Vol. 6 Num. 1 - GCG: Revista de GlobalizaciÃ³n, Competitividad y ...

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Miguel A. MontoyaIn 1999, Mexico was eleventh in world car production, competing with major producerssuch as Italy, Belgium and Brazil. The proximity to Mexico made the U.S. a major supplierof finished goods and intermediate products for the major automakers, as growing demandfor the world’s biggest market and dissatisfaction with working conditions in that country ledU.S. companies to move to Mexico.29From 2004 to 2007, the demand for new cars exceeded one million sales in the country. Thiswas considered a very positive market performance and suitable for the introduction of a productaccessible to a social sector that was an untapped economic laggard in the market.By 2007 Mexico produced about 2 million light vehicles, of which 1.5 million were exported.Vehicles produced in Mexico included the Chevy HHR crossover Chevrolet, the GM pickuptrucks by Chrysler, the VW Beetle and Jetta, the Honda Accord, the Tiida, the Nissan Versaand Tsuru, and the Ford Fusion, Milan and Lincoln MKZ, among others.In Mexico, 1.2 million vehicles entered with temporary permits or were legally imported. Themarketing of these cars was informal and unfunded, and they are also generated high levelsof pollution, with limited utility to generate jobs or investment and no income to the state orcountry. This was because there was an unmet demand in the market for the middle andlower class consumers, between 25 and 54 years of age, who represented 63% of the nationalpopulation pyramid. Of these consumers 75% did not have a car, meaning 31 millionwere potential consumers who needed a cheap and reliable car.The regulation of the industry affected its growth. In 1989, seeking to consolidate the exportpattern of industry and looking for better expertise to compete internationally, a decree wasenacted for the Promotion Automotive Industry Modernization, which entered into force inNovember 1990. This decree addressed a deficit in trade balance in the industry, which wasmainly caused by its reliance on imported materials for assembly.3.5. Salinas Motors Group - FAW Business PlanSalinas and FAW signed a memorandum of understanding in 2007 to start marketing cars inMexico by the first quarter of 2008. They had a long-term project and plans to introduce anew line of automobiles in Mexico in order to reach a market that had not been explored andalso to comply with safety standards and the emission control system to boost the automotiveindustry.Initially the vehicles would be imported from China and it was projected that in three yearsthey would be produced in Mexico. To produce the cars, a plant in Zinapécuaro in the state ofMichoacán (West of Mexico) was planned. Its aim was to manufacture and export compactcars at affordable prices incorporating the national automotive parts suppliers. This plantwas supposed to begin production by 2010, so it could meet the increasing demand in thecountry. It was also intended to produce and export to Latin America, starting with countrieswhere they already had a presence such as Brazil, Argentina, Guatemala, Peru, Hondurasand Panama. FAW also had a particular interest in exploring the markets of USA and Canada.GCG GEORGETOWN UNIVERSITY - UNIVERSIA ENERO-ABRIL 2012 VOL. 6 NUM. 1 ISSN: 1988-7116pp: 23-35
International Joint Ventures among Developing Country Multinationals: The Case of Salinas Group-Faw30According to the National Auto Decree 2005, any company wishing to import vehicles intoMexico duty-free had to make a minimum investment of US$100 million in a new plant withan output of 50 thousand vehicles per year. The Decree required that all imported automotivevehicles not manufactured in Mexico pay a fee. In the case of Chinese cars, this was50% of the value of the unit. Applying such a tax made the consumer price unprofitable anduncompetitive. This is the reason why that Salinas Group and FAW were interested in producingin Mexico rather than merely importing Chinese cars.The price of vehicles was set a little below the average of those sold in the country. The threemodels offered by FAW were the FI line (1.0-liter engine) in its sedan and hatchback versions;the F4 with 1.4-liter engine also had the same platform and basic versions and equipment.In addition, the F5 was offered in sedan and hatchback, although it was only availablein the equipped version. The prices of the cars introduced in Mexico were: (1) F1 HatchbackBásico: US$ 6,300; (2) F1 Hatchback de Lujo: US$ 6,850; (3) F1 Luxury Sedán: US$ 7,900;(4) F4 Sedán Base: US$ 