Heavy Equipment_Hydraulic Parts

A new promising sector

Mexico’s strong economy is based primarily in four strategic sector activities: oil exports to the world, currency remittances, foreign direct investment and tourism. By the end of 2011, however, a fifth sector had presented itself as a profitable and long lasting promise to the country’s economy. The mining activity totaled $22.5 billion, more than those reported by FDI and remittances the same year. The cause for this growth started ten years ago when Asian countries increased their interest in metals, but it was not until 2008 that the activity started to show an ascending trend. Production was increased mainly on precious metals (71%) and there was substantial growth in non-ferrous metals as well (43%). Smelting products, increased by 10%. The mining sector in Mexico generates 328,000 direct jobs and roughly 1.5  million  indirect jobs and experts say it has potential to grow further and surpass 2011’s production record. Despite the weak global economy, Mexican and foreign investors are confident that the mining activity in this country will continue increasing, primarily because of the confirmed and signed investment projects at hand. There are 738 new exploration projects feeding this optimism (end of 2012). Sixty percent of those investments are being made by Mexican investors.

 Suppliers for this sector, who incidentally serve the construction industry also, are having their best years ever. Demand for new heavy equipment and parts is providing substantial sales opportunities, heavy truck on-site service and repair are provided by a limited number of specialized firms and they are also buyers of all sort of replacement parts; demand for leasing or rental is growing every day originating the proliferation of leasing companies, the largest ones having their own service shop in-house.

 Competitive Environment

The Mexican mining industries have increased their imports of highly specialized exploration equipment, heavy truck and machinery, material handling machinery, and their parts, which amounted to almost three billion dollars in 2011. 

Due to the favorable industry environment, Caterpillar has been motivated to increase their production and therefore they have expanded their facilities with a $500 million investment at Cienega de Flores in Nuevo Leon. In addition, Komatsu and Joy Global have entered in joint venture with large distributors in northern Mexico (the most populated region for mining). Foreign OEMs are establishing operations in Mexico; that is the case of the Chinese company LiuGong in Queretaro and the Japanese company Hitachi back in 2011. This last investment will be focused on light automobile parts. There is no forecast that Hitachi will bring their heavy equipment line to Mexico after the joint venture with John Deere in North Carolina. 

A quick directory search did not bring relevant information for domestic competitors, that is, manufacturers of hydraulic components different from the large OEM brands already in this market: Caterpillar, John Deere, Komatsu, etc. Distributors of these brands, on the other hand, are distributed around the country, with large heavy construction equipment suppliers in Mexico City and Monterrey and large heavy truck service firms in Sonora, Coahuila and Nuevo Leon. OEM distributors include service, repair and parts sale in all cases; OEM repair shops only replace defective parts with their own brand.

 

Import Statistics

 

Importations of HS code 842112 from any country into Mexico are practically free of duty. Data from the International Trade Administration shows the increasing trend of U. S. exports to Mexico amounting to $35.521 million in 2011. (Or $50.318 million, with data from the Bank of Mexico). That year, Mexico imported the largest amount of products within this HS commodity. Other countries are supplying the market but in lesser influence: Germany, Italy, Brazil, Canada and France. Even so, 80% of Mexico total imports under HS code 842112 come from the U. S.

Conclusion

The presence of OEMs in Mexico, the amount of distributors for both the mining and the construction heavy equipment segments in addition to the facts shown in the statistics,  provide a competitive environment for direct entry into Mexico. After conducting a thorough search in Monterrey and the surrounding region, my office was able to identify up to nine companies in the field of leasing, servicing heavy truck and construction equipment, most of them with nationwide sales/service capabilities and multi brand distribution. With OEM dealers and shops only serving their own brand, hydraulic parts sales representatives may find sufficient market to sell their product with a) owners of heavy equipment from different brands (leasing/rental companies), b) independent service shops, c) multi brand distributors and d) the same OEMs.

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