Mexico Manufacturing Business Models: Which One is Right for Your Operation?

Companies across the globe are working to adapt to recent drastic changes in the global economy and supply chains, and although innovation in business has always been key to success, it has never been more important than it is now. If you are looking to lower costs and expand or move your operations, an option to consider is setting up manufacturing services in Mexico, nearshore or offshore manufacturing in Mexico.Below is a brief summary of the five different models international companies in Mexico can use to start up operations and a few of the advantages and drawbacks of each so that you can start to evaluate which might be the right fit for your operations, sector and timelines.

 

       1. Using a Shelter Program

Many times the most advantageous option for companies looking to start up operations is using shelter services in Mexico. This is essentially an “all-inclusive deal” for foreign companies because it allows them to enjoy all the benefits of operating in Mexico (including low-cost labor, its over 40 free trade agreements, and expanding national market) with none of the hassle, while still maintaining full control over their operations and having the certainty of a fixed and efficient cost structure. This means your company can focus on what it does best without worrying about the legal liabilities and other risks inherent in other modalities, and leverage the expertise of a shelter company along with their strategic partners in all areas of business and manufacturing, from the automotive industry Mexico, electronic devices manufacturing Mexico and the aerospace industry in Mexico.

Leveraging the established systems and processes of an experienced shelter company will ensure your company is not only well-received in Mexico, but that all legal and fiscal requirements are met and everything from human resources to tax filings are done in a timely, optimized and correct manner. This shields you from most liabilities and limits the exposure and risk that can arise from all kinds of unintended omissions, errors or just miscommunication or poor understanding of the country’s culture and legal or social framework.

A shelter program will also allow you to make the most of constantly-changing government programs, laws and tax regulations. One of the most advantageous of these is the IMMEX program, which provides a range of benefits and tax savings for foreign companies operating in Mexico either under a shelter program or a stand-alone operation. A shelter services company will be in charge of streamlining and expediting your IMMEX license and make sure the process for you to start up operations in Mexico is as easy as possible.

 

       2. Establishing a Stand-Alone Operation

If you decide to establish a stand-alone operation to start up business in Mexico, you will be required to form of a new legal entity in Mexico and set up the administrative systems and hire the personnel or specialists to handle all the tax and compliance issues required by this. Depending on your goals and assets, a company may choose to outsource some or all of these tasks to local experts, including companies to help with site selection in Mexico to help you locate appropriate industrial real estate in Mexico. You can also choose to build your own administration team from the ground up, which, of course, requires a significant upfront investment and commits your company in the long term. This option is only advisable when you have a high level of confidence in the expertise and knowledge of your company to handle these complex issues.

 

       3. Finding a joint venture partnership.

Finding a Mexican company to join forces with is an option if you are looking to start up operations immediately and with a lower entrance cost. By forming a joint venture, you can leverage both company’s representatives, human capital, economic resources and intellectual property. On the other hand, with this option it essential that you carry out due diligence when it comes to the both your possible partner company as well as suppliers, and in regard to liabilities your company will incur. These include financial implications such as fiscal and profit sharing obligations your company will be subject to.

 

       4. Acquiring an existing operation.

Another option is to purchase an existing operation that, similar to a joint venture, also offers a low entrance cost, but can trigger other types of significant tax obligations, including VAT, income tax and profit-sharing. It ensures you have full control over your operations and carries the responsibilities and liabilities inherent to this regarding legal, labor, fiscal and other matters, including any issues caused or resulting from the previous owner’s non-compliance or omissions.

 

       5. Contract Manufacturing (Outsourcing)

Another option that may be attractive depending on your company’s long-term goals is outsourcing, also known as contract manufacturing. This allows you to take advantage of a local network and suppliers that are already in place and a low-cost entrance and easy start. With this option it is also a good idea to contact companies to help you choose the right provider, as you have no control over the outsourcers efficiency, quality, deliveries and production costs. Another risk of this option is that you will be required to hand over possibility sensitive information regarding your product and intellectual property.

 

Adán Gómez

By Adán Gómez | Business Development Director | American Industries Group®

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