How did Mexico manage to surpass China in its exports to the United States?

The trend of Chinese companies expanding into North America persists, with Mexico continuing to represent a viable option. Nevertheless, for our enterprises to succeed in the Mexican market, they must continue to increase risk awareness and enhance their localization capabilities at the local level.

In the early autumn of 2023, on a typical Friday evening, the city center of Monterrey, the capital of the Mexican state of Nuevo León in the northern region of the country, was experiencing the usual evening rush-hour of a Friday evening in the city.

The vehicular traffic proceeded at a consistent pace along the thoroughfares as Carlos, ensconced within his executive vehicle, exhibited a slightly anxious demeanor while awaiting the change of the traffic signal. As the general manager of the Mexican branch of a European tire manufacturing company, after a conclusion of his week’s work, he was preparing to proceed to Monterrey Airport. He would reunite with his family there and leave for Miami together for the weekend.

(Figure 1 : CBD area of Santa Fe in Monterrey)

As the vehicle traversed the bustling Santa Fe district, Carlos observed the increasingly prosperous block through the window.

Upon his first arrival twenty years ago, Carlos found the village lagging. In the present day, the area has undergone a significant transformation, becoming the central business district (CBD) of Monterrey. This transformation is evidenced by the construction of wide roads, ample lighting, and towering skyscrapers. A considerable number of multinational corporations have selected this location as the site for their Mexican headquarters. In particular, since 2021, following the United States’ passage of the Inflation Reduction Act, global automotive firms have been eager to establish factories in Mexico in order to maintain their North American market presence. Given its strategic location along the US-Mexico border, Nuevo León state has become an attractive location for the establishment of manufacturing facilities.

Since Tesla announced the establishment of a Gigafactory in Nuevo León state earlier this year, the region has witnessed a notable surge in activity, with the entire supply chain undergoing a period of mobilization as manufacturers follow suit. While Carlos expresses enthusiasm about the prospects, he also perceives a certain degree of pressure. He recognizes that as Nuevo León emerges as a global hub for the automotive industry, the growth opportunities are unparalleled. However, amidst this rapid expansion, the company will inevitably encounter heightened competition and challenges.

Nevertheless, Carlos didn’t have time to devote his attention to these considerations at the present moment. His vehicle had already reached the airport, where his wife and three children awaited him for a delightful weekend together. In the Santa Fe area, there is a significant population of gold-collar workers who work in northern Mexico during the week and vacation in the southern United States on weekends.

Former Mexican Ambassador to the OECD Elizondo Mayer-Serra emphasized that the latest generation of Mexican gold-collar workers stands to gain the most from globalization. Educated at esteemed institutions in the United States or Europe, they return to Mexico to assume executive roles in multinational corporations, commanding salaries ranging from $200,000 to $400,000 USD annually, which exceed those of their colleagues work in Europe or the United States. The symbols of these elites typically include full-time spouses, private school education for their children, vacation homes in the southern United States, and weekend shopping trips to New York. After all, the proximity of Monterrey to these destinations, with a flight time of just two hours, is even more expedient than traveling to Mexico City. These representations of affluence and leisure among the middle class starkly contrast with traditional perceptions of Mexico.

In the context of the irreversible strategic competition between China and the United States, it is evident that a growing number of global companies are viewing investment in Mexico as a crucial strategy for mitigating geopolitical risks. Mexico’s significance is gradually increasing, establishing it as a pivotal destination in the globalization strategies of global Chinese enterprises. In order to capitalize effectively on this historic opportunity in Mexico, which may occur only once in a century, it is necessary to engage in thoughtful deliberation.

This report, prepared by the Globalization Team of Sinnvoll Consultancy, presents a comprehensive and systematic overview of the Mexican market. It is based on a rigorous synthesis of data analysis, market research, policy reports, and studies from Sinnvoll Consultancy. The objective of this study is to provide a comprehensive overview of Mexico’s potential for development and investment opportunities, there are three main aspects :

1. What factors have contributed to Mexico’s ascent?

2. What is Mexico’s attractiveness for investment?

3. What opportunities and challenges accompany Mexico’s ascendance?

Aspect One: What factors have contributed to Mexico’s ascent?

Indeed, since 2021, Mexico has emerged as one of the fastest-growing emerging markets globally.

