The reindustralization of North America and the role of MexicoHugo A. Lara García

Societal Challenges and Clusters: the Scandinavian Model vs other Models

6 September 2013

Hugo A. Lara García

September 6th, 2013

The Reindustrialization of North America and the role of Mexico

What does reindustrialization mean to North America?

- Developed countries had

long thrive as a result of

their ability to manufacture

goods and sell them to

global markets.

- For the past 100 years USA has been the leading producer of manufactured goods, but…

- Manufacturing has decline as a share of US GDP and employments.- This loss in not limited to low wage jobs in low tech industries, nor to the status

relative to low wage nations.

In addition:

- NA is lagging behind in innovation and manufacturing, relative to high wage nations such as Germany and Japan.

- NA has lost leadership in some medium and high tech industries that employ a large proportion of highly skilled workers.

Besides NA has been losing:

- Significant elements of research and development.

- The ability to compete in manufacturing many products that were

invented and innovated in NA.

Manufacturing and Creating Value

Manufacturing creates more Value

If manufacturing creates more value:

- NA has to go back to its manufacturing roots, but not simply by

manufacturing per se,

- NA needs to make sure its reindustrialization process moves in

to ADVANCED MANUFACTURING

The big question is:

- Is NA ready to compete in Advanced Manufacturing against developed and developing countries?

How competitive is North America?

Industry Profitability

source: competitive alternatives-KPMG Guide to international business location costs

Industry Profitability

source: competitive alternatives-KPMG Guide to international business location costs

Industry Profitability

source: competitive alternatives-KPMG Guide to international business location costs

source: competitive alternatives-KPMG Guide to international business location costs

source: IMF

source: source: SAI Law & Economica based on information from Rubin, Jeff and Benjamin Tal “ Will soaring transport costs reverse Globazitation”

source: The Interational Energy Agency

source: OANDA,INEGI,UN, Contrade, US Bureu of Economic Analysis and WB

20

06 07 08 09 10 11 12 13-15

-10

-5

0

5

Fiscal Deficit(% of GDP)

MexicoGermany

Spain

USA

Source: Monitor Fiscal FMI; SHCP

21

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

79 82 83 83 8590 89 87 89 88 85 84 82 81 81 79

83 82 80

Mexico's Manufacturing ExportsAs % of Total

Source: INEGI

Mexico´s Role in this Process

23

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 115

10

15

20

25

USA

Mexico

Manufacturing GDP as% of Total(%)

Source: INEGI

24

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 115%

10%

15%

20%

U.S. Imports Participation(%)

China

Mexico

Japan

Source: Banxico

Ingreso Chinaa OMC

25Source: SAI: Can Mexico compete with China?

Total Population 2011(millons)

China Mexico

26

06 07 08 09 10 11 12 130

20

40

60

80

100

120

140

Source : Monitor Fiscal FMI; SHCP

Mexico

Germany

Spain

USA

Public Debt(% of GDP)

27Ajustado por productividad. Source: BCG. US Census Bureau, US Bureau of Economics, U.S. International Trade Comm.

02 03 04 05 06 07 08 09 10 11 120.0

0.5

1.0

1.5

2.0

2.5

3.0

Labor Cost(dollars/hour)

China

Mexico

Some Final Thoughts

- It would be very difficult for any of the three countries to provide the competitive advantages for manufacturing vis a vis with China and other developed and developing countries.

- For Mexico it is a historical opportunity to be part of the reindustrialization process of the US.

Some Final thoughts

- Countries don´t compete, companies do.

- Governments need to establish the right policies to ensure the competitiveness of the companies participating in their strategic sectors.

- Major reforms need to take place.– Market access– Energy– Agriculture synergies– Labor Mobility Vs. Migration