Knowledge Network: Faculty & Research

By Mary Teagarden

“When the dragon awakes, the whole world will tremble,” Napoleon Bonaparte once cautioned about China. The dragon has awakened and is emerging as a head-to-head competitor and rival for companies in many countries, including Mexico.

From Mexico’s perspective, China is a rival and even an enviable competitor, a potential investor, a customer, an economic partner and a global power, depending on where you sit in the Mexican economy.

Mexico has become China’s second-largest trading partner and one of its primary foreign direct investment recipients in Latin America. Latin America is the recipient of 40 percent of China’s total foreign direct investment. China-Mexico bilateral trade exceeded $7 billion in 2006, 44 percent higher than the previous year. At the same time, China’s investment in Mexico rose to nearly $200 million.

Economists forecast that bilateral China-Latin America trade will exceed $100 billion by 2010, equivalent to more than half of the current United States-Latin American bilateral trade. At the same time, economists claim that China is eroding the advantages of NAFTA and the maquiladoras.

In Mexico, and throughout Latin America, China has become a buyer of raw materials and a seller of finished goods. China is a customer for commodities including oil, cement, steel, copper and lead, resulting in increased prices for Mexican consumers of these products.

Some Mexican companies are even starting to manufacture their house brands for such items as audio and video products in China.

For example, Carrefour Mexico’s Blue Sky audio and video products are available in Mexico, while Comercial Mexicana produces its Naoki brand products in China, as does Gigante with its Akai products.

The service sector is not immune to the dragon’s influence. Retailers Comercial Mexicana, Soriana and Gigante have followed competitors such as Wal-Mart and Carrefour into both acquiring China-made merchandise and using OEM services in China. They are lured by the reality that cheaper imports from China can be very profitable, at least more profitable than trying to prop up nonviable local industries.

Video and audio equipment, toys, cosmetics, garments, tools, kitchenware, auto accessories and furniture are among the long list of products currently being purchased from Chinese suppliers.

As the dragon awakes, China represents an opportunity for some in Mexico and a threat for others.

Mary Teagarden is professor of global strategy at Thunderbird School of Global Management. She has lived and worked in 11 Latin American countries, five European countries and eight Asian countries — in addition to the United States and Canada.

Posted: 07|8|08 at 12:17 pm.
Filed under: Emerging Markets, Global Strategy, Teagarden, Mary.
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