How Can I Start Setting up Manufacturing in Mexico

Key Takeaways:

• To maximize the benefits of manufacturing in Mexico, evaluate the different modes of entry and choose what aligns best with production goals.

• Consider factors, including costs, legal liability, and production timeline, when making a final decision.
• Follow tips for success, which may include working with the expertise of a shelter company.

For decades, U.S. and other foreign companies have benefited from the advantages that Mexico manufacturing provides. However, the setup process is complex and requires local knowledge and expertise to ensure compliance and the most favorable route for a company’s production goals.

Whether it’s a first-time expansion or a return after many years away, here’s a look at the different modes of entry, factors to consider when making a decision, and tips to help make your project a success.

1. Outsourcing Manufacturing in Mexico

The option of contract manufacturing involves initiating a third-party manufacturer to take charge of all production and processes.

When outsourcing, the contractor typically takes on the legal risk and compliance obligations. Manufacturers give up control over production quality, which isn’t recommended for companies that have highly technical components and processes.

2. Establishing a Standalone Entity in Mexico

Setting up a new entity in Mexico provides manufacturers with full ownership and control of their organization and production. For this mode of entry, the entity maintains the risk of operating in a foreign country and is responsible for meeting all compliance regulations.

It is also often more time-consuming than contract manufacturing due to the several steps it takes to launch production, including site selection, hiring labor, and establishing IMMEX program approval, VAT certification, and other various administrative departments needed to operate.

3. Joint Venture

Though less popular than other modes of entry, some foreign manufacturers decide it’s best to work with a company in Mexico to combine resources, costs, and management.

This option can take time to find the right partner that has the same goals and process, though the advantage is the expertise and experience in place that may help launch production faster.

4. Partnering with a Shelter Company

The majority of U.S. and other foreign manufacturers choose to partner with a shelter company when manufacturing in Mexico. This mode of entry streamlines the setup process while saving time and costs.

The Mexico shelter company handles all administrative responsibilities needed to launch production, including site selection, recruiting and hiring labor, HR, taxes, and customs compliance.

Therefore, manufacturers can focus solely on production while maintaining complete control and ownership. It also eases the burden of exposure to legal authorities, minimizes risk, and reduces the learning curve.

What to Consider When Choosing a Mode of Entry

There are benefits to each business model, but here are factors to consider as you decide what best fits your company’s needs.

1. Costs – The investment is always the first factor considered. In addition to setup costs, consider ongoing operating expenses as well as what it would take to scale. Unlike other modes of entry, manufacturers operating under a shelter save on infrastructure,  compliance software, administrative departments, and key suppliers for their operation,  such as transportation, customs brokers, building improvements, etc.

2. Legal Liability – The shelter model is also the safest way to do business when manufacturing in Mexico, plus companies do not lose control over the processes or relinquish ownership over equipment, materials, or intellectual property. There’s more legal exposure when operating as a standalone entity or outsourcing production.

3. Timeline – Setting up a standalone entity without the help of a shelter partner takes eight to nine months, or longer, to get up and running. For companies wanting a quicker start time, working with the resources and experience of a shelter company cuts the time in half. Alternatively, a joint venture or contract manufacturing can take time to find the right fit.

Tips for Choosing the Right Manufacturing Path

1. Assess Specific Needs – Each manufacturer has its own specific goals. For example, a small business with fewer than 50 employees may find it more feasible to outsource production rather than working with a shelter company.

2. Determine Costs – A shelter company solution continues to be the most cost-effective solution for medium-sized operations; it depends on how many employees are necessary and the type of production being performed.

3. Perform Due Diligence – Not all contractor manufacturers or shelter companies are the same. It’s important to research and ask questions about the process for any mode of entry considered. IVEMSA provides cost transparency and regular check-ins throughout every step of the process.

4. Look for Proven Solutions – Regardless of whether it’s a joint venture, a contract manufacturing solution, or a shelter model, seek out experienced partners that understand the industry and show a history of success.

What You’ll Need to Launch Production

For standalone entities and companies operating under the shelter model, setting up production in Mexico involves:

• Site selection and utility setup
• Securing permits and licenses
• Ensuring customs compliance
• HR and accounting services
• Payroll and accounts payable services
• Environmental, health & safety compliance

Though contract manufacturing doesn’t require the same setup process, it doesn’t provide companies with consistent production or quality assurance. However, the trade-off may be a good solution that requires predictable runs of specific products rather than specialization and easier scalability.

The majority of manufacturers choose IVEMSA as a shelter services solution to streamline production setup and save costs. Shelter services can also be tailored to those who choose to set up a standalone entity as well.

Working with IVEMSA

When manufacturing in Mexico, consider the benefits of each mode of entry and which type best fits your needs. IVEMSA offers flexible solutions to help you scale up or down as needed.

Additionally, there are no surprise fees for site selection assistance or supporting you through the setup process of your operation, as is often found with other companies. Plus, U.S. and other foreign manufacturers benefit from the reputation IVEMSA maintains and the established connections and networks that it uses to identify building availability, recruit employees, source suppliers, and more.

Talk to our team about your production goals, and we can help guide you in the right direction.

Contact IVEMSA today.