Investors Attracted by Removal of Economic Barriers

Q: What factors have led to the investments made by the likes of Toyota, Kenworth, and Hyundai in Baja California in recent years?

A: We have a privileged geographic location that provides easy access to the Western US market and a point of entry to other important international markets. We enjoy manufacturing flexibility, fast transportation to the US, and our world-class infrastructure and industry expertise have contributed to positioning Baja California as an attractive location for investments. This paired with a world-renowned skilled labor force makes Baja California a very attractive investment location. In April of 2014, the transportation industry had a work force of 23,778 highly skilled employees. According to INEGI, there are 78 companies engaged in the manufacturing of components used in the transport industry, and the off-road market has led to the growth of an additional 25 companies. Between 2008 and 2013, private investments amounted to US$5 billion. In the first 5 months of 2014, the economy of Baja California created 34,947 new jobs, which is 81% more than San Luis Potosi, 78% more than Aguascalientes, 54% more than Queretaro and 7% more than Guanajuato. Economic diversification has been a critical success factor, and from a highly concentrated electronic industry the state has now become a well-known location of aerospace industry, medical devices, automotive, and others.

Of course we are always looking to attract more world-class automotive manufacturing operations in Baja California; a good example is Hyundai’s recent expansion in Tijuana, of US$131 million to cast engines in-house. We work with the automotive companies to attract new suppliers. For example, Uni-Pol will establish an operation in Mexicali in early 2015.

Q: What strategy has been taken to create an optimal environment to attract and retain automotive companies in the state?

A: We made our entire fiscal and non-fiscal incentives package into a law that benefits new companies as well as already established ones. All companies that are investing in our state receive a fair stimulus for the job creation and economic impact of their projects within the region. We also have supplier development programs and funding for innovation and technology co-development efforts. A strong training program has made our guest companies extremely pleased with the quality of our skilled workforce. We are committed to diminishing or eliminating economic inhibitors. For example, we can now offer a new energy supply scheme through a co-generation contract with Intergen, to reduce energy cost in the summer months where there is a special tariff during peak demand hours. Additionally, we have natural gas at the most competitive prices in Mexico.

Baja California has granted several incentives to automotive companies and their suppliers, not only during their landing but also when they have consolidated expansion projects. For instance, a payroll exemption incentive is granted every time a company has an expansion project. Other incentives include a 30% water discount on consumption over the monthly bill for companies with in-house water treatment plants to recycle and reuse water and 100% exemption in water connection fees. Regarding infrastructure, there are important projects for border crossing points and we are undertaking great efforts to be able to provide railroad connections between Ensenada, Tijuana, and Tecate, to offer cost competitive alternatives for exporting products to California, Nevada, Arizona, and the East Coast.

The key to creating a successful automotive industry in Baja California has been the cooperation between all stakeholders. Academic institutions are participating in innovation projects and are adjusting their curricula to meet current and future industry needs. Private and public universities are focusing their efforts on matching industry labor force needs. As proof, every year 18,000 engineers and 25,000 technical workers graduate to support local industries. In addition, curricula and training programs are constantly evaluated to keep up with technological requirements. The state government works closely with their federal counterparts to develop programs and funds that foster innovation and technological development in key sectors, and to promote the inclusion of local suppliers into the value chain. Currently, Baja California is one of the top five states that fund new products, design, processes, services, and other measures to increase the competitiveness of companies.

Q: What steps are being taken to support the local supplier base for the automotive industry?

A: We have a financial program in place that is exclusive for local suppliers. Once a local supplier establishes a commercial relationship with an automotive company, we provide a credit line with preferential terms that can be used to fulfill the company’s orders in a timely manner. When they deliver and invoice their goods and services, we give the company another line of credit on which the local supplier can discount any invoice so that their cash flow is not affected. We also have a supplier development program that helps local companies obtain the certifications required in order to better serve automotive industry clients, and we provide funding for the certifications so the final cost for the supplier is very attainable. We promote our local suppliers with the automotive industry and with other industries in which their skills are valued, and we do this on a local, national, and international basis to maximize their exposure. A strong local supplier base strengthens the whole automotive value chain and makes our state more competitive.

Q: What is your outlook on the contribution of the automotive industry to Baja California’s GDP in 2014?

A: The production value of the automotive industry was around US$900 million in the first quarter of 2014 alone, representing 42% of the total value of the manufacturing industry in Baja California, and we expect a growing participation by the end of the year. Our priority is achieving better railroad connectivity and developing the local supplier base.