Carrillo, Jorge

The transnational corporation General Motors (GM) has transferred a large number of its industrial plants and jobs to Mexico, particularly to the northern region of the country. Delphi Automotive Systems,1 a GM spin-off specializing in parts and components, has become Mexico’s second largest private employer after the Carso Group. Delphi’s growth as an employer has coincided with an upgrading of the firm’s activities in Mexico from simple assembly to include sophisticated product design, development, and research. This shift has enriched workplace activities in several of Delphi’s plants and, more importantly, facilitated the establishment of the first intra-firm network of technical centers and manufacturing plants within Mexico’s maquiladora export industry.2 Among the locations where GM and Delphi have established plants, Ciudad Juarez stands out as the best example both of this industrial upgrading based on the agglomeration of simple processes like the assembly of wire harnesses, and of the development potential of the automotive industry and the challenges that must be overcome to achieve such a breakthrough.

Delphi’s role in Ciudad Juarez follows closely the trajectory of the auto industry within Mexico, which has always been dominated by foreign capital. Since the 1980s, however, the Mexican automotive industry has undergone a deep transformation based on investments by the US “Big Three”, particularly GM, and the rapid productivity growth and regional specialization of their operations. In order to confront Japanese competition, these companies relocated plants to Mexico to take advantage of the country’s low wages and geographical proximity to the USA, as well as incentives offered through the Mexican government’s macroeconomic policies and the existence of aggressive local private economic groups. Thus, the strategy of consolidating and expanding the Mexican consumer market was exchanged for one that sought positive outcomes based on increasing efficiency of transnational companies’ direct investments (Carrillo et al. 1999).

Through this change in corporate strategy, the Big Three sought to transform Mexico into a low-cost export platform for small four and six cylinder cars (Mortimore 1995), and global sourcing of auto components. New engine plants were very successful in introducing modern technology (Shaiken and Herzenberg 1987); the same was true of the maquiladoras (Krafcik 1988; Shaiken 1990). More recently, Mexican plants have been producing light trucks. The rise in Mexican production of finished cars and trucks has been overwhelmingly for export, primarily to the USA and Canada (95 percent in 2002). There are now close to 100 models of automobiles and light trucks assembled in Mexico, and these are no longer limited to economy vehicles (AMIA 2002: No. 445).

In terms of productive specialization, priority has been placed on the production and export of compact and subcompact cars, certain types of engines, and a limited range of auto parts, particularly wire harnesses, radios, seat coverings, mufflers, and exhaust pipes (Carrillo and Ramirez 1997). The maquiladoras that manufacture auto parts have played a tremendous role in this process. Many are the only plants that produce certain types of auto parts for the US market. In addition, they are the main generators of employment in Mexico. In 2001, automotive parts and components represented the principal export “product” under the Maquiladora and PITEX programs, with $11.8 billion in exports to the USA.3

This paper is divided into three parts. The first section examines GM’s global strategies and Mexico’s changing place within them. These strategies are essential to understanding GM’s presence in Mexico and the profound transformation of its affiliates in re-orientating away from production for the Mexican domestic market towards global operations. The second section traces the evolution of the maquiladora industry, demonstrating how evolving strategies for reducing costs through the establishment of export-oriented plants in Mexico, combined with intervening government support and organizational learning, have resulted in an important process of skill upgrading. Finally, the successful experience of Delphi-GM in Ciudad Juarez is analyzed as an example of how the agglomeration of companies under specific social and institutional conditions can add value by forming a sectoral cluster in which a network of companies accelerate learning, especially among engineers and technicians.

In this manner the firm, the sector, and the territory combine to support specific conditions which, though difficult to imitate, provide hope for upgrading industrial development in the widely diffused export production zones. Four key trends emerge from this analysis:

(i) changes in global sourcing strategies, with greater supplier selection and the development of closer, knowledge-intensive linkages with core suppliers (the GM story in Section 1);

(ii) changes in local clusters’ characteristics as they undergo upgrading processes based on the success of some local producers in building a key position within global supply chains (the maquiladoras story in Section 2);

(iii) the influence of policy initiatives both at the global and regional levels (NAFTA) and at the local level (Chihuahua cluster upgrading program) on the evolution of corporate strategies (Delphi story in Section 4);

(iv) the improvement of employment conditions in Mexican plants engaged in higher-value activities despite the increasingly global nature of labor market competition (Section 3).


GM’s strategies will be reviewed first from a global perspective, and then as they apply to Mexico. Globally, GM is one of the world’s leading companies, and number one in the automotive industry. However, like other US corporations, GM faced enormous organizational, financial, productive, and competitive problems during the 1980s, due in part to strong market penetration by Japanese firms. This situation forced GM to experiment with different strategies in order to maintain its position, which resulted in a broad industrial restructuring and rapid reduction in production, plants, and company employment within the USA.

Between 1985 and 1988, GM’s output decreased from 9.06 to 7.74 million units. Nevertheless, GM maintained its role as the leading company in the automotive industry. In 1990, GM’s critical situation led its new president to improve the corporation’s finances through a broad restructuring program focused primarily on cost reductions. The main features of this restructuring included: (a) alliances with other auto companies, aimed at extending GM’s product line and markets, and improving technology; (b) industrial modernization through the adoption of new technologies, automation of production processes, and introduction of new production methods based on functional flexibility, work teams, and quality circles; (c) reductions in the number of models offered and specialization of production among final assembly plants, and auto parts divisions; and (d) a reduction in the number of suppliers worldwide. This global reorganization became necessary for GM in the mid-1990s (Bordenave and Lung 2002).

These changes followed a series of previous strategies designed to reduce costs, particularly labor costs. In the 1960s and 1970s GM closed factories and laid off workers in the northern and midwestern regions of the USA, while opening plants in the southern “right-to-work” states. Beginning in the late 1970s, GM has located plants in regions where labor is cheap and abundant (Figures 1 and 2), thus favoring some Latin American countries, and especially Mexico, where in 1986 GM employed 52,000 workers in final assembly and maquiladora plants, and produced more than 600,000 engines and 200,000 vehicles.

