Mexico's Advantages Widen, SUupply Chain A Weak Link

Mexico is an increasingly attractive manufacturing base compared to China and other Asian nations, competing not only on costs but on skills, although the local supply chain remains a weak link, says Thayne Hardy, General Manager of Amphenol Optimize, the Mexican branch of the second- largest interconnect and cable manufacturer in the world.

"Mexico has a clear advantage over other manufacturing countries such as China," says Hardy, because although the cost of manufacturing in either country is similar, inflation is rising faster in the Asian powerhouse, leading US manufacturers into Mexico. “From 2016, we started seeing a growing preference from US companies to manufacture in Mexico instead of China because they find this country easier to manage,” says Hardy.

Parent company Amphenol has a worldwide presence with over US$6.3 billion in sales in 2016. In Mexico, the company has operated as Amphenol Optimize for more than 32 years with the goal of becoming a vital cog in an increasingly demanding supply chain by taking advantage of the country’s manufacturing benefits. "Mexico has been good for the company. From three plants and 360 employees in the 1990s, it has grown to 5,500 employees and five plants in Hermosillo, Tijuana, Mexicali and Monterrey."

The aerospace sector represents 40 percent of Amphenol Optimize’s sales, making the industry its largest manufacturing segment. Many of its products are being sold to companies in Mexico. For instance, Safran Labinal buys many of its connectors. Amphenol Optimize’s products for aerospace include connectors, sensors, flex circuits, assemblies, and antennas. In Nogales, the company manufactures cable assemblies and PC boards for the aerospace sector. The company’s growth has led to the creation of a new sales unit, Amphenol Commercial. “We are selling more and more and our key clients are coming to Mexico, including Airbus, Boeing and their suppliers,” says Hardy.

Companies that are entering Mexico are also bringing their technologies and best practices, altering the manufacturing environment here and improving the talent pool. “I have seen an evolution in Mexico’s manufacturing sector,” says Hardy. “When we first came into the country, we only performed assembly using imported components from all over the world. Now, we are making our own components.” He says that several processes that were once only done in the US are now performed in Mexican maquilas, such as material planning, purchasing and customer service. The knock-on effect is also a plus for employees. “This is beneficial for Mexicans who are seeing higher salaries because they are operating CNC machinery rather than manual machinery.”

With more businesses coming to Mexico, competition is increasing, which is also putting pressure on the local supply chain. Hardy says that the the lack of local suppliers is a growing issue. “While we perform CNC machining here we still have to send products abroad for plating. It has been a struggle to get local suppliers for this process,” he says. Amphenol Optimize is now looking for certified suppliers “that are willing to undergo the most rigorous quality-control checks and that have the necessary capacity and productivity.”

As the company grows, it is also keeping an eye on potential problems caused by external factors. He is not concerned about the rift in Mexico-US relations since the inauguration of President Donald Trump, which some fear will hurt Mexico’s manufacturing sector. “Everything will work out in the end. International trade is powerful and benefits both sides of the border because it creates jobs not just in Mexico but also in the US.”

Amphenol is the second-largest connector manufacturer in the world. To become number one, the company is balancing organic growth and strategic acquisitions. “We are striving to work both organically and through strategic acquisitions,” says Hardy. Amphenol Optimize expects to grow 10 percent in 2017 and has a positive outlook for the sector as more companies come to Mexico. “Mexico is a rising force in the aerospace industry and about to reach its peak,” says Hardy.