Why Mexico is dominating auto manufacturing + Expat guide to Mexico City

Welcome to the Nearshore Cafe podcast, home to the most interesting stories and people doing business in Latin America.

Welcome everyone to the Nearshore Cafe podcast. I'm Brian Sampson, your host. I want to give a shout out to our sponsor, Nearshore direct. That's go nearshore direct.com a great way to find talent all over Latin America for growing US Companies. I'm really excited to introduce our guest today, Stuart McGillivray. We know him as Stu. And Stu and I actually went to business school together as well. Stu, it's great to see you again.

It's great to see you as well.

So, Stu, one of the big concepts of this show is leaders from Latin America, but also business leaders from the States that have maybe had an expat opportunity in Latin America. And that's a big part of your career. And maybe a good place for us to start is when did that expat journey start for you and where did you first go?

It actually started as a child and the reason being that my father was an expat and so we were stationed overseas in three different locations, two of which were in Latin America. So we lived in the United Kingdom for about five years and then subsequently moved to Brazil, so Paulo for about two years, and then after that we moved to Mexico for about three years. So this was a long time ago. This was back in the late 70s, early 1980s. And so it's certainly a very different time in Latin America in particular. And then subsequent to that, I did an expat assignment, also living and working in Mexico city from around 2005 to 2010, so about six years.

Amazing. And I don't want to, forgive me if I'm going to date you here for a second, but. But how old were you when you in that 2005, the 2010 assignment?

I was in my early 30s. Well, I was born in 72, so yeah, I guess I was 33 at the time.

Okay, so early 30s.

It's a great time to be an expat if you're in your 30s. And you know, because, you know, you don't have the roots in your home country and it's a lot easier to take an assignment overseas to relocate. You know, maybe if you have some young children, it's still good. As a children age, it becomes much more difficult to acclimate and break those relationships that they may have with their friends and other out of school activities. But it's a great age. And you know, I can say that having been an expat myself as a child, I actually benefited from it enormously. You know, the idea of seeing different cultures picking up other languages as a child, it really exposes you and opens your brain up in ways that are really valuable, even when one's an adult.

Yeah. And what kind of work were you doing in Mexico?

I was working in the automotive industry and working primarily in Mexico City, but we had customers and suppliers, really across all of Mexico, because even after I relocated back to the United States, I was still very much involved in some of the Mexico operations there. The automotive industry is really on a tear in Mexico. It's growing so quickly. The number of new investments there are remarkable. It's almost hard to keep track. VW and Audi have announced new plants in the past several years. Nissan actually makes more vehicles in Mexico than it does in its home country of Japan, which is remarkable.

Wow.

Tesla made a lot of news with the announcement of its new plants in Nuevo Leon and the northern part of Mexico, particularly because it's not an area that has historically been as popular for the automakers. There's a really large concentration of automakers in the central part of Mexico, for example, around the state of Guanajuato. And what you've seen is that those have actually worked well because supplier bases have emerged, tier 2, tier 3 suppliers to support those automakers. And the states in that area have also invested in attracting the automakers in a number of ways, one of which is to ensure that they have large parcels of land, good infrastructure. But also they've invested in technical colleges and really tried to make it an attractive place for automakers to invest.

Yeah, yeah. When I think about hubs of talent and, you know, those that have been quite successful, San Francisco, for example, Silicon Valley, you know, for software. And there's certainly capital there, you know, a lot of VCs, there's certainly talent, but then there's also this, like, recycling of knowledge that just furthers the education and people do well and then they go to another software firm and then they mentor and, you know, it just keeps. Keeps getting recycled in that area. Do you feel like Mexico has all three components right now? They've got capital, talent, and the recycling of knowledge and experience?

