On this podcast, Jan René Aguirre addresses a range of distinct complexities and challenges that are frequently not anticipated, but are most typically encountered, by businesses engaged in nearshoring efforts in Mexico.
On this podcast, Jan René Aguirre addresses a range of distinct complexities and challenges that are frequently not anticipated, but are most typically encountered, by businesses engaged in nearshoring efforts in Mexico.
Steve Katz 00:17
Hi, everybody, and thanks for listening in on our Hilco Global Smarter Perspective podcasts. I'm your host, Steve Katz. And if this is your first time with us, welcome. We're really glad you could tune in today. And the reason that I'm glad that you could tune in is because we're going to have a really interesting discussion, talking about the growing practice of nearshoring in North America, with an emphasis on Mexico and the many intricacies and nuances that it takes for companies to do so successfully. And with us for that conversation is Jan Rene Aguirre, director of business development and turnaround strategy at Hilco Global Mexico. Jan. Welcome to the podcast.
Jan Rene Aguirre 00:55
Thanks for having me on, Steve.
Steve Katz 00:57
Yeah, absolutely. Glad to have you with us. And I'm thinking to get us started, it would be great if you could share with the audience your thoughts on why more and more companies seem to be choosing a nearshore option for their operations, specifically in Mexico and the industries that you're seeing that are most actively doing so. And then lastly, maybe you can talk a little bit about the top line benefits of what this type of approach can bring.
Jan Rene Aguirre 01:25
Sure Steve. Listen several factors contribute to the increasing trend of companies choosing to nearshore operations in Mexico. I'll try to be brief, but I'll point out the ones that I see that are the most relevant.
Steve Katz 01:37
Great
Jan Rene Aguirre 01:37
Number one would be the proximity to the US. Mexico, geographical proximity to the United States is a significant advantage. This proximity reduces travel time and costs, making it easier for teams to both countries to collaborate efficiently. Another relevant would be cost savings. While while not as low as some offshore destination, Mexico still offers cost advantages compared to operating solely within the US labor costs and operational expenses can be more competitive, providing companies with significant savings. As you are aware, Mexico has been developing much their skilled workforce. Mexico has a growing pool of skilled professionals in various industries, including IT manufacturing and customer service. This skilled workforce is increasingly attractive to companies looking for talent with expertise in specific domains. Another issue Steve, would be the trade agreements. Mexico has a network of trade agreements, including the United States Mexico Canada agreement that facilitates cross border trade and reduces barriers for companies operating in the region. Another item would be the infrastructure development. Mexico has invested in developing modern infrastructure such as such as technology parks, and business centers to support the need of international business. This infrastructure enhances the ease of doing business in Mexico. And finally, Steve, maybe it's worthwhile mentioning the cultural the cultural affinity, Mexico shares cultural similarities with the US, which can lead to better communication and understanding between teams, shared time zones also facilitate real time collaboration.
Steve Katz 03:23
Yeah, and Jan what what sorts of industries are actively involved in nearshoring operations in Mexico?
Jan Rene Aguirre 03:30
Sure, I mean, while we can talk about many industries, Steve, I can point out three main industries that are that are having these effects and the number one would be manufacturing, right. Mexico has become a hub for manufacturing operations, especially in the automotive, aerospace and electronics sectors. Another industry, Steve would be the information technology or IT. The IT sector has been significantly growth in Mexico, with many companies outsourcing, software development, tech support, and other IT related portions. Finally, another industry that I would like to highlight is the customer service industry. Many companies, particularly those in the service industry, choose to nearshore customer service operations to Mexico due to the language skills and cultural affinity for the workforce.
Steve Katz 04:21
Okay. Jan, that's great context, what I'm hoping you could do is maybe just walk us through some of the challenges that you and the team at Hilco Global Mexico are seeing the companies run into most. And then have you talk a little bit also about having a local partner in the market that really understands the types of challenges that the companies face and has been through them before and how that can pay off for companies. So let's start with the company's understanding of the assets that may have acquired in the market as part of a new nearshoring effort or as part of its long standing approach. Yeah, for sure.
