An Evaluation of Arizona s Competitiveness

Transcription

1 The Arizona-Sonora Project Marisa Paua Waker, Office of Economic Deveopment Peter Likins, President Bruce A. Wright, Associate Vice President for Economic Deveopment December 2000

2 Layout and Design: Biomedica Communications and Red Horse Graphics Editoria Services: Kirsteen E. Anderson COPYRIGHT 2001 Arizona Board of Regents ii

3 Prepared for the Arizona-Mexico Commission 1700 W. Washington, Suite 180 Phoenix, AZ Phone: (602) Fax: (602) The Arizona-Sonora Project Jane Dee Hu, Governor, State of Arizona Armando López Nogaes, Governor, State of Sonora Margie Emmermann, Governor s Poicy Advisor for Mexico, State of Arizona José Cárdenas, President, Arizona-Mexico Commission W. Russe Knocke, Executive Director, Arizona-Mexico Commission Lic. Afonso Moina Ruiba, President, Comisión Sonora-Arizona Lic. Luis Caros Soto, Executive Director, Comisión Sonora-Arizona Bruce A. Wright, Project Director, The University of Arizona Gai Lewis Howard, Project Director, Arizona State University iii

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5 Contents List of Tabes... vi List of Figures... vii Acknowedgements... ix Introduction... 1 Overview of the Evauation... 1 Research Methodoogy... 2 Key Findings from 1999 Evauation of Arizona... 3 Factors Contributing to... 3 Summary of Findings... 6 Where Arizona Coud Capture a Larger Share of NAFTA Trade... 9 Important Assets Arizona Shoud Market to Prospective Firms Summary Observations Growth in Trade to Mexico Growth in Export Saes to Mexico Exports by Metro Area Export Trade Activity of Seected Southwestern Ports Skied Human Resources and Labor Poo Deveopment Labor Force and Industry Empoyment Maquiadora Empoyment Educationa Attainment Educationa Activities and Initiatives Maquiadoras and Regiona Suppier Deveopment Profie and Growth of Maquiadoras Regiona Activities and Initiatives Advanced Transportation Infrastructure Rai Transportation Air Transportation Highway Transportation Border Ports of Entry Initiatives and Strategies Underway to Enhance Trade with Mexico Events, Trade Shows, and Conferences Export Assistance Programs and Initiatives Trade and Protoco Missions Strategic Panning Initiatives Concuding Observations Appendix Export Trade Activity by City, Import Trade Activity by City, Notes v

6 Tabes Key Findings from 1999 Evauation of Arizona 3.1. Competitive Advantages and Chaenges to Economic Deveopment, by City Leading Site-Seection Factors Important to Survey Respondents Leading Site-Seection Factors Most Often Judged Not Important Leading Factors Respondents Consider Competitive in Existing Location Leading Community Location Factors Rated as Not Competitive Evauation of NAFTA-Reated Economic Deveopment Targets, by City Key NAFTA-Oriented Economic Deveopment Activities and Strategies, by City Growth in Trade to Mexico 4.1. Top Five Merchandise Exports to Mexico, by Industry Sector, Change in Doar Vaue of Seected Export Categories, Change in Vaue of Exports by Metro Area, Change in Vaue of Exports by Metro Area, Top Metro-Area Exporters, 1997 and Percentage Change in Doar Vaue of Exports, and Percentage Change in Merchandise Exports to NAFTA Countries and Mexico, and Merchandise Export Saes by Industry Sector, Percentage Change in Eectric and Eectronic Equipment Exports, and Percentage Change in Industria Machinery and Computers Exports, Percentage Change in Scientific and Measuring Instruments Exports, and Percentage Change in Rubber and Pastic Exports, and Percentage Change in Fabricated Metas Exports, and Percentage Change in Primary Meta Exports, and Export Trade by Leading Southwestern Ports, Skied Human Resources and Labor Poo Deveopment 5.1. City and County Civiian Labor Force Estimates, Estimated Skied Human Resources by Region, Maquiadora Empoyment in San Luis Río Coorado, Sonora, Apri Estimated Regiona Enroment in Institutions of Higher Learning, Fa Estimated Enroment in Institutions of Higher Learning in the Mexicai, Baja Caifornia, Region, Maquiadoras and Regiona Suppier Deveopment 6.1. Percentage Change in Number of Maquiadoras, 1998 to Trade Shows and Expos in the U.S. Border Region and Mexico Maquiadora Empoyment, Output, and Productivity in Baja Caifornia, Advanced Transportation Infrastructure 7.1. Doar Vaue of Southbound Rai Freight, Doar Vaue of Northbound Rai Freight, Doar Vaue of Southbound Truck Freight, Doar Vaue of Northbound Truck Freight, Limitations of Southwestern U.S. Border Ports of Entry vi

7 Figures Introduction 2.1. Map of U.S.-Mexico Border Region... 2 Growth in Trade to México 4.1. Export Saes to Mexico, by State, 1993 and Percentage Change in Exports of Eectric and Eectronic Equipment, Eectric and Eectronic Equipment Saes to Mexico, 1993 and Percentage Change in Exports of Industria Machinery and Computers, Industria Machinery and Computer Saes to Mexico, 1993 and Percentage Change for Seected Export Categories, Percentage Share of Exports by Port, Skied Human Resources and Labor Poo Deveopment 5.1. City Unempoyment Rate Estimates, County Unempoyment Rate Estimates, Tijuana Maquiadora Empoyment, Coege Educationa Attainment Percentages by Region Maquiadoras and Regiona Suppier Deveopment 6.1. Percentage of Maquiadoras by Industry Activity Percentage Share of Maquiadoras in Seected Mexican States, Advanced Transportation Infrastructure 7.1. Map of Proposed Naco Rai Port of Entry Map of San Diego & Arizona Eastern Raiway Tota Passengers Enpaned and Depaned, Tota Air Freight and Mai Cargo, Map of Canamex Corridor Map of Proposed Caifornia State Route vii

