Mexico TextilesApparel Nike

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Mexico - Textiles/Apparel - Nike
July 11, 2009
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Presenter

• Molly OLeary

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Agenda
Agenda

• Introduction
• Country Analysis
• - Social - Economical
• - Cultural - Political
• Textile/Apparel Analysis
• Nike Analysis
• Overall Assessment

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Introduction
Note size of Mexico
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Introduction cont

• Mexico is a developing country with a wealth of
  potential!!
• Climate- tropical to desert
• Leading Natural Resources
• - petroleum - lead
• - silver - zinc
• - copper - natural gas
• - gold - timber

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Introduction cont

• Population 100,349,766
• Population growth rate 1.53
• Life expectancy
• 71.49 years (total)
• 68.47 years (males)
• 74.66 years (females)

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Introduction cont

• Environmental Concerns
• Serious levels of soil erosion from cattle
  raising agriculture
• Irreparable water and fishery damage from
  inadequately regulated petroleum industry
• Mexico City - one of the most polluted urban
  areas in the world

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Introduction cont

• MexicoA country rich with opportunities for
  foreign investment???
• YES!! Because
• Improvements in social, economic, and political
  climates
• Opportunities will benefit the companies AND
  local Mexicans

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Social

• Class disparity by income education level
• Healthcare
• Quality based on ability to pay
• Literacy rate 89.6
• 91.8 males
• 87.4 females

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Social

• Religion Catholic
• Class structure
• Lack of mobility
• Status of women
• Poor
• Cycle of subordination and poverty
• Child labor
• Often not enforced by government

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Social

• The relatively affluent middle and upper income
  groups enjoy the amenities of urban life and
  control most of the social, political, and
  economic activity of the country

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Cultural

• Language- Spanish
• Nonverbal communication
• Personal Space
• More comfortable with close physical contact
• Perception of time
• Slower paced

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Dimensions of Culture
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Economy

• Currency crisis mid 1990s
• High interest rates
• Devaluation of the peso
• Stock market lost half its value
• Consumer interest up to 80
• Inflation rose from 6 to 50
• Unemployment 5.5 vs 10.4

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Economy

• Recovery
• Steady growth rate for all sectors
• Inflation lowered
• Interest rates modified
• Restructuring of debt
• Longer payment periods
• Lower interest

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Economy

• Status 2000
• Mexican peso strengthened
• Increases in oil income
• Inflation reduction to 9.73
• Debt rated by Moodys as investment grade
• Exchange rate 17.7519999 peso
• Floating vs Fixed

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Economy

• Income Distribution

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Economy

• Trade Agreements
• 1994 NAFTA
• Progressive elimination of tariffs
• Reduced impact of recession
• Mexican exports increased 113 in first four
  years
• 1994 NAALC
• International linking of labor standards and
  trade
• Accountability to non governmental organizations

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Economy

• Other trade relationships
• Columbia-Venezuela-Bolivia-Costa
  Rica-Chili-Nicaragua-Honduras-Guatamala-El
  Salvador-Panama-Ecuador-Peru-Belize-Trinidad-Tobag
  o-Mercosur-European Union-Israel

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Political

• President 6 year term no re-election
• Institutional Revolutionary Party 71 yrs
• National Action Party
• New president Vicente Fox
• Advocates private sector oriented policies
• More honesty in government

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Political

• Foreign policy philosophy
• Respect for international law
• Judicial equality for states
• Respect for sovereignty and independence of
  nations
• Peaceful resolution of conflicts
• Collective security thru participation in
  international organizations

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Political

• 31 States plus the Federal District
• President simple majority vote
• Senate Chamber of Deputies
• Legal System based on Spanish Law
• Strict adherence to legal codes

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Political

• The Fox Future
• Promotion of free movement of people across
  borders
• Movement toward a North American common market
• Reduction of corruption

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Industry Analysis

• 5 Sectors Associated w/ Textile Industry
• Fibers production - Natural products such as
  cotton, wool, jute and hard fibers.
  Manmade/synthetic fibers.
• Spinning - Preparation, opening, carding,
  drawing, and spinning the fibers.
• Fabric manufacturing of non-woven fabrics -
  Weaving, knitting, and tufting
• Fabric finishing - Dyeing, printing, and product
  finishing
• Clothing Manufacturing Cutting and sewing