Jan Rene Aguirre 05:00
Absolutely Steve. One of the key issues that a local partner can provide would be first of all, market trends and insights, market knowledge and research capabilities can provide insights into market trends, economic conditions and regulatory considerations in Mexico. This information is very valuable for making informed decisions about asset acquisitions and disposals within your operations in Mexico. Another aspect would be due diligence support. Before acquiring assets or establishing operations in Mexico, it's highly recommended to perform due diligence to assess the value, condition, and potential risks associated with these assets. This helps companies make informed decisions and understand the financial implications of their investments. Once we have done that, we can go and consider the asset appraisals. Conducting detailed and certified appraisals of various assets, including manufacturing equipment, real estate, inventory and intellectual property. This is particularly valuable when entering a new market or making significant changes to existing operations. On a fourth note, Steve, we can talk about inventory management, where companies involved in manufacturing or distribution, having a profound insight into inventory management can help them optimize stock levels, assess the value of existing inventory, and devise strategy for efficient supply chain operations. Within this movement, we can also establish that many of the companies are considering real estate investments. And for these particular items, we can consider the real estate assessment. For companies acquiring or investing in real estate as part of their of their nearshoring strategy, assessing the value of properties while conducting market analysis and executing profound due diligence regarding the state of the property and the environmental implication, is key towards a successful acquisition and smooth transition into Mexico. It's also important to consider that entering the Mexican market or the nearest taking advantage of the nearshoring way, it's important to conduct or have a financial advisor, a local financial advisor that can provide a financial advisory services, helping companies understand the financial implications of their nearshoring effects, including cost structures, potential cost savings, and overall financial strategies, what we call tropicalizatoin of their operations in Mexico. And also Steve like in any other business, you would have to have a clear view of your exit strategies. And regarding exit strategies and asset monetization, this, this would have to be considering the case of changes in business strategies, or the need to divest assets. In this case, you would need a trusted partner that can assist with developing exit strategies and maximizing the value of assets through liquidation, auctions or other managed monetization methods.
Steve Katz 08:07
Yep, I think it's very interesting that idea of the tropicalization of business operations you know, it's a good way to describe it because there are you know, it's a totally different market, many different nuances and difficult to navigate I would imagine. You find that in any country, but obviously each country has its own specific nuances in in that regard. What about, you know, when you when you take a look at valuations in the context of a borrowing base, as it pertains to nearshoring in Mexico, are there any any thoughts or specific observations on that?
Jan Rene Aguirre 08:44
Sure, first, first of all, you would have to have like, a good market insights and reporting. Right, local trusted source that can provide lenders with a market insights and regular reporting on relevant economic and industry trends in Mexico. This information is valuable for lenders to make proactive decisions and adjust the borrowing base as needed Steve. On another matter, we can highlight the importance of asset appraisals. conducting thorough appraisals of assets, including machinery, equipment, inventory, and other relevant items are critical. These valuations are crucial for lenders to determine the borrowing base, which represents the maximum amount of a borrower can borrow against the value of their assets. Another item that would follow the appraisals would be the due diligence for risk assessment. Performing adequate due diligence on the assets being used as collateral for the loan. This includes assessing the condition of the assets, identifying potential risks and providing a comprehensive analysis to help lenders make informed decisions about their borrowing base. A critical, a critical Steve issue following a profound due diligence that many of the lenders are not currently doing, but it's crucial within the process is asset monitoring. Monitoring services to keep track of the performance and value of the assets and collaterals over time is key to be able to keep a performing loan. These ongoing monitoring allows lenders to stay informed about any changes in the asset value that may impact the borrowing base. And finally, Steve, of course, you need that exit strategy when the when the asset is due. In the event of a financial distress or default, you need trusted local partner that can assist lenders in developing ethnic strategies for the collateral. This includes assessing the marketability of assets and determining the most effective methods for liquidation or asset monetization.
Steve Katz 10:49
Okay Jan, and what sorts of specific issues or challenges that are distinct to the Mexico market do you see companies either struggling with or frequently needing outside expertise with in regard to monetizing their Mexico based assets either domestically or across borders? And why, I guess I would also ask this, why is this different in Mexico than in other countries in which a company may have operated a business before?
