Ricardo Rascon
Marketing Director
Tetakawi
ricardo.rascon@tetakawi.com

LATAM FDI: Today, we are fortunate to have Ricardo Rascon with us. Ricardo is with a company called Tetakawi, one of the leading shelter companies in Mexico. He’s the marketing director. Ricardo, I’ll let you introduce yourself and tell us a little bit about your organization.

Ricardo Rascon: Great. Thank you, Steve. I’m really honored to be here with you today, and I feel like I should be interviewing you with all the knowledge you have on Mexico, but I appreciate you taking the time to ask me some questions about manufacturing in Mexico. As you mentioned, my name is Ricardo Rascon, director of marketing at the Tetakawi. We’re, a company based in Tucson, Arizona, that for nearly four decades has been helping foreign manufacturing companies expand into Mexico via what’s known as the shelter program, which I’m sure we’ll talk about in more detail. Thanks again, Steve. I really appreciate the opportunity to be here.

LATAM FDI: Well, thank you for being here, Ricardo. But to set the stage for the people who are listening, can you highlight some of the advantages of setting up of operations for manufacturing in Mexico compared with other global destinations?

Ricardo Rascon: Yes, definitely. I think if you’ve turned on the TV any time in the last four months or listened to the radio, anything besides Taylor Swift, you’ve probably heard about the countless advantages that Mexico has to offer. I think it really comes down to four or five. I would say, number one, you have cost efficiencies. When you look at labor costs compared to other regions in the world, there are significant savings that could be had by manufacturing in Mexico. So that’s one of the primary reasons. I would say, aside from that, it’s a strategic location. Our proximity to North American markets makes a lot of sense. When you’re comparing, should I manufacture my product in China versus Mexico, do I want this product to be sitting on a ship for a couple of weeks, or do I want it on a truck where it could be in the US? In 8 hours? I think Mexico is very fortunate to have the US as a neighbor, and that’s one of the key reasons why a lot of companies are looking to Mexico right now. Aside from that, there are a lot of free trade agreements that companies that are manufacturing in Mexico take advantage of.

The USMCA is obviously the one that everyone talks about, but there are other ones when you kind of do the math. I think there are over 50 countries that participate in various free trade agreements with Mexico. It’s a great launching pad for places aside from just the US and Canada, and Latin America. That’s why a lot of kind of European companies like it as well because you’re not just getting preferential trade access to North America, but there are also other countries that you’re able to trade with as well. Aside from that, I would say the last two are probably going to be the skilled workforce. We talked about cost efficiencies, but just because they’re lower cost doesn’t mean that they’re lower-skilled. Companies that are manufacturing in Mexico find that the workforce has a lot of skills. We have aerospace companies, medical device companies, automotive companies, and companies that have been manufacturing in Mexico for decades. Mexican workers have that industrial work culture that a lot of companies need. And the last one, I would say, is especially important now. It’s really the favorable demographics. When you look at Mexico’s workforce, the median age is in the mid-twenties, and what’s most important what we see is it’s a workforce that’s ready, willing, and able to work in the manufacturing industry.

I live here in Tucson, Arizona, and a lot of people around that age have zero interest in working in manufacturing. But in Mexico, these are aspirational jobs for them. So that’s another key benefit. And I think a lot of these factors collectively make Mexico an attractive destination. There are a lot of other advantages as well. And I’m sure you could read about them, listen to them on TV. But I think at the end of the day, those are the four or five that really have companies thinking about manufacturing in Mexico as a solution, not just for their current needs, but for their future needs as well.

LATAM FDI: For businesses that are considering opening manufacturing operations in Mexico. What are the primary modes of entry that are available to them, and how do they differ?

Ricardo Rascon: Yes. So, there are really five modes of entry. I would say when it comes to expanding into Mexico; there are contract manufacturing options, there are joint ventures, there are acquisitions, there’s standalone or fully owned subsidiaries. And then there’s something unique to Mexico, which is called the Shelter Model. For the sake of today’s conversation, I’m just going to talk about contract manufacturing. standalone operations and the shelter program. As for joint ventures and acquisitions, we don’t see them happening too much right now in Mexico. They don’t have a strong history of success either.

The first mode of entry is contract manufacturing. This is where a company looks for a third-party firm in Mexico with some existing capacity and says, hey, I need you to make this widget for me. It’s a low-risk entry strategy. It doesn’t require a ton of capital investment, and you’re able to benefit from a company that might already have these manufacturing processes in place. They may have some economies of scale, scope, and learning. So that could be a good solution for a company that’s already kind of made the decision from a strategic perspective that when it comes to the production part of my value chain, I’m going to outsource manufacturing in Mexico through a third party.

When we look at kind of this nearshoring that’s kind of taking place right now. That’s where a lot of interest in Mexico is right now. Many companies say, hey, maybe I make this Widget through a third-party company in China. Now, I’m looking for a substitute solution, and I’d like to do this in Mexico. Oftentimes, they kind of have a greater affinity towards the contract manufacturing model. But there are some challenges with that. Number one, they’re hard to find. It’s hard to find 100% owned Mexican contract manufacturing companies that can manufacture products for you at a competitive price. You could certainly find some US-based companies with operations in Mexico that do have some capacity, but they’re going to pass on that US. It may not make It the most cost-effective way, but if it is an option that you’re considering, I would advise you to consider working with a sourcing agent, someone who has a Rolodex of companies that might have the capabilities that you need. Typically, that’s the best way to make that work. So aside from contract manufacturing, you also have a standalone operation.

So, in this model, a foreign company sets up its own operation for manufacturing in Mexico. It forms its own legal entity, just as if you were a US. Company and looking to form A company in Canada, for instance. It gives you the highest level of control over all aspects of your manufacturing process and your administrative process, from production to workforce management. You’re 100% responsible for all of the activities related to manufacturing in Mexico. But because of this, it comes with the highest level of risk, and it requires a significant amount of investment and resources in order to make this type of operation possible. So that’s where things kind of open the door to the shelter model. The shelter model is unique to Mexico, and it’s been around for over 40 years, but it’s getting even more popular now. And really, it allows a foreign company to operate in Mexico as a division of a shelter service provider. The shelter service provider, like Tetakawi, would take a company, let’s say ABC Manufacturing, and ABC Manufacturing would say, hey, Ricardo, I’m looking for 35,000 square feet of industrial space and need to hire 80 people. We would find and lease the building on their behalf, recruit and hire all the people that they need, help them move everything in and out of the country, and make sure that they’re compliant with all regulations.

It’s really A turnkey solution that allows them to take advantage of everything that Mexico has to offer without worrying about the bureaucracies and the administrative kinds of nightmares. For lack of a better word, of doing business in a foreign country. Each of these models obviously has its own advantages and considerations. But I think the shelter model, at the end of the day, really stands out because of how it allows you to control production-related activities without having to worry about the administrative aspects of doing business in Mexico. At the end of the day, there are a lot of risk mitigation strategies built into the model as well.

LATAM FDI: Ricardo, I just heard You mention a shelter service provider will help a company find and lease space. I know that Tetakawi does do that. But just to give our listeners an idea of the size and breadth of Tetakawi. How much real estate does Tetakawi have under roof?

Ricardo Rascon:  We actively own and manage over 7.5 million industrial space. We definitely have more room to operate as well. Our core product is what we know as a manufacturing community. So really, it’s much more than just an industrial park. It’s an industrial park with onsite support services and amenities that help make sure that companies can kind of facilitate this turnkey expansion to manufacturing in Mexico as seamlessly as possible. But that’s not necessarily a fit for every type of company. Some companies might say, hey, Ricardo, I really love your value proposition. I would like to use some of your shelter services. However, operating inside of your real estate may not make sense for me for several reasons. We’re also able to provide services outside of our real estate as well.

LATAM FDI: One thing that I’ve always thought about shelter companies, and an easy way to explain it to people is it’s an all-encompassing solution. If I’m a manufacturer, I want to make something in Mexico. I don’t have to know anything about doing business in Mexico. I just plug into the system, and I’m good to go in a short period of time.

Ricardo Rascon: Yes. I think that the speed of entry is really key. Under current conditions, it’s kind of changed. Obviously, a lot of companies are looking to Mexico. Real estate is hard to find. Before this kind of wave of expansion into Mexico, we could get a company set up in as little as 30 days. So, sign a contract, and in 30 days you could be shipping out finished products. I would say now it’s probably closer to three months if we could find an available building for manufacturing in Mexico. If there’s not an available building, and we have to build from the ground up, you’re probably looking at between six to eight months to get started. But if you compare that to a standalone operation, there’s still a savings of time. If you were to say, hey, I want to go into Mexico and I want to do it on my own, you’d first have to secure the real estate, then you’d have to apply for certain certifications that on their own could take upwards of six to eight months. To get started with the current administration in Mexico and how things have become even more bureaucratic than they should be, in my opinion, you’re probably looking for a standalone operation anywhere between twelve to 16 months to get set up.

LATAM FDI: Yes. Another thing that’s pretty important to consider is that in addition to all the physical infrastructure preparation that has to be done to get up and running in Mexico if you’re doing a standalone, you have to staff up with people who know HR and labor law. You have to staff up with people who know accounting in Mexico. You have to staff up with people who know how to do customs and logistics issues, and environmental compliance. So, all of those things are already in place under the shelter program model of doing business in Mexico.

