Manufacturing jobs are leaving Mexico
Elisabeth Malkin
New York Times
startribune.com
Published Nov. 29, 2002 MEXI29
MEXICO CITY -- An exodus of factories in the past two years, many of them to China, has led to a wave of soul-searching among Mexico's business leaders and government officials over the country's ability to compete with other low-cost exporters for the U.S. market.
"It's like somebody shaking you and saying, 'Wake up, the environment has changed, and you have to change strategy,' " said Rolando Gonzalez Baron, president of Mexico's National Maquiladora Export Industry Council, which represents the plants that assemble duty-free components for export. The industry sold $77 billion of goods abroad last year, almost half Mexico's total exports. (A maquiladora is a manufacturing facility under foreign ownership in Mexico, usually located close to the U.S. border. It is set up to take advantage of low taxes and wage rates.)
For years, a cheap peso had masked inefficiencies in Mexican manufacturing, including high employee turnover and unwieldy logistics. But since the currency began appreciating in 1999, costs have risen about 30 percent. Now export manufacturers must figure out what Mexico has to offer besides the geographical good fortune of lying next to the U.S. consumer market.
Though the maquiladora industry has stopped hemorrhaging jobs and the peso has slipped about 10 percent in the past few months, the volume on the debate rose recently as Mexico played host to the Asia Pacific Economic Conference in the resort town of Cabo San Lucas. Mexican business leaders lobbied officials to crack down on China's investment subsidies, which they say are against World Trade Organization rules and are partly to blame for Mexico's woes.
"I know that China is cheating," Gonzalez said. "Eventually, they are going to be in trouble if they keep cheating and don't do anything to improve. They will be sanctioned in the future."
President Jiang Zemin of China responded to the accusations of protectionism at the APEC meeting last month. "We are putting aside the obstacles," he told business leaders.
Gonzalez and other manufacturing executives acknowledge that Mexico's problems competing with China go much deeper.
Along with low labor costs and rising productivity, China offers foreign investors a sophisticated base of suppliers, tax breaks, well-trained engineers and managers and efficient ports.
In Mexico, businesses complain about high taxes and crime, red tape, transportation tie-ups at the congested border, poor infrastructure and a shortage of skilled technical workers and managers. To stay competitive, Mexico must develop its strengths, including its ability to provide just-in-time delivery to U.S. factories and retailers.
And Mexico can no longer compete on low wages alone. Mexican wages for workers in the maquiladora sector range from about $2 to $2.50 an hour, including many benefits and labor taxes. Figures on Chinese labor costs are less reliable, but they range from 35 cents to as much as $1 an hour if all benefits and taxes are paid.
Historically, "Mexico has chosen to compete on labor costs, but because of that, it hasn't made the transition to more productivity-based industrial development," said Richard Sinkin, managing director at the InterAmerican Holdings Co., a San Diego consulting and investment firm that focuses on manufacturing in Mexico.
The maquiladora industry lost 287,000 jobs from its October 2000 peak, a 21 percent drop, to its low point in March.
The economic slowdown in the United States and a strong peso accounted for some of the loss. In addition, the Mexican government was slow to resolve confusion over new duties on Asian components and the tax status of the maquiladora plants.
Since spring, the industry has added a few jobs, as the peso has slipped and U.S. demand has improved, but the pace is sluggish for an industry that was the country's most dynamic in the late 1990s.
Some government officials say they are happy to see low-wage and low-technology jobs go elsewhere. But Jorge Carrillo, a social scientist at the College of the Northern Border in Tijuana, thinks that is misguided. "Sometimes you hear these pronouncements, 'We want only high-tech.' These comments don't understand the path of industrialization."
Carrillo pointed to the Delphi Corporation's research and development center in Ciudad Juarez, a border city, where the auto parts company also employs thousands of workers in assembly plants. "There can't be a Delphi Technical Center if there isn't a manufacturing center first," he said.
The electronics industry has suffered the most. Government figures show production shrank 8.8 percent last year.
The Dutch giant Royal Philips Electronics has just closed its PC monitor plant in Ciudad Juarez, putting 900 people out of work. The work went to a plant in Suzhou, China, where Philips says it has a competitive supplier base. And last spring, Tokyo-based Canon Inc. shut down a 13-year-old inkjet printer factory in Tijuana that at one point employed 700 people. The work was moved to Thailand and Vietnam.
To stay competitive, the industry must promote research and development so it can offer tailor-made products, said Federico Lepe, executive vice president for the electronics industry chamber of commerce in Guadalajara.
The outlook is far from entirely grim for Mexico. Manufacturers of bulky items will stay in Mexico, since transpacific shipping costs add a lot to their final price. And Mexico is evolving as an important element of an integrated North American manufacturing economy.
Last month, the Maytag Corp. said that it was shutting down its refrigerator plant in Galesburg, Ill., and moving the work to the Mexican border city of Reynosa. In September, Toyota Motor said it would expand the Tijuana plant it is building to produce Tacoma truck beds and to assemble the truck there.
The auto industry, which accounts for nearly 15 percent of Mexico's gross domestic product, is positioned well to weather Asian competition. The industry works on a just-in-time basis, with suppliers continually delivering to the assembly plant on a tight schedule. That is hard to manage across an ocean.
Similarly, retailers that require just-in-time delivery will help Mexico keep its factories. Sanyo makes 5.5 million television sets a year, mostly for Wal-Mart Stores, dividing production between Tijuana and Forest City, Ark.
To attract more manufacturing, investors check off lists of needed reforms, beginning with education. The average number of years of education of the Mexican workforce is just eight.
"For each dollar of gross domestic product, the Chinese invest 10 times what we do in sending people to study for MBAs and master's degrees in engineering in the United States or Britain," said Carlos Mancera, a partner at Valora Consulting, an educational consulting firm in Mexico City.
Mexico's high crime rate is another problem. Companies also complain that Mexico's taxes are too high and its labor laws too rigid.
But fixing those problems is such a mammoth undertaking that few expect to see improvements soon. "Cleaning up corruption, more transparency in the court system, a simplified tax code, vastly improved education," Sinkin, the consultant, said with more than a touch of irony. "Put all that together and you've got a winning strategy." |
