Focus: Industry

Dabble in All

Dabble in All

Jul. 14, 2013

At 32.6% of national GDP, the industrial sector could easily be one of the most alluring segments of the local economy. In 2013, increased FDI from a variety of international companies, in addition to the growing presence of medium-sized local operators along the supply chain, is taking center stage.

AUTOMOTIVE

The industry Mexico is best known for did not disappoint in 2012, when it demonstrated the highest market growth rate in Latin America—9% higher than the previous year. Meanwhile, more than 987,747 light vehicles were sold on the local market, and ProMéxico estimates that the sale of light vehicles will reach 1.1 million units by 2016. The country is currently the fourth largest light vehicle exporter and the fifth largest exporter of auto parts in the world.

Automotive manufacturing represents 27% of all national exports. As the principal auto parts supplier for the US, over 80% of Mexican-made vehicles and auto parts exports were sold north of the border. Latin America was the second largest destination for Mexican exports, with the primary receivers being Brazil, Argentina, Colombia, and Chile.

There are nine car producers in Mexico, 10 heavy vehicle manufactures, and close to 1,100 auto parts suppliers in the country, of which more than 300 are considered first tier. Furthermore, 89 of the 100 leading auto makers in the world have a presence in Mexico, including OEMs such as Honda, Nissan, Ford, and Toyota, companies that have invested billions of dollars in Mexico since 2007-2008. According to a ProMéxico report, “Mexico will produce more than 3.7 million vehicles by the end of 2016, marking a growth of 28.5% from the 2012 production level."

AEROSPACE

Of all the segments in the industrial sector, the aerospace segment is boasting the most rapid growth. Over the last seven years, aerospace activity has increased by an average of 20% annually, while exports have tripled in the past six years to reach $4.5 billion in 2012. In addition, Mexico has received approximately $3 billion of FDI in the aerospace segment since 2008, with $1.3 billion invested in 2012.

Currently, there are 300 companies operating in the segment slated to inject more than $7 billion into aerospace development in the short term and $10 billion in the next nine years. Analysts also predict the industry to create an additional 40,000 jobs by 2015.

In 2012, Mexico exported over $5.1 billion in aerospace output, a number that could rise to as much as $7.5 billion in the next three years. Export partners included the US, which took the lion's share of output at 74%, Canada (8.1%), France (3.1%), the UK (2.7%), and Japan (1.2%).

Although 79% of the aerospace companies operating are dedicated to assembly and manufacturing, a notable 21% are geared toward design and engineering activities and maintenance, repair, and overhaul (MRO) services. In total, 24% of the work carried out in the local sector is related to electronic components, with MRO also comprising a hefty 14%.

ELECTRONICS

With a huge amount of installed capacity for the manufacturing of electronic products, Mexico produced output valued at $62.1 billion in 2012. According to ProMéxico, electronics production in Mexico will likely continue to increase by a rate of 3.8% over the 2012-2022 period. Currently, Mexico is home to approximately 860 companies that specialize in the electronics industry, many of which are located in the areas of Baja California, Tamaulipas, and Chihuahua. According to the most recent figures, the sector employs a total of 312,913 people.

The production of flat-screen televisions, refrigerators, and cell phones has long been a bread-winning industry for Mexico. With ongoing success in the sector, the country has managed to attract 80% of the most important multinational electronics manufacturers and service operators. With the neighboring US a huge consumer of electronic goods and services, the sector's exports in 2012 totaled more than $75.5 billion, representing 24% of the non-oil exports.

At the beginning of the decade, Mexico occupied the first place position worldwide for the export of flat-screen TVs. In terms of refrigerators and cell phones, the country weighed in at second and third place, respectively. Mexico is also the third largest manufacturer of computers in the world, with domestic companies such as Lanix, Texa, and Meebox, as well as foreign companies such as Dell, Sony, HP, Acer, Samsung, and Lenovo assembling various types of computers in the country. To put the prevalence of Mexican electronics into perspective, approximately 50% of the world's BlackBerries are manufactured in Mexico.

Mexico continues to provide excellent opportunities for electronics manufacturers at its 728 economic clusters specializing in the industry. Between 2002 and 2011, accumulated FDI amounted to $9 billion, with a figure of $470.8 million in 2012. Market analysts predict that the production of electronics will continue to increase at a rate of 6.1% over 2012-2016.

CHEMICALS

Since the 1970s, Mexican chemicals producers have been involved in a variety of processes, with polymers, plastics, and synthetic rubber among the main output materials. With strong demand for chemical products sourced from the automotive, aerospace, and electronics industry, investments in the production of chemicals for all kind of applications is welcome. Seeking ways to further integrate with the supply chain, companies such as LANXESS, Idesa, and Exportadora de Sal are leading the industry with innovation and increased production figures.

With over 14,000 known uses, salt plays an increasingly important role in the processing of chemicals for a variety of industrial products. This so-called “white gold" is abundant in Mexico, and local producers are taking full advantage. Mexican company Exportadora de Sal is currently operating the world's largest open salt works, propelling the country to the position of 10th-biggest producer worldwide. With an installed production capacity of nearly 7.5 million tons, the company has a 26% share of the global salt market. According to Edmundo Elorduy Dahlhaus, General Director of the company, “35% of a car is composed of products made originally with salt, as it is part of the aluminum, glass, and leather in each vehicle. It is a very important raw material used in our daily and modern lives." The majority of the company's production is for the chemical industry (75%), highway de-icing (14%), general purposes (5%), and water treatment (5%).

However, as José Luis Uriegas U., General Director and CEO of Idesa explained to TBY, “Integration has always been a challenge." Although the automotive sector is working in close collaboration with chemicals producers, some sectors, such as oil and gas, are in state hands. “We need more private companies participating, and reform must be undertaken to allow this to happen," he added.

While LANXESS produces high-quality materials for the construction, coloring, plastic, food, packing, mining, and furniture industries, water treatment has also been on the agenda. The lack of safe drinking water in Mexico has attracted chemicals companies that can provide solutions for Mexico's population while simultaneously generating handsome returns.

FMCGs

Although Mexico has been experiencing growth across the board in the industrial sector, one of the areas with the most potential is the beverages segment, which is expected to grow by 16.9% annually over 2013-2016. Another sector to watch is the pet food market, which has recorded a 200% increase in sales over the past five years.

The chocolate market is also increasing by between 2% and 3% per year, with various niche markets displaying double-digit growth. “In the supermarkets, there are more and more sugar-free products every day. It is a small, but an attractive market—people are prepared to pay extra for high-quality chocolate," Jesús Carlos Valencia, Director General of Barry Callebaut Mexico, told TBY.

With the number of working women in Mexico increasing sharply, FMCG producers have also noted higher demand for ready-to-eat products. This trend is reflected in the expansion of convenience stores in the country, where high-rotation products that are easy to use are selling rapidly, opening up key investment opportunities for FMCG producers that specialize in read-to-eat meals.

As an exemplar of the rapid transformation taking place in the industrial sector, multinational manufacturer 3M expects 20% annual growth until 2017. Reflecting the confidence of a number of larger producers, the company seeks to invest close to $100 million in new factories and $120 million to increase capacity in the next five years.

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