Ricardo Rascon: Yeah, and definitely you get it from top-notch people. And what I always tell companies, especially SMEs, hey, if you’re looking to expand into Mexico with about 50 to 70 people, you could try to do a lot of those things on your own. Or you can work with a shelter service provider like Tetakawi, which does these things for over 70 companies and has over 24,000 employees in Mexico. And you could get access to the types of people, the types of infrastructure, the types of resources that would normally only be available to a Fortune 100 company. When you talk about the economies of scale, scope, and learning, it’s really a no-brainer. And in my biased opinion, I guess you could say I agree with you. Yeah. I don’t know why a company wouldn’t at least start under the shelter program because it’s an amazing way to get started, because of the speed, but also to learn how to do things the right way. And for some companies, it is a perpetual mode of entry. I mean, we’ve been in business for almost 40 years, and our oldest client has been with us for over 35 of those years.

For other companies, they may say, hey, I just need a one, two, three-year engagement. And then, after that, I want to take the training wheels off and see what makes the most sense for my company. But what I always tell clients is, what’s the number one reason you’re expanding into Mexico? And a lot of them have some different reasons, but at the end of the day, it all kind of boils down to making high-quality products at a lower cost. I say, great, you’re not coming to Mexico to become an expert in how to deal with labor unions or how to deal with environmental health and safety standards. You’re coming here to do your best manufacturing in Mexico at a lower cost. So, work with the shelter service provider. We’re experts in these other things, and we’ll help you improve your competitive advantage by allowing that kind of focused production environment at a lower cost.

LATAM FDI: Well, when it comes to making a decision, what should a company do and if you could summarize, what should a company consider when it’s contemplating starting out in Mexico with a shelter company as opposed to a standalone operation?

Ricardo Rascon: I think that the biggest thing is going to be the degree of control. So how much control do you want over every single aspect of your operation for manufacturing in Mexico? If you’re a company that says, hey, I want to go to Mexico, and I want to be like Hernan Cortez and just conquer every aspect of it? I want to be an expert in environmental health and safety laws and regulatory compliance and labor unions and how to deal with them. Suppose you want to have complete and 100% control over all the administrative aspects. In that case, you should really consider setting up your own subsidiary, build out these teams internally, and get started on your own. If you’re a company that says, hey, I want to expand to Mexico and take advantage of everything that it has to offer. I do want to have 100% control over production-related activities, but when it comes to the administrative side of the business, I just don’t want to deal with that. Then, typically, the shelter will be more advantageous for you. And there are even some companies who are kind of in the middle of it, and they say, hey, eventually, I want to be able to do those things on my own.

But right now, I just want to focus on getting started as quickly as possible. Like I said, there are ways to kind of transition outside of the shelter. So, degree of control I would say, is probably an important thing to consider when pondering manufacturing in Mexico. The second thing is going to be time to market. And Steve and I kind of talked about this earlier. If you need to get set up as quickly as possible, there’s no quicker way than the shelter option. If you have time if time isn’t of the essence and you say, okay, I want to establish a manufacturing facility in Mexico. Still, I don’t need to be operational until 2025, and I do want to have a lot more control over it, so maybe the standalone option could make a little more sense.

I’d say that the third most important consideration when you’re comparing a shelter versus a stand-alone operation is going to be the headcount of your operation because that’s going to be really crucial. For a small operation, if you’re saying, hey, I’m looking at something less than 15 people, I think neither of these options would make sense. I would encourage you to consider going the contract manufacturing route, but between 15 to around 400, when you start comparing it from an economic perspective, the shelter option for manufacturing in Mexico is the most cost-effective route.

I think headcount is crucial to consider if your operation will exceed 400, and maybe you’re looking at 500 or more people. The economics of it may not make a ton of sense, but there are other aspects of the value proposition that still might incline you to consider using the shelter route. For instance, we have companies that have over 3000 employees with us under the shelter program, and from a cost perspective, it may not make the most sense, but there are other aspects of the value proposition. As I mentioned, there’s risk mitigation. There’s focused production. For instance, if you’re a medical device company and you’re making products that are 100% quality critical, would you want a plant manager who’s also stressing about how am I going to deal with this next labor union negotiation? How am I going to make sure that everyone’s paid on time, how am I going to handle this audit from the environmental authorities? Or do you want a plant manager who says, hey, I know a company like Tetakawi can take care of all of this and I could just be 100% focused on making pacemakers or making some other mission-critical device.

Some companies that are kind of on the higher end of the headcount perspective start to look at the shelter model for reasons other than just cost savings. And I think those are important to consider as well.

LATAM FDI: From an operational standpoint, how does the day-to-day management of a manufacturing unit under the shelter program differ from the standalone that you just got through commenting on?

Ricardo Rascon: Yeah, so from an operational standpoint, the day-to-day management of a manufacturing unit under the Shelter program is going to be less burdensome from an administrative perspective compared to a traditional setup. But I think it’s important to kind of highlight that from a production-related perspective, the amount of control is going to be the same at the end of the day. Really, the only difference is that the shelter service provider will handle all the administrative responsibilities. So, they’re going to handle all aspects of HR, of import-export administration, regulatory compliance, accounting, finance, and all of those things so that you could be 100% focused on what you do best, which is production-related activities. From a day-to-day perspective, that’s really how it works. The shelter provider is an extension of your team for manufacturing in Mexico. I would say typically, the end user of our product is going to be the plant manager that our clients handle. The plant manager is then well-equipped regarding how to activate different departments within our organization. If he needs to scale up production, he would talk to our HR team and say, hey, I need to hire 50 more of X position if they’re going to be working on a new product line.

He would get with our import-export team to let them know that things need to change from an importation or exportation perspective, or if they’re bringing in different types of chemicals, he would get with our environmental, health and safety team, and they would make sure that everything’s well documented and that employees are trained on those things. So really, at the end of the day, the shelter acts as an extension of the team, but they handle all of those administrative functions, and the plant manager is 100% focused on production.

LATAM FDI: For businesses that have been intrigued by what you described in terms of the Shelter program, how can they go about comparing different options that are available to them in the marketplace?

Ricardo Rascon: I mean, I would just contact Tetakawi, and we could solve all your problems. But no, if you do the research, there are about 27 different shelter service providers in Mexico. I would say about seven of them own 80% of the market share. So, there’s a lot of them. I would encourage any company to speak to as many as they can. But I think at the end of the day, what it really comes down to is finding a shelter service provider who can help you with a couple of elements of your strategy. Number one is going to be location. A lot of shelter service providers are location-specific. If you’re looking to operate in a specific region in Mexico, not every shelter service provider might be there. For instance, if you’re coming to Tetakawi and you’re saying, I absolutely, positively need to be in Tijuana, we would say we cannot provide services there. But if you were interested in another one of our venues, let’s say Sonora, Coahuila, or Mazatlán, we would gladly be able to help you there. But there are some shelter service providers that may not provide that key service there either. I think that’s kind of the most important thing to consider is maybe having a list of locations where you are seeking to do your manufacturing in Mexico.

I also wouldn’t assume that one location is the best location. I would compare and  I would benchmark, and work with different shelter companies to work through cost models and understand what the cost implications are for different locations. But I’d say when comparing shelter service providers, location is going to be a key difference. Number two, I would also look at cultural fit. At the end of the day, a shelter service provider is a risk-sharing partner, but you have to make sure that it’s a partner that kind of aligns with you from a lot of perspectives. Some shelter service providers, for instance, are US-based based, like Tetakawi. So, if you’re a US-based or a Canadian company, you could align with a provider and have a contractual base in the US. That could offer a big advantage in terms of communication and legal alignment, which will be really crucial to make sure you have smooth operations. I think the cultural fit is important. I think a track record is also something worth exploring as well. At the Tetakawi, we always encourage prospective clients to speak to existing and former clients. I think the conversations with the former clients will help you to really know about the shelter service provider and when you transitioned out, how did they helped you.

What were some of the reasons that you decided to no longer use their services for manufacturing in Mexico, and would you recommend them to someone? I think looking at track record is important as well. But again, I think that the biggest thing is to talk to as many shelter service providers as you can if you are interested in exploring this mode of entry and see what makes the most sense for your business. When we talk to a prospect, we always say, hey, our goal is number one to help you decide if is Mexico right for you, yes or no. Because for some companies manufacturing in Mexico may not make sense. Number two is the shelter mode of entry. The best way for you to establish in Mexico, yes or no? And number three, is Tetakawi the right fit? Yes or no? Because sometimes we aren’t. We may not be in the location that you’re looking for. We may not be able to offer you the very specific flexibility that you need. But at the end of the day, we’re very proud, and we have a lot of strong belief in our business model, but it’s not necessarily a 100% fit for every company.

So again, I would encourage you to speak to many shelters, visit them in person, go see it for yourself, tour their facilities, talk to their clients, but also make sure that they’re providing you with data that you can kind of use and benchmark and do the homework yourself. Because at the end of the day, no one can make that decision for you. It’s a decision you have to make, but there are quantitative and there are qualitative factors that you have to evaluate.

LATAM FDI: With respect to the data that you just mentioned, I know that one of the most valuable pieces of data that Tetakawi, in particular, offers its client is the cost model analysis. Can you tell us a little bit about your cost model analysis and how that helps companies make decisions?

