MEXICO CITY -- When Jim Ostrowski, president and chief executive officer of Sara Lee Knit Products' Latin American Group, is asked how his company is faring in Mexico, he talks about patience.
Sara Lee's brands have successfully invaded other foreign markets and Ostrowski has no doubt his group of products will do the same in Mexico. The U.S. brands that Ostrowski is responsible for include Hanes men's and boys' underwear, activewear and socks; Hanes Her Way women's and girls' underwear, activewear and socks, and Champion activewear.
But Mexico, which is drawing a lot of investment attention since the North American Free Trade Agreement went into effect Jan. 1, is a market that isn't understood overnight, Ostrowski warns.
"I think everyone is finding out very, very quickly the cost of business here is much higher than people imagine it to be. It's equal to or greater than any large city in the U.S," said Ostrowski, ticking off a list of hidden costs.
For example, Mexico's notoriously poor telecommunications system and dearth of trained technical workers to service high tech machines have prevented Ostrowski's office on the outskirts of Mexico City from hooking up by computer to its Hanes de Mexico headquarters downtown.
The unreliable postal service, another Mexican business headache, necessitates that all bill payments be hand-delivered. And if the peso should be devalued -- which still happens, although not as much as in the past -- then companies can take a hit, as Sara Lee did this year when overnight the peso dropped 10 percent in value against the dollar.
"You have to have patience in developing this market. The way they do business is different," he said. "It's an evolving country, which isn't a derogatory statement."
Ostrowski said one retail headache is that, in general, chains don't have central warehouses for bulk deliveries. In addition, individual stores in a company are allowed to negotiate shelf space for products independently. Likewise, a merchandise manager may place an order one month, then cancel the next and start up again at a later date.
"Stores can say, 'I have too much underwear inventory,' and cancel an order, even though they may be sold out of Hanes," Ostrowski said. Sara Lee's products are sold in about 1,000 stores that are part of chains and 1,000 outlets representing a range of businesses.
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