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9 Acknowedgements was possibe due to the critica support and guidance of the Arizona-Mexico Commission. Their eadership, commitment and vision to faciitate the deveopment of a truy integrated binationa region were instrumenta in the production of this report. In addition, a specia thank you is extended to the Arizona-Mexico Commission s Executive Board, as we as Bruce Wright, Vera Parakovich-Kochi, Marsha Worden, David de Kok, Scott Davis and Jason Ott of the Office of Economic Deveopment, who served as part of an interna review committee. Each of these individuas gave precious time in order to provide vita feedback on this report. A arge number of key contacts in each of the communities graciousy wecomed the author and shared insightfu information on their regions. Athough it is not possibe to ist everyone, severa peope went beyond the ca of duty to provide not just data, but encouragement and support. They incude Augustine Garcia, Bi Bourand, Jose Feipe Garcia, Amy Echos Starkey, Stephanie Lemme, Art Macias, Joe Viers, Lee Ann Ayers, C. Paige Webster, Nan Vaerio, Angeika Viagrana, Judy Harper, Joyce Grossman, Mario Hernandez, Henry E. Sauvignet and J. Michae Patrick. June Murphy and Aicia Foey provided additiona assistance in the form of technica and administrative skis. Kirsteen Anderson and Cindy Betka, CMI, editor and ayout designer respectivey, provided unwavering attention under difficut timeines and conditions in order to see this project to competion. ix

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11 Introduction If a community is to be competitive in attracting weath and investment, eaders must understand the impications of goba economic trends toward increasing integration and interdependence. Communities around the word are seeking modes of the conditions needed to create and support a dynamic business environment. Key ingredients in the competitive mix appear to incude: A high-quaity education system (K-12 and university) A skied and taented workforce Advanced transportation infrastructure Economic deveopment strategies to enhance and ink these resources (2000 edition) addresses these key assets to guide Arizona economic deveopment professionas in designing effective marketing approaches for their communities. As a product of the Arizona-Sonora Project binationa deveopment strategy, the Evauation seeks to assist communities in capturing a arger share of North American Free Trade Agreement (NAFTA), western hemispheric, and goba trade. Overview of the Evauation The 2000 provides a comparative anaysis of key communities in Arizona (Phoenix, Tucson, Yuma, Nogaes, and Dougas) reative to Caifornia (San Diego and Caexico) and Texas (San Antonio, E Paso, and Laredo; Figure 2.1). The 1999 Evauation of Arizona identified severa factors contributing to competitiveness, which are reviewed in the first section of this report. To avoid unnecessary dupication of the previous report, the 2000 Evauation focuses on providing statistics and economic deveopment information in five areas: Growth in Trade to Mexico Skied Human Resources and Labor Poo Deveopment Maquiadoras and Regiona Suppier Deveopment Advanced Transportation Infrastructure Initiatives and Strategies Underway to Enhance Trade with Mexico 1

12 Concuding observations, based on the findings from both 1999 and 2000 reports, on ways to enhance Arizona s competitive position reative to seected communities in other southwestern states, can be found at the end of this study. Like the 1999 report, the 2000 Evauation serves as a marketing too for increasing Arizona s interaction in competitive markets. Research Methodoogy A host of information was consuted for this project. Sources incude:! Economic deveopment offices at the state and oca eves! Internet sites and web pages! Statistica reports and pubications and artices for both professiona and genera readership. During the report preparation process, trips were made to each community to conduct interviews with key economic deveopers. In addition, business eaders, government officias, and academic schoars were consuted. Every attempt was made to provide comprehensive coverage, however assessing and identifying competitive advantages is a compex task with significant inherent measurement imitations, particuary in comparisons between the arge metropoitan areas and the sma communities aong the border with Mexico. FIGURE 2.1: MAP OF U.S. MEXICO BORDER Source: Red Horse Graphics 2

13 Key Findings from the 1999 Evauation of Arizona Factors Contributing to Avariety of factors infuence the degree of competitive advantage one area hods over another. In terms of NAFTA-reated enterprise, these factors incude: Avaiabiity of skied human resources Avaiabiity of key technoogies Avaiabiity of advanced transportation and communication infrastructures Avaiabiity of key natura resources A sufficient customer base to encourage efficiency and innovation by firms Abiity to maintain a ead in specific custers Existence of key suppiers providing speciaized inputs Firm structures that encourage skied abor force deveopment Existence of firms arge enough to stimuate growth of a oca suppier base Existence of goas and strategies for enhancing NAFTA trade Tabe 3.1 summarizes the advantages and chaenges faced by each community. 3

14 TABLE 3.1 Competitive Advantages and Chaenges to Economic Deveopment, by City City Advantages Chaenges Arizona Phoenix Strategic economic panning process with Sonora; Distance from Mexican border reative to other custer deveopment in aerospace, semiconductors/high profied cities; minima targeting of NAFTAtechnoogy; suppier base for these industries; reated firms; the head start and aggressive industria and business services hub for the state; marketing by other communities reative to good air transportation services; potentia hub attracting NAFTA-oriented firms. functions for proposed CANAMEX corridor; estabishment of market niches in bioindustry, software, environmenta technoogies, and information technoogies. Tucson Industry custers in aerospace, optics, and software, Distance from the industria base in Mexico; and highy skied workforce in these areas; insufficient air transportation services and ack high-quaity heath centers; meta-fabrication faciities; of rai service; high cost of rea estate and sophisticated educationa structure. utiities; high tax eves for high-technoogy and capita-intensive industries; ess skied workforce in pastics than Texas. Yuma Binationa deveopment efforts by the Rio Coorado Unfavorabe externa perceptions of the commu- Commission; avaiabiity of water; avionics industry nity; insufficient deveopment of border port-ofcuster and infrastructure, with skied workforce; entry infrastructure; ack of knowedge about agribusiness custer. the characteristics and needs of NAFTA firms. Nogaes Highway and rai access to western Mexico; experi- High cost and imited avaiabiity of rea estate; menta unified port design project; expertise in shortage of we-educated, Engish-proficient importation and distribution of Mexican-grown workers; imited cutura amenities; traffic fresh produce. congestion and safety issues due to rai ine through town. Dougas Uncongested port of entry; inexpensive and prices; Shortage of quaified and skied workers; ow avaiabiity of and for deveopment; proximity to Fort student education scores; insufficient air, Huachuca air base and reated surveiance expertise; highway, and rai inkages; imited operating proximity to educated workforce in nearby Bisbee. hours at border port of entry; ack of hightechnoogy communication services; imited cutura amenities. 4

