The need for world-class manufacturing and engineering talent in the automotive sector has reached a fever pitch as automakers, along with Tier 1 and 2 suppliers, gain velocity in delivering on the many promises of electrification. Success requires careful maneuvering around seemingly endless technology, supply chain and production speed bumps.

For that reason, among others, Molex recently opened a factory in Guadalajara, Mexico, to accelerate innovation on behalf of automotive, transportation and industrial customers in North America and globally. While the company’s manufacturing presence in Mexico has grown steadily for more than a half-century, this move is aimed at alleviating complex challenges in vehicle connectivity, electrification, battery management, functional safety and zonal architectures.

By doubling down on a new facility nearly twice as large as its existing Guadalajara footprint, Molex attains ready access to advanced manufacturing capabilities and a diversified pool of highly experienced engineers. This enables us to extend and complement our engineering resources throughout North America, Asia and Europe.

According to the International Trade Administration (ITA), Mexico produces approximately 3 million vehicles annually, with 76% destined for the United States. A long list of automakers has factories throughout the country, including Audi, BMW, Ford, General Motors, Honda, Hyundai, Kia, Mazda, Mercedes Benz, Nissan, Stellantis, Toyota and Volkswagen. Additionally, over 1,100 Tier 1 and several thousand Tier 2 and Tier 3 auto-parts manufacturers and suppliers have operations in Mexico.

Anyone prioritizing Mexico as a labor-arbitrage solution is missing the point. This country clearly has so much to offer. Mexico’s emphasis on STEM education is contributing to a rapid rise in engineering talent. In metro Guadalajara alone, more than 20 universities offer engineering programs focused on electronics, software, renewable-energy technologies and artificial intelligence.

Mexico also offers excellent opportunities for “nearshoring,” which relocates manufacturing closer to final delivery destinations. Trade agreements, such as the U.S.-Mexico-Canada Agreement (USMCA), provide incentives that can lower production costs while strengthening a company’s North American presence.

What stands out, however, is Mexico’s budding reputation as the “Silicon Valley of the South.” In particular, Guadalajara has become a hotbed for innovation, encouraging leading-edge product development and entrepreneurial thinking, along with increased foreign and venture-capital investments. According to Credit Suisse’s Mexico Nearshoring Tracker Second Edition released in October, Volkswagen, Flex Americas, Continental, Bosch and Molex contributed the most to the $2 billion invested during the quarter.

Molex’s decision to expand south of the U.S. border took place well before the pandemic and massive supply chain disruptions that caught many companies off guard. The company’s strategy to invest $130 million in a second factory in Guadalajara emerged from ongoing discussions about broadening supply chains, shortening lead times, localizing production and accessing specialized expertise to spur electrification.

These goals aligned with Molex’s plan to embrace factory-of-the-future capabilities, including production-line automation, advanced materials handling, robotics, cutting-edge molding and assembly, digital twins, artificial intelligence, predictive analytics, machine learning and other data-driven, digital technologies, tools and processes.

Expansion in Guadalajara also enabled the company to apply expertise from working with makers of sophisticated medical devices, high-speed networks and powerful data-center solutions — all critical to developing tomorrow’s electric vehicles, advanced driver-assistance systems (ADAS) and vehicle-to-everything (V2X) communications. We now can readily tap into a region rich with relevant customer experiences, proven engineering talent and overarching commitments to R&D.

Guadalajara has a strong foothold in electronics, medical devices and automotive manufacturing. The biggest EMS players — including Jabil, Flex and Sanmina, among others — have world-class factories here. Many tech titans in software, hardware and digital technologies also have a growing presence, which bodes well for the automotive industry because cars of the future will function more like data centers on wheels.

Equally important is the increase in on-site testing capabilities, such as the reliability and metrology lab Molex is implementing in Guadalajara. The goal is to empower local engineers to improve product designs and speed development cycles using testing, simulations and analyses that reduce rework costs and time. In collaboration with customers and colleagues, Molex is committed to Mexico for the long haul — and excited about discovering new and creative ways to continually add customer value.

 

SOURCE: EE | TIMES

The chunks metal being worked on do not look terribly special. But the factory of Aerospace, a chemical-processing firm in Tijuana, hints at Mexico’s importance to global supply chains. These are components, from tray tables to door parts, for aircraft made by companies including Boeing, Cessna and Lockheed Martin. BAP applies surface treatments to the pieces, from submerging them in big vats of chemicals to meticulous work done by hand, before shipping them north.

