Potential Seen in O.C.’s Mexico Trade Mission
As Mexico opens its economic doors to the world, Orange County business leaders are peeking in at an emerging marketplace and finding new opportunities for local companies to grow.
Last week, a delegation of Orange County business leaders returned from a two-day fact-finding trip in Mexico, and several members said they were happily surprised to find that substantial changes in that country’s economy during the past three years have already created attractive business opportunities.
Housing, computers and medicine could find booming new markets in Mexico, business leaders said, and Orange County companies are among the most likely to be able to take advantage of those opportunities.
Equally important, several industry leaders said, a free-trade agreement being negotiated between Mexico and the United States has given local companies a strong incentive to gain a foothold now in Mexico so they will be in position for what many say could be an explosive burst of economic growth.
“This trade mission will help put Orange County companies in the forefront of opportunity once the free-trade agreement is approved,” said Henry Baray, chief legal officer for the Restaurant Enterprises Group Inc. in Irvine. “There is a great potential for U.S. businesses in Mexico.”
The 10-member tour, headed by Rep. Christopher Cox (R-Newport Beach), met last week with President Carlos Salinas de Gortari and several Cabinet-level officials in the Salinas administration. Those officials told the Orange County executives that Mexico is committed to developing a strong, free-market economy and that it is dedicated to restoring confidence in its political and legal systems.
As evidence of the development opportunities underway, some members of the group toured a new industrial park outside Mexico City called Toluca.
“What we saw was exactly Orange County, 15 years ago,” said Lucia De Garcia, presideant of Elan International Inc., a business consulting company in Newport Beach that specializes in Mexico. “This (trip) was the opportunity that will make history. I think I will call us the pioneers.”
Some American investors are already responding. San Diego-based Price Co., which operates Price Club warehouse stores, will open a Mexican outlet at the end of this month, the first of several stores.
“We see that there’s a huge number of people and a growing middle class and small-businessmen who can use more efficient sources of merchandising than they have now,” said Solomon Price, the company’s chairman emeritus.
Similarly, Safi Qureshey, president of AST Research in Irvine, a computer manufacturer, said that his company has a small sales office in Mexico and that the developments he saw during the trip appear likely to create more opportunities in the future.
“This is the first time it really occurred to me that their country is really poised for growth,” Qureshey said. “And if Mexico’s economy grows, of course they will need more computers.”
Orange County’s largest computer products company--Western Digital Corp.--is also hopping on the Mexican bandwagon. Its chairman, Roger W. Johnson, joined former U.S. Commerce Secretary Robert A. Mosbacher earlier this month to discuss trade and investment opportunities with Mexican industrialists. Johnson said his company has long-term plans to sell its computer products in Mexico.
All of those investments and a host of others could receive a major boost from the North American Free Trade Agreement, which is being negotiated among the United States, Mexico and Canada. It is expected to be submitted to Congress this spring for ratification, but observers say it could be stalled until after the presidential election in November because of the issues involved.
The trade agreement would phase out existing tariffs that are designed to protect domestic industries. But critics--particularly Democrats--charge that it would send American jobs south of the border as U.S. companies seek cheaper labor and fewer regulations.
That debate could stall progress on the agreement, but even without it, business leaders say fundamental changes in Mexico’s economy have substantially increased the commercial opportunities there.
Since Salinas took office about three years ago, Mexico has begun privatizing many of its industries--including banks--which had been government-owned. It has also substantially lowered corporate taxes in Mexico and reduced many of its tariffs on imports.
A recent analysis of the business climate in Mexico prepared by the Bank of America said the country’s average tariff rate is now 8%, down from 23.5% in 1985. Also, its maximum tariff has also been lowered to 20%, from 100%.
“California’s imports from Mexico and exports to Mexico have been increasing by 17% and 25% respectively since 1988,” the bank analysis says. If the agreement is passed, “trade will expand by double-digit percentage growth rates through the 1990s.”
Cox said he organized the trip to generate interest in the proposed trade agreement by demonstrating its potential benefits. In addition to Qureshey, Baray and De Garcia, Cox was also joined by a number of other potential investors, including Jerry Boyle, regional manager of CH2M Hill in Santa Ana; Brandon Birtcher of Birtcher Real Estate Development Ltd.; William Adams of O’Melveny & Myers law office in Newport Beach; Thomas A. Fuentes, senior vice president of Robert Bein, William Frost & Associates, an engineering and surveying firm; Alexandra Garcia, vice president of Elan International; and Mark C. Johnson, president of Chapin Medical Co. in Corona.
Gov. Pete Wilson also traveled to Mexico City last month with several California business leaders to talk with President Salinas about improving trade conditions. Salinas is expected to visit Orange County later this year.
Ira Goldman, Wilson’s director for trade, said the state plans to pursue new business opportunities in Mexico by making California companies aware of the changing conditions and negotiating with Mexican trade officials about ways to improve access for American firms.
Goldman said the trade agreement would help California’s companies expand in Mexico, but he said the state’s program to facilitate better trade expects a “bright future” regardless of the international pact.
If that agreement is approved, Cox and other business officials said they believe that Orange County could be one of the biggest benefactors because the county’s business community is diverse and capable of quick expansion.
“Orange County is unique in that its companies are willing to take risks; they’re smaller and they’re more entrepreneurial,” said Christine Axelson, acting president of the World Trade Center Assn. of Orange County. “This is going nowhere but up. Free-trade agreement or not, Mexico will be one of the fastest-growing and most productive markets for Orange County.”
Axelson said local interest in Mexico’s business opportunities has increased substantially in the past year. She also said several companies--particularly biomedical and high-tech businesses--already are seeking distributors for their products in Mexico.
“As far as California is concerned, Orange County probably has the most to gain,” Cox said. “And California, of course, has the most to gain of any state from this agreement.”
Some of the recent interest in Mexican markets is also fueled by the American recession as U.S. companies search for better customers. Goldman said Mexico’s economy grew 4% last year while the California market shrunk.
There are several industries in Orange County that are in position to benefit from better trade relations with Mexico, particularly those of housing, computers and medicine.
While in Mexico last week, Birtcher explored the possibility of building low- and moderate-income housing. The group was told there is a need for more than 6 million new homes for low-income people in Mexico.
Birtcher said that participating in Mexico’s real estate market is complex and will require knowledgeable local partners. Still, he said his company is in the midst of evaluating “the best communities within Mexico to develop” and expects to start building low- and moderate-income Mexican housing within the year.
Last week, federal legislators in Mexico introduced a bill creating a special fund for housing construction, a move expected to help bolster home building in that country.
Chapin Medical’s Johnson, whose company sells biomedical products for cancer and cardiac patients, also found potential new markets for his company’s products, and added that he intends to investigate further.
As a result of the trip, Cox said he is planning to host a meeting this spring for more than 100 Orange County business leaders to hear from Cabinet-level officials in the Mexican government. Cox said three top officials in Mexico have agreed to attend such a meeting to discuss the business opportunities being created.
