MCALLEN, RGV – An interesting phenomenon is happening with regard to maquila expansion in Reynosa – the number of new plants is slowing down but those already established are expanding rapidly.

Over the last year, only five new manufacturing plants have been built, creating an additional 2,200 new jobs. But, the existing plants have added 22,000 new jobs, which is close to a record high. One possible explanation is the threat of violence in Reynosa is having an impact on those corporations thinking about locating there.

Information on the state of the maquiladora industry in Reynosa, and also McAllen, was provided by Keith Patridge, president and CEO of McAllen Economic Development Corporation, at a recent McAllen South Rotary Club event.

Keith Patridge, CEO of McAllen EDC

“Over the last year we had five new companies that located in Reynosa. They created another 2,200 new jobs. Five companies are a lot less than what we have normally done but, quite frankly. There are a lot of issues we are dealing with there, not the least of which is violence. We also have the issue of the NAFTA negotiations, the rhetoric that is out there in the marketplace. There are a number of issues we are dealing with there,” Patridge said.

“But, the existing companies that are in Reynosa are continuing to grow. In the last 12 months, the existing companies have added 22,165 jobs. When you look at that, the growth is still coming among the existing companies that are there, which, from one perspective is good because that tells us they are evaluating the circumstances, both from a NAFTA standpoint, from a violence standpoint, from other operational concerns and they are still saying, that is the best place to grow.”

Patridge said 22,000 new manufacturing jobs in one year is “almost a record.” He said the expansions will bring in an additional $120 million of payroll, and $158 million in new capital investment for Reynosa.

“When you look at existing companies continuing to grow, that is a good message. The new companies, not so much, that is kind of a negative. A lot of it has to do with the media that is out there about Mexico,” Patridge said.

Charles Marina, president of First American Realty in McAllen, said after Patridge’s speech that the MEDC CEO was analyzing things correctly when it comes to Reynosa.

“The companies that are in Reynosa realize they can continue to operate there without having any measure of violence. The ones that are there are expanding, and we are bringing in new companies. The ones that understand the situation are the ones that are going to benefit from it. The ones that want to pass us by are going to miss out,” Marina said.

In his remarks, Patridge also spoke about McAllen EDC’s efforts to bring manufacturing and call center jobs to the McAllen area.

“During the last year we have, on the McAllen side, brought in 11 new companies that created 2,010 new jobs and, based on the wages that they pay, they will generate $55.5 million in new payroll coming into McAllen. These new companies send money in and take products out,” Patridge said.

“In addition to the 11 new companies we have 19 existing companies that expanded during the last year, creating another 477 jobs and providing an additional $10.5 million of new payroll. Those 11 new companies and 19 existing companies invested approximately $88.1 million in new capital investment. If you use the current city tax rate of 0.4763 per $100 of value, that will generate about another $386,000 in tax revenues to the city of McAllen. That is approximate because sometimes we pay tax incentives.”

Focus on Industrial Investment

Patridge started his speech by explaining that McAllen EDC’s bylaws state that the organization is strictly involved in industrial recruitment. It does not get involved in retail development. McAllen’s 30th anniversary is just around the corner. Patridge said when the organization started out with a focus on industrial investment, eyebrows were raised.

“Why would anyone want to invest in McAllen, Texas, we were asked,” Patridge said, explaining that 30 years ago the Valley’s economy relied much more in agriculture.

“What we saw was interest by companies in investing in Reynosa, Mexico. That was a place companies could come in, establish operations, and compete at that time against Taiwan, Singapore, Hong Kong and Korea. Since then we have always had a Mexico strategy,” Patridge said.

“When we bring companies into Reynosa, several things happen. Most of the managers end up living on the U.S. side, they buy homes over here, they buy cars over here, they shop over here and they work on the Mexico side. We also have used them to attract other companies, supplier companies that are prone to look at the U.S. side because they tend to be capital intensive rather than labor intensive. Power is cheaper over here. But, some of that has been skewed a little bit over the last few years because of the security concerns in Mexico. We are now seeing more companies looking at the U.S. side.”

Patridge said early into McAllen EDC’s operations vindication of its approach came from an unlikely quarter.

“When we started going into Mexico, that was pretty unique for a city to support economic activity in another country. The Federal Reserve Bank of Dallas thought that was pretty interesting, so 30 years ago they started researching what we were doing. They have 30 years of data they have been collecting. They came out with a study this spring. It is kind of interesting the way they measure it. What they said was, for every ten percent increase in output among the plants, there is a 6.6 percent increase in jobs on the U.S. side. So, in the last year, we have brought in 35 companies, either expansions or new companies, they have invested $209 million in capital investment and they have created 27,800 new jobs.”

