Mexico

Contents

1. Introduction

Mexico is an option worth considering as a target market for launching LEDs. The user potential there is high. One million people in Mexico do not have access to electricity from the electrical grid, and 80% of these people live in the rural areas (World Bank, 2000). The market extends beyond these people to those who have electricity but currently pay too much for it or do not have reliable or efficient lighting. The population in Mexico is the second largest in Latin America. The people there are extremely receptive to technology and would therefore welcome lighting into their homes. Because of high levels of poverty and job scarcity in the rural areas, huge numbers of Mexicans are flocking to the cities in search of a job and a better life (BBC, 2003). The cities cannot support this growth much longer, meaning that rural living must be improved to retain people and make the quality of life in rural areas an attractive option. Further, because of Mexico's sizeable industrial sector and labor force, manufacturing and assembly can be done in Mexico, and distribution should be relatively easy.

2. General Country Information

2.1 Physical Environment

• High, rugged mountains, low coastal plains, high plateaus, and desert. Local distribution schemes will have to take the difficulty in accessing certain areas into account.
• Climate varies from tropical to desert. Power, if reliant on climate, (i.e. solar or wind) will depend heavily upon the specific area chosen.
• Many natural hazards exist, including tsunamis (along the Pacific coast), volcanoes and earthquakes (in the central and southern regions), and hurricanes (Pacific, Gulf of Mexico, and Caribbean coasts).
• Natural fresh water resources are scarce and polluted in the north.
• There is deforestation, widespread erosion, desertification, deteriorating agricultural lands, and serious air and water pollution in the national capital and urban centers along US-Mexico border.
• Note: the government considers the lack of clean water and deforestation national security issues. It is very concerned about the environment and therefore renewable energy sources will be easily embraced (CIA World Factbook, 2002).

2.2 Population and Population Distribution

• Rural vs. urban population density
  • There is Significant rural to urban migration.
  • The majority of the population lives in the urban areas.

(INEGI, 2003)

• Population growth
  • The population growth rate is 1.47%. (CIA World Factbook, 2002)
  • The population growth rate and the rate at which rural dwellers are moving to the urban areas are both so high that they cause considerable concern about the sustainability of the product in the rural areas.

2.3 Infrastructure

Transportation

• There is an extensive railway network and a fairly developed highway system.
• There are several accessible ports and harbors, navigable rivers and coastal canals. Internal distribution by waterways may be very feasible.
• Close proximity to the US means fairly easy contact for support and maintenance.

(CIA World Factbook, 2002)

Manufacturing

• Guadalajara, Mexico's second largest city, is the center of the electronics industry and has a high level of foreign investment in the technology sector.
• The average wage in the electronics industry is $1.20 per hour, more than in most Mexican industries. The industry is composed of two main segments:
  1. domestic manufacturers that supply the national component market, and
  2. maquiladoras (multinational firms which include associated or subsidiary firms engaged in the manufacturing and assembly of electronic products for export).
• Most goods produced in Mexico are sold abroad, mainly to the US, so Mexico is an export-oriented country.
• Over the past 20 years, Mexico has experienced a significant shift from farming to manufacturing--so much so that most of the population now lives in the cities (only 25% of the population now lives in rural areas). This is partly due to NAFTA and the auto industry. Mexico is now a large manufacturer of goods for both local and international use. They have a large, skilled workforce and significant land space that can be put to industrial use.

(TeamNAFTA.com, 2003)

Technical Capabilities

• Sanyo Electronics will manufacture photovoltaic cells in Monterrey, Mexico, beginning in the summer of 2003 (Sanyo, 2003).
• Cheap solar cells could be built in Mexico and shipped directly to an assembly point.
• Due to an extremely large workforce, skilled labor is easy to get. There is also currently significant underemployment.
• LED driver units produced by Xitanium in Mexico.

Distribution

"Developing relationships with smaller electronics manufacturers could be a good place to start, since many are looking for reliable ways to source the components necessary for production. U.S. component suppliers may want to use a local representative so as to stay in touch with the smaller scale producers of electronic products" (Vega, Industry Sector Analysis, 1999).

• Most Mexican distributors of electronic components and supplies are located in Guadalajara and Mexico City.
• The import climate is favorable, without prohibitive tariffs.
• 15 % Value Added Tax (IVA) assessed, recovered at point of sale (NAFTA).
• NAFTA makes trade relatively easy (Public Citizen, 2003).
• Mexico's constitution and Foreign Investment Law of 1992 reserve electric power transmission for the state. (2002 National Trade Estimate Report.)

