McAllen Economic Development Corporation leaders have scrapped plans to visit China next month due to the outbreak of coronavirus.
To take advantage of the passage of the United States-Mexico-Canada trade agreement, MEDC planned to visit China four times in 2020. The group went three times in 2019 and as a result are in the running for investment in the United States by a major Chinese manufacturing firm.
MEDC President Keith Patridge gave an update on the China situation at a recent board meeting.
“We all know the coronavirus has kind of put a kink in our plans for this year. We were originally scheduled to go at the end of March. We cancelled that trip because of what is going on with the coronavirus,” Patridge told his directors.
Patridge said MEDC had just learned that the Chinese Consulate has stopped accepting visa applications from Americans wishing to visit their country.
“They will not process any visas for visits to China at this point. So, the China trip is off, at least the one in March, which in a way is good because it is giving Felicia and the team a chance to put together really professional collateral material we need to move forward with our China effort.”
The Felicia Patridge was referring to is Felicia Villarreal, MEDC’s new head of marketing.
“I will tell you that one of the companies that we have met with when we were in China last fall is still moving forward. I believe we are one of three locations under consideration for a site,” Patridge announced.
In an effort to clinch the deal, MEDC leaders may have to visit the U.S. headquarters of the Chinese firm, perhaps next month.
“We will continue to prep with the companies we are working with. We are continuing to work with our Chinese partner. We have a call with them about once a week, just to catch up with what is happening.”
MEDC is partnering with a Chinese husband and wife team out of California. They are connecting Chinese manufacturers that want a presence in North America with MEDC.
Patridge said that according to MEDC’s Chinese consultants, only about 30 percent of Chinese manufacturing plants are currently operating.
“Of those that are operating, they are only running about 40 to 50 percent because people are not showing up to the workplace. The economy is limping along in China and probably still, we are estimating for the next six months,” Patridge said, explaining the impact of the coronavirus.
Disruption to the Logistics Chain
Patridge went to explain how the logistics chain has been negatively impacted by the coronavirus.
“This could have a long term impact because it is now disrupting the flow of containers,” Patridge warned.
“When you think about this, when you are shipping out of China, they are canceling shipments, sailings are being cancelled. You have a mismatch in terms of where containerization is at. That is going to take a relatively long time to work out.”
As a result, Patridge said, there will likely be some spot shortages.
“Target has already announced they are having some shortages. I don’t know whether Walmart has or not. I do know that if things continue there will be spot shortages, not only with finished products but also raw materials and component parts that are being shipped over.”
Patridge cited Apple’s iPhones. “Apple downgraded their projections for the next 12 months because of what is happening in China,” he said.
In his report to the MEDC board of directors, Enrique Castro, the president of INDEX Reynosa, confirmed that Apple had been hit hard by the coronavirus in China. INDEX Reynosa is the trade association for the maquiladora industry.
“It (the coronavirus) is hitting us pretty bad. I had to close two lines yesterday because of the lack of material, the components. We are going to be hit pretty bad,” Castro said, in reference to the maquiladora company he works for.
Castro noted that the products Apple manufactures in China are made by Foxconn.
“The CEO of Foxconn, Terry Gou, said they are shut down completely, four million square feet, 250,000 people. One of the three cities, shut down completely. It is going to hit us. It is already here,” Castro said.
Turning a challenge into an opportunity
While the coronavirus has scuppered MEDC’s plans to visit China next month, Patridge said new opportunities abound.
“It (the coronavirus) is presenting us with an opportunity because what it is pointing out very clearly is that the idea that you can get everything out of China for the rest of the world does not work,” Patridge said.
“All it takes is a weather event or a natural disaster or health issues or a major pandemic. These can disrupt things. What we are seeing and what I think we will continue to see is companies are now re-evaluating their supply chain.”
As a result, Patridge predicted, manufacturers in North America will want their supply chain based on the same continent. Likewise, manufacturers in Asia will want their supply chain in Asia.
“If that happens then we are in a very good location to start bringing those supplier companies in,” Patridge said, noting that MEDC Vice President Ralph Garcia had a great response when visiting Europe recently.
The trip to Germany and Austria was coordinated by the Transatlantic Business & Investment Council. Matt Ruszczak, executive director of Rio South Texas Economic Council, and Alberto ‘Adam’ Gonzalez, senior vice president of CoStep, were also on the trip.
Meanwhile, Patridge said, MEDC’s point person in Reynosa, Angel Ortiz, is working to bring new businesses to the region. “We are see new projects coming in, one relocating out of Dallas to Reynosa. Several foreign companies are looking at our region, some moving from Mexico to the U.S.”
Patridge said MEDC is actively working on 20 projects right now. Of these, 13 would be investments in the McAllen area, six in Reynosa, with one a twin-plant setup, operating in both cities.
“We are talking about 4,740 jobs, over two million square feet, and an $86 million investment. And more are coming,” Patridge said.
Editor’s Note: The main image accompanying the above story shows a delegation from McAllen and Reynosa in China during a trip organized last year by McAllen EDC.