You may have heard rumors or tales about Mexico’s maquiladoras, or manufacturing plants set up for exporting. But what really goes on south of the border? As you may have guessed, much more takes place in America’s neighbor than initially meets the eye. Here is a brief overview of the history and current scenery that you’ll find in Mexico’s manufacturing industry.
A Long History
Manufacturing along Mexico’s border dates back to 1942 when the United States and Mexico signed an agreement for the Bracero program. This allowed a large number of farm laborers from Mexico to cross into the United States and help during harvest times. When the program was ended in 1964, many workers found themselves wandering along the border without jobs.
To deal with the resulting high unemployment levels, Mexico’s government created the Border Industrialization Program in 1965. This program evolved into the Maquiladora program, which took effect in 1966. Through these efforts, the Mexican government attracted foreign investment and technology while creating jobs for its citizens. Companies from the United States could send raw materials and supplies into Mexico’s duty-free zone where assembly work could be carried out and the finished goods shipped back. The only tax charged was on the value-added component of the products.
When the North American Free Trade Agreement came into effect in 1994, the value-added tax was eliminated. All of this set the foundation for today’s manufacturing scene south of the border. As a country, Mexico has more than 40 years of experience dealing with maquiladoras (foreign investors) and various aspects of the international market.
Manufacturing plants were initially clustered along Mexico’s northern border. Today the majority of manufacturing still takes place just a few miles south of the United States. Tijuana, Ciudad Juarez, Matamoros, and Mexicali are all border towns with large factory areas.
If you head farther south, you’ll find other industrial hubs scattered throughout the country. Monterrey, located just a few hours south of Texas, is a dominant force when it comes to business and manufacturing. Mexico City and its surrounding area have also turned into important centers for labor-intensive work. Guadalajara, Saltillo, Gomez Palacio, and Puebla have all attracted a growing number of maquiladoras over the years.
While various industries carry out work in Mexico, the automotive sector tops the charts. Mexico ranks 11th in the world in terms of automotive production, and its quality is widely recognized in the international market. Other large industries in the country include the manufacturing of electronic components, building and construction materials, aerospace products, and other realms of labor-intensive manufacturing.
When China entered the World Trade Organization, numerous companies shut down operations in Mexico and shifted them to this lower-wage competitor. Starting in 2001, many Mexican plants faced a downward spiral as production in China picked up. While some companies were not able to continue operations, others underwent restructuring programs and found new strategies to keep their doors open. While Mexico can still claim relatively lower labor rates, many of its plants now boast of higher quality products, better technology, and a focus on specialization in key areas.
These initiatives, along with Mexico’s proximity to the United States, have kept the country’s manufacturing arm strong. In the coming years, Mexico has its sights set on moving up in the global market. It already has numerous free trade agreements with other countries. In addition to serving the United States, many Mexican companies are looking at branching into Central and South America, Europe, and even Asia.
All of this is good news for Mexico and for foreign companies interested in setting up shop within its borders. Despite the ongoing competition from China, Mexico has found ways to not only continue climbing up the manufacturing ladder but to also build bridges to new markets in the process. During the coming years expect to see Mexico become a more important player in the international economy.