What Is A Common Concern About Mexico's Maquiladoras?
October 08, 2021
Over the last few years, Mexico has enjoyed an incredible period of economic growth and financial development, largely due to the implementation of free trade agreements with the United States and Canada. The nation now boasts the 15th largest economy in the world, and in 2018 saw a GDP of $2.6 trillion—an impressive increase from decades gone by.
In particular, the manufacturing industries have seen tremendous growth, boosted largely by US and Canadian companies choosing to shift production south of the border.
As well as a range of advantages, however, there are also a number of issues, particularly with regards to maquiladora companies.
A range of concerns have been raised. While some of these have more validity than others, it is worth making yourself aware of the potential issues before making a decision about doing business in Mexico.
What Are Maquiladoras?
In the simplest terms, maquiladoras are assembly plants, based in Mexico but typically owned by foreign companies. The maquiladoras receive raw materials from companies abroad, assemble them in Mexico, and export the finished manufactured goods back to their intended country, duty- and tariff-free.
Maquiladoras offer benefits for both Mexico and the US. Mexico benefits from increased employment opportunities as well as from the increased purchasing power of citizens who, thanks to their jobs, can now afford a higher standard of living. The US, meanwhile, takes advantage of a highly skilled workforce, reduced labor costs, and a number of tax benefits to import merchandise from Mexico.
What Are The Disadvantages Of Maquiladoras?
There are a number of concerns surrounding the maquiladoras, and many of these have some validity. Common fears include:
Many US companies are concerned that manufacturing plants in Mexico may fail to adhere to the same high environmental standards and requirements which are mandatory in the US, Canada, and most countries in the world.
Unsafe Working Conditions
Another valid concern about maquiladoras is that of unsafe working conditions or health risks for workers, which add moral and ethical issues to production in Mexico. Concerns about poor labor protection laws are also often cited.
One of the major advantages for US businesses operating in Mexico is low cost manufacturing, but there are concerns that unscrupulous business owners will compensate for this by underpaying their workers, leading to the promotion of underpaid labor.
While many of these concerns are valid, the majority are also in the process of being addressed by Mexican authorities. They are working on the introduction of laws and practices designed to implement best practices for workers and the wider environment.
Labor unions have been formed, and penalties are levied on companies who fail to comply with environmental regulations, labor laws, and safety standards.
What Are The Benefits?
Despite the concerns, it should be noted that there are a number of potential advantages to maquiladoras and to manufacturing in Mexico.
One of the primary motivations is the proximity of Mexico to the US. This offers a dramatic reduction in transportation costs—a factor that is likely to become increasingly relevant as the price of oil continues to rise across the globe.
The neighboring location also reduces turnaround times and provides an increased level of control over the supply chain. It makes it easier to check plant efficiency and quality control. This is one major appeal for US businesses working in Mexico as opposed to Asia.
Skilled, Cheap Labor
The minimum wage in the Mexican maquiladora companies is significantly less than the minimum wage in Asia, and China in particular. This helps businesses to save serious cash. There is another advantage, however; as well as being cheaper, maquiladoras labor is also composed of skilled, highly trained workers, thanks to a nationwide program of education and a focus on industry.
Get Ahead Of The Game
In recent years, there has been an increase in the amount of foreign interest in the Mexican maquiladora plants. The market is still in the relatively early stages which is good news for fledgling businesses. Getting in early allows you access to cheap labor; reduced competition; an unsophisticated, new market; and reduced operational costs in terms of leasing, utilities, management, and labor.
Enjoy Tax Benefits
Many maquiladora operations tend to be located in the business and industrial parks in an advantageous geographical location—adjacent to the US-Mexico border. This allows you to enjoy the boosted tariff and tax benefits supported by the trade agreement between our two countries.
Mexico also currently holds an impressive twelve multilateral trade agreements, which allow it access to 44 countries in total. This offers a warm welcome to international trade deals, as well as direct investment from foreign sources.
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