Despite the problems arising from the contraction of the world economy caused by the spread of the COVID–19 pandemic, companies in the automotive supply sector will have the opportunity to increase their level of auto parts manufacturing in Mexico over the coming years.

This will occur in the face of the regional content requirements contained in the United States-Mexico-Canada Free Trade Agreement (USMCA), which will enter into force this July 1^st.

Raúl Albin Santos Guajardo, President of Industria Nacional de Autopartes (National Industry of Auto Parts), INA, maintains that there are three important issues that private companies and the federal government must take into account to help bring about the expansion of auto parts manufacturing in Mexico. In addition, to auto parts manufacturing, Albin, also believes that the opportunities will present themselves for producers of other classes of transportation industry manufacturing, a well.

Considerations for auto parts manufacturing in Mexico

The three issues that the President of the Industrial Nacional de Autopartes maintains must be considered are as follows:

1.– The increased regional content value (RCV) of passenger and other transport vehicles produced in the North American region: Canada, the United States, and Mexico.  Under the NAFTA’s 50% of the value of a vehicle had to be manufactured in Mexico to be considered “originating.”  Under the new USMCA, this figure will be increased to 62.5%.

2.– In order to comply with the new RCV requirements, the three countries that are party to the USMCA will see increased “regionalism” and/or trade “nationalism”.  This is especially true considering that products used for auto parts manufacturing in Mexico that arrive from outside of the North American region will face increased tariff payments.  Some auto parts jobs that are now in the Far East will undoubtedly return to North America.

3.– A concerted effort must be made to increase the competitiveness of companies that are involved in auto parts manufacturing in Mexico in the face of lower margins and similar volumes of production that will take place in both Canada and the United States.  Under the new USMCA, 40% of the value of an automobile must be added in places in which workers earn at least $16.00 per hour.  This requirement favors the creation of jobs in the auto parts industry in the United States and Canada.

In order to successfully address these three issues, companies engaged in auto parts manufacturing in Mexico require that:

1.– That the country continues to improve its competitiveness, especially as regards the price of energy since costs are substantially higher in Mexico than in the United States.  Additionally, Mexico must maintain labor stability, provide tax incentives for investment, and provide full security for projects undertaken by foreign investors.

2.- Mexico promotes itself through its trade offices abroad.  Activities of the federal government should also be supported by the coordinated actions of governments on the state level.  This is especially important in the entities in which there is a large automotive manufacturing infrastructure.

3.– Educational programs must be strengthened through long-term plans to improve training at the technical and professional levels of careers related to the automotive sector in Mexico.

Auto parts manufacturing in Mexico adversely affected by COVID-19

The head of INA, Raúl Albin, reported that, when viewed from an annualized perspective, the value of auto parts manufacturing in Mexico could contract this year at least 28% when compared to the sector’s 2019 production results.

Thus, if an income of almost US $98 billion earned by the industry, much of which was achieved by export, was reported in 2019, this year’s estimates are that auto parts manufacturing in Mexico will generate US $71 billion.

The data that was recently presented by the president of INA contrasts with that of the previous year.   In 2019, the sector reported a growth rate of 2.2% in the value of its production and 2.3% in exports of its products when compared to 2018.

Raúl Albin recently pointed out that in Mexico there are 600 tier 1 automotive industry suppliers and 900 companies that are Tier 2 and 3 that make their products in the country.  These auto parts manufacturers in Mexico have integrated themselves into a supply chain that supports the manufacturing strategies of 14 assembler companies in the light vehicle industry as well as nine heavy equipment companies.  These are firms that produce buses, trucks, and engines.

Additionally, he cautioned that if the Mexican auto parts sector does not create an environment of certainty for OEM auto parts manufacturers and vehicle assemblers, there is a risk that they will seek to move their investment to alternative venues, which, in addition to representing the loss of the negotiated supply contracts, would also mean loss of Mexican jobs.

Mexico’s Ministry of the Economy is seeking to coordinate with leaders industry sectors to form working groups to plan for the imminent reopening of the Mexican economy.

Recognizing the necessity and value of harmonizing and coordinating the operation of its diverse industrial supply chains, the Mexican Ministry of the Economy has called upon various industry chambers to join together with public sector economic officials to plan for the reopening of the Mexican economy.

The actions of various industrial sectors must be coordinated

The Ministry’s undersecretary for Industry, Trade and Competitiveness, Ernesto Acevedo Fernández, recently spoke of the requests that have been made by Mexican business leaders to begin the reopening of the Mexican economy in concert and in coordination with their trading partners in the United States and Canada.  The need to take such a measure was widely voiced at Mexico’s recent National Conference for Economic Recovery, which was organized by the country’s Business Coordinating Council (CCE).

All of the government officials and business leaders that were in attendance agreed upon the need to coordinate the actions of various industrial sectors in order to speed the nation’s economic recovery.  Half of the volume of trade that takes place among the three North American partners is in the commercialization of intermediate goods.  Intermediate goods are items that are used to create end products for industry and for consumers. The most important sector in which companies in the three countries collaborate is automotive.   North American rade in automotive parts and machinery between Canada, Mexico, and the United States accounted for a value of approximately US $138.8 billion in 2019.

