Is the climate welcoming for international companies?

Executive Summary

Seeking to improve its economy and the standard of living for its 122 million citizens, Mexico is undergoing a massive transformation as it courts foreign investors and an array of trade partners. It has embarked on an ambitious agenda of domestic reforms—opening the oil sector to private investors for the first time in 76 years, breaking up telecommunications monopolies and modernizing education, as well as overhauling outdated infrastructure and cultivating a portfolio of free-trade agreements. The result has been a boom in trade and investment in the world's 11th largest economy. But the country faces notable challenges, chiefly high rates of violent crime, endemic corruption, a wide gap in wealth distribution and an underskilled workforce. Experts say Mexico's potential as an economic powerhouse will continue to go unfulfilled unless those pressing social issues can be reined in. Among the questions of concern for international business: Is labor cost-effective in Mexico? Is it safe to operate there? Does Mexico offer investors sufficient and reliable infrastructure?

Resources

Bibliography

Books

Holmes, Cameron H., “Organized Crime in Mexico: Assessing the Threat to North American Economies,” Potomac Books, 2014. A prosecutor examines how drug cartels are threatening democracy and the economy in Mexico and the United States.

Morton, Adam David, “Revolution and State in Modern Mexico: The Political Economy of Uneven Development,” Rowman & Littlefield Publishers, 2013. A professor of political economy at the University of Sydney details the development of modern Mexico from Marxist revolutionary beginnings to capitalism.

O'Neil, Shannon K., “Two Nations Indivisible: Mexico, the United States and the Road Ahead,” Oxford University Press, 2013. A Latin America scholar at the Council on Foreign Relations looks at the history of U.S.-Mexico relations, and projects the future.

Pearce, Kenneth, “A Traveller's History of Mexico,” Interlink Books, 2002. An author surveys Mexican history from pre-Columbian times to the present.

Articles

Althaus, Dudley, and William Boston, “Why Automakers Are Building Factories in Mexico, not the U.S.,” The Wall Street Journal, March 17, 2015, http://tinyurl.com/nsxde5u. Mexico's thriving auto industry is attracting investment from around the world.

Anderson, Chris, “Mexico: The New China,” The New York Times, Jan. 26, 2013, http://tinyurl.com/ahy2lqu. An entrepreneur who founded a drone-manufacturing plant in Tijuana relates his experience.

Nehro, Diana J., “Mexico Labor Reforms Increase Protections for Employees and Clarity for Employers,” Society for Human Resource Management, Feb. 12, 2013, http://tinyurl.com/oo8gdcg. A lawyer examines Mexico's 2013 package of labor reforms.

Priddle, Alisa, and Brent Snavely, “Why Mexico is winning the auto jobs war,” Detroit Free Press, June 14, 2015, http://tinyurl.com/nsnsssx. Mexico built almost 20 percent of the vehicles produced in North America last year—double the share 10 years earlier.

Reports and Studies

“Doing Business in Mexico: Automotive Industry,” PricewaterhouseCoopers Mexico, September 2014, http://tinyurl.com/ohy4o65. The Mexico office of the business service and accounting company takes an in-depth look at the auto industry in Mexico.

“Foreign Direct Investment in Mexico: Is Your Investment Safe?” American Chamber of Commerce of Mexico, June 2010, http://tinyurl.com/p6lxmat. The group representing foreign companies operating in Mexico weighs the country's advantages and disadvantages for investors.

Baron, Jay, Brian Esterberg and Bernard Swiecki, “Accelerating the Growth of the U.S. Automotive Manufacturing Industry at Home, Rather than Abroad,” Center for Automotive Research, 2014, http://tinyurl.com/pud9nkp. Automotive industry researchers examine the effects of the U.S.-Mexican rivalry and how the U.S. auto industry can compete.

Díaz-Cayceros, Alberto, Beatriz Magaloni and Vidal Romero, “Caught in the Crossfire: The Geography of Extortion and Police Corruption in Mexico,” Stanford University, February 2014, http://tinyurl.com/oj6co3p. Researchers from Stanford University and the Instituto Tecnológico Autónomo de México study the role of law enforcement in extortion networks.

