Integrating
People . . .

_____________________

Materials Manager
Automotive Industry - Baja Calif.

Engineer Manager
Electronic Industry - Sonora

Senior Planner - Tijuana, Mexico

Sr. Test Lab. Engineer
Aerospace Industry - Mexicali

Distribution Center Leader
Automotive Industry - Edo. de Mex.

Customer Quality Engineer
Tijuana, Mexico
International Staffing
Group
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Executive Search and Human Capital Development
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Aerospace "Maquilas" in Sonora
With two border governors preparing to join the new president's administration, some say now is the
time to pursue the transformation of Sonoran's manufacturing industry into an Aerospace hub for
U.S. and foreing companies. "This is not about cheap labor. If it was, we would be looking at South
America or China," John D. Breiden-stine, U.S. consul general in Hermosillo, Sonora, told members
of the Arizona-Mexico Commission Friday. "This is about integration of the North American
marketplace."  
Sonora needs to be billed as a place for manufacturing and design plants, versus simply assembly
warehouses, he said. "I'm not encouraging U.S. companies to export jobs," Breidenstine said.
Instead, Arizona needs to aggressively recruit companies that are eyeing Asia to look at Sonora
instead. Breidenstine said 60 percent to 70 percent of supplies for Mexican plants come from the
U.S. That opportunity doesn't exist if the plant is in Asia, he said.

"It's time to stop blaming Mexico for our problems," he told commission members.

The appointment of Arizona Gov. Janet Napolitano to head the Department of Homeland Security
and New Mexico Gov. Bill Richardson to oversee the Commerce Department means those ideas are
realistic, Breidenstine said.
"There's a great opportunity to open up more trade," he said, because both governors are "friends
of the border."
Wendy Vittori, president of Arizona-Sonora Manufacturing Initiative, LLC, said too many people in
Arizona don't realize the benefits of manufacturing operations in Sonora.
"There's no depth of understanding and people are concerned that if there's a manufacturing job in
Sonora, that means there's no job in Arizona," she said. "It might be because of the jobs in Sonora
that there are jobs in Arizona."
She said the region can position itself now to come out ahead when the economy recovers. If the
region fails to seize the opportunity, "the disappointment is going to be bigger later," she said.
Between 2001 and 2007, the number of aerospace “maquiladoras” in Sonora grew from 65 to 150,
said Oscar F. Contreras, visiting associate research scientist and professor of sociology at the
College of Sonora. The Hermosillo-based University predicts there will be at least 200 aerospace
“maquiladoras” in Sonora by 2010. Contreras said other Mexican states are recruiting aerospace
companies, but they do not boast the binational cooperation of the Sonora-Arizona region.
Tucson Regional Economic Opportunities Inc. has identified aerospace as one of four industries to
target, said Laura Shaw, senior vice president of corporate and community affairs. She said
Southern Arizona is one of the top five regions for aerospace, with more than 200 companies that
employ 20,000 to 30,000 people. Shaw said TREO has long touted the availability of manufacturing
in Sonora as an incentive for companies looking to relocate.
_____________________________________________________________________________

Technical stoppages in 70 suppliers
Due to the temporary closing of Ford’s Plant in Hermosillo, they will have early vacations and will
implement an austerity program; they directly employ 5 thousand people.

At least 70 companies in the auto parts sector will have technical stoppages late this year, after Ford
announced the temporary closing of their plant in Hermosillo, Sonora due to a drop in sales in the
United States, and also due to the technical stoppage Nissan had last week in their Aguascalientes
factory.

This was revealed by Antonio Torres Mota Velasco, President of Auto Parts Sector in the Mexican
Chamber of Processing Industry,  Cámara Nacional de la Industria de Transformación (Canacintra),
who flatly ruled out personnel recruitment next November and December, due to a zero growth of the
automotive cluster.

Antonio Torres said that in addition to the technical stoppages, the 70 companies – which all
together generate at least 5 thousand direct jobs – will also take early vacation and will implement
austerity programs that alleviate the impact suffered by the drop in sales suffered by the automotive
sector in Mexico and other
countries.

According to Mr. Torres, the companies supply several parts to Nissan, Ford, Volkswagen and other
assemblers established in Mexico; in addition to shipping part of their production to the United States.

_____________________________________________________________________________

A MEXICAN POINT OF VIEW - India's education model
A few days ago I was talking with a businessman from a multinational company with headquarters in
India and planning to start operations in the north region of Mexico. My attention was called to the
level of academic instruction the population in India has, as well as their education models.
Nowadays India has an education system based on technology industry and knowledge. The
academic level in India is not only higher than ours, they have even adopted education models
similar to those in developed countries with a huge success for their students and graduates.
In the United States, for example, India has the largest number of work visas for professionals (H1-B
) in the world, including US three main trade partners all together (Canada, China and Mexico).

