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Mexico's Factories Shift Gears to Survive

Competing with cheaper products from Asia, the sector is investing in technology and seeking new customers.

January 05, 2003|Evelyn Iritani And Richard Boudreaux | Times Staff Writers

TIJUANA — Driving along the gritty streets here, Kunio Marukawa used to cringe when a souped-up car blaring loud music pulled up next to him.

Nowadays, the Japanese executive looks approvingly at those drivers and offers a silent prayer of thanks.

"Those crazy guys are our best customers," said the San Diego-based vice president of Pioneer Corp.'s Pioneer Speaker Systems. In fact, at this week's big consumer electronics trade show in Las Vegas, Pioneer will be showcasing its Tijuana-made speakers: a new line of 10- and 12-inch models that are aimed at young hot-rodders.

Pioneer is struggling mightily to keep its Tijuana factory complex open in the face of fierce competition from China, which has undercut Mexico as a cut-rate producer. The Japanese electronics company already has slashed 900 jobs at its three plants here, moving the manufacturing of smaller speakers to Shanghai, where they can be churned out for as little as $3 each -- half of what they cost to make in Mexico.

"China's cost competitiveness is very strong," said Hirokazu Tsujimoto, another Pioneer executive who makes his home in nearby San Diego.

Now, the fate of the Tijuana operation and its remaining 1,500 jobs rests on the plant's new focus: producing large, customized car speakers -- some weighing as much as 26 pounds -- that are too bulky to ship cheaply across the Pacific.

Pioneer's shift reflects a painful, pivotal adjustment for Mexico's export-oriented factories, known as maquiladoras, especially along the U.S. border.

Since 2000, the Mexican government estimates, the maquiladora industry has lost nearly 250,000 jobs and seen its roster of plants shrink to about 3,200 from a high of more than 3,700. Among those that have shuttered operations are Hasbro Inc., Sanyo Electric Co. and Canon Inc. Landing another good position "will be very difficult," said 50-year-old Victor Hernandez, an engineer from Monterrey who was a manager at Canon's printer plant here.

Besides electronics, the exodus to Asia has been led by makers of apparel and furniture, as well as telecommunications and recording equipment. Although some industrial units here recently have added workers as the U.S. economy has improved a bit, there is concern that more foreign-owned factories are planning to leave for cheaper labor markets in China, Vietnam and elsewhere.

"What's got a lot of people unnerved is the degree of uncertainty," said James Gerber, an economics professor at San Diego State University. "How many firms are likely to go? Which industries are likely to be affected?"

New Strategy

To try to remain competitive, Mexico's factories have started to retool. For example, Mexican officials are targeting industries such as autos that depend on delivery of supplies on short notice for U.S. assembly lines or require components so heavy that it's prohibitive to ship them long distances.

Some factories here are investing in technology so that they can produce more sophisticated goods that require a high degree of quality control, such as medical instruments and military hardware. This sort of precision work can't be matched so easily in Asia, the thinking goes.

"If we want to pass from the Third World to the First, we need more technology, more productivity," said Manuel Garcia, a former manager for Sanyo, which has closed several plants and laid off 3,000 workers in Tijuana over the last two years.

The transition could have lasting benefits, Garcia believes. "It's like one winter you lose your crops, but all the pests go with them," he said. "Or a volcano erupts and burns so many thousands of acres, but the ash makes the soil richer."

Of course, getting from here to there can be taxing, as Eiji Tanaka has discovered.

Tanaka manages a twin-plant operation that straddles San Diego and Tijuana for Kyocera America, the U.S. subsidiary of giant Japanese ceramics firm Kyocera Corp.

The company manufactures customized packaging for components used in the semiconductor and telecommunications industries. Tanaka's plan has been to slowly move production from the company's San Diego facility across the border, keeping the assembly lines close to the research and design center.

But the transfer has been tedious and expensive, he said. Because of the complex production process, the company requires a high level of skill that has been difficult to obtain in Mexico. Some of the company's U.S. customers have refused to have their products made in Mexico, fearing the quality would go down.

"Our product is not easily transferred to other locations without technical know-how," Tanaka said. When the telecom market crashed, Kyocera's orders fell, and the company was forced to slash its Tijuana workforce by more than half, leaving about 800 workers.

Still, Tanaka is committed to cranking back up his production in Mexico once the telecom market recovers -- and he has been training his Tijuana employees in anticipation of the ramp-up.

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