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e really haven’t started to see the entire impact from the NAFTA agreement,” says Jim Bruce, a consultant with Flur Daniel in Atlanta.
The NAFTA agreement is eight years old, but there are new components of the trade agreement equation that have business on all sides of the U.S. and Mexican border eagerly anticipating fresh opportunities. With U.S. companies watching ever more carefully the bottom line, affordable business expansions in border areas become increasingly more significant.
The Mexican government has created ideal conditions for foreign investment in Mexico. The country offers a young burgeoning population (average age 14) and a growing middle classes “A lot of U.S. companies are being very aggressive in capturing this opportunity. They are looking for skilled labor that can be trained,” says Bruce. “In many instances this trainable skilled labor force is located in the interior areas of the country, in cities such as Monterrey, San Luis Potosi, Queretaro, Guadalajara, and Toluca.”
Volkswagen’s new Beetle was conceived, designed, and produced in Puebla, located southeast of Mexico City. Volkswagen has also recently announced an expansion of this plant, prompting several suppliers such as Refa Mexican, Gedas North America, and Auxim to move into the Puebla area. Inventory for industrial space has increased, and Group Hersan plans to build another 8,000 sq.-m of industrial buildings. According to Colliers, lease rates for industrial space within industrial parks in the Puebla area have remained constant – around $3.20 per square meter.
US-Mexican Business worth $226 million in 2000
The export sector is the fastest growing area of business in Mexico. Last year exports to the U.S. accounted for 25 percent of the Mexican GDP. This NAFTA business traffic, or 88 percent of all Mexican exports, is a vital piece of Mexico’s emerging economy. Officials estimate the value of the two-way U.S./Mexican traffic accounts for $226 billion in business last year. With this much money at stake, business continues to hunt for areas with qualified skilled labor for manufacturing facilities, cost-effective locations, and ideal sites situated near transportation hubs.
Nestle is opening a $160 million chocolate and breakfast bar manufacturing facility in Querertaro. There has been an increase in available office space in Querertaro, with rates running around $6-10 per square meter. Industrial rates range from $3-5 per square meter. Available inventory is located within the Industrial Park Benito Juarez. LNP Engineering and Kawasaki Steel have opened new plants in San Luis Potosi within the last year. Toyota is seeking a suitable Mexican location for an assembly plant, according to reports in the Mexican financial daily El Economista.
“We look to the future with a great potential for exporting, importing, and investing,” said Mexico’s pro-business new president Vincente Fox at a recent press conference in California. Fox, a former CEO of Coca-Cola Mexico, has pledged to raise Mexico’s GDP growth rate to the 7 percent level. “We’re talking about big business on both sides of the border.”
And business on both sides of the border is listening and anticipating improving conditions in Mexico. “What I’ve seen from this administration is the openness in communication with different countries,” says Raul Barksdale, sales and marketing executive with Amistad Industrial Developers, a company that specializing in industrial development in Mexico. “The Mexican government has concentrated in creating treaties making it easier to import and export to and from Mexico.”
Amistad recently helped Takata construct a new facility in Monclova in the state of Coahuila. Barksdale says Mexico will continue to be an attractive option for firms looking for new locations. Even with the economic slow-down, Barksdale anticipates more companies will look at facilities across the border. “Once things stabilize, firms will concentrate on expansion projects to lower their overhead costs, thus looking into Mexico for inexpensive labor.”
Mexico’s President Seeks new Trade Agreements
Fox has encouraged additional trade agreements with the European Economic Union and Japan. A recent accord signed last summer with the EU calls for the gradual reduction in tariffs on products. The accord calls for Mexican goods to have duty-free entry to European markets by the year 2003. Mexico will open markets to European goods by 2007.
All this news is music to the ears of foreign investors in Mexico. The maquiladora industry is the engine behind Mexico’s record growth. Mexico currently has 3,300 maquiladora plants employing 1 million workers. Theses industries specializes in processing goods that are imported into Mexico and then shipped on to another country, usually the United States. NAFTA has allowed this trade to flourish with little or no tariffs imposed on either side of the border.
Logistics, or getting goods across the border, can still be a problem with shipping goods from Mexico. Long back-ups at border crossings are common, and red tape with forms often delay shipments. Whole industries have grown up around the exchange of goods at the border. “A company will ship from Mexico City,” says Bruce. “They’ll take their truck to a terminal a few miles south of the border. A new firm will pick it up and take it across the border to another terminal, where it will in turn be picked up and shipped to say Dallas.”
Consolidated Freightways will open a new terminal in Laredo, Texas. The terminal is part of $17 million construction and upgrade to expand the long-haul capabilities of Consolidated Freightways growing Mexico division.
Mexican trucking firms will now have more access to U.S. cities thanks to a recent federal ruling. The Clinton Administration had established a 20-mile “soft” border on the U.S. side, thus allowing Mexican trucks that failed to meet the U.S. safety requirements entrance. The recent ruling found that the U.S. policy had been in violation of the NAFTA agreement thus limiting access to trucks south of the border. The lifting of this restriction could have far-reaching effects on the flow of goods from Mexico and the trucking industry.
“We definitely think it will be an easier flow of goods between the two countries,” says Kevin McGavick, marketing and communications manager for PGT Trucking. PGT has a partnership with the Mexican trucking firm, Grupo GUME in Tampico.
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