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In living color: from the ashes of defunct television maker Zenith, former maquiladora employees rise to break into border assembly plants' supply chain. (Trade Lanes).

It's so easy to miss Fixturas y Maquinados del Norte that it's a wonder anyone ever finds it at all. South of town on an unpaved road, a tiny white sign marks the machine shop. Mexican entrepreneurs Juan Sanchez and Javier Luna own and operate the company in cramped quarters. "Here's our administrative offices," jokes Luna, pointing to a cubbyhole. Then turning and pointing to a table, he says, "Here's our cafeteria." To the left a few feet away is "our electronics division," he says.

Fixturas y Maquinados has less than 80 square meters of office space. But it makes parts for some of the largest maquiladoras, as assembly plants are known here, in the area: TRW, Alcom Electronicos Ramco de Matamoros. The company is one of many machine shops in Reynosa that show what the maquiladora sector can foster in Mexico.

Mexican-owned machine shops barely existed here 10 years ago. Today, the 200 companies range in size from those that barely survive to large and sophisticated operations with US $130,000 equipment and global standards certification. They employ between 1,000 and 1,500 people in Reynosa.

"These are high-skilled jobs, not just manual assembly work. And these are Mexican-owned businesses," says Herber Ramirez, Reynosa's director of economic development.

The story of how these shops grew and flourished speaks volumes about the challenges of doing business in Mexico. Like other Mexican businesses, the shops face scarce financing, poor infrastructure and municipal services, but on the border these handicaps are felt more acutely. Costs are higher here. International competition sets high quality demands with constantly shrinking profit margins.

TV drama. The story begins at Zenith Corporation, where Reynosa's machine shop owners and their employees cut their teeth. Zenith came to Reynosa in the mid-1970s, seeking like many multinationals corporations cheap labor and duty-free imports for assembly and re-export to the United States. The world's leading manufacturer of televisions eventually built three plants in Reynosa, employing 9,000 people.

In 1982, as part of its cost-cutting, Zenith started a division to maintain its machinery and make spare parts. "We had 9,000 people in the company. We had zero spare parts," says Ramirez, who was also personnel director for Zenith for many years. "We just made them. We did it to survive."

At that time, Reynosa didn't have machine shop technicians. So the U.S. TV-maker recruited people at technical schools in southern Tamaulipas and northern Veracruz. Soon, young campesinos were moving from agricultural towns to work in Zenith's parts and maintenance division. CBTIS No. 15, a technical school in Ciudad Mante, Tamaulipas, five hundred miles south of Reynosa, was famous for sending entire graduating classes to Zenith.

"We hadn't even graduated yet and they had jobs for us already:' says Sanchez, who graduated from CBTIS No. 15 in 1982. 'After a while in the machine shop, about 90% of the 110 mechanics were from Ciudad Mante."

Zenith had helped start an internal migration of people from rural areas to Reynosa. For hundreds of poor farm kids, the TV maker became the university they couldn't afford. They learned to work lathes and milling machines. They designed small parts at first, then moved to designing parts of the machines used to make televisions. When computers entered engineering design, these young technicians used them, too.

"Zenith taught us the American culture of work: punctuality, doing things well, quality, responsibility," says Luna, who worked for the company for 17 years. "Apart from that, there came a lot of technology that we hadn't seen before. We worked on machinery that was very new.

Zenith's Reynosa operation grew immense. At its peak, it produced some 4 million televisions a year. The parts and maintenance division eventually employed more than 300 people and was believed to be the largest of its kind on the border.

Asian subplot. "Zenith was always a school for all of us. It was our second home," says Heriberto Monroy, a former engineer at the company and now a partner in CETSA, one of the largest machine shops in Reynosa. "We all got along very well. There was camaraderie among all the departments."

Yet Zenith struggled. Competition from Japanese and Korean televisions was intense. "In the heyday of color TV, Zenith made huge amounts of money:' says Jim McNamara, import-export director for the company in Reynosa in the 1980s. "There wasn't much competition. Back then, you could ride for eight, 10, 15 years on a technology and still get a pretty decent margin. Zenith kind of rode that horse for too long, making a lot of money off their core business, but not really having a vision from where to go from that."

In the late 1980s, Zenith bought computer-parts companies to move beyond TV production. The investments proved unprofitable and overwhelmed the company with debt. Television sets, meanwhile, were becoming a commodity and the prices of color TVs dropped unmercifully. Zenith's profit margins eroded.

Finally, in 1995, Zenith, the last U.S. television manufacturer, sold out to Korea's Lucky Goldstar--now known as LG. Today, the once-mighty Zenith exists mainly as a brand name of high-end TVs.

