How Much Can I Save By Moving Manufacturing from the U.S. to Mexico?

Article Takeaways:

• Industrial labor and real estate are areas where manufacturing in Mexico offers the most cost savings.
• Several less-considered expenses, such as training ramp-up time and customs and trade compliance, can lead to greater savings when working with a shelter company.
• A cost analysis will reveal actual savings and whether moving operations to Mexico is worth it.

Manufacturers are always looking for new ways to save costs. In years past, outsourcing production to China was a cheaper way to meet industry demands due to their low cost for labor, and for some, that may still be the case.

However, for highly technical sectors, such as automotive, aerospace, and medical device manufacturing, many U.S. companies have found it more cost-effective to expand and/or reshore production to Mexico.

To get a clearer idea of how much manufacturers can expect to save with Mexico shelter manufacturing, here’s what to know.

Areas Where Manufacturers Save Most

The two biggest drivers of cost savings when moving manufacturing from the U.S. to Mexico are labor and real estate.

Labor

Manufacturers can expect an approximate 50-60% reduction in labor costs, though an apples-to-apples comparison depends on where in Mexico a manufacturer chooses to operate and where in the U.S. they currently have production.

Real Estate

When manufacturing in Mexico, businesses can also save an estimated 30-40% on square footage per month on industrial leases. With established sectors and manufacturing hubs already set up throughout Mexico, it also offers manufacturers a chance to scale at a more cost-effective rate.

Underestimated Cost Savings

While labor and real estate are prioritized, there are other manufacturing expenses that also save companies additional time and money, and should be taken into consideration when evaluating a full cost benefits solution. These include:

Efficient transportation

The proximity between the U.S. and Mexico provides logistics convenience for manufacturers that want to take advantage of the lower labor and industrial lease rates Mexico offers.

Convenient travel

With many manufacturers working in the same time zone as their headquarters, it’s easier to coordinate with plants in Mexico and plan quality assurance visits.

Established supply chains

Mexico has the infrastructure to support growing production across all technical sectors. For automotive, aerospace, and electronics manufacturing, in particular, there are strong supply chains and industrial hubs equipped to handle expansion.

Availability of technical talent

Mexico is known for its skilled labor pool and continuously invests in its technical education and training programs. This talent availability allows manufacturers to recruit, hire, and train employees faster while also saving significantly on salaries compared to the U.S.

Tariffs on qualifying products

Another advantage for U.S manufacturers moving operations to Mexico is the incentives and protections outlined in the USMCA, notably original content in the automotive sector.

Analyzing Actual Cost Savings

Though there are general cost savings every manufacturer can benefit from when nearshoring to Mexico, each operation has specifics that change where those savings can be maximized.

IVEMSA will customize a cost analysis for manufacturers considering making the move from the U.S. to Mexico. This analysis includes:

• Viable buildings – Buildings closer to the U.S./Mexico border will be the most expensive and in demand; a cost analysis can include other regions that may be more cost-effective.
• Square footage pricing – Buildings are classified as A, B, or C, with A being the newest and typically most expensive per square foot.
• Utilities – Includes estimates for electric, water, gas, and telecommunications.
• Customs and transportation – Includes broker fees for U.S. and Mexican brokers, as well as annual freight costs.
• Licensing and permits – Covers building permits, IMMEX program application, VAT certification, and other environmental and safety compliance needs.
• Labor expenses – Includes salaries, benefits, and bonuses based on job titles.

Advantages of Working with a Shelter Company

Manufacturers working with a shelter company can delegate all administrative tasks necessary for production, allowing them to fully focus on manufacturing. Other valuable benefits include:

Minimized risk and liability

Operating in Mexico leaves U.S. manufacturers exposed to legal and government authorities.

Even for those who may have operated in Mexico in the past, it’s helpful to have a local expert that knows what’s currently required from a compliance standpoint.

Reduced learning curve

While manufacturers can choose to operate as a standalone entity, knowing which permits and certifications are required, and the application process it takes for each, is complex and time-consuming.

When working with a shelter services company, all of this is included in the setup services. From scouting sites to navigating trade and customs compliance, manufacturers are backed by decades of experience and expertise.

Full production control

Depending on the type of manufacturing a business requires, some opt to outsource their manufacturing altogether.

However, for companies that want complete control over processes and intellectual property protection, a shelter company provides this advantage.

Quicker setup

Manufacturers can expect to launch production within three to four months after signing their lease when working with a shelter company. Whereas, setting up production as a standalone entity takes seven to eight months or longer.

Either way, a shelter company can help ensure the transition from the U.S. is as seamless as possible.

Built-in operational agility

The shelter model is designed to allow manufacturers to scale up or down as needed. It also makes it easy to eventually transition to a standalone entity while maintaining whatever shelter services might still be necessary.

While most manufacturers decide to stay with a shelter company long-term, at least in some capacity, the choice to graduate from the shelter program is always a possibility.

Getting Started with IVEMSA

A cost analysis is a good place to start once you know an approximate headcount and production goals. IVEMSA will provide estimated hard cost savings, though keep in mind the other benefits of moving manufacturing to Mexico.

If you have questions or want us to customize a cost analysis for you, contact IVEMSA today.