Dynamism and Growth
Electronics and appliances are industries that generate global investments of large companies and allow smaller companies to join the value chain.
The role of the electronics industry in the world is highly noted for its high technological contribution and sophisticated value chain, its dynamism and the business opportunities it offers. Not only does it contribute innovation and modernity, but as a strategic sector it also allows industrial and technological development of the countries where it participates.
Electronics are very important for other industries, thanks to which it is in constant evolution, including the automotive industry, electrical appliances, measuring instruments, production machinery, medical equipment, photographic and photocopying equipment, and toys.
The value chains that allow the development of this industry begin in minerals—resins, chemical substrates and voltage carrying components—and conclude in consumer electronics for end-users and industrial machinery, chemical production, micro-injection and micro stamping, circuit production and active and passive components, design, circuit assembly and mechanical components, among other processes. This complex chain requires many abilities and highly developed and specialized human capital.
Therefore, it is also a highly competitive sector, which seeks to meet the needs of final and industrial customers that are increasingly demanding thanks to the growing supply. For this reason, the headquarters of major investments are those countries able to provide the best conditions for business, through tax incentives, among others.
Leading companies are looking in various regions of the world not only for low manufacturing costs, process design and logistics; they are also investing in technological research and development, enjoying the competitive advantages of each country.
The global electronics industry grew at high rates in the past decades and in the medium term, even if its growth is inferior, it is expected to increase its size at twice the rate of the global gross domestic product (GDP).
The region with the highest average annual growth (AAGR) in 2014 was Asia-Pacific (with 65%), followed by the three North American countries (17%), the European Union (13%), Latin America (1%) and the rest of world (4%). Global production in 2014 reached 3.8 billion dollars, and is expected to grow at an AAGR of 5.5% in the period from 2014 to 2020. In 2014 global consumption of the electronics industry was 4.0 billion dollars and is expected to grow at a 4.7% AAGR in the same period.
The close link between the electronics and appliance industries does not change much in terms of production participation per region. In the appliance sector, Asia occupies the first place (46.8%), followed by North America (22.1%), the European Union (20.6%), Latin America (2.5%), and the rest of the world (8%).
In 2014, global production of the electrical appliances industry reached almost 310 billion dollars, and is expected to grow at a real AAGR of 4.1% in 2014-2020. Global consumption in the appliance industry was 320.5 billion dollars and is expected to grow at a 4% AAGR in the same period.
During the same year, the Asia-Pacific region recorded the highest production in the appliances sector, since it includes the three main global producers: South Korea, China and Japan. And among the major consumers in the industry, a few Asian countries stand out, particularly China.
Recent Investments in Mexico
The main electronics manufacturers in the world are Samsung, HP, LG, Sony, Foxconn, Flextronics and Jabil. All have presence in Mexico with maquiladora plants. Flextronics in the state of Jalisco made one of the most recent investments, for twenty million dollars.
This company has been in Mexico for seventeen years, and also has installations in Aguascalientes, Baja California, Coahuila and Chihuahua. Flextronics is also in charge of half of the production of BlackBerry in Mexico. The company transferred its whole operation to Ciudad Juárez, Chihuahua, in 2014, as part of its plan to reposition itself in the country.
On the other hand, Samsung Electronics announced an investment of 100 million dollars in October of 2014, destined to strengthen its operation in Tijuana, Baja California, over the next five years. At this plant, the company manufactures Smart TV and LCD screens.
Intel also inaugurated a Development Center in Guadalajara, Jalisco, with an investment of close to 173 million dollars. Other firms like Panasonic, Motorola, HP and Ericsson also expanded their operations through investments at their current manufacturing plants.
As the consumption of technological devices such as screens, cell phones and computers grows, manufacturing companies are seeking to expand their presence in territories where they are already settled, as well as reaching new markets, which has been of benefit to Mexico.
