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Analysis

R&D Remains Mexico's Achilles' Heel

Fri, 09/01/2017 - 14:44

The country has moved forward at tremendous speed in the automotive world but the Achilles' heel of the Mexican industry remains a lack of R&D and engineering activities. Yet, there is hope for the country as more companies start betting on Mexico to participate in advanced manufacturing and engineering operations.

Technological trends could be highlighted as the main drivers pushing the industry forward. In manufacturing, Industry 4.0 (or the internet of Things, depending on the region) is taking companies by storm. As companies try to make processes more efficient by combining automation solutions with data collection and connectivity features, the industry is becoming much more integrated among clients and within companies themselves. “Companies are constantly trying to gain competitive advantages over their counterparts and Industry 4.0 is the next technological surge that will accomplish this,” says Bernd Noack, General Manager of FESTO.

Electrification and the boom in self-driving initiatives are also transforming the traditional business model of automakers and suppliers alike. The increased importance of sustainable and integrated mobility has fueled these two technological trends. Yet, Mexico’s participation in these trends is still limited. “The ‘Made in Mexico’ brand is excellent but we need to start working on the ‘Thought in Mexico’ approach,” says Guillermo Bilbao, Director General Mexico of PA Consulting. Two main factors are holding the Mexican industry back: its international image and the expertise of its talent pool. Rafael Funes, Executive Chairman of LOVIS Holdings says, “Mexico is well-branded as a manufacturing country but not as an R&D and engineering center.” René Schlegel, President of Robert Bosch México, agrees, adding: “As development activities were practically nonexistent in the ‘90s in Mexico, there are almost no individuals with years of experience in these areas.”

Most R&D efforts in Mexico originated in the private sector, as companies sought shorter response times, particularly in redesign and tropicalization activities. Companies like Ford and FCA established engineering facilities in the country and eventually suppliers caught up with this trend, including players such as Bosch and Continental. These facilities also helped companies narrow the gap between industry and academia. One flagship example of this collaboration is the Nissan School program in Aguascalientes which, according to Mayra González, President and Director General of Nissan Mexicana, “has become an aspirational institution because it helps students develop the necessary practical knowledge to fill jobs at Nissan and its partners.”

President Enrique Peña Nieto has declared that by the end of his administration, expenditure in R&D activities in Mexico would represent 1 percent of the national GDP. However, that number is barely above 0.5 percent. Additionally, CONACYT enforced budget cuts at the beginning of 2016 of more than MX$500 million (US$25 million). With barely a year to go till the end of Peña Nieto’s administration, it seems unlikely the country will reach its 1 percent target.

Looking at Mexico’s position in terms of education and 169 technological development, there is still considerable room
for improvement as well. According to the World Economic Forum’s Global Competitiveness Index 2015-2016, Mexico is ranked 86 out of 140 in higher education and training, 73 in technological readiness, 50 in business sophistication and 59 in innovation. However, according to that same index, the country is transitioning from an efficiency-driven economy to an innovation-driven economy. Mexico Automotive Review 2017 has also found worries among most industry executives who think that the current educational plans do not cover topics oriented to the needs of the industry. Out of 184 executives surveyed, only 26 percent consider academic programs sufficient for the development of automotive operations.

The country, however, seems to be moving toward an R&D future. Marcos Pérez, Director of Product Development at Ford de México, issued a statement in January 2017 saying Mexico has the advantage of being three times cheaper than the US or Germany in technology-development processes. Nisssan’s González also showcases the participation of Mexican engineers in the development of Nissan’s products for the international market. “Our local engineers were responsible for ensuring the Nissan Kicks’ quality and implementing all the necessary modifications and improvements to the original design", she says.