MEXICO'S
MAQUILADORA INDUSTRY: WHERE STRATEGIC
HUMAN RESOURCE MANAGEMENT
MAKES A DIFFERENCE (abridged) |
| The U.S-Mexico border is the longest
in the world between a developed
and a developing nation... |
By MARY B. TEAGARDEN , MARK
C. BUTLER and MARY ANN VON GLINOW
Abstract:
Examines the use of strategic human resource
management in Mexico. Border
industrialization program; Maquila dynamics and
contributions; Labor content of a product;
Cross-cultural challenges; Labor law influences
|
| When the challenge is a need to cut
costs, the response is often a
global chase for cheap
labor... ...the path has led
to... countries such as Singapore , Hong Kong,
Taiwan, and Korea...
Mexico, through the maquiladora
option, is becoming an increasingly attractive
"offshore" manufacturing
site... |
Ground-breaking research shows how
human resource strategies can begin to
solve the "people problems" in this
industry. When the challenge is a need to
cut costs, the response is often a global chase for
cheap labor. Such is the logic, simple
and compelling, behind the drive to establish cost-
effective offshore manufacturing sites.
For multinational enterprises (MNEs) on the trail
of the low-cost worker, the path has
led to the developing and newly industrialized
countries of the Pacific Rim, countries
such as Singapore , Hong Kong, Taiwan, and Korea. But
the luster of these now-traditional
offshore manufacturing sites is fading. Rising labor
and other factor costs, coupled with
political instability, have forced production cutbacks
and delivery delays. The current
challenge--to find alternatives.
Thus it is that Mexico, through the maquiladora
option, is becoming an increasingly
attractive "offshore" manufacturing site.
For some U.S. companies, crossing the
2,000 mile common border with Mexico is really not
very new. Large U.S. firms such as
General Motors and Ford, and smaller U.S. firms like
Pulse Engineering have used
maquiladoras for at least two decades. Other U.S.
firms,including General Electric,
Honeywell, International Rectifier, Fisher Price,
Mattel, Kendall, and American Home
Products followed suit. More recently, global
competitors such as Sony, Sanyo, Matsushita,
Hitachi, and Lucky Goldstar have established
maquiladoras. In light of passage of the
"fast track" initiative, part of the Bush
Administration's effort to establish a
free trade zone with Mexico, Mexico's attractiveness
as an offshore manufacturing site is
expected to increase dramatically.
In this article, we first offer a description of
the origin and development of the
maquiladora industry, a perspective deemed necessary
for understanding the commonly cited
"people problems" managers face when
operating in these settings. Next, we
identify the specific challenges to strategic human
resource management in these special
problems create. Finally, we pool our findings and
offer recommendations for designing
maquiladora systems that effectively accommodate
Mexican workers and achieve strategic
objectives. |
|
A
MAQUILADORA BY ANY OTHER NAME. |
| maquila... the fee that a miller
collected for processing
grain... ...Today's maquiladora
are still processing
facilities... |
In colonial Mexico, a maquila, from
which the term maquiladora is derived,
was the fee that a miller collected for processing
grain. Today's maquiladora are still
processing facilities: They process and assemble
myriad products--consumer and industrial
electronic goods, automotive components, wood, leather
and clothing, toys, and medical
supplies to name a few categories. (Some maquilas also
process paperwork--the
labor-intensive sorting of grocery discount coupons,
for example.) Maquiladoras (ma
key'luh door ahs) are frequently referred to as
maquilas (ma key'luhs), and the terms are
use interchangeably. The maquiladora program is
also known as the "twin
plant" "production sharing" or "in
bond" program. The terms
"twin plant" and "production
sharing" stem from earlier anticipation
that paired plants would be established in physical
proximity, one on either side of the
U.S.-Mexico border. The labor-intensive production
processes would occur in Mexico and the
rest of the processes in the U.S. (production
sharing). The anticipated twins have not
emerged, however. As of 1991, only about 10 percent of
maquila plants had
"sisters" on the U.S. side. The term
"in-bond" stems from a provision
that materials for manufacture are imported into
Mexico under a bond that guarantees the
finished product will be exported. |
|
Maquiladora
Roots: The Border Industrialization
Program |
| the Border Industrialization program
(BIP).... ...permitted
establishment of maquilas...for
assembly, processing, or finishing of foreign
material...
...duty-free import of all equipment,
machinery, raw materials...
...as long as the resultant products
were to be exported when
finished...
The goals for the
BIP...
...to increase Mexico's level of
industrialization...
...to create new
jobs...
...to raise the domestic income
level...
...to facilitate absorption of
technology and skills (technology transfer)...
...to attract much-needed foreign
exchange.
Maquilas are especially suitable for
the manufacture of mature products with a labor
content greater than 30
percent...
Maquila managers are permitted
to
staff key management and technical support positions
with expatriates... |
Mexico laid the groundwork for the
maquila option when partially relaxed
restrictive foreign investment policies in 1965
through establishment of the Border
Industrialization program (BIP).... The BIP permitted
establishment of maquilas,
designated as "offshore" manufacturing
plants for assembly, processing, or
finishing of foreign material and components, located
in specified regions along the
U.S.-Mexico border. The program also allowed duty-free
import of all equipment, machinery,
raw materials, and other components needed in
production, as long as the resultant
products were to be exported when finished. This
restriction was subsequently relaxed to
allow sales in Mexico of up to 20 percent of a
maquila's production. In October 1972,
the program was expanded to permit establishment of
plants in the interior of Mexico,
excluding highly industrialized areas such as Mexico
City. Less than 20 percent of the
maquilas however, have exercised the option of
locating in the interior. The number of
maquilas has steadily increased, with the highest
increases following in the aftermath of
the 1982 and subsequent devaluations of the peso--when
the cost of Mexican labor dropped
from what might have been considered "relatively
expensive" to its current
status: one of the least expensive in the world.