ProMéxico has located at least 766 economic units in the electronics sector that employ a total of 478,816 people. The states with the highest production are Aguascalientes, Baja California, Chihuahua, Estado de México, Jalisco, Nuevo León, Querétaro, Tamaulipas, and Sonora. The accumulated Direct Foreign Investment (DFI) between 2005 and 2014 totals 11.6 billion dollars, with investments mainly from the USA, Japan, the Netherlands and Sweden. Exports in 2014 amounted to 79.7 billion dollars and represented 26% of non-oil sales. Mexico is the world’s number one exporter of flat screen television sets, and the number four exporter of computers, microphones, speakers and headphones.
It is estimated that in 2014 the production value of the electronics industry in Mexico reached almost 63.4 billion dollars with an expected real AAGR of 4.8% for 2014-2020. Meanwhile, consumption in the electronics industry in Mexico totaled 75.5 billion dollars with an estimated real AAGR of 5.6% in the same period.
In regard to the electrical appliances industry in Mexico, in 2014 ProMéxico identified 261 economic units. The states with the highest production are Coahuila, Chihuahua, Distrito Federal, Estado de México, Guanajuato, Nuevo León, Querétaro, San Luis Potosí, and Tamaulipas, which employ a total of 63,936 people.
Production for 2014 in the electrical appliances sector reached almost 7.2 billion dollars, with an estimated real AAGR of 4.2% between 2014 and 2020. Meanwhile, consumption is estimated at 2.4 billion dollars with a real AAGR of 4% in the same period. Accumulated DFI for 2005-2014 is estimated at almost 1.5 billion dollars, mainly from Canada, South Korea, Spain, the USA, and France.
Mexico is the largest exporter of electrical appliances to Latin America, and the fifth worldwide. It occupies first place among countries that export refrigerators with freezers with separate external doors, and water heaters, except electrical. It is the second exporter of air conditioners and electrical water heaters, and is the third exporter of washing machines of over ten kilograms, compression refrigerators and gas stoves.
In 2014 the exports of the sector reached over 6.9 billion dollars with a trade balance surplus. The main destination was the US with 86%, followed by Canada (4%), Colombia (2%), Peru, and Chile (1%, respectively).
The main companies that have white line plants in Mexico are Broan, Carrier, Daewoo, Electrolux, Emerson, Faber, Fisher & Paykel, Gestar, Koblenz, LG, Mabe, Onnera Group, Panasonic, Rheem, Samsung, Sanyo, Taurus and Whirlpool. Meanwhile, small appliances and components companies are: Electrolux, Gestar, Industrias Man, Koblenz and Sunbeam Oster.
Demand for electronic components in Mexico for the automotive industry, auto parts, consumer electronics, appliances and electric industry reached 44.4 billion dollars in 2013. Almost 97% of all electronic components were imported, which represents major investment opportunities. That same year, the estimated annual demand for electronic components in Mexico with active components (semi-conductors) was almost 22.6 billion dollars, followed by screens with almost 8.9 billion dollars, and finally embedded software of 4.2 billion dollars.
In the case of semi-conductors, the sector with the highest consumption was consumer electronics (59%), followed by auto parts (29%), automotive (10%) and electrical (2%). Those who consumed the most screens were consumer electronics (86%), auto parts (7%), automotive (4%) and electrical (3%). And the industries that required the most embedded software were consumer electronics (46%), auto parts (35%), automotive (10%), electric (7%), and appliances (2%).
It is suggested that DFI in Mexico should be strengthened in the strategic links in the value chain of the electronics industry, specifically in the T3 design of passive components: micro-injection and micro-stamping, among others; and in the design of active components: silicon wafers, micro-injection and micro-stamping, among others; embedded software design: algorithms for instructions and testing, and design of electrical components: micro-injection and micro-stamping, etc.
Meanwhile, in T2, there are opportunities in printed circuit board (PCB) design; design of passive components: connectors, capacitors, inductors and resistors; design of active components: diodes, displays, transistors, microprocessors and integrated circuits. Also, embedded software is required, as well as the design of electrical components: cables, harnesses and fuses.
