Using a Cost Model Analysis to Guide Site Selection in Mexico
03.21.20
Many U.S. manufacturers have already reaped the benefits of the cost-effectiveness of doing business in Mexico. This, in addition to the strong, skilled labor force and the proximity between the two countries have led to Mexico’s rise to the top as the leading trading partner for the U.S.
However, regardless of the specific industry, the number one question every manufacturer has is: how much will it cost? Every plan and growth goal starts with predicting the return on investment based on a cost analysis. For companies to feel confident in their investment, it requires a thorough rundown and review of all costs beginning with site selection. This includes considering one-time vs. ongoing costs, hidden costs, and competitive costs before the operational setup begins. Starting the site selection process with a detailed analysis can help companies plan and budget for operating in Mexico in a strategic way.
The research and cost comparison can be tricky to navigate without having previous experience of manufacturing in Mexico. Working with a company like IVEMSA that has an extensive background in this industry and familiarity with various regions can ease the burden and move plans forward more quickly. Although each analysis is customized based on what is needed for the company, main costs to consider include facility fees and HR costs, including hiring and payroll.
Considering Facility Costs
Part of a customized cost analysis prepared by IVEMSA includes a comparison of different areas and facilities in Mexico that fit the requirements for what your company needs in terms of space, production, and budget. It includes recommendations of certain areas that are already equipped or have proven successful for specific technical industries.
Also included are the typical utility and insurance costs to expect, as well as what’s required for permit applications. All of these details help companies make decisions based on their immediate goals as well as explore their growth opportunities and scalability. For example, a company that plans to expand within the next few years may find it more profitable to secure a facility where they can easily build onto rather than having to move again or search for a second building in the future.
Budgeting for Hiring, Payroll, and Retention
Another part of the cost analysis includes what to budget for with regards to employee wages. Mexico has a highly competitive skilled labor force. Making the right hire and understanding the importance of retention is part of how employers can be cost-effective in limiting training and turnover costs for new hires while maintaining a high productivity level.
It’s essential for companies to understand the value of what they offer employees and in what ways this may differ from the U.S. Salaries are only part of the compensation costs to consider. Benefits are equally important. These include bonuses, raises, and paid time off, among others. While Mexico labor rates remain mostly steady, it still requires room for flexibility and increasing costs to retain the most qualified employees.
Read more: Hiring tips for U. S. companies nearshoring in Mexico.
A cost analysis serves as a guide that allows manufacturers to make confident site selection decisions. Fortunately, with the experience that IVEMSA brings to the industry, you can count on up-to-date numbers and data to support these and other business decisions you make in Mexico. With market changes, inflation fluctuations, and space availability constantly shifting, it can be challenging to keep track of what are the best, most cost-effective, and viable opportunities. We are here to provide a full analysis and make recommendations based on our insights and experience to help with this process.