Manufacturers seek out areas of production close to their end market. Typically, when a company chooses nearshoring to Mexico, it’s because their target audience is in North America, and they want to establish a manufacturing footprint closer in proximity than Europe or Asia.
Cost logistics, transfer time, and labor are constant challenges U.S. manufacturers face when operating in countries like China. Whereas, nearshoring to Mexico offers benefits such as same-day shipping, similar working time zones, and easier travel for supervisors to conduct site visits.
All of this adds up to greater cost and time savings, as well as quicker delivery to market. Collectively, it creates a sustainable setup that’s still flexible to a changing market while providing the same benefits.
One of the reasons more manufacturers are seeking nearshoring to Mexico as a sustainable strategy is because of the volatile trade relations between the U.S. and China. What used to be the primary region for cheap labor and production has been riddled with problems over recent years without any resolution any time soon.
Increased Chinese restrictions on manufacturing are causing trade partners to cut ties due to concerns with retaliatory tariffs, unreliable supply chains, and increasing labor costs. Additionally, there are certain regulations regarding intellectual property-sensitive products for aerospace, medical, and military sectors that are driving U.S. manufacturers to operate closer to home in Mexico.
Mexico is unified with the U.S. and Canada with specific incentives for trade within North America under the USMCA. Plus, the IMMEX maquiladora program in Mexico exempts U.S. and other foreign manufacturers from the 16% VAT on all temporarily imported goods, materials, and equipment. And with the withering manufacturing labor force in the U.S., Mexico’s steady industrial talent pool offers recruiting advantages.
However, the market is in a constant state of flux, often with unforeseeable factors to contend with, which means manufacturers must be flexible enough to adapt. Fortunately, a shelter solution contributes to the sustainability of nearshoring to Mexico to ensure everything continues running smoothly even when significant shifts occur.
The shelter option is unique to Mexico and supports U.S. and other foreign manufacturers eager to ramp up production in a short amount of time. It minimizes risk and liability, reduces the learning curve of manufacturing in Mexico, and allows operators to maintain complete control of production and intellectual property.
A shelter operator like IVEMSA is successful for many reasons, one of which is service adaptability. As production in Mexico grows, shelter services can be ramped up or scaled back as needed for production. IVEMSA can help determine what’s necessary in terms of building space, equipment, employee headcount, and permitting as a manufacturer grows. IVEMSA is also focused on high-quality service by allocating resources effectively so as to not get bogged down by an unmanageable quantity of accounts.
Outsourced production to China has been a long-held strategy for U.S. manufacturers, though trade war conflicts have caused many to set their sights on Mexico instead. There are unique benefits the country offers, which aren’t available when manufacturing in China, and with a history of success supporting global manufacturers, it’s no surprise Mexico manufacturing has become such an increasingly popular solution.
Immediacy is a central focus for businesses today. Since Mexico is in such close proximity to the U.S., manufacturers can serve their customer base faster and at a more cost-effective rate, especially compared to China.
In many scenarios, same-day delivery to the U.S. is available when manufacturing in Mexico which expedites timelines and decreases freight costs. Whereas, it often takes several weeks to receive a cargo shipment from China to U.S. ports. Additionally, the close proximity between the U.S. and Mexico allows for more frequent site visits for quality assurance as needed versus the extensive travel time it takes to fly to China.
Foreign companies that set up operations in Mexico must first be approved through the IMMEX maquiladora program. Though the process can be time-consuming, there’s a significant tax advantage of the program. It exempts U.S. and other foreign manufacturers from the 16% VAT on all temporarily imported goods, equipment, and materials.
This can be implemented from the start of operations when a manufacturer works with a shelter operator. A shelter already has IMMEX certification and other permits in place, which reduces the time to launch as well as delivers tax benefits from day one.
Manufacturing in Mexico offers improvements in communication due to similar time zones. At most, a factory in Mexico would be three hours ahead or behind its U.S. headquarters, which means emails and calls can be answered faster and within normal business hours. There are also fewer cultural and language discrepancies when compared with operating in China.
A shelter can guide manufacturers on the cultural expectations in Mexico with regard to work benefits. For example, Mexico recognizes a 48-hour work week versus the typical 40 hours per week in the U.S. Partnering with experts who understand the complexities of the industry reduces the learning curve for foreign manufacturers and creates a more seamless transition.
