Mexico And Mexico City In The World Economy

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Mexico and Mexico City in the Wor d Economy

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Mexico and Mexico City in the he World Wor d Economy Econo

Edgar W. Butler But James arnes B. Pick W. James ames Hettrick

@.E A Member of o f the Perseus Books Group

All rights reserved. Prhted in the U ~ t e d States of America. No part sf this publication may be reproduced or tramdtted in any form or by any means, electronic or mwhanjcaf, includhg photocopy, recording, or any *ormation starage and retrieval system, without p e r ~ s s i o nin w r i ~ n gfrom the publisher. Copyright Q 2001 by Weskriew Press, A Member of the Perseus Books Group Published in 2001 in tZle U ~ t e dStates sf America by MresRriew Press, 5500 Cenkal Avenue, Boufder, Colorado 80301-2877, and in the U ~ t - e dEngdom by Westview Press, Hill, W o r d OX2 9JJ 12 Hid's C q s e Road, C Find us on the World Wide Web at

w,westviewpress.com

A CIP cata-alogrecord for this book is available from the Library of Ccmgress. ISBN 0-8133-35.42-6

The paper used h this pubiication meek the reqr~irementsof the American National Stmdard for Permanence of Paper far PriPtted Library Materials Z39.48-19%.

To my W@, Leslie Hethick W.J.H. To my wif, Rosalyn Laudati J.P. To my W*, Patricia M. Butler E. B.

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List o f Figures List o f Maps

X

xii

xiv

List of Tables Preface Acknowledgements 1.

xvii xviii

mTRODUCTlOPJ In&oduc~on2' Goprate md Leg& Ifista~calBackgomd 3 Legal Backpomd 4 and World System m w r e ~ c dPerspecGves 5 Mode&m~onTheov 5 World Sysbmmependen~ymeav 6 F m 7 Worlddde Edleorb 7 1 ' J a ~ o 11'JeWarb d 7 Me&adoito&~izt1ssues 8 R e d a d e r of This Book 10

2.

WTNODOLOGU Dab Acq~sitioqCoverage, a d Q d i v Inkoducdon 14 Data Sources 14 Me&odoXogy 15

Base Maps 1 7 Con~lusiansI9 C a e Studies 19

3.

mxco

m

CONTEXT

In&odu&ion 30 Natioul-StateDevelopmnbl Levels: Cluster hdysis 30 Upper Level Development 30 MddIe Level Devefopmmt 31 Lower Levd Development 31 Mexico Sbtes DevelopmenM Clwter Cities 34 Major h/fe~cw Meieo's Lmge Cities 34 Mercico City 61wter h l y s i s 34 Oaer Melsican Ciges 34

Mexico" World System Relationships 38 Transnational Corporate Penetration 40 Fareign Direct Investment (FDX) 40 Exports and Xmpods 41 In-Bond I n d u s q (Maquifadoras) 41 Oil 42 Tourism 43 Other Flows and Exchanges 44 Conclusions 44

4.

mDI1STRU Introduction 48 History of Manufacturing in Mexico: Import Substitution to World Competition and Export 49 Productiviv and Competitiveness of Manufactwing Sectors 52 Sctwces of Investment in IndusQ 53 Regional Location of Manufactwing in. Mexico SS Automobiles and Auto P m S9 dcations and Personal Goanpukr Indwtv 63 Woruorce and Skill Levels 64 Conclusions 65 Gme Study: Gemex 66 Case Shdy: Vitro 69

5.

FNAMGE AND COMMERCE Introduction 72 and Development 74 B d n g Sector 88 Geography of Banking 91 CifrdWalmart: a Global Cowter Example 91 Case Study: El Puedo de 1,iverpool 94 Case Strrdy: Bancomext 95 Case Study: Bancorner 98

6,

SERVICES Introduction 102 Educational Services 164 Health Services l 1l Social Services and Pavem 113 Financial and Itmuranee Services 117 Business, Aceamtint;, Legal, and Infamation Services 119 Persoml Services 123 Conclusions 123 Case Study: Seguros Comerciaf h e r i c a l24 Case Study: IBMlMexieo f 28

Contents

7.

TRANSPORT AND COMMUNICATION Xntraduction 130 Major Contemporary 'fransportation and CO Entelprises 130 Roads and Vehicles 132 Transportation in Mexico City 135 Railroads 13.5 Air and Maritime 135 Electronic Media 144 R d i o and Television 144 Telephoxzes 144 Emerging Elec&snic Media 150 Conclusions 1.50 Case Study: AlestraiATkT: 153 Mini Case Study: Exporladora de Sal (ESSA) 154

S.

PETROLEUM M D THE ENERGY SECTOR Introduction: History of Energy Sector and Pelssleum in Mexico I S 6 Mexicob Energy Situation in the 1990s 157 Mexico" Oil, Pemex, and Cantarell 161 Global Impact of Mexico" Petroleurn Sector 165 EeanoxnJc Impact of Pemnex on the Mexican Federal Venezuela: A Global and Contrasting Competitor 170 Natural Gas 170 Ref"ming and Petrocbe~cals173 EIeckicaX Power 174 Privatization ofthe Mexican Petrolem Indmty 177 Enviromenhl Problem Aggravated by Energy Uses 17 78 ConeXusians 179

9.

MAQUILmQMS Introduction 182 History 183 Current Size m d Economic Impact 184 Regional Distribution 188 Social and Health Disadvantages 19.5 Relationship G r h the U.S, 196 Trends: The Futwe 199 ConcXusions: Camparison. of Maquikldara M a n u f a c ~ i n g -14th Non-Mraquilabora Manufacturing 200 Case Study: Trico 201 Short Case Study: Thompson 204

10.

TOURXSM Introduction 208

Contents Toudsm in the World 208 Todsm GroWh a d Deveitopment hMexico 211 Towkm Exehmge Bewem Mexico ancX Elsewhere 215 The Spatial Paaems of T o ~ s m hMexico 218 Local hpwts of T o ~ s m221 Conclusions 224 Cwe j;B&dy: H~felesResMenite Inter Conthentag 225

AHculMe Expgs & hp~s 240 Ejidos, EjihWios, md k i c l e 27 of the Mexicm Constiwion. 241 A&eulmal hdusm 248 A&wIme h M e ~ 6 0and the E n ~ o m e 233 ~t Fume h o s p e ~ &253 Coaclwions 253

SECTOR Introduction 260 The Momal Sector and Global&ion 260 m a t Is the Infomat Sector? 261 Activities &at M&@ Up the hfomal Seaor 262 The Mamiitude of tbe Infomal Sector irr M e ~ e o253 The fnfamaf Sector inthe Mexicm Labor Force SWS Sadies 264 Xwlfohal Micr*Bushesses : m G X Sweys 267 Xlilus&ationsof the Xnfomall Sectar h Mexico 271 Timguis 275 Vendedares h b u l m t e s 275 Marias or $&@et-tendo= 275 SmcmaE O r w h t i o n 275 omm SIreet Vendors in. the Mexieo City Histofic Dis~ct:276 Gon~1usion.s2 79 Mini Case SWdy: The hfomaj L a b r Force in Ciudad Jumez: and El Paso 288

113,

m)CICAN 500 h&oduction 284 Mexiem Corporations 284 Nwber of Co~orations287 Location of the Mexicm 500 288 Concm&ationby Sbte 288 Coneentrilrion hMexico Sbtes md Major Cities 292 ~ v a t b t i o n293 Medco" Top Coqorations 295 Foreip Omership o f the S00 Caqsmfions 296

Contents Mexican Corlporatisns in Latin h e r i c a 299 Cont;tusions 300 14.

GROWTH A.ND DEVELOPMENT OUTGQMESANa POLICY InQoduction 306 Population G r o ~ and h Dislributian 307 Migration to the Uniited Sates 313 Labor Force 315 Technology 317 E c o n o ~ GroMh c 319 NAFTA 321 DecentraXimtiodConeentration 32.2 Privatization 322 Petroleum 323 Tourism 324 Maquilsrdoras 325 Enviroment 326 Drugs 328 Inequali~History Repeated Itselk the Diaz Era 329 Conclusions 330

IS

THE FUTURE Introduction 332 Envirament 332 Population 332 Technology 333 Organimtion 333 Cultwe 335 Conclusions 335

16,

MEXICO AMP> MEXICO CITY TPIJ" THE LMGER GLOBAL GCZNTEXT 1t;roduction 338 Nation-State BeveXopmenkl Levels: Cluster h a l y s i s 340 Mexico States Developmental Cluster Aralysis 341 Major Mexican Cities Deve1opment;itl Cluster d l y s i s 342 Mexico's World System Relationships 342 Transnational C o ~ o r a t Penetration e 343 Foreign Direct Investment 344 Exports and Imports 344 In-Band Industry (Maquiladoras) 344 Privatization and Oil 345 Tourism 345 Other Flows and Exchanges 345 Concluding Remarks 346

References Index

Figures Concept-uai P f i a ~ m of Mexicm GIS 20 System Diagam of Mexican 6122 21 Import of Goods, Export of Goods, and Balance oETrade, Mexico, 1479-1998 41 Index of Manufacmrhg Production, 1958-1997 $1 PIB, Manufacmhg Indusw Production, md Auto fndusw Production, 19881994 (inm;lltions of 1993 pesos) $1 Percent h u a f CroWb itz Manufac g PIB, Emploment, and hductivity, 1988-1993 53 Change h Domestic Versus F o r e i ~ Produdion of Autos md Tmcks in Mexico, 1990-1994 61 erce Per Capita, 1940-1988 75 Value of Peso h Dallms and Consmer Price Xndex for Last QuaHer of 20th C e n w 77 Compon~rsa f PXB, Mexico, 1980 and 1996 78 B d i n g Imbalances: Federal Dis&ict%SSme Versus the Rest of Mexico 92 Bancorner Traxlsnational Relationshi_p 99 Chmge inthe Educational Lemls of the Population, 1970-19% 5106 Smcare of the National Education System 109 Total Investr&renithTransport by Subsectar h Mexico 133 GEobalh~onof Telmex ,252 National PE3 and PXB of Hykoearbon Subsector 1.57 Distribution oflEnerw Tpes h Mexico and .the TJ,S., 1997 158 Cwde Oil and btamal Gas P r o d ~ c ~ o 1988 n , 160 rciaf Balance of Hyhocmbon Sales with Con~butionoEPemex Id8 Petroleum Indusw Percent Conbibutioionsto Mexico Federal Gav Revenues 169 Production of P e ~ o f e wand Nahra1 Gm and Its Liquids, by Stak, l995 171 G r o in~the Maquiladora Sector, 1 965- 1996 184 Percent o f Maquiladora Sector Impom and Expom Eleween the U.S. and Mexico, 1996 186 Nmber of Maquiladora Plants by City in the Border States af Mexico, 1991 1BO Use of Domestic Raw Materials, Maquiladora IndusQ, 1975-1991 1'98 Trice 202 Manual Workers in Maquiladora Indusljry, Mexico, 1989-1996 203 Crowh in International Tourist h i v a l s Worldwide, 1960-2997 Millions of International Arrivals 209

xi

Figures

Net Travel Account Balances by Level of Development, 1988-1996, in Millions of U.S. Dollars 211 211 212 Propositions of Number of Tourists and Tourist Revenues, 1996 212 231 Urban and Rural Population Mexico: 1900-1990 231 Average Daily Salary m Agricultural Sector vs. Overall Economy, Mexico, 233 1996-1997 233 Agricultural Net Balance of Trade Mexico, 1987-1997 233 233 234 Agricultural PIB as a Percent of Total PIB, Mexico, 1970-1997 234 241 Production of Meat and Fish,Mexico, 1990-1997 241 243 Land Tenancy in Mexico, 1991 243 261 Infonnal Labor Force in Selected Latin American Countries 261 264 Labor Force: Formal Commercial and Vendedores Ambulantes 264 265 Informal Employment. 1990-1996 265 by Registration Status 270 270 Micro-Business Size by 272 Occupation by FormaWormal Status and S& of Workplace 272 272 Small Business by Sex of Owner 272 Sectorsby Income 273 273 Population in Formal and Informal Labor Sectors 274 Informal Labor Force by Cities and Percent of Total 274 The Street Children Population in Mexico City, 1995: Mmors per 277 Political District 277 The Street Children Population in Mexico City, 1995: Minors per 277 Classification 277 The Street Children Population in Mexico City, 1995: Minors by 278 Sex and Age 278 by The Street Children Population m Mexico City, 1995: M m m by 278 Major Activity 278 295 Ownership of Enterprises:Mexico's 500,1986 295 295 Ownership of Enterprises: Mexico's 500,1997 295 300 Origin of Capital: Mexico's 500 Major Enterprises, 1986 300 300 Origin of Capital: Mexico's 500 Major Enterprises, 1997 300 to 2030 309 309 Population of Mexico, 1900 to 3111 Population Age Structwe, Mexico, 1970 31 311 Population Age Structure, Mexico, 1995 311 Population Age Structure, Mexico, 2020 312 312 312 Urban and Rural Population Mexico: 1900-1995 312 315 Growth in Labor Force, Mexico, 1950-2000 315 3177 Change in Sectors, 1950-1995 31

World Nation - State, 1995 22 State of Mexico 23 Mexico Megacily Base Map 24 Federal Distrl-iet 25" Feaares of Mexico Megacity 26 Monkerrey 27 Guadstlajara 28 SBte Development Level Cluster Analysis of the World's Nations, 1995 32 Mexico State Uevefopment Cluster Analysis 36 Large Cities of Mexico 37 Mexico City Cluster Analysis, 1990 48 Total Remuneration in Manufacturhg (Central), 1994 57 Total Remuneration in Manufacbring, 1994 57 Average Number of Employees h r Enterprises in Steel and Related Products, including Machinev and Equipment, t 994 58 Average Number of Emptoyees for Enterprises in Steel and Related Produce, including Machinery and Equipment (Central), 1994 $8 Cemexb Worldwide Location, 1998 67 C o m e r c e Work Force, 1990 7.5 erciaI Enteprises, Mexico, 1994 83 Number of Commercial Entevrises, Central Region, 1994 84 erce Sector Revenues, Mexico City* 1993 85" Proportion WtEolesaIe of Commerce Revenues, Mexico Average Number of Workers Per Small Entevrise in C Mexico, 1994 86 Average Number of Workers Per Small Entevrise in Commerce, Central Region, 2 994 87 Regional Differences in Banking 92 Liverpool and Fabrieas de Frmeia Stores in Mexico, X999 96 Service and Support Occupations, 1 990 103 Service Sector Revenues, Mexico City, 1993 104 Percentage Distribution of' Municipio-Based Social Development Funds, by State, 1997 115 Personal Services Work Force, 1990 122 Major Roads 1312 Registered Personalty O w e d Aulsmobiles, 1 990 139 Mexico City" Metro Nemork, 1997 140 Railroad, 1880 141 Railroad, 1884 141 Railroad, 1898 142 Railroad, 1990 142 Nationail and International Airports and Seizports 143 Radio Stations Per 10,000 Population 1988 145

Maps Television Stations Per 10,000 Population 1988 14.5 Telephones Per Capita, 1989 148 Mexican Maquiladora Employment, 1998 189 Mexico's Fifteen Largest Maquladora Plants, 1996 192 Major Tourist Centers, By Type and Tourist Arrivals, 1996 220 Hoteles Presidente Inter-Continental Hotels and Resorts, 1999 226 Agricultural PIB as a Proportion of State PIB, 1993 237 Proportionate Difference, 1970 - 1993, in Agricultural PIB as a Proportion of State PIB 237 Productive Land Area and Land Tenancy by State, Mexico, 1991 243 Ejido Lands of Mexico City 247 Unadjusted Corporation Value, 1986 287 Number of Corporations Per 1000 Population, 1988 288 Mexico's 500 Major Corporations, 1986 290 Mexico's 500 Major Corporations, 1993 290 Mexico's 500 Major Corporations, 1997 291

Delegations and Muaicigios in Mexico Ci@ I 8 World Systems Nation-State Cluster AnaIysis, I995 31 States of Mexico Cluster Analysis, 1990 33 Large Cities of Mexico, l990 35 Cluster Analysis Grwpings 39 Mexican Maquiladora Enrrplopent, 1998 42 Oil Exports 43 Tourists Entering md Leaving Mexico by Pface of flrigh and Destination 43 Foreip Direct Invesment Flows, to and &orn Mexico, 1995-1993, in Millions of l985 Dollars S4 World Wide Source of Foreign Direct Invesment in Mexico, 1993 54 Mexicm Saks of Passenger C m , by Domestic versus Export Markets, 1978-E 992 60 Automobile Wage Rates for 5 Nations in the Top Twelve Auto Producing Nations, 1992 60 Domeaic versus Foreliw Production of Autos and Tmcks in Mexico 61 Destination of Export &orn Mexico of Automabites, 1990 and 1994 62 Ma~orManufacwring States for Auto Indusw, 1993 62 ereial Sector, f 940- 1988 76 Peso Exchange Rate (ve-rsusthe Dafla.r), 1975-1997, md Consumer Price Index, 1980-1996 79 Components of Producto to (PIE), 1 980-t 996 79 Mexico" FFiNeen Largest Compsulies, 2997 81 es, 1955 and 1988 82 Gross Domestic Product (PI&) and Mexican Gove ent Estimated Cost ofthe Banking Bailout Psrckage 89 Ratio of Nonpedoming Loms to Total Lams, Mexican Banks, 1995-1997 88 Mexico" Top 15 Banks, 1998 90 kgional Differences in Baking 593 Comparison a f Federal District with Rest of Nation on Sewice Indicators, 1993 10.5 Educzttional Indicators for Mexico, Bxaii, and U,$., 1997 166 School Attaiment in Mexico, 1360-l996 I 08 Graduate Education of Top Adminiswation Leaders in Mexico, 1950- 1994, by Location of Graduate Education I 1O Health Care 1ndicatsl-sin Mexico, the t7.S. and Cansllda I I I Health Care Indicators in Mexico, 1960-1996 112 Comparison of Health Care Systems of Mexico, the U.S. and Canada I12 Mexican Government Povem Pragams in the Period t 995-2000 114 Indicators f;or Financial Sector Companies, 1993 116 Bank Sectors by Major Development Regions, X 993 118 Non-Bank Financial Sectors by Major Development Regions 120

Tables Large Accounting and Consulting Firms in Mexico, 1998 121 Mexico's Fifteen Largest Service Companies, 1997 125 Leading Transport, Storage, and Communications Finns, 1997 131 Motor Vehicle Ownership, 1990 134 Registered Personally Owned Automobiles, 1988 and 1990 136 Mexico City's Hierarchy of Smaller Commercial Transport Services, 1994 137 Daily Motorized Trips in Greater Mexico City, 1994 137 Radio and Television Stations, 1988 146 Telephones, 1988-1989 149 Long-Distance Companies and their Main Partners 151 Final Energy Consumption by Source, 1985-1992 159 Destination of Crude Oil Production from Mexico, 1997-1998 161 World's 20 Largest Petroleum Companies, 1997 162 Gross Revenue and Federal Tax Contribution of Prmex 163 Participation in Construction of Nitrogen Plant for Pemex Cantarell Field 164 World's Largest Petroleum Producing Nations, 1996 165 World's Largest Petroleum Consuming Nations, 1996 166 World Petroleum Reserves, 1997 167 Budgeted Revenues of Federal Govemment of Mexico and Federal Tax Contribution of Pemex, 1980-1996 168 World Natural Gas Reserves, 1997 171 Mexican Metropolitan Natural Gas Network Concession, 1996-1998 173 Installed Electrical Energy Capacity, Mexico, 1985-1989 176 Value Added to Maquiladora Sector, 1997 185 The Maquiladora Sector and its Importance in the National Economy, 1980-1995 187 Mexican Maquiladora Employment, 1998 189 Origin Capital for Maquiladora Plants by City 191 Mexico's Fifteen Largest Maquiladora Plants, 1996 193 Raw Material and Value Added Components in Maquiladora Production, 1980-1996 197 Use of Domestic Raw Materials in the Maquiladora Industry by Sub-Sector, 1975-1991 198 Principal World Tourist Destinations, 1996 210 International Tourist Revenues, 1995-96 210 Composition and Revenues of International Tourism in Mexico, 1996 211 FONATUR-Related Investment, Room Built, and Jobs Created, 1974-1998 213 Tourist Arrivals and Departures, Mexico and United States, 1997 216 Changes in Tourism Indicators, United States and Mexico, 1990-97 21 7 Tourist Volumes in Major Tourist Locations, 1996 219 Urban and Rural Population, Mexico, 1900-1990 231 Agricultural Balance of Trade for Mexico, 1987-1997 232 Agricultural PIB as a Proportion of State PIB, 1970-1993 236 Location of Irrigated Agriculture in Mexico, 1997 238

Tables Production of Major Cultivated Crops in Mexico, 1970-1997 239 Productive Land Area and Land Tenancy by State, Mexico, 1991 245 Mexico's Fifteen Largest Food Companies, 1997 250 The Size of the Informal Sector and Other Categories of Economically Active and Inactive Population, 1993 266 Educational Distributions for the Formal and Informal Sectors, 1993 266 Comparison of Occupations of the Informal and Formal Labor Force, 1993 268 Registration Status of Micro-Businesses, 1994-1996 269 Registration of Micro-Businesses by Sector, 1994-1996 269 Distribution of Locations for the Informal Labor Force 271 Types of Loans Received to Start a Micro-Business, by Registration Status, 1996 271 Unadjusted Corporation Value, 1986 and 1997 285 Number of Corporations, per 1,000 Populations, 1988 and 1996 289 Location of Mexico's 500 Major Corporations, 1986 and 1997 292 Mexican State Owned '500' Enterprises in 1986,1993, and 1997 294 The Principal Activities of the 500 Major Mexican Enterprises in 1986 and 1997 296 Expansion 500 Top Ten Mexican Companies, 1997 297 Foreign Owned '500' Enterprises in 1986 and 1993 298 Mexico's Top Ten Corporations, 1993 and 1997 301 Overlaps in Lists of Largest U.S. and Mexico Firms, 1997 302 Population and Growth rates of Mexico, 1900-2030 308 Mexican Fertility Change, 1966 to 1998 308 Mexican Mortality Change, 1950 and 1998 309 Migration Flow from Mexico to U.S.,1960-1995 313 Growth in the Mexican Labor Force and its Sectors, 1950-1995 316 Comparison of R&D Expenditures and Per Capita Publications, Selected Nations, 1993 318 Geographical location of SNI Investigators, 1995 319

Preface The idea for this book came %own our observsltions that our prior studies of the internal structure of Mexican cities, states, and population may have been missing several maijer importmt trends of the Iate tvventieth century. We observed that Mexico was undergoing a huge tiranshmation, economically, in trade, and in business and sociew. 'This book provides a rnore holistic and larger pel-tipective than our previous books on Mexico. We utilize diverse data sources and examine trends and events not only for Mexico but also for Mexico related to many other parts of the world. There are several overall observations we have at the end of this writing project, First of all, we perceive that globalization or the world economy process is hi&Iy complex, more so than we thou&t at the beginning. The many dimensions and large number of interrelationships we observe mean that simple generalizations about ""globaIizationm are difficult. Rat.her, a developing nation such as Mexico has multifaceted processes occurring as it undergaes the world system transfomation. Hence, multiple perspectives have been necessary, For instance, globalimtion impacts multinational giant fims in Mexico as well as small villages, but in quite different ways. We try to encompass and explain this complexihy. Another point about "@obaXizationwin this book is that the perspective of economic globaliz~tionfalls short ofthe true extent of bansformation. Qn a strictly economy basis the U.S. looms as a northem ""giant" that overshadows its southern neighbsr in the world economy. However, we have aaempted to balance that view by explaining other processes where there is rnore pariq, such as in natural resources, peopte, migation, and culhrre. We have been conscientious and earefial in utilizing the available data. However, the infornation for this book was gathered by others and whatever deficiencies the original data have, were e a ~ i e dover into our analyses. However, we as authors are responsible for any deficiencies or enors in the subsequent analyses md corrcfusions.

Acknowledgments No book such as this is produced without the effofis and contributions of many peopte. The one person xnost responsible for the production of this book is Katsumi Funakoshi and we achowledge his great contribution. He has conducted geographic infom&ion systems analysis (SIS), developed tables and graphs, and alwqs been a major contributor in moving this project faward, We have been fomnate over the years to have tmly oubtanding gaduate students paaicipating in our projects. Kafsumi Funakoshi has lived up to that &adition by his teehicat skills, tenaciv, howledge, and superb contribution. We ackmowledge the many peopte vvho have contributed to this book aver the past several years in the U.S. and Mexico. At the UniversiQ of California, Riverside, we thank the Department of Sociology's staff - Cathy Carnrlson, Robin Whittingtm, Anna Wire, Terry DeAnda, and Renee Deguire, Also, the staE of Rivera Librav, in particular the Interlibrary L,oan Depament was very helpful. At the Universi~of Redlands, we acknowledge the oEce staff of the Dep Management and Business for excellence. We thank Susie Ahearn, Ann Bright, Sheryl Robinson, and earlier Karen Philabaum for their outstanding efforts and support. We also thank undergaduate student workers who provided assistance, We thank the Amacost Librav staff and especially Ljnda SaXem fofltheir help. Funding was provided by several sources. We thank the University of Redlands for several developmental research grants to Jarnes Pick Erorn mitehead College and 57F0m the Facultap Review Commietee, We appreciate the research grant provided to James Pick by Universidad Iberoamericana during his sabbatical leave. We thank the city of Loma L i n h for technological support and inferest. In Mexico, we owe our largest debt of thanks to Dr. CarIos Jarque Ilribe, who was President of ilNEG1 for most of our project but is now Mexico" Secretary of Social Development. Since we first met him in the 1980"~~ he has been a strong and constant suppofier of our work, At MEGI, we give special appreciation to Pilar Garcia Velazquez. We also thank present and fomer fWECl leaders including J. Artrura Bfancas Espejo, Francisco J. Cutierrez, Enriqtre Ordaz, Mario Palms Rojo, Antonio Puig, and others, We also thank others at Banco de Mexico, BancoMext, SECOFE, anid other federal government infornation offices for their help and assistance. In Mexico, we thank Cerardo Mendiola at Grupo Editorial Expansion for assistance and ideas, We thank the managers and leaders at approxirnsltely GBeen Mexican companies and organizations, who responded to our interview case studies, We aiso thank Edgar Ofiiz for reviewing parts of the book and to Carlos 3, Navarene for discussions of several aspects of the book.

Introduction Ilnbradme~or\x Corporate and Legsl Histodeal Background

a

d World Systems Theoretical Perspectives

I,

0

WarMhde: NeWarb PJa~arrslNe*@rh Logall Ne:"i"W~rh

Me(tBodols@eaXZs8um Remaitader o f Tbilo Baok

This volume is an outgrowh of previous researeh experiences on Mexico reported in our books on Mexico: Mexko Megacip (1 997); The Mexico Handbook (1999); Sueesiun Pwr'dencial: The 1988 Mexican hesidenfial Election (1 99 1); and Atlas of Mexico (19891, and reponted by us in numerous adicles on Mexico, As a resutt of our research, it became readily apparent that to understand contemporav Mexico, it was absolutely necessav to examine its level of development md its relationship with the wrld" economy, We expect the level of development to be related to the world system network but that they are not identical concepts. Accordingly, this book has as its prima^ goal detemhing Mexico's level of devetopment, the level of development of its regions, and how Mexico fits into the world system. Objectives of this book are: To engender a hierarchical stmchre of development of world nation-states that is extended to include interncrl ati ion dr'nzensions; 2. 'fo place Mexico in this world hierachy; 3. To eons&t-ructa hierarchy of areas h Mexico using states utilizing the same or selected surrogate vaiables for the world cluster analysis; 4. To c a out~ similar matyses for municipios (Le. counties) md delegations (i.e. city wards) within selected major xnekopolitan areas in Mexico, especially Mexico City (see Pick and Butler 1997). l.

A second set of objectives, dependent upon completion of those listed above are: I. To generate the association of Mexico with other world nations; 2, To exaxnine relationships of various regions in Mexico with each other and with world nation-states.

In this latter process, we utilize terminology of world systems theory and build upon world systems analyses. World systems theorists argue that the world consists of (1) core, (2) semi-periphery, and (3) periphery nations. In recent developmental research, Mexico has been classified as an upper middle-income nation in the global context (World B& 1995). In world systems analysis Mexico has primarily, but not exclusively, been considered a semi-periphey nation, The transfomation of the world economy has impacted Mexico in a variety of manners, including its spatial dimensions. Transnational egress into Mexico is &om all pads of the world. Spatial differentiation within Mexico is influenced by the oil industry, large-scale tourism, the tnaquiladora sector (sometimes known as in-bond industry), and transnational corporations (WCs).' All of these economic enterprises, as well as the aationaiized oil induso, in Mexico have clearly demarcated global spatial implications, both externally and internally, In addition to influencing the spatial contours of Mexico, the oil indusq has a relationship with TNCs via its extensive international debt incurred as a resuit of self ing petro-bonds (Cockcroft 1981 : 275). Changes in Mexico are inextricably linked to two countewailing trends in the world economy: ( l ) Concentration of management in transnational coporations and (2) dispersion - deconcentration - of the world" Itabor hrce, National boundaries are "TNCs are corporations with their base in one countly but draw much of their income, raw materials, and operating capital fiorn several other countries, through ownership of foreign subsidiaries,joint ventures with &reign governments or investors, and a host of other means" "elshavv t 977: 620).

Introduction

3

decreasingly effective as inhibitors to the flow of investments, production of goods and services, and communications. The average annual net inflow of foreip direct investment to Mexico was 6.4 billion dollars in 1996 (United Nations 1997). New net foreig direct investment in the late 1990s should suvass four billion dollars per year. In subsequent yems the government anticipates that 20 to 25 percent of total new invesltnent will be &om outside of the comtq. Some examples of recent foreip investment in Mexico during 1998-99 (GonzBfez Lam 199% are: ( 1 ) GhvsIer (United States) one and a half billion dollars, (2) Ford (United States) one and a half billion dollars, (3) Volkswagen (Gemany) one billion dollars, (4) Missan (Japm) $800 million, (5) L a b a ~Brewing (in Pasticipation with the Mexican Brewer Femsa) $731 million, IEP Ctobal Development (Netherlands) (Elect-rical Energy Generation in Jalisco in Collaboration with the Mexican Firm Gnxpo Protexa), and Caz de France (Distribution of Nawral Gas in the Mexican Oil Region in Conjunction with the Mexican F i m Bufete).

Carparate and Legal Historical Baekgroutnd The emergence of globd csrporations, or WCs, has occuned primarily since the 1950s (Taylor and ThiA 1982). TNCs have a hndamental objective of seeking locations in nations enabling maxima1 remms on investment. Increasindy, THCs have sought counwies h wwhh there are uneven regulatory frameworks and ones in which mone&v ~ansferscan be made with minimum interference %om and fa the host country. The reasons for this are rather obvious - a W C needs to produce a profit and it must be? able to bansfer funds rapidly from one country to another. The movement of money by TNCs has itccellerated in recent yews and individuali corpomtions insist upon being able to transfer resources from one country to mother, more profitable one, quickly (Woffe 191977: 618). Further$ given the worldwide character of TNCs, they are able to react swiftly to prevailing poXiticaX and fiscal conditions. One implication of this rapid reaction time to changing ckcumstances is that any given investment is continually checked against potentially more profitable locations in another counhiese2 This is apparently true despite the fact that a plant in any given Xocation may be productive and pro& making, (Thus, the question is one of whether a plant w u l d be more profitable in another counw and not if profit is currently being produced,) This has led TXCs being described as locationally "ckle;' that is, when changing conditions warrant it, they can move without notice to a better location defined as one with @eater profit pot-ential (Taylor and mrifi 1982: 141). Prior to World W= lI Mexico exchanged impo~edmanufact-ured goods for primary exporls with limited governmental regulation, President Gardenas in the 1930s stimulated foreign investment by providing tax incentives for private industy, state investments in the inf-rmlrtlcmre, and the maintenance of a disciplined labor force receiving low wages with no social-welfare benefits (Cockcroft 1981: 262-263). Development over the next t h e e decades focused on produchg consumer goods rather than on the production of equipment for hfirr~herindustrialization, Foreim direct investment almost doubled between l940 and 1960 and tripled bemeen 1960 and 1970. Most of this investment was h r n the United States. TNCs do not limit investments to one country but have increaingly diversified their investments to many countries, ineluding the so-called deve1opct.dnations. For example, the lillrgest amount of direct investment by Japan is to the United Stlzles and continental European investment has been heavy to the United Kingdom (Taylor and Thrift 1982: 52fQ lrnplications of these bends for Mexico is that most jobs that will be developed

This ability is similar in some respects to 'program trading' on Wall Street.

4

Introduction

under the terns of foreign investment are likely to be labor-intensive with fabor that is cheap and untrained, such as in the tourist and rnaquiladora industries. However, a more recent trend evolving in Mexico is that of capital-intensive industries such as automobiles and computer manufacturing, with an emphasis on robotics and consequently lack of jobs. The rationale for the emergence of more sophisticated industry is the a b i l i ~to manipulate costs and taxes involving patZs received from throughout the world and the completed product being exported, primarily to the United States, Legal Baekgound Fundamental goals stressed by fomer Mexican President, Garlos Salinas, involved cont.rolling inflation, renegotiating the external debt, r&ionalizing .foreign trade, and aarilcting hreign investment. In Mexico, as in many other counaies, only dvantages of foreign investment are mostly emphasized (Salinas 1989). LiMle aMention is paid to potential negative ixnpa~tsmuitjnational corporations may have upon traditional values, spatial locations, and fabor force. For example, the generation of jobs for women will undoubtedly weaken the traditional family, while developing tourism along the coasts engenders migation pagerns, attracting primarily tower level manual labor positions, out does not develop a skilled labor force. The preoccupation of the Mexican government in attracting foreig investment has resulted in legal changes making investment in Mexico more attractive. Decisions regarding foreign investment formerly were discretionay and administrative policies were unduly complicated. Generally, the law specified that foreign investors could not own more than 49 percent of a companyS3These 1973 laws, until May 1989's Law to Promote Investment and Regulate Foreign Investment, controlled fomign investment in Mexico. The 1973 law divided economic activities in Mexico into those (I) reserved exclusively for the State, (2) reserved for Mexican citizens, (3) those subject to Limits on foreip capital, and (4) a11 others, sut?jectto general regul-sttions. The new guidelines established in May 1989 included the following requirements for the a a r t ~ m ~ tauthorization k of up to 100 percent .foreign. ownership in every sector not specifically restricted by law: (I) a minimum of 100 million dollars invested in fixed assets, (2) direct external funding obtdined through subscriptions of capiht9 external credit or foreign h d s , channeled through Mexican financial instiations, (3) investment made in industrial esbblishments located outside of the thee largest meCropoXitan areas - Mexico City, Montemy, md Guadalajara, (4) the maintenance of an equilibrium in its foreip exchange transactions over the first three years of operation, ( S ) the crerzlion of pemanent jobs and establishment of training and personal development progams for workers, and (6) the use of appropriate technologies satisQing cunent enviromental requirements, New regulations required the government to: ( I ) Make a decision in 45 days, (2) Expand the duration ownership of real estate for tourism, (3) Allow foreign majority ownership in maquiladoras and other export oriented companies by registe~ngwith the National Foreign Registry, (4) Increase foreign access to the stock market, and (S) Give temporary outside conwol over secwrs that under usual circumstances were reserued exclusively for Mexicans; that is, those with high export potential or facing 6nrzneial dificulties. The Mexican government began emphasizing foreip investment in the tourist sector by sening goals of doubling the number of tourists (Salinas 19&9),and in the maquiladora sector by the expansion of in-bond plants. Leaders of both opposition political parlies also went on record as encouraging foreign investments, the PAN via its party ptatfom and the PIU3 in a speech by Cardenas (1989). In 1993, the Salinas Administration modernized the

Our analyses, however, suggest that some ownership in fact exceeded this mandate.

Introduction

5

Iaw on foreim direct investment malleing it much easier. The law on foreign financial investment was updated to be more encouraging. The emerging emphasis in Mexico upon privatization also allows foreign investtlrs to gain access to economic sectors fonnerly prohibited to foreigners, e.g., the telephone idustry (See Salinas 19891, ndional gas distribution, and baking, Generally, the continuing Mexican position assumes the modernization perspective of development. The Zediflo AdxninistPalion has continued the opening of foreign access and NAFTA has encourqed more direct foreign invesment. Moderniimtion and Wartd Systems Theoretical Perspectives

M~derrrizalionTheov Modernimtion theory assumes stages and phases of urbanization and that hdustrialimtion will take place in undeveloped countries mainly like it occurs in Western and U.S. cities, This approach emphasizes that less well developed areas will evoive though a progession of stages approximating Western wban g o ~ and h development. A &fiber assumption is that urbmizatition is linked with industialrimtion. Cities are thus the foci of moderniation, serving as conduits for infornation, innovation, and political transfomation. Mexico during the past severail years has accepted whalehemediy a positive view of foreign investment. Thus, Mexico is in concert with most other developing countries as their leaders accepted the modernization theoretical perspective. This positive view makes the assumption that foreign capital investment will generate jobs and income (other possible conaibutions are listed by Kissling 1978). Another assumption is that TNCs will enhance Mexico's abiliy to paeicipate in the world" major commodity Rows, Thus, mare jobs, conbibutions to national income, increased government revenues and foreim reserves, and enhctnced paeicipation in world trade are a11 viewed as being advantages to Mexico. En addition, TNCs are assumed to contr-ibute to local populations by offering &aining othemise not available. Fudher, employees Qained by TNCs msty pass on ar use their teamed skills in other host counm entevrises. Thus, the overall assumption is that poor nations are enhanced by foreign direct investments, and ofien by foreign investments and direct foms of foreign aid; that is by m o n v and as well as by teebnical assistmnce. There are possible disadvantages to foreip investment that are ofieten neglected. A major criticism of modernization theory by social scientists is that it is out of concee with empiricaX facts* Emerging research has shown quite conclusively that Third World urbanimtion a d inrtus&ialization have not foilowed the Western sequence. Further, there Is substantial evidence showing that there has been uneven grovvth and extensive inequali9 in Third World cities, InequaIity apparently exists at thee levels: (l) between urban and rural regions, (2) among cities, and (3) within cities. This is WicaXly coupled with the extensive urban concentration in one primate city in ncm-developed nations, An explicit assumption of modernization theory is that there will be a convergence between developed and developing nations. Thus, this assumption means that nations that are not yet fully developed, in the Western sense, wilt pass through a transitional phase which will make them eventually become modern, i.e., like Western nations, Economic gowh and urbanimtion are assumed to occur as m ordered sequence in which cuwently poor eount^ries repeat striitegies and experiences of wealthy nations (Snyder and Kick f 979).

Introduction Empiflea1 evidence, however, illustrates the following: I . There has been littile change in international economic s&atification. 2, Some change that has taken place results in nations regessing instead of following the Western mode. 3, Rich nations continue to a c m e wealth while pave@ is enc2emic in Third World nations, World Sys$ems/Depetzdenq Theoy Differences noted beletveen developed and developing nations undoubtedly influenced the emergence of what has been Iabeied world systems/dependency theory. The dependency perspective assumes uneven development and hequaIity are a result of uneven economic and urban gowh.

It fufiher mdisumes: 1 , There is a worldwide capitalist system. 2, There are a vartriev of intern&ionai network linkages, although at times they may not be specified, 3, There are thee "peskof nations - core, semi-per;iphery,and periphery, 4, Types of nations are more than descriptive; they denoe an international division of labor that is dynamic, exploitative, trnd involves control by Gore nations, S . Peripheral economies within nsltions are poorly integated because of production that is expo^ oriented and raw material specialized. 6. Some analyses s u ~ e s tthat domestic capital fornation is positive and foreign investment negative on economic gromh and reducing inequalie; the locus of capital rather than investment per se is most impofiant (see Chase-Dum 1975). From an economic point of view, a critical perspective of dependency theory implies thal negative consequences may result from a counw relying upon "l3467 investment (Morm 1978; Mewfanner and Topik 1982; Seref-iFi 1980). The potential influence of ~ansnational investment in Mexico is especially impofiant since benefits of direct investment in some instances may be ""unequally" or ""unfa"airXyW "distributed to the detriment of the host country in favor of the 'TNC (Enderwick 1985: 67). Johson (1978) argues that over 80 percent of profits are removed from a coun&y by mGs, Also, in some countries, TWGs have creded distorlions in locaf economies by squeezing out Xocal businesses, utilizing inappropriate technologies, worsening the dist-xibution of income among the population, and distofiing consumer panerns, A criticism of world systems theory is that it is primarily baed upon economic deteminism to the neglect of the political (Bollen t 983: 471). Howevex; another negative eeect has been that .Foreign investors may subvee host country political processes. This i s possible beetluse some TNCs are larger economic entities than the host countv. For in the world while if measured in a similar example, in 1972 Mexico's economy ranked manner, General Motors would rank 16" (INewfamer and Mueller 1975: 7). The economic power to TNCs then is @eat and their ability to obtain credit to build plants and facilities may be greater than a host coun@ such as Mexico, Thus, economic resources available to some l"NCs are at least m great as they are to Mexico and larger than many nations with smaller economic resources (Taylor and Thrifi 1982: 142). A fur~hercomplication in some insbnces Is that nationat and regional pojicies begin to refiect needs of 'WCs rather than the host counh-y an&or Xocaf populations (Cedicks 1978). M e n a government negotiates with a TNC, Plaza. (1978) argues that the government is eroding its most iiungofictnt element - its sovereignly. Examples of foreign influence upon policy is the impact that the international hancial communi.fy has had upon the periodic

devaluation of the peso imposed upon Mexico and imposition of terns by the Intern.sitional M o n e t q Fund (IW) to d&emine the ""@edit-wofiiness""of Mexico (Cockeroft. 1981: 275). Perhaps the most ~ t i c a lcomments r e ~ d h gaansnatianal was recorded by fie Econmist (l1179), which noted the falfowhg: It fiddles its aceowts, It avoids ar evades its taxes, It rigs its h&a-company &msfer prices. Foreigers run it, Erom decision centers thousands of miles away. 1t impom foreip labor practices. It does not impoe foreign fabar practices. It ovepays, ft undexpays, Xt competes uafairly with local f m s , It is h caficsots with local f m s . It expoas from rich cow&ies, It is an insmment of rich c o w ~ e s ' impeniafism. m e Itechofogies it b h g s to the Third World are old fwhioned, No, they are too moclenn. It meddles. It b~bes.Nobdy can con&ol it. It wecks the economic pslicies, It pfays go balance of papents. It o each. other to get the bisest hvestment incentives. Won%it pleme come here and hvest. Let it bloody well go home, Thus, all the above suggests that one needs to keep an open, scientific mind in the resemch eRofl when the impact of the globaIimtion of the economy on Mexico is examined from a. world system oxienbtion.

FIm S a s ~ (1991) n emphasizes the importance of fmance, insmance, a d real esbte (FIm) in evaluating the impoflance of global economies, Financial me= af pafiiculsur itnpoaance are foreia direct hurvesment and fmmcial make&, as opposed to tx^aditionalb d s . In addition, there is a focus an services a e c e s s v for F I E - adverlising, computer and data processing, databwes and otZler hfomation, telecommunications, management and consulting, legal, accounting, and educational traiining semices. Positive changes in emplopent h such semice indus&ies are good i;ndicators of gtoba1 ~ p o a m e eof a camtay.

WorE&ide N e ~ o r k s We present a number of case stnndies in this volume. Some of the case companies examhined are large multltnational f m s that b v e major offices in most countries of the world, with manufacmhg and d i s ~ b d i o ncenters being scattered ~ o u & o u t mmy c a m ~ e s .Xn addition, there are a vwieQ of a&er types of allisznces and relationships,

-

h a n g them are (Kantw l 994): Invesmentcapital Customers Suppliers (subsidimies m&ar outsowchg) Regulators (set policy) Competitors (sells shilar products) ALllances (fmto firm, fm to gov Gatekeepers (to o&er relationships).

Other resewch has focused. on flows of investments, people - especially mmagerss techical personnel, co odities and goods, and research and development. Natrlonal Nekworks Analyses similar to those camied out on a global scale can focus on e ~ l l l p ~ a b l e exchanges in a national economy such as Mexico. Similarly, exchanges within Xocaf andlor regions, cities, and areas within, them also can be examined.

Introduction Methodological Issues What are the operational criteria for classi@ing a counm in a developmental and corollary question is where do fomerly structural position in the world system"? communist nations and others belong in the system [see Shannon 19%: l 17fQ. Another methodological issue, whether for noderniation andor wortd systems theory, is one of categorization. How is a country, or one of its segments, to be classified into a categoq? M e r e are the breaking points to be esbblished",oes varication exist within a categoy"!"Pht is, are varying characteristics of different parts of categories substantively impoaant? Does this imply sub-categories? Thus, it may be necessaw ""fc explore national variations within pmicular positions in the system9"(Snyder and Kick 1979: 1 l l 6). Shannon (1992: 871, for example, divides the core into major core powers and minor core powers. How does kansmission from one cateegav to another take place - ascent and decline (see Shannon 1992: 146 f03 This is a question of movement across categories in the world system, I.e., Spain (Wallerstein) and Mexico (see Snyder and Kick 1979). This is especially impoeant for Mexico since it was fomerly classified as periphery and we now desiaate it as semi-periphery. So there has been transition &om one cattlegoy to mother by Mexico; do other transitions exist? M e n and on what basis does such change take place? Is progession assumed for all counaies, such as in modernization theory? m e r e is the break; when and how does crossing the bounday take place? Do counaies similarly classified operate as theoretically classified - exert control or be controlled (Snyder and Kick 1 9 7 9 ) M o w is control to be measured? m a t are the exploitative links? Should couneies be viewed only in economic terns or should noneconomic dimensions such as population size, territorial size, militav and political strength, cultural impact be examined? m a t about trade flows, military interventions, diplomatic relations, and conjoint treaq memberships, M a t countries should be included in the analyses; assume all? The core should dominate the international &ade network. But who is liked to whom? Snyder and Kick (1979) suggest that periphery may not be liked to semi-periphet-y but only to core. M e r e do invesment flows (md other gows) come &om and g o w h e r e also is the question of mamitude of Rows that so far has been sysmatieally imored in most world systems research, m a t vasiables should be used for analysis and are they really only b i n q as cunentfy used or are they, or should they be, continuous? Are regions of comnl-ies viable as units to be classified as core, semi-periphev, or peripherywf so, what are the relationships between the regionswhat Rows occur and how dependent are the regions on each otherUThese are only a few of the questions to be explored in this book. m i l e our theoretical perspective has been influenced by devejopmental and world systems theories, we, in contuast, first emphasize intermal nation-state development dimensions. We zw-e doing this because we envision a number of deficiencies in the manner that levels of development and world systems analyses have become entangled, In some analyses, there is a problem of conceptual tautologies; that is, there is the use of the same variables to deane core, semi-periphery, and periphery as used in analysis of core to other nations, Thus, impofisiexports are used for defining nations in the system and then used in the analysis associated with the definitions, It is, then, not too suvrising that they are subsequently highly associated.

There are a number of other deficiencies in world systems malyses that have been identified: 1, There hm been classification of nations with dkmtimali.ty missing - for example, somethes equaXiQ is assumed in. &ade flows (Snyder and Kick 1997). However, while economic and wade relation Bows may be hi&ly comelatd at a pMicular time, they may atso v q awoss time in both directions (for exmple as s h o w Eater for Mxico and U.S.), 2. Relationships are often considered bhary (011) (Snyder and Kick 19791, 3. The m a ~ i w d of e hterac~ons0 t h is ipored (Snyder md Kick 1979: X 103). 4. There is geogaphic proxiunily built in via nework analyses as cmently exmined (Van Rossem 1996: 510; SchotZ, 19861, hcreasingty geogaphic proxhiTcy is becomhg probXernatic, 5 , Non-regationships are excluded (Snyder md Kick 1979: 1 107). 6 , OBen a iimited nmber ofnemork retationships are considered.

Our &eoretical perspective substmti&ly rejects rnademimtion theoy on empirical gomds, However, we also iIlus&ate how worlld systernsldepmdency theov has mme of the same w e h e s s e s of m o d e ~ m t i o ntheory. For exmple, it can be shorn quite conclusively that h '%ore" nations md their cities beqwlily exists at thee levels: (1) bet-cveenwbm and m a l area; (2) morrg cities; and (3) wi&in cities. The question remahs for both modernization and depndency perspectives: h e the processes similar or different in developed and developing rrations"i"hat is, how can diEerences bemeen nations, mbm md ma1 weas, mong cities, and within cities be accomted far? In this book, we utilim research showing that in core nations there are differences b e m a n urban aad l areas, m o n g cides, md within c&ies that me h many respects similar to those in Mexico - bere degned by our cluster analysis as a semi-periphey cornW. However, we cite evidence &om other researchers iElusQathg that the relationships we are showing for Mexico also exist in so-called core coun&ies, such as the Mited States. We anticipate that our examination of the Mexican economy will give us ample o p o m n i q to illus&ate that "world systems .tfieav"s ac.tual1y much move general than ordinwily assumed. m o u g h illus&ationsby our o m research, supplemented by others, on developmmt in Mexico and on globatiaation of the Mexican economy, we illus&ate that there are vaving levels of the theoy that apply at the world level, but simuftaneousEy provides insights to urbm and w a 1 divisions vvi&in core nations and to areas within core cities md to divisions wi&in semi-peripheral iurd peripheral nations, In this reseauch, we illus&ate that Mexico is a semi-pev@lzev eau~tiy,with respect to the nations of the world, We also make evident that Medco cm be viewed as a ""cre'hation in respect to othm Latin American nations. We systematically exmirre Mexico" relationship to core, semiperiphery, and periphev counlries via its domestic and multixzatictnal covorations. In this resemch we show that Mexico is a semi-per@hery country with respect to the nations of the world. We assume the folXowing withh Mexico: Mexico Megstciq is a core area within Mexico; in Mexico there we, then, semiperiphev and periphery =em. h additional quegion examined is whether or not there are other core areas in Mexico, e.g., Monterrey. 2. Mether or not they are core cities within Mexico Megacip and other major cities. X,

10

Introduction

We also assume that Mexico semes as a core countPy to some other Latin American countries and that wwiin Latin American countries there are core, seni-peripheral, and peripheral cities, Our research demonstrates and explicates that world systems theop may be more generally applicable than originally put foPth, that it applies within all core, semi-periphery, and periphev nations, their regions, their cities, and within their cities, Thus, semiperipheral and peripheral statuses will be shown to exist in the world systeln but ailso within a countv, which has core cities, and then semi-periphev and periphev areas within these core cities. Fufiher, the perspective may then be appticrtble to a country now defined as semi-peripheral or peripheml but which has "core" relationships to some other counlries, Fuaher, within these cities there are core, semi-peripheral and peripheral areas. Another limitation in our view is that the role in the world system is detemined by a s not by the i d e n f of its network. We, in contrast, nation" soerall pattern of n e ~ o r k md argue that whd country or csunh.ies a nation has relationships with and may be dependent upon is exbernely impoeant. World dependency research twicatly involved some political, milih;ry, and economic indicators, as well as occasionally a cul&raE measure, i.e., motion pictures. Other researchers have included the presence of foreign troops (Vm Rossem 1996). Neglected in mo& andyses is the possibilip of temporal shifts in dimensions (however, see Shannon 1996; Snyder and Kick 1979). The time dimension is impowant because development as a concept implies change, In addition, an examination of world systems t-fieol-ymust assume that there can be change in the world system; that is, movement upward or downward among the basic categories of core, semi-periphely, and periphep. Many world systems statistical analyses report liMXe variance explained, even with tautological variables. One such analysis osknsibty reported nation-sate pctpulaiion size as a key varihle (Van Rossern 1996: 5 18-5 29). The argument presented ww that China via its Xmge population size, despite its low clevelopment level, was a core nation. Brazil, it was argued, also was a core nation because of its geogaphic size. Population and geographic size, of course, are not networked, world system variables, but are internal nation-s&te dimensions, Qn the other hand, in this same report, it was argued thd such countries as Canada, the Netherlands, and Belgium obtained core stabs because of their level of economic development, e.g., internal state variables. Thus, there appears to be can%sion over wfiet-hernation-state or n e ~ o r kdimensions are most important. In this book, we adopt the view that nnation-state factors delineate level of development and then analyze their netwok relations, Xn this book, then, we first cons&truet a developmental hierarchy of nations, We then examine within Mexico vaving levels of development for regions, the state, municipio, cities, and the area within cities levels, Our analpic strategy allows an intersection of global processes with nations, areas within nations, cities, and small areas within a city, In this instance we use Mexico as a case illus&ationbut argue that the perspective and analytic strategy can be applied to all ndions and areas within them.

The research presented in this book examines both the potential positive and negative consequences of globalization an the Mexicm economy and its population. T h i s project ties in with several other projects being calrried out on Mexico, Future change in Mexico may be influenced more by transnattional carporations than political parties. That is, as multinational covorafions penetrate Mexico they are having a profound influence upon contact with the global economy and with hreign cultures, e.g., United States, Canada, Gemany, England, and now with Asian countries, especially Japan, Korea, and Taiwan.

Introduction Xn sumary, this research has primav goals. 1. To place Mexico in the world systems theov Prarnework of the globat economy, 2. To defnonstrale that world system theory has utility for study of the economy of states, cities, and areas within cities. 3. To analyze the economic demogaphie social, and business developments that occurred in Mexico in the late mentieth century. 4. 7"0explicate the domestic and international level of Mexico's developent. S , To examine the processes of e~onomicrestructuring in Mexico and how it is adapting to the emerging global economy. 6 . To discuss Mexico's potmtial in the &&re global economy. X.

3, 4. 5.

This book, then, focuses on the f"olHowingBows: Financial, i.e., between Mexico and foreign count-ries or intemational agencies, between Mexican states and among and betwen Mexicen-based private fims and Personnel; Technology; Research and development;

Questions to be asked in meeting the above: and goals and resemch on flows are as follows (Taylor md ?"Etrift 1982: 139): 1. What are the flows of investment and productive capital to and from Mexico? 2, m a t .Eom is foreign investment in Mexico taking; what is its degree of &ansience; is it creating ineqrtaliq and competition with domestic enterprises; and what is its relationship with the source and Mexican 80 3. Is foreign investment &ansfoming the national, regional, and local labar markets thou@ such processes as migrrttion, de-skilfing, and moving managerial loyalties &orn the state and private Mexican enterprise to the m C s ? 4. How are exgorl sectors such as petroleum, autos, tourism, and maquiladoras, gowing and changing? S . Have Mexico" sommereial. and sewice sectors remain inward looking or have they been impacted by the international economy? 6. Wkat cultural alignnent is being brou@t about in the outward looking ecctnomy sectors via more women entering the labor force and- achieving higher educational levels? We accomplish this by examining concentrations, Rows, and dispersal of activities across time and by series of case shdies of pansnational and Mexican coparations. The focus on monetav and productive capital flows as they are related to Mexica and TNCs is particularly relevant as more c o u n ~ e sand corporations became involved in the Mexican economy, Transnationals have influenced spatial changes and they may have engendered labor force stratification at the local Level, in Mexico and worldwide, A variegated economy at the worldwide Level implies that activities of TNCs will be spatially differentiated with substantial specialization by countries such as Mexico, Thus, within Mexico, not all regions are similarly effected by m C s . For example, the border region with its tourism and maquiladora, and international tourism in areas scaaeered thoughout Mexico, mainly on the coasts, have been the location o f subsbntial TNC activiv. Corporate headquarlers have been concentrated in Mexico City to the exclusion of most other areas,

The globalimtion of the economy has implications h r worldwide production activities. In addition, WCs via maquilrzdoras and tourist industry influence specific geographical locations by drawing mipants from other regions within Mexico (Butler et al. 1987). Given the prevailing investment climate in Mexico, there wit1 be continued emphasis in thee regions: Q 1) tourist arests, (2) maquildoras along the U,$.-Mexican border, and (3) and czerlain are= within Mexico City (see Pick and Butler l997). Research reported in the remainder of this book examines flaws related to the globalization of the economy especially as it impacts Mexico - fmmce, commodities, personnel, technology and devef opment, and research and development,

--

Methodology Data Acquisition, Coverage, and Quality

[email protected]@n Data Sa~lrees M~thOCBoXtap

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Daedptfve Stati&c%lrlAmaXysis Claster StftpLisaeslMethodoEa~

Geographic Information Systems (GIS)

B~scrtMaps 63

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Coaatc~~si~.sars~ Case Shldia

Data utilized in this book were acquired from a variety of sources. For the nation-stae cluster analysis, most data were obtained fPom the World B a ~ k(1995, 19971, XNEGl (various years), with some additions from the CIA Firctbook f 1996). These are the same two international sources used by many others in examining development and world systems (Mormniewicz and Moran 1997). Not aiX countries are covered by these WO data sources; countries ww& i limited data are generally those less developed. Similarly, less developed nations typically have lower qmlity &fa. For the states of Mexico and cities of Mexico, the Mexico Database Project at the Universiq of California, Everside, md University of Redlands contained the necessary data; the Database has computerized information from 1895 through 1999.' For this book, more or less similar time periods are covered for all analyses. The Mexican censuses have vwing quality of data, However, the l990 census and Conteo Suwey of 1995 are considered of good quality. They were undeflden under the direction of Dr. Cwlos Jarque Uribe, who sewed for many years as President of INEGI, President nfof the W%Statistics Gommiaee, and he was appointed Mexican Setkrea~of Social Development near the end of the Zedillo Adminislration (Gane 2000). Available data on Mexico cover most social, economic, business, and global-local aspects of Mexico, including infomation that is necessw to deternine Mexico" pattern of relationships with other nations of the world, These laser data are useful in tracing how Mexico fits into the world system. M i l e we view this project as developkg methodoiogy for additional developmental and world system case studies, we are weEl aware that data available for Mexico is superior to that of mast countsies, especiaIly those at a lower level of development.

Dab Sources Dimensions used in this volume are only a selected few ofthhe multitude available %om our database. This work uses data from a variety of international, national, and IocaX ~zgenciesand goups, both pevate and governmental. In addition to variables and time periods presented in this work, the h t a b a e project contains substantially Imger computerized hfomation. This volume, then, is only illustrative of the range of variables available and time periods actually contained in the database. The range of dimensions and time periods contained in this volume were constrained by cost and p q e restrictions mther than by database hfomaticm. In Adlition to mECX, World Banks and CIA sources, the foilowing were aceessed .far data used in this book:

United Nafiousp u b l k ~ f i o m Mexican go~ernnaenfpopulation# housing, and othtrr censwes h.ltxkan economic eensgs Mexr'ean nafbnal accounts Mexican and US, International Exchange and Imporf/Exporl data The Journal Expa~sion,vwious years The Journal MB If"orrner& U,S,/Mmieo Busriness, various 7c;laP.s) Corporate aannul reports and pu blr'eathns The Mexico Daabase consists of geographic idonnation on the states, municipios, cities, ACEBs, and corporations in Mexico.

Methodology

Banamex pub/ications Banc~mext(Bancs Comerciai Exterior de Mex2'c.o) International Manetav Fu~dpublicarims Institute National de Migraer'on Mmr'can Secretavy o f E n s r ~ Nwspapem both in Mexico and the U.S. Case stzkc?'yhtentims with carporate leaders Qther ssogrces, cited as appropriate Afier da& were collected from a variety of sources they were processed for statistical and mapping puvoses. Several digerent s o h a r e pizekages were utilized h this process. For most mapping, Arcview or Arclnfo &@m ESN were utilized. Microsoft Excel, was used to develop some figures and charts while SPPS 8.0 was used for statistical analyses. Data were entered and manipulatted and maps created by the following steps: (I) Data were obtained from CD-ROMs, diskeaes, websites, and when necessw, data were input: &om hard copy. (2) ABer input, data were tested fir accuracy. ( 3 ) Some raw data were used to calculate constructed va~abtessuch as rates, ratios, and percentages. (4) Data were anslyzed to deternine the rmge of the distribution. (S) Some spatially referenced data were entered into a Ceogaphicaf Infornation System (GIS). (6) For most spatial anal-ysis, geagaphical areas were gauped approximately into quhtiles; however, variables with unusual exBerne values, or oaXying values, were mapped with customi~edclassifications assiming exlrernes to special thematic categories. (7) V~asiotxsstatistical calculations were perfamed. (S) A systematic set of files was developed to include all variables. Computerized documentation was maintained to keep track of variable definitions, names, data sources, and mapping codes; and (9) A computerized cadebook was generated and upd&ed to keep track of the organization of data and hfomation.

Methodology VaGous methodological kchniques are used in this book. Among them are ( l ) descriptive statistical analysis, (2) cluster satistical analysis, (3) spstt;ial arnalyses, and (4) case smdies,

Descrktive Staf listical Anabsis: The text emphasizes simple statistical htergretation and compwisons, Descriptive statistics ofien utilized are the mean, median, and mode, extreme values, percentiles, md standard deviation. For longitudinal data senies, &ends and changes over time ;are pointed out, At times the text refers to other maps and data scaaered tfuou&out the chapters showing similarities and eon&asts, Correlation analysis is used to d a r i e some relationships. Generally, correlation coefficients examine the relationship befvveen two variables with a range kom -1.0 to +1.0

16

Methodology

(Afifi and Azen 1979). Finally to present some idea of relative homogeneity among variables, on occasions, the GoeEcient of Variation (CV) is repoded. The CV is defined as 100 times the ratio of the stilndard deviation to the mem. Thus, the CV allows a reldive compwisnof variation among all variables, In the text, a CV of less than 20 is treated as small or nmow; a CV between 21-99 is Xabeled as middle-range, while a CV of 100 or more is msumed to be targe,

Clwter ftaristical Mefhodolop Cluster analysis rnsry be applied to identiQ ceases (ndions, states, individuals) that are sirnilm to each other based on a measure that averages sirnilasity on many variables sirnultaneousXy (Haigm 1975; ChatEeld and CoXlins 1980). Cases are gauped sbaing with those Wo most alike, Once gouped, two or more cases are represented by average values for many variables, The averaged values are subject to m h e r grouping just as an individual case is. The clustering process continues until a11 cases are in one large cluster. The cXusterizlg process can be stopped d any point of interest to an investigator or at a specially detemined poht, e,g, fow, Eve or six clusters, Clustering, h this book, is based upon Euclidean squwed distance, as a measure of the closeness between the values of v ~ a b l e for s any two cases andlar clusters. This means that the similarilty b e ~ e e nthe value of variables andlctr clusters is computed as the sum of diffwences squared, s ing over all vaistbles (Haaigan 't 975; SPSS 19168). The dustering process used is Ward" hierwchical clustering method (ChatGeld surd Colths 1980). Zn this me&ad within groups sum of squaes is caIcuXaled for each fomed cluster. Then, the number of cEus&rs is reduced by one, This process gives the smallest value for sum of within cluster group sum of squares. Euciidem squmed distances are very only used as the disance measure for W&% hhieruchical clustering. appropriate Cguster techiques involved developing a data ma&ix containing measurements on variables for each of units of observation (Chatfxeld and ColEins 1980; SAS Instikte 1985). In our cluster analyses, refers to various socioeconomic, popiulation stnrctwe and economic vmiables, whereas identifies mits of observations, i.e., nation-states, State of Mexico, municipios, and selected metropoli&a areas. The intent is (I) to reduce dinzensions of wits of obsemation i ~ t oa smaller number of common units of obsewation, R, based on homogeneiq of sets of variables within on units; (2) to des~ribeand compare units; and (3) to intevret spatial pat-terns. It should be specifically noted that spatc-ial paaem are defined by clustering of variables rather then geographic proximity, aithoug;b simiia types of areas may be located geogaphieatly near each other. Computer generated maps and graphics utilize the cluster analyses to iXIus&ate:more or less homogeneous meas. The research framework calculated overall clusters for variables covering the dimensions used for all cluster mafyses. Specific variables and cluster descriptions are given below. As previously cited, data for the nation-state cluster analysis were primarily dmived from. the World B a d and CIA, Data for the Mexican Sate cluster analysis were derived mainly Erorn MEGX. Other data from these and other sources could have been included into the cluster analyses, e.g., energy (Rubinson 1976). The primary variables used are presented bellow; 1) Population in 1994, log; 2) @NP/capita(Peacock et al. 1988; Kiman and Tornasini 1969); 3) Life expectancy, l99 1 ; 4) Illiteracy, 1995 (Srtyder and Kick 19752 use seconday school enrollment;

Methodology Bofi and Thornas 19917 use both primary and terliary school enrotlments); S) Population govvth, l. 990-I994 (Uozeniewicz and Mora 1997); and 6 ) Infant wroaalily, 1994,

Resule of the various cluster analyses are presented at appropriate chapters in this volume, Geographic Information Systems (GIS)

The Geographic Infornation System is part of the Mexico Database, a larger prc?ject originally focusing almost exclusively on Mexico. However, the GIS is in process of being enlarged to encompass Mexico data into a fom allowing the relationship of Mexico to the world system to be dissected. l"%us,cunrentIy the GXS includes a section with inftomation on most nation-states of the world. Figure 2.1 presents a concepbal overview of the system that should be helpful in understanding the overall project desim. Study aaributes include demogaphie, social, labor force, economic, natural resource, international trade, and a variety of other dimensions &om a host of earlier listed sources. Data were ananged on master spreadsheets and input for computerized data analysis. Amibutes were keyed to geogaphic layers of boundaries such as nations, states, mmicipios, cities, etc., or what is h o w as coverageS. The most impofiant covmages me base maps (shown in the next section), These are then IinEred to amibutional data, Outputs & ~ mthe GfS contah many a ~ b u t e susing various coverages, Figure 2.2 presents in more detaif the process of obtaining infomation and boulndary layers, analyzing the infomation, and producing spatial ouQuts using this database. The amibute infomation resides in a large database with a codebook deailing variables, their deEnition, source, and other miscellaneous infomation, The GXS is suitable for many purposes beyond those used in this book, such as ( X ) computerized infomation to produce maps and statistical analyses for policy makers srnd businesses; (2) other academic skdies; (3) for a varie.t.y of demogaphic, economic, and environmental research projects; (4) incorporation into a data_basewith additional variables as they become available; (S) a variety of usehl research and &aching activities in different disciplines, and (6) for Xongi.tudinal anabses as data becomes available. Base Maps This section presents base rnaps essential in understanding subsequent text, statistics, figures, and other maps included in this vohme. Base Map 2.1 delineates world nation-states. Map 2.2 ilius&atesthe states of Mexico, while base Map 2.3 shows delegations and rnunicipios that make up the geater Mexico City area, Tabfe 2.1 tists the names and key numbers of Mexico Cities-elegatztions and municigios. Map 2.4 iIlustrates the delegations of the Federal Disrt;rict. Map 2.5 shows the major cities of Mexico in 1990. Map 2.5 shows some of the major feabres of Mexico Megacity. These base maps, or coverages, were used for protfucing most other rnaps found in this volume, Other base mstps are included in this volume at appropriate orzgortunities in the text, including the border region and cities, the cities of Monterrey (Map 2.6) and Guadatajara (Map 2.71, etc,

Methodology

18

Tabie 2.1 Delegations and Municipios in Mexico City BelegatiodMunicipio No &legatio&unicipio Acolmm 36 Nagadalena Contreras * Melchor Ocarnpo A l v m Ohregun * Miguel Hidalga * 3 Ameemeca Milpa Alta * 4 Atmco Nauealgan 5 Atimpan de Zmagoza Nexttafplvl S Atiautla Ne~uillcayotl 7 Axapuseo NicoIs R~ornero 8 Ayapmgo NapJ t e p c 9 Azcapotzatco * Qtumba 10 Benits Juaez * Ozurnba I1 CRalco Papalotla 12 Ghiaurla Paz, La 13 Chicoloapan San MWin de i s Pitsunides 14 Chieoncuilc Teem* 15 Chirndhua~m Temmatla 16 Coacalco 'TemaseaIapa 17 Coeotitlm Tenanga del Aire 18 Coyoacm * Teofoyuean 19 Coyatepec Twtihuacm 20 Cuajimalpa * Tepetfmxto~ 21 Cuauhtemoc * Tepetlixpa 22 Cuautirlan TepokotIan 23 Curautitlan lizcalti Texcoeo 24 Ecatepec Tezopca 25 Ecaeingo Tt&uac * 25 Gustavo A, Mdero * Tlalrnan&co 27 Huehuetoea 'T;lalnep;mtIa 28 Wulxquiluem Tlalpan * 29 Xsidro Fabeha Tuirepe~ 30 IxtapaIituea Tuiritlm 31 Iztaealco Venustimo Carrmza * 32 fztapalapa * Xochinilcs * 33 3aItenco Zurnp~ngo 34 Jilotzingo 35 fuehitepec Note: *Federal District Delegations. No. 1 2

+

Methodology

This chapter presented data and infornation necessary to understand the remainder of this volume. Subsequent chapters hfiher eXucidi3ite infornation sources and analytica! techniques. Each chapter touches an a variety of topics, my one of which could be explored in h&her detail, The GfS work in this volume illus&ates the utiliw of such approach in explorhg and understmding the globalimtion of the Mexicm econonzy. Much remains to be accomplishd. This chapter demons&atesthe methodology we utilized in producing this volume. The methodology we have developed could be used to explore glsbalization of an econow in other countpies. We krvently hope that this will be done and that this methodology will be W h e r utilized by othas to continue expIoration of the globaliation of the world economy. Case. Studies lncfuded in this book are a number of case sbdies of Mexican and international corporations with major presence in Mexico. Nearly all of these case studies a% based upon interviews that were supplemented by other documents, repo&s, rand data provided by the corporations. However, also a~eessedwere data &am a variety of other sources external to these argmizations, Far some of these ease studies we utilized 61s techiques to illustrate relationships of these coxlporations in the globafization process and networks within Mexico, A case study presents rr great deal of infmation about the corporation being examhed and then ifluswates its i~tmationalrelationships and strate&es as well as relationships htemallly within Mexico.

Figure 2.1 Conceptual Diagram of Mmican GIS

DATA-BASE OF A T m B U E S

Methodology Figure 2.2 System Diagram o f Mexican GIS

Source Data from Various Sources

Pre-processing of Certain Attributm by Spreadsheets and/or &mographie

Methodology

Methadofogy

Map 2.3 MeAco MegaeiQ Base Map

Map 2.4 Federal mstrlCL

Map Same: BuaerRick Mmim D a b b w Pmjw

Methodology

Map 2.6 Monterrey

in Haw0 km. of m ~ e i p i aare s shorn.

Mexico and Mexico City In the Larger Global Context Exal.red~aretion

s

N ~ ~ e a - S bBevcslapmenX te kve8 Clas$erAnabysk

Nation-State Developmental Levels: Cluster Analysis e o cr

U p p r b e 1 Developmeal Middb Develspment Lower Level kvebpraenl

Mexiea SIafw DeveXepme~taBCIushrg"Analysis Major M e d a a Ciaes

s

o e s

s

MeAeg%Large Giges Medce CiQ C11~1terAxra)iy~k &%IDber Meriea~Ciam

M ~ ~ ~ GWarICII o ' s System Rekatiaarslrps

9

s

"km)~~~rna~%aaX Csrpara&P~eaetra~srx

cr

Fen* Direct I~vatmenrt(DII$ Ex~Q-)&s sad ImpHs Im-Baad Imdmsgq (Maquiladorm] Oil

~1

a

a

c

T O U L ~ ~

Qgker Flaws a ~ Exc:lbbaag~ d

Conclraarsiolas

Mexico and Mexico City ]in the Larger Global Context

This chapter 6rst presents the results of cluster analyses we cmied out wamining developmental levels of the world" stion-s~tes.We then inkoduce clluster analyses for the Sbtes of Mexico and for the Mexico City metropolim wea, which we sometimes refer to as Mexico Megaeiq. W i l e the preserat book is a cafe study of Mexico, the utility of case stcldies in world system analysis has been ilhs~atedby Smi& (1996) far several digerent nations. Ow examination hvolves expmded malysis beyond &at ordhmily conducted in the globaliation process. We mgue that our perspective applies at all Xevefs and em be generalized to other nations and arew wi&h n&iam. N~tio~-State Dwelopment Levd Clwber Alnaesis Varjiables selected for the nation-sWe cluster analysk were derived &om the W"& Bank (1995, 1997) and CIA f 1996). We have o&er nation-state v~iiabllesin. the daQbase, some of which will be incorporated in subsequent analyses. Dimensions selected for this analysis were based on g a t development and world systems resewch.

