NOVEMBER 15, 1985 - VOLUME 6 - NUMBER 16
Mexico: A Multinational Haven
by Aaron Freiwald
MEXICALI, Mexico-In a dusty, sun-soaked corner of this border town, the street names reflect the high hopes Mexico has for its northern industrial development.
Up and down Saturn, Jupiter, Venus and Galaxy Streets, in one of Mexicali's two industrial parks, Americansponsored manufacturing plants are fueling hopes that Mexico will move out of its developing-nation status.
Mexicali is one of dozens of border towns hosting foreign corporations which have chosen to capitalize on Mexico's abundant and dirt-cheap labor stock by moving low-skilled manufacturing operations to the U. S./Mexico border.
From rapidly-industrializing Tijuana in the West, to the eastern end of the nearly 2,000-mile-long border in Matamoros, just opposite the southern tip of Texas, and including a few locations scattered throughout the interior of this country, American corporations by the hundreds are picking Mexico over the Far East for assembly plants, or, as they are called in Spanish, maquiladoras.
American companies first began sending their low-skill manufacturing operations to the border zone two decades ago, but it is only in the last few years that this system of production sharing has become so vital to the economies of both the United States and Mexico.
While American companies enjoy cheap labor and the proximity of these border factories to U. S. distribution points, Mexico gains sorely needed employment, investment in industrial development and U. S. dollars, which they crave now more than ever as the peso's value drops.
This year, in fact, for the first time the maquiladora industry has become the second largest dollar earning sector of the Mexican economy, bringing in an estimated $1.5 billion, just ahead of the crippled tourist trade.
As it becomes clear that oil will not be the panacea that will drag the country out of debt, the maquiladoras will become even more critical to Mexico's economic wellbeing. A recent editorial in the Los Angeles Times echoed a belief shared by many, noting that "the dramatic drop in tourism since the earthquake and the recent downturn in the world's oil prices should convince Mexican leaders that the best hope for economic stability is industrial development."
Mexican officials are responding, albeit somewhat begrudgingly, to the economic promise of industries such as the maquiladoras. Miguel de la Madrid recently classified the maquiladoras a national priority, becoming the first Mexican president in the 20 years since the first maquiladora, to recognize their potential.
And on the local level, Mexicali, Tijuana, Juarez, and other border towns have set up industrial development councils geared specifically toward promoting their city and cutting bureaucratic red-tape that they fear will hinder American firms pursuing the maquiladora option.
The growth of the maquiladora industry has been tremendous, in part, due to two severe devaluations of the peso in 1982. After the devaluation the cost of Mexico's labor proved too attractive to ignore for hundreds of corporate planners, many of whom were anxious to escape, at least in part, both U.S. unions and the cost of labor north of the Rio Grande.
An official with the National Council of the Maquiladora Industry was recently quoted as citing some 786 maquiladora factories located throughout Mexico, the overwhelming majority of which are situated along the border and owned and operated byAmerican companies. According to the most recent federal government statistics, more than 200 firms have established maquiladoras in the last two years alone, creating roughly 70,000 new jobs. Some estimates place the total number of maquiladora workers at 300,000.
"The maquiladora is part of a world-wide tendency toward international production sharing," affirmed Jorge A. Bustamante, executive director of Tijuana's Center for Northern Border Studies (CEFNOMEX).
In the early 1960's, when the United States faced increasing competition on the world market, and while Mexico tried to deal with severe unemployment, a lack of foreign exchange to counter a balance-of-payments deficit and an underdeveloped industrial sector, the maquiladora appeared to be the closest thing to a panacea for both countries.
In 1965, the Mexican and American governments joined together and formulated a set of regulations designed to attract U.S. firms to the U.S./Mexico border zone, a region especially susceptible to unemployment, due to unstable agricultural crops such as cotton and the heavy migration from the interior of Mexico to various springboards into "el norte."
These regulations allow American capital, technical personnel and raw materials into Mexico in exchange for payment of a bond to customs, which amounts to roughly one or two percent of the duty that would have been paid if the materials were destined for permanent importation.
