Maquiladoras: What You Need to Know03.27.19
In Mexico, a maquiladora is a factory or manufacturing facility owned by a foreign company that manufactures products to be exported (usually back to the parent company’s own country). The foreign company brings its own equipment and machinery to the facility in Mexico and directs overall strategy, while the plant managers in Mexico run the day-to-day operations. This unique program allows companies to take advantage of Mexico’s lower labor rates and operating costs, along with the country’s many free trade agreements.
The maquiladora program established by the Mexican government in 1964 to attract foreign investment. However, the program wasn’t commonly used until NAFTA was adopted in 1994. Throughout the 1990s, maquiladora became more common, especially in Mexico’s northern border region. From 1994 through 2000, the government waived Mexican import duties for maquiladoras and offered preferential duty rates on certain products. After 2000, duties increased on certain materials from non-NAFTA countries.
The maquiladora program is now officially known as the IMMEX program, but the term “maquiladora” is still widely used. Today, there are currently over 3,000 maquiladoras employing over one million workers, mostly in Mexico’s northern border regions.
IMMEX Program Categories
The Secretariat of Economy classifies maquiladoras into one of five categories:
- IMMEX Holding Company: one company acts as a “holding company” for its Mexican manufacturing facility along with the facilities of its subsidiaries or affiliates, rather than each subsidiary register on their own
- IMMEX Industrial: a company transforms raw materials into finished goods for export
- IMMEX Services: a service provider administers or distributes goods that are ultimately exported from one manufacturer to another within Mexico
- IMMEX Shelter: a third party provides “shelter” to other foreign companies who can operate without establishing a legal entity in Mexico
- IMMEX Outsourcing: a company has its own legal entity in Mexico with subcontractors performing manufacturing operations
For most foreign companies, operating under the maquiladora program is by far the best choice when it comes to nearshoring. These are some of the benefits they receive:
- Mexico’s lower labor costs reduce overall operating costs
- Mexico’s geographic proximity to the US reduces shipping/freight costs and times, compared to offshoring
- The company can scale or expand while staying competitive
- Mexico’s free trade agreements can provide access to growing global markets
- Companies can defer or avoid the 16% value-added tax (VAT) when importing machinery, equipment, and raw materials into Mexico
Maquiladoras play a major role in Mexico’s manufacturing industry. Many of our clients begin manufacturing in Mexico in order to scale or expand their operations, and the maquiladora program offers a cost-effective way to do that. Today, you find maquiladoras from all sorts of industries throughout Mexico, from automotive to aerospace to medical devices.