California Apparel News

TIJUANA, Mexico—In an industrial park tucked away to the south of this border town, Prolink International Inc. has been making fleece jackets and T-shirts for years for such customers as Patagonia and North Face.

But officials at the Taiwanese-owned apparel plant—which makes T-shirts and jackets for export to the United States, Canada and Europe—are diversifying. Equipment installed in November will help the 500-worker factory, which opened in 1999, start making New Balance athletic shoes, soon to be sold in Mexico and South America. Initially, the plant will make 4 million shoes a year. But the goal is to add another 1,000 assembly-plant workers to the factory in the next few years to increase production, said Ricardo Galvan Duque, the factory’s controller.

“We’ll probably be doing less apparel in the future,” Galvan said.

Prolink is just one example of how the ever-shifting maquila industry in Mexico is adapting to the constant changes found in the sourcing world.

In the 1990s, Mexico was a popular spot to make apparel, electronics and other basic goods for U.S. manufacturers capitalizing on Mexico’s rock-bottom labor costs.

When the North American Free Trade Agreement went into effect in 1994, Mexico became an even more attractive place to do business because quotas and tariffs were eliminated on many items flowing between Mexico, Canada and the United States, the trade agreement’s three signatories.

At its peak in 2000, there were 1,000 apparel and textile maquilas in Mexico. But then China became a member of the World Trade Organization in late 2001, and one year later the Asian country usurped Mexico as the No. 1 supplier of apparel and textiles to the United States. With the average Chinese apparel worker making only 40 to 60 cents an hour, Mexico’s maquilas have found it hard to compete.

Also, a lot of apparel business has gone to Central America, where favorable trade terms under the Caribbean Basin Trade Partnership Act and, more recently, the Central American Free Trade Agreement extended free quotas and tariffs to that region.

Free falling

Consequently, apparel and textile plants in Mexico now only number 471, said John Christman, who was speaking at a maquila-industry outlook conference Jan. 29 in Tijuana organized by Global Insight, a Boston-based economics, financial and industry forecasting firm, and Deloitte, part of Deloitte Touche Tohmatsu.

Christman, director of Global Insight’s maquila-industry service in Mexico City, said the apparel and textiles sector is still losing plants. “They simply cannot compete in run-of-themill clothing,” he said. “They are competitive in niche markets, particularly when it is highly cyclical markets like the U.S.”

Quick-turn items have kept Fortune Fashions Industries LLC—a Vernon, Calif.–based clothing company that sells men’s, women’s and children’s clothing to mass merchandisers and other retailers—utilizing apparel plants in Puebla and Queretero, Mexico. But the company, which used to produce 65 percent of its garments in Mexico, has trimmed that to 30 percent. The rest are made in Central America and Asia. Most of Fortune’s Mexico production consists of basic T-shirts and juniors fashions that are not too intricate.

“The days of doing the big programs of a million units are gone. If you are doing those in Mexico, there is something wrong with you,” said Daniel Baacute;rcenas, Fortune Fashions’ logistics director. “You go there for replenishments and quick turns, the 100,000-to-200,000 units. Most of the people we maintain on our roster are the individuals who have been able to become more efficient.”

With efficiency improvements, Baacute;rcenas said some factories are producing T-shirts at only 45 cents an item instead of 65 cents, as in years past.

Mexico officials and businessmen have been working diligently to build back the country’s maquila industry to the levels of seven years ago. Currently, there are about 2,810 factories. By 2012, Christman said that Mexico hopes to have 3,060 assembly plants in place, but that still falls short of the 3,590 that existed in 2000. Electronics and high-tech industries will provide much of that growth. Other areas expected to flourish are pharmaceuticals, information technology and call centers.

“We see growth in the medical-products industry. Part of that is because of the quick turnaround time needed and because it is a regulated industry that needs clean rooms, cleaner than the traditional electronics,” said Juan B. Morales, a board member of the Western Maquila Trade Association and a partner in Ruiz-Morales & Associates, a Tijuana firm that does wage and salary surveys and human-resource audits. “Another area that is growing is the aeronautical cluster and some military stuff. And then there is high-tech electronics, the plasma screens and flat-screen TVs. Unfortunately, there will be less growth in the textile and apparel areas.”

Since 2005, electronic and electrical material producers have grown by 10.5 percent. Auto and auto-parts makers have increased by more than 13 percent.

Steady salaries

With 80 percent of Mexico’s exports going to the United States, this neighboring country is highly affected by the U.S. economy. Consequently, Mexico’s economic health is expected to run along the same lines as the U.S. economy.

Rafael Amiel, managing director of Global Insight’s Latin American Service, said Mexico should see moderate growth in 2007 after high economic growth in 2006 of about 4.56 percent.

“Inflation was 4.05 percent in 2006,” Amiel said. “And inflation this year shouldn’t be a problem.”

Wages at assembly plants will be growing at a small but steady pace over the next five years. The national average hourly wage, including fringe benefits, for a worker in an electronics plant these days is $2.30. By 2012, it will be $2.95. Plants specializing in transportation equipment pay their workers about $2.19 an hour. By 2012, that should rise to $2.49.

Down at the bottom are the apparel and textile workers, who on average earn about $1.16 an hour. In the next five years, that will rise to $1.28 an hour, Christman predicted. Further south, in areas around Meacute;rida, apparel workers are making under $1 an hour.

Wages in northern Mexico, in areas such as Tijuana and Mexicali, traditionally are higher than in the south.

One problem plaguing the maquila industry is the high turnover rate of workers.

At Prolink International, Galvan said the turnover rate is 120 percent a year, even though workers make about $2.60 an hour. The company is thinking of adding a child-care facility to retain employees.

“In an ideal world, if you lose one employee, you need to add one employee. Unfortunately, that is La La Land here,” said Morales, the wage and human-resources expert.

He explained that to replace one employee in Mexico, you need to hire four employees, because even though only one has left, another is thinking about leaving. And of every three employees hired, two will be leaving before the first three months of their employment is over.

The solution is for companies to offer more fringe benefits and higher salaries and to change their hiring profiles. Typically, companies are looking for women under the age of 20 with an elementary- school education and no previous experience.

“We have seen companies retain their employees if they break their typical profile,” Morales said. “Several companies are in good shape by hiring a more mature work force.”