Boosters Needed to Develop Mexico’s Aerospace Supply Chain

Last week I had the chance to attend the 1st Congress of Aerospace and Advanced Manufacturing, organized by the Monterrey Aerocluster. I participated in a panel with my respected friends, Luis Lizcano, Felipe Sandoval, and Benito Gritzewsky, about the challenges and ways to overcome all kinds of difficulties to become a supplier within the aerospace sector.

Because of all the supply chain disruptions, first due to the commercial war between the US and China, then the pandemic and now the war in Ukraine, the world has realized it is better to be regionalized rather than globalized in terms of component supply chains. That brings by itself a huge opportunity, as many companies that used to do business with Asia increasingly are looking to integrate into the North American region. The content chapters of the USMCA agreement reinforce that direction. In my opinion, the great opportunity for Mexican companies is here but maybe in a very bad moment when there are no public policies to promote new businesses or to provide financial support to grow SMEs.

Let’s face it, Mexican companies compete on an uneven playing field. In many other countries, the cost of money is below 3 percent, while here it is close to 14 percent. Credit is accessible to almost everyone because other governments understand the sector’s importance. Unfortunately, in our country all federal funds are gone and there is no access to money in a way that makes sense for opening or growing a company to supply the needs of the chain that is eagerly requesting it. Local credit is a big burden on the books of any company. Whatever margin a new company might have will be eaten by interest. But even worse, our government does not understand the relevance, potential and reality of the sector. Nobody has taken the opportunity to investigate the existing capacities and the potential to grow in the present context. Good jobs, with good salaries are being left on the table by the lack of investment. The cost opportunity is huge and the bill will be passed on in a few years.

To add to the complexity of the moment, purchasing companies, such as OEMs or Tier 1s, do not have independence and freedom to select and develop local suppliers. In the aerospace world, with few exceptions, the decisions are made at their headquarters in the US, Canada, or Europe. It is very nice to open a new branch in Mexico with some speech about being committed to developing suppliers locally but in a few years that engagement turns to dust and wind as the company realizes it will take more than goodwill. Our aerospace manufacturing ecosystem is young and, in many cases, either immature or with gaps in vertical integration that hinders the delivery of some products. But it will never mature if we do not invest and put our efforts into making it grow. I have been part of companies that came to Mexico expressing a commitment to develop the supply base locally and after three years, they stopped as it made more sense to consolidate volumes everywhere else. But they still make the same speech. What makes the case even worse is that usually the savings per part allocated in Mexico are around 30 to 40 percent. Nobody sees the benefit; the focus is on the effort needed to develop those parts, the risk associated with new suppliers and in many cases, even a sort of manufacturing xenophobia.

Enough crying. That is the reality, the hard truth. We need to change the game and I believe that it can be done. Despite that environment, I have witnessed many family-owned companies that went from a small machine shop to a full shop floor with all kinds of CNC capacities and capabilities. Companies that started with one part and now are producing thousands. What is the recipe? Persistence, sweat, tears, blood and a lot of hard work. I admire all of those people who are in the market now, with a solid presence and long-lasting contracts, delivering quality and being the example, sending the message that it is possible. We need to boost our business ecosystem of companies, buyers, government, and business associations.

To all companies wanting to enter or expand business within the sector, please be persistent about it. Do not give up. Knock on as many doors as possible; one will open and the rest will be history. My bit of advice: Connect with people who have already done it, ask for best practices, connect with people from all sides and angles of the industry. Join business associations and exploit all avenues of networking. Of course, be consistent and serious about quality and please understand the industry’s cycles and how to price. Vertical integration is important but complex within the industry. Think about collaboration, think about partnering with existing companies in Mexico and you will be able to supply a more complete component.

Companies with the power of buying: Please commit yourselves to developing one new supplier per year. I did not say 10 or 50 because only one would be a huge difference if all would do it. And if you are a Mexican inside a foreign company, my special message is: Please promote business in Mexico. Nobody else will do it. I know it is hard, I know there is “friendly fire” within organizations. Please resist! If we do not do it, nobody else will come from outside to do it. We need to start influencing the decision-makers, convincing them to turn their eyes to this country because the potential is huge and now more than at any other time, having components within the region will be key to survival and growth.

Government: I know there are no public policies and no idea of what the industry does and can do. I do not see that changing soon but, please, if you attract a new company to Mexico and provide some incentives when possible, ask for their commitment to develop local suppliers. Again, not 20 nor 50, one per year would be a huge change and a big opportunity when done systematically. If you support new investment in whatever way, it is not much to ask for one new Mexican supplier per year in return, and on top of that, companies can engage in marketing local social responsibility, leading to cost savings.

The business associations either local or national, should be the glue that pulls all these efforts together. Keep organizing business and networking events, to bring everybody together and facilitate connections. Keep pushing governments to support small companies, to find better credit schemes. Keep training and supporting new, small businesses. Keep sharing experience acquired over time. Keep helping each other to connect the dots as we have an eagle’s eye perspective. Help them see the big picture.

I think this is a moment of huge opportunity to increase our presence in the region, with good companies delivering great products. The competition is and will be fierce, the conditions are not easy and to be honest, sometimes it seems that it is easier to quit than to continue. However, it is possible. It is a proven fact that many others have accomplished it. It is not just me saying it. We need effort, hard work, focus, teamwork, and collaboration. The environment is very mixed but if we have the strength, creativity and interest to clear the path, the results will be great for everybody.