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Transportation characteristics and performance in maquiladora operations.

Facing fierce competition from manufacturers in industrialized and newly industrializing countries, many U.S. manufacturers have established international production-sharing operations to improve their cost competitiveness. That is, in their efforts to build a sustainable competitive advantage, an increasingly large number of U.S. firms have implemented production-sharing strategies that shift the firm's productive activities to the specific geographic regions of the world where they will add the greatest value to the firm's products. The objective of these production sharing strategies is to incorporate "available" worldwide resources within the firm's integrated value-adding system. In the U.S., the classic example of production sharing has involved the electronics firm that positions labor-intensive assembly and production facilities in a foreign country that possesses abundant and relatively inexpensive labor. Knowledge and capital-intensive activities are typically maintained in the U.S. The primary benefit of such strategies is the opportunity for the firm to reduce production costs by acquiring the low-cost factor inputs--particularly inexpensive labor--that are available in different geographic regions of the world.

Among the many locations currently used in these international division-of-labor strategies, Mexico's maquiladora operations have recently received increasing attention in both the academic and business press. Much of this attention has been the result of the tremendous growth in maquiladora operations that occurred during the 1980s as Mexico's official currency, the peso, was devalued. Today, Mexico's maquiladora operations are a very popular production-sharing option taken advantage of by American, European, and Asian companies. Over 75 percent of America's 500 largest companies operate one or more maquiladora facilities. Leading Japanese companies including Mitsubishi, Sony, and Toshiba also take advantage of maquiladora operations. Continued growth of 10 to 15 percent is expected to continue through the end of the century. Additionally, with the June 10, 1990 announcement by Presidents Bush and Salinas that the U.S. and Mexico will negotiate a free trade agreement, maquiladoras have become the object of much attention since their operations promise to provide valuable insights into future competitive opportunities that can be gained through North American free trade.

The growth of production-sharing activities in Mexico has increased the importance of exploring the nature and competitive impact of maquiladora operations. Because maquiladoras are established to help the firm improve its competitiveness, it is essential to better understand how the firm's value-adding activities such as transportation affect the success of these operations. To this end, the objective of this research is to examine one key aspect of maquiladora operations--the characteristics and performance of transportation activities. Transportation services provide the coordinating or linking mechanism that ties maquiladora facilities to the rest of the firm's productive activities. Without efficient and effective transportation, many of the potential benefits to be derived from the operation of a maquiladora can be dissipated or lost. Important transportation issues including carrier selection and management are complicated and take on new relevance in the context of supporting maquiladora operations. The following sections discuss maquiladora operations, introduce the basic research design and methodology, and present key research findings and conclusions.

MAQUILADORA OPERATIONS

The maquiladora operations were initially promoted by Mexico in the mid 1960s through the Border Industrialization Program (BIP), which was established to encourage direct investment in the border region. The most visible goal of the BIP was to overcome extensive regional unemployment along the U.S.-Mexico border. Other important goals from the Mexican perspective were to develop 1) a source of foreign exchange, 2) an effective mechanism for technology transfer, and 3) a local industrial supply base. Maquiladora operations are also known as in-bond manufacturing, twin plants, and co-production, and typically involve the establishment of assembly and/or manufacturing facilities along the Mexican side of the U.S.-Mexican border. From the U.S. perspective, the principal benefits of these maquiladora facilities arise from the opportunity to utilize low-cost Mexican labor to improve firm competitiveness.(1)

More specifically, three principal benefits make operating a maquiladora attractive to U.S. and other world manufacturers: 1) trade tariff limitations have been established on certain fabricated products that move back and forth across the U.S.-Mexican border, 2) maquiladora operations possess close proximity to the large U.S. consumer market, and 3) labor costs in Mexico are among the lowest in the world. The production rationalization that occurs through maquiladora operations is encouraged by special trade tariff provisions that reduce the duties that would normally be assessed on materials that flow across the border. From the Mexican side, the applicable trade tariff provisions were enacted via the BIP. The trade tariff provisions established by the BIP allow production equipment, subassemblies, and raw materials to enter Mexico duty free for use in assembly and/or manufacturing operations in maquiladora facilities. More recently, Mexico has increased the incentives for foreign investment by allowing 100 percent foreign ownership of maquiladora operations. Further, under certain circumstances, maquiladoras are now allowed to sell a portion of their production in the domestic Mexican market duty free.(2)

