US firms moving plants to Mexico. Cheap labor is the pull, but US border region benefits, too
Through the bus's windows, a group of Texas business executives surveys a new industrial building. It belongs to one of the 10 American companies to settle in the last 18 months in this Mexican border city adjoining Brownsville, Texas. ``What you're seeing here is the result of a problem somewhere,'' says James Ebersole, speaking through a microphone from the head of the bus. As director of industrial development for the Brownsville Chamber of Commerce, Mr. Ebersole is explaining the advantages for American companies of coming to the US-Mexico border.Skip to next paragraph
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``No company wants to move from its home base; there has to be a reason. The reason for this,'' he says, gesturing toward the new construction, ``is low-cost foreign competition.''
The new plants in Matamoros figure among the 800 foreign- (primarily American-) owned plants - called maquiladoras - that have sprung up in Mexico to take advantage of low labor costs. As American industry has faced stiffening competition from Asian countries, moving the labor-intensive portion of a business to Mexico has become increasingly attractive.
While the average wage of a US factory worker is $10 an hour, in the Mexican plants, when all benefits and employer costs are figured in, it is just $1 an hour.
The benefits to hard-pressed American manufacturers and to Mexico of the maquiladora plants are obvious. But border cities such as Brownsville are also busy promoting the maquiladoras these days because they can sometimes mean complementary manufacturing facilties on the American side.
More often, though, the maquilas, as they are nicknamed, result simply in distribution and final-inspection operations for the US border towns. But that still makes them a plus for the US border region that, outside the San Diego area, is suffering economically.
Mexico's maquiladora program has existed for more than 20 years, but it became embroiled in controversy in the Unites States recently when word got out that the US Commerce Department planned to sponsor a trade fair in Acapulco to promote the concept.
Most congressional critics of the US-sponsored fair are from Northern industrial states. As Mr. Ebersole ticks off the locations from which US companies came to Matamoros - Indiana; Cleveland and Toledo, Ohio; New Jersey - it is easy to see why.
Critics say the federal government should not help to promote a program that they claim encourages the exportation of US jobs. US and Mexican trade laws already give maquiladora owners a break by allowing them to ship parts back and forth across the border duty-free for assembly and packaging.
The United Auto Workers union, one of the more strenuous opponents of the concept, claims that one US job is lost for every 2 maquiladora jobs created. Unions and other critics also claim that better management skills, and not just labor cost-cutting, can and should be used to make US industry more competitive.
Proponents of the program, on the other hand, say the maquiladoras actually mean retention of jobs in the US, since the companies are generally only moving a portion of their operations south of the border. The alternative, they say, is to relinquish virtually all manufacturing to primarily Asian countries. That would mean even greater job loss in the US, since better than 90 percent of all parts used in the maquiladora plants are from north of the border.
One of the most recent maquila projects in the Brownsville-Matamoros area will actually result in a significant number of new jobs on both sides of the border. As of next year, Trico Products Corp., the world's largest maker of windshield wipers, will begin manufacturing, assembling, and packaging its products in new 325,000-square-foot buildings in each city.
Trico was started in Buffalo, N.Y., in 1917 and grew up with the US auto industry until, at the company's peak, in 1979, it employed 3,100 people there. ``Then we fell on tough times,'' says Trico President Richard Wolf, as Americans turned increasingly to foreign cars.
The company started losing money. An international survey showed Trico's products to be about 35 percent overpriced. ``Our major customers, who include GM, Chrysler, and AMC, started telling us, `We want you, you have the quality, but you'll have to be more cost-competitive,''' Mr. Wolf says.
The company figured it had three options: remain in Buffalo, and most likely price itself out of the market; move overseas; or move the labor-intensive portion of the operation to the border, while retaining management, engineering, and product development in Buffalo. It settled on the latter.
``It wasn't an easy decision,'' Wolf says. But he says the move allowed Trico to maintain 1,100 jobs at its headquarters, while employing 800 people in Matamoros and 400 in Brownsville. Word of the move led to a dramatic increase in business, he says; now even Japanese automakers are interested in using Trico to supply their US subsidiaries.
``The important thing is that as a viable company, we'll be able to think about growth and new product lines, and that will be good for everybody,'' says Bill Wolfe, who will manage Trico's border operations.
Some members of the Texas business group ask during the tour if the new Congress might hamper the growth of US industry's participation in maquiladoras.
``Well, I'm afraid that as far as the companies are concerned, it's either here or Asia,'' says Terry Marquis, whose Fisher Guide division in Matamoros makes 5,000 flexible bumpers a day for many GM models. ``That's a decision that, if Congress gets into this, they're going to have to consider very carefully.''