Wednesday, April 16, 2014

Mexican multiplexes in Mangalore

Mangaloreans know very little about Mexico, on the other side of the world. But they know about a Mexican company, Cinepolis which has set up multiplexes in their town. Cinepolis has also set up multiplexes in other second tier cities such as Hubli, Amritsar, Pune, Ludhiana, Patna, Jaipur, Surat, Ahmedabad and Bhopal besides Bengaluru, Hyderabad, Gurgaon and Mumbai.

Cinepolis has emerged as one of the top four players and the only foreign company in the Indian multiplex market in the last six years. They have 84 screens and plan to add 60 more in 2014. Their target is 400 screens by 2017. With an average cost of 2.5 crores of rupees for setting up each screen, their total investment will be 1000 crores of rupees ( 150 million dollars). This would make Cinepolis as the second largest Latin American investor in India, after Gerdau of Brazil which has invested Rs 1820 crores. Cinepolis is introducing 4DX screen in their 14-screen multiplex in Thane. This will be the first in India to have 4DX technology, which gives the audience sensory experience such as mist, smoke and smell.

Cinepolis is the largest film exhibitor in Latin America and the fourth largest in the world with 3400 screens in eleven countries including USA. In their home market in Mexico they have 2700 screens.

Cinepolis is a pioneer in the concept of premium and luxury theaters. They are the largest operators of luxury theaters in the world.  Cinepolis operates only luxury cinemas in the US.

Cinepolis is one of the growing number of Mexican multinationals arriving at the global stage. Founded in 1947 by Enrique Ramirez Villlalon, the company has expanded aggressively after Alejandro Ramirez Magana, with MBA from Harvard, from the family took over as CEO in 1996. He introduced new technologies, innovation and professional management.  

Ramirez, during his visit to India in the first half of March, reconfirmed the long term commitment of his company to Indiawhich is among the world's top five countries in terms of cinema-goers. He was confident on the potential of the Indian market to give ten percent of the global revenue of Cinepolis. Ramirez loves Indian films and his favourites include " Lunch Box" and “ Three Idiots". 

The Indian operations of Cinepolis were started by Javier Sottomayer, who came to India in 2007. He has been living in Gurgaon and travelling around India searching for sites and talking to mall owners. He has developed a clear understanding of the traditional India, the modern mindset of the new Indian middle class, the complex regulatory system as well as the underworld of the property developers. He has learnt to adapt the Cinepolis business model to suit the Indian environment. He is upbeat about the prospects of the growth of the India and is betting on the new market of the younger generation of Indians. He attributes his Indian enlightenment to the book " Holy Cow; An Indian adventure" by Sarah Macdonald, an Australian. He sees many similarities between India and Mexico in the bureaucratic procedures, corruption and politics. He has learnt the Indian patience to deal with the long delays in the completion of the projects. As a Mexican, how does he find dealing with his Indian staff, numbering about a thousand? He says that the Indians are too respectful of the hierarchy. He is unable to get proper feedback from the people in the field since they do not feel comfortable in expressing their opinion freely to the boss.

picture- Javier on the left and Ramirez on the right in Indian dress

Cinepolis is one of the eight Mexican companies which have invested in India. Most of the Mexican investors are in auto parts business. One of the recent investments is establishment of a childrens' theme park " Kidzania" in Mumbai by a Mexican company in collaboration with Shah Rukh Khan. On the other hand, there are over thirty Indian companies which have invested in Mexico in sectors such as IT, pharma and auto parts.

Mexico has another filmy connection to India. Barbara Mori, a Mexican actress had acted in a Bollywood film " Kites" as the heroin with Hrithik Roshan. Their pictures below.

The Mexican film industry, which was the best in Latin America in the mid twentieth century, is in a renaissance boom these days. The film "No se acceptan devoluciones (Instructions not included- title in English version) " made record earnings of 87 million dollars, becoming the highest grossing Spanish language film in US. This follows the recent box-office hit of  " Nosotros los nobles". Mexican directors, actors and films have started winning global awards in recent times. Alfonso Cuaron, a Mexican won the Oscar award for best director in 2014 for the film " Gravity". Mexico is the fourth largest market of film-goers in the world. There is scope for exchange of films and soap operas between India and Mexico commercially. Both Indians and Mexicans have similar taste in food and films. They like them hot and spicy.

Wednesday, February 26, 2014

Argentine economic situation worsens

The Argentine currency peso devalued by 12.4 % in just one day on 23 January reaching 8 pesos to a dollar at the official exchange rate. The devaluation in the month of January alone was over 22% coming on top of a 32 % depreciation in 2013. The black market rate rose to 13 pesos a dollar. 

The traditionally large trade surplus shrank by 27% in 2013 to 9.24 billion dollars from 12.42 billion in 2013.  Imports had increased by 8 % to 74 billion while exports had gone up by just 3% to 83 billion.

The forex reserves of the central bank fell to a precarious level of 28 billion dollars in February 2013 from 52 billion in 2011.

The economy is continuing to suffer from the high inflation which stood at 28% in 2013 although the government's inflation figure was just 11%. The annual inflation has been above 20% since 2007 although the government has consistently manipulated the statistics showing inflation around 10% in the last seven years. But the government has been giving salary increase of over 20% to its employees and the private sector has also been forced to do the same over the last seven years to compensate for the high inflation.

The Argentine government has imposed a number of import and foreign exchange controls with non-transparent criteria in the last three years. The Argentine citizens and companies invent ingenious ways to circumvent the controls to buy dollars and for shopping and travel abroad. The import controls have hindered foreign trade including  the imports from Mercosur member countries. The government has accused some big companies of foreign exchange manipulation and is going after them.

The worsening Argentine economic situation has an adverse collateral impact on Uruguay which is expected to fare poorly since the Uruguayan economy is closely linked to Argentina's. Brazil is also concerned fearing negative impact on its own economy.