Lack of intellectual property protection has been an overarching concern for those manufacturing in China. Whereas, the USMCA has built-in protection for the U.S., Mexico, and Canada when it comes to protection for patents and copyrights both physical and digital. The free trade agreement also favors original content among these three countries and has established a regional value content of 75% for automobiles and automotive parts.
Source:
https://ustr.gov/sites/default/files/files/Press/fs/USMCA/USMCA-Autos_and_Auto_Parts.pdf
Economic conditions around the world are still reeling from the impacts of COVID-19, and companies are reassessing their business strategies going forward. However, Mexico manufacturing has experienced a resurgence of growth which has surpassed activity pre-pandemic.
While other markets like China temporarily shut down or delayed supply chains over the past two years, Mexico held relatively steady and fulfilled production needs where others fell short. This in combination with the rise in export demand has led to a growing reliance of U.S. manufacturers on suppliers in Mexico, though the strong partnership between the two countries isn’t a new concept.
Mexico manufacturing maintains a long history of success across various sectors, including automotive, aerospace, electronics, and medical devices. Inevitably, a growing number of U.S. firms are seeking the same growth and stability others have previously achieved. With continued investments in infrastructure, a favorable trade policy, and industrial workforce availability, Mexico continues to strengthen its support for U.S. economic growth.
Though Mexico also experienced economic setbacks due to the pandemic, the Mexican Government held to its commitment to establishing a greater quality and coverage of infrastructure as a way to stimulate economic activity and create employment opportunities. The first round of economic reactivation projects was announced near the end of 2020 and featured 39 projects worth an estimated $13.8 billion USD. This included airport system upgrades for the greater Mexico City metropolitan area and surrounding states, new refinery construction in Tabasco, and a passenger and cargo train on the Yucatan Peninsula.
Another 29 projects equaling $10.5 billion USD were launched only a few months later, followed by the third round of 36 projects in 2021 worth $3.5 billion USD. Added to the list of most anticipated projects was the development of the T-MEC Corridor, a port designed to connect Durango with 220 miles of railway and serve the central and northeastern part of the U.S. and ultimately link to centers in Winnipeg, Canada.
Read more: Unique benefits of nearshoring to Mexico for U.S. manufacturers.
Additionally, the official enforcement of new USMCA provisions established in July 2020 promoted economic stability between North American countries and further incentivized many U.S. manufacturers to relocate their operations from China to Mexico. Though China was once a cheap production solution for U.S. firms, the increasingly volatile relationship between the two countries caused many to reevaluate their strategies. Between the trade war, problems with intellectual property protection, and the rising costs of labor in China, Mexico manufacturing has become the more lucrative alternative.
The steady availability of Mexico’s industrial workforce, in combination with greater U.S. export demand, has helped to drive the need for manufacturing in Mexico. While labor shortages in the U.S. have caused growing concern for many industrial sectors, companies can easily source highly skilled talent in Mexico to fulfill production needs at a cost-effective rate.
Mexico manufacturing has demonstrated resilience over the decades, particularly through the most recent set of pandemic-related challenges. It’s one of the many reasons why U.S. firms continue to invest in this strategy as a way to support their economic activity. With the help of an experienced shelter company like IVEMSA, manufacturers receive the support and expertise they need to launch and maintain a successful operation.
Source:
Manufacturing in Mexico has been a successful, cost-effective strategy for many U.S. firms over the decades, especially as a competitive alternative to manufacturing in China. However, Mexico manufacturing also creates opportunities for U.S. operations in ways that may go unnoticed.
In addition to the benefits of lower labor and production costs, the trade relationship between the two countries continues to grow stronger and serves as a boost to the U.S. economy. Here are four ways that show how.
Mexico manufacturing supports the production demand in the U.S., but there are also a lot of products Mexico imports from the U.S. as well, including higher-value items, such as machinery and mineral fuels. The latest trade data reports Mexico was the second-largest importer of U.S. goods equaling over $256 billion, an increase of 99.1% since 2009, making it a surging win-win for both economies.
The labor shortage, particularly in the industrial sector, has been a rising challenge in the U.S. There are many production jobs many Americans either do not want or do not have the expertise necessary to qualify. Fortunately, the labor force in Mexico has the technical education and skillset to meet market demand at a cost-competitive rate.
Globally, countries are putting together big trade blocks, i.e. the European Union. The U.S. and Mexico both fall into the North American trade block and establish free trade between the countries per the USMCA. Additionally, per the trade agreement, intellectual property is greater protected than in China and more aligned to U.S. standards. These favorable trade relations make it no surprise that Mexico manufacturing has surpassed China and is currently the largest goods trading partner for the U.S. with $614.5 billion in reported two-way trade in 2019.
