U.S. companies that rushed to China in the early 2000s to expand their production are now considering moving back to North America, Mexico to be precise. One of the reasons behind the sudden shift is the rapidly increasing labor costs in the Asian country. The other is the eagerness of Mexican workers and the government itself to make the most from the North American Free Trade Agreement (NAFTA) relationship.
Commenting on the behavior of the lemmings, or “American companies that rushed to China to make things like toys and toilet brushes, only to be searching now for alternatives in Mexico and the United States”, Jason Sauey, the owner of Flambeau said, “They’re all looking for a new model. “It’s not just about cost; it’s about speed of response and quality.”
Sauey is one of the businesspeople who resisted the China temptation and instead opened his factory in central Mexico. He never regrets his decision, especially since it proved to be one of his best. According to the company’s records, revenues at the Mexican plant have increased by 80 percent since 2010. This success has driven Sauey to start searching for a second location near Mexico City.
However, Flambeau isn’t the only U.S. company expanding in Mexico. Well-known brands like Caterpillar, Chrysler, and Callaway Golf have invested billions in Mexico and the economic integrations Presidents Barack Obama and Enrique Pena Nieto believe to be vital to growth. In addition, the trade between both North American countries has increased by 30% since 2010, reaching approximately $507 billion yearly. Focusing further on Mexico, the country’s goods have dominated 14% of the U.S. import market, pushing China’s share downwards and recording a high after many years.
However, there are many people concerned about Mexico’s rise, especially since they perceive that it can cause many job cuts in the U.S. Easing their concerns, economists say that the U.S.’s economy will actually benefit more from outsourcing its manufacturing process to Mexico instead of China. This is because the former is a neighbor and ultimately capable of sharing more of the production.
To make the move easier, decision makers in the U.S. need to take trade efficiency into consideration and make it as important as border security. As companies wait longer at the border, chances are that they will grow more frustrated. On the other hand, Mexico should seriously work on overcoming major problems like education, crime and corruption.
#StartupsMX is a series of short posts exposing Mexican entrepreneurs, that otherwise, would not be covered by mainstream media. Are you one of them? I will be glad to hear from you.
Mexico is having a magnificent moment in the automotive business. We have just passed Japan, and became number 2 exporter to the US. Mexico has reached 8th top global manufacturer of automobiles and 4th exporter. The big 8 car brands are well established and German automotive industry is making key investments to push the US market. Quality is so good that even Nissan Mexico manufactures NYC cabs and Mercedes Benz.
Enter BIMO, a Puebla-based company founded in year 2000. After performing R&D with help of many public and private institutions of Mexico, like UNAM and CONACYT, it has landed 2 rounds of financing with angel ventures and public financing institutions. This funding also has helped BIMO for obtaining trademark and intellectual property registration before the Mexican IMPI.
Currently, it is manufacturing 500 units of “Romy 2015” for replacing taxi-bikes on downtown Mexico City, and securing a maintenance contract. The company is developing business to setting up distribution and after-sales services to other locations of Mexico, along with a distribution business of electromechanic connectors and removable ergonomic board for the EV industry.
Romy was designed and manufactured under the standards of the US Department of Energy Vehicle Technologies Program.
Now, it has an invitation to CISMEF, the biggest Chinese SME trade fair taken place next October in Guangzhou, where expects to land business with the growing local auto industry.
Tesla´s Elon Musk is clearly the innovator on EVs, but the market is coming of age. In the near future, traditional cars could loose a market share on niches. Considering Mexico´s capacity in facilities, logistics and legal framework, do you think EV can get retribution anytime soon here? What do you think?
Photo credit: 2009 Audi Q5 SE TDi Quattro by The Car Spy
Audi has decided to focus its budget on the creation of new models, plants, and technology in the coming years to catch up with its main competitor BMW. Of the $27.46 billion (20 billion euros) it plans to invest on global operations until 2018, the German automobile manufacturer has invested $1.3 billion in a 150,000 car plant in San Jose Chiapa, Mexico. With the plant’s cornerstone laid in May, the factor is bound to be operational soon to start the production of Q5 SUV come 2016.
