Mexican Manufacturing Devours U.S. Goods

By Ellen Lenny-Pessagno
U.S. Commercial Service, Mexico

To understand U.S. trade with Mexico, it is important to appreciate fully Mexico's in-bond processing, or maquiladora, sector. Inputs of components, supplies, and machinery, worth $88 billion, for maquiladora plants dedicated to producing goods for export, make up over half of all products imported into Mexico. This alone dwarfs total imports by any other Latin American country, the next largest import volume being Brazil's with $64 billion of imports annually.

Therefore, if you are not currently selling to the export manufacturing industry, you should consider it.

The purpose of this article is to highlight opportunities related to the 2,826 foreign-owned, export-manufacturing maquiladoras, of which U.S. firms own 79 percent. While the number of maquiladoras is only 25 percent of all export manufacturing facilities, they account for 55 percent of Mexico's industrial manufacturing, and imports to this segment make up more than 67 percent of the total for the sector. Approximately three-quarters of maquiladoras are located along the 2,000-mile border with the United States. While detractors may criticize the maquiladora sector for its low-tech, low-wage jobs, many maquiladoras make use of robotics and the latest equipment for metal stamping and forming, as well as for plastic injection and blow molding. Furthermore, maquiladoras pay wages on average 10 to 20 percent higher than those of other manufacturing facilities in Mexico.

Despite the fact that a number of maquiladora plants have recently relocated to China, partly in search of lower cost labor, in 2002 the industry increased imports of equipment and materials into Mexico 3.1 percent and increased production 1.9 percent. While production in 2003 remained at $89 billion due to weak demand in the United States, which consumes 90 percent of Mexico's exports, production is forecast to expand at a relatively rapid pace to a value of $125 billion by 2008.

U.S. SUPPLIERS LOSE GROUND TO ASIAN COMPETITORS
One troubling trend is a drop in the total U.S. share of maquiladora imports to 70 percent in 2002 from 90 percent just two years earlier. This loss, namely to Japan, Taiwan, China, and South Korea, is due to significantly cheaper prices from these Asian competitors and the effects of the Mexican government's PROSEC program. PROSEC, implemented at the beginning of 2001, lowered (to a maximum of 5 percent) or eliminated tariffs on non-NAFTA industrial inputs, thereby undermining tariff advantages that U.S. suppliers had often previously enjoyed. Trade statistics for January–September 2003 indicate that the United States held its 2002 market share of 70 percent. Despite the loss in U.S. market share in 2001 and 2002, the maquiladora import market grew more than 50 percent between 1999 and 2002, and as a result, the United States sold $17 billion more to maquiladoras in 2002 than in 1999.

Another challenge in selling to this industry is determining where purchasing decisions are made. A company's staff at its headquarters normally makes purchasing decisions for a new plant, while the staff of the manufacturing plant itself will make the decisions on purchases of replacement equipment. Furthermore, companies often make purchasing decisions on a global basis for inputs used in manufacturing, but they are increasingly making these decisions locally, as they do on nearly all indirect inputs, such as test equipment, lubricants, packaging, and services. Therefore, it is imperative that U.S. suppliers or their agents and distributors meet with purchasing managers and plant managers in Mexico to identify the appropriate decision-makers.

MARKETING TO MANUFACTURERS IN MEXICO
To promote U.S. exports to the Mexican manufacturing sector, the International Trade Administration has developed an important program, Marketing to Manufacturers in Mexico. U.S. companies that enroll in this program receive monthly reports by e-mail, invitations to participate in videoconferences with Mexican buyers, qualified trade leads; assistance in finding agents, representatives, or distributors; and support during trade shows in Mexico.

As part of this initiative, in September 2003 the Commercial Service offices in Monterrey and Tijuana teamed up with the Chicago U.S. Export Assistance Center and the NAFTA Opportunities Center of Illinois to bring two dozen U.S. manufacturers together with four American and Japanese export manufacturers located in Monterrey and Tijuana. The Chicago businesses, representing tool and die manufacturers, metal stamping companies, and plastic injection-molding equipment firms, received a briefing on the in-bond processing sector, which was followed by presentations on the specific purchasing needs of four maquiladoras.

U.S. Export Assistance Centers in Pennsylvania, Missouri, Florida, Texas, and Arkansas will host similar videoconferences in 2004 to match U.S. suppliers with potential buyers within the maquiladora sector. On March 24, companies from St. Louis, Mo., and northern Florida will participate in a videoconference with commercial officers at the U.S. consulates in Monterrey and Guadalajara, as well as with buyers from those regions. Pittsburgh and Detroit will host similar conferences on April 27.