After several recent events that have shown the advantages of worldwide production diversification, several geographical locations around the world have emerged as attractive sites for establishing production operations. In other words, recent trends have shown that international companies will rely even more on regional production sites and distribution centers.
With respects to the American continent, this trend will surely be consolidated with the conclusion in 2005 of the Free Trade Agreement of the Americas (FTAA). This agreement will lay ground for the establishment of the biggest market in the world, one that would extend from Patagonia, Argentina, to Alaska, United States. Without a doubt, mere dimensions will make this agreement a landmark in international trade dynamics: 34 countries, a market of 865 million people, and a GDP of USD $12.8 trillion.
Mexico: the second most important supplier to the USA
What does this trend mean in terms of worldwide product sales and distribution? The aim of establishing closer economic links is the expansion of mutual - generated growth and benefits. Consequently, companies will have to consider that supplying customers located in every corner of the world will necessarily require the establishment of regional operations. There are spots within world regions that have emerged as premier sources of regional production and distribution. With respects to the American continent, Mexico has become the place where serious companies that want to make serious business have established their platforms aimed to the American continent. Why Mexico? Mexico is a preferred location because it is a source of cheap labor or other conditions that characterize highly volatile investments. Nevertheless, Mexico continues to be the second most important supplier to the United States because business trends demand advanced logistics solutions, extremely short response times and, most importantly, a presence within the North American Free Trade Agreement (NAFTA). In fact, according to UNCTAD, manufacturing in Mexico has reached levels of productivity and technological sophistication that make the threat of relocation to lower cost countries less imminent. (UNCTAD, World Investment Report 2003)
Mexico: An important investment destination in Latin America
12 of the 20 most successful transnational affiliates, that are located in Latin America, are Mexican established companies. 25,708 of the total 45,383 affiliates located in Latin America and the Caribbean, over 56%, are based in Mexico (UNCTAD). This is because, logistically wise, Mexico is conveniently located in the middle of the American continent. Thus, Mexico is not just an ideal place to supply the American, Canadian, or Mexican market. It is a place where, supplying attractive markets like Chile or Brazil is possible. Important Taiwanese companies rely on Mexico as an important link in their worldwide operations. To name a few examples, BenQ, Hon Hai Precision Ind., Nien Hsing, Tatung, Tex Ray, and Wistron have operations in Mexico. Mexico is the world's 10th largest economy, and offers investors the modern infrastructure and strong economic fundamentals that are needed for serious and reliable business. When one invests in Mexico, a clear rule of law and transparency are preconditions and not luxuries that have to be negotiated behind closed doors. All investments in Mexico are governed by the Foreign Investment Law, established in 1993, which assures investors a clear rule of law.
Mexico: with the widest free trade agreement
Geographical competitiveness is not the only reason that companies that wish to establish a permanent presence not only in the United States and Canada market, but in the emerging economies of South America, like Chile and Brazil, can supply demand from Mexico. Mexico has established, by far, the widest free trade agreement (FTA) network in the world, with commitments to lower trade barriers with 32 countries. Not many economies are as deeply committed to principles of free economy and trade. Mexico's trade liberalization partners include the United States, Canada, and the European Union. Mexico continues to lower trade barriers, and it is expected that an FTA with Japan will be concluded by the end of this year. Currently, talks are underway to implement FTAs with Argentina, Panama, and Paraguay. It is also important to mention that the local market offers more than 100 potential consumers.
Finally, perhaps Mexico's status as an investor preferred location is favored by it being a full member of NAFTA, along with Canada and the United States. The NAFTA area has benefited from trade deregulation. According to UNCTAD, NAFTA caused a jump in intra - regional trade. Intra - regional export of goods and services stood at 56% of total exports for North America in 2002, up from 49% in 1996 and 34% in 1980. Those who want to maintain a presence in the most important market in the world have to consider their presence within Mexico in order to obtain the benefits of future trends.