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SPECIAL REPORT: As China rises and global economy falters, maquiladoras face uphill battle

Cronkite News Service
NOGALES, Mexico — It is often said that when the U.S economy sneezes, the Mexican economy catches a cold. But these days, Mexico is more likely to be diagnosed with pneumonia than a case of the sniffles.
Mexico’s economy has been hammered in recent years due to China’s rise as a manufacturing juggernaut and a global economic crisis, which has slowed growth and frozen credit lines. Foreign companies, once rooted in Mexico for cheap manufacturing labor, are making decisions to pull operations out of the country in order to cut labor costs even further and increase bottom lines.
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An employee welds parts for Otis Elevators in the Concise Fabricators plant in Nogales, Sonora. More plants like this that once specialized in low-skill high-volume labor have shifted to more specialized contracts while the “assembly line” jobs they once provided have gone overseas to China for cheaper labor.
(Photo Source: Cronkite News Service Photo/Bettina Hansen)

Border plants are finding it difficult to remain cost-competitive when measured against the microscopic wages offered in places like China, Central America and even the interior of Mexico. So stories of fleeing manufacturing jobs on the border are becoming all too familiar. Jobs at manufacturing plants or, as they are known in Mexico, “maquiladoras” are slipping away at a rapid pace.
In 2008 alone, the Mexican Council of Maquiladora Manufacturing Industries (Consejo Nacional de la Industria Maquiladora y Manufacturera de Exportación) estimates that 50,000 jobs in the maquiladora industry were lost. With equally gloomy forecasts for the near future, people in the maquiladora industry are concerned.
Miguel Avechuco Lopez is an engineering manager with Amphenol Optimize Manufacturing Co. in Nogales, Mexico. He has been sent to Shenzhen, China three times to train laborers in assembly work. Shenzhen has taken over part of manufacturing operations for Amphenol, relocating nearly 100 jobs away from Lopez’s hometown. He feels like he is witnessing an end of an era.
“It was bad enough that our jobs were being brought over there, but I felt worse for being the teacher,” Avechuco Lopez said. “I don’t want my job to go to China. I don’t want my country’s jobs to go.”
For more than 40 years, assembly work provided the Mexican people living along the U.S.-Mexico border with a job. Now that relationship is weakening.
Maquiladora town
Domingo Saldivar Ramirez, an industrial engineer with Concise Fabricators Inc., has worked in maquiladoras for six years. He’s seen tough times before. From 2001 to 2003, Nogales lost 12,000 of its 38,000 maquiladora jobs. Now, he says, he has never seen so many worried employees.
“There is a feeling among maquiladora workers that their jobs can be easily moved to China because they offer cheaper labor,” he said. “It really depends on how lucky you are and the business you’re in.”
Maquiladoras’ businesses range widely: notebooks, airplane parts, automobile parts and all manner of electrical devices to name a few. Foreign companies import equipment and materials into Mexico. Those materials are assembled and the finished or near-finished products are then re-exported back to the country they originally came from where they are packaged and sent for retail.
Nogales now has about 100 maquiladoras employing 34,000 workers. Saldivar works in a maquiladora that produces parts for Connecticut-based Otis Elevator Co. His business is in a better position than most, because the company gets its contracts two-and-a-half years in advance. There’s at least a little security, he says. But he still doesn’t feel completely safe.
The unsteadiness in the industry is unfortunate for border cities like Nogales, which thrive on maquiladoras. Nogales has a university, Instituto Tecnológico de Nogales, which educates the city’s future professionals to work as engineers or managers at the plants. And Nogales’ hills are strangled with ramshackle houses, which give shelter to thousands of the city’s workers — more than half of whom are employed in the industrial sector.

