The Rise of Production Sharing The second half of the 20 th century increased in world wide trade. Between 1970 – 2000 trade increased in more than 370% due to production sharing. An agreement to share the production costs between two or more firms. this represents more than $800 billion in trade anually. Maquiladora U.S. – Mexico trade is primarily intra industry trade (Production Sharing). 80% of U.S. trade with Mexico is intra-industry.
Introduction to Maquiladoras End of the Bracero Program 1965 Border industrialization program The Maquiladora program was a measure to alleviate higher unemployment and growing poverty By 1969, 147 companies were in place, accounting for 17,000 jobs The first two industrial parks were in Cd. Juarez, Chih. and Nogales, Sonora Mexico. ( RCA, Convertors and Sylvania) By 1985 had become Mexico’s second largest source of income from foreign exports, behind oil.
What is a Maquiladora? Maquiladoras are foreign-owned, these are controlled or subcontracted manufacturing plants that process or assemble imported components for export. Maquiladora inputs are generally imported duty-free and countries like the U.S. only tax the value-added portion of maquiladora exports.
Industry Evolution First - generation: Highly labor-intensive with limited technology and dependent on decision from parent company i.e. textile. (U.S. located) Second - generation: Oriented less toward assembly and more reliant on a manufacturing process. i.e. Automotive harnesses, TV sets and electrical appliances. Third - generation: Research oriented, with emphasis on design and development. i.e. Delphi’s Mexico Technical Center.
Has the Maquiladora Impact change over time? Over the years, the industry has switch from the manufacturing sector to the services sector. This is good news because these type of jobs pay higher wages. i.e. ACS which gives bilingual customer service to Boost mobile users in the U.S.
Low-Wage Competition is over Mexico’s Ministry of Economy estimates that the country pays and average wage with benefits of $2.96 per hour, compared to California's $16.60 per hour, and unfavorable when compared with China’s 0.72cents per hour. The U.S. Bureau of Labor statistics puts Mexican wages at $2.08 per hour compared with 0.48 cents in Sri Lanka. The international labor organizations estimates Chinese manufacturing wages at 0.25 cents per hr.
How does Mexico compete today? 1.Proximity with the U.S. Market: Works for Large items, Big-screen TV’s, freezers, water heaters and blades for wind turbine’s. All produced in Juarez. 2.Quick turnarounds: Frequent changes to products or an ASAP shipment to the U.S. i.e. Auto parts. 3.Goods with high value added: Such as medical instruments, are often made in Mexico. This is to its skilled and experienced labor force. 4.Intellectual property: Used in the production process can be at risk overseas, Mexico offers better protection than other countries.
20 Largest Foreign Investors in Maquiladora Industry NUM. COMP. EMPLOYES PLANTS ORIGEN INDUSTRIAL SEC. 1 DELPHI AUTOMOTIVE SYSTEMS 66,000 51 EUA AUTOMOTRIZ 2 LEAR CORPORATION 34,000 8 EUA AUTOMOTRIZ 3 YAZAKI NORTH AMERICA 33,400 41 JAPON AUTOMOTRIZ 4 ALCOA FUJIKURA LTD 23,000 26 JAPON INDUSTRIAL 5 GENERAL ELECTRIC COMPANY 20,700 30 EUA INDUSTRIAL 6 THE OFFSHORE GROUP 16,590 3 EUA SHELTER 7 TAKATA 15,800 10 JAPON AUTOMOTRIZ 8 SANMINA-SCI 12,110 7 EUA ELECTRONICA 9 THOMSON, INC 10,874 6 EUA ELECTRONICA 10 PHILIPS ELECTRONICS 10,575 11 HOLANDA ELECTRONICA 11 SIEMENS AG 10,200 15 ALEMANIA ELECTRONICA 12 JABIL CIRCUIT 10,000 3 EUA ELECTRONICA 13 VISTEON CORPORATION 10,000 16 EUA AUTOMOTRIZ 14 MAGNA INTERNATIONAL INC 9,800 12 CANADA AUTOMOTRIZ 15 SONY CORPORATION 9,679 3 JAPON ELECTRONICA 16 KEMET CORPORATION 8,000 8 EUA ELECTRONICA 17 CARDINAL HEALTH 7,566 6 EUA MEDICA 18 MALLINCKRODT, INC. 7,521 8 EUA MEDICA 19 SUMITOMO 7,500 14 JAPON ELECTRICA 20 WHIRLPOOL 7,500 5 EUA ELECTRONICA
Most common production inputs purchased by maquilas: Metal components Tool and die products Plastic injection Packaging materials Resins Chemicals Industrial wire Logistical services
Maquila Considerations Most maquilas are Fortune 500 companies or are global in nature. Quality control is a given for maquila suppliers (ISO, Six-sigma, etc.) Supply chain management usually entails putting pressure on suppliers to supply production inputs when needed. If you are not located directly on the border, can you quickly and economically supply your Mexican buyer? Becoming a supplier to a maquila means that you have to be prepared to become a part of its supply chain. Volume can sometimes be a major consideration. In addition to direct inputs, maquilas purchase MRO (maintenance, repair and operations) supplies. Getting in front of a maquila purchasing manager can be a challenge.
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