The U.S. trade tariff provisions that have historically applied to maquiladora operations, as well as to other production sharing operations, were first instituted in their basic form in the Tariff Act of 1930 and have been amended subsequently in 1956, 1963, and 1988. These trade tariff provisions were not initially targeted at Mexico and are not limited to production-sharing with Mexico; rather, they apply to all such production-sharing activities throughout the world. The specific trade tariff items that have been in effect concurrently with the BIP have been items 806.30 and 807 of the Tariff Schedules of the United States. Item 806.30 applied to metal products (excluding precious metals) that have been partially processed in the U.S., exported for further processing, and then returned to the U.S. for final processing and/or sale. Item 807 applied to imported products assembled in foreign countries with fabricated components that were manufactured in the U.S.(3) With the adoption of the Harmonized Tariff Schedules in 1989, the applicable trade tariffs are now HTSUS Items 9802.00.06 and 9801.00.1010 (individuals involved with maquiladoras often continue to refer to these tariffs as items 806.30 and 807). These provisions limit the duties to the value-added portion of the goods--primarily labor--returning from Mexico.

A unique advantage of Mexico's maquiladora operations over other production-sharing locations is the close proximity of Mexico to the relatively large and lucrative U.S. consumer market. This close proximity, and perhaps more importantly the common border, greatly reduces the complexity and cost of the logistics system required to support the maquiladora operations. Indeed, the linked transportation infrastructure greatly facilitates the flow of goods between Mexico and the U.S. For example, both Union Pacific and American President Corporation (APC) run dedicated double stack train service linking the maquiladora zone to the Midwest. This double-stack service is used by the major automobile manufacturers as part of their just-in-time delivery systems. The trip from Michigan to Mexico City takes 96 hours with no change of engine and a crew change at the border. Customs are pre-cleared to reduce the duration and variability in delivery time. Chrysler moves 60 railroad cars per day using daily stack service.(4) Greater freedom of motor carrier operations along the border is envisioned in the near future. However, despite the simplified logistics system that results from the reduced distance and the linked Mexican and U.S. infrastructures, sufficient operating differences exist--including customs requirements, language barriers, legal standards, non-uniform transportation systems, and diminished communication and control--to increase the complexity and cost of providing logistics support for maquiladoras as compared to providing logistics support for domestic multiplant operations.

Although U.S. companies have operated maquiladoras since the mid 1960s, relatively few companies had established maquiladora facilities prior to the 1980s when Mexico's official currency, the peso, was devalued. Since then, the popularity of the maquiladora operations has increased as the value of the peso has decreased. At the end of 1981, the peso was valued at 24 to 1 against the dollar and there were approximately 600 maquiladora plants in Mexico; by 1991, the value of the peso had decreased to 2,900 to 1 against the dollar and there were over 1,900 maquiladora facilities in Mexico. The greatest impact of this dramatic devaluation of the peso throughout the 1980s has been the decrease in the relative cost of Mexican labor. Mexican labor is currently among the lowest-cost in the world, with the official Mexican minimum wage being equivalent to as low as $0.83 per hour.(5) Total labor costs, benefits included, are estimated to be approximately $1.50 per hour.(6) The extremely low cost of labor is thus cited as the decisive factor in the decision to operate a maquiladora.(7)

Several recent developments promise to affect the future use of maquiladoras by U.S. firms in their quest for improved competitive performance. One of these developments is the increasing movement of maquiladoras into Mexico's interior. Current estimates indicate that from 10 to 15 percent of all maquiladoras are located in and around interior Mexican cities. Locating a maquiladora away from the border reduces both the congestion that is often found along the border and the competition for what is becoming a constrained labor supply in border communities. A second significant development is the rise of a second generation of more technologically complex, capital-intensive maquiladoras that should continue to provide strong growth to the maquiladora operations. Electronics and automobile maquiladoras have been the fastest growth sections during the 1980s. Emerging evidence suggests that technology and low-cost labor can be combined successfully in maquiladora operations to enhance a firm's competitiveness.(8) A third change that is occurring with increasing frequency is the growing use of maquiladoras by non-U.S. companies. This growth in the establishment of non-U.S. maquiladoras is being spearheaded by leading Japanese companies. Some concern has been voiced that the Japanese and other foreign competitors are using maquiladoras as a "backdoor" to the U.S. market. Finally, the outcome of free trade negotiations among Canada, Mexico, and the U.S. will dramatically affect the use of production-sharing strategies by U.S. firms.

To summarize, during its 26-year life-span, the maquiladoras have experienced tremendous growth. From the perspective of absolute numbers, the maquiladora program began in 1965 with 12 plants and today consists of approximately 2,000 facilities. In percentage terms, growth has occurred at an average annual rate of 23.4 percent in terms of number of plants and 23 percent in terms of number of employees. The more than 2,000 maquiladora facilities employ close to 500,000 workers, technicians, and managers and contribute over $2 billion to Mexico's economy. Maquiladora operations have passed tourism as the second largest source of foreign exchange behind oil. Finally, more and more of these facilities are located in Mexico's interior, and many are becoming more capital- and technology-intensive. Thus, to date, maquiladoras have proved to be a mutually beneficial development for both Mexico and the U.S.

RESEARCH DESIGN AND METHODOLOGY

The primary research question examined in this study focused on the effectiveness of transportation activities within the maquiladora production-sharing environment. Because transportation plays a critical coordinating and support role in maquiladora operations, the foremost objective was to determine how effective the transportation function is in a cross-national production-sharing setting. Specific areas that were examined include 1) the investigation of current transportation practices regarding modal choice and carrier selection, 2) a review of the extent to which third-party transportation companies are used to provide essential transportation services, and 3) the comparison of transportation performance across domestic and maquiladora production settings. While each of these issues merits attention, the comparative performance of transportation activities in maquiladora operations vis-a-vis the domestic setting was determined to be the issue of greatest interest. The hypothesis for the performance comparison between the maquiladora and domestic settings was stated as follows:

Hypothesis: Given the increased complexity and longer supply lines found in the international environment combined with the diminished control in maquiladora operations, the overall performance of transportation services will decline in the maquiladora environment.

Comparing the overall performance of transportation activities in the maquiladora setting to the performance of similar activities in a domestic environment first required that relevant performance criteria be identified. From the literature, a listing of criteria for the supplier selection decision was assembled and incorporated into a survey instrument to identify the factors deemed by maquiladora managers to be of greatest importance in assuring quality transportation services. Using these listings with a five-point, Likert-type scale--responses ranging from very unimportant to very important--respondents identified the factors that they consider to be most important in evaluating and selecting suppliers for this essential support function. The transportation criteria included equipment coordination, information services, order accuracy, loss and damage, on-time performance, documentation, transportation costs (carrier freight tariffs/rates), and transit time.(9)

Performance levels for the transportation services within both the maquiladora and domestic manufacturing environments were also obtained. Performance levels were measured using five-point, Likert-type scales. Response options ranged from very poor to very good. These performance evaluations for transportation services across manufacturing settings were used to carry out the performance or effectiveness comparisons. Independent comparisons across manufacturing settings for each performance criterion were performed using simple paired t-tests. Similarly, an aggregate performance measure was obtained by weighting the individual performance criterion by the appropriate importance rating. In this manner, a single, composite performance measure was developed and used to evaluate overall transportation performance using a simple paired t-test. Finally, a two-way analysis of variance (ANOVA) with full factorial design was employed to capture interaction effects.

The data used in the empirical analysis were collected through the use of a survey methodology consistent with the guidelines suggested by Flynn et al.(10) A self-administered questionnaire was mailed to 936 managers involved in maquiladora operations. Because a performance comparison between U.S. domestic and maquiladora operations is the focus of this article, it was essential to collect data from individuals that possess knowledge of (or access to information regarding) both settings. Therefore, the managers targeted by the study were primarily plant, division, and corporate managers on the U.S. side of the production-sharing operation. Two directories were used to identify companies involved in maquiladora operations: the 1989-90 Directory of In-Bond Plants (Maquiladoras) in Mexico and the 1989-90 Complete Guide to In-Bond Manufacturing. Between the two directories, approximately 2,000 addresses are listed. However, many of these were for the Mexican facilities while others were incomplete and some were duplicate listings. Based on geographic location and industry representation, the final compiled mailing list was very representative of the estimated 1,800 maquiladora facilities in operation in 1990. The final mailing list was closely reviewed to assure that duplicate listings were found and removed so that no manager was counted twice in the sample population.

A variation of the Dillman(11) Total Design Method was used to assure as high a response rate as possible. The Dillman approach involves a total of four mailings to members of the sample population. The first mailing is a pre-survey letter that is sent about one week before the initial mailing of the survey instrument. The pre-survey letter is sent to inform the sample population of the study and to request assistance. Following the pre-survey letter, an initial mailing of the survey instrument is undertaken. Included with the survey instrument and cover letter is a pre-paid return envelope to encourage a timely return. Finally, two follow-up mailings are performed at intervals of approximately three weeks. The modification of the Dillman technique used in this study involved the use of a letter of introduction from the National Association of Purchasing Management (NAPM) urging the sample members to participate in the study. A total of three mailings was performed. Of the initial mailing to 936 managers, 198 surveys were returned as undeliverable. From the revised sample population (738 members), 228 usable surveys were returned, for a response rate of 31 percent.

The survey instrument was developed only after an extensive literature review was performed. This was done to assure that the survey instrument was rounded in the conceptual and theoretical bases surrounding the role of logistics and manufacturing issues in the design and performance of maquiladora production-sharing activities. The questions in the instrument were developed to reflect those issues that the literature identified as important and were designed to collect the data needed to address the research issues described above.

The survey instrument was initially pre-tested to identify any discrepancies or questions that were difficult to understand. The survey instrument was then mailed to several managers involved in maquiladora operations. These individuals were asked to fill out the survey and to comment on the survey's ability to collect the information being sought. The final step in this validation process involved a series of interviews with industry managers. These interviews were also used to assess the ability of the survey instrument to collect the needed information. The longest of these interviews lasted 90 minutes. At each stage of this validation process, the input from the industry representatives was evaluated and used to modify the survey instrument. Only after the industry representatives agreed that the survey instrument was "comprehensive" and asked the right questions, was the first mailing initiated.

ANALYSIS AND DISCUSSION

Transportation services are essential to the efficacy of production-sharing via maquiladoras because they provide for the smooth and reliable flow of materials among the geographically dispersed facilities that are set up in production-sharing operations. According to the survey respondents, sourced materials and components account for 47 percent of total maquiladora production costs on average. The vast majority, approximately 98 percent, of these sourced materials originate in the U.S and are shipped into Mexico for processing and assembly. Once the processing/assembly work has been performed on these items, they are typically re-exported to the U.S. for final processing and/or sale. Thus, the development of efficient transportation services to move products into and out of the maquiladora operation is critical to the success of the overall production sharing strategy. This importance is reflected in the fact that over 56 percent of the survey respondents indicated that transportation issues were considered to be of considerable importance in the initial decision to establish their maquiladora operation. Moreover, 41 percent noted that their firms would increase the emphasis placed on transportation issues in the design of future production-sharing operations. Indeed, better than 45 percent of the survey respondents cited the quality of transportation services as an important element that "greatly" affects the success of their maquiladora operations.

Transportation services used to support maquiladora operations have long been affected by incompatible laws and regulations that have existed in the U.S. and Mexico. Perhaps the policy restriction of greatest interest has involved the exclusion of U.S. transportation carriers from the provision of service into Mexico. This simple restriction has required the establishment of drop-off points along the border so that trailers can be exchanged between U.S. and Mexican carriers. When this aspect of maquiladora transportation is combined with the problems associated with arranging appropriate documentation, clearing customs, and managing transportation across limited and congested border crossings (one-third of the fifty-one existing and planned crossings are currently under construction), the challenges of assuring reliable transportation services for maquiladora operations become apparent. For example, waiting times at border crossings can vary greatly--from five minutes to several days--depending on the adequacy of documentation and the temperament of the customs inspector. It is not unheard of for a driver to have to unload the truck for inspection. In one example, the wait extended to ten days: "I was in line for six hours, and when I got up to Customs they said my paper work was messed up. ... they said I had to unload my truck. We had to bring in special equipment--it was a big mess. Anyway, we didn't get the truck out until ten days later."(12) The fact that cross-border traffic has increased 60 percent since 1987 while the number of customs officials and other necessary "infrastructure" has remained unchanged only exacerbates the situation.

To help avoid such problems and to attain a more consistent and better quality transportation service at an acceptable cost, many companies have turned to third-party transportation providers. In fact, close to 60 percent of the respondents noted that their firms rely almost exclusively on third-party logistics companies for their transportation services. An additional 15 percent make extensive use of third-party services to meet their transportation needs. By contrast, a relatively large number of firms, 24 percent, arrange almost 100 percent of their own transportation services. The two factors that had the greatest impact on the use of third-party providers were the length of time a company had been operating a maquiladora facility and the size of the company. Industry type also had some influence on the extent of third-party use. Overall, a company's experience with international operations along with its overall level of resources determine whether a company elects to make extensive use of outside transportation providers.

Another adaptation to managing the unique aspects of transborder transportation has been the decentralization of some of the responsibility for transportation decisions. The location of managerial control over transportation services varies considerably among operators of maquiladora operators. Some firms continue to manage maquiladora transportation services from a very centralized location at corporate headquarters. Others have tended to decentralize at least some transportation decision-making authority. Indeed, almost 80 percent of the respondents felt that transportation services decisions should at least be partially decentralized, with some carrier selection decisions (primarily affecting the Mexican carrier) being made at the maquiladora facility. The primary rationale for this decentralization is the lack of reciprocity regarding transborder transportation, which suggests that some level of decentralization is useful in achieving higher levels of transportation service performance. The results of these efforts to manage maquiladora transportation services have been mixed--the average cost for maquiladora transportation services was reported to be 12 percent higher than for domestic transportation services. Approximately 40 percent of the survey respondents indicated that the transportation costs associated with the support of maquiladora operations were equal to or lower than the costs for similar support of domestic operations. The remaining 60 percent that reported higher costs reported different levels of increased costs, with 45 percent indicating that transportation costs were somewhat higher and 15 percent indicating that transportation costs were much higher. Among those that reported higher costs, the reported increases were typically in the range of 10 to 20 percent. A few managers reported their transportation costs increased by 50 to 100 percent in the maquiladora setting.

Modal and Carrier Selection

Each of the basic modes currently service maquiladora operations; however, motor carriers have been the dominant providers of transportation services. In fact, motor carriers have historically carried approximately 90 percent of all maquiladora traffic and continue to move about 80 percent of the traffic. The share of the traffic moved by the primary legal forms of motor carriers has been as follows: private carriers have moved about 40 percent of the freight, contract carriers have moved about 28 percent of the freight, and common carriers have moved about 32 percent of the freight. Most maquiladora operations use a small number of motor carriers to fulfill their transportation requirements. Approximately 45 percent of the maquiladoras limit the number of motor carriers used to move their freight to one or two, while an additional 30 percent utilize three to five carriers. The use of a relatively small number of carriers suggests the desire to carefully manage maquiladora transportation by dealing only with those carriers that have developed expertise in transborder transportation. Additionally, Mexican regulations often limit the number of carriers allowed to service a given border crossing. This practice limits competition and reduces shipper options.

The remaining traffic has traditionally been split almost evenly between air and rail carriers. Even so, at the present time, several railroads are aggressively pursuing maquiladora traffic through the introduction of innovative double-stack unit trains and other special services. The offering of these services has greatly increased the railroads' share of maquiladora shipments, largely at the expense of motor carriers. Offerings such as APC's Double Eagle service have been instrumental in developing a viable and competitive rail offering for maquiladora operations. An additional selling point for rail services is the ability to avoid lengthy delays at border crossings. However, rail services continue to lack the flexibility offered by motor carriers. A very limited amount of water transportation is used to carry maquiladora traffic.

The next step in developing a better understanding of maquiladora transportation practices involved asking the survey respondents to evaluate several widely used modal/carrier selection criteria. The selection criteria considered were equipment coordination, information services, order accuracy, loss and damage, on-time performance, documentation, rates/tariffs, and transit time. These criteria were evaluated by respondents on a five-point scale with response options ranging from very important to very unimportant (see Table 1). Based on mean importance ratings, on-time performance (rating=4.44) and transit time (rating=4.20) were determined to be the two most important performance criteria for selecting transportation services for maquiladora operations. These were the only two criteria to have importance ratings greater than 4.00. Rates/tariffs was similarly considered to be very important (ratings=3.96). Order accuracy (rating=3.88) and equipment coordination (rating=3.81) also had relatively high importance ratings. The least important criteria were information services (rating=3.71) and loss and damage (rating=3.67). However, it should be noted that none of the criteria were considered to be unimportant.
Table 1. Importance Ratings for Transportation Services
Selection Criteria
Criterion Importance
On-Time Performance 4.44
Transit Time 4.20
Rates/Tariffs 3.96
Order Accuracy 3.88
Equipment Coordination 3.81
Documentation (Quality) 3.78
Information Services 3.71
Loss and Damage 3.67


Information was also collected on a three-point scale to help position the relative importance of these selection criteria for maquiladora operations vis-a-vis domestic operations (see Table 2). In general, the respondents indicated that transportation services used to support maquiladora operations require somewhat greater monitoring than similar services in a purely domestic environment. A partial explanation for this finding is that multiple carriers, one of which is a Mexican carrier, are utilized to provide the transportation service. Further, Mexican carriers are often perceived to be inferior to U.S. carriers. Two criteria--on-time performance and transit time--received sufficiently large ratings to indicate that these factors are considered to require considerably more attention in the maquiladora setting than in domestic operations. Given the uncertainty created by a transnational transportation environment coupled with the generally longer supply lines inherent in maquiladora operations, placing additional emphasis on on-time performance and transit time seems reasonable as managers attempt to achieve or maintain high levels of transportation performance. Three other criteria were noted as requiring relatively more attention in maquiladora operations: rates/tariffs, equipment coordination, and documentation. Again, this finding is consistent with managing transportation services in an international environment.
Table 2. Relative Importance of Performance Criteria,
Maquiladora versus Domestic Setting
Criterion Importance
On-Time Performance 2.47
Transit Time 2.46
Rates/Tariffs 2.38
Equipment Coordination 2.30
Documentation (Quality) 2.30
Information Services 2.27
Order Accuracy 2.26
Loss and Damage 2.21


Transportation Performance

After the modal and carrier selection decisions have been made, the actual performance of the carrier must be evaluated. Therefore, performance information was collected on each of the above selection criteria. Respondents were asked to separately rate transportation service TABULAR DATA OMITTED TABULAR DATA OMITTED performance on a five-point scale with responses ranging from very poor to very good for each of the two production settings--domestic and maquiladora. Tables 3 and 4 show the relative performance distributions for the various criteria in domestic and maquiladora operations respectively. These tables show a consistent decrease in transportation performance within the maquiladora setting. Even so, the performance of transportation services was generally considered to be satisfactory to good in both production settings. The distributions in the two tables also indicate that the various performance areas were affected differently by maquiladora operations. The performance criteria that appear to be the most difficult for maquiladora transportation services to excel in were on-time performance, transit time, and rates/tariffs.