This is proof of how highly prepared professionals from India are, versus the education of Mexican
immigrants resident in the USA.

You may wonder: How is this related to Mexico? The answer is simple: there are better models;
especially there are better education models that have provided competitiveness to students and
professionals. We could well apply these models in Mexico.
Mexico has academic levels way below the academic mean in developed countries, and even below
some of our competitors, including China, South Korea and India. Still, in Mexico's north region
academic levels are above the domestic mean - 6 years - in some cases even 2 or 3 years higher.
These academic levels make a difference not only in the academic development of the states, but
also in income per capita, development and competitiveness.

Many decisions on foreign investment projects in Mexico are based precisely on the academic level
and qualified labor, among other factors. The higher academic level of some Mexican north states
when compared to other states, mainly in the south, makes a difference on the type and sector of
investment projects, as well as on the states' economic development.

The new knowledge-based economy calls for larger and better education programs, as well as a
higher academic level, mainly in today's young professionals. Current globalization calls for (but
does not force upon) a transformation from traditional manufacturing to "mind-nufaturing" providing
larger value added that of course requires better academic and professional preparation from the
economically active population, creating at the same time a "new" intellectual capital concept.
Transformation of economy, as we have already mentioned, calls for better prepared students and
professionals.
Education models, like India's, have something in common: the large investment made by their
governments in education.
India is a rather young country that achieved independence less than 60 years ago - in 1947 - and
faced illiteracy problems just like any country of recent creation. India's Government crucial policy
was to consider education a priority long-term investment as motor and basis for development.
The first results were reflected in the increase in the number of students and professors registered
in India. Nowadays, thanks to the education boom, India has, according to UNESCO data, the second
largest academic system in the world.

Quality of higher education in India is exemplary and based on science and technology, thanks to
the public policies adopted by the Indian Government more than 20 years ago. Emphasis has
recently been made on the need to have scientific and technical research centers that bring with
them new education models based on sectors that generate a high value added. Indian academic
system has been used as a model to provide the abilities required by the societies located in
developing countries.

Nowadays, India's Institutes of Technology have been of great help not only for the advancement
and development of this country, but also the high levels of this education system have enhanced its
reputation, mainly abroad, and have therefore provided new opportunities to students, in addition to
being part of cooperation programs with organizations and universities, mainly from developed
countries.

Unfortunately, Mexico has a strong education lag. Less than 22% of young people between 19 and
24 years of age have access to higher education. As an additional datum, in most developed
countries the percentage is above 60%, not to mention Nordic countries, which rate is over 80%.
As long as we are unable to increase the number of registered students and if we do not defeat - as
it should be - or at least neutralize illiteracy in Mexico, it will be hard to achieve not only economic
and education development, but also the social development required by Mexico. I am sure that the
education model implemented in India less than 60 years ago could be a model for Mexico to adopt.
In view of the education lag and the lack of access to education for most young people and social
strata in Mexico there is an urgent need to adopt education models that increase education levels
and fight illiteracy and that also "feed" the intellectual capital we have. Only in this way we will
achieve a real transformation and start walking the path that will lead us to modernity, as difficult as
this may be.

_____________________________________________________________________________

A MEXICAN POINT OF VIEW - Economy in Latin America
Fortunately Mexico is considered one of Latin America’s economic strongholds, but maybe the
question by some of our readers would be, "Being Mexico as it is, how is the rest of Latin America?

If we compare Mexico to most of Latin American countries, we may consider our country is way above
most countries in the continent, especially as far as economic issues are concerned.
Countries like Brazil, Chile and maybe Argentina could be the countries that resemble ours the most;
however, a characteristic feature of the above-mentioned countries is that they have been unable to
sustain continuous economic improvement. There seem to be only temporary periods typical of
developing economies. Let one sample suffice: The recent financial crisis in Argentina and Mexico’s
own financial crisis more than a decade ago. Nowadays the essential characteristic of the world’s
economies is precisely being volatile, when capitals and investments fly from one country to another
at a speed that in some cases could destabilize financial systems of the weakest countries and even
those of developing countries. Mexico has already lived the effects of capitals volatility during the
December ´94 crisis. Maybe the question is: how can governments neutralize flying capitals so that it
will not affect their financial systems? According to several economists Mexico and Brazil have
stronger financial systems that lead to better equal opportunity conditions when negotiating loans,
there is also more transparency and access to liquidity through legal reforms and amendments,
allowing for a more feasible access to credit. In other countries the recovery has been slow, such as
in Argentina, which has however been solid and systematic, if we consider the deep recession
Argentineans lived during the financial crisis a few years ago.

