How Do U.S. Companies Operate in Mexico?
There are two options. The first is to create a company, which takes quite a long time to set up; plus, you’re fully exposed as a learner in a foreign country to comply with Mexico authorities. Of the two options, this one holds a greater risk.
The second, easier option to get up and running in the shortest amount of time is to work with a shelter company. This course of action provides cost and time savings, establishes a legal presence in Mexico, ensures compliance, and a list of other benefits that companies working with a shelter partner experience.
Read here for more information about what shelter services offer.
What’s the Best Way for U.S. Companies to Set Up Manufacturing in Mexico?
Of the two aforementioned choices, we strongly recommend engaging with a reliable, trusted shelter partner. It’s best to work with a shelter company based in Mexico that has the experience of working with American companies and a broad understanding of both countries. Shop around, practice due diligence, and perform your homework when making a decision.
Many times companies think they can operate on their own, but it often provides unexpected challenges and delays. There are several steps to the process, many of which are skipped when companies are unsure about all that’s involved to operate in Mexico.
The benefit of working with IVEMSA is our roots are in Mexico which means we have decades of connections and resources that give us the competitive edge. We primarily work with American or non-Mexican companies, so we understand the nuances this type of business relationship entails.
What Are the Steps to Set Up My Own Company?
If you decide not to partner with a shelter company, there are several steps you must follow. First, you’ll need to hire a lawyer that can get you up and running and started with registration. He or she may not necessarily be in the area you want or that’s convenient for communication. Second, you’ll need an IMMEX license. Third, you’ll need to hire a general manager, HR manager, another person for compliance for import/export and VAT certification, and also, an accountant.
This represents only the beginning stages of the setup. There’s also finding an ideal industrial site, sourcing qualified employees, and legal and environmental items to consider. As you can see, there is a lengthy list of moving parts. In the end, the company is its own project manager, which isn’t the most time-efficient or cost-effective. IVEMSA has a checklist document that walks you through the different items step-by-step that need to be addressed before moving forward with operating in Mexico.
Do Foreign Companies Receive Special Benefits When They Open Operations in Mexico?
One of the core benefits of manufacturing in Mexico is a lower production cost. It’s an optimal alternative to operating in China, not only because of cost savings but also because of the convenience of location.
As a special benefit, companies that operate in Mexico can obtain the IMMEX program approval to avoid the payment of VAT tax (16%) on all their temporary imports. This includes raw materials, components, and equipment. This is a unique benefit that the Mexican government offers to ensure Mexico is a competitive option for manufacturing and exporting finished goods overseas. All foreign companies are eligible for this benefit when operating in Mexico. Companies that work with IVEMSA can obtain this benefit from day one by utilizing IVEMSA’s IMMEX program and VAT certification.
Can My Management Team Oversee Manufacturing of Our Products in Mexico?
Yes. Companies maintain complete control of their production and core business. Each company is responsible for running and controlling its own operation – everything related to production, training, equipment maintenance, quality, production schedule, and new product introductions. It is very common that during a new project implementation, the company’s management team visits the Mexico factory to share their expertise with the local management team. Compliance and US / Mexico border logistics are taken care of by the shelter company. Everything else is operated under the guidance and standards of a company’s core policies and procedures.
How Do I Select Suppliers and Vendors?
U.S. and other foreign manufacturers often import their own raw materials and components into Mexico as part of the IMMEX program, which includes an exemption from VAT payments at Mexican customs on temporary imports. During a new project implementation, the manufacturer will often continue to purchase their raw materials and equipment with the same partner or vendor and IVEMSA will assist with the importation to Mexico under the IMMEX program to minimize costs. However, with over 40+ years of working with Mexico vendors, IVEMSA receives preferential rates on computers, office supplies, phones, etc., as well as lines of credit for production supplies, such as Uline and Grainger. It all comes down to making the most economical choice for your business.
What Is the Timeline to Open Up a Manufacturing Facility in Mexico?
There’s not a standard timeline since every industry has its own nuances and requirements. Setting up operations in Mexico requires a customized solution, but generally speaking, a company can expect a timeline of 2-3 months, after signing a lease agreement, when working with IVEMSA and 7-8 months if going through the process without a shelter company.
This time efficiency is due to the connections and infrastructure needed such as an IMMEX program and VAT certification, as well as systems and expertise on key departments like trade, finance, environment, health & safety, and HR. This readiness allows IVEMSA to immediately get to work for our customers.
Essentially, consider a shelter company a “one-stop shop” to start operations in Mexico. They’d break down what you’d be liable for. This is in addition to the multiple steps it takes to set up the right certifications, staffing, and site selection. The exact timeline depends on your company’s specific needs.
Should I Partner with a Mexico Shelter Company or a U.S. Company?
There’s value from working with a Mexico shelter company like IVEMSA. We are multicultural professionals who have been doing this for years and are well-versed in international business. We are involved with INDEX, the National Maquiladora Association, which focuses efforts to create a better environment to all IMMEX companies in Mexico.
Are There Communication Barriers with a Mexico Manufacturing Facility?
There are cultural differences to understand, but when communicated well, barriers can be avoided. For example, in Mexico, family is important as are weekends. Labor laws in Mexico are highly strict and protective of workers. These understandings are key to the human resources side of operations.
One of the first things IVEMSA does to help bridge any communication gaps is to review the company philosophy and respond with a business proposal and tips to help blend business standards with Mexico culture.
How Does the Site Selection Process Work?
Securing an industrial site is a significant part of the early stages of setting up production in Mexico. It requires researching different cities and industrial hubs to determine where best to sign a lease.
