WASHINGTON — In 10 years, Mexico is likely to become the United States' largest trading partner, adding to pressure for plastics processors to establish their presence.
However, those expecting a low-cost haven, particularly in the border regions, may be in for a surprise.
That's the message that emerged from a forum on Mexican trade held May 7 by the Washington-based Society of the Plastics Industry Inc.
Douglas Mulay, president of Addison, Ill.-based Mulay Plastics, told the group that his company's injection molding plant making television housings in Tijuana has been profitable since it opened in 1996, but doing business there poses some unique challenges.
``Mexico has been a wonderful experience for us, but it has not been as easy as people make it sound,'' Mulay told the forum, sponsored by SPI's International Trade Advisory Committee. ``There is not a cost advantage to Mexico. All of your overhead costs are higher, except for labor. Nothing in Mexican border towns is inexpensive.''
Direct labor costs for factory workers are low, he said, but there are indirect costs not typical in the United States but essential in Mexico, such as uniforms, meals and showers.
Such extras boost labor costs from 80 cents an hour in direct wages to between $2 and $2.50 an hour, but they are needed to reduce turnover and make Mexican workers feel part of a family setting, Mulay said.
``You have to become family there, more so than anywhere else,'' he said.
Being flexible about indirect costs keeps workers happy and will reduce turnover from 300 percent a year to 25 percent a year, he said. The quality of the work force in Mexico is excellent, and employees there have a better eye for aesthetic differences in products than U.S. workers, Mulay said.
Wages in the border areas are rising quickly, too. Mulay has boosted shop-level employee pay 13-18 percent a year, in line with local government recommendations, Mulay said. Construction costs are the same on the Mexican side of the border, and land is not cheap in industrial parks, going for $250,000 an acre in Tijuana and $160,000 in Ju rez, Mulay said.
But productivity is good. Andre LeBlanc, chief operating officer with Anaheim, Calif.-based SPM, told attendees that SPM's Monterrey, Mexico, plant was rated top among the company's 15 facilities in 1997 in financial and other measures.
Mulay, which plans to break ground on a second Mexican plant in late May, has a hard time finding local managers because there is a shortage of qualified executives. LeBlanc said the labor shortage leads to other companies pirating workers that SPM has trained.
The chief reason Mulay built in Mexico was to eliminate time lost in shipping across the border, which is increasingly congested because roads and border crossings have not kept pace with the explosion of traffic, Mulay said.
But several privately held molders at the event said getting financing to build in Mexico remains the biggest problem for businesses. Mexican banks remain stuck in a credit crunch and U.S. banks will not lend unless they can put a lien against a U.S. property.
Injection molding titan Nypro Inc., which recorded $430 million in worldwide sales last year, has not built a Mexican plant because it cannot get bank financing, said James Buonomo, corporate director of international business development with the Clinton, Mass.-based firm.
``Nypro has not gone to Mexico because Nypro's strategy is to leverage itself and not fund everything out of Clinton,'' he said. ``We'd be in Mexico today if we could figure out how to get financing.''
SPI should work to encourage lending in Mexico by local and U.S. banks, Buonomo said.
Growth markets in Mexico include those for molders with injection molding machines of more than 750 tons, thin-wall thermoforming, film production and PET blow molding for uses other than soft drink products, according to Ricardo A. Ric rdez Solis, director general of the consulting company Internacional de Asesoria y Suministros Industriales SA de CV in Mexico City and a member of the Mexican government's advisory body for chemicals and the North American Free Trade Agreement.
The country's recent financial crisis and the opening of markets under NAFTA shut down 1,200 plastics processors in Mexico. But the country is recovering and is attracting $11 billion a year in foreign investment, including more than $2 billion in plastics machinery from 1994-97, he said.
Other suggestions, from U.S. molders that went to Mexico and consultants, include:
Be aware of cultural differences. Mexicans tend to be less direct than U.S. residents, and may not be as time-sensitive.
Scouting locations and markets takes several months. Mulay said his company set up an apartment in San Diego and its executives spent three to five months scouting locations and getting training in cultural differences.
A local Mexican lawyer is crucial to success in getting permits and negotiating fees with local officials, and Mexican accountants also are needed to keep a set of Mexican books.
The one-day event drew more than 50 plastics industry officials to Washington.
The event also included awarding SPI's first annual businessperson of the year award to James Meinert, director of national and international marketing for Snider Mold Co. Inc. in Mequon, Wis.
Meinert has a long history in SPI trade activities, and has testified before Congress on trade issues.
