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Maquiladora Manufacturing 


PART IV. 

 

The Mexican labor law defines the standard work-week as 48 hours. Traditionally, these 48 hours are divided into six or five working days without any overtime payment. The law requires individuals to be 16 years or older to work. The day shift is 48 hours per week with the swing shift being 45 hours of work for 48 hours of pay. The graveyard shift is 42 hours of work for 48 hours of pay. The majority of Maquiladora operations work the day shift only. Overtime pay of double time is required for the first three hours of overtime in any one day or nine hours in any one week. Triple time is required beyond these. In the event that a worker is required to work a seventh work day, then an additional 25% of straight time must be paid. Wages are paid weekly with a one week holdback. Most Maquiladoras pay in cash. The wage payment in Mexico, including Maquiladora workers is established by the government and is determined on a daily rate. At the minimum wage, the worker does not pay any taxes. The employer is responsible for all taxes. Although most Maquiladora workers (about 70%) earn minimum wages, it has become customary to increase wage levels by providing the workers with social program such as food coupons, company lunches, transportation, gifts and similar perquisites. The cost of fringe benefits for minimum wage workers is approximately 50% of base wages. It includes seventh-day pay, vacations, legal holidays, vacation bonus and Christmas bonus. Mexican wages are considered a bargain on the world labor market. A recent study (1992) indicated direct labor cost (unburdened) ranges from U.S. $0.84 to $1.50 per hour. When fully loaded direct labor cost (burdened) ranges from U.S. $2.45 TO $7.25 per hour. Turnover is very high for Maquiladora plants and may range from 30 to 100 percent per year in major cities due partially to the low wages.

Table 1. Maquiladora Program Growth

Year

Number of Operations

Number of Workers

1965

12

3,000

1970

69

16,750

1975

454

67,214

1976

448

74,496

1977

443

78,443

1978

457

90,704

1979

540

111,365

1980

620

119,546

1981

605

130,973

1982

585

127,048

1983

600

150,867

1984

672

199,684

1985

760

211,968

1986

890

249,833

1987

1,125

305,253

1988

1,396

369,489

1989

1,655

429,725

1990

1,938

460,293

1991

1,925

467,454

1992

2,064

502,831

Source: INEGI (Mexico)

Competitive Advantages

Companies that manufacture in Mexico under the Maquiladora program and distribute their products in the U.S. may achieve competitive advantages in labor costs, logistics, transportation, management and other factors not available to non-participating firms.

Labor

Most companies using Maquiladora operations, prepare a "kit" of items to be assembled in the Mexican facility. This method of

operation requires careful planning and allows for excellent cost control, product flow and flexibility. The kit may be prepared

wherever it is most beneficial in order to take advantage of location relationships, U.S. transportation or distribution net­works.

Transportation

This is one of the most significant benefits of the Maquiladora program. Since most of the operations are near to the U.S.-Mex­ico border, distances from the Maquiladora to the U.S. are close to nothing when compared to distances from production sharing operations located in the Far East. Furthermore, by being at the border, a Maquiladora can link easily to its parent organization via highway, rail, air, telephone and telex services. Transporta­tion cost and shipping time are greatly advantageous when compared to other foreign locations. Very importantly, invento­ries and inventory cost are reduced because transportation time is reduced. This in turn reduces lead time.

To be Continued


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