Topic Category: World

The world is quickly becoming economically integrated, forcing unprecedented changes at every level of industry. Foreign companies are becoming more competitive and gaining greater U.S. and global market share.

Whether you’re small or large, manufacture products or provide services, or even have interests limited to the domestic market, fast moving global developments will impact your business.

Topic: World
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The Caribbean offers a wide range of opportunities. The Dominican Republic, one of the region’s most flourishing performers, has experienced accelerated modernization and now boasts world-class resorts, industrial parks, and export-processing zones.

And with the recent election of President Leonel Fernandez, new policies embracing trade and investment are having a positive impact—creating new opportunities ... and risks.

Topic: World
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During the week of October 9, Mexican President Ernesto Zedillo Ponce de Leon met with several organizations in the United States. Following a meeting with U.S. business leaders, several key U.S. participants announced direct investment plans for approximately $12 billion in Mexico over the next five years. This is a sign of continued growing confidence in the Mexican economy.

The Mexican manufacturing sector has continually attracted the most foreign direct investment, 40.5%; followed by the service sector, 31%; transportation and telecommunications, 8.5%; and financial services, 8.5%.

Industries expected to receive the $12 billion include some of these sectors, such as manufacturing, financial services, and telecommunications. Other industries receiving this investment -- not considered major destinations in the past -- include energy, transportation and distribution of natural gas; environmental services; agriculture and food processing; and real estate. Some of these had been announced earlier.

The Mexican telecommunications sector has attracted the interests and capital of both large and small U.S. telecommunication service providers. Plans indicate that the Mexican sector will receive $3 billion over the next several years from well known companies such as AT&T and MCI.

An investment of almost $1 billion is anticipated to launch a joint venture between AT&T and the Mexican company, Grupo Alfa, to provide long distance services to Mexican customers. AT&T also confirmed a $40 million investment in cellular telephone manufacturing at the company's Guadalajara plant.

Avantel, a new communications services company forged by MCI and the Mexican bank, Banamex, is to receive an investment of $1.3 billion from MCI. Additionally, a group of smaller U.S. companies, including Nextel, LCC, Associated Communications, and the Carlyle Group, have teamed up with the Mexican firm Grupo Communications of San Luis Potosi. Together, they have invested over $110 million in Grupo Tricom of Mexico to provide wireless communications services in Mexico.

Other investments in the Mexican telecommunications sector include more than $325 million in digital wireless infrastructure by Tricom. GTE, in a three-way partnership with the Mexican bank, Bancomer, and Mexican firm of Grupo Visa, will invest a total of $320 million.

The Mexican energy sector and transportation and distribution of natural gasis expected to attract nearly $2 billion over the next five years. Amoco Corporation announced a $250 million investment with Mexico's Grupo Femsa. Dupont's Conoco division has established an office in Mexico and is expected to invest in the petrochemical sector as the regulatory and legal framework evolves. The firm also plans to continue with an additional $100 million in nylon over the next few years with its Mexican partner, Grupo Alfa.

In the manufacturing sector, General Electric announced the company is reinvesting about $100 million annually in its Mexican operations over the next four years. Eastman Kodak revealed additional investments in the company's CD media production facility at its Guadalajara plant and an already-completed water treatment recycling plant.

An investment of $75 million was announced by International Paper for the construction of a non-woven textile plant near Guanajuato, in addition to new projects in forestry and paperboard. In the apparel sector, Warnco, which currently has six facilities in Mexico, plans to invest over $10 million in the state of Puebla. And Guilford Mills, Inc. unveiled its strategy to establish a major apparel production facility with its partners, American Textile and Mexico's Grupo Alfa, in the state of Morelos.

Some U.S. companies plan to invest in several sectors. For example, a $1 billion infrastructure investment fund was announced by American International Group, a leading global insurance and financial services company, and General Electric. Areas to receive the capital include energy, telecom, transportation and environmental services. American International Group also announced the purchase of 51% of Seguros Interamericana for $35 million, and as a result will control a greater portion of its Mexican insurance and financial service interests.

Mexico's agribusiness industry has also been on the minds of U.S. investors. Pilgrim's Pride announced a $40 million poultry-breeding project in the states of Queretaro and Puebla. The U.S. giant, Philip Morris, announced an investment of $200 million in its Kraft Foods de Mexico plants. This is expected to double their production capacity.

Reichmann International Mexico plans to continue with three major real estate projects in Mexico. These projects represent a total investment of $1.1 billion. Additionally, Journey's End announced plans to build ten executive hotels there representing an investment of $35 million.

On October 11, President Zedillo met with President Clinton at the White House. Mr. Zedillo brought with him the first $700 million installment to begin repaying the United States with interest. This early repayment of a portion of the $12.5 billion that Mexico borrowed from the United States is yet another indication that the Mexican economy is bouncing back.

