Manuel Montoya
President
CLAUT
/
Insight

Nuevo Leon Cluster Predicts Continued Pride of Place

Mon, 09/01/2014 - 12:31

The creation of CLAUT, Nuevo Leon’s automotive cluster, was directly spurred by automotive investment in the north of Mexico, even when it started in other states. Manuel Montoya, President of CLAUT, explains that the entire industry received a massive boost in the 1980s when GM and Chrysler established plants in Saltillo, Coahuila, soon to be followed by their Tier 1 suppliers. A surge of joint ventures took place, such as between the locally based Grupo ALFA and Ford, which resulted in the creation of Nemak. After waves of investment to Coahuila and beyond resulting in growing expertise and a skilled labor force, the official automotive cluster, CLAUT, was established in 2007, making it the oldest industry cluster in Mexico. CLAUT came about largely as a result of US companies realizing they could not remain competitive while manufacturing in the US or Canada. Navistar closed a factory in Canada right after the start of the financial crisis, followed in 2012 by the closure of their Texas plant. This has led to 75% of the company’s production taking place in Nuevo Leon today, leaving just 25% in the US. Another example is Freightliner that established operations in Saltillo four years ago, with its Mexico factory now standing as the biggest truck manufacturing plant in North America.

While Coahuila and Nuevo Leon helped each other rise in the north, some in those states and beyond see the new wave of investment happening in the Bajío region as a threat. Montoya says that CLAUT has benefited, not suffered, from this trend as investment has continued to come its way. For example, Nemak will produce the engine blocks for the Audi plant in Puebla. “We do not compete with other clusters. On the contrary, we sell to them or buy from them as we focus on different segments of the automotive industry. Furthermore, we should help to develop the national companies through a collaborative initiative. Business is growing so we should all take advantage of that,” says Montoya. “The Nuevo Leon region is home to a good base of technicians as a result of the strength of its steel, food, aerospace, and white goods sectors. 2,600 foreign companies are established in Monterrey, which has led to a developed supplier base filled with expertise. For example, Mexico has a dearth of Tier 2 suppliers but many of those that exist are in Nuevo Leon. Stamping, plastic injection, and forging amongst other areas are all fields at which we excel,” says Montoya. A 2012 national study identified 160 Tier 2 companies in the country, 70 of which were focused on the automotive industry. Out of those companies, half were part of CLAUT, including those working on the latest automotive technology and R&D.

CLAUT has a very close relationship with CONACYT, presenting about 15 technical projects a year from various companies. Moreover, the cluster has received a lot of support from the Ministry of Economy, which has stated CLAUT’s projects benefit the entire industry. Through the Program for the Development of Industries with High Technology (PRODIAT), the government and clusters like CLAUT are aiming to bridge economic gaps that exist in industries like automotive. “We work directly with the government to establish the correct public policy that will enable the industry to prosper,” says Montoya. The first point on PRODIAT’s agenda is to strengthen training programs. Although Nuevo Leon is home to some of the best higher education institutes in the country, including a number of government-sponsored technical schools, companies have complained that students often graduate with only superficial knowledge about industry requirements. Therefore, CLAUT has begun collaboration with educational bodies to better identify the skills needed by the industry. “It is true that the industry has grown exponentially over the past few decades, but now we find ourselves at a bottleneck for trained technicians and skilled engineers. It is expensive for a company to train all of their incoming employees, as it is to poach already trained employees of established companies. We need to facilitate this,” says Montoya.

Boosting the local supplier base in order to increase local content levels is another important role of the cluster. OEMs in the region say 80-85% of materials are sourced in Mexico, but there is still room to grow. “A large part of this percentage comes from foreign companies based in Mexico, so CLAUT’s mission is to increase local content from local suppliers. The maquiladora concept does not make sense in Mexico anymore as it does not produce wealth for the region.” For this reason, the cluster aims to support companies at the Tier 2 level to develop and grow. The final goal is to make the industry more integrated to support the development of high-technology production. “Many international companies have realized that our engineers are good. Moreover, Mexico has a big supply of them compared to other countries, even the likes of Germany. This will enable us to move towards more R&D being conducted here,” says Montoya. He adds that the region’s success in terms of technological development is simply a natural progression. “Monterrey is no longer as cheap as other parts of the country. If a company is looking to put labor-intensive operations in place, Monterrey is not the most cost-effective location. However, for an operation with machining, foundering, and stamping, Monterrey is optimal,” explains Montoya. This sentiment is supported by the fact that a number of companies have already set up R&D centers in the region. “Navistar started an engineering center in 2012, and they already have 100 engineers designing trucks here. Yazaki has also established an engineering center. These companies no longer see Nuevo Leon as just a place for manufacturing,” adds Montoya.

Growth is expected to continue in the region that CLAUT covers, projecting 30% growth for the next three years. “We have already grown 100% since the economic crisis. Before the crisis, Mexico produced 2 million cars, which fell to 1.5 million. Today, we are producing almost 3 million cars and by 2017, that number will reach 4 million. As we are a region of important suppliers, this million vehicle increase means a significantly larger market for CLAUT and its members,” says Montoya.