A maquiladora is a low-cost manufacturing operation in Mexico that manufactures goods for export to the United States or Canada. The manufacturing operation capitalizes on the cheap labor force in Mexico and the benefits of the free trade agreement between Mexico, Canada, and the United States.
The Maquiladora Program allows foreign companies, including those owned by Americans, to benefit from tariff incentives and other benefits granted to a national company. This is a convenient way for foreign direct investors to penetrate the US and domestic Mexican markets.Jun 28, 2021
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AnswerWhat is the maquiladora program?
The Mexican government established the maquiladora program in 1964 in response to increased unemployment after the Bracero program ended. The maquiladora program aimed to strengthen the Mexican economy and boost industrial growth by allowing foreign-owned companies to establish factories in Mexico.
What is an example of maquiladora?
A maquiladora is a low-cost factory in Mexico that is owned by a foreign corporation. Facilities are usually located near the U.S.-Mexico border. These plants assemble products and export them back to the United States and other countries.
What are the benefits of a maquiladora?
Maquiladora BenefitsU.S. firms become more competitive in world markets by combining American advanced technology with the lower costs of Mexican labor and materials.Mexico offers lower wage rates than many Asian countries.The average company can save nearly $1 million a year in labor costs.More items...
How much do maquiladora workers earn?
Despite working long hours doing many times strenuous and dangerous work, maquila workers earn only 50 cents to 1 dollar per hour. At this rate, a worker in a maquiladora working 8-10 hours would earn about $8 dollars for a day's work.
What is a maquiladora AP Human Geography?
Explanation: Maquiladoras are regions of northern Mexico where American companies conduct a great deal of their business, particularly manufacturing.
What was the maquiladora program called originally?
Programa de Industrialización FronterizaMaquiladoras date back to 1964, when the Mexican government introduced the Programa de Industrialización Fronteriza ('Border Industrialization Program'). Specific programs and laws have made Mexico's maquila industry grow rapidly.
What are some concerns about the maquiladora system?
Common complaints and potential disadvantages to manufacturing in Mexico include:Environmental negligence.Health risks.Cultural differences.Underpaid labor.Unsafe working conditions.Poor labor protection laws.
What are the top 3 jobs in Mexico?
In Mexico, the highest-paying jobs in 2021 are in the logistics, transportation, distribution, manufacturing and production industries, closely followed by jobs in IT, revealed Adecco's 2021 Salary Guide.
How much does Mexico pay an hour?
Average Wage in Mexico The average base salary for an entry level manufacturing worker in Mexico is approximately $3.50 (USD) per hour, well below the average federal U.S. minimum wage of $7.25 (USD) per hour.
Why is Mexican labor cheap?
When many companies move their business to Mexico, they can save 20-30% in labor alone. At the same time, they can save on daily expenses such as land and public utilities. This is thanks to the Mexican IMMEX/Maquiladora program. Through the plan, they are able to save considerable amounts on taxes and fees.
What is a maquiladora?
The term maquiladora refers to a factory or manufacturing plant in Mexico. These corporations are approved for operation by the country's Secretariat of Commerce and Industrial Development under a decree established in 1989 and are owned by foreign entities.
Why are maquiladoras used?
Maquiladoras were first developed in the 1960s as a way to encourage foreign investment and address unemployment. As such, they usually operate near the U.S.-Mexico border. Companies that operate under the maquiladora model are able to take advantage of numerous benefits.
Why do companies use maquila?
That's because there's a larger labor pool that may be looking for work. 3. Maquilas also help companies cut down the costs associated with tariffs and duties.
What are the advantages of establishing a maquiladora?
The first and obvious advantage is the economic benefit that comes with establishing maquiladoras for Mexico as well as border cities and states where they may be located. Once these factories are set up, they provide a source of labor for local residents and can help boost the local economy. 4 Maquilas effectively help industrialize border cities in Mexico that may otherwise be characterized by high unemployment .
What is the purpose of maquilas?
Maquilas also help companies cut down the costs associated with tariffs and duties. For instance, companies are exempt from the 16% value-added tax (VAT) on raw materials used for production. They are also exempt from paying duties when they export goods marked "Made in Mexico" to Canada and the U.S.