(1) P~puXationin 1994, log (2) GNPle-agita, 1994 (Peacock et al. 1988; J a c h m 1982; Khan a d Tomashi 1969; Chme-Dm X 998). (3) f .if@expectmcy, l 994, (4) I1literacy, $995 (Snyder a ~ Kick d 1979 use secondw school emolhent ratio; Bali and Thornas 1997 use: both p r h w and t e ~ 1school ' ~ emolhent). (5) Poputation @ o h , 1990- 1984 (Komenieviriez and Morm 1997). (6) hfmt morrtali_ly,1994. Our results are consistent with other resemch aperatkg &om somewhat diEerent perspectives illustrating that stowing pohts in clwtering an: sensitive m u & given the diswibution of data. mere are such large differences among catepries that they are subsmtialiy internally consistent; that is, v&agon is bet7iveen clusters rather than within &em. However, it still may be problematic as to what to label a category (see Snyder and Kick 1979: l 110). Nation-Sbte Develapnrental kvefs: CXuster Analysis

As a result of our axlalysis, we labeXed a 1mge numbm of cam&ies as being at the economic lower Imel; among these nations, there was v&ally no change: in position regardless of the number of clusters examhed - five to tea in this malysis. Substantially similar results also were noted for nations clasi-fred in the middle-level af development. However, apper-level developed nations broke into several importat clusters when diEerent cluster skps were utilized, with a few mtions clustering digerently. For presentation here, the six-cluster ou@ut appeaed to be the best fit. Because of space limitations, only a few resulw m presented here. "Taite 3.1 illus&ates categorization results of the six-step cluster analysis far each nation, while Map 3. t sfiows world develapxnenl Ievels far nation-states using six clusters. Upper Level Dwelopme~t Two natiom always fomed one upper-level development cluster, Japm, which may not be su~risingwhile the other a m may be -- Swizzertand. Two other clusters formed what appeared to be upper-level developed nations. One clusbr of upper-level nations included s number uf Eurogem nations, along with Wong Kang, Singqore, and the United

Mexico and Mexico City In the Larger Global Context

3l

States. The other cluster incXuded Aush.alisr, Camda, Finland, Italy, and perhaps again suvrising -- Kuwait and the United Arab Emirates. In world systems analysis, these c o m ~ e would s be labeled as core nations.

Austria Austrafia Belgium Canada Llenmark Finland Frma Italy mmmy Kuwait Hong Kong United Arab Emirates Ne&erfmds United Kingdom Noway Singwore Sweden Unied States

&gentha Greece Ireland Xsraiel Kore& Rqublic Saudi Repubfic; Slovenia Spain

Belm Botsvvana including Brmil Bulgaria China Chile Czech Repubjic Columbia ECaz&astm LaWia India Lithunia Malaysia Indonesia Mauritus Mexico Plrnarna Pojad Rmmia Russian, Fed. Sou& f i c a nailand T~nidamobagoTu&q Turhenistan Ukraine ~ ~ ~ U S Z Y Uzbekistan Venemela Note: The cluster placement remains wnsistent with only slight shifts wheaer 5,6, or 7 clusters m marnined.

Middlg Level DmeIopmenr % cluster malysis identified what we consider as tvvo middle 1eveb of middle-level developed nations - the semimp&phery. One cluster consists of hgentha, Greece, lrelmd, Israel, R q ~ b l of i ~ Korea, S a d i kabia, Slovenia, and Spah. A second cluster at a soxnewhrat; lower of middle-level of development includes Belms, BoQvvnna, Brmil, stm, LaWia, Li&uania, and Malaysia, Bulga~a,Chik, Costa R_ica,Czech Republie, K

Lower Level Dwelopm~?~~t All other nations were classified as behg at a iower level of cfevelopment, or p e ~ p h e e nations. It should be noted here that Chha and Brazil we oflen included m examples in. world system analysis as core nations. Our developmental level analysis pfwes Brazil in the middle leveE development categoq - semi-periphev and China in the lower level development classification -- periphery. With these two exceptiom, and a few others, there is substmtizti overlap beween. our developmental cEu&ers and other world systems reseach. However, we awe &at developmentar level dissection should be the first step and tfie second stage of resogution then should be developixlg nemork malyses focusing on specific relationships m o n g natiom, in this instmce, our erne study of Mexico. We also believe that similar malyses should be c a ~ e dout within nations - in this case study instmce, for the States of Mexico and within cities of that nation, Qfpmicular interest in subsequent longitudinal,malyses will be nation-states that hhae made some upward or damward movement. As an example, Botswana undoubtedly will have show remarkable upward movement in developmental level as will some East Asian

Mexico md Mexico Ci@ h the Lmger Global Context

Mexico and Mexico City In. the Lager Global Context

33

counwies (see Korzeaietvicz and Moran 2997) and Mexico, Others may have had some domward mobilie. Mexico States Deweiiapmental Cluster AL~aXysis

Variaibles used h the States of Mexico developmental level cluster analysis were vwious somces h Mexico that are heluded in our Mexico Database, The derived ~ o m methodological procedwe was the same as for the nation-stalte cluster malysis. Inasmrrch as possible vaiables were the s m e ones used for the nation-sbtes developmental mIysis. For Mexico, several smogate vmiables were used because in Mexico data-gathering focuses on production rather than eonsmption, VariabEes used hthe malysis were; (1) Population she, 1990, log; (2) Gross state revenues, 1988; (3) Smdmdized momlie rates, 1990; (4) Illiteracy, 1990; ( 5 ) Amual population p*, X 990-1995; and (6) Autos per cajpia, 1995, These dbemions were deemed closest to those used in the nation-sbte cluster analysis. Analyti~results shown on Table 3-2 md Map 3.2 are not sqGsirrg since the Fedwal L)is@ictand Baja California f o m a sepmte, higbest level development clu&er-&e core. m e e middle-levef cjwters are clewly demarcated for tfie Sta&s of Mexico - &e semipriphev. Two lower level development clusters reinforced our belief that this cXustw malysis reflects contempam developmenal levels in Mexico, The lowest development cluster includes tfie sbtes o f Chiapas, Guemero, and Oaxaca that are well hewn to be less developed md Ixgely hpoveGshed.

Core States Federal District B@ Cdifomia

Cohuiia Chihuhua CoIima Morelos Nuevo Lcon Tarnaultapis Bsljat California Sur

Aguascalientes Jdisco Mexico Sonora Vucatan.

Cmphe brmgo Puebia mwetaro Quintana Roo Sinalaa

Cuana~uato Widalgo Michoaicm Nayarit San Luis Potasi Tabasco TtacaIa Veracm zacatc:cas

Chiapzls Guemo 0autax;ii

Mexico and Mexico City In the Lasger Global Context Major Mexican Cities

Mmico 'S Large Cities Mexico in 1990 had a city p o p u l a ~ ~tabling n 38.6 miliion or 48 percent of the nation, Of this by fa-the biggest part was Mexico City at 15.0 millioa. The veq hi@ population concm&ation in Mexico City is crne remon that we emphasize the prhate city in &is book, Mexico City is h p o m t as an economic and business center of fit: nation, as well as being the political and cul-al Capital (Pick and Butler 1997). As seen in Table 3.3 md Map 3.3, there were mmy oaer cities that we conce~&atedin the cen&aI fla& of fhe nation but also some located at the U.S. border as well as other mear;, The nmbers on Map 3.3 represent the population rank order of cities in 1990. The second and tfikd Ewgest cities me Guadalajxa at 2.1) million and Monte~eyat 2.6 million, lMexico city" Cluster Anabis

We have akeady cmied out a series of clustm stnalyses for Mexico Megaciv usixxg 30 vxiables and selected other cluster malyms focusing on specific concerns swh ;is the economy, Iabor farce, and envkomental de~adation(Pick and 1ButEer l 997). Subseqiuent analyses for this voject will utilize variiables sirnilas to those far the mtion-state a d sbtes of Mexico analyses. Map 3.4 presenb the 30 variable cluster mafysis for Mexico City (see Table 3.4 for &legation. md mmicipio classifications), Our cluster analysis s h w s quite clearly that Mexico C i v has a "&aditionat wbm development core" wnsistilag of a few delegations in the Federal Dis&ict, O&er apects of the ~1usteranalysis demons&a&&at Mexico City does not fit the traditional development of cities in the U.S. That is, vaious weas identified by clmter analysis showed vwing develspmental levels wih the poorest aeas being locitred on the outer geP;irneters o f the city. Zones identi6ed by cluster malysis clemly have subsbntirrlly diBerent ddevelopmental levels. One is tempted to utilize world system theoxy teminology md label the &aditional cater ;ns a k o r e k e a . This core cs&aim most of the ma~ormultkational and "Mexican 500" "corporations located in Mexico lulegacitiy (set: Pick and BWler 1997 and Chapter f 3). Also hvithing is to label the outer areas of the metPop1i"E region as pe~pheralareas h the context of wmld systems thttov, Qf eowse, that leaves a number of areas that could be cataloped as semi-geriphev, most of which fom a fialGeircle in the north, west md east of the city, Qf special hterest also is &at an earlier factor malysis using a somewhat different defmition of Mexico Ciw and l980 data identified suttstan~altysimilar are= demons&ating that while some change has taken place, the major types of areas remahed substmtially the s m e mubalcava and SchtehgM 1987). Other Mexr'can Cities At the unit of malysis level of mmicipios, other Mexican cities do not have enough municipios to carry out a cluster analysis, However, some dimensions of Pvlmewey and Guidlajara are discussed in fiubsequent sections of this h o k ,

"ate that our definition of Mexico City hcludes all. of the delegations (N=I 6) of the Federsll Distrid and 53 sunou~dingmunicipios in the State of Mexico.

Mexico and Mexico City fa the Luger Gtobaf Context

Sraite

D.F.Mexico * Jafisco * 2 Guadatajaa AM Nuevo fRon * 3 Mante~qm PuebIa * 4 hebla MU Chihuirhuai 5 Juwez GumajuaLa * 6 h n Baja Cdifmia: 7 TUuma Co&uilmurmge 8 TomeonlG.P. W 9 San Luis Potosi W SW Luis Potosi * Uueatzln * 10 MeGda MU Mexico * l1 Toluca MU Chihu&uer * 12 Ghihuhua l3 Acapulco de Juaez Guenero 14 ,Tmpim/C. M. W Tmauf ipar; I 5 Aguascdientes MU Agus~alientes* Vmaem 16 Verwm W Morelos * 17 Cuemvaea MU Coahuila * 18 Saftilla W B@s;California * 19 MmicaIi Queretao * 20 Queretma MU 21 Moretia Micheaacm * Sinaioa * 22 Culia~m Senora * 23 Hernosit10 Durzuago * 24 Durmgo Qaxaca * 25 O m c a M U vemcmz * 26 J a l q a W Ghiapas * 27 Tuxtla Taaa.ufipas 28 Mamoros Tmaulipas 29 Rqnosa 30 Irapmto Gwajueto 31 Maatlm Sinaloa 32 ViIlahemosalCentro Tabasco * 33 Manclova MU Goahuila 34 ~ & ~ @ ~ e / ~ . oSonora . 35 Nuevo Lwedo TmauJipas 36 Celqit. Gumajuao

1990 Pop. X 5,047,685

W =: Mancha Urbana

G.P. Gomez PaiaciO C.M. = Ciudrjld Madero G.Q. = Ciudad Obregon * City is capital of state, ** Large city pipulation data not avaliablr:far 1980. Sour=: NEGI, 1993; Estadisticm Historicas de: Mexico, 2985,

35

Mexico md Mexico City In the Larger Global Context

Mexica and Mexico City fn the Lwger Global Context

Mexico and Mexico City h the L ~ g eGlobal r Context

Mexico's World System Relatiorxshiips

Our cluster malysk, cmied out sep~atelyfiam the Forid B a ~ (1995) k but resorciag their presenhtioq Xlas quite f m l y emblished &at eantemporw Mexica is in a mictdfeXevel of development - a semi-pefiphev camW. A iongi&&al malysis of Mexico's developme~kllevel dso mdoubtedly woufd have s h o w M e ~ c oin a lower level. of development at ealier dates, mus, developmen&l level is not swn as subject to chmge, bo& upwmd and domwwd (see S h m o n 1996 far view). T"bm, we do not envisage development as an ordered sequence as ions: (1) &e mo& likely e is &at &we is s&bility in, a nation" world sysbm position and (2) that while upwad md dowwmd mabiXi@~ eplace, s movements me %ical. &e such upwmd movement appamtly is M e ~ e soh m eirrlier world system resemch placed Mexiea h &the p&pheq (Snyder md fCSck 1979: X 110 B.), However, mare recent world systems resewch, in coacert with our Gndhg, has plilcd Mexico h the semip&phev categoy (Rosscm 1996)- Sa, some chmge $ Mexico's position has been repoged. h h p o m t question is whe&er or not e h g e s in the world system usbg relationships or our mdysis using social and ecotlomi_clevel took plaw shulbeoufly or at diEermt tirnes. Only by s e p ~ a t h gaut developmenQ1 level from nemork changes c;uz this be detmhed. In this r e s e a ~ hwe demons'rsak that Mexico" nemork associatioxrs are hei@tened with the: U.S. since that relationshlip is subsantially stronger Ulan with any other nation. This is m e in the contemporw world as well as hist;orically during, the last 150 yews but not prior to &at t h e . Historicafly,Mexico's itevel of development has chtulged but its

39

Mexico md Mexico City In the Lmger Global Context

relationship with the U.S. has inicluded dirnemions used by world system resamchers, irrcludhg a m s sales, diplomatic relatiom, amed interventions, bade, large Iabor force flows, and economic penebation, However; the t h e period magyzed. becomes an impofimt element h Mexico" development a d its relationship with the U,S, As sux exmpXe, the milldfe 1800s, the U.S, essentially amexeat over half of Mexican tdtory. Shilarly, the: U,S, in the t 940s Wough the 1960s a&iveXy mcomaged Mexican workers to come to the U,S, via the B v m Rogam,. Howevfzr, mipation, which fomally was encowagd by the U.S., is now considered m a major wcial problem by m n y in the U.S., while; it is ipored or discomged h official policy (1Massey 2998). CwentIy, simuitmeously as extensive gati ion fkom Mexico to the U.S. is t&hg place, thme has been extensive U.S, coporate pene&ation into Mexico. 'Thus, my mafysis must not imore such manmental binational s h i b , The flows and excfnmges are WOways, albeit flucbathg over time,

Clss#gr6 (SP) Xxtapduca Jucfiitepc Milpa &ta

zumpmgo Clmter 7 [P) hecmeca A Y W ~ ~ O Coyotepec

GIwfer8 (P) Axagusco

Claster D (P)

Clwter f O (P)

Ailaulla

Eetltaingo

Jilotzingo

Esidro WtreJa

Mopdtem

Tepetlaoxtac Source: Pick and Butler, Mexrco Meg~ci&> Weswiewr &as, 11'34)7. * This table shows the cluster p u p i n @ for the defcgdons md rnunicipias in Mexico City in 1990. C = Core, SP = Semi periphery, P periphery

-

OMr proceduw, &m, was to fir& classi& contemporary Mexico into a developmental level. This process placed Mexico into an upper-middle developmental level or semiperipfiery. lndqendently 6-om our analysis, the World Bank (1995, 1997) carried out a somewhat similar analysis with the same results. Next we determined Mexico's relationship

40

Mexico and Mexico City In the Lagm Global Context

with other counbies of the world uskg dimensicrlls suggested by world systems resewch and other variables that have not b e n examhed previously, but n d ushg these variables to cXmsi@ Mexico as zs core, semi-periphery, or peripheu nation, Among contemporaq vari&les examhixled are coqorate penetrations by U.S.. md otXler intemittional companies, foreign direct investment, export. md hports by specific nations, in-bond maquiladora hdusm, oil, and tourism. Other favorite dimensions of world system resemchers, such as diplomatic relations, s trade, militav htervention, etc., are only minhally explored in our matysis o f cantemporq Mexico, as they are appropriate in our cwbneous malysis and for historical reference. Tramnational Corporate Pevselragjon

This section presents only mitlimal historical infornation from that available illusaating &ansnational covomte penewation into Mexico; this pene&ation by individuaI corporatiom is explored in more detail in subsequent chapters, especialliy Chapter 13. Mexico" major SO@ copomtions are located pem&fy in Mexico City (the Federal Disbrict md municipios in the Shte of Mexico smounding the Federat Distritct). "Ilk concen&ation haeased bemeen 1986 and 1993. The vast majority of foreip corpor&ions in Mexico h 2986 a d l993 were of U.S. origin. As foreip origh of capibl in Mexico increased bemeen 1986 md E 993, over half was from the U.S. In 1986, 95 of the major Medcm ""SOO"\o~orations were U.S. coxlporations; of these, 29 percmt were prominent in the U.S. "Fomne 500"". The concen&ation of ""500"'coqoratlons in Mexico hereased ixx the Federal D i s ~ c kom t 145) ;in 1986 to 206 in t 993. mere was a concen-tion of bo& foreip and Mexicm coqorations in the Federal Distric'c (Mexico Cily), Concen&ation w;ls edancedt in. M e ~ c aCity during the same t h e period into two adjoinhg we= - Mime1 HidaXgo md Cuadtemm and h turo adjacent meas in peater Mexico City in the State of Mexico - Eeatepec anct Tlatlnepmtla, Thus, in Maico, &ere was geomphic concen&agonof macjor coprations by state, by city, md by area within city (Pick and ButIer 1997). Subsequent economic penekation mcl exchange malyses, as reflected here by multinationals, will take into account nations, m ~ i m d eand , directionativ.. Foreign Bri.ecf Investmgnf (FBI) Mexico" acceptmce of foreign direct irrvesbent has varied substmtially o v a the yems - 488 million 1985 dollss ixl the 1955-1962 p d o d ta 3,189 million 1985 dolXxs in the 1989-1993 period (Calderone, M o ~ h o r e m , d Peres 1996). Cwently there are more substmtiat. FDI hfiows to Mexico thm in the past (BIeakley 2995; United Nations 2992; Calderson, Mortimore, and Peres 1996). h y aceouflt of Mexico" htematioaal relationships must take note of the debt crisis in 3982. Probably as a result of the 1982 crisis, in 1983 Mexico subsmtially changed its FDI rules md regulations with braad Iiberalimtion (W 1892: 83; also see Pick and Butler 1997); the result was extensive FDI iin~rmesin E987 md follavving yews, A ifited Nations repae hplies that Mexico then moved h m a kestrictiw hi& goWh' nation. into a Vibrat, law govvth' nation 19%: 68). The h p a d of FDI, of course, may be viewed as positive or negative dependkg upon or com&ies kam which FBI orighates (see Chase-Dum 1975: 726) md its host c o u n ~ hpact upon the host coungry, Generally, FDX changes have resulted h an industrial resmcmbg hMexico, but only in specific seems, In any case, these changes have not been static eiaer by states within Mexico, by ciw in Mexico, or by aeas within cities. The changes have been &astic and &ernational, and domestic networks have drmatically cbmged over the past few years, Some af these chmges we exmined h substmtial detail in subsequent chapters.

Mexico and Mexico City In. the Lwger Global Context

44

Exports and Imports As aluswted an. F i p e s 3. t and 4.1 in the next chapter, tfie mapimde of expo* koxn md impom to Mexico has changed considerably over the yems. IDaddition, the balance of impom and expoI.ts has bem at equilibrium at times and at o&er y e m k r e has been an hbalance in ei&er expcl.1-t~or hpods. m i l e cam&ies exported .to md hpoaed &am hwe also vwied over t h e (IW 1979, 1991, 1998; Pick md Butler 19971, its p r h q mdhg p m e r Eras been the United SWes, m i l e these chages h ma@&de have been subskntial, the U.S, has dwded the & d e of all a&er wmwies pat toge&er. n w , any neworked relationship needs to take into =count the hista~calwatext. In any case, a oneway b i n relationship ~ misses the dkectian md mamihde af the relationship, The followkg chaptern exmine in more dmil exports and h p o ~ by s seaom md c o m ~ e s

Figure 3.1 Impad o f Gods, Export o f Goods, and Balance of Trade, Mexico, 1979-1998

In-Bond lndwtqy (Maqulladoras) In 1980, &ere were almost 120,000 employees in the h-bond or maquiladora indusv, mostly along the U.S. - Mexico border. As shown in Table 3.5, by 1998 the number of nnaquiladora workers had hcrearsed to 975,380, Extensive data far 1989 and 2998 illus&ate variation in maquifadora coneeneation among border gates and el'ties, salaries, gader digerences md foreim and ciornesic components used in the indusby. Ovewhelmingly, foreip components were used as opl>osed to dmestic componem - 23.2 billion pesos versus 0.37 billion pesos for example in l989 (see Pick md Butler 11994).

42

Bordier Sktes Total Source: Secrelaria de Comer~io,1998.

Mexico md Mexico City In the Larger Global Context

833,602 975,380

85.5 100.0

GroWh of the h-bond h d u s q incremed substantially bemeerx 1990 a d 1998, with almost half in the tvvo border sbtes of Ch&u&ua and Baja California ( m G f 19535; Secretmiai de Comercio 1998). Grotvth of the maquiladora indusw &W accelerated 1996 to 1998, perhqs a result of the pmsage of NMTA, Maquiladorm me ahost exclwively fareim cun&olled entities with the U.S. dominatiung the overall hdustry. However, oher coun&-iesare hvolved in the process especiaUy Asian, Any analysis of contemporw Mexico mmt consider haw the mqailadora ixrdusm is mlated to e x p o ~ and s hports in the Mexican. context and especially to the o~gilaof component parts and the final desthatioa of completed produce. h addition, as with other exchmgm iin the world system, there is @eat v ~ a t i a nh mapitude, dkection, and in product sectors. The lstbor force in mquiladoras is mostly young women at lower level jobs waking .for minimal wages. Hawevw, in same locations and product Ihes, for exmple Tguma television maquifadora, the labor f o r ~ eis more hi&ly skilled, h Mexico, &mnational coqorations are dorninaed by entev~sesconcerned vvih a*os, computers and elec&onics, auto pats, chemicals, fabricated metals, and -sportation equipment. However, maquiladaras are dominated by elec&onic, auto supply, and &xtiEe ~oqomtiom, A subsequent chapter is devoted to the development of maquiladam and their cunent staas. Oil

Dwing the past few yews in Mexico, mmy nationaliM enteqrises have b e n priviltized md many of them are now subsidized by the gave exlt. The ups&em oil indusq in Mexico, however, has remained naGonalimd. Meru'co is one of the world's largest crude oil producers and is invited to aaend meetings of Organiation of Be&olem Exporting G o u n ~ e (OPEC). s As with most other relationships of Mexico with other worldstales, the oif industry" s*r crude oil expos p-er is the U.S., exceedhg all o&er c o m ~ e (see s Table 3.6). The U.S. is the refiner of most of the ail, some of which is sold back to Mexico, There also is extensive v;lsiation in Mexico of P E W X with the other stabs and cities shce oil production. and refming are dombated by two sbtes (Tabasco and

43

Mexico and Mexico City In the Larger GIobal Context

Veracmz) and in a limited number of other states, On the other hand, disQibtltion is nationwide while consumption t&es place grimarily in Mexico Megacity. More in-deptb dissection of petrolem, chemicails, and petso-~hemiealsis repaxted in Chapte-lr 8. Table 3-6 Oil Expaw

Spain Japan Nation of Sat Jose A g m m t Others Total

1368.6

100.0

Mote: Figures m in thousands of banels daily,

7;~grism As witb most other economic wpects in Medco, the flow of t o ~ s t entehg s Mexico by place; of ori* is dominated by the U,S, - 94 prcent (see Table 3.7). Similwly, 90 percent of Wdsts &om Mexico have the U.S. m their destinatiou (see Table 3.7). mus, agah my analysis that only is concerned with a one-way rel;illionship is misleading, In addition, while t o d s m ixz both &ections is @owing with the:fJ,S,, Latin d e ~ c a tno ~ s t s hcreashgly are net visitkg Mexico (Pi~kmd Butler 1994; Wodd Tourism &ga~mtion 1999).

Table 3.7 Taurists Entering and Leaving Mexico by PIsee of Origin and Destination Year United Sbtm Can&&

Europfl Latin &erica

1983 3,541 1 93 X46

301

"IburistsE~teringMexico By Place oJOrigin 15186 19388 1989 1987 3,895 4,620 5,016 6,385 336 313 247 361 149 2x9 li 12 15'7 205 225 318 261

To~risfs Leaving k i c a by PIme of Destfnatton 2985 1987 1988 1989 2,542 2,303 2,687 3,116 3,587 Gmada 10 9 Il 12 14 *trd h e f i c a 41 34 39 45 51 South h e r i e a 16 14 16 21 25 Europe 102 91 106 130 I54 Asia 7 6 8 8 10 Other 13 13 XS X9 22 TotA 2,73 1 2,470 2,882 335l 3,863 Begnition: Touris&Entering Maico m clrrssifiedby their place dorigin and place of destination in ttnousartds ofpwsons. Source: Secretaria de Turismo, Bmeo de Mexiw, 1992. Year United SWm

198.5

1990 5,598 294 189

276

1980 4,WS

17 59

28 I76 lI 25 4,321

44

Mexico and Mexico City In the Lmger Globat Context

Wi&in Mexico there we substantial regional diBerences in the ratios of national to foreign visitors. In 11990, this variation occwed whe&er plamed, mditisnal, g m d city, t are the fwus of malysis (Secrewia de Twismo interior city, or border cities t o u ~ seenters 1998). As examples, the p l m e d towist centers of Canch md Los Cabos, Bda California Sur amacted substmtially more foreip visitors thm domestic while the p l m e d tomist caters of 1-pa and Bahias de Huawieo in Qaaea and La Pm, Baja California,were more am&ive to Mexican towists. The overall conclusion is that t o ~ s mis associated with other ntzlion-states and htemalfy in. subs~tiallydiffereIlrt mmers. Like nnaquiladora, the lower level workers are domestic, low paid, and In m i a l jabs. Tourism is delved into in more dehil in Chapter 16. Other Flows and &changes Substmtial I'xlfomation on o&er types of flows a d exchmges of Mexico with other world nations, helrtdhg teltephone calls, persamef, techno1oa tsmsfer, abline pssengers to md kom, etc. is presented h oher c h a p t e ~of this book. O&er apects that need to be investigated inelude cmel mmgemen&, patent license exehmges, subsidi&es, alliances etc. Subsmtial data also are presented on domestic flaws and exchmges (see GONAP0 199X ;Pick md Butler X 997). Conclusions

We assume that there is a relationship beween the level of developmcmt of a nation, in this irxstaoce Mexico, and its exchanges with other nations, Exchmges bemeen coun~es, -in our opiaion, are not binary nor alwssys in the s m e domirtant dkection. Fmher, some exchmges a e more ca~sevential&morfiers and their siwificmce ehmges over t h e . We blieve that evenblly development and world systems resewch will have to come to &ps with the problem o f causality. That is, how do development levels md world systems interact with each other at digerent t h e s ? Does developmental level cause a nation" relationship h the world system or does position in, the world sy&em cause developmental level? Orsis there an htemctive system wi& va~ousiterations impacting the relationship? The little longiadhal reseach that has been aceoxnplished suggests that nations, both In developmentaf and world systems position, rernab relatively s&bIe a~rosstime. Mexico illius~atesthat some upwwd mobiXiq may be occmhg; BoBvvma h our analysis shows aor;f.lercounm mcending. One smdy posLuEated hat there mi&t be other changes, h the o 1998). There is reseach demons&&ing&at ascendmcy and damward over longer periods of historical epochs (see Shamon 1996) and ontemporq world (see Kormniewicz and M o m 1992 1025 R.,). If so, the proposition that stren@h begets s&en@h in economic syskms needs to be exmked more &oroughly, m a t are the conditions wder which a counm ascendts or descends in developmental Zevel md the world system? Even in tlxe long m we expeet substmtial stabiliq, both at the world systems level, but also within a comw, and mea wiain regions and cities. The most interestkg aspect of s as to some all, of cowse, is the question of what leads to "che fall and rise of c a m ~ e and units within them. There is some indication from our malysis that most weak comaies are geahg waker; similar results appear wi&h Mexico by state and region. Another implication of our reseweh is that there are subcr?teegoriesamong the core, semi-periphev, and peripheq, wbefier at the counw, state, or smaller units of analysis (also suggested by Snyder and Kick 1979 using digereat analsic techiques).

Mexico m8 Mexico G i p Tn the Global Casltext

45

Fkalty, we want tcs emphasize that our analysis i s time-bomd and that it will be xeecessarly to e a w out longer tern analysis to aasemin changes in develspmene level and world systems position,

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Industry Entrdllacaon History o f Rlanufacturing ia Mexico: Import Substitution to World Competition and Export Productivity and Competitiveness o f Manufacturing Seeton Se~~rees ~fLnv.e"~tmr~"af il~. Zlnduslrly Regional Location of Manufacturing in Mexico Autsmobilm %adAuto P%&@ "$"de~ammunisratiotrs and Perseaal Computer $adu%itv WaMarce and SW1 Levds ~@B~~~s~@%Ps Case Stagy: Gema Case Shdy::Vitm

Industry Introduction

Manufacturing is a major part of the economy of Mexico, and one undergoing the processes of globalization. This chapter examines changes that have taken place in Mexico over the past thirty years that have positioned Mexico as a more important worldwide industrial player. These changes have stemmed from government policy shifts, fiom economic changes, fiom business decisions by private sector companies, and from trade agreements such as North American Free Trade Agreement (NAFTA). In North America, NAFTA has encouraged companies and their subsidiaries to work together in collaborative arrangements. Foreign companies have emerged with stronger Mexican divisions over time. Certain companies in Mexico have graduated to the world manufacturing arena. These tend to be large firms with global brand names, such as General Motors, IBM, HP, Cemex, or Tamsa It is remarkable that some Mexican firms, such as Cemex, Desc, and Tamsa, have emerged as worldwide leaders. The stimulus for this change away from import substitution towards global business has been foreign direct investment, that is capital investment in plant and equipment in Mexico made by foreign owned companies. Another stimulus has been the need perceived by the Mexican government to open up the economy to foreign investors and capital and to privatize. This reflects the inability of Mexico to support its companies through domestic financing. Mexico has had a large national debt and a currency that has weakened over time versus the dollar. Hence, the government faced the dilemma of an inward orientation leading to stagnation and lack of competitiveness versus the opportunity of outside capital investment to strengthen its competitive stance. It was decided during the Salinas administration to strongly support opening up of the economy and manufacturing to outside investment. The manufacturing sector in Mexico may be divided into the non-maquiladora and maquiladora sub-sectors. The non-maquiladora sector comprises about 90 percent of manufacturing production and about three quarters of manufacturing employment. This sector varies greatly fiom small enterprises in traditional industries such as textiles to large, sophisticated multi-national manufacturing plants such as IBM's ThinkPad plant in Guadalajara. The maquiladora sector of manufacturing involves CO-productionconsisting of close collaboration between a Mexican and foreign counterpart firm. The Mexican counterpart finn is responsible for assembly of products and takes advantage of inexpensive Mexican labor, while the foreign firm provides components, legal advice, technical expertise, marketing and distribution to foreign markets. The foreign firm is commonly a U.S. one. This arrangement stems fiom legal structures first established in the late 60s. Today, many major foreign companies are partners in the maquila industry, and the industry employs about one million workers. Maquiladoras are covered in detail in Chapter 9. This chapter examines the comparative productivity of different sectors and, based on studies of Banamex, concludes that the most productive parts of manufacturing are the large, export-oriented firms, followed by small manufacturing firms. Maquiladoras have the lowest productivity. This may be surprising giving the publicity of certain high profile and high-tech maquilas. But overall, the maquila sector has low-skilled labor and adequate but not world class equipment and technology. Over the past 30 years, the maquiladora sector has nevertheless grown rapidly, but that has been due to sharply increasing volume rather than productivity. Not surprisingly, the location of manufacturing in Mexico is predominantly in the advanced developmental parts of Mexico, in particular in the Federal District, Baja

Industry

$9

California, the State of Mexico, JaXisco, and most nodhem border states, In this chapter, indus&y and manufacturing are examined at the municipio (i.e., county) level throughout the nation. There is a high degee of concentration of manufacturing in a relatively srnaXf number of municipios. Large sections of the nation, especially those in the south, soutt.least, and center no&h, have little manufacturing. The largest concentration of manufacturing is in Mexico City (Pick and Butler 1997). There are also major concentrations in Monteney, Cuadalajara, Ciudad Juarez, Tijuana, and Puebla. Some national manufacturing corridors are evident. Largest is the corridor extending over several hundred miles from Mexico City nortizwest to Aguascafientes. Another conidor is evident to the west of Monferrey, By subindustry, other patterns emerge. For inst;snce, the textile Industry is concentrated in four or five cen&al states, as well as in border cities adjoining Texas, while the steel industry and reIizted manufacturing are predominsmtly in Montemy, Mexico City, and cefiain border cities. The chapter examines Mexico" largest manufacfrrring industry that of autos and auto parts. This i n d u s ~has gown in exports over time, shipped predominately to the U.S. At the same time, a significant domestic market has been maintained, Other manufacturing industries of cornpLlters and telecommunications, steel tubing, and soft drink boBting are examined briefiy, Each of them has international aspects, although in different ways that will be discussed. In the transition of Mexico" manufacturing from domestic to global levels of quality and competition, improvements in tecknoloa transfer and employee skill levels have been crucial and are discussed. The chapter shows &at a major shia has taken place in Mexico to more open and often globally based manufac&ring. The chapter also points out how some of the problems and issues can be better understood %am the perspective of world systems theory. The chapter concludes by examining two case smdies of strong companies, Cemex and Vi&o, from the noflhern city of Moateney. Cemex has been truly remarkable in moving into second place worldwide in the cement industry. Vitro, a Mexicm "gmpo" i.e. a family controlfed conglomerate, demonsfraees successes and failures in forays into global markets.

ffistov of Manufacturing in Nexieo: Import Substitution to World Competition and Export In 1950s and Ic)SOs, the Mexicm government sought to protect its domestic industzy though a policy of impod substitution. In other words, instead of importing goods %om overseas, domestic companies were protected by subsidies and tariffs &am foreip competition. This allowed domestic E m s to prosper, but the cost was decreasing competitiveness. More of the economy was nationalized than today and the manufacturing sector was protected Erom foreign competition, However, the shock of the debt crisis of the 2980s shifted the Mexican government to consider modernization of the industt-iaf sector and a more outward Xookhg paticy that favored fareim investments and exports. In the late 8Qs, and during the Salinas administration of 1988-1994, Mexican government policy shified shavly in favor of expoas, foreign investment, and privatimtion (see Figure 3.1). Manufacturing firms h a t bridged this transfomation realized the advantages of investing in technology, increasing qualily standards, and, for many, regarding Mexico as a key location for global tnanufacturing, especially to serve the U.S. market, There were different ways this took place. One was the maquiiadora approach that favoxed tegally bound investment by Mexican pafiner coinpanies in Mexican facilities, coupled with foreign component supply and tow cost assembly in Mexico, This led to

finished good export by binational maquiladora enterprises, mostly into the U.S. market, A quite different approach was present in Mexican technology sectors. This type of expod was based on highly efficient and technology-driven facilities, with a ~nixtmeof tow- and high-skifled workers, There is an emphmis on excellent quality contml in order to market products competitively in the U.S. and other advanced countries. These different pathways to much hi&er export were pursued simultaneously, with the Mexican government providing different types of incentives and eneourqement, "There has been a range of labor intensiveness in Mexican industry. For instance, the textile industry, maquiIa or not, is labor intensive, while the chemical industry, which has a strong foreign presence, is capital intensive. Mexico does not just need to depend on inexpensive labor, since, for many industries, it has v e v large domestic markets, and for other industries, it produces world class products sold i-zt market prices in Worth America and beyond. Manufacturing production has grown substantially over the past three decades. As seen. in Figure 4, l, manufacturing production tripled between 1968 and 1996, Production has moved steadily upwards with two exceptions, in the years of the debt crisis in the early to mid 80s and following the peso devaluation of December of 1994-Xn both of those periods, a weakened economy lessened production. The importance of manuhcturing to Gross Domestic Product (Product0 Interno Bmto or PXB) is s h o w in Figure 4.2, The major impoaance of auto production is also evident. During the past two decades, as mmufacturing in Mexico increased h production volume, quaXi~yand competi"Eveness, it has become much mare prominent as a component of expoas. For instance, if exports are measured by those &om Mexico to the OEGD nations, tvhich include the U.S., most European nations, and some other advanced nations, the proportion of expo&s that are nalural resources declined between 1988 and 2992 &om 67 percent to 29 percent (Data from QECD; cited in Cafdertin, Moxtimore, and Peres 1996). This decrease mostly involved lowering the propo~ionof pee~oleurnfrom 50 to 18 percent, while agriculture decreased Iittte &am f 3 to 9 percent, On the other hand, manufacturing as a proportion of OECD exporls increased 1980-1992 &am 3 1 to 67 percent (Data &orn OECD; cited in Calderdn, Mogirnore, and Peres 1996). Out of manufac~ing" 3 1 percent of exports, the most ixnpofiant components in 1992 were: passenger vehicles (17.7 percent), vehicle pms and accessories (5.4 percent), equipment for e l e c t ~ c i vdis&ibution (4.8 percent), telecommunications equipment and parts (3.1 percent), internal combustion motors and p a ~ s(3.0 percent) and television receivers (2.9 percent), with the remaining manufactuning of 4, I percent. {OECD data; cited in Calderbn, Moraimore, and Peres X 996). These manufacturing areas g e w rapidly over the l 2 yeas period, For instance, passenger vehicles only comprised 0.3 percent of expo* in 1980 and vehicle parts 1.3 percent. Clearly Mexican manufa~turingis dominated by the auto and auto accessory subsecwrs. Foreign and domestic fims shared in this transfomation. Although foreip ownership of fims in the manufacturirtg sector remained fairly stable at about one third, foreign fims were of peater importance in expod, Foreign fims recognized the advan~gesof Mexico as a key location for expo& to the huge U.S. market. They also sensed the lowering of government restrictions and opening up of oppodunities to combine technology with a low cost and productive labor force. One example is automobile manufacturing, where foreign fims especially the U,$. big three, as well as Nissan, and Volkswagen dominate, In 1997, Genera1 Motors, Chosler de Mexico, and Ford were third, fourth and fifth most important coporations in Mexico; Volkswagen was number 10, Nissan has a large presence in Mexico but did not respond to inquire regarding economic data (Expansibn 2 998). Auto

Figure 4.1 Index of Manufacturing Production, 1968-1997 140.0 120.0

8 100.0

3

g 11

80.0

5*

60.0 M

4%

9 40.0 20.0 0.0

1968 I970 l972 X974 E976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

Year Source: International Financial Sr;rtisties Yembook, 1998.

Figure 4.2 PlB, Manufacturing Industry Production, and Auto Industry Production, 1988-1994 (in rnilfians of 1993 pesos)

-

Source: XMEGl, f 996, PIB Praducto fntemo Bruta. Note: the percentages are percent increase, 1988 1994.

-

Manufacturing Industry Production Auea Industry Production

Industry part- expoding E m s comprise a mixture of U.S. firms such as Delphi and Mexican ones such as Desc. In these auto subsectors, foreim E m s stimulated the growth though substantial foreign direct investment in the 1980s and 1990s. Overall, &reign E m s in 1982 accounted for $9.8 billion dollars in the private sector, compared to domestic fxnns38.9 billion, or 47 percent (Calderbn, Mortimore, and Peres 1996). Foreip firms were 36 percent of total public and private expo&s that also includes the nationatized pe&oXeum industry, The influence of &reign E m s applies also to imports. Foreign fims accounted for 39 percent of imports in the priv;irre sector and 36 percent of total impofis in 1992, The import and export flows are mostly &om and to the U,S, In the case of imports, maquiladora components were impot2ant but also electronics and technology components outside of the maquiladora. The impact of manufacturing and particularly of &reign E m s an exports and imports has been rapidly increasing since 1986. As seen in Figure 3.1, exports, in dollars, increased from $21.8 billion in 1986 to $96.0 billion in 1996 (IMF 1998). Concomitantly, imporls p e w &om $18.8 billion in 1986 to $89.5 billion in 1996 (IMF 1998). In the early to midBOs, a seonger peso fed to higher pricing and contributed to a negative balance of trade for four years, but the peso crisis in late 1994 restored a positive balance af aade, since expofis became more affordable. However, regardless of fluctuations in the balmce of trade, &am the mid 80s the volume of both exports and imparts has g r o w substantialty. Productivity and Competitivenessof Manufacturing Seeturs

An outcome of transformation Erom ixnporl substihrrion manufacturing to outwad looking, competitive manufacturing has been growing productivity, This section Iaoks at the productiviv of Mexican manufacturing during the past two deciildes including several major sectors. It compares this productivity ta other Mexican and 61,s.economic and manufacturing benchmarks. Increasing productivity combined with aaention to quality standards has can&ibutedto chanced competitiveness, The annual gain in Mexican manufacwring productiviv from f 988 to 1995 was substantial at 1.7 percent yearly. It was much higher than the 0.2 perGent annual increases for the Mexican ecmorny as a whale (Banamex 1998). Qn the other hand, it is lower than the average annual U.$. manufacturing productivity gain of 3.1 percent &om 2 988 to 't 905. The hi&er manufacturing praductivily in the U.S. is altso mirrored in the higher annual gro.rvth rates in constant dollar GDP, which was 1.4 percent for l 98 1- 1395, compared to 0.5 percent for constant peso PIE3 in Mexico (Bmamex 1998 based on XWECI data). Manufacturing productivily was much higher for large non-maquila companies (referred to here as ""Xrge fims") and less for middle and small non-maquita fims ("middleismall fimsU")nd maquiIas. Large firms increased in productivity from f 988 to 1993 by 7 percent, while middle and small companies had 0 productivity gain and maquiladoras increased by 0.8 percent (INEGIk Monthly Indusfriat Survey, cited in Banamex 1998). This result. reflects the greater techological and exparl-oriented focus of larger fims, In addition, foreign ownership associated with export orientation is more present in larger fims (see Chapter 13). Greater productivity gains in large firms versus maquiladoras are not surprising if one considers the emphasis on low cost in most maquilas (see Chapter 9). On the whale, maquiladoras are oriented towards st. strategy of low cost and efficient assembly, utilizing minimally paid workers. This swategy is successlirl but not because of breaking records for woker productivity. Another reflection of this is that some highly productive maquiladoras, which have shiAed to higher cast labor, have eventually ""gaduated" to the regular mmanufa"acluringsector. As seen in Figure 4.3, maquila fims had

higher manufaetwring PE3 and employment gain than non-maquilas from 1988 to 1993, but maquiIas had lawer manufacturhg productiviw gain. As will be seen in Chapter 9, the huge g a ~ inh the maquila sector over the past thee decades has been driven by volume in firm size and output rather &an by employee productivity. Maquiladoras have su@erfomed the rest of manufackring in PIB and emplopent, while trailing in procfuetivily,

Figure 4.3 Percent Annual Growth in Manufstcturing PIB, Employment, and Productivity, 1988-1993

Maoufacturing PIB Gain

htfmufa~turirrl:Employment Garn

Manufacturing Productivity G&n

PXB = Produeto Interno Bmto. Source: Economic Research Depmment, Banasnex, L998.

Sources of Investment in Industry

The expansion of Mexican manufacturing has been due largely to foreim direct investment. Fomign direct investment (FDI) is direct investment by fims In business operations in a foreign nation (Hill 1993). FDI may be a good mechanism to stimularte overseas business if there are restrictions on financial investment andor tariff baniers to &adhg. Earlier in the Wentieth centuv, FDI in Mexico w a ddireaed towards natural resource businesses. For instance, as seen in Chapter 8, the Mexican pelroleum industry was buiIt in the first third of the twentieth centuxy though a combination of foreign dkect investment and Gnancial investment, These investments were later nationalized. Tn the errs of ixnporl substitution in the 50s and 60s, there was liltXe FBI, because manufacturers utilized domestic materials and did not need sophisticated or expensive facilities to perfom reasonaMly well, in the protected domestic markt. During most of the 80s, FBI increased, although it declined during the debt crisis of 1983-85 (see Table 4.1). The general g o w h in the 80s had to do with the many shi&s faking place in the economy at that time and the motivation of some larger entevrises to expoft since the domestic economy was weak, FDli

increased Eurther in the 1990s, even though there was some setback foHowing the peso crisis in 1994. TabXe 4.1 Foreign Direet Inves-eat

1989-1993

Ftows, to and from Mexieo,

3,189

235

* The Mexican government (iwsnot tabit7ul;ttetotal outflows. The FDI outflow fmm Mexico to the U.S, constitutes the predominant outflow. Sour@: Calderon, Morlimore, and Pmes, 1996.

During the past 25 yeus of increwkg FDI, the %em of FDI investment have shified in a manner paralleling production discussed earlier i.e. h n n FDE to exploit naaral resources to FDI for hi@ t-echnologymd exporl oriented sectors such as automobiles and electronics. An impodant change in law took place in 1993, at the end of the Salinas Administration. The old law on foueim direct investment from the era oaf imporf substitution was replaced by a modemixd law encouraging fareign direct investment axld mking it easier, At the same time, foreign financial investment was encouraged by a different law (Calderbn, Modimore, and Peres 1996). NAFTA went into effect in Januay of 15394 and encouraged FDI, especially from Wodh American Ems and 6 m s utilizing Nofih American components, The overseas sources of FDX have been phncipa1ty %am the United States and Europe, as shown by Table 4.2. secondarily

United States United Kingdom Frmce Switzerland Gemany Ndherimds Japan Canada Spain Others Source: SECOPI, 1993, cited in Catderon, Moaimare, and Peres, 1995.

63.8 6.0 4.6 4.6 4.S 3,5 2.5 2.0 1.8 1.X

11.0

From a world systems theov perspective, this list represents advanced nations to obtain Iabor and locittional advantages, rather than nabral resource ones investing in the semi-periphery. European nations account for a qu;lrler of F91. European enteprises can make eficient investments that directly access the growing Mexican market as well as indirectly accessing the U.S. markets.

An important new aspect of hreign direct invesm-tent is outward FBI, in other words direct investment by a Mexican corporation in business operations of an overseas nation, This implies foreign operations by Mexican firms, a relativefy recerrl development. As seen in Table 4, l, this stafied in the mid SOS and in the early 90s and was at a level of 7 percent of inward FDI. There are remarkable covorate examples of this, including the cement c m p m y Cemex and the conglomerate Vi&o, which are case studies at the end of this chapter. As the larger and more efficient and more globally competitive Mexican fims look for expansion and new markets, outwad FDI can be expected to rise reIative to inward FBI. Besides FDI, there have been other foms of investment in Mexican manufacturing over the past two decades including private financial invesment and investment in times of duress by international bodies such as the IMF, These, however, have not been as impodant as FDZ in stirnulathg the expansion and competitiveness of manufacturing,

Regional Locatirm of Manufacturing in Mexico This section examines the regional distribution of manufacmring sector in Mexico and some implications of this regional distribution based on world systems theory, The data are drawn ~ o the m 1994 Mexican Economic Census at the municipiio level (mEGE 1997). The rnunicipio level reveals many spatial debils that are not evident at the state level. 'This section considers the dis~riblllionof overall manufacttlrhg levels before exmining two manufacturing subsectors of steel and textiIes, The subsectors reflect a contrast betvvczen a more modern and technological indusq and a more traditional one. The distribution of total rexnunaation in manufacbring is s h o w in Maps 4.1 and 4.2, Map 4.1 displays the cenwal section of the nation and emphasizes the manufac~ing""bett"" that stretches from Guadalajwa in the west to Puebla in the east, and sligt.ltfiy south. This t in the industrialimtion of the nation (Garza 1985) central "beeItWis i m p o ~ m historically and today constitutes the major induskial production zone of Mexico, It is refened ta in this chapter as the Cenwal Zone. This belt contains thee out of the four largest Mexicm cities (Mexico City, Guadalstjma, and hebla) and nine medium sized ones. The large and medium sized cities had a combined 1990 metropolitan population of 23.2 million, comprising 60 percent of the national mebopotitan population (Pick and Butler 1994). The cities are interconnected by transportation, communications, and trade in many respects fom a system of cities (CQNAPO X 99 1). Total nzsmufacturing remuneration is concentrated in particular border locations (Map 4.2) md in the central zone (see Map 4.1). The most important border ci~ity for manufacturing remuneration is Ciudad Juarez, the sister city of El Paso, Texas, followed by Tduima, opposite Slln Diego, In Chapter 9, we demons&ate that these are the two dominant cities .for maquifadoras. Tguana has electronics xnanufactrrring while Ciudad Juarez emphasizes autos and machiney. In the 1 9 9 0 ~ the~ two cities accounted for approximately 40 percent of maquila employment and plants. Maquiladora manufacturing in these and other border cities g e w rapidly since the early 2970s and continues to increase. In manufacturing remuneration, the other important border cities ad,jacent to the border art: Mexicali, Nogales, Ciudad Acuiia, Piedras Negas, Reynosa, and Matamorotos. Beeper in the border states are the important cities of Hemosillo and Chihuahua, both of which have major auto industy manufacturing and the sister cities of TorreoniGomez PaIacio located on the DurangoiCoahuila border, and Monclova in central Coahuila (see Map 3.3). The nation" second largest manufacturing complex is located in the Montemey metropolitan area and sketches into the Coahuila municipios of Ramos Arizpe and Saftlillo

(see Map 4-21, Saltillo had a 1990 population 441,739- The I ~ g e s tmanufacturing remuneration for any municipio is the municipio of Los Garza, which had I994 manufacturing remuneration of 2.8 billion pesos. This is also reflected in its I998 PIB of 4.8 billion pesos (MEGX 1990). Neighboring San NicoXas is also very high at manufacturiing remuneration of 1.38 billion pesos. The geograpkicaILy concentfated manufacturhg complex in Monterey parallels the concen&ated manufacturing zone in the center belt of Mexico, The cen&al manufacturing ""belti"as the very large manufacturhg center of Guadalajara in the west. Within Guadalajara, the central municipio of Guadala~mahas high manufactusing remuneration of 2.41 biXlion pesos, followed by the adjacent municipio to the noahwest with remuneration of 876,574 pesos, There are many irnporta~ manufwturing centers located in a '"strip" bemeen the city of Aguascalientes and Mexico City, including Leon, Erapuato, Celeya, md Quereero. Mexico City is evident as the largest manufaehuring complex in Mexico, Its manufact-uring is concenkated in delegdions to the no~hwestand north of the Federal Disfrict and in adjoinhg aseas in the State of Mexico, The largest municipios for mimufactwing remuneration are Tlalanepantla and Naucalpan in the Sate of Mexico, along the northwestern border of the Federal District with totals of 2.65 and 2.18 billion pesos t respectively, and Azcqotzalco and Miguel Hidalgo in the northern Federal D i s ~ c with total of 2.62 and 2.06 billion pesos. Together, these four adjoining municipios had a total manufacturing remuneration of 9.51 bitlion pesos. They are su~oundedby seven other municipios in the 1-2 billion peso(s) range, The Mexico City manufacturing complex is the Xmgest in Mexico, md depending m the measwe, accounts far 30-50 percent of the nation's manufact-uring. There also is a gowing manufacturing corridor extending %om Waucalpan to the west; it goes through Lema; and ends at Toluea, a fast: gowing city and manufacturing center having total manufacturing remuneration of 1.31 billion pesos. The cen&al ""belt'knds at the city of PuebIai, consisthe mostly of the municipio of PueMa with total manufactu~ngremuneration of f .5 1. billion pesos. Puebla was important historically in textile manufachtrkg, and today has significant auto and auto pa&s production. Manufacturing subsectors are distinctive in their spatial paaerns. Twa examined in more detail are steel and related products and textite/cIothin@leather, Maps 4.3 and 4.4 show the average number of employees per entevrise for steel and related products, Larger sized steel entevrises are located mostly in the border region and Monterrey, with some concentration in the state of Mexico to the north of the Federal Disbict, Overall, for steel, the n o ~ hdominates, rather than Mexico City. There are especially large complexes of steel fims in TijuandTecateMexica1i and n o ~ h e mChihuahua mmiing Prom Ciiudad Juarez south to Ch&uahua City, This region consists of 10 municipios. A lot of the steel and steelrelated industvy in Chihuahua supports the large auto and auto pafis industry of that state, which is spread out from the border dawn to Chihuahua City. There are substantial although not; huge concentrations of steel and related induseies along the border in noehern Baja California, norlheastern Sonora, Ciudad AcuAa, Nuevo Laredo, Reynosa, and Tarnaulipas. In these meas, the steel industry supplies auto and auto parts manufacturing and as well as various Qpes of maquiladora industy, Monterrey and surrounding area constitutes a very farge complex for steel and steelrelated products. The neiBboring munieipio in Coahuila of Ramos Arizpe has large steel firms, with an average size of 254 employees. General Zuazua to the northeast has large average firm size of 188 and a number of other neighboring rnunicipios are substantial in

m p 4.1 Total Remuxlerrilion in Manufacturing, Central Region, 1 9 4 (in1600s of pesos)

Map 4.4 Average Mnmber of Emplayem for E~terprismin St@& and Relatd Praduea, indudng MaeMercy and Eqdpmemt, CemeaX Re@an, 2984

steel. In steel and steel-related industries, Guadalajara is by contrast moderate in average company size. TexiXeielothin~leatherindustries are concentrated in the not-them border next to Texas and in Mexico City as well as the group of four central sbtes that sumound Mexico City to the northwest, n o ~ h and , northeast, in particular the states of Mexico, Queretaro, Hidalgo, and Tiaxcala. This is mostly in the old and fafairly impoverished central zone known as the Bajio. This location for these indust-ries is due to the historical factors of grovvlh of textile/cIothing industries in Buebla, Mexico City, and the Bitjio in the nineteenth century fGarza 1985)Textilesiclothin~Ieat.hercontrasts with steel and related products by: f I ) the northern concentration is mostXy along the Texas - Mexico border rather than in the west, and (2) the concentration of lager companies is in &aditional areas in the cenkal and Bajio regions. Automobiles and Auto Parts

Mexico produces over one million motor vehicles per year, most destined for export and especially to the U.S. 1n addition Mexico exported in the late 1990s well over $5 billion in auto p m imnually. The mapimtuhe of this produetion is seen in fhe Mexican auto indushy production revenue in 1992 accounting for about a sixth of rob1 manufacturing and about a tvventieth of PIB (MECI 1997). The auto indust~yhas g o w n steildily as reflected in 66 percent increase over the 1988-94 period, about double that oaf FIB. The g o ~ has h continued in the mid to late f 990s. Together motor vehicles and parts account for a major portion of expot-ts, approximately one fifth in 1996. Only pe&oleurn production is more importmt as an export item, and that sement benefits &om a rich naaral resource. There is a sfrong foreip presence in the automotive sector, and especially for auto production, which requires advanced technologies and economies of scale coming from muftinationais. Auto parts companies are much more domestic, although one major Mexican auto pa& fim recently moved to the U.S. PwalteIing trends in rnmufacturing as a whole, the auto indusQ over the past: Wen@ years has become much more oriented towmds the expofi market. In fact, as seen in Table 4.3, under one percent of passenger car sales in 1978-82 were expo&ed, but ten years later this increased to 34.4 percent (Mexican Automobile Manufacturer" Association, cited in Calderdn, Morfirnore, and Peres 1997). It is a hi&er percentage today, During the same ten year period, percent of sales into the domestic market dropped by 49.7 percent to 12.3 percent, The go\ivth in auto export was driven by easing of government regulations and by FDt investment discussed earlier. In X994, $2.5 billion of FDI was invested by auto indusq companies in Mexico. This investment was made by a11 major manufactmers in Mexico during the 1990s. The U.S, Big Three (CM, Ford, Chrysler) made huge FDl including for the domestic market, since res~ctionson auto imports into Mexico apply for the first ten years of the Qade agreement. The NAFTA rules of origin dictate that Volkswagen and Nissan have ta invest and locate in Mexico, which they have done. In 1992, Mexico was ranked twelfth in the global auto indusw and produced 1,096,000 motor vehicles. World leaders were Japan in first place pocfucing 12.5 million vehicles and the U.S. second with 9.4 million vehicles (MEGI 1997). The world's production was dominated by the advaneed nations. Besides Mexico, only Russia and Brazil were developing nations in the top twelve. Those nations are much more popufous than Mexico and have huge potential domestic markets. A factor that must be mentioned in

this comparison is the much tower wages paid to autoworkers in Mexico. Fable 4.4 contrasts the bourIy wages for five nations in the top tivvelve.

19 78-82

1988-92

Number sf Vehicle U ~ r r s hrnestlc Market* Dual Market** Export Markete** "Total Percentages bmestle Market* Dual Marketa* Expol~Market*** ~ottti

100.0

ma o

100.0

* vehicle Lines sold entireIy in domestic market ** veh~cleilnes sold more than 50 perant in domestic market md less than 50 percent in export markets "** vetrtcfe models sold mote than 50 percent in expo& markets Source: CaIderon, Martimore, and kres, 1997. Their data were from Mex:xrcm Automobile Mmufacturers Assacration,

Table 4.4 Automobile Wage Rates h r 5 Nations in the Top Twelve Hour& Conpensattan (m 1992 dollars) Narrom Japan 19.97 25 12 United Sates 20.92 Cmslda 7.05 South Korea 4.35 Mexico Source: INECI, 1997; data &om Wor1d"s Automotive Yearbook, 1994.

Xlank tn 7i7p T~vcrlvekrrons

for Mror Vehtcles X

2 5

7 12

Mexico's very low wages have helped it build a more competitive stance in spire of m4or threats &om the world's mast advanced nations, Automotive production gains of the past ten years have been mostty in foreign exports. This is seen in Table 4.5, which reveals that &om 1990 to 1994, motor vehicle e x p s ~ s increased by 296,000 cars and mcks, while the domestic market decreased by a few thousand. m a t had been mostly a domestic market in 2W9 shified by I994 to ;a kalf foreign market. The percentage shiAs 1990 to 1994 show strong increase in the foreign marker sector especially for mcks, but s l i b t percentage reductions in the domestic market (see Figure 4.4). This export is predominantly to the U.S (INEGX 19971, In 5 994, 77 percent of expsfis went to the U.S. versus eleven percent to Canada and about seven percent to Latin America (see Table 4.6). This pallem underscores the Norlh American linkages of markets md suippity for the auto industy. The Mexican auto incfustv has high productivity standards md they have been growing at a more rapid rate than the economy as a whole and about equal rate to the manufacturing sector (ZNECI 1997). Xn recent years, the U.S. Big Three tended to maintain productivity standards in Mexican production that equal or exceed those in the U.S. For

instance, the Ford assembly plant in Hernositlo, Sanora, has been cited as one of the rnost pmductive manufa~t-uringplants in North America (Calder6n, Nortimore, and Peres 1996). Another exemplay Ford site is its engine plant in the state of Chihuahua.. The averwe annual productiviv gab far the auto industry %om 1988 to 1997 was 2.65 percent, which is much higher than for the economy as a whole (1.2 percent) and a little lower than for manufacturing as a whaIe (3.05 percent), This high rate of productiviw gain is not suvrising since the Mexican auto i n d u s ~is increasingly competitive and exportdriven. Table 4.5 Domestic:Versus Foreign Production of Autos and Trucks in Mexico, 1990-19W

1990 Production of Tmcks for Domestic Market Production sf Autos f"orDomestic Market Production of Trucks for F o r e i ~Maket Produetion of Autos for Foreign Market Subtotai Other types of vehicles Total

1994

179,582 169,375 345,55 1 352,975 26,016 7 1,443 252,542 503,588 883,691 X,037,38 t 26,488 38,243 830,179 1,135,624

Change 1990-1994 -6 2 175 99 37 44 37

Unrt Vcllurnkc Change 1990-1994 X 0,207 7,424

-

45,427

25 1,046 293,690 X 1,755 305,445

Source: MEGI, 1997.

Figure 4-4 Change in Domestic Versus Fareign Production of Autos and Trucks in Mexico, 1990-1994

Change in Unit Production, 5990-1994

The location of auto mmufacturirzg is predominantly in Mexico City. This ~ f l e c t the s megaciv's dominance in. rnost major economic spheres, including manufawring, PIE, mcl corporate headquafiers (see Pick el aX. 1997)).As shown in Table 4.7, nearly half of auto production was in Mexico City. The topic of centmlizatian is discussed in Chapter 14 and elsewhe-re in this book. The eenQalimtion of auto production hi@li&ts this concern, since

62

industry

not only are the financial benefits of the auto industry not spread around the nation, but the adverse aspects of this massive indusq including air poltdion and water ons sump ti an disproportionately impact a small geo~aphicalarea (Pick and Butler 1997).

Change m percent afexporl Canada Srmii Columbia

Chile

13,076 0 6

4.7 0.0 0.0

50,284 6,241 "1,005

10 6 1.1 1.2

59 l.I I .2

9,564

3.5

12,734

2.2

-1.2

United States Japan Other TOTAL

Auto production is also hi& in Mwelos and Puebta, located near Mexico City. Those may also be considered part of the central production region, The other maor states of Coahuila, Sonora, and Chihuahua, with about ten percent of production are border states. From a world systems theoq perspective, all these are seen to be &om the hi& or medium development levels (see Map 3.2). The low development areas (periphery) have very low auto industv P1B. The industv appews to confim the theoretical tenets of the penetration of foreign F m s into a developing nation, m a t is interesthg is that, within Mexico, penetration i s into the advanced and semi-peripheral regions and not the periphery. Table 4.7 Major Manufacturing States for Autt, Xnhtry,

Disrrito Federal Mexico (Stare 00 Coahu~la Puebfa MoreIos Sonsra Chihuahua Total for seven targcst. stales Others Total Source: WEGI, 1996

5,794,462 5,404,284 1,913,354 1,765,989 f ,437,900 1,2%,202 f,OI 1,714

25.3 23.6 8.3 7.7 5.3 5.6

18,603,905 4,3 15,Q01 22,9 1 8,306

81.2 18.8 100.0

4.4

One example of s foreim auto manufacturer is Ford. fn 1994, ForaMexico produced 26,804 cars and 35,534 trucks, which comprised eight percent of Mexican car production and a fifih of mcks, This is increasingly production for export, Xn 1998, Foras motor vehicle production was 82 percent ;forthe expotz. market, while it imported 38,915 vehicles, equal to about a third of its exports. 'l%e lager tfend reflects the increasing integaticm of Foras worldwide production. Ford's iinnpods will likely gow subsantialfy after NAFTA's auto import. resfxictions are ljilPed in 2004.

Today, Ford cooperates in production between the U.S. and Mexico. For instance, Ford's Cuautitldn plant in Mexico Megacity is cooperating with the plant in Kansas for production of Mystique and Contour models, as well as Series F trrtcks, "The ability to cooperate globally has improved Ford's bottom line (Tarnayo 1998). Ford is a-tempting to stave off cn"ticism of its environmental impatzts by acting as a good covorate citizen and spansoring some environmental activities such as clean-up initiatives. It is exemgtav in the nzodexni~of its plants and in some of its community interactions. It appeus to be an auto fim of global influence that is also doing things the right way focally. Auto parts is another huge subsector of the auto indusm. En 1996, auto pafis amounted so $5 billion (Expansi6n 1997). Since NAFTA was passed, the protective aspects of importsubstiation on parts manufacture disappewed so that presently Mexicsm parts fims line up directly against Wo&h American competitors. This is leading to some consolihtion in the auto parts subsector. In many cases, the auto part.s firm has become a close collaborator with a Xarge parent fim. There are a 1wge number of auto parts fims -- some indicate as many as 50, in contrat to only five ms?jorMexican auto makers. 'This makes the structure oft-he auto i n d u s m ~ oe complex, since "'parts companies" vary a lot in their actual business mix, Recently, some prominent auto parts companies are seeking U.S. involvement or U.S. exposure. For instance, the leadhg Mexican auto parts fm, Desc, purchased a U.S. oEce fm Unik for about $700 million, Another emample is the Mexican manufacturer Easton's purchase of the auto parts division of the Americlln fm Dana. Many other such alliances are taking place, Teleeonnmunieations and Personal Computer Industry unications and computer industries have been gowing sements in Mexican xnanufactuting far the past th* years. Mexico" personal computer indusw originated in the 1980s by IBWs leadership in working though the regulatory hurdles to establish a viable early industv. Later in the 80s, ZBM was key in convincing the state of falisca about the impoflance of techolagy manufacaring companies loeating there, Fallowing the lead of EBM, HP, Motorola, and other prominent U.S. brand names established production plants. They were followed in turn by many Mexican supplier firms. Today, the manufacturing complex in Guadalajara is referred to as '"Silicon Valley of Mexico." "me of its plants are patently world class, such as the XBM Thin@& laptop piant and HHJk printer plants. There is also a sement of elec&onics manufacturing that tends to locate as maquiladoras just south of the border. Tguana is impsfiant for maquila electronics manufacturing, especially in televisions, computer printers, and personal computers. It has one ofthe largest TV afsembly plants in the world &om S6WY and many other large plants in T V and related weas, The grovvth and development in these industries are discussed in Chapters ti and 7, Suffice it to point out that these lindus&iesepitomize the foreign fimsyeading the way in the pr0duetivi.t.y gowth, innovation, and export orientation. With the opening of the Mexican induso to free trade, foreign ownership, and privatiation, many of these communications and computer companies have developed into world leaders in manufacaring.

Workforce and Skill Levels Historically, the focus for maquiladora manufacturhg was on import substitution. Products did not need to meet worldwide standards, but only satis@ the Mexicm domestic consumer. With the opening up of the economy, many manufacared products have entered the world competitive markets, and there is much more demmd for high quality products. The original motivations of law cost rnanufacrnring have given way to a mixture of approaches. These include the following: * Traditional maquiladora f m s having an emphasis on cost-cuaing and repetitive assembly. I-fere the labor force has low education and moderstre fraining. However, the workers are often compelfed to meet cefiain factory qualie goals that are closely monitored, * Msrqiladora firms with high tech manufaictruring. These, located in Tijuana and to a lesser extent in Ciudad Jumz and other cities, have invested more in advanced manufacturing capability that tends to require fewer but more skifled and educated workers. Here, there are @eater needs fi)r @eater skills to operate and conwol more sophisticated prohctian, + Traditional manufacturing in older industries such as textiles and cXothing. This industry tends to be located in the center and south of Mexico. The skill levels are lower, and the size of fims smaller. * World class manufacturing with greater foreign investment and management participation. The electronics indusby that has @ o w and prospered in Monte~ey and Guadalajara typifies this category. This type of hcility draws design engineers and production supervisors, mmy of whom are college graduates, Many of the fims have close ties with universities, This fiypofogy poinls to a diversiv of workforce and skills in different manufacturing subsectors. The v a r i e ~corresponds to diverse levels of techology, sophistication of manufacmring, pay levels, and quali-ty stmdwds, i.e. domestic versus worldwide, A recent emmple of these differences is the Delphi R&D Center in Ciudad Juhrez. Delphi is the major auto pa&s subsidiav of General Motors. As Mexico emphasized higher qualiv products, Delphi moved into Mexico, mostly into Ciudad Juhez. Initially, it emphasized high quality assembly line production of auto parts. There was comparative advantage achieved, since hi& quality goads could be produced at low labor cost* The success of this approach is reflected by Delphi; today it has gown to 72,000 workers in 53 glmts in Mexico, mostly in Juhrez and swrounding areas. A significant change was the move in 1995 of the Delphi Technical Center &om Texas to Ciudad JuLez. %is center employs engineers and designers for specific auto parts that incjude mtilock brking systems, emission products, air conditioning compressors, and components for steering (Cathn 1998). The workforce is the world leader in designing these products. There is substantial pay saving &om hiring Mexican engineers and product designers, versus eompxable workers in the U.S. Mexican desipers in Mexico have the advantage that there are many Delphi assembly Iines nearby. Assembly line mmagers and workers can be consulted in product engheering and desim. It is even possible to simulate a real assembly line for a new product idea, Delphi has positioned this Center as its most advanced .For R&D worldwide (Cathn 1998). It is planned to eexpand to a size of 2,000 workers in the next two years,

Industry

65

This shofi case highlights the wide variation in manufacturing workforce and skill levels. The original Delphi. concept was to utilize low skilled assembly workers to meet hi& level manufacturing qualiw standards. Because of m ~ k e and t reguIatoq changes, this concept has evolved to a mixare of the original Xow skilled profile plus a new personnel profile that emphasizes very ecfucated and skilled Xabor force engllged in creative design and having worldwide responsibilities. The strong educational advances in Mexico over the past 50 years (see Pick and Butler 1994) have enabled this ""mixed" aa~~proack, which may be a beMer fit to the rising education of workers, esgecialty in the advanced parts of the counm (see Chapter 6).

Conclusions This chapter emphasized g o ~ inh manufacturing in Mexico over the past f o w yeass, M a t had been a prwcted impoa substlibtion economy with moderate msinufaeturing quaXi.ty has been eansfomed into an expoxt-based manufachring economy with higher and in some cases world-class standasds. Mmican manufacturing labor force remains lower cast than in advanced nations, but segments of the tnanuhcturing workforce have moved to hi&er skill and educational levels, This is especially evident in higher technology sectors such as certain elec&onicsand automotive manufacturing. The old maquiladora concept of value added assembly that minimized cast is also shifting. The Tyuana electronics indusw is aspiring to higher quality standards in order to face world competitim, At the same time, most of the maquiia sector remains in the mode o f v e ~ ylow wages and other cost cuaing. Manufacturing is a kndamental cornerstone of the Mexican economy representing about a third of PXB, However, it is predominantly located in. the border states, i.e, maquiladora and automotive manufacaring, and in the largest cities of Mexico City, Monteney, and Guadalajma. From a world systems perspective, tbese regions are mostly advanced seas of Mexico sand some are semi-periphery of Mexico. The components and raw materials i"or these products vary a lot, with some shipped in &om advanced nations and others corning &om the periphev and semi-periphery areas of Mexico. The workforce for these iinduswies varies in its origin. For the maquiladoras, much of the workforce has mivated %om; semi-peripheral or peripheral areas tto the border region. For the more advanced manufacturing such as in the ""Silicon VaXXey'hof Guadalajara, the work.force has come front the advanced areas and is sometimes even coflege educslted. The consumers of the manufacturing product are either in advmced natians, mostly the U.S., or in the advanced areas of Mexico i.e, the border and Mexico City. Decision making regarding manufacturing is based mostly in Mexico City ar in advanced cwntries, especially the United States. The general pic&re is that of manufactwing located in the advanced pafis of Mexico and producing for advanced level markets, but utilizing labor that o&en originates &om the semi-periphery or periphery, Raw materials utilized depend on the strategy of manufacturing, There are exceptions to this trend of dependency, which f o m can interesting countearend. For instance, Cemex represents a company at world-class level h r n Mexico that is acquiring and re-desiming companies located in advanced and semi-peripheral nations. Cemexb IIitbor force is hi&er level, Its entrepreneurial and management innovations originate in Mexico, This counter-trend needs to be watched and observed carehLIy, since it points to a balancing and re-adjustment of the world systems theory relationships and ntovvs.