Stated by President Clinton, "Today's decision sends a positive signal to the financial markets that the tough financial measures Mexico has taken are succeeding and the American taxpayer is being paid ahead of schedule."

The latest figures indicate that Mexican inflation is expected to reach 45% - 50% this year and taper down to about 20% next year. Mexico's inflation for August was already down to 1.66% -- having continuously dropped from 8% in April. Its gross domestic product for this year is expected to fall by 4.5%, but rise to about 3% in 1996 -- indicating a short-lived crisis.

From January through July of this year, Mexico ran a $3.7 billion trade surplus with the rest of the world and a surplus with the United States. However, mid-year figures indicate that U.S. exports to Mexico are down by only 10% -- much less than had been projected.

As the situation in Mexico continues to stabilize and investor confidence grows, Mexican consumption will rise commensurably -- increasing the demand for U.S. exports. This is good news for U.S. companies.

This article appeared in The Exporter, December 1995.
Topic: World
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As part of its new economic program to promote investment and raise capital, the Mexican Government is undertaking its third major round of privatization since the 1980s. And in a clear demonstration to the world that Mexico is not wavering from the path of economic liberalization, President Ernesto Zedillo is also further opening up sectors to foreign investment that have already been privatized over the last few years. This is presenting a number of significant opportunities to U.S. investors.

Two sectors, petroleum and radioactive materials, will remain under the exclusive control of the government. Ownership of broadcast television, radio and credit unions will continue to be reserved for Mexican private investment. However, Mexican law has recently been changed to make it possible to sell strategic resources that had previously been considered off limits.

The railroads can now be sold to domestic and foreign investors. Natural gas is still considered a strategic resource, but its transmission, distribution and storage is not -- and may now also be sold to the highest bidder. Other businesses open to new foreign investment include satellite operations, telecommunications, secondary petrochemicals, power generation, financial services, ports and airports.

Since the 1980s, nearly 1,000 of the 1,155 state-owned businesses have already been sold to private entrepreneurs, merged or closed. This generated $14 billion in revenue and savings. These businesses included hotel chains, steel producers, mining companies, insurance providers, airlines, banks and telecommunications companies. With an additional $14 billion expected to be generated from the new round of openings, Mexico's ability to raise capital appears undaunted by the recent financial crisis.

Under current foreign investment laws, two-thirds of the Mexican private sector is open to foreign ownership. Cumulative foreign direct investment totaled $50 billion by the end of 1994. The United States and Canada have invested 62% of this; the European Economic Community, 25%; Latin America, 7%; and Asia, 5%. The manufacturing sector has continually attracted the most foreign direct investment, 40.5%; followed by the service sector, 31%; transportation and telecommunications, 8.5%; and financial services, 8.5%.

The new round of privatization and further investment openings will not only raise much needed capital, but will also help Mexico, to a greater extent than in the past, modernize its infrastructure and economy.

Over the years, privatization of companies has not always benefited Mexico to the degree anticipated. For example, in the past many state-owned enterprises were sold to domestic investors only, not allowing sometimes more qualified and cash-strong foreign investors to bid. Many analysts believe that this policy restricted competition, and did not always push new owners to become as efficient as they may have under more competitive, open market conditions.

For example, in 1991 the Mexican Government began selling the 18 largest banks it had seized back in 1982 -- but restricted experienced foreign banks from bidding. The sale of the telephone company and two airlines, Mexicana and Aeromexico, was no exception. As time progressed, some of the newly owned and managed companies seemed to be in little better position than when controlled by the government. Under the new round, open bidding to both domestic and foreign investors and greater scrutiny to ensure an ability to meet financial requirements is likely to minimize, if not eliminate, the problems caused by past practices.

Instead of simply selling the railroads to the highest Mexican bidder, the Mexican Government studied various options for their sale. The first option considered a 50 year concession for the entire railroad system to one qualified owner. Other options split the system into competing private railroads.

Reportedly, in June more than 500 potential domestic and foreign investors attended a meeting in which Mexican transportation officials explained their privatization plans. With the publishing of bidding rules and actual bidding to commence as early as this fall, final plans call for the division of the railroads into three concessions.

Several large U.S. and European lines are considering making offers for the Mexican railroads. Union Pacific and others appear interested in the routes running north to the border and serving automobile plants. Before some companies bid, however, they are requesting answers from the Mexican Government as to the new owners' degree of flexibility on work force and passenger services issues.

Under the North American Free Trade Agreement, Pemex, the Mexican state-owned oil company, was not opened to investment as many U.S. companies had hoped. However, while the production of natural gas remains the domain of Pemex, several activities related to getting the product to market are for the first time open to foreign investment. These new opportunities reportedly attracted about 120 U.S. companies to a series of three day meetings recently held in Mexico City sponsored by the U.S. Department of Energy and Mexico's Secretaria de Energia.

