Mexico's economic crisis potentially could be repeated in the United States, if our looming trade deficit with the world isn't reversed in the coming years, a top economist said Wednesday in Buffalo.
The Mexican peso was overvalued in the early 1990s, making Mexico's exports a tough sell while at the same time fueling consumer demand for imported goods.
A serious trade deficit developed and confidence in the peso among international investors fell, causing the currency's value to drop to record lows this year. As a result, Mexico is having trouble paying the interest on its national debt.
"Mexico ran into a brick wall in January," said Roger E. Shields, chief international economist and senior vice president of Chemical Bank.
"Their trade deficit killed them because the value of their currency declined rapidly. Mexico is what happens when you don't address the problem of trade deficits," he told a group of 100 business people gathered at the Hyatt Regency.
There are four avenues a nation can take to lower its trade deficit: increase taxes on imported goods, adjust exchange rates, slow down the economy or increase exports.
Shields said the United States should aggressively sell its goods and services overseas, particularly in Japan, which accounts for more than half of the $106 billion U.S. trade deficit.
He was the keynote speaker for an all-day conference on doing business in Japan. The event was organized by the Western New York International Trade Council.
Japan's tightly controlled economy is changing, with more imported products and discount department stores, the economist said. As the nation becomes wealthier and money trickles down to the masses, Shields explained that Japanese consumers will join the worldwide consumption craze. And U.S. goods will be attractive because of the fall in the dollar's value compared with the Japanese yen.
TAM Ceramics Inc. of Niagara Falls and International Imaging Materials Inc. of Amherst are two Western New York companies that have successfully entered the Japanese market.
"You have to be easy to buy from," TAM Vice President Alan Rae said, explaining that his company set up a subsidiary in Japan to facilitate sales. "To sell in Japan you have to be a Japanese company," he added.
TAM exports 51 percent of its high-technology ceramic powders, with 23 percent of the receipts coming from Japan, 18 percent from Europe and 10 percent from other Asian countries.
However, 70 percent of the ceramic capacitors that TAM's powders are used in are made at Japanese-owned plants. Moreover, 65 percent of all ceramic powders worldwide are consumed in Asia.
"We have to be in Japan in order to compete," Rae said. "And Japanese companies don't want to buy from U.S. companies if it's more difficult than buying from a Japanese company."
International Imaging -- known as Iimak -- also maintains an office in Japan, but sells most of its color digital imaging and bar code products in the United States to Japanese product manufacturers that export here, according to STYL name s H. Groh Sr., Iimak's executive vice president for sales and marketing.
He explained that Iimak was founded in 1984 as a licensee for thermal transfer ribbons, which were invented in Japan. The Amherst-based company has grown from a handful of employees to today's 640. Stock analysts predict Iimak's sales will top $85 million for the fiscal year that ends Friday.
"Business relationships are measured in decades in Japan," Groh said. "Continuity, in terms of the people you have dealing with your Japanese partners, is paramount."
To be successful in Japan, he advised U.S. executives to show deference to the culture by having bilingual business cards, supplying an interpreter for meetings, giving gifts and being patient in negotiations.
"The United States and Europe are goal-oriented societies, while Japan is a harmony society," said Ira Arai, vice president of Koike Aronson Inc., a manufacturer in Arcade.
"You have the mind of a hunter, while we have the mind of a farmer. I'm not saying one is good and the other is bad," the Japanese executive said. "But the philosophy is different."