The worried Argentine government has been taking a more protectionist stand in the ongoing EU- Mercosur trade negotiations. The Brazilians have warned that they might be forced to leave Argentina and go ahead with the EU negotiations along with Uruguay, which is also keen on the trade treaty with EU.
Some economists and foreign commentators have predicted a repeat of the 2002 crisis. But the situation this time is not beyond control as in 2002 when Argentina declared the world's largest debt default of 90 billion dollars. The debt at this time is within the capacity for repayment. The government could bring the situation under control with proper policies and by giving more space for the private sector to grow by lessening the controls and restrictions.
But there are some signs of positive changes in the attitude of the government. They have finally admitted to high inflation and started showing real figures, under IMF pressure. They have also started talking to the Paris Club about settlement of their debt which should open up access to global financial markets. The government has announced on 24 January lifting of some of the restrictions on personal dollar purchases by its citizens.
According to the latest estimates of the US energy department, Argentina has the largest technically recoverable shale gas reserves at 802 tcu and the second largest shale oil reserves (27 billion barrels) in the Americas. The exploitation of the shale could be a game changer for Argentina as seen in the case of US. The Argentine industry will get a boost with the low-cost shale gas and  could emerge as a leading exporter of energy. The first shale investment took place in 2013 with the entry of Chevron and more investors are expected to follow. Argentina could also double its current production of 500,00 bpd of conventional crude with more investment. The oil and gas sector remains under invested. The recent decision of the Argentine government to compensate Repsol for the YPF nationalization has generated confidence among potential investors.
Despite the Argentine import controls, India's exports have increased in 2013 reaching 695 million dollars from 573 million in 2012. Imports from Argentina remained at the same level as in 2012 at 1.1 billion dollars. Soy oil was the main import accounting for 1 billion dollars. India has been importing between one and two billion dollars of soy oil from Argentina, the largest soy oil exporter in the world. India also imports sunflower oil from time to time. Argentina has the potential to grow and supply pulses to India which imports over three million tons annually from other countries. An Argentine company Los Grobo sent its first shipment to India in 2013. The company is looking for Indian partners to continue the business on a long term basis.

Thursday, December 12, 2013

Performance of the Latin American economies in 2013

According to the provisional figures of the December 2013 report of ECLAC ( Economic Commission for Latin America and Caribbean) Latin America had a modest GDP growth of 2.6% in 2013. Brazil, the biggest economy, grew by 2.4% and Mexico, the second biggest by 1.3%. Paraguay had the highest growth (13%), followed by Panama (7.5%), Bolivia (6.4%) and Peru (5.2%). The economies of Argentina, Chile, Colombia, Guyana, Haiti, Nicaragua and Uruguay grew at between 4% and 5%. Venezuela had the lowest growth of just 1.2%. The main driver of the growth of the region was domestic demand along with investment.

The GDP growth of the region in 2013 is less than the growth of 3.1% in 2012 and 4.4% in 2011. The decline in growth is mainly due to the adverse external environment. Before the 2008-9 global crisis, the region had an average growth of 5.1% from 2004 to 2008. At the height of the crisis the region contracted by 1.5% in 2009 but bounced back immediately with an impressive 5.9% in 2010.

The GDP growth rate of the region is projected to increase to 3.2% in 2014. Panama is expected to have the highest growth of 7% next year followed by Bolivia and Peru at 5.5% each. Brazil will grow by 2.6%, Mexico by 3.5%, Argentina by 2.6%, Chile by 4% and Colombia by 4.5%. Venezuela is condemned to have the lowest growth of just one percent in 2014.
Net FDI in Latin America in 2013 is estimated to have increased to 147 billion dollars from 126.3 billion in 2012. It has steadily increased from 47.9 billion in 2004.
International reserves of  Latin America stand at a comfortably high level of  817 billion dollars in 2013, marginally less from the 2012 figure of 819.9 billion but up from 219 billion in 2004. Only Argentina has an uncomfortable level of foreign exchange reserves of 30 billion dollars. The government of Argentina has imposed a number of foreign exchange, foreign travel and import restrictions because of the low forex reserves. Venezuela has also similar restrictions as part of the political philosophy of the Chavista regime to control everything and everyone in the country.
Average inflation of the region has gone up in 2013 to 7.1% from 5.6% in 2012 mainly due to rise in food prices. Venezuela had the highest inflation of 51.7% in the region, going beyond its 2007 record of 31.9% in this decade. Argentina had an official inflation of 10% but unofficial one of over 25% in 2013. All the other countries in the region had kept inflation down in single digit in 2013 as well as in recent years.
Latin America’s debt levels have continued to fall, with public ( central government) debt at around 31% of GDP in 2013 from 51% in 2004. Chile has the lowest of  just 12% in 2013 up from its recent record of  3.9% in 2007. The gross external debt of the region as a percentage of GDP in 2013 is 21 percent, down from 21.2% in 2012 and 34.6% in 2004. The gross external debt of Latin America in 2013 is 1.207 trillion dollars.
Latin America's exports have stagnated due to the fall in demand in China, Europe and US , the decline in prices of commodities exported by the region and the slower global growth in 2013. Exports to Europe have decreased by 5% while exports to Asia increased by 8%. Exports of goods of Latin America in 2013 are estimated to be 1.108 trillion dollars slightly up from 1.104 trillion in 2012. Imports in 2013 are 1.09 trillion, up from 1.053 trillion in 2012. Service exports have gone up from 128.9 billion in 2012 to 133.5 billion in 2013. Service imports have also increased from 204.8 billion in 2012 to 214.4 billion in 2013. 
Lending rates in 2013 continued to be high and in double digits in the case of many Latin American countries ranging from the highest in Brazil at 31.6% to the lowest in Mexico at  4.4%.

Unemployment in the region has declined to 6.3% in 2013 from 6.4% in 2012.

