The July 2020 signing of the new United States-Canada-Mexico Free Trade Agreement and a greater trend towards seeking local or regional suppliers of material inputs will help attract greater investment to the sector related to appliance manufacturing in Mexico.
The Secretary of Economy and Labor of the government of that Mexican state of Nuevo Leon, Roberto Russildi, recently reported that in the first half of 2020 the appliance manufacturing sector has captured approximately US $1 billion in foreign direct investment (FDI) in the northern part of the country. To date, eighteen appliance suppliers have located in his state. It is further expected that eight other companies seeking to initiate appliance manufacturing in Mexico will make similar investments in Northern Mexico in the near future.
Russildi recently observed that “We currently have significant amounts of investment which will grow appreciably as the need to strengthen local supply chains increases. Many global manufacturers have realized that they cannot depend on the reliable receipt of goods from a single region. Increasingly, we will see that they will look to diversify their sources of products in order to minimize any disruptions in the supply chain that may occur.”
He also detailed that there are new companies in Northern Mexico, such as Universal Electronics, that are looking for local suppliers because they already have plants in production. What they require is a domestic supply of goods and services that can replace imports. The leader of the Supply Committee of the Nuevo León Appliance Cluster (Clelac), Enrique Buchanan, recently stated that the global health emergency has forced companies in Northern Mexico to seek local supply, which has represented “an opportunity to incentivize growth in the region’s economy.”
For Daniel Córdova, chairman of Clelac’s board of directors, another great opportunity to generate investment has resulted from the ongoing US-China trade war. He recently stated that, even though restrictions on the public’s movements have caused a drop in the sales of appliances, he anticipates a full and speedy recovery over the coming months. He believes that this activity will be driven by the commercialization of items such as air conditioners, refrigerators, and washing machines. He also went on to point out that Mexico offers policy and economic stability that is not present when dealing with China. Because of these conditions, Mexico has become more attractive for the relocation of appliance manufacturing from the US and China to Mexico. In order to consolidate current gains, it is required that the Mexican government implement long-term public policies that give certainty and security to foreign investors, as well as incentivize value-added production for those companies seeking to engage in appliance manufacturing in Mexico.
According to recent studies that have examined the greater diversification and cost efficiency of supply chains, it has been determined that US manufacturers that move their production from China to Mexico can reduce their operating costs by 23 percent.
In addition to motivation that is rooted in the pursuit of immediate cost savings, North American companies also decide to relocate their appliance manufacturing facilities to Mexico due to long-term public policy considerations. It is a fact that the ability to offer greater long-term security to investors because of more government transparency increases Mexico’s appeal. In addition to greater security and stability as an alternative to China, the country offers lower logistics costs, competitive labor, and the benefits of the United States-Mexico-Canada Free Trade Agreement for those companies seeking to engage in appliance manufacturing in Mexico.
As an illustration of the growth in the appliance sector in Mexico that has taken place in recent times, the northern state of Nuevo León currently generates US $4.3 billion in export sales from its appliance sector to global markets. This figure has come to represent 21% of the value of the total products in this category that are manufactured in the country. In addition to this, appliance manufacturing in Mexico accounts for 35,000 direct jobs that have been generated in the sector in Nuevo León. This is despite the fact that the global coronavirus pandemic has caused a reduction in sales of appliances by approximately 25% in recent months.