Looking at a bird’s eye view of Nogales, the city appears as a mosaic with clusters of communities around the maquiladoras. Houses are made from odds and ends, anything that builders could get their hands on: tires, plywood, old garage doors (both wood and aluminum) as well as cinder blocks.
For the most part – excepting the major thoroughfare Highway 19 that leads into the U.S. — roads go unpaved. But dirt roads snake through the populated hills, in and around communities, so workers can easily get to and from the maquiladoras.
Most maquiladoras offer bus service to their employees to ensure they get to work safe and on time. It is a sight to see the rickety old school buses — kicking up dirt and exhaust — as they carefully climbs up the hills to drop off and collect workers. But nearly without fail, at sunrise and sunset, the buses are roaring and ready to carry the workers to the plants.
One of those workers is 44 year-old Adelaida Miranda Barreras. Every day she gets up at 4:30 a.m. to jump on a bus and head to work at an Amphenol plant in Nogales. Her job is safe, she says. For now.

Adelaida Miranda Barreras takes the bus home after work. The small amount of money she makes in the factory helps to pay for her to send her daughter to college for business administration, and for the rent of her one-room shack in the hillsides of Nogales.
(Photo Source: Cronkite News Service Photo/Bettina Hansen)

She works in a plant that manufactures electrical connectors for companies like Kawasaki Motors Corp., Alstom and Bombardier Inc. Some of the connectors she works on will end up on commercial airplanes or subway train cars. But Miranda Barreras will never know. She never sees the finished product.
Miranda Barreras’ work isn’t easy. It’s tedious and labor-intensive. Sometimes she works so hard and for so long that she comes home with aching pains in her hands and arms _ the main tools of her trade.
She was working at the plant one day when a manager came up and told her that the machine she was working with was going to China: “They said they were sending the machinery to China, that the labor costs were cheaper there,” she said through a translator. “They said what they paid us here in one day; they paid workers there in one week.”
She was able to get another job. But it was disheartening to Miranda Barreras, who uprooted her family, her husband and daughter, from Huatabampo, a picturesque coastal town situated on the Gulf of California.
Miranda Barreras moved to heavily populated Nogales with the sole intention of getting work at a maquiladora. She’s now been in the industry for almost five years. The money is not bad, she says – she makes 83 pesos a day (about $6.50). But more importantly, she’s just happy to have a job. “Where I come from, there is no work,” she says.
She is not alone. Nogales is a city of migrants. Mexicans come to the border from all over the country hungry for maquiladora work. And they’ve been able to depend on it for more than 40 years.
From bracero to maquila
Maquiladoras first came to the U.S.-Mexico border in 1965 as part of the Border Industrialization Program.
Hoping to woo foreign investment with cheap labor, the Mexican government introduced the program as a means to provide a large unemployed population with jobs. Years earlier, Mexican laborers had flocked to the border to work under the U.S. bracero program, which allowed Mexicans to temporarily work in the U.S. in the agricultural sector.
But when U.S. President Lyndon B. Johnson ended that program in 1964, it left 200,000 Mexican workers along the border with little more to do than to hope and pray the program would be reinstated or cross into the U.S. illegally.
But the bracero program wasn’t reinstated. Thus, the industrial program was born, aiming to provide Mexicans with jobs and foreign companies with abundant inexpensive labor. However, there are other perks to the deal. Foreign companies can import equipment and raw materials into the country duty-free, meaning there are no additional taxes or costs.
There are 243 maquiladoras now in Sonora — the Mexican state where Nogales is located — which purchase about $2 billion worth of components and raw materials every year, says Fernando Sandoval of Bordertec Inc. and an external consultant of the U.S. Department of Commerce.
“Maquilas are an essential part of the northern Mexican economy,” he said. “But it’s losing a lot of steam.”
The reason, he says, is the costs of doing business aren’t as low as they used to be.
For example, the typical daily wage along the U.S.-Mexico border hovers around $6 to $8. Workers generally put in eight to 10 hour days. And with the occasional overtime thrown in, their intake is somewhere between $175 and $200 a month.
Compare this to China, where a far larger workforce resides, and where workers’ make little more than $100 a month. Laws are not as constricting, as most workers average at least 12 hours a day, laboring from six to seven days a week. And there is weaker legal focus on social matters like worker health and environmental costs, Sandoval said. With these costs cast aside, there are fewer roadblocks toward profit.
Economies intertwined
But Mexico still has a leg up on China. In 1994, Canada, Mexico and the U.S signed the North American Free Trade Agreement, which lifted tariffs on the majority of goods and the movement of goods and services among the countries. As a result of the agreement, Mexico’s economy became closer and more reliant on the U.S.
