Toy Companies Bullish on Border Plants : Factories: Mexico’s proximity means deliveries take a month less than from the Far East, an advantage when market responsiveness is vital.
Last month’s Christmas toys have long since left the assembly lines at the Mattel, Fisher Price, Tonka and Ertl plants in this border city, an increasingly attractive location for manufacturers because of low labor rates and proximity to the U. S. market.
Mattel, in fact, is cranking out this year’s toys at its sprawling southeast Tijuana facility that employs up to 2,500 people during peak production periods. The toys are enveloped in a shroud of secrecy “exceeded only by the aerospace industry,” Bob Laibach, Mattel’s plant manager, said recently, explaining that toy makers jealously keep future product lines under wraps until they reach toy store shelves.
Mattel and other U. S. toy manufacturers have steadily increased their Mexican operations in recent years. The total value of toys exported from Mexico in 1989 was $161.4 million, nearly double the value of toys shipped in 1985, according to U. S. Department of Commerce figures. Nearly all major U. S. toy makers now operate maquiladoras , where goods bound for the U. S. market are manufactured with low-cost Mexican labor.
Granted, toy production at U. S.-owned plants in Mexico is still only a fraction of the toys made in Far East countries such as Taiwan, China, Korea and Malaysia. In China, for example, where toy production exceeds $1 billion annually, manufacturers pay as little as 35 cents an hour for labor, a third of the typical Mexican wage. That’s a powerful incentive in an industry where the handwork of toy assembly is a significant cost factor.
But manufacturers’ interest in Mexico is clearly growing. Ertl, the Dyersville, Iowa-based maker of die-cast metal toys, plans to double or triple the size of its Tijuana plant over the next five years, said Jim Maggart, Ertl’s Tijuana plant manager. Much of that growth will be the result of the company’s decision to move operations there from China.
Mattel, which first came to Tijuana in 1983, operates a 200,000-square-foot facility that is four times its original plant’s size. The plant is virtually self-sufficient and includes a machine tool shop and 25 plastic injection molding machines that stamp out large dolls, Barbie horses, See and Say toys, and others.
Mattel, which also operates offshore plants in Malaysia, where all its Barbie dolls are produced, has not operated a major U. S. toy plant since 1983, when it closed its last Los Angeles plant, Laibach said. The company has become increasingly comfortable in Mexico as more of its suppliers have located in Tijuana and as technical employees, such as those who run plastic injection molding machines, have become more plentiful, he said.
But clearly, these are not the best of times for an industry that has seen demand for its products soften because of the recession. Several toy manufacturers are predicting that 1990 sales will end up flat or down from 1989.
Tonka, the Minnetonka, Minn.-based manufacturer whose Kenner Products division employs up to 1,000 in Tijuana, is predicting a loss for 1990.
“The recession has definitely had an effect on the toy industry as it has on every other consumer-type industry,” said Tony Ramirez, vice president of Made in Mexico, a Chula Vista-based maquiladora consulting and subcontracting firm. “Toys’ advantage is they are a resilient industry. Their products change from year to year, so they can cope with change better than others.”
Some observers say Mexico’s appeal to toy manufacturers continues to be strong in part because of the slowing worldwide economy. Mexico’s closeness to the U. S. market means that deliveries of toys take one month less than from plants in the Far East. That’s a big advantage at a time when market responsiveness and “just-in-time” sourcing, a method of keeping inventory levels at a minimum, are increasingly important to toy retailers.
The growth in Mexican toy production “shows a number of people are looking for a shorter pipeline at a competitive price and that’s possible out of Mexico,” said David Miller, president of Toy Manufacturers of America, a trade group headquartered in New York.
Certain political considerations have also worked to Tijuana’s advantage. The political instability in China since the Tien An Men Square massacre in 1989 has caused many toy companies to rethink their operations in China, the scene of huge investment by the U. S. toy industry over the past decade. Any shift of production out of China is likely to benefit Mexico, Miller said.
While no actual disruptions of Chinese plant operations have been reported, executives openly worry that another episode similar to Tien An Men Square could, at worst, throw the country into upheaval or cost it its most-favored-nation trade status conferred by Congress. The loss of the preferred trade status would dramatically increase the tariffs that the manufacturers pay on goods produced in China.
“If Congress were to take away the most-favored-nation status, the duty rates would rise to 70% and most duty rates are now between zero and 10%” on Chinese toys, Miller said. “So it would have a tremendous impact on people making toys there. I suspect . . . it would encourage people to go to Mexico.”
For Peter M. Wimsatt, Ertl’s senior vice president of operations, the Chinese political climate is “something everyone is worried about.” His company, a subsidiary of Hanson PLC of Great Britain, moved some of its toy manufacturing to China from Korea a few years ago because of rising Korean labor costs. And now the company is moving some operations out of China to Tijuana.
Apart from political stability, Mexico is attractive “because of the business we are in. We require very short lead time and you really don’t get short lead times out of China,” Wimsatt said. The high cost of sending technical people to China also works to Mexico’s advantage, he said.
“Mexico is a lot quicker to get to. It’s easy to pick up the phone or, if you need technical help, to send people down” from Iowa, he added. “You basically have more control in Mexico.”
Fisher Price employs about 900 people in Tijuana, said Haskel Knight, director of border operations for the East Aurora, N.Y., toy company, which has had a Tijuana operation since 1973. Although Fisher Price buys toy parts from sources around the world, its Tijuana and Matamoros plants in Mexico and its Great Britain facility are its only foreign manufacturing locations.
