Doing Business in Mexico Doing Business in Mexico

Issue: Doing Business in Mexico

Doing Business in Mexico

By: Christina Hoag

Pub. Date: September 14, 2015 Access Date: October 1, 2021 DOI: 10.1177/2374556815608835 Source URL: http://businessresearcher.sagepub.com/sbr-1645-96878-2693503/20150914/doing-business-in-mexico ©2021 SAGE Publishing, Inc. All Rights Reserved. ©2021 SAGE Publishing, Inc. All Rights Reserved. Is the climate welcoming for international companies? Executive Summary

Seeking to improve its economy and the standard of living for its 122 million citizens, Mexico is undergoing a massive transformation as it courts foreign investors and an array of trade partners. It has embarked on an ambitious agenda of domestic reforms—opening the oil sector to private investors for the first time in 76 years, breaking up telecommunications monopolies and modernizing education, as well as overhauling outdated infrastructure and cultivating a portfolio of free-trade agreements. The result has been a boom in trade and investment in the world's 11th largest economy. But the country faces notable challenges, chiefly high rates of violent crime, endemic corruption, a wide gap in wealth distribution and an underskilled workforce. Experts say Mexico's potential as an economic powerhouse will continue to go unfulfilled unless those pressing social issues can be reined in. Among the questions of concern for international business: Is labor cost-effective in Mexico? Is it safe to operate there? Does Mexico offer investors sufficient and reliable infrastructure? Overview

March 18, 1938, is a proud date in Mexican history, memorized by generations of schoolchildren along with the dates of the country's independence from Spanish and French rule. March 18 was the day President Lázaro Cárdenas nationalized the oil industry, seizing oil fields from U.S. and British companies and enshrining Mexico's vast petroleum reserves as a national patrimony, belonging to the people for the benefit of the people, in the constitution. 1 Over the following decades, under the stewardship of the sprawling state- owned conglomerate Petróleos Mexicanos, commonly known as Pemex, Mexico became one of the world's top 10 oil producers, and petroleum profits funded a third of the nation's annual spending. 2 So in 2012, when President Enrique Peña Nieto of the Institutional Revolutionary Party, or PRI, proposed allowing private companies, including foreign ones, to again extract oil profits from Mexican soil, the nationalistic opposition was fierce. During one debate in the Mexican congress, an In April, with Mexican President Enrique Peña Nieto on hand, opposing legislator dramatically stripped to his underwear to illustrate his Toyota announces it will build a $1 billion automobile plant to point that the administration was “stripping” the nation of its natural wealth. 3 make Corollas. The plant is scheduled to open in 2019 in Guanajuato and will create some 2,000 jobs. (Alfredo Peña Nieto noted that production had been falling for eight years under Estrella/AFP/Getty Images) Pemex and said limited private investment would nearly double oil output to 4 million barrels a day by 2025. Privatization, he argued, would attract $20 billion in new investment, create badly needed jobs and bring new exploration and exploitation technology to Mexico. He won the fight, and in December 2013, Mexico's constitution was amended to allow private companies to develop the world's largest unexplored crude reserves after the Arctic Circle. 4

If any move epitomizes Mexico's transition into the 21st-century global economy, it's the “oil opening,” which allows companies from around the world to bid on exploration rights to dozens of mostly offshore blocks. After decades of protectionism, Mexico has turned 180 degrees. Trade liberalization and foreign investment now form the cornerstones of an outward-looking economic policy aimed at raising the standard of living for Mexico's 122 million people. The country is attracting billions in foreign capital—in industries ranging from manufacturing to financial services, creating thousands of jobs and expanding the middle class. “There's an openness that wasn't there before,” says Scott Miller of the Center for Strategic and International Studies, a Washington think tank on business and politics. “They're open to trade and made it easier to invest. Mexico has made a lot of progress over the last 20 years.” Yet for foreign investors, there are still many worries, including widespread poverty, high rates of violent crime and narcotrafficking, feeble law enforcement, graft and low educational attainment. Experts say the country's progress will ultimately hinge on how well it can resolve those long-entrenched issues. “The fundamentals are there,” says Jerry Haar, a Florida International University professor who has written more than a dozen books on Latin American business. “But there's a level of unevenness.”

Mexico is a federation of 31 states plus the Federal District, better known as Mexico City, the nation's sprawling capital of 21 million people. Each state has its own legislative, judicial and executive branches. States run their own investment promotion programs, with industrialized states in central and north Mexico being more active than in the rural south. Investors usually deal with state and municipal governments, rather than the central government. Map: States and Major Cities of Mexico

A rig drills for oil in the Gulf of Mexico. Under Pemex, a state- owned conglomerate, Mexico has been one of the world's top 10 oil producers. However, with production falling, the government in 2013 decided to end Pemex's monopoly and allow private firms to drill. (Omar Torres/AFP/Getty Images)

Source: Google Maps

Mexico consists of 31 states, plus the Federal District of Mexico City, and is home to 122 million people. The Federal District and northern and central states, such as Nuevo León, Coahuila and Jalisco, are more industrialized than those in the rural south.

Latin America's second-largest economy after Brazil, Mexico is often considered by analysts to be a second-tier nation—more industrialized and advanced than the poorer developing countries sometimes called the Third World, yet burdened by low wages and high poverty that prevent it from achieving wealthier status with the United States, Japan and other leading economies. Centrally located Mexico City serves as a dividing point. The region north of the capital tends to be more industrialized, where domestic and foreign firms such as General Motors, Hewlett-Packard and Whirlpool have located to be close to the U.S. market and a more skilled workforce. Southern Mexico, with a large indigenous population that relies on subsistence farming, has long seen less investment. Some investors, however, see southern Mexico as untapped terrain. German automaker Audi is locating a $1.4 million plant in Puebla, a poor state just south of Mexico City, drawn by easy access to the Atlantic port of Veracruz and to parts suppliers. 5 Many of Mexico's coastal regions, including Quintana Roo in the Yucatan peninsula, rely on tourism, as well as shipping and commercial fishing. Mexico's economy is export-oriented, sending $407 billion worth of products abroad in 2014. With oil and oil products providing about a third of the government's revenue, the economy is highly susceptible to the global oil industry's boom and bust cycle, yet it has succeeded in diversifying exports by manufacturing more automobiles, electronics, computers, mobile phones and LCD displays. Agriculture (fruit, vegetables, coffee and cotton) and silver are other key exports. 6 Mexico's Top Exports

Total value of Mexican exports, by product, in $U.S. billions, 2012

Source: “Products exported by Mexico (2012),” Observatory of Economic Complexity, Massachusetts Institute of Technology, accessed Aug. 27, 2015, http://tinyurl.com/nd6hsga

Mexico exported nearly $46 billion in crude petroleum products and a combined $48.2 billion worth of cars and delivery trucks, its second- and eighth-highest exported products, in 2012. Computers and video displays both also accounted for nearly $19 billion.

Mexico's chief trade partner remains the United States, which buys about 80 percent of Mexican exports and is the source of half of Mexico's imports, such as machinery. China and Japan are also key trade partners, but to a much smaller degree, accounting for 16 percent and 4.5 percent of imports, respectively. 7 Economists say Mexico's reliance on the United States is inevitable with the world's largest consumer market located on the doorstep of a country offering a vast pool of low-wage labor. The North American Free Trade Agreement (NAFTA), which abolished tariffs and other trade barriers among Mexico, the United States and Canada starting in 1994, has increased that dependency. “Viewed exclusively as a trade deal, NAFTA has been an undeniable success story for Mexico, ushering in a dramatic surge in exports. But if the purpose of the agreement was to spur economic growth, create jobs, boost productivity, lift wages and discourage emigration, then the results have been less clear-cut,” Jorge G. Castañeda, a New York University professor of politics and Latin American and Caribbean studies, wrote in Foreign Affairs. 8 Because of NAFTA's mixed impact and the emergence of China as a low-wage rival, Mexico is focusing on luring technology-driven investors, such as automotive and aerospace, that require higher skills and pay better wages. A key part of the government's plan is boosting trade, in large part by looking for new markets for exports and enticing companies to come to Mexico. To accomplish both, Mexico has joined 12 free-trade pacts, more than any other nation. The deals encompass 44 countries, ranging from its Latin American neighbors and members of the European Union to Israel and Japan. In addition, Mexico would be part of the pending Trans-Pacific Partnership (TPP), which groups 12 nations around the Pacific Rim. 9 The strategy has succeeded somewhat: Reliance on the United States as an export market has declined from 83 percent of goods sold abroad in 1996 to 79 percent in 2011. 10 “They're more global-looking; it's not just about the U.S. anymore,” Haar says. “It's Korea and China, everywhere.” In tandem with that strategy, Mexico has undertaken ambitious domestic reforms that aim to put the nation on a footing with developed countries. Besides revamping education and pursuing judicial reform, the government is seeking to modernize roads, railways and other aging infrastructure by attracting private investment. Privatizing infrastructure relieves the government of the burden of paying for expensive upgrades and creates jobs. State-run oil and electricity industries have also been opened to private capital. So far, Mexico has achieved some notable successes. In 2013, the country saw foreign direct investment (FDI, capital invested in a country by a company based in another nation) of $35.2 billion, boosted by Belgian brewer Anheuser-Busch InBev's $13 billion acquisition 11 12 Page 5 of 25 Doing Business in Mexico SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. of beer giant Grupo Modelo. 11 In 2014, FDI totaled a still-robust $22.6 billion. 12 In the first quarter of 2015, FDI was on the upswing to $7.6 billion, a 30 percent hike over 2014's first quarter. 13 U.S. Is Largest Source of Investment Into Mexico

Foreign direct investment into Mexico, by country, 1999–2015, in $U.S. billions

Note: Data for 2015 are for the first two fiscal quarters.

