A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES. Mexico is Becoming a World-Player for Near-Shore Services

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1 November 2008 * Volume 13, Issue 11 NAFTA Works A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES INSIDE THIS ISSUE 1 Mexico is Becoming a World-Player... 1 Trade Highlights 2 Mexico and the U.S. Expand and... 3 Infrastructure Projects in Mexico 3 NAFTA Related Events 3 Diario Oficial 4 Success Stories 4 Selected Readings 4 Mexico Economic Update 5 Profile of New York 6 Profile of Tamaulipas Mexico is Becoming a World-Player for Near-Shore Services Fifteen years after NAFTA was implemented, Mexican IT services firms have seen increasing benefits from the strong economic relationships developed between the North American trading partners. By opening markets, trade has helped Mexico consolidate its position as a strategic manufacturing center and a global trade hub. Today, no major investment in North America from the U.S., Europe or Asia takes place without considering Mexico in its strategic planning. This option has brought an interesting alternative for many companies: Near Shore production. With its close proximity to the U.S., the largest market for goods and services in the world, Mexico is uniquely positioned to benefit from the shift to near-shoring services for U.S. companies. Mexico also has significant competitive advantages in terms of cost attractiveness, cultural affinity, talent and resources, and low risks. Mexico is currently ranked in the top 10 overall among global service locations; and it ranks 3rd in Latin America according to A.T. Kearney 2007 Global Services Location Index. Mexico is appealing for near-shoring due to its proximity to the United States and the similar time zones that allow for agile communication among team members or customers and suppliers. This closeness also allows employees to travel without hassle or delay between Mexico and the U.S. for face-to-face meetings. Cost attractiveness is one the most critical factors for companies exploring near-shoring. Today Mexico represents a significant cost advantage over Europe and the U.S. with a labor arbitrage of about 20 to 30 percent in Business Process Outsourcing (BPO) centers. And although wages tend to be higher compared with some Asian countries, the overall cost of near shore engagements is equivalent or less expensive than offshore. A key component of the cost advantages that Mexico has to offer is its communications infrastructure. Mexico has broadband services available nationwide and many cities have similar communications infrastructure as those in the United States. Other attribute for the country s competitiveness as a near-shore destination is cultural affinity including language skills and cultural similarities. In terms of language capabilities, Mexico has the largest Spanish-speaking Continues on page 2 Page 1

2 population in the world and has a large, growing Englishspeaking labor pool. Mexico can serve both Spanish and English -speaking customers at costs comparable to those offered in traditional offshore destinations such as India. Mexico and the U.S. share many cultural similarities as well. A great number of Mexican professionals work for global or U.S. companies, so they are familiar with the business practices, risk prevention culture, and managerial concepts typical of the U.S. This is an advantage for easing business relationships, which can have a dramatic effect on productivity. Mexico s large and talented labor force is another important attribute for near-shoring. The service industries in Mexico have been established domestically for decades, giving the country a broad, sophisticated pool of technical and managerial talent that can provide services near-shore. In addition, attrition remains around 5%, one the lowest rates globally. Finally, Mexico also represents a low risk destination for nearshore operations. Being part of the NAFTA, Mexico has strengthened the legal framework that provides certainty to companies doing business in the IT service sector through the strict enforcement of contract obligations, intellectual property protection and data privacy. Mexico is becoming a top near-shore destination for U.S. and Canadian companies and outsourcing companies are increasingly eyeing it as a base for IT services. Indian companies such as Tata Consultancy Services, Infosys and igate have expanded operations in Mexico to serve their North American customers. Meanwhile, Mexican IT services firms such as Softek, Neoris, Hildebrando and Sieena Software have emerged as both global and highly specialized niche players. The Mexican government has established an agenda to make Mexico a major player on the global near shoring arena in coming years. It has structured several investment support programs to improve its attractiveness as an ITO and BPO platform such as the Software Industry Development Program (PROSOFT), which establishes goals with a ten-year plan to promote competitiveness in the IT sector. As a result, there are 23 IT clusters in Mexico containing more than 700 companies and IT-related organizations. Likewise, 129 IT firms have been certified in international quality business standards. The projects supported by the PROSOFT have created 32,559 new jobs from 2004 to August of The Mexican government has been working intensively with the country s universities and the industry to continue to grow a talent base in order to compete successfully in the global market. Mexico and the U.S. Expand and Harmonize Hours of Operation of Customs Facilities Mexico and the United States, through Mexico s General Customs Administration (AGA) and U.S. Customs and Border Protection (CBP), agreed to expand the hours of operation for commercial traffic in several border crossings. This measure has been adopted as a result of enhanced cooperation between the two agencies, and on the Mexican side as part of the Customs Modernization Plan According to AGA, the ports of entry impacted by the new schedule are Otay Mesa in Tijuana-San Diego, Mariposa in Nogales, and include 24 hour service in the ports of World Trade Bridge in Nuevo Laredo- Laredo, and Zaragoza-Ysleta in Ciudad Juarez- El Paso. The new hours of operation for the designated ports of entry are as follows: Nuevo Laredo, Tamaulipas Laredo, TX (World Trade Bridge), Starting January 5, 2009, for both exports and imports Monday Saturday: 8:00 to 16:00 Sunday: 10:00 to 14:00 Ciudad Juarez, Chihuahua El Paso, TX (Zaragoza- Ysleta Bridge) Starting on November 3, 2008, for both exports and imports Monday Saturday: 6:00 to 16:00 Sunday: Closed Tijuana, Baja California- San Diego, CA (Mesa de Otay) Stating on October 20, 2008 Imports: Monday Friday: 6:00 to 20:00 Saturday Sunday: 9:00 to 17:00 Exports: Monday Friday: 8:00 to 23:30 Saturday Sunday: 8:00 to 16:00 Nogales, Sonora- Nogales, AZ (Mariposa) Stating on January 1, 2009 Imports: Monday Friday: 8:00 to 20:00 Saturday: 8:00 to 14:00 Exports: Monday Friday: 8:00 to 19:00 Saturday: 8:00 to 15:30 Sunday: 10:00 to 14:00 (only from the second Sunday of January to the last Sunday of April) Additionally, as a pilot project, CBP will expand the hours of operation in Mexicali for Mexican exports until 20:00 Monday through Friday, including the FAST lane. Likewise, CBP will process bulk Mexican exports until 16:00 Monday to Friday. For more information, visit and The new hours of operation will benefit Mexican and U.S. companies by facilitating their international trade operations, diminishing wait times at the border, and alleviating border congestion. Furthermore, these measures are indicative of the binational commitment to enhance competitiveness in the region, and a concrete response from the two governments to the requests and concerns of stakeholders. Page 2

