Since the North American Free Trade Agreement made it easier for U.S. companies to do business with Mexico, more and more U.S. firms have begun to scout for opportunities south of the border. Distributors are no exception.

Seasoned companies and those new to the area say opportunities exist across all industries in Mexico — automotive, paper, plastics, electronics, food and petrochemical are just a few. And whether it means following existing customers or trying to drum up new business there, American distributors like Applied Industrial Technologies and MSC Industrial Direct are looking to capitalize on those opportunities.

Despite a slowdown in the fourth quarter, Mexico's economy has been growing. Businessmen like Eric Mazjner of Baldor Electric say that prosperity is likely to continue under Mexico's pro-business President Vincente Fox, who took office last year. Baldor has been exporting its electric motors and drives to Mexico for 18 years and Mazjner is the company's sales manager for Latin America and the Caribbean.

"There are wonderful opportunities there," says Mazjner. "Mexico has one of the largest populations in the world and it's becoming an industrial power."

Todd Barlett, vice president of global business for Applied, agrees that Mexico's political situation is likely to help American companies moving into the region.

"We look for a lot of good things for the country of Mexico from the new president," says Barlett, referring to Fox's pro-business background. "And that will help us as we move into Mexico."

Applied made its move into the Mexican market earlier this year through a joint venture with Mexican power transmission distributor Baleros y Herramientas de Precision (BHP). The two companies formed Applied Mexico, S.A. de C.V. and opened a service center in Mexico City in February. Jose Manuel Bonilla, general director of BHP and Applied Mexico, will lead the new organization.

Applied Mexico supplies bearings, power transmission products, industrial rubber products, fluid power components and specialty maintenance items to a broad range of Mexican customers. Applied owns 65 percent of the business, while BHP owns the remaining 35 percent. Barlett says the company will focus on business in and around Mexico City first, but long-term plans are to move west into Guadalajara and north into Monterrey.

Applied's approach to the Mexican market is similar to its strategy in Canada. Last year, Applied acquired several distribution businesses from Saskatchewan-based Dynavest Corp., forming its Canadian arm, Applied Industrial Technologies Ltd. In both countries, Applied's strategy is to build new business in those markets, relying on the local expertise of its acquired companies.

"I'm a firm believer that we need local people in the marketplace to run the business," says Barlett. "All of our global business [units] report to me, but [we rely on] local management and leadership."

Barlett and others argue that it just "makes sense" to rely on local talent when moving into a new market like Mexico. The language barrier is a prime reason, but so are some of the more subtle differences — for example, in culture and in the way business is transacted. While distribution works much the same in Mexico as it does here, as with any foreign country there are different rules, regulations and customs companies must abide by, especially when shipping products across the border.

In addition to relying on local expertise, Baldor's Majzner points to other sources of help, like the Department of Commerce, the Mexican Consulate and various state agencies. Baldor has three sales offices in Mexico, which generate about 65 percent of the company's Latin American business, says Majzner.

"Use government support, and use trade shows — international trade shows and shows in the U.S. that are attended by people from Latin America," advises Majzner. "The best advice is to do your research."

Barlett says it took Applied about a year to research and establish Applied Mexico. Why go to such lengths? First and foremost, because Applied seeks to become a global distributor — and Canada and Mexico are key starting points in that strategy. But there is a much simpler, more immediate reason, according to Barlett.

"There's just a lot of opportunity. The growth in Mexico is dramatic compared to the U.S.," he says. "There's substantial growth in the industrial base."

Barlett says it was important for Applied to start out in Mexico City, since most of the country's major companies have a presence there. And that is what Applied is looking to do: form relationships with major Mexican customers. While Applied plans to leverage its relationships with U.S. customers who've moved into Mexico, that is not its prime goal.

"It's good to follow customers to another country, but that's not our strategy," says Barlett. "We really want to be a player in the Mexican market. When you follow a customer, you almost become a captive service provider.

"We want to be a player in the marketplace to all customers."

To support those customers, Barlett says Applied will rely on suppliers in Mexico. Most of its major suppliers have a presence in that country, which means Applied will not have to depend on exporting products from its U.S. distribution centers. However, BHP's computer system (which Applied Mexico will use) will be linked to Applied's U.S. system, so that Applied Mexico can draw from that inventory if necessary. Barlett says Applied uses the same strategy in Canada.

Barlett would not say how much business Applied expects to do in Mexico this year, but he would say that this is only the beginning.

"We're really just beginning to see Mexico grow and I think it will become a big force in North America," says Barlett. "At least from an industrial perspective."

Steve Gabrault, market manager for the southwest and central markets of MSC Industrial Direct, agrees that there is considerable growth potential in Mexico. MSC has been doing business in Mexico for five years, though with a different approach than Applied. MSC is penetrating the market through two branches on the Texas/Mexico border as a way to support U.S. customers who've moved into the area. The branches are in El Paso, Texas, which borders the state of Chihuahua, and Harlingen, Texas, which is near the Gulf Coast. Gabrault says the branches' primary focus is on the maquiladora business in cities and towns near the border, though some sales reps travel into Mexico City, Chihuahua and Monterrey to try and move further into the country.

Like Applied, Gabrault says MSC relies on local people to run those branches — most of whom are Hispanic and all of whom speak both Spanish and English.

"It's important for my branch managers to know the customs and the language," says Gabrault.

As an exporter, it's also important for MSC to have the most up-to-date information on shipping products across the border. And that takes the combined efforts of Gabrault and his Texas branch managers, who stay in close contact with U.S. and Mexican agencies.

"It sometimes can be complicated, time-consuming and expensive," explains Gabrault, pointing specifically to ongoing changes as a result of NAFTA.

But like others who've moved into the area, he says it can also be well worth the effort. While Gabrault would not say how much of MSC's business is to Mexican customers, he says MSC's support of those accounts is an important part of its overall business strategy.

"MSC's focus today is to finish our pursuit of national U.S. business," says Gabrault. "For the time being, our Mexico business is to support existing customers moving into that market."

But who knows where it will go from there? While business slowed a bit toward the end of the year, Gabrault says there was steady growth in MSC's Mexican accounts throughout most of 2000.