Mexico has long been a hub for manufacturing. Toyota, a Japanese carmaker, has had a plant in Tijuana since 2002. Honeywell, an American industrial giant, opened one in 2010. But increasingly the country is moving into higher-value processes. It now accounts for 3-4% of aerospace imports to the United States, up from 1.5% in 2010. By contrast China’s share, which was the same as Mexico’s a decade ago, is now just 1%. American sanctions on China and tariffs on Chinese goods explain much of this change, as well as rising wages in China and the difficulty of doing business there. The trend has accelerated recently. Pandemic-induced border closures, increased freight costs, and consumers’ demands for instant gratification have all nudged firms around the world to consider shortening their supply chains.

“This is a golden opportunity for Mexico,” says Helen Wang, a consultant. The country has some natural advantages, not least a long land border with the United States. Mexico is party to fully 23 free-trade deals. Manufacturing wages are lower than in China. A survey this year by the American Chamber of Commerce of Shanghai found that a fifth of its members were considering moving some work out of China; more than a third of those who were thinking of moving were looking to Mexico.

In Tijuana the mood among many Mexican businesspeople is optimistic. Several big firms have expanded recently. Panasonic, a Japanese electronics company, opened a plant in 2018 to make cables for aerospace. Other companies are diversifying into logistics and distribution. In September this year Amazon, an e-commerce giant, opened a warehouse there, though the company denied that it would use it to serve customers in the United States.

In addition to aerospace, the manufacturing of medical devices and other electronics is booming. “We are doing things [in Mexico] that once would have had to be done in Japan or Germany,” boasts Eduardo Salcedo, the manager of the local operations of Össur, an Icelandic medical-devices company. “We have guys running a million-dollar machine with their right hand and another one with their left hand.”

Chain reaction

The result is that the richest part of the country, by the border, is becoming even better off. “Northern Mexico is growing at similar rates to Asia,” says Luis de la Calle, a consultant who used to work at Mexico’s economy ministry. Elsewhere, however, the picture is mixed. FDI fell from 3.1% of GDP in 2018 to 2.3% in 2019, compared with 3.7% in Brazil or 6.2% in Vietnam.

And despite its proximity to the United States, Mexico has its shortcomings. Business parks provide world-class facilities but the infrastructure outside—from roads to ports—is of poor quality, says Mr de la Calle. Businesses complain of problems obtaining inputs. The likes of Panasonic and Össur import many of the materials they need. Similarly Össur nearly pulled out of Tijuana because it could not find a company to apply chemical processes to its products, which include prosthetics. (BAP eventually stepped in.)

Some of the causes of Mexico’s problems are outside its control. When the government of the United States talks about “near-shoring”, it really means onshoring, says Bill Reinsch of CSIS, a think-tank in Washington. It can be protectionist in negotiations with Canada and Mexico. USMCA, the revised trade deal agreed in 2020 between the three countries, is stricter than its predecessor, NAFTA—indeed it was negotiated in part to preserve manufacturing jobs in the United States.

But Andrés Manuel López Obrador, Mexico’s populist president, has not helped. In 2018 his administration replaced one of the most business-friendly (if corrupt) governments in Mexico’s history, that of Enrique Peña Nieto. Mr López Obrador, in contrast, seems to enjoy unnerving investors.

Soon after taking office he cancelled a new airport for Mexico City, after the diggers had been working for three years, at a cost of at least $5bn. In 2020 he also pulled the plug on a $1.4bn investment in a new factory by Constellation Brands, an American brewer, which was near completion. He has weakened independent regulators by absorbing them into government or slashing their budgets.

Mr López Obrador is also reversing his predecessor’s opening of the energy industry to private firms and favouring inefficient state-owned outfits. Along with making electricity dirtier and less reliable, this sends forbidding signals to investors. In November the boss in Mexico of General Motors (GM), an American carmaker, said the company would not invest further in the country without laws that promote renewable energy. Earlier this year GM had said it would invest more than $1bn to make electric cars in Mexico from 2023. Last year Tesla, a leading maker of such cars, considered opening a factory in Mexico but opted instead for Texas. Although Tesla did not explain its reasons, Elon Musk, its boss, has grumbled about the Mexican government’s closure of some of the factories of its suppliers during covid-related lockdowns.

Mexico risks “shooting itself in the foot” by not taking advantage of shorter supply chains, says Michael Camuñez, who started a series of meetings to boost the economic relationship between Mexico and the United States during Barack Obama’s administration. (Mr López Obrador and President Joe Biden relaunched this “economic dialogue” in September.) Unfortunately it is Mr López Obrador who has his finger on the trigger and, if his past treatment of foreign investors is any guide, seems likely to pull it. 

This article appeared in the The Americas section of the print edition under the headline “Missing links” in the economist