Tag: cross-border manufacturing

OM in the News: Mexico’s Industrial Hubs and Nearshoring

An industrial park under construction in Monterrey, Mexico

Companies from around the world, writes The Wall Street Journal (Feb, 3. 2023), are moving production and equipment to Mexico as they seek a manufacturing hub closer to the U.S., part of a broader shift in global trade. Some companies are relocating from Asia, while others are investing millions of dollars to raise output of goods that are exported tariff-free to the U.S. (In Table 8.3, we point out that Northern Mexico has become a cluster of electronics firms such as Sony, IBM, HP, Hitachi, and Panasonic).

Now, supply-chain disruptions, prolonged Covid-related shutdowns in China, soaring shipping rates and geopolitical uncertainty caused by Russia’s invasion of Ukraine are fueling the nearshoring trend.

In Tijuana, home to one of the world’s largest export manufacturing hubs for TVs and electronics, industrial parks are almost at full capacity. And in Ciudad Juárez, across the border from El Paso, Texas, recruiters are hiring workers for companies arriving or expanding operations at job fairs. Mexico’s manufacturing-based economy, free-trade pacts including the U.S. Mexico Canada Agreement (see Chapter 2) and proximity to the U.S. are among its attractions for investors. Labor shortages in the U.S. also are playing a role.

Mattel, for example, the maker of Barbie dolls and Mega Bloks, expanded its Monterrey plant into its largest manufacturing facility worldwide with an investment of $47 million between 2020 and 2022. The toy maker more than doubled its workforce to 3,500 at the plant as part of a global supply-chain restructuring to boost output and productivity, with immediate access to the U.S., the world’s largest toy market.

The Mexican government says more than 400 companies currently have shown interest in moving production from Asia to Mexico. But Mexico also has problems of government corruption, rule of law, and public insecurity. These are all a drag on decisions to switch investments to the country. In addition, as demand for industrial space picks up, insufficient electricity infrastructure is limiting the speed at which manufacturers can move into Mexico.

Classroom discussion questions:

  1. Why are companies nearshoring? Why not reshoring?
  2. Why Mexico?

Good OM Reading: The Rise of U.S.-Mexico Cross-Border Manufacturing

As we note throughout our text, supply chains are critical to a successful Operations Management strategy. One component of the supply chain, particularly in the automobile sector, is maquiladoras (free trade zones in Mexico). Here is an interview with with Fabiola Luna, President of the Association of Maquiladoras, in Southwest Economy (First Quarter, 2022):

It is an industry mainly located along the U.S.–Mexico border, making easy the logistics for international trade. All raw materials get to Mexico on a temporary basis and then are used in the manufacturing process and exported back to the U.S. Since Texas borders several Mexican states, it is the main intermediary for U.S.–Mexico manufacturing trade.

Juárez is a particularly important city because it was here where the maquiladora model was born back in the 1960s, and since then it has been the economic backbone of the border region.  Juárez has 320 plants employing 330,000 workers. About 60% of all maquiladora jobs in the state of Chihuahua are in Juárez. Originally, maquiladora plants were in industrial parks close to international border crossings, but currently they are all over the city.

The main maquiladora industry is the automotive sector. It represents 38% of employment. We manufacture all kinds of auto-related products, such as seat covers, seat belts, battery cables and wiring harnesses. So, practically all cars U.S. consumers own have a component made in Juárez. We also manufacture top-of-the-line all-terrain vehicles (ATVs), refrigerators, washing machines, medical surgical devices and even candies. The popular Brach’s candies are made here.

What we produce now is completely different from what we made 50 years ago. Our manufacturing processes have also evolved with new technologies. For example, some of our plants include high-tech robotics; some have automated processes with a good mix of traditional labor and robots.

We are even adopting the technology needed to supply electric vehicle production. We also have plants that manufacture for Apple, including the iPhone, the MacBook and AirPods. We are manufacturing the electronic products that have become essential. The maquiladora industry has evolved. Our industry continues to be labor intensive with a good mix of automation and a more skilled labor force. We have great expectations for the future regarding new technologies and manufacturing processes for electric vehicles. 

Classroom discussion questions:

  1. What is NAFTA and what is USMCA?
  2. Why are maquiladoras an important part of U.S. manufacturing?