Common Challenges of Manufacturing in Mexico & How to Avoid Them12.15.22
Manufacturing in Mexico has ramped up over the past several years without any sign of slowing down. In 2021, Mexico exported approximately $494B worth of goods, equaling an increase of 7.3% from pre-pandemic levels. It’s clear U.S. and other foreign companies continue to benefit from the competitive advantages this strategy has to offer, which include open trade agreements, access to a skilled workforce, and lower operational costs.
However, operating in any foreign country comes with its own set of challenges. Everything must be accounted for and in compliance before production can begin. That’s why most foreign operators seek the help of a shelter company to create a more seamless transition.
Here are key areas that often present obstacles and how a shelter company helps mitigate them.
Start-Up Time and Permits
When manufacturing in Mexico, permits must first be approved, which can be a lengthy process. Application for the IMMEX program mandates U.S. and other foreign manufacturers report their operational process, including the type of production and description of materials. Component details must specify the origins of materials, the process of how they’ll be used, and the quantity being imported.
The attention to detail and accuracy of information provided is crucial. Without proper experience, the application process can be delayed and become frustrating for manufacturers. However, when operating under a shelter, the necessary permits and licenses are already in place. Additionally, a shelter provider has the experience necessary to know which information to supply to gain approval quickly.
Furthermore, the shelter minimizes risk and liability for foreign manufacturers by serving as its legal entity. This infrastructure, experience, and expertise reduce the start-up time to three to four months versus the six or seven months it can take when setting up as a standalone entity.
Another common challenge is the wrongful assumption that manufacturing in Mexico or being approved for the IMMEX program results in duty-free manufacturing. Though the IMMEX program doesn’t relieve manufacturers from duties, it does provide a significant tax advantage. Those approved under the IMMEX program are exempt from the 16% VAT tax on temporarily imported goods, materials, and machinery used for production. When working with a shelter, these savings start immediately, and shelter experts can provide a duty-impact analysis to estimate costs prior to making decisions.
Labor Costs and Availability
Labor costs can also pose challenges when manufacturing in Mexico depending on the sector. Salaries in Mexico are competitive but not as cheap as in certain parts of Asia. For manufacturers with low-mix, high-volume production, such as textiles, China may be the less expensive option. However, manufacturers appreciate the value of Mexico’s industrial workforce. They can handle the production and skill level needed for complex industries, such as automotive, medical, and aerospace.
Additionally, the labor pool in Mexico is much larger than the availability of manufacturing workers in the U.S. Mexico has invested in its industrial workforce through advanced education, skills training, and process innovation. Whereas the U.S. continues to face a manufacturing labor shortage with more unfulfilled job openings than unemployed workers.
Industrial Building Selection
Site selection is the first step when setting up production in Mexico. The industrial real estate market is highly competitive. Manufacturers must be familiar with building requirements, how to establish a lease, and be ready to make quick decisions to move forward. A shelter company has local knowledge and experience to guide the process and secure a facility. They ensure the right questions are asked and accurate answers are provided.
Mexico manufacturing involves several moving parts. A shelter solution provides all the benefits without the challenges of setting up an entity on your own. IVEMSA helps companies start production faster while reducing costs and maintaining quality.
To learn more about how a shelter can help you address the most common manufacturing challenges, contact us today.