EXPORT-ORIENTED DEVELOPMENT, THE STATE, AND SOCIAL CAPITAL:

A CASE STUDY OF MAQUILADORA PRODUCTION IN YUCATAN, MEXICO

James J. Biles
Department of Geography
Western Michigan University
Kalamazoo, MI 49008

Lindon Robison
Department of Agricultural Economics
Michigan State University
East Lansing, MI 48824

Marcelo Siles
Integrative Studies in Social Science
Michigan State University
East Lansing, MI 48824

During the past two decades, many developing countries have abandoned import-
substitution industrialization policies (ISI) in favor of export-oriented industrialization
(EOI). Maquiladora production is a particularly Mexican manifestation of the EOI
strategy in which locations take advantage of proximity to the United States, low-cost
labor, and a variety of tax incentives in order attract foreign investment and employment.
The imposition of these neo-liberal reforms among developing economies in Latin
America may be construed as an attempt to replace informal institutions, based largely on
social capital, with formal institutions, designed to promote purely market forces. This
study examines the roles of government intervention and social capital in facilitating
implementation of the EOI strategy in the case of Yucatán, Mexico. In general, a well-
defined network of social capital exists among the owners and operators of maquiladoras
in Yucatán. Although social capital facilitates access to qualified labor and necessary
infrastructure and plays an important role in understanding local customs and
expectations, some significant differences exist among maquiladoras. In addition, both
social capital and government intervention are important factors in the proliferation of
these export-oriented firms.
EXPORT-ORIENTED DEVELOPMENT, THE STATE, AND SOCIAL CAPITAL:
A CASE STUDY OF MAQUILADORA PRODUCTION IN YUCATAN, MEXICO

James J. Biles
Department of Geography
Western Michigan University
Kalamazoo, MI 49008

Lindon Robison
Department of Agricultural Economics
Michigan State University
East Lansing, MI 48824

Marcelo Siles
Integrative Studies in Social Science
Michigan State University
East Lansing, MI 48824

1. INTRODUCTION

During the past two decades, many developing countries, including Mexico, have
abandoned import-substitution industrialization policies (ISI) in favor of export-oriented
industrialization (EOI). The EOI strategy is premised on the neo-liberal model of
economic development in which national economies are exposed to global market forces
with minimal state mediation. (4) The shift from ISI to EOI was favored and imposed
(through structural adjustment programs) by multilateral agencies such as the
International Monetary Fund and the World Bank and accompanied by a set of related
policy measures including trade liberalization, inflation stabilization, labor-market
reforms, and privatization of state-owned enterprises (Bulmer-Thomas, 1996). The
movement from the state-led ISI strategy to export-oriented industrialization has had
profound implications for the role of national governments. According to one scholar, the
neo-liberal reforms of the 1980s and 1990s have “delegitimized” the state as the primary
agent of economic change (Dussel, 1997). Instead, unfettered market forces are now
viewed as the most efficient means of allocating resources. As such, government
intervention in trade and industrial development has been truncated and purely “arms-
length” relationships have been promoted among economic agents.

As the neo-liberal paradigm supposes, the proliferation of export-oriented

industrialization throughout much of Mexico, Central America and the Caribbean during
the past two decades has resulted in the greater integration of local and regional
economies into global markets. Maquiladora production is a particularly Mexican
manifestation of the EOI strategy in which locations take advantage of their unique
comparative advantages – typically proximity to the United States, low-cost labor, and a
variety of tax incentives – in order attract foreign investment and employment. As a form
of export-oriented industrialization, maquiladora production offers real-world evidence
of the extent to which the EOI strategy (and hence, concomitant neo-liberal economic
reforms) has resulted in a more limited role for government and encouraged purely arms-
length economic relationships. As we discuss below, the imposition of neo-liberal
economic reforms among developing economies in Latin America may be construed as
an attempt to replace informal institutions, based largely on social capital, with formal
institutions, designed to promote purely market forces.