Development of suppliers

Along with reducing its own wage bill, one of GM’s key cost saving strategies involved reducing the number of its suppliers, while developing the “survivors”. The main objective of this policy is to modify the type of relationships between GM and its suppliers worldwide, in order to optimize this interaction and reduce costs. The strategy was designed to address three overlapping problems. First, component purchasing was one of the company’s main runaway expenditures in the USA. Second, GM subsidiaries produced 70 percent of all the components used in their vehicles in the USA. Finally, the company’s losses in North America were massive. By paring its supply chain, GM aimed to save between $1.5 billion and $2.0 billion between 1992 and 1995 (Gonzalez 1996).

Through this strategy, GM seeks to reduce the worldwide manufacturing costs of the company’s parts suppliers as much as possible. On the one hand, this requires US suppliers to compete with their foreign counterparts, both for the American as well as the international market, based on quality, price, and service. However, the system simultaneously creates a tremendous demand for international coordination of auto parts. Therefore, GM assists suppliers in identifying the areas where most waste is occurring, as well as those with high and unjustified costs. The central idea, as expressed by ex-president of GM-Mexico Richard Nerod, is that the suppliers’ survival depends on their ability to operate in the framework of globalization. That is, they should participate more emphatically in the export market, particularly in the NAFTA region, to become more competitive, provide for a more balanced commercial exchange, reduce the number of suppliers with whom they contract, and ensure that their production of vehicles and auto parts becomes increasingly economical.4

Overall, this strategy calls for externalizing auto parts, and maintaining final assembly and the production of engines within the company. For GM, this meant gradually isolating its parts divisions before finally spinning off Delphi in 1998. Prior to its sale, GM encouraged Delphi to operate as an autonomous company, and required it to compete for contracts based on price, quality, and delivery time, rather than the “family company” relationship. In the mid-1990s, GM incorporated its many auto parts companies into a single firm: Delphi Automotive Systems (now renamed as Delphi), the largest global player in this highly fragmented industry.5

Delphi has simplified its organizational structure by unifying its six divisions and becoming an integrated supplier. Delphi is the world’s most diversified supplier of systems and automotive components, capable of manufacturing everything from components to subsystems, complete systems, and modules, with an emphasis on total quality, cost control, and market responsiveness (Delphi Automotive Systems 1996).

Particularly important are the Packard and the Energy and Engine Control System (Delphi Energy) divisions. The former has manufacturing and engineering facilities in more than 32 countries and is uniquely equipped to assist its clients with the design, development, and production of totally integrated power systems and signal distributions. The latter represents the most comprehensive portfolio of power train capabilities in the global automotive industry. With a worldwide network of technical and production centers, the Energy and Engine Control System division can design, develop, and manufacture totally integrated systems and components to control storage and energy conversion, the flow of air and fuel toward the engine, the combustion process, and the conversion of vehicle emissions (Delphi Automotive Systems 1996). The Mexican Technical Center (MTC) and the Electrical Systems and Switching plant (SEC) in Ciudad Juarez, which will be discussed in Section 3, belong to this division.

Furthermore, this logic of maintaining fewer but more closely integrated suppliers has been replicated down the supply chain. Like GM, Delphi has reduced the number of its suppliers globally, but at the same time has integrated them and made them more efficient. The pressure of globalization is acutely felt, with GM demanding that all original equipment suppliers (OES) be certified as compliant with QS 9000 quality norms by 1998.

GM in Mexico

General Motors-Mexico (GMM) was formally incorporated in 1985, but it began assembling CKD sets for vehicles for the domestic market in 1936 with 48 workers (Cruz Guzman 1995). The role played by GM’s Mexican operations has changed over time. Between the 1930s and the early 1960s, the automaker operated a single plant in Mexico City assembling imported auto parts for sale to the domestic market. From the mid-1960s until the late 1970s, operations expanded to include the manufacture of auto parts and engines for the domestic market, and to a lesser extent for export, with the company adding a plant in Toluca. Since the early 1980s, GMM has operated primarily as a manufacturer of vehicles, engines, and auto parts for export. During this period, automobile and engine plants were established in Ramos Arizpe, Coahuila, and various maquiladoras were built in Mexican border cities. Most recently, GMM invested $400 million in a new light truck-assembly plant that opened in Silao in 1994 (Figure 1). In addition, GMM’s role was expanded to include undertaking co-investments and participating in business ventures beyond the automotive industry (Figure 1).

Historically, GM’s strategy in Mexico has been to increase its productive capacity, diversify its product line and markets, and expand its business operations. In short, it has sought to substantially boost its importance in the country. For 2002, GMM occupied the second place in domestic auto sales (22 percent of all cars manufactured and imported) and second place in light vehicles (27 percent of the total). It is the only producer of heavy trucks in Mexico (AMIA 2002: No. 445). In addition, Delphi was the leading transnational corporation in Mexico in terms of number of plants and second in total employment. This is consistent with GM’s tendency toward global rationalization, specializing each of its operations to focus on a single market, in this case, NAFTA. In terms of auto production, the strategy for Mexico has been to build fewer models in larger quantities to serve the North American market. A similar trend can be seen in the maquiladora plants producing wire harnesses and electrical products.6

According to GM’s Chief Economist, Mustafa Mohatarem, NAFTA is much more relevant for Mexico than for other countries. Already, GM has accelerated pre-existing tendencies, and more important still, changed the role that Mexico plays in the group’s current and future growth strategy. Mohatarem underlined the following key trends: a rise in domestic sales and of the projections for the short and long term; a rise in technological capabilities; a rise in the value-added generated in the country; a rise in labor-intensive work (practically all of which has been moved to Mexico); and the strengthening of this process due to the recent strikes in the USA (author’s interview, 26 March 1999). Nevertheless, important changes are affecting Mexican production because of the 2001-2003 recession in the USA and the emergence of China as a major producer.

Overall, GMM has shifted its strategies over time as the country’s economic policies have changed. During the import substitution (ISI) period, GMM formed alliances with Mexican firms to take advantage of protectionism and government regulations. Later, during the free trade period, they developed joint projects with Mexican plants to supply GM-OEMs and auto parts plants. But the most important strategies were to develop new plants for export to the US market and to establish maquiladora facilities for the same purpose from the early 1980s.

