Mexico: Selling to the Maquiladora Industry in Baja California.
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Judith Valdes-Breidenstine
March 11
Summary
This report reviews the opportunities for U.S. firms to sell to the maquiladora industry in the Baja California region of Mexico.
Baja California’s maquiladora industry accounts for almost 30 percent of the country’s export manufacturing industry with 932 plants, generating approximately 258,000 jobs. The State of Baja California has a population of 3.5 million and an annual population growth rate of 4.34 percent, with the largest concentration in the cities of Tijuana and Mexicali, with 47 and 33 percent of the population respectively. It is a hardworking industrial region with more than 40 years of experience in international production-sharing activities. According to the State’s Economic Development Office, the State is home to 70 percent of all Asian investment in Mexico, mostly in the area of electronics, where manufacturing reached over 20 million television sets and computer monitors in 2006 (latest figures available). According to Mexican Customs, in 2006 the import market for the maquiladora industry in Baja California exceeded $21 billion, of which over 40 percent was destined for electronics manufacturing, followed by automotive and medical.
From 2001 to 2004, several factors negatively impacted the industry, causing the closure and relocation of over 200 plants to countries with lower operating costs. From 2005 to present, the maquiladora industry entered into a new stage of recovery to levels prior 2001, with new investment in expansion and new technology applied to manufacturing, generating significant opportunities for U.S. suppliers. The most promising sectors include: electric machinery, equipment and parts (HTS Chapter 85); plastic and articles of plastic (HTS Chapter 39); machinery (HTS Chapter 84); articles of iron or steel (HTS Chapter 73); paper and paperboard, articles of paper pulp (HTS Chapter 48), among others.
Market Demand
During 2006, approximately 80% of Baja California's maquiladora imports were found in the following six HTS chapters:
Chapter 85 – Electrical Machinery and electronic parts
Chapter 39 – Plastic and related materials.
Chapter 84 – Machinery and Mechanical Appliances.
Chapter 73 – Articles of Iron and Steel.
Chapter 48 – Paper and paperboard.
Chapter 90 – Medical or surgical instruments.
Mexico: Selling to the Maquiladora Industry in Baja California.
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As the above listing illustrates, the assembly of electronic products (HTS Chapter 85) is the main maquila sub-sector in terms of import value. According to Producen, the State’s Center of Strategic
Information, Baja California is the border state with the greatest number of electronics plants with 193, generating over 91,000 direct jobs, and manufacturing mainly computer and peripheral equipment, communications equipment, semiconductors, control and measuring equipment, audio and video equipment, household appliances and other electrical equipment and components. In 2006, manufacturing plants in Baja California produced approximately 20 million television sets and computer monitors. Largely drawn from the seven largest electronic maquiladoras: Hitachi, JVC, Matsushita, Sanyo, Samsung, Sony, and Sharp. While these plants continue to produce small amounts of conventional television sets, they have almost completely switched to the manufacturing of plasma, DLP (Digital Light Processing) and LCD (Liquid Crystal Display) flat-screen sets. The great
majority of these large plants are concentrated in Tijuana, with 121 plants, followed by Mexicali with 39 companies. The major components and parts imported during this year in this sub-sector were: u-audio/video, k-audio amp boards, semiconductors, electrolytic capacitors, controls, coils, transformers, resistors, speakers, cabinets and cabinet parts, picture tubes, wire assemblies, cable assemblies, top covers, power cords and tap screws.
A second important sub-sector in Baja California’s maquiladora industry is the automotive sector, which currently has 82 plants, employing approximately 30,000 people. Forty-eight of these plants are located in Tijuana with main investment driven by Toyota, Kenworth and Hyundai, manufacturing respectively the Tacoma, Kenworth and Hyundai trucks. In addition to existing plants, China’s ZX Auto and Chamco, its US partner, recently announced a $400 million plan to establish North America’s first Chinese auto plant in Tijuana, Baja California. The first cars and pick-ups are
expected to be manufactured by the end of 2008, with an eventual workforce of 5,000 people.
An additional important sub-sector in Baja California’s industry is the manufacturing of medical devices with a concentration of 62 large companies, generating over 35,000 direct jobs. Thirty-six plants are located in Tijuana. Among the products they manufacture are electro-medical and electrotherapeutic equipment, medical irradiation apparatus, surgical and medical instruments, dental and medical testers, among others.