Growth has slowed somewhat during 1991.
In December 1989, the Mexican government further
backed the maquila option with the
"Decree for the Promotion and Operation of the
Maquiladora Export Industry"
which again increased the proportion of maquila
products that could be sold in Mexico,
from 20 percent to 50 percent of total production.
Nevertheless, some maquila managers
complain that it is still difficult to sell maquila
products in Mexico because of problems
in accessing channels of distribution and pressure
from Mexican business to encourage
import substitution.
The goals for the BIP have remained the same since
it's establishment: to increase
Mexico's level of industrialization, especially in the
border region; to create new jobs;
to raise the domestic income level; to facilitate
absorption of technology and skills
(technology transfer); and to attract much-needed
foreign exchange. In turn, the program
provides foreign investors an array of benefits
including cost saving, especially
regarding labor, energy, and rent; 100 percent foreign
ownership, if desired; and
proximity to U.S. markets and suppliers. Maquilas are
especially suitable for the
manufacture of mature products with a labor content
greater than 30 percent, as is the
case in the garment, automotive supply, electronic
assembly, and woodworking industries. A
TRW Electronics manager observed that maquilas can
reduce production costs up to 50
percent compared with the "little dragon: (i.e.
Asian) offshore manufacturing sites.
Maquilas enjoy special treatment under both U.S.
Customs and Mexican foreign investment
regulations. Favorable U.S. import laws, instituted in
1965 and modified over pay import
duty on only the value added to the product in Mexico.
Value added is primarily determined
by cost of the labor content, a relatively small
amount. In addition, Mexico imposes no
local content requirements on maquila goods
manufactured for export. In 1990, Mexican
exports to the U.S. under U.S. Customs production-
sharing tariff codes accounted for more
than 54 percent of all developing country (LDC)
exports to the U.S. in this category. This
was a significantly higher percentage than Singapore
(15 percent), Taiwan (8 percent), or
Hong Kong (6 percent)--other popular offshore
manufacturing sites.
Maquila managers are permitted to staff key
management and technical support positions
with expatriates-- often who live in the U.S. and
commute to Mexican border plants daily.
Some maquilas claim that this arrangement avoids many
of the hardships associated with
offshore assignments, and that they are thus able to
attract and retain better expatriate
managers than is possible in more distant offshore
sites. Expatriates (and their families)
do not have to live in the foreign country; they just
work there. In addition, the costs
associated with maintaining an expatriate and his or
her family are greatly reduced.
Moreover, proximity to the U.S. facilitates expatriate-
headquarters interaction, thus
significantly increasing a company's ability to
control its "offshore" site. |
|
Is There a
Maquiladora Industry? |
| U.S. firms account for over 90
percent of the value of maquila
investment and control the largest number of
maquilas...
|
The "industry" is actually
an agglomeration of manufacturers
from various industrial sectors, as cited earlier,
with the automotive and electronic
sectors accounting for more than two-thirds of maquila
production. The diversity is
multifaceted. Manufacturers use a variety of
investment forms to capture the benefits
associated with maquilas, including wholly owned
subsidiaries, joint ventures, and shelter
agreements (subcontracting agreements). There are
numerous industrial parks dedicated to
maquila manufacturing, and plant sizes range from over
2500 employees in some automotive
and electronic assembly units to 60-to-8 person job
shops, these being more common in
woodworking and garment operations. Mexican
officials estimate that about 20 percent of
the maquilas use robotics in assembly operations, a
level considered
"state-of-the-art" in their respective
global industries. The Sony television
maquilas and both Ford and General Motors auto-supply
maquilas are cases in point.
Generally, automotive suppliers cluster in the El
Paso/Juarez region, while electronics
related industries, woodworking and furniture making,
and garment industries cluster in
the San Diego/Tijuana region. Exhibit 1 shows the
location and industry distribution of
maquilas.
U.S. firms account for over 90 percent of the value
of maquila investment and control
the largest number of maquilas; multinationals (MNEs)
such as Ford, General Motors,
Eastman Kodak, Caterpillar, Hewlett Packard, and
Westinghouse command the largest share of
business. In addition, there is an increasing presence
of "third country"
maquilas. Perhaps most notably, Japan is rapidly
increasing its maquila presence. Japanese
MNEs such as Sony, Sanyo, Fujitsu, Matsushita, and
Hitachi use maquilas, and some of these
have encouraged their Japanese suppliers (for example,
Sanoh and Tocabi) to follow. While
Japanese maquilas are small in number, they are large
in size, employing about 15 percent
of maquila workers. Japanese electronic maquilas
locate predominantly in the Mexican state
of Baja, California, adjacent to California, where
they have U.S. affiliates. Automotive
supply maquilas locate in Chihuahua to serve plants in
central U.S.
Korean MNEs such as Samsung, Lucky Goldstar, and
Hyundai have also recently established
maquilas. A small number of manufacturers from other
countries use maquilas. These include
MNEs from West Germany (whose total foreign direct
investment in Mexico surpasses that of
Japan), France, Finland, Canada, the Netherlands, and
Taiwan. As of 1990, the ownership of
maquilas by country shows that the U.S. dominates with
68 percent of the facilities,
followed by Mexico (25 percent), Japan (4 percent),
European Community countries (2
percent), and other Asian countries (1 percent).
Interestingly, Mexican firms are allowed
to own maquilas--they run many of the shelter programs
and operate many of the industrial
parks. |
|
Maquila Dynamics
and Contributions |
| Activity at the U.S.-Mexico
border has increased dramatically
as a result of the
maquilas...
Maquilas form Mexico's most
dynamic
economic sector...
...providing jobs for one-tenth
of
the workforce...
...for four-fifths of Mexico's
manufactured exports
...Mexico's second largest
source of
hard currency...
|
Activity at the U.S.-Mexico border has
increased dramatically as a result
of the maquilas. Investment is currently growing at
about 15 percent a year and is
expected to surge with passage of the "fast
truck" initiative. Mexico is
currently the third largest U.S. trading partner--
Canada being the largest, followed by
Japan. Maquilas form Mexico's most dynamic economic
sector, for providing jobs for
one-tenth of the workforce while accounting for four-
fifths of Mexico's manufactured
exports and two-fifths of total exports to the U.S.
The industry is Mexico's second
largest source of hard currency, surpassed only by
petroleum sales. At the end of 1989,
the total Mexican value-added in maquilas exceeded
U.S. $1.4 billion. More than 427,000
Mexican workers (more than two-thirds of them women
between the ages of 16 and 21) were
employed in the industry, and approximately 1,650
maquilas were in operation. By the end
of 1990, all of these categories showed significant
increases. The total Mexican
value-added in Maquilas exceeded U.S. $1.6 billion.
More than 487,000 workers (again, more
than 60 percent women between the ages of 16 and 21)
were employed in the industry, and
approximately 1,880 maquila plants were in operation.
The dynamic growth of maquilas in
terms of value-added, number of plants, and number of
employees is shown in Exhibit 2. The
U.S-Mexico border is the longest in the world between
a developed and a developing
nation--more than 2,000 miles. The major maquila
venues are pairs of economically
interdependent cities on each side of the border:
tijuana in Baja California Norte paired
with San Diego,California; Nogales,Sonora, with
Nogales,Arizona;Reynosa,Nuevo Leon, with
Mc Allen,Texas; Ciudad Juarez,Chihuahua, with El
Paso,Texas;and Matamoros, Tamaulipas,with
Brownsville,Texas. The Ciudad Juarez/El Paso area
employs the largest number of maquila
workers while the Tijuana/San Diego area has the
fastest growth rate and the most maquila
plants. |
| . |
Maquiladora
Controversy |
| Organized
labor... ...has put U.S. MNEs using
maquilas under fire
for taking jobs away from U.S.
workers...
...for exploiting Mexican
workers...
...some Mexican observers claim
that
maquilas disrupt the traditional Mexican social
system...
|
Maquilas are not without controversy.
The most poignant issues relate to
workforce utilization: especially, U.S workforce
displacement and Mexican worker health
and safety. Organized labor, for example, has put U.S.
MNEs using maquilas under fire for
taking jobs away from U.S. workers, and for exploiting
Mexican workers through low pay and
poor or unsafe working conditions. (The questions of
whether this latter charge is a
matter of perception or reality has been the widely
debated. Whatever conclusion one
reaches depends very much on perspective and point of
view.) Additionally, some Mexican
observers claim that maquilas disrupt the traditional
Mexican social system. Others charge
that maquilas do not meet the originally intended
purpose of employing displaced male
agricultural workers. Additional controversy
surround Japanese maquilas. These are
actually formed by the U.S affiliates of the Japanese
MNEs. Consequently, they are under
fire on two counts: for adding to displacement and for
taking advantage of favorable trade
laws available under the BIP, originally designed to
benefit U.S. MNEs.
Studies by The Wharton School and the U.S.
Department of Commerce, among others,
conclude that use of maquilas by U.S. corporations
(with either U.S. or Japanese parents)
actually have a neutral to slightly net-positive
effect on U.S. jobs. This do not mean
that maquilas do not create displacement. It means,
rather, that jobs can be lost in
Detroit and St. Louis and created in San Diego and El
Paso, and that low-skill jobs are
exported while semiskilled jobs are created. |
| . |
Why Managers Opt
for Maquilas |
| The realities of a dynamic,
interdependent global economy
drive MNEs to seek low cost manufacturing
alternatives... ...lower costs
come from wage reductions as
well as so-called "other factor" costs, such
as energy and plant and equipment
expenses...
...low wage rates are the most
often
cited benefit of offshore
manufacturing...
...Mexico's maquiladora option
has
emerged as an attractive
choice...
...Mexico's population is
relatively
well-educated and the second youngest in the
world...
...maquila managers repeatedly
cite
"people problems" as the most troublesome
area... |
The realities of a dynamic,
interdependent global economy drive MNEs to
seek low cost manufacturing alternatives. With the
offshore manufacturing option, the
lower costs come from wage reductions as well as so-
called "other factor" costs,
such as energy and plant and equipment expenses. in
the Asia Pacific
rim,Taiwan,Singapore,South Korea, and hong kong--the
"little dragons"--have
traditionally been the preferred low-cost offshore
manufacturing sites. When wages and
"other factor" costs in these countries
started to climb, many MNEs began to
look at the People's Republic of China, Thailand,
Malaysia,Indonesia, and (to a lesser
extent) Viet Nam as attractive alternatives.
Indeed, low wage rates are the most often
cited benefit of offshore manufacturing, and the new
Asian entrants have very low wage
rates. Nevertheless, recent studies indicate that
Mexico's fully-fringed wage rates are
lower than Pacific Rim countries such as Hong
Kong,Taiwan,Singapore, and Korea.
Moreover,these rates are lower than in Latin American
countries such as Brazil, and lower
than European Community countries such as Spain and
Portugal. More, important,however, is
the cumulative effect of a number of other factors.
These include not only upward cost
pressures in manufacturing processes,wage rates,and
"other factor costs," but
also the loss of GSP(General System of Preferences)
duty-free privileges among the
"little dragons" as of January 1989, and the
hidden costs associated with recent
and persistent political turbulence in the Pacific Rim
countries. Together, these factors
have induced MNEs to seek alternative low-cost
manufacturing sites, and Mexico's
maquiladora option has emerged as an attractive choice-
-called a "bargain" by
some. Exhibit 3 illustrates this point by comparing
wage rate trends,tariff
status,political stability,and labor availability in
popular offshore manufacturing sites.
The abundant labor source is a key factor: Mexico's
population is relatively
well-educated and the second youngest in the world.
Add to this fact of proximity to U.S.
markets and U.S. suppliers,and one begins to
understand the advantages of this
alternative. Some analyst go so far as to suggest that
San Diego/Tijuana will replace Hong
Kong/Canton as the preferred low-cost offshore
manufacturing site after 1997,when Hong
Kong reverts to the People's Republic of China(PRC).
Despite these substantial benefits, there are
problematic issues-- and maquila managers
repeatedly cite "people problems" as the
most troublesome area. Indeed, use of
Mexico's maquiladora option presents any foreign
parent with significant strategic
challenges in international human resource
management(IHRM). |
| . |
DEFINING THE
IHRM CHALLENGE |
| ...labor
content... ...is a function
of...
...the hourly wage rate
and...
...worker productivity or
output...
|
The labor content of a product is
actually a function of two factors: the
hourly wage rate and worker productivity or output.
Since "cheap Mexican Labor"
is a primary maquila benefit, HR issues have to come
into sharp focus on the productivity
side of the equation. In other word, poor quality work
and sluggish productivity can tip
the balance--and there lies the rub. Our research
coupled with a synthesis of case
studies and the scant literature available, has begun
to map the strategic IHRM challenges
in confronting this issue. Key components here
include: (1)a workforce comprised of young
"green hands" (workers without previous
manufacturing or other meaningful work
experience),often from rural Mexico, (2) significant
cross-cultural challenges,
(3)abundant unskilled labor, (4)labor law influences
the commonly favor the worker,and
(5)family management issues that spill over to the
workplace. There are clearly
differences in the intensity of these challenges,
depending on region(interior or border)
and location, among other factors. Still,they are
common threads within the industry. |
| . |
Young "Green
Hands" |
| ...many workers have migrated
to the area from the
interior... ... they are separated from
their families...
...two-thirds of the maquila
assembly
workers are women between the ages of 16 and
25...
...employers claim that men do
not
see assembly jobs sufficiently
"macho"...
|
Although most maquilas are located
along the U.S.-Mexico border, many
workers have migrated to the area from the interior
within the last five years. Thus, they
are separated from their families. The average age of
the Mexican population is sixteen,
and two-thirds of the maquila assembly workers are
women between the ages of 16 and 25
with little manufacturing-related work experience.
Most workers have completed between six
and nine years of education. Maquila employers,
especially in electronic manufacturing,
explain that young women are best suited to assembly
processes requiring high levels of
fine motor skills and manual dexterity. Moreover,the
employers believe that women can cope
better than men with the tedious work required,and
that they are more stable than men.
Culturally-biased perceptions also color the the
arguments. For example, employers claim
that men do not see assembly jobs sufficiently
"macho" and thus avoid them. Some
researchers see these "cultural" arguments
as specious, asserting that young
women are hired because they are docile,compliant,and
hard to unionize. Gender-related
maquila employment trends, however, are changing. For
example,the employment of men in
maquilas is increasing,from 15 percent of the
workforce in 1965 to 44 percent in 1990. Men
are more prevalent in woodworking and furniture
manufacture,leather processing, and
automotive-supply sectors of the industry. In the
border maquilas, the increase in male
workers may be the results of another trend: some of
these individuals are using maquila
employment as a stopover on their way north. |
| . |
Cross-Cultural
Challenges |
| The "machismo"
associated with Latin American men
shows itself in behaviors such as pride, reluctance to
admit error or ignorance, and an
unwillingness to do "women's work."
... Mexicans value an extended
kinship system in
which relatives, clans, and organizations are expected
to look after... the
individual...
...in exchange, the individual
owes
absolute allegiance and loyalty to the
system...
In the maquila, paternalism is
expected...
Managers and supervisors are
expected
to be the authority...
...their status is
respected...
...workers become a manager's
"extended
family"...
...the manager is the patron
(pah'trone)... |
Cultural differences are found among
workers, local supervisors and local
management. The "machismo" associated with
Latin American men shows itself in
behaviors such as pride, reluctance to admit error or
ignorance, and an unwillingness to
do "women's work." And this
"machismo" sometimes makes for
less-than-effective supervision. Consider, for example
a story cited by M.E. DeForest, an
automotive industry consultant: Recently, an
American manager of a Mexican, maquiladora
producing automotive parts was proud that his final
inspection reports received 98 or 99
percent quality ratings. However, he was puzzled.
Production efficiencies were low and raw
materials costs inexplicably high. Determined to find
out why, he was aghast to learn that
the supervisors [all male] secretly threw out the bad
pieces every night. He was unaware
that the Mexican supervisors were too proud to
"confess" they did not know how
to adjust the malfunctioning equipment. So they chose
to discard bad pieces.
