Merida International Airport is the most important cargo airport in southeast Mexico and the country's third in cargo volume. David Alpizar, general manager of the recently expanded Ormex plant nearby, says the company realizes huge benefits from its proximity to the facility, as well as ease in clearing customs, enabling the company to make nearly daily shipments.

On the Other Hand

Another study by A.T. Kearney shows that Mexico is second only to India as a location for back office operations. In September 2003 the country leapt up from ninth to third place in the firm's poll concerning foreign direct investment – and second place in the minds of U.S. corporate investors alone. According to the study, "more than 40 percent of U.S. investors have a high likelihood of investing in Mexico and 30 percent view the country's outlook more positively than one year ago." In addition, after India and China, Mexico is the most attractive emerging market for Canadian investors.
        A rise in industrial vacancies has driven new incentives to lure corporations back. Up to $500 per job created is available for training and development facilities. And in places like Yucatan, special sectors realize increased benefits: aerospace, agribusiness, furniture, IT, medical technologies and textiles.
        In September 2003, for the first time in many months, Mexico saw a rise in exports, driven primarily by its maquiladoras. Exports were up 5.6 percent vs. the same month in 2002.

Yucatan's infrastructure includes more than 7,500 miles (12,068 km.) of modern highways, 1,084 megawatts of electrical generating capacity and a natural gas pipeline. Less than 20 percent of the state's electricity is utilized.

        According to Mexican labor officials, about 300 manufacturing plants moved to China between 2001 and 2003. In 2002, the country lost around 49 billion in exports to China.

Infrastructure Lags
But Improves

Some infrastructure improvement glimmers on the horizon. Private investors are at least getting a foot in the door of the country's energy market, with Belgian company Tractebel, a unit of French firm Suez, breaking ground in early 2003 on a new power plant in Monterrey that will bypass completely the government-controlled electric grid and sell straight to manufacturers.
        Other plants, some serving the U.S. market directly, have come online for San Diego-based Sempra, and for Massachusetts-based Intergen, in Mexicali and San Luis de la Paz. The Mexicali project, a 1,065-megawatt plant called Rosita, came online in mid-2003, with 500 megawatts going to the Mexican national utility and the remaining wattage available at that utility's rates on both sides of the border. Natural gas for the project will be transported through a new, 212-mile (341-km.) pipeline extending from the California/Arizona border to Mexicali – even as major energy companies are virtually non-responsive to requests for bids from PEMEX for natural gas development within Mexico
        In any case, these projects are drops in a big bucket. While U.S. utility companies struggle with overcapacity, Mexico's network is strained to the max. President Fox has spoken of wanting to add 30,000 megawatts to the current total of 41,000 over the next 10 years. Large power users consume 40 percent of that generating capacity. Other global utility companies – notably Electricité de France and Union Fenosa of Spain – are holding off on projects to see if Fox's proposed relaxed restrictions on private investment in the sector can overcome the long uphill political battle in Mexico City.
        One private infrastructure addition of note is a new 127,000-sq.-ft. (11,800-sq.-m.) logistics center from APL Logistics, set up to handle both consumer and industrial product movement. Employing 100 in the country, APL operates some 293,000 sq. ft (27,220 sq. m.) of facilities in Mexico City, Guadalajara, Saltillo, Silao, San Luis Potosi and Juarez.
        In larger-scope central Mexico developments, after an initial new airport plan was shouted down, Mexico City's Benito Juarez International Airport will now be part of a $270-million expansion plan that will eoncompass modernization of regional airports in Queretaro, Pachuca and Puebla that will more than double capacity in the region as a whole.
        Perhaps driven in part by the promise of this development, German auto part supplier Mann+Hummel is moving its 11-year-old Mexican operation from Tlalnepantla to Queretaro, where a $15-million, 150,000-sq.-ft. (13,935-sq.-m.) plant will double the company's filter-making capacity. Expected to open during summer 2004, the plant will employ 100. Mann+Hummel is one of only two companies to be named by General Motors as a supplier of the year for all 13 years of the award program.
        Tlalnepantla is not without its own positive developments, however. A $9-million city-sponsored municipal bond to back water conservation work there is the first time such a bond has not been guaranteed by the national government. That project is just one outward sign of a national trend toward domestic, non-centralized debt issuance, part of a larger economic trend that features internal growth as much as export-oriented growth.
        Such regional improvements are harder to come by in other infrastructure realms, as state governments do-si-do between raising their own revenues and still currying the favor of federal funds distribution, under longstanding, but restrictive, national fiscal coordination laws. In the meantime, Fox is doing what he can to gird the borderzone trade infrastructure he shares with those states to the north: he met with government, education and business leaders in Arizona, New Mexico and Texas in early November 2003.

