Business Leadership Along the U.S.-Mexico Border

The Honorable Lucy KilleaSenior Fellow

International Community Foundation

Kenan Institute Cornerstone ConferenceChapel Hill, North Carolina

November 14, 2002

Presentation OverviewPresentation Overview

About ICF An Overview of the U.S.-Mexico BorderA Review of the Maquiladora IndustryMaking the case for Business Leadership

– Case Study: Sempra EnergyConclusion

About ICFAbout ICF A community foundation committed to assisting U.S. donors

with international giving. Assets over $1 million and 41 funds. Over $895,000 in grants during FY-02. Geographic focus: the Americas and Asia with an emphasis

in Mexico.– Over 46% of grants made to non-profits and charitable causes in

Baja California border region. Primary Areas of focus: Environment, Health, Education,

Sustainable Communities, and Culture. Close working relationship with FINCOMUN, the community

foundation for Baja California.

The U.S.-Mexico BorderThe U.S.-Mexico Border A 200-kilometer zone that extends 100 kilometers on either side of the border

stretching 3,141 kilometers or 1,952 miles from the Pacific Ocean to the Gulf of Mexico.

Home to more than 10.5 million people, with about 6.2 million in the United States and 4.3 million in Mexico– Fastest growing region in North America.– Border population expected to double to 24 million by 2020.– US. Border area is poorest region in the country.

39 Mexican municipalities, 25 U.S. counties and 14 pairs of sister cities along the international border.

Communities sharing natural resources (including water, air, flora/fauna) along a common border with a wide range of trans-boundary socio-economic and environmental challenges.

North America’s Border Sister Cities North America’s Border Sister Cities Rank Metropolitan Area 2000 1990

Change

1 Detroit-Windsor 5,801,926 5,447,569 6.50%

2 San Diego-Tijuana 4,065,359 3,245,397 25.30%

3 Ciudad Juarez-El Paso 1,930,756 1,389,70938.90%

4 Buffalo-St. Catherines-Niagara 1,547,877 1,549,992 0.10%

5 Mcallen-Reynosa-Rio Bravo 1,073,720 760,221 41.20%

6 Mexicali-Imperial County 913,787 711,24128.50%

7 Matamoros-Brownsville 752,460 563,41333.60%

8 Nuevo Laredo-Laredo 509,451 352,80744.40%

9 San Luis Rio Colorado-Yuma 283,762 217,425 30.50%

10 Piedras Niegras-Eagle Pass 177,763 134,563 32.10%

Sources: National Census Bureau data for Mexico, 1990 and 2000, United States 1990, Canada 2000, Demographia, estimates for United States 2000 and Canada 1990.

Population Growth RatePopulation Growth RateBaja California versus rest of MexicoBaja California versus rest of Mexico

0

1

2

3

4

5

6

% Growth Rate 1990 to 2000

Baja Calif

Chihuahua

Nuevo Leon

Sonora

Tamaulipas

Coahuila

Mexico Avg.

Quintana Roo

Baja California has the fastest growth rate along the border and is 2nd in Mexico only to Quintana Roo, located on the southern border with Guatemala. The current rate of growth is unsustainable.

4.15%

1.85%

5.94%

Source: INEGI, 2000

San Diego/Baja California San Diego/Baja California Border Regional IssuesBorder Regional Issues

Sustainable Communities:– Population 2000: 4.1 million. 2020: 6.4 million– 80,000 new residents to Tijuana per year—mostly through migration– Infrastructure (social, physical) not keeping pace with population growth

50% of all new housing stock is in squatter communities without adequate sewer hook ups or potable water.

Environment: – A variety of trans-boundary environmental issues : conservation of natural resources; protection of endangered

species; air quality; water quality and supply; hazardous waste management, emergency response. Health:

– HIV/AIDS; TB; Hepatitis, substance abuse, mental health issues, high percentage of residents on both sides of border are uninsured.

Education: – Educational attainment and skills gap issues; high drop out rate among migrant children/youth.

Family and Children’s Issues:– Domestic violence; drug/gang violence; teen pregnancy; few safe recreational areas and after-school

programs for children/youth

•50% of Tijuana’s growth is in squatter communities like Maclovio Rojas, where basic infrastructure is limited and the environmental, health and social impacts are great. •80% of adults in Maclovio Rojas work in the maquiladora industry.• Because of the border’s high cost of living, the majority of households require two incomes to provide for their basic needs.

