‘LIGHT’ STRATEGY EMPOWERS INDUSTRYSat, 09/01/2018 - 10:46
Q: How can Mexico grow its competitiveness in the automotive industry under new trade conditions with the US?
A: If NAFTA were canceled and we worked under WTO regulations, a 2.5 percent tariff in car and auto part production would not impact us as long as we remain competitive. The only real impact would be on pickup truck production, which would have a tariff of 25 percent. Furthermore, if stricter rules of origin led to tariffs higher than 3 percent thus threatening competitiveness, companies would only have to choose to operate under WTO standards to maintain solid operations.
Mexico’s participation in the industry will be founded on competitiveness. Our priorities should focus on market diversification and investing in the areas that are important to OEMs and suppliers in the country. Under this administration, Mexico has worked on implementing a “light” industrial policy where the government only intervenes in matters when the market demands it. Our focus has been on four pillars: generating world-class talent, promoting innovation, supporting supply chain development and creating synergies between clusters. Companies arriving to Mexico know the exporting opportunities they have thanks to Mexico’s free-trade network and with the newly signed CPTPP, the country has access to 11 new markets that open the door to Asia. However, we must ensure that investors find the right human capital, a strong supplier network and a solid logistics infrastructure to move their products. The lack of any of these three factors could endanger Mexico’s competitiveness, which is why clusters are so important to ensure supplier availability and talent development.
BMW, Mercedes-Benz, Toyota and several other OEMs have brought their operations to Mexico because they have found strong development opportunities. But, we must keep growing our capabilities for this investment to continue. The industry expects production of 5 million light vehicles by 2020 and exports of more than 3.8 million, so we will need ports capable of supporting this flow of products in and out of the country.
Q: What is the Ministry of Economy doing to incentivize the development of Mexican suppliers?
A: Since large companies have the resources to grow and insert themselves into the production chain, our main focus has been on SMEs. We launched the ProAuto program as a way to support companies to become part of the automotive production chain. However, this administration implemented a “precise-shot” strategy to give priority to companies that focused on areas of opportunity for the country. We no longer hold massive events hoping to find one or two suppliers to develop. Instead, we go directly to OEMs and large Tier 1 suppliers and ask them to identify potential local suppliers. With this list of candidates, we pinpoint what companies need to improve to become part of the production chain, whether it is certifications, equipment or production volume, and we work with Bancomext or CONACYT to support them. We have already approached FCA, GM, Bosch and Continental with this strategy and suppliers know they will get a contract once they finish with their improvement process.
Q: What opportunity does the government see in China to become a strong commercial ally in the automotive sector?
A: We are open to investment from any country. Some Chinese OEMs, as well as lighting and brake suppliers, have already established in the country. Their first priority is to target the domestic market but they are also using Mexico as a stepping stone to reach Latin America. We see China as an important trade ally, although we are aware that a new NAFTA agreement would give preference to North American production. Still, we must not close ourselves to regional production at the expense of companies’ competitiveness.
We have already organized some trade missions to China and we have a trade committee led by a businessman from Mexico and one from China. The committee works with ProMéxico to promote product exchange.
Q: What has been the biggest success of the current administration regarding the automotive industry?
A: Our biggest success has been defining the areas where we need to invest thus attracting more investment to the country. Mexico received significant investment in the automotive sector in past years but during this administration, many companies arrived to the country knowing they would find the right conditions to grow their investment. Our “light” industrial policy has been key to helping the industry without interfering in matters where we should not participate. We have built strong relationships with academic institutions to develop capable talent, we have spurred innovation and fostered an environment for R&D and engineering capabilities and we have laid the foundations for strong collaboration between companies, thus leading to successful clusters in the north and in the Bajio region.
Q: How important are technology implementation and Industry 4.0 trends for the Ministry of Economy?
A: If we do not develop the right talent to address these trends, supported by a strong network of R&D centers, eventually companies will find Mexico unsuitable for further investment. Technology is crucial for the national industry to keep evolving. We are pushing for the creation of a national artificial intelligence center to support not only automotive but all manufacturing sectors in the implementation of Big Data, robotics and all other trends involved in the Industry 4.0 concept. The future of the industry is based on artificial intelligence; it is the only way for cars to become autonomous and capable of interacting with other elements in a Smart City platform.
We are also trying to develop a national cybersecurity center to handle all digital transactions, monetary or otherwise, for all industries. As the market moves toward digitalization, it becomes essential to have something like this to protect our knowledge and investments.
Q: How much did the government advance toward its goal of incrementing R&D expenditure to 1 percent of GDP?
A: We are currently at 0.9 percent, which is certainly not in line with what we are trying to achieve as an industrial country. We started our participation in the industry as a low-cost manufacturer and gradually advanced to high- value operations. The next step for the country is to attract new investment focused on design, R&D and engineering, moving to the top tier of the manufacturing chain. Our goal is to design more cars and more auto parts locally and have more prototyping and testing centers but to do that, we need to invest in our talent and in supporting companies to engage in R&D activities.
We cannot neglect traditional manufacturing activities since they are a solid source of employment. However, we can gradually evolve to participate in higher-value and high- tech production. Moreover, it is far easier to retain foreign projects when the company has its design operations in Mexico rather than just component production.
Q: How is the Ministry of Economy supporting providers in the shift toward electrification?
A: As a country, we are fully committed to the Paris Agreement and our strategy to reduce polluting emissions. This involves not only manufacturing operations but also carbon emissions from the national vehicle park. The future is electric for the automotive sector and within our “precision- shot” strategy, we have opened a specific division for suppliers wanting to participate in the electrification trend. Soon, Mexico will start manufacturing electric light-vehicle models and that will force us to move ahead with supplier development strategies for these types of components.
Electrification will bring new business opportunities as demand for these vehicles grows and we must take advantage of our position as manufacturers to make the best of this new trend. As a government, we must be agile enough to support this transformation and integrate more suppliers to the production chain.
Q: What would you like to achieve before the end of the current administration?
A: We want to consolidate our “light” industrial policy so the next administration understands very clearly why we chose it and why the ministry should continue implementing it. There might be small variations but the strategy’s goals and priorities should remain unchanged. At the same time, we have specific agendas for each sector with technical specifications regarding short-term, mid-term and long- term plans. We are updating all of them so the new government understands the strengths and weaknesses in each industry and how upcoming projects will impact their development. The ministry only acts as an enabler of public policies and the new administration must understand that investors are the ones who know what is best for the industry and its growth.
The new government should be aware that our trade openness and our focus on generating world-class talent, promoting innovation, supporting supply chain development and creating synergies between clusters have been the main attraction for foreign investment. Similarly, the country should keep investing and be aware of the impact that Industry 4.0 trends will have in the evolution of the industry.