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OM in the News: The Mexican Medical Supply Chain

April 2, 2017

Workers at the Greatbatch Medical plant in Tijuana

“Nafta has transformed Tijuana from a gritty party spot to a world capital of medical devices,” writes The New York Times (April 1, 2017). Boulevards are lined with factories bearing the names of American-run companies: Medtronic, Hill-Rom, DJO Global and Greatbatch Medical. Inside, Mexican workers churn out millions of medical devices each day, from intravenous bags to artificial respirators, for the global market. Nearly everyone in America who has a pacemaker walks around with parts from here.

A proposed border tax could fracture the industry’s sophisticated global supply chain and force American hospitals to pay more for vital necessities. Hospitals in the U.S. rely on bandages and surgical gloves from China, suturing needles and artificial joints from Ireland, and defibrillators and catheters from Mexico. Annual imports of medical devices has reached $43.9 billion, with Mexico as the leading supplier, ahead of Ireland, Germany and China. Tijuana houses the highest concentration of Mexico’s medical device firms, 70% of which are U.S.-owned.

The high-tech operations emerged after Nafta helped transform Mexican border factories, called maquiladoras, into industrial powerhouses. Now, instead of being garment sweatshops, many maquiladoras in Tijuana employ a new generation of Mexican engineers and skilled technicians to make medical devices. Technicians at these factories earn $14 an hour, compared with $25 an hour for technicians at U.S. factories.

Mexico’s medical device industry buys much of its raw materials and capital machinery from American suppliers. The American-owned Integer plant in Tijuana, for example, buys 90% of its raw materials, duty-free, from the U.S.: stainless steel to be stamped into cups used for hip replacements and plastic to be molded into catheters. Then half of the factory’s output is shipped back to the U.S. and much of the rest to American-owned companies elsewhere. The company, like many others here, is seamlessly integrated: Employees in Tijuana videoconference with R&D teams in the U.S. to fine-tune product designs.

Classroom discussion questions:

  1. What factors appear to threaten this supply chain?
  2. Why is it hard to move the medical factories to the U.S?
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2 Comments leave one →
  1. dick hercher permalink
    April 3, 2017 3:29 pm

    70% are US owned. So, are these located in Mexico for the purpose of cheaper labor, or are they there also in order to avoid the US 35% corporate income tax?

  2. April 3, 2017 3:43 pm

    Dick, My reading is that the labor cost factor is the main issue here.

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