Source: Secretariat of Economy, Mexico, updated June 30, 2015, downloaded from http://tinyurl.com/q6yeaqu

U.S. firms invested more than $186 billion in Mexico over the last 16 years, or about 46 percent of its total received foreign direct investment. The Netherlands ($52 billion) and Spain ($51 billion) were the next largest sources of foreign investment, followed by Canada ($24 billion) and Belgium ($16 billion).

Trade has boomed. From 1994 to 2011, Mexico's exports jumped 475 percent, from $60.8 billion to $349.6 billion, while imports increased from $79.3 billion in 1994 to $350.9 billion, a leap of 342 percent. 14 Industry clusters have developed. More than a dozen aerospace companies have built plants in Querétaro in north-central Mexico, bringing $500 million in investment since 2010 and 45,000 direct jobs. 15 From 2009 to 2014, automotive manufacturers announced plans to build six plants worth $8 billion in Central Mexico, with another $7.1 billion of investment by industry suppliers. 16 The northern border region is the world's leading producer of televisions, manufacturing 35 million to 40 million sets a year. 17 Consumer businesses are also expanding. Big retailers, including Home Depot, Walmart and Bed Bath and Beyond, have opened stores. Banking and finance is another growing sector. “As growth equity investors, we are big believers that Mexico's time is now and that the country is poised to become one of the biggest and most important economies in the world,” said William Ford, CEO of New York-based private investment firm General Atlantic, in announcing the opening of a Mexico City office in 2015. 18 Growth in Mexico Forecast to Outpace Neighbors

Real GDP growth, in percent, by country/region, 2013–17

Note: Data for 2014 are estimates; data for 2015 are forecasts.

Source: “Global Economic Prospects – Forecast Table,” World Bank, June 2015, http://tinyurl.com/ou4u62h

Mexico's gross domestic product (GDP) has grown each year since 2013 and the World Bank forecasts that growth will continue, reaching 3.5 percent in 2017. Global GDP is also projected to continue growing in that period. Latin American and Caribbean GDP barely expanded in 2014 and 2015 but is projected to rise by 2 percent in 2016 and nearly 3 percent in 2017.

Nonetheless, Mexico's path to prosperity remains bumpy, academics say, pointing to grim statistics: Half the populace lives in poverty. 19 Fewer than half of children graduate from high school. 20 Drug traffickers hold sway over states along the Pacific coast and northeast border, leading to chronic violent crime. Weak policing and prosecution have enabled traffickers to expand their criminal portfolios to extortion, kidnapping and cargo theft. The July 2015 prison escape of drug lord Joaquín Guzmán through an elaborate mile-long tunnel leading to his cell—and the investigation of prison officials suspected of aiding him—only served to underscore Mexico's reputation for corruption. Mexico's outlook is “a mixed bag,” says Eric Farnsworth, vice president of the Council of the Americas, a Washington think tank on Latin American issues. “There are real opportunities, but real obstacles, too.” As economists, business executives, Mexico specialists and others debate the country's outlook, here are some of the questions they are asking: Weighing the Issues Is labor cost-effective in Mexico?

In 2012, San Diego entrepreneur Chris Anderson was casting about for ways to make his tiny start-up, 3D Robotics, which designs and manufacturers drones, competitive with Chinese models as he sought venture capital financing. The solution lay literally at his doorstep— Tijuana, across the border from San Diego. Anderson and his partner, Jordi Muñoz, came up with a binational solution—engineer the drones in San Diego and build them in Mexico. The plan shaves weeks off production times, creates a smooth supply chain and affords intellectual property security, for a labor cost roughly the same as China's $6 per hour, Anderson said. 21 After the government modernized labor regulations, Mexico's workforce is proving attractive to investors, although companies still find gaps in skills and education. Mexico's pay scales remain higher than China's, but experts note they are approaching parity: Chinese

22 Page 7 of 25 Doing Business in Mexico SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. wages, which in 2000 were about 11 times less than Mexico's, are rising about 19 percent a year along the industrial coast. 22 Shipping costs and times also factor into the equation, Anderson noted, with Mexico's proximity a clear winner over China. 23

Workers of the Schaeffler Group in Irapuato, where the company manufactures rolling element bearings for automotive, aerospace and industrial uses. Low wages and Mexico's numerous free-trade agreements have drawn manufacturers there. (Thomas Koehler/Photothek via Getty Images)

Some predict that wages will increase in Mexico, too, especially in the booming automotive industry. Stephen Odell, Ford Motor's head of global sales and marketing, noted that demand for labor is increasing as the industry expands. “At some point labor rates will go up as a result,” he said. 24 His company, which has operated in Mexico for 90 years, announced in 2015 that it plans to spend $2.5 billion to build new plants. Still, the country has a long way to go to match North American salaries, which gives Mexico a long-term advantage. Auto-industry wages in northern U.S. states approach $60 an hour, while in the American South they hover around $40. Mexican wages are less than $10 per hour. 25 “U.S. businesses are not looking for slave wages,” says Farnsworth of the Council of the Americas. “Mexico also has the proximity, and productivity is relatively high.” The low overall skill and education levels of the workforce present a challenge, however. The high-skilled sector “is not an obvious niche for them,” says Dean Baker, co-director of the Center for Economic and Policy Research, a Washington think tank on social and economic issues. Mexico “doesn't stand out for a well-trained workforce and infrastructure.” Managerial and specialized employees are particularly in demand. “Almost all the companies need help in finding talented people,” says Latin America business adviser Joe Kutchera, who heads Latino Link Advisors, a strategic consultancy in New York. “There's a lack of knowledge about digital media and technology in general.” Querétaro's aerospace industry, which started when Canada's Bombardier opened a plant in 2006, now supports a dozen companies employing 45,000. A workforce training program run by the federal and state governments, the Universidad Nacional Aeronáutica en Querétaro, contributes to its robust growth. The university program trains technicians and engineers for the aerospace companies, which have pitched in by providing curriculum and funding tuition. 26 Businesses in other fields report similar issues with finding skilled workers and upper-level managers. In a 2014 report on the automotive industry, PricewaterhouseCoopers Mexico (PwC Mexico) cited the lack of technical training programs as a weakness in the country's 27 Page 8 of 25 Doing Business in Mexico SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. competitive offering. 27 Automaker Audi is schooling 600 Mexican employees, mostly supervisors, at its German headquarters in preparation for opening its $1.4 billion plant in Puebla state in south-central Mexico. The 18-month program includes study of German, training on Audi systems and quality control. 28 Oil companies participating in Pemex's auction for oilfield development already face a dearth of specialized engineers, says Christian Gómez Jr., energy director at the Council of the Americas in Washington. “There's a lack of human capital. [U.S.] universities are training folks to go down to Mexico,” he says. However, Anderson of 3D Robotics said he has had no problems finding engineers for his Tijuana plant, and noted Mexico graduates 115,000 engineers a year, three times as many as the United States on a per capita basis. 29 Experts say the problem is rooted in the country's shoddy school system. Mexico spends a greater share of its budget on education than any other nation in the Organisation for Economic Co-operation and Development (OECD), but scores the lowest in standardized tests. 30 Forty-five percent of students graduate from high school, and only a quarter reach higher education, according to a nongovernmental organization that advocates school reform, Mexicanos Primero. 31 In 2013, new government-issued textbooks, distributed to 235 million primary-school children, were found to be riddled with spelling, grammar and factual errors. 32 Government officials have recognized the need to shore up education. In 2013, President Peña Nieto signed into law the creation of a professional system for hiring, evaluating and promoting teachers, aiming to abolish a system where teaching posts can be bought or inherited. 33 Soon after, the powerful head of the teachers union, Elba Esther Gordillo, was arrested on corruption-related charges, signaling an end to business as usual. 34 But the overhaul is facing resistance from educators; one complaint is that teachers who do not agree to be evaluated can be fired. “The backlash has successfully delayed implementing the reform,” says David Shirk, global fellow and senior security adviser at the Woodrow Wilson International Center for Scholars in Washington, which conducts research on global issues. “This is going to have to be a negotiated process to work out an acceptable timetable of reforms.” In 2012, the government's sweeping modernization of federal labor law, which made workplace rules similar to U.S. standards, went more smoothly. 35 The more than 300 changes aimed to boost productivity and create better paying jobs and more opportunities for women and younger workers. They also clarified firing procedures and subcontracting rules, prohibited employing minors under 14, banned prehiring pregnancy tests and mandated access for the disabled, among other items. 36 Is it safe to operate in Mexico?

