Mexico: A New Hub for Electronics Manufacturing

Estimated reading time: 9 minutes

But it isn’t just formal “classroom” training that has enabled Mexico to close the gap on China as a producer of consumer electronics devices, according to Rafael Gonzalez, HR Director at Aguascalientes-based Sensata Technologies, an electronics producer for the automotive and other sectors. “Mexico’s workforce has become more skilled through their experience assembling other items related to the aerospace, automotive and medical device industries. Consumer electronics companies know Mexico is a strong alternative to having their goods made in China,” he says.

Gonzalez notes that because of this deep pool of local talent, companies no longer have to import their skilled workers. As companies see the quality of work that local talent can produce, leading OEMs and Tier One companies gain more trust in Mexican production. These days, Gonzalez says, most plants are run by Mexicans, with fewer and fewer expats involved. And they’re not limited to doing only production – much of the engineering, R&D, design, customer service and supply chain are all overseen by local talent.

“Twenty years ago, there was always an expat client representative on the floor overseeing quality assurance; not anymore,” says Gonzalez. “Out of the 300 people [Sensata] recently hired, three-quarters were from Aguascalientes and 100 came with experience in contract manufacturing.”

Even with these gains in talent and skill, Mexican workers are still extremely cost-competitive in comparison to workers in other countries—especially when you take into consideration overall productivity. Fifteen years ago, Mexican labor cost 58% more than Chinese labor. Now, not only is the cost of Mexican labor almost one-fifth less than Chinese labor, it is also significantly more skilled.

Prime Positioning

In addition to competitive production costs and highly skilled labor, Mexico’s Bajio region offers global electronics manufacturers an excellent transportation infrastructure. This is essential to an industry where the lifecycles of products grow shorter and consumers demand new products ever faster.

With shipping time from China taking up to six weeks, manufacturers that urgently require devices are often faced with paying high rates for air cargo. Electronics manufacturers with Mexico operations, however, are within a two-day drive (or less) from the U.S. border—via an advanced road network.

“If you do a true cost comparison between Mexico and China, including freight volume you must commit to and total cost of acquisition, Mexico is very competitive,” says Gary Baltimore, Director of Business Development for MC Assembly, a U.S.-based contract electronics manufacturer that has Mexico production in the state of Zacatecas, at Entrada Group’s manufacturing campus.

At the same time, the reality is that many component manufacturers are still located in China, meaning electronics manufacturers in Mexico still need to source some components from China, as domestic production in Mexico continues to mature. But logistically too Mexico proves capable, with its state-of-the-art ports on the Pacific Ocean, Gulf of Mexico and the Caribbean. In fact, to better handle this incoming cargo, Mexico has expanded its Pacific ports, using rail to connect them to both the industrial base and to consumer markets. As a result, Pacific ports such as Lazaro Cardenas, the fastest growing port in North America, are booming.

An Expanding Cycle of Technology and Opportunity

When foreign companies set up operations in Mexico, they bring with them the high-tech machinery, equipment and know-how needed to produce their goods. Similarly, when these companies create a joint venture with a Mexican company, the local company gains access to this technology and expertise. In addition, contract manufacturers with modern manufacturing equipment draw even more business with them—including SMEs—into the country. The result? Mexico now has a high-level of manufacturing technology capable of producing high quality finished goods.

This is an ongoing cycle that feeds on itself and generates yet more investment and knowledge-worker growth in Mexico. More and more foreign companies are expanding their manufacturing and R&D in Mexico, which in turn attracts more companies, and so on.

“It’s not just production anymore,” says Sensata’s Gonzalez. “As foreign investment increases, Mexican capabilities in engineering, processes, R&D, design, customer service and supply chain also improve.”

With consumption of domestic appliances in the U.S., Canada and Latin America exceeding production capacity, this cycle shows no signs of stopping, making now the right time for EMS producers or contract manufacturers lacking a Mexico presence to join the fray.

Doug Donahue is the vice president of business development at Entrada Group. For more information on the whitepaper, click here.

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