08Ene

How to Start Manufacturing Operations in Mexico?

enero 8, 2021 Paulina Aguirre

One of the main challenges for foreign companies to establish in Mexico, is they think that some aspects can be done similarly to how it is done in their country of origin or assume it can be done in a specific way without consulting with the experts. This is where a shelter company in Mexico becomes very useful.

It is very important to note each country counts with different laws, regulations, and procedures. Therefore, starting and running operations in Mexico is not complicated, but it is different, and for this reason it is important to be informed beforehand, get help from the experts, and understand what and how it must be done.
Below you will find some main steps you must consider for starting manufacturing operations in Mexico.

1) Define your business model scheme

Standalone: The foreign company creates a new entity in Mexico, with total control of all operations including administrative functions, and with total independence from third parties.
Joint Venture: There is an equal partnership between a Mexican manufacturer and a foreign company. Within this model, the foreign company faces more risks and liabilities than a shelter business model and provides an immediate knowledge base and experience.
Shelter: A company is hired by another to manage all administrative and legal tasks, while the other company can focus on its core business. Through a shelter company in Mexico, there is no need to hire personnel for administrative functions. Shelter companies can facilitate the start operations without the need for an established and legal presence in the country, in a faster way and through a risk mitigation approach.
Contract manufacturing: A company is hired by another to produce goods or provide a service. Nevertheless, the company does not have full control and oversight of production and quality assurance. Contract manufacturing is not as common in Mexico as in other countries as Mexico materials manufacturers most of the time do not need help to approach the US markets, so there is less need in Mexico to partner with larger foreign investors.

There are different options in which a foreign company can operate in Mexico, depending on the business model that fits best their needs:

2) Company Incorporation, Permits, and Programs

Depending on the business model you choose, the company must proceed with obtaining the required registrations and permits. For example, in a standalone business scheme, the first step for the company is to incorporate a new entity in Mexico, and register it before the Public Registry of Commerce, Tax Authorities, and Social Security among other registrations. Or to obtain the Importers Registration, IMMEX Program, or any other program that applies. An experienced partner can support your company in determining which foreign trade incentive programs you can benefit from.

3) Site Selection

Once you have decided to establish in Mexico, the next step is to decide in which State. The main deciding factor for most companies is the location of their clients or suppliers. Other companies also take into account if they want to be in the north of Mexico right on the border with the United States or on the coast. Furthermore, the incentives received from the government can also be a deciding factor.

Afterward, you must decide between leasing or building in Mexico. Depending on the needs of your company you can decide to build a new facility from scratch, find a built–to–suit lease, or make a small improvement to an already existing building. The cost to lease industrial space in Mexico will vary highly on which region of Mexico, or if it is located in an industrial park, among other factors.

Leasing and buying costs in Mexico:

The cost to lease industrial space in Mexico can be as low as $0.40 USD per sq. ft. per month. And the cost to buy and industrial land in Mexico can be as low as $2.50 USD per square feet.

4) Recruiting and Training of Personnel

Recruiting the first employees is an important step. The recruiting process in each country is different, and in Mexico, it can be considered as a complex process. Therefore, looking for support from experts is always a good idea. An experienced shelter company in Mexico can speed up and facilitate the recruiting process, personnel ramp-up, and training for employees.

5) Building your supply chain in Mexico

Mexico counts with an important supply chain network for various industries, as it is home to different industry clusters. Therefore, it is important to establish with the material you will source locally and which from abroad, and make sure any new suppliers meet the company’s quality standards.

6) Start of Production

Once you have covered the above-mentioned steps, the logistics process has been planned, the equipment has been installed, the testing stage has been completed, it’s time to proceed with the start of production.

Is your business considering moving to Mexico? Mexcentrix can help you by facilitating the process through a smooth start and running of operations. Contact us!

05Ene

Why Should Your Company Move Manufacturing Operations to Mexico?

enero 5, 2021 Jesus Aguirre

Considering moving your manufacturing operations? Shelter services in Mexico can help you!

For many years, Mexico has been considered an attractive location to establish manufacturing operations. Shelter services in Mexico are becoming more popular due to the different advantages it offers for manufacturing companies, such as:

Competitive Labor Costs:

One of the main advantages driving companies to establish manufacturing operations in Mexico is its competitive labor cost.

