Mexico is Back on the EMS Map
The cost-cutting pressures of the downturn years took their toll on EMS contract manufacturing in Mexico, as high-volume work went to lower-cost centers in Asia. During those dark years of 2001 to 2003, Mexico lost its luster as an EMS destination. That left Mexico with no choice but to redefine its place in the EMS world, and EMS sites there had to find business that wouldn't end up in Asia. Now there is evidence that the EMS business in Mexico has not only turned around, it's positively humming. New investments and an influx of new programs are putting contract manufacturing in Mexico back on the outsourcing map.
Why the new interest in Mexico? At least part of the answer lies in OEMs coming to the realization that China is not a universal solution for outsourcing. Some have learned this economic fact of life the hard way. "People usually have grossly underestimated the amounted of dollars to calculate the landed cost from production in China," said Marc Onetto, executive VP of worldwide operations at Solectron. He provided an example: "They have underestimated the expediting cost. You try to ship something out of Shanghai airport in early November when the toy guys have got their hands on the airlines, and you will have a surprise. Any price goes." Now that OEMs have the experience to put real numbers on their costs, they are finding that "being in China is much more expensive when you count every element of the landed cost than they thought originally," said Onetto.
Such cost reckoning does not mean that China is losing its grip as the world's largest center for EMS work. But electronics contract manufacturing in Mexico is gaining favor for certain kinds of work where proximity to the North American markets is important. Onetto singled out complex telecom systems, complex servers and complex industrial systems as products that are a good fit for Mexico. "People understand how important it is, especially when you do complex system integration, to be close to customers," he said.
According to Robert Freid, president of
Contract Manufacturing Consultants (Bellevue, W A), Mexico is growing on its own merits, not because OEMs are pulling back from Asia. "Electronics contract manufacturing in Mexico is now taking on more of the mid-volume requirements, but also increasingly, requirements for higher technology that they didn't do before," said
Freid. His definition of technology combines PCB assembly complexity and test complexity, and he sees Mexico climbing the technology ladder. "They're not at the highest end, but they're certainly well into the middle level and moving into the upper areas now," he said.
Capital spending flows in
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This border move by Flextronics brings up a long-time debate about locating plants on the Mexican border. "The problem with the border towns has historically been labor turnover,"
said consultant Robert Freid. For that reason, he discourages clients from considering EMS sites that are in border areas. On the other side of the debate are the EMS companies that do operate in).logistically efficient border areas.
Mexico vs. Asia logistics
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Are shipping costs, which of course must be figured in total landed cost, playing a role in the pick up of EMS activity in Mexico? "I really think they are," answered Henri Duhot, senior director, multinational customers EMS-CM, ODM, distributors, sernicon at DHL Danzas Air & Ocean.
Over the last three years, Duhot re ported, costs of logistics from Asia have doubled and tripled. By comparison, he estimated that from a transportation standpoint logistics costs associated with Mexico have gone up at most 25 to 40% in that period, mainly because of rising fuel costs.
Tales of woe
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Security in Mexico cannot be overlooked, and armed escorts routinely accompany trucks carrying electronics. Or trucks travel in organized convoys. However, Duhot of DHL Danzas sees security as a global problem. "I don't think we can specifically talk about Mexico being worse than any other place," he said. Still, a question lingers. How many other places require such security for trucks on the road?
Mexico and quality
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In the early days of EMS in Mexico, the country had a reputation for less-than-spotless factories and substandard quality. To counteract that reputation, global providers built plants there that replicated the cleanliness, equipment and processes of their best sites. Where does Mexico stand today with respect to quality?
Recent analysis from Robert Freid of Contract Manufacturing Consultants indicates that process yields in Mexico generally come in below the yields of similar sites in Asia. (Lower process yields obviously require more touch up and repair.)
Freid conducted an "apples to apples" comparison of quality statistics from the same kinds of higher complexity products across various sites.
"It's not to say that yields in Mexico are poor. You can't say they're universally poor. But on average, they're significantly lower than yields in similar sites evaluated in Asia,"
said Freid. Few people in the industry know of this finding, which is reported for the first time by MMI.
What's more, there is the possibility that current business conditions in for contract manufacturing in Mexico will work against quality in the short term. As EMS business has picked up in Mexico over the last year or so, plants there have grown busier and busier. Some plants are now so full of work that their resources, especially their people, are stretched, according to
Freid. "When resources are stretched, people in particular, it can impact performance, either quality or delivery," he said. "Particularly the better plants are the ones that are taxed the most," he added.
With so much demand for contract manufacturing in Mexico right now, "there are Asian sites that should also be considered which are busy but not stretched as some of these other sites are," said
Freid, who presents himself as without biases toward Mexico or Asia. He is sometimes reluctant to recommend overtaxed sites in Mexico to new customers. In such cases,
Freid explained, established customers often will get the more experienced people, while new customers will end up with junior or shared resources.
PCB Assembly in Mexico
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Mexico's proximity for system integration work isn't the only thing working in its favor. Based on conversations with senior site management for large EMS companies in Mexico,
consultant Freid reported that at least two major players are relocating PCB assembly technology centers to Mexico. The fact that these centers are being moved to Mexico "is strong evidence as to where the future will be for printed circuit board assembly in North America," he
said.
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