Production of vehicles and engines for export

Traditionally, GMM has been one of the main producers of vehicles for both the domestic and export markets, and especially for light trucks, as is indicated in Table 1. From 1999 to 2002 GM light vehicle production grew from 325,000 to 500,000. Originally, during the ISI period, GM’s corporate strategy in Mexico centered on truck production for the local market. In the early 1960s, engine production began in Toluca (capacity 120,000) while truck assembly took place in Mexico City (capacity 60,000). During the boom years of the import substitution policy (1978-82), GMM adapted to the county’s growing demand for passenger cars by concentrating on assembling and selling models aimed solely at the national market. Even so, sales volumes were very low, never reaching even 20,000 units a year for any specific model, including the best-selling Malibu. By 2002, GM-Toluca produced close to 12,000 light vehicles.

But GMM’s raison d’etre since the late 1970s has been to produce at new facilities for export to the US market. This process began with a $250 million investment in a new complex at Ramos Arizpe to manufacture engines and passenger cars, and new arrangements for auto parts (in-bond plants and “projects” with national companies) (Carrillo et al. 1999). The Ramos Arizpe complex had the capacity to build 450,000 engines and 100,000 passenger cars annually, accounting for 37 percent of all engines exported from Mexico between 1982 and 1994 (15 million, making it the largest exporter of engines in Latin America) and a significant proportion of passenger car exports since 1987. While in 1980 practically all its production was earmarked for the domestic market, by 2001, 77.9 percent of its manufactured units were for export. More recently, capacity at the Ramos Arizpe plant has been increased to 300,000 cars a year. In 2002, the plant produced more than 250,000 light vehicles, but production has recently been scaled back to less than 200,000 units (CIMEX-WEFA and Global Insight 2003). Under this same strategy, the old facility located in Toluca (a brownfield site) was also restructured to produce engines for both the export and domestic markets (Table 1).

The changes in GM’s strategy were very important for the Mexican automobile industry. As at Ford, the group’s strategy was not so much to modernize the existing Mexico City/Toluca facilities and convert them into export operations. Rather the principal focus was to establish new export facilities, first for the manufacture of engines, but then for passenger cars as well. Besides the plant in Ramos Arizpe, a new truck plant is operating in Silao which produced 230,000 units for export in 2002, matching their production of the previous 3 years (Figures 1 and 3). However, GM’s strategy was less clear-cut than Ford’s, and was based more solidly on low wages than on high-tech facilities. Still, international competitive standards were reached. The new strategy entailed specialization in certain engines, two passenger vehicles (the Century and Cavalier models), and certain auto parts via in-bond plants, all for export. Thus, in somewhat different fashion, GM also integrated its new facilities in Mexico into its North American production system and, in the case of auto parts and especially engines, into its global sourcing arrangements.

Location of auto parts maquiladoras (Delphi-GM)

Beginning in 1978, GM developed a broad-based maquiladora program consisting by 1988 of 15 companies with 27 plants employing approximately 20,000 workers, and producing a wide range of automotive parts for export to the USA, such as instrument panels, air and heating controls, antennas, front lights, molds, ceramic magnets, etc. (Expansion 16 August 1989). By 1992, GMM had, directly and indirectly, 32 maquiladora plants in northern Mexico (El Financiero 4 December 1992). Today, Delphi employs more than 71,000 employees in Mexico at close to 60 plants (Figure 4). Delphi-Mexico represents slightly more than a third of the corporation’s worldwide workforce (204,000 jobs), and everything indicates that the process of job relocation will continue. A Delphi worker in Mexico receives, on average, from $1.65 to $3 per hour plus benefits, compared with $10 per hour for the average non-union Delphi worker in Vandalia, Ohio, and $17 per hour in the case of a UAW member (Wall Street Journal 3 June 1996). Hence globalization of production at Delphi has also been accompanied by an important process of rationalization of production, which consists of reducing the number of plants in the USA, concentrating factories in Mexico, and integrating vertically and horizontally.

GM’s productive integration in the North American market has been extremely successful. In two decades it has created an important platform for vehicle, engine, and auto parts exports, structurally integrating the Mexican plants into their North American production. The spin-off of Delphi from GM has also had a tremendous impact on Mexican auto parts operations, creating a true North American regional production network.


The recent history of the maquiladora industry in Mexico has been strongly led by the automobile sector, in particular the growth of Delphi Automotive Systems. Through the establishment of assembly plants for export, the maquiladora industry has grown at meteoric rates, generating thousands of jobs and millions of dollars in foreign exchange (Table 2). On the other hand, however, the industry has been strongly criticized for employing an overwhelmingly unskilled labor force, for poolintegration into the Mexican economy, and for raising pollution levels. This view, however, is static and does not reflect the profound changes occurring within the maquiladora sector. A more dynamic three-phase perspective can be advanced, which offers a much better understanding of the capacity for development within the sector, as exemplified by Delphi’s Mexican growth.

The maquiladora industry in Mexico has been characterized from the outset by low levels of domestic content and patterns of subcontracting and vertical integration that offer little growth of local supply chains or industrial development. Following a model of international subcontracting in which decisions concerning production, suppliers, technology, and marketing are taken by parent companies in the USA (Carrillo and Hernandez 1985), an association is typically established between the parent company and the maquiladora operations in which the former takes charge of the knowledge-intensive operations and establishes the technical specifications and the prices of the services. Meanwhile, the maquiladoras (generally big plants) are limited to carrying out much simpler processes (Koido 2003). This productive and technological hierarchy frequently coincides with poor working conditions and low standards of living where the maquiladoras are located. This is precisely because the companies sought to relocate to greenfield sites with an abundance of cheap, docile, non-union labor (Frobel et al. 1981), and to intensively develop operations for unskilled production in the most marginal sectors (which generate less value in the global productive chain) (Gereffi 1994; Bair and Gereffi 2002).

This situation, however, has varied substantially over time. The maquiladora industry is, at present, one of the Mexican economy’s most dynamic sectors (Table 2), accounting for nearly half of the country’s merchandise exports. Industrial modernization and job enrichment has resulted in greater productivity and competitiveness for many of the companies involved. The maquiladora industry’s evolution can be divided into three stages (Carrillo and Hualde 1998).

