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ARTICLE OF THE WEEK

By Paul Caine

• From France: Bacou Dalloz is making hearing protection equipment in Tijuana.
  
• From Japan: NEC is making monitors in Mexicali.
  
• From Korea: Seshin as a supplier to Samsung in Queretaro, where Bombardier of Canada will soon be building aircraft.
  
• From Germany: DaimlerChrysler is providing financial services in Guadalajara.
  
• Ingersoll Rand is making cooling systems in Mexico City.
  

In addition to trade pacts, there are other factors driving corporations to Mexico, China or India. The labor salary differential is one objective. If the labor cost is greater than 25 percent of the finished product, offshore manufacturing may be viable. Buzzwords for offshore now include near shore, far shore and best shore.

Another objective is supplying another corporate user.

The vertical integration of the product line on site is appealing. For example, in Tijuana, Samsung calls its program "invited vendors."

Another objective includes third-party logistics firms, where just-in-time inventory management and transportation are keys.

To further understand these trends, consider this review of the evolution of the industrial site selection process from 1970 to 2007. From 1970 to 1985, site selection can be considered "fly by the seat of your pants." From 1985 to 1995, an evolution of service providers began providing minimal statistics and research. From 1995 to present, we are witnessing the maturing of operations and real estate in three major destination countries - Mexico, China and/or India.

Early NAFTA Landing Zones

The vast majority of the early corporate pioneers in Mexico located on or near the 1,400-mile U.S. border.

Site options traditionally ranged from Tijuana in the west and 1,400 miles to the east to Matamoros, which is located at the southern tip of Texas.

During the last few years, Monterrey, Saltillo, Hermosillo, located in three different states, and more recently, the Bajio and central Mexico, have become attractive locations.

Certain hot markets in Mexico include border cities such as Tijuana, Juarez, Reynosa and Matamoras (located in the same state), which are strong targets for industrial users.

Monterrey in Nuevo Leon is considered the Chicago of Mexico, which has a history of more than 100 years in industrial operations. Guadalajara in Jalisco is considered the Silicon Valley of Mexico, and is also considered ideal for office, retail and industrial activities. Mexico City, located in the Distrito Federal, has been receiving strong attention from retail, office and some industrial users.

There are several major global clusters that are operating throughout Mexico. In Baja California, for example, in the automotive sector, the Tijuana region hosts Toyota, Hyundai and Kenworth. Baja California also is home to medical device companies DJ Orthopedics, Pall Medical and Medtronic. Baja is also home to Delphi, Lowrance, Honeywell and Gulfstream. (Bombardier is located in the state of Queretaro, and several OEM's are located in Monterrey.)

Finally, Baja California is also home to home appliance companies such as Sharp, Mitsubishi, Black and Decker and more; and in electronics the state is home to JVC, Pioneer, Hitachi and more.

Distribution systems from Mexico include the NAFTA highway, as well as other corridors. NASCO is a nonprofit organization dedicated to increasing economic development activity while supporting multi-modal infrastructure improvements, technology/security innovations and environmental initiatives along the NASCO Corridor, and to stimulate the dialogue between the public and private sectors about critical, corridor-wide trade and transportation challenges.

The NASCO Corridor represents the existing trade and transportation infrastructure roughly shadowing U.S.

Interstate Highways 35, 29 and 94, and the connecting transportation infrastructure in Canada and Mexico critical to national and international trade. This includes major intermodal inland ports along the corridor and those under development.

Final Impressions Of Mexico

Mexico is a quickly maturing market, which still requires strict attention to detail and a lot of teamwork.

All states in Mexico operate economic development organizations with valid, basic information available, which is posted online as well. There are also qualified service providers available in most markets, which are important to OEM's and suppliers. What's more, there are large, experienced pools of Mexican mid-level mangers that are now available for starting up operations. Mexico has more than 450,000 young people enrolled in engineering universities and colleges, compared to less than 350,000 U.S. students enrolled in engineering schools.

The low-down: Mexico will be a favored location if you:

• Need logistics and just-in-time savings near the United States, and if you produce for the Mexican market.
  
• Assemble or manufacture large products.
  
• Conclude that the Mexican labor differential is still significant.
  
• Want to take advantage of the developing multimodal inland ports.
  
• Have a concern about patents, etc.
  

MEXICO'S WEEKLY HEADLINES