Virtual bazaar: the Mexican government buys anything from cradles to coffins, and it pays on time.

Contrary to what you might think, it's easy for a company to sell its wares to the Mexican government. In fact, it's open, transparent and quick. And don't think the government won't be interested in what you've got to sell. It buys products from vendors as varied as automobile manufacturers to beekeepers. Since 1996, the government's online platform, Compranet, has streamlined auctions for products and services. During the first nine months of last year, Compranet handled US$14.40 billion in tenders. And the government has even more money to spend. The 2004 budget came to $156 billion, 21.7% of gross domestic product. Spending in 2006 will rocket to $175.60 billion, which should mean more business coming off the wire via Compranet.

"The government is undeniably Mexico's best customer because of its unique advantages: It buys in volumes like no one else, and it buys anything and everything," says Roberto Carmona, general director of Punto & Aparte, a consultancy for companies interested in doing business with the government. "It buys things as mundane as office supplies or computer equipment, including products for hotel administration or for embalming cadavers."

While broad in its reach of the things it buys, the government also pays on time, thanks to the Internet. Before opening up the bidding process, future payment liabilities are covered by funds available in the budget. "Once the supplier delivers the goods, he's given a timeframe when he will be paid, which normally takes place on time. If that doesn't happen, the company has the right to demand payments to cover spending costs and back pay," says Carmona.

A company's size is not an obstacle to doing business with the Mexican government, be it at the national, state or municipal level. "Many people believe they don't have the installed capacity to be a supplier to the government just because the customer is so huge, or they believe it will take a long time to get paid, but all that's really just not true," Carmona says. "The National Institute for Adult Education, for example, pays in eight days, while other institutions take 45 days to pay."

Auctions come in all shapes and sizes. Any contract less than $25,000 can be done directly with the government, bypassing bidding. Deals between $25,000 and $166,000 are bid out in auctions nor-really in blocks of three participants. Deals exceeding $166,000 are completely opened up to public auction.

Compranet has made public tenders not only more efficient but also more transparent. Information concerning government entities, their other suppliers, competing bidders in a given auction and past purchases of public institutions are available on the site. The availability of that and other information aims to stamp out corruption in any public auctions, such as selling otherwise public information--including once-hard-to-obtain results from previous tenders--to potential bidders. With the Internet, everything is online for the world to see.

As Compranet has increased the number of bids made online during the past five years, more foreign companies have been able to sell their products to the government. Additional sellers have increased competition and forced many companies to become more cost-effective and generally more efficient. "Getting ready for a small auction normally costs around $600, but if done electronically, the cost falls due to the reduced need for paperwork and man-hours" says Carmona. 'And because you don't have to get up from your desk, you can participate in more auctions at the same time."

In many cases, selling companies never come into contact with the individual in charge of buying their products. Yet Compranet is still not as used as hoped. "Many companies still don't know about the portal or they don't feel that it's secure enough to use" Carmona says.

In government auctions, some sectors have historically taken in more business than others, particularly security services and paper products. According to Punto & Aparte, the Mexican government spends $100 million on paper alone every year, and that's not including miscellaneous products such as notebooks or notepads it gobbles up. New-economy goods are popular as well. Lately, public-sector demand for information-technology products and services has been on the rise, although competition is stiff. Even niche businesses are thriving.

Security company Seguridad Anahuac has been selling its services to the government since 1995, and business has been on the rise since then. "Providing private-security services and bodyguards to the government really has been a good business, which is why the number of companies in this sector has grown:' says Jesus Vera, Seguridad Anahuac's manager. Today, Seguridad Anahuac says it wins an average of 10 bids a year. Forty-five percent of its total business is with public-sector clients.

The array of products and services that government buys is endless. Pretty much any business--regardless of size--qualifies to participate in a public auction. Fabrique Gallegos runs information technology for the government's Chief of Staff, a public ministry. According to Gallegos, the Mexican Social Security Institute was the most active buyer on Compranet, accounting for 32.2% of total purchases during the first nine months of 2005. The Secretary of Communications and Transportation bought 9% while the public-sector workers' social security institution snapped up 6.3%.