Based on the previous paragraph, the overall goal of this paper is to determine what role,
if any, government intervention and/or social capital play in facilitating implementation
of the EOI strategy. Specifically, we believe that both government intervention and social
capital are important factors in the establishment and development of export-oriented
industries, not only in the case of Yucatán, Mexico, but in other regions of the developing
world that have resorted to EOI as an economic development strategy. Given our primary
objective above, the following section provides a brief overview of maquiladora
production in Yucatán. Subsequently, we present a summary of the social capital concept,
followed by an appraisal of the potential for networks of social capital among and within
maquiladoras and the possible role of social capital in facilitating operations of export-
oriented firms. We then introduce the study and survey our preliminary results. Finally,
we identify the potential implications, particularly with respect to economic development,
of the maquiladora sector based on social capital.

2. MAQUILADORA PRODUCTION IN YUCATAN, MEXICO

Maquiladora production is a form of export-oriented industrialization (EOI) based on the

labor-intensive manufacture of imported components (Maclachlan and Aguilar, 1998;
Sagawe, 1996). At present, more than 3600 maquiladoras employ more than 1.3 million
persons throughout Mexico (INEGI, 2001). Traditionally, these export-oriented firms
have located along the U.S.-Mexico border. In 1990, for example, more than 90 percent
of all maquiladoras were concentrated in border states. During the past decade, however,
export-oriented production has spread to other regions of the country – about 40 percent
of maquiladoras established since 1990 are located in non-border states.

At the regional scale, perhaps the most dramatic shift in maquiladora location has been
experienced by the state of Yucatán. Since 1990, the number of export-oriented firms
operating in this relatively poor region of southeastern Mexico has increased by an
average annual rate of 29 percent. In 1990, only 13 maquiladoras had been established.
By early 2001, however, more than 145 export-oriented firms provided direct
employment to more than 37,300 persons (Secretaría de Desarrollo Industrial, 2001). A
decade ago, virtually all maquiladora production was located in Mérida, the state capital.
Today, however, the majority of maquila employment is found in rural areas of the state.
About three-quarters of these plants produce clothing and apparel, primarily for markets
in the United States. In a peripheral region such as Yucatán, with little indigenous
industry, maquiladoras now represent about one-third of all manufacturing employment
and almost two-thirds of total exports. Furthermore, these firms account for a significant
share (almost four percent in 2000) of Yucatán’s gross state product (Biles, 2001).

In general, maquiladoras in Yucatán may be categorized as subsidiaries, sub-contractors,

or independent firms. Subsidiaries are companies directly controlled by parent firms
abroad. Several multi-national corporations (MNCs), including Lee Jeans, Jordache,
Russell Athletic, and Maidenform, operate subsidiaries in Yucatán. Sub-contractors also
may be foreign-owned; however, many of these firms are established with local capital or
as joint ventures between domestic and foreign partners. The production of sub-
contractors is indirectly controlled by large firms (typically MNCs) that allocate or “out-
source” their production to multiple facilities in a variety of geographic locations. Among
other MNCs, sub-contractors in Yucatán are associated with The Gap, Lands End, Oscar
de la Renta, and Hanes. Independent firms may be domestic companies that have
“converted” to maquiladora status or enterprises that were established with the express
purpose of serving as maquilas. These firms differ from subsidiaries and sub-contractors
in several respects. Many independent companies continue to produce for local markets.
Periodically, when they have excess capacity, for example, these firms contract with sub-
contractors or intermediaries to carry out short-term assignments. In addition, some
independent firms operate as full-time maquiladoras. These companies tend to contract
with several sub-contractors and other firms in order to maintain operations year-round.

3. THE CONCEPT OF SOCIAL CAPITAL

According to Robison et al. (2001), social capital may be defined as a person or group’s
sympathetic feelings of admiration, caring, concern, empathy, regard, respect, obligation,
or trust towards another person or group. In a previous paper, Robison et al. (1999) assert
that social capital may produce potential benefits or preferential treatment other than
what would be expected in an “arms-length” relationship. Like physical capital, human
capital, and financial capital, social capital may be considered “capital” because it has the
potential to provide services while maintaining its identity; it is durable; it is flexible; it is
fungible; and it may substitute for other forms of capital (Robison et al., 2001). The basis
for or origin of social capital is referred to as kernels of commonality. Kernels may be
inherited, such as race and ethnicity, or earned, such as recognition for scholarly or
business achievement. In general Robison et al. (1999) recognize three distinct forms of
social capital – bonding, linking and bridging. Bonding social capital refers to
relationships among family members and close friends and, as such, relies primarily upon
inherited kernels. Linking social capital is found most commonly individuals with
comparable access to resources (peers) and is usually associated with earned kernels of
commonality. Bridging social capital, typically expressed through respect, deference or
some sense of obligation, exists among persons with asymmetric access to resources.
Earned kernels of commonality are associated with bridging social capital.