With regard to international trade, the total trade volume between the United States and Mexico has demonstrated a consistent upward trajectory since 2020, with an average annual growth rate of approximately 18%. In 2022, this figure reached a historic high of $779 billion USD, reflecting substantial increases in both imports and exports. From January to September of this year, the total volume of goods transported between the United States and Mexico has already increased by 30% in comparison to the same period last year. In 2022, Mexico surpassed China to become the largest destination for U.S. exports.

In terms of foreign investment, in the past four years, Mexico has consistently attracted a considerable amount of foreign investment. Notwithstanding the global economic downturn in 2023, Mexico’s foreign direct investment (FDI) demonstrated substantial growth in the initial three quarters, with an increase of 40% compared to the corresponding period in 2022. The Chairman of the Mexican Export Manufacturing Industry Committee forecasts that the export processing industry will attract between $15 billion and $18 billion in investments in 2023.

The data demonstrate that the Mexican economy is experiencing a period of significant growth and attracting considerable interest from global industries and investors. In the year 2023, a considerable number of multinational corporations, including Tesla, Bosch, Volkswagen, Kia, General Motors, BMW, Nissan, Philips, and Unilever, have publicly declared investments in Mexico. Moreover, Chinese firms such as Huawei, Jetour, Yanfeng Automotive Interiors, Man Wah Holdings, and Lenovo have been engaged in active investment in Mexico, establishing manufacturing facilities in recent years.

Seeing Mexico’s rise against the odds, many people’s first reaction is: why Mexico?

It is beyond question that the United States has been the principal driving force behind Mexico’s accelerated economic expansion.

The following is a concise overview of Mexico’s historical development, which provides insight into the country’s past and present. Mexico is celebrated for its profound Aztec and Maya civilization. However, over the past five centuries, the country has endured a history marked by oppression: for the first three hundred years by the Spanish empire on the other side of the ocean, and for the last two hundred years by the United States of America, which shares a border with it.

In 1519, Hernán Cortés led Spanish forces into Mexico, where they were victorious against the Aztec Empire and incorporated it into the Spanish Empire. This dominion endured for three centuries. Mexico achieved independence from Spanish rule in 1821, following the War of Independence. Meanwhile, as the United States underwent a transition into an industrial society and experienced economic growth, tensions between Mexico and the U.S. reached a boiling point, ultimately leading to the war of 1846. In consequence of considerable discrepancies in national strength, Mexico was compelled to acknowledge defeat in 1848 and relinquish a considerable portion of northern territory, comprising the states of Texas, California, Utah, Nevada, New Mexico, Colorado, Wyoming, and Arizona, thereby concluding the conflict.

In the historical work of the historian Lorenzo Meyer from the Universidad Nacional Autónoma de México (UNAM), Nuestra Tragedia Persistante, emphasizes that Mexico’s history is marked by conflicts and contradictions, particularly in its complex relationship with the United States. In his work, Meyer underscores the influence of America’s struggle for independence, its advocacy for individual rights, and the empowerment of all citizens through universal suffrage on Mexico’s quest for independence. These factors also fueled Mexico’s movement against Spanish colonial rule. However, when U.S. interests diverged from those of Mexico, the United States did not hesitate to exert significant pressure across various facets of Mexican society.

The ascendance of the United States during the 19th and 20th centuries fundamentally transformed Mexico into a geopolitical and economic adjunct of the U.S. Porfirio Díaz, Mexico’s dictatorial President for 30 years, once said, “Poor Mexico! You are so far from heaven and so close to the United States”.

Mexico’s ascendance is shaped by a complex interplay of internal and external factors. However, a unifying and pivotal element persists: the influence of the United States.

Economically, Mexico is largely dependent on the United States.

In 1994, the United States played a pivotal role in the formation of the North American Free Trade Agreement (NAFTA), which marked the first occasion that Mexico experienced the advantages of regionalization–the surge of maquiladora. A multitude of U.S. and Canadian companies built factories along the U.S.-Mexico border, particularly in states such as Baja California and Chihuahua. These companies drawn by the availability of incentives such as 100% foreign ownership rights, duty-free importation of raw materials into Mexico, cost-effective Mexican labor, and the unrestricted movement of finished goods within the free trade zone. In the years since, Mexico has become economically reliant on the United States. Initially, over 80% of Mexico’s exports were destined for the United States. However, in recent years, this proportion has declined to approximately 70%. Despite these fluctuations, the United States continues to hold a dominant position in Mexico’s economy.

