Maquiladoras in Mexico

Maquiladoras in Mexico Facts

The Maquiladoras in Mexico, a manufacturing solution created to utilize preferential tariff agreements between the U.S. and Mexico, has a wide variety of benefits for businesses to consider when choosing if and who to use for manufacturing in Mexico. A Maquiladora is based in Mexico, typically near the Mexico/U.S. border, but is operated by a U.S. company. This approach has many benefits for businesses looking to outsource their manufacturing needs. These needs may be due to cost competitiveness or availability of labor to meet demand.

What are the benefits to using The Maquiladora?

The benefits to a U.S.-based business relate primarily to the cost, quality and availability of labor, and the proximity to market. Other benefits of operating through a Maquiladora include:

  • Unlimited duty-free imports
  • Unlimited foreign capital investment
  • Limitless options for type or amount of product that can be manufactured
  • Reduced manufacturing costs
  • High-quality product
  • Reduced transport time and cost (specifically in comparison to manufacturing in eastern countries)

According the the Wall Street Journal: “Mexico has remained consistent with costs and taxing, which allows companies to plan budgetary needs in advance and avoid any surprises that may set them back. It has also permitted U.S. companies to rely on Mexico as a manufacturing partner. As of 2015, 90% of Fortune 500 companies have investments in Mexico, making the maquiladora industry vital to the U.S. economy.”

What Role Does The Maquiladora Play in the Mexican Economy?

Maquiladoras are also essential to the Mexican economy. According to the Maquiladora Guide: Doing Business in Mexico, which was published by PriceWaterhouseCoopers, “Maquiladoras are the foundation on which Mexico’s GDP is built, and without their support the Mexican economy would suffer. Maquiladoras are responsible for more than 65 percent of the country’s manufacturing exports, and employ 80 percent of the manufacturing labor force.”

What Benefit does The Maquiladora Provide for U.S. Manufacturing?

The Maquiladora industry is currently benefiting from a revival of manufacturing in the Americas. According to a study by the Federal Reserve, “Whereas China benefitted tremendously when the country entered the World Trade Organization in 2001, today the pendulum is swinging back. China’s GDP climbed from approximately $2 trillion in 2005 to just under $11 trillion in 2015 and as the country grew wages nearly quintupled over the same time horizon, making China less competitive today. Trade agreements between the U.S. and Mexico, and Mexico’s reliance on maquiladoras have led to stable and consistent costs of labor, which are major benefitting factors for companies looking to outsource some or all of their manufacturing needs.”

Turtle Fur Case Study

Turtle Fur needed manufacturing garment production, but required the labor pool to scale up and reduce for their seasonal production (an increase/decrease of 20% in workforce depending on the seasonal runs).  Keeping a large labor crew all year round was not profitable.  In addition, Turtle Fur needed the labor crew to be able to work on several different types of products based upon demand, and not have anyone working on the line as a “specialist”.

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