en years ago, said
Mexico’s Minister of Foreign Affairs Luis Ernesto Derbez at the Business
of the Americas conference in Atlanta in May 2004, trade constituted
20 percent of
Saltillo, Coahuila
Guaymas, Sonora
“Typically what we want is a seven-year
commitment to being in our program, to make sure the building
gets repaid,” says Steven Colantuoni of Tucson-based contract
shelter services firm The Offshore Group. The company’s group
of parks includes the two pictured at right. Colantuoni says medical
devices and aerospace are two sectors ripe for the maquila approach.
Mexico’s GDP. Today, it represents over 50 percent. At the same time,
he said, the country “has broken with all traditions of how Mexico should
behave in terms of its international actions.” That includes moving
from a closed society to an open society, trying to bring a balance
to human rights and property rights, and becoming the eighth-largest
democracy in the world, with 33 trade agreements.
Following him to the podium, Marc Lortie, assistant
deputy minister for the Americas of International Trade Canada, said
“Fifty percent of Mexico’s GDP is trade. In Canada, it is
72 percent.”
He also observed that 20,000 trucks a day crossed
the U.S.-Canadian border 10 years ago. Today, it’s 50,000, and “the
direction we want to go is 75,000 trucks, 100,000 trucks,” said Lortie.
Much of that trade, of course, buzzes in the vicinity
of the U.S. borders at the 32nd and 49th parallels (with an increasing
amount of Canadian-Mexican trade bypassing U.S. middle ground). But
something else Derbez said could go for all three NAFTA partners, as
the border economy strains at the bounds of both physical infrastructure
and tightened oversight:
“Strengthening security measures,” he told the
hall of dignitaries from North, Central and South America, “should not
be conducive to reducing trade and flow of people in
our hemisphere.”
Flow of people is indeed a problem for many: the
Wall Street Journal reported in April 2004 that U.S. border guards are
on track to nab some 1.1 million illegal aliens this year. And remittances
from both legal and illegal Mexican nationals in the U.S. have ballooned
from US$7 million in 2000 to an estimated $14 million this year, according
to a Cox Newspapers interview with Mexican President
Vicente Fox.
But in the meantime, how corporations and the companies
that serve them jump borders to make a profit could have a lot to say
about where NAFTA and the currently suspended FTAA can push a continent’s
— and a hemisphere’s — economy.
Gates Opening Wider
Border zone improvements in logistics and transportation
in many cases exist only on paper. But a court decision rendered on
paper earlier this summer has a dramatic impact.
On June 7, 2004, the U.S. Supreme Court decided
a longstanding dispute by declaring that Mexican trucks — barred from
operating outside the border zone since a moratorium declared in 1982
— could now legally operate throughout the U.S. without going through
an exhaustive environmental impact process. President George W. Bush
had declared in 2001 his intention to lift the moratorium, which had
been upheld even with the 1994 approval of NAFTA.
While the Teamsters union has opposed the opening
up of the border, the American Trucking Associations have supported
it. Eliminating the literal roadblock of having to hand driving duties
and loads back and forth between Mexican and U.S.-based truckers is
just one more way that companies on both sides can shave cost from their
logistics and production strategies.
Prior to this watershed ruling, Mexican trucks
were kept within a 20-mile (32-km.) zone enveloping the border, although
many had to stay much closer than that, depending on the population
of the nearest metro area. Mexico’s total fleet numbers about 400,000
trucks, compared to 14 million in the U.S., according to Mexican newspaper
Milenio. A reported 1,500 applications from Mexican trucking firms are
queued up at the U.S. Dept. of Transportation.
Some other declarations are of note in this context.
In May 2004, Mexico’s President Vicente Fox said the nation’s economy
would increase by 3.5 percent to 4 percent, driven by foreign direct
investment that would increase 45 percent in 2004 to some $15.6 billion.
His assertion is backed by Daniel Romero, the president of the Mexican
Council for the Export Manufacturing Industry, who also said in May
that some 270 production lines worth approximately $12 billion in investment
will be returning to Mexico through 2006.
However, the news continues to be mixed. Even as
Interceramic invests $26 million in a new plant in Chihuahua and six
other companies invest a cumulative $100 million in plants in Nuevo
Leon, the much-publicized project by Electrolux has been put on hold
by a legal ruling related to land use.
