Mexico Representation

Mexico, U.S. To Benefit As Manufacturing Leaves Asia

admin — Wed, 17 Apr 2013 15:28:01 +0000

Megan O’Neil | April 10, 2013 | 2:45 p.m. PDT
Staff Reporter

Already heavily intertwined, the U.S. and Mexican economies stand to become even more integrated as creeping costs in China drive some manufacturing back to North America, according to U.S. commerce officials.

“A lot of companies are reshoring, or bringing production back to our continent,” said Robert Queen, a U.S. Department of Commerce official and director of the El Paso Export Assistance Center. “It is like our continents are competing with each other now – U.S., Canada [and] Mexico is competing with Asia.”

The comments came during a workshop Tuesday at the Asia/Pacific Business Outlook, an annual conference hosted by the USC Marshall School of Business that attracts trade officers, business executives and investors.

Mexico has long been an international manufacturing powerhouse, with manufacturing accounting for about 20 percent of the country’s $1.1 trillion GDP. It is the number one exporter of beer, and the fourth largest exporter of automobiles. Its factories are the world’s top producers of refrigerators and flat screen televisions.

The Mexican economy lost jobs starting in the 1990s as manufacturing in Asia exploded. But climbing labor costs in China and the strengthening of the yuan means exporting goods from that country has become more expensive. Add to it rolling electricity outages in China and transportation costs across the Pacific Ocean and Mexico is once again a favorite with U.S. companies.

“If you are manufacturing a product that is sensitive to high transportation costs and lead times, China is a train wreck,” Queen said. Investors planted $20 billion in Mexico in 2011, seven times the annual average in the 1980s. Volkswagen, General Electric and Bombardier are a few of the many multinational corporations with significant operations there. After expanding nearly 4 percent last year, the Mexican economy is projected to grow 3.5 percent in 2013.

The figures are also welcome news to its northerly neighbor. The United States receives 80 percent of Mexico’s exports. Meanwhile, 50 percent of Mexico’s imports come from the United States, according to Dorothy Lutter, the senior most U.S. commerce official serving in the U.S. Embassy in Mexico City.

Each day, $1.25 billion worth of goods cross the U.S.-Mexico border, she said.

“You are looking at an annual bilateral trade about a half a trillion dollars,” Lutter said. “This is not the small little country to the south anymore.”

To be sure, there are plenty of hurdles that could trip up Mexico’s economy growth spurt. Corruption is rampant from the lowest to the highest strata of business and political life, Lutter said. The country’s K-12 education system is deeply troubled. And drug trade-related violence has produced 70,000 fatalities since 2000.

Still, Mexican lawmakers, including first-year President Enrique Peña Nieto, has set in motion critical reforms that will only strengthen the country’s economic prospects, Lutter said.

Mexican labour: cheaper than China

admin — Fri, 05 Apr 2013 04:46:53 +0000

Apr 5, 2013 12:26am by Pan Kwan Yuk

It is no secret that the wage gap between Mexico and China has been narrowing in recent years. While labour costs in China were roughly 200 per cent lower than those in Mexico a decade ago, wage inflation in China and wage stagnation in Mexico have combined to close the gap to nearly zero .

But could labour in Mexico now actually be CHEAPER than in China? Yes, according to Carlos Capistran, an economist at Bank of America Merrill Lynch. Not only are average hourly manufacturing wages in Mexico now lower than those in China in constant dollar terms, they are 20 per cent less.

Here’s the chart from Capistran’s note to clients on Thursday:

But is this necessarily a good thing for Mexico?

True, stagnant salaries over the past decade have been credited with reviving Mexico’s manufacturing sector, which was hard hit by China’s entry on to the world stage following membership into the World Trade Organisation in 2001.

A study by Barclays last year reckoned that the rise of China as the “world’s factory floor” chipped about 60 basis points off Mexico’s gross-domestic-product growth every year between 2002 and 2006. Some of the biggest casualties in Mexico’s manufacturing sector were textiles, clothing and shoes.

And now thanks to soaring wages in China, high transportation costs and the steady recovery seen in the US economy, the tide is turning back in Mexico’s favour.

As Capistran explained:

Mexico has been able to regain participation in the US market since the Great Recession and the international financial crisis. Part of the gain has been against China: from 2007 to 2012, China gained 1pp in market share, compared to 7.5pp between 2001 and 2007, while Mexico gained 1.6pp, compared to -0.74pp between 2001 and 2007. A larger share of the US market positions Mexico better to benefit from the US recovery. In our view, an important force behind this trend is Mexico’s hourly wages are 19.6% cheaper than those of China.

Optimism over Mexico’s growth prospects has made the country a darling among international investors. Some $80bn of foreign investment were poured into the country’s stocks and bonds last year, compared with the $16.5bn received by Brazil. Mexico’s stock market hit a record high earlier this year and banks ranging from Spain’s BBVA to the US’s JP Morgan have been busy bulking up their operations there.

Yet what about the human costs of wage stagnation?

Minimum wage in Mexico today is about 60 cents an hour, while average pay in manufacturing is only about $4.50 an hour. This compares to the $6.27 paid in Brazil.

Writing in the Miami Herald last month, Andrés Oppenheimer made the observation that “Everybody is upbeat on Mexico – except Mexicans.”

During my visit [to Mexico City], I found widespread skepticism in the local media, and among Mexicans in general, about the sudden international love affair with Mexico.

“After so many years of mediocre economic growth, there is a lingering mood of frustration,” pollster Ulises Beltran, head of the BGC polling firm, told me.

In Brazil, falling unemployment and wage increases have helped millions rise out of poverty and spark a domestic spending boom.