Setting up foreign operations doesn’t automatically mean profits generated stay foreign as well. When a U.S. firm sets up operations under a maquiladora in Mexico, the maquiladora doesn’t keep the profits; they’re generated for the company headquartered in the U.S. The maquiladora supplies the labor and relies on the local supply chain to ultimately support U.S. manufacturing growth.
U.S. manufacturers that want to expand their operations minimize their business risk by partnering with a shelter company. They can choose to move part or all of their processes to Mexico as a way to lower costs and increase production without the hassle of overseeing all the necessary administrative tasks.
Under IVEMSA’s shelter program, setup is complete in as little as three to four months with HR, accounting, daily trade operations, payroll, recruiting, and accounts payable taken care of. Additionally, companies operating under the shelter don’t have to establish their own separate entity which minimizes risk and liability. Plus, if after the trial period, the solution isn’t the right fit, the flexibility of the shelter makes it easy to stop or adjust production as needed.
Source:
The delays and disruptions caused by the pandemic, in addition to the trade war between the U.S. and China, caused many U.S. manufacturers to consider diversifying their options and moving at least a portion, if not all, of their foreign operations closer to home in Mexico. Nearshoring manufacturing to Mexico has its advantages over operating in China, though there are frequently asked questions that must be answered in order to help make a decision. By comparing the two options side-by-side, it becomes clear why Mexico has taken the lead as the preferred choice.
It’s becoming increasingly common for manufacturers to move their operations from China to Mexico. There are several reasons for this transition. First, China has steadily increased its wages, making the notion of “cheap labor” less incentivizing than it once was. Additionally, much of its technical workforce is retiring without equal numbers available to replace these workers.
Second, intellectual property (IP) theft has been a long-time challenge for U.S. manufacturers, particularly those in the automotive and electronics sectors. Add to these complications the trade war between the U.S. and China beginning in 2018, followed quickly by the pandemic in 2020, which essentially shut down all supply chains indefinitely for months, and it’s clear why manufacturers are exploring nearshoring as their top strategy.
Though there are IP protections are in place for both China and Mexico, the procedure for enforcing penalties in China isn’t as standardized as what’s supported through the USMCA. Among the updates to the free trade agreement between the U.S., Canada, and Mexico include copyright safe harbors to deter online piracy, a minimum of 15-year protection for industrial designs, strong civil and criminal trade secret protections, among others. In today’s technology-driven world, it’s essential to have protections in place to protect companies’ patents, copyrights, and production long-term.
Due to the pandemic-driven delays experienced when manufacturing in China, Mexico is becoming the preferred choice due to established infrastructure, reliable transportation, and close proximity to the U.S. A container shipment from China to the U.S. can take several weeks to arrive before being held in backed-up ports that further delays delivery. Alternatively, U.S. manufacturers nearshoring to Mexico can often receive shipments within the same day they are shipped out, depending on how close facilities are to the U.S./Mexico border.
Mexico’s close proximity to the U.S. automatically cuts down on transportation costs simply due to the shorter distance it takes to travel. Additionally, labor costs are also lower with salaries starting at $20 USD per day in the northern border area of Mexico and $16 USD for the rest of Mexico.
Comparatively, as of December 2020, China’s yearly manufacturing wages equaled approximately $59 per day USD. Furthermore, working with a shelter company also provides significant savings for manufacturers nearshoring to Mexico, equaling approximately $12,000 montly in administrative services.
Most manufacturers that partner with a shelter company like IVEMSA do so for several years, though there is a graduate program allowing them to eventually transition towards becoming their own entity. It depends on the strategy and structure of what you want to achieve and how a shelter can help support your company’s goals.
IVEMSA handles all administrative and compliance responsibilities necessary for foreign companies to set up operations in Mexico. Due to an extensive history of expertise and experience, this can be achieved in three to four months, compared to six to seven months when operating as a standalone entity.
Sources:
https://ustr.gov/sites/default/files/files/Press/fs/USMCA/USMCA_IP.pdf
https://tradingeconomics.com/china/wages-in-manufacturing
The North American Free Trade Agreement (NAFTA) served its participating countries well by placing value on nearshoring and as a result, it boosted exports, created manufacturing jobs, and increased wages for industrial labor. During this time, Mexico became one of the world’s top industry hubs and attracted millions of dollars in foreign direct investment (FDI), allowing U.S. manufacturers to grow as well.
As the economic climate changes and advanced technology moves to the forefront of manufacturing, the original NAFTA agreement has been retired to make way for the United States-Mexico-Canada Agreement (USMCA), which was officially enforced in July 2020. Though this updated trade agreement carries many of the same advantages as before, there are specific provisions and inclusions that better address the needs of today’s manufacturing landscape.
Certain sectors, including automotive, aerospace, and electronics have already felt the positive lift the USMCA has provided. Here’s how:
Automotive manufacturers have secured ongoing success when nearshoring to Mexico with a significant lift in productivity after NAFTA was enforced. From 1994-2006, light vehicle production more than tripled, increasing from 1.1 million units to 3.5 million units. The steady growth and increased FDI created an established infrastructure and reliable supply chain future manufacturers could benefit from. Under NAFTA, Mexico also phased out tariffs on motor vehicles and automotive parts, as well as logistical costs throughout the North American market, making Mexico a highly desired, strategic manufacturing location.
Building upon the success of NAFTA, the USMCA Rules of Origin increase the content requirement from 60-62.5% to 70-75%. The new deal also supports higher wages by requiring earnings of $16 per hour for 40-45% of auto content. These changes have been established to preserve and incentivize reshoring of vehicles parts and production and transform supply chains to use more North American content.
Aerospace is a continuously growing sector in Mexico with an export value amounting to $9.5 billion USD in 2019. This represents over a four-fold increase in aerospace exports over the past decade. As with automotive manufacturing, NAFTA’s tariff structure helped catapult the growth of the aerospace industry in Mexico and attract global leaders, including Lockheed Martin and Boeing, both of which source parts from Mexico.
Part of the advantages under the USMCA is the modernization of trade with North America including intellectual property (IP) protection, trade facilitation, and market access for goods. Since innovation is one of the key factors in aerospace manufacturing, the extensive IP protection under the USMCA combats IP theft and enforces legal procedures for applicable penalities.
Additionally, trade facilitation through the USMCA creates more efficiency through standardized rules when nearshoring to Mexico, which reduces transaction costs and administrative delays. Furthermore, the limitation set forth on the increase of duties allows for more predictive planning when sourcing parts and components within the domestic supply chain.
Greater IP protection and established procedures on tariffs also support the development of electronics manufacturing. The USMCA establishes the highest standard for any U.S. trade agreement by protecting copyrights, industrial designs, and patents, among other legal provisions. Global companies like Samsung and LG can better protect their FDI in Mexico due to these greater protections put into place.
In addition to the significant benefits of the USMCA, foreign manufacturers from all sectors also have tax advantages under Mexico’s IMMEX maquiladora program. When approved under the IMMEX maquiladora program, U.S. and other foreign manufacturers are exempt from the 16% value-added tax on temporarily imported goods, materials, and equipment. To expedite operations and receive this exemption from day one, manufacturers choose to work with a shelter company like IVEMSA.
At IVEMSA, we already maintain IMMEX certification, as well as other necessary permits, and take on the burden of legal risk and liability for foreign manufacturers nearshoring to Mexico. Meanwhile, all administrative duties necessary to set up a new operation are handled by our team of experts, allowing you to prioritize production and day-to-day management.
Sources:
https://www.chicagofed.org/publications/economic-perspectives/2017/6.
https://www.statista.com/statistics/711864/mexico-value-aerospace-industry-exports/
https://crsreports.congress.gov/product/pdf/IF/IF11387
For decades, Mexico manufacturing has been viewed as a strategic advantage for U.S. companies that want to operate closer to home. Though, in recent years, there’s been a significant shift from manufacturing in China to nearshoring to Mexico as a key strategy.
With a history of industrial success due to built-in benefits unavailable overseas, this move is highly advantageous for several reasons. From infrastructure to the IMMEX maquiladora program, here are five areas companies can benefit from most when manufacturing in Mexico.
Due to Mexico’s extensive history in manufacturing, there are stable networks in place that extend throughout the country as well as into the U.S. Global companies with established operations have continued their investment over the years as their respective industries have grown and evolved. The U.S. is the highest source of foreign direct investment (FDI) into Mexico, totaling $5.04 billion USD or 42.5% of the FDI total in 2021, a majority of which funnels through the industrial sector.
With operating activity in an array of specialized industries, there’s also a strong supply chain to count on in Mexico, which has been one of the greatest advantages in recent years. Whereas, China has experienced delays, a weakened supply chain, and other challenges that have negatively impacted production. Manufacturers want a strategy with built-in stability to help protect the future of their operations. The benefit of a dependable infrastructure puts the spotlight on Mexico manufacturing as the most viable option.
