TIJUANA — 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 firms 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 firms eager to take advantage of lower production costs and 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 have reversed that trend, overseeing the creation of 78,000 jobs in the last three years, many of them higher-paying positions. The region now boasts the highest average wages in Mexico.
U.S. medical device firms 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 firms 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 UC 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 there 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.
In Baja, companies can hire scientific talent at half the salary level of American tech centers and benefit from rent, utility and other costs that are at least 40% below the going rates in the U.S., according to executives here. Factories can supply U.S. firms that need a steady flow of components for their "just-in-time" production.
Baja's economy still faces huge challenges. Tijuana's business leaders have warned the police that an escalation in kidnappings and violent crime could scare away investors, said Roberto Quijano, an attorney and official with Coparmex, a national business confederation. A big part of the problem, he said, 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.
Along with crime and infrastructure problems, companies sometimes must grapple with the Mexican bureaucracy and frustrating delays -- for both personnel and products -- at U.S. border crossings.
But John Riley, chief executive of BC Manufacturing, which helps set up and manage Mexican operations for foreign firms, said the biggest barrier to investment is 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."
Andrew Kinross, a medical device consultant, said some U.S. firms remained hesitant about moving sophisticated production to places like Mexico because of quality concerns. "If it's going into a person's body, it's got to be 100% perfect," he said.
Medtronic's sprawling Tijuana facility, located in an industrial area minutes from the Otay Mesa border crossing, is evidence of Baja's ability to move beyond low-tech assembly jobs.
Gerardo de la Concha, director of Medtronic Mexico, said many factories in Tijuana had been certified by the U.S. Food and Drug Administration to produce the most sophisticated Class III devices, including those that could be implanted in people's bodies.
"An engineer is an engineer," he said. "It's just a matter of the level of training you give to these people."
De la Concha said he invests heavily in his 1,200 employees, giving technicians at least two weeks of training in a dummy laboratory before they join the production line.