Mexican Maquiladoras. New Capabilities of Coordination and the Emergence of New Generation of Companies.

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1 Carrillo, J. y Lara A. "Mexican Maquiladoras: New Capabilities Coordination and the Emergence of New Generation of Companies. Innovation and Economic Development. Vol. 7, no.2/3, April-August, Australia, 2005, pp Mexican Maquiladoras. New Capabilities of Coordination and the Emergence of New Generation of Companies. Jorge Carrillo Full Time Researcher, El Colegio de la Frontera Norte, Tijuana, Mexico carrillo@colef.mx and Arturo Lara Professor/ Researcher Department of Economic Production and of the Master s in Economics and Technological Change Management, Metropolitan Autonomous University, Xochimilco Mexico City, Mexico alara@cueyatl.uam.mx. ABSTRACT The assembly industry for export in Latin-American countries such as Mexico (called maquiladoras or in-bond industry ) is in the biggest crossroad in its history. On one hand, it is observed a great competitiveness of the auto parts and electronics plants and the diffusion of more complexity, technology, organization and skills (companies of second and third generation) and even of new aspects of centralized coordination that they represent qualitative changes. But on the other hand the maquiladoras are in the most serious crisis in their history that has negative impacted to the employment, to the regional activity where they are located and to the reduction of foreign direct investment. Even though maquiladora manufacturing is once again picking up largely due to economic recovery in the United States there is a growing concern among strategic local actors, that two year s crisis could be the beginning of a long term decline in manufacturing along the border due to Mexico s relatively high cost of labor when compared to that of countries like China. In this context the analysis of different types of companies according with their productive, organizational and labor complexity (generations) it is a good analytical instrument since the companies are being affected in a different way by the economic recession and particularly by the new competitors. This article is structured in five sections. Section one an two presents the importance of maquiladora in the case of Mexico and its current international debate. Section three shows a description of the three generations. Section fourth is a critical 1

2 discussion of generation of companies. Finally, the section five presents the proposal of a new forth generation of companies, based on centralized coordination of different activities. The research results are based on a case study at Delphi Corporation located in Juarez-Mexico KEYWORDS Maquiladoras, upgrading, capabilities, generation of companies, Delphi Corporation 2

3 1. Introduction1 In the current debate around the process of technology globalization, we can identify two groups, with two different positions. In the first group, Patel (1995) maintains that there is no systematic evidence to suggest greater technological globalization. After analyzing the patenting activities of the world s 686 largest companies, Patel and Pavitt (1992) confirm that technology production by these companies is a clear case of non-globalization. Based on varying quantitative measurements, other authors agree with these results, specifically Howells (1990) and Dorrenbacher and Wortman (1991), who use databases of the number of personnel assigned to Research and Development (R&D), and Patel and Pavitt (1992) and Cantwell (1995), who analyze patenting activities. There is a second group of studies based on analysis of cases of companies, industries and countries that maintains, to the contrary, that R&D activities are indeed going through a globalization process. These results indicate that R&D activities are being carried out in host countries in relation to adapting products and processes to the conditions of each local market and corresponding legislation (Pearce and Singh, 1992). This research also indicates that there is a set of political factors influencing companies in their decisions to locate activities in countries other than the home country (Hakanson, 1992). Casson (1991) and Dunning (1992) maintain that transnational corporations generally establish R&D laboratories as a consequence of direct foreign investment. Cantwell analyzes the patenting activity of 857 companies during the period, and discovers an important finding: that it is no longer possible to accept the existence of a single 1 This article is part of a broader research project: Technological learning and industrial upgrading: prospects for generating technological capabilities in maquiliadora companies along the northern border, CONACYT no &

4 center, when the globalization process indicates the existence of multiple centers (Cantwell, 1995). Our research can be included in this second group of studies. And from this perspective, we have posed the following questions: What were the factors and conditions that encouraged the globalization of Delphi s productive activities in Mexico? How did the creation of a technical center in Mexico affect the interaction among the divisions and establishments located in that country? To what degree were the forms of control and monitoring in the various divisions and establishments located in Mexico modified with the creation of a research and development center in that country?. Before answer these questions, we need to address the content of our case, the maquiladora industry and their debate. 2. The Maquiladora Industry The assembly industry for export in Latin-American countries such as Mexico (called maquiladoras or in-bond industry ) is in the biggest crossroad in its history. On one hand, it is observed a great competitiveness of the auto parts and electronics plants and the diffusion of more complexity, technology, organization and skills (companies of second and third generation) (Carrillo and Hualde, 1998) and even of new aspects of centralized coordination that they represent qualitative changes (Urostegui, 2002; Lara and Carrillo, 2003). But on the other hand the maquiladoras are in the most serious crisis in their history that has negative impacted to the employment, to the regional activity where they are located and to the reduction of foreign direct investment (FDI). The paradox of the new millennium can be enunciated in the following way: the biggest modernization and industrial upgrading of their plants, organizations and human resources, it is limited by structural loss of their competitive advantages. The follow questions are being studied at every business forum and academic conference held in Mexico and in the southwest of the US in connection with the maquiladora: Has the maquiladora model been exhausted? Is it undergoing 4