Mexicans understand well this, as they often playfully say : “When the U.S. economy catches a cold, Mexico gets pneumonia.” The global financial crisis that originated with the 2008 U.S. subprime mortgage crisis is an exemplar of this saying, as Mexico was among the first countries to experience its repercussions. As a result of the global economic crisis, millions of people lost their jobs, and the emerging middle class was forced to revert to a state of poverty. Over half of Mexico’s population was classified as living below the poverty line.

Nowadays, Mexico’s economic boom is significantly influenced by the United States, particularly through the strategy of “nearshoring”. The signing of the USMCA (United States-Mexico-Canada Agreement) in 2019 formalized the North American Free Trade Area, which encompasses 500 million individuals and a combined GDP of $26 trillion. In contrast, the European Union’s largest single market, comprising 440 million people and a GDP of $14.45 trillion, is of a smaller scale. It is indubitable that Mexico serves as the most efficacious gateway to the expansive $26 trillion market.

Indeed, in recent years, apart from Mexico’s favorable geographic position and cheap labor force, the reason why Mexico could draw substantial foreign investment, that is largely the Biden administration’s significant initiative, the “Inflation Reduction Act”. Through the lever of subsidies and Mexico, the global industry chain is completely pried. The comprehensive “Inflation Reduction Act” enables numerous companies investing in Mexico to avail themselves of substantial deductions, contingent upon their sourcing from local suppliers and progressively centralizing production within North America.

To illustrate the operational theory of this legislation, we may consider the electric vehicle industry as an exemple. In accordance with the provisions of the Inflation Reduction Act, electric vehicle manufacturers are eligible to receive a maximum tax credit of $7,500 per vehicle. In order to receive the aforementioned credit of $3,750 among it, the critical minerals utilized in the production of vehicles (regardless of whether they are newly extracted or recycled) must originate from North America, comprising a minimum of 40%. Moreover, in order to receive the remaining $3,750 credit, a minimum of 50% of the battery components’ value must originate from North America. Manufacturers must incrementally augment these percentages in order to maintain their eligibility for the tax credit. For example, by 2027, 80% of the critical minerals utilized in battery production must be sourced from North America, and by 2029, all battery components must originate from North America to maintain eligibility for the credit.

Mexico finds itself in a scenario where the outcomes of success and failure are inextricably linked with those of the United States. Currently, Mexico is leveraging US policies and experiencing sustained economic growth. Some economists posit that the “Mexican moment (momento mexicano)” in the global economy is imminent, presenting Mexico with its most favorable opportunity to date to actualize its aspiration of becoming a global powerhouse.

In addition to external influences from the United States on Mexico, it is essential to consider internal factors that impact its economic development. From a market perspective, Mexico’s domestic market continues to evolve. By 2023, the population of Mexico had reached 130 million, which positioned it as the tenth most populous country globally. The population’s average age of 29 years contributes to a competitive labor force that offers favorable cost-effectiveness. Since 2015, the average wage for manufacturing workers in Mexico has remained consistently lower than that of their counterparts in China. Additionally, the number of workers is relatively sufficient.

In recent years, Mexico has experienced notable economic growth, in particular, the foreign-driven manufacturing sector is booming. There is a notable decline in the unemployment rate, which currently stands at 3.31%. Concurrently, there has been a incessant increase in household expenditures, particularly from 2020 to 2022, with consecutive annual increases exceeding 16%. This phenomenon serves to illustrate the ongoing realization of Mexico’s market potential.

Mexico’s principal competitive advantage, situated within proximity to the United States market, highlights the pivotal significance of cross-border circulation. The Mexican government has acknowledged the importance of infrastructure and has implemented a series of reforms over the past decade, particularly, evident through public-private partnerships aimed at enhancing the country’s overall infrastructure.

In 2018, Mexico advanced a significant transoceanic logistics initiative, designated as the Tehuantepec Isthmus Interoceanic Corridor project. The objective of this project is to establish a connection between the Gulf of Mexico and the Pacific Ocean through the construction of extensive infrastructure, including railways, highways, and ports at the narrowest point of the Mexican territory. Therefore, it offers an alternative route to the Panama Canal, improving freight routes between Asia and the Americas, lowering transportation expenses for imports and exports, and reinforcing Mexico’s connectivity and competitiveness in global trade.

In September 2023, the train project was formally initiated, preparing the intercontinental freight transportation. The project is anticipated to reach its full operational capacity by the end of the year. Mexican President Andrés Manuel López Obrador stated that this will serve as the core for future global trade. It is estimated that upon operation of the corridor, it will be capable of accommodating up to 1.4 million standard containers on an annual basis, which could potentially accelerate development in the surrounding regions.