In T1, printed circuit assembly (PCA) design is necessary, while Original Equipment Manufacturers (OEMs) directly request design in electronics and industrial electronics.
According to the KPMG study, Competitive Alternatives 2014, Mexico offers savings of 7.8% in manufacturing costs of precision components, compared with the USA. Meanwhile, ProMéxico calculations highlight that Mexico will keep labor costs at competitive levels, while China will present significant increases, and Taiwan and South Korea will show levels two to four times higher than Mexico.
ProMéxico conducted a study on the demand of the necessary components for manufacturing flat screen television sets in Mexico, where it is estimated that about 94% of those components are imported, which represents great opportunities for investment. The value of the five products that were most imported in 2014 presented the following performance: 5.6 billion dollars in screens; 3.8 billion in semi-conductors (2 billion were acquired locally); 949 million dollars in design and engineering (19 million were spent on investment in this area); 728 million were spent on passive components (47 million were disbursed in Mexico); and 678 million in embedded software.
In the appliance industry, Mexico has great export opportunities, considering the proximity of the markets in the USA, Canada and Latin America. In 2014, the consumption in these markets has been greater than its production, and it is expected that this trend will continue until 2020.
Mexican supply consists mainly of refrigerators, washing machines, air conditioners, gas stoves, blenders, dishwashers and microwave ovens. Opportunities for exporting premium appliances to Europe and Asia should be explored, as profit margins allow bringing down logistics costs. ProMéxico offers direct support for training and obtaining industry certifications.
It is suggested that DFI in Mexico should be strengthened in the strategic links in the value chain of the appliance industry in T2 electronic components (active, passive, embedded software and printed circuits) and electrical components (relays, cables, harnesses, connectors and fuses, etc.); and in T1, appliance engineering and design.
Manufacturers of metal parts and components require die-cutting, stamping, die casting, piping and mechanical assembly in metalworking processes; also, metal parts and components require doors, hinges, brackets, frames, covers, compressors and grills, among others. Also in T1, engineering plastic injection and extrusion are required in plastic processes, while plastics for doors, hoses, fans and moldings are requested in parts and components.
Supply chaining consists in promoting T1 companies and OEMs to incorporate components manufactured in Mexico. ProMéxico, through its Acompañamiento a Compañías Transnacionales (ACT, Accompaniment of transnational companies) model, seeks to link national suppliers with multinational companies established in the country.
ACT Model Objectives
• Boost exports, seeking to link suppliers with the operations of the international supply chain of multinational firms. • Retain and encourage multinational companies to reinvest in Mexico. • Strengthen productive chains to attract DFI from foreign suppliers.
ProMéxico conducted a study on the demand of the necessary components to manufacture refrigerators in Mexico. It is estimated that 61.2% are imported, which represents big opportunities for investment. These are the amounts of the three most imported and locally purchased components: die cutting or stamping (373 million dollars in both cases), plastic injection (215 million imported and 143 million purchased locally), and die-casting (134 million imported and 15 million purchased in Mexico). Mexico offers 13.4% savings in manufacturing costs of metal components, compared with the USA, and 7.8% savings in manufacturing costs of precision components, compared with the same country.
Furthermore, Mexico currently has a demographic bonus that will last over the next two decades. The working-age population represents 64% of the total population. It is estimated that in the next two decades the working-age population in Mexico will be over 80 million people, and will continue to represent over 60% of the population.
According to Asociación Nacional de Universidades e Instituciones de Educación Superior (ANUIES, National association of universities and higher education institutions), over 110,000 students graduate every year as bachelors in engineering, manufacturing and construction. In 2012, according to Unesco figures, in Mexico there are 26% more graduates per capita than those in the US study programs. In addition, Mexico has signed free trade agreements with 46 countries, positioning the country as one of the most open to international trade in the world.