Facing Trump’s threats, investments should be concentrated in the supply chains, where the investment requirements reach 13 billion dollars annually. To take advantage of this window of opportunity, it should be implemented a coordinated strategy between multinational companies and their local suppliers.

1. The Trump threats and the answer of the Mexican
productive sector
Facing Trump’s threats, investments should be
concentrated in the supply chains, where the
investment requirements reach 13 billion
dollars annually.
To take advantage of this window of
opportunity, it should be implemented a
coordinated strategy between multinational
companies and their local suppliers.
In the last few weeks, there has been, in Mexico, a
growing concern about a possible drop of foreign
direct investment inflows. This, because of the
pressures that large multinational companies are
facing from the President of the United States.
To what point these threats will affect investment
inflows to Mexico is still unknown, however, the
conditions are in place to offset a possible drop in
foreign direct investment, thanks to the business
opportunities offered by the manufacturing supply
chains.
First, one must consider that an ample base already
exists in Mexico, corresponding to the manufacturing

2. industry of finished products. It is in this final layer of
supply chains where many multinational companies,
thanks to their volume of production, have positioned
Mexico as an export power for many products. In fact,
during the year 2016, Mexico exported around 330
billion dollars worth of manufactured products.
However, Mexico’s success as a leading exporter has
not yet translated into a robust base of national
suppliers. On the contrary, the increase in Mexican
exports over the last 20 years, has been accompanied
by a strong growth of parts and components imports
for the manufacturing sector. Last year, for example,
Mexico imported 294 billion dollars worth of
intermediate goods, according to INEGI statistics.
Now, with Donald Trump’s arrival to the White House,
one can foresee an increased protectionism in the
trade policies of the United States, including possible
tariffs on some of the manufactured products that
Mexico exports; all of this, as a result of the
renegotiation of NAFTA.
Due to this, many multinational companies have
included in their growth strategies, the diversification
of export markets, taking advantage of the many trade
agreements Mexico has.

3. Furthermore, they have established many aggressive
goals in their input purchases within Mexico, with the
objective of generating savings and improving their
competitive profile. All of this, done in preparation of
a possible increase in tariffs.
Fortunately, said strategy will favor Mexican exports;
since, according to recent statements made by Wilbur
Ross, the next Secretary of Commerce of the United
States, one of the main elements of the United States’
new trade policy, will be the vigilance of the fulfillment
of rules of origin.
To show the business opportunities that Mexico’s
supply chains offer, Chart 1 shows the value of the
requirements within the export manufacturing
industry of some industrial processes, in which
demand greatly exceeds the domestic supply.

4. Chart 1. Industrial processes with high demand and
low domestic supply in Mexico’s manufacturing
industry (2016, millions of US dollars)
Source: Own estimates based on information from ProMexico.
As one can see, demand in each one of these processes
is greater than 800 billion dollars. In the case of the
machining process, for example, total demand exceeds
17 billion dollars, and imports of machined metallic
parts, are nearly 12 billion dollars annually. This means
that companies that partake in machining processes
0
5,000
10,000
15,000
20,000
25,000
30,000
Stamping
Foundry
Machining
Forging
PlasticInjection
Diecasting
Fabricandcarpets
Mechanicalassemblies
Surfacetreatments
Heattreatments
Metalextrusion
Plasticextrusion
Pipes
Glass
Sintering
Fiberglass
SheetMetal
WeldingandMetalfabrication
Imports Domestic supply

5. have a wide market in the supply chains of Mexico’s
export manufacturing industry.
In order to close these imbalances between demand
and domestic supply of parts and components, we
estimate that a minimum of 13 billion dollars of annual
investment will be needed over the next 4 years; even
in the case that manufacturing exports should not
grow, which could be caused by the protectionist
policies implemented by the U.S. trade authorities.
Thus, the coordinated work between multinational
companies, domestic suppliers, and some government
agencies, in strengthening the supply chains, can offset
the potential drop in foreign direct investment, in the
last layer of the manufacturing industry.
The answer of the Mexican productive sector
At the start of a strategy focused on strengthening
supply chains, is the commitment of multinational
companies to continue exporting their products from
Mexico, given the cost advantages that our country
offers.
Afterwards, it should begin a coordinated work
between multinational companies and their local
suppliers, with the objective of informing them about

6. their purchasing goals of domestic inputs. This would
bring certainty to the suppliers’ new investments.
At the same time, this would generate trust among
companies participating in the other segments of the
supply chain, who will also need to make new
investments.
A work of this nature, would allow the detonation of a
series of initiatives, directed to the development and
expansion of the supply base. The following are a few
examples of these types of initiatives:
1.Promote new investments among Mexican
suppliers, through competitive products offered
by the financial sector.
2.Encourage reinvestments of the foreign suppliers
already in Mexico, through new incentive
programs for investment (like those of Special
Economic Zones).
3.Attract foreign suppliers to Mexico, that have
processes of high demand, and scarce or no
domestic supply.
Regarding the last point, we suggest to create
programs that promote Joint Ventures between
Mexican and foreign suppliers.

7. The challenge for Mexican companies
In order for a program of this nature to be successful,
it is not only necessary to increase the bank credit
given to small and medium size suppliers. It is also
necessary for Mexican companies to strongly
compromise themselves to the fulfillment of
manufacturing practices and standards that are
required by multinational companies. In other words,
we must convert our enterprises into world class
suppliers.
In that sense, to become a world class supplier, one
must have the following:
 A well defined organizational structure.
 A high commitment to quality and the fulfillment
of technical specifications of the product.
 Complete traceability of the productive and
logistical process.
 Good practices related to equipment and tool
maintenance.
 Robust process to select suppliers and to monitor
the quality of acquired inputs.
 Utilization of methodologies and tools that
increase efficiency and productivity (5’s, Lean
Manufacturing, Six Sigma, etc.).

8.  Permanent development of engineering and
design capabilities.
Furthermore, this challenge is also connected to the
formation of human capital; thus, the initiatives and
improvement plans of the suppliers should also include
the necessary resources to train human resources.
Where should we start?
To fully take advantage of this opportunity, and at the
same time offset the possible reduction of foreign
investment inflows, we must first establish a
coordinated strategy between the government,
multinational companies, and domestic suppliers.
This begins, as previously stated, with the coordinated
effort between global companies and their domestic
direct suppliers.
Afterwards, they should clearly define their objectives,
goals, and the initiatives included in a suppliers’
development program.
Finally, each party involved must compromise
themselves entirely, in order to achieve a successful
execution of each initiative.
Having said this, we consider convenient that each
industrial pole of the country, design programs focused

9. on the strengthening of supply chains, taking
advantage of the clusters and business associations
located in each State.
The team of BIXLINK experts has ample experience in
designing and executing these types of programs.
About the Author
Ricardo de la Peña / Profile - LinkedIn
Between 2010 and 2013, worked as Executive Director
of Export Projects in ProMexico, allowing him to direct
several Supplier Development projects. Previously he
worked in the Business Intelligence Unit of ProMexico.
Currently, Managing Partner of BIXLINK SAPI de CV.