Díaz-Cayceros, Alberto, et al., “Living in Fear: The Dynamics of Extortion in Mexico's Criminal Insurgency,” Stanford University, February 2014, http://tinyurl.com/pzt33bo. Researchers from three universities—Stanford, University of California, Berkeley and the Instituto Tecnológico Autónomo de México—explore how narcotraffickers control regions through extortion.

O'Neil, Shannon K., “What does the TPP Mean for Latin America?” Council on Foreign Relations, May 19, 2015, http://tinyurl.com/qaxhb89. An international trade expert lays out the pros and cons of the Trans-Pacific Partnership.

O'Neil, Shannon K., and Gilberto García, “Economic Clusters, Productivity, and Growth in Latin America,” Council on Foreign Relations, June 9, 2015, http://tinyurl.com/qhy6xo7. Trade experts look at the economic advantages when industry clusters in geographical regions.

Robles, Gustavo, Gabriela Calderón and Beatriz Magaloni, “The Economic Costs of Drug Trafficking Violence in Mexico,” Stanford University, December 2013, http://tinyurl.com/qzl7nhy. Stanford University researchers say violence carries big costs to the Mexican economy.

The Next Step

Crime

Bogler, Dan, “Crime and punishment: Mexico suffers the costs of lawlessness,” Financial Times, June 15, 2015, http://tinyurl.com/o9jsesn. Mexico's statistics agency estimates that crime costs the country 2 percent to 3 percent of its GDP each year and disproportionately hurts small businesses that must pay additional security costs.

Guilbert, Kieran, “Mexico sees fall in violence, despite drug war: index,” Thomson Reuters Foundation, March 19, 2015, http://tinyurl.com/py8boby. Declines in violent and organized crime in Mexico over the last four years have helped Mexico's economy, according to the Institute for Economics and Peace, an Australia-based think tank.

MacDonald, Alistair, and Dudley Althaus, “Mining Companies Face Dangers From Criminal Gangs in Mexico,” The Wall Street Journal, April 10, 2015, http://tinyurl.com/q6ao375. Mexican cartels have extorted and kidnapped growing numbers of employees of mining companies that have expanded exploration in the country.

Infrastructure

Dibble, Sandra, “It's Mexico's turn to boost border enforcement—with a new pedestrian crossing into Tijuana,” Los Angeles Times, Aug. 26, 2015, http://tinyurl.com/plroeek. Mexican border officials hope to more closely regulate travel into Tijuana with a newly constructed $6.9 million crossing, built as part of a national push to improve border infrastructure.

Martin, Eric, Andrea Navarro and Adam Williams, “Mexico's CFE Sees Infrastructure Spending Near $16.6 Billion,” Bloomberg Business, May 8, 2015, http://tinyurl.com/pjw388z. Mexico's federal energy commission and outside companies will spend nearly $17 billion to build planned natural gas pipelines and renewable energy projects, according to the commission's chief executive.

Toonkel, Jessica, and Christine Murray, “Private investors look but do not leap at Mexican energy projects,” Reuters, June 9, 2015, http://tinyurl.com/p74c9ox. Bureaucratic red tape, security concerns and construction delays caused by opposition groups have deterred American investors from proceeding with plans to fund energy projects in Mexico.

Labor Costs

Choi, Candice, “Trump vows never to eat Oreos again, citing move to Mexico,” The Associated Press, Aug. 25, 2015, http://tinyurl.com/nqrlaas. Republican presidential candidate Donald Trump said he would boycott Oreos, a cookie made by snack manufacturer Mondelez International, after the company decided to invest $130 million in a Mexican factory rather than one in Chicago, to cut labor costs and operating expenses.

Krisher, Tom, “Preserving jobs, pay raises on table as US auto talks open,” The Associated Press, July 8, 2015, http://tinyurl.com/p7b94fa. American automotive workers unions hope to negotiate with manufacturers for better wages even as companies open more plants in Mexico, where labor costs about $8 an hour.

