U.S. companies that rushed to China in the early 2000s to expand their production are now considering moving back to North America, Mexico to be precise. One of the reasons behind the sudden shift is the rapidly increasing labor costs in the Asian country. The other is the eagerness of Mexican workers and the government itself to make the most from the North American Free Trade Agreement (NAFTA) relationship.
Commenting on the behavior of the lemmings, or “American companies that rushed to China to make things like toys and toilet brushes, only to be searching now for alternatives in Mexico and the United States”, Jason Sauey, the owner of Flambeau said, “They’re all looking for a new model. “It’s not just about cost; it’s about speed of response and quality.”
Sauey is one of the businesspeople who resisted the China temptation and instead opened his factory in central Mexico. He never regrets his decision, especially since it proved to be one of his best. According to the company’s records, revenues at the Mexican plant have increased by 80 percent since 2010. This success has driven Sauey to start searching for a second location near Mexico City.
However, Flambeau isn’t the only U.S. company expanding in Mexico. Well-known brands like Caterpillar, Chrysler, and Callaway Golf have invested billions in Mexico and the economic integrations Presidents Barack Obama and Enrique Pena Nieto believe to be vital to growth. In addition, the trade between both North American countries has increased by 30% since 2010, reaching approximately $507 billion yearly. Focusing further on Mexico, the country’s goods have dominated 14% of the U.S. import market, pushing China’s share downwards and recording a high after many years.
However, there are many people concerned about Mexico’s rise, especially since they perceive that it can cause many job cuts in the U.S. Easing their concerns, economists say that the U.S.’s economy will actually benefit more from outsourcing its manufacturing process to Mexico instead of China. This is because the former is a neighbor and ultimately capable of sharing more of the production.
To make the move easier, decision makers in the U.S. need to take trade efficiency into consideration and make it as important as border security. As companies wait longer at the border, chances are that they will grow more frustrated. On the other hand, Mexico should seriously work on overcoming major problems like education, crime and corruption.
Photo credit: Chinese Dragon by Rool Paap
Enrique Peña Nieto has been in talks with his Chinese counterpart since the year started, a sign of both countries burying their retail-related hatchet and deciding to work together to boost their strong economies. This is one of the reasons Chinese-backed Dragon Mart chose the Caribbean resort city of Cancun as its new location. However, this has sent the Mexican retail market in a frenzy, which at first prevented the city government from providing building permits.
The Reaction of Mexican Retailers
The $180 million Dragon Mart project, which will produce an exhibition space, warehouses and 380 hectares of conservation lands, has been termed as a “permanent” trade show that is just two miles from the sea. This angered Mexican industrialists, since it meant that their domestic market would be flooded with inexpensive Chinese merchandise. The store’s location also ensures easy international trade, which will further reduce the U.S.A.’s recent dependency on Mexican goods due to lower customs and quick delivery.
To further guarantee that Dragon Mart doesn’t set roots, environmentalists were rallied after pollution threats and risks to the fragile land and seascapes were pointed out. Because of the large number of protests and complaints, the construction permits for Cancun’ s Dragon Mart were denied by the Democratic Revolution Party, rival of Institutional Revolutionary Party (PRI) of Peña Nieto.
How Cancun’s Dragon Mart Bounced Back
Juan Carlos Lopez, executive director of the Dragon Mart project in Cancun, vowed to never go without a fight. Come April, he and his team sued the city of Cancun to get rid of the political impasse that had the potential to cancel the project or delay it indefinitely. As a result, Peña Nieto’s party took action in July. It lobbied the municipality and state court to approve the project in August. The permitting process was concluded in mid September and the actual construction will begin in October and last for 16 months.
Is Cancun’s Dragon Mart a Bad Idea?
Many Mexican entrepreneurs are disgruntled with the government’s decision. However, there are a few things which may prove them wrong. First of all, the propaganda surrounding Cancun’s Dragon Mart caused them to fully believe that they won’t be benefiting from this project. Truth is Real Estate Dragon Mart is 45% owned by Carlos Castillo, 45% by Monterrey Cancun Mart, and 10% by Chinamex Middle Investment and Trade Promotion Center.
That aside, with the blessing of the PRI, Dragon Mart has put up a billboard advertising that it will provide 8500 jobs to the locals. This is because the project directors believe that Mexican labor is of “high quality and very reliable”. Therefore, unemployment will experience a significant drop.