Three decades ago, Acapulco was famed as a tropical playground, its lifestyle of golden beaches and parasol-topped cocktails luring visitors from around the world. Not anymore. Today Coca-Cola and Pepsi deploy armed guards to make deliveries in the city. 37 Mexico's central Pacific coastal state of Guerrero, home of Acapulco, has emerged as ground zero in the country's security crisis. In June 2015, attackers kidnapped a Pepsi executive on a highway and Coca-Cola closed a warehouse and laid off 120 workers due to security worries. Last year gunmen hijacked four delivery trucks and set them on fire. Coca-Cola reported that more than 250 trucks have been attacked in recent months. 38 The beverage makers are not the only companies affected. Volkswagen shut down a dealership in the Guerrero town of Iguala, where 43 teaching students were kidnapped and killed in September 2014. Mexican cement giant Cemex and Grupo Cuauhtémoc, the Heineken- owned producer of Sol, Tecate and Dos Equis beer, have threatened to close their Guerrero operations because of fears about employee safety. 39 The situation in Guerrero, although far from representative of the whole country, underscores how violent crime affects business in Mexico. Insecurity, both personal and corporate, is a top concern voiced by foreign investors, and it places swaths of the country off limits, even for companies like Coca-Cola used to operating in all kinds of environments, analysts say. “It is a huge deterrent, but it's regional,” says Farnsworth of the Council of the Americas. “Mexico has some states in open warfare and some states that are really quite peaceful.” While the Mexican government's war on drug traffickers has achieved a string of arrests of high-profile “capos” and a reduction in homicides, from a peak of 27,199 in 2011 to 15,649 in 2014, crime and violence remain overwhelming problems in a handful of states in northwestern Mexico, the far northeast and the central Pacific coast. Threats come from both large cartels and a host of smaller, criminal enterprises that have sprung up as the cartels have been weakened due to their leaders' arrests. 40

Newspapers on July 13 blare the stunning news that Mexican drug lord Joaquín Guzmán had escaped from a maximum security prison. The escape was a reminder of Mexico's endemic corruption and the great challenges posed by drug traffickers in states along the Pacific coast and in the north. (Yuri Cortez/AFP/Getty Images)

Because these factions lack the wherewithal to sustain large-scale trafficking, they have taken up a more diverse portfolio of criminal enterprises, including kidnapping, extortion, human trafficking and cargo theft, among other activities. 41 “Small time organized crime has risen as the muscular, big cartels have broken up,” says Shirk of the Wilson Center. This environment has created numerous problems for business, especially extortion. A Stanford University study found that more than one-third of all businesses in Mexico are threatened if they do not pay protection money to gangs. 42 Small and medium-sized businesses are the easiest marks for extortionists, but big business is not exempt. The Knights Templar, a narcotrafficking organization formed in 2011 in Michoacán, a Pacific coast neighbor north of Guerrero, has threatened Danone Mexico, the dairy manufacturer, and Grupo Bimbo, the baked goods company, among others. 43 Companies also unwittingly find themselves in the crosshairs of cartel disputes. In 2012, armed, masked men attacked Pepsi's local subsidiary Sabritas, torching dozens of trucks and five warehouses in Michoacán and Guanajuato states. Authorities blamed the Knights Templar, saying the cartel was retaliating over a rumor, denied by the company, that prosecutors used Sabritas delivery trucks to gather information about the organization. 44 Adding to the threat is the involvement of police officers and local officials, bought through bribes or leveraged by threats. 45 The case of the 43 missing student teachers in Guerrero, who investigators said were abducted by local police officers on the order of the mayor and handed over to be killed by a drug gang, highlighted the nested complicity of Mexico's authorities and ignited public outrage. The mayor, who has been arrested, is accused of ordering the kidnapping so the students wouldn't disrupt a speech by his wife. It remains unclear why they were killed. Their bodies are believed to have been incinerated. 46 Similarly, prison guards and officials are believed to have aided the July 2015 escape of Guzmán, head of the Sinaloa drug cartel, who walked out of a maximum security prison in a mile-long tunnel constructed for his escape. The violence means companies must take extraordinary security measures, such as hiring bodyguards for executives and armed guards for trucks, adding significantly to overhead costs. The American Chamber of Commerce of Mexico, which represents many of the country's biggest foreign investors, reported in 2010 that its member companies spend an average of 3 percent of their operating costs on security. 47 The violence also means companies must choose carefully where to operate. “No one's going to locate a factory in drug territory,” says Page 10 of 25 Doing Business in Mexico SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved.

Baker of the Center for Economic Policy and Research. Risky areas mainly fall along lucrative drug shipment routes, the control of which leads to cartel infighting. Those states lie along the central Pacific coast—Guerrero, Michoacán and Sinaloa—and inland in the state of México, which surrounds Mexico City, although the capital remains relatively unscathed by drug violence. 48 Chihuahua, where Ciudad Juárez borders El Paso, Texas, and Tamaulipas, in the northeastern corner where Matamoros sits across the border from Brownsville, Texas, are other hot spots. Analysts note that the patterns of violence shift as cartels broker deals among themselves. Tijuana, across the border from San Diego in Baja California, and the state of Nuevo León in northern central Mexico both have seen substantial reductions in murders as cartel battles have leveled off. 49 Meanwhile, central states including Guanajuato and Querétaro have been largely unaffected by narcoviolence, making them prime locations for investors such as auto and aerospace companies. The southern region, including the states of Oaxaca and Chiapas, which borders Guatemala, has some of the country's lowest murder rates, but its economic progress has been held back by its impoverished, unskilled workforce, as well as its more remote location, observers note. Does Mexico offer investors sufficient and reliable infrastructure?

Windmill farms may not be as ubiquitous as cornfields in Mexico, but they're an increasingly common feature in the rural landscape. In Baja California, which borders California, a $300 million windmill farm started churning out electricity to send to San Diego in June 2015. The project, by IEnova and InterGen of Massachusetts, is designed to eventually connect to Mexico's electricity grid. In the same month, Mexican retailer Organización Soriana announced plans to build two wind farms farther east in Tamaulipas at a cost of $260 million to generate power for 311 stores. 50 More than two dozen similar projects are located across the country. Renewable energy is just one sector in the massive $600 billion overhaul of Mexico's infrastructure, encompassing energy, transportation, telecommunications, urban and rural development, water, health and tourism. Announced by the government in 2014, the National Infrastructure Plan earmarks nearly 750 projects to be funded through a variety of federal, local and private sources by 2018. 51 Experts say the investment is sorely needed. Mexico has traditionally spent little on roads and ports, two primary concerns for manufacturers considering new plants. “Infrastructure continues to be Mexico's Achilles' heel,” stated a report by the American Chamber of Commerce in Mexico. 52 Slowness and theft are chronic problems in shipping hubs and ground transportation, while many highways and border crossings are in shoddy repair, and freight rail is underused, experts say. “Movement of goods in Mexico has always had inefficiency and a level of loss,” says Shirk of the Wilson Center. The National Infrastructure Plan hinges on seeking private capital, and presents a plethora of opportunities for foreign investors. Laws were passed to allow private investment in the former state monopolies of oil and electricity generation and transmission, and to bring more competition into telecommunications. The plan relieves the state of the expense of building and maintaining infrastructure; its aims include building more projects faster to provide jobs and attract more investors with modernized facilities. The electricity changes, for instance, will spur investment by improving supply and reducing prices, energy specialists say. “Electricity generation is adequate, but there are transmission blackouts. The grid is old,” says Lisa Viscidi, director of the energy program at the Inter-American Dialogue in Washington, which studies Western Hemisphere affairs. “It's a big issue for competitiveness.” A variety of projects are underway. One of the biggest, a new $9 billion international airport in Mexico City, is scheduled to start construction in late 2015 or early 2016. The airport, slated to be among the world's largest when completed by 2020, will quadruple capacity while being energy efficient. 53 More than 150 road and highway projects, totaling $30 billion, are on the table for modernization, construction and maintenance. 54 The rail system, run by private companies under concessions awarded by the government, is slated for $10 billion of investment in 13 projects. The biggest is a $3.3 billion high-speed passenger train between Mexico City and Querétaro. 55 Plans include freight lines to connect ports and manufacturing hubs and passenger lines to connect cities. The Tijuana-Tecate rail network, for example, will connect to the U.S. rail system, allowing goods from Asia to enter the Port of Ensenada in Baja California and be easily transported north. The network also will provide more direct access to the region's maquiladoras, factories that manufacture for export, bypassing congested California ports. 56 Pacific and Gulf Coast ports, including the key ports of Manzanillo, Lázaro Cárdenas, Altamira and Veracruz, will undergo major expansions to increase capacity for containers, as well as bulk materials and roll-on/roll-off cargo. Smaller ports also are slated for new facilities, including a cruise ship terminal at Puerto Vallarta. The total port investment is $5.5 billion. 57

Opening the telecommunications sector has been one of the hardest-fought battles. In 2014, the government succeeded in breaking up entrenched, private monopolies in television and telephony that had led to high consumer prices and thwarted productivity. The two powerful companies, Grupo Televisa (television and media) and América Móvil (fixed-line and wireless telephones and Internet service), were ordered after a long string of legal challenges to share their transmission infrastructure with companies entering the market. 58 The ruling yielded immediate results. In 2015, U.S. carrier AT&T bought Mexico's No. 3 mobile company, Iusacell, and said it would buy the fourth largest, Nextel. Cellphone service prices fell 16.7 percent between February 2013 and January 2015, said Mexico's regulatory agency, the Federal Telecommunications Institute. 59 Observers say the Mexican government's new emphasis on infrastructure bodes well for future growth. “Mexico is doing well in investing in logistics and new port security,” says Jean-Paul Rodrigue, a professor of transportation geography at Hofstra University in New York. “The hurdle is always finding the capital.” Background Revolutionary Roots

