The Latin American market has been in the headlines recently with Sonepar’s purchase of Rexel’s Latin American assets in April for $51 million, growth of Edge Global Supply’s unique collaboration of U.S. and Canadian distributors in Brazil and interest in the impact of the oil market’s downturn on this energy-centric region of the world.
While Latin America may be on the industry’s front page, succeeding in this region isn’t a quick read. Market veterans who know it best say it takes a lifetime to learn its unique culture and rhythms. The market in terms of the amount of electrical goods sold is quite a bit smaller than the U.S. But in many of the region’s countries, the anticipated future growth rates are quite attractive and in some cases outpace those in the United States because of the expected population growth, large energy-related projects and expanding manufacturing base.
There’s a fascinating mix of industry players and market forces at work in Latin America and together they create a rather interesting stew. On the distribution front you have a blend of familiar U.S. distributors playing key roles mixed in with some very strong local companies and a few international players. Their line cards are loaded with many of the same electrical manufacturers you see on the line cards of U.S. electrical distributors, along with a smattering of local companies (see sidebar on page 14 for more information on these electrical distributors).
Ben Contreras has been calling on electrical distributors in Mexico for 14 years, most recently as the president of Latin American Electrical Representatives, which has locations in McAllen, Texas, and Ecatepec, Mexico. He wrote an editorial for Electrical Wholesaling’s June issue in which he urged electrical manufacturers not actively marketing in Mexico to consider its potential.
“Electrical distributors in Mexico are well-oiled machines with the ability to attack the market and lend their competence and sales team to meet manufacturers’ needs,” he wrote. “Mexican electrical distributors have a network of warehouses and customers that can help manufacturers reach their potential in one of the world’s best emerging markets. They represent many reputable manufacturers, many of which you would see in any typical electrical distributor in the U.S. And yes, they are willing to put in inventory to grow the business.”
A full analysis of Latin America’s electrical market is beyond the scope of this article, but it will take a look at some of the key trends shaping the market in Mexico and other Latin American countries. A related article on page 15 will offer an update on the very challenging market in Brazil.
Donald Trump’s rants aside, Mexico’s public image in the general press is taking a beating lately because of security concerns. But electrical industry veterans who know the country best say Mexico still provides plenty of sales opportunities. Industry experts estimate that the total amount of electrical equipment sold through Mexican electrical distributors is about 10%–15% of the U.S. market, which means Mexico accounts for approximately $10 billion–$15 billion in electrical sales.
John O’Donnell managing director, EMSI International, Philadelphia, says plenty of business is percolating in the Maquiladora manufacturing plants along the U.S. border and that some oil refineries are undergoing significant renovations. He says the $2 billion assembly plant Ford is now building in Mexico will spark electrical sales, too. “I can understand the interest in Mexico,” he says. “There has been lots of money that has gone there in terms of investment. There’s a lot more interest in Mexico and a bit more interest in the great Latin American area. Until recently, Peru, Bolivia had been doing well until the oil and gas dropped off a year ago.”
Ernesto Zúñiga, EMSI’s regional sales director-Latin America, agrees with O’Donnell and adds that the food processing industry is booming now in Mexico, too, but says mining is slow. If you are considering taking a more active role in Mexico and Latin America, check out the five biggest trends that shape this intriguing marketplace.
#1. The channels to market in Mexico and Latin America are not as well defined as they are in the United States. Electrical distributors are still the primary channel to market in Mexico, but direct sales play a bigger role. Other key channels include resellers who buy from traditional electrical distributors and sell to the general public, electrical contractors who function as part-time distributors, hardware stores and home centers. Joaquin Sender, vice president of sales and marketing, EMSI International, estimates Mexican electrical distributors account for approximately 65% of all electrical products sold. In the United States that number is estimated to be closer to 70%-80%.
“The line between distributors, contractors who pretend to be distributors, DIY, resale, hardware stores and retail gets a bit skewed in Mexico,” says EMSI’s O’Donnell. “And a lot of them get involved into mechanical products as well in Mexico, maybe even more than in the United States.”
#2. The business culture is more social than in the United States. Several sources told Electrical Wholesaling that the personal touch means everything in the business world in Mexico and Latin America, and that you need to first build a business relationship with a customer before expecting them to buy anything from you. Ben Contreras of Latin American Representatives frequently attends electrical industry conference in both the United States and Mexico and says the atmosphere at CONACOMEE (Confederation National Merchants Electrical Material and Equipment) in Mexico is much more social and relaxed than at NAED meetings in the United States. EMSI’s O’Donnell believes the importance that Mexicans and other Latinos in the electrical market place on trust and personal relationships is one reason why B2B online storefronts are taking longer to become popular in Latin America. “There is a human factor that comes into play in Mexico,” he says. “Lots of entertainment. Mexicans have to reach out and touch people. Their culture doesn’t lend themselves as much online shopping.”
#3. The payment cycle can be longer. “The payment cycle for everybody is just longer in Mexico,” says O’Donnell. “And of course for people like us, when we evaluate distribution in Mexico, a big part of it is who can pay their bills. That is a much bigger component of how you function.” He adds that manufacturers will sometimes sell direct to contractors because some of them are willing to pay 50% up front when ordering products.
