Chinese automotive parts manufacturer Huizhou Toneluck Electro-Mechanics has announced plans to set up a plant in Mexico to help expand its sales in North America.
CEO Huang Zihong told local reporters Toneluck Electro-Mechanics plans to spend an initial CNY50m (US$7.3m) on the new factory, adding that the project is currently in the "preparation" and planning stages.
Zihong said his company plans to buy land in Mexico by the end of this year and construction of the plant is set to take place in 2018.
Commercial operations are scheduled to start in 2019 with the company expecting annual sales of CNY300m (US$44m). This would represent a significant proportion of the group's global business.
The Guangzhou-based company is a major global manufacturer of car door locks and electrical switches with annual sales of CNY600m. Around 40% of revenue is generated in China, with the US accounting for 30% and Europe 15%.
It has also made its presence felt in a number of countries and regions across the world, with the United States accounting for about 30% of its revenue and Europe 15%.
"We are now a tier two supplier in the US and European markets. We want to march into the tier one rank," Zihong said
"To achieve that, the ability of supply at a nearby location is a basic condition because it requires better supply chain management. Mexico, with its proximity to the North American market and relatively low labour costs, is a good choice."
While tier ones supply automakers directly, tier twos supply tier ones.
"In the next step, we are going to explore the markets in central Europe to seek investment opportunities there," Huang said.
According to a report released by Deloitte in June 2016, automobile component enterprises prefer to build factories in the US and Europe. In 2015, Chinese manufacturers in the sector made 12 new investments in the US, Germany and the United Kingdom, accounting for nearly 30% of the total number of overseas investment projects between 2013 and 2015.
There were approximately 12,000 automobile component enterprises in China by the end of 2015. Although the number was large, their independent research and development capability remained relatively weak, compared with international counterparts, the report said.
Many small and medium-sized suppliers only had a single production line and lacked adequate technology which made them vulnerable to external risks, it said.
"Meanwhile, the significant rise in the cost of raw material and human resources over the past few years has accelerated the erosion of profits of automobile component enterprises which have based their competitiveness on low price," according to the report.