RICARDO RASCON: Yeah, definitely. Our cost model is based on proprietary data that we aggregate based on the operation of our 70 clients in Mexico. At the end of the day, we have real-time data. We pay 26,000 people every Friday. So, when a company is saying, hey, I’m thinking about expanding to begin manufacturing in Mexico, we can take this data and provide them with an estimation of what it would cost them to set up that facility in Mexico. Within our cost model, we would look at not just labor, we would look at real estate, we would look at logistical movements and purchases in Mexico, and then we’re able to benchmark different regions in Mexico. If you’re saying, hey, I’m location neutral, maybe I’m not quite sure where I want to operate. We could help you model the different cost scenarios versus locating in different locations there. I think the cost model is an important thing for a company to kind of work through, and I think it’s great to work with a shelter service provider. But again, just make sure you’re comparing apples to apples and you’re getting real information because some companies may not provide fully fringe wages, for instance. They may say, hey, this is what this person will cost, not considering other benefits that you may have to provide the workforce.

It may seem that one location in Mexico or one provider in Mexico has a better cost scenario than another, but just make sure you’re looking at things with a transparent lens. The cost model for manufacturing in Mexico is very effective, and we could also help companies benchmark a standalone operation versus a shelter operation. If you’re kind of in between both and you’re saying, hey, well, maybe I’d want to start with the shelter and eventually transition out, we can help you understand what that’s going to look like from a cost perspective, not just in the short term, but also in the long term.

LATAM FDI: How is Tetakawi, at this point in time, innovating or adapting its shelter services in response to some of the changing needs that we’re seeing in the global business?

Ricardo Rascon: So, you know, at the Tetakawi, we’re well aware of what’s going on not just in the global manufacturing landscape, but also in Mexico as a whole. When it comes to kind of evolving, innovating, and adapting our business model, there are a couple of things that we’re doing. Number one is exploring new venues. As I mentioned, there’s a lot of interest in Mexico right now, but that also creates some problems in some areas that have been attracting investment for years. You have more competition for labor. You have increased real estate prices. There are some areas along the border where the maquiladora industry is over 24,000 workers, where turnover is upwards of 16% a month.

What we’re doing at the Tetakawi is looking at other venues in Mexico that may not be traditional manufacturing hubs but that have labor availability that can help ensure that companies have access not just to the talent they need today but also to the talent they need tomorrow. For instance, we’re going to be establishing a new manufacturing community in Mazatlan, which is an area mostly known as a tourist destination. But when we do our research, when we look at the demographics, when we look at the needs of the local workforce, there’s a lot of talent there that’s looking for jobs in the manufacturing sector.

We believe that could be a venue that’s very attractive to companies that want to hire a workforce, train them, and not worry about them leaving tomorrow for 20 more pesos a day. It could be a good venue for a company really focused on reducing turnover and looking to invest in its workforce. So that’s one thing that we’re doing. We also invest a lot in training centers and position ourselves as an employer of choice. Steve, you’ve been to our manufacturing communities. I think you could really speak to what you’ve seen there, anything from daycare facilities to sports complexes to transportation services to onsite medical services. And really, many of these things that we’re investing in within our manufacturing communities have a dual purpose. So first, they support our employees, and they contribute positively to the different communities where we operate. But they also provide our clients, who may be entering Mexico for the first time, with access to services and amenities that normally they wouldn’t be able to invest in. The level of infrastructure and support that we’re able to provide these SMEs in Mexico is significant.

The amenities that Tetakawi provides can really be a game changer for a company that says, I don’t just want to expand into Mexico; I want to expand into Mexico the right way, and I want to do the right things, and I want to help elevate the local communities. I’d say those are some of the things that we’re doing to kind of innovate our business model and elevate the communities where we operate.

LATAM FDI: One thing that is particularly impressive, and I’m familiar with this, was what was done beginning in the early 2000s in Guaymas. There was no aerospace in Guaymas in the early 2000s. Today you have one of the biggest aerospace clusters for the manufacture of aerospace engine parts. Tell us a little bit about what was done there in terms of creating an educational infrastructure to make that cluster happen.

Ricardo Rascon: Yeah, definitely. And I wish I could say I was part of that, but that was well before my time. But really, at the end of the day, it was our team’s knowledge that, hey, we need to kind of change the way we’re doing things here and maybe let’s focus less on labor-intensive operations and look more for capital-intensive operations that are looking to expand into manufacturing in Mexico. Aerospace made a lot of sense, but the challenge there was kind of the workforce. and how do you ensure these people have the necessary knowledge to do things like CNC machining and things like that? So, then Tetakawi worked with local universities and also invested in its own training facilities to kind of help elevate the local workforce. And over the years, we built a very strong aerospace cluster that was really driven early on by engine components. OEMs, who recognized the local talent, who also recognized that it’s one of the few venues in Mexico where if you invest in a worker, you won’t have to worry about them leaving tomorrow for a 5% pay bump. It’s a more stable workforce, a workforce that is interested in learning more, and if you show a desire to invest in them, they’re willing to stay there a little longer.

And now, as you said, that initiative started in the early 2000s. Here we are in 2023. We have about 17 aerospace component manufacturers that do anything from secondary processing to castings and things like that. We’re very proud of what’s happened in Guaymas. When we look at what it’s done to the local community and how it’s kind of elevated employees and their pay levels there specifically, it’s really impressive.

LATAM FDI: Well, Ricardo, we’ve traveled quite a distance here in terms of the information that we’ve covered in a relatively short period of time. The experience that we’ve had with these podcasts is that the listeners have questions after taking in the information. They want to speak to those who have been kind enough to do a podcast with LATAM FDI. That being the case, can people contact you, and how would they do that?

Ricardo Rascon: Definitely. You know, you could shoot me an email ricardo.rascon@tetakawi.com. You could also visit www.tetakawi.com. We have a chat box there. You could shoot me a message and I’d be happy to respond, or you can fill out a Contact Us form. You could even call me directly. My cell phone number is 520-971-9096, and I’d be happy to answer any questions that you may have about manufacturing in Mexico.

LATAM FDI: Okay. In addition to that information, we’ll include a link to your LinkedIn profile if that’s okay with you on our transcript section of the podcast.

Ricardo Rascon: Yeah, no problem at all.

LATAM FDI: Well, thank you very much for joining me today. It’s been very instructive and informationally packed, and we wish you well in the future and everything that both you and Tetakawi do.

Ricardo Rascon: No thank you Steve. I really appreciate the consideration, and I look forward to seeing where we can disseminate this information on manufacturing in Mexico.

LATAM FDI: Take care.

Ricardo Rascon: All right, take it easy. Bye

Marcos Antonio Mandacaru
CEO
TSX Invest
mandacaru.marcos@gmail.com

LATAM FDI: Hello. Today, we have Marcos Antonio Mandacaru with us. I hope I got that pronunciation right. Marcos Antonio, please correct me. We’re going to talk about foreign direct investment in Brazil. I’ll let Marcos Antonio introduce himself and tell us a little bit about the organization that he represents.

Marcos Antonio Mandacaru: Thank you very much for the invitation to be here. I have been dedicated to foreign direct investment attraction to Brazil since 2007. Currently, I am in Bello Horizonte which is the capital of Minas Gerais State. I am an associate professor at Fundação Dom Cabral which is a business school that is very well known worldwide and CEO of TSX Invest, a company dedicated to helping companies and cities to attract investment. So, I’m here with you to discuss to talk about foreign direct investment in Brazil.

LATAM FDI: That’s great. That’s a very interesting topic because Brazil is the foreign direct investment leader in Latin America. That being the case, what are the main sectors that companies are coming to do business in Brazil?

Marcos Antonio Mandacaru: Brazil, in 2022 was number five in terms of foreign direct investment attraction in the world. Several sectors are attractive for Brazil, especially renewable energy, infrastructure, agribusiness, and automotive. Considering the size of the market and the growing middle class, we can consider health and retail as a very strong as very strong sectors for investments, especially health, as well. You can consider services, biotechnology, industry and pharma. Just to give an example about this sector in our region, Minas Gerais, we have one of the best federal universities in the country, the Federal University of Minas Gerais. The university is a leader in patents, and 70% of the patents are related to the health sector. We have here in our city, Belo Horizonte, several companies in biotechnology and health. It’s a good opportunity for foreign companies to establish cooperation, joint ventures, and other regions in Brazil. You can explore biotech too, for example, in the Amazon region and Sao Paulo State and the south of Brazil.

LATAM FDI: You mentioned a lot of sectors for foreign direct investment in Brazil a moment ago, but there’s one sector that I’m particularly interested in. It’s led by Embraer. Can you tell us a little bit about aerospace in Brazil? Because I know that it’s highly developed.

Marcos Antonio Mandacaru: The aerospace sector in Brazil is a strong opportunity for foreign companies, especially for helicopter suppliers and aircraft manufacturers and suppliers. Embraer was established in Brazil in 1969 in the countryside of Sao Paulo State, the biggest state in Brazil in terms of GDP and population. But what I can explore with you is the opportunity of Itajubá, a city located between Sao Paulo and Belo Horizonte, in the south of the state. of Itajubá is a very sophisticated city in terms of education. It is home to a very good university. There, they have the subsidiary of Helibras Helicopters there. Helibras is the only helicopter manufacturer plant in Brazil. They manufacture big helicopters there. The city has five laboratories dedicated to aerospace. Inside the university, there are several startups, and a very strong industrial park surrounding the Airbus helicopter plant. This is an opportunity to be explored for foreign direct investment in Brazil considering the fact that this sector is a very good source of investment for Arizona and the United States. I’d like to help you and your companies in the United States explore and understand better the business and the investment environment in this region.

LATAM FDI: Well, you mentioned the state of Sao Paulo and also you mentioned Minas Gerais. Besides those two states, are there other states that have been successful in attracting foreign direct investment in Brazil?

