Focus: Advanced Manufacturing

Bring Your “A” Game

Bring Your “A” Game

Jul. 13, 2013

Mexican industry is changing, gaining a high-tech image as it moves away from low-skill, high-volume production and adds value to its exports.

Traditionally an assembly-for-export, plant-dominated landscape known for its basic textiles, Mexican industry is changing its tune in the face of competition from Chinese factories, the US recession, and drug violence in the northern states that is driving business into Mexico's central heartland. The manufacturing sector accounts for approximately one-fifth of GDP and is a significant employer, with the advanced manufacturing sector soaking up the majority of new workers. According to National Institute of Statistics and Geography (INEGI) data from March 2013, auto suppliers were the largest source of new employment in the manufacturing industry (8%), followed by electronics (6%), and plastic and rubber (4%). Demand for auto parts remains strong due to Chinese demand and the continued recovery in the US.

The automotive sector, which accounts for 20% of manufacturing and 4% of GDP, is one of the most significant aspects of Mexico's advanced industrial backbone. Expected to produce between 3.15 million and 3.2 million vehicles by end-2013, the sector continues to be the focus for foreign investment, with both Audi and Honda set to open manufacturing plants in the near future.

Aerospace is also a rising high-tech industry in Mexico. Having grown 20% per year since 2004, the industry was the source of over $5 billion in exports in 2012, up 16.3% on 2011.

AUTO MANUFACTURING

On the heels of Honda's announcement of a $470 million plant in Guanajuato, Volkswagen announced its intention to manufacture Audi vehicles in Puebla at a plant set to cost $1.3 billion and open in 2016. FDI in the auto sector has begun to congregate in Mexico's central states, especially in Guanajuato and Aguascalientes, laying the foundations of Mexico's new manufacturing hub. The operations are drawn somewhat by competitive wages, strong infrastructure, and large tracts of available land. The country's human resources are also a boon, with the country's universities increasingly pumping out engineers that can make up to five times the minimum wage. The industry's reliance on the US market remains strong, however, with 63% of vehicles produced in Mexico destined to cross the country's northern border for sale. In 2012, 2.88 million vehicles were produced in Mexico, with 2.35 million exported. This was a 12.7% and 8% rise on the previous year, respectively. With Nissan also gearing up to open a second plant, worth approximately $2 billion, and already-established manufacturers General Motors and Ford continuing to invest in their operations, the sector appears to be switching to fifth gear as it solidifies its position as the world's fourth largest auto exporter.

AEROSPACE

The Mexican aerospace industry has developed under the guise of the 2010-2020 Strategic Program, instituted by the government and industry heads. With a special focus on support from the world of academia, the sector now boasts 270 companies, including supporting firms. In 2012, exports from the sector were worth $5.04 billion, up 16.3% on 2011, and a vast improvement on just $1.27 billion in 2002. The sector is also a significant FDI generator, bringing in $1.3 billion. The Mexican aerospace sector is now the world's 14th largest supplier and a substantial employer—32,000 jobs were created by the sector in 2012 alone, according to the Mexican Federation of the Aerospace Industry (FEMIA). Now producing 100,000 graduates a year—the highest in the Americas—the sector has not failed to find a strong workforce. There are 21 education institutions providing 52 aerospace programs in the country, with 110,000 jobs expected to be created for graduates as part of the Strategic Plan by 2020.

A strong investment framework that protects industrial property has also helped to turn the country into an aerospace hub in the region. The State of Querétaro, close to Mexico City, has become the sector's informal capital, spurred on by the relatively low cost of production—aerospace companies in Mexico can produce at costs as much as 30% lower than in the US, 40% lower than in the EU, and 50% lower than in Japan. The state is also home to General Electric's largest R&D center outside the US. Other major operations in the sector around Mexico include Honeywell, with a focus on large engines, Churchill, which produces turbine blades for Rolls-Royce, and Snecma, a subsidiary of Safran, which produces medium-sized engines. World giant Bombardier is also present in Querétaro, and manufacturers the fuselage, assembles the wings and horizontal and vertical stabilizers, and manufacturers and installs the electrical harnesses of the Learjet 85.

According to the 2010-2012 Strategic Plan, exports are to increase to $12 billion, while national content will approach 50% and local suppliers will be assisted in obtaining the necessary certification to allow them to become more competitive.

Mexico is yet to fully break from the reassembly model, with exports carrying “Made in Mexico" components still representing less than 70% of value-added exports. New auto investments and diversifying aerospace exports could continue to increase the competitiveness of Mexican products abroad, although the government will have to ensure a steady supply of skilled labor and the right infrastructure to support the continued revolution.

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