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World Development Vol. 28, No. 9, pp. 1627±1642, 2000
Ó 2000 Elsevier Science Ltd. All rights reserved
Printed in Great Britain
0305-750X/00/$ - see front matter

www.elsevier.com/locate/worlddev

PII: S0305-750X(00)00041-3

Maquila, Economic Reform and Corporate Strategies
RUDOLF M. BUITELAAR
Economic Commission for Latin America and the Caribbean, Santiago, Chile
and
 PADILLA PEREZ

*
RAMON
Economic Commission for Latin America and the Caribbean, Mexico
Summary. Ð Corporate strategies in maquila have changed over time. While they were originally
geared only to the exploitation of low-paid, low-skilled labor, nowadays ®rms are upgrading
human capital and increasing the scope and technological complexity of production processes. The

adoption of the New Economic Model in host countries aimed precisely at this type of strategy
change, but cannot solely be credited for it. In addition, policies regarding maquila under the NEM
did not achieve all the stated goals regarding corporate strategy change: trends in local
procurement and technology transfer are still unsatisfactory. Strengthening of local supply and
absorption capabilities is required. Ó 2000 Elsevier Science Ltd. All rights reserved.
Key words Ð Mexico, Central America, maquiladoras, employment, technology transfer

1. INTRODUCTION
The evolution of maquila o€ers an interesting
case for the study of the impact of economic
reform on corporate strategies. Maquila has
evolved into a major employer and key export
sector in Mexico and in a number of Central
American and Caribbean (CAC) countries.
This paper concentrates on the Mexican case
but also includes a comparison with the CAC
maquila.
The maquiladora program is an investment
attraction and export promotion scheme that
o€ers bene®ts to quali®ed ®rms regarding

import duties and other taxes (CEPAL, 1998a).
The program was initiated in Mexico in the
mid-1960s to ameliorate the high unemployment rates in the northern border zone that had
resulted from the termination of the braceros
program. It consisted of a facility to import
duty-free raw material, intermediate inputs,
and capital goods from the United States, for
the production of goods to be re-exported to
the United States. But the facility was not part
of Mexican import-substitution industrial
policy. It had some quite restrictive clauses in
order to prevent maquila production from
competing with local industry. As a conse-

quence, ®rms from the United States and
Mexico limited their use of the program to
exploiting the immediate advantages of lowskilled and low-paid Mexican labor force. They
used the bene®ts of this program and the US
tari€ item 807.00 to have a few simple assembly
tasks carried out in Mexico.

Similarly, maquila industry was established in
the CAC region in the 1970s, with the creation
of Export Processing Zones (EPZs) whose main
goal was to create employment for the regionÕs
low-skilled labor force. EPZs were not very
successful, however, until the 1980s when
economic and political reforms were adopted
and tari€ bene®ts on the US market were
obtained under the Caribbean Basin Initiative
(CBI).

* The authors wish to acknowledge the contributions of
Ruth Urrutia to the ®eldwork and analysis of results in
general. Andr
es and Elizabeth Dauhajre organized the
Dominican Republic interviews. Ronney Zamora of the
Costa Rican Chamber of Industry and Brenie Matute of
FIDE in Honduras were extremely helpful in organizing
®eldwork in their countries. Wilson Peres, Nola Reinhardt and Jorge Mattar provided useful comments and
guidance.

1627

1628

WORLD DEVELOPMENT

Under the New Economic Model (NEM),
starting with the economic reforms of the mid1980s, the Mexican Government and the
participating ®rms began to see maquila as an
integrated part of export-led development and
its speci®c legal framework was transformed.
The aim was to change the corporate strategies,
promote investment in human capital and the
transfer of technology, and foster integration
with local Mexican manufacturing industry. In
the CAC region, a similar reorientation under
the NEM has taken place, to a limited extent, in
Costa Rica.
Critics of export-led development still refer

to maquila to illustrate that opening-up only
means low wages, disarticulation of production
chains, few backward and forward linkages, no
technological e€ort or learning processes, and
subordination to the strategies of foreign ®rms.
Thus, two central questions arise that are the
subject of this paper. First, to what extent have
maquila ®rms indeed changed their competitive
strategies from exploiting only the static gain of
low wages to creating dynamic gains through
training, technological learning and local
networking? Second, what role has economic
reform in Mexico played in bringing about any
change in corporate strategies?
The paper is organized as follows. First, a
brief overview will be presented of the origin
and evolution of maquila in Mexico, against the
backdrop of Mexican and US public policies,
international competition and technological
change. Second, the performance of the

maquila program and its corporate strategies
with regard to its stated objectives are analyzed.
This section uses the results and insights from a
®rm survey conducted by the authors in 1997
(CEPAL, 1998a). 1 The survey was also applied
to maquila ®rms in Central America and the
Dominican Republic, 2 and the third section
compares the situation in these countries with
that of Mexico. The paper concludes with a
short re¯ection on regime change and corporate strategies.
It has to be pointed out that maquila is not
an industry in the usual sector-speci®c sense of
the word. The maquila programs and laws
constitute an investment attraction and export
promotion scheme. Hence, a great variety of
maquila ®rms exist in di€erent industries. Two
important common features have been
suggested in the literature: the orientation to
the market of the United States, and the
intensive use of relatively low-cost labor

(Carrillo, 1997).

2. ORIGIN AND EVOLUTION OF
MAQUILA FOR EXPORT IN MEXICO
The maquila program is a result of the intricate social, economic and political relations
between Mexico and the United States, in the
context of increasing global competition and
rapid technological change. To start with the
latter two points, maquila should be understood
as a phenomenon pertaining to the international reorganization of production in the
second half of the 20th century, as ®ttingly
described in the product cycle theory. According to Vernon, the introduction of a new
product on the market requires highly quali®ed
personnel performing research and development activities and innovative production
processes. Hence, these tasks are located in
industrialized countries with a comparative
advantage in this type of worker. When technology matures and the production process
becomes standardized, the skill intensity of
production diminishes. In consequence, the
international competition will result in the

transfer of the production of mature goods to
developing countries with a comparative
advantage in relatively less skilled workers
(Vernon, 1966).
From the 1950s on, Japanese ®rms started to
pose a challenge to US manufacturing industries. The relocation of labor-intensive
production processes from Japan to other
Asian countries in the 1960s and 1970s
enhanced the challenge. In response, US
manufacturing ®rms looked at Mexico and the
Caribbean Basin as its reservoir of less skilled
labor to counter the Asian challenge and move
south its labor-intensive production processes
(Frobel, Heinrichs & Kreye, 1980; Grundwald
& Flamm, 1985). The US government incorporated this idea in its trade policy, designed to
strengthen the competitiveness of US ®rms.
Tari€ item 807.00, introduced in 1963 following
the earlier example of tari€ item 806.30, is a
clear expression of this strategy. Nowadays,
these items are included in the Harmonized

System as 9802.00.60 and 9802.00.80, respectively. The latter is the most important, and
permits the importation of goods assembled in
a foreign country with components manufactured in the United States. The duty is calculated only on the value added abroad.
The duty-free imports under the maquila
program in Mexico came to complement nicely
the 807.00 tari€ provision, as did the same
facilities in Export Processing Free Zones

MAQUILA, ECONOMIC REFORM AND CORPORATE STRATEGIES

(EPFZÕs) in Central America and the Caribbean. Thus, inputs and raw material from US
origin could cross the border and the ®nal good
could be re-imported into the United States
without much red tape or high duties.
The policy to enhance US competitiveness
by using cheap labor south of the border was
supported by additional measures. Important
tari€ concessions were granted by the Generalized System of Preferences (1976), which
allows the duty free entry of some products that
come from selected developing countries

(CEPAL, 1996), the Caribbean Basin Initiative
(1984) and MexicoÕs Special Access Program
(1989).
As is well known, the nature of the Asian
challenge, or global competition for that
matter, has changed signi®cantly. In the 1960s,
low production costs were central. Later the
price-quality relation came to the fore. The
introduction of quality as a central feature of
competitiveness made certain production technologies and organizational systems obsolete.
The so-called Fordist production model, based
on TaylorÕs management theory, gave way in
the 1980s to post-Fordist production techniques. Quality control and teamwork were
introduced, which increased the skill requirements. Increasingly, for US ®rms to win in
global competition, it was not enough just to
use cheap labor from Mexico and the Caribbean Basin for certain labor-intensive production processes. US policy, at least regarding
Mexico, became oriented to full commercial
integration, culminating in the signing of the
North American Free Trade Agreement. Firm
strategy changed from transferring labor-intensive production processes to Mexico, to a

complete reconsideration of their production
and marketing strategies from a truly North
American point of view.
Global competition and technological
change, and the corresponding strategies of the
US government and ®rms, are important to
understand the origin and evolution of
maquila, but present only one side of the story.
From a more Mexican viewpoint, the speci®c
history of the maquila program started in
1964. In that year the US Congress, under
pressure from labor unions, decided not to
renew the bilateral agreement with Mexico
known as the Programa de Braceros, under
which Mexicans were allowed temporary work
permits in the United States. As a result,
200,000 Mexican workers became jobless, and
the rate of unemployment in border towns

1629

reached levels between 40% and 50% (Urias,
1978). In response, the Border Industrialization Program (Programa de Industrializaci
on
Fronteriza, PIF) was established in 1965. Its
main objective was job creation, through the
attraction of foreign direct investment to
establish assembly operations for export in the
border zone. Additional goals were to upgrade
skills, to stimulate demand for local supplies,
and to lower the trade de®cit. The PIF became
operational in 1966. It applied only to zones
within 20 kilometers of the border, allowed
duty-free imports of raw material and capital
goods, obliged ®rms to re-export all of its
production and required at least 51% national
capital (Urias, 1978).
Unemployment was a problem not only in
the border zone, and the PIF program also
seemed a feasible solution elsewhere. In 1971,
the Mexican Government extended the
program to coastal areas, and in 1972 to the
whole national territory, except industrialized
areas. Moreover, in 1973, full foreign ownership was allowed. From 1977 onward, the
maquiladora program was even used to help
domestic ®rms producing for the local market,
in low points of the business cycle. Firms with
idle capacity could qualify to bene®t from the
maquiladora program, provided at least 20% of
their inputs and raw material were of local
origin (CEPAL, 1996).
Until the beginning of the 1980s, the maquila
program was an exception to the import-substitution industrialization regime. The overall
economic and political environment was not
particularly receptive, except for the speci®c
border towns where the ®rms operated. The
regulatory framework and the general attitude
toward foreign capital were an implicit strain
on the growth of the industry. The laws for
technology transfer registry and for foreign
investment, issued in 1972 and 1973, respectively, gave the government the power to review
and control every technology transfer contract.
The installation of foreign ®rms that could
harm or compete with national industry could
be prohibited (Gonz
alez, 1990; Mexico,
Government of, 1972, 1973).
In the 1980s, fostered by the debt crisis, a
process started that would result in the gradual
elimination of the special status of the maquiladora ®rms, and a more complete integration of
Mexico in the North American production
structure. Under the NEM, market mechanisms and the opening of the Mexican economy
to international trade became the central policy

1630

WORLD DEVELOPMENT

guidelines. The maquila program became one of
the most important mechanisms of export
promotion (De la O, 1997). 3
In 1983, maquiladora ®rms were allowed to
sell up to 20% of their production on the
domestic market (Mexico, Government of,
1983). In 1989, new legislation to regulate and
to promote the maquila program was adopted
(Mexico, Government of, 1989). Two new goals
of the program were added: (a) to contribute to
sectoral integration and increase the competitiveness of domestic industries, and (b) to
stimulate the development and transfer of
technology in the country. The ability to sell on
the domestic market was enhanced (up to 50%
of exports or one third of total production;
Mexico, Government of, 1989). This legislation
also established the goal of an annual growth
superior to 10% in employment and foreign
exchange generation. A series of regulations
were eliminated to make the legal framework
more transparent and to have easier and faster
®scal and administrative procedures (Sanchez,
1990).
Meanwhile, the process of opening up the
Mexican economy was implemented rapidly:
during 1985±90 the import permits were
reduced from 92% to 20% of tari€ items, and
the average import tari€ was cut from 24% to
13% for the same period (Mendiola, 1998). Of
outstanding importance in the NEM were also
the new regulations to create a clearer
economic and administrative environment. Of
particular importance for the maquila sector
were the new laws for foreign investment and
technology transfer, which reduced uncertainty
and allowed longer-term planning of operations.
In 1993, with the NAFTA already in sight, a
new regulation established the ®nal agenda of
market fusion: in 2001, after a schedule of
progressive integration, maquiladora ®rms will
be allowed to sell all their production on the
domestic market. Finally, aiming at greater
integration with local industry, in 1994 the
maquiladora program was extended to ®rms
supplying goods and services to maquiladora
activity (Mexico, Government of, 1994). The
most recent regulation was issued in June 1998,
with the main purpose of simplifying the
administrative processes (Mexico, Government
of, 1998). In 2010, NAFTA will have provided
full duty-free access of products of Mexican
origin on the US market (Mexico, Government
of, 1993). At this point, the maquila program
will cease to be operational in the US±Mexico

commercial relation (but not for exports
outside NAFTA).
This does not mean that assembly operations
for export will come to a halt in Mexico.
According to the Secretary of Commerce and
Industrial Development (SECOFI), these ``will
continue to be one of the most attractive forms
to participate in the processes of globalization
and production sharing.'' Moreover, the
agreements reached under NAFTA regarding
apparel and vehicles will bene®t the assembly
activity (SECOFI, 1993). If anything, maquila
plants will start to cater also to the domestic
Mexican market and local ®rms will seek to
strengthen their position on the US market by
incorporating assembly operations. It will
become increasingly hard to tell the di€erence
between assembly and manufacture and both
will be used for foreign and domestic markets
alike. TodayÕs maquiladora ®rms are very likely
the forerunners of the integrated North American ®rms of the early 21st century (see
Table 1).
3. MAQUILA: GLOBAL PERFORMANCE
AND CORPORATE STRATEGY
In this section, the evolution of the maquila
industry and its corporate strategies are analyzed, following the goals set out for the
program in the course of its history.
(a) Employment generation
From the start, the ®rst and foremost objective of the maquila program was job creation.
In the ®rst 15 years the evolution of employment in maquila industries was closely linked to
the evolution of the US economy. The recession
in the US of 1973±74 resulted in an important
decline of employment in maquila. Over time,
the link became less clear and the recession of
1981±82 produced little employment loss. The
1990±91 recession meant merely a slowdown of
the growth rate (CEPAL, 1996).
During 1982±86, a process of consolidation
of the maquila for export industries may be
observed. In the midst of a severe crisis in
Mexico, the activity proved to be most solid in
terms of the creation of ®rms and jobs
(CEPAL, 1992). Moreover, 80% of the maquila
employment has been created since the
economic reform (mid-1980s), and over 400,000
jobs were created in NAFTA period alone
(1994±98).

MAQUILA, ECONOMIC REFORM AND CORPORATE STRATEGIES

1631

Table 1. Mexico: economic performance (1970±98)a
GDP (annual average growth rate)
Manufacturing industry (average
annual growth rate)
Domestic gross investment/GDP
(period average)
Foreign direct investment (period
average)
Consumer prices index (average
annual rate)
a

1970±76

1977±81

1982±87

1988±94

6.0
6.1

7.5
6.6

)0.2
)0.4

3.6
4.2

2.7
5.8

21.4

23.0

17.7

17.9

17.1

261
12.6

742

1,078

23.1

4,683

94.6

1995±98

10,396

21.0

28.5

Source: Banco de Mexico, www.banxico.org.mx; INEGI, www.inegi.gob.mx; CEPAL, Mexico-Oce Data base.

