U.S. Companies Leave China and Travel South to Mexico

U.S. Companies Leave China and Travel South to Mexico

Packing Tape Practical Joke by Lenore Edman

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.

US Trade with Mexico Doubles between 2009 and 2012

US Trade with Mexico Doubles between 2009 and 2012

Satellite Sees Earthquake Region in Southwestern Mexico by NASA Goddard Space Flight Center

The Yucatan Times reports that Mexico is the United States’ second largest trading partner with about USD 500 billion worth of goods and services transferred across its borders. The outcome is considered to be the result of stronger ties established through numerous visits to Mexico City, five of which were made by President Barack Obama since he took office.

Previously, between 2005 and 2008, only two U.S. governors travelled south of the border. However, more politicians are heading to Mexico City with one goal in mind: money and jobs. By boosting bilateral trade and Mexican investments in the U.S., the former has grown to be the world’s 12th largest economy and home to the wealthiest man in the world Carlos Slim.

Currently, six million job opportunities in the U.S. rely on bilateral trade with Mexico, which doubled since Obama took office to 2009, reaching over USD 535 billion in 2012. Zooming in further, 23 states, including the Dakotas and Iowa, depend on Mexico as their first or second largest trading partner. More also have tips to Mexico on their agenda, including Governor Jan Brewer of Arizona.

According to the governor’s policy advisor on Latin America and Mexico, the governor’s candidates are planning a meeting with President Enrique Peña Nieto and his cabinet. This by itself is big news as Brewer had signed a controversial Arizona state law demanding that local security agencies arrest individuals with foreign appearance about four years ago. Two years after the U.S. Supreme Court struck down most of that law’s provisions, Brewer has turned the page.

Jumping on the same bandwagon is Governor Pat Quinn of Illinois. The state considered Mexico its second largest trading partner, which is why its governor hardly visited Mexico City for over 13 years. However, things are changing as the state now has an active office in the largest North American city to promote its products and agricultural businesses.

Governors Gary Herbert of Utah and John Hickenlooper of Colorado also intend on the same. The latter is even planning to visit Mexico City again in hopes of meeting PEMEX and power company CFE to explore joint ventures in the energy sector.

According to Roberta S. Jacobson, Assistant Secretary, Bureau of Western Hemisphere Affairs, the North American Free Trade Agreement (NAFTA) has contributed to the economies of both countries. “The United States and Mexican manufacturing economies build products together for the North American market and globally. Cultivating this relationship has allowed our citizens to realize one of the key benefits of economic integration – increased competitiveness – that forms the basis for good jobs and prosperity.”

Confirming her testimony are the number listed on the Office of the United States Trade Representative, which show that exports totaled USD 242 while imports were USD 293. Meanwhile, trade in private services with Mexico came up to USD 42 billion in 2012 – USD 27 billion for service exports and USD 15 billion for service imports.

To ensure that the new Mexican reforms continue to benefit both countries, the U.S. has established a High Level Economic Dialogue, which aims at promoting competitiveness and connectivity, ensuring economic growth, productivity and innovation, and striking a partnership to lead both regionally and globally. Many analysts have high hopes of this initiative and expect it to pave the way for a more comprehensive North American partnership that is more comprehensive than NAFTA.

NAFTA countries are integrating into a single economic block after these 20 years, and Mexico has been signing trade agreements with the world´s most relevant economies. Will this partnership catapult the regional growth?

U.S. Ambassador to Mexico Speaks to American Chamber of Commerce

U.S. Ambassador to Mexico Speaks to American Chamber of Commerce

Photo credit: Mexico: Dinero, Peso, Moneda by Speaking Latino

“U.S. and Mexican companies do not simply sell products to one another, they build products together”, says Ambassador E. Anthony Wayne

The U.S. Ambassador to Mexico, who spoke to the American Chamber of Commerce earlier this month, emphasised how the two countries are linked together through bonds of friendship and economy that run deeply.

“President Obama said that our two countries ‘are not simply neighbors bound by geography and history.  We are, by choice, friends and partners.’  At the heart of this special relationship are very deep and strong economic ties.  Since 1993, prior to NAFTA’s implementation, both Mexico’s and the U.S. GDP have grown 56 percent.  Bilateral trade has increased fivefold.  Mexico exports more to the U.S. than all of the BRIC countries combined”, said Wayne.

To expand on his point of the countries being tied by very strong economic bonds, he explained that the United States’ second largest export market is the neighboring Spanish-speaking North American country. Mexico’s largest trading partner is the United States.   Furthermore, for 22 individual states, Mexico is the largest or second largest export market.

The ambassador also spoke of how the border between the two countries is one of the world’s busiest international boundaries.  Over one million people cross the border every day, and per day the amount of trade that occurs over the border averages more than $1.25 billion.  Growth was a solid 7 percent in 2012 despite the ongoing financial crisis in the United States, with bilateral trade totaling almost $494 billion in the same year.  Wayne emphasized that this number does not include services; in fact, if services were included in the calculation, bilateral trade for 2012 would be more than half a trillion dollars.

The Ambassador also highlighted how when it comes to competitiveness on the international market, Mexico and the United States do not simply trade with each other, they build and develop products with each other in a way that can be seen as more of a partnership.

“This means the competitiveness of our two countries is closely linked, and improvements in productivity in one nation make a co-manufactured product cheaper and more competitive on the global market.  That is to say, growth in Mexico or the United States boosts exports from both countries: when it comes to manufacturing, we are in it together,” he said.

Mexico currently enjoys free trade agreements with 44 countries, which in fact makes it the country with the highest amount of free trade agreements in the world.   Because the country has recently entered the Trans-Pacific Partnership negotiations, both the United States and Mexico will be able to build on their NAFTA foundation.  In other words, the U.S. and Mexico will be able to strengthen their economies within the NAFTA countries and will be able to strengthen their economies by increasing trade with Asia-Pacific regions.  Access to these Asia markets could mean 198 million new customers and up to a trillion dollars annually in resulting trade.

Mexico provides “just-in-time” manufacturing which is an effective cost-saving tool for American companies, transportation is nimble, and Mexico produces more engineers per year than Canada or even Germany.  This talent-pool along with Mexico’s other advantages make the country a natural choice for international manufacturing firms.

Mexico’s growth is good for the U.S. economy, and according to Wayne, more awareness needs to exist about the two countries’ shared economic success.

U.S. and Mexico Deeply Linked By Trade

U.S. and Mexico Deeply Linked By Trade

Photo credit: WTC Ciudad De Mexico by Armando Argandar

When North Americans and people from other parts of the world think of Mexico, one of the first things that they may think of, sadly, is the security situation in the country caused by drug traffickers and associated gangs.  However, smart investors and businessmen know that Mexico is quickly becoming an economic powerhouse due to the Spanish-speaking country’s free trade agreements with 44 countries, economic policy reform, and highly skilled, talented workforce.  The ties that bind Mexico and the United States go beyond those of friendship; the two countries are deeply linked by successful trade.

In only twenty years, Mexico’s economy was inward looking and heavily dependent on oil.  Since the North American Free Trade Agreement (NAFTA) was signed two decades ago, the economy in Mexico has turned out to be one of the most open and competitive on the globe.  In fact, Mexico has become so competitive that when it comes to the measure of trade to GDP, Mexico is now surpassing China.

Many experts in the field of international economics say that this success story is mostly in part due to increased trade with the United States since NAFTA came into effect.  Regional supply chains between the United States and Mexico for different products have been flourishing since 1994; interestingly, the economic relationship between the US can be seen as a symbiotic one.  This is because for every article imported from Mexico, about 40 percent of it was actually made in the United States.

In many companies, there is a type of integration that crosses the border in a way that is basically seamless.  Research and development labs might be on one side of the border, while manufacturing will occur on the other, and both facilities may be only minutes away from each other.  In some cases, manufacturing, production and research may actually occur in both countries, meaning that industries in both the United States and Mexico are now permanently tied; the two economies are deeply linked in long-term relationships.

Both countries benefit by Mexico’s positive future.  What is particularly of interest to investors is the fact that even as the U.S. economy may have suffered in the past few years, the overall amount of trade occurring at the U.S. – Mexico border saw growth rates of around 7%.  By some estimates, if cross-border trade included services as well products, the monetary value of total trade would be well over half a trillion dollars per year.  The amount of trade could also increase exponentially if either partner were to increase free trade agreements with other trading blocs.  Negotiations are currently underway for a U.S. – European Union free trade agreement, and the Trans-Pacific Partnership could open up Asian markets to the Mexico-U.S. products manufactured in the border regions.

Mexico still has to get its security situation under control, but the economy is still growing in spite of it.  The United States and Mexico share deep ties when it comes to their economies; the United States is Mexico’s largest export market, and Mexico is the largest or second largest market for 22 individual states.  Mexico’s success also spells success for their neighbour and partner north of the border.

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.

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