Industrial parks and investment supports the manufacturing base in the State of San Luis Potosí

San Luis Potosí is an integral part of the Bajío industrial region – the engine of the national economy. Within Bajío, the state is a leader in several key industries and in recent years has moved to diversify its offerings. Traditionally, San Luis Potosí has been a centre of direct automotive manufacturing – which is still the largest industry in the area – but there has been a concerted effort to attract segments such as moulds, which complement the state’s burgeoning automotive manufacturing sector. In a bid to boost the industrial base, the state governments of Aguascalientes, Guanajuato, Querétaro, San Luis Potosí and Jalisco are collaborating in the coordination of policies to facilitate investment and promote the bloc under an initiative known as La Alianza Centro- 2018 Bajío attracted 18.4% of the total foreign direct investment (FDI) into Mexico, with San Luis Potosí attracting $1.3bn in foreign investment that year.

Manufacturing

Manufacturing is the largest sector in the San Luis Potosí economy and represented 27.7% of the state’s GDP in 2019, according to the Secretariat of Economic Development (Secretaría de Desarrollo Económico, SEDECO). In recent times, San Luis Potosí has displayed impressive capacity for growth. From the start of the current state administration in 2015 through May 2019, 64 new manufacturing businesses entered San Luis Potosí, with 44 of these in the automotive industry (see Automotive analysis), eight in the energy sector and the remaining 12 in other business areas. Of the businesses attracted to San Luis Potosí’s manufacturing industry during this period, 12 were from Mexico, 11 were from Germany, eight each were from Spain and the US, six were from Japan and the remaining 19 were from other countries. This investment was largely centred around the state’s capital, which attracted 44% of total investment, while the remaining 56% was spread throughout the rest of the state. These new investments helped create 20,535 jobs in the manufacturing sector in the city of San Luis Potosí alone, with 15,810 additional jobs created in other parts of the state. Reflecting its outsized impact on the state’s economy, manufacturing attracted over 80% of all FDI into the state in 2018, accounting for $1.3bn of the $1.6bn invested, according to figures provided by SEDECO.

Emerging Sector 

In addition to the direct manufacture of automobiles, the moulds, casts (or dies) and tools sector – an umbrella term that encompasses aluminium, plastic or glass parts cast by precision-engineered moulds – has played an important role in the Mexican economy and is growing, mainly due to demand from the automotive sector. This spurred the creation of the Mexican Association for the Manufacture of Moulds and Dies (Asociación Mexicana de Manufactura de Moldes y Troqueles, AMMMT) in October 2014, which works to coordinate the substitution of imports and facilitate partnerships between actors in the segment in Mexico and abroad. According to a study published in May 2019 by the AMMMT, there are 110 companies involved in the industry in the country, with such businesses spread across 13 states. Bajío attracted 86 of these companies, a significant number that highlights the area’s potential. The report also said that there is a $5bn demand for mould-formed products in Mexico, double the demand of $2.5bn in 2011. However, local producers were supplying only around $200m of demand, pointing to a wide production deficit whereas Mexico has been importing 95% of its moulded parts. San Luis Potosí has sought to capture some of this demand, and as such has emphasised the importance of equipping its workforce with the specialised skills needed to manufacture these parts.

In June 2019 Mexico’s first casts, moulds and tools consortium, Consortium of Moulds, Dies and Tooling (Consorcio de Moldes, Troqueles y Herramentales, Consorcio MTH) was inaugurated in San Luis Potosí. The initial agreement for the consortium was finalised in May 2017 – requiring an initial MXN100m ($5.2m) investment from the Regional Institutional Fund for Scientific, Technological and Innovation Development – aimed at developing necessary infrastructure and human resources in the north-central part of Mexico for the segment, which would lessen dependence on foreign technology and investment.

In November 2018 the then-director-general of Mexico’s National Science and Technology Council (Consejo Nacional de Ciencia y Tecnología, CONACYT) Enrique Cabrero Mendoza announced an additional MXN20.5m ($1.1m) in funding for Consorcio MTH over the following three years. MXN15m ($776,000) was invested from CONACYT’s general fund to cover equipment costs. What is more, the AMMMT is slated to host the first edition of the Meximold industry conference in the Bajío state of Querétaro in mid-November 2019, with the aim of consolidating the progress made and facilitating the exchange of ideas.

Human Capital Contribution 

Importantly, Consorcio MTH will also be looking to substitute imports of innovation and technical specialisation with those from professionals at home through the creation of a skills exchange training programme. The body signed a cooperation agreement to make Portugal – a leading market within the segment – its strategic partner in efforts to encourage growth in the industry. Five Portuguese companies – Moldit, TJ Moldes, ASG Moldes, MoldWorld and Ribermold – will participate in the alliance. The partnership agreement will be managed by the Mexican Centre for Advanced Technology and two subsidiaries of CONACYT: the Centre for Engineering and Industrial Development, and the Mexican Corporation of Research of Materials. While Chinese, South Korean, US and Canadian companies were considered along with those from Portugal as partners in the collaboration, Consorcio MTH chose Portugal for its reputation as an industry leader whose casting sector exports 90% of its production to 65 countries – among which Germany is its largest client – and has sent products to more than 100 countries. In order to facilitate the training of Mexican experts, 14 local technicians were sent to Portugal for a six-month training period, with 10 more due to complete the training programme in 2019 and 2020. The training programme is expected to host a total of 30-35 individuals over a three-year period.

