The Top 10 Maquiladora Questions Answered

When it comes to helping businesses streamline processes and save money, Mexico’s maquiladora or IMMEX program is a hugely popular option. Businesses simplify operations and save a substantial amount of money by outsourcing to a foreign factory. This greatly reduces or eliminates their tariff burden when manufacturing for export.

But quite naturally, when considering this option, a lot of questions come up. Here at TACNA, we field quite a few of them. And over the years, some stand out as being more common than others. 

So, in the interest of informing manufacturing executives about Mexico’s unique advantages, the following list answers the top maquiladora questions most commonly asked. In no particular order, we’ll explore 10 questions about maquiladora manufacturing in Mexico and get a better understanding of the what, why, and how.

Let’s dive right in.

1. Just what is a Maquiladora?

Probably the first question that comes to mind is, what exactly is a maquiladora? Simply put, a maquiladora is a Mexican corporation operating under the IMMEX program, allowing up to 100% foreign investment, duty-free temporary imports of machinery, equipment, and materials. Sometimes called a twin plant, the maquila option allows US companies to maintain an administrative facility in the US while conducting manufacturing at the maquiladora facility in Mexico. 

As of 2021, there were over 5,000 maquiladoras in Mexico, employing approximately 2.5 million people and generating more than $200 billion in annual revenue. These facilities play a crucial role in cross-border trade, especially between the United States and Mexico.

2. Are there limitations on where a Maquiladora can be located?

Except for major urban areas like Mexico City, Guadalajara, and Monterrey, the location choice is at the company’s discretion. This flexibility in choosing locations has led to a significant dispersion of maquiladoras throughout Mexico. However, regional factors, such as available labor force and infrastructure, can influence the decision to establish a maquiladora in a specific area.

3. What restrictions are there on foreign companies owning or leasing Mexican real estate?

Foreign-owned maquiladoras in restricted areas can acquire trust rights to real estate, which allow full use and disposal. Leases have no location restrictions. As of 2021, the 100-kilometer strip along the borders and the 50-kilometer strip along the coasts were the main restricted areas. But these restrictions still don’t significantly hinder foreign-owned maquiladoras since they can obtain trust rights to acquire the necessary real estate.

4. What can be manufactured in a maquiladora?

Maquiladoras can manufacture any product, with some exceptions, such as firearms and products with radioactive content. However, the choice of what to produce depends on the parent company’s business considerations. US customs rulings can also affect what a company produces or where its components come from. Understanding these factors is crucial for successful maquiladora operations.

5. What are the strategic benefits of opening a maquiladora?

• Cost-Efficiency: maquiladora manufacturing offers cost savings through lower labor costs, reduced taxes, and affordable overhead expenses, enabling businesses to produce goods at a competitive price.

• Skilled Workforce: access to a skilled labor force in maquiladora zones ensures efficient production, as workers are trained and experienced in various industries.

• Proximity to the US Market: maquiladoras in Mexico are strategically located near the U.S. border, reducing transportation costs and time-to-market for American companies.

• Customs Benefits: the program allows for duty-free imports of machinery, materials, and components, leading to cost reductions for manufacturers.

• Supply Chain Integration: maquiladoras facilitate seamless supply chain operations, enabling just-in-time manufacturing and reducing inventory holding costs.

• Quality Control: rigorous quality control measures ensure high product standards, enhancing brand reputation and customer satisfaction.

• Strategic Partnerships: collaboration with Mexican suppliers and service providers leads to cost-effective sourcing of materials and services.

• Market Diversification: maquiladoras open doors to the Mexican and international markets, offering companies opportunities for growth and market diversification.

6. What may a Maquiladora import into Mexico?

Maquiladoras can import in bond whatever is needed to support the production process, including machinery, equipment, raw materials, parts, and administrative items. Equipment and machinery can remain in Mexico as long as the Maquila Program continues, while materials and parts consumed in the production process are allowed to stay for up to six months.

7. How do maquiladoras reduce manufacturing costs?

Probably the most common of all maquiladora questions comes down to one thing: show me the money. How will this benefit the bottom line? In what specific ways does maquiladora manufacturing actually reduce manufacturing costs? So, let’s run through the main savings:

• Lower Labor Costs: utilizing Mexican maquiladoras allows businesses to access a skilled labor force at a fraction of the cost compared to the U.S., reducing overall labor expenses.

• Tax Incentives: maquiladoras benefit from tax incentives, including reduced corporate tax rates, VAT exemptions, and more, resulting in significant cost savings.

• Duty-Free Imports: maquiladoras can import machinery, materials, and components duty-free, minimizing expenses and streamlining production.

• Reduced Overhead: operating in Mexico leads to reduced overhead costs, including lower energy and real estate expenses, contributing to overall savings.

• Efficient Logistics: proximity to the U.S. market ensures faster and more cost-effective transportation, enabling just-in-time inventory management and lower shipping costs.

• Skilled Workforce: access to a skilled and adaptable labor force in maquiladora zones enhances production efficiency while maintaining competitive wages.

• Quality Control: maquiladoras focus on stringent quality control measures, ensuring product excellence, reducing rework costs, and enhancing brand reputation.

8. What about Mexican labor laws?

Labor laws in Mexico apply equally to maquiladoras and other Mexican corporations. These laws cover various aspects, such as employment contracts, working hours, wages, and benefits. For instance, the permissible work week is 48 hours, and wages are based on a daily rate. Severance pay is required for employees dismissed without cause, and rights guaranteed to Mexican workers cannot be waived. Unionization is constitutionally guaranteed, and existing unions often work closely with management to advocate for workers.

9. How does one open a maquiladora in Mexico?

To open a maquiladora in Mexico, start with a clear idea what you would like to achieve. Register your company, obtain import/export permits, and secure maquila program approval. Choose a strategic location, preferably near the US border, set up your facility, and hire skilled workers. 

Comply with Mexican regulations and tax laws. Efficiently manage your supply chain, implement quality control, and reduce manufacturing costs through lower labor expenses, tax incentives, and duty-free imports. Leverage the proximity to the US market for efficient logistics. This can expand your market presence and enhance your competitiveness.

10. How can I successfully manage a profitable maquiladora?

Successfully managing a Maquiladora in Mexico involves embracing the cultural nuances and carefully navigating regulatory conventions. This is a different country with different ways of doing things. Understand that generous benefits, including extended vacations and maternity leave, are the norm. Recognize the significance of workplace hierarchy and official titles. 

While punctuality is somewhat fluid, it’s essential to respect authority levels. On business trips, blend work and personal conversations during lunches, maintain formality in attire, and travel safely using registered taxi services. Prioritize security by choosing a secure factory location and employing a reputable security firm. Comply with local laws to mitigate risks. 

And for a simplified approach, consider a shelter services provider, streamlining management and outsourcing much of this administrative hassle so you can focus more on core activities.