1.3 Terrain Large area of territory of Mexico is consisting of high, rugged mountains, low coastal plains, high plateaus and desert. So it is difficult to transport raw materials or products. As a result, if we decide to set up the branch, we should choose the area of southeast corner of the country - the low costal plain as the site of factory. Then the transport will be not so difficult and it is near our target market – various of Central American countries.
All in all, geographic factors in Mexico are not perfect fit for manufacturing automobiles. Maybe setting a branch for assembling is a wiser idea.
2. High proportion but low level industries
2.1 main natural resources and agricultural products
The petroleum and natural gas are most important motive force resource of Mexico, the reserves are very abundant. The petroleum reserves occupies the eighth place in the world, Reaches 65,600 million barrels. Mexico is also storing the nonferrous metals, such as lead, copper, manganese, antimony, tungsten, tin, bismuth, mercury, etc. Abundant reserve of oil is propitious to not only the industries of automobile but also the purchase of cars.
The woods fishery of agriculture and animal husbandry still occupies the important position in the economic life of the China ink, 27 of national population. 5% lives in the countryside. Grains the long-term can't self-sufficiency, need every years because it import in a large amount, use and gather together by the 700 million dollar.
2.2 major industries
The value of industrial output accounts for 30% of gross domestic product; workforce over 25% is engaged in agriculture. The automobile makes, food processing, steel, Chemistry and electronic machinery are important industrial departments, the petroleum is refined and the mining industry is very important. And most workers the department of the family property is still in the poor engineering level. It means that the automobile industry in Mexico is still infantile and it is a good opportunity for us to set our branch there and attain the market.
2.3 major imports & exports
In 2002 exports totaled US$161bn and imports US$169bn, producing a trade deficit of US$8bn. The current-account deficit was US$14.1bn, around 2.2% of GDP.
For Mexico, the most important goods for exports are oil. And Mexico has become the second country that exports oil to the US. As shown below, the most important imports goods for Mexico is intermediate goods, for example, the accessories of automobiles. We can set an assembling branch here and transport accessories there and assemble them in the branch and sell our products all over the Central American.
(Resources: http://www.economist.com/countries/Mexico/profile.cfm?folder=Profile-FactSheet)
To sum, though trying to become industry country from agriculture country, Mexico’s level of industry is still low. Setting a branch there will not engage too much competition.
3. Stable economic conditions with potential crisis
Mexico has a free market economy with a mixture of modern and outmoded industry and agriculture, increasingly dominated by the private sector. Recent administrations have expanded competition in seaports, railroads, telecommunications, electricity, natural gas distribution, and airports. Income distribution remains highly unequal. Trade with the US and Canada has tripled since the implementation of NAFTA in 1994. Following 6.9% growth in 2000, real GDP fell 0.3% in 2001, recovering to only a plus 1% in 2002, with the US slowdown the principal cause. The economy is characterised by a mixture of modern and outmoded industry and agriculture. Key reforms were undertaken in sectors such as ports, rail, telecommunications and energy by the Salinas (1988-94) and Zedillo (1994-2000) Administrations. Further and much needed structural reform efforts under President Fox have been frustrated by Congress.
3.1 GDP
Mexico’s economic growth remains volatile and its prospects of a return to sustained growth will depend on further economic reform improving the competitiveness of Mexican goods and services in the all important US market (which accounts for over 80 per cent of Mexican exports). The Mexican economy has recovered since moving into recession in 2001. The Mexican Central Bank forecasts GDP to have grown by 1.2 per cent in 2003 and predicts GDP growth of up to 3.5 per cent in 2004 depending on Mexico’s ability to maintain its share of the US market. GDP per capita was US$8900 in 2002, and the distribution of income and wealth remains very unequal.
3.2 Inflation
Because of the new policy of taxation, Mexico successfully decrease inflation from 25%(1996) to 5.0%(2003). Analyzers points out, Mexico’s inflation rates reduce and give the credit to industry, resource of Mexico of and export go up at product cost, Decline of respect prices, such as domestic service trade, etc. and harmony of the Mexican general presidential election of this year. With the low inflation, oversea investment can be done more safely. The risk for us to set up the branch also decreases.
3.3 Personal income & employment
3.3 Personal income & employment
The average personal income of Mexican is 5948 US dollars. With high rate of employment and the considerable average income, Mexicans are capability to purchase automobiles. On the other hand, although it is not very high in world wide, the number is much more than in China. Compared with using Chinese workers, setting up branch in Mexico and using local labor will increase the cost.
The latest unemployment rate in Mexico is 2.1%. Also 0.265% (net) of Mexico immigrant to the US, Canada or other countries. So we will find it difficult to hire high quality employees there. By the September of 2000, the Mexican employment volume has already become 11,630,000,increased by 4 compared with the same period of last year. 9% among them are engaged in the construction, 95. 80,000 are interims worker engaged in the processing industry and service trade. Processed the industrial products export and increased by 12 compared with the same period of last year in August of 2000. 8%, this trade employment volume reaches 31 too. 6 people, increase by 13% compared with the same period of last year. So, the Mexican rate of unemployment will drop as 2 in 2000.
