Maquiladora Industry

“What does the future hold for the maquiladora industry if the international pressure to improve labour rights continue to rise?”

In mid 1989, the Maquiladora industry faced a crisis in the form of a strike in Reynosa, Mexico, one of the very few border cities where the labour force was completely unionized, which meant that every worker employed in Reynosa was represented by a union. The whole strike was started with a competition between union leaders for the representation of the workers. The strike in Reynosa symbolized the evolving balance of power between organized labor, the Mexican government and business. The main parties involved were the US companies that produced in the maquiladora zone, the unions and the Mexican government.

The maquiladora concept was initially set up in 1965 to smoothen the implementation of a subcontracting industry of exportation. During the second World War, many Mexicans had crossed the border to work in the US, as the US had a shortage in domestic labour supply. Basically, the program was another way to attract Mexicans back to their home country and create jobs for them. The maquiladora industry became a free trade zone where firms do not have to pay taxes as long as their production is exported or re-exported. This means that it is not possible for production plants in the maquiladora zone to produce for the home market in Mexico.

The Mexican government had great interest in the maquiladora industry as maquilas accounted for 40% of total exportations in 1992. The maquiladora industry was certainly an important factor in the economic growth of Mexico, and therefore the government had most interest to secure the position of maquiladora factories in the Mexican industry.

However, throughout the existence of the maquiladora system more and more attention was directed to the circumstances of the workers in the plants owned by US companies. Reports showed that conditions in these factories were far from optimal and there was little or no attention to human rights. Normally, unions would prevent this as they engage in negotiations with the government and the management of the plants in order to protect the rights of their members. Yet the regulations and laws set up by the government provided an excellent situation for unions to be corrupt. Often union leaders were nationalists in the first place, and union leaders in the second place, and thus cared more about the economic welfare of Mexico than the rights of the union members. In addition, the main union had ties with a political party, and other unions were simply created by the companies themselves in order to meet certain standards.

There are three different ways in which a foreign company can look to set up a maquiladora and benefit from the production process. Firstly, there is the “wholly-owned” operation in which a Mexican subsidiary of the company is set up and subject to Mexican law in all respects. This type of operation makes the foreign company completely responsible for all of the costs. Although it can be costly to set up, it has been proven to be one of the set ups that can receive the greatest return. Secondly, there is the subcontracting method where the production process of the foreign company is hired out to an existing Mexican company. With this process, the foreign firm only has to supply the Mexican contractor with the necessary raw materials while the contractor takes care of the production process. Finally, there is the “Shelter Approach,” where the equipment, plant, workers and everything else to do with the manufacturing process are Mexican owned. Although this is similar to the subcontracting method, the “Shelter Approach” has the foreign company maintain full control of the production process. According to the research completed by the Canadian government, the most suitable arrangement for small and medium sized firms without either the financial resources to invest in plant and equipment or experience with off shore production practices are the subcontracting and the “Shelter” approaches. By looking at these three methods, we can see that there is no one-way of setting up a manufacturing process in the Maquiladora region. Because of these options, foreign companies can decide, whatever the reason may be, how they want to involve themselves in the manufacturing processes. These customized ways of setting up a manufacturing process in the maquiladora region can definitely be seen as another benefit to the interested foreign companies. With all these benefits for foreign companies there must be some drawbacks.

What does the future hold for the maquiladoran industry if the international pressures to improve