(Figure 13: Samuel García, the 35-year-old governor of Nuevo León, Mexico, promoting global investment. Source: Internet)

A number of states situated along the US-Mexico border, including Chihuahua, Coahuila, and Nuevo León, are engaged in ongoing communications with the United States to enhance project planning mechanisms. The modernization of the Santa Teresa and San Jerónimo transit points is intended to enhance the flexibility and efficiency of passage for both personnel and goods.

In conclusion, Mexico’s ascendance is not merely coincidental; rather, it is a reflection of the prevailing circumstances of the era. This upward trajectory has been facilitated by a confluence of enabling factors, including the United States’ support, Mexico’s openness to economic, and pivotal moments in the global transformation towards globalization. Mexico’s demographic dividend, in conjunction with the ongoing implementation of domestic reforms, is currently becoming manifest. This historical moment offers a significant opportunity for study and analysis by Chinese enterprises.

Aspect Two: What is Mexico’s attractiveness for investment?

Since 2022, Mexico has implemented a series of investment promotion initiatives that bear resemblance to the early reform and opening-up period of China. To what extent is Mexico’s focus on “investment promotion” a significant factor? Sinnvoll Consultancy has researched a wealth of intriguing details that warrant further investigation.

Let’s start with local leaders. As a federal system, the Mexican government grants each state its own legislative authority. Similarly, each governor strives to secure the greatest possible benefits for their state.

(Figure 14: Distribution map of new and expanded global foreign investment enterprises across Mexican states from January to September 2023; Source: Sinnvoll Consultancy, compiled based on publicly available data)

Since assuming office in October 2021, Samuel García, the 35-year-old Governor of Nuevo León, Mexico, has attracted an average of $600 million in investment per month. Different from numerous other officials, García is a pragmatic leader who engages extensively in travel to major global expos and high-end forums with the objective of fostering investment. At this year’s Davos Forum, he engaged widely with entrepreneurs and executives with the objective of promoting Nuevo León. His primary focus at the time was Elon Musk.

The competition among several governors in Mexico for Elon Musk’s investment is intense and entails significant commitments. Each governor strives to outdo the others, cognizant that the establishment of Tesla operations inevitably leads to the formation of a supply chain. García was basically stationed at the conference venue for the opportunity to pitch one-on-one with Musk, giving a non-stop roadshow. His persistence was ultimately rewarded when he succeeded in capturing Musk’s interest and persuading him to select Nuevo León as the site for Tesla’s super factory in Mexico.

In the wake of Musk’s investment announcement, Tesla’s suppliers have annonced to establish facilities in Nuevo León. These include Noah Intelligent Manufacturing from China, Quanta Computer, a automotive chip company, Brembo, an Italian disc brake manufacturer, AGP, an American glass producer, ZG Group from Germany, and Vertiv, a data storage technology firm. Additionally, other potential entrants include Navistar, Aptiv, Yazaki, Ficosa, Nemak, Vitro, Prolamsa, and ALD, among others.

This momentum is analogous to the golden era of foreign investment in China during the 1990s.

In order to facilitate a more nuanced comprehension of global foreign investment trends and capital inflows into Mexico, the global team of Sinnvoll Consultancy collated media data from Mexico covering the period from January 1st to July 30th, 2023. A meticulous examination was conducted of the foreign investment and development patterns exhibited by over 40 enterprises across 12 states.

The figure clearly indicates a considerable degree of variation in developmental status among the different states in Mexico. In general, three main characteristics can be identified.

Firstly, the proximity advantage to the United States is particularly pronounced in northern Mexico, where economic development benefits are more significant. The southern regions began to garner attention gradually from 2022 onward.

The northern Mexican states of Coahuila and Nuevo León are the most attractive for foreign investment, followed by the central states of Querétaro and Guanajuato. Official Mexican statistics indicate that of the 5.6 million square meters of new industrial parks to be opened in 2022, 62% of the area is located in northern Mexico.. Furthermore, the size of newly developed areas in this region has increased from the previous range of 6,000–8,000 square meters to over 20,000 square meters. This underscores the robust investment demand in northern Mexico.

Concurrently, the economic appeal of the northern regions has contributed to a notable increase in interest in southern Mexico in recent times. A review of foreign investment across Mexican states in 2022 reveals a gradual shift in focus towards southern Mexico, especially Mexico City. In the course of 2022, the city of Mexico City attracted investments amounting to $10.9 billion.

