U.S. manufacturers began operating in Mexico in the 1960s when the country introduced its maquiladora program. This allowed factories in Mexico to be 100% U.S.-owned which sparked growth and eventually made the U.S. the largest trading partner of Mexico with goods totaling over $614 billion.
Due to the initial success of Mexico manufacturing, U.S. operators have continued to expand their portfolios in terms of size, factories, and products being made. Now, with the surge of microchip production, U.S. manufacturers’ reliance on Mexico as a trusted secure trading partner is crucial for advancement.
One of the main reasons why U.S. manufacturers are currently setting their sights on production in Mexico is the CHIPS and Science Act of 2022. The legislation was passed to position American manufacturers at the forefront of technology as the global leader in semiconductor production.
To fulfill this goal, the Biden Administration has worked closely with Mexico President Andres Manuel López Obrador to boost production and move key technology components from Asia to Mexico. Following the North American Leaders’ Summit, the U.S., Mexico, and Canada have agreed to coordinate investment in semiconductor manufacturing and chip investment opportunities.
Therefore, the new policy incentivizes U.S. manufacturers to view Mexico as a trading ally to complement their efforts when producing, packing, and testing microchips. It is a prime location for U.S. manufacturers to perform more labor-intensive processes at a lesser cost with intellectual property protection secured.
The United States-Mexico-Canada Agreement (USMCA) provides U.S. manufacturers incentives for nearshoring to Mexico versus outsourcing manufacturing to China or other countries. For instance, the trade agreement focuses on increasing regional economic growth by requiring 75% of auto content be made in North America, and maintains duty-free treatment for originating goods.
Additionally, U.S. manufacturers are granted greater intellectual property and copyright security through USMCA provisions. With advanced technology and innovations making time-to-market hyper-competitive, an assurance these protections will be enforced is critical.
Over the years, the cost of labor in Mexico has become comparable to labor costs in China. And with being in closer proximity to the U.S., it grants yet another benefit to manufacturers seeking industrially skilled workers across all levels.
Mexico continuously invests in its industrial workforce through advanced education and training programs with U.S. manufacturers. This helps with job placement to quickly fulfill the necessary roles operators need to get their products to market faster.
Though there are several moving parts when setting up production of U.S. goods in a foreign country, manufacturing in Mexico is broken down into three general parts.
There are several industrial hubs where U.S. manufacturers can take advantage of an established infrastructure and reliable supply chain. The specific sector and project needs will determine which region is best to set up factories.
Working with a Mexico shelter company saves time, money, and frustration during the site selection process. They factor in budget, region, and transportation options to determine the most optimal choice(s) to get operations up and running quickly.
Following site selection, U.S. manufacturers are required to obtain all necessary permits and certifications to operate as a foreign entity in Mexico. Administrative responsibilities also require HR, accounting, tax, legal, and trade department setup. As a standalone entity, this can take six to seven months to establish.
Whereas, a shelter company maintains all necessary paperwork and departments needed to launch production. Therefore, the setup process is significantly reduced to four to five months.
Once production launches, U.S. manufacturers typically require ongoing support as they grow. The shelter option is flexible and can adapt based on the growing needs of each company. It reduces operational costs year after year and will position a company to “graduate” from the shelter program as desired.
The shelter program is unique to Mexico and streamlines the transition for U.S. manufacturers. Taking on the legal, trade, and administrative responsibilities associated with setting up a new business allows operators to focus solely on the manufacturing process.
Additionally, by operating in similar time zones and within close proximity to their U.S. base, manufacturers can easily schedule site visits and quality assurance checks to ensure their timelines and goals are being met.
Interested in making the move to Mexico? Our quick guide helps U.S. manufacturers get up and running faster. Get checklists to guide you through setting up a shelter or standalone entity, covering everything from site selection to recruiting workers to preparing for trade compliance.
GET THE GUIDE >Yes. Due to the close distance between the U.S. and Mexico, scheduling site visits are made simple to ensure everything is operating as it should. Even when working with a shelter company, U.S. manufacturers maintain complete control over production and quality assurance.
In addition to the financial benefits U.S. manufacturers receive, including lower transportation costs and labor fees, there is also a 16% VAT exemption. This is available to all U.S. manufacturers who are approved through the IMMEX program with VAT certification. Those who partner with a shelter company can receive these tax benefits from day one.
Working with a Mexico shelter company like IVEMSA eases the transition for U.S. manufacturers. With a multicultural team with over four decades of experience, they are well-versed in international business and know what’s needed to adapt to an ever-changing industry.
Furthermore, IVEMSA is involved with INDEX, the National Maquiladora Association, which focuses efforts to create a better environment and is part of the trade deals and initiatives, making it all the more advantageous for manufacturers from the U.S.
Contact us today and see how we can help you take advantage of all the benefits of manufacturing in Mexico - without the hassle.
