A Warmer Climate for Furniture Makers : Mexico: Fleeing anti-smog laws, some Los Angeles manufacturers flock south, where environmental laws are less restrictive.
The attraction for most of the 1,800 foreign companies that have set up manufacturing plants in Mexico is the cheap cost of labor. But a growing number of Southern California furniture makers hear another siren call: more lenient environmental laws.
During the past two to three years, at least 40 Southern California furniture makers have relocated or made plans to open plants, called maquiladoras, in the Tijuana area, a migration that is still gathering steam. The shift by manufacturers to Tijuana and other Mexican border cities has made furniture and woodworking the second-largest maquiladora sector after electronics with 233 plants, or 13% of the total.
Among the companies that have moved or plan to move to Tijuana are some of Southern California’s largest manufacturers: Eric Morgan Inc. and Sandberg Furniture Manufacturing of Vernon, Good Bedrooms of Compton, Gordon’s Cabinets of Riverside and Vargas Furniture and Evenflo Juvenile Furniture, both of Los Angeles.
Douglas Furniture of California, the giant Redondo Beach-based maker of dining-room furniture, was among the first to set up operations in Tijuana when it did so in 1985. It has steadily expanded its plants and now employs 800 workers here, said vice president Harold Applebaum. Douglas’ size puts it on a par with the Japanese consumer electronics giants such as Matsushita and Sanyo that are also manufacturing in Tijuana.
“If we wanted to stay in business, we had little or no alternative,” Applebaum said.
The decisive factor in Douglas’ and other companies’ moves to Tijuana was the tough environmental rules imposed in 1988 by the South Coast Air Quality Management District, the regional agency that has a federal mandate to reduce the Los Angeles basin’s smog levels, often the highest in the nation.
“The emission standards have gotten more and more stringent--to the point of them being difficult to meet and making it impossible for us to expand,” Applebaum said.
The district’s Rule 1136 put severe limits on the use of solvent-based paints, stains and lacquers used by woodworking manufacturers, aiming to virtually eliminate the substances altogether by 1996. The solvents were targeted for restrictions because they easily evaporate and release a high level of volatile organic chemicals into the atmosphere. These chemicals produce ozone smog through a process of photosynthesis.
The furniture and woodworking manufacturers’ use of the solvent-based coatings made them responsible for 3% of all hydrocarbons sent into the air above the Los Angeles basin before 1988, a high share given the size of the industry, SCAQMD spokesman William Kelley said.
Furniture manufacturers could continue to use solvent-based coatings only if they agreed to install SCAQMD-sanctioned sprayer chambers that collect and then burn or filter the hydrocarbons before they pollute the air.
The problem for manufacturers was that the machines cost $250,000 each and $50,000 a year to operate. Depending on its size, a manufacturer would need to install from two to 18 spray chambers to maintain production levels, said Sharon Rubalcava, a Los Angeles attorney who represents several manufacturers.
The manufacturers say the added cost of the equipment was unacceptable from a competitive standpoint. Good Bedrooms Vice President Danny Finegood said he would have had to increase the cost of his products 30% to pay for the chambers, a cost that his competitors elsewhere in the United States and the world escape.
SCAQMD spokesman Kelley said a premise of Rule 1136 was that it would prod the furniture manufacturers into developing water-based coating technology to replace the polluting solvents. But the manufacturers insist that usable water-based coatings are years away from development.
Thus, manufacturers were left with the choice of either moving out of the Los Angeles area or closing shop. And although some manufacturers considered other states where air pollution laws are less stringent, most of those that have fled Los Angeles have landed in Tijuana.
In fact, several manufacturers said they chose Tijuana over other U.S. furniture hubs because they expect other regions to adopt rules similar to the South Coast Air Quality Management District’s Rule 1136.
“Southern California’s pollution standards are the most stringent, but other areas are going to catch up,” said Bruce Plantz, senior editor of Furniture Design and Manufacturing, a Chicago-based trade magazine.
A new federal Clean Air Act--passed so far by the U.S. Senate--would have “a very serious negative impact on many industries, including furniture,” in terms of allowable coatings, said Douglas L. Brackett, executive vice president of the American Furniture Manufacturers Assn., a trade group based in High Point, N.C.
“Everybody is jumping on the bandwagon,” said Finegood, whose Good Bedrooms recently opened a 280,000-square-foot plant in Tijuana to make bedroom sets. His company, which expects its Tijuana payroll to grow from 160 workers now to 300 in coming months, may soon move its Good Tables operation to Tijuana as well.
“Some of the (Los Angeles-area) companies are trying to hang in there, but the long-term outlook is bleak,” Finegood said.
