Maquiladora 2001

The Maquiladora 2001 program is a cooperative between the World Trade Center and Southwestern College's Center for International Trade Development focused on assisting California manufacturers sell to the trans-border maquiladoras as new tariffs begin taking effect.

Mexico originated the maquiladora law in the early 70's as a means of providing good jobs to Mexican citizens and a legal means for foreign companies to set up and operate manufacturing in Mexico with the added incentive of allowing components to enter Mexico 'in-bond' (pedimento), duty-free.

The NAFTA accord includes a proviso that by the year 2001, when the accord reaches maturity, the in-bond feature of the maquiladora law will be canceled and duties will be collected on components not made in Mexico, Canada or the United States.

The opportunities for California manufacturers are huge.

Anywhere from 9 to 15 billion dollars of components pass through the Port of Los Angeles, in-bond to the Mexican border and then in-bond to the 700 plus maquiladoras from Ensenada to Mexicali for assembly into finished products then packaged and shipped back into the U.S. where only the labor-added value is dutiable. This is all changing. Duties will be levied against any product that did not originate in a NAFTA partner’s country.

The difference in cost to the maquiladora operators may be as little as 3% or as high as 10%. The final tariff schedule has yet to be determined. One thing is certain; there will be a tariff.

Suddenly California manufacturers have two huge advantages over Pacific Rim competitors. Same-day delivery, same-day ECOs, and a 3% to 10% pricing advantage. With entrepreneurial zeal some companies will be able to reap the benefits from this NAFTA accord. Here is an idea:

California manufacturers with heavy investments in automated machinery such as injection molding machines, punch presses, screw machines, Conomatics, and the like could perform second operations in a small shop next to their new customers in Mexico. It's the second operations that make it cost prohibitive to sell to the maquiladoras today. If a punch press part were to fall into a barrel, and that barrel be shipped to the end customer for use in an assembly, the price would be competitive. But there are usually second operations involved in high volume manufacturing. And a company paying $25 an hour for fully burdened labor rates cannot compete with a shop in Tijuana doing second operations for $3.50 fully burdened labor rates. Or Chinese $1.00 an hour fully burdened labor rates.

A punch press kicking out a part through a progressive die will fall into a bucket, bent and punched to near final shape at a cost of a penny more than the cost of material. But by the time a live human picks up the part, deburrs critical edges, puts it on a hook to run through a paint booth, paints it, takes it off the hook, puts it in a box, labels it, ships it… suddenly the cost is much more than the maquiladora purchasing agent is willing to pay. Now, same punch press in California churning out a part a second, drops into a stacker, is bound together with strapping tape, a shipping label snapped on, and shoved onto a truck for final destination to your small shop in Mexico a block away from Matsuchita, Fender, Sanyo, Kenworkth, Elpac, Plamex… or whoever your customer might be, for final processing at dollar an hour wages… it’s a different story and suddenly the costs become attractive along with the improved logistics of having a supplier nearby, who could make changes on the fly if necessary. It’s Agile and it’s JIT.

Setting up a small maquiladora is a fairly simple process.

Back on the other side of the Pacific Nishiba Industries was a large job shop supplying a favorite customer, Sony, with injection molded parts and punch press parts. When Sony opened their maquiladoras in Tijuana, Nishiba was opening a new facility to continue servicing this most valuable account.

Mexico has not developed the infrastructure to support all the maquiladoras now operating from as far south as Mexico City, through Queretaro, Guadaljara, Monterrey, Chihuahua, El Paso and dozens of other localities. This is being written in January of 2000 and with only a year to go, there is very little activity on the part of U.S. suppliers to step in and take a lead role in this effort.

The opportunities are waning every day.

Most established Mexican shops have been gobbled up by the Sony’s and others who started their ventures in the early 80’s.

The step by step procedure for you to capitalize on this opportunity: