Mexico: Building on the Border

In their search for lower labor costs, many U.S. manufacturers have cast their eyes—and their production lines —as far as Hong Kong, South Korea and Japan. Now they have begun to look closer to home. Almost unnoticed, the dusty, teeming, and often decrepit towns just south of the 2,000-mile U.S.Mexican border are undergoing the quiet beginnings of what one U.S. textile maker says could be "a massive industrial program."

Since the Mexican government began encouraging "border manufacturing" little more than a year ago, 34 U.S. companies have come on down. In and around honky-tonk Tijuana, 17 miles from San Diego, more than a dozen new plants have sprouted to produce such things as magnetic memory cores for Litton Industries and power transistors for Fairchild Camera. Factories in Mexicali make integrated circuits for Raytheon and motor parts for Western Gear. In Nuevo Laredo, southwest of Laredo, Texas, Mexican workers are doing everything from making electronics parts for Transitron Electronic Corp. to sorting supermarket "cents-off" coupons for the A.C. Nielsen Co., the big TV-rating and marketing-services firm.

Back Across the Border. All told, the U.S. investment in half a dozen Mexican border towns amounts to only some $5.4 million in plants employing about 4,500 persons. But the Boston-based research firm of Arthur D. Little, Inc. estimates that the Yankee payroll eventually could explode to some $400 million or $600 million a year.

The Yanks are going because the Mexican government, battling an unemployment problem in its northern states, has begun to allow individual U.S. manufacturers to import materials without paying duty—as long as the goods made from them in Mexican plants are shipped right back across the border. If the returning products meet certain U.S. tariff-law standards, the manufacturers need pay only a nominal U.S. duty on the value of the Mexican labor involved. "Our idea," says Octaviano Campos Salas, Mexican Minister of Industry and Commerce, "is to offer an alternative to Hong Kong, Japan and Puerto Rico for free enterprise."

Though wages along the border are about 40% higher than those in Hong Kong, the Mexican offer is attractive to U.S. companies stung by rising U.S. labor costs. All fringe benefits included, unskilled labor in Tijuana runs at around 60¢ to 75¢ an hour, compared with as much as $2.40 in Los Angeles. In Ciudad Juarez, a sprawling poverty pocket (unemployment: 25,000 out of a labor force of 125,000) just south of El Paso, skilled machinists command a bare 50¢ an hour.

Split Operations. Such advantages have fostered split manufacturing operations, under which Mexican workers do normally expensive handwork on items that can then be finished or assembled cheaply in the U.S. Example: Kayser-Roth's Catalina division cuts fabric for jackets and sportswear in Los Angeles, gets most of the stitching done in its Mexicali plant. Counting wages, duty and 400-mile round-trip trucking expenses, the Mexicali work adds up to about $1.20 per hour, compared with the $1.85 it would cost in Los Angeles.