Mexican update: How to compete against China and win

Too often we think of the Chinese economy as a massive juggernaut that crushes all before it. But the Mexicans are starting to adapt to Chinese competition nicely:

Between October 2000 and March 2002, Mexico’s maquiladoras – factories that assemble imported parts for re-export – lost 270,000 jobs, or more than one in five, sparking fears that Mexico had permanently lost ground to China. But now the trend seems to have sharply reversed.

In the year to May, maquiladora exports rose by 21.8 per cent, part of a increase of 21.1 per cent in overall exports – the strongest monthly rise in almost four years. Employment is at its highest since 2001, with the number of maquiladora jobs up by 2.5 per cent over the year to April.

Far from buckling under competitive pressures, the link between Mexican and US industrial production seems stronger than ever.

Mexico has continued to lose jobs in such labor-intensive sectors as textiles, furniture, toys and leather goods. The new expansions are coming bundled with manufacturing innovation, “just in time” inventories, and complete integration into the chain of American production. America and Mexico also share time zones, easy travel, and yes a language (more than thirty million Spanish speakers in the U.S.).

“If you need customisation, you’re going to want that done in Mexico rather than China,” says Mr Watkins. So sectors such as auto parts, large screen TV sets, aerospace equipment and medical supplies are fuelling the sector’s recovery.

Of course this is just the theory of comparative advantage in action. If Mexico someday truly turns the corner, and becomes more like Chile, China is one of the places they will thank. Already the Mexican government has taken a constructive attitude toward Chinese competition and spoken of the need to improve in response.

Here is the full story. The next step is for Mexico to improve the cost and quality of its industrial electricity supply. Stay tuned…


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