2.4 Electricity

• The country is a large producer of oil. It exports the oil and electricity that are not consumed. They are also currently experimenting with various solar and wind systems in the rural areas.
• Solar power is successful in tropical locations. The government is currently experimenting with wind energy.
• Access to electricity is limited in the rural areas and sporadic in the urban areas and overall very unreliable. (CIA World Factbook, 2002)

2.5 National Government

Mexico has a democratic government. Divisions include state governors and town presidents (mayors).

There is a risky political environment. The current president, Vicente Fox, elected in 2000, was the first president not from the PRI (Partido Revolucinario Institucional), which ruled in Mexico for the previous 68 years. The people did not trust the previous party (PRI), but there is renewed hope with the election of this new president. He has only been in power for three years so although there is still doubt as to what he will accomplish, there is anticipation that he will improve the situation in Mexico. The new government considers it a high priority to provide electricity to all its citizens. However, they try to avoid using international sources to achieve this purpose, and they tend to focus more on the cities rather than the rural areas. (CIA World Factbook, 2002.)

• The degree of corruption in the national government is high, reflected in popular distrust.
• We would not want to work with the national government, as we probably could not get the trust of the people that way. If we do partner with them, not only would the partnership have to be handled with finesse, but also everything would have to be run locally.
• Working with local governments is a possibility, if the degree of corruption is deemed to be low.
• Mexico receives $1.166 billion (1995) annually in international aid.

Current Projects

The government is currently involved in many renewable energy projects. There are also many environmental initiatives now underway especially to clean up the currently polluted water. Federal rural electrification programs have been practically eliminated, with ill-funded local governments (municipos) taking charge of such programs. NGOs are very scarce; those that do exist do not necessarily do well.

• CFE, the government's principal supplier of electricity, provides electrical power to nearly 80 million Mexicans (CFE).
• The World Bank has recently proposed a pilot project for improving access to electricity in off-grid rural areas and, in the process, improving the quality of life of people in these remote rural areas. The project will target approximately 5,000 households and 100-150 public service centers. The households will be provided with 50W solar home systems for lighting and the community service centers will be provided with photovoltaic, wind, or diesel systems (World Bank, Mexico: Pilot Project).
• The ILUMEX project, also financed by the World Bank, entailed the promotional sale of approximately 2.6 million high-efficiency fluorescent light bulbs to residential users in Guadalajara (Jalisco State) and Monterrey (Nuevo Leon) at prices 60% below cost. It succeeded in reducing both greenhouse gas emissions and local environmental contamination. However, it failed to deliver lessons about the long-term financial sustainability of high-efficiency lighting projecte (Precis).

3. Local User Demographics

3.1 User Information

Background

• Many rural inhabitants are migrating to the cities.
• Basic necessities are defined as flour, bread, corn, and tortillas. They are readily available and used frequently.
• Shelter is comparatively cheaper than the United States especially in the rural areas -- a 3 bedroom house in the rural areas would be rented for between $20 and $50 US per month.
• In rural areas, biomass accounts for the majority of energy supplies. 69% of energy comes from firewood (which is collected free of cost) whereas only 10% comes from kerosene. Therefore, a very small percentage of income is spent on attaining electricity and kerosene because biomass is readily available.

Family

• The mother tends to make all the family decisions, but the father tends to work and bring in the income.
• Men tend to have all the liberty and none of the responsibility whereas women have all the responsibility but no liberty.
• There is a high respect of adults by the younger people.
• Immediate family is normally 5 (parents and approx 3 kids). Often a large extended family lives in one house. In rural areas, families are often larger, with as many as 8 or 9 children in addition to the parents and other extended family member.
• Most family decisions are made by the women in the family.

Education

• 90% of the population is literate.
• Elementary and middle schools are available in most areas. Colleges are in the cities.
• Schools are run by the government. There are a large number of privately run schools, especially in the cities.
• Approximately 40% of the population speaks both Spanish and English.

Religion

• The use of light to decorate Christmas trees (a Christian practice) is very important and tends to separate the "haves"; from the "have nots".
• There is no religious animosity towards new technology or outsiders who are not of the religion.
• Breakdown of religions in region: 89% Roman Catholic; Protestant 6%; Other 5%.
• Religion plays an important role in the lives of the people, although there is a separation between church and state.
• Religions provide very few community services

3.2 Local Infrastructure

Local Distribution

Local distribution in Mexico differs between urban and rural areas.

• In the urban areas, there are sizeable malls and shopping centers where residents obtain their goods. The bigger cities have several American outlets, Costco. and Walmart to name two. The malls are typically for clothes and restaurants. Lighting supplies such as candles and flashlights can be purchased in smaller hardware stores or supermarkets such as Cómercial Mexicana.
• In the rural areas, almost anything can be bought at the "tiangis". These are traveling markets comprised of vendors with individual stalls that go from village to village selling their wares. The items available include food, clothes, makeup, jewelry, toys, CDs, bags and natural medicines There are also small convenience stores located within each village where candles, and most other household necessities are purchased.

