Mexico packing more plastics potential

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MEXICO CITY — In office for three months, Mexico's fledgling government has unlatched more business opportunities for the country's plastics processors than any previous administration in the past few decades, according to one plastics industry leader.

"In less than 100 days the new government has opened up for discussion matters where windows of opportunity of interest to the plastics industry have been revealed," industry consultant Eduardo de la Tijera Coeto said in an emailed open letter to sector members in late February.

"They may be small openings but nevertheless they are opportunities that allow us to make suggestions about what we think should be included in [national] policies of interest and concern to us. These are opportunities we've not had for decades," he said in the Spanish-language email.

De la Tijera is CEO of Grupo Texne, a Mexico City market research company. He's also a past president of industry association Anipac (Asociación Nacional de Industrias del Plástico AC).

His comments coincide with the creation of a think tank involving leading company directors and academics, whose aim is to bolster cooperation between the state and private sector and improve Mexico's productivity and competitiveness.

Called Instituto para el Desarrollo Industrial y el Crecimiento Económico (the Industrial Development and Economic Growth Institute), its president is Raúl Gutiérrez Muguerza, managing director of Grupo Deacero, a Mexican steel product manufacturer based in the Monterrey suburb of Garza García.

Meanwhile numerous non-Mexican processors are also considering expanding or investing for the first time in Mexico, according to K. Alan Russell, president and CEO of Tecma Group LP of El Paso, Texas, which helps firms launch manufacturing operations in Mexico.

"There is a lot of movement relating to Mexico manufacturing," Russell told Plastics News via email. "We at Tecma have seen more new business activity in the last 60 days than we've seen over the past two years combined."

The biggest part of that activity has been firms already manufacturing in Mexico that are expanding into larger facilities — "in preparation for increased production," according to Russell.

"The next level of activity is coming from U.S. companies readdressing Mexico for their low-cost initiatives, as they now know that China is no longer the obvious choice," he added. "Then for the first time, we are actually seeing companies not only wanting to move processes out of China into Mexico but considering a move of all their manufacturing back to North America, bringing their R&D into their headquarters in the U.S. and Mexico for the production."

Tecma describes itself as a one-stop manufacturing source, specializing in sheltered services and other options, including subcontract and turnkey manufacturing, joint ventures, logistics, supply chain management and site selection.

Townsend Solutions polyolefins consultant Roberto Ribeiro said, "It's an exciting time for Mexican plastics manufacturers." The Houston-based firm provides market research and information to the global plastics industry.

"With labor costs rising in China and the logistical concerns associated simply with the time involved in shipping products from China to the North American market, many companies are looking at bringing production back to North American soil," Ribeiro said in a news release.

Because Mexico has the lowest labor costs in North America, it is likely to benefit from the shift away from China, according to Ribeiro. With more polyethylene production capacity planned for the United States — stemming from shale gas — plastics conversion could become a booming business in Mexico, he said.

"We've fielded several calls from companies looking for Mexican factories that might be able to produce their goods more efficiently and at a lower cost than they are currently seeing in China. Mexico is an emerging market that has started receiving a lot of international attention," Ribeiro said.

He added: "I strongly believe we are going to see an influx of new plastics processing factories and international contracts for existing manufacturers in Mexico," Ribeiro said.

According to Townsend, average labor costs in China have increased 20 percent over the last four years. "No slowdown is in sight as both domestic and international attention is focused on working conditions in Chinese factories and the welfare of factory workers," the company said.

In the same period, labor costs in Mexico rose by 1 percent, Townsend said. "In 2005, the average manufacturing wage in China was $0.60/hour. In 2011, that number reached $1.63/hour – an increase of $1.03 per hour per employee, while wages in Mexico increased only $0.20 per hour per employee in that same time period — from $1.90/hour in 2005 to $2.10/hour in 2011," according to Townsend Solutions.

Also working in Mexico's favor are free trade agreements Mexico has signed with 44 countries, trade deals and promotions with "dozens of other countries," the lifting of a U.S. ban on Mexican-owned and operated trucks on U.S. roads and highways, and ever-improving rail links between the two countries, Townsend said.

According to de la Tijera, the most glaring difference between the previous administration of Felipe Calderón Hinojosa and that of his successor, Enrique Peña Nieto, is that Calderón focused every day on fighting organized crime.

President Peña Nieto, on the other hand, "has concentrated on listening to a whole raft of proposals" on a variety of subjects, de la Tijera wrote in the letter.

However, one of Calderon's last acts as president was to sign into law the most sweeping changes to Mexico's labor statutes in decades. The reforms, which will make it easier for employers to hire and fire workers, will inject greater dynamism into the economy, many observers believe, although a number of trade unionists have called the move regressive.

In his letter, de La Tijera urged the industry to work as one across regional lines and to present solid proposals for the plastic sector's growth to the government.

Substituting imports and increasing Mexico's exports are vital if the plastics processing industry is to grow, he said, but that won't happen without greater organization within the industry and government support.

Anipac says the plastics industry represents 2.7 percent of Mexico's manufacturing gross domestic product and 0.5 percent of its national GDP. It employs 155,000 and grew 6 percent from 2011-12, according to the Mexican plastics trade group.