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Machine Vision in Mexico: Where is the Market Headed?
by Paul Kellett, AIA Director or Market Analysis - AIA Posted 08/15/2008
The ingredients are all there: a favorable trade and investment climate, proximity to major US firms and a developing manufacturing base. With these ingredients, machine vision must be making major inroads in Mexico…..or not? To answer this question, let’s take a closer look to see where the Mexican machine vision market is headed.
First, we should consider Mexico’s economy to understand the current level of demand for machine vision as well as the ability to purchase MV products. The country’s free market economy is far from small, ranking thirteenth largest in the world in terms of purchasing power parity. As such, it accounts for no less than one-third (28.5%) of the total gross domestic product (GDP) of Latin America as a whole. This alone suggests that a MV company seeking to sell in Latin America cannot afford to ignore Mexico!
Also important to MV companies is this country’s orientation to manufacturing. Just under one-third (26.7%) of Mexico’s total GDP is produced by the manufacturing sector, indicating an extensive manufacturing base.
A key aspect of manufacturing in Mexico, we should note, is the important role played by Maquiladoras. Maquiladoras are factories which take in imported raw materials and produce goods for export. In total, they account for 31% of exports and 25.5% of imports and are largely responsible for a high degree of integration between the US and Mexican economies. Although associated with NAFTA (the North American Free Trade Agreement), many were built well before NAFTA to take advantage of US customs regulations, low labor costs and proximity to the US border. With the passage of NAFTA, trade between Mexico, the US and Canada accelerated.
But NAFTA is not the only trade agreement in Mexico. In fact, Mexico’s trade with 40 other nations is governed by some 12 trade agreements, as a consequence of which 90 percent of Mexico’s trade today is covered by trade agreements. The flow of goods encouraged by these agreements has, in turn, spurred the development of the country’s manufacturing base. That, and relatively liberal laws regulating direct foreign investment, are more good news for MV companies seeking to do business in Mexico.
MV companies seeking to enter the Mexican market have essentially three, basic options: establishing an in-country manufacturing capability, direct exports, or utilizing a distribution network. Because the first option is financially out of reach for all but the largest MV companies, and since the second option requires intimate knowledge of customs procedures, the local language, culture, tax regime and business norms; most non-MV companies selling into the Mexican market elect to use distributors or local partners. According to Dr. Miguel Arias, CEO of Prefixa Vision Systems, the key to success for a non-Mexican company doing business in Mexico is “(t)o have a Mexican distributor or a Mexican partner and work closely with him.” However, the non-Mexican MV company should “(b)e prepared to spend time to train, coach and help (the partner or distributor) grow the client base.” This is because distributors of MV products that have established channels and a large customer base are largely non-existent. Foreign MV companies must therefore make a long-term commitment and not expect a quick ramp up of sales.
So where is the MV market in Mexico headed? The answer appears to be “up” in the long-term. Currently, machine vision finds itself in a very nascent stage of development in Mexico; so any further expansion of the country’s manufacturing base suggests a growing opportunity for machine vision, which a number of companies are interested in targeting. What else is changing? The Maquiladora business model has been based on the availability of low cost labor plus proximity to the US border. With some business opportunities migrating off shore to lower-cost areas in the world, this business model will have to eventually shift. Indicative of this is the emergence of a new business culture of quality in Mexico, which can only favor the dispersion of MV technology, a major enabler of quality in production. However, perception of MV’s vital role in this regard must first become more widespread. To achieve this, the benefits of machine vision must be demonstrated. Instead of pushing large sales, Dr. Arias suggests “a small entry project…to show the feasibility and advantages before scaling up.” With patience and perseverance, MV sales in Mexico should grow.
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