3.3 Financing

• Social finance based on Patrimonio Hoy model, with reputation acting as collateral, has been very successful in Mexico. Compartamos, helped by Accion, is another example of a successful MFI (microfinance institution). They lend to women backed by groups of 19 other women who are liable for each other's payments. They have found that poor rural women are stellar repayers. They guard the money from their husbands, who often spend it at local bars. Local loan officers research people applying for loans and are rewarded for better performance.
• International donors play a very small role in microfinance.
• The Mexican government most important and influential organization in microfinance. Many government programs provide technical assistance along with funding.
• 20% of Mexico's working age population are employed in a microenterprise, which is defined as a business with fewer than six workers or sixteen in manufacturing. Seed capital is available.
  • With such a large portion of the population employed in a microenterprise, entrepreneurship has become an accepted and encouraged practice in Mexico.
  • Most people employed in such enterprises are men, with an average age in the 40s.
  • Women generally require more initial capital investment from outside sources to start a business.
  • Micro-enterprise development can harness the local work force. Skilled individuals can monitor established distribution schemes locally.
• Access to electricity is one of a citizen's rights, according to the government. As a result, large amounts of government subsidies are available, although money from the government may involve more risk than benefit considering the high degree of corruption and volatility usually associated with government programs (World Energy, Mexico Case Study).
• A massive rural electrification project is already underway in Mexico (World Energy, Mexico Case Study). Photovoltaic kits are made available for rural users ' home use to power lights, TV, radio. Photovoltaic systems for community buildings are also available. Distribution is done both by the government and by private institutions. "To date, 15 000 - 20 000 solar power systems have been sold for household use with no government intervention." Limitations of the technology have cause problems: "Exaggerated claims of the solar power systems' quality by the institutions involved has later resulted in frustration for users." The lesson to be learned from this study is that any system sold in Mexico must perform as promised, so that it should not be designed to perform beyond its abilities. Fundamental problems with the technology used in this study were compounded by improper installation of the equipment, which weakened the performance of the systems, suggesting maintenance and quality control are of the utmost importance for a successful electrification program.

Bansefi's People's Network and Remittances

• People's Network is a banking and remittance transfer system from Mexico's National Savings and Financial Services Bank (Bansefi, which is a government institution.
• The goal of People's Network is to make it easier for Mexicans in the U.S. to send money to their families in rural Mexico. The system aims to enable Mexicans living in rural locations to receive cash remittances from U.S. relatives, access government aid and support programs and obtain low-cost home loans and health insurance.
• In the short-run, the network will have about 1,000 distribution points, with plans to increase to 3,000. Recipients of remittances will also be able to open savings accounts at the participating banks, and thus gain access to loans so that they can choose to invest. Recipients of the remittances won't have to pay for any of the services. The senders will have to cover the charges of $1-3 per transfer.
• About 90% of the money that Mexicans residing in the United States send home is used to make everyday purchases. (Mexico-US/Transfers, 2003).

3.4 Social Structure

• For entertainment the main area of spending is on alcohol and cigars. Family functions such as weddings, funerals and quincinieras also absorb a significant amount of income. People spend a lot of their limited disposable income on junk food like Coca-Cola and sabritas (potato chips).
• Users acquire these goods from street-side vendors and nearby stores. In the urban areas the people go to markets or stores to acquire their goods. In the rural areas the people go to small stores located in the village to acquire batteries or candles or most other household products. People get their food at traveling markets, which are comprised of vendors with portable food stalls who come to the villages once a week to sell their goods.
• The main occupations are as follows: agriculture 20%, industry 24%, services 56% (1998).
• Mexican culture is in general very family oriented, with large extended families. Women play key roles in their respective households and in the community.

3.5 Use of Light

• Very few (approx. 2 hours) of light will be used in a 24-hour span. The light is mainly used to prepare dinner, watch television in the evening before bed, and to participate in the adult literacy program INIA.
• Many people in Mexico must get to work by dawn and therefore wake up well before the sun has risen. Light could be used in the morning so people can make breakfast and do other daily tasks.
• One light system should be in each room in the house, depending on the size of the house. Also, a light on the patio would be beneficial in promoting social interaction.
• Current lighting systems or technology include solar power generators, which Worldenergy.org reports as reasonably successful, the electric grid in developed regions, and wind and geothermal energy, which are currently being tested.
• Current lighting systems in rural areas and in the outskirts of large cities use incandescent (60 Watt) bulbs and give an unsteady, uneven, and unreliable yellowish light.
• 21% (approx. 5 million people) of Mexicans do not have electricity. Most of these people are rural dwellers. In the rural areas, most people go to bed early and wake up early, the children that go to school do their homework in daylight hours so there is a limited need for light at present in the rural areas. Although they tend to have light and electricity in the urban areas there are frequent blackouts. They have a pattern of talking and mingling in the streets late at night, therefore street lighting is needed for this purpose. In both rural and urban areas street dances are a common practice and it would be beneficial if these community events could be lit.
• Homes in Mexico (especially the older homes) have wiring on the outside of the houses that runs along the walls and roofs instead of running through the walls, posing safety risks, especially for children.