#4. You will see plenty of familiar manufacturers competing for business. Look at the line cards of any Mexican distributors and you may be surprised at the familiar names. Some of the most common names include B-Line, Crouse-Hinds and other Eaton brands, Burndy, Emerson, Klein Tools, Leviton, Lithonia/Acuity, Legrand, Osram, Philips, Rockwell Automation, Schneider and Siemens.
#5. The oil industry accounts for a bigger share of the economy in Mexico than in the United States. According to the World Economic Forum (https://agenda.weforum.org), “Mexico is a commodities and manufacturing giant. It has the largest proven silver reserves in the world, and the tenth largest oil reserves. PEMEX, the state-owned oil company, is one of the largest oil producers in the world, with revenues of about $130 billion.” A recent Forbes article said 32% of government revenue comes from oil exports.
The sluggish world economy, and in particular the fall in oil prices, has put a bit of a damper on the short-term growth prospects for Mexico and the rest of Latin America, but long-term this region of the world will provide good growth opportunities for companies with the patience to wait on their investments in the region. Several industry observers said Sonepar’s move to acquire Rexel’s Latin American operations showed this type of patience and will pay off for them down the road.
Ben Contreras of Latin American Representatives says another short-term challenge will be what happens to the Mexican peso if the United States Federal Reserve raises interest rates later this month. At press-time the peso-to-dollar exchange rate is about 17 pesos to one dollar, quite a bit higher than the 12-13 pesos to a dollar that’s closer to the norm.
It will also be interesting to see how the changes in China’s economy affect Latin America. EMSI’s O’Donnell says over the past three-to-five years there’s much more Chinese competition in Latin America and that his customers have been using China as a key source of supply. “It’s become a lot more China-centric,” he says. “It used to be they would go to Miami or the U.S. for things they couldn’t get in their own country. Now they are just as likely to look to China as the U.S. for supplies.”
This market will continue to offer healthy sales opportunities for those companies who aren’t banking on a short-term win and are willing to invest the time and resources to learn what makes the Latin American market tick.
MEXICO’S LARGEST DISTRIBUTORS
Local Powers in Mexico
EW’s sources mentioned these distributors as being the largest locally owned supply houses in Mexico.
ABSA (www.absaweb.com.mx/Inicio), a large Rockwell Automation distributor, has 15 locations with 320 employees.
Electrica Garcia (www.electricagarcia.com) has seven locations and promotes Crouse Hinds/Eaton, Lithonia, Siemens and Holophane as featured lines on its website.
Grupo Alcione (www.alcione.mx) is owned by Sonepar and runs 17 branches (See more on Sonepar Mexico below).
Grupo Coel (www.grupocoel.com.mx) is a 75-year-old company with more than 40 branches in Mexico.
Impulsora (http://www.impulsora.com), a 61-year old company has nine locations.
Risoul (www.risoul.com.mx) has 25 branches. The company is a Rockwell Automation distributor that utilizes a demo bus to showcase products on the road.
Tamex (www.distamex.com.mx), was founded in 1996, runs 28 branches and focuses on both the wholesale and retail markets.
Large U.S. & Global Distributors in the Mexican Market
EW sources told us the full-line electrical distributors listed alphabetically below have a large presence in Mexico. The magazine’s editors added in Grainger and Fastenal because of their large branch networks in the region.
Anixter is no stranger to the Latin American market, and according to company information has had a presence in the region for 20 years. The company’s name came up several times as a distributor from outside Latin American that has built a solid operation in the region. Anixter currently operates 36 branches in 12 Latin American countries — Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Jamaica, Mexico, Panama, Peru, Puerto Rico and Venezuela.
Before its 2012 acquisition of Jorvex SA, a distributor of wire and cable products to commercial, industrial and government entities throughout Peru that did approximately $115 million in sales, Anixter had 290 employees serving this market through 14 stocking locations loaded with a combined total of $30 million in inventory.
Edge Global Supply is a collaborative effort in Brazil developed by several large Rockwell Automation distributors from Canada and the United States. See the article Bruisings in Brazil in this issue for more information.
Fastenal lists 53 branches in Mexico and Latin America, including 44 locations in Mexico and nine in Brazil, Chile, Colombia and Panama.
NICSA (www.nicsa.com/en/quienes-somos) is part of Abengoa, a huge Spanish energy company. The company gets involved in an interesting mix of projects in the renewables, utility and petrochemical end markets.
Sonepar did $444 million in Mexico in 2014 through its Vallen subsidiary; Grupo Alcione, which it acquired in 2000; and Distribuidora Santiago, a 2003 acquisition; and other businesses, according to company information. The company also does $55.5 million in Colombia; $13.6 million in Costa Rica; and $2.27 million in Panama. Sonepar strengthened its position in South America earlier this year by buying out Rexel’s assets in Brazil, Chile and Peru. With 1,400 associates and 88 points of sale, those businesses together have annual sales of approximately $280 million. Its operations in Brazil include the following companies: Spark, Dimensional, DW, Eletronor, Proex and Sandler.
Summit Electric Supply’s International Division has won several large petrochemical contracts over the past few years.
W.W. Grainger has 34 branches in Colombia, Costa Rica, Dominican Republic, Mexico, Panama, Peru, and Puerto Rico. According to information in the most recent Grainger Factbook, it has 1% market share of the $18 billion Latin American MRO market.
WESCO has 10 branch locations in Mexico and a headquarters in Tlalnepantla Estado de Mexico. It did $95.6 million in 2014 sales in Mexico, about 1% of its total volume.