Fortune magazine recently voted Monterrey, capital of the northern state of Nuevo León, as the best city in Latin America in which to do business. A brief look at the statistics for Nuevo León gives you some idea of why this Mexican-U.S. border state continues to be not only the business capital of Mexico, but the favored location for many national and international companies.
Nuevo León is home to only 4 percent (3.9 million) of the Mexican population, though it generates some 8.1 percent of the country’s GDP according to the Nuevo León’s Department for Economic Development. The state attracted 10.3 percent of all direct foreign investment from 1994 to 1998, produces 6 percent of all Mexican manufactured exports (worth around US$5.3 billion), and boasts 9 percent of all of Mexico’s manufacturing output.
Figures from the Commerce Secretariat show that, from 1995 to 2000, both the number of business establishments and number of employed in Nuevo León has almost doubled.
And things are just getting better.
In 1999, a total of 81 foreign companies arrived in Nuevo León to set up shop, and, according to figures from the Monterrey-based weekly magazine Business North Mexico, expected investment for 2000 could top US$1.4 billion.
With 85 percent of Nuevo León’s population living in Monterrey and some 54 percent of the state’s industries located in Monterrey, the focus of any discussion on the area’s industrial success must eventually turn toward the capital.
On the surface, Monterrey seems like a slice of the United States transplanted into Mexico. It has more millionaires per capita than any other Mexican city. Compared to the rest of the state, which is mostly expansive and featureless desert, Monterrey is an oasis of air-conditioning, modern corporate buildings, new shopping malls, and orderly streets. And much of this has sprouted up over the last three years, according to Malaquias Aguirre López, president of the Monterrey office of the National Chamber of Commerce (Canaco).
“Commercial development has helped bring modern shopping malls to Monterrey, which have done away with a lot of the small, downtown shops. The city is a lot less ugly than it used to be-it used to be known only as a large industrial city, but now it is a lot more attractive,” says Aguirre.
The changing face of the city is helping to attract more tourists and is stimulating the entertainment industry.
Monterrey will be the first Mexican city to host the motor racing spectacular Serial Cart in the Parque Fundidora autodrome. The city was not previously thought of as a tourist destination, but recently major hotel groups have started investing. Grupo Accor de Francia has invested more than US$40 million in two hotels that will be ready by the end of this year or the start of the next. Grupo Marriott and Presidente International have also said they intend to build two more hotels.
So, why is this northern desert state attracting so much money? What sets Monterrey apart from the rest of Mexico in terms of industrial success and commercial wealth? Its proximity to the United States certainly helps, with over 3,300 trucks rumbling daily across the Colombia Bridge, which is located on the tiny nine-mile stretch of land that joins Nuevo León with Texas. However, proximity to the United States certainly doesn’t guarantee a thriving economy.
According to the Nuevo León Undersecretary of Industry and Commerce David Chávez, one of the key factors of the area’s steadily rising per-capita income is the state’s high education standards.
“The level of education in Nuevo León is superior to that of the general population of Mexico, and while that makes the state’s workforce more expensive in general, it also promotes the arrival of more high-tech industries such as those in electronics, telecommunications, auto parts, and biotechnology,” explains Chávez. “I don’t want to suggest that other sectors are not welcome, its just that these sectors have the best capacity for these levels of education and pay the best wages, which, in turn, helps to increase the general economy of the state.”
The population’s average education level is three years higher than the national average, and Monterrey boasts some of the best schools and universities in Mexico. The state takes the education of its population seriously, and according to state statistics, 63 percent of its total budget is channeled into schools and colleges. Chávez believes there is still room for improvement, however, and suggests that the region’s schools adjust their curriculums to complement the rapid increase in positions within Nuevo León’s high-tech industries.
“I don’t believe the schools are preparing the population as much as the industries would like, so we have been working together with educational bodies to help them complement the region’s businesses more,” he says.
Conaco’s Malaquias Aguirre López says that, with so many specialized jobs arriving in the area, the population is struggling to accommodate the companies’ demand. “Three years ago, Monterrey, and Nuevo León in general, had a serious unemployment problem,” says Aguirre. “That has reversed so drastically that companies are now struggling to fill their plants with workers. In fact, they have started to import workers from other states throughout Mexico with all the cost that entails.”
According to Aguirre, Nuevo León’s problem is not a case of “brain drain” or migration of people out of the state and across the border to the north where their educations may serve them better. The state has continued to see a growth in permanent population, but industry has been growing even faster. “The growth in population has been significant in the last two or three years,” says Aguirre, “but now there are much more industries, many arriving from other countries, and those industries need workers.”
With Monterrey attracting so many people, Aguirre believes that population growth in the metropolitan district could soon pose a problem for the city.
“We are proposing to the state and federal government that another town the size of Monterrey be developed in Nuevo León. With over 3.5 million people in Monterrey alone, I believe the generally high quality of life here could be threatened if the population continues to grow at (the current) rate.”
Eduardo Bosque, director of planning and marketing for auto-parts manufacturer Proeza, agrees.
“There needs to be more available housing for the workers,” he says. “It would be a shame to see the production level suffer due to something as basic as a lack of places for the workers to live.”
Supplying the Demand
The education system may be lagging behind the ever-growing influx of highly trained positions in the electronics and technology industries, but that is forgivable considering the rate at which these companies have started to spring up in the last few years. Twenty-six companies involved in the electronics industry have set up shop in Nuevo León in the last five years, investing a total of US$339 million. These companies include three of the world’s leaders in this sector: SCI, Celestica, and Solectron.
