Enterprises Facing Trade Regionalization

The reconfiguration of global value chains, within the framework of USMCA and FTA EU-MX, can benefit companies that operate in Mexico

The global-regional post-COVID-19 environment will pose a huge challenge for the survival of all companies, even those that are able to identify areas of opportunity. A new trade globalization and regionalization scheme within the framework of agreements such as USMCA and FTA EU-MX (Free Trade Agreement between Mexico and the European Union) could benefit Mexico and, in particular, its enterprises. 

In order to delve into the business challenges and opportunities resulting from the pandemic, EGADE Business School recently published its Decalogue for the Economic-Business Refounding of Mexico, exhorting society and entrepreneurs to refound the country on the basis of a paradigm of social inclusion and corporate sustainability. One of the varied and urgent topics it addresses is the need to reconfigure value chains and diversify trade in the current context. I would like to pause here to comment on the capacities that, in my opinion, leaders in Mexico should activate in their organizations to take advantage of the new trade regionalization:

  1. Identify economic, political, social, and environmental megatrends, and their interaction with new technologies. Many of these trends necessarily changed direction with the arrival of COVID-19, and many others will surely follow suit in the post-pandemic stage.
  2. Recognize “VOIDS” in consumer and production markets. In other words, find the new spaces that will offer business opportunities in a post-COVID-19 scenario. Old industrial and service sectors that were neither competition nor complement will, without doubt, have changed their relative position, resulting in new sectors, relations and interaction contexts.
  3. In this scenario, free-trade agreements remain relevant as potential sources of business opportunities. Nevertheless, now more than ever, a strategic analysis of all the aspects and content of these agreements is required. So, for example, it will be necessary to carry out an in-depth analysis of the rules of origin and clearly understand the regional value content that all products should comply with in order to enjoy preferential tariffs.
  4. The impact of the trade war that will undoubtedly persist between the US and China creates areas of opportunity for companies to identify products and services, which, given this new scenario, could be manufactured, assembled or configured more competitively in Mexico.
  5. This strategic analysis should not encompass solely the perspective of Mexico, but will also necessarily require an integrated North American vision. True added value will not consist of just continuing to be the center of assembly or manufacturing, but also a center of design and technological development, seeking long-term regional competitiveness.
  6. Leaders should be able to redesign value chains that will justify the burden of change. For example, analyzing which part of the product or service design or assembly processes can justifiably be removed from the old value chain (China-USA) and include a new comprehensive North American design.
  7. Since large consumer product corporations will be under a great deal of pressure to reduce costs, Mexican companies will remain at the crossroads of being cost-effective manufacturing cost centers, which, while generating employment and offering opportunities, will also continue to be a contributing factor of inequality.
  8. Rethink the scope, scale, and timing of all the value-chain reconfiguration projects, including decisions related to innovation and disruption.  
  9. Within the framework of the previous agreement (NAFTA), integration into production chains of the majority of small and medium-sized enterprises (SMEs) was limited. Now, with the new, more complex and rigorous USMCA agreement, a huge effort will be required to identify and promote greater integration and national added value. SMEs will have to form a cluster to offer real competitive advantages in an organized manner.
  10. Finally, the post-COVID-19 stage offers a unique opportunity to renew the mission and vision of organizations with a more humanistic focus, as well as a greater accountability and stronger commitment to their stakeholders and social and environmental sustainability. 

We cannot look to the past to envision the future; the time has come to implement a true paradigm shift in the way organizations are conceived.

Article originally published in El Empresario.

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