Well, certainly. So, you know, as I mentioned, sometimes you'll see people in Mexico who work in the auto industry move from a supplier to an automaker and back. So that creates that ecosystem. The capital side also. A lot of it, of course, is foreign capital. But one thing that Mexico has recently done very well is create a lot of stability with the Mexican peso. For decades, the peso suffered from almost inevitable devaluations. And if you actually look at the peso for the past five years or so, it's been very stable and in fact, it's actually appreciated a little bit, which is really unusual also. The other thing is that even though a lot of it is foreign direct investment, local capital is also becoming more cost effective for businesses and then also for individuals. And I'll talk about both of those. And you know, one is that when it comes to the individuals, it used to be that if you were to try to relocate in Mexico and you needed to get a mortgage, let's say, you know, you would be paying 35, 40% on that mortgage.

Wow.

And that really created for decades a situation in which it thwarted innovation in the country because people would say, look, you know, I'll stay with my family, my parents or I have a house here. I don't want to relocate because I don't want to incur that expense. And as the peso has stabilized, rates have by and large fallen. Of course, just like most economies around the world, they've increased over the past year or so. But you know, a couple of years ago it was possible to get a mortgage with rates under 10%. And that makes an enormous difference because what it does is it really begins to allow the middle class to build wealth over the course of time. Something which never really happened in Mexico in the past. There was the haves and haves nots, those who could pay in cash because simply financing was not an option. So that capital issue has a bearing not only in businesses, but also the talent which those businesses use.

Yeah, very interesting. I want to go back to your personal expat experience, set the scene a little bit. So, you know, early 30s, Stu, you're in Mexico City, you know, where are you living, what are you eating? You know, kind of give, give us a sense of the, the cultural experience as well.

Yeah, well, so I actually lived in Mexico City in a neighborhood called Polanco, which is a beautiful leafy neighborhood. You know, it resembles a lot of neighborhoods that you might find in some of the finer cities of Europe. And it's a walkable neighborhood because, you know, it's a lot of mid rise apartment buildings, some smaller homes, a lot of restaurants, bars, hotels, shops, and it's actually very well located near some of the main thoroughfares of Mexico City. So getting in and out of that neighborhood is actually very convenient. It's just a beautiful experience and you meet wonderful people in that area. And you know, it's interesting too, because, you know, Mexico, like I said earlier, you know, has a history of concentration of wealth and power, which is somewhat unfortunate. But what you would often find is that, you know, you would run into people there that you would never meet anywhere else. And so, you know, I'd go, I got a membership at the local gym and oftentimes not name dropping anything, but, you know, famous people who would be staying in that neighborhood would go to the gym. And, you know, so I met Shakira, I met the former president of Spain, I met the mayor of Los angeles, and John McCain, the Arizona senator, was there. So, you know, you end up meeting a lot of people by chance who you otherwise would never have a chance to meet in a, you know, in a city like probably, you know, New York or Los Angeles or elsewhere.

Yeah. And how about, how about some of the food? Any, any favorites you'd care to mention? Favorite dishes?

Well, I mean, this, it's unlimited. You know, there are people who travel to Mexico City just for the food. And it's a, you know, if you think about the main cuisines of the world, you know, you've got the Italian, the Chinese, the French and so, and Mexican's up there. I mean, when you think about it, it is renowned. You know, I've gone to Mexican restaurants in Dublin and Tokyo and everywhere around the world, Sydney, Australia. And what you find is that it is a cuisine that has a real following everywhere. And I'm a vegetarian. But one of the beauties of Mexico is that the people are so hospitable that if they don't have something on the menu that meets your dietary needs, they'll make it for you. I can tell you countless occasions, you know, I was brought into the kitchen of the restaurant and said, well, we don't have something that's for you, but here's what we have. Here are our ingredients. Tell us what you want and we'll make it for you. And it's an amazing experience that probably would not even be permitted under health regulations in the U.S. but the idea, they go out of their way to make something special for you, and you get to know the people by name in a way that you otherwise wouldn't. So that's one of the beauties of traveling in Mexico and particularly for those who like to visit there, if you speak some Spanish, make an effort to speak to people. How was their day? How is their job? How are their families? And even here for tourism, it's remarkable how much of a good conversation you can have with people and how much you'll learn that way.

How about safety? You know, safety is something that comes up a lot when people think about Latin America or Mexico. What was your impression?

