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.

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!

16Oct

Benefits of Outsourcing in Mexico for companies

octubre 16, 2020 Jesus Aguirre

Optimize your company’s processes and costs with by outsourcing in Mexico

Do you know what outsourcing is and what its direct benefits are? We are sure you have heard this term before. However, for many people, it can cause confusion. In our article, we will talk about what outsourcing in Mexico involves, and the benefits for the companies or businesses that make use of this strategy.

What is outsourcing?

Talking about outsourcing is often a controversial topic. Outsourcing is nothing more than the subcontracting of employees or the subrogation of the workforce. Many companies, such as Telmex in Mexico, make use of subcontracted employees to perform the installation of their equipment in many homes.

This is done to pay a little their employees less, who are not directly hired within the company. By additionally focusing on the tasks of workers than have a contract. Subcontracted employees are not unionized and do not generate seniority. However, this does not mean that the company is exempt from responsibilities.

According to information on the website occ.com.mx, the SAT in 2018 made changes in the way subcontracting should be carried out. This was with the intention of protecting employees of companies that were not regularized. Additionally, in this update, the process to comply with all the rules by the companies was made known.

Benefits of Outsourcing in Mexico

Below we describe why Mexcentrix outsourcing services are really advantageous as a contracting model for many companies.

Outsourcing Benefits - Outsourcing in Mexico - Mexcentrix - Shelter Company

Significant cost reduction

Companies can reduce quite a few costs with this contracting model. Imagine that as an entrepreneur, you want to hire 10 professionals to perform inspection tasks that your area of supervision cannot afford to perform. These 10 employees will not be hired directly by you, so the labor can be paid cheaper. Usually, the staff is part of another company, which is in charge of fulfilling all the safety conditions of these employees.

Apart from all this, expenses are minimized by the human resources areas by not depending on them with a fixed salary.

By outsourcing, we avoid fines from the SAT

We already mentioned this, but it’s worth repeating. For the last two years, the SAT has made an emphasis on the strick regulations for companies that subcontract the services of personnel for different tasks. Just think about this: You are an entrepreneur who is going to hire 5 people to install modems and for each installation, you are going to pay 25 USD.

These payments can be made via deposit and justified as an extra expense but without the need to withhold taxes for the SAT, since these external suppliers do not belong to your company, but to another. In this case, the people who receive the profists are responsible to account to the tax authorities.

Continuous growth of your business

Many companies use this business model to consistently grow their business. If we assume that a business invests 10,000 USD in the payments of workers hired through outsourcing, but obtains profits of 75%; it will be able to reinvest the profits in hiring more personnel, progressing in a scalable way.

Let’s see it with an example: The first month, the company invests those 10,000 USD in labor that can be provided by an external supplier; from which it receives 75% in profits (after taxes). By the second month, the company will have 17,500 USD to invest in labor, which will give them a profit of 13,125 USD and will have 30,625 USD by the third month. Businesses can easily be scaled by outsourcing in Mexico.

Companies can look like specialists, without really being one

One of the biggest advantages of contracting external suppliers is that startups or established companies can offer services of which they may not be experts in. Company “A” may be able to offer its digital marketing services to thousands of clients, but the ones who will really take care of executing these tasks will be the external providers, or company “B”. This way company “A” will gain prestige as an expert in digital marketing, when in fact they may or may not be experts in that area.

Outsourcing in Mexico - Mexcentrix - Shelter Company

Minimize expenses and investment in innovative equipment

Another great benefit of outsourcing is the fact that you don’t have to invest in buying big! No need to buy equipment to manufacture or offer innovative products to your customers. Why buy an expensive machine when many companies already have one?

In the case that you need to manufacture some industrial or artisan pieces; you can subcontract this service to a company that has the necessary machinery to take care of this. Of course, providing the quality and efficiency in the service that your clients expect.

It is not superfluous to tell you that you should pay special attention to the fact that your suppliers deliver quality and in the agreed times. You must also make a financial allocation to project the expected after-tax profits.

Why hire the services of an outsourcing company in Mexico?

Now that you know the benefits of outsourcing, perhaps you are wondering where to find specialized personnel. Mexcentrix’s team will be happy to guide you through more information. We have all the know-how and the profiles you need to carry out the process of outsourcing personnel in Mexico.

In case you need to hire a specialist, you will not depend on interviewing thousands of candidates; our outsourcing company will be able to do this for you.

But that’s not all. Did you know that there are outsourcing companies that can even help you set up your own company in Mexico? Or, instead , send machining directly from abroad to Mexico, where labor is much cheaper?

Hiring an outsourcing company will allow you this and much more. Scale your business quickly with the help of specialists, innovating, focusing on your responsibilities, and saving money.

We invite you to think about outsourcing as an alternative to your company or startup. We are sure that it will be very helpful to you.

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.