In 2021, the minimum wage in Mexico increased by 15%, with an increase from minimum wage will increase from $123.22 MXN pesos to $141.70 MXN pesos per day in most of the country, while in the Free Zone of the North Border it will increase from $185.56 MXN pesos to $213.39 MXN pesos per day. Nevertheless, most workers in Mexico earn more than the minimum wage. The average wage for a direct worker in Mexico $3.50 USD per hour.

The chart below shows the average hourly fully burdened labor rates in USD for different direct labor positions in Mexico. Please note that the above numbers are an average and can vary depending on the region/ state in which the company is established.

Moreover, average manufacturing wages in Mexico are more competitive than other countries that are considered to have low labor costs such as China, which counts with an average manufacturing labor cost per hour of $6.50 USD compared to $4.82 USD in Mexico. Below you can find a chart with the average manufacturing labor costs in Mexico compared to other countries:

13 free trade agreements with 50 countries

Up to date, Mexico has signed over 13 free trade agreements with 46 countries, including one of the most important which is the USMCA (United States-Mexico-Canada Agreement) which allows foreign companies to import some raw materials and products free of duties. Additionally, these FTA’s provide Mexico with access to around 60% of the world’s GDP.

No restrictions on foreign ownership

Additionally, compared to other countries, such as China, shelter services in Mexico do not have any restriction on foreign ownership of manufacturing. And the government does not interfere directly with private companies. Furthermore, the government promotes foreign investment by providing incentives to foreign companies.

Economies of scale

Mexico benefits from economies of scale due to its existing industrial clusters. It offers a wide number of customers and supplier options, as Mexico occupies:

Advanced supply chain

In addition, due to the above-mentioned, Mexico counts with advanced manufacturing supply chains from various industries including automotive, aerospace, electro-domestics, among others. Manufacturers can easily find in Mexico strong supply chains which support different activities such as plastic injection, stamping, machining, foundry among others.

Lower shipping costs

As neighbor of one of the most important markets, United States, it offers important advantages such as streamlined logistics, cheaper shipping costs and shorter overall times for shipping.

As an example, it costs around $6,000 to ship a 53 foot container from China to Los Angeles, compared to $720 USD to ship a 53 foot container from Tijuana (in the border of Mexico) to Los Angeles.

Foreign Trade and Tax Incentives Programs

Mexico counts with diverse foreign trade incentive programs such as:

- IMMEX Program: This is an instrument which 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 (16%) and countervailing duties, and deferring or not paying General Import Tax. In order to not pay VAT, the company in addition to being registered under the IMMEX program must count with the VAT and IEPS certification.
- PROSEC: These programs are aimed at legal entities that produce certain goods, allowing them to import diverse goods for use in the development of specific products at preferential ad-valorem tariffs (General Import Tax), regardless of whether the goods to be produced are for export or the domestic market.
- 8^thRule: It is the license or permits issued by the Ministry of Economy through any of the tariff fractions with heading 98.02, that allows companies to import machinery and equipment, materials, inputs, parts, and components in order to obtain administrative facilities and preferential tariffs.

All the above mentioned are some main reasons why shelter services in Mexico have become a preferred destination for transnational manufacturing companies. Therefore, in Mexico, you can find the manufacturing facilities of some of the biggest companies worldwide. Within the automotive industry, you can find Volkswagen Group, BMW, GM, Toyota, Daimler, Ford Motors among others. In addition to Bombardier INC, Safran, and EATON Corporation from the aerospace industry, among other big companies from various industries such as 3M, Becton Dickinson, GE, Jhonson & Jhonson, and Plexus, among many others.

Is your business considering moving to Mexico? Mexcentrix can help you by facilitating the process through a smooth start and running of operations. Contact us!

30Dic

Advantages of Manufacturing in Mexico

diciembre 30, 2020 Jesus Aguirre

Benefits of Working with Shelter Companies in Mexico

In the last couple of years, several transnational companies have decided to set up manufacturing operations in Mexico, due to the benefits Mexico offers for companies of different industries. Converting Mexico into one of the largest provider of shelter companies worldwide.

