Frequently Asked Questions and Answers About Manufacturing in Mexico As a Maquiladora

Empowering you with knowledge is TACNA's goal with this web page. Through answers to some frequently asked questions, FAQ's, about doing Manufacturing in Mexico, we hope to help you begin to evaluate, if Mexico manufacturing is right for you. While it is not perfect for everyone, there are significant advantages to manufacturing in Mexico as a Maquiladora.

What are the some advantages of manufacturing in Mexico?

For U.S. manufacturers, the most obvious advantage of doing business in Mexico is the increased profit from the much lower labor cost enjoyed just across the U.S. border in Mexico. Factory direct workers are paid a fully burdened wage rate in the low two dollar per hour range. Many U.S. factories have fully burdened labor cost in excess of $20 per hour. With just 100 positions moved, labor savings in excess of $3 million annually could be realized. Beyond labor savings, depending upon the circumstances, there can be other savings such as rent, utilities, duties, etc. Proximity to the U.S. vs. other off-shore locations results in substantial freight savings, administrative benefits, ease of coordination and simplified logistics. Many of these benefits are derived from operating in the same general time zones and hemisphere. For more on benefits of manufacturing in Mexico, see Why Mexico.

What is involved in starting a manufacturing business in Mexico?

There are many complex regulatory and other requirements which must be fulfilled in order to set up and operate in Mexico. Among them are establishing the legal entity, finding a facility, issuance of a maquila permit by the Mexican government, completing an environmental impact report, registration with federal, state and municipal agencies, contracting utility services, classifying all products through the Mexican and U.S. officials for import and export purposes and tracking of all inventory and equipment temporarily imported to Mexico, to name a few. Spend your time manufacturing, rather than, getting and staying up to speed on these regulations.  Outsource regulatory responsibility to TACNA.  For more information on starting a business in Mexico, see Our Roles or Mexico Consultation.

What kind of savings can I realistically expect?

Labor is the biggest savings with many companies saving 75% or more of their U.S. cost of labor for similar positions. Depending upon originating location, there can also be savings on rent, utilities or other costs. The actual savings are very much company specific. Click free pro-forma for a free confidential analysis which can help you much more accurately evaluate your potential savings. 

Can you explain the meaning of "Maquiladora"?

The word Maquiladora has become synonymous with manufacturing companies who produce primarily in the Mexico border region to take advantage of the low cost labor in close proximity to the United States markets. The term Maquiladora as it relates to manufacturing has its origins in a farmer having his grain ground at the local miller. The grinding fee was often paid for in the form of a portion of the grain ground. Similarly, a portion of the profits earned in Mexico with low cost labor are paid in the form of a sharing of profits with the employees. There are several other terms associated with manufacturing in Mexico. Among them are production sharing, co-production sharing, off-shoring, shelter services, off-shore manufacturing, twin plants and In-Bond.

How available is managerial and technical talent in Mexico, such as engineers?

Tijuana has the strongest manufacturing base of any Mexican city. To stay relevant, the Mexican Federal, State and municipal governments have invested in many technical training and college programs. Tijuana has 18 technical colleges and institutes, which put out thousands of trained engineering and other technical graduates each year. There are also active chapters of professional societies in Tijuana such as the American Society for Quality and the American Production Inventory Control Society. Many professionals have received training provided by their employers locally and abroad. In short, there is a broad pool of trained capable technicians and professional managers in the border region of Mexico.

How available is labor and what is the labor pool like?

Many of the companies moving to Mexico have had a substantial mix of Mexican laborers in their U.S. plants and are already accustomed to the hard work ethic and reliability of the Mexican workforce. Similar attributes exist within the Mexican workforce on the other side of the border. Mexico is a country with a population of over 100 million people. The birth rate is relatively high, keeping the workforce young and in steady supply. The border region typically pays a wage nearly double the minimum wage paid more inland in the country. This wage rate and opportunity attracts a plentiful supply of enthusiastic young capable workers to the border region for its relatively high paying Mexican jobs (low $2 per hour range)

How big do I have to be to utilize TACNA's service?

