Advantages & Setup Requirements of Nearshoring to Mexico10.06.21
Starting a new operation of any kind takes strategic planning in order to optimize efficiency and maximize costs. However, even more attention is required when setting up in a foreign country. Before production can begin, manufacturers must make sure everything is in order with regards to local law, customs, and tax compliance.
Fortunately, a unique advantage of nearshoring to Mexico is companies have the option of manufacturing under a shelter. When operating under a shelter, companies are not required to create their own entity, which means they aren’t as vulnerable as companies that decide to go the standalone route. A shelter helps to minimize exposure, advance security, and allow companies to benefit from a built-in infrastructure versus needing to set everything up from scratch.
Although the same permits, licenses, and setup requirements are necessary for both a shelter and standalone business model, companies should consider the timeline they wish to meet and the amount of resources they have to dedicate to the project. Either way, there are multiple advantages of nearshoring to Mexico.
The question then remains: shelter or standalone? Here are a few key areas to compare when deciding between the two.
Navigating Incorporation and Initial Setup
One of the first steps in nearshoring to Mexico is whether or not to set up an entity. Under a shelter, there’s no need to incorporate an entity. The advantage is that there is reduced legal risk and liabilities, since the shelter is responsible for maintaining compliance and implementing administrative functions. Whereas, a standalone must take on these responsibilities on their own Furthermore, a shelter solution offers the fastest setup option, which is three to four months, compared to seven to eight months it takes to start as a standalone.
Acquiring Permits and Software
There are several permits and certifications required before starting operations in Mexico. Under a shelter model, all necessary permits are already in place. This includes the maquiladora (IMMEX) license which can take months to apply and be approved for as a standalone entity. It also includes VAT certification. This offers exemption from the 16 percent value-added tax in Mexico on temporarily imported goods, materials, and equipment.
Manufacturing under a shelter provides this benefit from day one of operations, resulting in significant savings when compared to a standalone. Although a standalone is eligible to apply, it can take two to three months to establish a VAT certification. In addition to permits and certifications, standalone operations must purchase and familiarize themselves with Mexican-certified software needed for customs, accounting, and HR. This cost and burden is lifted when working with a shelter.
Managing Administrative Personnel and Consulting
Another part of the initial setup phase is hiring personnel to carry out all administrative functions, such as tax, accounting, HR, and payroll departments. Through a shelter like IVEMSA, there’s no need to hire individuals to fulfill these roles, because there’s already a management team in place to take care of the entirety of these administrative responsibilities.
Since each operation has its own unique needs, having a built-in resource that can answer all setup questions and provide immediate solutions helps to streamline the process and get things up and running faster. Alternatively, a standalone entity is faced with the task of hiring for each role separately and aligning them together as a cohesive team.
Because of the numerous benefits, most foreign manufacturers choose to start production by working with a shelter operation. After they’ve established a foundation in Mexico, some choose to graduate from the shelter program and eventually become their own entity, a process which IVEMSA helps to guide. This gives companies the advantage of learning the ins and outs of nearshoring to Mexico while greatly reducing the learning curve that can result in costly mistakes and setbacks.