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Source: Select-IDC: http://www.select-idc.com.mx/
The impact of liberalization was enhanced by NAFTA, which opened many sectors to foreign competition. Mexican banks, insurance companies, retailers, manufacturers and others
were confronted with competition from U.S. and Canadian companies. These companies came to Mexico with their own advanced computer systems, and Mexican companies were forced, in the words of one
analyst, to ``invest in IT or die." Some Mexican companies entered joint ventures with U.S. companies, partly to gain access to the technology capabilities of their U.S. partners.
The most advanced computer users in Mexico are large companies, particularly banks and other financial institutions. Outside the financial sector, leading users are Pemex, the
state-owned oil company, Cemex, a large cement manufacturer, and Telmex, the dominant telecoms provider. Beyond the large corporate sector, diffusion of computing is much lower. Medium-sized
firms have mixed levels of IT use, and millions of small companies are not computerized at all.
The PC market
Diffusion of PCs remains low in Mexico. The installed base of PCs is about 3 million units, or about 3 per hundred people (compared to about 37 per hundred in the U.S.).
Of those, about 600,000 are in homes. Sales of PCs are estimated by Select-IDC at 613,000 units in 1996 and 833,000 in 1997, making Mexico the second largest PC market in Latin America after
Brazil.
The leading PC vendors are Compaq, Acer, IBM and Hewlett-Packard. There is also a large market for so-called ``white boxes," which are no-name clones made by small local
assemblers. These ``white boxes" account for about 25% of the PC market, according to Select-IDC, and sell mostly to smaller companies and home users. Nowadays, new generations of PCs are
available in Mexico at the same time as in the U.S., and at comparable prices.
The dominant supply channel for PCs is through distributors, who sell to retailers and direct to companies. There are no computer superstores, as the Mexican market is not
large enough to support such operations. More successful retailers are those such as Office Max and Price Club that sell PCs as part of a broader product line. There is some movement toward
channel assembly to reduce inventory and offer build-to-order services, but the direct sales model has not caught on yet due to poor infrastructure and inexperienced users. Even Dell sells through
channels instead of directly to end users in Mexico.
Software and services
The packaged software market in Mexico is dominated by U.S. companies such as Microsoft, Novell, Lotus and Oracle. Enterprise software such as SAP and Baan are also growing in
popularity with large companies. The market has rebounded in 1996 and 1997, as Table 1 shows but still accounts for only about 12% of total IT spending, compared to about 20% in the U.S. The
packaged software market is limited by software piracy, which runs at 67% of total software in use according to the Business Software Alliance.
By contrast, the information services market is estimated to be over US$1 billion and is becoming the leading growth segment of the market. In recent years, there has been a
trend toward using systems integrators, as large corporations look to consolidate their IT functions and deal with one service provider. The trend toward emphasizing services accelerated in 1995, as
companies cut back on new IT investment and looked for ways to get more value out of the hardware and software they had already purchased.
In the past year or two, companies have been moving to outsource IT functions. The financial crisis led Mexican companies to reconsider ``who they are and where they want
to be" in the words of one industry executive. Companies want to use their own resources better, and outsourcing allows them to focus more on their core business functions. The leading
services providers are U.S. companies IBM, HP, GTE, and General Electric Information Systems (GEIS), and a local company, Softec. Softec has also developed a growing business in custom programming for
both the Mexican and U.S. market (e.g. Year 2000 jobs).
Internet use
The Internet has been catching on recently after a slow start. Originally, Internet service was offered by educational institutions such as the National Autonomous University
(UNAM), and Monterrey Tech (ITESM), which had links to the U.S. and sold access to both the public and private sectors in Mexico. Now there are many ISPs, ranging from Compuserve to small local
providers, who either connect directly to the U.S., or to the university nodes. Telmex bought out a local network called Red Uno (Network One) to offer its own Internet service, but it has been slow to
take off.
Select-IDC estimates that there are about 400,000 Internet users in Mexico today, and predicts that the number will reach 2,000,000 by the year 2000. Internet use is hampered
by poor quality telephone lines in much of the country, which limit users to connection rates of 14.4 Kbs at best. And while long-distance phone rates have gone down, local service rates have gone up
since the telecommunications market has been partially liberalized. Telmex, which controls virtually all local access recently tripled the cost of a fiber-optic line for use by ISPs, creating another
burden on Internet use. The average cost of an Internet connection in Mexico is about $35 per month, compared to $20 in the U.S. Given the low penetration of PCs, high cost of service, and uneven
income distribution in Mexico, it is likely that the Internet market will remain limited to large companies, universities, and a small segment of the household population.