The roots of modern Mexico can be traced to the 1917 constitution that came about as a result of a decade-long revolution, a watershed conflict in the country's history that ushered in far-reaching social, economic and political change. It also led to the establishment of the socialist-leaning Partido Revolucionario Institucional (PRI), known in English as the Institutional Revolutionary Party, which has since dominated Mexican politics. The revolution began in 1910 as opposition to the 35-year presidency of authoritarian leader Porfírio Díaz, which had led to a concentration of wealth among a handful of landholders and the creation of a vast underclass of landless peasants. Over the next decade, peasants joined by the middle class struggled for agrarian and democratic reforms through a succession of presidents. Although the new constitution was adopted in 1917, regional rebellions led by Emiliano Zapata and Pancho Villa continued until 1920 when the revolution officially ended with Villa's surrender. The constitution paved the way for important land reform: It established maximum acreages on holdings, barred foreigners from owning property near the sea or borders and declared oil and minerals state property. Workers were granted the right to unionize, and an eight- hour workday and a minimum wage were enacted. Property was confiscated from the Catholic Church, elementary education was made compulsory and divorce was legalized. 60 For foreign investors, the most troubling aspect was the nationalization of subsoil resources. Facing seizure of its oil fields, the Texas Co. won a Mexican court ruling that stated the government could not seize fields under development. The government and the foreign oil companies tussled over oil rights for the next 15 years, but it was labor that precipitated wholesale nationalization. In 1936, the Mexican Oil Workers Union demanded better wages and training from 18 British and U.S. oil companies. After drawn-out negotiations, the government of President Lázaro Cárdenas intervened, ordering the companies to train workers for more technical jobs. When the companies balked, he announced the nationalization of all oil properties, to widespread applause in Mexico in 1938. 61 The Great Depression was a catastrophe in Mexico and underscored the nation's dependence on the U.S. economy for two-thirds of its exports and imports. Unemployment in Mexico tripled between 1927 and 1933 as the United States deported 300,000 Mexicans and their families. The government implemented protectionist policies focused on exchange-rate controls and strengthening of domestic industries in an effort to be independent of any foreign state. 62 World War II brought an industrial boom to Mexico and ushered in an era known as the “Mexican Miracle,” which lasted some three decades. With the United States and Europe focused on producing war materiel, Mexico began exporting consumer goods, food products and raw materials, including cement and steel. This industrialization, boosted by laws allowing some foreign investment and a government business loan program, tripled the national per capita income from 1940 to 1945. The government continued to invest heavily in roads, railways, hydroelectric dams and universities through the 1950s and 1960s, although it failed to maintain infrastructure in later decades. 63 Economic Roller-Coaster

By the early 1970s, the roll ended. The government's profligate spending, namely heavy subsidies to public and private enterprises, led it to print money to cover the national deficit, sparking high inflation. The global recession, spurred by the 1973 OPEC oil embargo, saw Mexico's exports crash. Foreign debt reached $20 billion. To increase revenue, the government raised prices on gasoline, electricity and telephone services and printed more money. It imposed price controls on basic commodities, instituted new taxes (including a 10 percent levy on luxury items) and levied a 15 percent surcharge on nightclub and restaurant prices. Inflation rose to 22 percent, and, as the final blow, the peso in 1976 was devalued for the first time in 22 years—by 59 percent. Capital flight and emigration soared. By the end of 1976, Mexico's foreign debt had jumped to $29 billion. 64

Oil, however, gushed in to save the day. Spurred by the price surge when OPEC declared an embargo on oil sales to the United States and other countries, Mexico, which is not an OPEC member, ramped up petroleum exploration. In 1976, Mexico announced discoveries of vast offshore reserves. The government embarked on a spending spree of public works and industrial expansion; it also boosted spending on social welfare programs and increased subsidies on consumer goods and agricultural production, the aim of which was to decrease reliance on imports of food staples. 65 The 1980s, however, brought a “bust” in oil's cyclical fortunes. A worldwide supply glut led Mexico to slash production and prices. In 1982, the government postponed payment on the national debt and received a $10 billion international bailout. President José López Portillo stanched the flow by closing foreign exchange houses and nationalizing 59 banks. 66 A new president who took office in December 1982, Miguel de la Madrid, brought a fresh program of economic austerity, which helped the country get a $4 billion International Monetary Fund loan. He eliminated price controls, undertook public works projects that created 50,000 federal jobs, reduced government subsidies for public transportation, sold off state enterprises and raised the value-added tax and gasoline and utility prices. 67 These moves were a radical departure for a PRI president. Until then, the party had followed a Soviet-style economic model of protectionism, state-owned industries and heavy government investment in infrastructure, as well as a political philosophy that viewed free market capitalism with suspicion and the United States as an imperialist, exploitative power. By the end of 1983, de la Madrid's changes yielded results: Inflation had dropped to 80 percent from 110 percent at the start of the year and the trade balance showed a $12 billion surplus. 68 But two years later, an earthquake devastated Mexico City, causing an estimated $3 billion to $4 billion in damage, rendering 100,000 homeless and killing at least 9,500, although some estimates place the loss of life as high as 35,000. 69 After the earthquake, the peso went into freefall. In the summer of 1985, it stood at 360 to the dollar; by late 1987 it plunged to 2,300 to the dollar. Inflation ballooned to 159 percent. When de la Madrid left office in 1988, foreign debt stood at a record $105 billion. 70 The incoming president, Carlos Salinas de Gortari, a Harvard-trained economist, embarked on a massive restructuring that expanded the PRI's orientation toward a more open, liberal economy. His program included dismantling tariff policies and privatizing state enterprises, including banks, telephony, television, airlines, highways, sugar mills and cinemas. He renegotiated the foreign debt and reduced inflation to 10 percent. 71 Trade Liberalization

In 1986, Mexico signed the General Agreement on Tariffs and Trade (GATT), a 23-nation pact to reduce trade barriers, and assured its commitment to trade liberalization and closer ties with the United States. In 1991, Mexico entered into its first free-trade pact, the Mexico- Chile Free Trade Agreement, which removed virtually all tariffs on merchandise flowing between the two countries. The pact was renewed and expanded in 1998. 72 As the Chile deal was being negotiated, Mexico and the United States began discussing their own agreement. Mexico needed to diversify its exports beyond oil and related products and to attract foreign investment to create non-agricultural jobs, increase wage rates and reduce poverty. 73 Its obvious partner was its northern neighbor.

Since the late 19th century, Mexico's fortunes have been at least in part tied to those of the United States as a source of investment, goods and buyers. The dependence lessened somewhat with Mexico's nationalistic, protectionist economic policies in the first half of the 20th century, but as the century closed with economic turmoil, Mexico saw it could take full advantage of its geographic proximity to the world's largest consumer market by offering cheap labor and products and thus boost its economy. It was an about-face for the PRI, which had long regarded the United States with a “yanquí go home” attitude. Canada joined the negotiations and, in 1992, the three countries signed the North American Free Trade Agreement. The pact called for eliminating trade and investment barriers among the three countries over 15 years. After NAFTA went into effect in 1994, Mexico saw a surge in maquiladoras, the manufacturing-for-export plants along the U.S. border that churn out everything from televisions and cellular phones to computers and medical devices for Samsung, Sony and other companies. Mexican farmers, however, could not compete when tariffs were removed and U.S. grains and meats poured in. Mexican prices for corn, soybean, wheat, rice, beef, pork and poultry dropped 44 percent to 67 percent in real terms from the early 1990s to 2005. Production fell drastically for all products except corn and meat, while the nation's dependence on imports increased. 74 About 2.3 million small farmers were displaced, with some migrating to jobs in the new factories and others headed over the border to find work. 75 “Clearly, there was a shift in industry to Mexico—that was the purpose—but there wasn't enough growth in manufacturing to absorb the decline in agriculture,” Baker says. Agriculture made up just 3.5 percent of Mexico's $1.3 trillion economy in 2014, while services accounted for 60 percent and industry 36 percent. 76 A guerrilla movement, the Zapatista Army of National Liberation, emerged in the poor southern state of Chiapas on New Year's Day,

