A country on its way to world-class standing.

Author:Porat, Avner M.

Mexico offers the advantages of location, a growing domestic market, labor productivity, export potential, and attractive investment for those seeking global scale.

Mexico has a new look for the 1990s. Since the 1988 inauguration of President Carlos Salinas de Gortari, Mexico has experienced three years of solid economic growth, dramatically reduced inflation, and large capital inflows. The budget deficit has become a surplus, public foreign debt has been renegotiated, and the deregulation of Mexican industry and reprivatization of many nationalized businesses have continued. Mexico is nearly ready to compete among the world's economic powers.

The dramatic improvement in its economic life signs has led foreign investors to discover that Mexico offers opportunities to achieve a sustainable global competitive advantage. A.T. Kearney recently conducted a global study to identify the advantages of investing and operating in Mexico and the best industries for foreign investment. The most important advantages cited in this study were the low cost and high quality of the work force, Mexico's location and its access to attractive markets, and the size and growth of the Mexican market itself.

Perhaps the most obvious lure for investors considering Mexico is the promise of a North American Free Trade Area (NAFTA). The potential of a single North American market has seized the imaginations and intentions of manufacturers, exporters, and consumer goods companies eyeing the 360 million consumers and $6 trillion in total annual production.

As part of our research, A.T. Kearney screened 15 major industry sectors to identify those that could secure the greatest opportunity from operating in Mexico. We asked: What comparative advantages are critical to which businesses? What are the constraints? How would relocation of manufacturing improve competitive advantage?

The results of our analysis show that the top seven sectors that Mexico offers advantages to are:

* Automotive parts;

* Electronics and communications equipment;

* Building materials;

* Electrical products;

* Food processing;

* Apparel; and

* Infrastructure.

Following are some observations on characteristics and opportunities in these sectors.

Automotive Parts. Companies in the automotive parts industry have the greatest incentive for Mexican investment. The Mexican government's less restrictive policies on both ownership of production facilities and importation of auto parts have ignited the accelerated investment opportunities. These opportunities are being fueled by the automotive industry's dramatic 20% annual growth and by the distinct possibility that Mexico's vehicle output could triple over the next eight years.

The automotive industry in Mexico produced just under one million vehicles in 1991 More than 340,000 of the passenger cars and light...

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