Published: August 14th, 2013
Production of medical devices in Mexico is expected to grow by 74% from 2011 to 2020, rising from $8,562 to $14,914 million. The overall annual growth rate over that time of 6.4% will outpace other NAFTA countries as well as Germany, Japan, and Switzerland. According to ProMexico, the Mexican government pro-trade organization, there were 2321 “economic units” in the country related to devices in 2010. Of those, 744 were exporters, with those businesses located mainly in Baja California, Chihuahua, Coahuila, Distrito Federal, Estado de México, Jalisco, Nuevo León, Sonora and Tamaulipa.
Approximately 67 of those device exporters are located in Baja, including big name device firms like Smiths, Tyco Healthcare, Cardinal Health, Pall Life Sciences, Medtronic, Gambro, Medimexico, ICU Medical Inc., Hudson Aci, Dj Ortho, CLP, Sunrise Medical, and North Safety Products.
Those companies have helped make Mexico the 11th largest medical device exporter in the world, according to ProMexico, including being the main exporter in Latin America and the leading supplier to the U.S. More than 80% of Mexico’s exports are destined for the U.S. which receives 24% of all autos and auto parts from Mexico along with 21% of electronic products.
A huge market and a shared border make California a key trade conduit, with goods flowing both ways. California was the second largest exporting U.S. state to Mexico ($20.9 billion in 2010, 17% of the total of $163.3 billion) behind only Texas ($56 billion, 59% of the total). California is also the second largest importing state from Mexico, behind Texas once again, with imports of $33 billion.
Moving beyond fridges and Fords
Proximity to the U.S. and lower costs are driving the segment in much the same way they’ve promoted other plastics heavy industries like appliances, automotive, and electronics to locate manufacturing south of the border.
In 2011, according to KPMG, Mexican manufacturing costs in medical devices were 23.3% lower than in the U.S. KPMG noted that Mexico is working hard to expand beyond its traditional industrial sectors. “The country is an increasingly attractive destination for aerospace companies, medical equipment manufacturers, and software developers which are expected to play a growing role in the economy,” KPMG stated in a report.
First BRIC now MIST
For years, the so-called BRIC countries of Brazil, Russia, India, and China have been looked to to lead growth in the developing world, but in 2011, a new acronym was born. MIST, short for Mexico, Indonesia, South Korea, and Turkey, was coined by Goldman Sach’s Jim O’Neil.
In 2011, Mexico was the 14th largest economy in the world, but by 2020, it is expected to become the largest economy in Latin America and the world’s 7th largest economy, passing BRIC nations Russia, Brazil, and India.
Injection molding machine suppliers set up shop
The activity in Mexico has not been lost on injection molding machine suppliers, with Milacron, Arburg, Engel, andKraussMaffei, all announcing Mexiccan subsidiaries in recent years, several of which are in the state of Querétaro.
|As companies expand their capabilities, Mexico’s advantages — and proximity to its biggest export market — will become evident and its manufacturing base will expand even further.|
It wasn’t too long ago that Mexico, like the rest of North America, was beginning to believe that China would eventually capture all the manufacturing to be had. It was true that many companies fled Mexico for the lower labor costs of China.
In a report released in August of 2011, The Boston Consulting Group (BCG) noted that by 2015, wages in Mexico would be significantly lower than in China, pointing out that in 2000, Mexican factory workers earned more than four times as much as Chinese workers. The report notes, “After China’s entry into the WTO in 2001, however, maquiladora industrial zones bordering the U.S. suffered a large loss in manufacturing. Now that has changed. By 2010, Chinese workers were earning only two-thirds as much as their Mexican counterparts. By 2015, BCG forecasts that the fully loaded cost of hiring Chinese workers will be 25 percent higher than the cost of using Mexican workers.”
And, according to a report from Maquila Reference, “Manufacturers producing goods for the U.S. market are reconsidering their manufacturing options in China, and looking at Mexico’s dual benefits of low-cost labor and reduced tariffs under various NAFTA clauses.”
Reshoring to Mexico
Mexico’s GDP is expected to rise 4 percent in 2011, despite the country’s problems with drug cartel violence, which hasn’t seemed to slow foreign direct investment (FDI) in new manufacturing facilities in just about all regions of the country. That’s because Mexico has a low inflation rate and debt levels, and a huge population of young people standing ready to meet employment demands of the big multinational companies. That has put Mexico on par with China and other LLC (low labor-cost) countries in Southeast Asia, particularly since labor costs — as well as other manufacturing-related costs — are rising in Asia.