Maquilas Again
On the March
For a long time, all of the continent’s manufacturing
was pushing directly to the northern Mexico region, but the onrush
of China slowed Mexico’s manufacturing economy considerably over the
past several years. Now — despite continuing pullouts by firms like
Alcoa — the bounce is back, on both sides of that southern border.
In March 2004, Mexican industrial production was up by 6.4 percent
over March 2003. But some places have never faltered, even if wages
are inching upward.
“Even during the economic downturn, when people
lost 30 percent of their employment base, we remained level throughout,
and actually added a few clients,” says Steven A. Colantuoni, director
of market research and communication for Tucson-based firm The Offshore
Group. “Mexico used to be the ‘box store’ for low-cost manufacturing.
That is now not the case, because for some items, cost is so sensitive
that you have to look at every single penny.”
Therefore, he says, for industries like textiles,
a 3-percent to 5-percent hike can drive decisions, while for others
that are maximizing a market opportunity (automotive, aerospace and
medical devices are a few hot sectors), such a rise may not be as
significant an obstacle. According to Maquila Portal, The Offshore
Group is the country’s fifth-largest maquiladora employer (with 11,528
employees) by virtue of its contract shelter services and industrial
park set-up.
The latest to join the company’s 30-plus tenants
is Phoenix-based metal finishing firm ChemResearch, whose intellectual
property has been utilized by companies such as GE Aircraft Engines,
United Technologies and Honeywell.
“Our decision to locate a facility in Northern
Mexico was predicated upon market research that demonstrated a significant
unmet demand for services that we offer,” said Richard Burge, ChemResearch
president, in May 2004. “This fact, combined with the absence of a
Nadcap-certified Chemical Processing firm in Sonora, provides ChemResearch
with an incredible first mover’s opportunity”.
“Everything we do is in conjunction with shelter
services,” says Colantuoni, “not like other companies, which will
rent a building and, if you don’t use shelter services, that’s fine.
Typically what we want is a seven-year commitment to being in our
program, to make sure the building gets repaid.”
Colantuoni characterizes the so-called “bottoming
out” of maquilas as more of a right-sizing.
“What we’re seeing is that Mexico is attractive
to certain types of activities, and has a comparative advantage with
its proximity to the U.S. market, and to those with a desire to protect
intellectual property, unlike other places where knockoffs occur.”
Aggressive action in this realm was a key point
made by Minister Derbez in Atlanta.
“Unless we can guarantee that property rights
will be preserved for people who are making investments, it will be
very difficult for our societies and economies to attract the kind
of investments and technological development we would like to have,”
he told Business of the Americas attendees, describing Mexico’s approach
as “a continuous attack on piracy on the streets.” Such a guarantee
can only be based on a solid institutional infrastructure of legislation,
enforcement and punishment. That is sometimes held back by what he
calls the “informality” of the society.
“But we’re not talking about informality, we’re
talking about illegality,” he said, reiterating the government’s commitment
to stronger enforcement and the gradual eradication of piracy.
Wired Up
Colantuoni says the Mexican side is growing more
competitive and capable in aerospace, but the medical device sector
is even more active. He offers a macro reason why.
“Over the past few years, costs in relation to
healthcare have risen, and people are starting to rebel,” he says. “What
we see is that cost on those healthcare items cannot continue to rise
indefinitely. As companies hit situations where they can’t keep escalating
costs, they will look to ways to reduce them.”
Among those ways: lean manufacturing, automation
and/or a quick trip down to Sonora.
Other recent Offshore Group corporate locators
include Wisconsin-based wire harness maker Unlimited Services, industrial
machinery parts manufacturer ESCO Corp., Vermont-based machining firm
GS Precision, and wire harness maker Tal-Port, which operates two other
facilities in Mississippi.
In the McAllen, Texas/Reynosa, Nuevo Leon region,
Logansport, Ind.-based Total Electronics added wire harness manufacturing
to its facility in Reynosa, where it already made cable assemblies,
in October 2003. The investment — the company’s third product transfer
to the plant — is allowing Total to pass along savings of approximately
30 percent to its end user customer.