First stage (1965-81): productive disintegration and intensification of manual work

In this first stage, the maquiladoras maintained slow growth and remained of limited importance to the Mexican economy (representing less than 5 percent of manufacturing employment in Mexico). However, the industry’s evolution was subject to cycles in the US economy, and to a lesser degree to strong pressures from US trade unions which drew attention to the growing relocation of their members’ companies and jobs south of the border. At the time, these first-generation7 maquiladoras occupied the lowest rung within the production chain. This position was associated not only with assembly activity, but also with the intensification of manual work. Maquiladoras were characterized by the presence of foreign-owned, traditional assembly plants, productively disconnected from domestic industry, with low technological levels, and dependent on decisions made by their parent companies and their main clients. In terms of labor organization, they were based on intensive manual labor by young women, with rigid job posts and repetitive and monotonous activities requiring a minimum of training (1-3 days) (Fernandez-Kelly 1983). Their competitiveness lay precisely in the relatively low wages (less than one-quarter of US levels) and high work intensity, resulting in a type of first-generation company that impoverished the jobs. The productive linkages maquiladoras established locally were very few and far between. In contrast, what were strengthened were companies promoting local industrial development, as well as twin plants (generally warehouses and offices) in the neighboring cities on the US side of the border. In this stage, auto parts plants had still not been established.

Second stage (1982-93): industrial modernization, productive specialization, and rationalization of work

With the strong devaluation of the Mexican peso during the 1980s, substantial changes began to occur that sustained the growth of labor productivity and employment in the maquiladora industry (which expanded from 8.8 percent of total manufacturing employment in 1985 to 16.1 percent in 1990). New industrial activities emerged, as did productive specialization in particular districts, such as “Television Valley” in Tijuana (Carrillo, Mortimore and Alonso 1999) and the “Wire Harness Valley” in Juarez (Carrillo and Hinojosa 2001).8 Furthermore, the spatial concentration of the industry began to affect the educational system. As more skilled workers were needed (20 percent of the total workforce were professionals and technicians in 1989), plants began exchanges with several universities and technical institutions (Carrillo 1993).

By the mid-1980s, two key changes in manufacturing could be seen, particularly in auto parts plants. First, the introduction of machinery and automated equipment moved the maquiladoras beyond simple, labor-intensive manufacturing. Second, the introduction of new forms of workplace organization raised efficiency and expanded the role of workers. Just-in-time production and total quality control (JIT/TQC) principles were broadly disseminated, but with high levels of adaptation to the local context (the “hybrid model”; Abo 1994). These techniques gave workers more responsibility on the shop floor, and required greater commitment and involvement from them. Although most jobs continued to be organized as basic assembly work, more advanced techniques such as teamwork, group participation, and functional flexibility were adopted by many maquiladora companies, especially in the auto parts industry (Wilson 1992; Echeverri-Carroll 1994; Carrillo 1995).

If in the first stage of maquiladora development, transnational electronics companies based in the USA promoted this pattern of vertical international subcontracting without local linkages, in the second stage the drivers were US automotive companies (mainly GM), and Asian and European transnational corporations (TNCs). Competitiveness came to be based on a combination of quality, delivery, unit costs, and labor flexibility. Low wages were still a factor, but of reduced importance compared with the first-generation maquiladoras.

This second generation represented a true technological and organizational breakthrough, not only because of their adoption of the Japanese system of production, but also because of the learning dynamics and constant experimentation that they engaged in (as in the case of Delphi’s Electric Systems plant in Ciudad Juarez). A greater ability to anticipate demand and respond rapidly to its growing fluctuations became characteristic of these plants. A clear example of their stability and adaptive capacity in the face of important problems, such as labor mobility, is that these plants were systematically able to increase competitiveness while experiencing extremely high levels of voluntary personnel turnover of (more than 100 percent yearly between 1985 and 2000) (Carrillo 1993; Carrillo et al. 1999). In spite of this high turnover, employment continued to expand, with maquiladoras growing from small and medium-sized enterprises (148 workers in 1980 per plant) to large facilities (842 in 2003). This contradictory process (high employment turnover accompanied by growth in plant size and competitiveness) can be explained by (a) a high degree of flexibility in personnel decisions, (b) short introductory training and continuous training programs for longer-service employees, (c) the introduction of quality standards like the ISO/QS 9000, and (d) the emergence of a small stable group of skilled workers and human resource managers.9

Although the flexibility of jobs and workplace activities increased in this generation of companies, the incorporation of highly skilled labor, such as engineers, was largely absent. Design processes were limited and the development of clusters was still incipient. Despite this, young Mexican engineers found in the maquiladora plants a sector in which to accumulate knowledge and begin professional careers (Hualde 1994). The number of technicians grew from 50,708 to 137,304 between 1989 and 1999 to represent 11.4 percent of the total maquiladora employment in Mexico.

Third stage (1994-2001): development of technical centers and knowledge-intensive work

During the early 1990s, new TNC plants were established in the auto parts industry, as well as in electronics. The annual growth of the maquiladora industry reached a record 20.5 percent in value-added and 14.2 percent in employment between 1994 and 2000. Nationally, the maquilacloras represented 31.5 percent of manufacturing employment in 2000. This tremendous increase was related to both NAFTA and the devaluation of the Mexican peso. The territorial agglomeration process in electronics (mainly TV and computers) and auto parts continued (Carrillo et al. 1999), but in an industrial cluster style, characterized by the emergence of intra-firm networks. Delphi and Valeo’s technical centers are clear evidence of this trend.

The third-generation companies are best distinguished from their predecessors by the completely new type of establishment that emerged, based on different relations among companies and different workplace activities. These are productive networks based on engineers’ specialized knowledge. The plants are no longer oriented either to assembly or manufacturing, but rather to the integration of design, research and development with manufacturing. Thus a process of localized vertical integration has begun through the formation of industrial complexes on the Mexican side of the border. These complexes link up within a given area, connecting engineering centers that supply maquiladora plants, which in turn have specialized direct and indirect suppliers such as plastic injection molding, machine shops, or IT services, in addition to important all-around suppliers in different regions of the USA. More and more linkages between different Delphi plants in Juarez are developing.

