30Oct

Manufacturing in Mexico vs China

octubre 30, 2020 Jesus Aguirre

Choosing Between Mexico vs China for Manufacturing

The manufacturing industry has been growing exponentially, therefore, lately, companies within this sector seek to move or expand their production to other locations, looking for a more cost-effective location, taking into account, among others: labor costs, supplier network, logistics. In order to find the location that best supports their growth strategy. Let’s compare the manufacturing in Mexico vs China.

China and Mexico are considered low-cost manufacturing countries, therefore they are most of the time considered as an option for nearshoring or offshoring. So which country could be the best option for your company to settle in?

In this document, we will focus highly on the best option for US manufacturing companies. According to a PwC study, currently, US manufacturers have been considering transferring their production to Mexico, moving it from China, as they can reduce operating costs, on average, by an additional 23% (PWC, 2020).

According to this same study, PWC taking into account the operating cost of a hypothetical product, estimated producing it in China was 27% less expensive than producing in the US, and as in Mexico logistics and tariff and fees costs are much lower companies could save the additional 23% before mentioned.

Mexico vs China - Manufacturing Operations Cost

Main factors that could impact the operating costs in manufacturing in Mexico vs China.

Mexico vs China: Labor cost

Within the most important factors taken into account when performing analysis for expansion of operations is the labor cost. One of the main competitive advantages of Mexico and China is their low labor cost. Which according to Statista the average manufacturing labor cost per hour in China is 6.5 USD per hour with an increase of 13% from the previous year. While in Mexico it is 4.82 USD per hour, with an increase of only 4% from 2019 (Statista, 2020). Which shows a trend of a higher increase in wages in China compared to Mexico.

The above mentioned year per year increase has also been impacted by the MXN – USD exchange rate, the devaluation of the MXN peso against the USD in the last years have reduced the effective labor rate inflation.

It is important to take into account that the manufacturing labor costs for both countries are just an average as a means of providing insight, as labor costs will vary per region, workforce skills, and level requirements, among others.

Furthermore, the minimum wage in Mexico is $123.22 MXN per day in almost all regions of the country, except in the Northern Border which is $185.56 MXN per day with an average minimum wage per month of $220.9 USD compared to $368.5 USD in China.

Lastly, Mexico is considered to have greater productivity with 48 hours work week compared to a generally 40-hour workweek, in which after this overtime must be paid.

Mexico vs China: Tariffs and taxes

Due to the US-China trade war, the US has imposed tariffs on more than $360 billion of Chinese goods. Although this year a tariff agreement was signed, and the U.S. agreed to lower tariffs on $120 billion of Chinese goods to 7.5%, tariffs are still higher than in Mexico, and it is also important to take into account that some of the most challenging issues weren’t solved.

On the other side, the United States- Mexico- Canada Agreement (USMCA), allows goods to be exported and imported between the US and Mexico free of tariffs under specific conditions.

Furthermore, Mexico counts with foreign trade incentive programs such as IMMEX, VAT and IEPS Certification, PROSEC, Rule 8^th. One of the most common is the IMMEX Program which is an instrument that allows the temporary import of goods that are used in an industrial process or service, to produce, transform or repair foreign goods imported temporarily for subsequent export, without paying VAT and countervailing duties, and deferring or not paying General Import Tax.

Mexico vs China: Logistics

One of the most known competitive advantages is Mexico’s favorable geographic location, due to its proximity to the United States and its access to the Atlantic and Pacific. In regard to goods being shipped to the United States, according to Mexico Business, Mexico counts with an 80% logistics time advantage due to its proximity to the U.S., and 75% logistics cost advantage over China. Thus making Mexico a better option when deciding manufacturing in Mexico vs China.

Mexico vs China: Supply Chain

All the mentioned factors affect the supply chain cost structure. Therefore, it is important to take into account when analyzing supply chain sourcing. According to the before-mentioned PwC study, through an analysis taking into account labor content and Product Value density, based on $450 billion of manufactured goods imported from China to the US in 2019, 20% of those goods could achieve cost efficiencies if nearshore to Mexico (18%). (PWC, 2020).

Comparison table Mexico vs China

As a summary from the above-mentioned discussed factors, pleased find below a comparison table of manufacturing in Mexico vs China:

Are you thinking of moving or installing your manufacturing to Mexico?

Mexcentrix offers high-value, cost-effective and flexible shelter services and outsourcing that will get your operation in Mexico highly functional at a lower cost and successfully producing within a shorter timeframe than you can achieve on your own—all while significantly reducing the risks associated with a start-up. Contact Mexcentrix for a feasibility study or cost estimation today!

12Oct

Do you know what OEA is?

octubre 12, 2020 Jesus Aguirre

The Authorized Economic Operator (OEA) is a program that aims to strengthen the security of the foreign trade logistics chain through the implementation of minimum security standards internationally recognized, in coordination with the private sector.

