MANUFACTURING IN MEXICO
Contract Manufacturing -
Shelter - Direct
is a MAQUILADORA?
Maquiladora comes from the Spanish word maquilar meaning "to perform
a task for another." Today, maquiladora refers to a Mexican
corporation, wholly or predominantly owned by foreigners, which
assembles products for export to the U.S. or other foreign country
or Mexico Market. Foreign corporations wishing to reduce their
manufacturing costs in order to become more competitive in a global
economy, may achieve this goal by setting up a Maquiladora
This means taking advantage of a special customs treatment, less
expensive labor costs and lower operating expenses available in
A Maquiladora or
Maquila is a plant
in Mexico that retains a Maquiladora Permit from the Mexican
government to import raw materials duty free into Mexico for
manufacturing, assembly, repair or other processing. The Maquiladora
program was created in 1965 with the Border Industrialization
It was designed to generate employment, foreign investment, and
stimulate industry in Mexico. The program was part of a worldwide
movement known as global production sharing. With the passage of the
North American Free Trade Agreement (NAFTA), in 1994, U.S. companies
have rushed to Mexican border towns to comply, and avoid high
do they work
A maquiladora typically performs assembly, or sub-assembly,
operations. Components are imported duty free to
Mexico, whereupon a
maquiladora performs the assembly needed to complete the work. The
finished product is then exported out of Mexico, or in some cases to
other maquilas where it is used in another assembly operation.
Typically, maquiladoras work best for labor-intensive manufacturers.
Such businesses range from electronics manufacturers to pet
products, medical equipment, sporting goods, apparel, cable assembly
and toy makers. The essence of the maquiladora system is to reduce
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do maquiladoras benefit companies?
The primary advantage for a company
to operate a maquila is the lower cost of labor in Mexico.
Wages range from 15% to 25% of comparable rates in the U.S.
are the effects on the economies of the United States and Mexico?
sector is Mexico’s number two source of jobs. There is no question
that the growth of the maquila industry has been responsible for the
growth of Mexico’s middle class and Mexico’s ability to recover from
the 1994 peso devaluation.
In the United States, the maquila industry has allowed U.S.
businesses to remain competitive with Asian (China, South Korea,
Malaysia) companies offering the same goods for less. Without the
maquila industry, many U.S. companies would have lost the battle
against Asian imports and had to close. Instead, shifting production
to Mexico allows U.S. companies to stay competitive and expand in
other areas. For example, in the years since NAFTA
went into affect, the
U.S. auto industry has actually expanded employment in the United
States, while also growing in Mexico.
Mexico is a sensible choice for assembly manufacturing. U.S.
manufacturers ship raw materials and parts to
where they are assembled by low-cost Mexican labor and returned to
the U.S. as finished or semi-finished products. Under NAFTA, U.S.
businesses are required to source more of their raw materials and
products within North America, and in most cases, only pay customs
duties on any non-U.S. originating portion of their products.
Improvements over the past 30-plus years in transportation routes,
in and out of Mexico, have made production of goods in offshore
locations more attractive economically. For manufacturers, it is a
way to remain competitive without moving operations to Asia and face
complicated, time consuming, expensive transportation and customs.
The close proximity of Mexico allows easy, inexpensive
transportation back into the U.S. Additionally, the labor force is
adult and plentiful. For Mexico, it’s a way of earning foreign
exchange by exporting labor without exporting laborers. For Mexican
workers, it’s a way to develop skills and earn a living without
crossing the U.S. border.
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C O N T R A C T M A N U F A C T U R I N G
No Income Tax
No legal presence
No operational control
S H E L T E R S E R V I C E S
No Income Tax
No legal presence
Flexible contract terms
Full operating control
manufacturers a fast start in manufacturing operations in Mexico
without having to go through the process of organizing and operating
their own subsidiary, thus, the risks of labor liability, ownership
of facilities and legal presence in Mexico are avoided.
Management to direct operations
Compliances with all Mexican legal requirements
Machinery & Equipment
A fully staffed Mexican corporation
Minimize start-up Costs
Reduced freight cost
Lower construction and utility costs
Low taxation by Mexican government
Minimize the risk of operating in Mexico
No legal presence in Mexico
No long term commitment
No major financial commitment
No Mexican Income Tax
Minimize the learning curve costs
Get your feet wet with a short term commitment
experience at known cost
Minimize operational problems
Avoid hidden costs
Access to the Mexican market
Access to the US market for non-NAFTA countries
Access to a large, trained labor pool
Begin your project on schedule
Low volume and low employment operations possible
Outstanding Opportunities Exist
Educated & skilled Population
Abundant Supply of Quality labor
Low Wages and Benefits Costs
Expanding local markets
Favorable treatment from Federal & State Government Agencies
Stable Government, Economy & Employee Relations
There are two ways a company can organize a maquiladora operation,
which largely depends on a company’s offshore production experience,
its size and resources. A company can either establish a
with a Mexican firm or it can establish a Mexican subsidiary. In most
cases, small to mid-sized companies with little or no offshore
experience choose a shelter company. Utilizing the shelter concept,
the shelter company typically supplies the plant and handles human
resources and administrative tasks such as accounting, legal issues,
permits, tariffs, transportation and customs issues. The
manufacturer provides machinery, raw materials, and manufacturing
Shelter is a fast way to start a Maquiladora production because the
manufacturer can focus on production, letting the shelter handle
administrative and start-up issues. The cost of these services are
burdened to direct labor hours and charged to the U.S. firm. These
charges are typically between $3.00 and $10.00 per direct labor
hour, depending on the number of workers and the contractual
obligations of the shelter. After a few months or years, the legal &
administrative infrastructure are in place and the shelter may no
longer be needed.
S H A R E D S H E L T E R
Under the Shared Shelter concept,
clients share space, infrastructure and services with other clients
under Shelter's Management.
Consider the Shared Shelter Program for a low-cost, low-risk,
D I R E C T O W N E R S H I P
A parent corporation forms a subsidiary corporation in Mexico.
The legal process usually takes between four to eight weeks through
the use of a streamlined "single reception desk" in most major
cities. The initial incorporation permit is requested from the
Secretariat of Foreign Relations.
Shelter Services in Mexico
Initial Info Request Form
Manufacturing in Mexico costs less than producing in China
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