The two performance distributions are summarized in Table 5. The information conveyed by this table not only shows the average performance score for each criterion in both production environments, but also shows the difference between the two. Arranging the data in this format makes it easier to evaluate the responses. Transportation performance decreases in maquiladora operations along all of the criteria; however, the various criteria are affected differently by moving into the maquiladora setting. Information services suffered the greatest drop in performance, with a decrease of .54. It is interesting to note that information services was ranked 7 of 8 in importance in selecting transportation services for maquiladora operations and 6 of 8 in relative importance vis-a-vis domestic operations. Performance also de-creased substantially along five other performance criteria: transit time (.38), equipment coordination (.34), documentation (.35), order accuracy (.30), and on-time delivery (.29). Relatively small performance decreases occurred in loss and damage and rates/tariffs.
Table 5. Summary of Transportation Service Performance Criteria
Between Settings
 Mean Score
 Domestic Maquiladora Difference
Equipment Coordination 3.90 3.56 -.34
Information Services 3.88 3.34 -.54
Documentation 3.77 3.42 -.35
On-Time Performance 3.76 3.47 -.29
Transit Time 3.74 3.36 -.38
Order Accuracy 3.74 3.44 -.30
Loss and Damage 3.65 3.49 -.16
Rates/Tariffs 3.44 3.35 -.09


A series of paired t-tests was used to determine if the changes in performance were statistically significant. Table 6 shows the results of these paired t-tests and confirms that the changes in performance for all of the criteria but rates/tariffs were statistically significant at the .01 level. The change in performance in rates/tariffs is not statistically different, p=.1209. The change scores in Table 5 and the performance difference scores in Table 6 are slightly different because performance difference scores are calculated only for firms that provided performance evaluations for the specific criterion for both production settings. The mean scores, from which the change scores were calculated, are based on the responses of all firms providing information for the given criterion.
Table 6. Independent Paired T-Test for Transportation Service
Performance Criteria
 Performance
 Difference (d) t-statistic p-value
Equipment Coordination .3557 6.49 .0001
Information Services .5550 8.54 .0001
Order Accuracy .3211 6.58 .0001
Loss and Damage .1937 2.94 .0037
On-Time Performance .3229 4.83 .0001
Documentation .3665 6.36 .0001
Rates/Tariffs .1053 1.56 .1209
Transit Time .4063 5.86 .0001


Transportation performance was also compared through the use of an aggregate measure of transportation performance. This aggregate performance measure was developed for each production environment by weighting the individual performance criterion scores for each firm by the firm's importance rating for that criterion. The resulting scores were then averaged to obtain the overall performance measures (|summation~(Importance Rating x Performance Score)). The aggregate scores were then used in a paired t-test, with the aggregate maquiladora score being subtracted from the aggregate domestic score. The mean difference between aggregate transportation performance scores was 1.3196, which yielded a statistically significant t-statistic of 7.33 (p=.0001). The decrease in transportation service performance that was suggested by looking at independent t-statistics was confirmed through this comparison of aggregate performance measures.
Table 7. Two-Factor ANOVA Results for Transportation
Performance
 Sum of Mean
Source of Variance df Squares Square F-value p-value
Model 15 109.067 7.271 11.24 .0001
Main Effects:
 Production Site 1 71.9153 71.92 110.8 .0001
 Performance Criteria 7 25.1003 3.586 05.57 .0001
Interaction Effect:
 Site Criterion 7 12.0514 1.722 02.66 .0096
Residual (error) 3157 2042.41 .6469
Total 3172 2151.47 .6783