It is essential that the reopening of the Mexican economy take place in the near future so that the country can continue to derive the benefits that it enjoys that have their origin in the strong financial and social ties that it shares with the United States and Canada, as well as with some countries in Asia.  Because of these relationships, and because of the multiplicity of free trade deals that Mexico has negotiated and signed over the last two decades, the country has become a successful export platform for manufactured, agricultural, live-stock and agro-industrial goods.  Reopening the Mexican economy is the necessary step to take to reignite the profitable trade in these products.

Mexico’s commerce with the its neighbors and the world (the sum of its imports and exports) represents seventy percent of the country’s Gross Domestic Product (GDP).  In order to be effective in reopening the Mexican economy to this trade, the private sector and its public sector counterparts must formulate a strategy which strikes a delicate balance between present economic necessities and public health concerns.  For this reason, Acevedo Fernández has maintained that it is necessary to work with the leaders of the country’s major industry chambers for the purpose of accelerating the Mexican economic recovery.

Mexican industry leaders demand clarification of definition of essential sectors

During the meeting of the National Conference for Economic Recovery, Mexican industrialists demanded clarity from the government concerning the meaning of the opening of “essential” industries.  Businessmen like Eduardo Elizondo, president of the National Association of Manufacturer of Electrical Appliances (Anfad), warned that a total of US $1 billion in exports are at risk during May and June because the entire value chain of his industry is currently considered to be non-essential.  The electrical appliance sector in Mexico consists of more than 50 manufacturing plants, with more than 80,000 direct labor jobs and more than 2,000 suppliers that make parts and pieces for essential products.

A problematic decree

The definition of an essential activity, company, and industry has caused controversy in Mexico since the government declared the coronavirus pandemic to be a health emergency on March 30, 2020.  The activities considered essential for the population by the Mexican government are those that are necessary for the optimal functioning of the country, as well as for the meeting of the daily needs of Mexico’s citizens.  The government has classified such activities and organizations into five main groups: health, public security, economy, social programs, and critical infrastructure.

• Group 1: Health
  

  All work that is done in the medical, paramedical, administrative, and support areas in the healthcare industry is considered essential by the Mexican government. Additionally, pharmaceutical manufacturing is considered an essential activity, as are manufacturing technologies for healthcare, medical cleaning, sanitation, as well as the disposition of medical waste.

• Group 2: Security
  

  This class of essential activity includes tasks related to public safety, the protection of Mexican citizens, the national defense, and the provision of justice and legislative services on both the state and federal levels.

• Group 3: Economics
  

  In general, these activities relate to the food industry, gas stations, banking services, farming and agriculture, security and emergency services, funeral services, and freight and passenger transport.

• Group 4: Social Programs
  

  When the Mexican government declared the pandemic a national emergency on March 30, 2020, it pledged that the situation would not affect the functioning of social programs that operate to promote and maintain the health and well-being of their beneficiaries.

• Group 5: Critical Infrastructure

This area mainly concerns the conservation and maintenance of basic infrastructure for the production and distribution of such essential services as water, electricity, sewer and sanitation, and gas.

Judiciously expanding and reopening the areas of commerce that are essential to Mexico’s economic and social health is critical to reopening the Mexican economy and returning the nation to normalcy.  Actions to make this happen must be taken as planned in conjunction with the major actors in the country’s diverse supply chains, as well as in coordination with major international trade partners such as the United States and Canada.

Substituting distant suppliers with those that are closer to home will create a strong Mexican supply chain that reduces the risk posed by pandemics and other global economic disruptions

Logistics can become a major competitive advantage by reducing risks and costs, increasing revenue, and providing better and more consistent service to customers.  Finding the balance between these factors efficiently and flexibly results in the creation of a robust and reliable Mexican supply chain.

Some companies recognize that, by leveraging a strong Mexican supply chain, they can avoid problems related to time and great distances and enhance the performance of their operations.  Additionally, optimizing the operations and processes related to sources of supply will lead to increased margins of profitability, as well as an increase capacity to adapt to competitive markets and exacting customer demands.

Points to consider when working to optimize the Mexican supply chain

• Flexibility: A resilient supply chain that is closer to home has the ability to use alternate routes and resources to move a product.  A Mexican supply chain gains further flexibility when it has the built-in ability to change production to different locations as circumstances and market conditions may require.
• Coordination: A well-constructed supply chain improves if all of its stages include actions that, when taken together, increase total profits.  To achieve this outcome each process must be put into place by considering the impact that it will have on the others.  Lack of coordination occurs when there are stages with opposing objectives or when work is done in silos that delay and distort information.
• Collaboration: Technology is an important element that integrates a Mexican supply chain that is closer to home.  In order to take full advantage of available technology-based management tools, a culture that promotes trust and win-win among all actors engaged in information sharing is required.
• Customer focus: In a fully optimized supply chain, this consideration refers to always keeping the preferences and needs of the customer in mind when performing any activity.  Adherence to this principle must be maintained by all team members.
• Customization: A strong Mexican supply chain is able to adapt to design and deliver a product to customers according to their particular preferences and specific requirements.
• Flows: A well-constructed supply chain considers the materials, information and financial resources that must be dedicated to each process, as well as the maximum time that is allowable to perform them.  Failure to do this can result in exceeding cost parameters.
• Demand management: This point consists of effectively planning the resources and capacities of a supply chain so that it can fulfill all short, medium- and long-term orders.  All sources including distribution warehouses, production facilities, and existing inventories should be taken into account.
• Agility: An optimally designed Mexican supply chain that is able to withstand adverse circumstances and incorporates effective connections between activities that prevent interruptions and loss of efficiency.
• Strategic partnerships: Having expert partners closer to home that share the same values and vision as your organization can increase efficiency and can add to customer satisfaction.

