Fender Strikes a Chord Within Maquiladoras

MEXICO CITY — Most foreign companies that operate Mexican manufacturing plants called maquiladoras accept high employee turnover as a fact of life, and regard it as one of the biggest downsides of doing business here.

For the managers of Mexico’s 2,700 maquiladoras, which are concentrated mainly along the U.S.-Mexico border, the fact that entire work forces can change over the course of a year takes an enormous toll on productivity and pushes recruiting and training costs up.

But Fender Musical Instruments, the Scottsdale, Ariz.-based guitar maker, claims to have solved the problem. Fender’s secret: constant expansion that provides advancement opportunities and a benefits package that will soon include subsidized housing.

Fender’s plant in Ensenada, Baja California, which recently observed its 10th anniversary, claims a negligible 5% annual turnover rate in its work force of 810 employees.

In some manufacturing plants in Tijuana, including the large electronics factories such as Sony, Hitachi and Hyundai, between 70% and 100% of those on the payroll leave after less than a year on the job.

“Fender started out just making guitar strings. Now they make entire guitars here,” said Jorge Chanes, an official with the Baja California state economic development office. “Fender is one of the best-paying maquiladoras here and they offer some of the best benefits.”

Fender’s average salary is nearly $60 a week, not especially high by maquiladora standards. But Fender offers its employees a 401(k) program, free medical and day care, an extensive athletic program and low-cost loans.

Next year, Fender is expected to begin offering perhaps the best benefit of all: subsidized housing. The company says it plans to initiate a matching-savings program and, in effect, will share the cost of employees’ down payments on 750 houses to begin construction in 1998 south of Ensenada.

The program is similar to those offered by a handful of employers, including General Motors, along the Texas border. But it will be the first in Baja California, according to Infonavit, the Mexican federal housing authority that is co-sponsoring the program.

“The main reason for high turnover is that company management and supervision doesn’t understand the cultural needs and differences, what it takes to motivate Mexican employees,” said Tony Ramirez, a maquiladora management consultant with Made in Mexico in San Diego.

“Fender must be doing a lot to assist employees, must be attuned to what they need,” Ramirez said.

By the same token, Fender’s Ensenada plant has become increasingly important to the company, said plant manager Bashar Darcazallie. Daily production now averages about 420 guitars, the bulk of the company’s low- to mid-level instruments.

Fender, which was founded in Fullerton in the late 1940s, also has a large Corona plant. The 400 workers there concentrate mainly on custom and high-end guitars, producing an average 285 guitars a day, Darcazallie said.

The Ensenada plant has grown along with Fender’s market share. The company now controls more than 30% of the $700-million-a-year U.S market for guitars, according to Music Trades magazine in Englewood, N.J. “Fender is the dominant player,” editor Brian Majeski said.

The bad news for Fender, and other companies, including No. 2 Gibson of Nashville, is that the guitar market has been flat the last two years after doubling from 1985 to 1995. Indeed, average daily production in Ensenada is down by one third from two years ago.

High employee turnover in most Mexican maquiladoras has not stemmed the flow of new foreign companies to Mexico, which can only be described as torrential. More and more companies view manufacturing here as essential.

The number of workers employed in Baja California maquiladoras as of June 30 was up a startling 26% from a year earlier, to 200,587. The number of factories grew to 898, up 15 %.

That’s stronger growth than in Mexico overall, where maquiladora payrolls have grown 19% over the last 12 months to 897,000 workers. The nation now has 2,699 maquiladoras, up 12.5%.

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Helena Sundman of The Times’ Mexico City bureau contributed to this report.

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Looking Up in Baja

The dramatic growth of maquiladoras--the foreign-owned plants in Mexico set up to take advantage of cheap labor--spurred by the North American Free trade Agreement and the 1994 peso devaluation, shows no sign of slowing. Leading the way has been Baja California, where total jobs as of June were up 18% just since the end of 1996.

* Jobs (in the thousands)

June 1997:

Mexico: 897

Baja: 200.6

* Plants

June 1997:

Mexico: 2,699

Baja: 898

*

Source: National Institute of Statistics and Geography, Mexico.