Mexico — more than just a threat

To established western economies, every emerging market can be seen as both a threat and an opportunity. Certainly it is no different with Mexico, the third player in our increasingly integrated NAFTA region. The question is, how much of a threat, and how much of an opportunity? The answer depends on which markets you serve.

Mexico is, and will continue be, a boon for equipment suppliers. The country has only a small domestic machinery manufacturing industry to service an annual industrial production growth rate of 7.5%. As a result, more than 85% of Mexico’s plastics machinery is imported. Many companies need to modernize their equipment and the wish list literally runs the gamut of the plastics machinery universe — from primary forming equipment to entire lines of auxiliary machinery. Canada’s particular niche is in the export of injection-stretch and blow molding equipment for the bottle market.

The outlook for mold sales to Mexico is also rosy (see Mexico Report, p. 23). Mexico needs about 45,000 molds a year and has virtually no home-grown moldmaking industry. However, only a small percentage of Canadian moldmakers have made an effort to crack this market, and most of these are serving Mexico’s booming blow molding industry. This is reflected in the fact that Canada ranks a distant third, behind the U.S. and Portugal, in mold exports to Mexico.

My feeling is that many moldmakers simply do not want to invest the time and effort to enter this market. Some, to be sure, have gotten business simply by following their customers south. Yet as I discovered during my recent trip to Mexico to report on this market, there are a number of reasons moldmakers may be shunning Mexico. Language is one barrier, although overcome if (a big if) you can find a good Spanish-speaking sales agent. Mexican companies also require more service and technical support. There is also more inherent risk doing business in Mexico, as many companies expect their suppliers to be direct or indirect sources of financing.

For Canadian processors, Mexico is obviously more of a threat than an opportunity right now. Many OEMs, such as Black & Decker and Nortel, have already moved all their manufacturing and molding operations into the country. Some of the upper tier suppliers have followed these companies, but many of the sub-suppliers have been cut loose. With Mexican minimum wages ranging from $5 to $7 PER DAY, processors can expect more, not less of this to happen.

It would be unwise for Canadian processors and moldmakers to ignore either the threat or the opportunity posed by Mexico. Here is developing market of 100 million people with an economy that is lurching steadily forward. More and more politically and socially intertwined with the U.S., it is a country that is not going to go away. Mexican businesses are keen to establish alliances and joint ventures with technologically-advanced companies and forward-looking entrepreneurs. Those that get on the ground early will reap the most benefit down the road when the economy fully develops.

Investment seeks stability, and the Mexican government and industry must continue to work to create a climate friendly to trade, investment and free markets. President Vincente Fox has been attempting to rid Mexican society of corruption and its disastrous dependence on state-run enterprise and welfare. Many of his initiatives, however, have been undermined by the very old-line political opposition he defeated.

The story about Mexico that generally goes untold by the business press is the one I saw with my own eyes: The people. The Mexican people are relishing the opportunity to improve their lives. I wish anti-globalists could have seen the eager exuberance in the faces of the young employees at a company celebration I happened to witness. The occasion? The opening of a Starbucks in Mexico City.

Michael LeGault, editore-mail: mlegault@canplastics.com