Secondly, Mexico has witnessed the emergence of industrial clustering effects. In the northern region, Nuevo León has established a cluster in the new energy vehicle industry, anchored by the Tesla Gigafactory. San Luis Potosí has developed a cluster in automotive parts manufacturing. Coahuila, similarly, has focused on clusters specializing in aerospace manufacturing and logistics industries. In Mexico City, there has emerged a cluster in the aviation transportation industry. These developments illustrate the emergence of distinct regional directions and areas of specialization across Mexico.

(Figure 17: Map of Industrial Parks in Mexico. Darker shades represent regions with a higher concentration of industrial parks, including over 60 parks in Nuevo León and Baja California. Source: Bloomberg)

Finally, the majority of foreign investments in Mexico originate from Western countries, particularly the United States, Canada, Spain, and Germany. Nevertheless, enterprises from China, Japan, and South Korea are concurrently intensifying their expansion initiatives.

As evidenced by data from the Mexican Association of Private Industrial Parks (AMPIP), there has been a notable surge in demand from Asia. At the present time, 63% of the projects awaiting development have their origin in Asian countries, with China alone accounting for 49%. The Mexico-China Chamber of Commerce has observed that five industrial park enterprises have leased more than one million square meters of industrial space over the past year, with the objective of better accommodating this trend.

Mexico is emerging as a new frontier in the era characterized by anti-globalization sentiments. While Western nations initially spearheaded this trend, Asian countries, including South Korea and China, have also made significant advancements. The expansion is spearheaded by companies such as Lenovo Group, TCL, the Chinese furniture manufacturer Man Wah Holdings Limited, and the Chinese wheel hub manufacturer Lizhong Group.

As indicated by the findings of the Sinnvoll Consultancy, Mexico represents a new opportunity for individual Chinese companies and is of significant consequence for the Chinese government to evaluate as both a global competitor and partner. The maintenance of China’s competitive advantage in global manufacturing represents a novel challenge. Nevertheless, the pragmatic enhancement of bilateral cooperation between China and Mexico is poised to become an even more significant issue and opportunity.

Aspect Three: What opportunities and challenges accompany Mexico’s ascendance?

In the context of the current tepid global market environment, Mexico’s rapid economic growth and expansion make it an attractive proposition for investors. For Chinese businesses, investing in Mexico presents a duality of opportunities and challenges.

In order to gain a comprehensive understanding of Mexico’s future potential and development opportunities, it is essential to conduct in the first place a thorough analysis of the logic of global industrial chain transformations. This is of paramount importance, as Mexico’s ascendance is occurring concurrently with significant transformations in the global industrial landscape.

From the perspective of the globalization process, the previous paradigm of a “flat world” has been disrupted, and we are now entering an era of “global regionalization”. In this new phase, the world is seeking a new equilibrium that is not overly dependent on any single country or region. The rebalancing between East and West is that Mexico will be stronger

Nevertheless, despite Mexico’s advantageous conditions, as indicated by long-term tracking and analysis from Sinnvoll Consultancy, the probability of Mexico replacing China remains low. Although Mexico may be currently experiencing a historically unique opportunity, China’s pivotal role in the global supply chain remains strong and not easily replaceable. A complete “de-Chinafication” is an even more implausible proposition.

Since the world’s factory will no longer be centralized in a single country, what will the future supply chain landscape look like?

Liu Chuan, a researcher at Sinnvoll Consultancy specializing in macroeconomics, posits that future global industrial chains may adopt a distinctly regionalized distribution pattern: The three centers of North America-Asia-Europe will coexist. The primary hubs for these pivotal production networks are respectively the United States, China, and Germany. Products will be transported continuously between these core manufacturing hubs and surrounding countries, completing the entire process of parts production, processing, assembly, and global distribution through a constant series of back-and-forth movements.

Therefore, in light of the ongoing shifts in global supply chains and industrial dynamics, it is imperative that Chinese enterprises adapt to the prevailing trends and effectively manage the associated risks through a global arrangement. Despite the continued existence of strategic competition between Eastern and Western powers, commercial exchanges between China and Western nations are likely to persist. However, a crucial prerequisite for maintaining these exchanges is that Chinese enterprises are capable of withstanding the prevailing pressures and further developing their international strategies. At this time, the opportunity for further exploration of the Mexican market remains open.

