A Mexican's Point of View

By Samuel Peña Guzman
Foreign Investment Coordinator
State of Nuevo Leon

Some months ago I wrote about the threat China represents to Mexico. Today, Monclova is suffering “in its own flesh” precisely this threat by the Asian Dragon. A job source – Sara Lee –unfortunately found lower costs in China than those at the company’s Monclova plant. We are all well aware of the consequences and unemployment has risen once again in the already deteriorated Coahuila’s center region economy.

It is clear enough to me that the Popular Republic of China is striking Mexican industry in three divisions essential for any domestic economy: local demand, foreign export markets – mainly USA – and direct foreign investment, on which Mexico is loosing the battle before China’s competitive advantages.

Ever since China joined World Trade Organization, one third of Mexican textile maquiladoras have closed, not to mention that some months ago China took Mexico’s place as second exporter to the United States, after Canada. This is regrettable for our Country.

The “Made in China” era calls for reflection. How can competitiveness of Mexican companies be increased? The most simple and logical way is to analyze and evaluate in detail the threat to the affected sector, and make of it the turning point to build competitive advantages to be reached by decreasing costs, giving value added to products, developing local suppliers and/or supplies chains and building trade marks. Trade marks… China not only ignores them, but infringes them as a common Chinese business practice and culture.

Both, in Mexico and in China there are differences in wages up to 200%, depending on the region where operations are carried out. China is cleverly establishing joint ventures and partnerships between Chinese and Multi-national companies, for deep inside what Chinese companies are looking for is a way to acquire technology from those companies. On the other hand, Mexican companies, always under the risk of Asian competition, must go back to old costs advantages and create a value added, and therefore unique, for their customers. For example, even if Chinese machinery is less expensive, purchase can be hardly justified when maintenance service and spare-parts are difficult to obtain. This is just one example on how a Mexican company could take advantage of the Chinese threat.

While Mexico has the natural advantage of its geographical location close to the largest market in the world, Mexican companies must reduce their costs. A way to do this would be the re-location to in zones outside metropolitan areas, where wages are lower, labor is less expensive, labor conflicts are rare, land can be bought for a lower price and, something important, workers have less bad habitsvices than those usually found found in urban areas.

Another way of defense, or to neutralize Chinese attack, is the one mentioned above, namely to improve production costs, which can be achieved by a better position through strategic alliances with other companies – mainly foreign – that allow for an increase of their competitiveness before their competitors in the Popular Republic of China competitors.

This would eventually create a “win-win” synergy for both companies, because Mexican companies would have access to export markets, while foreign companies would take advantage of the trade agreements signed by Mexico, in addition to logistic advantages and production costs found in Mexico.

We must not forget that there are still several factors that Mexico can make use of, mainly supplierssuppliers’ chains of a Mexican company with their American customers, which can be hardly equaled by the Chinese competitors, which are thousands of miles away. Brands must also be positioned, something that China lacks. When a brand is positioned, it will be hardly displaced by new brands entering the market. Loyalty to the brand must be created, in this case by customers.

I Whether it is clear enough to me that competing against China will not be easy at all – this country has practically became the factory of every product in the world – but wailing will only take us out of the markets. The bright side is that Mexican companies are now forced to be more competitive and efficient. Globalization has taken every country to a war for markets, in which Mexico cannot be left behind.

The big question is how to increase competitiveness of Mexican companies and most of all define and position companies to keep their customers in the long run and not “panicking” before the low production costs offered by China. We should not forget that another problem faced by Mexico is the black market coming from China, for these products are not levied and eventually neutralize prices, allowing them to compete with Mexican products. We are loosing this battle… however, the worst we can do is to take it lying down. For the time being, these are only some ways that even if they will not prevent the Asian market expansion, they can neutralize it and soften the ill effects suffered by Mexico nowadays.