Factors Affecting Maquiladora Charitable Giving along the USMexican Border

While there are clearly corporate leaders along the U.S.-Mexico border, such as Johnson & Johnson, Scientific Atlanta, GE, Mattel, Kyocera, CEMEX and Levis Strauss, that understand the strategic benefits of charitable giving in the region, these companies are more the exception than the rule. Unfortunately, for the vast majority of companies operating along the border, charitable giving still remains quite limited.

Critics of globalization and offshore manufacturing point to the lack of commitment and understanding by U.S. corporations about communities beyond their immediate corporate headquarters’ location, including a lack of understanding of the unique problems faced by each community. Yet, to conclude that companies operating maquiladoras are un-caring, exploitative or have no interest in making a difference in their respective communities is simply untrue.

The vast majority of U.S. and third country manufacturing operations are owned by corporations that do care and, in general, maintain a commitment to corporate social responsibility in labor practices and environmental quality in the communities along the border where they work. Furthermore, given on-going maquiladora turnover challenges and the rapid population growth of major cities along Mexico’s northern border relative to other major metropolitan regions of Mexico, it would seem logical that companies would be incentivized to give charitably in an effort to promote employee retention, morale and/or market share. So, why does corporate giving along the border continue to lag?

The answer is not simple as there are a number of contributing factors, including many structural impediments, that continue to limit or inhibit corporate giving in the border and these factors need to be taken into account:

1. There are a limited number of U.S.-based cross-border grantmakers through which U.S. companies seeking tax deductions can turn to, to support their desired charitable causes in Mexico. To date, U.S. corporations can count on only a handful of reliable charitable grantmakers such as the International Community Foundation (ICF), El Paso Community Foundation, Mascareñas Foundation, Project Concern International (PCI) and Fondo Unido (United Way) to direct their contributions to causes or programs south of the border. Also, the number of Mexican foundations and nonprofits with U.S. 501(c)(3) equivalents is still limited, with a few exceptions: FECHAC, FEMAP, Habitat for Humanity, Junior Achievement, and Hospital Infantil de las Californias. Since 9/11, the need for reliable U.S. based intermediaries and/or U.S. based nonprofits with a cross-border mission has become ever present due to the growing reluctance of U.S. companies to contribute directly to overseas charities in general as a result of the U.S. Patriot Act.
2. Lack of an assessable legal and fiscal framework that can support the development of civil society and corporate philanthropy in Mexico
   a. While most Mexican corporations can deduct their charitable contributions, under the Mexican tax code, Mexican fiscal treatment of maquiladoras does not allow for this. On the contrary, companies operating maquiladoras are taxed on their total cost of operations – which would only be increased by additional “expenses” made for charitable gifts. In other words, under the current tax rules, charitable contributions made actually increases a maquiladora’s taxable base, rather than decrease it. Needless to say, this creates a disincentive for companies operating maquiladoras to participate in philanthropic efforts. According to Mauricio Monroy, managing partner of Deloitte & Touche’s Baja California office, “This treatment plays an important role in the inappropriate perception that many have of maquiladoras in terms of them having little or no interest in giving to their communities.”
   b. On the other hand, Mexican law lacks a simple and efficient means in which nonprofit organizations can obtain charitable deductibility status. As noted, previously only 172 border nonprofits have this status. This has significantly hindered the development of civil society in Mexico and made it difficult for U.S. and other countries’ maquiladoras to give.
3. The lack of accountability and management, marketing, and outreach skills among the majority of border area Mexican non-governmental organizations (NGOs) diminishes their chances to receive corporate funding and support for their social causes. While the capacity of NGOs is growing along the border and there are numerous very well-managed charities in the region, the majority of NGOs are small with limited staff and infrastructure. In addition, these NGOs often lack the formalized training and experience to effectively respond to the needs of U.S.-based companies operating maquiladoras. This contributes to the disparity among Mexican border area NGOs, and creates a widening gap between the “haves” and “have nots” in civil society along the border. Presently there are a very limited number of border based NGOs receiving the lion’s share of corporate funding from maquilas and their parent companies.
4. Maquiladoras operators have limited discretionary authority for charitable giving. Based on study findings, it was learned that among those companies operating maquilas along the border, the decision making authority for major charitable gifts typically lies at corporate headquarters. In this sense, if a company’s senior management is not aware of the local needs in a given border community where their maquiladora operates, there is less likelihood that a maquiladora will become involved in charitable giving. In such case, the community will have to only hope for a “local champion”—a maquiladora manager that is sensitive to the needs of the community, and can communicate these needs effectively to its corporate headquarters. To resolve this issue, corporate headquarters and corporate foundations need to pay increasing attention to the needs of communities where they operate internationally, and instill a culture of international corporate social responsibility to their maquiladora managers.

While corporate charitable giving along the border does remain quite limited, it is important to emphasize that generally most, but not all, major border area companies do give charitably, whether it is in the form of monetary donations, sponsorships of charitable events, in-kind gifts (product donations or services), and/or the commitment of time among employee volunteers. While this is so, the extent of border-based giving varies tremendously from company to company. Without question, maquiladoras and their parent companies could do more if the conditions to giving were more favorable and many of the above referenced impediments were removed.

Some companies have a long-standing tradition of supporting charitable organizations along the border, and their level of giving is reflective of the number of years in a given community, the leadership and extent of civic involvement of a given plant manager, the number of local employees, and/or its overall profitability. In turn, there are other assembly and manufacturing companies, particularly those producing low priced, labor intensive products such as textiles, small consumer electronics items, and toys that are more susceptible to an internationally competitive market. These companies are focused on simply staying in business given growing foreign competition from alternative offshore locations.[1] In these instances, charitable giving is not high on their priority list. As a case in point, in Tijuana alone, over 258 companies - representing 20% of the maquiladora employment in the city - have shut down in the past three-and-a-half years; 23 % of maquiladora workers, or about 67,000 people, lost their jobs in Ciudad Juarez; and some 18,000 workers lost their jobs in Matamoros.[2]

[1] According to official figures, foreign direct investment (FDI) to developing countries, particularly to China, Russia, and India, increased from 25, 1.4, and 2.2 % in 2001 to 34%, 4.7%, and 3.2 % in 2004, respectively. In the same period, FDI to Mexico decreased from 16% to 10.5 %, while the average productivity growth was only 0.5% in comparison to 6 and 4 % from China and Korea.3

[2] Brezosky, Lynn, “Other Cities Benefit From Maquilas Return,” Associated Press, January 25, 2005