n the IBM Global Business Services annual Global Location Trends report released in October 2007, Mexico's economy was listed alongside those of China, India and Vietnam as more likely to welcome large-scale investment projects, as opposed to the greater number of smaller projects going to "mature" economies.
   The nation's automotive sector is peppered with such large-scale projects, one of the largest being the August 2007 announcement of a Korean mega-complex in Campeche that will involve multiple plants, $1.8 billion in investment. That company's name – Bering Co. – is certainly apt, as its activity recapitulates in business form what the planet did in geological form so many eons ago: Connect Asia and North America.
   Mexico may still be inching toward economic maturity, but, according to the IBM report, job creation from FDI is in its prime, driven by that selfsame automotive sector. Between 2005 and 2006, Mexico jumped from 15th to 5th in the world in the number of jobs created by foreign investment projects – the largest leap up the charts of any country in the top 20.
   That position was solidified by a fifth-place showing worldwide in production-related job creation and a seventh-place showing in services jobs.
   Monterrey illustrates both trends: In addition to welcoming new plants from the likes of Hershey, ArvinMeritor's commercial vehicle systems division and Toronto-based Samual Manu-Tech's stainless steel tube business, the city known for its university and dynamic economy is also going to see India-based Infosys create up to 1,000 new jobs by 2010 at a new center designed to serve the U.S. market.
   "Monterrey is becoming both an education and business center for the country, and is a much more pleasant place to live than Mexico City," says Joel Kurtzman, a senior fellow at the Milken Institute, citing the area's budding high-tech, software and graphic design sectors. He says Mexico is going to have to compete against India and China, "so it will have to continue to invest in education."
   The success of Monterrey, Saltillo and other cities aside, the country's continuing lag in transparency, open markets and legal enforcement, among other factors, haunts those successes with a hint of what could be.
   Kurtzman delivered a presentation filled with these unpleasant truths and some signs of hope to a group of leaders in Mexico City in October. While he says his remarks were well received, just looking around the capital reinforced where it has to start.
   "You look at Mexico City and you think of all the oil wealth in Mexico, and you see it unfortunately has not spread to the development of the capital," says Kurtzman. "Go to the Middle East, and you'll see equivalent oil wealth and the incredible wealth and cities emerging.
   "Mexico has squandered a lot of its birthright," he says. "But it can reclaim it. It knows what it has to do – it's just having trouble doing it."    Among its positive steps, Kurtzman says Mexico "has straightened out its accounting, and has pretty good regulations. Corruption is still a big problem, and so is the concentration of the economy in a few dozen people's hands, although Mexico seems to be addressing some of these problems. It's still a difficult place to do business, but over the medium to long term, Mexico is making the right steps."
   Another right step is the establishment of transparency commissions in all 31 states plus the capital city's federal district. "So there are now watchdogs with the power to examine issues related to government malfeasance. They don't have teeth yet – all they can do is report findings to the auditor general – but they do exist."
   Kurtzman and Milken's Glenn Yago have co-authored the new book Global Edge: Using the Opacity Index to Manage the Risk of Cross-border Business from Harvard Business School Press. Kurtzman and Yago's study of opacity in 50 nations examined how they stood when measured against factors grouped under the acronym "CLEAR": Corruption; Legal systems with limited protections; Economic policies that hinder sustained growth; Accounting and governance standards that make it difficult to see inside companies; and Regulatory systems that fail to protect investors.
   "These five factors are sand in the gear of commerce," they write. "They are the 'everyday risks' of being in a global business."
   With an opacity index of 44, Mexico is just a point better than Pakistan and two points better than Saudi Arabia, trailing in transparency such countries as South Korea (37), Brazil (40), the Czech Republic (41) and Turkey (43). According to the authors, each additional point on the opacity scale equates to US$986 less in average per capita income and one percent lower net foreign direct investment as a percent of GDP, among other negatives. Current per-capita GDP in Mexico is approximately $11,000.
   "In our study of 50 countries, Mexico is in the top of the bottom," says Kurtzman. "Because the institutions don't function very well in the aggregate, Mexicans pay a huge tax, essentially, on growth. They are fairly well educated, with a good work ethic and plenty of raw materials and land, but because the institutions don't work better, the growth penalty is almost 50 percent of GDP."
   Kurtzman says the opacity index findings closely mirror the "Doing Business" Index rankings published by the World Bank, which placed Mexico at No. 42 in the world. A separate competitiveness ranking by the World Economic Forum found Mexico at No. 52, though second in Latin America to No. 26 Chile.
   If the country can reform its police and legal system and open up its banking and financial regulations to allow more competition, says Kurtzman, it can retrieve much of the corporate investment that has run to China, India and other developing economies.
   "Mexico has lost a lot of investment to China, and what it's lost it should never have lost," he says. While institutional fixes will help, so will the new green mandate, which has people questioning the wisdom of using so much fuel to ship goods halfway around the world.
