Mexico Country Report

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Me xi co 2015 Country Report1


C o u n t ry T r a i t s

Coordinates: 23 00 N, 102 00 W History: At least three great civilizations—the Mayas, the Olmecs, and the Toltecs—preceded the wealthy Aztec empire, conquered in 1519–1521 by the Spanish under Hernando Cortés. Spain ruled Mexico as part of the vice-royalty of New Spain for the next 300 years until Sept. 16, 1810, when the Mexicans first revolted. They won independence in 1821. Location: Located in North America, situated between USA & South America Size: The country’s total area is 761,601 square miles, or nearly 3 times the size of Texas. 3rd Largest Country in South America Capital: Mexico City

Income Level: Upper Middle

Government: Federal Republic

Level of Development: Developing

Head of the State: Enrique Peña Nieto

GDP: 2.4% (2014 est.)

Language Spoken: Spanish (92%)

Inflation Rate: 3.14% (March 2015 est.)

Population: 122,332,399

Natural Resources: Petroleum, Silver

Religion: Catholic (76.5%)

Life Expectancy: 75.43 years

Official name: Estados Unidos Mexicanos 2

Source: The World Factbook


C o u n t ry S ta b i l i t y

SOCIAL Overview Healthcare: Universal, Seguro Popular Literacy Rate: 94.2% School Life Expectancy: 13 years old Minimum Wage: $6.33/day Education Level: All usually reach Primary & Secondary School Higher Education: 49% Type of Culture: Polychromatic In 2012, Mexico achieved universal health coverage for all its citizens, with a national health insurance program called Seguro Popular, which was first introduced in 2001. There are three stages of universal health coverage: universal enrollment that enables the use of benefits from a publicly organized insurance fund; access on a regular basis to a comprehensive package of services that also has financial protection for all; and universal effective coverage guarantees for high cost services in order to prevent financial shocks. The government has maintained its commitment to universal health coverage amid an economic slowdown. The Mexican federal and state governments provide universal free education through preschool, primary school, and secondary school. Mexico devotes 0.6% of its GDP to early childhood education, which is on par with the OECD average. However. they have the lowest enrollment rate among 15-19 year olds among OECD countries, even though they have the largest population of this age group in the country’s history. The federal government spends 17% of its estimated expense budget to satisfy the education demand. Illiteracy has been reduced substantially in recent decades, but 6.9% of the population over the age of 15 years of age is still classified as illiterate. Particularly in rural areas, many children are still unable to attend school regularly.

VALUES & CUSTOMS GREETINGS

At a first meeting, shake hands when greeting one another. Upon initial introduction, Mexican businesspeople should be addressed by their professional title followed by a surname.

communication

Mexicans favor an indirect style of communication over a direct style.

personal space

Comfortable standing close to one another while talking. One to two feet is normal. It can be considered rude to back up or away from someone while they are speaking.

time perception

They are very lenient on being timely. Do not take offense if they show up late to a meeting, or even cancel the meeting all together.

eye contact

Eye contact should be maintained infrequently; staring too much is considered rude.

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POLITICAL Overview Mexico is now a federal democratic republic divided into 32 states, including the Federal District (Mexico City). Democracy seems to have taken root after the 71-year tenure of the Partido Revolucionario Institucional (PRI) ended in 2000. While the PRI regained the presidency in 2012, there are effective checks and balances on executive power to prevent a return to one-party rule. The chief executive is the President, who is elected for a period of six years and may not be re-elected. There is a bicameral legislature as well as a judicial branch. President Enrique Peña Nieto pushed through labor market reform with support from the tripartite Pact for Mexico. Such reform is crucial in reducing the size of the informal labor sector, and could help to raise average wages over time. Monopolistic business practices in Mexico have long elevated consumer prices in sectors such as telecoms, Television, energy and food manufacturing, weighing on middle class growth and exacerbating income inequality.

President Enrique Peña Nieto

Mexico is plagued by highly sophisticated and organized Transnational Criminal (TCOs).

