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News Article

Understanding Local Scenarios: Key to Ramp Up Operations

By Alejandro Enríquez | Thu, 09/23/2021 - 14:32

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With numerous trade agreements, an ideal location and a young, highly-qualified workforce, Mexico is an attractive destination for the automotive industry. But producing in the country is not necessarily easy and companies aiming to land manufacturing operations in Mexico should work with local stakeholders to seize regional benefits, said industry experts.

“Mexico is the place to be if you work in the automotive business,” said Florian Hanft, CEO México of SONAVOX, a Chinese Tier 1 supplier that landed manufacturing operations in the country less than five years ago. Sonavox’s venture in Tlaxcala, one of Mexico’s smallest states, was considered ‘successful’ thanks to the company’s close collaboration with the state government and the local automotive cluster. “When Sonovox chose to come to Mexico we explored different locations and decided that Tlaxcala was where we wanted to be. Tlaxcala is the smallest state of Mexico and we have been really successful based on three pillars. First, the government made an incredible effort and we have kept in close contact with them. Second, the state has made investments in dual education programs that support the industry. Finally, the automotive cluster helped us to address to the cultural differences we faced as a Chines company. Thanks to these three pillars, we managed to successfully ramp up operations,” said Hanft. After successfully ramping up its manufacturing operations of sound components for Ford, Volkswagen Mexico, Volkswagen North America and Audi projects, Sonavox identified that a comprehensive understanding of the region was key. “We need to have someone that knows the country. You cannot arrive assuming everything will work as in your home country,” said Hanft.

Companies that want to stablish in Mexico must understand the local ecosystem of each region in the country and the manufacturing ecosystem those regions support, explained Lorena Isla, Mobility Director Latin America at consulting firm Frost & Sullivan. “It is important to have local suppliers really close. In Mexico there are large Tier 1 suppliers facing challenges at their own supply chains, particularly because of the lack of certain components. It is important to work together with local stakeholders to develop a sustainable ecosystem. Companies should also think about sustainability,”

While companies such as Sonavox have come landed operations in Mexico on their own, others recommend the use of a Shelter service provider. The reason is that shelters “provide certainty” in bringing operations into the country. “You need to have the knowhow to operate in Mexico and companies need a partner to support them in this regard,” said Paulina Gónzalez, Regional Director of American Industries. International companies also need to identify the ideal site to land their operations by closely analyzing the strengths and weaknesses of each region, which will allow them to estimate how much they’ll truly need to invest to get their operations up to speed. “Companies need to create cost of business model to determine how much are they going to spend in the country. This model should take into account all the fine print. Companies need to take into account the final destination of their products, whether they should produce only for the local market, for exports to the US or other countries or both,” said González.

One of Mexico’s key strengths is its labor force, which allows companies to increase the added value they offer. “We have seen that Mexico has shifted from a Maquila country, which it was when NAFTA entered into force. Now, Mexico is a country that adds value. Local plants are not only recognized in their municipality or state; Mexican plants are acknowledged by global headquarters thanks to their productivity levels,” said Lorena Isla, LATAM Director at Frost & Sullivan.

“Mexico has become a leader in auto parts manufacturing. We have seen added value through worker’s productivity and commitment, not only due to labor costs,” said Gonzalez. Having Mexican teams has been essential for a successful landing, explained Hanft. “Companies need to let their Mexican teams work. It is not the same as was 20 years ago. Now, there is a large number of professionals and we need to embrace this country's culture,” he said.

 

Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst