What do a T-shirt, a sports sock, and an automotive wiring harness have in common?  Not much, or so it would seem.  Unless you’re Honduras, a country that doesn’t bat an eye when it comes to mixing the high-end apparel production it’s so well known for, with manufacturing of automotive wiring harness systems.  And considering its recent achievement as the second-ranked manufacturer of these systems in the world, we may see a lot more product coming in from Honduras, for both people and cars.

In the industrial parks of the Honduran north coast, containers full of intimate apparel, sportswear, and casual wear carrying the world’s most prestigious brand names such as Nike, Adidas, Lovable, Gap, Polo, Fruit of the Loom, Tommy Hilfiger, Eco, and others mix it up in the delivery line with containers carrying automotive electrical distribution systems for such high end names as Ford, Jaguar, Volvo, Chrysler and Hyundai, to name just a few.

No fewer than 12 manufacturers in the light automotive sector have set up shop in Honduras, taking advantage of the conditions that have made the Honduran textile industry—currently 143 companies strong—so successful: a young and productive workforce, competitive wages, state-of-the-art port facilities and infrastructure, proximity to the most important market in the world—the US.

Workforce quality is one of the most important factors. Saúl Muñoz, operations director at Lear Corporation in Honduras says “human resources encountered by Lear in Honduras are of excellent qualities.  Attitude and vision of the workforce in Honduras are second to none in the world.  Lear has found in Honduras an adequate source of university level professionals in the different specialties required for its operations, and a high percentage are also bilingual.”

Apparel companies and automotive wiring harness systems producers alike are setting their roots into the fertile Honduran economy through intensive vertical integration processes supported by the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR).

"The clothing industry has left its hummingbird days behind, thanks to the comprehensive model introduced by CAFTA-DR during the past five years.  Now, the very idea of an ephemeral industry that dips and surges with no consistency or reliability, is a thing of the past. The investor who invests in companies supported by CAFTA, does so because he’s here to stay," says Donaldo Reyes, President and CEO of Hugger de Honduras, a local company that serves as Nike’s primary manufacturer in the Americas. 

Honduras commands a solid 30% of the Central American and Caribbean apparel manufacturing markets; a figure that is measured by the SME (Square Meters Equivalent) of apparel exported.  Honduras’ 951 million SME, representing $2.025 billion, place the country fourth in the global ranking of top apparel exporters to the US.  The country’s primary competitors in Central America and the Caribbean are El Salvador with 19% market share and Dominican Republic with 16% market share, according to the Asociación Hondureña de Maquiladores -AHM- (www.ahm-honduras.com).

In the automotive interiors market, Honduras is fiercely vying for Number 1 status among 60 international competitors in the global ranking of exporters to the US market.  Having competed with the Philippines for second place for the past several years, Honduras achieved that goal in 2006—preceded now only by Mexico.

According to AHM data, as of October 2006 Honduras reached $313.98 million in exports, representing 24% growth over 2005 figures.
 
In fact, two of the top four automotive interior systems manufacturers in the world are based in Honduras: Lear Corporation and Alcoa Fujikura.  According to company information, the former joint venture between Alcoa and Fujikura Ltd. has been divested into two separate businesses: AFL Automotive, an Alcoa business, and AFL Telecom, a Fujikura business.*  While Alcoa Fujikura is a new player, Lear has already racked up 13 years in Honduras and enjoys a significant presence here.  “When Lear started operations in 1993, we made an investment of $15 million US dollars,” says Muñoz. “In the last three years, this initial investment has seen additional capital of up to $55 million for a total investment $70 million to date.”
Lear’s workforce grew from 1,581 workers in 2002 to 6,225 by the end of 2006, with foreign personnel representing less than 1%.  It should therefore not come as a surprise that Lear’s sales represent 85% of the entire automotive wiring harness export market in Honduras.

Limits of productivity

The inevitable question is, with Mexico easily dominating the automotive wiring harness manufacturing market in Central America with its $3,660.01 million in exports,** what could other nations in the region possibly have to offer?
 
Experts explain that the productivity of Ciudad Juárez, Mexico’s main wiring harness production center, is so saturated that output and quality are reaching their limits.  Each passing day is less and less profitable, and as a result many manufacturers are looking elsewhere.  And so, despite the fact that Honduras is still several years behind Mexico, the country is proving at least as attractive, if not more, for new investments than its Aztec neighbor.

Honduras faces a similar challenge—and opportunity—in the apparel sector, where the productivity horizon seems to be coming closer and closer.  But the country is doing something about it.

First, local businessmen are already taking initial steps to improve their designs.  "In our industry,” explains Reyes, “it’s the client who calls the shots, and if we think about how best to take advantage of CAFTA, we must all start thinking about developing brands.  We need to create our own designs, to add value to the stores selling the clothes.  There are already some companies that are starting to work on this."

Second, Honduras is introducing a system for determining minimum wage according to geographical location.  This is expected to stimulate increased production activity in the apparel industry in regions such as southern Honduras, which offers lower workforce costs but the same infrastructure that has elevated the country to its current status as a top exporter of apparel.
With these two weapons—branding & design and internal restructuring—Honduras’ hummingbirds are now seeking to move past simply nesting and settling in, are now seeking to reinvent themselves for a much brighter future.

* Viewed online at http://www.alcoa.com/afl_auto/en/new_home.asp.
** Asociación Hondureña de Maquiladoras, October 2006.

The Asociación Hondureña de Maquiladores contributed to this report.

Lear Introduces New Technologies

Headquartered in Southfield, Michigan, Lear Corporation is one of the largest suppliers of automotive interior systems and components in the world today. The company manufactures complete seat systems, automotive electronic products, electrical distribution systems and other products for car interiors.
A diverse team of 115,000 employees at 286 locations in 34 countries designs, engineers, and manufactures all of the company's world-class products.  Traded on the New York Stock Exchange under the symbol [LEA], Lear commands $17.1 billion in annual net sales.  The company is ranked No. 127 on the 2005 Fortune 500 list of publicly traded U.S. companies.

This year Lear is introducing new manufacturing technologies in its Honduran plants, along with human resources training programs.  To discuss Lear’s present and future in Honduras, Central America Today sat down with Operations Director Saúl Muñoz.

Central America Today: What were the factors that made Lear decide to invest in Honduras?

Saul Muñoz: Due to the nature of our industry, we have to base our operations in an area that can provide a well-developed infrastructure for the transportation of raw materials and finished products. In addition, our products and manufacturing processes require a highly competent workforce.  We saw great potential to develop our manufacturing operations here.

CA Today: Is Lear happy with its investment in Honduras?

SM: Our expectations for a ROI have been met so far, and the experience has been a positive and rewarding one.  The business community in general and the Maquiladora Association in particular have been extremely helpful and supportive of our growth and expansion. 

CA Today: Will Lear operations in Honduras continue to grow?

SM: We experienced exponential growth over the past three years, and so we are now focusing our attention and efforts on achieving operational stability. To do this, we are introducing new software for Materials Management and Engineering readout.  The implementation of this technology will require a considerable and intensive investment this year. Many Honduran workers will receive specific training in this software.  As you can see, Honduras continues to be one of our key regions for growth.

CA Today: Has Lear considered a move towards R&D in its operations in Honduras, in addition to manufacturing?

SM: Not at this moment, although we are introducing high-end software to help us manage our operations.  A move towards R&D is a complicated matter because our current customers require us to work in close proximity to their facilities, and so far none of our customers are located in Honduras, so this creates constraints for us to have R&D physically located here.

CA Today: What are the critical problems Lear faces in Honduras?

SM: I can’t think of any critical problems related to Lear in Honduras, other than the usual issues manufacturing plants around the world face on a daily basis. One opportunity, for Honduras, I think could be to strengthen its competitive advantage by improving the business landscape for companies that are drawn to the region by CAFTA—and this would in turn drive further improvements. Puerto Cortes, for example, would become an attractive alternative to other Central American ports that handle import and export traffic to the East Coast of the United States and the Gulf of Mexico.

Other opportunities lie in developing service providers to get them up to par with the highest international industry standards, although I must say there have been significant improvements in this respect in the last four years.

CA Today: How does Lear’s Honduran workforce compare to those the company has in other countries?

SM: Our Honduran workforce has adapted extremely well to new work methods, and have comparable, in some cases even better, skills than workers in other parts of the world where we operate.  Employee participation in company sponsored events and activities is always high and consistent; overall, Hondurans demonstrate a high interest in teamwork oriented activities and show a lot of pride in their daily work. 

Lear has achieved a positive work environment in all of its manufacturing plants in Honduras thanks to the dedication and great attitude of our employees. It is through the quality of our workforce that the company has been able to achieve its worldwide success.  There is simply no question about the quality of the Honduran workforce.