However, the project keeps on undergoing facial changes. According to the last press release, it will be promoting products from Brazil, Canada, Venezuela, Korea, Japan, Vietnam and the Dominican Republic. This means that it will be more of an international trade project. Yet, because of the continuous changes that the project underwent, Mexican businesspeople have their reservations.
Regardless, the Cancun Dragon Mart is here to stay and it will be up and running by 2015. As Mexico wants to increase trade with China, an the negotiation of a free trade agreement is in process, this type of projects would become common in the Mexican business landscape.
Photo credit: Currencies of the world by Images Money
Up until two decades ago, Mexico had been suffering economically, driving many among its population to seek opportunity North of the border. However, trends have changed with the arrival of the new millennium. as the growing foreign-born population between 2000 and 2010 demonstrates. One of the reasons behind this shift is that Mexico’s international trade is booming.
Why Mexico’s Trade is Thriving
The first reason behind Mexico’s successful international trade is China’s rising wages and higher transportation costs. Due to these, countries like the U.S. have decided to shift their operations there. In addition, the Mexican population now has more skilled laborers in its midst. Executives, filmmakers and entrepreneurs from Europe and North America are shifting to Mexico to speed up its growth and ultimately reap the benefits of their efforts. With skilled labor and cheap natural gas found in abundance, and Mexico’s 44 trade agreements in place as of February 2013, this growth was inevitable.
Due to these reasons and more, countries across the world have begun to acknowledge Mexico’s increasing attraction as an investment destination. One of the first to do so was China. Chinese president Xi Jinping has met three times with Mexican president Enrique Peña Nieto this year alone to ensure a cooperative relationship between the two countries. Underscoring their commitment to the relationship, China lifted a ban on some of Mexico’s most famous products such as blue agave tequila. The countries are also in discussions to establish a China-Mexican investment fund and build a China-Latin Cooperation Forum.
Is Mexico Going to Pull Through This Time?
Though many economists believe that Mexico’s growth isn’t going to decrease in the coming years, there are others who wonder if history will repeat itself. Mexico has failed to live up to its economic potential before, such as in 1994 when the currency hit its lowest ever after signing North American Free Trade Agreement (NAFTA).
However, even those skeptical about Mexico’s growth believe that it has another shot. Despite domestic political challenges, Peña Nieto has successfully spearheaded the country’s three major political parties signing of the Pact for Mexico, which enables them to reform the energy, telecom and teacher monopolies which have held the country back. In addition, with more foreigners and highly educated Mexicans joining the workforce, Mexico may easily grow to the same level as the U.S. and outgrow its third country status.
The Bottom Line
Mexico appears likely to be growing into an economic giant to rival other major national economies. With manufacturing moguls like China and the U.S. acknowledging by working to deepen ties with Mexico, there’s a good chance Mexico will not relapse and its economy will continue to grow strong enough to give first world countries a run for their money.
In addition, the sum of all reforms happening in Mexico, such as telecom, energy, education, tax, financial and others, could boost economy enough to keep Mexico attractive among global economies. Do you think that is accurate?
Photo credit: Sticker shock by Bev Sykes
While Mexico’s economy has been growing steadily since the implementation of NAFTA and various other free trade agreements with dozens of other countries, the general perception has been that the country’s main trading partners and investors have been the United States and Japan. However, Mexico’s partnership with manufacturing and economic powerhouse China has been gaining steam over the past few years and is showing positive signs of continued and expanding growth.
Mexican President Enrique Peña Nieto, on the evening before his visit to China, in a written interview with Xinhua, China’s top news service, spoke of his pledge to increase ties with China in a way that both countries can enjoy a win-win situation. China should and can be a “strategic partner” to the Latin American country, he said. Remarkable opportunities exist in many sectors, including infrastructure and trade.
“Mexico can be a gateway for China to enter North America, the world’s richest market. It can so be a point of access to several countries in Central America and the Caribbean.” said Peña Nieto. This could very well be of high interest to Chinese companies such as Huawei and ZTE, two telecoms companies who have been effectively shut out of the American telecom market, a market Chinese telecoms have been wanting to crack for quite a long time. While their products may still not get into the U.S. market, both ZTE and Huawei could become involved in the potentially lucrative Mexican telecom sector, where reforms have recently been passed to allow foreign investment.
