Understanding the Different Ways of Manufacturing in Mexico
06.22.21
Manufacturing in Mexico is on the rise as companies are remapping their strategies and expanding their options, with many making the move out of China and relocating to Mexico instead. When U.S. and other foreign companies operate in Mexico, there are two general ways to proceed. The manufacturer can either incorporate as a standalone operation or partner with a shelter service company that can handle setup and take care of the administrative responsibilities necessary for the project to run smoothly.
For a standalone operation, full responsibility is placed on the manufacturer. This involves applying for and being approved for the IMMEX maquiladora program, ensuring proper permits and certifications are established, confirming site selection for their operations, and going through the process of hiring and training employees. In addition, a standalone entity must navigate customs compliance requirements as they import goods, machinery, and equipment into Mexico to start production.
These are the general areas of what’s required to set up operations, but there are several details and cultural expectations to understand as well that can be time-consuming and intimidating if a company doesn’t already have knowledge of how Mexico manufacturing works.
Because of this, most foreign manufacturers choose the alternative option, which is to partner with a shelter service company. A shelter takes on these tasks and streamlines the process, while also minimizing the risk and liability for the manufacturer. Furthermore, by delegating administrative services to the shelter, it frees up time for the manufacturer to solely focus on day-to-day production.
When working with a shelter company, manufacturers maintain complete control over their operations and business decisions. Also, choosing this option over a standalone operation provides manufacturers a few different options. They can opt for full shelter services, engage with a shelter during the startup process alone, or enlist contract manufacturing for shelter-type services.
Full Shelter Services
The most popular option when manufacturing in Mexico is to fully relinquish responsibilities to a shelter. In choosing this route, a shelter takes care of everything required for setup and ensures the operation continues to run smoothly. Shelter services range from site selection to recruiting and hiring employees to updating the manufacturer when new compliance or labor rules come into play. In short, full shelter services cover the spectrum of what’s required to legally and successfully operate as a foreign manufacturer in Mexico.
Additionally, manufacturers reap immediate cost benefits with full shelter services. Since a shelter company already maintains an IMMEX license, it allows companies to work under an established maquiladora and receive exemption from the 16 percent VAT tax. This exemption is applied to all temporarily imported goods, machinery, and equipment from the time a manufacturer partners with the shelter.
Otherwise, companies that choose to incorporate on their own must pay this tax until they are approved for their own VAT certification, a process that can take several weeks, if not months to complete.
Shelter Services for Startup
Another avenue of manufacturing in Mexico is to partner with a shelter company during the setup process alone. Though this isn’t as common of a choice, it allows U.S. and other foreign manufacturers to delegate the same administrative tasks necessary to get a shelter up and running. Typically, the setup process takes three to four months when guided by a shelter company and takes nearly twice as long if a manufacturing company decides to operate as a standalone entity.
There are scenarios where manufacturers require help with site selection only or guidance on recruiting employees for their operation. Although working a shelter doesn’t entail “a la carte” options, a shelter company like IVEMSA can customize services based on exactly what each company needs and the goals they want to reach.
Contract Manufacturing for Shelter-Type Services
A third option for foreign manufacturers is hiring a contract manufacturer to provide services on an as-need basis. These services are often similar to what a shelter provides, such as supply chain management or human resources and recruiting. However, contract manufacturing doesn’t allow oversight over the process, and companies can’t maintain the level of quality control the way they can when working with a shelter.
Furthermore, missed communication and delayed timelines are more likely when piecemealing different services together versus sheltering all services under one umbrella. What may seem like a more cost-effective option often turns into a lack of efficiency and control over the contracted parts of the operation, which often outweighs the positive aspects.
Paving a Path to Success
Navigating manufacturing in Mexico involves a learning curve that requires the guidance of those that have the experience and expertise to set your company up for success. Even if operating as a standalone entity is your ultimate goal, partnering with a shelter company in the initial stages of operations is beneficial in many ways. It allows you to reduce costs, retain quality, and gain a greater piece of mind.