The benefits of optimizing a Mexican supply chain

• In the warehouse: Reducing the use of physical space can result in the reduction of storage costs, increase supply chain capacities and reduce costs that are related to maintenance.
• In inventory: A well-managed and accurate inventory is one that is sorted according to demand.  This leads to the facilitated procurement from warehouses and stores, which makes the Mexican supply chain more cost-effective and efficient.
• In transport: Superior supply chains incorporate processes that maximize safety for operators and products, as well as incorporates strategies that utilize efficient routes.
• In management: An optimal Mexican supply chain will manage labor costs and overhead expenses and charges in a manner that ensures company profitability.

Because supply chain optimization seems only to be necessary after a large-scale disruptive event such as the coronavirus pandemic, the reality is that any time is good for a company to improve its logistical performance and to evaluate its various processes and assets.

Therefore, it is recommended that, instead of just adding production or distribution capabilities to a Mexican supply chain that is closer to home, a comprehensive restructuring should be undertaken to avoid potential future disruptions.

If the current growth trend continues, Mexico automotive manufacturing will soon outperform Japan as the leading vehicle supplier to the United States.

For the first time in history, Mexico automotive manufacturing has moved past Canada in terms of the number and value of light vehicles exported to the US market.  The United States imports eight out of twelve cars and trucks that are assembled in Mexico, and last year the US imported 2.64 million vehicles from its southern neighbor. This increase in Mexican export sales occurred despite the fact that new automobile consumption in the Latin American country’s domestic market slumped by 7.5%.

From a broader perspective, a multi-year surge of vehicles imported from Mexico into the US has occurred even as new vehicle sales in the United States have fallen for the past three years. If current trends continue, Mexico will eventually surpass Japan as the leading foreign auto supplier to the US market.

In dollar terms, in 2019, the value of Mexico automotive manufacturing exported to its principal northern trading partner was approximately US $39 billion.  While figure represented an increase of 8.1% of Mexico’s sales to the US over the previous calendar year, Canadian sales to its southern neighbor totaled about US $38 billion.  This figure represented a 1% decrease in the value of units shipped by Canada’s automotive assemblers in 2018.

For its part, Japan continues to be the leading exporter of light vehicles to the United States.  In 2019 the value of automobiles shipped to the US from the Asian economic powerhouse almost reached a total of US $40 billion, although this figure represented a decline in sales of 3.2% compared to those of 2018.

The United States is by far the largest importer of cars in the world.  It consumes a 22.8% share of total global exports and is followed by Germany with 7.9% and China with 6.3%, according to the latest data available globally, for 2018.

The Mexico automotive manufacturing infrastructure is developed

The Mexico automotive manufacturing sector has developed with the dual objectives of capitalizing, on one hand, on lower production costs and, on the other hand, its common border with the United States, its main export trading partner.

Over the course of the calendar year 2019, three international automobile assemblers with production facilities in Mexico led the way in increasing northbound exports.  They were:

• Honda, whose exports from Mexico to the US increased by 46% over numbers posted over the prior year.
• Volkswagen, which saw its exports from Mexico to the US increase by 36% on a year over year basis.
• General Motors, which sent a grand total of 766,165 cars and trucks to the United States from its Mexican production facilities.  This represented an increase of 15% over 2018 numbers and a surge of 40% over its 2011 total.

Beyond Mexico automotive manufacturing, the country’s total industrial production has increased significantly since 2014.  This expansion was mainly the result of an increase in the manufacture of primary metals and in the production of parts for the automotive and transportation equipment sectors.  This increased output resulted in a higher value of exports to the United States.

Many OEMs have a presence in the automotive manufacturing sector

In addition to the automotive assemblers listed above, other OEMs with a presence in Mexico include Audi, the Fiat Chrysler Automobile Group (FCA), the Beijing Automotive Industry Holding Co., Ltd. (BAIC), Ford, General Motors, Honda, Kia, Mazda, Nissan, and Toyota.

Additionally, Mercedes Benz production is associated with Nissan-Daimler, Hyundai produces in Mexico through its partner company, Kia, and BMW, which opened a plant in the Mexican state of San Luis Potosí in June of 2019.  As a recent entrant to Mexican automotive manufacturing, the new BMW plant represents a capital investment of more than US $1 billion and already employs 2,500 people.  The facility will eventually have the capacity to produce 175,00o units per year.

The above-listed companies, when taken together, produce more than 40 brands and 500 models in Mexico.  Approximately 82% of this vehicle production is devoted to exports, while the remaining 18% of units produced are consumed in Mexico’s domestic market.

