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Few industrial centers have coped with more full-blown crises in one year than the dusty Mexican city of Ciudad Juárez, located just across the border from El Paso. First came an orgy of grisly drug-related violence that has left more than 2,000 dead since the beginning of 2008. Then the worst global recession in decades clobbered the export manufacturing sector in Juárez, home to the majority of Mexico's maquiladora assembly plants. The violence abated in March, thanks to the arrival of 10,000 federal troops and police, and economists started spotting the first signs of economic recovery. But an outbreak of swine flu swept Mexico, scaring away foreign visitors and posing a potential threat to trade.
Even though exports are way down, however, Juárez's export manufacturing plants have continued to pump out auto parts, electronics products, and medical devices with little disruption. No major employers, which include Delphi, Emerson, and Cummins, have shifted production. And neither the crime wave nor swine flu has interfered with cargo shipments or business travel. "We have no slowdowns along the border during the outbreak," says Juárez Mayor JosÉ Reyes Ferriz. "Not with air travel, truck travel, or foot travel."
In fact, Reyes contends, this is an ideal time for Juárez to pitch for new business. To entice investors, Juárez and other export zones along the border are offering manufacturers generous incentives that include three months of free factory space. Officials also are explaining what they have done to control drug violence, and insure that foreign manufacturing operations will remain safe.
This may sound like a hard sell at a time Juárez and other Mexican cities have been generating disturbing headlines. Security fears have prompted a number of multinationals that have been exploring putting manufacturing operations in Juárez to postpone their plans. The financial crisis has forced many other corporations to put new manufacturing plants on hold. But Reyes argues that to weather the downturn, U.S. manufacturers need to slash costs now. And both American industry and workers will be much better off putting some of their production in Mexico, where labor costs have plunged, due to a 40% drop in the peso against the dollar since August, than by shipping entire assembly lines to China, where they are likely to remain permanently.
Reyes outlined a multipronged strategy for luring investment during a recent swing through New York, accompanied by economic development officials from Juárez and El Paso. The first task is to persuade companies Juárez is safe—and will remain that way after Mexican federal troops leave. In February, Juárez averaged 10 murders per day. That is down now to one daily murder.
Reyes argues that a transformation of the Juárez police force, once largely on the payroll of drug cartels, will make the city more secure. Since last year, half the city's 1,600 police officers have been fired. So have many top commanders, many of whom were regarded as corrupt. The new chief of police is a retired military general who reports directly to Reyes. An active general also acts as the Juárez mayor's adviser. Reyes also expects 2,000 federal officers will stay in Juárez permanently.
Juárez replaced fired police with 1,000 new recruits. The goal is to have 3,000 officers by yearend. Because the city's police academy can handle only around 100 trainees, the recruits have been undergoing special training at local university facilities by Spanish criminal justice experts. The new officers also are better paid. While their base pay still averages 9,800 pesos a month, about $740, they also earn nearly 4,000 pesos a month in bonus for overtime. Though still peanuts compared to what they can get from drug traffickers, that's good pay on Mexican standards.
In addition, Juárez has begun offering officers and their families new apartments for which they pay only around $100 a month. And the government guarantees that all of their children will get into a high school. Only 30% of Mexican students get high school educations. If the children of police officers don't land spots in public schools, Reyes says the Juárez government will pay private-school tuition.
Reyes admits it will be hard to root out the drug cartels. Juárez is a key stop along narcotics smuggling routes to the U.S. "I don't think they will move on, because Juárez will always be an attractive location," he says. "But we are making it so difficult to operate in Juárez that they will have to find different ways of trafficking." For added security, the city has installed millions of dollars worth of video cameras on streets and outside factories. It also has added special police forces to patrol industrial parks. Last year the city created high-security "corridors" along major roads travelled heavily by freight trucks and factory managers.
Reyes also is trying to bring new production jobs. Although no foreign manufacturers have left Juárez, most of the 285 local maquiladoras have scaled back output and put many of their workers on part-time schedules. There are several million square feet of unleased factory space around the city. So Juárez and other Mexican border cities are offering a sweet deal: Manufacturers who move into vacant factory space can get three months of free rent. What's more, they don't have to sign long-term contacts. Plus, the city will help them to launch operation within 30 days. The idea, Reyes says, is to offer highly flexible solutions for U.S. companies who need to cut costs. "Companies can move part of their production to the border while at the same time maintain the ability to shift operations back to the U.S. or go someplace else if the border is not right for their operations," he says.
Why not simply wait out the recession, and then go for big, more permanent operations of multinationals? Besides, as Reyes notes, Mexico tends to gain export production work anyway after every major U.S. slowdown. The reason for moving aggressively now, he says, is to stay ahead of the competition—and create jobs. "We know these companies want to move to lower-cost operations. But most are in decision mode and are waiting for a turn in the economy," he says. "We want to accelerate that process."
Engardio is an international senior writer for BusinessWeek .