U.S. injection molding machinery manufacturers are doing a roaring trade with companies in Mexico close to the border, and the trend is likely to continue for the foreseeable future, according to a report by the U.S. Commercial Service.
The region's imports of such machinery and related equipment grew 6.7 percent to $714 million in 2005, the report said, and Michael Lally, commercial counselor at the U.S. Embassy in Mexico City, insists the boom will carry over into 2007.
``Two of the manufacturing industry's most promising sectors in the border region are plastic machinery/equipment and resins, for which the import markets have grown more than 10 percent over the last three years,'' Judith Valdés, a trade specialist at the U.S. Commercial Service's office in Tijuana, wrote in the report.
Factors that will fuel the demand for plastics and plastics machinery and equipment in the border industry in the coming years, she added, include the expansion of existing plants along the border to take advantage of the North American Free Trade Agreement's content rules, which allow plants to export their products duty-free to the U.S. market.
``The ongoing increase in the size of the plants will raise demand for raw materials, including plastics,'' the report said.
Explaining that state governments along the border are making a sustained effort to attract and keep foreign investment, Valdés gave two examples of success stories: Ford Motor Co.'s assembly plant in Hermosillo, and Toyota Motor Corp.'s assembly plant in Tijuana. Both have received multimillion-dollar investments from their parent companies.
``The full implementation of NAFTA and its benefits will encourage those companies that want to continue selling duty-free to the North American market to increase the percentage of [North American] content,'' Valdés said.
Published this fall, the report refers to Mexico's northern border as an industrial powerhouse. According to Valdés, a plastics industry specialist, the region accounts for 18 percent of Mexico's gross domestic product. It has 160 injection molding plants, primarily supplying the electronics, automotive and medical sectors. Those markets account for 40 percent of the region's injection molding output, she said.
``Over the past 10 years, the average population growth rate for this area has been 2.31 percent, while the average rate nationwide has been 1.84 percent,'' Valdés said, noting that 17 million inhabitants - 16 percent of Mexico's total population - live in the area.
According to Mexico's federal government, she added, the area's export manufacturing, or maquiladora industry, receives about 20 percent of the total foreign investment in Mexico.
Valdés said the 2,285 maquiladora factories represent 76 percent of all of Mexico's manufacturing plants and generate about 900,000 jobs. The state of Baja California has 910 plants; Chihuahua, 400; Tamaulipas, 341; Coahuila, 223; and Sonora, 207.
The U.S. has been the main supplier of injection molding equipment in the border region since NAFTA was implemented in 1994, according to the specialist. But while the U.S. still dominates most segments of the market, products from Japan and Italy ``are beginning to increase their market share slowly,'' she said.
``Generally speaking, imports from these countries have increased as a result of several factors, including aggressive competitive pricing and quality. Moreover, these countries have benefited from the Mexican government's approval of ... programs that allow the import of non-NAFTA products with favored-import duties of zero to 5 percent.''
However, in a joint interview with Lally, Valdés noted that having Mexico on its border is a major advantage for U.S. suppliers.
``Most of the manufacturing plants along the [Mexican side of the] border have no warehouses,'' she said. ``Their production and supply is just-in-time. Production is going directly into trucks and being transported into the United States. This is one of the elements that make the border region so attractive.''
One recent development in Mexico is the disputed presidential election. Left-wing candidate Manuel L¢pez Obrador, who lost July's election to the pro-business Felipe Calder¢n Hinojosa by half a percentage point, has refused to acknowledge his defeat. His supporters in the Democratic Revolutionary Party, now the country's second-largest political force, have vowed to stymie Calderon's economic programs at every turn.
The U.S. order book in Mexico ``is just the same as it was in 2005,'' Lally said.
``We don't see any companies putting things on hold. We have heard they're still looking for opportunities here.''