Japan Leads Way : Asian Firms Find Home in Mexico

On Mexico’s Mesa de Otay, teen-age workers kick soccer balls on their lunch breaks, earthmovers bite at the sandy soil to make way for yet another factory--while passing motorists slam on their brakes for crater-like potholes and a stream of sewage that washes across the road.

The youthful soccer enthusiasts may not realize it, but they have become players in another game as well--the global battle for industrial survival. And the road may not be ready for it, but the traffic is increasing--from all over the world.

Flapping in the warm breeze outside some of Tijuana’s biggest, newest factories is the emblem of a red sun on a white background. It is the flag of Japan. “We need to survive,” explained Shigeru Otsuka, general manager of a Sanyo plant that until this year made its compact refrigerators in San Diego. “That’s why we came over here.”

Dramatic Expansion

For decades, border towns such as Tijuana, Juarez and Mexicali have been home to U.S.-controlled factories making everything from blue jeans to auto parts, water beds to cabinets. What is new is the dramatic expansion of Mexican operations by the Japanese, with signs that the South Koreans and Taiwanese are not far behind.

Success in the American market has taken on a life-and-death significance for these countries in light of intensifying competition and sluggish consumer demand throughout the world. To achieve that success, the companies are relying increasingly on the formula “assembled in Mexico.” The drawing cards: low wages, an accommodating government and nearness to the wealthy consumers north of the border.

For the Japanese, Mexico has become especially appealing. The strong yen has eroded Japan’s export profits as companies seek to protect their market share while holding down prices. In the Mexican plants, unskilled workers are paid $1 an hour or even less for such basic tasks as hauling materials, drilling holes and attaching stickers.

Japanese Exhortations

Just down the road from Sanyo, a Hitachi plant--where the Japanese and Mexican flags first were raised earlier this month--illustrates the internationalization of the border industry: In Japanese fashion, a poster exhorts Mexican workers to make their work “seguro, exacto, bonito, rapido”-- safe, precise, attractive and fast. In the executive offices, a Mexican secretary offers a Japanese-style bow and says “sumimasen” to excuse herself as she serves coffee.

“The competition is getting hotter and hotter in the television market,” explained Morihiko Koide, president of Hitachi of Mexico, on a recent day in which U.S. Navy parachutists could be seen from his window practicing landings just across the border. “To survive, we have to use the less-expensive labor that is available here.”

Already, on the mesa that looms against the horizon a half-hour’s drive from San Diego, a growing number of buildings sport such names as Matsushita, Sony, Sanyo and Hitachi--assembling television sets, fans, refrigerators, vacuum cleaners and other products. And their lesser-known suppliers also are making the trek to Tijuana: Sanoh, which provides condensers for Sanyo refrigerators, and Tocabi, which makes cabinets for audio equipment that is marketed under the Fisher label.

The growing Japanese presence is increasing opportunities in a city where many have traditionally eked out a living in auto upholstery shops or by hawking cheap figurines and flower pots to drivers waiting to cross the border. The city also has served as a way station for those on clandestine journeys into the United States.

“The first plant that I set up here, I always asked, ‘How many times did you cross the border?’ ” recalled Manuel Castillo Flores, a native of Mexico City who is Sanoh’s operations coordinator and who previously helped set up a Mexican operation for a U.S. firm that manufactures rubber grips for golf clubs. “If they’d done it two or three times and been sent back, I knew it was a good time to hire them because they’d stay for a while.”

Antonio Colin Negera, 17, moved to Tijuana with his brother from their hometown outside Mexico City, where they picked peaches, apples, plums and green beans. Today he runs a machine in the Sanoh plant. His brother, 18, toils on a nearby farm, milking cows.

“As soon as he can, he wants to work either here or in another factory,” said Negera, who left school after the sixth grade. “I like it here,” he added. “I will stay a long time.”

The plants are known as maquiladoras, a word derived from “maquila”-- the fee that millers collected for processing grain in colonial Mexico. Under the 22-year-old program, foreign companies bring equipment and raw materials into Mexico duty-free, then ship the products out of the country, almost always to the United States.

