MCALLEN, TEXAS - The changing face of a border town can be reflected in the pools and splash parks carved from agricultural cropland at Sharyland Plantation near McAllen.
The 6,000-acre planned community, smack in the middle of a 10-year building process, features more than 300 occupied homes, a saddle club, jogging paths fronted by palm fronds and a terra-cotta and stucco clubhouse.
Less than 10 miles from Sharyland, workers are clearing brush for a third international bridge connecting the area to Reynosa, Mexico. Sharyland Plantation and that bridge share more than a geographic bond.
``We look at it like it's one economy,'' said Ron Mills, chief operating officer of McAllen-based NAI Rioco Holdings, the real-estate agent for Sharyland's builder, Hunt Valley Development LLC. ``Mexico has a growing middle class. A lot more people have cars and are making money. They want the best of both worlds.''
Or maybe that face of the border belongs to those currently living in Reynosa, a downtown choked with traffic congestion, crumpled, corrugated-tin-roof dwellings and a dirty river running down its core. Corporate industrial parks, about 400,000 square feet in all, sit secluded among more-verdant fields about 20 miles from the community heart.
It is a region facing growing pains, both social and economic, that spill over to U.S-Mexico border towns in Reynosa, Cuidad Juarez, Nuevo Laredo and Tijuana.
Working in northern Mexico, while potentially lucrative, is peppered with contrasting hues, said Sergio Sosa Bravo, the outgoing president of Mexico's plastics association, Asociacion Nacional de Industrias del Plastico A.C., or Anipac.
For many companies, La Frontera, or the border, does not contain any long-lost cities of gold.
``It is very difficult to understand the Mexican culture and workers,'' Sosa said during a Dec. 2-5 trade mission to the Reynosa and McAllen area. ``I think that is the key to succeed in Mexico. But it takes much effort.''
The Washington-based Society of the Plastics Industry Inc. organized the trip, which attracted 23 paying participants from 20 U.S. and Canadian companies.
An official with South Korea television maker LG Electronics Inc., which took over a former Zenith molding plant in Reynosa, puts it succinctly: ``You can't come in with a gringo attitude. You can't transplant American culture.''
After Sept. 11, even transplanting products across one of the McAllen-Reynosa bridges to the U.S. side takes some time. With U.S. immigration officials clamping down, the daily wait can be upwards of 11/2 hours.
Twice the opportunity
Yet, many developers see the twin-country opportunities, maybe not today but in the near term. The McAllen Economic Development Corp. - a not-for-profit group charged with enhancing employment - uses the slogan ``two countries, two cities, one region'' to describe its work.
And you can excuse Mills for feeling a bit giddy about real-estate sales in McAllen, where homes in Sharyland start at about $120,000.
The McAllen region is the fourth fastest-growing U.S. metropolitan area, according to the latest U.S. Census figures. Its shopping malls are among the busiest in the country. And Reynosa's foreign trade zone is growing in available corporate land at a rate of two city blocks a week.
Belle of the ball
The McAllen-Reynosa area is the new belle of the ball among maquiladoras, a 36-year-old term bandied in other Mexican border towns to describe more than 1,300 companies. Many of them make plastic products.
The word maquiladora, a phrase loosely meaning ``production sharing,'' is given to a business licensed by the Mexican government to make goods in Mexico and export them to the United States from a duty-free zone.
It has meant the establishment of shelter plants in Mexico that make a host of consumer, automotive, medical and industrial products, many of them for the U.S. market. It has meant a cottage industry of distribution centers in McAllen that process truckloads of products coming from Mexico and reship them to other locations. Those centers also process parts and materials going into Mexico.
Laws are complex. Companies working in either country cannot ship directly to the other; paperwork must be approved at the Texas distribution point. But there is an economic beauty to the system.
``You only pay duty at the point of entry when you bring the product back to the U.S.,'' said Keith Patridge, vice president of the McAllen development group. In essence, companies pay no import duties on materials and parts used in production, only on the finished TV set or dashboard or power tool when it comes to America.
Duties can be deferred for months or years, and products are assembled at Mexican plants offering wages of less than $2.50 an hour, fully fringed.
It has turned out to be a sweet deal for many companies that have relocated assembly work to Reynosa and other border towns, said Roy Knapp Jr., a foreign-trade-zone consultant.
Yet, Knapp counsels clients to go to Mexico with their eyes open. It is a country that has a good work force and wholesale labor rates but can also be fraught with perils, said Knapp, whose family once owned an injection molding company.
``You have to have a reason to be there,'' said Knapp, principal of Consultech Inc. of Fairview Park, Ohio. ``If you just think with your heart and are into a cocktail-party mentality of impressing someone by going to Mexico, you'll pay dearly for it.''
The issues go far beyond the border wait. Corning Cable Systems LLC, a Hickory, N.C.-based maker of plastic and copper fiber-optic cabling networks, has been in Reynosa since 1995. To meet its maquila requirements, the company must process a mountain of paperwork detailing each material and part that goes into a product, said Bill McVay, operations director of Corning's Reynosa plant. Mexican inspectors visit the plant almost weekly.
``There are loads of documentation for each part number,'' McVay said during the SPI business trip. ``It can bring you to your knees.''
The company, as with others, also set up a socialized system of employee benefits. They include two on-site physicians and four nurses, subsidized transportation costs to and from work and food coupons to defray the cost of a daily meal. Annual Christmas bonuses are necessary, as is extra holiday time off to visit family in other parts of Mexico.
Still, many facilities in Reynosa or Juarez have high employee turnover. Workers tend to go back to Mexico's interior or move from industrial park to industrial park for higher wages, said John O'Leary, president of protective packaging company Tuscarora Inc.
``We deal with really high turnover of 12 percent or more,'' said O'Leary, whose company has three plants in Mexico. ``It's part of the culture. You move around a lot and tend to leave the market after a couple of years.''
Setting up a plant in Mexico also is no breeze. The going annual rate to lease industrial-park space in the foreign trade zone is about $6 a square foot, Patridge said. On the U.S. side, it is normally two-thirds that price, he said. It costs $80,000-$120,000 an acre to buy land in many Mexican parks.
That difference is partly due to convenience. Electrical costs can be double that of working in the United States, but a good industrial park can take care of finding capacity. Companies must buy space on a power transformer, sometimes miles away. And it must bargain for telephone service.
``An industrial site is full of utilities and existing roads,'' O'Leary said. ``There's an unlimited amount of desert in Mexico but it does you no good if you're not in an industrial park.''
Even inside an industrial park, suppliers must be patient. When Black & Decker Corp. upgraded its sprawling Reynosa plant in the late 1990s, the company had to wait three months for a new phone line and three more months to get increased power, said Jim Hollifield, the facility's business technology manager.
``Work is based on personal relationships more than on hierarchy,'' Hollifield said. ``You might have manufacturers telling Mexico how to do business, but the government officials will do what they want to do when they want to do it.''
Add to the mix some cloudiness about future taxation, even as the North American Free Trade Agreement rolls out. Mexico passed a new law three years ago asking for a variable tax on inventory from goods used by foreign companies in Mexico.
The asset tax, as high as 6.9 percent on products made by a company, would help Mexico reap its share of tax money from goods that are exported after production, said John Castany, president of the Reynosa Maquiladora Association and owner of an injection molding company.
Yet, that can amount to double taxation for companies that still must pay U.S. taxes, he said. The new law has a three-year grace period that expires at the end of 2002 before the law takes effect.
``We'll see what happens before then,'' Castany said. ``It's not fair for our country to have no taxes left behind from a company in Reynosa. There is a lot of uncertainty about that.''
NAFTA has focused more attention on Mexico and encouraged growth in the border region. But it has not prevented layoffs and plant closings. In Reynosa, Johnson Controls Inc. recently shuttered a large plant, and several other large manufacturers have laid off employees.
Seat-belt manufacturer TRW Inc., for instance is down 15-20 percent in employees this year in Reynosa, said molding manager William Carlin. ``From a labor standpoint, it still makes sense to be here,'' he said. ``But short term, we're down a bit.''
In Juarez, just south of El Paso, the slowdown has been worse. That city has a larger maquiladora population than in Reynosa, with close to 400 manufacturers there.
About 70,000 people are unemployed in Juarez, taking the unemployment rate from close to zero in 2000 to 20-25 percent now, said Jose Contreras Corral, vice president of the Juarez Chamber of Commerce and Chamber of Industry. The number of homeless squatters has grown dramatically.
``A tremendous amount of people are going back to their home bases in other parts of Mexico,'' Corral said. ``It's rough on people who don't have a job and have no insurance or workers' compensation. Some make it a few months but they have next to nothing.''
For all the issues, the promise of the Mexican border also remains strong. After all, the growth of manufacturing has continued, in spite of recessionary conditions. Just look at the number of molding customers a stone's throw from Texas.
``There's no Eden and no one panacea for all your problems,'' Knapp said. ``What you want is an enabling environment. Reynosa is where Tampa was 25 years ago before it became a great trade port.''
No doubt, Reynosa has offered advantages to other companies. Delphi Automotive Systems Corp., for instance, has been in Mexico for 20 years. It now has seven plants in the Reynosa and nearby Matamoros, Mexico, area, including a Delco Electronics division plant that has 82 injection presses.
For some molders, it makes more sense to work on the U.S. side, where building costs are lower, and ship into Mexico. Mold polishing and plating company Bales Mold Service Inc. of Downers Grove, Ill., opened a 7,000-square-foot plant last year in Harlingen, Texas, near McAllen.
The company brought three people from Downers Grove to the small plant. And while the company has not yet seen the value from the move, the signs are encouraging, said President Steven Bales.
``It wasn't the best year to start a company here,'' Bales said. ``But this could be as big an operation as our Chicago plant within five years. It's a long distance to ship molds from our customers in Mexico to Chicago.''
Others are doing the same. Injection molder Emu Plastics Ltd. of Scarborough, Ontario, opened a 40,000-square-foot McAllen plant three years ago to serve local customers.
Now, with seven presses, a toolroom and 13 employees, the company is not as busy as it would like to be, said the McAllen plant's general manager, David Bazan.
But with customers such as Black & Decker and Invensys plc across the border, the company could not afford to be elsewhere, Bazan said. ``You have to take one step to get to the next one,'' he said.
A two-mile bridge from McAllen to Reynosa, where close to 200 potential customers await, is reason enough for many to bank on northern Mexico. That includes the developers of Sharyland Plantation, many OEMs and the McAllen Economic Development Corp.
Even McAllen's high unemployment rate, currently at 12 percent, is a plus, said Mike Allen, president and chief executive officer of the McAllen group. A skilled employment base is willing to work in Reynosa and McAllen, he said.
``This isn't about NAFTA,'' Allen said. ``It's about the sheer momentum of development.''