Cross-Border Life Sciences Manufacturing
Where do we go from here?

By Elias Terman

The following excerpt is from a study done for San Diego Dialogue, a Public Policy Research Center and Think Tank associated with UCSD.

Executive Summary

This report represents San Diego Dialogue’s initial efforts to help define the terms of success for cross-border production sharing in the biomedical products industry. Our approach was straightforward. First, we surveyed the general nature of the opportunities and challenges facing the industry within our macro region – the body of this report summarizes those findings. Next, we brought together a panel made up of biomedical industry veterans, consultants, Baja California government officials, economists and other experienced leaders to assess what is required for advanced biomedical products manufacturing to take place in Baja California. From this expert panel we learned two things: 1) What Baja California currently is doing to respond to the challenges in further developing its capabilities and attractiveness; and 2) What frustrated San Diego companies feel remains to be done. Finally, we hope that the results of these and other activities will become the catalyst for an upcoming pilot project. The pilot project would help channel San Diego and Baja California resources towards the goal of developing superior production capacity as a demonstration of what is possible in a cross-border region interested in greater collaboration between research and development and manufacturing.

Both San Diego and Baja California are increasingly at risk of losing firms to other regions. For Mexico, it’s China, Korea, Singapore and Costa Rica. For San Diego, the threat is more likely to come from Utah, Arizona, Texas and Colorado.

San Diego’s vulnerability stems from rising infrastructure and labor costs. For example, San Diego’s industrial real estate costs are about double those of Colorado. As such, Colorado and other competitor regions are aggressively attempting to lure life sciences companies out of San Diego, especially as they approach the stage of manufacturing. Interestingly, high-profile firms such as Medronic and BMP (both headquartered outside of San Diego) are already snapping up Baja real estate for manufacturing.

On the Mexican side of the border, Baja California’s maquiladoras and other manufacturing operations are finding it harder to compete on costs alone. Baja’s recent troubles are due to a combination of factors including a strong Peso, an unfavorable fiscal regimen, competition from China and the downturn in the U.S. economy. Baja desperately needs jobs and to move towards a value-added technology model, but one that allows its growing labor force to create things of value in the world market. The “bio-clusters” could be a promising area for Baja to direct its efforts. In fact, there are already 46 Baja firms involved in producing biomedical products – an important life sciences industry sub-category.

Currently, most of the biomedical products manufactured in Baja California are in the less sophisticated product segment and require less advanced manufacturing processes. However, this could easily change as Baja has already proven its ability to foster world-class manufacturing facilities. For example, a recent survey of Baja’s electronics and auto parts manufacturing firms showed that about 30% of the plants sampled were "comparable to the best" in the world. The results of that survey surprised many critics of Baja’s manufacturing prowess: over one-fourth of the plants surveyed engaged in research and development (R&D), one-fifth did product design, over one-tenth had developed a patent, and over one-third had ISO 9002 Certification. If Baja can create so many “third generation” and world-class plants in the electronics and auto parts industries, then the same phenomena could eventually take hold in the life sciences industry – fueled in part by taking advantage of one of San Diego’s greatest areas of strength.

The long-term sustainability of San Diego’s life sciences industry and Baja’s manufacturing base will in part depend on our ability to make more productive use of our bi-national assets. Baja California has some natural advantages that if properly developed and channeled could greatly benefit San Diego. Moreover, if properly developed, Baja’s assets could be marketed as part of San Diego’s technology and manufacturing infrastructure – something San Diego could use to lure other high profile firms to the region. This would be much better than having San Diego firms move their entire companies to Colorado. A successful, coordinated effort could bestow huge benefits on both sides of the border.