What are Mexican factories called?

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.

History

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.

Maquiladora Benefits

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.

Maquiladora in Mexico

A maquiladora in Mexico is a factory that operates under preferential tariff programs established and administered by the United States and Mexico. Materials, assembly components, and production equipment used in maquiladoras are allowed to enter Mexico duty-free. Products made can be exported into the U.S. at lower tariffs than those from other countries. Recently, the term “maquiladora” has been used for similar operations in Latin America and Asia as well, though its roots are deeply imbedded in Mexico. As such, a maquiladora in Mexico, and especially Tijuana, has advantages.

The Maquiladora Program, which allowed maquiladoras to be 100% foreign owned, was initiated in Mexico in 1964, and followed the National Border Industrialization Program, which began three years earlier in 1961. The Industrialization Program was created to increase foreign investment and stimulate Mexico’s internal market. The Maquiladora Program was developed to foster border region employment rates as well as further attract foreign investment, and a 1989 decree relaxed Mexico’s foreign investment laws even more, allowing maquiladoras to sell up to 50% of their products to Mexican domestic markets.

Despite its impressive, successful history, the maquiladora industry in Mexico never fully bloomed until the North American Free Trade Agreement (NAFTA) was approved in 1994. Interestingly, NAFTA wasn’t entirely a boon to the industry, as it eliminated certain customs benefits enjoyed by the maquiladora program and determined strict ‘rules of origin’ for products to qualify for preferential tariffs. But it did allow products manufactured in maquiladoras to be sold to in Mexico without the prior limits in place, and eliminated certain quotas that further impeded full penetration of U.S. and Mexican markets.

Ever-changing Mexican laws continue to make establishment and management of a maquiladora in Mexico intimidating and confusing to even the most intrepid and savvy businessmen. Yet thousands of manufacturing companies, including a substantial number of small to medium-sized American firms, have been able to negotiate the process and establish a maquiladora. Reduced labor costs of 50% or more, a highly skilled and conscientious workforce, 6-day work week, and logistical advantages over other offshore locations persuaded these businesses to explore manufacturing options in Mexico.

There is no question the task of establishing a maquiladora in Mexico is a considerable challenge for an American company. Fortune 500 firms often embark on the process themselves, but still require a large and diverse pool of consultants. Some companies choose to use a contract manufacturer, if they can find a reliable one. Others decide on a corporate shelter service. Although the quickest and simplest way to establish a Mexican maquiladora, how this system works is misunderstood.

“Corporate shelters allow manufacturing firms to establish a maquiladora in Mexico without actually owning a Mexican business. The process is simple when an American or foreign-owned company contracts with a corporate shelter service firm like Made in Mexico a subsidiary of  The Tecma Group of Companies.

Using production volumes and specifications required to assemble or manufacture the client’s product, the corporate shelter firm looks for appropriately-sized and designed buildings. Once the client chooses a building, the shelter firm leases it for them, and takes care of all of the real estate transactions, permits and legal work necessary to acquire and operate in the facility. The shelter service also secures the maquiladora register, import permits, and local and federal licenses and permits, as well as opening bank accounts and establishing an accounting and tax payment program. Prospective employees are interviewed and hired as the client firm moves or purchases equipment and machinery required for assembly or manufacturing its product. The client also designates a production supervisor to oversee manufacturing.

Once up and running, the shelter firm ensures the maquiladora complies with all Mexican laws addressing taxes, customs, labor, zoning, facility management, and environmental protection. The shelter firm also handles research and management necessary for fiscal compliance with transfer pricing, permanent establishment, safe harbor, asset taxes, and payroll, withholding and employee benefits packages. Ongoing hiring, termination, incentive and disciplinary programs and compliance with labor laws and the labor board are performed as part of the shelter package as well.

The shelter firm can also complete all border crossing documentation, U.S. and Mexico broker coordination and transportation arrangements. The client now has a maquiladora in Mexico, and has avoided the myriad of challenges related to cultural differences, employee management and compensation policies, accounting and payment of taxes, and compliance with local and federal laws and regulations. The client firm focuses on production quality while the shelter service performs all administrative functions required to keep the operation running efficiently.

Made in Mexico’s shelter program has been fine tuned to a point where an American business could potentially establish a Mexican operation in as few as four weeks without even leaving the United States. And in addition to the reduced overhead and labor costs cut in half or more a shelter program offers, a maquiladora in Tijuana, Mexico promises the added benefit of logistics far superior to any other offshore location. Want to learn more? Check out our FAQ page, send us a message or give us a call at 915-534-4252 or fill out our CONTACT FORM on this website.

To learn more about a maquiladora and Mexico Shelter Services the reader is encourage to review our blog at The Tecma Group of Companies.