Manufacturing in Mexico Podcast: Recent Episodes
Tetakawi
Tetakawi's Manufacturing in Mexico Podcast is a platform where we talk to internal and external experts to provide you with news, insights, and best practices about doing business in Mexico. Whether you are thinking about expanding into Mexico or already there, this podcast will provide you with the information and advice you need to launch, operate, and thrive!
In this episode, Ricardo Rascon welcomes back David McQueen to discuss how to choose the right shelter service provider in Mexico. Prior to joining Tetakawi, David was the president of two Canadian companies who expanded into Mexico using shelter service providers.
To begin, David explains that Mexico’s shelter service program was set up over 30 years ago with the idea to provide foreign manufacturers with an easy way to operate in Mexico. It allows a foreign company to do most of the things they would do if they were independent, but they don’t have to have a permanent establishment. It begins with a contract which advises the Mexican government that this company will be coming in and operating. Shelter service clients are protected from liability of Mexican officials. In order to qualify for a shelter service, a company must be doing some kind of transformation of their products and meet the IMMEX standards.
Organizations can find a shelter service provider several different ways: searching online search engines, Mexico’s INDEX organization, through their own network, industry events and podcasts. There are currently 25 shelter providers in Mexico. A good starting point for finding a match is to begin searching within your company’s preferred general region. If you don’t have a specific region in mind yet, your best bet is to begin by speaking with the largest shelter service providers to get a better idea of their options. The first things you should find out from a potential provider is how big they are, where they provide services and what kinds of services are available. Most organizations want to operate within an area which is already prepared to cater to their specific expertise. You will also want to be sure a service provider has the proper talent in place to aid your operations. Next, David speaks to the costs of using Mexican shelter service providers. While shelter providers can often help identify providers, they are not directly involved in your business or familiar with your raw material costs. Costs, credit and payment terms will vary from shelter to shelter, so it’s important to discuss costs with your chosen provider. Transition contracts will typically end on the day stated on the initial contract. In other cases, a shelter provider may want to match the contract terms to the term of the real estate, typically 5-7 years. However, shorter term contracts are also available.
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Access this link to download our Buyers Guide to Choosing a Shelter Service Provider in Mexico: https://go.tetakawi.com/en/ebook/shelter-mexico-buyer-guide
In this episode, Ricardo Rascon and David McQueen build on their previous discussions about real estate and labor costs for manufacturers who expand to Mexico. In this conversation, Ricardo and David focus on other costs associated with manufacturing in Mexico: utilities, transportation, and more!
Starting with utilities costs, David clarifies that, for most companies, the utilities costs to be considered are electrical power, water, and possibly natural gas. Companies also need to plan for the costs of communications and services, which function a lot like utilities. Ricardo and David talk in the most depth about electrical service in Mexico, which is no different from that in the US in terms of voltage and frequency. The power quality is such that only the most sensitive applications will require power conditioning, up time is pretty good, outages are infrequent, and typical rates (through the main, state-run supplier, CFE) are comparable to or lower than rates in the US. To establish electrical power, a company must make sure to have adequate supply to its building, establish its peak demand, and evaluate transformer capacity. To connect machinery and equipment to its newly established power supply, the company will have to prepare a wiring plan for engineer approval before proceeding with connection to the power source. David explains the fees associated with the whole process of getting electrical power set up, including the bond CFE will ask for in order to get service started.
Moving forward, David addresses water, which is not very expensive in Mexico and follows similar discharge regulations as in the US, but can be a problem in terms of volume and availability and is generally not fit for drinking. Some companies may find themselves needing natural gas, and in this case they will have to deal with the distribution issues and possible connection fees, though cost is generally competitive. Regarding communications and systems, David notes that infrastructure in Mexico’s manufacturing regions is similar to that of the US. There is a whole range of available solutions, and some providers are the same as in the US.
Finally, David explains some other costs to consider before expanding into Mexico, such as employee transportation. Companies will also have to plan for the costs of goods and services, personal safety equipment, and the like, factoring in the relatively low cost of services and high cost of distribution. Startup costs must also be weighed, but that’s a topic for the next episode!
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In this episode, host Ricardo Rascon and David McQueen build on their previous conversation. After focusing in the last episode on manpower costs in Mexico, Ricardo and David shift their attention today to discussing real estate and building costs in Mexico.