Another recent Boston Consulting Group study notes that “wage and benefit increases of 15–20 percent per year at the average Chinese factory will slash China’s labor-cost advantage over the United States,” and that will create an attractive incentive for work to return to not only the United States but to Mexico as well. “BCG’s research projects that over the next five years, the fully loaded cost of Chinese workers in the Yangtze River Delta, which includes Shanghai and the provinces of Zhejiang and Jiangsu, will rise by an annual average of 18 percent, to about $6.31 per hour.”
Therefore, Mexico — like the United States and Canada — is seeing a rebound of its manufacturing base in a trend that is being called “reshoring.”
Mexico’s Largest Industry Sectors
While a lot can be said for the huge variety of industries that boast manufacturing plants in Mexico, the big focus is on the automotive, aerospace, and medical device industries.
Automotive: For the automotive industry, Mexico’s more than 1,100 Tier 1 manufacturing companies have been busy even in the face of “lackluster” sales of vehicles in the United States. Multinational Tier 1 suppliers include companies such as Delphi, Magna, Visteon, Johnson Controls, and many others with multiple manufacturing facilities throughout Mexico.
According to a report from Maquila Reference, Mexico became the largest supplier of auto parts to the United States in 2008. Additionally 80 percent of vehicles produced in Mexico are exported to the United States, and 11 out of every 100 autos sold in the United States are made in Mexico. Auto production in Mexico is expected to reach 2.4 million units annually by 2014 — with a projected growth rate of 5.5 percent per year — and account for 18 percent of Mexico’s manufacturing GDP, while generating 56,000 jobs.
Among the major automotive OEMs are Ford, GM, and Toyota, which have established manufacturing facilities along the northern border — the Northern cluster — in Baja California, Sonora, and Chihuahua. The Maquila Reference report notes that Baja California is a “preferred destination for the North American, European, and Asian automakers, with more than 60 foreign automotive companies in the region.”
Ford Motor Co., for example, established its Stamping and Assembly plant in Hermosillo, Mexico, the capital city of the state of Sonora, in 1986. Today the plant, which sits on a 279-acre site, has 1,650,307 square feet of manufacturing space and produces cars such as the Ford Fusion hybrid, Ford Fiesta, the Mercury Milan and Milan hybrid, and the Lincoln MKZ.
Tier 1 supplier TRW Automotive Holdings Group, manufacturer of safety systems, announced in November 2011 that it would open a new facility in the state of Queretaro, Mexico, to produce a range of advanced brake systems. Queretaro is located in the East-Central region that borders the western edge of Texas. According to TRW’s release, the 150,000-square-foot facility will manufacture hydraulic control units for a variety of electronic stability control systems, and brake actuation units including boosters and master cylinders. Production at the new plant is expected to begin near the end of the first quarter of 2012, with an estimated total employment of 450 when full production is reached.
Aerospace: Mexico’s aerospace industry sector has seen a big increase in growth over the last five years, according to a CCN Mexico Report, prepared by Cacheaux, Cavazos & Newton, LLP. Investment in the aerospace industry has exceeded $3 billion over just the last three years. According to data from the Mexican Aerospace Industry Federation, in 2011, $800 million will be added to that total, and over the next five years the sector is expected to create 35,000 jobs. Currently more than 190 aerospace companies call Mexico home, and employ approximately 190,000.
A report from Geo-Mexico notes that the number of aerospace companies in Mexico is expected to grow from 232 in 2010 to more than 350 in 2015. Exports of aerospace parts were worth $3.1 billion in 2010, and that is expected to jump to $5.7 billion by 2015. About one-half of all the jobs in the aerospace industry are in the Northern Border region, specifically in Baja California, Tijuana, and Mexicali, all of which border southern California.
One of the leaders of the growth in the aerospace sector is Canadian firm Bombardier Aerospace, which recently announced that it would build the aft fuselage for its new Bombardier Global 7000 and Global 8000 business jets, as well as major composite structures for the Learjet 85, at its Queretaro, Mexico, facility. Currently, Bombardier builds the Global 7000 and 8000 business jets at its Toronto, Ontario, facility. The company opened its business park in Queretaro in 2006, and has since enticed many of its suppliers to join them there. Bombardier Aerospace President and Chief Operating Officer Guy Hachey noted in a report in Aviation Week that the company is “ramping up in Mexico to about 2,500 employees by the end of 2012.”