Receptiveness

• Mexicans are very receptive to technology. Things like cyber cafes for Internet use are now hugely popular. They are very influenced by American culture and desire most things American.
• Outsiders, MNC's, and NGO's have been well received.
• Mexicans are very open to outside influences, especially American influences.

3.6 Business Environment

Potential Customers to Target for Marketing

• Much of Mexican culture revolves around the community. As a result, social gatherings are extremely popular. Mexicans will welcome any opportunity to socialize more. One possible marketing strategy would be to emphasize the social opportunities that come with lighting. Parties can go longer into the night, especially in the rural areas, and people can talk late into the night instead of having to go to bed.
• If only light is marketed and sold, it would be less likely to fail than the more complete decentralized electrical systems currently offered by the government. This would reduce frustration caused by exaggerated claims of the system's potential.

Current Method of Information Dispersal

• Trade shows are a popular method to inform middle to upper-class citizens of new technologies.
• Local stores sell to people of all income levels and would be an way to market the LED light.

Partners

Since approximately 93% of Mexico's electricity sector is state-owned, domestic and foreign private investment has been limited. The two principal electricity distribution companies are Comision Federal de Electricidad and Luz y Fuerza del Centro (LFC). CFE has a legal monopoly for all transmission activities regarding electricity and supplies approx. 90% of the electricity consumed in Mexico. LFC is a smaller-scale company which serves Mexico City and the surrounding area. The Private Sector generation of electricity in Mexico amounts to only 3.3% Consequently, very limited possibilities exist regarding partnerships since the majority of the people distrust any government-related organization.

There are a few potential partnerships with companies which are listed below:

• Heliocol: designs, sells, installs, and distributes solar energy systems
• Imprema: engineering company that develops energy efficient lighting using renewable energy applications
• Phoebus Tech. Engineering, Inc: manufactures and sells solar systems for pools but can also design special solutions.
• EnergyCo: is the cogeneration outsourcing system for the Mexican Industry
• EcoVétrice Energías Alternativas: manufactures and sells LED lighting.
  

4. Composite Users

4.1 The Urban User

Name: Karina Leon
Location: Guadalahara, Jalisco
Age: 19 years
Occupation: housemaid
Income: 1 USD an hour

Karina has a steady job with a wealthy family in the city. This is fortunate because she has only completed her premaria or elementary level of education, and they normally would require more educated individuals. After working all day, Karina returns to her home in Cerro del Cuatro that is made from corrugated sheet metal. At that time, she begins to prepare dinner for her husband and her 1-year-old daughter.

Electricity bill 100 pesos per month, with electricity mostly used for light since Karina does not have any major appliances like a refrigerator. Her home, like many homes in her neighborhood, does not have many windows. As a result, it is very dark in the small room in which her mother works. Her mother prefers to work in the dark to paying the high electric bills.

Insights

• An efficient LED light could be a great boon to the urban user who does have access to electricity. Instead of paying an exorbitantly high electric bill, they could purchase the LED light and consume much less electricity. Marketing, however, could not rely on this principle alone...
• The social aspects of the light and its potential to improve the reputation of its owner would be the primary selling points for the light.
• Many people in the urban areas already have access to electricity, so charging will not be a priority in many cases since they can plug directly into the electric grid.
• The urban users have already been exposed to the benefits of lighting and electricity, but there routines are oftentimes interrupted by blackouts. Therefore for the urban user, reliability is key.
• Currently, schoolchildren do their homework in the daylight hours, but with reliable lighting extending into the night this pattern might change.
• For the urban user, street lighting, patio lighting or any form of lighting that will encourage conversation on the streets with neighbors; or in the home with family, is desirable.
• For the urban user, reputation and status in society is extremely important. This comes by being active in the community or through increasing property or appearance. We have LED light models that cater to these desires.
• Also, through lighting at night, children would have a means of improving their academic standing by extending the hours of studying available to them.

