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January 11, 2013

Mexican Electronics Trade Balance Worsening

Indre CesnieneAnalyst Insight by Indre Cesniene, Head of Industrial Research at Euromonitor International

Mexican electronics trade deficit is growing for the fourth consecutive year. It soared to MX$26 billion in 2012 and is showing no signs of recovery. The increase is mainly due to growing imports of electronic components, valves and tubes. Electronic components is one of the most promising electronics categories in the world but Mexico is slow in growing this area in line with domestic and global demand. Despite the fact that global industry leaders such as Intel, Jabil and Texas Instruments have operations in Mexico, the industry’s capacity and output levels are insufficient to satisfy even local demand.

Mexico Electronics Trade Balance by Category, MX$ billion

Mexico Electronics Trade Balance by Category, MX$ billion

Source: Euromonitor International

Mexico is now the 10th largest producer of electronic components in the world with annual output value of around MX$187 billion. However, the country is only 21st according to per capita output, below not only major component manufacturers such as China and the US but also mid-sized European countries such as Hungary, Slovakia and the Czech Republic. Mexico offers numerous benefits for electronic component manufacturers, including cheap electricity and labour force, good infrastructure in Guadalajara and Mexico City, access to a MX$476 billion domestic demand for electronic components and close proximity to one of the largest sales areas valued at MX$1 trillion: the US. On the other hand, it seems that growing security concerns, strong labour unions as well as a lack of government tax incentives are forcing foreign electronic component manufacturers to direct their investment elsewhere.

Currently Mexico satisfies over 68% (i.e. over MX$400 billion) of its domestic electronic component demand via imports. China, Malaysia and South Korea account for over 40% of total imports, while Costa Rica accounted for an additional 10% in 2012. Costa Rica is one of the main rivals for Mexico in North America, as it became the second largest exporter of electronic components to the US in 2012. The country accounted for over 10% of all US electronic component imports in 2012, up from just 1% in 2007. In the meantime, Mexico accounts for 5% of imports to the US and is now the sixth largest importer. Costa Rica has more favourable conditions for electronic component manufacturers in terms of tax exemptions, a considerably smaller presence and influence for labour unions as well as a more stable political and economic environment.

The Mexican electronic components industry is estimated to grow by around 5% per annum on average until 2018. This is rather modest growth compared with the 12-17% average annual growth expected for China, Indonesia, India, Turkey and other major competitors to Mexico. Security problems will remain a key issue for Mexico. Despite low wages and electricity prices, potential investors will turn to more stable countries with less labour union influence. If no tax incentives or other major improvements to its business environment are offered in the future, Mexico is expected to continue to import the major share of electronic components for its vast number of maquiladoras. This will also result in a widening trade deficit for the overall electronics industry.

 



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