• With a population of 109 million inhabitants, Mexico is the 2nd largest market in Latin America, behind only Brazil, and Hong Kong's No. 1 export destination in the region.
  
  
• Despite a vigorous export-led manufacturing sector, Mexico depends heavily on imports of consumer goods, especially goods of quality, variety and novelty, on the back of improving income and living standards.
  
  
• Given a skewed income distribution, the mass consumer market is still highly price sensitive. But the demand for high-quality products has seen handsome growth recently, especially among the peppy youth and the 36-million-strong middle class, fuelled by the expanding credit access offered by retailers.
  
  
• The recently signed agreement between Mexico and China on Mexico's anti-dumping measures on Chinese products six years after China's WTO accession looks set to provide lucrative opportunities to Hong Kong exporters.
  
  
• Putting the steadfast outlook aside, Mexico's heavy economic dependence on the US may hinder the penetration of Hong Kong products in the near term. Hong Kong companies should adopt a more long-sighted approach when developing the Mexican market.

A Big Market with Big Challenges

With a population of 109 million earning a per-capita GDP of US$8,400, Mexico presents the 2nd largest consumer market in Latin America, behind only Brazil, and is currently the No. 1 export destination for Hong Kong exports to the region. Given its steady economic performance as well as extended access to consumer credit, Mexico sees a surging demand for imports of quality consumer goods, despite a vigorous export-oriented manufacturing sector.

Hong Kong's trading relations with Mexico have grown fairly speedily in recent years. Over the period 2003-2007, Hong Kong's total exports to Mexico soared by 74% or a compound annual growth rate (CAGR) of 15% between 2003 and 2007, while total imports from Mexico grew by 69% or a CAGR of 14%. This upward trend continued in the first quarter of 2008, when Hong Kong's exports to Mexico saw a growth of 18%, reflecting not only Mexican consumers' ready acceptance of Hong Kong products, but also importers' positive perception towards Hong Kong as a reliable sourcing platform.

However, Mexico's wide-ranging anti-dumping duties (AD) on products of China-origin, together with the hostile sentiment towards Chinese imports, have long been the major obstacles hindering the growth of Hong Kong exports to the country. Despite gradual reduction, Mexico still imposes a comprehensive array of AD duties against Chinese imports. The most affected product categories include apparel, footwear and toys, which currently face AD duty rates as high as 1,105%.

A Turning Tide in the Offing

Six years after China's WTO accession, the so-called "peace clause" granting Mexico the right to maintain its existing AD duty orders on Chinese products under 26 tariff categories came to an end on 12 December 2007. Mexico has thenceforth launched a review of the antidumping duties it imposes on goods imported from China. After nearly six months of bi-lateral negotiations, Mexico and China recently signed an agreement under which Mexico will eliminate or gradually reduce the AD duties it currently maintains against imports of a broad range of products from China. Evidently, this agreement looks set to paint a rosy picture for Hong Kong companies that mainly produce or source across the border and are therefore affected by Mexico's trade restrictions against the mainland.

A Promising Consumer Market

Mexico has a very young population, where nearly 80% of the total population is at or below 45 years old, with a median age below 26 years old. The young population on one hand represents a ready source of labour to various economic sectors, and on the other hand, a steadfast consumer market for a wide variety of products catering for the youth. By and large, Mexican consumers are informed about and receptive to international trends and brands. Given the proximity to and the close economic ties with the US, they are very much affected by the US consumption style, though they may lack the purchasing power to fully follow suit. Buoyed by the continuing improvements in employment and income, as well as the expansion of consumer credit, the consumer market in Mexico is expected to see solid and sustained growth in the foreseeable future.

On the other hand, as a regional power and the only Latin American member of the Organization for Economic Co-operation and Development (OECD), Mexico is considered an upper-middle-income country. With one third of its population, or 36 million inhabitants, belonging to the middle class, Mexico presents one of the largest and most promising consumer markets in Latin America for Hong Kong exporters. This sizable middle class, together with Mexican consumers' and importers' ready acceptance and good perception of Hong Kong products and businesspeople, paints a bright picture for Hong Kong companies that are well-known for their price-competitive and quality offerings. In particular, electronics, toys and games, watches and clocks, footwear, garments and jewellery are products with lucrative growth potential.

Obstacles and Ways Out

Despite a steadfast outlook, trading with Mexico is not free from risks and challenges. Other than AD orders, the most pressing issue, perhaps, is Mexico's heavy economic dependence on the US, which is now in the midst of a downturn. Nowadays, most manufacturing plants in Mexico are still in the business of assembling imported materials from the US into finished products for re-export to the US. As a consequence of these extensive processing trade facilities, the US is the largest export market for Mexico, accounting for more than 80% of its total exports. In this regard, Mexico cannot be immune to the headwinds recently blowing in the US. Even so, barring the US economy from further storms in coming years, Mexico's enormous consumer base, together with the aforesaid AD agreement, is expected to underpin Hong Kong's trade with Mexico.

Moreover, the sizable informal economy, which is estimated to account for 27% of the country's GDP, also poses significant challenges to Hong Kong exporters. Apart from offering products of better quality, wider variety and trendier designs, to survive the intense competition in the sizable informal market in Mexico, Hong Kong exporters are advised to partner with established retailers such as hypermarkets, supermarkets, shopping centres and department stores to better leverage on their marketing efforts and strengths in intellectual property rights protection. On the other hand, to cope with the hostile sentiment towards Chinese imports, Hong Kong companies are advised to differentiate their products by branding, as Mexican consumers have better perception of Hong Kong-managed imports over indigenous Chinese products.

Last but not least, in order to avoid the exhaustion caused by long-haul flights and excessive travelling expenses, Hong Kong companies can consider the alternative of using Hong Kong trade fairs and exhibitions as a platform to meet Mexican businesspeople. Apart from time and cost savings, this helps Hong Kong traders bypass the language barriers that they will encounter in Mexico. As an illustration, the Hong Kong Trade Development Council received 2,525 Mexican visitors at its various trade fairs in 2007, demonstrating a CAGR of 20% over the past five years.

This new report is available at HKTDC's Retail Outlets. It can also be purchased through the HKTDC Bookshop section in the HKTDC's trade portal: www.hktdc.com.