4.2 The Rural User

Name: Teresa Arellano
Location: Michocan, Coeneo
Age: 30 years
Occupation: unemployed
Income: receiving a monthly check from family in the United States in the amount of $100 US

Teresa lives in a small 2 bedroom house with her 4 children. Her husband works in the fields in the US and sends her money every month. That check is the only source of income she has. She cannot get a job herself because she is illiterate and she has no one to look after her children during the day. Her 13 year old son (the oldest child) works in his uncle's field for food and has odd jobs to earn spending money.

Insights

• The lighting needs of the rural user are simple: lighting that is cheap and safe.
• It is not typical to use light for more than 3 hours per night and the days (which are comprised mostly of working in the fields) do not require light or very much electricity.
• Because of their high social capacity, lighting community centers or providing street lighting or outside lighting would be the ideal.
• Because the light would be used for the purposes of cooking and watching television, it is important that the light be cool, as that would add to the heat of the kitchen and cooking fires; and not bright, as that would be blinding when focused on television etc.

4.3 Our Primary Target User

Name: Jesus Rocha
Location: Naica, Chihuahua
Age: 35 years
Occupation: Silversmith
Income: Varies with clients and season. It is approximately $80 per month.

Jesus lives in a tiny house with his wife and four children, his two daughters are pictured here. Neither Jesus nor his wife can read, and they are determined not to let that happen to their children. All the children except the baby attend a small local school two miles from their home. Señora Rocha stays at home with the baby, cooks, sews, and takes care of her crops in the small plot of land just outside her house.

Insights

• These target users exhibit the greatest need for light.
• Although their income is limited they show willingness to pay if a reasonable payment plan is developed for them.
• They are generally reliable and responsible, and so default on loan payments is not a big concern.
• The biggest concern is developing a distribution scheme that is able to reach all these villages, when they are so fragmented geographically, even within the northern region.
• The target users are community-oriented, and so would feel relatively comfortable purchasing new items from a community member.
• The light should be portable to tend to the target users' various needs.

5. Business Context

5.1 Business Overview

Role of LUTW

• Quality control
• Ship supplies to assembly point in Mexico
• Oversee interaction between Mexican headquarters and other NGO partners
• Obtain financing for initial startup costs

Mexican Headquarters

• A partner of LUTW on the ground
• Occupies offices of primary partner at the assembly factory
• Recruits and trains distributors of light
• Has a collection, repair, and redistribution center for broken lights

Assembly

• Urban center, most likely in Monterrey
• Parts purchased from component manufacturers and assembled by small team

5.2 Assumptions

• No reliable electricity is in rural homes.
• Main source of lighting is kerosene.
• Design is portable to allow multiple uses with battery integrated into light.
• Lights will be purchased by individuals.
• Aware/acceptance of the product will spread by word of mouth.
• The small stores will be accessible to rural villagers.
• The owner of these stores will be willing to cooperate with our project.
• The cost to produce each unit of light: $8
• Purchase price of light (without battery): $6
• Cost of solar panel charging unit (for charging multiple batteries): $20
• Price for charging light: $.10 (weekly)
• Cost of distributing single light to remote village (particularly for Avon Lady Model): $1
• Startup expenses for persons selling the light and recharging the batteries: $30
• There will be little government intervention or partnership.
• Only light, not electricity for other devices, will be provided.
• Cheap, willing, and skilled labor market
• Social interaction is highly valued in our target societies.
• Women are more trustworthy in repaying debts.
• Partners will provide training for maintenance of light.

5.3 Possible Locations

(INEGI, 2003)

• Sonora, Chihuaha, Durango, and Coahulla de Zaragoza states of Mexico
• Chihuaha
  • Cities of Aquiles Serdan, Naica
• Durango
  • City of Canutillo
• Outskirts of Mexico City and other large cities

5.4 Reasoning for Regions

• Studies have shown that the principal off-grid markets include the cities Veracruz, Chiapas, Guerrero, San Luis Potosi, Oaxaca, Queretara, Sonora, Jalisco, Michoacan, Chihuahua, Tamaulipas, and Campeche (World Bank, Mexico: Pilot Project).
• Sonora, Chihuahua, and Tamaulipas are cities in regions we have selected.
• The regions selected from this list are remote rural regions and have not yet been electrified by the Mexican government, nor are they likely to receive electricity in the near future.
• Residents of the regions are poor enough to need our light because they lack traditional electric lights but have enough money to afford our light.
• Northern areas receive 290 days of sunlight each year, making solar power a viable option.
• High demand for PV powered light: 90% of households in rural Chihuahua indicated that the primary use for a PV system in their home would be for light ("Willingness to Pay," 1998).