By contrast, in Mexico, wage stagnation, under-employment and inflation have eroded the income level of some 31m Mexicans, according to Jose Luis de la Cruz, an economist and director of the Center for Research on the Economy and Business at the Mexico state campus of Monterrey Tech. And he reckoned that as many as 60m people are living below the poverty line. This in a nation of 113m.

As Luis de la Calle, a former Mexican government official who helped negotiate the North American Free Trade Agreement recently told the New York Times:

We need to increase wages to become a true modern country.

For now, banks and investors are happy to just focus on Mexico’s positive macoeconomic numbers.

Capistran from BoA said he expected Mexico to keep its competitive edge as a result of its demographic boom – which will see a young, growing labour force keep a lid on wage increases – and productivity gains.

From BoA:

Despite the appreciation we expect, Mexico’s competitiveness will continue through almost flat ULCs in dollar terms due to the positive effects of a demographic boom and productivity gains in manufacturing and potentially, in services. This underpins the upside revision to our GDP forecast to 4% from 3.5% for 2014 and is one of the reasons we see an increasing potential growth.

So more good news for investors. But less so perhaps for the Mexican labourer who’s toiling away in a factory somewhere for 60 cents an hour.

Mexico’s Welcome Mat Attracts Aerospace Manufacturers

admin — Fri, 05 Apr 2013 03:52:53 +0000

By Michael Mecham

Source: Aviation Week & Space Technology

April 01, 2013 Credit: Nordam

Michael Mecham Queretaro and Chihuahua, Mexico

In the past decade, Mexico’s welcome mat for the aerospace establishment has found an industry eager to manufacture “south of the border.”

The obvious attraction is Mexico’s lower wage-structure: some say that in Mexico manufacturers pay a tenth of what equivalent assembly jobs cost in the U.S.; others cite a differential of about a third from what is paid in Europe. This discrepancy is best explained by the costs of different skill levels, and by a hesitancy to be too specific on a subject that raises political hackles back home.

But lower wages tell only part of the story for why Mexico, a nation of 115 million, now counts 270 aerospace factories within its borders. On national and state levels, the country is aggressively pursuing “high-tech” aerospace jobs as part of a broadening of its industrial base beyond automobiles and electronics, for which it is already a major producer. U.S. shoppers may think of Mexico mainly in terms of summer vegetables in the winter, but the World Bank reports that industrial products account for 90% of its export earnings. The bank ranks Mexico as the world’s 13th largest economy in nominal terms and No. 11 in purchasing power. “Hecho en Mexico”—Made in Mexico—is more common everywhere, including in aerospace.

The aerospace influx has not happened overnight. Its roots date to the mid-1970s when U.S. companies, a mix of multinationals and lower-tier suppliers, began sending basic parts manufacturing and assembly tasks across the border, mostly to border towns like Tijuana and Mexicali but also deeper into the country to cities like Monterrey. Service operations followed, as did company research activities.

However, it has been in the past decade that Mexico’s aerospace manufacturing growth has mushroomed. Political reform led it to pursue a global free trade agenda vigorously and its 1994 signing of the North American Free Trade Agreement (Nafta) benefitted Mexico greatly. Still, it took about a decade for the aerospace sector to take off. Until 2004, growth was scattered, says Queretaro state Gov. Jose Calzada. Not anymore. “We’ve seen incredible changes in just the last five years,” he says.

The boom times are a testament to Mexico’s geography, its embrace of free trade and adoption of legal mechanisms that provide a “soft landing” for foreign-owned factories. Local leaders clear red tape and amaze U.S. and European executives at how quickly they can put up factories. A typical response comes from Peter Huij, a senior Fokker Aerostructures executive in Chihuahua, about how quickly the company went from bare earth in May 2011 to a completed 75,000-sq.-ft. factory in November: “It would be impossible in Europe.”

Behind all of this is Mexico’s Maquiladora factory system for supporting foreign companies, which allows them to control their own destiny, importing raw materials such as aerospace-quality alloys, or wiring and then exporting the finished product tax-free. Foreign manufacturers commonly turn to a large service provider—Intermex and American Industries Group are leaders for the aerospace sector—that lease buildings to their clients and handle their human resources, tax and other business needs under Mexican law. About 80% of the aerospace companies in Mexico use such services. Of the 36 Maquiladoras registered by the Mexican government last year, six were in aerospace, including a GKN Aerospace plant in Mexicali, Latecoere in Hermosillo, coatings specialist Ellison Surface Technologies and Rolls-Royce turbine supplier JJ Churchill in Guaymas and a fourth division for Zodiac in Chihuahua.

Under the Maquiladora system, Mexico allows resident foreign companies to control 100% of their businesses. They do not face the “local partner” rules so common elsewhere that limit foreigners to a maximum 49% share.

“They make it easy for you to do business down here,” says John Gardner, strategic program manager at Kaman Aerostructures, another newcomer in Chihuahua. “They provide a ‘soft landing,’ to get a quick startup—a good startup. We got a lot of support up front and afterward.”

Besides lower costs, the business case for going abroad is often a need to penetrate a particular market. That is particularly true in China but is far less meaningful in Mexico for original equipment manufacturers (OEMs). Eurocopter is an exception. The French-German company says the country is a prize sales territory. “It’s the most promising economy in the region, perhaps better than Brazil, says President/CEO Lutz Bertling, naming Eurocopter’s other hot new growth market in New World sales. Eurocopter opened a $100 million, 130,000-sq.- ft. factory in Queretaro in February as an offset for a large Mexican military purchase. Making such “proximity” manufacturing investments is “part of our DNA,” he says.

