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Manufacturing in Mexico

Mexico’s Senate approves the energy reform bill

Mexican CorporationBy Adina Moloman

Sources: The Wall Street Journal, Forbes

Mexico’s Senate approved the controversial energy reform bill in order to open the state-run oil industry to foreign and domestic investors.

So, the government will be able to grant contracts and licenses for exploration and extraction of oil and gas to transnational corporations or any Mexican Corporation willing to invest under the Mexican Governments terms.

The contract terms are mentioning profit sharing, maybe production sharing, but definitely do not grant concessions. This actually is translated in not offering oil or ownership in the energy field and the oil transnational companies would be paid for their services. Foreign companies will be allowed to open up gasoline stations; so far in Mexico are only Pemex gasoline stations.

Under this new energy reform companies can explore the country’s deep-water deposits and shale oil and gas reserves that Mexico has in the Gulf of Mexico. Those transnational companies would pay royalties and taxes to the Mexican government for the right to explore and drill. Different sources are mentioning that Mexico could have another 29 billion barrels of oil and gas in deep-water plays in the Gulf of Mexico, and an additional 13 billion barrels of recoverable shale oil reserves.

It is also needed to define an organism that will regulate the oil industry in order to be more efficient and convert Mexico in an important energy exporter in the region.

Due to lack of cash and know how or not having a strong will to create energy products; Mexico is so far a crude exporter mostly to the U.S., shipping more than 1 million barrels a day.

Mexico Corporation

The binational character of the Baja International Film Festival

Mexico CorporationBy Adina Moloman

Source: Baja International Film Festival

Baja International Film Festival will be held November 14-17 in Los Cabos, Baja California, Mexico. This is a first edition of an annual event, which has the goal of becoming one of the major international film festivals in Latin America.

This first event is adopting the term bi national referring to the dialogue between the giant U.S. Film Industry and the Mexican Film Industry in order to evaluate the challenges and opportunities for Mexican talents and Mexico Cinema in United States.

The Festival is attracting directors, actors, producers, writers and national and international filmmakers that will facilitate networking and collaboration.

The Film Forum will focus mainly on topics related to Investment and Funding in Mexico and the USA such as: tax incentives, investment mechanisms for producing in Mexico; funding mechanisms for producing in the USA.

Another round of discussion will be over production costs in Mexico, the distribution of the Mexican films in the US, locations and Facilities in Mexico, the insertion of the Mexican talent in the USA Film industry.

Two industry panels will take place –financing and distribution panels, with the participation of representatives from US and Mexico Film Funds, where many of the speakers are key executives responsible for leading the finance, packaging and distribution, sales departments of important US and Mexico Corporation Film Industry.

During the Gala event are announced Award Recipients And Special Guests such as:  two-time Academy Award-nominee Edward Norton, Academy Award-nominee Matt Dillon, Academy Award-nominee Virginia Madsen, Academy Award-winner Melissa Leo, the filmmaker Michael Apted, the Mexican actor Diego Luna, the director Nicolas Echevarria, among others.

Mexican Maquiladoras

The establishment of the first Embraer plant in Mexico

Mexican MaquiladorasBy Adina Moloman

Sources: The Wall Street Journal, Reuters

Over the last years Mexico government was focusing on the project of building an aerospace industry and eventually Mexico becoming Hub for Aerospace Industry. The results were positives, considering that this sector has averaged 20-25% growth the past five years, while attracting aerospace multinational companies such Bombardier, General Electric Co, Boeing Textron Inc.’s Cessna Aircraft Co, Airbus etc, operating at local levels as Mexican Maquiladoras.

With this project Mexico is betting that higher-end industries like aerospace will be a key part of its future. Part of this effort, is also the announcement made a few days ago, over the establishment of the first Embraer[1] plant in Mexico.   Embraer, the world’s largest maker of regional jets, negotiated with the French Group Zodiac Aerospace[2] to create a joint-venture in Mexico that will manufacture components / making cabin interior elements for the E-170 and E-190 regional jets.

According to the declaration of the Embraer’s Chief Operating Officer , Zodiac and Embraer companies, would also develop interiors for future aircraft, considering that Embraer is drafting plans to upgrade its regional jet lineup with new engines and a potentially extended version of its largest plane by 2018.

The plant in Mexico will manufacture interiors for their family of E-jets and for high technology airplanes. Details over the amount of the investment or the location of the new facilities were not revealed so far.

