What are Maquiladoras? - An Explainer

Maquiladoras are manufacturing facilities in Mexico that work together with a company’s main office in the United States. These plants let businesses take advantage of lower labor costs in Mexico while still benefiting from their operations in the U.S. Companies can send equipment, supplies, machinery, and raw materials to these Mexican plants for assembly or processing without paying import duties. Finished products can then be exported back to the U.S. or to other countries.

History

The maquiladora concept was introduced by the Mexican government in 1965 to boost industrial development in northern Mexico. This initiative aimed to tackle rising unemployment and meet the global demand for affordable production. Maquiladoras help Mexico create jobs, transfer technology, and earn foreign exchange. Today, over 570 maquiladora plants are running in Tijuana alone, providing more than 100,000 jobs.

Maquiladora Benefits

• For U.S. Firms: Maquiladoras help U.S. companies stay competitive by combining advanced American technology with lower Mexican labor and material costs. Companies achieve substantial cost savings,
• For Mexico: The low wages in Mexico can help reduce manufacturing costs. Maquiladoras generate jobs and income in the border region, and the export of products brings valuable foreign exchange into Mexico. Additionally, these plants reduce the commercial deficit with the U.S. and allow temporary import of foreign components without paying customs duties

How Companies Can Join the Program

1. Direct Ownership: A foreign company can set up a Mexican plant where it directly oversees manufacturing and assembly. This plant can be 100% foreign-owned.
2. Management and Subcontracting: In this model, the Mexican plant operates under the parent company’s control, with managers working in Mexico under special permits. The plant hires local workers and manages the operations, effectively acting as an extension of the parent company. Alternatively, a Mexican firm can produce parts for a U.S. company at a negotiated price, often importing components and exporting the finished product back to the U.S.
3. Shelter Services: Shelters help U.S. companies manage the risks of operating in Mexico. They provide the necessary infrastructure, including plant space, transportation, and administrative support. U.S. companies send technology and equipment to the shelter for assembly in Mexico, and the shelter charges for these services on an hourly basis.

Which companies use the maquiladora programme?

It’s mainly U.S.- based firms and multinational companies from industries such as electronics, automotive parts, textiles, and consumer products who manufacture their products in Mexico using the maquiladora programme. Some companies are: General Electric, Honeywell, Sony Bosch, and Samsung Electronics.

Maquiladora vs IMMEX - Are they the same?

IMMEX and maquiladora tend to be mentioned together, so we thought we’d explain the difference here. The IMMEX (Industria Manufacturera, Maquiladora y de Servicios de Exportación) program is a broader framework introduced in 2006 that covers various types of export-oriented manufacturing and service operations, including those that don't strictly fit the traditional maquiladora model.

The program offers additional benefits and flexibility, such as simplified customs procedures and reduced tax burdens. These benefits are aimed at boosting the competitiveness of companies involved in export activities. The maquiladora program however, specifically refers to factories that import raw materials from abroad, process them, and then export the finished goods, primarily focusing on manufacturing and assembly operations. While all maquiladoras are part of the IMMEX program, IMMEX includes a wider range of export-related activities and industries.

About AMREP Mexico

AMREP Mexico, established in 1994, is a leading provider of independent supplier management, quality control, auditing, quality inspections, technical recruiting, and manufacturing excellence solutions. For over 20 years, we’ve been working with US, European, and Canadian companies to get the best out of their Mexican manufacturing and supply base. We focus on the production aspects of manufacturing in Mexico, rather than the administrative and financial aspects of setting up facilities in the country.

AMREP Mexico is a member of the AMREP Supplier Management Services global group.