1994, the day NAFTA took effect. It opposed the government's liberalization of economic policies because it believed the changes widened the gap between rich and poor. The EZLN, its Spanish acronym, consisted of 12,000 rebels, mainly indigenous people who had long felt marginalized by Mexican society. The army soon pushed the guerrillas into the mountain jungles, where they remain in small, peaceful communities. 77 Economic progress in the mid-1990s was overshadowed by a huge political scandal that culminated in the conviction of Raúl Salinas de Gortari, brother of the former president, for ordering the murder of PRI reformist José Francisco Ruíz Massieu; Swiss authorities seized $90 million from Raúl Salinas' bank accounts in that country. 78 (Raúl Salinas' conviction was overturned in 2005 after he served 10 years of a 27-year sentence. 79 In 2014, he was cleared of illicit enrichment charges. 80 ) The scandal fueled public disgust with the PRI, which had dominated Mexico's politics and economy since 1929 and was largely viewed as a corrupt political machine. In 2000, former Coca-Cola executive Vicente Fox of the National Action Party (PAN), a Christian democratic party that adheres to neither leftist nor rightist principles, was elected president in a landslide. The win ended the 71-year reign of the PRI, the world's longest ruling political party, and symbolized a spirit of change for the 21st century. But Fox's promised fiscal modernization, such as cracking down on income tax scofflaws, was thwarted by the PRI's continued rule in both chambers of Congress. 81 Low economic growth hovering around 2 percent and increasing violence as drug traffickers started to establish their footholds led to increased emigration to the United States and a larger informal economy with a self-employed, cash-based workforce. On the U.S. side of the border, immigration became and has remained a contentious political issue. Voters, however, gave the PAN another chance, electing Felipe Calderón in 2006. Calderón took a tough line against drug cartels, deploying the military to quash traffickers, but the crackdown resulted in more violence as criminals sought to prove they were not cowed by the government. The 2008–09 global recession didn't help: Mexico's GDP fell 4.7 percent. 82 Migration slowed to a trickle as jobs dried up in the United States, straining Mexico's economy. Further underscoring Mexicans' economic dependence on the north, remittances—money sent home from immigrants—decreased for the first time since 1995, dropping 11.6 percent to $1.57 billion in January 2009. 83 Like his predecessor, Calderón was stymied by a PRI-controlled Congress in his efforts to enact economic changes, although he succeeded in passing a modern labor law, expanding health insurance and undertaking a road-building program. 84 After seeing little progress with two PAN presidents, voters returned the PRI to office in 2012 with the election of Enrique Peña Nieto, a former governor of the State of México. Peña Nieto succeeded in passing major economic laws, pitching them to his party as the PRI's modern philosophy of an open economy with close ties to the United States. Yet, critics noted that continuing corruption showed that the PRI had not changed. Current Situation Automotive Boom

Mexico's automotive industry, driven by foreign companies, is moving into high gear. Boosted by billions in new investment since 2009, the country is now the world's seventh-largest auto producer, surpassing Brazil in 2014. In the first half of 2015, Toyota announced it will build a $1 billion plant to make Corollas, and Ford unveiled a plan for a $2.5 billion engine and transmission facility. 85 Like other manufacturers, car companies have been drawn to Mexico by low wages, but they also see another advantage: Mexico's free- trade agreements slash tariffs on exports to more than 40 countries, which combined represent 70 percent of the world's GDP. 86

Workers end their shift at the recently opened Honda plant in Guanajuato in 2014. From 2009 to 2014, automotive manufacturers announced plans to build six plants worth $8 billion in Central Mexico, with another $7.1 billion of investment by industry suppliers. (Omar Torres/AFP/Getty Images)

“No other country in the world boasts an equivalent export environment,” states a 2014 report by the Center for Automotive Research in Ann Arbor, Mich., which also notes Mexico's access to both the Atlantic and Pacific oceans. 87 Audi, BMW and others plan to capitalize on those advantages to use new plants in Mexico as production hubs for exports around the world, not just the United States. Tariff-free market access can give Mexican exports a significant leg up over competitors. For instance, automakers must pay 10 percent duty on cars exported from their U.S. plants to be sold in Europe, whereas Mexican-made cars enter free. 88 Mexico's auto industry underscores how the country is becoming competitive with developed economies and is diversifying its investor portfolio. Mexico's strategy has been to form trade pacts with regions such as the European Union and individual countries such as Israel. 89 It now seeks to team up with like-minded nations in pacts such as the pending 12-nation Trans-Pacific Partnership and the recent Pacific Alliance, which joins Mexico, Colombia, Peru and Chile in a bloc that represents some 35 percent of Latin America's GDP and the sixth- largest economy in the world. 90 Established in 2011, the alliance has already removed 90 percent of trade barriers among its members, abolished visa requirements and taken measures to create a common stock exchange. 91 Besides bolstering intraregional trade, the alliance is looking outward. It opened its first trade office in Africa in November 2014, in Casablanca, Morocco, and plans to open joint embassies in Angola, Ivory Coast, Ghana, Jordan and Kuwait soon as launching pads for business opportunities. 92 While Mexico's strategy of building exports through free-trade pacts has had success, the nation has been less successful in developing its own domestic market to stimulate economic growth. According to the World Bank, 52 percent of Mexicans live in poverty. 93 Although the country's economic growth has reduced poverty slightly, it has not been sufficient for real progress, according to a World Bank report: “There have not been enough jobs or enough jobs that pay adequate wages created in recent years.” The report added that more Mexicans are seeking work in their home country because of demographic changes, including a declining birthrate, the rising number of women in the labor force and “net-zero migration to the United States,” largely due to the recession-weakened U.S. job market and stricter immigration policy that toughened border enforcement and increased deportations. As a result, “the economy has not been able to absorb” the additional workers, the bank said. 94 While Mexico's formal unemployment rate is low—at 4.3 percent in the first quarter of 2015—and has been declining, the country suffers from low-quality, low-wage jobs and a relatively low labor force participation of 61 percent. It has a large self-employed workforce, which is

95 Page 15 of 25 Doing Business in Mexico SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. mostly informal, cash-based labor, estimated at 33 percent of the economy, according to the OECD. 95 An additional problem is that Mexican consumers lack the money to buy the cars and other products Mexico is producing. In a report, PwC Mexico signaled persistent weak consumer demand as an impediment to the auto industry's growth. 96 There are, however, signs of a burgeoning middle class with disposable income. The middle class increased 11.4 percent between 2000 and 2010, and sales of flat-screen TVs, cellphones and other consumer goods have risen. 97 PwC predicts that Mexico's retail market will grow from $217 billion in 2013 to $265 billion in 2017, thanks to a rise in household incomes because of more employed women and more formal-sector jobs, as well as increased consumer credit for big-ticket items. 98 The American Chamber of Commerce in Mexico noted in a report that annual automobile sales almost doubled from 1999 to 2008, and Whirlpool saw a boom in refrigerator sales. “Demand for durable consumer goods is expected to increase as young people start families and purchase homes,” the report stated. 99 Systemic corruption continues to stymie Mexico's growth and mar its international reputation, analysts say. Recent scandals have reached the highest echelons of society. In 2012, a whistleblower revealed that Walmart de México had paid bribes to obtain rush construction permits for its stores all over the country. 100 In 2014, the press reported that President Peña Nieto's wife was purchasing a $7 million mansion owned by a company associated with the Chinese-led consortium that won a $3.7 billion contract to build a high-speed rail line between Querétaro and the capital. 101 Amid public furor, the contract was rescinded and slated for public bidding. While the incidents show that corruption and questionable ethical deals continue to thrive in Mexico, the good news is that there's more reporting of it in the media and more exposure via social media and cellphone videos, says Stephen Morris, chairman of the political science department at Middle Tennessee State University, who has written several books on Mexican corruption and politics. But despite public outrage, few people are prosecuted on corruption charges, and thus the prospect of graft diminishing is dim, Morris says. “It tends to be accepted as standard practice, but there is more risk of being exposed,” he says. “You have to disguise it a little more.” Observers say this is another entrenched issue that Mexico needs to resolve in order to move up the economic ladder. “You get to the end of the deal and you're asked for a donation or asked to hire a subcontractor or someone's nephew,” Farnsworth says. “It's an ever-present issue.” The perception that corruption is resurging under the PRI could harm the party's prospects, political analysts say. The PRI won 29 percent of the vote in June 2015 midterm elections, down from 37 percent in 2009 midterms, while two leftist parties, Morena and the Revolutionary Democratic Party (PRD), commanded a total 28 percent of the 2015 vote, up almost 10 points since 2009. 102 However, analysts note PRI's economic reforms are likely to hold since they were passed with the help of PAN, the country's second- largest party, and have not engendered much public opposition. Observers say that PRI's handling of crime and graft is likely to prove a more pivotal issue in the 2018 presidential elections. Looking Ahead Pursuing More Opportunities

Analysts are bullish on Mexico's economic outlook but say progress hinges on how well the nation can resolve its social problems, including high crime, narcotrafficking and chronic poverty. “Mexico's economy is well managed, they have good fundamentals, but will it underperform or meet expectations? That's always the question,” says Farnsworth of the Council of the Americas. Furthering global trade is a key to growth, experts agree. With solid trade, finance and business policies in place, Mexico is well positioned to take advantage of new markets for exports and capital investment from Asia and Pacific Rim countries such as Australia and New Zealand through the pending 12-nation TPP, experts say. “It could—particularly in the case of Mexico—deepen existing regional supply chains that create products such as autos, electronics, aerospace[craft], by opening up new markets, reducing tariffs and getting into the Japanese and these other Pacific markets,” said Shannon K. O'Neil, senior fellow for Latin America studies at the Council on Foreign Relations in New York. “It provides a larger market for companies that have already taken advantage of NAFTA.” 103 Key will be the terms involved. One of Mexico's main concerns, for example, is whether the pact will include changing current rules so more Japanese-made parts can be used in North American vehicles, thus giving Japan more manufacturing business. “Mexico and the United States want a higher percentage of the production to be in North America; Japan wants the opposite,” O'Neil said. 104

Such thorns, plus political opposition in countries such as the United States, mean the Trans-Pacific pact's future is by no means certain. It likely will take years to reach terms acceptable to all member nations, and several more years from that point to implementation, experts agree. In the meantime, Mexico will continue to press its own trade pacts and open new markets with the help of the Pacific Alliance, which is set to expand with the additions of Costa Rica, Panama and other Latin American nations. 105 But Mexico's prospects will suffer if crime and violence are not curtailed, experts say. Although narcotraffickers' hold is largely contained to certain areas, the violence at worst poses a threat to rule of law, and at best mars the country's image both for investment and tourism. “It deflates the perception,” says Kutchera of Latino Link Advisors. A turnaround is possible, says Miller of the Center for Strategic and International Studies, pointing to Colombia, which has stamped out much of its narcotrafficking-driven violence of the 1980s and 1990s. While analysts note high hurdles remain, Mexico's progress is steady. Says Miller, “Development is never a straight line.” About the Author

