ProLogis, a global provider of distribution facilities and services, has released a new study entitled, ‘Is China’s Economic Success a Threat to Mexico?’
This study was conducted by Leonard Sahling of the ProLogis Research Group, whose main objective was to examine whether China’s recent success in exporting to the United States has come at the expense of Mexico’s market share. It’s not a bike trade specific report.
The study indicates that although some observers believe that China’s exports to the United States are growing at the expense of Mexico’s, there is not a causal connection, and that reports of the demise of Mexican manufacturing have been greatly exaggerated. Rather, the study concludes, the slowdown in Mexico’s exports to the United States is due to the US economic boom that peaked in 1999-2000 and the prolonged US recession and slow recovery. The strong US economy of the late 1990s fuelled the growth of Mexican maquiladora factories, but they have been hard hit since by the US economy’s sluggishness. Yet, despite their recent economic woes, Mexico’s manufacturers have made a lot of progress in moving up the value-added ladder.
The report finds that China’s exports to the United States escaped the downdraft of the US recession because of dramatic changes in US trade treaties with China.
"These trade changes were one-time events that have leveled the playing field, which had previously been tilted against Chinese imports to the United States," said Sahling.
Key findings of the report include the fact that Mexico’s proximity to the United States is its foremost comparative advantage as an outsourcing destination for manufacturing. Global manufacturers will prefer Mexico to other countries when product specifications are complex and frequently changed, requiring close supervision; when the inventory cycle is short, so that a transport time of 5 to 6 weeks is unacceptably long; or when products are bulky,
so that high shipping costs offset low production costs.
China’s admission to the World Trade Organization (WTO) in December 2001 meant that other WTO members, including the United States, lowered their duties on goods imported from China, thus enhancing the competitiveness of those goods within the United States. This was a one-time event that, while providing a short-term boost to China, will not alter Mexico’s long-term advantages vis-a-vis China.
The ProLogis study concludes that certain goods are more likely to be manufactured in China, while others are better suited to Mexico. Exports that are commodities, mass-produced, or less expensive to ship are good candidates for manufacture in China, while more expensive or bulky goods, including those offering customization, can be delivered to the customer from Mexico at a lower cost.
However, the study finds that Mexico does face critical challenges at home that it must solve if it is to remain competitive on the world stage. These challenges range from addressing its aging infrastructure and unreliable power system to its neglected schools and troubled court system.
Looking ahead, Sahling believes that even though they find Mexico’s competitive position in the world to be secure today, every country in the world will face increasingly stiff competition from China.
"Ultimately, no nation can be complacent in the face of a motivated country of 1.3 billion people who are gaining momentum in the global marketplace," said Sahling.
For a copy of the research report, visit http://ir.prologis.com/, go to the Proprietary Research page and click ‘Is China’s Economic Success a Threat to Mexico?’