When the manufactured products of these "in-bond" assembly plants are returned to the U.S. for final assembly or distribution, the sponsoring firm pays a value-added tax or duty. As this value-added is based in large part on the cost of the Mexican labor involved in the production, the duty is generally of little monetary significance.
Nevertheless, it is the minimum wage paid to maquiladora workers, a rate set by the federal government, that is the main attraction to American firms. This minimum, based on current exchange rates, figures well under a dollar per hour.
"The greatest thing about the maquiladora is the cheap labor." said John Rosekrans, president of Kransco, Inc., a San Francisco-based toy manufacturing company with a maquiladora in Tijuana.
Since the first 12 companies initiated the program back in 1965, corporate powerhouses such as TDK, Rockwell International, Ford, RCA, General Electric and Westinghouse, as well as hundreds of medium-sized companies have joined the maquiladora ranks, manufacturing a wide range of products including hospital garments, electronic circuit boards, car windshields and swimming pool lounge cushions, as well as labor-intensive services such as coupon sorting and processing and golf club head polishing.
Still, the intensely competitive high-tech industry seems to be the most popular taker in the maquiladora industry. Roughly 40 percent of all in-bond assembly operations in Mexico have some connection with the electrical and electronics industries.
Overall, the maquiladora brand of "production sharing" has been so successful that some of the larger American firms are expanding into the interior of Mexico, where the labor is even cheaper and less-skilled. As skilled workers become more common along the border, both U.S. and Mexican corporations are moving increasingly complex manufacturing operations to the border area, according to William Mitchell, Senior Marketing Director of Grupo Bermudez, which manages, among others, Mexico's largest industrial park for maquiladoras, from its headquarters in Ciudad Juarez.
In addition to the cheaper labor found "offshore" for labor-intensive manufacturing, Mexico's border zone offers American corporations something other countries, particularly those in the Far East, simply cannot provide: proximity.
Mexico affords "good quality control and quick delivery," explained Rosekrans. It could take two months or more for goods to reach distribution centers in the United States from similar operations in the Orient, he said.
And, quite clearly, transportation costs are far less expensive from Mexico than from the Far East. Also, as one maquiladora manager pointed out, "If there is a problem, you can get a guy in here from New York in four hours to resolve it."
Many American firms choose to subcontract assembly work to a Mexican-owned maquiladora, rather than take on the local bureaucracy as well as the responsibility for constructing a plant, dealing with workers and handling "all the other internal problems that come up," according to Ignacio Perez, president of just such a firm operating out of Tijuana, P. P. H. Industrial, S. A.
Perez explained that his company offers a fully-operable factory in the heart of the downtown (just a couple of miles from the border) and a workforce trained in electronics sub-assembly.
The American companies which contract with his firm and others like it, provide the materials and the equipment necessary to produce their product and save themselves the inconvenience of going through the legal motions of establishing a business in Mexico.
Other companies choose to have full control over their maquiladora operation and some lease or buy land in an industrial park which offers services comparable to those in U.S. industrial areas. The industrial parks offer U.S. corporations tailor-made maquiladoras with cut-rate options that are difficult to pass up.
"The Japanese are driving everyone to the wall with their prices," said Grupo Bermudez's Mitchell. As foreign competition intensifies and as more and more domestic firms set up "offshore" assembly plants, American companies are taking for granted the need for a maquiladora.
"Ten years ago there were 30 some T.V. manufacturers, and today there are eight and every one of them has their labor-intensive operations off-shore, because the Japanese are beating the socks off them," Mitchell explained.
More specifically, he illustrated, the RCA maquiladora in Juarez, the largest such operation anywhere in Mexico, with between five and six thousand workers, is the "sole source of the XL-100 color television chassis." Without the competitive edge RCA gains through its maquiladora, he claimed, "28,000 Americans would be out of work."
And Mexico, for its part, is seeing a heavy injection of American dollars into its seriously ill economy because of the maquiladoras and, in recent years, has seen a dramatic turnaround in the employment situation in some northern border towns.
In Tijuana, for example, experts note that the problem now is exactly the opposite of unemployment, which in other parts of the country is at insufferably high levels. With some 180 in-bond assembly operations employing roughly 25,000 workers here, Bustamante said, "there is now a shortage of workers for the maquiladora industry."
