Taiwan's computer giant, Acer, has already jumped aboard the "global operations" train, and is now on its way up "the pass."
There's nowhere to hide from South Texas' scorching June sun. Although located in Texas' desert region, El Paso still sees a surprisingly high volume of traffic due to its proximity to the border. In front of customs, a line of huge container trucks awaits border inspection; meanwhile, an endless flow of cars speeds along the highway linking El Paso and Ciudad Juarez.
"Every morning, all the high-level American executives cross this bridge to go to work, and in the evening, they come back again and head home," says Niu Chih-hao, a manager at Acer's El Paso-based company, AII. "There's always traffic when people are coming and going from work. It's as bad as the Chungcheng bridge from Taipei to Yungho back at home."
Acer came here more than a year ago to invest in a new plant. The reason? El Paso's prime location.
Fresh from the oven
"In the past, the American market purchased computer products directly from Acer's Taiwan headquarters. Using air mail, we had to deal with high transportation costs, tariffs and storage problems. Mailing things by sea took more than 20 days. For a product with such a short life cycle, the depreciation rate was just too high." Niu notes.
From El Paso, whether to the East Coast or the West, shipping takes only two days, points out Niu. "This is exactly what Acer CEO Stan Shih calls 'the McDonald's theory'-being able to supply products 'fresh from the oven,' ready to serve to the customer at a moment's notice."
After taking over Texas Instruments' notebook computer division in March of this year, Acer now produces notebook computers in El Paso under the old TI name. Because nearly half of the work at its El Paso plant is done for OEM contracts, Acer has chosen the fairly neutral name of "AII" for its American operations.
But locating in El Paso is only the first step in Acer's overall plan. The company's ultimate goal is still to find a location to build a plant in one of the places along the Mexican border where "maquiladoras" (export processing factories) are concentrated.
Getting the most for the money
To encourage foreign investment and increase employment, the Mexican government has stipulated that maquiladora factories need not pay tariffs for importing needed machinery or raw materials into the country, as long as a certain percentage of the finished products are exported back out of Mexico.
Most of the firms who have set up maquiladora factories have been American firms coming to capitalize on Mexico's cheap labor. There are currently more than 2000 such factories in Mexico. They are mostly located along the US border, with a "twin-city" relationship-factory in Mexico, management and sales in the US-established with the neighboring US city.
In order to make operating this twin-city style of business more convenient, the Mexican government has waived all visa requirements for journeys into Mexico up to 30 kilometers from the US border.
Investment in Mexico also has many long-term advantages.
In keeping with the global trend toward regional economic integration, the US, Canada and Mexico signed NAFTA, which was first implemented in 1994.
The trade agreement, designed to expand free trade within the region, is separated into four stages, including 15 successive years of declining tariffs between the member nations. At the same time, NAFTA will also increase trade barriers on imports from non-member nations. With its low labor costs, cheap land, abundant resources, and close proximity to the vast American market, Mexico is certain to reap the greatest rewards from NAFTA.
Ku Ying-hua, a researcher at the Chung-hua Institution for Economic Research, has found that during the period leading up to the signing of NAFTA, even the speculation generated by discussion of the agreement had a positive effect on the Mexican economy. From the beginning NAFTA negotiations in 1988 to the signing of the agreement in 1991, foreign investment in Mexico increased by 78%.
Upon returning to Taiwan three years ago, Li Yi-an, former director of the China External Trade Development Council's Far Eastern Trade Service Center in Mexico, made an appeal to domestic firms to drop their dependence on mainland China and set up shop in Mexico. As he noted, "The advantages will be apparent when tariffs disappear on the North American continent 10 or 15 years from now."
The twin-plant system
For Acer, which is fighting to expand into the Central and South American market, building a plant on the Mexican-American border is a way to get the most out of its investment. "Not only is Mexico in the same market as North America-the US and Canada-it also has beneficial tariff agreements with more than 10 countries in Central and South America," says AII chairman Su Chin-kun. Moreover, by building a plant on the Mexican border, Acer can also provide regional support for its existing markets in Central America, South America and the United States.
In February of last year, Acer sent Su Chin-kun, a general plant manager in Hsinchu at the time, along with Niu Chih-hao from Acer's California branch company, to El Paso to begin setting up a company there and to search the Mexican border area for an appropriate site for construction.