Breaking ground this summer in McAllen was fastener
manufacturer QSN, which is building a logistics center. All told, the
McAllen Economic Development Corporation successfully placed 36 new
companies in 2003, resulting in the creation of 1,731 new jobs in the
McAllen area and 4,930 jobs in the Reynosa area. And according to census
sources in both countries, McAllen is the fastest-growing city by percentage
in all of Texas, while Reynosa holds the same honor for all of Mexico.
Regional Thinking
Gets More Than Lip Service
Perhaps it’s engendered by the need to reach across
vast expanses of open space. But whatever the reason, regional economic
development is for real in the Southwest.
How Much Longer
Are Canadian Goods Taking to Cross the Border?
30 minutes
1-2 hours
4-8 hours
1 day
More than 1 day
None of the above
14%
39%
19%
6%
4%
18%
Additional Cost/Day
Canadian Companies are Paying Due to Increased Border
Delays
CA$100
Between CA$100-$500
Between CA$500-$1000
More than CA$1000
No extra cost
10%
31%
8%
11%
39%
Source: Canadian Supply Chain Efficiency
There’s the Tucson-Ottawa-Guadalajara linkage being
fostered by the University of Arizona, among others, which counts Ottawa’s
Carleton University as its new partner in photonics and optics research.
There’s the CANAMEX partnership, in which the states of Arizona, Nevada,
Utah, Idaho and Montana are uniting to develop a four-lane commercial
corridor through their states from the Mexican border to the Canadian
border, while simultaneously promoting commercial and communications
ties that would spur further economic development.
The partnership received a vote of confidence in
June 2003 when Arizona Gov. Janet Napolitano signed an executive order
continuing the state’s CANAMEX task force.
That same month, CANAMEX, in conjunction with a
group that included the University of Arizona and Chicago-based A. Epstein
& Sons, issued a report on the Nogales Cyberport project, a high-concept
effort aimed at fostering increased trade volume and efficiency at the
Nogales Port-of-Entry while simultaneously improving safe and secure
cross-border transactions. Currently, out of the seven major ports-of-entry
between the U.S. and Mexico, only Laredo outperforms Nogales in northbound
freight tonnage, but the entire complex suffers from significant congestion.
Another project championed by CANAMEX is the Hoover
Dam Bypass, already begun and headed for a 2007 completion date.
Besides the Nogales project, another exclusively
commercial port-of-entry project is being pursued in San Luis, near
Yuma on the California and Mexico borders. Like the Nogales project,
the new US$23-million facility will replace an overstuffed existing
complex, which has seen commercial traffic increase by 235 percent over
the past 20 years. Inspections have been known to take a full work day
at the existing facility. Construction on the new port is expected to
begin in 2005, preceded by construction of a $69-million highway connecting
the facility to Interstate 8.
Tri-State, Bi-Country
Another team effort growing quickly out of its embryonic
stage is called the Tri-State Alliance, led by the Las Cruces-area Mesilla
Valley Economic Development Alliance (MVEDA), the El Paso, Texas, Chamber
of Commerce and the Mexican state of Chihuahua, where the economic activity
centers on the city of Juarez. They like to refer to their region as
the Borderplex, and their focus is on the four clusters of military/aerospace,
automotive, medical/biotech and distribution/logistics.
“As we started to talk with consultants, many
of them indicated, ‘We really look at you as an integrated region,’
particularly as we talked with manufacturers in the Chicago area and
other parts of the Midwest,” says Steve Vierck, president of the MVEDA.
“Their customers were maquilas, and warehouses in El Paso, and often
they had supply manufacturing operations, with components for plants
in Juarez located in southern New Mexico.”
Vierck says that the blend of jurisdictions can
help produce a solution for most any project. New Mexico’s low property
taxes and lack of payroll tax are one element, while Texas’ lack of
corporate income tax is another. And there is the growing population
of some 2 million people, backed by the resources of multiple universities.
Both the reality and the prospects for the region
are epitomized by its lead private sector developer, Santa Teresa
Real Estate Development Corp., which owns three industrial parks covering
some 2,600 acres (1,052 hectares). Its Mexican counterpart, San Jeronimo,
will back up to the Santa Teresa development, helping to form what
Santa Teresa calls a bi-national city.
Vierck calls it an acceleration of a trend toward
tighter physical agglomeration of operations.
