AS-1: Maquilas
By Group 24
Students:
Jared Faul, Joshua Howlett & Shawn Hara
Case:
Assignment #1
Date:
January 16th, 2003
Course:
BUSI 4313 (International Business)
Semester: Spring 2003
Professor: Dr. Juan Castro
School:
LeTourneau University, School of Business
Executive Summary
(Describe the concept of maquila. Why does it exist? How does it operate?)
A maquila, or a maquiladora, is defined as “an assembly plant in Mexico, especially one along the
border between the United States and Mexico, to which foreign materials and parts are shipped and from
which the finished product is returned to the original market (www.dictionary.com).” Today a
maquiladora specifically refers to a plant in Mexico. The first one was established in 1966, and initially
they could only be established in the border area (Maquila Portal).
Graph 1
Graph 2
The original purpose was to absorb excess labor in the border areas and to encourage Mexican
exports in the Baja California Free Trade zone. Over time the concept evolved to where maquilas could
be established anywhere in Mexico. They exist almost primarily because of foreign investment. Today
they are probably the most important sector of the Mexican economy because of the employment they
provide to Mexicans. You can see in Graph 1 that the popularity and number of maquilas had steadily
been increasing through the year 2000, with a slight decrease in 2001. In Graph 2 you can see that
maquilas benefit Mexico by providing employment opportunities, now providing more than one million
jobs. Maquilas also benefit foreign corporate investors by providing goods at a much cheaper cost
(Maquila Portal).
Situation Analysis
(What countries have maquilas, what economic benefits do they receive,
and what do these maquilas produce?)
Although maquiladoras can only be found in the country of Mexico, ownership of these operations
can be found throughout the world, including such countries as the Canada, China, France, Germany,
Holland, Japan, Korea, the Netherlands, Italy, Sweden, Spain, Australia, Singapore, Ireland, Finland,
England, Malaysia, Columbia, Belgium, and Argentina (Maquiladora). According to some sources, the
United States of America directly owns approximately forty percent of the more than 3000 maquilas,
while surprisingly, Mexico claims the largest amount of ownership at forty-seven percent. It should be
noted, though, that many of these are Mexican-owned subsidiaries of U.S.A. corporations. According to
this data, this means that approximately 90% of the maquilas currently in operations can trace their roots
to the United States of America (twinplantnews.com). Other sources suggest that the Ownership of
Maquilas is divided a little differently, but still places the United States of America as the largest owner
[see Graph 3] (Maquiladora).
Graph 3
Given this heritage, it is understandable that maquiladoras have had a major impact on the
economies of both the U.S.A. and Mexico. U.S.A. corporations were able to find relief from the stringent
demands of American unions, resulting in a drop in required labor costs from an average of $21 per hour
to $2.51 per hour. In addition, corporations were able to escape strict U.S.A. labor laws and union rules,
and were able to fill tedious assembly line jobs that U.S.A. workers were reluctant to take. Furthermore,
by moving operations to Mexico, U.S.A. corporations were able to remain competitive with major
foreign, especially Asian, competitors offering similar goods and lower prices. “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.A.] companies to stay competitive and expand in other areas.
For example, in the years since NAFTA went into affect, the [U.S.A.] auto industry has actually expanded
employment in the [United States of America], while also growing in Mexico (Twin Plant).” Mexico has
also greatly benefited from the proliferation of maquiladoras, which have been credited with partially
attributing to the growth of the Mexican middle class as well as the recovering of the value of peso after
the drastic fall in 1994. Maquilas are now the nation’s second largest source employment with well over
one million workers.
Graph 4
This massive workforce is involved in a huge variety of different types of manufacturing, with
electronic components and appliances as the largest portion at thirty-six percent [see Graph 4]. In fact,
ninety-eight percent of all televisions in the United States were made in Mexico. Textiles and apparel,
automotive equipment and components, and shelter and medical services also make up a large portion of
the manufacturing output of the maquiladoras [see Table 1 in Appendix].
Strategic Alternatives
(Are there disadvantages to maquilas? Explain Reverse Maquila.)
In determining strategic alternatives to maquilas, it is wise to examine a very new business
practice known as Reverse Maquila. The term Reverse Maquila can be applied to two different
manufacturing situations:(1) a Mexican firm sets up production on the American side of the border and
produces for sale in Mexico, or (2) a Mexican firm establishes production facilities on the American side
of the border and sells the output in the United States.
