TEXAS - MEXICO TRADE

Transcription

1 Creating Manufacturing Opportunities for the Region TEXAS - MEXICO TRADE CORRIDOR CONSORTIUM Regional Manufacturing - Global Competitiveness

2 For more information or to Join the Research Consortium please contact: F. Barry Lawrence, Ph.D. Harvey Hubbell Professor in Industrial Distribution Program Director, Industrial Distribution Program Director, Supply Chain Systems Laboratory 3367 TAMU, Texas A&M University, College Station, TX Office : (979) Mobile : (979) Fax : (979) lawrence@entc.tamu.edu For More Information in México Contact: Carlos Acosta Director of Advanced Technology Tel: +(52) Cel: +(52) carlos@entc.tamu.edu Global Manufacturing & Distribution Initiative Monterrey Texas A&M University Parque de Investigación e Innovación Tecnológica Alianza Sur No. 203, Autopista al Aeropuerto Km. 10, Apodaca, Nuevo León. México C.P Francisco Villanueva Supply Chain Manager Cel: +(52) francisco@entc.tamu.edu Global Manufacturing & Distribution Initiative Guadalajara Texas A&M University Universidad Panamericana - Campus Guadalajara Calzada Circunvalación Poniente #49 Ciudad Granja, Zapopan, Jalisco, México C.P

3 Research Consortium The Texas A&M Global Manufacturing and Distribution Initiative has established a Research Consortium conducting research and developing solutions for Ease of Doing Business along the Texas - México Trade Corridor. The consortium focuses on increasing throughput, decreasing time and cost, to create and optimize logistics and manufacturing opportunities in the region. The consortium brings together companies, logistics providers, and government entities to partner on finding ways to make the area the preferred regional manufacturing and logistics corridor. What is a Research Consortium? A Research Consortium is a collaboration of two or more companies, associations, universities or government agencies to conduct research with the objective of developing solutions to a problem or a challenge common to everyone by pooling their resources for achieving a common goal. Why join a Research Consortium? Many times organizations cannot afford to invest in some research and development due to high cost and/or lack of knowledge resources required to conduct the research. Research Consortiums are an economical path to low cost, high quality research and development that is essential to the achievement of objectives. Consortium members are also able to share experiences and best practices developed in their fields to further enrich the research findings and consortium meetings. Who should join this Research Consortium? This Research Consortium will be beneficial to: Manufacturers in Texas and Central and Northern México. Logistics, transportation, distribution and other service providers City, county, state and federal government entities and Economic Development entities. What are the Benefits? The benefit to the consortium members include the opportunity to actively participate in this ground-breaking research to determine the challenges and opportunities associated with streamlining the region by bringing together solutions and services that add value to customers in the Supply Chain. Member organizations will shape the results through their involvement and benefit by understanding the future business and public resources needed to optimize regional success. In depth research results will be given to consortium members for planning purposes and government entities to encourage economic development for the region. Broader findings will be shared with the public through colloquia and press releases to encourage support for regional development. Deliverables:» Custom Project: As a member of the consortium, Texas A&M research team will conduct a project of your choice. Sample projects from other members include facility location, manufacturing feasibility and cost analysis, supplier selection, market analysis, transportation mode and route evaluation, port marketing study etc.» Educational Program: In lieu of a project, Texas A&M will be able to conduct a 1.5 day educational program of your choice at your location for up to 50 people. Educational programs can be conducted in Inventory Optimization, Asset Management, Pricing Optimization, Lean Supply Chain Management, Optimizing Sales and Marketing or a mix of topics. For a complete list of programs, visit Economic Advisory Council (EAC): As a member of the consortium, your organization will be a part of the select industry - government Economic Advisory Council, a joint working group of industry, economic developers and government, to bring industry challenges and needs to policy makers on infrastructure investments and trade promotion.» Trade Competitive Conferences: As a member of the consortium, you can bring in any number of participants to the 'Texas - Mexico Trade Competitive Conference' held in US and Mexico. Schedule: The Research programs will begin January 2010 and conclude January Three consortium meetings will be held to report findings and receive guidance from consortium members. Consortium meetings will be held in Mexico City, Laredo, Monterrey, and Washington D.C. with accompanying publications and media coverage to promote findings. Consortium Structure and Fees: The membership fee for the consortium is $25,000. The consortium is supported by Federal matching funds. Consortium members will receive all findings created from all sources. For further information or to join the consortium please contact Dr. F. Barry Lawrence at lawrence@entc.tamu.edu 3