The exodus of furniture and woodworking companies is difficult to quantify because the companies typically refrain from broadcasting their moves because of labor and image concerns. But the Southern California furniture industry is almost certainly no longer the $1.3-billion, 63,000-employee giant that it was two years ago, a standing that made the region second only to North Carolina as a furniture hub.
Another recent arrival is Eric Morgan Inc., which opened a 140,000-square-foot plant in Tijuana in December to make home entertainment centers. Morgan moved from Vernon, but unlike most Southern California companies that have kept administrative offices in the Los Angeles area, Morgan moved its headquarters and warehouse to a San Diego facility within a stone’s throw of the U.S.-Mexico border. The company now employs 300 in Tijuana and San Diego.
Morgan Chairman Carl Schulman said his company ultimately decided to leave because environmental rules and the high cost of real estate in Los Angeles made it impossible for the company to expand. “L.A. wants one huge Century City up there, nothing but offices,” Schulman said. “They’re out to chase industry out.”
By contrast, Mexico has been receptive to the furniture maquiladoras . Although the nation is tightening up enforcement of a sweeping set of industrial pollution standards passed in 1988, several Mexican officials stressed in interviews that they are taking a flexible approach to pollution issues relating to maquiladoras.
That flexibility reflects the maquiladoras’ importance in generating jobs and dollars for Mexico’s limping economy. By the end of 1989, maquiladoras were employing 450,000 workers and bringing $2.9 billion to Mexico, second only to petroleum sales in production of foreign exchange, said an official at Mexico’s Secretariat of Commerce and Industrial Development.
President Salinas having ordered the government to expedite the maquiladora permit process, federal officials are highly sensitive about sending negative signals to foreign manufacturers that may be considering moving to Mexico.
Still, environmental concerns are gaining importance on the Mexican national agenda just as in other countries, said Rene Altamirano Perez, general director of SEDUE, the Mexican federal equivalent to the U.S. Environmental Protection Agency. Previously, Mexico had been more concerned about the maquiladoras in terms of the employment that they create for “many people without jobs, particularly women and campesinos (farm workers),” rather than the environmental hazards relating to “industrial processes.”
However, Altamirano noted that SEDUE temporarily closed two maquiladoras in Tijuana last year for environmental infractions and that SEDUE will increase its inspection efforts in 1990. “The maquiladora industry for a country like Mexico is a convenience and it has to be convenient for the country in order to favor the country,” Altamirano said in an interview in Mexico City.
Maquiladora operators say they expect tougher standards. The National Council of Maquiladora Industries, a trade group of Mexican industrial park owners and consultants, senses that the furniture industry could become an environmental issue on both sides of the border if manufacturers are careless. For that reason, the council is advising all newcomers to install the latest, EPA-approved safety equipment, said Tony Ramirez, vice president of Made in Mexico, a Chula Vista-based firm that advises companies moving operations to Mexico.
Although the increasing population of furniture plants in Tijuana would seem to pose an added smog threat to San Diego, whose city limit adjoins Tijuana’s, San Diego County Air Pollution Control District officials say they are not overly concerned. That’s because prevailing winds from the northwest typically blow Tijuana’s smog away from the United States, spokesman Bob Goggin said.
In addition to the environmental considerations, Mexico’s low labor costs have been a powerful lure for the furniture manufacturers. Including taxes and insurance, they pay Mexican workers about 25% of what workers in Southern California get. Moving to Mexico also enables them to avoid paying California’s high workers’ compensation insurance premiums, which, because of the hazards of woodworking, now cost employers a basic rate of 19 cents on each $1 paid out in gross wages.
Southern California’s loss has been Tijuana’s gain. According to Jose Luis Ascolani, the local delegate of federal Secretariat of Commerce and Industrial Development, 22% of the 609 maquiladoras located in Tijuana in December were woodworking and furniture manufacturers.
Not that manufacturing in Tijuana is a bed of roses. Employee turnover averages about 90% each year, and skilled labor is difficult to find and keep. Power costs half as much as in Southern California but is becoming increasingly difficult to secure by operators of large plants as the demands of maquiladoras place a greater burden on the local utility’s power grid.
In addition, the cultural barriers that must be vaulted by U.S. firms to manage a Spanish-speaking work force are more than some companies can handle. “The dramatically lower cost of labor seems to me to be fool’s gold in some respects,” said Douglas’ Applebaum, adding that several U.S. manufacturers that have gone to Mexico as “interlopers” have failed.
“If you try to impose English as an operating language, for example, it just isn’t going to work,” Applebaum said.