A two-factor, complete-factorial-design analysis of variance (ANOVA)(13) model was used to analyze the interactions both among factor levels and between factors (see Table 7). The two factors were production setting (domestic and maquiladora) and transportation performance criteria. The dependent variable in the ANOVA structure was the measure of transportation service performance. The model was specified as follows:

|Y.sub.i.sub.j~=|mu~ + ||alpha~.sub.i~ + ||beta~.sub.j~ + |xi~

where:|Y.sub.i.sub.j~=transportation service performance measure

|mu~=the overall mean for both groups

||alpha~.sub.i~=production setting factor (domestic or maquiladora)

||beta~.sub.j~=transportation service performance factor (individual performance criterion)

||alpha~.sub.i~||beta~.sub.j~=interaction effect between the two factors

|Mathematical Expression Omitted~

i=1...n

j=1...p

|summation~||alpha~.sub.i~=0

|summation~||beta~.sub.j~=0

The main effects analyses indicated that transportation performance levels between the two production sites were significantly different at the .0001 level, and that there were significant differences in performance among the eight transportation performance criteria (p=.0001). The interaction effect between production site and performance criteria was also significant (p=.0096), indicating that the choice of production site has an uneven impact on the different measures of transportation performance. These findings confirm those obtained through the examination of both the independent paired t-tests and the aggregate performance measures.

Tukey's multiple comparison test (|alpha~=.05) confirms the difference in transportation performance between domestic and maquiladora production settings, indicating that transportation performance is higher in domestic operations than in maquiladora production. Likewise, applying Tukey's test (|alpha~=.05) to the levels for performance criteria reveals that significant differences exist among means of the performance criteria. Relatively little overlapping exists among these groups. The dimensions of equipment coordination (Eq C) and on-time performance (On-Time) are grouped together at the highest level of performance. On-time performance is also placed in the second group with information services (Info), order accuracy (Order Ac), loss and damage (Loss), documentation (Doc), and transit time (Transit). Rates/tariffs (Rates) possesses the lowest level of performance.

TABULAR DATA OMITTED

CONCLUSIONS

The ability to efficiently coordinate production activities across the U.S.-Mexican border enables the well-managed firm to use maquiladoras to enhance its overall competitive position. However, achieving a smooth materials flow across the border is complicated by the longer supply lines, increased documentation, customs inspections, asymmetrical regulations, and inadequate communications infrastructure that exist in the maquiladora production setting. Effective management of transportation services can enable firms to overcome many of these logistics challenges associated with the operation of maquiladoras. Indeed, transportation management determines to a great extent whether the firm can achieve an effective level of coordination and thus develop successful production-sharing operations.

The survey results showed that managers of maquiladora operations rely on transportation services to enhance the value-adding ability of their maquiladora operations. To help attain a high level of transportation performance, many firms rely heavily on third-party transportation providers. Reliance on third-party transportation companies is particularly high for firms that lack extensive international operating experience. Mid-sized firms with limited resources also reported extensive use of third-party services. By contrast, large firms with widespread international operations generally managed their own transportation activities. Another important consideration in the management of maquiladora transportation services is the decentralization of decision-making authority regarding carrier selection and other site-specific transportation issues. Although the locus of decision-making authority among respondents varied somewhat, most respondents felt that involving managers at the maquiladora facility would have positive impact on transportation service performance.

The findings from the analyses of transportation performance in maquiladora operations indicate that transportation service performance decreases in a transnational operating environment. Despite the general decline in performance levels found in maquiladora operations vis-a-vis purely domestic operations, transportation performance was generally considered to be adequate. Thus, it appears that firms are willing to accept some decrease in transportation service performance in order to take advantage of the cost benefits achieved by shifting production to the maquiladora setting. Of particular relevance to the cost tradeoffs thought to be inherent in international operations, approximately 40 percent of the survey respondents indicated that their transportation costs were equal to or lower than the costs for similar support of domestic operations. The majority of the respondents that indicated their operations had experienced higher transportation costs suggested that transportation costs were only slightly higher in the maquiladora setting.

The different performance measures for each activity were not uniformly affected by the move to maquiladora operations. Performance in the area of information services suffered the largest decline. This performance decline is indicative of the communications problems that exist in the maquiladora setting. Transit time, equipment coordination, and documentation were also substantially impacted within the maquiladora setting. Given the legal nature of cross-national operations, this finding is not surprising, but it does suggest that a greater degree of cooperation between the U.S. and Mexico with regard to transportation services would enhance the economic performance of maquiladora operations. It is interesting to note that the Mexican transportation industry has recently been deregulated. Further, binational negotiations are currently being held to reduce the discrepancies between U.S. and Mexican transportation. These changes promise to provide maquiladora transportation managers with opportunities to improve the performance of the transportation function within the maquiladora environment.

Future research efforts should focus on identifying the specific causes of the decrease in performance for transportation activities so that manufacturers will be better able to manage their transportation services. The current research focused on comparing performance levels across production settings--U.S. domestic versus maquiladora. Thus, Mexican personnel who would not be likely to possess knowledge of U.S. transportation service performance levels were not included in the study. These managers, however, possess important knowledge concerning the actual operating environment in Mexico and could provide important insight that would help firms improve transportation service performance. Channel mapping research that identifies the location and types of transportation impediments is needed. A better understanding of new service opportunities would also emerge through this type of research. This research should be performed from both sides of the border.