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Industry Analysis

• Mexicos Textile/Apparel Industry
• 400-500 foreign firms in the industry
• Levi, Fruit of the Loom, Carhartt, Dupont, Walls,
  Ralph Lauren
• Majority of workers are young women
• Competition China, Hong Kong, Canada, Taiwan

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Industry Analysis

• Total Investment (from 1994 - 1997)
• Over a half billion U.S. dollars
• Non-maquiladora Export Earnings
• 499 million in 1990
• 890 million in 1992
• Import Earnings
• Almost 2 billion in 1992

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Industry Analysis

• Maquiladoras (in bond" or "twin" plants)
• Manufacturing facilities located in Mexico that
  process imported materials or commodities for
  re-export to the U.S.
• Businesses transport goods for repair or
  components for assembly to Mexico duty free.
• Once the goods are repaired or assembled, they
  are exported to the U.S. with a duty or tariff on
  the value added.

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Industry Analysis
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Products/Goods
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Investment Advantages

• Bridge to Latin America
• 2nd fastest growing region in the world
• Modern infrastructure and efficient
  communications
• Competitive work force
• Experienced labor

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Investment Advantages

• 1/2 of domestic production is purchased by
  customers abroad
• Powerful trade agreements
• Competitive quality and prices

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Investment Disadvantages

• Unsophisticated marketing techniques
• Limited up-to-date technology
• Weak integration of production processes

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Future Directions

• Globalization-
• Key to todays textile/apparel markets
• Growing consumer preference for casual clothing,
  increasing demand for cotton products, and a high
  demand for high performance fabrics used in
  activewear.

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Future Directions

• Technological Developments-
• Key to future success
• Provide new innovations
• e.g. nylon, wash-n-wear, hi strength aramid
  fibers
• Increases production efficiency
• Continuous technological advancement is the key
  to competitiveness!!

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Future Directions

• New Ground Rules-
• Large scale, mass production methods no longer
  ensure competitiveness
• Customers demand
• High quality
• Competitive prices
• Wide selections
• Quick responses to changing needs

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Nike - Statistics

• Worldwide - 704 factories in 50 countries
• Americas Region - 165 apparel and equipment
  factories
• Americas Region - 536.7 million total revenue
  (6.4 of total Nike brand revenue)
• Mexico - 35 factories - 90 manufacture apparel -
  75 workers are women

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Nike - Americas Region

• Our Americas consumers are starting to see Nike
  as an authentic alternative to their local brands
  and previous favorites. Nike was once a product
  to aspire to. Now it is a product to own. And
  when you do own a pair of the shoes, you save
  them for your game. You wear your other brands
  to the court and then lace up your Nikes.

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Nike - Method of Foreign Investment

• Contract Manufacturing
• Nike contracts with local factories

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Nike

• Maquiladoras - established by the Mexican
  government
• Duty free imports for assembly and finishing for
  re-export
• Phased out by 2002

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Nike

• Advantages of Contracting
• No direct investment
• No ownership risk
• Avoid some political/economic problems

• Disadvantages of Contracting
• Loss of control
• Need for monitoring
• Media allegations against Nike

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Nike Factory - 1

• Produce and dye fabrics
• Located in Puebla
• 60 people employed
• Owned and operated by Mexican firm

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Nike Factory - 2

• Produces clothing
• Located in Puebla
• 105 people
• 75 capacity used for Nike products
• Owned and operated by Mexican firm

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Nike Factory - 3

• Located in Atlixco
• 650 people employed
• Sewing and Knitting
• 85 capacity used for Nike products
• Complimentary Cafeteria
• Owned and Operated by South Korean firm

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Nike - Factories

• Recommendations
• Establish Safety Committee
• Ensure Aisles clear for emergencies

• Findings
• Long work days - 10 hours
• Occasional underage worker
• Normally clean, good environment

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Nike - Foreign Investment Considerations

• International currency fluctuations
• Maintain good relations in local areas

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Mexico Advantages for Foreign Investment

• Geography
• People arent Mobile
• Young Population
• Trading Agreements
• Political Environment Encourages
• European Venture Capital Available

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Conclusion

• Overall, Mexico will be a strong force in the
  world economy!

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Thank You!

• We now invite any questions or comments