Plastics in Mexico
Breaking down Mexico's plastics industry by sector, and analyzing those under threat by China, analyst Rafael Blanco of IMPI (the Mexican Institute of Industrial Plastics) said the threat from China is ``both exaggerated, and underestimated.''
Why exaggerated? Because 43 percent of plastics consumption in Mexico is in bottles and other packaging, and another 14 percent is in construction. China is not a major threat in either market.
Smaller markets including furniture and agriculture are more competitive, and China is winning the battle in electronics, shoes, toys and housewares, which account for about 25 percent of Mexico's plastics consumption.
But Blanco said South Korea already is taking some of that market from China.
``I think the problem in the next five years will be India, which produces high-quality goods at low cost,'' Blanco said, ``China makes low-ish quality at very low cost.
``Counting electronics, we are talking, in total, 1 million tons of plastics manufacturing from Asia out of 4.5 million. These are products without technology, in sectors where we don't need quality. The impact is important - 23 percent of national consumption - but it's not new. It started gradually five years ago, but now is reaching vast proportions.''
Competition from Asia is evident in Mexico City, Guadalajara, the states of Mexico and Jalisco, and the region known as El Bajío, he said. But Monterrey, Puebla, Yucatan and Veracruz are barely touched, in Blanco's view.
``In the north of the country there is no evidence they are here yet,'' he said. But he said Mexico's relationship with China is entering a new phase.
``We are seeing two stages. First the Chinese come to sell products, and then come to buy Mexican companies, or make associations with them. The latter is a five-year strategy, which is just beginning now. I think we will see more alliances.''
But Blanco takes issue with Mexico's strategy when faced with China.
``Mexican businessmen in medium-size industries have sought association with China, for example in the production of molds. The concern is that we, in Mexico, are buying technology to produce low-quality technological products, and this puts our plastics industry in a very weak position because we are buying obsolete technology from Asia.''
European and U.S. technology is expensive, Blanco said, and doesn't have a market yet in Mexico. He believes Mexico should defend its market by looking for alliances with U.S. companies.
Guillermo Salas has been representing Asian machine makers in Mexico since 1996.
``If you say Asian invasion rather than Chinese invasions, then I can tell you that I was the one who started this invasion of Asian machinery. The two companies I represent have moved their plants from Hong Kong to continental China, taking with them all their engineering staff and supervision to ensure the continued quality of their products,'' Salas said.
``I chose the brands that I thought, and I still think, are the best options for Mexico. I should emphasize that these are not the cheapest, but are those that offer the best technology available in those countries. We now sell this equipment in the United States, as well as Central and South America, offering technical service from Mexico.''
Salas' Industrias Plasticas Maximo has a long list of clients, about 60 percent concentrated in the metropolitan area around Mexico City.
``Normally when our economy is struggling, our sales increase, given that our machines are cheaper [than those from the United States, Canada and Europe], but are still very reliable.'' For 2003, Salas expects a repeat of the 15 percent growth he saw in 2002.
``Lack of training continues to be a real problem in Mexico, since machine users don't use the equipment even at 80 percent of their technologies and capacities,'' he said.
Analyst Eduardo de la Tijera, of information service Infoplas, holds firm to the view that the China threat is exaggerated.
``Plastics imports from China are less than 2 percent of the total plastics imports coming into Mexico and I feel we are overreacting,'' he said.
He emphasized that China's plastics coming into Mexico are centered around a few products such as reels for textile yarn, tableware, kitchenware and toilet articles, statuettes and other ornamental items, and lunch boxes.
``China has a large share in imports of these applications, but not in film, crates, bag and sacks and other precision parts where our imports are really heavy.''
Tijera's final message was that Mexico has an inner enemy more dangerous than China.
``The difference comes in the operating expenses. Chinese managers of plastics companies earn much less than Mexicans. They ride bicycles instead of BMWs or Mercedes as our managers do and bicycles are cheaper than those cars. Their benefits are also lower. ... Chinese managers do not need assistant managers, superintendents, supervisors, administrative assistants, drivers, messengers, guards and the like because [the Chinese] work hard to replace them, and most of all, Chinese processors do not have the high profit expectations than ours do.''
Monterrey on guard
The view from Monterrey - Mexico's thriving industrial city in the north, and an area that Blanco said is not under attack yet by China in plastics - is guarded.
Hernan Belden, head of the Plastics Section in Caintra in Nuevo LeÃ³n, said plastics is a substantial 8 percent of the total state industry. At the end of the 1990s, the plastics sector in Nuevo LeÃ³n was growing 12-13 percent. Last year it grew about 5 percent, and for 2003, industrialists expect another year of 5 percent growth.
``For most of the last 10 years the plastics sector in Nuevo LeÃ³n has been growing at double digits, but we have lost jobs to China, especially the toy companies. About 20-25 plastics companies in and around Monterrey have closed in the last two years, meaning a loss of 500-600 jobs. I would say half of them were in toys,'' he said.
``Many were small companies, with old machines, that didn't even have quality certifications. One needs at least ISO-9000 in this time of globalization,'' he added. ``Now we fear a lot of big companies establishing in Monterrey will be leaving. It seems some U.S. companies are going to China for massive production because of labor costs.''
He said the trade agreements help Mexico, ``but not for too much time.''
``Canada and the U.S. will have trade agreements, and then Central America, and China and other Asian countries will have these treaties and advantages. So I think Mexico will have this advantage only for another two or three years.''
However, Monterrey's proximity to the United States remains a big advantage.
``People here panic, but they need to realize it's not the end of the world. There are still opportunities here when you find your niche. For example, automotive and electronic companies here can deliver just-in-time, which the Chinese can't do.''
In the meantime, it looks as though electronics manufacturers are cutting back Mexico operations. Asked what Caintra is doing to keep companies, Belden said, ``We are trying to attract more value-added companies, like electronic and electric. Not just maquilas, which are looking for price only.''
So from the perspective of Nuevo LeÃ³n, Mexico is moving more toward midrange products, such as automotive and electronics, and the industrial markets like air conditioning, vacuum cleaners and appliances.
After the initial visit to China, Cofose now is organizing a trade mission for subsectors of the plastics industry, such as flexible packaging. Anipac also plans a trade mission to China this year.