1. Partnering for business retention
A plan for regional economic development.
Presented by: DEITAC
2. WHY SHOULD WE TALK
ABOUT PARTNERING?
• CONCERN regarding our shared
future, California’s and Tijuana’s, with
regards to manufacturing.
•A SOLUTION to improve our
competitiveness globally, at least for
some industries and cities.
THE REGION’S MANUFACTURING SUCCESS
DEPENDS ON OUR COLLABORATION.
3. California’s industry at a glance
High-tech manufacturing industries employment
27% employment
Preliminary figures for 2009 reduction over the past 8
years
Pharmaceutical &
Medical equipment & 700000
medicine 620,279
supplies 10% Commercial & service
11% industry machinery
2% 600000
Aerospace products &
parts Computer & peripheral
equipment 500000 452,524
16%
13%
400000
Communications
Magnetic & optical
equipment
media 300000
6%
1%
Audio & video 200000
equipment
Navigational, measuring, 1% 100000
medical, & control
Semiconductor & other
instruments
electronic component 0
20%
20%
2001
2009
Source: US Bureau of Labor Statistics
4. Summary of the last century
Birth of Forefront of First
Biomedical
aircraft aerospace microprocessor
industry
industry industry produced
1900’s 1940’s 1970’s 1990’s
•Entrepreneurship & opportunity •Struggle to remain competitive
•Industrial base & labor growth •Tax burden & regulatory compliance
•Industrial GDP increase costs (and more to come)
•Hi-tech sectors diversification •Labor issues: unionism & workers comp.
•Internal market growth • Increasing government budget deficit
•Innovation leadership •Engineering talent shortfall
•Intra & international competition
5. Aerospace in California
•Birthplace of the aircraft industry 17% employment
reduction over the past 8
•70,779 employees in 2009 years
•Value of shipments $ 23.7 billion USD (2008) 85,051
90000
80000
70,779
70000
14% 60000
50000
2009 40000
30000
86% California 20000
Rest of US 10000
0
2001
2009
Source: US Census Data, considering NAICS 3364
6. Considering new options
“Locating manufacturing operations abroad is sometimes seen
as the only way to compete with these challenges. …
Using low labor costs, relocation incentives and the availability of an
extremely qualified technical workforce as inducements,
many foreign countries present an attractive alternative to
California aerospace companies struggling with the cost of living
and doing business in the Golden State.”
Energizing California Aerospace,
Report to the California Commission on Economic Development,
Aerospace Advisory Committee - November 2008
7. Industry relocation
Northrop
Grumman
McDonnell TRW (Washington, DC)
(Fairfax, VA)
Douglas C-17 Rockwell
(Salt Lake C., UT) International Lockhead
Hughes (Tulsa, OK)
Martin
helicopter (Marietta, GA)
(Mesa, AZ) Rockwell McDonnell
International Douglas
Hughes Aircraft (Perry, GA)
(Dallas, TX) (6 southern US states)
Perhaps one of the most recent and significant cases is Northrop Grumman, moving it’s headquarters
from L.A. to Washington, D.C., area, the company was the last major aerospace firm based in
Southern California.
The decision is seen as a blow to the much-battered regional economy:
…"This is very bad news, a crummy way to get 2010 started,"
said economist Jack Kyser of the Los Angeles County Economic Development Corp. …
Los Angeles Times - January 05, 2010.
8. Automotive in California
• Currently no final assembly plants operating in California 36% employment
reduction over the past 8
• Over 32,000 direct employees, showing a decline trend years
• Employment related to parts manufacturing, Corporate
43,248
Headquarters, R&D facilities, Scientific & Technical Consulting 45000
40000
• Estimated 127,000 people worked in automotive support
industries (2005). 35000
30000 27,569
4% 25000
20000
15000
2009
10000
California 5000
96% 0
Rest of US
2001
2009
Source: US Census Data, considering NAICS 3361,3362 & 3363
9. A century of automotive industry
One of the most dynamic and relevant components of the manufacturing industry in
North America and globally has had a significant presence in California:
Tesla – Toyota / (Electric vehicles)
GM – Toyota Fremont (NUMMI)/ (Chevrolet, Toyota, Geo, cars and trucks )
NEW ERA = NEW OPPORTUNITIES
GM Fremont / (Chevrolet cars and trucks )
Ford Pico Rivera / (Ford cars)
Ford San Jose / (Ford and Mercury cars)
Nash Motors El Segundo/(American Motors cars)
GM Van Nuys / (Chevrolet – Pontiac cars)
GM Southgate/(Buick, Olds, Ponitac)
Studebaker Vernon/ (Cars)
Chrysler LA / (Plymouth & Dodge cars)
Ford Richmond / (Cars and armored vehicles)
Ford Long Beach / (Plymouth & Dodge cars)
Chrysler San Leandro / (Plymouth & Dodge cars)
Willys – Overland Maywood / (Cars)
Chrysler Stockton / (Dodge trucks)
GM Oakland / (Chevrolet cars and trucks)
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 +
10. The case of Nissan North America
Nissan Trading Corp.