In addition to Mexican automotive manufacturing, the production of light vehicles plays a key role in Canada’s economy.  It is one of the country’s largest manufacturing sectors.  According to the World Trade Organization (WTO), Canadians directly employed in the industry number more than 130,000 individuals.  Automotive manufacturing in Canada is highly concentrated in the province of Ontario where 100% of the country’s light vehicle production capacity is installed.

Finally, Japan reached its highest export rate of cars to the US market in 20017, when the total value of production reached US $44.6 billion.  Meanwhile, South Korea’s performance on this indicator was the most dynamic in 2019.  It’s exports to the United States rose by 15% when compared to the prior year to reach a value of US $14.1 billion.

The Baja California Medical Device Cluster continues to grow 

It is one of the most developed and productive sectors of the state’s burgeoning manufacturing economy.  In terms of volume, the Baja California Medical Device Cluster ranks number 7^th globally in the quantity of its output.

One of the principal reasons why the medical device industry has experienced such a positive growth trajectory in Baja California is the fact that a Medical Device Cluster organization was formed in the state in 2005.  The organization supports companies in ways that serve to elevate their level of industrial competitiveness in the global marketplace.

The Baja California Medical Device Cluster is composed of key representatives of manufacturers in the industry and their suppliers, as well as individuals from academia and relevant government agencies.  With the support of this organization, the medical device cluster in Baja California currently has grown to be the source of 50% of Mexico’s overall production.

Currently, Baja California is home to 75 manufacturers of world-class medical devices.  Of this number 50 companies are formally affiliated with the industry cluster organization.  These companies have generated approximately 71,000 direct labor jobs and have boosted the economies of the cities of Tijuana, Ensenada, Mexicali, and Tecate.

Some of the items manufactured in Baja California include pacemakers and their batteries, ophthalmic lenses, wheelchairs, catheters, defibrillators, urinary bags, electric thermometers, and many others.  Baja California-based companies export these products to all corners of the globe.  The main international customers of the Baja California medical device sector are the United States, England, France, Germany, Italy, Japan, Australia, and New Zealand.

Quality is Key 

The medical devices manufactured in Baja California are produced under the auspices of the ISO 13485 international quality standard.  This is because safety and quality are non-negotiable points in the medical device industry.

Companies in the Baja California Medical Device Cluster organization abide by regulatory requirements that are increasingly stringent throughout every step of the products’ life cycle, including service and delivery.  Members of the organization are expected to demonstrate their quality management processes and to ensure that they follow best practices in everything that they do.

In order to strengthen the sector, Baja’s Medical Device Cluster proactively conducts events to identify and to develop domestic suppliers that can serve the needs of their member companies.  One of the means by which Mexican supplier companies can meet potential customers is by attending the annual Medsummit.  This 2020 event will take place at the Baja California Center on the 12^th and 13^th of August.

In addition to conducting events, the Cluster also provides opportunities for the training of the workforce that has been designed to meet industry needs and challenges.  This activity is evidence of the organizational commitment to the future health and continued growth of the sector.

As an example, on November 5, 2020, the medical device manufacturing organization will hold an annual forum at the Tijuana Institute of Technology to introduce students to the professional opportunities that are available to them in the medical device manufacturing industry.

Education supports the medical device industry in Baja California

On the institutional level, the Universidad Autónoma de Baja California (UABC) now offers a degree program in bioengineering to its student body.  To attest to the quality and educational level of the Baja California workforce, according to the Secretary of State Education, 14,000 students in Tijuana are enrolled in engineering or technical programs.  The city has high schools and universities with programs that are related to the medical device and other prominent industries that include an emphasis on engineering, technology, and manufacturing.

In addition to meeting the requirements related to the ISO 13485 international quality standard, companies that manufacture in the Baja California Medical Device Cluster must also abide by internationally defined environmental and safety and health standards.  To this end, the organization provides its member companies with continuous training opportunities to ensure compliance in these areas.

In great part, because of the support that the Baja California Medical Device Cluster organization has provided to the local industry, the state has become one of the ideal locations in the world for companies that seek to establish manufacturing facilities in which they can produce world-class devices to serve the continuously growing global market for such items.    The Baja California Medical Device Cluster manufactures quality.

Automotive wiring will be produced more extensively because of its importance in the growing manufacture of electric vehicles.  This means that wire harness manufacturing in Mexico will expand and extend from Ciudad Juarez to Merida.

Over the last several decades, Mexico has become a global leader in harness manufacturing (automotive electrical wiring systems).  Production of this class of auto parts in the country is now valued at approximately US $8 billion.  The volume of wire harness manufacturing in Mexico is sufficient to equip the more than 17 million vehicles a year that are manufactured in the North American region.   A wire harness is an application of sorts that binds wires together in a specific formation.  There are several different variations of harnesses, with industrial harnesses being most prevalent.  Wire harness manufacturing that is done in Mexico produces a sturdy and reliable product.

The passage of the USMCA will mean more wire harness manufacturing in Mexico

As a result of the passage of the United States – Mexico – Canada Trade Agreement (USMCA), an increasing amount of wire harness technology will be integrated into the growing regional manufacture of electric and hybrid vehicles.  It is projected that, in the medium term, there will be an increase of up to 20% in overall auto parts production, and that wire harness manufacturing in Mexico will follow this trend.