5 transformation? Is there room for active policies? There can be no doubt that the backdrop for all these doubts and strategies to be formulated is the emergence of a new dragon: China. Although the aim of this work is not to answer such broad questions, nor to resolve the initial paradox, it does have a direct bearing in this discussion given that it outlines a particular phenomenon: the upgrading of companies, the diffusion of the third generation ( knowledge intensive plants ) and the possible emergence of a new, fourth generation of maquiladora company, as we will see latter. The existence of knowledge intensive plants (or third generation) has been received recognition among business people as well as academics. The modernization of the export maquiladora industry is now an irrefutable reality and has come a long way from the old stereotypes that characterized it in the 60s & 70s, namely monotonous work carried out by women, low levels of technology, simple assembly activities and the lack of local linkages. But this process really means that the maquiladora industry have evolved and now are more third generation type? Clearly not. On the contrary, this is a dynamic process, not only subject to different types of external and internal pressures, but also success and failure cases. Not all companies evolve and nor do they do so in the same way. This process means that organizations change, learn, restructured, relocate and even die. Some, unfortunately very few, however, evolve quickly towards the incorporation of new activities based on coordination and information technologies, giving rise to what we shall refer to as Maquiladora Company of fourth generation 2. A maquiladora is a factory or assembly plant operated in Mexico under preferential 2 The risks of typologies do not lie in the typology itself but rather in its use. One of the most common problems is that the point of departure of a research project can become its point of arrival. The most harmful aspect of any short-sighted use of typologies is, without doubt, that they reduce the explanation to a description of the distance of the reality regarding the typical ideal model. The explanation vanishes and gives way to the classification of elements of reality that can fit in each category. The main purpose typology is to build up a set of circumstances. Typologies are not our point of arrival but rather, primarily, a discriminating mechanism that economizes the process of abstraction. They help characterize the interaction between different variables. They are a cognitive instrument that makes it possible to reduce the complexity of reality, and not an anchor that immobilizes research. They perform a transitory role. 5

6 tariff programs established in 1965 by the U.S. and Mexican governments to encourage the development of industry in both countries. Mexico allows materials to be used in maquilas to enter duty-free, provided the finished product and then immediately exported out of Mexico. The U.S. in turn charges these products a much lower tariff than products from other countries. The maquiladora industry (or in-bond industry) is the group of plants (2811 with 1.14 millions of employees in octobre 2004) located in Mexico that belongs to this specific export program and is structured by 39 economic activities (from simple goods to high technology products). The process is driven by transnational corporations (TNCs). However 73% of maquiladora plants are electronics, auto parts and apparels (and concentrated 60% of maquila employment). Similar programs to the maquila can be found in the Export Processing Zones (EPZ) around the world. In order to understand the importance that has acquired this type of offshore production let see their dynamism: in 1975 there were 79 EPZ in 39 countries with 750 thousand employees (Frobel, et al. 1981); while in the beginnings of the present millennium it is calculated that they existed around 3000 EPZ in 102 countries employing around of 30 million people (Mercier, 2003), although more than 70% are in China (Yin, 2003). In Mexico as well as in others countries the term maquila refers to a concept for labor intensive assembly products for export, and their importance and debated has been related, on one hand, with a success model of industrialization, and on the other, with their structural limitations (Stallings and Péres, 2000). In order to illustrate the importance of the concept of maquiladora generations and to describe a new phase in this industry, we have divided this document into three sections. The first gives a brief description of the maquiladora generations along with the criticisms that have been formulated in this regard. The second puts forward a new, fourth generation maquiladora company, while in the third and last section the case of the Delphi corporation is outlined as an example of the birth of this new generation. For that purpose we made in-depth interviews with 15 directors and managers during three years ( ), and we had many guide company visits during that time. Finally, some conclusions and lines of research are provided. The concept of generations and 6