As can be observed in, Table 2, maquila
employment has increased without interruption
since 1983. In 1998, 1.04 million direct jobs in
3,130 plants were reported. This represents
42% of manufacturing employment and 9% of
total employment. Also important, but not
measured, is indirect employment. Estimates
vary: Guajardo estimates indirect jobs in local
supplier ®rms at around 44% of direct
employment, and jobs generated because of the
multiplier e€ect of maquiladora wages at

around 73% of direct employment (goods and
services purchased by maquiladora workers)
(Guajardo, 1992). On the other hand, Carrillo
estimates that 80% of maquila employment are
direct jobs (Carrillo, 1997).
In any case, maquila has proven to be a very
successful device for employment generation,
principally since the mid-1980s. In fact,
employment in maquila has grown at around
15% per year during 1994±98, whereas
employment in manufacturing industry in

Table 2. Mexico: evolution of maquiladora industry for export (1974±98)a
Year

Firms

Workers

1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998

455
454
448
443
457
540
620
605
588
629
722
729
987
1,259
1,490
1,789
1,920
2,013
2,129
2,143
2,064
2,267
2,553
2,867
3,130

75,974
67,214
74,496
78,433
90,704
111,365
123,879
130,102
122,493
173,128
202,078
217,544
268,388
322,743
389,245
437,064
439,474
486,146
510,035
546,588
600,585
681,251
803,060
938,438
1,038,783

Gross production
valueb

Imported
inputs

Value
added

Local
inputs

Wages

(as % of gross production value)

a
b

10,879
12,704
17,259
25,370
35,457
50,438
57,824
78,636
155,516
444,304
824,056
1,305,799
3,445,218
9,823,473
22,846,379
30,676,637
39,578,692
47,742,545
58,584,119
72,082,778
90,100,227
173,237,909
266,692,534
348,230,051
445,050,931

64.3
68.4
68.6
71.9
71.8
71.2
69.3
69.5
70.0
77.6
76.4
75.1
77.0
77.2
77.0
75.6
74.4
77.4
74.7
76.3
77.3
80.8
81.4
79.9
78.3

36.3
31.6
31.4
28.1
28.2
28.8
30.7
30.5
30.0
22.4
23.6
24.9
23.0
22.8
23.0
24.4
25.1
26.4
25.5
24.0
22.7
19.2
18.6
20.1
21.7

N.A.
0.9
2.2
1.1
1.1
1.0
1.2
0.9
0.9
1.2
1.0
0.7
0.9
1.2
1.3
1.2
1.3
1.4
1.5
1.4
1.2
1.4
1.7
1.9
2.2

22.4
19.1
19.2
17.8
16.9
17.2
18.2
18.6
15.8
10.6
12.2
12.8
10.4
10.6
11.2
12.4
12.9
13.5
14.0
13.3
12.8
9.4
9.0
10.0
10.6

Source: Instituto Nacional de Estadõstica, Geogra®a e Inform
atica (INEGI), http://dgcnesyp.inegi.gob.mx/cgi-win.
Thousands of current Mexican pesos.

1632

WORLD DEVELOPMENT

general (maquila not included) has not grown
signi®cantly since 1994. In 1998, total direct
employment in manufacturing industry (without maquila) hovers around 1.45 million. 4 If
present tendencies continue to hold, in ®ve
years maquila employment will outnumber
employment in other manufacturing industries
together.
Two related tendencies are observable. First,
job growth is faster in inland areas than in the
border zone. In 1988, 7% of maquila jobs were
outside the border zone; in 1998 this percentage
has increased to 21%. But Tijuana and Ciudad
Juarez continue to be the two most important
cities regarding maquila employment. The
second tendency is that apparel industries
register faster job growth than other industries.
In 1988 close to 9% of all maquila jobs were in
apparel industries; in 1998 this percentage has
increased to 21%. Apparel industries now
generate approximately as much employment
as the car parts subsector (19%) and electronics
(34%). The two tendencies combine in the fact
that fastest growth is recorded in apparel
industries in states such as Oaxaca, Tlaxcala,
Puebla and Yucatan.
The surprising growth of apparel maquila
may be explained principally by NAFTA. As a
consequence of this agreement, 45% of textile
and clothing exports from Mexico to the
United States were exempted immediately from
import tari€s, while the rest of products will be
exempted gradually before the year 2008.
Furthermore, NAFTA eliminated 90% of
import quotas applicable to this sector
(CEPAL, 1995).
Average plant size has increased from 261 to
332 workers per plant during 1988±98. From
the start of NAFTA, the plants increased their
size by 14.2%, which is a third of the overall
increase over 1982±97. For example, Lucent
Technologies and Attel del Norte, recently
acquired by Phillips Electronics, were motivated by economic deregulation to open new
plants and expand their operations. As a matter
of fact, thanks to NAFTA, a new program was
started to sell locally its products on the telecommunications market. In the same sense,
over the past three years in Guadalajara
US$850 million have been invested by ®rms
such as Kodak, IBM and Hewlett±Packard
(Mendiola, 1998).
Regarding wages, Table 3 shows that average
wages in maquila industries are around 62% of
average wages in manufacturing industries.
Di€erences in skill composition of labor force,

Table 3. Average wages in manufacturing industry and in
maquila industry (current mexican pesos per worker, daily
rate)a

1994
1995
1996
1997
1998

Manufacturing
industry

Maquiladora
industry

101.01
118.85
144.14
173.22
205.11

54.14
68.40
86.36
106.17
127.92

a

Source: Secretarõa del Trabajo y Previsi
on Social,
http://www.stps.gob.mx.

and also di€erences in unionization, may
account for the gap. 5 There appears to be a
trend break around 1993. Whereas during
1977±92 real wages fell 45% in maquila industries against a drop of 30% of real wages in
manufacturing industry, during 1993±98 real
wages in maquila industries performed better
than those in manufacturing industries: an
8.1% increase versus a 10.3% decrease
(INEGI).
The trend of increasing demand for skills in
maquila industries may account for this. For
skilled labor, maquila wages compete with nonmaquila wages (Gambrill, 1995). Administrative personnel and technical employees have
increased their participation in the maquila
labor force: the former increased from 5.8% to
7.2% during 1980±98, and the latter from 9.2%
to 12.1 in the same period. 6
(b) Human resource development

