Government Incentives for Vertical Supply Chain Development in Mexico Luis Landa September, 2014

Motivation We represent the National Institute for the Entrepreneur (NIE), which is part of Mexico´s Ministry of the Economy. We are peers with Korea´s SMBA We are gathered here to promote a work agenda between the NIE and Korean firms established or soon to be established in Mexico in the automotive, electronic and household appliances sectors. Source: Ministry of the Economy

Basic facts about Mexico Before explaining what we have to offer, some basic facts are necessary to set forth: Mexico is an upper middle income country with one of the highest per-capital incomes in LA 12th – 14th largest economy of the world about the size of Korea Member of the OECD and G20 Free Trade Agreements with more than 40 countries Total annual trade exceeding US$ 800 bn. 75% of exports to US and Canadian markets Source: Ministry of the Economy

More basic facts about Mexico Electronic industry exported USD$ 75 billion in 2012 1st largest exporter of flat screen televisions – US$ 15 bn. 5th largest exporter of computers – US$ 18 bn. 10th largest exporter of cell phones – US$ 4.5 bn. 84% directed to the US market In 2012 ,860 economic units specialized in the electronic industry and employed more than 466,000 Source: Ministry of the Economy

Still more basic facts about Mexico Household appliances industry exported US$ 6.5 billion in 2012 1 st largest exporter of refrigerators with a freezer – US$2.4 bn. 2nd th largest exporter of washing machines with capacity of 10kgs or less – US$ 476 million 3rd largest exporter of air conditioning , compression refrigerators and gas stoves - combined US$ 1.3 bn. 84% directed to the US market In 2012 ,268 economic units specialized in the electronic industry and employed more than 51,000 workers Source: Ministry of the Economy

Final basic facts about Mexico In 2012 production in the autoparts industry reached US$ 75 bn. Automotive industry exported 2.4 million units in 2012 4th largest light vehicle exporter in the world In 2012 , 90% of all autoparts were directed to the US market In 2012 , 19 vehicle OEMs and more than 3,000 local suppliers, including the home of 30 design centers Source: Ministry of the Economy

Korean companies operating in Mexico Over 1,600 registered Korean companies Contributing to Mexican anual exports with approximately US $10 Bn. Centered in the electronics, automotive and household appliances sectors Samsung alone has: 30% of the domestic TV market (LED and LCDS) and 50% plasma screens 32% of the domestic market of laundry washing machines

Korean companies in Mexico A Korean Map of Mexico Korean companies in Mexico Tijuana Chihuahua Altamira SLP Puebla Querétaro Monterrey Monclova Ramos Arizpe Tlanepantla Manzanillo Durango Matamoros 5/22/2018

Success stories of FDI Bilateral Relationship Energy Electric & Electronic Samsung – Plasma TV’s / Baja California – Home Appliances / Querétaro LG Electronics – Plasma TV’s / Tamaulipas, NL, BC Samsung C&T – LNG Plant / Manzanillo – Electricity Power Plant /KEPCO Chihuahua SPECO – Wind Turbines / Coahuila KOGAS – LNG / Colima Mining and Metalurgy Automotive KIA announced new investment just last week. Cars production will start in 2016. Pesquerias/Nuevo Leon Hyundai-Autoparts/ Tijuana Plant DongKwang – Autoparts / Saltillo Kafus – Autoparts / Nuevo León Nifco – Autoparts / Nuevo León POSCO – Steel /Tamaulipas, Puebla & SLP KORES – Copper / Baja California Sur 5/22/2018

Why are we here and How does INADEM work 2014 budget of US$ 700 million Resources channeled as subsidies to worthy projects submitted through public tenders. Resources used to support the SME Loan Guarantee Program. The relationships between INADEM and SME’s established by these 2 mechanisms though very important, is impersonal and purely mechanical. Source: Ministry of the Economy

What we are looking for (1) We want to take a step further in our relationship with SMEs. We are ready to offer, develop and support strategic long term partnerships, particularly with Korean firms and their suppliers already operating or soon to start operations in Mexico. Source: Ministry of the Economy

What we are looking for (2) We want to establish partnerships with Korean firms aimed at strengthening the value chains associated with their businesses Source: Ministry of the Economy

What we are looking for (3) We are looking to increase the local component of the value chains driven by the transfer of Korean knowledge, technology and best practices We are looking to increase competitiveness of Korean firms operating in Mexico by: Minimizing freight and insurance costs of imports Minimizing inventory management costs Minimizing risk in unforeseen delays in product delivery Increased possibility of outsourcing non-core activities. Source: Ministry of the Economy

What we offer Our strategy would focus on directing our battery of instruments aimed at: capacity building, technical assistance certifications technology transfer development of managerial skills networking Incubation for new Korean firms Acceleration R&D Innovation and product design venture capital loans Source: Ministry of the Economy

How would we do it We start out with a Competitiveness Improvement Plan with support from NIE, international and local experts and Korean company businessmen. The Plan should include: Supply chain mapping and diagnostics: Exhaustive report on the competitive situation of the firm and identification of supply chain bottlenecks and high risk areas Identify areas of feasable import substitution SWAT analysis

How would we do it (2) The Plan must consider (cont´d): A benchmarking excercise with international and national standards Strategic planning of the company´s future direction to best position itself in the market and An action plan which include invesments and corrective actions

How do we get started? All relationships must start with a first date We invite all interested parties to join us in individual meetings to provide additional information about our incentives program. Source: Ministry of the Economy

The National Institute of the Entrepreneur is waiting to be your host in Mexico! luis.landa@inadem.gob.mx