4 Texas - México Trade Corridor Consortium Ease of Doing Business Overview & Need The Texas - México Trade Corridor has grown beyond an important logistics crossroad into a major regional manufacturing zone since the introduction of the North American Free Trade Agreement (NAFTA). In addition to NAFTA s effect on reduced trade restrictions and lower tariffs, regional growth has been bolstered by a number of powerful factors. In the early growth phase, many manufacturers moved to Mexico to take advantage of lower labor costs. While Mexican labor rates remained far below the US, in the late 1990 s, business began to shift to China to seek even lower wages. The decision to locate in China was not always the right one, however, and the rise in oil prices and currency fluctuations of 2008 caused many to reconsider. Mexico now attracts many businesses for a variety of reasons: The cost of labor is still an attraction. Labor savings can easily be overwhelmed by other factors, however. Transportation costs and times are lower due to proximity to the US. Large markets like Houston, San Antonio, and the Dallas - Ft. Worth Metroplex (three of the ten largest cities in the US) can be reached within a day from the border. Education levels and middle management skills are higher in Mexico than in most other outsource markets. Cultural, language, legal, and customs issues are less troublesome due to NAFTA and a rich shared history between the US and Mexico. Mexico often has access to raw materials that are not available or are more expensive north of the border. Texas also attracts business for a variety of reasons that are related to its relationship with Mexico. These connections are critical to many business sectors but are often not well understood. Texas receives goods from Mexico for next stage manufacturing. Texas manufactures goods that are imported into Mexico and then re-imported to Texas sometimes for further manufacturing. Perhaps most significant, Texas provides many services that are not counted in trade numbers. These services range from training and education to legal and beyond. Texas strengths in leveraging the relationship come from: Texas firms have greater access to technology since products with a high sensitivity to Intellectual Property protection are more likely to remain on the US side of the border. While Mexicans highly value education, Texas Universities have vast resources and Texans often have greater access to higher education. Cultural, legal, and customs issues are even lower in Texas than in Mexico. Texas often has better access to regional suppliers. 4

5 Very large markets in Texas. In addition to the large cities, even mid sized cities like Austin (one of the top twenty) are numerous and represent a major opportunity. Texas is an important corporate hub with a large number of companies headquarters in the state. These factors and others continue to support growth of manufacturing in the region. Notice that the strengths of Mexico nicely compliment Texas needs and vice versa. Problems remain, however, and if the Mexico Texas Trade Corridor is to continue its success improvements are necessary. The key to success in any business endeavor is to achieve best practices and establish relationships that facilitate the Ease of Doing Business with partners. The more difficult a region makes it to operate or generate a profit, the more likely it will not be the region of choice. Problems Ahead While Texas and Mexico have many shared and complementary strengths, weaknesses remain and could become debilitating. The most common complaint from industry is congestion at border crossings. Even as massive improvements have been and continue to be made, the general impression is that the border is a bottleneck. The perceptions are often inflated and indicate a need to make corporations aware of true crossing times. However, while things are improving, the Mexico Texas Trade Corridor lags far behind the US Canadian and European Union borders in terms of best practices that could facilitate trade. There remains a need to improve processes and educate the business community on what has been done. Infrastructure issues are growing. Mexico has many ambitious infrastructure projects underway. Texas has the highest rated highway system in the US. Still, Mexico s diverse and vast landscape coupled with rapid urban growth presents problems. The distance between Dallas and Laredo is 450 miles and takes about 12 hours by truck. The distance between Nuevo Laredo and Mexico City is 570 miles and takes between 24 and 28 hours. Mexican highways route through major cities and are slowed by road conditions and traffic congestion. Texas advantage is eroding as well and recent events have demonstrated that Texans may not be as willing to invest in highway development as in the past. Initiatives to increase North South highway capacity have stalled or died. Rail has made some progress but urban congestion on both sides of the border remains an issue. Industry cluster development. The key to regional growth is the development of industry clusters that include manufacturers supported by the right employee and supplier base. Many regional manufacturers who move to the Mexico Texas Trade Corridor find it difficult to find the right suppliers within the appropriate distance. Automotive manufacturers, for example, want their suppliers to be within a single day delivery distance and customers even closer. Figure 1 demonstrates that for the auto industry, there is a shortage of 5

6 suppliers (compared to the north central and southeast) and a general mismatch between manufacturing capacity and customer markets. Attracting the right suppliers and, in general, increasing capacity to be consistent with the market is a major opportunity for the corridor. An argument must be made to attract them. Figure 1: An Imbalance between Customers and Suppliers Workforce agility affects regional manufacturers and communities equally. Examples abound where a business is drawn to a region only to discover that local education institutions do not offer the right programs or training for an effective workforce. These institutions make changes at a pace slower than industry, lack the necessary resources to introduce new programs as industry needs evolve, and often operate off models that treat education and training as different processes where education is more highly valued. The result is an increased training burden on business firms. Communities often suffer when key businesses find a better match and move on leaving workers displaced while educational processes struggle to introduce retraining to support new replacement industries. Customs and legal constraints have always been and remain one of the most costly business issues. While NAFTA has improved many processes, most businesses treat customs documentation as a major business expense. The cost of filling out required documentation and the legal and other expenses necessary to meet complex custom processes are significant. Delays caused meeting these procedures result in additional inventory in the trade corridor supply chain, a prohibitive cost that discourages business in the area. Security issues while also often exaggerated by the media and others are significant nonetheless. Truck hijackings are not new to either country but 6

