Maquiladoras (also known as "twin plants") are manufacturing plants in Mexico with the parent company's administration facility in the United States. Maquiladoras allow companies to capitalize on the less expensive labor force in Mexico and also receive the benefits of doing business in the United States. Companies operating in the United States can send equipment, supplies, machinery, raw materials, and other assets to their plants in Mexico for assembly or processing without paying import duties. The finished product can then be exported back to the United States or to a third country.
The concept was created by the Mexican government in 1965 to stimulate industrialization in northern Mexico. The idea was formulated in response to rising unemployment and growing global demand for low-cost production. Through maquiladoras, Mexico's primary objectives include job creation, technology transfer, and generation of foreign exchange. There are now more than 570 maquiladora plants operating in Tijuana, providing more than 100,000 jobs.
Maquiladoras allow for one plant to perform labor intensive processes and another plant to perform capital intensive processes. The following are other advantages of the maquiladora industry by country:
- U.S. firms become more competitive in world markets by combining American advanced technology with the lower costs of Mexican labor and materials.
- Mexico offers lower wage rates than many Asian countries.
- The average company can save nearly $1 million a year in labor costs.
- The United States experienced an increase in employment opportunities for skilled workers in warehousing, product finishing, and administration.
- Maquiladoras create employment opportunities and additional income in the border region.
- Exportation of maquiladora products brings needed foreign exchange into Mexico.
- Commercial deficit with the United States is reduced.
- Plants in Mexico that manufacture for export can temporarily import foreign components without payment of customs duties.
How Companies Can Participate in the Program
There are three ways companies can participate in the maquiladora program:
This option allows a Mexican company to be established, carrying out the manufacturing and assembling operations with direct control assumed by a foreign-based parent company. This parent company can be 100 percent foreign (not Mexican) owned.
In this instance, managers in the Mexican plant are employees of the parent company with special permits that allow them to work in Mexico. Other Mexican managers are hired enabling the company to hire the workforce, lease the building, and contract for services. Maquiladoras are merely extensions of the parent company that serve as assembling or manufacturing subsidiaries.
This option utilizes the less expensive Mexican labor force to reduce manufacturing costs. A Mexican firm produces assembled parts for a foreign firm with a negotiated per-item-price. The Mexican firm acts as a subcontractor of the U.S.-based company.
Usually, the Mexican firm will import the component part for manufacturing and export that item back to the U.S. company. Most subcontracting plants are specialized and have permanent employees with specialized expertise.
A shelter simply provides U.S. companies with some protection from Mexican financial and legal exposure. These types of maquiladoras accept technology, capital equipment, and component parts from a non-Mexican firm for assembly in Mexico and subsequent exportation. The sheltering entity provides plant space, Mexican transportation, Mexican brokerage, daily administration of Mexican employees, and daily plant operations. The sheltering entity bills the prime contractor on a fully-burdened hourly basis.
Maquiladoras' Effect on San Diego
Many companies with manufacturing plants in the Tijuana, Mexico, area have administration or operations facilities in San Diego County. The facilities contribute greatly to the local economy and add to the region's importance as a manufacturing area.
Some of the companies with twin plants located in the San Diego area include Casio Manufacturing Corp., Healthcare Products Co., Hitachi Home Electronics of America Inc., Honeywell Inc., Hyundai Precision America Inc., Kendall Pioneer Speakers Inc., Matsushita Television Co., NSK Safety Technology Inc., Saft America Inc., Samsung Electronics Co., and Sanyo North America.