Much has changed in the 20 years since we started bringing you news about maquilas.

            When the first issue of Twin Plant News was published, Ronald Reagan was president of the United States and U.S. employers were required to pay workers a minimum wage of $3.35 an hour. Home computers had arrived, but the World Wide Web had not – making surfing the Internet not practical. Boris Becker, just 17 years old, became the youngest player ever to win Wimbledon and Out Of Africa won the Oscar for Best Picture.

            Today’s buzzword, globalization, was just a concept, and not everyone believed it would actually occur. But there were signs. In the Soviet Union, Mikhail Gorbachev was introducing his policy of perestroika, – or market reform. In Mexico, President Miguel de la Madrid was pushing his country to enter the General Agreement on Tariffs and Trade (GATT). Minimum wage in Mexico at the time was 81 cents an hour, but Mexico’s entry in GATT would set in motion forces that would propel the maquila industry and Mexico to never-before experienced prosperity.

            The news was not all good, though. Less than a month after our first issue, an 8.1 magnitude earthquake struck Mexico City, killing 10,000 people and leaving another 250,000 homeless.

            One constant through the years – the last 20 that is – has been Twin Plant News. No other magazine has covered the maquila industry as long. We’ve said it before, but Twin Plant News and the maquila industry grew up together.

Brief background

            The maquiladora program was created Sept. 1, 1965, when Mexico President Díaz Ordaz initiated the Border Industrialization Program. The concept is simple: each factory is treated as an individual foreign processing zone, thereby allowing the plant to import duty free into Mexico all equipment, machinery and materials that are production-related.

            The program coincided with a 1964 ruling by the U.S. Congress that established a preferential tariff for U.S. made components that were sent offshore and assembled into finished goods that were subsequently exported to the United States. Upon their export back to the United States, export duties would be assessed only on the value of the imported good, minus the value of the U.S.-made components (value added).

            Specifically, a maquiladora is a status granted by the Mexican government to an assembly or production plant that exports its work product out of Mexico. Under NAFTA, however, requirements on the amount of work product that must be exported out of Mexico have been removed.

            The earliest maquilas primarily tackled simple assembly projects. U.S. corporations were reluctant to assign more skilled tasks to their Mexican operations because they feared Mexican workers could not provide the same quality as their U.S. counterparts. The first employees were female because it was believed their smaller hands made them better prepared for the assembly work. Another less prevalent feeling at the time was that female workers would be less likely to quit than male employees. Turnover was a major problem in the early years as many employees worked only long enough to get enough money to try to sneak in the United States. Women, the thinking went, were likely to have small children to attend to and therefore less of a threat to quit.

            There were other factors that limited the industry’s growth as well. For the first two decades of the program, Mexico tried hard to protect its domestic industry, enacting various laws that restricted maquila production and activities. Maquilas were restricted to the border zone during the infancy of the Maquila Program, which resulted in a perception that exists to this day – that maquilas can only operate on the border. In fact, there is at least one maquila in ever state in Mexico – from Aguascalientes to Zacatecas.

            Foreign investors also worried during the early years that if they invested in Mexico, their plant could be nationalized at any time by the Mexican government. They were reluctant to invest much money in capital infrastructure in case it was confiscated. Certain tax policies also made it unfeasible to bring heavy equipment into Mexico. It took several years and a couple of amendments to the tax code before foreign business felt comfortable investing in capital equipment.

            Two peso devaluations and the entry in GATT changed everything. Peso devaluations in 1982 ands 1988 made it much cheaper for U.S. companies to do business in Mexico. U.S. businesses could no longer ignore the difference in wage rates between the United States and Mexico – not if they wanted to stay competitive with industries in lower-cost countries. Couple the devaluations with Mexico’s entry in GATT – which started the process of tearing down Mexico’s protective tariffs — and it’s easy to understand why the maquila industry grew 20 percent during a five-year period in the 1980s. That growth slowed briefly in the early 1990s as the U.S. entered a recession, but the maquila industry went on another wild growth spurt in the late 1990s as the implementation of the North American Free Trade Agreement and a robust U.S. economy combined to make Mexico more attractive to foreign investment. Twin Plant News is the only magazine that’s been around for both spurts.

            The first two decades of the maquila industry were marked by increases in jobs, plants and production. But the extra jobs primarily were low-skill. Corporations did not believe Mexican labor was capable of anything beyond simple assembly. It took a few high-profile success stories from companies willing to send higher-skill work to Mexico to prove Mexican labor could handle harder work.

            Over the years the work assigned to Mexico started to require a higher skill level, but it still hadn’t approached levels required in the United States. Companies feared their proprietary secrets would not be safe in Mexico and held back their most sensitive work. The implementation of NAFTA in 1994, however, included provisions for safeguarding intellectual property and companies started feeling safer about the level of work assigned to their Mexico operations. Eventually, many companies found the work done in their Mexican plants to be superior in quality to the work done in their U.S. plants. That in turn provided more confidence for companies to go even more high-tech in Mexico. Today, several of the industrial plants considered to be the most sophisticated in the world are in Mexico.

            Visteon’s Lamosa Plant in Nuevo Laredo, Tamps. is one of those plants. Visteon recently completed a 42 consecutive month period with zero PPM (parts per million) defects.

            “That tells you the degree of professionalism in the workforce now,” says Plant Manager Aldo Ochoa. “The Mexican worker is very capable and very knowledgeable.”

            Mexico’s industrial experience mirrors what happened in the United States. From simple assembly, the maquilas evolved into giant plants, many employing 5,000 or more workers. Then the plants began implementing high-technology processes such as robotics that don’t require as many operators. Today, maquila employment is actually falling while productivity is increasing – the same situation that is occurring in the United States.

Fun work

            For us, bringing you the latest from the maquila industry has always been fun. We’ve toured Mexico in four-seat airplanes, the backseats of Volkswagens and the back of countless Chevy Suburbans. We’ve stayed in four-star hotels and in private homes. We’ve conducted interviews in Monterrey’s oppressive humidity and Querétaro’s colonial charm. We’ve had lunch in maquila cafeterias with the line workers and dinner in Mexico’s most exclusive restaurants with the power elite. Along the way we’ve been allowed to see firsthand how things are made; things like floor tiles, guitars,  automobiles, computers, furniture, pottery, televisions, power tools, shampoo, fishing lures, stereo speakers, Christmas trees, zippers and more.

            Our hosts have always been gracious. A business trip to Mexico combines hard work with visits with incredible people who would do anything we ask. We’ve been taken whale watching, golfing, and deep sea fishing and visited some of the best museums in the country. We’ve seen Mexico’s historic monuments, battlefields, churches and natural wonders. On a trip to Puebla, Mt. Popocatepetl spewed lava into the sky as we visited.

            Over the years we’ve seen first-hand the evolution of the industry. We’ve seen suppliers move to Mexico to be closer to their contracts. We’ve seen the U.S. expatriate population drop as more Mexicans are given management positions in maquilas. Whereas maquilas previously employed five or six Americans in management positions, it is now common for maquilas to have no U.S. citizens on staff.