Business Leadership Along the

1
Business Leadership Along the U.S.-Mexico
Border
The Honorable Lucy Killea Senior Fellow
International Community Foundation Kenan
Institute Cornerstone Conference Chapel Hill,
North Carolina November 14, 2002
2
Presentation Overview

• About ICF
• An Overview of the U.S.-Mexico Border
• A Review of the Maquiladora Industry
• Making the case for Business Leadership
• Case Study Sempra Energy
• Conclusion

3
About 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.

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The 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.

5
North Americas 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
  1,389,709 38.90
• 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
  711,241 28.50
• 7 Matamoros-Brownsville 752,460
  563,413 33.60
• Nuevo Laredo-Laredo 509,451 352,807 44.40
• 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.

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Population Growth RateBaja California versus
rest of Mexico
5.94
4.15
1.85
Source INEGI, 2000
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.
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San Diego/Baja California Border Regional Issues

• Sustainable Communities
• Population 2000 4.1 million. 2020 6.4 million
• 80,000 new residents to Tijuana per yearmostly
  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 Childrens Issues
• Domestic violence drug/gang violence teen
  pregnancy few safe recreational areas and
  after-school programs for children/youth

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• 50 of Tijuanas 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 borders high cost of living, the
  majority of households require two incomes to
  provide for their basic needs.

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OverviewMaquiladora IndustryEffective 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
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Examples of Border Area Maquiladoras
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Maquilas by Country January 2001
US Maquilas represent the majority of total
activity
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Border Area Maquiladora Industry by Sector
Source INGEGI, 1998
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Maquila 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)

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A Sample of Recent Tijuana Maquilas 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.

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
Source Business Week, April 29, 2002
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Maquiladora Employment Percentage Change
Workforce employment has been down since 2001, a
product of the US recession, foreign competition
and 9/11 among other factors

Source Latin Focus, 2002
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Making the Case for Business Leadership Along 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.

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Case StudySempra 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.

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A few Sempras Corporate Philanthropic
Initiatives through ICF in Baja California
Museo Sol del Niño Mexicali
Construction of Visitors Center Exhibit area, San
Pedro Martir National Park, Baja California in
conjunction with re-introduction of the
California condor.
Sports facilities and womens center in Maclovio
Rojas, Tijuana, B.C.
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Conclusion

• 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.