Rebounding maquila industry a bright spot for Valley companies

In early September, Bata Plastics opened its first satellite facility in McAllen’s Foreign Trade Zone as it sought to minimize fuel costs and quickly service customers.

The large recycler was accustomed to shipping surplus plastics from manufacturers and scrap dealers located along the U.S.-Mexico border to its Grand Rapids, Mich., headquarters, where the excess plastic is ground, sorted and prepared for resale. But shipping tractor-trailers full of plastics the 1,600 miles between its main warehouse and its growing client base in South Texas was a costly and time-consuming logistical operation — one the family-based company ended with its decision to open a McAllen facility.

By opening a McAllen warehouse — about half the size of its Grand Rapids center — Bata Plastics saved on logistical costs, moved closer to its existing clients in Mexico and opened the door to prospective customers in a fast-growing border economy, said Matt Hammond, the company’s vice president of operations.

“There are a lot of people that are moving across the border, but there is also a lot of activity on the U.S. side because of how Texas is choosing to grow some of their economic sectors,” Hammond said in a telephone interview from his Grand Rapids office. “We see a lot of growth and opportunity in southern Texas in addition to the manufacturing opportunities in Mexico.”

Despite gloomy reports of the growing death toll from the Mexican drug war, the maquila industry is steadily rebounding from the recession, with the country’s manufacturing employment up about 10 percent last month from its low point in the recession, according to Mexico’s National Institute of Statistics and Geography. A promising economic outlook for Mexico’s manufacturers could vastly benefit the Rio Grande Valley’s industrial sector, where companies often exist solely to supply raw materials and components for the Mexican plants.

Employment in manufacturing in the Hidalgo County metro area is still down some 2,500 jobs from a pre-recession peak of about 8,500, according to the Texas Workforce Commission. But signs of renewed expansion are evident as U.S. companies shift more of their manufacturing to northern Mexico to take advantage of the lower cost structure.

McAllen assisted 10 new manufacturers in establishing operations in the city this year, with more than 700 jobs scheduled to be created in its industrial sector building goods such as car seats, office furniture and components for heating and air conditioning systems. Although the manufactured goods differ, the new companies similarly draw on the maquila industry for support or are a direct byproduct of it.

Steelcase, an international office furniture company, established its initial manufacturing operations in Reynosa last year, quickly doubling the plant size where it constructs chairs for its North American market. But Steelcase, which closed a plant in West Michigan after moving to Mexico, expanded back across the border when it occupied 60,000 square feet in McAllen for the logistics side of its operation.

Regal Beloit, a Wisconsin-based company that builds electric motors for a variety of products, brought 60 jobs to McAllen when it opened an advanced manufacturing plant to be close to a sister facility in Reynosa. And TS Tech North America, an automotive supplier headquartered in Ohio, also chose McAllen to manufacture trim covers for car seats.

The city’s new manufacturers are almost all suppliers to maquilas that are being asked to relocate closer to the border because of an availability of labor and competitive costs, said Keith Patridge, the executive director of the McAllen Economic Development Corp. But McAllen’s manufacturing growth reflects a gradual shift toward the border from companies that may have set up plants in Mexico years ago.

“The growth that we have been seeing in the downturn among the maquilas has really been among the existing companies moving operations down to take advantage of the lower cost structure that exists in Reynosa,” he said. “As more and more of those operations move down, there is justification on why the research-and-development and support functions should be moving closer, along with the companies supplying the raw materials and components for the plants.”

Those support functions almost always require higher skill levels that will lead companies to place them in the United States. As a lure, McAllen is developing a research and education park to facilitate the development of new products with the support of programs at South Texas College and the University of Texas-Pan American.

Companies that once outsourced components and production to China — where shipping and labor costs are growing — are now taking another look at Mexico, said Mike Willis, the executive director of the South Texas Manufacturers Association. Any expansion in maquila production will inevitably benefit South Texas, where the vast majority of U.S.-side manufacturers depend on Mexican factories for their business.

The U.S.-Mexico border hasn’t replaced all the manufacturing jobs it lost in the recession, but the employment picture has gotten much better. Willis noted that “there are winners and losers in every business cycle.”

“We have a good window of opportunity to capitalize on this increased interest from manufacturers on the U.S. side of the border,” he said. “We have opportunities for the next two years to capitalize on the interest that we have and regain some of the lost ground.”

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Jared Janes covers Hidalgo County government, Edinburg and legislative issues for The Monitor. He can be reached at (956) 683-4424.