What Would the Trans-Pacific Partnership (TPP) Mean for Mexico?

What Would the Trans-Pacific Partnership (TPP) Mean for Mexico?

Photo credit: Water under the bridge, little rock arch, splash of the Pacific Ocean, South Mazatlan, Sinaloa, Mexico by Wonderlane

In 2012, the nine countries comprising the Trans-Pacific Partnership (TPP) embraced Mexico as a tenth member before Canada and Japan. U.S. officials commented that all members – United States, Australia, New Zealand, Peru, Chile, Singapore, Malaysia, Vietnam and Brunei – jointly accepted Mexico’s application.

The acceptance of Mexico within the TPP was one of the big achievements of former President Felipe Calderon during his six-year presidential term. As a member of the TPP, Mexico now has a role in the global supply chains for both the U.S. and Asia Pacific markets. Calderon said, “This is one of the free trade initiatives that’s most ambitious in the world and would foster integration of the Asia Pacific region, one of the regions with the greatest dynamism in the world.”

In addition, Mexico will get the chance to diversity its exports. Within a year from being accepted into the TPP, the country’s major exports were electronics (38%), cars and auto parts (17%), and oil (12%). This is a long way from the low value maquila operations Mexico first started with. By offering lower production costs and cheaper experienced labor, Mexico has quickly grown into an export hub that competes with the likes of China.

As a result of these outcomes and the strategies implemented by the current Mexican President Enrique Peña Nieto, Mexico’s economy grew. The Mexican Ministry of Finance estimates that the economy grew by 0.8 percent in the fourth quarter and reached 1.3 percent in 2013. This was the result of the increase in demand for Mexican goods as well as the reforms President Peña Nieto made to open the oil industry to private and foreign investors. With a stronger economy, Mexico expects its higher job retention rates, rising living standards, and a lower percentage of poverty.

A third advantage of joining the TPP is strengthening the country’s relationship with its neighbour in the north. Though Mexico has already partnered with the U.S. in the North American Free Trade Agreement (NAFTA), it was the U.S. that invited the Latin American country to join the negotiations of the TPP.

U.S. Trade Representative Ron Kirk released a statement after U.S. President Barack Obama and President Calderon met at the Group of 20 summit announcing the news.” “We are delighted to invite Mexico, our neighbour and second largest export market, to join the TPP negotiations. Mexico’s interest in the TPP reflects its recognition that the TPP presents the most promising pathway to boosting trade across the Asia Pacific and to encouraging regional trade integration. We look forward to continuing consultations with the Congress and domestic stakeholders as we move forward.”

This was part of a broader U.S. strategy to link its economy to fast growing markets. For Mexico, this would allow the country to strengthen its synergies and deepen the natural integrations of its exports in the U.S. market.

Prior to joining the Trans-Pacific Partnership, Mexico’s total trade with the nine TPP countries had reached $466 billion in 2011. Meanwhile, the country’s exports to the U.S. were $280 billion.

From February 17 to 25, 2014, Commerce Ministers and Chief Negotiators met at Singapore for an additional round of negotiation. If Mexico succeeds on those negotiations and deep reforms, it will become an international trade and investment platform.

Honda Announces New Investment in Mexico

Honda Announces New Investment in Mexico

Photo credit: Honda Civic 1,8 Type-S iShift by Dirk Vorderstraße

One of Mexico’s most strategic economic allies is Japan, and thanks to new rounds of talks and agreements, Japanese companies will be investing heavily in Mexico in the coming months. According to Ildefonso Guajardo, the Mexican Minister of Economy, who met with the Japanese Minister of Foreign Affairs, Japan is especially interested in investing in Mexico’s automotive sector.

“There are several Japanese companies analyzing new projects. Mazda is one of them and recently made an announcement; in addition several other companies in the auto parts industry join the assemblers to invest. Investment dynamics in Mexico is extraordinary”, Guajardo said in an earlier interview.

Guajardo also pointed out that trade exchange between the two nations grew by almost 40% in the past seven years, at a rate of 7% a year since 2005.  Due to President Enrique Peña Nieto’s recent visit to Japan, the trade relationship has been re-launched, with Honda being one of the major companies to announce a major investment.

Honda, which was one of the first Japanese auto manufacturers to make cars in the United States decades ago, announced that it will be initially investing $470 million dollars to build a brand new transmission factory in Celaya.  Honda also very recently invested in a brand new automobile manufacturing plant in the same city, and cars should be coming off the assembly line as early as 2014.

The transmission facility, the third in North America, will be operating by the second half of 2015, and should produce an average of 700,000 continuously variable transmissions per year.  There will be approximately 1,500 people hired to work in the factory, as well.

“This will establish an efficient production structure that will maximize our Mexican and North American content,Honda Executive Vice President Tetsuo Iwamura said at a press conference in Mexico City earlier this month with Guajuardo.