Case Study: Centex Cemex is the world"s third largest cement company, with 1998 sales of 4.32 billion dollars. It is highly successhl and had profi& in 1998 of $803 milfiion. In 1997 it had 486 plants and shipped 42 million metric tons of cement. It is a global finn operating cumently in 21 overseas mwkets. Cemex is entirely Mexicm owned and is headquarfered in Montemey. Its business strategy is to have hi&ly efficient production based an sophisticaled management infomation systems md networking. It has also pursued a strate0 of acquisitions wrldwide of dornhant national cement companies, which Gemex has transfamed into more efficient and techofogicalIy able wits, It has a coordinated system of worldwide distibutian centers, a large fleet of ships, and cm coordinate shipping and deliveries exactly thTOugh a satellite nemork, Cemex was founded in the city of Hidatgo, Nuevo Leon, in 1906 by Lorenzo Zambrano, the grandfalher of the present CEO, who has the same name. It has always had family ownership md even today is 30 percent owned by the Zambrano family, ln the first half of rhe centw, it moved to Monteney and expanded thoughout Mexico. It purchased t-vvo large Mexiem cement Ems between f 987 and 1989 md verged on becoming Mexico's leading cement producer, but found that it wzas being theatened by the practice of dumping, i.e. competing f m s selling cement at below cost in order to exert strong competitive pressure. As a response to d u p i n g practices, in 1992, it stafled a long string of foreign acquisitions by purchasing $pain% two largest cement compmies, Valenciana and Sanson. It has continued to make many fot-eign acquisitions, often at times of hancial duress either in Mexico or in the counm of acg~isition,For instance, in 1995, just a&er the peso had been shavty devalued in Mexico, Cemex pwchased Cow. VenezoXana de Cementos SA, that nation" leading prodwer. That purchase happened just before major cunency devaluation in Venezuela. These economic downtms did not deter Cernex &om overhauling Corp. Venezolana including modernizing its information techolagy, intepattting production, cuning the wsrkfsrce, and streamlining a;hinis&ation, Gernex in 1994 also acquked the BaXcones Plant in Braunfels, Texas, which is the largest provider of white cement in the U.S. Again, it overhauled the plant and t m e d into ran award wiming factou. The siring of acquisitions has continued to the present. Cementos Nacianales of the Dominican Republic was purchased in 12996, In 1996, Cemex acquired two cement fims in Cofumblia, In 199'7, Cemex moved into Asia buying 30 percent of the $1 bijiion RizaI Cement Cs, in the Philippines, and in 1998, it wquked PT Semen Cresik a fomerly nationalized Indonesian company. In 1999, it acquired facifities in Chile, Costa Rica, and Egflt, Cernex today is present thoughout the world (see Map 4.5). It is especially strsng in Mexico, northern South America, and Spain. In 1994, Cemex held 8" place in the Mexican 500 (Expansibn 1998). During its foreign acquisitions, it has continued to devejop its Mexican operations, which today still comprises about 45 percent of covorate sales, Because of its growing population and its need to modernize in&afmcture, Mexico foms a strong domestic platform for the now global company, Mexico began a huge process of privatization in the later l"380s that continues today, Among other things, Mexico is privatizing airgofis, maritime parts, gas distribution, and railroads. This trend is leading to upgrading infrastructure throughout the nation, all sf which enhances Cemexk domestic opporfunities.

68

Industry

A number of key overseas counbies that Cemex moved into also parallels this profile of Mexico, fof instance Venezuela and the Philippines, Cemex has taken advanhge of wrldwide &ends in the developing world to upgrade national inkastructures. In technology, Cemex is a worldwide industv leader. This includes its own satellite network in Mexico, GPS (Global Positioning Systems) and GIS (Ceogaphic lnfom&ion Systems) to guide delivery mcks, elaborate M W (Materials Resource Planning) and quality con&ol systems, dvaneed factory production systems, video confereneing .for decision making and employee training, and executive management systems. The commitment of Cemex to MIS (Management hfomation Systems) is reflected in its investment in IT of $150 million over the past 12 years (Industry Week 1997). The compmy has developed several especially notewoahy infomation systems that give it a competitive advantage. Xt has a satellite based delivery dispatching system that is paaemed after that of Federal Express and the City of Houston" 91 I system. Among other tfihgs, the system allows a loaded ship e m u & to be re-directed to a difkrent delivery destination. The GPSIGIS in its aelivery mcks attow central dispatching to continually modify an$ optimally adjust deliveries as customers make changes and there are delays and other unfo~esenevents, The deliveries are sa preeisejy controlled that Cemex is able to give customers discounts propoeional to the time delay of a late delivery. In the area a f employee training, each plant in Mexico has a .training center connected to a private satellite network. The plmts can provide eaining and wrkshops, with various units prtr2icipating thou@ videoconferencing. This also allows employees and managers tbrou&out the c o u n q to exchange ideas with co-workers, All these systems are interconnected, and suppod a style of management that expects exacting f"cdllow-though,meeting of schedules, and precise control of production processes. Managers are encouraged to delegate responsibilities for goals, but assume that the subordinate will reach the goalis, The delegaion process is possible thou& the information technology. Most of these systems are world class commer~ialproducts that are used by top manufacturers in advanced nations. However, Cemex has often gone haher by modi&ing; and integating these systems together to a greater competitive advantage, Financially, Cemex seeks to achieve b e ~ e margins r by increasing pricing and revenues and lowering costs. This is the major indicator of competitive strength in the cement industry, and the company has among the highest margins in the indusq. Another financial strategy that is opposite to much of Mexican manufacturing is outward FDX, in other words investment by Gemex in plant and equipment overseas. Though carefully planned outward FDI, it is able to transfom the often mediocre efficiency of acquired national companies into state-of-the-aflt eficient and productive units. In summary, Gemex iI1ustrat.zlc.sa contrav trend to much of Mexican manufacturing. Instead of depending on foreign technology leadership and fiaancing, Cemex provides those features in Mexico. 11 exgoas and utilizes its highly efficient management and systems to achieve worldwide technological leadership. It invests in impraving acquired operations overseas, the opposite of say the: maquiladora or the Mexican electronics industry, Besides the entrepreneurial spark of the Zambrano family and great management, Gemex has been hetped by having a product that is well suited to the growing infiaskucture needs of its domestic base, It learned to excel in serving these in&astructure needs in Mexico and yet can and expertly implement them in other developing nations with similar needs. The success of Cemex is echoed in smaller ways in some other counter-trends discussed in the chapter, for instance in the success of largely domestic engineering

talent at Delphi R&D. The counter-&end represented so well by Cemex may point towards future areas of g r o ~ and h change in Mexican manufachtring. Case Study: Vitro Viwo is a prominent Grupo in Mexico, It is one of the two companies worldwide that produce a complete line of glass products, the other company being the French f"lm Saint Gobah. Vi&o poduces clear gfass, plastics, automotive glass, glass containers, household goods iacluding apfliances, chemicals and packing materialsl and glass crystal. Vitro has benefited by its ability to self glass to the huge Mexican auto indusw. The original c m p m y was founded by Federico Sada and Isaac Garza in 1909 in Mmteney, and like Cernex, the founding family has continued to manage the fim. Curentfy, the CEO is Federico Sada, the geat grandson of one of the fotmders. The company today is a Cmpo that has six divisions and owns more than SO f m s worldwide (U,S.IXXexico Business 1997)' It 1996, it had sales of $2.3 billion and assets of $3.4 billion. It has suffe-red losses in recent y e m having to do with a disas&ous foreign acquisition of Anchor GIass and also problems with its investments in the now troubled bank Gmpo Serfin Financiero. In 1996, the company had Iosses of $598 million, coupled with a large debt problem. Although the firm had operated profitably and had been respected for good management %r many decades, in 1989 it undertook the first hostile takeover of a U.S. firm, Anchor Class, by a Mexican one. Anchor was one of the Iargest U.S. glass makers, with 25 percent of the U.S. market md 22 plants. Anchor had a rnaljor market in glass for the soft drink industry, The acquisition was accomplished at a cost of $900 million. Originally, this acquisition was touted, and it appeared as if Vitro was following some of Cemexk souward directed strategy of-foreign acquisition and invesment, However, &e Anchor purchase bmed out to be a disaster and Vitro eventually sold the unit at a large loss. The mistake that Vim made was to fail to see a shif made by leading U.S. soit drink companies in the early 90s From principatly glass to less expensive plastic containers, The switch caused severe losses to Vitro and it accumulated a debt of $550 million by the end of 1095 (U.S,Mexico Business 1997). 11 was at this point that Federico Sada took over as CEO. Although he initially was detemined to turn Anchor around, he soon decided to sell the unit and in late 1996 sold it to a consort-iurn of Consumer Packaging in the U.S. and Owens Brockway Containers in Canada lFar $392 million. Around the same time, Vitro also sold domestic stakes in Cydsa, a domestic chemical and textile fim and stopped investing hfiher in the troubled bank Gmpo Serfin Financiero. The problems with Serfin stem from deep and widespread mismanagement problems in the Mexican banking i n d u s ~that are covered in Chapter 6. Since the sale and the other divestitures, Vitro has developed a five year s&ategic plan to recuperate from these disasters that involves emphasizing Its domestic businesses. The ambitious a five year plan l"ocuses on consolidating its long time businesses and gowing and improving them financially. Part of the challenge that Vim faces is that major Qlriditional markets of clear gfass and glass containers are not gmwing very rapidly.

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Finance and Commerce Intraducaon Cammerce Sector .D

s

Q

~4)

63.

Hiatwv of Commerce iirr Mexies Commerce Smbor: Swtoral Growth a;bntdDeveZ%rpmemt Regional Location o f Commerce in Mexieo

B % a n ~ aSeetsr g Geography o f Banking CifraWaBmarg.: a Global Caamter ExampBe Case Sady: EI Pareeode Liverp001 Case SCaad(ly: Bancomext Case Study: Bsltxcamrlsr

Finance and Commerce

This chapter examines the commerce and banking sectors in Mexico and how they relate to globalization and regional/local tendencies, The chapter presents the history of commerce in Mexico, &om pre-colonial to colonial and modem times. Mexico has always had commerce and has had opport-unities and constraints on commerce througho~tits history. Some foms of commerce have developed historically in unique ways to Mexico such as the tianguisl, while other developments are common to many nations and societies. In the 1aBer half of the 22Q ccentury, the refdive economic size of the commerce sector has been dropping, while the per capita workforce and numbers of commerce fims have been increasing, The trends favoring commerce as well as adverse to co other sectors will be discussed, The chapter considers mdor commerce fims and their characteristics, Cammerce enterprises tend to be Mexicart owned and to be located in the Iarge cities and the central p;trt of the nation. A major exception is Ci&alWaImart, which is part of a U.S. multinational and is expanding away &om the fraditional central zone. Another chapter section analyzes the regional location of the commerce sector in Mexico. The populous sbtes with large cities and the border states have a relatively larger commerce sector, while the less populous and cen&al and southern states laeking major cities have less commerce. Based on mlrni~ipjodata, naional commerce is conceneated in the cenbal populous Rank especially Mexico City and some northern cities, A major overall finding is that commerce is associated with large cities and with the advanced parts of the nation and is weak in peripheral regions, This is not surprising since most of the valuable goods and services being exchanged are produced and consumed in or near major cities, erce is related to the banking sector, since it fosters and suppsxts commercial exchange, as one of its Eunctions. The second half of the chapter examines the banking sector in Mexico. This sector has undergone major changes over the past thwty years, &om a private and somewhr;lccompt banking system through a period af nationalization to reprivatization in the early 1990s and resulting disastrous outcomes for the system. The banking sector today has not recovered, After totlrering on insolvency, the government helped to "bail out" the system, but many banks have been taken over by lFareign banks and the Fobagraa agency mishandled kdher the ""bailout," necessitating the movement of the bailout apparaas to IPAB, which may do somewhat better. The underlying result of all of this turmoil has been resfrictions on availability of credit. Credit ti&tening has had less impact on large export-oriented Erms, which can obtain capital overseas, and greater ilnpact on middle and small size firms including commereiaI Gms. The reasons for the banking crisis are examhed and prospects for the Euture are considered. Another aspect of banking is regional distribution, The three major cities, and particularly Mexico City, dominate bmk deposits and encompass the headquarters of nearly aXt of the nation" major banks. The seventeen lowest states have onjy 8.2 percent of bank deposits. These states include the southern peripheral states, the Yucatan peninsula, and most of the Bajio region, a11 traditionally poorer areas. Qn the other hmd, bank offices and branches are spread more eveniy including the less prosperous states, The chapter examines the geography of Mexican banking in the context of world systems theory, The banking sector is emphasized in this chapter, rather than other financial sectors, which are covered briefly in the Chapter 6 section, "financial and Insurance Service," We have chosen to emphasize banking in depth beesuse it is more well developed that the other financial sectors. For instance, although the Mexicar1 securities market is becoming more important, fewer than 200 corporations are part of this market, and it is weak in the area of commerce

' Tiianguis is discussed in Chapter 12.

93

Finance and Commerce

and manufacturing (Cabello, 1999). Another factor lending imporlance to banks is that Mexican law allows the construct of "universaX banking," This means that Mexico has the legal entity of "gmpo financiero," This entity can be headed according to law either by a bank or a brokerage house and can include a mixture or financial entities including ba&s, brokerage houses, insurance companies, etc. An exampie is the case study of Bancomer, which is a ""gpo financiero.'"lt.hough primarily a bank, Bancomer also jointly owns the Mexican insurance company Valores Montemey Aetna. Severat case studies are explored in @eater detail in an era of globalization, El Puerto de Liverpool represents continuing Mexican ownership, and in the nation" commerce sector. It reinforces the importance sf the central flank and largest cities of Mexico .Ear commerce, Liverpool" financial strength after 150 years cdiernonsrntes that a Mexican firm can compete strongly in this sector. The company has been successl"rx1 in modem techology in its disaibution and warehousing. Bancomext is a special bank with a principal mission to bolster the national theme of exports underscored in the last chapter. It has had the force of the federal government behind it, and has had some successes, However, towering federal government subsidies lead Bancomext to compete in semi-commerciaI markets, and its success record has only been mixed there. Bancomer is one of Mexico's two Largest commercial banks. It has the largest banking network. Althaoug its financial status remains shaky due to the 1990s "dnking industry crisis and Bancomer" mistakes in lending, it has forged a number of global pa&nerships that have helped it weather the banking indusq storm. So far, its majority of ownership is Mexican and it re~nainsone of two ""Rgship" "banks. Bancomer is in merger discussions with Spain" Banco Bifbw Vizeclya Argentaria (BBVA), which may give BBVA rap to 40 percent control, Bancorner has moderate technology to support, Its strong geogrslphical presence throughout the nation,

Commerce Sector H i , s f ~c?fCommerce v in Mexico Commerce has a long history including pre-Colonial Mexico, The Aztecs were well h o w n for their central market located in the center of cities and involving the barter trading of local as well as external goods. During the Spanish coloniaX era, systems were in place for bade and commerce. Commerce was impoflant in this era in providing sources of capibt to agiculmre, the dominant sector. Commercial markets for corn and wheat were better developed and made use of European mechanisms to contmX the markets (TNEG-I 1994). Commerce was constrained by poor hfras"cructure of roads and transport. There were unique customs for commerce, The custom of tianguis stemmed &om pre-Colonial times, It involves i n h m a l markets with a group of vendors sening up at several specific times and places each week. The institution has canied all the way to the present day, and is discussed furlher in its present context in Chapter 12. Another commerce custom developed during colonial times was the- annual, trade fair. These were especially famous in Xalapa, Veracruz, and in Acapulco (INEGI 1994). In the early lgth century, commerce continued to grow and contribute as a source of capital. However, it was constrained by lack of paper currency, so bmer was dominant. This was altered in the Benita Juhrez Administration when federal paper currency was first issued in 1862 in the amount of 500,000 pesos (INECX 1994). Xn that same year, the nationwide value of commerce was about 400 million pesos (INEGI 1994). Commerce in ~ took several forms: (I) small shops, (2) central markets, a hold over from mid 1 9 ' century pe-colonial times, (3) timguis, i.e, continuation of the custom, and (4) fairs. The fair

74

Finance and Commerce

("'.FeriaW")ncreased in importmce. There were many annual trading fairs, often tasting several days and drawing both national and foreign merchants. They stimulated national exchange as well as import and export, The central market grew in importance and involved exchange of numerous products, Small shops became prevalent throttghout the country and reflected geater amounts of retail trade including foreip goods. Some larger stores began to develop in the large cities a ~ often d involved foreign owners or merchants or foreign origin of capitaf, An example is El Puerto de Liverpool, which was founded by a French immigrant In 1847 in Mexico City. During the late 19'"nd early 20'" century Porfirio Diaz Administration (Porfiriate), commerce continued to develop but also had certain conslraiints. Amang constraints were restrictions in communications and bansporlation, and the presence of an inhibiting sales tax. Advances in the late lgChcentury in communications, such as the telephone, and transpo~ationhelped to Xifithe constraints. The national railroad syskm was built during the Porfiriate (see Pick, Butler, and Lanzer 1989) and helped in the movement of goods nationally. The sales tax had been present in the reform period. Although it was fomally abolished by the Constitution of 1857, the turbulent years that fallowed Xed to its reappearance. It wasn't until 1895 in the Podriate that the sales tax was again abolished, Another positive f"actor far commerce was the rising urbanization of Mexico. 'This was a long-term trend continuing during the entire 2oth centuly (Pick and Butler 1994). The growh in cities stimulated most foms of commerce, including the centrib1 market, smaller stores and depafiment stores, mare elhorate tianguis, and annual fairs,

Commerce Sector: Sectoral G~wtCrand DeveEopment As seen in Tabte 5. I and Map 5.1, the commerce sector has grown substantially in the mid to late 2 0 ' ~cenbry. This g o W h bas surpassed th& of the rapidly growing population, The enhanced growth of commerce relates to the increasing urbanization of Mexico, For instance Mexico incr-eased &om 35-0 percent urban in 1940 to 7 1.3 percent urban in 1990 (Pick and Butler 1994). As seen in Figure 5.1, the per capita prevalence of commercial establishments grew from 2.1 in 1940 to 8.3 in 1988, an over fiaur-fold increase. As will be seen in the next section, the establishments were dispropo~ionatelylocated in the highly urban states and especially in Mexico City (Pick and Butler f 997). Likewise, the per capita number of commerce workers increased by three times during these five decades, h r r x 8.7 to 26.7 commerce workers per 1,000 persans (see Figure 5.1). Economic &ends are better understood by recowizing the large shiAs in exchange rate that have taken place versus the dollar, As seen in Table 5.2 and Figure 5.2, the pesa has increased in value versus the dolIar by over 700 fold between 1975 and X998! It is positive that the rate of change in the peso seems to have moderded over the past 12 years except for the shock of 1994. This Iends rnore stability to the Mexican economy and its international trade, Goresponding to the devaluation of the pesa, the consumer price index has advanced rapidly in Mexico since 1980, reRecting inflationav trends. Even though commerce became rnore prevaleat, the proportion of commerce overall in the national economy has declined somewhat. The reason far this is that other economic sectors are growing even rnore rvidlly. As seen in Table 5.3, the commerce sector decreased from 28.0 percent of PlB in 1980 to 19.7 percent of PIE3 in 1996, continuing a trend of several decades. The reasan for the decline was the mare rapid growh in other sectors, in particular FIRE, i,e. finance, insurance, real estate, and business services, and in other, which includes growth in petroleum expofis (see Figure 5.3). The commerce sector increased in absolute doitlar terms. For example, the Commerce PIB in 1996 was 26.3 billion dollars, but was 65.0 billion dollars in t 996 (IMF 1996). However, while the whole

M a p 5.1

Percent a m m e m

-

@.a727 0.0799 o.osoo 0.WB @.lo@ @.%398 O.14QO 0,1671

Figure 5.1 Growth in Cammerce Per Capita, 1940-1988

+No.

aFiEstablishment;sper 1000 prsons

Source: Estadisliea Historicas de Mexico, X994,

No, of Commercial employees per 1000 persons

Fhanee and Commerce

Finance and Commerce Figure 5.2 Value of Peso in Dollars and Consumer Price Index for Last Quarter of 20th Century VaIue of Peso in Dollars

Source: Internatlanai Monetary Fund, 1998 and Oanda Classic f 54 Gunency Convefier, f w9.

Ye'r

Consumer Price Index

Year Source: International Finiuscial Statistl~sYearbook, 1998

Figure 5.3 Components of FIB, Mexico, 1980 and f 996

Pereeot of PIB

Component o f PXB

AQ2.

.E a

m

a

2?

.Y ;

r

Z

3

*FIRE = Finanm, fnsurmw, Real Estate, and Business Se~ices. Source: W: Statistical Yearbook fof Latin Meriea and the Caribbean, 1997.

Mexican economy has been gowing over the past Wo decades in absolute terns, c o m e r c e did not do compmatively as we11 as a sector. rce in the U.S. economy is somewhat higher. fn By con&ast, the propoaion of c parel and Eurniture) part of U.S. GNP was $2.7 1997, the GAF (general merchandis trillion, which was about one third s f GHP (Haovers On-fine 1999). n u s , the U.S. economy has a hi&er extent of comerce, both domestic and international than Mexico. f l a s e f m s , predominantly domestic The Mexican. ~ornmercesector consists rce companies in 1997 are shown in in ownership. The Xargest Egeen Mexican s in sales. This is one qurter of 1997 Table 5.4. The top 15 account for 17-2 billi erce PIB, The companies are predaminmtiy hedqvtafiered in Mexico City. This conesponds to Mexico Ci&k dominance in general as a head qua^ companies (see Chapter 13). Hawever, the capital" dominance in ea exweme, For insbnee, on a revenue basis for the commerce 15, 83 revenues come &om fims headquaaered in Mexico City. This domjnance sterns fiom Mexico Ciq's ~entralrole in ca ercial enterprises and exchange as well as om Mexico's dependence on it as a primate city (Pick and Butler 1997). The commerce 15 we also predominantly Mexican owned. The Commerce I5 cankasts with the largest Mexican companies in general, about one third of which are foreign owned for example in autos (see Chapter 13 and Pick and Butler 1997, Table I X ,6). The most visible counter example of foreign ownership of a commerciali fim is Cifra, which was purchased by Walmarf. Cifra is discussed in the next section. Gsntrolahva Camercisrl Mkxieo is the nation's second largest retail chain, operating under the names of Bodegs Comerciaf Mexicans, Price Club Mkxieo and Sumesa, and owns the chain of California Rest-aurants. Its retail stores combine supermarkets, general merchandise, and over-the-cotmter drugs, Although spread out in 3 I cities, it is mostly in the cenhraf Bank,

Finance and Commerce

79

i,e, Mexico City (56 percent) and the Bajio region (14 percent), Several ather commerce h s are i m p o m ~ tto mention, Giganre, the tt-tird largest fim, is predominantly in supemarkets and is sgrend out in the cenkal and noehrm parts of the nation. Livrrpool is a financially-swong Mexican depament store chain that appears as a case study. Table 5.2 Pesa Exchange Rate (versus the Ballar), 1975-1997, and Consumer Price Index, 1980-1996

I898* 8.9850 NA = not available * Rate for June 30, 1998 Source. Internationat Financial Stirtistics Yearbook, 1998 and SeMa'Tech Foreign Exchange Rates, 1999.

NA

Table 5.3 Components of Produeto Interno Bruto (PIE), 1980-1996

Percenl 368 8.2 53,057 99 1 22.2 140.608 1,250 28 0 167,202 396 8.9 98,120 7 54 16.9 flI,Sbl 353 7.9 30,394 358 80 !37,656 PIR 4,470 100.0 738,898 *FIRE = Finance, Insurance, Real Estate, and Business Services. Source Statistical Yearhaok for Latin America curd the Caribbean, 1937

Agrre~ttture Manufactursng Commerce FIRE* Services - Prlvatc Sector Sewtees - Government Other

Percent 7.2 19.0 22 6 13 3 t 5.1

4.1 186 100 0

139,753 494,67f 494,272 397,284 435,493 124,017 418,124 2,503,814

Percent 5.6 19 8 19 7 159 17 4 50 16 7 100 0

80

Finance and Commerce

Finally, G y o Elekara is a retailer of brand recognized consumer elec&onics, as well as large appliances and home hmiture. It has grown very rapidly and has numerous mostly smafler stores thoughout the nation. In fact it operates in 145 cities and nearly evev state, Its rapid groMh has been stimulated by foreign borrowing and aggessive entrepreneurial leadership of Ricardo Salinas PIiego. In fact, he has been so successEul that he is one of Mexico" wdthiest persons and purchased TV Azteca, Mexico's second largest network in 1994 (Mufioz Vafencia 2998). In many respects, E'tektra represents a company like Cemex demonstrating world class standards of management and techotogy. Unlike Cemex, Elektrak business is domestic. The other major commercial firm is Sears Roebuck of Mexico, Xt has recently become part of the conglomerate, Grzkpo Carsa, which is con@oHed by the en&epreneur,Carlos Slim. Sears kas been in Mexico since 1945 and serves middle to high-end customers. Unlike CifralWalmafl, it has had mixed success and has been impacted by Iarge-scale theft and security-related losses. In s u m m q , the commerce sector is about a fifth of the economy and is mostly Mexican owned, Et is concentrated in Mexico City and the cenml Rank afthe nation, The two chapter cases present polar business approaches. CifralWalmart is an exception in its "Eiareign ownership, while El Puefio de Liverpool demonstrates how a Mexican-owned traditional tim can be modernized and improved to be very competitive, Regional Location of Commerce in Mexico The regionat distribution of commerce reflects the historical and urban patterns of the nation, as well as the location of commerce exchanges and consumers, The present geographical paaerns refiect the historical overconeen&ation in the advanced, major cities and central Bank and lack of commerce in peripheral states (see Map 5.1). Within cities, commerce is rnost prevalent in Mexico City and especially in the traditional ""business center" of the city. While manufacturing was located closer to major cities, transpofi, and border access, commerce is more concentrated in the targest cities where the largest commercial exchanges and rnost innpofimt consumers are located. About 25 to 30 percent of the commerce workforce has been located in either Mexico City or the Ststte of Mexico* Table 5.5 shows that the proportion of commerce workers in the Federal District and State of Mexico declined from 36 to 29 percent b x n 1955 to 1988. The Mexico City part declined from 34 to 26 peE-eent. This reduction in Mexico City reflects the extension of commerce to other parts of the nation. The gain has been spread out among the other regions and states. Although Mexico City is an overly primate city (Pick and Butler 1997), it was even more primate in the mid century, especially in commerce. Also helping to encourage the spread of commerce is the continuing process of urbanization during the entire 20'~centuly. The other major and regional cities have grown substantially in the second half of the century, encouraging more commerce, The national distribution of commerce workers in 2990 is seen in Map 5.1. This map reinhrces the weakness of commerce in the south and in parts of the economically deprived Ba~ioregion. In Table 5.5, the ri&t column shows the differential between the distribution of commerce workers and the distribution of population. Specifically, the differential is equal to: proporlion of commerce workers - proportion of population. A positive value for this differential reflects states or regions where the concentration of commerce: workers is greater than the population, and a negative value indicaks a deficit of commerce worliers relative to population. The state with the largest surplus of commerce workers is the Federal District; in fact there is a surpIus of ten percent. The border states have a suplus of about 5 percent, refiesting strong commerce in the north. On the other hand, there is a dight deficit in the Sbte of Mexico. This may be surprising but msty be explained by Mexico Ciw's

Finance and Commerce

a3raruura3 pue 33u~urt3i

Finance and Commerce

83

commerce sector being concenlrated in the center of the Federal District. Suqrisingly, the diEerentl'al for the South is somewhat positive. The rest of the deficit is located in 18 rnoder&ely prosperous states (semi-periphev). Those states have fewer cities; tend to be moderate economiealIy; and are less urbanized. Commerce has not extended to those meas. However, its spread may be helped in the hture, if national chains such as CikdWatMart become more powerhl. The number of commercial enterprises is likewise concentrated in the cities md more so in Mexico City and the central Bank, This is seen in Maps 5.2 and 5.3, which show the number af commercial enterprises by municiplo for the border region (Map 5.2) md the rest of nation (Map 5.3). In the border region, the largest concenbations are in the city of Monterrey and the major border cities of Tijuana, Mexicali, Ciudad Juardz, and Nueva taredo, as well as Hemosillo md CaiiemeiCiudad Obregan in Sonora, Chihuahua city in Chihuahua, and Tomeon and Saltitto in southern Go&uiIa. For the central region in erce comesponds to the large cities (compare M q s 5.2 and 3.3). As ity, Guadala,jara, Leon, Puebla and all expected, the major populations centers of Me erce. On a municipio basis, there are the major central cities have especially strong no surgrises regwding commerce enterprises; it eonesponds to the major no&em and central cities, but is more wei&ted towmds the center.

Finance and Comerce

Finance and Commerce

85

As seen in Map 5.4, commerce sector revenues are highly concentrated in. the nofihern Federal DistPict. In fact, it is hyper-concenQated in a few central delegations. The cen&al delegations of Cuauhtemoc, Miguel Hidalgo, Benito Juarez, md Iztapalapa account for about a fiRh of commerce revenues for the nation. This core area of Mexico City- in a sense constitutes the commerce business center of the nation. This business center has more wholesale emphasis than retail;. For instance, when commerce revenues are divided into wholesaie and reail far Mexico City, they appear more concentrated in wholesale in the noahem Federal Distfict and noahwestem parts sf Mexico CiQty,while retail is rjomewhat more pevalent in other areas (see Map 5.5)N&ionally, the size of commercial ente~riseshas influenced its geogrrsphical pagerning. There is not space in this baak to discuss the geogaphy of the many finer diEerences bemeen large and small enterprises and subsectors wi-tkin commerce. One exmple of such fine distinction is the distributim of workforce per small entevrise, in pa&ieularthe ratio of number of small entevrise workers to small enteprises. These small entexpxises are ones repofiing ta the economic census of mECI, so mast of the infoma1 sector is missed. Th erce dislribution by municipio is shown for the border shtes in Map 5.6 and for the region in Map 5.7. There is a loose correspondence to major cities (cornrgme with Map 3.31, but many broad areas that we not major cities new have hi&er workforce propartiions. In Chihuahua, there is a conidor of high small asea worker intensities that runs from the border to sou& of Chibu~huaiCity. The cenlral f l a k aeas with high small entevrise work htensities are no&hemtem Jalisco, noflhwestm Sate of Mexico mcf large p&s of Guanajuato md Queretwo. The state of Mlichoacm and the south &so h ~ v ehigh propoaions. This characteristic reflects panems of small enteqrises that are much more spread out in the semi-pe~pheryand periphery of the nation than for larger The spreading out af small enterprise paeems is not suqrising, since such eree enterprises are sustaiir?ablein markets anywhere in the nation. Map 5.4 Commerce Siectar Revenues, Medco City, 1W3 (in thausandts ~fpesas)

Map 5.5 Propo&ionr Molesale of Commerce Revenues, M@;sieoCiQ, 1993

Map 5.6 Average Number of Warkers Per Smalf Enleqrise i m Commercrt, Mednlco, 1994

-

2 . a 4.33 Map Some: =GI, Cexxfos Econ&ws, Ma&: A smI1 e m ~ ~iss&%& e as ha*g bewmn O and 15 w d e m Note: The M p 5-5 dqic& the Workas Per Smtl kteqrist:

1994

Finance and Commerce

Finance and Commerce

88

In summag, the commerce sector is geographicaHy concentrated in the northern and central cities, especially the latter, and even more so in Mexico City. Within Mexico City, commerce is concentrated in the traditional business city center and has a stronger wholesale aspect, There are other paMerns evident for smarfl business, which extends out more broadly across the semi-peripheral and peripheral areas. Banking Sector The Mexican banking sector is crucial to the success of the economy. The banking sector also is impofiant to the manufacturing sector covered in Chapter 4 and to the commerce sector. The Mexican banking indusw is even more important to the commerce sector versus manufacturing, since commerce has a smatXer propoaion of &reign ownership and, .far Mexican owned f m s , less foreip debt (see Table 5.4). The commerce sector suffered in the 1990s due to the credit crunch, resulting &om the nation's banking crisis, 'This section delineates histov ofthe Mexican banking industry in the past several decades leading up to its present crisis stabs. It discusses how, alker a decade of nationalization, foreign interests have reentered into the pielure and in some sense are rescuing the faltering indus~, In the period of the Mexican debt crisis in the early 2980s, there was pressure to rid the then privatized banks of inefficiencies and even "mismanagementf"Febre Pruneda 1999). In 1982, alt, of the banking industy was nationalized, The b a d s were nm by the ~ ~ government began to realize many of government for nearly a decade. In the late 1 9 8 0 the its protective policies were failing, and in the late years of the Be La Madrid Administration, winds of change began to circulate pointing to greater privatization and opening up of the economy. One of the consequences was the re-privatization of the banks in the early Saitinas Administration in 1991-92, However, the privatization was not well thought out in the sense of preparation and management abilities of the buyers to run the banks. Rich tycoons b o u e t the banks and in some c a e s did not have the necessary experience in banking, This was most exlreme in the case of the new manager Jorge Lankenau af Gmpo Financier0 Abaco-Confia, He was later jailed for taking 170 million dollars &om the Confia group (U,S, Mexico Business 1998). Two other notorious cases of mis-management were the owner of Crim-Unicin, Carlos Cabat Peniclze, who w;;ts oused by regulators on cornpiion charges and Angel Rodrigues She3 owner of Asemix-Banpais, who was later a ~ e s t e dfor mismanagement. Even some owners with extensive business experience did not fare well in banking. For instance, the experienced Sada family of Monterrey can&olled Serf;in, but it did not perform well in the t 990s, leading eventually to government-imposed sale of the bank. The situation of faltering management was exacerbated by the peso crisis of 1994. The findneial losses were enomous for middie class Mexicans, who were unable to pay their mofigages, loans, and credit card bills. The results were huge amounts of nm-perfanning loans. The amount of these non-perfanning ioms led to the fornation of Fobaproa, a , roughly equivaiient to the rafe of the government entity to bail out the banking i n d u s t ~and Resolution Trust Corporation in the Savings and Loan crisis in the I1.S. in the t 980s. The magnitude of the loan losses is staggering. As seen in Table 5.6, the total loan tosses and the ratio of bank bailout cost to PIE3 have increased since the peso crisis. By March, f 999, Fobapraa had non-perfowning toan portfolios of 686 billion pesos, equivafent to 75 billion dollars (XNECX 1999; kueger and Turnell 1999). This is equal to about one sixth of PIB! The non-performing loans were wighted in ceaain economy sectors. As seen in Table 5.7, the worst ratios of nan-perfoming loans were for durabte consumer goods and nonbank intemediaries, where about a. half of loans were non-perfoming, Corporations have

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done a liMXe better than households; yet have a quarter of non-perfomkg loans. This chart underscores that whole sepents of the economy defaulted en masse, Table 5.6 Gross Domestic Product (PIS) and Mexican Government Estimated Ratio ofBarlout

Cost of Bank Bailout

Year

PZB*

1995 1996

394,983 415,378 444,48 1 464,127

1997

IW8

-Year E R ~ * 2 1,724 34,892

Cost to PZB

5.5 19.4 Nsl 16.2

MA

75,189

*in miIlions oFU.S, doIlms. Sources: MECE, 1999; kegex rtnd Tomelf, 1999.

Table 5.7 Ratio of Nonperforming Loans to Total Loans, Mexican Banks, 1995-1997 18.5

21.9

27.0

28.9

49.4

Househotcis -Consumption -credit cards 4urabIe consumer goods -Housing

Average 10.7 Saureet Infomes rlnudes del Banco de Mexico, 1995-1997.

ent tried to deal with the crisis in a number of ways. Fobaproa. and the g of b&s to domestic md foreim mtities, and oaers have Fobaproa has sold off ai n been purchased by foreim b d s , Of the 18 b d s that the gave enrt sold to Mexicm buyers in 2981/19"32,on& thee have swived in the original f o m and remain independent in 1999. These are Bancorner$Banamex, and Efanoae. However, Bancomer is in Process of merger with Spain" Bmco BiIboa Vizcaya, Among the foreim acquisitions were Banco Coniia by C i t i b d , and Bmco fnverlat by Ba& of Nova Scotia. It is insporlant to recognize that Fob Id have dealt more sternly with this crisis, including leteing ,nationalizing some of the problematic ba&s, andlor geMing some of the ba&s rid of poor nzmagement. Fobaproa vvm not able to take these stronger steps, Atthough the ba&ing industry in 19913 was still mostly under Mexican omership, about a third of the tap 15 b&s are foreim (U.S. or Spain), and Serfm and Bancorner are l&eXy to fall to foreim hands (see Table 5.8). Of the remaining lwgest bads, ot.kers will igers over the next five yezs, ent has t&en steps to comteif the adverse effects of the devaluation, One was to conthue to Xiberdize following the crisis, in order the reassure businesses and investors about the advwse effects. Among the steps taken were the continuing efforl to privatiz porls, aivo&s, highways, and railroads ( I h e g e r and Tomell 1999). Telecomm sefvices have continued to be opened and more Eoreiga ovvnership res@ietionshave been Iified ( h e g e r and Tornell 1999).

Finance and Commerce Table 5.8 Mexico's Top IS Banks, 1998 Percent 01

Banamex Serfin** Brtat Santander Mexreano Banco Bilbao Viscslya Banorte Banpais Centro Glttbank Inbursa lnteracc~ons Afime J.P. Morgan lnvex Xndustrqr Total I ,2 17,486 100 0 * In process o f being merged with Spain's Banco Bilboa Vizcaya. ** In process of bang sold off by federal government agncy, IPAB. Source. Mcxrcan National Bankrng and Secuiritres Commtssron, 1399.

Perctmt of

County oj

Mexico Mexleo* Mexico f gain Spain Evlex~~s Mexico Mexsco U.S. Mexico Mexico Mexrco US MGXICO 102,421

100 0

Another set of procecfures have been Fobaproa measures to provide relief to bank md debtors. Among the steps have been (I) to absorb a sipif"xeantpropofiion of the bad loans i.e. through Fobaproa; (2) to give certain types of relief to debtors, and (3) to assist the banks with dollar XiquidiQ (Kmeger and Tomell 1999). However, the effects of both the open economy and '"ank bailout" "program have been mixed. Many critics have been concerned about the favoritism shown by Fabaproa to cel-tain large individual creditors. For the successor ba&s that remain under foreign or domestic ownership, there are challenges, One of the factors is that there are too mmy banks for a nation of Mexico's size, With too mmy banks, the average deposit size bas been reduced. Non-performing loans remain vevy high; one estimate is 18 percent (U,S,/Mexico Business 1998). This operating problem is exacerbated by the need to market and adveftise aggressively which drives up costs. At the same time, there are too few bank branches, Xn spite of its intentions, Fobaproa has opened up confiict of interest and other problems. The Mexican federal tegisfature debated these problems and in spring of 1999 decided to replace Fobaproa with IFAB, fFAB's charge is to clean up the mess created by Fobaproa and to address the pressing needs of banksboperating problems. m a t are the overall lessons to be learned from two decades of disruption, shocks, and deficiencies in the Mexican banking systernflirst of all, the crisis was provoked originally by trying to peg the peso t s the dollar. A lesson far a developing nation such as Mexico is to let the currency float, so a large ""hiecup" of adjustment will not be necessay. Another lesson is that just removing non-perknning assets from bank portfolios is not enough. It is also necessw to set standards to assure that non-performance will not recur (Krueger and Tornell 1999). The very bad credit crunch created by this crisis has parlieularly adversely impacted certain segments, not the larger expofi-oriented firms but rather small firms that are dependent on national lending. In spite of the ups and downs of the past two decades in banking, the nation's economy has survived and is fairfy robust at the end of the century. A surprising lessan is that a viabie banking system is not necessav for a devetoping nation.

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One of the reaons is govvhg globatimtion, so mmy lwger f m s are eiaer akeady multinatiomts, not degendent on local capital, or able ta obtain lams overseas to ssusQirn god. The case st-udies of Bmcomext and Bmcomer that follow highli&t tvvo wpeets of the samba b d i n g md credit picme. Bancotnext exemplifies a natioslalized b& that is supposed to place expod h e & of e v e e k g else, but is fSnding itself phched economically. Bmeomer is a bader in Mexican b&hg that has been able to weather the its foreign pmersMps. s t o m of the past tien yexs pmly ~ o u & Geography of Baafsilzg It is h p o m t to consider the geogqhical dis~butianof b d h g . Lzl 1998, there were 6,l 1O b& omces and brmches 51 Mexico. "Ibis network is not adequate to sew@a popularion of neatly 160 millim and a land area of more than two million kilometers, m e r nations have higher ratios of b& loeations to population. For hstmce, the ratio for Korea is 2.2 h e s ~ @ a the ; U,S is 6.2 times hi&er, and C m a h and Spab we 16 t h e s higher. Mmico also has subsmtially lower ratio of b d accomts per person compased to most other nations. The regional digerences in b d h g me seen ia Table 5.9 and Map 5.8, ft is clear &at b d deposits are hwer-concenmted in the Federal DisQict md sparse in the more remote weas in the lBs?jio, south, and souaemt. F i m eight percent of b d deposits is in the Fed@& District, a d moam fiaeen mcent in Jalisco, Nuevo Leon, md gate of Mexico. A siirnilap gmem is evident for bank lacatiam; howeverpto& locatiom far the thee major me&opofitan states of Federal .lis&i& Jaiisco, a d Nrrevo Leon and the nofihem border states are more favorable, compmed to the rest of the nation. These inequalkies are silnila~ to inequdities in PXEZ, but are even more exagerated, A result of the deficit of b d h g especially in the ma1 and remate areas, is inabiliv to sewe the b d k g needs of the people. Hence, tbose seas have a hsrrder time h d i n g appropriate kfiwmehtre, and may not be abk to diversi.fy their economic base. This may con~bsutef;O discontent, ouWgatioa, rand social problems. It is also impofimt to poht out that the b d h g deposits, bank locations, and b& assets are concen&ated in relatively few large b&s Ilwated in the Federal Disb-ict (see eters, the Fedma1 Dis&ict is Table 5.8). As seen in Fiwre 5.4, on a vmiev of p dispropoaionate in its b d i n g role. This adds to the challenge of providing widespread ba&hg thou&aut Mexico. Clfsamal-Mart; a Global Coulnter Example Ci&a was "Eomded in 1938 by Jer6nho h g o , He had shdied discount retailhg in tke U.S. and in 1958 s m e b the f ~ s Amerk t discomt de eat store, In 1966, tfie Chicago-bmed retailer Jewel pwchased 49 percent of Ci&a, an @sociation that lasted mtif 1984, h e n Jewet sold its kbrest back to the &ango family (Poole 1998). C i h g e w beyond Amerg to mcompass stores under the nmes of Bodega, Subwbia, Sqerama, as well as the VLP restawmt chah, Stores hclude combinations of dbcomt and self semim depament stores, supemwkets, h w e m ~ k e & and , clothing stores, The VIP resbwant chain is the largest h Mexico in seating capaciv, with 33,500 customers. Cifia has historically and up to present been lczcated mostly in Mexico City and the central region of Mexico.

Finance and Camerce

Map 5.8 Re@aaalDifferences Re@ooal Dieereaces in Banldng

lQaOsaf Persans per Bank OffIrce or Branch

Sowe: ButlerRick Megw b b b Eoject

Figure 5.4 Banking fmbalanctls: Federal District" SShnre Versus the Rest of Mexico

Ba& Deposits (percent in nation)

B& Loms (percent in nation)

f3&

Amounts per 100 persons

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Finance and Commerce

In 1991, Ci&a restored an association with a U.S. company, in this case by a joint venture with the retaiier giant Waf-Mart. The joint venture opened 145 new stores including 18 Wat-Marl Slupercenters, 28 Sam's Clubs, and 99 Gifia units, The number of stores nearly doubled the number Cifia had before the joint venture. Among the mistakes by the joint venture was stocking the stores with Mexican goods, whereas Mexican customers were expecting U,S.-made goods (PooIe f 998). The shock of the peso crisis of 1994 reinforced this sbategy since an outcome of the crisis was that U,S, goods became too pricy for Mexican consumers, so the joint venture had to emphasize Mexican goods to a greater extent. Because this threw off Wai-hlafifs strategybs,WaI-Mart cut back on its expansion plans in Mexico. Cifka's market shan dropped afier the peso crisis by about ten percent

Jaftfc~ Nuevo Leon State a f Mexico Guana~uato Michoacan San L,uis Pcttcfsl Veracruz B Calrfomta Nofie Tamaultpas Purbla Chrhuahua Srnaloa Sonora Coahuila Ch~apas Guenero I I~daIgo Oaxaea

Mareios Zacaleeats Qucretaro AguascaI~entes Yucatan

Durango Tabascu Nayarit

Collma Qurneana Roo Tlaxcafa B Cal~fornlaSur Gampeche Total Bank Deposits Averdgc

Source: Febre Pruncda, 1998

0.19 893,605 OQ 3 13

22 9 17 9

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94

The Wal-MixPt purchase represents globalization. Wal-Mart is the number three firm in the U S , Fomae 500, with 1999 estimated sales at $258 billion and estimated income of $4.4 billion. It has nearly one million employees. From Wal-Mart" perspwtive the Cifra acquisition solidified its largest overseas expansion. In f a t , the 416 CieaiWal-Mart:stores constime 12 percent of Wal-Mart's 3,599 stares. Mexico is by f'ar its largest foreign presence, constituting about three fi&hsof its foreign units, In 1997, Wal-Mart Stores purchased conkot of Gifra for $1.2 billion. With the Mexican economy improving, Wal-MarU'Cib stwed a large expansion, mostly of Bodegas, Aurrerzits and Waf-Maas (Poole 19538). Among the hndarnental questions raised are the extent of standard fomat Wal-Mae wishes to maintain overseas, and the extent of U.S. versus Mexican goads that the Mexican customer seeks. Wal-Madk famous warehousing and inventory technology will help Gig& Wat-Marl expand md compete slrongly on costs, NevertheXess, there is a period of &ansition, in which the Ci&a technology and systems need to be merged with the advanced WaX-Mart systems. It will probably be several, years before there is unified Ci&alWali-Mart corporate techology and systems. At that point, the company may move rapidly to pads of Mexico a w v h r n its mditional central region. The competitive capabiji~that will emerge will put pressure on the largely Mexican o w e d sector and on traditional compmies even ones as smng as Livexl)ool. More foreign takeovers may be in the making as a consequence of this s&ategicthreat. Case Study: El Puerta de Liverpool EL Puerfo de Livepool is a f SO year old company with ties to Europe that has not only survived but prospered in the contemporaw competitive, global mvironment. The company represents mmy of the e n d s in commerce discussed in this chapter, but also demonstrates cutting edge strength ta compete nationally, but not internationally. Livergoo1 was founded by a French immigmt, Juan Bautista Ebrard, in 1847 in Mexico City. The orighal small store, called El Caj6n de Ropa, emphasized clothing imports from France and Europe. The company grew and prospered in the lgLhcentury; it even served customers during the brief French rule o f Maxirnilian. In 1875, the first Puerto de Liverpool depaement store was opened in an elegmt building in downtown Mexico City. '%Liverpool" was chosen as a name because of its fame as a port of embarkation of wods for North America. This store set a tone of high qualily goods, prestigious impofls, association with French and Etlropean desipers, and anention to customers that has carried thou@ to today. In the post World War 11 period, the company grew and changed. In the 1 9 6 0 ~a ~ second st-ore, Liverpool Insurgentes, was opened. The company went public and was listed on the Mexican stock exchange, although descendents of the founding family including the present chaiman nil. Michel remain involved, Xn the 70s- the fim opened a distribution center in Mexico City, A new business idea for Liverpool in the 80s was to develop and manage shopping centers; naturally a Liverpool store served as one o f the anchors., The first such shopping center was Perisur in 1980. The new Liverpool anchor store was surrounded by lSB smaller stores and shops, with the entire space managed by Liverpool. Twa years later, the Em opened a store outside Mexico City for the first time, in Villahemosa, Tabasco. In 1985, Liverpool purchased Fdbricas de Francia, a 120 year old Guadalatjara company that had smaller and less expensive stores mostly in the western States, In the early 90s other Livepool locations were started in Mexico City, including the firmmanaged shopping centers of Centre Comerciaif Galerias Coapa in the south and Centra

Finance and Commerce

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Comercia1 Galerias Insurgentes, as well as in the new shopping center of Santa Fe. The new Polanco depadment store included an advanced computer center. A new dish.ibution center was initiated in 1993 in TuititIBn in northern Mexico City. This dish.ibution center is highly au~unatedand one of the most advanced in fu"ofi"th America, The world class facitiv was built by Alfan Bradley baed on U.S. and European technotoa. With only 200 workers, it handles 288,000 pieces of merchandise daily, It is connected by a wide area nework to the company's 28 stores and distribution centers. The center is container-based, sa small and medium sized merchandise is put in containers and moved automatically through the center and onto trucks for transporl. Bar code labels are put on the containers md on large merchandise items. The labels are scanned throughout the dish.ibution process. A small percent of aniving items are pre-bar coded. ED1 (Electronic Data Interchange) is commonly utilized for exchanges with larger companies. Recently Liveqool added other techofogical enhancements, It stafied in I998 an automated Center of TeIecom Customer S u p p o ~that provides telephone sales, promotions, customer service, and a suggestion line, It has opened an e-commerce site that initially offered books, CDs, perhines, and cosmetics. The Gmk ConSEPdTIDO was opened, which is a point-based system in pafinership with prestigious travel, vacation, and car rental offerings, Most goods are &om international sources. About one third are purchased overseas mostly in the U.S., Canada, Germany, and Hong Mong, However, the company also owns a clothing "maquila" that impofis raw materials and design from the U.S., but unlike most "maquilas," sesei[IsdolnesticaIIy i,e. mostly to Liverpool, The "maquila" is a way to average costs for overseas products. About one third of the supply comes &axn Mexico. The firm serves domestic makets, in pairticufar only ten percent of goods are expofied, Geographically, Liverpool stores are concentrated in Mexico City, which has seven stores, and in the central regian (See Mag 5.9). Recently some stares have opened in the southeast. Fhbricas de Francia, on the other hand, is mostly in the western part of Mexico, including three stores in metropolitan Guadalajara. Liverpool is highly success%int and financially power&l. Its sales in 1998 were 1.1 billion dollars, with a prof"xt o f 102 million dollars, It has large amounts of cash and propem, and owns real estate Including shopping centers and land holdings in many cities for future development. The geographical reach of the fim parallels that of commerce in generat, with hyper-concentriztim in Mexico City and emphasis on the cenwal region and largest cities. The company's financial strength, appea! to customers, and world-class technology demonstrate that the traditional commercial firm can be modernized to be competitive, Cunently, it has mainly doxnestic competition since ConfidWal-Marl: mostly serves a lower sector. However, if global commerce enters Mexico, El Puent.0 de Liverpool should be well positioned to compete.

Case Study: Bancannext Bancomext is the Mexican govemxnentfs importiexport batlk, with an emphasis on export, It is 60 years oitd and has emphasized financing of Mexican expa&s. "There is not an analogy in the U.S. of a comprehensive bank promoting exports. Instead, the functions are spread around to commercial banks, non-progts, and government agencies. Bancomext has helped stirnutde the large growth in exports of the past 20 years discussed in Chapter 3. fn order to sustain itselc the bank has also moved somewhat into regular commercial loans, fn recent years, it bas had a farge propoaion of nan-perfafarming loans and has had to cut back on riskier lending.

Finance and Comerce

Finance and Commerce

97

Bancomext is part of the expo& office of the federal government, SECQFZ llnd its Ghaiman is the Minister of Finance, At the same time, Bancomext has its own offices and m experienced management staff. Its principal goal is to provide Mexican export firms with a %II package of suppod including loans, consulting on the market, computer systems, technical assistance, and advice. Its goal is to stimulate over XOO billion dollars in annual Mexican exports. The target company for Baneomext is a smaller fim that is planning on s"lart.ing an export t h s t . M e n a client has matured and is self-sufficient in expart, Bancomext cewes its help and refers the company to other banks. Bancomext success stories of support. to clients include Cmex, Vitro, and Bimbo. Today those frrms are self sufgcient and have substantiaX offices and exporn overseas. Bancomext has shified to medium and smailer sized companies as clients for several reslsons, One is that it perceives that globalization is moving to the level of smaller businesses, Secondly, the b d i i n g crisis has ~auseda credit shortage to smaller Ems. Because of this, Bancomext may also provide direct credit not just for kreign expoxl: but also for domestic werations of smalfer firms. Bancarnext provides workshops for fareign Prms and a large number for domestic ones. It also suppo&s fairs and export.-related events. It bas personnel located in 36 offices in dozens of foreign nations. These personnel carry diplomatic passpofis and are attached to Mexican embasies and consulates, Banconext is serving a client base of around 10,000 small and medium sized expos businesses. There is a large base of 50,000 customers of the full services of the bank, which include credit, consulting, inhmation, and Waining. Most Xoans Bancomext has provided are to commercial banks, which in turn loan finds to small and medium sized fims aXIowing them to develop as expoxting entities, A more recent area of banking activity is direct loans to companies and lending to private banks such as Bancomer, Serfin, etc, The yearly amounts of direct loans in the mid 1990s averaged $5 billion and have lowered due to loan losses. However, this reduction would be in line with a frieneralhdusw-wide reduction in direct loans. in t 996, Bancomext provided $13 billion in loans, with half in direct credit @anted to commercial banks and half' direct loans. However, direct loan amounts and total credit gants have decreased in recent years (Cutiemez and GatsiopouIos 1999). This is because bad loans increased and in 1998 were over 700 million doflaxs, causing Bancomext to cut off many direct loans to its export clients. One of Bancornext" goals is to increase the Mexican content of exported products, It is attempting to help develop the quality and productivity of suppliers to large expoding corporations. For example, if a Mexican supplier gains the approval of General Motors, it immediately becomes a worldvvide supplier; Rancornext aims to help the supplier firm obtain the approval. For suppliers directly exporling, Bancomcxt helps them link li~r the global chain of buyers and sellers and to increase product qualiv in order to compete. Most emphasis is an the U.S. market, since it is nearby, but Bancomext also focuses on Latin America, which has market similarities and, to a lesser extent, Europe, In summary, Bancomext represents an unusual federal bank extending beyond normal baaking roles to 'hnurt-ure" firms for the global expoxt market, especially the U,S. It provides infomation, consulting, workshops, and training, as weti as contacts. It has had mixed success, with major contributions to export including some notable 5nns nurtured into world producers, but had problems of over-extension of direct bans and loan losses. It is still sofling out its true role vis a vis the government and private sector,

Finance and Corn-tnerce Case Study: Bancomer Bancomer is one of the two Iargest commerciai banks in Mexico (see Table 5.8 and Figure 5.5). tt remains in Mexican cont-rst and yet has fomed important overseas alliances that have helped it to get through the banking crisis period. It is alnently in process of merging with Spain-s Banco Bilbao Vizcaya Argenaria, creating Mexico" Iargest bank, BBVA-Bmcorner. BBVA will have a 40 percent stake. Bancomer serves the national domestic market. It has the largest branches and ATM networks in Mexico, with over 1,200 branches and 2,000 A"T"Ms. It bas done little intside of the U.S., due ta regulations and other constraints, but has entered a srnatt amount of WAFTA-related "niche banking,'" Bancomer was founded in 1932 as Banco de Comercio. Xt grew by purchase and consolidation, M e n Bancorner was privatized in 1991, a goup of well known Mexican businessmen gained control, Today, the government awns 20 percent of shares and Banco de Montreal o m s t 6 percent.. Bancomer's principal focus is on providing a full range of banking services to customers throughout its broad geogaphic network, the largest s f any bank in Mexico. To support the domestic network, it has a medium Level of technology, which is average or somewhat betow average by U.S. standards. At the same time it has entered into strategic alliances with ventures and companies in the U.S. and Canada, In 1996, it established a s w e g i c alliance with Bank of Montreal. Thus, Bancomer received the support of one of the ten strongest banks in North America. This also provided some U.S. banking ties, since the Hamis Bank of Chicago is a subsidiary of the Mon%r-ealbank, Although this tie has limited benefit today, it can lead to more activity internally in the hture. There are several other international alliances: Joint venture with Aetna. Bancorner and Aetna have a joint venture in owning a large Mexican insurance company, Vatores Monteney Aetna (VAMSA). VAMSA i s a national insurance leader and provides Brurcorner with counter-cyclical diversification, and pafiicipation in govvth of the dpamic insurance sector, * Alliance with Aetna to Administer Retirement Funds, In 1936, Bancorner and Aetna fomed a strategic alliance to administer federal retirement funds h o w n as AFORE. To this administrrzlion, Bmcamer con&ibutes its large computer network and prior experience in retirement hnds, Conbibutlon of this alliance is to lower the operating costs of the Bancomer branch and computer netvvork in&astmcture. Alliance with Commerciaf Credit Copporation. In 1996, Bancomer and CarnmerciaI Credit Corpomtion, subsldiav of Travelers Group, fomed a strategic alliance to develop consumer credit in Mexico targeting tow income customers. * Pmership with the 67.5. Postal Service fodEIectronic Mail Transfer. This pa~nershipwas fomed so that money could be eansfesred elecaonically and securely %om selected U.S. postal offices to Bancorner, This particular service covers the U.S. southwest. 0 Alliance with Afestra, Bmcomer controls 26 percent of Aleswa, a national phone company that provides AT&T phone produc&, birsed on a modem network in Mexico. This alliance is discussed in the Alestra case study in Chapter '7. * Proposed merger with Spain" BBBVA. The merged entity BBVA-Bancomer will be 40 percent controlled by BBVA, 0

Finance and Commerce

Canada

tl S, Alliances Aetna Travelers Croup U.S. Postal

Latin Amer~ca

* Proposed to become BBVA-Bmcomer

99

]en canelusion, Bancomer i s a b&ing leader with the most extensive geopphic presmee in Mexico, En &e mid met Is& l998s, it has had r r e y dificult dmes becawe of h g e loan defaults and some implications o f mwey Iamdering, It: hasLs, however, diversiEed itselif kough a saies o f international pafinerships md a1limm.s with v e v hi@ qua1il-y U.S, md Canadim orgmizatians, Its global t h s t is not in makeling its products ovemea%,but pafia"cipatingin VW~QUS aljXiances, mostly U.3. md Canadim, that assist in pa&icipakhg in the Mexiem muket. mou@ the proposed merger with BBVA it would salidi& its number one position9but have mo-fimforeig eon&ol.

lntrsdkactioxe Edncatiagaal Sewices Health Sewices SoeiaI Sewices aatd Pave@ FimaaeiaI and iansurarrtce Sewices Business, Accounting, Legal, and Information Services Perssmalt Sewices Co~claasions Case Skudy: Squros Comercia1 A m e ~ c a

Services

Semices form f o m a crucially cmcialf,y important impoamt element in Mexico. Medco. As the nation aspires wpires to ta be Services advmced, services sewices expand expmd in in importance. impomce, For Far instance, hsmce, in in proportion, the U.S. U.S, more advanced, in service semice related occupations wcupations grew pew h gem m d in 1920 to two thirds tfikds in 1980 m one third workforce in (OM 1987). Similar increases may be expected in the Ihe 221s" c e n w in inMexico as its economy (Ott 1" century advances further and globalizes. ices overall and md specific service semice sectors. sectom. Some service This chapter discusses services par& of other o&er chapters, such as automotive repair repak (Chapter (Chaptm 4), 41, seaors are included included, as parts sectors b&bg (Chapter 5), communications G icatians and transport &aspa(Chapter f Chapter 7), tourism bwism (Chapter 10), 101,and banking asld social infoma1 sector (Chapter 12). This chapter chapts focuses on education, educatia~health fiealth and the informal smices, non-bank xlan-bd financial fmaneial services, senrices, information hfomation and business hsiness services, and a d personal services, sewices. In Xn this and md other chapters, the book baak covers all the tertiary tediasy sector categories h &om m services. MACE rev. 1 list fiom om the European Emopean Union (see Illeris Ifleris 1996), with witb the tbe exception of the NACE adminisQation and dipIomacy/intmational diplomaey/i;ntmatianal organizations. s. However, some of the public administration a p c t s of thoseitems ~ o s i&ms e are discussed disewsed as parts of Chapters ten 14 and axlet 15. 15. All A11 of this global policy aspects smice-related discussion discmsian meets nnm& the defining definling characteristics chmeeristies of services: sewices: (1) (1) users wers service-related p d c i p a b in in its production, prduetion, (2) (2) labor intensive hteasive activities, adivities, depending dependkg on an the skill of the participate (3) no well-defined wefl-&6ned product that can cm be measured, measwed, and (4) services senices are unique mique persomel, (3) personnel, ulferis 1996). each time (Illeris impoamt element of services services in Mexico Mexica is the extent of government gove An important versus private iavolvement. Some Same nations over the past half century c m w have reduced the role of government involvement. in services. sewiees. Through mougln privatization or outsourcing, outsourchg, they have transferred trmsfemed large lmge amounts of in in Latin America, Ammica, there has been k e n a trend over servi~esto the private sector. sector. For instance, insbce, in services fifieen years y e m to privatize pfivatise health heal& care c a e services sewices (Economist @cowmist 1999). 1999),Although Al&ou& there are the past fifteen advantages, this creates several problems. One is the reluctance in certain cases for the government and citizenry to agree to privatize. A second problem is that private groups privatimtion may not be taking over the management of former govenunentt entities after privatization in the last chapter chap@ for the capable of managing. An example of this problem was discussed in Mexican banking industry in the early to mid 1990s. Another issue discussed in this chapter is the concentration of services in Mexico City. b m c e , 29 percent of service sewice workers in in 1990 were located in in Mexico City, seven For instance, pacent higher hieher than the economically active population (Pick pick and Butler 1997). 1997). This percent hypmconcenmtion in certain sectors such as in in higher hi education and non-bank becomes a hyperconcentration smices. This geographical geomphieal concentration concenmtim needs to to be examined relative to the financial services. overall differences differe~cesof advanced advmced and md peripheral pdpheral parts of Mexico and how it relates to globailimtion trends. &ends. globalization 'The chapter concludes w with m o case studies. The Seguros Comercial Comer~ialAmerica b e r i c i l case The ith two illusmtes a traditional &&litional company campmy in in the tfie Mexican Mexicm service sewic-e industry hdusm of insurance inswmce that &at is illustrates prepmhg itself for greater foreign foreim competition. comptition, The second case of IBM XBM illustrates illw&ates both bo& preparing sick, IBM XBM has been largely lmgely a success story and md services and manuhcturing.. On the service side, ding information hfomatian processing processbg services, semices, even under mder the cloud of a a leading company in providing consutthg job for the Mexico City government. gov . The manuhcturing mmufacbrhg side of this botched consulting sbdy relates to Chapter 4-4 and md other o&er sections of the book. bok. case study 'The overall concentration conwn&szeion of services is seen in service sewice and md support occupations in in The l990, There were 7,524,060 7,524,060 workers in ;in service and md support suppoa occupations, out of an 1990. econonxicaflyactive population of 24,063,283, or 31.3 3 t .3 percent (Pick and md Butler 1994). 2994). This economically compmes to service semice sector as a proportion of total employment of 71.1 7 1.1 percent percent, for the U U.S, compares .S. in 199 f 991,58.2 1, 58.2 percent for Japan Jslpan in in 1992,and axld 63.5 percent for Germany Gemany in in 199 1991 1093). in 1 ((LO L 0 1993). Mexico" service sector seetor is smaller and less elaborate than in As a semi-peripheral nation, Mexico's

Sewices

103

advanced coun&ies, Geographically within Mexico, the service sector is concen@atedmost heavily in Mexico City, Baja Catifomiiit, md PSuevo Leon (Montemey), while it has low levels in the Bajio, eastern s@tes, and the south regian (see Map 6.1). There is a striking resemblmce to the map of Mexico sates by development level (see Map 3.21, although the border states of tiluevo Lean, Baja California, and Baja Sur me especially hi& in services.

Mag 6.1 S e d e e and Smpporl:

Occupaaong, 1990 Peree~tof Econ Acave Pop. 0,1837 to 0.2499 0.2SOO ta 0.299r9 03000 ta 03499 03SW to 0,4W

Anoaer indicator of serviee we sector revenues, which are su in Table 6-1 ( N G f 1994 Censos Ecoxlomicos), The I ~ g e s t categories are for professionaYtechic and kance, and res&wm&hotels md leisure. l%e "third sector,""consisting a t md nonprofib, is also vev subsmtid. Mexico City is hi&er for such gwice sector revenues. As seen in Table 6.l. iznd Map 6,2,43 percent of service revenues are lot-d in the Federal District, i.e. the een~al,core section of Mexico City. In fact, on the avemstge a &kd of &e nation's sewice part revenues are located in one to four city delegations fi.e, wards) located in the n o ~ h m of the Federal Dis6rict f W G I 1994 Censos Economicos). In summw, Mexico has a Iwge sewice sectors alihough it is about half the propoeion of that alof advwcd nations, The service sector is dispropoaionately ccsneen@atedin Mexico City a ~ especisrfly d in the noahem part of the Federal Dis&ict. This concentsation relates to the location of the seat of the federal gov ent and the business center of the nation in this vr=rysmall area. The statewide distsibution of sewices resembles that for development from tourism semices, the most impoflat service sub-categories zones of the nation, of professional, go entaf, non-bad financial and real estate are discussed in this chapter.

Map 6.2

S e d g e MOP Rm@n~@s, M d c o City, 1993

en thoutgands o f p ~ o s )

Mexicatn educationat smices are- predaminmtly provided by the federal ga The advmces ini educatioml senrims over t-be past f o m yems have bem ce the average number af school yems camplet& for people 15 and older ixzcremed from 2.6 in 1960 to 3.4 in 1970,4.6 in X980,G.S in 1990, md 7.2 in 3995, Ixz o ~ ewords, r dwhg one &kd of a centuy? average educ&ion h a iameaed &om low p r i x n ~to completion o f p h w . The hpact of this c m be beeer seen by exam&ixxg tlte ducational levels for population IS md older in 1970 and 1995 (see Figure 6.1). At the low end, persons without scbaalhg are kczorning rare, while s e ~ ~ ~md l dhil5fier v education have lxlovcd @omten percent to newly half, d o n g the impac& of this chmge we: (1) there is a much Imger educated middle class and (2) there is a lager edtlcabd worHoree available for mare demmdhg jobs requkeh by war1d.-elass or @obdsQndards. "I'his ammhg educatia~alchmge within Mexico is E&le noted in discussions in the U.S., which often focus on. the lower educated in-mipat population, Mawever, U.S. companies, whether maquiladora or not, are awme md offen t&in-ng a&antee of the . Seveml examples we the hi&fy edacated assembly and f a ~ t o vworkers tihitt IB sou&t for its plmts md the mom highly skilled and educated workforce that SQNY and o&m Bms have sou&t in Tguima elec&onics factories, Advmces are revealed in the present htemational context far Mexico. Compaed to the U.S. and Brazil, Mexico i s rou&ly equivalent to Brazil and trails the U.S., but not by a

Services

Figure 6.1 Cbange in the Educational Lwels o f the Population, 197Q-1995

Universiq Preparttory Seconctq Completed In~ncampiete No Prhq PrImw Schooling Note: kpulation 15 or older. Source: Banmex, 1997,

Sehml-Age Population (in X 080s) Adult Illiteracy Campulsary Education School Life Expctmcy School-Teacher Ratio No. SEudents per f 0,000 persons

12,462.0

10,012.0

21,372.0

huge gap (see Table 62). a m p a e d to Mexico, the U.S. avemge school yeas completed in 1997 was highm by about 4 years md its stuident teacher mtios were about half that of Mexico, It is hpodmt also to note &at the U.S. minimal school requkemen% exceeded &ose of Mexico by four yems. There was over three times the prevalence of st-ude-ntsin the V.S.; a large part of that difference may be due to the math @eater oppomities t"or adult education in &a U.S. Ceagaphieally, the advmced parts of the nation itre in Mexico City and the border states, especially Nuevo Leon. Bese aeas in 1997 had average number oaf school years completed of 8 or 9. On the ather hmd, the sou& xgion has law fetrels of education, averaging only 5 years of sclrooX completed. The Bajio region consisting of a number of staes sunounding Mexico City has a low level also at 6 years. This region corresponds fairly well to thehe peripheral development XeveX goups in Table 3.2.

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An important stimulus to educational growth has been a rapid increase in the numbers and prevalence of teachers at all levels. For instance, as seen in Table 6.3, the number of secondary level teachers increased fiom 39,139 in 1960 to 1,430,600 in 1996, a 36-fold increase! On a per capita basis, this increase was from 1.03 per 1,000 population in 1960 to 15.4 per 1,000 in 1996 (UN 1990, 1997). The growth in teacher numbers has been supported by greatly enlarged teacher training programs in universities (Lorey 1993). As seen in Figure 6.2, there are six major parts to the educational system. Basic education consists-of pre-school, primary, and secondary education accounting for 82.1 percent of the 27.9 million students enrolled in 1997-98 (Banarnex 1998). Middle level education ("educaci6n media superior") comes after secondary and prepares the student for higher levels. It constitutes 9.9 percent of the enrolled students. One of the sub-tracks at the middle level, middle professional ("profesional median) is a terminal track that produces technicians and low level professionals. Higher education (licenciatura), equivalent to a college degree in the U.S., constitutes 5 percent, while graduate education, i.e., masters and doctorates, accounts for only 0.4 percent. At the licenciatura level, there is a new element in Mexican education, which is "Licenciatura Normal." This is a two-year program that has a practical thrust to it and is growing rapidly. It resembles m some respects community colleges in the U.S. Two parts of this system that an less familiar m the U.S.an technical training schools ("capacitaci6nN), accounting for 1.9 percent of emollecs, and technological universities ("Universidad Tecnol6gica"), focusing on preparing teachers of technology. The Mexican educational system resembles in many aspects the U.S., but it has more tracks to produce skilled and practically oriented, technical, workers at different levels. One of the most important developing areas of Mexican educational services is higher education. It is also the dimension that has the most potential to interact with global forces and which can influence the capacity of the nation to become more globalized. The rapid growth in higher education is reflected in the number of negnsadosnh m licentiatura programs h m 1970 to 1989. An "egresado" is a student who has completed all of his or her coursework but not yet finished a required thesis. The number of egresados grew by six-fold fiom 22,595 in 1970 to 140,440 in 1989 (Lorey 1993). At the same time, the proportions changed from domination by the national universities to a broader rep&s&tation of higher education. The national universities consist of the huge UNAM (Universidad Nacional Aut6noma de M6xico) and Instituto Polithico. In 1970, the proportion of egresados in UNAMPolit6cnic0, other public universities, and private universities were 45.8,43.0, and 11.2 respectively. By 1989, the distribution had shifted to 19.6 percent, 60.8 percent, and 19.6 percent (Lorey 1993). National universities no longer dominate in numbers, although they may still be the leaders. Other public universities throughout the nation have become more important. The largest growth with a near doubling over two decades, has been in private universities. These include such prominent institutions as ITESM, Universidad Iberoamericana, Universidad Anhhuac, and over 150 others. Public and private university sectors differ in mtributions they an making to global and international changes. Public universities have produced graduates in a wide variety of fields. They are more keyed to the public sector. For instance, there is a large influence of Marxist thought at the public universities. They have been slower to move towards technological advances m undergraduate education. Private universities, on the other hand, are focused on producing professional graduates for specific fields in the private sector (Lorey 1993). Private industry has hired not only the private university graduates, but also the egresados who don't graduate, at a lower level. ~

Services

Figure 6.2 Srrucrture of the National Education System

[ I I

Basic

Vocational Training

Sour=: B a m e q 1997, Note: UK: permatages represat the prcent of matriculated sMenrrc in 1997-1998.

