Mexico’s Growing Textile Industry Challenges Asia

ROSARITO BEACH, MEXICO — Joe Robertson has come a long way since hawking bedspreads at Orange County flea markets in the 1970s. He now owns and operates a new $35-million textile plant that soon will be the largest of its kind in Baja California.

His company, Huntington Beach-based Kojo Industries, is one of the hundreds of U.S. clothing and textile firms that have set up operations in Mexico in recent years, lured by cheap labor, a shifting global competitive environment and tariff enticements contained within the North American Free Trade Agreement.

In fact, that exodus propelled Mexico ahead of China last year to make it the largest apparel exporter to the United States, with $8.8 billion in 1999 shipments--seven times the $1.2 billion Mexico shipped north in 1990.

But companies such as Kojo represent a new class of arrival, one that is adding basic manufacturing to Mexico’s industrial lineup. Instead of simply assembling finished apparel components like most textile firms here, Kojo soon will be printing its own designs on raw fabric for the bedspreads and drapes it makes for major U.S. hotel chains.

In the last year, U.S. textile giants including Burlington Industries, Guilford Mills, Dan River and Cone Mills have either opened plants or announced plans to do so. Burlington alone has invested $200 million in three facilities in Mexico’s interior. All will produce the basic fabric that was once shipped in from the United States or Asia.

The moves highlight Mexico’s broadening appeal for foreign firms--and how U.S. textile companies are adapting to radical change in their industry. And it underscores how NAFTA has profoundly altered the dynamics of global textiles since it took effect in 1994.

The flip side of the trend is the shrinkage of the U.S. fabric and clothing industry, a 30-year process that is, if anything, accelerating. Organized labor admits it is powerless to stop the job losses, which exceed half a million since the early 1970s. Industry revenues and profits are also in long-standing decline.

Tougher competition from Asia is the main driver pushing U.S. companies south. And the environment will get even tougher in coming years with the elimination by 2005 of the apparel import quota system that has protected U.S. manufacturers and the expansion of the World Trade Organization to include China.

Executives such as Robertson say their choices are to move to Mexico or turn out the lights.

“The textiles industry is gone in the United States. You can’t pay people enough money to live on and still be competitive,” Robertson said.

A move to Mexico also is good politics and a defensive measure in response to scrutiny from human rights activists who claim that some U.S. firms exploit extremely low-paid workers in Asia, said Guilford Mills Executive Vice President Terry J. Geremski.

“Mexico is seen as having more credibility as a labor market and is viewed as not having the violations of human rights and below-par labor practices. So there is a surge of sourcing more from Mexico than from the Far East,” said Geremski, whose Greensboro, N.C.-based company is investing $100 million in a fabric plant near Tampico on Mexico’s Gulf Coast.

Kojo once trusted the printing of its custom fabric designs to its three U.S. plants in Huntington Beach, Dallas and Orlando, Fla. But Kojo is closing those U.S. factories and moving all operations here. Employees total 400, but will grow to 3,000 in two years, Robertson said. Kojo customers include major hotel chains Marriott, Hilton and La Quinta Inns.

Robertson said average wages in Mexico, including benefits, are about one-tenth of U.S. wages. He said he has warned his U.S. workers that most will lose their jobs, adding: “They’ve known about this move for two years.”

The Dan Rivers and the Burlingtons are coming to Mexico to get closer to their huge customer base--the 1,000 or so apparel assembly plants called maquiladoras.

But the big textile manufacturers also are going to Mexico to be closer to non-apparel customers such as Robertson, who has promised Mexican officials that he will buy a minimum of one-third of all his “inputs”--component materials for his drapes and bedspreads--from Mexican suppliers once his plant is running full steam.

Although labor costs in the Far East are still a fraction of those in Mexico, companies like the fact that turnaround time from order to delivery of textiles and apparel shipped to the U.S. is less than half the six months required from China, industry officials said. A Mexican move affords them an opportunity to “tighten the supply chain.”

“The people doing the cutting and sewing have been moving offshore rapidly, and Mexico is a good place to be,” said Dick Windham, spokesman for Greensboro, N.C.-based Burlington Industries, a Kojo supplier.

Burlington has 4,000 Mexican employees, up from 1,000 in 1993, Windham said. Most are at two plants in the town of Yecapixtla in Morelos state. Over the same period, the company’s U.S. payroll dropped to 14,000 from 22,000.

The mega-textile companies are also trying to checkmate their Asian competitors, which have been able to cut prices significantly because of currency devaluations since the Asian economic crisis in 1997.

“We caught a bad case of the Asian flu,” said Dan River Chairman Joe Lanier, explaining his Danville, Va.-based company’s decision to build two plants north of Mexico City in a $50-million joint venture with Grupo Zaga. “We’ve been decimated by imports from the Far East.”

U.S. firms are also coping with the news that several Asian companies have announced plans of their own to open fabric factories in Mexico.

“The Asians aren’t sitting on their laurels. Asian investment is coming in quite rapidly to Mexico,” said Judi A. Kessler, a UC San Diego sociologist at the school’s Center for U.S.-Mexican Studies program who follows the binational textile industry. “Entrepreneurs from China, Taiwan, Singapore and Hong Kong are all wheeling and dealing in the various state governments, negotiating for plant sites.”

The southward trend is of course a bad thing for U.S. textile workers, who have seen their ranks shrink from more than 1 million in 1973 to the current 562,000 jobs.

“We’ve had some victories, but the union has not been able to do much about the flight” of jobs to Mexico, said Cristina R. Vazquez, western manager of the Union of Needle Trades, Industrial and Textile Employees of Los Angeles which represents textile and apparel workers.

“It’s an industry on wheels. That’s what we’ve told workers in Mexico, [that] what happened to us can happen to you. You better organize because the jobs can move farther south, or to China, to Africa. Globalization is here,” said Vazquez, adding that her union has added other trades such as laundry workers to union rolls to compensate for textile job losses.

Another competitive factor enhancing Mexico’s appeal is that apparel and other textile goods produced outside North America will be subject next year to much more stringent tariff penalties under NAFTA rules.

Those added NAFTA tariffs on “non-local” goods were cited by Mexican officials in December for the decision by two Asian companies, one Chinese and the other from Singapore, to build two huge fabric plants in Sonora state, with total investment of $250 million.

By knocking down tariffs on components, raw material and machinery shipped here from the United States, NAFTA has essentially made Mexico a low-cost extension of the U.S. manufacturing base. As a result, Mexico is competitive with Far Eastern manufacturers that once ruled the industry, Burlington’s Windham said.

“NAFTA has finally given us a way to be global competitors, to reverse the trend of imports flowing only from Asia,” Windham said.

The candor of executives such as Robertson and Windham who talk openly about their Mexican moves and the U.S. jobs that will be lost does not surprise Gary Gereffi, a sociology professor at Duke University.

“It’s no secret,” Gereffi said. “As they remake their strategy, they want to get credit for the inevitable.”

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Mexican Style

The tidal wave of investment by U.S. textile and apparel companies in Mexico since the passage of the North American Free Trade Agreement has financed so much manufacturing capacity that Mexico last year vaulted past China as the leading exporter of apparel and related products to the United States. The top 10 apparel-exporting nations, in dollar value, in billions, last year: *

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Source: U.S. Census Bureau