Business Trade

Design Solutions Inc.

Exploring Global Opportunity Project

BERGEN COMMUNITY COLLEGE

Exploring Global Opportunity Project

After we explored the possible opportunities to open a business in other country; we decided to establish our company "Design Solutions Inc." in Monterrey, Mexico. Our goal is to open a maquila to manufacturing clothes, as we are going to explain in more details. Manufacture clothes in Mexico is very convenient for companies in the Unites States and for companies in the countries who are in the agreements of the free trade with Mexico. There are many advantages for us creating this type of business in Mexico for two main reasons, first, the low cost of the Mexican Labor and, second, no value-added taxes on products shipped to the U.S. For this reasons, Mexico is the best country to start our international adventure in business.

1. Mexico General Information

Official Name: United Mexican States

1.1 GEOGRAPHY

Area: 1,972,500 sq. km. (761,600 sq. mi.); about three times the size of Texas.

Cities: Capital--Mexico City (15 million, 1990 census). Other cities--Guadalajara, Monterrey, Puebla, etc.

Terrain: Coastal lowlands, central high plateaus, and mountains up to 5,400 m. (18,000 ft.).

Climate: Tropical to desert.

1.2 GOVERMENT

Type: Federal republic.

Independence: First proclaimed September 16, 1810; republic established 1824.

Constitution: February 5, 1917.

Branches: Executive--president (chief of state and head of government). Legislative--bicameral. Judicial--Supreme Court, local and federal systems.

Political parties: Institutional Revolutionary Party (PRI), National Action Party (PAN), Party of the Democratic Revolution (PRD), Labor Party (PT), and several small parties.

Suffrage: Universal at 18. Administrative subdivisions: 31 states and a federal district.

2. Why we chose Mexico?

Mexico's economic system is one the strongest in the Latin American community. It has the highest per capita rate, around $6000. However, there is still a large a gap between those who are rich and poor that can be easily spotted, it has started to grow into a stable middle-class country. In it's start, Mexico was very self centered in its approach to build economy. Since it's involvement the last 10 years in NAFTA, the country has been able to bounce back. Though it is very dependent on the U.S. exports, making up almost 25% of it's GDP, Mexico has the most open economies of the world. The possibilities for a new business are endless.

U.S. relations with Mexico are as important and complex as with any country in the world. A stable, democratic and economically prosperous Mexico is fundamental to U.S. interests. Our relations with Mexico have a direct impact on the lives and livelihoods of millions of Americans -- whether the issue is trade and economic reform, drug control, migration, or the promotion of democracy. The U.S. and Mexico are partners in NAFTA, and enjoy a rapidly developing trade relationship. Mexican government had recognized that the northern border region of Mexico was characterized by both a high rate of population growth and strong economics links to the Unites States. In 1961,Mexico implemented the "National Border Industrialization Program" with measures designed to attract foreign investors to the Mexican border in order to strengthen Mexico's international market.

Trade with the United States, and trade that is not hindered by many barriers and regulations, has been very conducive to the rise of maquiladoras in Mexico. Cheap labor and ease transport between the two countries has established many border town pairs, including El Paso and Juarez, as manufacturing centers.

Subsequently, the North American Free Trade Agreement ("NAFTA") was executed en 1992 and upon approval by the three signatory countries (Canada, Mexico and the U.S) went into effect on January 1, 1994. The NAFTA provides for the elimination of certain Mexican customs benefits associated with the maquiladora program, effective as of January 1, 2001. After that products produced under the maquiladora program must satisfy the "rules of origin" established under the NAFTA in order to obtain the benefit of NAFTA preferential tariffs. The NAFTA also provides for increased maquiladoras access to the Mexican domestic market on a graduated basis over several years, with full access as of January 1, 2001.

Mexico is an active and constructive participant in World Trade Organization (WTO) matters, including in the launching of the Doha trade round. Mexico hosted the WTO Ministerial Meeting in Cancun September 2003. The Mexican government and many businesses support a Free Trade Area of the Americas. Trade disputes between the U.S. and Mexico are generally settled in WTO or North American Free Trade Agreement (NAFTA) panels or though negotiations between the two countries. The most significant areas of friction involve agricultural products including sugar, high fructose corn syrup, apples, and rice.

Some of the advantages of setting up a Maquiladora in Mexico are preferential tariffs on imports into Mexico of raw materials, components, machinery and equipment necessary for production, preferential U.S. Customs programs which allow the U.S. company to import products either duty free or only pay duty on the value added in Mexico, and strong and positive policies by the government toward the maquiladora program, and in general, toward foreign investment. The above information directs us to talk about economic integration in Mexico and its impact in our target industry.

3. Regional Economic Integration

Mexico is member of the WTO since 1988 and according with Jeniffer Blair integration in