(Figure 18: The three primary global production networks: Europe, Asia, and North America, along with their respective core hub countries—Germany, China, and the United States. Source: CEPR)

Despite Mexico’s considerable development potential, Chinese companies face a number of challenges associated with localization as they expand their operations into the Mexican market.

Firstly, there is the challenge of political instability in North America.

Since the 1990s, Mexico has pursued a consistent strategy of rebranding itself from a Latin American identity to a North American one: Mexico downplays its Latin American identity and strengthens its position as a North American country. Nevertheless, despite these endeavors, Mexico remains constrained by the influence of the United States. In essence, the future potential of Mexico is largely contingent upon the decisions made in Washington. In the event that the United States modifies its subsidy policies or if a Republican administration implements new protectionist measures, it is probable that Mexico’s competitive advantages will be significantly reduced. This factor is of great consequence for Chinese companies that are contemplating expansion into Mexico, particularly those that are planning to make significant investments. It is therefore essential to conduct a comprehensive examination of this issue.

Secondly, the “hidden” costs associated with expanding into Mexico are continually rising.

From the perspective of labor costs, Chinese manufacturing expenses have surpassed those in Mexico since 2010. Although Mexico may appear to be a more competitive option on paper, the hidden costs associated with operating there are relatively high and continue to increase.

(Figure 19: Comparison of manufacturing costs between Mexico and China from 1997 to 2017. Blue denotes Mexico, and green denotes China. Source: EIU)

In a recent statement, Chen Panfeng, the founder of management consulting of Chu Hai Yuan Min Enterprise, asserted that “The investment by Chinese companies in the establishment of manufacturing facilities in Mexico is undergoing a period of considerable expansion. However, it is imperative that companies refrain from evaluating costs from a certain dimension and instead consider the overall comprehensive costs, including operational expenses such as utilities, labor costs, personnel efficiency, safety, and hidden costs such as taxes. Although labor costs in Mexico are comparatively lower than in China, the higher benefits provided result in costs that are nearly equivalent to those in China when combined. The efficiency of Mexican workers represents a significant uncontrollable cost variable. Furthermore, the management of a factory in Mexico is subject to a number of differences compared to the management of a factory in China. These differences are due to a variety of factors, including the environment, the customer base, and other considerations. As a result, the management of a factory in Mexico often requires the application of cross-cultural management techniques, and the costs associated with management for companies are relatively high.”

Additionally, the recent surge in foreign investment has resulted in a notable rise in local labor costs in Mexico. A significant number of factories are currently experiencing a shortage of available labor, which is forcing companies to enhance the conditions offered to workers in order to retain their employees, for exemple, the introduction of amenities such as dormitories, transportation, and higher wages. As unions gain greater bargaining leverage, the issue of strikes is also emerging as a significant challenge that Chinese companies must address.

Thirdly, Mexico’s complex social structure and values.

The history of the colonial period has had a profound and enduring impact on the development of contemporary Mexican society. In contrast to the British colonizers, the Spanish replicated the bureaucratic organization of the Spanish Empire in each colonized territory, thereby establishing a “pyramid-shaped” social structure that extended from politics to society. In this structure, there is a correlation between skin color and social status. Individuals with lighter skin tones are often perceived as having a higher social standing, while those with darker skin tones are often associated with lower social class.

Despite two centuries of independence, we can still see it clearly today, Mexico’s pyramid-shaped social structure and persistent focus on skin color remain pivotal factors perpetuating enduring social divisions.

Mexican historian Lorenzo Meyer argues that in 1824, Mexico recognized the voting rights of all its citizens, regardless of their criollo, mestizo, or indigenous heritage. However, in practice, racial discrimination and social injustice have persisted without interruption.

Meanwhile, Mexico continues to exemplify a country with a robust religious culture. The Aztecs, akin to the populace during China’s agricultural era, engaged in the worship of a multitude of deities, including those associated with wind, rain, and agriculture.

Juan Villoro, a professor at the Universidad Nacional Autónoma de México, made the following observation: “This tradition of reverence for gods continues to exert a profound influence on contemporary Mexican society. For example, many individuals are more inclined to believe in miraculous events when confronted with real-life challenges, rather than relying solely on rational thought. Mexico’s most significant annual festival is the Day of the Dead (Día de Muertos), observed in early November. While it shares similarities with China’s Qingming Festival, the Day of the Dead is observed with greater solemnity. During this festival, Mexicans pay homage to Santa Muerte, a figure who personifies death.

