History of the Maquiladora Industry
November 18, 2014
Does Mexico Manufacturing Make Sense for Your Business? A Brief History of the Maquiladora Industry
The term “maquila” or “maquiladora” refers to a manufacturing facility that is a part of the maquiladora industry, a driving force in Mexico manufacturing.
Maquiladora in Mexico first operated under a specific government program known as the Maquila Program, created in 1965 to facilitate industrialization on the United States-Mexican border. This has led to an increase in foreign manufacturing investment, factories, and assembly plants along border cities like Ciudad Juarez and Tijuana. Originally the program replaced an older initiative dating from World War II that allowed agricultural workers from Mexico to work in the United States due to wartime labor shortages. Today, the maquiladora program is known as the Mexico IMMEX Program.
Early Stages
Few American companies took advantage of the maquiladora program / IMMEX Program in the early years due to the low value of the U.S. dollar against the Mexican peso. During the 1970s, high inflation and currency devaluation nearly forced Mexico into bankruptcy by the start of the 1980s. The loss of seasonal jobs for many workers on the border also prompted Mexico to seek alternatives for employment and economic growth. The Mexican government lowered restrictions on importing and exporting materials in order to attract foreign investment, thereby strengthening the manufacturing in Mexico sector and increasing employment.
During the 1980’s, more companies invested in Mexico manufacturing operations as they sought competitive labor rates and lower operational costs, especially electronics manufacturing and car assembly companies. Mexico proved favorable over the United States’ Asian competitors due to Mexico’s lowered currency value, decreased labor costs, and changes in U.S. Customs laws. Businesses were also permitted to move additional operational processing to Mexico, not just the final assembly stages.
Modern Growth
The greatest growth of the maquiladora industry so far occurred in the years after Mexico, Canada, and the United States signed the North American Free Trade Agreement in 1994. Employment and the number of maquiladoras jumped nearly 200% as Mexico benefited from the increased trade with Canada, the US, South America and the European Union. The maquilas and NAFTA (North American Free Trade Agreement) also increased the visibility of Mexico manufacturing as a potential choice for foreign companies looking to locate assembly operations outside the United States.
Now, the maquiladora industry provides an opportunity for foreign companies to import materials tax-free into Mexico for assembly, provided that they export a portion of the finished products back out of Mexico. There is no cap on the amount of goods that companies can sell in Mexico domestically but according to the most recent regulations (Mexico Reforma 2014) governing the maquiladoras, special mechanisms are required to do so.
Maquiladoras Today
Since the 1980’s, maquilas have been a major force in the Mexican economy, creating over one million jobs and producing almost half of the country’s exports. Maquiladoras were envisioned not merely as relocation alternatives for manufacturing processing but ideally as places for owners, engineers, and employees to participate in the process of innovation. Manufacturing in Mexico will be a significant part of the global economy for years to come. For companies looking to reduce operational expenses, producing goods in Mexico with lower import duties, labor costs, and tariffs compared to other manufacturing locations could make a maquila the right choice for their business profitability. We have locations along the Mexican-American border in Rosarito, Tijuana, Mexicali, Juarez, and Tecate; as well as many more throughout central Mexico. Contact NAPS today for more information about the IMMEX Program and the benefits of manufacturing in Mexico.