Mexico Textiles Apparel Nike

Mexico - Textiles/Apparel - Nike

April 10, 2023

Molly OLeary

Presenter

• Introduction• Country Analysis

- Social - Economical

- Cultural - Political

• Textile/Apparel Analysis• Nike Analysis• Overall Assessment

AgendaAgenda

Introduction

Note size of Mexico

Mexico is a developing country with a wealth of potential!!

• Climate- tropical to desert

• Leading Natural Resources:

- petroleum - lead

- silver - zinc

- copper - natural gas

- gold - timber

Introduction con’t

• Population = 100,349,766

• Population growth rate = 1.53%

• Life expectancy: – 71.49 years (total)– 68.47 years (males)– 74.66 years (females)


Environmental Concerns:

• Serious levels of soil erosion from cattle raising & agriculture

• Irreparable water and fishery damage from inadequately regulated petroleum industry

• Mexico City - one of the most polluted urban areas in the world


Mexico…A country rich with opportunities for foreign investment???

YES!! Because…

– Improvements in social, economic, and political climates

– Opportunities will benefit the companies AND local Mexicans


• Class disparity by income & education level

• Healthcare– Quality based on ability to pay

• Literacy rate 89.6%– 91.8% males– 87.4% females

Social

• Religion: Catholic

• Class structure– Lack of mobility– Status of women

• Poor– Cycle of subordination and poverty

• Child labor– Often not enforced by government

Social

• “The relatively affluent middle and upper income groups enjoy the amenities of urban life and control most of the social, political, and economic activity of the country”

Social

• Language- Spanish– Nonverbal communication

• Personal Space– More comfortable with close physical

contact

• Perception of time– Slower paced

Cultural

NegativeConfucian Dynamic

HighUncertainty Avoidance

MasculineMasculinity

Highly CollectiveIndividuality vs Collectivism

HighPower Distance

Dimensions of Culture

Currency crisis mid 1990’s

– High interest rates– Devaluation of the peso– Stock market lost half it’s value– Consumer interest up to 80%– Inflation rose from 6% to 50%– Unemployment 5.5% vs 10.4%

Economy

Recovery

– Steady growth rate for all sectors– Inflation lowered– Interest rates modified– Restructuring of debt

• Longer payment periods• Lower interest

Economy

Status 2000

– Mexican peso strengthened• Increases in oil income

– Inflation reduction to 9.73%– Debt rated by Moody’s as investment

grade– Exchange rate $1=7.7519999 peso

• Floating vs Fixed

Economy

• Income Distribution

26% income60% population

Lower income


Middle income


Upper income

Economy

Trade Agreements– 1994 NAFTA

• Progressive elimination of tariffs• Reduced impact of recession• Mexican exports increased 113% in first four

years

– 1994 NAALC• International linking of labor standards and

trade• Accountability to non governmental

organizations

Economy

Other trade relationships

– Columbia-Venezuela-Bolivia-Costa Rica-Chili-Nicaragua-Honduras-Guatamala-El Salvador-Panama-Ecuador-Peru-Belize-Trinidad-Tobago-Mercosur-European Union-Israel

Economy

• President – 6 year term: no re-election

• Institutional Revolutionary Party – 71 yrs

• National Action Party– New president: Vicente Fox– Advocates private sector oriented policies– More honesty in government

Political

Foreign policy philosophy– Respect for international law– Judicial equality for states– Respect for sovereignty and independence

of nations– Peaceful resolution of conflicts– Collective security thru participation in

international organizations

Political

• 31 States plus the Federal District

• President: simple majority vote

• Senate & Chamber of Deputies

• Legal System based on Spanish Law– Strict adherence to legal codes

Political

The Fox Future

– Promotion of free movement of people across borders

– Movement toward a North American common market

– Reduction of corruption

Political

Industry Analysis

5 Sectors Associated w/ Textile Industry:

• Fibers production - Natural products such as cotton, wool, jute

and hard fibers. Manmade/synthetic fibers.

• Spinning - Preparation, opening, carding, drawing, and spinning the fibers.