Mexico is part of 13 free trade agreements with 50 countries. This includes the USMCA, which has strengthened the trade relationship between the U.S., Mexico, and Canada. The updated provisions eliminate barriers to trade among these three countries and deliver new incentives for U.S. manufacturers operating in Mexico. In comparison, the U.S. trade war with China has resulted in retaliatory tariffs that hindered the exchange between the two countries and caused manufacturers to reconsider their sole reliance on China for production.
Furthermore, the USMCA implements robust intellectual property (IP) laws and regulations with enforced penalties for those in violation. In today’s modern world, where new patents continually enter the market, IP protection is crucial among global companies and has been a notorious source of contention between the U.S. and China in the past.
Inflation has led to rising costs in nearly all areas of operation, which makes the cost-savings benefits of manufacturing in Mexico an even greater strategic advantage. For U.S. manufacturers, specifically, the close proximity between the U.S. and Mexico cuts down dramatically on transportation costs and delivery timelines.
Currently, a shipment from China to the U.S. costs upwards of $10K to $15K and takes several weeks to arrive. Alternatively, finished goods can often reach their U.S. destination from Mexico on the same day for a few hundred dollars. Furthermore, quality assurance oversight is easier to maintain with the shorter travel distance between the two countries versus a U.S. manufacturer scheduling a factory visit in Asia.
Another main reason why U.S. companies are turning to Mexico manufacturing in 2022 is the scarcity of the industrial workforce in the U.S. and China. Many companies have struggled to find reliable, industrially skilled employees to carry out operations. The exodus of industrial workers has been provoked by a combination of those seeking other employment opportunities and the retirement of industrial workers who have served in the manufacturing sector for decades.
In addition, both the U.S. and China have also experienced increases in the minimum wage, making the cost-effectiveness less enticing than foreign manufacturers recruiting employees in Mexico. Mexico continues to invest in the education and training of its industrial workers and has developed a highly competitive workforce in accordance with cost-effective labor rates. For example, the hourly rate for a skilled operator in Mexico is $5.31 versus the $15 minimum wage in the U.S.
Lastly, two unique benefits of Mexico manufacturing are the shelter setup and the IMMEX program, which work together hand-in-hand. A shelter reduces the risk and liability for foreign manufacturers operating in Mexico by serving as their legal entity. A shelter company also takes care of all administrative tasks necessary to set up operations. It allows companies to get up and running in as little as three to four months, compared to six or seven months as a standalone entity. Meanwhile, companies maintain complete control of production and ownership of goods, equipment, and materials.
Working under a shelter also grants foreign companies benefits as part of the IMMEX maquiladora program. The IMMEX maquiladora program allows foreign manufacturers to temporarily import manufacturing materials and exempt them from the 16% VAT, as long as the finished goods are exported within the established timeframe.
This cost-savings benefit begins from the first day of operations when working with a shelter, as all necessary certifications and permits are already in place. However, for U.S. and other foreign companies establishing their own standalone entity, the application and approval process can take months, and all materials and equipment will be taxed accordingly.
U.S. and other foreign manufacturers have benefited from Mexico manufacturing for years, and it’s a strategy that still holds steady today. IVEMSA has successfully helped manufacturers set up their operations since 1982 and maintains a 15-year average customer retention rate.
Source:
https://mexico-now.com/prospects-for-foreign-direct-investment-in-mexico-2021/
The stability of the global supply chain hangs as a question in everyone’s mind. While the pandemic is what initially sparked a series of delays and stunted foreign operations, manufacturers are still reeling from residual challenges two years later. Companies face shipping container, component, and labor shortages as the demand for durable goods is on the rise, all of which is putting a heavy strain on the supply chain.
However, on the other side of this growing problem is the chance to implement new solutions. For many, that involves manufacturing in Mexico. Though China has been the long-standing solution when seeking a cheaper way to operate, it’s also been the source of many significant problems. Although, Mexico has always been right on its heels, many times surpassing China as the preferred operational location.
Due to the close proximity with the U.S., manufacturing in Mexico feels more like a domestic purchase compared to dealing with the costs and timelines of typical international shipping. For example, if there are supplies or products not available in one of Mexico’s border towns, like Tijuana or Jaurez, they can easily be sourced from their neighboring counterparts in California or Texas, respectively.
