Auto Sector Drives Record Japanese Investment in Mexico

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Japanese foreign direct investment (FDI) and manufacturing capacity continue to build in Mexico. From 2005 to April 2012, investment by Japanese companies in Mexico reached almost $8.8 billion. Sectors that are attracting Japanese corporate investments are automotive and auto parts, as well as electronic, metallurgy, machinery, agribusiness, food processing and high-end technology manufacturing.

In addition, Japanese companies in the energy sector have won numerous public tender projects in Mexico. Tender projects include the building and operation of power plants, natural gas processing plants, and water treatment systems for municipal and industrial clients.

In 2005, Japanese companies invested $1.1 billion dollar in Mexican ventures. This annual investment total decreased, reaching a low of $80.4 million in 2009 in the wake of the global financial crisis. In 2010 the annual figure recovered to $1.4 billion and to $1.7 billion in 2011. Up to April this year, the total was already $2.58 billion.

The total tally of announced investment, including direct investment in plant and machinery, plus public tender s and concessions translate into a cumulative $13 billion since 2005.

Bilateral trade between Japan and Mexico continued to expand to reach almost $5.2 billion in the 2012 January-March period, which was a year-over-year increase of 11.1%.

Mexico's exports to Japan reached $1.06 billion during the period, showing 9.3% year-ver-year growth. The total included $227 million in agricultural products, including pork ($72 million), avocado ($28 million) and asparagus ($32 million).

In the same three-month period, Japanese sales to Mexico were $4.12 billion, an 11.5% increase from the previous year. The main products in this total were auto parts, finished vehicles, precision tools and instrument and electronic boards.

As Japanese automakers and parts producers increase operations in Mexico, logistic firms are working to broaden their Latin American service. Yusen Logistics Company has formed a tie-up with a Mexican transport company to expand a land-based network for shipping auto parts and other products. The Mexican company, which generates 60% of sales from the auto industry, owns about 400 GPS-equipped trucks. Yuen Logistics plans to tap the network to set up routes connecting factories in Mexico and sites in other part of North America. Other logistic companies entering the Japanese market are Kintetsu World Express and Nippon Express.

Honda Motor Company (NYSE:HMC) (Tokyo) has started building a plant in central Mexico, and Nissan (PINK:NSANY) and Mazda Motor (TYO:7261) are also planning new plants. This will motivate an influx of auto part makers and expand production at existing bases.

Kasai Kogyo plans to boost production of auto interior parts by 50% in a joint venture with Spanish company Antolin Irausa in Guanjuato, and Tach-S Company is selecting a site for a $130 million auto seat plant. Yorozu Corporation will open a second suspension parts plant in Guanajuato with an investment of $65 million.

Because labor costs are much lower in Mexico than in the U.S, several Western and Japanese automakers are making it a key location from which to export vehicles to the U.S and South America. Mexico has free trade arrangements with more than 40 countries.

It is estimated that by 2017, Mexico will have the capacity to produce 4 million vehicles annually and will be the seventh-largest producer and third-largest automotive exporter in the world.

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