Image credits: Continental
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Analysis

From Automotive Manufacturing to Mind-Facturing

By Antonio Gozain | Fri, 09/23/2022 - 09:00

Although Mexico has historically been a promise land for manufacturing and maquila operations, companies across all industries, including the automotive sector, are getting more interested in the country’s potential for R&D and engineering operations and are starting to invest accordingly. However, several indicators show that much work by the government, academia and private sector remains to be done for Mexico to move from a manufacturing to a mind-facturing approach.

R&D operations enhance industrial activities and are an important driver of economic growth, according to UNESCO. Studies have found that every dollar invested in R&D generates nearly two dollars in return, according to the organization. As of 2021, global spending on R&D has reached a record high of US$1.7 trillion, according to UNESCO’s Institute of Statistics (UIS). Ten countries account for 80 percent of the total spending and as part of the UN’s Sustainable Development Goals, countries have pledged to substantially increase public and private R&D spending, as well as their number of researchers by 2030.

Successful R&D efforts involve, at least, three major players under what is known as the “triple-helix scheme:” the private sector, the academia and the public sector. These sectors work together on a common project that results in the creation of jobs, talent development and sustainable development for the region in which the initiative takes place. Several additional helixes can be added to the model, said to MBN Alejandro Arredondo, Managing Director, Bajio Aerospace Cluster. Society or “the public” must be added as a fourth helix for a successful model, say Leydesdorff and Etzkowitz (2003).

Clusters can also become part of the R&D model. “(We) have the objective of increasing collaboration between companies and institutions, generally bringing together a group of industries and companies including suppliers, distribution channels and services,” wrote for MBN Pedro García González, President, Industrial Cluster of Aguascalientes. This cluster has the peculiarity of representing several industries, including automotive, aerospace, biomedical, logistics, IT and innovation.

Balancing R&D Investment

R&D investment can be measured in terms of GDP and purchasing power parity (PPP$), which uses the prices of specific goods to compare the absolute purchasing power of the countries’ currencies and their people’s living standards.

In terms of purchasing power parity, the US is in the lead with a yearly R&D investment of PPP$476.45 billion, followed by China with a US$346.26 billion investment in PPP$. Japan occupies the third place, with a US$169.55 billion yearly spending, according to UNESCO’s latest data. Another important measurement is the researchers per million inhabitants. In this regard, Denmark leads the way, with 7,310, despite a US$7.87 billion yearly spending in PPP$. However, the Japan and the US also make the top 20 in researchers per million inhabitants, with 5,328 and 4,205, respectively.

Regarding the countries’ expenditure in terms of their GDP, Korea has the global lead, with a 4.1 percent R&D spending of its total GDP, US$73 billion in PPP$ and 6,826 researchers per million inhabitants. Japan occupies the second place, with a 3.4 percent R&D spending of its total GDP, followed by Switzerland, Finland, Austria, Denmark, Germany, the US, Belgium, France and Australia. The US’s R&D spending as a percentage of the GDP is 2.7 percent.

According to this data, Mexico stands far away from the leading countries when it comes to relative R&D expenditure as a percentage of GDP, with 0.4 percent and with only 260 researchers per million inhabitants. The first exit may seem to be blaming the public sector, however a common denominator in all of the leading R&D countries is the balance between business, government and universities expenditure, in which top-20 countries are close to an 80-percent participation of the private sector in the total investment. In Mexico, from the total R&D spending in PPP$, universities invest US$4.6 billion (48 percent), the government US$3.05 billion (32 percent) and the private sector US$1.69 billion (18 percent), with a small margin corresponding to private non-profit investment.

In Korea, for instance, the private sector is responsible for 78 percent of the total R&D investment in PPP$, while the government and universities spend 11 percent and 9 percent, respectively. The private sector leads the R&D investment among all leading countries, such as Japan (77 percent), the US (71 percent), Germany (68 percent), Switzerland (71 percent), China (77 percent), Sweden (67 percent), the UK (65 percent), and-so-forth.

When it comes to Latin America, Brazil leads the way, with US$40.5 billion R&D spending in PPP$, making up a 1.3 percent of the total GDP and with 887 researchers per million inhabitants. Argentina is below Mexico in terms of R&D spending in PPP$, with US$.498 billion. However, this makes up 0.6 percent of the total GDP, with 1,206 researchers per million inhabitants. In Argentina, the government participates in 47 percent of the total R&D investment, universities in 30 percent and the private sector in 20 percent. Other countries, such as Costa Rica, Chile and Ecuador, have a more balanced investment between the three helices, with the private sector slightly leading the way.