According to the president of Mexico’s National Auto Parts Industry Association (INA), Oscar Albin, the opportunity for more wire harness manufacturing in Mexico is related to the new and expanded regional content rules that the USMCA has outlined for the North American automotive industry.  The USMCA requires that, for an automobile to be considered as “originating,” 75% of the value of such a vehicle must be added in the region.  Under the terms spelled out by the North American Free Trade Agreement (NAFTA), the corresponding figure was just 62.5%.

The president of INA has proudly stated that “We (in Mexico) are the kings of wire harness manufacturing in the region.   All of the wire harnesses that have been incorporated into the manufacture of 17 million vehicles that have been assembled in North America in the past year have been manufactured in Mexico.

It is noteworthy to point out that this important automotive component is produced by Mexican workers in places like Ciudad Juarez, Chihuahua; Merida, Yucatan; and throughout the Mexican Republic.  Wire harness manufacturing in Mexico encompasses not only automobiles, but are also produced for airplanes, household appliances, and other types of electrical items.  Albin notes that as technology continues to advance “wire harness manufacturing in Mexico will be more complex and the country’s leadership in the production of this important component will continue to advance.”  “As technology advances,” he states, “cars will end up being computers on wheels and as long as there is no other way to conduct electricity with wires, cars will still have harnesses.

Given the prominent position that Mexico has assumed in the industry over the last several decades, the manufacture of auto parts is an economic sector with a bright future.  With the advent of the application of artificial intelligence to the automobile parts and components that are required to achieve autonomous driving and electric mobility will have to be manufactured.  The country will be a major player in the production of these items and will continue to lead the way through increased wire harness manufacturing in Mexico.

In addition to becoming a more prominent player in the production of electric vehicles (EVs), Mexico will also increase its purchase of such items.  Availability of hybrids and EVS, which has been stuck at 8 models for almost a decade, has more than tripled in the past three years.  Today there are 27 models of this type of vehicle that are now ready for purchase domestically.

2020 is expected to be a record year for wire harness and auto parts production in Mexico

As the new regional rules of origin are gradually implemented, content that is manufactured in North America, and in Mexico, specifically, will increase.  The president of the Mexican National Auto Parts Industry Association, Oscar Albin, projects that his sector’s production for 2020 will exceed a total of US $100 billion, and, in doing so, will set an all-time record.

In addition to the production of a greater volume of wire harnesses in Mexico, parts producers there will increase their output of items such as radiators, motors, spark plugs, seats, rims, steering wheels, axles, automotive glass, as well as of a host of other electric components that go into the manufacture of passenger vehicles.

Industry watchers project that, during the coming year, the Mexican aerospace sector will break into the top ten in the world in terms of sales of parts to the global industry.

Reaching this landmark is concrete evidence that Mexico’s workforce of engineers and specialized technicians is among the best available in the world.

According to the country’s Ministry of Economy, the Mexican aerospace sector currently ranks in the 15th position globally.   Ranking in the top ten in 2020 is expected to move Mexico past other top industry producers such as Brazil and Spain.  Also, in 2020 it is expected that the Mexican aerospace sector will be the source of 110,000 jobs and will be responsible for the creation of between 30 percent and 35 percent of the nation’s engineering positions.  Exports are expected to climb above US $12 billion.  Additionally, it is anticipated that 50 percent of the inputs utilized by the Mexican aerospace sector will be produced by domestic suppliers.

In a further effort to grow the industry in Mexico, the nation’s Ministries of Economy and Defense have collaborated to develop a “strategic aerospace industry” program.  Both entities seek to act in order to leverage the competitive advantages that are inherent to the Mexican aerospace sector, as well as to promote its growth in order to benefit the broader national economy.  Presently, Mexico exports 87 percent of its aerospace parts production to the United States.  Mexican aerospace sector manufacturing firms are also looking to expand their share of export sales to other important industry markets such as France, England, Germany, and Canada.

The strategic aerospace program has revealed that the Mexican aerospace sector has several immediate needs.  These include a greater participation in international programs that provide access to new technologies and markets, the further development of skilled human capital,  an expanded access to financing, the development of a specialized and reliable supply chain, the implementation of favorable rules and regulations, the initiation of new capital investments, greater incentives for growth, and strengthened ties between academia and industry.

The Mexican aerospace sector can learn from the experience of others

Mexico can learn by observing the actions of countries such as Spain, Brazil, and Canada.  These nations have created strategic institutional programs focused on the development of their aerospace sectors that provide clear and concise guidelines for both domestic and foreign investors.  In addition to this, they have taken firm legislative measures to commit sufficient funding from their federal budgets to specifically support aerospace industry development.  Beyond these measures, they have formulated and implemented industrial policies aimed at growing the domestic market for their industries’ production.

In order to make its aerospace sector competitive in the global market, Mexico must support the formation of industry-specific technology and development centers (design and testing), as well as support regional industry cluster development.   Mexico can also further its progress in capturing international aerospace market share by specializing in certain services and products in the global aerospace supply chain.  In light of these actions, the Mexican government has set several targets for its country’s aerospace industry for the year 2020.  Principal among these is the integration of domestic firms into 50 percent of the Mexican aerospace industry’s supply chain.