NNA - Corporate HQ Farmington Hills, MI - Est 1984
NNA – Decherd (Parts)
Gardena, CA - Est 1960 Decherd, TN - Est 1997
NNA - Smyrna plant
Smyrna, TN - Est 1983
CALIFORNIA
TENNESSEE
NNA - Corporate HQ
Franklin, TN - Reloc 2008
Nissan Design America NNA - Canton plant
San Diego, CA - Est 2005 Canton, MS - Est 2003
It is evident that proximity has strategic advantages; the question remains as for how long
will design operations be sustainable by themselves for Nissan in California and what other
companies will follow the example.
11. Biomedical industry in CA
9% employment reduction
Total Biomedical Employment by Cluster (2008) over the past 8 years
Sacramento 1.1% (medical device sub-sector)
Bay Area 19.5% 69,656
70000
Ventura/Santa Barbara 3.7% 63,638
Los Angeles 16.1% 60000
Orange County 11.1%
50000
San Diego 8.6%
Riverside/San 2.9% 40000
Bernardino
30000
20000
10000
0
•Second largest hi-tech sector on employment in CA 2001
2009
•36% of companies reduced their employment in 2008-2009
US Census Data, considering NAICS
Source: California Biomedical Industry – 2010 report; California Healthcare 334510, 334516, 334517, 339112,
Institute – PriceWaterhouse Coopers 339113, 339114, 339115.
12. Why the downsizing?
If your company’s R&D, manufacturing, general and administrative or overall
workforces inside California have been reduced in the past year, select the choices
(all that apply) that describe why.
Overall business climate/ cost of
Overall business climate/ cost of
doing business
doing business
Lack of tax incentives / unfavorable
13% Lack of tax incentives / unfavorable
13% tax environment
tax environment
4% 4% Infrastructure established elsewhere
Infrastructure established elsewhere
4% 4% 45% 45% incentives from other regions
4% 4% Cash Cash incentives from other regions
4% 4%
Qualified Qualified workforce elsewhere
workforce elsewhere
13% 13%
Willingness to tailor packages to
Willingness to tailor packages to
13% individualindividual company needs elsewhere
company needs elsewhere
13%
Cost of living elsewhere
Cost of living elsewhere
Other Other
Source: California Biomedical Industry – 2010 report; California Healthcare Institute – PriceWaterhouse Coopers
13. The end result
Transportation equipment General manufacturing employment
manufacturing employment in in California
California 2,500,000
300000
2,000,000
250000
200000 1,500,000
150000
1,000,000
100000
50000
- 59% 500,000 - 35%
0 0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1991
1992
1993
1996
1997
1998
2000
2001
2002
2004
2005
2006
2008
2009
1990
1994
1995
1999
2003
2007
A clear trend over 20 years of manufacturing employment loss.
AXIS, with data from California Employment Development Department
14. What do CEO’s think?
Best and Worst State Ranks 2010
(For doing Business)
Chief Executive Magazine
Bill Dormandy, CEO of San
Francisco medical device maker
ITC, summed it up: “California
has a good living environment
but is unfavorable to business
and the state taxes are not
survivable. Nevada and Virginia
are encouraging business to
move to their states with lower
tax rates and less regulatory
demands.”
16. Competitive disadvantages
• Workers compensation premium rates Rank = 37
• Travel time to work Rank = 44
• Median monthly housing costs Rank = 49
• % of Population aged 25 and over
that graduated from high school Rank = 48
• S&E degrees awarded per 100,000 hab. Rank = 31
• % of labor force represented by unions Rank = 45
• Minimum wage Rank = 44
17. More to come
In addition to the increasingly large number and complexity of
regulations that has typically doubled the approval time of projects
to 51 weeks versus 26 in other states -- increasing the cost of
operations in the long run-- there's more on it’s way:
– 2010 continued economic decline
– Implementation of AB 32
– ‘Card-Check’ Forced unionism bill
– Clean and alternative energy regulations
– Healthcare related regulation
18. WHAT ARE THE OPTIONS?
a) Closing down operations
• Direct and indirect loss of labor
• Tax base erosion
• Loss of economic base
b) Relocating to Asia
• Total loss of labor and partial loss of professional positions
• Partial tax base loss
• Partial loss of economic base
• Slower response to market
• Risk intellectual property
c) Relocating elsewhere in the US
• Total loss of manufacturing jobs and eventual loss of
professional positions
• Gradual tax base loss
• Gradual loss of economic base
Or partner with Tijuana and stay in CA.
