How to Set Up a Successful Entry Strategy for Manufacturing in Mexico
10.05.20
Thanks largely to the close proximity and availability of a cost-effective and highly-skilled, well-trained workforce, Mexico has been an enticing option for U.S. manufacturers for decades. Presently, the U.S. shift from China to Mexico has been amplified due partly to the ongoing trade issues between the U.S. and China and challenges with travel and shipping timelines due to the novel coronavirus.
Manufacturing in Mexico involves cultural, operational, and legal differences to account for, and without the proper plan and guidance, it leaves room for costly errors. To set up and maintain successful entry into Mexico as a manufacturer, it first requires determining the right operational setup and understanding the IMMEX/maquiladora program.
Learn the basics of what it takes to implement a solid entry strategy that will pave the way for a timely and efficient setup.
Determine the Best Manufacturing Method
There are three main organizational methods to consider when manufacturing in Mexico: a standalone operation, contract manufacturing, or working with a shelter services company. Determining what’s best for your business depends on your budget, timeline, and how much control you want over your project.
Standalone Operation
A standalone operation requires complete handling of all aspects of operational setup by the manufacturer. With this option, there’s a higher learning curve, and it’s more time-consuming and costly. You’ll be responsible for securing all required certifications and permits, which could delay setup and can be tricky to navigate for compliance.
You’ll also need to hire individuals for every department, from HR and accounting to legal and customs compliance, to work together in a cohesive, effective manner. This can be difficult if these are piecemealed together rather than working in alignment as one as with a shelter company.
Contract Manufacturing
Another setup option is contract manufacturing. Often, smaller companies choose this route when they don’t want to set up an entity in Mexico. Contract manufacturing calls for outsourcing production lines, which allows you to expand your business and possibly save money. However, you have limited control over your production, including the quality, delivery, and costs of what it takes to manufacture, package, and ship your goods.
Shelter Service Companies
The third and most popular option for manufacturing in Mexico is working with a shelter service company. This allows you to maintain complete control over your operations, while the shelter service operator handles the administrative areas of setup, including HR, payroll, taxes and accounting, customs compliance, and import and export management.
Benefits include a faster setup time, lower risk and liability, ability to work under the shelter’s IMMEX/maquiladora license, and a built-in network to help expedite the process.
Read more: Why companies are reshoring to North America.
Understanding the IMMEX/Maquiladora Program
After you’ve determined which type of setup you’d prefer, the next step is obtaining an IMMEX/maquiladora license. The IMMEX/maquiladora program combined with a valid VAT certification allows U.S. and other foreign manufacturers to import raw materials into Mexico without the 16 percent VAT under the stipulation they’ll be exported as finished goods.
You need to keep in mind that the IMMEX/maquiladora program alone will not give you the benefits of exempting the 16 percent VAT payment on temporary imports. Fortunately, when operating with a shelter partner, this benefit will be available since day one. To apply for an IMMEX license, you must:
- Establish a facility and Mexican entity
- Present a thorough business and financial plan outlining your production process
- Commit to exporting more than $500,00 USD or 10 percent of total sales
- Identify the tariff code of all imports needed for production
Being approved for a new IMMEX license takes time, if one is granted. By working with Mexico shelter companies, manufacturers can work underneath one that’s already in place.
Working with Mexico Shelter Companies
In addition to deciding your organizational setup and understanding the complexities of the IMMEX/maquiladora program, it’s best to have a grasp of the cultural landscape. One of the reasons why manufacturers choose to partner with Mexico shelter companies is to have a direct line of communication and built-in professional relationships that will help expedite setup. A shelter services partner, like IVEMSA, can walk you through the expectations of manufacturing in Mexico, including everything from hiring the right employees for your operation to knowing what’s required from a legal and compliance perspective. Additionally, the shelter company provides a full site selection matrix that outlines areas that make the most sense for their operational goals and budgets.
Setting up a successful entry strategy is important to ensure timeliness and cost-effectiveness. There are basic guidelines for each company to follow, but shelter services can be customized based on each manufacturer’s unique needs.