AMCHAM National Convention 2004.

Mexico's Challenge: Politics, Growth and Competitiveness/Retos de Mexico: Politica, Crecimiento y Competitividad

8 and 9 November 2004 / 8 y 9 de noviembre de 2004 Hotel Nikko Mexico, Salon Constelaciones

Keynote Speaker / Orador de Honor

C. Presidente Lic. Vicente Fox Quesada*

Introduction of President Fox / Presentacion del Presidente Fox

The Honorable Antonio O. Garza, Jr.

Ambassador of the United States of America to Mexico / Embajador de los Estados Unidos de Norteamerica en Mexico Honorary President / Presidente Honorario

AMERICAN CHAMBER/MEXICO

Moderator / Moderador

Sergio Sarmiento

Editorial Director / Director del Comite Editorial

Television Azteca

"MEXICO'S CHALLENGE: VIEW FROM THE PRIVATE SECTOR" / "EL RETO DE MEXICO: PERSPECTIVA DEL SECTOR PRIVADO"

Manuel Medina Mora 

President / Presidente

Asociacion de Bancos de Mexico

PANEL: "MEXICO'S ECONOMIC GROWTH PROSPECTS: PERSPECTIVES FROM MEXICO AND BEYOND" / "PROSPECTOS DE CRECIMIENTO ECONOMICO PARA MEXICO"

Luis Tellez

CEO / Director General

Carlyle Group 

Benedicte Larre

Senior Economist, Mexico Studies / Economista Senior

Organization for Economic Cooperation and Development (OECD)/Organizacion para la Cooperacion y Desarrollo Economico (OCDE)

David Bloom 

Director of Currency Strategy / Director de Estrategia de Divisas

The HongKong and Shanghai Banking Corporation (HSBC)

"RULE OF LAW" / "ESTADO DE DERECHO"

Lic. Jose Ramon Cosio Diaz

Justice / Ministro

Mexico's Supreme Court / Suprema Corte de Justicia de la Nacion

"POLITICAL REALITIES IN MEXICO: IS COOPERATION POSSIBLE?" / "REALIDADES POLITICAS EN MEXICO: ?ES POSIBLE LA COOPERACION?"

Francisco Barrio Terrazas*

Coordinator for the National Action Party (PAN) / Coordinador del Partido Accion Nacional (PAN)

Chamber of Deputies / Camara de Diputados

Emilio Chuayffet*

Coordinator for the Institutional Revolutionary Party (PRI) / Coordinador del Partido Revolucionario Institucional (PRI)

Chamber of Deputies / Camara de Diputados

Pablo Gomez*

Coordinator for the Party of the Democratic Revolution (PRD) / Coordinador del Partido de la Revolucion Democratica (PRD)

Chamber of Deputies / Camara de Diputados

Keynote Speaker / Orador de Honor

Ambassador Jeffrey Davidow / Embajador

President / Presidente

Institute of the Americas

AMERICAN CHAMBER/MEXICO has an extensive committee system with close to 1,000 volunteers participating in all three divisions. The committee system has actively worked on adopting unified policy statements to direct the committees' missions in dealing with the Mexican and U.S. governments.

In the future, the Chamber expects all committees will establish policy statements to facilitate continuing and effective interaction inside and outside the Chamber.

Agribusiness Committee

This committee supports a consistent farming policy to plan future development.

Problems identified include a lack of transparency, which makes it difficult for producers to accurately price products to cover costs and generate attractive margins.

Bureaucracy, though not insurmountable, obstructs the free flow of goods, generates uncertainty and limits export capacity. Government subsidies exist, but there should be no further market intervention; this should be left to the companies and producers involved.

Competitiveness Working Group

This task force aims to address factors identified by AMCHAM/MEXICO's 2,000 corporate members as decreasing Mexico's global competitiveness and hindering the inflow of greater investment into the country.

As part of this initiative, the Quadripartite Working Group--comprised of the U.S. business community, the Mexican private sector, and the Mexican and U.S. governments--was formed this year to move the competitiveness agenda forward in a stronger, unified manner.

Fiscal Affairs Committee

This committee is actively engaged in lobbying Mexico's executive and legislative branches to improve the government's tax collection system.

The committee believes it is necessary to expand the tax rolls, reduce the overall tax burden and simplify the complex and time-consuming filing requirements.

Such changes will lead to higher investment flows, greater job creation and more revenues for the government--a win-win situation for all.

Human Capital and Labor Affairs Committee

This committee backs improvements in education, legislation, public safety, rule of law and the enforcement of labor laws to stimulate economic development.

Better education boosts productivity; flexible labor legislation allows movement of human capital and respects workers' rights. The committee encourages greater support for labor law enforcement and a bigger budget to professionalize the Conciliation and Arbitration Boards.

