Tackling Challenges on Different FrontsThu, 09/01/2016 - 15:01
Q: What plans does the government have to consolidate the Mexican automotive industry, which has experienced major development in the last five years?
A: One result of the good use of Mexico’s competitive advantages is the increasing capacity of the Mexican automotive industry to attract investment, placing the country among the main players worldwide. The steady stream of investments flowing in is largely due to production relocation processes undertaken by global companies that have recognized these advantages. In this context, in which companies seek to optimize their investments by maximizing the cost-benefit ratio, Mexico has been highly favored. Premium brands like BMW, Audi and Infiniti are building vehicle-manufacturing plants in our country and even companies from countries with which we do not have a free trade agreement, like South Korea’s KIA, have decided to install a production plant here.
Mexico’s production forecasts are favorable, with projections for an average production of 5 million units of light vehicles by 2020. However, such a production increase entails a series of challenges that require strengthening the production chain. The federal government is working closely with the industry to overcome those challenges and to adopt measures with medium and long-term impact.
Supplier development is key to strengthening the productive chain and the Ministry of Economy is working on strategies to boost Tier 2 and Tier 3 local suppliers. In this context, Mexico is coordinating a set of specific actions for this industry to align programs and resources with the development of its supply chain. Although Mexico’s supply capability is solid – due to the presence of the world’s most important Tier 1 companies – the challenge is to develop the lower levels of the chain. To do so, our efforts are focused on addressing the following areas of opportunity to boost the supply of inputs for which we have insufficient or no existing supply and inputs for which we already have a good performance in procurement but also growth potential.
The availability of sufficient skilled human capital is also crucial to meet the requirements of the industry for maintaining the competitiveness and growth rate of the sector. In recent years, countries with the highest rates of competitiveness are those that efficiently adopt and exploit innovation and tools for the creation and accumulation of talented human resources. That is why the Ministry of Economy is working on a document for the implementation of a new education/training model of human capital for the industry, with which we will be able to identify the existing performance of training as well as its situation and needs.
By the end of the year, we will have a specific recommendation of a model for the promotion of human capital specialization required by the industry in the short term, regardless of ongoing efforts in the educational sector to adjust its technical and professional programs to meet the long-term requirements of the industry.
Q: While Mexico offers a competitive advantage given the peso-dollar exchange rate, what challenges might the sector face if this situation changes?
A: Mexico offers a range of competitive advantages for the global automotive industry, which transcend the favorable exchange rate for Mexican exports. Factors such as geographic location, in particular its proximity to the world’s largest vehicle market, competitive labor costs and an extensive network of trade agreements are powerful advantages for attracting foreign investment, especially in favor of the automotive sector. However, beyond these comparative advantages, Mexico has consolidated its position as one of the main centers of automotive manufacturing and as an exporter of vehicles and auto parts because of its wide network of domestic and foreign suppliers of global reach that belong to the Tier 1 link in the automotive chain, and also because of the creation of a series of industrial clusters in various regions, which consolidate the production chain for the sector’s competitiveness.
Q: How is the government pushing to build a more sophisticated industry, based on design and engineering rather than on basic production activities?
A: The local automotive industry is fully consolidated and some companies have become worldwide leaders in their production processes. Most OEMs and some Tier 1 companies have engineering centers in which they collaborate in the development of global projects.
The Ministry of Economy is directing its efforts to overcome the growth barriers in the industry, such as insufficient production chains, skilled labor demanded for short-term growth and technological innovation. By overcoming these barriers, Mexico will continue its transition from simple assembly processes to higher value-added processes, becoming more attractive for investment and consolidation in the global automotive industry.
Regarding production chains, we are working in coordination with other agencies in the implementation of public policies to promote the development of Tier II and III suppliers.
In human resources, the federal government is working on the generation of base human capital that can meet the talent needs of the sector. We are working on identifying industry needs to create the conditions for ensuring the availability of specialized talent.
On innovation, which is one of the cornerstones of the government’s efforts as it is a catalyst for competitiveness and attracting investment, the National Innovation Program of the Ministry of Economy promotes an ecosystem in which academia, industry and government interact in a coordinated manner for the development of research that supports innovation, and that follows these premises: national priority, to increase the competitiveness of our economy, focusing efforts on areas of greatest impact, coordinating mechanisms between agents and accountability mechanisms.
As a result, Mexico can tap the full potential of the sector by promoting the development of human capital, research and technological development, key elements for our country to improve its position in the global context.
Q: How is the country promoting the development of the local supply chain and how do you balance the benefits offered to foreign and local investors?
A: ProAuto is the specific program we created to identify the needs and opportunities within the local supply chain, allocating funds and resources to national Tier 2 and Tier 3 players. The Ministry of Economy, CONACYT, ProMéxico, Bancomext and NAFIN have specific programs that, considering their objectives and target population, can foster the development of suppliers in the automotive sector. The categories of support considered in ProAuto are training and development, technical assistance, innovation and technology, integrated projects, attraction of foreign investment and financing.
The maturity of the automotive industry in Mexico places it in a stage of development where the incentives for the establishment of plants or for the development of the most basic activities are no longer needed. Therefore, the type of incentives granted are temporary and focused on solving particular issues, such as market failures that can inhibit further development at all levels of the chain, or the lack of funding for certain types of projects, for which the development bank provides specific programs.