"Family" and "family structure"
play very important roles in the
Mexican worker's life. As Oscar Lewis commented,
"Without his family, the Mexican
individual stands prey to every form of
aggression,exploitation,and humiliation. "
Mexicans value an extended kinship system in which
relatives, clans, and organizations are
expected to look after, or care for, the individual;
in exchange, the individual owes
absolute allegiance and loyalty to the system.
In the maquila, paternalism is expected -- management's role is to
take care of the workers. Managers and supervisors are
expected to be the authority --
their status is respected,and in return the worker's
status is also respected. From this
perspective, then, workers become a manager's
"extended family"; the manager is
the patron (pah'trone) or father figure. One survey we
conducted underscores this
expectation. When maquila assembly workers were asked
what they would change if they were
supervisors,responses included encouraging workers to
share problems so that supervisors
could make necessary or appropriate changes to solve
them; helping the workers actually do
their jobs; creating a more sociable work environment;
holding social events; not making
workers nervous; and allowing workers to work at their
own pace. The manager's role is
greatly enlarged when compared to expectations in the
U.S. |
| . |
Abundant,Unskilled Labor |
| Maquilas are assured the right
to determine their staffing
needs... Union
influence is strong in some
regions...
Unions tend not to be militant
and to
supply a pool of readily available
labor...
Maquilas... have a difficult
time
recruiting skilled labor... |
Maquilas are assured the right to
determine their staffing needs, and to
recruit and fire personnel on their own. This
contrasts,for example, with practices in the
PRC, where staffing policies can require absorption of
an unwieldy number of excess
employees. Union influence is strong in some regions
(especially the Eastern Mexican
Border region). Most maquila employers, however, see
this influence as having a positive
impact on maquila effectiveness: Unions tend not to be
militant and to supply a pool of
readily available labor. According to one
employer,"we announce 50 opening on
Friday,and by Monday we have 500 applicants,"
some of whom will "jump" from
others maquilas to shorten a commute or to get
marginally better working conditions. In
the past,rapid growth of maquilas caused some
temporary labor shortages along the Texas
borders, but most employers now report that this is no
longer a problem. The abundance
of applicants allows employers to select those most
suitable for assembly jobs. Mexican
workers are willing to participate in such screening
because of the relatively good wages
and benefits available in maquilas as opposed to other
local employment opportunities.
Maquilas do, however, have a difficult time recruiting
skilled labor. Maquila managers who
express satisfaction with their operations commonly
engage in extensive,and often
costly,training to accommodate skilled labor staffing
needs. |
| . |
Strong Labor Law
Influences |
| Mexico's labor law...
specifies... ...vacations
and holidays...
...acceptable reasons for
termination...
...provision for pregnant and
nursing
mothers...
...seniority premium
pay
...minimum
wages...
...work week is forty-eight
hours...
...one week of vacation after
the
first year of employment...
Mexico does not have
termination-at-will... |
Mexico's labor law has a strong
influence on a firm's HR practices. It
specifies vacations and holidays, acceptable reasons
for termination, provision for
pregnant and nursing mothers, and seniority premium
pay, among other stipulations. Mexico
controls minimum wages, which vary by region and
employment classification. The work week
is forty-eight hours, but many maquila employees work
five nine-hour days(forty-five
hours) and are paid for forty-eight hours. Benefits
such as holiday pay, meal, housing,
childcare,and production incentives can boost wages 30
to 100 percent above the minimum
wage, although many of these benefits are optional.
One week of vacation after the first
year of employment is required,and this increases two
days for each additional year
employment until two weeks of vacation are reached. A
25 percent premium is paid on
vacation pay. Generally when a worker is hired, the
employer has four weeks to evaluate
his or her performance. After that point,the worker
becomes permanent under a system that
generally favors the employee. Since the Mexico does
not have termination-at-will
doctrine, termination can be costly. Mexican employees
with permanent status have work
contracts with their employers that require severance
pay upon termination or lay-off.
Maquila managers suggest that some workers work until
they build up a sufficient amount
guaranteed severance pay benefits to see them through
the year,then take the balance of
the year off. |
| . |
Family
Management Issues |
| "Family reasons" are
the most often cited
explanation for...
absenteeism... ...the need to
take care of other members of the family
system...
...to the Mexican worker...
"family reasons" is a legitimate excuse for
absence...
...some maquilas... face
turnover
approaching 30 percent per
month...
...maquilas must do extensive
training... in order to assure minimum levels of
competence... |
It is not uncommon for workers to
leave on vacation or for the Christmas
holidays and fail to return to work as scheduled.
"Family reasons" are the most
often cited explanation for failing to return as
scheduled,as well as for absenteeism.
"Family reasons" include, among other
things, the need to take care of other
members of the family system: small children, sick
children, brothers, and sisters, and
elderly parents and relatives. If the worker's family
is located in the interior, taking
care of "family issues" may involve
returning home resolve the problem. Recall
that "family" is very important to the
Mexican worker, and from the employee's
perspective,"family reasons" is a legitimate
excuse for absence. Despite
these "add-ons" and entitlements, maquila
workers remain among the lowest paid
in the world. However, some maquilas, especially along
the border, face turnover
approaching 30 percent per month as well as very high
absenteeism -- factors that greatly
increase labor costs. In addition, many maquilas must
do extensive training of unskilled
workers in order to assure minimum levels of
competence in competitive production
environments. Many foreign and local managers lament
that maquila employees just
"work to live" and are simply not committed
to the job. Nevertheless, some firms
have made very effective use of the maquila option,
and IHRM responses to the challenges
at hand are the heart of their reported successes. |
| . |
MEETING
STRATEGIC CHALLENGES THROUGH IHRM |
| Most entry-level maquila
workers are "green hands"
from an agrarian
background...
