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Comerica Goes With NAFTA Flow
Why would a Detroit-based bank want to establish a subsidiary south of the border? Because trade activity creates demand for financial services, particularly dollar-based financial services, said Senior Vice President Claude “Hank” Miller, who has been managing director of Comerica Bank Mexico since its inception in July 1997.
It took Comerica two and a half years to get all the necessary approvals to begin operations in Mexico, recalled Miller, who was one of several keynote speakers at a recent two-day seminar, “Access Mexico: A Step by Step Approach With Experts,” hosted by Grand Valley State University’s Van Andel Global Trade Center.
Miller began working in Mexico in the fall of 1983, a year after the banks of Mexico had been nationalized and the country was in the grips of an economic crisis. All the country’s banks were owned by the Mexican government, which also owned and controlled 75 percent of the economy.
“We were in a state-controlled situation. Foreign investment was simply prohibited,” Miller said. “You could not have over 50 percent ownership in a Mexican corporation.”
That changed with the implementation of the North American Free Trade Agreement (NAFTA) on Jan. 1, 1994, which removed tariff barriers between Canada, the United States and Mexico.
In the past 20 years there has been consistently growing foreign investment in Mexico, investment that has accumulated over time, helped finance modernization and growth and dramatically altered the country’s economy.
Export trade between Mexico and its NAFTA partners has more than doubled since 1994. Depending on the current exchange rate, Mexico has a $400 billion to $500 billion economy, Miller said. Trade itself now accounts for $250 billion.
Export activity has now stabilized, but the question is whether activity has topped out or is just in a cyclical lull, he added.
When the banks of Mexico were government owned, the quality of service wasn’t so great, Miller recalled. For Comerica, a subsidiary in Mexico represented an opportunity to give customers U.S.-quality financial services, including credit and treasury management products, account access and money exchange services.
“That’s basically our philosophy in Mexico: Follow the foreign investment, follow the trade flows and give the same services to customers there that we give here.”
In stark contrast to two decades ago, today 80 percent of the assets of Mexican banks are foreign owned.
Although there’s now competitive pressure from new foreign entrants into Mexico’s market, Miller said great opportunities still exist for Comerica in offering U.S. Grade A financial services.
Mexico is about the most open economy in the world at this point, with more trade agreements, more duty free and more preferential treatment than any other place in the world other than the United States, Miller said.
He said he doesn’t know if an open market system is right for everybody, but he believes it has certainly been right for Mexico.
“Mexico has enough competitive advantages that taking the free market route has been salvation for it. Having been a part of it for the past 20 years, I wouldn’t trade where we are today with where we were at any point in time.”
What are Mexico’s competitive advantages in the world?
Miller said first of all, the country’s strategy is very clear — to be the freest, open market economy. If a company wants to establish an operation in Mexico and follows the rules, it can export to Central America, South America and Europe. At this time export to Asia is open only on a preferential basis.
“They are definitely trying to make Mexico a platform not only for NAFTA, but for the European Free Trade Agreement. So that makes Mexico a lot better place to choose, even more than some places in the United States, because the United States doesn’t have access to many of those countries.”
Logistics is another of Mexico’s competitive advantages; there’s always a place a company can go to in Mexico to get just-in-time logistics services, Miller said.
An emerging competitive advantage is Mexico’s developing business clusters. There’s a tech cluster in Guadalajara, a consumer electronics cluster in Tijuana and a couple of automotive clusters are now coming together, too.
“It’s really exciting what’s going on there,” Miller said. “Depending on what business you’re in, it’s nice to be with other people who are doing the same thing because you can either take product from them or sell product to them.”
What are the competitive disadvantages of Mexico?
The cost of labor is a disadvantage when compared to the cost of labor in China, but an advantage when compared to the cost of labor in the United States. The fact that labor isn’t that cheap in Mexico often comes as a surprise to people, Miller said.
Though a lot of progress has been made in 20 years, Mexico’s legal system is still developing. Mexico’s legal environment is not one of its strengths and can put American companies at a disadvantage. From a legal standpoint, it’s tough and kind of scary out there in terms of companies trying to enforce their rights, he said, adding that businesses can seek U.S. jurisdiction as one means to get around that.The infrastructure in Mexico presents some drawbacks, as well. A lot of work is underway on the railroad system but little is being done to enhance the energy sector, Miller pointed out. The energy sector is an area that needs a lot of attention and investment, and if the government ever opens it up to competition, “it will be such a boon you can hardly imagine it,” he added.