Foreign Direct Investment in Mexico is a Favorable Option That Encompasses Industry 4.0
With the recent reorganization of global supply chains due to the Covid-19 pandemic and trade tensions between the United States and China, foreign direct investment in Mexico is an increasingly attractive option for US manufacturers.
Global conditions now greatly favor relocating manufacturing plants and processes from industrial parks in China to sites located in the Mexican Republic. Although Latin American countries such as Brazil, Colombia, Argentina, Costa Rica, and others will be successful in capturing some of this business, it is anticipated that a full fifty percent of this activity will result in new foreign direct investment in Mexico.
Carlos Mortera asserted this. Mortera is the director for Latin America of the Association for Manufacturing Technology (AMT), which is an organization that currently has more than 650 members.
Furthermore, this prognostication is backed by data generated by the international consulting firm McKinsey, whose research areas include the aerospace, pharmaceutical, technology, and logistics and infrastructure industries. Carlos Mortera explained that for the last 15 years, the United States had offshored much of its manufacturing capacity to China. It is estimated that this movement has accounted for 18 trillion dollars of manufacturing investment in the Asian Nation. Experts predict that in the next five years, however, between US $3 to US $4.5 trillion of this figure will make it back to the Americas in the form of foreign direct investment in Mexico, as well as in other Latin American countries.
Besides, Mexico countries like Colombia, for instance, have strong aspirations to take advantage of this nearshoring opportunity for which Latin America demonstrates obvious benefits. Among these are that Latin America shares time zones. Additionally, it has physical proximity and cultural and language affinity of potential clients and suppliers in North America.
“Foreign direct investment in Mexico is probably going to account for 40% to 50% (of this nearshoring ) if we do our homework correctly”, emphasized Carlos Mortera during a recent virtual panel discussion. Other industry experts who participated in the event included Luis Lizcano, executive president of the Mexican Federation of the Aerospace Industry (FEMIA); Luciano DiOrio, CEO of Grupo Hi-Tec; and Eduardo Tovar, editorial director of Modern Machine Shop Mexico, a Gardner Business Media publication.
Emerging economies will purchase the most machinery.
Motera also noted that the consumption of machinery in developed economies, such as the United States and Europe, in the next four or five years “will register an annual growth of between 5 and 7%. On the other hand, economies such as Mexico and Brazil or Colombia and Argentina will be between 15% and 20%. This will be the case if the fundamentals of their economies remain strong.
“The value of technology for manufacturing that Mexico consumes per year is above 4.4 billion dollars. This is according to 2019 figures. It is a consumption level that if we put together the rest of the consumption value for Colombia, Argentina, Brazil, and Costa Rica, we are close to reaching 8 or 9 billion dollars per year. Therefore, the market for manufacturing technology in Latin America is comparable with the size of that of the United States market. Furthermore, it is very close in size to the Western European market.
“That is why we at the AMT continue to make many efforts throughout Latin America, and we believe that this is a very opportune time to make efforts to capture returning foreign direct investment in Mexico and Latin America, as a whole. In addition, it is the right time to strengthen our production ecosystem and optimize our supply chains.
Foreign direct investment in Mexico must include manufacturing technologies
During the panel discussion mentioned above, the general director of Grupo Hitec, Luciano DiOrio, spoke about the type of technology and processes that the industry in Mexico is consuming. He explained that the registered sales volume for such items was lower than in Mexico in countries like Spain and Germany. “However, in those European countries, the number of five-axis machines with automation and robots were 40 % more than what we sold (here) in Mexico, where we managed to sell more than a thousand machines per year”.
With this reference, DiOrio commented that Mexico still has room to catch up in using these technologies and that this situation offers “a lot of potentials to develop the greater use of automation, robotics and five-axis machinery” while highlighting the importance of training. He asserted that universities, governments, and other entities that make up the value chain should be involved in this topic.
Mexico is distinguished from the rest of Latin America by the breadth of its manufacturing capacity
Luciano DiOrio added that, compared to Latin American countries, Mexico had developed substantial installed manufacturing over the last 20 years, which has been supported by industries such as automotive and aerospace and others and their respective supply chains. He added that the capacity to attract more foreign investment in Mexico is tied to the country’s ability to train its workforce to meet the challenges created by the digital transformation taking place through Industry 4.0.
Notably, it will be a fundamental necessity to train workers to perform tasks in “smart factories” and to use the Internet of Things devices that connect machines and computers to get a clear picture of the shop floor activities with real-time data.
Artificial Intelligence and Machine Learning will then be used to gain actionable insights from the vast amounts of generated data. Integrating information technologies with operations technology, which produces the interconnectivity between autonomous production teams and broader computer systems, reinforced with Machine Learning will affect entire companies. This will encompass activities from engineering to operations and sales and quality assurance.
DiOrio added: “There is still the fertile ground of a vast field to be explored, but these developments in technology also create a significant opportunity that will affect foreign direct investment in Mexico, as well as in the rest of Latin America.
He went on to say that currently, if a Mexican manufacturer has a certain amount of money, let’s 300,000 pesos, for example, he will use this money to buy two more machines that would not be connected. This is the case because many manufacturers in Mexico are still unclear regarding the benefits of these automation and digitization practices. Therefore, a current challenge that affects foreign direct investment in Mexico is that (businessmen, small, medium, and large) should be trained to understand that entering the realms of interconnectivity and Industry 4.0 will not deprive them of the investments required to generate profits.
Mortera explained that the key to achieving success in Industry 4.0 is the gathering and utilizing the unlimited data generated and captured from connected devices to what we call the Internet of Things (IoT). Along with technologies such as artificial intelligence, cloud storage and processing, and machine learning, innovative solutions are offered in sectors in a transversal way, such as predicting customer behavior, defining efficient processes, adapting production in real-time, offering predictive support, and analyzing immense amounts of data along with Big Data techniques for making intelligent business decisions. Therefore, companies that are successful with their foreign direct investment in Mexico must be fluent in these areas.