Monday, October 28, 2013

From the "Labyrinth of Solitude" to a "Network of Partnerships" – the new story of Mexico .. a new opportunity for Indian business

Octavio Paz, the celebrated Mexican writer who was Ambassador to India in the sixties, wrote in his book " The Labyrinth of Solitude" that the "Mexican is always remote from the world and other people". This was his conclusion after an in-depth analysis of the character and identity of the Mexicans who have inherited a mix of Aztec and Mayan Indian traditions and European culture and have been influenced overwhelmingly by the culture of US. If Paz is alive today, he would have changed the title or written another book with the title" Network of Partnerships" to reflect the new reality of Mexico. The Mexicans are no longer alone in labyrinths introspecting their solitude. They have become extroverts, eagerly embracing partnership and alliance with countries around the world. Mexico has signed Free Trade Area ( FTA) agreements with 44 countries, which account for 70% of global GDP. Their FTA partners include US, Canada, European Union, EFTA countries, Japan and some Latin American countries. Mexico is member of  NAFTA, Pacific Alliance, APEC and OECD. It has joined the Trans Pacific Partnership (TPP) which is negotiating a new generation economic partnership among 12 countries, going beyond conventional FTAs.

With these partnerships, Mexico has expanded its economic and commercial space beyond its own market of 114 million people and 1.3 trillion dollar GDP. It has become a geographic, linguistic and cultural link to the markets of its partners. Mexico straddles the developed markets of US and Canada in the north and the emerging markets of South and Central America. The country has access to the east through Atlantic and the west through Pacific. It connects the northern entrepreneurship culture to the Latino spirit.  As the largest spanish-speaking country in the world, Mexico is the entry point to the larger market of 400 million spanish speakers in Latin America, US and Europe.
Unlike the raw materials exporting South America, Mexico is an exporter of manufactured products such as automobiles, electronics and aerospace equipments. The country has a conducive ecosystem for manufacturing with an integrated supply chain, availability of large pool of skilled people and technologies. Companies from US, Europe, Japan, Korea and China are using Mexico as a platform for supplies to NAFTA markets. Mexico exports 80% of its 3 million cars produced annually. The car companies are investing 10 billion dollars in the next six years to modernize and expand their production facilities.
The cost of Mexican labour has become competitive vis-a-vis the Chinese whose wages have gone up. According to a recent study by Bank of America, Mexican wages are 20% cheaper than China's in some cases. Mexico has a large and growing young population unlike the ageing Chinese society. US imports from Mexico have started rising faster than those from China. It is, therefore, not surprising that Mexico is being talked of as the "China of the Americas". 
Mexico, the second largest economic partner of India has a competitive edge over Brazil and Argentina the number one and number three markets of Latin America. While Argentina and Brazil have erected a number of barriers for imports, the Mexican market is open with low tariffs. The Mexican government policies are more stable, transparent, predictable and investor-friendly. Argentina runs an annual inflation of 25% since 2007 and the companies are forced to increase the salaries of staff at least by 25% every year.  In Brazil, the cost of production, wages and interest rates are very high. In contrast, Mexico has low inflation (just 3.6% in 2012), low wages( 2.5 dollars an hour) and low interest rate of 4.8%. It is not surprising that Brazil has put restrictions on the imports of Made In Mexcio cars which threatened the high cost Brazilian automobile industry. In any case Mexico's trade of 740 billion dollars is larger than the combined trade of Brazil and Argentina which was 665 billion in 2012.

The Mexican market is going to be even more attractive in the future, given the ongoing reforms in various sectors of the economy under the "Mexico Pact", a consensus agreement between the four major political parties of the country on vital national issues and reforms.
Of course, Mexico faces many challenges such as crime, drug trafficking, poverty, inequality, slow economic growth, political polarization and corruption. The overdependence on the US market makes Mexico vulnerable to the economic situation there. But the point to note is that now the Mexicans have a new mindset, confidence and optimism to tackle these issues and believe in Reincarnation unlike the past when they had resigned themselves to the Karma.
With the large network of partnerships and competitive manufacturing environment and wages, Mexico offers a strategic base for Indian companies with global strategies. The Indian IT companies are already leveraging the unique position of Mexico for their global delivery services. For example TCS has 3000 staff in Mexico providing near-shore same time zone services to their US clients. They work 12 hours from Mexico and another 12 hours from India to provide 24/7 services seamlessly with their new 12/12 business model. Their Mexican programmers develop software in English for the US market and in Spanish for the Spanish speaking market of 400 million. TCS finds value addition from the different mindset and culture of their Mexican managers and developers who complement the Indian imagination and creativity.There are a dozen Indian companies manufacturing tyres, pharmaceuticals, chemicals and auto parts in Mexico mainly for exports to US. JK tyres, which has three plants employing 2000 Mexicans,  exports their products to even Brazil. 

India's trade with Mexico was 6.3 billion dollars in 2012, of which imports were 3.3 billion and exports 3 billion. India's imports of crude oil were 2.8 billion dollars in 2012. Mexico is keen to increase oil exports to India since US, their main market is reducing imports of Mexican oil thanks to the growing domestic production of shale oil and gas. India's exports could be increased to 10 billion dollars in the next five years if the Indian exporters target the Mexican market more seriously.The Indian government should sign a FTA with Mexico at the earliest to remove the disadvantage faced by Indian exports vis-a-vis the the exports from the 44 countries which have FTAs with Mexico.

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