Differences Between Contract Manufacturing vs. Operating Under the IMMEX Program

Manufacturing in Mexico has prevailed as a leading business strategy, especially over the last few years. Though most are aware of the benefits this opportunity provides, there’s quite a bit of confusion that comes with making the move as well.

For decades, many U.S. and other foreign manufacturers have outsourced production to China without owning their own factories or equipment. Now, these same companies want to replicate this process in Mexico. What they often don’t realize is this requires a third-party company to build what they need; otherwise known as contract manufacturing.

Though contract manufacturing can be a favorable solution for certain types of operations, it does not have the same advantages as working with a shelter company under the IMMEX program.

Here are key differences to help identify the best solution for your production goals.

Quoted by Units vs. an All-Inclusive Fee

With contract manufacturing, companies work with third-party suppliers. They are quoted by the number of units produced. Therefore, the more units there are, the more it will cost.

Whereas, with a shelter services company, there is one fee for the administrative work and team that will be assisting with the production launch. Regardless of whether a company produces $1M or $100M of goods a month, the fee doesn’t change.

Contractor employees vs. company employees

Companies that choose contract manufacturing are typically exposed to more quality issues, shipping delays, and employee challenges. Employees are not hired to work solely for one company. Typically, they’re assigned to multiple companies on a rotating basis and may not have the specific skills or investment in what is produced.

On the other hand, through a shelter company under the IMMEX program, the manufacturer hires employees solely for their company and project(s). These employees are part of their regular payroll and benefits. And the manufacturer maintains control over hiring, onboarding, and retention with the support of the shelter company, and without worrying about splitting time with other companies.

Delegate control vs. maintain control

Companies with high-volume, low-mix production typically choose contract manufacturing. They are less concerned about maintaining ownership of the building and equipment and will outsource to a third-party vendor.

Whereas, manufacturers with proprietary technology and/or products value control over all things production, including the building, equipment, and intellectual property. They want to be in charge of their own destiny and will maintain ownership with the help of a shelter services partner.

A shelter services partner then handles all the administrative duties necessary to get production up and running. This includes everything from HR and accounting to trade compliance and IMMEX program certification.

Sourcing the Best Solution

Though manufacturing has standard processes and protocols, each company is unique and requires varying levels of assistance in order to be successful. Operating under the IMMEX program through a shelter services partner delivers comprehensive support from a team of local experts.

For more information about shelter services in Mexico and how to leverage them to maximize your production goals, contact IVEMSA today.