Below you can find 6 of the main advantages of manufacturing in Mexico:

13 free trade agreements with 50 countries: Up to date Mexico has signed over 12 free trade agreements with 46 countries, which allows foreign companies to import some raw materials and products free of duties. Additionally, this FTA’s provide Mexico with access to around 60% of the world’s GDP.
Competitive labor costs: In Mexico direct labor cost is considered to be approximately 70% cheaper than United States. In which on average, a direct worker earns approximately $3.50 USD per hour. Furthermore, the average minimum wage in Mexico is of $123.22 MXN pesos per day, except for the northern area, which is $185.56 MXN pesos per day. According to the minimum wage in most of the country it corresponds to approximate $6.16USD per day (taking into account an exchange rate of $20 MXN pesos per dollar) compared to a minimum wage in the US of $7.25 USD per hour.
Highly educated and skilled labor force. Mexico graduates on average more than 110,000 engineers from universities and technical institutes, per year. In addition
Economies of scale: Mexico benefits of economies of scale due to its existing industrial clusters. It offers a wide number of customers and supplier options, as Mexico occupies:

Competitive geographical location: Mexico has a competitive geographical location, its proximity to one of the main markets worldwide, USA, provides Mexico an advantage in logistic cost savings. It also facilitates transportation, for example managers in the US can take a flight and reach Mexico within a few hours to visit facilities. Furthermore, due to a similar time zone to the USA or Canada, it facilitates communication and there is a less language barrier.
Export incentive programs: Mexico counts with diverse foreign trade incentive programs such as:
- IMMEX Program: Is an instrument which 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.
- PROSEC: These programs are aimed at legal entities that produce certain goods, allowing them to import diverse goods for use in the development of specific products at preferential ad-valorem tariffs (General Import Tax), regardless of whether the goods to be produced are for export or the domestic market.
- 8^th Rule: It is the license or permit issued by the Ministry of Economy through any of the tariff fractions with heading 98.02 of the Tariff of the Law of General Import and Export Taxes that allows companies to import machinery and equipment, materials , inputs, parts and components in order to obtain administrative facilities and preferential tariffs.

Shelter companies play an important role in helping foreign companies establish in Mexico, without dealing with the associated risks such as labor liability, ownership of facilities and limitation of liability in Mexico. Learn more about the advantages of shelter companies in Mexico, and what Mexcentrix can do for your company.

Want to learn more about manufacturing in Mexico? Mexcentrix can support you with a cost model for your operations in Mexico or a feasibility study. Contact us!

22Dic

Advantages of Shelter Companies

diciembre 22, 2020 Jesus Aguirre

There are different options in which a foreign company can operate in Mexico, depending on the business model that fits best their needs:

Standalone: The foreign company creates a new entity in Mexico, with total control of all operations including administrative functions, and with total independence from third parties.
Joint Venture: There is an equal partnership between a Mexican manufacturer and a foreign company. Within this model, the foreign company faces more risks and liabilities than a shelter business model.
Shelter: A company is hired by another to manage all administrative and legal tasks, while the other company can focus on its core business. Through a shelter company, there is no need to hire personnel for administrative functions.
Contract manufacturing: In which a company is hired by another to produce goods or provide a service. Nevertheless, the company does not have full control and oversight of production and quality assurance.

Shelter companies help foreign companies start operations faster, more effectively, and through a risk mitigation approach. If a company is planning to establish operations in Mexico, a good option will always be to associate with a national company, with experience and know-how of local regulations.

Shelter companies can support to manage important administrative business tasks such as:

Human resources
Tax and accounting
Logistics
Foreign trade operations
Environmental Health and Safety
Legal

They can facilitate the start operations without the need for an established and legal presence in the country.

Currently, Mexico has signed 12 trade agreements with 44 countries, counts with a competitive and highly skilled labor force, among other advantages that have converted Mexico into a strategic location for transnational companies within the manufacturing industry.

Mexcentrix - Advantages of Shelter Companies

Advantages of using a business shelter

Having a shelter company allows foreign companies to establish operations without dealing with the associated risks such as labor liability, ownership of facilities and limitation of liability in Mexico and with reduced exposure, while at the same time saving time by being able to provide a faster start-up and money.

