By Vera Pavlakovich-Kochi, Ph.D.
Senior Regional Scientist and Associate Geography Professor
April 8, 2014
A recent study, Bi-National Business Linkages Associated with Fresh Produce and Production Sharing ,  investigates foundations and opportunities for Nogales and Santa Cruz County related to importation of Mexican fresh produce and import/export trade associated with the maquiladora sector. The Winter 2014 issue of the Arizona Economy, my article “The Fresh Produce Industry in Nogales, Arizona: Economic Impacts and Challenges” summarizes regional economic impacts of importation and distribution of fresh produce; this article focuses on specifically on the maquiladora sector south of the border and its impacts on regional economy of Nogales and Santa Cruz County in Arizona.
Maquiladora sector in Nogales, Sonora
Since its inception in mid-1960s, the maquiladora sector has become the major engine of economic development in Nogales, Sonora. Although a significant industrial growth has taken place in other cities in Sonora (Hemosillo, Empalme, Guaymas and Ciudad Obregon), the border city of Nogales is still the leading location with the largest number of maquiladora employees in the state. The development of the so-called second- and third –tier maquiladoras reflects the expansion and transformation of the maquiladora sector from simple assembly to more complex production operations. Increasing demand for on-time delivery, together with more stringent border crossing procedures after the 9/11/2001 terrorist attack increasing cross-border wait times, also encouraged location and relocation of suppliers closer to maquiladoras. The majority of newer maquiladoras and maquiladora-related businesses are a mix of foreign-owned and locally-owned operations.
At present, the maquiladora sector in Nogales, Sonora is about 34,000 jobs strong and has more than 100 plants. Three industry sectors account for more than 50% of all employment: computer and electronic product manufacturing (23.0%), apparel manufacturing (15.0%), and transportation equipment manufacturing including components and parts for aerospace industry (14.1%). When electrical equipment and components manufacturing (13.7%), and miscellaneous manufacturing (10.2%) are added, these five industry sectors account for 76% of the maquiladora sector (Table 1). Other sectors represented include fabricated metal product manufacturing; machinery manufacturing, repair of equipment; plastics and rubber products manufacturing, chemical manufacturing, and paper products manufacturing. Additional ten sectors are represented with employment of less than 1% of the total.
It is interesting to note that the apparel industry, which employs more than 5,000 workers and ranks second in terms of its share of total employment (15%), is related principally to manufacturing production of various textile (mostly disposable) garments and other accessories used in hospitals. The third ranking transportation equipment manufacturing with more than 4,800 workers (14.1% of total) encompasses manufacturing of various components for auto industry (from harnesses, wiring components, and cables, to brakes and radios), and a growing production and assembly of various products for aerospace industry. Most of the remaining sectors have a long tradition in Nogales, Sonora, such as fabricated metal products, machinery manufacturing, plastic and rubber products, leather and allied products, and other. Administrative and support services, and management and technical consulting are natural outgrowth of the industry’s needs.
Maquiladora sector related employment in Ambos Nogales
A comparison of maquiladora sector in Nogales, Sonora and matching industry sectors in Nogales, Arizona (commonly referred to as Ambos Nogales, i.e., two Nogaleses) has revealed that the Nogales, Arizona industrial structure has been influenced by maquiladora activity south of the border. For example, the following three sectors — computer and electronic product manufacturing, transportation equipment manufacturing, and electrical equipment and components manufacturing – are obviously related to the maquiladora sector south of the border.
However, as Figure 1 clearly shows, the Santa Cruz County’s industrial structure is far from a true “twin plant,” “co-production,” or “cross-border industry cluster” model. There are some objective reasons and challenges, such as the proximity to large metro areas of both Tucson and Phoenix. Another important factor is the fact that decisions about input of components and services are still vested in the parent company. About 35 percent of Nogales, Sonora maquiladoras are owned and operated by out-of-Arizona parent companies (including those in California); about 11 percent has parent company in Phoenix or Tucson, while only 20 percent of maquiladoras have parent company (or an outpost of parent company) in Nogales and Santa Cruz County.
Figure 1: Ambos Nogales: Employment in Manufacturing Industries Related to the Maquiladora Sector
In terms of services, Nogales, Arizona shows comparative advantages in the Ambos Nogales region, especially in the area of professional services ( Figure 2 ).