You can't have a conversation about Mexico without conversation about safety. And it's, of course, unfortunate. And the answer really is it depends. Depends on where. It depends on when. And things have changed dramatically. And so, you know, for example, I was mentioning the region of Mexico where a lot of the automakers are located. It's called the Bajio region, and it formerly was one of the safest parts of the country. And the governors there actually worked somewhat collaboratively, even though there were a couple from different parties, to really foment strong economic growth under the idea that if you have people who have jobs and stability, you're going to reduce crime. And for a while, it did work. Unfortunately, that area has actually seen an increase in crime. It's almost been a victim of its own success in the sense that.

Other.

Parts of the people from other parts of the country have gone there, as now you have people with money from some of the good jobs in the auto industry and aerospace industry and some of the others that have really developed there, leveraging the infrastructure, technology, things we talked about earlier. So that's why I mentioned the when things can change dramatically. The second question always with Mexico, is where. And what we've seen is that there are pockets that are very, very safe. The Yucatan Peninsula tends to be pretty safe. A couple of small exceptions there. There are a lot of expats moving to the city of Merida, which is in the northern part of the Yucatan Peninsula. And it's actually fairly close. It's not beachfront, but it is fairly close to a small beach town called Progreso. And so those are areas where one can live very, very safely. You really have no fear walking the streets pretty much anytime, day and night. And so those are two things to consider. The when, the where, and the third one is the who. And so it is a sad commentary that at least what I have personally witnessed is that the Mexican government tends to value more foreigners because of the importance of the tourism industry. So oftentimes there's actually a lower likelihood from what I've seen, of foreign nationals becoming victims of crime because they know the criminals know that the government is more likely to crack down on foreigners being attacked more than locals. Having said all that, you know, I spent many years there and really had no problems with Mexico City. Mexico City, because it is the political center, the economic center, the entertainment center, the education center, of the country. It really doesn't have as much crime because the government really protects Mexico City dearly. And so there certainly are some difficult neighborhoods there. I do know some people who have been subject to terrible crimes, but by and large, statistically, it's actually a fairly safe place.

Yeah, thanks for sharing that. I'd like to talk a little more about work in particular, and, like, work culture, work style. So if I had it right, you were in the supply chain, operational side of the business when you were in Mexico. Tell us about, like, what kinds of titles and people you were working with and the work style of that and hiring and anything else you'd like to add.

Well, certainly, you know, it varies dramatically from the US in so many different ways. Mexico, although it's certainly changing, and I've seen change just in the past decade. I'll talk more about that in a moment. It tends to be very hierarchical, and questioning one's boss is not as common as it is in the US where challenging authorities actually in many ways rewarded and something that is seen as a good skill. And it's taken, I think, a while for that mindset to change in Mexico. So it can be difficult to coach people to say, look, I'm looking for you to challenge me. I'm looking for you to tell me I'm wrong. I'm looking for you to bring forth new solutions. So that's one element. The second thing is that the importance of relationships is absolutely fundamental. I remember, you know, when you begin a meeting or if you're meeting with somebody you haven't seen in a while, take five, 10 minutes to say, how have you been? How's the family been? And, you know, sincerely, in a genuine way, showing true interest, remembering the details about their family to the extent you can. And it really makes a strong difference in how they will respond to you, how open they will be to you. I found that that works very well. The other thing is, I think there are some geographic differences in Mexico, just like there are in the US and sometimes those in the US don't appreciate that. Mexico is a very large country, and the way that people behave in different parts differs, just like they do in the U.S. somebody from Texas versus Seattle versus Boston.

Right.

And so when a foreigner comes in, they need to really be conscious of that and be aware of it and consider how the team members with whom you're working will react with one another based on where they come from.

How about hiring? What were some of the roles that you were involved in in hiring for with your team? And what does that process look like? And maybe how is that different from.