Although many of the plants traditionally have been set up in Juarez and other cities near the Texas border, Tijuana is currently experiencing a boom because of its nearness to the huge Southern California market, where many Asian firms maintain their U.S. headquarters. But they are spreading out. Toshiba is setting up operations in Juarez, just south of El Paso, where TDK, a high-tech firm, already has a plant.

However, the vast majority of companies operating as maquiladoras are American. Mexico now is home to more than 1,000 such operations, 30% more than a year ago, and employing about 300,000 workers, according to a new study by California State University, San Diego.

For Mexico, battered by debt, chronic unemployment and inflation that rages in the 100% range, the significance of the program is clear. Maquiladoras last year surpassed tourism for the first time as a source of foreign exchange, accounting for $1.6 billion in desperately needed cash, second only to oil exports. By the year 2000, such companies could employ as many as 3 million workers and bring in $10 billion in foreign currency, the San Diego researchers found.

Yet for all the advantages, setting up shop south of the border can give new meaning to the slogan “patience,” which is framed in bold black Japanese characters in the Sanyo offices.

“In order to do business in Japan, you need more know-how than know-who,” said Yasuo Sasaki, a Sanyo vice president based in San Diego who speaks English, Spanish and Japanese fluently. “If you want to do business in Mexico, it’s 80% know-who and 20% know-how.”

Hassles in getting telephone service and electricity are legendary for those starting up businesses in Mexico. Hitachi, for example, which now employs 200 workers, applied last October for eight telephone lines. Its employees are currently struggling along with only two, because the Mexican-made switchboard has yet to arrive.

To get messages to Tijuana, Hitachi executives in Tokyo and Yokohama are forced to send them by telecopier to their U.S. subsidiary in Anaheim. California employees then relay the messages south of the border. With one of the two lines tied to the telecopier, only one phone line remains open. “It’s very, very disturbing,” said Koide, the Hitachi of Mexico president. “One line to this company is almost nothing.”

When Sanoh set up shop a few months ago, frustrated executives awaiting telephones relied on the cellular phone in the company president’s car. But that did not work either, because a hill blocked the phone’s signal. So three times a day, they piled into the car, drove it over the hill near the Hitachi plant--and communicated one by one with the outside world.

The headaches did not stop there. The water pipes in Tijuana have been known to run dry, much to the consternation of factory managers. So Sanoh installed a 10,000-gallon cistern and is planning to add another 20,000 gallons of capacity so its plant can run for more than a week without water from the outside. “It’s like in biblical days,” a Japanese executive said with a sigh.

Companies that maintain offices on both sides of the border face special difficulties. Drug-wary U.S. Customs inspectors have been known to make northbound truck drivers unload their entire cargoes, from refrigerators to television sets. By one account, a driver recently was forced to shovel out an entire truckload of sawdust.

Employee relations also provide a culture shock. The Cal State San Diego researchers found, for example, that employee turnover and workers’ difficulties in finding reliable transportation to get to work were among the most serious problems faced by factory managers. As a result, companies often provide bonuses for attendance and punctuality, and in some cases give workers special travel allowances. Sometimes, the bonuses come in the form of special checks that are redeemable only for groceries.

Such benefits can boost wages of 70 cents to 80 cents an hour to $1, and can go along way toward winning workers’ loyalties. Beatrix Flourie de Sanders, a Tijuana businesswoman who has developed many properties for maquiladoras, said workers’ loyalty goes beyond dollars and cents: “It’s a matter of the heart. Are they happy where they are?”

As further incentives, companies sometimes sponsor picnics and build courts for basketball and volleyball. Sanoh may put in a free Coca-Cola vending machine.

Just as meeting the challenges of Mexico is a broadening experience for Japanese executives, the meeting of cultures is opening new worlds for at least some of the workers, many of whom have never seen the inside of a factory before.

Last fall, for example, Hitachi sent 10 machinists to Japan for special training. Asked to recall his major impression, Pedro Ricardez, 20, remembered that, “Always as soon as an employee finishes a job, he tries to help somebody else.”

His colleague, German Duran, 22, said that his attempts to impart a Japanese work style to employees in the Mexican factory are not always popular: “The first time, the reaction is a little bit angry,” he said. “And then, step by step, they are learning, and accepting it.”

