Mexico: Computer Services and Competitiveness

1. Mexico: Computer Services and Competitiveness Sept. 2005 Jesús E. De la Rosa IBM Mexico

2. AGENDA • Mexico Economic Model • IBM Example • IT Services Industry in Mexico: Engine for Development • Mexico IT Services Strategy • IT Services Liberalization: Benefits • IT Services Liberalization: Objectives

3. Mexico Economic Model Background • After decades of a closed model based in imports substitution, in the middle of the ‘80s, Mexico started an economic liberalization process based on an open market scheme. • Today Mexico is the country with the largest network of Free Trade Agreements (FTAs) in the world: 42 countries on 3 continents. • Mexico was successful in the ‘90s during the “manufacturing boom”. However, after 2000 the model changed dramatically. • Mexico experienced a decrease in productivity at the end of the ‘90s and saw its competitive position decline in the international context.

4. IBM Example • IBM has operated in Mexico for 78 years, and its history is very related to the development and evolution of the information technology industry. • During the 90´s IBM Mexico was a major manufacturing center • World leadership in PC´s, laptops and hard disks subassemblies: 60 - 65% of world volumes. • IBM evolution: • Over half of revenue from services and nearly three-fourths of revenue from software and services. • Serving global customers from worldwide network of interconnected data centers and software development labs • Cross-border delivery of services is growing • IBM Mexico is transforming its process from a manufacturing scheme to a service-oriented model. • IBM software center in Guadalajara, Mexico, is the only CMM5 center in LA.

5. IT Services Industry in Mexico: Engine for Development • Mexico requires a strategy for development of the IT services industry to support both applications in the local market and export opportunities. • Competitiveness and the IT services industry. • Mexico must enhance its productivity and efficiency and increase economic competitiveness across industries through the intensive use of information technology and IT services tools. • Investment in knowledge (i.e., software development, R&D, and higher education) in countries such as USA, Switzerland and Finland is more than 6% of GDP. For Mexico, it is less than 2% and with a very low growth rate. • Internal market: Opportunity for growth • IT/GDP in Mexico is 1.3% vs. 4.3% in OECD countries • SW/GDP in Mexico is 0.10% vs. 0.61% world average. • Mexico market for software & IT Services is USD 2.6B vs. 7.4B in Brazil and 5.2B in Korea. • Trade: evolve to high-value services markets. • Mexican model is oriented to external markets: 7thworldexporting economy • Evolving model from manufacturing to high value-added services: in OECD economies, services account for almost 70% of GDP.

6. Mexico Strategy for IT Services • Public Policy: IT Services as a strategic sector • Mexican Government defined IT Services and software as a key industry. • PROSOFT: Mexico’s government National Program for the Development of the Software Industry. The objective of the program is to develop a USD 5B software industry in Mexico and became the leader in LA in the IT services industry. • Access to global markets is a key factor of this program. • IT Services Industry focus • Mexico Digital Foundation: a public-private partnership that integrates national resources to improve their practices in commercialization schemes, trade integration, and technological penetration to improve supply chain operations. • The objective is to increase the use of IT in Mexico from 1% to 2% as a percentage of GDP in the current administration. • The capacity to access high-end services with competitive prices is a key factor for the success of the effort.

7. IT Services Liberalization: Benefits • Liberalization of computer and related services (CRS) enables economic development and job growth. • The Doha Round is an economic development opportunity for both developed and developing countries. • Cross-border delivery of services creates opportunities: • Internal market: local companies have access to the best IT services at the most competitive prices • IT services can help make manufacturing operations and the delivery of other services more efficient, productive and competitive • Global market: Service providers from developing countries can serve international markets

8. IT Services Liberalization: Objectives • New developments include the Web, application hosting, remote data centers and backup storage, grid computing and on demand computing • Information technology and IT services will continue to evolve • Commitments for full liberalization in computer and related services • Cover technologically evolving services • Commitments at “2-digit level” (CPC 84) • Mexico endorsed joint statement by Friends of Computer Services in February 2005

9. IT Services Liberalization: Related Objectives • Commitments for full liberalization in Management Consulting (CPC 865) and Services Related to Management Consulting (CPC 866) • IT-related consulting is covered under CPC 84 • IT is critical to the management of modern organizations • It is increasingly difficult to draw a line between IT consulting and management consulting, so fully liberalize both • Liberalize other services that can be delivered electronically • Cross-border delivery of IT-enabled services provides excellent opportunities for many countries • Mexico joined Chile, Hong Kong China and India on cross-border supply paper in June 2005