7 Mexico does suffer a higher incidence than the US. The problem can be exacerbated by a different legal system that may make recovery more difficult than in the US. Options are higher insurance or paying for increased security on trucks, at warehouses, etc. In all cases, the higher cost discourages business investment. A more worrisome concern in recent years has been that of personal security. Many businesses express concern over employee safety. Crime issues in some border towns have received extensive coverage and media reports have often erroneously extended those problems to the entire country of Mexico. Risk is a major factor in business decision-making. Competition between cities, states, and communities on both sides of the border has also slowed progress. Whether for state or federal highway funds or bridge construction or many other investments the state and federal governments on both sides of the border may make, cities and states often come into conflict. Highway systems in Texas have stalled because cities not on the direct route lobby against the expenditure. The reasons can be as varied as wanting the support for their own infrastructure or fear the improvements in one area will draw business away from another. Bridges on the border have been delayed for years while communities argue in which part of town the bridge should be. On the Mexico side, states compete for highways that would increase throughput (good for business) by diverting traffic from a high congestion zone to another (bad for the highly congested business district). Competition affects ports as well with inland ports fighting over highway improvements or customs procedures and seaports fighting over business and attempting to slow or divert competitive ports attempts to upgrade their facilities. Perceptions of US job losses. While US manufacturing output has increased over the years, manufacturing employment has dropped considerably. Two causes are called out in public debate. One is automation, a necessary efficiency that keeps US manufacturers at home but eliminates jobs. This factor is the largest one but not the most emotional. The emotional one is outsourcing to lower labor cost markets like China and Mexico. The perception is that these lower cost labor markets are one way job loss for US workers. One could make the argument that this is true for China since exports to China are overwhelmed by imports. For Mexico, however, the argument is suspect since Mexico is the second largest consumer of US goods. If oil is removed from the equation, Mexico s trade relationship begins to approach parity with the US (see Figure 2). The displacement of US jobs (as concerns Mexican outsourcing) has more to do with exporting industries growing at the expense of less competitive industries. Note the less competitive does not solely refer to the wage issue, however, as many firms that move to Mexico do so more for proximity to the Texas and Mexico metropolises than for wage advantages. The need to manufacture in the region your customers reside in becomes ever more critical as transportation costs increase and inventory holding costs explode under the pressure of rising customer demand for complete availability anywhere, anytime. 7

8 Figure 2: Mexico as a Valued Customer 2008 Top US Trading Partners by Total value of Export/Import of Goods Exports Source: U.S. Department of Commerce, Census Bureau, Trade Division Perceptions of Mexico as a neighbor. In spite of a tremendous trading relationship, an average of one million Americans living, visiting, or doing business in Mexico on a daily business, and rich shared cultural history, Mexico often finds itself subjected to extreme and unfair criticism from the US. Illegal immigration complaints are often directed at Mexican workers rather than at US employers who hire them or an immigration policy that make legal worker status difficult for many Mexicans. Instead of being viewed as victims who risk their lives for a chance at a better life, they are often described as criminals. When drug cartels became a menace in some border cities, many in the US blamed Mexican police authorities who risked and often lost their lives rather than the US distributors and customers who bought the product. The criticism also failed recognize; for quite sometime, that the well armed cartels overwhelming the police got their weapons from US suppliers. This tendency to denigrate the relationship demonstrates problems between the US and Mexico that must be addressed to ensure a positive trade environment. Understanding the value of NAFTA. For many of the foregoing reasons, NAFTA is often viewed negatively in the US. Most disturbing, it is viewed in a negative light by many Texans. No one can blame people in the Rust Belt for questioning the value of NAFTA but for Texans who reap an economic benefit in excess of 100 billion dollars of trade and an unrecorded bonanza of services to question NAFTA is troubling. Texans simply do not understand the value of NAFTA, especially to the state of Texas. When decisions regarding NAFTA are made at the federal level, Texas must speak loudly in its defense. If Texas does not defend NAFTA, no one in the US will. Texans need an education on the value of NAFTA. 8

