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SAN DIEGO

IN November I quit my job as the editor of Wired to run 3D Robotics, the San Diego-based drone company I started with a partner as a side project three years ago. We make autopilot technology and small aircraft — both planes and multirotor copters — that can fly by themselves. The drones, which sell for a few hundred bucks, are for civilians: they don’t shoot anything but photographs and videos. And they’re incredibly fun to build (which we do with the ample help of robots). It wasn’t a hard decision to give up publishing for this.

But my company, like many manufacturers, is faced with a familiar challenge: its main competitors are Chinese companies that have the dual advantages of cheap labor and top-notch engineering. So, naturally, when we were raising a round of investment financing last year, venture capitalists demanded a plausible explanation for how our little start-up could beat its Chinese rivals. The answer was as much a surprise to the investors as it had been to me a few years earlier: Mexico. In particular, Tijuana.

Like many Americans, until recently, when I heard “Tijuana” I thought only of drug cartels and cheap tequila. “TJ,” though, is a city of more than two million people (larger than neighboring San Diego), and it has become North America’s electronics assembly hot spot: most of the flat-screen TVs sold in the United States, from companies like Samsung and Sony, are made there, along with everything from medical devices to aerospace parts. Jordi Muñoz, the smart young guy who had taught me about drones and then started 3D Robotics with me, is from TJ — and he persuaded me to build a second factory there to supplement the work we were doing in San Diego.

Shuttling between the two factories — in San Diego, where we engineer our drones, and in TJ, where we assemble them — I’m reminded of a similar experience I had a decade earlier. In the late 1990s and early 2000s, I lived in Hong Kong (working for The Economist) and saw how that city was paired with the “special economic zone” of Shenzhen across the border on the Chinese mainland in Guangdong Province. Together, the two created a world-beating manufacturing hub: business, design and finance in Hong Kong, manufacturing in Shenzhen. The clear division of labor between the two became a model for modern China

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More: The Tijuana Connection, a Template for Growth - NYTimes.com

That seems to be a conclusion growing in popularity.

I met with a group of investors from China recently who came to see our abalone project. One member of the group who accompanied them was with the Chinese government, working in the equivalent of the commerce department. He shared with me that you will see more and more Chinese firms investing in operations in Mexico in the border regions due to a simple fact:

The price of oil

China has done their own analysis and determined that it will eventually become cost prohibitive to ship anything but the smallest finished items across the Pacific. They can ship manufactured parts over for assembly in Mexico based maquiladoras much more cost effectively, as they can be packaged tightly together in bulk, reducing the net shipping cost.

Another member of the group told me afterwards that many businessmen in China are looking beyond that, actually moving family members over to Mexico to achieve citizenship and eventually build the manufacturing and assembly plants in Mexico (in their name) and then use the NAFTA agreement to move their finished products north of the border.

His niece is now living in Ensenada and will be able to apply for naturalization in 2014.

The main benefactors of any appreciation of the Chinese Yuan will be Mexico, not the USA. As the Chinese Yuan gets stronger, Mexico becomes exponentially more attractive for all the reasons listed above:

1) Price of oil
2) NAFTA
3) Shipping transit times

Keep this in mind whenever you hear US politicians complaining about Chins' currency manipulation.

4. Eggrolls

Do you think this will put the Camalu port back on the board?

Originally Posted by Islander

Do you think this will put the Camalu port back on the board?

In my personal opinion, no. I believe that project is dead in the water. Let me elaborate:

Shipping into and out of the port of Ensenada is more expensive that Long Beach. The port authorities in Ensenada even acknowledge as much and say that they are designed to supplement Long Beach, not compete with it. It is cheaper to send a container to China from TJ via Long Beach than Ensenada. Don't quite know why, but that's how it is.

The rise of the Chinese currency will see production move from China to the USA/Mexican border. So there would be more trucks moving north and jobs along the border, presumably. I don't quite see how it would increase demand for shipping containers to/from Baja.