We are best equipped to serve companies who want to move between 25-500 positions to Mexico. Headcount is important to us because our Maquiladora contract fee is based on paid hours. Depending upon your growth plans and the nature of your operations, we may be able to help you, even if your size is smaller. Feel free to call us at (619) 661-1261 for a confidential discussion about the possibility of helping you set up and operate in Mexico. Our minimum Maquiladora contract fees are somewhat higher for smaller operations. For more information, see Why TACNA.

How available are buildings?

Mexican real estate developers are quite entrepreneurial and have found commercial real estate to be a good investment. Large US investment funds are also investing heavily in Mexico's border region. U.S. financing is also increasingly available in Mexico for buildings. Accordingly, high grade building space can typically be found at reasonable market prices rather quickly. Note that in most cases the landlord is responsible for the building shell and the tenant does all improvements. It is also possible to arrange for facilities on a build to suit basis.

How difficult is it to source English speaking managers?

In the border region it is not uncommon for supervisors and professionals to speak fluent English. Many children in Mexico's border region grow up watching American television and some are educated in U.S. schools. Further, most schools in Mexico would teach English as a foreign language. In short, skilled workers with moderate or better levels of English fluency are plentiful. 

Do immigration requirements exist for U.S. citizens traveling to the border on business?

With some limited restrictions, U.S. citizens can work in a Maquiladora manufacturing business. Visas are required and can be readily obtained with a passport and/or birth certificate at the border crossing for up to six month visits. It is also possible to obtain annual visas for longer-term workers or frequent visitors.  Surprise inspections are done in plants by the authorities, during which inspections, visas are checked. Doing business in Mexico without a valid visa is not advised. Penalties for noncompliance can be significant and typically include deportation. Many plants in Mexico have U.S. executives and technical personnel who live in the U.S. and commute to Mexico daily.

How long would it take to cross the border when visiting my Mexico operations?

Border crossing into Mexico is quick and simple. Returning to the U.S. can take as little as thirty minutes to more likely, an hour or more, because of much tighter controls for crossing back to the U.S. There is an option for shortening this crossing using an automated fast lane called "Sentri". Issuance of permits to travel in this much faster (10-20 minute) crossing lane can be obtained for a small fee, following a background check. Passengers riding in permitted Sentri lane cars can walk the last few hundred yards avoiding long waits in a car and can be met on the U.S. side. Beginning sometime in 2008, a valid passport will be required for a U.S. citizen returning to the U.S. In short, executives crossing the border in either direction can do so relatively quickly and simply.

Are there customs and duties implications to operating in Mexico?

Yes, not unlike the U.S., there are significant and intricate rules for what can be imported and exported and in some cases there are duty implications.  Under the North American Free Trade Agreement, NAFTA, many items manufactured in Mexico, the U.S. or Canada can be imported and exported duty free. There is still however significant control and tracking necessary for such items. Further, items exported to Mexico whose countries of origin are other than the NAFTA countries can be subject to significant duties. There are methodologies for reducing such duties for maquiladoras. TACNA helps its clients minimize, and in many cases, eliminate all duties. This is an intricate complex ongoing effort as companies and regulations continue to evolve. For further information see Our Roles.

How long does it take to cross the border with freight?

Freight crossings can be as short as an hour to as long as four to six hours. Typically commercial crossings are more time consuming near the end of a month and during holiday weeks. Morning crossings are less congested, so it would pay to arrange your shipping schedule for a morning crossing. Commercial crossings into Mexico are generally less time consuming than are crossings into the U.S. Government and business efforts are being made with technologies and other methodologies to reduce commercial freight crossing times while not compromising security in the U.S. TACNA can explain those programs to you and help you minimize commercial transit times.

Are there security issues I should be aware of in Mexico?

