Why US Manufacturers Are Setting Up Shop In Tijuana

While the Cali-Baja mega-region is unified in efforts to promote cross-border business opportunities, it involves two countries with different laws and business procedures that need to be addressed in advance by companies seeking to expand operations in Mexico, according to Tijuana Economic Development Corp president Cristina Hermosillo.

Cristina opened Bisnow’s Future of the Cali-Baja Mega-Region, US/Mexico Real Estate event last week. She encouraged attendees at the San Diego event to network with people already engaged in cross-border business activities.

Cristina suggested San Diego use Tijuana as the fourth element—advanced manufacturing—in developing its Global City Initiative. “If we pull our strengths together, San Diego would be much quicker on its way to becoming a globalized city,” said Cristina. With the combination of of San Diego's expertise in biomedical R&D and life sciences research and Tijuana’s manufacturing expertise, the mega-region could become a biomedical, life sciences and medical device tech hub that rivals Boston or Houston, she said. She suggested Tijuana as the option for scaling up projects or products, prototyping and first run.

Above are panelists Tania Ortiz, Paul Gros, David Hester, Stath Karras and Mark Cafferty.

Moderator Stath Karras, executive director at the University of San Diego's Burnham Moores Center for Real Estate, asked panelists Kyocera Mexicana president David Hester and Hunter Industries VP Paul Gros to explain a little about their operations on both sides of the border. Both companies have had operations in Tijuana for many years.

David said his company, which has been recognized as a “Best Place to Work in Tijuana,” has about 1,500 employees in Tijuana who make solar modules chiefly for the North American markets and cellphone base station components. His company has 750 employees in the SD region.

He said the reason Kyocera originally located in Mexico was for the labor cost advantage, but over time Kyocera’s operations and labor force have changed. The Tijuana factories now employ local engineers, managers and administrators to oversee operations, when formerly products were shipped back and forth across the border for professional input.

“As a major employer there, we have become part of the fabric of Tijuana, as well as San Diego. We’re now increasing our footprint in the mega-region because of all the advantages of the mega-region itself,” David added.

Paul (snapped here with local architect Ray Valera), whose company manufactures landscape irrigation components, said his company has 1,000 employees on its main campus in San Marcus in North San Diego County. The firm has two manufacturing plants in Tijuana, with nearly 900 employees. He said Hunter Industries originally established facilities in Tijuana to consolidate manufacturing of products—which were being made around the world—in one location that offered a labor cost advantage to improve their margins.

“We realized quickly that the Tijuana region's technological institutes are doing a phenomenal job of pumping out engineers, so we were able to capitalize on a very skilled labor force south of the border to support our manufacturing," Paul added, noting it’s become more difficult to hire talent, because the unemployment rate in Tijuana is so low.

IEnova, the Mexican subsidiary of Sempra Energy, is developing gas and power energy infrastructure throughout Baja California. IEnova development officer Tania Ortiz said her company expanded into Baja 20 years ago, because it is completely isolated from the rest of Mexico in terms of power and gas supply. Baja’s energy supply is now fully integrated with California’s energy market. She said SEMPRA has expanded to other border states and is moving farther south.

Stath asked how much of the energy produced south of the border stays in Mexico and how much is exported to the US. Tania said about 30% of electricity produced in Mexico is exported to California, but at the same time, a lot of the gas Mexico uses to produce that power is coming from California. Mexico also is supplying California with renewable energy. For example, Tania mentioned a Mexican wind-energy farm supplies electricity to SD Gas & Electric, “so we really are viewing this as a single region in terms of energy."

SDEDC CEO Mark Cafferty said his organization is seeing more binational activity as a result of its international efforts. "We’ve gone out around the world aggressively promoting the benefits of the mega-region in foreign markets," he said. More foreign interests are coming to San Diego. “When people come to San Diego, they learn about the promise of the binational region,” Mark continued. “So as I speak, we’re working with companies right now that a year ago wouldn’t have even considered California."

These companies will be in San Diego and Tijuana, because they have learned how efficient and effective it can be for their companies, he said. "It’s not just manufacturing, it’s happening with companies on the cutting edge of software technology as well,” he added, “and we’re seeing other sectors beginning to grow on both sides of the border.”