Making a crude algebraic exercise, if private investment in R&D in Mexico was multiplied by a factor of 3.5, leaving the current governmental and university participation, the country would be placed at the level of countries such as France. However, attracting private R&D investment is not that easy and it demands long-term policies and deep collaboration between all involved helixes.

Attracting Private R&D Investment

One first step to attract more R&D investment could be to look at success cases in Mexico and analyze what factors led to their positive performance. In May 2018, the German multinational automotive company Continental inaugurated its R&D center in Queretaro, with an initial US$53 million investment. At this center, the company develops mobility, vehicle autonomy, safety and connectivity solutions, meeting Continental AG’s global targets.

“Queretaro’s strength is its education system. We have equipped technical and technological universities in the state, including Universidad Politécnica de Querétaro (UPQ), Universidad Tecnológica de Querétaro (UTEQ) and Universidad Tecnológica de San Juan del Río (UTSJR). UPQ, for example, has all the equipment students need to participate in dual education programs and provides students with access to automotive companies’ tests, laboratories and workshops,” said to MBN Marco Antonio Del Prete Tercero, Minister, Sustainable Development  of Queretaro (SEDESU).

Collaboration between helixes remains crucial for an environment of legal certainty and openness to investment. In Queretaro, SEDESU inaugurated a test track alongside the state’s automotive cluster and the Mexican Institute for Transportation (IMT), available to any interested party that wants to put technologies, vehicles and autonomous mobility platforms to the test, added Del Prete Tercero. “IMT’s test track was a direct investment from the state government to benefit the sector,” he said. The state has also attracted companies to innovate in the automotive industry, such as Continental Automotive, which is developing sensors for autonomous vehicles in the state in a smart cities’ environment. Harman and Visteon, on the other hand, are also designing infotainment clusters in the state.

Recently, German auto parts giant ZF Group started building a new R&D center in Monterrey, Nuevo Leon, for the development and production of electronic products, advanced driving assistance systems and other technologies that will lead the company toward autonomous driving and electrification, as reported by MBN. The project will be essential to develop the new generation of mobility projects for the company’s five global divisions.

Talent: Decisive Factor for R&D Investment

The availability of skilled people is a major factor for influencing business investment in R&D, according to the UK’s Royal Academy of Engineering. Attracting R&D staff, however, is particularly difficult for small companies that compete with large corporations offering greater salaries, benefits and security. Initiatives to encourage more graduates to consider careers in small companies could be explored, states the UK Royal Academy of Engineering. These could include greater support for SMEs to create student programs and internships, increasing CASE studentships in SMEs or generating greater visibility of SMEs at graduate career events.

The talent shortage in STEM careers is a global phenomenon. Less than 30 percent of students globally choose STEM careers, while these careers will demand the most talent in the next five years, wrote for MBN Santiago Gutiérrez, Vice President of English Language Learning, Pearson. In Latin America, the situation is not easier. Page Group estimates that there is a 48-percent deficit of professionals who can work in the digital field in the region.

While some companies have decided to reskill their talent as the main strategy to fight this shortage, developing more Mexican STEM talent would certainly attract private R&D to the country. Government and academia could work together to stimulate scientific, technical and digital knowledge from the earliest school stage, wrote Gutiérrez. In addition, more scholarships could be offered for STEM careers, including those specifically related to the automotive or aerospace sectors in key states, such as the Bajio region and the northern part of Mexico.

R&D spurs productivity growth and regional development. In Mexico, this investment could be channeled to the development of solutions to national problems, such as the large-scale implementation of alternative energy sources, mining innovations, aerospace R&D, among others. The automotive industry, which has a long tradition in the country, is going through one of the biggest transformations in its history and Mexico could leverage its deep experience in the sector to jump into greater innovation if key players collaborate and the correct strategies are implemented. Current and future R&D topics within the automotive sector include urban mobility and transportation, electrification, alternative fuels, safety applications, autonomy, efficient manufacturing and material technology, which in itself includes several disruptive trends, such as additive manufacturing, new plastics and nanotechnology.

“While the automotive industry is important to Mexico, it heavily focuses on manufacturing. In the long term, manufacturing will not necessarily bring added value to the country. Our design center has the necessary talent to add much more value and develop state-of-the-art technology,” said to MBN David Pineda Deom, Head of R&D Queretaro and ADAS Mexico, Continental.

The data used in this article was sourced from:  
MBN, UNESCO, SEDESU, UK Royal Academy of Engineering, Pearson
Photo by:   Continental
Antonio Gozain Antonio Gozain Journalist and Industry Analyst