The proposed North American Free Trade Agreement holds great promise for companies in the
Despite determined lobbying by organized labor and environmentalists, and a U.S. federal judge’s ruling in June that the Clinton Administration should not send NAFTA to Congress until it first prepares a formal statement on its environmental impact (an appeal is expected), the agreement is expected to go into effect early in 1994. By lowering duties and other barriers to the movement of goods, services, and capital, NAFTA will create a trading bloc of 362 million people and $6 trillion in GDP stretching from
Though the North American trading bloc still will rank No. 2 behind the European Economic Area, and trade restrictions won’t disappear completely for another 15 years, NAFTA is a powerful instrument of change in the New World. It will accelerate a trend that’s been underway for two decades: the north-south flow of commerce in search of operating efficiencies and untapped markets.
CEOs who want to benefit from new trading opportunities in
Although NAFTA may mean harder times for some industries, the pact’s overall benefits can’t be denied. For
Federal Express business in
There are legitimate concerns as Mexico, formerly thought of as a Third World country, increases business with the U.S. Mexican commerce suffers from a customs system still dogged by the perception of corruption and sometimes breathtaking inefficiency; an outmoded, dilapidated infrastructure; uncertainty about continued protection of Mexican autos, textiles, agriculture, and oil; and Mexico’s political stability under the successor to President Carlos Salinas de Gortari. But the opportunities of economic integration and the threat the accord poses to North American makers of products such as clothing, sugar, tuna, and glassware compel decisive action now.
The major attraction for industry in
The ranks of maquiladoras, already 2,000-strong in a belt from
Will skilled manufacturing also migrate south, taking thousands of
CRACKING THE GOLDEN TRIANGLE
Forward-thinking CEOs envision more than sunbaked factories churning out components for home consumption when they weigh their options in
STRATEGIC OPTIONS ABOUND
NAFTA empowers companies to pursue any number of money-making strategies in
Until recently, broad swaths of
In certain industries, foreign equity ownership will be phased in over several years. American and Canadian transportation companies, for example, can’t acquire 51 percent of a Mexican carrier until the year 2000. So right now, northern truckers and railroads are biding their time by entering into marketing agreements that allow them to trade services with their Mexican counterparts. Burlington Northern, Roadway Services, and Carolina Freight already have signed contracts to transfer southbound cargo to Mexican carriers. In return, goods have begun to roll off Mexican trucks and freight cars for the journey north.
RETHINKING DISTRIBUTION AND LOGISTICS
Such partnerships illustrate how NAFTA is rerouting the thinking of logistics experts in all three countries. The necessity for a truly Pan-North American distribution strategy that links cross-border demand points is a hot topic at transportation seminars these days. It’s already happening in
A cogent logistical scheme for
As foreign investment feeds
ROADBLOCKS TO PROGRESS
Because the Mexican government lacks all of the necessary resources to bring the country’s infrastructure into the 1990s, foreign companies will have to shoulder some of that burden by building roads and fuel-supply depots, installing their own telecommunications and waste-disposal systems, and investing in new equipment.
But private industry can’t do much about
Priority express carriers particularly are frustrated by the inability-or refusal-of customs inspectors to examine cargo electronically. Systems such as Federal Express’ ExpressClear can forward manifest data to customs while a plane is en route, allowing officials to flag specific items for closer inspection upon arrival. In some countries, including
NEW LAND, NEW EXPECTATIONS
Post-NAFTA prosperity will come to companies that can adapt to
Companies must do all of the above in
Community relations is also vital in a country where the standard of living is far below that of the rest of
Although NAFTA doesn’t apply to the rest of
Frederick W. Smith is chairman, president, and chief executive of Memphis, TN-based Federal Express, a $7.8 billion company that was the first to win the Malcolm Baldrige National Quality Award in the service category. It is the world’s largest express transportation company, shipping 1.6 million items to 187 countries each workday.