly reduceprices.

Entering the Mexican marketUnlike other Mexican sectors servedby the speciality chemicals market,agriculture has not been badly affect-ed by the current economic situation,unless one includes currency devalua-tion. Indeed, globally, it is one of thefew markets that is continuing to per-form well.

Clearly no major agrochemicalscompany should ignore Mexico butwhat is the best way to enter theMexican market? There are severaloptions, from the full package of set-ting up a local plant to simple distri-bution of imported products, not for-getting the possibility of contract man-ufacturing.

“The Mexican agrochemicals mar-ket is mature but very attractive. Thisis a good country, but to grow hereyou need to invest and show a long-term commitment. You need a solidstructure”, says Trejo of Cheminova.“We always ensure that our Mexicanpartners are up to our standards.”


strong but fragmented

Assam - Peso at good level now

Norma Rodriguez (right) – External help needed in registration

agro 15/9/09 11:44




Other multinationals also employcontract manufacturing as an efficientway of reaching the local market withtheir own brands. Those who havebenefitted from that strategy are thelocal companies that are prepared tocomply with all the standards that bigchemicals companies ask for.

At Química Foliar, for instance,contract manufacturing has thebiggest share of sales, although thefirm also sells under its own brands.“Our own products give us thebiggest yield, but most of our busi-ness is for third party clients. Theseprovide smaller margins, but largeorders”, Abedrop comments.

Some regional contract manufac-turers have even managed to gobeyond the local market. With morethan 15 years experience, Assamclaims, Pyosa has created a worldclass facility with many operationaladvantages including: multistep syn-thesis capacity in one site, a highlyskilled workforce, an establishedhealth, safety and environmental pro-gramme, ISO 9000:2000 certificationand in-house management andimplementation of new products.

With ongoing contracts to supplymany major multinationals interna-tionally, Pyosa says that it can offer thesame quality and standards of pro-duction as its European and Americancounterparts at significantly lowerprices. Indeed, high quality interna-tional contract manufacturing couldprove to be a lucrative growth area forMexican producers.

Mexico is not only attracting themultinationals, but also small foreign

companies looking to introduce theirproducts on the market. The problemthese newcomers encounter is fre-quently related to the complexity ofthe regulations and the administrativeprocedures. This in turn has helpedthe consultancy business grow.

Agrovant, for instance, is an adviso-ry firm specialised in registering agro-chemicals, fertilisers and other prod-ucts for their commercialisation in thenational market. “Companies knowthat they need to register if they wantto sell and that these investments areimportant; so they look for externalhelp”, explains Norma Rodríguez,international business manager.

The company also networks withexternal consultants in the differentMexican regions and abroad, andsources legal advice from law firms.“We basically act as a link to all theareas needed to enter the Mexicanagrochemicals market, from creatinga company in Mexico to the market-ing and commercialisation,” she adds.

With slow bureaucracy and complexlegislation currently presenting a barrierto entry into the market, many smallerforeign companies, as well as localfirms, would benefit from the introduc-tion of clearer legislation and govern-ment initiatives to reduce red tape.

Market OverviewAgricultural production in Mexico ischaracterised by a wide range ofregional diversity and farming meth-ods and there are very many smallproducers. Unlike other countries inthe region, there are no packages ofland with thousands of hectares orsignificant grain production.

“In Mexico there are two maincrops, corn and sugar cane, thenmany smaller crops, like cucumber,potatoes, tomatoes and bananas.Mexico is also very competitive infruits, vegetables and flowers,” saysCheminova’s Trejo.

Another challenge for the moderni-sation of the industry and introductionof large scale production in Mexico isthe issue of land distribution. “Landownership is a very complicated situa-tion, there are no clear laws and it is avery confused issue. This presents asignificant problem for growth andprogress,” notes Diaz of Agri Star.

Many local producers are not in aposition to capitalise weather condi-tions that make it possible to growcrops year round. Consequently,much of the market is still underde-veloped and uncommercialised.

“A lot of Mexican agriculture is stillbased on seasonal rains and subsis-tence farming. While there is a lot of

innovation in the north, in the centreand south they still employ very tradi-tional farming practices,” notes FMC’sO’Shea.

According to Campos, there aretwo types of growers in the market:the technologically advanced, whouse more advanced products but con-stitute only 10-15% of the market, andthe others, who use generic productsoften supplied through governmentinitiatives. Many small producers areunwilling or unable to adoptadvanced technology and the mainmarket is in generic products andtried and tested formulations.

There have been some movestoward adopting modern techniques,however. With a greater focus onincreasing their yields, producers arebeginning to realise the benefits ofgreenhouses and polytunnels. The lat-est figures suggest around 10,000hectares of land in Mexico are nowcultivated under cover.

Similarly, as producers look to max-imise their profits, some are begin-ning to realise the benefits of organicfarming, particularly as a means ofadding value for the export market.With avocado production for the USmarket booming in the north-westand coffee exports continuing to dowell in the south, organic farminglooks set to become a growth niche.

