NAFTA countries must strengthen manufacturing force in North American to compete globally
May 11, 2011
by Matt Powell
OTTAWA—While Canadians may be fixated on the immense economic opportunities in Asian markets, more should pay closer attention to opportunities closer to home, according to Canadian Manufacturers and Exporters (CME).
However, not everyone is a skipping this lucrative market. Since the NAFTA agreement was signed in 1993, bilateral trade has grown more than six times between Canada and Mexico. That’s equivalent to an annual growth rate of 12.5 per cent.
In 2010, trade increased 38 per cent, totaling about US$30 billion – setting a new record, says the CME. That statistic alone means bilateral trade between Canada and Mexico has not only recovered from pre-recession lows, but also exceeded it.
It might also be worth noting that Mexico, boasting GDP of $900 billion, is Canada’s third largest trading partner, representing 3.9 per cent of overall trade in 2010, according to Statistics Canada.
Some of Canada’s biggest companies in the aerospace (Bombardier) and automotive (Magna) sectors have set up numerous Mexican manufacturing facilities.
Of course, a high crime rate and corruption galore taints Mexico’s reputation as a potential economic leader and could lead to some reluctance from Canadian firms considering the Mexican market.
On the other hand, Mexico’s proven manufacturing base and its proximity makes it a very attractive market for Canadian firms even though labour is a bit more expensive than in Asian markets,says Brian Smith, director of Advisory Services at KPMG Canada.
“Although labour rates are a little bit higher in Mexico, those costs are off-set for Canadian and U.S. firms because we’re a lot closer than if a company was doing business in Asia,” he says. “The shipping costs are obviously significantly cheaper.”
Smith also notes, however, that the smaller Mexican population of 104.9 million could play a role in the size of its vendor network against those networks in China, where the population exceeds one billion people.
Logistically, there’s a case for Canadian firms setting up shop in Mexico, says Marcos Pruneda, regional manager for Northern Mexico at Export Development Canada (EDC).
“There’s definitely a trend with Canadian firms paying attention to the logistics of Mexico being closer to home,” he says. “Simply speaking, it’s going to much simpler to do business in Mexico going forward because of its proximity, lack of time difference and its strong manufacturing base.”
Pruneda says there’s a lot of opportunities now compared to 2009 and 2010, especially for tooling and mould suppliers as more OEMs set up shop.
But while bilateral trade is strong, the CME says more can be done as NAFTA partners.
In March, Jayson Myers, CME president and CEO, Salomon Presburger Slovik of the Confederation of Industrial Chambers of Mexico and Jay Timmons of the National Association of Manufacturers drafted a joint letter to leaders of the NAFTA countries.
The CME says the letter suggests NAFTA governments and industry need to work together to define strong, future-looking measures to secure the potential of North American manufacturing and strengthen its ability to compete in both domestic and overseas markets.