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“The shoe factor” Mexican social, legal and economic realities, an urgent mind shift whilst advising foreign investors.

posted 8 years ago

In the most basic sense, opportunity cost
refers to a benefit that a person could have received, but rather gave up to
take another course of action. Stated differently, in investing it means the
return between a chosen investment and one that is passed up.

As 2016 winds down, the year will go down as
historic or paradoxical to say the least. In one end, one of the pillars of the
largest economic and social blocks in the world voted to leave what had been
arguably one of the most important peace keeping associations in the world.
Whereas, in the other end, the largest economic power of the western hemisphere
voted for a political and ideological change that has shaken the world,
especially Mexico in many ways. As our geopolitical and economic powers face the
birth of 2017 it is important to focus and understand things as they are as not
to get ahead of ourselves regarding the many uncertainties that the future may
hold.

 

One of the things that needs to be spoken about
is the global social necessity that entrepreneurs have to keep providing goods
at a competitive price whilst maintaining peace in foreign trade, in the era of
hipperconectivity it is paramount to focus on foreign trade as a vital part of
growth, peacekeeping  and mutual progress
and advancement

While worrying about Changes in the White
house, re negotiation of NAFTA and other multilateral commercial agreements
there is one thing that needs not be overlooked by entrepreneurs, business
advisors and national and foreign investors when dealing with Mexico:

 The opportunity cost of passing up
manufacturing and focusing on foreign trade from Mexico might be at an all-time
high. For change sake and to focus our attention in something rather than Trump
and the white house there is a specific principle that I will refer to as the
shoe factor which will be used to make the case in demonstrating the opportunity
cost that might be lost if circumstances are not understood and seized as 2016
winds down.

 Due to basic economic principles when comparing
overall costs to manufacture a pair of shoes in November 2014 paralleled with
November 2016, there has been a rise in cost of production of $50 pesos.
Thereafter, the same pair of shoes cost $250.00 MXP today compared to $200.00 MXP
back in November 2014. Nevertheless, when comparing the economical weight of
Mexican currency and the exchange rates of US vs. Mexican Pesos from November
2014 and November 2016, the result is actually striking and is significantly cheaper
to manufacture the same pair of shoes in 2016 than 2014.

DATE                     Manufacture cost MXP         Exchange rate MXP to USD       Manufacture in USD

November 2014             $200.00                               13.5                                          $14.81 USD

November 2016             $250.00                              20.7                                    $12.07 USD


The economic and social reality of Mexico states
that due to the shoe factor, foreign investors willing to manufacture in
Mexican currency and sell to consumers in an international currency might have
the largest profit margins available.  In
foreign trade this creates a reality when thinking about investing or passing
up economic and social realities arising from labor and production markets in
Mexico.

 For Mexican federal and local governments and
moreover for attorneys, promoters and business consultants this means two
things whilst advising and pursuing foreign trade with social responsibility:

 1.- A need for a pressing mind shift that
implies not over distressing or going on about changes in the White house, building
walls or racial differences while urgently understanding that this might be the
best time to promote Mexico.

 2.- A huge responsibility for consultants
(especially labor and employment consultants) to understand the social
responsibility that low labor costs imply for all foreign investors and local
advisors. We must comprehend the reality of our country and the opportunity to
promote investment whilst being responsible with compliance and avoiding
widespread misclassification of employees, governmental corruption and over all
exploitation of circumstances. Consultants must realize that the only way to
maintain investments safe and guaranteeing long term results and profit margins
is to invest and conduct decently with high ethical standards and social
responsibility values.

For foreign investors there is also a need for
mind shift concerning Mexico, understanding the legal viability or the
possibility to comply with and observe international compliance, bribery and
corruption acts whilst producing at low costs.

As a conclusion, it is safe to say that for
foreign investors, the opportunity cost is something to take into account when
thinking about Mexico. The shoe factor is a simple way to contrast production
costs in similar circumstances over the years but consultants shall be
responsible and investors shall be wise as to conduct appropriately. Legal
counsel is very necessary in a country that needs to be understood and navigated
wisely.

For Mexican consultants and government
officials the opportunity cost of not promoting Mexico in a responsible and
clear manner is also at an all-time high. The white house effect has already
begun to affect and the anxiety level is increasing whilst we lose focus of a
whole world and markets that need to be reached and where technological and
commercial advancements need to be taken advantage of. Mexico is fertile ground
for investing, every political, economic, scientific, legal and commercial
partaker must change the unrest for urgency to promote change and permeate
markets worldwide.

 For more information:

Bufete Diaz Miron y Asociados

Juan José Díaz Mirón

jjdiazmiron@diazmiron.com

 

 

 

 

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