President Peña Nieto continued, stressing the things that Chinese and Mexican people have in common such as an ancient culture and economic exchanges. After mentioning the above points of what Mexico can offer China, he spoke of what China can offer Mexico in return.
“For Mexico, China represents an opportunity to increase its productive investment, and multiply and diversify its export capacity. China’s economic dynamism, the size of its market and its high demand for goods, turn China into an attractive market for Mexico.” he said.
In order for an economic partnership to be long-lasting and beneficial for both sides, the Mexican head of state mentioned that friendship and cultural understanding are key. The expansion of China’s Confucius Institute in the Spanish-speaking country would be a very effective way for Mexicans to learn about China’s traditions and learn Mandarin, while Mexico can increase the awareness of Mexican culture in China by the means of Spanish-language courses and showing Chinese people “the opportunities that Mexico can offer them”.
Most importantly however, the Mexican president stated how an economic partnership would be beneficial to both countries in the energy and infrastructure industries. China is a country that imports much of its energy, and Mexico has massive reserves of oil and gas; the country’s oil industry needs an overall upgrade, which Chinese companies could very well provide if reforms to Mexico’s energy sector go through.
Furthermore, the president mentioned that when it comes to trains: “China is, without doubt, an excellent model on the issue” he said. “We have much to learn from its successful history in railway infrastructure.”
The Communications and Transport Ministry of Mexico has recently implemented a five-year plan to build new railways; an expanding trade relationship could mean that Chinese companies may be consulted or involved.
Photo credit: Manufacturing plant in Nevada by Jeff Barnes
In a move that is exactly surprising to industry leaders and economic growth experts, Mexico’s manufacturing sector is bringing back jobs to North America that left the continent for China in the 1990s and 2000s. What is partially responsible for the boom, other than the industriousness of Mexicans and their solid work ethic, is the Spanish-speaking country’s concerted effort to ensure that infrastructure can provide the factories with inexpensive and plentiful energy along with the transportation networks to get the manufactured goods to market.
Wages in Mexico are now a little bit higher than the wages that their counterparts in China receive; however, the highly skilled workers can produce higher quantities of quality goods, which is one thing that is influencing companies to set up base there. Mexico has now become the go-to country for industries like automotive manufacturers and automotive parts makers. But the one thing that is seriously making business owners want to go to Mexico is the fact that the country is scrambling to implement energy infrastructure projects in order to take advantage of one thing China doesn’t have: cheap oil and gas that is found in Mexico and also is imported from new energy giant the United States. While the price of energy has gone up considerably in the world, this energy bonanza is making Mexico more attractive than ever for investors in the manufacturing sector.
The energy reserves of both Mexico and the United States are said to be large enough to handle growth for well over a century, and both countries are building new pipelines in order to get those manufacturing jobs back to North America as quickly as possible.
But that’s not all; other massive infrastructure projects that are benefitting Mexico’s manufacturing are transportation projects. Rail lines connecting manufacturing powerhouses in Mexico to markets in the United States and Canada are being built in order to keep up with the manufacturing output. Expansion in the transportation infrastructure will let the manufacturing industries grow with next to no limits; in other countries that lack the roads and rail links, goods get held up in warehouse facilities and cannot get to market quickly enough. Furthermore, some experts are saying that Mexico will also be improving public infrastructure such as national roads as well in order to fuel economic growth in the domestic markets.
Deregulation may also occur in another of Mexico’s key industries: telecommunications. As of now a single company holds a monopoly on this key sector; if proposed deregulation occurs, manufacturing could enjoy another massive boost in telecom equipment as international telecom companies also pour in to set up shop in what could be a massive market.
Opportunities abound in Mexico right now; along with a booming manufacturing industry, transit links between Mexico, the United States, Central America and South America need to be further developed; railways, roads, trucking and maritime links are all being upgraded or will be upgraded in the future. All of this construction of the infrastructure need to support the manufacturing boom will also need energy, as mentioned above. Telecoms could also prove to bring handsome profit to smart investors.
Mexico is growing and is poised to become the next economic powerhouse in Latin America; those who do not invest now will be bound to regret it when it’s too late in the next few years.