Editor’s Note: The authors of this post lead the Latin American team of Major, Lindsey & Africa, a legal recruiting firm. It is the first in a four-part series on the changing legal landscape in Mexico that Big Law Business will publish in the coming days.
By Jeffrey Liebster and Joshua Dull of Major, Lindsey & Africa
The pressure on U.S. law firm leaders to continue to grow revenue in the face of intense competition from a wide range of sources and clients’ omnipresent desire to reduce legal spend remains high. When the economy was suffering from the effects of the recent financial crisis, many firms adopted a strategic approach that included cutting fixed costs and striving to increase individual partner productivity. The market has emerged from the downturn, but law firms continue to confront the challenges of how to most effectively return to prior rates of growth and profit margins. Strategies being evaluated and implemented include acquisition of lateral partners, professional development programs designed to enhance the capabilities of partners and associates, and expansion into new markets.
Many firms have implemented or considered one or all of the following: acquisition of individuals or groups of lateral partners with significant business; opening offices in new domestic markets where they can better serve client needs or deliver services at lower price points; and international expansion into markets that present unique opportunities not only to grow the suite of services they provide to existing clients but also to compete for and acquire new clients. With good reason, a market that has received considerable attention over the past few years is Mexico.
While Washington has been deadlocked by partisan battles, many in the legal industry have been carefully watching events unfold across the border. With cooperation and support that crosses party lines, President Enrique Peña Nieto’s groundbreaking “Pact for Mexico” is moving forward. There have been well-publicized constitutional reforms in energy (which ended Pemex’s 75-year monopoly), telecommunications, education, labor and tax. This month’s passing of the new anti-corruption legislation is just the latest step in the right direction.
With good reason, the legal market in Mexico has received considerable attention over the past few years.
The enabling legislation and regulations adopted in the energy arena have resulted in a process whereby in December of 2014 the bidding for oil exploration rights in 14 areas of the Gulf of Mexico was opened to international and domestic private companies. There are strict expertise and capital requirements for participation in the bidding process, which will continue until July of this year. The decrease in global oil prices has had limited impact on large oil companies’ interest in offshore projects because they know these endeavors can take years to complete and can provide significant returns for decades. This perspective was recently articulated by the U.S. Congressional Research Service in a January report:
“Hailed by many analysts as the most significant economic reform undertaken by Mexico since its entrance into the North American Free Trade Agreement (NAFTA) in 1994, the energy reforms are expected to boost investment, growth, and eventually oil and gas production in the country. Investors appear to have maintained interest in Mexico’s energy sector despite recent declines in oil prices.”
But the Mexican economy, currently ranked the world’s 11th largest (based on PPP – purchasing power parities) is fueled by more than just its abundant energy resources. According to the World Trade Organization, in 2013, Mexico was the world’s 10th largest importer and the ninth largest exporter of manufactured goods (excluding intra-EU trading). In fact, it is the world’s fourth largest exporter of automobiles, and it manufactures the vast majority of flat screen televisions sold in the U.S. Mexico exports more manufactured products than the rest of Latin America combined. According to the U.S. Census Bureau, in 2014, Mexico was the U.S.’s third largest trading partner, accounting for 13.2% of our total trade, right behind Canada at 16.5% and China at 14.5%. Goldman Sachs has predicted Mexico will have the world’s fifth largest economy (based on GDP) by the year 2050.
Mexico exports more manufactured products than the rest of Latin America combined.
Mexico’s emergence as a global leader in manufacturing is no surprise. It enjoys many advantages including low shipping costs due to its proximity to the U.S. In addition to NAFTA, Mexico gets the benefit of lower duties related to its world-leading number of trade deals, which in 2013 included more than 40 countries. Finally, wages in Mexico have remained stable, while those in China have increased significantly. According to CNN, in 2010, the average Mexican worker earned five times that of his or her equivalent in China. In 2013, it plunged to only 1 1/3 times as much as his or her Chinese counterpart.
Utilizing its abundant resources and navigating a once fragmented political environment, President Peña Nieto is leading the charge to make Mexico a major global player. While much of the world focuses on headline-grabbing news of drug wars and emigration issues, they are missing the opportunities that numerous clients and law firms are seizing now.