6. Business Models

Costs

• LED: $4
• Casing: $1
• Battery or ultracapacitor: $2
• Battery lasts six months to one year, ultracapacitor lasts longer
• Distribution costs: $1
• Yearly Maintenance Costs: $3, including charging fees
• Total Initial Cost for light: $8

6.1 Small Store Model

• Local stores stock LED lights and batteries received from LUTW Mexican headquarters.
• Stores purchase solar panels and recharging unit, possibly using microcredit, from LUTW Mexican headquarters.
• Consumers purchase LED lights from store on a microfinance plan handled by the store owner according to a standardized payment plan created by LUTW Mexican headquarters, thereby ensuring equitable distribution of the LED light.
• Consumers with LED lights pay small fee to charge batteries at local store.
• Maximum price for charging cycle fixed by LUTW to ensure monopoly pricing does not become exorbitant.
• Battery recharging by the store owner would help ensure payment of initial fixed cost of LED light. Without charged batteries, the light would be useless, so people would be more likely to complete their payments.
• Store should display operating lights for marketing purposes.
• Stores would be part of a certification program, in which each store would receive a LUTW certification, providing credibility.
• Strengths:
  • Since the locals already shop at the small stores, they are likely to be comfortable buying a light from the small store owners.
  • Selling the lights would be a part of the normal operation of the store, so the store owner would not have to change jobs for our purposes.

• Problem areas:
  • Transportation cost of lighting units from the LUTW headquarters may not be cost efficient if the store owner purchases a small volume.
  • The store owner will have monopoly power over the lighting units in his local area. He may choose to sell the lights based on his own preferences.
  • A mechanism is needed to ensure that the store owner is handling the consumer microfinance plan according to LUTW rules.
  • Consumers' default on payment for the lights may, in turn, cause the store owner to default on his microloan payment.
  • Costs of training the store owner to maintain the lights and recharging unit need to be accounted for.

Revenue

• $1.60 profit per light sold
• Suppose the store sells 50 lights in the first two months. The store also receives money for charging each battery. Assume the store sells all 50 lights in the last day of the second month (worst case scenario):
• Revenue from lights: $80
• Cost for charging unit: $20
• Income in first two months: $60
• After this point, the market for the village is likely saturated. Thus the store will only make money from charging batteries.
• 50 charges per week, $.10 (1 peso) per charge, Income per month = $20

6.2 Salesperson Model

• A local entrepreneur, likely a woman, acts as a salesperson of the LED light and battery, selling units door-to-door.
• She obtains light from LUTW for display, with brochures and pamphlets for advertising, along with a LUTW business card certifying her as a salesperson.
• Takes orders for lights, sends orders to LUTW Mexican headquarters, and facilitates delivery of product.
• Entrepreneur has solar panel recharging station at her home and charges fee for recharging batteries.
• Entrepreneur also handles microfinance, assessing risk and determining whether a potential customer is trustworthy. She then decides on a suitable payment plan for the customer.
• Job starts as a full time job. After market saturation, it becomes a part time job (see below).
• Strengths:
  • This model may provide opportunities for new income generation to people that would benefit significantly.
  • The local entrepreneur only needs microcredit to purchase a charging unit, not the lights.
• Problem areas:
  • May be cost inefficient to order and transport individual/small volume of lighting units, rather than doing so in bulk.
  • Sales person may have to wait until she receives serveral orders before having the lights delivered from the Mexican headquarters. This would may cause her customers to be unsatisfied with her service due to the wait time. This would also mean that there may be a significant time before the salesperson actually earns any income from taking orders.
  • It is necessary to account for costs of training the entrepreneur to maintain the recharging unit.
  • The entrepreneur may need training/guidance in developing customer payment plans.
  • LUTW would have to cover the costs of brochures, pamphlets, and business cards.
  • Need to determine criteria/process for choosing a reliable salesperson.

Revenue

• $1.60 profit per light sold
• To equal $100/month (typical wage), entrepreneur must sell 60 lights, or two lights a day.
• Suppose the entrepreneur sells 50 lights in the first two months. She also receives money for charging each battery. Assume she sells all 50 lights in the last day of the second month (worst case scenario):
• Revenue from lights: $80
• Cost for charging unit: $20
• Income in first two months (FULL TIME JOB): $60
• After this point, the market for the village is likely saturated. Thus the entrepreneur will only make money from charging batteries.
• 50 charges per week, $.10 (1 peso) per charge, Income per month =$20, as a PART TIME JOB

6.3 Decorative Light Model

• One woman in a village purchases decorative LED lights, including batteries, and a solar panel on microcredit from the LUTW Mexican headquarters.
• She organizes a launching party for the community, displaying her decorative lights.
• Need for lighting at nightime social events provides opportunity for LED light.
• Microentrepreneur rents light out for use at such social events.
• This model will likely be used in conjunction with another model and might be useful in increasing demand for lighting products.
• Strengths:
  • Because they can rent lights, rather than purchase, customers are not committed to make a substantial investment on one product.
  • The lights may extend the amount of time for social gatherings, possibly enhancing social ties.
• Problem areas:
  • Need to take into account costs of training to the microentrepreneur for maintaining the lights and the recharging unit.
  • This model heavily depends upon the success of the launching party, and then on word of mouth. Issues may arise if the rented light is returned damage.

