Maquiladora Industry Evolution in Mexico (1982-1994)

Posted on Dec 16, 2024 in Economy

The Maquiladora Industry in Transition (1982-1994)

Regional Socioeconomic Context

The maquiladora program was initiated to replace the agreement on farm workers in 1964, with the main objectives of job creation and training of manpower in the border area. Since the early 1950s, the population growth in the border entities exceeded the national average. In the early 1970s, the urban population was higher than in rural areas, requiring more sources of employment.

Tijuana and Juarez are two major municipalities with maquiladoras. The development of maquiladoras has led to a particular conformation of the occupational structure of industry. The border states, such as Nuevo Leon, have been influenced in their socioeconomic settings by the presence of the maquiladoras. The dynamics include the creation of jobs held by women, with below-average salary levels, and persistent sectors of the population with low incomes and precarious living standards.

Regulatory Framework and Functional Maquiladoras

A maquila activity is defined as the assembly of finished goods imported temporarily into border areas and then exported. For the purpose of the maquiladoras, the following can be imported:

  • Raw substances, auxiliary materials, and parts to assemble, finish, or undertake maquila.
  • Machinery, apparatus, and equipment to carry out such operations.
  • Parts for machinery.
  • Tools, accessory equipment, and safety production items.
  • Containers, packaging materials, labels, brochures, technical manuals, work, and industrial levels.

As a prerequisite to the establishment of a maquiladora plant, an application must be presented stating the following aspects:

  1. Name and name of the applicant.
  2. Install of the subscribed and paid.
  3. Composition and origin of social capital.
  4. Maquila contract.
  5. Interinstitutional of employed persons of Mexican nationality.
  6. Value added to temporarily imported raw materials per semester.

The first approvals were for 12 assembly plants in 1965. The incentives for these companies were the low salaries, the basic requirements of job training for assembly, and proximity to the United States market. By the mid-1980s, Mexico was among the top three suppliers of products assembled in the USA.

The manner of operation of the maquiladoras can be:

  1. Pure maquila service providers.
  2. General service providers.
  3. Foreign-owned companies.

The Economic Dynamics of the Maquiladoras

The expansion of the maquiladoras has been based on a system of tax incentives, salary, and location advantages that make it very attractive for the establishment of these businesses for American capital. The most important maquiladoras are actually subsidiaries of large U.S. and Japanese companies. The transnational corporation, in the segmentation or decentralization of production, records two options for the economic empowerment of its operation. The choice of intensive techniques of labor or capital will depend critically on the parts to be assembled or the terminal product of the overall strategy.

The logic of transnational production and processes found in northern Mexico’s maquiladora is only one form of decentralization, in addition to the direct production of the matrix and outsourcing with medium and small companies in the same countries of origin. In addition to employment, another issue that is clearly the role of maquiladoras is in the favorable trade balance or added value that comes from the growing weight in total exports than the rest of manufacturing. This increase was large in the greater number of plants and employed persons, a phenomenon that is exacerbated during periods of exchange rate devaluation.

The maquiladoras have had a strong social and economic significance as a function of them have come more diversified urban structures.

The Challenges of the Loss to Maquiladoras Competitiveness

The problems in the maquiladora industries include the limited development of local suppliers and environmental degradation. The priority issue is how to keep the remaining assembly plants, improve technology and labor, and attract new investment in an uncertain environment with a continuing loss of competitive advantage. By the mid-1980s, many maquiladoras began to implement systems and techniques associated with the Japanese production system, such as work teams, quality circles, and multiskilling.

Jorge Carrillo and Alfredo Hualde named this process as the development of the second generation of maquiladoras, with a higher technological level and incipient autonomy over the decisions of the matrices.

Stepping to Know the Industry?

The staging is synonymous with industrial development upstream. Gary and Toni Gereffy include four types of industrial scaling:

  1. Cross changes.
  2. Intra changes.
  3. Change in the economic role.
  4. Product characteristics.

Others can be mentioned, such as the level of technology, degree of autonomy of the matrix, and generation of technical and industrial capabilities. The largest number of studies, and electronic auto parts maquiladoras, represent the most dynamic activities and more technology, as they provide more than 50% of employment and value added of industry in Mexico. Such steps are described in the following points:

  1. Various activities, including auto parts assembly plants, have moved from unskilled labor-intensive to technology-intensive.
  2. Some industries have shifted from commodity manufacturing to produce high-value goods.
  3. There have been changes in the economic performance, and assembly firms have developed original equipment research and development processes, including design, not only for their own brands but also for their competitors.
  4. The technology content of products was raised significantly.
  5. The companies gain greater autonomy from the parent.
  6. The generation of technical and industrial capabilities has increased to raise quality standards and official standards that must be followed.

Organizational Technology

Various studies show the transfer of new management models to the maquiladoras. Most of the jobs are low-skilled and labor-intensive. Japanese plants have advanced in the introduction of continuous learning and identify four main areas of learning:

  1. Quality control is based on the idea that no one is more appropriate than the worker to improve the quality of processes.
  2. Quality circles, consisting of persons of the same work area who meet to identify common problems and present their proposed solutions.
  3. Emphasis on quality, where all areas identify key issues.
  4. Learning from errors, becoming aware of the errors so they are not committed again.

Information technology is present in each of the links in the value chain and became known as one of the factors that cooperates in creating, maintaining, or increasing the competitiveness of the company. The companies’ investments in this technology have the primary objective of reducing costs. One of the most important investments a plant can make in terms of information technology is a computer program called Enterprise Resource Planning (ERP).

Loss of Competitive Advantage, To Be?

The benefits are not given, but are built. To remain competitive, one must transform, win, and lose. Various cyclical, structural, and institutional factors have been identified.

Structural long-term changes include both internal and external operating conditions of the maquiladoras and macroeconomics from the legislation, the deterioration of infrastructure, and new competitors.

  1. The first macroeconomic factor is a sign of stability and health of the economy. An overvalued exchange rate has had an impact on increasing wages and the cost of labor and production in general.
  2. The North American Free Trade Agreement (NAFTA).
  3. Deterioration of infrastructure, lack of resources for new investment in infrastructure increased the time of delivery and distribution, as well as costs.
  4. Emergence of countries with high competitiveness resulting from low wage supports and subsidies from governments, the greater availability of labor, and huge market potential.

Current factors: The main external situational factor negatively affecting the export maquiladora industry is the slowdown in the U.S. economy since mid-2000.

  1. Historical dependence of maquiladora production and demand in the United States.
  2. A greater economic importance of the export maquiladora industry in Mexico, the greater the effect.
  3. An asymmetrical relationship between the two economies.
  4. Drastic low consumption in the U.S. due to the attacks of September 11.

The government’s role is important in supporting or discouraging foreign investment:

  • Increased red tape.
  • Increased bureaucratic cost.
  • Wrong messages.
  • The increase in the cost of roads and telecommunications, as well as the waiting time at customs.

Structural Change in the Mexican Manufacturing Sector (1988-1994)

Industrial Policy in Mexico (1988-1994)

Only in extreme cases are sectoral policies the best second options. The industrial policy after 1988 was first a result of the liberalization strategy itself, macroeconomic structural change. Control over inflation, financial imbalances, as well as attracting foreign investment. Macroeconomic structural change was to increase trade liberalization, particularly in terms of exports. Industrial policy has focused on the import regime and industrial liberalization.

By late 1992, the government began a new form of industrial policy, called industrial matrices. The two major export promotion programs initiated in 1985, the tax liability for the government, and try to give more comprehensive information about foreign markets to facilitate internal bureaucratic procedures.

  • The Temporary Import Program to Produce Export Goods (PITEX), created in 1985 and regulated by a decree of May 1991, allowed non-oil exporters to import goods for export without payment of duties.
  • The Program for Highly Exporting Companies (ALTEX) has particularly bureaucratic procedures to facilitate rapid repayment of value-added tax in a minimum of five days, as well as customs clearance facilities, trade information, and other secretariats’ priorities and dependencies.

The high concentration of resources in a few sectors and the failure of PITEX and ALTEX to promote exports significantly, as well as the lack of a long-term industrial policy, including educational technology policy and strategic sectors, have been severely criticized by leading private manufacturing chambers.

Preliminary Conclusions for Industrial Policy (1988-1994)

Four broad and critical issues:

  1. The strategy of liberalization since the end of 1987 has not filed an industrial strategy in line with the policy of liberalization.
  2. The period (1988-1994) shows that the liberalization strategy, at least as focused by the government, shows a lack of coherence and consistency between macroeconomic and microeconomic policies.
  3. The macroeconomic liberalization strategy suggests a strong incompatibility between liberalization and export-oriented industrialization.
  4. The industrial policy since 1988 and prior reflected a lack of coordination and accountability of programs and priorities of the institutions involved.

General Trends of Manufacturing Sector

The strategy of liberalization in manufacturing has several nuances. Two arise from this general development since liberalization:

  • The ability to present manufacturing GDP growth rates decreased significantly, while the net stock of capital as well as gross capital formation decreased.
  • The growth of manufacturing in terms of GDP and exports, although there has been a substantial reduction of productive linkages with the rest of the economy.

Typology of the Manufacturing Sector for the Period (1988-1994)

The 49 branches of manufacturing have been classified with average annual growth rate in GDP growth for the period after the adoption of the policy of liberalization.

We considered three groups:

  • Group I represents a higher AAGR of GDP to 2% of the average manufacturing.
  • Group II represents an AAGR of GDP of 2% above or below the manufacturing average.
  • Group III made a TCPA less than 2% of the average manufacturing.

Defined subgroups within each group, the branches with a capital-intensive manufacturing than average during 1988-1992 are found in the corresponding subgroups, while the branches with a capital intensity below the average for manufacturing are found in subgroup B.

This typology highlights interesting features:

  • It remarks on the high heterogeneity within the manufacturing sector and stresses the importance of the branches in terms of their performance in GDP.
  • It eliminates the impact of cyclical trends in the economy and in manufacturing.
  • It specifies structural change and the prospects for capital accumulation in the manufacturing sector.

Change in the Incentive to Produce in the Manufacturing Sector

Relative prices and the rate of return, particularly since fall 1988, due to increased competition and general liberalization of imports affecting manufacturing. Regulation theory has indicated that the rate of profit will be the crucial variable for accumulation of capital and GDP growth.