Manufacturing in Mexico Podcast Tetakawi

In this episode of Tetakawi’s 'Manufacturing in Mexico' Podcast, host Ricardo Rascon is joined by industry expert David McQueen to delve into the dynamic growth of Mexico's manufacturing sector. With Foreign Direct Investment (FDI) in the sector reaching $19.1 billion in 2023, up significantly from previous years, the duo explores the burgeoning opportunities and emerging challenges in site selection for manufacturers looking to expand into Mexico.

Key Highlights:

Growth Drivers: David McQueen sheds light on the factors propelling Mexico's manufacturing sector, including lower costs compared to China, advantageous logistics due to the common border, ease of doing business, and a skilled workforce.

Capacity and Challenges: Despite the sector's rapid expansion, McQueen discusses the increasing difficulty in launching new facilities, especially in popular manufacturing locations. He highlights the challenges of higher real estate costs and manpower shortages, particularly in areas like Tijuana and Monterrey.

Advantages of Mexico's Workforce: The episode also touches on Mexico's unique position in the global labor market, with its organic population growth and deep industrial experience, providing a somewhat advantageous situation despite global manpower issues.

Emerging Locations: McQueen offers valuable insights into less popular or new manufacturing locations within Mexico that present viable alternatives to the more established industrial regions. He discusses the relative benefits of cities like Torreon, Hermosillo, Queretaro, Mazatlan, and Merida, considering factors such as labor availability, industrial base, and logistics.

Location Strategy: The conversation concludes with strategic advice for companies considering manufacturing in Mexico, emphasizing the importance of selecting a location that aligns with the company's critical success factors.

Closing Thoughts:

Ricardo and David wrap up the episode by stressing the critical nature of location decisions in the success of manufacturing operations in Mexico. They highlight the importance of thorough research and consultation to navigate the complex landscape of Mexico's manufacturing sector effectively.

Stay tuned for future episodes of our 'Manufacturing in Mexico' Podcast as we continue to explore the intricacies of Mexico’s manufacturing industry and provide you with the insights you need to make informed decisions about your expansion into Mexico.

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, David McQueen welcomes Leticia Rodriguez of The ILS Company to discuss the logistics and shipping considerations for manufacturing in Mexico.

To begin, Leticia explains what IMMEX is and how it affects shipping in Mexico. The IMMEX certification allows companies to manufacture in Mexico, import raw materials duty free and export their finished product. Companies are left with a tax advantage and the opportunity to take advantage of all the benefits Mexico has to offer. Then, hear how the Mexican trucking industry differs from trucking in the U.S. Leticia recommends you definitely have shipment and cargo insurance, even though it is not required by Mexican law. She is seeing the ports in Mexico become more and more saturated with shipments. Listen as Leticia shares about the best ports for businesses to consider depending on the shipment’s destination. Rail is another very popular mode of transport among industries.

After discussing the physical ways to move merchandise around, the conversation shifts to discussing customs and ports of entry. Looking at truck travel, Leticia outlines the best and most popular custom routes. Carrier rates are likely to be lower when passing through high volume ports, but crossing times are likely to be better when going through lower volume ports. So, what are the best practices for marking sure goods clear customs smoothly? Mexico is known for being very bureaucratic when it comes to incoming shipments. So, before shipping to Mexico, it’s important to have all of your goods inspected to make sure you are in the clear with the customs broker. Overall, you would be expected to prepare the same document for both entry and exiting Mexico. However, each port tends to have their own quirks and rules. By knowing the general process and inspection, you should be fine. Before wrapping up, Leticia sheds light on the most common mistakes she sees made when shipping goods into or out of Mexico. The biggest thing is to always let brokers know that their shipment is on its way. Finally, she urges listeners to always consult with someone who is familiar with the current terms of the business before starting to ship into or out of Mexico. This should ensure everything goes smoothly.

Thank you for joining us on our Manufacturing in Mexico Podcast!

In this episode, Ricardo Rascon welcomes back David McQueen to build on their previous conversations about manufacturing in Mexico. Today, they discuss the one-time start-up costs manufacturers must take into account when expanding into Mexico. David explains that there are generally 5 types of non-recurring costs for new operations to consider. These are legal and incorporation costs, leasehold improvements and facility expenses, regulatory fees and expenses, physical assets and the internal staffing and training costs.

The conversation begins with discussing legal and incorporation costs. First and foremost, founders need to know the types of entities you will require depending on the activities you will be engaging with in Mexico. Then, David highlights the two main types of IMMEX corporations for foreign countries. Generally, foreign entities can own as many Mexican corporations as they would like. Forming your company doesn’t have to be a great expense. You do, however, need to make sure that you have a competent Mexican accountant and legal assistant who have previous experience establishing foreign entities in Mexico. Next, David unpacks the Mexican facility upgrades which organizations will likely want to tackle. While some industrial park landlords will not finance any building improvements, others will finance a limited number of items. It may, however, be in your interest to directly pay for certain items which you can take with you after your lease. Other potential one-time costs include utility connection fees, gas and water fees, security bonds and more. Regulatory fees include wastewater fees, approval of your health and safety plans and development of fire prevention plans and training. While physical asset costs will vary, signage is a universal item to consider. Finally, David unpacks the costs associated with start-up and training. He emphasizes the importance of the initial investment in recruiting, testing and interviewing candidates. When it comes to brand new organizations, everybody top to bottom needs to be trained, largely in Spanish. In closing, he offers helpful guidelines for training strategies.

Thank you for joining us on our Manufacturing in Mexico Podcast!

For more information about manufacturing in Mexico visit our website: www.tetakawi.com

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!

Thank you for joining us on Manufacturing in Mexico!

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.

Thank you for joining us on Manufacturing in Mexico!

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