Computer production
Mexico is a large producer of consumer electronics, particularly in the maquiladora (in-bond) sector along the U.S. border. Companies such as Sony, Sanyo, Mitsubishi, Samsung
and others are producing TVs, VCRs, audio equipment, and other electronics products. Mexico produced over 17 million TV sets in 1997, making it the leading supplier to the North American market.
The computer industry is much more modest, but is growing. Total hardware production was $3.2 billion in 1996, up from $1.6 billion in 1993. The main industry cluster is
in the Guadalajara area, where companies such as IBM and HP make various hardware products, including PCs, printers and disk drive components. In addition, Acer produces monitors in Mexicali and CPUs
in Juarez, Lexmark makes printers in Chihuahua, and a local company, Lanix, makes PCs in Hermosillo.
Before liberalization in 1990, there were a number of Mexican companies making PCs, but most of them have either disappeared or become distributors of Asian-made clones. At
this point it is not likely that Mexico can compete against the experienced Asian producers in most segments of the industry, but there are niche markets in which it could become a significant
producer. Probably Mexico's best bet in the computer industry is in monitors, given the presence of large TV producers such as Samsung and Sony, who are also major producers of monitors. For
other segments of the industry, there is at least the perception that Mexico lacks the scale of production to justify development of a local supplier base (whether domestic or foreign-owned), while the lack
of a supply infrastructure deters some companies from locating production in Mexico.
Government IT Policy
During the 1980s, Mexico had an unofficial policy to promote computer production, but this was abandoned in 1990 when the IT market was liberalized. There was no attempt at
developing a new policy until 1994, when the economic plan drafted by the incoming administration of President Zedillo explicitly called for the development and exploitation of information technology as a
national goal. This goal was given form in the Plan for the Development of Informatics (PDI), which targets: (1) promotion of IT use; (2) human resource development; (3) research and development; (4)
development of a local IT industry to exploit niche opportunities; (5) improvement of the telecommunications infrastructure; and (6) creation of the necessary legal framework to support IT (e.g. intellectual
property rights).
Some of the projects developed so far include a plan to put at least 5 PCs and a LAN in every public school, a national crime fighting database, development of a web site for
government procurement, a national health information system, and a regional information project to help municipal governments offer better public service. In addition, the National Science and
Technology Council (CONACYT) is providing grants for computer science research and training at twelve key universities and institutions around the country.
The PDI is a promising plan that focuses on IT use and developing national capabilities, much as we have recommended for developing countries (see our forthcoming book, Asia's
Computer Challenge: Threat or Opportunity for the U.S.). There are two key problems at this point, however. First, there are no funds set aside to pay for these projects. Instead,
funding must come from the relevant government agencies' budgets. Experience in other countries such as Korea suggests that such plans tend to founder when forced to compete in the regular budget
process, as it is often difficult to measure the benefits directly, and there is no strong constituency for IT in most agencies. Second, there is little coordination among the institutions involved in
the PDI, and no pilot agency to ensure that projects are designed so as to complement each other.
In addition to promoting use, the government is also encouraging development of local production, mostly through creating a domestic supply base to support the multinationals
producing in Mexico. The greatest emphasis is on the consumer electronics industry, but there are similar efforts to attract computer components suppliers. The organizations involved are the
Mexican Investment Board, which sends representatives to the U.S., Asia and elsewhere to attract investment, the foreign investment office of the Ministry of Trade and Industrial Development (SECOFI), and
two development banksBanco de Comercio Exterio (Bancomext) and Nacional Financiero. There is inadequate coordination among the various agencies, but their efforts have been valuable in attracting
increased investment in the computer and electronics industry.
A big disappointment for the Mexican government was the decision of Intel to bypass Mexico and set up a $300 million plant in Costa Rica. While the Mexican Investment Board and
other government agencies worked hard to attract Intel, the government felt that it could not offer the kinds of direct incentives that Costa Rica provided. This was partly due to concerns that the
U.S. government would react negatively to incentives to attract U.S. investment and jobs, and partly because other companies already in Mexico would demand similar treatment.
In spite of the lack of direct incentives, foreign manufacturers are attracted to Mexico by its low-cost labor, proximity to the U.S. market, membership in NAFTA, and the
availability of skilled engineers. The biggest deterrents are the inconsistent quality of the infrastructure, limited supplier base, and the limited, though growing, domestic market.
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