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Mexico’s maquila boom extends across the border

Copyright © 2014 Albuquerque Journal

Seamstresses sew car upholstery at the Tecma Group, which operates 18 of the more than 350 maquilas in the Ciudad Juarez area. (Journal File)

Seamstresses sew car upholstery at the Tecma Group, which operates 18 of the more than 350 maquilas in the Ciudad Juarez area. (Journal File)

SANTA TERESA — Mexico’s maquila industry has become a raging bull that’s busting up the competition in China and other Asian nations for the first time in decades.

Rapidly rising costs to produce and ship goods from Asia, especially heavy industrial items such as cars and home appliances, are encouraging the world’s major producers to ditch overseas manufacturing and instead set up operations in Mexico, where proximity to U.S. markets helps to lower costs and increase operating efficiencies.

That’s good news for New Mexico, and for all U.S. border states, because the rapid growth of Mexico’s maquilas, or assembly factories, is creating huge business opportunities up and down the 2,000-mile U.S.-Mexico border. And that, in turn, is creating new industrial hot spots in places such as southern New Mexico, where companies are flocking to set up new facilities to supply goods and services to the maquila industry.

A technician repairs computer monitors at Amcor Service Solutions, a part of the Tecma Group. These assembly-for-export plants that crank out everything from brake pads to plasma TVs for U.S. companies are opening new facilities, expanding existing ones and hiring more employees.

“We’re seeing a steady ‘re-shoring’ of industry investment from China to Mexico that’s creating huge opportunities here for everything from manufacturing and transportation to warehousing services and technology-related enterprises,” said New Mexico Economic Development Secretary Jon Barela. “We believe a wide array of businesses can flourish along the border as the maquila industry continues to grow.”

Huge ‘re-shoring’ underway

A technician repairs computer monitors at Amcor Service Solutions, a part of the Tecma Group. These assembly-for-export plants that crank out everything from brake pads to plasma TVs for U.S. companies are opening new facilities, expanding existing ones and hiring more employees. (Journal File)

A technician repairs computer monitors at Amcor Service Solutions, a part of the Tecma Group. These assembly-for-export plants that crank out everything from brake pads to plasma TVs for U.S. companies are opening new facilities, expanding existing ones and hiring more employees. (Journal File)

“Transportation costs have been on the rise since 2003, and they’re still very elevated,” Coronado said. “That’s made it far more expensive to move goods from Asia to the U.S.”

Other pressures include the strengthening of Chinese and some other Asian currencies against the U.S dollar, which makes exports from those countries more expensive, and the length of time it takes to transport goods from those places to North America, Coronado said.

As a result, global producers of everything from cars and auto parts to aviation technology, medical devices and home appliances are establishing maquilas in Mexico to be closer to U.S. markets. It’s an emerging re-shoring strategy that not only reduces transportation expenses, but allows for “just-in-time” manufacturing and delivery of products to increase operating efficiencies, Coronado said.

All of that is providing huge competitive advantages to Mexico.

“It’s a revolution,” Russell said. “For the first time in 50 years, the lines have crossed from a cost standpoint to favor producing in Mexico rather than producing in China.”

Foreign investment is flooding into Mexico’s maquila industry from all over, including the U.S., Europe and Asian countries to better position themselves for sales in North America.

Foreign direct investment in maquilas reached nearly $13 billion last year, up from just $7 billion in 2012 and its highest level since before the recession in 2007, according to Mexico’s national statistics institute. The value of maquila exports has jumped nearly 50 percent from pre-recession levels.

Sophisticated, diverse

Santa Teresa's industrial Park is booming because of trade with Mexico, particularly serving the maquila industry. Here, a shipment of steel is prepared for shipping at the Southwest Steel-Coil facility in Santa Teresa earlier this year. (Journal File)

Santa Teresa’s industrial Park is booming because of trade with Mexico, particularly serving the maquila industry. Here, a shipment of steel is prepared for shipping at the Southwest Steel-Coil facility in Santa Teresa earlier this year. (Journal File)

The maquilas themselves have grown much more sophisticated and diversified in recent years, with Mexico now ranking as the world’s No. 1 exporter of flat screen TVs and refrigerators with freezers, and the fifth-largest auto-parts producer globally.