ENDNOTES

1 See The Maquiladoras Industry: Economic Solution or Problem? Khosrow Fatemi, ed. (New York, NY: Praeger Publishers, 1990).

2 J.J. Gonzalez and J. F. McCray, "Technology Transfer by International Production Sharing: The Case of the Maquiladora Program," Proceedings, 1989 Annual Meeting Decision Sciences Institute (November 20-22, 1989), pp. 525-527.

3 U.S. International Trade Commission. The use and economic impact of TSUS items 806.30 and 807.000, USITC Report 20503, (January 1988).

4 D.R. Fischer, Presentation given at the Trilateral Studies Symposium--Looking Toward the New Frontier: North American Market Integration? Michigan State University, May 23, 1991.

5 G. D. Appenfelder, B. T. Cofield, and B. A. Baird. "Mexico: An Asian 'Tiger' On the U.S. Border," Proceedings, 75th Annual International Purchasing Conference, April 1990.

6 F. Barrio, "Sourcing in Mexico, Presentations, 75th Annual International Purchasing Conference (April 1990).

7 See M. H. Sable, Las Maquiladoras: Assembly and Manufacturing Plants on the United States-Mexico Border. (New York, NY: The Haworth Press, 1989). S.M. Schwartz, "The Border Industrialization Program of Mexico," Southwest Journal of Business and Economics (Summer 1987). G. S. Vargas and T. W. Johnson. "An Empirical Study of Key Operational Success Factors in the U.S./Mexico Export Processing Industry." Proceedings, 1989 Annual Meeting Decision Sciences Institute (November 20-22, 1989), pp. 528-530.

8 Edward Y. George, "What Does the Future Hold for the Maquiladora Industry?" The Maquiladora Industry: Economic Solution or Problem? Khosrow Fatemi, ed.

9 See P. D. Bagchi, T. S. Raghunathan and E. J. Bardi, "The Implication of Just-In-Time Inventory Policies on Carrier Selection," Logistics and Transportation Review (December 1987), pp. 373-384. C. R. Baker and J. A. Nelson. "Incentives for Investment in the Maquila Industry and Peso Exchange Rates," Proceedings, 1989 Annual Meeting Decision Sciences Institute (November 20-22, 1989, pp. 523-524. K. Boberg, D. B. Vellenga, and K. S. Gritzmacher. "Logistics Issues in the Maquiladora Operations," Proceedings, the Annual Meeting of the Council of Logistics Management (October 1988). E. R. Bruning and P. M. Lynaugh, "Carrier Evaluation in Physical Distribution Management," Journal of Business Logistics (June 1984), pp. 30-48. G. Chow and R. F. Poist, "The Measurement of Quality of Service and the Transportation Purchase Decision," Logistics and Transportation Review (March 1984), pp. 25-43. R. L. Cook and J. R. Burley, "A Framework for Evaluating International Distribution Strategies," International Journal of Physical Distribution and Materials Management (Fall 1985), pp. 26-38. W. A. Dempsey, "Vendor Selection and the Buying Process," Industrial Marketing Management (1978), pp. 257-267.

10 Barbara B. Flynn, Sadao Sakakibara, Roger G. Schroeder, Kimberly A. Bates, and E. James Flynn, "Empirical Research Methods in Operations Management," Journal of Operations Management 9 (April 1990), pp. 250-284.

11 A. Dillman, Mail and Telephone Surveys: The Total Design Method, John Wiley & Sons, 1978.

12 Henley King, "Transborder Truckin'," Border Trax, (July 1990), p. 4.

13 Analysis of variance is a statistical technique that describes the relationship between a dependent variable and one or more nominal independent variables. In general, ANOVA is concerned with comparisons of population means. Although means are usually being compared, the comparisons are made with estimates of variance (F-statistics, which are actually ratios of estimates of variance)--thus the terminology of analysis of variance. In the case at hand, a two-way ANOVA is used to explore differences in transportation performance for two independent variables. The first independent variable is the production setting--U.S. domestic and maquiladora. The second independent variable focuses on each individual performance criterion. Finally, the term full factorial design denotes that interaction terms for the independent variables are considered to understand any interrelationships that exist. In short, ANOVA allows performance levels across the two production settings to be compared.

Mr. Fawcett is assistant professor of logistics and international management, Michigan State University, East Lansing, Michigan 48823; Mr. Vellenga, EM-AST&L, is professor of logistics, Arizona State University, Tempe, Arizona 85287.
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Author:Fawcett Stanley E.; Vellenga, David B.
Publication:Transportation Journal
Date:Jun 22, 1992
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