This bodes well for Mexico when times in the U.S. are good. But when times are bad, Mexico is left out in the cold. For example, maquiladoras lost more than 30 percent of its workforce during the last U.S. recession from 2001 to 2002. And with economic conditions the way they are now, Mexico is bracing for another round of devastating losses.
“Mexico has fell victim to the current economic crisis,” said Tony Ramirez, executive vice president of Made in Mexico Inc. “Jobs are being cut and potential investors are waiting on the sidelines to see how everything shakes out.”
Take the automobile industry, for instance. U.S. auto sales dropped 32 percent in October to the lowest monthly total since January 1991. General Motors Corp. sales dropped 45 percent, Chrysler LLC slid 35 percent, and Ford Motors Co. fell 30 percent.
Each company has manufacturing plants in Mexico. The declines caused plants to cut its automotive production 50 percent, said the Association of Assembly Plants of Ciudad Juárez (Asociación de Maquiladoras de Cd. Juárez.)
Ford announced in early November that it will temporarily close its $500 million plant in Sonora, where 5,000 people are currently employed, assembling Ford Fusions, Mercury Milans and Lincoln MKZs.
The pain didn’t stop there. The announcement also kicked off a domino effect along northern Mexico. According to the National Manufacturing Industry Chamber (Cámara Nacional de la Industria de Transformación), about 70 companies in the auto parts sector will now have technical stoppages because they supply parts to Ford.
These businesses, which are responsible for another 5,000 Mexican jobs, are dependent upon the U.S. economy booming. If the economy falters, they have to wait it out.
Obstacles on the border
Years ago, many wouldn’t wait. If jobs were scarce in Mexico, Mexicans would head to “el Norte” across the border into the U.S. But today the passage is difficult. The U.S. Department of Homeland Security has completed more than 280 miles of fencing and expects to have about 670 miles of total fencing in place by the end of 2008.
Border Patrol agent numbers have doubled since 2001, when there were about 9,000 officers. Today that number stands at nearly 18,000, and a scheduled $500 million budget increase aims to add 2,200 agents by September 2009.
In addition, the means by which to get across are no longer the same. A security guard working at a port along the border in Mexico who wished to remain nameless said five to 10 years ago, Mexicans would pay coyotes about $500 to get them across the border. Now, these fees are around $1,000 to $2,000, the guard said, because smuggling routes have been taken over by drug cartels.
“The drug cartels are to Mexico, what Al Capone was to America in the 1920s and 1930s,” the guard said. “They are dangerous.”
The cartels are responsible for an explosion of violence this past year. Nogales has seen 76 murders through September. There were 52 murders in all of 2007. One of the fallen was Sonora’s Director of State Police Juan Manuel Pavón Félix. The gunmen assassinated him as he entered a Nogales hotel.
The violence has gotten so bad that the U.S. State Department has issued a travel alert to U.S. travelers in October: “Some recent Mexican army and police confrontations with drug cartels have taken on the characteristics of small-unit combat, with cartels employing automatic weapons and, on occasion, grenades. Firefights have taken place in many towns and cities across Mexico but particularly in northern Mexico, including Tijuana, Chihuahua City and Ciudad Juarez.”
The affected areas are all maquiladora towns. So maquiladora business has been affected as well, says Ramirez of Made in Mexico.
“Many of the larger companies are a bit skittish to invest,” he said. “They don’t want to be in a position where an executive will be accosted or kidnapped and held for ransom. They’re hoping the situation will be cleared up by (Mexican) President (Felipe) Calderón and the Mexican government.”
Change in migration
Tougher laws on illegal immigration have also changed Mexican’s minds about crossing the border. In January 2008, a new law went into effect in Arizona targeting businesses that “intentionally” or “knowingly” employ illegal immigrants.
The Legal Arizona Workers Act says that employers found to hire these workers could have their business licenses suspended for up to 10 days. If employers are found guilty on a second offense, their licenses could be completely revoked.
The law has decreased the number of illegal immigrants being hired. When this is paired with the downturn of the U.S. economy and the scarcity of available jobs — specifically construction jobs, many Mexicans are deciding to head back.
The Pew Hispanic Center released a report in October entitled “Trends in Unauthorized Immigration: Undocumented Inflow Now Trails Legal Inflow.” The center found that the size of the unauthorized population has declined from 12.4 million in 2007 to 11.9 million in 2008.
Mexico City’s government announced it is preparing for 20,000 to 30,000 people to return to the city next year. This number looks modest when compared to Mexican Senator Silvano Aureoles Conejo’s prediction that 800,000 will come back to Mexico.
“Mexicans prefer not to work in the U.S. if they don’t have to,” said Richard Rubin, chief executive officer of Javid LLC, a Nogales-based company that provides subcontract manufacturing and other help to U.S. businesses that wish to operate in Sonora.
“They prefer to work at home, close to their families. It’s only out of necessity that they leave Mexico in the first place.”
Now that jobs in the U.S. have dried up, many Mexicans will return. But they are returning to a new landscape in Mexican manufacturing.

