Organization for International Investment

The Wall Street Journal

By Joel Millman
February 23, 2004

Foreign Firms Also Outsource -- To the U.S.

GOLDSBORO, N.C. -- Free trade with Mexico hammered towns such as this one on Carolina's coastal plain, sucking light manufacturing jobs south of the border. Now Mexican companies are starting to bring some of the work back, and they are trying a time-honored U.S. practice to sweeten their entry: getting local authorities to offer tax breaks and other incentives.

In 1999, Gruma SA, Mexico's largest producer of corn flour and tortillas, wanted to extend its sales territory in the eastern U.S. The Monterrey manufacturer found the quickest way was to buy a rival, Barnes Foods Inc., vendor of the regional Pepito brand here. After closing the $12 million transaction, Gruma found something else: a community eager to offer tax credits and industrial development grants to persuade the Mexican transnational company to invest millions more.

Negotiations ensued. Within a year, Gruma delighted Goldsboro by agreeing to buy an empty warehouse the city owned outside town. The building had sat for four years, after officials spent more than $1 million trying to market it as the anchor of Goldsboro's ParkEast Industrial and Business Park. By promising to invest $13 million locally, and add 100 jobs to Barnes's payroll, Gruma got $200,000 chopped off the building's sale price and another $200,000 in grants to defray infrastructure costs. Gruma also received job-creation tax credits to offset almost $200,000 annually from its state corporate income tax. Ultimately, the Mexican company well exceeded the number of new hires it committed itself to in 2000, tripling its Goldsboro work force to nearly 200.

"This is the second wave of Nafta kicking in," says Todd Malan, director of a Washington trade association, the Organization for International Investment, which represents foreign companies with U.S. subsidiaries. The North American Free Trade Agreement "enabled Mexico to invest abroad, and that investment is creating thousands of jobs for U.S. workers."

Through 2001, the most recent year for which figures are available, Mexican companies created 145,000 jobs in the U.S. While that doesn't begin to offset the number of jobs that have left the U.S., it is a small part of a bigger group: foreign businesses all over the world creating jobs in America. According to Mr. Malan's organization, U.S. units of foreign companies employed 6.4 million so-called insourced jobs in 2001, up from 5.1 million in 1996 and 4.9 million in 1991.

For Mexican companies moving to the U.S., election-year rhetoric about jobs leaving ignores a broader truth: Top manufacturers are getting good at slicing up the value chain, placing each task where it offers the greatest return. Communities that sweeten site decisions with incentives aren't ignoring the outsourcing trend, they are hedging against future losses. (See related article.)

Take the case of Monterrey truck-body maker Metalsa SA, which this month was the recipient of a windfall of 500 jobs leaving the Milwaukee plant of Metalsa's U.S. partner, Tower Automotive Inc. Last year Metalsa shook loose nearly $500,000 in local funds to expand another plant serving Tower from Roanoke, Va.

Among some other recent deals: Mexican petrochemicals leader Alfa SA, wrung millions of dollars in tax credits from state and county agencies in Charleston, S.C., after dangling a $40 million investment before officials of South and North Carolina. Corporacion San Luis/Rassini SA, a Mexican maker of automotive springs, negotiated incentives from Ohio officials to open a plant near Toledo. Imsa SA partnered with the city of Moscow, Tenn. (pop: 422), to use minority set-asides to purchase land in a local industrial park. The move brought 113 jobs and made Imsa the biggest employer and property-tax payer in Moscow.

Mexican brewer Grupo Modelo SA received an incentive package that brought an $84 million barley-malting plant to Idaho Falls, Idaho. A local group, the Regional Development Alliance, donated $600,000 to buy land for the plant. A $500,000 rural economic development grant from the state paid for a rail extension onto the Modelo site. Idaho is providing $60,000 for employee training, and Idaho Falls will process waste effluent, saving the Mexican brewer on water treatment.

Mexican officials such as Carlos Zambrano Plant, head of economic development for Nuevo Leon, Monterrey's home state, are miffed. "I'm sure Metalsa is very happy to receive incentives from a U.S. state," he says, chiding the local producer. Adds Eugenio Clariond, chairman of Monterrey's Imsa, Mexican business is attracted to El Norte because conditions are better -- chiefly because of more abundant energy and less abundant corruption.

Write to Joel Millman at joel.millman@wsj.com