MANUFACTURING IN MEXICO

What is a MAQUILADORA?  Maquiladora comes from the Spanish word maquilar meaning "to perform a task for another." Today, maquiladora refers to a Mexican corporation, wholly or predominantly owned by foreigners, which assembles products for export to the U.S. or other foreign country or Mexico Market. Foreign corporations wishing to reduce their manufacturing costs in order to become more competitive in a global economy, may achieve this goal by setting up a Maquiladora or Shelter operations in Mexico. This means taking advantage of a special customs treatment, less expensive labor costs and lower operating expenses available in Mexico. A Maquiladora or Maquila is a plant in Mexico that retains a Maquiladora Permit from the Mexican government to import raw materials duty free into Mexico for manufacturing, assembly, repair or other processing. The Maquiladora program was created in 1965 with the Border Industrialization Program. It was designed to generate employment, foreign investment, and stimulate industry in Mexico. The program was part of a worldwide movement known as global production sharing. With the passage of the North American Free Trade Agreement (NAFTA), in 1994, U.S. companies have rushed to Mexican border towns to comply, and avoid high tariffs.

The Maquila Industry has transformed the border area of Baja California, which includes the cities of Tijuana, Ciudad Juarez and Mexicali, from tourist and agricultural areas into thriving industrial centers. As of May 2002, there are over 3600 maquiladora plants employing over 1.1 million people in Mexico. 

How do they work  A maquiladora typically performs assembly, or sub-assembly, operations. Components are imported duty free to Mexico, whereupon a maquiladora performs the assembly needed to complete the work. The finished product is then exported out of Mexico, or in some cases to other maquilas where it is used in another assembly operation. Typically, maquiladoras work best for labor-intensive manufacturers. Such businesses range from electronics manufacturers to pet products, medical equipment, sporting goods, apparel, cable assembly and toy makers. The essence of the maquiladora system is to reduce labor overhead. That’s why in the more than 30 years since maquiladoras were introduced, there are more than 3,500 companies, including but not limited to Sony, Ford, General Electric, General Motors and Zenith, that have set up Maquila Operations in Mexico.

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How many U.S. companies run maquiladoras?  Approximately 90 percent of the maquilas trace their parentage to U.S. firms.

How do maquiladoras benefit U.S. companies?  The primary advantage for a U.S. company to operate a maquila is the lower cost of labor in Mexico. Wages range from 15% to 25% of comparable rates in the U.S.

What are the effects on the economies of the United States and Mexico?  The maquila sector is Mexico’s number two source of jobs. There is no question that the growth of the maquila industry has been responsible for the growth of Mexico’s middle class and Mexico’s ability to recover from the 1994 peso devaluation.

In the United States, the maquila industry has allowed U.S. businesses to remain competitive with Asian (China, South Korea, Malaysia) companies offering the same goods for less. Without the maquila industry, many U.S. companies would have lost the battle against Asian imports and had to close. Instead, shifting production to Mexico allows U.S. companies to stay competitive and expand in other areas. For example, in the years since NAFTA went into affect, the U.S. auto industry has actually expanded employment in the United States, while also growing in Mexico.

Factories Near Border Revive, Spurring Growth

Where are-they?  Most maquilas are located in the Mexican border states of Baja California (37%) and Chihuahua (17%). The cities which have attracted the overwhelming majority of maquilas are Ciudad Juarez across the Rio Grande from El Paso, Tijuana and Mexicali. Other states with significant Maquila activity include Tamaulipas (13%), Coahuila (10%), Sonora (10%), Other (13%). Monterrey, Nuevo Leon ,  Queretaro.

Why Mexico? Mexico is a sensible choice for assembly manufacturing. U.S. manufacturers ship raw materials and parts to Mexico, where they are assembled by low-cost Mexican labor and returned to the U.S. as finished or semi-finished products. Under NAFTA, U.S. businesses are required to source more of their raw materials and products within North America, and in most cases, only pay customs duties on any non-U.S. originating portion of their products. Improvements over the past 30-plus years in transportation routes, in and out of Mexico, have made production of goods in offshore locations more attractive economically. For manufacturers, it is a way to remain competitive without moving operations to Asia and face complicated, time consuming, expensive transportation and customs. The close proximity of Mexico allows easy, inexpensive transportation back into the U.S. Additionally, the labor force is adult and plentiful. For Mexico, it’s a way of earning foreign exchange by exporting labor without exporting laborers. For Mexican workers, it’s a way to develop skills and earn a living without crossing the U.S. border. Everybody wins.

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SHELTER  SERVICES

The SHELTER PLAN allows foreign manufacturers a fast start in manufacturing operations in Mexico without having to go through the process of organizing and operating their own subsidiary, thus, the risks of labor liability, ownership of facilities and legal presence in Mexico are avoided.

You provide:                                                The Shelter provides:

Management to direct operations                    Compliances with all Mexican legal requirements

Machinery & Equipment                                  A fully staffed Mexican corporation

Raw materials                                               Administrative infrastructure

Technology                                                   Labor

Manufacturing                                               Building

Quality Control                                             Logistics-Customs-Permits

                                                                   Environmental-Human Resources

                                                                   Accounting-Taxes

ADVANTAGES

• Maximize Savings

• Minimize start-up Costs

• Inexpensive Labor

• Reduced freight cost

• Lower construction and utility costs

• Low taxation by Mexican government

• Minimize the risk of operating in Mexico

• No legal presence in Mexico

• No long term commitment

• No major financial commitment

• No Mexican Income Tax

• Minimize the learning curve costs

• Get your feet wet with a short term commitment

• Gain experience at known cost

• Minimize operational problems

• Avoid hidden costs

• Low turnover/absenteeism

• Strategic location

• Access to the Mexican market

• Access to the US market for non-NAFTA countries

• Access to a large, trained labor pool

• Begin your project on schedule

• Immediate start-up 

• Size flexibility

• Low volume and low employment operations possible

Outstanding Opportunities Exist

• Educated & skilled Population

• Abundant Supply of Quality labor

• Low Wages and Benefits Costs

• Expanding local markets

• Favorable treatment from Federal & State Government Agencies

• Stable Government, Economy & Employee Relations

There are two ways a company can organize a maquiladora operation, which largely depends on a company’s offshore production experience, its size and resources. A company can either establish a Shelter Agreement with a Mexican firm or it can establish a Mexican subsidiary. In most cases, small to mid-sized companies with little or no offshore experience choose a shelter company. Utilizing the shelter concept, the shelter company typically supplies the plant and handles human resources and administrative tasks such as accounting, legal issues, permits, tariffs, transportation and customs issues. The manufacturer provides machinery, raw materials, and manufacturing expertise. Shelter is a fast way to start a Maquiladora production because the manufacturer can focus on production, letting the shelter handle administrative and start-up issues. The cost of these services are burdened to direct labor hours and charged to the U.S. firm. These charges are typically between $3.00 and $10.00 per direct labor hour, depending on the number of workers and the contractual obligations of the shelter. After a few months or years, the legal & administrative infrastructure are in place and the shelter may no longer be needed.

Shared Shelter

Designed for small projects that do not have the critical mass to justify a stand-alone shelter operation in Mexico. Under the Shared Shelter concept, clients share space, infrastructure and services with other clients under Shelter's Management.

Consider the Shared Shelter Program for a low-cost, low-risk, short-term period. 

DIRECT  OWNERSHIP

A U.S. parent corporation forms a subsidiary corporation in Mexico. The legal process usually takes between four to eight weeks through the use of a streamlined "single reception desk" in most major cities. The initial incorporation permit is requested from the Secretariat of Foreign Relations.

For Lease Request Form         Forma de Solicitud de Renta

Build to Suit

To assist with your project of Manufacturing or Shelter Services in Mexico complete the

Initial Info Request Form

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