TIME TO GO FURTHER

Mexico 2017 | INDUSTRY | FOCUS: VALUE CHAINS

SMEs make up a significant part of the Mexican economy, with much of the country's population relying on them for work. As such, the government is taking a strong interest in ensuring they succeed and become more productive.

In Mexico, SMEs account for 74% of total jobs and 99% of established economic units. However, only 26.6% of the country's total production comes from SMEs. The government of Mexico has committed to supporting these companies and develop them in order to include them in the value chain of larger foreign and domestic companies established in the country.

Several programs have been created to develop and certify SME's to enable them to sell and produce for their bigger counterparts. Institutions like ProMexico, the National Institute of Entrepreneurship (INADEM), the Mexican Association of the Automotive Industry (AMIA), and the National Committee of Productivity (CNP) have targeted SMEs as a means of achieving higher productivity and benefitting the most people.
Although Mexico has benefited greatly from its 10 FTAs with over 45 countries, attracting foreign investment and exporting to large markets, it has failed to produce innovative or advanced technology.
For example, Mexico has attracted some of the most important OEMs in the global automotive industry, making it one of the 10 largest producers of automobiles in the world. Nonetheless, Tier 1 suppliers import up to 85% of their components.

Mexican SMEs do some of the demanded processes in the automotive industry. However they cannot participate in the value chain due to their inability to comply with quality standards and levels of certification. In an interview with TBY, President of AMIA Eduardo J. Solis said, “The integration of local Tier 2 suppliers into the automotive industry value chain could bring up to USD 30 billion of additional revenue.”
Another example of this is the aerospace industry. There are approximately 400 companies of this sector operating in Mexico that accounted for USD6 billion of exports in 2015. Yet, only 15% of the companies in the aerospace value chain are Mexican.

OEMs and other big companies are reluctant to get components from these companies due to certifications they cannot complete and standards of quality they cannot meet.

ProMexico, the government agency that promotes trade, investment, and the internationalization of business, aims to make Mexico a more appealing country for investment and business and is betting on SMEs to help accomplish this. According to Francisco Gonzalez Diaz, former CEO of ProMexico, SMEs are the businesses that produce the most, employ the most people, and pay the most taxes.

For this reason, ProMexico has implemented the Multinational Companies Alliance Model (ACT). With this program, ProMexico identifies those companies and processes that can complement and supply multinational companies established in Mexico and connects them with multinationals to create joint ventures, licensing, co-investments, or supplying.
INADEM has the Development of Global Networks and Value Chains Program, through which it funds companies to improve their productivity and reach quality standards by granting a total economic support of MXN120 million. Each company gets a grant of up to MXN15 million, which serves to fund 50% of its expenses in training, consultancy, certification, technology transfer, product design and innovation, equipment and infrastructure, advertising, software, and brand or patent registration.
Additionally, regional industrial clusters have been created in order to identify the industry's needs, link potential suppliers, and support SMEs in their training process. Such is the case with the automotive cluster in Nuevo León, the aerospace cluster in Querétaro, and the medical devices cluster in Baja California. SMEs get members from these clusters and participate in networking sessions, dialog, trade missions, and training sessions. Clusters work according to the triple helix model in their activities, which includes the private sector, the government, and academia.

Mexico has acknowledged that foreign direct investment is only a part of the formula for development. By integrating local companies in value chains, Mexico can expect to generate innovation, new technologies, jobs, and higher revenues. The challenge is for institutions to successfully implement these programs so that multinationals embrace local SMEs.