Manuel Rubio, Executive Director of Mexicali's Industrial Development Commission, noted, "Without [our 80] maquiladoras, without those 13,000 jobs, we'd really be feeling the crisis."
And what of the workers themselves, those earning in a day the hourly salary for comparable work in the U.S.?
"Workers don't care [that they work for the minimum] as long as they have a job and you treat them decently," Perez asserted.
Speaking for a group of her co-workers taking a mid-day lunch, Sandra, a 17-year-old electronic component assembler for a maquiladora here in Mexicali, smiled with embarrassment and confirmed that "difficult as it is making ends meet working for the minimum, it is better than nothing."
The maquiladoras are not problem-free, despite the symbiotic relationship between the economic needs of the U. S. and Mexico which their proponents say they so clearly represent.
The overwhelming majority of workers in these border industries are women who work in sweatshop-like clothing maquiladoras, which make up roughly 15 percent of the national total.
According to the most recent available data from the Mexican government, 60 percent of the workers in the maquiladoras are women. The number of women workers is actually somewhat higher, because the statistics do not break down production technicians and administrative employees, who together make up almost 20 percent of the total and some of whom most certainly are women.
Still, in some cities the percentage is higher than the national average. In Tijuana, for instance, women make up closer to 80 percent of the maquiladora workforce, according to experts. And in some industries, women workers far outnumber their male counterparts. In the shoes and clothing, toys and sporting goods and the electrical-related sectors, there are at least three times as many female as male maquiladora workers. (see graph on page 4.)
Various explanations account for the apparent preference given to women in the maquiladora industry.
Luis Montijo, General Manager of Cupomex, S. A., a Tijuana coupon sorting and clearing house, employs some 600 women and only 25 men. "Men like action and so they find the work too confining," he explained. "Because of experience, we know that women are more obedient."
Montijo added, "The Mexican woman is like the Japanese woman, in their service to the community, to men, to authority, to leadership; she looks for money to pay the rent and feed her baby."
At Juegos California, S. A., Kransco's maquiladora in Tijuana, Jorge Dominguez, Director of Operations, said, "For the highly intensive, repetitious work, you prefer a woman [because they] seem to be able to concentrate on a job like that, while men tend to wander." But, he added, "The heavier, mechanical jobs usually go to men."
One maquiladora manager claimed that women were better suited for maquiladora, that is assembly, work because they have smaller, more delicate hands.
Such analyses, some shrouded in euphemism, others blunt in their sexism, conceal the true fact of the matter, according to CEFNOMEX's Bustamante, which is that "females tend to be less ready to unionize, less ready to organize against management and easier to control by management."
Throughout the border towns and their industrial complexes filled with thousands of low-paid laborers, there is a conspicuous absence of any meaningful labor union presence.
"There's only one maquiladora in Mexicali that has a union [out of 80], and they wanted it," said Ruben Aguilar Siono, assistant director of Mexicali's Industrial Development Commission.
Most maquiladoras have strict policies against unions on their shop floors. Cupomex's Montijo said, "The Americans don't want anything with the unions, because they are here to get more profit from cheaper labor."
"We try to be ahead of the unions," he added. "Unions are an obstacle, an intermediate that we don't need."
When rumors of a union make it to the manager's ears, Montijo admitted, he isolates the person trying to rouse the workers and buys him off. "We give them an indemnity and they don't seem to mind."
Juegos California's Dominguez concurred, explaining that if one of the workers is complaining, he would first sound him or her out and try to resolve the grievance. "But if he's a trouble-maker and he's creating problems, well, we have rules and we'll take disciplinary action."
Bustamante explained that this typically hard-line, antiunion posture on the part of maquiladora management has instilled a sense of fear among the workers, to the point where most refuse to even discuss the issue. "Either you have full rights and no job, or you have a job and few rights," he added.
Those exceptions to the maquiladora's unwritten law forbidding unions, entertain what one maquiladora manager called "sweetheart" unions, organizations that are more tools of rather than adversaries to management.
