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Mexican Assembly Plants Effected by Asian Competition - 2002-11-12

The assembly plants south of the U.S. border known as maquiladoras have provided hundreds of thousands of jobs to people in Mexico over the past three decades, but in the past two years the sector has been hit by plant closings and job losses. The economic slowdown in the United States is partly to blame, along with competition from half a world away.

In a country that is struggling to create employment for its growing population, the loss of thousands of well-paying factory jobs is a heavy blow. But the effect of the cutbacks at maquiladoras, or maquilas, as they are often called, is also felt on the north side of the border. About 26,000 U.S. companies provide Mexican plants with heavy equipment, factory supplies and parts for assembly. Losses in Mexico are sometimes reflected by losses in U.S. plants as well.

Keeping a close eye on the maquila sector from just north of the border, at Texas A&M International University in Laredo, Texas, Professor Van Miller sees a very real problem for Mexico and its workers. "They have lost in the last two years in the maquila sector some 300,000 jobs and there is no doubt about it those are 300,000 people who do not have jobs now," he says. "If we use a Mexican standard, the maquila jobs, especially along the border, are better jobs than those people could find elsewhere."

Some of the slowdown in the Mexican maquiladora sector can be attributed to the economic downturn in the United States, but Mexico has also lost jobs to other countries. Professor Miller says he has no firm data yet on which countries have taken those jobs, but Mexican officials and many industry observers say China and other east Asian nations have attracted a large part of those jobs.

Workers in China earn far less than their Mexican counterparts and other production costs are also cheaper. Some companies say they have saved as much as 15 percent in overall costs by moving from Mexico to China or other Asian nations.

Mexico has relied on its 3,500 foreign-owned factories for about half of its annual $158 billion in exports. Since the system was established in 1965, maquiladoras have provided a stable source of jobs. But Mexico's prime advantage, its proximity to the United States, has been reduced as taxes, energy costs and labor costs have risen.

In the end, however, Professor Van Miller believes the shock of job losses in this sector may serve a purpose. "Long term, 20 to 25 years down the road, it will be much better economically for Mexico if what we have in the maquilas is a lot of hi-tech, sophisticated manufacturing," he says. "There will not be as many jobs, but the jobs that remain will be for the people who do them much more challenging and fulfilling and they are going to pay a lot more."

For that to happen, however, Professor Miller notes that Mexico will have to do more to nurture the growth of such hi-tech companies. Mexico will also have to do more to educate and train its labor force so that the country has more to offer foreign companies than low-cost labor and a border with the world's largest economy.