BROWNSVILLE, RGV – Mark Kroll, dean of the College of Business and Entrepreneurship at UT-Rio Grande Valley, has given the most detailed explanation to date of what the Bi-NED project might look like.
Bi-NED stands for the Bi-National Economic Development Initiative. It is being formulated by various elected officials, economic development leaders and academics in the Rio Grande Valley, Reynosa and Matamoros.
At a joint Texas House hearing, in front of members of the Business & Industry Committee and the International Trade and Intergovernmental Affairs Committee, Kroll said the concept is to create a federally-recognized bi-national zone straddling the Rio Grande in which design, engineering and advanced manufacturing would take place.
Kroll is a board member of United Brownsville, one of the sponsor organizations of Bi-NED. He is also on the Bi-NED working group.
“At the end of the day, what we want to create is an integrated, innovative, and competitive Bi-National U.S.-Mexican Border Region Economic Mega Region which would have a focus on advanced manufacturing,” Kroll testified.
“The key word is integrated. Our aspiration is to create an economic zone that would, in effect, straddle the Rio Grande river.”
Initially, Kroll testified, the Bi-NED Zone is conceptualized as including the state counties of Hidalgo and Cameron and the municipalities of Matamoros and Reynosa in the Mexican state of Tamaulipas. “We would like to use this as a case study and assuming we are successful in achieving what we hope to accomplish, then this kind of economic model could be used elsewhere up and down the U.S.-Mexico border.”
Mega Trends in Manufacturing
Kroll said the premise of the Bi-NED effort is to create an environment that is highly attractive to advanced manufacturing as well as being highly responsive to consumer markets.
“There are some mega trends in manufacturing that we wish to exploit. Mega trend No. 1 is China is coming close to pricing themselves out of the market in terms of labor costs. Whereas, ten, 15, 20 years ago it was extremely attractive to go to China to manufacture. That is becoming increasingly not the case. There are some analyses that suggest that today, Mexican labor rates are comparable to, if not slightly south of Chinese labor rates,” Kroll said.
“Second, nobody wants to have a 7,000-mile supply chain if they can avoid it. A 700-mile supply chain is a lot more attractive. The third trend that I think is important to recognize is that increasingly, consumers want products that are innovative and that innovation requires a quick response time from the manufacturing base.”
As a consequence, Kroll said, what you need to do, if at all possible, is co-locate design and engineering with fabrication. “You need to be quick to market with those new products. Again, that argues against the 7,000-mile supply chain, with your design and engineering being done in one country and your manufacturing being done in another. What you would like to have, all other things being equal, is co-located production, engineering, etc., not necessarily under one roof but at least on the same continent.”
Kroll said that while manufacturers do want to be in the lowest labor cost location as possible, they also need to have the human capital to get the job done. “It is not true that manufacturers go to the lowest labor cost place. They go to the lowest labor cost place that has the human capital sufficient to get the job done – which is what we see with clothing manufacturing in Bangladesh, which is very low tech, and does not require a lot of human capital.” He said the same type of manufacturing is being done in Vietnam and Bangladesh as well, while more advanced manufacturing is offshored to places like Singapore and Taiwan, etc.
Kroll suggested this makes Mexico increasingly attractive. “Mexico is fast becoming a manufacturing mega center. I would say within the next ten years it will become world’s largest producer of automobiles, for instance. Those automobiles are not just sold in the United States but are sold all over the world.”
There are a lot of trends in the location of manufacturing that Bi-NED would like to understand and exploit, Kroll testified.
“What we would like to wind up with is a zone along the U.S.-Mexican border that would be extremely attractive to these re-shoring manufacturers. We conceptualize the most desirable location being one where a manufacturer can take advantage of the relatively low-cost labor that might be on the Mexican side but can also take advantage of the engineering, the management, the logistics, the financial acumen that exists on this side of the river, so that we can achieve, in effect, the best of both worlds,” Kroll said.
“In addition, we conceptualize a zone in which the utility power, electric, water, etc., would be provided by the lowest cost producer, which, in more cases than not, would be U.S. producers, given the abundance of natural gas we now have. We can generate electricity at very low cost.”
Kroll asked the legislators on the joint panel to imagine Bi-NED at its full potential.
“If the Bi-NED were able to reach its full potential then you would have – if you can imagine with me in the mind’s eye – a zone of maybe a few thousand hectares, or five or six thousand acres that would straddle the U.S.-Mexican border, that would have a secure perimeter around it, that would allow entry and egress of raw materials, finished goods, etc. But once people, raw materials, finished goods, semi-finished goods enter the zone, they would be free to move across the border, more or less at will. So that part of the fabrication could take place on one side versus the other, wherever the most efficient utilization of the people, manufacturing, etc., etc., could take place, that is where we would want it to be.”
Why Advanced Manufacturing?
Kroll asked a rhetorical question. Why does the Bi-NED Initiative focus on advanced manufacturing? He then answered his question. “The border is known to many folks as a pass-thru economy. If you look at Laredo, for instance, it is either the first or second largest inland port in the world. I forget how many billions of dollars-worth of goods flow through Laredo every year but it is an astronomical number. And the number of tractor trailers that flow through Laredo every day is an astronomical number. And yet, Laredo is not an extremely wealthy place.”
Why this is, Kroll said is “Because there is not a lot of value added in moving goods through the area. The wealth is created by adding value to those goods. Which takes us to the need for manufacturing. If we can locate manufacturing in these communities along the border and provide those opportunities to folks on both sides of the border then we are likely to have a much more prosperous border region, one that we would imagine would be less susceptible to crime, so on and so forth.”
State Rep. René Oliveira, chair of the House Committee on Business & Industry, asked Kroll if the supporters of Bi-NED need legislation at the federal level to get the initiative moving. Kroll responded: “A consulting law firm in D.C. has suggested to us that most of what we would need to make this happen would be in the form of regulatory rather than statutory relief. In other words, it is conceivable that we could accomplish much if not all of what we need to take place with executive direction, executive orders, etc., literally, rather than have an act of Congress.”
Kroll said Oliveira’s point is well taken. “Much of it is federal, obviously. We are dealing with an international border. But, nevertheless, we do not believe it would be necessary to enact a whole new NAFTA.”
Kroll concluded his testimony by saying the first step to the creation of a Bi-NED Zone is greater regional cooperation in the Rio Grande Valley.
“We are working with various elements of the federal government. Our local congressman, Filemon Vela, the Department of Homeland Security, folks like this. We are having those discussions. But, before we get to that point we are going to have to stand up the infrastructure necessary to push the Bi-NED Initiative forward. I guess the most important thing we are going to have to do is we are going to have to start planning regionally in order for this to work. The silo communities of the Valley are going to have to come together in a single initiative and start thinking as a metropolitan area and then join with their cross border colleagues in Matamoros and Reynosa to have that regional orientation in terms of strategic planning.”
Kroll pointed out that Hidalgo and Cameron counties, along with various Valley cities and Reynosa and Matamoros, signed a memorandum of understanding about a year ago. “We are starting down that road of a common purpose and a common agenda. Hopefully we will continue to make that progress.”
Editor’s Note: This is the first in a two-part series on Bi-NED. Part Two will be published later this week.