Figure 2. Ambos Nogales: Employment in service industries related to maquiladora sector
Economic impact of maquiladora-related manufacturing and service industries in Santa Cruz County
Using information contained in the IMPLAN model, about 15 manufacturing industries and 20 service industries in the Santa Cruz County economy were identified as having direct connection with the maquiladora sector in Sonora. The manufacturing includes following activities: Totalizing fluid meters and counting devices manufacturing; Other aircraft parts and auxiliary equipment manufacturing; All other miscellaneous electrical equipment and component manufacturing; Sporting and athletic goods manufacturing; Unlaminated plastics profile shape manufacturing; Surgical appliance and supplies manufacturing; Other electronic component manufacturing; Turned product and screw, nut, and bolt manufacturing; Machine shops; Motor vehicle parts manufacturing; Musical instrument manufacturing; Sign manufacturing; Crown and closure manufacturing and metal stamping; Other fabricated metal manufacturing, and Wood kitchen cabinet and countertop manufacturing.
The following services were identified as being related to trade with the maquiladora sector: Transportation support services; Transport by truck; Retail Stores – Gasoline stations (diesel fuel); Automotive equipment rental and leasing; Warehousing and storage; Securities, commodity contracts, investments, and related activities; Nondepository credit intermediation and related activities; Legal services; Monetary authorities and depository credit intermediation activities; Management of companies and enterprises; Architectural, engineering, and related services; Facilities support services; Management, scientific, and technical consulting services; Scientific research and development services; Commercial and industrial machinery and equipment rental and leasing; Accounting, tax preparation, bookkeeping, and payroll services; Data processing, hosting, ISP, web search portals and related services; Insurance carriers; Environmental and other technical consulting services, and Waste management and remediation services.
Table 2 presents estimated direct impacts of maquiladora related trade on jobs, wages and output in Santa Cruz County: maquiladora-related exports generate directly 1,140 jobs, $46.4 million in wages and direct output of $206.8 million in Santa Cruz County.
Secondary economic impacts are generated as businesses purchase goods and services from other local businesses and thus support additional jobs and generate additional wages and output in the local economy. Additional secondary impacts are generated as employees spend direct and indirect wages locally. Through these ripple effects, maquiladora-related exports generate additional 636 jobs, $22.1 million in secondary wages, and $98.1 million in additional output (Table 2).
Combining direct and secondary impacts, the maquiladora-related exports generate 1,776 jobs with $68.6 million in wages. The total dollar impact is $304.9 million (Table 3). This impact accounts for 9.8% of County’s jobs, 8.9% of total wages, and 15.6% of the total output in Santa Cruz County (Figure 3 ). The maquiladora related economic activities generate an estimated $8.7 million annually in tax revenues to state and local governments (included in the output figure).
Figure 3: Maquiladora-Related Job Impact as Share of the County’s Total Employment
Summary: Foundations and opportunities
The concentration of about 100 maquiladora plants in Nogales, Sonora with an average of 34,000 employees, impacts the economy of Santa Cruz County in several ways. The Nogales BPOE facilitates import-export trade between U.S. based companies and assembly/production facilities south of the border including supplies shipped from Arizona companies. In addition, a number of businesses in Nogales and Santa Cruz County export manufacturing products and services to maquiladoras. The economic impact of the maquiladora related activities is 1,140 direct jobs and 636 secondary jobs with a total wage impact of $68.6 million. The total monetary impact, which includes wages and $8.7 million in tax revenues to state and local governments, is $304.9 million. This represents 9.8% of County’s jobs, 8.9% of total wages and 15.6% of total output. For every 100 jobs in maquiladora export-related sector additional 56 jobs are generated in the local economy through ripple effects; every one dollar in direct wages earned in export-related activities and spent locally generates an additional $0.48 in wages, while every one dollar in output (sales) generates additional $0.47 in additional output in local economy.
The Report concluded that in relation to the maquiladora sector in Nogales, Sonora, the economy of Santa Cruz County has not realized a full potential of its proximity to 100 or so maquiladora operations. In part this is a function of the mere size of Santa Cruz County population, and partly an effect of the proximity to a much larger and economically stronger Tucson metro area, which serves as the location of parent companies and a supplier of manufacturing components and services. However, for a number of key services, the border location matters and Nogales and Santa Cruz County should be able to use its competitive advantage.
 Source: Index Nogales. Associación de Maquiladoras de Sonora, A.C. Includes both members and non-members.
 Based on the description of the product, as reported in Index Nogales, Asociación de Maquiladoras de Sonora, A.C., each maquiladora was assigned a NAICS code, according to author’s best knowledge.
 These are sectors contained in the IMPLAN model of Santa Cruz County. They were identified based on the analysis of maquiladora sector in Nogales, Sonora (as described earlier) in combination with export data by sector in the IMPLAN model.