Reverse Maquila is exactly what it sounds like. Instead of U.S. firms setting up on the Mexico side
of the border, Mexican firms are establishing themselves on the U.S. side of the border. Here are some
reasons why these companies go about Reverse Maquila:
1. Many of the American materials used in the manufacturing process are of consistently superior
quality to what the firm can obtain in Mexico.
2. There are far fewer problems with organized labor on the American side.
3. Operational services such as electricity and waste disposal are less expensive.
4. NAFTA-level import duties for both nations are becoming progressively lower.
5. Less bureaucracy and less corruption exist on the American side.
6. The finished product does not have to undergo what can be a time-consuming process: passing
through U.S. customs.
7. Roads, telecommunications, and waste disposal on American side are far superior.
8. Workers on the American side of the border are better educated and more accustomed to factory
work. They are bilingual.
9. Far less housing is available on the Mexican side for the workers, many of whom literally live in
cardboard boxes. Because of the poor living conditions, a large number leave after a short time,
causing the turnover of the workers to be much higher on the Mexican side of the border.
For the same reasons that Mexican companies want to have production operations in the United
States, U.S. corporations should thoughtfully consider whether these benefits outweigh the opportunity to
have cheap labor in Mexico. Reverse Maquila is a great concept that allows Mexican corporations to have
better opportunity. In the U.S. where business is easier to conduct due to better conditions in such areas as
communication, transportation, and even waste management, Mexican corporations tend to find greater
success provided the conditions for establishment are sound. With less financial pull on the corporation
from such things as employee turnover, Reverse Maquila tends to be the correct plan of action for many
Mexican corporations and perhaps could shed light on why a U.S. corporation might want to stay right
where they are (Ball).
Recommended Strategy/Implementation Plan
There is no simple answer for whether a U.S. corporation should pursue moving its operations to
Mexico in the form of a maquila. Rather, it is important that the company weigh all the factors involved,
especially what it is that company desires to produce. Just as Mexican companies have set up shop in the
United States of America for the reasons listed in the section on “Strategic Alternatives,” it might be wise
for U.S.A. corporations to keep productions in the U.S.A. Obviously though, there can be definite
advantages to choosing the maquila, most notably cheaper labor and the lack of confining regulations.
Especially if the production involves very tedious, repetitive labor, maquilas seem to be the best option. In
order to implement a strategy to produce in maquilas, much work would have to be done to thoroughly
understand the laws and guiding structures of the maquila systems, trade laws, the culture of Mexico, as
well as the ethical aspects of the sometimes “sweatshop-style” working conditions of the maquilas.
Bibliography:
Ball, Don, and Wendell McCulloch. International Business. 7th ed. Boston: Irwin/McGraw-Hill, 1999.
45-80.
Brouthers, Lance E. Maquiladoras: entrepreneurial experimentation to global competitiveness. Mar.
1999. Business Horizons. 15 Jan. 2003
<http://www.findarticles.com/cf_0/m1038/2_42/54370814/p1/article.jhtml?term=maquila>.
Maquiladora History and Statistics. SOLUNET: Info-Mex., Inc. 15 Jan. 2003 <(http://www.solunetinfomex.com/faqs.html)>.
Maquila Portal. 12 Jan. 2003 <http://www.maquilaportal.com>.
Twin Plant. 15 Jan. 2003 <http://www.twinplantnews.com>
Appendix
Table 1
Updated on 10-16-2002
RANK
2002
COMPANY
EMPLOYEES
1 DELPHI AUTOMOTIVE SYSTEMS
39478
2 YAZAKI CORPORATION
14572
3 OFFSHORE INTERNATIONAL
11615
THOMSON CONSUMER ELECTRONICS
4 (RCA)
