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What are maquiladoras? Despite their popularity, many U.S. companies don’t know what these factories do or where they’re located. If you want to boost your manufacturing operations, you’ll need to learn some essential information about these facilities.
Key takeaways:
I’ll explain how maquiladoras work, where you can find them, and provide you with more valuable information.
Table of Contents
The history of the maquiladora first started in 1964 after the Bracero Program ended. The Bracero Program allowed Mexican agricultural workers into the United States seasonally, and Mexico faced a large unemployment issue when the program stopped.
With so many unemployed, Mexico needed to attract foreign investment in order to prevent economic collapse. The Mexican government created the Border Industrialization Program in 1965, now the IMMEX Program, to help.
Maquiladoras’ inexpensive labor and their ability to qualify as a 100% foreign-owned operation caused a huge growth in the factories, which was accelerated further when the North American Free Trade Agreement (NAFTA) was passed in 1994. The number of maquiladora plants exploded once NAFTA was ratified, and they became the most desired option for running a manufacturing operation in Mexico.
In 2020, the United States-Mexico-Canada (USMCA) free trade agreement (FTA) was signed into law. This kept and improved upon provisions in NAFTA. With USMCA in place, trade between the U.S. and Mexico isn’t likely to slow down any time soon. Therefore, maquiladoras are here to stay for a very long time.
Maquiladora is a term that refers to a manufacturing plant located in Mexico. Sometimes, the name is shortened to Maquilas. The facilities are used to produce a variety of goods for different industries.
These factories are able to import raw materials duty-free for manufacturing. After the goods are completed, maquiladoras export the finished products. The countries that utilize maquiladoras the most are the United States and Canada.
Companies should consider using a maquiladora if they want to lower their operational expenses and produce goods without being subjected to high labor costs, duties, or tariffs.
Maquiladoras are extremely attractive to U.S. businesses that want to move their manufacturing operations to Mexico. I’ve provided a list of the numerous benefits that maquiladoras provide.
If you plan to import your finished goods back into the U.S., make sure you apply for preferential tariff treatment under USMCA.
Related: Benefits of Manufacturing In Mexico
Maquiladoras are located throughout Mexico, but are most commonly concentrated along the US-Mexico border.
This includes:
Baja California and Chihuahua have the most maquiladoras out of the 6 border states. Certain cities in the U.S. and Mexico often transfer freight between one another because of their closeness.
This includes:
The northern states and cities in Mexico aren’t the only place where maquiladoras can be found. There are plenty of these factories located in central Mexico.
Many of the maquiladoras located in these states focus on electronic and automotive manufacturing.
There is an incredibly large amount of maquiladoras in Mexico, employing a significant amount of the country’s citizens. Consider some of the following data I’ve provided about these factories and their economic impact on the country.
As the data shows, there’s a tremendous amount of maquiladoras located in Mexico. This means you’ll have no problem finding one that can produce your goods.
Traditionally, maquiladoras were utilized mostly in the textile sector, to make products like fabrics, clothing, shoes, and bedding. However, the variety of products that are assembled in maquiladoras has increased dramatically since NAFTA was ratified.
Now, everything from the consumer electronics industry to the aerospace industry utilizes maquilas to mass-produce products for U.S. markets.
U.S. companies manufacture countless different kinds of products in Mexico. I’ve provided data on the top commodities Mexico exports abroad that are manufactured in their maquiladoras.
| Product | Amount Exported |
| Vehicles | $136.08 Billion |
| Machinery | $103.01 Billion |
| Electronics | $97.33 Billion |
| Medical | $22.84 Billion |
| Plastics | $13.15 Billion |
| Furniture | $12.78 Billion |
Provided by Trading Economics
As the data shows, almost any industry that mass produces manufactured goods can benefit from shifting their operations to Mexico.
The IMMEX Program is a government initiative that allows foreign manufacturers to import raw materials duty free, as long as 100% of the materials are exported as finished goods. Many U.S. businesses join this program because of the various benefits it provides.
To join IMMEX, you’ll need to make sure you’re eligible. Find out for yourself by checking for three items.
After determining eligibility, you’ll need to fill out an IMMEX application and submit two printed copies, a digital copy, and additional documentation.
The required documentation includes:
There are five different categories in the IMMEX program, which are referred to as ‘modalities’. These modalities offer different authorizations to companies depending on which one they choose. A company can only select one modality, so make sure you understand how each option aligns with your individual needs.
These five modalities are:
In the following sections, I’ll break down each modality to help you understand them better.
Under this program, one company will hold IMMEX registration that covers their manufacturing operations, and those of one or more subsidiaries. Essentially, the holding company will be granted the right to control and oversee the operations of the other companies.
They also have the responsibility of managing the imports of raw materials and exports of finished goods. Products and materials can be freely moved between, and stored within, the facilities of each subsidiary. Each company remains its own individual entity and maintains its unique tax ID.
