Waiting for the Second Chinese Wave

The trade war between Washington and Beijing has made Mexico a safe haven for Chinese companies. “Chinese companies have had more aggressive growth in Mexico because the products that are manufactured today in China and sent to the US should now be made in Mexico to avoid tariffs,” says Sonavox’s Plant Manager Florian Hanft. However, the unstable relationship between the US and Mexico means there are still challenges to face.

Since the beginning of the conflict, the US has imposed tariffs on more than US$360 billion of Chinese goods, while China has retaliated with tariffs on more than US$110 billion of US products. For a Chinese-capitalized company like Sonavox, which is dedicated to the manufacturing of audio products and systems for the automotive industry, 2020 is a crucial year. Most of the company’s components are shipped from Asia because of the lack of suppliers in Mexico where the company is headquartered. This creates a challenge for the company to build a stronger regional presence to brave the trade war.

“It is a challenge to develop local suppliers. Currently, 80 percent of our components come from China, as Chinese suppliers manage larger volumes of tens of millions and offer much better prices than suppliers located in Mexico that might sell only a couple of million units.”

According to Hanft, Sonavox is the first Chinese company in Tlaxcala, which has now been followed by other players that have visited the state to see how the company is doing and to gauge its relationship with the government. “This is essential for Chinese investors,” he says. There are four Chinese light-vehicle assembly companies in Mexico: BAIC, FAW, JAC and Foton. According to Hanft, the second wave of Chinese companies is already underway. “One of the difficulties we face is making our relationship work, as Mexican and Chinese cultures are very different. However, the Chinese are very persistent and the second wave of companies will take advantage of the teachings of their predecessors; we already saw FAW fail in its attempt to conquer the light-vehicle market and companies will learn from that,” he says.

According to data from the Mexico-China Chamber of Commerce, China will send the largest delegation of Chinese companies registered in the country in May 2020, with 1,600 companies that will bring 50,000 different products to the Mexican market. In May 2019, Vice President of the Chamber Jorge Romero reported that the trade balance between the two nations is around US$78 billion annually in favor of China, with more than 70 percent of the goods being machinery and tools. “This showcases the commitment of Chinese investors in Mexico,” said Romero to El Universal in May 2019.

Sonavox’s commitment to Mexico is also strong and the company is already in talks with OEMs like Volvo, Audi and GM to grow its business locally. In the medium term, Sonavox wants to concentrate its efforts on improving its internal processes in Mexico and on the development of new technologies in China, like its pedestrian warning system, with more advanced technology. In addition, Sonavox Mexico will gain a new certification in early 2020 to attract more local clients.

Hanft also trusts that the concept of Chinese products and their stigma regarding cheap price and poor quality is already changing. “China today markets many products across the world and its quality are improving a lot. It is not like before; today, we are offering more technological products at very competitive prices.”