Long Term Prospects of the US-Mexican NAFTA Relationship - Assignment Example

1. What are the long term prospects of U.S.-Mexican NAFTA relationship? Will the low cost in China to channelling away manufacturing processes to communist country? In this context, did the advantage of market proximity become less important? --- The long term prospects of seems still blurred enough to determine. There seems to have two aspects of this ambiguity. Firstly, the positive aspect that shows that there are several treaties have been concluded between the two nations bilaterally through NAFTA, along with the latest attempt to tear down barriers to capital mobility even as territorial demarcations were tightened for workers. NAFTA tried to facilitate trade and open markets but what about the expansion of opportunities for capital investment. Added to this is the issue of Maquiladora factories. There are instances where the negative aspect is still strong. In the Maquiladora factories, cheaper production of materials for the United States and Canada has led to exploitation, sexual abuse and oppression for young Mexican women. NAFTA’s tax advantage still gives hope for a better perspective (Kelly, 2007). China has got every chance to get into this particular tug of having cheaper production of materials from Mexico and can intervene between its relations with US. The economic cost of production of China is comparatively low and that gives Mexico a competition. Being a country in the developing country list the low cost in China is obviously creating a channel away from the manufacturing processes. The added advantage is its approach to the communistic side of global politics, even though Mexico has got greater transparency. China is growing devastatingly in the volume of its trade in the past decade. The low cost has been paving way for more and more foreign investors in the country. It was in 2005, the United States' NAFTA partners, Canada and Mexico, contributed about 30 percent of the overall value of U.S. international merchandise trade. On the contrary, the three largest economies in East Asia - China, Japan and Korea contributed an about 21.9 percent (Boske, 2006). It is an estimation that seems to be growing in case of China. Though China is at its foremost stage of occupying the market between Mexico and US, yet its political and strategical abilities are going to make firm impression. The factors related to the market proximity will not diminish as the country has got lower cost of production that any other developed country. Being a communist country the labours also have the opportunity towards lucrative tax advantages. As compared to Mexico the Chinese employs are having less access towards their bonuses and are subject to more laborious routine. The wages are comparatively lower than any other developed country and the investors are served with lower lobour charges. It has got special economical and political independence to the foreign firms. With an amalgamation of all these features the market proximity stands still and prospects for future occupation gets rigid. There is every possibility that China will become a less complex and risky business domain in the global scenario. United States on the other hand is becoming biased in adopting its business policies with China. Due to the lower cost of labour more and more foreign investors are getting into the markets of China and as a result the sustainability of relationship in terms of business, between Mexico and US, are at toss. 2. Will the dominance of software and services outsourcing shift toward China? How will such a pattern affect china’s manufacturing capabilities? Would GE-like companies find it ideal to limit the outsourcing of manufacturing and services to one country? --- As outsourcing necessarily is not meant for higher profits for a particular business, its success gets decided by the ability of respective firms to manage its managerial skills in specified locations. The dominance of software and services over China is undoubtedly outsourcing shift of the global market towards it. The outsourcing has already been regarded as a threat to Western jobs. These western jobs are now going to get cheaper. As for the adoption of newer technologies and the proximity to research centres in China, the popularity has become more important factors for location, telephone call centres in lesser cost of labour. There will be no doubt that a chain of continuous uncertainties over project development in China will remain constant. It is due to the global operating rating scale of developments in other regions, which is increasing constantly. China being a communist county and having the political dominance and stability is having the boost to excel in the manufacturing category. The industrial and human resource infrastructure of China is equally strong for the IT dominance, that too at a very lower rate. In case of intelligence and multifaceted skills the resources are no way less than any developed country. In the present software and services scenario, the outsourcers are looking for a way to clear high skilled labours (Hill, 1998). They are inclined