BROWNSVILLE, RGV – A new study looks at ways the Brownsville-Matamoros economy can be transformed into a high-wage economy through the development of advanced manufacturing.

The study found that Matamoros currently has most of the manufacturing jobs while Brownsville is largely a “pass-through” economy. It does not have to be this way, say the authors.

“Matamoros manufacturers produce approximately $8 billion of annual output. Of that $88 billion, approximately $6.4 billion, or 80 percent, comes from inputs outside the Brownsville-Matamoros Region,” the study states. “The purpose of this study was to develop a foundation to support the planning of a competitive binational manufacturing cluster to create higher wage jobs in the region by capturing a part of the $6.4 billion in outside inputs through backward integration of local supply chains.”

The study is titled: “Backward Integration of Manufacturing Supply Chains in the Brownsville-Matamoros Region: An Approach for Creating a Competitive Binational Advanced Manufacturing Cluster.”

The study was funded through the U.S. Economic Development Agency and United Brownsville, and in partnership between Ambiotec Group Inc., the University of Texas Rio Grande Valley, and the deputy director of the Mexico Institute at the Wilson Center, Chris Wilson. Other authors included UTRGV professors Miguel Gonzalez and Pablo Rhi-Perez.

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Here is the executive summary in full:

Executive Summary


Matamoros manufacturers produce approximately $8 billion of annual output. Of that $88 billion, approximately $6.4 billion, or 80 percent, comes from inputs outside the Brownsville-Matamoros Region.

The purpose of this study was to develop a foundation to support the planning of a competitive binational manufacturing cluster to create higher wage jobs in the region by capturing a part of the $6.4 billion in outside inputs through backward integration of local supply chains.

The first phase of the study investigates the manufacturing supply chain inputs to the region. This study was able to document approximately $4.3 billion of the inputs with the largest consumers being the automotive industry followed by the electrical/electronics industry. Of these, approximately 39 percent came from non-NAFTA countries.

The very high percentage of the total value represented by external inputs is evidence that the region remains more of an assembler rather than a true manufacturer. This reflects the reality that the region’s perceived historical advantage is low-cost labor and that the actual manufacture of inputs is still largely done elsewhere.

At the same time, the high level of extra-regional inputs used in local manufacturing presents both an opportunity and a challenge. When examining the composition and manufacturing processes of these inputs, the study was able to determine which opportunities exist for local production. With the input of local experts, the study found that many of the inputs that could be manufactured regionally required either plastic injection molding or metal stamping processes. A review of high volume purchases revealed that these were the primary technologies involved in the production of goods currently imported into the region that could, based on existing capital investments and know-how, be produced locally. Focus groups with industry leaders confirmed this finding. Focus groups also confirmed that local businesses could fill this role, which would strengthen the regional supply chain and significantly reduce the shipping costs for the Matamoros operations. However, the study additionally revealed three challenges:

* many of the maquila operations and procurement decisions are directed from outside the region, liming the relationship-building with local suppliers’
* there is very little discussion among maquilas and other manufacturers regarding their buying patterns (purchase of inputs from outside the region) which restricts the ability for local producers to determine whether they might be able to produce and sell certain inputs locally; and
* there are gaps between the skills, technologies, and processes needed to provide this supply.

The second phase of the study drew on focus groups to discuss further how the manufacturing and broader economic assets of the region needed to be enhanced in order to expand local participation in the regional supply chain. Participants raised three additional concerns. First, low volume, high mix productions is prevalent in smaller local manufacturing operations, but as a result of the short production runs, many of these manufacturing have difficulty matching the prices of higher volume producers. Second, existing local molding and stamping companies in the region do not have the tooling capabilities to produce the amount and type of goods needed. And third, few existing firms were believed to have the requisite technical skills, entrepreneurial spirit and capital to meet the requirements of the local maquila industry. An important conclusion was that new firms would be needed to be created to fill the opportunities that exist for the production of die castings, plastic resins, precision machined parts, and other goods currently purchased from outside the region. And that local economic development efforts should seek to build up the capacity of individuals, firms, together with the workforce needed to take advantage of such opportunities.

But looking to the future, there are bigger opportunities for the Brownsville-Matamoros region, and the greater Lower Rio Grande Valley-Northeast Tamaulipas region than simply backward substitution strategies for existing products.

As evidence mounts of the increasing momentum for reshoring and nearshoring of manufacturing back to North America, especially in the interior of Mexico, and as the pressure for nationalistic economic policies increases in the U.S., there is a real opportunity for the region to capture a larger share of the future advanced manufacturing opportunities that will emerge.

Additionally, new developments in the U.S.-Mexico relationship are creating risks and opportunities for the Lower Rio Grande Valley and the state of Texas. Indeed, as the United States number one exporter to Mexico, Texas is both uniquely vulnerable to deterioration in the U.S.-Mexico economic relationship and positioned to be a key voice in conversations about efforts to renegotiate and improve NAFTA and other facets of the bilateral economic agenda.