The Mexican aerospace sector will continue its growth and development trajectory

The Mexican Federation of Aerospace Industries (FEMIA) projects that the average national growth of the sector will be 11 percent between the years 2020 and 2023.  However, the pace of this expansion is expected to decrease to approximately 7.6 percent during the years 2024 to 2037.  This will be due to a concentration of aerospace production demand in Asia that will begin in 2025.

FEMIA believes that three principal factors that will have the most effect on the growth of the Mexican aerospace sector over the next several years include:

• The implementation of the United States-Mexico-Canada free trade agreement;
• The Mexican government’s support of its National Supplier Development Program;
• The decrease in the rate of growth of the Mexican aerospace sector beginning in 2024 with the increase in demand for industry production in Asia.

The Mexican Federation of Aerospace Industries also points to structural factors that will support Mexican industry growth going forward.  Among these are a:

• Favorable geographic location
• Sophisticated and high-quality workforce;
• High level of value chain integration;
• High level of industry competitiveness at the international level;
• Cost structure that is approximately 16 percent lower than that found in the United States;
• Network of international free trade agreements that are extensive in scope.

What is a freight forwarder?

A freight forwarder in Mexico, or an international freight agent, is a business that works on behalf of exporters and importers to organize the shipment or transport of goods in a cost-effective, reliable, and efficient manner.  The freight forwarder is a key actor in international trade operations, as it is responsible for managing the shipment of goods globally.  Freight forwarders are specialized in reducing costs and facilitating and optimizing transport logistics.  The Tecma Group of Companies Logistics Services performs many of the tasks typically performed by freight forwarders in Mexico.

What does a freight forwarder in Mexico do?

A freight forwarding company plays to the role of an intermediary between the sender of goods and their distribution endpoint.  Although freight forwarders in Mexico do not carry out the shipment of goods by themselves, they have access to different modes of transportation such as road transport, air shipment, rail, and maritime transport.

A freight forwarder collaborates with its trusted contacts, with carriers, partners or collaborators, from trucking lines and air transport specialists to transoceanic lines, to negotiate the best possible price to carry goods through established trade routes.  Such a company also evaluates several offers to choose the best route that optimizes speed, costs, and reliability.  A freight forwarder in Mexico considers all the variables necessary for the analysis of each goods transportation case.

Normally, a freight forwarder handles a large volume of shipments that transits from one international destination to another.  They are a part of what is established as a “triangular operation.”  Triangular operations involve at least three parties.  They are manufacturers, intermediary/s, and end customers.  Although each can be located in different countries, there can be a single transport and a single delivery of goods.  Such an operation can be complex from a documentation point of view and may involve that payment of duties and taxes.

Many freight forwarders in Mexico are Authorized Economic Operators that participate in CTPAT.  CTPAT is the US Custom’s Trade Partnership Against Terrorism program.   Among the benefits of gaining CTPAT certification from US Customs are:

• The prevention of drug trafficking and terrorism, as well as the reduced possibility of a loss of goods and from theft;
• The reduction of chances of undergoing inspections by US Customs;
• The strengthening of organizational security processes and procedures;
• The economic benefit that results from better delivery times;
• The enhancement of public image that comes with the participation in a US Customs program that enhances trade safety and security.

Freight forwarders in Mexico provide a wide range of value-added services

In the process of organizing shipments for individuals or corporations to get goods from the manufacturer or producer to a market, customer or final point of distribution freight forwarders provide many value-added services.  These include:

• Advice on matters of international trade;
• Advice on transport cost optimization: freight costs, special documentation costs, and customs charges;
• Insurance of goods: some freight forwarders in Mexico offer very advantageous conditions for transport insurance at competitive premiums that protect shippers’ goods throughout all stages of the transportation process;
• Advice for proper packaging, labeling, loading, and storage of goods;
• Preparation and presentation of documentation for the correct management of international trade transactions;
• Reports and custom performance KPI reports;
• Tailor-made solutions for specific shipping and transport needs;
• Advice on the best means of transport and the best route for shipment according to the origin, the character of goods,  the destination, the seasonality, danger, and the urgency of goods (truck, plane, train or ship).
• Advice at the customs level from the appropriate tariff classification of goods to the necessary documents for customs clearance;

Advantages of a freight forwarder in Mexico

Freight forwarders offer unique benefits for businesses that are involved in international trade that seek optimized transparency and flexibility.  What sets companies that provide these or similar services such as the Tecma Group of Companies apart is their ability to deliver customer service that is tailored to the needs of each company with which they do business.  Already in place is their network of global agents that prioritize accuracy, speed, and efficiency for all parties that are involved in international trade transactions.

The advantages of using a freight forwarder in Mexico include:

• Cost Savings – Freight forwarders act as purchasing managers. They can negotiate good prices for all of the services that their customers require;
• Freedom from Multiple Contracts – When moving goods from their source to their destination freight forwarders in Mexico enable companies to go from the start of transport to its finish under a single contract;
• Tranquility – Freight forwarders offer reliability in the shipping process which translates into greater tranquility. Hiring an expert organization in this area allows companies to avoid having to attend to many of the complex administrative issues that have to be addressed in an international trade transaction.  The freight forwarder in Mexico acts as a single supplier for handling all aspects of the shipping process.
• Flexibility – Freight forwarders offer unique opportunities that can be useful in meeting rigorous deadlines or in facing unforeseen obstacles.  An experienced freight forwarder in Mexico has dedicated resources that are needed to manage circumstances that result in shipments

Manufacturing in Mexico is the right move to make to positively impact a company’s bottom-line when some common errors are avoided.

