Scott Burns: Maquiladoras necessary, businessman says

I have arranged to meet Bill Wolfe, a well-known figure in the development of maquiladoras - the ubiquitous "twin plants" that line the Texas-Mexico border. We are meeting for breakfast at the Sheraton Four Seasons on Route 77, a highway that can be described only as a series of concrete convulsions, pressed on both sides by relentless construction.

To recognize him, Mr. Wolfe has given me some visual clues: "tall with a shaved head."

Which he is. Coming through the door in a short-sleeved jersey, faded denims and moccasins, he doesn't look his 62 years. He could also be a close relative of Jesse Ventura.

A native of Indiana, it is immediately clear that he is a manufacturing guy, the kind who builds and organizes factories and gets things done. Mr. Wolfe would not be happy in a corporate staff job, trading memos about divisions, units and plants.

This may explain the turn his career took about 20 years ago. Back then he was running a General Motors plant in Anderson, Ind., with the full knowledge that he could rise no higher without moving to Detroit.

He had started making other plans when GM asked him to build two plants in Mexico, one for the flexible bumper system, the other for dashboards and steering wheels. After that he left GM to build Eagle buses - the great buses of rock stars and cross-country travel. He left before the company went out of business as airline deregulation made air travel cheaper than bus travel.

From there he went to Trico Technologies because they had asked him to build a 1 million-square-foot plant so they could move out of Buffalo, N.Y.

"Trico had 98 percent of the market [for windshield wipers] in the country. But their profit margins were declining, and Ford wanted lower prices," he said.

"So they had an accounting firm do a study. They suggested moving production to Louisiana, if they could avoid a union, to a maquiladora in Mexico - or to sell the company while it was still worth something."

Trico built in Matamoros.

What interested him most, however, were all the phone calls in Buffalo from people who wanted to do something in Mexico.

"People just had a lot of odd ideas about maquiladoras," he said.

Like?

"You know, that whole {lsquo}giant sucking sound' thing."

His take on the paired production facilities - of which there are more than 3,200 employing more than a million workers in Mexico, becoming the country's single largest source of dollars - is that they are part of a long evolution in manufacturing and the growth of decentralized production driven by entrepreneurs.

"Actually, this all started in the '50s," he continues. "It's not news. We learned then that we had to work differently. A lot of manufacturing moved south to save a dollar. At the same time, apparel and electronics started going offshore to reap the difference in manufacturing costs.

"Mexico wasn't in the picture then. Twenty-five years ago there were signs just over the bridge that said 'Yankee Go Home.' Fortunately, there were also some people who realized that they needed some new ideas, too. Today it all comes down to: How fast can you move, and does it make sense to manufacture out of the country?

"Today, most of what we do is move jobs back from Asia and other places that are pretty far away. There is a reason for this. Most things now are fashion-oriented. A creator in New York has an idea and sells it. Now you've got to produce it, and it may come in 15 colors and 13 sizes. When you go to produce, you take material from Korea and ship it to Bangladesh. It's on the water for 60, maybe 70 days. Then it's in a warehouse. Finally, it gets to Dillard's and there is a year supply out there.

"But it's fashion. You want to get it into the hands of the public as fast as possible. It has to be done quickly, like those baggy pants, because as soon as it appears, it will be knocked off. That's one element. It holds in electronics, too.

"The second element is getting the dollars out of the supply system.

"What I do in Mexico is save time. I can get plans and manufacture in a day or two. We'll be speaking English, communicating clearly, and the turnaround is one-twentieth [of Asia]."

What Mr. Wolfe is talking about is supply chain management, the hard information-driven push that shrinks materials, goods-in-process and finished inventory. For manufacturers, this is the real giant sucking sound: It's the sound of the single largest user of capital in the production process. Cut it and you raise return on capital.

"In addition, the fabric and trim comes from the United States. If you manufacture in Bangladesh, everything comes from Korea. We have assembly jobs now where some material comes from Michigan. We get springs from Indiana, hoses from Canada and die castings from Texas. Now there are jobs in the U.S. because it is profitable to assemble in Mexico.

"So think about something else. In the U.S., no one wants to sew anymore. The [seamstresses] are all old. For some [U.S. manufacturers], it's not a question of wages, it's finding a way to get the work done."

Later, we drive to Matamoros to see one of the plants in his current business, Nova-Link. Crossing the bridge over the Rio Grande I look down and see a scrawny creek no more than 75 feet wide. Nova-Link, he explains, is based on a simple idea: There are a lot of smaller companies that don't want to build a plant in Mexico and staff it. They also don't have any time.

His answer: leased and managed space. He provides the facility, the workers and the management. The U.S. customer provides the production equipment, the techniques, special training and U.S. distribution. The result: major cost savings as full factory overhead costs drop from $30 an hour in the United States to $5 or $6 an hour in Matamoros.

But what about those lost jobs?

"You've got to understand something here," Mr. Wolfe said. "No one in their right mind would move a company to another country. It isn't done for fun. It's a necessity."

Between Matamoros and Reynosa, Nova-Link has about 500,000 square feet of manufacturing space and 3,500 employees. The buildings are organized in large, open bays. Some are nearly the size of a football field. As we are walking through, Mr. Wolfe explains that most of the workers are young and like to socialize. So he tries to keep the spaces open.

Moving from space to space I see several kinds of outdoor wear being assembled for U.S. brand names everyone knows; I see hospital and restaurant clothing and supplies; I see water meters being assembled, electrical harnesses, electrical assemblies etc. What he has done is provide a managed umbrella, a kind of floating job shop, for virtually anything that could be called light manufacturing or assembly work.

How does it compare to working conditions in the United States?

Equal to better, and I say that from personal experience. I have worked in factories in Massachusetts and New Jersey. I have been a director of a multidivisional manufacturing firm with operations in New York, Ohio, Pennsylvania and Georgia. Nova-Link was better than most and as good as the best.

Are all maquiladora plants this good? Probably not.

But they are what is.

Crossing the Rio Grande once more, Mr. Wolfe comments on how tiny it is and what happens because it is a river between two countries.

"It's hard to believe, but about 25 people drown each year. It happens when they try to cross the river."