6.4 Literacy Program Model

INIA is a literacy program for adults set up in schools and churches all across Mexico. Classes are taught at night because adults work during the day. The volunteers in the program are oftentimes graduates of the program, and thus there is an extreme sense of loyalty and respect in within the program.

• LUTW could donate a "sales model" light to the school or church where INIA holds its meeting in the condition that the volunteer recommends our light to her students as good study lights.
• The reading volunteer would then become a LUTW salesperson. Also, because she is personally involved with her students she can design individual payment plans and micro-finance options that can better suit each of her customers needs.
• The public venue i.e. school, church etc. would own and house the charger where everybody would be able to charge their lights when the need arises. This could be a revenue earner for the school, which could also use it as a rewarding system i.e. "get an A and your next charge is free", thus encouraging students to Excel.

• Strengths:
  • Literacy program spans all of Mexico so there is a large distribution network already in place of which we can take advantage.
  • There are people already in place who just need to be trained.
  • Marketing would be very cheap, as we can rely on the teacher's influence over her students as well as "word of mouth".

• Problem Areas:
  • There is a conflict of interest when the teacher also acts as the salesperson and finance manager.
  • There is no maintenance/repair service in place so sustainability becomes an issue.

6.5 Multi-tiered Pricing Model

This model works in conjunction with the Small Store Model. Product Differentiation prices:

• All products would be assembled at the same assembly point in Monterrey (LUTW headquarters).
• Delivery trucks would be loaded up with all products but make two stops: The first would be made to an upscale electronics store in the cities, and the second would be made to a small hardware store in the rural areas.
• The small hardware store in the rural areas would operate on the "small store model" mechanism. The electronics stores in the city would sell the products above $10. These products are equipped with built in chargers and are targeted to wealthy persons that are on the grid, who potentially do not have a reliable source of electricity or want "prettier" lighting in their homes.
• The income generated by the sale of the higher tiered products will aid in the subsidy of the small stores that would be relying on micro finance to get their system going.

• Strengths
  • LUTW reaches a larger market, becoming more popular more quickly than if they were to stay within one income bracket or one geographic region.
  • People are probably more likely to trust electronic units sold in stores than those that are sold door to door.

• Problem Areas:
  • Does not help anyone except the sales people (i.e., the poor cannot use this model to generate wealth).
  • Building different varieties of the product might be difficult.

6.6 People's Network/Remittances Model

See Section 3.4 for background information on People's Network and Remittances.

• LUTW partners with Bansefi to sell the lights.
• The points of remittance distribution will also serve as points of light distribution.
• When customers go to the distribution points to receive their remittances, the bank clerk will offer them an opportunity to use their remittances to purchase a light.
• The bank will not be the center of light maintenance and battery recharging. Instead, a small store owner in the vicinity will be trained by LUTW to maintain the lights and charging unit. This small store owner will purchase a charging unit, through microcredit, and charge a fee for recharging batteries.
• The bank clerk refers the light customer to the local store for future light maintenance.
• The bank clerk will be be given a commission for each light sold.
• Strengths:
  • Leverages Bansefi's distribution network.
  • Bank clerks have an incentive to sell the light.
  • New income generation will not be concentrated in the hands of the bank, since a small store owner will be the center of charging and maintenance.
• Problem areas:
  • LUTW needs to find a small store owner neaby the remittance distribution point that will be willing to take on the proposed responsibility.
  • The small store owner needs to obtain a microloan. LUTW may need to assist in this area.
  • Because bank clerks sell the lights while local store owners maintain the lights and charge batteries, there may be problems because responsibilities are not centralized.

7. Bibliography

Section 1: Introduction

• "Country profile: Mexico." BBC News : World : Americas. 10 January 2003. <http://news.bbc.co.uk/1/hi/world/americas/country_profiles/1205074.stm>.
• "Mexico: Off-Grid Rural Electrification Project." World Bank. 13 September 2000. <http://lnweb18.worldbank.org/External/lac/lac.nsf/eda540ee4049e086852567d6006c6573/070043c2f9207d1d85256959006dc1c6?OpenDocument>.