But for most, tapping into Mexico as a sales market is less important than the country’s geography, trade policy and political and economic stability. “Our main reasons for being here are, number one, to be close to the U.S. market and number two, to be close to the U.S. dollar market,” says Stephane Lauret, Safran’s national executive for Mexico and South America. The Mexican peso is pegged to the U.S. dollar, giving Europeans a currency hedge against the Euro. Nafta allows Safran to operate in a low-wage environment with access to the U.S. market. About 80% of everything Safran makes in Mexico, from Labinal’s 787 wiring harnesses and Messier-Bugatti-Dowty landing gear to Snecma’s CFM56-7B low-pressure compressors, is shipped across the U.S. border.

There is another, more subtle, reason why Mexico’s star is rising. As they search for industrial development opportunities, the country’s leaders emphasize their goal is for Mexico to become a key player in aerospace’s global supply chain. The message is not new, they have followed it for years—and succeeded—as automotive assemblers. However, what is not on the political agenda is a national aspiration to begin competing in aircraft, engine and major systems development or manufacturing. Of course, national ambitions are subject to change, but Mexico’s focus on the valued-supplier role plays well with manufacturers concerned about the security of their intellectual property (IP) when they work in markets such as China, where a well-financed state agenda of competing with Western OEMs has been announced.

Besides IP protection, there are other benefits to this good-supplier attitude. Mexican workers are widely praised for their eagerness to meet their employers’ standards. “Mexican workers want to learn the U.S. way,” says Alfred Espirio, senior vice president of international finance for General Electric in Mexico. “In China and India, they want you to do it their way.”

Mexico’s aerospace industrial growth has followed a classic leader-follower pattern. Safran’s first push was 25 years ago in Reynosa making electronics for cars. The company wanted to see how things went. Its first big aerospace bet was placed in 1998 when Labinal bought a General Dynamics wire harness factory in Chihuahua as part of a broader push in North America for Boeing contracts. Largely because of Labinal in Chihuahua, Mexico has become Safran’s third largest industrial base, behind France and the U.S.

But no one can reserve Mexico exclusively for themselves. Labinal’s biggest competitor, Latecoere, says it will build a factory in Hermosillo, Sonora’s capital, that will employ 400 by 2015 to make harnesses through its LATelec subsidiary. However, the factory’s output will be more diverse than Labinal’s; it also is to produce transport passenger doors.

Westinghouse and Honeywell were the first U.S. companies to arrive in Chihuahua, making components for the defense industry in the 1970s. The mountainous city has a farming, mining and automotive supply background with touches of the U.S.—Home Depot, Starbucks, Sam’s Club. There also are 32 aerospace factories scattered across it in industrial parks, some neighboring car factories, and others for consumer electronics, such as China’s giant Foxconn. Most of the aerospace activity has arrived since 2007 and the city has established itself as headquarters for general, business and rotorcraft manufacturing dominated by U.S. concerns, including MD Helicopters, Bell Helicopters, Cessna and Beechcraft.

The leader-follower rule is even stronger in Santiago de Queretaro. The capital city is about 140 mi. north of Mexico City and came to aerospace later than areas along the U.S. border. Its lifestyle, with an old town filled with cafes and historic churches, is especially appealing to Europeans. Observers of the progress of Mexico’s aerospace industry count Bombardier’s 2006 decision to locate in Queretaro as the start of the influx by other big companies, whether OEMs or major suppliers. In Queretaro alone, Meggitt, CFM, Messier-Bugatti-Dowty, Precision Castparts, AE Petsche, Aernnova and Eurocopter have all taken up residence near Bombardier.

Baja California and Sonora are centers for parts shops and actually have bigger company rosters than Chihuahua or Queretaro. Baja’s output covers a variety of engine, airframe and interiors supplier functions. Sonora is known as an aero-engines supply center.

Of the roughly 270 aerospace companies currently in Mexico, 79% are in manufacturing, 11% in maintenance, repair and overhaul and 10% in development and engineering, says Vladimiro de la Mora, president of the Mexican Federation of Aerospace Industries (Femia).

Femia’s goals are to see the country rank among global aerospace’s top 10 supplier nations by 2020; it is now ranks 15th. The federation wants exports of $12 billion a year by then, with half their value coming from local content, and employment of 110,000 workers. Employment is now more than 34,000 and exports are worth $4.5 billion.

Although Mexico’s aero business is booming, it is riding a wave of global demand dictated by others. It will live and die by how well U.S., Canadian and European OEMs and Tier 1 suppliers fare. But its factories also can be the tail that wags the dog. In February, Bombardier announced a six-month delay in first delivery of the Lear 85 because of technical challenges with its all-composite airframe, manufactured in Queretaro. These problems have now been overcome, the company says.

In Mexico, plant managers see a national industry in its infancy, still learning the basics but with an eager workforce. “The numbers tell us we are attractive now,” says Kaman Aerostructures plant manager Francisco Meza in Chihuahua. “What I would say is that the industry is not mature enough. One of my major challenges is to make this business more innovative, to introduce more lean.”

Bombardier’s director of strategy and international business development, Vice President Michael McAdoo, watches the wage and skill-set forces at work in Mexico closely. His job involves tracking costs and managing capacity for Bombardier’s global supplier network. He sees a narrowing cost gap between Mexico and China. China still wins on costs but Mexico has advantages in terms of education, investment climate and infrastructure.

Mexico is “assembling forces for expansion,” he says. “It wants to move into higher value-added activities.” The question is how much it can expand, and how quickly.

Soon after the Queretaro factory opened, Bombardier pulled work into it from Mitsubishi Heavy Industries, a tradeoff McAdoo characterizes as common with a long-time partner. But even as Mexico becomes more attractive, Bombardier continuously evaluates other locations for its supply chain. New on the list is Casablanca, Morocco.

The question of whether low-cost Mexico is taking jobs from U.S. and European workers is a sensitive one, especially for Americans. Many U.S. OEMs declined to comment on this issue.