The states hiring New Mexico? There's not a lot of the passive approach that is common in the US where you post a job and see who shows up and clicks. You have to be much more proactive and use networks to your advantage. In Mexico, people almost have this innate ability to network that is much stronger than many other places, I think, and leverage that and say, well, who do you know? Who do you know who might know? And you begin to find talent that way. And it's really the best approach to get people who are trusted. You know, whether it's somebody who's working in an office or a manufacturing plant or a warehouse or even in your own home, if you're hiring somebody to do some catering work, you know, the power of recommendations is much greater there than it is, say, in the United States, where you might be more trusting of just, you know, somebody because they're local, for example. And then the hiring process has historically. Well, this is actually perhaps where the biggest change I've seen, because I'm actually in the process right now of hiring a few people in Mexico. And it used to be that the. The power dynamic was very much with the employer. And what I mean by that is if you said, hey, candidates, I need you to be there for 10 hours of interviews, you bet they'll be there, and with no complaints. That has shifted as Mexico has developed. Like I said, this is fairly recent. 10 years. I can see a difference, is that candidates know much more they're worth. They also know much more about what the process of interviewing looks like. They are not afraid to push back if they don't like the process. They're not afraid to demand more from the employer than they used to. For a country where the passiveness really ruled the day for a long time, it's a significant shift, and frankly, I think it's a healthy one for the society.

What do you think is driving that?

Well, a lot of it is the foreign direct investment that has opened up. So this actually began, frankly, with nafta. I mentioned earlier that I lived in Mexico as a child, and at the time in the 1980s, it was a fairly isolated country. If you wanted to try to get candy from the United States, it was difficult and very expensive. Now with NAFTA being signed, now replaced by usmca, and then Mexico has actually signed a host of bilateral and multilateral free trade agreements. And I think it's actually now 42, which makes it the largest number of free trade Agreements for any one country in the world that has opened up a tremendous amount of opportunities for trade with Mexico. So Mexico is no longer the isolated country that it once was. You can get products in Mexico that you don't see in the United States, you know, from Europe, from parts of Asia. And there are, in the auto industry, there are more brands and the auto industry being sold in Mexico than there are in the United States, despite the fact that the US auto market is much larger. And that is in large part a reflection of the approach that Mexico has taken with regard to free trade. And it's benefited Mexico very well. And what it's done is it's opened up the Mexican workforce to seeing different companies, allowing these companies to compete for their talents in a way that didn't happen before. And it really is a true example of a success story of free trade.

That's incredible. I had no idea how much that had shifted over the last decade. That's really interesting. Almost like a new era of confidence or even swagger.

Yeah, I think so. And you've actually seen some Mexican companies actually begin to make acquisitions overseas. Bimbo, the bread company, Cemex is growing overseas, the cement company. And so the swagger is true. You know, they, they have developed and they actually, they actually have companies in Mexico that compete with at world class standards. And that was not the case when they were back in the 80s, maybe early 90s when Mexico was a closed economy. The companies did not have to compete to world class standards. Yeah, and they didn't. Now they have no choice. And they have by and large really achieved a world class jump in performance. And they brought their workforce along with them and it's a success story in many ways.

Now what a lot of people might not know by looking at you, but you speak perfect Spanish. And, and I'm curious how just how Day to Day worked between English and Spanish and Spanglish in your day to day living down there.

Well, of course, there's no better way to learn a language than to be immersed in it. Naturally, I picked up Spanish as a child. Having previously learned Portuguese. It was somewhat easier because they are very similar languages. But there are things which even as a child you don't learn the word for budget or screw or forklift or whatever it might be. Windshield. So you have to learn some of those more technical terms that you don't pick up as a child. And the immersion is the only really effective way to do it. And so the hardest part really became coaching my team in Spanish. Because when you're providing feedback to somebody, the nuance, the subtlety which goes along with it is very challenging to provide that Right. Message where you're developing the person, but showing that you truly care that it's not criticism. And because the person receiving the feedback naturally feels very vulnerable. Right. So that was perhaps the hardest thing of all. The day to day of negotiating things was not quite as difficult, except maybe some contracts where the legalese can be challenging. But I found that going back to the coaching, that really was hard because you sort of have to wear your heart in your sleeve a little bit. And. And particularly when you're coaching people with whom you've worked for many, many years and you really have sincere interest in developing them, it's difficult to get some of those messages across effectively in a second language.

