The pandemic represents an opportunity to attract Asian capital to Mexico
4 min read
3 months ago

The pandemic represents a golden opportunity to attract Asian capital to Mexico

Out of crises often spring great opportunities. Working to attract Asian capital to Mexico during these times should be one of the country’s main economic priorities.

COVID-19 has exposed the heavy reliance of North American manufacturers on Asian suppliers, especially those from China. The recent disruption of productive activities in the Far East caused by the coronavirus pandemic has created many problems for scores of companies in the West and, more specifically, the United States. As a result of adverse circumstances, economic policymakers have undertaken to intensify their efforts to attract Asian capital to Mexico.

The Mexican Secretariat of the Economy (SE) has set its sights on efforts to attract Far East investment mainly from China, Japan, and South Korea. One way that the government entity is working toward this goal is by highlighting the tariff advantages of having a trade agreement in place with the planet’s dominant economy: the United States.

Efforts to attract Asian capital to Mexico can be successful because of the high tariffs that are sometimes levied on products coming from the Far East. This detracts from their competitiveness in certain areas and increases the competitiveness of products that come from Mexican suppliers.

Trade between Mexico and Asia dates back to the 16th century when Spanish sailors crossed the Pacific Ocean to take and bring goods to and from New Spain to the Far East. Part of Mexico’s current strategy is to create ample ties with U.S. or Canadian companies that have operations in Asia whose end products are consumed primarily in the United States, Mexico, or Canada. This approach is being pursued so that the companies in question have better control over their supply chains, production processes, and their presence in their respective markets.

Moreover, in 2020, the emergence of the coronavirus created a global crisis. As a result, the closure of Chinese companies resulted in disruptions of supply chains worldwide. Now, in a commitment to shortening production and supply chain processes, Mexico has raised its international profile for the purpose of promoting itself as a nerve center for global trade.

The Mexican Secretariat of the Economy has recently made overtures to U.S. and European companies in Asia, as well as to companies in other Far East nations such as Japan and South Korea. The SE is targeting the automotive, steel, aerospace, chemical, pharmaceutical, and logistics sectors. world’s steel companies

Government officials believe that efforts to attract Asian capital to Mexico succeed because the country has a young and talented workforce that is also capable of technological specialization. To illustrate this point, one can examine the case of Querétaro and the aerospace cluster, where labor specialization is a key component of global competitiveness.

Mexico has been a good base of operations for companies whose parent company is located in Asia. Proof of this is that companies such as Yakult, Nissan, Samsung, LG, and others have a presence in the country. These companies enjoy advantages related to labor and transportation costs, as well those attached to being in the same time zone as their North American clients. “Being far from God and so close to the United States” serves Mexico because it’s not the same to export products from Tijuana to San Diego as it is from Shanghai to San Diego.

According to recently released economic data, last year China was the only country in the world that did not experience a contraction in Gross Domestic Product (GDP) (the country’s economy expanded at a modest rate of 2.3%). This has prompted Mexico to promote greater trade with China in particular and with Asia in more general terms. This relative health of the Chinese economy has also motivated concentrated efforts to attract Asian capital to Mexico.

Asian-based manufacturers that establish facilities in Mexico are able to take advantage of the United States-Mexico-Canada Free Trade Agreement (USMCA), which was functionally implemented in July 2020.

This will enable them to move into the neighborhood with the United States, the world’s largest economy. For these moves to produce results, however, mutual knowledge is needed, i.e., Mexicans need to familiarize themselves with the customs and culture of each country that they wish to approach in Asia. Companies and investors must also be aware of how business is conducted in the region’s countries. A lack of knowledge in these areas has caused Chinese interests to cancel projects such as the Rapid Mexico-Querétaro Train, the Dragon Mart Complex, and the Chicoasén hydroelectric plant project in the southern state of Chiapas. Cases such as these can lead to uncertainty and, therefore, negatively affect efforts to attract Asian capital to Mexico. Chinese companies must also take the time and make the effort to learn how Mexico works at the federal, state, and municipal levels. Additionally, Chinese, and other Asian businessmen and women, must learn about the customs and culture of Mexico.

Additionally, the government must target its efforts to attract Asian capital to Mexico. Efforts of attracting investment across all industrial sectors are not what is called for. What is needed is to concentrate on the ones in which Mexico is competitive in its value chains.

Source:  Grupo Expansion

Jose Grajeda

Chief Operating Officer

Jose Grajeda

Chief Operating Officer

Maquiladora operations expert, Jose A. Grajeda, is an integral member of the Tecma Group of Companies executive management staff.