OverviewOverviewMaquiladora IndustryMaquiladora Industry

Effective October 2002Effective October 2002 Number of Plants: 3,375 Employment:

1,047,587– % of women in workforce: 60%

Average Direct Labor Wage/Hr.  US$ 2.38 (Fully burdened rate including benefits)

Gross Production $ 7.11 billion

Sources: Maquila Portal; Ceimex-WEFA

•Boeing•Canon Business Machines •Casio Manufacturing •Chrysler •Daewoo •Eastman Kodak/Verbatim •Ericsson •Fisher Price •Ford •JVC •GM •Hasbro •Hitachi Home Electronics

•Honeywell, Inc. •Hughes Aircraft •Hyundai Precision America •Matsushita •Mattel •Maxell Corporation •Mitsubishi Electronics Corp. •Motorola •Philips •Pioneer Speakers •Samsonite Corporation •Samsung •Sanyo North America •Sony Electronics •Toshiba •Zenith

Examples of Border Area MaquiladorasExamples of Border Area Maquiladoras

US Maquilas represent the majority of total activity

Maquilas by CountryMaquilas by CountryJanuary 2001January 2001

Border Area Maquiladora Industry by SectorBorder Area Maquiladora Industry by Sector

Source: INGEGI, 1998

Maquila Industry in TransitionMaquila Industry in Transition Maquiladora employment has declined due to a number of key factors

– Rising labor rates– NAFTA Article 303 results in tariff benefit elimination– Post 9/11 tightening of border.– US recession and decreasing consumer demand.– Strong Mexican peso– Growing foreign competition (e.g. China-.$043/hour, El Salvador-$1.59/hr;

Dominican Republic-$1.53 ; Vietnam-$.05; versus $2.38/hour in Mexico) Foreign investment in the maquiladora sector has strunk 23% within the

last year. Between June 2001 and March 2002, some 240,000 maquiladora jobs, 18

% of the total we lost--350 plants shut down

– Baja California lost 63,000 jobs during this time frame.

Still, those industries with need to be close to US market remain (e.g. Heavy industry; automobile; some electronics)

A Sample of Recent Tijuana A Sample of Recent Tijuana Maquilas DefectionsMaquilas Defections

Saft, French battery producer

Aldila, a golf club maker

Kisho Electronics, a Korean TV and computer circuit-board maker

Cannon, Inc, a Japanese ink-jet-printer factory (shifted production to Vietnam)

Casio, a Japanese electronics manufacturer.

Source: Business Week, April 29, 2002

A March 2002 poll by the Japanese Maquiladora Assn found that 40% of the 71 companies surveyed said they were considering eliminating assembly operations or moving entire factories elsewhere

]

Maquiladora Employment Maquiladora Employment Percentage ChangePercentage Change

Source: Latin Focus, 2002

Workforce employment has been down since 2001, a product of the US recession, foreign competition and 9/11 among other factors

Making the Case for Business Leadership Making the Case for Business Leadership Along the U.S.-Mexico BorderAlong the U.S.-Mexico Border

Since the passage of the North American Free Trade Agreement (NAFTA), the population and industry has grown along the U.S.-Mexico border but investment in social services and infrastructure has not kept pace.

While maquiladora employment has declined, unemployment and poverty have increased so the need for greater corporate leadership is now very critical.

At the same time, corporate philanthropy on the border has been marginal at best:

– Absence of strong corporate HQs along border has kept region largely out of the loop on corporate foundation support.

– Maquilas are cost centers and generally not disposed to philanthropy with a few exceptions (GM, Levi Strauss, Sony,. Mattel).

– Other key non-maquila companies are beginning to show leadership (ATT, Citibank, Sempra)…but more needs to be done.

Case Study:Case Study:Sempra EnergySempra Energy

A Fortune 500 company based in San Diego with over 12,000 employees– 350 employees in Baja California

Has been active in Baja California for over 15 years and currently has several projects throughout the state.– Natural Gas pipeline from US to Mexico (BajaNorte)– Gas-fired power plant under construction (Mexicali)– Planned LNG facility in Ensenada– Natural gas offered to consumers via its Eco-Gas subsidary in

Mexicali (50,000+ residents to date) Also operates in the border states of Chihuahua and Coahuila. A committed corporate philanthropist, working through ICF to

support a wide range of causes in the border area including the environment, education, health and social services.

Construction of Visitors Center Exhibit area, San Pedro Martir National Park, Baja California in conjunction with re-introduction of the California condor.

A few Sempra’s Corporate Philanthropic A few Sempra’s Corporate Philanthropic Initiatives through ICF in Baja CaliforniaInitiatives through ICF in Baja California

Museo Sol del NiñoMexicali

Sports facilities and women’s center in Maclovio Rojas, Tijuana, B.C.

ConclusionConclusion The U.S.-Mexico border faces severe socio-

economic, health and environmental issues that warrant serious attention by companies and corporate foundations with a presence on the border.

While the lagging US economy hurting maquila production short-term, the sustainability of the border region is of strategic importance to a wide range of US and foreign companies.

Border area grantmakers (foundations, government, corporations) need to work together, leveraging resources and lessons learned to make a difference in this important underserved region of North America.