Mexico has been one of the strongest contenders for Audi’s new assembly plant, mainly due to lower labor costs than the US. In addition, with a Mexican facility, Audi could easily export its vehicles to South America or Europe without being burdened by import and export taxes. That aside, Audi’s U.S. sales will no longer be controlled by European currency shifts while vehicle availability will improve, especially for models like Q5 and Q7 that are widely popular in the North American region.
Now Audi isn’t the first foreign automobile manufacturer to shift its operations to Mexico. Leading a list of top producers is BMW, which is currently deciding whether or not to also start an engine production facility in Mexico. Other companies which have set their roots in the country or plan to do so before 2015 are Nissan, Mercedes, Ford, and Hyundai. Some of these automakers actually re-opened their Mexican factories to enjoy the benefits Audi will reap and due to the high costs of labor and customs in their factories in China.
Due to these changes, Mexico has re-established itself as one of the leaders in automobile production and exports. With 234 bilateral agreements and 122 multilateral agreements, Mexican automotive products can easily access numerous markets across the world. In addition, in the light of upcoming energy reforms and the boom in the solar energy sector, Mexico is going to be able to provide energy to facilities at a fraction of the cost other countries charge.
However, there are a few hurdles that Mexico’s automobile industry faces and prevent it from rising from the eighth position among the world’s car manufacturing countries. The first of these is the never-ending drug war, which is one of the reasons executives are forbidden from visiting plants and facilities in certain parts of Mexico. Though Nissan and others say that they haven’t faced such issues, officials have made sure to tactfully place facilities so as to prevent drug violence and corruption from affecting operations.
Regardless, the Mexican automobile manufacturing sector will boost the country’s economy and even open a domestic market for the vehicles produced in its new plants. However, for the latter to happen, lending practices will need to be reformed and Mexican banks will have to come up with schemes for first-time buyers.
With the help of its new Mexican plant, Audi aims to sell at least two million vehicles and ultimately overtake BMW by the end of the decade.
Photo credit: Old Mercedes Benz by lusikkolbaskin
Mexico is the eighth largest automotive producer in the world. The automobile industry represents 3.6% of the country’s GDP, of which 14% is of manufacturing output. According to a fact sheet published through the US Embassy in Mexico City, production has increased by a record breaking 12.01% in 2012, which comes to around three million cars that year.
Mexico auto manufacturing world-class in sophistication
One of the factors behind this growth is the high quality of these factories. K. Alan Russell, CEO of TECMA Consulting, commented, “These plants are strikingly exceptional. The quality, the technology is really exceptional. You can be in any first-world country anywhere in the world when you walk in these plants and never guess that you are in Mexico.” Another reason is that the country graduates 90,000 engineers and technicians annually, which is more than in countries like Germany and Canada.
While announcing Ford’s $1.3 billion investment in its Hermosillo plant last year, former president Felipe Calderón had boasted about the Mexican laborers saying, “Mexico, besides being good at manual labor, is being very good in intelligence, operations, in our youth’s know-how when applied to work… [The Hermosillo workers] are demonstrating once more that our country has talent, preparation and innovation to generate the best quality and at the level of the best in the world.”
More luxury auto brands choosing Mexico
The Hermosillo plant has expanded since then and moved from manufacturing family cars to producing luxury vehicles. In fact, the latest 2013 Ford Fusion was actually built in the hot Mexican desert city just like its predecessor the Lincoln MKZ. The success of Ford’s Mexican-made luxury cars is driving brands like BMW and Audi to build in Mexico while Alfa Romeo has plans to start assembling some of its sports cars there. With these companies on board, Mexico’s car manufacturing output will grow 38% by 2016.
Renewed interest from US auto industry
Due to the rising labor costs and oil expenses, automobile companies in the US have shifted some of their operations south of the border. Though many companies like GM, Ford and Chrysler had already established their factories in Mexico two decades ago, it is now that they see major potential in their older investments. “Mexican auto factories and Mexican manufacturing offer First World productivity and quality at Third World wages,” commented University of California professor Harley Shaiken. “That is an unusual combination, and right now it is a defining combination.”
