© Hannover Messe | Ralf Baumgarten

27.03.2018

MEXICO: NO LONGER THE EXTENDED WORKBENCH

Mexico wants to become a modern industrial state. Visiting companies there has shown that, despite big ambitions, the country still has a long way to go.

By Holger Paul

© Hannover Messe | Ralf BaumgartenAn industrial estate on the edge of the Mexican city of Silao, around an hour's flight from Mexico City. There is little to distinguish it from an industrial zone in the neighboring USA. The same trucks bring components and take finished products from the same multi-functional factory buildings, always located close to an airport or large highway. And automated production is still in its infancy on both sides of the border, with parts for automotive production, for example, still put together or unloaded from machines by hand.

The main advantage of Mexican factories up to now has been cheap labor - but this alone will not be enough in future, neither for the Mexican government nor for many companies in the country.

"Cheap labor is not a way to stand out from the competition in the long term," says Alejandro Gonzalez, co-founder of the small Mexican automation specialist Integra Automation. "More and more companies are now prepared to invest in automation solutions here."

Growing number of engineers

BACKGROUND

"Mexico - A long way off becoming an industrial superpower"

Partner country of this year's Hannover Messe, Mexico plans to surprise the industrial world, and has chosen a motto to match: "Mexico exceeds expectations." The Mexican government wants to present the country as a modern and open nation and a pioneer for Industrie 4.0 on the American continent, Secretary for Industry & Commerce José Rogelio Garza announces to German journalists traveling the country together with Hannover Messe, VDMA and ZVEI.

But the visit also shows that country still has a long way to go. Although businesspeople like Jon DeSouza, CEO of the American arm of the East Westphalian technology group Harting, praise the good infrastructure in the new industrial zones and the growing number of motivated engineers flooding onto the labor market, industrialization in Mexico also has a downside. "Staff fluctuation is just as high as in China," says DeSouza.

Training is the Achilles heel

The labor and training market is Mexico's big opportunity - but also its Achilles heel. Training for factory workers is still miles away from meeting the requirements of an Industrie 4.0 world. The problem begins with poorly qualified instructors, explains Bernd Noack, General Manager Mexico at Festo, an automation and advanced training specialist based in Esslingen. In addition, companies are finding it increasingly difficult to retain trained staff, reporting fluctuation rates of up to 50 percent per year, or "seven percent per month" (Harting boss DeSouza). "If another company offers a few pesos more per week, the employee goes - especially in growth regions like around Silao," confirms German Carrasco, founder of the Mexican car parts supplier PYA Automotive. This is another reason why there is reluctance to adopt the German-style dual apprenticeship system - companies are wary of investing in apprentices who move on almost as soon as they receive their first pay check.

Wages doubled since 2013

But companies in the largest state in Central America are not letting these problems keep them from their path to modernity. A large variety of sometimes unusual methods is used to encourage loyalty - from bus transfers to and from work to bonuses and even a weekly basket of food. Those who have made it into a modern factory like that of electrical corporation ABB in San Luis Potosi can look forward to further professional advancement and a salary to match. Universities of all kinds have a simple message to teach students the value of good engineering training: "More than 90 percent of graduates from the polytechnic universities find a job straight away," says Andreas Müller, Vice President of the German Chambers of Commerce Abroad in Mexico. "Mexico's companies need to increase their productivity, automate, and ensure the service and operation of their systems," adds Festo Manager Noack. Wages have doubled in some cases since 2013, "so demand for well-trained technical staff is growing."

Minimal research rate

In the run-up to the Hannover Messe, the Ministry of Economics in Mexico City wants there to be no doubt: The country has understood the message and is charting a new course. The aim is for Mexico to become an export nation in its own right, instead of merely being the extended workbench of the USA.

The government under Peña Nieto has therefore launched a new industrial policy that includes significant investment in the use of renewable energies, explains Secretary Garza. Large-scale modernization of the infrastructure and telecommunications networks will also be conducted. Some of these grand plans have now been trimmed down, but significant change is still tangible in Mexico, says Vicente Magaña, General Director Mexico of the electrical and robotics corporation ABB. Around 30 percent of ABB's business in Mexico is with the state, he says, down from 75 percent in the past. "That is a huge change," emphasizes Magaña, "and is symptomatic of a big change in industry in Mexico."

Yet observers have noticed a different painful truth: Mexico's companies currently have a research and development rate of a paltry 0.4 percent - much too low for a real industrial nation. The government is therefore even more adamant to demonstrate strength in other fields, namely negotiations on the new version of NAFTA. "Neither tariffs nor building a wall are up for negotiation," says Salvador Behar, Mexico's lead negotiator on NAFTA, forcefully, adding: "American industry does not support its own government on this either."

Dependence on the USA continues

It is true that both Mexican and foreign companies assume that NAFTA will be extended and Mexico will not be impeded on its path. "Breaking up existing supply chains between Mexico and the USA would be almost impossible," says German Carrasco optimistically. "Ultimately, customers in the USA would be the ones to suffer." Many Mexicans would prefer to go a step further in escaping the stranglehold of their large northern neighbor by finding more customers and investors from elsewhere in the world. "We are too dependent on NAFTA," admits Secretary Garza.

However, achieving the goal of reducing the dependence on the USA significantly will take a long time. Mexico might be on the look-out for new markets but, with 80 to 90 percent of products delivered directly or indirectly to the USA, the country will remain under the control of the North American market for a while yet - not least because the American economy has picked up again. "The US economy is growing at four percent and Mexico wants to tap new markets. How does that fit together?" asks Harting CEO DeSouza. This is one of the key questions the new Mexican President will have to face this summer.

Further Information

VDMA Foreign Trade   |   VDMAimpulse 02-2018: "Background: Mexico - A long way off becoming an industrial superpower"   |   Hannover Messe   |   ABB   |   Festo   |   Harting   |   Integra Automation   |   PYA Automotive  

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Contact
Holger Paul, VDMA Communications.