Labor Force Availability and R&D the Deal with BMW

San Luis Potosi is at the center of the growing automotive industry in the Bajio region and saw its neighboring states announce various large OEM investments over the past years. Fernando Macías Morales, Secretary of Economic Development of San Luis Potosi, explains that his state has focused on strengthening the region as an automotive center rather than competing head on with other states to attract high profile OEM investments. “It is better to be a central state in the best automotive region, than an isolated state that excels at attracting flagship investments,” says Macías Morales. Nevertheless, the announcement of BMW’s decision to build a new plant in the state was received with great pride by Fernando Toranzo Fernández, Governor of San Luis Potosi. The ceremony was held at at Los Pinos and attended by President Enrique Peña Nieto, Minister of Economy Ildefonso Guajardo Villarreal, and Harald Krüger, a member of the BMW AG Board of Management. Following the announcement of BMW’s new plant, San Luis Potosi will hosts two OEMs, GM has been operating an assembly plant since 2008, creating an opportunity to develop a comprehensive supplier base to supply the local OEMs and possibly to supply activities in other states, as well as developing Tier 2 and Tier 3 companies.

After a lengthy site selection process, BMW decided to locate its plant in San Luis Potosi based on the proximity of a city providing a high quality of life and healthcare facilities for the labor force, appropriate energy, water and logistics infrastructure, the presence of a strong supplier base within a range of 250km, access to more than 70 million consumers in a 500km radius, and the availability of a skilled labor force. Having an industrial history and an active automotive industry base for over 50 years, the San Luis Potosi workforce is highly skilled, while a nonaggression agreement with the labor unions in the state has ensured a peaceful and strike-free environment since 2005.

The state’s Research & Development (R&D) plan has also been an attraction, with Macías citing a new tool and die project as an example. This is aimed at bringing a large injection molding toolmaker and a stamping toolmaker into the state and to develop a technical school oriented toward these processes. Through this R&D project and collaboration with various educational institutions, Macias hopes to develop a plan for the next ten or 15 years for the automotive industry. San Luis Potosi is also investing in tool-making activities, for which there is considerable demand in Mexico. Companies such as 3M and A. Schulman have R&D centers in the state, and air conditioning companies like Daikin have shown interest in building their R&D facilities there.

The metropolitan area of San Luis Potosi has a population of 1.2 million people and an unemployment rate of 5.7% of the entire economically active population. In 2015, approximately 11,500 new graduates will enter the labor market, of which 3,000 or 4,000 have an engineering background, while 2,400 migrants from other states and other cities are expected to come to San Luis Potosi in search of work. Macías Morales estimates that 1,800 people will be retiring during the same period and 5,000 jobs are expected to be created in the industry, leaving a total of 7,000 people still looking for a job. BMW’s plant is expected to create 1,500 direct jobs and GM has announced an increase in production at its assembly plant, presenting opportunities for both jobseekers and manufacturers to support each other. Given the labor availability, the Ministry of Economic Development is certain that San Luis Potosi is poised to attract more investments and expansions from local companies.

Macías Morales explains that one of the main reasons for successfully convincing BMW was that state representatives were able to say no when they could not commit. “Trust is pivotal to professional relationships and Governor Fernando Toranzo Fernández was able to be open and honest about areas that would need to be improved, and had the courage to say no to requests that were not realistic, which was taken positively by the company,” says Macías Morales. “BMW saw an honest government with limitations, but also one that could make a good business case.”