Security and judicial certainty are essential to grow the economy, as are fair and functional laws, impartial courts and efficient public safety organizations.

Logistics Committee

Given the size and importance of trade flows between the United States and Mexico, expediting the flow of merchandise across our common border is crucial to efficient business operations. The committee works closely with Mexican Customs officials to find ways of reducing costly bottlenecks at key border crossings.

The committee recommends expanding working hours at Mexican Customs facilities, standardizing operating hours on both sides of the border and implementing modernization processes such as risk assessment during Customs inspections.

Partnership for Prosperity (P4P)

Created by Presidents Fox and Bush as a vehicle for stimulating economic growth in North America, it has convoked the public and private sector to analyze reasons some areas of Mexico have not fully benefited from Nafta.

P4P has successfully leveraged comparative advantages in both sectors to develop and implement strategies to address these issues. The business community has found P4P to be a unique forum for bringing concerns about trade and investment situations to the attention of the Mexican government.

Security Committee

Although pleased with current initiatives to improve federal and capital law enforcement, the committee is concerned with persistent weaknesses and inefficiencies in the judicial system. These shortcomings abet impunity and limit the effectiveness of professional police investigations. The committee encourages immediate action on recent judicial reform proposals.

Criminals exploit the lack of cooperation among law enforcement agencies in different jurisdictions. The committee supports aggressive intelligence gathering and better jurisdictional coordination by law enforcement agencies.

Trade Policy Committee

The committee is developing a position to encourage Mexico to adopt internationally recognized standards to improve the country's competitiveness. Universally adopted standards turn global markets into level playing fields; country-specific standards and unreasonable compliance requirements are trade barriers. When barriers go up, international competitiveness declines.

This committee is pursuing reforms to expedite importation and exportation customs procedures and make them simpler by reducing red tape. The committee also encourages improved government purchasing processes and procedures for both domestic and foreign suppliers.

AMCHAM in Synthesis

Founded in 1917, the AMERICAN CHAMBER OF COMMERCE OF MEXICO's mission is to promote trade and investment between the U.S. and Mexico. As part of its mandate, AMCHAM is an advocate for creating a better business environment in the 21st century--by keeping corporate issues and concerns in the forefront of public opinion and representing its members' points of view before governmental bodies.

As a member of the U.S. Chamber of Commerce and the Association of American Chambers of Commerce in Latin America (AACCLA), AMCHAM expands its members' sphere of influence in the U.S. and throughout Latin America.

AMCHAM is

* Independent, non-profit, and non-partisan.

* 2,000 corporate members, who represent 90 percent and approximately US$100 billion of U.S. direct private investment in Mexico.

* Headquartered in Mexico City, with division offices in Guadalajara and Monterrey.

* A network of more than 900 executives serving on 23 issue--and sector-oriented committees.

* A source of reliable, unbiased trade and economic information through its monthly English-language magazine BUSINESS MEXICO, numerous printed and on-line publications, and more than 40 public events each year.

* A forward looking, strategic thinking organization, representing companies which demonstrate the highest industry standards and best practices.

AMCHAM in action

* The definitive voice of U.S. business in Mexico

* A leading advocate for increased trade and investment between the U.S. and Mexico

* A critical point of communication between its members and the U.S. and Mexican governments

* An issue-oriented forum for the serious discussion of trade and investment matters

Mexico: Lucerna 78, Col. Juarez, 06600 Mexico, D.F.

Tel. [phone]

Fax [phone]

[e-mail]

Guadalajara: Av. Moctezuma 442, Col. Jardines del Sol, 45050 Zapopan, Jal.

Tel. [phone] Fax [phone]

[e-mail]

Monterrey: Rio Manzanares 434 Oriente, Col. DelValle, 66220 Garza Garcia, N.L.

Tel. [phone] Fax [phone]

[e-mail]

How many Tier 1 suppliers does Nissan have?

Approximately 180.

How many are Japanese?

How do you define Japanese--in terms of ownership or technology?

Technology.

Then we have 25 Tier 1 Japanese suppliers in Mexico.

How many are located in Aguascalientes?

Twenty-two.

How would you compare the efficiency (jobs per hour) of Nissan's Aguascalientes plant with the best in Japan?

Mexico is getting very close, although Japan still invests a lot more in roboties because of the high cost of labor there.

What percentage of your customers purchases their vehicles with credit?

Forty-seven percent pay credit and 53 percent pay cash. By contrast, 60 percent of Ford's customers use credit, while 40 percent pay cash. Mexico is just beginning to emerge from the "Tequila Crisis" so many customers still are wary of borrowing.

How would you evaluate Mexico as an automotive site?

It remains attractive, but it is not as attractive as it used to be. Other emerging market players like China have taken away some of its luster. In addition, there need to be drastic reforms in the tax laws. For example, high taxes on luxury cars like our Q45 make them prohibitively expensive.