Marcos Antonio Mandacaru: Absolutely, yes. In the south of Brazil, there are three states with good track records in foreign direct investment attraction Rio Grande do Sul, Santa Catarina, and Paraná. They are well-developed states in terms of economy and industry, especially. Santa Catarina in recent years has developed a good innovative ecosystem attracting foreign companies for partnerships with local companies. They have two strong indigenous companies prepared to internationalize with a good profile for establishing partnerships for investment in Brazil in the northeast of Brazil. An example is the state of Bahia, which has just announced the BYD investment in electric car plant manufacturing there.

LATAM FDI: That’s a Chinese company, isn’t it?

Marcos Antonio Mandacaru: It is a Chinese company, yes. Ceará, another state, is a hotspot for foreign direct investment in Brazil.  Additionally, Pernambuco, as well as other regions, has been successful in attracting foreign direct investment too. In other states, for example, Goiás is very strong in agribusiness. Mato Grosso do Sul is as well. So, Brazil has plenty of opportunities in several areas, in several regions, in several industries. I consider Brazil the best opportunity for foreign investment in Latin America, considering the country has 50% of the South American GDP, and is the largest consumer market in South America. It is the same time zone as the United States and has some cultural similarities. It’s easier to do business in Brazil if you compare it to India China or Malaysia, for example. Obviously, we are a Latin country. We have some differences in terms of the culture, but there are a lot of similarities in terms of compliance and how to do business. Making a foreign direct investment in Brazil is easier if you compare it to other emerging markets.

LATAM FDI: Please, give somebody who may be listening and may not have a full picture of what Brazil is like, a lot of people may not know, but Brazil is the same size as the lower 48 states in the US. Just to give our listeners an idea of the size of Brazil.

Marcos Antonio Mandacaru: The size of Brazil is impressive. It’s interesting because sometimes you can’t imagine how big Brazil is in the world. The state of Minas Gerais is the size of Spain. The state of Sao Paulo is the size of the United Kingdom. The state of Bahia is the size of France. So only three states that I mentioned, France, Spain, and the UK can easily fit inside Brazil. The state of  Pará is the size of Angola. So, it’s a continent, it’s a big country to be exploring in different areas, in different industries, and opportunities that are attractive for foreign direct investment in Brazil.

LATAM FDI: One industry that you haven’t mentioned yet, and it has been there for a long time, maybe you could give our listeners an overview of it. Is the automotive industry important in Brazil, isn’t that correct?

Marcos Antonio Mandacaru: The automotive sector in Brazil is very well developed in terms of engineering research and development design. We have almost all Western brands with manufacturing plants here, from Mercedes Benz to Audi, Volkswagen, Ford, Stellantis, GM, Fiat, and Chrysler.

I mentioned before the foreign direct investment in Brazil announced by BYD to manufacture electric cars in Bahia. But what I consider a good opportunity is the energy transition in the automotive industry. Talking about my state again, but it’s not because it’s my state, because Minas Gerais has 70% of lithium reserves in Brazil. Additionally, we have much more including cobalt, nickel, and niobium. Minas Gerais is the largest niobium producer in the world. We have the condition together here in this region, the hotspot for the energy transition in the automotive industry in Brazil because we have engineering too.  The largest Stellantis plant in the world is located here in our region, close to Belo Horizonte. It produces 3000 cars per day. I don’t know how many they are producing nowadays, but the capacity is 3000 cars per day. Sometimes they have to adapt to the production, to the demand. But the capacity is 3000 cars per day in this manufacturing plant with an engineering center with 2000 engineers and 200 designers. It is the only design center of Stellantis outside Europe and the US.

So, we have engineering, we have strategic minerals, and we have a strategic location for foreign direct investment in Brazil. In an hour’s flight from Belo Horizonte, you can cover 70% of the Brazilian GDP. We have a strategic location, engineering, strategic minerals, and production of ethanol that can be used in hybrid cars as a very good option for combined electric and, how can I say, traditional fuel, but with zero emissions.

LATAM FDI: Okay, you just got through explaining a bit to us about a very established industry, the automotive industry. But can you tell us what the main startup ecosystems are in Brazil?

Marcos Antonio Mandacaru:  As regards the startup ecosystem for foreign direct investment in Brazil, I can talk about several ecosystems that have developed from the south to the north. I would like to start by mentioning the state of in the northeast of Brazil, Pernambuco. The capital is Recife. There is Porto Digital. There is an ecosystem of startups in technology with good capacity to develop international partnerships to attract foreign direct investment in Brazil. In Sao Paulo, the largest city in South America, a financial center and industrial center, you have a strong startup community dedicated to several sectors, especially fintech, construction, and health. Rio de Janeiro as well, has a strong ecosystem. The city, of my hometown, Belo Horizonte, the third metropolitan region in Brazil, has a strong startup community. It is sometimes considered one of the two or three best startup communities in the country.

The best startup community in Brazil nowadays is Florianopolis in the south of Brazil. The city has a good serendipity, a strong connection to industry, and a diversity of startups, able to establish international cooperation and develop partnerships for different industries and technologies. This is an overview. Obviously, we can mention other ecosystems in different regions. For agritech, for instance. Agritech is a strong area for startups in Brazil. Construction tech as well. Brazil has a good environment for innovation in terms of startups, universities, and talent.  These industries and start-up ecosystems are ready to attract more foreign direct investment in Brazil.

LATAM FDI: Well, in terms of setting up facilities in Brazil and one of the areas that you’ve pointed out to us, what do you recommend for a company to have a soft landing in Brazil?

Marcos Antonio Mandacaru: Although Brazil has a big market with a diversified industry, we have a difficult business environment. Yet, for establishing a company in Brazil, I recommend talking first with Apex Brazil. Apex Brazil is the investment promotion agency at the federal level, and after the state in which the company will invest.

It’s important to understand the government structure and if the state has an investment promotion agency, for example, Invest Sao Paulo or Invest Minas, I recommend talking with them. It’s important to identify local companies in the same sector to talk about their experience in Brazil. Depending on the size of the company that is investing in Brazil, the most recommended way to enter the market is the joint venture or by acquisition of an existing company. Here, for greenfield investment, it’s important to have the support of the National Development Bank, the BNDS. I don’t know, Steven, if you have heard about the National Development Bank, it’s a very strong bank that can support and finance investment in Brazil in different areas. Some states, like Minas Gerais, have a state development bank. It’s important to talk with them. So, we have a very strong framework to facilitate foreign direct investment in Brazil considering the complexity of the market and the business environment.

And when you go deeper into the private sector, for example, the company I’m now working for, TSX Invest, we can help foreign companies connect with other companies and governments too, like TSX. There are several companies with this mission to connect foreign companies to local companies.

LATAM FDI: Okay, well, we’ve covered a lot of ground in not so many minutes here. Our experience has been that after listeners receive the information that our speakers provide to them, they often have questions come up as a result of what they’ve heard. If somebody wants to contact you with questions that have to do with what you’ve expressed today, how could they get in touch?

Jose Antonio Mandacaru: By LinkedIn. My profile is Marco Antonio Macandaru or by email: mandacaru.marcos@gmail.com. Okay.

LATAM FDI: What we’ll do is we will include, if it’s okay with you, include a link to your profile on LinkedIn in the transcript section of the podcast, as well as a copy of your email address that people can click on so that they can get into contact with you easily. Would that be okay?

Marcos Antonio Mandacaru: I appreciate it.

LATAM FDI: Well, thank you for joining me today. I was fortunate enough when I was a younger man to spend quite a bit of time in Brazil, and I think it’s a great country. And thanks again for being with us.

Marcos Antonio Mandacaru: Thank you very much for the opportunity.

Arturo Rodriguez
Co-Founder and Vice President of Business Development
Intugo
arturo.rodriguez@intugo.co

LATAM FDI: Today. We’re pleased to have Arturo Rodriguez with us. Arturo is the founder or one of the founders of a company that is based in Hermosillo, Mexico, called Intugo. And today, we will have a conversation on outsourcing services to Mexico. Arturo. How are you today?

Arturo Rodriguez: I’m very good. I’m very happy to be here with you. Steve.

LATAM FDI: Can you tell us a little bit about yourself and your organization?

Arturo Rodriguez: Sure. As you said, I’m Arturo Rodriguez, Vice President of Business Development for Intugo and a co-founder. Intugo is a company that, for more than 15 years, has been helping international companies set up, run, and grow operations in Mexico. We specialize in particular in helping operations related to service-oriented activities. And as I said, we’ve been helping companies that are outsourcing services to Mexico for more than 15 years.

LATAM FDI: Many people are familiar with the power and breadth of Mexico’s manufacturing sector. But you deal with other kinds of businesses. What kind of operations can a company have in Mexico from the perspective of your clientele?

Arturo Rodriguez: Yeah, it’s a good question. Manufacturing is huge in Mexico, and the type of services we offer at Intugo are a spin-off. They are an expansion of services that have already been offered to manufacturing companies for more than 30 or 40 years. We expanded the concept and tweaked it a bit for people looking at the possibility of outsourcing services to Mexico.  This relates to BPO operations, call center operations, software development, accounting, and anything you can do from a computer or maybe on a remote basis, if you will. That’s the kind of operation that we host. At Intugo, we have more than 90 different positions in different operations for our clients who are outsourcing services to Mexico. This means one position would be maybe software development. Another position would be a call center agent, for instance. Furthermore, another position would be accounts receivable agent or accountant. You can see that there’s a broad number of types of operations and positions that you can do when outsourcing services to Mexico. This aligns with what every company has as a goal to do here.