Woody, Christopher, “Mexico's wage crisis is so bad ‘that it violates what's stipulated in the Constitution,’” Business Insider, Aug. 2, 2015, http://tinyurl.com/os5brf3. Mexicans worked 531 more hours on average than Americans in 2014, yet made roughly one-fifth as much money, according to data from the Organisation for Economic Co-operation and Development.

Oil Industry

Case, Brendan, and Eric Smith, “Mexico Cuts Growth Forecast on Oil, U.S. Industrial Output,” Bloomberg Business, Aug. 20, 2015, http://tinyurl.com/pyrlovg. Mexico's deputy finance minister said crude oil production that has been lower than projected influenced the country's decision to lower its year-end economic growth forecast.

Krauss, Clifford, “U.S. Allows Limited Oil Exports to Mexico,” The New York Times, Aug. 14, 2015, http://tinyurl.com/ngwrtg2. The U.S. Commerce Department said it will temporarily allow U.S. companies to export crude oil to Mexico, although oil executives continue to ask the government to fully end an export ban to open up trade.

Osborne, James, “As Mexico makes history, oil industry largely stays away,” The Dallas Morning News, July 15, 2015, http://tinyurl.com/nj2fsxq. Mexico sold only two of 14 available state-owned oil fields to foreign firms, many of which stayed away due to unfavorable contract terms, during the government's first-ever auction of oil reserves.

Organizations

ORGANIZATIONS TO CONTACT

American Chamber of Commerce of Mexico
Blas Pascal 205, 3.er piso, Col. Los Morales, 11510 Mexico City
(52-55) 5141-3800
www.amcham.com.mx
Business advocacy organization representing international companies operating in Mexico; counterpart groups are in Costa Rica, El Salvador, Guatemala and Honduras.

Caribbean-Central American Action
1625 K St., N.W., Suite 200, Washington, DC 20006
202-464-2031
www.c-caa.org
Promotes private-sector-generated economic development, trade, investment and business policies in the Caribbean and Central America.

Center for International Private Enterprise
1211 Connecticut Ave., N.W., Suite 700, Washington, DC 20036
202-721-9200
www.cipe.org
Advocacy group that works to build democracy and market economies throughout the world; also monitors issues and policies of business interest.

Council of the Americas
1615 L St., N.W., Suite 250, Washington, D.C. 20036
202-659-8989
www.as-coa.org
Analyzes economic and political issues affecting businesses in Latin America.

Export-Import Bank of the United States
811 Vermont Ave., N.W., Washington, DC 20571
202-565-EXIM
www.exim.gov
U.S. government agency that helps finance the overseas sales of U.S. goods and services.

International Trade Administration, U.S. Department of Commerce
1401 Constitution Ave., N.W., Washington, D.C. 20230
1-800-USA-TRAD
http://www.trade.gov/
U.S. government agency that offers information on all aspects of overseas business, including exporting, international sales, logistics, finance, intellectual property protection, trade dispute resolutions.

International Trade and Investment Division, U.S. Chamber of Commerce
1615 H St., N.W., Washington, DC 20062-2000
202-659-6000
www.uschamber.com/international-trade-and-investment
Chamber's trade and investment division that offers information on doing business abroad; also represents U.S. business interests in trade policy issues and negotiations.

North American Development Bank
203 South St. Mary's, Suite 300, San Antonio, TX 78205
210-231-8000
www.nadbank.org
International financial institution formed by the governments of United States and Mexico for financing infrastructure projects along the shared border.

The Trust for the Americas
2600 16th St., N.W., 4th Floor, Washington, D.C. 20006
202-458-3458
www.trustfortheamericas.org
An agency of the Organization of American States that promotes private-sector participation in economic-opportunity projects for the region's most disenfranchised.

United States-Mexico Chamber of Commerce
6800 Versar Center Drive, Suite 450, Springfield, VA 22151
703-752-4751
www.usmcoc.org
Business group that helps bridge legal, economic and regulatory differences for investors.

DOI: 10.1177/2374556815608835