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total quality management (TQM), and statistical process control (SPC) implementation in a manufacturing plant set up by a foreign company in the border zone of North Mexico, in order to produce finished goods for export. Information on this type of organization was made available by a 2003 study conducted by Nael Aly and Daniel Scholss and published in The TQM Magazine (Vol. 15, Iss. 1; pg. 30). These companies offer a world of opportunities for an intrepid business-person, as labor is cheap, there are many commercial facilities, government support is high and Mexico's proximity to the United States makes it perfect for developing such a business. Effects on the American economy are difficult to evaluate -- both from a producer's and a consumer's points-of-view. Lower salaries than in the U.S. translate into higher work productivity, while low transportation costs and North American commercial agreements mean that access to the U.S. market is easy to achieve. Costs and quality of the Mexican goods are sure to make them very attractive to U.S. consumers, especially if the characteristics of these products are kept under strict supervision and improved by implementing techniques such as total quality management and statistical process control.
The global economy of the present has forced multinational companies to be constantly on the look for opportunities abroad to expand their business. The passing of the North American Free Trade Agreement (NAFTA) and the proximity of the U.S. market has made businesses aware that the reduced manufacturing and labor costs in Mexico constitute a very interesting opportunity, so many American and international companies have moved some of their manufacturing facilities to Baja California, Mexico. These facilities are now known under the name of "maquiladoras." They are the result of a concentrated government policy and were the topic of numerous discussions and studies regarding their contribution to the evolution of operating manufacturing facilities in Mexico.
Their appearance has caused fear among many middle-class working Americans, since they thought that many companies would move operations to Mexico in order to hedge labor costs and to avoid the actions of uncooperative labor unions. Some politicians and researchers have issued various opinions concerning the effects of the maquiladoras appearance. Bentiez (1998) made the most fearsome predictions by arguing that the loss of jobs to Mexico, as a result of the passage of NAFTA, would be responsible for throwing the U.S. into deep recession This would also affect the consumer side of the economy, as the buying habits of the Americans would be reduced, thereby facilitating the introduction of cheap foreign products into the U.S. market.
The advantages of the Mexican economy were declared unfair, because it was believed that environmental laws are extremely tolerant and that they will not be enforced anyway (Cano, 2000). There were also opinions according to which the "educational level of the Mexican workers was too low to be capable of learning complicated manufacturing processes."
On the other side of the barricade, it was thought that the low quality of Mexican products would stop Americans from purchasing them (Quinones, 1998). This argument is actually naive and even a bit hilarious, and is based on the presupposition that Mexican products are simply not good, which is an excellent sample of lack of logic. Although the overall quality of these goods and services may not be as high as in the United States, these problems will surely be rapidly overcome, so lower prices will definitely be a blow for the U.S.-based producers. A smarter researcher, Peak, presented counterarguments to this conception since 1993. The author defended the quality of products manufactured in Mexico's maquiladoras by actually presenting examples of very successful quality systems in various companies.
There were also warning that a perception of political corruption in Mexico's Government would be a setback for U.S. companies wishing to come to this country. This opinion is based on the fact that the majority of the wealth is spread over a very small percentage of the population, while the average Mexican worker lives in poverty. Profits appear to be used for increasing personal wealth of political leaders and not for the common good of the Mexican people. In addition, the very poor condition of the infrastructure impeded the growth of manufacturing operations in Mexico.
While it is not the purpose of this paper to present philosophical solutions to economical problems, one cannot help notice that this argument is a contradiction in terms. What would American companies do in Mexico if labor was not cheap? If workers are well paid, then where is that productivity increase that all manufacturing organizations are looking for? And if there is no industry and wages are low, why should any infrastructure be needed? Roads were built because they were needed to bring people to a factory, and not the other way around. Overall development of the economy will bring along the required infrastructure, higher wages, a better way of life, consolidation of democracy, lower corruption etc. To be scared of these problems is to be scared of seizing an opportunity. Fortunately, business people rarely take into consideration the opinions of abstract economic theories, especially when it comes to making a lot of money in a short time.
According to Aly and Schloss (2003), "The maquiladora or in-bond assembly industry program was formally established in 1965, under Mexico's Border Industrialization Program. With only 12 plants that year the maquiladora grew at a spectacular rate. The maquiladoras have grown from about 2,030 plants employing some 625,000 workers in 1995 (Higuera, 2000) to 3,628 such plants employing over 1.3 million workers by August 2000 (INEGI, 2001). By year 2001, Mexico had a $75 billion maquiladora market, according to Innes (2001).
According to Mexican corporate law, a maquiladora is "a company that may be 100% foreign-owned and 100% foreign-managed, established in Mexico, for the purpose of performing industrial operations." The law allows for all required machinery, equipment, tools, and spare parts to be imported into Mexico in-bond. All these items may be imported into Mexico with the benefit of import duties exemptions, which would otherwise be levied to all Mexican-owned companies.
A maquiladora is authorized to import materials used in production or shipping for a renewable one-year period. Any imported item may remain in the country as long as the maquiladora program remains in force, although that is not applicable to trailers and containers, which must not exceed a 20-year period. There is no preset date for the end of a maquiladora program. Should the process or the scope be modified or extended, an approval procedure must be followed.
As for the market of a maquiladora, the free trade agreements concluded by and between the U.S.A., Canada, Columbia, Venezuela, Chile, Bolivia, and Costa Rica have made available more than 500 million consumers, which are accessible without the payment of any tariffs on exports. Since Baja California is strategically placed, the transportation costs are quite low and the delivery of products is easier and more effective. Baja California seems to be a place of opportunity for investment, aided by the implementation of NAFTA on 1 January 1994, which eliminated or decreased taxes on the added value of various materials exported to the U.S.A., and lifted several limitations. The Mexican Foreign Investment Law, which entered into force in December 1993, provided for a majority of business activities to be performed by non-Mexicans with 100% ownership of their ventures.
All these corporate and taxation facilities, low labor costs and strategic placement of the Baja California area makes the maquiladoras in this region a very worthy opponent for American and international companies which produce the same goods at higher costs (companies based in the U.S., Canada, Japan or Europe) and which do not have the benefit of fiscal exemptions. There are many American companies that are interested in developing a business in this area, at the expense of the national U.S. economy. Cano (2000) argues that "There are currently over 1,000 maquiladoras in Baja California, with roughly 700 of these located in Tijuana and the remaining in Mexicali, Tecate and Ensenada. Manufacturing activity ranges widely from light assembly, textiles and woodworking, to heavy welding, molding and sophisticated electronics."
Still, Aly and Schloss (2003) believe that "contrary to some claims that Mexico's maquiladoras have done nothing but steal U.S. jobs, the factories, which assemble imported materials and exports them, have actually helped some U.S. industries. A large percentage of raw materials imported by maquiladoras are imported from the U.S.A."
It would seem that the maquiladora industry has brought important benefits to the U.S. And Mexican economies, as well as to the trade of the two countries. Still, the impact of the maquiladora industry needs to be assessed in order to predict the future of Mexican manufacturing. The maquiladoras may continue working as they have done until now, with low-wage workers, or they could move beyond the phase of simply assembling components and follow a path similar to that of the four Asian tigers: Korea, Hong Kong, Taiwan…[continue]
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