10874
5 FORD MOTOR COMPANY
10024
6 SONY CORPORATION OF AMERICA
9679
7 KEMET CORPORATION
9200
8 LEAR CORPORATION
8569
9 ALCOA FUJIKURA LTD
7650
10 TYCO INTERNATIONAL LTD
6785
11 A.O. SMITH CORPORATION
6598
12 CAROLINA COUPON CLEARING INC
6542
13 SANMINA-SCI
6300
14 GENERAL ELECTRIC COMPANY
5965
15 SANYO NORTH AMERICA GROUP
5879
16 SAMSUNG TIJUANA PARK
5789
17 BREED TECHNOLOGIES, INC
5687
18 EMERSON ELECTRIC CO.
5678
19 AMERICAN INDUSTRIES
5332
MATSUSHITA ELECTRIC CORP. OF
20 AMERICA
4986
21 SUMITOMO WIRING ELECTRIC SYSTEMS
4879
22 DAEWOO INDUSTRIAL CO., LTD
4856
GENERAL INSTRUMENTS
23 CORPORATION
4589
24 SEAGATE TECHNOLOGY INC
4582
25 JOHNSON AND JOHNSON COMPANY
4569
26 TRW INCORPORATION
4554
27 PHILIPS ELECTRONICS
4387
28 ALLEGIANCE CORPORATION
4289
29 COLLECTRON OF ARIZONA, INC.
4256
30 ATTEL DEL NORTE S.A DE C.V
4238
31 ITT INDUSTRIES
3845
32 HITACHI HOME ELECTRONICS
3700
33 JOHNSON CONTROLS, INC
3589
34 LEVITON MANUFACTURING COMPANY
3256
35 QUIRK WIRE CO.
3120
36 SCIENTIFIC ATLANTA INCORPORATION
2996
37 STRATTEC SECURITY CORPORATION
2879
38 AVERY DENNISON
2830
INTERNATIONAL BUSINESS MACHINES
39 (IBM)
2689
40 INTERMEX MANUFACTURA
2600
41 LEVI STRAUSS & CO.
2598
42 NOVA LINK
2591
43 ALLIED SIGNAL CO.
2589
44 AVX CORPORATION
2587
45 MATTEL INC.
2578
46 HONEYWELL INCORPORATION
2489
NO.
PLANTS IN
COUNTRY OF
MEXICO
ORIGIN
28 USA
12 JAPAN
1 MEXICO
6 USA
7 USA
4 JAPAN
8 USA
8 USA
8 JAPAN
4 USA
8 USA
5 USA
7 USA
7 USA
2 JAPAN
3 KOREA
9 USA
7 USA
22 MEXICO
INDUSTRIAL SECTOR
AUTOMOTIVE
AUTOMOTIVE
SHELTER SERVICES
ELECTRONICS
AUTOMOTIVE
ELECTRONICS
ELECTRONICS
AUTOMOTIVE
AUTOMOTIVE
ELECTRONICS,MEDICAL
ELECTRICAL
SERVICES
ELECTRONICS
ELECTRICAL
ELECTRONICS
ELECTRONICS
AUTOMOTIVE
ELECTRICAL
SHELTER SERVICES
4 JAPAN
6 JAPAN
3 KOREA
ELECTRONICS
ELECTRICAL
ELECTRONICS
3 USA
4 USA
5 USA
5 USA
8 NETHERLANDS
5 USA
3 USA
1 USA
4 USA
3 JAPAN
7 USA
4 USA
2 USA
1 USA
1 USA
2 USA
ELECTRONICS
ELECTRONICS
MEDICAL
AUTOMOTIVE
ELECTRONICS
MEDICAL
SERVICES
ELECTRONICS
AUTOMOTIVE
ELECTRONICS
AUTOMOTIVE
ELECTRICAL
ELECTRONICS
ELECTRONICS
AUTOMOTIVE
OFFICE PRODUCTS
1 USA
9 MEXICO
2 USA
2 USA
4 USA
2 USA
1 USA
3 USA
ELECTRONICS
SERVICES
APPAREL
TEXTILE
AUTOMOTIVE
ELECTRONICS
TOYS
ELECTRONICS
47
48
49
50
51
OPTEK-DANULAT INC
ADVANCE TRANSFORMER CO.