Many factors go into this decision, including the proximity to supply chains and transportation, plus the availability of the local labor force.
IVEMSA is available to help foreign manufacturers compare viable site options through a site selection matrix. This matrix is customizable depending on the manufacturer’s sector and project goals.
It highlights the advantages of each viable area and compares pricing, benefits, and amenities. This helps to narrow down the search field so manufacturers can then schedule site tours to make a final decision.
What Can I Expect on a Site Tour?
We pick you up from the border to tour industrial sites. This allows you to get an overview of site selections and capabilities and a cultural feel for the area.
We worked with Tijuana EDC to provide a video snapshot of what an industry site visit looks like.
We know investing in a facility in Mexico is a big commitment. If you have questions that we haven’t addressed here or want to walk through anything more in-depth, we are here to help.
What Is the First Step to Manufacturing in Mexico?
Understanding tariffs is key. With the influx of changes, especially over the past few years, it’s crucial to have a customs expert in Mexico as part of your team to help navigate new regulations to save costs and maintain compliance.
For North American manufacturers, in particular, it’s important to determine which products qualify under the USMCA to be exempt from the 25% IEEPA tariff. This requires submitting a Bill of Materials (BOM) with unit costs and Harmonized Tariff Schedule (HTS) codes.
For example, the rules of origin are in place per the USMCA, which affect tariffs if not categorized correctly. To meet requirements, materials must have undergone a substantial transformation before being exported back to the U.S.
There are several moving parts to the customs process, and a single misstep could derail a project indefinitely. Having the expertise of a shelter services partner, including a customs broker familiar with U.S. and Mexico trade regulations, is valuable to guide the process and prevent costly delays.
How Do Shelter Companies Help Foreign Manufacturers with Trade Compliance in Mexico?
Trade compliance is complex. Without the proper knowledge, it can lead to fines and setbacks.
As a shelter services provider, IVEMSA delivers local industry support for foreign manufacturers to ease the transition when manufacturing in Mexico.
Since product categorization will either incur tariffs or result in an exemption, IVEMSA can guide manufacturers on how to transform materials to meet tariff requirements to gain approval during the import/export process and save on costs.
However, tariffs and other trade regulations are constantly in flux, which makes it challenging to remain compliant. Currently, manufacturers must keep an eye on reciprocal tariffs, tariffs on specific goods like aluminum and steel, as well as potential changes to the USMCA and other free trade agreements.
A shelter partner is valuable in keeping manufacturers up to date with changes to trade regulations to help the process run more smoothly.
What Is the Forecast for Labor Availability in Mexico for Industrial Roles?
Mexico continues its investment in sustaining a strong industrial workforce. From welding technicians to electricians, and beyond, there is a growing pool of talented candidates who are already experienced in the manufacturing industry or are graduating from a technical school that is tailored to meet industry expectations.
In fact, global manufacturing companies are heavily involved in developing programs at Mexico’s industrial schools and often partner to train students in specific skills to fulfill open roles once they graduate.
With the U.S. continuing to struggle in placing qualified workers, many manufacturers are looking to Mexico as a way to hire the talent they need while also saving significantly on labor costs.
Even with the push on bringing manufacturing back to the U.S., many factories report trouble with recruiting qualified talent. It’s been reported that for every 20 jobs available, there’s only one qualified worker, leaving hundreds of thousands of jobs unfilled.
Meanwhile, Mexico graduates tens of thousands of qualified industrial talent every year to fulfill a range of roles needed by U.S. and other foreign manufacturers.
What’s Needed to Attract Qualified Talent?
Because of the availability of industrial talent, recruiting qualified workers in Mexico is also highly competitive.
Companies should be prepared to offer an alluring compensation package, including a competitive salary and benefits. In Mexico, there are mandatory benefits that differ from the U.S. and other countries’ norms, in addition to other benefits that will attract top talent. This includes but isn’t limited to paid holidays, bonuses, and food stipends.
IVEMSA can help manufacturers shape a compensation package to recruit and retain the best workers and provide them with an estimated cost for fully burdened employees needed for their project. Fully burdened wages include salary plus mandatory benefits, competitive market benefits, and state and local taxes.
How Much Money Can I Save from Moving Manufacturing from the U.S. to Mexico?
While industrial leases and supply chain costs may be comparable with other countries, manufacturers in Mexico will experience the most savings on labor costs.
However, it depends on the headcount. If the need is for a smaller group of 10 to 20 employees, manufacturers may not see the return on investment to make it worth their while. Whereas, companies hiring 50+ workers will find a positive impact on costs versus manufacturing in other countries.
Essentially, the more employees, the quicker it is to reach the break-even point. A shelter services company like IVEMSA can help forecast payroll and compare it to what a manufacturing company currently has to help determine true cost savings.
What Are the Common Mistakes in Mexico Manufacturing?
Often, manufacturers wrongly assume manufacturing in Mexico is the same as in the U.S.
However, despite the close proximity, every country has its own customs regulations, cultural rules, contracts, etc., and Mexico is no exception. This is true even for manufacturers who may have done business in the country several years ago because the complexity of rules and regulations has changed since then.
Operating in a foreign company has its own methodology that must be followed, and the expertise of a shelter services provider is invaluable. From choosing the right industrial site to securing permits and recruiting workers, every administrative detail takes time and knowledge of the current industrial landscape.
IVEMSA has over 40 years of experience helping foreign manufacturers launch production in Mexico. There is a checklist and timeline that’s followed to get business leaders up and running within three to four months.
Without current knowledge of what’s required to manufacture in Mexico, it can be a costly lesson to learn and create bigger problems down the road.
Contact us today to learn more.