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Mexican Electronics Trade Balance Worsening

January 11th, 2013
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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.

Electronics Trade Balance by Category, MX$ billion

Mexico Electronics Trade Balance by Category, MX$ billion

Source: Euromonitor

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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