Mexico Needed Strategies to Retain & Attract Maquiladoras
In the past, challenges on the Mexican side for competitiveness in retaining the maquiladoras in the country have included high business taxes, pricey highway tolls and the need for energy reforms (Canas, Coronado & Gilmer, 2004). Also, the cost of labor and services and international competition have thwarted the ability of Mexico to retain maquilas. In this paper we see how Mexico’s ways of doing business, how the government and other factors influence the retention or attractiveness of maquilas and what Mexico, as a country, could do/continue to do in order to place itself in a more competitive place.
In the early 2000s, the Mexican maquiladora industry slowed, losing in about sixteen months almost 278,000 jobs. Being that maquilas make up a major part of trade between Mexico and the United States, this was a huge hinder for the Mexican economy. According to a speaker at a 2003 conference pertaining to the downturn of maquilas in Mexico, there ae about 26,000 United States companies that “supply maquiladoras with machinery, raw materials and components” (Canas, Coronado & Gilmer, 2004). The effect that maquiladoras have had on areas such as the border have been positive, as laborers from the interior of Mexico migrate to areas in search of these job opportunities (Beck, 2012). However, as I mention below, violence in the northern area of Mexico has also hurt the availability of skilled workers, as they seek safety in the interior, more pacific areas of the country. Copied from: https://www.mtholyoke.edu/~shah20m/classweb/challenges.html
The maquiladora idea allows for equipment, machinery, supplies and other materials to be imported into Mexico duty-free in order to be assembled and/or manufactured and then sent back to the United States for finishing and for distribution to sale points (Canas, Coronado & Gilmer, 2004). Mexico’s proximity to the United States allows a competitive edge that other maquiladora-model containing countries cannot surpass. The maquila model has been the “largest and most succeesful” export processing zone initiative in the region (SARGENT & MATTHEWS, N.D.). However, in today’s competitive world, enhancing all aspects of doing business places a market as more attractive, things such as “cutting manufacturing costs, modernization of production infrastructure and logistics, ongoing training of labor, regulatory and administrative simplification initiatives, trade liberalization” and legal certainty as well as alleviating tax burdens (“Tax Competitiveness of the Maquiladora Industry…”, 2012). In 2011, over 5,045 maquiladoras were operating, concentrated mostly in the United States- Mexico border states, up from about 1,920 maquilas in 1990. These maquilas employ close to two million employees (“Tax Competitiveness of the Maquiladora Industry…”, 2012).
One way Mexico can attract new or increase the retention of existing maquiladoras within the country is by focusing on high-technology plants, high-complexity plants that are attractive to a higher end customer (Canas, Coronado & Gilmer, 2004). Brands look for “a quality system with managerial support” as their brand is reflected in the quality of the product, reputation is impacted when quality standards are not met. Training employees and having managerial support from Mexico’s increasingly trained and reliable workforce further aid the retainment of foreign maquilas (Beck, 2012). Further, promoting productivity and more quality-filled processes increases the competitiveness of the company in the global market (“Tax Competitiveness of the Maquiladora Industry…”, 2012).
Referencing the proximity to the United States, a definite competitive advantage, Mexico can attract businesses that are responsive to volatile markets as import time would be less than if goods were sent overseas and then had to be shipped back. Aside from time, cost would be another incentive tied to this proximity, as costs for transporting goods is less. Today, according to Sargent and Matthews (n.d.), Mexico’s free export zone industry “is now composed of a mixture of labor intensive, low-tech assembly facilities, medium-tech manufacturing plans, and a significant number of firms utilizing advanced technology and capital intensive systems” for complex manufacturing and assembly. Copied from: Canas, Coronado & Gilmer, 2004
In order for increased retention, the Mexican government needs to cooperate to assist the industry, to facilitate the rules and regulations. Furthermore, the government needs to provide “incentives for technology, job training and supplier development” (Canas, Coronado & Gilmer, 2004). According to Ralph Watkins of the U.S. International Trade Commission at the time of the aforementioned summit, Mexico has a competitive edge when there is a “high ratio of weight to value,” where quality is more important than price, where design is often being changed or when intellectual rights need to be protected (Canas, Coronado & Gilmer, 2004). Competitors such as China have a competitive advantage in more low-value-added commodity sectors. (Please see table above.)
Tax competitiveness in relation to exports and the maquiladora industry is a way for the government to support the modernization of industrial platforms, therefore attracting foreign investment (“Tax Competitiveness of the Maquiladora Industry…”, 2012). By giving these tax incentives, companies are encouraged to take advantage of labor availability, other advantages. Currently, Mexico allows uses free trade zones to allow foreign companies to bring products in for further manufacturing or finishing , assembly, repair, etc. wnd they facilitate customs futeos through fiscal concessions (“Tax Competitiveness of the Maquiladora Industry…”, 2012). By bringing foreign investment and foreign companies in using the maquiladora scheme, Mexico can benefit from: (1) higher exports therefore higher international reserves and a positive balance of payments; (2) regional supply chains that allow more domestic producers to sell inputs to manufacuteres; (3) foreign investment that encourages capital formation; (4) greater job creation; and (5) revenue, even through low salaries these may increase over time (“Tax Competitiveness of the Maquiladora Industry…”, 2012).
Another way Mexico can attract and retain international maquilas is by lowering taxes placed on wages, which are a vital decision when it comes to choosing a country to place a maquila and do business. In Mexico, the government charges high taxes and fees, which add to the wage bill and make it “more than four times” the cost of doing business in China (Canas, Coronado & Gilmer, 2004). By following a wage system more like China’s, for example, Mexico could improve the attractiveness of the country as a source for providing maquila service/production/assembly jobs. Below is a table included in Beck’s article relating to the average labor costs across industries, as shown, Mexico is the highest of the maquila countries. As stated by James Gerber of San Diego State University, almost half of the electronics maquilas and most apparel manufacturers decide where they will do business based on price, cost of doing business. Although Mexico, in the interior, does have lower wages, there is no infrastructure to support doing business in the area. Maquilas, finally, are also loosely organized and can easily be relocated if costs in a particular area or country rise (Canas, Coronado & Gilmer, 2004).