In general, social capital “resides” in networks that emerge from relationships. Networks
may be sparse or dense depending on the extent or distribution of one’s social capital.
Individuals belong to many networks and make use of the different types of social capital
mentioned above. Network members, either directly or indirectly linked through social
capital, are more likely to favor each other in exchanges of goods and services. In
addition, the likelihood of exchange will increase among those with social capital. On the
other hand, those who lack social capital will be disadvantaged. Furthermore, the
tendency for preferential treatment among the holders of social capital may have a
negative impact on efficiency.

The final element of the social capital paradigm are institutions, representing agreed upon
rules for exchange. Since institutions reflect the distribution of social capital, they also
influence how future social capital is developed. Institutions may be formal or informal.
Formal institutions, based on the generally accepted rules of society, are best suited for
exchange of physical goods and services. Informal institutions, described as generally
accepted norms within networks, are best suited to organizing exchanges of socio-
emotional goods (which are produced in social settings and meet social and emotional
needs for validation, regard, caring, respect, admiration, etc.).

4. SOCIAL CAPITAL AND MAQUILADORA PRODUCTION IN YUCATAN

We may preface the study of maquiladoras by identifying hypothetical networks of social

capital that likely exist within and among export-oriented firms. In addition, we can
discern the possible roles social capital plays in carrying out operations in Yucatán.

FIGURE 1
POSSIBLE USES OF SOCIAL CAPITAL AMONG MAQUILADORAS IN
YUCATAN
As Figure 1 suggests, a number of distinct networks of social capital may exist within and
between maquiladoras. In general, firms may employ social capital in choosing the plant
location. In this instance, social capital may play a role in deciding the general location or
the specific neighborhood or street where the plant will be located. In light of the
relatively high turnover rates among maquiladoras, social capital may also serve an
important purpose in locating qualified labor. Among sub-contractors and independent
firms, owners and operators may also utilize their social capital to identify potential
clients (“parent” firms) and suppliers. In addition, social capital may play a critical role in
facilitating access to financial resources and/or infrastructure, whether from private sector
or government sources. Other types of government support, such as access to employee
training programs, or other forms of preferential treatment may be facilitated as a
consequence of social capital. In the case of Yucatán, with a well-defined class structure
dating back almost two centuries, bonding and linking social capital among (extended)
family and close personal friends probably plays an important role in facilitating access
to resources. As we discuss below, it is also possible that the role of social capital will
vary among firms depending on their location, type of product, or type of firm.

5. THE STUDY

During the past six months, we have collaborated with researchers at the Colegio de
Profesionales en Economía del Estado de Yucatán in a study of the role of social capital
among maquiladoras in the state of Yucatán, Mexico. We believe that maquiladora
production, as a real-world example of export-oriented industrialization, may provide
insights into both the role of government and social capital in implementing neo-liberal
economic reforms throughout Latin America. The study consists of two components – a
detailed survey of the role of social capital among 27 maquiladoras and a “rapid
appraisal” of all 145 firms. In addition, key informants have been identified and
interviewed in order to gain a more complete understanding of social capital, particularly
among locally owned and operated maquiladoras. It should be noted that the detailed
survey presumes the existence of social capital among export-oriented firms. Based on
information from key informants and several years of fieldwork in the region, we are
comfortable in making this assumption.

The results presented below are derived from the detailed survey, as well as information
from key informants. Initially, we identify the most important factors in determining the
location of export-oriented firms in Yucatán. Subsequently, we determine the importance
of a variety of “economic” factors in conducting business in Yucatán. Given the
importance of economic factors, we next assess the role of social capital in gaining access
to these factors. Next, we test for salient differences in the role of social capital among
maquiladoras based on a number of different criteria. Finally, we incorporate insights
from key informants to assess the existence of “latent” social capital among local
maquiladoras.
5.1 NECESSARY CONDITIONS

