Mexico Shelter Services vs. Standalone Company: A Comparison06.26.18
Once you’ve decided to move your manufacturing operations to Mexico, one of the first decisions you’ll have to make is whether to use a shelter provider or establish your own standalone entity.
We almost always recommend companies start their Mexican operations under a shelter. This means that your company won’t actually exist in Mexico—your operations will be done under a separate Mexican entity. Shelter providers started offering services in the 1960s when the maquiladora program was established. In addition to literally “sheltering” the foreign company from legal risk and liability in Mexico, shelter providers perform administrative services including HR, accounting, trade and compliance, and more.
If you decide to work with a shelter provider, your next choice is to operate under a shared IMMEX/maquiladora license or obtain a dedicated license for your company.
Companies that want complete control over every aspect of their operations and have the internal resources to manage foreign operations may choose to establish their own standalone entity. These companies may still choose to work with a Mexico shelter services provider that provides BPO services.
We’ll take a look at the three main factors you’ll want to consider when deciding whether you want to work with a shelter provider or establish your own entity in Mexico.
On average, businesses see a cost savings of 30-40% when operating under a shelter, compared to creating their own entity. The cost savings are mainly from the shelter provider’s economies of scale—for example, their investment in HR, accounting, and trade compliance software is shared across all their clients. Companies that operate under a shelter also don’t have to pay income tax in Mexico for the first four years of operations.
Companies that establish a standalone entity, but work with a shelter provider for BPO services, typically see a cost savings of about 20-25% due to the economies of scale.
Time to Start Up
If you need to get your manufacturing in Mexico started quickly, operating under a shelter is the best way to go. If you use a shared IMMEX/maquiladora license, you can be up and running in 3-4 months. If you choose to obtain a dedicated license, your start-up timeline will likely be about 4-6 months.
If you choose to create your own entity, it can take anywhere from 6-12 months to obtain the necessary permits and licenses before you can start manufacturing in Mexico. Some companies choose to get started under a shelter with a dedicated license but simultaneously start the process of creating their own entity to expedite the process.
Legal Exposure & Risk
Operating under a shelter means you have minimal to no exposure to legal risk and liability in Mexico. It is the shelter provider’s responsibility to ensure that you are complying with Mexico’s labor laws, environmental health and safety regulations, and trade and customs laws. Even if you’ve done business internationally before, it may be wise to work with a shelter provider who is well-versed in Mexico’s laws and regulations.
Creating a standalone entity means you assume all legal risk for your Mexican manufacturing operations—and you’re responsible for keeping up with the frequent changes to the laws and regulations governing the IMMEX program. If your company isn’t large enough to have an internal team dedicated to overseeing your Mexican operations, it’s probably best to operate under a shelter. That way you’re able to keep your focus on your core manufacturing processes and operations, while experts handle the administrative operations in Mexico.
Notice that “control of your business” was not one of the three factors. A common misconception about operating under shelter is that you’ll have to sacrifice some control of your manufacturing processes or operations. In fact, shelters offer legal protection and expertise without requiring you to sacrifice control of your manufacturing. Everything that happens in your facilities and your supply chain remains fully under your control. Your Mexico shelter services provider will just ensure that you’re in compliance with Mexican and trade laws and regulations.