When Mexico this month announced an initiative to boost security on its highways, it was the latest step on the country’s road to becoming a world-class manufacturer. But it also served as the latest acknowledgement that if, indeed, the country is to take that leap, it will do so only by raising security where it is so sorely lacking.
One of the tourism capitals of the world, Mexico is showing signs of losing the image battle as cartel-related drug violence spreads to popular resorts such as Cancun and Acapulco, and the country is in danger of falling out of the world’s Top 10 tourist destinations, according to the World Tourism Organization.
That troubling trend, however, stands in stark contrast to international trade, which is flowing out of Mexico in record volumes, especially to its neighbor to the north. The numbers tell the story: a record 2.9 million light vehicles produced in 2012 and a record number of commercial trucks crossing the U.S.-Mexico border.
So is there more to all the talk about near-sourcing than mere hype? Tough to say, but digging deeper into U.S.-Mexico trade figures is telling: Overall U.S. exports have increased 23, 15 and 3 percent annually since the recession ended in 2009, according to the U.S. Census Bureau’s Foreign Trade Division. During that same period, U.S. imports from Mexico have increased 30, 14 and 6 percent, outpacing overall inbound trade in two of the three years.
So, although there is a trend toward increased U.S. imports from Mexico, it’s far from an overwhelming one, despite a significant closing of the gap in wages between China — the world’s factory for the last decade — and upstart Mexico.
That’s attributable to various factors: an infrastructure that, other than specific lanes, is improving in fits and starts; an industrial complex best suited for machinery, food and beverages, appliances and, increasingly, electronics; time-consuming border-crossing and customs processing; and, of course, the perception that, well, Mexico is a dangerous place to do business.
Still, rising labor costs in Asia and, more important, increasing risks related to everything from natural disasters to labor actions that can wreak havoc on supply chains demand that shippers selling their wares to the U.S. and elsewhere take a long, hard look at Mexico.
Unlike China, which exploded on the manufacturing scene as soon as it entered the World Trade Organization in 2001, Mexico will likely evolve over time, with near-sourcing showing steady, if unspectacular, gains.
But in a world in which perception is everything, Mexico must work on building its image before it can think of becoming a world-class exporter. If it doesn’t, its potential to become what economists believe is the next global wonder child will remain just that: potential.