Cheap labor draws U.S. business south

This is a place a Chamber of Commerce could love.

A pro-business government, a thriving economy, moderate climate, above-average education and good roads.

But the real draw for American companies is something even more fundamental: cheap labor.

When Turck, a German company that manufactures proximity sensors, connectors, cables, cord sets and other machine innards decided to expand operations, it chose not to add on to its existing facilities in Germany or Minnesota.

But "labor is tight and building is expensive" there, said Chris Kafer, director of manufacturing for Turck. So instead, the company took its jobs to Saltillo, located about 43 miles from the city of Monterrey in Northern Mexico.

"We looked where labor was more plentiful," Kafer said. "Labor [cost in Mexico] is one-third what it is [in Minnesota]. Labor is 20 per cent of product cost. We've definitely seen savings in labor and the quality [of the product] is better or the same."

A small city feel

Saltillo is a city of over half a million people, but it still feels like a small town. It's one of the oldest cities in northern Mexico, the state capital of Coahuila and a favored setting for foreign manufacturing because of its proximity to trade routes, Monterrey and the United States.

But it's far enough from the border to avoid high turnover, absenteeism and crime, all of which plague places like Tijuana. There are two universities and thus a supply of engineers. Also, its high elevation moderates the harsh climate of the Chihuahuan Desert area that surrounds it, making it attractive to American, European and Asian businessmen who are considering relocation.

Saltillo was also the site, in 1847, of Mexican General Antonio López de Santa Anna's defeat at the hands of U.S. General Zachary Taylor, precipitating the loss of most of Mexico's land to the United States and boosting Taylor toward the presidency.

Now Saltillo has been invaded by Americans again.

General Motors, Chrysler and John Deere all have factories here. It also hosts The Offshore Group's industrial park Manufacturas Zapaliname (Zapa for short), a name unfamiliar to most Americans, although it's likely their cars and trucks and tractors run on Zapa parts.

A spotless place

Turck is one of seven companies with manufacturing operations at Zapa. Its plant is far from fancy, but it is spotlessly, almost impossibly, clean and well-ordered: gray lockers for the workers, a punch-in time clock and framed photographs of other Turck facilities on the walls. Rows of machines tended by seated workers are separated by shelves of supplies running down the middle of a huge room.

Little orange safety cones alert the pedestrian to small metal knobs protruding from the concrete floor, vestiges of a door that was removed. A few modest offices line the south wall.

Mark Garcia, an American who came from Minnesota to supervise the Saltillo operation as plant manager, said that cleanliness is a "big indicator" of how a company is performing. If that's so, now is the time to buy stock.

Garcia said a Turck worker at Zapa processes 1,200 "pieces" a day. A piece is a section of cable, connector or circuit board that takes shape as it moves down an assembly line. The work is tedious, requiring repetitive motions nine-and-a-half hours a day, 48 hours a week, but it's not usually dangerous. Garcia said the most common injury is "little nicks" on the finger. "One person did fall asleep," he said, "and their finger went into the solder pot."

Legally non-existent

The Zapa that Turck is part of is far different from industrial parks in the United States.

Both are collections of businesses, usually manufacturers, clustered together for mutual benefit. But there the similarities end.

The Offshore Group's Zapa is essentially a shelter for foreign businesses that want to do business in Mexico without actually existing in Mexico.

An explanation: The group provides space and a wide variety of services to big foreign manufacturing companies that don't want to actually incorporate in Mexico, hire Mexican workers onto their own payrolls, buy or lease their own land, pay taxes or deal with the Mexican government or legal systems.

Zapa recruits the workers, handles paperwork, payroll, medical issues and union benefits, finds schools for foreign investors' children, handles retirement issues and takes care of maintenance. On at least one occasion, it helped bail a client out of jail.

The companies have no legal liability and they don't pay taxes. They don't even lease land from The Offshore Group, avoiding any connection with the Mexican government.

Peace and profits

This arrangement provides peace of mind for big companies and profits for Offshore.

"This is a hotel for industry," said Miguel Hernandez, general manager of Manufacturas Zapaliname S.A., the company that runs La Angostura, The Offshore Group's industrial park in Saltillo. "You come here to manufacture and you don't do anything else."

"All you need to feel comfortable in a foreign country, we do. Companies are afraid of the laws in Mexico. [If you use the shelter] it's like you are in Chicago or Phoenix. Our responsibility ends when the finished product reaches the U.S."

The raw materials are generally brought in from other countries and then shipped back when they've been transformed into high-tech product. The foreign manufacturers supply their own manufacturing equipment. But Hernandez says that Zapa shareholders and initial capital investors are Mexican, returning some profit to the host country.

The Offshore group is the largest company of its kind in Mexico. It grew out of Mexico's huge and often controversial maquiladora industry, under which foreign-owned assembly plants import machinery and materials from other countries and export finished products around the world, taking advantage of NAFTA tax breaks and Mexico's cheap labor.

Foreign production

Maquiladoras make up a huge chunk of Mexico's manufacturing sector and employ more than 1.2 million workers. The industry generates more revenue in Mexico than oil or tourism - an estimated $88 billion in 2004, according to the organization NAFTA Works.

Almost all maquiladoras are foreign owned. They include BMW, Ford, General Motors, General Electric Co., Honeywell, Mitsubishi, Nissan, Samsung, Xerox and Sony.

The word maquiladora comes from the Spanish word "maquilar" which referred to the milling of wheat into flour by a middleman. Over time it grew to mean any part of the manufacturing process carried out by someone other than the original manufacturer.

The first maquiladoras were established in 1966 along the U.S.-Mexico border and became notorious for hiring large numbers of poor Mexicans, particularly women and girls, in plants with poor working conditions and low wages.

Today, maquiladoras operate all over Mexico, producing everything from furniture and chemical products to toys, sporting goods, shoes and electronics.

Hernandez said maquiladoras support the local economy by creating jobs. "We provide employment for engineers who otherwise wouldn't have opportunities to work," he said. "We teach young people skills they otherwise wouldn't have, [such as] how to work."

Zapa employs 1,300 Mexican workers. The minimum pay is 86 pesos a day, equal to about $7.50, twice the Mexican minimum wage. Hernandez said the average pay is about 120 pesos a day. That equates to about $1.11 per hour.

According to Chris Kafer, employees doing the same work in Turck's Minnesota facilities make $20 per hour, plus benefits.

Workers at all the companies at Zapa are covered by national life insurance, and there is a doctor on site. They also contribute to a social security program similar to the one in the United States. But they have no health coverage - one of the ways that Zapa and its clients reduce costs.

A way out

Margarito Camarillo, 25, from Monterrey, a line boss at the Unison manufacturing area at Zapa, regards his salary as average. There are some manufacturers in Saltillo that pay better. So why does he stay?

"It's hard to find work," he said.

And why doesn't he go to school so he can have a better future, like co-worker Jimy Aguilera, 27, who is working at the Zapa as part of a program associated with his university?

"It costs too much."

While the Offshore Group provides Camarillo with a job he might not otherwise have, a prosperous economic future seems dubious for him, even if he is learning "how to work."

Aguilera, on the other hand, has a fighting chance. He is a quality inspector for Unison. He said his salary is "kind of low," but that's acceptable for now because he's studying industrial engineering every night from six to nine.

His education, he said, means he has a way out.

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