Evolving Automotive Industry Creates New Opportunities for Innovation

With the market gaining momentum from low interest rates and consumers beginning to replace their aging vehicles, many automotive manufacturers are looking to improve their light vehicle fuel economies. Yet investing in innovation can be costly for manufacturers if they keep their fabrication and assembly processes exclusively in the U.S. Manufacturing in Mexico allows businesses to commit more resources to automobile innovations, such as creating more light vehicles that are fuel economic. 

Automaker and Technological Innovation

According to a piece in Manufacturing Engineering by Jamie Price, president of metalworking tool supplier Sandvik Coromant, to continue strengthening North America's automotive industry, manufacturers need to invest in tackling the biggest challenges in the current market. Price wrote fuel economy is an ongoing obstacle many automakers struggle with. From using light materials to reducing weight-to-power ratios to cars with lower emissions output, better fuel economy requires a significant investment from manufacturers. According to Price, consumer needs are evolving, and automakers should ensure they serve those changing expectations. However, automakers are often unable to invest in technological innovations, such as composite materials, digital navigation and fuel management, because of the ongoing focus to reduce operating costs.

 

"The same old technology will not satisfy the consumer," Price wrote. "At least in the U.S., engines and transmission have to evolve to get more lean and green. For automotive manufacturers to get there, innovation in machining current and future components is essential."

 

Nearshoring Creates Innovation

Nearshore manufacturing in Mexico is much like offshoring for companies in North and South America. It provides manufacturers with the opportunity to reduce their production costs leaving extra resources for research and development. Workers in Mexico are highly qualified to fabricate auto parts, with many having experience in auto manufacturing and with a specialization in the industry. This makes them better able to run new innovative processes.

 

According to IBT, automakers are raising their prices, yet expanding to Mexico may allow manufacturers to keep their prices steady while providing consumers with enhanced vehicles. For automakers in the U.S. to continue seeing strong sales, nearshoring can help businesses offer lower prices because they have been able to experience cost-savings elsewhere. Expanding to Mexico gives U.S. automakers the opportunity to increase their competitiveness in the North American market.

 

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A joint study by the Australian Institute of Technology and Management Centre Innsbruck found companies that offshore manufacturing spend more money on innovation than their competitors who manufacture domestically. When organizations reduce manufacturing costs, they are able to devote more of their budgets to research and development and stay more innovative than they would otherwise be able to do.

 

In many fields, innovation is the difference between success and failure. Nearshoring as an expansion strategy allows more dollars to go toward product innovation because nearshore manufacturing  is of equal quality with domestic manufacturing, provided a company chooses wisely.

 

Given supply chain and shipping requirements, Mexico's proximity to the U.S. is a huge asset. The costs of labor, parts, real estate and currency exchange are also extremely competitive in Mexico. Furthermore, expanding to Mexico can free up capital for innovation - arguably one of the most important aspects of running a business.

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