Why is the Mexican maquiladora important?
This official designation is important because it qualifies the plant for unlimited foreign capital investment and duty-free imports.
Where is the Maquiladora factory located?
2 Many of these companies are located along the United States-Mexico border. The structure of a maquiladora system is set up so that the parent company is located in the United States while the manufacturing operation or factory is located in Mexico.
How can Maquiladoras become competitive?
The parent company can become increasingly competitive in world markets by lowering manufacturing costs through the lower labor rates in Mexico. Maquiladoras create employment opportunities in border regions and help reduce Mexico’s unemployment rates.
What is a maquiladora?
A Maquiladora is a factory or manufacturing operation in Mexico run by a foreign company and exporting its products to the country of that company. These factories import certain raw materials on a duty-free and tariff-free basis for manufacturing and then export the manufactured goods back to the country of the company that produces the manufactured goods (often the United States or Canada). The foreign company is responsible for transferring the manufacturing knowledge to Mexico and typically directs the long-term business strategy. However, the Mexican based management typically runs the day-to-day operations. Maquiladoras allow companies to utilize a less expensive labor force in Mexico, while still retaining the benefits of maintaining a foreign headquarters and leveraging the many benefits of free trade agreements.
How many categories are there in the IMMEX program?
There are five categories of the IMMEX / Maquiladoras Program according to the Secretariat of Economy (SE) based on the type of manufactured product or exported service.If you are moving manufacturing to Mexico under the IMMEX/Maquiladora program you must fall under one of the five categories:
Why are maquiladoras important?
Maquiladoras are ideal for companies that wish to lower operational expenses and produce goods without incurring high duties, tariffs, or labor costs. The maquiladora manufacturing model increases profitability for businesses and helps them contribute to a more stable, growing world market.
What are the benefits of a Maquiladora model?
When the finished products are ready to be exported, they can be exported to the company of ownership.#N#The modern maquiladoras are not only well-run, but also easily managed operations. This allows businesses to focus and capitalize on their core competencies and their products. There are numerous benefits of operating under the Mexican maquiladora model. These advantages include:
What is the Maquiladora program?
The Maquiladora Program was created to attract foreign investment and was revised in a 1989 decree that allowed maquiladoras to sell up to fifty percent of their products to Mexico’s domestic markets .
How many jobs did the Maquiladora industry create?
The rapid growth of the maquiladora industry and the export sector in Mexico has created over 900,000 jobs and has lowered the unemployment rate significantly in areas along the northern border cities. Maquiladora factories also comprise fifty percent of all exports from Mexico.
History of Maquiladoras
From 1942 to 1964, the Bracero program permitted men with farming experience to work on US farms on a seasonal basis. Its conclusion prompted a new era for the development of Mexico. The Border Industrialization Program (BIP) was implimented in 1965, lowering restrictions and duties on equipment, machinery, and raw materials.
How Do Maquiladoras Work?
Manufacturing in Mexico as an American company has its advantages and disadvantages. There are two areas in Mexico where land ownership by foreign interests is prohibited: a 100-kilometer strip along the borders and a 50-kilometer strip along the coasts.
Conclusion
Above, we explained what a maquiladora is. We hope this information has been helpful to you. To learn more about other types of industry, to find suppliers, or to make your own custom shortlist of suppliers, feel free to visit Thomas Supplier Discovery, which has information on other similar products.
What is a maquiladora?
The maquiladora meaning refers to a manufacturing or processing plant in Mexico that manufactures and exports finished goods to its parent company based in the United States under the Twin Plant Agreement.
What is the Maquiladora program?
Program Categories. The National Border Industrialization Program (or Maquiladora Program), created in 1965, was modernized to the Maquiladora, Manufacturing and Export Services Industry (IMMEX). Aside from modifying requirements for a maquila plant, IMMEX defined its five categories based on the products manufactured and exported.
What was the impact of the Bracero program?
The end of the Bracero program in 1964 led to the evolution of the Maquiladora Program that created job opportunities for the jobless, skilled Mexican workers returning from the U.S. and helped strengthen the Mexican economy.