For irtsbce, Insthto Tecbolbgico de Esbdias Superiores de Monte~ey(ETESM) was founded with the goal of praduchg gaduates to Ell business jobs in Monteney, ft is based on a modeX of MXT, with f;l fwus on engineering and other professions. It has expanded this educational madel on a nationwide basis though numerous regional campuses and ~ a u @ i& very Xmge national progam in distmw leming and v universi~. These educational & a d s relate to the global economy in a number af ways, First, Mexico's hcreaslingly open and expore-$riven economy has need for mare professionais, iaeludh some key recmib at a world-class level in order to conzpete. Many of the case smdies in this book point to the need for high skill levels and o&en for hi&er level key

techologists or lead professianals in &ex to cmpete at a world-class level (e.g., case studies of IBM, Alesm, H a l e s Presidmte). ",!%is swellhg d a d has led to a growh isr private sector universities. At the s m e time, the key technololjjsB are ~ f i e neither brouat in from ovmeas e.g. Alestra, or they remin l o c a d ovemeas, e.g. in the maquiladora industry in the U.S. One ebdlenge for p ~ v a t emivemities is to move their quality levels s this level, even bi&a to produce some g a d u & ~at h b k universities afso play an h p 0 f t . e role in suppoahg the more open and gtobal economy, They are complementing @vat6 universities to some extent in prduehg gradurns for this new economy. At the s m e t h e , &ey me d a m b a t in WD, hdoctoral progm$ and in nation& reseach systems and pravide gaduates for the eEom in. R&D in Mexico, such as in the Delphi mhi-case. F d e r , they have the po@ntialto f o m allimces global& that can benefit the process of globalization. This has not yet been significantly reafked. h a n g the reasons me baeaucratic obstacles that remab. For b m c e , the Mexicm Education Mhislry is ra&er old fwhioned in puahg up obsacles ta accep~ng credi& &om foreip mivwsities (Rper-Zavala a d Beaavides 1999). Tbae am c h c u l a s md pdagogical dserences a b i t h g foreigrz interchanges, Also, same Mexican miversities, publi~a d p ~ v a & ,lack the necessw a c d e m i ~inkmmcme to s u p p a foreign infierchmges md joint pro el fir social mobilie A, fmal point an educational s is that tkey provide a c at a vdety of levels. The peat expmsion in education of the past 40 yems has enabled mmy working c l s s swdents to advmce in .their caseem and c1hb the social ladder to the middle class, Generally, private mivmsities aEready seme smdents i~ the middle class, 'They are able to preseme or advmce their sacioecanamic staws Mher. At the hi&est levels of education, going oubide Mexico to the U.S. or Emope fm postgadumte degees has o&n led to hi& cmeer atta ents, some o"fbich have stimulated the globalhation -process fkam a leadership level. One example of the-latter point is the &end towards foreign graduate education among Mexico" top leaders, As seen Table 6.4, the top leaders af Mexieo baw hcrewingly had a d that education bas been predominmtly averseas, In the Sale p o s t p d ~ t ducation e de Go* ahinis&ation, for bs&nce, seven@ paeent of&e top leifders had a postgadaate degee, and of &ern, five sixths were educated in the U.S. or Emope (Camp 1997). National leaders of the 1990s, often called '%echocrats,'?eceived theif "techocrat" gaduate education mostly in U.S, dversities. This tends to gound &ern with U.S. bushess and

TaMe 6.4 Graduate Education of Tap Administration Leaders in Mexieo, 1950-1994,

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100

100 I QO 1QO I QO 100 100 100

Heal& c a e semices in Mexico are pmvided by a combination of public versus vivate meas. Lower levels of Mexicm soeieq are predominmtly s m e d by seveml syslems, while higher socid levels are s m e d by a combination of private and public services. The present go roach has been in place for over m e n 9 years, wi& only mixed suaess, to see some sig~lsof hkmational hfluences, but realizhg .titratptengal hplementhg changes in gov seerion describes the health ewe system ses its level of quai@, ctompmes it to the U.S., md discusses advances that we be to occm h p ~ v & heal& e cwe, in~luding &e roles of foreim providas. The ri.&t of every MexiGm to heal& care: ig consti~tional.This ww mplified by the 1984, n a t law made the Genera$ Law of Heal& in. Mexico, approved by Congess Secretq of Heal* the govemhg au&o~@of tbe "mtiomf system of health,'%cludhg execdye au&a~&far 1111 heifla activl't-iesin the nation, In 1996, Mexico decen&alized its health care systemand also in&oduceda program of health services for its extreme poor. Public health cme is delivvered by two system, MSS ( h t i b t o Mexicmo del S e v o Social) md XSSSm @stjato de Se@&d Social pwa 10s Trabajadores a1 Servicb del Esado), The larger MSS sy&em semes 35 million people and has as m u a l budget of $5.3 bl'llion U.S. dtollms v,S.Mexico Bushess 1998). MSS is regwded as havjng hsuf6cient b d h to suppfi its large bwden mexiem Fomhtion af Hedtf.1Smey, 1995). The public part o f heaX.tfr sperzclbg is 57 percent. fn 1993, Mexico bad 423 social secM@ hospitals with 39, E 8 1 beds arxd 4 f O pubtic welfme hospibls vvia 32,309 beds, compared to 472 private hospibls with 17,707 beds, h addition, &ere were 15,472 small clhics and health centers, public a d pdvate, of mder 15 beds, The persisten% of this huge public system is due in part to the att;i&de mong the Mexicm public that health care is part ony (Mexican fiomdation of Heal& S w e y 1995)- This is s i d l w to the public pereepaon regmdbg Pemex as, p&hony subsequently discussed hChapter 8. At fmt dmce, level of health cam does not seem so different for Mexico, compmed to s fife expectmeies that the U.S, md Cmada, As seen lirr Table 6.5, the &ee c o m ~ e have we not too digaent, This may be parliy explained by the o E s a h g risk factors of lower qualiq disease prevention and heal& ewe, with sul often healthier nu~tioxlal suzd envkomenbf qmlit)f for some disease modalities e i & md Butler 11998). The prevalence of doctam is shilw, al&ou& there are subs~tiallyfewer nwses in Mexico.

Health Care lndicarors Life expectancy, 1B0 Infmt mo&ality rate X 990-91 h f m t enraciaion rate, 1980-90 He&% m p l o y ~ s ]Perm&qeagecon, active popuIaGan Number of active doctom Doctom per 1,000 population Number of lieemed awes Nurses per X ,000 population Swrce: Flora E s c h g q I997,

Mmico 70.0 36.0 6.0

United States 76.0 7.0

2.0

633,OW 7.3

10,000,000

143,496 f .8 f 76,927 2.1

600,000

7.5

Canada 77.0 6.0 1.0 900,000

2.7 60,559

2.4

2.2

2,000,000 8.0

262,288 9.6

The overall &end in health care from the past 36 years shows steady hospital bed capacity, but increasing prevalence ratios of physicians (see Table 6.6). The per capita decline in hospital beds has become a deficiency that is impacting the quality of care. It is due mostly to the expense a f adlrfing sufficient hospifal beds in the public systems. 'This is somewhat o@getby ambulatoq care and s o m g o a ia small clinics and centers.

Hopiraf Be&

P&srciam Par 10@@

Per 1000

Meficok heal& care system expendimes em be ~ompmedto &ose of the U.S. md G~mada"The raw m o m t of heal& care s p n d h g is much lower h Mexico, 'The avemge Mexican. spnds only $89 per pa-ron bed& cae, v e ~ u $2,763 s in tbe U.S. and $1 945 in em&&(Flares E s c h g a 1997)- h seen in Table 6.7, Mexico spend a relatively low propoaian of CDP, only 2.1 pmcent on health care, much lower &an for the U.S. and Gmada (Flares Etsckmga X997). %'his in part reflecb spending priofities far a IMted federal budget md atso cuf-1 d i t i o n s th& do not call for the sometimes ex~essive m o m t of sewices in the U.8, md Cma&. m e Mexiem h the recoazed lemi r-lght of health care and in the hsmmce, h mmy respects especially in the: gave efaser to that of Cmada than the U.S.

UniversaI wverwe

Yes no Yes

PuMielprivakpropmiom of heai& spending Percent of 6DP spent on h d & Abilitly of patient to ete~tsemi= Cases of civil md ~rirninillmatpractice

57/43 2.1 rafe

rare

no no no 43157 12.2 hi@ exwsive

no Yes Yes 72E8

9.4 medium ram

Mexico has a potential to aEer privatimd fiealLXll c a e to a much peakr extent. However, b d e r s need to be overcome, Cmentb, c o m p ~ e need s pemissian to opt for pdvate health care, Same exceptions exist. For btmce, the bdixlg sedor has always been allowed to have priv&e health care, since the fomdhg of IMSS in 1943, Al&ou@ the ZediXlo ahinis&ation proposed to have this option widely available, mian oxzthe request is bekg held up until after the 2000 eleelion. Cmently, only 70 b s have been pemitted to opt out of the MSS system. These hclude some very promhe~tf m s such as Alfa, Vi&o, and Cerveceria &a&t6nxoc w.S.Mexico Business 1998). Compmies pravidhg

private health care include Valores Monteney Aetnq which offers health care services to corporate workers at companies such as Bancomer, and Pulsar International, the parent fm of the chapter caSe cornpay Segwos Co ercial h e r i c a . hlsas reeenay pwehased a leading private h o ~ i a in l Mexico City to oEm these *mites. is O ~ aYg*, shce h l s a has plans to consmd 20 ou@atientswgev centem in. Mex LR the mall @vat@sector, &ere are successes md failures. For iostance the private El Hospital A B S has been operating in Mexico for over 100 years. It has continued to modernize, smiviag su& b m a t i c periods as the peso crisis of 1994 (Expmsibn 1998). Qn the o&ex hand, the fevv U.S. o w e d private haspibis have had mixed sumess. The well know Scripps Heal& &om San Diego s m e d to implement a;n 80 bed priv&e hospial in Aguaseafientes in 1993. S ~ p p would s mmage the f&ility, but the funding would be M e ~ m ."I% . eBoe ww hagted due to hck of h d i n g &om the 1994 peso devalua6on crisis mxpmsi6n l 994). A. nmber :rof other cornpees are readying &emelves to enter promhent Mexicm c a q m i e s and seveml hospital chahs and m O s b o n g the potentials of expmdhg wvate b e a l ~cme we gowing hterd of M e ~ c mhealth care with o&w sy&ems intefzlationally md especi;lld_y m e and heal& care W s we asesgmg e o m ~ e sFor , hsmce, some huge foreip hus l o CIGHA, Aeaa, an$ Me&opolim Life raher &m ente&g the mmker in M e ~ c inclu&g ( E v m i 6 n 1999). b o n g fmom &at may hduce &em to enter are the approval of optkg out for public recipients and indieations &at the broad Mexicm public will ;newt p ~ v a t e and even foreip opGom, This wodd espcially apply to poorer md more ma1 cfien&le, mere is also the opposhg factor of Mmicm labor miom. apeement ogers longer tern ptenlial for major ~hmgesfor Mexico. me;re is is potential to hprove the qualie, emciency, accessibiXi.t.y, md t e ~ b o l a eof heals cme, inmeme emplopent, md reduce the capial flight of padents who go ou&ide of the c o m w for ewe (Gbmez-Db&s el al. 1997). Xn additian, Mexican heaX~care fms have large pountial mskets of Hispmic population in the U.S., while U,S, h s evalmting Mexico have the potmtial mwket of the large c o n ~ g e nof t e x - p a ~ o bresidhg in M e ~ c o , esthEtred at 400,000, h o n g chdlenges a d equiq. Mexico needs to put in place better go has been helped c ~ e This . ahady by a 57 tllillian 98, focushg on smegies md ideas to skemline the operatiom of MSS. The challeqe of equi@ is to nmow the huge gaps existhg beween heal& cue for the po can md cme for the upvr middle clam and wealthy. The role &at globdim~on the process will defllend on the level of accep-ce by the Mexicm pubtic and a t leders of options beyond the & d i ~ o m '"a&honytkf f the federal progms. Soeial Sewices and Pave*

Each Mexicm fedem1 admhistsation has provided pro of social seMces hcludhg &ose to combat p ~ v e m .nese p r o g m s have considerably goan ahhisQation to administration. Mmy of these propams have provided large m o m t s of benefits for a needy population, but at the same t h e they have been ~ ~ t i c i afor d weaesses, ineluding inemciencies md clahs of using p r o g m s .Ebr polifical influe~ce.. These criticisms should not be too mfmiliar to observers of U.S. social service programs. The leadhg federal social s progms of the ZecXilo Ahhiskation empbsim pave*, heal&, md educaion, in&as@cWe, employment fi>r hdigenous, water, and saniation (see Table 6.8). Fmds are dispersed at the federal, state, and mmicipio levels. The Zedillo Adminis&ation has decenQalized some progams to a

geater extent thaa prior go eats, G e o g a p h i a , emphmis is ctn the south and ceneal re@ons extending east to . n e s e are the less prospaous states, many of which. have hi@ indigenous populations. For insbnce, socittf development finds dispersed in 1997 d the municipio in Map 6.3, n e s e h d s totaled $1.04 billion quivaient U.S. dollas Zt l's notewo&y that 18.9ereent of the h d s were desthed for the s ch i s clsrssified as peripheral in development ixl TabXe 3.2. The ZediXlo dhg h d s to the deprived mewpI;, The question is the qua1

-,

Table 6.8. Mexican Gavernrnent Poverty Programs l'ib fh8 Period 195-%@@a

Prqr~m to Support the Growth of Illurnsa Capita! Rogesa Ntrtrition pa@=: schml lunch;es, supply of milk and tortillrxs He&& Progms: MSS-Solidaridad Programs to Supprt Empfopent Opporfunides R o g m of t e m w w eqfoment e f m w s of low incame Progm for mad i n h m ~ w r far Support for dd mnes Suppog for the National Indigeaousb t i h t e NatimaJ Fund to Suppofl Soeisl Bwi~sses 'Wnjeres en Solidwidad" wmen in Solidari-ty) "'JornderosAgcolss" (A&culturat Workers) M U JCampesinas ~ @wd Women) Programs to Suppl-l Grawth af Physical GaplbI Crt"ovvthof basic s a i d i n & m m c a in ~ magin& regions Pot&le w&er md sanitaition in mar&al urban mnes md in mraI mnes Pilot b g m in Housing Telephones and m d roads Frog= oftilHimd Water Commission &ur~e:Sedesol, 1996, modifid &om Bmmex, 1998.

p r o p m s is the povem Perhaps tfip most pixom roblem &at Ijn spite of progrm Rogesa, This that some see h Mexico tday, povem has risen gfobalimtion and ex pa^-or s b ~ l y mere , are ;n;n esthabd 30 miUjion hdi~dualsixl emerne povew in 1999, or a b u t 30 perce~tof the population (Cen&o de Esmdios Ecanami~sy Ssciales, W A M , as yoted irt F ~ l p o ~1999). t 'This is up &om 14 percent of the populatioxt 1984. It is also notewaflhy &at 15 percmt of the powlation in 1999 spent less than one doll= per day Philpott 1999). mere are an egimateted 4-6 million households h exeeme paveq. n e r e a e a n m b r of rasons for this extent of povew. Fkst, &e Mexicm l&or force is increasing rapidly and has bee^ gahg so for the past ten yems, at a rate of appro one naillisn net new workers per y e a (Pick Butler, and GomXez 1993). There we a jimited nmber of jobs h h g created, so mmy workem even skilled ones c m a t fwd jobs, One estinnate is that hivo &k& of persons s e e b g new positions are hi@ school gduates and one fifth have &Ittendedmderpaduate p r o g a s (cited in Philp_pon 1999). 'l%us, in spite of hi&er educational levels for the nation, pave@ is on the kcreme.

Services

115

The Progresa povert)i progam was started in 1997, ft does nol focus on all 30 million persons in extreme poverty, but rather on 2 million impoverished families in rural areas throu&oul the nation. The p r o g m provides health, education, and nutritional assistance. Education money is provided for every child in school, with girls receiving a somewhat larger amount. It includes a nutritional supplement and is provided to pregnw or IaGtating mothers and ta chilcSsen two yeass of age or under (Ruiz 1999). fn 1998 the progam budget was equivalent to 63 1 million dollars. It was ogered in 28 shtes, X1530 municipios, 45,873 Ioealities and to 2 million f'amilies. Forty percent of Progresa fun& went to the urgent need sbtes of Chiapas, Qmaca, Guenero, Veracm, Pueblat, and Mexico. The propam has been praised md critiGimd, Supporters point to its beneftts to millions of impoverished fmilies. The progam does seem to be more efficient &an the moslly hiled Pmnasol and Pracampo povew promams of ea~lieradminimations, On the other hand, it has been cdticized in the Mexican legislame on several wmts.. Some have chimed that it has involved local confiicts of bterest, For instance, the mayor of iismall t o m can make dispersal of the fiulds dependlent on recipients' repairing a school, Another past criticism is that it was being used as an electoral . C ~ e n t j ytfik , is undergoing positive changes with new agency Ieadership,

Map 6 3 Percentage Distribua~nof MuBlieipio-Based So~ialDevel~pmeatFunds, by She% 1997

Financial and Insumace Services The major area of fimcid, inswmce, and real estate sewices accounted in f 993 for

$5,7 billion U.S. dollas in net heome f m G I , Gensos Economiszos 1994). As s h o w in Table 6.9, this sector iallcludes the national Bmco de Mdxica, cia1 b d s , brokemge h s , inswmce compmies, foreip exchmge (""casas de ), a d other entities including real estate. They diRer in a n m b r of ways, fsr ixxsance, on whether they are sit ztnd lending hsti&tiom, such as b d s and savings hstimtions, or whe&er they fer md exchange h d s such as brokemge and money e x c h g e houses. It is clew ther considerable diEerences Jn. profit&iE@, with the; Table 6.9 that Mional b d and cia1 showhg losses, while o&m institulions were progtable. ercial b d s were discussed in the last chapter. We pohted out that b the most developd of the Fmmcial seebrs, Even with the seve-rely dom&odden condition of the b W n g indmv, they play major roles in providhg corpomte semices, to expmd sewkes a well as from fo fmmcial recovev mtmdex; md B m ~ Bnbao o Viscayja. Mexican b d s such as The Mexicm inswance hdustry plays a m j o r role in c e m h produ~B.For insrirna, it is s&ong in auto and fife hswmce, but we& as already mentioned in, health insmmce, The gwos Comer~ialb e ~ c isa discussed as a case study, The h d u s w %ompossible de-replation of health md other foms of insmace. were an h p o M t part of this sewice sector and g e w in the l99Qs along with stock m ~ k & activity. The Mexica stock xnmket is cwmtty limited in size in size, but it relates to (Cabilfo 1999). Tbe money exchmge subseetor is relag the htmational bwiness and global economy thou& sales md pw~hases,or wth sts m o d m t e c h o l o a t o ~ s lexchanges, t Money exchmge houses are consbahe ogers alternative ways to m&@ papents in foreis cwencies. Ke~onal dis~butions of hancial sectors paking start3 non-b mevemess, with a dispropo~onatea o m t of smices Io~atedin the Fed relatively little in the poor south region. Some o&m re@om with hi& concenmtions are Nuevo Leon, the SQte of Mexico including p m of Mexico City, md for some sectors, nds to Mexico" mast hii&ly developed we=. Bajja California. The dis~bution B o a Bmco de Mexico md c stl b d s have 30-45 pacent of workforce and net l Disrrict (see Table 6.10). The sou& region irtterest pamen& located in. (Pe~phexyE3 &om Table 3.2) has only 2 ;to 5 percent of b&ing workforce md n d htaest. However, Periphery A includhg the Bajio Region aszcomts for 9 to 15 percent of bankhg workforce and net hterest. This lager m o m t stems &om si~ifiszantb d n g activities in the 1wge althou* m&er poor to middling s<es of Cumajuato and Vemcmz. Brokerage f m s are hi@ly concen&ated in the Federal f)is&ict, while inswmce compmies follow the b&ixxg paaern a f being &out half in Mexico City. Again for insmmce, the south region is vey tow at 2 to 4 percent, while the P e ~ p h e yA accowts for 13 to 14 percexlt. bluevo Leon, mostly &om Monte~ey,has sipificant pr0port;ion brokerage md hswixnce, &out 6 to 9 percent. Money exchange h s are hi&est in Federal D i s ~ d followed , by Nuew Leon, st level matched by Baja California, This is the only subsector for which Baja California has a substmtiali eon~bution,The reason may be the elevated levels of money exchange in the c ercc: and m a ~ i X a d o as r ~welt as border towism, Overall, here is ai hyperconcen&ation of financial h s in the Federal Bis.l.rict. Very carehl spdial maliysis. hdicates that within the Federal DisQict, k m c i a l sewices me further concentrated in the cen&al to north ceneal delegations. This reflects the fieadquafier

Services

Senrices

119

locations oft-flesecompanies ei%er hthe modem business arem along the major balance of Refoma and in Las Lomas, or in a zone in the south of the civ. Xt is mming that so much of the nation" finrtncial power and decision-making are concentrated in cenwal Mexieo City zones that are witEfiPf ten miles of each other. Hovvevm, financial1 regulatov ministries, the Mexican stock exchmge, and most of the nation's major caporate headquMers md decision m & e ~are also withk this small area. From the swdpaht of world sysbms a e o ~ this , concenwtion is not mexpected. That theory has focused mostly on the hflerconcen&ation of finmcial power in adva~ced nations (Sassen 1991); however, the same concentation is evident here wilhisr a nation and conespan& to Mexico" major development zones,

Business, Accounting, Legal, and information Services The sewice sector has akeady been seen to be smaUer in Mexico thm in advanced nations, PJeve&eless it still has substmtial parts encompasshe bushess, aceouting and cowulting, legal, and iaf~mationsenrices, Some of these sewices are provided by Iwge multilrational h s for which s e w i ~ is e only part of their product line. An exmple is IBM, which is not classified in the Expmsidn 500 as a service G m , but neveheless has among the lmgest sewice reveBues for p ~ v a t ef m s in the economy, IBM is discussed as a chapter case sbdy. The fiken lmgest business sewice compmies, shorn in Table 4;,11, are based on the senrice desipation in the Expmsi6n 500 for 1397. It is h p o m t to note that this list excludes fmancial, hotel and re t, and mspofz; md c Bwkess service c o m p ~ e sme smaller thm commerci Expmsibn 500 list presented in Table 5.4, T'he srnalfer size of private sector services advmced nations md the high g reflea both defxcits in the sectors a1 f m s , nearly all bushess swice pdicipation in same reahs. Like co me located in the Federal D i s ~ cmd t are Mexican owed. In extent of foreip debt, they ~C(W be'tween ex&emes, with half mder 10 percent md three obers qproaching 100 percent (Expmsibn 1998). By can&mt, major accomtbg md consulthg f m s in Mexico me dominated by U.S. compmies ( J a w and Saiaman 1998). As seen in Table 6.22, these f m s are headquaered .in Mexico City and pedom a vasiety of accomting, consulting, and hfomation Syslerns (IS) consulting semices. Accom&g majoriv of %s me fomerly Mexican ones thd have become associated with a Big 6 aacowthg k or major consulthg f m s . Several U.S. consuithg f m s are present. The oppomitities for these fms appear to be present in botfi good md bad thes. For hstmce, they did very well dwhg the peso crisis period in &-the mid 903, shce mmy teetehg compmies came to &em for economic consulting and resmcwhg or mager advice. h b e w times, they offer ideas md semices for companies to improve their technologies and value added. U.S.-based f m s offer advmtages for Mexican consulthg ar auditkg teams to interchans idea and infomarion with expeas in the U.S. and elsewhere, The major law f m s in Mexico are a mixme of Mexican and mostly U S , foreip ownership. mese f m s have gown and benefited by the large amout of pdvatizatisn that has taken place over the past 12 years (Jmas and Salaman 1998)*They also benefit by NAFTA-related business ageemen& as well as export issues, F b s maktain competitive edge by emphasizing bilingualism (Jamar and Salaman 1998). Xn some cases, there are overtqs bemeen Iaw f m s and accounting f m s , which are also, able to employ lawyers and to offer legal advice,

Services Znfoma_tion sewiees are quite vxied. Consulting aid advice me provided by diverse pwies rmging %om IBM csnsulthg sewiees, to aecomtkg fms, to specialirrad Mexicmowed b s , h extuapXe of a rapidly g o w h g Mexicm-awed fm with a swong sewice: lisble 6.11 Non-Bank Ilaandal Sect~rsby Major Develapment lR"&ions

State af Mexico

Mum0 b n Jdisw Baja Cdifamia South Region Periphery P&pheq A (includes Bajia Regim) Other NEttiond TobI

-

Dist~toFderal State of Mexiw M u w o Leon

27 115 275 8,%3

0 1 3 100

10,880

3,472,644

0 0 0 100

38

E x 387,808

340

2

12,245

2

3,094

14 21) 100

112,591 80,8W

13 19

862,310

100

Empk?yses 8,352

Percent

16 3,167

Perce~t $4

Jalisco

Baja Crilifomia

Beriphw A (includes B@ioRegion) CXher Nationl T&al

4,457 21,914

E Distrito Federal Sta* of Mexico Nuevo Lmn Jdisco Baja California &utb Region P a i p h e ~ Peripihw A (incIucfes Bajio Region) Other National Total Source: mEG1,1995.

-

NO. oJ m 1,380 58 28 1 376 519 153

629 1,SO8 4,904

Money k c h a ~ g Finns e fneomg Minus Percent E n s 28 92,585 it X ,823 6 15,334 8 6,373 11 7,234 3 2,24 1 13 10,452 31 19,630 100 155,672

Percent 59 I

10 4 5 1

7 13 100

Services

122

Services

side is Daraflux. This finn had 1998 revenues of 298 million U.S. &liars. It has purchaed a v ; z ~ . i of e ~dis&ibutors of computing and unieations equipment, ineluding Genetee, Verfex deE PJoee, and MacWarehouse of 0. m a u g h an mangernent with Cisco Systems, Dataflux's Interax division dis~butesCisco pclucts in Mexico. Most divisions have service units providing advice on acquiring, configuring, managing and utilizing smaller computers and nettvorks. I)a&Bux also offers computer mining, inclllding to teenagers, tbou& El Caifegio NaeionaI de Cornputo e Ingles (WCI). This b r m ~ his growing vey rapidly, md should have over 150 locations by 1999, each acGo to 2,000 persons. Dalafiux services are meeting the potential of (rmsitioning the small and obsolete bme of computing in Mexico to an up-to-htr: base (ExpansiCin 3997).

Percent of &on heave Bop. @[email protected]

-

-

Q.0800 @.OW9 0.33098 a.1252

$990M & m w

m

Services

Persona1 Services There are a variely of personal sensices prevalent in Mexico lincluding domestic sewices, l m p g e hsmctian, etc. In 1990, there were 2.1 million workers in personal sewices, accomthg for 8.9 percent of the economically active workforce (Pick md Butler, 1994). As seen in Map 6.4, &is workforce is concen&ated in the Federal District and smoundhg sbtes, Baja California and n o ~ w e s tMexico, and Nuevo Leon and Tmaulipas.. Unswrishgly, it is veq law in the so& region and in c e m h c a m 1 and Bajio states, In fact; this geographic dis~butionalso conespands to Mexican development m pmonal services follow the &ends di~ussedup to regoas in Map 3.2 and c o ~ that now for oaer *es of sewices k ~ 1 u d h geducation, heal&, and business, Conelusions This chapter presented an overview of the service sector in Mexico, It avoided repeathg types of serrices discussed in &er chapters including b&hg, icativ~i&mspo@ation, and to&sm. e smiee sector is smaller and less elaborate than in dvmced nations such, as the U,S, a d in Western Emope, This reReds economic cornminits md in some cases ent replations res&ainhg the private sector from o E e h g sewice products. naticm has had remwkabte educational advmces, which h v e 1i&edthe schoolirng level of the whole naticm md opened up untold labor farce potential, Some of that potential has been ~ons&aheCfby economic lapws of the 1990s. The educational advmce has been based on a succession of national policies that have invested heavily iP3 eduediotl as a has been rapid hincreme in educating a large prio~w. One of the stimuli for this number of teaehem. The sector of I-ri&er education was historically cons&ained and was dominated by several national wiversities* Xn the second half of the Wentie& e e n q , this has changed with private univemities growing rapidly as well as public universiliies in the regions. Private universities have been keyed to the open, &rowing, a d world competitive expo& economy. Public universities have also been suecessEu1but in a diEermt way, emphasizhg a balmee of discip:ptbes auld haborhg the nation's R&f) capability. Universities have provided a peat mechanism for social mobility. The vveaess has related to equiv of education especiaIly in poor, runt1 aeas. The Mexicm p b E i ~health erne systems accomt for most heal& services. However, ent subsidked pivate health care is also very impomt, 'Tke gov resQietive in aHowirng private health c a e plans. However, in the next abinisQation, this may open up. Memwhile, U.S. health care gimts art: waithg and readybg themselves for oppomities. Tlze Mexiem health care system h a much lower Eitnding than for the U.S, and Cmada, On some indicators, however, it is not too different includhg life espectmcy and number ians per capita, The chapter discusses prospective advmhges and disadvaages -related opemess, al&ough heretofore this opemess has

Social xmices inchding the hi@ profile povew propam Progresa have had many successes uader the Zedillo Adminiswation. At the same time, ex@emepoveq is gowing and is now a major national problem. AlLhough the Pwgesa p r o g m had been criticized by same for local eomption and political cmflicts of interest, much beneE"xt is now being derived eom a modemized povew initiative, The private sector dominates gnancial, business, accounting, and legal smiees, These sectors are highly concenBated in Mexico City md have vey reduced presence in

124

Services

the south region. Geo~phically,they confam to the expected world development regons. The border region and In pwieulw BBa,ja is mostly moderate in &ese services, in spite of its advanced development level. This may be pmly because of the Imge presence of the maquiladam in Tijuana, which ofien obbhs these sexvices ixl the U.S, side of the border, Of the major p m of the economy in this book the =mice sector has among the geatest potential to expand in the long tern. It also has 1mge potential for foreim participation, provided that old-fashioned replatiom are removed. Global caworsztions are, p a excellence, a trader in wmices (Sauvmt and MaXlmpafly 1993). They Grestte demanc3s for intemediate producb across national b o u f i e s . Events of the past several decades have inauenced tlre role of services tn international productian, mspomtion, and consmption. The demand far htemational related-sewices has increased a d the modes of sewice provision have mdergone profomd chmge, Case Study: Seguros Comercis1 Amerirza

e fm in Medca. It: provides a full inswmce products ineludhg life, , liability, automobile, and health . It is a private campmy owned by Alfonso Romo, the seco~d~ c b e spemon t in Mexico whose f o m a is estimated at $2- Mllion. S e p o s Comerical h e r i c a was fomed in 1993 by the merger o f Segmos La Comercial, which Romo pwchaed in 1989, and Semos America. Both of the fms were old a d leading Mexican insmance Fms fomded in the 1930s. The fm has go*h vev rapidly over the past six yews with incremes ofim of '10 fold. The campmy in 1997 had totat hcome of 97.2 million. U,S. dollms and net income sf 28.3 mill-ion U.S. dollas, S e w o s had 25.2 permnt ofthe total Mexicm hswmce market, heladkg 15 percent o f life bwrnce$ 22 percent of auto hswanee, asrd 42 percent of prop@ md casualty ixlswmce, It is playkg an expandkg role in the nascent heal& insurance bmhess. It offers a full fine of health hswmce products. mese we sold newly entkely to compmies rather than to indi~duds,since the businesses have more ciout and me mare willing to sim up, Olle year ago, hlsar pwchaised Medica Sws a major swgicat center in the south of Mexico City. This cornpay wils still fisted on the 1997 Expmsi6n list as numkr 335 (see Table 6.13) axld had 3.2 miffion U.S. dollms in revenue at the time of pmchme, The swatem in a c q u h g Mediea Sw positions Segwos to gain experience and be ready to take advantage af the pssible opening up afiw 2000 of the pdvate health cwe sector* Besides hsurmce, Segwos Comercial h e r i c a has the following pHs: ASEmX: Division. Speciafizes i-n risk management for the putzlic sector. Fianm ComereiaX h b r i c a , Fbinanchg. * Anrendadom Comercia1 h 6 r i ~ a Leasbg. . * Hipotecasfa Comercia1 h 4 r i c a . Moagages. * hacenadora Comercial h b r i c a , Stomge. * Factokg Comercia1 h d r i c a , Sale of cmency. Autofmmciamiento Comercia1hdxica, Personal k m c e .

*

All tbese p d u c t s provide diversificatim that balances out the ups and downs in the hswmce makets. Seguros benefits also by its vertically upward diversificaeion. It is one of the holdings of Gmpo Pulsm, which is also 100 percttnf o w e d by AIfansa Rom. A family or

*wee

%

"

c l l ~ --c

z?3 Gi z z 8 z 3 % g-z* 5 Z"-J" g* m mc3 N

;j;. $3 vlm

O\

"*

8

gzg 8 ;oe&

Services

127

individually con&olled conglomerate is refened to as "' PO." Besides the Segwos Comercia1 America, the major pms of h l s a me: (1) Seminis, a world leader in prduchg seeds for h i t s md vegetables, (2) Packaghg Division, consisthg of leading paekagirxg f m s of Aluprirzl md Empaques Ponderosq (3) Contex Mexicma, providing new techology to the Latin AmeGcm consmcgon bushess, in. aIIimce wi& a Geman fim. S e m ~ is s pMiculm1y notable isl i& world leade~hip. lt almost r&s with Gemex as an exmple of a wholly omed Mexicm fm that is world competitive. Segwos is elearly a part of a conglomemte, but one &at is bi@ly efPicientXy mmaged with vew clear goals md mission. Ln techolotogy, Segwos is using up-to-date systems hporl:e:d &om outtiide. This hcEudes PECASO, an infomation. system al2owing regional ofices to produce policies di@talXy, compmygvvj;de h&met, voiw recopition teebaitow h can go to a crash location md for h m m c e agents, and mobile t m ~ &at p a p a t s . This level of t e c h a l o p is shilas to s a k d s for Iage s i z d d. For instmee, in 1997, &ere were Employee motivation a d s hcludhg gmeral comses, diploma more &an one million hours of of Segmos, AEanso Romo has maled cowses, seminms, a d masters pro in Mmteney (Psole 1998). He w u his o m gadmte b s h e s s s Durn has very few students and hstTated with the cment inade ves. The school exemplifies the is a blend of an m A md a enwepreneufial and bald spirit in AIfo~onsaRomo, This ewe swdy demsnsmtes several hportmt &ermds in smices and bushess, The fist is that the Mexican hswmce h d u s v is dokg well md is able to &ovate with new producb sts has hamened with Segwas' line of heal& insurace produets md its pwchae of Medica Sw. Second, the ins ce hdtusby in Mexico up to now has been Imgely protected from foreign [email protected], a conglomerate approach em work well in Mexico, Gmpo Pulsar illuswates the power of this approach by balanchg the ups md d o w s &ou& a nmber of bwhess lines hcludkg its world class seed bwhess. S e w o s Comercia1 Ame~eaaxld its p ~ e nhlsar t represent a s&ong and even paiall class cornpay in some respmb like a Cemex. The difference is that$w1&e caen.t, ee products ase at present largely protected &om foreip competition.

o is a large division of fBM, The mmufacMixrg ouQut fi-om Gmdal&jma billion in 1997 and the total revenues are much bi@er pmbaps momd $4 xiea does not releme official figwes md is not listed in the Mexico 500, its established safes would place it h the top IS f m s of the 500. The compmy employs 9,500 workem, 6,500 in the Guaddajm mmufacWixzg complex. The fm w a founded ixl 1927, It provides produe& aad sewices. IBM Mexican mmufaewng safied in the 1950s md moved to Cuadslla,jma in 1974. Now the Guadalajara plan is the largest site for mmufacme of laptops in the world. Gwdalajaa and a plmt in Scotland produce two tkMs of BM% laptops worldwide. 31x1 addition, Guddajaa prodwes 3040 percent of the mot-herboardsfor the waldwide pl: htSusv, The mmufamring operation. digers substantialfly from maquiladorm. F o q pereent of the content comes &am local eontent. The suppliers are reputabie focal and international f m s , raaer than maquiEa suppliers, The workforce is young and highly educated for Mexico. Exeluding .the assembly Ine, 80 percetll of the workforces have a lieenciama or hi&er, and 35-40 percent have masters or otber gaduate degees or diplomas. Women are sented in the workforce and at much hiaer &an the Mexican average, The philosophy is one of value added, raher than lw cost that is prevalent in maquila production.

128

Services

Besides mantlf"actuhg, IBM provides saies and diswibution of produets in Mexico. , the lagest goWh has been in sewices. It has had a 35-40 for senices over the past nine yews; this compmes to 20-26 erall. T%is follows a wend worldwide in IBM of movment to ico9 sewices are 95 percat to local compmies and ormimtions. to global h s , for exmple to the G.E. Twbhe division. Although the fxm has mostIy been successful in Mexico, &ere was one widely publichd failwe. In 1996 D M abtaind a 27 tniHioa dallas can@act to desig a new nswmk computer system and dabvbae for the c r h h a l kvestigiltions division of the Federal Dis@icthosecutorfs QEce. However, whm the system wm i;n&lled in 1987, it Prosecutor's Q a c e failed. Since it di&"t work well md WM unable to were chwged wi& prison-bearing civil oEenses. IBM h a eontested the o h h g out that the system met the con-t requkements md wm wed before behg discomected, that both s w i m compdes and users of sewices face This hcident reflee& prob in Mefica. It may even occw for compmies of world renow. One probfern wm &at stmdmds were not made clear enoug;b. &o&er problem =late& to how to judge failmes in sewices, This problem is being work& out, and is m exception in respect to XBMs overall recard. Howver, it underscores the chalimges of providhg computer swices in. Mexico. exico e x p e a servi~eswill conthue to increase more rapidly than the business as a whole. It is beirxg forced to etitivc: smdmds in serviws, an. wea digerling geatly &om its traditional xrr

Transport and Communication Exltr~dluctkon Majar Conkemparay Trarrspo~aajissrdtgnd Commaalrrricaaon Eretr;sgdses Roads and Vehides Tmlaslp~rLa~~aita Mexico CiLgr milraads Air axld Madame Ele~tral~ti~ Media

@

o QD

B @

s~

h d t ~ TeIevisiorr; Telephome?3 Emnergiag EIeetssr~icMedia

CooacE~sian~ s Case Study: Alie~txdAT85.T Mimi Case Study: Expar&iEld~m de S d @SSPb) @

Transpofi and Comunication

Introduction This chapter focuses on transpofiation and communication. The globalimtion process has influenced both in Mexico. However, the true extent of its impact remains to be seen, Cletzrly, communication in Mexico is in the process of being drartically altered. Transpafiation modifications in Mexico are a result primarily of the privatization process that bas taken place over the p a t decade or so. Communication modalities in Mexico have been inauenced by privatization but also likewise extensively by emerging electronic technology and globalimtion. The utilization of esoteric communication technology in Mexico is in a neophyte sbge. The 1993 economic census reported 22,Ol X communica;fion and &ansportation enteqfises, or 0.8 percent of the Mexicrzn total, The n u d e r of employees in this sector numbered SI 1,443, or 3.6 percent of the Mexican total. (NEGI 1994). Historically, cargo transpo&ation in Mexico relied mainly upon road &anspo&ation with rail, air, and marine services lagging. Long-haul earga is primarily road. There has been a tack of investment in Qanspoesxtion modalities other than roads and especially neglected have been the air and maritime ingasmcare. Figwe 7.1 shows the relative investment in &anspa§or %om 1991 thou& 11 996. There was pow& in 1992 and 1993 but there has been a serious investment decline after 1994, Dufing the entire period well over half of the total invesment was in roads fillowed by rail, One of the more recent events in Mexico hits been the privdiation of many state awned enterprises, among them communication and trslnsportation entities, Of these, privatization of the railroads has been slow but generally with positive outcomes. Seaports we still federalb owned, with one exception, but are run independently of the government by concessionaires and thus are quasi-gave enal, Aworts and airlines are in process of being privatized with slow and mixed resul&, Tollroads have clearly been a disaster and remain so to this day, Overall, ""Mexico" impressive rise to the world bade big leagues has occumed despite, rather than because of its &ansport:inkasmcbre" "heren 1999). Rail and maritime have been declining significantly over the past several decades, thou& still ample, but to expmd &em will be costly, Tmck robberies me a major problem with 7750 in 1998 and up 15 percent in 1999 (Fineren 11999). Finally, mordida, bribery still exists in the &mspofi industry.

Major Transportation; and Comrnurxicatlon Enterprises Table 7.1 shows that in the Mexican 500 in 1997, 10 entities were transpofiation, two in services to Qmsportation, two with a storage orientation, and 1f, that were Xist;ed rss communication enterprises, for a teal of 25. Note that &e vast majorily of these corporations were Mexican omed, with some U S . and Philipines influence, One of these enterp~seswm federally o w e d - number 453, &ansport.ationaf salt. This federally owned corporation is related to manother one focused on the production o f salt - number 218, These two related enterprises are described in more detail in a mini case study at the end of this chapter. Telmex is the number 2 corporation in Mexico and controls local telephone caXls kau@out the coun&y. It is the second telephone company in sales in Latin America, It has half the sales of Telebras, the Brazilian telephone campmy, but has mice the sales of the third raded telephone entexcprise, Telesp, also of Brazil (Thornson and Bowen 1997). In Mexico, the next three majar entities In sales were Gmpo Televisa with over 14 billion pesos of sales and two aviation fims with 8-9 billion pesos each of sales.

Transp0l-f and Communication -----

131

Poslfton

Sales*

Pro3fs

Postlion Me1 PrI-frr

Transport Cintra Aerovlas de Mexlea Corporaeton Mexicana de Avtaelon TranspoflacimMaritima Mexicana y Subs Transportaeion Maritlma Mexicana Orupo k r o n a r Enfriadoray Transpartadora Agropecuaria Transpofies P~tie Transportadon de Sat Cargo Master's tnternactonal Subtotal Transport Services Aeroservieios Especializadss Intemacional de Contenedoxes Asociad de Ver Subtotal

Almecenadora Aeal Subtotal

284

324,498 765,730

52,504 166,61t4

I

396

f 30,391 454,520

12,387 81,133

SP

90,593 8 1,708,580

9,558 56, I33,257

6

16.20 21 00

9 50 15 80

Communication

Telcfsnos de Mexico Gmpo Televisa T V &eca y Subs Telefonos del Noroestste Iusaeell Gmpo Radro Centro Foment0 Radio Beep CWSOGlobal Telecam Biper Maacatstel Radro Beep Subtotal Source: Expansibn, t 997. * ~ndicatesl QOOsof pesos

434

10 60 64 20

Transport Gintra Aerovias det Mexieo Corpora~ionMexicma de Aviai~ion Trmspfiacion Masitima Mexicma y Subs Trmspartacion Maririrna Mexiema Cmpo Aeromar EnBiadora y Ranspgadara Agropecuszria Trmsportes Pitic

46.91 20.88

27,377 26,549,977

f

63 1 3,7 17,3363

Aerosewicior; Especializados Iaterna~ionalde Contenedorm Asociad de Ver Subtotal

75.23 16-46 35.40

1,047,359 380,051 1,427Pit 0

2

735,556 253,204 988,760

Storage Servios Ernpmsa~ialesSoram AIma~nadaraAc~el Subtotal

3.28

499,489 828,113

2

13.73

44 1,0851 657,073

f 0.31 43.69

141,861

8

203,928,331

20,777 124,281,415

Cmgo Master's Ifntemacional Subtotal Transport Services

1

Communication

Telefonos de Mexico Grupo Televisa TV ktecst y Subs Telefonos del N o r ~ s t e f usacelt G r u p Radio Centro Fornento Radio Beep Carso Globd Teleeom Biper Marcatet Radio Beep Subratat

It is expected that a numbr of electronic, hi& technology fims will be emerging over the next several years with accompanying alterations in respective ranking of transport and unicalion enterprises,

Roads and Vehicles One of the first aspects of trmspofi and eammunicsltion in Mexieo that must be recognized is that Mexico City since first recarded times has been the principal point of distribution and consumption of products, both within Mexico and to and &om other counfries (INEGX 1994: 661). The major roads map and railroads maps in Mexico are shown an Map 7.1 - Map 7.6.

Trmsport and Communication

Figure 7.1 TataI Investmest in Transport by Subsector in Mexico

Sour=: Fineran, 1999 and SCT.

Year

The early main roads were &om Mexico City to Veracm, the n o ~ hof the c o m w , the Batjio, and to Qaxaca. The way to Veracruz passed though Jalaga or Orizaba. This route durhg the colonial era was the passageway to Europe. It was not until asomd l82 1 that routes were opened to the nodheat and to the Pacific that tied the cenfral region and the Bajio to these other distPi~t~. Roads were the cadha2 means of moving people md cargo from one region to mother. By 1835 there was a begiming of a more elaborate road system necessw for movement of mods and people. This expmded road net-vvork was accompanied by the developmellt. of hotels, paraders, md passitble roads. The most impofianli ro& continued to be Erom Mexico City to Veracmz. However, other roads to Tegic via Queretaro, Lagos, and Guizdafajara, to MoreUa passing though ToXuca, to Cuautla via Cuernavaca, and to Tulancingo via Pachuca emerged as imgomnt byays. Historical &ta show v w few registered autos and meks in. Mexico prior to 1950. Afi;er that time there was a slow increase until 1 9 E and 1980 when growth accelerated for both mcks and automobiles. In 1990, there were 6.47 million registered automobiles in Mexieo, of which 6.4 million were personally registered. Xn addition, there were over 200,000 personally o w e d motorcycles, over 4,700,000 limcks, and almost 13,000 buses (see Table 7.2). In 1990, Mexieo had more registered vehicles "chmtelephones, Of the over six milkion automobiles, 2.6 million a f them were registered in the Federal District and State of Mexico (Mexico City); thus, a relatively small reaon of Mexieo accounted for over one third of automobiles in Mexico. The region along the U.S. border accounted for 1.6 million more; thus, Mexico City and the border region accounted for 4.0 million ofthe total 6,47 million

autos in Mexico, A corollary of automobiles, tn;tck and buses in Mexico City is that for the most part they do not have emission controls resuXting in the devastating smog that covers Mexico City during parts of the year (Mumme 1991). In 1983, there were 12,972 co~orationshauling cargo; however, the three federal entities of the Federal Disfrict, State of Mexico, and newby Midalgo had 29 percent of them (WEGI 1994).

Automobiles Motorcycles Buses

6,439,620

282,263

32,2 13

6,754,096

Source: XNEGI, X931 h u a r i o Esladistico, Table 2.2.2.

Table 7.3 illus.t.rates the numhr of registered persmlly owned automobifes by sttate for 1988 and 1990, ratio per capita for both years, and ratio change between 1988 and 1990; Map 7.2 illusbates this infomdion for 1990. Overall the national road network hereased &am 224,225 k m in 1985 to 332,301 b in 1996. This herease W= limited to toll roads that were built at geat expense. ToII roads increased firom 1985 to 1996 by 594 percent while free road kifom&ers actuafly decreased by 2.8 percent. Toll roads have not paid for themselves and a number of bungled prgects have had to be baifed out by the government to the tune of 60 billion pesos in X997 (Diaussart. 1999). Also, rum1 roads in particular have suffered &am maintenance deficits. Subsequently, the Zedillo dminisbation claims to have buijid 6,000 h of new roads, The emergence of globafimtion has influeneed fransportl3tion in Mexico, especially to and along the U.S. border. Over 90 percent of trade bemeen Mexico and the U.S. moves by truck, A 1993 ageement developed special border zones in trvhich Mexican mcks cou1d trravel unimpeded for up to 14 miles across the border into the U.S. This was done so that they could reach the mgjor cities in the U.S. border region, Cuxently, it is eslimded that every 12 seconds a t-nnek Corn Mexico is entering the U.S. NAFTA rules and regulations state &at: international cargo bmspo~ationin U.S.Mexico border st;zles was to be opened to competition in December, 1995. However, the U.S. has refused to vaXidate this provision, and will likely not do so in Januw, 2000, unless the commitment is once again not honored (Lota 1999). The argument against accepting the NAFTA ageement is that Mexican mcks do not: meet U.S. safev sbndards since they do not have front brrakes or undergo regular rodside inspections. Fufiher, there are no res&ietions on how long Mexicm truck drivers can keep driving in coneast to U.3, drivers who are limited to 10 hour s&etches, In addition, U S , limits wei@ts to 80,000 pounds while Mexican trucks are limited to 97,000 pounds but o&en haul up to 130,000 pounds! Tmck driver licenses in Mexico are to be had with v h a l l y no restrictions (Adelfson 1999). Currently, regulations covering cargo crossing the border to the U.S* from Mexico mandates three truck cab changes, with a U,S. driver on the U.S. side of the border, A heher conzpXication is that Mexican &ivers make one-third of the pay of U,S. drivers thus U,S, unions want a U.S. driver in the U.S. or require that Mexican companies pay the same scale as U.S. companies.

Transport and Communication

Transportation in Mexico City While there is little railroad passenger trafgc in Mexico, thousands of long-distance buses traverse the counqside to even the sxnalIest towns. In addition, the three largest Mexican cities - Mexico City, C-iuadatajara,md Monteney - have subway antVor light rail systems. In greater Mexico City, over 134,000 parabmsit vehicles transport passengers all over the city (see Table '7.4). In addition, there is the metro (see Map 7-31, taxis, and private automobile trmspodation, As s h o w on Table 7.5, the merxls system totals almost 4 fPz million trips per day. Surface diesel buses and other modes almost equal that number for 9 million trips per day. The paratransit system aceaunts for almost 13 million trips and there are an estimated 1.7 million taxi trips. Finally, well over ten million private automobile trips are made on a daify basis. AI1 of these trips total almost 37 million &ips per day.

In 1873 Mexico had 539,000 meters of railroad lines. Map 7.4 shows the l880 rail lines; this was the year that the railroad &om Mexico City to Veracmz was completed, During that era, for every ton of &eight hauled, there were approximately Eve passengers, There was slow g o ~ in h railroad length in meters up to 1880 and then relatively larger increases in 113%1 and 1882 to over five million meters. In 1884 the first Mexican rail line to the U,S, border was completed (see Map 7.5). After 1884, g o ~ inh railrod lineage was slow until the early 1900s. However, in the late 1800s the first raikoads were being developed to Vucatan was completed (see Map 7.6). In the 1900s slow groMh took place until 1910 when the civil wass in Mexico commenced. From 1910 until very recently only small increases in Xextgth have taken place. As the years passed, freight became more irnporlant as the number of passengers gstciuaXXy decreased, A substantial decline in passengers took place between l970 and 1975. This decline in passengers was accompanied by a dramatic increase in the movement of cargo during the same years (INEGE 1994). By 1990, the railroad network in Mexico was completed and little consmction has taken place since that time (see Map 7.7). Rail passenger transpoaation in Mexico is now almost extinct except for a few foreign tourists t&ing the Copper Canyon (-rain. The influence of globalizillion on the rail network so far appears to be minimal although there may be additional reasons for gowtfi in the firare with connecting tines in the U.S, One such ef"fortto increase rail cargo to irnd &om Mexico is the planned multibillion dollar Alameda Corridor, It has the potential though %&re extensions to connect Los Angeles and Long Beach Harbors to Mexicali, Baja California. Air and Maritime

The first commercial airport opened in Mexico City in 1929, In 1965 Mexico had a total of 34 commercial airports and the Airparts md Auxiliafy Services (ASIZ) was created to administer and oversee modernimtion of the system. In 1993 there were 249 airline related corporations with over 20,000 employees. Thirty-nine of the 249 were foreign companies with approximately 2,000 employees (INEGZ 1994).

Agumealientes Baja California Baja CJifornia Sur Cmpeehe Coahuila Colima Ghiapas Chihuafiua Distrito Federal Durmga Guamjuato Guenero H-fiitalgo Saliseo Mexico Miehoaean Marelos Naywit Nuevolean Oaxa~a Puebfa Querewo @in(ana Roo San Luis Potosi Sinaloa Sonara Tabasco Tmaulipas TIauccalia Veracmz Yucatm 32 Z ~ a t e e a s National Total

31,564 5,569, I22

0.0247 0.0685

40,f 23 6,439,QO

0,0005 0.0793

27.1 15.6

Mean Median S.D. C.V.

Minimum Maximum 1,619,541 0.2200 3,9$4,475) 0.0239 kfinition: Ratio is the number of registered privately owned vehicles f 988 or 1990 to the total population 1990. Ratio percent change was ealcufated by subtracting the 1990 ratio from 1.he 1988 rdia, multiplying by t 00, and dividing by the f 988 ratio. Source: INECI, 1988-89 Anuario Esladistico, Tabte 2.1.f 8, and 19% I u a r i a Estadistico, Table 2.2.2.

35. l

Transport and Communication

13'7

Qperatmg Rnnges

Sealrrrg Capacrtzes

Fe&&

Stare oJ

-

56,059 Taxis 2 3 3-6 Peseros: Seditns 5-6 10 14 Peseros: VW Vans Mini buses 22 25 10-20 20,493 Totat 100,005 Source; La Coordins~ionGeneral de Trmspomte del DDF, data fites; field suweys, Novemkr

-

- ,

-

5,456

64,515

9,527 34,969 f 994.

30,020 134,474

m

Federal Dt~lr~cI Total ",",Pereenr ""

Percent

Total Percent

Pubtic Transportation Metro Li&l rail Ruta Cim (surFace diesel bus) Electric trofley bus Other bus (autobus) Parstrmsit Minibuses Peseros (combis and sedans) Taxis Private Automobile Totat

7,3 16,000

28.7

2,854,000

25.0

25,482,050

100.0

1 1,469,0:

100.0

10,180,Q:

Source: Institulo Naeional de Estadistiea Geogafia e Infamatica (INEGI), Encuesta de Origen y Destina de los Vi4es de 10s Residentes del Area Metropotitana de la Ciudad de Mexico (Mexico City: MEGI, 1994). Cewero, 1998.

27,5

Transporl and Communiealisn

id a+orts, Map 7.8 shows the msljor ones. Rivatization of

becoming the holding company for fomerly state owned airlhes, Aeromexico, Mexiema, and Aeromexpress, Clintra. is joking with five international airEines to shwe fiigbt:codes thoughout the world. Included in the alliance are Delta and Air Frmee (Guenetie 1999). Cwently undeway are e f f o ~ sseeking expanded private invesment to take over the airpom. In air traffic there are distinctive regional paBems. The west and southeast have quite high levels of commercial air %li@ts. This is due padiy to tourism-related &affic, especially in the southewt. The cenba1 region is a c;on&astwith a Iwge number of air flights to the Federal Dis&ict, but few flights elsewhere. The border region has a moderate number of ercial fli&ts (see Pick and Butler 1994), Also shown on Map 7.8 are the mgor Mexican seapoxts. Many of them are undergoing a consmetion boom aaempting to keep pace with the demand. Modernization of ports begm in 1993 (Gelher 19991, althou@ note that iinvesment f"or masitirne effofis was not very @eat: that yeas or in subsequent yeas (see Figure 7.1). In 19993, there were 516 maritime corlporations listed in the economic census with 9,756 employees (INEGI 1994). Qfthese S 16, X 48 of them were in Baja California Sur, undoubtedly related to the fishing and tourist hdustries. A substantial number of the other entities were in Quintana Roo and lalisco also most ljkefy associated with tourism. m i l e still .in government hands, X aX pom, except Acapulca, are responsible for their own apersllion and attending to service demands. Acapulco is special because a f its touristbased traffic. Each port amears to have a distinguishing emphasis -- Lazaro Cardenas is an industrial exposer; Veracmz is the port far domestic manufacturers md exporters; Progeso is a grain-export faciliq; Manzanillo is a growing port with expax-tingautomobiles; while

Transpoxt and Gomunicalion Map 7.3 Mexico City" Metro Network, 1997

Transpafi and Communication

Map "7.5

Map 7,6 m*@adg9 1898

maxozlds, 1990

Sowce: Butlerkick Mexico G)a&ba?;eProject

Transport:and Commu~ication

Transpon~and Communication

I44

Coatzacoaleos and Pajarito, the major ports in terns of bulk, each move about 32 million tans a year of crude ail, So far it is dificult to deternine the impact that globalization and maquiladoras have had upon the air and maritime kaffic. Given recent events regarding the potential of tariff reduction on Mexican products in Europe, it might be rrnticipated that the east coast ports may have an increae in expofis, especially automobiles.

Electronic Media This section is divided into thee major parts. The first division discusses radio and television stations. The second component describes some of the major changes taking plaice in the Mexican telephone induse, especially the emergence of long distance companies. The final part of this section accentuates the emerging eXec&onic media in Mexico.

Radio and Television Radio and television stations do not follow the same paaem. in their distribution in Mexico among the states. Radio station concessions, pemits, and per capita are shorn on Table 7-6 and their distxiibution on Map 7.9. Radio stsrtion pemits h 1988 had high rates per capita in the no&hem bordm states, in Cuanajuato, Veracmz, and the Federal Dislrict, Some sbtes had very few radio statiam and Baja California Sw; Morefos, and Nayarit had no permits. In addition, the state of Puebla hacl no radio pemits clrve-n though it conhins the fourth Iargest city in Mexico. Undoubtedly, the ki&er nmber in the border states was because radio waves fkom these sations c m into the United States (see Pick, Butler, and Lanzer 1994: 277-278,282-283). Television stations on a per capia barsis in l988 were concentrated in states such as Baja California Sur, Quinbna Roo, and Sonora, states with a relatively low densiv but also with t o u ~ s m(see Pick, Butler, md Lanzer 1994: 278,282-283). Their distribution was not significantly wsocizsted with radio stations (see Table 7.6 and Map 7.10). During that year, Sonora, Chihuahua, and Durango h& the most stations; however, an a per capita basis they were concenkated in Baja California Sus, Quintasa Ros, as well as in Durmgo and Sonora. m a t impact globalization and free kade will have on radio and television stations remains u n h o m at this t h e . TeIephornes Nationally, in l 989 there was one phme for about every eight Mexicans, an increase &am one phone for evey 13 Mexicans in 1980; every state except TXaxcala had an increase in phones (Pick, Butler, and Lanzer 1987: 352). As with mmy other dimensions, the north and the central region that makes up Mexica City had a high per capita of telephones, which was in con&astto the south with few telephones (see Table 7,7 and Mzp 7.11). In an earlier wrk, our statistical mlysis found that telephones per capita were associated with a variety af wbmization, modemizralion, and educational measures (Pick and Butler 11994: 277). The Mmicm economic census of 1993 reported 4,941 corporations devoted to communications with 114,625 employees. About half of these enterprises were local telephone companies spread out among the various states. According to the census, 99 percent of these entities were privately owned, Urnelated to these communication enteprises was population size. En 1993, there was substantial: de6cit coverage of telephones in rural areas. In spite ofthe Xaek of rural coverage in Mexico, Telmex and others have looked outside af Mexico to expand their market (EH Staff 19981, This msty be because of the high cost

Trmpofi and Communication

Map Some: ButlerRick Mexico Da&w P r o j ~ t

U

Transport: and Communication

of puaing in telephone fines in rural areas (Ganzales 1998). The cost for rural area is up to five times wEzilt it costs to install lines in urban seas, W e n Tehex was privatized in 1990, only 10,221 mra1 Mexicm t o w s had phones; now at least 12,000 isdditional towns have phones. In addition, the Commlmications md Trmpo~ationMinisw (SCT) is connecting towns with cellular technology, Midite, using satellite techology, ob&ins a simal md then distPibutes it along wkes to each house; the company needs at least 80 customers in a town to make a proEt (GonmIes $998). Tehex (Telefernos de Mexico) for rnmy yews held a monopoly on the local telqhone miwket, Even though now privratimd, Telmex still controls the loessl maket but aXsa covets the long-distance trade, However; beginning in Jmuav 1997, oaer telephone compmies were allowed to compete for the Eong-distmce maker. As long-distance companies began comp&ing for customers with Telmex, some of them had insulting ads md begh "damming,"" and there were realatoy fights (Smith 1998). This put such gimrs as MC1 and AT&T in conflict with "rehex. "$l ing'hefers to a practice in the telecommuni~ationsindustry of aggessively seeking competitors' customers k o u @ strong pwereductions and "markethg assaults" on competitorskustomer lists, Telmex, as of 1997, remahed the second major corporation in Mexico, supwceded only by Pemex. Afier one year of competition, Tetmexk market share had hopped by more thstln 25 percent but it still maintstined a 73 percent share of the market, Xts main competitors were AlesQa and its U.S. pamer AT&T having 24 percent (see case study at the end of this chapter), Avmtel a d its U.S. partner MC1 with l2 pereat, md oaers with one percent (Smith f 998). Te ts "Mexican-ness-to hfluence investors md customers, m e n Mexicans had t-fi ity to seXect a Iong-distmee canier, mast customers did not select one and thus remained with Telmex by default. Telmex's international. pmners me Southwestern Be11 of St. Louis md France Tefecom. Long-distance companies and their mah foreign pautners me s h a m on Tabte 7.8.

Transpoxlt:and Communication

X 49

The eonfiontatalion over the market is not yet resolved and should continue well into the next decade.

2 3 4 5 6 7 8 9

Total

Telephones

48,156 8,665,3 12

0.0377 0.1066

Total

filephones

96 Change

Bap California Baja California Sur

Cmpeehe

Coahuila Calima Chiapas Chihuahua Distrito Federal 10 Burango 1 I Gumajuato 12 Guemera 13 Hidalga 14 Jalisco 15 Mex:xrco 16 Mtchaacm 17 Morelos 18 Naywit 15) Nuevofeon 20 Oaxaca 21 Puebfa 22 Queretaro 23 Quintana Roo 24 San Luis Potasi 25 Sinaloa 26 Sonora 27 Tabasco 28 Tamauligifis 29 TlaxcaIa 30 Veracruz 3 1 Yucatcm 32 Zacatecas Nat~onaiTotal

0 0408 0. I 179

8.15 10.60

Maxtmum 2,M3,869 0,3210 2,998,95 1 0.364 1 Definition: Per capita values are the number of telephones to the total population of the year shown. Per Capita Percent Change was calculated by subtracting the 1988 Per Caprta rate from the 1989 Per Cag~tarate and divid~ngby the 1988 Per Capita rate multrpfied by 100, Sourer;, INEGE, 1988-1989 Anuario Estadistieo, Table 2.1..1 1, I990 Anuario Estadtstico, Table 2 1.9.

I7 98

52,08 t 9,575,750

Mean Median S.9. CV. Minimum

Emerging Electronic MArlidi;a Satellite communication services are offered by Iridium and Globalstar. Iridium, an 18 nation multination company, began trials in Mexico in 1998. These new companies aIso will allow the use of handheld satellite phones that are useh1 in remote sections of Mexico such as fams, mining, and constmction sites (EFI 3998a). Iridium had 66 satellites on six axes that cover the globe and began offering telephone and pager services in September 1998. Globatstar, along with government controlled Satmex, was to have 46 satellites in orbit by late 1998. First services were to be direct to hame television, Emerging is a vast st;ruggle with a potential large payoffl, that is the securing of a share of the burgeoning Spanish-speakingmarket on the Xntemet, tefecoms, and PCs. In Mexico, as of October 1999, one percent of Mexicans used the Xntemet, XIXustrating part of the globalizaion of the welling up the electronic media market are the main long-distance compmies and their main pmners shown on Table 7.8, Arnang the major players are Carso Global Telecorn, who owns a 49 percent share in U S , ISP and 26.5 percent share in Telmex, Tetmex, in tun, has a 19 percent share in Prodigy. Prodigy, successively controls Telmexls Intentet service Internet-Directo, This Rm has joined Acer to market goods and services, Thus, as shown on Figure 7.2, what is emer@ng in Mexico is a puzzling relationship among Mexican companies and fareim enteprises ail in m eEort to control the plethora of potential customers. Turbutence and shakeouts, as well as great opporlunities, are expected in the early 2 1" ~ntnxry,as the gXobal technology and internet revolutions import Mexico.

Conclusions Historically, cargo and passenger banspafiation in Mexico rejied mainly upon road eansporlatian rnodalities and undoubtedly will continue to do so well into the kture., There has been a lack of relative investment in other Itranspoaation foms such as air, maritime, and railroads. Overall, the impression is that the impact of glabalimtion on. Mexico so far has not subshntially chmged tTanspoTfation. Mexico G i p remains the hub of t.ransporfation in Mexico but with an increasing emphasis on the U,S. border region as a result of the gfobalization process, notably as it has been inRueneed by the grawh of the rnaquitadora induso. So far the globaliation process along the border has continued to highlight roads and tf.uck transportation modaiities. There are some indications that rail transit in the future may inspire upgadling and expmsion af rail routes. So far it appears that the globatization process has not influenced very greatly maritime and air traffic. Even so, recent changes in miffs between Mexico and Europe may alter this concliusion. m a t impact globalization wiH have upon the radio and television industry remains problematic at this time. m a t is more cerlain is that the telephone industry in Mexico is undergoing drastic &ansfomation and what fims will emerge as the winners has not yet been deternined. What is settled is that foreign companies are faming extensive alliances with Mexican companies, There is a spectacular market awaiting investors in emerging electronic media in Mexico. Who will conlrai this market is not yet deternined. However, foreign companies are well aware of this huge potential market and are jockeying f i r position, This vast struggle so far has resulted in a puzzling relationship among Mexican fims md those from foreign countries,

Transport and Camrmication

Figure 7.2 Globalization o f Telmex

Other Countries

m France

Nes- is a relaive newcomer to $&;be te;eXepkonsmmket ia Mexico. h 3997, Alesm eqbyed ten prwm and had nof halt&one met= of 6 k r optic cable, Its offict: spee wm mlgM b m AT& T md AI&. 8ne y w later, on:b ~ e r n 1,1998, b Aksm mplayc;d 3,000 pemm md w w eamphg dkmdy wi& Tehex. In, one ye@*the ~ompmywent &am =F@ ta one AlXio~~ustommAtesm haxs La be $mew& csopaive wi& Tehex sbce Telmex pravidm h1mal am to A k s h f s sang digmm lbes. h Mexica, &ere m 9 million l h m fix 81, p p l a t i m af95 million. the Ia-t te~lulolowincludhg B k optia, Phyially &e fiesm neWa& ulmht swit~hes,&c. me h d w m ~ 1wazlE S-&& W me Ims s ~ g e n tT%e , ne~orikdesip md matexli.als or-ighatd h the U.S., h Wcular with Lucenk the AT&T s p h E me wmpmy nsw b employms who m b-ehg &&ed to e m p h a h ust tamer ~ f i s h ~ ao da m&& is kfS W m ~ e n Makm; t hawrever, far e v v call &am Mexico to &e 2.5 mEls h m the U.3. to Mexieo. h ~ a d n calls g to M e ~ t r amust be c w e d by a Mexicm campmy. %@ r d o is 60 pment tI"ehex,20 prcmt a c h foil.AIwm md Amget, Absm delivm all ofi& U.S. c d s to AT&T, %%Sd 1 s m a b u t q d l y split bmwn bushess md of its bushess i s aiong rthe brder, Mexico GiQ but ib @aces h r e afe relagtrely

new@&.Guad&jm brns a sales ofict: md in a&er hp@-t

switch &at wa&ofs the: cities &me we mles s B ~ e s ,

In the beginning of Afestra, experts from AT&T around the world were utilized to start operations, AT&T was the founder of the alliance known as AlestrdATkT and it belongs to AT&T"s world pafiners providing ""seamless" "Iecom services. Affa provided ahinistrative personnel, An impofiant Mexican pamer is Bancorner which has nearly 1,000 branches all over Mexico, In most branches there is a small booth with documents available &on? Alestra. The ownership distribution is AT&?" 49 percent; Bancorner with 25.4 percent; and Grupo ALfa 25.6 percent (after reducing its original S 1 percent), Spstnish language is the language of the cargoration and meetings are conducted in Spanish. Experts generally visit for a one year period. Their mission is to train and leave behind newly skilled Mexican personnel. Nevefiheless, the salary scale is higher for bilingual employees. Over half of the operators speak English and all have rudimentary English cap;llziliQ to &ansfer calls, The operator workforce is unionizad. Crznent call volume is approximately 750,000 per month with a capmbilie of one million per month. There are two major switches, one in Monteny and one in GuadaIajara. The fiber network consists of t h e e rings, north, central, and south,

Mini Case Study: Exportadora de Sal (ESSA) Exportadora de Sal (ESSA) is Located at Guerrero Negro, Baja California Sur and heavily transporl based. Originally it was a completely owned by federal government. It began production of salt in 1854 and shipped its first salt in 1957. The salt is produced by a solar manuhcturing process from sea water, In 1976, ESSA became a joint venture with the Ml'tsubishi Caxlporation with the government owning S li p~rcentand Mitsubishi 49 percent. Another fedeml state owned company in the Mexican 500 &ansports the salt. Cwently, ESSA produces seven million tons of salt annually. Most of the salt is sent to Japan, the United States, Canada, Korea, Taiwan, and New Zealand. Over 1,000 people are employed in the production of the salt, with most persomel living in Guenero Nego. The company argues that it has played a significant role in the improvement of the quality of life of the region and has made positive sociseconornic effects in Cuerrero Negro. On the other hand, the area is the spawning area of whales and a cont-roversy has emerged over whether or not the plant should be allowed to expand its operations and for the piers and docks to jut into the marine area, Cwentty, the government and Mitsubishi have put expansion on hold,

Petroleum and the Energy Sector Introduction: History of Energy Sector and Petroleum in Mexica Mexico's Energy Situation in the 1990s Mexico" Oil, Femea, and Cantare81 Global impact of Mexico's Petroleum Sector Economic lmpact o f Pemex on the Mexican Federal Government Venez~ellasA GEIdolbali md Con$rras%.imag Compe~tor Natural Gas Refining and Petrschemieals E%ecQrical Pawer P~vatkatinnof the Mexican Petmleom Hndastq Envlrorsmen&alPralblems Aggrsvrrted by Energy Uses Gonc1ilasioas

Pe&oleumand the Eneru Sector

Introduction: History of Energy Sector and Petraleum in Mexito This chapter focuses on petroleum in Mexico and to a lesser extent other impofiant foms of energy, including natural gas and eltec&icity. The e w a s i s on energy is due to Mexico's status as a large petroleum-producing nation with impoaant petroleum-related trade with other nations. The chapter looks at the origin and present status of the peboleum resource, It has been regarded "By the pvernment and public in general as part of the nationaf patrimony since the late-1930s. At the same time, Mexican pe&oleum sector is dependent on technology, processing, and refining capacities of the United States, as well as its huge and newby consumer markets. The tension between stutonomy and dependence oEpetroleum in Mexico is an important issue also explored h this chapter. This chapter also compares Mexica9s situation as a world producer from Latin America with that of its producing counterpart. Venezuela. The we= of natural g=, Xiquid gases, and pefrachemicafs are examined, In petrochemicaIs, the nsteionaE proscription on oil hdustry privatization has been broken the past ten yems, and private and foreign interests are taking over pam of this subsector. The final pa& of the chapter malyzes Mexico's petroleum situation hthe context of world systems theory including its regional elements. The first petsolem well in Mexico was drilled in 1862 in the Federa1 District, More exploration took pIace in subsequent decades-.The first: refinexy opened in Veracm in 1886. A boom soon took place baed on the participalion of foreign giants of the time, ' of New Jersey, which had opened large refineries in the late centuv. including Standad 011 There was rapid growh of naional petroleum ouqut to 110,000bmels per day by 1910. Even in the revolutionav period of l910 - 1917 , peboleum production increased. Xn 192l , Mexico was second only ta the U.S. in the world's ra&s of oil producers at 530,000 banels per day (Id.$, Enere Infornation Adminisbation 1898). In, the 1930s oil production fell substantially due to the depression and increasing ineecieneies including over-production of the oil deposits, In 2938, the gove Wsident Lmzlo Gardenas expropriated and nationalized the oil i n d u s ~taking over all assets of seventeen. oil fims, including prominent h-reip ones. Several months later, the government created Pe~cileosMexicanas or Pemex as the national oil entity. It was responsible for the management and production for the entire oil sector of the nation. In subsequent: decades, Pemex increased its size and imporlance both in Mexico and the world, As a result of heightened gmduetisn, the nation" siectrical system wcts able to be expanded geatly in the mid c e n b q period. Exploration of pe@oXeumproved successhl and vast oil deposits w r e discovered and pmduction stafied in the Gulf of Mexico, Proven pe&oleurn reserves increased to 66.5 binion ba~eXsby 1990 (U.S. Eneru Infamation Adminislnltion 1998). In the 1990s the hydrocarbon sector, consisting of pe&oleum, natural g*, and their derivatives, conh.ibuted 1-2 percent of PIB. As seen in Figure 8.2, this percent was five to ten t h e s as @eat in the 1980s, when oil prices sowed. There were several exceptions to the dominance of the nationalized sector, In 1971, the Mexican constitution wsls modified to allow private companies to participate in the secondaq petrochemical irrdusm, There have been additional changes allowing greater privatization of downs~eamaspects of the petrsleum sector; for instance in 1991, a jaw was passed allowing transgofi, storage, and dis&ibution of nabral gas to be conducted as a pamership of Pernex with privak fims, However, today the nation and its government remain united in the belief that the grimay production of oil should remain a part of the government, This is in spite of a wave of privatization over the past decade that has altered most fomerly nationalized industries in Mexico including telephone, steel, banks, and hotels.

