EU Chip Makers Weigh Production Risks Amid Covid-19
by 
As electronics vendors continue to scout for the best locations to expand their production operations or open new facilities a new study shows that Mexico will continue to lead electronic manufacturing growth in Latin America through 2016.
The Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation’s biannual report examines the latest trends in Latin America’s three largest economies – Brazil, Mexico and Argentina – which account for more than 80 percent of the region’s manufacturing output.
Overall, the MAPI Foundation’s manufacturing production index for Latin America is expected to decline 0.9percent in 2015, but the picture is mixed in the three countries that were analyzed. The poor manufacturing performance in the MAPI Foundation’s regional index is explained by the deeper than expected recession in Brazil that is offsetting the solid performance of Mexican factories.
Three key findings in the report are:
- The MAPI Foundation's Latin America manufacturing index is expected to decline 0.9 percent this year and to expand 1.9 percent in 2016
- In 2015, a sizable recession across Brazil's industrial complex is offsetting the expansion of Mexico's manufacturing
- Mexico will continue to lead manufacturing growth in 2016; factories in Brazil and Argentina will post a timid rebound
Of the three countries examined in the report, Mexico and Brazil are the only nations that have projections for computing machinery, communications, and electronics equipment. In Mexico, the report indicates there will be a marginal year-over-year decline in manufacturing in this category from 5.8 percent in 2015 to 4.1 percent in 2016.
“The growth rate [will] decelerate a little, but [there’s] still very solid growth for electronic manufacturers in Mexico,” Fernando Sedano, MAPI Foundation’s economic consultant and author of the report told EPS in an e-mail.
Sedano said Mexico is benefiting from a mix of both off-shoring, where companies are moving manufacturing and/or assembling products to take advantage of lower cost such as labor rates and, as well as near-shoring, which occurs when companies move manufacturing or assembly closer to the location where their products are sold.
At electronics distributor Avnet Inc., Alex Iuorio, senior vice president of supplier business development at the Electronics Marketing Americas unit, said he is seeing substantial growth in Mexico where Avnet has a logistics, materials management and warehouse facility in Guadalajara.
In a recent interview Iuorio said Avnet’s business in Mexico is growing for two reasons: “One is we have the benefit in the Americas of having a low-cost area to be able to handle our logistics and more administrative type functions and we are continuing to bolster our personnel there that support all of the Americas from a center of excellence standpoint,” he said. “We are also continuing to invest, again consistent with our supply chain and design chain methodologies, because there is an indigenous electronic customer base that's building in Mexico.”
The report indicates that Brazil will present a more challenging environment for the electronics industry next year. Estimates are that in the computing machinery, communications and electronics equipment segment there will be a year-over-year adjustment from minus 10.3 percent in 2015 to minus 2.2 percent in 2016.
“Clearly, when weak demand forces output to decrease significantly, on top of a "higher-than-desired" inflation rate that increases cost of production and narrows margins, companies' finances deteriorate. That may be the dynamics across most electronic manufacturers in Brazil,” Sedano told EPS.
In the report, Sedano wrote that the Brazilian government’s austerity program designed to restore the country’s fiscal position and fight rising inflation are policies that are having a negative impact on the manufacturing sector.
“Tighter fiscal and monetary policies are clearly affecting activity and taking a toll on consumer and business confidence levels, which are further damaged by the unfolding of the Petrobras corruption scandal. During the first three months of 2015, Brazil’s GDP contracted by 0.2 percent quarter over quarter and 1.6 percent year over year; both readings signal a downward spiral in overall economic activity,” Sedano wrote in his report.
He went on to say: “Even more worrisome is the continued decline in month-over-month readings, suggesting that the contraction continues to gain strength. A 21.3 percent decline in motor vehicles production during that period is at the heart of the country’s industrial recession. The weak car making industry continues to negatively affect activity in most intermediate industries. The office and electronic equipment, refined petroleum products, and pharmaceutical industries are among the largest drags to growth. The demand for durable industrial goods and capital goods is plummeting.”
But not everyone sees Brazil as a dark spot in Latin America. Iuorio said Brazil has great potential and Avnet is prepared to bet on the largest country in the region.
Alex Iuorio , Avnet Inc.
“There is an indigenous design customer base that continues to build in Brazil and we are there in the region, in territory, with what we need to be able to support those customers’ requirements,” Iuorio said.
He noted that in Mexico and Brazil Avnet is building its sales team, as well as field application engineers trained by the company’s suppliers, and a managerial staff that will oversee work requirements.
“We are excited about Latin America, we are vested, and we will continue to support the customer with leading-edge products, trained engineers, the leverage of factory relationships and then ultimately we’ll continue to build a seamless supply chain,” Iuorio said.
Related posts