Continued privatization and further opening of Mexican sectors to foreign investment will continue to substantially enhance economic progress and speed recovery in Mexico. Just as important, as the short-term economic crisis abates, U.S. investors in Mexico will have the chance to establish a strong new foothold in Mexico that benefit them well into the future.

This article appeared in The Exporter, September 1995.
Topic: World
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The People's Republic of China has one of the fastest growing economies in the world. Its gross national product (GNP) increased 13.4% in 1993 and 11.5% last year. Its growth is projected to increase by 9% next year and about 8-9% annually through the end of the century -- one of the highest in the world.

Certain regions in China -- especially those along the coast -- are booming, as many of the residents are becoming more prosperous. Political and economic decentralization has allowed each region to pursue its own interests as local governments and enterprises gain greater autonomy on a daily basis. Some 8,000 companies now have import and export rights. This trend will likely continue.

U.S. Exports to China Rising -- Faster

Foreign trade as a percentage of China's GNP now accounts for nearly 40 percent. From 1991 to 1994, U.S.-Chinese bilateral trade almost doubled -- reaching more than $48 billion. From 1993 to 1994, the United States edged up 18.4% to achieve 12.2% of Chinese import market share. And for the first two months of this year, U.S. exports to China rose 28.6% faster than the same period last year -- a considerable jump when compared to the much smaller 5.7% increase in exports from 1993 to 1994. Although more recent data is not yet available, this trend appears to be continuing.

Principal exports to China include boilers and machinery; aircraft; fertilizers; electrical machinery; and cotton, including yarn and woven fabric.

Last year U.S. imports from China rose considerably faster than exports, as the country moved up two notches to become our second largest supplier of goods. Principal U.S. imports include electric machinery; footwear; toys; games and sports equipment; apparel (unknit); and leather art, saddlery and handbags.

Last year, the U.S. trade deficit with China reached almost $30 billion. In the past, access to China's market of 1.2 billion consumers has been hampered. Recent trade agreements, however, will positively affect this.

Market Access Agreement Reached in March

In February of this year, China signed an agreement to protect U.S. intellectual property. During U.S. Trade Representative Kantor's visit there on March 12-13, he reached an eight point agreement with Minister Wu Yi on market access, bilateral services, and China's accession to the World Trade Organization. As part of the agreement, China also agreed to fully implement the October 1992 Memorandum of Understanding (MOU) which was suspended some time ago. The MOU committed China to make sweeping changes in its import regime, including the elimination of 90% of all non-tariff barriers.

At the March 29-30 market access consultations in Washington, D.C., China additionally agreed to lift quotas and licensing requirements on a wide range of agricultural goods, textile machinery, textile and apparel, computers and heavy machinery. As a result of these developments, U.S. exports will likely increase at an accelerated rate.

Best Export Prospects

U.S. products anticipated to do well in China include aircraft and parts; electric power systems; computers and peripherals; telecommunications equipment; automotive parts and service equipment; agricultural chemicals; industrial chemicals; plastic material and resins; chemical production machinery; building products; pumps, valves and compressors; electronics components; machine tool equipment; oil & gas field machinery; medical equipment; laboratory scientific instruments; and electronics production and test equipment. The list doesn't stop here.

Agricultural products in demand include wheat, cotton, logs, hides and skins, poultry, tree nuts (pistachios), dried fruits, especially raisins, and snack foods .

Obstacles Remain

Although political and economic structures are becoming decentralized, Communism remains intact in China. As a result, the system continues to erect roadblocks that are difficult to overcome. In addition to quotas and high tariffs (50%-250%), many of which will be reduced or eliminated, China inconsistently applies a 17% value-added tax on most imports, limits access to its retail sector, maintains foreign exchange controls, operates under an inefficient banking system, and sometimes applies unreasonable standards and quality control requirements.

Additionally, it is important to become familiar with changing logistical demands and penalties for nonconformance. For example, in order to ship over-sized packages to China, approval must be given from the airlines before delivery. This is especially important for inland shipments.

Plans for Development

The Chinese Government has embarked on an ambitious schedule to improve the country's infrastructure. Many of these improvements will not only help to better facilitate trade, but will also provide U.S. companies with opportunities to supply materials and products needed to complete the projects.

Two of these projects involve electric power generation and transportation improvements, as discussed below.

Electric Power, thermal and hydro: The Ministry of Electric Powers plans to add 15,000 MW per year to China's power generation capacity over the next ten years. Central and provincial expansion plans include the construction of over 35 power stations between 1992 and 1996. Hydro-power projects involve the construction of four huge structures, including the building of the largest hydro-power dam in the world.

Railways: China is receiving loans from the World Bank, the Asian Development Bank and the OECF to build and expand six rail lines and to import communications networks, intermodal container transportation and loading systems, computer and signaling systems, software and track maintenance equipment.

This article appeared in Global Shipper, a publication of Emery Worldwide, June 1995.
Topic: World
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