Why did Mexico start the National Border Industrialization Program?
The motive of this program was to establish special economic zones to allow foreign corporations to involve in production sharing through channelized import-export.
Why are factories set up near the border?
But they are usually set up close to the U.S.-Mexico border for hassle-free export and import. However, some factories are near roads, railroads, ports, and airports, for it helps reduce transportation costs and improve supply chain management.
When do Mexico's maquiladoras have to make payments?
Income Tax Law. A maquiladora in Mexico must make provision payments every month before the 11th. The adjustments occur through refunds or credits in the event of overpayment or underpayment. However, due to the import nature of manufacturing plants, the effects of income tax are nominal.
When did the Maquila plant start?
The concept of maquila plants started with the end of the Bracero program in 1964. The return of thousands of jobless, skilled agricultural Mexican workers from the U.S. forced the Mexican government to take some revolutionary initiatives.
What is the Maquiladora system?
The maquiladoras became a means of providing employment and significant foreign-exchange earnings for Mexico’s developing economy; maquiladora employment increased from approximately 200,000 in the mid-1980s to more than 1,000,000 in the late 1990s. In time, other countries started taking advantage of this system.
Why are maquiladoras important?
These maquiladoras make it possible for American companies to produce lower-priced goods because of the lower labour costs, but they can also diminish job opportunities for American workers . The latter was a hotly debated issue in the United States in the 1990s and early 2000s.
What countries were the Maquiladoras criticized for?
In the mid- to late 1990s, however, several maquiladoras in Honduras, Mexico, and the Dominican Republic were criticized for substandard working conditions and excessively long workweeks (up to 75 hours, without overtime compensation) as well as for contributing to environmental pollution.
Is the Maquiladora plant unionized?
The majority of maquiladora workers in Latin America are women, and in some areas children are also employed. Most of the plants are not unionized. In 1993 the United States, Mexico, and Canada adopted the North American Free Trade Agreement (NAFTA), which created the “Free Trade Zone” among the countries.
What is the purpose of a maquiladora?
The function of the assembly plant is to provide inexpensive labor to a manufacturing operation while simultaneously giving the business operation certain tax advantages.
Which country uses maquiladoras?
The most common countries that utilize maquiladoras are the United States or Canada.
What is an IMMEX document?
A copy of the document that legally proves ownership or leasing of the property on which the IMMEX operations will take place. Photographs of the property on which the IMMEX operations will take place. A concisely written document that details the processes and services that the companies will be responsible for.
How many maquiladoras are there in Mexico?
As of 2019, there are over 3,000 maquiladora factories in northern Mexico. This number has increased over the last 20 years, from 2,000 factories in the year 2000. Nearly 90% of maquiladoras are in the border zone between the U.S. and Mexico.
What is IMMEX program?
At a basic level, the IMMEX program can be explained as a federal authorization to temporarily import raw materials, components, and other parts to be assembled in Mexico and subsequently re-exported to the U.S. Other things may also be eligible for this temporary import, such as the machines used in the manufacturing process, and even managers to monitor the maquila processes and employees.
Where are the maquiladoras located?
Nuevo Leon. Sonora. Tamaulipas. Baja California and Chihuahua make up most of the maquiladoras in the 6 border states. In addition to that, however, maquiladoras can be found throughout Mexico and many are located in Ciudad Juarez and Tijuana.
Why did Mexico stop the Bracero program?
The Bracero Program allowed Mexican agricultural workers into the United States seasonally, and Mexico faced a large unemployment issue when the program stopped. With so many unemployed, Mexico needed to attract foreign investment in order to prevent economic collapse.
What is a maquiladora?
A maquiladora ( Spanish: [makilaˈðoɾa] ), or maquila ( IPA: [maˈkila] ), is a company that allows factories to be largely duty free and tariff-free. These factories take raw materials and assemble, manufacture, or process them and export the finished product. These factories and systems are present throughout Latin America, including Mexico, Paraguay, Nicaragua, and El Salvador. Maquiladoras date back to 1964, when the Mexican government introduced the Programa de Industrialización Fronteriza ('Border Industrialization Program'). Specific programs and laws have made Mexico's maquila industry grow rapidly.