There is additional documentation you’ll need if you want to join the Holding Company program:
Be sure to fill these documents out carefully to ensure you’ll be successfully accepted into the program.
This program is used by companies that import materials to use for industrial processes, requiring the finished goods to be exported after completion. This is the most common program foreign members of IMMEX join.
Companies in the industrial program are permitted to use foreign and domestic inputs in their production. Machinery and equipment used in the industrial process can also be imported temporarily.
The services program allows companies to provide a service that supports the export of the manufactured goods.
Types of services that can be provided under this program include:
There is no substantial transformation requirement for products made in the service program. Raw materials and unused components may remain in Mexico for up to a year before they must be used or returned to the point of origin.
Under the shelter program, non-resident businesses can find a Mexican company that will serve as a legal entity that assumes all risk and liability on their behalf. This is a great alternative for businesses that don’t have a presence in Mexico.
Responsibilities and risks shelter companies will assume on your behalf include:
While shelter companies can handle various responsibilities on your behalf, they don’t manage the actual manufacturing of products. This will remain your responsibility.
Related: Shelter Services in Mexico: A Guide for Foreign Manufacturers
Companies that lack the means required for manufacturing can join the outsourcing program. This allows them to perform their production operations through a third party.
Third-party companies are authorized under the IMMEX to supply foreign businesses with the resources and processes needed to make their goods. Under the outsourcing program, you and the third party will share liability over the temporarily imported materials.
If you intend to use a third party to help run your maquiladora, you will need to submit a couple of additional documents when you apply for your certification.
There are numerous companies in Mexico that make their facilities available for outsourcing. You simply need to find one that can produce the materials you require.
If you want to move your company’s manufacturing into Mexico, you have three options.
The most direct way of shifting manufacturing to Mexico is to establish a Mexican corporation that is directly managed by your parent company. If you want complete control over your supply chain, you should take the time to establish the maquila yourself.
The first thing you’re going to need to do if you want to set up your own maquiladora is to acquire the right legal paperwork. You will need to reach out to a Mexican attorney to file the following documents.
Once those documents are settled, you will need to complete what is known as an ‘Environmental Preventative Report’. This report is a detailed account of the activities your maquila will be responsible for, to show that your operations will not harm the environment.
The next thing you’re going to need to do is to buy or rent the land where you will set up your maquiladora. You must provide evidence of the purchase or lease, and may need to apply for a land-use permit.
Then comes everyone’s favorite part: taxes. New businesses in Mexico must apply for a Federal Taxpayer Registry Number, and must submit an Advanced Electronic Signature to the Ministry of Finance and Public Credit. Then, the business will be expected to pay a monthly payroll tax, as well as a corporate federal income tax of 30%.
A formal agreement must then be drafted between your parent company and your new Mexican maquiladora. Additionally, you will need to make a Collective Labor Agreement with a local labor union every two years in order to stay compliant with Mexican labor laws.
If you intend to employ more than 20 people, you may be able to use a Collective Bargaining Agreement or an Individual Employment Agreement instead.
Most of the labor you’ll need to run maquiladora can be found in Mexico. However, it might be necessary to send a small amount of your company staff to oversee the operations. Any workers that you want to move to from the U.S. to Mexico will need a work visa. There are three specific types that you can pick.
Make sure these visas are completed carefully to ensure you don’t run into any regulatory trouble.
Shelter companies provide an easy solution to the frustratingly complex process of shifting manufacturing to Mexico. If you choose to work with a shelter company instead of building your own maquiladora company, then you can count on them to handle all the paperwork and legal documentation on your behalf.
As the name suggests, this manufacturing operation will work best under IMMEX’s Shelter Program. Working with this type of maquiladora is also beneficial because of fast startup times and the access you’ll receive to skilled professionals.
If working with a shelter service still seems like too much for you to manage, there is one other option left that removes almost all responsibility from you. Subcontracting with a maquiladora is a great alternative if you don’t have the time or resources to handle certain aspects of the manufacturing process.
For example, electronics companies will subcontract the manufacturing of certain components of a vehicle. After the parts are made, the components will be imported into the U.S. and installed into the finished product.
The subcontracting method is cheap and easy, but there are several reasons to be cautious. When using this method, you don’t have as much control over your manufacturing operations. This could result in finished products that are lacking in quality.
Related: A Guide on Freight Shipping To Mexico
R+L Global Logistics is on hand when you’re ready to transport your goods from a maquiladora to the United States. We’ve been taking care of cross border freight for over 30 years and know how to get your freight from here to there with a 99.5% on-time delivery rate and real-time freight visibility.
When you choose Mexico Cross Border Freight, you’ll have access to the following:
At Mexico Cross Border Freight, we can provide the assistance you need. Get started today by filling out your quote or reaching out at (866) 335-0495.
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