Why Cross-Border Business Is A Win-Win For The US And Mexico
Over the last decade, much US manufacturing has moved south of the border, rather than offshore. Tijuana Economic Development Corp president and CEO Cristina Hermosillo will discuss that trend and cross-border business at Bisnow's first Future of US/Mexico Real Estate event Thursday at the Sheraton Hotel & Marina in Downtown San Diego.
Cristina tells us more than 290 US companies have operations in Tijuana alone. Over the last three years, 19 US companies established operations in Tijuana, and 28 others expanded capabilities and/or productions, primarily in the medical device sector.
The IMEXX model, which temporarily defers taxes on imported goods used to manufacture products in Mexico and consolidates import declarations, has continued to incentivize cross-border business operations, along with the availability of a bilingual, productive and professional labor force in maquiladoras (manufacturing operations), she says, noting US companies are meeting cost goals and report outstanding quality compliance.
The reasons companies are taking manufacturing operations across the border are many, she notes, including total cost to produce and deliver products; quick access to operations, which provides better communications and control; rising labor costs in China, compared to Mexico; and logistics advantages. Cristina notes products can be delivered almost anywhere in the US within one to five days, allowing companies to achieve just-in-time delivery, which minimizes client material or product shortages while lowering inventory costs.
She also suggests that medium-sized companies want to avoid hidden costs often encountered when manufacturing in Asia.
Mexico has one of the best free-trade agreement networks in the world, Cristina continues, noting that NAFTA established a free-trade zone, where products from NAFTA nations—registered with IMEXX—can be imported for assembly and then exported at a lower tax rate, than non-registered firms. IMEXX companies are also exempt from compensatory quotas and enjoy reduced customs fees for goods and materials.
IMEXX-certified companies do not pay taxes on excess profits, but they are subject to the 30% corporate income tax, as well as Social Security contributions for employees, property taxes and any municipal taxes that may apply. Additionally, Cristina suggests that mid-sized companies want to avoid hidden pitfalls costs Cross-border business operations have a favorable impact on the economies often associated with manufacturing in China.
Mexico and the US, boosting manufacturing employment on both sides of the border, she says. “More than 50% of formal employment in Tijuana is related to the manufacturing industry,” she tells us. Moreover, a full 40% of content in products imported from Mexico was made in the US, while only 4% of the content in products imported from China is American made, Cristina points out.
Above is CareFusion Corp's medical device manufacturing facility in Tijuana. Below is Plantronics' electronics manufacturing facility in Tijuana. Plantronics is recognized as a Best Place to Work in Tijuana by the international Best Place to Work Institute.
Tijuana is especially attractive to US companies because of its intellectual resources, with the California Baja campus of CETYS Universidad producing highly trained engineers, software developers, managers and financial professionals. Professional wages, however, average much less than in the US. For example, the average weekly wage for a production supervisor is US$439 (6,686 pesos); supplier quality engineer (graduate with three years experience), US$1,057 (16,104 pesos); skilled production workers (with at least six months experience) earn US$108US (1,639 pesos); and machine operators are paid US$190 (2,894 pesos), according to a March 2015 survey by Ruiz Morles y Asociados that included 129 companies.
Cristina says US companies must provide benefits required by federal Labor and Social Security laws, and some offer additional benefits.
Above is Eaton Corp's manufacturing facility in Tijuana. Eaton manufactures hydraulic management equipment.
While wages are lower in Tijuana, the cost of living is too. A person must earn about US$5k (87,142 pesos) to live at the same standard of living US$1,724 (30,000 pesos) buys in Tijuana, according to Numbeo.com. Consumer prices in San Diego are about 106% higher than in Tijuana, and San Diego rent is 605% higher than in Tijuana.
Meanwhile, drug cartel crime has not deterred movement of US companies across the border, Cristina continues, explaining this problem has never had an impact on industrial operations nor hindered its growth. There are security risk assessment companies that advise US companies about neighborhoods or suburbs to avoid, she points out, noting there are risky places in all major cities—not just Tijuana.
“By the numbers," Christina said, “Tijuana is in a good position, both geographically and economically to help US manufacturers boost their bottom lines vs. other industrial locations around the world.”
Hear more from Cristina and our other Cali-Baja business experts at Bisnow's Future of US/Mexico Real Estate event Thursday, beginning at 7am with breakfast and networking at the Sheraton Hotel & Marina in Downtown San Diego. Sign up here!