Selling to the marketWith such a wide range of customers,understanding and responding totheir varied needs is vital for any pro-ducer wishing to succeed in Mexico.In this context, effective distribution is

Escalante - Need to loosen genericrules

agro 15/9/09 11:44

Project3 15/9/09 11:47 Page 1




key. For many smaller local producers,a long experience and good knowl-edge of the market offer considerablecompetitive advantages, allowingthem to add value by offering person-alised services to smaller consumers.

“We go to our clients, distributorsmainly, and show them how to solvetheir problems in the areas and cropsthey work in. We are also very quickto deliver our products, we alwayshave stock and we provide deliveriesat least once a week. Our clients aresmall and mid-sized companies locat-ed in the countryside,” explainsGurrola of Anajalsa.

Other companies looking to devel-op their distribution are choosingalternative routes to market. RaúlCampos, Techica Mineral says: “If wetry to use existing distributors we findthat our products are neglected. Weare therefore trying to create new dis-tributors or find smaller ones who canreally get behind and support ourproducts. We are creating our own,exclusive distribution network.”

In an increasingly crowded market-place offering many similar products,standing out from the crowd can bedifficult. FMC for one has enjoyed

considerable success by analyzing andresponding to the specific needs ofthe Mexican market. O’Shea explainsthat in 2007 the firm introduced aseries of changes based on localresearch on how the Mexican agricul-tural community makes decisions andwhat it looks for in new products.

By creating a recognisable brandimage and “promoting directly to thegrower level to increase the pullthrough desirability of our productsthrough regional managers and tech-nical representatives, we brought our-selves closer to the market place,” sheadds.

Through market segmentation,FMC now “identify which distributorsare strong in which crop segments andtailor our product lines for them.” Witha more concentrated and focused dis-tribution network, reduced from 160 to80, and a better understanding of themarket, the company expects to see agrowth of 30% this year.

OutlookWith products yields becomingincreasingly important, but a largepercentage of producers still relyingon traditional agricultural techniques,

the introduction of GMOs to the mar-ket could prove to be extremelyimportant for productivity.Commercial products look set toappear by 2011.

Whilst many in are welcoming theirarrival, Agri Star’s Pablo Diaz cautionsthat: “There are potential threats andthe introduction must be handledcarefully, supported by a programmeof education.”

As sustainability issues and environ-mental awareness increases, there isalso a growing trend in the industrytowards the development of moreeffective products with lower activeingredients. In the long term, thisshould benefit both formulators,requiring the importation of lessactive ingredients, and end con-sumers, with the introduction of lessharmful products.

Despite the current economic situa-tion, the agricultural industry is doingwell in Mexico. While it may not be asadvanced as other markets in theregion, it offers considerable potentialfor companies that can understandand adapt to its specific needs. Thenext few years should see an influx ofnew players, the consolidation of

those already in the market and thecontinued success of local producers.

The introduction of new regula-tions in 2010 may well help toimprove the registration process.While these changes might not begood for some companies in the shortterm, they should help the industry tobecome more competitive, bringingproduction quality in line with interna-tional standards.

There are still significant chal-lenges for the sector, however. Mostimportantly, the government needsto ensure fairer, clearer registrationthat provides a level playing field,improve bureaucracy and tackle theinefficiency that continues to hamperdevelopment.

Land ownership issues limit largescale commercialisation in many areasand much of the industry is in need ofmodernisation, so the market may notgrow significantly in the mediumterm. However, with less than 50% ofMexico’s agricultural land currentlybeing cultivated and an excellent vari-ety of favourable climates, the long-term prospects for the region, andthose who choose to invest in it, lookspromising.

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W ith a population of 110 million,Mexico is the largest and mostdeveloped pharmaceuticals mar-

ket in Latin America, the ninth biggest inthe world and one of the ten largest pro-ducers of medicines worldwide. In 2008,sales were $13.48 billion and they are pre-dicted to reach $27.33 billion by 2013.

In the last two decades, the industry has under-gone an extended period of upheaval. The open-ing up of the country in the early 1990s and thecrucial introduction in 1991 of legislation protect-ing patents and IP rights resulted in an influx offoreign investment in the pharmaceuticals indus-try, in line with the aims of the Salinas administra-tion.

Shorn of its monopoly and government protec-tion, much of the local industry was ill prepared tocompete with the arrival of the large quality play-ers, high quality manufacturing and innovation.The decline of the chemicals industry and theensuing lack of local raw materials and API manu-facturing compounded the industry’s problems.

Relying on imports for raw materials and deal-ing with increased competition, the number oflocal manufacturers has declined from 1,500 in1980 to just over 200 today. For the most part, thesurvivors are a mixture of a few high technologyfirms and numerous smaller local players.

While the opening of the market has had a neg-ative effect on the number of local producersactive in the industry, it has proved to be benefi-

cial for its quality, reliability and professionalism.Companies that have survived have done so byadapting and evolving to the changing market.

With the requirement either to partner withlocal companies or to have production facilities inthe country, the Mexican pharmaceutical markethas opened more gradually than others to foreigncompanies, ensuring the continued survival oflocal players. Nevertheless, most of the majorinternational pharmaceuticals companies have apresence in Mexico and more are to come.