Venezuela and Argentina are the only black sheep in the region. They have ended the year in 2013 with worse economic situations than they were in 2012. Both the countries are paying a heavy price for poor governance and are the exceptions to the main trend of stability, predictability and prudent policies in the region.

Except for Venezuela and Argentina, the rest of the Latin American economies have stayed relatively stable and sound in 2013 despite the European crisis and the slow down in Asia and US. The region has steadily become more resilient and resistant to external shocks while strengthening the domestic macroeconomic fundamentals. 

Sunday, November 03, 2013

"India- Latin America: An Alliance for the future" - book by Dr Soraya Caro Vargas

This book, launched on 24 October 2013 in New Delhi, is the first by a Latin American author on India- Latin America relations in modern times. Dr Soraya Caro, the author has lived in India as the spouse of the Colombian ambassador Juan Alfredo Pinto for the last six years. She did a PhD on the same subject as the title of the book in the Indira Gandhi National Open University in which she is the first foreigner to get a doctorate. She, her husband and daughter Valentina ( she did six years of schooling in Sanskriti School in Delhi and speaks Hindi fluently) have a deep affection for India. Soraya says in the preface of the book," My life and the life of my family have been dramatically divided into two by destiny: before and after the period we lived in India". Soraya's book is, therefore, an expression of her heart as well as her mind. 

The book brings together views from four different worlds: the academic world in their ivory towers; the business world which is discovering more and more opportunities for trade and investment; the diplomatic world of  "cheers" and "your excellencies"; and the world of the masses inhabiting both regions in poverty and with lot of other developmental problems. Soraya has seen the relations through these four distinct worlds and has distilled her views based on her extensive interactions with people at all levels in both parts of the world.

Soraya has found the perceptions of many of the Indian academics on Latin America as distorted and outdated. Most Indian academics specialising in Latin America are of the Cuban revolution vintage who see and interpret the region through the prism of revolution and anti-imperialism in a spirit of romanticism. These cheer leaders of Castro and Chavez go overboard in celebrating the leftist rhetorics and achievements and do not pay adequate attention to the larger picture and the new trends of the region. Soraya gives the example of a seminar on Chile in New Delhi in September 2010 when the Indian academics kept on talking about the Pinochet era causing embarrassment for the Chileans and forgetting the fact that Chile is today a vibrant democracy, the best economy and a role model for others in Latin America. There is a similar situation on the other side too. Many Latin American academics are scholars of Sanskrit and India's ancient wisdom. There are very few who study contemporary India's political and economic developments. These archaic academic approaches on both sides complicate the perceptions of the public who have very little knowledge about each other.  Soraya has clarified some of the misconceptions of Indian academics about Latin America such as identity, racial mix and explained the developmental history of the region and also given a balanced account of India ( negatives and positives) to the Latin Americans.

Soraya is critical of the current model of trade between India and Latin America in which the latter is the provider of raw materials ( crude oil, edible oil and minerals- these three account for three fourth of exports to India) while India exports diverse finished and semi-finished goods. She calls for more value added exports from Latin America and a balanced and diversified trade and not just a simple transaction of natural resources. While I fully agree with her, my point is that India cannot do much about it. It is for Latin America to move up in the value chain and export processed and finished products instead of raw materials.  Chile can certainly export copper wire and products instead of sending mountains of copper concentrate to India.  Even Mexico which stands out in the region as an exporter of manufactured products (cars, electronics and aerospace equipments) exported 2.8 billion dollars of crude oil out of its total exports of 3.3 billion to India in 2012. It is ironic that Mexico which is one of the top exporters of crude oil, imports a large part of its refined products. The chief of Shell in Mexico told me that Mexico has no plans to expand its refining capacity in the near future. On the other hand, there is a positive trend of adding value to raw materials in some countries. For example, Argentina exports value added Soy oil to India ( although both Argentina and Brazil export unprocessed soy beans to China). Bolivia is sitting on rich deposits of Lithium needed more and more for batteries in all kinds of gadgets. But President Evo Morales has refused to allow extraction of the mineral for exports as a raw material. He insists that he will allow investment in Lithium mines only if the companies make finished products within Bolivia itself. The Brazilian government is pressurizing Vale to make steel in the country rather than exporting millions of tons of  iron ore to China whose companies export steel products to Brazil at a price lower than the Brazilian steel. So there is no point in complaining that India looks at Latin America primarily as a source of raw materials. It is up to the Latin Americans to change their paradigm as raw material providers. In any case, there is a great deal of complementarities and synergies between the resource-rich Latin America and the resource-deficient India. Latin America has surplus to contribute to India's energy and food security.
Soraya has given detailed information on the investment by Indian companies in Latin America and vice versa. She has analyzed the problems and challenges faced by some of the Latin American companies in their investment in India, caused by inadequate political, social and cultural understanding. She has advised her own country's business groups to pay attention to the markets of India and Asia as Chile and Peru have done so successfully. She has highlighted the tariff and other barriers of India for imports of some Latin American products such as Colombian Coffee and wines from Chile and Argentina.
Soraya cautions the Latin Americans that India cannot be viewed just through statistics and secondary sources. She says that the data has to be seen in the background of India's long tradition and culture of the intricate and complex Indian society to get a real understanding. Oliver Stuenkel, the Brazilian expert on India also has the same opinion and says that the conventional western analytical tools to study the rise of powers cannot be employed for India, which is a unique case. While highlighting the new consumerism in India, Soraya says, " India is big enough to assimilate all kinds of external influences, but in its essence India does not change". True.

