Nearshoring, Offshoring and the Maquiladora Industry
By RICARDO CASTILLO
Nearshoring has become a fashionable term in Mexico. It redefines a new stage for the development of the industrial advent that was the development of the in-bond manufacturing assembly for export industries. The main reason behind the nearshoring term is that industrialists worldwide consider Mexico a “shore” that’s “near” the world’s top economy, the good old USA.
In the terms currently in vogue, from the Mexican point of view, a significant number of new industries are engaged in nearshoring because Mexico is what’s near to the U.S. shore, so many international factories are bringing manufacturing activities to Mexico.
However, that’s not the reason for the current industrial boom, which in the eyes of this beholder, has been there for decades and is the source of a win-win relation for all involved. New investors are just following the footsteps of the old manufacturers in search of new, cost-effective and abundant labor markets.
Just for the record, the Mexican Congress first admitted the advent of maquiladoras along the U.S. border in 1964, to somewhat replace the cancellation of the Bracero Program started by both Mexico and the United States as a fruitful cooperation during World War II. The United States, at that time, needed throngs of “working arms” or “brazos,” for agriculture.
Under the program, some factories would set up shop in border cities for doing maquila (assembly) just for export.
The “bracero” program had proven somewhat successful providing limited growth in jobs. One shortcoming of the new program was that Mexican working farmhands were literally irreplaceable in U.S. farms. Also, it was discovered the hard way that farmers were no good at performing repetitive industrial assembly jobs. Young girls, however, were, and it was soon realized that females were superior workers than men.
The maquiladora had little impact on the Mexican export industry since it was applied as a job development concept.
In 1987, after many decades of having been a closed market exclusive for Mexican investors, the federal government decided to join the international business community through participation in the General Agreement on Tariffs and Trade (GATT), which went into effect in 1988. Among a myriad of facilities for foreign manufacturers, the new GATT laws allowed for the unlimited tax-free import for assembly for export only. This, to throngs of U.S. manufacturers, sounded like an easy business to cash in on. And it was.
Lured by the 1987 GATT changes, this reporter moved to Tijuana early in 1988 to witness and give journalistic coverage to what was expected to be an in-bond assembly boom. At the time, there were in Tijuana 160 so-called maquiladora industries established in old wooden shacks. It was awesome to watch a state-of-the-art circuit manufacturing computer operating in a facility with a dirt floor.
New industrial parks promptly surged. It was then that in an interview with the manager of one of these parks that businessman Alejandro Bustamante first began talking about the future of Tijuana as an “offshore manufacturing venue.”
The term “offshore manufacturing” was then commonly used by companies that had for decades maintained labor outsourcing and subcontracting operations with Far East manufacturers, particularly those located in Japan, South Korea, Taiwan and Singapore, also nicknamed as “the Four Dragons.”
The naming of the Four Dragons as “offshore manufacturers” stayed, but meanwhile, clients poured into Tijuana looking for a way to move their operations to Mexico.
In those days, the term offshore was discussed and deemed incorrect in the case of Tijuana, given that Mexico and the United States do not share “shores” except for those in Tijuana along the Pacific and Matamoros along the Gulf of Mexico shores, shores that are 1,960 miles apart from each other.
But even while establishing new industries, U.S. manufacturers kept using the term offshore to refer to assembling in Mexico.
This reporter spent a total of two years covering the maquiladora industrial development and Tijuana. By 1990, when I returned to Mexico City, the boom in maquiladora industries in Tijuana went from the mentioned 160, to close to over 800 assembly factories.
But it was not just Tijuana but the rest of the major cities along the Mexico-U.S. border that economically blossomed with the maquiladoras boom. Another key fact is that back in 1990 the Mexican Association of Privately Owned Industrial Parks (AMPIP) grew exponentially from 13 registered members to over 550 members nationwide today.
A radical change came to Mexico’s trading and export practices with the establishment of the North American Free Trade Agreement (NAFTA) on Jan. 1, 1994. The 1988 changes that came with the GATT, seen radical at the time, boomed with the NAFTA. Nothing has been the same ever since.
And further changes came with the 2017 United States-Mexico-Canada Agreement (UMSCA), which further stretched manufacturing opportunities for nearshoring.
One of them was opening Mexico territorially and many manufacturing concerns moving south and inland. Take for instance the central small state of Guanajuato, which now boasts five auto and parts manufacturing concerns plus all of the value-added business that normally grows around big factories. The state changed its face, creating a new metropolitan complex around state capital Guanajuato City and the nearby municipalities of Silao and León. The area, far from the border but with efficient railroad connections both to Ciudad Juárez and Nuevo Laredo, is said to be the off-product of nearshoring.
Also, the much-publicized move by Elon Musk to establish a major Tesla electric car factory in Monterrey is seen as a nearshoring investment.
And further south, at the Tehuantepec Isthmus, the government is just finishing the infrastructure works where this region – from shore to shore, by the way – will be deemed by industrial park promoters as a nearshoring location.
The term nearshoring is, without a doubt, here to stay, but in the old eyes of this reporter, the movement is nothing else but the fact that the maquiladora industrial concept keeps growing.
And by whatever name you call it, that’s good news for Mexico!