7

The maquila program was always considered
to be a possible vehicle for the upgrading of
skills and the formation of human capital. The
®rst generation of maquila industries demanded
only limited skills, however, o€ered few training facilities and established little relations with
local educational institutes. Over time, with the
introduction of post-Fordist production techniques as a response to more intense competition and a demand for higher quality products
and with the evolution of maquila tasks in
terms of complexity and integration, the quality
of human resources became a more important
competitive factor.
The ECLAC-Mexico survey con®rmed that
®rms started to hire personnel with more
formal education. In addition, the interviewed
®rms o€er in-house training courses, most of
them to introduce workers to the ®rm system
and teach job-speci®c skills. General training

MAQUILA, ECONOMIC REFORM AND CORPORATE STRATEGIES

courses are o€ered on average twice per year,
on quality control, cost reduction, security, etc.
General interest courses are o€ered on social
skills, prevention of sexual harassment, personal hygiene, and so forth. For higher-level
employees, ``train the trainer'' courses, customer satisfaction, total quality control and
speci®c technical skills are o€ered at least once
a year. For administrative personnel, once or
twice a year, courses are o€ered on teamwork,
®scal and labor issues, and customer satisfaction. 8
These courses are taught by quali®ed own
personnel or by experts from a great variety of
educational centers. Consequently, more than
50% of ®rms interviewed reported to have
formal agreements with educational institutions. The most common one is to accept
internships that give the student the opportunity to get acquainted with a ®rm and the ®rm
to select the professionals it needs. Occasionally, an employee from a maquila plant may
teach at one of those educational centers. 9
Furthermore, skills are upgraded through an
intensive process of ``on-the-job'' training of
the learning-by-doing type. This derives from
the assembly of products (the manufacturing
process) and the application of the organizational system. The importance of this way of
improving national skills depends on the
complexity and technological sophistication of
the production process, and the speci®c
responsibilities of the local work force.
An important problem for maquila ®rms that
has its consequences for the contribution of the
®rm to the improvement of human resources, is
the high rotation of the workforce. In the
interviewed ®rms, average monthly rotation is
4.9%. Some ®rms in Tijuana reported to the
ECLAC-Mexico survey above 10% monthly
rotation, whereas some in the interior of the
Republic reported less than 1%. 10 This problem has induced the ®rms to implement a
selective training strategy, concentrating training opportunities at the level of higher skilled
workers. As a result, the training that less
skilled workers may receive, at least initially, is
quite limited.
On the development of skills and learning
among shop-¯oor workers, diverse opinions
have been recorded during the interview. Some
managers stated that there was no training for
workers whatsoever, while others stressed the
potential of maquila as a generator of knowledge and work experience. Most maquila
workers are young and come from rural areas,

1633

and the maquila experience is their ®rst contact
with the formal economy. In this sense, organizational culture and labor discipline are the
main aspects of learning. Regarding technical
and productive skills, learning among bluecollar workers is minimal. Their activities are
very segmented and in most cases limited to the
assembly of components. 11
In conclusion, maquila has contributed,
albeit only to a certain extent, to the upgrading
of the skills of the Mexican workforce. Firms
have invested to some extent in training and the
establishments of links with local educational
institutions. A well-known theme surfaces also
in the maquila activity: investment in education
and training by the private sector is less than
socially optimal because of the externalities
involved.
(c) Export promotion and the balance of trade
Net foreign exchange generation as an
objective of the maquila program used to be of
secondary importance. Maquila was rightly
assumed to be a very import-intensive activity.
During the 1990s, however, activities under the
maquila program became one of the countriesÕ
prime foreign exchange earners.
Maquila exports report strong growth rates
since 1983, similar to the employment growth
rates. 12 Total exports grew at an average
annual rate of 11%, whereas maquila exports
grew at an average annual rate of 18.4% during
1980±98. Consequently, maquila exports as a
percentage of total exports rose from 14% in
1980 to 45% in 1998. Likewise, maquila imports
report an average annual growth rate of 19.4%
against 10.3% growth rate of total imports. The
share of maquila imports in total imports
grew from 8.3% in 1980 to 34.5% in 1998 (see
Table 4).
As can be observed in Table 4, the trade
surplus grew constantly, except for 1994±95.
Data for 1998 show a trade surplus for maquila
superior to 10 billion dollars. Since the overall
trade balance shows a de®cit of US$5.7 billion,
it has to be said that maquila trade constitutes
an important counterweight for the otherwise
de®citary Mexican trade in goods and services.
Further comments on national content of
exports are made in section (e).
(d) Transfer of technology
Technology transfer is ``the process by which
knowledge related to the transformation of

1634

WORLD DEVELOPMENT
Table 4. Mexico: foreign trade (1980±98) (thousands of dollars)a

a

Date

Maquila
exports

Maquila
X/Total X

Growth X
maquila

Maquila
imports

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998

2,519,163
3,205,286
2,825,539
3,641,094
4,904,318
5,093,498
5,645,889
7,105,028
10,145,670
12,328,926
13,872,504
15,833,065
18,680,054
21,853,025
26,269,246
31,103,273
36,920,320
45,165,628
52,863,648

14.0
13.8
11.7
14.0
16.9
19.0
25.9
25.7
33.1
35.1
34.1
37.1
40.4
42.1
43.1
39.1
38.5
40.9
45.0

±
27.2
)11.8
28.9
34.7
3.9
10.8
25.8
42.8
21.5
12.5
14.1
18.0
17.0
20.2
18.4
18.7
22.3
17.0

