MAKING THE GRADE

Mexico 2017 | INDUSTRY | REVIEW

Thanks to an impressive recent history of FDI and domestic commitment, the Mexican automotive industry is one of the most robust and vital in the world, and analysts are confident that this is likely to remain true.

With a GDP approaching USD 1.3 trillion, Mexico is one of the most important economies in the Western Hemisphere. GDP per capita sits at around USD10,000, placing it in the “upper middle income" bracket of countries, and despite a slowdown in activity at the end of last year, growth is forecast to pick up again in 2017. According to the OECD, free trade policies, high volumes of FDI, and successful involvement in global value chains have allowed Mexico and Mexican industry to expand at unprecedented levels in recent years. With one of the most advanced manufacturing bases in the hemisphere and the world and one of the lowest barriers to entry, Mexico is a global leader in manufacturing and is likely to remain an important destination for companies from around the globe. According to the World Bank, industry accounts for nearly 26% of Mexico's GDP.

Automotive

A major component of Mexico's manufacturing base is the automotive sector. This industry has been a major engine of growth for the economy in recent years, adding 3% to the Mexican GDP, accounting for over 18% of manufacturing GDP, and representing more than 900,000 direct jobs. Thanks to these strong figures, Mexico is the world's seventh-largest manufacturer and fourth-largest exporter of light vehicles, according to the Mexican Association of the Automotive Industry. Additionally, the sector has received one of the largest shares of FDI over the last half decade, receiving more than USD21 billion. On the back of this and future investment, the Mexican automotive industry is forecast produce almost five million light vehicles at 30 production factories for 13 major brands.

The heavy vehicle manufacturing sector has been equally successful. In the last 10 years the industry has grown, expanding from 17 to 35% of the region's entire heavy vehicle manufacturing. There are 11 plants spread across eight states, accounting for 25,000 direct jobs, 5% of the manufacturing GDP. Vehicles produced in these plants literally keep the economy moving, accounting for 56% of all goods transported in the entire nation and 83% of the land cargo, while the buses manufactured at these plants carry more than 98% of land passengers moved in the country, according to the National Association of Manufacturers of Buses, Trucks and Tractors (ANPACT). According to the most recently available statistics, Mexico produced 190,978 heavy vehicles, 92,985 of which were fifth wheel trucks valued at more than USD8.5 billion dollars. In an attempt to consolidate their status as the global leader in heavy vehicle manufacturing, ANPACT has set a production goal of 300,000 units by 2030.

The auto parts industry has also been faring quite well in recent years, and Mexico is currently the world's sixth-largest producer of auto parts. The National Auto Parts Industry (NAPI) expects the industry will reach a valuation of USD100 billion, putting it behind only China, the US, and Japan in terms of overall size.
Though there has been some discussion within the industry regarding the negative impact the Trans-Pacific Partnership (TPP) could have on Mexican manufacturers, leaders in the industry are confident they are well positioned to continue to thrive. In an exclusive interview with TBY, Eduardo Solis, President of the Mexican Automotive Industry Association, discussed his organization's view on the TPP and the effect it will have on Mexican manufacturers. “Mexico has proven to be a major player and one of the best auto manufacturers in the world," said Solis. “The TPP will allow for an element that is quite valuable to us, which is the possibility of accumulating origin from other countries." By allowing for regional accumulation, Solis and other leaders in the industry are confident that the TPP will lead to positive developments in Mexico's domestic automotive market.

Aerospace

In recent years, Mexico has established itself as a leader in aerospace manufacturing, and the industry is now among the three largest manufacturing industries in the entire country. This development has come thanks to serious investment from foreign firms and pointed efforts on behalf of the Mexican government, and the industry has since developed into one of Mexico's key engines of growth. Annually, the industry has generated over USD3 billion worth of activity in the last few years, and nearly 200 aerospace firms employing more than 200,000 people now call Mexico home. Current growth forecasts expect the industry to add over 35,000 more jobs in the next five years.
Firms in the aerospace industry have flocked to Mexico thanks to its low-cost workforce and relative ease of doing business, and the industry has become adept at producing everything from turbines, fuselages, and sensitive electronics. With even more support from the government expected to be put in place, industry analysts expect even bigger things from the sector in coming years. A great deal of the aerospace manufacturing presence is located in Baja California—mostly Tijuana and Mexicali— and Queretaro, and Mexico's recognition of high aviation manufacturing standards has allowed it to become a key source for many of the world's leading firms.

The Mexican government's Aerospace Industry National Strategic Program 2012-2020 (Pro-Aereo) is the roadmap for developing the industry, and it has been quite successful. It seeks to position Mexico as a top-10 supplier for the global aerospace industry, generating over USD12 billion in exports by 2020. Through a series of programs focused on market development, technological and human resource advancement, and vertical integration, Mexico has made serious strides toward putting its industry at the fore of global supply chains.

Textiles

With low labor costs and proximity to both the US and key global trade networks, Mexico's textile industry is an important component of its economy. According to the Mexican National Institute of Statistics Geography (INEGI), the industry is predominantly located in the northeastern and central parts of the country. According to the Mexican Textile Association, the industry employed over 130,000 people as of July 2016, making it one of the largest employers in the country. Additionally, the industry exported more then USD3.5 billion worth of textiles and ready-made products in 2016.

In the first six months of 2016, North America was the largest export market for raw Mexican textiles while Central America and Asia and Europe came in second and third, accounting for USD409.4 million, USD126.7 million, and USD28.6 million, respectively. In terms of finished products, however, North America was by far the largest export market in that same period, accounting for nearly USD2.79 billion in exports. Germany was the largest source of textile machinery for the country, with USD65.3 million worth imported in the first six months of 2016. Italy, China, and the US came in second, third, and fourth with USD24.2 million, USD14.6 million, and USD11.6 million, respectively.

Though there has been some concern in certain circles regarding the potential for protectionist policies coming from the US, industry leaders are confident that the Mexican textile industry is strong enough to weather the uncertainty. In an exclusive interview with TBY, Rafael Kalach, Director General of KALTEX, discussed his take on the industry and the potential for uncertainty. “We will have to see what will happen with the new US administration, though I am optimistic that it will not destroy our industry," said Kalach. “Notwithstanding our cultural differences, both countries want to improve and their integrated value chains are already linked, and that is something that cannot be undone." The depth and breadth of the two marketplaces' connections are such that Mexican business leaders are confident that an extensive and profitable relationship will persist.

Electronics Manufacturing

Home to one of the most extensive electronics manufacturing hubs outside of Asia, Mexico is a major global player in this area. With FDI approaching USD13 billion over the last couple of years, the industry has rapidly developed, and the country now manufactures a wide variety of electronics, varying from simple consumer electronics to sophisticated components for aerospace. In 2015 alone, Mexican electronics exports totaled more than USD51 billion. Nearly 30% of the electronics produced in Mexico are consumer electronics, while a significant portion of the rest are composed of circuit boards, LCD panels, mobile phone components, appliances, and communications equipment. From now until 2020, the Mexican electronics manufacturing industry is forecast to grow at almost 5% a year. With more than 730 electronics manufacturing plants in Mexico, mostly concentrated in the northern states, the industry has established itself as a key source of growth and employment in the country.

In an exclusive interview with TBY, Craig Breese, CEO of Honeywell, which has over 15 manufacturing sites in Mexico and employs over 17,500 people, discussed his vision for Mexico in Honeywell's global strategy. With an ever-greater percentage of Honeywell's revenue coming from software solutions and huge potential identified in Latin America, the company has constructed its new Honeywell Technology Solutions Center in Mexico City. According to Breese, this center will place Mexico firmly at the fore of developments that are fundamentally reshaping Honeywell into a company primary focused on “cyber-industrial" production. As with leaders in the textile space, electronics manufacturers remain optimistic about the impact protectionist policies in the US. Mexico has developed such a rich and advanced manufacturing base that leaders in the industry are confident that US firms will continue to look south when determining where to establish operations.

Hermilo Tamez Salazar
HERMILO TAMEZ SALAZAR
Director General, Clorotec
"In 2000, I succeeded in entering the market with my own patent and my own brand, Clorotec. My team also began working on processes such as electrolysis."