Pushed by cost pressures and medical-device manufacturers outsourcing more production, plastics processors in the health-care industry are making a push into Latin America.
Two injection molders - MedTech Group Inc. in South Plainfield, N.J., and Cycles Inc. in Sterling, Mass. - announced ventures in Costa Rica and Mexico at a medical-device trade show June 15. That follows a similar announcement from injection molder Tech Group Inc. last month that it was beefing up its Mexican operation to handle more medical business.
While some executives downplay the trend and note that medical-device makers for years have used places like Puerto Rico and Tijuana, Mexico, as low-cost centers, others said that as plastic processors take over more of the medical-device supply chain, they need low-cost locations.
``More and more contract manufacturing is being outsourced to us,'' said Tom Podesta, vice president of sales and marketing for health care at Tech Group. ``I think the reason you are seeing suppliers there is, as the [original equipment manufacturers] outsource, suppliers need lower-cost locations.''
Scottsdale, Ariz.-based Tech said it was adding clean room assembly operations at its molding plant in El Salto, Mexico, because two customers decided to move device production to Mexico. Podesta and the other executives spoke at Medical Design & Manufacturing East, held June 15-17 in New York.
Cycles said it is setting up its plant in Tijuana, in a 50-50 joint venture with injection molder Apon Industries Corp. of Chula Vista, Calif., because a customer is moving business there. Paul Nickerson, Cycles vice president of sales and marketing, said the small operation will start with three presses, but the 7,000-square-foot factory can hold 25. The companies said they'll be in full production by midsummer.
The two companies are building a white room manufacturing environment in an existing Apon molding factory. Nickerson said Apon currently does not do any medical molding.
MedTech is opening its Costa Rica plant to establish low-cost manufacturing, not because any specific customer is pushing it to locate there, said President George Blank. MedTech, which also has a plant in Puerto Rico, said labor costs in Costa Rica are less than half that in the United States, although it is a more expensive location than Mexico.
The company chose Costa Rica over Mexico and the Dominican Republic because Costa Rica is a stable country with better-quality workers, according to Blank. The plant is also in a reduced tariff and tax zone, he said.
The 25,000-square-foot facility outside San Jose will open in September with a clean room and four injection presses. It will employ 35 in its first year, he said.
Blank said the company will move some assembly work from the United States to Costa Rica, but it will not mean any layoffs because the new plant is designed to help the company capture new business.
``This is just one more tool in our toolbox,'' he said.
While Blank agreed that cost pressures are driving the medical molding industry's investments south of the Rio Grande River, he said that more important to medical manufacturers is speed to market.
Another injection molder that does most of its business in medical manufacturing said it is studying Mexico and China for a possible site. Classic Industries Inc. has a manufacturing plant in El Paso, Texas, and last year opened one in Ponce, Puerto Rico.
Joseph Policastro, president of the Latrobe, Pa.-based company, said he has seen increasing interest in Latin America since the Puerto Rican plant opened. Medical manufacturers have significant investments in Mexico already, he said, and many are skittish about manufacturing in Asia for the U.S. market because of strict Food and Drug Administration regulations.
He said medical-device companies tell him there is rough cost parity for them between Mexico and China.
``One of the things we are seeing is that the Chinese market is comparable in cost to what some of the Latin American markets are,'' said Policastro.
Other executives said they do not see as much pressure for Latin American locations.
Gerald Duggan, vice president of medical molding sales and marketing at Precise Technology Inc. in North Versailles, Pa., said the recent investments could be a sign of things to come. But he said Precise, one of the larger medical molders, is not seeing a push into those markets from its customers.
``It's not a huge problem,'' he said.
Of course, there's not a wholesale rush south. And some molders say they continue to see opportunities to keep even the labor-intensive business in the United States, if attention is paid to manufacturing processes.
United Plastics Group Inc. in Westmont, Ill., said one of its customers, Palco Labs in Santa Cruz, Calif., was considering moving some labor-intensive assembly for a blood-sampling device to Mexico to cut costs. The work was being done by another subcontractor in the United States.
But Chuck Hoar, UPG vice president of sales, said his company was able to apply lean manufacturing principles, cutting in half the number of workers needed and reducing the space needed from 3,000 square feet to 400.
The product, a reusable lancing device used to obtain capillary blood samples for testing, has 10 molded parts and two springs, and would be difficult to assemble using automation, Hoar said. UPG now makes about 300,000 of the units a month at its Fremont, Calif., plant.
``They felt they had to get cost out of the equation, and they said `cheaper labor,' '' he said. ``We said it's all about smarter labor.''