The case of Delphi’s Technical Center in Ciudad Juarez (MTC) is for the time being one of the few examples of this process in the maquiladora industry. But MTC has been expanded tremendously, employing more than 2,100 people (60 percent engineers). What is novel about this strategy is that the company has “discovered” the advantages of using a relatively cheap, yet highly skilled sector of the labor force: engineers and high-level technicians (whose wages are one-third of their counterparts in the USA).10

The responsibility, discretion, and knowledge involved in these new companies are of a very high level. Work proceeds on projects based on teams of engineers with technical support, which operate under constant pressure to reach better results than those of their competitors. In this case, competitiveness stems from the reduction in the duration of the projects, cuts in operational costs, and high manufacturability of designs due to the technological capability of the engineers, their low relative wages, and the easy communication with their nearby internal customers (in this case, Delphi’s assembly maquiladoras).

To conclude, there have been significant organizational and productive learning trajectories in many maquiladora auto part plants, resulting in major improvements in the type of work and rising skill levels. The particular case of Delphi demonstrates this process of industrial and skill upgrading, as we will see in the next section.

The relative distribution of first, second, and third-generation plants is uncertain, partly because the categories themselves are not precisely definable. But a rough estimate of the size of each group can be made based on survey evidence (Table 3). Depending on the indicator, somewhere between 25 and 30 percent of plants seem to be at the technological frontier. This matches the number of plants that claim to be ISO 9000 certified, operate at the forefront of their product category, upgrade their equipment and products frequently, and have increased the proportion of engineers and technicians. At the other end of the spectrum, it appears that around 15-25 percent of the plants consistently lag behind. This is roughly the size of the group that is three or more years behind in technology, lacks QS 9000 certification, never innovates in equipment and products, and has not increased the number of engineers, technicians, or hours of training in its plants. These plants are more likely to compete primarily on the basis of price rather than product quality, and to look for locations with abundant supplies of low-wage, unskilled, labor.


The generational shift in the auto parts maquiladoras can be illustrated through the case of Delphi in Ciudad Juarez.

Formation of an automotive cluster

Ciudad Juarez has become a nodal point for the automotive sector due to its geographic location and high level of industrial specialization. One-third of all maquiladoras in Mexico are located in the state of Chihuahua, and Ciudad Juarez accounts for 75 percent of these. In this sense, Chihuahua’s development is based on Ciudad Juarez. The three auto giants (GM, Ford, and Chrysler) and their first-tier suppliers alone account for 68.5 percent of the total industry workforce in this city.

The relocation of auto parts companies associated with the Big Three to Ciudad Juarez has prompted foreign competitors to do the same. In other words, the industrial/territorial agglomeration in this sector has given rise to a productive specialization in which many companies coexist side by side, but at the same time compete for a greater share of the market, as well as for skilled and unskilled workers. At the extreme end of the development process is the opening of a R&D center. During the 1990s, GM’s strategy had been to establish its own maquiladoras to supply both its own assembly plants and those of other companies. Contrarily, Ford and Chrysler have mainly preferred to subcontract production to specialized companies (such as Essex, Lear Seating, or Yazaki) able to supply them with parts like wire harnesses and seat covers. More recently, a transnational process of concentration has occurred among first-tier auto parts producers or original equipment suppliers (OES), who now work directly with the major automotive groups or original equipment manufacturers (OEMs) like GM, Toyota, Honda, Ford, Isuzu, Mercedes, and BMW.

An important example of this process of productive specialization is Juarez’s wire harness plants. Beginning in 1979, dozens of auto parts companies owned by GM, Ford, Chrysler, Yasaky, Siemens, and Essex, among others, arrived on the scene. Delphi’s Packard division alone employed 33,000 Mexican workers (nearly 27,000 in Juarez) at the beginning of 1996 (Table 4). Wire harnesses are one of the leading products assembled in Mexico, and the second most exported maquiladora product after garments, with $4.949 billion of exports in 1998.

The most important wire harnesses are located in the engine and the instrument panels; but they can also be found in the door panels, seats, and lighting systems (USITC 1997: 3-19). Typically, wire harness assembly involves numerous production lines in order to accommodate a great variety of vehicle models. Additionally, the final assembly process incorporates an intricate complex of operations that cannot be practically or economically automated.

Each plant specializes in a limited range of wire harness sets needed for specific vehicle models. The production of wire harnesses requires flexibility because of rapid shifts in demand (according to the vehicle type, model, and version, as well as frequent changes in electronic components and designs). A simple car is connected by thousands of wires that measure more than a kilometer and half. Therefore, the design techniques and capacities to connect wire harnesses are essential to obtain maximum efficiency using minimal space (Sumitomo 1998). Typically, wire harnesses form what might be thought of as the central nervous system of a car, consisting of 13 subsystems.

Historically, the evolution of the wire harness sets for vehicles can be broken down into three periods, as Lara (1999, 2003) points out: the simple wire harness (1900-73), the harness as central nervous system (1974-93), and the harness integrated in modular systems (1994-). First-generation wire harnesses were exclusively a means of transmitting electrical power. Between 1910 and 1919 wire harnesses were developed to control the electric lights and starter systems. By the middle of the 1950s, the rise of air conditioning necessitated modifications in wire harnesses to transfer more power and include a greater number of wires, requiring automobiles to carry three bunches, or subsystems, of harnesses.

In the beginning of the 1970s, the rapid diffusion of electronic components led to the design of more complex combustion systems-fuel injection and the “travel computer”-(due to the growing maturity of semiconductor and integrated circuit manufacture, and the growing demand for energy-efficient and less polluting vehicles). The use of electronic components was expanded, as was the electric/electronic (E/E) system, so the number of wire harnesses was increased from 3 to 12 per vehicle. This convergence of the automobile and electronic sectors resulted in: (i) the appearance of new functions and new E/E components, (ii) the substitution of mechanical parts for E/E parts, and (iii) the combination of mechanical parts with E/E components. With the growing number of electronic components demanding a variety of electrical loads, a wider range of wire harnesses were needed. During this period, therefore, the wire harness was transformed from a marginal component to become the central nervous system of the vehicle.

Finally, from 1970 to 1990 wire harnesses were almost entirely redesigned to accommodate the introduction of new and improved electronic components. At the end of the 1980s, Koido (1992) observed that:

minor automobile model changes every year affect the wiring harness designs and lead to modifications in the production process. Moreover, small changes in some electronic parts can prompt changes in wiring harness design even in the middle of a car model year.