LATAM FDI: I’m familiar with your company and know you have a unique business model. But before we specify what the characteristics of your particular business model are at Intugo, what types of models, other than what you’ll explain to us about your company, are available for businesses that want to set up the kind of operations that you mentioned in Mexico?

Arturo Rodriguez: Yes, there are many models or value propositions in the marketplace, but I’ll summarize it in two big solutions, if you will. First, you want a company to help you with a particular need. Let’s say that you needed someone to help you with your accounting and do your general ledger and do your returns and do your, I don’t know, tax strategies, et cetera, et cetera. You want to outsource that to someone, maybe in Mexico, a Mexican firm, for whatever reasons. Then, you find what we call a regular outsourcing firm. A regular accounting outsourcing firm. Same thing. You can tell. Let’s say you want to do a sales campaign to sell something through a call center. You may go and find a call center outsourcing company in Mexico that does sales. You don’t want to get very much involved in the operation. You want someone to do it for you completely in your desire to outsource services to Mexico. That’s one type of company or a big number of value propositions around that concept. Our concept is totally the opposite. Our concept is all about helping you be able to control the operation for yourself using the same examples.

You don’t want someone doing the accounting for you; you want to do it yourself. You want to control it. You want to know who’s doing the work. You want to help with the productivity of the people doing the tax returns or the general ledger activities. In another example, in call center operations, you want to be involved in and control sales. Maybe that’s your core business. Maybe that’s what you do as a business, and you want to expand your operation and control the people. You want to be able to say who gets to be part of your team. Our model for outsourcing services to Mexico is all around helping, making sure that you can control productivity while we take care of the rest.

LATAM FDI: So, when you talk about “the rest,” obviously, I’m familiar with your business. I know that part of that, quote-unquote, “the rest” has to do with physical infrastructure. But in addition to physical infrastructure, what other things do you do to take off the plate for your clients so that they can on their core competencies and concentrate on what they do?

Arturo Rodriguez: Yes, we call it. We offer a bundle for outsourcing services to Mexico. Let me start by giving a view of this concept. When you have an operation or a company, you have to take care of everything that the company needs. Not only the productivity aspect, but you have to take care of the people, pay payroll, and take care of the facilities, insurance, and everything else that is needed. Our services for outsourcing services to Mexico enable you to concentrate on what you’re there to do. Our job is to try to make sure that you don’t have to deal with the complexities, particularly the complexities of doing business in Mexico, and that you don’t necessarily have to get too deep into that because we help you with that. As you said, we go from everything regarding the infrastructure and the facilities to the recruiting of the people who will be part of your team. All the human resources activities that are needed for the people not only to be recruited and hired but also for them to stay there. We provide services for outsourcing to Mexico regarding legal contracts, payroll, benefits administration, and maybe some additional benefits that you want to provide or that you’re already providing to your people back home.

We also help you with any procurement needs that you may have for your operations, including the basic things that someone in your team may need or something more related to your operation. Computers, bandwidth, more office space, et cetera, et cetera. So, in a nutshell, all the labor or law or country-related activities to be able to operate, we help you with those once again, for you to be able to concentrate on what you’re here to do, your core business in Mexico.

LATAM FDI: Just so I am clear on this, my understanding is that under your business model, the people who work for your clients are not legally, at least on the side of Mexican labor law, employees of your client. Would it be correct to assume that with regard to human resources, your company acts somewhat akin to a PEO in the United States?

Arturo Rodriguez: We could say that we call that we are the employer of record for outsourcing in Mexico. So yes, legally speaking, people are under our umbrella, and technically speaking, our clients don’t have any labor law-related liability in Mexico. Our clients don’t need to have any entity or bank account in Mexico to operate through our model. We take care of that, including what you say regarding the employer of record situation. Nevertheless, operationally speaking, the people assigned to your operation, our client’s operation, report to our client and our client’s managers and work alongside our clients’ strategies.

LATAM FDI: In other words, they have control over what they do. This means they have a complete focus on their activities, which they’re in business to do. At the same time, you take care of things in a way that enables them to plug into Mexico and be up and running, outsourcing services to Mexico in a reasonable period of time. Is that correct?

Arturo Rodriguez: That’s correct. Very correct.

LATAM FDI: So, given this model, how big of an operation can you contemplate setting up under that model in order to be able to gain some of the benefits that you’re able to gain by outsourcing services to Mexico?

Arturo Rodriguez: Yeah, we have operations that have started with one person, and we have operations that have started bigger. But most importantly, we have operations with more than 200 or 300 people. So, we host small operations or small clients and bigger ones. Maybe a common thing, a common trend amongst all our clients, is that usually, they start small by their standards. Small for someone, maybe 20 people, small for someone else can be one.  Usually, they start with that and eventually grow. That has been the trend for most of our clients.

LATAM FDI: What kind of savings would a company expect to see by setting up operations in Mexico?

Arturo Rodriguez: It depends on what kind of talent pool you’re looking for. The more experience, and particularly worldly experience, the less savings you may have. Maybe. But in general, on average, you will be able to have between 25% and 50% lower costs compared to your operation in the US. In general, that’s what you find when outsourcing services to Mexico under the Intugo business model.

LATAM FDI: With respect to your company, I understand that you have several locations. Can you tell us a little bit about each location and maybe a little bit about the labor force that people can expect to find in those locations?

Arturo Rodriguez: It’s an interesting question, not only from the perspective of facilities that we have but also from the market conditions as they are right now. Because as we know, before COVID, 98% of the people working for our clients worked in one of our facilities. Just a few of them were working remotely or maybe on a work-from-home basis. Once COVID hit and everyone, including us, had to go home and work there for a while, the work-from-home, or the remote option, if you will, became a reality. Today, we have maybe 40% of the people working from home, and the rest are working on a hybrid model or an on-site model in one of our facilities. We have facilities in Hermosillo, Sonora, which is where we started. We also have facilities in Obregon, Sonora, and have facilities in Guadalajara and in Mexico City. We also have a very small operation in Monterrey. Having said that, we have recruited people for outsourcing services to Mexico from practically all over the country. A lot of the people that are working today for us and for our clients are working from different states in Mexico.

The important part regarding these concepts is that we help you decide what’s the best strategy for you. This strategy is particularly based on what kind of talent you’re looking for in order to engage in outsourcing services in Mexico. If you have an operation that needs a lot of security and maybe it’s an IT-related operation, we might suggest Guadalajara, for example. There’s a big talent pool for IT people there. But if your operation does not necessarily have that need and needs different kinds of people, different kinds of experiences, and positions, we may suggest a hybrid mode. This could maybe be with a foot in one of our facilities in one of the cities, but also with people working remotely because of the experience you’re looking for. Every operation is different, and we usually work with our clients involved in outsourcing services to Mexico to decide what strategy will be best for them to have the best talent available.

LATAM FDI: It seems this is an all-inclusive model for outsourcing services to Mexico that makes it easy to set up operations.

Arturo Rodriguez: I would like to say that with us, it’s very easy to start and very easy to start up operations through outsourcing services to Mexico.

LATAM FDI: Typically, when people listen to the podcasts we do, they have questions arising from the information they’ve listened to. That being the case, if somebody with further questions would like to contact you, how would they do that?

Arturo Rodriguez: I invite them to send me an email. I’ll give you my email: arturo.rodriguez@intugo.co. That’s my email. They can contact me through that or go to our website, www.intugo.co, and look at our business proposition there. There, they will find different ways of contacting us, including my email, but also through a form, and we’ll answer them really quickly.

LATAM FDI: Okay. What we’ll do is, in the transcript section on the page that hosts this podcast, we’ll have that information. We’ll have your URL and your email address. Another thing that we would like to include if it’s available, is a link to people’s LinkedIn pages. Do you have a LinkedIn page that we can include in our information about outsourcing services to Mexico?

Arturo Rodriguez: That will be okay, definitely.

LATAM FDI: All right, we’ll do it. Thank you very much for speaking with us today. It’s been very interesting and informative, and we hope you have good luck going forward.

Arturo Rodriguez: Thank you for inviting me, Steve.

Henry Arias
General Manager
Zonamerica
harias@zonamerica.com

LATAM FDI: Hello. Today, we have Henry Arias with us. Henry is with a company called Zonamerica, which is located in Cali, Colombia. Welcome, Henry. Could you tell us a little bit about yourself and your organization?

Henry Arias: Hello. Thanks for the invitation to be part of your program to discuss why to invest in Colombia. Well, I’m the general manager of Zonamerica, Colombia, which is a free trade zone located in Cali. We are owned by Zonamerica Uruguay, a free trade zone in Montevideo that has been operating for 30 years. Zonamerica came to Colombia looking for a second location for their clients in Uruguay. They already have about five hundred companies installed in their free trade zone. Still, most of their clients wanted a second location with tax incentives, plenty of talent, and cheap labor costs for some nearshoring operations looking to attend the American market. They came to Colombia; it was back in 2012 or 2013. They looked around different cities and found a local partner in Cali, El Grupo Carbajal. Grupo Carbajal is one of the largest enterprise conglomerates in Colombia and probably the largest in Cali. They had a piece of land. I still don’t know how to convert square meters to feet, but it’s very big, it’s about 400,000 square meters. They started doing all the construction for this free trade zone. We are focused on having world-class infrastructure, buildings, technology, internet connection, cloud connectivity, and everything ready for companies from other countries to come and establish their operations in Colombia and Latin America. They can benefit from the talent that we have here and the advantages of the cost of labor and the cost of living, using them for their own benefit for reaching new clients. I’m very happy to be here talking to you about Colombia, Cali, and South America and why our value proposition makes sense for companies looking to relocate and looking for labor arbitrage.