Soraya has gone through the recent studies on India-Latin America economic relations done by Inter American Development Bank as well as the UN Economic Commission for Latin America and Caribbean ( the ECLAC report was launched in the seminar I had organized in Buenos Aires in December 2011 on " The New India and the New Latin America: synergies and complementarities") and found them incomplete. They were done by researchers based on statistical information, without full understanding of the dynamics which move the societies and business leaders of the two sides. I have read both the reports and found them as rather "theoretical and abstract". But I agree with Soraya that these two studies by IADB and ECLAC have helped in raising the profile of India in the region and stimulating greater interest among Latin American business and political leaders in India.

Soraya has made some comparisons between Indian and Latin American developmental experience. She has pointed out a number of areas for mutual learning and sharing of best practices in  economic liberalization, infrastructure building, mining, railways, renewable energy and IT.

She has touched a sensitive nerve of the Indian External Affairs Ministry in calling for SAARC (South Asian Association for Regional Cooperation) to be open to new inter-regional interactions and for giving observer status to Pacific Alliance. She could say this boldly since Colombia is lucky not to be blessed with the kind of neighbors India has !

In the last chapter " Steps to come closer", Soraya has given a number of practical suggestions to bridge the information and communication gap and for improvement in mutual understanding. She has called for direct exchange of information and knowledge and interaction between the two sides instead of using European and American books, articles and interpretations of Latin America which are obviously biased reflecting their own agendas and prejudices. This means that Indians should read Latin American books and media in Spanish and Portuguese. It is encouraging to see that Spanish has become the most popular foreign language in India replacing French. Soraya has exhorted the Indian academia to move from shallow generalizations of Latin America to systematic and specialized studies at national and subregional levels. She has called for specific analysis of areas such as public policies, rural development, social inclusion and democratic citizenry participation. She has called on the governments and the corporates to provide financial support for studies and interactions. She has advocated pursuit of more joint projects in science and technology, infrastructure, food security, and biodiversity.

Soraya is in the best position to implement some of the ideas she has suggested in the book. She has become the Director of the Centre of Studies and Services on Contemporary India and Southern Asia (CESICAM) at the University of Externado of Colombia in Bogota. She was the one who initiated the project to set up this Centre. She has already established many contacts with Indian academics and think tanks and is also connected to a number of Latin American scholars and institutions. She is planning to organize events and joint research to promote India in Latin America and vice versa. 

As the name itself indicates CESICAM will not merely promote and produce academic exchanges and scholarly research. It will also provide consultancy services to companies and governments. Soraya herself has provided consultancy services to Colombian government and industrial organizations as well as foreign agencies. Her background as a lawyer and economist add to her academic profile.

CESICAM is the first centre for study of contemporary India in Latin America (Recently the Rio de Janeiro State University has also set up a centre for Indian studies). All the other centers in the region call themselves as the Centres for Study of Asia and Africa in which China, Japan and Korea dominate. For example, the Centre for Asian and African Studies in the National University of Guadalara in Mexico has so many exchange programmes with Korea, Japan and China but nothing with India. There are about 50 Korean students, 15 Japanese and a growing number of Chinese studying in the University but none from India. The Director of the centre, like his counterparts in other universities in Latin America, is keen to establish tie ups with Indian Universities for collaboration and exchanges.

Soraya is the third Latin American to write on India with direct experience after having personally lived in India. The first one was by the Mexican writer Octavio Paz who wrote " Vislumbres de la India"( in the light of India) after having done two diplomatic postings in India. The second was by Jorge Heine whose book " La Nueva India" published in December 2012, based on his stay during the "India Shining" period 2003-7 as Ambassador of Chile. While Octavio Paz's work is more literary and philosophical, Jorge Heine and Soraya have taken contemporary India to a larger Latin American audience of business leaders and policy and opinion makers. 

Soraya and her "passionate about India" ambassador- husband are saying Adios to India and are moving back to Colombia in November 2013. India will miss this intellectual and literary power couple. But we could count on them to be like Honorary Ambassadors of India in Colombia and Latin America. 

Monday, October 28, 2013

From the "Labyrinth of Solitude" to a "Network of Partnerships" – the new story of Mexico .. a new opportunity for Indian business

Octavio Paz, the celebrated Mexican writer who was Ambassador to India in the sixties, wrote in his book " The Labyrinth of Solitude" that the "Mexican is always remote from the world and other people". This was his conclusion after an in-depth analysis of the character and identity of the Mexicans who have inherited a mix of Aztec and Mayan Indian traditions and European culture and have been influenced overwhelmingly by the culture of US. If Paz is alive today, he would have changed the title or written another book with the title" Network of Partnerships" to reflect the new reality of Mexico. The Mexicans are no longer alone in labyrinths introspecting their solitude. They have become extroverts, eagerly embracing partnership and alliance with countries around the world. Mexico has signed Free Trade Area ( FTA) agreements with 44 countries, which account for 70% of global GDP. Their FTA partners include US, Canada, European Union, EFTA countries, Japan and some Latin American countries. Mexico is member of  NAFTA, Pacific Alliance, APEC and OECD. It has joined the Trans Pacific Partnership (TPP) which is negotiating a new generation economic partnership among 12 countries, going beyond conventional FTAs.

