Neighbors, yes - but partners?

With NAFTA, are we entering a new era of competition, both within and outside our continental borders? If we are, which companies will adjust to survive and how?

Not long ago, the thought of the United States, Canada and Mexico joining forces to win a trading battle against the rest of the world was unthinkable. Today, it's nearly reality with the North American Free Trade Agreement.

Some companies are praising the opportunities NAFTA presents. Others fear their businesses will fall victim to the lure of Mexico's cheaper products or they simply won't have the money to shift their operations southward. Most trade experts predict the agreement will benefit all three countries "on the whole," but the characteristics of individual firms will make many vulnerable. Size matters. Geography matters. Industry matters.

Here, five financial executives talk candidly about where they stand on NAFTA.

John B. Nano SENIOR VICE PRESIDENT OF OPERATIONS AND CFO WORLD TABLEWARE INTERNATIONAL WALLINGFORD, CONNECTICUT 

BUSINESS: Markets tableware, including china, glass and silverware, for the food service industry Annual Sales: $30 million

WHERE WE STAND IN MEXICO: In a joint venture with a Mexican company

Twenty-five years ago, World Tableware set up a flatware factory in Taiwan. Now we're bringing that business to Mexico. For the last year and a half, we've been in a joint venture with Vitro S.A., a $3-billion glass manufacturer in Monterrey. Called Vitrocrisa Cubiertos, our venture began operations in Mexico City in July of 1992, and it's like having a factory in Texas or Illinois. The time zones in Mexico are similar to those in the United States. (In Taiwan, daytime there is nighttime here, and we were sending faxes today for responses tomorrow). And now we can truck products from Mexico in days versus the weeks it took to ship them from Taiwan.

I think one of the big values of NAFTA--and something many people don't realize--is it allows companies to offer a wider range of products. How? Many of the products that require a high manual labor input that were made in the United States years ago are now being produced offshore because you can no longer manufacture them competitively here. So, before NAFTA, you had two choices: Drop a product from your product line and watch a competitor send the product here or have it made in the Far East. Today, because of the trade agreement and the proximity of Mexico, you have another choice: Make the product in Mexico and keep more items in your product line.

Am I taking advantage of low-cost labor? To me, that's a simplistic view. You could have much lower-cost employees in the Philippines at 50 cents an hour, have your factory there and hire Filipinos, not Americans, for the scheduling and distribution functions. Or you could manufacture in Mexico and hire Americans to do the scheduling and distributing--because Americans can communicate on a real-time basis with Mexico and have significantly better logistics.

In short, many low|cents~cost, labor-intensive jobs are already lost from the United States; the question is, do we want businesses and managerial jobs to be lost, too?

At World Tableware, we've actually increased employment in the support functions--with mostly higher-level jobs in sales, distribution, inventory control, scheduling, finance and marketing--as the goods from our joint venture become available for us to sell into the U.S. and international markets.

Our vice president of sales and marketing is also helping our Mexican partner sell higher value-added products in the Mexican marketplace, because many of our products are considered relatively high end in Mexico. Indeed, I think we'll see a significant increase of sales of American products into Mexico with NAFTA. Many Mexicans who are already able to do their shopping in the United States have credit cards from American stores. With the free trade agreement, the duty on U.S. products going into Mexico will be removed, so many more Mexicans will be able to afford U.S. products.

Another positive aspect of the agreement is that companies will at least know the ground rules for trade over the next several years. We'll be able to plan and to make business decisions with a greater degree of certainty.

My biggest concern about NAFTA, however, is the length of time it will take for tariffs to come off some of the products. Some will go away in five years, some in 10, and some in 15. To me, 15 years is too long, considering the rapid rate of change taking place in the world.

PETER J. STAELENS CFO DAWN FOOD PRODUCTS JACKSON, MICHIGAN 

BUSINESS: Producces bakery mixes and other ingredients for bakery industy Annual Sales: $350 million

WHERE WE STAND IN MEXICO: Selling to distributors that export to Mexico and considering setting up a sales office in Mexico

Today, Dawn Food Products has four plants in the United States and one in England. We also have 17 distribution centers in the United States. We export from our plants in the United States to independent bakery distributors, one of which is in Mexico City. We also sell to a distributor in El Paso that in turn sells to Mexican customers. Our Mexican sales are about $3 million a year. But we're not in Mexico now as an importer.

At this point, we project our market in Mexico will grow and, under NAFTA, we'll probably want to set up a sales office there fairly soon. Eventually, we'll export to ourselves as well as to other distributors in Mexico and have a Dawn distribution network just as we do in this country.

