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Mexico’s emerging Silicon Valley

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According to recent research from US-based Technology Forecasters, Guadalajara has become a hotspot for manufacturing and engineering services in the electronics industry. Apparently, many American companies would rather outsource a couple hours south rather than halfway across the world.

“They say Guadalajara has become Mexico’s Silicon Valley. That’s because so much engineering has grown in the area,” says Eric Miscoll, senior consultant at Technology Forecasters. “Freescale Semiconductor alone has hundreds of engineers in Guadalajara.”

According to the Secretaria de Economia of Mexico, there are 700 companies with manufacturing in Guadalajara. They include among them IBM , HP, Flextronics, Solectron and Benchmark.

That’s in part because the Mexican government has invested heavily in R&D and design engineering in an attempt to move up the value chain in electronics manufacturing. Further, the government offers a 30 percent new tax credit for companies’ spend on engineering and technology.

The emphasis on engineering is paying off in the Guadalajara area. GE Engines has 600 engineers working there, and first-tier automotive supplier, Delphi, has 2,200 engineers working on projects in the area.

In the past, most engineering in Mexico was related to manufacturing. In the last three years, however, there has been a shift to design engineering.

“In Mexico, it used to be all production process engineering, but now it’s product design capabilities,” says Miscoll. He notes that Mexico has gained a strong reputation for its engineering talent. “They’ve grown up the food chain,” says Miscoll. “Siemens’ video division sent a couple engineers from Mexico to its Detroit facilities, and the engineering team in Detroit, said, ‘Send us more of these guys!’”

Miscoll notes that it took a few years for US manufacturers to get accustomed to the idea that Mexico is a source for design engineers. “The talent was there, but they didn’t have the ability to show off their talent,” says Miscoll, adding that the word got out from the EMS providers that that Mexico was developing a strong engineering base. “It grew when the EMS providers recognised that Mexico was developing good engineering schools and good engineers.”

Technology Forecasters estimates that Mexico is now graduating the same number of engineers as the US. And the engineers in Mexico come at a significant savings. The labour rate for engineering services in Mexico is US$15 to 20 per hour for light jobs, compared with US$70 per hour in the US.

According to Miscoll, the rapid developments in the Guadalajara areas of Mexico are giving US engineers pause. “I know an engineer who has been in the electronics industry in the US for 40 years,” says Miscoll. “His son said he wanted to go into [electronics]. He told his son not to. That’s how concerned US engineers are about Mexico.”

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