• Fabric manufacturing of non-woven fabrics - Weaving, knitting, and tufting

• Fabric finishing - Dyeing, printing, and product finishing

• Clothing Manufacturing – Cutting and sewing

Industry Analysis

Mexico’s Textile/Apparel Industry:

• 400-500 foreign firms in the industry– Levi, Fruit of the Loom, Carhartt, Dupont, Walls, Ralph

Lauren

• Majority of workers are young women

• Competition: China, Hong Kong, Canada, & Taiwan

Industry Analysis

• Total Investment (from 1994 - 1997):– Over a half billion U.S. dollars

• Non-maquiladora Export Earnings:– $499 million in 1990– $890 million in 1992

• Import Earnings:– Almost $2 billion in 1992

Maquiladoras (“in bond" or "twin" plants):

• Manufacturing facilities located in Mexico that process imported materials or commodities for re-export to the U.S.

• Businesses transport goods for repair or components for assembly to Mexico duty free.

• Once the goods are repaired or assembled, they are exported to the U.S. with a duty or tariff on the value added.

Industry Analysis

Industry Analysis

Products/Goods

TEXTILES APPAREL OTHER

fiber, yarns, cordsand fabrics from:

cotton jute sisal and

coconut acetate nylon polyester acrilyc polypropilene blue denim non wovens torched yarns corduroy

fiber, yarns, cordsand fabrics from:

cotton jute sisal and

coconut acetate nylon polyester acrilyc polypropilene blue denim non wovens torched yarns corduroy

trousers of diversetextile materials

t shirts of diversetextile materials

sweaters of acrylic panty hose and

night wearbrassieres

curtains suits, jackets and

blazers of woolshirts

• Bridge to Latin America

• 2nd fastest growing region in the world

• Modern infrastructure and efficient communications

• Competitive work force

• Experienced labor

Investment Advantages

• 1/2 of domestic production is purchased by customers abroad

• Powerful trade agreements

• Competitive quality and prices

Investment Advantages

Investment Disadvantages

• Unsophisticated marketing techniques

• Limited up-to-date technology

• Weak integration of production processes

Globalization-

• Key to today’s textile/apparel markets

Growing consumer preference for casual clothing, increasing demand for cotton products, and a high

demand for high performance fabrics used in activewear.

Future Directions

Future Directions

Technological Developments-

• Key to future success• Provide new innovations

– e.g. nylon, wash-n-wear, hi strength aramid fibers

• Increases production efficiency

Continuous technological advancement is the key to competitiveness!!

Future Directions

New Ground Rules-

• Large scale, mass production methods no longer ensure competitiveness

• Customers demand:– High quality– Competitive prices– Wide selections– Quick responses to changing needs

• Worldwide - 704 factories in 50 countries

• Americas Region - 165 apparel and equipment factories

• Americas Region - $536.7 million total revenue (6.4% of total Nike brand revenue)

• Mexico - 35 factories - 90% manufacture apparel - 75% workers are women

Nike - Statistics

“Our America’s consumers are starting to see Nike as an authentic alternative to their local brands and previous favorites. Nike was once a product to aspire to. Now it is a product to own. And when you do own a pair of the shoes, you save them for your game. You wear your “other brands” to the court and then lace up your Nikes.”

Nike - America’s Region

• Contract Manufacturing

– Nike contracts with local factories

Nike - Method of Foreign Investment

• Maquiladoras - established by the Mexican government

• Duty free imports for assembly and finishing for re-export

• Phased out by 2002

Nike

Advantages of Contracting:• No direct investment• No ownership risk• Avoid some political/economic problems

Disadvantages of Contracting:• Loss of control• Need for monitoring• Media allegations against Nike

Nike

• Produce and dye fabrics

• Located in Puebla

• 60 people employed

• Owned and operated by Mexican firm

Nike Factory - #1

• Produces clothing

• Located in Puebla

• 105 people

• 75% capacity used for Nike products

• Owned and operated by Mexican firm

Nike Factory - #2

• Located in Atlixco

• 650 people employed

• Sewing and Knitting

• 85% capacity used for Nike products

• Complimentary Cafeteria

• Owned and Operated by South Korean firm

Nike Factory - #3

Recommendations:

• Establish Safety Committee

• Ensure Aisles clear for emergencies

Findings:

• Long work days - 10 hours

• Occasional underage worker

• Normally clean, good environment

Nike - Factories

• International currency fluctuations

• Maintain good relations in local areas

Nike - Foreign Investment Considerations

• Geography

• People aren’t Mobile

• Young Population

• Trading Agreements

• Political Environment Encourages

• European Venture Capital Available

Mexico Advantages for Foreign Investment

Overall, Mexico will be a strong force in the world economy!

Conclusion

We now invite any questions or comments

Thank You!