Four Modes of Entry to Consider When Manufacturing in Mexico


Choosing the right mode of entry is crucial to the success of manufacturing in Mexico. Each strategy has its own pros and cons to be considered, and manufacturers must take into account the differences in costs (initial investment plus ongoing expenses), risk tolerance, timeline, and production control when making a decision. To help determine the best route for your company, here are the four strategies to consider and the benefits and drawbacks of each.


there are 4 modes of entry that you can consider when you plan to manufacture in Mexico

1. IMMEX Shelter Provider

The most popularly used method is working with an IMMEX shelter provider, an opportunity which is unique to Mexico. Most foreign manufacturers choose this option due to the significant cost and time savings, as well as the built-in expertise and experience it offers when manufacturing in Mexico.

Before production can begin in Mexico, foreign companies must apply for IMMEX registration, a process which can take weeks, if not months, to be approved. However, when operating under the shelter umbrella, manufacturers can work with the permits already in place, including the IMMEX program paired with the VAT certification. This automatically exempts foreign operators from the 16% VAT on temporarily imported goods, materials, and machinery necessary for production.

Furthermore, manufacturers are not required to establish a separate entity, which means they are not directly liable for legal or tax compliance. However, they still operate independently and maintain complete ownerships and control over production, while delegating all administrative duties to the shelter provider.

Shelter services include site selection, recruiting and hiring employees, payroll and other HR responsibilities, legal and tax compliance, as well as other tasks necessary to get a company up and running. Having the support of a shelter provider allows manufacturers to focus on production alone and get their products to market faster while also protecting their intellectual property and operational rights.

Though there are no significant drawbacks to the shelter option, it may not be as beneficial for companies with less than 20 people or more than 500. A favorable shelter partnership depends on a company’s size, growth projection, and goals for long-term success.


2. Contract Manufacturing

Contract manufacturing is another mode of entry available for foreign operators. It involves working with a third-party vendor to help launch operations under their established manufacturing processes. Under this model, the subcontractor bears the legal and compliance risks of manufacturing in Mexico, though the drawback is manufacturers may have to relinquish control over their specific manufacturing needs and forgo quality assurance oversight.

Nonetheless, contract manufacturing may be a favorable solution for companies requiring predictable processes for their products, such as injection molding or stamping. Whereas, companies wanting to protect their intellectual property and unique processes may not benefit as much and often choose a shelter instead.


3. Standalone Entity

U.S. and other foreign manufacturers can also operate as a standalone entity. The process of incorporation follows a similar protocol as other countries for those wanting to maintain their independence when manufacturing in Mexico. The drawback is it typically takes more than twice the time to launch production as a standalone entity than it does working under a shelter.

That’s because a standalone is responsible for handling all the administrative responsibilities a shelter handles. This requires the coordination and cooperation of separate vendors responsible for creating an LLC, securing permits and certifications, heading HR and tax departments, and other areas necessary to launch production. Also, operating as a standalone entity leaves companies vulnerable to legal and compliance risk, which could result in additional expenses and/or delayed timelines.


4. Joint Ventures

Lastly, some companies may look into joint ventures. This mode of entry isn’t as common when manufacturing in Mexico because it can be time-consuming to find the right partner with a similar vision and process. The advantage is it usually comes with expertise, operational space, and strategy to help launch production faster. Although, the downside is the eagerness to get started more quickly can lead to lack of due diligence when reviewing joint venture partnerships, which have the potential of damaging repercussions down the road.

As more manufacturers look to Mexico to expand their portfolio, working with a shelter continues to be the tried-and-true mode of entry. Global manufacturers have found success with this method for decades. However, all options should be considered based on your specific company and project needs.


Contact IVEMSA today for a consultation to learn what the best solution is for you.

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