In one example from the Vicente Fox administration in working to attract foreign investment to export zones and maquilas focused in the technology sector included “significant tax incentives” for research and development and a fund to “promote Mexico’s software industry.” Chambers and universities got involvedas well, establishing “institutes designed to accelerate the development of design engineering centers, software development firms, and technology intensive startups” (SARGENT & MATTHEWS, N.D.). Copied from: Canas, Coronado & Gilmer, 2004 Copied from: http://blogs.ft.com/beyond-brics/2013/04/05/made-in-mexico-now-cheaper-than-china/
In 2012, due to a closing gap in wages between Mexico and China, after Mexico had taken a loss due to China’s wages, about $8- billion of foreign investment was poured into Mexico’s stocks and bonds. However, Mexico needs to increase wages as income levels have eroded and a large percentage of Mexicans are living under the poverty level. In order to become a modern country, and to attract ethical companies, Mexico needs to increase wages (Yuk, 2013).
Back to government reforms, there has been little impact for the people of Mexico when reforms have been made, people are hesitant to root for change as standards of living and a lack of opportunities for personal progress have remained stagnant when change has been made. Corruption and a growing gap between the upper and lower-class further hold any reforms from being successful. Mexico needs to address union problems and deal with government and private monopolies in order to create reform that can benefit foreign investment and foreign commitment for maquiladora support (Canas, Coronado & Gilmer, 2004).
Yet another way to retain or attract maquilas in the country would be for Mexico to invest in its’ infrastructure. If the country is not set up to handle the traffic and the expectations from foreign investors, there is another barrier for the economic growth and development of the maquila sector. Highways need to be improved to allow safe, faster and easier flow of goods. Furthermore, the electricity monopoly in Mexico needs to be addressed (Canas, Coronado & Gilmer, 2004). According to Alejandro Castaneda Sabido, a professor at El Colegio de Mexico, confirmed that investment in the infrastructure, in the two above-mentioned areas specifically, would be directly tied to an overall improvement in the growth of manufacturing (Canas, Coronado & Gilmer, 2004).
Maquiladora worker safety is another way that Mexico can attract foreign maquilas into the country. In this day ethics plays a large part in company images and also in the response of consumers to company products and purchasing. By paying attention to the image that maquilas have within the country and ensuring respect and safety for maquila workers, Mexico could promote these benefits to international companies as a solid reason for doing business in Mexico. In addition, warranting that workers are paid fair wages for their work, that health and safety standards are met, that there is fair opportunity for males and females alike. Workers need to have a fair adjustment as needed based on cost of living and education should be pushed even for those who are already working in order for the country to improve workforce and increase educated individuals who can later have better opportunities (Beck, 2012). Copied from: http://www.calpacifico.com/mexicoadvantajes.htm
Also relating to safety, travel into Mexico became an issue when cartels started fighting in the streets and fear of kidnappings and violence hit outside investors. By ensuring that these foreign maquila industry investors, among others, are guaranteed safety, that their cargo and workers are protected, Mexico can improve its competition and retain foreign investors in the country.
Mexico has a definitive advantage, making it a great destination for foreign investment. By offering more tax efficient programs and combining this with the4 aforementioned strategic location, labor csot/productivity ratio they can poise themselves as front runners in the maquila industry (“Tax Competitiveness of the Maquiladora Industry…”, 2012).
If Mexico continues heading towards promoting it’s free trade agreements, its proximity to the United States, focuses on “energy, labor, tax and telecommunications reform” and creates incentives for research and development they can place themselves as attractive and major competitors for foreign investment into the maquila industry (Canas, Coronado & Gilmer, 2004). Wages in Mexico are still lower than in the United States, drastically, and lower shipping costs and quicker transport can maintain Mexico as viable competitors in the maquiladora industry.

References
Canas, J., Coronado, R. & Gilmer, B. (2004). Maquiladora Downturn: Structural Changes or Cyclical Downturn. El Paso Business Frontier. Federal Reserve Bank of Dallas. Issue 2. Retrieved from https://www.dallasfed.org/assets/documents/research/busfront/bus0402.pdf
Beck, Allan. (December 2012). Forces Driving Maquiladoras Along the Border of Mexico and the United States: A Short Communication. International Business & Economics Research Journal. Vol. 11. No. 12. Pages 1359-1362. The Clute Institute. Retrieved from http://www.cluteinstitute.com/ojs/index.php.
Sargent, J. & Matthews, L. (n.d.) Capital Intensity, Technology Intensity, and Skill Development in post China/WTO Maquiladoras. Retrieved from https://portal.utpa.edu/portal/page/portal/utpa_main/daa_home/ogs_home/arc_home/cbest_home/imagesfiles/SargentMatthews.pdf.
“Tax Competetiveness of the Maquila Industry, a Study from the International Perspective.” (2012). KPMG Cardenas Dosal, S.C. Retreived from http://www.kpmg.com/MX/es/IssuesAndInsights/ArticlesPublications/Documents/PDF-App/Tax-Competitiveness-of-the-Maquiladora-Industry.pdf.
Yuk, Pan Kwan (April 5, 2013). Mexican labour: cheaper than China. Retrieved from http://blogs.ft.com/beyond-brics/2013/04/05/made-in-mexico-now-cheaper-than-china/