LATAM FDI: So that our listeners are informed, what can you tell us in general terms about Colombia that would be of interest to site selection people, for instance?

Henry Arias: Of course, Colombia, I think, is the fourth largest economy in Latin America, probably approaching the third place after Brazil and Mexico. We have about fifty million inhabitants in our country, and we’ve been ranking very high in offshore operations due to the availability of talent and the market size. Companies are coming in increasing numbers to invest in Colombia.

LATAM FDI: Okay, for an examination of the town that Zonamerica is in, can you tell us something about Cali

Henry Arias: Yes. Cali is located in, you guys in the United States have states, we have departments. Cali is located in the Valle del Cauca department, and this department accounts for 10% of Colombian GDP, which makes it interesting. It concentrates around 18% or 20% of the national number of companies in the industry. Sectors that are present are varied. Sectors that are located in Cali range from agro to services and industry. The Valle del Cauca, where Cali is the capital and is the main city. The department has approximately seven cities with populations ranging from 100,000 to 400,000, which makes them medium-sized cities by Colombian standards. I think it’s the only department in Colombia with so many cities with this number of people. And among all of them, Cali is the capital. We have approximately three million people living in Cali, which makes us a market of interesting size. We have many universities located in Cali. There are about thirty institutions for higher education with more than forty undergraduate programs. Of these thirty institutions, about twenty have programs related to information technology and software, which is interesting. Approximately 1500 graduates come every year in software and IT-related majors, which is, I think, for Colombian standards, a good measure.

So, the IT and software industry in Cali is really important. And I read that 10% of the companies investing in Colombia in this sector are in Cali. We could say that this is after Bogota, which is the main city and a center of technology operations and services. We are the top after Bogota, which is the capital. What other data will be interesting about Cali? Approximately eight hundred companies are dedicated to the Digital Economy Cluster, which includes companies in telecommunication, BPO, digital transformation, software, information technology, outsourcing, and things related to IT, which is what companies typically try to outsource in cheaper labor countries. There are also industries of other sectors in Colombia, from pharma to agro to food processing. We are very diverse in terms of international investment.

LATAM FDI: Many companies go to invest in Colombia to establish BPO-type operations. Is there an availability of bilingual talent?

Henry Arias: I can say it from experience because here in Zonamerica, we have two companies that are BPOs. Both have the United States as their main or principal market, and all the talent they hire are bilingual. One has approximately three hundred agents, and the other has approximately eighty agents. They are not the only two cases; there are approximately another five to six bilingual or English-speaking BPOs in Cali. Universities are very aware of the need to have bilingual talent. It’s one of the priorities of the educational system. And I would say that Cali is in the top three or four in the number of bilingual inhabitants or people living here. Our population is quite young. And Steve, I want to mention this because we see that the population in different countries and cities is aging fast. But Cali had a census recently, and we found out that approximately 700,000 people of the total population are between the ages of 20 to 35, which accounts for the majority of the labor in the city available in the city.

LATAM FDI: So beyond obviously, you got the workforce and the bilingual capability. What kind of fiscal incentives does the government of Colombia offer for companies that want to come and set up operations and invest in Colombia?

Henry Arias: Well, the government of Colombia created the free trade zones regime, which has two incentives. Not all the office space available in Colombia has the free trade zone regime. So, you have to qualify. Zonamerica, the company I represent, is qualified as a free zone by the Colombian government. As a result, any company that creates their subsidiary inside Zonamerica and places their people in our infrastructure can import any goods from other countries with no value-added tax or duties, depending on the country where they import the goods. The items can range from computers to any other good or product that they need to perform their operations. So, this is one of the incentives companies get when creating a corporation inside Zonamerica. But the other incentive that they enjoy is related to taxation. The general income tax in Colombia is 35%. But companies inside a free trade zone can pay only 20% as income tax on every single sale they make to countries outside Colombia. This means on their exports. If you have a company, let’s say a BPO, a call center, or anything related to a software development company located in Zonamerica. You have clients in Venezuela, Ecuador, Panama, the United States, or anywhere else; all the sales that you do, all the software that you program from here, all the calls that you attend from here, and the services you provide from here will only pay 20% tax as income tax. This is one of the benefits companies enjoy when deciding to invest in Colombia.

The tax that you will pay at the end of the year for your earnings compared to other cities in Colombia or other, sorry, territories in Colombia which are not a free zone, a free trade zone, and have to pay 35%, I don’t have the numbers to determine whether 20% is competitive or not compared to other countries in Latin America. Still, it seems to be a fair tax, as we have spoken to many companies installed in South America and other free trade zones.

LATAM FDI: To give people a general, very general idea of labor costs in Cali, what would they look like for those companies that want to invest in Colombia?

Henry Arias: Well, it depends on what level of education the workers have. But we have numbers showing that Cali is approximately 15% cheaper in terms of labor than Bogota, the main city in Colombia. This is also related to the cost of living, which all capitals have as a problem. All major cities have the problem that the cost of living is higher than second-tier cities.

Cali has approximately a 15% advantage compared to Bogota, which is our capital. But then it depends on the company that is coming to Colombia. Where are they having their people located? But I can say approximate numbers. Our minimum salary per month in Cali is about $700. This number includes vacation pay, Social Security, health, and everything. It’s about $700 per month. A Chief of Technology, such as a boss with a higher education, can be hired for approximately $1,700 monthly. Our information is mainly in the IT or technology sectors, but this range can give an idea of where salaries are in Colombia and Cali at this point.

LATAM FDI: Yeah, I think it gives people who want to invest in Colombia a general idea of the situation in terms of salary in Colombia. You mentioned a little bit about Zonamerica. Can you tell me how many companies are located in your free zone at this time and what they do?

Henry Arias: Yes. Zoneamerica currently has 10,000 square meters of space. Again, I don’t know how to translate square meters into feet, but we have 10,000 of space built with 10% availability right now. We have plans to start a new building in January, which will add 50% more capacity ready by the end of 2024. We currently are hosting one thousand people employed by twenty companies. And they range from pure software development to fashion design. One of the major fashion designers in Colombia has their offices here. This is because her main market is outside of the country. Everything, including the fabrics she imports, comes into Colombia without duties. She can transform them and then re-export them to other countries, which makes a lot of sense. We have a drone manufacturer that assembles all the parts here, and they do it also based on the free trade zone benefit. We have, as I mentioned, a couple of call centers. We have an Oracle database manager located here. We have a video surveillance company that outsources Colombian watchmen to take care of facilities in the United States. So, they pay cheaper labor costs for clients that are in the United States, and they service them from here, which is quite interesting.

We have a data center, a very big data center with more than 450 racks available for servers. We have a telecommunication company that has a satellite Internet connection from here. And they have their teleporter antennas located in South America. From here, they transmit information to their satellites and broadcast it to other countries in Latin America. We have lawyers that have their offices here. We have advertising companies that have their offices here. So, it’s a very interesting mix of companies. They are all thinking about serving external markets through services, transformation, or another related service. They can do this when they invest in Colombia.

LATAM FDI: Now, we’ve spoken briefly here and have covered quite a bit of ground. Our experience has been that people who listen to our podcasts often have questions after absorbing what we’ve been saying for the last 20 minutes or so. What I would like to do, if it’s okay with you, is ask you how somebody could contact you directly with any further questions that they might have about Colombia, Cali, or Zonamerica.

Henry Arias: Thank you. Thank you, Steven, for your generosity. Everybody’s on LinkedIn right now, so LinkedIn is a platform. We have a site, Zonamerica Colombia. And my name is Henry Arias. I am available there, but also, we also have our web page, which is www.zonamerica.com. You can look it up on Google and find both sites. The Zonamerica Uruguay and the Zonamerica Colombia web pages are both under the same IP address. There, you can find videos, information, our office locations, pictures, and our contact information as well. Finally, my email. I can give you my email. It is harias@zonamerica.com. I’m available to answer any further inquiries that people may have about Colombia, Cali, or South America.

LATAM FDI: Okay, Henry. One thing we do is, on each of our podcasts, the people we talk to in the transcript section, we put links to all those things. We’ll link to your company’s LinkedIn page, personal LinkedIn page, email, and website. I want to thank you very much for speaking with me today. It’s been very interesting, and I’m sure the people who listen to this will also find it interesting. Some may even be motivated to invest in Colombia.

Henry Arias: Thank you. Steven. Thank you for your time. You’re more than invited to come to visit.

Wendy Mena
Investment Advisor
Invest Guatemala
wendy.mena@investguatemala.org

LATAM FDI: We’re pleased to have Wendy Mena with us today. She’s the investment promotion advisor for the Guatemalan Investment Agency. I’ll let her tell you about her organization. We’re going to talk today about opportunities for investment in Guatemala. Hello Wendy, could you introduce yourself and tell us about your organization?

Wendy Mena: Hi, yes, good morning, good evening, or good night to anyone. My name is Wendy MENA. I am an investment promotion advisor at Invest Guatemala. Invest Guatemala working in Guatemala in all processes, from finding local partners, finding opportunities, or installing their new operations in our country. So, I’m very happy to be here to share with you what’s been going on in Guatemala and all the great things we’re doing to attract and have more investment in Guatemala.