Recent legislative changes are set to have ahuge impact. A move to abolish the requirementto have a local manufacturing presence in Mexicowill increase the amount of foreign competition,while a reform of the Health Supplies Regulation,coming into effect from 24th February 2010, isintroducing significantly stricter manufacturingregulations.

Growth of genericsThe biggest development currently affecting theindustry in Mexico is the growth of generic drugs.With a large population, many of whom have lim-ited means, generics would seem to be an excel-lent alternative to branded treatments. Only in thelast few years, however, has the market taken off.

Generic medicines have been in the Mexicanmarket for around 30 years but in the past therewere significant quality problems and confusionover the term. Many inferior, less effective medi-cines were sold as generics by unscrupulous phar-macies, giving them a poor image.

Nine years ago, the government introduced theconcept of interchangeable generics. This meantthat all generic products must be exactly the sameas the patented equivalent, says Dr Dagoberto

Cortés, director general of Laboratorios Hormonaand President of ANAFAM, the national associa-tion of pharmaceutical manufacturers in Mexico.

Recognising the potential of generics for boththeir own public health expenditure and for publichealth of in general, the government has supportedthe development of generics. ANAFAM and thenational chamber of the pharmaceutical industry,CANIFARMA, have worked hard to change thepublic’s perceptions, providing information throughdoctors, hospitals and advertising campaigns.

Manufacturers, such as Apotex, Liomont,Silanes, Tecnofarma and Laboratorios Hormonanow provide high quality generic medicines for60-80% less than the branded alternative. In thepast three years, the public has become moreaware of this and the market has taken off.

By 2013, it is predicted, generics could growfrom 10% of the current $25 billion market to15% and their share could reach 30% in a decade.The current economic climate has further boostedgenerics. Sales in the branded market havedeclined by 7% this year, while generics haveincreased by 45%.

Naturally, wholesalers and distributors arebecoming keener on handling generics. As HéctorCarrillo, director general of Latin America forCanadian generics producer Apotex, explains: “Inthe past, large wholesalers did not want to carrygenerics, as they thought they would obtain small-er margins. Now, however, they have realised thatthe margins can be very high, so we are seeingconsiderable demand from them.”

Unsurprisingly, there has also been significantinterest in Mexico from Big Pharma giants. Bristol-Myers Squibb has just entered the market, Sanofi-Aventis reinforced its position by buying local pro-


Pharmaceuticals: Powerful potenti

Pfizer has a facility in Toluca

pharma 15/9/09 11:48



ducer Laboratorios Kendrick in April, whileNovartis’s generics arm, Sandoz, has a consider-able presence in Mexico as well.

Given their growth in the global market, Asianfirms are also getting in on the act. Indian firmRanbaxy Laboratories, for example, established awholly owned subsidiary in Mexico in 2004. Atthe moment, it seems that there is enough roomin the market for everyone, but competition looksset to grow fiercer in the future.

New regulationsThe current legal still causes some problems forgenerics. Werther Rodríguez, director general ofMexican generics manufacturer Tecnofarmaexplains: “Legally a pharmacy must supply theexact medicine prescribed by a doctor and cannotreplace it with an alternative.”

This is set to change next year, but he feelsthere may still be problems with the large phar-maceuticals companies influencing the prescrip-tion process towards their own branded products.

The other important development for theindustry is the introduction of the Health SuppliesRegulation This aims to tighten up the renewaland registration of pharmaceuticals.

Hitherto, laboratories only had to register theirproduct once, now they will have to do so everyfive years. Furthermore, products on the marketwill be required to undergo bioequivalence testingto prove their quality and interchangeability. Theresult will be a marked increase in the quality ofproducts available on the market and a regulationsystem on a par with its international counter-parts, such as the FDA and the EMEA.

Many in the industry welcome the change.Local manufacturers who have invested heavily toincrease their quality of production see it as achance to grow and feel that it will have a positiveimpact on the industry’s image.

“We, the national laboratories, have trans-formed this challenge into an opportunity,” saysIñaki de Izaurieta Lasa, who is the commercialdirector of Mexican manufacturer MaviFarmacéutica. “Indeed, over the last years we havehad explosive growth, because we have under-stood the need for strict regulations and haveturned the new requirements in our favour.”

Companies that have anticipated developmentswill be well placed to benefit from the changes,Izaurieta Lasa adds. “We defend the requirementfor the renewal of registrations. We do not want

an extension to the deadline in 2010, because wehave done our homework and we currently havea competitive advantage over the rest.”

Not everyone is so enthusiastic, notes JaimeUribe de la Mora, director general of Probiomedand president of CANIFARMA. “There is a battlebetween the companies that are well prepared forthe new regulations and those smaller laboratoriesthat are asking for an extension of the deadline.Most probably there will not be an extension.”

With the high cost of testing and upgradingmanufacturing lines - bioequivalence testing alonewill cost about $100,000/product - many smallercompanies and product lines will disappear. Morethan half of the local manufacturers do not cur-rently comply with good manufacturing practicestandards, according to Tecnofarma’s Rodríguez.

