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The Other Mexico: A Wave of Investment

Adriana Berenice Acosta Nunn

MGMT 3001V – Management in the 21st Century

Walden University

Marc Lyncheski

03/16/2014
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Abstract

"What kinds of advantages can U.S companies obtain if they move production to

Mexico?", "What are some possible disadvantages and threats of moving production to

Mexico?" and "Why are more companies making investments in Mexico as opposed to

China?", these are the questions that are going to be answered in this paper; the forces

of the general environment and the task are changing constantly, these changes can

become great opportunities for businesses but they can also represent great threats.

Keywords: outsourcing, risk, economic crisis, decision making.

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The Other Mexico: A Wave of Investment

K. Alan Russell is the co-founder of "Tecma Group of companies"

which provides shelter, manufacturing support and consulting services in Mexico,

Russell is now the President and CEO of the company (Freight Advisory Committee,

2013).

Part of Russell's job is to notify the big companies that their factories or

manufacturing centrals in Mexico are safe, whenever, kidnapping, murder, crime, make

the headlines. So if Mexico is such a dangerous place at the moment what is keeping the

companies from leaving and manufacturing their products somewhere else? Since the

peso dropped against the dollar, manufacturing and labor work became even cheaper

than it was before (Pete Engardio & Geri Smith, 2009), this created a big opportunity to

companies who are searching for lower costs of production.

With new companies trying to enter a particular industry, and constant changes

in the general and task environment, already existing companies have to start thinking

and making strategies to increase the barriers to entry whatever particular environment

the new companies want to enter; without new companies entering the industry there is

already a lot of competition between existing companies, which it usually resolves into

which one has the lower price. This determining issue forces managers to look for ways

of reducing costs of the production of their goods without reducing the number of these.

Global Outsourcing is one of the most used courses of action, to take the production of

your products to another country where it is cheaper, in order to reduce the cost (Jones

& George, 2003).

Now, what kinds of advantages can U.S companies obtain if they move

production to Mexico? When an American company moves their production to Mexico

they find that labor work is cheaper than in other places, the main factor for this was
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already mentioned earlier when we talked about the dropping of the peso; Mexico is not

the only place where labor work is cheap, there are other countries like China and India

that also provide cheap labor work and good quality, but the reasons why companies

prefer Mexico will be explained later in this paper.

Mexico is going through a difficult time when it comes to safety and

government stability, how can this present possible disadvantages and threats to moving

production to Mexico? The main problem in Mexico today is the issue of drug dealears

and cartels which are a constant threat not only to Mexican businesses but also to

businessess from around the world that have either a factory, or a central in the country.

This is a disadvantage because, for example let's say the government has an encounter

with the cartels and one of the factories from another country is destroyed or robbed, it

would create a domino effect, how? Well the company would lose all the production

they had there, if they were working on a product that was supposed to come out on a

certain date, they would have to cancel that date and all the resources, money and time

spent on that would've been lost. An incident like this may not be so damaging to a big

company but, if this were the case of not a small company but a medium one, it could be

it's downfall, it could take the company to it's destruction, not all the companies have

the economic support to rise after an event like this. Besides drug dealers and cartels

there is also another group called "Los Zetas" which is a Mexican crime organization,

which main crimes are kidnapping, murdering, human trafficking, drug dealing, among

others. This people also tend to visit businesses and asks them for a type of rent, if this

rent is not paid the "Zetas" usually kidnap the people or their families that are related to

the business, which results in loss for the company or organization that was a victim of

this organized crime.

This situation should be given a thought before deciding to bring your business
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to Mexico, the manager has to take everything into consideration to see if this is the best

option for their company, he has to balance everything and consider the different

scenarios, is the risk worth taking.

It was already mentioned before that Mexico is not the only place where

production is cheap; in fact there are other places, like China where production is

actually cheaper, so why are more companies making investments in Mexico as

opposed to China? Companies are deciding to invest in Mexico because it is closer to

them, the cost of manufacturing a product does not end in just the labor work and that is

it, you also have to take in consideration the costs to ship the product from the place

where it's being made to the place where it's sold. Taking that into account it is cheaper

to do it in Mexico versus to do it in China, which is farther away. Another reason why

Mexico is a better option is that communication is easier and simpler, it takes less time

to talk to someone in Mexico, to make a decision or consult something, if you are in the

United States of America, than if you are talking to someone in China. Also there is less

room for errors and miscommunication problems in countries that are closer to each

other. Let's say we have an issue in the factory in Mexico and the supervisor in charge

of the factory don't have the enough authority to make a decision of that magnitude, if

the factory were in China instead of Mexico the main organization takes the risk of

either having a miss understanding when talking to the supervisor and end up making a

wrong decision.

Given the analyzed facts in my opinion Mexico is a very good option for

investment and manufacturing of goods, even though it has its threats, the advantages of

producing and investing in it overcome the threats. And it gives companies the

opportunity to grow and achieve their goals, and everything for a relatively low price.
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References

Engardio, P. & Smith, G. (2009). [online] Retrieved from:

https://class.waldenu.edu/courses/1/USW1.50324.201440/blog/_466801_1/post/_40298

9_1/Chapter_4_Case_Study_The_Other_Mexico_A_Wave__of_Investment.pdf

[Accessed: 17 Mar 2014].

Jones, G. R. & George, J. M. (2011). Essentials of contemporary management.

Boston: Mcgraw-Hill/Irwin.