What does "maquiladora" mean?
A maquiladora is a manufacturing factory in Mexico operated by a foreign company that exports the majority of the goods produced in Mexico. Through this program, the foreign company may import raw materials, components for assembly, and equipment necessary to produce its goods without paying the 16% value-added tax on these imported materials and equipment.
A maquiladora in Mexico operates under regulations established by the Secretariat of Economy. Among other requirements, Mexico’s maquiladora plants must export goods produced within a set timeframe.
The maquiladora program in Mexico exemplifies the essence of export-oriented manufacturing, where foreign companies establish operations in the country primarily for exporting goods produced locally. Through this program, companies benefit from various incentives and exemptions–such as tax breaks and streamlined import processes–to enhance their competitiveness in global markets.
By leveraging Mexico's skilled labor force, favorable trade agreements, and strategic geographical location, these export-oriented manufacturing facilities contribute significantly to Mexico's economy while providing valuable opportunities for foreign investors to access international markets efficiently.
About the maquiladora program in Mexico
To operate as a maquiladora in Mexico, a foreign company must obtain IMMEX registration through Mexico’s Secretariat of Economy. The IMMEX, or Maquiladora, Manufacturing, and Export Services Industry, program was established in 2006. At launch, it was essentially a consolidation of the benefits of the existing Maquiladora Program with the separate PITEX program that regulated temporary imports and exports.
Companies with annual sales of at least USD $500,000 or exports accounting for at least 10% of the total invoices are eligible to apply. However, the Mexican government has put stipulations in place that make it significantly easier for companies to operate under the umbrella of a Mexican partner that serves as the legal entity of record. This partner is known as a shelter company.
Examples of maquiladoras in Mexico
The maquiladora program in Mexico has proven to be a boon for companies of all sizes, from large international corporations to small businesses that rely on cost savings to remain competitive. Some of the biggest names in manufacturing, such as Ford Automotive, Samsung Corp., and General Electric, have taken advantage of the program to expand their operations in Mexico and benefit from low labor costs and favorable tax policies. The maquiladora program has truly opened up new opportunities for businesses of all sizes to grow and thrive in Mexico's robust and diverse manufacturing sector.
What industries use maquiladoras?
Mexico's maquiladoras are a vital part of the country's economy, and they operate in a diverse range of industries. In addition to automotive and aerospace manufacturing, electronics, medical devices, consumer goods, home appliances, furniture, textiles, and plastics are also significant industries. However, the automotive industry is the largest sector, with more than 3.7 million units produced in 2020 alone. Mexico's proximity to the United States, favorable trade policies, and lower labor costs have made it an attractive destination for automotive manufacturers. With the implementation of the U.S.-Mexico-Canada Agreement (USMCA), Mexico is predicted to become the world's fifth-largest automotive producer by 2025. The USMCA has set minimum requirements for incorporating North American-produced content within U.S. cars, which is driving much of the industry's growth. This agreement has also helped to increase the use of maquiladoras in Mexico's automotive sector, which has led to more jobs and investment in the region. As a result, the country is becoming a hub for automotive manufacturing, and it is poised to continue its growth in the years to come.
Why would a company want to have a maquiladora?
There are numerous benefits to operating in Mexico under the maquiladora program. A few of these advantages include:
- Cost benefits: Mexico’s cost of living is substantially lower than that of the U.S. As a result, wages tend to be lower in Mexico than in the United States, providing tremendous cost savings.
- Availability of labor: The U.S. manufacturing industry has been facing a skilled labor shortage for many years now. Experts predict this labor shortage will only worsen in the years to come. Mexico’s stable demographics and heavy manufacturing training and education investment provide a reliable supply of often highly skilled labor.
- Diverse manufacturing footprint: Companies are increasingly finding that a diverse global footprint allows better resiliency. In the face of unforeseen events, a multitude of locations provides the ability to ramp up production in one area to compensate for challenges across the globe. Regional locations can also reduce shipping time to target customers.
- Global access: Originally, a maquiladora in Mexico had to export goods to its home country. However, this began to change with the North American Free Trade Agreement (NAFTA). Today, Mexico is a signee in 14 free trade agreements, providing it access to more than 50 countries. Mexico’s maquiladora plants can easily export their goods to the U.S. or across the globe.
Are maquiladoras good for Mexico?
Maquiladoras in Mexico have a dated reputation for exploiting Mexican workers. However, the truth is that this operation provides benefits for foreign corporations, Mexican employees, and the Mexican towns that see manufacturing investments.
Maquiladoras can be found in many countries today, but the concept originated in Mexico in the 1960s. The goal was to spur the growth of foreign investment in Mexico to create jobs and drive up employment in Mexico. That growth took off in 1994 when the Mexican government altered the Maquiladora Program to meet requirements set by NAFTA. U.S.-based companies, in particular, began to invest more heavily in Mexico to benefit from its low-cost labor and tax advantages.
Over the years, stories have emerged that U.S. businesses in Mexico pose a risk to workers due to environmental negligence or health and safety risks. However, these stories are no more common than those impacting locales in the United States. And, like in the United States, Mexico takes its labor and environmental regulations seriously. In fact, one reason many organizations opt to work with a shelter company is to gain the support of a compliance expert. Shelter companies like Tetakawi help manufacturers in Mexico navigate regulations and create safe, healthy working environments.
More recently, the USMCA has established more stringent labor protections. These include new protections related to collective bargaining and the ability to vote by secret ballot for union representation.
Options for operating a maquiladora
You do not need a Mexican partner to operate a maquiladora. However, this partner can streamline much of the regulatory red tape that comes with the launch of any operation in a new country.
There are several forms under which a maquiladora in Mexico can operate:
- Industrial IMMEX: The most straightforward approach provides registration to a manufacturer that incorporates imported goods in an industrial process to produce or transform a product that it will export within an allowable timeframe.
- IMMEX Holding Company: Under this format, one entity holds IMMEX registration that encompasses its manufacturing operation as well as one or more subsidiaries.
- Shelter IMMEX: A registered Mexican company serves as a legal entity of record in Mexico and assumes all legal risk and liability for manufacturers operating beneath its IMMEX registration
- IMMEX Outsourcing or Third-Party Program: An IMMEX-certified company manufactures goods through a third party registered within its IMMEX program. The company performing the outsourced work accepts joint liability regarding the temporary importation of goods. Mexico’s Ministry of Finance and Public Credit must approve the outsourcing program as a certified company.
- Services IMMEX: This registration covers companies that provide services that support the export of goods. Examples of these companies include software developers, legal organizations, and recyclers, among other service providers.
Mexico’s maquiladora plants’ reputation
Today, Mexico’s maquiladora plants are known for producing high-quality goods. The country has earned a reputation as a massive exporter and reliable global partner. Companies of all sizes can benefit from operating under the Maquiladora program. Better still, companies can choose to operate under the maquiladora approach that best serves their unique needs.
If you’re ready to learn more about how you can benefit from operating a maquiladora in Mexico, contact Tetakawi today.
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