Where are the Maquiladoras located?
These factories and systems are present throughout Latin America, including Mexico, Paraguay, Nicaragua, and El Salvador. Maquiladoras date back to 1964, when the Mexican government introduced the Programa de Industrialización Fronteriza ('Border Industrialization Program').
What are the injuries of maquilas?
Many women are injured in maquilas. Intense work pace and pressure on high production leads to injuries including upper back, neck, and shoulder pain.
What was the Bracero program?
From 1942–1964, the Bracero program allowed men with farming experience to work on US farms on a seasonal basis, and its end ushered in a new era for the development of Mexico. The Border Industrialization Program (BIP) began in 1965 and allowed for a lowering in restrictions and duties on machinery, equipment and raw materials.
What was Mexico's second largest source of income?
Growth and development. During the later half of the sixties, maquiladora industries rapidly expanded geographically and economically and by 1985, had become Mexico's second largest source of income from exports, behind oil. Since 1973, maquiladoras have also accounted for nearly half of Mexico's export assembly.
Where did factory jobs start in Mexico?
Factory jobs began to leave central Mexico, and workers followed the jobs from central Mexico to the maquilas in the north and on the border. In 1985, maquiladoras overtook tourism as the largest source of foreign exchange, and since 1996 they have been the second largest industry in Mexico behind the petroleum industry.
When did the Mexican government start regulating maquilas?
In 1989, the federal government put in place specific procedures and requirements for maquilas under the “ Decree for Development and Operation of the Maquiladora Industry”. After the Mexican debt crisis of 1980 (see Latin American debt crisis ), the economy liberalized and foreign investment increased.
What is a maquiladora?
A maquiladora is a manufacturing operation launched in Mexico by a foreign direct investor in order to benefit from tax incentives granted by the Mexican federal government for investments in Mexico production and labor.
What is the role of the Maquiladoras in Mexico?
As more maquiladoras launch in Mexico, they support the greater development of supporting infrastructure. Today, state and federal governments work together with industry associations and large manufacturing employers to provide tailored training that connects skilled workers with jobs.
Why are maquiladoras beneficial to Mexico?
While the tax incentives offered through the maquiladora program are a clear advantage to foreign manufacturers, maquiladoras also benefit Mexico because they encourage foreign direct investment in Mexico’s laborers and resources. As more maquiladoras launch in Mexico, they support the greater development of supporting infrastructure.
Why was the Maquiladora program created?
The maquiladora program was established in 1964 to enhance employment and the economy along the border of Mexico and the United States. The program was meant to attract foreign markets in conjunction with the National Border Industrialization Program, a program that encouraged foreign direct investment in Mexico to stimulate ...
Where did the Mexican maquiladoras originate?
Although maquiladoras can be found in many nations today, the concept originated in Mexico in the 1960s to support the growth of foreign direct investment in Mexico, largely within the northern border towns. These companies grew up along the Mexican border in order to provide easy transport of goods into the United States.
Where are maquiladora facilities located?
Maquiladora facilities can be established anywhere in Mexico, but the products manufactured must be sold outside of the country to receive tax benefits. These maquiladora facilities can also be found across a tremendous range of industries, including automotive and aerospace manufacturing, as well as plastics and textile production.
Does Mexico have free trade?
As Mexico holds numerous free trade agreements with countries around the world, foreign investors find this location a strong place from which to move finished goods in and out of the country without being subject to tariffs.
Summary
- A Maquiladora is a factory or manufacturing operation in Mexico run by a foreign company and exporting its products to the country of that company. These factories import certain raw materials on a duty-free and tariff-free basis for manufacturing and then export the manufactured goods back to the country of the company that produces the manufactur...
Benefits
- In order to understand the benefits of maquiladoras, it is necessary to understand their history. During the second phase, duties increased on materials from non-NAFTA countries. For an American company, establishing a maquiladora can be a daunting and complex process, but with the right company in place, it can be extremely beneficial. Companies like North American Produ…
History
- Maquiladoras were initially established in 1964 following the National Border Industrialization Program, which was established three years prior in 1961. The Maquiladora Program, now referred to as IMMEX program, allowed maquiladoras to be one hundred percent foreign-owned operations. The Maquiladora Program was created to attract foreign investment and was revise…
Operations
- The first phase lasted between January 1, 2994 and December 31, 2000. During the first phase, maquiladoras operated with waived Mexican import duties and preferential duty rates on certain products.
