Mexico’s National Maquiladora Organization Seeks Improved Competitiveness; Keeps One Eye on U.S. Recovery

MONICA GONZALEZ GARCIA - President Mexico’s Maquiladora Industry Council

Nearly 1.3 million work in more than 5,200 plants in the maquiladora sector in Mexico. Their national organization, CNIMME (Consejo Nacional de la Industria Maquiladora), continues to lobby for improvements to boost the country’s standings in the various measures of global competitiveness.

According to Monica Gonzalez-Garcia, president, the numbers tell a story of bad news followed by good -- at least better. In 2009, the industry saw a 27 percent decline in exports, the biggest drop in their nearly half century of existence. Mexico’s official unemployment rate zoomed to about six percent. Maquiladoras were the first to feel the impact of the global downturn.

On the other side of the ledger, since August of 2009, the maquiladora sector has recovered 65 percent of the jobs lost. The auto sector is improving. She noted that only 40 maquiladoras threw in the towel and called it quits during the recession.

Despite concerns about the strength of the economic recovery in the United States, she spoke of a “new opportunity for her country and industry. Companies do the comparisons and find that Mexico is more competitive than China. We need to bring the jobs back. The government needs to help.”

YOU HAVE COME TO THE MEXICONOW LOGISTICS EVENT IN EL PASO AS A KEYNOTE SPEAKER. WHAT IS YOUR KEY MESSAGE?

My key message is that 2009 is over. IMMEX (maquiladora sector), despite all the violence in the country and the review of the IMMEX program by the authorities, is growing in terms of labor and headcount. We now have a positive trend. Since August 2009, we have 92,000 new jobs created. We are progressing and in a positive trend.

Many people ask us what is going on, and our answer is, “We are growing!” Mexico represents a very good opportunity. With the devaluation of the peso, Mexico is more competitive than China in a lot of factors. This is the message I want to deliver.

YOU POINTED TO A REVIEW OF THE IMMEX DECREE. THERE ARE CONCERNS ABOUT THE DECREE. WHAT IS THE STATUS OF THAT AND WHAT WILL BE HAPPENING WITH THAT ISSUE?

CNIMME has direct communication with the authorities. In this case we are dealing with Hacienda (tax authority) and Economia (Economy ministry), just to review what is going on with the tax implications for the maquiladora. We have benefits we have gained throughout the years; we have two decrees that applied to the income tax – 2003 and the IETU in 2007. We don’t want to lose those decrees – they were issued to make the maquiladoras competitive. That is the reason we are negotiating.

WHAT BECOMES YOUR MESSAGE WHEN YOU REALIZE THE GOVERNMENT WANTS MORE REVENUE, YET YOUR SECTOR HAS A NEED TO REDUCE COSTS? HOW DO YOU BALANCE THAT?

We are trying to convince – and I think the government is very convinced – that the only way to make more money is by creating more employment. The only way to create more employment is to be more competitive. The government has to be more patient for the maquiladoras to create more jobs so that more taxes are paid in Mexico.

YOU HAVE POINTED TO A REBOUND IN THE ECONOMY THAT IS POSITIVE FOR THE MAQUILADORAS. WHAT WORDS WOULD YOU USE TO DESCRIBE THE STRENGTH OF THE REBOUND?

I would say the rebound is “bumpy.” Consumption is growing, but unemployment in the United States is something that is worrying everybody. Ninety percent of Mexican maquiladora exports go into the United States. So, if people in the United States don’t have jobs, there will come a point where they stop buying things.

Right now we are seeing a positive trend because all the inventories are gone. We are back into production. But we hope that before the end of this year we don’t see another negative trend because of the lack of employment in the United States.

YOU HAVE POINTED TO AN INCREASE OF EMPLOYMENT IN MEXICO. LOOKING FURTHER AT THOSE NUMBERS, WHAT ARE THE SKILLS THAT EMPLOYERS LOOK FOR IN MEXICO?

