In the most basic sense, opportunity cost refers to a benefit that a person could have received, but rather gave up to take another course of action. Stated differently, in investing it means the return between a chosen investment and one that is passed up.
As 2016 winds down, the year will go down as historic or paradoxical to say the least. In one end, one of the pillars of the largest economic and social blocks in the world voted to leave what had been arguably one of the most important peace keeping associations in the world. Whereas, in the other end, the largest economic power of the western hemisphere voted for a political and ideological change that has shaken the world, especially Mexico in many ways. As our geopolitical and economic powers face the birth of 2017 it is important to focus and understand things as they are as not to get ahead of ourselves regarding the many uncertainties that the future may hold.
One of the things that needs to be spoken about is the global social necessity that entrepreneurs have to keep providing goods at a competitive price whilst maintaining peace in foreign trade, in the era of hipperconectivity it is paramount to focus on foreign trade as a vital part of growth, peacekeeping and mutual progress and advancement
While worrying about Changes in the White house, re negotiation of NAFTA and other multilateral commercial agreements there is one thing that needs not be overlooked by entrepreneurs, business advisors and national and foreign investors when dealing with Mexico:
The opportunity cost of passing up manufacturing and focusing on foreign trade from Mexico might be at an all-time high. For change sake and to focus our attention in something rather than Trump and the white house there is a specific principle that I will refer to as the shoe factor which will be used to make the case in demonstrating the opportunity cost that might be lost if circumstances are not understood and seized as 2016 winds down.
Due to basic economic principles when comparing overall costs to manufacture a pair of shoes in November 2014 paralleled with November 2016, there has been a rise in cost of production of $50 pesos. Thereafter, the same pair of shoes cost $250.00 MXP today compared to $200.00 MXP back in November 2014. Nevertheless, when comparing the economical weight of Mexican currency and the exchange rates of US vs. Mexican Pesos from November 2014 and November 2016, the result is actually striking and is significantly cheaper to manufacture the same pair of shoes in 2016 than 2014.
|DATE||Manufacture cost MXP||Exchange rate MXP to USD||Manufacture cost in USD|
|November 2014||$200.00||13.5||$14.81 USD|
|November 2016||$250.00||20.7||$12.07 USD|
The economic and social reality of Mexico states that due to the shoe factor, foreign investors willing to manufacture in Mexican currency and sell to consumers in an international currency might have the largest profit margins available. In foreign trade this creates a reality when thinking about investing or passing up economic and social realities arising from labor and production markets in Mexico.
For Mexican federal and local governments and moreover for attorneys, promoters and business consultants this means two things whilst advising and pursuing foreign trade with social responsibility:
1.- A need for a pressing mind shift that implies not over distressing or going on about changes in the White house, building walls or racial differences while urgently understanding that this might be the best time to promote Mexico.
2.- A huge responsibility for consultants (especially labor and employment consultants) to understand the social responsibility that low labor costs imply for all foreign investors and local advisors. We must comprehend the reality of our country and the opportunity to promote investment whilst being responsible with compliance and avoiding widespread misclassification of employees, governmental corruption and over all exploitation of circumstances. Consultants must realize that the only way to maintain investments safe and guaranteeing long term results and profit margins is to invest and conduct decently with high ethical standards and social responsibility values.
For foreign investors there is also a need for mind shift concerning Mexico, understanding the legal viability or the possibility to comply with and observe international compliance, bribery and corruption acts whilst producing at low costs.
As a conclusion, it is safe to say that for foreign investors, the opportunity cost is something to take into account when thinking about Mexico. The shoe factor is a simple way to contrast production costs in similar circumstances over the years but consultants shall be responsible and investors shall be wise as to conduct appropriately. Legal counsel is very necessary in a country that needs to be understood and navigated wisely.
For Mexican consultants and government officials the opportunity cost of not promoting Mexico in a responsible and clear manner is also at an all-time high. The white house effect has already begun to affect and the anxiety level is increasing whilst we lose focus of a whole world and markets that need to be reached and where technological and commercial advancements need to be taken advantage of. Mexico is fertile ground for investing, every political, economic, scientific, legal and commercial partaker must change the unrest for urgency to promote change and permeate markets worldwide.