Fourth Industrial Revolution

Tijuana and the future of trade

Miguel Marshall
CEO, Centro Ventures
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Since 1928, Tijuana, Mexico, has been portrayed as the city of sin – the place that allowed “mob entrepreneurs” to take advantage of its strategic location in order to satisfy US demand for all things illegal. Tijuana also became the most visited border city in the world, mainly thanks to tourism.

In 1994, when the North American Free Trade Agreement (NAFTA) came into effect, it was widely expected to be the key for Mexico to finally join leading economies in the 21st century. The agreement pushed Tijuana to evolve from a focus on tourism to one on manufacturing. Companies like Samsung, Panasonic, Sony and others opened massive assembly plants there.

After an initial post-NAFTA manufacturing boom, however, Tijuana (and Mexico) entered a period of economic decline. The hope was that NAFTA would reduce income disparities between the United States and Mexico, but after 10 years of the agreement, the gap had grown by 10.6%, according to an article by Joseph Stiglitz in The New York Times. The gap grew even wider over the second decade. According to Global Trade Watch, by 2014, the share of national income collected by the richest 10% had risen by 24%, while the top 1%’s share had shot up by 58%.

During the early 2000s, tourism in Tijuana declined due to the effects of 9/11, yet the influence of the US was still evident in the economic drive of the city. This dynamic intrigued me enough that I ventured into the wholesale beachwear industry, purchasing merchandise in LA and reselling it in Mexico. By 2007, my small business was thriving, but a year later, because of increased violence, the H1N1 virus scare and the financial crisis, Americans stopped visiting the region and my business collapsed. I was forced to confront the harsh reality of the Mexican economy; Mexico constantly depends on outside forces for its own success, and faces a crash decade after decade as a result of this dependence.

I wasn’t the only one affected by the macroeconomic environment in Mexico. Between 2008 and 2009 over 260,000 jobs were lost in manufacturing, a sector that was 30% of overall employment. In Tijuana, 33,000 jobs were lost; 28% of the jobs that the city offers, most of them also in manufacturing. Then from 2001 to 2015, 267 manufacturing companies disappeared from the city.

Today, the general perception is that NAFTA didn’t deliver on its promise, and that Mexico needs a self-sufficient economy to move forward. Tijuana offers one potential avenue for economic growth, through a 21st century approach to North American free trade.

By 2011, things had begun to turn around for the “city of sin.” Violence in Tijuana decreased thanks to an efficient public safety strategy. That same year, I helped to launch Endeavor, a non-profit that accelerates high-impact entrepreneurs in emerging nations in order to support entrepreneurs in the city looking to scale their businesses. We developed an investor network to link US-Mexican start-ups with angel investors, through Angel Ventures Mexico, and started a bi-national co-working space called HUB STN, located in the historic bus terminal of downtown Tijuana that had become run down over the years of tourism decline.

More recently, we have turned our attention to the social issues of the city and, through the World Economic Forum’s Global Shapers Tijuana community, created an urban farm project for the deportee community called Bordofarms.

Through these efforts and others, especially in arts and culture, Tijuana has revamped its blighted past and created a movement credited with the rebirth of the city. Now, one can read in The New York Times and other media outlets about the city’s stunning architecture, outstanding culinary and scene, and massive business and technology potential.

Along with a revival in tourism, Tijuana is once again of interest to US investors and companies. Many have already pioneered the use of the “Tijuana Connection”, taking advantage of the city’s proximity to the US, access to talent and access to the Latin America market. Examples include 3DRobotics, a drone hobbyist company; Boxel Studio, a small Latin American Pixar; Busca Corp, one of the top digital media firms in Latin America; and Uber.

Just as in the time of the “mob entrepreneurs”, Tijuana offers a unique combination of benefits to US enterprises. Cross-border logistics are simple through Tijuana’s proximity to major US and Mexican cities, and along with its sizeable immigrant population, gives Tijuana the advantage of abundant programmers and technical workers who speak perfect English. Some even have technical training in the US.

Tijuana also offers access to the Latin American market of 231 million Internet users and the fifth largest Facebook user base (Mexico). Middle class consumption in the region grew by 70 million between 2007 and 2015, and the region’s population is twice the size of the US and Canada combined.

Tijuana is California’s gateway into Latin America, with real profit potential for both sides. California is considered the 9th largest economy, amounting to 13% of US GDP – an economy mainly fueled through technology companies like SAP, Intel, Apple, Google, Qualcomm and others. Bloomberg just valued the Tijuana–San Diego connection at $230 billion and a potential labour force of over 3 million people.

Knowing that the dominant industries of California are technology and innovation, we need to use the Tijuana Connection to encourage transactions, similar to the work of mob entrepreneurs but through legitimate ventures, of course. The Tijuana revival can continue in the creation of a business ecosystem that “talks the talk” and “walks the walk” through a lean start-up approach in education (e.g. Coders Academy and General Assembly), infrastructure (e.g. London Tobacco Dock and Google Campus) and innovation (e.g. Founders Institute and Tech Stars).

In the near term, we can help change the Mexican economy by generating more Tijuana–California success stories through a market validation approach, access to talent and capital investing. These successes should become examples of an ideal US–Mexico partnership.

Using Tijuana’s cross-border region as a platform for testing and scale, it then becomes possible to link the rest of Latin America with the United States for a much greater tangible impact. In this way, over the next 10 years we can leverage NAFTA and bring it into the 21st century, where technology and innovation are the main factors for economic growth and collaboration between nations.

The World Economic Forum on Latin America 2015 takes place in Riviera Maya, Mexico, from 6-8 May.

Author: Miguel Marshall is Entrepreneur in Residence, Angel Ventures Mexico, and a Global Shaper.

Image: One of the border fences that separates San Diego in the U.S. (left) and Tijuana, Mexico (right), follows the hilly terrain in San Diego. REUTERS/Fred Greaves

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