Yeah, yeah. What was the abundance of English like in your work environment? Was there a lot of, like, you know, some conversations in English, some in Spanish, some in Spanglish? Was it almost exclusively Spanish?

Well, it was almost exclusively Spanish. And so, you know, I actually had cases where I was pulled in to do some translation, actually, at a press conference. I had to do some translation for visiting an executive at a car show. But the day to day was really all in Spanish. But it made it interesting, actually. I was interviewed on the radio in a very similar form to this one in Mexico in Spanish to converse about the auto industry. And there's a little bit of pressure there. And then, of course, it switched to English if we had international calls or sometimes visitors. But even I had a couple chances also to speak at some conventions in Mexico in Spanish and take Q and A in Spanish. And so these are opportunities which would not have been possible without speaking the local language.

Yeah, fun, fun. Sounds like a great opportunity.

Yeah, it was a lot of fun.

And with some of those travels, too. What are some of the countries that you've been traveling to recently?

So I've been, of course, Mexico again very frequently, Colombia, Brazil, Argentina, all of which are wonderful places with wonderful food, incredible people, and they all have a very strong future.

Now, in software, we use the phrase nearshore a lot. Is that also common in the autumn automotive world?

Well, absolutely, and I think it's become so much more common in the past few years. Some of the supply chain challenges, which some automakers are still suffering from, have left an indelible print on the industry. And what I mean by that is that we have depended upon global supply chains in a way that was perhaps a little naive. Right. You know, it all works until it doesn't and what we've seen is that when you have even one supplier go down, that's enough to take the production of the car down, right? If it has 3,000 parts on it, if you're missing one, yeah, you can't build it. And the cost associated with trying to get parts from around the world sometimes can be so challenging. So nearshoring has really made an enormous impact on the auto industry, and I think it will continue for the foreseeable future. A number of reasons. Some of them are pretty intuitive and you hear a lot. Logistics, cost, lead times. But I think there are some more subtle ones that bear mentioning. One is the human side of things is that if you're based in the US and your suppliers in China, you simply can't have enough communication with them. That ensures you have a deep understanding of what's going on day to day. But if they're located, say in Mexico or somewhere in South America, that really changes the dynamic. You're in the same time zone, give or take a few hours. And the flights are a lot simpler. Cultural differences tend to be smaller. And so you can build those relationships and build that trust, and that gives you a heads up of when things are going wrong. The second thing is that there's a lot more influence that you can exert through the government. So, for example, when the pandemic began to abate and in the United States, the automakers by and large began to open up many of their plants. Some of the plants in Mexico actually remain closed from the supplier plants remain closed. And so here you have a situation where because of the closeness between the US Administration, the Mexican administration, the automakers can actually lobby the US Government to lobby the Mexican government, open up the plants for the supply of components for the vehicles that are actually assembled in the United States. And so those really do bear fruits. And that is really only possible with near shoring.

You know, my personal opinion is this decade that we're in is the decade for Latin America. You know, I think Asia has had its chance. Eastern Europe, unfortunately, has a lot of instability right now. Africa's not quite ready. You know, it feels like we went around the world and then, you know, right, right back to our, our backyard, you know, Latin America for the States. So we're seeing more what I call nearshore, curious type of conversations and people that, oh, you know, I never really thought about it, but maybe, maybe I want to try and, you know, build a business or distribution or deliver, delivery, supply flyer, whatever with Latin America. What would be your number one or Number two pieces of advice for people right now that are what we call nearshore. Curious.