19. $
Value added
Research and development
New product design
Key component manufacturing
Commodities manufacturing
AXIS | Strategic Intelligence Center, based in the Stan Shih model
Assembly and packaging
LCC
Tijuana
California
Extended value chain Logistics and distribution
Flexible partnering curve
Customization
solution
Customer service
Market and brnad development
How we can be part of the
20. An integrated industrial model= A
more COMPETITIVE region
CA •Finished / semi-finished goods
Headquarters
•Support services
Strategic Processes $
R&D Centers
Sales & Customer Service Current efforts in the
right direction:
= A Stronger
Regional
Economy
(CA exported $ 17.4 B USD
to Mexico in 2009) $
•Production outsourcing contracts
•Materials and parts $ TJ
•Support services Manufacturing
•R&D and tech support Outsourcing
21. Our proposal
Partner with Tijuana : the most convenient near
shore option.
PROS CONS
• Keeping in CA high value added operations. •Loose some of the manufacturing
employment .
•Keep strategic manufacturing processes and
jobs.
•Keep a significant proportion of your tax
and economic base.
•Keep a large portion of supporting
operations (labor multiplier of 5 to 15).
•Be time and cost competitive
•Strengthen a consumer and export market
22. Maintaining a good share of the
value added in many ways
"There are over 5,000 individuals on U.S. payroll commuting daily
from San Diego to Tijuana, and that number goes up constantly.
Nearly every manufacturing plant that locates in Tijuana creates
jobs for U.S. payroll individuals; in many cases companies have
over 20 professional level employees.
A significant number commute on hired shuttle services."
Fernando Ortiz-Barbachano
President, Barbachano International, Inc.
23. What others have done
• There are plenty of success stories
that confirm our model:
– Qualcomm (San Diego – Tijuana)
– CareFusion (San Diego – Tijuana)
– Solar Turbine (San Diego – Tijuana)
– Kyocera (San Diego – Tijuana)
– Sony/Foxconn (San Diego – Tijuana)
– Sanyo-Matsushita (San Diego – Tijuana)
– Yakima (San Diego – Tijuana)
– Avery Dennison (Pasadena – Tijuana)
– Mattel (El Segundo – Tijuana)
– Clayton (City of Industry – Tijuana)
– Teledyne (Thousand Oaks – Tijuana)
– Leach International (Buena Park – Tijuana)
– Meade Instruments (Irvine- Tijuana)
– Plantronics (Santa Cruz – Tijuana)
– Sunbank Corp. (Paso Robles – Tijuana)
Among others
24. Achieving specific benefits
Using the production sharing model =
reduction in manufacturing cost.
Labor costs are 40-80% lower
in Tijuana than in the U.S., and
the fully-burdened cost for
most manufacturing or
assembly operations ranges
from as little as $7 and up to
$15 per shop hour (including
direct labor and support staff,
plus all facility and operating
costs).
25. What's in it for you?
While already very cost- Description
US Cost Tijuana Mex. Cost
competitive, the recent decline in Employees
value of the Mexican peso in 2009- Number of Employees 140 140
Direct 101 101
2010 has made the cost of doing Indirect 25 25
business in Tijuana even lower… Administrative 14 14
Hours/Work Week 40 48
Hours per year 2080 2496
…typically more than 50% lower Labor Cost per
than in the U.S. …not to mention Hour
Direct Labor Cost/Hr $ 12.97 $ 2.95
Mexico’s Indirect Labor Cost/Hr $ 21.71 $ 12.35
Admin Labor Cost/Hr $ 24.47 $ 22.65
48-hour work week…
Factory Cost
Labor $ 12.97 $ 2.95
*COMPARATIVE COST ANALYSIS AND Overhead $ 7.90 $ 4.64
POTENTIAL SAVINGS, OF A TYPICAL 140 General & Administrative $ 3.87 $ 3.70
EMPLOYEE MEDICAL DEVICE Factory Cost/Hour $ 24.74 $ 11.29
MANUFACTURING OPERATION LOCATED
Total Operating Cost $ 5,196,584 $ 2,846,436
IN THE US AFTER RELOCATING TO
TIJUANA, MEXICO Potential Annualized Savings $ 2,350,148
Notes: 1.Exchange rate at $13 Mexican Pesos per $1 US Dollars; 2. Does not include Interest, Amortization & Depreciation;
3. Does not include relocation costs.
26. How to get started
3 phases to establishing operations in Tijuana:
DETERMINE THE SCOPE SET UP YOUR
GET TO KNOW
OF OPERATIONS BUSINESS IN TIJUANA:
TIJUANA :
SUITABLE FOR
NEARSHORING: • Incorporate Mexican
• Receive information
Company
in print or electronic
• Estimate total cost • Register with fiscal
format
savings and labor authorities
•Evaluate operation (state and federal)
• Visit existing
model (Shelter, • Obtain Facility (lease-
operations in Tijuana
outsourcing, stand buy)
alone ops.) • Open bank accounts
• Meet with key
• Decide on ownership •Start your set-up
institutions
structure process. Etc…
Tijuana’s EDC and its members are here to assist you
in EVERY STEP TO RECOVERY.
27. Regional Team-Marketing
• Seminars in
Northern
California
• Joint Presentation:
– Implementing
your Near-Shore
Strategy in the
San Diego-Tijuana
Region
