Working with a Mexico Shelter Partner vs. Setting Up A New Business Entity: Risks and Rewards

Article Summary: Want to understand the differences between partnering with a Mexico shelter company and setting up production as a standalone entity? This guide illustrates the risks and rewards of each as well as how to customize shelter services to fit specific production goals.

To set up production in Mexico, U.S. and other foreign manufacturers can either work with a Mexico shelter company or set up a new business entity.

Both have benefits, though many prefer the ease and expertise of partnering with local industry consultants. Here’s a look at the risks vs. rewards of each, and a clear illustration of why the majority decide working with a shelter company is the ideal option.

Evaluating Risks

Risks are involved when manufacturing in any foreign country. However, the advantage of working with a shelter company is that these risks and liabilities are reduced.

Operating under a shelter umbrella means manufacturers are not exposed to legal authorities in Mexico. Whereas, operating as a standalone entity makes manufacturers more susceptible.

Additionally, there is less of a learning curve when working with a shelter company. For instance, with the constant changes in compliance, a new business entity faces the risk of penalties or project delays if they aren’t aware of current rules and regulations.

Reaping the Rewards

A shelter company can still assist standalone entities with certain administrative responsibilities to support their production goals.

However, many manufacturers choose to implement the full suite of shelter services to launch production. Either way, both solutions deliver:

• Production Ownership

A shelter services solution handles all administrative tasks while allowing manufacturers to maintain full control and ownership over all processes and intellectual property rights.

It eliminates the risk of losing quality oversight, commonly associated with contract manufacturing.

• Customs Compliance

A key part of shelter services in Mexico includes handling all permits necessary for production. This includes IMMEX program approval and VAT certification.

The application process takes significantly longer as a standalone entity and can delay valuable tax-saving benefits.

• Cost Savings

The cost structure of a shelter model is independent of unit prices produced in the factory. Instead, it allows manufacturers to save on infrastructure, administrative labor, and permitting fees.

Compared to the overhead costs of operating as a standalone entity, there’s an estimated savings on administrative costs of 30-35% when working with a shelter. These areas of savings include HR, accounting, and trade compliance, as well as software needed for production.

• Quicker Setup

Another one of the rewards of working with a Mexico shelter partner is a quicker setup, often three to four months from the time of signing a building lease.

While there is not a greater risk linked to launching production as a standalone entity, the timeline can be nearly twice as long, stretching to six to seven months.

Implementing Mexico Shelter Services Into Your Manufacturing Strategy

Mexico shelter services offer U.S. and other foreign manufacturers a flexible solution when launching production. It’s considered the safest way to do business and allows for the opportunity for companies to eventually “graduate” from the shelter program.

While IVEMSA maintains an average 15-year retention rate for clients, shelter services can be scaled up or down as manufacturing needs and goals change.

Regardless of whether you’re considering setting up your own business entity or want to clarify what’s included when becoming a Mexico shelter partner, we are here to help.

Contact IVEMSA today to learn which solution is best for you.