Old-fashioned labor-rate hunting explains much of the recent push into Mexico, especially from the U.S. and Canada. For instance, pricing pressure on the 737 trailing edge flap drive transmissions that it makes for Boeing prompted Curtiss-Wright Flight Controls of Shelby, N.C., to open a 70,000-sq.-ft. factory in Queretaro in January 2012. “Wages are one-tenth those in Shelby,” Director of Operations Everett Rice says.

But other factors are also at work. Kaman Aerostructures’ lead factory in Jacksonville, Fla., is largely devoted to military contracts, notes Vice President-Sales/Marketing Jim Melvin. The company needed to expand its commercial operations and knew it would be under pricing pressure. “We looked globally, at Asia and elsewhere, but zeroed in on Mexico based on where commercial aerospace is heading,” he says. “We weren’t looking to take work out of Jacksonville. Our strategy was to put in the [Chihuahua] facility and then go after work.”

The first parts produced by France’s Manoir Aerospace’s finishing and machining factory in Chihuahua in 2009 did not head back home. They were for its long-time customers Snecma and Messier-Bugatti-Dowty in Queretaro, says plant manager Nicolas Maillard.

Easy logistics across the U.S.-Mexico border were early attractions, but increasing demand has opened flight connections deeper into the country. For Rice, shifting work into Mexico instead of overseas keeps time-zone changes to a minimum and allows him to board a flight at 8 a.m. in Charlotte, make a connection in either Dallas or Houston, and be in Queretaro by noon.

European OEMs say rising demand means expansion in Mexico does not diminish jobs at home, but it does overcome concerns they have about finding new hires in Europe, where open jobs listings can last for months. In Mexico, they find workers in their 20s and 30s eager to make a transition into aerospace from other industries. “Aerospace is very sexy now,” says Fokker’s Huij.

Which is not to say that qualified workers are always available in Mexico. “Queretaro needs more engineers,” says Lauret. “Schools in Chihuahua are good—they’re a strength, but more are needed.”

Competition among Mexican states for jobs is no less intense than it is in the U.S. Not surprisingly, the biggest group of foreign plants is in the six states that border the U.S. A breakdown by Femia ranks 22% of the country’s aerospace industry with just 11-50 employees and 7% with 10 or fewer. Forty-three percent have 51-250 employees and 28% have more than that. There are 15 corporations with more than 500 employees, with the largest concentration (8) in Baja California.

Security concerns, from shootings or kidnappings for ransom, remain a consideration in Mexico because of drug-war violence. The government reports that industry in general, and aerospace in particular, has not been targeted and no manufacturing executives interviewed by Aviation Week reported problems. But the issue remains, and is one of the biggest political concerns for Enrique Pena Nieto, who became president in January. A month later, when he celebrated the opening of a Eurocopter factory in Queretaro, the company’s second in Mexico, there had already been 2,399 deaths since the first of the year.

The most violent areas tend to be in the north, along the U.S. border. Although they emphasize that their facilities have remained safe, U.S. executives still exercise caution. When senior U.S. officials visit they take precautions, like not bringing U.S.-licensed vehicles across the border and following a strict hotel-to-factory travel regime. Queretaro is regarded as safe, which is one reason it has had such success attracting foreign firms. Chihuahua had a spate of violence in 2009 but it is said to have settled down.

Still, one manager who makes frequent trips there hires a trusted driver, just to be safe.

Tap on the icon in the digital edition of AW&ST for listings of 250 aerospace companies in 15 Mexican states, or go to AviationWeek.com/mexicoaerospace

How Mexico Is Becoming More Attractive To U.S. Manufacturers

admin — Fri, 29 Mar 2013 06:04:54 +0000

Mar 24 2013, 02:51 | : David Hunkar | includes: EWW, FXI

Mexico’s economy boomed when the country signed the North American Free Trade Agreement (NAFTA) nearly two decades ago. The manufacturing sector especially thrived as U.S. firms shifted their operations to Mexico to take advantage of the cheap labor costs. As a result, Mexico’s share of U.S. manufactured goods import rose from slightly about 4% in 1994 to about 13% in 2001, according to a report in the latest issue of IMF’s Finance & Development magazine.

Then the party almost came to a halt when communist China joined the World Trade Organization (WTO) in 2001. China’s entry into the WTO gave the country a strong edge over over Mexico since China could freely export its goods to the U.S. without any import restrictions. Hence China’s goods exports to the U.S. rose significantly while Mexico’s exports suffered.

From the report:

Between 2001 and 2005, Chinese manufacturing exports to the United States expanded at an average annual rate of 24%, while Mexico’s export growth decelerated sharply from about 20% a year to 3% on average each year over the same period. As a result, China’s share of U.S. manufacturing imports almost doubled by 2005, eroding the previous gains in market share by Mexico (see Chart 1).

In recent years, Mexico has been slowly regaining its lost manufacturing capacity as U.S. firms shift production to the country from China and other countries. This shift can be attributed to two reasons: labor cost and transportation cost.

(click to enlarge)

The above chart shows that wages in China are rising yearly and is getting closer to Mexican wages. Wages in the manufacturing sector in Mexico has remained fairly stable over the years while wages in China have been increasing. So China is becoming less competitive for U.S. firms.

Another factor that makes Mexico more attractive to U.S. companies is transportation costs. Since Mexico is much closer to the U.S. than China, and a stable rail and road network exists between the two countries, costs of shipping goods from Mexico to the U.S. is lower. Shorter distance also means that goods can reach U.S. destinations faster from Mexico than those transported by ships from China. Unless wage inflation in China stabilizes, manufacturing firms may continue to move out to other countries including Mexico, Vietnam, Philippines, etc. From an investment perspective, it is wise to keep an eye on the Mexican economy and equities.