15 TABLE 3.1 Competitive Advantages and Chaenges to Economic Deveopment, by City City Advantages Chaenges Caifornia San Diego Maquiadora concentrations in eectronics and Stagnating iving standards; high cost of iving, teevision sets; communications infrastructure; especiay rea estate; shortage of engineers; industry custers in biotechnoogy, teecommuni- highway inks to Mexico congested and cations, and defense. operating over capacity; ack of good rai connections; ess than optima air transport services; inadequate channe depth in harbor for container ships; most suppies for Asian-owned maquiadoras purchased esewhere. Caexico Proximity to Baja Caifornia s capita, Mexicai; Loca resistance to deveopment of trade inexpensive and, abor, water, and eectric power; inkages with Mexico and Asia; expansion of stabe abor base, which poses an advantage over Caexico-East BPOE creating confict with E Tijuana. Centro; oca resistance to joint deveopment of the area; many coege graduates eave the area. Texas San Antonio Construction of hush house to support air-cargo Heavy reiance on tourism and ack of custer traffic to Mexico and South America; the concentra- deveopment in manufacturing; ack of incentive tion of internationa business services in a new trade for trade to stop in the city when it is required to center (Consu Genera of Mexico, Trade Commission stop two hours south in Laredo. of Mexico, Attorney Genera of Mexico, NADBANK, and commercia offices of severa Mexican states); Casas San Antonio and Inand Port San Antonio initiatives; high eve of coaboration among economic deveopment organizations; meetings between mayor and Mexican presidents; promotion and marketing of Medica Destination Program; arge number of we-educated biingua workers. E Paso Emerging industry custers in pastics and metas; Chronic congestion at to-free BPOE; shortage growing maquiadora suppier base; concentration of of water; shortage of rea estate for manufacturmaquiadoras, particuary in eectronics. ing; poor air quaity. Laredo Transportation/distribution custer; transportation Insufficienty diversified economy (too depeninfrastructure and geographica ocation; internationa dent on transportation/distribution); highway banking expertise in NAFTA trade. congestion and engthy crossing times at ports of entry; inconvenient distance and poor highway to Coumbia BPOE. Source: Evauation of Arizona (Tucson: The University of Arizona Office of Economic Deveopment, 1999). 5

16 Summary of Findings Trade with Mexico State-Leve Comparisons The proportion of tota export saes going to Mexico is highest for Texas (34 percent). For Arizona the proportion is 14 percent, and for Caifornia, 8 percent. When viewed in terms of growth in export saes, however, Arizona (80 percent) and Caifornia (94.3 percent) consideraby outperform Texas (46.7 percent). Among the chief exports to Mexico from the three border states are eectric and eectronic equipment, industria machinery and computers, chemica products, and rubber and pastic products. Primary metas, transportation equipment, and fabricated metas are aso significant exports for Arizona. Texas stands out for growth in rubber and pastics, whie Caifornia shows the highest growth in exports of paper products. Survey Resuts In survey responses from private firms in San Diego, E Paso, Laredo, Phoenix, Tucson, Yuma, Nogaes, and Dougas the foowing site-seection factors were identified as important by the argest number of respondents (Tabe 3.2): TABLE 3.2 Leading Site-Seection Factors Important to Survey Respondents Arizona Responses (n = 30) Caifornia and Texas Responses (n = 24) Quaity of ife (n = 22) Rea estate avaiabiity (n = 18) Rea estate avaiabiity (n = 20) Rea estate cost (n = 18) Rea estate cost (n = 20) Proximity to markets (n = 17) Workforce avaiabiity (n = 20) Quaity of ife (n = 17) Highway infrastructure (n = 18) Workforce avaiabiity (n = 16) Workforce education/ski eves (n = 18) Teecommunications service (n = 13) Right-to-work state (n = 18) Source: Evauation of Arizona (Tucson: The University of Arizona Office of Economic Deveopment, 1999). 6

17 The site seection factors most frequenty cited as not important are isted in Tabe 3.3: TABLE 3.3 Leading Site-Seection Factors Most Often Judged Not Important Arizona Responses (n = 30) Caifornia and Texas Responses (n = 24) Rai transportation (n = 17) Sea transportation (n = 14) State job training programs (n = 16) Natura gas cost (n = 12) Natura gas service (n = 15) State job training programs (n = 12) Sea transportation (n = 14) Rai transportation (n = 11) Enterprise zones (n = 14) Water cost (n = 11) Natura gas cost (n = 13) Water service (n = 11) Natura gas service (n = 11) Enterprise zones (n = 11) Foreign trade zones (n = 11) Financing programs (n = 11) Source: Evauation of Arizona (Tucson: The University of Arizona Office of Economic Deveopment, 1999). The greatest number of respondents evauated their existing ocations as competitive in the categories isted in Tabe 3.4: TABLE 3.4 Leading Factors Respondents Consider Competitive in Existing Location Arizona Responses (n = 30) Caifornia and Texas Responses (n = 24) Quaity of ife (n = 20) Workforce avaiabiity (n = 17) Rea estate cost (n = 19) Proximity to markets (n = 17) Highway infrastructure (n = 18) Rea estate avaiabiity (n = 13) Rea estate avaiabiity (n = 16) Wages (n = 13) Right-to-work state (n = 16) Quaity of ife (n = 12) Education ski eve (n = 14) Source: Evauation of Arizona (Tucson: The University of Arizona Office of Economic Deveopment, 1999). 7