towards those who are giving low cost of production, that is available in China; and thus giving great threats to the American jobs. The strength lies in its outrageous competition over acquiring skills among world’s largest population. It has got ‘political stability, language skills, infrastructure and the enforceability of intellectual property rights’ to attain success in the outsourced operations. As a matter of fact GE-like companies with a past of not less than 15 years; would not find it ideal to limit the outsourcing of manufacturing and services to one country. They are into a business that needs root all over the world (Dunn, 2000). There is of course a chance that they invest more in the countries where the labour cost is comparatively lower than the developed countries. There is no doubt that since, China is providing GE-like companies with the potential of high risks, there are possibilities of shifting of the outsourcing services and softwares. On the contrary there are instances where the companies are also giving the long run opportunities to outweigh these risks. This is also leading them to go for the manufacturing sections and involving more job opportunities to Chinese market. 3. Will American employment losses continue in the short-run? Will the outsourcing trend ultimately bring in more jobs in the long run? Is it time for US government to step in with the outsourcing regulation? Or should the outsourcing market be allowed to proper without Uncle Sam’s intervention? --- It is for sure that American employment is going to face losses in the short-run. The jobs are getting more bifurcated to Asian countries due to low – cost of productions. As the continuous falling U.S. dollar, limited free trade agreements, high energy costs, and rising production costs in Asia, are the causes contributing to the companies in making reassessments for the extension of supply chains and moving sources closer to their home markets. There are few scopes related to the shareholders and board members who could question their company's reliance on China by the means of this adopted outsourcing. The addition of partnerships; ranging from marketing tactics to strategic alliance are worth of consideration in bringing the matter of jobs creations in the long run. The fact is that most of the Chinese companies are working as sub-contractors to brand US manufacturers. On the contrary some Chinese companies are using established American brands as beachheads for their push into the US market. Still keeping the job opportunities intake in China, Mexico will become an increasingly popular source for manufactured goods as companies compete on time-to-market strategies. It will be in the race seeking financial advantages found in Mexico’s multiple free trade agreements and capitalize on Mexico's investment incentives (Mumme, 2007). However the U.S. government is looking to step up enforcement of import safety measures with the letter and spirit of trade control regulations. The attempt is in favour of the global nature of software outsourcing, U.S. focused Chinese vendors can’t simply crank their dollar denominated prices by 30% just to stay even. The only solution is that the resources need to learn to operate more efficiently, begin offering services that are worth more and aggressively expand their global delivery (Arbelaez, 2007). As for the intervention of Uncle Sam, there cannot be any way out without him. America is giving the biggest market to all sorts of companies. In case of long-term contracts, the stress is towards the evaluation of the impact on the exchange rates on the vendors. The maintenance of productive partnerships with the respective vendors, there might be the chances of rescheduling and renegotiate the contracted rates. The process of outsourcing by American companies to the countries like China is saving as much as $8 billion in the last four years. This is the reason that Uncle Sam is a vital part of the whole process and his intervention is obvious. By the functioning of the anti-outsourcing regulations like that of the New Jersey state, there arises situation of poor economics. References Arbelaez, Harvey & Milman, Claudio (2007), "The New Business Environment of Latin America and the Caribbean", International Journal of Public Administration. Boske, Leigh B; Global Trends & Market Shifts: Texas, China, and Mexico, Publication: Texas Business Review, 2006, http://www.allbusiness.com/legal/international-law-foreign-investment-finance/4086927-1.html[accessed on 2008-05-07] Dunn, Christopher; Brewer, Benjamin & Yukio, Kawano (2000), "Trade Globalization since 1795: Waves of Integration in the World-System", American Sociological Review [accessed on 2008-05-07] Hill, John & D'souza, Giles (1998), "Tapping the Emerging Americas Market", Journal of Business Strategy . Kelly, Patricia & Massey, Douglas (2007), "Borders for Whom? The Role of NAFTA in Mexico-U.S. Migration", The ANNALS of the American Academy of Political Science Mumme, Stephen (2007), "Trade Integration, Neoliberal Reform and Environmental Protection in Mexico: Lessons for the Americas", Latin American Perspectives Read More