What Mexico Manufacturing Solutions Are Best for My Company?
01.16.20
Due to the effects of the trade war between the U.S. and China and the recent signing of the USMCA trade deal, manufacturers that have previously expanded their operations to Asia and other foreign countries are now considering Mexico manufacturing as so many global companies have done before.
For decades, automotive, aerospace, and medical industries, among others have relied on production in Mexico to expand their offerings, meet rising consumer demand, and stay competitive throughout the years. When it comes to finding the right manufacturing solution to fit your company’s needs, there are three distinct routes you can take:
- Work with a shelter company to handle a full operational setup in Mexico
- Work with a shelter company in specific areas only and still conduct business as an independent entity
- Set up a standalone entity by creating your own team of resources
Taking advantage of managed services through a shelter company for specific parts of the project, such as site selection, accounting, and HR can guide manufacturers and provide assistance where needed without relinquishing these responsibilities altogether. Each of the options has its own pros and cons to help you decide which will be most effective.
Full-Range Shelter Services: Pros and Cons
Of all the Mexico manufacturing solutions, full-range shelter services are the most comprehensive. A shelter company already has an IMMEX maquiladora program in place, which other customers successfully use to conduct business. This program is necessary in order to temporarily import your raw materials and equipment to your facility in Mexico. It also allows your company to receive cost-saving benefits with a deferment of taxes of these temporary imports during the manufacturing process and it’s the fastest way to get up and running.
Working under a shelter also includes a specialized team that secures permits and licenses, maintains customs compliance, manages accounting, performs a site selection analysis, and provides human resources. This option also reduces the risk and liability associated with being a purely standalone option and using your own resources. Plus, the production timeline is reduced to approximately four months versus the six or eight months it takes to set up a standalone entity.
With regard to potential cons, in certain circumstances, a full-service model doesn’t make the most sense for what a company requires. If a corporate headquarters or ownership team wants to maintain its own entity, the subject of cost or time savings may not matter. The right plan involves adapting to what fits for each manufacturer’s request and project requirements.
Setting Up a Standalone Entity with the Help of a Shelter Company: Pros and Cons
While some companies may want to maintain full control or handle certain areas independently, they still may require expert guidance along the way. IVEMSA can offer specific assistance in certain areas, such as HR, accounting, or site selection. This level of solution is a way for companies to ease into the manufacturing in Mexico, while still maintaining ownership of their entity.
Among the cons are cost and time. A standalone option still comes with a longer timeline without the cost savings that are available with a full range of services. However, it works as a nice in-between model for manufacturers that aren’t ready to commit fully or only require assistance in certain areas. By offering managed services, this allows manufacturers more flexibility with how much involvement they have with the setup.
Setting Up a Standalone Entity Using a Company’s Own Resources: Pros and Cons
Setting up operations in a foreign country can be a challenge, especially when there’s little familiarity with the area or knowledge about the ins and outs of what’s required with regards to permits and customs compliance. It can also be difficult for manufacturers to follow an efficient process when working with several individual third parties who may not work well together or communicate effectively.
A company that decides to go the standalone route fully on their own must hire for each department, including HR, accounting, IT, etc. They also are responsible for securing all required permits, licenses, and certifications as well as setting up their own Mexican entity rather than working under an already established maquiladora program. Setting up a standalone entity without assistance from a shelter company also invites greater exposure to fiscal, labor, and trade authorities in Mexico.
The pro for this scenario is that it gives companies complete oversight of each area independently, including all the research, sourcing, decision-making, and analysis that’s required for each part of the operational plan.
Making the Decision for Your Manufacturing Company
Before making a final decision, it’s important to weigh all options and rank the pros and cons in order of importance to your company’s goals. Each is complex and can make a huge impact on your future manufacturing success.
Working with a shelter company is the favored option due to the level of expertise and experience it adds to the process. When considering Mexico manufacturing, it’s always helpful to have a company that can guide you through what’s expected and required to prevent unnecessary costs and delays.