After The Peso Crisis, The Mexican Recovery With Maquilas

3340 words - 13 pages

Maquilas - The Way to a Mexico RecoveryMexican MaquiladorasMaquiladoras are mainly considered processing facilities; they process and assemble products such as consumer and industrial electronic goods, automotive components, wood, leather and clothing, toys, and medical supplies. The maquiladora program is also known as the "twin plant" "production sharing" or "in bond" program. The terms "twin plant" and "production sharing" stem from earlier anticipation that paired plants would be established in physical proximity, one on either side of the U.S.-Mexico border. The labor-intensive production processes would occur in Mexico and the rest of the processes in the U.S. (production sharing). This would allow companies to capitalize on the cheaper labor costs without actually relocating to Mexico.However, today the maquiladora industry has expanded to mean much more. The "industry" is actually an agglomeration of manufacturers from various industrial sectors with the automotive and electronic sectors accounting for more than two-thirds of maquila production. Manufacturers use a variety of investment forms to capture the benefits associated with maquilas, including wholly owned subsidiaries, joint ventures, and shelter agreements (subcontracting agreements). There are numerous industrial parks dedicated to maquila manufacturing, and plant sizes range from over 2500 employees in some automotive and electronic assembly units to 60-to-8 person job shops, these being more common in woodworking and garment operations.U.S. firms account for over 90 percent of the value of maquila investment and control the largest number of maquilas; multinationals (MNEs) such as Ford, General Motors, Eastman Kodak, Caterpillar, Hewlett Packard, and Westinghouse command the largest share of business. In addition, there is an increasing presence of "third country" maquilas. Perhaps most notably, Japan is rapidly increasing its maquila presence. Japanese MNEs such as Sony, Sanyo, Fujitsu, Matsushita, and Hitachi use maquilas, and some of these have encouraged their Japanese suppliers (for example, Sanoh and Tocabi) to follow. Korean MNEs such as Samsung, Lucky Goldstar, and Hyundai have also recently established maquilas. A small number of manufacturers from other countries use maquilas. These include MNEs from West Germany (whose total foreign direct investment in Mexico surpasses that of Japan), France, Finland, Canada, the Netherlands, and Taiwan.AdvantagesThe main advantages of a maquiladora are that labor costs are considerably lower in Mexico, the US customs duty is limited to the portion of value added in Mexico and there is no Mexican duty if the goods are re-exported to the country of origin. Maquiladoras can be owned 100 percent by US persons. The creation of a Mexican maquiladora requires a signed contract and approval from the appropriate Mexican authorities. However, there are other advantages that make the Maquilas an attractive choice for off-shore production....

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