Foxconn and HP executives weigh in on future of Mexico’s electronics industry
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By Graeme Stewart
Leaders in Mexico’s electronics industry know the sector is in a rut and that positive steps must be taken to reinvigorate it from the stupor of a mere 6.3 per cent increase in exports that it has been stuck in for several years.
It would be a big mistake to think that these captains of industry are doing nothing to improve the situation. In fact, they are working night and day to retrieve the position and restore electronics to its former glory.
Two of those hard pressed and hard working industry executives are Francisco “Pancho” Uranga, Corporate Vice President and Chief Business Operations Officer for Foxconn Latin America, and Carlos Cortes, Director General of Hewlett Packard Mexico.
We first met with Pancho Uranga in one of Mexico City’s best hotels while he was holding meetings in the capital, a change of scenery from the El Paso-Juarez region where Taiwanese-owned Foxconn’s Mexico operation is based and which is, incidentally, home to Mr. Uranga.
Pancho had declared on the telephone that while your narrator may hold the advantage over him in terms of height, he was certain he had more grey hairs. He was right, by a whisker.
We sat down over coffees and the fast talking businessman launched into an overview of the electronics industry in Mexico.
He said: “We have a lot of opportunities and I think it is time for the electronics industry in Mexico to get creative and innovative. I don’t think we have done enough to attract new investment into the electronics market.”
“Asia – and by Asia I mean Japan, Taiwan, South Korea and now China as well as India and, more and more, Singapore and Indonesia – has become very competitive in the electronics market and if we don’t do more in Mexico, we stand the risk of becoming nothing more than a large assembly plant.”
“But we have great opportunities because electronics is not just computers. It also involves all the equipment needed in the automotive and aerospace industries too.”
“Unfortunately, our policy so far has not connected those dots and to do that we need to be aggressive and create new tax policies. The problem is that those of us that don’t evade taxes are constrained in a little bubble and all the authorities do is continue to try and get more money out of those that do pay taxes rather than from those that don’t.”
He continued: “My hope is that we’re beginning to wake up and that there will be a reaction from the Government that is beneficial to the electronics industry. I don’t care if it’s a slow reaction just as long as there is a reaction of some kind.”
“I really hope that the Mexican Government will develop a program for electronics similar to the program created 25 years ago for the automotive industry. One that will enable the electronics sector to make a mark on the global map just as the automotive sector has done.”
“Strong backing from the Government is a must if the electronics sector in Mexico is to recover. I would look on it as a strategic partnership and that partnership has already worked well with this Administration’s Constitutional Reforms.”
“That is the kind of positive action that’s required. Let’s see more of that strong leadership.”
A few weeks later, we caught up with Carlos Cortes, again in a plush hotel but this time at the CANIETI National Convention in Mexico City where innovation was the buzz word among the electronics industry representatives.
Along with education and training, innovation is seen as one of the key drivers that will revitalize the electronics industry in Mexico and help lead the sector back to its previous heights. To do that, it is widely recognized that there has to be a degree of co-operation between electronics companies, academia and government.
Taking time off from his busy schedule, Mr. Cortes explained how the electronic sector could recover from its years in the doldrums.
He said: “I have been speaking with some colleagues in other electronics companies and we agree that to secure a bright future for our industry in Mexico, we have to work around major trends like working with the cloud, technological advances and changes in the workplace.
“We are developing capabilities in terms of capturing more infrastructure through cloud enabled systems, how we capture more managed services through our technological capabilities and how are we moving our traditional personal computing and printing businesses into more of a personal services solution.
“The Constitutional Reforms recently put in place by the Peña Nieto administration are viewed positively, although we see it as more of a long-term play, and right now we are seeing telecom reform, which will be one of the low hanging fruits in terms of seeing more and more new companies entering that sector like AT&T coming into Mexico. As long as there is more investment in the telecom sector, IT companies are going to benefit from those new investments.”
“We could always argue that the reforms could have been more comprehensive but I think they are good first steps in terms of having a long-term vision in attracting foreign investment as they have been doing so far. But I think it is necessary to have a long-term vision around those reforms.”
Mr. Cortes urged the industry to look to the long-term future rather than go for the quick fix. He said: “I think we have to look at Mexico in the long-term basis. At the moment we concentrate too much on the short-term – the day, the week or the month – and we need a longer-term evaluation taking into the account the growth of the Mexican economy and the problems of the world economy.”
“But with the Constitutional Reforms, I think Mexico has a great future. We are seeing a lot of foreign investment coming into the country and we have a lot to play for.”
“The electronics industry in Mexico has suffered a slump in growth over the past five years or so but it’s not only in Mexico. We have seen a global slump in various categories, including the PC business, and we have to revitalize those categories.”
“According to analysts, by this time next year we should be seeing neutral or positive growth in the electronics industry. If we are able to move our transactional business into more of a solution based field - in a word, innovation - then we should be doing a whole lot better this time next year.”
Mr. Cortes admitted that innovation, a key driver of economic growth and productivity in today’s global economy, was something that Mexico was behind other emerging economies, with regards to productivity.
He said: “Continuing dialogue with regional partners is important to increase understanding of policy reforms that strengthen regional innovation and productivity outcomes. Innovation operates within an ecosystem of four main components: government, infrastructure, funding and community. The overarching role of government should be uniting and enhancing all the aspects of the innovation ecosystem.”
“Innovation occurs in environments that encourage experimentation and accept failure as a necessary part of the process and sustaining the growth of innovation clusters and enhancing integration between universities and businesses can help turn research initiatives into market realities.”
“Business incubators are also important programs that help facilitate mentoring relationships vital for smaller businesses and non-traditional policy efforts outside of the regulatory framework such as promoting the use of crowdfunding and incubator programs, building and expanding innovation clusters, tapping into the Mexican diaspora and implementing programs that celebrate entrepreneurship at local level can help drive innovation in the short-term.”
“Innovation is the key driver of economic growth and productivity in today’s global economy but Mexico is behind other emerging economies with regards to productivity. Traditional business models do not have the processes in place to thrive in a 21st century environment. That has put innovation policy at the top of the agenda for decision makers in business and government all over the world.”
Mr. Cortes’ comments were echoed by the Mexican Institute of the Wilson Center, a Washington DC-based think tank, who added that Mexico should also consider exploring a government sponsored program such as the SBIR grants program in the USA to minimize risks for venture capitalists and stimulate venture capital fund development.
The Institute said: “The SBIR program helps entrepreneurs assemble a portfolio for a technology worthy of entering the marketplace and serves as a credential to obtain third party funding. The U.S. government funds the critical startup and development stages and it encourages the commercialization of the technology. As a result, venture capitalists are finding companies less risky and are willing to invest in SBIR startups.”
“We believe that Mexico can benefit from such a program. We must emphasize that Mexico does not need to copy the American innovation model. In fact, what works in one country may not work in another, given their unique economic, social and cultural makeup.”
“Mexico has the opportunity to learn from other innovation models but it needs to understand its own economic profile and work to design a framework suitable for Mexican entrepreneurs that is creative, flexible and risk-friendly.”
“The way ahead for Mexican legislators is to continue to engage the academic community, business, innovation experts and international partners, and to review existing policies and strategies.”
We know what has to be done and innovation along with a close working partnership with the Mexican Government are two important actors in leading the electronics industry out of the doldrums and back to the forefront of Mexico’s manufacturing and export sector.