Mexico’s Next Task: To Assemble an Aerospace Hub

Mexico’s Next Task: To Assemble an Aerospace Hub

Mexico is building an auto nation. I wrote about it here. However, another of its manufacture industries is increasing global visibility. Aerospace manufacturing has been growing steadily in Mexico over the last decade.
Whereas the number of aerospace factories was 150 in 2007, it reached 260 factories in 2011 and is expected to grow to 300 by the end of 2014. As a result, aerospace exports would exceed 2007’s $2.7 billion worth of low-level airplane parts and 2011’s $4.3 billion. In fact, with President Enrique Peña Nieto vowing his support, the industry’s forecasts predict double the exports in 2015 and $12 billion worth of exports come 2020.
Mexico’s aerospace factories are spread across sixteen states, but the industry is mainly clustered in Sonora, Baja California, Chihuahua, Querétaro, and Nuevo León. Each of these five areas boasts its own set of specialties. For example, Sonora is the Mexican hub for precision aerospace machining. However, when it comes to the activities taking place there, companies carry out manufacturing (79% of the activities underway), maintenance, repair and operations (11%), and design and engineering (10%).
While the factories are contributing to Mexico’s economy and creating jobs for over 30,000 workers, their foreign investors are getting their money’s worth as well. For starters, their ventures can generate more profit through lower costs. Recent research shows that foreign companies manufacturing in Mexico can easily save 28% to 34% of the costs they would incur in any other country. One of the biggest costs they save is that of labor; Mexican workers are willing to work for as low as $4 per hour.
Another advantage of Mexico’s aerospace industry is the federal and state governments’ efforts to pool their resources and educate Mexican laborers. As a result, the country’s world-renowned inexpensive labor will include a larger number of university-educated professionals, giving them a competitive edge and proving them to be more profitable for newly built factories.
Lower costs and skilled labor aside, foreign aerospace manufacturers are focusing on Mexico due to its geographic location. The country is neighbors with more established aerospace markets in the United States and Brazil. In addition, thanks to a large number of free trade agreements, the country allows its businesses and manufacturers to trade with some of the biggest buyers across the world such as Canada.
It is these advantages which continue attracting foreign investors to Mexico’s aerospace industry despite the nation’s crime rate. In fact, 47,000 Mexicans were killed in response of the drug war policies introduced by former President Felipe Calderón. However, foreign direct investment in this sector continues to rise. Analysts expect 2015 to reel in $1.4 billion, which $0.2 billion more than 2010.
Regardless, Mexico’s popularity as the next aerospace hub would mean that profit-hungry companies from established markets may try taking advantage of its cheap labor. The upside, however, is that the country will jump on the globalization bandwagon. Currently, it is getting there with international companies opening factories in Chihuahua. Some famous names are Nordam from the United States, Manior Aerospace from France, and Fokker Technologies from the Netherlands.
In an effort to highlight Mexico’s aerospace industry and find ways to overcome its issues, the country has hosted a number of summits and conferences to bring together leaders of this industry from across the globe. The last Mexico’s Aerospace Summit, took place on October at Querétaro’s Congress Center. Sponsored by a host of companies and even the Secretaría de Desarrollo Sustentable, the conference studied the industry’s growth over 10 years, the competitive advantages of aerospace manufacturers in Mexico, and other topics directed at foreign investors. The summit’s participants took part in B2B meetings as well as visit plants in Querétaro.
At this rate, more companies will make their way to Mexico in hopes of mutually benefiting from its aerospace sector. Come 2020, the country will be much stronger and a worthy contender for many nations in the manufacturing sector.
The bottom line is that Mexico is already big in many manufacturing industries that aerospace companies could rely on. During 2013, Mexican Automotive Industry had a US$1.7 Bn FDI, and became the 4th exporter of cars worldwide, which by the way, are higher than Mexican oil exports. Autoparts industry has over 640 suppliers. In HGVs, Mexico produced during Q114 50,000 units. If statistics in electronics are added, like bing first manufacturer of LCDs and fourth of computers, worldwide, Mexico has a solid backbone for developing the aerospace sector.  Also, Mexico City and other
The manufacturing industries were not built at random. Lessons have been learned. Reputation and traction has been earned. Companies are already operating and investments are on their way to land. Mexico has the blue print for building a major aerospace hub. It is time for synergies to develop opportunities in R&D, manufacturing and training for this business to take off. Book a seat, it is a first-mover market.