Mexicans give their Japanese employers high grades for trying to learn the language and for treating workers respectfully.

Duran, for example, maintained that Japanese managers treat Mexican workers as equals . “In work they (Japanese) are very strict. But most of them are also very nice,” he said.

Gonzalo Gomez-Mont, an attorney whose foreign clients include Sony, Sanyo and Hitachi, said that after arriving in Mexico, “The Japanese are speaking Spanish or taking lessons within six months. I have a U.S. client that has been in Mexico for 14 years. He goes to Tijuana five days a week, eight hours a day--and he can’t tell the difference between ‘good morning’ and ‘good afternoon’ in Spanish.”

The Japanese have impressed the Mexicans in other ways. In contrast to American companies that often lease facilities, the Japanese build their own plants--and then expand aggressively--which at the very least gives the impression of a long-term commitment to the local economy.

The full scope of their plans is not entirely clear and executives tend to be vague. But Kelly Burt, a project manager in San Diego for Dallas-based developer Trammell Crow, said: “The real story is that Sony was there a year ago with 60,000 square feet. They’ll go to 350,000 by July. Matsushita had 100,000 square feet in 1980; they’ll have a million in two years. With Sanyo, it’s the same story.”

Yet for some critics, the Japanese influx is just the newest chapter in the old story of Mexico’s economic travails. While the overall maquiladora program has succeeded in attracting foreign investment and creating thousands of jobs, some question its ultimate value to Mexico.

Technology Transfer

Jorge G. Castaneda, a Mexican political scientist currently at the Carnegie Endowment in Washington, said many overestimate the significance of the program in a country that requires 1 million new jobs a year. And those jobs that are created by the plants along the border are often at the bottom of the technological ladder, he said. “From what I can tell, the transfer of technology is very, very little.”

In addition, domestic Mexican industries gain little benefit from the maquiladoras because the foreign firms typically rely on their own sources of machinery and raw materials, rather than seeking out local Mexican suppliers. Moreover, it is a serious question whether such areas as Tijuana can absorb the rapid-fire pace of border development without greater disruptions. “Tijuana is growing too fast,” one factory manager worried aloud.

While it is too early to figure the social cost of the maquiladoras , there is one apparent result: The move south of the border helps restrain price increases on a wide range of consumer products north of the border.

Intense competition, particularly in electronic products, has forced companies to cut costs whenever possible. The retail price of a compact refrigerator, for example, has dropped $20 within the last few years. In response to competition from South Koreans, Sanyo moved its assembly of the product to Mexico. Nevertheless, it claims to be losing between $3 and $5 for each item sold. “If we were still in San Diego, the losses would be prohibitive,” said Otsuka, Sanyo’s general manager here.

Disenchanted With U.S.

Decisions to move to Mexico are not always based on labor costs alone, however. Hitachi’s Koide said the firm initially used California cabinetmakers to supply its Anaheim plant. The Japanese executives began thinking about moving to Mexico only after they became disenchanted with the U.S.-made cabinets. “Finally, we decided to make it ourselves,” he said.

On the U.S. side of the border, organized labor argues that such movement to Mexico means a worrisome loss of American jobs. In light of such arguments, members of Congress last fall pressured the Commerce Department to drop its sponsorship of a conference in Acapulco promoting the maquiladoras.

“In our opinion, workers on both sides of the border gain little benefit,” said Mark Anderson, an international economist with the AFL-CIO, noting that the wages paid in Mexico are inadequate for a comfortable standard of living.

He also maintained that the loss of manufacturing jobs translates into a lower standard of living in the United States when displaced American workers are forced to work for lower wages: “Who’s going to be around to buy the stuff that these people are making?” he asked.

Some Mixed Feelings

Even some who have profited from the maquiladora boom look upon it with mixed feelings. Sanders, the Tijuana businesswoman, sees a way of life fading into the past. “You still have to do things with a little heart. It’s not cold, hard business.”

But the woman whom the Japanese affectionately call “Bebe-san” added wistfully that, as more foreign companies compete for survival in Tijuana, “It’s now going to be a big business. It’s not going to be so much fun.”