Adapt or Perish – how Mexico adapted to change
Mexico's position in the electronics supply chain
Challenging times can drive innovation and fortify established partnerships. Such is the case with IPC’s position in Mexico, where supply chain disruptions and regional growth around the border area has strengthened our historical relationship. As the new Director of IPC Mexico, I see the challenges, and I’m excited about the opportunities presented by changes on the ground. Recent shifts make IPC’s support of Mexico-based companies and personnel more essential than ever. Regions and industries are adapting, and IPC is here to help ensure superior quality, reliability, and consistency as the landscape evolves and settles.
The evolution of the border region
Let’s face it: the supply chain around the world is a mess. Disruptions continue to hit wire harness manufacturers and automotive suppliers hard. From plants in China closing due to COVID, to containers stuck in ports like Los Angeles and Houston, to raw-material shortages, the hits keep coming but companies have pivoted quickly and many have shifted resources to the US-Mexico border region, which is buzzing with new business, new construction, and new opportunities.
While Mexico boasts several main manufacturing hubs, including Baja, Monterrey, Guadalajara and even Queretaro, the region of northern Mexico, a mere ten miles from El Paso, Texas, is a nucleus of new activity. The border region is home to robust infrastructure and to ample low-cost labor. Juarez, the largest city of the state of Chihuahua houses more than 320 manufacturing plants and input over $39 billion into their operations every year through more than 300,000 workers and is booming with investment. Factories in this region have long played a role in the US supply chain. The 1991 free trade deal between the US, Mexico and Canada, NAFTA, drove investment in the region, where companies like Bosch, General Electric, Electrolux, and Siemens have long had a presence. With China’s entry into the World Trade Organization in 2001, regional growth stalled as companies shifted manufacturing to China, where labor costs were even lower. But with recent tariffs on Chinese goods, a disruptive global pandemic, multidirectional business pressures, port bottlenecks, and renewed dialogue and economic agreements between North American leaders, companies have turned their focus back to the border region as a dependable resource for establishing a more reliable electronics supply chain, triggering a regional manufacturing boom.
The value of the region to the US supply chain is no mystery. The US and Mexico share a 2,000-mile border and together, we generate more than half a trillion dollars in bilateral trade, supporting millions of jobs. The El Paso-Juarez region, known as Paso del Norte, is home to the western hemisphere’s largest bilingual, binational work force. In addition to this available labor force, the proximity of the region means reduced shipping costs, quicker response times, and fewer risks. Shrinking the supply chain, locating production closer to end users, creates a shorter and stronger chain, which is particularly appealing in this topsy-turvy moment. The regional boost is structural, likely to be long lasting, and touches many verticals.
Verticles reinvesting in the region
As global events have put more pressure on the supply chain, opening up a deeper reservoir of opportunities in Mexico, companies are not only shifting to the border to tap available labor and bring production closer to end-users, but they are also intentionally adding suppliers, establishing a more diverse, reliable, and redundant supply chain. For many manufacturers, Mexico is a proven partner, having produced assemblies for verticals ranging from wire harness and automotive to medical devices and consumer electronics.
Due to the passage of the United States – Mexico – Canada Trade Agreement (USMCA) overall auto parts production in Mexico is expected to increase by up to 20%. While NAFTA established that 62.5% of an automobile’s value must come from within the region, USMCA increases the requirement to 75%. The more than 320 factories already making up the maquiladora industry in the region, companies such as Delphi, Lear, BRP and Werner maintain a strong presence in the region and supply parts to OEMs for US auto manufacturers. It’s a vertical we expect to grow in the decades to come.
Wire harness manufacturing overlaps with and follows this upward trend. The importance of automotive wiring is rising along with the growing popularity of electric vehicles. And Mexico is an established global leader in wire harness manufacturing, delivering enough volume to equip more than 17 million vehicles a year, a number expected to rise. Twenty-five percent of the maquiladoras in Juarez alone are in the wire harness or related industry, manufacturing for automotive, aerospace, household appliances, and more. Companies are building and expanding facilities and capacity in the region at a rapid pace, and we expect the region to play a key role in reducing wire harness supply chain challenges.
It’s not only the automotive and wire harness supply chain being strengthened by deeper investments in the border region. Electrics manufacturers are also upping their presence. Companies including Foxconn, Wistron, and Honeywell, which assemble computers for Dell and HP, are there along with medical device companies such as Cardinal Health and Cordis, and consumer electronics companies, including Toro and Electrolux.
Across verticals, manufacturers are reinvesting in the US Mexico border region to strengthen the supply chain with reliable labor, decrease costs and risk by shortening the chain, and increase redundancy.
A partnership for the future
The role Mexico, and the border region specifically, plays in the electronics supply chain now more important than ever. And although I am new to IPC, IPC is not new to Mexico. Our standards have been used across industries—there are more than 130 IPC and WHMA members operating 315 manufacturing facilities running from Tijuana to Guadalajara to Tamaulipas. And we’ve granted more than 4,000 IPC certifications to workers through our partner certification centers across the country. IPC recognizes how vital this region is for electronics and wire harness manufacturing, and we’re committed to strengthening our existing partnerships while growing new relationships. Few things are predictable in such an unpredictable climate, but IPC’s continued support of Mexico-based companies and personal remains steady.
I am interested in your comments on this topic and what your companies are doing in the region. In the next blog I would like to talk to you about the COVID fallout and the role Mexico will be playing in the supply chain.