Automobile component producer Huizhou Toneluck Electro-Mechanics Co Ltd plans to set up a factory in Mexico to strengthen its foothold in the North American market.

Total investment of 50 million yuan ($7.24 million) will be made in the first phase of the project by the Huizhou, Guangdong-based company.

Construction of the factory is currently "at the stage of preparation", said Huang Zihong, managing director of the company.

"We plan to buy land in Mexico by the end of this year and begin construction next year. The factory is expected to come into operation by 2019." The factory is projected to generate an annual output value of more than 300 million yuan, he said.

Toneluck is one of the world's major suppliers for switches of automobile door locks, accounting for roughly 13 percent of the global market share in the sector.

The company generates an annual output value of more than 600 million yuan, with 40 percent coming from the domestic market.

It has also made its presence felt in a number of countries and regions across the world, with the United States taking up about 30 percent of its revenue and Europe 15 percent.

"We are now a tier-two supplier in the US and European markets. We want to march into the tier-one rank," he 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 labor costs, is a good choice."

While tier-one suppliers mean direct suppliers for automobile companies, tier-two suppliers are those who supply goods to tier-one suppliers.

"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 percent 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.