Maquiladora representatives were asked to identify the five most important “economic”
factors that played a role in their decision to locate in Yucatán. Although this survey
question was completely “open-ended,” a clear consensus emerged. In general,
respondents identified three “necessary conditions” that influenced their decision to
locate in the state: labor costs and availability; infrastructure/government support; and
geographic location. In all 27 cases, maquiladora representatives identified availability of
low cost, qualified labor as an important determinant of their decision to operate in
Yucatán. In 17 instances, labor was defined as the single most important locational factor.
The second most important factor in attracting export-oriented firms is Yucatán's
geographic location. In 17 cases, maquiladora representatives identified the state's close
proximity to the United States as an important factor in their decision. Therefore,
contrary to the purported goals of the neo-liberal model, the state continues to play an
important role in promoting economic development, including provision of necessary
infrastructure and creation of a suitable business climate for export-oriented
industrialization. Furthermore, as we mention below, government may play an important
role in promoting maquiladora industries by developing networks of social capital among
owners and operators of export-oriented firms and other agents in the regional economy.

5.2 ECONOMIC FACTORS

Using a five-level Likert scale, maquiladora representatives were subsequently asked to

identify the importance of the following eight “economic” criteria: availability of labor;
location of suppliers; government support; availability of financial resources; availability
of infrastructure; client preferences; familiarity with local customs; and location of family
and friends1. As displayed in Table 1 below, respondents identified the availability of
labor (4.444); provision of necessary infrastructure (3.407); familiarity with local
customs (3.333); and government support (3.222) as the most important factors 2.

TABLE 1
IMPORTANCE OF ECONOMIC FACTORS AMONG MAQUILAS IN YUCATAN

Economic Factor Mean CV t-test

Availability of labor 4.444 0.180 15.864*
Location of suppliers 1.963 0.699 -0.140
Government support 3.222 0.378 5.208*
Availability of financial resources 2.259 0.656 0.908
Availability of infrastructure 3.407 0.455 4.716*
Client preferences 2.630 0.660 1.885**
Familiarity with local customs 3.333 0.440 4.721*
Location of family and friends 1.769 0.772 -0.862

Not surprisingly, since many firms are subsidiaries or sub-contractors of multi-national

firms, access to suppliers (1.963); proximity of family and friends (1.769); and
availability of financial resources (2.259) resulted the least important factors in operating
a maquiladora in Yucatán. The coefficient of variation (CV) provides some indication of
variation among respondents. In general, the CV is relatively small for those factors that
proved important among export-oriented firms, suggesting some degree of uniformity or
consensus regarding their importance.
1
The Likert scale included the following possible responses: (1) unimportant; (2) slightly important; (3)
important; (4) very important; (5) a decisive factor.
2
Based on one-sample t-tests, the results displayed in Tables 1 and 2 are significantly different from a
value of 2 (slightly important). In all tables, one asterisk (*) indicates statistical significance at the 95
percent confidence level; two asterisks (**) are used for statistical significance at the 90 percent confidence
level.
5.3 IMPORTANCE OF SOCIAL CAPITAL

Subsequently, maquiladora representatives were asked to identify the role of social

capital in gaining access to the factors identified above (Table 2). Based on the same five-
level Likert scale, respondents ascribed a moderate level of importance to the role of
social capital in the overall decision to locate in Yucatán (3.037); understanding local
customs and expectations (2.889); accessing needed infrastructure (2.63); and locating
qualified labor (2.778). Bonding social capital with family and friends (1.519) and
linking social capital with clients (1.885) proved relatively unimportant in the decision to
locate in Yucatán. Again, these results are not surprising given the presence of a
relatively large number of subsidiaries. Based on the coefficient of variation, a greater
degree of variation exists in the role of social capital among export-oriented firms,
suggesting that social capital is highly localized or concentrated.

TABLE 2
ROLE OF SOCIAL CAPITAL IN GAINING ACCESS TO ECONOMIC FACTORS

Social Capital Mean CV t-test

Gaining access to labor 2.778 0.657 2.214*
Accessing suppliers 2.407 0.694 1.268
Acquiring financial resources 1.852 0.843 -0.493
Gaining access to infrastructure 2.630 0.625 1.990**
Locating potential clients 1.885 0.725 -0.431
Understanding local customs 2.889 0.602 2.655*
Family and friends 1.519 0.844 -1.951
Overall locational decision 3.037 0.567 3.132*

In fact, even in instances when social capital is not statistically significant, it still proves
important in some firms’ decisions to locate in Yucatán and in gaining access to potential
clients. For example, ten respondents identified the development of bridging social
capital with Yucatán's Secretaría de Desarrollo Industrial as a critical factor in the
decision to establish operations in the state. In addition, six representatives identified the
importance of existing business contacts in Mexico and three representatives mentioned
family motives for deciding to locate in Yucatán. With respect to identifying potential
clients, eight firms relied on existing business contacts or support from the Secretaría de
Desarrollo Industrial; two others had developed client relationships with friends.