In a Q&A with members in the audience, Patridge was asked how many countries are represented in the manufacturing canvas McAllen EDC is painting.

“We have about 130,000 manufacturing jobs in Reynosa and about another 12,000 on the U.S. side so, we have between 140,000 to 150,000 manufacturing jobs in the international metro area. That is represented by about 210 to 215 companies. About 20 different countries are represented,” Patridge said.

Shortage of Skilled Workers

Patridge was also asked what the likely impact will be from renegotiation of the North American Free Trade Agreement currently underway.

“When they could see there was going to be a renegotiation of NAFTA we had a lot of our companies do scenario planning. They are all multinationals. After they did their scenario planning they continued to expand here. That tells me they do not see a big risk,” Patridge responded.

Patridge acknowledged that a shortage of skilled labor is becoming more of an issue in Reynosa. He said with the arrival of automotive and aerospace industries moving into the Bajío region, workers from central Mexico no longer have to travel to the border region to look for work.

“One of the things we are seeing is that labor is getting more difficult to find, even in Mexico. The automotive sector has moved into the Bajío region. Aerospace manufacturing too. That is traditionally an area where people came from to look for work in the border region for work. They are not coming to the border region anymore because more opportunities exist in the Bajío,” Patridge said.

“But, our maquilas still have to get production out of the back door, whether they are 100 people short or not. So, companies are putting more automation into their plants. This reduces labor content. So now we have companies, some in Reynosa, some in Monterrey, some in the Bajío, some that we are working with that are saying, we are moving to McAllen. Their labor content went down. The reason is not because of NAFTA. All of a sudden, they discovered their labor content was only two percent and that things are cheaper in McAllen.”

Patridge was also asked about oil production in the Burgos Basin in northeastern Mexico.

“With oil there are some interesting things happening. Burgos not yet developed because of the price of oil. But, something I just found out this week is interesting. Because the natural gas price is competitive and because it is in Texas, a lot of the refineries are adding plastics manufacturing facilities. Now, they are exporting plastics to Asia, plastic resins, and then they are cutting the price of a return trip to bring the ships back full, which means the cost to Walmart, Target, and Amazon and so on is lower. The effect is the price is cheaper coming through the Panama Canal to Houston than crossing through Long Beach, California. All because of the energy play in Texas. So now, more distribution centers are being built in Texas.”

Industrial Space

Patridge was also asked, by Charles Marina, of First American Realty, whether McAllen needs more industrial space. Patridge said the city does.

“I think there is an opportunity. We have no space. We have a project we are having to put it in Mission because we did not have a 250,000-square foot building.”

Interviewed afterwards, First American Realty’s Marina said:

“We cannot over-emphasize the strategic importance of McAllen’s location, logistically-speaking. A lot of people are looking to our area for industrial space and we simply do not have it. We are running out. I think there is a big paradigm shift from big retail users, food users and others, back to industrial, to have a supply chain closer to the central part of the United States. Strategically speaking, McAllen is perfectly poised for future growth. We are running very low on industrial space. It is almost non-existent. And I think it is the same pretty much all along the border. We do need some space and I think there will be some developers trying to fill that need. Some may come from out of town.

“I had a customer out of Corpus looking to lease some space in the city of Hidalgo. We could not find anything to lease so he ended up buying something. He ended up buying way more than he needed just to buy it. So, the demand is there and it will be met. It could come from developers outside our region but hopefully developers in our region will wake up and realize we probably need a few hundred thousand feet of industrial space.”

Marina predicted great things for the region.

“We have got a tremendous future, not just real estate but overall. It is a great place to live, it is a great time to be here and I just see wonderful things ahead.”

Jim Griffin, Jr., co-owner of Navco Logistics, LLC, in Brownsville was not at the rotary club event. However, contacted later by the Rio Grande Guardian, Griffin said Brownsville does have industrial space.

“Navco Logistics, a US Customs Brokerage and International Consulting Firm located in Brownsville, has been offering warehousing and distribution services for over 25 years to the Rio Grande Valley. We warehouse imports and exports of raw materials, finished goods, product inventory, produce, and hazardous materials for maquiladoras and manufacturers, governmental agencies, and domestic and international businesses. Storage timeframes range from hours to years,” Griffin said.

“Brownsville’s location within the Rio Grande Valley makes it a great choice for warehousing business due to its proximity to the Port of Brownsville and Mexico, providing customers flexibility to send shipments via water, air, and land, which ultimately saves them transportation costs. Warehousing rates are competitive here because of availability, so if anyone is looking into warehouse space in the Rio Grande Valley, they should look to Brownsville.”

Editor’s Note: The main image accompanying the above story shows Charles Marina of First American Realty in conversation with McAllen EDC President Keith Patridge.