18 Tabe 3.5 ists the categories in which respondents evauated their existing ocations as not being competitive. TABLE 3.5 Leading Community Location Factors Rated as Not Competitive Arizona Responses (n = 30) Caifornia and Texas Responses (n = 24) Sea transportation (n = 17) Sea transportation (n = 11) Property tax (n = 9) Property tax (n = 11) Eectricity costs (n = 9) Eectricity costs (n = 11) State job training (n = 9) Water costs (n = 10) Financing programs (n = 9) Water service (n = 9) State job training (n = 9) Time and cost of permitting process (n = 9) Source: Evauation of Arizona (Tucson: The University of Arizona Office of Economic Deveopment, 1999). Tabe 3.6 shows the order in which respondents ranked the seven communities studied in terms of NAFTA-reated competitiveness: TABLE 3.6 Evauation of NAFTA-Reated Rank Arizona Ratings Rank Caifornia and Texas Ratings 1 Tucson, AZ 1 San Diego, CA 2 Nogaes, AZ 2 E Paso, TX 3 E Paso, TX 3 Nogaes, AZ, and Laredo, TX 4 San Diego, CA 4 Tucson, AZ 5 Yuma, AZ, and Laredo, TX 5 Yuma, AZ, and Dougas, AZ 6 Phoenix, AZ 6 Phoenix, AZ 7 Dougas, AZ Source: Evauation of Arizona (Tucson: The University of Arizona Office of Economic Deveopment, 1999). 8

19 Where Arizona Coud Capture a Larger Share of NAFTA Trade Based on research done for this evauation and for other projects aimed at enhancing Arizona s economy and increasing the state s economic interactions with Mexico, Arizona has the potentia to increase its share of trade with Mexico and Latin America in a number of key areas, namey: High-technoogy activities, incuding semiconductor-based production operations Meta fabrication operations Medica devices, pharmaceuticas, and biotechnoogy Pastics Advanced border transportation technoogies Air transport Warehousing and distribution Surveiance technoogies Targeted Growth Areas As Tabe 3.7 indicates, each of the communities in this anaysis has identified key areas of strength as we as specific targets for economic deveopment. In each case, the choices are based on evauation of that community s existing or potentia abiity to maintain a ead in that sector. TABLE 3.7 Economic Deveopment Targets, by City City Key/Targeted Industries Arizona Phoenix Tucson Yuma Nogaes Dougas Aerospace, high technoogy, bioindustry, business services, environmenta technoogy, food/fiber/ natura products, information processing, manufacturing, software, transportation and distribution Aerospace, bioindustry, eectric and eectronic components, environmenta technoogies, instrumentation, meta fabrication, optics, software deveopment, teecommunications Aerospace, agribusiness, eectronics, high technoogy, ight manufacturing, pastics, sheet meta stamping, teecommunications, tourism, senior iving Internationa trade, manufacturing/maquiadora, services, tourism Aerospace/high technoogy, computers, ight industria, manufacturing/maquiadora, professiona services, teecommunication, tourism Caifornia San Diego Caexico Bioscience, communications, defense, eectronics, manufacturing/maquiadoras, recreationa goods, software, tourism Agribusiness, manufacturing suppiers 9

20 Texas San Antonio E Paso Laredo Internationa business services, manufacturing, heath-care industry, communications, corporate and regiona offices, tourism Advanced technica, back office, computer-reated, headquarters, medica, motor vehice production, retirement, resorts, too and die manufacturing Manufacturing/maquiadora, services, transportation and distribution Source: Evauation of Arizona (Tucson: The University of Arizona Office of Economic Deveopment, 1999). Goas and Strategies Oriented toward Trade with Mexico and Latin America A the communities incuded in this anaysis engage in economic deveopment activities targeted specificay at Mexican and Latin American markets. Tabe 3.8 summarizes each community s activities. TABLE 3.8 Key NAFTA-Oriented Economic Deveopment Activities and Strategies, by City City Activities and Strategies Arizona 10 Phoenix Tucson Yuma Nogaes Dougas Headquarters for statewide Binationa Economic Deveopment Commission; MatchMex97 binationa industry partnering event; NAFTA (FEDEX) Conference; Environmenta Technoogy Custer grant focusing on deveoping business with Mexico; CANAMEX corridor; Strategic Economic Deveopment Vision for the Arizona-Sonora Region ( The Arizona-Sonora Project ), which has a six-point pan that incudes the deveopment of binationa custers in the areas of heath services, manufacturing, tourism, and agribusiness; a comprehensive workforce deveopment strategy; increased efficiency in transportation and border crossing; and reguatory reforms to spur investment, and market promotionof the region. Maquiadora suppier deveopment; Tucson-Mexico: Coser Than Ever Mas Cerca que Nunca! project to faciitate business partnerships between Tucson and northwestern Mexico; Tucson-Sonora coaborative referra program; Mexico Seminar Series; CANAMEX corridor; Strategic Economic Deveopment Vision for the Arizona-Sonora Region (see Phoenix for description). Binationa Economic Deveopment Commission; joint border strategic pan; maquiadora advertising campaign; directory of investors; internationa trade show; CANAMEX Corridor; Strategic Economic Deveopment Vision for the Arizona-Sonora Region (see Phoenix for description); Arizona-Mexico Commission Border Trade Aiance Border Strategic Partnership. Maquiadora suppier deveopment; investment guide and interactive CD-ROM to market binationa attributes; CANAMEX corridor; Strategic Economic Deveopment Vision for the Arizona-Sonora Region (see Phoenix for description); Arizona-Mexico Commission Border Trade Aiance Border Strategic Partnership. Maquiadora suppier deveopment; investment guide to market binationa attributes; binationa marketing efforts invoving economic deveopment officias in Dougas and Agua Prieta; faciitation of diaogue between region s mayors; SEAGO s Internationa Trade Center; Strategic Economic Deveopment Vision for the Arizona-Sonora Region (see Phoenix for description); Arizona-Mexico Commission Border Trade Aiance Border Strategic Partnership; border region business incubator; South Eastern Arizona Center for Agribusiness Deveopment.

