Mexico: Key to US Market for Belgian Companies?

Every market has its specificities, new trends, difficulties, and barriers of entry. In another article, I had mentioned how we try to reduce the distance between our Belgian companies and the Mexican market. Distance and size of market tend to be the main data to look at first if someone wants to guess how important a market for our Walloon exporters is. No wonder 75% of our trade is in Europe, the closest but also the biggest market in the world. 

To reduce distance, we mentioned, of course, nearshoring, even though it’s more about the US market than the Mexican market. But who should inform our companies that our competitors are investing in Mexico to take their market share in the United States? Our office in Mexico or our offices in the United States? 

Our Walloon exports are almost 20 times more important to the United States than they are to Mexico. Eighty-two percent of this country’s exports are going to the United States – a large part of which is made by American companies in Mexico. So companies based in the United States are going away from the United States to then re-export to the United States. The reasons are obvious; the risks are also even more present with the new American administration, but it should also teach us a lesson or highlight an opportunity: Belgian companies can completely eliminate the competitive disadvantage of  distance in comparison with US companies exporting to the US market by doing the same thing. 

If we think about it, American companies don’t have the same opportunity with the European market. Labor costs in Eastern Europe have been increasing for a while now. European companies are also more used to going abroad than most American SMEs. By going to Mexico, they can position themselves to enter the second biggest market in the world: the United States. 

After  quite a long introduction, here comes the question. Should an export agency from Europe encourage investment in Mexico? Probably not. We are not an investment promotion agency for Mexico. Now, should we inform our companies about the possibilities and link them to, in our case, Belgian companies that have invested in Mexico? I think so. And we should show them the risk and relate the bad experiences of some of our companies as well. 

With my Flemish counterpart at the Embassy of Belgium, we saw an opportunity to organize a first joint mission with a focus on nearshoring in Mexico the week after an official commercial mission in California next October. For the participants, they have the opportunity to meet clients in the United States and then to have a better understanding of how to supply them from Mexico. Knowledge is power and a better prepared company is a more competitive company. In Belgium, most companies are SMEs and they cannot rely on extensive manpower to help them make decisions. Organizing such a mission with firsthand information saves them time and helps them think strategically. It’s then up to them to do the math and make their decision for the future of their company in North America. 

So it´s really a matter of helping our companies to integrate nearshoring as a possibility to be competitive in the US market. It’s not for every sector nor every company. We believe that it’s mostly a turnover approach more than a cost-cutting approach. Due to the risk that comes with any investment, it’s the opportunity to capture market share by being more competitive in the US market that drives the decision. 

But obviously, challenges in the United States regarding higher costs make an investment in Mexico sometimes the only possible alternative for European companies. Mexico is a riskier destination for investment, but the country risk is a mix of Mexico and the United States where the turnover is originated. In comparison with the finance world, buying a stock in one country from a company making sales all around the world should not just include the risk of the country where the company is from. 

Another advantage for European companies investing in Mexico would be to have another site of production and probably a larger scope of providers that could, if needed, supply the production sites in Europe.

As I write this article, uncertainty prevails, but that’s the essence of business, and it shouldn’t prevent our European companies from thinking strategically about how to capture or protect market share in distant markets. As an export agency, we cannot make strategic decisions for our companies, but we can help them gather information to help them make their own decisions. In this ever-changing world, I think that it’s important for SMEs to include the nearshoring approach as it might be the only way to stay competitive in some sectors. Being a one-stop office for many companies in Mexico, we can learn from our experience in Mexico and mostly from other companies’ experience. It’s then our duty to make decisions about what has to be brought to our Walloon companies’ attention.