On the other hand, Mexico currently has practices more and more similar to those in North America
in the several credit access markets. Nowadays it is more common to see companies going public by
issuing bonds and/or, as they are known in financial circles, IPO´s (Initial Public Offer). Mexico has
been able to attract investors that purchase and sell subordinate obligations of existing companies,
avoiding a dependence on the loans made by financial institutions. Therefore, businessmen, due to
the limited access to credit – high and/or expensive - decide to go directly to the capitals market to
issue their debt. Mexico has been successful on this issue because since 2003 Mexican Stock
Exchange created its own global market so that Mexican investors can buy securities from American
and European companies without leaving Mexico or resorting to brokers, increasing the number of
market transactions and bringing investment societies to large investors´ table. This has been of
great help to Mexican companies listed in the Mexican Stock Exchange that decided to go public,
because they have been able to obtain investment funds at costs much more economic and feasible
than a debt acquired with banks.
Mexico’s strength before Latin America can be simply measured by the number of public companies.
The banks´ role in gathering savings and money has been reduced due to the multiple options
existing in capitals market, maybe this could be the beginning of a new financial culture system that
could bring great benefits not only to Mexico but also to other economies in Latin America. Hopefully,
this will create a new culture in capitals management and we will resemble more to developed
markets´ after all there is always something good to learn.

_____________________________________________________________________________

Mexico’s Export Woes not all China-Induced
Over the past 20 years, Mexico has transformed itself into a manufacturing-for-export nation. Exports
now represent 30% of its GDP, up from 10% 20 years ago. The vast majority of Mexico´s exports are
manufactured goods, and almost 90% of them are shipped to the United States. But these days
Mexico appears to be losing ground in U.S. markets. Its share of U.S.
Imports peaked at 11.5% in 2001 and has slipped since then. Meanwhile, China’s share of U.S.
imports has grown steadily and now exceeds Mexico´s (Chart 1).

To Mexican officials and producers, China´s advance and
Mexico´s slide are no coincidence. China´s gains, they say, are being made at Mexico´s expense
Mexico has good reason to worry about China. Both nations emphasize manufacturing exports, and
China´s export sector is growing at a mind-boggling rate. China´s exports-to-GDP ratio has risen
from 2% to 25% since 1970. While China´s GDP has grown at about 10% a year in real terms over
the past 20 years (+9.0% in 2004) exports have grown twice as fast. Not only is China producing
more than ever for export, its access to U.S. markets is improving. This is especially true in the textile
and apparel sector, where quotas on quite a few Chinese goods are slated to expire in 2005. Yet
another reason for Mexico to worry is China´s abundance of unskilled labor. Foreign manufacturers
invested in Mexico in the first place because of its comparative advantage over industrialized nations
in labor-intensive sectors. China seems the logical next stop for many of these manufacturers. And
some have already made the move.
However, there is no official tally of how many plants have moved, how many jobs have been lost in
the process or, for that matter, how many jobs have come back when the grass in China proved less
green than expected.
Nevertheless, Mexico´s anxiety about China is understandable. But is it justified? Is China the
problem? If China is the reason for Mexico´s slide in the U.S. market, industries in which Mexico is
losing ground should be industries in which China is making gains. Industry level data should show
some correlation between Mexico´s losses and China´s gains.

