Purchasing Characteristics and Supplier Performance in Maquiladora Operations

INTRODUCTION The past 20 years have witnessed a tremendous change in global competitive practice. Much of this change has occurred as new competitors have endeavored to enter world markets and become key economic players. The result has been the globalization of economic activity. Today, U.S. manufacturers are responding to the intensified competition brought on by economic globalization by improving their internal production competence, by developing strategic alliances to better manage the entire supply chain, and by establishing production sharing activities around the world to equalize access to important factor inputs. This last approach--rationalizing the firm's productive activities to build a competitive advantage through the selective use of dispersed comparative advantages--has received increasing attention as globalization and technological advances have made managing global operations easier. Production sharing activities are designed to take greater advantage of available worldwide resources by shifting the firm's productive activities to the various regions of the world where they will add the most value to the firm's products. The classic example in the United States has been the electronics firm that operates labor-intensive assembly and production facilities in a foreign country, often in the Pacific Basin, that possesses abundant and relatively inexpensive labor. At the same time, knowledge and capital intensive activities are maintained in the United States. The primary advantage of these production sharing strategies is the opportunity for the firm to reduce production costs by acquiring the low-cost factor inputs--particularly inexpensive labor--that are available in different geographic regions of the world. Although many production sharing opportunities currently exist and are actively pursued by global manufacturers, Mexico's maquiladora operations represent an increasingly popular production sharing option sought out by American, European, and Asian companies. More than 75 percent of America's 500 largest companies operate one or more maquiladora facilities. Leading Japanese companies including Mitsubishi, Sony, and Toshiba also take advantage of maquiladora operations. Tremendous growth in maquiladora operations in recent years has made them one of the fastest growing industrial sectors in the world. The average growth in both the number of plants and the number of employees has exceeded 20 percent over the last 25 years. Additional growth of 10 to 15 percent is expected through the end of the century. Further, the current emphasis on the negotiation of a North American Free Trade Association has placed added attention on the operation of maquiladoras. The ability to achieve competitive advantage through the use of maquiladoras has received special attention. The growing popularity and importance of production sharing activities has increased the need to gain greater insight into the nature and competitive impact of maquiladora operations. Because the focus of maquiladora and other production sharing activities is to add as much value to the product as possible, it is essential to understand how the various value-adding activities such as purchasing impact the success of these operations. To this end, the objective of this research is to explore one key aspect of maquiladora operations--the characteristics and performance of purchasing activities in the maquiladora production sharing setting. Important purchasing issues, including supplier selection and management, are complicated and take on new relevance in the context of supporting maquiladora operations--and therefore merit examination. The following sections discuss maquiladora operations, introduce the basic research design and methodology, and present key research findings and conclusions. MAQUILADORA OPERATIONS Maquiladora operations, which are also known as in-bond manufacturing, twin plants, and production sharing, typically involve the establishment of assembly and/or manufacturing facilities along the Mexican side of the U. …