One last significant industry in Baja California is the manufacturing of plastic parts, used in other Baja California industries, such as electronics, automotive, medical and aerospace. Currently, the industry is composed of 138 companies that generate more than 25,000 direct jobs. Tijuana stands out with 66 percent of the industry. Manufacturing profiles vary and include plastic cabinets for television and computer sets, plastic caps, containers, plastic film for packaging and toys.
Market Data
ESTIMATED MAQUILADORA IMPORTS
BAJA CALIFORNIA
(US$ MILLIONS)
2004 2005 2006
Import market 17,156.0 18,919.71 21,875.82
Mexico: Selling to the Maquiladora Industry in Baja California.
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Local production 343.12 378.39 437.51
Total market 17,499.12 19,298.10 22,313.33
Percentage of Imports from U.S. 58.95 52.40 47.58
Source: Mexico's Secretariat of Economy (World Trade Atlas) and Mexican Customs Office in Tijuana, Mexico
Best Prospects
The following list was obtained by CS Tijuana during a major maquila trade show in Tijuana (BajaMak
2007). It reflects targets of opportunity in the main sub-sectors of the State’s maquiladora industry:
1. Subcategory for the Plastic sector:
; Molded pieces (in general)
; Molded pieces of high precision
; Hoses/pipes/tubes and other extruded materials
; Blow molding (manufactured pieces)
; Thermo formatted pieces
; Roto-molded manufactured pieces (rotational molding)
; Plastic films (flexible and rigid)
; Plastic coverings of other materials (wood, metal, textile)
; Rubber pieces
; Plastics related with upholstery and trimmings
; Fiber glass pieces
; Fiber coal pieces
; Pieces of other composed materials
; Foam pieces (not used for packaging)
; Raw material and additives
; Other plastic supplies
2. Subcategories for the Metal Mechanic sector:
; Production of manufactured pieces
; Stamping die manufactured pieces
; Rolled steel manufactured pieces
; Melted manufactured pieces
; Coverings and finishes (anodized, chromo-plated, painted, etc.)
; Manufacturing and maintenance of moulds, die grinders and dies
; Manufactured stamped, plated, metallic pieces of light caliber
; Manufactured stamped, plated, metallic pieces of thick caliber
; Manufacturing of metallic structures
; Thermal treatment of metals
; Raw metallic materials and accessories.
; Other metal mechanic supplies
3. Subcategories for the Electronic sector:
; Passive components
; Active components
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; Control instrumentation
; Fiber optic
; Electromechanical components
; Harnesses and Connectors
; Printed circuit board (PCB) assembly
; Electronic assembly services
; Sensors
; Light bulbs and lamps
; Cable and wire
; Accumulators (batteries)
; Equipment and tools used in electronic process ; Other electronic supplies
4. Subcategories for the Packaging sector: ; Corrugated cardboard (boxes, partitions, others) ; Flat cardboard (straight, printed, color selected) ; Bags and films for packaging
; Tags and labels
; Packaging complements: handbooks, bulletins, others paper products, etc.
; Platforms and rigid containers
; Foam materials used for packaging
; Bubble packaging and similar materials ; Other packaging supplies
5. Subcategories for the Software sector: ; Development of administrative applications ; Development of process control applications ; Development of product integrated applications ; Consulting service in software (development and implementation)
; Training software
; Other products and software services.
6. Categories for the Specialized Service sector: ; Certification of products, processes and companies ; Manufacturing plant services (maintenance, repair, others)
; Integrated logistics / Exterior Commerce ; Sterilizing/clean rooms services
; Automation of process services
; Graphic designing
; Product designing (engineering)
; Inspection and testing
; Calibration services
; Laboratory services
; Training and specialized technique consulting ; Translation of technical documentation ; Industrial printing
; Treatment of industrial residues
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; Other specialized services
Competitive Analysis
The United States was the primary supplier to the maquiladora industry in Baja California (particularly during the 1994-2000 period) and while the United States still dominates the market for most chapters, products from China are significantly increasing their market share. Generally speaking, imports from Asian countries, such as Japan, China, South Korea, Malaysia and Taiwan have increased as the result of several factors, including aggressive competitive pricing and quality. Moreover, these countries have benefited from the Mexican government of PROSECS (Sectorial Programs) that allow the importation of non-NAFTA products with favored import duties (zero to 5 percent).
