Mexicali Puts Heat on Tijuana in Effort to Lure U.S. Companies
This scorching Imperial Valley city of 800,000, situated 120 miles east of Tijuana, finishes a poor second to that neighboring city in attracting American and other foreign manufacturers setting up maquiladoras , the plants where goods for the American market are made or assembled with cheap labor, then shipped back across the border.
Mexicali’s disadvantages in its competition with Tijuana are obvious, starting with the heat. The mercury often tops 115 degrees in the summer, which is great for the cotton, wheat and sorghum grown here in abundance but not so attractive for executives accustomed to more hospitable climates.
The city also lacks the cultural amenities of a neighboring U.S. metropolis where executives can live and commute from, if they choose. Mexicali’s U.S. neighbor is Calexico, an agricultural hamlet of 14,400. Tijuana, a city of 1.2 million residents, on the other hand, is 20 miles south of San Diego, a major cultural and recreational center.
And finally, Mexicali is relatively isolated. Although daily air service to Calexico was inaugurated by the Sun Pacific airline in July from Long Beach, the city still lacks regular air service to and from Tijuana, San Diego and Los Angeles--making commutes to and from home offices in the United States difficult.
U.S. Firms Plan Expansion
But Mexicali is making a strong new push to attract foreign firms and has chalked up some successes, due in part to the city’s cheaper land costs, more stable work force and concerted efforts by local politicians and business leaders to make the process easier.
Shape Inc., a manufacturer of plastic cassettes for video- and audiotapes, will open a plant here next year in a joint venture that will employ up to 300 people. Several U.S. manufacturers that have operated plants in Mexicali for several years, including Baxter Travenol, Rockwell, Emerson Electric and Allied-Signal plan significant expansion in the next year.
Mexicali business leaders say the city also may soon attract the Japanese and South Korean consumer electronics firms that have already increased their presence in Tijuana. Kuron, a supplier of electronic television subassemblies to Hitachi, will open a plant in Mexicali next month that will employ 40, increasing to as many as 200 during the next two years, said Ruben Aguilar, executive director of Mexicali’s Commission for Industrial Development.
Gold Star, the Korean manufacturer of television sets and other consumer electronics goods, is, according to several Mexicali sources, close to signing an agreement to build a 20,000-square-foot plant for television circuit boards. Gold Star is known to have been scouting Baja California manufacturing locations for several months. Mexicali officials say such a plant may be a precursor to a much larger facility. They cite the example of Sony, which started small in Tijuana in the early 1980s, and then a year ago announced plans to build a mammoth 800,000-square-foot TV-manufacturing and assembly plant in Tijuana.
Mexican companies also are taking a closer look at Mexicali. Cervezeria Modelo, the brewer of Corona beer, is in the final stages of selecting a Baja California site for a new brewery. Medina said he is “95% sure” that the new Corona brewery will be built in Mexicali.
After two years of little new development, construction on seven new Mexicali business parks and expansions will begin during the next 12 months to fill what developers clearly hope will be a spurt in demand.
One of the largest new parks planned, the 540,000-square-foot Las Californias, will be developed by Mexico City-based Industrias Unidas Agropecuarias. According to park manager James Roberts, IUA is one of Mexico’s largest cotton and coffee exporters. Its development is an example of the increased interest of Mexico City investors in maquiladoras.
The Mexicali Industrial Park, currently the city’s largest industrial development, will expand by phases to 200 acres--from 50 acres currently--over the next three years, enough for an additional 1.4 million square feet of industrial buildings, said Xavier Rivas, the development’s executive director.
As the peso has dropped in value during the last five years, the cost of Mexican labor has become cheaper for foreign manufacturers, hence their heightened interest in Mexicali and other Mexican cities as potential plant sites. And the Mexican government has made foreigners’ entry increasingly easier. Why? The maquila industry now is one of the Mexican economy’s largest generator of dollars, second only to petroleum sales.
But even as Mexicali seems poised for growth, it still pales in comparison with the kind of explosive interest American and other foreign manufacturers have shown during the past year in Tijuana. More than 120 maquila permits have been issued in Tijuana in the past year alone, bringing the city’s total of foreign-owned plants to 350. That compares with the 25 new plants added during the same period in Mexicali for a total of 125, according to the Baja California Office of Commercial and Industrial Developemnt.
Lower Labor Costs
But as Tijuana becomes more congested with plants competing more intensely for trained workers, Mexicali expects to fare better in the competition. One American company already convinced is San Jose-based Altus Corp., which through its El Power subsidiary operates a 40,000-square-foot computer battery plant in Mexicali employing 350.
Altus Vice President William Markus said a comparative study of Mexicali and Tijuana as potential sites for a new plant showed labor costs are 5% to 10% cheaper in Mexicali. Land and construction costs are 10% to 15% cheaper. And best of all, Markus said, the ample pool of labor means that the piracy of trained personnel among employers that exists in Tijuana is minimal in Mexicali. Employee turnover in Mexicali maquiladoras averages under 5% per month, compared with 10% to 15% per month in Tijuana plants, officials said.
An executive of a company with several plants in Mexico who asked not to be identified said Mexicali is “head and shoulders above” other cities as a maquiladora site because the city is not yet “saturated” with foreign manufacturers. Tijuana is the scene of “out and out raiding” of one company’s employees by another because of a shortage of skilled technical and managerial personnel, the executive said.
Day Care Provided
In agreement is Fernando Rincon Gallardo, manager of a 70,000-square-foot plant operated by Emermex, the Mexican subsidiary of St. Louis-based Emerson Electric’s industrial controls division. Gallardo said one of the things his company did to retain employees was locate in a business park called El Vigia that offers day care for the children of its employees. Emermex also pays its employees food stamps in addition to the minimum wage.
High turnover of trained employees is expensive for companies such as Emerson because it takes employees as long as six months to become efficient in their jobs, Gallardo said.
Rudy Fernandez, the San Diego-based international services director for Touche, Ross & Co. accountancy firm, said Mexicali also has the advantage of presenting a united, cooperative front to foreign manufacturers through its industrial development commission, an organization supported by all of the city’s major business park developers.
Fernandez’s firm recently opened an office in Tijuana to serve its growing number of clients opening maquiladoras.