(click to enlarge)

Source: The Comeback by Herman Kamil and Jeremy Zook, Finance & Development, march 2013, IMF

Some manufacturers say ‘adios’ to China

admin — Sun, 24 Mar 2013 00:23:54 +0000

David Agren, Special for USA TODAY 9:33p.m. EDT March 18, 2013

MEXICO CITY — Robert Moser moved the manufacturing of his company’s lines of cleaning products and kitchen gadgets to China during the last decade. Now his company is moving its manufacturing again — to Mexico.

“When you look at total costs, you’re pretty much at parity,” says Moser, president of Casabella, based in Congers, N.Y.

Companies like Casabella couldn’t move out of Mexico fast enough a decade ago, sending production to China to take advantage of the cheaper wages and prices in a country keeping its currency artificially low.

But the cost of doing business in China has been rising steadily, say companies that have returned to Mexico. Salaries are surging there. The Chinese currency, the yuan, has risen in value, making goods more expensive to export. Shipping costs have risen as well, making a move to Mexico even more attractive to companies whose primary markets are in the Western hemisphere.

The Mexican peso this week rallied on optimism about the country’s economic prospects following an unexpected rate cut last week. The peso has risen 2.8% in 2013.

Recently installed President Enrique Pena Nieto, meanwhile, has promised changes to Mexico’s tax system and reforms of its government-run energy sector to attract more outside investors and businesses from the USA and elsewhere.

“Mexico is a stable country, close by, but unfortunately with cheap wages,” says Eduardo Garcia, publisher of online business journal Sentido Común.

Wages were six times higher in Mexico a decade ago, but only 40% higher than those paid in China in 2011, according to a recent report by the International Monetary Fund. Mexico is part of more than 40 free trade agreements, which tends to reduce costs further. Then there is the weariness of doing business in China what with the midnight telephone conferences and 16-hour flights to Beijing — says Ed Juline, whose Guadalajara-based company, Mexico Representation, consults and represents manufacturers moving to Mexico.

“I have a dozen projects on my plate” of companies that want to get out of China, Juline says.

The upswing in manufacturing — about 20% of Mexico’s GDP — is driving the Mexican economy. Mexico says it expects its economy to expand by 3.5% in 2013.

It’s a reversal of fortune for Mexico, which lost manufacturing jobs to China during the last decade and watched rival Brazil boom by selling boatloads of raw materials to the emerging Asian economy.

“Mexico was uncompetitive,” Juline says.

But China was gaming the system against places such as Mexico, he says. Along with keeping its currency low, China has subsidized fixed costs to benefit its commercial activity, which hurt Mexico, he says.

Meanwhile, lead times for Chinese factories are increasing and manufacturers there are showing less interest in handling smaller orders, says Mike Rosales, whose Los Angeles-based company, Manufacturing Marvel, makes toys and trinkets in both China and Mexico.

Rosales says that shipping costs for him jumped when oil prices hit $100 a barrel, and the lack of protection in China for industrial and intellectual property became problematic.

“They would ship your product out the front and your product with someone else’s name out the back,” he says.

Some of the merchandise being made in Mexico ranges from figurines to flat-screen TVs, along with advanced items such as aerospace parts and automobiles — 2.8 million of which were assembled south of the border last year.

Some here say more manufacturing in Mexico benefits U.S. businesses because it offers them suppliers on both sides of the border. Jim Raptes, custom sales manager at Deco Products, which makes zinc castings in Decorah, Iowa, says his Mexican business has increased from 1% of total sales to 10% over the past five years, due to orders from manufacturers in Mexico.

Security remains a concern in Mexico, Juline says. But he feels the violence, due largely to drug wars, has given few companies pause about coming south.

Executives won’t travel to Mexico, he says. “But the Americans who do come down here secretly love it.”

Mexico’s economic moment

admin — Sun, 24 Mar 2013 00:21:17 +0000

That boom coming from North America’s southernmost state isn’t just gunfire

by David Agren on Monday, March 18, 2013 11:50am

Mario Armas/AP

A new truck rolls off the assembly line every minute at the GM factory in the conservative Catholic heartland of Mexico’s Guanajuato state. The factory in Silao, set in the shadow of a giant Christ statue considered the geographic centre of the country, produces so many trucks that GM has expanded its workforce by more than 60 per cent since 2008 and has plans to hire even more. The nearby Volkswagen plant just opened a $550-million engine plant and Toyota has announced plans for a facility down the road.

Manufacturing activity is mushrooming across Mexico, mirroring an upswing in the overall economy. The country produced more than 2.8 million cars last year, while factories in border towns like Tijuana and Ciudad Juárez churn out everything from plastic toys to plasma TVs. Manufacturing is now moving back from China—almost as fast as it fled Mexico a dozen years ago—as Asian salaries and shipping costs continue to rise. “This has nothing to do with Mexico,” Ed Juline, head of Guadalajara-based Mexico Representation, a business consultancy, says of the trend. “It has everything to do with China.”

Ten years ago, wages in Mexico were six times higher than those paid in China, but the gap had narrowed to 40 per cent by 2011, according to an International Monetary Fund report. Geography also works in the country’s favour, as companies take advantage of its easy access to U.S. and Latin American markets, where economies are expanding, demanding Mexico’s autos, appliances and advanced electronics.

But manufacturing is just one part of the picture, as Mexico moves from mess to can’t-miss status, the hottest of the emerging markets. “This is Mexico’s moment,” said new President Enrique Peña Nieto, summing up the sentiment at his December inauguration. Indeed, the Mexican government is projecting growth of 3.5 per cent this year—better than Brazil, which investors are suddenly bearish on after a decade of adulation. In Brazil, a credit bubble appears set to burst and demand for its commodities is diminishing.