Petroleum and the Energy Secbr

Figure 8.1 National PIB and PXB of Hydrocarbon Subsector (Milfions of current pwos)

Note: The hydrocarbon subsector inefudes crude petroleum and natural gas exwaction, as well m petrateurn and its derivatives. Source: Mexican Secretaxy of E n e r with ~ ~ data from WEGE.

Mexico" E~nerwSituslion: in the Z990s

Cwently, Mexico is one of the world3 largest pmducers of pe&obum and a sipificant exporting nation. It has &day conservatively 48 billion baneXs in proven oil resemes and 64 billion cubic feel (tcQ of gas resewes (World Oil 1999), Mexico produces 3.4 million banels per day (mb/d) of oil, of which 3.0 million mb/d are crude oil. Much of this production is heavy oil that is enviromentally poluthg and diBcuft to refine into consumer products. Oil consumption is 1.9 mb/d. Net exports are 1.5 rnbld while goss expofts are 1.9 mbld. Of this 1.3 mbld or tvvo thirds is exported to the U.S. Tlxe large U.S. consumption is in s y n c h n y with late 20" century U.S. e n e r a policy, which favors supply of ge&olem &om non-middle eastern nations. Natural gas is also present in abundm~ein Mexico. Amua1 production of one trillion cubic feet however is small conrpwed to totat depasi_ts. NamraI gas is over 95 percent consumed dornesticaIly. The amount of imports and exports is p i t e small. For instmce: h 1997, the V.S. exported only 38.3 billion cubic feet @c0 of namrales to Mexico while the U,S. impo~eda mere 26.3 bcf &om Mexico (U.S. Energy Infornation Admixlis&ation 1998). The total ~radedresource betvYIeen the m o nations (imports plus expo&s) was only 5.5 percent of Mexico" production, substantially below the comparable figure for oil of approximately 45 percent. Reasons for relatively low natural gas production volume include the location of natural gas deposits h the south away from the major population eenters; the: type of namal gas i.e. primarily associated with oil; and the lack, until recently, ofxnodem gas transport and dis~ribulionsystems.

Petfolem and the Energy Sector

158

Of the other foms of energy in Mexico, coat is mintor accounting in 1997 for only four percent of Mexican energy consumption (t3.S. E n e r a Infornation Administration 1998). Mexico, on the other hand, has very large hydroelectric energy production located mostXy in the south and especially in the periphery state of Cttilzpas. Its hydroelectrnic produetion is substantial; amounting to sound 25 percent of final e n e r a consumed (U.S. Energy Infornation Adminisb.ation 1998). The most important energy source for Mexico is themal i.e. p&oXeum, gas, and coal, accounting for about two thirds of energy consumption (see Figwe 8.2). Hydroelectric energy is high, accounting for about. a Taster of energy consumption. Nuclear and renewable energy i.e. geothemal md solar are minor, m i s paMem con&%&with the U.S. The U,$. has sllightly hi@er propo~ionof themaE energy than Mexico but it has v e v smaiH, hydroelec~ic-The low hydrs is due to the huge energy needs in the U.S. and the inability of even large -er resowces in the U.S. to meet the huge: demand. On the ather hand nuclear and renewble; energy sources are much higher, in the range of 10 to E5 percent each. These energy foms mostly rewire a high level oftechology that iis available in the U.S. FhaX consumption of energy in Mexico is dominated by petroleum and natural g a , as shown in Table 8.1 . Electrici'Ey as a form of final consumption amounts to 10 percent, while combustibles mostly coal and f~ewoodequal about 12 percent. It is not surprising that peh-olewm and elechicity increased 1985-92, .Jvhile namal gm and combustibfes decreased, The tack of a nittwa1 gas delivery infrastructure has cons~ainedit, vvhile cotnbustibles have nawral Ibis,

Figure 8-2 Distribution of Energy Types in Mexico and the U.S., 1997

EXydrocarbon Thermal

Efydrmleetrie

Source: U.S. Energ-y infornation Administxstlion, 1998.

Huelea

Renewable

Petroleum ilnd the Energy Secbr

160

Peboleum and the E n e r a Sector

The location of Mexico's cmde ail and natural gas production is predominantly in the two gulf states of Campeche and Tabasco (see Figure 8.3). These sbtes have major oEshare and onshore fields.

Figure 8.3 Crude Oil and Natural Gas Praduction, X988

." .. '...'.,. . ..'... .*. .*. .'. ... ... .. L

.

.

(1'.

.

S

.

,

.

. ** ** . . . . . . . *

.

.

S

.

S

.

.

.

S

.

.

b

.

.

.

.

W

.

.

.

. * . . . * .

*

.

S

.

.

' . ~. . '.. '...* *. ' .. ~ , ~ f. ..*..f ...f.*. ...' ...' ..Campeche S

.

*

.

. . . m .

San Luis Pat-i 0.72%

.

a

.

-

*

.

.

. S

.

S

*

.

S

67.28%

Note: The percentages are fas value of production volume of cmde oil and natural gas. Source: 1989 Cmsos Economieos,

No 4

State Cmpeche 5 Coahuita 24 Sm kuis Potasi 27 Tsbzl~scs 28 Tmrrnlipas

Workers 7,726 278

Total Assets

4,147 15,594 4,106

20,203,65 5 485,23 1 1,560,245 15,739,717 483 1,332

25,371

20,203,655

Value ofproductIVolume 15,057,69;? 14,361 160,667 5,935,836 240,65 1

Pgrcent O$ Nation 67.2732 @.OM2 0.7178 26,5135 1,0752

Mem Median $.D. C.V.

Minimum X 5,057,692

67.2732

Source: INECI, t 989 Censos Economims.

Mexico is an energy-expoeing nation md this has greatly helped the nation. financially. In 19R, Mexico had net oil export. revenues of % f 0.3 billion, O f that amomt, 87 percent was to the U.S and nine percent to Europe (see ~ a & 8.2). e The export o f peh.oleum is an impoHmt Eactor in achieving a rough trade balance with the U.S. That balance Erm a Mexican stmdpoht was somewhat negative in 1993 md 1994, shapXy positive in f 995l997 and in 1998 signifxcantfy reduced, In. 1998, a year of declining oil prices, peeolem production served to o%et the negative V.$.-Mexico trade balance Erom the maquiladora indusw and from Mexican consuml>tion af U.S. goads. Hwever, peh.oleum prices rose s h q l y in 1999,

161

Pekoleum and the Energy Sector Table 8.2 Destination of Crude 011 Praduction from Mexico, 1993-1998 Total Value of Productton of Q I~~~ p o r f e d fm $ m z l l i W

Yem 19997 (Jm.-June)

10,34 1

1997 percentage

100

Totat Value ofCru& Orl Exported by Export Destznatron fin $rnrllrons) United Sr-ates Europe Other 8,958 887 494 87

8

5

Source: Pemex heme page, 1998.

There is trade juxtaposition beween an sadvmced nation producing refined and processed goods that me sou&t in. the semi-peripheral nation of Mexico, while the semiperipheral nation produces md expoa ImgeXy natmal resources, The world systems theory implications of this juxtapsition will be discussed later in the chapter, Suffice it to say that this exchange supports the classical dependency of a developing nation on an advmced one, includhg elenaen& of capit;aZ penelsation and exploitation. Another factor examined later is how exchrznges of naaral resources affect the advmced, semi-peripheral, and peripheral regions withi-n Mexico. MexicogsQilt, Pemex, and Cantarell

Mexico's most importmt energy source is pe&o'leum,and its entire national pet;roleum production is located in the n;alianal oil company of Pernex. This section examines the smcme, production fields, geogaphy, and foreim dependencies of Pemex. Xn 1997 Pernex had total sates of $32 billion, It is one of the world's largest petroleum compmies and in Latin America is h third place, a&er 'Venemeta" s o giant national gms of Peeobras md Ifsee6feos de Venemela. Xt is a giant world company, as shown in Table 8.3. Its mique role is seen by being one of only thee companies &om the semi-periphev, out of the world's 150 largest companies accordkg to the Fomne Global 150 (Fortme Magar'ne 1998). Pernex is by fm the lagest coqoration ;in Mexico (Expmsi6n 1998) Pernex had a productive workforce of 75,000 in 1998, much less than the 280,000 workers it had in 1982 (Expansibn 19138). The reduction in workforce is due to technology gains that increased worker productivity, Pernex is highly profitable, as seen in TabLe 8.4, contributing over fifty percent of its goss revealre to the federal gove ent*This enomous donation is due to the extent of its namal resource and Xow Xabor costs. An adverse factor for Pemex is the very high propfiion of the profit that is absorbed by federal government taxes. h 1995, these bxes amounted to nine@ percent of goss proftt, Later in the chagler, the role o f this targe eon&ibution to the Mexican federal gove ent is examined, as well as the resultant dependency.

Betxoleum and the Energy Sector

Petroleum and the Energy Sector Tsbie 8.4 Bentex Grass Revenue and fidersf Tax Contributicm of Pernex, E WQ-1996

Year 1980

Revenue

CotztrfbuttunoJPemm

percent

fr)

(21

352,6

162.0

Q/!,-' 45.9

1996 240,458.0 154,339.0 Source: S c ~ r e t mof Energy of Mexico, with inf"omatianprovided by Perneac from the huaria Estadistieo of Pemex.

64.2

Pernex has been criticized .For seeking immediate profit at the expense of Long tern development of technology and world competitive f&citities,As mentioned earlier, a high proportion of its crude oil production is transported to U S . refineries, rather than being input to pewochernical industry within Mexico. O&en the refined product is purchased back in Mexico at a much higher price. This creates a p m r n of high profit margin, with the dividends Rowing primarily to the Mexican federal gove ent (Expansi6n 1998). This process is hdher complicated by a tendency for Mexican federal agencies to over conk01 and in some cases be campt in their oversi&t roles (Expansi6n 1998). There have been repoas of widespread comption in such areas as awarding of contracts. There are several adverse business factors impinging on the Iong-term success of Pemex, The company has been forced to invest in exfractive facilities and processes in order to keep production flowing; this has increased its debt suhstantjiaI1y. Pemex's l998 debt was about $8 billion, One sign of the need in Mexico for additional petroleum production is the history and Eirture plans for Pernex's Cantarell oil production field. Cantare11 is a giant oil field located offshore in the Gulf of Mexico 45 miles noflheast of the city of Ciudad del Camen in the slate of Campeche, Wells are dG1led platfoms to 1,000 to 3,200 meter depths below sea level. The field" production in 1996 was 1.06 million banels of crude oil per day (El Financiero International 19981, equivalent to 38 percent of national cmde oil production, The dependence on Cantarell is substantial. The field has produced for the past 18 years at levels of 0.90 to 1.2 miIlio~banels daily. The Geld also has natural gas production of around 450 million cubic feet daily. In terns of total hydrocarbon reserves, Cantarell accounts for 7.6 percent of Mexico" l?. l billion b a ~ e I of s hycfrocarbon reserves, The challenge to produce mare oil largeXy for export: is leading to plms ta intensify drilling and bolster productim at Cantarell. Tt plans to drill several hundred new wells in

164

Petroleum and the Energy Sector

the field and add 23 new oil-drilling platfoms over a WO-year period, These changes would bolster the field's production to 1.7 billion banels of crude oil per day in 2000 (Shields 1998). However, there is a gowing problem in exploit(?tionof the Cantarell, field. The field pressure has been dropping for years and continues to decline. This in turn has caused rising water levels in the AeId, which in t w ~ reduce production. The upshot is tbat the rnem s day in 1980 to only 1,400 barrels production per well has dropped &om 35,000 b a ~ e l per per day in 1998 (E1 Finmciero International 19981, In response to Cantarell" production depletion, Pernex has decided to implement a huge niQogen injection plant. Pernex is basing this huge investment on an unproven theory that field pressure will be maintained and will not drop kdher though injection af nimgen into the field. Then throu& increased drilliing, production can be increaed, Howver, potential problems include that the injected ni&ogen may not suslilin the field presswe and that the nitrogen may mix into the oil flow of pipelines and reduce the egectiveness of Row (EX Fhinianciero 1898). Pernex awarded a conwact of over $1 billion for consmction of the niitrogen plant to a goup of foreign conkactors, with building expected to be completed in 2000 or 2001. The pXant is privately owned by the con&actors and represents an exception to historical policy of oil nationalization. The international consaPtium is s h o w in Table 8.5.

-

Table 8.5 Participation in Canstructlon c~fNitrogen Plant for Penrex Cantarell Field C~mpa~y Mmbeni Govor&tion B W Gases * W e s t c o ~Energy t Inc. Linde AG ICA-Ffuor Daniel Source: McKinlay, 1998,

Gozcnty Jqm Britain Canada Gemany U.S.-Mexico

Percent of conso~"ttum

30 30 20

m X8

Role Project mmagernent. Finmcing, PIrult operation. Undenvater giplines, power plan& Bsign of the air sepmation plant Industrid Construction

The foreip ga~icipating compmies are from Asia, Europe, and the U.S. This reinforces the fact that the technology is unproven and sophisticated international companies from advanced nations are needed to support this plmt desip and eonstmetion. Another set of potential problems involves threats Eom the pipeline tbat will be consmcted offshore and onshore betvveen CanQrell and the nieogen plmt site at Atasta in the state of Campeche. There is a risk of possibfe pipeline leakage or rzlpture that could create major degadalian to the oceanic or temestrial enviroment. Pemex may be viewed as a legacy of national pride, accounting for a large proprtion of the export value of the nation. At the same time, the quality of pe&oleurn production has been compromised. Oil, which is exported predominantly to the U.S., is mostly of such low qualiq that even afier refining it has limited uses. From a vvorjd systems standpoint, dependency of a semiperipheral nation on an advanced nation is maintained, Another seategic problem is that in the effort to produce more and more, the quality of Pemex's major production fields and of associated lmd areas m;;iy be depleted.

Pemleurn and the Energy Sector

Global Impact of Mexico" Petroleum Sector Mexico is a sipificmt major world player in the petroleum seetar. As one of the major dewlophg nations today, it is a substmtiat producer md consumer of pe&oXeum and has among the largest peQoleum reserves worldwidte, as well as very ]age namral gas reserves. The size o f its pewaleurn sector creates global influence for Mexico. In terns of production, Mexico poduced in 1938 3.4 million baneis of oil per day, AS seen in Tstbte 8.6, this production increased in the ten yews &om 1987- 1996 by about l ,2 percent per yearc, a rate nearly the same as world oil production increased. Its production. places it frfih worldwide, mound the production levels for Iran, Noway, Venemela, and China. In expor;e stams, Mexico has even more regional. importmce, since the U.S. consumes a h o s t all of Its crude production (Enera Infornation Adminiswation 1999).

P a n t oJ World

Petroleum Productron (In mrlltons bcrreldday)

Change 1987-1996 -l 1 90 -45 61 13

1987 10,648 9,445 4,698 8,930 6,035 10,986 2,330 3,758 2,914 3$@6 Mexico 1,080 200 Nomay 3,245 1,863 73 3,220 Venezuela 2,590 16 China 3,131 United Kingdom 2,872 2,611 10 Cmada 2,494 1,956 28 Nigeria 2,193 1,345 63 Kuwait 2,1SI 1,689 27 Indonesia I,624 18 I,372 Libya 1,450 45 11,002 Atgeria 1,393 f,189 17 Total Top 15 nations 55,247 48,368 14 World Total 7 1,764 62,427 1S Note: production includes crude oil, NGPL, other liquids, and refinery processing gain. Source: U.S. Energy infornation Administration, 1999. Nation United States Saudi Arabia Russia Ism

1996

Producrron 15196 13.2 12.4 8.4

5.2 4.6 4.5 4.5 4.4 4.0 3.5 3.1 3.0 2.3 2.0 X .9 77.6

Mexico also is a very important pelroleurn consumer, accounting for 2.6 percent of world oil consumption (see Table 8.7). This huge consumption reGects in large part the petrochemical and other industrial uses of petroleum within Mexico, Mexico" pe&oXeum consumption on a per capita basis is at about half the Xevell of advilxleed nations, such as France, the UK, and Canada, This i s an exceptional cansumptian situation for a developing nation and one that stems Jzlrgely &am its ge&oXeumwealth. Although it produces and exparts high levels of crude pekoleum, Mexico depends on other nations for its rel"tned petroleum products. Its tobl refined exports in 1995 were only 140 thousand barrels per day, which is much lower than peer cmde producing nations of Noway (it exported 258 thousand barrels per day or bpd), Venezuela (661 thousand bpd), the UK (578 Ihousmd bpd), and Canada (595 thousand bpd). On the other hand, peer producing nation Iran was lower in refined exporl-s (46 thousand bpd) and so was China

166

Petroleum and the Energ Sector

(1 13 thousand bpd). These nations may be very low due to political-economic conditions in

Iran and peripheral nation stahls for China.

hruoleum Cu~s@mphun Matton United States Japan Russia China South Korea Itiify Franm Mexieo United Kingdom Cmada India Brmil Saudi Arabia Spain

Iran

1996 t 8,309

..1987 16,669

1,175 865 5 1,991 44,974 World Total 7 1,524 62,999 Sour=: U.S. Ener@ Inifamation Adtministrirlion, $999,

TOMTop 14 nations

Percent of WurId a .

1987-1995 10

1996 25.6

36 16

1.6 72.7

14

In 1995, Mexico struck a balance beween refined pemXeum product impofis md expoas, with 138 thousand banels per day i.e. almost exactly equivalent to expo&s. This is especially remmkable, since it is such a world leader in pe&oleuxn resomces. It reflects an unusual mount of dependency on t e c h o l o g of advanced nations, mainly the U.S. Mexico" gglbal irnpact is not just a temporav or declining phenomenon, as reflected in its vmt petrsleum resewes. It was seventh in the w r l d in l997 in pe&oleum resemes, with 48.5 biglion bane13 (World Oil t999), wcounting for lFour percent of world reserves. This is of huge ixrsgamnee for Mexico" htme and p o k e to its long-tern status among the world" lading producers (see Tahle 8.8). A problem is that large propofiions of ifs resewes are oEshore, so extraction may be more expensive relative to terrestrial resources, By contrast, U.S. pegoleum reserves were only 22.0 biIlim barrels, but its amual production was nearly threefold that of Mexico, In nafural gas reserves, Mexieo was fifieenth globally in 1997 and only accounted for 1.23 percent of world reserves. Unlilse petroleum, the U.S. has much larger natural gas reserves with 3.22 percent of the world total, This contrast underscores Mexico" ssituillion as a net importer of nama1 gas from the U.3, Wowver, Mexieo still remains as a major fiwre plrsyer in n-ral gas. Et is likely in the future that namral gas resenies will be consumed predominantly damesticaHy, reflecting the more modem natural gas distribution systems that are being developed in Mexico. The key position of Mexico, as well as its dependency status, is seen in the worldwide corporate smcture of petroleum companies. From a national perspective, Pemex is by far the Imgest fim in Mexico with the most assets and empjoyees. Put in a global view as seen in Table 8.3, Pemex is 13' among the world" largest oil companies. It is smaller than would be expected due to its lack ofrefining capaciry. In faet, it is unique among the 20

167

Petroleum and the Energy Sector

largest ems in lacking refining capacity ( K a h 1998). Among semi-peripheral nations, only Venezuela" PDVSA and South Africa's SIC are larger fmns, and they have significant refining capacity. This lack of Pemex refining eapabilit-y hrther demonstrates Mexico's dependency an advanced nations principally the U.S. As seen in Figure 8.4, the commercial balmee of trade for hydrocarbons has varied, but mostly been positive, As oil prices dropped in the early t990s, this commercial balance turned negative for several years. During the two decades portrayed, Pemex has maintained a positive conlribution. In summary, Mexico is among the top petroleum nations worldwide. Its reserves are very large, although somewhat constrained by their offshore nature. Its global impact is s&ongest in crude products especially oil, It has not yet entered the world arena as a major factor in refined products. Table 8.8 World Petroleum Reserves, X997 Riarton Saudi Arabia Fomer USSR Iraq Iran Venezuela United Arab Emirates Mexico China Libya Nortvay Unitcd States Nigeria Total Top 12 nations World Total Source: Virorld 011, 1999.

World total 22.57 15.84 9.65 7.80 6.26 5.42 4,X8 2.94

20.8 966.6 t 160.1

2.54 2.32 1.90 1.79 83.27

Economic Impact of Pemex on the Mexican Federal Government For the past 60 years, Mexico has built a dominant entit)r Pemex, the national ptroleum company. Since Fernex is nationalized, the federal government has been able to divert a large and perhaps excessive propoflion of its profits to support the federal different type of ""depndency" i s central to Mexico" national o the lack of s&engtk to collect taxes and enforce ardinav means The extent of governmental dependence on Pemex is revealed in Figure 8.5. Thim seven percent of the FederaX budget in 2997 came &om petroleum. Taxes only accounted far 35 percent, which i s low versus many semi-peripheral nations. Piayrnents other than taxes from businesses amounted to about one fifth of the income. However, Pemex's prapofiion of the federal budget varied between 20 slnd 50 percent over the past two decades (see Table 8.3). Its contribution was stronger in times of domestic economic crisis such as in the 1995-97 period or in the mid 80s. This is because ail revenues depend to a large extent on .foreign markets, while other sources of federal hnding tend to be lower during hard times in the economy,

Petrolem and the Energy Sector

Figure 8.4 Cornrnereist Balance of Hydrocarbon Sales with Contribution of Pemex

C1 Commercid Balmce of Hydrocdon Sales

#?l Pemex Sdes

Source: Seeietq of Enerm, vvia infomdion provided by Pemex for the IInfome ofthe Fede-ral Govmment. Combined Emnomi~Satistics Cif S.H.C.P. and Cfibrios Generdes de:Politi~s Econbmica 1997.

Table 8.9 Budgeted Rwenues of Federat Government of Mexico Federal Government 01 Mexico

Conpibutionof Pemx

3996 376,411,0 154,339.6 Source: Secretary of Energy of Mexim, with data af huaria Estadistico of Pemex and Combined Eesnonric Statistics of S.Ii.C..P,

Pemex

48.0

Petroleum and the Energy Sector

Figure 8.5 Petroleum Industry Pereent Cantrlbutions to Mexico Federat Savernrnent Revenues

Source: Secretaria de Energia, MEal, 1998.

From the stmdpoht of Pemex, profit is substmtially diveaed to the federal ent, As seen in Table 8.9, the propo~ionof Pemex's s o s s income eon&jibuted to the .federal govemmerzt over the past two decades has vaxid betvveerz 21 to 48 percent, This has several important rmiEcations. Fkst, it tends to make the Federal government budget hi&Xy dependent on fluewations h Pemex revenues md profits, which in W depend to a &reat extent on worldwide chmges in the petrolem m~kets.Far instanm, in 1998 tbe federal budget had major cutbacks with substantiali layoffs thee times. The somce of these cutbacks was largely a fall in world oil prices dmiug the year. Cunmtly, a chmge of one dollar h the world price of oil implies a one billion-dollar clrmge in federal Second, the very high payout of profits to the fecEera1 government reduces the capacity of Pemex to reinvest its pro6b. ft is hampered by restrictbins on technologi~aladvance, explor;cttion, and ingasmeme investmen& for this reason, The vvo~isomeelement here is that as the getroleurn industry becomes more competitive gIobally, Pemex may lack internal investment resources and not be able to accomplish technological and other advmces that it needs in order to remain. world competitive in reking, pelrochemicals, and general business hnetions. ent produces a siaation of Pemexb ssubsidimtion of the Mexican federal gov t entip. That factor has in turn sthutated widely wusual infiuence of this one ga co at risk with an undiversified repo~ecfcomption witbin the c . This cm lead to manticbated ""pafoEaXioWof income sowces for the federal g ental plrvvling a d gtrategies, such as occuned h 2998. It may also lead to temptrztions fir more comption in the case of excess in times of oil prosperity.

Petroleum and the Energy Sector

Venezuela: A Global and Contrasting Campetitor Xn Latin America, Venezuela is comparable in many respects to Mexico and is even more richly endowed in pelroleum and nittwai gas resources. This section looks at Venemela as a competing oil producer and compares how it is similar or diBerent from Mexico. The giant oil reserve of Venemela is located in the Orinoco Belt, 140 miles southeast of Caracas. Et is semiced by a huge new oil indusfxy complex Located coastally on the Caribbeiln in Josb. Historically, Venezuela had a very large foreign oil industry for most of the twentieth centuy. It nationalized its oil indusw in the mid 1970s. The dominant national oil company that emerged, analogous to Pemex, is Petroleos de Veneme1a (PDVSA), As seen in Table 8.3, PDVSA is the ninth largest oil firm worldwide, with revenues in 1997 of 34.8 billion dollars ( K a h 1998). Sivlce 1993, Venezuela has opened up its nationalized oil industry and done so to a much geater extent than Mexico, As a result, prominent first world oil companies have been lured, including ATGO, Conoeo, TOTAL from France, Chevron, British Petroleum, and Mobil, Joint ventures are encomaged, for instance betvveen PDVSA and Mobii in the CaXmeM, Louisiana refmw, and bemeen Shell and PDVSA for a 50:SO refmery project in Deer Park, Texas, U.S.A (Poole 1998)In Venezuela, as in Mexico, the federal gave ent depends gre;iLtly on the ail indusw. In fact, the oil industv provides nearly &O percent of the federal budget, even hi&er than in Mexico, The dependence of Venezuela on world oil industy fluctuations pasaliels Mexico. M a t diRers is the peater opening up of the oil indusw in recent years to modern CO-ventureswith companies @om Gtdvslnced nations. Compared to Mexico, this opening up has sewed to geatly update the Venezuelan pe&oleurn industry, making it more world competitive over time.

Natural Gas Mexico is richly endowed in nawrsll gas, and cunently produces over one trillion cubic; feet (TCF>of natural gas annually, As seen in Table 8.10, Mexico is EiReenth in the world in natusal gas production. At the same time, the nation is restricted in its development and use of this resource by several factors. Xn the southeast, there is the difl"icult;yin extracting ""wet" namrill gas that is mixed in with petroleum deposits. A second eons~rairltis inadequate dis&ibution infrastmeture to support the domestic market for natural gas. This constraint is belng gradually overcome through programs of privatization. Thwe are two main foms of namral gas available in Mexico (U.S. Energy Administration 1998). The first csltitegoy of nattlluat gas is "associated gas," that is mixed in as part of the petmleum resauree, Xt occurs in the southgagern states of Tabasco, Campeche, and Chiapas, as well as offshore Cmpeche (see Figure 8.5). The problem is that the natural gas production depends on the level of pe&oleum output, Since natural gas is mixed with petroleum, extraction becomes difgcult, As pressures in the CanbrefI field drop, less md less naWraI gas occurs as part of the mix. The second f o m of natural gas is located in the dry fields located predominantly in the B w o s Basin, a huge natural gas deposit underlying the northeastern stales of Tamaulipas, Nuevo Leon, and Chihuahua. Over the next ten yews, Pemex plans to increme substantially production in the Burgos Basin.

Petroleum and the Enera Sector

Figure 8,6 Praduetion o f Petroleum and Natural Gas and Its Liquids, by f rate,

t 995 800,000

Note: on the y axis, the units are in millions dbmets per day for petroleum and in millions of cubic f a t for naQral gw and its liquids. Hate: Not shown is the Other S&te Catwry that consisted in 1995 of 109 millions of bmels per day of p&oIeum md 26,3 l6 ~ubicfeet of natural gm md its liquids. Sour=: HEGI, 1996.

Tabte 8.10 WorId Naturaf Gas Rmerves, $997 Niltzrral Gas Resemes

Irm

qaiu United Arab Emirszles Saudi h a b i a United States Venezuela Ataferia Indonesia w0ruva;y

Nigeria Australia Malaysia Canada Mexiea

Netherlands Kuwait Total Top 12 nslltions World Total Source: World Oil, 1999.

52.7 4,618.3 5,176,6

1.02 89.2t 100.00

172

Petroleum and the Energy Sector

The U.S. Energy Adminis&ation (1998) estimates that Pemex plans a nahural gas increase from 0.5 to l .S TCF &orn 1997-2001, Vet, the company does not have the technoXogica1 strength to provide for this Iage groNh, so it needs private companies to drit! the many hundreds of new weHs needed. These include Schlumberger, as well as the Mexican producers CompafiSa Mexicana de Exploraciones and Pe~oradoraMdxicana (U;S/MfexieoBusieess 1997). A problem with this strategy is the potential efiaustion of the Burgos field. There may be a parallel here to the long-tern depletion of the offshore pe~oleumfields in the southeast tbough over drilling and over probucing discussed earlier, The market for natural gas consumption in Irzdus&iaitizedcities of the north is large and gowing. However, there are competitive pressures, since tmiE benefits to Mexican supplied natural gas manufactures to are disappearing and will be reduced &am 10 percent in I994 to 0 percent in 2002- This will stimulate U.S. n a b a l gas producers, especially those in Texas, to seek markets in Mexico. For example, the Salamayuca namal gas driven plant in. Ch&uahua is being supplied by U.S. producers throu& a pipeline &om EX Pwo. Another important &end in nabraX g@ is the national progam of diseibution system p~vatization. Having modem distxibution systems for nakral gas will overcome the txaditional reliance on fuel. oil, which i s delivered by truck and exacerbates many problems of enviromentaf conmination, especially air pollution (Blake and Rowland 1995). Rivatization has progressed fairly well, and importauat foreim and domestic companies have invested in projects to build distsibution systems, Mexican natural gas concessions for the period 1996-98 reflect &ive gas diseibutisn development in cities thoughout the center and border regions of Mexico (Poole, 1998; McKfi=inl;ny1998). As seen in TabXe 8, f l , f m s that are involved h l u d e Mexican, U.S., and Ewopean companies. The five-year invesment toaled wound $2 billion. In Mexico City, beween 1995 and 2000, a one billion dollar investment will develop a natural gas distribution system to serve about 650,OOQ customers (Poole 1998). However, this massive consmction poject is cons&ained by obstzlcles hcluding edquakes, &afGc pressures, land subsidence, md resistance to t e a ~ n gup old buildings and strerrts. In Monterrey, Repsol, st Spanish energy Em, has invested a qumer of a billion dollars over a five year period to hplement a modem nehvork to sewe about 306,000 customers (Poole 1998). The process is continuing. One estimate is that @om 2000 to 2005, there will be investment of an. additional 800 million dollars. New cities plamed to receive licenses include Tyuana, Tecate, Ensenada, as well its San Luis Potosi, Zacatecas, and AgumcaXientes, and the large cities of Puebla and CuadaIajilra (Rodriguez Lopez 1999). NamraX gas offers @eat potential in Mexico to provide enere fir heating, industrial, and other uses that are inexpensive and nonpoliuting, Changes taking place depend on developkg national sources of supply especially the Burgos field and addition of U.S. supply favored by NAFTA tariff reductions, The supply remains predominantly dominated by Pemex, By cormtrmt, the &ansport and distribution of natural gas is undergoing rapid privatimtion. The largely foreign developers are motivated by the ~owlingpopulation and bdus&iaX makets, yet are subject to consmints of antiquated city infrasmcture and natural obstacles. Liquid gas, mainly propane and butane, is utilized and consumed substantially in Mexico. In fact, ninety five percent of Mexican consumers utilize tiquid gas for home use. This is equivalent to natural gas use that is prevalent In other counefies, Mexico cunently has net import of tiquid gas to s&is@this domestic demand.

Pefroleum and the Energy Sector Table 8.11

(Mexico City N and E o

Source: Poole, 1998; NcKinIay, 1 998.

This sector is in process of being dere~fated,This will open up what is now an exclusively domestic; market to foreim entrants, This has already happened in a number of other Latin American nations in collaboration with U.S, and Europem companies, including Dow Chemical, Chevron, and the Spanish fim, Repsol (Shields 1998). The net balance of &ade in liquid gas is likely to continue impoffing in the %&re (Shields 1998), Xn 199'7, Mexico hported liquid gas of 73 million bmels per day, while it eqofied only 5 million barrels per day.

Refming and Petrochemicals The Mexican energy indwm is weak h refining and pekochernicals. This reaeds the dominance of Pemex in petrochemicals and Fernex" somewhat antiquated condition, as well as lack of investment by the Mexican government. Refinkg and ge@ochemicalshave rather sophisticated chemical processing requirements mking older plants less competitive. The result is that most refining and pe&ochemical production Erom Mexican petroleum is done in the United Sates., l%is mpresents a classical dependency relationship between m advanced and peripheral or semi-peripheral com'ny. There are six major Pernex refineries, and four o f them are old and in substantial need of upgadkg (US, Energy Infornation Adminis&ation 1998). Those are Cadereyta, Ciudad Madera, MinatitXan, and SaXinst Cmz, Cunently, there is not a program to privatize owership of Pemex refineries. &fining is considered too ""upstream" by the Mexican ent to be included in the privatization progms. &ther, a progam has been

l 74

Petroleum and the Energy Sector

launched of ageernextls with international groups of companies to modernize recneries (Shields lI15)9), For insance, the Cadereyta refinery is being modernized by an international consortium of Synkyong (Korean), Simens (Geman), and Tribasa (Mexican), The Ciudad Madero and Salmanca refineries are also in process of being modernized through private conkacts* This progstm has been successhl in part because it doesn? thrertlen national omership of upstrem components. A lmger md mare significant portion of refining involves Pemex ageements to refine in the U.S. Ageements are behg esbblished with compilnies in the U,S, including Shell, Mobil, and CIwk U.S.A. For instance, a one billion-dollar ageernent is that Pemex pravides Shell with heavy cntde oil. Shell in does the refining and produces 256,000 banets per day. A major mount of gaoline from the refrnery is provided to Pemex (U.S. Energy Infamation Administration 1998), Another example is an ageement with Clark USA &at Pemex provides petroleum supply in the f o m of h e a y crude to a major coking plan in Port m h w , Texas. These ageernats are characterized by low quality cmde pe&oleum being provided to sophisticated U.S. refineries, which compensate Pemex with money mdor with refined product. These ageements lead to much more productive refining than Pemex can cwently accomplish domestically, fn petrochemicals, the cwexlt Mexicm Xesrder is also a part of Pemex -- Pemex Petroquhica Xt has 59 primarily petrochemical plants located in nine peboehemical compIexes (U,S. Energy Infomation Adminiseation 1998). The plants mainly produce eigk pe&ochemicaits, including butme, ethane, propane, md naphtha, These plants are fargefy ournoded. There are also over 60 secondaq Pemex pe&ocbernicaliplants. The Mexican government, with the cooperation of Pemex, is offering a propam of privatimtion s f these plants, The progam calls for privatimtion of the Pernex basic petrochemical plants with 51 percent Pemex ownership and 49 percent private omership, Also there may be some privdkation of the secondav industy ff_f.S, Energy Infomation Ahinistratztion 1998). However, this privatization progam has not worked, The reason is that bidders and potential bidders have less interest in 49 percent omership and the lack of wn&ol. No major petracfiernical deals have taken place. Some companies such as Gmpo AIfa entered into the bidding process, only to pull out with concerns over the lack of control (Shields f 999)The problem in pe.frochemicals comes down to the aging and noncompetitive state of the petrochemical industry and the lack of stbilitJ. to either modernize or, up to now, privatize the sector. At the same time, there is the potential to turn around Pemex and domestic pe&ochemicals and make them more productive, Levy (1998) points to the following steps that could reverse the &end h the Pemex petrachemical sector: ( 2 ) improve the kaXth of the finance and technology sectors supporthg petrochemicals, (2) implement belter transfer pricing mechmisms and re-csnstitae the supply chain links of the peeoleum sector from menty years earlier, (3) increase the regionalization of the petrochemical indushy in a way to advance regional economies, and (4) develop belter financial and economic s@aeg;yfor the sector (Becemii 1998).

Electrical Power Mexico" large electrical power capacity built up rapidly during the past fifteen years, as Mexico became more populous and industrialized. Generally management and performance of the power industry has been successful. In the early 1990s, Mexico began to make amangements to obtain some power &am independent power produces in the U.S. However in 1999, a gradual process of opening up this sector was potentially catapulted

Pelroleurn and the Energy Sect;or

175

forward with President ZediIlo's proposal to privatize the entire Mexican power &dusty, mostly to foreign fims. In 1997, Mexico had 36,000 Megawaas (MW) in electsical capacity, which compares to 710,000 MW in the U.S. (U.S. Energy Infornation Administration 1998). Mexico's installed capacity per thousand population was 0.37, versus 2.64 in the U.S., a seven-fold difference, As seen in Table 8.1, Mexico" eenrgy is mostly pelrolem and gas, with some coal (about 8 percent), substantial hydroele~&ie(25 percent), and minor renewable sourees. This energy capacity has been historically developed by the Comisi6n Federal de Electricidad (CFE), h i e h is one of the ten largest elect-rical generation organizations in the world. The Zedilto Admhislration has encouraged CFE to achieve nearly complete coverage of Mexico and increased population electrici~coverage by about 12 percent, so that when Zedillo leaves office in 2000, energy coverage should be 97 percent (Moncrtda 1997). Another accomplishment is the nanowing of geographical coverage, so only about 12 percent of the Mexican land su&ace wilf not have eleclricity by 2000. As seen in Table 8.12, Mexico" insl~alliedelectrical production capabiliw Is located predominantly as hydro in the southern region, and as themoelectric energy in the border states, It is interesting Eram a world systems theory perspective that these areas represent a11 three levels of development. However, vast amount of energy produced flows to the core areas of the counv. Foreim fims have been allowed to contract on consmction and to set1 power to CFE ;as independent power pmducers (IPPs), Some examples of foreip IPPs are GE, Central Pawer and Li&t, San Diego Gas and Eleelric, El Pmo Energy, and AES C o p eom the U,$,, and Nickimen Gorn Japan (F4.S. Enerw Infornation Administration), These tend to be utiliw f m s based in the U.S. border states. ln addition, connections are planned to be esCabIished between the U,S. and Mexican power gids in Arizona and Texas making power more easily ~ansferable. Besides independent production, several other options for private fims are currently possible including co-generation with CFE, self-generation, and small-scale rural production. Since 1992, Mexican fims have been allowed to develop and consmct their own elec&ical generation capstci@, refened to as self-generation. For inshnce, the steel fim Alto Homos de Mexico is building its awn large and modern coal plant for electrical generation in the sate of Coahuila, which will have a 360 MW capacity (Moncada 19979. Several other major firms are planning self-generation including Cemex and ~ l p e k - ~ ~ ~ ' Small rural production grc?jectf are less thm 1 MW astd done by small agicultural-based enleyrises. Foreie fims that have been involved in consmetion coneacts oeen teamed with Mexican firms, including Nissho Xwai and Nichemen (Japan), Siemens (Gemany), and Abengoa (Spain), as well as a number of U.S. fims, Nitsubishi was the contractor for the Ceno Prieto fV geothemat,p l m in Mexicali, In 1998, the entire situation for electrical production was turned upside d o w by the ZedilIo Adminis&ation proposal to completely privdize the electrical sector. Privatization was to be planned in the remainling Zedillo tern and implemented by the next administration. The progosa1 is subject to approval by the Mexican Iegisiature. This proposal &om Energy Minister Luis Tdllez, is somewhat surprising given the generafly good perfomance of CFE for several decades. The government rationale refers to the rapidly increasing e1ectrici"tydemand md need to raise multi-biltions af dollars in invesment to Alto Homos is rated as the 24th largest Mexican 500 (Expansibn, 1998). largest 500 in 1997 (Expansibn, 1998).

' Alpek was the 22"

Pe&oIeum and &e Energy Seetor

Pe&oXem and the Energy Sector

177

provide new capaci@. Given the high demand, rolling blackouts might occur, unless capacity is expanded, Mexican energy capaciq increased &om 1973 to 1995 at 6.4 percent annual@,wbich, is hi& compared to advavlced nations, which are in the range of 1,S to 3.5 percent (Moncada 1997). At that rate of increase Mexicm energy capwity would add mo&er 36,000 MW over the period 1997 to 2008. The outcome of the Zedillo Adminis&ation%request for privatimtion is stilt u ~ o w n Whether . done by CFE or kough privatimtion, this huge increment of development calls for enamous investment and effoe,

Privatization of the- Metxiean Petroleum Industry The privatimtion of the Mexican pe&oleum induse has proceeded significantly, Howver, it has been constrained by kndamental concerns for Mexican sovereignty in c e e ~ i nsepents that are "off limfics." The bend in privatization that took place since the MigueX de Ia Madrid Adminismtion of 1982-88 has affected mmy economic sectors besides petroleum, including steel, railroads, seapofis, aborts, and b&ing. The overall success rate in Mexico of privatization has been mixed. Petroleum so fw has not been higfily successful, There have been worse cases in other sectors, including highways and ba&ing. Steel was generally successhl, In highways, comption has essentially brou&t consmction to a halt, In ba&hg, the process may have proceed& too quickly, without enough manaerial capaciv to mn the p~vatizedbmks well, so mmy banks suffered earty failures. The Mexicm gave ent has consistently rejected the idea of privatizing the pemleum indusq, in pafliculirr Fernex. However; begbing in the Carlos Salinas Adminis&ation of 1988-94, the eRoas to privatize the pe&oehemicaX indushy increased, Upstream production was classified as responsibili@ of the state, while dawnstream products increashgly were opened up to be divested from ptlbllic ~wnershj_P.In 1992, Pemex was re-organized into a holdkg company with lfour afgliates; the pewochemical affiliate was authorized for the alternative of eshblishing joint ventures with private f m s hcluding foreign ones. One year later, Pemex designated 60 seeondasy pe&ochenrical plmts for privatization including by foreigners (Teicham 1995). 1En October of 1995, the Zedilla adminis&ation aaenrprted 100 percent pivatimtion of the pelrochernical sector. However, subsantial political opposition elhhated that idea, A new pian was introduced by the Salinas Adminiskation in 1997 to privatize 49 percent of Pemex's seeondav petraehemical plants, leaving S 1 percent in the hands of Pemex, Secondap refers to plmts that tend to be more ""dms&eam," That plan was approved and put into eflfect. However, it has encountered problems and Iacks acceptmee, mese include the unamactiveness of multinational f m s to enter the small Mexican nnmkeQlace without ccon&ol; the fact that a private fm entering the market is coqeting directly against Pemex, which is also one of its suppliers; the large amount of bureaucracy and legalities; and the dificulty in operathg a ""pbbciclgrivate" firm (Wri@t 1997; Shields 1997). 1n addition, most petsochemical pfmts are deteriorated (Shields 1998). There have been almost no takms to this p r o g m of minority ownership, Many foreim and domestic fims closely examined the progam, only to pull out (Shields X 999). The prospects are d h , given minoriv omerskip provisions. The stalled siuation with privatimtion of petrochemicals should be coneasted with the goad progress on privatization of natural gas trsmsporl[ and diswibrttion that was discussed earlier. The reason for the better rlahuaf gas outcome is that natural gas is not regard&

178

Petroleum and the Energy Sector

presently as critical h r the national energy system, since it is a relatively new form of energy for Mexican consumers (Wri@t 1994). Mexico has tended to rely on liquid gas, Pernex does not consider natuml gas yet to be substantial and hence the lowered resistance, However, as nabrat gas may become more importaint in the Eutrure, it likely will gain more visibility and appear r ~ o r ethreatening to proponents of nationalizaticm and to Pernex, Envirotlrnentaf Problems Aggravated by Energy Uses Along with Mexico" large energy resource and increasing production are environmental problems aggravated by their use, These include air pollution &om energy plmts, water consumption and pollution including oceanic poltution, wate disposal, desmction to marine life, oceanic and onshore oil spilIs, and the environmental problems accompanying urbanization prompted by energy resource development, There are agreements and plans to mitigate or contrsf. certain elements of the e-nergy resource development. Overall, the measures taken up to now are limited in controlling environmental impacts and damages. Since pa&s of the energy seetar have foreim participants, the responsibility for this enviromentai damage lies p a ~ l yalso with the foreign playel-s. The etec&iealgenerating sector inivolves hundreds of power generating plants utilizing different technologies, but all of which have polluting effects, The national dis&ibution of these impacts is shown in the distribution of ins~iiledthemcoeXecfric energy capaciq by state in 1989 (see Table 8.12). Two fi&hsof this c a p a c i ~is located in the no&hem border states, mueh of it close to border cities. For instsmce, a huge coal plant is located only several miles from the U,S. - Mexico border city of Piedras Negras. Major themal plmts are Iocated in Tijuana, while Mexicali has a large geothemat generating capaci&, The air pollution and water demands of these border plants causes degadation of air qmfiq in the border cities and reduces an already limited water supply. There is similar impact fforn the ten percent of capacity in the State of Mexico and Federal District, A positive event was the closing of a large thermal generating plant in the middle of Mexico City in the early f 990s due to its adverse environmental impacts. Several less po-pulous western states have large themal capaciv in paflicular Colima, Sinaloa, and HidaXgo, accounting for another quader of themoeiectric capacity. Air pollution effects in these states impact on dispersed papulations, rather than large cities. The hydroelect-ric capacity, which is mmh Iess polluting environmentally, is mostly in the south especially in the states of Chiapas and Guemero. Pollution effecb &om pe&oleum are immense. They are mostly concentrated in the Gulf oil states of Campeche md Tabasco, A very de&irnental effect is ocean pollution throu* drilling and pipeline losses that have impacted the marine life of a large area of ocean adjacent to Campeche, Paflicularly affected have been species of shellfish. Atso theatened are mollusks, crustaceans, many invefiebrates, and coral biota (Expansibn 1998). A secondary problem in the oil; states 0.1- Campwhe and Tsrera~mzis pollution from urbanization stimulated by petroleum facilities. The new pe&oleum-based cities have discharged Iarge amounts of household wastes, as well. as same industrial and agicultural wastes, into water bodies. There have also been explosions in petroleum facilities, including in PXBtano y Cacao in Tabasco in 1985 and 1995 and in Cactus in Cbiapas in l996 (Expansihn 1998). Many conditions similar to those causing the explosions remain in other facilities (Expansidn X 998).

Petroleum and the Energ;y Sector

X 79

Some government plans have been put into place, but with varying success. Although there has been progress in government initiatives to control air polliution in Mexico City (Nurnme 1991), pollution levels remain high by international standards (United Nations 1994). A new government program, the National Environmental Program of X 996-2000 is making a 13.3 billion-dollar investment to fufiher mitigate the problem (US, Enmgy Administration X 998). Standards regulating power generation and the petroleum sector have been less successful, For instance, the NQM-85 and NOM-86 standads approved in X994 provided regulations to limit air pollution and to regulate fossil-based fuels and gasses. However, thee years later the standards proved rmattainable and had to be delayed (Shields 1998). Some petroleum poHutlan is not cmently regulated, in part because extraction-ecological systems are so complex that they are not understood.

This chapter has examined the energy sector in Mexico and 2s relationship to the global economy, The nation has a vast retiource in petroleum md natural gas. The resomce is being exbacted -for domestic consumption and exparled maillly to the U.S. Technoloe available for higher leveI processing of the resource is limited for a number of reasons. As a consequence, some higher Ievel processing is being outsowced to foreign contractors in Mexico, while most of it is being perfomed in the U.S. Ironically, processed pewaleurn products are then sold back to Mexico. Even some m e s of gasoline we solid back to Mexico after being processed in the U.S. For nawal gas, there is hcreasing privatimtion and foreig involvement This is kndamentalzfty due to lack of perceived direct earnpetition with Pernex because namal gas is new. Mexico" eeteclrical generation is mostly themoefectric i.e. petroleum-based and coalbased, There is a large hydroelemic capaci't-y in the south, The eleclrical generation has begun to have prhate .Foreig sellers. Althou& the CFE has done a good job on the whole, the ZedilIo government perceived demand increasing so rapidly that it proposed to privatize entirely the electrical sector. mether this proves acceptable or practical is yet to be deternined. The environmental externalities of energy production are large, They are especially damaging in the petroleum sector, where there is less regulation and also less understanding of the complex processing and ecological systems involved. Foreip fims must be included in assessing the enviromental costs and cleming up the enviromental damages &om the energy sector.

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Inf ~ ~ ~ U C G G P E Histaw Current She aard E@c-oa~cl~mic Impact Regional Distribution Social and f-lieallh Dissdvsrzl;kPgm Relationship with the U.S. Treads: The Future Conclusions: Comparison of Maquiladora Maoufseturing with Naka-Mrsq~liladorsXl/lirorrcafaer%g%~rmg Case S$o-tdy:Trieo CampsnbrsmQ Shod Case Study: Themgtasoaa

MaquiIadoras are a unique and important economic sector in Mexico. Maquiladoras are based on CO-productionthat takes advanhge of the relatively low cost of Mexican labor and close access to the huge U.S. marketplwe. Maquitadoras historically have been based on special IegaI and trade anangements between Mexico and the U.S., atthough other nations are now involved. The maquiladora sector foms a crucial part of the Mexican economy, having grown enomousty since its founding in the 1950s, far s u ~ a s s i n gearly expecbtions. Currently it accounts for 2 percent of Mexican GBP and 14 perccznt of Mexican manufacturing production. Currently, one million Mexican workers are employed in maquiladoras. On the basis of expoas, rnaquilas produced in l996 a net trade balance of $6.4 billion. This is somewhat Iess but beginning to approach the order of mapitude of the net contribution of expo& by the Mexican petroleum industry. The maquitadora sector foms a particular variety of gfobalization, one that its unique and adapted to the joint geography and economic differences of Mexico and the U.S. It is not exclusively a fom of globalization beween those two nations, but to a lesser extent involves global links with Asia and Europe, This chapter examines the concept of maquiladora in relationship to globafization, its histov, the sectorail size and scope, its regional distribution in Mexico, ret;;ltionships with the U.S., and its sometimes adverse social and environmental impacts, The chapter includes several case studies, compares maquiladora and non-maquiladora mmufacturing, and examines the hture i.e. how they may change in the next 10 to 25 years and what effect globalization might have upon them. A rnaquiladora is a ""business esQblishecf in Mexican territory that following contract, is linked with an enterprise based in a foreign nation to sulsport indust-rial processes or services of transfomation ,.. of raw materials of foreign origin imported temporarily and then expoeed,.. It also includes associated =mites" "(SEGOFI 1995). The concept of maquiladora implies legally based cooperation in production between foreim companies and domestic assernblyimrznufa~turinglargely dependent on foreign raw materials andior parts. The maquiladora value chain steps include delivery of raw materials or parff; processing and assembly including addition of value; return of the finished product to the U,$,; export to another country; andlor sometimes consumption in Mexico. In the case of the U.S., there are offen twin pliints - one on the U.S. side and a "Win" ' o n the Mexican side of the border. They cooperate in producing components in the U.S. co-plant, transporting them to the Mexican counterpart, which m,ly be a short distance away, assembling the product in Mexico, and transpo&ing the finished product back to the U.S. for shipment to U.S. consumers or for Eurther expod. U.S, Customs regulations 9802.00.60 and 9802.00.80 historically have governed the mayulXadora, They dictated that only the value-added portion would be taxed. There we corresponding Mexican taws allowing free import of certain raw mahriafs and capita1 goods related to rnaquiladora manufacturing. The binationat set of laws and regulations are changing and are discussed at the end ofthe chapter, Embedded in the maquiladora concept is ""seiter," imimylng that the U.S. (or other %reign) fim operstes in Mexico through a Mexican firm that "'shelters" or ""protects'9the U.S. fimfrom liabilities and other problems.

This leads to the classification of maquiladora operations into four categories: Shelter. The Mexican company extends i%smanufacturing capability to a foreip cooperating fim at low cost. Manufachlring is usually located in a specialized industrial park. 2 , Szkbconriracting. Other supporting Mexican fims subcon&act portions of the maquiladora manufacturing process, 3. CO-investment. Sharing of investment in maquitadoras by Mexican and foreiw pamers, 4, Domestic sales. This is a new trend allowed by NAFTA pemitting an ascending proportion of sales to occur within Mexico. It will reach 100 percent maximum by year 2001. However, the allowable maximum is rarely met, 1.

The shelter aspect points to the hdamentaI justification of cost savings for maquiladoras. The major goal of esbblishing a compli~atedmaquiladora amangement is to sell products at Iower cost and maximize profits. Domestic subconwacting is increasingly emphasized and encouraged by the Mexican government, since it provides a way to increase Mexican participation and benefit. It can also benefit the rnaquilsldora company, especially if the subcontractor has high quality standards and locates near the maquiladora plant, reducing transport and cycle times. There are instances s f subcon&-raetorsrenting space inside a maquiladora plant. Go-investment is a fom of spreading the risk and sharing in benefits, although it is sometimes difficult to trace the ultimate investors mdlor benefits.

History The maquiiadsra sector was fomed in the mid 1960s because U.S. fims sought tow east production. Early production was mostly of unfinished products, to be re~mtedto the U.S. for finishing and consumption. The techological level of plants in Mexico was low to moderate. m start (see Figure S), l). Bet-ween 1965 and The maquiladora sector grew rapidly ~ o the 1970, the number of maquiladora workers increased by nearly seven fold from 3,000 to 20,327 (INECZ various years). About one quarter of today% maquiladora entevrises were established b e ~ e e n1 966 and 1979 (ICmilla and Santibirtflez 1993). Early anangements were in the traditional model of a Mexican assembly plant coupled with a US.co-plant for design and production of components and storage of raw materials, The early period was characterized by some tabor s&ikes. The problems of environmental pollution and urban overgrowth were not yet recomized, Early maquiladora companies were not conceived in terns of globalisation but rather as a way to cut costs for U.S. prsduca. In 1979, the first Asian maquiladoras anived in Tijuana. They were initially Japanese Ems that brought with them management and production standards of high efficiency and work discipline (Expansicin 2 997). The period 1980 to 1988 was rt time of continued rapid g r o ~ has well as improving plant techoliogy in Mexico. tabor unrest lowered and there was peater acceptance of the maquiladoras as a ""pmanent" prt of border manufacbring, There was more regional diversification especially to the broild nodhem region including Monteney. From l989 to the present, the maquiladora tended towards modernization, globalimtion, and increasingly final manufacture in Mexico rather than intemediate assembly. The sector has continued to grow very rapidly, for instance the number of workers g e w &orn 460,000 in 1990 to over one million in 1998. During the Z990s, some

maquifadoras began to locate away from the border strip. This was abe~edby WAFTA, which, took away some of the border site advantage and encouraged more domestic consumption. n e collective labor picwre shiaed to $&angerunions that operate in close associ&ion with the Mexican maquiladora compmies. This has lowered labor w e s t overall, At the hi@ end of the maquiladora industxy in electronics manufacturing in Tijuana, modernization has been pronounced. Some of the larger aad more suphisticated mslquiladora plants especially in that city have now rea~hedthe level o f world class production. Figure 9.1 Growth in the Maquiladora Sector, 1965-1996

1965

X970

1975

1980

1985

1990

1996

Year

B Mquiladora Ente-rprises IJMwuiladora Workers

Maquifadara Entergrises I2 120 454 No, of Maquiladora Workers 3,000 20,327 6724I Source: MEGI, vwious pubtications,

620 1 19,546

760 21 f ,969

1,920 460,258

2,411 754,858

Current Size and Economic Xrnpact The maquiladora sector is a substantial conkibutor to the Mexicm economy. In E997 the sector imporfed raw materials totalling $36.3 billion and added value to the impofis of $8.8 bilion, which resulted in a total value af$45,1 bilfion (Seeretaria de Cornercio 1998). This repreesnted 39 percent of Mexico" eexpotZs and 24 percent of its imports, The full value is equivalent to one ei&& of Mexicm Cross Domestic Product (GDP). Among major economic sectors, maquiladorars are moving into first or second place in terns of the net propofiion of Mexican export. In 1996, the net trade balance contributions from the xnajor seetors were $9.9 billion fiom the oil indus.t-ry,$6.4 biIIion h r n

maquiladora, and $3.5 billion from tourism (INECI 15297). It is almost ce&ain that far 1998, an adverse year for pe&oleum with the lowering of oil prices, the maquiladora was the largest economic; sector in net cont.ribution to the balance of foreign trade. As s h o w in Chapter 4, Mexico is receiving substantial fareign direct investment involving impoa of capital equipment as well as the large import of c e ~ a i nconsumer goods especially from the U.S. Hence, the petroleum and maquiladora net trade contributions are essential to maintain Mexico's overall balance of trade. For the maquiladora sector, the value added in Mexico forms the net difference between imports and e x p o ~ s .Table 9.1 shows the value added by the various aspects of maquiladoras in 1997. Table 9.1 Value Added .to Maquiladors Seetor, 1897 Workers salaries md benefits Energy and dtverse costs Raw materiais and packaging Profits and other 'f otal

4.4

2.5 0.8 I I 8.8

Source: MEGI, t 997,

It is a bmgain that the salaries md benefits only total $4.4 billion, given the much hi&er salasy costs in the U.S. or other advanced nations. lt is ciear that in. most respects this is very efficient production. The domestic raw materials conQibution is very small relative to the overall size of the sector, a point discussed later. Maquitadora exports in 1997 were predominantly sold to the U.S, The balance of &ade between the U.S. and Mexico was favorable to U.S. in the early 1 9 9 0 ~ but~ shifted in favor of Mexico in the second half of the decade, In 1996, Mexieo expofled $74.2 billion to the U.S., and the U,S, impeded $54.7 billion into Mexico, resulting In a trade balance favorabte to Mexico of $19.5 billion, l%e con~butionuf the maquiladara sector to the U,S.-Mexico &ade balance is substantial, and more so for Mexico thm the U.S. m e r e a s the rnaquiladora sector proportion of Mexican trade was 24 percent of imporls and 39 percent of e x g o ~ in s 1996, the sector" propo~ianof U.S. trade was 9.3 percent of impofis and 2,5 percent of exports (see Figure 9.2). Given the size of the U.S. economy, a trade contribution of nine percent overall is astounding. This percentage reflects that maquiladorat products (TVs, re&igerators, auto pms, textiles, etc.) are primarily keyed to serve the U.S. consumer. As seen in Table $1.2, the maquiiladora sector contributes multi-billions to the Mexican economy. It accounts for substantial parts of national economic indictzlurs, including the exkmal sector of the economy, cunent account balance, raw materials consumed, and manufacmriing employmexlt. In respect to co-investment, the ownership of the matquifadora sector is somewhat evenly divided between the U.S. and Mexico. Of maquiladora entep~se-S, 43.2 percent are Mexican, 38.4 percent U.S., 12.8 percent joint U.S.-Mexiem, 1.7 percent Japanese, and 3.9 percent other. The maquiladora concept has built into it colIaboration between foreign and Mexkan businesses. 16 is perhslps suvrising that the majority of maquilcPdora entevrises are Mexican owned. The percentage of enteprises, however, is somewhat deceptive since the largest maquiladora companies are predominantly foreim owned. Since the value of maquiladora industv production is heavily skewed towards a few Iwge fims, the rnaquiladora industxy measwed this way is foreign dominated.

Figure 9.2 Percent of Naquifadora Sectar Imports and Exports Between the U.S, and Mexiea, 1936

From Mexico to U.S., as Propartion of Mexican Total From Mexico to U.S., as Proportion of U.S. Total

The maquiladora induse currentIy employs about one million workers (Secretaria, de Comereio 1998). The grovvth of this employment base was shown h Figure 9.1; her increases are projected. Eigfity five percent af current maquila workers are located in the six nofihem border states. This implies that about eleven percent or more of the workforce of the border states is employed in the maquiladora indusm. The economic impact on border families is enomous. For instance, a signifxeant proporlion of border region families have some income from the maquiiadoxa, The gender baXanee of the maquiladora workform depends on the product, For instance, at the cvcrrker level, 57 percent are Eemale and 43 percent mate, and the w d e r segment constittrtes 81 perceat of the rnaquiladara work.force (EI Finaneiero International 1998). By contrast, the administrative and engheering procfwtion persomel, constituting 7 and 12 percent, of the maquiladsra workfarce, are predominantly male. The tendency for maquiladoras to employ more female workers has been noted by a number of prior sfudies (Sklair 19931, althoua some inve&igators differ on this point (Stoddard 1987). There are a rider o f justifications given by various parties for the gender imbalance. Some i d u s e commentalars have pointed to businesses seeking wrnen's greater dexterity and manual skills, while olhers have noted the cost savings of lower safmies paid ta women, and their supposedly mare compliant wrk artitudes. This is an area of controversy, as well as changes as the sectar matures, alters its product mix, and becomes more sensitive to women" iissues.

Table 9.2 The Maquitatdora Sector and Its Importance in the National Concept Petrsleun Export Value Added Export fMaquilador,ra) Tourism

f 0.3 0.8 21

Total

(10.4)

PXB Mmurufacturing Maquiladora Sector as percent of Total PIB as percent of Manufacturing

194.8 43.1 0.8 0.4 0.9

Told Raw Materids Consumption in the Maquiladora Sector Percent of Foreign Origin Percent of llomestic Origin

l .S

98.3 1.7

1985 FJxternal Sector 14.7 9.7 1.3 3.6 2.0 3.9 Current Accotsnt 08 17.5)

Productton I 84.4

8.4 6.1 5.0

244.5 55.6 3.6 1.5 1.6 2.5 Xisw Materrals Consampfton 3.9 10.7

259.5 51.2 5.0 1.9

39.2 88.2 0.9 1.8 Employmeni (thousands) 21,955.0 22,584.0

98.5 1 .S

43.1 1.3 0.'7

Total 20,280.0 Mmufactunng Maquilahra Sector pmcenr of Total as aermnt of Manufacturine. * 1994. Note: Monetay Figures are ac;Ejustedto billions of- I995 U.S. dollas. Source: Mendiola, 15197, drawing on data provided by Banxico, INECI, GfMEX-WFA.

9.8 21.6

23,372.0e

Currency cycles affect the maquiladora industry in several ways. A strong peso weakens the sector's outputs and revenues, whereas a st_rongdollar trstengthezls them, This is seen by cantrasting weabess in the maquiladora sector during the Safinas AdminisQatlion (1 988-94) when the peso was strmg, with the stren@il-rof the sector during the ZedilIo Adminiswation (1994-2000) Le. that occurred afer the peso feli Iri November 1994. During the cycles of cunency strength or weakness, there also may be shifts away from more expensive mmufactu~ngtowards cheaper products such as textiles where the maquila industry stafied in the 1960s. In summay, the maquiladora sector Is huge and based on tow cost, mostly due to salary savings af the value added to raw materials mdlor pms. The sector has grown very rapidly over 35 years, and along with petroleum accounts for the largest prapo"tion sf net exp0xt.s &om Mexico. The sector primarily is associated with the U.S., in terns of coproduction, co-investment, impoas of raw materials, and markets for maquilzt products. Other foreign nations involved to a much lesser extent are Japan, Korea, and several European couneies. The i n d u s q noticeably influences even the giant U.S. economy throu& its nine percat cantribution to U.S, impo~s,It also infIuenees the Mexico border region through employment and influences on IFEtmilies and has indirect effects on other sectors of the economy. Social, health, and environmental impacts are discussed later.

The regional distribution of maquiladoras in Mexico influences oulgut and productivity of the sector as well as the inter-reXationsfi;ipof maquitadoras with the United States and other countries. MaquiXadoras s t d in the l960s, in cities along the U.S.-Mexico border, AIthough today the preponderance continues to be lociired along the border, f"oudeen percent of maquiladoras are now located south of the border states (Secretaria de Comereio 1998). This percentage is gowing and is being encouraged by NAFTA, It is important first to ask: m y the predominantly border l o c a t i o n m e border has the disadvantage of being cut off togogaphically and in transport &om the major population centers of Mexico, In pad:icular, Mexico City, with a population today estimated at 17 million, hills by far the largest mett-opolim consumer base in the nation. In addition, Mexico City is the most prosperous city in Mexico (Pick and Butlm 1997). Also, the border is cut o f f &orn the large consumer markets in Cuadalajara, Puebfa, and medium sized cities in the country" central Bank and to a Lesser extent in the south, A related minus is that many potential Mexican suppliers to the maquiladora sector are atso Iocated in Mexico City and other cen&almetropolitan areas. Border location must have advantages s&ong enough to o@set these negatives. First, sining along the border enabfes rnaquiladora companies to gain easy shipping access to the entire U.S. For maquilas wi'rh the trditional twin plant organimtion, there is great advantage to having the Wo co-plants located within an hour or so by vehicle of each other. This applies to the chapter case stu@ of Trico Indus&ies as well as to numerous ather fims. Another advantage of border locations is the easy availabiliw of U.S. suppliers. Today, an advantage also is the skilled labor force available h some border cities such as Tguana. For certai-n higher level induseies such as eleclronics, it is easy on (he border to supplement Mexican skilled Iabor force with technical experts &om the U.S. As was pointed out in Chapter 3, Mexicm western border states and cities are quite prosperous and economically developed by Mexican standwds and by world stmdards (Pick and Butler 1994). This affords the advaatage of l o ~ a i n gin a more advanced and mare educated environment, which suppods maquila workers in becoming more skilled, It is itnpofimt to underscore that the maquiladora industry is changing by requiriing more skills apprap~atefor finished and higher qualiv products. At the same time, low cost of Xabor is a driving force. The modern border win city Iabor mmkets offer skilled yet low cost Mexican workers and ready access to U.S. tecbieal experts as wetli. The distribution of maquiladora 1997 employment, shown in Table 9.3 and Map 9.1, points to dominance by cities in the thee no~hernMexico states of Chihmhua, Baja California, and 'I"mau1ipas. These thee states account for over 60 percent af maquiladora employment, especially in the cities a f Ciudad Ju&rez,Tijuana, and Matamoros, The other border states account far nearly an additional quarter. This includes limited maquiladora employment in Monterrey. Xn terns of maquiladora plants, Tijuana dominates, followed by Ciudad Ju&ez and Mexica1i (Figure 9.3)* The non-border states have l5 percent of maquiladora emglomexlr, with Durango, Jafisco, Aguascailientes, and Puebla accounting fbr half of it (see Map 9.1). The Federal District and State of Mexico have only l1,000 maquila workers, a tiny proportion of the S, E l million workers in Mexico City in l 990 (Pick and Butler 1997).

Border States Chihuahua Baja California Tamaulipas Coattuiia Sonora Nuevo b n

256,930 207,801 149,689 88,296 87$43& 43,448

26.3 21.3 15.3 S". f 9.0 4.5

833,602 975,380

85.5

Non Border Slates Durmgo Jafisco Aguascalientes PuebIa Vueatm State of MexicoiT).F,

Border States Subtold Total Source: Saret:;uia de Comezeio, 1998.

Maquiladoras

Figure 9.3 Number of Maquifadora Plants by Gil-y in the Border States of Mexico, f 391 TQuana

Cd. Juarez Mexicall

Te~ate Matmaras Nueva L ~ e d o

Reynasa Other Cities 0

100

200

300

400

500

600

700

Souree: EIVEGI, 195%.

Ciudad fuzirez is the most importmt maquiladara location, having about 200,000 workers i.e. about a fifih of the national total, Its production emphasixs televisions, VC&, clothing, telephones, appliances, and car p m . 'The large and moderately skilled maquiladora Iabor farce g e w rapidly thou& in-migation of mostly &male workers &om small t o m s in the north, but also h n ? other regions. The ingasmeme of these border cities is lagging as a result of this large in-migation. fn utilities, government services, and schools, the city is inadequate for its burgeoning population (Qusones 1998). The kderal e& has not stepped in to support the needed inErasmc&re, so that task falls to the state, which have limited resources. These cities also have serious problems in crime, vice, and narcotics that have gmered national aaention both in Mexico and the U,S, (Rosen 1998). Ciudad ;fu&reztypifies the problems and prospects of the maquifadora sector. Eeonornicalily it is booming at near full emplopen_t and relatively hi@ salaries and pductiviv; however, ;its sociaI problems and costs are hi@ and include in-migration of population without suficient acculkration, poor in&asmcme, lack of federal suppa&, crime, and a generally fearkl envkoment. In second piace is TQuma, Its maquiladoras focus on elec&onics and technical products, It employed about 150,000 xnaquila workers in 1997. Like Ciudad Juhrez, it is highly prosperous. It has been significantly influenced by NAFTA, so it in many respects resembles a "free zone," Among NAFTA indicators are its mixture of Mexic ownership, its role as a transporl conidar to the U.S., and its gowing border c its maquiladoras, the attitude is prevalent of working t o w ~ d world s class quality standards,

Maquiladoras

l91

including training, IS0 cerliffca~t-ion, and f a t delivery of goods (Expansil6n 1997). It has become globalized to a @eater extent than other border cities. On the other hand, Tijuana resembles Ciudad Juhrez in its soeiaf and in&as&uc&reproblems. It also has an elevated crime rate, ties to narcotics (Golden 19991, and an infiastmcture lagging behind its increasing poputation. The infrasmcture problem is urgent but not as acute as in Giudad Juhrez, because Tijuana had more in&astmctures in place prior to the maquila boom (Rosen 2998). There are large regional differences in the extent of Japanese, Korean, and other foreign participation in the maquiladora indusw, Of these, the Japanese presence is largest and may account for 5-7 percent of maquiladora plants in the border region (CanilXo and Santibkfiez 1993). Table 9.4 reflects a smvey sbdy in the early 90s of the origin of capital in the two major maquiladora cities plus Monteney, Table 9.4 Origin af Capital for Maquitadors f lants by City arrgrn of Captfai

wuana 52 36 11

United S&~CS Mexican f apanese Other 1 Total 100 Source: Cmillo md Smtibaez, 1993.