Jan Rene Aguirre 11:17
Sure, Steve. Let me address your first question. So some of these challenges include, and I would mention, I mean, the first one would be the legal and regulatory complexity. Navigating the legal and regulatory landscape in Mexico can be a little bit complex, companies may need outside expertise to ensure compliance with local laws and regulations related to the asset monetization, including those governing real estate transactions, labor laws, and export and import regulations regarding their assets. The second item will be the accuracy of the asset valuation. Ensuring accurate and reliable valuation of assets is crucial for successful monetization. Companies may require external expertise to conduct thorough appraisals and valuations that are aligned with international standard and market conditions. The third challenge would be finding a one stop shop for all type of asset monetization. As you are aware, Steve nearshoring involves a diverse set of facets, including manufacturing equipment, inventory, accounts, receivables, real estate, among others. A one stop solutions provide clients with comprehensive support for monetizing all of their assets associated with their nearshoring operations in Mexico, increasing their value reducing costs, or permitting their management team to focus on their current business operation. A fourth issue would be the local market knowledge, companies may lack sufficient knowledge of the local market dynamics in Mexico, including buyer behaviors, competitive landscape and industry trends. Seeking local expertise can enhance the effectiveness of asset monetization strategies. A big challenge would be the cultural and language differences. Cultural and language differences can impact negotiation and business transactions. Companies may require assistance in understanding local practices, customs and communication styles to facilitate effective asset monetization. And finally, supply chain and logistics issues. Once you have monetized your assets companies involved in manufacturing, distribution supply chain and logistics issues may arise during the asset monetization process. Outside expertise can help address challenges related to transportation, customs, procedures, and objects these optimizations in engaging with external experts, including financial advisors, legal consultants and industry specialists familiar with the Mexican market can help companies overcome these challenges and optimize their asset monetization efforts. These experts can provide valuable insights, strategic guidance and practical solutions tailored to the unique conditions to the Mexican market.
Steve Katz 13:57
Okay, Jan. You know, you you touched on this briefly, but can you give us a little more detail on how the challenges and issues associated with monetizing assets in Mexico can differ from doing so in other countries?
Jan Rene Aguirre 14:10
Sure Steve. I mean, each country has its own set of laws and regulations governing business transactions, asset sales and labor practices. Mexico has a legal framework that may differ significantly from other countries requiring companies to understand and navigate these unique regulatory requirements. Having a local partner that walk you through these legal and regulatory environmental is critical. Another issue would be cultural and communication differences. Cultural nuances and communication styles vary across countries Mexico has its own cultural context and companies operating there may encounter specific challenges related to business practices, negotiation styles, and relationship building that differ from the experiences in other regions. Another item to consider Steve would be the local market dynamics and buyer behavior. Understanding the local market dynamics, including buyer behaviors, competition and industry trends is crucial for successful asset monetization. This factor can vary significantly between countries and within the same Mexican regions, and require companies to adapt their strategies accordingly. Another item would be government policies and trade agreements. Mexico's government policies and involvement in international trade agreements may impact asset monetization strategies differently than in other countries. Companies need to consider the regulatory environment and potential changes in government policies that affect your operations. For example, I can highlight the index program that specifically targets the manufacturing industry in Mexico and allows companies to temporary import certain assets. So please consider the government policies in doing business and operations in nearshoring in Mexico. And finally, Steve, I can mention the community and stakeholder relationships, it's important to engage with local communities and stakeholders for certain projects. The approach to community relations and stakeholders engagement may differ in Mexico compared to other countries, requiring companies to tailor their strategies accordingly. In summary, that unique combination of legal, cultural, economic and regulatory factors makes asset monetization in Mexico distinct from other countries. Companies must take a country specific approach, leveraging local expertise and understanding to effectively address the challenges and optimize the asset monetization efforts in the Mexican market Steve.
Steve Katz 16:41
Yeah, I think we're starting to really get a feel here for just how different things can be when operating in another country, in this case, Mexico, and why you have to really understand how to how to navigate all these different areas. Clearly having, you know, having someone experienced in the market to assist in any number of those efforts is sounds like it would be a very good idea. What about I'm going to guess we're in a similar situation, but on the management of assets are there specific best practices that are advantageous for companies to adhere to in Mexico, that might be different from what they've encountered elsewhere. For example, you know, either in the US or Canada when you're talking about North America or overseas in regards to operational performance, such as reduction of downtime and operational efficiency?
