Why Some Asian Companies Are Gung Ho About NaftaRobert Neff
The agreement by the U.S., Canada, and Mexico to establish a North American free-trade zone touched off predictable protests throughout the world, notably in Asia. Japanese auto makers, whose North American assembly plants face higher domestic content standards, were especially noisy. "We're concerned, definitely," says an official at Toyota Motor Corp. "It will have an adverse effect for Japanese carmakers in North America." Other Asian government and industry leaders professed concern that industrial investment could shift from their countries to Mexico.
But a lot of the complaints ring hollow. As long as it doesn't turn protectionist, the North American Free Trade Agreement offers at least as many opportunities as headaches. Already, companies throughout Asia are mapping plans to take advantage of the vast new market by boosting investments there.
South Korean officials, for example, are urging their companies to start investing in Mexico. "Companies should study carefully how they can benefit from combining the strengths of Korea, Mexico, and the U.S.," says Yu Deuk-Hwan, the assistant minister for trade. Korea may adopt such incentives as tax concessions and elimination of barriers to raising money overseas. President Yoon Young-Suk of Daewoo Corp. sees good reason to put electronics assembly plants in the new North America. "The U.S. is getting more protectionist," he says. "Our exports there are falling."
Japanese giants are on the move as well. Hitachi Ltd. is shifting production of VCRs from Anaheim, Calif., to lower-cost Mexico and Malaysia--although it says the decision is not related to NAFTA. With the elimination of duties on goods from Mexico, Nissan Motor Co. sees fresh opportunities for efficiencies in the new integrated market. It expects to eliminate duplication between its Tennessee and Mexico plants. Giant trader Sumitomo Corp. is considering an "integrated approach" to North America. One possibility, says a spokesman, is to consolidate U.S., Canadian, and Mexican subsidiaries under one executive.
DISTANT THREAT. Hong Kong companies are also ready to cash in on NAFTA. Officials there say the adjustment will be easy because their strong suits--textiles, consumer electronics, and toy factories--are relatively cheap to set up. "We have gone offshore in Thailand and offshore in China, so why not go offshore in Mexico?" says a Hong Kong trade official.
For a few Asian countries, NAFTA is, at worst, a distant threat. Taiwan, for instance, isn't worried that Mexico can lure away its high-tech and services business for many years. Nor can Mexico compete with such countries as Indonesia and China when it comes to low labor costs.
There will be adjustments. Toyota may have to build another engine plant in the U.S. to meet the new 62.5% local-content rule. That could cost $560 million, say industry insiders. Most large Asian companies have seen the new market coming and have been restructuring strategies accordingly. "In a sense, NAFTA is designed to stabilize something that already exists," says Stephen Blank, director of Canadian affairs at the Americas Society in New York. Few companies could complain about that.