Published On: Tue, Jun 3rd, 2014

Mexico is still a country where only a small minority has the training needed to compete globally

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Check out the story of “KidCo”, a Midwestern American manufacturer, which gave up trying to move production from China to Mexico last year.

“It’s a lot more convenient to fly to Mexico than to China,” said Ken Kaiser, the company’s owner. “But we just couldn’t find a way to get an advantage by moving. It took forever just to get a price quote.”

Dozens of interviews with executives, economists and American and Mexican officials over the past year show that what many companies are discovering is that there is not one Mexico, but many. Despite many signs of promise, Mexico is still a country of vast differences in efficiency and education, where only a small minority of the population has the training needed to compete with the world. Especially for the crowded middle of American manufacturing — the family-owned, medium-size businesses like KidC — Mexico disappoints as often as it satisfies.

Ed Juline, a manufacturing consultant in Guadalajara who came to Mexico in 2001 with IBM, has seen many companies both attracted and repelled. Like others who help American businesses in Mexico, he described last year as a tipping point. With studies showing Mexico rapidly reaching the same cost level as China for the production of certain products, dozens of companies came to him — including KidCo — looking for help to find a Mexican factory to contract with or buy.

Business owners were in a rush. Some were tired of the travel to China or the six- to 10-week wait for orders to arrive from across the Pacific. Others said their Chinese suppliers were raising prices even as quality declined.


At KidCo’s headquarters outside Chicago, the headaches were mounting. Last year began with a factory in northern China that produced the company’s best-selling products, a series of child-safety gates, demanding a 10 to 12 percent pay increase. Then an entire shipment of wooden gates arrived with a major flaw. “That’s when we realized we really needed to have backup supply,” said Mr. Kaiser, 61, who contacted Mr. Juline.

Mr. Juline did have some success to point to. One of his clients, Casabella, a broom, brush and mop company from Long Island, had recently completed a deal with a factory near Mexico City to produce about $800,000 worth of brushes.

But success turned out to be a rarity. The more Mr. Juline traveled around Mexico seeking partners for American manufacturers, he said, the more he realized that many Mexican business owners were unwilling to take on a surge of new business, either because they could not line up suppliers or credit, or because they feared demands for money from government inspectors or gangs.

Guillermo Calderon, the factory manager for Diseño Global, said his response to KidCo’s bid request may have seemed high — about 20 percent above the production price in China — but that was because he wanted to make sure his company took on as little risk as possible. “It’s easier to look at the opportunities you already have instead of looking outside,” he said. “What if we get a 40,000-piece order and then they leave?”

Since Mr. Sauey joined the business in 1985 at the urging of his father, a co-founder, sales have grown to $230 million, up from $65 million. And as tours of its plants in Saltillo and in rural Ohio revealed, the company has largely thrived through a calculated mix of investment in Mexico and in the United States.

A generation ago, Mr. Sauey said, the factory in Middlefield did about $14 million in sales. Now, because of investments in more sophisticated technology, it does twice that with the same number of employees, about 180.


The factory in Mexico has more space, many more employees — about 480, making about $17.70 a day — and more machines, many bought used. Both factories will generate roughly the same amount of revenue, according to company estimates. But while the Middlefield plant focuses on high-end plastic cases for everything from guns to medical supplies, the Saltillo factory makes simpler products — bottles for windshield washer fluid, yo-yos, hunting decoys.

Read the Flambeau Factory case here:

Flambeau is not immune to the problems that kept KidCo in China. “In Mexico, almost right is good enough; second best is fine,” said Edward Treanor, Flambeau’s factory manager in Saltillo.

Worker turnover, maintenance troubles and inconsistent quality have been a drag on the bottom line for years. But because Mexico is closer than China, Mr. Treanor added, Flambeau could do more about it: a few months ago, the company sent a trusted American employee to oversee maintenance full time and improve factory operations.

Experts say that these are the kinds of companies succeeding now in Mexico, those big enough to manage their own factories and those that did not give up their technical knowledge by outsourcing to China.

“There are a lot of examples of clients who were in Mexico, went to China and now want to come back, and most of them have given up their expertise in manufacturing,” said Scott Stanley, a senior vice president at North American Production Sharing, one of the largest firms to help American companies set up production facilities in Mexico.

To draw more companies now, executives, officials and experts say, Mexico and the United States will need to become better neighbors, more focused on sharing labor and moving products.

Mr. Wilson at the Mexico Institute called specifically for a focus on “globally literate workforces in both countries.”

“At a very basic level, that means teaching more Spanish in the U.S. and more English in Mexico,” he said. Other, more immediate changes are also necessary, he added, including shorter wait times at the border, better roads and productivity gains in Mexico — lowering the cost of electricity, for example. After all, as the rise of China showed once before, there is no guarantee that Mexican and American manufacturing will stay attractive for long.

As Mr. Sauey notes, today’s global economy has increasingly come to resemble the volatile market for yo-yos or any other fad: the ups and downs come and go faster than ever. “It’s like shooting to the moon when the spikes happen,” he said. “And it’s like falling off a cliff when it ends.”


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