Despite the fractionalisation of major cartels due to the arrest or death of their leaders, cross-border flows of narcotics persist. The disbandment of major drug cartels has led former members to join smaller criminal groups which are focused on alternative cash-generating illicit activity, which will be a rising threat to national security and increase operational risks. The objectives of Mexican TCOs are first and foremost economic. While the war on drugs has become a political issue across the Americas, TCOs show no overt political motivation or affiliation. The next decade looks set to be challenging for Mexico owing to a weak security situation, high levels of income inequality and endemic corruption. That said, the core view remains that the country will end the decade in a better position than where it started, with potential for some economic reform and a modest improvement in the country’s security situation which will strengthen Mexico’s political risk profile.

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Mexican Coat of Arms


ECONOMIC Overview Quick facts

Foreign Currency: Mexican Peso (MXN) Current Exchange Rate: 1 Peso = $0.066 US Unemployment Rate: 4.7% (2014 est.) Inflation rate: 3.14% (March 2015 est.) GDP Growth: 2.4% (2014 est.) Economic dependence on the United States will result in good contagion ahead. IHS forecasts US economic growth to accelerate from 2.4% in 2014 to 3.0% in 2015, which will have significant benefits for the Mexican economy. Mexico has a free market economy in which the prices of goods and services are determined in a free price system. Private enterprise is the principle factor in manufacturing, mining, commerce, entertainment, and the service industries, including construction and tourism. During the 80’s and 90’s the government sold to private enterprise a number of its holdings in what are classifies as non-strategic industries. Foreign investment is found most frequently in the manufacturing, mining and financial sectors. The economy is fairly broad-based and dedicated mainly to supplying the needs of the large and rapidly increasing population. However, the proximity to the United States also provides a large market for the export of manufactured and semi-manufactured goods. In recent years, the inflation rate dropped to one digit and may be considered comparable with Mexico’s commercial partners, US and Canada. Mexico’s booming manufacturing sector, increasingly strong private consumer and favorable demographics suggest that the country is well placed to see solid economic expansion in coming years. Also, Mexico has maintained a relatively steady exchange rate, stabilizing the economy in general terms. Mexico Inflation Rate

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Ap parel/ t ext i le i n d ustry

Industry Size: Employs 415,000 workers Expertise: denim, heavy metals Raw Materials: silver, gold, copper, oil and natural gas

Mexico’s textile industry plays an important role on both the USA and the domestic market, where its contribution to the economy of certain states is not to be underestimated. In the 1990s, the industry benefited from the dismantling of trade barriers, particularly the lifting of duties provided for in the North American Free Trade Agreement (NAFTA). The textile and apparel industries account for 4.7% of Mexico’s manufacturing GDP. (Textiles 1.3%, Apparel 2.5%). These sectors account for 20% of all manufacturing employment in Mexico. In Mexico,micro and small companies make up approximately 85% of the sector. Private investment is dominant in the manufacturing industries. The federal government has intensively promoted the establishment of manufacturing operations for export and laborintensive industries,taking advantage of the relatively low wage costs expressed in U.S. dollars and the proximity to the US market.

Main Trade Shows & Exhibitions ExpoProduccion

Held in Mexico City, Mexico this event plays a vital role in bringing together suppliers and buyers in the growing textile and apparel market.

Intermoda

The biggest and most important fashion exhibition show in Mexico and Latin America. Headquarters are located in Guadalajara, the capital of the State of Jalisco at the Western side of Mexico.

FIMME

Foro Internacional de Moda Mexico has the goal of bringing new brands and designers to Mexico, and to attract international buyers to the expo.


Even apparel production that was lost to Asia after the turn of the century is returning, as U.S. export factories, known as maquiladoras, enjoy skilled labor and proximity to the United States . In Mexico, a maquiladora is a manufacturing operation in a free trade zone, where factories import material and equipment on a duty-free and tariff-free basis for assembly, processing, or manufacturing and then export the assembled, processed and/or manufactured products, sometimes back to the raw materials’ country of origin. Mexican labor is kept cheap and competitive with other major export countries to keep the United States firms operating within the Mexican assembly plants. Mexican women work for approximately one-sixth of the U.S. hourly rate.Young women are often preferred over older women, as younger women are capable of working longer hours. Women are often subjected to unsafe and unsanitary working conditions. Poverty is a key factor that motivates women, in particular, to work in maquiladoras. The minimum wage set by the Mexican government is barely enough to help sustain a family. The minimum wage buys only about a quarter of the basic necessities that are essential for a typical worker’s family.

