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In the ever-changing global economy, businesses are always looking for ways to maximize profits and minimize expenses. One of the ways they achieve this is by relocating their manufacturing operations to countries where labor and other costs are lower. Due to its proximity, lower labor costs, and favorable business environment, many US manufacturers have chosen relocating to Mexico.
However, relocating a manufacturing operation to Mexico in an effort to leverage the country’s many strategic benefits requires careful planning and consideration of various factors. Such a move involves significant changes in the existing business model, cost considerations, human resources, and other norms. Relocating to Mexico may prove highly advantageous, but it isn’t a simple matter.
It pays to understand crucial factors in play before investing in this profitable nearshoring option. When considering a move to Mexico, first prioritize research, exploration, and planning. Perhaps consult with a shelter service to guide you through the process.
In this article, we will break down the top 10 factors to consider for your business when relocating a US manufacturing operation to a plant in Mexico.
One of the main reasons US manufacturers relocate to Mexico is to take advantage of the lower labor costs. The average hourly wage in Mexico is significantly lower than in the United States. However, it’s important to note that wages are not the only cost associated with labor. Employers must also factor in the costs of benefits, training, and turnover rates.
Infrastructure is critical to a manufacturing operation, especially when manufacturing for export. It’s important to consider the infrastructure needs your company has. The infrastructure in your desired location may not reflect that of the highly developed infrastructure you are accustomed to in the US.
However, many areas in Mexico actually offer cutting-edge infrastructure, such as a high-capacity energy grid, water supply, rail and freight transportation, and state-of-the art telecommunications. But the quality and reliability of these services can vary greatly depending on the location of the plant, so it’s important to do your research.
If not planned carefully, relocating a manufacturing operation to Mexico can negatively impact the existing supply chain. It’s important to consider the impact on suppliers, customers, and transportation costs. Manufacturers must also ensure that they can get the raw materials and other inputs they need in a timely and cost-effective manner.
Regulations and taxes can vary significantly between the United States and Mexico. Manufacturers must ensure that they are in compliance with all relevant regulations and that they understand the tax implications of operating in Mexico. Failure to comply with regulations, such as the new CFDI 4.0 rules, can result in fines, delays, and other costly penalties.
Mexico has a reputation for crime and violence, which can be a concern for manufacturers. However, manufacturers can greatly improve occupational safety by taking certain steps for the good of their employees and the security of their facilities. This may include investing in security measures such as cameras, guards, and alarms.
The language and culture in Mexico are different from those in the United States. Manufacturers must ensure that they have effective communication channels in place to ensure that everyone understands expectations and goals. They may also need to provide training to help employees understand and adapt to cultural differences.
Mexico has experienced political instability in the past, which can be a concern for manufacturers. Yet recent elections and political developments have indicated an increasingly stable democratic situation in Mexico. Still, manufacturing business executives should understand the political climate in Mexico and discuss contingency plans should any disruptions occur.
Intellectual property protection in Mexico is different from protections in the United States. Still, experts and analysts find Mexican IP protections far superior to those of other popular manufacturing destinations like China. Investigate and thoroughly understand the protections in place for trademarks, patents, and copyrights to ensure a good fit for your products.
Like many other areas of working in Mexico, their labor laws differ from those in the United States. Manufacturers must ensure that they understand these laws and comply with them. Failure to comply with labor laws can result in hefty fines and penalties.
The skilled labor force in Mexico is highly trained to meet industry needs. Yet not every location is the same. Some Mexican areas may not boast an adequately skilled or specialized workforce to meet your needs. Manufacturers must ensure that they provide adequate training and development programs to their employees to ensure that they can perform their jobs effectively and safely.
It goes without saying, relocating to Mexico from a US manufacturing location is a lot of work and involves a real learning curve. Mexico can make a huge difference in profitability and sustainability for US manufacturing companies. Yet it requires careful planning and consideration of various factors, from working with a different workforce to reshaping your supply chain to understanding a whole new tax code and regulation structure.
Consider partnering with a shelter service to greatly simplify the process and shorten the learning curve. Relocating with a strategic partner can greatly improve profitability while minimizing the risks.