7 their typology is conceived like an ideal typical model in the sense of Weber (1944) which makes it possible to identify and organize groups of companies from the vast and heterogeneous set of maquiladoras. What are the basic technological and organizational configurations that would allow us to recognize different groups of maquiladora companies? The typology of the first, second and third generations of maquiladoras creates a variety of stylized images; this typology discriminates and, at the same time, guides the research project. 3. The evolution of maquiladoras and the generations of companies Several studies have shown that the maquiladora in Mexico is constituted by a heterogeneous group of economic activities with different complexity, productive level and local integration. From this knowledge and with the purpose to de-construct the myth that shows the maquila is purely traditional assembly with low skill people and low wages, in 1995 has been developed a typology in order to understand the firm trajectories in the export industrialization model in the north of Mexico (Alonso and Carrillo, 1996; Carrillo and Hualde, 1998). The analysis of the maquilas it was useful at that time because allowed to contrast them with the companies arisen under the import substitution model. But since practically most of the big firms in Mexico are nowadays exporters and the frontiers between maquila and non-maquila plants are more and more diffuse (Dussel, 2003), the concept of 'maquila' is losing its explanatory power quickly. Consequently, to classify all manufacture plants under the same productive, labor, technological or ecological type is a task with very limited scope.3 The typologies of maquiladora companies have been a source of empirical research and public policy strategies. During the eighties were recognized two big segments of assembly plants: traditional and modern (Mertens and Palomares, 1988), old and new (Gereffi, 1991), low and high technology (González-Aréchiga, Ramírez, 3 See for example Boyer and Freyssenet (2002) and UNCTAD (2003) for different firm trajectories in similar contexts. 7

8 and Suárez-Villa, 1989). In the nineties three types of firms were found: according to their productive pattern Wilson (1992) found traditional assembly, manufacture and posfordists. Meanwhile Alonso and Carrillo (1996) and Carrillo and Hualde (1998) based on firm trajectory found three maquila generations. This last typology was built on the use of labor force: the first generation is based on intensive manual work (like fordist type); the second is based on the rationalization at work (like lean production type) and, the third generation is based on intensive use of knowledge. For generation it was understood an ideal type of companies with common features and with a tendency to prevail during a specific period. However, mix diversity was defined from the beginning as a central aspect: different generations of companies co-exist in the same period, and even in the interior of the same firm (hybridization process). Therefore the concept of generations do not referred to monolithic and static stages that substituted one generation from another. On the contrary it referred the mix of generations in the same period but with prevalence of a one generation; not in quantitative terms (number of plants for example) but in terms of governance and the driven of value chain. Therefore generation is referred to capabilities development in a learning process. Therefore the central hypothesis of this document is that a new type, or fourth generation, of maquiladora company is being created 4. The characteristics of first, second and third generations of maquiladoras are on Table 1. Table 1 Typology based on generation of companies a. First generation companies. The source of competitiveness lies in the relatively low salaries and the intensification of labor. The reference period in which they emerge and develop: , from the beginning of the Border Industrialization Program to one year before the economic crisis (1981). Foreign traditional assembly plants, unrelated, from the point of view of production, from national industry; with scarce technology, high dependence on the decisions of the corporate and main customers, and essentially based on intensive manual labor performed by young women with rigid job positions and activities that are repetitive and monotonous (Carrillo and Hualde, 1998). b. Second generation companies. Period: with the start of the quest for quality up to the signing of the North American Free Trade Agreement (NAFTA). Plants with capital originating from a greater range of sources aimed at 4 Also known as kereitzu relations and supply chain management. 8

9 manufacturing, with incipient development of local suppliers of components and direct and indirect services; with a higher level of technology and automation; with a gradual albeit timid process of autonomy in corporate decisions and, centrally, with a large trend towards the streamlining of production and work (Carrillo and Hualde, 1998). More men are incorporated, including qualified workers, technicians and engineers. Work is performed in teams under the functional flexibility scheme (greater responsibility, commitment and involvement). The new activities of engineers make it possible to acquire knowledge and the local and regional professional degree courses are being consolidated. The main concern is to improve quality standards and cut delivery times and rework sources, delays, dead time and inventory. Competitiveness comprises of a combination of quality, delivery time, unit costs and labor flexibility. Companies capable of giving a rapid response to the increasing fluctuation in demand (Carrilo and Hualde, 1998). The management bodies are run increasingly by Mexicans (Contreras, 2000). c. Third generation companies. Plants with a greater presence of TNCs focusing on design, research and development. (Carrillo and Hualde, 1998) Vertical integration, both intra-company or kereitzu and inter-company (ties with domestic suppliers and trade between maquiladoras), emerges (Koido, 2003; Lara 1998). Clusters are formed around technical centers, assembly plants, suppliers of components, indirect suppliers such as machining or plastic injection workshops, and suppliers of services (Carrillo and Hualde, 2002; Lara 2002). A greater level of technology and prototype development. There is a substantial increase in autonomy in decision taking. Highly skilled work, with high levels of responsibility and discretion that privileges knowledge and creativity in both design and manufacture. In other words, engineering and technological capabilities, the relative salaries of skilled staff, along with communications and the proximity of assembly and manufacturing plants (Carrillo and Hualde, 1998; Lara and Carrillo, 2003). Top level management becomes increasingly Mexicanized, although there is still a mixture of foreigners and nationals (Contreras, 2000; Dutrenit and Vera-Cruz, 2002). The generations of maquiladora companies in Mexico are associated not only with important stages in industrial-business development on a global level but also with the formulation of strategies and policies in domestic industry: The assembly stage ( maquila or assembly in Mexico ) corresponds either to the new worldwide division of labor or production sharing (the life cycle of the product) in which the main policy was to attract foreign direct investment to the northern border area to create jobs en masse. (Frobel, et al. 1981). The manufacturing stage ( made in Mexico ), for its part, with a strong element of streamlining of work through new organizational models, corresponds to the installation of the Japanese system of production generally known as lean production 5. Industrial policy focuses on continuing to attract foreign direct 5 Without taking into consideration the extensive literature that criticized the dominance of a unique and universal model of production (see the synthesis of an extensive research program: Boyer and Freyssenet, 2001) 9

10 investment but now requiring that it be more capital, technology and training intensive. The process of certifying quality among companies is encouraged and the arrival and operation of companies is facilitated and simplified. The design stage ( created in Mexico ) corresponds to a worldwide trend towards concentrating design and development activities close to manufacturing, in order to synchronize manufacturing and research, as well as to cut the times and costs of work on new products. The development of engineering involves the generation of greater added value locally, improving the productive capabilities of companies and strengthening links with universities, technological schools and medium and higher education technical centers (Villavicencio, 2004). Industrial policy was notable for its absence and for being tied to the commercial agreements undertaken in the NAFTA. In particular, efforts were made to stimulate industrial clusters through inter-company integration and the development of local suppliers. Of particular relevance was the initiative to promote and consolidate local linkages committees between business associations and centers of education. Industrial policy has progressed in parallel with industrial development moving from an industrialization strategy based on replacing imports to encouraging exports after manufacturing in Mexico, in order to achieve world class manufacture, and finally the development of products in Mexico through design and development. d. Fourth generation companies ( coordination from Mexico ) Once the assembly and manufacturing capabilities have been developed, and following the concentration of research, development and design activities, it is necessary to develop non-material activities that make it possible to coordinate a huge range of activities, agents and units of production connected throughout Mexico and the NAFTA region. In other words, companies need to perform the functions of corporate. Yannick Lung points out that, in the case of the automobile industry, logistics take on a strategic status with the aim of ensuring coordination along the chain and synchronicity in modular production, thereby giving rise to a new central role for transnational subsidiaries (Lung, 2002). 10

11 The technological and organizational progress of the automobile and auto parts sector is characterized by: a) an accelerated trend towards concentration through mergers, acquisitions and alliances; this marks an increase in crossed operations (Chanaron, 2001); b) the rapid emergence of new technologies for automobiles electronics, shipping, new materials, etc. affecting the levels of Research and Development and opening the door to new potential players; c) the new industrial conceptions and methods for final assembly, in particular the modularization and expanded use of mechanical subsystems and platforms (motors and transmissions) (Fujimoto and Akira. 2001); d) the new paradigms and philosophies regarding managerial modes in the field of strategy outline the re-concentration of key roles through outsourcing (Langlois, 2002); e) the new philosophy in the sharing of responsibilities in the value chain, from the conception to the final assembly, and notably co-makership. All of this sustains the two hypotheses of the switch from a mono-polar scheme to a centre-polar one based on growth and technological coordination (Lara and Carrillo, 2003)6. In this context of evolution of productive capabilities resulting from the coordination of innovation, transfer and learning, as well as the installation of regional systems of innovation, the coordination of activities through information technology becomes a priority. It is now the turn of policies encouraging the coordination of activities at plants and centers in Mexico and throughout the NAFTA region (such as supply chain management and local governance ), as well as promoting own brands. The stage of coordinating multiple activities based on information technology corresponds to the production of algorithms and software in order to support intracompany flows of information and supply chain management. The coordination of manufacturing, research, purchasing and services becomes the central axis of the new, fourth generation of maquiladora company. The Delphi technical center located in Juarez (known as MTC - Mexican Technical Center) coordinates around 57 plants and almost 75,000 employees in Mexico, as well as an 6 Galactic system for Chanaron, (2001). 11

12 extensive supply chain. Similar activities are performed in the conglomerates of TNCs, as is the case of Lear with 22 plants and almost 31,000 employees in Mexico; Yazaki with 14 establishments and more than 23,000 employees; Thomson with 6 plants and 17,425 employees; Alcoa Fujikura with 9 establishments and almost 14,000 employees; Sony with 7 plants and almost 13,500 employees; or Philips with 12 plants and more than 9,000 employees.7 These figures speak for themselves regarding the magnitude of these conglomerates in Mexico. Non-maquiladora companies, such as the VW automobile assembly plant (with the support of technology from Telmex Mexican telecommunication monopoly), recently announced their new role in supply chain management coordination (in other words, the link in real time between the assembly plant, distributors throughout the NAFTA region and suppliers). This does not just involve the phenomenon of trans-nationalization of industrial activity (maquiladora and non-maquiladora), which characterizes the model of industrialization for export, but also the broad coordinating functions taken on by affiliates in Mexican territory and which comprise an extensive network of establishments both within and outside the company. Companies like Delphi MTC in Juarez are no longer just a R&D center, but have now become a coordination center for different activities of Delphi in Mexico, as we shall now see. 4. Diffusion of generations of maquiladoras and their criticisms Since the mid-1980s, a process of technological, organizational and labor modernization has been under way in the maquila (Mertens and Palomares, 1988) leading to the existence of different levels of maquiladora plants (Gereffi, 1991; Wilson, 1992). In the early 1990s, a representative survey conducted among the maquila plants of three main cities in Mexico in the electronics, automobile and apparel Top Maquilas These companies rank highly among the 500 biggest companies in Latin America. In the year 2000, Lear held 61 st place, Sony 78 th and Thomson 114 th (AméricaEconomía no. 213, August 22, 2001). 12

13 sectors found that almost 20% of plants already had high technology, a complex organization and highly skilled staff (or second generation companies)8 (Carrillo and Ramírez, 1990). More recent evidence reveals that, since the late 1990s, an industrial upgrading process has emerged among the main maquiladora sectors, such as electronics (Lara, 1998; Carrillo and Hualde, 2002; Hualde, 2001), auto parts (Lara 2002; Lara and Carrillo, 2003) and apparels (Bair and Gereffi, 2001). Although the concept of the third generations of maquiladoras was initially developed in the mid-1990s (Carrillo and Hualde, 1998) and different authors have used it, there has been no formal process to measure the development of the maquilas in terms of generations. A recent survey found that, out of a sample of 297 electronics and auto parts companies in the northern region of Mexico, the development of the third generation companies accounted for 27% (Gerber and Carrillo, 2003). In spite of that the concept of generations was developed to understand trajectories of learning of the companies and in that sense its use has been qualitative, exist a generalized concern in order to know to what extend the third generation assembly plants has been diffuse. The importance to know the diffusion and the scope of the industrial upgrading process in the maquila sector is vital for many reasons: a) it allows to forecast the export industry in Mexico in a context of dynamic globalization and intense pressure to reduce costs, times and inventories; b) it allows to understand the strengths and weaknesses of the maquila trajectory in underdeveloped countries; c) it allows to know the strategic position of the companies in front of the global competitors such as China and India;, and d) it allows to elaborated specific public policies according to their technological, organizational and skill capabilities acquired by the companies. The criticism Criticisms of the third generation are formulated mainly by some labor sociologists.9 They conceived that the maquila is a form of labor exploitation, with 8 The remaining 80% are first generation companies. 9 The best example is De la Garza,

14 very limited modernization process and do not constitute a true export industry. The two main criticisms in this respect are the following: i) The third generation is based only on one plant (the Delphi Technical Center) and its statistical representation is therefore more than limited (it does not account for even 1% of the maquiladora plants). ii) The concept of generation is evolutionary (the third generation is better than the preceding generations) and linear (one generation follows on from the other), which means that one generation replaces another (when we talk about the third generation, it is being assumed that it is predominant in the maquiladora industry). The first criticism deserves two comments: there is a relatively extensive diffusion of third generation plants. Other technical centers have been opened in Mexico by TNCs such as Valeo, Thomson, Philps and Samsung, along with advanced engineering and design departments in many other companies. A recent survey of electronics and auto parts maquiladoras in Tijuana and Juarez10 revealed that 26.4% of companies have design or design engineering departments or centers. This figure increases substantially if we just take the auto parts sector as reference, in which the corresponding figure stood at 35.9% (Colef, 2002). If the concept is used in a more general manner, in other words not as a technical center, but as companies that use high levels of technology, embark on innovative processes and have highly skilled labor, then one-third of maquiladoras in the electronics and automobile sectors which are the most dynamic and dispose of the most technology can be understood as third generation, according to the aforementioned survey. The second comment is that generations are not a quantitative issue but rather a qualitative one. It is not magnitude that reflect is relevance, but the significance of this evolution and the potentials that involves. Why is its statistical representation not relevant? Because the maquiladora industry is structurally heterogeneous (Carrillo, questionnaires were applied to maquiladora plant managers. See the project s website: 14

15 1993) even within the production of the same product such as TV sets or harnesses (Lara, 1998; 2002; Koido, 2003; Urióstegui Araujo, 2002).11 In other words, it is not possible to expect technical centers to develop in the furniture industry like in the electronics sector, for instance, nor for the clothing industry to have the same level of engineering as the automobile sector. Furthermore, the multiplying effect caused by a company of this size like the MTC in Juarez cannot be summed up in terms of its 2000 employees. The spillovers associated with the setting up of companies such as VW in Puebla, Ford in Hermosillo, Nissan in Aguascalientes, GM in Ramos Arizpe, IBM in Jalisco, Thomson in Juarez, Matsuchita in Tijuana (and the scheduled plans of Toyota in this city)12 cannot be explained by statistical representation in the number of plants or employment in Mexican manufacturing, or by representation in each segment. Each of these examples has triggered regional economic growth, a source of learning for thousands of workers, and the generation of business for local and external parties, along with the subsequent impact on added value and the flow of foreign currency. The case of Delphi-Mexico is not unique as we find other examples such as Samsung Display-Tijuana or Ford- Hermosillo, which are set up with the most advanced technology and the best organization available on the market, even technologies and forms of organization that were still not being used in the countries of origin (Shaiken, 1990; Carrillo and Hualde, 1998; Koido, 2003). Also, the construction of a model from a company is nothing new in social sciences: the paradigms of Ford, GM, Toyota and Dell gave way to the formulation of productive models that have been emulated extensively around the globe and has been analyzed by a huge range of disciplines and research perspectives13. The second criticism, that of linear evolution and the replacement of generations, is not relevant as, in the first place, we do not use the concept of 11 In other works, we have argued that the concept of maquiladoras is no longer of use for reflecting what takes place in companies or to show that it is a model of development or industrialization (Alegría, Alonso and Carrillo, 1998; Alonso, Carrillo and Contreras, 2001). 12 There are a number of cases in other countries, such as Intel in Costa Rica (see Mortimore, 2003; UNCTAD, 2003). 13 In the case of Mexico, the company Telmex has been used to create a model for unions. 15

16 evolution in its teleological sense but rather in the framework of the theories of economic evolution of Darwin and Lamark (Nelson and Winter, 1982; Hodgson 2001)14. Even though one generation is superior to the previous one in terms of technology, added value, knowledge and organizational complexity it should be pointed out that all the generations are necessary in a cluster as they provide greater territorial competitive advantages 15. There is no clear break between different generations. Different generations coexist not only in the same period, but also could exist in the same firm. Finally, the proposal of recognizing a new type of company, and name it like type x or y and not as a generation does not seem to provide any substance to the analysis16. It is necessary to find a concept that reflects, as well as possible, the changes taking place in a segment of companies and, in particular, a concept that is able to transmit and communicate these modifications17. Two positive aspects of the criticisms made are, on the one hand, that it is often forgotten that many of the maquiladora plants have not gone beyond the first generation and are much more vulnerable to competition from countries such as China or Central America. In fact the highest proportion of plants still first generation. And, on the other hand, the trend among companies is not always towards upgrading18. Another criticism mentioned that the maquiladora should not be considered like custom tariff regime. This brings a great confusion. When academics and politicians speak in worldwide forums about the EPZ, such as the maquiladora model in fact they are referring to an archetype model (for instance a model of production, labor or 14 For example, companies that, in certain stages of the labor process, replace capital with work. 15 This is not just about privileging the third generation and forgetting about the others (which for example would lead to the statement that first generation maquilas are migrating to China), this would be a serious mistake. For example, see Lara, et al; The construction of a typology is not merely a question of semantics. 17 The scientific findings need to be shared and understood by a public sector than the industrial sector itself, especially by the actors involved in the matter. 18 There are companies that do not progress and lose competitiveness, and some even regress or simply vanish. As a result of the survey mentioned beforehand, it was found that the primary factor for 42.1% of plants is price competitiveness (Colef, 2002). In connection with the typology formulated and its measurement, it turned out that 18% of the plants were classified as first generation (Carrillo and Gomis, 2003). 16