Jan Rene Aguirre 17:32
Certainly, Steve. When considering asset management best practices in the context of nearshoring in Mexico, including asset ID and tagging, it's important to be mindful of the unique characteristics and challenges of the Mexican business environment. Here I can mention some of the best practices tailored to operational performance. Number one would be localized compliance and regulation, understand and adhere to specific Mexican compliance and regulatory requirements related to the asset management. This includes compliance with environmental standards, health and safety regulations, and any unique local regulations governing specific industries. Another item would be asset localization strategies. Developing asset localization strategies that consider the availability of local suppliers and service providers. These can reduce lead times for maintenance and repairs minimizing downtime. Asset lifecycle planning, Steve would be another important issue to consider. Implementing comprehensive asset lifecycle planning would involve considering the entire lifespan of assets from acquisition to disposal, and planning for maintenance upgrades and replacements to optimize performance and reduce unexpected downtime. Of course, you will have to consider predictive maintenance, leverage predictive maintenance techniques, implementing technologies such as sensors and data analytics to predict potential issues before they lead to downtime. This approach particularly beneficial for critical assets. Collaboration with local partners is a critical aspect of of the integration of the asset management. Collaborate with local partners and service providers establishing strong relationships with local maintenance and repair services to ensure quick response times and efficient resolution of issues. It will be also important to do a proper asset identification and tagging for cross border tracking, implementing a robust asset ID and tagging systems that would facilitate cross border tracking, ensuring that asset information is easily accessible and compatible with any international standard or system used by local authorities or partners. Again, and I cannot emphasize this as much Steve, would be community engagement. For us it asset resilience, engaging with local communities for asset resilence building positive relationship with the local community can beneficial during emergencies or unexpected events, helping to ensure support and minimize disruptions. Finally, I would recommend strongly recommend government relations for efficient operation. Please consider to establish positive relations with local government authorities open communications channels can facilitate a smoother operations, provide support when needed, and potentially reduce bureaucratic delays. By incorporating these practices deep into asset management strategies, I believe that companies can enhance operational performance, reduce that downtime and improve overall efficiency when ensuring operations in Mexico.
Steve Katz 20:39
While I would tend to agree with you, you make a very compelling case for the need to have some local experienced assistance. We are running out of time, unfortunately, I guess I would just ask you, is there anything that you didn't cover on the topic that you'd still like to emphasize for our audience before we wrap up?
Jan Rene Aguirre 21:01
Thanks, Steve, I really appreciate the time that you and your audience have provided me. I would just like to highlight that at Hilco Global Mexico, we can offer many of the services that we have discussed through our conversation. Our precise valuation and asset management services can play a pivotal role in informed decision making. Simultaneously, our monetization and liquidation services provide essential resources for machinery updates, ensuring adaptability and regulatory compliance. This integrated approach is your pathway to sustained growth and success in that dynamic nearshore environment in Mexico.
Steve Katz 21:40
All right. Well, thank you so much, again, Yan. It was great having you on. And it's clear that doing business in Mexico requires a lot of expertise. And it sounds like you guys know what you're talking about. So we're glad to have you on. And we hope to have you back again sometime soon.
Jan Rene Aguirre 21:56
Thanks for the opportunity to share this information with your audience Steve, it was a pleasure.
Steve Katz 22:01
Yeah, absolutely. We're, we know you're busy guys. So thanks again. And for listeners who want to reach out with a follow up question or discuss their own situation, can you share your contact information?
Jan Rene Aguirre 22:12
Sure. I can be reached by email or phone. My email is JAGUIReE at hilcoglobal.mx. And my phone in Mexico is +52 55 8500 8547.
Steve Katz 22:31
Okay, perfect. Thanks again, Jan and listeners. As always, we hope that this Smarter Perspective podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to make them that much more successful moving forward. And remember that you can always check out more great podcasts and articles featuring timely insights from Hilco experts like Jan, at hilcoglobal.com forward slash smarter dash perspectives. Until next time for Hilco Global. I'm Steve Katz.