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.
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.
Photo credit: Firefox Mobile by Johan Larsson
It happened Sunday just before midnight. Politicians from The Pact for Mexico, this is, an alliance made by major political parties for debating amendments to structural laws in Mexico, agreed on a Telecom Bill to be presented to the Mexican Congress.
Yesterday, at noon, The Pact for Mexico and the Federal Government made a press event to officially present the Telecom Bill to society. This means that this Bill has already received pre-approval from majority of congressmen, and most likely will pass in essence.
As wrote in my Post: “How I Learned to Stop Worrying about Telecom and Love the Pact” the Telecom Bill was imminent with no way back. Increasing growth of telecom and IT services, would eventually make politicians to reach agreements to set things right in the telecom industry.
Certainly, this Bill will boost telecom business at mid and long-term, taking many industries with them. For first-movers, time is of the essence. Here are some highlights to understand the range of this Amendment:
1.There is a constitutional right to access broadband and access to information. Infomercials disguised as news are forbidden.
2. State will transform current COFETEL (telecom agency) and COFECO (antitrust agency) from subordinated government bodies to the Ministries of Communications and Economy, respectively, into two autonomous agencies with enough power to coordinate telecom industry and commercial markets (other than telecom).
3. Licenses and spectrum will be reorganised to allow converging telecom services. Meaning that companies may render converging services under one license, rather than having several permits, authorisations and concessions. New telecom agency will grant and revoke licenses, rather than the Ministry of Communications, as happened in the past.
3.Two new free-to-air networks will be placed under tender. Major players with 6 MHz are not invited.
4. Must-carry and must-offer obligations are included. Free-to-air TV has to offer broadcasted content and CATVs must carry those signals, both for free. There is an exception to “major” players, that would pay for them.
4. Foreign investment will be allowed at 100% in fixed and mobile services, and up to 49% in free-to-air TV and radio.
5. Local bundle for telecom, radio and TV networks of “major” players must be shared.
6. Government will grow its telecom network allowing private-public projects.
7. Bands of 700 MHz and 2.5 GHz will be reorganised, and a part used for wholesale.
It is important to notice that this Bill is to the Mexican constitution, and would require to have federal laws to detail all these aspects. However, the business expectations are great.
I can hardly find some time to discuss all aspects that come to my mind at this moment, of write “deep thoughts” of each topic. However, some topics come to my mind:
- Mexican telecom operators, no matter size or network size, have just increased market value.
- Content will be required to fill-in air time and CATVs.
- Big data analytic will play a big role in the expansion of the services, as well as in the market defence.
- The internet of things could have found broadband access, but also an emerging market that loves gadgets.
- Videocasting, internet-TV and VOD could explode during next years. Internet radio could find a niche too.
- Advertising must find other lucrative niches other than infomercial news. Maybe migrate to the internet.
- Telemedicine, electronic files and other e-health business will be pushed by this Bill.
- Local governments will be more likely to implement e-government policies with better and cheaper internet access.
- Digital products will find a bigger market.
Telecom Bill appears to have a “Do Business in Mexico” all over it, and will attract many players into the market share. Now, it is the time of Mexico embracing this historic transformation.
I will find some time to write on several topics of the Bill, and some other that are not covered by it. Meanwhile, so long, and thanks for all the first-movers …
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.
Photo credit: Pirate Ship, Puerto Vallarta, Mexico by SMcGarnigle
Mexico is a country that’s got its problems, and there is no way to sugar-coat them. Yes, there are drug cartels, crime syndicates, corruption in the government and a weak rule of law in some places. However, Mexico is poised to become one of the more dominant economic powers this century, and more and more investors, both domestic and foreign, are realising that Mexico’s solid economic growth of the past few years will only continue to expand.
When it comes to total economic clout, Mexico won’t be able to challenge India or China simply due to numbers; Mexico’s 112 million population is a tiny fraction of the billion-plus populations of the two Asian countries. However, what Mexico offers investors is considered by many economics experts to be vastly superior. What has happened is that metaphorically speaking, Mexico is open for business.
Mexico, in an effort not to be defined and overshadowed by it negatives, has signed 44 free trade agreements, more than any other country on the globe. It has twice as many free trade agreements as China, and four times more agreements than South American rival Brazil. Making things even more interesting for investors is the fact that Mexican universities and technological institutes are producing vast numbers of highly skilled workers and engineers who are not only capable of working, they’re capable of innovation and finding ways to make things run in an incredibly efficient manner.
There is also the matter of the recent natural gas finds in Mexico, which can significantly reduce transportation costs. This, along with the fact that wages and product transit costs are on the rise in China, make Mexico one of the hottest countries for investment. Manufacturing industries that went to Asia when it was cheaper are finding their way back to the Spanish-speaking North American country, and due to the amount of solidly educated, innovative skilled workers, high-tech industries are also hoping to establish plants and headquarters there. Automotive and aerospace industries are flourishing at present and are expecting solid, continuous growth.
However, there is one recent development that may encourage massive amounts of investment in the country; the current government of President Enrique Peña Nieto, is working with all three of Mexico’s big political parties to fight the massive energy, telecom and teacher monopolies that some say have held back the country’s economic growth. If these monopolies get broken, the possibilities for investors in the field of telecommunications and energy may become too numerous to count.
To summarise, in the 1990’s and 2000’s, when many of the foreign companies operating in Mexico up and let for the then-cheaper Asia, Mexico’s citizens did not waste their time; producing a skilled workforce for industries other than textiles that was innovative and efficient became key.
From aerospace industries and web-based start-ups to cloud computing and electrical engineering and a commitment to free trade, Mexico has got it all for investors and the only way to go for the foreseeable future is up.