More to the Picture

A selection of projects shows how Mexico's industrial economy is fighting the Chinese onslaught by both filling and escaping the maquila pigeonhole.
        Mexican industrial strength still begins and ends with the automobile. Even though Alcoa Fujikura Automotive is eliminating some 4,250 jobs at sites in Torreon and Acuna, the sector as a whole is bouncing back. First, there is the new Toyota Motor Manufacturing North America Tacoma pickup truck plant in Baja, where the capacity has already been increased from 20,000 annual units to 30,000, with a goal of 50,000 by 2010. The bump in production will mean a bump in employment too, from 460 to 700. (At the company's primary Tacoma plant, NUMMI in Fremont, Calif., Tacoma production will remain at 150,000 units.)
        Certainly Ford Motor Co.'s planned production of its Futura model in Hermosillo, Sonora – which could add as many as 2,000 jobs to the payroll – is spawning a similar hive of supplier activity. That's because part of the $1-billion flexible manufacturing plan is a 1.75-million-sq.-ft. (162,575-sq.-m.) supplier park to support the platform, which will in turn support up to 10 new models. Some 19 tier-one suppliers have already committed to investments, including Magna Cosma and Lear Corp.
        "The Hermosillo plant has a reputation as a high-quality, efficient facility," said Ford CEO Nick Scheele at the October 2003 announcement, "and with the addition of Futura, it will be a leader in flexible manufacturing and supplier innovation." Ford has forecast savings of up to $2 billion in North America based on the 10-to-15-percent savings over traditional systems, driven in large part by 50-percent savings in changeover costs.
        Volkswagen has made a preliminary announcement of a new Mexican plant, but the size and scope has yet to be made public.
        In Monterrey, Troy, Mich.-based cast-metal component maker Intermet Corp. is building a 100,000-sq.-ft. (9,290-sq.-m.) ductile iron foundry for the making of highly-engineered parts like steering knuckles and brake calipers.
        "The location of a casting operation in Mexico represents a critical step in Intermet's global expansion plan," says Gary F. Ruff, Intermet's president and CEO, noting the company's strategy of utilizing existing assets to minimize the cost and time for production startup. "In addition, we believe the new foundry will fill a demand in the Mexican cast-metal industry for safety-critical components supported by the full-service capabilities of Intermet in research, development, engineering and design."
        "A number of automotive OEMs and system/module suppliers have assembly facilities" in Mexico, added Jesus M. Bonilla, Intermet vice president, "but currently must import cast components to support their operations. The site location in Monterrey, Nuevo Leon, places the plant in a region close to our major customers, near transportation routes, and provides a work force skilled in the manufacturing and technical abilities needed for our industry."
        Joining INTERMET will be French firm Plastic Omnium, which is investing $39 million in its fifth Mexican facility in order to meet demand from major client General Motors.
        Automotive exterior manufacturer Eagle Ottawa is expanding in Juarez by 130,000 sq. ft. (12,077 sq. m.), adding 961 employees. The plant serves such clients as Ford, GM, Nissan, Honda and Toyota. Jatco, owned in large part by Nissan, will make transmissions in 2005 for assembly operations throughout NAFTA territory at a plant under construction in Aguascalientes. Making 300,000 units per year to begin with, the plant expects to be making 700,000 at full capacity.
        Visteon is opening a technical center in Chihuahua that is projected to generate a $25-million economic impact, employing 90 engineers, most from within Mexico. The center will aid in the design of electrical system and chassis products. In the past two years, Visteon has invested more than $100 million in Mexico, opening new plants in Nuevo Laredo and Monterrey. The company has 15 plants in Mexico.
        Brake drum pad maker Morse Automotive Corp. is also initiating operations in Juarez. It is one of five export-oriented companies to expand at this border location in 2003, among them Estructures Metalicas y Laminadas, Stonewear de Mexico, Trabajadores Unidos de Juarez, C&G Garment and boot maker Botas Ram.