U.S. Businesses Rediscover Mexico Opportunities
reprinted with permission from MiBiz, November 27, 2006

China may still be an 800-pound gorilla because of its market size and India is certainly gaining in what some forecast will be the Century of Asia, but many Michigan business owners are finding Mexico to be a more attractive market than either of those low-cost countries.

“There is a tremendous move back to Mexico,” Plante Moran Partner Louis Longo II CPA told MiBiz, as coincidentally, he was waiting to board a flight to China. “The companies that we are talking to have looked at the logistics and market opportunities in China and both seem pretty overwhelming to a lot of people in Michigan.”

After all, as big as China is, the NAFTA market is hardly small, and Mexico does offer low-cost production opportunities. That was forgotten by many CEOs in 2001 after China joined the World Trade Organization. Approximately 5,000 U.S-connected businesses left Mexico to chase even lower labor costs in China.

But Longo said that interest in Mexico is rebounding now for a variety of reasons, including the culture of that nation. U.S. business people just feel more at home there than they do in China.
“We have Latin-ized our own U.S. culture,” he said. “We have become familiar with Hispanic pop music stars and it is routine to see Hispanic options on restaurant menus. That culture is much, much closer to our U.S. culture than is the Chinese culture.”

Longo added that it is also much easier to deal with the banks in Mexico than U.S. businesses rediscover Mexico opportunities their counterparts in China. There are a lot of foreign banks in Mexico, however China has just started to allow foreign banks and the nation’s leaders have restricted their ability to expand. Another economic factor that has soured some on China is that the nation’s currency is controlled by Beijing. The peso is much more flexible. It is also much more difficult to convert Chinese currency into U.S. dollars

One more factor in Mexico’s favor is the country’s political environment. The recently elected president, Felipe Calderon – who was finally certified as the winner of the election in September – is very pro-business and very U.S.-friendly according to Longo. “That is an election that we watched very, very closely,” he said. “Calderon operates on the same model as his predecessor, Vicente Fox. They both think the same way.”

Longo leads Plante Moran’s Global Services Practice, which includes consulting, accounting and engineering practices in strategy, finance, tax and business operations for multi-national organizations. He helps clients in North America, South America, Central America, Europe and Asia.

“Companies that are just chasing low labor costs are always going to be putting something on the boat,” he said. “We tell our clients that they have to look at ‘total installed costs.’ In the end, that is what the customer is going to pay, and those customers have to be educated about that.”

A part of total installed cost might be hard to quantify, but it does exist. The element of risk needs to be factored into all overseas and expansion decisions.

“A closer logistics chain gives you more flexibility,” said Longo. “It also offers less risk of interruption to the supply chain.”

He said that no matter where a CEO decides to take his or her business, the final decision has to be part of an overall business strategy. There is no room for emotion.

“You have to have a plan. Your decisions need to be data-driven,” he said. “We see too many clients telling us that their customers are telling them they have to go to a foreign country. Even worse is the argument that they need to go because everyone else in their space is going. That is really the kiss of death."