Thursday, January 04, 2007

"China Price" isn't Always Determinative

Mexican border factories stage comeback

By Lynn Brezosky
January 04, 2005
The Associated Press
As published in The Seattle Times

McALLEN, Texas — Ask Nancy Boultinghouse why fewer Mexican border factories are moving to China and she quickly turns to her computer to pull up a PowerPoint presentation.

"Logistics," said Boultinghouse, the McAllen Economic Development marketing director, tracing burgeoning trade routes from the tip of the Texas to the U.S. interior.

"Logistics plays a big part in the final cost of something," she said. "There are a lot of products it makes no sense to produce in China."

McAllen credits much of its growth to factories set up for the cheap labor across the border in Reynosa. With them come managers who settle in the United States and support operations for transportation of raw goods and the finished product.

For McAllen, it's a $4 billion annual economic impact.

But like cities across northern Mexico, Reynosa has teetered amid the competition of even cheaper labor elsewhere in the world — especially in China.

Between 2000 and 2003, about 900 manufacture-for-export operations — or maquiladoras — closed, at a cost of more than 292,000 jobs.

But the China threat suddenly seems to have ebbed, with companies saying they'll invest $4.5 billion in new or expanded maquilas during the year, restoring or replacing some two-thirds of the lost Mexican jobs.

The sector picked up in 2004: In June, some $7.7 billion worth of goods was exported, an all-time monthly high. [...]

Boultinghouse said the biggest reason for the comeback is distance. She has long argued the Pacific Ocean is a costly obstacle. For large goods, such as cars and side-by-side refrigerators, shipping prices can outrun savings on labor.

Reynosa suffered less than other Mexican border cities, losing four plants but gaining others, including a Maytag plant much criticized for taking jobs from Illinois.

Boultinghouse said Reynosa and McAllen established themselves early as an obvious choice for Midwestern automobile manufacturers.

Small, labor-intensive parts are produced in Reynosa, then sent by truck or rail north to Detroit's assembly points.

But cities elsewhere suffered severely. Tijuana, across the border from San Diego and home to the most maquilas, lost 258 plants — 20 percent of the total.

Twenty-three percent of maquila workers, or about 67,000, lost their jobs in Ciudad Juarez, across from El Paso. Some 18,000 workers lost their jobs in Matamoros, across from Brownsville.

The plants that left were producing low priced, labor-intensive goods such as clothing, small electronics and toys.

Those cities now are concentrating on bulkier items, motor-vehicle parts and assembly, goods that are copyright-sensitive (China's stance on trademark law is murky) and items that are bound primarily for the United States.

Kyocera Solar recently announced plans to add a maquila in Tijuana to produce solar panels, for which California is the world's third-leading market.

It's an addition to Japanese-owned Kyocera International's three Tijuana production facilities for cellphones and semiconductors.

Tijuana also is getting a new Toyota assembly plant.

["Mexico is still next to the market that everyone wants to sell to,"] said Rudy Fernandez, director of economic development and binational affairs for the mayor of San Diego. [...]

Ninety-percent of Mexican-produced maquila goods go to the United States...


Blogger Harry Eagar said...

I'm skeptical.

It isn't distance but connections that control plant locations.

3 anecdotes:

About 20 years ago, there was a push to establish an R&T park here. A consultant from Frisco came in and told us what we needed.

We expected to hear that it was a great university or something like that.

No. 'The first requirement for a successful research and technology park is a location near an interstate on ramp.'

I bought a washer and dryer last year and was amazed to find an air shipping label on the carton: it was flown in from L.A. (along with 11 others), although there is regular (and cheaper) barge service every week. (Score one for Skipper.)

A wind farm was erected here last year. The vanes, 95 feet long, were made in India.

I recommend 'The Box' by Marc Levinson about shipping containers and logistics.

January 04, 2007 8:04 AM  
Blogger Oroborous said...

Northern Mexico is well-connected with the U.S. Interstate system; rural China isn't.

I think that your second anecdote tends to support the article's premise, that lowest-cost is only one factor in decision-making.

January 04, 2007 8:50 AM  
Blogger Harry Eagar said...

Well, transportation is a funny animal.

No question trains are cheaper to move almost anything than trucks, but people pay more for trucks because of convenience.

I'm not questioning that maquilas are reviving.

But there could be lots of reasons. Risk spreading. As the article states, nervousness about China's legal arrangements.

A very likely one is the port bottleneck at Long Beach.

The inefficiency of US seaports -- roughly, about a tenth as good as Asian ports -- is a real problem.

January 04, 2007 9:19 AM  
Anonymous Anonymous said...

The reason for airshipping the washer/dryer is probably inventory control.

January 07, 2007 9:25 AM  
Blogger Oroborous said...

Inventory control ?

Can't they just count how many they put on the barge, and how many they take off ?

January 07, 2007 6:45 PM  

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