...training is needed to develop
different work and social
skills...
...maquila workers considers
training
an important benefit...
In addition to job-related
training
some employers offer general education courses at the
worksite...
...wages are higher in maquilas
than
in other Mexican manufacturing
alternatives...
...perquisites are used to
enlarge
the compensation package...
The loyalty maquila workers feel
toward the firm is strongly influenced by their
attitude toward their immediate
supervisor...
Mexican workers typically say their
supervisors and managers did not view them as peoples
or as individuals... the performance
appraisal process offers a context in which many such
misperception or myths can be
dispelled or modified... |
Recruitment. High
turnover may stem from ineffective
recruitment policies. Employees are commonly recruited
via word of mouth, or by signs hung
outside of the maquilas. In addition, it is common for
family members to seek employments
for relatives. Regardless of which of these
recruitment approaches a company uses,
managers should consider developing truly strategic
recruitment practices:i.e., developing
a system that generates a qualified labor source in
sufficient numbers to insure effective
employee selection. Maximizing this selection ratio
allows maquila managers to stabilize
what can be dramatic fluctuations in the workforce.
Selection. In general practice,
the employer interviews a prospective
employee once, in Spanish. The more effective maquilas
with which we are familiar employ a
far more extensive screening (including physical
examinations, intelligence tests,and
dexterity tests) prior to hiring. Although the
evidence is anecdotal, maquilas using this
more extensive screening report turnover rates lower
than industry averages. Workers who
stand out on intelligence test, but not on dexterity
tests, are often channeled into
clerical and administrative positions. But even this
does not obviate culture patterns.
Many young female workers work only until they marry
and start a family; and some men from
the interior use maquilas as a stopover on the route
north.
Training. Most entry-level maquila
workers are "green hands"
from an agrarian background, a setting in which the
social infrastructure does not support
or emphasize the work patterns in industry:punctuality
and regular attendance, for
example. Thus, training is needed to develop different
work and social skills. Most plants
use on-the-job training as the primary vehicle to
familiarize workers with job
requirements, and initial orientations stress
"basics" like safety issues and
the importance of punctuality and regular attendance.
Some plants encourage supervisors to
make personal contacts with newly hired workers to
enhance this training. In addition, the
electronics and automotive industries commonly conduct
training in total quality control
and quality circle techniques, and electronics
industries often train in welding and
soldering skills. U.S. and Japanese companies, like
Ford and Sony, have invested heavily
in additional training for key technical personnel.
Many maquila workers considers training an
important benefit. In addition to
job-related training some employers offer general
education courses at the worksite. These
courses often target personal needs: budgeting, family
finances, and basic health care
practices, for example. For workers who come from the
interior,and are thus separated from
a supportive a family system, this education can play
an important role. Maquilas that
offer training,both job-related and general,report
lower turnover rates than industry
averages, an higher productivity. Again,however, these
reports ar largely anecdotal.
Reward System. While wages are
higher in maquilas than in other
Mexican manufacturing alternatives, there is
considerable pressure from domestic
non-maquila employers to keep maquila wages low.
Consequently, perquisites are used to
enlarge the compensation package, and some maquilas
have reduced turnover and absenteeism
dramatically through use of additional
"perks" targeted at specific employee
needs. Allen Bradley, Pulse Engineering, and Sanyo,
among others, offer perquisite
combinations that may include transportation from
central urban and rural locations to the
plant; employee funds based on hours worked and
distributed on a scheduled basis; quality
and punctuality bonuses; on-site health care clinics
for workers and their families;
cafeterias that serve traditional Mexican food, often
free; free beverage dispensers;
shower facilities for those who do not have these
available at home; on-site education(in
addition to work-related training); athletic
activities;and packages of food and make-up
for women workers.
Maquila managers report that these rewards do
enhance overall effectiveness in their
manufacturing sites while maintaining low
manufacturing costs. These reports, again, are
largely anecdotal.
As with all such interventions, one critical
question needs to be raised: Are the
rewards received by maquila workers tied to
performance? To the degree that the extensive
array entitlements and prerequisites provided are seen
as parts of a new extended family
system (the boss as the patron), rather than as
rewards, a key problem develops: Every
time you give a "reward" for something other
than performance--for example, just
showing up for work (punctuality bonus) -- you give
the employee one less reason to
perform. Our observation indicate that worker
expectations about the roles of employer and
employee have a strong influence here: Maquila workers
perform because the employer is
providing expected entitlements, thus filling the role
of patron. However, performance is
higher in maquila where rewards, such as punctuality
bonuses, are directly tied to quality
and output performance targets.
Appraisal. The apparent, or at
least dominant, function of appraisal
in maquilas at the current time seems to be very
traditional: namely, to track, for
internal promotion purposes, those individuals with
the greatest demonstrated ability to
supervise the efforts of other maquila workers, or to
simply perform adequately on the
job. However, a more strategic look at the appraisal
function provides additional and
useful potential. In light of the high turnover rate
experienced by most maquilas, the
performance appraisal setting provides a unique
opportunity for supervisor and employee to
engage in a number of developmental activities. The
loyalty maquila workers feel toward
the firm is strongly influenced by their attitude
toward their immediate supervisor.
Content analysis of open-ended responses to surveys
administered in maquilas uncovered
a chronic complaint: Mexican workers typically say
their supervisors and managers did not
view them as peoples or as individuals, simply as
workers. Modern, strategic views
indicate that the performance appraisal process offers
a context in which many such
misperception or myths can be dispelled or modified.
