May 17,
2006
Outsourcing
to Mexico
Outsourcing
has come to imply manufacturing in Asia. But closer to home, outsourced
manufacturing is also booming in Mexico. Mexico has long been a location for
large-item manufacturing. Automotive and large appliance manufacturers have
utilized Mexico plants for decades. In recent years, however, the electronics
industry has placed more emphasis on Mexico. Our southern neighbor is close,
the Mexican time zones roughly match the United States business day, and there
is a growing pool of skilled Mexican engineers to support manufacturing.
For
high volume, low mix products, Asia is still the first choice for outsourcing.
Typically Mexico gets manufacturing projects that include small production
runs, big product runs or new products. Microsoft’s Xbox, for instance, was
manufactured initially in Mexico before it was shipped to Asia for high-volume
production. “Mexico has not gotten into high volume production,” says Beth Ely,
SVP of new channel development at Avnet Inc. in Phoenix. “Traditionally, Mexico
has produced low volume, high mix products and new product introductions.”
Outsourcing
in Mexico comes in a couple distinct flavors. The border has long been home to
twin plants – or maquiladora plants – that are owned by OEMs. The electronic
manufacturing services (EMS) providers tend to congregate around Guadalajara,
which has become a growing territory for electronics outsourcing. “Guadalajara
is the manufacturing hub for top-tier EMS companies,” says Ely. “That’s the
fastest growing area for manufacturing. The border areas have the OEM-owned
twin plants and lower-tier EMS companies.”
Avnet
supplies global EMS companies and North American OEMs that are producing
products in Mexico. The distributor also supplies indigenous OEMs that tend to
congregate along the border. “We support indigenous Mexican manufacturers along
the board as well as EMS providers in Guadalajara,” says Ely. “Much of the
product for the border plants comes from our Arizona warehouse, but we also
have branches along the border to support Mexican manufacturers.” Avnet also
maintains a large warehouse in the Guadalajara area that is designed to serve
EMS providers.
Proximity
to the United States matters
Because
of its closeness to the United States, Mexico has been a preferred outsourcing
location for big products such as autos and big-box appliances. “Automotive has
always been big in Mexico, as well a refrigerators and washers because the
logistic costs of shipping those items over the ocean is ridiculous,” says Eric
Miscoll, senior consultant and COO of Technology Forecasters Inc. in Alameda,
Calif.
Mexico
is also a likely spot to produce new products, since it’s easier for company
personnel to pop down to Mexico than it is to travel to Asia. “If the company
has just recently started outsourcing, or they have a new product, they will
often take it to Mexico because of the proximity,” says Avnet’s Ely. “In Mexico
they can be more hands-on and keep it closer to home. Because of that, you see
a lot of industrial manufacturing but not much consumer high volume
production.”
Mexico
is handy for outsourcing also because it is roughly in the same time zone as
the United States. One of the biggest complaints about outsourcing to Asia is
the time difference between North America and Asia. One distribution executive
says he doesn’t even give out his business card when traveling to Asia any
longer because the late night calls are disruptive. Plus, it helps to be close
if there are production problems. “Even Asian companies are now setting up shop
in Mexico so they can more effectively serve U.S. customers,” says Miscoll of
Technology Forecasters.
Another
recent development in Mexico that has lured outsourced manufacturing, is the
country’s emerging engineering talent. “We’ve seen an increase in the use of
engineers in Mexico because the labor rate is low” says Miscoll. “Mexico is
doing more design because their engineers are very competent. So it isn’t just
cost that’s attractive, it’s also the quality.” Miscoll attributes the quality
engineering to the technical universities Mexico has produced in recent years.
Avnet’s
Ely notes a distinct improvement in Mexican engineering in recent years. “Over
the past 10 years, a middle class has evolved in Mexico, and that middle class
puts a high emphasis on education as a way to move up the economic ladder,”
says Ely. “So a lot of people are coming out of Mexican engineering schools.”
She notes that most of the engineering work tends to support manufacturing and
industrial production. But she notes there has also been a recent trend toward
design engineering. “The design engineering is relatively new, but design
centers are getting set up,” says Ely. “That’s part of Mexico’s maturing
workforce.”
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