The scenario has created a collective giddiness among elites and investors unseen since the early 1990s, when Mexico prepared to enter NAFTA and appeared poised for First World status, only to suffer a calamitous peso crash. Last year, investors poured $80 billion into Mexican securities—five times more than went to Brazil, according to the Banco de México. But external factors also benefit Mexico, especially as the BRIC countries lose their lustre.“Brazil is a mess,” says Manuel Molano, adjunct-director of the Mexican Institute for Competitiveness, a Mexico City think tank, “China is decelerating, India’s growth has been stalled for three years, Russia is nothing special.”

Peña Nieto is pledging structural reforms to the energy, tax and social security systems—measures his party previously opposed. The reforms, he says, will generate six per cent economic growth, tripling the rate of the past dozen years. He’s formed a pact among the three main political parties to pursue his agenda and has already struck deals to overhaul labour laws and an education system that allowed teachers to sell their positions like personal property. “He’s a smart political negotiator,” says Molano. His administration is “resourceful in convincing people.”

The story doesn’t begin with Peña Nieto. For three decades, government policies have been geared to suppressing spending and controlling inflation that had climbed to triple digits. The central bank’s interest rate and inflation both now hover around four per cent, while central government debt is low, amounting to approximately 28 per cent of GDP. (It’s around 36 per cent in Canada.)

Remarkably, the raging drug war has done little to dampen enthusiasm for Mexico. “A pile of 49 headless human bodies on a roadside is apparently less scary than an interest rate cut,” says Ulysses de la Torre, a blogger who focuses on emerging markets.

How much the “boom” benefits average Mexicans remains to be seen. Almost half (46 per cent) say their economic condition actually deteriorated over the previous year, according to a recent poll, and many expect little improvement in the short term, says Federico Berrueto, director general of polling firm Gabinete de Comunicación Estratégica. Fully 59 per cent of Mexicans now work in the informal economy. “The average person sees unemployment, that ends don’t meet, that their salary is low,” says Berrueto. When compared to the perspective of international investors, “it’s two distinct worlds.”

Mexico: The Land of Manufacturing Opportunities

admin — Thu, 28 Feb 2013 08:21:26 +0000

by Steve Clouther on 2/26/2013 4:28 PM

Category: Discrete Automation; Process Automation

Keywords: Manufacturing, Automation, Discrete, Process, Export, FDI, Mexico, Mexican Market, Market Research Study, Economy, Growth

Mexico is a significant market for manufacturing and automation products. Mexicans are the hardest workers in the industrialized world, China included. The OECD—the Organization for Economic Cooperation and Development, of which the United States is a member—studied working trends in three dozen countries, including paid and unpaid work. Mexicans topped the list, and exceeded the United States in both categories.

In 2011, Mexico received almost 20 billion dollars of Foreign Direct Investment (FDI), consolidating Mexico as one of the top recipients of FDI among emerging economies in the world. Mexico’s manufacturing industry and the financial services sector are top among the most preferred investment targets. Among the manufacturing sectors, the main recipients are automotive, iron & steel, beverages, and chemicals.

“Mexico has signed 11 Free Trade Agreements with 43 countries, including the United States, Canada, the European Union, and Japan, some of the largest and most lucrative markets in the world. Mexico actively participates in world trade. It is the 10th largest exporter and importer worldwide, accounting for 2.5% and 2.6% of the world’s total exports and imports, respectively. Mexico is a land of manufacturing opportunities,” according to Steve Clouther, the principal author of ARC’s “Automation Systems Market Outlook for Mexico”.

Economic Stability
In contrast to the widening crisis in the euro zone, Mexico can point to 17 years of macroeconomic stability, low inflation, manageable debt, an open economy, and increasing competitiveness. The gross domestic product expanded 3.9 percent in 2011, and there are forecasts suggesting that by 2050 it could be larger than that of France. Mexican factories are exporting record quantities of televisions, cars, computers, and appliances, replacing some Chinese imports in the United States and fueling a modest expansion.

Discrete Industries
The automotive industry is a very strategic industry for Mexico. In 2011, the automotive sector accounted for approximately 4 percent of the Mexican GDP and 20 percent of Mexico’s manufacturing GDP. According to the ranking of 40 countries by the International Organization of Motor Vehicle Manufacturers (OICA), based on car production, Mexico ranked eighth globally. The aerospace industry is another very strategic industry for Mexico. From an automation perspective, GMC and drives account for the largest investment, followed closely by PLCs, IPCs, and panels.

Process Industries
In 2010, Mexico was the seventh-largest oil producer in the world, and the third-largest in the Western Hemisphere. State-owned Petroleos Mexicanos (Pemex) is one of the largest oil companies in the world. Mexico is consistently one of the top three exporters of oil to the US, along with Canada and Saudi Arabia.

The Distributed Control System (DCS) sector is by far the largest automation technology for the process industries, especially oil & gas. All of the major DCS suppliers have a strong presence in Mexico.

Leading Automation Technologies
The DCS and SCADA sector accounts for more than a third of the revenues, and PLCs, IPCs, and Panels account for another fifth.

How Mexico Got Back in the Game

admin — Mon, 25 Feb 2013 21:16:43 +0000

February 23, 2013

By THOMAS L. FRIEDMAN

MONTERREY, Mexico

IN India, people ask you about China, and, in China, people ask you about India: Which country will become the more dominant economic power in the 21st century? I now have the answer: Mexico.

