Manuel Montoya
Director of the Automotive Cluster of Nuevo Leon (CLAUT)
Automotive Cluster of Nuevo Leon (CLAUT)
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Insight

Cheap Labor Not Mexico's Only Virtue

Sat, 09/01/2018 - 12:37

It is no secret that competitive labor costs are one of the main advantages that attract foreign automotive companies to Mexico. So why would companies set up shop and stay in Nuevo Leon, where labor costs are higher than the national average?
Manuel Montoya, Director of the Automotive Cluster of Nuevo Leon (CLAUT), says regions are more or less attractive to an investor depending on the kind of operations they will carry out and the level of labor sophistication they need. “Certain processes need specialized talent that can be more easily found in Monterrey,” Montoya points out. The region’s appeal is not to be found in labor costs as much as in the capabilities of the workforce.
Availability of universities and technical training schools producing engineers and technicians, industrial parks, services-oriented infrastructure and a strong supplier base have also made Nuevo Leon a preferred automotive destination. This, however, does not mean that the region is free of challenges when looking forward. CLAUT is in charge of identifying the problems the supply chain suffers and addressing them by attracting companies to collaborate with one another.
Kia’s new operations in Pesqueria, for example, have changed the automotive game in Nuevo Leon. Montoya says the OEM, which produced its 300,000th unit only 18 months after starting operations, brought along a flood of investment from Korean suppliers. “These companies are new sources of jobs and they also mean great opportunities for local Tier 2 suppliers to grow,” says Montoya. However, several challenges must be overcome before local companies can take advantage of these opportunities. “The automotive industry is demanding in general but Korean companies are even more so,” Montoya says. “Companies wanting to supply Kia will have to be stricter in areas such as costs, deliveries and operating times.”
The high percentage of imported Korean content that Kia uses is one of the main challenges for the region’s development, according to Montoya. “We are used to the US and Japanese workstyles but local suppliers are not yet fully acquainted with the specific requirements that Korean companies are bringing.”
Montoya expects Korean Tier 1s will soon integrate more local content, possibly in two years as the company begins production of new models. “In its first production stages, Kia strived for production stabilization,” he says. “The next step will integrate more local suppliers and this evolution will continue step-by-step.” Montoya is optimistic regarding the opportunities of the local supply chain and he points out that some CLAUT members have already reached a 40-percent rate of national content integration.
CLAUT’s objective is to strengthen the local supply chain to anchor new investments in the region. “One of our goals is to attract engineering and design operations to integrate manufacturing with these processes,” Montoya says. “There is a far-reaching industry and a culture of industrial work at all levels that make Nuevo Leon attractive for companies to invest in sophisticated processes.”
The cluster is already working on its attraction strategy and part of that involved establishing the Automotive Center for Technological and Talent Development (DRIVEN). “We offer a master’s in automotive science where students can also practice in real-industry cases,” says Montoya. At the same time, CLAUT is encouraging its members to bring engineering operations to the country.  Navistar is among those that has already complied and now the OEM has a team focused on design and engineering in Monterrey. Montoya says CLAUT is also in the process of launching a tooling cluster, which is one of the main areas of opportunity not only in Nuevo Leon but in the country. According to Montoya, Mexico imports over US$2 billion in tooling components and there are no local companies that can repair these thus harming competitiveness. “We are setting the stage for a tooling industry to bloom in the region by training tool-making and cast-molding technicians and design engineers,” says Montoya.