Percent ofMoquriadora Plants Ctudad JuLirez Manterrey 83 74 8 22 6 3 3 I 100 I 00

E t al 70 22 7

L 100

Tguana clearly has the highest Japmese presence. The "other" ~oportionis quite low

- sound one percent overalt!. "Other'" is slightly hi@er at 3 percent in Ciudad Juhrez. Hence, the role of Europe is vesy minor, Even the Japmese proportions are minor in comparison with U.S. origin o f capital, The gesgaphical distribution of the lmgest maquila plants follows the patterns already noted of border location and concent~.ationin the cities of Ciudad Juhrez and Tijuana, as well as Matamoros (Expansibn 1997). The fiAeen plants shown in Table 9.5 and Nap 9.2 aceomted E"sr $27.6 billion in maquiladom exports in lW6, about two thirds of the national total, There are ei&t billion-doIlar plus plants, with the largest one the huge $7.9 billion Sony plant in Tijuana. These are all on or near the border, except for ~otorola'in Mexico City. One of them, Trico Componentes, is discussed as a chapter case, Mega-plants Iocated irt Tijuana tend to produce high end products including electronics and soghistieated mechanical goods. Trico Compsnentes in Matamorss prohces less sophisticated windshield wipers for a 1zge propofiion of the U.S. auto indusv. The giant Delwonics (GM) plant in Matamoras manuf?srcturesradios and radio flight equipment. The huge Motorola plant in Mexico City is based on full manufaet-ure in Mexico, so its value added is l00 percent. The locaeinn distant &orn the U.3, border encourages this complele value added, There are several other impoaant dimensions to mention about the major l 5 maquilas. First, the top 153 employment of only 37,600 workers appears small compared to total maquiladora employment in X996 of 755,000, This is explained by the highly automated and robotic nature of many of these larger plants, reducing the need 1F"orworkers. Products ofthe top X S do not reflect the highly manual slssembty processes of traditional Motorola was listed as number 92 in the Mexican 500 in X997 (Expansibn 1998).

Maquiladoras

195

maquiladoras, such as textiles and clothing. In .fact, clothing tends mostly (55 percent) to be in small maquilla plants, whereas electronics is mostly (5 l percent) in very large or huge plants (Carrillo and Santibhfiez 1993). Finaffy, it is imporlant to em@asize the predominant market destination of products. That is the U.S., regardless of maquiladora counw of ownership, size, or regional location. Some maquiladoras serve rnarkefs in pa~icularU.S. states. The U.S. states selected relate to border plant location..Sewing a target state usually implies that the specific maquiladora plant is located along the border directly to the south of that state. Ownership of the IS largest plants is 89.2 percent foreign, mostly U.S. Although many maqtuilaidoras are Mexican awed, the huge ones accounting for two thirds of production are foreign owned. This may have to do with economies of scale. For very large plants, a major U.S, or Asian company can develop a world class giant and provide extensive worker training so the plant can operate and compete at world class levels. At the same time, a 1arge plant reduces overhead cost per product and inerernes worker efficiency,

Social and Health Disadvantages Foreip observers have been concerned about social and health conditions in the maquiladora indusv (QuiBones 1998). Thus, the maquiladora industv has been criticized for engendering social and health problems for its workers. There is concern about workplace health, where workers. Iabor in small, noisy work areas, often without adequate ventilation or environmental con&01s. There have been repofis of hi& Ievels of polluants in some plants, emsing respiratory and other illnesses, Another area of concern is for the social environment of the border's rapidly gowing urban areas, fueled by the high imigration of maquiladora workers, Women workers, who we in the majority in maqai1adoras, ofien migate &orn small rural towns at a young age of 18 to 20. They may fall prey to the social problems in large and sometimes dangerous and even threatening cities such as Ciudad Juhrez (Quifones 1998; Rosen 1998) or Tijuma. Among the social problems are vice, nxcotics, and crime (Golden 1999). These cities have grown so rapidly that their public health and public safety infrastmcture is lagging (Quimnes 1998). Another problem for the female mquiladora wrker is role djustnnent within her family tykere she may no longer fit the traditional stereotve, leading to marital stress (QuiAones S 998). Worker umest and workplace issues have been mostly restrained in the last ten years (Bacon 1998). However, uwest has occasianally spilled over into protests or strikes. Far instance, a strike on working conditions wcuned in 1998 at the Han Young maquiladortz plant in Tijuana. The plant is a subcanh"actor for a giant Efyundai rnaquila plant, Event-ually the s&Jlce was broken by the local gov ent, and strikebrekers were allowed in, ailthou* the s&ike> ultimate resolution is still pending in Tijuana coum, These are problems that can occur in any workplace, but they appear to be amplified in the maquiladora plan& and adjobing cities becmst: a f lack of regulations, and enforcement existing regulations, deficient in&as.sMlcQre,and neglect. They must be regarded as a pafl of the social costs of this industry. Similar social costs have been in studies of globatization (Sassen 2 998). Sassen posits that women bear proportionately more of the costs, This topic wilt be returned to and discussed &&er in the h a 1 chapters of this book,

Relationship with the U,S, The relationship of the maquitadora indusv to the United States is complex, consisthg of legal, regulatory, economic, nzaket, trmsporting, and enviromental aspects, among otbers. The maquiladora was established on legal grorrnds to be suitable to the U.S. md Mexico. Some other dimensions have taken longer to become known and recopimd. The original legallregulatoxy framework was specified to serve 1J.S.-Mexico mquiladoras. Xt has been replaced by the more general gamework of NAFTA that will presumably be combined with yet undetemined new remldions %om various gove The maquiXa, economic re1;ntionshipbetvveen the two nations is reflected in the expofis md impofis that have atready been mentioned. Table 9.2 uradmscored the maquiladora's kcreming impor2ance relative to Mexicm GDP and to its manufacturing sector. Mqrtila production, i.e. the Mexican value added plus domestic raw materials, emently represents 2 percent of Mexiem GBP, and ten percent of Mexican nnanufacmdng. For the U,$,, the total value of maquiladora production enterhg the U.S, represents only 0.6 percent of U.S. GDP, while maquiladora raw materials behg exported to Mexico comprise 2.5 percent of a l U.S. expo-. Thus the economic impact on Mexico is much lager than on the U.S. This has to be gauged in f e r n ofa US.economy that is 23 times Xmger than Mexico's. The economic relationship bemeen the t-vvo nations in the maquiladara sector is relifected in the componenb of maquila production. First of all, the proportion of value d d e d has decreashg. As seen in Table 9.6, the vast naajoriq of production value consists of impofied raw materials, These are predominantly fiorn the U.S. The &end over the past two decades is to increase the portion o f foreim raw matellials. The porlion of domestic raw materials, c ~ n e n d yat I ,S percent, has: been fairly steady over the past 16 years. This prqortion is su~risinglysmall for an indusm that is now over thim years old. In other parts of the world with similar co-produdion arangements such as Malaysia, the proparlions of domestic raw materials are much higher, Again, it is impomnt to ask why Mexico's prop00ron is so low, given that NAFTA has raised the allowable domestic percentage every yew to reach 1OQ pmeent in yeas 2001. The real reasons may be largely business ones, i.e. bushesses appreciate &e qualiq, reliabiliq, and availabiliv of U.S. raw materials so much as to justiQ their ovewhetnzing use, Albeit small overall, the proportion of domestic raw matmials v a ~ e regionally s and by i n d u s ~ ,As seen in Table 9.7 and Figure "34, the domestic proportion of raw materials is much lower in the border region than in the rest of the nation, which averages six percent. Also in cerlain i n d u s ~ sub-sectors such as chemicals and services-foo~ear,the portion of domestic raw materials in non-border areas reaches as high as 60 percent. Atthou@ still quite low on the average, this reinforces that disbnce to the U.S. favors Mexican supply, The remaining component of value added declined over the l6 years .from 30 to 118 percent of gvoss added value of production. What happened is that foreig raw materials displaced value added by 12 percent; in other words, imported components are both more cornplex and of hi&er quill$@and need less assembty, i.e. value added. This points to increased dependewe on the U.S. md its pre-assembled components. The market aspects of the maquiladora relationship are not discussed here, due to lack of space, However, the Largest mwket for maquila products has always been the U.S., but the Mexican market offers futun: potential, especially when it becomes more amuent.. There are a limited number of non-U.S. overseas markets particularly in Canada and Europe.

Figure 9.4 Use of Domestic Raw Materials, Msiquiladara Industry, 1975-1991 (in pement)

Nation

equipment

Industry Subsedor

Source: WEGI, various pars. Tabie 9.7 Use of Domestie Raw MaLriaIs in the Maquiladara Permnt o f Domestic h w lMaferids Subsector Foad Furniture

Semices hather-FooWear Chemical Products Toys Tt~ols,Non-electrical equipment Electronic equipment . aher

Border 15.46

Rest ofthe niatrcln NB

0.9 0.90

45.25 5.79

NA = not availiabte. Source: Modified from &peda, 1996.

There we ixlevi&bIe enviromental interchanges bemeen Mexico and the U,S, This refie~rs the faGt that: pollution is not restricted by national borders. Among the maquiladora-related sources of pollution are water and air pollution. There is both sewage base water pollution and pollution from toxic metals especially lead, mercury, chromium, nickel, a ~ others d (El Financiero 1998). Xn Tijuana, problems have become acute including pollution of shared waternays and disperson of poorly mated exudates in an ocean outfall.

Air pofiution in the larger border cities, especially Tijuana and Ciudad JuBrez, affects nei@boring U.S. citiesbirsheds and vice versa. Exchanges of water pollution in the El Pwo-Ciudad Judrez metropolitan zone have been documented for years and are causing controversies (Bath X 986). Although this chapter does not concentrate on environmental aspects, this area represents one of the costs of globalization. It wiXX be refened to in the capstone discussions of globalimtion in the final chapters. The two nations of Mexico and the U,S, are bound together cooper;dtively in maqul'ladora production, Other nations are involved to a lesser extent. Economically, the U,S. dominates this exchange, since it originally provides up to four fif2hs of the product as components and raw materials, Finally, there may be changes in the mix of domestic and foreim raw materials, as well as in markets as NAFTA becomes more fully implemented. Trends: The Future

M i l e maquiladoras have grown rapidly, they have also chmged in terns of product mix, toeailion, &ainin&education, and tecknology. This final section looks at trends influencing the kmre of the maquiladora industry. One important &end is the phasing out of old U.S. customs regulations on tariffs and value added, There will be elimination of old cust-oms fir maquiladaras by 2001 in order to adhere to the General System af Preferences of NAFTA, For foreip-owned mquildoras not belongkg to WAFTA, old rules will stay in place i.e. there can be temporary ixnpofling of raw materials, equipment, and plmt machines for puqoses of production. There is also phased elimination of ms&ictions on sales in the Mexican domestic market, so that some maquiladoras will increase their sales emphasis in Mexieo, Overall, these changes will encourage a rnaquila to do business more like a regular manufacturing company. There is still a difference having to do with incentives of rnaquiladora E m s in the new sense, yet to be provided by the Mexican federal government, If a maquiladora cunently has a; ciase "twin plant" type of relationship with a U.S. counterpart9 they will be encouraged to continue to do business as befm, maintaining a good business relationship even ifsome federal tax breaks are eliminated. Maquiladoras as part of globalization have sacial and environmental costs, The very cost: cutting that is at the heart of the justification of maquiladoras ajso reduces possible expenditures for higher wages, a better workplace, and m improved environment. This colmter-trend has been noted by commentators on gIobaEization (Sklair 1993). In the case af maquiIadoras, it is coupled in the border with rapid urban g o w h , vvhich adds to the challenge to mitigate crime and poor education, as well as to cantrot environmental contamination. Important hture trends &at may impact mltquila are the following (modified from MendioIa f 995): SimiEcant development of maquiladoras elsewhere in Mexieo beyond the border, * Increased product specialization of maquiladoras in different regions. * Increased use of domestic raw materials and components. * Enhanced efforts at employee skills mining in key business areas. * Transfer of technology &om the U.S. Shift of some maquiIadoras away &orn a focus on Mexieo and the U.S. to an enlarged focus encompassing international sub-contracting.

All these trends paint towards a marnation of the rnaquiladora sector. They point to border ce&ers of world class excellence in in.mufae@ring, including quaXi@ coa&ol and advanced technology, However, these advances will only be passible if substantial foreign direct invesment continues to flow hto Mexico.

Ganrtiustons: Comparison of Maquiladora with Non-MaqulXadora Manufacturing This section exmines the similrnrities and differences between maquiladora and nonmaquiladora manufac~ing.As seen in Table 9.2, the maquiladora propoflion of Mexican manufactwhg revenues g e w &om 0.9 to 9.8 percent over the l 5 yems stming in 19801995. The percentage of manufacturing employment rose frsm 4.3 percent to 26.3 pmcent during the same period. However, there are many excithg and propessive things happening with non-maquiladora mmufacWhg, This includes world class production by top f m s 1ike IBWMexico and HP/Mexico, There are also many average md some m d e p e ~ o m h fgm s in the mmufact?wringsector, An impo&mt question to ask is, what me the similarities md diEerences bemeen the maquiladora md non-maquitadora sectors. At fist glance, m a y would regard the subsectors as so BiEermt that seekkg my CO on g o m d are not possible.

Similarities b e ~ e e nMaqul"l~d;ovaand Non-Wquiladora Manafacturing incl'ude the fillowim: * Cost reduction. Both w e s of production benefit by lawer costs in Mexico i.e. compwed ta advmced c a m ~ e s .

*

Pressure ro redace deliveppt timw. In gelneral, txansgorl costs have been reduced, as customers demand quick delivery. This is a common problem, Havhg suppliers close at hmd soXves it, This is true in maquilas by the tendency to locate suppliers within a plant or at fewt in Mexico within an how of the plant, S-uppliers we both Mexican and U.S. This is seen in the plants of Guadafajara, where suppliers have been fwed there to f m a Mexicm ""Silicon Valley."

*

C70apE"arian. MwuiIas tend to cooperate with each other, including sharing ceflaain infaation, exchmging advice and expertise, sharitring some suppliers, etc. Some newly mived maquiXas are not ""scialized"bnd are staying aloof. This cooperative concept applies to non-maquila expo& orimted sectors, For instance, it applies to a certain extent in Mexico's '%Sicon Vailey".

Drflgre~cr;.s b e m e n Maqzdr;la and Non-Maquiladora Manafact.uvi~gare ~hefollowing: * Legal status. The maquila is uader the "sheXter9' anangemeat with a con&act,

* Scale, The world class plan& of leading non-maquilas have a huge scale, There are able to be more sophisticated in production because of economies achieved &am the scale. Again, this reflects the "piXot" "atus of maquilas. M e n they "gaduate," i.e* outgow maquila status, they become full-fledged.

*

Innovation, The world class plant is more innovative. The reason is due to scale and to competitive pressures. Xnnovation comes &om creativiv, enerm, and education

of the production workforce. The maquila level of production innovation is moderate, However, it is not the very Low cost-saving of the original rnaquila concept several decades ago, That extreme cost saving approach now tsppties to production in other places, such as China and Malaysia.

*

Greafmt m d e ~ c yto shr'ppoduct.into the US. Maquila f m s tend to supply the U.S, market. 'This is tied to the c o m o n need to reduce delivery times, The maquila Location at the border means delivery times to the U,% market. However, some maquilas are shipping to customers in other c o w ~ e s .

*

Dzgere~ttcrx treatmeBt. A Shift in the tax and tax regulation in the year 2001 will occur, d e n HAFTA rules will apply to the maquila. However, it is expected that ent will step in by some means to maintain the difference. It may not be taxes, but in some way, it will compensate to give maquilas equivalent advantage, The maquila sectar is too huge a d impomnt not to do so. Case Study; Trico

Trico Componenks was the fifth Imgest Mexican maquila plant in l996 (Expmsi6n 1998). It manufacares wipers and wiper blades and its mwket is the major US, autom&ers as well as many third p m f m s (see Table 9.5 md Map 9.2). Xn 1996, it expaged $1.96 bilfion in products and employed 2,974 workers (fn Figwe 9.5). Trico follows the &&itional paaem of co-twin plants near each other an the two sides of the border. Trico" Browsville manufacturing plant produces newly all of the component-s far its Mexican glmt in Matamoros. In parlicuiar, the U.S. pimt does metallurgy9 casting, stamping, and manufacture of wiper blade ams. Xr also is the diseribution center for shipping wipers and blades worlcfvvide, Trica headquafiers are located in Buffalo, New York, which is connected by a Mztnufacming Resowce Blannhg (MW) system with the border twin plants. An M W system does integated backing of the manufacturing process and all its component parts fiorn raw materials thou& to FmaX customer product. Every morning sixteen large semi-&ailer meks anive at the Browsville Trico plant and load them with Trico components. They c q these components nine miles across the border to the Trieo Camponentes plmt located in a modern induskial park in Maamoros. There, the components we assembled into wiper blades, blades, and blade motor assemblies, At the end of each day, the trailer trucks c a q finished proctucts back the same nine mile route to the U.S. Trieo plant. From that plii-nt, the mdor global auto companies come every few days to pick up batches of new produc&, The whole bmaround fiom raw materials to finished prodwt and delivery takes only about five days. Trieo is remarkable in dominating the U.S. zzutom~tivemarket, The border Win plants manufacture 62 million blades, ams, wiper, mobr assemblies, and other items per ye=. Trico has 80 percent ofthe U.S, market for blades and a m s and 45 percent of the market on motor assemblies. Its customers include Ford, ChrlyisXer, XTT Automotive (sells to CM and Toyota), GME (sells to Honda), Nissan, and GSMO (sells to Toyota and Cbsler), Xt also sells to leading service entities and private labels such as Pep Boys, Carquest, Atlas, meels, Mi@t, Advance, etc.

Figure 9.5 Trfco

The Trico Matamoras plant consists of 355,000 square feet in an industsiaI park seEing, The work envirament is open i-e. not paflitioned. Work are@ are cramped, noisy, and fakly warn, Workers fom 52 teams or Kaisaas, and work in a coordinated mamer within m e team, They work in one of three 8 how shifts. They make a fairly good Mexican salary up "ea $2,750 per year, the result of union pressure for higher wages, In spite of the ""gooCI""wages, it is nrtemhgffill to compare the $2,750 to the wage of the average U.S. Trico worker of over $25,000. Mexican workers are requked to have ninth gade ecfucation, and Trico helps them fmish hi& school. Of Trice" 2,974 employees, 81 percent are Ihe workers, 5 percent are technical, and 14 per~entabixlis&ative. By gender, hourly workers are SO percent female, generally in the age range of 18-22 years; technical workers are 35 percent female; while only 3.3 percent o f hi& level management is female, This gender &balance is vpical of mmy maquitadoras. It is due in large p a t to management Xowering costs by hiring very young women as workers, Historically, as seen in Figure 9.6, women have dominated maquiIdora employment, even though the gender gap has nmawed somewhat. Predominantly male mmagers, with: one exception, live in. 8rownsvilfe and commute to &e Matamoras plant daily.

Figure 52.5 Manuaf Warkclrs in Maquiladora Industry, Mexico, 1989-1996:

3'3

g

300

d

% 250 4

g zoo Q)

3 2

. .S

150

E

g

10,

0

S

so

There are several &ends affecting Trico plants for the fibre. One is increased automation, The Matamoras plmt akeady h a several sections including pahting that are automated and more are plmed. This comesponds to a &end for the Xmge maquihs to become more robotic, ushg advmced in techolom over time. Likewise, the Brovvnsvilje wmeltouse is starting a conversion to robotics in X with the first step of complete bar codhg, Another trend is increasing emphasis on quafiv conW01 standads. 'This is mical of many maquila plmts mpiring to reach w r l d standwds such as IS8 90(20,and IS0 14000. XSO refers to quality conk01 smdards mahtahecf by the htemgional Standmds &g;znizatioa and increasingly adopted by conapmies seeking w r l d class or nationally domhmt competitive positions.. CwentXy the Mexicm T r i c ~plmt is in testhg for IS0 9000, and it plms to move h 19% to XSQ 14000, It will. be conthuhg this quest for hi@er md hi&er qualiv smdar& in the &me. One motivathg fmtor is that Trica produe& me behg installed in vehicles, mast of which already meet world class qualiq s m k d s for export, The m o m t o f Mexicm supply to Teco Matmoros is ex&emely small - only about $5. million per yea, compmed to $1 -5 billion h impo&ed raw mat&als. The reason is obviorts - wiper blade eamponenB me not available at sufficiently hi& qtlality st;andards &am Mexican compmies but cm be conveniently a d hexpensively shipped in daily &om U.S. Trico reflects a traditional maquiladaa mmgement on a large scale. It aaeres to the concept of co-produchg compmies, one m each side of the border. The mmgement is very much govmed thou& a detailed fegaf con&act, The plants are very productive and have reasonable work-irxgconditions by Mexicm stmdmds, althoa@ not by U.S. starrdwds. Trends for the % m e hclude increased automation, adoption of &igberquality stmdards of manufacture, and a shift towards more sales to the Mexicart domeslic market. NMTA chages are not X&ely to dismpt the bushess plan and opmtions v e v mueh. The T ~ c o MamorosnE3rownsville Win plants seem to be worEng well as a bminess and for the major stakeholders as well as for employees.

Shar-lcCase Study: Tbompson h o & e r successEul mquiladora p1mt is that of mompson S A , of Frmce in Ciudad Jukez. The plmt produces 4 million television sets mually, and employs 4,000 wo&ers. beviously, it did not pedom final assembty of TVs, a job done at the Bloomin@on, Zndiaxxa nompson plant. More recmtly3the ESEoomh@on operations have been closed; the 1,100 workers in Bloomington were rebased, md 1,200 new workers were ktixssd in duiuez to staff the opmation, The Jukssz pEmt for mompson is part of its global prduction s&ategy. It em produce at world class stmbrds, supplying mostly the 13.5. mmkeplace. nomson has focused on developkg its staff in the Ciadad Jurirez p1mt. It has provided some housing md sfiopphg, and educational menities. It actively encowages education md &aining. The plmt is bi@ly procfuctive, hcreasing the average yearly worker" productivit>l &om $7,000 to $12,000 in 1997. 'The plmt is the most efhient of all mompsan's major glmts ineluding those in Frmce and Bebing. Zt has been able to reduce the &&l manufactrure time for a TV set &am 2 weks to four horns. This in W has been an hpomnt factor in lowekg the price of a s t a a h d TV from $800 to $200.

This mini-example demons&ates another successful maquikadcsra operation, The success is due to strrmg and g o w i ~ makets, g manageme~~t foresiiet in providing education and hausing advanage to staff, m d an emphasis an the;: latest eechxaofegy. Bt is interesting that most of the s m e obsewatians q p l y both for French Em, as was &ue for m U S , %m. The poht abolgB: atcan-U.S. wmpmias is &at they too haye access to v a q bw labor costs md $0 the huge U.S. nzaket, By organizing and managing weI1, they svesccalrre any dl'sadvmtage o f not k b g a MAFTA member corn@,

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Tourism In$rodue$ion Tourism in the Warld Tcaaarism GrawtIhi asrd DevelspmenB in Mexico Tsloarism Exchange Bemeem Mefico and Elsewhere The Spacial Pa@e?rmsuf Tutrhsm in Mexico Local Impacts of Tauri~rn Conetusions Case Study: Hoteftes Presideate Ia~terCr~ns~nental

Tourism

Tourism is an important part of the Mexicm economy and of its exchange with other countries. This is made possible because Mexico is endowed with s e a t natural seaings, cultural histov, appealing climate, itrcheological sites, and aaistic accomplishments, Tourism is both domestic and national, and the two categories differ in their geographical t h s t and features, Tourism, like oil, is a national asset that encourages positive international exchange. The Mexican gove ent has developed its assets though kderal finding of progams over many yeas. At the same time, private hvesment, much of It Mexican, has coneibuted to its long-tern success. Federal p r o g m s have had some problems and setbacks, but on the whole have been successhl in stimulating tourism to become a key economic sector and sowce of foreie exchmge, Mexican international tourism represents a form of interaction largely between semiperipheral Mexico and a singEe core nation, the United States, Xt also can be understood in terns of the division of Mexico discussed in Chapter 3 into regional pms that are advanced, semi-peripheral, and peripherd. Most long-tern hterndional tourism occurs in. the peripheral or semi-peripheral parts of the nation, wEie sho&-tern international tourism ocews mainly in advanced areas. Domestic t o ~ s m occurs in all devefopental aseas, but is oriented towards more histo~caflyimpol"fant zones. Within towist csttegories, some l tourists favor beaches and enjopent, whiXe others have more serious c ~ l m ainterests. Aspects of tourism examined in this chapter include tourism in the world perspective, grovvth and development sf tourism in Mexico, tourism exchanges, and the spatial diseibution of towism. A case shdy of htemational t o ~ s m ,f-loteles Residente htemational, k-righli&ts the role of the private sector and international versus domesec tourism. The case shows the pressures of the dobal marke$fsrce on the tourist hdusm, and how global and domestic mamgemezlt and market s~ategiesintersect Finally, tourism policy is adkessed md how it has sewed Mexico.

Tourism ixl the World Towism is a worldwide phenomenon, and it is i m p o m t to recopize how Mexico fits into that paaem. International to.ous_ismhas been growing, with worldwide towist mivals expanding from 69 millim in t 960 to 612 million in 1997 (see Figurtr X O.X with data &om h in these World Tourism Organimtion 19529. This implies an amuaX. 5.9 percent ~ o w rate arrivals over the past foUF decades, a rate far exceeding the world papul&ion goMh rate over that p e ~ o dof l .9 percent. In the past ten years, intemdionaf t o ~ s m govvt;h moderated somewbttr and in the; late 1930s avmaged about 4.4 percent muafly. Comp"ri"g world regions over the past two decades, Europe decreased sli@tly, by 6 percent on a worldwide basis, and the Americas declined by 9 pereent of total, MIfiile East Asia and the Pacific pew fiwe fold md the "'other" e a t e g o ~doubled. This points towmds large hcreases in regions not traditionally popuia or h o r n , and some propofiianate decXhe in &aditionallFavorictes, World hoteE capaciQ also increased since mid c e n m and in 1986 totafed 25.6 million bed-places (Worlld Tourism @ganiation 1987). The rate of increase in bed-places is slower over the past two decades than tourist amivafs. Bed-places increased by 58 percent &am 1080 to 13915, or at a rate of 2.9 percent annually. The U.S. dominates in bed-places, with 223 percent of the world hotel total, even thou& it has only 7.5 percent of the world's tourist a~ivals. This may reflect substantiaI business travel in the U.S., as well as some unused hotel capacily.

Tourism Figure 10.1 Growth in International Tourist Arrivals Wortdwide, 1960-1997 Miitlions of Xnternertionaf Arrivals

1960

1980

1997

Year Sour%:World Tourism Qrgmiz&ian,1999.

Globally, tourism is centered in Frmce, the U.S., Spah, Italy, China, the U,K, Mexico, Canada, and three Emtern Europem nations of H w g q , Polmd, and the Cmch Republic nations hcfude one pe~pheralnation, Chha%and one (see Table 10.1). The top 15 t o ~ s m semi-pe~ptrzmalnation, Mexico. The presence of these two nations is due to a combination of population size, md extent of tourist ama~tions, This Is also reflected in Mexico and China bekg new the boaorn of the list in terns of arrivals per capita. Volme of tourism in the developkg world is driven, by large and gowing popuiations Sn these regions as well as by peater tendency of travel. Another view o f world towism is economic, International tomist revenues and the net accowt o f revenues minus expenditwes, seen in Table 10.2, reveal that the U.3. and Ewope accomt for about thee fi&s o f world tourism revenues, while Mexico, CenbaX Amedca and Sou& America only account: for five percent. O f this, Mexico represents only 1.6 percent. Mexico's world tourism revenue propoaion is half its share of world towist bvaEs. This is due to Mexico" lowered pr;icing of tourism versus the worLdtvvide mix, which coxlsists mostly of advanced nations with swonger economies and cunencies. Looking at the net travel account baEmces (see Figwe 10,2), developkg economies have a positive revenue flow, while advanced economies have a negative revenue Row (Wortd Trade Orgmization 19977). Trmitional economies m nemly even. Developing economies have profitable tourism balances since some of them possess rich nawral and c u l w l offerings for towism. Developing ewornies have increased their net account surpluses over time, due in part to those nations moving foorvvard in gove and policies to ddeveiop to&st infrast9ucWe and facilities.. The exp tomist demand comes advanced nations, Mexico is an example of this ineluding the eBofis of i m FONATUR and the increasingly global

210

Tourism

Namber ofArrrvals Percent of World's Popzrrlatron l998 Arrtvals Per Per Caprfu

France 61 500 10.36 58.8 Un~tedStates 44.791 7.54 270.2 Sparn 41 295 6.96 39.4 Italy 35.500 5.98 57.7 Chma 26.955 4.39 1242.5 Utltkci Kingdom 25.800 4.35 59.1 Mexico 2 1,428 3,61 97.5 I4ungaq 26.670 3 48 go. l Poland 19.420 3.27 38.7 10 Cmada 17.345 2.92 30.6 I t Czech Republic t 7.205 2-90 10.3 I2 Austria 16.641. 2.80 8.1 I3 Germany 15.070 2.54 82.3 14 Fliong Kong 1 1.700 1.97 6.7 1 f Q97 1.87 I S Switzlerland 7.1 Total Top 15 385.517 64.93 2019.1 World Total 593,745 5926 Source: Secretaria de Turismo, 1996; World Population Data Sheet, 1998, f 2 3 4 5 6 7 8 9

I .046 0.166 1.048 0.615 0.02 1 0.437 0.220 2 047 0,502 0,567 1.670 2.054 0.183 1,746 1.563 Q.t9L 0.100

-

7 14 6 8 I5

tl, 12 2 10 9 4 I 13 3 S

Table 10.2 International Tourist Revenues, 19%-96 Percent of Inferarrorral7ourtsi Revenues

World Tourrst

Revenucrs

Percent of Populatron ("mlllrons)

World Papulutzon

The America t 00,225 North Atnerica 75,3 3 3 Central America 1,538 Garibbean 12,537 South Amerrca 10,845 Mexico 6, l 64 Asia (otha than East) 3,646 East Asia and the Pacific 73,411 Europe 267,35 I MIddle East 7,285 Total 398,898 Source: Secretaria de Trtrismo, 19%.

mmketing reach oftourism companies in Mexico, These &ends are reflected in the Hoteles Presidente case strtdy. Currently, Mexico has abollt: 21-22 million yearly tourist visits; 12.4 million of them are border visits of 24-72 hours (see Table 10.3). The remaining nerzrty nine million are international tourists, coming largely from the U.S. In addition, there are 57 million short border excursions yearly. Althou& the international component constitutes one tenth of tourists, it accounts for two third of tourism revenues (see Figure 10.3). Distant visits that are longer tern are much. more expensive than 1-3 day border visils.

Tourism Figure 10.2 Net Travel Aceount Batanees by Level of Bevdopment, 1988-1996, in Millions of V.S. Dollars

Developing monomies Transitionai Economies dvanced Economies

Source: World Trde Organization, 1997.

Internationill -TourismVisits Border Visits 24-72 hours Border Excursions Less than 24 hours Transit Pasengers on Ships Total * millions ofdotlars. Souree: Bank of Mwico Survey, 1997.

8,994,000 12,378,000 66,748,OQQ 1,89,000 89,759,000

10.02 13.79 74.36 1.83 1100.00

4,632,000 M1,WO 1,531,000 90,000 6,894,000

67.X9 9.30

22.21 1.31

100.00

Mexico" totals pale next to the world"s 594 million muaX tourist: arrivals, Mexico must be gut in the context of this huge and gowing world tourism inctustry, It has done well in this global context, h spite of the ups and doms of the Mexican economy. The next section examines the history of tvvenlieth c e n a q Mexican tourism and expiores the cnrciaf,role of the federal gov Tourism Grawth and Development in Mexico Towism was present in Mexico, even h Spanish colonid times. During the 1910s and X920s, tourism was eonst-rained by dismptisns of the Mexican revolution, by Iack of suEEeient tourist ingasmcture, md by the d e a ~ hof a 1mge Mexican middle class to act as a

Tourism Figure 10.3 Propositions af Number of Tourists and Tourist Revenues, 1996

International Tourism

Border Visits 24-22 hours

Border Excursions Less thm 24 hours

Trmsit Pmsengers on Ships

source of domestic tourists, In the afiemath of the revolution, Mexico re&med to some nomaIcy md its towism potential begm to blossom. Another &end dwing the 20s and 30s was the populwily of "indigenisxna," a movement to remm to Mexico" Indim or indigenous roots, This led ta many outcomes such as gove efi projects to shift the educational system to hinude more indigenous content and restoration of some sites kom ancient civilintions w o l m md Nolm 1988). These restorations stimulated the t o ~ s t market. Anotker &end was the development of tfie transpo~tionsystem. From f 930 to 1960, Mexico" transport system expmded and evenhrally opened up the entire nation to tourism, Two milestones of 1930 were the opening of a paved section of the Pan American Highway between Laredo, Texas, and Monteney, Nnevo teon, and the opening of a paved highway bemeen Mexico City and Aczlpulco Wolan md Nolan 19138). Pan American A h a y s stmed reguIar air service betvveen the U.S. barder and Mexico City in 1930. By 1936, the Ban American Highway extmfEed from Laredo all the way to Mexico City molm and Nolan. 1988). In the 40s and 50s, hli&ways and air service continued to expad, By mid century, Mexico City became the hub of all tourist transport for Mexico. In the 60s, roads were built that opened up the center of Mexico, i.e. the Bajio Region to tourism (Nolan and Nolan 1998)' Market interest in the center region was mostly domestic. The beach resort of Acapulco was opened up for large scale development in the 40s and 50s, and by 1950 had grown to prominence as Mexico's leading resort of that era. Transport and infastructure continued to improve in the towism areas of Mexico. During the second half of the century, rural areas became increasingly modem in ailities including energy and water suppl_v,as well as in comunications i.e. availability of phones. The &ansport netvvork eontlnmd to

213

Tourism

expmd and modrmize. mdemize. A milestone in 1984 2984 was the completion of all links I ~ along s the expand Izi&way route h&orn U.S. to Guatemala (Nolan w o l m and Nolan Nolm 1998). Pacific highway m the U.S. mmter plan for towism tourism that brouat forward fowmd arzt master Iate 609, 60s, the federal government gove eat brought In the late e o w w % tourism towism over the long term. tern, Along with this, this the sought to develop the country's d tourism at many m a y levels and md through thou& many m a y channels. chmels. This program pro government promoted has continued for the p puatt thirty years, yem, and remains %mains vital today. today, The success suecess of large scale coopemtion bemeen gove plmect tourism t a ~ s mhas depended on cooperation planned between the federal government and an .active private tourism todsm sector sectar (Clancy (CImcy 1999). Neither Nei&er one nor the other ofier could have active succeeded alone. f i t major sign sim of the federal fedeml government's interest in tourism occurred in 1967. The first ent sponsored coastal com&l resort resort- development to supplement tourism. towism. To select a The govenunent resoa site for development, the national xl&ion.al bank Banco Bmco de eie M6xico Mdxico sifted sified through kau& new resort nmerous possible locations Iocatiom utilizing util uters (Nolan molan. and Nolan 1988). The computer numerous computers Cmch, then an an. unknown island with beaches, as the best location. s&dy identified Canclin, study Although yems before the first fist hotels ho@ls opened in Canctm Carsdn in in 1976, Can& C m c h has Al&ou& it took nine years g o m vastly. vmtly. Today Tohy Can& C a n e h has 20,000 hotel rooms and receives 2.3 2.3 million milllion. visitors visiton per grown yew (Secretarfa (SecreWa de dr: Turismo T~smo 1998). year 1998). pfmed tourism t o e s m development was spedeaded s p d e a d e d by the national tourism trust, Wt, The planned @ondo Nacional Na~ionalde de; Fomento Xiomento a1 Wsmo), Tdsmo), as well vvell as m by SECTUR SEC FONATUR (Fondo (Secretarfa de Turismo). Tdsnno). The first fist set of resorts resofis planned p h e d and developed in inthe 70s and md 80s consisted of Bzahllas de Huatulco Jtliuaalco CancGn, Ixtapa-Zihuatanejo, I-pa-Zam-ejo, Pue&oEscondido, Escandido, Los Cabos, Gabos, Loreto, and md Bahias Canch, Puerto (Nolan hese were located in the southeastern Yucatan (PJolm and Nolan Holm 1988; Clancy GImcy 1999). T These Yueatb soa&em states shtes (Ixtapa, (Iapa, hrerto Pueao Escondido, Ewondido, Huatulco) Huaa1eo) and atzd northern state slate Peninsula (Canch), southern SW (Los Cabos, Loreto). The T'he states involved of Quintana Quhtana Roo, Oaxaca, Qmaca, of Baja California Sur SW were among mong the least populated wpulated andtor mdlor poorest in h the nation. md Baja California Sur and Referring R e f e e g to the world systems theory approach, appraach, these resorts reso- are me in the periphery p e ~ p h e qor semit h e , the financial finmcialt investment, invesment, loci foci of corporate covorate control eaxlkol, p e ~ p h e qof Mexico. Mexico, At the same time, periphery prepondmmce of the tke tourist t o ~ svisitors t &om core nations or the advanced advmced part of and the preponderance come from Mexico. ovemll national natioaal growth g o d in tourism; FOMAWR has been beers to plan an overall The role of FONATUR encourage encowage and develop de.rre1op inhtmcture, i n & m m a e , both bo& basic bmic and t oo ~et ;provide financing ties and incentives; and seek investors investam in new _newprojects ;vrcljec&(FONATUR (FQNA opportunities 1999; Clancy 1999). communications, 1991)). FONATUR FOMAWR has invested hvested in hinhstmcture, h & a m c m e , including hcludhg transport, Qmspo~, eornmunieations, and md complexes, utilities for massive resort complexes. in.its its financial, fmancial,construction, cansmction, and md job results resulb over the The success of FONATUR is seen in qumer century c e n m (Table 10.4). 10.4). last quarter Table 10.4 10A FONATUR-Related FONATm-Related Investment, Investment, Rooms Built, and Jobs Jabs Created, 19741998 19741898 Indfcat~r~ 1974-1998 Cumulative lndica~or, 1974-1 998 FinmcL1investment invesmentby FONATUR FONAWR Financial Total investment investment generated Total rwm financed by FONATUR FONAWR New rooms hnded by by private and other non FONATUR FOR Rooms funded financing FOHAWR Rooms remodeled by FONATUR Jobs created Source: FONATUR. 1999

Amount 53.0(billion pesos) 53.0 104.2(billion (billion pesos) pesos) 104.2 116,600(rooms) (rwms) 116,600 73,400 (rooms) 73,400 l ,&SO (mrns) (rmms) 5 1.630 336,000 (jobs)

214

Tourism

FQNATUKs program has been the dominant driver for hotels and associated infi.asmclure. For example Mexico in 1997 had a total of 382,364 hotel rooms (World Tourism Organization 1997). The rooms financed by FONATUR constituted 30 percent of them, and those with FQNATUR-comected private hnding added another 18 percent, Thus, nearly half of the nation" hotel rooms were derived directly or indirectly firorn FQNATUR! A project ofthis scale must be viewed from the stwdpoint of national development, rather than that of individual prtljects and locales, Some of the benefits of the FONATUR project become more apparent &om this stmdpoint. From the 50s though the 70s, the Mexican economy was based on the approach of ""ipofi substitution." The problem was that staaing in the 1980s import substitution faltered, pagly due to competition kom other countries. The balance of trade in the late 1980s began to shift away from Mexico, Another problem since the mid eenbry in Mexico has been the increasing concentration of population in Mexico City (Unikel 1977; Pick and Butter 1997). FONATIJRs initiatives helped to solve both problems: fist by reducing the import-export gap and second by distributing jobs and populdion to remote areas a w q from large cities (Clstney 1999). FOPJATUR initially faced huge problems h accepance of its concepts* In spite of all its investment in infrastmcture i.e. utilities, Qanspoa, and government services, &e problem wm lack of confidence that such large investment could succeed in remote regions, FONATUR initially could not find investors willing to invest (CXancy 1999), FOMATUR and the federal gove ent had to resoe to pwchasing and operating a hotel chain, National Hotelera, in order to get things smed. It also had to sweeten the investment package for outside investors, both by guaanteeing and subsidizing lams (Clancy 1999). As seen in the Table 10.4, FONATUR ended up providing about half of the financing itself, It also built three Gfihs of the hotel rooms, with the rest sponsored by outside investors. External invesment was essential, and that investment also heiped to stimulate exllernal to~sm, Besides the federal level, there has also been Xl'mited state and locaX investment in tourism. State governments hwe promoted and encouraged tourism, with a view helping local and regional tourist markets (Van Den Ber@e 1994, 1995). At the Xocafi -- city and mwicipio -- levels, tourism has been supported more 60m priv&e rather than governmental sources. Such entities as tourist companies, bus fims, hotel chains, private guide sexvices, and local architectural preservation associations have con&ibuted (Van Ben Berghe 2994). The m h problem here is that the states and localities, especially the smaller ones, have very limi:ed resources (Pick and Butler 1994). Over the years, the FONATUR p r o p m weathered a number of economic perturbations and shocks ineluding the debt crisis of f 982, the peso devaluation of 1994, and the subsequent 1995-199'1 '"erisis," i.e. deep recession. In the midst of all this, FONAWR had changes as well. In the p ~ v a t b t i mwave o f the l990s, the government's Hotelera chain was priiv&ized. In its planning and initiatives of the 90s, FONATUR has had to take into account glabalimtion. This has included globalization of tourist mmkets, the hotel; business, and financing. In spite of changes, the long-tern strategy has generally been successful, and continues to be, Negative aspects have included local opposition to FONATUR and environmental costs. Howevex; groups opposing the national. development plan have been unable to coajesce into a unified n&ional fionr of opposition. Under its national plan, FONRTUR continues to Clgvelop tourism further, an afpect discussed later under t-ourism policies.

Tourism Taurisrn Exehange Between Mexico and Elsewhere

Tourism exchange is substantially between U.S. and Mexico. Both nations2ourist sectors are among the largest in the world (see Table 10.1) and both have significant natural, cultural, and historical advantages for tourism. lt helps that these neighbors have a very tong and .Fairly open border for tourist visits. Although the Mexican population is concentrated in the center of Mexico away from the border, substantial U,$, population is located in Texas and California near the border and having good toun'st access to Mexico, It 6% into the economic strateu of Mexico to facilitate tourist exchange with the U.S., since Mexico" tourism sector serves to advance the balance of trade and foreign exchange. Although binational tourism exchange appears small in manetav terns vis a vis the U.S. balance of-trade, it is major for Mexico. Culmre atso plays a role in the exchange. The U.S. population is becoming increasingly Hispanic in composition. Many Mexican-Americans return to Mexico as tourists, and this ethnic group is expected to become larger in the hture, Thus, although it does not represent national economic strategy, tourism to Mexico is favored in the long tern by these population and culhral factors, Impediments to tourism exchange are present and are discussed later under tourism policy. These include cyeXes of unwest ar delinquency mostly in Mexico, pollution, economic downturns in both nations, and scaEered occurrences of unfriendliness. Wowver, they have not risen to the level of major disincentives. Qveralf, the economies of both nations favor tourism exchange, aided by the Mexican federal government actively fostering it, For Mexico, the U,$.-Mexico exchange dominates in both arrivals and depaaures, As seen in Table 10.5, 94 percent of tourist amivals in Mexlies in X997 were h r n the United States, Mexico i s nearby, affordable, and offers @eat offerings in rich tourist activities. Border proximi& of the U.S. is also a factor; for instance three fifihs of tourist: visits are border ones of 1-3 days. There is a tiny amount of tourism Erom the rest of the Americas and &om Europe, and very little &om elsewhere. In a parallel m m e r , about 90 percent of Mexican interndional t o u ~ s t sprefer to visit the United Sta;tes. A mere five percent prefer Europe and four percent the rest of the Americas, The preference of Mexicm tourists for the U.S. may be puzzling, since the cost is potentially high. However, most Mexican visitors go to the border or to Califimia and Texas, and utilize less expensive tourist options. Ten years ago, the same paaems were present, The U.S. accounted for 84 percent of Mexican tourism visits and the U,S, border accounted for 63 pexent (Market Facts of Canada 19891, In the same study, the pmfije for Mexican bavelers to the U.S. is interesting, Destinations were mostly '%hoflhaul," with any convenient means of hranspoe utilized. The average length of trip was 22 dicys, with a mean of 3.4 people baveting, Five sixths of trips were independent, and did nor involve a &aveX package. About a third of the Mexican travelers planned their trip alone, without any outside infornation. Three quarlers of trips were booked less than thee weeks in advance (Market Facts of Canada 1989). The picture is of convenient, inexpensive, quickly ananged trips ptamed solely by the travelers and oeen involving visits to relatives and friends, The U,$. destinations are largely southwestern and urbm. This pattern contrasts with that of U.S. tourists. U.S. tourists were primarily drawn to sea and surf, away h r n cities and family ties, while Mexican tourists had more family and city oriented, cost-eEective travel, The contrast reflects fundamental differences culturally as well as economically. The study affims that family connections of Mexican tourists with Hispanic population in the United States are very important.

Tourism Table 10.5 Tcrurist Arrivals and Depsrturm,

Mexica and Unikdi SQrttes,f 997 Tounsr Amvals 1997

USMexico Americasaer Europe Middie East

378,624 345,530 NA NA 63,s 1 1 f 9,35 t ,027

Asia

Region Not Specified Total

Destfnatran

Mextco

Percent

8,528,6&

90.54 89-33

Jrom

North h e r i e a

U.S. Mexreo Americes-Other Europ Middle East Asia Region Not Specified

18,193,7t5

s,4.33, ooo

366,375 472,587 9,593 33,577 2,403 "Total 9,419,280 Source: CVorid Tourism &gmiz*?tion, 1985).

3.89 5-02.

0, I0 0.42 0.03 l OO,OQ

jiam f i t t e d States

Percent

35,155,092

53.28

IS, 193,715 7,802,707 lli,S75,2SS 357,151 5,326,984 465,389 65,982,578

27.57 11.83 25.58 0.54 8.07 0.71 f 00.00

Mexico is seen to be sipificant but not dominant as sender and recipient of tourism to and from the United States. As with the maquiladora indusq, for tourism the close proximity of a v e q large advmced nation md a Iwge semi-peripheral nation stimulates a gear deal, of exchange in both directions, As seen in Table 18.5, Mexican tourists anrive in the U.S, in numbers about equal to European and Asian towists. Likewise, U.S. tourists depm for Mexico about as much as they do for Ewope md the rest of No&h America. As was evident for manufacluring and many other topics discussed in this book, the U.S. is much more irnpodant for Mexico than Mexico is fior the U.S. The economic slrenglh of towism far both nations is seen by comparing tourism earnings and spending of the five most impofimt economies in the Americas -- the United Stales, Canada, Mexico, hgentina, and BrmiX (World Tourism Organization 1997). The U.S. and Mexico stand out as the nations sh.ongest in tourism revenues and profits, Bath nations are in a "net profit" sance for the tourism sector in the late 90s. Argentina likewise is in a net profit stance, but Canada and Brazil have net losses. For 1996-97, the U.S. earned 75.1 billion dollars, wi& a 26.3 billion profit, while Mexico earned 7,6 billion dollars and bad a 4.2 billion profit, The U.S. mlsly be more of an exception than Mexico here, since most advanced nations are in a "net loss" "position (World Tourism Organiation 1997). fn broad context, the U.S. and Mexico resemble each other in tourist exchange (see Table 10.6). During the l990s, both nations' a ~ i v a l sby air gew, whereas anivals by road and sea tended to decline, Also similar are the roughly equivalent percent increases in

Tourism

218

Tourism

leisure anivals and businesslprofessional anivals, A difference is that the U.S. increased its international tourism receipts fiom 1990-97 by 70 percent, more than twice Mexico's increase of 28 percent. The larger increase reflects the strong dollar m d weak peso during this period, Paralleling this was a drop for Mexico in international tourism expendibres by 42 percent, compared to a @in of 37 percent for the U,S, This refllects the declining Mexican tourist visits overseas and the rebced tourist spending overseas, cfue to a. weakened economy, peso devaluation, and recession* XR su a y , both countries experienced healthy tourism sectors in the 1990s with Mexico reAects somewhat weaker. The Spatial Patterns o f Tourism in Mexico

The spatial distribution of tourism in Mexico is highly variable by region and state. Tourist destinations may be elsrssified into categoriies, including grmd cities, &ad;itional, planned, interior, and border, Plsln~edtocdions are coastal resorts planned and developed by FOWATUR over the past thiay years. Traditional represents the older cowtal reso~s. The g a d cities are the three largest of Mexico, in pa~icularMexico City, Cuada;Ia,jara, and Montemy. The interior cities consist of cities in the interior of Mexiea that are older and ercial, less e sp;lfiaX pagems for tourism reveal groupings of cities than have great variation in the amangement and types of tourism. The 1936 gouped data for the 31 lasgest tourist centers, representing nine@ percent of the national total, are: given in Table 10.7 (Secretaria de Turismo 1998). The eo~espondhgmap is shown in Map 10.1, where the sizes of symbols represent the total tourist arrivals. Examining the map, it is clear that the plamed tourist centers are located in the beach and surf lacations in the southeast, south, and in Baja Sur. The &aditionaX tourist centers are also in beach and surf locations along Mexico's cowtlines. The plamed resofis, compared to the traditional ones, are in more remote and unpopulated parts of the nation, The g m d cities and interior cities are predominantly in the interior, central section of the nation, while the border cites are widely spaced across the full extent of the U,$.-Mexico border, The areas in Mexico most deficient in tourism are the "oil states" of Carnpeche and Tabasco, the state of Chiapas, and most of the northern s ~ t e s except , for the i ediate border strip and Baja Sur. These areas tend to be Iess accessible by transport and away &orn the major population centers. They have mountains, desefis, and jungles that constrain tourist development and intewst, How the sp5lieia.l locations relate to the world systems theory perspective is discussed in the conetusion section, The "'foreignness" varies by type of center. For the p l m e d tourist eenters, three quarters of tourist visits are by foreigners. However, the other types are much lower, with ~raditionaland grand cities qpes at a quaaer and a frah foreign, and the interior and border types at 16 percent. All the planned sites of FONATUR are foreign oriented. The highest "foreigmess" i s isor Los Cabos in Baja Sur and Canclin in Quintana Roo. These appear not too different in composition from some U.S. towist spots, such as ones in Hawaii or Southern Galikmia. The federal planning for these "'.foreign'"eaeh resods has paid off handsomely on an economic basis, NeverlheIess, there are environmental and social negatives that witl be discussed later. From a balance of trade stmdpoint, foreign visitors contribute positively to the balance of trade and also have higher per capita and per trip expenditures than domestic tourists. Tourism in the traditional and grand cities, amounting to three fifths of total tstrrism, is predominantly Mexican. Because Mexico is a highly centralized nation (Pick and Butler 1897), there is obviously a draw to the natio~talcapital. It has imporlant. cultural afiractions,

Tourism

Bhthias de Wuatulco, Oaxaa Cmcun, Quintana Boo lxtapa Zihuat~ejo,Gzremo breto, Baja Sur tos Cabos, Baja Sur

2x9

30 2 18 31 I5

1,846 19,754 4,13 1 435 4,072

116,240 472,902 232,280 15,037 68,173

43,099 1,832,656 151,634 37,989 479,390

159,329 2,305,538 383,834 53,026 547,563

27 79 40 72 88

1 4

lI

48,188 11,712 6,624 3,45 1

5,748,795 1,462,097 879,999 561,196

1 ,M0,765 f 45,414 172,872 89,724

7,389,560 t ,607,S3 3 X ,052,87 1 650,928

22 9 16 14

8 10 23

4,448 2,777 2,106

639,O12

641,977 31 1,250

178,304 79,36t 37,203

817,3jt6 72 1338 348,453

22 l il I I.

174,383

19,450,083

7,037,448

26,487,45 3

27

Acqulco, Gue~ero Cozumel, Qurntma Rao La Paz, Baja Sur

Mazatlm, Sinaloa Puerto VatImuta,Jaliseo Tuxtla Gutimz, Chihu&ua Veraew Ve-ramz ViEIaliremosa, Tabasco Fderal District Guadalajwa*Jalisco Montwq*Nuevo b a n Puebla, Puebla

6

Guemarvaea, Morelia Durmga, Ourmgo Gumajuato, Gumdu;llo Wemosillo, Sonora Merida, Yueam MoreIia, Michoacan Oaxaea, Omaca Queretaro, Queretmo San Luis Potosi, San Luis Potosi Zacatecas, Zaatecas Tgumil, Baja Cdifomirt Ciudad Ju&ez, Chihuahua Reynosa, T m a u l i p ~ Total for Cities Shown

Source: Seaemia de Turismo, 1998. * The rank order represents the ordering in total tourist mivaIs. This number appears on the correspondingmap.

Tourism

'Tourism the most population, vast entertainment venues, as well as most of the government and corporations. Some of this applies to the other grand cities, The &aditional locations are mostly older resofis, more keyed to middle class Mexicans, &om language, cultural, and trmsport a~cessibililystandpoints. The interior and nodhem border draw six times as many Mexicans as foreigners. Mexicans visit the major interior locations for many reasons including their great historical and culmraX impofiance, visits to family, and need to escape the major cities to quieter, safer, and more colonial enviroments. The reason for the low proporfion of visjits by fowign ""twists" to the border despite its U.S. prcrximirt_y relates to the lack of endwing features to hold Americans more than a short period in Mexican border cities. Rathe, there is preference -for short excursions of less than a bay that are not classiged as "tourist.ft Instead of sbying overni&t in a border city, foreigers Iwgely prefer these day excursions (see Table 10.3). This may also xeRect large U,S, populations visiting the other side of border cities, such as San Diego - Tijuana and El Paso - CuicSad Juhrez. 'The panems of &ansport to tourist centers differ by center m e . For instance, 57.1 percent o f air seats were occupied by foreimers to the cen&ally planned beach resorts, whereas the proportion was only 25-27 percent to the @and cities and colonial cities, and only 0.6 percent to the nofihem border (Secretaria de Tarisms 1997). This reflects a tourist in&asmcme that is oriented to cextain kinds of touris& for certain regions. Other facts of supporting structure are similarly specialized; for insmce flight semiees, support, senriices, and airpofis serving Canc6n exnphasize different comfort and diet paaems than those for Veracmz or Ciudad Jukez.

Local Impacts of Tourism In addition to its national impact, tourism impacts vay in their local name and for vtlrious regions and cities in Mexico, Far instance, impacts on hotel jobs are local, while financial impacts may be distant or foreie. Envhnmenal impacts are local, but transport impacts are mixed - Iocal and distmt. Tourism infornation shows tourist visits, hotel, md bansport dab, but does not provide data on local hpaets hcluding finmciat. Such impacts must be infe'erred based on particular locations, This section discusses the delicate but cnrcial intenetationship bettveen tourism and the locaI community and the Iocal and regional impacts of tourist development, Case sadies are cited that build on the classification in the previous section. The local and regional impacts are not only felt for pfanned development and mega-projects, but atso for all the tourist types ranging &om gand cities to the border. Nearly two million Mexicans work in the tourist indusw, equivalent to eight percent of the national workkrce. Besides the workers, there are many organisations interacting with focal tourism, including service fims, trmspofi companies, food and beverage entevgses, and unions. The global elements play a role in local tousism, Some companies are international and global. Tourists may be international, ilnd they may or may not adopt the outlook of a wical international tourist. Local impacts are tso complex a topic to cover in its entirety with respect to Mexico, and furthemore much of it hasn't been smdied, This chapter section discusses two cases from the literature of local impacts of tourism developmat; one of the plamed resorl of Bahias de Fiual-tllco and a second of the interior city of San Cristbbat (tong 1993; Camacho 1996; and Van Den Berghe 1994). They will be discussed and related to the world systems theory perspective. Bahias de Wuatulco has akeady been mentioned as one of the planned r e s o ~ sof FOMATUR. It is perhaps the largest of all FONGTUKs plamed projects. Its cument size

222

Tourism

is 1,846 hotel rooms and 159,000 annual visitors. It is projected to reach 30,000 hotel rooms and 2 million yearly visitors by the yew 2018 (FONATUR master plan, cited in Long 1993). It is m area, comprising nine bays in southeastern Oaxaca state. FONATUR began to develop Smta Cruz Huatulco in 1984. Et previously had a tiny population of 735 in the city of Santa Cruz, which consisted mainly of famers and fisheman (Long 1993). Xn 1986, the smalf town was displaced and moved to the other side of m hill, so that the original site could be utilized as a coastal t o u ~ s telement in the planned prgect. The residents underwent drastic social changes, including facing the inmigation of young workers and tourist persomeI, adapting to changes in the trpe of housing stfuctures built, and enduring shap rises in land prices (Long 1993). There have been strong social impacts on the local residents, They expressed little support for the project, and not much support for FONATUR's handling of the development project (Long 1993). The local citizew divided into goups that on the s u ~ a c eeither accepted the project or resisted it, In response, FONATUR &ied to reduce the problems by inkodueing mitigation effofis, The mitigation included job training progams, provision of medical, health, and police services, the building of the town of La Crucecita, new schools, public assemblies, and recreation support services (Long 1993). The mitigation efforts were not initially successful, but over tirne, the population gradually "adaptedF2othe realities of the mega-project and benefited by FONATURs mitigation efforts (Long 1993). For instance, the longer people lived in the new ""artificial" town of La Crucecita, the peater their acceptance of that t o m concept. Another perspective on HuaQlco is provided by an anthagological case sttlciy (Camacho 1996) in which the investigator worked in two mttlttinatictnal hdels posing as a maid md as an English teacher. The sbdy is valuable in demonstrating Iarge gaps in stratification even verging on segegation among hotel workers, For one hotet, initial stifled dissent blew up into a Eirll-fledged worker str&e that broke away from union cont;rol. The conflict stafled &am hotel worker stratificalion accentuating differences between non-union management and unionized low level workers. The management level consisted of higher level managers, mostly males, and mid level service personnel, with mixed gender balance. Below were the unionized workers serving a maids, janitors, and repaimen. The low level was more fernafe. All levels had aaire that clearly connoted strata (Camacho 1996). The case shows a sharp separation of union and non-union personnel, with non-union personnel having separate enkances, low quatiLy of food, and even separate bathrooms &om management f Camacfio 1W6). The workers finally stmck in one hotel over a dispute about union Ieaders pocketing a large propofiion of tips, Union leaders sided with management and the dispute eventually was settled (Camacho 1996). In this case, the multinational hotel chains had essentially moved fomer peasants with low education into low level hotel industry jobs, in which they were not given many choices and limited means of dissent, High level managers came in from outside and were regarded as if they were "foreigners" o' m a different world. The Huatutco case demonstrates the interplay of global and local elements for p l m e d tourism in a peripheral region of Mexico. There is the classical theoretical elernent af drawing from the ipeGiphery to satisfq, the needs of the core (Shannon t 992). The low-level workers suffered from many aspects of social change at every step, They were displaced from their town site and forced to adapt to an "adi-EiciaI"city. They suffered economically as the standard of living in the region increased. There were clear problems of job maldistribution and social stratification, with the more educated and skilled managers even verging on segregation. At the same tirne, the multinational elements of tourists and hotel companies benefited, and the

Tourism government was largely successhl in developing a new region of great potential prosperity. To offset the social problems FONATUR offered its program of mitigation, which in essence aaernpted to give some of the benefits of the semi-periphery to fomer peripheral citizens, It has had mixed success. Another case study that relates to interior tourist centers and the tension bemeen commerciaf and eco-tourism is the well known study of San CristbbaI by Van Den Berghe (1994). That anthopoIogical;field study was perfamed in the late 1980s in the interior city of San Cristbbal in the highlands of Chiapas, The investigator sumeyed nearly 200 tourists, The annual tourist volume was moderate at about f 36,000, about half Mexican, There were two groups of touris&, one a younger goup called ""eo-touris&," who were more oAented towards longer stays, enLjoying the culture, meeting the local people, staying in local hotels and getting good value (Van Den Berghe 1994). By contrwt, the other group was alder, mueh more Wansient, offen part of tourist traveI gaups, and with much less interest in local people and customs. The research also identified a goup of middlemen, temed ""Idinos," who brokered interactions of various kinds bemeen the local Indians and the tourists. Foreign and domestic tourists acted differently. Among other things, the Mexican domestic tourists were more interested in western-standard hotels and modem accommodationswith shorter stays, while the young, foreign eco-tourists were interested in more priruxitive and loeational experiences (Van Den Berghe 3 994). There were large differences in the impats of eco-tourists versus ""emmerciali"" tourists, For instance, eco-tourism created less social tension than ""nomal" meavnmercial tourism. \imBen Berghe identified the following as causes of tension: kansience, interethnic differences, Language differences, and wealth differences (&me& '9symmety"). These were reduced but not eliminated for the eco-tourists versus commercial touris&. For instance, eca-tourists had mare interactions with the natives because they were much less likely to be (ravelling in groups. A great image earn the study is that of comrnerciaI tourists entering San CristCtbal under the aegis of the agency Camvanas, in convoys of 15-20 aversized vehicles following a leader (Van Den Berghe 1902). Those tourists meet the stereorype of the co erclal tourist, whet-e-interactions with locals are clearlty delimited. Vm Den Berghe advocates the concept of ethnic tourism or eco-tourism, "Ethnic tourism is really much more profitable and benefi"lcal to a g e a e r number of people than it seems at fist blush, and it produces little environmental or cultural pollution. Conversely, the manna of luxuly coastal tourism brings much less than it seems: many profits me expected; it benefits far fewer people; and its environmental and cultural costs are staggering" ((Van Den Ber@e 1992). This literature case points to the role of diffeirent Qpes of tourists, who have di-Eferent perceptions and appreciation of tourist environments, The contrasts are befiveen eco-tourist and commerciaf tourist, and beween fareign and dotnestic tourists. Generally, the interchanges are less harsh than in the Huatulco ease, For instance, the scale of tourism had not displaced the natives to the extent of Huatulco. The presence of middlemen emphasizes that natives are appreciated in their native aspects, in contrast to the massive conversion of the natives into tourist workers, as accuned in Huatulco. The good aspects of this case are the potential of hamonious interchanges, without exploit;alion, between core md periphery elements. Akhough that was not achieved with certain categories of commercial tourists, the case does hold out hope. Another point is that the advanced core is less present in San CristbbaX than in Huatulco, including such aspects as massive modern hotels, an airpob, and hotel managers who are removed %om natives, The end of chapter case is different there again. It illustrates a major hotel chain that straddles the business b o u n d q between international and domestic tourism.

Conclusions Tourism represents one of the key assets of Mexico. It is based on the iderent advantages of a nation endowed with rich cultural and natural features, lt is enhanced by proxirniq to a huge U S . market of tourists seeking a variely of short-tern and long-tern visits, The increased smbelt concenwation of U,S. population with gowing Mexican ethnicity also favors tourist flows. The Mexican gov ent since the 1960s has taken a proactive role in fostering large scale plamed tourism. The chapter has highlighted the g o w h in tourism worldwide, as well as in Mexico as a semiperipheral nation, Developing nations today tend to have positive t o u ~ s texchange balances and Mexico is a good example. One result is that tourism ranks along with pewoleum and maquiladoras as one of the tbee largest sowces of income for the Mexican economy. Besides positive economic benefits, there are negative elements that must be weighed. These include culmraI impacts, pollution effects, bad images created by crimes and delinquency, relegation of local resident workforce menial tasks, and changes in the land pricing of tourist locations. Another world systems theory perspective is that of the division of Mexico into core, semiperirphery, ancl periphery, From the perspective of world systems theory, a semiperipheral nation, Mexico, has exchanged natwat resources and low cost Xabor for foreign investment. This is analogous to other exchanges of resources bemeen the core and semiperiphq, Minerals might be another example, Many tourist feawes fxl: well into this fiameworkr. For one thing, the locus of planned tourist development, accenwating export exchange, is in the peripheq and semipe~pherywithin Mexico, The Mexican gove is playing a classic development game, of trading its "resource'? base for financial benefits. By eonkast, bader toufism demonstrates huge volume and low costs of visits. Xt is largely keyed to the closeness of the IJ.S, southwest with the Mexican bordm region, In terns of the p w s of Mexico, this is more of an exchange between equals. Much of the Mexican border region is advanced for that nation, It is not the equivalent of the U S , border, but comparable in many aspects of exchange. It is important to consider also the pallems of the Mexican domestic tourist, which we focused on the interior and kaditional resom older areas, many with great cultwaf impo&mce. If Mexico expands its middle class, domestic tourism may become more in?portmt, The case studies illus&atea number of arjpects of this complex simation, The Huafulco case hig,blii&ts that the icldvanced-peripheral exchange may involve dispfacemenfs and tensions betvveen different tourism players including managers, lower Ievef workers, and the tourists themselves. It shows that mitigation efforts can be beneficial and are probably essentiaf far larger scale p l m e d development. The Sm Criistcibal case hi&lights m interior tourist center smaller in scale and reduced in its impacts on cultural and traditional features. Yet there are theats that may g o w and even.t-ua'llydeseoy hkstct native culme, A different aspect is the differentiation among tourists, who may be commercial or ecologicatty sensitive, foreign or domestic, The distribution of tourist m e s may influence the impacts and ultimately the success or failure of tourism in a location. The HoteXes Presidente c a e demonskates the business pressures on a luxury hotel chain, There are competing interests of globalization, domestic market, and gtobaf versus Iocal owners. In spite of countemailing forces, the company seems to have adapted to tbe s&esses and strains and to have reached a satisfactov compromise, including a split between local asset managment and global operational manageme-nt.

--

Tourism Tourism is a complex f e a m of Mexico. It has positive and negative elements that are diffe-re& to various stakeholders. It has been and will continue to be a key element in the go&h and development of the csunw.

Case Study: fiiloteles Bresidente Inter-Continental Hotelies Presidente (H-P) is a leading hotel chain in Mexico that is privately con&olled. It has a close coliaboration with Inter-Continental Hotels Corporation, a globat hotel chain. This case study examines the histow md cunent strucwre of Hoteles Presiderrte, its relationship globally and Xocdly, its relation to international and domestic towists md markets, and the &adesM-Sthat it faces k w e e n global and domestic needs. Hoteles Bresidente cwently awns seven X u x v hotels (see Map 10.2). Two are in g m d cities, namely Mexico City and Guadalajma, md the others are in pXamed resom. budget of about $X 80 million in 1997. The chain had 2,564 rooms and an The company was founded by a Mexican businessmm in the late 1950s. ABer falling into fmancial difficulties, the chain w a purchased in l972 by the federal government. The ent operated it for 13 years, as a chain of 28 hotels that were mixed in qualit;y and size. This government period ilfustrates FONAWRS plan at the time of running some hotel chains to sthulate its national tourism plan. The company was re-privatized in 1985. Four Mexicm families pwchwed cont-ro1 of the chah. The government hoped that privatization would %*er stimulate towism, The chah became more oriented towards luxuv mwkets; in 1988, many lower level hotels were sold off, leaving a grouping of l u x w hotels. The mmagement felt that it would be hporlant to associate with a gXobaI hotel chah, in order to s&engthen the company's international exposure and brand name exposure, Woteles Presidente I ~ e up d with Stouffer Hotels, past of Nestle, Grom 1991 to 1993. Afier breaking up wi& Sbuffers, Hoteles Presidente floated for nine months whiXe it looked for a new global association. The company" management felt it could not endure without global recornition. It was able to f o m a new association with the global chain of Inter-Continenhl Motels in late 1993. fnter-Continental Hotels has about 200 hotels i;n 75 coun&ies, mostly I u x u ~category. H-P retained the management of Mexican hotel assets, while Inter-Continental assumed hotel operating responsibilit$l. There was a complex ageement regarding the fmancial and corporate relationships, but essentially fnterContinentill was paid about half of profits and other fees in exchange for its operding role. H-P management cites market diversification as the major advantage ta this association, in pafiicuI~1~ the ability to aftract customers kom the international marketplace, diversifying away from domestic clientele, There is also a sQategic advantage of having access to world class competencies. This is especially applied to use of Inter-GontinenkI" worldwide reservation system, IC Global 11. That system is anaXogaus to having access to a worldwide airline reservations system -- it amacts ancl maintains customers, &aveX agents, and other intemediaries. ln 1998, Inter-Continental was taken over by Bass PLC from the UK, which confrols Holiday Ims md has a total of2,600 hotels and 450,006 rooms i.e rou&ly equivalent to the entire hotel capaciv of Mexico. Geographically, Bassi Inter-Continental is located in London, while ffotefes-Presidente management is located in Mexico City, and the hotels are in Mexico City, Cuadalajara, and planned resort. areas, X n spite of the Inter-Continent-al linkage, the Mexican hotels are staffed nearly 100 percent by Mexicans. Out of the 3,060 employees o f Hoteles Presidente, only 32 are foreipers including two hotel mmagers, several executive chefs, the Director of

Tourism Marketing, trainers, sales managers, and several others. Nationalities of the foreign employees include a variety of European backgrounds, Canadian, and Israeli. About one third of the workforce is temporay and half is unionized, but unlike the Huatulco case, there have been no iabor disputes or unrest for the past ten years, The 659-room Mexico City Hotel Presidente Inter-Continental foms a hub in this network, All s&ands come together in this Ragship hotel that houses the domestic ass& management fim, national operating management fi.rl)m. Inter-Continental, and the management team for the chai~'s largest hotel. Understanding and responding to customers have been major challenges to WoteXes Presidente. For instance, management interviews indicated that the international customer, at 70 percent of the chain's market, is very different in tastes and interests than the domestic customer. The profile for the international customer is someone who likes to reserve far ahead of time, is used to multiple seatings in restaurants, likes canned &uit juices, and books conventions far in advance, The domestic customer is opposite on aIf of these characteristics including preferin& .freshjuices, and reserving conventions sometimes only weeks in advance. HoteIes Presidente seeks to serve both of these customers, and has had to train its staff to sewice both. At the same time, the entire chain is being brought rrp to world class hotel quality s&ndards, from computers to water quality to comfofl, f i e customer mix from year to year also influences the company" financial flows since a weak peso may favor a hi&er propofiion of foreign visitors and imply purchasing relatively more goods and services domestically. The upshot of this corporate case includes the need to balance global and focal concerns and vievoints. There we a lot of diverse stakeholders here. They include British multinational executives, p ~ v a t efamily omers in Mexico City and their hired asset managers, Inter-Cantinentalk Mexico-based operating management, a large number of skilled and unskilled Mexican workers, md a customer base ranging from the MiddleEastern and European global rravelers to vvealhy Americans m d well-off Mexican nationals. Additional stakeholders are the xninorie ewers of the asset eoxnpany, Bancamer, a leading Mexican bank discussed in Chapter 5, and FONATUR. Woteles Presidente represents a balancing act between domestic and foreip interests and markets, government and business, and private versus public needs. Alt-hough the firm has been well managed and has avoided major labor umest seen elsewhere, the key issue of identity remains. Right now the 5m is relying mainly on an associakd global brand name to establish identitly. A challenge for a firm managed in the advanced core cities of Mexico CiQ and London is to be sensitive to hotel locations that are outside of the core, with many in the periphery. The deep key to success may be cultural, Can the gaps be bridged between mcmagers and workers having different outlooks, and customers varying in cultural altitudes? Cm the hotels full mostly of waltky foreipers relate well to the mostly Iowlevel and native heel workforce? So far things have been working well.