5.4 DIFFERENCES IN THE ROLE OF SOCIAL CAPITAL

Statistical analysis in the previous section reveals that social capital, in general, plays a
relatively important role in facilitating maquiladora production in Yucatán. However, the
coefficient of variation indicates that a substantial degree of variation exists among firms
with respect to the importance of social capital. Consequently, significant differences
may exist among firms depending on a variety of characteristics. In this section, we
assess potential variation in the role of social capital based on the firm’s start-up date,
location, industry/product, ownership, type of firm, and whether the enterprise was
initially established as a traditional firm or a maquiladora.3

TABLE 3
DIFFERENCES IN ROLE OF SOCIAL CAPITAL AMONG MAQUILADORAS

3
The Mann-Whitney U test, a non-parametric equivalent of the two-sample t-test, has been applied in this
section due to the small sample sizes and non-normal distribution of the data. The results displayed in
Table 3 above represent the probability of rejecting the null hypothesis that there are no differences in the
role of a particular form of social capital in the case of a given criterion.
 Variable Start Location Product Trad/Maq Yuc/Other Sub/Non
Locational decision 0.431 0.503 0.818 0.261 0.143 0.548
Access to labor 0.584 0.226 0.535 0.925 0.040* 0.077**
Identify suppliers 0.344 0.190 0.159 0.698 0.049* 0.243
Financial resources 0.105 0.688 0.943 0.649 0.822 0.109
Infrastructure 0.142 0.914 0.726 0.580 0.138 0.266
Access to clients 1.000 0.265 0.707 0.337 0.418 0.076**
Understand customs 0.760 0.936 0.453 0.903 0.173 0.218
Family and friends 0.364 0.134 0.324 0.005* 0.011* 0.104

Initially, we tested for differences in the role of social capital based on a firm’s start-up
date. In general, the proliferation of maquiladoras in Yucatán coincides with
implementation of the 1995-2001 State Development Plan. We hypothesized that social
capital may have played a more important role among firms that commenced operations
before 1995. However, as Table 3 indicates, no significant differences were found among
firms based on when they were established.

Subsequently, we examined the relationship between the firm’s location and possible
differences in the role of social capital. We hypothesized that rural firms may rely on
social capital to a greater extent than firms in Mérida, the state capital, due to their
remoteness. Again, no significant differences were identified among firms based on their
location.

Next, we sought possible differences in the importance of social capital based on industry
or type of output. In general, we believed that clothing and apparel maquiladoras (about
75 percent of all export-oriented firms) in Yucatán may have developed social capital
rich networks that facilitate their operations. However, as displayed in Table 3, no
significant differences exist among clothing and non-clothing firms.

In addition, we analyzed differences in the role of social depending on a firm’s original

“orientation” (traditional/domestic vs. maquiladora). In most respects, firms that
converted from traditional (domestic) entities to maquiladora status do not differ
significantly from other export-oriented businesses. However, firms that converted from
traditional (domestic) entities to maquiladora status ascribed a significant role to bonding
social capital among families and friends in deciding to conduct business in Yucatán.
This result is hardly surprising given their initial decision to locate operations (and
subsequent decision to remain) in Yucatán.

Finally, we assessed possible differences in the role of social capital among firms based
on their ownership (local/non-local) and their structure (subsidiary/non-subsidiary). In
general, several statistically significant differences were identified among maquiladoras
based on these criteria. Not surprisingly, local firms placed more importance on bonding
social capital among family and friends. However, non-local maquiladoras ascribed a
more important role to social capital in gaining access to labor and identifying potential
suppliers.