Conversely, says Cortés, those still there for thenew legislation will be of the highest quality andthe industry’s international image “will changeabruptly”. This should open the door for moreinvestment in the industry and allow Mexico tocapitalise on its proximity to both North andCentral America.

There are, however, some concerns over thegovernment’s ability to manage the transition.


potential in Mexican market

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Yves Savoir, managing director of local playerTechsphere, feels that “the health ministry is over-stressed and does not have the resources toenforce all of the regulations.”

Others are also concerned that the new regula-tions do not adequately cover the import marketand that there remains a danger of low qualityproducts coming in unchecked from abroad. Withtighter regulations, counterfeit drugs could alsobecome more prevalent. CANIFARMA says that ithas identified cases of this.

Production & accessWith the decline of local manufacturing, access toraw materials has become crucial for local manu-facturers. Whereas 20 years ago 75% of APIs usedin Mexico came from the local market, there isnow no local chemical production and 90% of thecost of a pharmaceutical product manufactured inMexico depends on products purchased fromabroad.

Because of this, the fluctuating exchange rate isproving particularly problematic for cost structures.Some companies have sought to address the prob-lem by dealing directly with manufacturers in Asia,though this is not always straightforward.

“It is possible to buy directly from the produc-ers, but many manufacturers don’t because it isdifficult,” says Rodríguez. “Compared to the APImanufacturers, we are very small companies. Itrequires a lot of time and effort to get a responsefrom them.” With perseverance, however, therewards can be considerable. Rodríguez estimatesthat his raw materials costs are now 30% less.

The fluctuating exchange rate and cost of rawmaterials are currently proving particularly prob-lematic for large supply contracts. Companiesincluding Apotex and Tecnofarma have experi-enced problems and have lost money on fixedrate contracts as costs have risen.

IMSS, the Mexican Social Security Institute,which is responsible for nearly half of all publicdrug expenditure, is organising a tender for thesupply of medicines for a 30 month period start-ing from October 2009. Thus there is a dangerthat the problem will persist and the industry iscurrently trying to renegotiate terms.

While not as profitable per unit as supplying theprivate market, government contracts offer a reli-able, ongoing revenue stream and are provingparticularly useful in the current economic climate.Only a few companies are capable of meeting thehigh volumes of demand.

The Mexican Ministry of Health raised thebudget for the Seguro Popular health insuranceprogramme by 31% for 2009, ensuring that pub-lic health will continue to be a valuable market.ANAFAM is keen that the government maintainsits requirement that medicine should be producedin the region.

The requirement to have a physical presence inthe country in order to supply pharmaceuticals isnow being lifted for the private market. The resultwill be a fresh influx of companies on the marketand tougher competition from Chinese and Indianmanufacturers supplying cheap imports.

pharma 15/9/09 11:49




All the same, with registration still required inMexico, the complex legal and bureaucraticprocess, which takes around 18 months, shouldprove a barrier to entry. Furthermore, a lack ofknowledge of the market and the challenge of dis-tributing within the country will mean that manyforeign companies will choose to work in partner-ship with local firms.

In such a competitive market, both local andinternational players have had to adapt to suc-ceed. While the large international players havethe advantage of a wide range of patented prod-ucts, extensive R&D resources and establishedmanufacturing expertise, they have had to changeto the needs of the market, sometimes with mixedsuccess.

“In Mexico, the demand is mainly for blisterpackaging as opposed to bottles, says HéctorCarillo of Apotex. “There aren’t qualified people todispense them in pharmacies, so size and qualityare very important. In the region many customersbuy a single tablet daily. Some European compa-nies come to Latin America offering bottles of 100tablets and, of course, they don’t sell.”

Promoting directly to doctors and hospitals, bigPharma firms are countering the challenge ofgenerics by offering the highest quality productsand latest innovations. While many consumers arehard placed to afford such drugs, the growth ofthe middle class and health insurance pro-grammes provide a significant market.

In such a large and diverse market, sales are keyto gaining market share. Companies such asLabotorios Hormona, whose sales force visits20,000 doctors every week, are extremely active inpromotion. With size and infrastructure limitationsproviding challenges to getting products to market,effective distribution is also key to achieving sales.

As Ismael Flores, President of Latin America forpharmaceutical raw materials and reagents suppli-

er Mallinckrodt Baker explains: “Service is anoth-er important advantage. We always ensure thatour products are available to customers by ensur-ing an efficient supply. If a distributor has theproduct available customers will buy it, if not youlose the sale.”

Companies like Mallinckrodt Baker and Apotexalso have the added advantage of being able tocombine their knowledge of the local market withthe considerable resources of their parent compa-nies. Flores describes this as “a big advantage forus against international competitors.”

Although there has been significant investmentin manufacturing in the region, the same cannotbe said for research and innovation, with foreignfirms importing it in and local producers focusingon quality rather than R&D or new products. Onlyone in every 2,000 workers in the Mexican indus-try is involved in R&D.

Techsphere, whose CAFET R&D centre hasbeen operational for 20 years and has produced33 patents, is one of the few exceptions.According to Savoir, Mexicans tend to see scienceas “a mere job rather than the real challenge it canbe”, though he has succeeded in finding able peo-ple to work there. Others, like LaboratoriosHormona, have developed relationships with uni-versities and research centres.