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Agriculture gha~atr@c$l%rrcDi~~~, Agriculture Exports & Imports Ejidos, Ejidatarios, and Article 27 of the Mexican Constitution Aghculturai Xnduratry Agriculture in Mexico and the Environment Future ZEgraspectg Cgbnc&axsiaaxls Case Study: M;;rseedGrama

Agriculture

Nahre and man have .treaited the potential for agiculture in Mexico harshly. In addition, cenQ&es of misuse and neglect hamper the productive use of an inhospitable tmdscape (Cole and Sanders 1970). Only about one-third of Mexico has relatively level tmd. The remaining tcvo-thirds consist of high and banen mountains, steep hillsides, and deep and rock bmancas. Xn addition, the level land is not always favorable to intensive agriculkraI use, In the no^, a Iarge portion of Ievei land is arid and semi-desed and needs irrigation to be productive, The south has level land but much of it is shallow, leaches easily, and is not suitable for large-scale agriculme. G mher problem is uneven rainfall, which supports jungles in some we= and only cacti suld liwds in others, Drought and forest fires also influence agricultwal production (Burke 1998b), Using river water for irrigation is made difficult because most rivers and streams have their origin near oceans and the ivers drop abmptly to them, Finally, less than twenv percent of land is suitable for wiwxtwe* Name" handicaps have been exacerbated by cuItivation techniques that have eroded and depleted the utility of the land. Much of the land surface that was verdant in the 16" c e n t w was des&oyed by the utilization of the plow and overgrazing aflter the Spaniards brou&t domesticated animals to Mexico. In addition, the depletion of forests for use for f~ewoodand charcoal has led to extensive deforestation. Famers with limited capital were more I&ely to g o w corn and had more problems getting credit and less likely to have pwchased seeds, feflilizer, and pesticides, or use a &actor.Their land tended to be of lower qua1l"ty(Lopez et al. 1995). The rate of change &om baditional to modem agicul&raI pratices has been slow except in Be nogh and west. Thus, many subsistence f m s and farm workers still, exist. Rwal areas continue to smd their "swfus" "population to the cities, while the urban Xabor force conwibutes to the sustenance of m a l relatives. Some of Mexico's mast sedous problems wise h n t the physical environment within which its h h a b i ~ n t slive and work (WetPen 1948). Internal smggles in Mexico have centered on the problem of land, its distribution, and use. Agrarian refom and the land tenwe system are the searci.ty of tillable land available far agriculwaf uses. The total available cropland is Little more than ten percent of the country. n u s , a relatively large propoaion of Mexieo is unsuiQble for agricuI~a1pursuits. In addition, there is a Iack of adequate rainfall in many mew with level and potentially tiltable land. Mexico has experienced eequent and severe cllxoughts, which have threatened crop production many times (Livemm 1990). Who is able to use the uable land has historicaIly been an impofiant issue both fi-orn a social and a production perspective. As s h o w an Figure l l. l and Table l l , l, the Mexican population up until l960 was primasity rural, Since that time, however, the country has become progessively urban in chaacter. The percentage of mral population in Mexieo has steadily decreased -firam onethird in 1980 to 27 percent in 1995,.Gunmtiy, the agiculbre labor force is primarily male - 85.8 percent to 14-12percent female. Mexican states with the hi&est Xevefs of agicultural ewloyment are among the poorest, Forty one percent of paid agriculmral workers in 1896 earned less than the daily minimum wage of 25.4 pesos ($3.34 dollars), However, 31.2 percent were unpaid i.e. received no pay at aX1 (Emesto ZedilLo Adminis&ation, IlEI Infome de Gobierno 1997). Many of the unpaid workers are family members. This percentage is much higher than the 12.3 per~entEor the niltion as a d o l e , Compared to other economic sectors, agicultural

231

Agriculture

Year 283 I9fO 28.7 1921 31.2 1930 33.5 f 940 35.0 I950 42.6 1960 50.7 1970 58.7 l980 66.3 1990 71.3 X 995 73.5 Source: Estadisticas Histories de Mexico, f 985; MEGI, 1992a; IPJEGE, 1998. 1901)

68.8 66.5 65.0 57.4 49.3 41.3 33.7 28.7 26.5

Figure 21.1 Urban and Rural Population Mexico: 1900-1990

Source: Estsdisticas Historicas de Mexico, 1985; MEGI, 1992s; INEG1, 1998,

workers m undeyaid on a nationwide basis, The average daily pay in the years 1996-97 for fhe agieuimral sector workers was 46,5 pews daily i.e. $5.99, which compares to 79.8 pesos i.e. $10.29 per day for the nation (Emest-s Zedillo Adminismtioxl, TIT fnfome dr: Gobierno 1997). However, this s f i q differential also depends geatly on the size of enteprise. Far instance, as seen in F i w e 11.2, pay fir agieul~ralworkers medium and

Emge size enterprises was roughly equivalent to the pay rsstes for all workers in micro and small businesses, In other words the industriaCagicul&sal income gap is nearly entirely eompnsated for by afte~ngthe size of enteprise* Mexico at times e m o t produce enou@ food to feed its population cmentfy at l00 million, This means that Mexico is sometimes a net agieu1titural importer and other times a net expo~w.As seen in Figure l t -3 and Tabte 1 1 2, apicufmml e x p o ~ sand imports have tended to increase h absolute value from 1987 to 1996. The agiculWraX net balance of trade h a fluctuated in plus and minus directions &om year to yea, Recmtly, it was negative in 1992, newal in 1993, negative in 1994, very positive in 1995, very negative In 1996, and positive in 1997. 'This reflects a composite of economic, political, and agricultural kends. For example, the positive level 1995 reflects the advantage of the 1994 peso devaluation, i.e. that lower prices abroad of Mexicm products led to much hi@er volume expom. Xn 1997, the trade was somewhat positive, which reflected a baImchg of Mexican a d c u i w a i seengths and weabesses in the developing NAFTA envkoment. Imports of Wculmaf procfuds to Mexico are primnuily from the U.S. (70 percermt), followed by Canada (7 prcent). The agricultuml sector was 20 percent of PXB in 1950 (Ewopa Editions 19991, but had declined to 12.2 percent of PIB by 1970, and was only 5.7 percent of PIE3 in 1997 (see F i p e l f -4). The decline is due to p a t e r divenification of the Mexican economy, including h manufacturing, co ications sectors. The total agiculmal PXB in 1997 momted to 21-8billion U.S. dollwzss. This pales in compdson to U.S. aMcuXmal GDP, yet is impofiant as a meinns to presewe Mexicm self-suEciency. M e a e n (1948) identified several agicutmal regions in Mexico and there is substantial concenbation of crops by region and in some instances by state (also see Scott 19821,

in

Net Agrtc.

435 -104 -249 91

1997

52,420 50,329 AIhmoneW values me in millions of ciallws. Source: III Infome cIe Gobierno, Wxico, 1997,

2,091

2,412

2,030

243 -746 -129 -593 1,372 1,079 382

The firthwest This is an arid zone: af large-scale mehanimtion and inigation along a thousand mile s c0ast.d strip between the Gulf of California and the S i m Madre Occidentai, plus p a ~ af Baja California,

-

Figure 11.2

Average Ds#y Salary Ggrieu)Gra;ilSeelar vs. (Sverali Economy, Mexjeo, 1996-97

NoLe: micro md small enterprism are be*=

l and 100 workem. Medium md large enkrprises are 101 or more wo&ers, Source: IXX bfome de Gobierno, 1997.

Figure 16.3 Agricultural Net Bsrlanee af Trade Mexieo, 1987-197 (in millions of dollars)

I,-/""

Year

Source: III Infame de Gobierno, Nexieo, 1997

98.4

Figure 11.4 Agricultural PIB as a Percent of Torat PIB, Mexico, 1970-1997

The North The rest of the no&h of the c o m e is generally arid; it is only cultivable with irrigation except for the eastern poeions near the Gulf of Mexico. Mechmimtion has taken place in this region with trwtors and reapers behg extensively med. M e a t md ndotlon are major crops. Almost mo-thirds of agricularal credit in 1960 went to the lage, private owners in the pacific north and noeh.. The no&h and norlhwest also are the weas that ham been most productive with irrigation. In many of these areas, rainfall is less thm thee inches per yew so irrigation is an absolute necesse, f-listorically, with few exceptims, higation has been undeaaken only for larger plots of land. Irrigated land from 1948 &ou& 1960 was about equally divided betbveen ejido and non-ej:jido tand. 1mig;aeed land has expa~ldedover the yems. This has been true: despite the shift of budgets from agiculmre and land refom to an emphasis on industrrialization, In the north, increases in agicuXturaI production would have been impossible without higation. Up k o u @ 1958, over two-thir& of federal government hnds for irrigation were spent h the no* and west. Not too su~risinglytlrese also are the regions with highest o u ~ uper t agicrultural worker. Over 99.5, percent of alfaEa is grown in C u a n a i j ~ and o Chihuahua, Anot-her prominent crop of this region is asparams.

The Cevrtrol Plateau The Central Plate= is an area of mixed rainfall and ir?.igated fams, F generally small. Previously this was the most productive region in Mexico but now has been. supassed by the northern regions, Slash and b-um is still used as a means of preparing

Agriculture fields for plmting and the crops depend upon rain to grow. Many fields in this and the south region have been BepIeted of nu&ientsnecessay for productive yields. Title South

The south is tropical and has v e p few systems of irrigated water con~ol.Xn this region, sugar cane, coBee, banwas, pineaypples, and rice are grow. Most cultivation is at a subsidence level. Exampies of crop concen&ationare shorn in. Tabasco and Quintana Roo producing S2 pmcent of acfiiote. Similarly, half of the avocado production for aXI of Mexico is in Michoacan. Ovw 99 percent of cocoa production is in Tabasco and Chiapa, T h w four percent of sugar cane, 25 percent of mmgo, and 38 percent of oranges me gown in southern skks, The regional di-ibution of agricultural PIB, measurea as proportion of PIB in agiculme for each state, is concenwated in the noHh centrat as well as in Ch&uahua, Michoacm, and Oaxaca (see Map 11.1 and Table 11.3). The noeh central states and ChilhuAua are especially impofiant for livestock md grain production, From a transport md disbibution stmdpoint, the heaviXy a g l ' c u l ~ a lstates . tend to be away &om population centers, yet some are pos&ioned for expo& to the southwestern and western U.S. while others domestically save Cuadalajtjara, other western cities, and even Mexico CiQ. These agricul&ral producing states tend to be semi-periphery ones and they supply the core in the U,S. and both core and semi-periphery in Mexico, On the other hand, the peripheq, locaed in the distant south, is producing mostjy for itself and to a lesser extent for the other development levels, As seen in Table 11.3, on a statewide basis agicultwal PfF3 kapped by nearly half &am 1970 to 1993. This paraliels the national decline in ag~culturalFEB. As seen in Map 11.2, the largest propoaionate drops occmed in the major wban sates of Federat District and Nuevo Leon, as well as h a mixme of medium level and poorer states. Several fomerly richly agiculmat states h 1973, ineludhg Chiapas, Qwtana Roo, and Campeche dropped considerably, while others such as Zxatecas, Sinaloa, and Yucaan maintained their agriculmrrzl natwe. The s&ong shte differences over the 23 years empbmize the many forces impinging on the size and extent of adculture in Mexico, including urbmizisfion, competition &em the tourism sector, the private sector, and federal gave Mexico" food production is hampered by the problems of outdated stgriculmral techology, insuf6cient ineasmcture, federal bureaucracy, lack of access to Gnancing, verse weather conditions, and debt build-up, poor soils, poor Wansport capabili subsistence faming. Over 70 percent of Mexican me subsistence ctr cammunily fams, Mexico has over 27 million productive hectwes but rnmy have inadequate rainfall and less than 7 million have access to irrigation wstter, As seen in Table 11-4, irrigation supply and capacity are geatest in the northwest region, consisting of Sinaloa and Sonora. This is logical because of its arid environment. The south region, on the other hand, has the lowest irrigation, due Xasgely to its bountiflixl water sources. Most af the irrigation is in the nafihern tier of states including the border states with the U.S. A1thougt.l this is positive for no&hern agriculture, it puts pressure on the scarce water supply systems in the border region of increasing urban demogaphic g o ~ h .

236

~VO. S&te

Aguascatientes 2 Baja California 3 Baja California Sur 4 Campeche 5 Coahulfa 6 Colima 7 Ghi;zpas 8 Chihuahua 9 Distrito Federal L0 Burang 1I Guanajuato 12 Guerrero 13 Hidialgo 14 fafisea IS Mexico 16 Michoacan I7 Morelos 18 Naywit 18 Nuevoleon 20 Omaca 21 Pu&ta 22 Quereraro 23 Quintanil rZoo 24 San Luis Palosi 25 Sinalsa 26 Sonara 27 Tabasco 28 Ta;maulip& 29 Tlaxcaia 30 Veracmz 31 Vueatztn 32 Zacalecas Nation Source: Banamex, 1998. f

Agriculture

1970 19.2 8.2 2 1.4 29.9 9.7 26.4 31.0 14.7 0.3 25.5 21.2 19.5 16.1 17.2 6.2 24.7 20.5 31.3 5.3 25.9 14.6 17.9 33.5 163 29-0 29.5 19.5 14.1 11.6 19.4 11.7 29.8 12.2

199.3 6.8 6.3 4.2 9.0 3.5 5.2 8'7 18.4 0. I 17.4 9.8 10.5 9.0 8.7 2.7 17.5 l f .7 20.6 1.4 18.5) 9.0 4.6

1.7 12.8 22.8 13.5 7.5

9.7 8.6 10.4 9. l 25.6 6.8

Drference, 1970-1993 -12.4 -1.9 -17.2 -20.9 -5.2 -21.2 -22.3 3.7 -0.2 -8. I -11.4 -9.0 -7.1 -8.5 -3.5 -7.2 -8.9 -10.7 -3.9 -7.0 -5.6

-13.3 -31 8 -4.0 -6.2 -16.0 -12.0 -4.4 -3.0 -9.0 -2.6 -4.2 -5.4

Proportronate Drference, 1970-1993 -64.6 -23.2 -80.4 -69.9 -63.9 -80.3 -71.9 25.2 -66.7 -31.8 -53.8 -45.2 -44.1

-49,4 -56.5 -29, I -43.2 -34.2 -73.6 -27.0 -38.4 -74.3 -94.9 -23.8 -21.4 -54.2 -61.5 -31.2 -25.9 -46.4 -22.2 -14.1 -44.3

Agriculture

238

Nofih Central Nofiheast Centrai South O&ttrers

Agriculture

3,547 2,579 3,317 1,457 7,470

Ii 0,77 1 X 0,459

6,642 1,478

2 1,497

32.9 24.7 49.9 98.6 34.7

26,122 76,001 34.4 miilions of cubic meters. Source: Banamex, 1998. Note: Nofihwst districts are in Sinatoa and Sonora. NsFPh Cen:ntraLdistricts we in Chihuahua, Coahuila. and Durmgo. Nseheast districts are In Tamaulipas. Central districts me mostly in Agumcalientes, Guanajuato, Hidalgo, Jalisco, Michoacan, Puebla, Queretero, and Zacatecas. South districts are in Cuenem, Omaca, and Chiapas. Total ni"

Cunentfy, agriculme production in Mexico is by commercial a,%ricul@ralentep~ses, organized ejidos, cattle rmchers, and locally organized basic food producers, among others (Bakin 1998). Mexico is no longer a nation of peasants working in a system of rain-fed agriculfure raising maize (Bmkin 1992). The Mexicm gov ent has systematically htemened in the agicuIbra1 seetsr by establishing propams aiding in the fmancing, production, and dis&ibution of ou@ut. In 1930, however, over 70 percent of credits were to ers even thou& they accounted for only 3,8 percent of individuals served (GoXe md Sanders 1970). In addition, Imge landowners also had beaer access to private bank Xoms. Between l940 and 2960, agiculmal production more than tripled and livestock ou@ut doubled (Cole and Sanders 1970). These increases were accomplished with a reduction. of the economically active popuIation engaged in agriculture and a consequent migation of the rural population to wban eenters. Land under cultivation has gradually increased. However, productivify in the aqiculwral sector has not increased over recent years. Xn 1994, Mexico had 12.1 percent of its land under cultivation (Emamex 1998). This is similar to the world as a whole at t 0.3 percent, but is double the propofiion for Latin America and the Caribbean of 6.2 percent (Banamex 1998). Mexico is head of Latin America and this is due to its Iarge population of consumers and its long kistal-y of developing agicultzlre, among other things. Mexico is importmt for livestock and gain crops. The most impomnt grain crop produced is maize. In 1997, the nation produced 19.8 million tons of maize (see Table 11.5)- Other aain crops of importance are: sorghum (6.5 million tons), wheat (3.8 million tons), beans (13 million tans), and rice (448 thousand tons), Other simificant. crops are bwley and sugar (Europa Edition 2999). Faced with a doubiing of population from 19'70 to 1997, Mexico" gain production has generally kept up (see Table l 1.5). This refiects productiviq increases in gain crops as well as some expansions in lmd under grain cujtivation. On a per capita basis for specigc crops, over the past three decades, maize and sorghum production have increased, while wheat, beans, md especially rice have deeIined. Major h i t s and vege~aiblesproduced are cims, strawberries, apples, pears, cucumbers, limes, mangoes, metons, tomatoes, and pineapples (Europa Editions 1999).

Agriculture

240

With respect to NAFTA exporting, h i t s and vegetables have benefited the most, especially cucumbers, limes, ajnd mangoes (Rodriguez and Burke 1999). CoRee has been important in the 1980s and 1990s as m ex go^ crop. Livestock amounts to about one third of the agicularal sector ou@ut. As seen in Figure 11.S, beef has historically been the most impomnt item but g e w only sli&tfy in. the 1990s; on the other hand, chicken production grew substantially in the 1990s in line with population growth and in spite of a U,S, ban on beef impam since l994 (Bmamex 1998). For a maritime nation, Mexico has a minor fishing industry - its total fish production in 1998 was only 1.Q9million tons (Bmamex 1998). In respect to a*cul&ral trade, Mexico is the third Imgest importer 0fU.S. agicuIara1 products and the second largest supplier of ag~cuImaXproducts to the U.S. The U.S. is muck mare important to Mexico than the reverse. W i l e Mexico purchases less than 10 percent of U.S. produetion, the U.S. buys almost 80 percmt of Mexican agicultwal exports in any given yew. The U,S, espciaily dominates agicultwraf imports &om Mexico. Thus, globalization of apiculwe has not influenced Mexico to become hEully integated in world makets because of the dominmce of the U.S. market for Mexican apictrlmal products. The in?pact that changislg regulatiam will have (e.g., NAFTA) is yet to be seen, A discussion of current infauences upon aNcultwe h Mexico covers a wide range of topics, including glsbalization and NAFTA, mus, there are a v a ~ ofe chmges ~ occming in the world and in Mexico impacting the agxicultural sector. A few of these alterations are increasing mbanimtion, rural to wban mi$ration patterns, corporate agrieul~re,pzing, irrigation and water use, nnaquiladoras, and envkame~ttalprotection, among others. However, possibly more impoflant than all of these ohm factors may be the change in Mexicob Constimtion Micle 27 in respect to ejido land tenwe and propew rights. These charzges have implications far beyond any impacts of bade flows between the two coun~ies (Schulthies and Wifliams 1992).

Agriculture Exparts and Imports Mexico is substantially like many other semi-periphery c o u n ~ e sin being challenged to meet tfie ;Food needs of its population (Ui&t-Ridder 1996). Thus, Mexico has flucaated beween a net iimngoder md a net expoder of agicuXmal praducts, Dwhg most of the 1S O S , it increased impofis, especially of a g i c u l w l products, Dwhg 1998 the imports of p i n to Mexico increased extensivegy as a result of drou&t and heat, a drop in international prices, arid a growh in domestic demand (Senmk 1998). Estbates of imports rmge from the 6 million. tons of gain by the government to 14 million tons by peasant marketing organimtions (Burke 1998:12). Part of the problem may be related to the federal budget that has reduced its fomer l2 percent budgetw propoaion for agiculture to five percent. There appem to be little teeXlnicaI support for small famers, a lack of credit oppomnities, accompsmied by worldwide price &ops. Fam product expofis have decreased percent wise as nzaquiladoras as more impo~. The mah a p i ~ u h r a exports l in 1995 were bib, melons, coBee and tea. The main h i t s exported were mangos W.S.), bananas (liT.23, and Bemuda), gapes W.S.), melons (TJ,S), and strawbeflies (U.S.), Also, over 75 percent of crude coEee exports was to the U.S. and vimally a1f decageinated cogee was expofied to the U.S. (XNECX 1996). Total imports in 1995 were $72,453,006 compared to $79,542,000 in e x p o ~ s(see Tabte 1 1.2). Agicultural impofis were $2,644,000, compared to agiculturaX exports of 154,016,00Q.Thus, that yew, Mexico expomd more agicuXturaX products than it imported. Primav import products under Mexican census categories are (I) wheat and mixares of

Figure 11.5 Production af Meat and Fish, Mexico, 1990-1997 (in tons) 1,600,000

Year

4B- Fish hdirect

Source: Banmex, 1998,

wheat and rye fvvhich includes o&er such as s o r a m ) and (2) soybeans. Value wder the wheat category included 6,079,000 peso or 43.2 pmcent and 5,286,000 peso for soybeizns, for a total of 3'7.5 percent. Thus, wheat and soybems aceamtd for 86.7 percent of agicuXWa1 impom to Mexico h 1995, The vast n z a j o ~ qof wheat9corn, and rice imports were &om the United States, with Cana& conwibuting 461,006 peso, The mpredicbbly of agiculwal trade patlems is seen by 1991 md 19% being net impo~ingp m s (see Table 11.2). l998 addi-eional agmments were reached regwding a new system lFor dee1min.g cefiain wear; in. Mexico as behg fie@of diseases cmied by anhalls and phb. This ageement allows the free flow o f more agiculmal products betvvertn the U.S. arxd Mexico (E1 Fhmciero 1998).

Ejidos, Ejidatsrios, and Article 27 of the Mexican ~onstitution' Beghing in 1917, land xefom wm used in Mexico to diseibute land resources to the peasm&, By 1965, over 46.5 million hectaes had been exprapristred from 1wge given ta 2.3 million previously Imdless peasmb, or ejidatarios who now lived h ejido consists of l a d to which the members have p r o ~ j q Pights. Part of the Xmd may be m individual plot and part c 0 m w a l . Ejibtarios eomnrzmded over half of the total ers Eived on ejidos (Sbvedagen ag~cularalland by 1970 md over half of Mexico's This section relies heavily upon Vallodolid (1995). For a more extensive discussiono o f land ten= in prior years, see Cole and Smders (1970).

Agriculture 1986; Hertford 1971). Over 80 percent of all ejido plots have been classified as infosubsistence and they are too small to provide full employment and an adequate income for a peasant family (Stavenhagen 1986: 263). Since individual plots could not be sold or leased, yet could be bequeathed to descendents, this led to land fragmentation. Land fragmentation, in tum, reduces the potential agri-business productivity and adoption of modem technology. The Mexican Agrarian Code prohibited the sale or rent of ejido farms. Around 1949 and 1950 the Mexican government subsidized certain crops such as corn, chiles, eggs, etc., in an effort to stabilize prices and support farm incomes. These subsidies neither increased output nor reduced the poverty of subsistence farmers (Heath 1987). Throughout this era, crops always were more important than meat and dairy production. Beginning around 1940, there was a steady increase in irrigated cropland and the use of fertilizers. The harvested area continues to grow and h m 1941-1 946 through 1983-1986, harvested areas more than doubled as did per capita domestic output. During the same period, output tons increased six-fold. Corn typically has accounted for around one-third of the arable land area and onequarter of the total value of crop outputs in Mexico. However, the growth of imports in percent and tonnage far outpaced domestic production. For example, the import percent went from 1.9 percent in 1941 to 21.2 percent by 1986. Similarly, import tonnage in 1941 was 42,000, while this grew to 2,837,000 tons in 1986 (Heath 1987:265). There has been growth in the number of ejidos and communal units. Their population expanded 1970-1995 from 2.2 to 3.5 million, a 60 percent growth. By contrast, Mexico's rural population increased by only 17 percent between 1970 and 1990. This demonstrates the process of fragmentation of ejidos and communal units. The magnitude of the ejido and communal land is also apparent in tenns of tenancy of productive land. On the basis of tenancy by productive land area, 32 percent of land area in 1991 consisted of ejido and communal land (see Figure 11.6). The largest proportion of productive land, about two thirds, was private land while colonia and public lands accounted for only three percent. The distribution of productive land holding by states (see Table 11.6 and Map 11.3) reveals a dramatic difference in ejidos and communal land holding, ranging from only eight percent in Nuevo Leon to 78 percent in Morelos. The small ejidal and communal lands in the northern border states is due to the reduced agriculture in those states at the time that ejidos were formed. States with higher ejidaVcommunal percentages were ones that historically were heavily agricultural. The level of ejidaVcomrnunal land tenency is a rough indicator of the extent that a state is bound by more traditional agricultural practices versus others states that may be better able to transition to modem, privatized agriculture. In 1992, Article 27 changed Mexico's agricultural land policy. Its major impact was on small landholders as well as ejidos and ejidatarios (people who work on collectively-owned ejido lands). This land fonnerly assigned to individual households could not be sold or leased but had to be passed to heirs. The 1992 amendments allow ejido land to be sold or rented, or to be utilized as collateral in obtaining financial funding. Further, the amendments stopped the redistribution of land (Europa Editions 1999). However, Amendments to Article 27 threaten to obliterate the very existence of ejidos and have great implications for their hture as well as for agricultural production in Mexico. Many Mexican farmers will be rendered landless and their land will be taken over by larger corporate farms. This amendment allows parcelized ejido lands, by decisions of the majority of ejidatarios, to be rented and in some instances to be sold to other farmers and transnational and domestic corporations. This is a major change from the 1917 Mexican Constitution that did not permit the sale or rental of ejido land. Despite the Constitution

Productive Land Area and Land Tenatncy By State, Medco, l991

Figure 11.6 Land Tenancy in Mexico, I991 Calonia 2%

Public 1%

Source: N G I , Census of Agriculture, 1991.

Eiidal and

engendering ejidos, it took a number of years for ejidos to become established. In 1934,93 perce13f of land was still owned by private landowners and 7 percent by ejidos. By 1970, howver, 43 percent of tamlsmd had been redistributed from large fandowners to rural families, T%erevised Constittttional changes allow consolidation of land holdings that were interspersed with private holdings. The impact of this change will be @eater in some states t h n others shce the percent of population Living on ejidos varies substantially (see Map 1 1.4). Still more than 27,000 ejidos exist; however, 30 percent of them are yet to be legally defined which mdoubtedly will create problems as some of them aaempt to privatize (Burke 1998~).The national p r o g m to certiQ and give land titles to persms living in ejidos is well undernay. The progam is ""Pogama de Certification de Derechos Ejidales y TiRrEacibn de Solares Urbanos (PROCEDE). By 1998, about 70 percent of ejidos had been certified, and one third had completed the entire process and been ganted titles, The effort to c e a i e and legally document the (3ciidos nationally has been very time consuming and challenging. The cafiogaphic and database elements me being directed by MEGI. The mticipated results of Article 27 are as fo'olfows: (I) the development of large landholdings prroducing economies of scale, (2) encowaging foreip investment to promote Iwge-scale coworate faming, (3) making larger Iandho'lders more secure since their lands no longer can be expropriated by tlre government, and (4) potentially increasing agicultural production. Critics believe that the amendmen& also will accelerate the exodus of the mra1 population to cities and increase economic inequalities in rural Mexico, Changes accompanyhg micle 27, along with NAFTA may assist in what Bmkin (1992) wgues, "Only a small elite wilt be able to take advmtage of the many productive oppomities oEered by Mexico" sategation into the largest economic bloc in the world via NAFTA..." (Barkin 1992). The results so fhr paint to Xirni~edcommercialization of dido propem and limited etjido self autonomy and indus&ialdevelopment, At the s t a of ~ 1996, only six farm coopemtives had elected disincoxporation (U,S, State Depaament X 999). This may reflect the lack of financial experience mong ejido leadership. Several recent progams of the Emesto Zedillo Administration have included wiculhre. In 1996, most federal government price suppox~sfor apiculture began to be eliminated, Xn its place, the government developed sbte-specific goals to inerease use of up to date technology and equipment in order that state productivify would increase (U.S. State Depaement 1999). Another important program to stimulate a g i c u l ~ r eis Procampo. Instead of the prior price supports, Procampo provides a direct subsidy to the 3.5 miilion tamers based an the acreage they own, The puvose of the Frogam is to enhance the income of small producers and provide assured direct supporf, Procampo also encourages conversion of f a m facilities

h a n g other federal fam and mral progrms are the foEol1owing: * Alliance for mral areas, This program is designed to enhance agiculkral productivity through irrigation technology, mrai in& astmckre, beaer seed qualiw, milk, restoring saline soils, bener infornation systems, etc. Shared agricultural programs. These are progams shared between the federal ent and states, municipios, and other entities.

Agriculture

Map 11.4 Ejido Lands o f Mexico City

URBAN AREA

.*

.........f....

F EOfRAl DISTRICT 8WNDARY

E J ~ Q O LANDS IN THE EASTERNMOST PART OF THE M E T E Q P ~ ~ Y A N ZWE

MUNICIPAL OQ

~CHIMAI~UACAN A N 0 I A PAZ ~ V N l C t P ~ l tlESj t f ARE NOT tNCLUOf O

248

Apiculture

*

Federal instimtionaliized programs. These include programs to sbengthen judicial actions, provide legal help to solve m a t eonGict.s, give Qaining, provide dispute resolution, and regularize rural propew,

Overall, there are w e n 5 or more federal progams, which have the intent to s&en@hen,regularize, and make agricrtlture more productive. The success of the progams vaies and depends on complex cl.rcumstanees including the economy, aait-udes, climate, md global mwkets. It is importmt to note that the federal government today does not intend to do evemhing. One example discussed later is the potential to establish new types d of alliances bemeen a@-businesses a ~ producers,

Mexican agicultural indusw became large-scale in the second half of the tvventieth e e n m . Earlier h Mexican history, small f m s predominated with limited techology and productivily. Today, many companies suppore m increasingly sophisticated agricultwal h d u s e in Mexico. The incfixse is predominantly domestic. As seen in Table 11.7, among the top IS agicultural companies, only Nestle is foreign-owned. Some of the companies have significant presence overseas e.g. the worldwide bread products company Bimba, while others sewe largely domestic mmkets e.g. the chicken producer Bachoco. Overall, the sales of the top E5 wmpanies tofaled 9.6 billion cSallws in 1997, which compares to Mexico" 221.8 billion dollw agicultwal sector. Most of the top IS f m s are headquastered in the Mexico City area, although IFow f m s are located in the north central border region as well m one each in Durmgo and Jalisco. The companies are mostly conservatively run wif;hout,substmtial debt, which when present tends to be domestic, Roughly half of the agicularsrl sector is eoqorate, which mderscores that Mexican agiculture is shared by huge numbers of small fams and production units, Heveflheless, the Mexican agicuttural indusw and compitnies me very important since agiculue is in process of opening up to @eaterprivate investment and [email protected] section discusses NestIe as an example of a foreign multinational with a special market role, examines two ins&nees of food bade situations in sugar and avocados, and looks at the coporate alliances as a mechanism to link together agricultural indusw and producers. h o t h e r example of major agi-business, the tortilla m p o of MasecdGmma, is analyzed the chapter case stlldy. Nestle plays an innportmt role in Mexican agiculture by 5liing multiple gaps in markets and products that is only possible &om a global multipu~osegm. It is important to point out that Nestle is the world"s biggest food manufacturing Fxm, with 1998 saIes of $71.7 billion and 232,000 employees. It produces diverse tines of food products including instant coffee and other beverages, prepared dishes and firozen foods, chocolate and candy products, baby %ads, milk products, pasta, ice cream, ph aceutieals, ophthalmic products, botlled water, and many others (Wrii;lbt Investors Semiee 299'6). Nestle" special importance derives from the rest of the Mexicm agicufturaI industcry being largely domestic and having limited technology and range of sophistication of products. Hence, Nestle serves to fill in numerous gaps in the market with a variev of o&en more advanced products, It is for that reason that the Nestle brand name can be seen in many different se~ingsin Mexica.

Agriculture

Nestle in Mexico consists of three pafis: Nescalin, which manages and controts in Mexico the major segments of the international product lines; NestXC M4xIc0, which prepares, mixes, produces, buys, and sells foods and drinJks of domeaic origin; and Manantiales La Asunci4n, a Mexican subsidiq that focuses on &eating, purifying, preparing, marketing and disbibuting mineral water md juices. MmanCiales may be regarded as a specinlv unit, adapted to the Mexiean marketplace that sugers from major water qualiv problems. The Nescaliin part suppofis the special role of Nestle as "'filling in the gaps,'kvvhile Nest16 MCxico oEers the company special domestic niche oppomnities. A niche example was Mescalin's acquisition in 1995, i.e. right after the peso crisis, of the major Mexican chocolate manufacturer, Azleca. In summary, Nestle in Mexico mainly is a sophisticated multinationaf, but also acts to provide sorne major local products such as chocolates and bottled water, The chapter next bms to the trade roles for the agricufaral industry. It does this by examining two examples of indusq seetoral trading situations, both involving the U.S. and Mexico, The first example is the Mexicm sugar sub-industxy. That industry sector accounted for 5.2 million tons of sugar production in 1998. About one thli-d of the Mexican sugar production is incoporated into soft drinks by boaters. m e problem is that the U.S. mmket has shifted rapidly to dornhance by corn smp-based producers that eeXliminate sugw from soft drinks, In 2996, there was a step-change in U.S. corn symp impofis to Mexico; in particular, corn syrup imports increased &orn 20,000 tons to 350,000 tons, This incl-ease delivered a direct threat to the Mexican sugar industv. In response, the Mexican export agency, SECOFI, reacted by imposing temporw tariffs. The U.S. in turn biMerly opposed these tariffs. The NAFTA ageement had limited Mexicm sugar exports to the U,S, to 25,000 tons, so it was not possible for Mexieo to retaliate for the inmsion of corn symp thou@ heightened U.S. exports. After the year 2000, the limit on Mexican sugar exports will be raised to 250,000, but that fumre dfzte did not help with the cuntent dispute. This ugly and often biger dispute is continuhg to unfold. For exampIe, U.S. sugar producers are not happy with the situation and many feel. that the dispute is a ;(rick to increase limits on Mexico-to-U.S. sugar exports. Another factor is that some U,S, brands in Mexico including Pepsi prefer to r d a h the traditional sugar content. Nevertheless, the situation is foreboding. There are forecasts that if U,S, corn syrup impa&s continue, sorne Mexican sugar refineries may need to be closed. The dispute is compiicated enough that it may well end up being resolved at the World Trslde Organimtion. This example dernonsaates the potential of cultural clsrshes involving products, consumer tastes, ent regulation, and the dangers of an overly competitive environment. A second example af an industry bade dispute concerns the recently approved opportuni~to expo& Mexican avocados to the U.S. The dispute centers around Mexicots role as the world's lwgest avocado producer, and the long-time ban on sale of Mexican avocados to the U.S. Mexico accounts for one third of the world production of 2.3 million tons of avocados (El Financiero 1998). The Mexican avocado is largely the priz;ed Hass v a r i e ~and .EurZherrrzorehas special features of good taste, high nutition, and generally high quality. Not suvrisingly, Mexican avocado production and consumption are the highest in the world, Mexico internally consumes 94 percent of its production, while exposing 4 percent.

252

Agriculture

Although Mexico is the world" sargest expoder of avocados at 27 percent the U.S. banned its expo@to the U,S* for eighty-thee years. The reason was that the Mexican avocados did not meet the phytosmitary noms .Ear the U.S. Xt is curious that Mexican avocados have b e n sold for years in large quantities in seven leading western European eounh-ies and cunently at a volume of 20,000 tons. Finally, in 1997, the U.S. ageed with Mexico that it could sejI annually to the U.S. 6,000 tons of avocados i.e. only about one percent of Mexicm production, The zones of origin and destination were carefully chosen. Nosh of the boarder, the market destinations are resBicted to I9 no~heastemstates, whereas for Mexico expofi can take place &onn only four municipios in the state of Michoacan. The municipios were selected on the basis of I1.S. Dept. of AgicuIbre approval oftheir phytctsanit~conditions. One of the interesting points is that, once the mwket regulations l i h d , there has been only slight pene&ationof Mexican exports to the U.S., in pafiicufzrr less than one percent of its total avocado production of 800,000tons per year, Another point is that pressures have also been building up from California and Florida producem. m a t pressure has sewed to resbah U.S. approval of large irnport incl.eases. The limiting is done thou& inspection by U.S. agiculmal specialists of fams and plantines mostly in the state of Michoacm. A side effect of this detailed inspection process is the stimulus for the Michaacan facilities to incorporate hi&er tecboloe;y. Many of the embedded problems of Mexican agicultwe are evident in this dispute, For exmple, the avocado produwrs in Michoacan tack teehicat skills in cultivation; there is weak commercial smcture; and the markets have historically been unstable and subject to change. Another aspect has been the Mexican avocado's phposaniQv problems, which. have goEen into the thick of the dispute. Since the avocado bm was lifted in November of 1997, the problms have gotten worse rather than beger, For ins&nc=e, U.S. avocado producers are considering dumping avocados at low prices, l'here have also been fmancia1 problems and climatic d o m m s including h s & (E1 Financier0 f 998). It 3s di%cult to tell where this dispute is heading and how it will end. Mexicm , U.S. producers producers are wghg the U.S. to %fiher relax its imporl r e s ~ d i o n s while consider dumping and U.S. phylosaslitav regulators continue to be s&ict. The lesson here is that the potential for chanced trade can be great& limited by confiict among government and business. The technological and business innovation gap is not only present beltveen the U.S. and Mexico, but also present b e ~ m Mexican n fxms including the top 15 and the fame^ producers. Many of the prducers are still smggling with the ejido system and quite prhitive agricultural methods. Many are still hand tilling the soif and using primitive financial mechanisms. These ""cpesinos" " m d in cont-rast to the prepanderwee of U.S, production, which. is mechanized, advanced, and Iage-scale. The Mexican federal government has increasingly pulled out of the overly regulated environment of the mid 20" cenwv and has given the private sector ;the potential to innovate with new anangemeats md foms of financing, exchange, and orgmization, However, the problem persists of the huge gap in crzpabilities and aEiLudes beween "carngesinos" and ago-business fims, An example of this is the Xaek of success of agobusiness-producer aalliances in Mexico. Fims such as Bimbo, Maseca, and f-lerdez have tried to set up collaborations with producers that assure '"just in time" "dvery of products at the agreed time and place to the agrobusiness. Such alliances are co onplace in Europe and to a c e ~ a hextent in the U.S., where they have increased eficiency and productiviv, Sometimes the alliances are called "'clubs of production" "amirez Tamayo 1999).

Agriculture

253

The success has been very limited, For instance, Maseca set up an alliance arrangement beween itself and corn producers that utilized unoflhodox sources of credit to make up f"or credit deficiencies rampant with its producers (Rarnirez Tamayo 1999). However, the scheme came apart: when the federal government stMing seetring the price of corn three months later than usual, Bimbo has such m alliance working with Sonoran wheat producers, but the resultant financial savings are limited. Herdez has tried but been unable to establish such an alliance (Ramirez Tamayo 1999). Clearly, the potential for agricultwal advance is slymied through the b~kvvardnessof rural producers, as welt as the market and fmancial problems. Another related problem is distribution of agicultura1 products. Distribution is hampered by a largely inadequate Wanspo~ationsystems discussed in Chapter '7. If producers3oods are not assured of g a i n g to the business destination, or if other he-lance intemedizies (""cyootesW")&e too large a percentage of prof"ts, the types of systems described wiX1 not work, nor will international systems of exchange. One place that this appea-rs is in warehousing of food products, since the warehouse s&ucmre is antiquated. An example of the potential here is a large-scale refrigerated warehouse being installed in Tuxpan, the Mexican gulf coast city (Mecosh 2999). The 3,200 squme meter warehouse costing $2.5 million will allow Mexican producers to deposit smaller orders for fong-tern presemation, Orders can be mixed and merged and delivered in a @ ' just in time" mmner. This example dernonsQatesthe potential for well-plsmned tecfurological advance to improve the eEciency and success of cfomestic or international apieultural exchanges. Agriculture in Mexico and the Enviroxrmre-nt

Cunent envkonmental problems related to Mexicm agiculare are as follows (Omna and Williams 1993): * Inefficient inigation practices resulting in a 65 percent loss of irjrigation water and poor crop productiviw levels due to the flooding o f crops, land salinity, ;and erosion. * Groundwater aquifers are behg severely depleted resulting in the presence of arsenic in the water. In other areas, depletion has led to the inlrusion of salt water rendekg the poundwater unfit for buman and agiculmral uses. The use of water con&ining effluents or indus&ial waste causing soil degadation and contminstl.ionof crops. * Misuse of pesticides resulting in contamination of poundwater and surfze water that has negatively impacted aquatic life, wildlife, and human health. e Degadation and erosion of avaitztble pwmreland as a consequence of overgraing and other foms of mismmagement. These negative impacts of apiculture on; the environment are not being alleviated and they are expected to eantinue well into the %mre resulting in krt:her environmental degadzttion. Future Prospects

Mexico has made unilateral effods to open its economy that has led to a significant increase in Mexico agiculmal trade with the United S&tes, although so far there has been mixed results for individual crops (Rmer-Zavaka 1998). As a legal document, the

NAFTG ageerneat between Mexico and the U.S. preempts state laws and renders all inconsistent states' &ade mles and regulations unconstitutional (Boadu 1991). A furtber issue is bade with the European Union (Senzek 1998b). In comparison with the V.%, Mexico app~entlyhas comparative advantage in the production and export of feeder cattle, borticulturali products, and citrus. The U.S. has a similar advanage in the production and export of breeding and slaugber livestock, dairy productions, most feed and food grains, and probably cotton (Schutthies and Williams 1992). The removal of tariffs is not likely to influence greatly the export-impart relationship betGveen the two coun&ies, This is because most tasiffs have already been removed and because of long established relationships of production and consumption. However, imrCemationaX markets appwently have reduced Mexico" share of the coffee market (Martine2 1997) and sugar imports from the U.S have created turnoil in the Mexican sugar induslry (Salman 1997). Several potential influencing factors, however, are ( I ) the recent change in land tenure laws in Mexico that might result in the devefspment of larger scale agiculture fsmerly occupied by ejidahrios (Article 27, 1992) md (2) a potevlrial vowing market in Mexico for dairy products and meat &om the U.S, Agicultural trade betwem the U S , and Mexico is likely to continue gowing. Most of this gromh will be a result of changes in Mexico, especially in respect to policy and inframc-ture changes, labor force availability, foreign investment, utilization of technology, and market demmd, Potential limiting factors are the land tenure system of ejidos, limited water resomces, domestic and international markets and pricing, and Mexicm and local governmental poticies. Also, corn and beans raised mdnly by small famers and peasants may be replaced by nan-&aditional crops. On the other hmd, agibusiness production is finding an expanded market in the U.S., probably as a result of NAFTA. One major implication of changes in Mexico is a reduced demand for tabor on larger fams that are technologicaIly oriented, That is, there will be displaced apicultural workers. m e t h e r these workers can be absorbed into the Iabor market is questionable. This may result in more undocumented immigration to the U.S. andlor mipation to the cities in Mexico. Potential counteracting factors are the need for foreign investntent in agicultural production by fareim investors and Mexican investment in the inefficient ineastrtrructrure, especially in transpoftation modalities. Thus, expanding apicultural &ade depends on (I) the access of the U.S. eueking indush-y to Mexico, (2) relaxdion of constraints at border crossings, and (3) the need to modernize and expmd the Mexican ~ranspofiation infrastructure. Another fubre scenario m y result in more foreign direct investment in Mexico (e.g., gorn the U.S.) in food processing thus reducing exports firorn the U.S. to Mexico, So far, these production facilities have been fir the tocaf Mexican markets rather than for export to the U.S. These relationships, of course, are tied to many multinational covsrations, bath U.S. based and others, e.g., Nestle, Another potential impact upon Mexican apiculture is the privlilization of warehouses. This has occurred recently (2997) and its impoflance is stiH not h o w n (Madinez 2997). The tortilla business in Mexico is a billion doHar business and substitution of nontraditional agriculture, privatiation of vvwehouses, jmport:s of grains, decline of contribution to the national gross product of agriculhre, and agribusiness may inRuence upward basic food costs for the average Mexican (see Rudino 1998; Humble 1997; Zellner 1995).

255

Agriculture

Mexico is labor-rich but land-poor in respect to desirable and available agricullural Iand, This implies that future agicuf&raX development in Mexico wilt have great influence an the human population. For example, the utilization of technology undoubtedly will result in gseater production but a reduction in the agriculhre labor farce. This could result in unemployment and a push .for illegal immigation to the U . S . It also implies a reduction in ejidos. The g o w h of efficiency in the agricultural sector will resuh in an even more massive mraf to urbm migr;ration that already has influenced the growth of Mexican cities. These rural migants to the cities have the lowest educational md skill levels in Mexico and most iikely will become part of the ever-expanding infomal labor force (see Chapter 12). Mexican agriculture has fared poorly under NAFTA according to many at a 1998 conkrenee aaended by representatives &orn the U.S. and Canadian embassies as well as economists and agronomists from Mexico [Burke 1998a). Wether such a conclusion will conthue in the kture remains a rnaMer of conjecture. Conclusions

Agicufture has been impofiriint in the history of Mexico and today provides sufficiency but not a supIus far the Mexicm populatim, Mexican agriculture is dominated by maize, livestock, coffee, and h i t s and vegetables. It is closely tied to the U.S. agriculture though competitl'on and cooperaion in certah prodttca and markets and thou& penetration of some of each nation's produets into the other's markets. Spatially, Mexico's major agicultural producing regions are in Be nofihwest, central west, md south, in areas removed from the large cities and consumer bases, This points to well h o w deficits in the transpoation and distribution systems. Historically, Mexico put reliance on small ejido and communal based agicuImre, but ineficiencies built into that system have led to changes that are sometimes controversial, The pace o f change is much sXow than expected %om ejido-based to corporate-based agicuXbre. This has perpetuated an economic gap in wages and profits between the urban md mral areas, and may be one of the drivers of the huge rural to urbm migations of the tvventieth cen&T. From the standpoint of world systems theory, the agricultural situation in Mexico illustrates a divide between &aditionat third world agriculture (periphery) and the perfomarnce of some of the large corporations and government padners (advanced). This divide fits somewhat with the geographic divisions of Mexico outlined earlier in the book, The ejido-based traditional agiculture is located in the periphery and semi-periphery; the government setting policies and ago-co.rparate headquarters are located mostly in Mexico City and somewhat in Manterey. Mexican agriculture is subject to a geat deal of fluctuations that depend on such volatile factors as world markets, the weather, the peso exchange rate, and fedeml administration leadership initiatives, Hence, it is difficult to generalize into the future, The conclusion may be that agriculture is slowly but steadily moving away from its longinne ejlido trirelitlion and becoming more open and somewhat more hternationaX.

Case Study: MsselralGruma Grurna is the world's largest corn flour producer and one of the biggest tortillas manu.Eaeturers. lit i s headqutzrtered in Monterrey and produces corn Rsur, wheat flour, and torlillas. Gmma, the psent firm of Maseca, is the domestic subsidiary and the leader along

256

Agriculture

with Minsa of the Mexican corn tortilla marketplace. Gruma is the third largest Mexican agricultural company, while Maseca is the fifth largest. They are both among the top 65 firms in Mexico (Expansi6n 1999). The combined revenues of the two companies of $1.95 million compares to the agricultural leader Grupo Bimbo. The major tortilla competitor of Maseca, Grupo Mina, is half the size of Maseca and much smaller than the combined f m . This case study examines the role of the government, traditional tastes, and foreign trends in the enlargement of MasecaIGruma to become an international company, while still dominating domestic marketplaces. An important element in understanding these companies is the distinction between a traditional maize dough or "nixtamal" (sometimes called "masa") tortilla and a modem corn flour one. Corn flour is the key ingredient in the modem corn flour tortilla The modem process is based on the simple principle of mixing corn with water. By contrast, the traditional process utilizes "nixtarnal" dough. In the nixtarnal-based process, the corn flour is mixed with lime first and then the "nixtimal dough" is made in a more complex manner. The traditional process has several disadvantages. It produces maize dough which has shorter shelf-life than the corn flour product. The nixtamal process is more complex and slower, and produces lower yields, in terms of tortillas per kilogram (Case 1999). Offsetting these disadvantages is the plus for the traditional tortilla of strong market and taste acceptance in Mexico, and even more so among the more populous lower classes. Gruma and Maseca were founded in 1949 and have grown rapidly since then. Gmma has emphasized R&D from its founding and has the advantage that it can plan and develop strong technology and processes for the entire product chain from corn through flour, dough, and tortillas. This is a strategic advantage over less comprehensive firms that only deal with part of the production chain. A recent example of its technology edge is that Gruma has installed the SAP enterprise resource system in all of its areas at an investment cost of around S15 million (Gruma Corporate website 1999). The SAP system integrates in one software system all the major business functions worldwide. The companies have benefited by closeness at times to the federal government. For example some sources have alleged that the founder of Gruma took advantage of close links with former Mexican President Carlos Salinas to win favon and government contracts including preference for CONASUPO contracts (U.S./Mexico Business 1999). CONASUPO handles commodities for the Mexican government. There were also claims about subsidies incorrectly allocated to certain flour stocks being resold as animal feed (U.S./Mexico Business 1999). In recent years of the Ernesto Zedillo Administration, the government has put in quotas and price controls that have adversely affected Gruma and Maseca, along with other corn flour fums. In the domestic market, there are several large companies such as Maseca, Minsa, and Bimbo that produce packaged corn flour tortillas, as well as an estimated 50,000 smaller f m s that emphasize the traditional maize dough tortilla and serve local markets. The government had subsidized tortilla production for many decades, which satisfied the palettes of the populace and served to check the domestic growth of the large f m s . However, m 1997 the Zedillo Administration started a phase-out of the subsidy. This has been highly controversial since it not only goes against the food tastes of Mexicans but it raises the cost of living for the poor. The Zedillo Administration offered two offsetting initiatives: (1) the new poverty program Progresa started in 1997 emphasizes nutrition and may make the modernized tortilla more appealing and (2) the 1999 agreement of the Zedillo government and citizen groups instituted vitamin and mineral enrichment of corn flour tortillas. For some everyday Mexicans, the nutritional enrichment may be the offset for the loss of the traditional tortilla subsidy.

Cmma is the international parent of the conglomerate, Xn the early $ 9 7 0 Cmma ~~ staaed selling its produds in GenWaI America, By 1976, it was s w i n g to sell products in the US, marketglace, In the late 1980s and early 1996s, Cmma expanded its operations in Cen&al America, p a ~ i c u l ~ Handwas, ly El Salvador, and Guatemala, It has grom in the U.S. markets so it now has the largest tortiHa maket share. Recently, it has also moved into no&hem South America and Europe. For instance, it is building a $50 million tortilla factory outside; London. Cmma has benefited by the great popularity of tortillas in the U.S. That populari~is the result of the hi& and gowing proportion of Mexican population, especially in et for torlillas is magrified by California, Arizona, Texas, Miami, and Chicago. The rnztjor chain producers, such as Pepsi-subsidiq Taco Bell, which Gmma sells to. For inslance, ;in 1996, Taco Bell utiIized 5.2 bilXion torlillas in 4,800 restaurmts (Bmner 1897). Cnrpo Cmma can also market very large mounts of togillas throu& its subsidiq, the supemaket Mission Foods, which is located in states that have large Mexican-origin population. However, way beyond Mission Food, torfillas are sold in nelifly evew supemiurket in the U.S. Studies have s b w that they are popular with Latinos ss well as non Latinos (Bnmere 1997). Overall, this market is rapidly expanding with huge goWh potential md Gmmflmeca is poised as the key producer. Gmma has recently expanded its product lines to wheat flour, camed food, snacks, and manufactudng of maehine~yto produce tortillas a d snacks. It has taken advantage of its techolol;;y edge in this expmsion. In addition it has pamered in wheat flour production with ADM (heher-Daniiels-Midlad Ca.), a leading multhilrional gain compmy, Xt is clear that the corn flaur/tort;iIlabtlsiaess is very complicated and closely hvolves everyday Mexicans, the federal government, overseas consumers, entities in the U S , and the Americas ais well as Europe. This ease illustrates the impact on. Mexican indusw of the changing Mexican demogaphie composition of the U.S. In a way, Gmma products have followed .the wave of migation and received the added ripple affects of U.S. non-Latin0 adapters, The case also illusbates the advantages of technological advances to market leadership both in Mexico and the U.S. Cmmak tecfinology has been strategicsrlly bles~zed "c be i~tevatedacross the entire production cycle i.e. all the way from corn to packaged tortilla. The case hi@li&ts a number of chapter themes i.e. that big agri-companies me usually separated 60m little local producers, that the Mexican go ent recently got out sf the way of managing markets, that corn and ils byproducts constit-ute Mexico's leading agricuimralt commadity, and that t k Mexican and U.S. agiculturallfood sectors are closely internined.

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The Informal Seetor Intrad~ction The XnformaI Seetor and Globailkatirole * IS $hell~lf@if~m$% SCC~OXI"? d ~ i Aditj.Q6ities Shag Make Pip the Iaformal Sector The Magnitude o f the lofomal Sector in Mexico e The l ~ f o r m aSwtor l iara the Mexican Labor Farce - STPS Stndies Q, Ir;8fosaaasajlMicra-BaasixSae~8es- mE@ISumey~ BBI IiBl~stratiqgiasof the Informal Sector in Mexica s

e 99

e

Tian~is Ambulant@ Vendedores Mariss or Street Vendsrs

* Strsact&exralg;DrgaahaQi(z~(& * Ghgilidrem isn &heStreet Secteor ~b

Lezama's Study of Woman Street Vendors in the Mexico City Histarxrie Distdct C6~lncIusiaans Mini Case Study: The Informal Labor Force in Ciudad Juarez aensd El Baso

The Infomal Sector

Historically in discussions of the labor force in pe~pheralcoun&ies there bas been an evolution &om preoccupation with unemployment to the identificatirtn of enzployment as being an important problem (Moser 1978). 'This led to a fmus on the "infomal sector" of employment and the notion of a "dua1 labor mmket" into the fomal and infomal sectors. This interest has cut across disciplhes with an anciflay of clonfusion in definitions (see Bromley 1978a; l978b). In the United Sbtes, W eelsewhere, the infomal sector is not included in official estimates of the Gross Domestic Pzroduct of a countv; in the United Sates the estimate is that one in four dollars is "off of the books." To a large degee, this sector has been ipored because it has not been perceived as a problem until relatively recently. There are very hi@ percentages of workers in the "nfomal econorny2n Latin America and Mexico (see Figure 12.1). The infomal economy is characterized by all kinds of economic activities, many of them uwewlated and uxtcontroXIed by the state, regmdless of their XegaliQ (Castells and Menderson 1987). In Mexico the infomaf sector has been calfed ""te sub&eaneanm"economy (CEESP 1987). m i l e this concept agplies to drugs and other iilegal activities, it pgrbasiXy refers to undeclared waged work, unpaid taxes, lack sf complimce with health and safe5 regulations, md so on. This emplopent sector is pMiculartrly wlnerable to low pay, exploi~tion, subcontracting, and decen&alized production and other activities. Much of the infomal labor force is female, In Mexico, estimates vary but a recent one by a knowledgeable observer made an estimate of that the infornag economy represents 1Q percent of PIE) (Jarque, cited in EI Financiero 1997). Implications of the infomal sector rmge &om uncollected taxes; reductions in small business registration; family smetwe and childrearing; over-estimates of povew, unemployment, sund underemployment; bureaucratic comption, distoaion of of'ficial sBtistics of the national accounts; and the political economy. fn respect to potential policy, it is imperative that many conceptual problems associated with the idea of an hfomal sector be solved before policy recommendations we made. Tbe Znflormal Sector and GXobalbtion

At its broadest definition, the infomal sector does not reister with fomaX authorities but it still mity have available private or public instimtional credit. Sassen (1994: 106-107) suggests that the infornag labor force is l f i e d to glabalization in that [X) it meeQ the demands ofthose involved in the process by making available small enteqrises at the local level, includhing services ;and products and (2) these small eniteqfises are liked to global corporations by assisting them in maximizing profits via the use of sweatshops and home-work. The infomal Iabor force also is linked to globalization by its increasing demmd for Iow-cost sewices and products being produced by an expanding low-income population. Even smet vmdors may ""rpresent but one Lhk in a nationwide dis~ibutionehah of smuggled and stolen property" "oote 1987). Another perspective focuses on the dual labor market as arising &om the need of Imger firms to reduce costs and gain in aexibifity, That can be accomplished though smaller and less fomal orgmizations.

The Infomal Sector

Figure 12,1 Informs8 Labor Force in Selected Latin American Countries

Mexico

CoIurnbia

Chik

Brmil

hgeatiaa

Source: Swretaizl del Trhltjo y Prwisfbn Swid. 1995. Tendencias de la Esmctura Eeonbmica y ef Secbr Infomal cn Mbieo. Mhxico, D.F.: Seeretda del Trabs2js y Prevision Sacid.

What Is the Xmformal Sector?

m e infomal sector &includes the whole m a y of goods md sewices that generally are ignored in ogciaf sbtistics. abvisusly, this includes illegal or nail activities, bmering, work pegomed by haurseholcfs far themselves -- vifluatly mphing that could be done by someone else if paid ensu*. Accordhg to the United Nations (19871, infomal activities af-e chmacterized by: Ease ofentxy; ReEimce upon hdigenow resowces; Fmiiy omership of enterprises; d* Small scale of operation; e. Labor-intensive and a&pted techoloa; f. Skills acquix.edoutside the fomal school system; and g. IJmeeIated md camp&itive markets, a. b. c.

Our investigation a f the infamat sector in Mexico suggests thd severail of these chmacteristics do not adequately describe the infomal Iabar force in Mexico. They are problematic when their opposites me considered; that is:

The Infomal Seetor a, b. c, d. e, f. g,

Difficult entry; Frequent reliance on overseas resources; Coporate omership; Lwge scale operation; Capital-intensive and otfen utilizing impo~edt e c h o l o ~ ; Fomally acquired skiXXs, oRen expa,&iate;and Protected markets (throu* t a ~ E squotas, , and bade licenses).

In addition, in some insQnces infomal Iabor force data, .from some counhries exelude non-amieultural enterprises, illegal and c-rixninal activities, begging, and sometimes domestic work is not included. On the other hand, small businesses using paid labor are incXuded when the o w e r and workers operate at a subsidence level, The conclusion that must be made is that ;the hfomaX l&or force is open to a varieq of conceptual deEnitions, Xn this chapter, we agempt to clasi@ what definition is being used for the data and discussion (see U.S. Dept. of Labor l 992: 13a-X 3c). Some of the problems that exist in use of the dichotomy of infomallfomat labor force are: (I) It is a very crude and simple classification; (2) There are inadequate guidelines for classification pwoses; (3) Policy prescriptions rely upon the dual classiEcatisn; (4) OBen the infomal is assumed to take place only in wban areas; ( 5 ) Other sectors need to be defmed; (6) There is little consideration of the finme of the hfomal dimension; (7) There is conhsion as to the relationships among infomal, households, families, people, activities and ente~rhes;(8) An individual may have an ;association with differmt sectors in their daily routine across time, and (9) A tendency to associate hfomrzf stabs with being poor md uneducated (Bromley 1978a; X 978b). In Mexico there is a need to distinguish between the nzmglnal (marginalid&) imd infomal (informalidad) labor sectors md their multiple definitions (Savxi 1996). Aertivlties That Make Up the lnfornnal Sector

Adivities of those involved in the infomal sector include the following (CEESP 1986): a. Workers or employees who are not registered - off of the books); this may include &ose who are 'moon liighting;hvoiding paiying axes an&or to social sec&@; b. Con&abandmerchandise sales; c. Illegal g m i n g ; d. Work by undocumented imigants; e, TraEftc in illegal dmgs; f. Bafiering of goods and services; g, Prostimtion and other illegal sexual activities; h. t f s w fmarrcial sewices; i. Trmsactions that could be taxed but me not reported (domestic work, renal of automobites, houses, etc,)" j. Non taxed import and exports; and k. Comption and graft payments,

The The Infomal Informal Sector

263

m o isb in the IIgonnal n m a l Seetor? U%o Sector? Data for Mexico in 1988 suggest suggest that in municipios of 100,000 and and more more Uabiants, inhabitants, about one one in thee three men (33.2 (3 1.2 percent) we are involved in the mdmgomd underground economy while while two two in five women are (38.2 percent) (E1 l). (El Sector 1993: 551). By age, the heaviest eoncentratim concentration in. in the infomal informal sector is for aose those aged 20-29, 20-29. By By marital status, those who me are not m married categories) are more more Ikely likely to to be in xnaial h e d (vs. dalll oother ~ e categol.ies) r me the mdergomd d e d . About two-thirds of workem workers pmicipating participating iin in underground eeonomy economy than the m married. About Wo-hlirds underground economy have not comple completed primary schooling. the under~omd ce sectors followed majority of infomal informaljobs we are in the service and commerce followedby The vast nnajofiq manufacturing sector. Wi&h Within the service sector, virtually all domestks domestics are are h in the the manufacmhg e sector they me irrfoma1 informal labor force, force. h In the ccommerce are =&in&, making millas, tortillas, doing lam*$ laundry, vending ice crem, cream, &c. etc. As mi&t might be expected, abost almost half of &ose those in in the selling-to-go, vendhg underpond a l w (""Salmio underground economy have incomes below below the miXlhum minimum legal ssalary ("Salario Mhho"), Minimo"), are also also likely to work more contrast to to about one-fi"rA one-filth ih in the fomal formal econonoy, economy. They me iin n con&at ham. hours.

Magnitude of ofthe Informal Sector Sector la in Mexico Mexico The Magnitude There There are a nmber number of diEerent d i h t ways of cafculathg calculatingthe extent of the the in infbmd sector on the B),One way m e y nationally &e the gross national produd product @ (PIB). way in MeSco Mexico is to ssurvey the number of d ex&apola@ micro-bwhesses, micro-businesses, eswate estimatethe wmbhed combined revmues revenues of the busbesses, businesses, m and extrapolate &at that to esthate i s is made feas&b estimate a &action hction of 6DP. GDP. nThis feasible by regula regular sweys surveys of micro-bwinesses micro-businesses C 1h m G I 1995, 1996). sstarted w e d by M INEGI in 1994 1994((INEGI 1995,1996). In the U United States, the wdergomd underground economy economy has been esthated estimated to to mge range &am f b m 3 to to fn ~ t e dSbtes, 40 percent, depending on tbe the defmition used. used. If only illegal illegal activities are comted, counted, the the percentage is less than if all accounts are emsidered. considered. Xg. In 11 activities not added into national aeeomts Mexico, beginning around 1974, and dependkg dependingon on the yea year shce, since, esti-arzates estimatesrmge range &om from tea ten forty percat percent of the PPIB being kom h m the the su&mmem subterranean sector (Cen&a (Centro to as hhigh i e as almost fom B behg E1 Fianciero 1997). The size size of of the hfamaf informal labor force h in terns terms of &e the economy economy X Firxmciero 1987; E estimated by m INEGI percent of PE3 (Cwjos (Carlos Jaque Jarque Uribe, U n i , eited cited h in El Fhmciero Financiero was estbated 61 at 10 percenl 1997). The hfomal informal economy economy was defmed defined as bwhesses businesses with with less &m than five persons and wi&out without regstration. registration. fn r a a a l [maginalidad) In Mexico &ere there is is a need to to disthwish distinguish bemeen between the nmarginal (merginalidad) a,nd and infomaf f e ~ ~ o x(Sav& ls f1996). Over informal (infomalidad) (informalidad) labor sectars sectors md and their their multiple (definitions (Savari one-tjhkd 980 were in theone-third of of tfiosf3: those in &e the Infomd informal lezbor labor force force (35.1 percent) iin in 11980 the commerce, restaurant, and hotels atrd and one-fa& one-fourth were were hvolvd involved in in co community, sales, and personal resbwmt, services, services. Esthates ths hfomal i n f d labor labor force (subternme@ (subtemnea) Estimates in 1996 placed placed the percent percent in the m per~ent approxbathg approximating bet;vvem between fa* forty and ssixty percent (Cuitenez (Guitcrrez 1997; Foote Foote 1997; M&kez Martinez number of of persctns persons this mems means momd around 20 million! In the commercial sector the 1997). In number in l996 1996 was was that ahost almost fforty informal sec&r. sector. I[n. In estimate in. o q percent of persons were in the hfomal ernployee employee numbers, &is this asnomted amounted to 2,214,574 2,214,574 of 5,0 5,057,910 persons. The commerce sector represented 19.7 pereat percent of of Pm PIE3 in 1996 @conamic (Economic Commission for Latin America and the repre~nted Caribbean 11997). this peremage percentage increashg increasingrapidly by by the year year 2000 Cwibbean 997). Some estimates show this to 99v. to eonbint contain ahost almost foe-four forty-four percent Perez (Perez 1 1997). Figure shows that the fomal formal and infomal informal l&or street vendors vendors or labor force (i.e s&eet F i p e 12.2 show ambulantes) percentages have mised raised sli&tly slightly bemeen between 1988 and 11993. vendedores arnbzllantes) vendedares 993, However, However, Figme Figure 32.2 12.2 also also shows subsmtial substantial change &ant fiom 27 27 to 43 percent of of labor farce force and projections for for the yeas year 2000. This E figure illustratesthe ggrowth w e iXlus&ates o M in bbetween a e e n 1993 surd

The Mama1 Sector

264

vendedores mbiulantes has been coasta~tfygrowing shce 1988 and is expected to b e conthued goWh. Wile increasing in nmber, Figwe 12.3 shows vwiation in c1msification in hfomal emplopent has remabed relatively stable 6om 1990 to 1996 mong indepmdent workers, domestic semice, and small busbesses @ere2 1997).

Figure 12.2 Lmtbar Farce: F~mmalComrnerciaf and Verzdedorw Ammbuiarrtes 80

Source: Pas, 1997,

This esthate hdicates & ~the t Mama1 propo~ionof the labor force is even hi&m if small bushess s e ~ c e and s domestic s~micesare kcluded. For 1996, this Imge e s a a t e is 59 jperwnt. W i m this S9 pereat, the Iagest propoution were indepmdent workers (32 gmcmt), followed by smail h b e s s (21 percent), md domestic sewice (4 percenl.), W s emphmhs &at the: most co of kfomal labor form is hdependent work. This comespon& more h11y to the street vendors and hfomal hdividual sewiee people that are prevtlmt espcialliy in Mexican cities, Small bwhesses are not swrisbgiy a subsmtid prowrtion, wEEe domestic service is not so c One possible smogate measwe of the bfomat sector illus@ati;llgthe minhum Ievef ma;y be the "o&er md not specifieb" catego~esin the labor farce, If so, the lewl in 1990 wodd be?, at- a xrrinhw, over eleven perceIzt (Pick md Butier 1994)- O&er eststimates for Mexico we closer to 220 percent (CEESP 1987: 89).

The Infio-rmaf Sector in the Mexicaln Labor Farce: SWS Studia The hfomal labor form cm be considered in tems of the entke workforee and in fact in tems o f the mtke population of age 12 and alder. One of t h most ~ in depth $&diesof

The 1nfomaX Sector

265

the Mexican infomal labor force w s conducted the SecretarPria, del Trabajo y Previsibn Social (STPS) for the years 1988 to 1993 (STPS 1995). In that study, "infomaf" was defmed by fairly complex criteria: (l) domestic work, (2) non-sala~edand con&actworkers h estabfishents of 5 ar fewer employees, (3) independent workers, exce@ professionals, (4) workers receivhg no gay, except professionals (STPS 1995). The study was based on three large national s w e y s of employme;nr conducted by S W S in E 988, 1991, and 1993. The gamework of this study views the population 12+ m consisting of eeonoxni~allyactive population and economically inactive population (see Table 12.1). The ec~n,omicallyactive population consists nemly e-ntirely of the major categories o f fomal employed md infomal employed. The economically inactive population includes the cartegories of swdents, housewives, retked persons, incapacitated persons, and 'bthers" ((STPS 1995). Figure 123 Infarmal Employment?,1980-1996

The results revealed .that in, 1993 about half of fie populit(ian l2-t- was economically active and half inactive, Within, the eeo~lomicaflyactive pogion oaf l5.1 million workers, 9.1 million wwe fomal employed workers and 5.8 million were infomal employed workers. Hence, 39 percent of the employed labor force was kfomal. Overall, this sement represented one fifth of the population 12 yems and older. This Qpe of mlysis places the l l&or force in the larger context of the population as a whole. Xn.fomal labor force becomes one of the four Largest catepries far a h k popula.tioln, This underscores its hporlitnee in Mexico, including a an economic force. The same study carefixlly compared the age, education, gender, and accup&ioxls bemeen the infomaf and fomal labor force. In all cases there were large differences, This helps in understanding that the fomal md infomal I&or forces must be regarded differently.

The InfomaI Sec-tor Taibfe 12.1 The Size of tke Informal Sctetor and Qlfier

E;ionomrcaJ&In~ctzvePopulatz~n~ IZ+ Students Hausewives Retird prsons XncapaciQtd permns 49 1

1.72

Source: Secretwia del Trabajo y Previsibn Social, 1995. * in miHions.