The strategy of the Brazilian company, Embraer, is to bet on the recovery of the U.S. regional aviation market, estimating growth after years of stagnation, and other than that, there is also a steady growth market in Latin America, which encourages this kind of investment in this strategic area. On the other side the decision of penetrating the North American market is to compensate the decline in the European market.

[1] Embraer, the aviation Brazilian company is making the design, development, manufacturing, sales and technical support for commercial, agricultural and executive aviation, and is now entering a new level in the defense segment.

[2] Zodiac Aerospace is a French corporation, a world leader in aerospace equipment and systems for commercial, regional and business aircraft, as well as helicopters, specialized in the production and development of on-board systems, safety systems and cabin interiors.

Nearshore Outsourcing

2012 Manufacturing Re-shoring and Near-shoring Survey

Nearshore OutsourcingBy Adina Moloman

Source: AlixPartners

AlixPartners, a global firm of senior business and consulting professionals specialized in improving corporate financial and operational performance, conducted a study over the present phenomenon or the necessity of Manufacturing Re-shoring and Near-shoring.

Briefly Nearshore Outsourcing is the practice of outsourcing work to neighboring countries with geographical proximity and cultural similarities and re-shoring is the practice of bringing manufacturing back to the country of origins , known as homeshoring or repatriating, due to higher transportation and fuel costs, higher wage rates and higher reject rates in developing countries.

The Survey was conducted during a month and a half in March and April this year, and included responses from 116 C-level and other senior executives in manufacturing-oriented companies that sell into the U.S. market. The participants are executives from large multinational corporations or medium companies, from industries like aerospace, automotive, consumer products, electronics, etc.

The cost gap between the U.S. and China has shrunk, making re-shoring a much more viable option or re-shoring manufacturing, considering Mexico, as the No. 1 choice for the re-location of their operations according to the 50% of the survey contestants, while 35% percent of the contestants view manufacturing inside the U.S. as the most attractive choice.

This situation basically is given as manufacturing costs have increased in China and elsewhere in Asia and the cost and time factors involved in shipping goods across big distances is also growing. With the re-shore or the near shore operation to Mexico, 26% percent of the contestants considers that lower inventory costs is the biggest expected advantage. Shipping and inventory carrying costs are two variables that every more is taking into consideration.

The only negative detailed about relocating manufacturing in Mexico is the security and safety situation, where 43% of the contestants believes that it is to expect modest improvement in the security and safety situation, 13% percent considers the opposite ( a worse situation) and 4% of them had such a negative perception, mentioning a situation out of control.

Many US large companies have made public plans to re-shore portions of their manufacturing to the U.S. from countries like China.

Other interesting phenomenon is a growing domestic demand in Asian developing countries like China with a huge market witch accelerates their local consumption, resulting interesting according to 35% of the contestants the near-shoring and “re-shoring” on West in the future.

Tijuana Border

Immigration facts

Tijuana BorderBy Adina Moloman

Source: New York Times

The latest statistics are showing a significant drop in the number of migrants illegally crossing the border with Mexico. The decrease in illegal crossers —down to about 340,000 migrants apprehended in 2011 from a peak of 1.1 million in 2005 registered across all Border States with Mexico. At Tijuana Border in the 1990’s it was registered 600,000 cases of migrants attempted to cross the border illegally, comparing to less that 20 percent, the cases registered in the last three years.

Different measures had to do with this, but also it is an economic circumstance (the economic crises) and perhaps all the pressure and the attention on this issue when different Border States are trying to impose their own state immigration low above the federal low.

The measures to prevent illegal immigrants consists in allocated  a huge budget to build fences, the expansion of the Border Patrol to more than 21,000 agents, the highest number in its history, investment on new technology (remote video surveillance systems and seven unmanned drones), etc.

Even when this drop is significant the Arizona State  has been the epicenter for crossings by illegal immigrants and gets all the federal attention when this state decided to pass its own immigration State low. This issue was presented in a previous article a few months ago. So far the Arizona Immigration Low (SB1070) has been detained mostly because controlling immigration is a federal responsibility.

The situation is tense and stronger punishments are getting the persons who repeatedly re-entered United States illegally, it was registered cases when they get 10-year term in Arizona.

The consequences of approving this low are not desirable for the illegal immigrants because they won’t be having access to most public benefits education or health care, when schools and hospitals t will be forced to ask for proof of citizenship. Other consequences: the impossibility from obtaining any state licenses, including those for marriage; landlords would be forced to evict immigrant families; drivers to be proved illegal would face 30 days in jail and forfeit the vehicle to the state.