But with those opportunities also come challenges that can only be effectively addressed if the region works as one with a clear view of the external national and international force that will influence its path.

Local and state leadership will need to carefully watch and analyze policy developments, as they could have profound consequences for the region. The LRGV economy depends significantly on U.S.-Mexico trade and, by extension, NAFTA. That said, even if NAFTA were to be upended, this would not put an end to the binational value chains that characterize manufacturing operations in the Lower Rio Grande Valley region. A modernization of NAFTA or other elements of the framework for U.S.-Mexico economic relations – a much more likely possibility – will open spaces for the LRGV to submit proposals for the inclusion of new mechanisms or programs to boost the regional economy. In any case, the strengthening of regional assets and local participation in cross-border value chains is a key step in protecting and growing the regional economy.

The recommendations developed in the final phase of the study draw on the conclusions of the previous two study phases, as well as additional research, and are designed to stimulate both greater investment in the region and greater growth from existing businesses. The aim is to spur a virtuous cycle in which regional value chains are strengthened and made more competitive, which will in turn serve to stimulate further investments and growth, thereby improving regional competitiveness. Without doubt, a unified and binational approach to economic development that brings together the assets and advantages of all of the communities of the Lower Rio Grande Valley will act as a multiplier and accelerator in the effort to stimulate growth and prosperity.

The recommendations in the report include creating a single economic development plan (BiNED) based on advanced manufacturing for the binational region extending from Matamoros to Reynosa and from McAllen to Brownsville. The plan hinges on expanding the definition of competitiveness in the region from the current logistics focused approach based on low waiting times and low transaction costs at ports of entry, to also include development of the critical talent, technology, infrastructure, capital and leadership assets in the region. As well as creating a binational coordinating board to develop and implement the competitiveness strategy for the region. These elements are critical to changing the region from simply a pass through economy, to a fully integrated element in the North American joint manufacturing platform. And which by increasing the economic prosperity of the Border, also provides a cost effective strategy for securing the U.S.-Mexico Border.

Recommendations


1.  Develop a Regional and Binational Approach to Economic Development (BiNED) with a Strong Focus on Advanced Manufacturing. (LEADERSHIP)
2.  Build an Economic Development Organization that is Jointly Supported and Directed by the Public and Private Sector to Create and Implement the BiNED Binational Economic Development Strategy that Leverages the Assets of the Entire Region. (LEADERSHIP)
3.  Expand the Definition of a Competitive Border to Include Criteria that are Relevant to the Development of a Regional Advanced Manufacturing Cluster: Talent, Technology, Infrastructure, Capital and Leadership.
4.  Support the Creation and Development of Binational Industrial Parks that Take Advantage of Foreign Trade Zone and Pre-inspection or Joint Inspection Programs to Facilitate a Fully Integrated Binational Production. (INFRASTRUCTURE)
5.  Streamline and Coordinate Workforce Development Projects Across the Region Under a Single Manufacturing Development Plan with a Special Focus on Advanced Manufacturing. (TALENT)
6. Create a Procurement Coordinator Position to Facilitate the Creation of Purchasing Alliances among Regional Manufacturers to Maximize Purchasing Power, Reduce Costs, and Maintain and Updated Understanding of Backward Supply Chain Integration Opportunities. (CAPITAL)
7.  Build a Lower Rio Grande Valley Ecosystem for Innovation and Entrepreneurship with a Special Focus on Advanced Manufacturing. (TECHNOLOGY)
8.  Use Federal, State and Local Resources to Help Local Manufacturing Companies Gain New Certifications and Improve Production Processes. (TECHNOLOGY)
9.  Promote the Ability of Local Industry to Perform Mass Customization and Flexible Manufacturing with a Focus on Tooling and Die-Making. (TECHNOLOGY)
10. Create an International Metropolitan Statistical Area (MSA) to Collect and Share Data that can Help Businesses and Investors Identify Opportunities in the LRGV/Northeast Mexico Binational Region. (TECHNOLOGY)
11. Focus on Post-Consumption Manufacturing (Re-Manufacturing and De-Manufacturing). (TECHNOLOGY)
12. Build Capabilities and Attract Investment in Plastic Injection Molding and Metal Stamping Processes. (Technology)
13. Work with the U.S. and Mexican Federal Governments to Address Bank De-Risking and the Negative Impact it can have on Financial Inclusion and Business Access to Capital in the Border Region while also Working with Financial Institutions and Chambers of Commerce to Identify Potential Creditors and Facilitate Access to Business Loans. (CAPITAL)
14. Develop a Binational Leadership Institute. (LEADERSHIP)
15. Consolidate Industrial Incentive Programs under One Local Institution. (CAPITAL)