Like most large cities, Mexico's larger cities have some element of crime. The same is true for the border cities in Mexico. In the U.S., crime seems to be somewhat concentrated in gangs and the drug culture. The same is true in Mexico. In fact during late 2008 and early 2009 there was significant violence in Tijuana between warring drug gangs and the local police. This has since been brought under control through military and federal police intervention. This violence never spilled over in any significant way to the Maquiladora industry. If you are wise about whom you associate with and you do not frequent places where gangs and the drug culture congregate, you can be as safe in Mexico as traveling in the U.S. Our clients have not had issues with crimes committed against them. Our advice is-- recognize each time you cross the border that you are in a foreign country and be just a little more cautious.

Do I need Mexican Automobile Insurance to Drive in Mexico?

We strongly advise carrying a valid Mexican auto liability insurance policy with you while driving in Mexico. In case of an accident, many claims are settled on the spot by the insurance company. In some cases where accidents have occurred and insurance could not be proven, the driver was jailed until the claim could be settled.  It is wise to only drive in Mexico with a valid Mexican policy. One of our services includes obtaining such a policy for you. The annual cost of a liability policy is less than $200 per year. The policy insures the driver, whatever car he is driving.

Are there environmental regulations in Mexico? If so, how stringent are they?

Mexico has environmental regulations which are in many cases modeled after those in the United states. Not unlike the U.S. there are severe consequences and financial penalties for polluting the environment. Companies should not move to Mexico with the intent of finding a more relaxed regulatory government with respect to environmental matters. Each company coming to Mexico is required to complete an environmental impact study. TACNA's job is to help its clients understand and live within the laws of Mexico. In the event a fine were to be assessed, it would be a pass through cost. We only want to work with companies who plan to be environmentally responsible. 

May Foreigners own a Mexican corporation?

Yes, Ownership must be by at least two shareholders who are either individuals or corporations. Maquiladoras can be 100% owned by foreigners.

May foreigners own land and buildings in Mexico?

Yes, individuals can own land and buildings anywhere in Mexico, except within the "Prohibited Zone" 100km from the border and 60km from the coast. Within that zone, land for individuals is held in a 99 year trust, giving the individual effective ownership. Corporations do not have any restrictions on ownership. 

Am I able to be socially responsible while operating in Mexico?

Very much so!  The wage rate you will pay to lower level employees is approximately twice the minimum wage in Mexico. This wage rate would allow a worker to provide food and housing for themselves and their families at a reasonable standard of living customary in Mexico and a standard higher than the living standard in many third world countries. Your workers will be entitled to state provided medical care that is funded by the taxes the employer and employee pay on earnings. Additionally, most of our factories have visits from a doctor weekly who will see employees and consult with them on medical issues at the cost of the Company. There is an opportunity for the employee to purchase a small government subsidized home following his or her demonstrated stability in the workforce. This home is subsidized by a small employer tax. All this is included in the low fully burdened hourly rate of a little over two dollars per hour.

The Maquiladora industry is one of Mexico's larger sources of foreign currency and investment and has added significant strength to the Mexican economy.

While the work week at 48 hours per week is twenty percent longer than that of the U.S. standard work week, it is significantly less than the Chinese work weeks and sweat shop conditions the news media frequently reports about in Asian work environments. In contrast, Mexico's Maquiladora employees are healthy and happy and are earning a relatively high wage as compared to the standard of the third world. See separate Q&A discussion on environmental issues.

How do you charge for your Services?

Our fee is based on paid labor hours. The rate is higher for small groups of employees and declines as an operation grows in size. See also Why TACNA.

How much turnover exists in the workforce?

Not unlike any other area of the world, companies who establish a good work environment and motivate the employees enjoy high retention rates. Because jobs are plentiful in the border region, there is somewhat of a higher turnover rate than may exist in certain areas of the U.S. Employee attendance and punctuality is often encouraged with compensation structures such as a small attendance bonus and a punctuality bonus. Once employees demonstrate they can be successful in an operation, some employers grant step increases. Just like your employees in the U.S., Mexican workers are motivated by recognition for a job well done and Mexico market based reward, or compensation, commensurate with their relative contribution. Not unlike the U.S. turnover is much less during periods of recession such as 2009. In periods of high employment, turnover increases. When labor is plentiful at the border, workers gravitate from inland in the country for the higher paying maquiladora jobs at the border.

