CIUDAD JUAREZ, Mexico — As many as 2,700 employees, with the help of two dozen robot arms, produce hundreds of thousands of refrigerators here annually for consumers in the U.S. Brazil, Europe and Venezuela, reflecting growing Mexican manufacturing capacity.
The 894,000-square-foot plant is one of three that make up the appliance manufacturer’s sprawling complex totaling 2.5 million square feet. Electrolux has been shifting production here — less than an hour drive south of El Paso, Texas — from the U.S. since 2007 in an effort to reduce labor costs and keep its proximity to the U.S. market. An adjacent 612,000-square-foot plant builds washing machines and dryers; a stamping facility and plastics plant provides parts; and a 712,000-square-foot warehouse houses raw materials.
Plant Manager Lance Kearbey said 40 percent of the refrigerator plant’s suppliers are in Mexico, 20 percent are in the U.S. and the rest are in Asia. Electrolux is seeking to source more in Mexico and gain rail access via Ferromex, a Class 1 Mexican railroad. The plant can produce up to 1.7 million refrigerators annually.
The plants are just four of the roughly 330 maquiladoras, or Mexican factories producing for export, here in Ciudad Juarez, the largest city in the state of Chihuahua. There about 482 maquiladoras in the state and 5,645 plants throughout the country, Claudia Troitino, president of the Ciudad Juarez Maquiladora Association, said Wednesday at a MexicoNow conference.
The major onus for the creation of the maquiladora industry was the Maquilla Decree, implanted in 1989, which allowed foreign companies to produce in Mexico and import materials and goods free of valued-added taxes and often free of duty taxes, according to the U.S. Department of Labor. The forging of the North America Free Trade Agreement in 1994 gave the industry a further boost.
"The exportation of the final products manufactured in Mexico is almost free of taxes," wrote Jose Alberto Mejia, a partner in KPMG's tax and legal practice, in an opinion article.
The city’s manufacturing focus is on vehicle production, as roughly 68 percent of the exported cars made in Mexico come out of Juarez, she said at Mexico’s Manufacturing Supply Chain Summit in El Paso. Shippers that have either recently expanded or opened up operations in Juarez include Lear, Delphi, Werner Ladder, Salter Labs and Flexsteel, said Andres Sandoval, a CBRE vice president.
Cheaper labor, which is about 13 percent higher here than in China, isn’t the only attraction the region offers, said Harold Amador, an international finance originator at GE. Like China, Mexico has a good credit rating, but unlike the Asian powerhouse, it has better access to capital. A strong education system focused on industrialization also provides a plentiful and skilled workforce, he said.
“China is the country where engineering and education levels are both low in cost and quality. The U.S. is on top in both,” Amador said. “Mexico is right in the middle, and that is the best combination of both so we get the best deal for our buck."
The logistics costs are also more stable in Mexico than in China, said Guillermo Del Rio, business development manager at Flextronics. The contract manufacturer has a plant near Electrolux’s in Juarez. Flextronics has trouble finding skilled labor in China and, unlike there, shippers can own land for their plants in Mexico. China, however, has a broader supplier base than Mexico.
From an industrial real estate standpoint, the El Paso-Juarez region has plenty of room to growth, and a 14.1 percent vacancy rate in both cities should enable shippers to get good lease rates, Sandoval said. Tenants generally gain more favorable leasing terms when the average vacancy rate in the market is 8 percent or higher, he said. Average leasing rates tend to be higher in Juarez, but real estate taxes in the U.S. are two to three times higher than in Mexico.