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Market Newsletter : Maquiladora: It Spells New Wealth to Mexico : Once a stepchild of the economy, the border industries with the jawbreaker name have outperformed the rest of Mexico's businesses. Now the government wants to adopt them as its own.


MEXICO CITY — Integration is the watchword in 1990 for maquiladoras, the export assembly plants concentrated on the U.S.-Mexico border.

Mexicans from former presidential candidate Cuauhtemoc Cardenas on the left to Baja California Gov. Ernesto Ruffo, the first member of the right-wing National Action Party to hold such a high office, are calling for the maquiladora enclave to become part of the national economy.

The idea would be to persuade the $10-billion industry, which employs 450,000 workers, to use more than Mexican labor. The maquiladoras are being urged to make more use of Mexican raw materials, components and services.

Integration is a complete about-face from the maquiladora industry's guiding philosophy during the first 20 years of its existence. The program was meant to let factories take advantage of cheap Mexican labor to assemble imported components into export products--without otherwise affecting the Mexican economy.

The reason Mexico wants greater integration is clear.

Maquiladora production has doubled over the past four years while the rest of the Mexican economy has stagnated.

An estimated 1,700 maquiladoras were using imported parts to manufacture everything from television sets to blue jeans by the end of last year. Another 150 are expected to join them before 1990 ends, according to the Mexican Assn. of Private Industrial Parks.

That's a lot of potential customers.

The question is whether maquiladora operators and Mexican entrepreneurs can come to understandings on price, quality and delivery.

Privately, maquiladora operators say those have been the stumbling blocks that have held Mexican suppliers to less than 1% of the raw materials and components that go into maquiladora- made goods.

However, those problems can be overcome.

Products made by Japanese-owned maquiladoras have 10 times the Mexican-made content as those of their U.S. counterparts. The Japanese, determined to establish local suppliers, simply agreed to pay up to 30% over world market prices for Mexican-made goods.

Baja Governor Ruffo is not relying on other maquiladoras to pay inflated prices for Mexican components.

His administration has targeted eight industries believed to offer the best chance for using Mexican components: metal-mechanic, electrical machinery and motors, electrical assembly, toys, ceramics, clothing, graphic arts and services, such as machinery repair and rebuilding.

Those industries will be encouraged to open maquiladoras in Baja California.

Still, the state development plan acknowledges, that effort will be fruitless unless some incentives are provided to encourage potential Mexican suppliers.

One barrier that impeded Mexican companies from selling to maquiladoras already has fallen.

Components sold to manufacturers that export the finished product no longer must pay the 15% value-added tax. In effect, Mexican-made components are now 15% cheaper than before.

An intermediate step on the route to integration is the use of supplier maquiladoras. Those factories use imported materials to assemble components they sell primarily to other maquiladoras.

Dozens of such supplier maquiladoras have sprung up in the past three years.

Once again, the Japanese are taking the lead. Major Japanese manufacturers, such as Sanyo, brought their suppliers with them when they opened factories on the border.

Cardenas would like to see more Mexican companies become supplier maquiladoras.

"The maquiladoras should try to develop other industries that could be suppliers of maquiladoras in other parts of the country so that production forces could be more integrated," he told a group of Los Angeles Times editors during a recent meeting in Los Angeles.

Maquiladoras are becoming more integrated into the economy through another route, also.

Changes in Mexico's foreign investment laws and import regulations have made selling into Mexico easier for maquiladoras. Factories now simply pay the import duty on components and sell the finished products in Mexico.

So far, maquiladoras have not made great headway in the Mexican market, but the potential is there, a factor to be considered when discussing expansion possibilities.

Besides integrating production, Mexican officials are eager to integrate maquiladoras geographically, encouraging development in places other than border cities.

Currently, about 20% of maquiladoras are located in non-border areas, some as far south as Guadalajara and on the Yucatan Peninsula, near the Guatemalan border.

Further development in those areas will be encouraged by the distribution of an industrial location guide, now at the printer's. The guide provides specifics on labor force skills and availability of electricity, water and transportation in cities the Mexican Commerce Department believes have maquiladora potential.

Meanwhile, Mexican government officials say that the border is not yet saturated with maquiladoras.

Other cities in northern Mexico, such as Chihuahua, Ciudad Obregon and Los Mochis, have a surplus of labor available and are eager to put it to work. They also have the roads and utilities needed to support development.

Make no mistake, maquiladora development is continuing, often with unconventional partnerships and innovative ideas.

Next: watch for a group of U.S., Mexican and ethnic Chinese entrepreneurs to open a Tijuana industrial park tailored to small businesses eager to get in on the maquiladora boom.

The plan is for a 40-acre complex with as many as 30 buildings ranging in size up to 30,000 square feet. Tenants would include a Mexican law firm, an accounting firm, an import/export broker and a trucking company--one-stop shopping for the $1-million-to-$10-million firm setting up in Mexico.

Not a bad deal for the landlords, either, no doubt.

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