Many of these heavy industries attract numerous suppliers into Mexico. In September 2011, Fridley, Minnesota-based Incertec — a specialty plating, metal finishing, and engineering solutions company — announced that it purchased the assets of CRS Aerospace in Empalme, Sonora, in order to establish manufacturing operations in Mexico. This will allow Incertec to provide cost savings and geographical efficiencies to customers in the aerospace, electronics, connector, and medical device industries.
“In the industries we serve, precision is critical,” states Tim Meador, CEO and president of Incertec. “By adding this location, we can provide manufacturers doing business in Mexico the same consistency, quality, and delivery provided by our U.S. location.”
Medical Device: Baja California is also home to a medical device manufacturing cluster, with more than 65 plants in the area dedicated to medical device manufacturing and responsible for 35,000 jobs, according to Maquila Reference.
Companies in the region include Cardinal Health; Medtronic; ICU Medical, Inc., among others, with 91 percent of medical device investments coming from the United States. These facilities are FDA, CE, and ISO 13485 certified with clean rooms ranging from Class 100 to 100,000.
Some 233 companies comprise Mexico’s medical device industry, with an estimated value of approximately $3.4 billion, contributing 0.4 percent of Mexico’s GDP. Of the medical devices manufactured in Mexico, 92 percent are exported to the United States.
An Educated Work Force
Mexico has a vibrant and well-educated work force, with an average age of 29. A report from the Organization for Economic Co-operation and Development states that 50 percent of Mexico’s citizens age 15–19 are enrolled full-time or part time in an educational program. Each year, some 90,000 engineers graduate from one of Mexico’s many universities. The country’s university system also includes technical and trade schools. The Technology University of Mexico has schools in Atizapan, Cuitlahuac, Ecatepec, Marina, and Sur.
One of the largest university systems is the Monterrey Institute of Technology, one of the largest private, nonsectarian co-educational multi-campus universities in Latin America. With over 90,000 students among 33 campuses in 25 cities in its high school, undergraduate, and post-graduate programs, the Monterrey Institute is one of the finest systems in Mexico.
Mexico’s Vocational Education Training (VET) system offers three levels of vocational and trade school training that includes Training for Work courses that can be completed in three to six months, consisting of 50 percent theory and 50 percent practice, and preparing students for entering the work force.
The Technical Professional baccalaureate program consists of 35 percent general studies and 65 percent vocational studies; 360 hours of practical training is required to obtain this degree. The technological baccalaureate that comes with the title Professional Technician is offered by both state governments and the federal government, and similar to an engineering degree. All of these programs offer excellent collaboration between the schools and employers, giving ready access to a trained and skilled work force.
A Changing Landscape
BCG noted that Mexico “has the potential to be a big winner” when it comes to supplying North America. “It has the enormous advantage of bordering the United States, which means that goods can reach much of the country in a day or two, as opposed to at least 21 days by ship from China,” the report said. “Goods imported from Mexico can also enter duty-free, thanks to NAFTA.”
Nonetheless, changes might alter the landscape and create incentives for U.S. companies to bring some manufacturing back from Mexico. For example, Ford Motor Company recently announced that due to its new national labor agreement with the UAW, it plans to move production of the Ford F-650 and F-750 medium-duty trucks from Escobedo, Mexico, to its Ohio Assembly Plant in Avon Lake. This marks the end of a decade-old Blue Diamond Truck, LLC joint venture between Ford and Navistar International, which currently manufactures Ford F-650 and F-750 trucks in Mexico for customers across North America.
But even as some manufacturing is migrating back to the United States from Mexico, other manufacturing is headed there. In October 2011, Whirlpool Corp. announced that it will close its Fort Smith, Arkansas, side-by-side refrigerator manufacturing facility in 2012 and shift that work to its manufacturing facility in Ramos Arizpe, Mexico. And although Nissan plans to boost capacity at its U.S. plants in Tennessee and Mississippi, it also plans to build a new plant in Mexico, according to a January 2012 company announcement. The new plant — which will be Nissan’s third in Mexico — will reportedly have the capacity of producing 175,000 vehicles a year, and employing 3,000 workers.
The winds of manufacturing continue to shift, as companies seek manufacturing sites that offer the best of all worlds: low labor costs, high quality, good infrastructure, access to markets, reduced shipping time and costs, and educated, skilled work forces. Mexico can fill much of that bill.