What is a Maquiladora in Mexico?

Maquiladora in Mexico

Maquiladora in Mexico

A maquiladora in Mexico is a factory that operates under preferential tariff programs established and administered by the United States and Mexico. Materials, assembly components, and production equipment used in maquiladoras are allowed to enter Mexico duty-free. Products made can be exported into the U.S. at lower tariffs than those from other countries. Recently, the term “maquiladora” has been used for similar operations in Latin America and Asia as well, though its roots are deeply imbedded in Mexico. As such, a maquiladora in Mexico, and especially Tijuana, has advantages.

The Maquiladora Program, which allowed maquiladoras to be 100% foreign owned, was initiated in Mexico in 1964, and followed the National Border Industrialization Program, which began three years earlier in 1961. The Industrialization Program was created to increase foreign investment and stimulate Mexico’s internal market. The Maquiladora Program was developed to foster border region employment rates as well as further attract foreign investment, and a 1989 decree relaxed Mexico’s foreign investment laws even more, allowing maquiladoras to sell up to 50% of their products to Mexican domestic markets.

Despite its impressive, successful history, the maquiladora industry in Mexico never fully bloomed until the North American Free Trade Agreement (NAFTA) was approved in 1994. Interestingly, NAFTA wasn’t entirely a boon to the industry, as it eliminated certain customs benefits enjoyed by the maquiladora program and determined strict ‘rules of origin’ for products to qualify for preferential tariffs. But it did allow products manufactured in maquiladoras to be sold to in Mexico without the prior limits in place, and eliminated certain quotas that further impeded full penetration of U.S. and Mexican markets.

Ever-changing Mexican laws continue to make establishment and management of a maquiladora in Mexico intimidating and confusing to even the most intrepid and savvy businessmen. Yet thousands of manufacturing companies, including a substantial number of small to medium-sized American firms, have been able to negotiate the process and establish a maquiladora. Reduced labor costs of 50% or more, a highly skilled and conscientious workforce, 6-day work week, and logistical advantages over other offshore locations persuaded these businesses to explore manufacturing options in Mexico.

There is no question the task of establishing a maquiladora in Mexico is a considerable challenge for an American company. Fortune 500 firms often embark on the process themselves, but still require a large and diverse pool of consultants. Some companies choose to use a contract manufacturer, if they can find a reliable one. Others decide on a corporate shelter service. Although the quickest and simplest way to establish a Mexican maquiladora, how this system works is misunderstood.

“Corporate shelters allow manufacturing firms to establish a maquiladora in Mexico without actually owning a Mexican business. The process is simple when an American or foreign-owned company contracts with a corporate shelter service firm like Made in Mexico a subsidiary of  The Tecma Group of Companies.

Using production volumes and specifications required to assemble or manufacture the client’s product, the corporate shelter firm looks for appropriately-sized and designed buildings. Once the client chooses a building, the shelter firm leases it for them, and takes care of all of the real estate transactions, permits and legal work necessary to acquire and operate in the facility. The shelter service also secures the maquiladora register, import permits, and local and federal licenses and permits, as well as opening bank accounts and establishing an accounting and tax payment program. Prospective employees are interviewed and hired as the client firm moves or purchases equipment and machinery required for assembly or manufacturing its product. The client also designates a production supervisor to oversee manufacturing.

Once up and running, the shelter firm ensures the maquiladora complies with all Mexican laws addressing taxes, customs, labor, zoning, facility management, and environmental protection. The shelter firm also handles research and management necessary for fiscal compliance with transfer pricing, permanent establishment, safe harbor, asset taxes, and payroll, withholding and employee benefits packages. Ongoing hiring, termination, incentive and disciplinary programs and compliance with labor laws and the labor board are performed as part of the shelter package as well.

The shelter firm can also complete all border crossing documentation, U.S. and Mexico broker coordination and transportation arrangements. The client now has a maquiladora in Mexico, and has avoided the myriad of challenges related to cultural differences, employee management and compensation policies, accounting and payment of taxes, and compliance with local and federal laws and regulations. The client firm focuses on production quality while the shelter service performs all administrative functions required to keep the operation running efficiently.

Made in Mexico’s shelter program has been fine tuned to a point where an American business could potentially establish a Mexican operation in as few as four weeks without even leaving the United States. And in addition to the reduced overhead and labor costs cut in half or more a shelter program offers, a maquiladora in Tijuana, Mexico promises the added benefit of logistics far superior to any other offshore location. Want to learn more? Check out our FAQ page, send us a message or give us a call at 915-534-4252 or fill out our CONTACT FORM on this website.

To learn more about a maquiladora and Mexico Shelter Services the reader is encourage to review our blog at The Tecma Group of Companies.