(Figure 21: Mexico’s most significant annual festival—Día de Muertos. A woman dressed as Santa Muerte. Source: Internet)

During the colonial period, the Spanish introduced Catholicism to Mexico, which has since become the country’s predominant religion. This has resulted in the emergence of a more conservative societal value system, particularly with regard to the rights of women. For example, the practice of abortion is prohibited in all states except the Federal District, with violators subject to fines and imprisonment. This situation serves to illustrate the significant influence that Catholic culture exerts over contemporary Mexican society.

Another consequence of religion in Mexico is the country’s notable optimism. A survey conducted by the International Organisation for Economic Co-operation and Development (OECD) revealed that Mexico has the longest average work hours among all member countries, yet it also boasts the highest percentage of happy individuals. The average Mexican worker logs 2,226 hours per year, which is 500 hours more than the OECD average. Despite this considerable workload, 82% of Mexicans report high levels of life satisfaction. This sense of contentment and happiness can be attributed to the influence of Catholic culture.

Fourthly, Mexico’s communication style and its “relationship-based” societal structure.

Similar to many Chinese individuals, Mexicans often refrain from asserting a negative response during discourse. Even when uncertain, they may opt to provide an ambiguous response rather than acknowledge a lack of knowledge. This emphasis on saving face is a cultural trait that is paralleled in Chinese cultural norms.

Similar to many developing countries, Mexicans require an extended period of time to establish trust and are generally cautious about placing trust in others. In the case of Mexicans, trust is typically established through sustained interactions and collaboration. At this point, Mexicans may say “él se ganó mi confianza (He has earned my trust)”. In financial transactions, Mexican businesspeople frequently elect to deliver goods or services prior to receiving payment. This practice is reflected in a popular Mexican saying: música pagada, toca mal son.

Additionally, Mexico is a typical society based on relationships. In light of the significant costs associated with establishing trust, individuals tend to place the greatest trust in their friends around them. Consequently, the establishment of stable political and business relationships constitutes a pivotal factor for success in Mexico.

Liang Xinyue, a lawyer at P.C. Woo & Zhonglun W.D. LLP, which has considerable experience in the Mexican and Latin American markets, stated: “Effective communication with federal or state governments is crucial for enhancing the success rate of negotiations and operational efficiency, whether in the context of land acquisition, policy incentives, approval cycle, or daily operations.” Liang also indicated that the company has previously served a number of Chinese-funded enterprises going to sea in Mexico. In the initial stages of their operations, these companies faced a number of challenges when engaging directly with industrial parks. It was only after the companies were introduced through intermediaries and established connections with relevant state government officials that they were able to promptly secure land and take advantage of local tax incentives.

Pragmatism, a focus on business and clients, and a commitment to the continuous enhancement of product and service competitiveness are outstanding qualities of Chinese enterprises. However, as Liang Xinyue observed, sustained investment in public relations is a crucial aspect of operating internationally, particularly during localization efforts in Mexico. For example, following the commencement of a project, it is vital to proactively participate in social activities and maintain consistent communication with pertinent departments. It is of the utmost importance to report the good news as well as the bad news in order to effectively manage and balance various relationships.

Fifthly, although Mexican society is becoming increasingly stable, underlying factors of insecurity have not yet been fully eradicated.

It is an indisputable fact that Mexico continues to be one of the primary global hubs for organized criminal activities, especially its substantial involvement in the international drug trade. The primary factor contributing to this phenomenon is the United States’ status as the largest consumer market for drugs globally, which attracts drug traffickers from around the world to Mexico.

Edgardo Buscaglia, an expert on organized crime in Latin America, observed that “As is the case in the United States, Mexico is comprised of regions exhibiting disparate levels of risk.” For example, the northwest region of country, Sinaloa, is home to a significant concentration of major drug traffickers and criminal groups. At the present time, there are six major drug trafficking organizations and over 150 big  or small criminal groups. This situation is dynamic and subject to continual evolution. The apprehension of Joaquín Guzmán Loera, the head of Sinaloa’s most prominent drug cartel, in 2014 constituted a turning point. Nevertheless, the complete eradication of the drug trade remains a formidable challenge.”

However, Buscaglia highlighted that overseas tourists and businesspeople in Mexico are not the primary targets of organized crime. But it would be unwise for Chinese-invested companies to ignore security concerns, particularly those operating in states with significant security challenges.

Furthermore, the 1911 massacre of Chinese people in Coahuila, northern Mexico, continues to be a significant and distressing event in the collective memory of Chinese businesspeople.