For every dollar produced in Mexico, there’s a U.S. component as well, which strengthens the supply chain integration between the two countries and creates greater logistical advantages compared to manufacturing in China, such as:
There is convenience, efficiency, and cost savings for U.S. manufacturers that choose to operate in Mexico. However, Mexico manufacturing is not a new strategy. It has served as a central operational hub for foreign companies for decades due to its established infrastructure, competitive workforce, and cost-effective benefits.
As a result of this consistency, it has nurtured a growing supply chain. There is a diverse array of suppliers across various industries continually expanding their product lines. Third-party service providers also continue to expand as manufacturers seek new opportunities. Meanwhile, this growth and success decrease the reliance on China.
Even prior to the pandemic, the U.S. continuously struggled with its manufacturing relationship with China, due to retaliatory tariffs, lack of intellectual property protection, and an aging workforce at a higher cost. Whereas, U.S. companies have benefited from manufacturing in Mexico for years, and the strengthening ties between the two countries offer the additional advantage of supply chain stability.
Conducting operations closer to home in Mexico provides greater efficiencies and specific competitive advantages for U.S. manufacturers, one of which is working with a shelter company. A shelter company takes care of all administrative responsibilities necessary to seamlessly set up new operations. This includes customs compliance, legal and tax regulations, as well as HR and accounting services, which allows manufacturers to concentrate on day-to-day production.
Those who partner with a shelter company like IVEMSA benefit from a team with years of experience, knowledge, and expertise to get a foreign operation up and running in as little as three to four months with virtually no legal risk. Furthermore, operating under a shelter equals significant savings on labor, infrastructure, permits, and license fees. It provides all of the advantages with none of the hassle.
Electronics manufacturing has been one of the strongest industries in Mexico with a significant increase in foreign direct investment over the years. Global electronics manufacturers such as Foxconn, LG, and Samsung all rely on manufacturing in Mexico for the production of everything from smart TVs to circuit boards and computers to communication equipment. Due to the history of success of global companies operating in Mexico, it continues to be an ideal setup for those considering expansion.
The draw of cheap labor was once the main allure of China’s manufacturing. However, industrial labor costs in Mexico are now lower than both China and the U.S., and there are others areas where China simply cannot compete. Although many U.S. manufacturers have relied on China for decades, many are reconsidering the close proximity to Mexico, intellectual property protection under the USMCA, and lower production costs as main reasons to invest in Mexico instead. Here’s a closer look at what these benefits offer.
The U.S. has one of the largest consumer markets in the world, and expanding operations to Mexico makes more operational sense than contending with the long distance to China. With complex, long-distance supply chains, there is a greater likelihood of delays or problems, which does not allow manufacturers to scale or deliver to market in a competitive way.
Conversely, the close proximity between the U.S. and Mexico reduces transportation timelines and costs while increasing the level of quality assurance available. In many cases, U.S. manufacturers work in the same time zone as Mexico and can also receive shipments on the same day.
Intellectual property protection is often a challenge when manufacturing in China. With rapidly advancing technology and a highly competitive marketplace, it’s essential for electronics manufacturers to preserve high standards of protection and enforcement.
U.S. and Canadian companies manufacturing in Mexico are protected by the provisions set forth by the USMCA. Among the updates to the established rules include full national treatment for copyright and related rights, a minimum of 15-year protection for industrial designs, and the establishment of appropriate copyright safe harbors to deter online piracy, among others. Manufacturers are seeking a sense of stability in a time of uncertainty and this advanced security helps meet those needs.
Mexico invests heavily in the manufacturing sector with more engineering graduates per capita than the U.S. Additionally, Mexico offers training programs that provide students the skills and experience they need to enter the industrial workforce and support foreign operators. This is in addition to the number of young, capable workers available compared to other markets, including the U.S., which are currently facing labor shortages without any projections of reprieve.
When it comes to Mexico manufacturing, there’s also the option of partnering with a shelter company. A shelter company takes on all administrative responsibilities necessary to set up and operate as a foreign manufacturer in Mexico. This starts with a site selection analysis to determine which region in Mexico is most favorable. For electronics manufacturers, the areas of Tecate, Ensenada, and Mexicali are often most favorable. They’re already equipped with the supply chains and factories necessary to launch production quickly and effectively.
A shelter company also provides human resources and recruiting, tax and accounting, customs compliance, and other services necessary to get an operation up and running. As the growth of electronics manufacturing in Mexico continues, the support of a shelter company will be increasingly valuable to help companies stay competitive.
