Mexico vs. China: What Does the Future Hold?
December 31, 1969 |Estimated reading time: 4 minutes
This article will analyze electronics manufacturing trends in China and Mexico for North American-based electronics companies.
By Keith Robinson
A major issue for electronics manufacturers surrounds electronics assembly operations based in Mexico. If these operations stay in Mexico, the role the facility should have in the company's overall vision and growth plan should be considered. Several electronics manufacturers look at increasing numbers of computer users and Internet subscribers in Latin America and wonder if they should focus on these markets instead of China. Some also wonder if the domestic markets for China will really be open to foreign competition.
Mexico's geographic location to the United States has been an important factor. Shipping is more reliable in Mexico, and tax incentives allow electronics assemblers to import electronic components tax-free if the assembled products are for export. Mexico also has a stable political relationship with the U.S.
Historically, the United States and Japan have worked with advanced assemblies, while manufacturing high-volume and less ad-vanced products in China and Mexico. However, highly advanced products are manufactured in China and Mexico. More of these products are using advanced packages such as ball grid arrays (BGA), chip-on-board, integrated passive devices (IPD) and chip-scale packages (CSP). Mexico and China are increasing their efforts in prototyping and conceptualizing.
Total revenues for the Mexican electronics manufacturing services (EMS) provider market in 2003 were estimated at $15.4 billion. The Mexican market is driven by maquiladoras, or Mexican assembly plants that manufacture finished goods for export, which provide tax incentives and low manufacturing costs to ship products into the U.S. The automotive, telecommunications and computing markets in electronics traditionally have been key to this market. The compound annual growth rate (CAGR) for the Mexican EMS provider market between 2003 and 2009 is projected at 14.3 percent. Growth potential lies within the medical device industry and automotive markets.
Medical original equipment manufacturers (OEM) increasingly are outsourcing as they focus more on R&D and less on manufacturing devices. The automotive industry provides good growth opportunities because of increased numbers of electronic assemblies on vehicles. Drivers for this market segment include safety features and more entertainment applications in vehicles.
Revenues for the Chinese EMS provider market are projected to grow at a CAGR of 25.8 percent between 2003 and 2009, from $7.6 billion in 2003 to $33.6 billion by 2009. In 2003, China experienced increased domestic demand for mobile handsets. Several EMS providers located manufacturing facilities there to handle domestic demand and make China part of their global plan to manufacture mobile phones.
China rapidly is becoming one of the hottest markets for computing products. The consumer electronics industry is another hot market. Many consumer electronics are produced in Asia, and China captures market share from other countries in the region because of its low-cost manufacturing structure. Advanced electronics assemblies are another growth opportunity. China is working to rely less on Western technology and more on its own intellectual property.
Figure 1. Total electronics market: Priorities chart for companies inside the U.S.
Figure 1 displays the key factors that EMS providers use when determining whether to relocate a facility in the United States, while Figure 2 lists those used when moving a facility outside the country.
Figure 2. Total electronics market: Priorities chart for companies outside the U.S.
Potential domestic market size is a key criterion used when companies look to relocate. A domestic market must provide strong growth opportunities and access to other key markets. Mexico is the gateway to other Latin American countries and the United States, whereas China has a large domestic market and products can easily be moved to other Asian countries.
Another key deciding factor for Western manufacturers is tax incentives. This is evident in the United States as well. States and municipalities that aggressively provide these incentives tend to land manufacturing jobs. Electronic manufacturers also evaluate labor rates, along with real estate costs.
Infrastructure and logistics are important, but manufacturers do not consider them critical factors when selecting a manufacturing site. Most countries that participate in the electronic manufacturing industry have ample air and sea freight. Countries also continue to improve their infrastructure to lure companies. In the United States, location near key universities is key for R&D. However, in other regions it is not key to selection of a manufacturing site because manufacturers primarily use the facility for manufacturing.
Conclusion
Questions to be answered are how much capacity should be kept in Mexico and what markets to target. End-user analysis of manufacturing trends will help determine mobile and stationary capacity. Time-to-market and delivery times of key products must be analyzed because of vastly different distances between countries. U.S. EMS providers also must consider an economic resurgence to avoid shortages. The size of products manufactured is likely to play a critical role in this evaluation because shipping costs and delays could heavily impact product launches.
For more information, contact Julia Paulson, Frost & Sullivan, (210) 247-3870; E-mail: jpaulson@frost.com.