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.
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.
Contact us today to learn more.