Mexico wants to beat China and India in high-tech

July 14, 2004

The country of Mexico, in conjunction with a U.S. corporation is trying to get high-tech companies south of the border with a new industrial park, fairly easy transportation and a massive tax break.

Silicon Border and federal and state officials from Mexico outlined on Wednesday plans to build a high-tech industrial park in Mexicali, a Baja California city close to San Diego. Ideally, construction will begin early next year and products from the park will start shipping to the United States by 2006.

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Although labor costs in Mexico are only about one-fifth of those in the United States or Japan, the country has seen several plants and jobs go to Asia, particularly China, where costs are even lower. In the past three years, around 200,000 electronics manufacturing jobs have been lost, although some have been recently recovered, according to Mexican Secretary of the Economy Fernando Canales Clariond.

As a result, the park will try to recruit companies specializing in semiconductor manufacturing and assembly and other industries where labor is one, but not necessarily an overriding, factor.

"Most of the Asian countries have cheaper labor costs than Mexico. We do not want to compete against any country on the cost of labor," Canales said. "But labor is only one of many ingredients of the cost structure of a product. From Asia to the U.S. by sea takes three weeks plus seaport costs. From Mexico, it is only hours."

One of the chief incentives is a 10-year tax holiday for qualifying companies that operate facilities in the park, said D.J. Hill, chairman of Silicon Border. Comparatively, that's long. In China, qualifying foreign manufacturers don't have to pay income taxes for two years and only 50 percent of taxes ostensibly due for three years after that. China and Taiwan also offer tax breaks on capital gains and to employees who cash in stock options.

Tax breaks and government incentives are typically one of the most important considerations for chipmakers and one of the reasons Germany, Ireland and even New Mexico can compete directly for new factories against giants like developing nations.

"They (chipmakers) all locate in a place where they can save about a billion" dollars in taxes over 10 years, said Hill, who added that the bill authorizing the tax breaks passed in April. "We are going to copy the good ideas of the parks in Southeast Asia."

Mexicali also offers other advantages, Hill pointed out. Semiconductor fabs, or fabrication plants, need lots of water to operate, and the Colorado River rolls through the area. U.S. companies have built power plants in the region, and the state is investing in more. Silicon Border is largely staffed by executives who've built fabs for other semiconductor makers.

Engineers will come from the eight universities, including two federally funded ones, located in the region.

Overall in Mexico about 18 percent of local citizens under the age of 40 have an opportunity to get a university degree, said Canales. Of all the degrees awarded by Mexican universities, about half are in engineering and about 20 percent of those are in electrical engineering.

Additionally, U.S. companies won't have to relocate managers and employees overseas. Towns like Calexico are close enough so that U.S. employees can live in the states and work over the border.

Canales pointed out that the Mexican economy is more stable than it was several years ago under President Vicente Fox. Inflation now runs around 3 percent to 4 percent. "After the three-digit inflation we had 10 years ago, you can imagine the efforts to reach that level of very, very low inflation," he said.

NAFTA and free trade agreements with Europe, South America and, soon, Japan also facilitate trade, Canales added.

"Mexico is a democracy. Mexico does respect human rights. You know what happened in some Asian countries with regard to human life," interjected Baja California Governor Eugenio Elorduy Walther.

Still, significant challenges remain. Canales and other officials acknowledged that security and crime, the biggest domestic issue in Mexico, are problems. The speed of getting goods across the border also needs to be improved and remains a complaint of multinationals, Canales said.

Although it's trying to catch up to Asia, Mexico has been involved in electronics for decades. Tijuana was actually the first city where U.S. manufacturers built overseas factories back in the early days of the industry before concentrating on Asia. Several North American car, television and phone manufacturers have plants in the country.

Source: C-Net News

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