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It's Better In La Provincia (Int'l Edition)


International -- Cover Story -- Latin America

IT'S BETTER IN LA PROVINCIA (int'l edition)

Octavio Garca unwraps a candy and looks out his office window at the rolling scrubland dotted with cacti. Since leaving Mexico City's corrosive air and workday stress, the plant manager at TRW Inc.'s new power-steering systems factory in Queretaro hasn't looked back. "I don't miss the big city," says Garca, a Mexico City native. "I would be dead already if I lived there."

When TRW looked around for a plant site last year, it immediately ruled out the anarchic jumble of the capital. In Queretaro, the company found a skilled workforce and highway connections to auto-assembly plants throughout central Mexico. The sleek industrial parks of this bustling business hub are just 20 minutes from downtown's tree-shaded colonial squares and the 16th century convent where the hapless Hapsburg Emperor Maximilian spent his last night before being executed in 1867. A comfortable 2 1/2-hour drive northwest of Mexico City, Queretaro is home to multinational corporations that produce everything from gas stoves to breakfast cereals.

A growing number of corporations are flocking to la provincia, Mexico's smaller cities. They're attracted by a capable and cooperative workforce, cheap land, and convenient locations. Mexico's export push will only accelerate the flight from La Capital. And President Ernesto Zedillo's decentralization drive will give the country's 31 states new control over spending federal funds on infrastructure to attract industry.

PARK PERKS. Although Mexico's economic ordeal has slashed foreign direct investment to less than half of last year's $8 billion, analysts expect it to rise next year--drawn by export prospects and the slowly reviving domestic economy. The lion's share of new plants will go to cities with populations of 500,000 to 1 million.

It doesn't take much to sell foreign companies on the principle of moving to Mexico's boonies. There, they can set up shop in preplanned industrial parks while leaving behind the fractious unions, rapacious bureaucracy, and traffic snarls of Mexico City. State governments smooth the paperwork and lean heavily on local unions to keep investors happy. "Mexico City's industrial era is definitely over," says Richard Sinkin, who heads Interamerican Holdings, a San Diego company that advises U.S. companies setting up in Mexico.

Behind these moves lies a major shift in the Mexican economy. It made sense for companies to build plants to serve the largest consumer markets in Mexico City, Monterrey, and Guadalajara when the economy was protected back in the 1970s and early 1980s. But as Mexico becomes increasingly open, companies are opting for easy access to imported supplies and export routes.

Among the centers of such activity are the Big Three auto plants in Hermosillo and Saltillo, which are continuing to bring in both foreign and Mexican supplier operations. The tiny central state of Aguascalientes is home to almost three-quarters of all Japanese investment in Mexico, spearheaded by a Nissan Motor Co. plant that produces for the local market and exports to both Japan and Latin America. Despite this year's economic tremors, Texas Instruments Inc. is planning a major expansion of its electronics plant, which should create 1,000 jobs.

Auto parts makers, such as Cummins Engine Co. and AlliedSignal Inc., supply car- and truck-assembly plants around the country from San Luis Potos. Even tropical Merida, which once produced only sisal, has used its low wages and access to Gulf of Mexico ports to encourage a textile maquiladora industry.

In city after city, once new plants get up and running, consumer companies and other players follow. Ace Hardware Corp., seeing a fast-growing and underserved market, has put each of its 70 Mexican stores in smaller cities.

"WOULDN'T GO BACK." Meanwhile, some cities are attracting design complexes. Thanks to top-notch engineers turned out by local universities, the city of Queretaro boasts more than 30 research centers. Condumex, a Mexican supplier of telecommunications equipment, auto parts, and plastics, concentrates all of its lab work in a sun-drenched research center in a Queretaro industrial park. Says Mexico City refugee Daniel Aguilera, an engineer at the center: "I wouldn't go back if you paid me."

That kind of talk reflects a major change, since Mexico City has been the hub of political and economic power since before the Spanish Conquest. Ultimately, the shift of investment to smaller cities will help the country grow more equitably. Other Mexicans call the residents of the capital chilangos, a term to insult their supposed arrogance. These days, capitalinos' country cousins have good reason to think they're better off.

MEXICO

HERMOSILLO

Ford assembly plant encouraged auto parts industry. Quick highway connection to U.S. border and easy access to supplies from Pacific Rim.

SALTILLO

GM and Chrysler assembly plants spurred auto parts industry. Near heart of Mexico's steel industry.

SAN LUIS POTOSI

Location between Mexico City and Monterrey helps auto parts and machine tool industries.

AGUASCALIENTES

Home to Nissan, Xerox, and Texas Instruments. Growing auto parts and textile industries.

MERIDA

Sea connections to gulf ports in the U.S. has encouraged maquiladora growth, especially in textile industry.

QUERETARO

Home to multinationals such as Kellogg supplying domestic market. Center for R&D and auto parts industry. By Elisabeth Malkin in Queretaro


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