Surprisingly, subsidiaries attached a greater importance to social capital in locating

qualified labor and responding to client preferences than non-subsidiaries. It is likely that
subsidiaries and non-local maquiladoras, more so than “Yucatecan” firms, recognize the
need to develop personal and professional relationships in order to carry out operations in
Yucatán. In general, local firms appear to take their social capital for granted – palancas
and personal favors are viewed as a normal part of doing business in the region.
Subsidiaries and other non-local firms, on the other hand, realize that they must
“purchase” this local social capital by hiring managers and staff who understand how
business is conducted in Yucatán. Consequently, it is unlikely that subsidiaries and non-
local maquiladoras rely on social capital to a greater extent than local companies. Rather,
because these firms are “outsiders,” they are apparently more aware of the importance of
social capital in conducting business in Yucatán.

5.5 LATENT SOCIAL CAPITAL AMONG LOCAL MAQUILADORAS

The existence of unapparent or “latent” social capital was confirmed by key informants
with inside knowledge of the histories of many local export-oriented firms. Contrary to
survey results, information from key informants suggests that local maquiladoras do
indeed possess and utilize social capital in carrying out operations in Yucatán. Based on
the insights provided by key informants, we identify and discuss a handful of “typical”
social capital scenarios below.

In some instances, (former) state government officials and relatives of prominent

politicians have used personal contacts to establish export-oriented plants in Yucatán.
Both bonding and linking social capital have proved important in gaining access to
government training programs, obtaining subsidized financing from state government,
accessing infrastructure and public services, and gaining first-hand information regarding
potential clients. In addition, state government has offered these firms preferential
treatment by promoting them abroad at trade fairs, etc.

In another instance, the owner of one of the first successful maquiladoras in Yucatán
benefited from his family's ample social capital among the privileged class locally and in
other parts of Mexico. In addition, this maquiladora owner made use of bridging social
capital that he had developed abroad as a result of graduate studies and subsequent
employment abroad. In general, his inherited and earned kernels of commonality have
resulted in ample social capital, which has facilitated his business operations.

Recently, the administrator of a large subsidiary resigned and established his own
“independent” maquiladora. This case represents a further example of “latent” social
capital. The executive had established not only a strong reputation in the industry, he had
acquired significant social capital during more than 15 years with the multi-national firm.
In addition, he had developed relationships that facilitated access to financial resources,
suppliers, and clients for the new plant. Furthermore, social capital played a role in
determining the location of his plant, providing training for his workers, and accessing
needed public services.

6. IMPLICATIONS OF SOCIAL CAPITAL AMONG MAQUILADORAS

Based on the preliminary results presented above, we believe that a well-defined network
of social capital exists among the owners and operators of maquiladoras in Yucatán,
Mexico. In general, this network is based on all three forms of social capital – bonding,
linking and bridging – and extends (directly and indirectly) to individuals in both the
public and private sectors of the state’s economy. In general, maquiladora administrators
employ their social capital to gain access to qualified labor and necessary infrastructure.
In addition, social capital plays an important role in understanding local customs and
expectations and firms’ overall decisions to locate in Yucatán. Furthermore, contrary to
the neo-liberal model of economic development, our analysis suggests that government
plays an important role in industrial development, in general, and promotion of social
capital among maquiladora owners, potential clients, government officials, qualified
labor, etc.

Among outsiders, however, access to this network of social capital is quite limited
(virtually impossible). In fact, our reliance upon key informants in this study stems from
the reluctance of maquiladora representatives to permit us with access to their networks.
Notwithstanding the potential negative consequences of a highly “impermeable” network,
we believe that social capital among maquiladora owners and operators offers the
potential for several positive outcomes. On the one hand, the existence of bonding social
capital (among family members and close friends) and, in particular, linking social capital
(among business associates) may encourage export-oriented firms to locate in Yucatán
even if the state is not the economically optimal location to carry out production. In
general, we believe that a region must meet some necessary conditions (which we
identify above) in order to attract export-oriented industries. Given these necessary
conditions, social capital (as much or more than economic rationality) plays a critical role
in determining where export-oriented firms choose to locate.

Furthermore, in the case of an economic down-turn in the primary markets for

maquiladora production (such as the recent recession in the United States), social capital
may play an important role in determining which firms close and which firms remain in
business. We believe that firms that possess and employ social capital are more likely to
withstand these periodic shocks.

7. BIBLIOGRAPHY

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