A successful company that is manufacturing in Mexico is one that has efficient processes, effective quality systems, trained and productive personnel, reduced cycle times, controlled costs, as well as uses its material resources in a planned and intelligent manner.  Ten errors that can be made by manufacturers in Mexico, and suggestions to overcome them, are discussed below.

Companies often make mistakes that inadvertently affect their productivity including the:

1.  Unnecessary accumulation of inventory:

Companies that are manufacturing in Mexico hold three main types of inventory: raw materials and supplies, in-process products, and finished products.  Generally speaking, the amount of these is greater than what the company needs.  This not only creates risks of losses of the same inventory but also money.  Manufacturers in Mexico that experience high levels of success keep all three types of inventories at the minimum required, based on their company’s size and sales.

2  Waste of large quantities of raw materials:

Although small amounts of raw materials will inevitably go unused during the production process, it is important to reduce the loss of materials by having firm control over the manufacturing processes that have been put in place.  When manufacturing in Mexico, the loss of raw material can be minimized by reviewing production processes step by step.  This will enable companies to measure how much raw material is being wasted and how much can be saved.

3.  Waste of production time:

The main losses suffered by a company that is manufacturing in Mexico are those related to production time.  Waste in this area is the result of a lack of planning in the area of processes.  Failures such as not provisioning on time, not doing preventive maintenance on machinery, or failing to coordinate workers and the processes that they perform, resulting in downtimes, i.e., wasted time affecting compliance with agreed-upon customer delivery dates.  The way to avoid this common error is to identify what is needed for the manufacturing process and the time that it takes to get it done.  It is imperative that there is planning in place for each and every production step.

4.   Lack of measurement of the key factors of productivity:

When manufacturing in Mexico, some of the most important factors of productivity include production times, energy and raw material consumption, percentage of machinery used, percentage of defective products and levels of customer satisfaction, among others.  Companies that do not measure these factors are unable to identify the opportunities that exist to improve them.  Successful companies in Mexico set indicators that allow them to have a baseline to improve productivity and, in turn, profitability.

5.  Disconnection with suppliers:

A manufacturer in Mexico is not productive or competitive if its suppliers are not as well.  Companies are often focused only upon what happens on their own production floors and are inattentive regarding their suppliers and their problems.  This is often regardless of losses and rework that occurs.  This error can be avoided by working hand in hand with suppliers to build good and communicative relationships.  Doing so will lead to productive discussions that will result in the sourcing of higher quality products.

6.  Implementation of processes without quality standards:

An error that is common to some companies is that they do not meet the requirements of the market of their product or products.  Failures in this area can be due to a lack of imposition of quality standards during design and production.  This can result in increased product defects or causes them to fail to perform the functions for which they were designed.  A company that is successfully manufacturing in Mexico standardizes its processes and creates controls to verify that its standards are being met.

7.  The utilization of misused or inefficient equipment:

When manufacturers do not have complete and thorough knowledge of the characteristics of their machines, they may end up using them poorly or inefficiently.  They may even cause damage to them that is easily preventable.  Falling pray to these pitfalls can result in the loss of money and time or high operating and energy consumption costs that decrease productivity.  To get the most out of each piece of equipment, companies that are manufacturing in Mexico must train their staff on its proper handling.

8.  The purchase of equipment that does not fully fit needs:

Sometimes companies erroneously make investments in machinery and equipment that does not meet the real needs and demands of their production processes. Such purchases result in inefficient investments that can generate problems that affect processes, costs and product quality.  Before companies that are manufacturing in Mexico buy new machinery, they should make sure that equipment that is currently in use is functioning at full capacity.  Further purchases should be made only when absolutely necessary.

9.  The failure to measure customer satisfaction levels and complaints:

Sometimes companies fall into the trap of focusing almost entirely on the production and sale of their products. Companies that are manufacturing in Mexico should remember to make the effort to listen to the customer’s voice and to recognize how levels of satisfaction affect their loyalty and repeat purchases.  It is important that manufacturers generate channels of communication with their customers that allow them to measure, maintain, and increase levels of satisfaction.  Doing this will also enable manufacturers in Mexico to anticipate their customers’ demands.

10.  Maintenance of products that are not profitable:

Companies sometimes maintain the production of goods and/or services that are inadvertently causing losses to the company.  This is mainly because their market demand has declined, or their production costs have risen considerably.  Those companies that are manufacturing in Mexico can avoid this error by performing a profitability analysis of each item that they produce.  Doing this will reveal those products that truly give value to the company and will reduce the risk of losses.

From the ever-present Volkswagen Beetle making its way through the streets of Mexico City to the latest BMW models coming off the assembly line, the automotive industry has long been a key component of the Mexican economy.  In 2015, it accounted for 18% of the country’s manufacturing gross domestic product (GDP) and generated economic activity of over US $52 billion.  It is one reason why investors should consider setting up operations in the Mexican manufacturing sector.