CS Tijuana’s interviews with maquiladora managers indicated that they are highly receptive to U.S.
products. However, given the constant need to reduce operation and production costs, they must continuously look for alternative sources of quality products with a favorable pricing. U.S. market share of imports components and materials to the maquiladora industry decreased from 90.23 percent in 2000, to 47.58 percent in 2006. During 2007, the import statistics from January to June indicate a further decrease in market share of 2.3 percent.
Manufacturing plants are looking for innovative and accessible suppliers that are able to fulfill the following criteria:
; Company stability;
; Quality products;
; Just-in-time delivery, thus ensuring low or no on-site inventory;
; Production capacity;
; Availability to influence production at the design stage;
; Inclusion of quality and environmental controls in the production process: ISO 9000 and 14000
certification.
Prospective Buyers
Following is a short list of manufacturing plants established in Baja California and products they manufacture. For additional information on prospective buyers, please contact the Commercial Service Tijuana (contact information at the end of the report):
; Sanyo (Refrigerators, TV Components, Video Components, Batteries);
; Sony (TV Sets, Stereos, CPU monitors);
; Pioneer (Automobile Speakers);
; Samsung (Automobile Speakers, cellular phones, CPU, TV Sets);
; International Rectifiers (Electronic Components - semiconductors);
; JVC (TV Assembly);
; Hitachi (TV Sets, TV Chassis, TV Cabinets, Computer Monitors);
; Plantronics (Headphone sets);
; Sharp (TV Sets, Liquid Crystal Display Screens, Vacuum Cleaners);
; Panasonic (TV sets, TV Tuners, TV Chassis, PC monitors, telephones, batteries and electronic
components);
; Tyco (Medical Disposable Products, Plastic);
; Bose (Car Speakers);
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; Hyundai (Truck Chassis and Containers).
Market Entry – End Users
The end-users are maquiladora plants that manufacture primarily finished products. The most important factors affecting their purchasing decisions appear to be pricing and product quality. Despite the great distance and related transportation costs, several plants still choose to import products from Asia given their good quality and comparatively low price. That being said, purchasing decisions tend to vary, depending on the company's affiliations. Furthermore, the parent company traditionally exercises considerable influence on what to buy and from whom to buy it. U.S. firms need to understand where purchasing decisions are made: at the plant or corporate level.
Market Issues & Obstacles
There are no barriers to exporting products and parts for use by maquiladoras. Once an international firm obtains permission from Mexico's Secretary of Economy to establish a maquiladora, the approval contains a list of machinery, components and parts to be imported duty free, ensured by a NAFTA certificate of origin. A U.S. exporter has to provide an original commercial invoice that clearly lists the products, quantity, description and value.
To obtain import clearance from Mexican Customs, most maquiladoras work with local customhouse brokers to prepare the import paperwork and process the import permit (Pedimento). The customs house broker charges a commission of 0.08 percent, based on the value of the transaction. In most cases, this fee is paid by the maquiladoras themselves.
The temporary import of components/parts by the maquiladora operator does not require special labeling and there are no standards ("norma official Mexicana" or NOMS) that must be met. Special requirements for shipping and handling of the merchandise are determined by the maquiladoras.
Trade Events
MEXPORT 2011
Otay Mesa, California
Second Quarter of the year
www.otaymesa.org
BAJAMAK 2010
Tijuana, Baja California, Mexico
Last Quarter of the year
www.bajamak.com
Tijuana’s Border Program
Tijuana, Baja California, Mexico
Every two months
www.buyusa.gov/mexico
For More Information:
Mexico: Selling to the Maquiladora Industry in Baja California.
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The U.S. Commercial Service in Tijuana and Mexico can be contacted via e-mail at: Monica.Rosas@mail.doc.gov;
Phone: 52 664 622 7450; Fax: 52 664 622 7419; or visit our website: www.buyusa.gov/Mexico
The U.S. Commercial Service — Your Global Business Partner
With its network of offices across the United States and in more than 80 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://www.export.gov/eac.
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Disclaimer: The information provided in this report is intended to be of assistance to U.S. exporters. While we make every effort to ensure its accuracy, neither the United States government nor any of its employees make any representation as to the accuracy or completeness of information in this or any other United States government document. Readers are advised to independently verify any information prior to reliance thereon. The information provided in this report does not constitute legal
advice.
International copyright, U.S. Department of Commerce, 2007. All rights reserved outside of the United States.