Avaya Mexico, a supplier of information-technology products and services, including online telephony, has participated in government auctions since 2000. Compranet has enabled the company to penetrate more deeply into the Mexican market, says Abel Diego, an information technology executive at Avaya Mexico. "For Avaya, one of our key markets has been the government, which represents 30% of our sales. In 2000, that figure was less than 10%," Diego says. "In fact, it has helped us reach our market-share goal for Mexico, which is 45%."

Avaya provides national and state governments with systems for call centers and emergency hotlines. Currently, 90% of the emergency-hotline market operates on Avaya platforms. "One of the definite advantages of working with the government is the penetration of the Mexican communications market," Diego says. "Today, it's one of the main participants that is upgrading its technology in a timely fashion. The public sector has become very innovative, which has been very good for us. The fact that you can participate in electronic auctions is clear proof of how the technology makes bidding more intelligent."

InFocus, a maker of audiovisual equipment, has also made money through government contracts. "Over the last few years, we have seen an increase in public-sector demand, now that projectors are in demand, be they for a meeting room or a classroom," says Sofia Difalco, head of sales for Mexican operations at InFocus.

In 2004, Infocus won three auctions to supply projectors for the government's Enciclomedia program, which invests in technology for the country's schools. Those bids together would become Infocus' biggest project in Mexico. "It's a plan that gives children access to technology, one that provides content interactively, and the children don't forget it," Difalco says. "It's different than what teachers with a chalkboard could do." In the last three years, the government's purchases from Infocus have grown incrementally. Today, just shy of a third of the company's sales go to the government.

Private schools have also jumped aboard this interactive bandwagon, Difalco says. "As far as education goes, auctions have historically been small, nowhere near today's volume," Difalco says. "With Enciclomedia, which is just over a year old, private schools are wanting to equip their classrooms with this technology."

Interactive. Other companies are seeing business opportunities with interactive learning. Smart Technologies, a provider of interactive teaching whiteboards and other multimedia equipment, has boosted sales in Mexico thanks to public-sector demand. "Our Mexican distributor, VideoNet, has been very involved in many government-sponsored projects for many years," says Nancy Knowlton, president of Smart Technologies. "Education is the largest customer group that we have." According to Knowlton, 80% of the company's clients are educational and government institutions, which includes the military, Knowlton says, without providing details.

Over recent years, the Mexican government has been tipping up public spending in education bit by bit. In 2002, it budgeted $12.14 billion, while in 2004, that figure hit $12.47 billion. Most of that increase has paid salaries, pensions and personnel expenses.

"The problems with the budget in areas like education and health is that the majority of spending pays personnel salaries and a small part goes to programs like Enciclomedia," says Miguel Szekely, a planning undersecretary at the Secretariat of Social Development (Sedesol). Mexico's teachers' union is the biggest in Latin America, and it soaks up more and more of the national budget every year, says Szekely.

In a 2004 report on public spending, The World Bank recommended that the Mexican government manage its spending more efficiently. "In comparison with 10 years earlier, the country is spending more in social sectors due to the stable economy and to public support, although the country is failing to improve budgetary management and how it handles subsidies," says Steve Webb, the World Bank's chief economist for Mexico and Colombia.

The World Bank hopes Mexico improves its efficiency by making better use of the revenue it takes in and by cleaning up its accounts. One of the multilateral lending institution's suggestions involves tax reform, which was also a project heralded by President Vicente Fox. However, Fox's reforms failed to push through Congress due to weak representation of his Partido Accion Nacional political party in the legislative branch of government. "Tax collection in Mexico is low compared to other countries in Latin America such as Colombia and Brazil," Webb says.

According to Sedesol data, the Fox administration has redirected public spending to improve social programs, which differentiates it from previous administrations that spent government resources paying down debts or bailing out banks in rough years, such as 1997. However, the country has a long way to go to improve its fiscal position. "The most important thing is to understand that in social sectors and in infrastructure there have been important advances in the last 10 years, even though there are important challenges in the future," Webb says.

The Breakdown

Mexico's biggest-spending agencies.

Social Security Institute         32.2%
Pemex                             10.2%
Secretary of Communication
  and Transportation               9.0%
Public-sector social security      6.3%
Comision Federal de Electricidad   4.4%
Other                             37.9%

Note: table made from pie chart.

SOURCE: Compranet