Federico Delgado
Senior Director of Global Banking
HSBC México

Invest in Skilled, Local Suppliers

Thu, 09/01/2016 - 16:14

The automotive industry is a key global driver of investment and development. As in many countries, the sector accounts for a good portion of Mexico’s GDP. The growth of the industry here can be attributed in great part to free trade agreements (FTAs). HSBC believes in the benefits of international commerce and FTAs. NAFTA created opportunities for Mexico to convert its domestic-based economy and make it export oriented. The Trans-Pacific Partnership (TPP) deal also offers clear benefits to Mexico. It will bring in more foreign investment and will unlock Asian markets, allowing us to diversify our exports.

Despite high growth rates in recent years, the automotive sector still has room to boost regional economies. While foreign companies dominate the segment, Mexican companies play a vital role in the supply chain, even if it is tough for local companies to compete with global OEMs and Tier 1 and Tier 2 corporations on technology and prices.

The investments made by major OEMs is clear proof of the competitiveness of the Mexican industry. This reflects trust in our country, paves the way for further growth and cements our global position as a car manufacturer and exporter. Mexico is the seventh largest automotive producer in the world, manufacturing approximately 3.4 million units in 2015, of which 2.7 million were destined for export.

Production costs give us an additional advantage. A weaker peso translates into more competitive exports, wages and salaries. At the current exchange rate, in real dollar terms Mexican wages are lower than Chinese wages, which is helping our competitiveness in the global market. The government’s structural reforms also are allowing access to cheaper raw materials and the economic stability we enjoy is attracting important foreign investment. To reap further benefits, Mexico must quickly increase the skill level of its workforce, create more talent and apply their expertise to the manufacturing industry in general. We need to leave behind the cheap labor approach of IMMEX and convert our manufacturing industry into a producer of finished goods with added value. That is our main challenge.

Mexico is world renowned for its efficiency in manufacturing processes but it has an important opportunity in R&D. Some companies are establishing R&D facilities here but are facing several hurdles, especially in hiring qualified engineers, who are in great demand in several industries besides automotive. Although some regions such as the northeast have very good educational facilities, we should be developing skilled labor specifically for R&D centers. Internal training programs at companies are great options but skilled engineers move on quickly, making companies wary to implement these programs. The optimal approach for encouraging R&D is to create global programs, as markets around the world are driven by technology and efficiency.

Attracting a significant number of international businesses to Mexico is part of the country’s strategy to become a global competitor. We need Foreign Direct Investment (FDI) in R&D and the resulting knowledge and opportunities that arise from FDI. Developing domestic suppliers is a second logical step but this can take a significant amount of time. Unfortunately, local companies are usually limited in what they can offer because they do not have access to advanced technology. HSBC is assisting local companies to evolve in the automotive sector and to increase their market competitiveness. The company is focused on supporting our customers by bringing our international connectivity to Mexico and the NAFTA region. Our objective is to become the world’s leading international bank by serving our customers with a forward-looking vision and ensuring local investments are consistent with those in the US and Canada.