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OM in the News: Reinventing the Maquiladoras

November 17, 2013
Mexican maquiladora

Mexican maquiladora

Jordi Muñoz, a 27-year-old Mexican entrepreneur, makes small drones for civilian use. Muñoz’s Tijuana plant is a maquiladora, a factory that enjoys special tax breaks. When Mexico set up the first maquiladoras 50 years ago, they were sweatshops that simply bolted or stitched together imported parts, then exported the assembled product across the border to the US. America got cheap goods; Mexico got jobs and export revenues. “Now, with competition growing from other low-cost locations (such as Haiti), and with the government cutting some of their tax breaks, the maquiladoras are having to step up their efforts to become innovative,” writes The Economist (Oct.26, 2013).

Over the years, the maquiladoras have already lost much basic work, such as stitching fabrics, to cheaper places in Asia. Recently, rising pay in Chinese factories has made Mexico an attractive location again. Exports grew by more than 50% between 2009 and 2012, to $196 billion. Carmakers, in particular, have been investing heavily in Mexico in response to a recovery in US sales.  Increased Mexican taxes risk prompting a fresh wave of departures to cheaper shores. So the maquiladoras are having to move into more sophisticated types of manufacturing and do more product design. On the first score, there has been some progress: much of the stitching done in Tijuana these days is not of T-shirts but of medical devices such as stents, made of fine pig tissue. The aim of Muñoz’s company and others is to go a step further and to get involved in design and development.

Aerospace and defense companies are among those thought likely to “nearshore” some of the manufacturing currently sent to China. The Tijuana maquiladora zone already has more than 50 firms in these industries, and it is here that the efforts to become more innovative are most visible. To become a plausible aerospace “cluster” and attract more investment from the world’s top manufacturers, the maquiladoras need to bolster the local supply chain, as well as produce more engineers capable of product design.

Classroom discussion questions:

1. What are the advantages of locating manufacturing plants in maquiladoras?

2. Why has Mexico announced a tax increase (from 17% to 30%) on maquiladora exports?

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