Source:
https://ustr.gov/sites/default/files/files/Press/fs/USMCA/USMCA_IP.pdf
Third-party logistics providers, or 3PLs, are used by manufacturers that want to outsource part of their distribution. Though U.S. companies have typically relied on China for their fulfillment needs, more are turning to manufacturing options in Mexico instead. Some take the approach of outsourcing alone, while others prefer a comprehensive solution.
Regardless of if a foreign company requires a 3PL provider or Mexico shelter services to help their operations run smoothly, Mexico offers advantages that have spurred the growth of activity at an impressive rate. Here are three key reasons why.
3PL providers can take advantage of USMCA incentives, as well as the 12 other free trade agreements Mexico has with 50 other countries. There are fewer tariff restrictions when compared with China and lower freight and shipping costs for many global manufacturers.
Furthermore, with many of the industry’s main sectors, including automotive and aerospace, increasing their intellectual property output, having the additional protection through these agreements also makes companies feel more secure in Mexico than in China where IP protection has always been a challenge.
In order to stay competitive and agile, the Mexican government has invested in emerging technologies that benefit 3PL providers to help them meet rising customer demand. These include inventory management, delivery tracking, and other innovative solutions to streamline logistics services to keep productivity and costs low.
Additionally, Mexico received a $100 million foreign investment last year from Amazon. The goal of the new fulfillment warehouses in Mexico was built to help businesses ship products faster at lower costs, which increases the need for 3PL providers.
Lastly, the growth of 3PLs is occurring globally as consumer demand experiences rapid growth as well. With the expectations for fast delivery and seamless customer experiences, optimizing logistics is necessary for any business to stay competitive with the changing landscape. However, the proximity between the U.S. and Mexico serves as an extra advantage, allowing U.S. customers to be reached in a more time-efficient and cost-effective way.
Working with a 3PL provider is a valuable solution for manufacturers that need help with their logistics strategy. However, outsourcing fulfillment services put companies at risk of losing full control over the distribution process. As an alternative, manufacturers can get help with their supply chain and also work with a Mexico shelter company that offers complete administrative and compliance services.
Mexico shelter services include all of the administrative tasks necessary to get a new foreign manufacturing operation up and running. This includes HR, accounting, taxes, payroll, and other areas necessary to start a new business. Rather than outsource each of these roles separately, a shelter company houses them all in one place, which saves time, money, and resources.
Source:
https://www.reuters.com/article/ctech-us-amazon-mexico-idCAKBN2770G2-OCATC
The IMMEX program is a significant part of manufacturing in Mexico. Learning about the benefits and challenges associated with it is valuable if you’re considering setting up foreign operations. Though each manufacturer has specific project requirements, here are few of the most frequently asked questions to help guide you through the IMMEX program and what it takes to operate in Mexico.
The current IMMEX program, formerly known as the maquiladora program, offers favorable tax benefits to foreign companies manufacturing in Mexico. A maquiladora refers to any factory in Mexico owned and run by a foreign company, although it does not automatically have IMMEX benefits.
A manufacturing company that’s part of the IMMEX program, specifically, is exempt from the 16 percent value-added tax (VAT) when temporarily importing raw goods, materials, and equipment as part of the manufacturing process. Additionally, they will not owe duties when exporting these finished goods to the U.S. and Canada if classified as “Made in Mexico.”
Possibly. First, ask yourself why you want to relocate. Moving operational facilities from China to Mexico has been a main topic of conversation among manufacturers for the past several years. With the trade war, intellectual property challenges, and disrupted supply chains due to the pandemic, U.S./China relations have dwindled over time.
Currently, manufacturers are seeking to diversify their positioning and eliminate their sole reliance on China. Additionally, the USMCA has issued more stringent IP protection and other beneficial provisions to help encourage ongoing trade in North America. If these are some of the factors you’re considering as well, manufacturing in Mexico may be a good strategy.
Increased and ever-changing compliance regulations have made it much more difficult to be up and running in Mexico. However, with the help of a shelter, you can launch production in as little as three to four months, nearly half the time it takes when operating as a standalone entity.
Furthermore, when working outside of shelter, you’ll have to hire individuals well-versed with the changes in both the U.S. and Mexico. This requires hiring customs brokers, an attorney, accountant, and HR representative to fulfill the necessary administrative responsibilities. It is faster, more efficient, and more cost-effective to work with a shelter that has an experienced team already in place versus putting together one on your own.