Well, one is go in person. You can only learn so much through a phone call or a website. And the idea of actually making a visit there, getting to know the people is fundamental. Second thing I would say is don't just meet your supplier, but also meet your supplier supplier, because your supplier is only as strong as their tier two, tier threes are. And if you see some weaknesses there, you need to know about that early on. And by and large, in Latin America, I mentioned this earlier, even on a personal context, there's a lot of flexibility. Typically it's a cultural element. And you say, well, I'm a little concerned about your second tier, your third tier supplier. Hey, can you maybe diversify and give 50% of the business to another supplier as well? That will help in the event that they have a production slowdown or shutdown, whatever it might be. And then the third thing is think about visiting the local town in which you might want to invest. Is what is the infrastructure like? Is the airports adequate? Are there rail networks? Is there a port nearby? Depends on if you're manufacturing something or if it's a service. Those kind of things can really make a world of difference because you're not just talking about it as a supplier, you're talking about the environments in which your supplier will works. And getting to know all of that will pay off.

Yeah, great advice. Great advice, by the way. And you know, I wanted to ask you, you know, with all your travels to Latin America, are there any fun or interesting stories that we could share with our listeners?

Oh, there's just so many places that I would recommend going. One of my new favorites is in Mexico is in the southeastern parts of Mexico, near the border with Belize. It's not well known, and it's a rapidly growing area called Bacallar. There's a beautiful Laguna there. There is a number of Mayan pyramids nearby. And I would really recommend anybody who goes there. You could get nature, you get the beautiful weather, you get history, you get the food, you get the culture all in one spot. And like I said, you won't find many tourists there. What you'll actually see is that because so many who go to Mexico to see pyramids and other historical architecture, they tend to go to the same locations, Teotihuacan and near Mexico City, for example. And if you go to some of these other ones that are much farther out, you'll be the only person there and you can talk to the locals. And they sometimes will be able to show you things that otherwise you would never see. I talked about the big pyramids in near Mexico City, Teotihuacan, and I actually had a chance to visit those. We had a visitor in town and the father of one of my staff members. He was an amateur archaeologist of sort. And so he took us to the pyramids and we went to where all the tourists were, and it was very nice. And then afterwards he says, okay, now let's show you the real. The real pyramids. And so about a half an hour away took us to where those who built the pyramids actually lived, their houses, which is not open to the public. But because he does this on a volunteer basis, he was able to get us in. And you would see their bedrooms, you would see the murals on their walls. And these are all far too fragile to let the general public in. But it's an example of the value of speaking to the locals and seeing things that are mind blowing, that will really leave an impression with you for the rest of your life.

Love it. That's awesome. Thanks for sharing. Just a couple other fun questions as we start to wind down. Do you have a favorite Spanish word?

Well, I can tell you there was actually a contest which was designed to select the prettiest word in Spanish, and they actually chose the city of Queretaro as the. The prettiest word. I actually, I disagree. There's actually a word which is actually very hard to say, equitado, which is basically to label something. And I think it's just a pretty word. It's got a nice little rhythm to it.

Good choice. And then, you know, I'm sure you've had an opportunity to do a lot of shopping throughout your travels. There's. Do you have a favorite purchase, say, under $50 US from your time's down there?

I do, I do. I almost want to go get it for you. But the artisans in Mexico and elsewhere in Latin America are just amazing. And the handiworks that they can do are beautiful. And so, you know, we have this carved fish that is just this. It's a work of art, and I really value that. I think it's beautiful. Yeah. The other thing is that you can actually get a lot of things custom made that otherwise you wouldn't be able to, you know, cost effectively in the US that are, you know, done by hand. And so, you know, I have a scarf with my name on it and so on that was all woven by hand. And, you know, you get to talk to the people who actually make it. And it's, you know, it's really a special experience.

That's cool. I appreciate that. Well, that's all the time we have today, Stu. It has been an absolute blast. I learned a lot about Mexico that I had never known before. So thank you for all those tips. Shout out to our sponsor, nearshore direct. That's go nearshore direct.com great place to find talent all over Latin America for growing US Companies. Stu, I hope to have you again on the show. Thanks again for your time.

Thank you. It was a lot of fun.

We'll see you all next time. Thanks.

Thanks for joining us at the Near Shore Cafe podcast. Tune in next week for a new episode featuring another special guest.