Advantages Remain at the US-Mexico Border
Alan Russell, CEO of the Tecma Group of Companies (Tecma), says an opportunity appeared when Tecma noticed that American OEMs like Ford began asking suppliers to move abroad, to places like Canada and Mexico, and OEM suppliers began duly shifting their assembly operations. Russell recounts that many Tier 1 companies were struggling with figuring out how to move offshore. They came to the Mexican border, where Tecma had a contract manufacturing business. Working with Tier 1 companies that supply OEMs in the US has given Tecma plenty of knowledge on the logistical advantages of the US-Mexico border. Nowadays, the costs of manufacturing in Mexico and China are at a competitive level. International oil prices are increasing, thus making offshore transportation more expensive. With this in mind, Chinese manufacturers are no longer seen as the first choice and the Mexican market has become more attractive, especially for those companies that are looking to serve the North American industry. Security is still an issue that the Mexican government needs to address, particularly because it is of great concern for companies interested in entering the country.
The Bajio region in Mexico is blooming with OEMs and manufacturers opening plants in the area. However, Russell believes it makes more sense to keep the manufacturing companies next to the US border since most of them are going to export a big percentage of their products to the North American market. In fact, Russell claims most of the European companies coming to Mexico are continuing to set up their bases in border states in order to serve the North American market. Under this logic, it is no surprise that Tecma has offices in both Ciudad Juarez and El Paso, Texas. However, Russell says his company is suited to work anywhere in Mexico. “We can put together a team and move it anywhere to provide our services elsewhere. I do not have a geographical preference, but I do not understand the logic of building a plant in the Bajio if 95% of the merchandise is going to be shipped back to the US.” Russell believes companies are aiming for the central states because of misleading information regarding safety. “People making business decisions rate areas, according to what is happening, but also based on what they hear in the media. They take into consideration education, labor, and security when granting a score. The latter is of great value because companies want some assurances that their operations will be safe,” he explains. The problem is that decision-makers are not in Mexico and do not visit the country enough, according to Russell. “Therefore, they base their decisions only what is published in the media.”
The northern part of Mexico has traditionally been the country’s manufacturing hub. But as both national and international media began the coverage of the violence in this region, many companies in the area have struggled to stay afloat while the automotive sector is being pushed to Central Mexico. The governments of the northern states of Chihuahua, Coahuila, Nuevo Leon, Sinaloa, Sonora, and Tamaulipas have been forced to find strategies to not only keep companies in the area running but also to attract new investment. “The governments in the central part of the country are doing an amazing job in seizing the moment for their advantage, but the governments in the north are living a different reality,” explains Russell. Debate still rages as to which region now better suits the interests of the maquiladora sector, the Bajio or the northern states. “Logistics and transportation costs cannot justify the location of maquiladoras on their own. This is a decision based on security issues and perceptions,” Russell asserts. For him, the decision should be based on each company’s needs and its specific plans. “If a company is supplying to Volkswagen, then the logical place to be is in the central states in order to keep logistics and transportation costs low. But if you are supplying to Detroit or Canada, then it is hard to financially justify this location.”
The northern states are developing programs to attract investment from the automotive industry into the area. The government of Chihuahua, for example, is looking to have an OEM in the state, since it is well-known for the manufacturing of auto parts. Additionally, the state has been investing in education programs to develop a skilled, well-trained labor force. “If the decision depended on me, putting my factory near the border would also allow me to take advantage of a larger talent pool. The border can become an asset in various ways,” concludes Russell.