Impossible, you say? Well, yes, Mexico with only about 110 million people could never rival China or India in total economic clout. But here’s what I’ve learned from this visit to Mexico’s industrial/innovation center in Monterrey. Everything you’ve read about Mexico is true: drug cartels, crime syndicates, government corruption and weak rule of law hobble the nation. But that’s half the story. The reality is that Mexico today is more like a crazy blend of the movies “No Country for Old Men” and “The Social Network.”

Something happened here. It’s as if Mexicans subconsciously decided that their drug-related violence is a condition to be lived with and combated but not something to define them any longer. Mexico has signed 44 free trade agreements — more than any country in the world — which, according to The Financial Times, is more than twice as many as China and four times more than Brazil. Mexico has also greatly increased the number of engineers and skilled laborers graduating from its schools. Put all that together with massive cheap natural gas finds, and rising wage and transportation costs in China, and it is no surprise that Mexico now is taking manufacturing market share back from Asia and attracting more global investment than ever in autos, aerospace and household goods.

“Today, Mexico exports more manufactured products than the rest of Latin America put together,” The Financial Times reported on Sept. 19, 2012. “Chrysler, for example, is using Mexico as a base to supply some of its Fiat 500s to the Chinese market.” What struck me most here in Monterrey, though, is the number of tech start-ups that are emerging from Mexico’s young population — 50 percent of the country is under 29 — thanks to cheap, open source innovation tools and cloud computing.

“Mexico did not waste its crisis,” remarked Patrick Kane Zambrano, director of the Center for Citizen Integration, referring to the fact that when Mexican companies lost out to China in the 1990s, they had no choice but to get more productive. Zambrano’s Web site embodies the youthful zest here for using technology to both innovate and stimulate social activism. The center aggregates Twitter messages from citizens about everything from broken streetlights to “situations of risk” and plots them in real-time on a phone app map of Monterrey that warns residents what streets to avoid, alerts the police to shootings and counts in days or hours how quickly public officials fix the problems.

“It sets pressure points to force change,” the center’s president, Bernardo Bichara, told me. “Once a citizen feels he is not powerless, he can aspire for more change. … First, the Web democratized commerce, and then it democratized media, and now it is democratizing democracy.”

If Secretary of State John Kerry is looking for a new agenda, he might want to focus on forging closer integration with Mexico rather than beating his head against the rocks of Israel, Palestine, Afghanistan or Syria. Better integration of Mexico’s manufacturing and innovation prowess into America’s is a win-win. It makes U.S. companies more profitable and competitive, so they can expand at home and abroad, and it gives Mexicans a reason to stay home and reduces violence. We do $1.5 billion a day in trade with Mexico, and have been spending $300 million a day in Afghanistan. Not smart.

We need a more nuanced view of Mexico. While touring the Center for Agrobiotechnology at Monterrey Tech, Mexico’s M.I.T., its director, Guy Cardineau, an American scientist from Arizona, remarked to me that, in 2011, “my son-in-law returned from a tour of duty in Afghanistan and we talked about having him come down and visit for Christmas. But he told me the U.S. military said he couldn’t come because of the [State Department] travel advisory here. I thought that was very ironic.”

Especially when U.S. companies are expanding here, which is one reason Mexico grew last year at 3.9 percent, and foreign direct investment in Monterrey hit record highs.

“Twenty years ago, most Mexican companies were not global,” explained Blanca Treviño, the president and founder of Softtek, one of Mexico’s leading I.T. service providers. They focused on the domestic market and cheap labor for the U.S. “Today, we understand that we have to compete globally” and that means “becoming efficient. We have a [software] development center in Wuxi, China. But we are more efficient now in doing the same business from our center in Aguascalientes, [Mexico], than we are from our center in Wuxi.”

Mexico still has huge governance problems to fix, but what’s interesting is that, after 15 years of political paralysis, Mexico’s three major political parties have just signed “a grand bargain,” a k a “Pact for Mexico,” under the new president, Enrique Peña Nieto, to work together to fight the big energy, telecom and teacher monopolies that have held Mexico back. If they succeed, maybe Mexico will teach us something about democracy. Mexicans have started to wonder about America lately, said Bichara from the Center for Citizen Integration. “We always thought we should have our parties behave like the United States’ — no longer. We always thought we should have the government work like the United States’ — no longer.”

High-Tech Manufacturing Driving Economy in Mexico

admin — Thu, 07 Feb 2013 17:49:08 +0000

By Marlon Bishop ⋅ February 6, 2013

If you’ve ever been to Mexico City, chances are you’ve sat in an old Volkswagen Bug taxi, painted in muted red and gold, stuck in Mexico City’s notorious traffic.

“Here we call them ‘Donkeys,’” says Victoriano Luna, a taxi driver who has been driving a Bug for 32 years. “A horse can run fast, but it doesn’t endure. A donkey does endure, just like this car.”

Volkswagen first came to Mexico in 1967, when it opened a plant in Puebla, a few hours drive from Mexico City. For decades, the Bug was the biggest-selling car in the country.

Today, the Peubla plant has expanded to become the largest auto factory in North America, employing 18,000 people. It’s a state-of-the-art facility full of industrial robots and blinking computer equipment. The plant has the capacity to produce 2,500 cars a day, in popular models such as the Jetta and Golf.

After rolling off the line, the cars are packed into trains and shipped off to retailers. Most of them are sold abroad. Mexico is now the eighth biggest auto producer in the world, as well as the world’s fourth biggest exporter, according to the Mexican Automotive Industry Association.

In 2012, the country produced almost 3 million cars, a national record. Experts say those numbers are on track to keep growing.

“Mexico is becoming quite an automotive powerhouse,” says Thomas Karig, a vice president at Volkswagen Mexico. Karig says Mexico is an attractive place for car companies to set up shop for several reasons: a great location for exporting to North and South America, an open trade policy, and experience in the work force.