LATAM FDI: Based on your experience Wendy, what are the main attracting factors that bring foreign direct investment to Guatemala, and why are companies choosing to start operations there?

Wendy Mena: So, let me start by sharing with you a bit of what we’ve been doing in the last couple of years. After the Pandemic, Guatemala, mainly Guatemala’s private sector, started thinking about how we could develop a plan that will help us recover our economy. And by this time, we were talking about all of the disruptions in the value chains due to the high cost of transport. We started talking in the country about how we could take advantage of the nearshoring tendency related to all companies that wanted to relocate their operations. And so, we made an alliance between the private sector, the public sector, the government in particular, that was starting by then their new electoral period. With the help of academia, developed a plan called Guatemala Moving Forward. In Spanish, its name is Guatemala No Se Detiene. And this basically has been a holistic strategy working towards bringing more foreign direct investment to our country based on strengthening four main areas: human capital, infrastructure, competitiveness, and legal certainty. So since then, we’ve been seeing how working together with the different sectors.

And why are countries or companies choosing to invest in Guatemala? Well, one of the main things is our strategic location. Guatemala is located in Central America, as you know, right next to Mexico. We share a border with Mexico and are the closest of the Central American countries to the North American market, to the US. We have access to both oceans, making transportation more efficient and less costly. Plus, we are the most stable economy in the region, and we have different regulations that favor new investments to come. So, through that and all the preferential access that we have through our free trade agreements, our young and skilled labor force, and the competitive costs in main factors of the operations of the companies, like energy, telecommunications, and real estate, have made companies choose to invest in Guatemala.

LATAM FDI: What laws does Guatemala have in place that specifically benefit the attraction of foreign direct investment, and what kind of benefits do they offer to companies that seek to locate in your country?

Wendy Mena: Guatemala is a bit different than our neighboring countries when it comes to laws that benefit the attraction of investment. Because we don’t have just one special regime. We have three different special regimes that new companies that come to invest in Guatemala and want to export from Guatemala can benefit from. For 30 years, we’ve had one decree that is called the Law of Promotion and Development of Export Activity and Maquila. This is perhaps the main instrument foreign companies have been taking advantage of when they invest in Guatemala. And what happens is that the difference between this promotion law with what we know about neighboring countries that are the free zones, the free trade zones, is that it is not required to be within a specific zone to have special incentives, mainly tax incentives to operate when you’re exporting your product. What you do is qualify the building where you’re operating or where your factory is going to be. And that area, without being an enclosed area, can benefit from a series of different incentives, which include, for example, the exemption of the fiscal taxes for ten years and also suspension of duties when importing machinery, when importing raw material, when importing everything that you need to transform your product.

So, this has been an instrument that, for the past few years, has been developing different industries, and in fact, it perhaps transformed the whole export structure of Guatemala. Guatemala is usually known for exporting coffee or bananas, sugar, and cardamom, which are some of our main products. But the truth is that most of our exports are not those products. Because through this agreement, through this decree that benefited companies for so many years, we were able to develop a very solid industry. This is mainly in the apparel and textile industry, manufacturers of all kinds. We make plastics. We make paperboard. We make toys. We do all kinds of manufactured items. We make a lot of wood products, furniture, food, and beverages, which is a very strong sector.  Pharmaceuticals are also big. We have a large agro-industry sector where we grow many vegetables, fruits, flowers, foliage, and all kinds other of items. We have a service sector that has also grown a lot in the past few years because service companies have come to invest in Guatemala in recent years. And aside from that, we also have the usual type of regulations, which are the free zones and the free economic development zones, two of the other models we have established by decree.

There are different incentives for new investors that are thinking about exporting from Guatemala that include exemptions on income taxes for ten years, suspension of all the value-added tax, and import duty taxes for all of the raw materials and anything that you’re going to need in terms of machinery and equipment. After a company comes to invest in Guatemala, it can export from our country to anywhere it wants by taking advantage of our free trade agreements with over 40 countries.

LATAM FDI: I didn’t realize you had that many countries covered. I would assume the Cafta is one of the main trade treaties. Does the country have an infrastructure including industrial parks and real estate developments with office areas for BPO industry companies? Where can new investors start operations in Guatemala?

Wendy Mena: Yes, each year, I will say about 3.5 million m² are authorized for construction in our country. Of course, this includes both residential construction and commercial use construction. Perhaps the relationship is mostly about 50% to 60% residential, and 40% is an investment in Guatemala for commercial use. But yes, we have a very dynamic construction sector and real estate sector that is constantly renewing itself to offer investors tailor-made options for offices of commercial warehouses and anything that companies need to start operations. But also, aside from this because we have different regulations that are looking for more development in industrial parks like the Special Economic Free Zones. We are in the process of developing a lot of these zones. There are actually two in operation currently that have a nice offer for companies that are installing or looking to install and are ready for new projects to start. Over twelve of them are being developed in the next couple of years to facilitate investment in Guatemala. So, we’re talking about projects close to our ports in the Pacific, Puerto Quetzal, our main port in the Pacific. There is a very large project there that is currently receiving new investors.

They have built over 40 already. They have over 12 million square feet available for anyone who would like to invest in Guatemala. And then there’s another large project that is close to our border with Mexico because we share a border with Mexico.  This project is also a very interesting offer for companies that are looking to install there, and they also have a nice offer of space ready for anyone who wants to set up new industries. And then we also have the free trade zones. Over seven free trade zones are currently operating, and they receive new projects all the time. But there is development taking place all over the country in new areas where people can invest in Guatemala. I think there’s an interesting offer of new developments for companies looking for something already built and ready to start operations. Additionally, build-to-suits can be done quickly.

LATAM FDI: What kind of industries and sectors are showing interest in the opportunities to invest in Guatemala?

Wendy Mena: In the past couple of years, I will say the sector that has attracted the most greenfield projects because Guatemala has a lot of reinvestments. But talking about new investments and new greenfield projects have been in the manufacturing sector. For example, we have a good cluster in the apparel and textile industry in Guatemala. But for many years, this industry was focused perhaps more on the final products. Now we have a more integrated cluster where you will find more investments coming not only in the area of sourcing, which is what Guatemala used to do, like apparel and finishing products but there are new investments coming in activities like spinning mills and textile mills that are trying to integrate into the cluster that we have. On the manufacturing side, we are seeing new investments, new greenfield projects, and industries that Guatemala didn’t traditionally have. For example, we first invested in the auto parts industry. A huge Japanese company installed operations in Guatemala and is doing electric harnesses. And they are looking into other auto parts of low complexity that they can develop in Guatemala to provide for the Mexican and the United States’ large automobile industries.

Then we have other products that are developing a lot, which include food and beverages. This is happening because of all of our natural resources and the fact that we have a lot of vegetables and fruits grown all year round. Many companies are coming and interested in providing value added to our agro-industrial sector offer by developing plant-based and ready-to-eat products, organic and natural food products, or private label manufacturing of all types of baked goods, snacks, and beverages. And then we also have a lot of companies interested in private labels for cosmetics, for pharmaceuticals. Another interesting new company that will be up in Guatemala is will a natural fiber packaging company. They are developing a project in Guatemala to take advantage of the sugar bagasse and transform it into biodegradable packaging. They’re going to build the largest site in the world for this kind of product. So, we are seeing a lot of dynamism in industries related to textiles and industries related to manufacturers in agro-industry.

LATAM FDI: What strategies did you use to make this activity occur in terms of the promotion of investment in Guatemala?

Wendy Mena: So, before I was telling you a bit about what we’ve been doing as an investment promotion agency in Guatemala and how this organization was born. When we started following a country strategy by implementing the Guatemala Moving Forward plan. So, through the Guatemala Moving Forward plan, we analyzed where the opportunities were happening and the capabilities that Guatemala had in order to attract investment in Guatemala in two areas. One is the traditional products that already Guatemala has, but they can jump into more value-added products. And then new sectors that are having investments all over the world where Guatemala has a big potential, and we can do a leapfrogging into more sophisticated industries. We developed strategies for three specific sectors. One was pharmaceuticals and medical devices, the other was electronic manufacturing services, and the third was all the services like business process outsourcing and information technology outsourcing. We have developed strategies for each of them, specifically where we’ve been trying to reach out to more companies that perhaps have never heard about Guatemala as an investment destination. One of the things that we identify is that Guatemala is a great country to come and invest in, but we have not been very good at letting people know all the advantages of investment.

Unlike our neighboring countries, we haven’t marketed ourselves as well as we should because we have the same good things to offer as our neighbors, attracting many projects. For example, Costa Rica, in particular, is the country that generates the most investment in proportion to its GDP. And Guatemala has a very similar offer that we could promote because we have similar conditions to Costa Rica and additional things because we are a larger country, we have a larger market, we have a border with Mexico, and we have more skilled force because we have the largest population in Central America. So, there are many things that we need to do. We started doing a lot more work of having a presence in international events and making more national events to invite investors to know more about our country and the advantages of investment in Guatemala. We’re implementing a more proactive strategy and not a reactive one, where we are not only now helping people who come and are interested, but we’re also reaching out to them and saying hey, learn about Guatemala and all of the advantages. And we have had success stories by doing that, reaching out to whomever we think might benefit from a near-shoring strategy and investment in Guatemala being the destination.

