Arrival of Korean OEM Spurs Local Supplier Developments

Q: How does the arrival of KIA in Nuevo Leon change the state’s positioning as an automotive production base?

A: Many Mexican and international suppliers are based in Nuevo Leon, so KIA will develop differently than other OEMs, as these tend to favor smaller cities where there is no solid supplier base. Establishing in Nuevo Leon is a great opportunity for the OEM, because even though labor is not as cheap as some other regions, there is a wider pool of specialized workers within the automotive and other industries. Last year, the state had 69,000 people working in the automotive industry. This year, KIA expects to provide 9,000 jobs between the manufacturing plant and its suppliers and it is expected to create greater competition and salary increases. Nuevo Leon already has the highest income per capita, close to US$20,000 per year, while the average in the country is around US$10,000. There are states in which people are willing to work for less, but if automotive companies are looking for lowercost labor, they will end up with less specialized workers.

Q: How successful has Nuevo Leon been in attracting new automotive suppliers to the state?

A: Attracting new companies is the responsibility of the Ministry of Economic Development. If Nuevo Leon needs a new supplier, we talk to the state government to attract that investment. However, acquiring an OEM was vital to bring more activity to our companies and expand the market. As a cluster, our challenge is to help KIA and its suppliers establish operations in the country, while also introducing them to local suppliers and sourcing a specialized workforce. It is not a question of not having more OEMs in Nuevo Leon, but of overcoming the challenge of integrating local suppliers into KIA’s supply chain.

Q: How are the cluster’s strategies evolving to accommodate KIA’s presence in the state?

A: CLAUT is a private and non-profit association in which members can take advantage of the synergies that we are developing. We are not planning to change our strategy for new companies; on the contrary, we believe that we have an important insight to offer and we will continue to invite new companies to join. Being an automotive cluster, we mainly focus on technical programs and education. Obviously, as these new companies bring their own culture and customs, there is a lot that they can offer to us too. Through local universities, we have been accommodating specialized programs for the industry over the last seven years. These programs are broadly focused on developing technicians, supervisors, directors, and even management skills, which we manage through the Center of Managerial Training and Improvement (ICAMI). We also offer various engineering degrees through Monterrey Institute of Technology and Higher Education (ITESM), Autonomous University of Nuevo Leon (UANL), and University of Monterrey (UDEM). This has developed excellent operations, engineering, and lean manufacturing tools, but the administrative and management positions have lost focus. It is not enough to know how to design or manufacture components; corporations need management knowledge, which led us to instruct on corporate management skills. Many managers start with a technical education, eventually growing in their companies and learning more about their fields, but management competences are often sidelined.

Q: Alongside the focus on large suppliers and OEMs, what efforts are being made to empower SMEs in the state?

A: CLAUT has relations with around 40 SMEs, applying the knowledge that was gained from larger companies to provide different programs that improve their quality and production systems. As for companies that are not yet in the automotive industry, we are helping them grow and gain enough experience to enter. Normally, there are companies that can work in this sector, but someone has to give them the opportunity. We attempt to bring the Tier 1, Tier 2, and SME companies together and lead them through the process.

Q: How has Ternium’s new US$1.1 billion cold-rolling steel mill affected automotive production and steel imports in Nuevo Leon?

A: This is an important investment and a crucial project, as previously we were importing 100% of the steel needed for vehicle production. For Ternium, this is an opportunity to supply the entire market. For Mexico, it will revolutionize the manufacturing process, creating a reduction in logistics prices and timeframes, enabling companies like KIA to benefit enormously.

Q: With the 11% growth in the automotive industry from 2013 to 2014, how are the cluster’s companies preparing for a similar situation in 2015?

A: They are more than preparing, they are investing, and they are trying to attract more business. Many of these companies work to order, so the arrival of new automotive assemblers will boost their sales. Additionally, many companies are bringing their R&D, design, and engineering departments to Monterrey, representing the next step for Mexico to be valued not only in manufacturing, but also in engineering and development. Navistar, for example, started an engineering group five years ago, and today they have 100 engineers designing trucks in the country. They now have an agreement with ITESM and they are planning to build a design and engineering facility. CLAUT is already formulating a plan to attract more of these companies, to offer them support, and to prepare the state’s engineers for their entry into this industry.