Today, the average automobile integrates 14 types of harnesses, each related to specific E/E components. In addition, a vehicle can require more than 40 electric subsystems. The number of cables for each automobile is variable and depends on the size of the engine: 800 cables for 1,500 cm^sup 3^ and 1,500 cables for 2,500 cm^sup 3^, for example. Each wire harness uses roughly 100 types of different connectors and there exist more than 200 types of terminals (Lara 2003). This complexity is leading assemblers and auto parts makers to: (i) adopt module designs, (ii) substitute fiber optics for copper, and (iii) to develop multiplex systems. In order to manage these continuous changes, firms need to develop open and flexible wire harness architectures (Lara 1999). Approximately 80 percent of the new designs represent variations on previous designs (Lara 2003).

This process, together with modular production, requires the increased proximity of: (i) the centers that design and develop E/E components, (ii) the centers that manufacture E/E components, and (iii) the centers or plants that manufacture wire harnesses. Third-generation harnesses are qualitatively different in architecture (variability/stability) from the unstable harnesses of the second generation. The ignition wire harness sets developed by the mid-1990s can also be considered third generation because of the emergence of R&D and technical support centers that can translate customers’ heterogeneous requirements into the manufacturing processes of their nearby suppliers (Lara 2003).

A good example of such supply chain integration is the MTC, which designs for several OEMs and is closely linked with Delphi’s Electric Systems and Switching (SEC) plant in Juarez, as well with the rest of the group’s manufacturing facilities in Mexico. In other words, MTC functions as the hub of an intra-company network in order to coordinate multiple functions for Delphi and other OEMs (Lara and Carrillo 2003).

The process of agglomeration and cluster formation has received support from government institutions and, more substantially, from private economic groups in the state of Chihuahua. Together, they formed the Chihuahua Siglo XXI (Chihuahua 21st Century) project in 1994, based on promoting clusters. This was possibly the first Mexican initiative with this focus (which preceded the adoption of industrial policies aimed at strengthening productive chains-see the Industrial Policy and Foreign Trade Program of 1996); although the state government participates, it is clearly an initiative of Chihuahua’s private business groups. Among its goals is to transform Chihuahua into a state with an intensive knowledge-based economy, with nuclei of high value-added manufacturing plants supported by the production of complementary materials and services (DRI/McGraw-Hill 1994). This program mainly targets the cluster of automotive and electronic plants in Ciudad Juarez as the basis for the state’s development. The most recent federal government program (the National Development Plan for 2001-2006) also focuses on industrial clusters as the most dynamic sector of the Mexican economy.

In 1998, Chihuahua Sig/o XXI was folded into a new program (Chihuahua Now) and a number of results were achieved. The most important was the improvement of institutional capacities and the creation of a consensus among local economic groups. However, managers interviewed observed that the precise scope and modalities of this program remained vague. It also suffered from a broader skepticism about the credibility of government policy initiatives, despite having been initiated in large part by private economic groups. The key problem identified by Carrillo et al. (2001) was the lack of financial resources for supplier development and training programs. Additionally, the program was unable to identify problems such as the weak “associationalism” and lack of managerial leadership in the region. Despite these weaknesses, Siglo XXI and Chihuahua Now established the basis for future strategic initiatives and institutional capacity building. The state of Chihuahua is, without a doubt, one of most important industrial areas in Mexico and a creative milieu for local economic development (see, for example, the 2003 Juarez Strategic Plan at

A second-generation maquiladora: Delphi’s SEC plant

The case of Delphi-Energy Electric Switching Systems (SEC) plant exemplifies the learning process of what we have termed second-generation maquiladoras. This company was established in 1980 to produce solenoids, sensors, and switches. By 1993, the plant’s sales had reached $385 million, with 87 percent of its production exported to the North American market (including Canada) and the remainder sold within Mexico and other countries. As can be seen from Table 5, in 1995 the plant produced 20 million solenoids and 17 million sensors, clearly demonstrating its status as a mass-production facility.

This plant improved its competitiveness in the 1990s because it was able to respond efficiently to changes in technology and demand with high-quality products. The company has received QS 9000 certification and other awards such as Ford’s Q1. SEC has nearly 100 clients, of which the most important are two Ford and two GM plants in the USA. To improve its competitiveness, the plant has struggled to reduce its delivery times and shorten production cycles through enhanced specialization and the adoption of new organizational practices. In particular, the plant has increased training per worker to an average of 70 hours a year (the manufacturing industry average nationwide is around 40 hours).

In 1996, the plant had 4,200 employees, of whom 85 percent were production workers and 7 percent were engineers and technicians. Wages and benefits represented less than 15 percent of the total cost of production, which was 70 percent automated in terms of value. The plant has also adopted Japanese production methods. In 1982, Statistical Process Control was introduced and, as of 1988, JIT/ TQC techniques were implemented, including teamworking, quality circles, and cellular manufacturing, among others. This was the first maquiladora plant to employ more male workers than women, to implement new ideas on synchronized manufacturing (JIT, U-shaped cells, factories within the factory), and to diversify its products. At the present time, it handles 18 inventory turns per year. This allows us to understand why the most far-reaching changes affecting the plant, which began with the onset of NAFTA, have occurred precisely in the field of development and design, both of products and processes.

A third-generation maquiladora: Delphi’s Juarez Technical Center (MTC)

Delphi Energy Division, the MTC’s parent company, is located in Warren, Ohio. Nevertheless, MTC works for all six divisions of Delphi and employs staff from these divisions as well as other independent component suppliers. Delphi-Energy decided to relocate one of its seven R&D centers outside the USA for the first time in its history. Thus, the Anderson, Indiana plant (1,800 miles away) was transferred to Juarez. This strategic decision resulted from the need to reduce production cycles, delivery times, and total costs. While Delphi-Energy engineering centers employ 500 people on average, the MTC currently employs more than 2,100. In the first year of operations it was able to cut total costs by 60 percent and delivery time by 20 percent (compared with the Anderson plant).