While vehicle production remains a central part of the Mexican manufacturing sector, the country’s production of goods is evolving in terms of sophistication and scope.   Mexico has leveraged its capabilities and has applied them to more advanced sectors such as aerospace and technology.  This has created a host of favorable opportunities for foreign investors.

The Rise of Higher Value Mexican Manufacturing

As global demand for technology products has grown, so has Mexican manufacturing of higher value-added goods.  Mexico’s export of aerospace products, electronics, and medical devices tripled between 2016-2013 to reach a total value of US $78 billion.

Global investment in the aerospace industry, in particular, has skyrocketed in recent years.  Aerospace manufacturing start-ups have been recipients of US $1 billion during this year alone.  Mexican manufacturing in the aerospace sector is no exception.  With exports averaging 15% annual growth over the past decade, the aerospace industry in Mexico has become a significant segment for the country, which has positioned itself as a world leader in parts production.

Beyond the aerospace industry, the Mexican manufacturing sector has also shifted its focus to advanced technology.  Presently, Mexico is now the world’s sixth-largest producer of technology-based goods and the third-largest producer of computers.  The country has become a global leader in the medical device industry, as well.  It is the world’s fifth-largest exporter of such products and the largest supplier of medical devices to the United States.  The production of computers has also experienced a boom.  They now account for 5.6% of the value of all Mexican exports.

Opportunities in Mexican Technology

The rapid expansion of the technology sector presents an opportunity for Mexican manufacturing investors.  For instance, most recently Mexico has become a hotbed of electronics manufacturing.  It is estimated that nationwide there are 700 firms in this sector.  Most of the concentration of companies in this industry is situated in the states of Aguas Calientes, Baja California, Guanajuato, Jalisco, Queretaro, and San Luis Potosi.  Leading companies with state-of-the-art Mexican manufacturing facilities include well-known companies such as Samsung, LG, Toshiba, Foxconn, Flextronics, and Intel, among others.  Because these globally recognized OEMs have located manufacturing in operations in Mexico, an extensive supply chain has established itself around them.  This is one of the areas of opportunities that currently characterizes the Mexican manufacturing sector.

The Future of Trade is Positive

The future of trade under the auspices of the newly negotiated United States–Mexico–Canada Agreement (USMCA) is a priority for investors in the Mexican manufacturing industry.  The implementation of the USMCA could provide a boost for the country’s productive sector, which can make Mexico an optimal locale for a significant inflow of foreign direct investment.

Given the present depth, strength, and complexity of Mexico’s manufacturing sector, the country is poised to receive further investment.  As a result of this positive state of affairs, Mexico now holds an economic position of leadership in Latin America that makes it one of the region’s most attractive investment options.   There are six principal reasons for investing in the Mexican manufacturing sector:

1.  Political and economic stability.

Mexico stands out as one of Latin America’s most longstanding democracies.  Inflation in the country has been at consistent historic lows and the country has privatized its significant energy sector in recent years.  The country is one of Latin America’s leaders in the area of innovation.

2.  Potential for growth.

Major economic and consulting institutions confirm that Mexico is well-positioned for continued growth in the coming years.  Today Mexico is the 15^th largest economy in the world in nominal terms and the 11^th largest when measured by purchasing power parity.  The US consulting firm, Goldman Sachs, projects that by 2050 Mexico will be the fifth largest economy in the world for the value of its Gross Domestic Product (GDP).  It will take this position behind China, the United States, India, and Brazil.

The economic advances that Mexico has experienced in recent years are proof of the great potential for investment in the Mexican manufacturing sector.

3.  Direct access to the largest markets: the USA and Latin America.

Because of its geographical location, Mexico has become the gateway for manufacturers to the United States and the rest of Latin America.  Its large transport infrastructure lends truth to this assertion.  Mexico has 64 international airports and ranks third in the number of airports worldwide.  It has 63 border crossings, almost 17,000 miles of railway tracks, and just over 231,000 miles of paved road.  Additionally, it has access to some of the most important seaports in the world.

4.  Expansive free trade agreements.

Mexico’s trade accounts for 35% of Latin America’s total trade.  This is largely due to the fact that it has entered into 12 free trade agreements that cover its commercial affairs with 45 nations.

The most significant trade treaties that Mexico has signed have been the NAFTA, the US-Mexico-Canada Free Trade Agreement, the Mexico-EU Free Trade Agreement, and the Trans-Pacific Partnership.

5.  A youthful and prepared workforce.

One of Mexico’s greatest economic competitive advantage is the youth of its population.  The median age for citizens in Mexico is 26.  In addition to this, its workforce is one of the best prepared for technological and Mexico manufacturing positions.  Twenty-one percent of Mexico’s university-age citizens are university graduates.

6.  Consistent growth.

Mexico’s industry has undergone unprecedented progress in recent years.  As an example, this fact is illustrated by the rise of the Mexican automotive industry, which has tripled the volume of its production over the last twenty years.  Today, Mexico is the seventh-largest vehicle producer in the world and supplies the US one-third of the passenger cars that it consumes.

Manufacturing company executives that seek to learn more about options for investment in the Mexican manufacturing sector are invited to contact Made in Mexico, Inc., a Tecma Group Company.