   In the meantime, China is not always a source of competition. In late November, FAW Group, China's second-largest automobile manufacturer, became the first to invest in a Mexican plant, as it pledged to build a $150-milllion complex in the western state of Michoacan in a partnership with Latin American conglomerate Grupo Salinas. The plant is expected to launch operation in 2010 with annual capacity of 100,000 vehicles, all targeted toward the Mexican marketplace.
   Asked if projects from India and China could indicate more incipient investment from other developing economies, Kurtzman says it's beginning to happen, but, as with the U.S., Mexico will need to uphold its end of the bargain.
   "In the past, Mexico blamed most of its problems on the U.S., and said it had to be insular and protective or else the U.S. would gobble it up. Now, with so many Mexicans going back and forth on a daily basis, that argument doesn't fly anymore. It is awake to the fact it needs to become a partner with the U.S. and the same is true with the rest of the world. Mexico has to make itself hospitable to companies who want to use it as a platform for getting into the rest of North and South America."    With NAFTA in place, and the kinks being slowly worked out with regard to Mexican trucking access to the U.S., all the pieces would seem to be in place for Mexican project and job creation. But the country's central issue continues to be illegal immigration to the U.S., says Kurtzman, because that means Mexican job creation emigrates too.
   "Undocumented workers come to the U.S., start a business and hire other undocumented workers. So Mexicans in the U.S. are employing other Mexicans, and there is a job creation shortfall in Mexico because the jobs are here. It's the result of a poorly regulated, poorly run economy. Change that and Mexico itself will change.
   "My radical plan has been to open our borders for Mexicans in exchange to opening up fully to U.S. investment," says Kurtzman. "It would initially involve more Mexican immigration to the U.S., but as the dollars come in, you'd see Americans going to Mexico."
   In fact, the failure of Mexico to open up its markets was one reason President Ronald Reagan in 1982 cut off the issuance of further licenses to Mexican trucking firms. As other political and labor pressures have maintained the stalemate for the past 25 years, concerns over safety have proved ill-founded. In a recent piece in The Wall Street Journal, "Americas" columnist Mary Anastasia O'Grady reported that a recent U.S. DOT safety record analysis of Mexican carriers in the U.S. from 2003-2006 found their out-of-service rate, as determined by DOT inspectors, was better than that of U.S. trucks, both throughout the U.S. and within the border zone which circumscribes many of those haulers' operations.
   A small pilot program to begin opening up to more Mexican trucking firms is in place, but may have its funding removed in 2008.
   But while the U.S. may need to open up on immigration and trucking, there are a few areas where Mexico needs to open even more, says Kurtzman, beginning with the petrochemical sector, controlled by state-owned Pemex, and extending to the telecommunications sector, controlled by one of the richest men in the world, Carlos Slim.
   "The telecom infrastructure has suffered because of the concentration of ownership," says Kurtzman. "His companies control 90 percent of the land lines and 70 percent of the cellular lines. Investment in that sector has been low by international standards, and prices have been high."
   Again, a competitor country halfway around the globe may offer a model, he says.
   "One interesting phenomenon in India is its economy was jumpstarted by big investment in telecommunications, which brought down the price of data and telephone communication to the point where it made a lot of economic sense to locate call centers in India," he says. "Mexico is so close to the U.S., and there are so many Spanish speakers in the U.S. who also have that role, but the telecom costs in Mexico make it more expensive than to go to India. That sector has to be reformed."
   As he speaks, though, the projects are unfolding in the two aforementioned trouble sectors.
   Even as Pemex deals with the aftermath of pipeline bombs planted by a domestic terrorist group (yet another wild card in the Mexican business climate), it is also close to pulling the trigger on what could be the first new refinery in Mexico in 28 years, in order to serve a domestic marketplace that continues to export crude and import gasoline. Reports place the price tag on the proposed 300,000-barrel-per-day facility, to be located at the port of Tuxpan, in the state of Veracruz on the Gulf of Mexico, at $4.4 billion.
   Back in popular Monterrey, in June, then-DaimlerChrysler (now Chrysler) announced it would open a new 23,000-sq.-ft. (2,137-sq.-m.) Spanish Americas Contact Center in Monterrey that would serve both the Mexican and U.S. markets. Two-thirds of the facility's 180 employees will serve the Mexico side. But the company marshalled evidence to support its bilateral approach:
   "By the year 2050, the U.S. Census Bureau projects that approximately 25 percent of U.S. households will speak Spanish as their first language, up from only 13 percent just two years ago," stated the company. "According to the Selig Center for Economic Growth, the buying power of Hispanic consumers is estimated to reach $1.2 trillion three years from now, up from $764 billion in 2005."
   The separately issued Mexico Executive Call Center Report 2007 from business development analytics firm Zagada Markets says that, "with a 60-percent market share in Spanish agents, Mexico provides the largest number of customer care agents serving the Spanish world; has Latin America's second largest agent population of over 150,000; provides over 33,000 bilingual agents serving U.S. customers and creates jobs for close to 1 million workers associated with the industry. Over 200,000 agents are projected by the end of 2007."
   All of which makes it a very good time to be good neighbors.