LG reduced the size of the Reynosa machine shop and laid off many executives. Those who stayed noticed that the atmosphere changed radically. Far more work was spread among fewer people. Meetings would be held at 10 p.m., in order to be able to speak with executives in Korea. The camaraderie vanished.

The death of Zenith, however, meant the birth of Reynosa's machine-shop industry. The engineers and technicians who came from rural towns in the early 1980s had, by this time, worked at Zenith for more than a decade. Many of them had learned English and had severance packages. They had learned to meet the quality and cost requirements of a global economy.

The life of an entrepreneur was a daunting prospect to these once-salaried employees. However, since Zenith was so large, its ex-employees were now at key positions in maquiladoras all over town. These contacts proved invaluable to the former Zenith employees when they sought customers.

A few had started machine shops earlier in the 1990s. But after 1995, as the TV company's doom seemed sealed, the number grew rapidly. Today, some 70% of the machine shops in Reynosa are owned by technicians who were trained at Zenith, says Ramirez. Dozens more machine-shop employees worked at the company.

The new entrepreneurs had no access to cheap credit beyond their own savings or loans from friends or family. They started machine shops because used lathes and milling machines were for sale relatively cheaply in Texas.

Capital idea. Rex Supply, a tool-machine distributor in Pharr, Texas, became the de facto bank for many entrepreneurs, offering them machines on short-term credit.

About 1998, Oscar Vera, Rex Supply's manager, noticed that his traditional maquiladora customers wanted to farm out more and more of their parts and machine maintenance. About the same time, a Mexican shop owner came in asking to buy a machine on credit, insisting that he had money but couldn't afford to part with it all.

"I said, 'Sounds like we ought to do it,"' Vera recalls. "Right after that, we sold five or six machines within a couple months. Then I started selling some cheaper machines and everybody wanted them. We had an exceptional [year] 2000 because of that."

Now, Vera says, 35% of Rex Supply's sales are to Reynosa's machine shop owners. "There's got to be like 300 of those shops over there:' Vera says. "I got lost one day looking for one and I found three different ones."

When the first shops proved they could compete in quality and cost, maquiladoras proved willing to buy from Mexicans what they had been buying from U.S. shops. Soon, other former Zenith employees saw their ex-colleagues doing well and followed their lead. "People began to talk. They saw that this guy was doing well, that that guy opened a shop and now he had a new truck," says Armando Garza, a metal shop owner who once was director of Zenith's machine shop. "People began to say, 'If he did well, I will, too.'"

Sanchez left Zenith in 1996, with Luna following a year later. With their savings, they purchased their first two machines on credit from Rex Supply and put them in a corner of Luna's garage. Their company was born.

"It was in brutal heat. We'd take off our shirt and get to work," says Sanchez "I'd make the piece, go deliver it, and come back with another order for two more."

In time, they expanded into their current shop, which is next to Luna's house. Still, the lack of affordable credit remains a constraint. Sanchez and Luna are putting up a larger building for their growing business. But without a loan, what should have taken three months to build has taken them almost two years.

Most machine shops, as well as Mexican-owned suppliers of all kinds, have similar complaints. "If we had financing, we'd be able to supply electronic parts, chips, components and a lot more," says Vicente Castaneda, a former Zenith executive and principal partner in CETSA machine shop, which also wants to expand into a larger building. "I know how to make this equipment. But I don't have money to buy the machines that can make it."

In a twist, CETSA now plans to incorporate as an American company, then transform its Reynosa shop into a maquiladora. As an American company, CETSA then would look for financing from venture capitalists in the United States, Castaneda says.

Reynosa's scads of machine shops are probably what Mexico's economic planners hope would emerge from northern Mexico's maquiladora revolution. Certainly, the phenomenon is encouraging. But the shops grew from specific and rare circumstances. Until Mexico addresses the problems small companies face, they're probably not repeatable on a wide scale, and shops like Fixturas y Maquinados will remain small.

Meanwhile, out in that tiny shop, Sanchez and Luna still struggle with business administration. At Zenith, they only learned engineering and tool making. Reynosa has no classes for business owners on how to run a company.

"Between Juan and I, we have to talk to employees, coordinate work, design, program," says Luna. "You have to do a lot of different things yourself. We're improving. But you can't make huge improvements in all the areas all at once."
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Comment:In living color: from the ashes of defunct television maker Zenith, former maquiladora employees rise to break into border assembly plants' supply chain. (Trade Lanes).
Author:Quinones, Sam
Publication:Latin Trade
Geographic Code:1MEX
Date:Jan 1, 2003
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