In age distributim, the STPS results for I993 indicated that the irzfomal sector had relatively more teens and dder (50+) population than the fornail sector. Far inst;tnce, teens (i.e. age 12 to 19) comprise 17 percent of the informal sector but only IQ percent of the fomal sector. At tfne opposite end, older persons ( S O 9 comprise 18 percent of the infomal sector but only 10 percent of the: fomal sector. It may be that the lengthy ecclnorni~crisis of the 1980s reduced jobs in the fomaf ecwomy, and the jobs efhinated wem for the young and old. The imrtfomal economy filled in. As seen in Table 12.2, low educationat level is l ~ e with d hi@ infomal pmicipation, while higher schooling h a low infomal presence. In the middle levels of schooling i.e. I to 6 years, there is betvveen 49 md 63 percent hfomaI presence. Even though the rate of hfomality drops at the seeonschooling level of I0 or more years i.e., there is still a suvrisingly high infomal presence i.e. of one figh. This reflects the economic pressures towards the infomal labor force even for a more high& educated population. Table 12.2 Educational Distributions for the Formal and fnformaf Sectors, 19%

l-3 years 4-5 yews 6sars

4.4 2.9 t 7.7 35.11

X 1.8 7.8 27.1 31.2

62.9 50.8 49.2 35.4

The rate of infomality is the ratio of informal workers to total workers. Source: Secrepm del Trabajo y Prcvison Soe~al,1995. Q

The gender ratio of the two sectors diEers, with the infomal seetctr much more balanced. Far instance, in terns of proprietors of micro-businesses, 46 percent of proprietors in the infomal sectar are women, compared to onty I IS percent in the fomal

The InlFo.mal Sector

267

sector. The peater oppomities for women proprietors in the infomal sector may stern enbl regulation a d educational ba~iers. The digerences in the infomal vwsus fomal sectors are accentuated in looking at diEerences in occupations. The raw numbers and percent distributions of 27 occupational categories reveat considerable diEerences ranghg IbeWeen l md 100 percent in the extent of infomaliq (see Table 12.3). For the totar labor force, the average rate of infomalily was 39 percent. Among the major categories with high rates of infomality were domestic services (100 percent) cleaning and Xaundv smices, repair semices, and retail c all above 65 percent. This singles out commerce as especially oriented towards Not sqrisingly street vendors are 99 prcent infomat, Hi@ty formal sector occupations include met;ab/nzachineryIgXassf mining, dnaslcialleducationaVmedica1 services, sewindabrics, and gaper and wosd productrj. These are older induslries and sewices that have more @aditionasslxiated with them and h i a e r levels of education in the ease of finance/educatiodrnedicaXX The vast occupational differences in inf"omalily help to explah Mexico" infomal inantly done independently, sector. In cedain niches in the economy, work is n other niches, t regulation. X sporadical@,and at low or no pay. There is lack of go work is done h larger goups and regulated. The infomal occupations have easier enw, which are available to the Iarge populdions affected and displaced by succeeding economic crises that have mified tbe 1980s and 1990s. 7

lahrmal Micro-Businesses: IIVEGI Suneys WECI r e c o p k d the infornation gap on infomal micro-businesses and instituted a regular national susvey in 1994 in order to provide more infornation on hfomal as well as fomal micro-businesses, Nearly ail the f m s suweyed had five or fewer employees. '"nfomal" was deterninecl quite differently than f"or STPS or other smeys, A vaiety of regis&ation critefia could be appEied to deternine extent of infomality. MECI identified ""infomal" "ou& the presence or absence of business regisbation i.e. whefter a fim was regtistered with the f"edera1gave ent9 municipal government, trade mions, or industry goups, Once a micro-busines established m infomal, workers in the business we likewise classiged as informal. The range of registration status is shown in TabIe 12.4 for f 934 and 1996. In 1996, the percent of micro-businesses with no registration of any kind was 63 percent! If total lack of registration is utilized to defme infomal, most mimo-businesses %"allinto the infomal sector. From 1994 to f 996, the infomal sector pew by 14 percent, or 460,000 workers. This huge increase was the result of two f"actors,. First, the economy worsened in 1995 following the peso crisis of late 1994. Second, the Mexican labor force in the 1990s grew by about one million net new workers per year (Pick, Butler, and Gonzalez 19931, md regardless of the erisis, there were not enough fomal jobs to absorb this population increment, W e n registration of micro-businesses occurred, it tended to be at the stde, municipio, or trade union level; federal regis~ationwas suvrisingly low. The registration results by economic sector reveal that the highest non-registered sectors are constxllction, manufacturing and services; commerce is moderate; and transport: has the most registration (see Table 12.5). This may be suvrising, since some studies have pointed to commerce as the mdor constituent of infomal sector. FIowever, many studies such as of ambulmtes have over-emphasized c erce iand not included construction and manufacturing, since they are not done in the street. Manufacturing" high infornal percentage may be due to

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06.0 Z 1'0 ZO"0 9L'E EZ"0 0Z.O Ell.' I WSI LL"0 ZG"1 60' I 1Z.0 L8'1: b0.Z to"I 81"L S@'L 89'F 08'9 ZS"9 BZ'SZ 18"IE LE'El PL'S 01'1 t 0.0

0'ZS

6'9 1.1 E'LIZ E'E 1 6.11 6"Z8 t"09 $"W I "9L z'E9 I'ZI 1 '801 8"Llf 8'19 8'91t L'OEP L'% P"E6E 69LE 0.E99'F 6'8$8'1 Z'ELL OaZEE L"E9 S"0

OL'61 EZ"9 6Z.0

ES'9Z

K'I SO' I 86.P OWE $8"1 8E'Z LP3

BZ.0 OO'Z Zt'Z M.0 4E'S 6r.t. £60 SS'E £0.0 LF'8 OP'8

FZ"Z LL.0 ZI '0 00"o

The fnfamal Sector

269

lack of regulaions for manufacturing and at the same time the often medium to high educational levels of infomal manufacturing wokers, Tke hi& rates for constmction may stem from lack of regulation of this industry in Mexico, while transport is mare regulated. The surveys reveal many feaares of infomaX micro-businesses, in comparison to fomal ones. In size, infomaI micro-businesses cmsist mostly of a single worker ('77 percent), This relates to the independence and lack of control of the infomal sector. Only a. tiny propodion of infomal, micro-businesses had more than "lee employees (see Figure 12.4).

Industry Croup Munisipio or State Trewurer Treasurer of the Federal Drstriet SECOFX Secrelary of Health Other Registrations

8.48 16.70 5.54 1.74 6.41 1.29

3W,602 609,768 202,456 63,615 234,090 157,270

5.81 13.77 9.58 2.92 6.85 2-60

207,802 492,283 342,594 104,479 2M,794 93,012

-2.66 -2.93 4.04 1.18 0.44 1.31

f 00.00 3,652,241 100,00 3,575,587 SECOFI = Secretaria de Comercio y Fomento Industria!. Note: the data are based on entire smple of mi~rebusinessesiin 1I"JECfSullreys of af 1994 and 1996. Souree: WEGI, 11996,1997.

Total

No. ofMtcro-

Manufacturing Sewices Commerce

NO.1\Jut

Percent Nor

MO. ofM~cvo-

No. Not

Percent Not

485,429 1,273,161 f ,034,497

339,777 835,591 467,679

70.00 65.63 45.21

4 5 5,939 1,586,540 1,238,574

307,711 1,144,006 640,879

73.98 72.11 5 1.74

Total 3,090,243 Source: INEGX: 15196,1997.

1,807,743

58.50

3,575,587

2,269,13 f

63.46

Another aspect is the localion of infomalt micro-businesses, Mostly ;inkmalt work is done in the hame of clients or the home of the workers (see Tslble 12.6). Although the perception is that Znfomal work occurs in the street* commerce is only 28 percent of infomal micro-businesses, The large infomal segment of manufachrhg ar~dservices are more likely to occur hhomes. For the segments that occur in the sheet, there are a vartriev of anangements of vaqing pemanency. Perhaps the most '"pemment" is the fxxed or moveable shnd of a tianguis (5.7 percent). Much less gemanent. are goods or services offered ffom a motrrrcycle, bicycle or motor vdicle (4.3 percent.], Any~xleobserving a wical Mexican crowded city ?&eelcan notice the moving varieq of places and locations fsr goods md sewices.

270

The Infomal Sector

Some other slspects of the infomal micro-busixlesses relates to the influence of the family, the tax implications, lack of accomting books, sources of credit, and the education of owners, These micro-businesses are only 30 percent family mn, which implies more safe practitioners. This again may be due to the WEGX swey" seater bread& and inclusion of manufacturing md consaction. Since infamar micro-businesses have Xiale regisQatisn, one implication is that very few taxes are paid. This in hrrn is a cause of the open conflict ent: and with estabilished merchan& that has engulfe street vendors in Mexico CiW in recent yews (Bemm 1998). In fact, the fe nt hw stafled to qwstion whether s@eetvendors should not be approached are: of income taxes (Bemm 1998). This may be difficult shce over half of the micro-businesses do not keep my book, and ozlly a qumer has accomtkg records. An importmt sthuXi to hfomal micro-businesses is the sources of credit to sstm. As seen in Table 12.7, the largest. credit. source is firorn suppliers. This points to the need for &fiber research to detemixle that the suppliers are, what thek role is, and describe the entke supply chain. Most of the rest of the credit corns kom friends and relatives; there is a v e q srnafl proportion (ten percent) from ba&s and swings instiwticms*Confomixrg to other studies of the infamar sector, the MEGX smdy reveals lawer average education far the infomal sector>but nevefiheless a significant s e p e n t of secoadasy or even college er reflects job market presswes s ing &om the peso crisis and momting nmbers of workers. Figure 22.4 Miere-XZusines Size by Registration Status

No, o f Workers in a Mlcr+Business

Mote: the data are bstsed on entire smpie aof micr&bltsinesses in mEGZ surveys af X994 and I WS. Source: Secretwia det Tx&ajo y PrevisiiCtn Soeisl, 1995. Tadenciw & ceta Estmctura Ecancimiea y et f wtor I~fomalen Mkico, Nbxico, D.F.:Secret.aiadel Trabajo y Prevision Sacid.

27 1

Tbe Infumal Sector

Table 12.6. Distribution of Locations for Micro-Businesses, 1996 Mchmdise, foods, or serviczes @Reredat the home of clients Mechmdise, foods, or sewices offered 1home without a special inslallation Street vendor Improvised stand in a public street Neehmdise, fmds, or sewices oBered at home with an improvisd installation Stand Iha foms past of a tianguis [fixed or moveable) Improvised s m d or street vender in a maket or tianguis Fixed or semi-fixed stand in a public way Merchandise, foods, or sevices offered from a molocycfe, bicycle, or motor vehieje Mcrchmdise, fwds, or sevimd omered Fram a van, mini-bus, or cotleelive taxi Other Total Without a fixed lsealian With a fixed location Total Source: MECII, 1997.

38.9

867,387

29,43 1 2,227,759

1.3 100.0

138,099 2,227,759

6.2 100.0

Tstbie 12.7 Types of Loans Received to Start a Micro-Business,

Bank loan Savings institution loan Loan from friend or relative SmdI private Iom Credit from Suppliers Other Total reccving a loan Percent receiving a loan Total Source: IPJEGT, 1997

9,930 9,853 56,722 8,935 69,477 1 1,338 166,256 7.3 2,269, f 3 1

6 6 34 5 42 7 100

69,638 10,215 67,523 14,271 132,868 X 0,069 364,984 23.3

79,568 20,058 124,245 23,206 202,345 2 1,408 470,840 15.2

1,306,456

Iltastratians of the Informal Sector in Mexico

As shown on Figure 12.5, there is subsantial variation in the fomaX and infomal labor force in Mexico by size of workplace. The vast xn@ori@of workers in the infomal sector work alone or with a maximum of five workers, where= the majority of those in the foma2 labor force work in facilities with S 1 or more workers. Another substrtntiai difference between the informal and fomal labor force is by sex af owner. As shown in Figure 12.6, the fomal Xabor force is almost completely male whereas the infomal labar force is ailmost equally pmicipated in by each sex. Earnings by participation in the fomal and infomaf labor force for f 993, as shown an Figure 12.7 when compared with earnings in 1988, indicates that there was a general uplifieing in both the infomal and fomat labor force, but with a larger increase upward far those in the infomal sphere,

The Enfomal Sectar

Figure 12-5 Occupation by FarmaVInformal Status and Size of Workplace

None

One Worker 2-5 Workers

6-50 \Fbo&ers

S f & More

Workers

Hot Specified

Souree: Secretaria del Trabajo y Previsibn Social. 1995. Tendencias de la Estmetura Econdmiea y d Sector fnfennill en M&iea, M.ixico, D.E.: Secretmia del Trabaja y hevision Social.

Figure 12.6 Small Busises~by Sex af Owner

Sourw: Secretaria del Trabajo y Previsidn Social, 1995, Tendencias de fa EstPuctura EwnSmica y el Seetor lnfamaI en Mhieo. Mkxieo, D.F.: Secrdaria del Tr&@o y Prwision Social.

The Mama1 Sector

274

Some cities such as Motnterey we low in. kfomal labor force, which refleets a s&ong me&apolitrdn economy md hi@ educational levels. A study of the percent in the infomd labor farce in Mexico compared M~xicoCity, Gw&lajma, Montemey, m d combhed. 42 orher cities. The resal& shorn on Figure 12.8 demons&ate &at &ere is same vmiatian but &at mast cities have at femt one h four persons in &Glabor force bekg ixr the infomat sector. Another perspctke shows that of the total infamal Mor force in Mexico, 22 percent is coneen&atedin. M e ~ c oCity (see Figme 12.8)" In Fvllaico the infomaX seetar has been analymd by diEerent gov organimtions. However, these andyses rely substantially upon demogaphie and s a c m a t malysis. Additional. questions about Ule infomal sector h Mexico imply that ttre UN chmacteriatioa has some severe limiQtioas. Sevaal of these ques~onsrevoke wamd h w much argruzimtional smclure there is, who settles dkputes, who is in con&~l,and if can&al is exefied by o&ers, It is reTtdify appaenlr by obsemation in cities hMexico that tkere are several dieereat W e s of involvemeat in the tjlfomaf smcwe. These w e s md asociated dimemjam imply &at much resemch needs to be aeeomplislred beyond a smcmal a d &atlstical malysis. For example, at least k e e diserent m e s of the s o m a l . labor force have been identified: (1) Tiangzrfs which me bi&ly o r g a ~ m din. several ways; (2) Vendeefores Ambzrla~tsrshvolvhg substa~tiatmovement, but ha systematic mmer; and (3) Marks -~&@et vendors wi& we& or no orgmhtion.

Figure 12.8 infornrai Lsbor Force by Cliticts and Percent of Total

Note: Dis~butionreprmnts &e permat oEtot.4tS population of all 45 cities, Perm& is the prcent of the labor force &at is idamd. Souree: S~remiadel Trabajo y Revisibn Soeiai. 1995,Tendencias de fa Esmmra Emadmica y eI S&or Infamal en M&ieo. Mxiea, D,F.: Secrwia del Tmbajo y Pmision Sscid.

TheInformal fnfomal Sector Sector The

275 275

rianpis Tianguis Timguis involves involves persons persons who vvho appear appear to to be be substantially substmtially orgauized. orgmized. They They may may be be in in Tianguis the same s m e spot spot isis aa particular pmiculw they return to the locations on on different diEerent days; days; however, however, they ddiEerent i n t locations who might mi&t want wmt the the same sme md there &ere appears appears to ta be be little little conflict conflict with w those who location, and location, location, They They also also may may be be paying payhg taxes, tmes, receiving receivin governmental recognition, and may location. havemanagement. mmagement,This Tkissuggests suggestsaacertain c e m h amount m o m t of ofcontrol con&oland a d structure. smcme. have Ye~ldedo~gs Am bulmtm Vendedores Ambukanta In urban mbm areas, aseas, many mmy persons pasons under m d a this this classification classificationare are involved involved in in m mmufa In anuhhrhg m4 service sewiceindustries. kdusQies. In hrural ruralareas, meas, they &eyalso alsoare we in inmarginal m~ginal ercialand activities and in commercial posiGons, often oifgeninvolved hvolved in ins small %alemanufhcturhg. mmufacmhg. positions, mall scale M~rias orStreet Street Vendors Vendors M miar or

Perhaps the the most rnost visible visibleof of those those in in the the informal hfomaf sector sectot.are are the the marias. mdas. These mese are arethe the Perhaps women and and aa few few men men who who are are highly hi@y visible visible on on the the streets aeets selling selXhg dolls, dolls, native native artifacts, aifa-, women and sometimes sometimessmall smallfood food items. items. However, However, while w ~ lititemay may appear amear on on the the ssmfat=e Chat marias m~as and d c e that me not not organized orgmimd in h any my systematic systematic fashion, fmhion, they they have have certain c e m b areas me= staked st&ed out out defining def~ng are thek territory tmitory and md little little conflict conflictappears appeasbetween bemeen them them and md others a&erswho who might mi&t want wmt to to claim clah their hplace placeand mdtime. the, theirterritory; t e ~ t o wthat &at ; is, is,there &me isisconsistency consistencyin their to stereos. stereos.One Oneestimate esthateplaces pEaeesthe the chewkg gum to S&eetvendors vmdorshawk hawk everything evewhhg hfrom Street m chewing n m b m as asapproaching approachhgone onemillion million(Foote (Xiaote 1997). 2997). number Structural Organhtion

Clemly, the &e informal bfomal structure s w c m e exists exists within vvj&in the the framework firnewark of of govemmental gov Clearly, howledge, and, md,some same would would argue, m@@,with with govemmentall protection. protection. Some Some believe believe that the knowledge, lzas 'rented' kented7 out out the the public public space spaGe sidewalks sidewalks for for private private commercial e ent has government use by the theMexican Mexicmconstitution. comti&tioxl.There n e r e may maybe be kickbacks kickbacksor or isprohibited prohibitedby although this practice is oBcisrls,ranging rmghg from &am$200 $200to to $1,500 $1,500 for for aa sliver slker of of aa sidewalk. sidewak, In In 'fees' to government officials, @&ereconomic e c o n o ~ processes cprocesses associated associated with with street s&eet vendors vmdom in in aa addition, there are manyy other by as as much mueh as as 70 70percent percv a f i e of ~of ways. ways. Street S.treetvendors vmdors may may have have undercut mdmcut retail rehil prices prices by variety ofbusiness businessby bythe thehundreds hm&&s ifnot ifnotthousands. aousaxlds. drivhgstores staresout outof driving fn Mexico Mexico City City at at the the behest befiest of of regular regular storeowners, storeom@m,the tke police p1ice haw have attempted mempted to to In remove street s&atvendors. vendors. One m e such s u ~ episode & episodeused used 3,500 3,500policemen policemen to to sweep sweep the the city city center canter remove clean of of the the unlicensed mlicensed (Berman (B 1998). In In full full riot riot gear, gear, the &e police poliw prohibited praMbited street sbe& clean 1998). peddlersfiom &ornsetting settkg up up shop. shop,The Wlout fallolEt:h&orn this sweep sweepand and other otherattempts attemptsto to rid ridthe the city city peddlers m this had political political repercussion r~ercussionin in the the of street sbreet competition camptstitioa to to the the regular regular stores stores undoubtedly mdoabtedly had of mayoralelection e l ~ t i o and nand will will continue conthue to to do do so soin in future f"uRureelections electionssince sincethe the vendors vendorshave havebeen been mayoral PM. aBEliatedwith withthe the PM. affiliated h as study study of of 60 613 street street vendors vendors in h the the center eenter of of M Mexico Gie, Solis Solis (1995) (19W5)exsmined, exmine& In exico City, of the the vendors. vendors, ammg other o&a things, &ings,the the organizational orgmizationalstructure s m c m e and and external eaemal relationships refsltionships of among Shefound found that at nearly nearly all allthe the vendors vendors (88 (88 percent) prcent] belonged belonged to to aa street s&mtvendor vendororganization. orgmkalion, She p h q role role of of the the vendor vendor organizations orgmkatiam wwas to defend defend the the physical physical street $beetlocation laeintionof of The primary The as to work, AA secondary secoxtdw role role was was to to provide provide special special assistance assistan~ein intimes h e s of of need, need, for for example exmple ifif work. goodswere were stolen. smlen. In h addition, addition, some some of of the the organizations orgakatiom had had the the broader broader goals gads to to dignify dipiEy goods and status stabs of of the the street stfeet vendor. vendor. There mere were were also also economic economic linkages lidages to to other o&er the role role and the on supplier supplier credit. credit. Sixty Six? percent percent of of stands stands had had received recteived credit eredit. h&om businesses based based on businesses m suppliers. This This implies insplies aa close close relationship relationship with with suppliers suppliers and rtnd aa form f o m of of risk risk sharing sharhg suppliers. beween the thesupplier supplierand andvendor vendor(Solis (Solis 1995). 1995).A A substantial substantialproportion propo~ionof ofthe thesupplier supplier between

276

The Infomal Sector

relationships extended Further since 37 percent of the merchndise was of foreign or of mixed fwei&domestic origin, 'This supplier aspect is i m p o m t for the present book, shce it shows that there are intemsltional supply chain li&ages for parts of the informal sector, Children in the Stree-t Sector A recent report counted 13,373 minor $@eelchildren working in ei@t of thehe: centrally located delegations in the central part of Mexico City (WIGEF 1996). Some of these chilhm were under the age of five (see Figme 12.9). In a conlparison by age, the younger street children were more likely to be female while progressively age-wise they were male - nearly half md half at ages under five were female while at ages 16 and over four out of Eve were male. Most of these children were skre& vendars (ca. 58 percent) while over a fouah, aH Endians, were s e t beggss. Other activities were windshield washers, adors, and street porters (see Figwes 12.10 to f 2. f 2).

Lezama" Study af Women Street Vendors in the Mexico City Historic District A smdy by Jose Luis Lemma in 1991 chmacterized a goup of wornen street vendors in Mexico Civ's Historic District located near the Bcolo in the hem of the old part. ofthe city. This study reveals dehils about work smeare of infomal s&eet workers as well as their social and family characteristics. Lezama conducted a survey of 66 women in 3 m u ~ of 1991. The revondents were involved in selling goods including clothes, shoes, fake jewelv, games, elecgical items, and foods, The sbdy also focused in fudher cm a goup of women who worked '"ouuble work days,'?.e. worked in the s$-eet and pefiomed subsmtial child and domestic care. The overall profile of the women was young, in unions, having sipificant numbers af childrm, and with a range of education. Three fifibs of the women were beween 20 and 39 years old, and three fifihs were in unions, Thee quarters had chil&en and nearly a half had three or more. Fu&her, supporting other $&dies mentioned in the chapter, there wrzs significant proportion of more ihi@ly educated. Although 30 percent of the women had no education or incomplete pr;irnq schooling, 27 percent had completed secondav school and 5 percent were preparatory level, This agah reRects the presswes of the econornie crises, in this case ffom the 1980s debt crises. There was a lot of pressure on this gaup. For instaxlce in one third of cases, the sheet vendor respondent was the only farniiy breadwimer. In length of work, 70 percent worked 8-1 1 hours daily, and 5 percent 12 or more hours, In addition t s street vending, 45 percent of the women were engaged in domestic work and 32 percent in care for children (Lezama 1991). A high proportion of the women were migants to Mexico City. ln fact, 50 perce-nt bad anived in Mexico City in the past ten years. This demonstrates that many wornen migrants to Mexico Cie,mostly @ommml areas, ended up in low-paying $Beet occupations. Lezama (1991) haher s ~ d i e da subsample of 12 wornen who (1) worked 8-1 1 hours as inkrmal st-reet vendors, and (2) cared for children and did domestic work. This subsample was younger and slightly more educated than the sample as a whole;, The subsampie refleets the even greater work and familial s&essespresent for cefiain segments of the infomaX labor force.

The fnfomal Sector Figure 123 The Street Children Popufation in Mexico City, 1985: Minors per hlitical District

Source: Economic and So~ialResearch Division of BAN WXCEF. DIF. M3F. I1 Censo de 10s niaos y niflar; de Ia cage. Ciudad de Mexico.

Mexiw 1986,

Figure 12.10 The Street Children Populatiion in Mexico City, 1995: Minors per Gtassification Indian minor working in Ihe stJeet 15%

Indian minor living in the strieet 0.16%

Minor working in the street 7 1%

Source: Eeonornic and Social Resemcb Division of BM-EX. B ~ e on d data from WXCEF. DIP, DOF. I1 Censo de los niPios y niiras de la ealle. Ciudad de Naieo. Mexico 1996,

Tbe Xnfomat Sector Figure 12.11 The Street Children Population in Mexico City, 1995: Minors by Sex and Age

Saur~e:Eesnamic and Swiai Reseach Division of13MMEX. Based on data horn WlCEF. 9fF. W F . U Cenw de los WiAos y Niiias de Ia Cslle, Ciudad de Mexico, Mexico, 1996

Figure 12.12

The Street Children Population in Mexico CilEy, 1995: Minors by Major Aet*Q 56.7%

Street vendon

Souree: Economic and Social Re%mch Division of B M M E X . Based on data from WlCEF, DIF. DOF. II Censo de fos NiEios y Nilias de la Calle. Ciudad de Mexico, Mexiw, 1996.

59.9Y0

The Xnfomal Sector

279

It is noteworthy that 56 percent of the women were associated with an organization of s&eet vendors. However, there was also uncerlainly about the political con&ontations that whirl around the vendor environment, including from the government and gorn competing licensed merchants, Lezarna ascribed the motivation. of the women to "economic reproduction," a term that refers to the desire to perpetzrate economic gains, even small ones, for the next genemtion. The motivation is noteworthy because of the extent of work and "doubling up" of work that often occuned. He regards these street vendors as being at the center of complex economic forces (Lem~na1995). For instmce, there are the cost pressures of cizpitalism, even international ones, on the goods being sold; there are political and governmental seesses and conflicts related to pfiysical space and competition in the city center; and there are pressures &om the complex organimtionali strucwres that control the physical space i.e. vendor orgaslizations. In addition, the vendors are part of often large family stmctwes that include many economic exchange mechanisms. The study is valuable in revealing the complex inteflplay of players and forces that impact this segment of the infomaf mxketplace,

The infamal sector in Mexico is very large and influential. It consists of workers in the range of 6-8 mifIion who pedom economic tasks and account for about IQ percent of PfB and 40 to SO percent of the workforce. The infomal sector is specific occupationally and emphasizes particular semice and commerce occupdions but also has substantial manufacturing and construction presence. Infomal work tends to be done by individuals or small goups of up to three persons. AItlrtou* the popular infomaX image of the sfreet vendor or '%arnbulmte," rerecen_tbroader smdies have s h o w that the largest Xocation for the infomal sector is hhomes i.e. the homes of clients or infomaf workers themselves. There are sorne generalizations that are possible about the characteristics of infomal workers including that they are less educated, have more females, and inelude both moI-e young and more older people. The sources of credit are mostly though suppliers and personallfamilial contacts, rather than the flomaX credit system, Informal workers and businesses tend to have no regis&ation and not to pay taxes or fees. Infomal commercial workers tend to be members of organizations that provide them with sorne basic suppoPt specially regarding temitorial claims. The motivation for the infomal sector sterns &om a variev of complex factors. First, the poorer s e p e n t of the wban poputations have looked to the irtfomal sector as a means of ""economic reproduction,'3.e. a way to provide some economic benefits to their children of the next generation (Lezama X991). A substantial portion of these poor urban populations are migrants from mrd areas into the cities; they lack other options and find the infomai sector a means of entry and often tong tern tivelihood, Second, at the individual level, the economic crises that have wified the 1980s and 1990s combined with the growing working age population have displaced many workers and those workers have often been forced to enter the infomal labor force. This applies even to same persons of high education, Third, competitive and cost cuging pressures in the economy have made the infomal labor force aaractive to both buyers and sellers. Some of these pressures are interncdaional or global ones, Finally, cons&aint.sand problems of the fomal sector such as high taxes, excessive regulations, administrrative prohibitions and bureaucratic comption encourage movement to the infomal sector (CEESP 1 98v.

280

The M M Sector

These same same motivations motivations can cm lead lead to to conflict conflict in in some some cases. cwea For For instance, hsbnce, the the cost cost These a d competitive competitive factm factors can cm pitch pitch street skeet vendors vendors against a g a h t licensed licensed formal-sector fomal-sector cuaing and cutting in the the same same neighborhoods. nei&borhoods. Government Gave merchants in merchants may in the fUture seize on the mapibde and and visibility visibiliv of of parts pms of ofthe the informal hfomal sector gctorto to impose hposetaxation programs. magnitude md globalization. do The focus focus of of this this book book is is on on the the world world system system and The How does the hfomal labor labor force forcerelate relateto to these these themes? &ernes? Sassen Sassen(1994) (X9W)and md others o & m have have pointed pointed out outthat th& informal the informal lafomal labor labor force farce provides provides smaller smaller but but essential essential support support functions kctions for for the the larger lager the glottal enterprises enterprisesto to succeed succeed. Some Some of of the tfie global global manufacturing mmufwMkg that (hat is is growing g o w h g in Mexico global de;pen& on on complex complex supplier supplier chains e b b s that that are are based on on small small services, services, commercial c depends whange, and and even even some some minor mhor products ~ o d u c supplied supplied b by the the informal hfomaf economy. economy. One O example exchange, by ceflahty is is the the international htemational tourism towism industry. ixldu certainly Informal me essential essexatialto to that &at ai service semice workers workers are hdusw and md many mmy are are informal. hfomal. Informal hfomal commercee plays industry pXays aa role role as well. well, Althou* the the maquiladora maquiltadora industry h d w v receives its Although its high high tech &eh components components and md supplies supplies ou&ide of of Mexico, itit benefits b e f i b by by the the low law costs costs provided provided by by small, small, informal hfomal ssewices h&am m outside e~ces er~ialexchanges. exchanges. The transformation &msfomatian and and global global "opening" " o p e ~ g 'that w a is t occurring oc m and commercial the Mexican Mexicm economy is is driven driven partly pmly by by domestic domesticcost cost advantages advmQges and and some same of of them &em stem stem the o the the m informal kfomaf sector. sector. b~ m h o a e r book book theme theme feame is is that &at as as the the Mexican Mexican economy economy m0demk.s modemims and md opens o p n s up, up, Another shock and and crises crises are me occurring, ocemhg, such such as as for for example exmple the the peso peso crisis crisis of of 1994. 1994. The The informal hfomal shocks in particular pWcul[aras as an m alternative alternative sector provides provides aa "cushion" 'kwhion'90 absorb some some of of these t k s e shocks, shoch, in sector to absorb sowce of of livelihood livelihood for for displaced displsteed workers, workers, iin absence of of aa well well developed developed government gave: source n absence sociaf welfare wlfare system. system. social There is is aa paucity of af studies swdies and md aa great p a t deal deal that that remains remains unknown mabout about this this major major There p~ of of the the labor I a b r force force and md economy. economy. Most Most analyses amlyses have have been been relatively relatively unsophisticated unsopktisticated part md have have not not explored explored more more subtle subtle nuances namces of of the the informal infomal labor labor sector, sector, definitional dekitional and sntdies are problems, and and interactions hteractions with with economic economic change. clhmge. More More surveys smeys and a d research researGh studies problems, needed to to help help to to elucidate elucidatethe the complex complex factors factors impacting hpacting this this sector sector and md to to shed shed more more light li&t needed h the process process of afMexican Megem economic economic transformation. &msfomation, on the the sectof swtor's role in on S role

Mini Case Case Study: Study: The Informal InfarmaltLabor Labsr Force Force irx Ciudad Ciudad Juam Jufirez and and El Paso Paso in A book by Kathleen Staudt Staudt (1998) ('1998)covered coveredthe the informal infomal economies at the U.S.-Mexico U.S,-Me~co A rhe cities of Ciudad Juarez Juwez and El Paso, Pitso, Texas. Texw, Here, however, we only only present present a bordm for fur the border m y of of it related to to the informal kfomal labor Iabor force. force. She argues wgues that informal infomal selfbrief summary tftajn ideal idea1household support gulpport.strategy. sWatem, She She points p a h h out out that that informality hfomali.ty employment is a less than oEers flexibility flexibili@ but itit also also bring brhg meager earnings emings and and lacks lacks security. s e c ~ t y .According Accordhg to her, offers bordm earn e m equal amounts m u m t s and these are are comparable compgable to on both both side of the border female workers on U.S side. side, (In {In all instances instmces the eamhgs on the Mexican side but not not for males on the U.S male earnings eming are are meager). meager). Since Siarce maquiladora maquiladom workers workers make make less than t the poverty pctvem wage, she earning the the informal infomal labor jabor force are me doing dohgas as well as as those those in in the formal fomal labor believes that those in the ents. They melt into the Xnfomals maintain mstinain a calculated calcrxlated distance distmee fiom &am governments. gov force. Informals as possible. possibie. She reports repofis that the informals infomals only only feign compliance camplimce with with backgound as much as background possible, She notes that they they have rules and a ~ regulations regulations d &em as much as possible. rules but ignore them v h a l l y no voice in in, policy that affects them. She illustrates illus.t-ratesthat informality infomality in the labor virtually is part p u t of the everyday lives of most persons on both sides of of the border. The families force is force hvolved pursue multiple multiple income-generating strategies swategieswith multiple mdtiple household househoitdworkers. workers. involved

The Intkud Sector

28 1

~'~~EorCiudsdJuaseZ~thatalmostthirty~oftbelabor~ scKemployed and that almost half do not have social security. Income h m informal work is uscntial for survival h m many Mexican border householb. Street vendors make up a large segment of the intbmd labor fonx but uwd clothing has tbe major share with homebased women buying in the U.S.and selling in Mexico. Thus, at the border, part of the m h m d labor fiwce activities involve Mexican women crossing the border into the U.S.to purchase clothing (mpe usnda), shoes, etc.. for which there is a likely market m Mexico. These products are brought back across the border by Eeyuqucraa and then sold fiom their homes where space has been set aside to display them. Profits are gmcmlly good, one succcssfil trip equals one-week wages in a maquiladora Used clothing stem abound on tbe U.S.side with home stores located an the Mexican side.

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The Mexican 500 %n$reduetion Mexican Corporations Number eaf Carparatisas

L@C@$~Q;BE @f the Me~catxa580 e .li

Coneenlnnaticla by State Conmetration ia Mexico S&@@@ and Majnr Cities

P~vathagon Mexieo's Top Corporations Foreign Ownership of the 500 Mexican Corporatioos in Latin America CaneSlusioraco;

The Mexican 508 Introduction This chapter expands work reported by us in Mexico Megacip (1997) and The Mexico Handbook (1994). Earlier chapters in this volume examined Mexico" place in the world system and quite fimly established that while contemporaq Mexico is a semi-periphery nation -- in the middle level of development, earlier analyses placed it in the periphery. Mexico" ccunent international relationships are substantially with core ndions. Via international corporations, Mexico now has extensive interaction with, a variety of nations, including the U.S., Gemany, England, and Asian couneies. In addition, several maijor domestic Mexican enterprises are becoming global by expanding their corporate activities worldwide, including expanding into t ~ t i nAmerican. Nevefiheless, the Unitled States remains Mexico's pdrnav international pwner in multiple ways alreiidy shown in earlier chapters. A similar relationship exists for the Mexican 500, i.e. the nations 500 largest enteqrises. In this chapter we focus on the extensive privatimtion of the Mexican corporate world in some det;ail since it has influenced the 500. As we noted in earlier chapters, Mexico has undergone vast chmge in respect to direct foreign invesment since 1986. Uskg the perspective of world systems theov apglied wi&in Mexico, this chapter illus&ates the concentration of economic activities by state, within sbte, a d within cities, ''!'%us,this chapter reinforces conclusions of earlier chapters of the domination of Mexico City for coporate headqua&ers and other activities; it is clearjy the core economic sphere of inRuence in Mexico. A similar concenQationof the 500 is demonslrated, Privatization and the No& America Free Trade Ageement CbJAFTA) influenced changes in the Mexican 500 bttryleen l986 and 1997, The extensive relationships alluded to in previous chapters bemeen Mexican and U,S, corpordions are examined in this chapter by focusing; on the 500s.. In addition, since many Mexican 500 enteqrises are multinationals, another important feahre of this chapter is examining Mexican national covarations that are trmsnational in character. Data utilized in examining the Mexican S00 are firorn a varielcy of sources, including Mexico's commercial, economic, population, and housing censuses lFor a varietry of years, and -6rorn publications by Mexican baAs. However, the major Mexican source is vilrious years of Expansibn; the editors of that journal have been ex&emeXy accommodathg h allowing access to their infornation and data. Finally, the Fortune $00 is used for comparison puqoses. In exploring coporations in Mwico note that the U.S. concept of a corporaion is roughly equivalent to a S.A.G.V. (Sociedad Anonima Constituida) in Mexico. fn previous chapters we examined Mexican corporations in various sectors. in this chizpter focus on Mexican coqarations in 1986 and changes that have taken place since that time up through our analysis of 199'7. It is anticipated that subsequent analyses wilt demonstrate the voblity of the economic sikuation in Mexico with the emergence of alliances, mergers, and hrther peneeation of foreip f m s into Mexico as well as Mexican firms expanding outside of Mexico.

Mexican Corporations The unadjusted coyoration value, for Mexico, in thousands of pesos in 1986 is reported on Table 13.1. The total unadjusted corporation value in 1986 was 142.4 billion pesos. Since this was prior to the @eat wave of privatization in Mexico, many large 'corporationsWere still nationalized and hence not included in this table. Table 53.1 also illustrates the total unadjusted corporate value in 1997 after substantial privatization had taken place in Mexico,

The Mexican S00

V)?

=?*

3ggg233g anP-, am c=l_ vr (-4

2-2 ==*

R%ZQZ%EG

2- 2

The Mexican 500

287

As also shown on Table 13.1, there is variation in state by type of corporation commercial, industrial, or other. The major states for commercial corporations are Nuevo Leon, Mexico, Jalisco, the Federal DisCrict and Baja California. They all are cenlr:rs for major commercial enterprises and markets. The major state with industrial corporation values is Nuevo Leon and it overwhelms the rest of the nation-this single state accounts for 70 percent of induseial colporation value. This reinforces the importance of Monterrey as the headquarters of substantial parts of Mexico's private industry. Coahuila and Chihuahua are in remote second and third place, each having 4-6 percent of the nation's indush.ial corporation value. The value of "other" corporations, again, is dominated by Nuevo Leon, along with the State of Mexico and the Federal f7)isbict. h 1986, the slate of Nuevo Leon had a value of corporations per capik far surpafsing any other state - 19,682 pesos vs. an average of 1,752 pesos for the nation. In addition, except for Yucatan, the dominance of the northern border region and central part of the country is readily apparent. Map 13.1, illustrates the very low corporation value in the pacific south region. Its total corporation value was only 1.25 billion pesos, under one percent for the total nation! (see Map 13.2)

Corporation qalue in Pesos, Per Capita, 1986

-

107.8 W . 9

mx,ow.a - 1mg.g m2,OW.a - 19,582.0

Number of Corporatbns 1n 1988, there were 20,634 corporations (S.A.G,V.s) in Mexica. The number of coporations increased geatly, especially in the Federal District, between I986 a ~ 1988. d 'This may have been the result of the advent of the Salims Administration rsnd the begkings of opening the economy. The number of coqorations per 1,000 persons in 1986 and 1988 shown on Table 13.2 inuskates that there was large variation among states, as shown by a coefficient of variation of 2 19 in 1988. In contrast to value of corporations, the Federal District domhated in absolute and per cwita number of corporations. Other

states with a relatively Iwge ratio of corpmtions were- Sarm h i s Pmsi, the Bajas, Nuevo Learr, and Quinana h a . n e r e were several cIemly discernible regimal pattens. The border region consistently had a lmge number of corporations in X 986 (see Map 13 3). The south region had a very small number of corporations per capita, with a total of only 5 14 corporations. The gulf region also had a low prevalence of corporations per capita. Maps 13.4 and 13.5 show tbesx: dab in 1993 and 1997.

This =&ion explores the iwatian of the Mexicm S00 in 1986 md 1997 by st&e, the eleven y e a pedod @eat tltecmomi~iehmges wi&h states, a d in Mexico City. took plme in Mexico, hcludhg o p n h g trp of &G wonamy3 e~ensivepGv&b~on of ~ationaUya w e d e ~ t e v ~ s e md s , N d h e ~ c mFree Trde AgeemelaP WAIiTA). Awompayhg aese chmges d e n g this em wm extemive c9ncen&atian of the major wwratiom ixl Medco located in the Federal D i ~ cmd t w i w sevemJ mmicipios witMn the Fedem1Dis&ict.

Coneenlivationby Sfatg Dab far 1986 demowhte that the numbr of total wwmtions and value of are distIlnctXy different measwes. la 1986, the Iwgesl: n u b = of major c~~pomtiom c a m r a ~ o nwere s loeatd 111 the Federal Dis&ict (see Map 13.5). Ch the o&er frazlid, the

For more extensive discussion o f the Mexican 500 in 1986 see Pick and Butler (1 994) a d far &@ Mexi6m S00 in 1993 see Pick md Butler ($997).

Tlne Mexican 500

289

Hgmber of

Baja Caiif"ornia Baja California Sur Campeehe Coahuilra Golirna Chiapas 8 Chihuhua 9 Distxi-toFederal 10 Durango l I Cumajuato 12 Cuemero 13 Hidalgo 14 Jdiseo 15 Mexico 16 Miehoacan 17 Morelos IS Nayarit 19 Nuevoleon 20 6ivrilca 2X Puebla 22 Queretm 23 Quintma Roo 24 San Luis Potosi 25 Sindoa 26 Sanora 27 Tabrrsea 28 Tamaulipas 29 Tlaxcala 30 Veracruz 31 Vueatan 32 Zacateeils National Total

Number of Corporattom

Plumber of

N'urnbev of Corporarrons

73 1 1,227

0.0572 4.8267

2 3 4 5 S 7

52 20,634

0.0407 6,8468

Mean Median S,D.

e.v. Minimum Mmimum 8,02 f 0.9739 1,591.00 Definition: The number of corporaions per 1,000 population is the number of corporations to the total population 1990 multiplid by 1,000. Souree: INEGI, 1988- XI389, ARuario Estadistico, Table 1'4.7. it.

0.4600

milijor value of corporations was higthest in Nuevo Lean and especially in Manterrey. In 1997, the Federal District and Nuevo teon far surpassed the sum of sales by mgor co~aratiansin aI1 other jurisdictions. The other impofiant states in number of corporations in 1988 and 1996 were JaXiscto, Sate of Mexico, Coahuila, Puebla, and Cuanajuato (see T&le 132).

The Mexican 500 Map 13.3 Mexico's S00 Majdjior Corlporaaoas, X986

The Mexican 580

Concen&ation of the Mexiem 560 by stab and the impomnce of Mexico City is itlus~atedby conceneation of entewrises in the city in 1986; in fact, Mexico City has histogcally been the mast i m p o m t place ini Mexico, well 'before the development of modem coeorations. Thus, Table: 13.3 and Map13.3 illustrate that in 1986 Mexico's Xagest coporations were not eqwlly diswibhlted thu&out Mexico is&ict @om 149 in 1986 to 206 in 1993, and fttrther increased by 19997. Clearly, in addition, there was a concentrlrtion of both foreign and Mexican corporations in the Federal DisQict (Mexico Givty). T&le 3.4 and Map 3.5 illustrated this conceneation in Mexico City in the same two adjoining delegations of - MigueX fIidalgo and Cuauhtemoc, and in two adjoining municipios of Ecatepec and Tlalnepantla in greater Mexico City located outside of the Federal District in the State of Mexico. Thus, as we post-UXated and demonstrated,

344

Mexico and Mexico City Xn the Larger Global Context

there is increasing geogaphic concen&ation of mdor economic enteqrises by state, city, and small are% wit-hin Mexico City (Pick and Butler f 997).

Foreign Direcl"Investment Mexico" acceptance of foreis direct invesment (FBI) has hcreased substantially d ~ n recent g years, Cu~ent1ythere are more substmtial FDI infiows to Mexica than in the past (Bieakley 1995; United Nations 1992). At least padially as a result of the l982 economic crisis in Mexico, Mexico h l983 extensively liberalized its FDX mles and regulations (W 1992: 83; also see Pick and Butler l 997,2000)- The result was expmsive FDX increases in 1987 and followkg years. We & s e e with the United Nations report indicalling that Mexico then moved &om a kestrictive hi& @OM' nndion into a 'liberal, low gram-ation OlfP;I 1992: 68). The hpact o f FBI, of cows@,may be viewed as positive or negative dependkg upon host coun$y or countries from which FDI originates (see Clhme-Dm 1975: 726). Increases in FDX undoubtedly irrBuenced the mapibde of indus~a1resmcmring in Mexico, but only .in specifi"lcectsrs. Xn any cilse, chmges have occmed in nazion-states, states within Mexico, cities and small meas wiEhin cities in Mexico; thus we conoborated our expechtions, &ports and Imports The maeiwde of export.%from and hportdj to Mexieo has changed considerably over the yews (see F i w e 3.1). The balance of impcrrts and exports has been at equilibrim at times, m d at other jmcmres there has been a-n irnbalmee in either exports or h p o m . Fueher, the cowtries exported to and hporled &om also hwe varied over t h e (XW 1979, 1991; Pick md Butler 2997; 2000). These vxiations reinforce ow view that a b i n q malysis misses much of what is imnportmt. W i l e chmges h mapi&de have been substmtial, research repoged in this volme constmtfy reminds us that the U.S. has remahed Mexico" saixl &adhg p a e r , dwasfmg the bade of all other comeies put together, Thus there have been a vaxie-ty of trends md cycles regmdlrrg the relationship of the U,S. to Mexico; these trends md cycles undoubtedly will acceler&e in, h e htwe. Thus, my net-uvorked relationship needs to take into aaeount the historicali context and must r e c o p i z that a one-way b i n q relationship misrepresent the dimction and magnitude of comections, lyz-Bond hdzksty (1waqut"ladora) Xn Chapter 9 we explored development af the in-bond or maquiladora indusq along the U-$, - Mexico border, Alderson (1999) arwes Qat the development of maquiladoras in Mexico was not typical; thus, if he is correct, generalizirrg bqond our research on such developments may be risky. Utilizing extensive data we iHustrated extent of maquiladora concentrations among border cities, salaries, gender digerences, and foreig and domestic components used in the indusw. Ovemhelmingly, foreign cowonents w r e used as opposed to Mexican domestic components (also see Pick and Butler 1 994). There has been a relatively consistent rapid gowrtb of the in-bond industy but groMh accelerated during 1996 and 1997 as a result of the passage of MAFTA (INEGI t 995). Mayuiladoras are almo& exdusively fareign owned entities, again with the U.S. dominating the overall indusm. An exception to the foreign domination of mrzquiladoras is the textile industry, Mexico dominslres with B% o f textile capital (V. Canillo 1994). While multifarious countries are involved in other sectors, our analysis demonstrates that the

Mexico and Mexico City In the Larger Global Context

345

miiquiladora indusq is hndamentally accomodating U.S. co~orationsand the U.S. market. In addition, as with other exchanges with the U.S. and the world system, there is @eat variation in mapimde, direction, and sectors, The mquila labor force is basically working for minimal wages at Iower Ievd jobs; the vast majoriv of fie labor force consists of young women, although this varies sornewh& by sector. In Mexico, .transnational corpordionshtandard manufac'curing activities are g r h a i l y chemicals, fabricated metals, auto parts, and transpomtion equipment. However, m a q u i l ~ d o r a s are principally textile and eiech-onic eorporabions, but in almost eveq ckcmsta_ncethese activities are dictated primarily by the core nations especially the U.S.

Privatization and 0 2 Driven by core nations and their fufmcial infiuence on Mexico, during the past few yeas nationalized enterprises mostly have been privatized. Our exminarim of Mexico's ""500"'at several diBxent time periods illusQated that the vast majority of privatiation of major enterprises took place prior to 1993. The oil indusw in Mexico, fiowever, has remairted under national omership. As with most otXler relationships of PvTexico with other world-states, the oil industq" major cmde oil export. pamer is the U.S., exceeding all other com&ies (see Table 3.6 and Chgter 8). There also is extensive variation of Pemex's relationships with o&er states and cities, In particular, oil production and rehing are dominated by Wo states (Tabasco and Veracrw) and occur in a Ihited number of other states,

Tourism As with most other ecconomi~aspeds in Mexico, touSists enterhg Mexico by place of origin me dominated by the U.S. - ca. 90 percent. Similarly, over 90 percent of tourists &am Mexico have the U.S. as their destirration (see Table 3.7 in Chapter 10). Agah any analysis that only is concerned with a one-wq bbw relationship is misleading. In addition, while tourism in both directions is g o w k g with the U.S., Latin h e r i c a n touris& hcreashgly are not visiting Mexico (Secretmia de Turismo, Banco de Mexico 1992; Pick and Butler X 994). There are substmtial diEerences in international visitors to Mexico and the destinrttions of national visitors, In 1990, this variation occu~edwhether plmed, traditional, grand city, hterior city, or border cities tourist centers are the focus of the analysis (FONAWR nd; Pick and Butler 1997, 2000). As examples, the plamed tourist eenters of Cancm and Los Cabos amacted subsmtialily more foreim visitors while the plamed t o ~ s centers t of Ixtapa and Baf?ias de Huabfco were more amactive to Mexicm tourists. The overall concXusian is that international tourism to Mexico is systematicali_y allied to the core nation-states, markedly to and Erom the US, On the other hand there are substmtialty diEerent mamers with national visitors more likely to visit semi-perighq or peripitzery states. Like maquiladoras, the tourism domestic work force is low paid in menial jobs, Other Flows and fieha~ges Substantial infornation on other types of Bows and exchanges of Mexico with other worfd nations vva presmted in ollxer chapters of this book. Other aspects that we have illustrated but still need to be systematically investigated include cartel mangernents, R&D, patent license exchanges, subsidiaries, alliances, etc, More substantial data also need

346

Mexico and Mexico City In the Larger Global Context

to be presented on domestic flows and exchanges among the states and within cities (see CONAPO 199 1;Pick and Butler 1997). Another aspect of the globalization of the Mexican economy that stood out in the writing of this book is the acceleration of mergers, alliances, and relationships with U.S. and other core-nation transnational corporations. They have occurred in all major economic sectors and are especially prominent in the communications and banking sectors. What this portends for the people of Mexico remains an open question. Another notable event that we illustrated taking place in Mexico is that several major Mexican corporations are becoming major world players in their own right. Concluding Remarks Analyses reported in this volume clearly support the notion that t h m is a hierarchy of nation-states. The nation-state analysis resulted in several surprises that did not fit common perceptions or some previous world system research, especially as regards Switzerland, China, and India. While our analysis was cross-sectional, we clearly do not see much future potential for convergence of nations in the world's nation-state hierarchy. We anticipate relative stability in world system classification. Firebaugh's (1999) analysis of nations, when they are weighted by population size, appears to confirm this conclusion from 1960 to 1989. Thus, consistent with his analysis, we forecast existing polarization to remain with insignificant movement upward or downward in the world system hierarchy over the next several decades, excluding traumatic events. Firebaugh's research also has substantial implications for Mexico because he concludes that population growth is a major factor in the distribution of per capita income across nations. This has special impact on Mexico since population projections reveal that over the next fifteen years, approximately one million persons per year will be coming of working age, i.e. ready to move into the labor force (Pick, Butler, and Ramirez 1992). Our analysis, as we postulated, placed Mexico in the nation-state hierarchy at the middle-level, or using world system terminology, as a semi-periphery nation (also see Rossem 1996). Our application of the theory to units in Mexico - states and municipios showed its utility for internal nation-state analysis. Thus, we demarcated levels within Mexico and Mexico City that clearly fit common perceptions of Mexico and intersect with world system theory. We clearly assumed a relationship between the level of development of a nation, in this case Mexico, and its exchanges with other nations. We believe that eventually development and world system research will have to come to grips with the problem of causality. That is, how do nation-state development levels and the world system interact with each other at different times. Does developmental level cause a nation's relationship in the world system or does position in the world system cause developmental level? Or, is there a discursive, feedback system at work? The little longitudinal research that has been accomplished suggests that nations, both in developmental level and world system position, remain relatively stable across time. Mexico illustrates that some mobility may be occurring. Further, there is research demonstrating that ascendancy and descendancy at the nation-state does in fact occur over longer periods of historical epochs (see Shannon 1996) and may be occurring in the contemporary world (see Korzeniewicz and Moran 1997: 1025 ff.). If so, the proposition that strength begets strength in economic systems needs to be examined more thoroughly. So a key question is under what factors does a country ascend or descend in developmental level in the world system since this apparently is an unusual occurrence? Our belief is.

Mexico and Mexico City In the Lager Global Context

347

however, that very Xitile change in relative position in the global hierarchy is going to occur over the next 20 yews. in longer-tern analyses, we also expect substmtial stabifiw within Mexico, both at the state a d smalfm unit level; that is there may be some upward and dowward movement of states m&or mmicipios in eeeonornic level but this movement will be minimat. In faet, at aXi mi.ts of analysis - nation-sates, stafes vviain a nation, stnd areas within a state our hypothesis is that sbbiliiEy will be the ~ o m , Aiman (l999) argues that on a global scale, teebnoEogy has helped create a huge gap but that it also can give the poorest nations access to the economic mainstrream. Our view is &at it is higkly unliliefy that in the foreseeable fume the gap beween the ""haves" and ""have-nots" will be alleviated by techology. Technology - pilI-tieularly emerging efec&o~iccomwicdions - may acWaLXy increwe the gap behvveen those who now have and those who do not have. Our assmption, in fact, is that techology will provoke increasing hequality at all levels, includirtg nation-sQtes, states within nations, and smaller metropolitm areas within natians md cities. Fhaily, we noted that most reseach has been t h e bound (see Shamon 1996 for a tonger-km view), A longibdhal perspective raises the question of long tern, d p m i c world system changes and t h e bound causality. We have mdert&en sbdy of shorter dwation that focuses on the late mentieth cenbq.

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Alba, Frmciseo. 1999. "La Nigacihn Mexiemrt a Estados Unidos: U n Rompa~abzaks ." Este Pats. Diciembre, pp. 32-37. Alba Vegq Calos and Dixk m i j t . 1995. La Utr'lidodde Lo Mi~zisculo:1.l;formalidady Microempresa en Mhieo, Cenrjro~mkriay Los Pakes Andrizos, Jomdm, 125. Mexico, B.F.: El Calegio de Mhxieo. Alfeq Micbel and J o h Bussey; "Mexico Feels Pah of Drop in World" Oil P r i c e s l V ~ l l Street Jozrmal., Mmch 12, 1898, l. 1986. ''The Smti.ficzltion o f the World Economy: M&hi, Ciovmi and Jessica hExpIoration ofthe Semi-Perip?heral Zone," R m i m 10:9-74, Astorga, Luis. I998. 'Vndmsmdhg the m g Bushess.'WS./Mexieico Business, pp. 2628.

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Zelher, M&e.. 1995, " A A o ~ i X l Lhpios,"" ~~s Americ~Economr'a;No, 92, Febrero. Zepeda Mjrmantes, Eduardo. 1995. ""E1 TLC y La hdwgialimibn en Ia Frontera Norte de Mbxico,""h Cartrtos Pallh Figuero;z,James W. WiUtie, and Jesus h o y o Alejm&e (eds.), Mhico y las Amkricds, Memorim de la YIII Confireneia Anuies-Pvofmex, Mexico, D.F., Asociacibn Naeionaf de lfniversidades e Superior, pp- 402-4 13. lnstituciones de Edu~a~iCrll

G

Accounting fims l 19 Aeromexico 322 Aeaa 98 Age shslcture 309 Avibusiness 335 A@culmat Diseases 241 Foreim Direct Investanent (FDI) 254 fndusl~y248 Producto Interno Bmto (PIB) 235 Trade 254 &ade wi& U.S. 240 Agiculmre 230 and the envimment 253 expo&ssmd imports 240 in central plateau 234 in N o ~ h234 in South 235 sector productivity 238 Agobusiness-producer alliances 252 Agwsealientes 322 Air pollution 178, 199 Alestrsl 98, 253, 154 AlesQdAT&T 153 Alfonso Romo 124 AIXan Bradley 95 Alliance for Rural Areas 244 Alto Homos de MCxieo 175 Ambulantes vendedores 275 h c h o r Glass 69 Archer-Baniels-Midland Co, 257 Art-icXe27 332 of the &xican Constih;rtion 24 1 results 244 Asim mstquiladoras 183 Asian tourists 2 16 Associated gas 170 ATM netvvork 98 Auto industry 59,69 Auto parts 59,63 Automobile wage rates 60 Automobiles 59 Auto-prestmos 329 Avocado produetion history 252 Avocado trade disputte 25 1

Index B Bahias de Wuahlco 221 Balance of trade 4 1 Banco Bilbao Vizcsrya Argentaria 98 Banearner 98,227 Bancarnext 95 Banking imbalances 92 Bmking re-privatization 322 Bading sector 72 B& of Monaeal 98 Base maps X 7 BBVA 88 Beans 238 Bimbo 253,256 Binary relationship 344,345 Book ob,iects 2 Border cites 2 18,221 Border tourism 22 1 Brokerage houses X X 7 Bwgos Bash 170 Business service companies X 19

c Call volume 154 Campesinas 252 Canada 165 Canch 213 CanmeXX Oil Production Field 163 production depletion 164 Capital flows 11 Capital-htensive indus&ies 4 Caravanas 223 Cmlos Jarque Uribe 14,263 Carlos Salinas 4 Carso Global Tejeeont 2 50 Case studies X9 Categorintion 8 Causes of enviromenbl problems 327 Cemex 66,296 forelip acquisitions 66 Cen&al manufaehring ""belt" 56 market 73 Children in the S&eet Sector 276 China 165 CifrdWalmaa 9 X Cintra 139 Ciudad Juhrez 190,281 Clark U.S.A. 174 Closing of themal plant 178

Index Clothing 135 Cluster analysis 16, 340 analysis results 30 Coal 158 plant 175, 178 Coastal resofi development 2 13 Go-inveslment 183 Comisi6n Federal de Eteetrieidrtd (CFE] 175 Gsmmeree 72 Companies 78 Producto Interno Brut0 (PIB) 78 Sector 72,73,74 Commercial Airpofi l35 Credit Corporation 98 Tourists 223 Comunication 130 unieations co~orrrtions144 Comparison of health care systems 112 ComponenB manufacbre finished product distribution 202 CQNACYT 3 17 CONASUPO con&acts 256 Conceneation of service 102 Gonglomeralte 128 ConSENTIDO 95 Consolidation of Iand holdings 244 Consmetion of Pemex nitrogen plant 164 Consulting Bms 1 19 Contraception 308 Contraceptive prevalence- 307 Convergence 338 CO-production Z 82 Core S, 31 eomtfies 334 nations 30 Cam torCilla 256 Corporate penetration 343 Corporate t e c h o l o a Iransfer 3 18 Comption 169 Co-tvvin ptstnts 201 Cropland 230 Cultivation techiques 230 Cufhlre 335 Cunrency cycles and maquiladara sector 187

B Daily motorized trips in Greater Mexico City 137 Data sources 14 Dataflux X22 Deeen&alizationlconcen&ation 322

Index Delegations 17 Delphi mini-cme t 10 Delphi XP&BCenter 64 Deleonics 191 Democracy 335 Dependency 9, X 6 l , 164,173 tEreoy 6,33 8 Differences betcveen maquitadora and non-maquiladara rnanufacaring 200 Direct loans 967 Bisparily among mtions 338 Dist-ributionof agiculhral products 253 Domestic raw materials in maquilszclora 196 Domestic sales of maquiladoras t 83 Dominance by IJ .S, 333 Doug Massey 5 13 Damsizing 333 Dmg gmgs 328 Dmg influence and comption 328 Dmg measures by federal government 328 Drug social costs 328 Dual labor market 260 D u x 127

161 Economic 317,338 reproduction 279 weahesses 3 19 Eco-toufism 223 Education 333 Educational change 104 indicators 106 level; of the population l06 services 104 Egesados X07 Ejidatarios 24 1 Ejido 244 Ejidos 238,24 X, 244 El Puerto de Livevoot 94 EIecbrical power 174 Electronic Data Interchnge [EDI) 95 ElecEronic media 144 Elec&onics 195 Emerging electronic media t 50 Employee training 68 Energy expods 160 Environment 332,326 Enviromental degcits 332 impact of petroleum 324 impacts 63

impacts of maquiladoras 199 problems of energy use X 78 European tourists 2 I6 Explosions in ge@aleun?.faciltjllies 178 Expostadora de Sal 154 E x p o ~ s41 Expofis and XvnporZs 344

F FBbrieas de Francia 94 Factor analysis 342 Feabres of Mexico Megaciw 26 Federal agricufaral progfms 244 Diseict 25 Dist-rict Prosecutor" Office f 28 instituticrnalized mraI pmgrms 248 tax contribution of Pemex 163

Female dexteri? t 86 labor force particbation rate 3 16 nnaquilartora worker 195 Feflility 307,3 10 of rural regions 332 Financial services 1 17 Finance, insumnee, and reaX estate (FIRE) 7 business service 74 Fbmcial ktyper-concentration 335 Fishhg indusv 240 Flows 11 and exchanges 345 Fabaproa 88,90 FQNATUR 209,2 13,218,324 Foreip Direct Investment (FDE) 40, 5 3 , 3 14,344 Flows S4 Foreign Ems 52 omed 900' Enteprises 298 amership 4 owership of Mexicm 500 296 Foreipess of toudsm 2 1 8 Famalllnfomal staQs and size of workplace 272 Foundkg of Wotetes Presideate 225 France Teleeom 148 Francisco Atba 3 14 Fruits and vegetables 238 G Gas reserves f S7 Gender and maquiladora 186

378 General Law of Health f f f Motors 6 System of Preferences sf HAFTA 199 Ceogapbie fafornation System (GES) 1S , X 7 Ceogaphy of banking 91 CeotbemaX plant in Mexieali 175 Class 69 Global auto industry $9 business 48 Positioning Systems (CPS) 68 Clobatization 134, 182,332,338 Globalization of Telnzex 152 Globalistar 150 Goals of book 11 ent master plan of tourism 324 Governmental dependence on Pevnex 167 Grain production 238 Grand cities 2 18 Gross Domestic Product (GDF") 50 CroWh and development outcomes and policy 306 Cruma 255 histoq of operations 257 torliIla market: in U.S. 257 Gmpo 127 Gmpo Pulsar t 24 Guadalajaha 28,34, l28

IE-X Hm Young S&tke 195

Health care l1 1 care indicators 11l services 11 1 Higher Education 1Q7 Hispanic 21 S Hispanic population 1 13 Histoy of energy sector 156 of maqlriladoras 183 ltatel union conflict 222 lotel worker stratification 222 3otefes Presidente 225, 324 brand identity 227 customers 227 stakeholders 227 4ousing advantages 205 {urnan capita1 fornation 3 14 -lydroeleetn'c energy 175

Index production I SS

1 IBM 63 workforce 128 ;znd Mexico 228 ]CCGlobal XI reservations system 225 IFAB 90 Impediments to tourism 2 1S Xmport substikution 48,49, f 2,2 14 Xmportlexpo~ba& 95 Imports 41 lMSS f 11 In-bond jndusq 42,344 Index of Manufacming Production 5 1 Industrial Revolution 338 XneBcient inigation practkes 253 INECI 14,244 mECI surveys of micro-businesses 267 InequaXit.5,of economic benefits 320 InfomaI economics of U,$,-Mexico border 22180 Infomal labor force 333 activities 262 definition 262 in Latin America 26 1 size 263 hfamal micro-businesses 267 Infomal sector 260 and globaiizatlon 260 definitian 260 Infomaf work characteristics 26 1 Xnfomal worker characteristics 263 Infomaion systems sewices 119 Infrasmcture f 9 1 Institute Polit6cnico E 07 Institulo Tecknolbgico de Estudios Superiores de Montemey (ITESM) 109 Insurance services Interchanges I 1Q Inter-Continental Hotels Corporation 225 Inferior cities 218 International tourism 345 International tourist anivals 209 revenues 209 Internet-Directa 150 Intranet 127 Investment in transport by subsector 133 Iran 165 Iridium 150 Imigatian 235 ISSSTE t l t

J Joint ventures 170 Joint venwres md alliances 297 Jasd Luis Lemma 276 Juan Bautista E'brmd 94

L,

La Cmcecita 222 Labor force 3 1 5 g o w h 3 15 Labor inknsiveness SO Land under cultivation 238 Lage cities of Mexico 35 Large landomms 238 Lagest maquiladora plants 193 Law f m s X X9 Leadership 335 Levels of development 30 Li~eneiaWaNoma 107 Life expectmcy 308 Liquid gas l77 Livestock 240 Local Xmpac& of tourism 22 X Locralion of scientists 3 X 8 Locations 67 Longitudinal chmge in development staas 34 1 research 346 Lorenzo Zmbrmo 66 Lower level developed nations 3 X Lucent 153 Luis TC1Xez X 75

M Macroeconomic g r o ~ h3 X 9 Maize 238 Maize tortiHa 256 Major Mexiem cities 34 Management infornation systems 68 Manufacming 48 competitiveness 5 2 pro$uctivi& 52,320 sector 48 MaquiXadora 326 definition 182 deaiments 326 emplopent 42 emplopent locations X 88

tzuture trends 326 indusq changes 325 origin of capibX 19f plants 191 relationship to U.S. 186 sector and U.S. economy 187 sector in national economy 187 suppliers 188 workers 280 workforce 183, 186 Maquiladoras f 2,4 1, 182,325,334,344 Marias 275 Maritime infraskuctwe 130 Maseea 253,255 1Ms;ztanzoros 20 1 Materials Resource PXianning 68 Mediica Sur X24 Mergers and alliances 346 Mel.)lodologicaf techiques 1 5 Method0tow 15 Metropolitan IVamal Gas Nemork Concessions 173 Mexican agiculmral industry 248 agiculluwe under N A R A 255 avocado pene&ation in U.S. 252 Cities Development Cluster Analysis 342 Conpess 323 Camorations 284 fams 235 ent poverty prsgrms X X 4 immigation and NAFTA 3 1 J insurmee mwket 124 state o m e d 3500%nterprises 294 tourism to U.S. 2 15 Mexicana 322 Mexiems residents in U.S. 3 13 Mexico ""SW743 Mexico Cilcy 40,343 cluster analysis 34 core 34 environmenal siaation 327 Metro Memork 140 Mexico Dahbase Project 14 Megacity base map 24 States Developmental Cluster Analysis 34 1 Mexico" World System Relationships 342 Mexico-0,s. trade 320 Micro-business loans 271 locations 27 1

Index sizes 276 Middle level developed nations 3 l, 34 1 Middlemen 223 Migration ta the United States 3 23 Mission Foods 257 Mitigation of social impacts of tourism 222 Mitsubishi 154 Nabil 174 Modernization perspective S theory 5, 9, 342 Money exchmge 1 1; 7 Monteney 27, 34,255 PYlofiali~308 Motor vehicles 59 Mutthational hotel chains 222 Municipios 17

N Naeional Hoklera 2 14 MAFTA 48,244,321 benefits 321 rules 234 weahesses 32 1 NAFTA-related agicultural exports 240 Hwcotic dmg trade 307 Naxcotic drugs 328 W~cotics191 National education system t 09 Enviromenbf Program of 1996-2000 E 79 nehvsx"ks 7 patrimony 155 road netvvark I 34 surveys of emptopent 265 system of health 2 2 2 System of Researchers 3 17 Nllltion-State Developmental Levels 340 Nation-states 30, 338 Namral gas 157,170 distribution systems 166 reserves worldwide 171 Nestle 248 product lines 248 Net travel account balance 209 Nitrogen. injection plant f 64 Non-Bank financial sectors 120 Nomay l65 Nuclear energy X 58 Number of commercial entevrises 80

Index corporations 288 maquiiadora plants 190 Nurses 111

0 Occupational digereaces in infomal labor force 267 Ocean pollution 178 Qil 334,345 Oil reserves 157 Qrganization of Mexic in the World System 333 Omership of maquiladora enterprises 185 P Parmansit system 135 sewices 137 Pasharelmd degradation 253 Pemex 156,161 as holdkg company 177 Petroquimica f 74 Refmeries 173 refining agreements 1 74 Pegsi 251 Periphery 8, 33 PersonaI computer indusm 63 sewices 123 Peso er;isis of 1994 88 Pesticides 253 Pekobras 161 Petrochemical industxy aging 174 Pelroclnernicszls 1'93, 174 Petriileos de Venezuela 16l, 1 70 Peeoleum 156,323 consumption worldwide 165 industy competitiveness 169 production worldwide 165 reserves worldwide l 67 Physicians 112 Pbposmitav nams 252 Biedras Hegas 178 P1aee of origin of tourists 43 Plmed resorts 221 tourist clenters 2 18 PIWic containers 69 Political will 335 Pollution 332 Population 332 age strucare 3 1t g o d 332

Index groNh and distribution 307 g o w h rates 308 Porfirian economy 329 era 329 Porfiriate 73 Porfirio Diaz 329 era 307 Pave* 1 13,313,320,333 P ~ n t a qeducation 107 Private universities 107 Privatization 293,302,306,32& 345 of electrical sector 175 o f na&ral gas disbibution l 72 of the petrochemical sector 177 of waehouses 254 Problems of land dislribution and use 230 Procmpo 244 PROCEDE P r o g m 244 F"rodiu 150 Products Interno Bmto (FIB) 50, 320 Progesa 114,256 Public universities E 07 Pulsar 296

R Radio md television stations 144 Radio stations l45 Raikoads 135 Refining 173 Regional diaerences in b d k g 92 diswihtion of maquitadoras X 88 location of manufac&ring S S Registered personalfy owed automobiles 136 Regis&ation stabs of micro-businesses 269 Renewable eneru 158 Re-privatization of the ba&s 88 Research md development R&D 3 17 Resewch in.fras.fructure 3 19 Rice 238 Roads 133 Rolling blackouts 1 77 Rural to urban migration 3 10

S Salamawca eleelric plant 172 Salinas Administration 4 Sm Crist6bal 223 SAP entewrise resource system 256

Index Saskia Sassen 260,280,302 Satellite commmication services 150 Scarce warter supply systems in the border 235 School years completed l04 ScientiGc and tecboiou publications 3 18 productivi@ 3 I 7 Scripps Health I 11 3 Seapo~s139 SECOFI 97,25 1 Secondaw education I07 pemchemical indusm X 54 pemchemical plmts X 77 school ewollment 108 Sectorai composition of labor force 3 16 SECTUR 213 Sedans 137 Seed business 2 2 8 S e w o s Cornercial Axnel.ica 124 Semi-periphery S, 33,333,342 %mice X02 Sewice sector revenues 1Q3 Shared agiculbral progams 244 Shell 174 Sheltter 182, 183 Similwlitcies beween mawiladora and non-maquiiadora manufwmring 200 Skill IeveXs 64 Skilled labor force 4 Small domestic mmket 202 Social and health ctondilions in maquiladoras 195 capital fornation 3 14 costs of maquiladoras 199 problems of Ciudad JuArez 2 90 services l13 Sony plant l9 1 Sony mega-plat 326 Sor&um 238 Southwestern Bell 148 Spatial 2 f 8 Spatial panems of tourism in Mexico 2 X8 Spillover eEeets of maquiliadora 326 Stabiliq in world system 339 Standard Oil of New Jersey 156 State o f Mexico 23 States of Mexico cluster analysis 33 Stationaq population 332 Statistical analyses I 5 Steel mmufwturing 56 Steps to enhtlnce petroleum sector 324

Index Stouffer I-istefs 225 Street vendor conflicts 270 vendor" sornplex environment 279 vendors 260,275 Strike 195 Subcontrileting 183 Subsidies 49 Sugar trade dispute 25 l Suitability of imd for agriculture 230 System diagram of Mexican GIS 2 1 T

Taco Bell 257 Tarig; 49 Taxes 167 Teachers 107 Techieat Wahing schools 107 Techalogical Advancement 3 18 displacement of agicuittural workers 254 gap in Mexicm agricctlfrure 252 Technology 3 17,333,347 Technology Leadership 68 Telecomunicatisns industry 63 industry privatizadon 322 Telephones E 44 Television stations 145 Telmex 148,334 Texileielothindfeather induseies 59 Thennoelectric energy 175 Thompson S A , of France 204 Tianguis 73,249,275 Ti~uma190 Top adminispation teadters 11Q agicultural companies 2413 Ten Mexican companies 297 Ten U.S. Companies 302 Torlilla business environment 257 subsidy 256 Total population of Mexico 309 Total remuneration in manufacaring S$ Tourism 43,208,324,334, 345 and the focal c o m m u n i ~22 1 benefits 324 displacement of"natives 223 domestic work hrce 345 exchange 21 5

growh 2 X 1 industry wmkers 22 1 plusestminuses 325 Tourist areas 12 Tourist volumes in major tourist locations 2 19 Tourists 43 Trade roles of agricultural i n d u s ~25 1 Training X27,204, 333 TransnationaX coqorate penetration 40 csugzorations 2 entelprises 334 Transporlation 130 Transportation in Mexico City 135 Trends in xnaquitaltora indusm I99 Trico Compoaentes 20 1 U Unadjusted corporation value 284 Undocumented migants 3 14 Unemployment 320 United Kingdom 165 Universidad Ankhuac 1Q7 Universidad 1beroarnericana 107 Universidad National Autcinoma de MCxieo 107 Upper-level developed nations 340 Urban and rural population 23 1,3 X 2 Urban i n ~ m m c t u r e332 Urbanization 74 U,S, agicuX&r;;xlGDP 232

corn symp imports to Mexico 25 1 customs maquiladora regulations 182 refineries 153 safeq stmdards 134 tl.3.-Mexico liabor force relationship 3 14 U. S.-Mexico tourism exchange 2 15 U.3.-Mexico trade balance 185 V

Vatores Monteney Aetna 1 1 3 Value added 196 to maquiladora sector 185 Variables 33 Venezuela 165, 170 Venemelan federal budget 1 70 VIP restaurant chain 9 1 Vitro 69 Voice recognition technology 127

Index W Wad's bhierwchicaI clustering method 16

Water eonsmption 178 pollution 178, 199 Weal%y-poor axis 335 M e a t 238 Wipers 201 Women street vendors 276 Workforce 64 World fPa& 14, 113 World economy 2 World system theory 2,6,255,338,343 Mexican Cities Developmental Cluster Analysis World systems 10 World Trade Organization 25 2 World-clas production, 333