Companies from all over the world have found in Mexico a safe investment ally, such as shelter service companies. The advantages of working under a shelter company are among others:

Reduced legal risk and liability
Faster start-up
Savings due to economies of scales
Lower border crossing costs
Lower labor costs
Ensure 100% compliance with Mexican labor, tax, and foreign trade regulations.

Which Shelter company is the best option for your company

To find the shelter service that best suits the needs of your company, it is essential that you make a cost- benefit analysis. Services with low rates do not always mean a better option, you must take into account what the company’s priorities are and the quality of their services.

Remember that the main objective of a shelter company is to provide you with guidance, experience, solutions and protection.

Meet Mexcentrix

Mexcentrix is a shelter company with well-established operations that can accommodate the fastest start-up possible. We can get your operations up and running in as few as 30 business days with a cost-effective and flexible shared business services plan.

Through our shelter services, we enable companies to improve cost- efficiency and reduce the risk of manufacturing in Mexico by outsourcing the administration of the Mexico manufacturing facility including Human Resources, Tax, and Accounting, Foreign Trade among others.

By these means, our clients can focus primarily on production functions and quality control, while we handle the rest. Contact us for more information.

01Dic

Overview of the Automotive Industry in Mexico

diciembre 1, 2020 Jesus Aguirre

The automotive industry in Mexico began in 1921, with the arrival of the first Buick assembly plant; continuing with Ford Motor Company in 1925 and General Motors in 1935. The industry has grown exponentially, both in sales, export, and production of vehicles and auto parts, expanding the manufacturing in Mexico business.

Nowadays the automotive industry is a key sector for the Mexican economy; it represents 3% of Mexico’s GDP and a 16% participation of the manufacturing GDP. It is currently the 7th world producer of light vehicles, the 3rd largest exporter of vehicles, and the 4^th largest exporter of automotive parts; the main destination countries USA, Canada, and Germany.

Mexico is one of the main countries with the highest investment in this sector. Unlike other countries with CKD production (Vehicles completely assembled from components supplied by another plant), production in Mexico is 99% CBU (completely built-up) which means, finished products ready to sell in the domestic market or for export without the need to require assembly after finished.

Main reasons for automotive companies manufacturing in Mexico

Mexico’s 12 free trade agreements with 46 countries. USMCA plays an important role within this sector.
Mexico counts with an extensive and developed network of Tier 1, Tier 2, and Tier 3 suppliers as a result of the 30 automotive OEM plants located in Mexico. Furthermore, 24 states of Mexico have the presence of automotive supplier companies.
Competitive and qualified labor force.
Mexico has a great strategic geographic location. Its short distance from countries with high car sales, such as the United States, is an important consideration for companies manufacturing in Mexico.

Main facts about light vehicle production in Mexico

In Mexico, there are 22 companies affiliated with the Mexican Association of Automotive Industry (AMIA), which had a total production of light vehicles from January to October 2020 according to 2,465,439 vehicles. As it can be observed in the following graph General Motors, Nissan, FCA Mexico, and Volkswagen count with the highest production.

It is important to mention that 2020 mainly due to its current situation of COVID-19, has recorded a lower vehicle production compared to 2019, a year in which there was a production from January to October of 3,288,589. According to Deloitte, in April and May 2020 the industry reported its lower level of production in history. And according to Statista it has been projected that the production of light vehicles in Mexico will decrease by 23.7% in 2020.

Out of the total vehicles produce from January to October 2020, over 85% are exported, with a total of 2,119,022 light vehicles exported within this period. 80% of these exports were headed to the United States, followed by Canada with 6% and Germany with 5.8% of total exports.

The main companies that led the above-mentioned exports are being General Motors, FCA México, Nissan, and Volkswagen, as can be seen in the graph below. While the brands with the least export were premium brands such as BMW Group and Mercedes-Benz. The export of vehicles in Mexico represents 17% of total exports.

As above mentioned, due to the current pandemic situation Mexico’s automotive industry has been affected and production of vehicles and auto parts has decreased. According to Deloitte, with information from HIS Markit, it is expected that the level of production in Mexico in 2019 and sales is reached again in 2024, due to its sales reduction in the USA and other countries.

Are you thinking of settling 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.