 MANUFACTURING: THE NEW TIGER HAS ARRIVED |
Much of Mexico's newfound success would not have been possible without the all-important manufacturing sector. Indeed, Alejandro Gomez Montoy, president of Solectron de Mexico, an electronics manufacturing corporation that employs more than 9,600 people in the state of Jalisco, predicts that "Mexico is going to be a manufacturing country for the next 10 to 15 years." And by all indications, his predictions are right on the mark.
Back in the 1980s, oil and petroleum products accounted for an enormous 80 percent of Mexican exports. After opening its economy considerably, however, Mexico has diversified its portfolio so that now manufactured goods command about 85 percent of total exports. In little more than a decade, Mexico has become the world's next "tiger" on the export scene.
Why the metamorphosis?
Without a doubt, one motive behind Mexico's push to become the next manufacturing tiger has been to improve its infrastructure with the foreign capital that has accompanied hundreds of manufacturing plants, or maquiladoras, that have sprung up mostly along the U.S.-Mexico border.
"Infrastructure follows the contract manufacturers," says Brad Knight, vice president and general manager of Flextronics International, one of the top contract-manufacturing firms in the world. "We move into a region (and) usually move in with competitors. Then our common vendors move in to support us. So, over time, we can change the infrastructure of a nation. And that is happening very quickly in Mexico."
It should come as little surprise that the historic negotiation of the NAFTA has been the driving force behind the manufacturing sector's exponential growth. Sang-Heung Shin, president of Samsung Electronics de Mexico, puts it best when he says simply: "Mexico is NAFTA country." Indeed, six years after the agreement's birth, bilateral trade between the United States and Mexico has increased by more than 150 percent.
While Mexico may truly be NAFTA country, the nation's manufacturing has not depended solely on the NAFTA for its success. In addition to free-trade agreements, Mexico also boasts a hard-working, diverse labor force that has attracted companies from all over the world. And contrary to popular belief, foreign investors are not flocking to Mexico just to reap the benefits of cheap labor, but are also hiring vast numbers of skilled workers, such as engineers, technicians, and computer specialists.
"I don't think (companies come to Mexico) only for the labor costs," says Alfonso Martin del Campo, general manager of Jabil Circuit, which provides electronic services for companies in the telecommunications-, PC-, automotive-, and consumer-industry fields. "It's the total added-value services that are provided, the skills people have, the universities that supply the industry with many students with the profile these companies require."
Even still, free-trade agreements and labor are not the only high cards in Mexico's otherwise strong hand. To the contrary, Mexico's ace in the hole may very well be its position on the map itself. Indeed, where else would any other emerging nation in the world rather be than nestled between Latin America and the world's largest market?
"We studied three candidates in North America:
Canada, the United States, and Mexico," explains
Young
Jin Suh, general manager of Daewoo
Electronics, which currently employs more than
3,500 workers in Sonora. "Finally, we decided
to invest our money in Mexico." |
Just a casual glance at the companies found in this section illustrate the fact that Mexico has developed a leading electronics industry that competes successfully with other producers in the global marketplace. Mexico is the United States' leading trading partner in electronics, as well as its largest export market. Moreover, under NAFTA, the U.S. and Mexican electronics industries have more fully integrated their production processes. Nearly all U.S. producers in this sector are engaged in some form of joint venture with Mexican firms. NAFTA has also helped to attract investment from countries outside North America. Japanese electronics firm Sony and Korean electronics firm Samsung have invested heavily in North American production facilities with state-of-the-art technology.
There is even talk of a possible agreement with Korea. Although one of the sticking points has been the trade imbalance between the two nations - Mexico exports about US$400 million to Korea, while Korea exports about US$1.6 billion to Mexico - Daewoo is confident that an accord can be reached eventually.
Searching for a place in North America to establish an overseas plant, Daewoo opted for Mexico because of its excellent overall conditions and, above all, a 30-year grace period for an industrial park in the state of Sonora, where the company produces more than five million televisions and three million VCRs a year. In 1995, Daewoo continued to invest in Mexico to manufacture refrigerators and washing machines in Queretaro, where they currently have plans to build even more plants to manufacture conditioners and microwave ovens.
LG Electronics is another international manufacturing company that has established a solid presence outside Guadalajara, the Silicon Valley of Mexico. In 1994, the company built a plant in the border city of Mexicali to set up a base for their Latin American operations. They currently have plans to expand into Monterrey, where they hope to build refrigerators, washing machines, and other home appliances.
When asked about the advantages to doing business in Mexico as an Asian company, LG Electronics President Se Woo Park says "that the government is willing to support the investor."
"Mexico is a growing market," he adds. "The business environment to invest here in Mexico is optimum to establish a production base."
Aventec, which manufactures autoparts, has also established a presence in Guanajuato since early last year, due in large part to the aggressive efforts of Fox-who had been state governor at the time-to promote the state.
"Fox came here (to Guanajuato) and dug the ground," says Aventec Vice President Mitsuru Iba. "That was a great honor for us."
Mexico also excels in attracting auto manufacturers. Although the Mexican domestic automotive market is miniscule compared to the U.S. market, efforts to export cars and trucks have paid off handsomely and converted the industry into one of the world's 10 largest. In 1999, total automotive production in Mexico came to more than 1.5 million units, 38 percent of which was sold in Mexico, 61 percent exported primarily to the United States, and the remaining one percent divided fairly evenly among another 35 countries.
The industry's outlook for 2000 is one of healthy growth in both domestic and export sales, although the domestic market makes up a larger portion of growth figures due to lower interest rates and a generally favorable macroeconomic environment. There is even talk among Fox's advisors to reduce or eliminate the controversial New Vehicle Ownership Tax (ISAN), which would stimulate increased domestic sales almost immediately.
Industry players have announced new investment plans on the order of US$5 billion over the next few years. With the signing of a new EU trade agreement, investment from European-based auto companies should increase, as should exports to the EU trading bloc itself.
All of these factors translate into a thriving sector. In fact, many auto-manufacturing companies are having trouble keeping up with demand.
"In our plant," says Volkswagen's President and CEO Bernd Leissner, "we have been running for eight months at a 100-percent technical capacity. We cannot produce more, (but) if you do not have enough cars, you cannot sell. Everybody is crying for cars."
While the big three U.S. auto manufacturers have operated in Mexico since the 1930s and some European and Asian companies since the 1950s and 60s, it was not until the 1990s when the likes of Mercedes-Benz, Hyundai, BMW, and Honda followed suit. The recent merger between Japan's Nissan-second only to Volkswagen in total sales in the Mexican market-and France's Renault is partially responsible for the latter's return to Mexico after a hiatus of more than 15 years.
"The consistency of the Mexican automotive industry, from its very beginning to the year 2003 is incredibly marvelous," says Nissan's Hiroshi Yoshioka, "C'est magnifique." |