Chart 2 plots the changes in Mexico´s and China´s market share in commodities (at the three-digit
level in the Standard International Trade Classification) that represented over $1 billion dollars in
Mexican exports to the United States in 1999. For instance, Mexico accounted for almost 70% of all U.
S. imports of TV sets back in 1999. Today, that market share is about 45%, a 25% point loss.
Meanwhile, China´s share in TV sets has risen by 10 points over the same period.
What can we learn from this data? First, China is making strides in many areas important to Mexico.
However, there is little correlation between China’s gains and Mexico´s losses. There are many
markets in which China is gaining a lot of ground but Mexico is not losing any. In such areas as
computers and electrical machinery, China’s gains are being made at other countries´ expense.
There are also many industries in which China is making no gains. Whatever is happening to Mexico
in those areas can not be explained by China. Among these commodities are vehicles, vehicle
engines and parts, agricultural goods and oil products.
There are, of course, industries in which China´s gains are associated with Mexico´s losses.
These at-risk sectors, which include TV sets and textiles and apparel, have several characteristics in
common. First, they are unskilled, labor-intensive, which mak14es China a very attractive place to
produce. Second, commodities in these sectors tend to have a high value-to-weight ratio, which
makes transport costs reasonable. Third, many products in these at-risk areas are standardized and
can be mass produced. But notwithstanding these sectors in which Mexico is most exposed to
Chinese competition, there is overall little correlation between China´s gains and Mexico´s losses.
This lack of correlation begs two questions. First, China´s market share gains have to be some
countries´ losses. If not Mexico´s, whose? Second, if China´s expansion does not explain Mexico´s
recent export woes, what does? The countries that appear to be bearing the brunt of China´s
competition are other Asian exporters. Japan, Korea, Taiwan, Singapore, Malaysia and Thailand
have lost market share in many sectors since 1999, and the losses experienced by that group of
countries have been highly correlated with China´s gains. This is exactly what we would see for
Mexico if China´s advance were happening at Mexico´s expense. But what explains Mexico´s recent
export difficulties is not China. It is Mexico´s dependence on U.S. manufacturing activity.
When a deep manufacturing recession began in the United States in 2000, no other country was hit
harder than Mexico. Intermediate and capital goods account for almost 80% of Mexico´s exports.
Mexico is a key supplier for the U.S. manufacturing sector. China, on the other hand, remains
predominantly a consumption goods exporter. This greatly mitigated the impact of the recent U.S.
recession on China´s export sector and largely explains China´s and Mexico´s differing fortunes over
the past three years.

Chart 3 shows the synchronicity between Mexican and U.S. manufacturing production. It shows
clearly that it was the start of the U.S. manufacturing recession in fall 2000 that brought Mexico’s six-
year expansion to a halt. Now that manufacturing activity is picking up in the United States, activity is
also picking up in Mexico. And although the maquiladora industry has not fully recovered from the
shock that hit in 2000, it is making a brisk comeback. (Editor´s note: Maquiladora exports in the first
11 months of 2004 were up 14% from the like period one year earlier).
So Mexico´s recent downturn has very little to do with China. China, in fact, should be the least of
Mexico´s concerns. A quick look at the long-term evolution of the nation’s real GDP per capita shows
that Mexico today is no richer than it was 20 years ago. The reason for this is simple: Mexico has yet
to find a way to accumulate physical and human resources the way fast-growing countries do. Its
educational attainments continue to markedly lag those of industrialized nations. Its institutions do
not function well, which discourages investment.
What´s more, Mexico´s tax system raises little revenue, which makes needed infrastructure and
education investments impossible. This is true, for instance, in the energy sector, where production
and distribution are controlled by the government, as mandated by the Constitution. Not surprisingly,
because of Mexico´s fiscal situation, capacity is not keeping up with demand.
The bottom line is that China does not explain Mexico´s recent difficulties, except in a few specific
areas. The downturn in Mexican exports results primarily from the recent manufacturing recession in
the U.S. And given Mexico´s litany of truly pressing problems, China should be the least of the
country’s concerns.
_____________________________________________________________________________

Offshore Group Client Company Expands Sonora, Mexico Operations
Wallaceburg, Ontario, Canada – based St Clair. Technologies Inc. has signed a 7 year agreement
with The Offshore Group for the purpose of expanding its Guaymas, Mexico operations from 90,000
to 126,000 square feet of industrial space within The Offshore Group’s Sonoran industrial parks.

This expansion will enable St. Clair Technologies to manage its raw materials in Mexico, and will
provide the space required for the eventual addition of 100 direct labor workers.  According to
company president, Charlie Hess, “Our decision to expand our operations in Guaymas, Sonora was
based upon our long-standing positive relationship with the Offshore Group, and our goal to
continue preparing to meet the needs of our clients.  We are aggressively pursuing new market
segments, while thankfully experiencing continued success with many of our long-term customers.  
Our manufacturing team in Guaymas has been doing a great job for over a dozen years now, and we
foresee a very bright future in this location.”  

St. Clair Technologies is a full-service manufacturer of discrete wire-harness assemblies for the
automotive, marine, heavy truck, bus, military, and RV markets.  The company’s production
capability covers a wide spectrum of volumes and complexities, while offering customers wiring-
harness and component design services.

The Offshore Group is the largest provider of outsourced manufacturing support, or “shelter,”
services in Mexico.  It has an industrial real estate inventory of over 3 million square feet at its two
manufacturing locations.
We are leaders in Executive Search for Fortune 500 world class companies along the
U.S. Mexico border, the interior of Mexico and Latin America.
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Rio Rico Az. 85648
(520) 216-0286


h.gomez@isg-interstaffing.com
www.isg-interstaffing.com