Upstarts: NAFTA

In post-NAFTA Mexico, opportunity abounds for small U.S. businesses. Here's why Larry Manhan, CEO of California-based BCS Inc., decided to open up shop in Guadalajara.

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Yankee pulled south by Mexican magnet

Electronic scrap dealer opens outpost in Guadalajara, pursuing NAFTA-era suppliers in 'Silicon Valley del Sur'

To people in Guadalajara, Mexico's booming number two city, Larry Manhan must have cut an odd figure. The founder of BCS Inc., an electronic-scrap business based in a Los Angeles suburb, flew 1,300 miles deep into the Mexican heartland in August to visit the so-called Silicon Valley del Sur. Mexico and Manhan, 63, a self-described workaholic who speaks no Spanish and favors loud Hawaiian shirts, aren't a natural fit. Yet in touring Guadalajara's bustling industrial sectors, he recalls, "I was absolutely overwhelmed by the size of the plants and the number of people they employed."

So overwhelmed was Manhan that two months later he started BCS Electronic Recovery Service, in Guadalajara, the Mexican counterpart of his company in Canoga Park, Calif.

Manhan was pursuing his source of supply. Many computer, telephone, and circuit-board manufacturers, including such giants as Hewlett-Packard and Solectron, have been expanding their plants in Mexico more quickly than in California. A major reason for that is NAFTA, the North American Free Trade Agreement, adopted by Canada, Mexico, and the United States in 1994 to dismantle all remaining, substantial trade barriers among the three countries over 15 years.

As large companies shift their manufacturing facilities to Mexico, seeking lower wage rates and less regulation, entrepreneurs like Manhan are following on their heels. He's part of an influx of American start-ups--particularly in the consulting, component-manufacturing, telecommunications, and electronics industries--that in many cases are "providing support services to the assemblers and big manufacturers," says Andrew Wylegala, a commercial attachÉ at the U.S. embassy in Mexico City.

Manhan is new to Mexican ways, and he's also operating his company long-distance from California. That has meant some cultural adjustments. On his second trip to Guadalajara, in September, he scouted for rental space in a warehouse. The five real estate agents who schlepped him around town didn't always know what they were doing. One, for instance, handed her card to the cab driver and asked for leads. "When I cross the border, I don't act like a Yankee," says Manhan. "I slow down."

Undaunted, Manhan returned to Guadalajara later that month. He rented a warehouse, paying $30,000 up front for one year--customary in Mexico. With the help of the local electronics manufacturers' association, he hired a general manager and a marketing director. And he paid a lawyer $20,000 to incorporate BCS Electronic Recovery Service as a Mexican company. All told, getting the business off the ground cost $100,000.

Much about the Mexican venture looks promising. As the sole electronics recycler in Guadalajara, Manhan has an abundant supply of scrap. He sells to his network of Asian customers, especially the Chinese. His costs are low--the salaries he pays his Mexican employees, for example, are about a third of what he'd pay in the United States, he estimates. He's already projecting a small profit in 1999, on revenues of $600,000.

In an economy as historically unstable as Mexico's, of course, some risks are inescapable. The economic turmoil that's already roiling emerging markets could slow Mexico's economic growth and batter the peso, says Sidney Weintraub of the Center for Strategic and International Studies, in Washington, D.C. For Manhan, whose Asian customers pay him mostly in pesos, weakness in the currency would eat into profits.

Manhan must contend, too, with the complexities of absentee ownership. At a cost of $1,000 he flew his general manager to California for tutelage about the scrap business. But, Manhan says, when the general manager delayed having the Guadalajara warehouse cleaned and its telephones connected, Manhan fired him.

In adapting to Mexico, Manhan says he'll go only so far. In meetings with officials and suppliers, he wears khakis instead of his trademark California-casual jeans. But he says that learning Spanish--beyond burrito and tequila--is another matter.

Bite losing teeth
La mordida, the bite--the wry Spanish euphemism for bribery--is to Mexico's business life what cornmeal is to its diet, no?

Actually, no.

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