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Made in
Mexico’ gains ground on
China
as attention to detail boosts US demand
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By Adam Thomson
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Financial Times
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May 25, 2010
Who said that Mexico’s maquila model was dead? At
the beginning of the decade, many economists and trade
experts predicted that the practice of importing goods
duty-free into Mexico
for assembly and re-export was doomed because the country
would be unable to compete with
China.
Trade figures published this week show
how wrong that prediction was.
In April,
Mexico
reported a trade surplus of $195m - in contrast to the
deficit many analysts had expected. Moreover, exports to the US during the first four months of
this year were $91.3bn, a 35 per cent gain over the same
period last year. The increase boosted
Mexico’s share of US
imports to an all-time record: 12.3 per cent of the total
compared with 11 per cent in 2009. By contrast, China’s share dropped to 17 per cent
from 18.4 per cent last year.
It is true that higher oil prices in
the first four months of the year contributed to some of
these gains (Mexico
is the second-biggest exporter of crude to the US). But to stop the analysis there
is to miss a much more important phenomenon: specialisation.
Until
China
made its entry on the world stage, a lot of Mexico’s manufacturing industry for
export consisted of cheap and unskilled assembly with hardly
any added value. Almost all of that migrated east as US and
other foreign companies scrambled to take advantage of
cheaper labour costs.
That loss of business was painful for
Mexico, but it forced the country to take a necessary step
into more skilled areas of manufacturing such as chip
production for electrical appliances and, in particular,
vehicle components and even entire cars. Go to the border
today, and you will see lines of workers threading nuts on
bolts. But you will also see young Mexican engineers
designing car parts for the big US companies from scratch.
That transformation has been possible
because Mexico’s labour pool is more skilled than that of
China, and because it has
decades more experience in manufacturing for US companies.
Another less publicised but vital reason is that local
companies don’t steal your ideas. As a high-ranking
executive of one US
company on
Mexico’s border told the
FT, “you show your Chinese colleagues a design and you wake
up the next day to find that they’re producing it
themselves”.
A second area of specialisation has to
do with Mexico’s
privileged geography. Increasingly, US industry is organised on a
“just-in-time basis” in which outsourced parts arrive at the
main factory the split second they are required in the
manufacturing process. From Mexico,
transportation is quick, cheap and, crucially, it is
reliable. From China it is not
necessarily any of the above.
This has also meant that Mexico has learned to specialise in
bulky products whose transportation costs outstrip any
potential gains in cheap labour. It is no surprise that
Ciudad Juárez, which borders El Paso, Texas,
has become a world leader in the production of flat-screen
televisions and monitors. It is also no accident that one of
the contributors of the recent increase in trade to the
US
was increased demand for Mexican-made refrigerators from
Whirlpool Corp.
http://blogs.ft.com/beyond-brics/2010/05/25/made-in-mexico-gains-ground-on-china-as-attention-to-detail-boosts-us-demand
