New INDEX leader sees maquiladora opportunity

Editor’s Interview

In the last half century, the maquiladora industry has grown to be a major player in Mexico’s economy. Maquiladoras through the supply chain also serve as a driver for the U.S. economy, in some cases being a primary customer for ‘Made in USA.”
Quantifying production data becomes a mind-boggling process. Billions of dollars of U.S.-made components head to Mexican maquiladoras for further processing followed by export back to the United States or elsewhere.
Despite advances in production technology and expansion of markets, one constant remains, the economic partnership between the U.S. and Mexico.

Emilio Cadena is the newly-elected president of the Board of Directors of the National Council of the Maquiladora and Export (INDEX). His background is ample in servicing maquiladora start ups in Mexico as CEO of Prodensa. Cadena said that excellence begins before the first product heads to the shipping dock:

You have just taken office, what are the challenges you face?

The first and most important challenge that we have is to come together as a manufacturing community to tell the success story of the maquiladora and manufacturing industry of Mexico. You see that I use the two words together (Maquiladora & manufacturing) unlike where you see one or the other. If you don’t use them together you don’t tell the story.
We have to reposition ourselves with all the different audiences in Mexico and outside of Mexico as one of the key drivers for the Mexican economy — one I would say means a strategic advantage of North America and how to keep its manufacturing competitiveness.

What can investors expect when they open a new plant in Mexico?

When you have the opportunity to set up a new factory, you have many advantages. You can design the flow of material from scratch. You can have the best equipment available. You can have newer and better facilities, which is what you see here. The biggest challenge you have is once you start putting in the facility, you have to squeeze the learning curve, the tribal knowledge of 10, 20, 50 years of operation of a facility somewhere else and squeeze it in six months in Mexico.
What we have found out is that most companies haven’t trained a big group of people in a long, long time. Work instructions are not necessarily followed on the day-to-day operations. Although you are an expert on manufacturing and your product, you’re not an expert on training new people on how to do it. Your customer will want quality product from this facility in six months as good as a product as they were getting from the existing facility.

Six months or right way?

I say six months while you build up the facility. That’s why that is the biggest challenge you are facing and we see that most companies don’t have a very clear training strategy when they are thinking of coming to Mexico. They are very clear on how to get the building and a shelter operator and the rest but not how to train the people.

One of the things that go along with that training is culture. What is your view?

You have to see the different Mexicos. In all of these cities where we have presence of foreign manufacturing companies what you have seen is now you go and talk to people, to operators, to supervisors, engineers and you talk the same language today as any other facility in the world.
There is a Mexico that is a world-class manufacturing place, where we are used to Six Sigma and all kinds of certifications, all the manufacturing philosophies that are avant-garde in the world today. This gap of coming to Mexico and teaching the Mexican people how to work in the industry is not a reality anymore. There is a Mexico today that knows how to be a world class operation. The IMMEX (export) sector is the mirror where Mexico can reflect itself as a first-world country.

Talking about Mexico, what is our main competitive advantage?

Our biggest competitive advantage is speed to market. That’s where nobody can beat us because China is still a very competitive country. China still has high-cost labor, low-cost labor, it is so big that it has everything and for products that have very high volumes and low mix, it is going to be very hard to beat China at that. When speed-to-market is the name of the game, Mexico is really the only alternative.
When you want to go on the internet and you want to order a car but you want to order the color, the interior, all the gadgets on the car and that information has to go to the assembly line – and you want your car in the next two weeks — the only place to make it is in Mexico. That happens with iPods, washing machines and equipment and trucks and many other goods.

If you’re saying the only place for speed-to-market is to make it in Mexico, what impact could that have on the supply chain?

That is one of the big challenges we have. We are actually just starting to understand what can happen. One reality is that in the 50 years of this program being in place, we still haven’t improved on the amount of local content and by local content I mean companies established in Mexico, I don’t mean if they are Mexican or not because that is only related to the capital of the business which can be any place in the world. We are an open economy, but we are still importing 90 percent of the materials that are used for manufacture in Mexico for this industry.

With that data what happens to those taking a look at the concept of supply chain, both from the U.S. and Mexico? Where does the mindset need to be?

The mindset needs to be that people want to grow their business. Mexico right now is a great opportunity. Companies have a natural incentive to want to use a supplier next door. The problem is that we haven’t found enough people next door to buy from them. We would love to buy from somebody across the street. The market gives us the incentive to do it, we just need entrepreneurs.
Mexican investors, U.S. investors or any other place in the world to say, “OK I’m going to take a chance in Mexico and supply this industry but maybe get into other industries.”
Whoever wants to grow their business, diversify the business, Mexico today is a fantastic opportunity. There’s a $160 billion a year of products that we are buying that somebody can sell in Mexico.

Even from the U.S.?

Absolutely.

How important are government incentives to attract new investment to Mexico?

What you have to do is on your site selection. You have to look at the competitive advantages of the different cities that you are looking at. What is the infrastructure? What is the human capital looking like? What are the support services? What is the potential for growth for the supply chain? These are key drivers that are going to be here today and in the future that are going make your operation more efficient as time goes by.
Government incentives are a one-shot deal. Unless you are an automotive OEM there really is not much on the table, you have to decide on more sustainable factors on your location.

Finding the right leader for the plant is very important for any new investor, isn’t it?

Absolutely! The most important thing is leadership. Who is going to drive the new project? Who is going to make sure that you implement the manufacturing culture of your business in a new location? Who is going to lead the effort in training all the new people? It has to be somebody who has the chemistry, the philosophy of your company.
Choosing a leader and finding a leader is not an easy thing to do. It is not science, you have to look. You have to talk to a lot of people and then the big decision comes: Do I choose an ex-pat who has a lot of knowledge of the company but not so much knowledge of the culture? Do I choose a Mexican national who has a lot of knowledge of the culture but not so much knowledge of the company? That is the challenge and we have some pointers and some rule of thumbs on how to do this.

How should investor go about finding a partner or a support service firm in Mexico?

When you are finding a partner in Mexico it must be somebody that understands what you want to do philosophically is more important than the dollars. You have to make sure you do not make a mistake being dollar wise and it is so important that you find somebody who is aligned with the philosophy and the culture that you want to implement in Mexico from the beginning. Once people have a reason to live and to work for your company then you are going to have a very exciting operation in Mexico and be very successful.