3 Ways to Manufacture in Mexico

When it comes to being competitive on a global scale, many companies choose to manufacture in Mexico. But if you’re new to the process, you may be wondering what the best methods are. Fortunately, regardless of your unique situation or needs, you have options. 

Let’s look at the most popular ways to manufacture in Mexico and consider their pros and cons. Each method is right for some, but not all. Depending on your current needs, capacity, and desired outcome, you will probably find one of these options better suited for your company than the others. 

Let’s break each of them down one at a time.

Contract Manufacturing

Contract marketing is simply when one company contracts with another company to manufacture components or parts on their behalf. If your company has demand for a developed product but doesn’t have quite the infrastructure required to meet this need, contract manufacturing may make sense if you want to manufacture in Mexico.

This option enables companies to meet changing customer demand rapidly. Yet they don’t need the capital commitment required of a full-scale manufacturing facility in Mexico. Put simply, contract manufacturing is a very low-risk, cost-effective, and short-term investment.

Knowing when contract manufacturing in Mexico is right for you requires evaluation of the pros and cons. This specific option means:

• Greater efficiency and a smaller footprint
• Reduced control over the manufacturing process
• Minimal learning curve
• Fast startup (usually a few weeks)
• Greater risk of intellectual property violations
• Minimal or no regulatory risk
• Short-term over long-term savings
• High scalability and flexibility

If your business is small, prioritizes simplicity and convenience, and experiences frequent changes in product demand, then you may want to choose a quality contract manufacturer to open the benefits of Mexico to you. 

Open a Standalone Factory

Many companies opt to open a standalone factory in Mexico called a maquiladora. In a nutshell, a maquiladora is a factory that operates on a tariff-free or favored duty basis, while the parent company provides administrative support and oversight from within the US. Sometimes called maquilas, these factories are owned and operated by US companies who staff them with Mexican workers and import materials and export finished goods duty free or near duty free, providing certain restrictions and requirements are met. The company is responsible for all aspects of this factory just as they would be at home.

This method can be a very cost-effective way to manufacture in Mexico. Manufacturers can take advantage of Mexico’s lower cost of labor, free-trade savings, and reduced shipping costs in comparison with other outsource destinations. It further affords other pros and cons, depending on your company’s needs. For example, opening a standalone maquiladora in Mexico means:

• Maximum control over the process
• A more complex startup process and steeper learning curve
• Reduced risk of IP violations
• Less flexibility and maximum commitment
• Greater responsibility for regulatory compliance
• Long-term over short-term savings
• Longer startup times (typically measured in months)
• Incorporation in Mexico and other legal paperwork
• Direct link to domestic customers (important for expanding footprint in Mexico)

Partner with a Shelter Manufacturer

In short, shelter manufacturing is like taking a shortcut to unlock Mexico’s advantages. A shelter service is the owner of record for the Mexican factory, but the US company wanting to manufacture in Mexico controls the facility. The shelter service handles all administrative and regulatory issues, including labor relations, tariff certifications, government and tax reporting, and can even assist with site selection and more. 

In this way, this option is a turnkey process. Companies can skip ahead of the line and let the shelter company handle cultural and local matters, legal compliance, vendor and supplier networks, acquiring assets, and even logistics and freight considerations. The shelter service handles all the day-to-day processes, freeing up your company to focus on production quality.

There are many reasons companies benefit from choosing this third option, some of which include:

• Fast startup (as little as a few weeks)
• Minimal learning curve
• Greatly reduced tax exposure
• Full control over product design and quality
• Minimal IP risk
• A balance between flexibility and efficiency
• A combination of long-term and short-term savings
• Little to no regulatory risk
• Instant integration with and insider access to the local culture and networks
• No operational or maintenance hassle
• More available time for focusing on core goals

Using this option, companies may manufacture in Mexico as a division of the shelter company. The US manufacturer hits the ground running, already fully compliant with Mexican regulations and standards, and fully plugged in and equipped from the start with all the tools necessary for success.