Spokane Companies Seek Mexico’s Business Climate Telect, Johnson Matthey Join Key Tronic In Seeking To Establish Factories In Mexico

Two more Spokane-based companies are expanding their manufacturing operations into Mexico - one because its customers have asked it to, and the other because it says taxation and regulation costs leave it little choice.

Next week, Johnson Matthey Electronics will celebrate the grand opening of its new production facility in Juarez, just across the border from El Paso, Texas.

Johnson Matthey is going to Mexico because it has major customers there and, “We feel we have to be close in order to be properly responsive to our customers,” said Geoff Wild, president and division director of Johnson Matthey Electronics.

But Telect Inc. is planning its Mexico move, company officials say, because the state of Washington and Spokane County are making it so expensive to expand here.

“I don’t like what we’re having to do,” Bill Williams, Telect’s chairman and chief executive officer said Friday. “But we have to do it for survival. Our major competitor (Minnesota-based ADC Co.) has been manufacturing in Mexico for five years.”

Telect has a team in Mexico now seeking a site for a full-scale production facility. The company is looking in the Monterrey and Mexico City areas to establish a plant that will “be doing the same things that we do here,” Williams said.

“I’m not saying we’re going to down-size or cut back our operation here,” he added. “But what this will do is offload to another site at least a part of the growth that would have otherwise occurred here.”

In addition to Mexico’s cheaper manufacturing environment, a plant there will offer Telect better access to markets in South America, Williams said.

Both Telect and Johnson Matthey Electronics are high-technology manufacturers with customers all over the world. Their competitors have long sought manufacturing environments with cheaper labor costs than can be found in the United States.

Global expansion is a familiar exercise for Johnson Matthey Electronics. Headquartered in Spokane, it is a division of London-based Johnson Matthey Plc. It has a long-established manufacturing presence in Asia and Europe.

In Juarez, Johnson Matthey will be assembling electronic components which it supplies to the cellular telephone industry.

Some of the major corporations that are its customers, like Motorola, have been drawn to Mexico by cheaper labor and a hospitable manufacturing environment.

“So now, they are pulling their support companies, like us, down there with them,” Wild said.

For Telect, though, the move to a full-scale manufacturing operation outside the United States represents a big change.

Telect, founded in Spokane by Bill and Judi Williams in 1982, makes products that support the high-tech communications industry. With an annual payroll between $15 million and $20 million, the company employs 646 people at its Liberty Lake facility.

For several years, Telect has had plans to expand its Liberty Lake facilities with a new 110,000 square-foot building. But taxation and regulatory costs, Williams says, have stalled the project. A couple of years ago, Telect chose instead to build a manufacturing plant in Dallas.

Williams said the company was again preparing to go ahead with the local expansion project when he learned the county would assess a mitigation fee on the project - “something between $40,000 and $120,000” - related to development of the Harvard Road interchange.

“I asked the county why,” Williams said. “They said because we would be increasing traffic there by hiring people to work in this new building.”

That fee, on top of what Williams says will amount to $500,000 in state sales taxes on the project, have Telect reconsidering the expansion. He says many other states would not charge those fees.

The latest controversy has helped push the company toward expansion in Mexico.

The first company to offer Spokane a graphic demonstration of the realities of survival in a global market by looking to Mexico was Key Tronic Corp.

Earlier this decade Key Tronic, one of Spokane’s largest manufacturing employers, nearly collapsed from the weight of trying to do most of its manufacturing locally.

A major reorganization eventually saved the company. But a key element of that reorganization was the transfer of much of its Spokane manufacturing operation to a plant in Juarez. Key Tronic answered local criticism of the shift by pointing out that without cost competitiveness provided by cheaper labor at the Juarez plant, Key Tronic probably wouldn’t be around to employ anyone.

Today, Key Tronic’s Spokane operations involve research and development, engineering, sales and marketing. The start-up manufacturing of new product lines is still done here, but once those products mature, manufacturing is transferred to Juarez.

The bottom line is that the Juarez facility has allowed Key Tronic to grow. It now employs almost as many people locally as it did before its manufacturing lines were shut down here. And many of the local jobs pay more than the old assembly-line jobs.

Many argue that regardless of the regulatory costs Telect faces here, it would eventually be forced to Mexico by labor costs, anyway.

Williams disagrees. He says Telect could compete despite the higher domestic labor costs if it had a more favorable tax and regulatory environment.

In order to build the new facility in Liberty Lake, Williams says, Telect will have to pay $1 million or so in those extra costs, and finance that over 30 years.

“Think of what we could do for that amount of money in terms of hiring people and providing jobs here,” Williams said.

“We want to stay in Spokane,” he added. “But we’re having to fight to do it. And the bigger this company gets, the tougher it is going to be to stay here.”

, DataTimes