News Article

Regionalization Is the Name of the Game

By Alejandro Enríquez | Wed, 10/07/2020 - 12:07

USMCA's rules of origin and the pandemic have been catalyzers for global players to conduct nearshoring practices across the supply chain. Mexico has naturally become a preferred destination for relocations, expansions and new ventures. Industry leaders addressed this phenomenon during the webinar, “Supply Chain Relocation and Development in North America,” hosted by Mexico Business News and sponsored by Iberdrola and American Indusries. Industry leaders from Brose, Zacua, American Industries and KPMG discussed OEMs and Tier 1’s efforts to expand and relocate their operations and the advantages Mexico presents.

“Regionalization will occur at a faster pace in this decade than in the previous one. From our automotive global executive survey, industry leaders believe that within the next 10 years, less than 5 percent of the total production is going to be located in Europe. From 2010 to 2019, the share of global car production decreased from 18 to 15 percent in Europe and today is around 14 percent. We are going to decrease that to 5 percent,” said Oscar Silva, Leader Partner Global Strategy Group of KPMG.

“Entire industries are transforming their supply chain, making them more resilient, particularly this year with the events related to the pandemic originated in China,” said Alejandro Lara, Board Director of American Industries.

Over the last decade, the automotive industry in Mexico benefited greatly from relocation practices. Over a 10-year period, Kia, Toyota, Audi, Mazda, BMW, JAC and Fiat – thanks to the creation of FCA group in 2014 – arrived in the country with a long line of suppliers behind them. Vehicle production grew by 66 percent between 2010 and 2019 to reach 3.75 million units in 2019, while exports grew 188.4 percent in value to reach US$11.8 billion as of December 2019.

Brose was one of the companies that chose to expand operations in the country over the last decade and due to the ongoing circumstances, it is looking forward to do so again. “After Brose decided to invest its first plant in Mexico, we have now three additional facilities, two in Queretaro and one in Puebla,” said Manuel Guevera, General Manager at Brose El Marques Queretaro Plant, the first plant of the German supplier to be established in Mexico.

Zacua, the first Mexican brand of electric vehicles, also points out the importance of technology transfer to increase Mexican capabilities. “Despite Mexico being really well-known in ICE production, the country is relatively new in terms of electromobility. We are transferring our R&D operations to China to develop the technology the Mexican market needs,” said Nazareth Black, CEO of Zacua and one of the Top 8 female leaders in the automotive sector and Top 200 in the Latin American region.

KPMG is certain that should a second wave of investments take place in Mexico, Tier 2 companies will be the primary focus. “We are seeing a lot of renewed interest in relocating from China, Europe and US to Mexico. Ten years ago, a lot of suppliers came following the OEMs and we believe there is going to be another wave focused on Tier 1 and Tier 2, which we need a lot as we are lacking that strength in the Tier 2 segment,” he said.

Black highlighted the role and opportunities for local suppliers. “Mexico has talent and we know how to work. Zacua is the proof that we can transfer technologies, through Mexican talent, for other companies to take part in development. The first element is to take the risk, understanding our capabilities. We need to build all the elements needed for Mexico to transfer its capabilities toward electric vehicle technology through strategic partnership,” she said.

Brose acknowledges that relationships with OEMs are essential for suppliers to come to the country. “OEMs strategies and our alliances with them are needed for suppliers to keep our leadership in the market,” he said. During the webinar, Guevara announced that Brose is transferring operations from Detroit and Germany to Mexico. “We are really happy to bring these processes to Mexico because of three elements: we are close to the US and to South America, there is high-level education and locals are eager to thrive,” he said.

As one of the leading companies in helping manufacturing players to transfer operations to the country, American Industries highlights the stages in which this process ought to take place. “It is very important to understand the project, what is its scope, what are the company’s objectives and the corporate criteria. The best option is to initially bet on a shelter service provider. You bring your manufacturing expertise and the shelter supplier provides a comprehensive package of administrative services needed to ensure the success of your business in Mexico,” he said.

Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst