Manufacturing in Mexico
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Manufacturers are under increasing competitive and pricing pressures that require them to aggressively control and reduce costs. While this can be achieved through the implementation of lean manuacturing, consolidation and automation strategies,some firms seek to reach their goals through the shift of labor-intensive operations to lower cost countriessuch as Mexico.
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[edit] Advantages
Mexico’s low landed costs are attractive when considered in comparison to other developing country options. It is suited to serve as a manufacturing venue for short to medium-run products that have a high degree of engineered content. Its proximity to the United States enables technical and production personnel to coordinate activities to bridge temporal and physical distances. This nearness to market, as well as to the consumer base, also fulfills the just-in-time requirements of both. Additionally, Mexico’s efforts to enforce patent and intellectual property laws are advanced compared with those in place in other low-cost nations. Political risk associated with the country is minimal [1]
[edit] Methods
Manufacturing of a product in Mexico can be achieved in a number of ways.
[edit] Subcontract
Companies are well advised to consider the subcontract manufacture option when the work to be performed requires approximately 25 individuals or less, or is sporadic. Once this number is surpassed, other options would provide savings as a result of economies of scale derived from increased labor content.
Companies with high quality requirements must be certain to identify and work with firms capable of meeting and maintaining their exacting standards. If quality standards can be maintained, subcontract manufacturing can be the best option for firms seeking to manufacture product without making the large capital and organizational investment required on their own. Manufacturers with high intellectual property content must be assured that such property is protected.
[edit] Joint Venture
A second means by which manufacturers can set up operations in Mexico is through the establishment of a joint-venture agreement with an indigenous party. Joint venturing can be an effective means to achieving organizational goals given the local partner’s detailed knowledge of the market and its prevailing conditions. Relationships with firms that have established distribution channels may be of particular value to parties seeking to supply product to domestic markets.
Establishing and maintaining a joint-venture relationship can be challenging in that both parties must share a compatibility of organizational culture, as well as pursue similar goals and objectives. Encountering a partner with sufficient similarity of process and purpose can often prove to be a significant challenge.
[edit] Wholly-owned subsidiary
A firm can establish itself in Mexico through the formation of a wholly-owned subsidiary. As is the case with initiating operations in any foreign environment, this can be the most complex, costly and risk-laden alternative. In addition to committing the organization to the investment of “bricks and mortar,” the manufacturer must take the time, make the effort and assume the cost of assembling the skill sets required to navigate new waters. Expertise must be sought, acquired and retained in such diverse areas as labor law, environmental law, customs law, real estate law, etc. Although there is much involved with the establishment of a wholly owned subsidiary, it does enable the organization to have 100% control over all of its activities.
[edit] Manufacturing shelter
A fourth option for that allows firms to fully control their own production and quality, to benefit from the experience of an organization that knows the local market, and eliminates the need to make sizeable investments in physical and human assets is the manufacturing shelter. Working through a shelter service provider, foreign-based manufacturers are able to initiate operations quickly without actually establishing a legal presence in the country. They are in Mexico as a department of their chosen service provider. In essence, firms opting to use this vehicle are “sheltered” from many of the risks and liabilities that normally affect firms that choose to incorporate directly. Under the typical shelter arrangement, manufacturers send raw materials and supervisory personnel to train and manage workers, while the shelter company performs the tasks and functions that are not “core” to the manufacturing process. The manufacturer controls those areas that affect profitability and sustained growth. Shelter companies typically offer their clients services in some or all of the following areas: human resources, payroll and benefits administration, logistics, plant and park management, procurement, environmental and customs compliance, plant and park management, and real estate leasing. There are several reputable manufacturing shelters in Mexico. Amongst them are:
This is a value-added outsourcing arrangement in that it gives manufacturers a means by which to greater leverage core competencies and intellectual assets. An organization that does this becomes more nimble, and experiences faster and higher levels of innovation. Additionally this arrangement is attractive to firms seeking to pursue strategies of leveraged growth. As a manufacturer expands under a shelter arrangement, he absorbs only a portion of the additional overhead that that an expansion of activities requires.
[edit] Decision-making
When deciding how to establish manufacturing operations in Mexico, there several options that should be investigated. Companies must pursue strategies that are commensurate with their particular needs and circumstances, and make the choice that will most effectively enable them to accomplish their unique goals and objectives.
