The Silicon Valley of Tequila
The original Silicon Valley is located south of San Francisco, California, and it comprises the counties of Santa Barbara, Alameda, Santa Cruz, and part of San Mateo county. It has long been viewed as the best model for creating wealth. Many countries have used the term ‘silicon’ when naming their technology projects. In the United States, the original Silicon Valley is still the home of 20% of all world-class technology companies, and it generates about 45% of America’s entire high-tech output.
Several years ago, Jalisco, land of tequila and mariachis, decided to call its high-tech sector “The Silicon Valley of Mexico.” Back in 1968, Jalisco became the site of the first semiconductor plant in Latin America, run by Motorola. Nowadays, the Jalisco electronics cluster comprises eight companies from among the Top 100 makers of global electronics, including Flextronics, Sanmina SCI and Solectron. There are also research and development centers for such companies as Hewlett-Packard, IBM, Intel, ST Microelectronics, and Siemens VDO. It is the fastest-growing industrial sector in Jalisco, making a strong contribution to the development of the community.
This cluster of manufacturers (including some maquiladora plants) and service providers is called the Jalisco Electronics Manufacturing Cluster, and it has a long-term strategic vision. Jalisco’s merchandise exports now total about $10 billion a year, divided into several segments: 58% low technology products, 23% medium technology, and 19% high technology. The goal for 2010 is to achieve exports worth more than $14 billion, divided this way: 55% high technology, 25% medium technology, and 22% low technology.
The prospects for growth are positive. Between 1990 and 2000, Mexico’s economy grew 69%, according to the World Trade Organization. As a result, employment opportunities in Jalisco changed significantly. Demand for engineers rose, and the region had to import professionals because there were not enough locals to meet the demand. These days, job generation is focused on specialized academic training. Roberto Cárdenas, who heads the electronics engineering department at the University of Guadalajara, says there is “growing interest by companies to upgrade professional training, and they have increased the links between the University [of Guadalajara] and the private sector.” Intel recently donated equipment for a technology laboratory, “confirming the growing trend to get involved with students in real-life situations.”
A Cluster of Electronics Manufacturing?
Jalisco’s electronics cluster includes both local and foreign companies active in computing, including aeronautics. They produce a range of hardware and software, such as PCs and laptops, servers, mother boards, ABS systems, medical equipment, and testing software. The companies are divided into several groups: Specialized Suppliers (SS’s), Original Equipment Manufacturers (OEMs), and Contract Equipment Manufacturers (CEMs). Specialized Suppliers comprise more than 500 companies that are providing inputs to both CEMs and OEMs. The difference between OEMs and CEMs is this: OEMs subcontract to CEMs to get help distributing specific parts and products.
Jacobo González, director general of Cadelec, a private-sector initiative to develop high technology in the region, says Siemens, Hewlett-Packard and Kodak are leading examples of OEMs. The leading CEM firms are Solectron, Sanmina-SCI, Jabil Circuit and Flextronics, which all manufacture products for other companies. Cadelec plays a crucial role in the coordination of efforts for designing and implementing a new business model in the sector. Cadelec’s goal is to integrate suppliers in the electronics sector of the region. It makes it easier for companies to do business with one another by identifying potential suppliers of services and products, both direct and indirect.
Part of Jalisco’s success can be attributed to efforts to attract the leading CEMs that support the growth of OEMs. Take the case of IBM, for example. When IBM came to Jalisco in the 1980s, its plant was the smallest one there, with only 300 employees and only $300 million in annual sales. But the IBM plant expanded and improved its level of technology. Eventually, it had 10,000 workers and sales of more than $3.4 billion, making it one of IBM’s largest plants in the world.
The Role of Universities
Private universities, including ITESO (Western Institute of Advanced Studies) and ITESM (Monterrey Institute of Technology and Advanced Studies) also play an active role in developing Jalisco’s electronics cluster. At the University of Guadalajara, research is focused on biotechnology and bioengineering, because Jalisco is the number-one agricultural producer in the country. At ITESO, a Jesuit university, the focus is on designing digital technology. Meanwhile, the Guadalajara campus of ITESM is pioneering the design of new information technologies and programs for helping Mexican companies achieve such international certification standards as the Capability Maturity Model (CMM).
Alfonso Alva Rosado runs the Guadalajara campus of the Monterrey Center of Information Technologies. He explains that the university is a national pioneer in establishing a design center for information technology. It expects to expand the project to the other 30 campuses in the ITESM system. In Rosado’s opinion, it is especially important to have “a giant like Intel participate in this design center for developing wireless technology.” Several institutions are working on a plan to help Mexican companies achieve CMM certification.