Rodolfo Rosas, director of corporate affairs atNovartis feels that “most of the research that isbeing done isn’t being capitalised on”. Throughthe introduction of its biotechnology campus inMexico, offering students and researchers in thefields a chance to commercialise their ideas,Novartis is hoping to encourage innovation in thecountry.

A move towards increased research and inno-vation would certainly benefit the Mexican indus-try in the longer term. However, without govern-ment support and incentives to kick-start develop-

ment, it seems that, for the time being at least, theindustry will continue to concentrate mainly onlicensing research in from abroad.

Despite the recent economic slowdown andproblems in the local economy, as well as theperennial issues of local bureaucracy, a limitedinfrastructure, high energy costs, ever fiercerAsian competition and the difficulty of raisingfunds, the Mexican pharmaceuticals industry iscontinuing to do well. With tighter manufacturingrestrictions, the quality and reputation of theindustry is set to increase.

Both domestic and international companies areexpecting healthy growth this year. AsMallinckrodt Baker’s Flores observes: “Mexico is acountry with a lot of opportunities. If we can getjust a few things right we will see a lot of invest-ment.”

Rodriguez - Rewards for persistance

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Globalisation, instant communica-tions and worldwide transportationnetworks make possible direct

trade between providers and their finalcustomers, with no intermediaries.However these processes have costly struc-tures associated with them, especially forlarge manufacturers with thousands of cus-tomers dispersed in many different loca-tions that are very far away from eachother.

In a country like Mexico, with a large territoryand population and a fragmented customer base,traders continue to make sense, because they playa very important role in connecting producers withtheir client. Morever, they can also increase effi-ciency and reduce costs.

“Manufacturers can no longer take care of allmarkets and all clients. This is costly and distribu-tors are becoming increasingly important”, statesLeopoldo Aristoy, general manager in Mexico forUnivar, one of the world’s largest dealers.

This is especially the case in the chemicals sec-tor, where Mexico’s importrs are constantly grow-ing. For foreign companies who cannot afford toset up their facilities locally, finding a national dis-tributor is an essential step to reaching theMexican market:

“We are not a self-sufficient country. Raw mate-rials are mostly imported. The manufacturers,increasingly aware of cost-efficiency, have realisedthat it is in their best interests to outsource the dis-tribution”, explains Eduardo Salinas, managingdirector of High Chem Specialties.

For Salinas, the problem is that many clients stillsee traders as an extra expenditure. “Distributioncompanies are not valued by the industry as theyshould be. Many manufacturers still see distribu-tors as an intermediary that adds unnecessary coststo the value chain. The truth is, working with us,manufacturers gain far more flexibility than if theydid the job themselves,” he claims.

Market conditions are suitable for furthergrowth among distributors in Mexico. The signa-ture of free trade agreements with various coun-tries, mainly but not only NAFTA, coupled with theclosure of many Mexican chemicals plants, has cre-ated business opportunities for importers. Indeed,many of the major Mexican dealers’ whole strate-gies are based on the distribution of products thatare not available nationally.

This is the case, for instance, of CharlotteChemical, Mexico’s main distributor of chlorinatedparaffins: “Our chemical division started 20 yearsago, as the country opened its borders to foreigntrade. We saw there was a good opportunity toimport chemical products that were needed in the

national market. Our bottom line has always beento import products that have no competition fromnational producers”, says Flor Gómez, the firm’sgeneral manager.

DiversificationFor both buyers and sellers, traders can generallyoffer a wide product portfolio as well as a big cus-tomer base. In Mexico, a country that has sufferedcontinuous economic crises, it is not uncommonthat companies active in the chemical distributionarea have other divisions within the same corpo-rate structure, with interests as diverse as paper,food or real estate.

“Our strategy has been to diversify as much aspossible. With growing competition from China,Ukraine and the US, it is also an effective way tomaintain market share”, says Miguel Valdivia, com-mercial director of Trade Chemicals, a distributorspecialised in chemical raw materials.

“We are children of crisis”, adds ArmandoSantacruz, managing director of Grupo Pochteca,a big distributor listed on the stock exchange.“Anyone between 35 and 60 has seen recurrentcrises in Mexico. This teaches lessons, one of whichis not to have all your eggs in one basket”.

He adds that the company delivers over 20,000orders/month on credit to over 6,000 customersand has an entire human resources team to chasethese payments. No single customer accounts forover 3% of the company’s sales.

“This allows us to provide credit without puttingthe company at risk. It also allows us to walk awayif a customer’s demands become unacceptable,

which is very hard to do when you have 30% ofyour business with one single customer,” saysSantacruz.

The impact that the global economic crisis hashad on the Mexican economy, however, is causingmany clients to pay late or even to default. Chasingpayments when you have thousands of customerscan become a real headache.

“It is difficult to manage all our money collec-tion, especially in these times of crisis. The deval-uation has hit the industry really hard, and smallclients are having problems paying”, says DanielGarcía, managing director of Egon Meyer, a dis-tributor of bulk chemicals, which counts around3,000 active clients.

