Mexico has in the recent past become a business hub for many a firm despite her reputation for drug cartels, immigration and labor. For a foreign company, expanding operations into Mexico would be a lucrative move due to the benefits of importation of raw materials duty free and lower cost of manufacturing goods. Moreover, Mexico has also positioned itself as a leader in the developing world and emerging economies by providing cheaper labor than the developed economies and ready market for goods made in Mexico. It would thus be beneficial for Drotos Electronics to expand its operations to Mexico.
The country’s economy is the second-largest in Latin America after Brazil , with an average growth rate of 4.5 percent in the last five years from 2010, which has been fueled by the manufacturing sector. There is a growing population of middle class, thereby providing a ready market for high-end goods. Hence it would be a good venture for an electronics company seeking to manufacture its products in a country like Mexico. Ready market for products coupled with manufacturing wages which are projected to be 29 percent less expensive as compared to countries attracting foreign investment, such as China.
It would be beneficial for a company like Drotos to expand operations into Mexico since it would benefit from the free-trade agreements the country enjoys with the United States. The North American Free Trade Agreement gives preference for Mexican-manufactured goods to access the North American market in addition to Mexico having free-trade agreements with 44 countries. Low energy costs would be a great opportunity for Drotos to exploit by establishing operation in Mexico. The Natural gas prices in Mexico are cheaper hence providing significant advantage to Drotos Electronics.
Effects of Globalization to Latin America
As globalization grows, free trade agreements are made, and as co-operation among companies increase, firms are turning to internationalization, which albeit the opportunities it comes with, is a challenging process. Brady and Ryan (2006) point out that the growing challenge of globalization is the “liability of foreignness”. Globalization has led to increasing competition of imports to domestic production as strong pressure from the private sector is exerted against the liberalization policy in most Latin American states. The result has been a return in the protectionist trade policies, such as the attempts to hike tariffs, for instance in Colombia. Further, trade defense instruments, such as anti-dumping safeguards and duties have also been introduced due to globalization, especially in the petrochemicals, metalworking sectors and textile industries.
Due to globalization, the Latin America has strengthened its links with the rest of the world, particularly through the non-formal integration process for security purposes to enable foreign firms to set up operations in the region. Moreover, the region has shown a growth potential based on their size, good economic performance, young growing populations and relative economic stability, thereby attracting foreign direct investment (Eriksen, 2014). Globalization has also provided the region with both greater economic opportunities and resilience to highly disruptive events of the past, such as civil wars and drug violence.
Cause-And-Effect Relationships of Globalization
Globalization in Latin America has been inevitable due to the micro-benefits that come with it and the information technology revolution that has made it harder to control cross-border movements of capital. Further, cross-national variations in the markets and the increasing interest of exporters to open up the Mexican market. This is evident from the maquiladora and the booming manufacturing export industry. There are more than 5,000 maquiladora plants, with 60 percent of them being located along the Mexico-U.S. border for sourcing of quality inputs, service and equipment.
Effects of globalization to Mexicans are inequality, economic insecurity and national autonomy in issues, such as spending and taxation, exchange rate regimes and regulation (Narula, 2014). The region is also prone to international governance as big economies try to dominate the smaller ones in the world. Despite such effects, Mexico provides many market opportunities for U.S firms, such as Drotos Electronic, since $1.5 billion worth of trade is done each day between Mexico and the U.S., which Drotos stands to exploit and benefit.
Points of Contention about the Effects of Globalization
However, the positive sides of globalization, there have been a host of contention points, for instance, some critics feel that economy-driven globalization leads to hegemony of western culture and corporations by exploiting cheap labor from Mexicans. Moreover, globalization increases the environmental threats in addition to undermining democracy and social stability, introducing the political systems to forces of economic change than they can handle (De La Torre, Didier & Pinat, 2014). It also creates deprivations and concentrations which constitute a distinct global power structure. This is shown by the participation of nations in global governance as per their economic power, with the world being ruled by the most economically powerful countries as the world is constituted into a one economic and political power (Narula, 2014).
Moreover, the success of globalization has led to greater income inequality as greater mobility of capital hardens that organization and use of governments to impose regulations of pollution-causing firms. Drotos Electronics would benefit from the price conscious Mexican market as many entry strategies are applicable in Mexico. The great population of the country, over 120 million people will provide a ready market for Drotos products as 78 percent of the population lives in the urban areas with 45 percent of them forming the middle class (De La Torre et al., 2014). Further, Mexico’s population has a median age of 27, which is the mean age of the consumers of Drotos electronics. The move would also prove crucial as the per capita income is $15,600, although immense marketing will be needed.