Sixteen States around the nation of them sided with Arizona, while 11 supported the federal government. Arizona’s immigration law has inspired similar lows and measures in Georgia, Alabama, Indiana, South Carolina and Utah.

In various occasions since 2010 this low was dismissed but the final ruling is expected  this June and  in the opinion of experts may be  a split decision between federals and state authorities.

Maquiladora Sector

Improvements on Mexico Customs Regulations

Maquiladora SectorBy Adina Moloman

Sources: United States- Mexico Chamber of Commerce, www.ventanillaunica.gob.mx

Improvements on Mexico Customs Regulations are expected when using the Single Window web application, which enables international cross-border traders to submit regulatory documents at a single location and/or single entity from the Mexican federal government.

The implementation of the single window system in Mexico was done last March, 2012.

By that, International traders or their customs broker submit electronically all import/export information. More common documents that can be submitted are: customs declarations, applications for import/export permits, supporting documents such as certificates of origin and trading invoices, etc.

The advantage consists in moving increasing volumes of imported and exported goods through the borders faster. This is not the only major benefit, there others such as: the electronic information related to the process of import, export or transit of goods online is entered only once; might be done from all over the world 24/7; reduces costs and time both for the users and also for the Mexican authorities; improvements in logistics and transparency of the procedures is a major benefit, eliminates paper form and there is a more improved information security, etc.

Many countries with the best practices of foreign trade have adopted the Single Window.  In the case of Mexico there is a pre condition for the using of the system which is a valid electronic advanced signature (FIEL) for the users, which is easy to obtain in the Tax Administration Office (SAT).

In Mexico traders and custom brokers should follow a few basic steps: fill out an electronic form on the Single Window for Trade website (www.ventanillaunica.gob.mx); the trade application is submitted through the internet to the relevant government agencies for its analysis and approval; once as the trade operation has been approved by the Mexican authority, traders and their brokers will have to pay a tax which is collected from a bank account provided by them; the last step is when the merchandise arrives to the crossing point, when the carrier must present a summary of the shipping transaction to the customs verifier at the customs facility. The information it will be checked electronically by a custom official, in order to allow the merchandise to continue and reach their final destination.

This new electronic procedure will improve conditions for investment especially at the Maquiladora Sector and job creation in the country.

Mexican climate change Low

Mexican climate change Low

Mexico ManufacturersBy Adina Moloman

Sources: RTCC, Climate Change Insights

This week, Mexico’s House of Representatives, debated and also voted to approve a new General Law on Climate Change . To be official this new climate low should be approved by the Senate and signed by President Felipe Calderón.

If everything goes as planned, Mexico may have a national climate change law by May 15, 2012 and by that, is becoming the second nation in the world after Great Britain to pass a climate change legislation that calls for dramatically reducing carbon emissions with 50% by 2050.

The main goal is to reduce carbon emissions by 30 percent by 2020 and 50 percent by 2050 and increase the amount of energy generated from renewable sources to 35 percent by 2024.

There are a few established preconditions in order to be able to implement and accomplish this huge responsibility, where most of them are related to a financial climate fund and a new organization: Mexico must be engaged  in the establishment of the UN Green Fund in climate negotiations; must be established a national Emission Commission that will coordinate the climate fund and generate reports over the constant progress and measures to achieve the main goal mentioned above; the Ministry of Finance and other ministries related to energy must work on developing incentives by 2020 that increase use of renewable energy and also increase electricity generation from clean energy.

Most interesting about that is the implication on the investment climate and how Mexico Manufacturers can take advantage of that.

It is hoping that this might provide an improvement to Mexico’s economy, introducing new clean tech investment which will generate money savings as a consequence of new energy-efficient systems.

Green companies from Europe and China expressed their interest in invest in Mexico as a national legal framework is established and backed by a climate change funding which are giving them confidence to proceed.

There is also an opposition group that is acting in order not to pass these new low, companies especially from steel and coal sectors.

Tijuana Border

Latest news on Mexico’s Presidential Campaign

Tijuana BorderBy Adina Moloman

Sources: The Economist,  The Washington Post, New York Times

With a little more than two month before the next Mexico’s presidential election, there are three main candidates disputing the presidency, but voters are frustrating by corruption, impunity, poverty, monopolistic companies, etc.

Opinion polls vary widely (depending on the data source), and generally show the PRI as leader, followed by the conservative National Action Party (PAN) and the Party of the Democratic Revolution.

