Chihuahua: Hub for Mexican Teamwork and Commercial RelationsBy Sofía Hanna | Fri, 07/02/2021 - 16:10
The state of Chihuahua maintains its relevance within the aerospace industry thanks to the growth of its local operations and its privileged geographical position. Chihuahua is the city with the highest number of Tier 1 manufacturers that supply aerospace OEMs. Its strategic location has allowed it to expand its business beyond Mexico, while its essential alliances and supplier base have grown more competitive, which will help to drive the industry’s post-COVID-19 recovery efforts, say MBN experts.
Strategic Location and Alliances
Chihuahua’s key advantages are its strategic position and its decades-long experience in the manufacturing industry. “Chihuahua is right in the middle of the US-Mexico border and is located at the heart of US logistics hubs,” said Alfredo Nolasco, General Director at Chihuahua Global. Even though there were difficulties during the pandemic to maintain orders and continue with operations, Chihuahua still remains a strategic location because of the cost benefits it offers to companies.
“It is a sensitive issue for foreign companies to invest in Mexico. Although there are some signs that companies are willing to open contracts with local companies, we could be in more demand under different circumstances. Mexico could be more desirable if the government provided other benefits and investments certainty to foreign investors,” as mentioned by Luis Ramírez, Plant General Manager at Kaman. This is where alliances have become essential to the sector. Alliances between member and non-member companies of the Chihuahua Aerospace Cluster have generated a network to help promote national production in other countries. Within Chihuahua, local support has focused on promoting suppliers’ capabilities and creating a networking environment between partners. “The most important element is promotion so these companies have the opportunity to work with large suppliers and use their installed capacity,” said Adolfo Viramontes, President of the Chihuahua Aerocluster.
Becoming a More Competitive Hub
The strong capabilities of the state of Chihuahua to develop aerospace projects in collaboration with OEMs, local SMEs, companies across the supply chain show the strong and competitive growth of local operations. Innovation has also been a strong element in the industry’s development, framed by a State Innovation Agenda focused on growing competitiveness at the national and international levels. The state has always been in the Top 5 regarding aerospace FDI and through investment in new technologies, the state maintains its position as a competitive manufacturing hub.
According to the Center for Research in Public Policy (IMCO), the state lost its place in terms of competitiveness, going down four positions from the 7th to 11th place on the center’s index of 2021. The state fell six positions in innovation, three in politics and three in law. However, during 2021, Chihuahua has been one of the regions that have taken the most advantage of trade integration, representing 58.6 percent of current exports together with five other states. The State Competitiveness Index 2021 (ICE) found that Chihuahua is the best connected state beyond Mexican borders.
State Recovery Post-COVID-19
Being a key state in terms of trade with the US, problems arose when the aerospace sector was not deemed essential during the first stages of the pandemic. “We struggled significantly during the pandemic because, at first, the aerospace industry in Mexico was not considered essential, so we had to close our plants temporarily,” said Ramírez. “We shut down for a couple of months, which created a big constraint on deliveries and disrupted operations in the US. When we restarted operations, we had to work many hours of overtime to produce what still needed to be delivered. It took us six months to recover the production we lost in those two months.”
The state’s recovery has been difficult. According to the IREE results of 3Q20, four states show high economic recovery, ten states medium economic recovery, 11 low and seven very low. Chihuahua is at a recovery rate of 85 percent, which puts it at a very low level. Focusing on aerospace, Felipe Sandoval, General Manager of Safran, affirmed that many OEMs and Tier 1s are accelerating the relocation of operations due to the pandemic because they have an urgency to be more competitive, to reduce costs and to survive. Some of the strategies implemented include the creation of a new business ecosystem and helping suppliers to grow or access more installed capacity. “We are all working to uncover other business opportunities within the country,” said Sandoval. “The connection between companies during these events (cluster fairs) is remarkable, so we want to focus on making this a success. It will be an opportunity to hear new strategies, achieve sales and participate in networking activities.”
External Factors Hindering Development
Both the state and the industry of Chihuahua want to stop being just a manufacturing hub. Part of the objectives of the Mexican industry is for business to remain in the country. “Businesses and customers worldwide demand quick responses, cost reductions and embedded services from suppliers,” said Jaime Gutierrez, Operations of SSC | Senior Supply Chain Manager at Incora. “The aim is to generate supply chain simplicity. To be a single point of contact for the entire supply chain.” An essential part of this objective is FEMIA, that has helped companies exchange best practices to avoid making mistakes repeatedly and develop joint strategies. FEMIA also has up-to-date information regarding the country’s aerospace capabilities, which can be useful to OEMs.
Despite establishing these objectives and leaning on FEMIA, there could be more demand under different circumstances, said Ramírez. Mexico could be more desirable if the government provided other benefits and investment certainty to foreign investors. Chihuahua is also burdened by the vision of crime and violence surrounding the state. According to the Criminal Traffic Light of 2021, drug dealing has risen by 16 percent against 2020, while kidnappings increased 33 percent. This, in economic terms, implies a great expense. According to the latest National Survey of Victimization and Perception of Public Safety (ENVIPE), insecurity costs Chihuahua MX$6 billion (US$310.9 million) due to compensations for crime victims and protection measures for homes. Companies in the state have learned how to keep their guests safe when they visit from abroad but the insecurity cost is still a pending issue to address.