On the border: Manufacturing's big push

Editor's note: Manufacturing on the border has seen some dramatic changes in the last decade. Recently, an SPI Trade Mission went to the McAllen, TX/Reynosa, Mexico border area to get a firsthand look at what manufacturers are up to. IMM was there and this is what we found. 

If you drive through the 700-acre Del Norte Industrial Park just across the Texas-Mexico border in Reynosa, Mexico you'll see a who's who of global corporate entities: Panasonic, Black & Decker, Delphi, Maytag, Bissell, Whirlpool, Nokia, Emerson Electric, and more. Lush, manicured landscaping enhances the large, modern buildings. On a hillside near the industrial park stands a large, modern apartment complex, home to many of the workers at the park. 

Of course, this is just one small part of the maquiladora or Twin Plant zone. It's an area that stretches 1400 miles from Brownsville, TX to San Diego, CA and includes some of the largest manufacturing centers in North America. Most of the companies that have located here over the past two decades have done so to take advantage of the low-cost labor of Mexico and the proximity to U.S. markets. The passage of the North American Free Trade Agreement (NAFTA) has enhanced opportunities for both countries. 

The maquiladora concept is not new. In fact, some companies have been in Mexico for 30 years. Still, a lot has changed. It was inevitable that the playing field between the U.S. and Mexico would become more level. Wages and benefits for the average Mexican worker at the manufacturing plants have increased during the past decade—certainly not to the levels that hourly workers of the UAW or USW enjoy, but for the region and economy, it's quite good. 

Portrait of a Plant 
So, what exactly is it like to work and manufacture in the maquiladora? Let's look at one local operation that asked not to be identified. The half-million-sq-ft plant of this manufacturer sits on 24 acres and is totally vertically integrated with 43 injection molding presses, a rotational molding department, and a mold maintenance and repair facility. Additionally, the plant has a sheet metal department and powder coating, painting, and assembly capabilities. Each day the plant sends 30 tractor-trailers loaded with product north across the border to various distribution points. Another eight to 10 tractor-trailers come south. 

This particular facility has 1800 hourly workers and another 300 salaried and administrative employees whose average age is 21. (Mexico has one of the youngest workforces in the world.) Ninety percent of the plant's hourly workers are female, with an average education of about ninth grade. On the professional/administrative side, the average age is 27 with an average of 3.5 years of college education. 

The company provides one hot meal a day to its workers and employs a full-time doctor and four nurses to care for workers and their families—all part of the required benefits. Average hourly starting pay is $1.84. Top pay for an hourly worker is $2.89. In addition, workers receive a punctuality bonus, a vacation bonus, and a Christmas bonus. The company also has a savings fund for workers and provides their pay through an in-house ATM system. 

The company also provides food coupons to help workers' families buy groceries. Transportation is also provided. Some plants have company buses (like the one we saw that had "Black & Decker" painted on the side) that wind their way through the narrow streets of Reynosa picking up employees at designated stops. Others provide employees with cash to pay for public transportation. 

Moldmakers, who are considered skilled labor because of their training at one of Mexico's trade schools, make about $1000/month. This company employs 25 moldmakers and machinists to maintain the 300 active molds at the facility. 

"We do a significant amount of training," explains the plant manager. "We screen for specific skills at hiring and have a fully staffed training department. The people down here are eager to learn and proud to learn." 

One of the most notable things among the maquila manufacturing facilities in Mexico is how clean the plants are. There is new molding machinery with robotics and a beehive-like work atmosphere. Everyone works and hustles to get the job done. Except for those eating lunch in the beautifully decorated cafeteria or those at assembly tables, no one sits still. 

In spite of the abundance of workers, many of the plants in Mexico practice lean manufacturing techniques such as value stream mapping and Japanese-style manufacturing procedures such as the kanban system of inventory control. 

On the U.S. Side 
Proprietary molding is the norm. Custom molders are still rare in Mexico. Those that are there mold for a specific OEM customer, such as Technimark's arrangement with Black & Decker. Some custom molders, like Tadim, whose parent company is located in Michigan, came to the border but chose to build a plant in the U.S. 