“Over the last four or five years, we’ve heard
a lot of talk from companies that indicate that the corporations that
own the maquilas were urging them to locate closer to the maquilas,
so their supply chains are tighter,” he says. “Plus the fact that
the logistics costs can really add up. One general manager of a plastics
company said they can range from 22 percent to 28 percent of your
costs, moving product from Michigan or Wisconsin to Juarez.”
Now those companies are hitting deadlines, said
Vierck in late 2003, citing two metal fabrication firms that have
been instructed to either move into Mexico or to the border within
the next six months. Competition from the Chinese market is one of
the prime motivators to optimizing all they can from a Mexico-U.S.
operation.
Vierck observes that the low value-added work
is a face-off between 16 cents and 20 cents per hour in China vs.
$2 per hour in Mexico. But at the same time, a good portion of Mexican
economic activity has climbed the value chain in complexity. Indeed,
a wave of anecdotal evidence is beginning to surface indicating that
some companies are coming back from the Pacific Rim.
Private Sector Champions
Some never went away. Bryn Davis, general manager
of Multi-Plastics of New Mexico, Inc., is also on the state business
advisory council. He and his company’s leaders back in Saegertown, Pa.,
have seen enough positive signs to expand their facility, which he calls
a classic maquila-related model located in an area that has been known
for its injection-molding cluster for some time.
“The molding business to a certain extent is the
old buffalo,” he says. “The herd moves and you pack up the tents and
follow.”
The original migration happened six years ago,
when the company picked the area over Nogales because of its location
on the I-10 corridor and the promise of other prospective clients in
the area.
Now their 18 employees are moving from an overstuffed
20,000-sq.-ft. (1,858-sq.-m.) facility to a 77,000-sq.-ft. (7,153-sq.-m.)
facility that was formally a Coca-Cola bottling plant — an ideal predecessor
to Multi-Plastics’ plans to add quasi-clean room space. The project
will be backed by industrial revenue bonds of up to $3.5 million.
While his firm landed in an existing building,
Davis lauds the financial mechanisms available for quick and painless
facility development through Santa Teresa and the city.
“Manufacturing decisions are, anymore, almost impulse
buys,” he says. “The just-in-time activities you see in the supply chain
are rapidly starting to occur with facilities, which makes spec space
critical.”
Equally impressive was the handling of rezoning
issues, and quick resolution of a nagging detail.
“Part of the building was in a setback zone,” which
elicited some concern from the title company. Within one hour, the city
had responded with a clause accounting for the discrepancy
“That’s cool,” says Davis. “The bottom line is
it’s always been there. When I said this was an issue impacting our
ability to close, they got right on the stick.”
Davis thinks Gov. Bill Richardson and his officials
are right on the stick too, especially with their new Invest New Mexico
program, enabling quick and decisive support of business activity without
being hamstrung by the timing of legislative sessions.
“They’ve taken the leverage of $1.2 billion, the
state investment fund, and they can co-invest with companies out of
the permanent fund,” he says about the program, which is drawn out of
the state’s severance tax permanent fund from oil and gas revenues.
“Correspondingly, they have the ability to do private activity bonds
for small manufacturers and they’ve enabled themselves to do industrial
revenue bonds.”
Canadian Border
Study Issues Results
According to an April 2004 report from Supply Chain
& Logistics Canada and Industry Canada, border delays continue to have
a significant impact on delivery times, with 82 percent of responding
companies reporting increased waits. “Time is not the only impact of
border delays,” reads the report. “A company’s financials will also
feel the strain of wasted time at customs. Sixty-one percent of respondents
reported having noticeable financial impact.”
As for border compliance certification programs
designed to both improve security and speed, “close to 35 percent of
the firms across all sectors are currently certified, close to 42 percent
plan to be compliant and only 27 percent have no plans to be compliant,”
reads the report.
