Can Mexico Become a Global Economic Power - Essay Example

?Mexican economy Introduction Located in North America, Mexico also referred to as the united s of Mexico is a sovereign with a vibrant economy that has resisted some of the worst economic crises affecting some of its neighbors such as the United States. The country has 14th largest nominal GDP in the world and the 10th largest by buying power equivalence. With such factors, the country exhibits features of economic growth. With appropriate management of its various economic features, Mexico has the potential of becoming a future economic power (Wells, Shuey & Kiely, 2001). In order for the country to achieve such, it requires an appropriate management of its various economic sectors with the view of limiting the various economic threats that have threatened country’s economy in the past. The expansion of the various economic sectors will likely improve the country’s economic potential by increasing the employment rate of the economy thus facilitating an expansion of the economy (Boyes & Michael, 2012). The discussion below portrays some of the major economic features and an elaborate discussion of the current economic state of the country thus developing the growth potential the economy enjoys. Current economic characteristics of the country The Mexican economy has various vibrant sectors all of which sustain the country’s economy. All of the sectors present a potential for expansion thus promising the growth of the economy into a global economic power. Among the most vibrant sectors in the economy are tourism, communication and transportation (Fox, 2002). Transportation sustains the economic growth in any country. With this knowledge, the successive Mexican governments have often invested in the development and expansion of the country’s transport system. The country has long road network that links nearly every part of the country. With an effective road network that joins every part of the country, the economy enjoys faster transportation of both goods and passengers throughout the different cities within the country. Besides the elaborate roads network, the country has a complementary rail network which also facilitates the faster transportation of goods. The development of the electric rail system has further improved the efficiency in the transportation sector, as goods currently take shorter to reach their destinations (Kates, 2007). The country also has various airports and airstrips all of which facilitate the faster transportation of products within the country. The capital city known as Mexico City has two international airports, which act as the entry points into the country. Through the two facilities, the country maintains an active economic interaction with other countries globally as the two facilitate the transportation of goods in and out of the country (Aaker & Aaker, 2010). The effective and efficient transportation network has attracted hundreds of investors who enjoy the seamless transportation of both goods and humans to every part of the country. Another great factor that has attracted more multinationals into the country is the cheaper labor and electricity costs. The low cost of the two makes the country favorable for setting up companies. Various companies have therefore set up their manufacturing plants in the country (Tabbush, 2011). The fact that the country competes with the likes of China in labor and electricity costs makes it a favorable destination to most of the American multinational companies seeking cheap labor. This way, the country has continuously enjoy infrastructural development and an increasing employment opportunities as the companies provide ready employment. Tourism is the country’s main foreign exchange earner. With such a vibrant tourism industry, the country enjoys sustained influx of foreign currency and an equally large employment opportunity. The world tourism organization rated Mexico as the second most visited country in the world in 2001 coming second to the United States (Cavanagh, 2002). The country has various tourist attraction features including the sandy beaches, cultural activities and the Meso-American ruins among many others. Additionally, the country boarders the United States, the world’s largest economy, coupled with the fact that it has a weaker currency and with myriad tourist attraction sites thus makes it the most preferred tourist destinations to most middle class American families. The country has a wide coastline that serves as favorite beaches to American sunbathers. The country thus has the potential of developing its hospitality industry in anticipation of the expansion of the tourism industry. The expansion of the hospitality industry will revamp the economy owing to its large dollar potential. Additionally, it will increase the employment rate in the country. By increasing employment opportunity, an economy sustains its growth since it increases the purchasing power of more people thus increasing the liquidity of economy (Thomas & Michael, 2001). Energy is a fundamental influencer of economic growth. Companies rely on energy to manufacture products. They therefore use the cost of energy in a country to determine the process of commodities and services. The Federal Commission of Electricity and the Pemex, two state companies manage the production and distribution of electricity in the country. Pemex manages the exploration, extraction and refinery of crude oil and natural gases among other potential natural energy resources in the country. The country has large oil wells, which have equally contributed to the fast economic growth in the country. The country’s large potential to produce and export petroleum products has consequently propelled the growth and expansion of the Pemex limited. With an estimated annual revenue of more than US$ 86, Pemex is arguably one of the biggest oil companies in the world. The company exports its oil to parts of the United States among other regions throughout the world. Coupled with the large hydrothermal plant, the cost of energy in the country is lower than in most of the developed economies. This explains the scramble by American companies as Apple to set up manufacturing plants in the country. The communication industry is also fast developing in the country with the leading company Telmex diversifying its services and expanding to different countries such as Peru, Brazil and Argentina among many others in the region. The country enjoys liberal media a feature that has sustained the growth of the industry (Lane, 2005). The sale communication devices continue to earn the country millions of dollars in taxes as Mexicans continue to purchase the essential devises. About 82% of Mexican above the age of fourteen years own cell phones. This makes the communication industry one of the largest. However, the market has minimal competition following the domination of the market by Temex. Other competing companies include Axtel, which sought to offer landline services in the remote mountainous regions in the country. The industry therefore has potential for expansion. It will diversify the country’s economy with the introduction of other players in order to boost competition (Walter, 1995). The country also has a vibrant science and technology institutions, the appreciation of technology will equally revolutionize the economy, through scientific studies and the economy will appreciate better and cost effective ways of production thus expanding the economy. In short, the country has experienced a fast economic growth following the political stability in the region. The country enjoys cordial relationship with her neighbors a fact that has attracted more tourists and investors into the country thus portraying the country’s potential of becoming a global economic power (Campbell & MacKinlay, 1997). Advantages of the country in terms of location for international firms Globalization is an important concept in sustaining economic development in the country. It refers to the importation an exportation of goods following intense economic activities among countries (Alexander, 2010). So far, the country has had various foreign companies setting up their manufacturing plants