The MTC opened in 1995 in Juarez as “just another maquiladora”, with an initial investment of $150 million (slightly less than half devoted to equipment). Mexican engineers and technicians were sent to GM’s Anderson center for several months to receive the necessary training in critical areas. This was a completely new type of operation for Mexico, responsible not just for the production of specialized auto parts, but for integrated design and manufacturing. This center is expected to provide a “full package” service, covering everything from a general idea (even “before there’s anything on paper”), to development of the complete product and manufacturing system, including the actual production lines.

The decision to relocate the MTC to Ciudad Juarez was strategic for GM. According to managers interviewed, it depended on three critical factors: (a) proximity to the USA; (b) 15 years of learning experience in the maquiladora plants of Ciudad Juarez; and (c) the quality of Mexican engineers’ knowledge of the field. The underlying aim was to reduce project development cycles and delivery times by moving engineering closer to manufacturing facilities.

Juarez has a considerable workforce available with many years of experience in the auto parts sector. Although the training of engineers and technicians was not sufficient to fill the demand for skilled workers in the region, high labor mobility helps in recruiting potential employees. In the field of education, the state of Chihuahua supports universities and technological schools offering a variety of engineering courses with content developed to meet industry needs; there is even an important research center on materials in the city of Chihuahua itself. GM evaluated the local pool of engineers available to be hired by the MTC, and concluded that they were extremely competent.

We will now examine three areas of great importance in this center: production, human resources, and supply chains, in order to understand the learning process and the evolution of local capabilities.

The center’s operations are based on the formation of variable project teams, following a full-package strategic plan comprising four phases. The first phase is the beginning of the idea. The client presents his request, in which often “. . . he does not even exactly know what he wants, but rather has an approximate idea of his needs”. The second phase involves designing the project by drafting a proposal based on an initial concept and establishing different work teams. At this stage, the center works closely with the client. The third phase is the validation of the product. Once the prototype is approved, the necessary equipment is purchased or adapted for constructing and validating the concept. “Now we are no longer dealing with samples, but with dozens of pieces (500 for example).” At stake is the manufacturability of the designs. The production equipment is produced or designed (the measuring and other equipment is validated) and the manufacturing infrastructure is installed. The layout, manuals, etc. are designed. In other words, assembly lines are designed, constructed, and equipped with machinery, tools, etc. At this stage, for example, the SEC’s manufacturing unit was designed. The fourth phase consists of continual improvement in product designs and prototypes as well as their manufacturability.

MTC began by hiring 20 percent foreign engineers and technicians and 80 percent Mexicans. Initially it had 370 employees (90 percent of whom were engineers). MTC was the first technical center to achieve QS 9000 certification, becoming in effect a training center and example for other centers throughout the division.

The center has four salary categories and many variations within them. Although the monthly wages of $900 plus benefits are relatively high in the local context, salaries are only slightly above those paid in other maquilacloras (for engineers) and identical to those of their customers (the engineers working in SEC). In any event, salaries are not the only reason why many engineers wish to work in the MTC: opportunities for decision-making initiative are also important.

Despite a domestic content of only 1 percent, the MTC is no technological island, but is instead integrated into a local intra-company system (Figure 4). This third-generation facility represents an industrial breakthrough. As one manager engineer pointed out: “. . . in the maquilacloras, the recipes continue, we make them here . . . we’re dealing with the design industry”.


The story of GM and Delphi in Mexico, especially in Juarez, shows a clear trajectory of industrial upgrading. OEM and OES firms have been able to develop more competitive structures and organizational forms, and improve performance levels. In this process local private actors as well as public institutions have played an important role in stimulating the formation of the auto industry cluster. Furthermore, NAFTA has sparked the growth of new plants and employment, closely integrated with production in the USA and Canada. Nevertheless, this upgrading process has not given rise to a balanced pattern of endogenous regional development.

General Motors and Delphi have been operating in Mexico for more than 60 years. During the company’s first 30 years in the country, its Mexican operations’ main function was to assemble automobiles for the domestic market; during the next 30 years, their central role was to produce vehicles, engines, and auto parts for export. In this latter period, new modern plants have been built to manufacture automobiles, trucks, engines, and electrical system components. This period has also seen an important geographic decentralization of production, extending to practically the entire country-as can be seen from Figures 1 and 2. All this has allowed GM to substantially increase its presence in Mexico, particularly through its Delphi spin-off. As we have seen, Mexico plays a central role in the global strategies of this first-tier system integrator.

There is no doubt that the final assemblers, as well as the auto part maquiladoras, have undergone industrial upgrading, particularly at a technological level. But technological sophistication does not guarantee competitiveness. Still, firms that are at the technological frontier of their industry and that compete successfully in an international arena, where national policies offer little in the way of protection, are more likely to succeed in the long run. Third-generation plants are at a competitive advantage relative to second and especially first-generation plants, because they can innovate in products and processes, apply best-practice management techniques, and compete on the basis of quality.

Although Delphi’s auto parts strategy in Mexico has been one of productive specialization based on the establishment of maquiladora plants using labor-intensive processes, one can observe a learning dynamic that ranges from the assembly process to R&D. The jobs that have most enriched the maquiladoras’ tasks and activities are those of technicians, engineers, and managers in second and especially third-generation facilities. Skill upgrading is reflected in an increase in earnings, since these companies provide higher wages than do others in the area. However, the supply chains that these companies develop locally are limited. Thus, while in areas such as Juarez, the industrial cluster is based on a network of plants and companies belonging to the same corporation (vertically integrated, with strong horizontal support services), few Mexican companies have been able to participate in this process, with the exception of low value-added activities like cardboard packaging and machine shop parts.

Accompanying this process of firm and labor upgrading, cities such as Juarez have not only experienced an explosive growth in maquiladora plants and employment, but also of secondary and tertiary educational institutions, professional business services, and quasi-governmental development agencies such as the Chihuahua Siglo XXI program, among others. But the integration of local Mexican suppliers to Delphi plants has, unfortunately, been limited, mainly because of the former’s low quality, small scale, delivery problems, and high costs, as well as a lack of support from the latter.

More generally, strategic initiatives in Juarez, such as Siglo XXI and Chihuahua Now, have failed to improve supplier development, but other gains have been made, such as the improvement of institutional capacities. Now, the Mexican government has initiated plans to double supplier capacity in the auto parts sector. However, Mexican-owned suppliers do not currently operate in the first or second tiers of the automotive supply chain. Most instead provide production services to foreign-owned suppliers, as in the case of local machine shops.