9 Objectives Solution Approach The key objective of this consortium is to bring together groups of companies (manufacturers and distributors), logistics providers, government and economic development entities to study: Best practices for doing business in the region. Market potential on both sides of the border for different manufacturing and distribution industries. The Critical Success Factors for the region to be successful and increase the Ease of Doing Business. The region s logistics / transportation needs to be successful as the preferred logistics corridor. How to collaborate as a region and not as individual ports / cities to make this region successful. Determine what industries can be best supported by the region from a logistics, human resources, raw materials, and general supply chain perspective. How to attract new manufacturing and logistics capability to the region in support of and supported by the corridor (economic development and marketing). Return on Investment (ROI) for local communities in terms of job growth and income. The research approach is: Conduct consortium workshops to bring together all members to discuss and understand customer needs, challenges, information / data needed to address the challenges and possible solutions. Conduct ad-hoc research on the region s ports, transportation routes, railway lines, key cities, maquila industries and their capacities. Understand the needs of exporters from Asia and Europe, importers in Mexico and US. Determine the customer needs assessment and potential solutions for the region. Study end-customers and the impact of Ease of Doing Business on their operations. Convert end customer needs to measurable strategies and actions for communities and development groups. Determine the Critical Success Factors (CSF) required for the region to compete and be successful as a logistics corridor of the future. Discuss strategies, tactical plans, and measurements (milestones) for business conditions for the region and a roadmap for firms to optimize their regional strategies. Determine which industries are the best fit for the region. Develop marketing strategies, plans, and materials for economic development. Develop strategies and procedures for firms interested in locating and operating in the region. 9

10 Methodology A Texas A&M led research team will perform ad-hoc research and collect data on the region s ports, transportation routes, railway lines, key cities, maquila industries and their capacities. The team will collaborate with consortium members on the collection and validation of data. The consortium workshops will provide an avenue for discussion of potential areas to study and solutions / ideas to determine and validate. The manufacturers, distributors, and logistics providers will be able to provide the needs of the customer from a time, cost and efficiency standpoint. The government and economic entities would be able to provide information on how the investments and plans could affect the trade and economic impact of the region. The Texas A&M research team will study Ease of Doing Business to determine the how the Mexican and US importers and customers work with Asian and European manufactures on improving the supply chain. Ad hoc, empirical, and analytical research models will be built and combined with logistical and economic development strategies. Value to Members The consortium s mission is provide practical solutions and best practices for manufacturers, distributors, logistics firms and to provide government and economic development organizations with strategies for marketing the region and creating the best business environment. In addition to general studies and shared best practice information between consortium members, each organization receives a confidential report from a project conducted specifically for them. The Value to Manufacturers comes from the ability to influence and work with political entities investing in improving regional infrastructure. A project will also be conducted for each manufacturer to develop solutions for operations in the region. Example projects for manufacturers that the consortium has conducted include: Determining how to optimize delivery of heavy machinery from choice of port, transportation processes, and routing. Establishing a manufacturing supplier network for a high tech manufacturer. The Value to Distributors comes from the ability to influence and work with political entities investing in improving regional infrastructure. A project will also be conducted for each distributor to develop solutions for operations in the region. Example projects for distributors that the consortium has conducted include: Market and customer identification studies for industrial distributors. Tools to demonstrate the value of distributor services to Mexican manufacturing operations. 10

11 The Value to Logistics Providers comes from the ability to influence and work with political entities investing in improving regional infrastructure. A project will also be conducted for these firms to develop solutions for how corporate and government organizations should invest in the region. Example projects for logistics providers that the consortium has conducted include: Analysis of warehousing and border infrastructure services to demonstrate value to customers. Analysis of location decisions to create informational materials that demonstrate where and how manufacturing and distribution firms should establish operations. The Value to Government and Economic Development Organizations is to demonstrate the significance of this region for corporate investment. These organizations work with the research team to generate and disseminate results. Examples of some economic development projects to date include: A book titled The Mexico Texas Trade Guide designed to inform potential investors in the region and the general public on the value of this critical trading relationship. The book sweeps away public misconceptions about NAFTA, Mexico, and the trade corridor. Establishing a strategy and marketing materials for a port to use in communicating with its customers. Schedule From January 201 January November 2010 January December 2010 January 13-14, 2010 July 14-15, 2010 January 12-13, 2010 : Membership Enrollment : Conduct Research and Develop Results : Company / Organization specific projects and educational programs. : Consortium Meeting #1: México City, México : Consortium Meeting #2: McAllen, TX : Consortium Meeting #3: Austin, TX Texas A&M Global Manufacturing & Distribution Research Initiative The Texas A&M Global Manufacturing & Distribution Research Initiative at Monterrey, Mexico is a Texas A&M research organization with a mission to provide research solutions and services to the industry. The organization provides advanced technology solutions in the areas of Manufacturing and business solutions in the areas of Supply Chain Management, Distribution and Logistics. 11

12 Consortium Members Nueces County Rural Rail Transportation District Advisors: Office of the Governor Economic Development & Tourism Co Funded By: Partners: Campus Tampico 12 For up to date information visit: Last updated 03/25/2010