“Today, Mexico is the second-largest exporter of autos to the U.S.,” Coronado said. “It displaced Japan two months ago, and it will soon displace Canada.”

That’s a sea change from the 1960s, when the maquilas first emerged in Mexico to provide final assembly of simple products destined for U.S. markets using inexpensive Mexican labor. In those early years, the maquilas were often called “draw-back industries.” They were generally located just across the border so that U.S. companies could send things such as shirts and sweaters there for low-wage workers to sew on buttons before shipping the finished product back to markets in the U.S.

The growth and diversification of Mexico’s maquila industry is a boon to the U.S. border economy, and to U.S. manufacturing in general, given its deep-rooted connections to U.S. production and investment. Only about 10 percent of the inputs used in the maquilas – including raw materials, parts and services – are actually produced in Mexico. Most come from U.S. businesses.

U.S. maquila support

The Foxconn maquiladora, which sits just over the New Mexico border across from Santa Teresa, is a major player in the electronics manufacturing industry and is planning a major expansion. (Journal File)

The Foxconn maquiladora, which sits just over the New Mexico border across from Santa Teresa, is a major player in the electronics manufacturing industry and is planning a major expansion. (Journal File)

“On the U.S. side, we provide every type of service related to maquila manufacturing and trade,” Coronado said. “That includes transportation, warehousing, logistics, real estate, insurance and staffing.”

It also includes raw materials and semi-processed goods.

The lion’s share of trade with Mexico is based in Texas, especially in Laredo, which accounted for 40 percent of the $500 billion in exports and inputs that crossed the border by land last year. El Paso accounted for another 18 percent, making Texas the number 1 gateway for U.S. trade south of the border.

“More than 50,000 jobs in El Paso are attributed directly to the maquila industry in Juarez,” Russell said. “More than 70 buildings in El Paso are occupied, or exist, because of the maquilas.”

Now, a significant chunk of trade and maquila-related border business is building as well in southern New Mexico, where an industrial boom is underway.

The number of maquila-connected businesses located in Santa Teresa grew by 50 percent in the last two years. And, land trade passing through the Santa Teresa-San Jerónimo border crossing has increased dramatically.

“Santa Teresa accounted for about 5 percent of all U.S.-Mexico land trade last year,” Coronado said. “That’s up from less than one-half a percent seven or eight years ago.”

Good N.M. prospects

A Union Pacific train refuels at Union Pacific's new $400 million intermodal complex near Santa Teresa. The facility was built to support, in part, cross-border trade with Mexico and its booming maquila industry. (Journal File)

A Union Pacific train refuels at Union Pacific’s new $400 million intermodal complex near Santa Teresa. The facility was built to support, in part, cross-border trade with Mexico and its booming maquila industry. (Journal File)

As Mexico’s maquilas expand, prospects are good for capturing a lot more business in southern New Mexico. That’s because the New Mexico and Chihuahua state governments are working together to build needed infrastructure to turn the Santa Teresa-San Jerónimo crossing into a major binational land port.

That could attract a lot more supply businesses to Santa Teresa to provide goods and services throughout Chihuahua, where 420 maquila plants currently operate.

It could also bring more maquilas directly to San Jerónimo, providing greater opportunities for Santa Teresa-based businesses. Taiwanese electronics giant Foxconn, for example, which already operates two factories in San Jerónimo, wants to eventually open 14 more plants there.

In fact, private investment in Santa Teresa and San Jerónimo is likely to grow faster than public infrastructure, given the rapid expansion of maquila activity in Mexico.

“Demand for industrial space on both sides of the border is up,” said Octavio Lugo, chief operating officer for Corporación Inmobiliaria, which owns 47,000 acres of land in San Jerónimo. “We can’t sit around and wait for the federal government to finish building border crossings, because real demand is growing by businesses to operate in the area.”

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