Maquiladora employment and productivity increased

By Michael Hissam

Just-released data shows that employment in the so-called maquiladora sector in Mexico has grown, with much of that growth in better-paying areas.

Emilio Cadena, president, INDEX, the National Council of the Maquiladora and Manufacture for Export Association, also reported productivity gains in the past year, which strengthens the industry’s competitive position.

He also pointed out the data shows increases in Mexican local content, a key to supply chain development and strengthening of the economy. Yet the retos – challenges – remain:

Emilio Cadena, president, INDEX, the National Council of the Maquiladora and Manufacture for Export Association

The final numbers for 2014 are in, how did that compare to the previous year?

A great year, 6 percent growth which is excellent. The trend of the employment that is growing tends to be in the areas where people get paid better. It is always positive news for Mexico overall.

Getting paid better is one thing but what can you tell us about exports per employee?

We had a great increase on that, we had an increase of over 20 percent of exports per employee which is all about productivity. We have always been with the argument that this sector, the manufacturing for export sector, in Mexico is the most formal and the most productive sector in Mexico. That is not coincidence, we know that formality brings productivity, productivity brings profitability.

One more thing on employment, Mexico generated a little bit over 700,000 jobs last year, 2014. Of those 700,000 jobs, the IMMEX companies generated close to 150,000 of the 700,000 jobs. If you look at only 6,000 companies generating more than 20 percent of those jobs, it is a pretty good number for the industry.

Automotive is in the driver’s seat of growth in Mexico

What is happening with local content, what trends are you seeing and where?

In terms of local, we got into the effort of starting to measure this. We had the data but we never paid too much attention to it. We had a huge, huge increase on the trade balance of the sector last year. Close to 30 percent which is a huge number and now we are mapping the trend. The trend is going up, part of it has to do because of the growth in automotive and automotive tends to be the most integrated sector in the country. That helps the number. We have to learn from automotive what they are doing. They do have some advantages because of the volumes but what are they are doing that we can replicate in other sectors?

One forecast that just came out reported that in about four to five years the build rate in Mexico of vehicles will top 5 million. What does the maquiladora sector need to start thinking about?

Automotive is in the driver’s seat of growth in Mexico. There is no doubt 60 percent of the growth we saw last year had to do with automotive. Mexico is becoming the automotive capital of North America. We have the skills and over time that has what has happened. Companies have seen that the Mexican labor has become an excellent, excellent labor force to build cars because of quality, because of time, because of productivity.

It is a great thing for Mexico, it is always better to be a little bit more diversified but one thing we owe automotive is the manufacturing culture. Do it on time, do it with quality, do it productively. It is the best school for other industries that are also growing in Mexico.

There is a lot of talk about the Trans Pacific Partnership that is coming up. How could it affect the maquiladora sector?

Actually, for us if Mexico does a good negotiation and we gain things by getting into this new agreement, it should be good for Mexico. For the maquiladora sector it is really not a huge issue because we already live on a free trade environment more than any other place in the world.

For us we are still importing things from Asia, from China, from Korea, from Japan. We are manufacturing, we are exporting. For us it is not that big of a deal. As long as we do not give more than we gain by going into this agreement, then it will be a good thing.

Compensation trend is changing positively

Besides the auto sector, who are some of the other sector leaders in the maquiladora sector?

First, is all the transportation industry. That includes the making of cars, of course, the making of airplanes, the manufacturing of heavy trucks, the manufacturing of rail and rail systems. All of those sectors have been number one by far.

Then proportionately the sector that has grown the most is what we call capital goods and it is because of the same thing that we have been talking about, that high-mix, low-to-mid volume type of production where Mexico becomes extremely competitive because of the speed to market, the quality of the labor force. For anything that has that type of characteristic, Mexico is the best place to build it.

In what industries do you see decreases in employment which means things are changing?

Unfortunately, we see a huge decrease in the textile sector. It is hard to compete with other places in the world for apparel specifically. That is probably the sector that has been hit the most.

Electronics has not grown as much as it had in previous years. Those are the type of sectors that we are seeing decreases. Metal mechanics is up; plastics are up; chemical industry is up, capital goods, transportation equipment is up. The great news is those are the best jobs that we can find in Mexico.

What about compensation trends?

Compensation trend is changing positively because of the shift in industry. The gap between those industries, within the same industry between Mexico and the U.S. has not really gotten any closer. For Mexican people it has gotten better because there are better jobs but the gap between the cost of labor between Mexico and the U.S. really we have not seen a decrease in that gap.

We are not going to see a significant decrease of that gap in the coming years for a couple of reasons. First, because we have a lot of people coming into the economy it is a matter of supply and demand of people but second and most importantly, in order for the cost of labor to go up, which ultimately as Mexicans that what we want, we want better quality of life for our people. You have to increase the competitiveness of the country and to increase the competitiveness of the country if you are going to move the labor factor up.

Some of the other factors have to go down because the cost of manufacturing has to stay the same or better. There is where I see and I have been pretty vocal about it, is the energy reform where we have to make sure that we have a big quick hit in terms of the energy cost in Mexico.

Electronics has not grown as much as it had in previous years

What do you see as the key challenges between now and the year 2020 for the export industry?

There are two challenges as a country overall. Number One, I insist on the energy reform. If we do not do that we are not going to see an exponential growth of manufacturing in Mexico and quality of life for Mexicans. We need to be much, much more competitive on that.

Second, we need to work on security. The security issue continues to be in the security perception of Mexico, continues to be the number one factor affecting investment. Those are the two big challenges.

Cost of manufacturing has to stay the same or better