Those three leaders are facing greater challenges. Enrique Peña Nieto from Institutional Revolutionary Party ( P.R.I.), the party that ruled Mexico from 1929 to 2000, has to deal with the fact that he must re-invent PRI as an anticorruption party with a new and modern vision. Josefina Vázquez Mota, a former education secretary under the current president, the candidate from the National Action Party has also to work on a new strategy because of the disappointment that voters are actually facing considering that in the past 12 years, it was registering an increase in violence and continued corruption. Optimists are seeing her as a   first female president who will start talking and acting on female human rights.

Andrés Manuel López Obrador, the candidate for the leftist Party of the Democratic Revolution, a former mayor of Mexico City who lost the last election in 2006 by 0.6 percentage points, has to challenge his radical style in order to govern as a moderate.

All of them absolutely must confront organized crime, and work on new strategies on declining illegal immigration and attend the different economic sectors.

The attention lately was over the country’s oil sector, state-owned company, Pemex, to transform it in private investment and in a near future the idea is to privatize all government functions and companies.

A large number of voters are watching Televisa and TV Azteca, the main national TV chains, and are influenced by what they are watching, but there are a few Million Facebook users and Twitter users, that are having a more particular opinion and other few millions that are not using a social media which are having a more radical opinion, that’s way might be a little bit difficult to have a opinion on the results of the election. PAN and PRI’s candidates are working on the strategy of using social media, to attract potential voters.

Mexico Maquiladora Industry

Mexico as a growth oriented economy

Mexico ManufacturingBy Adina Moloman

Source: Notimex, Financial Post

During a symposium held in London a few days ago, Jim O’Neill, the Goldman Sachs  chief economist, mentioned that Mexico will become the world’s seventh largest economy by 2020 and contribute 7.8% of the global GDP, more than Russia and India.

Jim O’Neill, is the creator of the acronym BRICs, first time mentioned 10 years ago. He still believes on the continuing growth of BRIC economies but also is heading his attention on other “growth” markets such as Turkey and Mexico.

Mexico does not belong to the “BRIC” economies ((Brazil, Russia, India and China), but fits perfectly on a new classification made by the same author in 2010, known as “growth-oriented economies”.

The eight countries in the growth markets are the four BRICs, and, in addition, Indonesia, Korea, Mexico and Turkey. The director of Investment Funds for Goldman Sachs, Jim O’Neill was given the definition of a growth market based on the fact that each country has 1% or more of global gross domestic product.

Jim O’Neill also mentioned during the same event “Mexico week” in London, that this year Mexico is expected to grow 3.6%, the same rate as Brazil, and in 2013, he believes that Mexico economy will grow 3.8% annually. This impressive rate growth is due mainly to Mexico Manufacturing activities.

GDP is a growth indicator but specifically is a measure of production, covering the production of consumer goods and services, even government services, and investment goods. So by that is important for the readers to understand that GDP does not capture wellbeing of the country population, living standards, etc.

Nevertheless, with the GDP limitations mentioned before, Mexico leading to the top tenth economy it definitely involves a lot of work and coordinated industrial programs and the result is being a major actor on world arena

Mexico Manufacturers

Auto Trade tension between Brazil and Mexico

Mexico ManufacturersBy Adina Moloman

Sources: Reuters, Wards Auto, Financial Times

This month there was an attempt by Brazil to break the accord at the World Trade Organization on a long-standing bilateral auto accord with Mexico.

Their motive is a automotive trade deficit of $1.7 billion in 2011 with Mexico, more than double comparing to the previous year, 2010.

Brazil sends a letter to the Mexican Foreign Minister and to the Economy minister to halve the number of cars it exported last year to Brazil and reduce their value from $2.4bn to $1.4bn and also Mexico should liberalize trade on heavy vehicles, a measure that could help Brazilian exports to Mexico.

Not only the Mexican authorities sow this inacceptable, but also they are not pleased to “negotiate” such measures via mailing.

To protect their local production in Brazil by entering cheap imports is considering an increase of 30 percentage points on car imports.

Such increase is translating for companies in paying up to 55 per cent of this particular tax on some imported cars, in case they are not accomplishing with new Brazilian requirements such as whether the car’s chassis was assembled in Brazil or whether its engine and transmission were manufactured also in the country.

Many analysts are seeing this as a measure in order to support the economy during an international crisis by protecting the internal market.

The situation is still tense between these two countries with an important manufacturing and distribution market, which not only will affect the trade between them but also could hit on Auto Mexico Manufacturers and their auto parts providers. The same thing could happen to Brazil auto manufacturing industry.

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