After nearly a year of internal debate, the Mexican government has decided to turn down an International Business Machines Corp. proposal to build personal computers here in a wholly-owned subsidiary that would have been the largest operation of its kind in Latin America.
In a meeting Thursday evening, the cabinet-level Foreign Investment Commission voted to reject the IBM plan because it would have competed with Mexican-controlled computer firms. The project was therefore inconsistent "with the federal government's economic objectives," it was announced.
The IBM proposal might yet be revived under modified terms, however, government and diplomatic sources said. Confirming that the company's plan "has not been accepted in the terms in which it was originally proposed," IBM de Mexico President Rodrigo Guerra said the firm "will continue examining alternatives and other types of schemes and proposals under which our microcomputers might be offered to national users."
IBM had asked to be exempted from government rules restricting personal computer manufacturing to firms in which Mexican investors held majority shares. In its brief announcement, the Foreign Investment Commission stressed that Mexico welcomes foreign investment only "if and when it does not displace national capital."
The decision was seen as a victory for the strong "nationalist" bureaucratic faction within Mexico's government, which opposes officials who actively advocate expanded foreign investment here. As recently as November, high-level Mexican authorities privately expressed confidence that the IBM project would be approved. Since then, however, the proposal has come under increasing attack in the Mexican press and Congress.
The IBM proposal was combatted most vigorously by an unusual coalition of left-wing politicians and Mexican businessmen, especially those who hold controlling interests in the local joint-venture enterprises of such U.S. personal computer firms as Apple and Hewlett-Packard.
"I am happy that the Mexican government has supported its original position, though I am not surprised," Richard Hojel, chairman of Apple de Mexico, said in a telephone interview. Hojel said he "would still welcome IBM as a competitor, but not under special conditions" as IBM had requested.
IBM could still submit a new investment proposal altered to conform to government regulations, Mexican officials suggested. "The door isn't closed," said Alberto Nolasco, chief spokesman for the Commerce and Industry Ministry.
Business and government sources reported that throughout the course of its protracted negotiations, IBM sought approval of the plan as it was originally formulated in March, resisting pressure to rewrite the proposal in closer conformity with industry norms.
Officials reportedly were willing to authorize 100 percent ownership of the personal computer subsidiary if IBM agreed to abide by Mexico's stringent domestic content rules and other regulations. IBM had asked to be exempted from these requirements, arguing that the scale of its proposed manufacturing plant and its projected export earnings justified such special treatment.
With a planned output of 125,000 units annually, the IBM plant would have been 10 times larger than that of its nearest local competitor, Apple de Mexico. All but 8 percent of IBM's Mexican production was to have been sold abroad, earning the operation more than $500 million in export income during its first five years, according to company estimates.
IBM's competitors countered that the venture's direct investment and employment were too small for the giant computer firm to be demanding such concessions. The IBM personal computer facility, providing some 80 assembly jobs, would have been installed in an existing IBM typewriter factory in Guadalajara at an initial direct investment cost of $6.6 million, the firm reported.
Factions within the Commerce and Industry Ministry objected to the IBM proposal, although support for the plan within the government was led by the ministry's deputy minister for foreign investment, Adolfo Hegewisch, informed sources said. Hegewisch formally recommended approval of the IBM project two months ago, provided that the company adhered to existing domestic content rules and met several other requirements, including voluntarily limiting its domestic personal computer market share to 25 percent and promising to introduce its most advanced products in Mexico within six months of their commercial introduction in the United States.
Industry experts and other informed sources predicted that IBM would submit a new plan tailored to most existing government regulations but still requesting 100 percent ownership. The government could then contend that IBM had capitulated to Mexico's demands and approve the project. "There is some face-saving going on here," said Hojel, a leader of IBM's Mexican private sector opponents.