1,747,481
2,229,026
1,974,253
2,822,712
3,748,973
3,826,028
4,351,347
5,506,971
7,808,255
9,328,090
10,321,352
11,782,443
13,936,719
16,442,963
20,466,167
26,178,808
30,504,710
36,332,102
42,556,671

Maquila
Growth M
M/Total M
maquila
8.3
8.2
11.6
23.8
23.6
20.8
25.9
29.3
27.8
26.8
24.8
23.6
22.4
25.2
25.8
36.1
34.1
33.1
34.5

±
27.6
)11.4
43.0
32.8
2.1
13.7
26.6
41.8
19.5
10.6
14.2
18.3
18.0
24.5
27.9
16.5
19.1
17.1

Total trade
balance

Maquila
trade
balance

)3,058,321
)3,876,890
7,044,579
14,104,857
13,184,153
8,398,196
5,019,703
8,787,089
2,609,529
405,054
)882,324
)7,279,040
)15,933,727
)13,480,576
)18,463,683
7,088,485
6,530,967
623,590
)5,742,180

771,682
976,260
851,286
818,382
1,155,345
1,267,470
1,294,542
1,598,057
2,337,415
3,000,836
3,551,152
4,050,622
4,743,335
5,410,062
5,803,079
4,924,465
6,415,610
8,833,526
10,306,977

Source: Banco de Mexico, http://www.banxico.org.mx.

inputs into competitive products is acquired by
national entities and whose source is foreign''
(UNIDO, 1995). This section analyzes changes
in corporate strategy, the sophistication of the
production processes and the degree to which
local personnel is involved in these learning
processes. 13
The transfer of technology as an objective of
the maquila program was introduced only after
the reforms of the 1980s. In the literature
concerning this sector in Mexico, it is common
to ®nd a distinction between ®rst and secondgeneration maquiladora ®rms (Carrillo &
Hualde, 1997; Carillo & De la O, 1992; Wilson,
1990). The di€erence is observable in organizational systems, in the importance of quality,
in the application of di€erent generations of
production technologies and in human resource
management. Recently, changes have been
reported in the sense of a growing involvement
of some maquila ®rms in design and some
research and development. In some cases ®rms
have taken responsibility for the complete
production process. These new characteristics
have inspired some researchers to use the
concept of ``third generation maquila ®rms.''
Notwithstanding the evolution of maquila
over time, it is important to point out that
generations coexist (Mertens and Palomares,
1988; Brown and Dominguez, 1989). In fact,
within ®rms it is possible to observe a techno-

logical duality, where traditional assembly
activities are carried out alongside more capital-intensive ones using sophisticated technologies (Barajas, 1990; Rodriguez, 1990).
The ®rst generation were virtually all ®rms of
US origin doing traditional assembly operations based on the intensi®cation of manual
work requiring few skills. These plants were
typically more interested in the volume of
output than in its quality, as was usual in
Fordist production processes. This type of
plant was predominant from the start of the
maquila program until the beginning of the
1980s.
The second generation of maquila plants has
its origin in the crisis of Fordism and in the new
requirements of demand in the world market,
in particular the need to produce higher quality
goods and adapt swiftly to changes in demand.
In this generation, which prevails since the
beginning of the 1980s, ®rms of Asian origin
start to participate in maquila. Buyer±supplier
relations with local ®rms remain at a very low
level, but the production process becomes less
oriented toward assembly and more toward
manufacture. Usually a higher technology level
can be observed, with numerically controlled
machinery and robotized production processes.
Moreover, the level of autonomy of the maquila
plants vis-
a-vis the corporate headquarters or
the main clients increases. They maintain a

MAQUILA, ECONOMIC REFORM AND CORPORATE STRATEGIES

stable group of trained and skilled workers,
have an increasing proportion of technicians
and engineers, and have as a central source of
competitiveness the improvement of quality.
Regarding organization of production and
work, important progress can be observed such
as the introduction of just-in-time and total
quality management, among other systems. It
should not be forgotten, however, that the
introduction of more sophisticated technology
is aimed at obtaining more control, precision,
homogenity and quality in labor-intensive
production processes that remain the raisondÕ
etre of maquila.
Third generation maquila plants are distinguished by the performance of some design and
research and development activities. Transnational corporations that use third-generation
maquila plants develop intra®rm networks. The

technological dependency vis-a-vis
corporate
headquarters tends to disappear and a process
of autonomous decision making may be
observed. Highly quali®ed personnel are the
major part of the workforce. But, the source of
competitiveness remains the relatively low
labor costs (even of highly quali®ed personnel)
and the reduction in the duration of projects
(Carrillo & Hualde, 1997).
Also in the ECLAC-Mexico survey, a process
of evolution of tasks has been observed that
may be described as a trend toward more
control over the production process and at the
same time a sophistication of production technologies. Usually a maquila plant starts with a
small assembly line, and upon satisfactory
performance in terms of quality and eciency,
a greater number of tasks is transferred and a
bigger part of the end-product is assembled and
manufactured at the plant. This trend has to do
both with the learning process at the plant
itself, and with the economies involved in
having complete production processes at one
location. Thus, it is quite common to ®nd
capital-intensive production processes and
labor-intensive assembly lines existing simultaneously in one plant. For example, Mitsubishi
recently expanded its circuits production in
Mexicali, transferring the total production of
television cards from Asia. The Taiwanese
enterprise Delta Products is constructing a
plant to assemble computer batteries which
were produced in China and Thailand
(Mendiola, 1998).
It may be true that technological complexity
has increased, but from the viewpoint of technology transfer the important question is to

