Post‐NAFTA production and sourcing development in the maquiladora program
| Published date | 01 September 1998 |
| Date | 01 September 1998 |
| Pages | 269-277 |
| DOI | https://doi.org/10.1108/02635579810236733 |
| Author | Y. Helio Yang |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
[ 269 ]
Industrial Management &
Data Systems
98/6 [1998] 269–277
© MCB University Press
[ISSN 0263-5577]
Post-NAFTA production and sourcing development in
the maquiladora program
Y. Helio Yang
San Diego State University, San Diego, California, USA
The maquiladora program is
an important part of the
economy in North America. A
significant share of intra-
industry trade has been
generated between the USA
and Mexico. The imports and
exports from maquiladoras to
the USA continue to grow
under NAFTA. However, non-
maquiladora sectors are
growing at a faster pace.
Non-US foreign direct invest-
ment, particularly from Asian
and European companies, is a
current trend in maquilado-
ras. A cluster concept is now
developed among new
maquiladoras from Asia and
Europe to remain competitive
in an increasingly price-
sensitive market, to maintain
consistent quality standards
in a high-volume environ-
ment, and to fulfill the
NAFTA’s rules of origin provi-
sion. Maquiladora production
is now shifting from lower-
skilled, labor-intensive
assembly to advanced pro-
duction technologies. Obsta-
cles still remain in Mexico’s
infrastructure and regulations
to its market. There are some
debates on the future of
maquiladoras after January 1,
2001, the theoretical expira-
tion date of maquiladoras.
However, the complementar-
ity of the US and Mexican
economies should nonethe-
less sustain incentives for
production sharing and
sourcing.
Introduction
The North America Free Trade Agreement
(NAFTA) was developed to help eliminate
tariffs between Mexico, Canada and the USA
so that they can better compete in the North
American market as well as the world mar-
ket. After only four years, thousands of new
jobs and record import/export levels have
been achieved. This paper examines the eco-
nomic development in the maquiladora
industry after NAFTA has been implemented
since 1994. Current distribution of
maquiladoras along the border and at the
interior of Mexico is discussed. Analyses are
performed on its trade and foreign direct
investment, its impacts on industry sectors
and production technology, and the develop-
ment of a cluster concept. Some challenges
and concerns as well as concluding remarks
are addressed at the end.
Maquiladora program
History and background
The Government of Mexico established the
Border Industrialization Program (BIP) in
1965 to help solve northern Mexico’s unem-
ployment problems. The BIP was based on the
successful operation of export processing
zones in Taiwan and Korea. The first facto-
ries were called in-bond plants reflecting the
equipment, machinery and components free
of duty under import bond. Duty is paid only
on the value added to the product by Mexican
labor. The in-bond assembly industry in Mex-
ico eventually grew to be known as the
maquiladora program.
There were 12 in-bond plants in operations
in 1965 and total employment was 3,000. The
maquiladora program did not really become
popular with USA corporations until the mid-
late 1980s. The growth of the maquiladora
program has been greatly affected by Mex-
ico’s overall economic performance and eco-
nomic reforms, increased competition from
Asia and Europe, and the difference between
Mexico and the USA in terms of hourly com-
pensation and productivity. Growth in the
maquiladora program slowed in 1992 and 1993
as the gap between wages in the USA and
Mexico narrowed. The rate of expansion
quickened again in 1994-95 following the
implementation of NAFTA and the 50 percent
devaluation of the peso in December 1994. By
the close of 1996, 2,465 maquiladoras
employed 811,376 workers in Mexico, with the
maquiladora sector accounting for one-third
of total manufacturing employment in Mex-
ico and generating 40 percent of Mexico’s
exports. Now the officials from cities along
the German-Polish border are studying the
US-Mexican experience.
Current distribution of maquiladoras
Approximately two-thirds of the maquilado-
ras are located along the USA-Mexico border
cities such as Tijuana, Ciudad Juarez, Mata-
moros, Mexicali, Reynosa, Nogales, and
Tecate and provide 82 percent of employment
in maquiladoras. The remaining one-third
operates closer to the interior of Mexico,
including interior regions of border states
such as Chihuahua, Nuevo Leon, and Sonora.
Each of Mexico’s 31 states has at least one
maquiladora. This 130-miles-wide and 2,100
miles-long strip employs over 11 million peo-
ple on both sides of the border and provides
$150 billion in output. It is the fastest growing
area in North America, and is ranked only
behind China as global investors’ favorite
location in the developing world (Business
Week, 1997).
Deployment of maquiladoras to interior
Mexico
Since 1994, the Government of Mexico, with
state government support, has been promot-
ing the establishment of new maquiladoras
away from the USA-Mexico border. Some of
the incentives include three months of free
labor and exemption from paying local pay-
roll taxes. Several non-border cities have been
successful in attracting maquiladora opera-
tions in the following sectors: agriculture,
apparel, furniture, metalworking, petrochem-
ical derivatives, and the assembly of machin-
ery and precision equipment. Mexico’s Com-
merce Ministry (SECOFI) reported a 59 per-
cent increase in the number of new
maquiladoras commencing operations out-
side the border in 1995 compared with 1994
(US Department of Commerce, 1996).
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