According to the TNCs themselves, public policies have had a small impact on local suppliers. A TNC manager underlined that: “The state and federal government have had little or nothing to do with the development of local suppliers”;

We have come close on occasions, they [the state government] have even come to promote supplier fairs, but we are basically in charge of searehing for input suppliers [. . .] as in the case of chemical compounds, which we now have to buy in Monterrey . . . it is an initiative of ours that is carried out via personal networks.

Public policies have not had the desired success for a variety of reasons: many firms are insufficiently familiar with the available support services; funding is limited; some policies are inappropriate, while others have low rates of efficiency; there are no systematic policy evaluations and sometimes there are no evaluations at all. Most fundamentally, government agencies at all levels (national, state, local) do not appear to consult TNCs and suppliers regularly, while the latter do not fully believe in the policies themselves, which they consider bureaucratic and inefficient. Although the advances in industrial development policies should be acknowledged, it is now more important to be clear about their weaknesses and the limited progress that has been achieved.

Finally, the weak linkages of transnational automotive and component firms with the wider Mexican economy described above are by no means unique to this sector. Across a range of industries, sourcing from Mexico is based primarily on agreements within and between TNCs, while indigenous supplier firms face scale, price, delivery, productivity, and technology problems (Pries 1998; Altenburg et al. 1998; Carrillo and Gonzalez 1999). Although foreign-owned subsidiaries represent an important vehicle for the modernization of the Mexican economy, their transnational character also represents an important constraint on their contribution to a more balanced pattern of endogenous regional development.

Although there is great optimism within the governmental sector and business organizations about the future of the Mexican auto parts industry, the development of independent local suppliers has been limited. Emerging countries such as China represent an important challenge for Mexican production. Delphi, for example, has already established wire harness plants in China, while GM invested $60 million in an Indian technical center in 2003. So Mexico’s status as a major auto parts producer could erode in the near future. The future depends not only on TNCs’ investment decisions but also on the Mexican government’s industrial policies and new regional development initiatives by various combinations of public and private actors. The consolidation of regional industrial clusters would be the best strategy to counteract the current trend of plant closings and reduced foreign direct investment. The opportunities for, and challenges to, consolidation of the Mexican auto parts sector are considerable. More research and wider participation by all the actors involved in this process arc needed.


The author wishes to thank CONACYT for their support in the realization of this project and is grateful for the further support of the Auto Part National Industry (INA) and the Mexican Association of Automobile Industry (AMIA). I wish to thank the managers of the maquiladora firms for interviews, information, and access to their facilities, especially those of Delphi-Mexico. I also want to thank Jonathan Zeitlin and Jeff Rothstein for important comments and help with revisions.

1 Delphi separated from GM in 1995 and became fully independent in 1999. By 2001 it employed more than 193,000 persons around the world, and operated 198 manufacturing plants, 53 sales and service centers, 31 technical centers, and 44 joint ventures, located in 43 countries.

2 Maquiladoras are foreign-owned or Mexican controlled plants that process, manufacture, and assemble temporarily imported components for re-export in free trade zones or in-bond operations enjoying special tariff and tax treatment. The maquiladoras are not an “industry” in the proper sense of the word because they include plant operations in many sectors, although electronics, auto parts, and apparel are the most important. The maquiladora program was initiated in 1965 under the Border Industrialization Program. The majority of plants are owned by American, Japanese, and Korean firms that moved to the northern border of Mexico in order to reduce production costs.

3 Between 1998 and 2001 the percentage change in the value of exports in this sector was 33.2 percent. PITEX = Program of Temporary Imports for Export.

4 The main criticism directed against this system comes from the UAW, which views it as a permanent threat, on the one hand, to close dozens of factories that are financially independent, yet commercially dependent on GM’s industrial organization, and, on the other hand, to relocate plants toward areas with lower costs, such as southern Europe or northern Mexico. The important 1998 UAW-GM conflict revolved around this issue.

5 The firm comprises six divisions focusing on three main activities: Dynamics and Propulsion (Delphi Energy & Engine Management Systems, Delphi Saginaw Steering Systems, and Delphi Chassis Systems); Security, Temperature & Electric Architecture (Delphi Interior & Lighting Systems, Delphi Harrlson Thermal Systems, and Delphi Packard Electric Systems); Electronic Communications and Portable (Delphi Delco Electronics Systems). In 1997 it accounted for 20 percent of GM’s $31.4 billion sales.

6 The ignition wiring harnesses sets consist of multiple isolated electric drivers that are assembled to terminals, connectors, sockets, and other wiring devices. They are used to connect several electric components (e.g. lights, instruments, and motors) to an energy source (generally batteries and generators), etc. to handle high voltages in select parts of ignition (as starters, generators, distributors, and spark plugs) in vehicles like cars, planes, and boats (USTIC 1997).

7 By generation we mean an ideal type of firms with a certain socio-technical level. While these designations are essentially metaphorical, they are useful for representing both change over time and the differences between firms at a given point in time. This approach recognizes the coexistence at any given time of companies of different generations.

8 Wire harnesses are an apparently minor component of the automobile industry. Although they represent less than 1 percent of the aggregate value of a car, their role is nonetheless much more important. Automobiles are now controlled through complex electric/electronic systems and each function is operated or monitored through a complex distribution system involving cables, connectors, and electronic sensors. Consequently, wire harnesses are usually referred to as the car’s nervous system.

9 Approximately 40 percent of the labor force is stable and the remaining 60 percent is characterized by high turnover (Carrillo and Santibanez 2001). Also, most of the workers have previous experience in other assembly plants, which allows them to pick up new jobs quickly.

10 To explain this new trend, Lee Crawlord, ex-director of Delphi Operations in Mexico and Central America observed: “Delphi has 27 Technical Centers world wide. The pattern is to reduce the number of centers and locate them outside USA, where clients arc located. In the case of Mexico their clients are the maquilas. In some components, such as sensors, it is not necessary to be close to assemblers, but in other products, such as instrument panels, yes” (interview with Lee Crawford, December 5, 1999).


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