1635

what extent local personnel and local management are involved in the learning process. From
the ECLAC-Mexico survey, it becomes clear
that local managers rarely participate in decisions of which end products to manufacture, or
the selection of raw materials or inputs. Strategies concerning investment or ®nance, and
production technologies, may or may not be
in¯uenced by local management, depending on
its relationship with corporate headquarters.
Decisions regarding recruitment, human
resource management and the organization of
the production process are usually taken
locally.
Another study concludes that local management has increased its sphere of in¯uence and
intervention, as a consequence of the process of
delegation of authority to maquila plants and
the displacement of expatriate management
(Contreras, Estrada, & Kenney, 1997). Human
resource management and bookkeeping were
found to be among the ®rst tasks entrusted to
local management, since these are indispensable
to establish links with the local community.
The most important learning processes and
transfer of know-how are thus in the ®eld of
organization. Among maquila plants it is
common to observe the application of modern
management systems. Total quality control;
just-in-time; operations manuals, written
procedures and internal norms and standards;
programs of worker suggestions, are among the
most commonly applied. The reasons to apply
modern management systems are the high
quality demands in the market place, the need
for quick response to changes in demand, large
volume of work in process, and the quest for
lowest costs. 14
Regarding product and process technology,
the learning processes are quite modest. In a
few of the interviewed ®rms, a signi®cant
learning process has been observed among
engineers and technicians who are in continuous contact with the complete production
process. In most interviewed ®rms, however,
process speci®cations come from abroad, which
means that learning is the product of adaptations and marginal improvements. Design and
construction of production lines is the responsibility of foreign personnel, with some collaboration of local personnel.
The ®rms in the ECLAC-Mexico sample
report only very limited relations with laboratories and research and development centers,
even less so when they are subsidiaries of a
transnational corporation. As has been pointed

1636

WORLD DEVELOPMENT

out, the technological policy followed by the
transnational companies in maquila is to use
turnkey projects. In consequence, the tasks
related to the technological core are reserved
for the research and development centers
located in developed countries.
(e) Interindustrial integration and the
strengthening of domestic manufacturing
through local procurement
In the early years, there was mention of
``stimulating domestic demand'' as an objective
of the maquila program. In later programs,
after the economic reforms of the 1980s,
maquila ®rms were supposed to ``strengthen the
competitiveness of local industry'' and new
regulations were enacted to foster local industry linkage to maquiladora activity. Either way,
the goal is rather elusive. Maquila plants use
notoriously little domestic input. Table 2 shows
the evolution of the share of local inputs in
gross production value of maquila ®rms. The
historic low was reached in 1985, with local
inputs contributing 0.7% to the gross production value of the industry. Thereafter the trend
is upward, but the 2.2% reached in 1998 is still
extremely low indeed.
On the other hand, the national component
of value-added shows a declining trend. Over a
third (36.3%) of value-added was of Mexican
origin in 1974. This ®gure declined steadily
until reaching 18.6% in 1996, although it then
increased in the last two years to reach 21.7% in
1998. This decline is due to the relative and
absolute drop in the wage bill, which went from
22.4% of value-added in 1974 to 10.6% of
value-added in 1998. Not only the drop in real
wages, but also the increasing capital intensity
of maquila production accounts for this trend.
The above data explain why the total valueadded in maquila in 1998 was only about 12.7%
of value added in manufacturing industries,
while employment in maquila accounts for
roughly one-half of employment in manufacturing industries. This is also the foundation for
observations such as in Guajardo, that maquila
has a low product multiplier factor compared
with other industries. He estimated the product
multiplier of apparel maquiladora plants at
1.58, against 2.52 in domestic apparel production. With estimates of multipliers for all
maquila production, Guajardo calculates for
1989 the total production value of maquila at
US$18.6 billion. Two-thirds of this value, or
US$12.5 billion, corresponds to the direct

production value. Another US$1.3 billion (7%)
corresponds to the product generated in other
sectors through local procurement of maquila
plants, and US$4.7 billion (26%) is induced in
other sectors of the economy as a result of
expenditures of workers (Guajardo, 1992).
It is thus clear that maquila plants are scarcely linked to the domestic economy. This is
due both to factors within the plants and the
maquila program itself and to supply
constraints within domestic plants. Among the
®rst set of factors, occasionally the production
structure in maquila plants is vertically integrated within a transnational corporation, and
therefore local procurement may not be part of
the corporate strategy. In addition, it has to be
said that during the ®rst 20 years of the maquila
program, the regulatory environment did not
stimulate the development of a local supplier
network. For one, the regulation of technology
transfer was strict and not very transparent up
to 1991. Strong controls, arbitrariness and few
protection mechanisms against abuse of transferred technology, induced many ®rms to use
foreign direct investment instead of developing
local suppliers and transfer technology to them,
something that would have required inscription
in the National Registry of Technological
Transfer (Martinez & Farber, 1994). On the
other hand, the lack of an adequate trade
agreement between the United States and
Mexico implied that all inputs of Mexican origin generated duties upon entry in the United
States. The same holds for those intermediate
products that would have been modi®ed to
such extent as to be unrecognizable upon reentry in the United States. In consequence, and
due to the importance of cost-reduction in
maquila industry, the use of Mexican inputs
was discouraged because of the import tari€s.
On the supply side, local ®rms have to pass
often very strict and time-consuming processes
(sometimes up to one and half years) of certi®cation and quality control to be accepted as a
supplier of transnational corporations. In the
meantime, the Mexican ®rm has to bear the
cost of having the plant installed waiting for
approval (Perez, 1992). On top of this,
production of inputs required by maquiladora
plants is technologically demanding and subject
to continuous technological change. In the
ECLAC-Mexico survey, comments were made
on inputs of Mexican origin as being of
substandard quality and high priced. Mexican
producers were seen as unreliable with delivery
deadlines, lacking scale for high-volume

