Foreign high-tech firms find unlikely hub in Baja

TIJUANA, Mexico – This border city – perhaps best known for tunnel-digging drug smugglers, bottomless margaritas and maquiladoras that churn out cheap toys – is quietly transforming itself into a high-tech manufacturing hub.

Although thousands of Baja California residents still live in squatter camps without electricity or running water, pockets of technical innovation are cropping up in unlikely places. A new report says northwest Mexico is reaping the benefits of an ambitious government program aimed at leveraging the region’s low costs and proximity to leading-edge companies in San Diego.

In heavily guarded industrial parks a few miles south of U.S. territory, Mexican workers are producing implantable medical devices and other sophisticated products for foreign companies eager to take advantage of lower production costs and to hire high-skilled workers for bargain wages.

Faced with fierce competition from China and other low-cost countries, dozens of plants in Baja closed their doors in 2001 and 2002, shedding about 51,000 jobs. But Baja officials said they had reversed that trend, overseeing the creation of 78,000 jobs in the past three years, many of them higher-paying positions. The region now boasts the highest average wages in Mexico.

U.S. medical-device companies such as Medtronic Inc. and DJ Orthopedics Inc. employ 23,700 people in Baja California, compared with 6,000 working in the industry in San Diego. Last year, Wilson Greatbatch Technologies Inc., a producer of components for implantable medical devices, closed its facility in Carson City, Nev., and opened a 144,000-square-foot plant here.

Of the more than 60 medical-device companies operating in Baja, at least 40 have U.S. parent companies, and 13 of those have a significant San Diego presence, according to the report by San Diego Dialogue, which is affiliated with the University of California, San Diego.

Even veteran observers of Mexico such as Kenn Morris, one of the report’s authors and a cross-border consultant, are impressed by the technical sophistication south of the border. Facilities here not only produce heart valves and pacemaker circuitry but provide parts for U.S. Longbow missiles and software programming for Samsung and other multinational firms.

“It was a very big surprise to us that (the biomedical) industry we considered so strong in San Diego was more than three times as large in Baja California,” Morris said.

Still, Baja’s economy faces challenges. A big problem, said Roberto Quijano, an attorney and official with Coparmex, a national business confederation, is the shortage of adequate housing and social services for the 80,000 newcomers that stream into the city every year in search of work. Rapid development is also putting a strain on the region’s water, sewage and energy systems.

But John Riley, chief executive of BC Manufacturing, which helps set up and manage Mexican operations for foreign companies, said the biggest barrier to investment was perceptions. Many U.S. executives still need convincing that Mexico has grown beyond “a guy leaning against a lamppost with a beer in his hand and an antenna sticking out of his sombrero.”