Christina Hoag, a former foreign correspondent who is fluent in Spanish and lives in Los Angeles, has written about Latin America and Hispanics for The Miami Herald and The Associated Press. She also has freelanced for The New York Times, BusinessWeek and the Financial Times, covering a variety of topics on Latin America. For SAGE Business Researcher, she wrote previously about Hispanic Marketing. Chronology

1500s–1930s Mexican independence follows Spanish colonization; authoritarian rule leads to revolution and democracy. 1519 Spain's Hernán Cortes reaches the Mexican coast and leads the conquest of the Aztecs; Spanish colonization proceeds. 1821 Mexico is declared a republic, free of Spanish rule. 1910 Revolution erupts against the dictatorship of Porfirio Díaz; he resigns a year later, but civil strife continues for another nine years. 1917 New constitution gives expropriation rights to the state, allows labor unions and weakens the Catholic Church's hold on land. 1920 Mexican Revolution ends, ushering in a stable democracy. 1923 Bucareli Treaty allows foreign oil companies to operate despite the constitutional mandate that Mexico control economic activities. The treaty was overturned the following year by new President Plutarco Elías Calles. 1929 Institutional Revolutionary Party (PRI) commences 71-year hold on politics and the presidency. 1938 President Lázaro Cárdenas nationalizes Mexican oil industry, seizes foreign oil assets. 1940s–1960s Nation experiences three decades of economic prosperity known as the “Mexican Miracle.” 1942 “Bracero” farm guest laborer program starts, sending a total of 4.7 million Mexicans to work in U.S. fields until 1964. 1953 Women gain the right to vote and hold elective office. 1968 Mexico City hosts the Olympic Games, the first in Latin America and in a developing nation; military uses force to break up university student protest. Scores killed. 1970s–1980s Economic turmoil builds. 1976 Peso devalued for the first time in 22 years after government finances soaring national debt by printing more money. 1977 Discovery of offshore oil reserves eventually turns around Mexico's economic fortunes, but leads to profligate government spending.

1980 Oil-price crash, rising national debt and lack of non-oil export growth lead to a second peso devaluation. 1982 Government nationalizes banks to prevent capital flight, postpones its debt payments and receives $10 billion international bailout. 1983 Inflation falls to 80 percent from 110 percent; trade surplus grows to $12 billion. 1985 Massive earthquake strikes Mexico City, killing tens of thousands and causing $4 billion in damage. Peso plunges in value. 1988 National debt reaches record $105 billion. … Newly elected President Carlos Salinas de Gortari begins privatizing state enterprises. 1990s Trade liberalization agreements boost Mexico's economy. 1991 Nation signs its first free-trade pact, the Mexico-Chile Free Trade Agreement, which removes virtually all tariffs on merchandise traded between the two countries. 1994 North American Free Trade Agreement (NAFTA) takes effect in Canada, Mexico and the United States, leading to a manufacturing-for-export industry along the Mexico-U.S. border. 2000s–Present Mexico aggressively pursues free trade and foreign-investment policies. 2000 PRI loses its 71-year grip on the presidency when the National Action Party's Vicente Fox is elected. 2006 Canada's Bombardier opens a plant in Querétaro, spurring development of an aerospace industry cluster. 2012 Election of President Enrique Peña Nieto signals a return of the PRI to power; he announces wide-ranging reforms to modernize Mexico. 2014 Mexico opens state-owned oil and gas industries to private investors. 2015 Ford unveils plan to spend $2.5 billion on engine and transmission plants in Chihuahua and Guanajuato. … Toyota announces $1 billion Corolla plant in Guanajuato. … AT&T invests heavily in Mexico's wireless phone market, buying carriers Iusacell for $2.5 billion and Nextel Mexico for $1.9 billion.

Resources Bibliography

Books

Holmes, Cameron H., “Organized Crime in Mexico: Assessing the Threat to North American Economies,” Potomac Books, 2014. A prosecutor examines how drug cartels are threatening democracy and the economy in Mexico and the United States. Morton, Adam David, “Revolution and State in Modern Mexico: The Political Economy of Uneven Development,” Rowman & Littlefield Publishers, 2013. A professor of political economy at the University of Sydney details the development of modern Mexico from Marxist revolutionary beginnings to capitalism. O'Neil, Shannon K., “Two Nations Indivisible: Mexico, the United States and the Road Ahead,” Oxford University Press, 2013. A Latin America scholar at the Council on Foreign Relations looks at the history of U.S.-Mexico relations, and projects the future. Pearce, Kenneth, “A Traveller's History of Mexico,” Interlink Books, 2002. An author surveys Mexican history from pre-Columbian times to the present.

Articles

Althaus, Dudley, and William Boston, “Why Automakers Are Building Factories in Mexico, not the U.S.,” The Wall Street Journal, March 17, 2015, http://tinyurl.com/nsxde5u. Mexico's thriving auto industry is attracting investment from around the world. Anderson, Chris, “Mexico: The New China,” The New York Times, Jan. 26, 2013, http://tinyurl.com/ahy2lqu. An entrepreneur who founded a drone-manufacturing plant in Tijuana relates his experience.

Nehro, Diana J., “Mexico Labor Reforms Increase Protections for Employees and Clarity for Employers,” Society for Human Resource Management, Feb. 12, 2013, http://tinyurl.com/oo8gdcg. A lawyer examines Mexico's 2013 package of labor reforms. Priddle, Alisa, and Brent Snavely, “Why Mexico is winning the auto jobs war,” Detroit Free Press, June 14, 2015, http://tinyurl.com/nsnsssx. Mexico built almost 20 percent of the vehicles produced in North America last year—double the share 10 years earlier.

Reports and Studies

“Doing Business in Mexico: Automotive Industry,” PricewaterhouseCoopers Mexico, September 2014, http://tinyurl.com/ohy4o65. The Mexico office of the business service and accounting company takes an in-depth look at the auto industry in Mexico. “Foreign Direct Investment in Mexico: Is Your Investment Safe?” American Chamber of Commerce of Mexico, June 2010, http://tinyurl.com/p6lxmat. The group representing foreign companies operating in Mexico weighs the country's advantages and disadvantages for investors. Baron, Jay, Brian Esterberg and Bernard Swiecki, “Accelerating the Growth of the U.S. Automotive Manufacturing Industry at Home, Rather than Abroad,” Center for Automotive Research, 2014, http://tinyurl.com/pud9nkp. Automotive industry researchers examine the effects of the U.S.-Mexican rivalry and how the U.S. auto industry can compete. Díaz-Cayceros, Alberto, Beatriz Magaloni and Vidal Romero, “Caught in the Crossfire: The Geography of Extortion and Police Corruption in Mexico,” Stanford University, February 2014, http://tinyurl.com/oj6co3p. Researchers from Stanford University and the Instituto Tecnológico Autónomo de México study the role of law enforcement in extortion networks. Díaz-Cayceros, Alberto, et al., “Living in Fear: The Dynamics of Extortion in Mexico's Criminal Insurgency,” Stanford University, February 2014, http://tinyurl.com/pzt33bo. Researchers from three universities—Stanford, University of California, Berkeley and the Instituto Tecnológico Autónomo de México—explore how narcotraffickers control regions through extortion. O'Neil, Shannon K., “What does the TPP Mean for Latin America?” Council on Foreign Relations, May 19, 2015, http://tinyurl.com/qaxhb89. An international trade expert lays out the pros and cons of the Trans-Pacific Partnership. O'Neil, Shannon K., and Gilberto García, “Economic Clusters, Productivity, and Growth in Latin America,” Council on Foreign Relations, June 9, 2015, http://tinyurl.com/qhy6xo7. Trade experts look at the economic advantages when industry clusters in geographical regions. Robles, Gustavo, Gabriela Calderón and Beatriz Magaloni, “The Economic Costs of Drug Trafficking Violence in Mexico,” Stanford University, December 2013, http://tinyurl.com/qzl7nhy. Stanford University researchers say violence carries big costs to the Mexican economy. The Next Step

Crime

Bogler, Dan, “Crime and punishment: Mexico suffers the costs of lawlessness,” Financial Times, June 15, 2015, http://tinyurl.com/o9jsesn. Mexico's statistics agency estimates that crime costs the country 2 percent to 3 percent of its GDP each year and disproportionately hurts small businesses that must pay additional security costs. Guilbert, Kieran, “Mexico sees fall in violence, despite drug war: index,” Thomson Reuters Foundation, March 19, 2015, http://tinyurl.com/py8boby. Declines in violent and organized crime in Mexico over the last four years have helped Mexico's economy, according to the Institute for Economics and Peace, an Australia-based think tank. MacDonald, Alistair, and Dudley Althaus, “Mining Companies Face Dangers From Criminal Gangs in Mexico,” The Wall Street Journal, April 10, 2015, http://tinyurl.com/q6ao375. Mexican cartels have extorted and kidnapped growing numbers of employees of mining companies that have expanded exploration in the country.

