Electronics Make a Run For the Border

Mexico's electronics industry suffered a detrimental setback following the terrorist attacks on Sept. 11 due to the economic downturn in the U.S. Yet the country's electronics industry has rebounded nicely. In fact, electronics buyers involved in outsourcing decisions may find they are driving to Mexico rather than flying to China for EMS providers.

The reason? More electronics makers are becoming privy to Mexico's geographic coziness, a key factor in enabling quick design changes on the cheap.

Manufacturing.net dissects the electronics manufacturing turnaround in Mexico, shedding light on the country's hardened business savvy during hard times:

…instead of working harder to mirror China and India, Mexico learned to compete smarter. Marco Gonzalez Hagelsieb, senior VP of Mexico operations for Sanmina-SCI, an electronics manufacturing services (EMS) provider, noted that the country needed to find its niche. "You're always going to hear about the next cheapest country," he said. Mexico has also shifted from low-mix/high-volume manufacturing to high-mix/low-volume manufacturing and expanded its service offerings to include areas like design, build-to-order, and configure-to-order manufacturing support and post-manufacturing repair.

As for competing with cheap labor rates, Mexico also has a few tricks up its sleeve, taking advantage of NAFTA's "zero duty" environment for products manufactured and exported to the U.S., a key component to give Mexico a leg up on competitors like China where manufacturers still must pay a duty to be imported into the U.S. Hagelsieb said. Exemption of property tax, exemption of permit costs, training costs redemption for new hires and cash returns for R&D activity are also benefits of doing business south of the border.

And the future couldn't look brighter, according to findings from The Ministry of Economy and Technology Forecasters Inc. (TFI):

The Ministry of Economy estimates a 13 percent increase between 2000 and 2010 in the value of electronic and electrical components in cars produced in Mexico, TFI said in a recent report. TFI forecasts foreign direct investment to reach $18.5 billion in 2007 and within the next five years, the top growth segments in the industry will be automotive electronics, home appliances and aviation and aerospace.

Purchasing magazine continues in-depth coverage on the advantage of utilizing Mexico's electronics manufacturing services (EMS). The obvious reasons for partnering with Mexico: "Electronics buyers involved in outsourcing decisions may find they are driving to Mexico rather than flying to China to check out electronics manufacturing services (EMS) providers," finds the Purchasing piece.

Beyond the geographical benefits, however, EMS providers in Mexico "still make printed circuit boards, but they also do more systems builds. They are also serving more industries, including communications, medical and automotive. This is good news for buyers because it gives them more choice when they decide to outsource." In addition:

The number of EMS facilities in main cities in Mexico has increased from 13 in 2000 to 26 in 2006, and the amount of manufacturing space has more than doubled from 3.4 million to 7.4 million square feet. Guadalajara has seen the most expansion. The number of EMS facilities there has grown from six to 12, says [Maria] Via Urista [an analyst for outsourcing researcher and consultant Technology Forecasters]. All major EMS providers, including Flextronics, Solectron, Jabil, and Celestica, among others, have facilities in Mexico and many have expanded their footprints.

EMSNow also underscores the fact that Mexico's electronics manufacturing sector has adapted to "the new global competitive environment." But challenges lie ahead, especially when it comes to staying competitive with Asian electronics makers. EMSNow reports that many Mexican manufacturers are turning to lean principles to keep costs down. But for Mexico to remain attractive to manufacturers looking to outsource, attracting and retaining talented execs and reforms in policies will be problematic:

Companies face a shortage of skilled management and specialized technical and business personnel as a result of increased competition from competitors and demand from other industries, especially in northern Mexico.Taiwanese ODMs are posing a competitive threat to the traditional EMS players in Mexico and are competing for skilled labor. ODM companies typically source their components from Asia and avoid engagements with local reps, distributors and suppliers. Mexico's need for structural reforms in labor, energy, and telecommunications policies, all require more investment in order to keep costs down and maintain a competitive edge.

Will Mexico's labor and technology infrastructure be able to keep pace with its rapid growth? Will other manufacturers soon be making a run for the border?

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