HAMILTON PROCTOR-SILEX, INC
YALE DE MEXICO, S.A DE C.V
AVENT
PHELPS DODGE MAGNET WIRE
52 COMPANY
53 EATON CORPORATION
54 ACCO BRANDS INC.
55 PLAMEX S.A. DE C.V.
56 SIEMENS ENERGY & AUTO INC.
57 BOSE CORPORATION
58 SKYWORK SOLUTIONS
59 ACUSTAR INCORPORATION
60 NATIONAL PROCESSING COMPANY
61 EDM INTERNATIONAL
62 CALIFORNIA CONNECTION, INC.
63 COASTCAST CORPORATION
64 AM-MEX PRODUCTS, CO.
65 DATAMARK, INC.
SUNBEAM-OSTER HOUSEHOLD
66 PRODUCTS
67 HUBBEL INCORPORATED
68 GREEN GIANT PILLSBURY, CO.
69 KEYTRONICS CORPORATION
70 SCHLAGE DE MÉXICO S.A. DE C.V.
71 CARLINGSWITCH, INC.
72 SUN APPAREL, INC.
73 INTERNATIONAL RECTIFIER CORP.
74 R.G. BARRY CORPORATION
75 SAMSONITE INCORPORATION
76 IRVIN INDUSTRIES, INC.
77 DOUGLAS FURNITURE, INC
78 BLUEBERRY CONFECTIONS INC.
79 THE CHAMBERLAIN MFG
80 MEX MILL, CO.
81 NCH PROMOTIONAL SERVICES
MINIATURE PRECISION COMPONENTS,
82 INC.
83 ANCHOR FOOD PRODUCTS, INC
84 COILCRAFT, INC.
85 COOPER-STANDARD AUTOMOTIVE
86 OHAVE INTERNATIONAL CENTER
ALPINE ELECTRONICS OF AMERICA,
87 INC.
88 SARA LEE CORPORATION
89 BRAS ELECTRONICS
90 RASSINI INTERNATIONAL, INC.
91 SEATT CORPORATION
92 ACCURIDE INTERNATIONAL
93 ELAMEX DE JUAREZ S.A DE C.V.
94 MOTOROLA INCORPORATION
95 MCCULLOCH, CO.
96 FRUIT OF THE LOOM COMPANY
97 NOMA APPLIANCE ELECTRONIC
98 HASE LEMAMMARZ INTERNATIONAL
99 BORDER APPAREL LAUNDRY INC.
100 REGAL PLASTICS
2488
2387
2331
2169
2150
2 GERMANY
3 USA/HOLLAND
3 USA
1 USA
2 USA
MEDICAL
ELECTRONICS
APPLIANCES
APPAREL
MEDICAL
2136
2113
2063
2060
2056
2050
2035
2003
1961
1948
1904
1886
1879
1865
1 USA
2 USA
2 USA
1 USA
2 GERMANY
2 USA
1 USA
1 MEXICO
2 USA
2 USA
2 USA
1 USA
3 USA
2 USA
ELECTRICAL
AUTOMOTIVE
STATIONARY
TECHNOLOGY
AUTOMOTIVE
ELECTRONICS
SEMICONDUCTORS
AUTOMOTIVE
SERVICES
SERVICES
APPAREL
SPORTING GOODS
SERVICES
ELECTRONICS
1853
1850
1844
1806
1789
1760
1752
1705
1689
1652
1633
1613
1596
1589
1587
1569
2 USA
4 USA
1 USA
1 USA
1 USA
2 USA
4 MEXICO
1 USA
3 USA
1 USA
2 USA
1 USA
2 USA
1 USA
1 USA
3 USA
ELECTRONICS
ELECTRONICS
FOOD PROCESSING
ELECTRONICS
SECURITY
ELECTRICAL
APPAREL
ELECTRONICS
APPAREL
ACCESORIES
AUTOMOTIVE
WOODEN FURNITURE
FOOD PROCESSING
ELECTRICAL
AIRCRAFT
SERVICES
1565
1549
1547
1520
1508
2 USA
1 USA
2 USA
3 USA
1 CHINA
AUTOMOTIVE
FOOD PROCESSING
ELECTRONICS
AUTOMOTIVE
ELECTRONICS
1502
1489
1475
1456
1420
1355
1268
1258
1257
1256
1235
1110
1056
1023
1 JAPAN
2 USA
1 USA
1 USA
1 USA
2 USA
18 USA
2 USA
1 USA
2 USA
2 CANADA
1 USA
1 USA
1 USA
AUTOMOTIVE
APPAREL
ELECTRONICS
METAL
ELECTRONICS
STEEL PRODUCTS
SERVICES
ELECTRONICS
ELECTRONICS
APPAREL
AUTOMOTIVE
AUTOMOTIVE
APPAREL
PLASTICS
Due to the number of sources from which the contents is obtained, Maquila portal does not warrant the accuracy or completeness of
this list.