From Border City to Boom Town (No, Not Tijuana)

This dusty capital of Baja California was once the ignored stepsister of Tijuana in the perceptions of foreign companies setting up manufacturing plants in the Mexican border state.

At the south end of sweltering Imperial Valley and 120 miles inland from Tijuana, Mexicali was thought too hot, too removed from major transportation centers and too far from U.S. urban amenities, a key consideration for managers who often live on the U.S. side of the border and commute to work in Mexico. But times have changed, and Asian electronics plants are cropping up like hothouse flowers all over Mexicali.

It is due in part to Baja California’s aggressive marketing. But it also stems from Tijuana’s overcrowding and high prices, and a recognition of Mexicali’s particular advantages.

The wave of big Asian manufacturers, which began a few years ago with the arrival of Sony and Daewoo, is rolling through this city of 750,000 with such force that the city may come close to matching Tijuana in foreign investment dollars this year, according to the Baja California state economic development office.

That would be no small feat. Tijuana last year attracted $1 billion in maquiladora investment, and 25,000 new jobs, more than twice what Mexicali got. But over the first six months of 1997, Mexicali narrowed the gap, attracting $213 million in foreign plants and equipment, while Tijuana lured $311 million. Maquiladoras are foreign-owned factories set up to take advantage of low-cost Mexican labor and favorable tax treatment on the export goods produced.

Then last month, Mitsubishi and NEC announced plans to invest more than $300 million in two computer monitor manufacturing plants in Mexicali, narrowing the gap in an investment competition that maquiladora officials describe as increasingly intense.

Some development officials worry that Mexicali may be growing too fast, that its population base and growth rate--both behind Tijuana’s--do not correspond to the labor demand that the new plants are creating.

“There has been a huge effort by the state of Baja California to make Mexicali happen. But the jury is still out whether it can supply the readily available workers” to staff all the new plants, said Joe Smith, a real estate broker with John Burnham & Co./Oncor in San Diego who represents Japanese companies looking for Baja California land.

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But trade officials say Mexicali’s growth has been positive, if only for easing the development pressure on Tijuana, whose infrastructure--streets, services and the like--has been overwhelmed by the border boom. And many predict that much of the migration that now flows toward Tijuana will shift course for Mexicali as more jobs become available.

Mexicali’s selling points are industrial land that costs 10% to 25% less than in Tijuana and a more stable work force, Smith said. But Baja officials say those advantages are diminishing.

Some Asian companies like the fact that Mexicali is removed from Tijuana’s industrial hub and other companies’ watchful eyes.

Mitsubishi and NEC, both Japanese computer monitor and TV manufacturers, expect to employ about 3,100 workers between them, said Jorge Gallego, Baja’s secretary of economic development.

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Once the first phase of its Mexicali plant opens in late 1998, Mitsubishi will become only the third Asian manufacturer, after Daewoo and Samsung, to open a Baja California plant dedicated to making entire computer or TV monitor tubes, not just assembling them.

The tube-manufacturing process takes an enormous investment in high-tech machinery. Daewoo spent $200 million on its cathode ray tube plant in Mexicali, which is set to begin production later this year.

Mitsubishi already has a big-screen-TV assembly plant in Mexicali, employing 800. But the city’s gain has been Orange County’s loss. Earlier this year, Mitsubishi Electric America decided to shut down its Santa Ana big-screen-TV plant and move operations to Mexicali, taking with it 380 jobs.

Why Mexicali? “The maquiladora concept is something that has worked well for us there,” explained a Mitsubishi spokesman.

In a statement, Mitsubishi Electric Corp. President Takashi Kitaoka said the decision to expand tube production to Mexico from the Far East was based on a desire to be closer to the U.S. market.

But in broad terms, Asian manufacturers have little practical choice if they want to sell their products in the United States. Provisions in the North American Free Trade Agreement stipulate that computer and television monitors must be made in the United States, Mexico or Canada if those products are to qualify for duty-free treatment under NAFTA.

There is also a sense of urgency in that companies are racing to beat a 2001 deadline after which no more maquiladora permits will be given out, another provision of NAFTA.

Although existing maquiladoras will probably be grandfathered in after the 1965 law expires, the door will probably close forever on the uniquely lucrative set of tax advantages offered by maquiladoras, said Rudy Fernandez, director of the state Office of California-Mexico Affairs in San Diego.

Meanwhile, NEC will invest $70 million in a 25-acre plant for assembly of computer monitors, a facility that will ultimately employ 1,100, Gallego said. Mitsubishi and NEC are the latest of about 13 computer monitor companies to set up shop in Baja, including Acer, Sony, ADI and Mag Technology.

Gallego has made several international trips in the last year to drum up interest in Baja California. In November, he and California’s secretary of trade and commerce, Lee Grissom, will lead a joint trade mission to Asia.

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MEXICALI MOTION

Mexicali’s maquiladora employment has more than doubled in the past 18 months, as major foreign manufacturers, many of them Asian consumer electronics giants, have completed, begun or committed to building factories there. Following are some of the companies arriving or expanding, the products they make, and amounts they are investing:

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Company Products Investment (millions) Mitsubishi Computer monitors $300 Daewoo Electronics Computer monitors 250 NEC Computer monitors 70 Acer Electronics Computer electronics 30 Technolock Door locks 29 Rockwell Microelectronics 28 LG Electronics TV, computer monitors 24 Kenworth Trucks 20 Eagle Creek Backpacks, outdoor gear 11 Mag Technology Computer monitors 10 ALPS Electric Audio-video equipment 10 Allied Signal Aerospace parts 9

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Source: Baja California Secretary of Economic Development.