Everything you need to know about the OEA

OEA Benefits

Some benefits for OEA certified companies are:

Rectifications of orders of their import operations in the first 3 months, without need for authorization
Import and export operations will have expedited crossings at the border
Customs flexibility, and in some cases fines are waived.
Virtual transfers to companies that do not have an IMMEX program.
When the authority detects surplus or undeclared merchandise in definitive imports and exports, there will be a period of 10 days from the notification of the corresponding procedure, to process the definitive import or export petition
Customs clearance of merchandise susceptible to individual identification without the need to indicate in the order additional data such as brand, model, etc. As long as an updated registry is carried out in the inventory control system.

Do you know the recently added benefits?

In the event that a cancellation cause is updated of the Import Register and/or Importer Register of Specific Sectors and/or Sector Exporter Register, the registration in the Scheme will not be canceled immediately
The company is not obliged to submit the Manifestation of Value in regard to temporary import operations carried out under the IMMEX Program
Goods imported temporarily under the IMMEX program can stay in the national territory for up to 36 months. Regarding virtual operations, the term may be up to 18 months.
Consolidation of the cargo of goods, covered by several orders in the same vehicle
Processing weekly or monthly consolidated orders
Application of the procedure established in article 152 of the customs law instead of article 151.

There are 11 minimum standards each company must meet in order to qualify for the OEA Certification:

Planning for security in the supply chain
Physical security
Access controls
Business Partners
Safety process
Customs management
Security for Cargo vehicles, containers, trailers and semitrailers
Personnel Security
Information Security
Safety Training
Management and incident investigation

OEA is a voluntary program, nevertheless, OEA certified companies are considered safe, trustworthy by the authorities, and better business partners and with higher investments in supply chain security by other companies.

The requirements for the OEA certification will vary according to the different modalities which are:

What are the requirements?

Requirements

To be a company incorporated according to Mexican law.
Be up to date with your tax and customs obligations, as well as authorize SAT to make public the positive opinion.
Have employees registered in the IMSS or through the subcontracting of employees, as well as being up to date with the obligation to hold and notify the Income Tax on workers
Not to be in the list of companies non- compliant or with nonexistent operations, published by the SAT.
Have valid digital signature certificates to issue digital tax receipts
Have registered before SAT all establishments in which economic activities or foreign trade are carried out.
Have an electronic email for the purposes of the Tax Mailbox
Not be suspended in the Importers Registry, in the Importers Registry of Specific Sectors or in the Sectorial Exporters Registry.
Allow AGACE personnel access to your facilities all the times, to carry out the initial inspection or supervision visit.
Having clients and suppliers abroad directly or indirectly linked to the customs regime
In case of having national suppliers, a file must be presented with the name and RFC of the input suppliers acquired in the national territory of the last 6 months, also considering the companies with the IMMEX Program with which are making the virtual transfers.
Have the legal use of the property or properties where the production processes or the provision of services are made.
The SAT must not have filed a criminal complaint or complaint against the partners or shareholders, legal representative or members of the administration, or in its case, declaration of damage, during the last 3 years prior to the presentation of the request.
Have an updated and automated inventory control.
Keep the accounting in electronic media and enter it monthly through the SAT Portal.
The partners or shareholders, legal representative with ownership rights, and those who carry out the paperwork to the SAT and members of the administration must be up to date in the fulfillment of their fiscal obligations.
The partners, shareholders, or members of the administration must not be related to any company whose registration in the Company Certification Scheme has been canceled.
To have made foreign trade operations during the last two years prior to your request.
Comply with the payment of rights.
Make the designation of transport companies authorized to make the transfer of foreign trade goods.
Prove compliance with the minimum security standards for each one of the facilities where you carry out foreign trade operations.

28Sep

Outsourcing Administrative Processes: What is it and how does it work?

septiembre 28, 2020 Jesus Aguirre

Outsourcing Administrative Processes can improve the efficiency of your company, discover how Mexcentrix can facilitate your business processes

In a globalized world where there are increasing ways to innovate and generate new processes to simplify a company’s projects, outsourcing administrative process is an option to facilitate processes. Outsourcing has become increasingly important in companies, as it allows a company to be more efficient and focus on different tasks.

Do you already know what outsourcing is and how it can improve the administrative processes of your company? Before diving into this topic, it is important to understand well what outsourcing is.

What are Outsourcing Administrative Process Services?

Surely you’ve already heard the term outsourcing, but in case you haven’t, it is the process by which one company hires another, or an individual, to take care of an activity or production. Outsourcing is closely related to the sub-contracting of services, since it involves the search for an external source that can efficiently provide certain services for a company.

At Mexcentrix, an outsourcing company in Mexico, we work to provide strategic guidance and business services to manufacturing companies. The ultimate goal of outsourcing administrative processes is for the contracting company to have more time to focus on the key aspects of their business.