3.4 Foreign investment
Restrictions on direct foreign investment were eased during the administrations of presidents de la Madrid and Salinas. In 1990 the government revised Mexico's 1973 foreign investment law, opening up to foreign investment certain sectors of the economy that previously had been restricted to Mexican nationals or to the state. The new regulations permitted up to 100 percent foreign ownership in many industries. The new code eliminated performance requirements previously imposed upon foreign investors, along with minimum domestic content.
As the government’s encourage of foreign investment, our setting the new branch will not be counteracted. However, in 1980s, Mexico had economic crisis because of over dependence of oversea capital. It is also potential crisis that we must consider.
All in all, with stably increase of GDP, low inflation and low unemployment, Economic condition of Mexico is fairly good. The Mexican government also encourages oversea investment very much. However, it also causes the potential economic crisis that we can not ignore.
4. Infrastructure of Mexico
4.1 Transportation
(Resources: http://www.cia.gov/cia/publications/factbook/geos/mx.html#Issues)
As listed above, he transportation in Mexico is very convenience. Various way of transportation should be fully used. Water way and harbors should be used to allocate our products from the new branch to anywhere of Central American.
4.2 Communication
In Mexico, the number of Telephones of main lines in use is 12.332 million, and mobile phones are 2.02million.General assessment: low telephone density with about 12 main lines per 100 persons; privatized in December 1990; the opening to competition in January 1997 improved prospects for development. Domestic: adequate telephone service for business and government, but the population is poorly served; domestic satellite system with 120 earth stations; extensive microwave radio relay network; considerable use of fiber-optic cable, coaxial cable, and mobile cellular service.
International: satellite earth stations - 32 Intelsat, 2 Solitarian (giving Mexico improved access to South America, Central America, and much of the US as well as enhancing domestic communications), numerous Inmost mobile earth stations; linked to Central American Microwave System of trunk connections; high capacity Columbus-2 fiber-optic submarine cable with access to the US, Virgin Islands, Canary Islands, Morocco, Spain, and Italy.
4.3 Utilities
Because of scarcity of hazardous waste disposal facilities, the government considers the lack of clean water and deforestation national security issues. It is really bad news for manufacturing automobiles in Mexico, because it needs great deal of water. The utilities of Mexico are listed below.
(Resources: http://www.cia.gov/cia/publications/factbook/geos/mx.html#Issues)
As the chart shown, in Mexico, there is more electricity production than electricity consumption. Also, the reserve of gas in Mexico is very abundant. All these permit us to set a branch there.
5. Evaluation of state of the economy
5.1 Economic problems
Although having gone thoroughly from the shadow of middle-1990s economic crisis, economic problems still exist in Mexico. The exchange rate of Mexican Pesos constantly increases. It will have negative influence on the exports of Mexico. It also means that we will have to pay more money to set up our new branch.
5.2 Role of the government and it’ economic policies
Since joined WTO, Mexico had began to be transformed into export- oriented development model from the internally oriented development model. Mexico government pursued adjustment, reform, privatization, measure opening to the outside world in a more cost- effective manner after this, make 1995 black economy increased at a low speed while keeping for years, world stored and the foreign capitals increased constantly, the inflation is dropped to a- figure number, the finance makes a profit instead of suffering a loss, the rate in debt reaches normal value, imports and exports increase by a large margin; On the other hand, take shape and import too many too , rely on foreign short-term capital come balance too high economic project situation of deficit mainly.
5.3 Future potential
Although Mexico remained in a difficult economic condition in mid-1990s, the worst of the recession had passed and the country appeared headed toward recovery. The economy registered positive growth in the second quarter of 1996, inflation and interest rates abated, and portfolio investment returned, as reflected in Mexico's rising stock exchange index. Despite continuing problems exacerbated by low investor confidence, analysts agreed that Mexico's economy in the new century was fundamentally sound and capable of long-term expansion. With low inflation rate and unemployment rate, Mexico will offer us stable economic environment. And we have reason to believe that we will have opportunities to gain success.
In a word, though have some economic problems, Mexican economy has the capacity to have long-term expansion
Recommendation & Conclusion
To sum up, Mexico is not 100% fit for the standard of ideal location of our new branch. There is no doubt that Mexico has a stable economic condition with brilliant future. There are also abundant nature resources and perfect economic policies for oversea investment. Also the low level of industry gives us opportunity to set our branch and attain the market. However, the geographic factors set the barriers for not only manufacturing but also transportation. What is worse, because of high income level and exchange rate of Mexico, the cost of us will increase sharply. Also, it will be difficult to find appropriate employees since there is very low inflation rate and high migration rate. Of course, if we couldn’t find better location for our new branch, choosing Mexico should be also a not bad idea.
Bibliography
Ricardo Valenzuela, A Prescription for Dealing With Mexico's Economic Crisis
James M. Cypher, State and Capital in Mexico
http://www.economist.com/countries/Mexico/profile.cfm?folder=Profile-FactSheet
CIA – the world factbook – Mexico
http://www.wsws.org/news/1998/sep1998/mex-s24.shtml