Comparison of
Outbound and Inbound Times
at U.S. Border Crossings
June 2002 (minutes)
Crossing
Baseline
Average
95th
All Outbound Crossings
NA
14.2
37.4
All Inbound Crossings
NA
26.8
70.1
All Northern Outbound
Crossings
NA
12.6
34.3
All Northern Inbound
Crossings
NA
24.1
70.3
All Southern Outbound
Crossings
NA
17.2
45.2
All Southern Inbound
Crossings
NA
33.8
64.9
Ambassador Bridge Outbound
5.7
8.8
13.7
Ambassador Bridge Inbound
12.9
20.4
33.9
Blaine Outbound
4.8
21.5
35.3
Blaine Inbound
8.1
17.3
35.6
Blue Water Bridge Outbound
5.0
6.2
9.1
Blue Water Bridge Inbound
11.1
34.2
80.3
Peace Bridge Outbound
9.0
21.7
38.0
Peace Bridge Inbound
8.3
23.3
83.4
El Paso Outbound
9.0
13.2
34.0
El Paso Inbound
7.6
37.2
77.4
Laredo Outbound
1.8
17.2
45.0
Laredo Inbound
12.2
31.2
54.9
Otay Mesa Outbound
9.5
19.1
36.9
Otay Mesa Inbound
6.4
35.0
64.3
Key:
NA = not available.
Footnotes:
Baseline Time: Time needed to travel through the
port-of-entry at low-volume conditions; the lowest
hourly travel time in that direction for each day
surveyed. This value represents “no delay” travel
time.
Average Time: Time (in minutes) needed to travel
the study distance (between the starting point in
the exporting country and the initial inspection station
in the importing country).
95th Percentile Time: Time within which 95 percent
of the trucks surveyed traveled the study distance.
Source: U.S. Federal Highway Administration
At the Business of the Americas conference, asked
by Site Selection about concrete progress on the U.S.-Canadian 30-point
action plan for border improvements, Marc Lortie, assistant deputy minister
for the Americas of International Trade Canada, said “tremendous progress”
has been made.
“Few people realize it is the most active border
in the world,” he said. “On Sept. 12, 2001, not one truck crossed that
border. On Sept. 13, it was again open. That led us, with the U.S.,
to develop this 30-point action plan, to match security and prosperity
together. The success of the last three years — be it from maritime,
land border or air cargo — is an example for the Americas as well.
We have improved our way of doing things in a more secure environment,
we are exchanging information, our law enforcement is working together.
There is a lot of work to be done, but always remember that we need
to invest in infrastructure.”
“We’ve announced a plan to invest CA$100 million
[US$74 million] in the next three years on the border to improve our
two major border crossings,” New Brunswick Premier Bernard Lord told
Site Selection in February 2004. “And we’ve had an agreement with Maine
to move it out of St. Stephen [N.B.] and Calais [Maine] so it doesn’t
go through the two communities. It makes it easier — trucks don’t pile
up on Main Street, basically. The other one is at Woodstock, where we’re
investing to make it a four-lane crossing.”
In May 2004, the Premier joined with Maine Gov.
John E. Baldacci in signing two memoranda of understanding. Among the
four areas for collaboration: International Border Corridor Development.
That same month, Mexico’s Minister Derbez, in his
Atlanta speech, touched on some primary issues that may address how
nations might emulate the corporations they want to attract, as well
as the regional economic developers who may be charged with carrying
out the legwork of such a mission.
“We have now transformed our political institutions
into ones that are more transparent, more democratic and — regardless
of what people think — more efficient than in the past,” he said, in
language reminiscent of corporate boardroom conversations around the
world over the past year.
“What [NAFTA] requires,” he continued, “is that
each nation in turn look at the internal elements that will be required
in order to continue to be competitive as an economy. The concept of
competitiveness, therefore, enters into the picture, and that is based
mostly on internal policies that you have to take into consideration.
This is really the failure of many of the criticisms of NAFTA. Our discussion
in Mexico right now is: ‘What kind of reforms are required in our country
so that we can make our economy more competitive?’ The reason we may
be losing companies to China would have to do with what kind of competitiveness
the economy has today. Whether the different sectors where we are losing
these companies are sectors that will in the long run be competitive
or not depends on two things — one is the productivity of those companies
by themselves, and second, what kind or reform policies we will be able
to take in our nation.
“We have integrated many of our activities between
the United States, Canada and Mexico,” he concluded. “Today the question
we have to ask ourselves is ‘How can we work together to make North
America more competitive?’ What are the elements that the three economies
and societies have that, if we work together, will bring competitiveness
to the region and therefore will make us stronger as a region in competing,
in this particular case, with China. But it could come from many other
places.”