Mexcentrix provides strategic guidance and personalized business services, among them are the services of:

Startup and shelter program
Human resources
Import, export, and logistic services
IMMEX program management
Tax and accounting
Consulting and audit

Now that we know what outsourcing is and the processes that can be outsourced, let’s talk about its advantages.

What are the Advantages of Outsourcing?

Outsourcing administrative processes offer different advantages, depending on the line of business. Before working with an external company for outsourcing services, it is important to analyze the impact this will create for your company and be prepared for these changes. As we mentioned before, an administrative outsourcing company provides a lot of advantages, among others:

Focus on core business activities

Outsourcing processes gives your company the possibility to respond and adapt quickly to business changes and can free up the company from other tasks. Thus allowing the company to focus on its strengths and on the key areas of its business.

Time optimization

Regardless of your business operation, by outsourcing your administrative services you will save costs and time. At Mexcentrix, we can get your operations up and running in Mexico 50% to 75% sooner.

Within Mexcentrix’s human resources department you are guaranteed greater agility in the hiring process. With an extensive database of potential prospects, staffing time is dramatically shortened. In addition, by being able to find the right and experienced candidate for your company less time will have to be invested in training, while also leading to cost reduction.

Cost saving

Outsourcing your administrative tasks is cheaper than hiring several permanent full time staff to do the job. In Mexcentrix, our team of excellence works to constantly bring improvements to deliver a high quality service and save up to 40% during the initial stages of your company and up to 20% after start up.

Increased efficiency

When you outsource your administrative tasks with an outsourcing partner like Mexcentrix, they bring along years of experience in business practices and solutions. Therefore, through their knowledge and understanding of a specific business area, they can do a professional job which leads to an increase in productivity and efficiency in the processes.

Risk mitigation and no legal processes

By outsourcing your administrative processes to an expert, you will benefit from their expertise within that field and their ability to plan and mitigate potential risks. Furthermore, an outsourcing company will often provide the option of carrying out all your tax and legal processes, including payroll and tax payment on time.

At Mexcentrix we have treasury management services, tax declaration, compensation, tax refund, among others. We ensure 100% compliance with legal requirements, guaranteeing no fines or legal issues. We are the best option for outsourcing administrative processes in Mexico so that your business focuses on the main activities.

Are you interested in Mexcentrix’s outsourcing services? Contact us!

These are just five of the many advantages worth considering for hiring an administrative process outsourcing company. If you still have doubts or are hesitant to hire an outsourcing company in Mexico, we invite you to contact us and we will guide you throughout your shelter or outsourcing process.

At Mexcentrix, we offer added value services to start up your business in Mexico. Select only the services that your company requires to reach your company’s goals. With our outsourcing services, we’ll make certain that your company goals are met.

Our objective is to focus our services so that the start of your operations is smooth and highly functional. We seek to reduce the costs and times for the start of your production, while also significantly reducing the risks associated with a start-up. To learn more about the services we offer at Mexcentrix, contact us!

25Jun

Nearshore vs Offshore

junio 25, 2020 Jesus Aguirre

Nearshore vs Offshore

One of the main objectives for industrial companies is expanding their operations and being able to be more cost-effective. Based on the company’s supply chain needs, the company can decide between nearshore vs offshore.

Nearshore vs Offshore: Choosing what's best for your company

What is Nearshore?

It means transferring your operations across national borders to business operations in another country that is in proximity, with a relatively small-time- zone and cultural differences. This in order to be more cost-effective and save time.

Whats is Offshore?

It means transferring your business operations overseas. The main objective is also cost reduction, by looking for qualified employees with low labor costs.

The Main advantages of nearshoring are:

Geographical proximity and share time zones facilitate communication.
Fewer travel expenses and reduction of traveling time.
Lower shipping costs compared to overseas operations.
Cultural integration is more fluid.

Both nearhsoring and offshoring can help a company to reach their objectives and be successful, the decision of nearshore vs offshore will depend on the company’s needs.

One of the most effective ways to save money is the combination of nearshore or offshore with outsourcing.

Outsourcing allows your company to focus primarily on production, quality control among others while letting the experts take care of the rest. With offshore or nearshore outsourcing you do not have to worry about not knowing the culture, laws, and regulations of the country where you will transfer your operations, as the outsourcing company will take care of payments to employees, utilities, suppliers, taxes, among others.

Nearshore and Offshore in Mexico

Nowadays Mexico is one of the most attractive countries for expansion or relocation of operations, due to its several advantages such as:

o Highly skilled and competitive labor costs

o High-quality infrastructure

o Free trade agreements

o Export incentive programs

o Low energy costs

Are you thinking of nearshoring or offshoring in Mexico?

Mexcentrix can help you. We assure you a successful and timely start of operations while providing strategic guidance in order to help your company reach its goals.