María Verónica Orendain De Los Santos
Director General of the Directorate of Heavy Industries and High Technology
The Ministry of Economy
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Adoption of Higher Technological Sophistication

Mon, 09/01/2014 - 13:01

Q: In what ways does the automotive industry promote the adoption of high technology in Mexico?

A: The automotive industry is crucial in the pursuit of more high technology in Mexico. What distinguishes this industry from the rest is that it has a multiplier effect that promotes technology across the entire supply chain. To foster technology, the industry needs skilled human capital. 19.7% of manufacturing employment, which amounts to 644,000 jobs, currently comes from the automotive industry. On average, salaries offered by OEMs established in Mexico are 2.1 times higher than other manufacturing industries. Given its ties to global value chains, the technology and manufacturing processes of the industry also have to be up to par with international standards. This is the main driver for the incorporation of high technology in Mexico.

Q: What role does the Directorate of Heavy Industries and High Technology play in this process?

A: This directorate plays a part in attracting FDI alongside other entities like ProMéxico. We elaborate the best strategies for the promotion of investment for the automotive sector. The automotive industry serves as a reference for the design and implementation of Mexico’s industrial policies and as a benchmark to evaluate our performance in attracting, retaining, and increasing investments in Mexico.

Q: How does the Economic Complementation Agreement 55 (ACE) with Brazil impact industries like automotive?

A: ACE is an agreement that grants companies preferential access to the Brazilian market with a reduction in tariff payments. An internal amendment passed in 2012 between the two governments established a limit on annual importations of lightweight automotive vehicles. There is an import quota mechanism which has been agreed to by OEMs present in Mexico. There is a process surrounding the quota mechanism, impacting the decision of which companies will gain preferential access to Brazil’s market. It is important to note that this amendment to ACE is temporary and we are waiting for it to be renewed. No OEM receives preferential treatment when we allocate the quota. Their participation depends on how well the OEM used its given space in the past. New OEMs can enter but it depends on investment conditions they have to meet.

Q: How will Mexico shift from promoting a low labor cost workforce to added value jobs in its investment attraction strategy?

A: Our labor force enables the adoption of higher technological sophistication. Because of this, Mexico is changing its strategy and shifting away from promoting itself as a source of low cost labor. We understand the new rules of the investment game and we have to improve our position within the global value chain. The automotive industry’s labor force is a model that generates skills and abilities which impact other sectors like aerospace. The areas particularly reported to have high technology and better salaries are in R&D and aftermarket services while salaries are lower for common manufacturing processes. However, there are specific processes that are considered high value due to their complexity. Since the automotive industry is closely linked to global value chains and markets, international influence results in higher salaries.

Q: What strategies are put in place to promote this human capital transformation?

A: From the 644,000 jobs in the automotive industry in Mexico, 5,000 are in the added value areas of R&D and aftermarket services. To increase this number, the federal government is focused on developing human capital. Via the Innovative Development Program (PRODEINN), the government is implementing a sectorial policy to create what we call an “ecosystem for technical innovation” in which, for example CONACYT supports industrial innovation through the Sectorial Fund for Innovation (FINNOVA) and the Innovation of Technology in Education and Training (INOVATEC). It is important to note that we help companies be more proactive when investing in HR, but at the end of the day, the investment comes from the private sector. The public sector simply accompanies this investment for two reasons: reducing risks and costs, and incentivizing the improvement of the technological profile of workers within the sector. Given the synergies the automotive industry has with other sectors like metallurgy, electronics, and IT, we have a concrete megaproject for the development of competences in advanced manufacturing, like molding, die casting, and tooling. This project is already underway and it will impact the automotive and engineering industries alike.