17 technology) but not to a specific firm neither to a specific national export program. In strict terms the maquiladora industry are manufacture plants of a Mexican government program, the Maquiladora Decree, which allows them tax incentives for temporary imports. But there are others export programs for export in Mexico (Pitex, NAFTA, Prosec). Authors such as Dussel (2003) has pointed out that the export industry based on temporary imports constituted the industrialization model in many Latin-American countries, and not one single specific program (such as Maquiladora Program). For example, Delphi, the global auto part supplier leader, operated in plants in Mexico, 60% under the Maquila program and 40% under Pitex program. But Delphi plants are too similar, depending on the product. So is analytical nonsense try to distinguish a productive or a labor model based on specific programs for export. In other words, when we want to settle down to the maquila like an archetype model, in fact this term should not be used. Instead is much useful to use company s exporters, or industries of temporary imports. For that reason, when we use the maquiladora concept as a tariff regime we are not suggesting that the maquila shouldn t be analyzed through the systemic productive models (Fujimoto, 1999; Boyer and Freysenet, 2002) or socio-technical configurations (De la Garza, 2001). But rather the maquiladora concept itself doesn't help in this sense, on the contrary, it hinders the analysis for the enormous heterogeneity contained, and because neither all maquilas are similar nor many similar plants are not registered under the Maquiladora Program. Partly the new investment of Toyota in Tijuana (TMBC) preferred to take other export program rather than Maquila Program, since a great stereotype exists when people referred to a maquila plant, and usually brings strong negative aspects. The agenda from this perspective does not lie in discussing the significance of words: a fully defined typology puts an end to its evolutionary potential or, on the contrary, a typology that contains notions lacking accuracy or solidity encourage the refining of the heuristic instrument and the enriching of the quality of the questions. However, intellectually productive typologies are not those that help us explain dichotomies - or alternatives for the precedence of A or B or C-, but rather help explain the history of the maquiladora companies as: stochastic, non linear processes, that are 17

18 highly sensitive to initial conditions and which follow accumulative causation processes feedback and which, as a result, are highly subject to inertia and where the actors, characterized by limited rationality resolve and, ultimately, choose paths of development on the basis of their past history (Nelson and Winter, 1982; Hodgson 2001) 19. The typology of generations is recorded in the methodological tradition that conceives labor as an instrument. This typology may be used to provide explanations: it is from here that the intellectual productiveness and relevance arise, along with the need to complement the research program that opens up the typologies of the generations with other disciplinary explanations. 5. The case of Delphi: new functions, new generation? Delphi, a spin off of General Motors (GM), is currently the world s biggest company in the auto parts industry and leader in technology. In 1995 started the desincorporation and in 1999 it becomes totally independent of GM. Delphi Automotive Systems has 198 manufacture plants, 53 centers of sales and customer services; 31 technical centers, and 44 joint-ventures in 43 countries ( and employed more than 200,000 people. In 1996 Delphi was three times bigger than their nearest competitor. The firm is specialized in four big systems (batteries, fuel injection, atmospheric purification, and energy and motor), and it is structured in seven divisions. The head quarter is located in Troy, Michigan. A large proportion of its worldwide business is based in Mexico (35% compared with 60% in the US and Canada) (Carrillo and Hinojosa, 2000). This company integrates systems through modular and component production, for which it has a divisional structure covering the different systems of the vehicles (batteries, fuel injection systems, air purification systems and motor systems). Its importance and presence in Mexico are huge, having become one of the country s main sources of private sector employment (with about 75,000 employees and even more staff than in 19 The important aspect of the evolving economy is that it offers a set of instruments categories whose aim is to solve problems, and not to create an endless stream of reasoning centered on words. 18

19 the US)(Lara and Carrillo, 2003). In addition to its 57 manufacturing plants, it also has warehouses, technical centers, machining centers and administration centers, all of which amount to a total of 64 installations in Mexico midway through the year Given the volume of business in Mexico and in other regions, the company is considering replacing its divisional organization for a regional one, in other words, developing global regions. This means that the divisions would no longer be separated in Mexico, synergies would be made possible and substantial savings would be made by putting an end to duplication. Such is the case of MTC, which employs people from all the divisions of Delphi and even from other companies, such as EDS and Telmex, instead of having a technical center for each division and in each region, as is still the case in other regions (Carrillo and Hinojosa, 2000). Delphi-México, like the rest of the global companies, is seeking to focus on its central functions and, given its very large size, the company s strategy has been to develop partners (national or foreign) in the places where it operates. As a result, it has forged important alliances with manufacturing companies such as Condumex, or service companies like Dell, Microsoft or EDS, as well as with local Internet Service Providers (ISP). The integration of systems in the automobile industry, in particular modular production, implies a physical concentration dynamic in different activities, mainly the joint location of the product conception and development stage and the joint presence of production activities (Lung, 2002). The regional concentration of production and Research and Development activities at the Delphi technical center in the mid-1990s (Carrillo and Hualde, 1998; Lara and Carrillo, 2003) has entered a new stage: the centralization of functional activities or activities in support of the main activity. Such is the importance of this transformation that Delphi Automotive Systems changed its name to Delphi Corp. The low level of competitiveness of a monopole model (R&D from the center US and manufacturing on the periphery Mexico -), in terms of costs, project 20 Interview with the MTC Purchases Director in Ciudad Juárez;

