Mexico: A New Hub for Electronics Manufacturing

Estimated reading time: 9 minutes

Bright sunshine and stunning weather much of the year. A fast-paced way of life where young, well-educated, ultra-connected hipsters form an important part of a growing economy that drives innovation. A palpable buzz in the air, where it seems that youthful enthusiasm and a can-do mentality fueled by technology and entrepreneurialism come together, making anything possible. A who’s who list of important Fortune 500 companies and startups coexist: IBM, Intel, Oracle, Flextronics, Wizeline, TTech, HP and Tata, to name just a few.

You might get the impression you’re in Silicon Valley but, in this case, you’re actually some 3,000 km away, in the heart of Mexico’s Silicon Valley in Guadalajara, Jalisco state. You’ll find many of the trappings here that you would find in Mountain View, San Jose or San Francisco in this greater metropolitan region of over 5 million people, which is Mexico’s second-most-populous area behind Mexico City. While Guadalajara’s reputation is increasingly well known as a diverse, thriving tech city, what’s less commonly understood is that the area is just one of many in Mexico where a young educated workforce, technology and an optimistic spirit are merging to drive economic growth and opportunity, particularly in the electronics manufacturing services (EMS) sector.

Such hubs are found across Mexico in areas as diverse as Monterrey, Aguascalientes, Tijuana, Querétaro and San Luis Potosi. How did this happen? How did regions of the country known for manufacturing or agriculture transform into thriving urban centers of learning, innovation and possibility? To answer that question, we must first explore the recent past, because you cannot understand Mexico’s current strength in EMS, including contract electronics manufacturing, without first understanding its competitive relationship with China.

Mexico’s Transition to Technology and Electronics

Starting in the late 1980s and early 1990s, Mexico underwent a significant economic restructuring. With once major state-owned companies now privatized, Mexico went from being a closed economy to an export-oriented industrial one. The result of this transformation was a steady increase in trade between Mexico and the United States. By 2000, the U.S. accounted for nearly 80% of all Mexican trade—up from 69% in 1990, according to Forbes.

It also was around the turn of the 21st century that China began positioning itself as a cost-competitive alternative to Mexico. In response to this move, Mexico began to transform yet again, this time by shifting focus away from assembly and toward manufacturing more value-oriented products, such as those found in the electronics sector.

Today, electronics manufacturing overall is one of Mexico’s fastest-growing industrial areas. According to Forbes, between 2002 and 2012, Mexico’s electronics exports increased by 73%, from $43.3 billion to $74.9 billion. As of 2015, the manufacturing value-added sector, which electronics is part of, accounted for 18% of Mexico’s GDP. That same year, electronics exports surpassed $80 billion. The main destination for these exports was the U.S., with an 86% share, followed by Canada, China, France, the Netherlands and Germany. Computers account for the largest share in exports, followed by flat screen TVs and mobile phones.

Most recently, a significant hub of electronics and contract manufacturers has sprung up in Mexico, with experts pegging the number of manufacturing plants dedicated to the electronics sector at more than 700. Electronics manufacturing is thriving in Mexico’s north-central region—known as “The Bajio,” and is comprised of parts of the states of Aguascalientes, Jalisco, Guanajuato, Querétaro and San Luis Potosi—which is lined with state-of-the-art facilities bearing the logos of such leading international electronics OEMs as Samsung, LG, Toshiba, Foxconn, Flextronics and Intel, among others. With the global electronics OEMs now firmly established in Mexico, the rest of the supply chain has quickly followed, attracting new investors, generating jobs and solidifying the region’s reputation as Mexico’s answer to Silicon Valley.

The World’s Lowest Business Costs

In a competitive global market, finding ways to manage ever-rising costs is essential to corporate success. Here, Mexico brings many advantages. According to KPMG’s Competitive Alternatives 2016 report, Mexico has the world’s lowest business costs. Compared to the U.S., Mexico offers an 11.9% savings on the costs of manufacturing electronics equipment and components. KPMG also reports that Mexico enjoys the lowest component production costs within the industry—as much as 18.2% lower than other leading electronics manufacturing countries like Canada, the Netherlands, UK, France, Germany and Japan. It also boasts the lowest operating costs in the Americas for the manufacturing of electronics components and equipment.

As a result of these cost advantages, as of 2016, Mexico ranked as the world’s sixth-largest producer of electronics and the third-largest producer of computers. Exporting more than $70 billion in technology products to the U.S. every year, Mexico is the second-largest supplier of electronics products to the U.S. market (behind only China).

Cost-Competitive Talent

With cost advantages like these, it is little wonder that we are now witnessing a global shift of manufacturing to Mexico. Yet Mexico’s attractiveness extends beyond cost-competitive production, as it comes backed by an available pool of talent, particularly young talent.

“While our customers demand cost efficiency and you simply can’t find better cost savings than what Mexico offers, we also moved for talent,” says Firstronic Vice President of Operations, Steve Fraser. Firstronic, a Michigan-based electronics contract manufacturer, has global production in eight locations, including Juarez, Mexico. “Mexico has good technical staff and more and more people are getting tech degrees every year,” Fraser added.

According to Forbes, as Chinese wages continue to rise, Mexico’s cost advantage further strengthens. Mexico’s labor costs are now almost 20% lower than China (whereas in 2000 they were 58% higher). At the same time, electronics companies aren’t coming to Mexico for cheap labor, they’re coming for cost-competitive talent.

Over the past decade, Mexico’s population has become increasingly educated, with a growing number completing advanced academic degrees. According to the National Association of Universities and Institutions of Higher Education, in 2012, Mexican universities graduated 101,700 engineering and technology students. Today, KPMG places that number closer to 114,000 annually. In other words, Mexico graduates 18% more students in the manufacturing, engineering and construction fields per capita than the U.S. does.

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