Jet Engine On Luxury Private Aircraft – Bombardier by tr3gi / bigstock.com

This is why Mexico Has Become the Leading Global Manufacturing Hub

This is why Mexico Has Become the Leading Global Manufacturing Hub

Mexico finally starts setting its path towards a strong economy. With many structural reforms to its Constitution, especially the finally-approved energy reforms which benefit both the country and foreign investors, the Latin American country is quickly beating China and becoming the manufacturing base of many companies. Even Chinese companies are looking for opportunities in Mexico. This may come as a surprise considering the fact that many shifted to East Asia due to the higher crime rate among other issues. However, Mexico offers more advantages, all of which can make it the next top manufacturing hub, specially in the automotive sector.

One of the biggest perks of carrying out manufacturing procedures in Mexico is its manufacturing wages. China’s wages have increased immensely and are expected to be 30% higher than Mexico’s come 2015. Unfortunately, companies couldn’t get an equally high labor productivity rate. Mexico, on the other hand, boasts superior worker productivity and quality for less. This is definitely an incentive for companies limping their way out of the last recession period.

Mexico’s large number of free-trade agreements also acts as a catalyst for the country’s evolution into a manufacturing hub. Mexico boasts 44 free-trade agreements, including the profitable North American Free Trade Agreement (NAFTA). This number exceeds its rival China’s agreements (18) and its North American neighbor the United States (20 partners). Through these agreements, Mexico can import raw materials and export deliverable products for fewer to no customs. This helps both the country and foreign manufacturers achieve a unique win-win scenario. The negotiations of Mexico to enter the Trans-Pacific Partnership would come to fruition to increase its market to major global economies.

Also driving the Mexican manufacturing boom is the lower energy costs. This may sound impossible, especially considering the fact that the Mexican manufacturing industry pays comparable or higher rates than that in the United States. However, thanks to Mexico’s green power ventures, companies are taking advantage of their own solar panel arrays and backing them up with windmills. Mexican solar potential is high. As a result, they can produce their own electricity, connect to the Comisión Federal de Electricidad (CFE) grid, and down-load it to others for a low “wheeling” fee. What’s even more tempting is the fact that electricity rates vary by region as well as time of day and type of off-taker. Therefore, factories commonly built in Sonora, Nuevo Leon and Baja California don’t pay much despite running their air conditioners non-stop for six months. Now Energy reform would allow private companies to generate and deliver energy allowing manufacturers to make NAFTA-throughout deals with regional energy suppliers.

U.S. natural gas exports are also being used to fuel the Mexican manufacturing sector. According to Bentek Energy, two billion cubic feet a day have been exported from the U.S. through the southern border and the number could double in the upcoming years once the new pipelines from Texas and Arizona are opened. While Mexico does have its own rich shale resources, its lack of expertise and technology prevent it from tapping into them. “The Mexicans have an incentive to import U.S. gas because it’s basically dirt cheap for them compared to other sources of energy,” commented RBN Energy LLC analyst Sandy Fielden.

The Mexican Minister of Energy also pointed out that choosing U.S. gas over oil and diesel is bound to reduce electricity costs and give the economy a much needed push. This explains why the CFE is currently seeking bids for three natural-gas pipelines from the U.S. Operations through these are expected to start by the end of 2015 according to the vice president of GDF Suez, which is in charge of building the Los Ramones pipeline from Eagle Ford Shale in South Texas to Central Mexico.

With so much to offer, Mexico’s industry clusters will grow and reel in more people. By 2013, it has ready ascertained its position as a major auto manufacturer with 89 out of 100 global auto part makers setting up factories in the country. The appliances market also grew with 70 manufacturers there and busy producing large and small appliances. It won’t be long before other manufacturers follow suit and choose Mexico as their main production hub.

Photo credit: PAACE Automechanika Mexico City 2014 by Alberto Esenaro

Luxury Car Manufacturing on A Roll in Mexico

Luxury Car Manufacturing on A Roll in Mexico

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?

Chrysler invests US$1.2 Bn in Mexico and could cast away the IMMEX drawback

Chrysler invests US$1.2 Bn in Mexico and could cast away the IMMEX drawback

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?

Business Development Opportunities for International Lawyers in Mexico #IBABoston

Business Development Opportunities for International Lawyers in Mexico #IBABoston

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?

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