Infrastructure

Dibble, Sandra, “It's Mexico's turn to boost border enforcement—with a new pedestrian crossing into Tijuana,” Los Angeles Times, Aug. 26, 2015, http://tinyurl.com/plroeek. Mexican border officials hope to more closely regulate travel into Tijuana with a newly constructed $6.9 million crossing, built as part of a national push to improve border infrastructure. Martin, Eric, Andrea Navarro and Adam Williams, “Mexico's CFE Sees Infrastructure Spending Near $16.6 Billion,” Bloomberg Business, May 8, 2015, http://tinyurl.com/pjw388z. Mexico's federal energy commission and outside companies will spend nearly $17 billion to build planned natural gas pipelines and renewable energy projects, according to the commission's chief executive. Toonkel, Jessica, and Christine Murray, “Private investors look but do not leap at Mexican energy projects,” Reuters, June 9, 2015, Page 19 of 25 Doing Business in Mexico SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. http://tinyurl.com/p74c9ox. Bureaucratic red tape, security concerns and construction delays caused by opposition groups have deterred American investors from proceeding with plans to fund energy projects in Mexico.

Labor Costs

Choi, Candice, “Trump vows never to eat Oreos again, citing move to Mexico,” The Associated Press, Aug. 25, 2015, http://tinyurl.com/nqrlaas. Republican presidential candidate Donald Trump said he would boycott Oreos, a cookie made by snack manufacturer Mondelez International, after the company decided to invest $130 million in a Mexican factory rather than one in Chicago, to cut labor costs and operating expenses. Krisher, Tom, “Preserving jobs, pay raises on table as US auto talks open,” The Associated Press, July 8, 2015, http://tinyurl.com/p7b94fa. American automotive workers unions hope to negotiate with manufacturers for better wages even as companies open more plants in Mexico, where labor costs about $8 an hour. Woody, Christopher, “Mexico's wage crisis is so bad ‘that it violates what's stipulated in the Constitution,’” Business Insider, Aug. 2, 2015, http://tinyurl.com/os5brf3. Mexicans worked 531 more hours on average than Americans in 2014, yet made roughly one-fifth as much money, according to data from the Organisation for Economic Co-operation and Development.

Oil Industry

Case, Brendan, and Eric Smith, “Mexico Cuts Growth Forecast on Oil, U.S. Industrial Output,” Bloomberg Business, Aug. 20, 2015, http://tinyurl.com/pyrlovg. Mexico's deputy finance minister said crude oil production that has been lower than projected influenced the country's decision to lower its year-end economic growth forecast. Krauss, Clifford, “U.S. Allows Limited Oil Exports to Mexico,” The New York Times, Aug. 14, 2015, http://tinyurl.com/ngwrtg2. The U.S. Commerce Department said it will temporarily allow U.S. companies to export crude oil to Mexico, although oil executives continue to ask the government to fully end an export ban to open up trade. Osborne, James, “As Mexico makes history, oil industry largely stays away,” The Dallas Morning News, July 15, 2015, http://tinyurl.com/nj2fsxq. Mexico sold only two of 14 available state-owned oil fields to foreign firms, many of which stayed away due to unfavorable contract terms, during the government's first-ever auction of oil reserves. Organizations

ORGANIZATIONS TO CONTACT

American Chamber of Commerce of Mexico Blas Pascal 205, 3.er piso, Col. Los Morales, 11510 Mexico City (52-55) 5141-3800 www.amcham.com.mx Business advocacy organization representing international companies operating in Mexico; counterpart groups are in Costa Rica, El Salvador, Guatemala and Honduras. Caribbean-Central American Action 1625 K St., N.W., Suite 200, Washington, DC 20006 202-464-2031 www.c-caa.org Promotes private-sector-generated economic development, trade, investment and business policies in the Caribbean and Central America. Center for International Private Enterprise 1211 Connecticut Ave., N.W., Suite 700, Washington, DC 20036 202-721-9200 www.cipe.org Advocacy group that works to build democracy and market economies throughout the world; also monitors issues and policies of business interest. Council of the Americas 1615 L St., N.W., Suite 250, Washington, D.C. 20036 202-659-8989 www.as-coa.org Analyzes economic and political issues affecting businesses in Latin America.

Export-Import Bank of the United States 811 Vermont Ave., N.W., Washington, DC 20571 202-565-EXIM www.exim.gov U.S. government agency that helps finance the overseas sales of U.S. goods and services. International Trade Administration, U.S. Department of Commerce 1401 Constitution Ave., N.W., Washington, D.C. 20230 1-800-USA-TRAD http://www.trade.gov/ U.S. government agency that offers information on all aspects of overseas business, including exporting, international sales, logistics, finance, intellectual property protection, trade dispute resolutions. International Trade and Investment Division, U.S. Chamber of Commerce 1615 H St., N.W., Washington, DC 20062-2000 202-659-6000 www.uschamber.com/international-trade-and-investment Chamber's trade and investment division that offers information on doing business abroad; also represents U.S. business interests in trade policy issues and negotiations. North American Development Bank 203 South St. Mary's, Suite 300, San Antonio, TX 78205 210-231-8000 www.nadbank.org International financial institution formed by the governments of United States and Mexico for financing infrastructure projects along the shared border. The Trust for the Americas 2600 16th St., N.W., 4th Floor, Washington, D.C. 20006 202-458-3458 www.trustfortheamericas.org An agency of the Organization of American States that promotes private-sector participation in economic-opportunity projects for the region's most disenfranchised. United States-Mexico Chamber of Commerce 6800 Versar Center Drive, Suite 450, Springfield, VA 22151 703-752-4751 www.usmcoc.org Business group that helps bridge legal, economic and regulatory differences for investors. Notes

[1] Adam Williams, Eric Martin and Nacha Cattan, “Mexico Passes Oil Bill Seen Luring $20B a Year,” Bloomberg News, Dec 13, 2013, http://tinyurl.com/nr8vfho. [2] “International energy data and analysis,” U.S. Energy Information Administration, undated, accessed Aug. 21, 2015, http://tinyurl.com/oc2ypls; “Pemex Investor Presentation,” Pemex, September 2012, p. 20, http://tinyurl.com/or5o8qv. [3] Williams, Martin and Cattan, op. cit. [4] Ibid. [5] Dudley Althaus and William Boston, “Why Automakers are Building Factories in Mexico, not the U.S.,” The Wall Street Journal, March 17, 2015, http://tinyurl.com/nsxde5u. [6] “Mexico: Economy,” CIA World Fact Book, updated Aug. 11, 2015, http://tinyurl.com/yq797j. [7] Ibid. [8] Jorge G. Castañeda, “NAFTA's Mixed Record; The View From Mexico,” Foreign Affairs, January/February 2014, http://tinyurl.com/prydjgc. [9] M. Angeles Villarreal, “Mexico's Free Trade Agreements,” Congressional Research Service, July 3, 2012, Summary, http://tinyurl.com/nbsanwz.

[10] Ibid., p. 17. [11] “Mexico saw record $35 bln in foreign direct investment in 2013,” Reuters, Feb. 23, 2014, http://tinyurl.com/ndmerqk. [12] Dave Graham, “Mexican foreign direct investment falls by one-third in 2014,” Reuters, Feb. 24, 2015, http://tinyurl.com/q9lx9gx. [13] Alexandra Alper, “Mexico foreign direct investment rises to $7.57 bln in 1st qtr,” Reuters, May 20, 2015, http://tinyurl.com/po9b7t8. [14] Villarreal, op. cit., p. 15. [15] Shannon K. O'Neil and Gilberto García, “Economic Clusters, Productivity, and Growth in Latin America,” Council on Foreign Relations, June 9, 2015, http://tinyurl.com/qhy6xo7. [16] Jay Baron, Brian Esterberg and Bernard Swiecki, “Accelerating the Growth of the U.S. Automotive Manufacturing Industry at Home, Rather than Abroad,” Center for Automotive Research, Nov. 20, 2014, p.27, http://tinyurl.com/pud9nkp. [17] Tim Johnson, “Mexico hands out free TVs to the poor in massive giveaway,” Tribune News Services, The Orange County Register, Aug. 13, 2015, http://tinyurl.com/nwvy4xm. [18] “General Atlantic Opens Mexico City Office and Expands Local Presence in Latin America,” news release, General Atlantic, June 10, 2015, http://tinyurl.com/qerwejd. [19] “Mexico: World Development Indicators,” World Bank, undated, accessed Sept. 4, 2015, http://tinyurl.com/y2bs4hw. [20] “Factbox: Facts about Mexico's Education System,” Reuters, April 13, 2011, http://tinyurl.com/3j44pyu. [21] Chris Anderson, “Mexico: The New China,” The New York Times, Jan. 26, 2013, http://tinyurl.com/ahy2lqu. [22] Alisa Priddle and Brent Snavely, “Why Mexico is Winning the Auto Jobs War,” Detroit Free Press, June 14, 2015, http://tinyurl.com/nsnsssx. [23] Anderson, op. cit. [24] Priddle and Snavely, op. cit. [25] Ibid. [26] O'Neil and García, op. cit. [27] “Doing Business in Mexico: Automotive Industry,” PricewaterhouseCoopers Mexico, September 2014, p.15, http://tinyurl.com/o4kmo4f. [28] Althaus and Boston, op. cit. [29] Anderson, op. cit. [30] Adriana Gómez Licón, “Mexican School Textbooks Filled with Errors,” The Associated Press, Aug. 19, 2013, http://tinyurl.com/lqpe6yr. [31] “Factbox: Facts about Mexico's Education System,” op. cit. [32] Gómez Licón, op. cit. [33] Ibid. [34] E. Eduardo Castillo, “Mexico's arrested union leader started humble,” The Associated Press, Feb. 28, 2013, http://tinyurl.com/qhcwc59. [35] Diana J. Nehro, “Mexico Labor Reforms Increase Protection for Employees and Clarity for Employers,” Feb. 12, 2013, Society for Human Resource Management, http://tinyurl.com/oo8gdcg. [36] Ibid. [37] Nathaniel Parish Flannery, “In Mexico, violence chokes both local business and Coke, Pepsi,” Fortune, July 20, 2015, http://tinyurl.com/p8dq3oe. [38] Ibid.