Logistical Fulcrum 

Perhaps San Luis Potosí’s most important geographic attribute is its central position in Mexico’s domestic and international trade routes. That the state’s manufacturing sector has flourished is largely a result of and dependent upon the ease by which both people and goods throughout the supply chain can move. San Luis Potosí has relatively direct access to export markets due to its location between the capital of Mexico City and the US border. Additionally, the state is equidistant between ports on both the Atlantic and Pacific Oceans, giving it an even further reach. Its connection with domestic markets is highlighted by the fact that San Luis Potosí borders 10 Mexican states. It is an important part of Mexico’s industrial heartland and is well placed for logistics. The north-south Carretera 57 highway – known locally as the Nafta Highway – runs through San Luis Potosí and connects the state with the rest of Mexico, northwards to the US border and south-easterly to the border with Guatemala.

The highway has been a boon for local manufacturers, according to Maricela Valencia, commercial director of Logistik, which manages Logistik Industrial Park – the largest industrial site in Mexico – and two other sites. “An access road has been added from Carretera 37 to our Logistik parks, connecting us more directly to the city of León in neighbouring Guanajuato,” she told OBG. The highway runs from the municipality of Villa de Zaragoza in San Luis Potosí through southern Bajío to the Pacific Ocean at Playa Azul in the state of Michoacán.

Rail Links

San Luis Potosí was among the first cities in the country to be connected by rail when Mexico industrialised in the 19th century. Although passenger traffic no longer flows to or from San Luis Potosí by rail, Kansas City Southern operates a freight line that connects San Luis Potosí City to other industrial centres in the Bajío region, including San Miguel de Allende in Guanajuato, the state of Aguascalientes and Mexico City. There is also a rail link to Interpuerto, one of Mexico’s most important inland ports, which is located in Monterrey, just 180 km from the border with the US. The inland port boasts its own 1433-ha industrial park. It also connects to the Intermodal Terminal – the largest in Mexico – which spans more than 247 acres. The Intermodal Industrial Park is owned and managed by Kansas City Southern and connects with the major ports of Lázaro Cárdenas on the Pacific coastline and Altamira in the Gulf of Mexico. The Intermodal Terminal offers more than 400,000 twenty-foot equivalent units of space to its customers.

By Air 

Ponciano Arriaga International Airport offers regular direct flights between San Luis Potosí and Mexico City, and a MXN400m ($20.7m) airport renovation funded by Grupo Aeroportuario Centro Norte was inaugurated in August 2019. The renovation, which began in September 2017, expanded and remodelled the terminal, tripling the airport’s capacity to 1.2m passengers per year. Reflecting the airport’s growing capacity and the state’s expanding interest from investors abroad, state economy secretary Gustavo Puente Orozco announced new international flights to Houston and Dallas in 2018, and a flight to Detroit was added in July 2019. San Luis Potosí is also connected via air to Monterrey and Querétaro in Bajío. “We are connected with everything,” Valencia told OBG. “We are connected to both borders by rail, road and even ports, and as such we have access to goods, both arriving and for export. The challenge, however, is to keep making prices more competitive and transport times faster.”

While the city’s transport infrastructure is improving, this trend must be continued and sustained in the long run in order to fully catch up with growth and encourage industrial development. “The city has developed far quicker than we could have expected, but infrastructure has lagged behind,” Maria Ibargüengoitia, business manager for industrial real estate developer Vesta, told OBG. “Improving this imbalance is the most significant challenge.”

Advantages

Nonetheless, San Luis Potosí is price-competitive, with the state being cheaper than Querétaro for potential investors, according to Valencia. Energy prices are stable and construction costs – despite a recent spike – are also relatively low (see Energy analysis). “San Luis Potosí is not as expensive as the cities in the north along the border with the US, and the quality of service here is very good,” Valencia told OBG. “We have even attracted businesses from the north in packing and warehouse logistics, which has added to the strength of our industrial base.” Valencia noted that while the price of land in San Luis Potosí is roughly equal to that in Aguascalientes and Guanajuato, the cost of construction is slightly lower due to the shallow layer of organic topsoil atop the solid bedrock of the valley, which makes construction easier.

