Mexican labor, law, infrastructure, NAFTA: Steps to develop or save Mexico manufacturing?

Most politicians in Mexico do not understand how to compete globally. Meanwhile, Mexico is moving away from low value-add manufacturing of products to more complicated products requiring more sophisticated processes.

While Mexico is competing with China's manufacturing sector in some ways, it makes no sense for Mexico to try and compete against China's labor costs because of the difference in the way each nation is governed.

VentureOutsource.com speaks with Sergio Garcia de Alba, president at the Institute for Innovation, Competitiveness and Entrepreneurial Development at Tecnológico de Monterrey, (Guadalajara, Mexico), Former Secretary of Economy (2005-06) and Under Secretary of Economy for SMEs (2003-05).

In this exclusive interview, Sr. Garcia de Alba shares his unique perspective on the myriad of challenges Mexico faces and offers insight into the Mexican mindset as he talks about Mexico's position on the global stage while competing with China; changes he'd like to see in the North American Free Trade Agreement (NAFTA), corruption, and Mexican infrastructure, foreign direct investment and development opportunities, and more.

Transcripts from that discussion follow...

VentureOutsource.com: Once deemed the world's factory, China is losing some of its allure. China's export taxes have risen and Chinese manufacturing employees are demanding higher wages. Meanwhile, labor is still more expensive in Mexico than in Asia plus Mexico has high grid energy costs that can quickly erode margins for foreign manufacturers. For North American manufacturers, Mexico is closer but China has more workers plus China has invested in its workforce - the type of skills that build manufacturing capability and sustainability. Taking all of the above into account, what are three (3) challenges you feel Mexico's manufacturing sector must overcome if it is to regain the position it once held in the 1990's as the manufacturing destination-of-choice for North American companies?

Garcia de Alba: I first want to point out that Mexico has been undergoing a change of focus, from being heavily dependant on low value add manufacturing, to more products (and increasingly more services) that require more sophisticated processes and more flexible and well prepared human resources.

Mexico shouldn't try to compete anymore, or try to develop, in traditional high-volume manufacturing projects that require low wages and benefits to be competitive.

The economic slowdown from 2001 to 2003, together with the strong competition from China for investments, were painful for Mexico, but were also an opportunity for Mexico to evolve and attract projects offering better jobs; higher value add, lower volumes, high flexibility, and fast delivery times.

Sergio Garcia de Alba - VentureOutsource.com

Sergio Garcia de Alba
President
Institute for Innovation, Competitiveness & Entrepreneurial
Development at Tecnológico de Monterrey (Guadalajara),
Former Secretary of Economy, Mexico

It is my opinion, Mexico should not step backward and compete for projects primarily seeking low labor, not to mention the working and environmental conditions found in China.

With this perspective in mind, I feel the following three challenges facing Mexico's manufacturing sector are:

1.) Increase Mexico's budget allocation for education and training, to develop better qualified human resources (from operators and technicians, to professionals). This will help make Mexico more attractive for the types of projects that can pay higher wages and benefits, even if we are not leaders in volume production.

2.) Improve Mexico's infrastructure. This is critical. We need to invest a lot more to increase and modernize our sea and air ports; high-ways, rails, logistics centers...create more border crossings and making each more efficient (and safe). We also require more competition between telecommunications providers and broadband connectivity.

One thing most of our politicians do not understand (since they don't understand what it means to compete globally for markets) is, we need to open electric energy generation; distribution, and commercialization to national and foreign investments - at least in the industrial; commercial, tourism, commerce and services sectors.

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