Most companies set up twin-city style plants on the Mexican-American border to take advantage of two things-cheap Mexican labor and American management. The Mexican plant is responsible for manufacturing and the American company handles tariff declaration, transportation, technology, client services and logistical support. Because of the close proximity of the company and plant, communication is quick and efficient. Its almost as if the company and plant were still one united operation.
Due to the widespread adoption of the twin-city style of operations, the US has begun publishing a magazine, Twin Plants, devoted exclusively to the subject. The magazine deals with unique issues and problems faced by this type of enterprise-legal procedures, tariff declaration, transport, etc.-as well as their appropriate responses and solutions.
Where's the guest room?
Su Chin-kun, whose office is covered with aerial photos and color maps of the Mexican-American border, frequently browses through Twin Plants. He spent an entire year carefully weighing the pros and cons of several pairs of twin cities on the border before deciding to locate the new Acer plant across from El Paso in Ciudad Juarez.
But he didn't expect that the process of setting up a new plant would be so complex. In Mexico, most of the land in industrial areas is privately owned by several very wealthy families. This less than ideal situation for purchasing land has meant that Acer's plans for the new plant's construction have not gone smoothly.
"Although the Mexican government gave Acer an extremely warm reception, they have yet to follow through with anything concrete. It's like welcoming a guest to stay at your house without preparing them a guest room," explains Su.
In contrast, in El Paso, the initial plant has run smoothly. Niu Chih-hao arrived in February of last year, and by the end of April had already found employees and rented a space for the plant. The offices were quickly painted, carpeted, furnished and air-conditioned; everything was settled. Presently, the plant consists of a single production line which produces 800 notebook computers per day, insufficient to meet demand. Acer thus decided to expand their operations on the US side, buying up a larger space in the area at the end of April. The new plant will be able to support ten production lines and will be equipped with 18 loading docks. Construction is proceeding at a steady clip. When the new plant opens in August, the entire original operation-offices and production line-will make the move to the new site together.
Two sides of the fence
Over the long term, Acer has no intention of abandoning its original plans for the Ciudad Juarez plant; in fact, quite the opposite-it is presently doing its best to speed them along. "There are two sides of this 'fence'-on one side the wages are US$6 per hour and on the other they are US$1 per hour," explains Su Chin-kun. Setting up factories abroad to be near raw materials or customers is already the trend in global operations. In the future, the Ciudad Juarez plant will be able to replace a certain amount of imports of large components from Taiwan, including steel and plastic pieces of the computer shell. Shifting motherboard production to Mexico is also under consideration. "However, the motherboards are quite compact, and they can be shipped by air in four days. Whether or not there's a need to move production to Ciudad Juarez remains to be seen," Su says.
Although Acer Taiwan is making a bold move into the Mexican-American border area, Acer Computec Latin America (ACLA) already has assembly plants in Mexico and Miami. What will Acer's future division of labor look like? What will the relationship between the different plants be?
"Down the road, ACLA will be able to focus on its sales. We here in El Paso will take care of the production and logistical support," Su states. However, many of the company's plans are sufficiently flexible, and will shift as necessary in the future. "Most parents wouldn't look at their kids and say, 'The oldest is going to be a farmer and the second oldest a taxi driver.' You've got to make decisions based on close observation of their process of growing up and becoming adults."
An oasis in the desert
Under the burning El Paso sun, cacti grow stout and sturdy in patches spread over the desert terrain.
The new plant that AII will move into in August is built up on a hill, above the surrounding area. Looking out from the main entrance, a view encompassing the whole of the twin cities stretches out before the eye. The biggest difference between the American and Mexican sides is that, on the former, grow many tall, green trees, while on the latter, there is only a vast stretch of concrete jungle.
But it is out on this stretch of desert that Acer has already begun to create an oasis of its own.
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El Paso on the US-Mexican border. The long line of trucks in front of customs is proof of the amazing volume of trade between the two countries.
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(left, right) At Acer's El Paso operation, company and plant are united as one. The plant primarily produces notebook computers for the American market.
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AII chairman Su Chin-kun, former general plant manager at Acer's Hsinchu plant, was sent to the Mexican border to set up a large-scale computer component manufacturing plant.
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El Paso's new plant will be finished in the near future. The "twin-city" style of operations has proceeded smoothly on the American side at least.
El Paso's new plant will be finished in the near future. The "twin-city" style of operations has proceeded smoothly on the American side at least.
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