He further stated: “This will be Honda’s third transmission plant in North America and production will increase to 2 million transmissions per year, to support production capacity of 1.92 million automobiles in the region”.  The transmissions made at the plant will therefore not only be for the cars manufactured in the adjacent factory; many will be exported to Honda’s other plants in North America and overseas.

Honda’s Celaya $800 million auto plant had been announced in 2011 and as mentioned above, production on the Fit subcompact models will start in 2014.  Other major Japanese auto makers who’ve recently made large investments in Mexico include Mazda who is building a $650 million factory and Nissan who is building a $2 billion plant alongside their existing manufacturing facilities.

Honda and Japanese auto manufacturers aren’t the only foreign car firms looking to start or increase production in Mexico.  Audi announced back in 2012 that it will be building its first North American plant in Mexico with an investment of approximately $2 billion.   Volkswagen, which has long been established in Mexico, will also be investing a further $1 billion over the next three years.

It’s no secret that automakers like Mexico; there’s a hard-working, highly skilled labor force, an astounding lack of red tape, a business-friendly government, plenty of free-trade agreements with dozens of countries and trading blocs, and great transportation infrastructure to get products to market quickly and effectively.  Japan’s interest in investing in Mexico shows absolutely no signs of slowing down and is only expected to grow for a long time to come.

Opportunities for Chinese Companies in Mexico

Opportunities for Chinese Companies in Mexico

Photo credit: chinese_new_year003 by Mark Eslick

Mexico’s economy is growing; in 2012 economic growth was 3.9 percent, and it is expected to continue growing.  Foreign companies are seeing that Mexico is a great place to conduct business for several reasons, and although there is no free trade agreement between Mexico and China as of yet, there are plenty of opportunities for Chinese companies in Mexico.

It’s well known that the Japanese vehicle manufacturing industry is firmly established in Mexico; German automakers Volkswagen have been operating in the country as well for decades and almost all car makers in Mexico are planning on expanding their production facilities or building new plants in the very near future.  Car parts manufacturers are also expanding, with many foreign companies looking to expand their presence in Latin America.  Therefore, there is a large, highly specialized work force with years of experience in car production; Chinese car companies who are wishing to access the North and South American markets should seriously consider factories in Mexico.

Related to the vehicle manufacturing industry is the aerospace industry; Mexico’s highly skilled work force is what has attracted businesses like Bombardier to set up shop in the Spanish-speaking North American country.

What’s also interesting for Chinese companies is that in Mexico, while the wages might not be as low as they are in China, chances are that in the near future wages will go up all over Asia.  This, teamed with the high cost of transport, makes Mexico the smarter option when it comes to manufacturing.

Hi-tech companies may also want to invest in Mexico; many people in the workforce are highly educated, have engineering degrees and many are completely fluent in English.  During the years that the manufacturing jobs went to Asia, Mexico did suffer somewhat economically, but instead of relying on labor-intensive, low-paying industries like textiles, young Mexicans focused on technology and working efficiently.  The result now is that innovation in information technology and cloud-based computing is coming from Mexico.  Chinese companies would be able to access some of the finest minds in high-tech industries.

As mentioned above, while there isn’t a free trade agreement between the two countries, Chinese companies manufacturing in Mexico would be able to take advantage of many of Mexico’s trade agreements with other countries.  In fact, Mexico has free trade agreements with 44 countries, including the United States, Canada, and the European Union.

Finally, as also mentioned above, China would be able to access all markets in the Americas if production facilities were established in Mexico.  Because of the high cost of fuel, transporting items by sea such as vehicles will be incredibly costly, but due to Mexico’s central location, the cost of transport from Asia is completely eliminated, which is good news for a company’s bottom line.

There are many opportunities for Chinese companies in Mexico.  Along with the automotive, aerospace and IT industries, it’s very possible that the government will be opening up the telecommunication and energy sectors, breaking the decades-long monopolies that have, some say, held back Mexico’s economic growth.  China is known to be experts in the field of telecoms and could either establish cell phone networks or consult new national companies.   Furthermore, China could be an ideal investor to update infrastructure in the energy industry.

Mexico’s 3.9 percent Economic Growth in 2012 Expected to Continue

Mexico’s 3.9 percent Economic Growth in 2012 Expected to Continue

Photo credit: Bolsa Mexicana de Valores by mykewithwai

Mexico’s Instituto Nacional de Estadística y Geografía (INEGI), translated as the National Institute of Statistics and Geography, has recently stated to the public that the country’s economy, due to a rise in agricultural sector activity, grew by 3.9 percent in 2012.

The growth in the economy corresponded to projections made by the Mexican government a year ago, and was roughly the same as the growth the country experienced in 2011.  INEGI stated that part of the growth was fueled by agricultural activity, which grew 7.2 percent in 2012’s last quarter.  A higher production of corn, beans, sugarcane and wheat was responsible for the sector’s growth.

In a move to promote higher rates of growth and to attract investment in high-tech industries, the new Federal Government under President Enrique Peña Nieto is working to pass reforms in the energy and telecommunications sectors.   The objective is to increase the rates of formal employment in the country where unemployment and underemployment can be problematic.