Is my intellectual property protected in Mexico?

The U.S. is by far Mexico's largest trading partner and a significant source of hard currency. That is not lost on the Mexican government and accordingly, Mexico has respected U.S. intellectual property rights and enforced such rights through its courts.  Some companies who once operated in Asia have not found the same to be true and have left Asia for Mexico for exactly that reason.

Does title to my property or inventory have to change when it is moved to Mexico?

No, your inventory and equipment continue to be owned by you. It is imported into Mexico on a temporary status basis. An import/export inventory record must be maintained for all equipment and inventory in the country under this temporary import status. This inventory tracking is one of the services provided by TACNA. Companies who are using their equipment or inventory as collateral on loans should review their loan documents for any restrictions before exporting the equipment or inventory to Mexico. Raw or semi-finished inventories may only stay in Mexico for 18 consecutive months.

What costs and other issues are involved in moving freight across the border?

In most cases, a Mexican and U.S. broker are used to move product or equipment in or out of Mexico. Costs vary depending upon what is moved. For example hazardous materials require a higher rate. TACNA can review the specifics of your inventory and equipment and give you a better sense of costs. Because TACNA does a great deal of business with its brokers, we have been able to negotiate favorable rates, which our clients benefit from. We also provide a consolidation function at TACNA's U.S. warehouse to minimize the number of Southbound crossings. Your vendors ship directly to our U.S. location and TACNA consolidates the entries for movement into Mexico saving you both incremental freight and brokerage fees. Freight costs from the U.S. border into Mexico run from a $100 to $200 per load depending upon size and frequency of movements.  Some carriers can pick up your load in the U.S. and take it directly into Mexico. TACNA also has a freight movement capability, allowing you to pay as little as half of the full freight costs, if loads are combined with others.

Are there restrictions on what can be imported into Mexico?

Import and export is a complicated area with many technical requirements for permitting, documentation and compliance. TACNA's job is to simplify and insulate you from those complications. Generally speaking, most items of U.S. or Canadian origin can be imported without significant restriction or duty. There are duty implications, which TACNA can help you minimize, for non NAFTA items.

Some other restrictions include restrictions regarding hazardous materials, which must be imported into Mexico with a specially qualified carrier and such movements are by appointment only. There are major restrictions on items, such as, firearms and radioactive materials. Because of a desire to promote Mexican business, there are also certain restrictions on some items that can be easily purchased in Mexico. For example, typewriters, mechanical scales, refrigerators, microwaves, shelving and office supplies. If a particular model of these products is critical to a production process, waivers can be obtained. Currently all large trucks driven in Mexico must be owned by a Mexican company or individual.

All items crossing the border in either direction are subject to inspection by both U.S. and Mexican authorities.

What, if any, special packaging requirements exist for items crossing the border?

Most wood packaging such as pallets must be heat or chemically treated to protect against transfer of living organisms across borders inside the wood. These packaging materials must be marked as treated. Liquid items must be packaged in a manner so as to prevent leakage in transit. TACNA can help you address specific questions related to your items to be imported or exported.

Can I sell my product directly in the Mexican market?

Maquiladora entities can sell to other Maquiladora entities with a documented transfer of the items sold for purposes of tracking the import/export inventory. This documentation is sometimes called an "inter-maquila transfer". If the Maquiladora entity sells directly within Mexico on a commercial basis, it risks losing its favorable tax status as a Maquiladora. Most companies who sell commercially in Mexico return the product to the U.S., then ship from the U.S. to their Mexican customers. This saves considerable income tax reporting complication and cost in Mexico.  Mexico does have certain favorable trade treaties with nations other than the U.S. or Canada. TACNA can work with you in evaluating methods for minimizing global duties for products made in your Mexican manufacturing location.

What taxes and licenses are required?