8,180; (5) F4 Sedán de Lujo: US$ 8,815; (6) F5 Hatchback de Lujo:US$9,536; and (7) F5 Sedán de Lujo: US$ 10,445 4 .FAW cars were sold under the weekly payment scheme commonly used in Elektra. Fundingfor the acquisition of the two models of FAW cars was granted by Azteca Bank with a downpayment of 10 to 30% and interest rates ranging from 12% to 20%, while Seguros Azteca(the insurance company of the Salina Group) would provide insurance. There were severalfinancing schemes. For example, the F1 Hatchback, basic version, sold with 30% downand 60 months to pay and credits of US$30 per week. Furthermore, this included vehiclemaintenance. For US$ 4.50 more per month, the insurance of the unit was covered. The ratecharged on credit was around 20% annually and was provided by Azteca Bank.On November 23 rd , 2007, with the presence of the President of Mexico, Felipe Calderon;President of Salina Group, Ricardo Salinas; President and CEO of FAW, Zhu Yan Feng; andMichoacán governor, Lázaro Cárdenas, the first stone was placed where the FAW automobileassembly plant was supposed to be built in Zinpapécuaro, Michoacán. This wasapplauded by the federal agent after pointing out that the strategic alliance between SalinaGroup and one of the biggest car producer in China would generate about 2,000 direct jobsand about 14,000 indirect jobs. This started a new stage that was to be the largest investmentfrom China in Mexico to date. In the opening ceremony, Felipe Calderon said that theautomaker would benefit the social sectors with little chance of getting a car, since theywould be able to acquire one at modest prices.Ricardo Salinas explained that as a first step the vehicles would come from China and that inthree years they would be produced in Mexico. Once the assembly plant was built, it wouldhave a production capacity of one hundred thousand cars annually. Ricardo Salinas added:«Today is an important day for Salinas Group because we started a business line that wedo not know, we will learn and we will do a lot of cars and very well done». Ricardo Salinassaid that for Mexico this was a very important investment, because a Chinese company wasseeing the country as a very good area for investment. He thanked the General President ofFAW Group, Zhu Yanfeng, which took into account the Mexican entrepreneurs.4. Original prices in Mexican Pesos (exchange rate: MXP 11 per US$ 1) at http://www.elektra.com.mx/GCG GEORGETOWN UNIVERSITY - UNIVERSIA ENERO-ABRIL 2012 VOL. 6 NUM. 1 ISSN: 1988-7116pp: 23-35
Page 2 and 3: CARTA DEL EDITOR IN CHIEFEditor in
Page 5 and 6: StaffDe la Torre, José, Dean, Chap
Page 7 and 8: Staff2. MULTINACIONALES, INVERSIÓN
Page 9 and 10: SELECCIÓN PROCEDURE PROCEDIMENTOIN
Page 11 and 12: Instrucciones para Autores y Proced
Page 14: INDEXACIÓN INDEXING INDEXAÇÃOInd
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Page 55 and 56: 561. IntroductionClusters and indus
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Entrepreneurial Clusters in China a
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921. Introduction: Mexico and China
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Why isn’t Mexico on China’s Gro
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1081. IntroductionChina and Latin A
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Promote China-Latin American Relati
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1161. A Brief History of Economic r
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Building the New Silk Road across t
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Zhu HongboIn fact, some Latin Ameri
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Zhu Hongbo5. Conclusions135China an
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1. Introduction137China’s emergen
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Edy WongTable One: Compositions of
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Edy WongTable 2: China’s R & D Ex
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Edy Wongon ‘new economic geograph
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Edy WongIn today’s global market,
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Edy Wongdemand-side factors in the
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Edy Wongterms of quality, reliabili
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Edy Wongindustry. Second, value cha
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Edy Wongconsumption of Western luxu
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Edy WongReferences155Child, J.; Rod
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