Mex in a mess?
25 May 2009
There are countries that have built up their reputations as ‘low cost factories’ for the electronics industry. China would be taken as the most obvious example over the last decade as a global powerhouse, with the likes of Brazil, Mexico, and Eastern European countries, generally speaking, operating on a more regional level.
If we go back a couple of decades, my home turf of Scotland was in a similar position, albeit on a much smaller scale. It was, along with Ireland, seen as a gateway into Europe for the giant corporations of North America. Fortunately in both countries, along with the rest of the UK, they built up both a robust supply chain and infrastructure, much as Susan Mucha described in her column about Singapore earlier in the month. More importantly, these American giants spread seeds throughout industry and academia that both germinated and grew, establishing indigenous companies that have their own areas of technical expertise to share with the world.
Clearly China, with its massive and expectant population coupled with a desire for self-sufficiency, has made massive efforts to catch up with the technology so that it contributes more than just factory time to the global mix.
Everytime that the search for ‘low cost’ reaches a new geography, it spreads the expertise and the wealth – ultimately I suppose it is the capitalist philosophy bringing global equality. It’s a process that has already taken centuries and will take many, many more decades to complete, and along the way there will be problems.
We are all experiencing the global downturn at the moment, but for some it is more significant than others. Mexico has been hit by a double whammy. It has been massively hit by the reduction in spending in the US. Unlike some of the countries mentioned earlier, the stage Mexico is at in its evolution means that it is still hugely dependent on the US – around 80% of its manufactured goods end up there. When the consumers stop buying, the factories have to stop making and with low-margin manufacturing large falls in the end market can be catastrophic to the manufacturing environment. Having said this, the CEA report that we have picked up on this week (CE market still strong) shows that while the average American household spent on average $176 dollars less over the past 12 months, each household is still spending $1,229, which represents a pretty large market.
However, another and unfortunate side effect of downturns is the very rapid switch of focus to self-protectionism, even in uglier cases appearing like racism. If markets are down, there is pressure, both internally and externally for companies to retreat back to their home market – typically to HQs in America, Japan and Western Europe. The joys and advantages of the global village are quickly lost if a local factory is in threat of closure. It is therefore in places where manufacturing has been outsourced to, like Mexico, that bear a disproportionate amount of the cutbacks.
And true to the old proverb that it never rains but it pours, Mexico is also of course the epicentre of the swine-flu problem. Even, as many are now predicting, if the fears of a pandemic subside and disappear, the damage it inflicted to the Mexican economy could already have cost in the region of $2bn, and it has come along at the worst possible time. The effects of the flu on the economy were not taken into account when predictions of an 8% shrinkage were made.
It is a sorry picture and for the sake of the Mexican electronics, the best hope is that the US economy recovers more rapidly than expected and this immediately benefits those on its southern border.
Contact Details and Archive...
Most Viewed Articles...