For smaller dealers, ensuring money collectionand cash flow is even more important: “By not giv-ing credit and demanding on the spot or advancedpayments or stipulating payment within 20 days,we have been able to maintain a high level of liq-uidity,” Valdivia claims.

Focus on specialitiesDistributing commodity chemicals in large vol-umes is not the same as finding a market for high-ly specialised products. Manufacturers of bulk vol-umes may ship orders directly to their clients, yetthe producers of performance chemicals know thatthey rely heavily on distributors to persuade thefinal customer of the need to use their latest tech-nology or products.

“In the specialities business, you don’t sell largevolumes but you need to work very hard in orderto sell the products. Specialties are more profitable

Distributors: Subcontractingefficiency




Aristoy - Distributors reduce costs

distributors 15/9/09 11:51




but positioning the products can take up to five vis-its to the client before you get a sale. Once yousucceed, it is very likely the client will buy the prod-ucts again”, explains Aristoy of Univar, where spe-cialities account for “60% of the sales, and 80% ofthe efforts”.

Distributors who used to have bulk chemicals astheir main source of revenue are increasingly mov-ing towards the more specialised section of theindustry, where margins have not yet beensqueezed to the minimum. High Chem Specialties,Macropol and Química Delta, for instance, all havea strong focus on the speciality business today.

“The greatest challenge for all distributors is that,as the products that you sell become commodities,the margins decrease. So you need to changefaster than the market or proactively push the mar-ket to change”, explains Alfredo Ison, managingdirector of Química Delta.

Traditionally focused on commodity chemicalsand with a very lean, low-cost structure as its mainadvantage when compared with its competitors,Química Delta is having to invest more in humanresources now that it is implementing a strategy toenter the specialities market aggressively.

“Last year we signed agreements with 15 newsuppliers all around the world. For 2009, weexpect specialities to reach 7% of our sales, where-as in 2008 it was barely 0.5%,” Ison adds. Thecompany expects sales for 2009 to be in theregion of $114 million.

Macropol, a smaller distributor that makes 70%of its sales out of speciality chemicals, is also awareof the efforts that are required to maintain a goodposition. Managing director Eloy Cordero says:“We need to be very patient: we have to sell ideas,not products that the clients are already using. Veryoften the clients do not even know about the prod-ucts. We sell effects and performance rather thanproducts: whiter teeth, brighter colours, more

resistant plastics and so on.” A permanent effort to renew the product range

is perhaps the best preventative medicine againstfuture economic downturns. Cordero insists thatone of the aims of Macropol is to renew its prod-uct portfolio fully every five years. Market condi-tions will be increasingly tough, but with thisapproach, the most up-to-date distributors will def-initely have a niche to work in and profit from.

15 – 16 April 2010

Hall 1 Bombay Exhibition CentreNSE Goregaon (E), Mumbai

www.chemspecindia.com

Make the right connections

Organised by Official media partnerIn association with Contact the sales teamJohn Lane

T: +44 (0) 1737 855 076 E: [email protected]

Ison - Distributors must force the pace of change in the market

distributors 15/9/09 11:51



The Mexican paints and coatings industryhas experienced significant upheavalover the last few years. Whilst the sec-

tor grew considerably in 2006 and 2007, ris-ing oil prices and the ensuing high cost of rawmaterials halted growth in 2008. Despiteprice decreases towards the end of the year,the industry has been further affected by theworld financial crisis.

With an average consumption of just 5.2litres/head in 2007 compared to 8 in Brazil and 15 inthe US, there is considerable potential for growth inthis approximately $2 billion/year market.Nonetheless, growing competition and market stag-nation are forcing many companies to re-evaluatetheir business strategies in order to survive.

The industry has received considerable investmentin the past decade. Many international firms, includ-ing BASF, Dupont, 3M, Merck, Sherwin-Williams,Eastman Chemical and Reichhold, have committedthemselves to Mexico and have bought up manysmaller companies to boost market share.

Local giant Comex, the fourth largest paint manu-facturer in North America with sales of over $1 bil-lion/year, is the dominant force. However, the manySMEs are increasingly squeezed between all of thesebehemoths.

Architectural paint is historically the biggest market,accounting for 44% of sales in 2007. Not far behindcomes the OEM sector, including automotive (32%),while special purpose paints had an 18% share andresins 6%. However, given that the latest market fig-ures come from 2007, there is some uncertainty overthe current state of the market.

“We don’t know the 2008 figures yet and in 2009it is very difficult to predict how the paints industry isgoing to behave, because paints used by many indus-tries affected by the crisis,” observes Arius E. ZúñigaLara, president of the National Association of Paint &Coating Manufacturers (ANAFAPYT) and ofComercializadora Jasaquim.

Automotive production is down 41% this year,which must significantly impact sales to the OEM sec-tor. Architectural paint is also suffering, according toRicardo Rodríguez, director general of the largeMexican roof coatings manufacturer Impac.

“The construction industry in Mexico is not doingwell,” he says. “A lot of new projects have been puton hold and there are very few new houses beingbuilt. Many big construction firms have almoststopped their activities completely.”