Given the limited ability of the most
maquilas to offer added wage incentives and the
increasing levels of competition between
maquilas, positive gains could be realized when simple
procedures like performance
appraisal are altered to appear to the developmental
needs of employees. |
| . |
Family Issues
Management |
| Problems associated with the
management of family issues have perhaps
the most insidious influence on maquila
effectiveness... |
Problems associated with the
management of family issues have perhaps the
most insidious influence on maquila effectiveness. (Re-
call that family issues are the
most often cited reason for both turnover and
absenteeism.) Effective maquilas have
addressed these issues in various ways. For example,
some provide on-site health care
facilities for workers and their families; others have
developed or coordinated childcare
facilities; and others make small loans to workers to
help in a financially troubled
times. All of these options contribute to the overall
cost of labor, but the firms using
these options feel the benefits of stabilizing the
workforce outweigh the costs of the
programs,and that offering these perquisites make them
more attractive employers. |
| . |
Career Issues
|
| ...growth seen over the past decade, which
reached as high as 30 percent
per year, has slowed to between 16 and 18 percent
annually...
In order to remain competitive
with what will become an increasingly "in
demand" resource, organizations should
begin now to invest in career development for their
workers... |
To the degree that the maquila
industry remains marked by the instability
of heavy turnover, the initial response regarding
career issues may be a simple and
cynical "why bother?" But it is important
"to bother" -- for several
reasons. First, many workers we have surveyed indicate
clearly that their principal
interests are in being provided with career
advancement opportunities. In particular, a
group of workers interviewed and surveyed in the
Tijuana/San Diego area indicated their
preference for learning more about what their American
counterparts did on the job, even
if that meant forgoing salary or wages increases. This
strongly suggests a key role for a
developmental approach in maquila HRM. Second,
indications exist that the maquilas in
some border regions are beginning to stabilize. For
example, in the Tijuana/San Diego
area, the rapid growth seen over the past decade,
which reached as high as 30 percent per
year, has slowed to between 16 and 18 percent
annually. Furthermore, growth is projected
to remain stable, or decline only slightly, over the
next several years, even with full
implementation of the North American Free Trade
Agreement (NAFTA). In order to remain
competitive with what will become an increasingly
"in demand" resource,
organizations should begin now to invest in career
development for their workers to create
opportunities and build in incentives for longer term
commitment. |
| . |
SPILLOVER
BENEFITS OF STRATEGIC IHRM |
| MNEs are willing to transfer more
technology-intensive manufacturing
processes when they believe their affiliates are
effective...
|
Effective IHRM design has
implications, for MNEs and for Mexico, that
reach far beyond the maquila. To the degree that
culturally appropriate and effective HRM
systems can be developed and implemented in maquilas,
Mexico will become the recipient of
valuable "soft" technology -- HRM technology
-- that spills over to other
maquilas and to remaining portions of the domestic
industry. As the application of
effective HRM practices is diffused throughout the
maquila industry, maquilas become an
increasingly attractive offshore manufacturing site
for MNEs, thus increasing the
likelihood that higher levels of direct foreign
investment will occur. In addition, MNEs
are willing to transfer more technology-intensive
manufacturing processes when they
believe their affiliates are effective. Thus,
effective maquilas serve as a magnet for
more technology-intensive manufacturing processes that
also spill over to domestic
industry. MNEs benefit in several ways as well,
some obvious and some not so obvious.
To the degree the maquilas represent an effective
offshore manufacturing option, MNEs
enjoy the benefits of low labor and other factor
costs; proximity to U.S. markets and
suppliers -- thus, low transportation costs; control
enhanced by proximity to the parent
firm; and preferential treatment on re-imported
products. All of these contribute to
global competitiveness. |
| . |
CONCLUSION
|
| . |
The... region created by the NAFTA
will be more populous than the European
Community(EC), and not far behind the EC in industrial
output and gross national
product... Maquilas represent an excellent incremental
expansion opportunity for U.S. and
Canadian-based MNEs that plan to take advantage of the
benefits of the NAFTA. Finally,
there are even greater benefits from effective maquila
use that can accrue to MNEs,
benefits that have implications for the MNEs long-term
global competitiveness. Effective
management of a maquila represents significant
challenges to the MNEs ability to manage
global diversity -- the myriad cultures and contexts
in which MNEs operate. As MNEs learn
to be effective maquila managers, they also learn how
to be effective managers of global
diversity. Other cultures and contexts the MNE
encounters may well be very different but
the processes they use to be effective managers in the
face of this diversity are the
same. We suggest that ultimately, those MNEs that
master the management of global
diversity -- those who can best leverage their human
assets -- will be the MNEs that win
the global competitiveness challenge. |
|
SELECTED
BIBLIOGRAPHY |
|
For a more comprehensive view of the
maquila industry, two publications
are particularly useful: N.C. Clements, S.R. Jenner,
P. Ganster and A. Setran's
maquiladora Resource Guide and N.C. Clement and S.R.