Last September, Audi, a Volkswagen subsidiary , announced the construction of a new plant nearby. They’ll be assembling the luxury Q5 SUV. Eduardo Solís, president of the Mexican Automotive Industry Association, says it’s a watershed moment for the country.

“There is an important element here where Mexico is, currently in the automotive industry, associated with good quality, with good products,” says Solís. “We have been scaling up in the value chain.”

VW Factory in Puebla, Mexico (Photo: VW Mexico)

Until recently, Mexico’s economy was based on low-paying, labor-intensive industries like textiles. About a decade ago, those industries started fleeing to China or Central America, where it’s even cheaper to operate. But now, Mexico is growing big-time in better-paying industries, like autos, aerospace, and technology, which require better-educated workers.Hector Muñoz, a 48-year-old technician at Volkswagen, is a living example of that change. Muñoz comes from a family of street vendors, and scored a job at Volkswagen after an uncle got him interested in fixing up cars.

After 20 years working on the VW line, he makes 12,000 pesos a month. That comes out to only about $30 US a day, but its six times minimum wage in Mexico, putting him squarely in the country’s middle class. Thanks to this job, he’s been able to put his kids through college. Two of them are now engineers, a fact he’s really proud of.

“Before there weren’t as many opportunities as there are now,” says Muñoz. In my case, being at Volkswagen has really encouraged me to push my kids to learn more, to get better educations.”

There are a lot of others like Muñoz. According to the World Bank, 17 percent of Mexico’s population joined the middle class between 2003 and 2009, now making up almost a quarter of the population.

But there’s a long way to go – half of Mexico still lives below the poverty line. Victor Piz, editor of Mexico’s chief financial newspaper El Financiero, says those people are being left out this high-tech boom.

“I think the main problem in Mexico is the distribution of revenue coming into the country,” says Piz. “None of it goes into the pockets of Mexico’s poor. This wealth doesn’t matter to them because they’re not receiving any benefit from it.”

Piz also warns that Mexico could have a problem sustaining its recent growth – almost 4 percent for two straight years – because it relies too heavily on one trading partner, the US. Mexico has free trade agreements like NAFTA with 44 countries, but still overwhelmingly exports to its neighbor to the North.

“When the United States turns off its engines, inevitably, Mexico also has to turn off its engines as well,” says Piz.

Today, Mexico City traffic is no longer a sea of VW Bugs. There are the gleaming Lexuses of the wealthy, and the Nissans of the country’s middle class – not to mention the mini-buses that transport the working poor. But taxis are still being made in Mexico. New York City’s brand new taxi fleet is currently in production at a Nissan plant in Cuernavaca.

This story was produced in collaboration with reporter Javier Risco and Round Earth Media’s Mexico Reporting Project.

Juarez Crime and Homicides Decline Notably – Really.

admin — Tue, 05 Feb 2013 20:35:34 +0000

For the last few years, the people of Juarez lived in a warlike collective trauma that reached its peak in January-February, 2011 when, on average, almost ten lives were taken per day in the belligerent streets of the battered border city. In retrospect, the reality of a leading community the size of Juarez stroked simultaneously by the great economic recession and the security crisis seems implausible even for a movie script.

The toll has been high and widespread. A drought of new manufacturing projects, the emigration of talent, the closing of businesses, the constant mantra claiming for peace and the shroud of fear, all tested the resilience of Juarez. The only consolation is thinking that it could have been a lot worse. And yes, it is important to mention “The elephant in the room” because the violence was real and because if we don’t remember the past we might be condemned to repeat it. Fortunately, the elephant is on its way out of the room. The “Murder capital of the world”- no more.

According to data from the trustworthy source Ciudad Juarez “Mesa de Seguridad” (Security council), a group that includes the three levels of government (Federal, State, City) and private citizens (persons without public or government positions) from the local academic, business and social institutions, the incidence of crime and homicides in Juarez has declined significantly. The graph in the Exhibit shows the number of homicides in Juarez per 100,000 inhabitants for the last three years. Note that since the peak in early 2011 when murders/100k were at a mindboggling 240, they have had a constant decline.

The lowest figure of 24/100k was recorded in November 2012, an arithmetical drop of 900%…! The 12-month average of homicides/100k for 2012 was 57, and the last 6-month’s average was 31. Statistically, the data series for the three years in record can be regarded as a significant trend. But other important indicators are also receding as explained in The Mesa de Seguridad’s report which may be found at www.mesadeseguridad.org

For example, auto thefts with violence have gone from over 500 per month in the first quarter of 2011 to about 65 per month in Q4-2012, presenting a much safer panorama in the streets. For the general public, businesspersons and tourists driving, this is probably the most important security indicator of all.

The report also shows large and important drops in auto theft without violence, convenience stores assaults, kidnappings and extortions. Where do we want to be to be able to say that Ciudad Juarez is safe? According to the Mesa de Seguridad objectives for 2013, the target for homicides/100k per month is 15, kidnappings and extortions should be at zero. The report doesn’t show an objective for auto theft with violence, but reaching a level of 30 or under per month seems reasonable.

Now, border regions and ports everywhere in the world are by nature less safe than most interior cities, so it is hard for Juarez to aspire to be level with the likes of Seville, Little Rock or San Jose, Costa Rica. But as shown in the graph, Juarez is becoming a lot safer, and if measured by the homicides/100k yardstick, it is safer than other cities in the U.S. and abroad. But by that token, any city is dangerous if you are with the wrong company, at the wrong place and time. The most important things for the inhabitants of a city and visitors to remain safe are to be careful, avoid risk and keep your eyes and ears open.

The task in Juarez for now is to finish getting rid of the elephant and making sure that it doesn’t come back.