Four people at Dawn Food Products are involved in the decision-making about NAFTA: the CEO, the vice president of sales, an international sales director, and me. We've been exporting to the Mexican market for about two years. But in only the last six months have we begun to very seriously examine where we are in Mexico and to develop a strategy. We've decided to expand our presence in Mexico not only to increase sales but to support and service our customers. Being very close to our customers to determine their needs is a great part of Dawn's success. We certainly can't do that as a U.S. exporter relying on a Mexican distributor.

What's good about NAFTA is that it enables Dawn Food Products to compete far more favorably in the early stages of business development, when we're building our market. Of course, that's the time when your marketing expenses are the highest and when you can least afford to have a high import cost. So, even though we're not the importer, under NAFTA our customers will have a lower-cost product coming into Mexico, and that certainly will build the market.

Another good thing about NAFTA is the reduction in duties. Our competition in Mexico now is composed of producers, not importers. They're using ingredients of Mexican origin, so they're not subject to the current duties. On the other hand, our duties today average about 12 percent, so we're at a 12-percent disadvantage right from the start.

Frankly, I don't have any concerns about NAFTA. I'm not sure how the phase-in of the reduction in duties will affect us. But we're not the importer; our customers are. So we're not directly involved in that. My only worry is that the changes are spread out over too many years. If we're launching an aggressive marketing campaign to establish a presence in Mexico, we want the changes to happen as quickly as possible so we can benefit from the lower duties. But, then again, the phase-in schedule applies to both the United States and Mexico.

As for staffing, we'll use locals in any operation we set up in Mexico. However, as a result of NAFTA and if we realize the growth we're expecting--an increase to about $13 million in three years--a couple of other things will happen. First, we'll need to increase the number of production people in our plants in Colorado and Kentucky, since all of our products still will be made in the United States. Second, we'll have sales and service people from the United States traveling regularly to Mexico to work with our Mexican customers to help develop that market.

To control some of those travel costs, and because we do a tremendous amount of training of our financial and sales people, we're installing teleconferencing facilities in our various locations, starting with our plants, within the next few months. We'll definitely connect our Mexican sales office to the system for a worldwide conference hook-up.

RAYMOND W. SMEDLEY VICE PRESIDENT AND CONTROLLER HOECHST CELANESE CORP. SOMERVILLE, NEW JERSEY 

Business: Manufactures chemicals, fibers, plastics and pharmaceuticals Annual Sales: $7 billion

WHERE WE STAND IN MEXICO: Established in Mexico with Celanese Mexicana S.A.

Hoechst Celanese Corporation's mission won't change under NAFTA. Our largest majority-owned North American subsidiaries, Celanese Mexicana S.A. and Celanese Canada Inc., manufacture the same or similar products as Hoechst Celanese, except for pharmaceuticals. In 1992, Celanese Mexicana S.A. had sales of $855 million, and Celanese Canada Inc. had sales of' $375 million. These two companies combined represent 17 percent and 28 percent, respectively, of Hoechst Celanese sales and operating income for 1992.

Since Hoechst Celanese has a significant investment in both Mexico and Canada, we're extremely interested in having NAFTA signed for the total benefit of our North American operations. But we do have concerns about the agreement, mainly dealing with these areas: rules of origin, manmade fibers, the tariff phase-out, non-tariff barriers, the duty drawback, subsidies, antidumping, countervailing duties, dispute settlement and resolution, intellectual property rights and foreign investment.

When signed, NAFTA will enable us to offer our current and future products at lower costs. Our strategy is for some of our production facilities to manufacture commodity-type products and others to manufacture specialty products. Not only will the costs be competitive because of lower manufacturing expenses, but we'll be able to sell products cheaper in the North American marketplace because of lower and eliminated tariffs. Also, being a low-cost producer will benefit Hoechst Celanese and its North American subsidiaries in export markets.

We'll also be able to represent Hoechst Celanese and our North American subsidiaries as one operation. But, to do this, we'll have to restructure and realign some businesses geographically and regionalize support activities. As a result of this realignment, coupled with additional investments in technology and assets, we realize we'll have to retrain some employees and we'll have to make some personnel reductions. But we'll make the staff reductions on an orderly, phased basis as the restructuring evolves and, to the extent possible, through transfers, attrition and natural retirements.