No. Being approved for the IMMEX program does not qualify your entire operation as duty-free. Duties on imported products apply based on the country of origin of each product that is imported. Only temporary imports are exempt from the 16 percent value-added tax because you’re manufacturing products that will be eventually exported out of the country.
No. You can be set up anywhere in Mexico. However, keep in mind, one of the first things to consider when manufacturing in Mexico is what’s best for you on both a short-term and long-term basis. For example, are you going to be sending most of your products to the eastern or western side of the U.S.? Which sector are you categorized as? And what is your plan to scale?
Many factors play a part in deciding which region is best for your operation. Fortunately, Mexico’s industrial infrastructure is spread throughout the country with certain regions set up for specific sectors. At IVEMSA, we’ll create a site selection matrix comparing different viable regions, offering a side-by-side overview of the advantages based on the needs of your specific operation.
No. It’s not easy to be approved for the program. Due to the significant fiscal advantage, there is hefty compliance necessary to apply and be approved. However, partnering with a shelter company provides you the opportunity of working under their IMMEX certification and licenses from the start.
Yes. In short, you can get your operations up and running in less time with minimal risk in a way that’s more cost-effective than doing it on your own. You have the benefits of the IMMEX program, a team of experts, and compliance all in place and ready to go.
Whenever you’re manufacturing in a foreign company, it’s best to work with a shelter which already has expertise in the space. However, if you’re still not sure about which direction to go, we can walk you through all the operations and cost benefits to help validate your project and see if manufacturing in Mexico is right for you.
Change isn’t anything new in the manufacturing industry. However, the past two years have shaken up the landscape like never before. With a trade war between the U.S. and China followed by a global pandemic, and now the shortage of U.S. workers across all sectors, there’s a growing need for stability and consistency, which Mexico can help provide.
With the domino effect on recent events putting pressure on U.S. and other foreign manufacturers, it’s causing many to shift gears and move operations south of the border. Though global manufacturers have benefited from manufacturing in Mexico for decades, a new wave of businesses are considering it for the first time.
Thinking about expanding your operations to Mexico? Here are five benefits to consider.
Manufacturing in Mexico offers substantial cost advantages, especially compared to China, with regards to labor, transportation, and taxes. In terms of tax benefits, the IMMEX program allows exemption from 16 percent VAT for goods, materials, and equipment temporarily imported into Mexico. However, approval is hard to come without the help of a shelter.
A shelter company can save companies up to 30 percent annually versus operating outside of shelter services. Moreover, manufacturers can use the licenses and certifications already in place to operate, including IMMEX certification. Plus, there’s no additional investment necessary to set up administrative departments and systems, which saves manufacturers at least $28,500 per month.
In 2020, the updated USMCA was enforced, favoring trade within North America. Two of the key provisions are in reference to original automotive content and intellectual property protection.
Per the USCMA, the Rules of Origins requires 75 percent of auto content be made in North America as a way to preserve and reshore vehicle and parts production to North America. Additionally, new provisions within the agreement strengthens intellectual property protection, an area that’s been of high concern between the U.S. and China for decades.
Mexico has a highly skilled, sustainable industrial workforce to help fulfill the jobs needed for manufacturers entering the space. With a concentration on advanced education and hands-on training programs, Mexico graduates over 110,000 engineers every year, contributing to a younger demographic of people entering the workforce.
Alternatively, the percentage of people eligible for retirement has doubled over the last 20 years in the U.S. and the trend is projected to continue. There are fewer workers available and willing to take industrial jobs. And, according to the U.S. Bureau of Labor Statistics, retaining an older workforce equals higher labor costs for those who do work beyond retirement age.
In addition to the younger demographic and lower labor costs available, a work week in Mexico consists of 48 hours and often extends to six days a week. This extra time allows for greater productivity to help manufacturers meet tight deadlines and get products to market faster. As competition increases and advanced technology is introduced, longer work weeks help manufacturers maintain a competitive advantage.
Since Mexico shares three time zones with the U.S., it makes operations much easier than U.S. manufacturers operating in China. Depending on where a company’s headquarters is located in the U.S., a shipment can leave Mexico and arrive at its final destination on the same day. The time zone convenience also makes it easier for communication and travel which helps to improve quality assurance and oversight.
Manufacturing in Mexico has been a key strategy for U.S. and other foreign manufacturers over the years thanks to the cost advantages, infrastructure, and workforce reliability it provides. And with the help of a shelter company taking on all administrative responsibility, it’s yet another incentive to expand or diversify operations.
Source: