A maquiladora is a manufacturing operation or factory that imports materials and/or equipment for the production of duty-free goods. These finished products are exported to other countries under an exclusive program that grants them tax exemptions and other benefits.
The concept was created to promote industrialization in northern Mexico, as these factories are usually established close to the border. They are also known as maquilas or twin plants.
The maquiladora emerged as a way to satisfy the growing world demand for low-cost production. As a result, Mexico’s main objectives were technology transfer, job creation and foreign exchange generation.
This concept offers tax and labor benefits to foreign companies that own a maquiladora. Although they are currently found throughout Latin America, Mexico is home to the vast majority of them.
It is usually exported to the United States, but recently interest from China and other countries around the world has increased the ownership of maquiladoras in these regions.
Features of Maquiladora
Provision
It is established for the corporate company to be headquartered in the United States and the manufacturing operation in Mexico.
Companies in the United States can ship equipment and raw materials to factories in Mexico for assembly or processing, without having to pay import duties. The finished product is then exported to the United States or also to a third country.
The foreign company is responsible for manufacturing know-how, controlling long-term goals and strategies. However, the management of daily operations and administrative tasks is handled by a manager in Mexico.
company rights
– Participation of foreign investment in the capital and up to 100% in the administration, without the need for special authorization.
-Receive exclusive customs treatment, as it recognizes the import of machinery and materials, as well as office equipment, such as computers, exempt from taxes.
types of production
– The complete manufacture of a product, using raw materials from several countries, including Mexico.
– Assembly of different imported parts.
– Any reasonable combination of the different stages involved in manufacturing.
– Operations that are not industrial in nature, such as data processing, packaging, and coupon sorting.
Where are the maquiladoras located?
Maquiladoras are mainly located in underdeveloped, developing and emerging countries. The reason is that they are economically attractive places for multinationals due to cheap labor.
The relocation of companies is not done randomly, but is adjusted to locations where production cost, taxes and tariffs are low. This is why they relocate their productive areas and assume the role of maquiladoras in peripheral countries to achieve this objective and remain in force in the globalized world.
Mexico
The Mexican border states that make up the border where the maquiladoras are located are: Chihuahua, Baja California, Nuevo León, Coahuila, Tamaulipas and Sonora, although they can also be found throughout Mexico.
On the other hand, a large number of maquiladoras are advantageously very close to railways and shipping ports.
types of Maquiladora
Industrial
A company carries out an industrial process of transforming raw materials into finished products or assembling products destined for export.
business controller
In the same assembly plant, the operation of a certified company is integrated, which acts as controller of the Mexican factory, together with the facilities of one or more affiliated companies. Thus, each subsidiary does not need to be registered separately.
outsourcing
This happens when a company is certified with its own legal entity in Mexico, but does not have facilities to carry out production processes, running the manufacturing operation through subcontractors that it has registered in its maquila program.
Hostel
This occurs when one or several foreign companies supply the production material and technology to the maquiladora, without directly operating in the program. In other words, a third party provides “shelter” to other foreign companies that can operate without establishing a legal entity in Mexico.
services
A service provider manages or performs services for the products that will ultimately be exported or provides export services only for the promotion of certain activities.
Advantages and disadvantages
– advantage
Tax free
Maquiladoras can import duty-free materials, production equipment and assembly components.
Enabled workforce
Mexico’s workforce is growing and improving the technical skills needed to manufacture quality products.
Less labor costs
In recent years, maquiladora workers have been paid an average wage of $2.5 an hour. These wages represent savings ranging from $16 to $39 per hour paid for skilled labor in the United States.
low shipping costs
Mexico is adjacent to the US, which is a big advantage over other countries. Thus, products made in Mexico can be delivered within hours to US companies, saving time and money on transportation costs.
– Disadvantages
customs compliance
Due to special import/export treatment, in addition to tax exemptions, the government requires maquiladoras to use technical software to be able to examine all exports and imports.
accounting compliance
Accounting compliance is extremely important due to reduced tax obligations, so foreign manufacturers can maintain their status and certification.
Changes in tax regulations
Starting in 2014, maquiladoras were hit by a tax reform law with a value added tax (VAT) on their imports. This VAT, which must be paid on import of the goods, is later credited with the export, creating cash flow problems.
maquiladoras in mexico
In Mexico’s industrial sector, maquiladoras are in second place after oil, producing clothing, appliances, auto parts and electronic devices.
Maquiladora Program
In 1964, Mexico launched the IMMEX (Maquiladora Industry of Manufacture and Export Services), also known as the Maquiladora Program. Its purpose was to attract foreign investment, create jobs, foster industrialization, and boost Mexico’s economy, especially along the US border.
The program is managed by Mexico as well as the United States, offering non-Mexican companies tax incentives to allocate financial resources to the country’s labor and production.
During the program’s early years, there were about 1,900 maquiladoras in Mexico, with half a million workers. In 1995, the North American Free Trade Agreement encouraged the growth of maquiladora plants, more than doubling those numbers in a few years.
The expansion of the maquiladoras has greatly increased employment, especially on the frontier. Currently, 79% of products manufactured in the country are shipped to the US, with maquiladoras responsible for 64% of Mexican exports.
