From January to September 2015, Mexico recorded US$21.6 billion in Foreign Direct Investment (FDI), 41% higher than the preliminary figure for the same period in 2014 (US$15.3 billion); Korea has provided a significant part of these inflows.
The Mexican automotive and auto parts industries are leading the world and are surrounded by good news: Korea’s Kia Motors Co. invested US$1 Billion in its first manufacturing plant in Mexico, located at the Municipality of Pesqueria in the State of Nuevo Leon. When the plant is completed in the first half of 2016, annual production capacity of 300,000 vehicles is expected, boosting Kia’s total global manufacturing capacity to over 3.3 million vehicles. The site of the plant will also be home to numerous supplier companies.
Quality and production runs are already under way at Kia’s new vehicle manufacturing plant in Mexico, considered 95% completed. Sources from the Company say vehicle production will begin in April 2016, with the company’s official statement indicating that testing and pilot production will take about six months.
KIA Motors announced the arrival of 15 Korean auto parts companies that will relocate to Nuevo León in order to supply its plant located in Pesqueria. In total, 19 suppliers will provide parts for the Kia operation, 16 of which are in final phases of construction within the Pesqueria complex, while three suppliers have erected their plants outside of the complex in other regions. Suppliers have not been fully identified, but Hyundai Mobis (KOR) confirmed earlier it is investing US$417 million in an on-site module and lamp plant to supply the new complex. Hyundai Wia (KOR) also announced an investment of US$370 million to build an engine plant that will supply Kia. Another affiliated company, Hyundai Steel (KOR), is constructing a steel service center close by, but the size of the investment has not been disclosed.
KIA plans to sell 20% of its production in the Mexican market, where it is opening an additional 25 dealerships at a cost of US$50 million. This will bring the national total to 46 dealerships, including the 21 launched in 10 major cities in July 2015. The affiliate of Hyundai invested US$63 million to open the first 21 dealerships in the Mexican Republic.
KIA launched domestic sales of imported Forte compact sedans and Sportage and Sorento SUVs last July, selling 1,499 vehicles. October sales were 1,829 units for a cumulative total of 6,659, making it certain the brand would surpass the initial 2015 sales target of 7,000 vehicles.
Other companies that have important investments in Mexico from Korea are Samsung, LG, Daewoo Electronics, Boleo, Posco and MTG. The Korea Electric Power Corporation (KEPCO) and Daerim Energy are preparing to invest in Topolobampo Combined Cycle Power Plant. Currently, in Mexico there are 1,500 companies with Korean capital, among which is worth to mention also Korean Resources (KORES). Korea is the 14th source of FDI for Mexico and #3 from the Asia-Pacific region, after Japan and Singapore. Exhibit 1shows Korean Investment in Mexico.
After six years of failed attempts to achieve a Free Trade Agreement between Mexico and South Korea, because of the resistance of the steel sectors and national machinery, today interest of Korea is observed by resuming negotiations, which if achieved, it will bring benefits for Mexican exports agribusiness, automotive and auto parts by elimination of tariffs.
Mexico and the Republic of Korea celebrated the 50th anniversary of the establishment of diplomatic relations in 2012. Back in the year 2001, the Presidents of Mexico and Korea established the Mexico-Korea Commission for the 21st Century, with the mandate to analyze the prospective of the bilateral relationship in the medium and long-term, in order to present clear strategies and specific actions to be taken by both governments.
By the year 2006, the Strategic Alliance for Mutual Prosperity between Mexico and Korea was launched, with the aim to increase the bilateral encounters. Due to the size of their economies and their industries, Mexico and the Republic of Korea can be understood as similar and competitive economies, but still complementary in certain sectors. Both countries are considered as emerging economies and both are members of the G-20, the Organization for Economic Co-operation and Development (OECD) and the Asia-Pacific Economic Forum (APEC). Both Mexico and Korea experience high levels of industrialization processes and solid international trade, fundamental engines of their economic activities.
Korea is the 6th trade partner of Mexico worldwide and bilateral trade has increased impressively.Exhibit 2 summarizes the Trade Balance between Mexico and Korea. It shows that commerce between the two countries reached its maximum level in the year 2006 (US$13.01 billion), which is the only time that trade has passed the US$13 billion mark. The bilateral commerce historically has been negative for Mexico.
Several important factors in the trade balance between Mexico and Korea are revealing. Take, for instance, the fact that during the 14 year time span from January 1999 to December 2014, total exports from Mexico to Korea increased from US$153.9 million to US$2.08 billion (1,387%). And at the same time, imports from Korea to Mexico also showed an impressive growth from US$2.9 billion (1999) to US$13.8 billion (2014), a remarkable 364% growth.
Total commerce between the two countries and reciprocal action brought in US$15.8 billion during 2014 in trade between the two partners and has consistently been with sustained growth or similar figures, especially from the period since 2006. And another interesting detail is that in 2014 commerce stats decreased 5.16% over the data of 2013.
The relation of Mexico with the Republic of Korea is of great relevance, especially, when it comes to build new arrangements of cooperation with the Asia-Pacific region, especially in a moment in which the international economic dynamic moves towards this part of the world.