Manufacturing in Mexico can be a great investment opportunity
The biggest challenge for a company keen on setting up their manufacturing factory in Mexico is getting the operation ready. From start to finish it can take the company around 8 months to a year, which can be a frustrating lead time for a company that is ready to sign a lease agreement, bring in equipment, and begin preparing employees.
Additionally, expertise is important in being able to set up a manufacturing facility. Being able to find the perfect individuals who are going to set up the Mexican entity, obtain all the right permits, help identify the ideal city and state for the factory, and employ an administrative team, are crucial considerations. Each of these steps poses challenges to the manufacturer, especially if they are going at it alone.
Steps to start manufacturing in Mexico
Companies prepared to exploit the qualities of Mexico’s manufacturing centers have multiple choices to make about how and where they’ll enter the market. With each option, an organization must decide the level of control they need to keep up with over each aspect of their business and where they might benefit from, in setting up solutions. The first of those options is related to the operational model.
First Step- How do you manufacture in Mexico?
The initial step to start a manufacturing operation in Mexico is to specify the right operational model for your organization.
- Standalone model
A standalone factory requires the organization to form a new legal entity in Mexico and manage the relevant regulatory requirements, proper permitting, and take responsibility for full income and consumption taxes.
- Shelter model
The shelter manufacturing model is a method to help foreign investors diminish their risk in manufacturing in Mexico and help propel their operations to market. The term, shelter, implies safeguarding the international company from exposure to trade, labor, and tax laws. Through this model, the foreign investor retains total control of all production-related functions and assets.
- Contract manufacturing model
Contract manufacturing in Mexico is comparable to models used in other countries. Dissimilar to a standalone operation, a contract manufacturer in Mexico possesses most production assets, controls production, and charges the foreign company an expense for producing goods. In conclusion, the supervising company has limited control over the quality of the work being conducted by the contractor.
- Merger or acquisition model
Although less popular, some foreign investors look to enter the Mexican market by merging or obtaining an established Mexican manufacturer. Through this process, the international company benefits from already established manufacturing operations in Mexico that meet Mexico’s compliance and regulatory statutes.
- Joint venture model
A joint venture is an agreement through which each company contributes its distinct strengths toward achieving a common objective. This model can be effective when the foreign company delivers a customer base, and the Mexican manufacturer offers the essential assets and aptitude to meet the demand for specific product types.
Second Step- Where do you manufacture in Mexico?
For most Mexican manufacturers, nearness to industrial clusters provides a decent starting place for site choice. Companies seeking a quick startup may find the most advantage from joining a manufacturing community.
Manufacturers looking for more tailored solutions may opt to build new. In this case, it’s crucial to consider the following site selection factors:
- Transportation ease. Consider closeness to primary highways, land ports of entry, airports, seaports, and rail spurs.
- Utilities availability and cost. Generally, not all industrial areas are serviced with natural gas. While pipelines are under development to alleviate demand, manufacturers may want to concentrate on areas already connected to a source of natural gas to avoid the risk of service disruptions.
- Potential for available staffing. Every location will have unique staffing costs. Employers should weigh their need for already trained staff compared to providing training in-house.
Third Step- Cost of manufacturing in Mexico
The only real way to guarantee your company will see cost savings from manufacturing in Mexico is to initiate a complete cost analysis of initial and long-term costs. The main factors to focus on in that analysis include Lease rates, Utility costs, Payroll, Logistics, Regulatory and administrative costs, and comparable costs.
Fourth Step- How to set up a factory in Mexico
Companies ready to start manufacturing in Mexico can start up operations in as little as a month with the assistance of a shelter service provider. Significant considerations to analyze in this start-up stage include the following:
- Determine if you will sell merchandise or exclusively export products : Individuals that want to export goods manufactured in Mexico do not need to establish a separate legal entity in Mexico. However, if the manufacturer plans to invoice the sale of those goods and services to companies within Mexico, it should have a Mexican entity.
- Determine the relevant corporate structure : Companies should fully explore whether a level of shelter service can help them manage costs adequately or determine whether they are best benefited by an S.A. de C.V. or S. de R.L. corporate structure.
- Choose whether to lease, buy, or build new : High Class industrial space can be found across Mexico, often in well-connected industrial clusters, and can be quickly adapted to meet a manufacturer’s unique needs.
- Specify staffing needs, including training- Strong vocational training for staff is a priority in Mexico.
- Assess local suppliers : There may be chances to smooth out costs by getting to know local suppliers’ ability and competency in providing quality parts.
- Meet with credible customs brokers : Only approved Mexican customs brokers can clear your manufactured merchandise through Mexican customs. Make sure to get acquainted with them for an easier process
Also, make sure to Identify regulatory requirements.
To register your company in Mexico and start your manufacturing in Mexico, contact your Damalion Expert now.