21 Caifornia San Diego Caexico Maquiadora suppier deveopment; binationa meetings of economic deveopers; binationa communication network project; Goden Opportunities Program for sma and mid-sized exporters; binationa tourism marketing; NAFTA conferences; pubic/private intermoda transportation efforts; Cross-Border Connect Program. Binationa coaboration on NAFTA conference; agribusiness trade show. Texas San Antonio E Paso Laredo Inand Port San Antonio concept, which incudes the redeveopment of Key AFB and the designation of San Antonio as a NATAP piot project; trade missions by the Free Trade Aiance and Casas San Antonio to Chie and Argentina promoting two-way trade and investment; Transporte Interna - tiona conference on trade and transportation issues; coaboration with customs administrators from Coumbia Soidarity Bridge (Laredo) in an effort to promote the Inand Port project; monthy Mexico group meetings; promotion of 1999 Joint Business Conference. Maquiadora suppier deveopment; binationa industria promotion and reocation guide; binationa meeting of economic deveopers. Vision 97 Internationa Trade Show; InfoCenter in Monterrey jointy operated with Corpus Christi. Source: Evauation of Arizona (Tucson: The University of Arizona Office of Economic Deveopment, 1999). Important Assets Arizona Shoud Market to Prospective Firms Arizona has many assets and attributes that make it a particuary attractive ocation for firms seeking a patform for NAFTA-reated enterprise. Among these quaities are: Arizona s ong history of cordia reations with Sonora Activities of the Arizona-Mexico Commission/Comisión Arizona-Mexico in transboundary business deveopment Strategic Economic Deveopment Vision for the Arizona-Sonora Region ( Arizona-Sonora Project ), a unique ong-range strategic panning process guided by severa goas: w Deveoping the two states into a singe economic region w Estabishing Arizona-Sonora as a major hub on the NAFTA trade corridor w Eiminating trade barriers w Stimuating commercia deveopment in severa key industry sectors w Creating new markets for regiona products and services Expansion of the Arizona-Sonora Project to incude a six-point pan to (1) estabish binationa industry custers (agribusiness, heath services, manufacturing, and tourism); (2) impement a comprehensive workforce deveopment and education strategy for the region; (3) impement efforts to increase efficiency in transportation and border crossings; (4) market the region for business deveopment and attraction; (5) undertake reguatory reforms to encourage capita investment; and (6) integrate sustainabe deveopment and community-based deveopment into the regiona pan 11

22 Expertise and experience in aerospace and avionics, and the presence of a suppier base for these sectors Expertise and considerabe concentration of semiconductor and other high-technoogy firms, particuary in the greater Phoenix area Bioindustry expertise and activity (medica devices, biotechnoogy, pharmaceuticas) The formation of the Pastics and Advanced Materias Custer offers important suppier inkages for the growing maquiadora industry in Mexico An extensive and diversified higher-education structure With the incusion of Sonora, the existence of a arge engineering workforce Expicit and active support at the state and oca eves for formation and maintenance of industry custers and forma industry custer organizations in the sectors identified by the governor s task force as having strong potentia for further growth and deveopment Quaity-of-ife factors, incuding gof courses and conference faciities, abundant outdoor recreationa opportunities, major-eague sports teams (ony San Diego is competitive with Phoenix in this regard), a wide array of superior programs in the higher-education ream, a ower cost of iving than San Diego, and proximity to and accessibiity of major metropoitan areas in Caifornia Summary Observations Arizona is in a good position to capture a arger share of NAFTA trade, if sharpy focused marketing and recruitment strategies are impemented at the state and oca eves. A the communities in this study are just beginning to generate suppier inkages to the maquiadoras; therefore an important window of opportunity exists for Arizona to move aggressivey into this area of marketing. Arizona shoud recruit more pastics manufacturers to the state, given the wide uses of these materias in production operations, particuary in the medica device and eectronics sectors. Arizona shoud pace greater emphasis on generating NAFTA trade inked to the state s aerospace, avionics, and semiconductor strengths. Formaization of the CANAMEX corridor, a project to create a direct ink between Canada and western Mexico, hods potentia for pacing Arizona at a crucia crossroads of NAFTA trade in the western reaches of Mexico, the United States, and Canada. It is aso possibe that, with appropriate business and transportation infrastructure deveopment in the Yuma area, Arizona might capture trade from Caifornia. Given privatization activities in Mexico, Arizona must monitor deveopments cosey and be positioned to move quicky into new areas of opportunity, such as the transportation sector. Strong consideration shoud be given to reducing the burden on sma and medium-sized businesses wishing to quaify their products for duty-free NAFTA status. Arizona has many modest-sized firms with products that are highy competitive in Mexico; the marketing efforts of these firms need to be supported, at east in the short term; for exampe, through providing NAFTA training. 12

23 Growth in Trade to Mexico Growth in Export Saes to Mexico During the period, Texas exceeded the export saes of both Arizona and Caifornia (see tabe 4.1). On the other hand, Arizona (83.3 percent) and Caifornia (111 percent) experienced greater increases in their trade reations with Mexico than did Texas (68.2). Figure 4.1: EXPORT SALES TO MEXICO BY STATE, 1993 and 1998 ($ in thousands) 25,000,000 20,000,000 21,626,583 Arizona Caifornia Texas ,000,000 10,000,000 12,860,799 10,798, ,000,000 5,116, ,087, Export Saes to Mexico 1,993, Export Saes to Mexico 20 0 Percent Change Source: U.S. Census Bureau, Exporter Location Series (June 1999) Changes in Major Export Categories Eectric and eectronic equipment and industria machinery and computers continue to be the eading categories of merchandise exported to Mexico from Arizona, Caifornia, and Texas (Tabe 4.2). Notabe differences begin to emerge in the third, fourth, and fifth rankings. For instance, rubber and pastic products is ranked third for Arizona and fifth for Texas, but does not appear in the top five exports for Caifornia. Transportation equipment is ranked third among Caifornia s exports to Mexico and is ranked fourth for Texas. Arizona is distinguished by high eves of exports in primary metas and paper products, Caifornia exports arge amounts of fabricated meta products and appare, and Texas is strong in chemica products. 13

24 TABLE 4.1: TOP FIVE MERCHANDISE EXPORTS SALES TO MEXICO, BY INDUSTRY SECTOR, 1998 Rank Arizona Manufactures Caifornia Manufactures Texas Manufactures 1 Eectric & Eectronic Equipment Eectric & Eectronic Equipment Eectric & Eectronic Equipment 2 Industria Machinery & Computers Industria Machinery & Computers Industria Machinery & Computers 3 Rubber & Pastic Products Transportation Equipment Chemica Products 4 Primary Metas Fabricated Meta Products Transportation Equipment 5 Paper Products Appare Rubber & Pastic Products Source: U.S. Census Bureau, Exporter Location Series (May 1999). Eectric and Eectronic Equipment Eectric and eectronic equipment saes to Mexico increased consideraby for Arizona (130 percent) and Caifornia (202.7 percent) between 1993 and 1998 (Figure 4.1 and tabe 4.3). Athough Texas experienced more modest growth (86.7 percent) during this period, it continues to ead in terms of doar vaue of exports reative to the other border states. During 1997 and 1998 Arizona experienced a 4.2 percent decrease in export saes, compared to 9.8 percent and 8 percent growth for Caifornia and Texas respectivey. FIGURE 4.2: PERCENTAGE CHANGE IN EXPORTS OF ELECTRIC AND ELECTRONIC EQUIPMENT, Arizona Caifornia Texas Source: U.S. Census Bureau, Exporter Location Series (May 1999) 14

25 FIRGURE 4.3: ELECTRIC AND ELECTRONIC EQUIPMENT SALES TO MEXICO 1993 AND ,000,000 4,500,000 4,869,618 4,000,000 3,500,000 3,710,506 3,000,000 2,500,000 2,607,972 2,000,000 1,500,000 1,000, , ,224, , ,456 Texas Caifornia Arizona Texas Caifornia Arizona Source: U.S. Census Bureau, Exporter Location Series (May 1999) Industria Machinery and Computers In the industria machinery and computers sector, Caifornia experienced the greatest increase in export saes to Mexico from 1993 to 1998 (102.3 percent), foowed by Texas (60.1 percent) and Arizona (36.2 percent). (Figure 4.2 and tabe 4.4.) Indeed, the data for 1997 and 1998 indicate that Arizona saw a percent decrease in this sector, reative to growth in Texas (29 percent) and Caifornia (6.3 percent). FIGURE 4.4: PERCENTAGE CHANGE IN EXPORTS OF INDUSTRIAL MACHINERY AND COMPUTERS, Arizona Caifornia Texas Source: U.S. Census Bureau, Exporter Location Series (May 1999) 15

26 FIGURE 4.5: INDUSTRIAL MACHINERY AND COMPUTER SALES TO MEXICO, 1993 AND ,500,000 2,409,383 2,000,000 1,500,000 1,505,230 1,542,216 1,000, , , , ,074 0 Texas Caifornia Arizona Texas Caifornia Arizona Source: U.S. Census Bureau, Exporter Location Series (May 1999) Change in Seected Export Categories During the 1993 to 1998 period, Arizona continued to experience considerabe growth in export saes of primary metas (296.8 percent) and fabricated metas (115.4 percent). Caifornia saw a notabe increase of percent in trade of chemica products, compared to 72.1 percent and 64.1 percent growth in Texas and Arizona, respectivey. In addition, Caifornia stood out for growth in paper product saes (112.9 percent), foowed by Arizona (97.3 percent) and Texas (33.7 percent). Caifornia s increase in transportation exports (116.9 percent) during this period is surprising given the decrease experienced by Texas (-2.4 percent) and the modest growth registered by Arizona (22.9 percent). Arizona s modest growth in transportation exports is accounted for in part by a drastic percent decrease in saes from 1997 to 1998, reversing a growth trend in the previous years. Texas ed the other states in rubber and pastic product exports, with an increase of 226 percent during the 1993 to 1998 period (Figure 4.3 and tabe 4.5). FIGURE 4.6: PERCENTAGE CHANGE FOR SELECTED EXPORT CATEGORIES, Rubber and Pastic Primary Meta Chemica Products Paper Products Fabricated Meta Transportation Equipment -50 Arizona Caifornia Texas Source: U.S. Census Bureau, Exporter Location Series, (May 1999) 16

27 TABLE 4.2: CHANGE IN DOLLAR VALUE OF SELECTED EXPORT CATEGORIES, Arizona Caifornia Texas Rubber & Pastic Products $69,967 $183,786 $243,672 $437,636 $444,786 $1,449,867 Primary Metas $36,852 $146,237 $227,940 $362,158 $559,290 $1,366,603 Chemica Products $25,467 $41,791 $228,946 $493,683 $1,092,040 $1,879,096 Paper Products $68,451 $135,060 $ $357,829 $570,684 $762,831 Fabricated Meta Products $58,483 $125,984 $269,417 $541,723 $422,231 $827,676 Transportation Equipment $33,122 $40,699 $252,528 $547,823 $1,562,255 $1,524,439 Source: U.S. Census Bureau, Exporter Location Series (May 1999). Exports by Metro Area A the major metropoitan areas incuded in this report (Phoenix and Tucson, Arizona; San Diego, Caifornia; and San Antonio, E Paso, and Laredo, Texas) experienced various degrees of growth in tota internationa exports, as tabe 4.6 indicates. In terms of export-reated doar gains for a U.S. metro areas (isted by growth in merchandise vaue), San Diego ed the other communities for the period. San Diego s top ranking underscores a downward shift for the Phoenix-Mesa area, which had dominated among the communities unti Whereas Phoenix experienced a sudden reversa after 1997, Laredo showed a steady, significant decrease. TABLE 4.3: CHANGE IN EXPORT VALUE BY METRO AREA, Rank Metro Area Change in Export Vaue 8 San Diego, Caifornia $4,233, Phoenix-Mesa, Arizona 3,603, E Paso, Texas 3,577, San Antonio, Texas 1,076, Tucson, Arizona 766, Laredo, Texas -428,253 Source: U.S. Census Bureau, Exporter Location Series (November 1999). For the 1997 to 1998 period aone, San Diego s performance in export-reated doar gains again exceeds that of E Paso, San Antonio, Tucson, Laredo, and Phoenix-Mesa (Tabe 4.7). Indeed the dramatic $3 miion decrease for Phoenix-Mesa during this one-year period expains its fa to a ranking behind San Diego for tota doar gains during

28 TABLE 4.4: CHANGE IN EXPORT VALUE BY METRO AREA, Rank Metro Area Growth in Export Vaue 5 San Diego, Caifornia $781,622 6 E Paso, Texas 710, San Antonio, Texas 298, Tucson, Arizona 192, Laredo, Texas -325, Phoenix-Mesa, Arizona -3,005,635 Source: U.S. Census Bureau, Exporter Location Series (November 1999). The rankings for U.S. metro-area exporters in 1998 (isted by doar vaue) show San Diego eading Phoenix-Mesa, E Paso, and Laredo (see tabe 4.8). San Antonio and Tucson rank far behind these communities. Comparing the doar vaues for 1997 and 1998, Phoenix stands out for its dramatic oss of position. In 1997, Phoenix was rated the 10th argest metro-area exporter, ahead of San Diego; by 1998, it had dropped to 17th pace. TABLE 4.5: TOP METRO-AREA EXPORTERS, 1997 AND 1998 Rank Metro Area Tota Exports, 1997 Tota Exports, San Diego, Caifornia $7,810,003 $8,591, Phoenix-Mesa, Arizona 11,108,393 8,102, E Paso, Texas 5,833,929 6,544, Laredo, Texas 3,959,112 3,633, San Antonio, Texas 1,342,822 1,640, Tucson, Arizona 1,060,526 1,253,420 Source: U.S. Census Bureau, Exporter Location Series (November 1999). In terms of percentage change in doar vaue of exports between 1993 and 1998, San Antonio, Tucson, E Paso, and San Diego a experienced greater growth than the nationa average (Tabe 4.9). Phoenix and Laredo faied to meet the average nationwide for both 1993 to 1998 and 1997 to Phoenix s decine of -8.2 percent during is a substantia reversa from the 40.4 percent increase it experienced during

29 TABLE 4.6: PERCENTAGE CHANGE IN DOLLAR VALUE OF EXPORTS AND Metro Area San Antonio, Texas Tucson, Arizona E Paso, Texas San Diego, Caifornia Phoenix-Mesa, Arizona Laredo, Texas U.S. nationa average Source: U.S. Census Bureau, Exporter Location Series (November 1999). To summarize the trends in trade: In terms of greatest doar gain for and , the San Diego metro region eads the other communities; in contrast, the Phoenix-Mesa metro region experienced a dramatic reversa during both time periods. Tucson s ranking of 85th in tota exports for 1998 continued to pace it far behind San Diego (12th), Phoenix-Mesa (17th), E Paso (21st), Laredo (37th), and San Antonio (70th). On the other hand, among the studied cities, Tucson s rate of growth (157.3 percent for and 18.2 percent for ) was the second fastest behind ony San Antonio. Exports to NAFTA Countries, and As tabe 4.10 shows, during the 1993 to 1998 period, Tucson s percent growth in export saes to NAFTA markets traied behind ony San Antonio (273.8 percent). In fact a the communities except Phoenix-Mesa and Laredo experienced tripe-digit growth between 1993 and 1998, and Laredo was the ony community to register a decine (-11.3 percent) for this period. Phoenix-Mesa and Laredo continued to stand out reative to the other communities for percentage decreases (-6.8 and -9.2 percent respectivey) between 1997 and San Antonio (27.9 percent) ed the communities during 1997 and 1998, foowed by San Diego (13.8 percent), E Paso (11.3 percent), and Tucson (4.4 percent). In terms of trade with Mexico specificay, San Antonio experienced tremendous growth, with a percent increase during , foowed by E Paso (114.1 percent), Tucson (109.7 percent), and San Diego (105.4 percent). In contrast, Phoenix experienced more modest growth (74.2 percent) and Laredo brought up the rear with a percent decrease (Tabe 4.10). The same genera ranking hods true for San Antonio ed the group with a 29.6 percent increase. Notabe trends during this period are that San Diego (11.4 percent) experienced greater growth than Tucson (2.2 percent), and Phoenix-Mesa (-13.4 percent) shared the distinction of negative change with Laredo (-6.5 percent). 19

30 TABLE 4.7: PERCENTAGE CHANGE IN MERCHANDISE EXPORTS TO NAFTA COUNTRIES AND MEXICO, AND ). NAFTA Countries Mexico Metro Area San Antonio, Texas Tucson, Arizona E Paso, Texas San Diego, Caifornia Phoenix-Mesa, Arizona Laredo, Texas Source: U.S. Census Bureau, Exporter Location Series (November 1999). Major Export Categories, by City The rankings in Tabe 4.11 indicate the reative importance of various export categories for the Phoenix-Mesa, San Diego, E Paso, and Laredo areas. Data are not avaiabe for San Antonio and Tucson. The data revea the foowing major points about word exports: Eectric and eectronic equipment is the most significant export for Phoenix-Mesa, San Diego, and E Paso, and the second most significant export for Laredo. Transportation equipment continues to ead Laredo s exports and is the number-three export for the Phoenix-Mesa metro region. Between 1997 and 1998, this sector moved up to fourth in importance for San Diego; it is not among the top ten exports for E Paso. Industria machinery and computers ranks second for Phoenix-Mesa and San Diego exports, and third for Laredo. The sixth pace ranking for E Paso represents an improvement from seventh pace in Rubber and pastic products rank second for E Paso, seventh for both San Diego and Laredo, and ninth for Phoenix- Mesa. Appare, the third most important export for E Paso, does not appear among the top ten export sectors for any of the other three metro areas. Scientific and measuring instruments ranks third among San Diego exports, fourth for Phoenix-Mesa, and tenth for both E Paso and Laredo. Primary metas ranks fourth among exports for E Paso, sixth for Laredo, eighth for Phoenix-Mesa, and tenth for San Diego. Chemica products ranks fourth for Laredo, sixth and seventh for San Diego and Phoenix-Mesa respectivey, and does not appear among the top ten exports for E Paso. Paper products ranks eighth for both E Paso and Laredo and ninth for San Diego; it does not appear in the top ten exports for Phoenix-Mesa. Fabricated meta products, which was not among the top ten exports for Phoenix-Mesa in 1997, now ranks sixth for that metro region, foowed by E Paso (7th) and San Diego (8th). Interestingy, in 1996 this was the third most important export category for Laredo, but it has not shown up in the top ten exports since then. 20

