Cutline: Ernesto Sanchez, founder of Guadalajara, Mexico-based ENERI.
Catching thieves was a surprise benefit to Guadalajara entrepreneur Ernesto Sanchez, who originally set out to help businesses cut their power consumption.
But Mexico's electrical utility, the Federal Electricity Commission (CFE), became interested in his smart meters that measure electricity consumption in real-time. The commission deployed his meters in two Guadalajara neighbourhoods, hoping to catch electricity thieves, who tap power lines through illegal connections known as "diablitos."
The pilot project worked, prompting the CFE to deploy another test in Mexico City's swank Polanco neighbourhood, where dealerships selling bulletproof cars, high-end restaurants and luxury boutiques line the main drag.
"When they steal electricity in a rich neighbourhood, they steal big time," said Mr. Sanchez, who founded his company ENERI in 2009.
ENERI developed its smart meter technology in Guadalajara, a burgeoning IT cluster about 550 kilometres west of Mexico City known as the Silicon Valley of Mexico.
The industry in Mexico's second-largest city – a place famous as the home to such stereotypical Mexican delights such as tequila and mariachi music – is gaining attention throughout the country and beyond.
The sector has expanded rapidly in recent years as businesses take advantage of a pool of English-speaking talent, cost advantages, government incentives and the relative ease of doing business in a livable city of 4.4 million residents located in the same time zone as many corporate offices north of the border.
"Guadalajara has one of the biggest concentrations of electronics manufacturing in the world," Mr. Sanchez said. "Now Guadalajara is starting to position itself also as a software development centre and as a design centre."
Mr. Sanchez in many ways represents the evolution of the Guadalajara IT sector, which has grown in fits and starts since Motorola first built a semi-conductor plant in 1968.
He previously worked as an executive with Jabil Circuit, a contract manufacturer, but spotted an opportunity for smart meters.
"I thought it was a big opportunity and one of those once-in-a-lifetime things," Mr. Sanchez said.
"Energy costs have been increasingly steadily … there was realization that global warming is real and being recognized by most governments."
Mr. Sanchez started ENERI with a staff of three, money from an angel investor – venture capital money was scant, he says – and help from a high-tech incubator at the ITESO university. A federal government program for research and development also provided assistance.
The company never set out to bust power thieves, who have connected more than 90,000 "diablitos" in Mexico City alone. ENERI instead focused on cutting power bills for large buildings and businesses, such as convenience-store chains. But the potential for reducing theft caught the attention of the CFE.
"It was not the original idea ... I though that it would take us more time to consolidate things," Mr. Sanchez said. "The reception has been really positive. It has exceeded my own expectations about the meter and about the company."
Expectations for the Guadalajara tech sector have been mixed for the past four decades – and enthusiasm was lacking at times.
Governments mostly neglected the industry in past years — unlike now — and much of the work involved the basic assembly of larger items for export. Chinese competition then caused a rush for the exits a decade ago.
The Chinese competition spurred changes, Mr. Sanchez says. Firms began to innovate and "move up the value chain." Entrepreneurs, meanwhile, began branching out and, in some cases, becoming suppliers to their former employers.
"The manufacturing sector has been here for more than 30 years and that has produced an entire generation of engineers and managers who understand the industry in terms of the supply-chain management, but also in terms of design and the testing of products," Mr. Sanchez said.
Other external factors helped revive the Guadalajara industry, too, and bring back business.
These include rising costs and wages in China, along with increased transportation costs and fears of weak intellectual property protection overseas. Attempts at cutting red tape in Mexico also have helped.
The federal, state and municipal governments now provide tax breaks and incentives for developing properties and training programs, along with funding for business ventures, says Armando Vizcarra, industrial development manager for the Guadalajara suburb of Zapopan.
The incubator at the ITESO university has helped start more than 80 businesses since 2004, says its director, Oscar Fernandez.
Mr. Sanchez started ENERI with the incubator and called it a "low-risk" way to create a business. He would like to see even more entrepreneurial activity in Guadalajara with creative employees starting spinoff companies.
"If we want to see a Silicon Valley, we need to see more of that," he said.
The presence of 12 universities and additional technical schools produces an estimated 10,000 engineers and workers with the necessary skills, according to the federal Economy Secretariat. The quality of the graduates has improved in recent years, Mr. Sanchez says, although the overall quantity could be higher and high-school graduates aren't going into engineering and sciences at an especially high rate.
Still, he's bullish on the Guadalajara IT sector and his business, ENERI, which now has 35 employees and is expanding into other parts of Latin American and the Caribbean – where electricity costs even more than in Mexico and theft is equally rampant. A pilot project with smart meters is about to begin in the Dominican Republic, for example.
"We want to be a significant player in this smart grid development … providing key components of the grid with our meters and data management software," Mr. Sanchez said.
"The market in Mexico is only so big," he says, adding, "There are many other places where utilities have problems."
Special to The Globe and Mail