Kazuyoshi Higuchi
President
Sumitomo Corporation México
/
View from the Top

Global Leader Shores Up Mexican Automotive Pyramid

Mon, 09/01/2014 - 10:47

Q: How has Sumitomo positioned itself in the Mexican market?

A: The industries we operate in are determined by marketplace demand. We fulfill requests from our customers to search for raw materials, analyze marketability, introduce new products, and determine future demands. We can also help customers develop local partnerships and assist with their introduction into countries they are not familiar with. Sumitomo Corporation always looks for synergies and ways to strengthen value chains in all its sectors. We export local products to Japan and other countries when a demand exists such as mineral resources and foodstuffs, while we also provide services that include logistics, credit and finance. Sumitomo Corporation de México was fully founded in 1971, after first being established as a liaison office in 1954. We now count with 24 companies in Mexico, of which 16 are in the automotive sector, which is our number one industry here. The automotive sector in Mexico is well-developed, but we are trying to anticipate changes to the manufacturing industry surrounding it by working with well-suited strategic partners.

We have almost completed a supply chain pyramid in the automotive sector. Its base is formed by the supply of raw materials and moves up to Tier 2, Tier 1, and finally to OEM vehicle assembly. The weakest link is the Tier 2 section, which must have sophisticated production technology to maintain quality. This is very difficult to find in Mexican companies due to limited expertise and resources. An option would be for Japanese companies to become Tier 2 suppliers that support the Mexican Tier 1 segment. However, Sumitomo’s main investments up to now have been in the Tier 1 companies. This is largely due to the Honda and Mazda investments in 2011, which pulled more than 100 Japanese supplier companies into the country at both the Tier 1 and 2 levels. One reason why Japanese companies are so successful is that they have good customers that pull them along when they enter new markets.

Q: What have been your main automotive investments, and to what extent is Sumitomo involved in the entire supply chain process?

A: In 1985, we gained our first automotive venture in Mexico when Ford Motor Company decided to open a new plant in Hermosillo. Sumitomo joined Ford’s task force with the setup of a new plant and the local supply chain. Then in 1990, when Nissan announced its plant in Aguascalientes, Sumitomo supported Nissan to set up its local supply chain. After this Nissan venture, we worked for Volkswagen and GM on several projects in the country. During this time, we determined that there was a need for a suitable supplier for stamping and the assembling of closure panels. As such, we approached Hirotec in Japan to invest in Mexico in collaboration with Sumitomo in order to support GM’s operations. Since then, we have invested in manufacturing for small to medium-sized stamping parts including chassis parts, iron-cast brake discs/drums, aluminum die casted parts, steel sheet slit/ blank operations, a window regulator assembly, PCB assembly, ceramic products, and engine components. Finally, we have invested in a vehicle assembly plant with Mazda in Salamanca. The automotive industry is like an hour glass with the OEM in the center and an upstream and downstream. We still do not have much in the downstream, but we do have a subsidiary company, TBC Mexico, which is a distributor of replacement tires. In other countries, we have distribution, dealerships, retail financing, insurance and auto leasing. Perhaps the next target for us to study will be how to expand our downstream investment in Mexico.

Q: How do you see Mexican suppliers developing?

A: When we entered into our initial project with Ford, many local Mexican companies were present in the market. However, soon after that, American Tier 1s began buying up Mexican companies as they aimed to become global suppliers. Now, we are left with a small number of Mexican Tier 1s so for local companies, entering this business now is very difficult. The current major Mexican Tier 1s have investments in the US, China, India and Europe and will continue to grow. Meanwhile, local small and mediumsized Tier 1s will have to enter into alliances with foreign companies to survive. They can also learn how to do business with Japanese OEMs in Mexico in order to strengthen their capability.