Mexican maquiladoras: new capabilities of coordination and the emergence of a new generation of companies.

SUMMARY

The assembly industry for export in Latin-American countries such as Mexico (called maquiladoras or 'in-bond industry') is at the biggest crossroads in its history. it is observed Auto parts and electronics plants are increasingly competitive, with greater diffusion of complexity, technology, organization and skills (in second and third generation companies) and new aspects of centralized coordination representing qualitative changes. However, maquiladoras are also in the most serious crisis in their history, which has negatively impacted on employment, their location's regional activity and on reduction of foreign direct investment. Although maquiladora manufacturing is now picking up--largely due to economic recovery in the United States--there is concern among strategic local actors, that two years of crisis has begun a long term decline in manufacturing along the border, due to Mexico's relatively high cost of labor when compared to that of countries like China.

In this context the analysis of different types of companies according to their productive, organizational and labor complexity (generations) will help understand companies which are being affected in different ways by economic recession and particularly by new competitors. This article is structured in five sections. Sections one and two present the importance of maquiladora in the case of Mexico and its current international role. Section three shows a description of the three generations of labor complexity. Section four is a critical discussion of each generation of companies. Finally, section five presents the proposal of a new fourth generation of companies, based on centralized coordination of different activities. The research results are based on a case study at Delphi Corporation located in Juarez, Mexico.

KEYWORDS

maquiladoras; upgrading; capabilities; generation of companies; labor complexity; competition; Delphi Corporation

1. INTRODUCTION

In the current debate around the process of technology globalization, we can identify two groups, with two different positions. In the first group, Patel (1995) maintains that there is no systematic evidence to suggest greater technological globalization. After analyzing the patenting activities of the world's 686 largest companies, Patel and Pavitt (1992) confirm that technology production by these companies is a clear case of 'non-globalization.' Based on varying quantitative measurements, other authors agree with these results, specifically Howells (1990) and Dorrenbacher and Wortman (1991), who use databases of the number of personnel assigned to Research and Development (R&D), and Patel and Pavitt (1992) and Cantwell (1995), who analyze patenting activities.

There is a second group of studies--based on analysis of cases of companies, industries and countries--that maintains, to the contrary, that R&D activities are indeed going through a globalization process. These results indicate that R&D activities are being carried out in host countries in relation to adapting products and processes to the conditions of each local market and corresponding legislation (Pearce and Singh, 1992). This research also indicates that there is a set of political factors influencing companies in their decisions to locate activities in countries other than the home country (Hakanson, 1992).

Casson (1991) and Dunning (1992) maintain that transnational corporations generally establish R&D laboratories as a consequence of direct foreign investment. Cantwell analyzes the patenting activity of 857 companies during the 1920-1990 period, and discovers an important finding: that it is no longer possible to accept the existence of a single center, when the globalization process indicates the existence of multiple centers (Cantwell, 1995).

Our research can be included in this second group of studies. And from this perspective, we have posed the following questions: What were the factors and conditions that encouraged the globalization of Delphi's productive activities in Mexico? How did the creation of a technical center in Mexico affect the interaction among the divisions and establishments located in that country? To what degree were the forms of control and monitoring in the various divisions and establishments located in Mexico modified with the creation of a research and development center in that country?. Before answer these questions, we need to address the content of our case, the maquiladora industry and their debate.

2. MAQUILADORA INDUSTRY

The assembly industry for export in Latin-American countries such as Mexico (called maquiladoras or 'in-bond industry') is in the biggest crossroad in its history. On one hand, it is observed a great competitiveness of the auto parts and electronics plants and the diffusion of more complexity, technology, organization and skills (companies of second and third generation) (Carrillo and Hualde, 1998) and even of new aspects of centralized coordination that they represent qualitative changes (Urostegui, 2002; Lara and Carrillo, 2003). But on the other hand the maquiladoras are in the most serious crisis in their history that has negative impacted to the employment, to the regional activity where they are located and to the reduction of foreign direct investment (FDI). The paradox of the new millennium can be enunciated in the following way: the biggest modernization and industrial upgrading of their plants, organizations and human resources, it is limited by structural loss of their competitive advantages. The follow questions are being studied at every business forum and academic conference held in Mexico and in the southwest of the US in connection with the maquiladora: Has the maquiladora model been exhausted? Is it undergoing transformation? Is there room for active policies? There can be no doubt that the backdrop for all these doubts and strategies to be formulated is the emergence of a new dragon: China.

Although the aim of this work is not to answer such broad questions, nor to resolve the initial paradox, it does have a direct bearing in this discussion given that it outlines a particular phenomenon: the upgrading of companies, the diffusion of the third generation ('knowledge intensive plants') and the possible emergence of a new, fourth generation of maquiladora company, as we will see latter.

The existence of knowledge intensive plants (or third generation) has been received recognition among business people as well as academics. The modernization of the export maquiladora industry is now an irrefutable reality and has come a long way from the old stereotypes that characterized it in the 60s & 70s, namely monotonous work carried out by women, low levels of technology, simple assembly activities and the lack of local linkages. But this process really means that the maquiladora industry have evolved and now are more third generation type? Clearly not. On the contrary, this is a dynamic process, not only subject to different types of external and internal pressures, but also success and failure cases. Not all companies evolve and nor do they do so in the same way. This process means that organizations change, learn, restructured, relocate and even die. Some, unfortunately very few, however, evolve quickly towards the incorporation of new activities based on coordination and information technologies, giving rise to what we shall refer to as 'maquiladora Company of fourth generation'. (1)

A maquiladora is a factory or assembly plant operated in Mexico under preferential tariff programs established in 1965 by the U.S. and Mexican governments to encourage the development of industry in both countries. Mexico allows materials to be used in maquilas to enter duty-free, provided the finished product and then immediately exported out of Mexico. The U.S. in turn charges these products a much lower tariff than products from other countries. The maquiladora industry (or in-bond industry) is the group of plants (2811 with 1.14 millions of employees in octobre 2004) located in Mexico that belongs to this specific export program and is structured by 39 economic activities (from simple goods to high technology products). The process is driven by transnational corporations (TNCs). However 73% of maquiladora plants are electronics, auto parts and apparels (and concentrated 60% of maquila employment).

Similar programs to the maquila can be found in the Export Processing Zones (EPZ) around the world. In order to understand the importance that has acquired this type of offshore production let see their dynamism: in 1975 there were 79 EPZ in 39 countries with 750 thousand employees (Frobel, et al. 1981); while in the beginnings of the present millennium it is calculated that they existed around 3000 EPZ in 102 countries employing around of 30 million people (Mercier, 2003), although more than 70% are in China (Yin, 2003). In Mexico as well as in others countries the term maquila refers to a concept for labor intensive assembly products for export, and their importance and debated has been related, on one hand, with a success model of industrialization, and on the other, with their structural limitations (Stallings and Peres, 2000).