LG-PHILIPS Experience in Durango

Peter Trouwen Strategic Planning LG-Philips Display Components

I came upon a most interesting Direct Foreign Investment story through talking to Peter Trouwen, Strategic Planning Manager of LG Philips Displays Mexico in Gomez Palacio, Durango. The project in Durango is an initiative of Philips Display Components, a subsidiary of Philips, devoted to the manufacture of components for the electronic industry, particularly focused on the investigation and development of high-tech products.

Recently Philips Display Components has merged with the LG Korean enterprise, world leader in the manufacture of components for the electronic industry. This LG Philips Display Components merging is intended to win the worldwide competence, in order to develop new technologies in the manufacture of plasma technology monitors, for wholesale to the consumption markets.

LG Philips Display Components started operations in Durango in December, 2001. It has currently 1,600 employees and is still growing. They make high end picture tubes (29' through 34') in a manufacturing facility of approximately 60,000 m2. They export to the USA and Brazil with Philips Electronics, Sanyo, JVC and Sharp as their most important clients. The annual production capacity is approximately 2,000,000 million units, but it will increase strongly during the following years.

WHY DID YOU DECIDE TO COME AND ESTABLISH YOUR PLANT IN THE STATE OF DURANGO?

Our selection process to determine where to invest consisted of a global search in the North of Mexico, with a focus on a few interesting components: we needed to be as close as possible to the border and we have a manufacturing industry which requires a lot of water.

These elements narrowed the search down to Chihuahua, Monterrey, Saltillo and the Laguna Area. The water requirement eliminated some of the potential locations and in the end two places became competitors, namely Chihuahua and the Laguna Area. It was not specifically Gomez Palacio or Torreon, it was the area that was attractive for us.

The fact that this site was for sale (it is a subdivision of the former plant of Renault Industrias Mexicanas, S.A. de C.V., nowadays Industrias de Linamar, S.A. de C.V.) together with the incentives package offered by the Government of Durango, made it interesting to invest here.

HOW CAN YOU DESCRIBE THE ROLL AND THE SUPPORT OF THE GOVERNMENT OF DURANGO?

The Government has always been very flexible and cooperative. We are a big investment and they realized that, so they have helped us in any way they could, and they still do. They helped us with all our permits, education, water, taxes, and more. They really supported us in many ways. The Government continually works in a proactive way. They even promised us that they will help our suppliers in the same way and we already see the results of that. The Government shows a very positive approach towards our suppliers.

WHAT ABOUT YOUR COSTS OF OPERATION, CAN YOU COMPARE THEM TO THE US, EUROPE, CHINA...

Our operation cost compared to the USA is significantly lower, especially the wage bill for the direct people, less for the indirect. There is a 1 to 8 ratio for the operators, a 1 to 4 for the engineering level, for the management it is almost 1 to 1, there is very little difference.

Compared to China, we are still expensive. Our Chinese sister companies are significantly cheaper. If we take the Chinese operators and compare them to ours in Mexico, they are at a quarter of the price, sometimes at one eighth. Talking about Europe, we are moving out of the countries in the Western part.

We are building our factory in the Czech Republic. If we compare the operation cost there to Mexico, we see that the Czech Republic is being a little bit cheaper, but not a lot; the engineers are cheaper and also the management. But if we look at the total wage bill, we in Mexico are a little bit more expensive then in the Czech Republic, but our products are very bulky and our transport costs are high, that is why we have to produce geographically in the neighborhood.

WHAT KIND OF HUMAN CAPITAL OR EDUCATIONAL INFRASTRUCTURE DOES YOUR PLANT REQUIRE?

We have a highly complex manufacturing area, very mechanized, which needs quite some engineering support. If we take a look at our head count, we see that 1of 5 are indirect people, I am referring not only to logistic and finance staff but to engineers and technicians. We have 200 engineers and technicians all together, so we require real technical skills and that is why we work together with Tec de Monterrey, Conalep, and technical schools in the region. Our operators are also in a highly complex environment, they have to inspect process control and diagnose equipment. That is why we require that most of our operators have completed secondary school at least.

WHAT CAN YOU SAY ABOUT THE QUALITY OF LIFE IN GOMEZ PALACIO?

The quality of life in this zone is very good. I have lived in many places but this is really a pleasant region to live and work in. It is important to a family that there is safety. There is really no difference between Gomez Palacio and Torreon; it is just one big city to live, to shop, to work and to study. There are a lot of bilingual schools - my kids go to two of them-, 2 international clubs for women and families, country clubs, and more.

The only negative point is the isolation, but there is an international airport with regular flights to Houston, and that is a good connection to reach the rest of the world.

WHAT ARE YOUR PLANS FOR THE FUTURE?

At this time, we have completed phase 1 and 2 of our projects and are working on phase 3. By the end of the year we will have our three lines completed, which is the initial stage of the investment.

We are still a small company, but the chances that we will grow are very realistic. We certainly will grow in the future. We are talking about an investment of approximately 300 million dollars and that will continue for the next 2 or 3 years with additional investments to build another line. We have opted to bring our total manufacturing operations for North America here in Gomez Palacio. We are making the high-end expensive products. The low end has gone to Brazil. A picture tube factory like ours is a high investment factory, so it is not easy to change locations. We will be here maybe as long as the picture tube exists, otherwise we will stay here for 20 or 25 years; we do not move so easily. One by one, we are planing to bring our suppliers here.

The first one to come very soon is a Belgian supplier. We have lost the battle to put the glass factory here, because it will be combined with our other glass factory in Brazil. We are still discussing to bring a factory from Juarez here, not because Juarez is more expensive, but to avoid a double management structure.

WHAT CAN BE DONE TO MAKE IT MORE ATTRACTIVE TO INVEST IN THE STATE OF DURANGO?

I think if they want to attract more companies like us - and I know they do - where it is not really the hands that matter but it starts to be more the heads that matter, they will have to invest in technical training, in technical schools, and make programs where technical education gets a preference instead of law and accounting. We still see a lot of lawyers and accountants. If they want to continue to attract companies like us, manufacturing companies with a high end, we need to have technicians and technical education, ...a lot.

I am quite sure that if the Government keeps up the good work they are doing, many high tech companies will soon invest in the state of Durango.

Comments

Comment XML feeds: RSS | Atom

Banners - Home

Mexico Autoindustry

Categories