When we think of the term “offshore production,” China comes to mind. It’s become natural to associate labor-intensive material handling tasks with China and other countries in the Far East. These areas have been sought-after sites for manufacturers for many years. And, recent consumer product recalls have kept China—and low-cost manufacturing in general—in the foreground.

However, there’s another region that is offering manufacturers and distributors similar benefits. And, this one’s right under our noses.

The border community that encompasses El Paso, Texas, and Juarez, Mexico, is one of the largest manufacturing centers in North America, according to Bob Cook, president of the El Paso Regional Economic Development Corp. (REDCo, El Paso, Texas). The area employs more than 260,000 manufacturing workers in the primary industries of automotive, military and healthcare.

The city of El Paso rests

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right at the intersection of New Mexico, Texas and the Mexican state of Chihuahua. Cook says there are 10 border crossings in Chihuahua and five ports of entry, along with connections to interstate highway and rail systems.

“As of March 2006, more than 47,000 vehicles cross the border every day,” says Cook. Nearly 10,000 of those vehicles carry employees traveling from Mexico to the U.S., while more than 11,000 vehicles per day carry students.

And, in the near future, the population— and infrastructure—of the border community will explode, as the effects of the 2005 Department of Defense (DoD) Base Realignment and Closure (BRAC) plan take hold. Under BRAC, about 70,000 American troops will relocate from all over the world to Fort Bliss, Texas, and Fort Riley, Kansas.

The Electrolux facility in Juarez, Mexico, produces parts and assembles product for the White Westinghouse and Frigidaire appliance brands.

By 2010, Fort Bliss will see a net increase of more than 20,000 soldiers and as many as 30,000 family members. Located near El Paso, Fort Bliss is the largest DoD-controlled air and ground space in the U.S. and only slightly smaller than the state of Connecticut, says Cook. He expects BRAC to have a $20.9 billion impact on the region.

Offshore Redefined
Material handling operations—for both production and assembly—are thriving just across the border in Juarez, thanks to Mexico’s well established maquila industry. The city of Juarez, in the state of Chihuahua, offers companies the benefits of “offshoring” without the cost and complexity of shipping overseas.

The maquila industry was born when the Mexican government established its Border Industrialization Program in the mid-1960s as a way to alleviate high unemployment in border regions and attract foreign investment.

Under the maquila program, U.S. companies can import equipment, machinery, raw materials and other production components to Mexico, duty free, and leverage the country’s lower labor costs to produce, assemble, package, process or sort just about any product.

In 2006, according to REDCo, $17.1 billion in imported supplies entered Juarez, destined for more than 340 maquiladoras— foreign-owned factories located just across the border that assemble products for export to the U.S.

And, 50% of foreign investment in Juarez is related to manufacturing, adds Desarrollo Económico de Ciudad Juárez, A. C., the economic development corporation (EDC) of Juarez.

Taking on China
It’s easy to understand why U.S. companies decide to locate material handling functions in maquiladoras. While average labor costs in the U.S. range from $18 to $24 an hour, the average wage for a maquila worker is only $2.50 per hour, according to the Juarez EDC.

China, however, is still a fierce competitor. The average hourly wage in that country is only $1.00, REDCo’s Cook states.

Still, executives from El Paso/Juarez EDCs and Juarez manufacturing plants claim the region still has a leg up on China.

“China is cheaper than Mexico,” he adds, “but Mexico is closer to the U.S., and quality has been an issue with China-made goods,” says Enrique Perez, vice president of border operations at The Toro Co. (Bloomington, Minn.) and a 30-year veteran of the maquila industry.

Toro operates two plants in Juarez and one in El Paso and employs a total of 2,500 employees in the three facilities. The company makes landscape and garden sprinklers as well as electronic controls for golf courses, landscaping companies and homeowners. While the most complex operations—like injection molding—take place in El Paso, highly labor-intensive processes— like assembly—occur in Juarez.

“China is very threatening to us, and it forces us to be more competitive,” Perez admits. However, Perez explains that 85% of supervisors in the Toro border plants have engineering degrees, and processes are continually evolving to incorporate more advanced technology to stay competitive. Each of the facilities has implemented lean manufacturing initiatives and uses work cells instead of assembly lines for added flexibility in the production process.

North and South

More than 47,000 vehicles cross the border from Juarez, Mexico, to El Paso, Texas, every day.

Through trial and error, companies have learned over the years which operations are best located above the border and which are best below. While there are exceptions, most distribution tends to be located in the U.S., while manufacturing and assembly tends to happen in Mexico. Raw materials are shipped to Mexico, where they are consolidated and then used for production and product assembly. Then, assembled products are quickly and cost effectively exported to U.S. distributors.

Elextrolux Corp. (Augusta, Ga.) is a good example. The company produces electric and gas cooking stoves, refrigerators and dishwashers and washers and dryers under the familiar brand names White Westinghouse and Frigidaire.

In 2005, Electrolux opened a new, $100 million, 1.5 million- square-foot manufacturing plant in Juarez. One year later, Electrolux added an additional 800,000 square feet to the facility, which produces parts and sub-assemblies and assembles product with more than 3,400 employees and two shifts. And, just last year, Electrolux broke ground on a new plant in Juarez that will start producing front-load washers and dryers in mid-2008.