With these partnerships, Mexico has expanded its economic and commercial space beyond its own market of 114 million people and 1.3 trillion dollar GDP. It has become a geographic, linguistic and cultural link to the markets of its partners. Mexico straddles the developed markets of US and Canada in the north and the emerging markets of South and Central America. The country has access to the east through Atlantic and the west through Pacific. It connects the northern entrepreneurship culture to the Latino spirit.  As the largest spanish-speaking country in the world, Mexico is the entry point to the larger market of 400 million spanish speakers in Latin America, US and Europe.
Unlike the raw materials exporting South America, Mexico is an exporter of manufactured products such as automobiles, electronics and aerospace equipments. The country has a conducive ecosystem for manufacturing with an integrated supply chain, availability of large pool of skilled people and technologies. Companies from US, Europe, Japan, Korea and China are using Mexico as a platform for supplies to NAFTA markets. Mexico exports 80% of its 3 million cars produced annually. The car companies are investing 10 billion dollars in the next six years to modernize and expand their production facilities.
The cost of Mexican labour has become competitive vis-a-vis the Chinese whose wages have gone up. According to a recent study by Bank of America, Mexican wages are 20% cheaper than China's in some cases. Mexico has a large and growing young population unlike the ageing Chinese society. US imports from Mexico have started rising faster than those from China. It is, therefore, not surprising that Mexico is being talked of as the "China of the Americas". 
Mexico, the second largest economic partner of India has a competitive edge over Brazil and Argentina the number one and number three markets of Latin America. While Argentina and Brazil have erected a number of barriers for imports, the Mexican market is open with low tariffs. The Mexican government policies are more stable, transparent, predictable and investor-friendly. Argentina runs an annual inflation of 25% since 2007 and the companies are forced to increase the salaries of staff at least by 25% every year.  In Brazil, the cost of production, wages and interest rates are very high. In contrast, Mexico has low inflation (just 3.6% in 2012), low wages( 2.5 dollars an hour) and low interest rate of 4.8%. It is not surprising that Brazil has put restrictions on the imports of Made In Mexcio cars which threatened the high cost Brazilian automobile industry. In any case Mexico's trade of 740 billion dollars is larger than the combined trade of Brazil and Argentina which was 665 billion in 2012.

The Mexican market is going to be even more attractive in the future, given the ongoing reforms in various sectors of the economy under the "Mexico Pact", a consensus agreement between the four major political parties of the country on vital national issues and reforms.
Of course, Mexico faces many challenges such as crime, drug trafficking, poverty, inequality, slow economic growth, political polarization and corruption. The overdependence on the US market makes Mexico vulnerable to the economic situation there. But the point to note is that now the Mexicans have a new mindset, confidence and optimism to tackle these issues and believe in Reincarnation unlike the past when they had resigned themselves to the Karma.
With the large network of partnerships and competitive manufacturing environment and wages, Mexico offers a strategic base for Indian companies with global strategies. The Indian IT companies are already leveraging the unique position of Mexico for their global delivery services. For example TCS has 3000 staff in Mexico providing near-shore same time zone services to their US clients. They work 12 hours from Mexico and another 12 hours from India to provide 24/7 services seamlessly with their new 12/12 business model. Their Mexican programmers develop software in English for the US market and in Spanish for the Spanish speaking market of 400 million. TCS finds value addition from the different mindset and culture of their Mexican managers and developers who complement the Indian imagination and creativity.There are a dozen Indian companies manufacturing tyres, pharmaceuticals, chemicals and auto parts in Mexico mainly for exports to US. JK tyres, which has three plants employing 2000 Mexicans,  exports their products to even Brazil. 

India's trade with Mexico was 6.3 billion dollars in 2012, of which imports were 3.3 billion and exports 3 billion. India's imports of crude oil were 2.8 billion dollars in 2012. Mexico is keen to increase oil exports to India since US, their main market is reducing imports of Mexican oil thanks to the growing domestic production of shale oil and gas. India's exports could be increased to 10 billion dollars in the next five years if the Indian exporters target the Mexican market more seriously.The Indian government should sign a FTA with Mexico at the earliest to remove the disadvantage faced by Indian exports vis-a-vis the the exports from the 44 countries which have FTAs with Mexico.