Exports: $406.4 billion (2014 est.) Number of Apparel Companies: 8,614 (OTEXA) Number of Manufacturers: 11,600 plants

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United States rd largest trading partner

2nd destination of all U.S. exports

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lead time Infrastructure Transportation: Toll Roads, Port Infrastructure, Railways, Public Transportation and Logistics Energy: Electrical Power Generation and Transmission, Oil & Gas Production, Refinery, Gas & Petrochemicals, Geothermal & Biomass Telecommunications: Broadband internet, closing the digital gap. Environmental Technology: Water Supply and Sanitation, Water Resource Management and Pollution/ Disposal Technologies Aviation: Airports and Ground Support.

holidays Mexican holidays coincide closely with those celebrated in the United States because of proximity. The holidays celebrated by Mexico today exemplify the synthesis of ancient Mexican religion and Catholicism, and commemorate the struggles of Mexico’s different social classes and economic groups.

Volcanoes

Earthquakes

Hurricanes

natural disasters Hurricane season lasts from about June until November, though most occur during August and October. The tropical storms and hurricanes can affect weather on the Caribbean coast of the Yucatan Peninsula, the Gulf Coast, and the Pacific Coast.

Situated atop three of the large tectonic plates that constitute the earth’s surface, Mexico is one of the most seismologically active regions on earth. The motion of these plates causes earthquakes and volcanic activity. Most of the Mexican landmass rests on the westward moving North American plate. Continued motion along the Pacific plate fault is the source of earthquakes in western Mexico

Mexico is located in an area known as the Pacific “Ring of Fire.” This region, one of Earth’s most dynamic tectonic areas, is characterized by active volcanoes and frequent seismic activity. The highest point in the country, Citlaltépetl (also called Orizaba) and the active volcano Popocatépetl are among the many volcanic peaks in Mexico.


Suppliers Aalfs Manufacturing company

Denim

Address: Poanas No. 352, Parque Industrial Lagunero, GOMEZ PALACIO, DURANGO, MEXICO, 35078 Phone: +52 871 729 7780 Website: http://www.aalfs.com Customer: Levi Strauss

Kaltex Apparel

Address: Ings. Militares No. 2 Col. Empleado Municipal Naucalpan, Estado de MĂŠxico C.P. 53380 Phone: +52 57265600 Customer: Levi Strauss Website: http://www.kaltex.com.mx

ropa siete leguas jeans Address: Calz. del Tecnologico #1055 Cd. Lerdo Dgo., Mexico C.P. 35150 Phone: +52 871 748 1400 Customer: Polo Ralph Lauren Website: http://www.sieteleguas.com.mx

bra tops

industrias macys SA de CV

woven bottoms

Address: JM Izazaga 99-8 Colonia Centro Mexico City, Mexico 06090 Phone: +52 5 709 7620 Customer: Under Armour Website: http://www.nhapparel.com

mex mode, S.a. De C.V.

Address: Retorno De Continentes 38 Rancho Los Soles Tatlixco Puebla C P 74290 Mexico Tetel Phone: +52 244 226 3358 Customer: The North Face, Nike Inc. Website: http://www.ingredion.mx/

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business etiquette

Dress Code For men: Stylish yet classic dark colored suits with shirt and ties. Being well groomed is important. Nice accessories are good to. For women: Stylish yet classic business suits or dresses and matching shoes. Most women are always made-up and usually wear heels and hose. Note: Jeans and business casual attire is usually a not appropriate. Dress conservatively.

Meetings When setting up a business meeting at a distant date in the future, it is important to confirm the meeting - doing so several times and even on the eve of the meeting. Mexican business people even consider appointments with people from the United States as tentative until they know the person is actually in Mexico. Arriving on time for a meeting is important even though you may have to wait 30 minutes or more. There is usually 5-15 minutes of small talk before getting down to business. It is best to allow your host to begin the business discussion. Generally speaking meetings run slower than in the US, and never are held on the weekends.

