Post-COVID-19 Opportunities for Dutch Businesses in MexicoBy Karel van Laack | Wed, 06/03/2020 - 09:20
With the outbreak of the COVID-19 pandemic, a significant number of countries imposed restrictions on international travel or closed their borders to foreigners, disrupting commerce and igniting the discussion about globalization. Dutch businesses abroad already face trade barriers and protectionism, a study by NLinBusiness shows. Even well before the current crisis, globalization has been a topic of discussion, exemplified by the US-China trade war and other signs of protectionism in countries across the globe in recent years.
The current crisis has caused international flows to decline at a rate unseen in modern times. According to Harvard Business Review, forecasts show a 13-23 percent decline in merchandise trade, a 30-40 percent reduction in foreign direct investment, and a 44-80 percent drop in international airline passengers in 2020. Although these numbers imply significant damage to the progress of globalization, they will not mean the end of international market integration as we know it today.
The drop in global goods trade will not lead to a world of disconnected national markets, even with the volume likely to fall to the level of the mid-2000s. Likewise, a demise in foreign direct investment flows does not necessarily mean corporations have ceased their globalization strategies.
On the contrary, the damage caused by restrictions in international travel does affect globalization to a greater extent. According to Harvard Business Review, for example, tourism has a larger share in global output than automotive manufacturing, and business travel greatly facilitates trade and investment.
According to Harvard Business Review, there are five key drivers that leaders need to keep in mind on the path of globalization’s recovery:
- Global growth patterns
- Supply chain policies
- Superpower frictions and fragility
- Ongoing technological shifts
- Public opinion
Connecting three of these key drivers to Mexico’s current situation could translate to concrete opportunities for Dutch companies.
Changes in supply chain policies have found their way back to the top of the agenda and with the various approaches induced by the current pandemic, trade and foreign direct investment flows could be shifted.
The US-China trade war combined with the impact of the COVID-19 pandemic could form an opportunity for Mexico. The Latin American country could be the next destination for the world’s manufacturing investments, considering Mexico’s favorable location next to the US and its cost-competitive labour force. Companies are diversifying their global supply chains and Mexico could be “uniquely positioned to capture a significant share of the resulting redirected investment from the US, Europe and China itself,” according to Mexico Business News.
The Dutch manufacturing industry has a strong reputation, mainly in the automotive and medical devices sector and could find ample opportunities in Mexico’s new manufacturing landscape post-COVID-19.
Superpower frictions and fragility are related to the accelerated shift in existing global trade blocs, the growth in state power and the expansion of pandemic control. According to Harvard Business Review: “where companies come from and how well their home country governments get along” are vital aspects in this environment.
In the first trimester of 2020, foreign direct investment in Mexico reached US$3.3 billion, which represents a 1.7% increase on a yearly basis compared to the year before, data published by the Financial Times shows. With 4.6%, the Netherlands is the fifth-largest foreign investor in Mexico in 2020. This emphasizes the strong relationship between the Netherlands and Mexico, a relationship that goes back nearly 200 years.
Combining this strong bilateral relationship with the new Mexico-EU free trade agreement could form an opportunity for Dutch companies active in or seeking to enter the Mexican market.
Ongoing technological shifts such as the “adoption of e-commerce, videoconferencing, and robots” have been accelerated by the current pandemic, reports Harvard Business Review. Globalization could be fortified by shifts in technology. For example, cross border e-commerce and offshoring of services could see an uplift.
Dutch technology and R&D already have a global footprint across sectors such as food, horticulture, health and advanced manufacturing, and could very well capitalize on new opportunities in Mexico during or following the pandemic.
A shift in the traditional globalized world could form an opportunity for Mexico and in its slipstream for Dutch companies. Now more than ever we need to be connected and find ways to obtain new contacts to ensure the continuity of our businesses and prepare for when the pandemic is behind us.
At Holland House Mexico (HHM) we are aware of the importance of having feet on the ground in an overseas market. To overcome barriers caused by the pandemic, such as travel restrictions and reduced flow of international business, HHM offers Dutch companies tailor-made (online) tools.
Finding and selecting a trustworthy client or partner can be troublesome in Mexico without actually being in the country and going to meetings in person. The digital matchmaking services of HHM are designed to take away this hurdle. With an extensive network of trusted companies, Holland House Mexico is able to set up these meetings for you.
For Dutch companies that for example import or export goods in Mexico, traveling between both countries is in most cases limited. However, the quality of batches and legal documentation still needs to be ensured locally. To overcome this hurdle, HHM offers local representation, where the company is represented in Mexico through HHM.
HHM’s mission is to support Dutch businesses by offering soft-landing services that range from local representation, matchmaking and guidance on how to do business in Mexico. HHM has specialists covering sectors like Energy & Maritime, Agri-Food & Horticulture and also assists companies active in other industries, such as Life Sciences & Health.