Baja California: Assembling Advantages
http://www.area-development.com/Pages/BajaCal.html
May, 2003
Baja California has courted key industries in electronics, metal mechanics, plastics, and food & beverages, and the manufacturing world has come
calling.
By Beth Mattson-Teig
FOREIGN INVESTORS have been realizing the cost advantages of locating south of the U.S. border for more than two decades ? and the Mexican state of
Baja California has been quick to leverage its resources to capture that growing business.
Baja California has six key advantages that attract foreign investors. The first is its location. The state is located in the northwest part of
Mexico, on the northern end of the peninsula of the same name. A shared border with Arizona and California affords easy access to key Western markets,
in particular those of Southern California.
A second asset is manufacturing flexibility ? with the capability to accommodate just-in-time delivery, regardless of whether the job is 100 pieces or
100,000. Third, businesses can access excellent professional and government services, along with the networks to help them navigate the local business
terrain.
A fourth advantage is the exceptional labor environment ? the state has high education and skill levels compared to other parts of Mexico. Baja
California also has the largest bilingual population in the country. Another plus is the state government, which is probusiness and committed to
helping companies establish and grow their operations. And sixth, Baja California enjoys a close working relationship with the California Technology,
Trade and Commerce Agency.
Those business advantages have helped foster growth in four key industries ? electronics, metal mechanics, plastics, and food & beverages.
Electronics, concentrated in Tijuana and Mexicali, can be further divided into sectors such as computers, televisions, audio-video, and
semiconductors. The city of Tijuana, for example, produces more than 12 million television sets annually.
Metal mechanics includes the automotive sector, and draws strength from the presence of major firms such as Toyota and Hyundai. The metal mechanics
sector is concentrated in Mexicali. Plastics businesses are located in Mexicali, Tecate, and Tijuana, and have strong ties to electronics companies in
the area.
A fourth sector that is growing is food and beverages, especially in the agricultural valley in the Ensenada area. The agricultural industry provides
selection and packing of vegetables, preparation of frozen food for exportation, and winemaking, among other specialties.
Business Growth
Baja California has been affected by the decline in the tech sector over the past two years. In addition, China?s recent entry into the World Trade
Organization and reduced tariffs in that country have created a stiff competitor for Mexico. Nevertheless, Baja California is continuing to see
business expansion.
One of the biggest expansion projects currently underway is a new $150 million facility for Toyota. The automaker purchased 700 acres in Tijuana to
build a new manufacturing plant for its Tacoma truck model. Toyota plans to manufacture truck beds when the first phase of construction is completed
in early 2004, with plans to produce the entire truck at the plant once the facility is fully operational.
?While this past year has been slower than previous years, we did have a number of expansions and new investment,? says Richard E. Salter, director of
the EX-XXI Business Center in Mexicali. One of the most notable stories is that of Jonathan Manufacturing, a maker of ball-bearing slides used in
computer racks, cash registers, furniture, and a variety of other applications. Jonathan started operations only a few years ago in 18,500 square
feet, and now, following several expansions, occupies nearly 150,000 square feet in the EX-XXI Business Center.
?Our parks depend on the U.S. economy,? says Eduardo Martinez Palomera, vice president of the Mexicali Industrial Park. ?If the U.S. economy does
well, then we do well.? Although Mexicali Industrial Park has experienced slower growth in the last two years due to slumping U.S. and world
economies, the park did grow by 90,000 square feet in 2001 and 30,000 square feet in 2002. Among the firms expanding at Mexicali Industrial Park are
TT Electronics, Barco International Corp., and BI Technologies.
Trade Agreements
The North American Free Trade Agreement, as well as treaties that Mexico has signed with other countries in South America and Europe, has provided
added incentives to foreign businesses. Essentially, companies establishing locations in Baja California can access North American markets with all
the advantages offered under the trade agreements. Mexico also is in the process of negotiating a trade agreement with Japan.
Since NAFTA went into effect in 1994, Baja California has seen a number of Asian companies locate in the state, especially from Japan, Korea, Taiwan,
Hong Kong, and Mainland China. For example, the state now holds 80?85 percent of the total Japanese direct investment in Mexico?s electronics sector,
notes Ricardo Martinez, director of the Trade & Investment Office for the State of Baja California in New York.
One of the main purposes of NAFTA was to eliminate taxes and other trade barriers that stanched the flow of Mexican merchandise into the United
States. Although the agreement did provide an added incentive to foreign businesses, some Asian companies had established a presence in the state
before NAFTA was signed ?thanks to its proximity to California, Baja California was already a free trade zone. Thus, Baja historically has had a more
significant commercial relationship with California than the rest of Mexico.
Labor and Training
One of the state?s most important resources is its people. With more than 2.3 million residents, Baja California has a deep labor pool, and its
population is growing at an annual rate of 4.34 percent. Employee turnover in most companies is low ? on average about 2 percent ? due to improvement
in salaries and benefits.
Labor costs are a fraction of those paid in the United States and other industrialized nations. Most companies pay salaries above the minimum wage, at
a rate equal to about $3.62 per day. However, there are professional minimum salaries established by law that are based on the type of occupation or
profession. For example, a metal casting molder makes about $4.30 per day, while an electric and electronic-devices repair worker makes about $4.50
per day.
