At Siemens AG’ high-voltage equipment plant about two hours’ drive from Mexico City, workers move about the polished floor, assembling and testing parts of circuit breakers for use in electrical substations.
Until a few months ago, the 160 parts for these enormous devices, with protruding poles that give them the appearance of stage props from a set of Frankenstein’s workshop, were assembled in India or China.
But today, the assembly is carried out in Mexico. By March next year, most of those 160 parts, which currently come from Germany and Asia, will be produced there too. The company has also chosen Mexico as the location for a new surge-arrester project instead of investing to expand production in China.
“We are moving towards local hubs,” explains Claude Steffen Raab, general manager of the German company’s high-voltage division in Mexico. “The idea is to respond more quickly to each of our markets.”
The shift in production at Siemens is part of a little-publicized manufacturing revolution in Mexico taking place across a range of industries from cars and aircraft to refrigerators and computers. For the first time in a decade, Latin America’s second-largest economy has become a credible competitor to China.
During the first half of this year, Mexico accounted for 14.2 per cent of manufactured imports into the U.S., the world’s s largest importer. In 2005, Mexico’s share was just 11 per cent. Surprisingly, China, which gained huge chunks of the U.S. import market for many years, has started to lose ground. From a high of 29.3 per cent of the total at the end of 2009, it has now shrunk to 26.4 per cent.
While winning a bigger slice of the U.S. market, Mexico has diversified its customers. A decade ago, about 90 per cent of the country’s exports went to the U.S. Last year, that figure fell to less than 80 per cent. Suddenly, it seems, Mexico has become the preferred centre of manufacturing for multinational companies looking to supply the Americas and, increasingly, beyond. Today, Mexico exports more manufactured products than the rest of Latin America put together.
The result of this turnaround can often seem counter-intuitive. Chrysler, for example, is using Mexico as a base to supply some of its Fiat 500s to the Chinese market. During last year’s inauguration of the U.S. company’s $500-million (U.S.) investment in Mexico, Felipe Calderon, the country’s president, told the nation: “I think it is the first time that a Mexican vehicle, at least in recent times, is to be exported to China … we always thought it was going to be the other way around.”
But the U.S. car manufacturer is not alone. Audi, the German car maker, is deciding whether to use a factory in Mexico to manufacture the kits for Q5 cars that are assembled in China to supply the domestic market.
Mexico’s new-found competitiveness has become so clear that Marco Oviedo of Barclays concludes: “After lagging Chinese manufacturing exports for a decade, Mexico has taken the lead post-2008-09. We believe this change is likely to be structural and persistent.”
Go back to the beginning of the century and none of this seemed possible. Back then, as China burst on to the global stage following its accession to the World Trade Organisation in 2001, Mexico seemed to be in serious trouble.
For much of the rest of Latin America, China was a voracious customer of agricultural and mineral commodities. By contrast, Mexico saw China as an unstoppable competitor that produced exactly the same sorts of cheap manufactured goods at a tiny fraction of the cost.
Against that backdrop, it is hardly surprising that Mexico was the last WTO member to vote for China’s accession – a vote that it gave only after a long and bitter negotiation.
But several important shifts have taken place since then that have improved Mexico’s comparative advantages, giving it a new and dynamic role as a global manufacturer. The first is that Mexico has embraced trade and openness like few other countries in the world.