History

Maquilas are based on the concept of production sharing, which is used in Portugal and other countries around the world. "Maquila" is a term in Spanish that refers to the in-kind payment that a miller would receive for grinding someone's grain.

The Mexican maquila program began in 1965, as a direct response to the elimination of the Bracero (day laborer) Pact in 1964 by the U.S. The Bracero Pact had permitted Mexican agricultural laborers to work in the U.S. on a seasonal basis. Faced with a surplus of labor, the Mexican government sought ways to attract direct foreign investment into the country, acquire technology, improve its foreign exchange and create jobs.

Maquila plants in Mexico enjoy a preferential tariff treatment (both from the U.S. and Mexico) as they manufacture or assemble goods in Mexico. They are also sometimes called 'twin plants' because a company typically has facilities on both sides of the U.S./Mexico border. Yet another term is "in-bond" plants, due to the bonds that companies post to guarantee that the goods will not remain in Mexico.

Legally, maquilas are Mexican corporations that can be owned by foreigners. They may be located anywhere in Mexico with the exception of the three largest urban areas: Monterrey, Mexico City and Guadalajara. Maquilas can also own land in the country, except for land near national borders and along the coast. Perhaps 90% of the ultimate ownership of these plants can be traced to U.S. parent companies, with the rest belonging to companies from other countries. There are some intermediate Mexican companies in the ownership chain.

Maquilas may import whatever they require for their processes in Mexico, including raw materials, equipment, parts, etc. Within Mexico, they are permitted to manufacture or assemble any type of goods, and some provide services such as coupon sorting. Originally, maquilas were required to export 100% of the goods that were assembled or produced in Mexico, to avoid unfair competition with Mexican manufacturers. With the implementation of NAFTA in 1994, maquilas are also free to sell their goods in the Mexican domestic markets.

Up to the present

For the first 20 years of the program, the industry was slow to develop. Electronics manufacturers from the U.S., facing price competition from Asia, were the first to arrive in Mexico as maquilas. Then, in the 1980s, a combination of events led to a favorable climate for U.S. companies to make investments in Mexico. Specifically, high oil revenues for Mexico had contributed to inflation in the Mexican economy and led to a series of devaluations of the peso.  The upsurge in foreign manufacturing based on low labor rates put competitive pressure on U.S. companies.  Changes in U.S. customs laws and the ready availability of low-cost labor in Mexico enabled those U.S. companies with operations in Mexico to compete by taking advantage of this situation. Mexico has enjoyed higher employment and foreign exchange earnings through the program.

In 1989, The Maquiladora Decree simplified the permitting process and established clearer regulations for maquilas. After this point, the industry expanded very rapidly. Now there are well over 3,000 maquilas that employ more than 1 million workers. This industry is consistently in the top three in revenues in Mexico, along with oil and tourism.

The industry has since expanded to Central America, as governments there look to attract direct foreign investment and reduce unemployment. In the early stages of the program, maquilas in Mexico enjoyed certain tax advantages on the importation of equipment. Now there is pressure from the Mexican taxing authority to increase their revenues by, among other efforts, reducing the benefits to maquilas.

For job seekers

For U.S. nationals and others, the Mexican maquila industry offers an opportunity to work in Mexico in state-of-the-art facilities.

There are many websites and magazines devoted to the maquila industry, along with companies that provide contract assembly, manufacturing and management services.  U.S. citizens working in Mexico are required to obtain the FM-3 visa, which is typically done at a Mexican Consulate. Foreign nationals who reside for more than 183 nights per year in Mexico are subject to Mexican taxes (along with receiving Constitutional guarantees, Social Security and other labor benefits). As most of the maquila plants are along the U.S./Mexico border, many U.S. nationals live on the U.S. side and cross the border daily to work.

There is at least one recruiter who specializes in the maquila industry for both U.S. and Mexican nationals: empleosmaquila.com.

About Author

Jess Dods, MBS, is a career coach and organizational consultant based in Massachusetts. While he works with a world-wide range of clients, his specialty is the United States and Latin America. His background in industry, consulting and career coaching provides his clients with a thorough picture of business realities. He has held domestic and international technical and management positions with E. Paso Energy, Tenneco, Exxon Mobil and Arthur D. Little. He is fluent in Spanish.

Website:      http://rightchoicecareers.com
Email:          jess@rightchoicecareers.com
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