3 NAFTA Related Events December 1 st 31 th, 2008 EXPO- MUNDIAL DE TURISMO EMT December 5 to 7 Restaurants, Hotels and tourist shops exhibition Location Centro Banamex, México D.F. Telephone: Ext. 113 y 106 Fax: info info@expoemt.com Website: info@mexico.messefrankfurt.com EXPO CHIQUITINES December 5 to 7 Trade show on products for kids from 3 to 12 years. Location Centro Banamex, México D.F. Telephone: ext contactojc@jcexposiciones.com Website: FERIA INTERNACIONAL HERBOLARIA 2008 December 6 to 7 Exhibition of natural food and beverages. Location: Poliforum, Leon, Guanajuato, México Telephone: Fax: marisela@imagennatural.com.mx Website: V EXPO FERIA DE LA COMPUTACION December 11 to 14 Trade show on computers and telecommunications systems Location Centro de Convenciones, Mérida Yucatán, México Telephone: jorge@zonaluzmerida.com EXPO NAVIDAD December 13 to 16 Trade show on Christmas products and holiday services Location: Cintermex, Monterrey, Nuevo León, México Telephone: Fax: ventas@gruposie.com.mx Website: EXPO TUS JUGUETES December 18 to January 6, 2009 Toys exhibition Location: World Trade Center, México, D.F. Telephone: Fax: miguel@originaproducciones.com Website: OUTLET, STORE & MORE December 19 to 23 Exhibition of apparel, footwear, and wear accessories Location: Poliforum, León, Guanajuato, México Telephone: ext Fax: ore3@poliforumleon.com Website: Infrastructure Projects in Mexico Guaymas Container Terminal Sponsor: Port Authority (API) Location: Guaymas, Sonora Total Project Value: $39 million Guaymas port authority has launched a tender to build and operate a container terminal in the second largest port on Mexico s Pacific coast. The terminal is expected to handle over 100,000 containers initially, with room for future expansion. The bidding rules stipulate the construction and operation of 320m on the water front and 50m for pier operations, where cargo will be loaded and unloaded with gantry cranes. The tender also contemplates the rehabilitation of 10ha of patio space and equipment. The new terminal should be ready to start operations in April Business Opportunities: Financing, construction, equipment. Perote-Banderilla Highway Sponsor: Ministry of Communications and Transportation (SCT) Location: Veracruz Total Project Value: $250 million The four lanes highway Perote-Banderilla and the Xalapa bypass require an investment of 250 million dollars, benefiting 1.2 million inhabitants. The project will be part of one of the most important logistic corridors in the country, since it will link Mexico City to the northern section of the port of Veracruz and will reduce travel time by approximately one hour and 20 minutes. Along 60 km of new highway, the project involves the construction of a 290 meters long tunnel and 52 bridges, one of them will be 552 meters long and 138 meters high. Business Opportunities: Financing, construction, equipment, engineering. DIARIO OFICIAL NOTICES Business facilitation rules for foreigners coming from APEC participating economies in the APEC Business Travel Card (ABTC) Scheme, accredited as business persons and cardholders of an ABTC card. November 3 rd. Resolution that authorizes American Express Bank Ltd. to close down its representation office in Mexico, and consequently, it revokes the authorization to establish this office. November 12 th. Mexican Official Standard Project (Technical Regulation) PROY-NOM-008-FITO-1995 to modify requirements and specifications to import fresh fruits and vegetables. November 13 th. Initial determination annual review of the countervailing duty order imposed to apples, red delicious variety and mutations, and golden delicious variety; classified under the tariff item of the Mexican Tariff Schedule, originating from the United States of America, regardless of shipping country. November 14 th. Proclamation Decrees that put into force the Mexican energy reform approved by the Congress of the Union in October November 28 th. Page 3