There are various license fees required, none of which are particularly significant. As an employer, you will be subject to employer payroll taxes which are included in the fully burdened labor rate mentioned previously. There is a value added tax called "IVA" which is eleven percent of value and is added on to the purchase price of items purchased in Mexico. Under certain circumstances some IVA may be credited back in the income tax calculation. This IVA rate is somewhat higher further inland in the country. There is also a corporate level tax which is calculated on the higher of asset values in the country multiplied by a tax rate or costs incurred in the country multiplied by a tax rate. This tax boils down to between one and two percent of asset values or cost, whichever yields the greater tax. There are some potential credits against this tax. Tax law changes typically are implemented at the beginning of each calendar year. TACNA's service includes dealing with this complex area, so you do not have to.

What is my personal and corporate liability in Mexico?

Our expectation is that we are doing business with people and companies who are good corporate citizens wherever they operate. We follow that law and expect the same of our clients. Depending upon how the entity is set up, both the U.S. entity and its owners can largely limit themselves from significant liabilities in Mexico. Generally speaking, the Mexican entity bears the liability risks for actions taken or not taken in Mexico.

Are factories unionized and, if so, are unions reasonable?

Most factories in Mexico are unionized. While any union is required and expected to look out for the interests of the employees, there are unions who take a more business minded approach and those who do not. TACNA registers a union who we have historically found to take a reasonable business minded approach,

Can I obtain insurance on my equipment and operations?

Yes! TACNA typically insures with large internationally recognized insurance companies. Typical risks insurable in the U.S. are insurable in Mexico. Rates for insurance in Mexico are similar to those of the United States. Some clients simply expand their existing insurance lines to cover operations in Mexico. We generally work with our clients to get quotes for both options. We require that our company to be named as an additional insured on your policy.

TACNA insures freight carried on its trucks to a maximum value of $50,000 for the entire load. If you require additional cargo insurance, TACNA can obtain quotes for you.

What materials and supplies can I buy in Mexico?

Mexico is an industrialized nation and produces many products. Further, there is a concentration of manufacturing along the U.S./Mexican Border. Given this concentration, there are many material and supply items available in Mexico. Pricing of such is generally competitive. TACNA can assist you in obtaining quotes in Mexico for such items. At a minimum, most companies usually buy all packaging and miscellaneous supply items in Mexico. There is a value added tax of 11% on items purchased in Mexico.

How long does is take to open a Mexican corporation and what does it cost?

We have opened many and it takes as little as a few weeks. You need an operating address to obtain the critical maquila permit. The cost is a few thousand dollars. Many operations in Mexico choose to have TACNA or its owners own the Mexican entity as insulation from liability in Mexico and to simplify U.S. tax reporting. You still maintain effective control of the plant and its operations in spite of TACNA's ownership of the Mexican corporation. TACNA's ownership of the corporation is an option, not a requirement.

What is involved in getting necessary permits?

Like any country, the regulatory process is somewhat unique, ever changing and complicated. TACNA's job is to simplify that complication for you. We obtain and maintain all necessary permits and help you comply with the laws in Mexico.

What kinds of buildings are available and what is their cost?

There is generally an adequate supply of buildings in the Tijuana Metro area. These range from first class new industrial parks with full infrastructure, to much older buildings in old neighborhoods. As of 2010, rents run from about $.30 per square foot to the mid $0.50 per square foot per month. Like elsewhere, rents are driven by demand, length of the contract, square footage rented and the financial strength of the tenant. Most contracts are denominated in U.S. dollars and have renewal and rent escalation clauses. Tenants are typically responsible for all improvements and the landlord's responsibility is limited to the roof, walls and plumbing. If the facility is in a remote location, it will be necessary to provide worker transportation as few direct level employees would have their own transportation.

Are Mexican operations receiving ISO or other certifications?

Yes, many plants in Mexico have ISO, QS, or other certifications. Employees and managers have often had detailed training in quality processes and compliance with tight certification programs. With the right management, supervision and training, certifications that are obtained elsewhere in the world can also be obtained and maintained in Mexico.

Can my test equipment be calibrated locally?

Yes, TACNA can source these and other manufacturing services. Service companies are readily available from multiple sources in metro regions such as Tijuana.

Can I ship my finished products directly from Mexico to customers?