Success Stories

Logistik has three industrial parks in San Luis Potosí and its investment in the state has sparked interest from other companies who followed suit. US logistics company Penske began operations in San Luis Potosí in 2007, and international firms Link Logistics and DHL also operate out of Logistik’s parks. In addition, tyre manufacturer Continental opened a production plant in a Logistik Industrial Park in 2017 to manufacture air induction systems for sale in both North and South American markets. US transport and supply chain management firm Ryder announced it would create a new warehouse at a Logistik park in early 2017.

Vesta is another player in the logistics sector. The industrial park management firm has facilities across Mexico and began operations in San Luis Potosí in 2004. The Bajío region hosts 49% of the company’s total park surface area and 78 of its 166 clients. In total, 71% of Vesta’s clients are in the manufacturing sector – largely automotive in the Bajío region – and 29% are in logistics. By 2025, Vesta forecasts a gross leasable area of 296,758 sq metres in San Luis Potosí, up from the current area of 144,219 sq metres. The firm currently holds space between BMW and GM in the Logistik Park II, and also has properties in the Parque Industrial Tres Naciones (Three Nations Industrial Park), which have thus far attracted $35.4m in investments. In 2018 Vesta opened its own 43-ha industrial park, Vesta Park San Luis, with plots ranging from 17,000 sq metres to 380,000 sq metres, and situated within 4 km of a $1bn BMW production facility. One of the company’s main clients in San Luis Potosí is Continental, which has three facilities for the distribution of tyres and storage and the manufacture of hoses. Another automobile parts manufacturer, SMR Automotive, makes mirror casings in a Vesta facility. The company also has a subsidiary utilities company called Enervesta, which distributes energy from the Federal Electricity Commission to its parks. “The majority of our clients are from the logistics and automotive sectors, but we are open to any new investment,” Ibargüengoitia told OBG. “It just so happens that San Luis Potosí has focused more on vehicle manufacturing and the region holds an obvious appeal for logistics companies.”

Supply Chain Management 

With more big businesses setting up operations in San Luis Potosí, the state’s supply chain has gravitated towards serving multinational companies such as BMW and GM. These large investments, therefore, has had a spillover effect. “While the automotive sector has long been – and will continue to be – the leading source of investment in San Luis Potosí, logistics firms are never far behind as they want to be here near their clients,” Valencia told OBG. Logistics parks are being built around this clustering. Logistik Park I was built around GM and more than 80% of the businesses in the park are in logistics – the majority of which provide services for GM, such as Anchor Bay Packaging, an automotive-centred packaging company. The automotive giants arriving in San Luis Potosí have therefore led to an increase in collateral investment throughout the supply chain. “After the arrival of BMW, some of the company’s providers followed it into Mexico, where they had not previously invested,” Valencia said.

Asian Influx

A nascent boom of Japanese investment in the Bajío region largely concentrated in the automotive sector began with the arrival of Nissan in Aguascalientes in 2013, followed by a $800m Honda plant in Celaya, Guanajuato in 2014, and at a $770m Mazda production facility in Salamanca – in Guanajuato – the same year. In San Luis Potosí automobile parts manufacturer Nidec Sankyo announced a $15m investment in 2017 for a 12,000-sq metre plant to be built in developer Lintel’s San Luis Hills Industrial Park, adjacent to Satellite City.

Many of the companies that have established operations in the country recently have followed suit in operating in the same park, with Toyota scheduled to arrive in 2019. Valencia expects Chinese businesses to be the next to arrive as there has already been significant interest from Hong Kong, Taiwan and mainland China. The San Luis Potosí state administration has been actively courting potential investors in East Asia and even introduced domestic park management firms to interested parties.

Diversification 

There have been notable efforts to diversify the companies that operate in San Luis Potosí’s industrial zones. Seeking to tap into the burgeoning medical tourism industry, a medical cluster was inaugurated in the state in 2014 and following a successful pilot project in 2016, it now has 120 affiliates. The cluster has commercial links with 24 cities in 11 countries. “We are strenuously working to attract medical supply companies to San Luis Potosí,” Valencia said, noting that while the response from such companies thus far has been underwhelming, she is optimistic about the future.

The supply chain is well-placed to adapt to the growing shift of consumer preference towards electric and hybrid vehicles due to its port access. Logistik already has a client that manufactures parts for Tesla, and several other automotive parts manufacturers are preparing to enter the specialised market.

The future appears positive for both the manufacturing and logistics sectors, despite a challenging political climate that created uncertainty in North America in 2018. “We had some good business leads in 2018, but not as many as in previous years, partly due to the unpredictability of US President Donald Trump, the new federal government in Mexico and the discussion around the US-Mexico-Canada Agreement,” Valencia told OBG. “More than anything, we have seen that the pace of business has slowed down.” Even still, the state has continued to attract investment and the wider Bajío region looks set to maintain growth. “This year has seen more uncertainty than in previous years,” Ibargü engoitia told OBG. “However, the large companies in San Luis Potosí are not going anywhere and their supply chains are solidifying their presence in the region.”

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The Report: Mexico 2019

San Luis Potosí chapter from The Report: Mexico 2019

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