Tuesday, October 15, 2013

Mexican edutainment for Indian Betas and inspiration for Indian Netas

" Excess of Reality" - this was how Octavio Paz , the Mexican writer and Nobel prize winner, described his feeling when he set foot in Mumbai for the first time in 1951. He was absolutely overwhelmed by the crowds, colors, noise and smell of the bustling city of Bombay. Later he became Mexican ambassador to India and wrote poems and essays inspired by Lodhi garden in Delhi and Meenakshi temple in Madurai among others.
Now it is the turn of the Indian children to be overwhelmed by the excess of reality  and be inspired by a Mexican.  Xavier López Ancona, a Mexican entrepreneur has set up in Mumbai an innovative edutainment ( educational entertainment) centre "Kidzania", an indoor theme park, which lets the kids play 80 different real life roles. They can be  a pilot, surgeon, fashion designer, fireman, vet, cook and perform such jobs in the Kidzania which has over 60 establishments such as Bank, University, Fire Department, Radio Station and Newspaper. They  are either paid for their work as a Stylist, Construction Engineer, Surgeon,  or pay to get a service  from a University, Culinary School, Department Store, Driving School, Bollywood Acting Academy, Pottery Studio, Kalakshetra Art and Boxed Lunch Delivery service of the famous Dabbavala of Mumbai. The Kidzania city is built to scale for children, complete with paved roads and cars, city buildings, recognisable establishments and a functioning economy. Kidzania combines education with fun and help the children discover their own talents, identify their aptitude, explore career options and develop a real world consciousness.
For Xavier López Ancona, the Mumbai Kidzania is the fourteenth centre. He established the first one in Mexico City in 1999 and has opened in nine countries namely Chile, Indonesia, Japan, Kuwait, Malaysia, Portugal, South Korea, Thailand and United Arab Emirates. His next Kidzania centre in India will be in Delhi by 2015 and later in Bengaluru. Mr Ancona is not only an innovative entrepreneur but also a smart businessman. This is evident from his strategy of partnership with Shah Rukh Khan who holds 26% stake in the venture. King Khan himself inaugurated the Mumbai centre on 29 August.
While Kidzania edutains the Indian kids, another Mexican company Cinepolis is entertaining the adults of India through its multiplexes in cities such as Amritsar, Thane, Bengaluru, Patna, Bhopal, Ahmedabad, Surat, Ludhiana, Mangalore, Jaipur and Mumbai. They have an ambitious plan to operate 500 screens in India with an investment of Rs 1,500 crores. Cinepolis is the biggest cinema chain in Mexico with 205 theaters in 65 cities, the largest chain in Latin America and the fourth largest in the world with over 230 theaters and 3,000 screens.
Besides the two Mexican companies, a Mexican actress too has joined in entertaining the Indian audience. Barbara Mori, the Mexican actress has acted in the Bollywood film "Kites" ( released in 2010) with Hrithik Roshan.
Mexico could be an inspiration for Indian Netas too.. The " Pact for Mexico"( Pacto por Mexico), an agreement signed in December 2012 by the four major political parties of the country committing support to vital policies and reforms of national importance is a model for Indian political leaders. The Pact has brought together the ruling centre-left Instituitional Revolutionary Party(PRI) and the three principal opposition parties; the leftist PRD party, the Conservative  PAN ( which was ousted from power in 2012 after two terms) and the Green Party which joined the Pact in January 2013. The political parties came together for the Pact after the realization that the polarization of politics had weakened the country alarmingly. The 95- point agenda of the pact ranges from tax overhaul to barring junk food in schools. The Pact has already helped in passing legislative bills to reform the educational system; a legal reform to strip public officials of immunity from criminal prosecution; a telecommunications bill that limits the quasi-monopolistic powers of the country's biggest telephone company, controlled by Carlos Slim, the world's richest man. A  tax reform bill has just been presented in the Congress. Electoral and energy reforms are the next to follow. 
The Mexico Pact was an initiative by Enrique Penha Nieto the dynamic, young visionary who took over as President of Mexico on 1 December 2012. His party started the negotiations with the other parties as soon as he was elected in July 2012 and  signed the Pact on the second day after his inauguration.  Despite the ideological differences and clash of political interests, the leaders of the four parties meet regularly over Tequila and Tacos to reach consensus on policies of crucial national importance. The Economist magazine commended, "Mexico appears to have found the medicine for political gridlock" and commented,"plenty of Americans must have cast a jealous eye south of the border this year".  Wall Street Journal wrote, " At a time when politicians in Washington struggle to agree on anything, their Mexican counterparts sit down almost daily to talk about thorny issues". Understandably, tensions and conflicts between the parties and the protests by vested interests affected by reforms continue to pose challenges for the implementation of the Pact. But the Mexicans, in general, are encouraged by the new consensual approach of the parties and are optimistic that Mexico has a new future.
The Indian political parties need to learn from the constructive consensus of  "Pact for Mexico"and stop the destructive divide which has hindered reforms and development of India. The next Prime Minister in 2014 should start with a "Pact for India".

Monday, August 26, 2013

Brazilian IT market revenue reached 60 billion dollars in 2012

The Brazilian IT market, which includes software, hardware and services, grew by 41.6% reaching  US$60.2 bn from US$42.5bn in 2011. Brazil is in seventh position in the global IT market and is the first in Latin America with a share of 49.1% of the region's US$122bn total. 
Of the total IT market, software and IT services accounted for US$27 bn, expanding 26.7% from 2011 and staying above the annual growth average of 20% seen since 2004, according to a study by the country's software companies association ABES in partnership with the consultancy IDC. Exports of software and services in 2012 were $2.2 bn. In 2012, applications represented 42.2% of the Brazilian software market, followed by systems for development environments with 31.1%, and security and infrastructure systems with 23.8%.The three main "buyer" sectors of software in Brazil last year were finance and accounting for 25% of total deals, followed by services and telecom with 24.8%, and industry with 18.6%.
In terms of future outlook, 90% of the local IT market growth from 2013 to 2020 is projected to come from mobile technologies, social business, cloud and big data, bets IDC/Abes. In 2012, these segments accounted for only 22% of total IT investments.

Thursday, July 25, 2013

Latin American GDP will grow by 3% in 2013 – ECLAC's midterm forecast

Latin America is likely to grow by 3% in 2013 (the same rate as in 2012) according to the 24 July 2013 report of the Santiago-based UN Economic Commission for Latin America and Caribbean ( ECLAC).  The report predicts above four percent growth in 2014.
The South American sub region is expected to grow by 3.1% in 2013 ( up from 2.5% in 2012) and  Central America by 4% ( down from 5% in 2012). 
Growth projections for the major countries in 2013 are: Brazil – 2.5% ( better than the 0.9% in 2012), Mexico-2.8% ( down from 3.9% in 2012), Argentina-3.5% ( up from 1.9% in 2012), Colombia –4% ( no change from 2012), Peru –5.9% ( down from 6.5% in 2012), Venezuela- 1% ( from 5.6% in 2012), Chile-4.6% ( 5.6% in 2012). 
The highest growth in the region will be 12.5% in Paraguay  which was the only country in the region which suffered a negative growth of 1.6% in 2012. This is not surprising since Paraguay is known for such ups and downs. Panama will have the second highest growth of 7.5%.
The region's growth rate of 3% looks modest but is not at all bad given the external environment of GDP contraction in the Eurozone successively in the last two years and the lower growth in the rest of the world. 
The primary driver of growth during 2013 continued to be consumption which has been helped by expanding credit, improving labour market conditions and increase in wages. 
The macroeconomic fundamentals continue to be healthy and strong with the following indicators:
-In May 2013, the cumulative 12-month inflation for the region stood at 6%, compared with 5.5% in December 2012 and 5.8% in May 2012.  Venezuela and Argentina were the exceptions with  double digit inflation figures.
- Unemployment stood at 6.7% in the first quarter of 2013.
-  Foreign Direct Investment in Latin America in 2012 was 122.86 billion dollars, the highest in the last eight years.
-Total Gross External Debt of the region in 2012 was 1.18 trillion dollars. The ratio of gross external debt to GDP stood at 20 % in 2012 coming down from 34.8% in 2004.A number of countries have decreased their public debt in recent years and have access to funding for their deficits.
- The International reserves of Latin America and Caribbean has steadily risen from 226 billion dollars in 2004 to 826 billion in May 2013. 
-The overall current account deficit for Latin America is likely to be 2% of GDP in 2013. 
The region faces slowdown in exports due to the reduced external demand and the drop in the prices of some of the region’s export commodities  such as minerals, metals, oil and some food items.  Sugar and coffee prices have gone down while wheat and maize have increased in the first half this year. Although the prices of oil seeds had increased modestly in the first half of 2013, they are expected to go down due to the bumper harvest expected. While some experts say that the super cycle of high commodity prices are over, others expect the prices to remain relatively high in the coming years. Exports of the region are expected to increase by 4% and imports by 6% in value terms in 2013.
The total GDP of the region reached 5.64 trillion dollars in 2012. Brazil and Mexico are in the trillion dollar league with 2.25 trillion and 1.17 trillion dollars respectively. Argentina is the third largest economy with 477 billion dollars followed by Venezuela with 381 billion, Colombia 370 billion, Chile 268 bn and Peru 204 bn. The remaining 13 countries of the region have double digit billions as GDPs except for Haiti whose GDP was in single digit (7.8 billion).

