Did you know that the GDP of Mexico was 1414.19 billion U.S. dollars in 2022? Whereas, the value added by manufacturing is 18.79 %. The GDP of Mexico represents 0.63 percent of the world economy. This is a clear depiction of remarkable economic growth and development within Mexico. Here, it would be justified to say that its credit goes to the manufacturing sector working in Mexico.
The manufacturing sector in Mexico has significantly benefited from the Free Trade Agreement and the Maquiladoras. Maquiladoras represents about 65% of Mexico's export and plays the most significant role in foreign trade. However, it's crucial to explore Maquiladoras' Pros And Cons in detail to have a deeper look at the process.
Maquiladoras are assembly plants in Mexico owned by different countries. The purpose of maquiladoras is to import raw materials and export manufactured products tariff-free. Investors find suppliers in Mexico and get their desired products through maquiladoras. Maquiladoras gives potential benefits to Mexico, but it also has some disadvantages.
|Cost Benefits And Tax Incentives||Underpaid Labor|
|Skilled And Cheap Labor Force||Borderland Boom|
|Trade Agreements||Foreign Interference|
|Productivity Growth In Mexico||Unsafe Working Conditions|
Maquiladoras play a significant role in the country's economy. These facilities attract businesses from around the world. Let's explore the key benefits and advantages of maquiladoras and manufacturing in Mexico.
Mexico shares a border with the United States, a global market. This geographical proximity gives some significant advantages. It allows for efficient access to the U.S. market. Moreover, due to less traveling time, there is less fuel consumption. It reduces transportation costs and delivery times. This strategic advantage gives control over the supply chain. The proximity to the United States also facilitates close collaboration between businesses in both countries.
Additionally, Mexico's location offers easy access to both Atlantic and Pacific trade routes. This makes it an ideal hub for international trade. This strategic positioning enhances the competitiveness of maquiladoras and contributes to Mexico's economic growth.
Maquiladoras gives a worthwhile business solution to manufacturers. Maquiladora operations are primarily located on the US-Mexico border. This strategic location allows tariff-free exchange of goods and materials. Moreover, it has the advantage of trade agreements signed by two countries that bring numerous benefits.
Labor in Mexico is more affordable than in many other industrialized countries. That makes production costs significantly lower. This cost advantage enables companies to remain competitive in the global market.
Maquiladoras in Mexico offer lower labor rates than those in China and other states. For instance, the average earnings of Mexican manufacturing workers is just $4/hr, whereas in the U.S., it is $22.45/hr. This is a significant difference. It gives a financial privilege to businesses.
These minimum wages in the Mexican maquiladora companies attract business worldwide. Also, the laborers are highly skilled and masters of their work.
Maquiladoras and Mexico both hold benefits for each other. Mexico has access to about 44 countries through 12 multilateral trade agreements. NAFTA (USMCA) is one of these agreements that has served as the base of Mexico's economic growth. These trade agreements give maquiladoras easier access to international markets, particularly the United States and Canada. These agreements make the country vulnerable to attracting more investment and international trade.
Maquiladoras has contributed to enhanced productivity in the manufacturing sector. Maquiladoras have positively impacted productivity growth in the country by efficiently utilizing skilled labor and resources. Due to this factor, a significant increase in jobs is observed. This increased productivity further strengthens Mexico's position as a favorable location for manufacturing and trade.
Maquiladoras' Pros And Cons are absolute. Here are the concerns regarding the disadvantages of Maquiladoras:
Mexico is facing severe environmental issues, including deforestation, land degradation, soil erosion, provision of clean water, and air pollution. It is the second-largest emitter of greenhouse gasses in the region. Though the country is taking precautions for Environmental Regulation, it still needs to align with the environmental standards of the U.S. That is one of the significant concerns related to the Maquiladoras, which still needs to be resolved.
Maquiladoras manufacturing companies give benefits to the U.S. and other investors but, at the same time, pay comparatively less to the laborers in Mexico. This low-cost manufacturing serves as a benefit to U.S. businesses. Due to this rising concern, Mexico is now working on making laws to protect and implement labor rights. Labor unions can be observed in Mexico that depict Mexico's strategy to combat this issue.
The expansion of the maquiladora industry has led to the emergence of boom towns. It has also given rise to a host of challenges. Also, it depicts the lack of the rule of law. It has also given rise to many challenges, including lawlessness and inadequate infrastructure support. The rapid growth associated with these boom towns has outpaced the local authorities' ability to maintain law and order effectively.
As these industrial centers mushroom, lawlessness becomes a significant issue. This can be a major issue soon for the government. Furthermore, the rapid growth puts significant pressure on the existing infrastructure. The infrastructure may need to expand more quickly to accommodate the growing population. It can lead to overcrowding and inadequate public services. This strain on resources exposes the gaps in infrastructure planning and development.
It has been observed that there is distress in Mexico about the influence of the U.S. on Mexican policies. According to St. Mary's LAW JOURNAL,
"Some Mexicans think that the U.S. political and economic influence is already excessive at arm's length, and the addition of the maquiladoras makes U.S. influence intolerable."
The United States and Mexico maintain deep ties in trade. Since distress has been observed in Mexicans regarding this excessive U.S. influence, this issue can be a point of conflict sometime in the future.
According to Mexicans, they were already under the influence of the U.S., and now, after maquiladoras, the U.S. is pulling all the strings in Mexico.
Another disadvantage of maquiladoras is health risks for workers. This is one of the significant concerns of workers that unsafe working conditions are practiced even in the top Mexican companies. Many laws and policies exist in Mexico to address this issue, but there needs to be more implementation.
Understanding the Pros and Cons of Maquiladoras in Mexico gives a comprehensive view of the manufacturing sector. The advantages of Maquiladoras Mexico are beyond the record. At the same time, the government in Mexico is making meaningful efforts to combat these disadvantages. These efforts collectivity improve the manufacturing standard and open ways sourcing products in Mexico.
If you need to know more about the process or need help with sourcing your products, feel free to contact us.