Categories
- There are five categories of the IMMEX / Maquiladoras Program according to the Secretariat of Economy (SE) based on the type of manufactured product or exported service.
Significance
- The rapid growth of the maquiladora industry has created over 900,000 jobs and has lowered the unemployment rate significantly in areas along the northern border cities. Maquiladora factories also comprise fifty percent of all exports from Mexico. This seismic shift ensures that manufacturing in Mexico will be an integral aspect of the global economy for the foreseeable fut…
Assessment
- In order for a company to assess which IMMEX program best suits their needs, they should consider the four high-level trading activities, as mentioned by Industry Week:
Qualification
- In order to be eligible for the program, The SE has set guidelines for applicants, which must establish the following: Once the above requirements are fulfilled, applicants must submit two printed copies of the IMMEX application along with a digital copy that includes the following: In addition, those applying for IMMEX Holding Company Programs must submit the following: For t…
History of Maquiladoras
- From 1942 to 1964, the Bracero program permitted men with farming experience to work on US farms on a seasonal basis. Its conclusion prompted a new era for the development of Mexico. The Border Industrialization Program (BIP) was implimented in 1965, lowering restrictions and duties on equipment, machinery, and raw materials. Before BIP, PRONAF, a national border progr…
How Do Maquiladoras Work?
- Manufacturing in Mexicoas an American company has its advantages and disadvantages. There are two areas in Mexico where land ownership by foreign interests is prohibited: a 100-kilometer strip along the borders and a 50-kilometer strip along the coasts. Maquiladora leases are unrestricted in both location and duration. Besides the restricted border...
Conclusion
- Above, we explained what a maquiladora is. We hope this information has been helpful to you. To learn more about other types of industry, to find suppliers, or to make your own custom shortlist of suppliers, feel free to visit Thomas Supplier Discovery, which has information on other similar products.
Sources
How Does Maquiladora in Mexico Work?
The Bracero program was in effect from 1942–1964, under which skilled Mexican workers were allowed to go to the United States and work in the agriculture sector. Later on, the U.S. government saw Mexicans in the U.S. as a threat to their job market and ended the program. It led to a sudden increase in the unemployment r…
Maquiladora at A Glance
- The program is a part of the Twin Plant Agreement between the U.S. and Mexico. It allows a U.S.-based parent company to have a maquiladora in Mexico.
- To set up a maquila plant, the company must first get approval from Mexico’s Secretary of the Economy.
- These plants can operate anywhere in Mexico. But they are usually set up close to the U.S.-M…
- The program is a part of the Twin Plant Agreement between the U.S. and Mexico. It allows a U.S.-based parent company to have a maquiladora in Mexico.
- To set up a maquila plant, the company must first get approval from Mexico’s Secretary of the Economy.
- These plants can operate anywhere in Mexico. But they are usually set up close to the U.S.-Mexico border for hassle-free export and import. However, some factories are near roads, railroads, ports,...
- The program ensures that these economic zones will be 100% owned by foreign businesses. Besides, the finished goods will be exported to them instead of being sold in the domestic market.
History
- The concept of maquila plants started with the end of the Bracero program in 1964. The return of thousands of jobless, skilled agricultural Mexican workers from the U.S. forced the Mexican government to take some revolutionary initiatives.
Program Categories
- The National Border Industrialization Program (or Maquiladora Program), created in 1965, was modernized to the Maquiladora, Manufacturing and Export Services Industry (IMMEX). Aside from modifying requirements for a maquila plant, IMMEX defined its five categories based on the products manufactured and exported. You are free to use this image on your website, template…
Recommended Articles
- This has been a guide to Maquiladora and its definition. Here we discuss the history, program categories, and tax implications of Maquiladora, along with key takeaways. You may learn more about financing from the following articles – 1. Free Trade Area 2. Trade Finance 3. Offshoring
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