20 duration and customer attention, led to the relocation of the technical center near the maquiladora plants in Juarez, giving rise to a multi-polar model (Lara and Carrillo, 2003). The capabilities obtained in the MTC, the learning acquired and the increased competitiveness made it possible to bring together, one by one, the research and development activities of the six divisions21 of the corporate in the three buildings that make up this center belonging to the company ( feet in 2002), that is to say, a vertically integrated condominium company that houses dissimilar projects (air bags, sensors, harnesses, etc.) but brings together common needs (machining, test and validation laboratories, etc.). As this R&D integration process moved on, a centralized administration grew with the aim of avoiding the duplication of activities, increasing the efficiency of the service for OEMs (original equipment manufacture), maquiladoras and suppliers, and above all to cut costs. As a result, the MTC has been transformed from a mere engineering center into the critical nerve center of the network of plants, companies and divisions in terms of technology, administration and information. Coordination from the hub in Juarez covers manufacturing plants throughout the country and research, development and design in the six divisions of the corporate, as well as customer service, the chain of direct and indirect suppliers, a number of services such as freight and personnel transportation, etc. It also concentrates functions such as finances, e-commerce (B2B, B2C) and the development of infrastructure for technological information. Furthermore, it coordinates intellectual services (R&D, design, conception, algorithms, industrial genius, etc). The decentralized coordination of the original supply companies (known as OES original equipment suppliers) in different parts of the world, as is the case of Delphi, helps the development of the central processes of modularization, standardization ( expanded use ), joint development, globalization and knowledge management in the automobile industry. Finally, the development of these processes turns such capabilities into resources for the company itself, as well as for its 21 Energy & Chassis Systems, Harrison Thermal Systems, Interior Systems, Saginaw Steering Systems, Packard Electric Systems and Delco Electronics Systems. 20

21 subsidiaries. Let us see the main areas in which Delphi has managed to concentrate its functions and establish itself as a critical hub of the corporate on a regional level. A. Coordination of all the divisions within the MTC. The six corporate divisions have both space and staff in the central building of the MTC22. The MTC has level 5, the maximum level, which means that all the stages of a product are performed in this Center, from the conception, development of prototypes, experimental and validation stages to production and manufacture. It has a number of technical support areas, such as prototypes, laboratories, machining, suppliers room, exhibition / seminar room, etc. The MTC is Delphi s biggest center in the world. While Delphi s 30 technical centers consist of a single division, the two others house more than one division, and one of them, the one in Juarez, houses all of its six divisions. In 1995, the MTC began with 600 employees (75% engineers, mostly Mexican) in the Energy division, and immediately afterwards it housed Packard. Electric. Then the other divisions started arriving. It should be pointed out that the first wave of engineers employed worked in other Delphi manufacturing plants in Mexico or the US, in other words, these engineers had experience and knowledge of the company23. By July 2002, the MTC was employing 2,129 engineers and technicians (36% working in the functional areas of support or administration ). Engineering capabilities are such that one hundred inventions and a number of nest patents have been produced, a record for the corporate.24 The MTC performs design, R&D, manufacturing and training for all the different divisions of the corporate. To this end, it uses different spaces to house technicians and engineers from each division, as we said in the condominium company mode. In order to provide centralized support for engineering projects, a number of support activities have been centralized in the form of a consortium. This applies to functional areas such as 22 It also house staff from other companies as we saw previously 23 Interview with an MTC maintenance engineer in Delphi, Interview with the Chief Engineer of Stage 00 in Delphi s MTC,

22 finance, human resources, purchases, machining, etc. All of this has given rise to greater added value. The MTC was expanded to centralize the engineering activities of all the divisions, but also to centralize administrative support. 64% of staff in the MTC is working on engineering projects, while the remaining 36% are employed in the support areas. The growth of the administrative area was due to the view that the business needed to increase its productivity and excellence in the service and, in particular, cut costs. Delphi has found that the centralization of the functional areas is of strategic value for cutting costs. Each space costs money and in this respect...a productive plant must use its space for such purposes as far as is possible rather than divert it for administration The functional areas have become increasingly technical on the level of systems and centralized at the same time. The process of centralization began in 1998 with payroll. All the operations of Delphi-México are technologically connected and use common and standardized systems in al the functional areas. They apply the same philosophy of lean production. This has allowed large savings in each administrative function, as well as an improved service avoiding dispersion and duplication. The aim is to consolidate different areas, such as finances, industrial safety, purchases, audits and customs. The first stage will be concluded in The progress achieved through this coordination has made it possible to cut costs and increase efficiency. This process involves not only technology and organization but a change in managerial attitudes: [We are migrating]...from a decentralized system of human resources, labor, safety, purchases, finances, etc. to a centralized one...it has been an educational process: before, each plant manager felt that he needed to have all the infrastructure and all the administration in his plant (purchases, finances, payroll, human resources, labor, training)... which made them feel very sure... Now the same centralization is providing that same assuredness to these business managers... We are used to having things in excess.. Hey, they are taking away my staff, areas, etc. No, I am not taking them away, I am trying to help you 25 Interview with training managers, MTC Juarez, 2001and