Electronics buyers involved in outsourcing decisions may find they are driving to Mexico rather than flying to China to check out electronics manufacturing services (EMS) providers.

That’s because the Mexican EMS industry has been rejuvenated as many OEMs have seen the advantage of building products in the North American market rather than having them built in China and shipped to the U.S.

The EMS industry has reinvented itself by offering more manufacturing services than in the past. Until 2002, high-volume printed circuit board assembly was the name of the game for electronics manufacturing in Mexico. But since then, the EMS industry shifted from high-volume, low-mix manufacturing to lower to medium-volume, high-mix. EMS providers still make printed circuit boards, but they also do more systems builds. They are also serving more industries, including communications, medical and automotive.

This is good news for buyers because it gives them more choice when they decide to outsource.

“The EMS industry in Mexico has been reborn,” says Maria Via Urista, an analyst for outsourcing researcher and consultant Technology Forecasters in Alameda, Calif. “EMS companies have expanded. They are providing a wider range of services such as building enclosures, box build, final configuration and logistics services for North America,” she says.

The numbers bear this out. The EMS industry in Mexico was $10.3 billion in 2001. However, after the crash of the electronics industry, many OEMs and EMS providers moved a lot of manufacturing to China and EMS revenue in Mexico dipped to $9.9 billion in 2002. Since then it has bounced back to $13 billion in 2005, according to Technology Forecasters.

The number of EMS facilities in main cities in Mexico has increased from 13 in 2000 to 26 in 2006 and the amount of manufacturing space has more than doubled from 3.4 million to 7.4 million square feet. Guadalajara has seen the most expansion. The number of EMS facilities there has grown from six to 12, says Via Urista. All major EMS providers, including Flextronics, Solectron, Jabil, and Celestica, among others, have facilities in Mexico and many have expanded their footprints.

The EMS industry is growing in Mexico because EMS providers have beefed up their services and many OEMs, if they have a choice, like to have EMS providers close to the U.S. market. That’s important because freight costs to ship products are obviously less for products built in Mexico and shipped to the U.S. than if the products are built in China and shipped to America.

Via Urista says cell phone manufacturers lose about 25% of the value of their cell phones if they have them shipped from China to the U.S. rather than having them built in North America for the U.S. market.

Besides shipping and logistics costs, U.S. OEMs like the idea of having EMS providers in a similar time zone which is another advantage that Mexico has.

Via Urista says there are three main manufacturing zones in Mexico. The border region including Juarez, builds audio and video products and monitors. The central area including Guadalajara, builds home appliances and consumer electronics and the western region around Monterrey makes IT products subassemblies and communications equipment.

One of the pioneers of the Mexican EMS industry is Sanmina-SCI which is based in San Jose, Calif., but has facilities in Guadalajara. “We have been in Mexico for nearly 20 years,” says Marco Gonzalez, senior vice president of Mexico operations for Sanmina-SCI. “We have seen it all. We have seen Mexico’s role evolve from cheap labor, high-volume, low-mix to where we are today.”

He says after the downturn in 2001 and 2002, Sanmina-SCI and Mexican manufacturing in general had to “retool our processes and systems to be more efficient in manufacturing high-mix, low-volume type of products.”

As a result the business is different in Mexico than it was in 2000. “Six years ago we made a lot of printed circuit board assemblies in Mexico for the PC industry, backplanes and smaller boards,” says Gonzales. In fact, 99% of Sanmina’s work had been boards. It was high-volume, low-mix. Now we build telecom infrastructure equipment, PC servers, configure-to-order systems and racks of computing and storage.

He says the telecom industry is lucrative in Mexico. “Telecom equipment revenue in Mexico 10 years ago totaled $1.5 billion. Today it is $11 billion per year,” he says.

However, the change has not just been in the complexity of equipment and the industries served by the EMS industry in Mexico. “It also involves the concept of integration because we have our own enclosures and plastics shop and cable assembly as well. The level of integration is much greater,” says Gonzalez.

Increasing levels of integration mean that Sanmina and other EMS providers will grow business with other areas, including automotive and medical.

Medical will become an important segment in Mexico because many medical OEMs are beginning to outsource for the first time and will look to low-cost geographies to build products.