News Article

Challenges and Opportunities for Small Mexican Suppliers

Wed, 09/12/2018 - 11:19

While there is still no final Mexico-US trade text from which to work with or prepare for new changes, the fact that a greater regional content will be required opens opportunities for both Mexican Tier 2 suppliers and foreign Tier 1s in the country, Daniel Hernández, Director General of the Queretaro Automotive Cluster, said at Mexico Automotive Summit 2018 said on Wednesday at the Hotel Sheraton María Isabel in Mexico City.

“With stricter rules of origin, the auto parts sector offers new opportunities for Tier 1s to bring more Tier 2s into the supply chain,” says Hernández. He underlined that around 70 percent of all Tier 2 companies in Queretaro are Mexican compared to only a handful of Mexican Tier 1 suppliers. “This is the segment where companies have the greatest opportunity for growth and to learn more about the industry.”

Adding more Mexican companies to supplier bases can have a positive impact on a company’s performance but there are a series of challenges that suppliers face to add value to their clients’ operations, panelists discussing “Introducing New Members to the Local Supply Chain” agreed.

Alejandro Veraza, Managing Country Director of TI Automotive, said that while Mexican suppliers will face challenges brought by the US-Mexico deal, the moment had come for Mexico to prove the quality of its human talent. “Automation is sometimes needed due to safety or production needs,” he said. “But we need to take advantage of the human talent that we have and develop it.” He added that Mexican talent, from operators to managers, offer not only innovation but also stand out for their sense of responsibility.

“Compared to German or US workers, Mexicans still have a great hunger for growth,” said Manuel Guevara, General Manager of Brose México’s Queretaro – El Marqués Plant. Brose is a good example of German capital finding success by trusting in Mexico, he said, point out that the company went from seven to 65 assembly facilities in the last 15 years and that the Mexico supply chain was key in this process. “Having local suppliers is vital for the healthy growth of the automotive industry,” Guevara said. “If we do not support our suppliers, we will disappear over time when the need for technology is there and we are not ready.”

According to Argenis Bauza, Head of Supply Chain LatAm Hub, KPMG in Mexico, OEMs and Tier 1s will generally ask for four things from small, local players: quality, solid processes, technology and human resources that can support clients. “Mexican companies need to have a B2B mentality to solve business problems easily,” says Bauza. “We need to prepare to take advantage of the new NAFTA.” He added that Mexican suppliers “need to be more intelligent and adapt to the new business environment resulting from the trade deal to truly leverage it.” While there are many ways for a Tier 1 or OEM to support suppliers, including with financing, “supplier development is a two-way street for growth,” he Bauza.

In terms of financing, Luis Fernando Mendoza, Regional Product Head of Latin America Global Trade & Receivables Finance (GTRF) at HSBC Mexico, said new financial products such as factoring have had a significant impact on the integration of local suppliers into the automotive value chain. “Factoring both for clients and suppliers is the new trend in the Mexican automotive industry,” he said. “Globally, financing for the supply chain has grown the fastest in Mexico.” Mendoza added that around 27,000 companies were already using the company’s factoring solutions but that there was still a great deal of room for growth in the segment.

Heberto Moreno, Business Director of BASF’s Performance Materials Division in Mexico, Central America and Caribbean, said that despite the challenges that lie ahead, the evolution of the automotive industry is backed by support industries such as coatings. “Many companies started small and evolved as the automotive industry grew and Mexican suppliers can now more effectively integrate,” he said. Moreno added that the future of the Mexican automotive industry is in engaging in design operations in Mexico.

Among the companies already investing in this area is Brose, which recently invested to set up an engineering center within a university in Queretaro. Guevara said this enables the company to capture the ideas and talent that young people can offer. “Mexico needs to take the next step from only engaging in manufacturing to also creating technology,” he said.