Tadim, a division of LDM Technologies, is located in Harlingen, TX. The company molds components for the automotive industry. A major customer manufactures in Reynosa, so it was a natural fit for the company to locate in the area. 

Seth Jantzen, materials manager for Tadim, says there are advantages to staying stateside. "The technical expertise is higher here, and it's easier to relocate strategic personnel here rather than have them commute back and forth across the border. And, we don't use a lot of semiskilled workers in this facility, so there's not much cost benefit to manufacturing in Mexico." 

Still, the border boom continues as more farmland on both sides of the Rio Grande is turned into industrial parks for more companies seeking the economic advantages that come with the maquiladora concept. That fact isn't lost on Jantzen. "We're on the edge of a first-generation industrial society," he comments. "As the technical skills increase in the area the talent gets spread around. People here like to stay here. Things will get better as other companies move to the area." 

Realities of Border Manufacturing 
Despite all the advantages, siting a plant in Mexico isn't easy, says Jim Hollifield, Black & Decker's strategic unit manager for plastic molding, which is why he advises companies looking to put molding in Mexico to ask for help from people who know the ropes. "The plastics industry has always been open and still is," says Hollifield, who has more than 30 years in the industry. "People are willing to share information." 

One of the misconceptions of the border area is that the maquiladora concept began with NAFTA. Not so, says John Castany, president of the Reynosa Maquila Assn. and plant manager for Wells Mfg. Corp. in McAllen, TX. "NAFTA didn't cause this phenomenon, it just made people more aware of it," he comments. "The perception of risk went down because of the formal agreement." 

Castany also suggests that people need to look at NAFTA as a region, not three different countries. Understanding NAFTA's policies and procedures can be a challenge, but essentially it allows companies to bring components into Mexico duty-free. The value is added in Mexico, and then sent back to the U.S. A company pays duties on only what is sent back into the States (the value that was added). Conversely, companies that import from Asia pay duties on the whole part, which further encourages the purchase of components from NAFTA countries. 

Ron Mills, coo of NAI Rioco, a manufacturer with plants in Reynosa and Mission, TX, advises people to look at the area on both sides of the border as one economy, because in many ways it is. There is a growing middle class on the Mexico side, and most management people are Mexican nationals. "We used to not build big parking lots [at plants in Mexico] but now we do because more employees have cars," he says. 

Another issue involving employees in Mexico is that country's labor laws. The government has in place strict guidelines for companies with respect to workers' pay and benefits. When hiring people, do the followup reference checks, says Black & Decker's Hollifield. "Their paradigm is a bit different from the U.S." Also, have good financial controls in place to manage how money is spent, he adds. 

Also, don't forget that Mexico is a separate country. "Pay close attention to the culture and the customs and that will make the transition easy," says David Duran, training manager for LG Electronics. "You have to build a personal relationship with all the employees." Hollifield adds, "Here family is a big deal. They don't move because they want to stay close to their family." 

Although labor continues to be less costly than in the U.S., Castany says Mexico "is taking a beating with regard to competition." Labor costs are rising and the economic recession in the U.S. has affected Mexico. On the border alone, Castany says that some 150,000 jobs were lost in 2001. "We're seriously concerned about that," he adds, noting that Reynosa's employment has remained fairly stable at about 67,000 workers. 

Finally, the facility. Leasing a building in Mexico can be more costly than in the U.S. because the cost of capital is higher. "It's harder to get long-term financing," NAI Rioco's Mills adds. He recommends working with organizations like the McAllen Economic Development Commission, which provides a "complete support system." 

Castany also suggests that a good way to get a toehold on the border is to look into working with a shelter operation. A shelter company provides the building and utilities, while the primary company provides the equipment and hires the people, thus minimizing risk and investment. 

"The number one advantage [of locating near the border] is value-added assembly labor," Hollifield emphasizes. "If you're automated, there's no advantage." The cost of molding is about the same in McAllen and Reynosa, he says; however, the cost of land and utilities are a lot more in Mexico.