Page 337 - Cambridge IGCSE Business Studies

26: Business and the international economy

CASE STUDY Mexico’s manufacturing boom

Mexico is increasingly becoming a popular destination for investment by
multinationals.
In 2013 General Motors, the largest car manufacturer in the US,
announced it would invest millions of dollars to expand its plant in Toluca,
Mexico.

Mexico offers a large workforce of generally educated and trainable people.
The World Trade Organization ranks Mexican workers among the hardest-

working in the world. Mexico also benefits because of its geographical location,

being close to North America. The North American Free Trade Agreement
(NAFTA), signed in 1994 helped Mexico integrate with the world economy and
is a key factor in attracting foreign investment.
With higher fuel prices, manufacturers are aiming to reduce shipping
costs by producing goods close to their market. Thus many multinational

corporations are building factories in Mexico to supply to the North
American market.

Source: www.cnbc.com/id/48986442;www.reuters.com/article/
2013/06/26/us-mexico-general-motors-idUSBRE95P1FZ20130626;
http://internationalinvest.about.com/od/globalmarkets101/a/ Mexico has become a popular
A-Guide-To-Investing-In-Mexico.htm choice for multinational companies

TASK
a Identify and explain what factors make Mexico an attractive destination for investment by foreign companies. 335
b How could General Motors benefit by investing in its Mexico plant?
c Explain three ways in which the host nation, Mexico may benefit from the investments by MNCs?
d Do you think the increased presence of MNCs in Mexico would have a negative impact on local businesses?

TEST YOURSELF
1 Explain the benefits to a business of becoming a MNC.
2 Discuss the positive impact of MNCs on the host country.
3 Discuss the negative impact of MNCs on the host country.

The impact of exchange rate changes

KEY TERM The success of international trade depends a lot on the exchange rate between
currencies.
Exchange rate: the rate at which
The main factors affecting exchange rates are demand and supply. If demand

one country’s currency can be for a currency is high, the exchange rate will rise. For example, if investors
exchanged for that of another.
from Argentina want to invest in Singapore or buy Singapore’s exports then
the demand for the Singapore dollar will rise. This also affects the value of the

Argentine currency as they will have to change their Argentine peso to Singapore
dollars. This will increase the supply of the Argentine peso in the foreign

currency market. This increase in supply may lead to a drop in value of the

Argentine peso.