Advances in manufacturing

The low-skilled, high-volume manufacturing relationship that Mexico has enjoyed for so many years has changed. Those jobs have been shipped overseas. But a new, more technological advanced industry has replaced it. These operations do not need the labor force it once did. But it does need a more informed, better educated workforce.
René Arriola has more than 25 years in the maquiladora business. He manages a Semco Instruments, Inc. plant in Nogales. The plant manufactures harnesses for helicopters and parts for gas turbine engines. Despite the job cuts in the industry, he feels the maquiladora business is just fine. More importantly, he says, it’s done great things for the Mexican people.
“We were ignorant for a long time here in Mexico,” he said. “But now the people have been empowered with knowledge of safety, technology and environmental standards.”
He pointed to the new technology and Nogales’ “young imaginative workers” who are studying at schools like the Instituto Tecnológico de Nogales to become engineers, so they can one day run the machines and draw up plans for assembly at the plants. The median age in Sonora is 23-years-old. The future is bright, he says.
“Each year, more of our young people give us the brainpower to do it even better,” he said.
Mexico has been in the assembly business for more than 40 years, a tenure that is unparalleled. Arriola says that Mexico has “nothing to worry about” because they provide quality that the other countries just can not offer.
“Our plant comes up with new ideas on how to assemble these products in a way that (our parent companies) haven’t thought up yet,” he said. “We try to keep them impressed.”
Many U.S. companies continue to be impressed with maquiladora work, which is why the relationship has stood for so long. In September, the U.S. Commercial Service, part of the U.S. Department of Commerce, took about 50 business owners from Phoenix and Tucson into Nogales to introduce them on how to do business with maquiladoras.
Kristian Richardson, an international trade specialist with the U.S. Commercial Service, helped lead the tour. He said weeks after the tour had ended that “a good percentage” of the small businessmen and women had contacted him, looking to establish or advance an existing relationship with the maquiladoras.
“The aim of the trip was to help further business with Mexico,” he said. “It’s in both our countries interest if that relationship stays strong.”
It remains to be seen whether the technological advances in Mexico will enable the maquiladoras to reach the employment numbers it once held. But the development is moving the industry forward.
“Much of what the future holds depends on how long the economy stays in a rut,” said Ramirez of Made in Mexico. “There are many investors who would like to invest in Mexico right now, but can’t because of what’s going on … I think a few years from now, we’ll see Mexico on the rise again.”

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