GUADALAJARA, MEXICO (April 29, 9 a.m. EDT) — Excess molding capacity and margin woes plague many Guadalajara-area plastics processors, and months may pass before the economy improves.
The U.S. economic recovery “will not cross the border soon,” said industry consultant Eduardo de la Tijera of Mexico City. “It may take all of 2002 to see an increase in [Mexican] exports.”
De la Tijera spoke in a presentation for the Global Business Council of the Washington-based Society of the Plastics Industry Inc., which explored the Guadalajara region's business environment in a March 18-20 conference, “Going South: Opportunities in Mexico.”
Participants discussed Guadalajara's viability vs. Asian competition, ways to identify a suitable plant site and paying three-month severance packages in a layoff. The council organized tours of five plants.
“Everybody has seen Mexico as a panacea,” an industry veteran observed, “but it has not worked out” for several companies. “It is down to a nickel here and a penny there, and it becomes a nonmargin business.”
Within the state of Jalisco's plastics industry, employment shrank to about 10,000 last year from about 11,000 in 2001, according to the Careintra trade group's plastics section. The number of companies fell to 400 from 469.
Guadalajara and the suburbs of Zapopan, Tlajomulco de Zúñiga and El Salto are key industrial sites.
Siemens AG, IBM Corp. and Eastman Kodak Co. are among original equipment manufacturers with local plants. Contract manufacturers include Sanmina-SCI Corp., Flextronics International Ltd., Solectron Corp. and Jabil Circuit Inc.
“Everyone knows there is an overabundance of capacity now in Guadalajara,” said panelist Bill Gerard, managing director of Latin American operations for Scottsdale, Ariz.-based Tech Group Inc.
Meanwhile, China is luring the electronics industry away from Mexico.
With production ramping up, Dell Computer Corp. appears to find the Guadalajara climate good — for now.
Among others, Dell supplier Trend Technologies Inc. of San Jose, Calif., intends to follow the work flow.
“We are already in the process of focusing on China and places like that,” said panelist Glen Shrigley, director of tooling sales and technical services with Trend's Tool Tech division. “We have to change rapidly.”
Hewlett-Packard Co., Lucent Technologies Inc. and Motorola Inc. already have shifted work to China from Guadalajara. While their vendors scrambled to diversify, the economic slowdown has hindered efforts.
That has prompted changes at local processors. In January, for instance, Nypro Inc. of Clinton, Mass., committed to take an equity stake in, and manage, TriQuest Precision Plastics SA de CV in Zapopan.
Movement of work to Asia causes concern among plastics executives.
“Taking all of that into consideration doesn't paint a rosy picture for Mexico down the road,” noted attendee Don Madison, president of Marland Mold Inc. in Pittsfield, Mass.
“I will try to be the optimist here,” said panelist Richard Burns, president of LNP Americas, a division of LNP Engineering Plastics Inc. in Exton, Pa. “In the short term, that trend is going to continue. Those in the electronics market eventually may take a wider view about the cost of doing business in Asia.”
Moving supplies multiple times is costly, and someday, Burns said, original equipment manufacturers will consider that.
“Guadalajara and the Mexican economy are very competitive with Asia Pacific if you take the full cost into account,” he said.
Burns expressed fears that Dell and Lexmark International Inc. may move operations to China.
Information-technology shifts to the Asia-Pacific region have “left a large molder base with excess capacity and hungry for business,” Burns said. “This puts a great deal of pressure on custom molders' margins.”
Mexican workers have shown they can be flexible during the downturn. Mexican technicians accept weekend travel in contrast to their U.S. counterparts, said panelist Gabriel Leal, general manager in Mexico City handling importation and service for Uniloy Milacron Inc.'s plastic machinery group.
“If a component doesn't come in and your assembly line has to halt, those people clean machines” or do other tasks, Shrigley said. “They don't have an attitude about it.”
Burns said he observed favorable worker behavior while searching for a Mexico plant site. LNP built a $7.5 million, 60,000-square-foot compounding plant in San Luis Potosí and began operations in August.
The education level there is “somewhere around eighth or ninth grade, and none speak English,” Burns said of the workers. “I was impressed with how many employees were working [and] doing their jobs without supervision. That work ethic, to me, meant a lot.”
Still, local labor rules are tricky, said speaker Andre Save-lieff, manufacturing director and general manager of Puget Plastics Corp. SA de CV in Tlajomulco de Zúñiga.
“From day one, we set up a shelter company. We have a small core of dedicated employees [and] use the shelter for hiring and human resources.”
Cutting an employee requires payment of at least three months' salary plus 20 days per year of tenure.
“When you hire somebody — as long as this person stays with the company for the 90 days — you have obtained the responsibility for the severance package,” Leal said.
Toolmaking resources are thin; those needing support import toolmakers.
“There is no local pool to pull from,” Shrigley said. “We have our own in-house people down here.”
Even if a toolmaker has the ability, winning customers is a challenge, Gerard said. “Will the customers make the plunge [and] place that first mold [order]?”
Moving equipment also poses problems.
Two truck wrecks caused a 12-month delay of an injection molding machine at Tech Group's El Salto plant.
“The machine was virtually totaled,” Gerard said. The machine went back to the manufacturer and was rebuilt under insurance coverage. “They put it on a truck, and it was wrecked a second time.” He recommends buying the insurance.
Often in crossing the border, a mover transfers a molding machine between trucks. In reloading, “they just throw some straps over the top of the sheet metal and cinch it down,” Gerard said. The result: “Your panels have 3-inch-crushed insides, like squeezing an empty soda can.”
Shrigley added: “Or they don't cover it properly. It goes through the rainy season [and] is all rusted.”
Leal suggested using moving specialists. “You can hire door-to-door delivery.”
Customs raises other issues.
In one case, Mexican inspectors opened a package of control boards but improperly repackaged them. “They were all damaged,” Shrigley said.
In another, technicians wasted a trip to a plant when customs held up the part.
Documents must be perfect. “If you've miscounted a screw, they hold it up,” Shrigley said. “The paperwork musts be impeccable.”
Attendees of the SPI event talked about Guadalajara.
* “It is amazing how rapidly things change,” said James Meinert, president of Meinert Market Services LLC in Grafton, Wis. “Here [was] a booming market, just a few years ago, and now we are seeing quite a change with the movement toward China for electronics and the printer and computer business.”
* “I think Mexico will become more important as we move into the future,” said Anthony Napoletano, international compound manager with sheet and compound producer Kleerdex Co. of Jupiter, Fla. “China may always have a labor advantage, but Mexico will have a geographic advantage” for principal end users in the United States.
* “Equipment cost is much more competitive” in Mexico and specifically Guadalajara, said Michael Hedberg, Latin America regional sales manager for auxiliary equipment maker ACS Group in Milwaukee. “We have to be much leaner” and still meet processor requirements.