In addition, the quality of labor in Baja California has been recognized for its high levels of specialization and productivity. The state has the
third-highest education level in the country. Mario Juarez, the state?s Under-Secretary of Promotion, points to the network of technical training
schools, universities, and R&D centers. The average education level of the population in the state is 8.1 years of studies, and only 3.8 percent of
the population cannot read or write ? that 96.2 percent literacy rate is second best among Mexico?s 32 states.
Not only does Baja California have a skilled labor pool, but the state also encourages its schools to partner with various industries to further
develop specialized skills. Technical schools and universities have set up linkage programs aimed at establishing curricula relevant to specific
industries. For example, businesses helped to establish the curriculum for metal mechanic technicians. Firms that require electrical engineering also
have collaborated with the local schools, says Palomera of the Mexicali Industrial Park.
A technical truck-driving program was created for heavy trucks. The industry provided the truck and the schools developed the curriculum to train the
drivers, Juarez says. In a year and a half, students receive a technical-driver certificate, which is the equivalent of a technical-school degree.
During the past five years, Martinez notes, the state has seen an influx of companies in the plastics sector. In response, schools have developed a
new technical career for plastic injection and molding technician. Companies such as Tetra Pak helped develop the curriculum for this specialized
learning. Now, he says, the technicians in this program are graduating with the specific knowledge and skills that these companies require.
Major Cities
Baja California is divided into five municipalities ? Mexicali, Tijuana, Ensenada, Tecate, and Rosarito. The three largest cities are Tijuana,
Mexicali, and Ensenada. The main cities are equipped with modern communication and transportation services ? telephone, highways, airports, railroad
lines, and seaports connect the state with the nation and the world, and a modern four-lane toll highway links the five main cities to the United
States.
The capital city of Mexicali is located in the northeastern section of Baja California, sharing a border with the city of Calexico, Calif., in the
Imperial Valley. ?The biggest advantage is the geographical proximity to the western U.S. market,? Palomera says. That is especially important to
firms that provide just-in-time supply-chain management to customers that require response within 72 hours.
Mexicali?s population is rapidly approaching one million inhabitants. Its network of universities and technical schools has helped foster an abundant,
stable, and educated labor force. A number of world-class manufacturers already have operations within the city, including Daewoo, Price Pfister,
Sony, Mitsubishi, Honeywell, and Kenworth.
Tijuana is the largest city in the state, with more than 1.3 million residents and counting. Tijuana is undergoing the largest demographic boom in
Mexico, due in large part to its border location and proximity to San Diego. The maquiladora industry is important to Tijuana, and the city has more
manufacturing facilities than any other city in Mexico, with nearly 700 plants providing more than 150,000 jobs.
Industrial Parks
Foreign investors have two options when acquiring facilities in the state. They can purchase land for direct construction of industrial shells, or
they can lease existing buildings or shells that conform to specific design requirements. Changes in the Foreign Investment Law now allow investors of
any nationality to acquire property for industrial use.
Baja California is home to nearly 50 industrial parks and centers. Mexicali Industrial Park is one such facility that targets the aerospace,
electronics, high-tech, auto, and medical industries, as well as the emerging logistics sector. The park is home to a diverse mix of businesses,
including Frito Lay, Cooper Lighting, China Electronics, and Cardinal Metal. Amenities include a childcare center, security, and access to a deep
labor pool. The parks have access to all standard utilities, including fiber optics and fire protection.
The EX-XXI Business Center is a full-service industrial park in Mexicali that caters to businesses requiring small to mid-size manufacturing or
warehousing facilities. ?We offer competitively priced buildings from 12,500 square feet to 300,000 square feet on an inventory or built-to-suit
basis,? says the park?s director Richard Salter.
Standard leases are five years or longer and the base lease rate is approximately US$0.32 per square foot, per month. The base lease rate will
typically secure 10 percent office area and restrooms. The tenant typically funds any additional improvements. Industrial land prices vary depending
on location and infrastructure; however, within a typical industrial park you can expect to pay between US$3.75 and US$4.25 per square foot. The cost
of industrial building construction can vary quite a bit, but US$18 to US$20 per square foot is a ballpark figure, according to Salter.
?The major savings of operating in Mexico are rarely related to real estate,? Salter says. ?This is often a surprise to many first-timers; however, if
you stop to consider the cost of capital, infrastructure costs, etc., it becomes readily apparent why this is so,? he continues. ?The savings to be
realized by doing business in Mexico are typically due to labor, insurance, and logistics.?
The private and public sectors work closely to foster a probusiness environment. Business parks such as EX-XXI collaborate with city, state, and
federal governments to promote the region. ?And while there is a great deal of competition between the industrial developers,? Salter says, ?we are
very fortunate in that we are able to work together to plan, develop, and promote to [the] mutual benefit of the community at large.?
Part of the state?s probusiness philosophy is to assign an executive promoter to help companies with all the details necessary to establish operations
in Baja. ?Again, that goes back to the state?s strategy of providing important linkages between the state and industries,? Juarez says. That executive
is the key contact for city, state, and federal governments. ?We believe that companies that establish in Baja California become a very important part
of our state and our community,? Juarez adds.
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