Pest Analysis on Nafta Essay Example

As a result of this compact trade alliance, the economic strategies of Canada and Mexico have progressively aligned with those of the United States.

A slight alteration in US interest rates will provoke implications in both Canada and Mexico, impacting enterprises across the borders.

2. Communal

The Nafta region houses over 444 million inhabitants with a workforce of roughly 200 million individuals. The demographic makeup of the three Nafta partners is closely aligned among the critical age bracket of 15 to 64 years, accounting for 65% of the overall population among all partners, according to both cia.org "The world factbook" and naftanow.org "fast facts", as of 2010.

From a business perspective, NAFTA opens doors to a significant market brimming with potential clients ready to buy. A large portion of these consumers are bilingual in English and Spanish, despite cultural differences among various countries. These potential buyers display high profitability due to their income potential and the prevalent use of English as a shared language. On the other hand, almost 50% of NAFTA's population comprises the working class, suggesting a vast pool of prospective workers. Nevertheless, it is crucial to highlight that the labor force significantly differs across the United States, Canada, and Mexico.

Both the United States and Canada, as highly industrialized nations, are dealing with an ageing workforce (Tang, MacLeod 2006). This is especially apparent in the United States where there has been a shift towards an older labour demographic (Juhn, Potter 2006). Tang and MacLeod determined that an ageing labour force "have considerable implications on productivity" (2006 p. 599), as older workers are generally less productive than

their younger counterparts. Contrarily, Mexico, as a developing nation, boasts a youthful labour force with a median age of 26 years (United States 37, Canada 41) (cia. rg "The world factbook", 2010 [online]).

NAFTA acts as a conduit for the United States and Canada to capitalize on Mexico's young labor force, thereby boosting their output through core manufacturing centers in Mexico (ustr.org "NAFTA Benefits", 2007 [online]; Malkin 2008). Nonetheless, before choosing to invest in Mexico, investors must take into account a crucial factor. More than half of Mexicans have a low educational level, having spent six or less years in school. Only a small fraction of 4% have attended an educational institution for 15 years or more (Valle 2009). Rangel and Ivanova (2008, p. 9) underscore five sectors that profit from the limited training needs of Mexico's primary workforce: mining, drilling, oil industry, refining and communication - all being substantial contributors to Mexican production. Conversely, both private and public schools in the United States and Canada uphold high educational norms and provide efficient higher education alternatives (Boothby, Drewes 2006; Croix, Doepke 2009). However, NAFTA continues focusing on trade and investment possibilities rather than mandating enforcement of educational standards or opportunities.

Surprisingly, Mexico's spending on education is almost on par with that of the United States and Canada (naftanow. org “about NAFTA”, 2010 [online]; cia. org “The world factbook”, 2010 [online]). This offers the advantage, under NAFTA, of investing in a region with two distinct educational systems. For instance, investors can opt for Mexico for simple labor tasks such as manufacturing cell phone components, while choosing the United States or Canada for establishing headquarters

staffed by highly educated professionals like accountants and lawyers.

Advancements in technology

The advancements in technology have significantly impacted global trade, particularly by enhancing transportation methods to make cross-border goods movement faster and more cost-effective. The evolving economic landscape of the electronics industry is driving considerable growth in Mexico's contract manufacturing sector. Increasingly, electronics firms are opting to delegate their production tasks, recognizing the impracticality of building a new plant for each innovative item they create. By the time these facilities reach full operation, the products could potentially be obsolete.

Advanced technology companies often depend on the expertise of contract manufacturers. These subcontractors are knowledgeable about the complex procedures involved in establishing a new production line for modern electronic gadgets, and they have the ability to adjust production levels according to market demands. Although Guadalajara, Mexico has higher labor costs compared to China and other Asian nations, proximity to customers is more important than labor costs. Items manufactured in Guadalajara can be delivered through UPS and Federal Express to clients in Canada and the US within one day. Shipping high-tech products made in Asia can either be excessively costly or take too much time.

The Office of the United States Trade Representative reported that in 2009, major industries such as Machinery ($52 billion), Electrical Machinery ($44.2 billion), Vehicle Parts ($41.4 billion), Plastic ($18.5 billion), and Mineral Fuel and Oil ($17.4 billion) were the main exporters from the US to Mexico. The top three sectors are all technology-based, underscoring its pivotal role in determining trade relations between these two countries. Large multinational companies have poured billions into Guadalajara, Mexico, successfully turning it

into a hub for information technology manufacturing.

The sector thrived due in part to inexpensive workforce and also the notion that Nafta assured policies favorable to investors. Nowadays, the city is encircled by low-rise factories which produce a variety of products, from Blackberry's to digital tape storage libraries for Sun Microsystems" (Elizabeth Malkin, 2010). In general, Nafta's existence aided Mexican manufacturers in adapting to U.S. technological advancements, resulting in a favorable influence on Mexico's job market with quality jobs according to a global study done in 2005. However, there have been claims that following the introduction of Nafta, these fresh factories started bringing parts from their international providers, thus eliminating local firms that previously manufactured printed circuit boards or assembled computers under tariff protection.