Hands Across the Border

By Stephen Koepp

U.S. manufacturers work both sides of the line to slash costs

Around the fringe of the dusty, sprawling Mexican city of Ciudad Juarez (pop. 625,000) rise row after row of corrugated-steel and beige brick structures bearing the logos of RCA, General Electric and GTE. Inside a Honeywell building, hundreds of women wearing red smocks hunch over an assembly line as they put together tiny electronic devices. Ten million parts a month are turned out here and then trucked across the border to U.S. plants, which ship them off to be used in Apple computers, Xerox copiers and instrument panels for the space shuttle.

By assembling the components in Mexico rather than in the U.S. just a few miles away, Honeywell saves about 50% on production costs. That kind of bargain is creating a manufacturing boom along the 2,000-mile Mexican-U.S. border and is also boosting the ailing Mexican economy. Like Detroit's automakers, who are moving an increasing amount of production to foreign countries, many other manufacturers are also building factories outside the U.S. More than 600 assembly plants have been lured to the Mexican border region to produce everything from electronic components to clothing.

Two decades ago, the land around Ciudad Juarez, situated just south of El Paso, Texas, was occupied by tumbleweeds, a few head of cattle and a little cotton. But in 1965 the Mexican government decided to stimulate jobs in the northern region by relaxing its laws against foreign ownership of factories and reducing import taxes on raw materials. This has enabled U.S. companies to build so-called twin plants, one north of the border and the other south. A typical company manufactures its materials in the U.S. plant, sends them to the Mexican factory for assembly and then returns them to the U.S. for packaging. The Mexicans have given the plants the name maquiladoras, meaning golden mills, because of the economic benefit they bring. The biggest maquiladora is RCA's TV-chassis assembly plant in Ciudad Juarez, which employs 6,000. Says Armando Leon, a National Bank of Mexico official who helps finance the plants: "It is a classic case of mutual assistance. We need jobs and dollars, and the Americans must cut production costs to stay competitive in the world market."

Indeed Mexico offers a way for U.S. firms to avoid moving their plants to Asia. "This is a direct line to Dallas," says John Lord, manager of the Honeywell plant, as he picks up a telephone. "When I need parts I call, and the next day they're here. Try that in the Far East." The Mexican connection enables managers from the headquarters of U.S. firms to visit their factories quickly and frequently. "Twentysix miles is a lot easier than 8,000," said Allen Roshon, president of San Diego's Computer Accessories, which operates a plant in nearby Tijuana.

The border boom began accelerating in 1982, when the Mexican government was forced to devalue its peso as part of the financial crisis facing the country. Worth nearly 4-c- then, the peso has fallen to 1/2-c-, giving U.S. manufacturers an eightfold boost to the value of their dollars. Maquiladora operators are expected to spend some $1.2 billion in Mexico this year, up from $845 million in 1982. This ranks as the country's second-biggest source of foreign income, after oil. Mexico desperately needs the cash to pay off its $95 billion in foreign debt.

The biggest saving for U.S. firms in Mexico is the country's labor costs, which are even lower than in overseas manufacturing centers. The typical maquiladora worker earns about $1.10 an hour, including benefits. At similar plants in Hong Kong, labor costs are $1.50 an hour and in Singapore $1.62. Mexican workers earn only about a third of the minimum wage of $3.35 in the U.S. In addition, U.S. employers find Mexican workers to be highly productive. Says Honeywell's Lord: "We love it here. We didn't realize how quality conscious the people are."

In a country where 40% of the labor force is out of work or barely earning subsistence wages, the factory jobs are a welcome relief. Since 1982, the number of Mexicans employed by maquiladoras has increased from 127,000 to 180,000. Said Maria Rosario Gonzalez, 24, who works in a sterilized, dust-free room in Tijuana assembling parts for Plantronics, a California maker of headphones: "This was by far the best thing I could find. We have job security here that you don't find in places like restaurants." But the maquiladoras have critics who regard the plants as high-tech sweatshops. Most of the work is low paying and unskilled and attracts mainly young women for relatively short-term jobs.

The pell-mell buildup of factories, though, especially in Ciudad Juarez and Tijuana, has caused an unexpected worker shortage that may result in better conditions. Said David Kiepler, general manager of International Rectifier: "Five years ago, we had people lined up at the door. Now there is a lot of competition for labor." Some manufacturers have boosted wages by about 30% and begun offering more amenities. At Plantronics, the company serves employees a breakfast of ranch-style eggs, beans and tortillas. Price: 10-c-. Other companies offer picnics, food baskets, transportation and housing allowances.

American union officials oppose the movement of plants to Mexico, fearing a loss of U.S. jobs. But proponents of the maquiladoras contend that inexpensive Mexican labor can actually save some jobs in the U.S. by keeping domestic companies competitive with foreign rivals. Says Teri Cardot, a San Diego consultant who advises potential maquiladora builders: "Mexican operations are keeping a lot of American companies alive. It's making the crucial difference."

A robust recovery of the Mexican economy, which would boost production costs, could jeopardize the spread of the maquiladoras. Said Enrique Mier y Teran, a maquiladora adviser in Tijuana: "We could all disappear overnight. Manufacturers would move off to Haiti or Colombia." But given Mexico's current economic plight, the maquiladoras can probably look forward to a bright manana.

--By Stephen Koepp. Reported by Ricardo Chavira/Ciudad Juarez and Richard Woodbury/San Diego

With reporting by Ricardo Chavira, Richard Woodbury