In Mexico, Only two companies have a “Level 5” CMM accreditation -- IBM in Jalisco and Softec in Nuevo León. This year, similar centers for CMM certification will open in Monterrey and Mexico City. The European Software Institute, based in Bilbao, Spain, will also become involved in this project. “Technology transfer is vitally important when it comes to providing solutions and advice,” says Rosado. Academic institutions benefit when they enable students to participate in these projects. ITESM’s goal here reflects the fact that “it sees the importance of the information technology industry and its impact on Jalisco’s development. ITESM sees itself not simply as an institution for training specialists, but as a center for the economic development of the region.”
According to María E. Chávez Echeagaray, director of career guidance in computer technologies at ITESM, “The fact that Intel is a strategic partner in bringing together the electronic industry has a direct impact on the development of new specialists and on the reach of this sector in Jalisco.” Beyond that, Andrés Barba, dean of CUCEI, the University of Guadalajara’s center for engineering and sciences, believes “the electronics sector in Jalisco is growing at a dizzying pace, and the bar is being raised higher and higher for academia.” He adds that “Industry has a great deal of interest in supporting the development of new technologies in this sector.”
A Change in the Business Model
When the global electronics sector suffered a slowdown between 2001 and 2003, the viability of Jalisco’s expansion plans and business models was called into question. The slowing of the U.S. economy and several financial scandals had a negative impact on investor confidence. In addition, when the Mexican peso appreciated, the competitiveness of this sector became even more of a challenge. The aggressive approach of Asian countries (especially China after it entered the WTO) led some in Mexico’s electronics industry to relocate to other countries in search of lower costs. Sanyo, Canon and Philips were some of the companies that left Mexico for Asia.
Between 2001 and 2003, global industrial production contracted by 4%, which led to a 1.2% production drop in Mexico. The negative impact was felt in personnel cuts and corporate relocations to other countries. Companies lost interest in manufacturing low-technology goods, which involve small parts and little added value. The most volatile kind of production, it is where Mexico can no longer compete worldwide on the basis of lower costs.
Mexican industry has refocused on providing goods and services that have higher added value. Instead of making products that have little technology, Mexico has moved into products with medium or high technology. High technology products and services (design centers, technical support and parts replacement centers) require trained labor, professional support, intellectual property systems, and the providers that are certified. They also require an excellent infrastructure in networks and telecommunications.
Mexico has found a niche opportunity because it was ahead of Brazil and China, its closest competitors. In this new business model, competitiveness is measured by value added and chains of value – the effective development of certified providers – as well as by cost-effective logistics. This represents an important change in Mexico’s approach to finding solutions.
Support for Science and Technology
Mexico’s National Development Plan for 2001-2006 gives information technology a key role in the country’s plans for improving its competitiveness. Because information technology has a positive economic impact, Mexican president Vicente Fox has stressed such initiatives as e-Mexico and the establishment of PROSOFT support programs that help companies develop software. Fox has also focused on developing CMM (Capability Maturity Model) certification for Mexican companies, so they can offer high-level technical support. In addition, he has focused on providing tax subsidies and financial support for innovative Mexican companies.
PROSOFT’s goal is to achieve annual software production worth $5 billion by 2013. Mexico wants to achieve the average annual worldwide level of spending on information technology and become Latin America’s leading developer of software and Spanish-language digital content. To achieve all that, PROSOFT has several plans, ranging from developing the country’s internal markets to providing support for high-tech parks linked to research centers.
Advances in information and communications technologies, along with the growth of the Internet, have changed the way companies do business. The plans are all on the table: PROSOFT, Project TechBA, CMM Certification, tax subsidies, risk capital, and so forth. “The intense development of this industry in the country has permitted expansion of technology projects that involve both private industry and academic,” says Chávez Echeagaray. “And these projects continue to reach new peaks.”
A Mexican Presence in Silicon Valley
Mexican technology has won its first major prize now that 25 Mexican companies have a presence in California’s Silicon Valley. The companies are now involved in a project called the Technology Business Accelerator (TechBA), which hopes to accelerate the development of businesses in software, mechatronics and hardware. The companies went to the United States last February to learn about best business practices, business intelligence, and programs for quality certification. They also received advice from business and trade consultants that will help them win customers in global markets.
TechBA’s approach is to take advantage of the great potential of bringing companies together through contact networks, so they can develop relationships based on trade and investment. Its goal is to find ways to respond to unsatisfied needs in global markets. The project is supported by FUMEC (Mexico-U.S. Foundation for Science and Technology), a joint initiative of the Mexican government and the private sector.