Jose Sosa Delgado, Secretary General of the Confederation of Mexican Workers (CTM) in Juarez, a union representing six million workers nationally and some 28,000 locally, is well aware of the uphill battle he and other organizers face trying to crack the maquiladora industry.
CTM can count only 12,000 workers in just a few maquiladoras in Juarez among its ranks. A rival union, the Revolutionary Confederation of Workers and Farmers (CROC), fares little better with the maquiladoras, despite the fact that this city's maquiladoras employ roughly 90,000 workers, more than any other maquiladora.
"There is a false impression that unions are bad," Delgado said. For the Americans with maquiladoras here in Mexico, he added, "It's easier without unions; they earn more money.
According to Mexican law, Delgado explained, a manager "can fire a worker without motive, as long as he pays him for work he's done."
"So, there is a fear among workers in many maquiladoras to try and form a union," he added. "You have to support your family, so it's better not to think about unions."
In addition to this fear of unions, or rather, the fear of losing one's job for "causing trouble," there is no disputing the fact that in comparison to domestic industry, Mexicans working in maquiladoras do fairly well for themselves.
The maquiladoras, in part, have brought this situation on themselves, because as the program has become increasingly popular among U. S. firms, especially since the peso devaluations in 1982, more assembly operations have relocated to the border, and, in some cases, the maquiladoras have been forced to outbid each other in order to attract a shrinking pool of workers.
American companies have grown accustomed to paying their maquiladora employees no more than the minimum wage. Of course, as the peso continues to drop relative to the dollar, this wage translates into smaller and smaller fractions of a dollar per hour.
But now, especially in Tijuana, the granddaddy maquiladora town, competition from recent arrivals, maquiladoras that can offer a newer, perhaps more pleasant work environment, has managers offering their workers a variety of bonuses and incentives to supplement the minimum wage, which still serves as the base salary.
The natural outcome of such a great rush of new companies setting up maquiladoras is an unusually high rate of turnover among the workers. One of the reasons Cupomex's Montijo cited in explaining why would-be union organizers don't mind being bought off, is that "they know they can find another job right across the street."
Juegos California loses "about 12 percent [of its employees] to turnover each month," Dominguez complained. And Montijo noted that Cupomex lost about half a million dollars last year because of its high turnover rate.
Not only is Tijuana the most popular stepping stone for Mexicans seeking a new life "en otro lado," on the other side, but since 1982, "a lot of people returned to the interior" of Mexico, Dominguez explained.
Many maquiladoras, in order to counter the problems of turnover and competition, now offer their workers attendance bonuses, production incentives, intra-maquiladora athletics, holiday parties and the like. One maquiladora in Tijuana has even taken to advertising, posting a huge, colorful banner across the front of its plant which looks out on the main boulevard running through town and invites "female personnel" to "become a part of the great family" and take advantage of "the best working atmosphere, a good salary and a magnificent bonus plan, plus the opportunity to get ahead."
In many border towns, however, maquiladoras can still get away with paying their workers the minimum wage. In Mexicali, for example, "There's a gentlemen's agreement not to pirate other companies' workers," according to Rubio of the local industrial development commission.
"We don't have people here who'll be trained and then hop the fence for a job in the States. In Tijuana, you train someone and find them six months later in Orange County."
Part of the explanation for this trend is that Tijuana is much better situated for someone hoping to move across the border to San Diego, Los Angeles, or even as far north as the Silicon Valley, while California's Imperial Valley, just across the line from Mexicali, suffers from 30-35 percent unemployment. Even so, Rubio said his commission nevertheless does "recommend to in-bond industries to pay 20 percent more than the minimum wage, because it isn't possible to live on that in Mexicali."
Encouraged by American investment, Mexico's industrialization seems to be following a familiar historical model, complete with sweatshops, anti-unionism, massive accumulations of capital and that all-important main ingredient, the inexhaustible supply of cheap labor.
"We are at exactly the same stage [in our industrial development] that the U. S. was one century ago," concluded the director of Mexicali's Industrial Development Commission, Manuel Rubio.
Aaron Freiwald is a freelance writer currently based in Mexico City, Mexico.