Sunday, July 21, 2013

Lessons from Jindal’s Bolivian failure

Lessons from Jindal’s Bolivian failure

Jindal’s integrated mining and steel project in Bolivia was the largest contract secured by an Indian company in Latin America. The project, which ultimately became a victim of the country's domestic politics, has lessons for Indian companies venturing into Latin America
¨Hermano… Yo tambien soy Indio ¨ ( “Brother …I am also an Indian”). This is how Bolivian President Evo Morales greeted Naveen Jindal, when they first met in 2006. The two “Indians” signed an agreement in July 2007 for an integrated mining and steel project in eastern Bolivia. The iron ore was to be mined from “El Mutun” which has one of the biggest iron ore reserves (40 billion tonnes) in the world. Jindal was allowed to exploit 50% of the reserves and export annually over 10 million tonnes for a lease period of 40 years. The company agreed to set up a pellet plant of 10 million tonnes per annum, a 6 million tone sponge iron unit, a 1.7 million tonne steel plant and a 450-MW power plant. The total investment was $2.1 billion, spread over a period of eight years.
This was the largest foreign investment contract signed in the history of Bolivia. The government was to earn $200 million annually from it, and generate 12,000 jobs. It was also the biggest ever contract secured by an Indian company in Latin America. The project held the promise of other spin-off opportunities in gas, railways, infrastructure, and export opportunities for Indian companies. Naturally it assumed a high profile in India’s rapidly developing economic relations with Latin America.
But in July 2012, the contract was terminated by Jindal after the Bolivian government encashed the guarantee of $18 million, saying that the company failed to adhere to its investment commitment. Jindal blamed Bolivia of not honoring its commitment to supply natural gas for the project. Negotiations broke down and the Bolivian government took some high-handed measures including ordering of the arrest of key Jindal employees, who managed to leave the country in time. Now the matter is under arbitration. There is absolutely no hope for Jindal to revive the project.
What happened? The most fundamental problem is that Jindal did not conduct a proper political risk analysis before venturing into this project, and ended up becoming the victim of a local power tussle.  In 2006, Evo Morales became the first-ever native Indian president in the history of Bolivia, wresting power from the European-origin oligarchs who controlled politics, business and media till then.  Morales had an agenda empowering the native Indians and he show-cased the first-ever steel plant project as a monument of his glorious Indian government. His opponents and vested interests instead decided to sabotage the project and use the failure to bring Morales down and return to power.  The Jindal project thus became a high stakes game and was caught in the crossfire.
Understandably, Morales attached great personal importance to the project and its completion during his term. Its slow progress frustrated him. Initially the falling price of iron ore was thought to be the reason for the delay. But later, as time went on with very little to show for it, he suspected the Indian company of not being serious about the investment commitment. When asked, Jindal had no convincing explanations. Instead, the company made the mistake of blaming Morales publicly for not providing gas, land and other infrastructural support. This played right into the hands of the opposition who glessfully exploited the controversy. Instead of a triumph, President Morales realized that the project might end up as his graveyard. Thereafter, limiting the damage by terminating the contract and hence the project, became a priority.
The Jindal project may have lived up to its potential, had the company done its homework on four counts:
1. Ascertain the politics of the area. The El Mutun mine is located in the Santa Cruz province – fertile ground for the tug of war between the federal government of Morales in La Paz and the provincial government of Santa Cruz, the latter controlled by the European-origin elite.  Prosperous Santa Cruz which produces 35% of Bolivia’s GDP and attracts 40% of foreign direct investment, had long been threatening to cecede from the centre and its new government dominated by the poorer native Indians who comprise 60% of Bolivia’s population. The Santa Cruz politicians and businessmen used every opportunity to attack Morales and manipulated and used the Jindal project. Had the mine been located in an Indian-dominated province, it would not have had this fate.
2. Understand the leadership. Jindal underestimated Evo Morales, who rose from a poor coca farming background with very little education and understanding of the world before becoming President.  Jindal assumed a superior knowledge of iron ore and steel, and that it would snare the contract by initially waving the billion-dollar figure but later find a way to get out of the excessive investment commitment. Morales, however, is different from the politicians in New Delhi that Jindal is used to. He is uncorrupt and deeply committed to his people and the country. The nationalistic-leftist Morales was aware of the manner in which foreign companies had managed to get sweetheart deals from the previous corrupt regimes in his  country, and that modus was unacceptable to him. He had already shown astuteness in picking an Indian company for the project rather than a large western multinational or a Brazilian or Venezuelan company which would inevitably bring their superior bargaining strength and the political influence of their governments, to the project. He also understood that unlike western governments, New Delhi did not have a track record of supporting or rescuing Indian companies abroad. In any case, Morales was already disappointed with the Indian government which had failed to honor its commitment of providing a line of credit for the supply of Dhruv helicopters.
3. Size the investment wisely. The proposed investment of $2.1 billion in the poorest country of the region (pop. 10 million, GDP $18 billion in 2007) was too much. It raised expectations all around, becoming the target of intense public focus and media scrutiny in the politically charged and polarized atmosphere of Bolivia. Had Jindal committed to a few hundred million dollars of investment, the controversy may not have been outsize. The project would have been better broken into two parts: first, just mining and exports with a reasonable royalty to the government, then expanding into the steel plant and other facilities, if feasible.
4. Ask the obvious question. In their eagerness to get the contract, Jindal didn’t ask the obvious question: If El Mutun with its massive reserves, was such a prize, how did it stay so long without being captured by the established global players such as Rio Tinto, BHP and Vale – which operates iron ore mines across the border in Brazil? Or, more significant, the Chinese who have been acquiring mining assets around the world? There are no answers yet, though some Bolivians whisper about a conspiracy by Vale and Brazil to prevent competition from Mutun.
The first lesson for the Indian companies is that a brilliant business plan is not enough when venturing into Latin America, a continent where people matter more than systems, rules and regulations. Political and cultural understanding and sensitivity are equally important. A thorough political risk analysis is necessary.
Jindal was not the first Indian company to fail in Latin America. Dr. Reddy’s Laboratories’      joint venture in Brazil – the very first Indian venture in Latin America in the nineties – failed because of a poor understanding of Brazilian management culture. The made up for the loss by managing better their entry into Mexico with a $60 million investment which is now  doing well. TCS failed in Brazil during the same period; its contract with a local bank was terminated for alleged unsatisfactory execution.  TCS too learnt from its mistake, and is now a success story in Latin America. Its key learning: hiring the right regional manager from Latin America who understood well  both the Latino and Indian mindset. Transporting Indian managerial talent, as many Indian companies do, often fails; they do adjust well to the region and are unable to get the best out of their investment and talented and skilled Latin American staff. Understanding local politics and culture is critical.
The second lesson: don’t announce disproportionately large investments in small countries. London-based Indian metals commodity entrepreneur Pramod Agarwal is learning the hard way: he made the mistake of announcing with big fanfare, a $2 billion iron ore project in Uruguay, a small country of 3 million people. His project has, unsurprisingly, run into a storm of controversy between government, opposition, environment activists, farmers and vested interests. At one stage Uruguayan President Mujica even talked of holding a referendum on the project but fortunately did not. The company is now working with the government on the environmental impact. Rumors swirled that Agarwal wanted to sell his project to Jindal –  but the latter, burned from Bolivia, has wisely declined the offer.
Ambassador Viswanathan is a Distinguished Fellow at Gateway House, an expert on Latin America, having served as India’s Ambassador to Argentina, Uruguay and Paraguay and also to Venezuela, and as Consul General in Sao Paulo.
This article is part of the Ambassadors’ views section, a collection of articles featuring eminent Indian diplomats written for Gateway House: Indian Council on Global Relations.
For interview requests with the author, or for permission to republish, please contact Gautam Kagalwala at or 022 22023371.

Thursday, June 27, 2013

Aditya Birla Group has the largest business turnover among Indian companies in Latin America

Aditya Birla Group is a late entrant to Latin America and came very much later than the Tatas and Reliance, the other big iconic Indian business groups. However Birla has made up for lost time by emerging as the Indian company with the largest annual business turnover in Latin America, which was around 1.8 billion dollars last year. Birla is also the largest investor from the Indian private sector in Latin America.
Novelis Brazil, which is part of the Aditya Birla Novelis (with a global turnover of 11.1 billion dollars in 11 countries), had a turnover of 1.3 billion dollars in 2012. Birla had bought the global assets of Novelis in 2007 for six billion dollars. Novelis Brazil has 2000 employees in their three Aluminium plants in Brazil located at  Pindamonhangaba and Santo Andre in Sao Paulo state and Ouro Preto in Minas Gerais. They are investing over USD 300 million in these plants in the coming years to increase the production capacity. 
After Aluminium, the Group has entered manufacture of carbon black with the company Columbian Chemicals Brazil. This was again part of another acquisition of the Atlanta-based Columbian Chemicals in 2011 for 875 million dollars. This has made the Aditya Birla Group as the largest carbon black producer in the world with production facilities in 12 countries. There are two plants in Brazil, one in Cubatão in Sao Paulo state and another in Camaçari in Bahia. The turnover of the two plants was 476 million dollars last year. The plants are being modernised with new investment. 
Aditya Birla Yarn Brazil is the market leader in supply of viscose yarn to Brazilian textile companies. The Group is the world’s largest producer of Viscose Staple Fibre.
The three Indian giants (Tata, Reliance and Birla) enrich three distinct sectors of Latin America and the growing Indo-Latin American business partnership. Tata is a leader in Information Technology and human resources development in Latin America with 8000 Latin American staff in nine countries of the region. Reliance is the largest trader with the region accounting for a quarter of the total trade between India and Latin America. Birla is plugged into the industrial sector of Brasil and the region. The products made in the five plants of Birla are inputs which help the growth of Brazilian and Latin American industries in sectors such as packaging, automobiles, construction,chemicals and tyre production.

While employing 2260 Brazilians, the Group has only one Indian in Brazil Mr Anil Jhala, the Latin America head of the Group. This is typical of the Indian companies who believe in local Latin American talents and in training and nurturing them.

Anil Jhala, settled in his elegant office in the World Trade Centre building of Sao Paulo, is upbeat about the long term growth prospects of Brasil and the region and is actively exploring opportunities for further investment in areas such as Cement, Fertilizers,Insulators, Cellulose,Commercial forestry, Plantations, Commodity trading and Mining.