What happened in 2009 was a unique situation. There were a lot of employees available. Companies became more selective in choosing the people they would hire. We need more technicians, more engineers. However, there are 40 million people in Mexico who need a job. We need to find – both CNIMME and the Mexican government – maquiladoras that will provide jobs for engineers, technicians as well as the poor people who would be happy to have an operator-type job.

WHAT IS YOUR MESSAGE CONCERNING EDUCATION FOR ALL LEVELS OF THE MEXICAN WORKFORCE WHEN YOU MEET WITH OFFICIALS FROM THE EDUCATIONAL SECTOR?

It is very disappointing to see that only 13 percent of the students in Mexico go for engineering or technical degrees. Yet, we want to be a manufacturing and new technology country. We need to have more people in these fields. However, this is a process.

It has been growing – but it is a very long process because people in Mexico like some other things. We would like to convince the students and the government they need to promote more of these types of fields.

AT THE LOGISTICS EVENT, MANY PRESENTERS OFFERED ANALYSES AS TO THE STRENGTHS AND WEAKNESSES OF MEXICO. LET’S START WITH THE POSITIVES. WHERE IS MEXICO MAKING GAINS WITH ITS COMPETITIVENESS?

Mexico has a unique competitive advantage: Its location. That is not going to change. In the world, logistics is very expensive and becoming more so. With the lack of cash flow, carrying inventory is very expensive for companies. Mexico is close to the United States; logistics are cheaper. You don’t need to carry inventory.

That is the key advantage Mexico has over other countries.

WHERE DO YOU SEE A COMPETITIVE PROBLEM OR COMPETITIVE RISK WITH MEXICO AS WE MOVE THROUGH 2010?

I think if we keep changing often the way we do things, that means uncertainty. That would create insecurity for the investors. If they are insecure, they will keep looking elsewhere.

We need to stay consistent. Mexico keeps changing the rules and by changing the rules we lose opportunities. We had a great opportunity to grow at the beginning of 2009, but the recession hit us and it didn’t happen. In 2010 we got to make it! We cannot be changing the rules – that is the problem.

EARLIER YOU POINTED TO LOGISTICS AND THOSE COSTS. WHAT EFFORTS MUST MEXICO UNDERTAKE TO REDUCE TRANSPORTATION COSTS AND WHAT MESSAGES ARE YOU SENDING TO THE GOVERNMENTS TO REDUCE THOSE COSTS?

What we are doing and what the government is doing is taking a complete look at the map of the routes in Mexico.

We need to be more efficient transporting from one place to another. Costs of transportation are a concern. It is cheaper to bring goods from the United States into the border than it is from the interior of Mexico to the border. We are working on finding those routes. They need to eliminate those tolls on new highways. They need to work on the costs of fuel.

Diesel has been going up and up and transportation companies have been struggling to keep their prices down.

WHAT CONSTRAINTS DOES MEXICAN GEOGRAPHY AND TOPOGRAPHY PLACE ON THE NEEDED ROADWAY IMPROVEMENTS TO WHICH YOU POINT?

It is a little more difficult than what it looks. There is a map, for example, showing U.S. Interstate 69 going into Brownsville. There are those who want that road to go all the way to Mexico City. There are plans for that. However, there are states along that proposed route. You have to get everybody together. It is a long process, and bureaucracy can get in the way.

THERE ARE MANY MANAGERS AND EXECUTIVES AT THIS EVENT – MANY FROM THE U.S. WHOSE HOMES OR OFFICES ARE FAR AWAY FROM THE BORDER. WHAT DO THEY NEED TO UNDERSTAND ABOUT BUSINESS CONDITIONS IN MEXICO?

They need to understand that labor in Mexico is among the most competitive in the world. We have qualified people; we are not “new” when it comes to manufacturing. The maquiladora has existed for over 40 years – nearly 50! We know what we are doing in Mexico. All the social problems will come and go.

Make decisions based on the long term – not what is on the news today.