Jenner's Location Decisions Regarding
Maquiladora/In-Bond Plants Operating in Baja
California, Mexico. Both are available from
Institute for Regional Studies of the Californias, San
Diego State University, San Diego,
CA 92182. The topic is also discussed by Peter Drucker
in "Mexico's Ugly
Duckling--the Maquiladora," Wall Street Journal,
October 4,1990. In addition, an
excellent discussion of high technology in Mexico is
presented by H. Shaiken in "High
Tech Goes Third World," Technology Review,
January 1988, pp.39-47. The contribution
of maquilas to global competitiveness has been
discussed by B.O'Reilly in "Business
Makes a Run for the Border," For tune, August
18,1986, pp.70-74; by S.W.Sanderson and
R.H.Hayes in "Mexico--Opening ahead of Eastern
Europe," Harvard Business Review,
September-October 1990, pp.32-42; and J.P.McCray and
J.J.Gozalez in "Increasing
Global Competitiveness with U.S.-Mexican Maquiladora
Operations," SAM Advanced
Management Journal,1989, Vol 51, Summer, pp.1-8. Also
see L.Sklair's chapter
"Mexico's Maquiladora Programme: A Critical
Evaluation," in G. Philip (Editor),
The Mexican Economy, London: Croom Helm,1988.
Japanese firms' strategies in Mexico are discussed
in G.Szekely and D. Wayman's article
"Japan's Ascendance in the U.S. Economic
Relations with Mexico," SAIS Review,
WinterSpring 1988, pp. 171-188; and in the United
States Congress, Subcommittee on
Commerce, Consumer and Monetary Affairs of the
Committee on Government Operations report,
Maquiladora Impact on U.S. Jobs and Trade Competition
with Japan, Washington, DC: U.S.
General Accounting Office, 1987.
For additional information on Mexican culture we
suggest Robert Pastor and Jorge G.
Castaneda, Limits to Friendship: The United States and
Mexico, New York: Alfred A Knopf,
1988; Eva S. Dras, Management in two Cultures:
Bridging the Gap Between U.S. and Mexican
Managers, Yarmouth, ME: Intercultural Press Inc.,
1989; Alan Riding, Distant Neighbors: A
Portrait of the Mexicans, New York: Alfred A Knopf,
1985; Patrick Oster, The Mexicans, New
York: Harper & Row, 1989; and M.P. Fernandez-
Kelly's For We Are Sold, I and My People:
Women and Industry in Mexico's Frontier, Albany, NY:
SUNY Press, 1983.
This research was partially funded by a San Diego
State University Center for
International Business Education and Research (CIBER)
research grant. We would like to
gratefully recognize our international business and
MBA students who have challenged us
and refined our thoughts on this topic.
By MARY B. TEAGARDEN , MARK C. BUTLER and MARY ANN
VON GLINOW
Mary B. Tegarden is an associate professor of
management at San Diego State University.
She received her B.S. from California State
University, Northridge, and her PH.D.> in
global strategic management and strategic change from
the University of Southern
California. She teaches global strategic management,
comparative management, and business
strategy in the undergraduate, graduate, and executive
MBA programs and has received both
the Outstanding Faculty Award and the Meritorious
Performance and Professional Promise
Award. Dr. Teagardens's research interests include
U.S. competitiveness, offshore
manufacturing human resource management. Her research
focuses on the Mexican maquiladora
industry, business dynamics in the Asian Pacific Rim,
and centrally planned economies
(Peoples Republic of China and the Soviet Union). She
has published articles on her
research in Human Resource Management, Management
International Review, International
Studies of Management and Organization, Asian Pacific
Management Journal, Business Forum,
and International Human Resource Management. She has
chapters in Readings and Cases in
International Resource Management (PWS-Kent) and
Mananagement in China (Sharpe), and six
case studies published in International Technology
Transfer (Xinhau University Press)
Mark C Butler is an associate professor of
management at San Diego State University. He
received his B.A. and M.A. degrees in social
psychology from San Diego State University
and his Ph.D. in organizational psychology from Texas
Christian University. Professor
Butler teaches courses in organizational behavior,
human resource management, and research
methods at undergraduate, graduate, and executive
development levels. Prior to joining the
faculty at SDSU, Professor Butler taught at the
University San Diego School of Business
and at Texas Christian University. Dr. Butler's
research interest include international
human resource management, leadership, organizational
effectiveness, and worker safety and
health. His work has been published in such journals
as personnel Psychology, Journal of
Applied Psychology, Academy of Management Journal, and
Psychological Bulletin. He is a
member of several professional organizations including
the Academy of Management and the
American Psychological Association. Professor Butler
has consulting experience with
several national and local organizations, including
American Airlines, MayCenteres
Corporation, Home Federal Savings and Loan
Association, University of California Medical
Center, San Diego, and the Sharp Rees-Stealy Medical
Group. Prior to beginning his
teaching career, Professor Butler served as a
commissioned officer in the Medical Service
Corps of the U.S. Navy
Mary Ann Von Glinow is professor of management and
organization at the University of
Southern California's Graduate School of BUsiness
Administration. She received her B.A.
political science from Bradley University, her M.B.A.
and M.A. in public administration
and her Ph.D. in management science from The Ohio
State University. Among her recent
publications are The New Professionals: Managing
Today's High Technology Employees
(Ballinger, 1988), Managing Complexity in High
Technology Organizations (Oxford University
Press, 1990), United States-China Technology Transfer
(Prentice Hall, 1990), and
Technology Transfer in International Business (Oxford
University Press, 1991). She is
currently completing a book on Managing Global
Diversity, slated for publication in 1992.
She has also published numerous articles on her
research, which centers on the management
of high technology and professional employees,
international technology transfer, and
"best international HRM practices" in
journals such as Organizational Behavior
and Human Performance, Management Science, Academy of
Management Journal of Business
Research, Academy of Management Review, IEEE
Transactions, Human Resource Management,
Management International Review and others.
Source:
Organizational Dynamics, Winter92, Vol. 21
Issue 3, p34, 14p, 2 charts, 3bw.
Item Number: 9608270003 |
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