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     Mexico: Selling to the Maquiladora Industry in Baja California.

    Page 1 of 7

    Judith Valdes-Breidenstine

    March 11

Summary

    This report reviews the opportunities for U.S. firms to sell to the maquiladora industry in the Baja California region of Mexico.

    Baja California’s maquiladora industry accounts for almost 30 percent of the country’s export manufacturing industry with 932 plants, generating approximately 258,000 jobs. The State of Baja California has a population of 3.5 million and an annual population growth rate of 4.34 percent, with the largest concentration in the cities of Tijuana and Mexicali, with 47 and 33 percent of the population respectively. It is a hardworking industrial region with more than 40 years of experience in international production-sharing activities. According to the State’s Economic Development Office, the State is home to 70 percent of all Asian investment in Mexico, mostly in the area of electronics, where manufacturing reached over 20 million television sets and computer monitors in 2006 (latest figures available). According to Mexican Customs, in 2006 the import market for the maquiladora industry in Baja California exceeded $21 billion, of which over 40 percent was destined for electronics manufacturing, followed by automotive and medical.

    From 2001 to 2004, several factors negatively impacted the industry, causing the closure and relocation of over 200 plants to countries with lower operating costs. From 2005 to present, the maquiladora industry entered into a new stage of recovery to levels prior 2001, with new investment in expansion and new technology applied to manufacturing, generating significant opportunities for U.S. suppliers. The most promising sectors include: electric machinery, equipment and parts (HTS Chapter 85); plastic and articles of plastic (HTS Chapter 39); machinery (HTS Chapter 84); articles of iron or steel (HTS Chapter 73); paper and paperboard, articles of paper pulp (HTS Chapter 48), among others.

Market Demand

    During 2006, approximately 80% of Baja California's maquiladora imports were found in the following six HTS chapters:

    Chapter 85 Electrical Machinery and electronic parts

    Chapter 39 Plastic and related materials.

    Chapter 84 Machinery and Mechanical Appliances.

    Chapter 73 Articles of Iron and Steel.

    Chapter 48 Paper and paperboard.

    Chapter 90 Medical or surgical instruments.

    Mexico: Selling to the Maquiladora Industry in Baja California.

    Page 2 of 7

    As the above listing illustrates, the assembly of electronic products (HTS Chapter 85) is the main maquila sub-sector in terms of import value. According to Producen, the State’s Center of Strategic

    Information, Baja California is the border state with the greatest number of electronics plants with 193, generating over 91,000 direct jobs, and manufacturing mainly computer and peripheral equipment, communications equipment, semiconductors, control and measuring equipment, audio and video equipment, household appliances and other electrical equipment and components. In 2006, manufacturing plants in Baja California produced approximately 20 million television sets and computer monitors. Largely drawn from the seven largest electronic maquiladoras: Hitachi, JVC, Matsushita, Sanyo, Samsung, Sony, and Sharp. While these plants continue to produce small amounts of conventional television sets, they have almost completely switched to the manufacturing of plasma, DLP (Digital Light Processing) and LCD (Liquid Crystal Display) flat-screen sets. The great

    majority of these large plants are concentrated in Tijuana, with 121 plants, followed by Mexicali with 39 companies. The major components and parts imported during this year in this sub-sector were: u-audio/video, k-audio amp boards, semiconductors, electrolytic capacitors, controls, coils, transformers, resistors, speakers, cabinets and cabinet parts, picture tubes, wire assemblies, cable assemblies, top covers, power cords and tap screws.

    A second important sub-sector in Baja California’s maquiladora industry is the automotive sector, which currently has 82 plants, employing approximately 30,000 people. Forty-eight of these plants are located in Tijuana with main investment driven by Toyota, Kenworth and Hyundai, manufacturing respectively the Tacoma, Kenworth and Hyundai trucks. In addition to existing plants, China’s ZX Auto and Chamco, its US partner, recently announced a $400 million plan to establish North America’s first Chinese auto plant in Tijuana, Baja California. The first cars and pick-ups are

    expected to be manufactured by the end of 2008, with an eventual workforce of 5,000 people.

    An additional important sub-sector in Baja California’s industry is the manufacturing of medical devices with a concentration of 62 large companies, generating over 35,000 direct jobs. Thirty-six plants are located in Tijuana. Among the products they manufacture are electro-medical and electrotherapeutic equipment, medical irradiation apparatus, surgical and medical instruments, dental and medical testers, among others.

    One last significant industry in Baja California is the manufacturing of plastic parts, used in other Baja California industries, such as electronics, automotive, medical and aerospace. Currently, the industry is composed of 138 companies that generate more than 25,000 direct jobs. Tijuana stands out with 66 percent of the industry. Manufacturing profiles vary and include plastic cabinets for television and computer sets, plastic caps, containers, plastic film for packaging and toys.

    Market Data

    ESTIMATED MAQUILADORA IMPORTS

    BAJA CALIFORNIA

    (US$ MILLIONS)

    2004 2005 2006

    Import market 17,156.0 18,919.71 21,875.82

    Mexico: Selling to the Maquiladora Industry in Baja California.

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Local production 343.12 378.39 437.51

    Total market 17,499.12 19,298.10 22,313.33

    Percentage of Imports from U.S. 58.95 52.40 47.58

    Source: Mexico's Secretariat of Economy (World Trade Atlas) and Mexican Customs Office in Tijuana, Mexico

Best Prospects

The following list was obtained by CS Tijuana during a major maquila trade show in Tijuana (BajaMak

    2007). It reflects targets of opportunity in the main sub-sectors of the State’s maquiladora industry:

     1. Subcategory for the Plastic sector:

    ; Molded pieces (in general)

    ; Molded pieces of high precision

    ; Hoses/pipes/tubes and other extruded materials

    ; Blow molding (manufactured pieces)

    ; Thermo formatted pieces

    ; Roto-molded manufactured pieces (rotational molding)

    ; Plastic films (flexible and rigid)

    ; Plastic coverings of other materials (wood, metal, textile)

    ;