LATAM FDI: Wendy, when we post these podcasts, we often find that listeners receive the information and, after doing so, they have follow-up questions. This information generates questions in the minds of the listeners. What we like to do is provide them with information on how they can contact you to ask you questions and find out more about how to invest in Guatemala. How could somebody get in contact with you to be able to find out more?

Wendy Mena: So yes, well, first of all, we invite the listeners to visit our website. We do have a website; it’s www.investguatemala.org. You are welcome to visit and know more about all of the advantages that Guatemala offers. It contains success stories about companies that have recently been installed in the different sectors that Guatemala is attracting. Listeners can send any questions through our website, but they may also contact us directly. And by that, let me share with you my email, which is wendy.mena@investguatamala.org. Or I’ll be happy to share with you a QR code so that they can access my contact information and my team’s contact information for specific questions about different industries with opportunities to invest in Guatemala.

LATAM FDI: In addition to that, what we do with the podcast when we process them is we put a transcript of our conversation on our website.  Above the text, we will put a link to your LinkedIn page.  Is that OK?

Wendy Mena: Yes, yes, please do so. We’ll be happy to share that. Okay?

LATAM FDI: Wendy, I want to thank you for speaking with us today. And it’s it sounds like you have a lot of exciting things happening in Guatemala, and we wish you a lot of you.

Wendy Mena: Thank you.

Juan Carlos Rodríguez
Commercial and Marketing Director
Aguada Park
jcrodriguez@aguadapark.com

LATAM FDI: Welcome to the LATAM FDI podcast. Today we are very fortunate to have a gentleman from Uruguay with us. His name is Juan Carlos Rodriguez, and Juan Carlos is the commercial and marketing director of the Aguada Park Free Zone in Montevideo. Today we will talk about investing in  Uruguay and its attraction for foreign capital. How are you doing today, Juan Carlos?

Juan Carlos Rodríguez: Good morning. Very good, fine. Thank you very much for inviting me to talk about my country, what we can do, and the investments made in the last few years.

LATAM FDI: Juan Carlos, could you please tell us first about yourself and the organization that you represent?

Juan Carlos Rodriguez: I represent a services free trade zone in Montevideo. Geographically, it is between two giant countries. Uruguay is a very small country of 3.5 million people between Brazil and Argentina. Since the times that it was a Spanish colony, it has been a country for services. Uruguay gained its independence in the 19th century and is focused mostly on providing global services.  We are also a very touristic country.  We are one of the most politically stable countries in all of the Americas. We have a great middle class. All our public schools and university are free of cost. Every child at school has a laptop. This was instituted over 15 years ago, and we are working for the world.

We are recognized for three or four main things. We are a logistic hub for the region. So many multinational companies are working from here, as is the case with places like Hong Kong, Hamburg, Miami, and Long Beach. Montevideo Freeport is a very stable place, and we are developing business from here to the rest of the region. The second thing is we are a free trade zone country. We have a very stable country and a 100-year-old legal frame framework that makes investing in Uruguay secure.

Countries that establish themselves in Uruguayan free zones do not have any kind of taxes from the day they initiate their operations until the future. That means they do not have to pay corporate tax and asset taxes. These incentives give multinational companies the impetus to establish themselves in the region and the state. And the third thing that makes investing in Uruguay a great option is our people. That’s real value. Imagine that all our children are learning English from the very first day of primary school. Additionally, we work during the same hours and occupy the same time zones. We are in the middle, between east and western US states, which gives companies investing in Uruguay a great advantage. The location is the fourth point we can discuss, as we are half an hour from Buenos Aires. We are 2 hours from Sao Paulo. We are 2 hours from Asuncion, Paraguay, and Santa Cruz, Bolivia. Additionally, we are 4 hours from Lima, Peru. So, when we are talking about location, location, and location, that is a huge advantage for companies investing in Uruguay that are seeking to do business throughout South America. Finally, technology is important. We are developing a real technological hub for companies that are investing in Uruguay. Many billionaire companies have invested in Uruguay in the last ten years.

That idea gives you an overview of how our country has developed recently.

LATAM FDI: Most people have a tendency to think of manufacturing when they think of free zones. Your free zone is different. Can you tell our audience what the Aguada Park Free Zone is involved in?

Juan Carlos Rodriguez: We can say two or three things when discussing free trade zones. The first thing is yes, manufacturing was a huge investment in free trade zones in the country. But two or three companies have done this.  That is all. They have come from Europe, from places like Sweden and Spain. Pepsi has a huge factory in a free trade zone. But real development or the increasing free trade zone activity in Uruguay has occurred for the last 40 years. It started with logistics because the taxes were why they came to distribute goods from Europe, the States, and Asia. They were in a hub and investing in Uruguay in the free trade.

So that has increased real value to our population because there are some careers in the university that began providing professional people directly to businesses for this new job. For example, the  German company BASF has 60 locations in different places around the world and decided some years ago to have three locations Kuala Lumpur, Asia, Berlin for Europe, and Montevideo for the Americas. So today, the Uruguayan people are looking for factories and providing services to those in the United States. So, the people of Uruguay have a high level of education. I think that companies investing in Uruguay will find that the country is rich with a good population. For its size of 3.5 million people, Uruguay is tailor-made to provide global services. When we say it, we are a boutique country. We are not a place for car assembly. We are not a huge population consuming million and millions of dollars worth of goods in our supermarkets. Those investing in Uruguay will find that we are global service providers. And in another way, we are a tourism-driven country. We receive more than three or four million visitors per year. This is more than the population of the country. Why? Because we are secure.  During the pandemic and over the last four years of the pandemic, the experience of Uruguay can serve as a case study.

Freedom, responsibility. I don’t know if it is exactly in a way, say in English, but what does it mean when the worst part of the pandemic of COVID came? The president said please stay at home, but you will not be obliged; we ask you. We got the first vaccine in Uruguay before Brazil, before Argentina. Our leadership dealt with the people of Pfizer in a really marvelous way. We had almost no death in Uruguay

This made billionaires and the richest businessman in Brazil and Argentina come to stay in Uruguay. So today, it is incredible that we have more than 60,000 families of the richest families in the region with us.  This is because they are safe to go bicycling. They are safe at the beach. They can be secure and do not have to have bodyguards. We do not have arms. You can see we are first in all the social variable rankings.

Something that we are proud of is that there is no corruption in our politics, and we do our best.  Corrupt individuals go to jail.

Those investing in Uruguay will note that the country has political unity. Perhaps you can see four or five presidents of different parties in the same reception. All join in together. This gives the country a culture of maturity, stability, transparency, and the acceptance of the political ideas of one president by another.  Differences do not matter. They must be unified because they must defend the democracy of our country. So, I imagine these different small things are important when you are in the middle of two giant countries like Argentina, which has almost 50 million people, and Brazil, which has more than 200 million people. Well, there’s business. These two large countries have a significant volume of business. Investing in Uruguay is a marvelous platform to develop from here to the South Cone and Latin America in its totality. Perhaps not for a manufacturing factory, but perhaps for shared service centers and corporate headquarters.

LATAM FDI: When I listen to you, I think of companies that have facilities in places far from the United States. They have them in places like the Philippines and India. And other locations that don’t share the same time zones, that share different cultures. When I look at Uruguay, Uruguay is in the same time zone as the United States. It is a place that, in my estimation, companies that do business in these very faraway locations should look at. Companies may be listening to this podcast and have an interest in Uruguay. After hearing your description of the country and investing in Uruguay, what do they have to know about the free zone program in the country? What are some of the incentives that are part of that program?

Juan Carlos Rodriguez: First of all, that’s very easy to work inside free trade zones in Uruguay. Why? Government has a defined program, and under it, companies receive incentives. What are they? You will not have any kind of taxes to pay. Tata from India has almost 2000 people in Latin America, and they do not pay taxes in Uruguay.  Free zone status guarantees fiscal benefits for the contract period that has been agreed upon. I can say you that investing in Uruguay is very easy on the one hand. Other points are the good quality of people and location. This is in addition to good infrastructure. It is the same kind and quality of infrastructure you are accustomed to in the States, the same kind of quality.

LATAM FDI: Well, you’ve given us a really good overview of what people can expect to find in Uruguay. When people listen to these conversations, I’m sure further questions come to mind. Would people with further questions on Uruguay be able to contact you and communicate with you to learn more about investing in Uruguay?

Juan Carlos Rodriguez: Sure, I will gladly receive questions. Your listeners can contact me by email or by the Aguada Park website. It’s very easy. It’s in Spanish and in English. I can be contacted directly or through my team. Also, we usually travel to the States and visit companies and places because we have some customers there.

LATAM FDI: Well, what we’ll do to make all this information visible to people is in the section with the podcast transcript. We usually include the contact information of the person that is speaking with us. We’ll put your email address and your website, and if it’s okay with you, maybe a link to your LinkedIn page as well.

Juan Carlos Rodriguez: Perfect. My name is Juan Carlos Rodríguez. My email is jcrodriguez@aguadapark.com.

LATAM FDI: Well, thank you for joining us today. This discussion about investing in Uruguay has been very interesting. It is a country that maybe a lot of people don’t know much about, but hopefully you have fed their curiosity, and they’ll have reason to contact you with more questions.

Juan Carlos Rodriguez: Thank you very much. Steve, you’re always helping to develop Latin American countries. Thank you really very much. And for everyone that comes to Uruguay, you will find a very friendly country. It has very good meat, and marvelous weather where you can pass your time and visit different beautiful places. And thank you very much.

LATAM FDI: Thanks, have a great day.

Juan Carlos Rodríguez: Thank you.