MAQUILA, ECONOMIC REFORM AND CORPORATE STRATEGIES

production, and not o€ering the same ®nancial
terms as their competitors abroad.
Finally, the maquila program has not
contributed signi®cantly to the creation of local
®rms. In 1996, the maquila capital was
predominantly controlled by US ®rms (64%),
followed by Mexican and Japanese investors
(21% and 5%, respectively). Regarding the
Asian maquiladoras, free trade policy and
particularly NAFTA have attracted those
®rms. During 1987±89 only 19 Japanese ®rms
were under the maquiladora program. Later,
during the NAFTA negotiation (1990±93), the
number of Asian maquiladoras was expanded
to 72: 38 from Japan, 12 from South Korea, 12
from Taiwan, and 3 from China (Mendiola,
1998).
4. CORPORATE STRATEGIES IN
CENTRAL AMERICAN AND
DOMINICAN MAQUILA
Export Processing Free Zones and other
provisions for maquila ®rms have existed in
Central America and the Dominican Republic
since the late 1960s. The San Bartolo Free Zone
in El Salvador, the La Romana Free Zone in
the Dominican Republic and the Temporary
Admission Regime in Costa Rica were to some
extent successful, resulting in the establishment
of a few dozen ®rms. For di€erent reasons, the
activity did not take o€ in Guatemala,
Honduras and Nicaragua (CEPAL, 1998a).
Because political instability in the region
hindered the expansion of assembly for export,
the real take-o€ of assembly activities did not
occur until 1985.
The legal and institutional framework for
maquila operations was modernized at the same
time as the import substitution regime was
dismantled and the NEM was adopted, roughly
during 1983±90 (CEPAL, 1998a). An important caveat is in order here. In contrast to the
situation in Mexico, in Central America and

1637

the Dominican Republic there does not exist a
maquila program that covers all assembly
activities. Firms may opt for di€erent ®scal
incentive regimes, each with speci®c advantages
and characteristics. Among the most common
are the Export Processing Free Zones, the
Temporary Imports Admission Schemes and
the Draw-back mechanisms. 15 This situation
hinders the gathering of uniform and comparable statistical information. With this in mind,
data are presented in the following two tables
on the present situation of the operations.
Table 5 summarizes the participation of
maquila exports in total exports. Although an
exact percentage may not be available, it is a
fact that most maquila activities involve apparel
assembly. Noteworthy is the impressive growth
of this indicator in Honduras, El Salvador, and
to a lesser extent Guatemala. In Nicaragua, the
assembly activity is still in its early phase, and
in Costa Rica, the activity has stagnated in
recent years. Relatively higher salaries and a
new orientation of assembly industry in Costa
Rica account for this trend.
In 1996, maquila in Central America generated 235,000 direct jobs, which is 33.7% of
manufacturing employment and 3.19% of total
employment (see Table 6). In El Salvador and
Costa Rica, the activity carries most weight in
terms of percentage of manufacturing employment (59% and 45%, respectively). 16 In the
Dominican Republic, maquila employment
represents 38.5% of manufacturing employment and 6.5% of total employment. As a
percentage of manufacturing value-added, the
assembly activity is most important in
Dominican Republic and Honduras. The origin
of capital varies among Central American
countries: in Costa Rica and the Dominican
Republic it is mostly North American ®rms, in
El Salvador and Guatemala ®rms are mostly of
local capital, in Nicaragua it is East Asian
capital and in Honduras it is evenly split.
The ECLAC-Mexico survey reveals the
principal productive characteristics of Central

Table 5. Central America and Dominican Republic: maquila exports/total exportsa
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Dominican Republic
a

1990

1991

1992

1993

1994

1995

1996

1997

21.6
12.6
22.8
28.0
n.a.
n.a.

20.7
32.9
27.5
28.4
2.3
n.a.

23.6
26.7
32.5
35.5
4.9
36.2

26.9
28.1
34.1
45.1
5.6
40.4

23.5
34.7
34.8
55.8
6.1
41.6

23.1
39.6
32.4
64.1
5.8
n.a.

23.4
46.3
31.4
60.7
8.3
n.a.

n.a.
44.5
32.9
61.1
17.2
n.a.

Source: Department of Commerce and UNECLAC, Badecel.

1638

WORLD DEVELOPMENT

American and Dominican maquila and the
importance of technical change in ®rm strategies. Given the fact that the activity practically
starts with the NEM, the analysis focuses on
the present situation. Special attention is
devoted to the rise of a new type of maquila
activity in Costa Rica.
The main competitive strategy of the maquila
®rms in the survey is to o€er high quality, a
result that con®rms the ®nding that maquila is
no longer just a matter of simple assembly
against the lowest possible cost. Strong international competition in the apparel sector
forces the ®rms to satisfy world-class standards.
Regarding the participation of local personnel
in strategic decision making, this is found to be
negligible regarding the acquisition of inputs
and raw material, the product mix and the sales
and marketing operations. On the other hand,
in the vast majority, local personnel are
responsible for the organizational model,
training and recruitment.
Eighty-®ve percent of maquila workers are
reported to have primary and/or secondary
education, 10% has technical training and 5%
professional. Over 90% of ®rms in the survey
have a very active policy of training of shop¯oor workers, supervisors and managers.
Courses are formal and are related to daily
tasks and personal improvement. Furthermore,
workers receive on-the-job-training. In the
words of a manager: