Auto parts and metal segments drive innovation in Nuevo León’s manufacturing industry

Nuevo León’s success in metal manufacturing began in the 19th century. Compañía Fundidora de Fierro y Acero built Latin America’s first foundry in Monterrey in 1903. After World War II the manufacturing sector, spearheaded by local metal producers such as Frisa and Deacero, as well as auto parts suppliers like Grupo Alfa, began laying a robust foundation for future growth.

Over subsequent decades industrial companies in Nuevo León developed specialised techniques to produce metals and fabricate metal parts. The old foundry in Monterrey has been converted into a museum, but new companies produce metal sheets and complex metal parts in Nuevo León, with its industry now tightly tied to the automotive sector, and companies using locally produced steel to make automobile parts.

Leading the Industry

“Metallurgy and automotives are two of the most important industries for pushing innovation and advanced manufacturing in Nuevo León,” Jesús Vázquez, professor at the University of Monterrey (UDEM), told OBG. “The businesses in these sectors are at the forefront of the state’s industry.”

Specifically, companies such as steel manufacturer Ternium and auto parts producer Metalsa are driving innovation and helping keep Nuevo León at the forefront of Mexico’s manufacturing economy. These metal and automotive companies have made Nuevo León Mexico’s largest industrial cluster. In 2016, due in part to the additional output from the opening of a new Kia factory, Nuevo León’s production of transport equipment increased year-on-year by 27% to MXN210bn ($11.3bn). In terms of metal parts, Nuevo León’s production totalled MXN66.2bn ($3.6bn) in 2017, up 6.1% from 2016. Overall, in 2017 the state’s automotive sector, which includes 27 Tier-1 suppliers, exported $12bn worth of products and employed over 85,000 people.

A unique aspect of Nuevo León’s industrial economy is the high degree of vertical integration. While other states in Mexico specialise in assembly, Nuevo León’s factories convert raw materials into intermediate and finished goods. Over one-third of all inputs in the sector are locally sourced. For instance, Ternium uses iron ore to make steel, while Metalsa makes steel parts. Then companies such as Kia, LG and Whirlpool use the parts from these local suppliers to produce consumer goods.

Automotives

Nuevo León is at the vanguard of Mexico’s automotive sector and is continuing to leverage Mexico’s long history of involvement in the industry. In the 1970s Mexican companies, such as Metalsa and Gonher, started supplying the assembly lines of new plants opened by General Motors, Chrysler, Ford and other car manufacturers. In the 1980s Mexican companies created joint ventures with foreign firms. Nuevo León’s Grupo Alfa teamed up with Ford to create Nemak, an auto parts producer. During that decade, the state also saw the creation of other companies, such as Vitro, a glass manufacturer that is still an important player in the state’s industrial economy. By the 1990s Nemak and Metalsa evolved into global, Tier-1 suppliers for major car companies, and Vitro began supplying producers across the North American market.

In the early 2000s, as Mexico’s automotive sector faced increasing competition from China, Nuevo León’s government teamed up with local universities and businesses to create the state’s first auto cluster. “The cluster is a strategy between the government and the private sectors to strengthen the auto industry,” Manuel Montoya, general manager of the Automotive Cluster of Nuevo León (Clúster Automotriz de Nuevo León, CLAUT), told OBG. Companies in the cluster are working with leaders from universities and representatives from the state government to help auto-parts producers diversify their production and expand to target buyers in home appliances, aerospace and electronics.

Efforts to consolidate, strengthen and expand Nuevo León’s automotive sector were boosted by the arrival of South Korea’s Kia in 2016. Located in the Pesquería municipality within the greater Monterrey Metropolitan Area, the $1bn factory is a major driver of sales for local auto parts makers. Production hit 223,000 units in 2017 and is expected to increase by 40% in 2018.

Kia’s plan to increase output is representative of the wider trend to expand automotive and auto parts production across Nuevo León. Nuevo León has expanded automotive exports 10-fold over a decade. In 2017 the state exported $30bn worth of automotive goods, up from $3bn in 2007. With more than 200 auto parts manufacturers, Nuevo León has more auto suppliers than any other state in Mexico. Over the near and medium term the local automotive industry is expected to continue to attract further investment, evolve and expand.

Metals

Alongside automotive, metallurgy is also a key segment driving Nuevo León’s industry. Metal manufacturing companies have been working to expand and modernise their operations. In 2017 Ternium announced plans to build a $1.1bn hot steel rolling facility in Pesquería. The factory is set to begin operations in 2020. “The factory will allow us to produce technologically advanced products for the automotive industry, as well as for a wide range of other industries, like home appliances, machinery, energy and construction,” Daniel Novegil, then-CEO of Ternium, told local press.

Although Nuevo León is already a hub for metal production, companies are looking for ways to collaborate with political and academic leaders to ensure long-term productivity. “Mexico needs fundamental reforms to maintain its competitive level against other countries,” Maximo Vedoya, global CEO of Ternium, told OBG. “It is not enough just to have a low-cost labour force. The country needs tax reforms to compete with the US and improve its infrastructure and rule of law.” Similar to in other sectors, Nuevo León’s top metallurgical companies are looking to modernise their operations though automation and big data-driven management.

Industry & Education

Metallurgy and automotive, like other high-added-value segments of Nuevo León’s industrial economy, benefit from a robust group of local universities. Collaborations between the private sector and universities should continue to drive innovation in the automotive sector. Local metal parts fabricators such as DBG and Aztec Technologies, as well as global companies such as Daimler and Kentech, an energy and industrial services provider, can collaborate with university researchers and use industry-leading design equipment at the DRIVEN CLAUT Innovation Centre, inaugurated in 2017 inside the Technological Research and Innovation Park (see Nuevo León chapter). The auto industry is set to receive an additional boost from the creation of a new lab at Regiomontana University, which will be the first Industry 4.0 university lab in Mexico, expected to be operational by the start of 2019.

Within the private sector in Monterrey, Ternium and Metalsa are two of the biggest drivers of public-private partnerships. In 2006 Ternium collaborated with the Autonomous University of Nuevo León (UANL) to provide students with internships and jobs after graduating. In 2012 Ternium signed a deal with UANL to support research and development of new production technologies. In 2014 Nuevo León’s state government, in collaboration with CLAUT and the National Entrepreneur’s Institute, created a programme to help 120 local businesses boost the amount of content to be used by Ternium and the biggest industrial manufacturers.

Nuevo León’s leading metallurgical and automotive firms collaborate with the top universities to connect students and researchers with private sector engineering teams, finding solutions to real world problems. “The auto industry in Nuevo León benefits from being able to count on prestigious universities such as the UANL and the UDEM,” Montoya told OBG. “There’s a tradition of developing projects between these institutions and companies that have been enhanced by CLAUT.”

Universities are developing specialised courses to teach students skills related to automotive design and industrial management. The links between Nuevo León’s automotive and metallurgical segments and the state’s universities are seen as mutually beneficial.

Nuevo León’s dynamic metallurgic segment has been built on a strong foundation, but industry leaders are now focused on looking towards the future and innovation in order to remain competitive over the long term.