Mexican author Juan Puig chronicles this history in his book, Entre el río Perla y el Nazas, “At that time, several hundred Chinese residents in the Torreón community along the U.S.-Mexico border transformed Torreón into one of Mexico’s most prosperous areas through their sustained efforts in agriculture and commerce. “They not only established their own bank but also expanded their business activities into other regions of the United States and Mexico.”

Nevertheless, this prompted considerable disquiet among the local bourgeoisie, who instigated pervasive racist assaults against the Chinese. Consequently, the Mexican working class began to espouse these prejudiced views, which gave rise to pronounced discrimination and hostility towards Chinese workers. This intensification of antagonism reached its zenith in the violent occupation of the city by revolutionary factions in 1911. These groups directed their aggression towards Chinese communities and commercial establishments, resulting in the horrific massacre of 303 individuals.”

In 2021, Mexican President Andrés Manuel López Obrador issued a formal apology to the Chinese descendants in Coahuila for this historical injustice. Nevertheless, the long-lasting consequences of this historical episode and the racial prejudice directed towards Chinese merchants continue to present formidable obstacles to overcome.

In addition to the challenges posed by organized crime, Mexico is also confronted with significant issues related to oligarchic monopolies. Carlos Slim, a Lebanese-Mexican businessman, possesses the largest stake in Mexico’s telecommunications sector through his company, Grupo Carso. His business network permeates through nearly every aspect of Mexican society. In 2011, Slim was identified as the world’s richest individual, with a net worth of $90 billion. It is estimated by experts that each Mexican individual contributes over $5 to Slim’s income on a daily basis, from the moment they wake up until they go to sleep. It would appear that, in the global context, only Adani of India is in a position to rival him.

In conclusion, the geopolitical instability that is a primary driver of nearshoring is likely to sustain Mexico’s economic growth for at least the next decade. Nevertheless, this growth is projected to be structurally regioinal concentrated in the long term, as Mexico’s overall development remains constrained by the influence of the United States. It is anticipated that Mexican manufacturing will become increasingly prevalent across North America, Europe, and even globally. The trend of Chinese companies expanding into North America persists, with Mexico continuing to represent a viable and attractive option. Consequently, companies seeking to enter the Mexican market must continuously invest in their operational capabilities and enhance their risk management and localization strategies.

It is both a pragmatic and an urgent necessity for Chinese enterprises and industries to adopt a comprehensive strategy in Mexico.

Reference:

1. Les Mexicains passionnels, Frédéric Saliba, 2016, ateliers henry dougier
2. Nuestra tragedia persistante, Lorenzo Meyer, 2013, Debate
3. Supply chain contagion waves: Thinking ahead on manufacturing ‘contagion and reinfection’ from the COVID concussion, 01/04/2020, CEPR
4. Les territoires de l’élite à Monterrey (Mexique), une géographie de la grande richesse, Leïly Hassaine-Bau, 2022
5. La historia de dolor por matanza de chinos en 1911 en México en cinco claves，Juan Manuel Ramirez, 2021
6. Nuevo ‘momento mexicano’： Señales ‘poderosas’ de que la economía va a crecer, 23/08/2023, El Financiero
7. Mexico‘s Moment, Malcolm Scott, Maya Averbuch and Leda Alvim, 12/09/2023, Bloomberg
8. Un análisis de la migración China a México a través de documentos que el #AGNResguarda，Archivo General de la Nacion, 2021
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11. Piden política industrial para detonar nearshoring,30/08/2023, El Economista
12. Foreign direct investment in Mexico rises 40 percent year-over-year, 18/09/2023, CNBC
13. Test Runs of Interoceanic Train in Coatzacoalcos, Mexico, 24/09/2023, Victoria Va Advocate
14. Interoceanic Corridor in Mexico will move 1.4 million containers a year, 10/11/2022, Mexico Daily Post
15. México conquista a las empresas chinas: 49% de los proyectos de nearshoring provienen del gigante asiático, 17/07/2023, El Economista
16. Les conséquences géopolitiques pour le Mexique de la politique états-unienne de Homeland Security, Nieto Gómez, Rodrigo, Hérodote, vol. no 123, 2006
17. La municipalité frontalière de Tenosique, Tabasco, au Mexique et la migration centraméricaine dans le cadre de la politique sécuritaire mexicaine, Fuentes-Carrera, Julieta, Hérodote, vol. 171, 2018