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back to index backLATINtalk August,  2005

Realizing Mexico's Opportunities in 2006 and Beyond

Still pending on Mexico's agenda to enhance its development prospects and competitiveness as place to invest and to do business is the approval of key structural reforms.

Energy, fiscal, and labor reforms need to be sanctioned by the Mexican Congress. The passage of these reforms will no doubt make Mexico more competitive and more attractive to foreign and domestic investments. However, these reforms will probably not be approved before a new government takes office on Dec. 1, 2006.

Despite this, Mexico has made efforts to deregulate and to diminish obstacles to do business, effectively enhancing the countryís business and investment environment. Today, Mexico continues to be among the preferred emerging countries for investment and market opportunities because of a host of factors, including its open trade and investment policies. The fact that Mexico is part of NAFTA, as well as 11 other free-trade agreements with more than 40 countries, provides certainty to investors. Furthermore, U.S. industrial manufacturing and cross-border outsourcing to Mexico have increased in the last two years, as a result of renewed confidence in global markets, and that has also helped make Mexico a natural choice for investment.

China's Pressures Diminishing

Some of Mexicoís labor-intensive manufacturing operations, particularly in textiles and in assembly maquiladoras, were in recent years lured to China and other low-wage countries. That migration appears to be diminishing, in part as a result of transportation and logistics costs incurred by producers in the Far East, and the realization that market access and proximity to the U.S. market do matter.

In addition, companies have looked at Mexico as an intermediate country very capable of producing high-value products, and fully using its human capital endowment to venture in high-tech areas such as software design. Furthermore, recent moves by Chinese authorities to revalue the Chinese currency, albeit by a small percentage, should prompt U.S. companies to reassess their investment plans and further consider Mexico.

New Sector Opportunities

Industries ranging from aerospace/defense, automotive, consumer products, equipment manufacturing, high technology/telecommunications equipment, life sciences/pharmaceuticals and medical devices, and process/chemicals are finding Mexico very attractive for production manufacturing. In aerospace, for example, Mexico and U.S. civil aeronautical authorities have been closely working to grant Mexico and the companies already manufacturing parts and components in the country with a certification of quality and process security. When the Bilateral Aviation Safety Agreement (BASA) certification is obtained by Mexico, it will make the country even more attractive for the aerospace industry than it is today.

North American aerospace manufacturers are pressured to reduce costs and to maintain and expand markets. In addition, aerospace is a strategic sector, both in terms of economic value as well as national security. Mexico is a logical choice for expansion of some of North Americaís aerospace production. As part of NAFTA, Mexico also provides investment and IPR (intellectual property rights) protections that other far-flung nations cannot guarantee. In addition, current efforts by the three NAFTA governments ó Canada, Mexico, and the United States ó to enhance security and prosperity in the region precisely increase the sectorís prospects and the role Mexico will play as a manufacturing site of aerospace products including, in the near future, the assembly of aircraft.

North American Security and Prosperity

Entering and expanding marketing/sales, manufacturing, sourcing, and R&D/engineering operations in major emerging markets around the world, including Mexico, are top priorities for most companies. To enhance the competitive position of North American industries in the global marketplace, the three NAFTA partners have launched the Security and Prosperity Partnership of North America (SPP).

The SPP agenda seeks to lower costs for North Americaís businesses, producers, and consumers and to maximize trade in goods and services across the regionís borders. Cooperation in key sectors ó including automotive, steel, transportation systems, and regulatory processes ó is being sought to enhance the regionís competitiveness. For instance, within the framework of the NAFTA, governments and industry are looking at reducing the rule-of-origin cost for certain products and sectors. The three nations are also working on streamlining border regulations and reducing waiting times to cross the border for both people and cargo.

Enhancing Mexico's Competitiveness

Mexico and many other emerging economies are in a race to be more competitive and capable of offering the best business environment. Aside from the needed reforms described earlier, Mexico must continually strive to reduce obstacles to business and to streamline its regulations. Mexicoís private sector has also a role to play in this process by engaging more in the decision-making process dictating Mexicoís economic and business policies.

Over the last decade, Mexico has also started to diversify its markets, and at the same time it has become more attractive to investors from other latitudes. Europe and Japan are two economies with which Mexico also has free-trade agreements. Trade and particularly investment have increased between Mexico and Europe as a result of the Mexico-EU FTA that was implemented in 2000.

With regard to Japan-Mexico trade, the recently implemented Economic Partnership Accord has a calendar of tariff reductions that will eliminate all trade tariffs between the two nations within a decade. Already there are no tariffs on more than 60 percent of products traded between Mexico and Japan. As a result, trade flows are expected to double this year and next. Most importantly, the accord provides investment protections, just like any other FTA Mexico has signed, and Japanese companies are taking the opportunity to penetrate the Mexican market. These companies are also eyeing the North American market through their presence in Mexico.

A Good Option

Most companies are still looking for better ways to leverage and optimize their global investments for both profits and growth. Mexico has been and will continue to be one of the better options in terms of its market and/or manufacturing production. Mexico is already part of a global network of production and trade. Its importance will only increase in the near future as pressures build on companies, particularly North American ones, that not only compete internationally, but have to comply with new security and regulatory aspects imposed by the current global environment.

Transportation networks and cargo logistics, in addition to supply chain networks and continuous optimization of human talent and management, are defining todayís global competitive race. Mexico has understood this process and offers companies that are able to leverage their global investment ó in networks of sourcing, manufacturing, R&D, distribution, marketing, sales, and service operations, as well as the flows of goods, services, and finances that link them ó the right business and investment environment.

Source: Area Development - GAI

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