Mexico’s export maquiladora industry will replace approximately 20% of Chinese manufactured inputs with locally made products this year due to COVID-19 supply chain interruptions.
Mexico’s export maquiladora industry projects the replacement of 20% of Chinese material inputs with products that are manufactured locally this year. “This set of circumstances is related to the impact of the ongoing coronavirus pandemic,” said the director of the Center for Electrical Research, Bernardo Fernández. The recent generalized shut down of industry in China has underscored some of the dangers that have offset the benefits of a globalized economy.
This substitution of Chinese manufactured inputs with products made by domestic suppliers can make the “made in Mexico” price for industrial goods more competitive.
One of the objectives of the increasing move towards the use of locally manufactured products is to add greater value to what is produced in Mexico. This will improve prices and make Mexican goods more competitive in the international market.
“This year the trend towards sourcing more material inputs locally may grow up to 20% due to the impact on international production and global supply chains caused by COVID-19. Additionally, the recent devaluation of the Mexican peso will also have an impact upon company purchasing practices,” Fernández observed.
Over the last five years, ending in 2019, Mexican maquiladora manufacturers replaced Chinese manufactured inputs with locally sourced products for a total of approximately $13.5 billion. According to data provided by the National Council of Maquiladora and Export Manufacturing Industry (Index), this figure represents an annual average increase of US $2.6 billion.
Fernandez went on to further state that at the beginning of the SARS-CoV-2 coronavirus pandemic, “the price of freight transport from the Far East doubled, and manufacturing facilities in China canceled order deliveries to their customers because their operations were halted due to the international health crisis.”
Although some imports from China have already made their way back into the Mexican supply chain, “many companies in the country now support small local maquiladoras to assist them in improving their technology and products so that they can become trusted local sources to supply domestic consumers,” he said.
An example of this is that good quality plastic components that were previously only purchased from China and are now produced and sourced in Mexico. Despite the promotion of local manufacturing, however, there are some items that cannot be supplied by Mexican firms. An example of such a product is silicon chips, which, for now, can only be procured from manufacturers that are outside of the country.
Fernández, who is also director of the Complet maquiladora, presented the case of his firm, which produces devices that are used in electrical protection products, such as “No Break”, voltage regulators, and high-voltage Unbroken Power Systems (UPS).
Following the cancellation of Chinese exports, “the quality of production by domestic suppliers has been found to be in line with local demand requirements,” he said.
“For example, a No Break that previously contained 55% Mexican national manufactured inputs now contains up to 75% as a result of the changes that have been provoked the coronavirus pandemic,” he said. This, and other such examples of the substitution of products from China, is good news for the Mexican economy.
Another factor that has increased demand for such items to replace Chinese manufactured inputs in Mexico is the increased sale of personal computers and servers in sectors such as automotive and aerospace. “This has resulted in a greater demand for electrical protection equipment,” he stressed.
“We reach all sectors thanks to our network of distributors who offer solutions and ask us for a variety of equipment to sell to their customers. This is done in order to meet the needs of industries such as automotive and aerospace that benefit from electrical protection for their advanced production equipment.”