From the Wall Street Journal of 15 September 1993
Quote:
The Battle of Nafta
Keith Gibson heard the "giant sucking sound" of cheap Mexican wages four years ago and headed south. He shut down a factory on the Connecticut coast and opened one in Ciudad Juarez, where he could pay Mexicans one-third the wage rates he was paying Americans. "All the figures pointed out we should make a killing," he says.
Instead, the company he runs, Quality Coils Inc, nearly got killed.
The Bristol-based maker of electromagnetic coils lost money regularly in Mexico, he says, because of high absenteeism, low productivity, and problem with long-distance management. Worn down, Mr Gibson pulled the plug on the Mexican operation last April, move the factory back to Stonington Conn, and rehired some of the 30 people laid off in 1989.
Here's what he learned: "I can hire one person in Connecticut for what three were doing in Juarez." ...
But the experience in Mexico of companies such as Quality Coils suggests that the Perot argument is simplistic -- and probably wrong. It overlooks the many factors, other than wage levels, that actually drive business decisions.
For one thing, wages in Mexico aren't nearly as low as many people believe, and low Mexican productivity often erases much of the wage advantage anyway. Moreover, a host of problems, ranging from congested roads to corrupt judges, run up operating costs. And few companies base plant locations on a simple calculation of wage differentials; for most US manufacturers, the cost of labor is less imoprtant than such factors as the skills of the work force, the quality of transportation, and the access to technology. ...
The biggest problem concerns productivity. Daniels Oks, a World Bank economist, calculates that US wages are 5.25 times higher than Mexico's, but that Mexican workers are about one-fifth as productive as Americans because of much outdated machinery, clogged transportation, ineffective management, and poor education. The result: US wages are just 2.6% higher than Mexico's, on average, after factoring in productivity. Mr Oks worries about the fallout from Nafta -- but his fears don't track Mr Perot's. He frets that Mexico's manufacturers wouldn't be able to compete with higher-quality US companies if trade barrires are phased out.
Some US companies, especially large ones, bring their Mexican operations up to US standards. Ford Motor Co says its Hermosillo plant ranks in the top third of auto-industry productivity. But Ford lavished far more attention on the plant than most companies can afford: busing workers, sending several hundred abroad for training and lobbying the Mexican state government to build housing. ...
For a time, Mr Gibson was bewildered by the problems in Juarez. He says he flew there to try to measure how many coils a worker could produce, and he found that the numbre was roughly comparable to that in Connecticut. But somehow, the Mexican operations were losing $100,000 to $150,000 a year on sales of $750,000. If labor was cheaper and production comparable, why the losses?
Mr Gibson says that he slowly realized that the Juarez workers were pumping up production whenever he or other Connecticut managers were in town. To confirm his suspicion, he says, managers woud pretend to watch production in one end of the plant while keeping any eye on other workers. They noticed that the Mexican workers were producing at half tht rate of their American counterparts, many of whom had at least five years of experience winding, soldering and wrapping coils. ...
Finally, in frustration, Quality Coils shut down the Mexican operation in April and reopened the Connecticut factory. Randy Shorts, Quality Coils' manager in Juarez, says that the Mexican workers could match the productivity in Connecticut, and he blames Mr Gibson for giving up. But Mr Gibson says he is glad he got out. Quality Coil's costs for wages and overhead were due to increase to $5.38 an hour this year. With Juarez productivity, overall only one-third of Connecticuts's, he figures he is better off hiring workers up north.
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