The United States was once an agrarian society. But along came the industrial revolution, the electronic age, the space age, the information technology age ... and we as a nation adjusted to these changes. Now, I'm confident we can adjust again to become a North American free trade zone and compete successfully against the European Community and the Pacific Rim countries. After all, it's no longer will we change, but how will we adapt.

PAUL C. WESSEL VICE PESIDENT AND CFO RODALE PRESS EMMAUS, PENNSYLVANIA 

Business: Publishes and prints magazines Annual Sales: $247 million

WHERE WE STAND IN MEXICO: No presence in Mexico, but connsidering it

Rodale Press isn't currently doing any business at all in Mexico. Mexico is one of a number of countries we're considering for expansion in the future. We're studying Mexico both in its own right and as part of the broader "Spanish-speaking market." We're also studying French-speaking markets and German-speaking markets, as well as non-U.S. English-speaking markets.

Our decision-making about where to expand Rodale's business is driven by marketing considerations. We have no one looking specifically at Mexico as part of a NAFTA team. In fact, the marketing executives at Rodale who are the primary decision-makers are more or less indifferent to NAFTA.

The key factors that will determine whether--or when--we enter Mexico have no direct relation to NAFTA at all. Some of these factors are:

* Is there a market for our products in Mexico? That is, are there enough people who are both interested in our products (special-interest magazines and books in the fields of health, fitness and gardening) and can afford them?

* Can we find a compatible partner to work with in Mexico?

* Will the infrastructure of the Mexican economy (e.g., the postal system) support the kind of marketing approach we're comfortable with, chiefly direct marketing?

* Will we be able to use, without further modification, product translations developed for other Spanish-speaking markets (e.g., Spanish-speaking markets in the United States)?

The major way in which NAFTA may impact Rodale Press in particular would be to make it marginally easier for us to do what we would do anyway, if the marketing circumstances are favorable. Up until now, all of our studies have been based on the current legal environment. Thus, NAFTA can only improve the situation.

Finally, what's good about the agreement? We like it, but for a General Bullmoose kind of reason: "What's good for the U.S. economy is good for Rodale Press." Our biggest worry about NAFTA is that it won't survive the 1992 election. President Clinton owes a lot of political debts to protectionists and other special interests.

KURT P. RAMIN PARTNER COOPER & LYBRAND NEW YORK, NEW YORK

Business: Provides public accounting and business consulting services Annual Sales: $1.5 billion

Because NAFTA will increase trade activities between the United States, Mexico, Canada and other countries, at Coopers & Lybrand we'll increase staff exchanges between our Mexican and U.S. firms. For instance, about 15 or 20 people in our offices in Houston and other locations close to the border will work closely with our Mexican offices.

We also plan to implement sophisticated training programs. One example is audit procedure training, since we'll all be using the same audit approach. Also, the United States and Mexico recently agreed on a double taxation treaty for the first time, so we have to train a lot of people in that area, too.

Although most of our training is face to face now, we have a worldwide communications network in place, and I think we'll be enlarging our internal electronic mail system for training purposes.

One other note: Most of the employees in our offices in Mexico already speak English. But not many U.S. employees speak Spanish, except in our border-area offices. As we hire people to work in these areas, we'll be looking for bilingual people. And we'll staff up with more knowledge-based employees, more MBA types.

Currently, Coopers & Lybrand applies uniform auditing approaches on a worldwide basis. However, with increased trade volumes, we'll need to take advantage of automation and to fine-tune some of our procedures to become more efficient. NAFTA also will lead to a more level playing field for standards, taxes and other business regulations.

To me, the best aspect of the agreement is that it represents hope and vision for free movement of people and goods in an enlarged and manageable marketplace. Sure, it will require adjustments on all sides: Mexico and Canada both have the value-added tax (VAT) and the metric system; the United States has the vast majority of the people and the infrastructure. But I believe the less the government interferes in the basic, individual interests of people, the smoother the adjustment process will be.

My problems with the agreement? I'm disappointed that U.S. citizens won't be allowed to purchase real estate within 30 kilometers of the Mexican coastline. If you look at NAFTA as a commercial deal, Americans should be able to buy property wherever they want. Let's face it, the Mexican coastline should be developed and the country needs the money. But Mexicans fear Americans will buy up the whole coastline. They'd rather build the economic growth in Mexico first, so their own people aren't shut out right from the start. I think it's a disadvantage not to agree on this issue.

We all should remember that NAFTA is just a free trade movement, not a political union. The movement of people still will be controlled and as the economies converge, the political restrictions will be eased.