GREAT 184 IDEA: Move Your Manufacturing to Mexico
Japanese giants Sony, Sanyo Electric, and Hitachi paved the way by investing hundreds of millions of dollars in Mexican border factories called maquiladoras. Now, scores of U.S. businesses are taking advantage of Mexico's affordable skilled labor force.
Shared production plants offer big and small businesses a cost-effective way to make products. There are about 3,000 maquiladoras employing more than one million workers in Mexico. The biggest attraction is paying workers very low wages compared to U.S. wages—about $2.50 an hour.
The majority of border plant workers are assembling electronic equipment and automotive parts. They also make medical devices, textiles, and furniture.
While it's easy for mega-corporations to deal with government permits, customs regulations, and cultural and language problems, working in a foreign country is daunting for most entrepreneurs.
In the late 1990s, Jeff Paul, formerly the owner of Sierra Pacific Apparel, had about 1,000 Mexican workers making blue jeans for U.S. retailers, but labor and financial problems made it an unpleasant experience.
He tried again a few years later and had 400 workers in California and about 100 in Mexicali, Mexico. Although sewing jeans in Mexico saved Paul about 75 cents per garment, it wasn't easy.
“Our employee turnover in central California was 5 percent a year,” said Paul. “In Mexico, we lost 5 percent a week.”
The second time he ventured into Mexico, Paul set up his Mexican operation in partnership with North American Production Sharing Inc. (NAPS), a small Del Mar, California-based company that helps U.S. companies set up shop over the border (www.napsmexico.com).
NAPS, founded by Bill Lew and Richard Jaime in 1991, works with U.S. companies doing everything from refurbishing telephones to making computer cables. NAPS screens applicants and hires workers, manages the payroll, helps train workers, and even rents buses to collect workers for one client's second shift. Best of all, they handle all the permits, payroll-related paperwork, taxes, and customs requirements.
But before they'll help a company move across the border, they spend quite a bit of time evaluating the company's needs and goals.
“We start by helping them understand if it makes sense to be in Mexico,” said Lew, NAPS vice president and a former loan officer for Wells Fargo Bank. “We make sure the client is right for Mexico.”
Tips to Consider before Moving Production to Mexico
- Carefully calculate and compare your current labor costs to wages in Mexico.
- Determine whether unskilled or semiskilled workers can be trained to make your product.
- Determine whether you have time to wait for finished products to be shipped back to the United States or abroad from Mexico.
- Budget extra funds for start-up costs.
- Find a partner who knows how things work in Mexico.
- Learn about the Mexican culture and how business deals are done there.
- Be patient.
The low labor cost is what attracts most U.S. businesses to Mexico. But contrary to popular belief, Lew said his clients are not firing U.S. workers and fleeing to Mexico. They head to Mexico to expand production.
“It's not a zero-sum game. Our clients are not closing down U.S. factories,” he said. In fact, he cautions, “Mexico won't save a company—Mexico will help a growing company.”