To begin, David clarifies that foreign individuals and corporations can acquire and lease property or buildings just the same as Mexican nationals can. In some markets, however, commercial properties are closely held, and owners often favor leasing income over selling new real estate. The most common scenario for industrial manufacturing is in an industrial park. Typically, the shelter providers operating the park will offer a wide range of shared services for employees. He also shares what leases in Mexico look like compared to American ones. Then, David identifies the key things companies should look for when searching for a building or piece of land. In terms of cost, industrial facilities should consider proximity to unskilled labor, access to transportation lanes, security and services, and utilities. Generally, unskilled workers in Mexico are not very mobile. Mexican employers of choice are required to provide transportation for employees. When it comes to services and utilities, companies should be on the lookout for the availability of sufficient electricity, water, and gas. This includes what is provided in the building itself, as many will not have a significant amount of power. In most cases, a Class A building in Mexico will meet your requirements as an industrial user comparable to operations elsewhere in the world. Dave gives an overview of what these buildings typically look like.
Finally, David shares insight into what these spaces will probably cost. Like everywhere else, the location in Mexico really matters. Purchase prices will vary depending on the market and the condition of the location, but in many markets, you will find a decent industrial building for around $22 USD per square foot. In closing, he offers final advice for someone looking to purchase in Mexico.
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Links: Read this blog post to learn more about leasing industrial real estate in Mexico: https://insights.tetakawi.com/leasing-industrial-real-estate-in-mexico
In this episode, Ricardo Rascon and David McQueen, discuss the costs of manufacturing in Mexico and what information companies need to know about labor costs before starting projects there.
First, David discusses how the cost to manufacture in Mexico is closely tied to manpower. In Mexico, the labor law system is federal and you have to pay wages to employees in the form of pesos per day, not dollars per hour. The employer pays a rate per day that must equal or exceed the minimum wage, which could be around 172.87 pesos per day to 260.37 pesos per day on the border. Employees must work a certain percentage of days per week and the hours employees work are in the control of the employer. Another difference between the Mexican workforce is that employees work 48 hours per week, but they can’t overlap the night shift by more than 3 hours, otherwise, it is double pay. Employees can only work a maximum of 9 hours overtime per week and if overtime hours exceed that, then triple time applies. In addition, there is no temporary layoff in Mexico, but you have to terminate or retain employees. There is also no probation period for full-time employees, but contracts are restricted to a maximum of 6 months.
In addition, any termination of an employee in Mexico requires severance pay, which is excluded for violence and intoxication on the job. David uses the phrase “hire slowly, fire quickly” when discussing terminations in Mexico. He advises you to do your due diligence before you hire them, verify their suitability for the job, and hire a contract first if you can so you don’t have to pay severance. Ricardo and David also discuss how most employers in Mexico are unionized and how the government encourages unions in Mexico. David states that there is business versus conflict-oriented unions in Mexico, but that the goal of most unions in Mexico is to negotiate wages and benefits. David also discusses how skilled trades in Mexico are a little harder to classify and determine wages and skills for. He suggests validating qualifications and then paying accordingly. He estimates that unskilled workers are paid around $2.65-5.25 per hour, semi-skilled workers are compensated between $3.00-6.00 per hour and skilled trade is higher.
In conclusion, David states that in order to accurately estimate the salary of employees in Mexico, you first need to develop a staffing plan and a brief job description. Then, you will need to choose a location and consider the neighborhood and the kind of workers you will have (skilled or unskilled), and then get reliable help to have someone accurately estimate the cost of wages. He advises exploring all factors, and not just making decisions based on wages.
Links: Read this blog post about wages in Mexico to learn more: https://insights.tetakawi.com/wages-for-manufacturing-in-mexico
After focusing in the last episode on the different modes of entry for expanding into Mexico, Ricardo and David shift their attention today to where to manufacture in Mexico and how companies can work through the initial site selection process.
