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Mexico - A Market to Consider

By: Kevin H. McKervey, CPA and Timothy P. Finerty, CPA

The drive to start up business in Mexico bodes well for Michigan's economy, if locally based companies are able to fortify their bottom line with new customers in Mexico.

That's the message conveyed during a business forum on Mexico Clayton & McKervey co-sponsored with Ford Motor Company on January 18, 2007.

"As companies evaluate the business opportunities driven by growing economies around the world, they would do well to investigate the competitive advantages of setting up operations in Mexico or partnering with firms there," noted Kevin McKervey, Shareholder in charge of International Services.

"Our clients are getting pressure from other companies here in Michigan. They want higher margins. One way to achieve this is to lower the cost of doing business by setting up operations in Mexico or other emerging markets."

Others attending shared their observations. "Our customers are drawing us to Mexico; they want us to be closer to them as suppliers," said Joseph Campbell, of Applied Manufacturing Technologies. His company provides robotics for manufacturing operations.

With a growing presence in Mexico, Original Equipment Manufacturers in the automotive industry also need component parts suppliers at lower tier levels. This creates opportunities for investment and possible partnerships with Mexican companies that need financial and intellectual capital to grow.

Armando Ojeda, Director, Supplier Diversity Development, Purchasing, Ford Motor Company, heads a department that is trying to get more female-based and minority vendors in Mexico as suppliers to Ford.

"Ford is looking for new suppliers to partner with existing companies in Mexico that don't have the means to become suppliers on their own. These native companies need to build partnerships with the U.S. to create a supply base. In a low-cost country, you need to manufacture for the domestic market consumption and be able to export," he said.

Michigan has been a major beneficiary of the North American Free Trade Agreement (NAFTA). According to Bancomext, the Mexican Bank for Foreign Trade, Michigan ranks third in the nation, behind only California and Texas, in gaining net business from international trade with Mexico.

Local municipalities in Mexico individually compete for investment by offering economic incentives. Average labor costs in Mexico were $2.45 per hour, with benefits, in 2003, compared to $25.35 in the U.S. In 2009, labor costs are projected to be $3.28 in Mexico versus $30.60 in the U.S., according to Bancomext.

Participants that attended the forum "Mexico - Coffee & Conversation" included a diversity of enterprises, from middle market automotive suppliers to smaller professional services companies that offer translation, legal, personnel management, and contract engineering that support transnational commerce.

As we work with our clients - chiefly family-owned businesses and entrepreneurs - Clayton & McKervey frequently hosts business forums aimed at helping clients and others consider alternatives to meet the demands of international trade. If you are interested in additional information regarding international trade, please contact Kevin McKervey or Tim Finerty at 248.208.8860.

248.208.8860 | 2000 Town Center, Suite 1800 | Southfield, MI 48075

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