Consumer spending is also down. 30% of the pop-ulation is saddled with credit card debt and the era ofcheap credit is over, so the lack of consumer spend-ing is affecting sales, Rodríguez believes that “the cri-sis has reached a level where most people are scaredabout spending more than they should”.

In a move to provide some stimulus to the econo-my, the Mexican government is investing heavily ininfrastructure projects, particularly in roads. The move

seems to be providing some respite for the belea-guered industrial coatings and architectural sectors.

Zúñiga, however, cautions that the projects needto be fast-tracked: “Because of past corruption prob-lems, the process to release funds for these projects iscumbersome. This crisis requires quick solutions, wecannot wait several months to see the projects takingoff”, he says.

Car refinishing is doing well, by contrast, as cus-tomers invest in repairing their existing vehicles.Similarly homeowners are continuing to invest inhouse repairs and cheap Mexican furniture is contin-uing to experience high demand in both the US andMexico. Recognising the market potential in furniturecoatings, Comex started a joint venture in this fieldwith Brazilian coatings company Renner Sayerlack inQ1 2009.

As the US economy begins to show signs of recov-ery, there is a growing feeling in the industry that thecrisis has hit bottom. Many firms are predicting anupturn in Q1 2010. Furthermore, despite currentlybeing in dire straits, Alfredo Garcia, business manag-er of pigments at Merck KGaA believes that Mexico’scar industry is poised to grow to be bigger thanCanada’s and, in a few years equal to that in the US.

Compounding the decline in sales, the devaluationof the peso against the US dollar is putting extra pres-sure on the industry. As Zúñiga observes,“Companies already have a cashflow problem, so theexchange rate comes as an extra burden.” Thedecline is affecting both suppliers and companies thatmanufacture end products locally.

According to Tomás Beomonte, CEO of theNAFTA region for Brazilian chemicals multinationalOxiteno, which expanded successfully into Mexicostarting with the purchase of the historical Mexicancompany Canamex, and subsequently purchasingthree more businesses, the sector is “suffering notonly from a decline in sales, but an increase in thecost of raw materials. As we sell to the local marketin pesos, we have been affected by the recentdevaluation.”

The devaluation of the peso, Beamonte thinks, mayhelp exports in the future but it is certainly damagingthe industry at the moment. He adds: “In the long

term it will make us more competitive in the NorthAmerican market, but we are taking a hit in the short-term as we don’t pass these costs to our customers. Inthe current market access to raw materials is alsoproving problematic. However, we are taking theopportunity to assess our strengths and weaknessesand prepare ourselves for the upturn.” Despite this sit-uation Oxiteno has been growing, as a result of acombination of increased investment, technologicalimprovements, support from the group and aggres-sive expansion. But not everyone may count on suchstrong competitive advantages and the decline ofpetrochemical manufacturing in Mexico has placedmuch of the industry at the mercy of foreign importsand is hindering its growth and development.

Over 50% of raw materials used in the industry areimported and there is growing competition fromabroad, so manufacturing costs are critical for thelocal industry. Samuel Troice, manager of local paintproducer Pinturas Acuario, observes: “China can sellat prices 15-20% lower than ours. We have a bigproblem with prices. Every day, there are increases inthe cost of chemicals, cans and other materials.”

One solution to the high cost of raw materials is tomanufacture their own. Very few players in theMexican market do this. Impac is an exception,because it has its own reactors to produce resins andpolymers and can thus make raw materials cheaper,ensure quality and create unique formulations,according to Rodriguez. However, the initial costs arehigh and prohibitive to many smaller producers.

Not everyone is pessimistic about the future oflocal raw material production. Possibly uniquely overthe last 15 years, Grupo Beta began production in2006 and is due to start production of hydroxyl ethylcellulose at the end of the year. Raúl Baz, chairmanand CEO, believes that there is considerableuntapped potential for raw material manufacturing inMexico.

“I think that there are an awful lot of opportunitiesin Mexico for petrochemicals, a lot more than peoplerealise,” Baz says, though he also feels that most com-panies are not in a position to take these opportuni-ties. “My opinion is that a lot of entrepreneurs inpetrochemicals in Mexico have been devastated.Many Mexican companies don’t have an entrepre-neurial mentality and aren’t willing to take risks.”

One way for companies to beat the downturn isthrough investing in better technology. With a pay-back both in terms of improved quality and efficien-cy, there can be significant advantages. Says Zúñiga:“Quality is a must for the Mexican paints industry.You need to follow the same standards and qualitynorms as in other parts of the world in order to becompetitive.”

Troice adds: “The only way to compete with othercountries is by being more efficient. We are compet-ing by being more efficient with service and quality.”Complying with ISO 9001:2000 standards, PinturasAcuario’s investment in facilities has enabled it to pro-duce quality products at competitive prices, he claims.


Paints & coatings: Holding on tight

DuPont warehouse near Mexico City

paints 15/9/09 11:51



Other players are following suit. Gaining interna-tionally recognised certification also opens up thepotentially lucrative export market. Unfortunately, forthe majority of smaller manufacturers, technologicalinvestment is not financially feasible at the moment.