However, there are industries other than agriculture, which are contributing significantly to Mexico’s strengthening economy.  The first industry is that of automotive manufacturing, with the Volkswagen plant in Puebla alone employing over 18,000 and producing approximately 2,500 vehicles per day mainly for export.  Other international auto companies with plants in Mexico include Nissan and Lexus.

The electronics industry is another area where strong growth has been seen and is expected to continue.  Mexico is the sixth largest producer of electronics after China, the United States, Japan, South Korea and Taiwan.  Electronics currently are responsible for 30% of the country’s exports.

Mexico’s highly skilled workforce is also contributing to the country’s economic growth; foreign companies who may have at first gone to China or India due to the low wages there are choosing to invest in Mexico as the workers are solidly educated and are also capable of innovation.   Automotive companies base their research and development headquarters in Mexico, and companies in the aerospace industry are also establishing manufacturing plants in order to access the highly skilled Mexican workforce.  According to the WTO and the OECD, the Mexican workforce is the hardest working in the world when it comes to hours worked per year and profitably in terms of man-hour.

Mexico’s economy is growing while others might not be doing as well for several different reasons.  Along with the skilled labor force, Mexico enjoys a good location for companies that want to export. Due to the high cost of fuel, a company that might have thought of locating to Asia may very well find that manufacturing in Mexico will produce big savings on transportation costs. From Mexico, both North and South American markets are easily accessed.

Finally, a significant factor in Mexico’s economic growth is the fact that it has 12 free trade agreements with 44 countries, including Japan, the United States and Canada (NAFTA), and the European Union among others.   Mexico has also shown interest in MERCOSUR and negotiations for free trade agreements are currently underway with South Korea, Peru, and Singapore.  The present government is also hoping to arrange a free trade agreement with Australia.

Opportunities for investors exist in Mexico; lower wages, a highly skilled workforce, and business-friendly free trade agreements will most likely ensure that the country’s economy will continue to expand.

Japan auto-sector focusing more on Mexico

Japan auto-sector focusing more on Mexico

Photo credit: Toyota by Daniel

Japanese car-makers, squeezed by the strength of the yen and the high cost of vehicle production in Japan, are increasingly turning to Mexico to manufacture their automobiles.  Mexico’s car export industry therefore, has boomed.

One of Nissan’s busiest factories worldwide is located in Aguascalientes in central Mexico.  Nissan Mexicana vice president Armando Avila Moreno said: “We make a vehicle every 55 seconds. Our speed is the fastest in the world.”

The Aguascalientes plant produces 380,000 automobiles per year; mostly compact cars like the Sentra.  80 percent of the cars are exported to 100 different countries.  A two-shift system in place to maximize efficiency, and the factory runs 24 hours a day for six days a week.   Nissan is hoping to have their third Mexican factory up and running by the end of 2013.

According to IHS Automotive, a research firm, Mexico’s vehicle production will reach 4 million units per year by 2018.  In 2012, 2.8 million cars were manufactured, which was a full 12.8 percent more than the number of vehicles produced in 2011.  Mexico will be the third largest vehicle export base in the world.

This increase in car production is mainly due to Japanese automotive companies growing their presence in the country.   While Nissan has been in Mexico for decades, Honda is also becoming a big player.  A second Honda plant is in the works and plans are for it to be operational by the spring of next year.  Mazda is also hoping to build a new factory in Mexico in 2014.  According to Honda president Takanobu Ito, “Mexico is becoming the ‘Ginza‘ (Japan’s hottest shopping area) of car production.”

The fact that Japanese automakers are moving to Mexico to take advantage of Mexico’s ideal exporting location, multiple free-trade agreements and highly-skilled workforce, is also influencing Japanese car parts makers to move manufacturing to Mexico.   Parts manufacturers are incredibly eager for the opportunity to expand their business, with many companies wanting to make the move as soon as possible in order to get a head start on any competition.

In Tokyo, Mexico’s Secretary of Economy in Japan’s representative office spoke of how many Japanese parts makers have been calling the office with urgent inquiries.  Companies usually say “We want to expand into Mexico as soon as possible.  Are there any vacancies in industrial complexes?”

While there are 50 Japanese parts manufacturing companies currently in Mexico, officials from the Tokyo representative office claimed that the number would most likely rise to around 100 in the coming years.

Experts in the field of economics say that one of the driving factors behind many automakers’ decision to manufacture in Mexico, along with lower wages, is the amount of free trade agreements that Mexico has.  The country actively promotes free trade and has agreements in place with 44 countries.  This means that automakers and parts makers who manufacture in Mexico can export their cars and products to 44 nations at low tariffs or even duty-free in some cases.   For most companies that are concerned with their bottom line, this is a huge reason why Mexico simply makes sense.

Finally, Japanese automakers like Mexico because it’s close to their largest markets:  The United States and Brazil.  Cars manufactured in Mexico cost much less to transport than cars produced in Japan, which also contributes to a healthier bottom line

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