Section 2: General Country Information

• 2002 National Trade Estimate Report on Foreign Trade Barriers. Office of the US Trade Representative. pp 291-299. <2002 National Trade Estimate Report on Foreign Trade Barriers>.
• CIA World Factbook 2002. <http://www.cia.gov/cia/publications/factbook/geos/mx.html>.
• "Estadísticas sociodemográficas." Instituto Nacional De Estadistica Geografia e Informatica (INEGI), Mexico. 9 March 2003. <http://hades.inegi.gob.mx/sitio_inegi/estadistica/espanol/sociodem/asentamientos/ase_05.html>.
• Global Trade Watch: North American Free Trade Agreement (NAFTA). Public Citizen, 2003. <http://www.citizen.org/trade/nafta/index.cfm>.
• "Guadalajara & Zapopan: Thanks to Foreign Investment, Mexico's High Tech Industry Well-Established." The Washington Times International Reports.net. <http://www.internationalspecialreports.com/theamericas/01/Mexico/guadalajarazapopan%20region/manufacturing_quad/>.
• "Mexico: Electronics Industry." Vega, Eduardo. International Market Insight. 13 December 1999. <http://www.tradeport.org/ts/countries/mexico/mrr/mark0082.html>.
• "Mexico: Electronics Industry." Vega, Eduardo. Industry Sector Analysis. 01 August 1999. <http://www.tradeport.org/ts/countries/mexico/isa/isar0016.html>.
• "Mexico's Tariffs, Taxes, & Custom Fees." NAFTA Facts Document No. 8403. <http://www.mac.doc.gov/nafta/8403.htm>.
• Office of the US Trade Representative: Mexico. 2003. <http://www.ustr.gov/html/2001_mexico.pdf>.
• "SANYO Electric Co., Ltd. announces plan to begin production of its HIT Photovoltaic Modules in North America." Sanyo Electric Co., Ltd. News Release. 10 December 2002. <http://www.sanyo.co.jp/koho/hypertext4-eng/0212news-e/1210-e.html>.
• "What is CFE?" Comisión Federal de Electricidad Corporate Website. 7 March 2003. <http://www.cfe.gob.mx/www3/queescfe/notaqueescfe.asp?seccion=queescfe&seccion_id=2267&seccion_nombre=What+is+CFE%3F>.

Section 3: Local User Demographics

• "Assessing the Need for Microenterprises in Mexico to Borrow Start-up Capital." Heino, Heikki and Pagán, José A. Journal of Microfinance, Vol. 3 No. 1. Spring 2001. pp. 132-144. <http://www.cgap.org/assets/images/Microfinance%20in%20Central%20America%20and%20Mexico.pdf>.
• The Challenge of Rural Energy in Developing Countries: Case Studies: Mexico. World Energy Council. <http://www.worldenergy.org/wec-geis/publications/reports/rural/case_studies/annII_mexico.asp>.
• CIA World Factbook 2002. <http://www.cia.gov/cia/publications/factbook/geos/mx.html>.
• "High-Efficiency Lighting in Mexico." Precis. 7 March 2003. <http://lnweb18.worldbank.org/oed/oeddoclib.nsf/DocUNIDViewForJavaSearch/5DA7A9BAA375D13A85256C3E006CD777/$file/Precis_227_Mexico_lighting.pdf>.
• "Mexico: Electronics Industry." Vega, Eduardo. 01 August 1999. <http://www.tradeport.org/ts/countries/mexico/isa/isar0016.html>.
• "Mexico: Key Economic Indicators." 2001 Country Reports on Economic Policy and Trade Practices. U.S. Bureau of Economic and Business Affairs. February 2002. <http://www.state.gov/documents/organization/8208.pdf>
• "Mexico: Off-Grid Rural Electrification Project," World Bank, 13 September 2000. <http://lnweb18.worldbank.org/External/lac/lac.nsf/eda540ee4049e086852567d6006c6573/070043c2f9207d1d85256959006dc1c6?OpenDocument>.
• "Mexico-US/Transfers US Treasury Initiates New Remittance Transfer System", Global News Wire, EFE News Services, Financial Times Information, 8 January 2003
• "Microfinance in Central America and Mexico: Profile and Challenges." Consultative Group to Assist the Poorest (CGAP), 2002. <http://spc.byu.edu/JournalofMicrofinance/mfv3n1/assessing.pdf>.
• "Willingness to Pay (WTP) for Solar Photovoltaic (PV) Energy Lighting Systems: The Case of Rural Chihuahua." Foster, R., Molina, D., Panico, D., et al. 14 June 1998. <http://www.re.sandia.gov/en/pb/pd/willingness.pdf>.
• The World Bank. Mexico: A Pilot Project for Improving Access to Electricity in Off-Grid Rural Areas. <http://lnweb18.worldbank.org/External/lac/lac.nsf/Sectors/Energy&Mining/070043C2F9207D1D85256959006DC1C6?OpenDocument>.

Section 4: Composite Users

Section 5: Business

Section 6: Business Models