First, David identifies the most important criteria companies should take into account when choosing a manufacturing site in Mexico. These factors include accessibility, manpower services, customers, cost and security. Then, he divides the industrialized areas of Mexico into six options and provides pros and cons for each one. The first region is the one directly south of the U.S. border. Otherwise known as the border region, the proximity to the U.S. and high skill levels are its major benefits. Downsides include high expenses and security concerns. The northeastern area of Mexico has been industrialized for over a century. This region is the best option for companies who want to avoid the expenses and security risks of the border zone, but still want to be close to U.S. markets. Companies may consider the northwest region for its coastal logistics and low turnover rates, though there are fewer workers and customers within close proximity. Bajío is a region north of Mexico City which is rapidly growing and attracting more attention for its excellent access to Mexican markets and both ports. The southeast region has long term established infrastructure and skills. Guadalajara is the second-largest metropolitan area in Mexico and is known as the Silicon Valley of Mexico, focusing on electronics, software and computing.
Now that we’ve identified the six major areas in Mexico, David explains an effective process companies should follow in order to choose the right location for them. They should consider individually the factors of logistics, manpower, competition, local wage and benefit costs, security, and accessibility. Finally, he shares the best people to ask for advice before making a final decision.
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Links: Visit our website (www.tetakawi.com) to learn more.
In this episode, Ricardo Rascon welcomes back David McQueen to build on their previous conversation. After focusing in the last episode on why expanding into Mexico might make sense for your company, Ricardo and David shift their attention today to how a company can get started with this expansion process. They discuss modes of entry to consider, factors to weigh in choosing one, and David's own experience and advice to manufacturing leaders!
There are several modes of entry for manufacturing companies to consider as they move toward expanding into Mexico: subcontracting, joint ventures & acquisitions, incorporation, and the shelter. In order to determine which mode to pursue, companies should bear in mind the five factors of risk (including technological and/or financial risk), cost (investment and operational), speed to market, production control, and feasibility and viability. David considers each mode of entry in turn and explores how it relates to the decisional factors companies should be weighing. Subcontracting, he shares, represents a low-cost and low-risk option, but raises the challenge of identifying and qualifying subcontracting partners. Joint ventures and acquisitions are a good path for companies with existing trustworthy partner relationships, but this mode of entry requires a good deal of due diligence. The incorporation process is similar in the US and Mexico, but companies can err by incorporating too hastily or by missing the purpose and subtleties of the incorporation model.
The shelter mode of entry is unique to Mexico, and it allows foreign manufacturing companies to enter the Mexican market with limited dealings with legal and regulatory issues. The company must be eligible for IMMEX and come under the shelter of an IMMEX partner, and the arrangement effectively outsources administration to the shelter company. After offering further comments on when a shelter model does and doesn't make sense to adopt, David explains his own experience leading two Canadian companies that expanded into Mexico and shares parting advice with listeners looking to take next steps in a similar expansion process.
Thank you for joining us on Manufacturing in Mexico! Don’t miss our upcoming episode, which will focus on how to choose the right location for expanding into Mexico!
In Episode 1 of Tetakawi's Manufacturing in Mexico Podcast, David McQueen and Ricardo Rascon discuss five reasons companies should consider manufacturing in Mexico. They touch on workforce characteristics, logistics, trade barriers, market access, and operating cost.
On top of everything else companies have to worry about in terms of tariffs and geopolitical risks, they now have to consider pandemics as a threat to supply chains. Based on the interactions had by the team at Tetakawi, many companies seem to be putting Mexico at the forefront of their strategies. First, David identifies five critical factors critical in choosing a manufacturer: manpower, logistics, trade barriers, market access, and operating costs.
Beginning with manpower, David highlights the expansive pool of available labor in Mexico. In addition to considering the ability to hire manpower now and in the future, companies also need to be able to retain the people they have hired and ensure their workforce remains engaged and productive. Many industrialized regions of Mexico have an abundance of people equipped with the experience and training needed in manufacturing skills. The border Mexico shares with the U.S. gives them an important advantage in terms of logistics, expanding into the modern highways and rail systems. Addressing trade barriers, David reveals that Mexico has more free trade agreements than any other country. Additionally, their involvement in the USMCA Trade Zone provides the best possible access to Canada and the U.S. In fact, Mexico is far more likely to offer secure access to the U.S. than most other low-cost countries for the foreseeable future. Speaking of market access, Mexico has large manufacturing clusters in many different industries. Finally, David discusses Mexico's competitive edge regarding manufacturing costs. As this episode draws to a close, David touches on a few other benefits Mexico offers: affordability of electricity and natural gas, an agreeable climate, and intellectual property protection.
Thank you for joining us on Manufacturing in Mexico! Don't miss our upcoming episodes, where we'll discuss gateways to entry and how to select a location in Mexico.