31 TABLE 4.8: MERCHANDISE EXPORT SALES BY INDUSTRY SECTOR, 1998 Rank Phoenix-Mesa San Diego E Paso Laredo 1 Eectric & Eectronic Eectric & Eectronic Eectric & Eectronic Transportation Equipment Equipment Equipment Equipment 2 Industria Machinery Industria Machinery Rubber & Pastic Eectric & Eectronic & Computers & Computers Products Equipment 3 Transportation Scientific & Measuring Appare Industria Machinery Equipment Instruments & Computers 4 Scientific & Measuring Transportation Primary Metas Chemica Products Instruments Equipment 5 Non-Manufactured Misceaneous Textie Mi Products Food Products Products Manufactures 6 Fabricated Meta Chemica Products Industria Machinery Primary Metas Products & Computers 7 Chemica Products Rubber & Pastic Fabricated Meta Rubber & Pastic Products Products Products 8 Primary Metas Fabricated Meta Paper Products Paper Products Products 9 Rubber & Pastic Paper Products Furniture & Fixtures Non-Manufactured Products Products 10 Refined Petroeum Primary Metas Scientific & Measuring Scientific & Measuring Products Instruments Instruments Source: U.S. Census Bureau, Exporter Location Series (November 1999). Seected sectors were identified for more detaied anaysis either because they appear among the eading exports of more than one state or because they have been targeted for custer or industry deveopment. Information on these sectors foows. Eectric and Eectronic Equipment Change in exports of eectric and eectronic equipment is dispayed in tabe From 1993 to 1998, San Diego s activity in the eectric and eectronic equipment sector grew at twice the rate of E Paso (193.9 percent to 94.6 percent), at tripe the rate of Phoenix-Mesa (53.6 percent), and at seven times the rate of Laredo (25.4 percent). San Diego continued to ead in , with more modest growth for E Paso and dramatic decreases for both Phoenix-Mesa ( percent) and Laredo (-37.5 percent). 21

32 TABLE 4.9: PERCENTAGE CHANGE IN ELECTRIC AND ELECTRONIC EQUIPMENT EXPORTS, AND Metro Area San Diego, Caifornia E Paso, Texas Phoenix-Mesa, Arizona Laredo, Texas Source: U.S. Census Bureau, Exporter Location Series (November 1999). Industria Machinery and Computers The Phoenix-Mesa region experienced a significant increase (199.4 percent) in industria machinery and computer exports during the period, which was tempered by a considerabe, decrease (-76.0 percent) during Both E Paso and San Diego showed reativey strong growth during this time. Laredo stands out for a percent decrease between 1993 and 1998, which masked a near reversa (a 10.2 percent increase) during (Tabe 4.13). TABLE 4.10: PERCENTAGE CHANGE IN INDUSTRIAL MACHINERY AND COMPUTERS EXPORTS, AND Metro Area Phoenix-Mesa, Arizona E Paso, Texas San Diego, Caifornia Laredo, Texas Source: U.S. Census Bureau, Exporter Location Series (November 1999). Scientific and Measuring Instruments E Paso s tota exports of scientific and measuring instruments for grew by percent, whereas Phoenix- Mesa registered a much more modest 36.5 percent growth and San Diego just 28.9 percent growth (Tabe 4.14). Laredo, at percent, saw a significant decine in this sector over the same period. E Paso, San Diego, and Laredo experienced very modest increases in , whereas the Phoenix-Mesa area registered a decine (-9.9 percent). TABLE 4.11: PERCENTAGE CHANGE IN SCIENTIFIC AND MEASURING INSTRUMENT EXPORTS, AND Metro Area Phoenix-Mesa, Arizona E Paso, Texas San Diego, Caifornia Laredo, Texas Source: U.S. Census Bureau, Exporter Location Series (November 1999). 22

33 Rubber and Pastic Products In the rubber and pastic products sector, E Paso experienced more than four times the growth of Phoenix-Mesa, neary eight times the growth of San Diego, and 19 times that of Laredo (Tabe 4.15). During , both E Paso and Phoenix continued to experience positive growth, in contrast to decines registered in San Diego (-21.3 percent) and Laredo (-2.4 percent). TABLE 4.12: PERCENTAGE CHANGE IN RUBBER AND PLASTIC EXPORTS, AND Metro Area Phoenix-Mesa, Arizona E Paso, Texas San Diego, Caifornia Laredo, Texas Source: U.S. Census Bureau, Exporter Location Series (November 1999). Fabricated Meta Products Tripe-digit growth occurred in exports of fabricated metas from the E Paso (362.6 percent) and Phoenix-Mesa (252.1 percent) areas, and San Diego (41.4 percent) experienced a modest increase as we. Laredo was the ony community to see a decrease during , but this trend reversed in E Paso experienced the greatest increase (31.2 percent) during , foowed by Phoenix-Mesa (25.5 percent). San Diego and Laredo were neary identica in their growth for this period with 18.3 percent and 18.2 percent respectivey (Tabe 4.16). TABLE 4.13: PERCENTAGE CHANGE IN FABRICATED METAL EXPORTS, AND Metro Area Phoenix-Mesa, Arizona E Paso, Texas San Diego, Caifornia Laredo, Texas Source: U.S. Census Bureau, Exporter Location Series (November 1999). Primary Metas E Paso ed the group in primary meta exports for at percent, foowed by San Diego (59.1 percent) and Laredo (35.9 percent). The decine experienced by the Phoenix-Mesa metro area persisted in Despite dramatic growth over the ong term, San Diego was the ony other community whose exports decined in , with a -4.6 percent drop. 23