Team Members:

1
BUS 515 Project Presentation
Maquiladoras

• Team Members
• Jack Kwan
• Junjie Xia (Jacky)

2
Agenda

• Introduction
• Historical Perspective
• Current State of the Maquiladoras
• Analysis of Textile Industry
• Challenges of the Maquiladoras
• Recommendations

3
Introduction

• Definition Maquiladoras are factories that
  import materials and equipments on a duty-free
  and tariff-free basis for assembly or
  manufacturing and then re-exports the assembled
  product.
• Maquiladoras originally referred to the factories
  in Mexican towns along the United StatesMexico
  border

( Source www.wikepedia.com/ )
4
Historical Perspective

• In 1964, the United States decided to eliminate
  the Bracero Program which was originally a
  temporary contract labor program for Mexican
  workers.
• In 1965, facing this situation, the Mexican
  government introduced the Border
  Industrialization Program (BIP), which
  contributed to the establishment of industries
  along the United States-Mexico border.
• The primary intentions of the BIP were to
  encourage industrialization in Mexican border
  regions, attract foreign investment to aid in
  Mexicos economic development, and to reduce the
  unemployment rate along the Mexican side of the
  border.

5
Historical Perspective

• Mexican legislation permitted factories called
  Maquiladoras at the northern border for the first
  time in 1965 which allowed US components to be
  assembled in other countries and then re-exported
  back to the US without being taxed on re-entry.
• In 1966, Machinery, vehicles and parts could be
  imported into Mexico duty free for assembly or
  other processing. The products returned to the US
  with Mexico only taxing the value added.

6
Historical Perspective

• In 1971, the Maquiladoras program expanded to
  non-border areas.
• In 1973, Maquiladoras were exempted from the law
  limiting foreigners to a maximum of 49 of
  ownership of Mexican firms and allowing 100
  foreign ownership of Maquiladoras.
• Since 1973,Maquiladoras had also accounted for
  nearly half of Mexicos export assembly.

7
Historical Perspective

• Between 1995 and 2000 exports of assembled
  products in Mexico tripled, and the rate of the
  industrys growth amounted to about one new
  factory per day.
• By the late twentieth century, the industry
  accounted for approximately 25 percent of
  Mexicos gross domestic product, and 17 percent
  of total Mexican employment.
• However, profits generated from Maquiladoras were
  typically sent back to the United States, or
  other investor-based countries, and therefore,
  Maquiladoras did not promote direct economic
  development within Mexico.

8
Current State of the Maquiladoras

• Since globalization has contributed to the
  competition and advent of low-cost offshore
  assembly in places like China, and other
  countries in Central America, Maquiladoras in
  Mexico have been on the decline since 2000.
• According to federal sources, approximately 529
  Maquiladoras shut down and investment in assembly
  plants decreased by 8.2 percent in 2002.
• There exists over 3,000 Maquiladoras along the
  2,000 mile-long United StatesMexico border,
  providing employment for approximately one
  million workers.

9
Current State of the Maquiladoras
Countries of Origin
(Source San Diego Union Tribune, Business
Section, C-1, April 20, 2003)
10
Current State of the Maquiladoras
Examples of Maquiladoras companies in Mexico
(Source National Institute of Statistics - The
Maquiladoras Reader)
11
Current State of the Maquiladoras
Labor Force of Maquiladoras
( Data is current as of September 2003, INEGI -
National Institute of Statistics - Source The
Maquiladoras Reader )
12
Current State of the Maquiladoras
13
Current State of the Maquiladoras

• In the first quarter of 2006, exports from
  Maquiladoras to the US were worth US24.96bn, up
  17 from their exports in the first quarter of
  2005 when goods worth U21.33bn were shipped.
• In February 2006, the number of people working in
  Maquiladoras was 1.176 million which was 2.4
  higher than in February 2005.

14
Analysis of Textile Industry

• Before China joined the WTO in 2001, Mexico had a
  productive industry in textiles, footwear,
  leather and other goods.
• From 2000 to 2004, 33.8 of the Maquiladoras in
  Mexico pulled out and moved to China, resulting
  in 150,000 jobs lost in the textile industry.
• In 2005, the WTO quota system for textiles and
  apparel expired, which helped to liberalize
  shipments from the rest of the world.

15
Analysis of Textile Industry

• From 2001-2005, there was an avg. of a 4.3
  annual decline in jobs in the textile industry.
• More recently, there has been a 17 decrease in
  employment in the textile industry from 2005 to
  2006.

16
Analysis of Textile Industry

• Contributing Factors for the decline of textile
  industry in the Maquiladoras
• -Inability to compete w/ lower international
  labor costs and cheaper raw materials.
• -Higher operating costs electricity,water
  gas
• -Lack of funding from private lenders who are
  apprehensive towards lending to an industry in
  decline.
• -Post 9/11/01 U.S. economic slowdown in demand
  for apparel

17
Analysis of Textile Industry cont.

• Maquiladoras shifts focus
• - Adopting production of electronics and
• automobiles and various components
• - Production of goods that can promise
• fast delivery to the US (Just-in-time)
• - Implementation of technology and more
• efficient production processes, focusing
• on higher value added products, (I.e.
  healthcare products)

18
Challenges for Maquiladoras

• Water Surface and groundwater supplies are
  threatened along the US-Mexico border due to the
  dumping of raw sewage, agricultural runoff, and
  industrial and hazardous waste pollution...
• Air According to the EPA, border area
  residents are exposed to health-threatening
  levels of air pollutants, including carbon
  monoxide.

19
Challenges for Maquiladoras

• Factories lack health and safety regulations
  leading to hazardous working conditions.
• Lack of labor rights long hrs, no overtime pay
• Worker abuse
• Exploitation of child labor
• Poverty and a low standard of living force many
  laborers to illegally enter the US for better
  paying jobs.

20
Challenges for Maquiladoras

• Problem in attracting foreign investment due to
  crime,illicit drug trafficking, poverty, and lack
  of transportation infrastructure.
• Over the last 10 years, foreign investment in
  China has grown 83 while increasing by only 45
  in Mexico.

21
Challenges for Maquiladoras

• Lack of negotiations with China to combat
  smuggling of contraband goods that circumvent
  duties imposed by customs authorities.
• Wage structure for unskilled laborers in Mexico
  just cannot compete with the lower wages offered
  in China.

22
Labor Cost Comparison
23
Recommendations

• They need to restructure the production line to
  accommodate more capital intensive products with
  higher value added.
• They need to integrate more technology in the
  production process to increase productivity which
  will help the industry compete more effectively
  against the lower labor costs in China.
• They need to attract more foreign investment to
  help their industry grow.
• They need to educate and/or re-train their
  employees to adapt to the new demands for a
  higher skilled workforce.

24
Maquiladoras