Global Supply Chain: Latin America

Global Supply Chain: Latin America

Manufacturing growth in Mexico spurs growth across the supply chain and throughout Latin America.

America II Electronics has expanded its business in Latin America in response to on-shoring trends, as well as the growth of automotive and medical business in places such as Mexico and Brazil. The distributor of electronic components points to Mexico as its fastest-growing region, but notes that all of Latin America represents a considerable market opportunity—something companies throughout the supply chain are taking advantage of today.

“From a market standpoint there is a lot of opportunity in the region, especially for our company,” says Esteban Polanco, America II’s strategic sales director for Mexico. Located in Guadalajara, Polanco has responsibility for the distributor’s business throughout Latin America. “It’s a huge opportunity. We’re kind of the new kid on the block in Latin America, and with our new focus in Mexico, so for us the potential is huge. We almost doubled from last year to this year from a revenue standpoint.”

America II has done business in Mexico for more than 10 years, but has stepped up those efforts in the last two years in particular, hiring Polanco in 2013 and beefing up its inside and outside sales teams dedicated to the region. Polanco and his team are developing country-specific business strategies in an effort to grow throughout the region and become a larger portion of America II’s overall business.

“We’re pushing heavily in Latin America,” adds America II’s President Brian Ellison, pointing to growth in automotive-related business in Mexico in particular, and to the market for white goods throughout Central and South America as well. The distributor is responding by expanding both its line card and its sales staff, adding more than 55 franchised product lines in the last few years— some aimed at serving Latin American business.

Such trends are likely to continue. Manufacturing in Mexico has increased at a higher-than-typical rate over the last three years, and overall supply chain growth is following suit. This condition is expected to play out over the next five to six years, according to Scott Stanley, senior vice president of NAPS, a firm that provides outsourcing and compliance management services to a variety of manufacturers looking to expand into Mexico. The growth of the country’s automotive industry, its more affordable labor rates compared to other regions, and the increasing cost of doing business in the United States and Europe are key factors.

“It’s sort of a perfect storm,” says Stanley, whose company manages roughly 74 factories and close to 10,000 employees in Mexico. “To top it off, you’ve got a strong dollar against the peso.”

Stanley says he sees a variety of companies moving into Mexico for new business opportunities—large multi-national manufacturers are opening new locations there while smaller, one-location firms are relocating to the region, in many instances. Although many of these firms are still sourcing most of their materials and supplies from outside of Mexico, Stanley says the Mexican supply chain is growing as well, as more companies seek local sources of supply.

“Virtually every manufacturer you can think of has opened or is in the process of opening [locations in Mexico],” said Stanley. “[That is] driving a tremendous increase in the supply chain as well—and as that goes, the supply chain growth is significant and will continue.”

Focused Opportunities

America II’s Polanco agrees with the potential for supply chain growth and points to the distributor’s efforts to increase its local presence throughout Latin America. In addition to tripling its sales staff in Mexico and nearly tripling its Florida-based Latin America inside sales team over the last three years, America II plans to add local inventory in the region. Today, the region primarily is serviced from the distributor’s St. Petersburg, Fla., warehouse.

“Relationships are important in the United States and Canada, but down here they are even more important,” says Polanco. “Brazil likes dealing with Brazilians. As a company you have to react to that. So we have people [who] are Brazilian on our team—they are speaking to customers in Portuguese; they know the culture.

“Also, if you have a way to get closer to the customers when it comes to inventory—to provide them with flexibility—it helps them with cash flow, which is very important. There are more and more start-up companies [in the region] doing their own design. They need that.”

Polanco lists Mexico as the greatest business opportunity for America II today, followed by Brazil, Colombia, Argentina, and Costa Rica. In Mexico, the focus is automotive, aerospace, and business related to electrical metering. With regard to the latter area, Polanco says the country has invested in the conversion of analog to digital metering, creating many new business opportunities. Brazil’s automotive-related business, contract manufacturing base, and telecommunications business hold promise, as does Colombia’s white goods industry and Argentina’s auto market. Polanco says Costa Rica is home to the region’s largest cluster of medical customers.

“They are very, very good in medical devices, with many American companies operating there,” he says. “From a trust factor it’s probably the No. 1 place to be. It’s smaller than the other countries, but there is a huge plus with medical there.”

Polanco’s comments highlight the differences in doing business with each country when it comes to both culture and government regulations. That’s why America II is developing strategic plans by country, rather than developing one over-arching plan to increase business throughout Latin America.

Navigating such issues is one of the biggest challenges to building new business in the region, Stanley agrees.

“Most of our clients have multiple concerns: one is just how to do business [and deal with] government compliance in Mexico. They want to make sure they are following the laws properly and that they are taking advantage of government incentives to do business in Mexico,” he explains, adding that relocating knowledge and core competencies is often a greater hurdle to overcome. “The biggest challenge that our clients have is transferring the knowledge from wherever they are moving from. They still have to transfer production and quality control knowledge—and that takes the longest amount of time.”

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