Celestica is the world’s third largest electronics manufacturing services company and it first arrived in Monterrey January of 1998 after it purchased Lucent Technologies’ manufacturing facility. The Monterrey facility is Celestica’s first base in Mexico. At the opening of the facility, Eugene Polistuk, president and chief executive officer of Celestica, said, “We are very excited to have established a Mexican manufacturing operation …which is a response to growing customer demand for a Celestica manufacturing presence in Mexico.”
At the end of 1998, Celestica bought an IMS facility and since then has opened a third location in Nuevo León.
Celestica Vice President and Senior Integration Executive John Sloan has spent time in Celestica’s Monterrey operations and has been very happy with the area. “We see Monterrey as the educational hub of Mexico, with a very strong, skilled workforce both at the engineering and technician levels. It is also very close to the United States, on a border where there is very little traffic,” he says.
Sloan admits that a little more effort needs to be made in training the production workforce for the Monterrey factories compared to similar sites in the United States, but feels this small disadvantage is by far outweighed by the advantages of the area. For electronics companies such as Celestica, Monterrey has a strong local sourcing base with much of the material the company consumes found locally, Sloan says.
“While many of our products are shipped back to the United States, we have found that a great deal of our customers are also establishing facilities in Mexico. That is another a good reason to have our own operations here-to stay in close proximity to our customers,” explains Sloan.
“Even for our U.S.-based customers we find Mexico is a great solution, a very cost-competitive solution that offers us shorter inventory pipelines and faster response times.” The electronics industry aside, an area that has taken the world by storm in the last couple of years-the Internet and e-commerce-has also made its presence felt in Nuevo León. In the last 12 months, more than 20 e-businesses have landed in this desert state, including decompras.com, suplaza.com, virtualplaza.com, and aceronet.com, to name but a few. These companies have brought with them the big bucks associated with the world’s booming e-commerce revolution, not to mention more positions for qualified personnel.
Planes, Trains, and Automobiles
Another large and booming industry in the region is auto parts. Some 182 auto-part manufacturers can be found in Nuevo León, including some of the largest and best known, such as Proeza, Navistar, and Mercedes-Benz. The state government says that another five auto-part companies are expected to arrive this year, bringing with them a total of US$150 million and generating another 600 jobs.
Grupo Proeza, which includes Metalsa, Perfek, and Prolvay in its automotive area, has been manufacturing auto parts in Nuevo León since 1960 and has seen steady year-on-year production growth. Proeza’s Bosque believes the state of Nuevo León, and specifically Monterrey, is perfect for the company’s needs.
“Monterrey offers some of the best qualified engineers and technicians in Mexico,” Bosque explains. “Companies here have immediate access to graduates of Monterrey’s Technical Institute of Superior Studies (ITESM), which is one of the most prestigious universities in Mexico, and this, together with the generally high level of education throughout the state, means well qualified personnel are easier to find here in Monterrey.”
Bosque claims, however, that this situation is changing quickly. The area has seen a transformation in the last few years, he says, attracting more and more auto-parts manufacturers and creating a temporary vacuum in the number of available workers.
“Fortunately for Proeza, people who work here tend to stay,” says Bosque. “We have a very low rotation of personnel and this is good in an area where industry is growing so rapidly.”
Bosque attributes Monterrey’s growth to more than just a superior education level.
“Monterrey has all the advantages of a big city without the problems you can see in Mexico City,” he says. “The size of the city is very easy to cope with, with traffic like any other city, but not the congestion you see in the Federal District.”
Bosque also claims the basic infrastructure of Monterrey is modern and reliable, another advantage it has over Mexico’s other large cities.
“All the services you need can be found in Monterrey,” he says. “The only problem facing companies in Monterrey is the need to promote a greater development of the chain of production for industries such as ours so we can avoid importing from the United States and our manufacturing needs can be satisfied here in Nuevo León. This is a problem throughout Mexico.”
This phenomenon represents a national, rather than regional, problem, however, and Bosque believes the pros of doing business in Monterrey outweigh the cons.
If the high levels of education and the availability of qualified employees weren’t enough to convince companies that Nuevo León is the place to be at the moment, general security in the state is also above the national average. State statistics show an extraordinarily low homicide and robbery rate. According to data composed by the Nuevo León State Police Department together with the U.S. Relocation Crime Lab, in 1997 there were 3.5 homicides per 100,000 inhabitants yearly in Nuevo León (compared to 76 per 100,000 in Washington D.C. the same year). Car robberies in Nuevo León are at 60 per 100,000 a year (Washington D.C.’s, by contrast, are at 1,904).
“Security in the state definitely helps to keep companies here,” says Bosque. “You never hear of assaults or attacks-rare considering the size of the city.”
The Future’s So Bright …
Although Canaco’s Aguirre sees clear skies for Nuevo León’s rapidly growing economy, he believes that the presidential elections could represent a dark cloud on the horizon.
“We have seen an economic crisis at the end of each of the last six presidential terms, and each time it happens, the country falls down and has to pick itself up and start over again,” warns Aguirre. “All indications suggest this will not happen this time, and I think it is certainly less likely than before. The main challenge that faces Nuevo León and the rest of Mexico at the moment is to pass through these elections peacefully, with the losing party respecting the final results.” Optimistic that a smooth electoral transition would benefit the country as a whole, Aguirre sees Monterrey’s macroeconomic growth continuing and bringing a whole new epoch of general wealth on a microeconomic level.
“As investors arrive, their money goes into their businesses and then into the community as a whole, which benefits all of Nuevo León,” explains Aguirre. “I think the state is on a good path at the moment.”