Negotiations Mexicans tend to value relationship building and harmony so it is important to avoid hard selling, pressure tactics and any sort of conflict or confrontation. They can become animated when negotiating, be sure to not mistake this aggression. When negotiations are finished, be sure to return to the small talk for a bit before leaving and always say a good-bye. Do not throw documents on the table; it is considered rude. They withhold a hierarchical business system in which those at the top of the company make the decision, so it is important to directly address those in charge. When negotiations are finished, be sure to return to the small talk for a bit before leaving and always say a goodbye.

Titles & Business cards Titles are very important and it is best to address people directly by using their professional title or Mr., Mrs., or Miss, followed by the surname. It is advisable, although not required, to have one side of your business card translated into Spanish. Present your business card with the Spanish side facing the recipient. Business cards are exchanged usually exchanged with everyone at the meeting.


T r a d e ag r e e m e n t s Overview The country has around 45 free trade agreements in place with several countries and other partiies, including Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan. More than 90% of Mexico’s trade falls under free trade agreements. Free trade agreements have substantially liberalized the country’s trade regime. North American Free Trade Agreement (NAFTA): After the implementation in 1994 the trade between US and Canada has nearly tripled. Mexico has become the United States second largest export market and third largest source of imports. NAFTA promotes opportunities for U.S. fiber, textile and clothing manufacturers to expand sales and increase production, to make full use of economies of scale and take advantage of complementary resources in the three countries to enhance export potential. Trans-Pacific Partnership (TPP): Joined the in late 2012, a free trade agreement is being negotiated by the US, Australia, Canada, Japan, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. The agreement, when completed, will open up a lot of new markets for Mexico and will reduce its dependence on the US.

More than

90%

of trade falls under a free trade agreement

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t r a n s p o r tat i o n The city of El Paso, Texas is situated on the border with Mexico. El Paso’s dynamic growth has been credited to the development of an integrated international trade region with Ciudad Juarez, Mexico, long before free trade zones and global markets flourished. Moreover, El Paso’s central location yields a strategic proximity to markets across North America, with an interstate highway system providing both east/west and north/south access, rail facilities serving every North American market, and the newly renovated and expanded El Paso International Airport.

Shipping companies & cost: Based on 20,000 commodity value by truck

Russell Transport Departure: Durango, Mexico Arrival:

Houston, Texas: 12.8 hrs; 1,375 km; $2,573 san diego, CAlifornia: 20.5 hrs; 2,090 km; $4,140 Savannah, Georgia: 1 day 3 hrs; 2,927 km; $5,477

yrc freight Departure: Naucalpan, Mexico Arrival:

Houston, Texas: 15 hrs; 1670 km; $3,125 san diego, CAlifornia: 1 day 4 hrs; 2,810 km; $5260 Savannah, Georgia: 1 day 5 hrs; 3,222 km; $6,030

werner de mexico Departure: Cd. Lerdo Dgo., Mexico Arrival:

Houston, Texas: 10,8 hrs; 1,148 km; $2,149 San diego, CAlifornia: 18 hrs; 1,864 km; $ 3,488 Savannah, Georgia: 1 day 1 hr; 2,700 km; $5,054


savannah

El Paso, TX

22nd Largest export market in the United States in 2013

$14.4 billion total merchandise exports in 2013 13


risks & benefits

• Dependence on the USA (78% of all exports)

• Vast Market • Membership of NAFTA, TPP, WTO

• Infrastructure shortcomings (education, research and justice) • Pervasive informal economy, low productivity and wages • Weak development (17% of GDP) and high cost of credit

• Geographic proximity to the North American market • large industrial base • low external debt • Strategic location

• Lack of competitiveness • Excellent Supply Chains • High crime levels prospering on high levels of poverty and inequality • impovershed illegal immigrants from central america looking for work

• Fiscal stimulus • talented young workforce • Political stability, low inflation

• Ranked one of the lowest in safety by the OECD Better Life Index

• Size and strength of domestic market • ability to attract advanced manufacturing

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by brynn mckinstry for FASM 420: Global Sourcing Professor Grace Canepa 16


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