Industry

Riding the Turbulence

Industry

Indicators from early 2012 show that unexpected demand from the US led to a boost in manufacturing in Mexico, as industrial output rose 5.9% in February 2012 as compared to […]

Indicators from early 2012 show that unexpected demand from the US led to a boost in manufacturing in Mexico, as industrial output rose 5.9% in February 2012 as compared to the same period in 2011, according to the National Statistics Institute (INEGI).

The outlook for the remainder of 2012 is also positive, with continued US economic recovery and a relatively weak peso ensuring goods remain competitive abroad. Manufacturing, benefitting from increased demand from the country’s northern neighbor, grew 7% in February 2012 in annual terms, and exports of manufactured goods rose 15%, accounting for $24 billion of the country’s total $30 billion in exports for that month. The auto sector, its fate long tied to the needs of the US market, increased its exports by 20%, reaching $7.1 billion. However, although the automotive sector remains the giant of Mexican industry, employing almost 140,000 people, the country’s nascent aerospace sector now employs 30,000 people and boosted its exports in 2011, reaching $4.5 billion in value.

Despite weaknesses in 2011, the Mexican consumer sector showed signs of picking up in 2012, as seen in the food and beverage sector, with per capita food consumption up 2.1% so far, and alcoholic and non-alcoholic beverages also up 6.7% and 4.8%, respectively. Increased demand from the US is also likely to lend a hand to the country’s electronics industry, which is currently the second largest supplier of electronics to the US after China, and as of 2007 the world’s largest producer of televisions and smartphones.

AUTOMOTIVE

The expanding national road infrastructure has opened up the domestic market in Mexico, while the country’s location close to the US has worked to turn it into a manufacturing and assembly hub for the world’s automotive industry. Now occupying eighth place in terms of global automobile production figures, it has surpassed Spain and sits closely behind Brazil. In 2011 the country produced 2.7 million vehicles, up from 1.55 million in 1999. Providing jobs to around 140,000 people, the industry makes up 3% of the country’s GDP, and auto manufacturing accounts for 20% of the total manufacturing sector. Year-on-year growth came in at 14.4%, with estimates for 2012 suggesting it will continue trending upward. Exports also remain on a growth curve, increasing by 53% over the last decade and hitting 2.1 million units. The export industry is now valued at $32 billion.

Seven automakers dominate the market, and 40 brands are produced in the country. Investment has showed no signs of slowing down despite the global economic woes. In 2008, Ford announced an investment program of $5 billion, which, among other things, included the expansion if its Hermosillo plant, which is expected to be pumping out 350,000 units per year by 2012. “This plant is the largest in Mexico, and it produces primarily for the US market,” Gabriel López, President of Ford Mexico, told TBY. In total, the company exported 449,925 cars in 2011, with production targeted at the domestic market a more modest 85,988 units. GM, also a big player in the sector, produced 605,000 units, 1.2 million engines, and around 1 million transmissions, most of which were destined for export. “Around 70% of our production goes to the US and Canada,” said Ernesto M. Hernández, President and Director General of General Motors Mexico.

As demand for automobiles in the US also picks up moving through 2012, Nissan has announced a $2 billion investment in an assembly plant with a production capacity of 600,000 units per year. The Mexican auto industry looks set to be tied to the fortunes of the US consumer for the foreseeable future.

AEROSPACE

Mexico’s engineers are a testament to the education system, and a wielder of significant investment pull in the aerospace sector, which is showing signs of developing into a global technology and innovation hub. Now employing 31,000 people over 249 companies, the sector’s exports reached $4.38 billion in 2011. Baja California, Querétaro, Nuevo León, and Chihuahua form the focus of the sector. The sector really took off with the opening of Bombardier’s plant in Querétaro, at which it produces the exterior of its Learjet 85. In Baja California, most production centers on electronic components, air conditioning systems, cable harnesses, hoses and seals, rustless steel bolts, turbine connector assemblies, and blankets for commercial and military aircraft. However, starting in 2007, the sector began to move into testing and design, a segment led by Honeywell Aerospace, which employs over 200 Mexican engineers.

The sector remains upbeat, with Frédéric Garcí­a, CEO of EADS in Mexico, stating that “the market will be worth approximately ‚¬12 billion” by 2012. The EADS group, including Airbus, Eurocopter, Astrium, and Cassidian, plans to open a new Eurocopter manufacturing base in Querétaro in 2013, producing tail booms for helicopters as well as emergency doors for Airbus aircraft.

The challenge going forward is to eliminate the country’s reliance on imports from the US and Europe, as supply chain weaknesses still mean assemblers are obliged to import certain components. Further buoyed by government incentive schemes, the sector has emerged as the sixth largest attraction of R&D expenditure according to ProMéxico.

THE BEST OF THE REST

Mexico’s industrial sector is dominated by the automotive industry, yet its exports are also made up of a wide mix of goods, including textiles, furniture, food and beverages, as well as electronics. As the country’s population swells and national spending power increases, it is hoped further diversification, investment, and industrialization will close the wealth gap, as up to 45% of the population still sit below the poverty line, whether defined in terms of food, skills, or assets, holding back domestic demand. Driving industry this side of the automotive and aerospace sectors are the FMCG and food and beverage industries, which are selling to a growing domestic market as well as north of the border, to the US, where 85% of the country’s exports are destined. Speaking to the country’s attributes, Claudio X. González Laporte, Chairman of the Board at Kimberly-Clark Mexico, stated that “the labor force is very capable. You can get quality and quantity production, as well as very good connections to the principal internal and external markets.” The company currently produces and commercializes 20 brands in Mexico, including diapers, tissues, napkins, female hygiene products, and wipes. Coca-Cola leads the soft drink market, which has grown 4.8% in early 2012. Indeed, the company has 12 bottlers in Mexico, totaling 64 plants, 385 distribution centers, and 29,000 trucks serving 1.4 million points of sale. “The Mexican market is the second most important for Coca-Cola after the US, and it represents about 12% of worldwide volumes,” Brian Smith, President of Coca-Cola Mexico, told TBY. The company grew 14% in 1Q2011, and is currently investing around $1 billion per year in order to double its sales over the next 10 years. The FMCG sector remains strong in general, with a trend toward larger retailers and away from smaller suppliers. In 1Q2012, mass grocery retail sales were recorded as up 6.6%.

The electronics industry is also trending well, focused on the manufacture of audio and video devices, telecoms devices, and computer equipment. Mexico exported $71.4 billion in consumer electronic products in 2010, up 20% over the previous year. Again, the biggest export market is the US, which imports a large portion of its electronics from Mexico, which is second only to China.

Overall, Mexico is quickly emerging to be a major industrial center serving both the US and Canadian markets, as well as its neighbors in Central and South America. However, its geographical location and web of FTAs mean that it also has export potential to Southeast Asia, Europe, and beyond.