Following the Big Boys to Mexico

For many smaller manufacturers following the bigger clients and building OEM relationships may be the safest — and sometimes most successful — entry strategy.

“The infrastructure in Querétaro is every bit as good as in Oklahoma,” says Bill Emery, CEO of Southwest United (SU), a $40 million company providing metal processing services to bigger aerospace manufacturers. In 2009, the firm made its first foray into an emerging market, forging a joint venture with Mexico-based Galnik, a supplier of aerospace plating services. The quality infrastructure was a nice surprise, but SU was drawn to Mexico by something more: thriving clusters of original equipment manufacturers (OEMs) and suppliers created by global aerospace clients coming into the country.

Mexico’s aircraft manufacturing has become one of the country’s biggest growth areas. This is partially attributed to Mexico’s proximity to the United States and Canada, which together represent 60% of the global commercial aircraft market, according to the local Aerospace Industry Association (Femia). To date, national and foreign direct investment has totalled about $13.5 billion from over 240 companies, including Aernnova, Bombardier, Cessna, Eurocopter, Hawker Beechcraft and Messier Dowty.
Femia estimates that between 2010 and 2011, total sales in Mexico’ aerospace cluster increased by 25% to $4.5 billion. And given that the world’s commercial airline fleet is typically over 18 years old, over 20,000 planes will need replacement within the next ten years, so further opportunity beckons.

For some companies, the decision to set up a new emerging market facility was relatively straightforward. Québec-based Heroux-Devtek (HD), a $360 million manufacturer of aerospace and industrial products, made the move after prompting from some of its biggest clients. But Deshaies adds that companies need to make sure they have the order flow before making a big investment: “”If you are an SME that runs from one purchase order to another, it would be hard to justify setting up in the emerging markets. Indeed, the firm’s plans to build a facility in Querétaro came on the back of a multi-year contract with Bombardier. It is also pursuing contracts with other clients, with two deals in the pipeline.

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Source: Source: Industry Week

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