With the loss of sales in traditionally strong mar-kets, diversification is another useful strategy.Pinturas Acuario, for example, has recently diversi-fied into providing special paints for oil rigs. The suc-cessful maquiladora manufacturing industry on theUS border and the growing aerospace sector pres-ent other possible avenues to explore.

With some exceptions, there is generally littleinvestment in R&D among the local SMEs. Largemultinationals and Comex, meanwhile, are usinginnovation and specialisation to retain their compet-itive advantage.

Some parts of DuPont’s coating division, forexample, are doing parts of their R&D work forcompanies like BMW in Mexico. “Companies inMexico are very open to new things. If you want totry a new technology this is the perfect test ground,”says Pedro Fernández, the company’s vice-presidentfor the Americas.

Although Mexico is not one of its main researchcentres, Clariant has realised the benefits of con-

ducting R&D here and is doing some of its colourresearch, says general director FernandoHernández. “It’s not basic research to find new mol-ecules, but we do lots of product innovation: how dowe make a red pigment more transparent, brighteror more biodegradable?”

Similarly, in February of this year, Comex openedits Visual Colour Evaluation Lab, designed to under-stand and improve colour production and perceptionin architectural paint. With specific climatic needs andcultural tastes, creating products tailored to the localmarket could prove to be an excellent way of gainingcompetitive advantages.

In the face of growing competition from Asianproducers, providing something extra is proving tobe particularly beneficial. Rhodia, for example, isaiming to grow in specialities rather than commodi-ties. Luis Fernando Maida, director general ofRhodia Mexico, says: “When you can add value forcustomers there is a lot of potential for growth inthese markets.”

Similarly Gabriel Siles Zuloaga, director of sales atReichhold, explains: “To offset the challenges of asaturated market and the fact that large paints man-ufacturers increasingly buy smaller players and feedthem with their own resin, we are focusing strongly

on innovation.” For instance, it has produced a pre-emulsified alkyd resin “in a user- and environmen-tally-friendly, watery state.”

Recently Rhodia has introduced a line of high per-formance non-VOC and APE-free eco-friendly sol-vents, while other manufacturers and distributors areintroducing water-based surfactants. Given that envi-ronmental concerns still are not very high on theagenda of most manufacturers in Mexico, the mainattractions of these innovations for the market are bet-ter performance and cost reductions.

While some companies are modernising, muchof the industry is still undeveloped, reliant on out-dated technology and producing inferior products.The introduction and enforcement of tighter reg-ulation, in line with international standards, whichANAFAPYT is promoting vigorously, could serveto improve the industry’s performance and capi-talise upon considerable export opportunities.

The cost of raw materials is another seriousobstacle to development. Unless Pemex opens uppetrochemical production, it will continue to limitthe Mexican paints and coatings industry. Withmanufacturing set to increase and new markets tobe developed, the current economic crisis maywell prove to be a turning point.


n tight in hard times

paints 15/9/09 11:51

ANIQ (National Association of theChemicals Industry)Miguel Benedetto

Director General

Angel Urraza 505, Col. Del Valle

México, D.F. 03100

Tel: +52 55 52305100

Fax: +52 55 55592208

Email: [email protected]

Website: www.aniq.org.mx

Agrovant SA de CV (ProductRegistration ProceduresNorma Rodríguez

Heriberto Frías No.1439,

Desp. 702, Col. Del Valle

México, D.F. 03100

Tel: + 52 55 5605-2467

E-mail: [email protected]

Website: www.agrovant.com

AMIFAC (Mexican Association of theFitosanitary Industry)Monica Olvera

Executive Director

Tintoreto 32 Edif. A-2

Col. Nochebuena Mixcoac

México, D.F. 03720

Tel: +5255 55989000


Website: www.amifac.org.mx

ANAFAM (National Association ofMedicament Manufacturers)Socorro España Lomeli

Executive Director

Tel. +52 55 56013082

E-mails: [email protected],

[email protected]

ANAFAPYT (National Association ofColours & Paints Manufacturers)Carmen Guzmán R.

Director General

Gabriel Mancera 309

Col. Del Valle

México, D.F. 03100

Tel: +52 55 56827794

Fax: +52 55 56827794 ext 103


Website: www.anafapyt.org.mx

Chemspec Latin AmericaJohn Lane, Sales Director

DMG World Media

Westgate House, 120 - 130 Station Road

Redhill, Surrey RH1 1ET

UK

Tel: +44 (0) 1737 855076


Website: www.chemspeclatinamerica.com

ProMéxicoJosé Ángel Santamarina Estévez

Unidad de Promoción de Exportaciones

Tel: +52 54 47 71 55 (direct)


Website: www.promexico.gob.mx

UMFFAAC (Mexican Union ofAgrochemical Manufacturers andFormulators)Debora Silva

Gabriel Mancera No. 1433 – C-3

Col. Del Valle

México, D.F. 03110

Tel: +52 55 5601-1100


Website: www.uniondeagroquimicos.com

contacts 15/9/09 11:52

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