Fed Border Funds
Rarely Go to Border Projects
The National Corridor Planning and Development Program
(NCPD) and the Coordinated Border Infrastructure Program (CBI) are discretionary
grant programs funded by a single funding source within the U.S. government.
These programs provide funding for planning, project development, construction
and operation of projects that serve border regions near Mexico and
Canada and “high priority corridors” throughout the United States. States
and metropolitan planning organizations (MPOs) are, under the NCPD program,
eligible for discretionary grants for corridor feasibility, corridor
planning, multi-state coordination, environmental review and construction.
Border states and MPOs are, under the CBI program, eligible for discretionary
grants for transportation and safety infrastructure improvements, operation
and regulatory improvements, and coordination and safety inspection
improvements in a border region.
But only a handful of projects receiving funds
from this $140-million program are at the borders, and they get paltry
sums compared to the lion’s share of projects falling under the “high
priority corridors throughout the United States” heading. Largest among
the border project recipients found on the programs’ Web site listings
are the Donna-Rio Bravo International Border Crossing in Texas ($800,000),
the Ports-to-Plains highway rehabilitation between Del Rio and Eagle
Pass, Texas ($1.1 million) and the US 83 Anzalduas Connection Road and
Structures to New International Bridge, Texas ($500,000).
Smart Border Study, April 2004
According to a detailed account by Bob Duncan,
BCCR, senior vice president for CB Richard Ellis-El Paso/Juarez, a Honeywell
facility requirement in Chihuahua City, Chihuahua, is Mexico’s first
example of an industrial condominium structure.
The challenge was to find within four months a
220,000-sq.-ft. (20,438-sq.-m.) building for sale or lease, with the
ability to unilaterally expand within the first three years. Working
with Phil Hammel, BCCR, Honeywell’s global real estate director, Duncan
and his financial and due diligence expert Linda de Oliveira found 11
alternatives within 100 miles (161 km.) of Chihuahua City.
After running each option through the sifter of
criteria, only three remained. One was too small and priced above market.
The second was attractive, but expansion potential was non-contiguous
and some services would have had to be shared with an adjacent building.
That left a 230,000-sq.-ft. (21,367-sq.-m.) building for purchase, along
with 78 acres (32 hectares) of raw land. But the burden of unnecessary
capacity was too great, so that option also was eliminated.
After a reconnoitering that included prayer as
well as perspiration, Duncan was on a separate property tour with Honeywell
staff when he got a call from Sergio Ornelas, founder and principal
of Intermex Parques Industriales, regarding another project altogether.
But by the time the conversation had ended, they were well on their
way to what they agreed was “the most creative transaction in their
forty combined years in the business,” says Duncan.
Like The Offshore Group in Tucson (see main article),
Ornelas’ firm is one of the largest contract shelter companies in Mexico.
Within 30 days, Honeywell, CBRE and Intermex had structured an Industrial
Condominium Regime to acquire the third property — a first for all
concerned. Among the conditions were that Intermex execute the contract
for the building as well as retain the excess land, and that Honeywell
buy half of the building with an option for the other half. The two
parties also agreed to both a condo regime contract (including joint
work on engineering and design) as well as a reciprocal management agreement.
Intermex closed on the building, Honeywell closed
with Intermex and Honeywell moved in on time.
“It doesn’t have an ocean-front view,” Hammel,
whose offices front the beach in California, told Duncan, “but in this
instance, it allowed Honeywell to meet a challenging facility acquisition
requirement and provide the needed flexibility in a manner no other
structure could accomplish.”
EDITOR’S NOTE: The project records appearing every week in the Site Selection Project Bulletin are pulled from the Conway Projects Database, a proprietary resource with tens of thousands of records of corporate end-user facility investments across all industry sectors and all world geographies. Want to look for our projects yourself? Look here. PsiQuantum Goes ‘Chi-Quantum’ […]
Given California’s R&D prowess, it was no surprise that early this month the city of Sunnyvale (home to Applied Materials’ forthcoming Equipment and Process Innovation and Commercialization Center, pictured) was announced as the expected location for the CHIPS for America Design and Collaboration Facility.Rendering courtesy of Applied Materials It’s that time of year. Not the […]
