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NAFTIA* & Maquilas Van V. Miller presented at Central Michigan University 9 February 05 *Nafta = Naptha
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Operating Concepts in Maquilas

Jan 18, 2016

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NAFTIA* & Maquilas Van V. Miller presented at Central Michigan University 9 February 05 *Nafta = Naptha. Operating Concepts in Maquilas. Profits = Revenues – Costs Revenues can be from sales or set. Costs are: Production (labor + materials) Transaction (tariffs + transportation + taxes ). - PowerPoint PPT Presentation
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Page 1: Operating Concepts in Maquilas

NAFTIA* & Maquilas

Van V. Millerpresented at

Central Michigan University9 February 05

*Nafta = Naptha

Page 2: Operating Concepts in Maquilas

Operating Concepts in Maquilas

• Profits = Revenues – Costs

• Revenues can be from sales or set.

• Costs are: – Production (labor + materials) – Transaction (tariffs + transportation +

taxes)

Page 3: Operating Concepts in Maquilas

A NAFTIA GOAL

Preamble-

“Create new employment opportunities and improve working conditions and living standards in their respective territories”

Page 4: Operating Concepts in Maquilas

This Goal Is about Economic Development in Mexico

In 2003,Canada $29,740Mexico $8,950USA $37,500

World Bank data for GNI per capita on a PPP basis

Page 5: Operating Concepts in Maquilas

Mexican Maquiladora Program

Past year-• 2800+ Plants• 1.15 million Employees

This week-

Number of Plants 2,815

Employment 1,140,153

Direct Labor Wage  $ 1.88-Hour

Technicians Wage $ 5.19-Hour

Gross Production $ 91.64 billion(www.maquilaportal.com)

Page 6: Operating Concepts in Maquilas

Major Maquiladora Cities

• Tijuana—most plants, approximately 750

• Juarez—most employees, maybe 300,000

Page 7: Operating Concepts in Maquilas

U.S. Trade Act of 1931

• Free Trade Zones (FTZ) An FTZ is a legal-geographical entity for reducing

tariffs

• Tijuana (on the border)

• Costs– Production (unskilled labor)– Transaction (tariffs + transportation)

Page 8: Operating Concepts in Maquilas

Bracero Program 1942-1964

• Migration to the U.S.

• U.S. Costs– Production ( unskilled labor)

Page 9: Operating Concepts in Maquilas

PRONAF 1961

• Mexican Border Operations

• Mexican Profits = Sales Revenues - Costs

Page 10: Operating Concepts in Maquilas

“PRONAF”/BIP (FTZ) 1965-1982

• U.S. Operations on the Mexican Border

• Mexican Costs– Production (unskilled labor)– Transaction (tariffs + transportation +

taxes)

• 1971—Reduction of Ownership Risk

Page 11: Operating Concepts in Maquilas

First Generation Maquila(located along the border)

Materials Components

Labor

A

Page 12: Operating Concepts in Maquilas

Twin-Plant/Maquila (FTZ) 1983-1994

• Foreign Operations in Mexico

• Mexican Costs– Production (labor: un- & semi-)– Transaction (tariffs + transportation +

taxes)

Page 13: Operating Concepts in Maquilas

Second Generation Maquila(spreading into the country)

Labor Materials

A M

Materials Components

Page 14: Operating Concepts in Maquilas

NAFTA Ending the Maquiladora Program

• There is no need for an FTZ in an FTA.

Page 15: Operating Concepts in Maquilas

Maquila (TLC) 1994-2000

• Maquiladora Operations in Mexico

• Mexican Costs– Production (labor: un- & semi- & skilled)– Transaction (tariffs + transportation +

taxes)

• Elimination of Ownership Risk

Page 16: Operating Concepts in Maquilas

Third Generation Maquila(located around the country)

M DEA

Materials Components

Materials Labor

Components

Page 17: Operating Concepts in Maquilas

“Maquila” 2001-2007-Permanent

• Economic Development Need Continues• Vertical Relationships in Mexico• Sales Revenues from Mexican Customers• Future Costs

• Materials—more sought from Mexican suppliers• Labor—increasing skills but the P/$ to Yuan/$ FX

rate matters• Transportation— improving and JIT possible• Tariffs—not an issue• Taxes—now ‘determined’

Page 18: Operating Concepts in Maquilas

Current and Future Issues

• Gaining and Losing Industries

• Labor

• NAFTA Side Accords and Reporting– The politics of getting the Agreement ratified in the USA required

two side agreements—one on labor and the other on the environment. These two issues are always contentious (note the pending CAFTA) and should be remembered because they can strike at the heart of NAFTA’s legitimacy.

Page 19: Operating Concepts in Maquilas

Gaining and Losing Industries(automotive, electronics & electrical, textile/apparel

• NAFTA caused trade diversion, esp., in textile and apparel with fiber-forward rule. The industry will be a big loser in most cases if MFA stays abolished.

• In other industries, the tension is between the labor rates (Mexico vs. others) and the transportation factor (cost & delivery of Mexico vs. others).

• The motor vehicle industry should be a gainer and electronics & electrical will depend on the nature of the product, e.g. big screen TVs.

Page 20: Operating Concepts in Maquilas

The Labor Issue

• Turnover—a study of eight maquiladora cities in northern Mexico.

Page 21: Operating Concepts in Maquilas

Wages and Turnover

The Relationship between Turnover and Compensation in Lower-Generation Maquilas

Starting Wage Wage Change Average Wage

High Low High Low High Low

Turnover High 7 9 5 11 7 9

Rate Low 10 3 7 6 9 4

Hildebrand’s .32 at p < .03 .22 at p < .11 .25 at p < .08

del

Page 22: Operating Concepts in Maquilas

Generation and Wages

The Relationship between Turnover and Generations in Maquilas

Turnover Rate N

First Generation 65% 12

Second Generation 65% 16

Third Generation 48% 5

‘True’ Third Generation 11%* 3

*Significant at p<.01

Page 23: Operating Concepts in Maquilas

The Environmental Issue

• A study of the Top 25 Maquilas– www.maquilaportal.com

Page 24: Operating Concepts in Maquilas

NAFTA Side Accords and Reporting

Types of Voluntary Reporting Statements for the Top 25 TNC Maquilas

Policies Codes Performance

• Labor 3+(6 safety only) 1 0

• Environment 7 11 3

• Quality 6 18 NA

Page 25: Operating Concepts in Maquilas

Northern Maquiladora Cities

• Along the Mexico-Texas Border– Matamoros– Reynosa– Nuevo Laredo– Piedras Negras– Ciudad Acuna– Ciudad Juarez