New Mexican infrastructure to support auto manufacturing
Mexican president Enrique Peña Nieto has announced that he will be spending $300 billion on developing the country’s infrastructure, of which $7.4 billion will be used for three trains to connect the capital with top Mexican cities in 2014. Through this venture, Mexico’s rail system will receive a necessary boost, allowing it to be more effective in transporting freight cargo around the country and across the border. With enhanced security measured added, rail will become the top transportation method for companies like those in the automobile industry.
The right legal framework
During last two decades, Mexico has been shaping its legal framework to push the growth of manufacturing industry, in specifics, automotive, aerospace and consumer electronics. Execution of the NAFTA was only the beginning. After that, Mexico has been polishing several legal provisions, liberalising the import of materials, tools and machinery for supporting the export market. As a result of that, many automotive, aerospace and consumer electronics companies have succeeded in Mexico under IMMEX, which is an incentive program for exports reducing import duties. One of the provisions for the new Customs Law is to make optional the assistance of a customs broker for imports and exports, which could bring on fastest operations for IMMEX operations, as long as they have sharp-trained people in foreign trade. Will Mexico keep that furious pace and enter into the top 5 automakers?
Photo credit: Chrysler Building at 42nd Street by Andrew Tarvin
Chrysler is adding US$164 Millions to its facilities in Saltillo, Coahuila for manufacturing the new line of “Tigershark” engines for the models Dodge Dart and Jeep Cherokee. This investment totals US$1.249 Billion of investment together with the plant manufacturing of the Ram ProMaster, to be sold in Mexico, United States y Canada. This will add 470 jobs to the facilities for a total of over 6,400 jobs.
These are great news for an automotive industry in Mexico expectant to the changes included inside the tax and customs reforms. Currently, manufacturing companies with approved IMMEX program, may elect to import raw materials, machinery and tools using zero tax rate, as long as they sell manufactured products to other IMMEX companies or export them.
According to tax and customs Reforms, IMMEX companies could loose the benefit of zero tax rate. If the Reforms passes, all IMMEX companies would pay import tax and ask for drawback. Meaning? A cash flow challenge.
These two weeks are crucial in the Congress, as discussions on this IMMEX benefit could have a benefical outcome for automotive companies. Following the debates, it seems that Partido Acción Nacional (PAN, centre-right) is supporting the side of IMMEX companies and Partido Revolucionario Institucional (PRI, centre) could follow, in order to push forward the remains of the tax reform proposed by President Peña Nieto (party member of PRI).
My guess? Chrysler investment could actually cast away these Reforms. IMMEX will remain untouched, as automotive industry is a top-tier industry in terms of profits and investments for the country. As Banco de Mexico cut the expected growth to 1.2 for year 2013, seems very unpopular for Congressmen to set obstacles on an industry that generates so much jobs. What is your guess?
Photo credit: Latin for Lawyers; “2000 Famous Legal Quotations” by umjanedoan
The IBA Boston is happening this week, so I decided to write a brief post showing some business development opportunities for international lawyers that are happening in Mexico.
1. Transport and Infraestructure. Government has announced the construction of railways (México-Toluca, Transpeninsular and Querétaro-Ciudad de México). The construction of the airport of Lazaro Cardenas Port will be on tender, as well as an industrial park close to it. San Diego wants to expedite trips of international US travellers departing from Tijuana, with a special international bridge for that purpose only. The Mexican infrastructure plan will spend US$316 bn during next 6 years.
2. Internet Infrastructure. The first IXP (internet exchange point) is being installed in Mexico to increase local traffic. The 2.5 GHz Band was partially renewed to MVS (60 of 190 MHz). Under the recent telecom reform, foreigners can hold 100% capital on telecom companies. During Q3 of 2013, telecom industry grew 9.5%. Mobile broadband increased 49.7%
3. Automotive. Mexico has landed many plants for manufacturing vehicles and autoparts. Some like Audi are awarding contracts very soon. Mercedes and Infiniti are coming. BMW and Hundai could be next. State of Querétaro is attracting aerospace business as a public policy. Mexico is in the middle of an energy reform, which could bring on many other opportunities from that industrial demand.Opportunities for OEMs, Tier companies and related services are at sight.
Many other opportunities will come, but the sooner the development, the better the results could be. Do you think is worth it?