4 Success Stories Selected Readings Bridgestone Inaugurates Carbon Black Plant in Mexico Bridgestone Group, the world's largest manufacturer of tires and rubber products, opened a 430,000 m 2 plant producing carbon black in Altamira, Mexico. Carbon black is a raw material used as a reinforcing material in tires. It will be supplied from this new plant to Bridgestone Group's tire plants in North America as well as Central and South America. Production capacity at the plant is forecast to be approximately 35,000 tons a year, employing 100 workers. Hitachi Chemical Co. Setting Up an Automotive Parts Plant in Mexico Hitachi Chemical Co. will set up an automotive parts plant in the Montemorelos Industrial Park, which is located in the northeastern part of the State of Nuevo Leon, Mexico. The objective is to expand its automotive parts business centered on automotive disc brake pads in the North American market and to tap the growing South American market as well. Hitachi Chemical Mexico will start investing approximately 2.5 billion yen in five years' time, while gearing up to manufacture automotive parts such as shoe assemblies for rear drums. PayPal Expands Its Service to Mexico PayPal has expanded its service with fully localized sites in Mexico, Hong Kong and Singapore and an improved online experience for customers around the world. E-commerce is growing at an extremely rapid pace and PayPal is committed to supporting the phenomenal rise of online shopping and electronic payments around the globe, said Philipp Justus, PayPal s senior vice president of global markets. With the new operations, PayPal is extending online payments service in local currency to more than 120 million people and bringing the total number of localized PayPal sites to 18. Cablevision Mexico Selects Ligos for Enhanced Digital Mosaic Ligos Corporation, a leading worldwide provider of platforms for advanced video processing headquartered in San Francisco, has been selected by Cablevision Mexico for its major deployment of digital mosaic channels. Mexico's largest digital cable operator, and their rollout of multi-channel mosaics is the largest worldwide to date. We found MediaRig Mosaic to be the most versatile and reliable solution to bring this cutting-edge viewing experience to our subscribers said Jean Paul Broc Haro, CEO of Cablevision. "This rollout represents the latest of many successes for our Mosaic within the Latin American cable market alone," said Mark Koziol, CEO of Ligos Corporation. The Myth of Post-Reform Income Stagnation: Evidence from Brazil and Mexico Author: Irineu de Carvalho Filho and Marcos Chamon, International Monetary Fund. August 2008 Economic policies are often judged by a handful of statistics, some of which may be raised during periods of change. The authors estimate the income growth implied by the evolution of food demand and durable good ownership in post-reform Brazil and Mexico, and find that changes in consumption patterns are inconsistent with official estimates of near stagnant income. That is attributed to biases in the price deflator. The estimated unmeasured income gains are higher for poorer households, implying marked reductions in real inequality. These findings challenge the conventional wisdom that post-reform income growth was low and did not benefit the poor. Latin America and the Caribbean in the World Economy, Trends Author: Economic Commission for Latin America and the Caribbean (ECLAC) October 2008 New forms of protectionism affecting emerging countries could arise as a result of the world economic slowdown in Moreover, increasing uncertainty hampering trade negotiations, such as the Doha Round, could lead to faltering support for the multilateral system, at a time requiring strong signals of stability in its rules. It is then imperative to pay attention to new predominant trends in world trade that could exert additional pressure on competitiveness in the region and become unnecessary barriers to trade. The trends highlighted in the document are advances in Information and Communications Technologies (ICTs), telecommunications and transportation; environmental problems and the policies required to address them; and trade security. Additionally, the ECLAC report also highlights the development and legal nature of private-sector quality standards. Moreover, there is discussion about trade and labor standards. Latin_America_and_the_caribbean_in_the_world_economy.pdf Page 4

5 New York In 2007, New York's exports to Mexico reached $2.16 billion, up $1.30 billion from their level in In the first half of 2008, New York exported $1.26 billion worth of products to Mexico, an increase of 12.2% in comparison with the same period last year. Exports to Mexico * (Millions of US Dollars) In 14 years of NAFTA, New York's exports to Mexico have increased by 151.8%, while those to the rest of the world rose 90.7%. This means that the export growth rate to Mexico is 1.67 times higher than its export growth rate for the rest of the world. Since NAFTA was implemented, New York's sales to Mexico have grown at an annual average rate of 6.8%. Mexico is an important trade partner to New York. It was ranked as the 10th largest export market for goods from New York in the first six months of 2008, up from 12th in 1993, illustrating the impact of NAFTA for New York's growing businesses. Mexico accounted for 3% of New York's exports worldwide in the January-June period of Source: US Census with adjustments made by the World Institute for Strategic Economic Research (Wiser), and SE-NAFTA by SIC AND by NAICS. *\ January-June. Page 5

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