[39] Ibid. [40] Kimberly Heinle, Cory Molzahn and David A. Shirk, “Drug Violence in Mexico: Data & Analysis through 2014,” University of San Diego Justice in Mexico Project, April 2015, http://tinyurl.com/pg9ogcb. [41] Gustavo Robles, Gabriela Calderón and Beatriz Magaloni, “The Economic Consequences of Drug Trafficking Violence in Mexico,” Stanford University, December 2013, p. 2, http://tinyurl.com/qzl7nhy. [42] Alberto Díaz-Cayeros et al., “Living in Fear: The Dynamics of Extortion in Mexico's Criminal Insurgency,” Stanford University, February 2014, p.7, http://tinyurl.com/pzt33bo. [43] Ibid. [44] Mark Stevenson, “Sabritas Firebombing Attack: Knights Templar Lieutenant Detained in Mexico,” The Associated Press, May 28, 2012, http://tinyurl.com/6nl76sr. [45] Ibid. [46] Mariano Castillo, “Remains could be those of 43 missing Mexican students,” CNN, Nov. 11, 2014, http://tinyurl.com/ptpyhe2. [47] “Foreign Direct Investment in Mexico: Is Your Investment Safe?” American Chamber of Commerce of Mexico, June 2010, p. 4, http://tinyurl.com/p6lxmat. [48] Heinle et al., op. cit. [49] Ibid. [50] Staff reporters, “U$300 Million Wind Farm Project In Mexico Represents First Cross-border Generation Project,” Mexico Infrastructure Finance and Business Review, June 11, 2015, http://tinyurl.com/pb2zyz6; Staff reporters, “Two New Wind Farms Worth U$260 Million Constructed In Tamaulipas, Mexico,” Mexico Infrastructure Finance and Business Review, June 7, 2015, http://tinyurl.com/pu6s8lr. [51] “Major Infrastructure Projects in Mexico,” U.S. Trade and Development Agency, October 2014, http://tinyurl.com/ptfweux. [52] “Foreign Direct Investment in Mexico: Is Your Investment Safe?” op. cit., p. 7. [53] Adele Peters, “Mexico City's New Airport Will Be The Most Sustainable Airport Ever Built,” Fast Company, Sept. 23, 2014, http://tinyurl.com/qz6kbu2. [54] “Major Infrastructure Projects in Mexico,” op. cit. [55] Ibid. [56] “Mexico as a Global Player,” Council on Foreign Relations, Foreign Affairs, April 29, 2015, http://tinyurl.com/ofl8hl7. [57] “Major Infrastructure Projects in Mexico,” op. cit. [58] Elisabeth Malkin, “New Rules to Reshape Telecom in Mexico,” The New York Times, March 7, 2014, http://tinyurl.com/nqgfpzm. [59] Christine Murray, “Mexico telecom prices fall after reforms aimed at curbing Slim,” Reuters, March 8, 2015, http://tinyurl.com/qxanyky. [60] Kenneth Pearce, “A Traveller's History of Mexico,” 2002, pp. 275–76. [61] Tim L. Merrill and Ramón Miró, “Mexico: A Country Study,” Library of Congress, 1996, http://tinyurl.com/okzgo29. [62] Pearce, op. cit., p. 283. [63] Ibid., pp. 290–293. [64] Ibid., p. 305. [65] Carlos Bazdresch and Santiago Levy, “Populism and Economic Policy in Mexico 1970–82,” National Bureau of Economic Research, January 1991, p. 247, p. 249, http://tinyurl.com/pxxlj4c. [66] Pearce, op. cit., p. 310. [67] Ibid., pp. 310–11.

[68] Ibid., p. 313; “Inflation,” Banco de Mexico, undated, accessed Aug. 26, 2015, http://tinyurl.com/oh5swgn. [69] U.S. Geological Survey, “Historic earthquakes,” U.S. Geological Survey, undated, accessed Aug. 8, 2015, http://tinyurl.com/79oudfe. [70] Pearce, op. cit., p. 312. [71] Jim Tuck, “High hopes, baffling uncertainty: Mexico nears the millennium,” MexConnect, May 1, 1999, http://tinyurl.com/pr9hlvf. [72] Villarreal, op cit., pp. 2, 3, 6. [73] Ibid. [74] Timothy A. Wise, “Who pays the price for agricultural dumping? Farmers in developing countries,” Triple Crisis: Global Perspectives on Finance, Development and Environment, July 29, 2010, http://tinyurl.com/3xvdtdp. [75] Susana G. Baumann, “Mexican Farmers Affected By Agricultural Subsidies From NAFTA, Other International Agreements,” The Huffington Post, Jan. 11, 2013, http://tinyurl.com/p5tvfv9. [76] “Mexico: Economy,” CIA World Fact Book, op. cit. [77] Laura Gottesdiener, “A Glimpse into the Zapatista Movement Two Decades Later,” The Nation, Jan. 23, 2014, http://tinyurl.com/ojbvx6m. [78] Julia Preston, “Raul Salinas Guilty in Killing and Is Sentenced to 50 Years,” The New York Times, Jan. 22, 1999, http://tinyurl.com/plbmn38. [79] “Ex-President's Brother Leaves Jail After Decade,” Los Angeles Times, June 15, 2005. http://tinyurl.com/qctkjfo. [80] “Brother of Mexican ex-president cleared of illicit enrichment charges,” EFE, Fox News Latino, Dec. 17, 2014, http://tinyurl.com/o2op7bk. [81] George W. Grayson, “Fox's Legacy and Mexico's Future,” San Diego Union-Tribune, Dec. 11, 2005. http://tinyurl.com/nortna9. [82] “Data: GDP Growth,” World Bank, undated, accessed Aug. 8, 2015, http://tinyurl.com/ovsea5y. [83] “As Mexico's Problems Mount: The Impact of the Economic Recession on Migration Patterns from Mexico,” Council on Hemispheric Affairs, March 5, 2009, http://tinyurl.com/pn8yemk. [84] “Stability, Violence Mark Calderón Legacy in Mexico,” The Associated Press, USA Today, Nov. 29, 2012, http://tinyurl.com/osgxsa7. [85] Joshua Partlow, “Workers may be losers in Mexico's car boom,” The Washington Post, June 18, 2015, http://tinyurl.com/p4754qn. [86] Baron, Esterberg and Swiecki, op. cit., p. 26. [87] Ibid. [88] Althaus and Boston, op. cit. [89] “Doing Business in Mexico: Automotive Industry,” op. cit., p. 20. [90] “Latin American geoeconomies: A continental divide,” May 18, 2013, The Economist, http://tinyurl.com/of6mjdt. [91] Ibid. [92] “Mexico opens 1st Trade Office in Africa,” EFE, Fox News Latino, Nov. 27, 2014, http://tinyurl.com/pvztofo. [93] “Mexico: World Development Indicators,” op. cit. [94] “Mexico Overview,” World Bank, undated, accessed June 17, 2015, http://tinyurl.com/mfcpam2. [95] “How does Mexico compare? Employment Outlook 2015,” Organisation for Economic Co-operation and Development, July 2015, http://tinyurl.com/o7kq9rx; “Self Employment Rate,” Organisation for Economic Co-operation and Development, undated, accessed Aug. 8, 2015, http://tinyurl.com/o66us6d. [96] “Doing Business in Mexico: Automotive Industry,” op. cit., p. 15.

[97] Nathaniel Parish Flannery, “What's the Real Story with Modern Mexico's Middle Class,” Forbes, July 23, 2013, http://tinyurl.com/ky2jnon. [98] “Nordic Investment in Mexico: Retail Sector,” PricewaterhouseCoopers, April 2014, http://tinyurl.com/p4mdkdg. [99] “Foreign Direct Investment in Mexico: Is Your Investment Safe?” op. cit., p. 7. [100] David Barstow, “Vast Mexico Bribery case Hushed up by Wal-Mart after Top-Level Struggle,” The New York Times, April 21, 2012, http://tinyurl.com/bsqfs5z. [101] Jo Tuckman, “Mexican President Enrique Peña Nieto faces outcry over £4.4m mansion,” The Guardian, Nov. 10, 2014, http://tinyurl.com/ot8pm5w. [102] Rodrigo Aguilera, “Dispelling Mexico's Mid-term Myths,” The Huffington Post, June 18, 2015, http://tinyurl.com/qb2d4dp. [103] Danielle Renwick, “What does the TPP Mean for Latin America?” Council on Foreign Relations, May 19, 2015, http://tinyurl.com/qaxhb89. [104] Ibid. [105] “Latin American geoeconomies: A continental divide,” op. cit.

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