Yes, with some limitations. TACNA's freight and traffic department can help you with these issues. UPS picks up and delivers in Mexico. Many companies who ship with UPS and FedEx or LTL carriers complete final packaging and labeling in Mexico, which includes all shipping documentation. They then ship on a consolidated basis across the border to save time and cost in shipping and a freight forwarder handles the freight on the U.S. side. TACNA can also help you with truckload and LTL quantities in terms of transit across the border and freight forwarding.

Mexico has favorable trade agreements with some other foreign countries. By shipping in bond through the U.S. to such foreign countries, substantial duties can be saved. TACNA can help you in minimizing duties inbound and outbound.

What would be the nature of my arrangement with TACNA?

TACNA operates on a contractual basis. The contract has an initial fixed period, after which it becomes evergreen with a notice period for termination by either party. It is rare that clients choose to take on the administrative burden of going it alone, but if someone wants to, we work closely with them to accommodate their desires. TACNA can also perform contract manufacturing services or administrative and consulting services for those companies, who do not, for whatever reason, want to take advantage of our full service offering. 

What is the process for moving goods back and forth across the border?

For Southbound shipments, most customers choose to consolidate their merchandise in our U.S. warehouse to minimize brokerage fees. For either Southbound or Northbound shipments, TACNA's U.S. and Mexican freight and customs teams prepare import/export entries from packing lists provided by you and your vendors. This documentation is submitted to U.S. and Mexican brokers, as necessary, and we coordinate with freight carriers to arrange freight as appropriate.

What kinds of companies does TACNA currently serve in Mexico?

TACNA's current and former clients fit among the following industries. Medical Products, Consumer Goods, Cosmetics, Industrial Hose, Magnetic Resonance Imaging Systems, Fireplace Logs, Power Distribution Units, Consumer Batteries, Sporting Goods, Sewing Operations, Parachute Manufacturing, Carpet Samples, Skate Boards, Surf Boards, Paint Rollers, Electronic Components, Cabinetry, Pizza Ovens, Aerospace, Printing and Publishing, Building Products, Pistol Grips, Pregnancy Testers, Artificial Fingernails, Camouflage Suits, Aircraft Valve Assemblies, Automotive and Truck Parts, Telephone Cabling Assemblies, Plastic Injection Molding, Steel Fabrication, Large Industrial Medical Transformers, Sand Paper Manufacturing, Ball Bearings, Silicone Hoses, Transformers, Magnetic Components, DC to DC Converters, automotive headers, pc boards and Window Shutters. We are capable of working with most manufactures

I have heard that I must export my manufacturing waste. Is that true?

Yes, for the most part. While some significant inert waste streams may be disposed of in Mexico, Mexico does not want to become the land fill for U.S. consumption. Most of the raw materials are imported from the U.S. and the scrap must be returned. This is simply one more reason to generate as little scrap as possible. Many manufactures are finding ways to reprocess their waste streams and there are authorized recyclers for many manufacturing waste streams who will pick up your scrap in Mexico and pay something for it. TACNA will help you manage this issue and minimize its impact.

Who actually employs the workers?

In most cases, technically speaking, they are TACNA employees, but they are assigned to your operation and work under your direction and requirements. You, or people you direct, make all hiring decisions, after candidates have been screened by TACNA.

How does NAFTA affect my imports and exports?

Products qualified under NAFTA are subject to preferential treatment and in most cases are not dutiable. With limited exceptions, products made in Mexico must be so marked. Marking requirements can be complicated.  Our customs experts can help you with marking requirements and minimize sensitivity to these important issues as well as help you comply with the requirements of NAFTA.

Disclaimer: the information in this and all other pages of this website is based on information at the time of its writing, it does not constitute legal advice, but, rather information gained from business experience. The site owner has no obligation to keep this site current for changes in laws or business practices.

Begin Enjoying the Benefits--Contact Us

Contact us for a confidential discussion or a free pro-forma savings analysis at 619-661-1261 or e-mail us at sales@tacna.net  Your e-mail address will not be sold or misused in any way. Discussions are confidential.