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 Business News | March 2008 
Mexico's Producers Seek to Avert Crisis
 von Adam Thomson - Financial Times Deutschland
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| | Mexico's President Felipe Calderon, left, and El Salvador's President Tony Saca shake hands as they attend a press conference in San Salvador, Tuesday, March 4, 2008. Calderon is on a one-day official visit to San Salvador. (AP/Luis Romero) | | |
Export-processing factories are trying to break free from dependence on the US economy as a reuslt of the recent slump in the markets and current fiancial crisis, looking to sell to non-traditional markets such as Chile, Peru and Brazil rather than the US.
Gaby, a young Mexican with long dark hair, tight faded jeans and a white puffy jacket, is at work assembling flat-screen televisions on a production line in Ciudad Juárez, just south of the border with El Paso, Texas.
Not so long ago, virtually all the screens that she assembled at the Taiwanese Tatung plant in Ciudad Juárez would have been destined for the US market. Today, however, at least 30 per cent of the 12,000 televisions a week that she and her colleagues put together go to other markets, including that of Mexico.
Such export-processing plants along the US border are known as maquiladoras. The sector was launched in the 1960s to take advantage of cheap labour and today employs almost 1.2m people. Like the rest of Mexico, the sector has been highly dependent on its mighty northern neighbour, with more than 80 per cent of its exports going to the US market. But that dependence has left it vulnerable to fluctuations in the US economy.
Plummeting employment
In 2001, when the US economy began to suffer, Mexico and its maquiladora-dominated border cities suffered even more. According to government figures, employment in the sector fell from more than 1m at the end of 2001 to 815,000 in July 2003.
According to JPMorgan, 527 plants closed in the year to June 2002, and 215,000 workers lost jobs between June 2000 and the third quarter of 2003. Since industry restructuring began in mid-2001 to cope with problems in the US economy, 14 per cent of all maquiladora companies have left.
Such startling changes of fortune give a clear idea not only of how sensitive the maquiladora sector has proved to be to US production, but also of how much Mexico depends on economic performance north of the Rio Grande. In recognition of this, the government of President Felipe Calderón in January cut its growth forecast for this year from 3.7 per cent to just 2.8 per cent.
But unlike during the previous slump in 2000, when the sector's response to a US downturn was to slash the labour force and close down operations, maquiladoras this time seem to be adopting different measures and strategies. Benito Rentería, deputy plant manager at Tatung, says his company intends to double production to about 25,000 televisions a week from April. It looks to sell to non-traditional markets such as Chile, Peru and Brazil rather than the US.
"These are not obvious markets for us, but with what could happen in the US we believe it is important to diversify the countries we sell to," he says.
Transport costs need to be cut
One head of a multinational company in Ciudad Juárez, who asked not to be named, says one solution would be to attract packing and packaging suppliers to cut transport costs. "As a sector, we spend $8.7bn a year on packaging. That gives you an idea of the potential for savings."
In Tijuana, Kyocera, the Japanese manufacturer, hopes to absorb cuts of about 20 per cent of its workforce in its electronics division by expanding its solar panel business. In the city, as in Ciudad Juárez, there is little sign so far that companies are cutting jobs.
Jorge Pedroza, who heads the Association of Maquiladoras in Ciudad Juárez, says companies have opted to freeze their payroll rather than cut it. "They are partly pinning their hopes on the possibility that the US slump will be fairly short-lived, but also that they can make savings elsewhere and adapt their businesses," he says.
If successful, these strategies could assist Mexico's efforts to withstand fallout from a US downturn. But he says the sector will only be able to keep its workforce and production levels if the downturn is short-lived. "There is a lot we can do as a sector to diversify, cut costs and be creative, but we would be kidding ourselves if we thought that everything would be all right with a big US recession." |
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