Bruce Meyer
RUBBER & PLASTICS NEWS
November 29, 2013 4:39 pm ET
Hexpol Group's Hexpol Compounding business is expanding its two plants in Mexico, which company officials say is its fasting growing region in North America.
The rubber compounder said it just installed a third line at its Aguascalientes, Mexico, facility, giving it three mixers at the unit with a total capacity of 24,000 metric tons a year. The new line currently is running trials.
Plans are in place to add a second mixing line at its Queretaro, Mexico, factory, adding 12,000 tons a year to its current 29,000 tons of capability. The line will be installed in the second and third quarters of 2014, with production to commence in next year's fourth quarter, said Francisco Viliesid, managing director for Hexpol Compounding Queretaro.
He and other company officials revealed the plans during an event held in conjunction with the ACS Rubber Division's International Elastomer Conference last month in Cleveland. Investment for the two projects weren't disclosed.
Increased demand
Growing demand from operations in Mexico necessitated the expansions, much of that fueled by the automotive industry. Mexico is the fifth largest economy in the Americas, with consistent GDP growth over the last decade, said Saul Reyes, managing director of the Aguascalientes operation.
Labor costs still are affordable in the nation, he said, and it is the No. 8 car producer in the world, with 2013 production forecast to hit 3 million vehicles.
Eighteen light and heavy duty vehicle manufacturers have facilities in Mexico, and new investment projects totaling more than $9.3 billion are scheduled over the next few years.
Both Hexpol facilities in Mexico are located in what is known as the country's "Automotive Triangle." Hexpol currently employs about 200 between the new plants and is looking to invest in its organization as well as building infrastructure, Reyes said. Because Mexico is far from a mature market, as Hexpol adds more mixing capacity, the company knows it will need to bring in more technical, sales and logistics support, along with other staff to handle all aspects of doing business in the nation.
Hexpol is the leading compounder selling to makers of engineered rubber products in Mexico, said Donald Picard, the firm's vice president of sales and marketing for North America. There are larger rubber suppliers in Mexico, he said, but those are for sales specifically to tire makers.
Viliesid said the Mexican operations never have had a problem sourcing raw materials. Some ingredients can be supplied locally, but most come from the U.S., with others brought in from Europe and Asia.
The executives also said the quality from the plants in Mexico will match that of any other Hexpol facilities around the globe. "We work very hard to make sure the raw materials are to the quality standard that we need to get in order to be able to meet our customer needs," Reyes said.
Viliesid added that the operations there also have developed the technical capability needed to be able to design formulations. "Some local customers will ask us for a very specific kind of material, and we can design it locally," he said. "We have a pilot mixer so we can do development locally, and that's very useful in providing an expeditious response to our customers."
Helping others set up shop
Hexpol officials told those attending the event that not only does the company supply materials to operations in Mexico, but it also is willing to help others looking to set up shop in the nation. "We've heard some reservations on the part of some of our customers that they'd like to be in Mexico and have a facility to mold parts," Picard said. "But they're a little nervous about it and not sure how to approach it. We thought if we could get suppliers, customers and potential customers together, they could network with each other, and we could help them pave the way."
Hexpol has taken some potential customers through the process in the past because the firm knows it will help them in the long run, Reyes said.
"We want to be there to support them because it's also to our benefit as it will help us build relationships and build business in Mexico," he said. "It's a country that is going to grow in the next decade."
Besides automotive, Hexpol also serves customers in a number of other industries in the nation, including aerospace, mining, industrial and appliances. And as new firms decide whether to move to Mexico, decisions such as where to set up shop aren't always easy. "For newcomers, it's difficult to fathom where to do it," Viliesid said.
Knowing the best place to find workers also is vital, Reyes said. "One thing we can say is overall, the country is progressing in terms of decentralization. In the past there were just three big cities in the country that would be magnets for talent ready to work for companies. Now that is not the case."
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In an effort to expand its presence in Mexico, Western Union Co.vhas launched Western Union global money-transfer services in collaboration with Farmacias Guadalajara, a Mexican drugstore chain. Through this facility, Western Union will provide its money transfer services in 1,100 drugstores and retail locations spread across Mexico.
The region accounts for around 4% of Western Union’s revenue. It is one of the major receive locations. Receive locations have large inbound remittance markets. The company has been operating in the Mexico corridor for more than a century. Although, Mexico accounts for a significant amount of the company’s annual remittance volumes, the region has witnessed regulatory hurdles.
In fourth quarter 2013, Mexico-based revenue was flat, despite a 20% year-over-year increase in transactions owing to the company’s pricing initiatives in the region. Western Union lost 7,000 locations or approximately 40% of the Mexican network in the third quarter of 2012 as certain Vigo-branded agents did not comply with new requirements and system conversions.
In Jan 2014, Mexico remittances rose an impressive 8.0% year over year, providing a strong start to the year. The U.S.-Mexico corridor is one of the largest remittance corridors, which accounts for approximately 12% of total transactions at Western Union. Transaction volume grew to 5.50 million in Jan 2014, up 7.6% year over year, which was the eighth consecutive month of yearly transaction growth.
We expect the recent improvements in Mexico remittances to continue due to the improving U.S. economy. An improving economy will attract more migrant workers, which will increase demand for remittance. In order to reap benefit from the improving industry environment in the region, Western Union signed approximately 10,000 new locations in Mexico during 2013, which are expected to become active in the next 12 months and will more than double its network in the country.
Another money transfer company Xoom Corp. has significant operations in Mexico. Mexico’s vast remittance market has also caught the attention of Western Union’s close peer Moneygram International, Inc. The company offers its services in the Mexican market in partnership with Visa.
Western Union currently retains a Zacks Rank #3 (Hold).