NOGALES, Sonora - Jeff Barth is hoping the path to prosperity passes through Nogales.
This isn’t necessarily the route he planned to take when he started JWB Manufacturing in the fall of 2008, but the Tempe-based maker of wire-cutting blades is willing to follow it. He sees the Mexican state of Sonora, and its resurgent manufacturing sector, as key to the future. Especially since he senses so much uncertainty in the U.S. economy.
“I’ve decided that my exporting growth is going to be in Sonora,” he said.
And who can blame him?
The Sonoran economy has made major manufacturing gains, recovering almost to pre-recession employment levels in that sector. Factor in rising fuel costs and increased wages in China, and a number of trade officials see room for growth for companies like Barth’s through near-shoring in Mexico.
The idea is this: As manufacturing in Mexico grows, Arizona companies can benefit by providing small parts and components or packing materials.
“Clearly, there are opportunities for Arizona companies to become suppliers for this big manufacturing base,” said Eric Nielsen, the Arizona director for the U.S. Export Assistance Center. “There is a difference between sending a part from Indianapolis to Hermosillo versus sending a part from Phoenix or Tucson.”
For Barth, that means providing blades for wire cutting.
“If you picture an iPod cord,” he said. “I make the replacement blades that cut and strip those wires.”
Making connections
Looking to make connections with the various auto and aerospace manufacturers that have set up shop in Sonora, Barth recently manned a booth at a supplier trade expo in Nogales, about three hours south of Phoenix.
The Sonoran maquiladora association organized the event, and the U.S. Export Assistance Center put together a delegation of 25 U.S. businesses looking to make more connections in Mexico. The delegation was mostly from Arizona and included representatives from packing companies, assembly-line manufacturers, a distribution center and Phoenix-Mesa Gateway Airport.
It was held in some vacant warehouse space at the Master Lock maquiladora just on the edge of Nogales.
All told, there were representatives from about 120 companies from both sides of the border, including Jim Boley, vice president with Phoenix-based Flexpak.
“Over half of our business we ship to Mexico already,” he said.
Flexpak makes custom packing materials, and Boley had shipping trays for IV bottles on display — they look a lot like those cardboard snack trays people get at sporting events.
Boley said Flexpak was making connections and identifying potential customers. Keeping a presence in Sonora and connecting with new manufacturers was “vital to our company,” he said.
The numbers back this up.
Mexico is Arizona’s top export market, and about 72 percent of Arizona’s exports to Mexico in 2011 went to Sonora, according to Lora Mwaniki-Lyman, a regional economist with the Maricopa Association of Governments.
Mexico was hit hard in the Great Recession and has been recovering somewhat slowly, with 3.9percent growth in 2011, according to the International Monetary Fund. This fell below expectations, but Mwaniki-Lyman said Sonora appeared to be recovering faster than the national average.
Total manufacturing employment was at about 100,000 in July compared with about 85,000 in July 2009, according to numbers she provided.
“When Mexico does well, we do well,” said Anna Flaaten, an international trade specialist with the U.S. Export Assistance Center.
About 40 percent of Mexico’s exports contain U.S. components, she said. Parts are constantly moving back and forth across the border.
“It’s not your old-fashioned maquila anymore,” she said. “It’s not textile or apparel. It’s high-end cars, autos, aerospace, wire harness shops ... defense is also coming in.”
Obstacles, uncertainties
Many obstacles remain to making deals happen: unpredictable border wait times, security concerns and a lack of knowledge. For example, Barth said he has no idea what companies might need his blades.
“It’s hard to find what companies are actually down here, and then how to get in,” he said.
It doesn’t help that he doesn’t speak Spanish. He’s hoping to learn on the side, but that’s a tall order when he’s running a company.
And then there is the security question that comes with recent drug violence. Trade officials are quick to say that Sonora is much safer than other Mexican border states because it’s controlled by one cartel.
But when Barth, 47, first visited Hermosillo on a trade mission last summer, he “was really nervous,” he said. “My wife was nervous about it.”
The trip went great, and he said he now feels safe in Sonora. He might be a little worried driving alone from Nogales to Hermosillo, but he feels comfortable enough to make Sonora a key market for his business.
Part of the allure for making connections in Mexico, he said, is the economic uncertainty in the U.S.
He’s not sure how much the Arizona and U.S. economies might grow in the future. He’s thought about buying another machine shop, but he’s not sure if now is the time to take on debt. With the fiscal cliff looming, he is seeing customers pull back on orders. Mexico, he said, might provide an economic buffer.
“I’m nervous about the economy,” he said, “and I am finding that prospecting in Mexico is one of the best ways that I can continue to figure out how to keep growing my business.”
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