locally. As discussed above, such trends are advantageous and seek to develop the economy. When such companies develop their plants in the country, the government earns more revenue through taxation. Additionally, the plants improve the purchasing power of the economy. The companies employ the locals thus improving the employment rate in the country. Most of the companies coming from the United States and Europe prefer the country owing to the weak currency which therefore makes the labour costs in the country lower (Greenwood & Richard, 2010). However, the weak currency is an economic strategy since the wages offer millions of Mexicans descent lifestyles thus sustaining the economic growth as the country becomes a fast economy. Among the advantages the country presents to the various multinational companies setting up their manufacturing locally include its strategic location. The country enjoys a wide access of the international water bodies. This provides an efficient shipment of products in and out of the country. Products from the country travel as far as Asia through oceans and seas that surround the country. Additionally, the country has effective transport network consisting of the various international water bodies, the elaborate roads network, an equally efficient rail network and a couple of international airports. The various transportation features in the country makes the transportation of both raw materials and finished products cheaper and equally efficient (Fournier, 1998). With the cheap transportation costs, the economy proves more conducive for such companies most of which seek to capitalize on the cheaper cost of doing business in the developing economies. This way, the country improves its economy and before long it will join the leagues of the likes of China and the United states by becoming an economic power house in North America (Nanto & Library of Congress, 2009). The foreign companies enjoy yet another fundamental production feature, cheaper energy costs. As discussed earlier, Mexico has a large oil wells that have proven capable of sustaining the country’s expanding economy. Coupled with the equally efficient hydroelectric power produced and distributed by the state owned company, the country has one of the lowest energy costs in the world. Energy is a fundamental factor of production that most companies always consider before setting up their firms in a country. With the minimal energy costs, operating a business in Mexico has proven cheaper than in most parts of the world. The only cost that most manufacturers have to deal with is the labour costs. The Mexican government passed a minimum wage bill that seeks to protect the population from exploitation. However, given the low value of the Mexican currency against the international currencies, the cost has also proven cheaper for most of the foreign investors. Mexico has a population of more than one hundred million people. The huge number of people is a favourable economic factor to most foreign investors (Niskanen, 2007). The large population is a market to the products and services dispensed in the country by various players. 82% of the population is nearly a hundred million people. This for example explains the size of the communication industry in Mexico. Any service provider would which to have a part of the large market. Operating in a populated market is favourable since the companies have a higher probability of earning profits. Developing a monopoly in such a market would mean a natural sustainability of operations coupled with equal amount of profits. This explains the current rush for companies from various parts of the world to set up and begin operations in the country. Additionally, the large population also implies a great labour resource. Mexico is one of the most populated country in the world with a population density of about fifty seven people per square kilometre. The high population affects the labour market as the high number of people seek employment. The hundreds of foreign companies currently setting up their operations in the country seek to capitalize on the country’s large work force. The unemployment rate in the country is 12%. The figure represents an employable population who have no jobs in the country. The figure represents an easily available labour force for the foreign companies scrambling for the market. In retrospect, Mexico is strategically located for the development and operation of foreign companies (Chatterjee & Hevner, 2010). The strategic location coupled with large population and cheap energy rates make the country the number one investment destination for most foreign American companies. The effects of the increased investment by foreign companies in the country is an increased purchasing power as more people in the economy obtain financial freedom and ability to purchase products from the economy. As explained earlier, an economy is a self-sustaining cycle with the actions in one section reverberating effects of similar magnitude to yet another sector (Bogomolova, 2011). An increase in the employment rate in the country will result in an increased economic activity as discussed above. This implies that numerous economic factor that contribute to the favourability of the country by foreign investors increase its probability of becoming a global economic power. Economic problems the country may encounter While the country enjoys a strategic placement and cheaper production costs that makes it an ideal destination to most foreign investors and tourists, it also stands to face several economic problems most of which will impair the prospects of becoming a global economic power. Most of the problems will arise from the modern economic policies the government formulates in order to attract investors. Among such policies is the periodic devaluation of the currency. The devaluation of an already poor currency has proven problematic in different countries all over the world. Through currency devaluation, the government reduces the value of the currency a feature that attracts more tourists and foreign investors has had been the case in the country. However, such prospects affects the pace of economic growth as the foreign investors and tourists come into the country and set their operations at lower rates. This limits government revenue as the tax rates remains minimal in comparison to the greatest economies in the world. This limits the financial activities in the global market. The companies manufacture their products in the country at cheaper production costs owing to the cheap energy and labour costs. After producing their products at such cheap prices, the companies enjoy the competitive international rates thus making absurd profits. The sale of the same products in the local Mexican market is at the prevailing international market rates a feature that amounts to exploitation by the companies. This way, the companies and the tourists enjoy great profitability most of which they invest in their countries. This places Mexico in a precarious position since the government earns minimal revenue while the companies take back the huge profits back to their countries where they carry out more profitable investment plans. This trend is likely to stagnate the rate of economic development in the country since it limits the profitability objective of the economy. The trend domesticate the Mexican poverty thus stifling the development prospects of the country. The country seeks to become developed economy in the few years. However, the country must revise its economic policies in order to increase its chances of becoming such an economy in the near future. Among the country’s economic problems is poverty. About 21% of the country’s population live below a dollar a day. Poverty thus denies the population access to basic resources such as education. This implies that the poor families have domesticated poverty. In a bid to reverse their poor state, they peddle their unskilled labour cheaply to the foreign companies. The foreign investors thus benefit from the cheaper operational costs while they perpetuate the Mexican poverty leaving the locals as poor as they had found them. 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