COMMITTEE                   CHAIR                  TITLE

Agribusiness Development    Ricardo Celma          General Director
[e-mail]
Competitiveness Working     Simon Diaz (Co-Chair)  President & General
Group                                              Director
[e-mail]       Miguel Jauregui        Founding Partner
                            (Co-Chair)
Education                   Rogelio M.Villanueva   Representative
[e-mail]
Energy Working Group        Jaime A.Varela-Walker  President
[e-mail]
Fiscal Affairs              Rafael Villanueva      Tax Strategy Director
[e-mail]
Human Capital and Labor     Luis Manuel Guaida     Partner
Affairs
[e-mail]
Logistics                   Juan Manuel Carreon    General Director
[e-mail]
Mexican Legislation         Manuel E. Tron         Partner
[e-mail]
Partnership for Prosperity  John M. Bruton         Senior Managing
Working Group                                      Director
[e-mail]
Security                    Jon M. French          Managing Director
[e-mail]
Trade Policy                Lucero Garduno         Foreign Trade
[e-mail]                               Executive

COMMITTEE                   COMPANY

Agribusiness Development    U.S. Grains Council
[e-mail]
Competitiveness Working     Emerson Electric de Mexico
Group                       Jauregui, Navarrete, Nader y Rojas
[e-mail]
Education                   Mayo Clinic
[e-mail]
Energy Working Group        Chevron Texaco de Mexico
[e-mail]
Fiscal Affairs              Ford Motor Company
[e-mail]
Human Capital and Labor     Guaida y Asociados
Affairs
[e-mail]
Logistics                   Union Pacific de Mexico
[e-mail]
Mexican Legislation         Tron y Natera
[e-mail]
Partnership for Prosperity  Manatt/Jones Global Strategies
Working Group
[e-mail]
Security                    IPSA International de Mexico
[e-mail]
Trade Policy                Gillette de Mexico
[e-mail]

* Invited, to be confirmed / * Invitado por confirmar

RELATED ARTICLE: The Dynamics of Competition

Mexico's vehicle manufacturers achieve competitive advantage by implementing a combination of two fundamental strategies that focus on balancing product needs between domestic and export markets. The objective of the two strategies is to maximize total revenues and reduce costs.

Strategy 1:

Most vehicles are built for export to the United States in order to raise volume and average wholesale prices because car and light truck prices in Mexico are generally significantly lower than export models. Domestic volume is too small to achieve globally competitive costs through economies of scale.

In 2003, 73.7 percent of the 1,586,153 vehicles produced in Mexico were exported; nearly half were light trucks. By contrast, 71.4 percent of the 415,950 units manufactured for local consumption were cars, of which 67.3 percent were entry-level subcompacts. GM and DaimlerChrysler (Chrysler division) are the purest practitioners of Strategy I. According to Expansion 500, GM's 2003 Mexican revenues of US$11 billion were tops in the industry. GM also led the industry in total production with a 30.6 percent share (471,619 units). Of these, 83 percent were exported, mostly big, high-priced SUVs.

DaimlerChrysler was Mexico's No. 2 revenue producer in 2003. Its sales of US$8.1 billion accounted for 14.8 percent of Chrysler Division's US$45.2 billion North American total. More than 99 percent of its vehicles were produced for export. In 2003, DaimlerChrysler placed second in production (308,738), equivalent to a 20-percent industry share.

Ford placed fifth among Mexico's leading producers in vehicle output and revenues, largely because it is in the process of doubling the capacity of its Hermosillo plant and planning to launch three new, upscale passenger cars in early 2005. In 2003, Ford's total sales amounted to US$3.8 billion, compared to US$5.6 billion in 2000. While 81.3 percent of output was exported, less than 25 percent were light trucks, the segment in which it leads the domestic market.

Strategy 2:

To compete successfully in Mexico's growing domestic market (977,870 unit sales in 2003), vehicle manufacturers must offer attractively priced--i.e. relatively inexpensive--sub-compacts for its largest and fastest-growing market segment. In addition, small and full-size SUVs have to be provided to satisfy Mexico's growing appetite for these flexible types of vehicles.

In 2003, GM led all Mexican light vehicle manufacturers in domestic sales with a 22-percent share and was closely followed by Nissan (21.9 percent), according to AMIA.VW (17.9 percent), Ford (16.4 percent) and DaimlerChrysler (10.2 percent) finished third, fourth and fifth among the industry's five leading manufacturers.

The key to success for GM de Mexico and DaimlerChrysler de Mexico is that both have deftly combined strategies 1 and 2, but GM continually surpasses its German competitor by producing and importing far more subcompacts while simultaneously exporting larger, more expensive trucks.

--Marc. N. Scheinman